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Transition Series 1992 [6 of 7]
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Transition Series 1992 [6 of 7]
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Transition Series 1992 [6 of 7]
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United States General Accounting Office
GAO
Transition Series
December 1992
Veterans Affairs Issues
UNITED STATES
GENERN ACCOUNTING OFFICE
GAO/OCG-93-21TR
GAO
United States
General Accounting Office
Washington, D.C. 20548
Comptroller General
of the United States
December 1992
The Speaker of the House of Representatives
The Majority Leader of the Senate
In response to your request, this transition series report discusses
major policy and management issues facing the Congress and new
administration in the area of veterans affairs. Since we issued our
1988 transition series report, the Department of Veterans Affairs has
made progress in (1) developing a strategic management process, (2)
preparing and auditing financial statements, and (3) modernizing its
information resources. Further actions are needed, however, to
enhance the Department's strategic and operational management.
This report also discusses our view that the size of the budget deficit
and the prospects for national health care reform require a
comprehensive reevaluation of veterans' health and compensation
benefits.
The GAO products upon which this report is based are listed at the
end of the report.
We are also sending copies of this report to the President-elect, the
Republican leadership of the Congress, the appropriate congressional
committees, and the Secretary-designate of Veterans Affairs.
Chades A. Bousher
Charles A. Bowsher
Contents
Veterans Affairs
4
Issues
Enhancing
7
Strategic
Management
Strengthening
12
Operational
Management
Assessing the
20
Future Structure
of Veterans'
Benefits
Related GAO
26
Products
Transition Series
29
Page 2
GAO/OCG-93-21TR Veterans Affairs Issues
Page 3
GAO/OCG-93-21TR Veterans Affairs Issues
Veterans Affairs Issues
The Department of Veterans Affairs (VA) has
a profound effect on the welfare of our
nation's 27 million veterans. VA'S 227,000
workers-nearly 1 for every 120
veterans-deliver a wide array of medical,
disability compensation, pension, housing,
insurance, education, and burial services in
more than 1,000 facilities at an annual cost
of $34 billion.
Efforts to contain the rising federal deficit
will likely mean that VA, like other
government entities, will have to operate its
programs and activities with increasingly
constrained resources. VA has numerous
opportunities to operate more cost
effectively, thereby saving hundreds
of millions of dollars while preserving or
enhancing the quality of services it provides
to veterans. For example, VA now recovers
more than $400 million a year through
improved billing and collection procedures
for health care. Millions more dollars are
lost, however, because VA has not
established procedures to verify veterans'
reported incomes. If VA is to take advantage
of opportunities to improve its cost
effectiveness, it must substantially improve
its efforts to ensure the timely development
and systemwide implementation of policies
to correct identified operational problems.
Page 4
GAO/OCG-93-21TR Veterans Affairs Issues
Veterans Affairs Issues
VA and the Congress are likely to face several
fundamental policy decisions about the
future structure of veterans' benefits. The
most significant challenge facing VA could be
national health reform. For example,
universal coverage could create excess
capacity by reducing demand for inpatient
care in VA'S $15 billion health care system by
almost 50 percent. This could offer the
potential to (1) reduce substantially the
overall size and cost of the system and
(2) limit VA'S approximately
$500 million-a-year health facilities
construction program. Similarly, decisions
may need to be made on whether to provide
disability compensation only to veterans
whose disabilities were clearly caused by
their military service. About 19 percent of
the approximately $10 billion paid in
disability compensation now goes to
compensate veterans for diseases related to
heredity or life-style rather than military
service. Other challenges for VA'S
management include how best to serve an
aging veteran population and how to fully
incorporate evolving medical treatment
patterns and innovative claims-processing
technologies into the Department's
operations. Meeting all of these challenges
will require VA to complete the strategic
Page 5
GAO/OCG-93-21TR Veterans Affairs Issues
Veterans Affairs Issues
management process it started under the
previous administration.
Page 6
GAO/OCG-93-21TR Veterans Affairs Issues
Enhancing Strategic Management
As we reported in August 1990, the Secretary
of Veterans Affairs initiated strategic
management departmentwide. He stated that
the goals of this initiative would be to
provide the most compassionate and
highest-quality service to veterans and their
families and become the best-managed
federal service organization-a leader in
total quality management. Implementation of
strategic management is incomplete,
however, and achievement of the
Department's goals is in jeopardy. To
complete implementation, VA will need to
integrate the planning of its three largely
autonomous components -the Veterans
Health Administration, Veterans Benefits
Administration, and the National Cemetery
System-into the Department's overall
strategic management;
develop a more forward-looking, proactive
approach to human resource management;
integrate its information systems; and
continue efforts to strengthen financial
management through preparation of audited
financial statements.
Page 7
GAO/OCG-93-21TR Veterans Affairs Issues
Enhancing Strategic Management
Integrating
Strategic management should drive other
Planning
planning and unify departmental
Processes
management. Strategic planning and
decision-making are fragmented among va's
three components, however, with little
involvement by the Secretary. For example,
the Veterans Health Administration recently
implemented a new planning process
independent of Secretarial-level planning.
Moreover, va's annual internal budget
process is largely unconnected with the
strategic management process. As a result,
va's strategic management will not provide
the Secretary with a framework for shaping
the future direction of va's activities. VA'S top
management needs to continue the previous
Secretary's initiative to develop VA'S strategic
management, integrate the plans of the three
components into that process, and
periodically assess how each phase of the
process can be enhanced.
Strengthening
In a labor-intensive service organization
Human Resource
such as VA, employees are key to achieving
Management
management's stated goals of providing
high-quality services to its beneficiaries and
making the Department the best-managed
service delivery organization in the federal
sector. Therefore, VA needs effective human
resource management focused on such
Page 8
GAO/OCG-93-21TR Veterans Affairs Issues
Enhancing Strategic Management
activities as staffing, employee development,
appraisal, and rewards.
VA'S traditional approach to personnel
management emphasizes compliance with
procedural requirements. Although
important, such emphasis can limit an
agency's ability to develop plans for adapting
to change. In recent years, VA has had
difficulty dealing with emerging human
resource management challenges. For
example, it lagged behind the private sector
in competing for nursing personnel during
the severe shortage in the 1980s.
Developing a forward-looking, proactive
approach to human resource management
would allow VA to use human resource
planning to focus attention on the personnel
dimensions of its operations. For example,
the trend in the medical community of
shifting emphasis from inpatient to
outpatient care will undoubtedly require
staff with a different mix of jobs and skills.
Similarly, efforts to modernize claims
processing for veterans' compensation and
pension benefits could create a need to
retrain VA staff.
With effective human resource management,
VA will be able to (1) better anticipate
Page 9
GAO/OCG-93-21TR Veterans Affairs Issues
Enhancing Strategic Management
emerging labor force issues before they
become crises and (2) help line managers
identify human resource needs and
determine what actions to take so that
enough employees with the right skills are
available when and where they are needed to
accomplish goals.
Integrating
Major improvements in both the quality of
Information
va's services and the efficiency with which
Systems
they are provided depend, as we pointed out
in our 1988 transition series report, on VA
managers' ability to get the right information
at the right time. VA has embarked on major
systems-modernization efforts to improve its
medical and benefit services.
The effectiveness of these efforts is
diminished, however, because VA has not
integrated currently separate information
systems into a system capable of sharing and
permitting access to data across all program
areas. va's recent purchase of computer
hardware and software for a modernized
benefits system may result in a system that
requires future replacement because of
limited capability, inability to perform as
needed, or both.
Page 10
GAO/OCG-93-21TR Veterans Affairs Issues
Enhancing Strategic Management
Strengthening
VA has been a leader in attempts to
Financial
strengthen federal financial management,
Management
preparing audited financial statements for
1990 and 1991 as required under the Chief
Financial Officers Act of 1990. These
statements are included in an annual report
assessing the overall soundness of VA'S
financial management and the effectiveness
of its internal controls.
Through this effort, VA has identified a
number of improvements needed in its
financial management. For example, an audit
of VA'S 1991 financial statements identified
several weaknesses in accounting systems,
inadequate physical controls over fixed
assets and inventory, and improper
calculation of future liability for
compensation and pension benefits. VA'S new
Chief Financial Officer should focus special
attention on these issues as VA improves its
financial management activities.
Page 11
GAO/OCG-93-21TR Veterans Affairs Issues
Strengthening Operational Management
Linked to strategic management is the need
for VA to improve its management of
departmental operations. Numerous
legislative initiatives are unnecessarily
delayed, and identified operational problems
have gone unresolved for too long. These
delays occur because va's central office is, at
times, slow to establish operational policies
and ensure that such policies are carried out
appropriately and consistently by field
facilities.
Implementing
Field facilities either delay implementation
Legislative
of new legislative initiatives or implement
Initiatives
them inconsistently because VA'S central
office does not provide them with timely
policy guidance. For example, VA took more
than 11 years to finalize procedures to
implement a 1980 legislative change. This
change expanded the focus of VA'S vocational
rehabilitation program to emphasize
assisting veterans in finding jobs as well as
providing training. We found that many
veterans dropped out of the program without
finding suitable jobs.
Slow development of policies also cost VA an
opportunity to use temporary legislative
authority to strengthen its collection of
copayments for medical care. The Congress
Page 12
GAO/OCG-93-21TR Veterans Affairs Issues
Strengthening Operational Management
gave VA authority to use tax records to verify
veterans' reported incomes during 1991 and
1992. Because VA did not develop a
verification system, it lost an estimated
$120 million in copayment revenues for
veterans who underreported their incomes
to VA. The Congress has recently extended
VA'S authority to use tax records for an
additional 5 years. VA now needs to move
quickly to develop and implement policies
for using tax records to verify veterans'
reported incomes.
Inadequate policy guidance has also resulted
in field facilities' inappropriately
purchasing millions of dollars worth of
medical care from private providers. More
than 15 years ago, the Congress authorized
VA to make such purchases if the care could
be purchased more economically than VA
could provide it. Field facilities are
purchasing care without making this
determination because VA has not provided
clear guidance on how cost comparisons are
to be made. VA expects to provide the needed
guidance to field facilities by early 1993.
Field facilities developed their own
interpretations of how a 1986 legislative
initiative should be implemented because VA
did not provide adequate policy guidance. In
Page 13
GAO/OCG-93-21TR Veterans Affairs Issues
Strengthening Operational Management
that year, the Congress authorized VA to
exempt veterans who were exposed to Agent
Orange from copayment liabilities if they
were receiving medical care for a condition
possibly caused by Agent Orange. Without
guidance on how to make this
determination, facilities followed policies
that ranged from exempting all Vietnam
veterans to exempting none, thus providing
inequitable benefits to veterans whose cases
were similar. VA has said it will correct this
problem by early 1993.
Addressing
va's delays in issuing policy guidance have
Operational
also impeded correction of identified
Problems
operating deficiencies. We and others have
frequently recommended ways that VA could
improve its systems for delivering medical
care and processing disability claims. While
VA generally responds favorably to such
suggestions, its central office is sometimes
slow to develop the guidance needed to
realize service improvements and cost
savings.
A year ago, we recommended that VA
modernize its mail-service pharmacies. We
found that VA operates too many pharmacies,
resulting in uneconomical dispensing
practices and labor-intensive processing of
Page 14
GAO/OCG-93-21TR Veterans Affairs Issues
Strengthening Operational Management
veterans' prescriptions. VA has recently
devised a strategy for consolidating and
automating its pharmacy operations, but
systemwide pharmacy modernization
remains several years away. The timely
implementation of this modernization offers
VA a unique opportunity to substantially
improve an important service to veterans
while saving millions of dollars in operating
costs.
In 1990, the Secretary of Veterans Affairs
called for fundamental changes in the way VA
provides compensation benefit services to
veterans. However, VA'S central office has
not developed new policies, primarily
because it is unsure of what inefficiencies
are causing its benefit-claims processes to be
burdensome for both VA and claimants. VA
could enhance its efforts to improve claims
processing by developing a comprehensive
approach for determining veterans'
service-delivery needs and eliminating
barriers to speedy claims resolution. Once
this was accomplished, VA would be in a
position to develop policies to achieve the
Secretary's objectives.
Over the last few years, we have
recommended numerous ways that VA could
increase its recovery of medical care costs
Page 15
GAO/OCG-93-21TR Veterans Affairs Issues
Strengthening Operational Management
through improved billing and collection
procedures. VA has doubled the amount it
has recovered from less than $200 million to
more than $400 million by developing
policies to implement some of our
recommended actions. However, VA can
accomplish much more. For example, VA is
still routinely billing too many veterans for
copayments rather than collecting the
payments when veterans receive care. VA
also has not developed a standard form that
billing clerks can use to determine veterans'
copayment charges. Timely development of
policies to correct these and other identified
inefficiencies are needed if va's recovery of
medical care costs is to realize its full
potential.
VA also faces the challenge of developing a
system for verifying unreimbursed medical
expenses that veterans who receive VA
pensions report to VA. Veterans may use
these expenses to offset income that is used
to determine pension eligibility. In 1991, we
reported that VA does not know
whether millions of dollars in reported
medical expenses are valid. VA is currently
developing verification procedures, and it
needs to ensure that these procedures are
completed and distributed in a timely
manner to field facilities.
