in all stages of a project’s planning and delivery; integrates the use of the Office of Management and Budget’s A-11, Section 7, Exhibit 300: Capital Asset Plan and Business Case Summary; establishes performance goals for siting, energy, water, materials, and indoor environmental quality along with other comprehensive design goals and ensures incorporation of these goals throughout the design and lifecycle of the building; and considers all stages of the building’s lifecycle, including deconstruction. Incorporate sustainable operations and maintenance practices within the appropriate Environmental Management System. Assess existing condition and operational procedures of the building and major building systems and identify areas for improvement. Establish operational performance goals for energy, water, material use and recycling, and indoor environmental quality, and ensure incorporation of these goals throughout the remaining lifecycle of the building. Incorporate a building management plan to ensure that operating decisions and tenant education are carried out with regard to integrated, sustainable building operations and maintenance. Augment building operations and maintenance as needed using occupant feedback on work space satisfaction.\",\n \"Employ commissioning practices tailored to the size and complexity of the building and its system components in order to verify performance of building components and systems and help ensure that design requirements are met. This should include an experienced commissioning provider, inclusion of commissioning requirements in construction documents, a commissioning plan, verification of the installation and performance of systems to be commissioned, and a commissioning report. Employ recommissioning, tailored to the size and complexity of the building and its system components in order to optimize and verify performance of fundamental building systems. Commissioning must be performed by an experienced commissioning provider. When building commissioning has been performed, the commissioning report, summary of actions taken, and schedule for recommissioning must be documented. In addition, meet the requirements of Energy Independence and Security Act of 2007 (EISA), Section 432 and associated Federal Energy Management Program (FEMP) guidance. Building recommissioning must have been performed within 4 years prior to reporting a building as meeting the Guiding Principles. New construction and major renovations design to earn the ENERGY STAR® targets for new construction and major renovation where applicable.\",\n \"For new construction, reduce energy use by 30% compared to the baseline building performance rating per the American National Standards Institute/American Society of Heating, Refrigerating and Air-Conditioning Engineers, Inc., (ASHRAE)/Illuminating Engineering Society of North America Standard 90.1-2007, Energy Standard for Buildings Except Low-Rise Residential. For major renovations, reduce the energy use by 20 percent below prerenovations 2003 baseline. Laboratory spaces may use the Labs21 Laboratory Modeling Guidelines. rating of 75 or higher or an equivalent Labs21 Benchmarking Tool score for laboratory buildings. Option 2: Reduce measured building energy use by 20% compared to building energy use in 2003 or a year thereafter with quality energy use data. Option 3: Reduce energy use by 20% compared to the ASHRAE 90.1-2007 baseline building design if design information is available. Use energy efficient products Use ENERGY STAR® and FEMP-designated energy efficient products, where available. Use ENERGY STAR® and FEMP-designated energy efficient products, where available. Measurement and verification Per the Energy Policy Act of 2005 Section 103, install building level electricity meters to track and continuously optimize performance. Per EISA Section 434, include equivalent meters for natural gas and steam, where natural gas and steam are used.\",\n \"Per the Energy Policy Act of 2005 Section 103, install building level electricity meters to track and continuously optimize performance. Per EISA Section 434, include equivalent meters for natural gas and steam, where natural gas and steam are used. Compare actual performance data from the first year of operation with the energy design target, preferably by using ENERGY STAR® Portfolio Manager for building and space types covered by ENERGY STAR®. Verify that the building performance meets or exceeds the design target, or that actual energy use is within 10% of the design energy budget for all other building types. For other building and space types, use an equivalent benchmarking tool such as the Labs21 benchmarking tool for laboratory buildings. Compare annual performance data with previous years’ performance data, preferably by entering annual performance data into the ENERGY STAR® Portfolio Manager. For building and space types not available in ENERGY STAR®, use an equivalent benchmarking tool, such as the Labs21 benchmarking tool for laboratory buildings. Per Executive Order 13423, implement renewable energy generation projects on agency property for agency use, when lifecycle cost-effective.\",\n \"Per Executive Order 13423, implement renewable energy generation projects on agency property for agency use, when life cycle cost-effective. Per the Energy Independence and Security Act (EISA) Section 523, meet at least 30% of the hot water demand through the installation of solar hot water heaters, when life cycle cost-effective. New construction and major renovations use of harvested rainwater, treated wastewater, and air conditioner condensate should also be considered and used where feasible for nonpotable use and potable use where allowed. water baseline for plumbing fixtures older than 1994 is 160% of the Uniform Plumbing Codes 2006 or the International Plumbing Codes 2006 fixture performance requirements, or Option 2: Reduce building measured potable water use by 20% compared to building water use in 2003, or a year thereafter with quality water data. Outdoor Water. Use water efficient landscape and irrigation strategies, such as water reuse, recycling, and the use of harvested rainwater, to reduce outdoor potable water consumption by a minimum of 50% over that consumed by conventional means. The installation of water meters for locations with significant outdoor water use is encouraged. Outdoor Water.\",\n \"Three options can be used to measure outdoor potable water use performance: Option 1: Reduce potable irrigation water use by 50% compared to conventional methods. Option 2: Reduce building related potable irrigation water use by 50 percent compared to measured irrigation water use in 2003 or a year thereafter with quality water data. Option 3: Use no potable irrigation water. Employ design and construction strategies that reduce storm water runoff and discharges of polluted water off-site. Per EISA Section 438, to the maximum extent technically feasible, maintain or restore the predevelopment hydrology of the site with regard to temperature, rate, volume, and duration of flow using site planning, design, construction, and maintenance strategies. Employ strategies that reduce storm water runoff and discharges of polluted water off-site. Per EISA Section 438, where redevelopment affects site hydrology, use site planning, design, construction, and maintenance strategies to maintain hydrologic conditions during development, or to restore hydrologic conditions following development, to the maximum extent that is technically feasible. Install water meters for building sites with significant indoor and outdoor water use is encouraged.\",\n \"If only one meter is installed, reduce potable water use (indoor and outdoor combined) by at least 20% compared to building water use in 2003, or a year thereafter with quality water data. Per the Energy Policy Act of 2005 Section 109, when potable water is used to improve a building’s energy efficiency, deploy life cycle cost- effective water conservation measures. Per the Energy Policy Act of 2005 Section 109, when potable water is used to improve a building’s energy efficiency, deploy life cycle cost-effective water conservation measures. Specify the Environmental Protection Agency’s (EPA) WaterSense-labeled products or other water conserving products, where available. Choose irrigation contractors who are certified through a WaterSense labeled program. Specify EPA’s WaterSense-labeled products or other water conserving products, where available. Choose irrigation contractors who are certified through a WaterSense labeled program. Meet ASHRAE Standard 55-2004, Thermal Environmental Conditions for Human Occupancy, including continuous humidity control within established ranges per climate zone, and ASHRAE Standard 62.1-2007, Ventilation for Acceptable Indoor Air Quality. Meet ASHRAE Standard 55-2004, Thermal Environmental Conditions for Human Occupancy and ASHRAE Standard 62.1-2007, Ventilation for Acceptable Indoor Air Quality.\",\n \"New construction and major renovations condensation to prevent building damage, minimize mold contamination, and reduce health risks related to moisture. building damage, minimize mold contamination, and reduce health risks related to moisture. For façade renovations, Dew Point analysis and a plan for cleanup or infiltration of moisture into building materials are required. Achieve a minimum daylight factor of 2% (excluding all direct sunlight penetration) in 75% of all space occupied for critical visual tasks. Provide automatic dimming controls or accessible manual lighting controls, and appropriate glare control. Automated lighting controls (occupancy/vacancy sensors with manual-off capability) are provided for appropriate spaces including restrooms, conference and meeting rooms, employee lunch and break rooms, training classrooms, and offices. Two options can be used to meet additional daylighting and lighting controls performance expectations: Option 1: Achieve a minimum daylight factor of 2% (excluding all direct sunlight penetration) in 50% of all space occupied for critical visual tasks, or Option 2: Provide occupant controlled lighting, allowing adjustments to suit individual task needs, for 50% of regularly occupied spaces. Specify materials and products with low pollutant emissions, including composite wood products, adhesives, sealants, interior paints and finishes, carpet systems, and furnishings.\",\n \"Use low emitting materials for building modifications, maintenance, and cleaning. In particular, specify the following materials and products to have low pollutant emissions: composite wood products, adhesives, sealants, interior paints and finishes, solvents, carpet systems, janitorial supplies, and furnishings. Implement a policy and post signage indicating that smoking is prohibited within the building and within 25 feet of all building entrances, operable windows, and building ventilation intakes during building occupancy. Prohibit smoking within the building and within 25 feet of all building entrances, operable windows, and building ventilation intakes. Use integrated pest management techniques as appropriate to minimize pesticide usage. Use EPA-registered pesticides only when needed. Follow the recommended approach of the Sheet Metal and Air Conditioning Contractor’s National Association Indoor Air Quality Guidelines for Occupied Buildings under Construction, 2007. After construction and prior to occupancy, conduct a minimum 72-hour flush-out with maximum outdoor air consistent with achieving relative humidity no greater than 60%. After occupancy, continue flush-out as necessary to minimize exposure to contaminants from new building materials. New construction and major renovations meeting or exceeding EPA’s recycled content recommendations. For other products, specify materials with recycled content when practicable.\",\n \"If EPA-designated products meet performance requirements and are available at a reasonable cost, a preference for purchasing them shall be included in all solicitations relevant to construction, operation, maintenance of, or use in the building. EPA’s recycled content product designations and recycled content recommendations are available on EPA’s Comprehensive Procurement Guideline website at <www.epa.gov/cpg>. or exceeding EPA’s recycled content recommendations [for building modifications, maintenance, and cleaning]. For other products, use materials with recycled content such that the sum of postconsumer recycled content plus one- half of the preconsumer content constitutes at least 10% (based on cost or weight) of the total value of the materials in the project. If EPA- designated products meet performance requirements and are available at a reasonable cost, a preference for purchasing them shall be included in all solicitations relevant to construction, operation, maintenance of, or use in the building. EPA’s recycled content product designations and recycled content recommendations are available on EPA’s Comprehensive Procurement Guideline website at <www.epa.gov/cpg>. Biobased content. Per Section 9002 of the Farm Security and Rural Investment Act, for USDA- designated products, specify products with the highest content level per USDA’s biobased content recommendations.\",\n \"For other products, specify biobased products made from rapidly renewable resources and certified sustainable wood products. If these designated products meet performance requirements and are available at a reasonable cost, a preference for purchasing them shall be included in all solicitations relevant to construction, operation, maintenance of, or use in the building. USDA’s biobased product designations and biobased content recommendations are available on USDA’s BioPreferred web site at <www.usda.gov/biopreferred>. Biobased content. Per Section 9002 of the Farm Security and Rural Investment Act, for USDA- designated products, use products with the highest content level per USDA’s biobased content recommendations. For other products, use biobased products made from rapidly renewable resources and certified sustainable wood products. If these designated products meet performance requirements and are available at a reasonable cost, a preference for purchasing them shall be included in all solicitations relevant to construction, operation, maintenance of, or use in the building. USDA’s biobased product designations and biobased content recommendations are available on USDA’s BioPreferred website at <www.usda.gov/biopreferred>. Environmentally preferable products. Use products that have a lesser or reduced effect on human health and the environment over their lifecycle when compared with competing products or services that serve\",\n \"the same purpose.\",\n \"A number of standards and ecolabels are available in the marketplace to assist specifiers in making environmentally preferable decisions. For recommendations, consult the Federal Green Construction Guide for Specifiers at <www.wbdg.org/design/greenspec.php>. Environmentally preferable products. Use products that have a lesser or reduced effect on human health and the environment over their lifecycle when compared with competing products or services that serve the same purpose. A number of standards and ecolabels are available in the marketplace to assist specifiers in making environmentally preferable decisions. For recommendations, consult the Federal Green Construction Guide for Specifiers at <www.wbdg.org/design/greenspec.php>. New construction and major renovations construction, demolition and land clearing materials, excluding soil, where markets or on-site recycling opportunities exist. Provide salvage, reuse and recycling services for waste generated from major renovations, where markets or on-site recycling opportunities exist. beverage containers and paper from building occupants, batteries, toner cartridges, outdated computers from an equipment update, and construction materials from a minor renovation.