High-Risk Series

1. Farmers Home Administration's Farm Loan Programs. HR-93-1. December 1992. Letter Report. 35 pp. Filename: HR1

GAO provided information on the Farmers Home Administration's (FmHA) management of direct and guaranteed farm loan programs and federal farm properties, focusing on FmHA failure to comply with loan and property management standards and program policies which contribute to financial risks.

GAO found that: (1) FmHA attempted to provide high-risk farmers with temporary credit until they were able to secure commercial credit and protect the taxpayers' investment; (2) 70 percent of the $20 billion in outstanding FmHA loans were either delinquent or restructured to prevent delinquency; (3) FmHA reduced $7.6 billion in delinquent debt due to loan defaults; (4) repeated loan servicing worsened borrowers' financial conditions by increasing their debt and reducing equity; (5) FmHA field offices often failed to follow their own standards for making loans, servicing loans, and managing property; (6) FmHA and congressional loan making, loan-servicing, and inventory management policies increased FmHA and taxpayers' vulnerability to losses; and (7) FmHA and Congress need to establish a system to ensure that FmHA field offices follow loan standards and enact policy and program changes to reduce the loan programs' exposure to risk.

2. Guaranteed Student Loans. HR-93-2. December 1992. Letter Report. 40 pp. Filename: HR2

GAO reviewed the Department of Education's management of the Guaranteed Student Loan Program, focusing on the: (1) program's structural flaws; and (2) lack of adequate incentives to prevent loan defaults.

GAO found that: (1) the federal government's risk of loan losses has increased greatly as the program has evolved; (2) the government has increased its financial exposure, since it provided interest subsidies to lenders as well as full reimbursement to lenders and guaranty agencies for any loan defaults; (3) incentives do not adequately encourage participants to do more to prevent defaults; (4) Education has a history of mismanagement and poor oversight of the program's activities; and (5) Education has inadequate financial and management information systems that contain inaccurate and incomplete data, conducted little oversight of the lenders and guaranty agencies, experienced high turnover in key management positions and has not hired staff with adequate skills, and a management structure that inhibited effective program improvement.

3. Bank Insurance Fund. HR-93-3. December 1992. Letter Report. 46 pp. Filename: HR3

GAO reviewed the Bank Insurance Fund, focusing on the factors that contributed to the depletion of the Fund's reserves and the need for improved accounting rules and bank examinations.

GAO noted that: (1) during the 1980s, U.S. banks made riskier loans to increase their customer base and fight competition from other domestic and foreign financial service vendors; (2) weak internal controls, flawed corporate governance systems, and lax regulatory supervision put banks and the Bank Insurance Fund at risk; (3) federal regulators have not acted to effectively tighten flexible accounting rules; (4) successful implementation of the Federal Deposit Insurance Corporation (FDIC) act reforms depends on FDIC use of its authority to rebuild the fund and the quality of regulators' oversight efforts; and (5) Congress should consider legislating certain regulatory accounting principles for nonperforming loans and more rigorous reporting to regulators.

4. Resolution Trust Corporation. HR-93-4. December 1992. Letter Report. 45 pp. Filename: HR4

GAO reviewed the Resolution Trust Corporation's (RTC) cleanup of the thrift industry, focusing on: (1) RTC management of its asset disposition and contracting activities; (2) RTC information systems; and (3) reduction of thrift cleanup costs.

GAO found that RTC: (1) has recovered about 95 percent of the book value of the financial assets it has sold, but faces losses from contingent liability on already-sold assets and potential asset mismanagement by contractors; (2) has not adequately planned or executed its real estate disposition, and did not perform evaluations of its disposition results until its third year of operation; (3) is incapable of properly monitoring contractors' performance and minimizing costs because of poor contract planning and administration; and (4) information systems are inadequate and contain inaccurate information, although RTC is developing improvements to some systems. GAO also found that: (1) the total cleanup cost will be around $335 billion, if RTC minimizes its losses by improving its control over asset management and disposition; and (2) inadequate funding has prevented RTC from resolving a number of failed thrifts, which has increased its operating losses and taxpayers' costs.