Page 16
GAO/OCG-93-21TR Veterans Affairs Issues
Strengthening Operational Management
Monitoring Policy
Under VA'S decentralized management
Implementation
structure, as we noted in our 1988 transition
series report, systems need to be in place to
enable managers in VA'S central office to
monitor field facilities to ensure that
veterans receive high-quality services.
When va's central office has monitored field
facilities' operations, it has been able to
make progress in ensuring that its policies
have been implemented and problems
corrected. For example, systemwide
improvements resulted when the central
office became actively involved in ensuring
that medical facilities properly validated the
credentials of their physicians, controlled
inventories of addictive prescription drugs,
and prepared for surveys conducted by the
Joint Commission on Accreditation of
Healthcare Organizations.
But the above examples represent focused
initiatives to follow up on specific, identified
problems. They do not represent a
systematic approach to policy
implementation. Because VA'S central office
does not routinely follow up to determine
whether its directives are followed, many
problems remain uncorrected. For example:
Page 17
GAO/OCG-93-21TR Veterans Affairs Issues
Strengthening Operational Management
Many of va's problems-identified in
1982-in meeting the health care needs of
women veterans still exist more than 10
years later. va's central office directed
medical facilities to identify and correct
physical barriers to women's access (such as
lack of private rooms or separate bathroom
facilities) but did not follow up to see that
these barriers were removed. Similarly,
facilities were directed to provide women
with thorough physical examinations, but no
follow-up took place to ensure that they did
so.
VA does not know whether medical facilities
are setting accurate salary rates under its
recently implemented location-based pay
system for nurses. This is because VA has not
monitored most medical facilities'
implementation of the guidance provided by
the central office. As a result, numerous
internal control weaknesses exist in a
rate-setting system that affects about
15 percent of va's health care budget.
As we stated in our 1988 transition series
report, resident physicians are inadequately
supervised at many VA facilities. VA'S central
office agreed with recommendations we
made in 1986 to improve supervision and
issued guidance to its medical facilities that
Page 18
GAO/OCG-93-21TR Veterans Affairs Issues
Strengthening Operational Management
was intended to help ensure adequate
supervision of residents. In 1991, however,
we found that many medical centers were
not following the guidance.
VA needs a monitoring system that
encourages medical centers to follow up to
see that identified problems are corrected.
As initial steps, VA will need to (1) establish
more accountability on the part of the
facilities' directors for problem resolution
and (2) strengthen its oversight of their
corrective actions.
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GAO/OCG-93-21TR Veterans Affairs Issues
Assessing the Future Structure of
Veterans' Benefits
The Congress and the administration will be
facing two major struggles-the deficit and
health care reform-that could have a
dramatic effect on the structure of veterans'
benefits. In developing its strategic plans, VA
needs to consider such things as (1) its role
under reformed national health care, (2) how
VA'S health care eligibility and benefits can
be restructured to enable more veterans to
be served with limited resources, and (3)
how VA'S disability compensation benefits
can be reformed to ensure that VA'S limited
resources are targeted to the most deserving.
Planning VA's
As the new administration's plans to reform
Role Under
the health care system unfold, they will
Reformed
undoubtedly have a significant impact on VA.
National Health
Any program that would expand health
Care
insurance coverage could substantially
reduce the demand for VA-sponsored care.
This is because veterans without health
insurance are much more likely to use VA
services than veterans with other health care
options. For example, we estimate that
enactment of nationwide
employer-mandated health insurance would
lower demand for inpatient care in VA
facilities by about 18 percent. Passage of
universal coverage would reduce demand by
almost 50 percent. Lower demand for VA care
Page 20
GAO/OCG-93-21TR Veterans Affairs Issues
Assessing the Future Structure of
Veterans' Benefits
could reduce VA'S operating costs by shifting
a portion of the costs of veterans' health care
to employers or a new universal insurance
program.
Actions that reduce the number of uninsured
veterans are also likely to create excess
capacity in existing facilities and reduce the
need for new VA construction. In recognition
of this, the Congress and VA might want to
consider limiting construction of additional
acute care capacity until the reformed health
care system takes shape. This would (1) free
up funds for deficit reduction without
affecting current VA health care services, and
(2) prevent construction of facilities that
could quickly lead to excess capacity. VA
currently spends about $500 million a year
on construction and renovation of health
facilities.
Although many veterans would continue to
seek treatment at VA facilities, the magnitude
of the likely decrease in demand for
VA-sponsored care suggests that plans for
restructuring the VA health care system be
developed as a part of a national health care
reform initiative. Restructuring could
include:
Page 21
GAO/OCG-93-21TR Veterans Affairs Issues
Assessing the Future Structure of
Veterans' Benefits
maintaining a smaller direct delivery system
strictly for veterans, but focusing on those
services, such as treatment of spinal cord
injuries and service-connected disabilities,
which may not be adequately covered under
a reformed national health care system;
maintaining the current direct delivery
system but opening the system to other
federal beneficiaries to maintain work loads;
converting some existing facilities to other
uses such as long-term psychiatric care,
nursing home care, housing for homeless
veterans, or AIDS treatment facilities;
merging the VA system with one or more of
the other federal health care systems, such
as that of the Department of Defense; or
eliminating the separate VA health care
system and meeting the nation's
commitment to veterans by supplementing
the coverage available under a national
health care reform initiative.
Restructuring
Any restructuring of the VA system resulting
Veterans' Health
from a reformed national health care system
Care Benefits
would likely necessitate changes in VA
eligibility and benefits. VA would need to
Page 22
GAO/OCG-93-21TR Veterans Affairs Issues
Assessing the Future Structure of
Veterans' Benefits
restructure (1) eligibility to better target
resources to veterans without other sources
of care and (2) benefits to better serve
veterans with VA'S limited resources.
The Secretary of Veterans Affairs took an
important step in this direction through
appointment of a Commission on the Future
Structure of Veterans Health Care. The
commission, in its November 1991 report,
made several recommendations for
restructuring VA eligibility and benefits.
Among other things, the commission
recommended reforming health care
eligibility to remove differences in eligibility
for inpatient, outpatient, and long-term care
and providing service-connected and poor
veterans with a full range of needed health
care services.
The commission's recommendations will
likely be the subject of debate during the
next year as legislative proposals are
submitted. Refocusing veterans' health
benefits to better serve those who need help
the most and developing a standard, easily
understandable "benefit package" could
enable the Department to make better use of
its available resources. VA'S eligibility reform
efforts could also position the Department to
adjust veterans' benefits, as needed, to
Page 23
GAO/OCG-93-21TR Veterans Affairs Issues
Assessing the Future Structure of
Veterans' Benefits
respond to a national health care reform
initiative.
Another reform measure that could enable
VA to serve more veterans with available
resources involves changing cost sharing.
For example, states, more than the federal
government, are focusing on ways to serve
more nursing home patients with available
resources by increasing cost sharing. Many
states have implemented or increased
copayments for state veterans' home
residents. Similarly, many states have
programs to recover a portion of their costs
to provide nursing home care to Medicaid
recipients from the estates of the recipients
or their spouses. Application of such
cost-sharing techniques to VA'S long-term
care program could enable VA to provide
services to more veterans.
Reforming
The federal deficit increases pressure to
Veterans'
control entitlement expenditures. At the
Compensation
same time, adequate benefits must be
Benefits
provided to veterans and their survivors. The
Congress and VA are considering ways to
reform veterans' eligibility for compensation
and pension benefits and the level of
benefits available.
Page 24
GAO/OCG-93-21TR Veterans Affairs Issues
Assessing the Future Structure of
Veterans' Benefits
One such reform could be changing the
definition of a service-connected disability to
require a direct causal link to military
service. About 19 percent of veterans
receiving VA disability compensation, under
current law, have disabilities resulting from
diseases contracted during military service
that were neither caused nor aggravated by
military service. Many of the diseases were
related to heredity or life-style rather than to
military service. We estimate that VA benefits
paid for these types of disabling diseases
totaled about $1.7 billion in 1986. Limiting
disability compensation to those veterans
whose disabilities were clearly caused by
their military service could enable the
Congress to control entitlement
expenditures without penalizing veterans
disabled because of their service.
Page 25
GAO/OCG-93-21TR Veterans Affairs Issues
Related GAO Products
Enhancing
Veterans' Benefits: Acquisition of
Strategic
Information Resources for Modernization Is
Management
Premature (GAO/IMTEC-93-6, Nov. 4, 1992).
Financial Management: Factors VA Needs to
Consider in Implementing the Chief
Financial Officers Act of 1990 (GAO/AFMD-91-37,
July 23, 1991).
Management of VA: Implementing Strategic
Management Process Would Improve
Service to Veterans (GAO/HRD-90-109, Aug. 31,
1990).
Veterans Affairs Issues (GAO/OCG-89-14TR, Nov.
1988).
Strengthening
VA Health Care: Use of Private Providers
Operational
Should Be Better Controlled (GAO/HRD-92-109,
Management
Sept. 28, 1992).
VA Health Care: Verifying Veterans' Reported
Income Could Generate Millions in
Copayment Revenues (GAO/HRD-92-159,
Sept. 15, 1992).
Vocational Rehabilitation: Better VA
Management Needed to Help Disabled
Veterans Find Jobs (GAO/HRD-92-100, Sept. 4,
1992).
Page 26
GAO/OCG-93-21TR Veterans Affairs Issues
Related GAO Products
VA Health Care: Copayment Exemption
Procedures Should Be Improved
(GAO/HRD-92-77, June 24, 1992).
VA Health Care: The Quality of Care Provided
by Some VA Psychiatric Hospitals Is
Inadequate (GAO/HRD-92-17, Apr. 22, 1992).
VA Health Care for Women: Despite Progress,
Improvements Needed (GAO/HRD-92-23, Jan. 23,
1992).
VA Health Care: Modernizing VA'S
Mail-Service Pharmacies Should Save
Millions of Dollars (GAO/HRD-92-30, Jan. 22,
1992).
Veterans' Benefits: VA Needs to Verify
Medical Expenses Claimed by Pension
Beneficiaries (GAO/HRD-91-94, July 29, 1991).
VA Health Care: Better Procedures Needed to
Maximize Collections From Health Insurers
(GAO/HRD-90-64, Apr. 6, 1990).
Assessing the
VA Health Care: Offsetting Long-Term Care
Future Structure
Costs by Adopting State Copayment
of Veterans'
Practices (GAO/HRD-92-96, Aug. 12, 1992).
Benefits
Page 27
GAO/OCG-93-21TR Veterans Affairs Issues
Related GAO Products
VA Health Care: Alternative Health Insurance
Reduces Demand for VA Care (GAO/HRD-92-79,
June 30, 1992).
VA Benefits: Law Allows Compensation for
Disabilities Unrelated to Military Service
(GAO/HRD-89-60, July 31, 1989).
Page 28
GAO/OCG-93-21TR Veterans Affairs Issues
Transition Series
Economics
Budget Issues (GAO/OCG-93-1TR).
Investment (GAO/OCG-93-2TR).
Management
Government Management Issues
(GAO/OCG-93-3TR).
Financial Management Issues
(GAO/OCG-93-4TR).
Information Management and Technology
Issues (GAO/OCG-93-5TR).
Program Evaluation Issues (GAO/OCG-93-6TR).
The Public Service (GAO/OCG-93-7TR).
Program Areas
Health Care Reform (GAO/OCG-93-8TR).
National Security Issues (GAO/OCG-93-9TR).
Financial Services Industry Issues
(GAO/OCG-93-10TR).
International Trade Issues (GAO/OCG-93-11TR).
Commerce Issues (GAO/OCG-93-12TR).
Energy Issues (GAO/OCG-93-13TR).
Page 29
GAO/OCG-93-21TR Veterans Affairs Issues
Transition Series
Transportation Issues (GAO/OCG-93-14TR).
Food and Agriculture Issues
(GAO/OCG-93-15TR).
Environmental Protection Issues
(GAO/OCG-93-16TR).
Natural Resources Management Issues
(GAO/OCG-93-17TR).
Education Issues (GAO/OCG-93-18TR).
Labor Issues (GAO/OCG-93-19TR).
Health and Human Services Issues
(GAO/OCG-93-20TR).
Veterans Affairs Issues (GAO/OCG-93-21TR).
Housing and Community Development
Issues (GAO/OCG-93-22TR).
Justice Issues (GAO/OCG-93-23TR).
Internal Revenue Service Issues
(GAO/OCG-93-24TR).
Foreign Economic Assistance Issues
(GAO/OCG-93-25TR).
Page 30
GAO/OCG-93-21TR Veterans Affairs Issues
Transition Series
Foreign Affairs Issues (GAO/OCG-93-26TR).
NASA Issues (GAO/OCG-93-27TR).
General Services Issues (GAO/OCG-93-28TR).
*U.S.G.P.0.:1993-336-740 Page 31
GAO/OCG-93-21TR Veterans Affairs Issues
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United States General Accounting Office
GAO
Transition Series
December 1992
Housing and
Community
Development Issues
UNITED STATES
DEPARTMENT OFFICE GENERAL
GAO/OCG-93-22TR
GAO
United States
General Accounting Office
Washington, D.C. 20548
Comptroller General
of the United States
December 1992
The Speaker of the House of Representatives
The Majority Leader of the Senate
In response to your request, this transition series report discusses
major policy, management, and program issues facing the Congress
and the new administration in the area of housing and community
development. The issues include (1) providing affordable housing for
the nation's poor, (2) strengthening the Department of Housing and
Urban Development's management, (3) controlling housing loan and
lead-based paint cost exposure, (4) promoting community
development, and (5) reexamining strategies for responding to
disasters.