\",\n \"Eliminate the use of ozone depleting compounds during and after construction where alternative environmentally preferable products are available, consistent with either the Montreal Protocol and Title VI of the Clean Air Act Amendments of 1990, or equivalent overall air quality benefits that take into account lifecycle impacts. Eliminate the use of ozone depleting compounds where alternative environmentally preferable products are available, consistent with either the Montreal Protocol and Title VI of the Clean Air Act Amendments of 1990, or equivalent overall air quality benefits that take into account lifecycle impacts. Provides instructions to federal agencies on designing, constructing, maintaining, and operating buildings in sustainable locations, as called for in Executive Order 13514, Federal Leadership in Environmental, Energy, and Economic Performance. Provides instructions to federal agencies on implementation of water use efficiency and management goals in Executive Order 13514, Federal Leadership in Environmental, Energy, and Economic Performance. Web-based and in-person training on the Guiding Principles, including training customized to an agency’s needs. Establishes guidelines for agencies to meter their buildings for energy (electricity, natural gas, and steam) and water. Among other guidance, defines which buildings are appropriate to meter and provides metering prioritization recommendations for those agencies\",\n \"with limited resources.\",\n \"Designates ENERGY STAR Portfolio Manager as the building energy use benchmarking system to use for federal facilities. Describes minimum data inputs and public disclosure requirements, among other things. Training and educational tools that describe types of building commissioning— including recommissioning and continuous commissioning—and when and where each might best be used to ensure that a facility performs according to its design and the needs of its owners and occupants. Training and education on applying lifecycle cost analysis to evaluate the cost- effectiveness of energy and water efficiency investments, with assistance provided by the National Institute of Standards and Technology. Identifies products that are in the upper 25% of their class in energy efficiency. FEMP sets efficiency levels for product categories that have the potential to generate significant federal energy savings. Allows laboratory owners to compare the performance of their laboratories to similar facilities and thereby help identify potential energy cost savings opportunities. Online tool for tracking and assessing energy and water use. Certain property types can receive a 1-100 ENERGY STAR score, which compares a building’s energy performance to similar buildings nationwide.\",\n \"Designed to assist agencies in assessing their existing buildings against the Guiding Principles, including serving as a repository for compliance documents. Offers guidance and tools for purchasing products or services that have a lesser or reduced effect on human health and the environment when compared with competing products or services that serve the same purpose. Gives agencies a framework to help them reduce storm water runoff from development projects and protect water resources. Purpose/description Aims to provide consumers with easy ways to save water, as both a label for products—such as toilets and sinks—and an information resource to help people use water more efficiently. Web-based tool intended for facility managers, leasing specialists, and project managers that provides education on sustainability issues, including on the Guiding Principles. Developed leasing clauses that can be used to demonstrate the lease complies with the Guiding Principles. DOE and GSA Interagency Sustainability Working Group Provides sustainability officials from federal agencies a forum for information exchange and feedback on sustainability issues. Describes preaward and postaward procurement actions to verify compliance with a contract’s sustainable requirements, and provides resources for confirming a contractor has provided acceptable documentation to show compliance with sustainable requirements.\",\n \"Score agencies on whether they are meeting intermediate goals for compliance with sustainability goals, including for the Guiding Principles. Summary Projects attain a rating through the achievement of all prerequisites and points in different categories related to the eight areas of focus. The total possible points vary based on the version of LEED that is used. LEED is a web-based system and all documentation is submitted online. Green Business Certification Inc. provides the third-party certification service by reviewing the submitted documentation. Projects attain a rating through the achievement of points in different categories related to seven areas of focus. A project can attain a total of 1,000 points. Complete an initial web- based survey, and subsequent documentation is submitted to the third- party assessor or can be submitted online. An on-site assessment is required for certification. The third-party assessor is contracted by the Green Building Initiative. Summary Projects attain ‘Living’ status by completing all the imperatives, or categories, related to seven petals, or areas of focus. ‘Living’ status means that a building is regenerative, not just green. A building can receive Petal Certification if it meets the requirements of three or more petals, including water, energy,\",\n \"or materials.\",\n \"A project can complete petals in three typologies, or certification types. A project can attain Net Zero Energy certification by demonstrating through actual performance data that it produces more energy than it consumes. Rating levels Living Building Challenge Award and Certificate Petal Recognition Net Zero Energy Certification This is not a comprehensive list of categories and subcategories for LEED certification. Examples of other categories include retail, schools, and hospitality. In addition to the individuals named above, Karla Springer (Assistant Director), Harold Reich (Assistant Director), Sara Vermillion (Assistant Director), Janice Ceperich, John Delicath, Swati Deo, Debra Draper, Philip Farah, Cindy Gilbert, Geoffrey Hamilton, Armetha Liles, Marietta Mayfield Revesz, and Barbara Timmerman made key contributions to this report.\"\n]","isConversational":false}}},{"rowIdx":10886,"cells":{"id":{"kind":"string","value":"train_10886"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"In January 2004, the Office of the Comptroller of the Currency (OCC)--the federal regulator of national banks--issued rules concerning the extent to which federal law preempts state and local banking laws. Some state officials and consumer groups expressed concerns about a perceived loss of consumer protection. GAO identified (1) how OCC's complaint process compares with that of other federal bank regulators, (2) how complaint information informs OCC's supervision of national banks, and (3) issues that consumer advocates and state officials have raised about OCC's consumer protection efforts and OCC's responses to the issues. Overall, OCC's process for handling consumer complaints--carried out primarily by its Customer Assistance Group (CAG)--is similar to that of the other three federal bank regulators. However, unlike two of them, OCC lacks a mechanism to gather feedback from consumers it assists that could help it and the banks improve service to consumers. All of the regulators resolve the majority of complaints by providing or clarifying information for bank customers; less frequently, the regulators investigate and determine that a bank or customer erred. OCC annually handles more complaints than the other regulators, likely reflecting its position as the supervisor of banks with the majority of the nation's bank assets. OCC's complaint volume has not increased appreciably since it issued the preemption rules. OCC, in accordance with federal requirements for agencies to measure how they are fulfilling goals related to serving the public, measures the percentage of complaints it resolves within 60 days, a target other federal bank regulators also use. In reporting its performance, however, OCC includes data on its response to consumers' inquiries, which typically take less time, thereby overstating its performance on timeliness of responses to complaints. OCC's bank examiners use consumer complaint information collected by CAG to plan or adjust examinations. CAG staff and examiners communicate regularly regarding specific complaints or complaint volume and coordinate these efforts to provide consistent messages when discussing consumer-related issues with bank officials. In addition, complaint data inform OCC policy guidance to banks, often addressing potential compliance and safety and soundness risks banks face. CAG also provides feedback to banks, focusing on complaint trends and potential risks that may impact the banks' compliance with consumer protection laws or other issues. Many of the state officials and consumer advocates GAO contacted during visits to four states, as well as some representatives of national organizations, nevertheless remain concerned about OCC's commitment and capacity to address consumer complaints--especially given their perception that the rules effectively ended protections provided by state laws and processes. Specific concerns these officials cited include an inability to obtain information on complaint outcomes, the fact that OCC handles complaints from a single location, and the adequacy of CAG's resources. OCC has taken actions addressing some of these concerns. The agency views itself as a neutral arbiter and continues to provide an avenue for consumers to file complaints related to national banks. OCC recently hired additional CAG staff and has begun working with a third-party vendor to expand telephone service from 7 to 12 hours a day. GAO noted that some officials and advocates contacted were unaware of OCC's process for handling consumer complaints and the assistance it can provide."},"documents":{"kind":"list like","value":["OCC’s mission focuses on the chartering and oversight of national banks to ensure their safety and soundness, on fair access to financial services, and on fair treatment of bank customers. As of March 2005, the assets of the banks that OCC supervises accounted for approximately 67 percent— about $5.8 trillion—of assets in all U.S. commercial banks. Among the more than 1,800 banks OCC supervises are 14 of the top-20 commercial banks in asset size. OCC groups its regulatory responsibilities into three program areas: chartering, regulation, and supervision. Chartering includes not only reviewing and approving applications for charters but also reviewing and approving proposed mergers, acquisitions, and reorganizations. Regulation includes establishing written regulations, policies, operating guidance, interpretations, and examination policies and handbooks. Additionally, in its most recent strategic plan, OCC identified its regulatory approach as one that would ensure that national banks operated in a “flexible legal and regulatory framework” that enables them to provide a “full competitive array” of financial services.","According to OCC’s latest strategic plan, OCC’s supervision program consists of ongoing supervisory and enforcement activities undertaken to ensure that each national bank is operating in a safe and sound manner and is complying with applicable laws, rules, and regulations concerning the bank, customers, and communities it serves. OCC’s supervisory activities include examinations and enforcement actions, dispute resolution, ongoing monitoring of banks, and analysis of systemic risk and market trends. OCC policies establish a minimum level of activity that must occur during the supervisory cycle, during which time examiners assess the overall condition of the bank in the areas of capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risks. Such examinations are generally referred to as “safety and soundness” examinations. In large banks, much of this work is conducted throughout the year by examiners assessing specific aspects of a bank’s management and operations, while in the smaller banks, the on-site examination generally occurs at one time during a 12- or 18-month period. OCC has a team of full-time, on-site examiners who are located at large banks throughout the year and who conduct ongoing monitoring and examinations.","In addition to the safety and soundness examinations, OCC conducts compliance examinations that assess the bank’s compliance with laws intended to protect or assist consumers, such as laws related to disclosure of loan terms, fair lending, equal credit opportunity, and others. Consumer compliance examinations are conducted on a continuous 3-year cycle in large banks and at least every 36 months at small banks. OCC traditionally has issued opinions on a case-by-case basis, rather than rules or regulations, on whether the National Bank Act preempts state laws that impose standards or restrictions on the business of national banks. In contrast, on January 13, 2004, OCC issued the two preemption rules on the extent to which the National Bank Act preempts the application of state and local laws to national banks and their operating subsidiaries. The rules and the manner in which OCC promulgated them generated considerable controversy and debate, including questions about OCC’s authority to issue the rules. According to OCC, the two rules “codified” judicial decisions and OCC opinions on preemption under the National Bank Act by making them generally applicable and clarified certain issues.","The visitorial powers rule, as stated by OCC, clarifies that (1) federal law commits the supervision of national banks’ banking activities exclusively to OCC (except where federal law provides otherwise) and that (2) states may not use judicial actions as an indirect means of regulating those activities. The banking activities rule preempts categories of state laws that relate to bank activities and operations, describes the test for preemption that OCC will apply to state laws that do not fall within the identified categories, and lists certain types of state laws that are not preempted. In proposing the banking activities rule, OCC stated that it needed to provide timely and more comprehensive standards about the applicability of state laws to lending, deposit taking, and other authorized activities of national banks because of the number and significance of questions banks were posing about preemption in those areas. However, opponents such as consumer groups and state legislators feared that the preemption of state law, particularly concerning predatory lending practices, would weaken consumer protections.","They noted, in commenting on the preemption rules, that the rules would prevent states from regulating operating subsidiaries of national banks and would diminish the states’ ability to protect their citizens. Prior to OCC’s issuance of the rules, consumers who had complaints with national banks or their operating subsidiaries sometimes filed