5. Pension Benefit Guaranty Corporation. HR-93-5. December 1992. Letter Report. 36 pp. Filename: HR5

GAO reviewed the financial condition of the Pension Benefit Guaranty Corporation (PBGC), focusing on: (1) the growing PBGC deficit; (2) weaknesses in the Department of Labor's, Internal Revenue Service's (IRS), and independent public accountants' efforts to detect pension plan abuses that place plan assets at risk; and (3) pressures Congress faces to expand PBGC guarantees to cover insurance annuitants and other groups.

GAO found that: (1) the growing PBGC deficit threatens the insurance program's long-term financial viability; (2) effective enforcement of the Employee Retirement Income Security Act (ERISA) requirements is essential to reducing the risk to the insurance program; (3) ERISA violations and the collection of deliquent and underpaid premiums have added to PBGC financial losses and increased its administrative burden; (4) Labor and the IRS have made progress in improving their enforcement efforts, but problems remain; (5) Labor and IRS efforts have been hindered by scarce resources relative to the size of the plan and disappointing enforcement targeting results; (6) recent failures of several large insurance companies have raised concerns that federal oversight of plans' selections of insurance annuity providers is inadequate; and (7) inadequate federal oversight may add to increasing pressures Congress faces to expand PBGC guarantees to cover insurance annuities if the existing guarantees fail to adequately protect pension benefits.

6. Medicare Claims. HR-93-6. December 1992. Letter Report. 32 pp. Filename: HR6

GAO provided information on the Health Care Financing Administration's (HCFA) management of the Medicare Program and whether insufficient funding exposes the program to unnecessary loss through waste, fraud, and abuse.

GAO found that: (1) Medicare losses resulting from fraud, waste, and abuse could total 10 percent of the nation's total health care costs; (2) HCFA relies on contractors to process Medicare claims and protect program funds with payment safeguards; (3) HCFA failure to properly manage contractors' safeguards and insufficient funding exposed the program to waste, fraud, and abuse; (4) HCFA contractors often failed to investigate fraud complaints raised by Medicare beneficiaries and failed to recover $170 million in overpayments from hospitals; (5) HCFA contractors paid nearly $2 billion in claims for which other insurers were responsible; and (6) HCFA needs to strengthen contractor oversight, reduce excessive payments, and tighten billing controls.

7. Defense Weapons Systems Acquisition. HR-93-7. December 1992. Letter Report. 50 pp. Filename: HR7

GAO reviewed the Department of Defense's (DOD) annual expenditure of billions of dollars to acquire new weapons systems, focusing on DOD determination, planning, budgeting, and acquisition of major weapons requirements.

GAO found that: (1) while the services conduct considerable analyses to justify major acquisitions, these analyses were narrowly focused, and did not fully consider alternative solutions, including the joint acquisition of systems with other services; (2) cost growth and schedule delays were among the oldest and most visible problems associated with DOD weapon system acquisition; (3) DOD tendency to overestimate the amount of future funding available for defense, and underestimate program costs, has resulted in program acquisition strategies that are unreasonable or risky at best; (4) the most troublesome characteristic of DOD acquisition strategies was the high degree of concurrency between the development and production of weapons; (5) DOD has compromised or not adequately considered design considerations such as reliability, maintainability, and logistics support during the acquisition process.

8. Defense Contract Pricing. HR-93-8. December 1992. Letter Report. 37 pp. Filename: HR8

GAO reviewed the Department of Defense's (DOD) contracting practices, focusing on the significant risks it faces as a result of overpriced contracts.

GAO found that: (1) DOD found $3.67 billion in overcharges in defense contracts in fiscal years 1987 through 1991, of which 37 percent was due to subcontractors' overcharges; (2) DOD required major contractors to establish adequate cost-estimating systems and include subcontract price evaluations in their contract proposals; (3) despite strengthened regulations and emphasis on subcontract pricing, overcharges due to inflated subcontractor estimates continued; (4) DOD oversight of contract pricing was inadequate, and corrective actions were insufficient; (5) the Defense Contract Audit Agency was unaware of 88 percent of the subcontracts because prime contractors were not required to provide lists of their subcontractors; (6) contracting officers did not adequately review contractors' actions and enforce compliance; (7) the DOD audit follow-up system did not provide accurate and complete information on many high-risk contractors' cost-estimating systems; and (8) DOD could ensure fair and reasonable profits for defense firms if it established a financial reporting system that provides information comparing defense and nondefense contract costs.