The GAO products upon which this report is based are listed at the
end of the report.
We are also sending copies of this report to the President-elect, the
Republican leadership of the Congress, the appropriate congressional
committees, and the designated heads of the appropriate agencies.
Charles A. Bowsher
Contents
Housing and
4
Community
Development
Issues
7
Providing
Affordable
Housing for the
Nation's Poor
13
Strengthening
HUD's
Management
16
Controlling
Increasing Cost
Exposure
19
Promoting
Community
Development
23
Reexamining
Strategies for
Responding to
Disasters
Related GAO
24
Products
Page 2
GAO/OCG-93-22TR Housing Issues
Contents
Transition Series
27
Page 3
GAO/OCG-93-22TR Housing Issues
Housing and Community Development
Issues
Three conditions frame today's debate on
housing and community development issues.
These conditions are (1) the increasing gap
between the demand for and the available
supply of decent and affordable rental
housing for low-income families, (2) the
increasing need for investment in our
communities, and (3) the shrinking federal
resources for dealing with these problems.
For decades, federal legislation has
reaffirmed a commitment to decent, safe,
and affordable housing for every American
family. However, as we reported in 1988,
federal housing efforts have not met the
needs of many Americans. Today, the supply
of affordable rental housing for low-income
people continues to decline while the need
for such housing continues to grow. Rising
costs, declining real wages, and a decreasing
number of affordable homes have put a
decent place to live beyond the reach
of millions of families.
At the same time, the federal government is
facing large real and potential cost exposure
in several areas. For example, the nation's
public housing stock, valued at over
$70 billion, has fallen into serious disrepair.
The cost to meet existing needs is estimated
at over $20 billion, and modernization needs
Page 4
GAO/OCG-93-22TR Housing Issues
Housing and Community Development
Issues
continue to accrue. Moreover, the cost to
renew expiring contracts that provide rental
subsidies to lower-income families is
expected to more than double over the next
5 years-rising from an estimated
$7.5 billion in fiscal year 1993 to about
$17.1 billion in fiscal year 1997.
Regarding potential cost exposure, the
Federal Housing Administration's (FHA)
single-family home ownership insurance
program has lost an average of almost
$900 million a year from fiscal years 1979 to
1990 and has an economic value of negative
$2.7 billion. If these losses continue, the
Treasury may be called upon to fund the
program for the first time in FHA'S 50-year
history. Finally, the federal government
faces billions of dollars in costs to clean up
lead-based paint from its housing
inventories, such as public housing.
Estimates of these costs range from $6
billion to $16 billion. Resolving these issues
will likely require significant funds at a time
when federal budget choices are becoming
increasingly limited.
Finally, other economic and social problems
are putting tremendous strains on
communities. Opportunities to provide
additional funds are sharply constrained
Page 5
GAO/OCG-93-22TR Housing Issues
Housing and Community Development
Issues
because of the federal budget deficit and the
relatively limited capacity of federal, state,
and local governments for dealing with these
problems. Under these circumstances,
reinvigorating our communities will require
careful leveraging of our investments in both
the physical and human resources that
communities provide. New partnerships and
creative solutions will be needed.
Page 6
GAO/OCG-93-22TR Housing Issues
Providing Affordable Housing for the
Nation's Poor
The federal government has invested tens
of billions of dollars in rental housing
assistance to provide decent and affordable
housing for low-income families.
Nevertheless, an increasing share of our
poor families are living in inadequate and
unaffordable housing. In addition, much of
the past federal investment is in danger of
being lost-a condition that will only worsen
an already dismal situation.
The gap is widening between the number of
decent, affordable rental units and the
demand for these units. In the early 1980s,
demand and supply were in relative
equilibrium. Since then, demand has been
outstripping supply (see fig. 1). The gap is
expected to grow over the next 10 years,
when nearly one of every two low-income
families may not be able to find affordable
rental housing. Furthermore, it should be
emphasized that this analysis understates the
housing problems of low-income families,
since the analysis is not adjusted for factors
such as the location of available housing and
household size.
Page 7
GAO/OCG-93-22TR Housing Issues
Providing Affordable Housing for the
Nation's Poor
Figure 1: Number of Low-Rent Housing Units Available and Households Needing
These Units, 1974-2003
Number of units (in millions)
18
15
12
9
6
3
0
1993
2003
1974
1983
Year
Units available
Households needing low-rent units
Source: Neighborhood Reinvestment Corporation, At Risk of
Loss: The Endangered Future of Low-Income Rental Housing
Resources.
To address the growing housing shortage,
we will need to preserve private sector
Page 8
GAO/OCG-93-22TR Housing Issues
Providing Affordable Housing for the
Nation's Poor
low-income units, modernize the public
housing stock, obtain sufficient permanent
financing for affordable multifamily units,
and continue to provide rent subsidies to
poor families in private housing.
Preserving
During the 1960s and 1970s, the federal
Private
government provided mortgage insurance,
Low-Income
loans at below-market rates, and direct
Housing
subsidies to stimulate the private sector's
production of low-income housing. Within
the coming 5 years, about 3,000 properties
containing over 350,000 units could be
withdrawn from the low-income rental
market as restrictions limiting their use to
low-income rental expire. The National
Affordable Housing Act of 1990 provides
financial incentives from the federal
government, such as rent subsidies, to retain
this inventory as a low-income housing
resource. However, providing these
incentives to preserve this stock for
low-income use could cost the federal
government hundreds of millions of dollars a
year.
Modernizing
Too much of the public housing stock,
Public Housing
particularly in urban areas, has fallen into
serious disrepair. Home to many of the
Page 9
GAO/OCG-93-22TR Housing Issues
Providing Affordable Housing for the
Nation's Poor
nation's poorest households, the public
housing stock consists of approximately
1.4 million units whose value exceeds
$70 billion. Modernization costs to meet
existing capital improvement needs are
estimated at over $20 billion. These needs,
coupled with new repair needs, would
require annual appropriations over the next
20 years estimated at $3.4 billion-about
$600 million per year more than the average
annual appropriation of $2.8 billion for this
purpose in fiscal years 1991 to 1993.
Stimulating
Changes in government policies and
Investment
regulations during the 1980s, along with the
Through
poor performance of inadequately managed
Mortgage Credit
multifamily housing loans insured by FHA and
other loans purchased by the Federal Home
Enhancements
Loan Mortgage Corporation, led to a steep
decline in mortgage funds available for
affordable rental housing. A variety of
participants representing a cross section of
the financial market believe that significant
barriers exist in accessing capital for rental
housing targeted to low-income and very
low-income rental households.
In this climate, the secondary market for
multifamily housing mortgages (buyers and
sellers of mortgage loans) has taken on
Page 10
GAO/OCG-93-22TR Housing Issues
Providing Affordable Housing for the
Nation's Poor
increased importance. However, such a
market has not evolved for several reasons,
including the risk-both real and
perceived-associated with affordable
housing and the reluctance of FHA and key
secondary market institutions to expand
their support for financing this housing as
they attempt to balance support for
affordable housing with the safety and
soundness of their operations. New forms of
federal credit enhancement-such as
insurance on individual loans and pools of
loans-recently authorized by the Congress
can help to address this problem if the
enhancements get support from FHA and the
secondary market institutions charged with
carrying out the new law. We expect to issue
a comprehensive report discussing these
issues in spring 1993.
Rent Subsidies
Rent subsidies-provided through
Becoming
certificates, vouchers, and project-based
Increasingly
assistance-are a mainstay in federal efforts
Costly
to enable low-income families to live in
decent and affordable privately owned rental
housing. Currently, about 2.7 million families
receive this assistance through HUD'S
contracts with private owners and local
housing agencies, such as public housing
agencies. Yet contracts covering assistance
Page 11
GAO/OCG-93-22TR Housing Issues
Providing Affordable Housing for the
Nation's Poor
to an estimated 1.6 million families are
expected to expire in the next 5 years, and
the cost to renew these contracts will grow,
in current dollars, from an estimated
$7.5 billion in fiscal year 1993 to an
estimated $17.1 billion in fiscal year 1997.
This increase is due primarily to the larger
number of contracts expected to expire in
the next few years than in the recent past.
The Congress and HUD have pursued a policy
of renewing all expiring contracts so that
low-income families can continue to live in
affordable and decent housing. Yet the cost
to continue this policy will more than double
within the next 5 years, creating increasing
pressures on an already strained federal
budget.
Page 12
GAO/OCG-93-22TR Housing Issues
Strengthening HUD's Management
Since the publicizing of scandals at HUD in
1989, a great deal of attention and energy has
focused on improving the Department's
management. However, while HUD has
undertaken a series of reform measures,
many fundamental management problems
remain unresolved. Solutions are needed so
that HUD can shift more of its attention to
program results.
In April 1989, a series of major,
well-publicized problems began unfolding at
HUD, involving widespread fraud, waste,
abuse, and mismanagement. The full array of
problems became widely known as the "HUD
scandal." Some of these problems were
departmentwide; others were confined to
individual programs. Some of the most
notable problems included
influence-peddling, theft by private real
estate agents of millions of dollars in HUD
funds, inadequate enforcement of
requirements designed to minimize defaults
on HUD-backed mortgages, and poorly
designed programs and controls that made it
relatively easy for developers and lenders to
exploit the program-at billions of dollars in
costs to the government.
Page 13
GAO/OCG-93-22TR Housing Issues
Strengthening HUD's Management
HUD
Although the Congress and HUD made major
Management
efforts to address these management and
Deficiencies
program design problems, the underlying
Unresolved
causes of HUD'S long-standing management
deficiencies remain largely unresolved.
These deficiencies include inadequate
information and financial management
systems, weak internal controls, an
inappropriate organizational structure
leading to ill-defined responsibilities and
authority, and insufficient staff resources to
perform necessary functions, such as
monitoring and enforcing program
requirements. These problems leave HUD'S
multibillion-dollar programs open to fraud,
waste, abuse, and mismanagement. In fact, a
recent report by the HUD Office of Inspector
General cautioned that unless the
Department acquires sufficient resources,
another HUD scandal is a distinct possibility.
Although HUD has implemented many
program-specific corrective actions, it is only
beginning to resolve the underlying,
departmentwide deficiencies. Until
corrective actions for these departmentwide
problems are implemented, actions focused
on individual programs, no matter how
extensive, cannot fully guarantee that the
earlier abuses will not recur.
Page 14
GAO/OCG-93-22TR Housing Issues
Strengthening HUD's Management
For these reasons, it is important to continue
to review HUD'S progress to ensure that HUD
sustains its efforts to rectify problems, that
corrective actions become an integral part of
program operations, and that actions have a
lasting effect. Only continued support and
oversight can assure the public that HUD'S
resources are being efficiently used to serve
the intended beneficiaries.
Page 15
GAO/OCG-93-22TR Housing Issues
Controlling Increasing Cost Exposure
Substantial losses from federal insurance
programs and costs to be incurred to abate
lead-based paint in the government's housing
inventory have substantially increased the
federal government's cost exposure.
Limiting FHA's
FHA'S home ownership assistance program is
Insurance Losses
the largest source of mortgage financing for
low- and moderate-income Americans. As of
the end of fiscal year 1990, $303 billion in
federally insured mortgage loans were
outstanding under the program, which
encourages home ownership by providing
more liberal credit terms than private sector
lenders would offer. Unlike private sector
mortgage lending, FHA'S program is to strike
a balance among certain social and financial
goals-to help relatively risky borrowers
with mortgage financing while remaining
actuarially sound. As such, FHA'S program is
inherently more risky than private sector
programs.
Over the past 12 years, the economic value
of FHA'S largest program-the single-family
home ownership program-has been
decreasing by an average of about
$891 million a year, dropping from $8 billion
in fiscal year 1979 to a negative $2.7 billion in
fiscal year 1990. This has occurred because
Page 16
GAO/OCG-93-22TR Housing Issues
Controlling Increasing Cost Exposure
of rising foreclosures in economically
stressed regions during the 1980s,
particularly the Rocky Mountain and
Southwest regions of the country, poor HUD
management, and lax HUD monitoring. More
recently, the economic recession and the
slower-than-expected recovery have
increased claims. If these conditions
continue to play out, the Treasury may be
called upon to fund the program for the first
time in FHA'S 50-year history. While there is
no way to predict how much this remedy
could cost, it could be substantial. In dealing
with this issue, policymakers must balance
the desire to assist home buyers against the
federal government's potential financial risk
and the possible need for assistance from
the Treasury.
Facing
The federal government also faces billions of
Lead-Based Paint
dollars in costs to clean up lead-based paint
Abatement
from its housing inventories. Lead
Liability
poisoning-mostly caused by lead-based
paint-is, according to the Centers for
Disease Control, the most common and
socially devastating environmental disease
of young children. Estimates of the cost to
abate lead-based paint in public housing
units range from $6 billion to $16 billion. In
addition, federal agencies that sell
Page 17
GAO/OCG-93-22TR Housing Issues
Controlling Increasing Cost Exposure
foreclosed residential housing to the
public-HUD, the Farmers Home
Administration, and the Department of
Veterans Affairs-must comply with certain
testing and abatement requirements that will
probably cost the government hundreds
of millions of dollars. The federal
government's exposure to these large costs
could result in substantial outlays.