complaints with state officials who tried to resolve them, although consumers could have filed such complaints with OCC, and many did. Since OCC issued the rules, some state officials refer all complaints involving national banks to OCC while others, through informal arrangements, still try to assist consumers. It is too soon to assess the practical effect of the rules on a consumer who has a complaint with a national bank, given the short time frame and legal questions raised by opponents to the rules. We address some facets of the rules’ practical effect on consumers in this report and will address others in our subsequent report on the impact of the rules on the dual banking system and consumer protection. One of OCC’s strategic goals is to ensure all customers have fair access to financial services and are treated fairly.","The agency’s strategic plan lists objectives and strategies to achieve this goal, including fostering fair treatment through OCC guidance and supervisory enforcement actions where appropriate, and providing an avenue for customers of national banks to resolve complaints. The main division within OCC tasked with handling consumer complaints is CAG. This group is a part of OCC’s Office of the Ombudsman, a distinct division of OCC that operates independently of the agency’s bank supervision function. In addition to CAG, the Office of the Ombudsman oversees (1) the national bank appeals process—a forum by which banks may appeal the results of OCC’s supervisory examinations and ratings and (2) a postexamination questionnaire to obtain feedback from banks. The Ombudsman reports directly to the Comptroller and is a member of OCC senior management team (the Executive Committee) that includes the Chief Counsel, the Chief National Bank Examiner, and the Senior Deputy Comptrollers for Large Bank and Mid-size/Community Bank Supervision. CAG’s mission is to ensure that bank customers receive fair treatment in resolving their complaints with national banks.","According to the 2004 Report of the Ombudsman, CAG carries out its mission by providing services to three constituent groups: (1) customers of national banks—by providing a venue to resolve complaints, (2) OCC bank supervisors—by alerting supervisory staff of emerging problems that may result in the development of policy guidance or enforcement action, and (3) national bank managers—by providing a comprehensive analysis of complaint volumes and trends. The Deputy Ombudsman manages and directs CAG operations. Since 1999, CAG has employed about 40 full and part-time staff, and it had 49 staff in 2005. The annual operating and personnel budget attributable to CAG operations more than doubled from $2.6 million to $5.4 million between 1999 and 2005. According to our analysis of CAG budget and staffing data, the budget’s growth has outpaced that of staff due to the design and implementation of its computer network. OCC’s process for handling and resolving consumer complaints is similar to that of the other three federal bank regulators. We identified six distinct steps that all of the federal regulators follow when processing consumer complaints. Unlike two of the federal regulators, OCC lacks a process for collecting feedback from consumers it assists.","OCC and the other federal regulators also resolve complaints in a similar fashion, with the outcomes generally falling into the same categories. While the most common resolution of complaints was that of the regulator providing the consumer additional information, regulators also consider a complaint resolved if it is withdrawn or tabled due to litigation, or if the regulator determines that the bank did, or did not, make an error. The volume of complaints OCC handles is generally in proportion to the assets of the national banks it supervises. From 2000 through 2004, OCC handled on average more than twice as many complaints as the other regulators combined. OCC and other federal regulators have similar goals in responding to consumer complaints in a timely fashion. However, by combining consumer inquiries and consumer complaints in determining whether it met its timeliness goals, OCC overstated its performance on these goals. All four federal regulators we reviewed take similar approaches in processing consumer complaints about banks they supervise. The regulators define their role as a neutral arbiter between consumers and the banks they regulate when processing complaints.","For instance, the 2004 Report of the Ombudsman states that CAG’s role is to be neutral in answering questions and offering guidance on applicable banking laws, regulations, and practices and that it should not be an advocate for either the bank or consumers. As illustrated in figure 1, each regulator generally follows six distinct steps in processing a complaint: The consumer submits the complaint; The regulator determines if the bank is under its supervision; The regulator forwards the complaint to the bank; The bank sends a response to the regulator; The regulator examines the response to see if it completely addresses the consumer’s complaint; and The regulator notifies consumer of complaint’s outcome. Although consumers may initially contact OCC or other regulators about their complaints via various methods, such as telephone, mail, fax, or, in some cases, E-mail, regulators normally do not formally accept a complaint until they have received a signed complaint form or letter. After a regulator receives a formal complaint, it must then determine if the bank involved is under its jurisdiction. If not, then the regulator determines who is the appropriate regulator and provides the consumer with contact information or forwards the complaint.","Once the appropriate regulator receives the complaint, it forwards the complaint to the bank. OCC uses a secure Web-enabled application—CAGNet—that permits it and participating national banks to send and receive documents and images electronically. Banks have a set period of time to respond to a complaint, though the period varies among regulators. Among the four federal regulators, the time allowed for initial response ranges from 10 to 20 days, with OCC requesting a response within 10 days. All of the regulators permit the banks to request additional time to review the complaint or compile necessary information. After completing its review of the complaint, the bank sends a response to the regulator. Often, the bank responds concurrently to the consumer, since the consumer is the bank’s customer. After receiving the bank’s response, each regulator examines it to determine if the consumer’s complaint has been completely and appropriately addressed. At this step, the regulator examines the complaint and response to determine if any additional follow-up is necessary by its supervisory or legal staff. If it is not satisfied with the bank’s response, then the regulator requests additional information or clarification from the bank.","Once satisfied with the bank’s response, the regulator notifies the consumer about the outcome of the complaint. Of the four federal regulators, two offer consumers a method for providing feedback on the complaint process once the regulator has notified the consumer of the outcome. The Federal Reserve and FDIC offer consumers a feedback survey once their complaints have been resolved. The Federal Reserve mails a satisfaction survey, while FDIC directs consumers to a Web-based survey. Federal Reserve officials explained that the Federal Reserve has surveyed consumers since the mid 1980s and can link individual surveys back to original complaints, but the agency has not analyzed the aggregate data or used any findings from the surveys to modify its complaint-handling process. However, Federal Reserve officials explained that sometimes specific survey results are shared with staff who worked on the complaint or with management to better target staff training. Neither OCC nor OTS has any formal mechanism to measure satisfaction with the consumer complaint process (though officials from both agencies explained that they receive many letters expressing both satisfaction and disappointment with their services).","OTS officials explained that the small number of complaints they receive does not warrant the resources necessary to implement a customer satisfaction survey. Like other federal agencies, OCC measures and reports on certain aspects of its performance in accordance with the Government Performance and Results Act of 1993 (GPRA). According to the 2004 Report of the Ombudsman, OCC measures the effectiveness of its supervisory process through an examination questionnaire, which is provided to all national banks at the conclusion of their supervisory cycles. The questionnaire is designed to gather direct and timely feedback from banks on OCC’s supervisory efforts. While the questionnaire is a useful step to help OCC assess its performance regarding its national bank clients, OCC does not have a comparable tool to gather information regarding its performance in assisting the consumers of national banks. Collecting information about how individual consumers assess the assistance CAG provides in answering their questions or helping resolve a complaint with their bank could be equally helpful for OCC to measure its performance in ensuring fair treatment of bank customers.","OCC officials stated that they understand the value of measuring the satisfaction of consumers who they assist and are evaluating several different options for obtaining consumer feedback. OCC and the other three federal regulators offer consumers similar resolutions in their final responses to complaints. In analyzing the complaint data across the four federal regulators, we found that the regulators, after investigating complaints, generally resolved them in one of four ways, as shown in order of decreasing frequency: (1) providing the consumer with additional information without any determination of error, (2) withdrawing the complaint or tabling complaints already in litigation, (3) finding that the bank had not made an error, and (4) finding that the bank had made an error. Between 2000 and 2004, the most common resolution of complaints handled by all federal regulators was that consumers were provided more in-depth or specific information about their complaints (see fig. 2). In these cases, the regulator’s investigation revealed that the consumer required additional information to understand his or her situation, and the regulator made no determination of whether the bank or the consumer had made any error.","For example: The regulator might explain to the consumer that the complaint involves a contractual dispute that is better handled by a court. For instance, in one case, OCC informed a consumer to consider seeking legal counsel since the matter between the bank and the consumer involved a factual dispute concerning the interest rate on a credit card. The bank, based on its review of credit information, raised the interest rate on the consumer’s credit card after providing the consumer adequate notice about the impending change to the terms of credit, which included information on how to opt out of the credit card if the consumer did not agree to the new terms. The consumer complained that the bank failed to provide adequate notice and, thus, improperly raised the interest rate. After reviewing the relevant documentation from both the consumer and bank, OCC informed the consumer that since the bank claimed to have sent the proper notice to the consumer and the consumer denied receiving the notice, the agency could not judge which party was correct. Therefore, OCC counseled the consumer to consider taking legal action should the consumer want to pursue the matter further.","The regulator may determine that rather than wrongdoing, there was a miscommunication between the bank and its customer. For example, in one case involving a checking account, a bank charged a maintenance fee to an account with a zero balance. The checking account had a minimum monthly maintenance fee, which the bank deducted automatically from the checking account. When the bank charged the monthly maintenance fee and the balance became negative, the bank charged an overdraft fee. The consumer understood that overdraft protection should cover the maintenance fee but did not recognize that overdraft protection would result in an additional fee. After OCC forwarded the complaint to the bank, the bank decided to no longer hold the consumer liable for the delinquent monthly maintenance and overdraft fees that accumulated. OCC viewed the matter as miscommunication between the bank and consumer. The regulator may determine that the complaint should be forwarded to a different regulator. When appropriate, all four federal regulators directly refer consumers, or forward their complaints, to other federal and state agencies.","We found that three federal regulators—the Federal Reserve, FDIC, and OCC—referred a considerable number of consumers who contacted them to another federal agency to have their complaints or inquiries addressed. For example, from 2000 through 2004, FDIC referred about 40 percent of the consumers who contacted them with a complaint to another federal agency; the Federal Reserve and OTS referred about 53 percent and 3 percent, respectively. OCC, during this same period, referred approximately 38 percent of its callers to another federal agency. For OCC, the second most frequent type of complaint resolution was “withdrawn” or “complaint in litigation,” while it was the least common for the Federal Reserve and OTS and the third most common for FDIC. These are complaints that, by and large, the regulator is not able to address. None of the federal regulators address complaints that they find are already involved in any legal proceeding at the time the consumer contacts them.","In the case of OCC, one of the major reasons for complaints being withdrawn, according to OCC officials, is that the consumer does not send in the requested information, such as the signed complaint form or letter OCC requires before it begins any complaint investigation. As shown in figure 2, in 2000, OCC closed about 17 percent of complaint cases because it did not receive requested information or the complaint was in litigation, while in 2004, OCC closed nearly 37 percent of these cases for the same reasons. One reason for this increase, OCC officials explained, is that in mid-2000 they made changes to the database that tracks complaints. In particular, after the changes, the database coded complaints as “withdrawn” when the regulator did not receive information it requested from a consumer within 30 days. Previously, this type of complaint remained opened indefinitely or until the consumer provided the information. OCC’s policy is to reopen any complaint cases if the consumer sends in the requested information after 60 days from the day OCC made the request for additional information.","Since OCC does not open a new case in such instances, this policy negatively impacts OCC’s average in meeting its timeliness goals for resolving complaints. According to OCC officials, another reason for this increase is OCC’s policy of encouraging consumers to contact the bank prior to filing a complaint with OCC. It is typical for the staff to provide a case number and complaint form to the consumer to use if he or she is unsuccessful in resolving the problem with the bank. OCC officials explained that in many instances they assume that the bank and the consumer has worked the problem out since the