9. Department of Energy Contract Management. HR-93-9. December 1992. Letter Report. 41 pp. Filename: HR9

GAO reviewed the Department of Energy's (DOE) contract management weaknesses, focusing on DOE failure to adequately oversee contractors that manage and operate the nuclear weapons complex and national laboratory network.

GAO noted that: (1) DOE contract management weaknesses have led to mismanagement of federal property and funds; (2) DOE is required to reimburse contractors for money and materials stolen by contractor employees and for fines the contractors incurred for environmental law violations; (3) vulnerability to waste, fraud, abuse, and mismanagement stemmed from long-standing inadequacies in DOE oversight of contactors' operations and activities; (4) 70 percent of DOE management and operating contracts did not employ standard contract clauses used by other federal agencies; and (5) DOE contracts gave contractors excessive latitude, increased the government's financial risk, and restricted its ability to control costs, since DOE failed to provide objective criteria for award or management fees paid to contractors.

10. Superfund Program Management. HR-93-10. December 1992. Letter Report. 41 pp. Filename: HR10

GAO provided information on the Environmental Protection Agency's (EPA) management of the Superfund Program, focusing on EPA: (1) recovery of Superfund clean-up costs from private parties; and (2) inadequate attention to contract management.

GAO found that: (1) EPA failed to base its Superfund expenditures on adequate cost-benefit assessments and lacked sufficient program administration to control escalating costs; (2) EPA lacked an adequate system for assigning clean-up priorities and determining Superfund sites' health and environmental risks in comparison to other environmental problems; (3) EPA collected only 10 percent of the potential $5.7 billion in recoverable funds from responsible parties; (4) the lack of complete data on past recovery efforts, failure to control collection efforts, and Superfund's legal restrictions which exclude recovery of indirect costs and interest limited EPA ability to recover more funds from responsible parties; and (5) EPA needed to develop additional risk-based planning approaches to assigning clean-up priorities, place greater emphasis on recovering program costs, and strengthen contract management.

11. NASA Contract Management. HR-93-11. December 1992. Letter Report. 42 pp. Filename: HR11

GAO reviewed the National Aeronautics and Space Administration's (NASA) lack of adequate controls over contract management and related activities.

GAO found that: (1) NASA failure to realistically plan for the budgetary resources to fund its programs can affect its ability to manage its contracts; (2) NASA technical oversight procedures and its cost reporting, property management, accounting, and information systems did not adequately ensure that contractor payments and the government-owned property were managed effectively; and (3) NASA field centers did not always fully comply with governmentwide, agency, or center requirements when awarding and modifying contracts.

12. Defense Inventory Management. HR-93-12. December 1992. Letter Report. 39 pp. Filename: HR12

GAO reviewed the Department of Defense's (DOD) management of military supplies, focusing on DOD maintenance of: (1) high excess inventory levels; and (2) systems for determining supply needs.

GAO found that: (1) each military service and the Defense Logistics Agency (DLA) individually maintained inventories of spare and repair parts in accordance with their own projected needs; (2) DOD estimated that its excess inventory costs over $30 billion; (3) the services' excess inventories increased during the 1980s by 150 to 240 percent; (4) DOD oversight and inventory information and control systems were inadequate and ineffective and led to the overstatement of supply requirements; (5) DOD must undergo an organizational culture change, such as adopting commercial practices, to reduce the costs of inventory procurement and maintenance; and (6) DOD is increasing cost awareness in its business practices by such means as charging the full cost of items and services to the military units that use them.

13. Internal Revenue Service Receivables. HR-93-13. December 1992. Letter Report. 42 pp. Filename: HR13

GAO reviewed the Internal Revenue Service's (IRS) ability to collect the tax debts owed to the federal government, focusing on what IRS needs to do to increase collections.