Page 18
GAO/OCG-93-22TR Housing Issues
Promoting Community Development
How best to revitalize our communities is a
question central to today's public policy
debates. While much of this question has
focused, appropriately, on the problems of
inner cities, other important economic and
community development issues warrant
increased attention, such as the
effectiveness of federal efforts to develop
small businesses, particularly for minority
groups.
Curing Urban Ills
For decades the nation has attempted to
address the problems of inner-city, urban
America. However, the recent unrest in Los
Angeles has demonstrated that we have
made only slight progress at best. Residents
of low-income neighborhoods commonly
face difficulties finding jobs and attaining a
reasonable standard of living. Similarly,
neighborhood businesses confront a variety
of barriers in creating and expanding job
opportunities for inner-city residents.
Federal efforts have been limited to
formulating and designing programs to
address specific problems. Overall, these
efforts have been piecemeal, and more
attention has been paid to symptoms than to
the underlying need to develop human
resources. The price the country pays for
Page 19
GAO/OCG-93-22TR Housing Issues
Promoting Community Development
these continuing urban problems is
tremendous-both in social and economic
terms.
Impact of Small
A critical element in developing and
Business Loans
maintaining the economic well-being of
Unclear
communities-rural, urban, and
suburban-is small business. There are over
20 million businesses in the United States.
All but about 200,000 of them are small
businesses. Within the federal government,
the Small Business Administration (SBA) is
charged with developing and nurturing small
business by providing financial, technical,
and other assistance, giving particular
attention to small minority businesses. SBA is
to provide this support while protecting the
taxpayers' interests.
There has been no recent assessment of
what sector of small business, if any, would
receive financial assistance if SBA did not
exist. Nor has there been a recent
assessment of the economic impact that has
resulted from the billions of dollars in
federal guarantees that SBA has provided to
small businesses. Yet in fiscal year 1992, SBA
almost doubled the value of the business
loans that it guaranteed-from $3.8 billion in
fiscal year 1991 to $6.4 billion in fiscal year
Page 20
GAO/OCG-93-22TR Housing Issues
Promoting Community Development
1992. Our work has shown that sba's loss
rate is greater than that of private lenders
and that SBA has not adequately overseen the
operations of lenders receiving government
loan guarantees. Without adequate resources
to oversee its existing loan portfolio, SBA
cannot ensure the quality of the new loans
that it guarantees and protect the
government against loan losses. SBA'S impact
on stimulating small business development
also needs to be determined.
Minority Business
Our work and that of others has shown that
Development
SBA has been ineffective in developing
Problems
minority firms into viable, independent
businesses. As far back as 1975, we reported
that SBA'S success at helping minority firms
become self-sufficient and competitive was
minimal. In the 1980s, SBA'S Office of
Inspector General, the National Academy of
Public Administration, the Senate Small
Business Committee, and we found that SBA'S
management of the program fell far short of
requirements and expressed grave concerns
about the lack of progress in making the
program a true business development
program. Most recently, we reported in 1992
that SBA has made little progress in
implementing the Congress' third major
attempt to improve the program's
Page 21
GAO/OCG-93-22TR Housing Issues
Promoting Community Development
effectiveness. In addition, a 1992 Presidential
Commission on Minority Business
Development reported that the federal
government-specifically SBA-has failed to
develop the talents and creativity of minority
businesses. Our work on this program over
the years, as well as the work of others,
raises serious concerns about SBA'S overall
commitment to the goals of the program.
Until problems with the minority business
development program are corrected, federal
funds will continue to be spent ineffectively,
and community development will be
hindered.
Page 22
GAO/OCG-93-22TR Housing Issues
Reexamining Strategies for Responding
to Disasters
Recent experience has called into question
how well federal efforts assist communities
suffering the effects of natural disasters.
Since 1989, when the country experienced
the back-to-back disasters of Hurricane
Hugo in South Carolina and the Loma Prieta
earthquake in California, dissatisfaction with
the federal government's responsiveness to
these kinds of devastating occurrences has
grown. Hurricane Andrew reinforced these
concerns and raised them to an even higher
level on the Congress' agenda.
Basic questions are now being raised about
whether the federal government is properly
organized to respond to major disasters. In
this context, the roles of the Department of
Defense, Federal Emergency Management
Agency, and federal and state governments
in responding to disasters are being
reexamined.
Our work clearly indicates that substantial
policy, organizational, and operational
changes are needed. We are continuing to
study these issues and plan to identify and
report on a series of options for dealing with
them by spring 1993.
Page 23
GAO/OCG-93-22TR Housing Issues
Related GAO Products
Low-Income
Public Housing: Housing Persons With
Housing
Mental Disabilities With the Elderly
(GAO/RCED-92-81, Aug. 12, 1992).
Mortgage Credit Enhancements: Options for
FHA in Meeting the Need for Affordable
Multifamily Housing (GAO/T-RCED-92-52, Apr. 3,
1992).
Homelessness: Transitional Housing Shows
Initial Success but Long-term Effects
Unknown (GAO/RCED-91-200, July 15, 1991).
Rental Housing: Implementing the New
Federal Incentives to Deter Prepayments of
HUD Mortgages (GAO/PEMD-91-2, Apr. 30, 1991).
Managing HUD
HUD Reforms: Progress Made Since the HUD
Scandals but Much Work Remains
(GAO/RCED-92-46, Jan. 31, 1992).
HUD Reforms: Limited Progress Made Since
the HUD Scandals (GAO/T-RCED-91-62, June 12,
1991).
Increasing the Department of Housing and
Urban Development's Effectiveness Through
Improved Management (GAO/RCED-84-9,
Jan. 10, 1984).
Page 24
GAO/OCG-93-22TR Housing Issues
Related GAO Products
Increasing
Home Ownership: Loan Policy Changes
Exposure to
Made to Strengthen FHA'S Mortgage
Costs
Insurance Program (GAO/RCED-91-61, Mar. 1,
1991).
Impact of FHA Loan Policy Changes on
Financial Losses and Homebuyers
(GAO/T-RCED-90-95, July 10, 1990).
Impact of FHA Loan Policy Changes on Its
Cash Position (GAO/T-RCED-90-70, June 6, 1990).
Economic
Industrial Development Bonds Are Generally
Support and
Not Targeted and Benefits Unclear
Developing
(GAO/RCED-92-247R, July 24, 1992).
Communities
Small Business: Problems in Restructuring
SBA'S Minority Business Development
Program (GAO/RCED-92-68, Jan. 31, 1992).
Small Business: Financial Condition of SBA'S
Business Loan Portfolio Is Improving
(GAO/RCED-92-49, Dec. 3, 1991).
Disaster
Earthquake Recovery: Staffing and Other
Assistance
Improvements Made Following Loma Prieta
Earthquake, (GAO/RCED-92-141, July 30, 1992).
Page 25
GAO/OCG-93-22TR Housing Issues
Related GAO Products
Disaster Assistance: Federal, State, and
Local Responses to Natural Disasters Need
Improvement (GAO/RCED-91-43, Mar. 6, 1991).
General
Housing and Urban Development Issues
(GAO/OCG-89-22TR).
Page 26
GAO/OCG-93-22TR Housing Issues
Transition Series
Economics
Budget Issues (GAO/OCG-93-1TR).
Investment (GAO/OCG-93-2TR).
Management
Government Management Issues
(GAO/OCG-93-3TR).
Financial Management Issues
(GAO/OCG-93-4TR).
Information Management and Technology
Issues (GAO/OCG-93-5TR).
Program Evaluation Issues (GAO/OCG-93-6TR).
The Public Service (GAO/OCG-93-7TR).
Program Areas
Health Care Reform (GAO/OCG-93-8TR).
National Security Issues (GAO/OCG-93-9TR).
Financial Services Industry Issues
(GAO/OCG-93-10TR).
International Trade Issues (GAO/OCG-93-11TR).
Commerce Issues (GAO/OCG-93-12TR).
Energy Issues (GAO/OCG-93-13TR).
Page 27
GAO/OCG-93-22TR Housing Issues
Transition Series
Transportation Issues (GAO/OCG-93-14TR).
Food and Agriculture Issues
(GAO/OCG-93-15TR).
Environmental Protection Issues
(GAO/OCG-93-16TR).
Natural Resources Management Issues
(GAO/OCG-93-17TR).
Education Issues (GAO/OCG-93-18TR).
Labor Issues (GAO/OCG-93-19TR).
Health and Human Services Issues
(GAO/OCG-93-20TR).
Veterans Affairs Issues (GAO/OCG-93-21TR).
Housing and Community Development
Issues (GAO/OCG-93-22TR).
Justice Issues (GAO/OCG-93-23TR).
Internal Revenue Service Issues
(GAO/OCG-93-24TR).
Foreign Economic Assistance Issues
(GAO/OCG-93-25TR).
Page 28
GAO/OCG-93-22TR Housing Issues
Transition Series
Foreign Affairs Issues (GAO/OCG-93-26TR).
NASA Issues (GAO/OCG-93-27TR).
General Services Issues (GAO/OCG-93-28TR).
*U.S.G.P.0.:1993-336-740 Page 29
GAO/OCG-93-22TR Housing Issues
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Transition Series
December 1992
Justice Issues
UNITED STATES
GENERN ACCOUNTING OFFICE
GAO/OCG-93-23TR
GAO
United States
General Accounting Office
Washington, D.C. 20548
Comptroller General
of the United States
December 1992
The Speaker of the House of Representatives
The Majority Leader of the Senate
In response to your request, this transition series report discusses
major policy, management, and program issues facing the Congress
and the new administration in the justice area. These issues include
(1) strengthening leadership and management functions at the
Department of Justice, (2) investigating and prosecuting white collar
crime, (3) making needed policy and management decisions on
immigration issues, (4) responding to a rapid rise in the federal
prison population, and (5) making the government's antidrug efforts
more effective.
The GAO products upon which this report is based are listed at the
end of the report.
We are also sending copies of this report to the President-elect, the
Republican leadership of the Congress, the appropriate congressional
committees, and the Attorney General-designate.
Chades A. Boweher
Charles A. Bowsher
Contents
Justice Issues
4
Strengthening the
7
Department of
Justice's
Leadership and
Management
Functions
Investigating and
12
Prosecuting
White Collar
Crime
Making Needed
17
Policy and
Management
Decisions on
Immigration
Issues
Responding to a
23
Rapid Rise in the
Federal Prison
Population
Making Antidrug
29
Efforts More
Effective
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Contents
Related GAO
33
Products
Transition Series
37
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Justice Issues
The role of the Department of Justice in
dealing with the nation's crime problems has
expanded significantly in recent years.
Today, the Department has more staff and is
conducting more investigations than ever
before. Between 1981 and 1992, the
Department's budget increased from
$2.35 billion to $10.4 billion. The Bureau of
Prisons (BOP) is housing the largest number
of federal inmates in its history. Between
1986 and 1992, the federal prison population
grew by more than 70 percent to 80,000, as
of November 1992; from now through 1996,
the government will have to spend more
than $2 billion to build new prisons. Inmates
convicted of drug offenses now comprise 57
percent of all federal inmates, demonstrating
that the Department's antidrug efforts have
met with some success. Nevertheless,
significant challenges remain.
When we issued our first transition series
report on justice issues 4 years ago, we said
that the Department needed to strengthen its
central management capabilities and to set
priorities for its antidrug programs. Both of
these issues still pose major challenges
today. Greater progress has been made in
resolving other issues that we raised in
1988-reforming sentencing, reforming
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Justice Issues
immigration, and preventing discrimination
caused by immigration reform.
The decentralized operations and
independence of organizations like the
Federal Bureau of Investigation (FBI) and
U.S. Attorneys complicate efforts by the
Department of Justice to coordinate and
direct a wide variety of initiatives and
programs to fight crime. The central issue
facing the Department of Justice is how best
to provide leadership and ensure that its
priorities are carried out as effectively as
possible.
Since 1988, the Department has taken new
steps in the area of immigration, built new
federal prisons at a record pace, and
dramatically increased its budget for drug
control. It has also had to respond to
significant new challenges, such as the wave
of criminal referrals and prosecutions
generated by the savings and loan and
banking crises. Financial institution fraud
has also become a major problem. In some
areas, the volume of work is overwhelming
the justice system.
In this environment, the issue of leadership
is even more important today than it was in
1988. Additionally, to respond effectively to a
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Justice Issues
rising crime rate, an exploding prison
population, and an intractable drug problem,
the Department requires strong management
processes and systems.
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Strengthening the Department of
Justice's Leadership and Management
Functions
Leading the nation's law enforcement and
administration of justice effort has always
been a difficult task. A balance must be
struck between the need for strong
leadership in important areas and the
benefits of a decentralized law enforcement
mechanism in the hands of U.S. Attorneys.
As world history has shown, too much
central police authority can lead to grave
abuses. In our country's system of justice,
the creative tension that exists between
centralized and decentralized management
and leadership functions has led to progress
on various issues. Nonetheless, given the
national scope of some of the law
enforcement issues that we face today, it
may be necessary to reexamine the
leadership role of the Attorney General and
the relationship between the Department of
Justice and its components and the U.S.
Attorneys. Too little central direction can
stymie implementation of national initiatives
as well as lead to inconsistency and
inefficiency.
During the 1980s, mounting public concern
over crime in general and drugs in particular
turned law enforcement into a growth
industry at the state, local, and federal levels.