consumer never sends in a completed complaint form. In these instances, OCC codes the complaint as withdrawn because the consumer did not submit a completed complaint form. OCC officials explained that this coding procedure has an advantage. Although the complaint has been withdrawn, the information that the consumer provided through the initial contact is available to examination staff as well as to the bank, and it provides insight to potential issues at the bank.","This category of complaint resolution was third for OCC in terms of frequency, while it was second for the other regulators. The regulators frequently resolve cases by finding that banks did nothing wrong, and the consumers do not have legitimate complaints, that is, the bank was correct. For example, in one case, OCC informed the consumer that an incorrectly completed deposit slip led the consumer to believe the bank improperly deducted funds from the consumer’s checking account. OCC had the bank provide the consumer copies of the deposit slip and checks recorded on the slip, which showed the consumer inaccurately transcribing the amounts from the checks to the deposit slip. “Bank Made an Error” was the least common outcome for complaints resolved by OCC and FDIC and next-to-least common for the other two regulators. The bank error category includes both regulatory violations and problems consumers had with the bank’s customer service. In these instances, the regulators determine that the bank did make an error in how it provided its products and services to the consumer.","For example, in one case, OCC determined that a bank did not properly respond when fraudulent charges were identified on a consumer’s credit card account, and the bank did not reverse them. The complaint was resolved when the bank reimbursed the consumer’s credit card account. Likely reflecting the greater volume of bank assets under its supervision, OCC handled more complaints from 2000 through 2004 than FDIC, OTS, and the Federal Reserve combined. During this time period OCC processed, on average, 10 complaints for every billion dollars under its supervision, while FDIC averaged 6 complaints, the Federal Reserve 3 complaints, and OTS 5 complaints (see fig. 3). From 2000 through 2004, credit cards were the most common product involved in complaints addressed by OCC, FDIC, and the Federal Reserve. According to officials from OCC and FDIC, complaints about credit cards will continue to remain high because consumers have multiple credit cards and use them frequently. During this same time period, the assets of banks under OCC’s supervision that issued credit cards averaged $221 billion, while the total assets of the banks under the supervision of the other three regulators averaged $87 billion.","Given these numbers, it would appear that the volume of complaints OCC handles is not out of proportion to the bank assets under its supervision, especially given that OCC supervises several banks that specialize in issuing credit cards. Although OTS also receives complaints about credit cards, during the same time period it received the most complaints about home mortgage loans. This is not exceptional, given that mortgage lending is a leading activity of the thrifts and savings banks OTS supervises. Consistent with GPRA and its implementing guidance, OCC provides information in its annual report that includes performance measures, workload indicators, customer service standards, and the results achieved during the fiscal year. OCC aims to resolve complaints within 60 days. The Federal Reserve, FDIC, and OTS also have a goal of resolving complaints within 60 days. In fiscal years 2003 and 2004, OCC’s target was to close 80 percent of all complaints within 60 calendar days of receipt. According to its 2003 annual report, OCC exceeded its target by closing 87 percent of complaints within 60 days.","However, our analysis of calendar year data that OCC provided to us shows that only about 66 percent of complaints were closed within 60 days. Similarly, the 2004 annual report states that OCC closed 74 percent of complaints within the established time frame, while our analysis of OCC’s data shows that in calendar year 2004, it was approximately 55 percent. The discrepancy between the percentages reported in the annual reports and our analysis cannot be entirely explained by the fact that we reviewed calendar year data and the annual reports include fiscal year data. OCC officials explained that the differences between its reported figures and our analyses are the result of differences in the consumer complaint data on which each is based. The annual reports stated that the agency closed 69,044 complaints in 2003 and 68,104 complaints in 2004. However, these totals include inquiries that the agency handled, not just complaints. Inquiries—which may be questions or comments subject to an immediate, simple answer—can typically be handled at the initial contact between the consumer and OCC, while some complaints can take well over the 60-day time frame to investigate and resolve.","Therefore, by including both inquiries and complaints in determining whether it met its timeliness goals, OCC overstated its performance, as measured by the percentage of complaints resolved within the target time frame. OCC officials explained that the data in the annual reports were presented using the generic term “complaints” to simplify the amount of information given to the reader. As OCC officials explained, some complaints involve more complex products, such as mortgages. Also, depending on the nature of the complaint, such as allegations of fair lending abuse, some investigations take more time. All four regulators have a percentage of complaints that they cannot resolve within their established time frames. OCC officials also explained that the time used in resolving complaints is a result of how it handles consumer appeals. Since OCC considers an appeal a reopened complaint, the start date for calculating the number of days it takes to resolve a complaint reverts back to the date it was originally filed with the agency. This practice had the affect of adversely impacting the measure of OCC’s timeliness in meeting its timeliness goals.","According to the 2004 Report of the Ombudsman, CAG’s role includes providing information to OCC examiners and the banks to “elevate” the issues raised by consumers and make them visible to OCC staff involved in supervision. The complaint data CAG collects, summarizes, and disseminates to OCC’s examiners helps the examiners to identify banks, activities, and products that require further review or investigation. OCC supervision guidance requires examiners to consider consumer complaint information when assessing a bank’s overall compliance risk and ratings and when scoping and conducting their examinations.OCC guidance also requires that the banks have processes in place to monitor and address consumer complaints. According to compliance examiners we interviewed, the examiners learn about complaints primarily through a Web-based application called CAG Wizard. The application allows examiners to access near real-time consumer complaint data. Examiners can review specific complaints, generate standard reports or conduct customized searches of the data. The information available to examiners includes data on all of the banks OCC supervises, not just those where an examiner is currently assigned. With this capability, examiners can also generate similar reports on similar institutions. Examiners with whom we spoke said CAG Wizard is a useful tool.","They reported using the application to prepare for an examination or when developing the annual risk assessment of the bank. Often, the examiners compare the complaint data that banks maintain with the data CAG provides through CAG Wizard. OCC examiners and CAG staff also collaborate on other activities. For example, CAG staff may alert examiners if there are certain types of complaints that warrant further attention or if patterns emerge in the overall complaint volume about the bank. CAG officials and OCC examiners told us that there is an open line of communication between their respective staffs. For example, examination staff at one national bank undertook a specific investigation based on a complaint forwarded from CAG. Examination staff specifically requested and reviewed information from the bank concerning the advertising of a product and the bank’s associated fees. Examiners can also forewarn CAG staff about any impending bank actions related to products, services, or policy that may cause consumers to complain. For instance, the bank might be changing the terms on a credit card product, and as such, sending a notification to customers.","Such mailings typically lead to an increase in calls to CAG, but with forewarning from the examiners, CAG can have more accurate information on hand to use in assisting bank customers who call with questions. OCC also uses consumer complaint data collected by CAG to formulate guidance for national banks. Topics of these guidelines cover various aspects of banking, including risks involved with using third-party vendor partners (e.g., when a bank partners with another business to provide a service to bank customers), predatory lending, and credit card practices. For example, CAG received a significant number of consumer complaints about aggressive marketing tactics and inadequate disclosures related to credit repair products offered through third parties. In response to the complaints received, OCC issued guidance in 2000 warning banks about risks posed to them by engaging third-party vendors for products and services linked to the credit cards that banks issue. CAG provides the largest national banks with aggregate information on the complaints about them. Also, CAG staff meets annually with bank officials of at least the 10 banks that received the most complaints during the previous calendar year.","In 2004, the 10 banks with the most complaints accounted for 81 percent of all the complaints that OCC received. At these meetings, CAG officials discuss significant issues, such as data on complaint volume and trends, comparable data for the bank’s peers and the industry, and current issues the bank should address. Prior to these meetings CAG officials consult with examiners on what specific issues warrant additional analysis or attention by bank officials. According to examiners, they attend the meetings and offer input on any specific topics CAG should highlight. Most bank officials with whom we spoke also said that the meetings with CAG were useful in helping them address customer satisfaction. Many of the state officials and advocates with whom we spoke continue to be concerned that OCC does not have the necessary commitment or capacity to provide consumers with sufficient protection against violations of laws. Unlike consumer advocates and state attorneys general, OCC defines itself as a neutral arbiter in terms of assisting consumers. Yet state officials and consumer advocates perceive OCC as being pro-bank, not neutral, and as such, they may hesitate to forward complaints on behalf of their citizens or clients.","Some officials were unaware of CAG’s process for handling consumer complaints; however, OCC recently took steps to publicize its customer assistance function. State officials were concerned about a perceived unwillingness by OCC to share information about the outcomes of complaints. Other groups with whom we spoke view the CAG’s centralized location as a shortcoming because CAG staff, they said, could not be familiar with current lending practices that pose high risk to consumers or to problematic institutions in local areas. OCC has taken some steps to provide flexibility in operations to meet any upcoming increases in demand for its services. As we previously reported, OCC received close to 3,000 letters commenting on the banking activities rule, with the majority of commenters opposed to the rule and citing concerns about weakened consumer protections. Comments from state officials argued that a lack of state regulation would create “an enormous vacuum of consumer protection without adequate federal regulation to fill the gap.” Many of these commenters suggested that OCC needed to do more, not less, to protect consumers.","These views were echoed by those with whom we spoke in preparing this report, as were concerns that the visitorial powers rule severely limits the advocates’ and state officials’ abilities to assist their constituents and clients, thereby exposing them to potential consumer protection violations. The rule, according to OCC, clarifies that federal law commits the supervision of national banks exclusively to OCC. Because advocates work to advance the interests of their clients, they do not see their role being adequately filled by OCC, or CAG, which defines itself as a neutral arbiter. Although part of OCC’s mission is to ensure fair access to financial services and fair treatment of bank customers, the perception remains, among the groups with whom we spoke, that OCC is “on the side” of the banks. Some advocates with whom we spoke were unclear about how OCC processes complaints through CAG and what assistance it can provide consumers. Some of the state officials and advocates with whom we spoke were unaware of the CAG, its process for responding to consumer inquiries and complaints, or the help it can provide.","Some of the state officials and advocates with whom we spoke said that they are reluctant to refer clients to the agency, given their level of mistrust of OCC and lack of knowledge about its customer assistance function. However, CAG data from November 2001 to September 2005 show referrals from all 50 state banking departments and 49 state attorneys’ general offices. OCC officials said that they have several ongoing initiatives aimed at better informing the public about their services. For example, OCC recently revised its consumer complaint brochure. The brochure has “frequently asked questions” about OCC and the role it, and CAG specifically, play in resolving consumer complaints. This new version will be printed in Spanish and English. As of November 2005, OCC said they had distributed a small number of brochures to each national bank. In addition a “camera-ready” version will be made available to banks so that they can print more copies if they choose. However, OCC officials said they will not require the banks to display or distribute the brochures.","In addition, officials said they do not have a distribution plan to give the brochure directly to the general public, although they did give a small supply to the Better Business Bureaus. We note that the information in the brochure is available on the OCC Web site. OCC also informs the public about CAG services and performance through the Annual Ombudsman report. This report is available on OCC’s Web site and contains information on total case volume handled in the previous year, as well as a general discussion about complaint volumes and trends. Also, in 2004, OCC redesigned its Web site to enhance the consumers’ capability to access information and learn more about its services. The redesigned Web site provides a searchable list of national bank operating subsidiaries that do business directly with consumers, which allows individual consumers to determine if an entity is associated with a bank supervised by OCC.","However, some of the consumer groups with whom we spoke said that one limitation of this list is that it does not have dates attached to