GAO found that: (1) IRS estimates that it will never collect 75 percent of the tax debt, since tax records are inaccurate, it cannot locate delinquent taxpayers, and deliquent taxpayers are unable to pay; (2) for fiscal year 1991, IRS collections of accounts receivable actually declined by 5 percent while the IRS receivable inventory increased by 15 percent; and (3) conditions that interfered with IRS ability to collect unpaid taxes included lack of complete account information, an inefficient collection process, the need to balance collection efforts with taxpayer protection, a highly decentralized organizational structure, and uneven staffing among offices.

14. Managing the Customs Service. HR-93-14. December 1992. Letter Report. 37 pp. Filename: HR14

GAO reviewed the U.S. Customs Service's ability to effectively enforce trade law and maintain effective financial controls.

GAO found that: (1) Customs needs to define trade enforcement in terms of increased detection of violations, increased voluntary compliance by importers, and increased collections of duties; (2) Customs needs to develop an institutional standard for measuring the significance of trade violations; (3) Customs has not managed its information resources effectively; (4) Customs employees often lack basic information needed to assess the effectiveness of trade enforcement efforts; (5) Customs continues to face the challenge of establishing adequate accountability and control over its resources; and (6) Customs needs to improve both its accounting for and controls over property.

15. Management of Overseas Real Property. HR-93-15. December 1992. Letter Report. 33 pp. Filename: HR15

GAO provided information on the Department of State's Office of Foreign Building Operations' (FBO) management of government overseas real estate programs, focusing on the need for increased government facility oversight to prevent mismanagement and waste.

GAO found that: (1) unapproved overseas facility construction, over-standard housing for foreign-based U.S. employees, insufficient maintenance requirements, and questionable real estate acquisition and disposal decisions contributed to program waste and mismanagement; (2) the FBO $2.1-billion security construction program lacked clear program objectives, planning, and coordination which resulted in significant delays and cost overruns; (3) internal control weaknesses in FBO property management included inadequate overseas post oversight, inadequate financial information systems, insufficient funding for facility rehabilitation and maintenance, and poor integration and planning of foreign policy and security objectives; (4) FBO completed only 8 of the 57 projects under the security construction program, failed to adequately assess contractor performance, and lacked sufficient staff to manage overseas facility construction; and (5) FBO needs to establish focused priorities for overseas construction projects, enhance and increase contractor evaluations, hire additional qualified staff to survey maintenance conditions at foreign posts, require yearly maintenance inspections, streamline and update housing standards, and improve information systems.

16. Federal Transit Administration Grant Management. HR-93-16. December 1992. Letter Report. 39 pp. Filename: HR16

GAO reviewed the Department of Transportation's Federal Transit Administration's (FTA) management and oversight of federal transit grants.

GAO found that: (1) FTA did not give high priority to oversight of federal grants but instead relied on assurances by grantees that they would manage federal funds properly; (2) problems often went undetected and uncorrected because FTA failed to oversee grantees' activities effectively; and (3) FTA has made a commitment to improving grant oversight by performing annual risk assessments of each grant recipient, establishing detailed procedures for monitoring recipients, and adopting a comprehensive enforcement system.

17. Asset Forfeiture Programs. HR-93-17. December 1992. Letter Report. 33 pp. Filename: HR17

GAO reviewed the Department of Justice's and the U.S. Customs Service's management and disposition of seized and forfeited assets, focusing on: (1) program changes; and (2) areas needing sustained management attention.

GAO found that: (1) legislative changes allowing more seizures and forfeitures increased Justice's and Customs' seized property inventories by almost 600 percent by 1992; (2) Congress established special funds with proceeds from asset sales to pay asset forfeiture-related expenses; (3) in 1987, Justice and Customs established policies to minimize the unnecessary holding of cash by speeding up the deposit of cash not needed in Treasury accounts; (4) Justice and Customs have developed systems to improve information handling needed for decision making; (5) a 1990 legislative change allowed the agencies to process all uncontested forfeitures administratively rather than judicially, which sped up the process considerably; (6) Justice and Customs have agreed to a pilot test of consolidating their postseizure management and disposition of noncash seized property inventories; (7) Justice and Customs are developing joint asset-sharing guidelines and oversight policies and procedures in response to asset-sharing concerns expressed by state and other officials; and (8) Justice has increased its use of title searches in seizing real property to protect owners' property rights.