However, after a decade of higher spending
and promises to reduce the nation's
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Strengthening the Department of
Justice's Leadership and Management
Functions
vulnerability to crime, the incidence of
violent crime continues to grow. In view of
this growth, the efficiency and effectiveness
of the Department of Justice is critical.
However, the success of the Department in
accomplishing its mission is complicated by
its highly decentralized operations and the
independence afforded its agencies and
offices. The Department needs to strengthen
its central management systems to ensure
that they provide the Attorney General with
the information necessary to effectively
establish, communicate, coordinate, and
oversee national goals and priorities.
There is an issue as to whether the
Department is currently able to give proper
perspective to the interrelationships among
its components. Coordination among the
various components of the criminal justice
system is essential. At present, in enforcing
drug laws, FBI and the Drug Enforcement
Administration (DEA) independently develop
investigative strategies and priorities,
operate separate intelligence systems, and
use different systems for reporting and
measuring their effectiveness. This degree of
independence requires good central
oversight to ensure overall efficiency and
effectiveness. Anticipated federal budget
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Strengthening the Department of
Justice's Leadership and Management
Functions
cuts and the continued growth in violent
crime-particularly in the use of firearms—
further highlight the need for better
interagency coordination.
It is also important to ensure that field level
decisions are sufficiently in keeping with
national law enforcement priorities. Justice
components, located throughout the
country, have the flexibility to structure their
programs differently. They are able, for
example, to set different operating
thresholds for investigating and prosecuting
offenses for which mandatory sentences
have been established by law. Yet despite the
existence of workload constraints and local
priorities, as well as the desirability of
prosecutorial discretion, strong central
oversight is needed to ensure that national
law enforcement programs are focused
on-and consistent, efficient, and effective
in pursuing-national goals and priorities.
Such oversight, however, cannot be brought
to bear without good management
information systems and meaningful
measures of performance. In each of these
areas, there is room for the Department to
improve. For example, after a number of
false starts and over a decade of effort, the
Department still does not have in place a
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Strengthening the Department of
Justice's Leadership and Management
Functions
case management system that can track
cases being litigated and the total number of
staff in the litigating organizations working
on them. Similarly, while the Department has
several numerical measures of its activities,
these measures do not readily indicate the
degree to which the Department's national
goals are being achieved.
The Department also needs to resolve
jurisdictional disputes. For example, within
the Office of Justice Programs (OJP),
conflicts exist between the five OJP bureaus
and OJP management over individual bureau
autonomy. To address the disputed lines of
authority, the Attorney General in 1991
conferred on the Assistant Attorney General
for OJP certain grant-related authorities
traditionally held by the bureau directors.
This solution not only created additional
management problems but violated the
statutes establishing the bureaus. Although
OJP and the bureaus are working to resolve
the management conflicts, tensions remain.
Given the national significance of law
enforcement issues and the problems
inherent in addressing them, it is important
to assess the appropriate leadership role for
the Office of the Attorney General. Central to
this assessment is achieving consensus
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Strengthening the Department of
Justice's Leadership and Management
Functions
within the Department on how to focus
federal resources effectively on key issues.
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Investigating and Prosecuting White
Collar Crime
The staggering costs of the financial
institution debacle, Wall Street insider
trading, the Department of Housing and
Urban Development scandal, fraud in the
growing number of bankruptcies, and fraud
associated with health care all reflect the
magnitude of "crime in the suites." Often,
perpetrators of white collar crimes occupied
positions in government, industry, and civic
organizations and were highly regarded
within their communities. By abusing their
positions of trust, white collar criminals
undermine the integrity of their professions
and of government and, ultimately, are
responsible for the loss of billions of dollars
annually from the nation's economy.
Increasingly, white collar crime cases are
overwhelming the justice system, as the
following examples show.
Criminal financial institution fraud referrals
continue to increase. More than 35,000
referrals were submitted to FBI in fiscal year
1992-up from 25,000 in fiscal year 1991.
U.S. Attorneys in several large districts
generally decline to prosecute health care
fraud cases under $100,000.
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Investigating and Prosecuting White
Collar Crime
FBI reports that bankruptcy fraud is largely
unaddressed and that bankruptcies are ripe
for abuse: The number of filings has more
than tripled over the last 10 years.
As of September 1992, Justice had received
referrals of alleged criminal activity by
former directors, officers, and principal
shareholders associated with 336 of the 723
savings and loans under Resolution Trust
Corporation control. As of July 1992, Justice
had indicted directors, officers, and principal
shareholders in 72 of these savings and
loans.
In response, the Department has applied
significantly more resources. FBI, for
example, has tripled the number of agents
working on white collar crime since 1985.
Congressional appropriations have allowed a
tripling of U.S. attorney resources dedicated
to financial institution fraud. As the available
resources have grown, SO have the number
of indictments, arrests, and convictions. For
example, the number of defendants
sentenced to prison for white collar crimes
increased from 4,350 to 5,300 between fiscal
years 1985 and 1991.
However, the Department alone cannot
adequately address white collar crime.
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Investigating and Prosecuting White
Collar Crime
Effective intervention requires a more
cohesive federal response, using the full
range of the government's resources and
expertise. Yet Justice's ability to address
white collar crime is hampered both by the
decentralized nature of the Department and
by the structure of the government as a
whole. Individual U.S. Attorneys around the
country exercise great discretion in
managing their programs and resources. In
addition, Justice has little, if any, influence
over agencies outside the Department-such
as the Internal Revenue Service-that are
often critical for effective investigations and
prosecutions. These organizational barriers
have resulted in a fragmented approach to
pursuing white collar crime. For example,
efforts to form financial institution fraud
task forces around the country were largely
unsuccessful because Justice and
non-Justice agencies could not agree on the
appropriate level of non-Justice resources
and on which agency should pay for these
resources. In addition, some U.S. Attorneys,
who preferred to work independently,
rejected the task force concept.
Another issue associated with white collar
crime is whether the punishment is severe
enough for the offense committed. For
example, the median prison sentence in 1991
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Investigating and Prosecuting White
Collar Crime
for fraud was 21 months. Fewer than
7 percent of the fraud convictions since 1988
involving savings and loan and bank losses
of $100,000 or more received prison
sentences of 60 months or more. While fines
and restitutions ordered in these cases have
totaled nearly $850 million, less than
5 percent of these funds had been collected
through mid-1992. Justice says that most of
the balance is not collectible. Whether or not
this is the case, Justice's collection efforts
lack a consistent approach and an adequate
database.
We recognize that the Department does not
control the specific sentences and monetary
penalties imposed for crimes. However, the
Department is the logical focal point for
(1) determining whether the punishment
being meted out provides the necessary
deterrent effect and (2) seeking change if
needed. Furthermore, the Department needs
to make a stronger effort to ensure the
collection of as large a portion as possible of
the total monetary penalties imposed.
Justice, working with other departments and
agencies, needs to take a number of steps to
better address the growth in white collar
crime. Paramount is the need to better
integrate the efforts of Justice and
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Investigating and Prosecuting White
Collar Crime
non-Justice agencies into a cohesive national
response. Finally, Justice, working with the
Administrative Office of the U.S. Courts,
should improve its management of debt
collection.
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Making Needed Policy and
Management Decisions on Immigration
Issues
As long as political unrest and economic
hardships persist throughout the world,
refugees will continue to flee to the United
States. Hence, the United States will
continue to face complex and difficult
immigration issues, such as
who should be permitted to legally enter the
country,
what should be done to prevent aliens from
entering illegally, and
what should be done to remove aliens who
remain here illegally.
In addition to these policy issues,
management problems within Justice's
Immigration and Naturalization Service (INS)
need to be resolved.
From without and from within, the United
States is pressured to allow refugees to enter
the country legally to escape intolerable
conditions in other countries. For example,
as civil unrest, poor economic conditions,
and natural disasters occur in other
countries, refugees look to this country as a
safe haven. U.S. citizens are often eager to
facilitate the entry of refugees whose ethnic
background is the same as their own. This
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Making Needed Policy and
Management Decisions on Immigration
Issues
pressure can lead to different immigration
policies being applied to refugees from
different ethnic backgrounds. For example,
Cubans are readily permitted to enter and
remain in the country, whereas Haitians are
interdicted at sea and returned to Haiti.
In addition to regulating the access of aliens
seeking legal entry, INS is responsible for
stopping millions of aliens trying to enter the
country illegally. Some of these aliens
smuggle contraband, such as drugs.
Preventing illegal entry raises several issues,
including (1) the feasibility and effectiveness
of different approaches to, and technologies
for, improving border control;
(2) humanitarian concerns, such as equitable
treatment of aliens of different nationalities
and divided families; and (3) cost
considerations and trade-offs, such as
choosing between detaining aliens and
preventing their illegal entry. Conflicting
with INS' border enforcement role are trade
facilitation objectives calling for the efficient
flow of goods across the border.
In removing aliens from the country, INS is
confronted with the almost impossible task
of trying to locate and deport aliens that it
believes should not remain here. For
example, aliens who have committed certain
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Making Needed Policy and
Management Decisions on Immigration
Issues
crimes are subject to deportation but are
required to have a hearing before an
immigration judge to establish their
deportability. INS does not have sufficient
resources to detain the millions of aliens
who are subject to detention or who have
been ordered deported. Consequently, most
of the aliens whom INS apprehends are
released pending the resolution of their
deportation hearings. However, these aliens
usually do not appear for their hearings and
remain here illegally.
In addition to these difficult policy issues
needing congressional and administrative
attention, INS needs strong leadership and
management to
balance the demanding roles of enforcement
and service and
overcome problems in the management of its
enforcement efforts and of the services that
it provides to aliens.
Managing such competing enforcement and
service functions means making hard
decisions about allocating resources to
ensure the agency's most effective
operations. Over the past decade, weak
management systems and inconsistent
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Making Needed Policy and
Management Decisions on Immigration
Issues
leadership at INS led to segmented
autonomous programs, each of which tried
to handle its own set of problems and gave
little attention to interrelationships among
programs. Without coherent overall
direction and basic management reforms,
the organization was unable to effectively
address changing enforcement
responsibilities and long-standing service
delivery problems. In response to these
problems, INS reorganized its management
and operations.
Financial management at INS was weak, and
the agency did not have fiscal accountability
over its resources. Its outmoded accounting
system, weak internal controls, and lack of
management emphasis on financial
management contributed to this situation.
INS could lose millions of dollars in revenue
because accurate and reliable financial
information is not available to effectively
bill, collect, or litigate amounts owed the
government. Furthermore, the agency's
primary accounting system contained
incomplete and inaccurate financial data.
These weaknesses remained uncorrected for
many years. Addressing these problems,
which INS can do in implementing its Chief
Financial Officers Act, will require strong
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Making Needed Policy and
Management Decisions on Immigration
Issues
and sustained management commitment and
leadership.
In the past, INS' budget development process
was chaotic. The agency's budgets were
simply compilations of program submissions
with little accountability for funds or
attention to agencywide priorities. The
current INS reorganization addresses some
concerns but has not fully resolved the issue
of segmented management. Although INS is
addressing some of these management
problems, action is still needed to improve
program enforcement and service. For
example, even though aliens pay fees to
cover processing costs, they still have to
wait months to have their applications
processed. While expenditures nearly
doubled between fiscal years 1986 and 1989,
overall processing times have not improved,
and in key INS districts processing times have
substantially exceeded INS' criteria.
During the last several years, the Office of
the Attorney General has focused much
more effectively on management issues
relating to INS. New people have been
recruited for key positions, and a renewed
effort has been made to deal with the
long-term problems that exist at INS.
Achieving progress will be difficult, but we
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Making Needed Policy and
Management Decisions on Immigration
Issues
are encouraged by the departmental
commitment to bring about change. It is
important that this commitment be sustained
in the years to come.
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Responding to a Rapid Rise in the
Federal Prison Population
A growing prison population was perhaps
the most visible result of the increases in
federal resources-investigative,
prosecutorial, and judicial-devoted to
federal criminal law enforcement in the
1980s. Policy initiatives-such as an
expanded "drug war," implementation of
federal sentencing guidelines, and the
enactment of mandatory minimum sentences
for a number of drug and firearms
offenses-have led to a rapidly growing
federal prison population that generally
serves longer sentences. This rising
population has strained prison capacity and
budgetary resources. Indeed, the major issue
facing the federal corrections system is
finding less costly ways of achieving the
corrections goals of deterrence and public
safety while providing inmates with humane
care and services that equip them to become
law-abiding citizens upon release.
Between fiscal years 1986 and 1992, the
federal prison population grew from 41,500
to 70,630; by 1996, a population of about
106,000 is projected. One reason for this
expected future growth is the
implementation of federal sentencing
guidelines, which took effect on
November 1, 1987. Reflecting the "get tough
on crime" policies of the last decade, the
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Responding to a Rapid Rise in the
Federal Prison Population
guidelines offer judges fewer nonprison
sentencing options for most offenders.
Consequently, a greater proportion of
convicted offenders are going to prison for
longer terms, decreasing the turnover in the
federal prison population and increasing
capacity requirements. In 1990, about
74 percent of offenders sentenced under the
guidelines were sent to prison, as compared
with 53 percent in 1986, before the
guidelines took effect. The length of the
average sentence in 1990 had increased by
about a year-from 53 to 61 months.
Moreover, because parole had been
eliminated under the guidelines, an inmate
could expect to serve, on average, almost 3
years longer-from about 19 to 52 months.