the list of operating subsidiaries indicating when they became associated with the bank, which can be important in trying to identify the parties involved in a transaction at a particular time. OCC officials said that they will address any complaint brought against a national bank and its operating subsidiaries, regardless of when the transaction took place. OCC officials also said CAG staff are engaging in a series of outreach meetings with state government organizations and Better Business Bureaus. For example, in November 2004, senior CAG officials met with one state attorney general’s office to demonstrate how OCC handles consumer complaints. That state attorney general told us that it was clear from the meeting that the CAG officials seemed earnest in wanting to cooperate, even though the two sides might still disagree on the appropriate roles for OCC and the states in protecting consumers. OCC officials said they intend to hold similar meetings with other state attorneys general and state banking departments, although none were planned as of November 2005.","OCC staff is also engaged in outreach efforts with the Better Business Bureaus, which includes conference presentations, as well as meeting with several bureaus in order to educate them on OCC’s customer assistance services and to enable OCC to better understand the nature and volume of complaints received by the Better Business Bureaus involving national banks. In addition, OCC officials are requesting that Better Business Bureaus update their Web sites to include a link to OCC. Also, during fiscal year 2005, representatives from CAG and OCC’s Community Affairs office held outreach meetings with national consumer group organizations, such as the Consumer Federation of America, American Association of Retired Persons, and the National Association of Consumer Agency Administrators. Among some of the states’ attorneys general with whom we spoke, there is the perception that OCC is not willing to cooperate in protecting citizens, as evidenced, in part, by their perception of OCC’s unwillingness to share information on consumer complaint outcomes. Most state attorneys general staff with whom we spoke said they are willing to forward complaints to OCC, but they have not been receiving what they perceive to be adequate information on the outcome of referrals.","According to OCC officials, it is agency policy to send the consumer a letter acknowledging receipt of a complaint submitted to OCC. If a complaint is forwarded to OCC from another agency, it is OCC’s policy to send a copy of the acknowledgment letter to the forwarding agency. Nonetheless, some state attorneys general and other state officials said that, in their experience, OCC does not provide any information about the resolution of the complaints, which is what state officials want. However, in commenting on a draft of this report, OCC officials told us that if state officials request information on the resolution of an individual complaint, OCC will notify them of the outcome. Specifically, they said that an attorney from OCC’s Community and Consumer Law Division will contact the state official once a case is closed and will discuss the case. Although it is not a written policy, OCC officials told us these contacts are common practice.","“Where you believe there is a broader issue, such as the applicability of a particular State law to national banks generally, or if you have information that a specific national bank is engaged in a particular practice affecting multiple customers that is predatory, unfair or deceptive, this information should be communicated to the OCC’s Office of Chief Counsel for coordination.” The MOU was sent to all state attorneys general as well as the National Association of Attorneys General (NAAG) and the Conference of State Bank Supervisors (CSBS). Some of the officials from banking departments and the offices of attorneys general that we interviewed as well as representatives of CSBS said they viewed OCC’s proposed MOU as unsatisfactory because, in their view, it essentially favored the OCC.","In a written response to the OCC Comptroller, declining to sign the MOU, one state’s attorney general described the proposal as one where “states send complaints to OCC with the idea that, at some later date, we would have the right to inquire about the results of the ’resolution’ of the matter obtained by OCC.” In addition, some of the state officials with whom we spoke believed that signing the proposed MOU would amount to a tacit agreement to the principles of the banking activities and the visitorial powers rules. “Nothing in this MOU is intended to or shall be construed to affect, modify, or imply any conclusion regarding the jurisdiction or authority of either of the agencies or affect the rights or obligations of the agencies under existing law concerning the scope of the respective jurisdiction of each of the agencies to supervise, examine or regulate the regulated institutions covered by this MOU.” Only one state official signed the original 2003 Memorandum, and according to OCC, to date, no additional state officials have signed the 2004 version. Consumer groups also expressed misgivings about forwarding complaints to OCC.","Many of the groups with whom we spoke viewed CAG’s centralized location as a shortcoming because they believe that the CAG staff thus could not be familiar with current lending practices that pose high risk to consumers or problematic institutions in local areas. The consumer advocates we interviewed said an in-depth understanding of local real estate conditions was necessary to prevent predatory lending abuses. Furthermore, they said that OCC’s 60-day time frame is too long to effectively address many of their clients’ acute needs, such as when immediate action is needed to stop a foreclosure proceeding. We note however, that the other federal bank regulators and three of the six state regulators with whom we spoke all have a 60-day goal for resolving complaints. According to OCC officials, the agency centralized its consumer operations in Houston because it offers efficiency advantages. FDIC officials said they are consolidating their complaint handling operations for the same reasons. OCC examiners we interviewed also pointed out that a central facility makes sense, given that national banks operate across state lines and have so many customers in multiple markets.","According to CAG and bank supervision staff, funneling data to, and analyzing it in, one location provides more potential for seeing national trends and potential problems. However, there are also potential drawbacks to having only one operational facility available for any such customer function, as it increases the likelihood that there might be disruptions in service. For example, during Hurricane Rita in September 2005, telephones were not staffed for 4 days at CAG, due to the evacuation of Houston. However, consumers were able to submit complaints by either E-mail or fax. During that period, OCC received 14 faxes opening new cases, as well as 184 E-mails—34 from bankers and 150 from consumers. Of those complaints from consumers, 16 were from Members of Congress. OCC staff said these numbers are in-line with normal activity levels. When we asked about the closure, the Ombudsman replied that he decided to obey the evacuation notice issued by Houston-area officials, and while this may have resulted in some backlog of cases, his first priority was ensuring the safety of the Houston OCC employees. In December 2005, OCC began seeking private-sector support for the CAG facility, in order to expand its telephone","service hours.","This expansion will give OCC the ability to quickly expand CAG’s telephone operating hours in the event of an emergency, and because the third-party vendor will be located outside of Houston, those staff will be able to help OCC continue to serve consumers, even if the Houston office is unable to operate. Some consumer groups and state officials stated that the recent banking activities and visitorial powers rules could potentially increase the number of complaints OCC receives, since now OCC will more likely handle all complaints pertaining to national banks and their operating subsidiaries. These groups and officials argued that OCC did not have the capacity to adequately handle any new volume. Furthermore, they contend OCC could not match the resources (i.e., personnel and hours of operations) of state banking departments, consumer credit divisions, and offices of state attorneys general that currently work to resolve complaints and, more broadly, to identify fraudulent and abusive practices. However, we note that state banking departments and state attorneys general handle other types of consumer complaints, such as complaints about automobile dealers, mortgage brokers, and check cashers.","Since OCC issued the preemption rules in January 2004, the volume of complaints, according to CAG data, has remained fairly steady. In fact, between 2000 and 2004 complaints received by OCC have decreased 37 percent. According to OCC staff, complaint volume was high around 2000 due to a settlement with a large national bank on credit card disclosure issues. CAG data for 2005, while available only through June at the time of our review, indicate a potential increase in the volume of complaints when compared with 2004. CAG officials believe that the conversion from state charters to federal charters of two large banks in 2004 accounts for the increase. That is, customers of those banks who had complaints previously contacted the appropriate state regulator and either the Federal Reserve or FDIC, which jointly regulate state chartered banks. After the banks converted to federal charters, customers contacted OCC concerning any complaints. These data suggest that an increase to levels of complaints experienced before the 2004 preemption rules could be absorbed by current OCC resources.","Further, CAG data show that the total number of complaints, in any given year, received from state offices, including banking departments and states’ attorneys generals, is a relatively small percentage of the total number of complaints; therefore, any increase in referrals to OCC from those offices might not have a dramatic effect on total overall volume. Nevertheless, concerns that OCC resources were not equivalent to those of a state attorney general or state banking department were still prevalent among some of those with whom we spoke at the state level. However, OCC officials said that they have staff—beyond CAG—that work on consumer protection issues, including bank examiners in compliance supervision and attorneys in the Community and Consumer Law and Enforcement and Compliance divisions. Until 2004, OCC staffed the CAG’s toll-free telephone line 4 days a week, 8 hours a day, but now has service 5 days. One measure OCC uses to gauge how effectively it is servicing customers is the wait time for callers to speak with a CAG representative. OCC officials told us their goal is to answer 80 percent of CAG calls within 3 minutes or less.","According to OCC data, between June 2004 and November 2005, CAG met this goal, although wait times generally were longer for Spanish speaking services. In addition, to accommodate the expected increase in call volume due to recent charter conversions, OCC has recently hired more CAG specialists. Lastly, in December 2005, OCC began seeking private-sector support for the CAG facility, in order to expand its telephone service hours. A third-party vendor will handle routine matters, such as providing materials to satisfy noncomplex questions, obtaining information from callers that is necessary to open a case file, routing the caller to the appropriate OCC specialist and providing the status of an open case. In addition, the vendor’s employees will be able to direct the many callers who have concerns that pertain to institutions not regulated by OCC to the appropriate regulator. OCC plans to begin expanding the CAG’s telephone hours of operation after vendor selection and training is completed.","Overall, OCC’s consumer complaint handling operations appear to be in- line with practices of other regulators, with OCC handling a larger volume of complaints than the other bank regulators, likely reflecting its position as the supervisor of banks that account for the majority of the nation’s bank assets. A significant portion of OCC’s and other regulators’ work involves providing or clarifying information for bank customers who have questions and/or have misunderstood a bank product or service. Officials from all four regulators said that assisting consumers through the complaint process is an important part of their efforts to educate consumers about financial products and services. Two of the federal bank regulators collect some feedback from consumers who make complaints or inquiries; OCC does not. In contrast, OCC does seek feedback from banks after every examination, through a survey. Given that part of OCC’s mission is to ensure that consumers of national banks’ products and services are treated fairly and have fair access to financial services, obtaining feedback from bank customers who contact CAG should be useful in improving both its service to customers and helping banks to do likewise.","Moreover, federal standards reflected in GPRA require that government agencies measure their progress toward goals, including those related to serving the public. OCC measures its timeliness in serving consumers with complaints and inquiries as one indicator of its performance and discloses the results in reports that are publicly available. However, because those reports combine data on complaints and data on inquiries—which are questions or comments that are subject to an immediate, simple answer and typically require less time to handle—they overstate OCC’s performance in meeting its timeliness goal for resolving actual complaints. OCC appears to make appropriate use of the data CAG collects and analyzes by informing banks about their performance in relation to consumer complaints and by using the data to inform its examination and supervisory activities. CAG’s analysis of complaint data is presented to bank officials annually and used to identify any concerns. OCC examiners reported CAG data as useful tools in scoping examinations and in assessing areas of risk. We documented instances when examiners’ audit plans were influenced by information from CAG. We also identified instances when information gathered from CAG complaints and additional research by supervisory staff contributed to the development of","supervision policies and guidance.","The concerns expressed by a broad range of consumer advocates and state officials indicate some uneven understanding of OCC’s process for handling consumer complaints, possibly contributing to the lack of trust that the agency will be aggressive in protecting consumers’ interests. Because these concerns may inhibit state officials or consumer advocates from sharing information with or referring consumer complaints to OCC, they could adversely affect the agency’s effectiveness in regulating banks or assisting bank customers who have complaints. Consumer advocates and others are concerned about CAG’s centralized location and its capacity to handle complaints particularly if the volume of complaints should increase. Recent efforts such as outreach to the Better Business Bureaus and development of a revised brochure for consumers regarding CAG are appropriate steps designed to better inform the public of its process and services. However, the distribution plans for the brochure focus on the banks and rely on them to share the brochure with bank customers, if the banks wish.","Given that the former Comptroller has acknowledged that OCC and state officials “have a mutual interest in ensuring that consumers are protected from illegal, predatory, unfair, or deceptive practices,” it is essential that OCC undertakes outreach to key state partners—regulators and consumer advocates—in a manner that effectively and efficiently informs the public, and especially customers of national banks, about what CAG does and how state officials and OCC can work together to protect consumers. Such efforts cannot only raise awareness among the states about OCC’s efforts and capabilities to assist consumers, it might help allay the suspicion and mistrust we identified and construct a path for better cooperation between OCC, state officials, and consumer advocates in the future. To identify ways to improve its process for handling consumer complaints and inquiries and its efforts to better inform, educate, and serve bank customers, we recommend that the Comptroller of the Currency take the following three actions: Develop and implement a feedback mechanism to receive input and measure satisfaction of bank customers who have used CAG services.","Revise the data publicly reported on timeliness to reflect complaints resolved within the 60-day goal separately from data reported on inquiries resolved within the time frame. Develop and implement a comprehensive plan to inform bank customers, consumer advocates, state attorneys general, and other appropriate entities of OCC’s role in handling consumer inquiries or complaints about national banks. The plan could include such steps as directly distributing an informational brochure to some bank customers and meeting with state and local consumer advocates and appropriate state officials to describe OCC’s role and processes for assisting bank customers and others who raise consumer protection concerns. We obtained written comments on a draft of this report from the Comptroller of the Currency; they are presented in appendix II. OCC generally concurred with the report and agreed with our three recommendations. Specifically, OCC stated that a broader comparison of consumer protection activities, including those of state agencies, would have provided a clearer picture of protections available to consumers, but it acknowledged that such a comparison was beyond the scope of our report.","Regarding the recommendations, OCC said it will develop and implement a customer feedback mechanism to receive input and measure satisfaction of those who have used CAG services. OCC also agreed to revise the data that it publicly reports on timeliness to reflect complaints resolved within the 60-day goal separately from data reported on inquiries. Finally, OCC acknowledged that state officials may not be aware that it does have some practices currently in place to inform state officials of the outcome of consumer complaints, and therefore it will undertake additional outreach to state agencies to make them aware of those options. Therefore, OCC agreed with our recommendation that it develop and implement a comprehensive plan to inform bank customers, consumer advocates, state attorneys general, and other appropriate entities of its role in handling consumer inquiries or complaints about national banks. OCC also provided technical comments that we have incorporated, as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of this report until 30 days from the report date.","At that time, we will provide copies of this report to the Comptroller of the Currency and interested congressional committees. We also will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-8678 or woodd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors are acknowledged in appendix III. To describe how the Office of the Comptroller of the Currency (OCC) handles consumer complaints and to compare how its process compares with that of other bank regulators, we interviewed officials in OCC’s Customer Assistance Group (CAG), as well as their relevant counterparts at the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of Thrift Supervision (OTS). We visited the CAG office in Houston, Texas, and observed its work, including a review of 18 closed cases to learn what information CAG collects from complaints. In addition, we reviewed CAG’s policies and procedures that relate to consumer complaint processing.","To describe how the four regulators resolve the complaints they handle, we requested complaint data for calendar years 2000 through 2004. Specifically, we obtained information about the source and resolution (outcomes) of complaints, the banking products or services involved, and the amount of time the regulators took to resolve them. The data came from four different databases: (1) OCC’s REMEDY database, (2) the Federal Reserve’s Complaint Analysis Evaluation System and Reports (CAESAR), (3) FDIC’s Specialized Tracking and Reporting System (STARS), and (4) OTS’ Consumer Complaint System (CCS). We obtained data from OCC, the Federal Reserve, FDIC, and OTS in September 2005 that covered calendar years 2000 through 2004. For purposes of this report, we sought to use REMEDY, CAESAR, STARS, and CCS data to describe the number of cases each regulator handled, what products consumers complained about, how the regulators disposed of complaints, the number of complaints and inquiries the regulators forwarded to other federal agencies, and how long it took the regulators to resolve complaints. To assess the reliability of data from the four databases, we reviewed relevant documentation and interviewed agency officials.","We also had the agencies produce the queries or data extracts they used to generate the data we requested. Also, we reviewed the related queries, data extracts, and the output for logical consistency. We determined these data to be sufficiently reliable for use in our report. To make general comparisons about the source and resolution of complaints between the four regulators, we created categories that include all of the codes each regulator used to describe the sources and resolutions of complaints. Officials of the Federal Reserve, FDIC, OTS and OCC agreed with our categorization of their respective source and resolution codes. The source categories were “consumer,” “federal,” “state,” and “other.” The resolution categories consisted of (1) regulators provide consumers additional information, (2) complaint is withdrawn or tabled due to litigation, (3) regulators determine that bank was not in error, and (4) regulators determine that bank was in error. Using the codes, we sorted each of the regulators’ complaints and tallied the number of complaints that fell into each category.","We also sorted the complaints by codes indicating the type of bank product or service and confirmed for certain products, such as credit cards, that the codes represented the entire universe of complaints about the product. To describe how long it takes to resolve a complaint, we requested from each regulator a frequency count of how many complaints were resolved within and over 60 days. To describe how CAG’s efforts related to OCC’s supervision of national banks, we interviewed OCC officials and reviewed related documents about how consumer complaint data influence bank examinations and guidance. We interviewed CAG officials and examiners at six national banks concerning how CAG shares consumer complaint information and how information is used by bank examiners. In addition, we interviewed bank officials to learn what information CAG provides the banks and how banks use the information. To identify issues raised by consumer advocates and state officials, we conducted site visits in four states: California, Georgia, New York, and North Carolina. The site visits included interviews of state attorneys general, banking regulators, banking officials and local consumer advocate groups, as well as analysis of relevant documents.","We also interviewed state officials in two additional states, Iowa and Idaho. We selected these locations, in part, based on their experience with state consumer protection laws. In addition, we interviewed representatives of national consumer groups, including the Center for Responsible Lending, Consumer Federation of America, National Community Reinvestment Coalition, National Consumer Law Center, and Association of Community Organizations for Reform Now. Also, we interviewed representatives of national trade groups for state officials in Washington, D.C., including the Conference of State Bank Supervisors and the National Association of Attorneys General. We conducted our work in California, Georgia, New York, North Carolina, Texas, and Washington, D.C., from October 2004 through December 2005 in accordance with generally accepted government auditing standards. In addition to those named above, Katie Harris (Assistant Director), Nancy Eibeck, Jamila Jones, Landis Lindsey, James McDermott, Kristeen McLain, Suen-Yi Meng, Marc Molino, David Pittman, Barbara Roesmann, Paul Thompson, and Mijo Vodopic made key contributions to this report."],"string":"[\n \"OCC’s mission focuses on the chartering and oversight of national banks to ensure their safety and soundness, on fair access to financial services, and on fair treatment of bank customers. As of March 2005, the assets of the banks that OCC supervises accounted for approximately 67 percent— about $5.8 trillion—of assets in all U.S. commercial banks. Among the more than 1,800 banks OCC supervises are 14 of the top-20 commercial banks in asset size. OCC groups its regulatory responsibilities into three program areas: chartering, regulation, and supervision. Chartering includes not only reviewing and approving applications for charters but also reviewing and approving proposed mergers, acquisitions, and reorganizations. Regulation includes establishing written regulations, policies, operating guidance, interpretations, and examination policies and handbooks. Additionally, in its most recent strategic plan, OCC identified its regulatory approach as one that would ensure that national banks operated in a “flexible legal and regulatory framework” that enables them to provide a “full competitive array” of financial services.\",\n \"According to OCC’s latest strategic plan, OCC’s supervision program consists of ongoing supervisory and enforcement activities undertaken to ensure that each national bank is operating in a safe and sound manner and is complying with applicable laws, rules, and regulations concerning the bank, customers, and communities it serves. OCC’s supervisory activities include examinations and enforcement actions, dispute resolution, ongoing monitoring of banks, and analysis of systemic risk and market trends. OCC policies establish a minimum level of activity that must occur during the supervisory cycle, during which time examiners assess the overall condition of the bank in the areas of capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risks. Such examinations are generally referred to as “safety and soundness” examinations. In large banks, much of this work is conducted throughout the year by examiners assessing specific aspects of a bank’s management and operations, while in the smaller banks, the on-site examination generally occurs at one time during a 12- or 18-month period. OCC has a team of full-time, on-site examiners who are located at large banks throughout the year and who conduct ongoing monitoring and examinations.\",\n \"In addition to the safety and soundness examinations, OCC conducts compliance examinations that assess the bank’s compliance with laws intended to protect or assist consumers, such as laws related to disclosure of loan terms, fair lending, equal credit opportunity, and others. Consumer compliance examinations are conducted on a continuous 3-year cycle in large banks and at least every 36 months at small banks. OCC traditionally has issued opinions on a case-by-case basis, rather than rules or regulations, on whether the National Bank Act preempts state laws that impose standards or restrictions on the business of national banks. In contrast, on January 13, 2004, OCC issued the two preemption rules on the extent to which the National Bank Act preempts the application of state and local laws to national banks and their operating subsidiaries. The rules and the manner in which OCC promulgated them generated considerable controversy and debate, including questions about OCC’s authority to issue the rules. According to OCC, the two rules “codified” judicial decisions and OCC opinions on preemption under the National Bank Act by making them generally applicable and clarified certain issues.\",\n \"The visitorial powers rule, as stated by OCC, clarifies that (1) federal law commits the supervision of national banks’ banking activities exclusively to OCC (except where federal law provides otherwise) and that (2) states may not use judicial actions as an indirect means of regulating those activities. The banking activities rule preempts categories of state laws that relate to bank activities and operations, describes the test for preemption that OCC will apply to state laws that do not fall within the identified categories, and lists certain types of state laws that are not preempted. In proposing the banking activities rule, OCC stated that it needed to provide timely and more comprehensive standards about the applicability of state laws to lending, deposit taking, and other authorized activities of national banks because of the number and significance of questions banks were posing about preemption in those areas. However, opponents such as consumer groups and state legislators feared that the preemption of state law, particularly concerning predatory lending practices, would weaken consumer protections.\",\n \"They noted, in commenting on the preemption rules, that the rules would prevent states from regulating operating subsidiaries of national banks and would diminish the states’ ability to protect their citizens. Prior to OCC’s issuance of the rules, consumers who had complaints with national banks or their operating subsidiaries sometimes filed complaints with state officials who tried to resolve them, although consumers could have filed such complaints with OCC, and many did. Since OCC issued the rules, some state officials refer all complaints involving national banks to OCC while others, through informal arrangements, still try to assist consumers. It is too soon to assess the practical effect of the rules on a consumer who has a complaint with a national bank, given the short time frame and legal questions raised by opponents to the rules. We address some facets of the rules’ practical effect on consumers in this report and will address others in our subsequent report on the impact of the rules on the dual banking system and consumer protection. One of OCC’s strategic goals is to ensure all customers have fair access to financial services and are treated fairly.