Drug offenders will continue to have a major
impact on the federal corrections system.
Inmates convicted of drug offenses now
comprise 57 percent of all federal inmates,
and they are expected to constitute about
two-thirds (71,000) of the 1996 population.
Under the guidelines, almost 9 in 10
convicted drug offenders are sentenced to
prison for an average of 83 months-at least
70 months of which they can expect to serve.
The costs of housing and caring for this
growing population continue to rise.
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Responding to a Rapid Rise in the
Federal Prison Population
Between 1986 and 1992, corrections budgets,
primarily for federal prisons, nearly
quadrupled from about $600 million to about
$2.3 billion. Despite the increased use of
2-person cells and plans to activate 44
additional facilities with a capacity of about
30,000 inmates between 1992 and 1996, BOP
expects the growth in the inmate population
to outstrip the increase in capacity by about
6,000 inmates. The estimated cost of
constructing these new facilities is almost
$2.2 billion. BOP estimates the costs of
operating these new facilities, over their
useful life, at about 15 to 20 times the
construction costs.
These rapidly rising costs have focused
attention on the costs of traditional
incarceration. Given an average annual cost
of about $18,000 per inmate for traditional
imprisonment, the Sentencing Commission,
BOP, and the courts need to explore means of
reducing corrections costs. Where possible,
less costly minimum security facilities
should be used. The current limited use of
prison alternatives-such as "boot camps"
(also called "shock incarceration") for first
offenders, halfway houses, electronic home
detention, and intensified
supervision-should be evaluated and
expanded where feasible. Furthermore, BOP
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Responding to a Rapid Rise in the
Federal Prison Population
may need to use intermediate forms of
confinement, such as halfway houses, more
extensively to reintegrate long-term inmates
into the community upon release. To do this,
BOP must also work more closely with the
federal courts' probation service to provide
prerelease plans that include an inmate's
medical profile, substance abuse history, and
other information needed to develop an
appropriate supervision plan.
Regardless of the form of confinement used,
BOP faces a challenge in meeting the medical
needs of its growing and aging inmate
population, many of whom have special
needs. About half of all entering inmates
have a substance abuse or dependency
problem, but fewer than half of these are
receiving treatment. In 1992, BOP spent
almost $5 million treating about 1,200 HIV
positive inmates, about 200 of whom had
AIDS-a problem that is expected to grow as
the prison population expands. In the close
confines of prison life, the emergence of a
drug-resistant strain of tuberculosis is also a
potentially grave medical problem. The
female inmate population, now about
8 percent of the total federal prison
population, is growing faster than the male
population and requires special medical
procedures, such as breast cancer screening.
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Responding to a Rapid Rise in the
Federal Prison Population
BOP is grappling with the rising costs of
meeting inmates' medical care needs and
hiring trained medical staff. BOP
reprogrammed over $4 million in 1991 and
1992 to provide for increased outside
medical care costs and requested an
additional $4.5 million in fiscal year 1993.
BOP must decide whether to increase its own
medical care capacity or meet rising medical
care needs through contract care. Even with
the additional capacity planned between
now and 1996, BOP anticipates that its ratio
of medical beds to inmates will fall from the
current 27 beds per 1,000 inmates to about
23.
Building even more medical facilities would
add to an already costly construction
program, and BOP may have difficulty staffing
any new facilities. Despite an enhanced
recruitment effort, at the end of fiscal year
1991, BOP had filled about 59 percent of its
authorized positions for nurses and
66 percent of its positions for medical
officers. Given the difficulties of recruiting
qualified medical personnel, predicting the
amount and type of medical care that
inmates may need, and meeting the costs of
increasing existing medical care capacity to
accommodate those anticipated needs, BOP
should consider alternative methods of
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Responding to a Rapid Rise in the
Federal Prison Population
health care delivery. These alternatives
might include contracting out for prison
medical services and enhancing preventive
care programs. In contracting out, health
maintenance organizations or preferred
provider models might be used.
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Making Antidrug Efforts More Effective
To combat the drug problem, the Congress
created a Drug Czar-Director, Office of
National Drug Control Policy (ONDCP)-in
the Executive Office of the President.
Starting in 1989, ONDCP was to plan a drug
war (establish a national drug control
strategy, including long- and short-term
goals), annually develop a governmentwide
budget to carry out the war, and annually
report to the Congress on the progress of the
war and revise the underlying strategy as
appropriate. Despite the creation of ONDCP,
the drug problem persists.
Under ONDCP'S guidance, the federal
government dramatically increased drug
control funding in three key program areas:
(1) stopping drugs from entering the
country, (2) enforcing domestic laws against
drug trafficking and possession, and
(3) providing drug treatment and prevention
services. For fiscal years 1989 through 1992,
the federal government committed
$39 billion to reduce drug use. Of the
$12 billion currently spent each year on drug
programs, over 70 percent is expended on
law enforcement as opposed to treatment;
almost $3 is spent on law enforcement for
every $1 spent on treatment.
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Making Antidrug Efforts More Effective
While the number of illicit drug users has
declined somewhat, the numbers of
drug-related homicides and hospital
emergency visits and deaths remain near
record highs, as does drug use by arrested
criminals. Policymakers will be asked to
consider what more can be done to alleviate
our nation's persistent long-term drug
problem and halt the spread of drug-related
crime and violence. Should the new
administration stay the course, as ONDCP
advocates, or place greater emphasis on
drug prevention and treatment?
ONDCP'S annual strategies have not set clear
expectations for each drug control program.
Without such expectations and without
objective data to measure progress toward
meeting those expectations, there is little
basis for judging either the efficiency of the
strategy in committing resources or the
efficacy of the strategy's program
components. For example, intelligence data
indicate that overseas production of cocaine
has grown consistently over the past 10
years and that domestic prices are much
lower today than they were 10 years ago.
Neither the strategy nor the drug budget
relates these conditions to the missions of
drug programs or evaluates the implications
of these conditions for current strategy. In
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Making Antidrug Efforts More Effective
short, accountability is lacking for
the billions of dollars being spent on the
nation's drug control programs.
ONDCP, through its annual drug strategy,
should and must establish accountability for
the billions being spent on the drug war.
Developing accountability and performance
measures is difficult. However, tying the
financial costs of drug control programs to
program results is fundamental to making
informed policy decisions.
To achieve accountability over the nation's
drug control efforts, ONDCP needs to develop
outcome-oriented goals for each drug
control program. Currently, the drug strategy
does not include such goals. Furthermore,
there is little information for judging
whether the new administration should
place more or less emphasis on drug
prevention and treatment programs.
Specifically, ONDCP needs to develop
databases to collect baseline data on law
enforcement and treatment efforts.
During 1993, the Congress will hold hearings
on the reauthorization of ONDCP. As a focal
point for these hearings, ONDCP, the drug
control agencies-including the Department
of Justice and the Department of Health and
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Making Antidrug Efforts More Effective
Human Services-and the oversight
committees need to focus on identifying
appropriate measures of accountability. By
and large, these collaborative efforts should
be aimed at reaching agreement on the best
available benchmarks of performance and
the most reasonable expectations for
programs, given the level of resources
committed.
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Related GAO Products
Office of Justice Programs: Discretionary
Grants Reauthorization (GAO/GGD-93-23, Nov.
20, 1992).
Bank and Thrift Criminal Fraud: Information
on Justice's Investigations and Prosecutions
(GAO/GGD-93-10FS, Oct. 5, 1992).
Sentencing Guidelines: Central Questions
Remain Unanswered (GAO/GGD-92-93, Aug. 14,
1992).
Immigration Control: Immigration Policies
Affect INS Detention Efforts (GAO/GGD-92-85,
June 25, 1992).
Asset Forfeiture: U.S. Marshals Service
Internal Control Weaknesses Over Cash
Distributions (GAO/GGD-92-59, May 8, 1992).
Drug Control: Difficulties in Denying Federal
Benefits to Convicted Drug Offenders
(GAO/GGD-92-56, Apr. 21, 1992).
The Drug War: Counternarcotics Programs
in Columbia and Peru (GAO/T-NSIAD-91-9,
Feb. 20, 1992).
Bank and Thrift Fraud: Overview of the
Federal Government's Response
(GAO/T-GGD-92-12, Feb. 6, 1992).
Page 33
GAO/OCG-93-23TR Justice Issues
Related GAO Products
Adolescent Drug Use Prevention: Common
Features of Promising Community Programs
(GAO/PEMD-92-2, Jan. 16, 1992).
Prison Alternatives: Crowded Federal
Prisons Can Transfer More Inmates to
Halfway Houses (GAO/GGD-92-5, Nov. 14, 1991).
Prison Costs: Opportunities Exist to Lower
the Cost of Building Federal Prisons
(GAO/GGD-92-3, Oct. 25, 1991).
ADMS Block Grant: Drug Treatment Services
Could be Improved by New Accountability
Program (GAO/HRD-92-27, Oct. 17, 1991).
Drug Control: Impact of DOD's Detection and
Monitoring on Cocaine Flow (GAO/NSIAD-91-297,
Sept. 19, 1991).
Drug Treatment: Despite New Strategy, Few
Federal Inmates Receive Treatment
(GAO/HRD-91-116, Sept. 16, 1991).
Prison Expansion: Staffing New Facilities
Will be a Challenge for BOP (GAO/GGD-92-75,
May 12, 1991).
The War on Drugs: Arrests Burdening Local
Criminal Justice Systems (GAO/GGD-92-40,
Apr. 3, 1991).
Page 34
GAO/OCG-93-23TR Justice Issues
Related GAO Products
Border Patrol: Southwest Border
Enforcement Affected by Mission Expansion
and Budget (GAO/GGD-92-72BR, Mar. 28, 1991).
Federal Prisons: Revised Design Standards
Could Save Expansion Funds (GAO/GGD-91-54,
Mar. 14, 1991).
Financial Management: INS Lacks
Accountability and Controls Over Its
Resources (GAO/AFMD-92-20, Jan. 24, 1991).
Immigration Management: Strong Leadership
and Management Reforms Needed to
Address Serious Problems (GAO/GGD-91-28,
Jan. 23, 1991).
Information Management: Immigration and
Naturalization Service Lacks Ready Access
to Essential Data (GAO/IMTEC-90-75, Sept. 17,
1990).
Immigration Reform: Employer Sanctions
and the Question of Discrimination
(GAO/GGD-90-62, Mar. 29, 1990).
Immigration Control: Deporting and
Excluding Aliens From the United States
(GAO/GGD-90-18, Oct. 16, 1989).
Page 35
GAO/OCG-93-23TR Justice Issues
Related GAO Products
Controlling Drug Abuse: A Status Report
(GAO/GGD-88-39, Mar. 1, 1988).
Justice Issues (GAO/OCG-89-13TR, Nov. 1988).
Justice Department: Improved Management
Processes Would Enhance Justice's
Operations (GAO/GGD-86-12, Mar. 14, 1986).
Page 36
GAO/OCG-93-23TR Justice Issues
*U.S.G.P.0.:1993-336-740
Transition Series
Economics
Budget Issues (GAO/OCG-93-1TR).
Investment (GAO/OCG-93-2TR).
Management
Government Management Issues
(GAO/OCG-93-3TR).
Financial Management Issues
(GAO/OCG-93-4TR).
Information Management and Technology
Issues (GAO/OCG-93-5TR).
Program Evaluation Issues (GAO/OCG-93-6TR).
The Public Service (GAO/OCG-93-7TR).
Program Areas
Health Care Reform (GAO/OCG-93-8TR).
National Security Issues (GAO/OCG-93-9TR).
Financial Services Industry Issues
(GAO/OCG-93-10TR).
International Trade Issues (GAO/OCG-93-11TR).
Commerce Issues (GAO/OCG-93-12TR).
Energy Issues (GAO/OCG-93-13TR).
Page 37
GAO/OCG-93-23TR Justice Issues
Transition Series
Transportation Issues (GAO/OCG-93-14TR).
Food and Agriculture Issues
(GAO/OCG-93-15TR).
Environmental Protection Issues
(GAO/OCG-93-16TR).
Natural Resources Management Issues
(GAO/OCG-93-17TR).
Education Issues (GAO/OCG-93-18TR).
Labor Issues (GAO/OCG-93-19TR).
Health and Human Services Issues
(GAO/OCG-93-20TR).
Veterans Affairs Issues (GAO/OCG-93-21TR).
Housing and Community Development
Issues (GAO/OCG-93-22TR).
Justice Issues (GAO/OCG-93-23TR).
Internal Revenue Service Issues
(GAO/OCG-93-24TR).
Foreign Economic Assistance Issues
(GAO/OCG-93-25TR).
Page 38
GAO/OCG-93-23TR Justice Issues
Transition Series
Foreign Affairs Issues (GAO/OCG-93-26TR).
NASA Issues (GAO/OCG-93-27TR).
General Services Issues (GAO/OCG-93-28TR).
Page 39
GAO/OCG-93-23TR Justice Issues
Transition Series
* U.S. G.P.O. 1992-336-740
Page 40
GAO/OCG-93-23TR Justice Issues
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GAO
Transition Series
December 1992
Internal Revenue
Service Issues
UNITED STATES
GENERAL ACCOUNTING OFFICE
GAO/OCG-93-24TR
GAO
United States
General Accounting Office
Washington, D.C. 20548
Comptroller General
of the United States
December 1992
The Speaker of the House of Representatives
The Majority Leader of the Senate
In response to your request, this transition series report discusses
major policy, management, and program issues facing the Congress
and the new administration in the Internal Revenue Service. The
issues include (1) devising structures, systems, and processes for
administering the tax system in the next century; (2) modernizing
computer systems to support redesigned processes; (3) strengthening
human resources; (4) supporting IRS' strategic business process; (5)
reducing the tax gap; (6) improving financial management; (7)
managing criminal investigation resources; and (8) responding to
calls for a consumption tax.
As part of our high-risk series on program areas vulnerable to waste,
abuse, and mismanagement, we are issuing a related report, Internal
Revenue Service Receivables (GAO/HR-93-13, Dec. 1992).
The GAO products upon which this transition series report is based
are listed at the end of this report.
We are also sending copies of this report to the President-elect, the
Republican leadership of the Congress, the appropriate congressional
committees, the Secretary-designate of the Treasury, and the
Commissioner-designate of Internal Revenue.
Chades A. Bousher
Charles A. Bowsher
Contents
IRS Issues
4
Changing the Way
6
IRS Operates
Managing Tax
8
Systems
Modernization
Strengthening
11
Human
Resources
Supporting the
13
Strategic
Business Process
Collecting Back
15
Taxes
Reducing the Tax
16
Gap
Improving
21
Financial
Management
Page 2
GAO/OCG-93-24TR Internal Revenue Service Issues
Contents
Managing
25
Criminal
Investigation
Resources
Responding to
26
Calls for a
Consumption Tax
Related GAO
28
Products
Transition Series
31
Page 3
GAO/OCG-93-24TR Internal Revenue Service Issues
IRS Issues
In our 1988 transition series report on the
Internal Revenue Service, (IRS) we discussed
four tax administration issues facing the
agency. The most pressing overall issue then
was to modernize IRS' outdated and
inefficient tax processing system. It still is.
Nonetheless, IRS has made substantial
progress in the intervening years in
addressing the problems discussed in our
1988 report. IRS took steps to alleviate an
impending computer capacity problem,
appointed a Chief Information Officer and a
Chief Financial Officer to provide needed
leadership, and produced a design plan for
the systems modernization that it
periodically updates as new elements of the
design take shape. Today much more work
remains to be done to ensure that this
project-which is one of the largest of its
kind and is expected to cost $23 billion
through the year 2008-is successfully
implemented.
The three other issues discussed in our 1988
report remain to be resolved. Although IRS
can point to much work in those areas, the
agency still needs to strengthen human
resources, collect $30 billion in delinquent
taxes, and reduce the $114 billion tax gap
(the difference between what taxpayers owe
and what they voluntarily pay).
Page 4
GAO/OCG-93-24TR Internal Revenue Service Issues
IRS Issues
In addition to the four areas noted above,
this report discusses five other areas that
will require the new Commissioner's priority
attention-ongoing efforts to change the
way IRS does business, the strategic business
process, financial management, management
of criminal investigation resources, and the
need to respond to calls for a consumption
tax.
Two themes cut across all these issues-the
need to foster and manage change and the
need for effective communication in such a
large, decentralized organization.
Page 5
GAO/OCG-93-24TR Internal Revenue Service Issues
Changing the Way IRS Operates
IRS is on the threshold of what could be the
agency's most significant change in decades.
IRS staff are at work reassessing the way the
agency does business, reengineering major
work processes, and rethinking the
traditional functional and organizational
alignment. We have long recommended this
critical step in modernizing the agency. IRS
has suffered from a fragmented organization,
inefficient work processes, antiquated
systems, and parochial views of its
component work-all of which have
frustrated IRS-wide efforts to improve
taxpayers' satisfaction and maximize
collections. The new administration will
have to decide what IRS will look like in the
next century and exert strong leadership to
implement the needed changes.
The way IRS provides telephone assistance
illustrates the agency's fragmentation. Over
the years, in an effort to satisfy taxpayers'
demands for assistance, IRS has established
32 telephone sites in the Taxpayer Service
function to answer tax law and account
questions, 23 telephone sites in the
Collection function to handle calls on
overdue accounts, and 3 telephone sites in
the Human Resources and Support function
to handle calls requesting copies of tax
forms and publications. IRS also handles calls
Page 6
GAO/OCG-93-24TR Internal Revenue Service Issues
Changing the Way IRS Operates
relating to document-matching issues and
other matters at the 10 service centers
managed by its Returns Processing function.
As a result of this fragmented organization,
callers seeking help from IRS are asked to use
one of dozens of telephone numbers. When
taxpayers call IRS, they are likely to get a
busy signal and, once they get through, often
find it necessary to speak to more than one
person before getting the information they
need.
IRS is now exploring the feasibility of
consolidating its telephone sites and
designating a common or single telephone
number for taxpayer assistance nationwide.
To really streamline its telephone service to
taxpayers, IRS must look at having a single
organization responsible for uniformly
measured telephone service and organized
to respond to taxpayers' questions in a way
that reduces anxiety and eliminates the need
for time-consuming, laborious written
correspondence. Because taxpayers deserve
from IRS the same level and caliber of service
that they receive from world-class financial
institutions, IRS must be able to give
taxpayers accurate information with minimal
delay.
Page 7
GAO/OCG-93-24TR Internal Revenue Service Issues
Managing Tax Systems Modernization
Central to any change in the way IRS does
business is Tax Systems Modernization
(TSM)-the redesign of automated systems SO
critical to IRS' work. To provide the type of
service taxpayers deserve, IRS must make
taxpayer information quickly available to
every employee who needs it. Recent IRS
Commissioners, recognizing how important
computer modernization is to tax
administration, have built on their
predecessors' efforts to bring TSM to fruition.
This should be no less of a priority for the
new Commissioner.
With an estimated cost of about $23 billion
through the year 2008, TSM is perhaps the
largest civilian computer modernization in
history. IRS has developed a basic design
concept for the modernization, but that
technical design was developed before IRS
had thoroughly reassessed its basic business
processes. The details of the technical
design may have to change to support the
new vision of IRS. In that regard, the new
Commissioner will need to give priority
attention to the following:
Finalize an operational strategy soon. Too
many other decisions hinge on this one, and
dollars may be wasted if IRS does not reach
Page 8
GAO/OCG-93-24TR Internal Revenue Service Issues
Managing Tax Systems Modernization
closure on this issue.
Once an operational strategy has been
finalized, verify that major procurements
proceeding from the technical design fit the
needs of the new operating environment.
Contracts for several of these procurements
have been awarded, and others are about to
be. It is important to act quickly in order to
avoid wasteful spending, even if this means
putting the brakes on certain TSM initiatives.
Give top priority to making on-line access to
taxpayer information available to every IRS
employee who needs to work with that
information. Make that happen first and
soon by putting the taxpayer file on-line to
every workstation and implementing the
kind of telecommunication network that can
send this information anywhere, anytime.
The new workstations and
telecommunication networks put in place
must be capable of handling features such as
image, fax, and high-volume data
transactions, even though those applications
are not yet ready.
Because TSM is so large, it is expected to take
more than a decade to complete. Getting the
budgetary support and the right people to
manage it will be a long-term concern. To
Page 9
GAO/OCG-93-24TR Internal Revenue Service Issues
Managing Tax Systems Modernization
avoid the kinds of project delays and
procurement problems that have arisen in
the past, IRS needs experienced senior and
project managers to oversee and direct TSM.
These managers must have technical
expertise as well as management acumen
and commitment to deliver results within
agreed upon time frames.
Throughout the TSM initiative, IRS needs to
ensure that its systems designs will produce
good management information. Perhaps the
most consistent theme over the past 2
decades of GAO reports is how often IRS
managers do not have the right information
to do their jobs. One significant effort to
improve management information that needs
continuing emphasis is the work being done
to implement the Enforcement Management
Information System. That system, when fully
implemented, should provide management
and the Congress with much needed
information on the actual results and costs
of IRS' enforcement efforts.
Page 10 GAO/OCG-93-24TR Internal Revenue Service Issues
Strengthening Human Resources
The changes that are sure to come as IRS
redesigns the way it does business will
transform the agency into one that depends
less on manual labor and more on
technology-based skills. The technical
implications of modernization have received
most of the emphasis in IRS. It is critical that
IRS also pay attention to the significant
human resource implications. IRS must
develop human resource strategies that
support the new business direction and
technical environment. As part of that effort,
IRS needs to determine workforce levels,
reassess skill needs, identify strategies for
meeting those needs, and manage workforce
adjustments.
Fulfilling IRS' policy of protecting employees'
jobs from modernization-generated staff
reductions will be a formidable challenge. IRS
must bridge the gap between existing
workforce skills and abilities and those that
will be needed in the modernized
environment. By planning far enough in
advance and using the intervening years for
training, IRS should be better able to meet
that challenge. IRS has taken a critical step
toward that end by recently drafting a much
needed human resources plan. The new
Commissioner will need to ensure that
Page 11 GAO/OCG-93-24TR Internal Revenue Service Issues
Strengthening Human Resources
aggressive action is taken to implement that
plan.
Another critical human resource issue facing
the new Commissioner relates to employee
ethics and integrity. IRS' record in this area
has come under increasing scrutiny. IRS must
continue vigorous efforts to promote open
communication, strengthen employee
awareness, and increase managerial
accountability. IRS employees must recognize
and accept the fact that they will be held to a
high ethical standard to protect the integrity
of this country's voluntary tax system.
Page 12 GAO/OCG-93-24TR Internal Revenue Service Issues
Supporting the Strategic Business
Process
IRS is building a strategic business process
that could serve as a model for other federal
agencies. The cornerstone of that process is
a strategic plan, which is updated annually.
As part of that plan, IRS has identified three
broad business objectives-improving
voluntary compliance, reducing taxpayer
burden, and improving quality-driven
productivity and customer satisfaction-and
various strategies and actions to help IRS
achieve those objectives. Annual plans are
developed to guide headquarters and field
office activities in support of the business
plan, and annual business reviews are done
to assess progress.
If IRS' strategic business process is to be
effective, it is critical that IRS develop
appropriate performance measures. Without
the right measures, IRS will be unable to
assess progress in achieving its business
goals. The measures IRS now uses are
focused largely on processes rather than
outcomes. For example, IRS tracks the
number of auditors and audits completed but
does not track the effect of audits on
voluntary compliance. IRS recognizes the
need for better measures and has efforts
under way in that regard. The new
Commissioner needs to lead those efforts
and to hold managers accountable for
Page 13 GAO/OCG-93-24TR Internal Revenue Service Issues
Supporting the Strategic Business
Process
meeting outcome goals. Because IRS is so
decentralized, holding managers accountable
for agency goals is critical to IRS' operating
with a shared understanding of its mission
and direction.
Page 14 GAO/OCG-93-24TR Internal Revenue Service Issues
Collecting Back Taxes
The new administration will have to give
continuing priority attention to the
collection of taxes owed the government. In
general, IRS has reported accounts receivable
that are significantly higher than could ever
be collected; IRS itself estimated that less
than $30 billion of 1991's $111 billion
inventory was collectible. Yet because IRS
does not know how many records are valid,
no one really knows the true number of
receivables, much less how many of them
are collectible. In a separate high-risk report
on IRS receivables, we discuss the steps
needed to better manage this area-1 of 17
throughout the government designated by us
as high risk.
That report discusses several problems that
have interfered with IRS' ability to collect
unpaid taxes, including (1) inaccurate and
insufficient IRS records; (2) a lengthy,
antiquated, rigid, and inefficient collection
process; (3) difficulty in balancing collection
efforts with the need to protect the taxpayer;
(4) IRS' decentralized structure; and (5)
inadequate information on how to allocate
staff effectively. The report also summarizes
our various recommendations for
improvement.
Page 15 GAO/OCG-93-24TR Internal Revenue Service Issues
Reducing the Tax Gap
IRS has estimated the tax gap for 1992 to be
about $114 billion. That estimate is
conservative because it only relates to
income taxes and excludes taxes associated
with illegal-source income. In an attempt to
reduce the tax gap, IRS recently announced a
goal to increase voluntary compliance with
the tax laws from 84 percent to 94 percent in
8 to 10 years. To achieve that goal, important
decisions will have to be made on research
efforts, enforcement programs, and resource
allocations. Those decisions need to be
made cohesively, in ways most likely to
improve overall compliance. The time is also
right, as IRS goes about changing the way it
does business, to rethink its entire approach
to enforcement.
Measuring
An early decision facing the new
Compliance
Commissioner will involve the design of next
year's Taxpayer Compliance Measurement
Program (TCMP)-the only reliable measure
of compliance and a program that provides
data used in tax policy decisions, revenue
estimating, and estimation of U.S. income
accounts. The current direction appears to
be toward eventual elimination of TCMP on
the grounds it is too costly, too intrusive, and
untimely. We believe that would be a
mistake. TCMP needs to be fixed, not
Page 16 GAO/OCG-93-24TR Internal Revenue Service Issues
Reducing the Tax Gap
eliminated. TCMP is critical to IRS and the
whole tax community. It should provide an
important outcome measure for IRS' strategic
business process, enough information to
make informed decisions on enforcement
program and resource allocations, and
sufficient data for tax policy decisions.