\",\n \"The agency’s strategic plan lists objectives and strategies to achieve this goal, including fostering fair treatment through OCC guidance and supervisory enforcement actions where appropriate, and providing an avenue for customers of national banks to resolve complaints. The main division within OCC tasked with handling consumer complaints is CAG. This group is a part of OCC’s Office of the Ombudsman, a distinct division of OCC that operates independently of the agency’s bank supervision function. In addition to CAG, the Office of the Ombudsman oversees (1) the national bank appeals process—a forum by which banks may appeal the results of OCC’s supervisory examinations and ratings and (2) a postexamination questionnaire to obtain feedback from banks. The Ombudsman reports directly to the Comptroller and is a member of OCC senior management team (the Executive Committee) that includes the Chief Counsel, the Chief National Bank Examiner, and the Senior Deputy Comptrollers for Large Bank and Mid-size/Community Bank Supervision. CAG’s mission is to ensure that bank customers receive fair treatment in resolving their complaints with national banks.\",\n \"According to the 2004 Report of the Ombudsman, CAG carries out its mission by providing services to three constituent groups: (1) customers of national banks—by providing a venue to resolve complaints, (2) OCC bank supervisors—by alerting supervisory staff of emerging problems that may result in the development of policy guidance or enforcement action, and (3) national bank managers—by providing a comprehensive analysis of complaint volumes and trends. The Deputy Ombudsman manages and directs CAG operations. Since 1999, CAG has employed about 40 full and part-time staff, and it had 49 staff in 2005. The annual operating and personnel budget attributable to CAG operations more than doubled from $2.6 million to $5.4 million between 1999 and 2005. According to our analysis of CAG budget and staffing data, the budget’s growth has outpaced that of staff due to the design and implementation of its computer network. OCC’s process for handling and resolving consumer complaints is similar to that of the other three federal bank regulators. We identified six distinct steps that all of the federal regulators follow when processing consumer complaints. Unlike two of the federal regulators, OCC lacks a process for collecting feedback from consumers it assists.\",\n \"OCC and the other federal regulators also resolve complaints in a similar fashion, with the outcomes generally falling into the same categories. While the most common resolution of complaints was that of the regulator providing the consumer additional information, regulators also consider a complaint resolved if it is withdrawn or tabled due to litigation, or if the regulator determines that the bank did, or did not, make an error. The volume of complaints OCC handles is generally in proportion to the assets of the national banks it supervises. From 2000 through 2004, OCC handled on average more than twice as many complaints as the other regulators combined. OCC and other federal regulators have similar goals in responding to consumer complaints in a timely fashion. However, by combining consumer inquiries and consumer complaints in determining whether it met its timeliness goals, OCC overstated its performance on these goals. All four federal regulators we reviewed take similar approaches in processing consumer complaints about banks they supervise. The regulators define their role as a neutral arbiter between consumers and the banks they regulate when processing complaints.\",\n \"For instance, the 2004 Report of the Ombudsman states that CAG’s role is to be neutral in answering questions and offering guidance on applicable banking laws, regulations, and practices and that it should not be an advocate for either the bank or consumers. As illustrated in figure 1, each regulator generally follows six distinct steps in processing a complaint: The consumer submits the complaint; The regulator determines if the bank is under its supervision; The regulator forwards the complaint to the bank; The bank sends a response to the regulator; The regulator examines the response to see if it completely addresses the consumer’s complaint; and The regulator notifies consumer of complaint’s outcome. Although consumers may initially contact OCC or other regulators about their complaints via various methods, such as telephone, mail, fax, or, in some cases, E-mail, regulators normally do not formally accept a complaint until they have received a signed complaint form or letter. After a regulator receives a formal complaint, it must then determine if the bank involved is under its jurisdiction. If not, then the regulator determines who is the appropriate regulator and provides the consumer with contact information or forwards the complaint.\",\n \"Once the appropriate regulator receives the complaint, it forwards the complaint to the bank. OCC uses a secure Web-enabled application—CAGNet—that permits it and participating national banks to send and receive documents and images electronically. Banks have a set period of time to respond to a complaint, though the period varies among regulators. Among the four federal regulators, the time allowed for initial response ranges from 10 to 20 days, with OCC requesting a response within 10 days. All of the regulators permit the banks to request additional time to review the complaint or compile necessary information. After completing its review of the complaint, the bank sends a response to the regulator. Often, the bank responds concurrently to the consumer, since the consumer is the bank’s customer. After receiving the bank’s response, each regulator examines it to determine if the consumer’s complaint has been completely and appropriately addressed. At this step, the regulator examines the complaint and response to determine if any additional follow-up is necessary by its supervisory or legal staff. If it is not satisfied with the bank’s response, then the regulator requests additional information or clarification from the bank.\",\n \"Once satisfied with the bank’s response, the regulator notifies the consumer about the outcome of the complaint. Of the four federal regulators, two offer consumers a method for providing feedback on the complaint process once the regulator has notified the consumer of the outcome. The Federal Reserve and FDIC offer consumers a feedback survey once their complaints have been resolved. The Federal Reserve mails a satisfaction survey, while FDIC directs consumers to a Web-based survey. Federal Reserve officials explained that the Federal Reserve has surveyed consumers since the mid 1980s and can link individual surveys back to original complaints, but the agency has not analyzed the aggregate data or used any findings from the surveys to modify its complaint-handling process. However, Federal Reserve officials explained that sometimes specific survey results are shared with staff who worked on the complaint or with management to better target staff training. Neither OCC nor OTS has any formal mechanism to measure satisfaction with the consumer complaint process (though officials from both agencies explained that they receive many letters expressing both satisfaction and disappointment with their services).\",\n \"OTS officials explained that the small number of complaints they receive does not warrant the resources necessary to implement a customer satisfaction survey. Like other federal agencies, OCC measures and reports on certain aspects of its performance in accordance with the Government Performance and Results Act of 1993 (GPRA). According to the 2004 Report of the Ombudsman, OCC measures the effectiveness of its supervisory process through an examination questionnaire, which is provided to all national banks at the conclusion of their supervisory cycles. The questionnaire is designed to gather direct and timely feedback from banks on OCC’s supervisory efforts. While the questionnaire is a useful step to help OCC assess its performance regarding its national bank clients, OCC does not have a comparable tool to gather information regarding its performance in assisting the consumers of national banks. Collecting information about how individual consumers assess the assistance CAG provides in answering their questions or helping resolve a complaint with their bank could be equally helpful for OCC to measure its performance in ensuring fair treatment of bank customers.\",\n \"OCC officials stated that they understand the value of measuring the satisfaction of consumers who they assist and are evaluating several different options for obtaining consumer feedback. OCC and the other three federal regulators offer consumers similar resolutions in their final responses to complaints. In analyzing the complaint data across the four federal regulators, we found that the regulators, after investigating complaints, generally resolved them in one of four ways, as shown in order of decreasing frequency: (1) providing the consumer with additional information without any determination of error, (2) withdrawing the complaint or tabling complaints already in litigation, (3) finding that the bank had not made an error, and (4) finding that the bank had made an error. Between 2000 and 2004, the most common resolution of complaints handled by all federal regulators was that consumers were provided more in-depth or specific information about their complaints (see fig. 2). In these cases, the regulator’s investigation revealed that the consumer required additional information to understand his or her situation, and the regulator made no determination of whether the bank or the consumer had made any error.\",\n \"For example: The regulator might explain to the consumer that the complaint involves a contractual dispute that is better handled by a court. For instance, in one case, OCC informed a consumer to consider seeking legal counsel since the matter between the bank and the consumer involved a factual dispute concerning the interest rate on a credit card. The bank, based on its review of credit information, raised the interest rate on the consumer’s credit card after providing the consumer adequate notice about the impending change to the terms of credit, which included information on how to opt out of the credit card if the consumer did not agree to the new terms. The consumer complained that the bank failed to provide adequate notice and, thus, improperly raised the interest rate. After reviewing the relevant documentation from both the consumer and bank, OCC informed the consumer that since the bank claimed to have sent the proper notice to the consumer and the consumer denied receiving the notice, the agency could not judge which party was correct. Therefore, OCC counseled the consumer to consider taking legal action should the consumer want to pursue the matter further.\",\n \"The regulator may determine that rather than wrongdoing, there was a miscommunication between the bank and its customer. For example, in one case involving a checking account, a bank charged a maintenance fee to an account with a zero balance. The checking account had a minimum monthly maintenance fee, which the bank deducted automatically from the checking account. When the bank charged the monthly maintenance fee and the balance became negative, the bank charged an overdraft fee. The consumer understood that overdraft protection should cover the maintenance fee but did not recognize that overdraft protection would result in an additional fee. After OCC forwarded the complaint to the bank, the bank decided to no longer hold the consumer liable for the delinquent monthly maintenance and overdraft fees that accumulated. OCC viewed the matter as miscommunication between the bank and consumer. The regulator may determine that the complaint should be forwarded to a different regulator. When appropriate, all four federal regulators directly refer consumers, or forward their complaints, to other federal and state agencies.\",\n \"We found that three federal regulators—the Federal Reserve, FDIC, and OCC—referred a considerable number of consumers who contacted them to another federal agency to have their complaints or inquiries addressed. For example, from 2000 through 2004, FDIC referred about 40 percent of the consumers who contacted them with a complaint to another federal agency; the Federal Reserve and OTS referred about 53 percent and 3 percent, respectively. OCC, during this same period, referred approximately 38 percent of its callers to another federal agency. For OCC, the second most frequent type of complaint resolution was “withdrawn” or “complaint in litigation,” while it was the least common for the Federal Reserve and OTS and the third most common for FDIC. These are complaints that, by and large, the regulator is not able to address. None of the federal regulators address complaints that they find are already involved in any legal proceeding at the time the consumer contacts them.\",\n \"In the case of OCC, one of the major reasons for complaints being withdrawn, according to OCC officials, is that the consumer does not send in the requested information, such as the signed complaint form or letter OCC requires before it begins any complaint investigation. As shown in figure 2, in 2000, OCC closed about 17 percent of complaint cases because it did not receive requested information or the complaint was in litigation, while in 2004, OCC closed nearly 37 percent of these cases for the same reasons. One reason for this increase, OCC officials explained, is that in mid-2000 they made changes to the database that tracks complaints. In particular, after the changes, the database coded complaints as “withdrawn” when the regulator did not receive information it requested from a consumer within 30 days. Previously, this type of complaint remained opened indefinitely or until the consumer provided the information. OCC’s policy is to reopen any complaint cases if the consumer sends in the requested information after 60 days from the day OCC made the request for additional information.\",\n \"Since OCC does not open a new case in such instances, this policy negatively impacts OCC’s average in meeting its timeliness goals for resolving complaints. According to OCC officials, another reason for this increase is OCC’s policy of encouraging consumers to contact the bank prior to filing a complaint with OCC. It is typical for the staff to provide a case number and complaint form to the consumer to use if he or she is unsuccessful in resolving the problem with the bank. OCC officials explained that in many instances they assume that the bank and the consumer has worked the problem out since the consumer never sends in a completed complaint form. In these instances, OCC codes the complaint as withdrawn because the consumer did not submit a completed complaint form. OCC officials explained that this coding procedure has an advantage. Although the complaint has been withdrawn, the information that the consumer provided through the initial contact is available to examination staff as well as to the bank, and it provides insight to potential issues at the bank.\",\n \"This category of complaint resolution was third for OCC in terms of frequency, while it was second for the other regulators. The regulators frequently resolve cases by finding that banks did nothing wrong, and the consumers do not have legitimate complaints, that is, the bank was correct. For example, in one case, OCC informed the consumer that an incorrectly completed deposit slip led the consumer to believe the bank improperly deducted funds from the consumer’s checking account. OCC had the bank provide the consumer copies of the deposit slip and checks recorded on the slip, which showed the consumer inaccurately transcribing the amounts from the checks to the deposit slip. “Bank Made an Error” was the least common outcome for complaints resolved by OCC and FDIC and next-to-least common for the other two regulators. The bank error category includes both regulatory violations and problems consumers had with the bank’s customer service. In these instances, the regulators determine that the bank did make an error in how it provided its products and services to the consumer.