TCMP did not provide an empirical base for
IRS' latest enforcement
strategy-Compliance 2000. Instead, IRS
launched Compliance 2000 by asking the 63
district offices to nominate "taxpayer
segments" as prototypes. Because TCMP has
not provided estimates at that disaggregated
a level, prototype selection necessarily
depended on judgments. Thus, IRS has no
assurance that it is working on the most
noncompliant segments or that prototype
results-hower positive-will improve
overall compliance levels. Had it relied on
TCMP data that were valid at the regional
office level, IRS would have had a firmer
foundation from which to launch
Compliance 2000.
Enforcement
Under Compliance 2000, more emphasis is
Considerations
being placed on the role of taxpayer
education and assistance in improving
compliance and reducing the tax gap. Even
Page 17 GAO/OCG-93-24TR Internal Revenue Service Issues
Reducing the Tax Gap
so, enforcement is still critical. Audit
coverage, a key indicator of the level of IRS'
enforcement effort, has shown a disturbing
trend in the past few years. Overall coverage
is only about 1 percent, and the coverage of
corporations decreased from 5 percent in
1981 to less than 3 percent in 1991. Faced
with this declining audit presence, the new
Commissioner needs to determine
the role of audits and the proper balance
between auditing returns, doing computer
matches, and tracking down nonfilers;
acceptable audit coverage rates and whether
those rates should be at similar levels
around the country;
the proper balance of coverage among
corporate, individual, partnership, and other
types of returns;
whether audit quality is high enough and
how quality should be measured; and
whether and how IRS' traditional approach to
doing audits should be changed to better
serve both IRS and taxpayers.
Such issues are particularly pertinent with
respect to the largest corporations-those
Page 18 GAO/OCG-93-24TR Internal Revenue Service Issues
Reducing the Tax Gap
1,600 now covered by IRS' Coordinated
Examination Program. Of continuing
concern is IRS' capacity to collect the right
amount of tax from these highly complex
corporations. Much of the additional taxes
recommended from IRS audits is not billed to
the corporations after the appeals process.
IRS has made changes in the last 2 years to
better manage this program. In a
forthcoming report, we will discuss more
fundamental changes that may be warranted.
The new administration will also need to
deal with various audit issues that recur time
and time again, consuming significant IRS
resources, often without realizing for the
government the additional revenues
proposed by its examiners. Audits of large
multinational corporations, for example, are
beset by transfer pricing issues that involve
deciding whether related corporate entities
have calculated correctly the arm's-length
price for goods brought into or taken out of
the United States. The Congress has
legislated some changes in an attempt to
deal with certain troublesome audit issues,
and IRS has made other changes
administratively, but the problem is likely to
persist with the globalization of trade.
Page 19 GAO/OCG-93-24TR Internal Revenue Service Issues
Reducing the Tax Gap
Rethinking the
Given intractable issues such as transfer
Enforcement
pricing, worrisome compliance levels for
Approach
some segments of taxpayers, and continuing
resource constraints, it is a good time for IRS
to rethink its enforcement approaches.
Following are several questions the new
Commissioner needs to ask:
How could the design of the tax system be
changed to produce higher compliance
levels?
Is there a need for more withholding at the
source, incentives for cash businesses, or
simplified ways to file returns and pay taxes?
Does everyone have to file a tax return?
Are there more opportunities to improve
compliance through additional information
reporting or increased information sharing
among governmental entities?
How could compliance checks be designed
into TSM?
Is IRS using the right enforcement tools at the
right time?
Page 20 GAO/OCG-93-24TR Internal Revenue Service Issues
Improving Financial Management
IRS has determined that in order to achieve
its three broad business objectives it needs,
among other things, a strong financial
management system. As discussed in our
transition series report Financial
Management Issues (GAO/OCG-93-4TR,
Dec. 1992), IRS, like other federal agencies,
has serious financial management
weaknesses.
IRS' financial management systems were
generally designed to track information on
identified program objectives and were not
integrated to ensure that agencywide activity
was fully captured and reported. As a result,
IRS is unable to accurately segregate and
substantiate tax revenues collected and the
related accounts receivable. For example, IRS
cannot reliably identify the amount of taxes
collected for Social Security or any of the
trust funds for which IRS collects excise
taxes. Also, IRS cannot identify the actual
amount of accounts receivable because a
large number of invalid accounts and errors
are contained in the financial management
systems used to track receivables.
IRS' ability to identify program costs is also
significantly impaired. This limitation
minimizes the agency's ability to properly
evaluate program performance and identify
Page 21 GAO/OCG-93-24TR Internal Revenue Service Issues
Improving Financial Management
needs. In addition, financial management
weaknesses have resulted in accounting and
control problems over assets and spending.
As the new administration seeks to reduce
the budget deficit and improve federal
agencies' performance, it will be important
for the Commissioner of Internal Revenue to
give urgent focus to converting these
ineffective and often outdated financial
management systems to systems that will
provide accurate and reliable financial
information for use in policymaking and
other decisions that affect American
taxpayers.
The Chief Financial Officers (CFO) Act of
1990, which represents the most
comprehensive financial reform package in
40 years, provides a blueprint for change
that, if fully implemented, would enable IRS
to correct its financial management systems
problems. Over the past 2 years, IRS has
made important strides in establishing a CFO
structure and in beginning to implement the
full range of requirements in the CFO Act. But
the process of change under the CFO Act has
just begun.
Sustained support and top-level attention by
the new administration, IRS, and the
Page 22 GAO/OCG-93-24TR Internal Revenue Service Issues
Improving Financial Management
Congress is needed to build on the efforts
now under way at IRS to improve financial
management through implementation of the
CFO Act. The tone at the top will be critical to
ensuring meaningful reform. As discussed in
greater detail in our transition series report
on financial management issues, among the
key actions are the need to
make clear that financial management
reform is a continuing high priority and hold
managers accountable for results;
expand the role of the CFO to encompass the
full range of duties and authorities in the CFO
Act;
promote and closely oversee efforts to build
first-class financial management
infrastructures-both people and systems;
emphasize the development of cost systems
and performance measures and the
integration of accounting, program, and
budget systems to develop more useful and
relevant financial information; and
foster continuing efforts to develop
auditable financial statements and to expand
financial reporting to encompass the full
range of accountability contemplated by the
Page 23 GAO/OCG-93-24TR Internal Revenue Service Issues
Improving Financial Management
CFO Act and the Office of Management and
Budget's implementing guidance.
Page 24 GAO/OCG-93-24TR Internal Revenue Service Issues
Managing Criminal Investigation
Resources
The new Commissioner will be faced with
competing priorities for IRS' criminal
investigation work. Other law enforcement
agencies seek the financial expertise of IRS'
special agents for cases that increasingly
involve sophisticated financial transactions.
This leaves IRS fewer resources to investigate
criminal violations of the tax law. During
congressional deliberations on the
administration's fiscal year 1993 budget
request for IRS, the criminal investigation
area came under considerable scrutiny.
The Senate passed a provision, for example,
that would have changed IRS' organization by
providing the Assistant Commissioner for
Criminal Investigation with direct line
authority over tax fraud investigations.
Although that provision was defeated in
conference, IRS has been directed to study
the Criminal Investigation Division to
determine whether it is adequately funded
and staffed.
The new Commissioner will also have to be
concerned about the adequacy of controls
over IRS' special agents. IRS is working to
implement several of our recommendations
for strengthening controls over one
particular technique-undercover
investigations.
Page 25 GAO/OCG-93-24TR Internal Revenue Service Issues
Responding to Calls for a Consumption
Tax
More groups this year than ever before have
proposed that the United States adopt some
type of consumption tax. For example, the
first report of the Strengthening of America
Commission, chaired by Senators Sam Nunn
and Pete Domenici, proposed a
consumption-based income tax. While IRS
will not have to decide whether there should
be such a tax, IRS will need to advise
policymakers of its implications.
One important consideration is whether the
proposed tax would be a fundamentally new
federal level tax, such as a value-added or
retail sales tax, or a variant of existing taxes,
such as a cash-flow business tax or a
personal expenditure tax. A new tax would
potentially require a new enforcement
approach with additional administrative
resources. A variant of existing taxes, while
presenting new and difficult enforcement
challenges, might be more easily managed
within existing approaches and resources. In
any form, such a tax would have great
ramifications for IRS. IRS needs to be in a
position to quickly analyze how it would
administer the various forms of such a tax
that may be proposed. In that regard, we will
report in several months on how a
value-added tax would be administered and
Page 26 GAO/OCG-93-24TR Internal Revenue Service Issues
Responding to Calls for a Consumption
Tax
how much it would probably cost to
administer it.
Page 27 GAO/OCG-93-24TR Internal Revenue Service Issues
Related GAO Products
Internal Revenue Service Receivables
(GAO/HR-93-13, Dec. 1992).
Tax Administration: Opportunities to
Further Improve IRS' Business Review
Process (GAO/GGD-92-125, Aug. 13, 1992).
International Taxation: Problems Persist in
Determining Tax Effects of Intercompany
Pricing (GAO/GGD-92-89, June 15, 1992).
Tax Administration: Compliance 2000-A
Worthy Idea That Needs Effective
Implementation (GAO/T-GGD-92-48, June 3,
1992).
Internal Revenue Service: Opportunities to
Reduce Taxpayer Burden Through
Return-Free Filing (GAO/GGD-92-88BR, May 8,
1992).
Tax Administration: One Stop Service: A
New Concept of Assistance for Taxpayers
(GAO/T-GGD-92-33, Apr. 28, 1992).
Tax Administration: IRS Undercover
Operations Management Oversight Should
Be Strengthened (GAO/GGD-92-79, Apr. 21,
1992).
Page 28 GAO/OCG-93-24TR Internal Revenue Service Issues
Related GAO Products
Tax Administration: IRS' Efforts to Improve
Corporate Compliance (GGD-92-81BR, Apr. 17,
1992).
Tax Systems Modernization: Progress Mixed
in Addressing Critical Success Factors
(GAO/T-IMTEC-92-13, Apr. 2, 1992).
Tax Administration: An Update on IRS'
Progress on Accounts Receivable and
Strategic Management (GAO/T-GGD-92-26, Apr. 2,
1992).
Tax Administration: IRS' System Used in
Prioritizing Taxpayer Delinquencies Can Be
Improved (GAO/GGD-92-6, Mar. 26, 1992).
Tax Systems Modernization: Factors Critical
to Success (GAO/T-IMTEC-92-10, Mar. 10, 1992).
Internal Revenue Service: Status of IRS'
Efforts to Deal With Integrity and Ethics
Issues (GAO/GGD-92-16, Dec. 31, 1991).
Identifying Options for Organizational and
Business Changes at IRS (GAO/T-GGD-91-54,
July 9, 1991).
Management Challenges Facing IRS
(GAO/T-GGD-91-20, June 25, 1991).
Page 29 GAO/OCG-93-24TR Internal Revenue Service Issues
Related GAO Products
Managing IRS: Important Strides Forward
Since 1988 but More Needs to Be Done
(GAO/GGD-91-74, Apr. 29, 1991).
Tax Administration: IRS Does Not Investigate
Most High-Income Nonfilers (GAO/GGD-91-36,
Mar. 13, 1991).
Tax Administration: Profiles of Major
Components of the Tax Gap (GAO/GGD-90-53BR,
Apr. 4, 1990).
Internal Revenue Service Issues
(GAO/OCG-89-26TR, Nov. 1988).
Page 30 GAO/OCG-93-24TR Internal Revenue Service Issues
Transition Series
Economics
Budget Issues (GAO/OCG-93-1TR).
Investment (GAO/OCG-93-2TR).
Management
Government Management Issues
(GAO/OCG-93-3TR).
Financial Management Issues
(GAO/OCG-93-4TR).
Information Management and Technology
Issues (GAO/OCG-93-5TR).
Program Evaluation Issues (GAO/OCG-93-6TR).
The Public Service (GAO/OCG-93-7TR).
Program Areas
Health Care Reform (GAO/OCG-93-8TR).
National Security Issues (GAO/OCG-93-9TR).
Financial Services Industry Issues
(GAO/OCG-93-10TR).
International Trade Issues (GAO/OCG-93-11TR).
Commerce Issues (GAO/OCG-93-12TR).
Energy Issues (GAO/OCG-93-13TR).
Page 31 GAO/OCG-93-24TR Internal Revenue Service Issues
Transition Series
Transportation Issues (GAO/OCG-93-14TR).
Food and Agriculture Issues
(GAO/OCG-93-15TR).
Environmental Protection Issues
(GAO/OCG-93-16TR).
Natural Resources Management Issues
(GAO/OCG-93-17TR).
Education Issues (GAO/OCG-93-18TR).
Labor Issues (GAO/OCG-93-19TR).
Health and Human Services Issues
(GAO/OCG-93-20TR).
Veterans Affairs Issues (GAO/OCG-93-21TR).
Housing and Community Development
Issues (GAO/OCG-93-22TR).
Justice Issues (GAO/OCG-93-23TR).
Internal Revenue Service Issues
(GAO/OCG-93-24TR).
Foreign Economic Assistance Issues
(GAO/OCG-93-25TR).
Page 32 GAO/OCG-93-24TR Internal Revenue Service Issues
Transition Series
Foreign Affairs Issues (GAO/OCG-93-26TR).
NASA Issues (GAO/OCG-93-27TR).
General Services Issues (GAO/OCG-93-28TR).
*U.S.G.P.0.:1993-336-740 Page 33 GAO/OCG-93-24TR Internal Revenue Service Issues
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