\",\n \"For example, in one case, OCC determined that a bank did not properly respond when fraudulent charges were identified on a consumer’s credit card account, and the bank did not reverse them. The complaint was resolved when the bank reimbursed the consumer’s credit card account. Likely reflecting the greater volume of bank assets under its supervision, OCC handled more complaints from 2000 through 2004 than FDIC, OTS, and the Federal Reserve combined. During this time period OCC processed, on average, 10 complaints for every billion dollars under its supervision, while FDIC averaged 6 complaints, the Federal Reserve 3 complaints, and OTS 5 complaints (see fig. 3). From 2000 through 2004, credit cards were the most common product involved in complaints addressed by OCC, FDIC, and the Federal Reserve. According to officials from OCC and FDIC, complaints about credit cards will continue to remain high because consumers have multiple credit cards and use them frequently. During this same time period, the assets of banks under OCC’s supervision that issued credit cards averaged $221 billion, while the total assets of the banks under the supervision of the other three regulators averaged $87 billion.\",\n \"Given these numbers, it would appear that the volume of complaints OCC handles is not out of proportion to the bank assets under its supervision, especially given that OCC supervises several banks that specialize in issuing credit cards. Although OTS also receives complaints about credit cards, during the same time period it received the most complaints about home mortgage loans. This is not exceptional, given that mortgage lending is a leading activity of the thrifts and savings banks OTS supervises. Consistent with GPRA and its implementing guidance, OCC provides information in its annual report that includes performance measures, workload indicators, customer service standards, and the results achieved during the fiscal year. OCC aims to resolve complaints within 60 days. The Federal Reserve, FDIC, and OTS also have a goal of resolving complaints within 60 days. In fiscal years 2003 and 2004, OCC’s target was to close 80 percent of all complaints within 60 calendar days of receipt. According to its 2003 annual report, OCC exceeded its target by closing 87 percent of complaints within 60 days.\",\n \"However, our analysis of calendar year data that OCC provided to us shows that only about 66 percent of complaints were closed within 60 days. Similarly, the 2004 annual report states that OCC closed 74 percent of complaints within the established time frame, while our analysis of OCC’s data shows that in calendar year 2004, it was approximately 55 percent. The discrepancy between the percentages reported in the annual reports and our analysis cannot be entirely explained by the fact that we reviewed calendar year data and the annual reports include fiscal year data. OCC officials explained that the differences between its reported figures and our analyses are the result of differences in the consumer complaint data on which each is based. The annual reports stated that the agency closed 69,044 complaints in 2003 and 68,104 complaints in 2004. However, these totals include inquiries that the agency handled, not just complaints. Inquiries—which may be questions or comments subject to an immediate, simple answer—can typically be handled at the initial contact between the consumer and OCC, while some complaints can take well over the 60-day time frame to investigate and resolve.\",\n \"Therefore, by including both inquiries and complaints in determining whether it met its timeliness goals, OCC overstated its performance, as measured by the percentage of complaints resolved within the target time frame. OCC officials explained that the data in the annual reports were presented using the generic term “complaints” to simplify the amount of information given to the reader. As OCC officials explained, some complaints involve more complex products, such as mortgages. Also, depending on the nature of the complaint, such as allegations of fair lending abuse, some investigations take more time. All four regulators have a percentage of complaints that they cannot resolve within their established time frames. OCC officials also explained that the time used in resolving complaints is a result of how it handles consumer appeals. Since OCC considers an appeal a reopened complaint, the start date for calculating the number of days it takes to resolve a complaint reverts back to the date it was originally filed with the agency. This practice had the affect of adversely impacting the measure of OCC’s timeliness in meeting its timeliness goals.\",\n \"According to the 2004 Report of the Ombudsman, CAG’s role includes providing information to OCC examiners and the banks to “elevate” the issues raised by consumers and make them visible to OCC staff involved in supervision. The complaint data CAG collects, summarizes, and disseminates to OCC’s examiners helps the examiners to identify banks, activities, and products that require further review or investigation. OCC supervision guidance requires examiners to consider consumer complaint information when assessing a bank’s overall compliance risk and ratings and when scoping and conducting their examinations.OCC guidance also requires that the banks have processes in place to monitor and address consumer complaints. According to compliance examiners we interviewed, the examiners learn about complaints primarily through a Web-based application called CAG Wizard. The application allows examiners to access near real-time consumer complaint data. Examiners can review specific complaints, generate standard reports or conduct customized searches of the data. The information available to examiners includes data on all of the banks OCC supervises, not just those where an examiner is currently assigned. With this capability, examiners can also generate similar reports on similar institutions. Examiners with whom we spoke said CAG Wizard is a useful tool.\",\n \"They reported using the application to prepare for an examination or when developing the annual risk assessment of the bank. Often, the examiners compare the complaint data that banks maintain with the data CAG provides through CAG Wizard. OCC examiners and CAG staff also collaborate on other activities. For example, CAG staff may alert examiners if there are certain types of complaints that warrant further attention or if patterns emerge in the overall complaint volume about the bank. CAG officials and OCC examiners told us that there is an open line of communication between their respective staffs. For example, examination staff at one national bank undertook a specific investigation based on a complaint forwarded from CAG. Examination staff specifically requested and reviewed information from the bank concerning the advertising of a product and the bank’s associated fees. Examiners can also forewarn CAG staff about any impending bank actions related to products, services, or policy that may cause consumers to complain. For instance, the bank might be changing the terms on a credit card product, and as such, sending a notification to customers.\",\n \"Such mailings typically lead to an increase in calls to CAG, but with forewarning from the examiners, CAG can have more accurate information on hand to use in assisting bank customers who call with questions. OCC also uses consumer complaint data collected by CAG to formulate guidance for national banks. Topics of these guidelines cover various aspects of banking, including risks involved with using third-party vendor partners (e.g., when a bank partners with another business to provide a service to bank customers), predatory lending, and credit card practices. For example, CAG received a significant number of consumer complaints about aggressive marketing tactics and inadequate disclosures related to credit repair products offered through third parties. In response to the complaints received, OCC issued guidance in 2000 warning banks about risks posed to them by engaging third-party vendors for products and services linked to the credit cards that banks issue. CAG provides the largest national banks with aggregate information on the complaints about them. Also, CAG staff meets annually with bank officials of at least the 10 banks that received the most complaints during the previous calendar year.\",\n \"In 2004, the 10 banks with the most complaints accounted for 81 percent of all the complaints that OCC received. At these meetings, CAG officials discuss significant issues, such as data on complaint volume and trends, comparable data for the bank’s peers and the industry, and current issues the bank should address. Prior to these meetings CAG officials consult with examiners on what specific issues warrant additional analysis or attention by bank officials. According to examiners, they attend the meetings and offer input on any specific topics CAG should highlight. Most bank officials with whom we spoke also said that the meetings with CAG were useful in helping them address customer satisfaction. Many of the state officials and advocates with whom we spoke continue to be concerned that OCC does not have the necessary commitment or capacity to provide consumers with sufficient protection against violations of laws. Unlike consumer advocates and state attorneys general, OCC defines itself as a neutral arbiter in terms of assisting consumers. Yet state officials and consumer advocates perceive OCC as being pro-bank, not neutral, and as such, they may hesitate to forward complaints on behalf of their citizens or clients.\",\n \"Some officials were unaware of CAG’s process for handling consumer complaints; however, OCC recently took steps to publicize its customer assistance function. State officials were concerned about a perceived unwillingness by OCC to share information about the outcomes of complaints. Other groups with whom we spoke view the CAG’s centralized location as a shortcoming because CAG staff, they said, could not be familiar with current lending practices that pose high risk to consumers or to problematic institutions in local areas. OCC has taken some steps to provide flexibility in operations to meet any upcoming increases in demand for its services. As we previously reported, OCC received close to 3,000 letters commenting on the banking activities rule, with the majority of commenters opposed to the rule and citing concerns about weakened consumer protections. Comments from state officials argued that a lack of state regulation would create “an enormous vacuum of consumer protection without adequate federal regulation to fill the gap.” Many of these commenters suggested that OCC needed to do more, not less, to protect consumers.\",\n \"These views were echoed by those with whom we spoke in preparing this report, as were concerns that the visitorial powers rule severely limits the advocates’ and state officials’ abilities to assist their constituents and clients, thereby exposing them to potential consumer protection violations. The rule, according to OCC, clarifies that federal law commits the supervision of national banks exclusively to OCC. Because advocates work to advance the interests of their clients, they do not see their role being adequately filled by OCC, or CAG, which defines itself as a neutral arbiter. Although part of OCC’s mission is to ensure fair access to financial services and fair treatment of bank customers, the perception remains, among the groups with whom we spoke, that OCC is “on the side” of the banks. Some advocates with whom we spoke were unclear about how OCC processes complaints through CAG and what assistance it can provide consumers. Some of the state officials and advocates with whom we spoke were unaware of the CAG, its process for responding to consumer inquiries and complaints, or the help it can provide.\",\n \"Some of the state officials and advocates with whom we spoke said that they are reluctant to refer clients to the agency, given their level of mistrust of OCC and lack of knowledge about its customer assistance function. However, CAG data from November 2001 to September 2005 show referrals from all 50 state banking departments and 49 state attorneys’ general offices. OCC officials said that they have several ongoing initiatives aimed at better informing the public about their services. For example, OCC recently revised its consumer complaint brochure. The brochure has “frequently asked questions” about OCC and the role it, and CAG specifically, play in resolving consumer complaints. This new version will be printed in Spanish and English. As of November 2005, OCC said they had distributed a small number of brochures to each national bank. In addition a “camera-ready” version will be made available to banks so that they can print more copies if they choose. However, OCC officials said they will not require the banks to display or distribute the brochures.\",\n \"In addition, officials said they do not have a distribution plan to give the brochure directly to the general public, although they did give a small supply to the Better Business Bureaus. We note that the information in the brochure is available on the OCC Web site. OCC also informs the public about CAG services and performance through the Annual Ombudsman report. This report is available on OCC’s Web site and contains information on total case volume handled in the previous year, as well as a general discussion about complaint volumes and trends. Also, in 2004, OCC redesigned its Web site to enhance the consumers’ capability to access information and learn more about its services. The redesigned Web site provides a searchable list of national bank operating subsidiaries that do business directly with consumers, which allows individual consumers to determine if an entity is associated with a bank supervised by OCC.\",\n \"However, some of the consumer groups with whom we spoke said that one limitation of this list is that it does not have dates attached to the list of operating subsidiaries indicating when they became associated with the bank, which can be important in trying to identify the parties involved in a transaction at a particular time. OCC officials said that they will address any complaint brought against a national bank and its operating subsidiaries, regardless of when the transaction took place. OCC officials also said CAG staff are engaging in a series of outreach meetings with state government organizations and Better Business Bureaus. For example, in November 2004, senior CAG officials met with one state attorney general’s office to demonstrate how OCC handles consumer complaints. That state attorney general told us that it was clear from the meeting that the CAG officials seemed earnest in wanting to cooperate, even though the two sides might still disagree on the appropriate roles for OCC and the states in protecting consumers. OCC officials said they intend to hold similar meetings with other state attorneys general and state banking departments, although none were planned as of November 2005.\",\n \"OCC staff is also engaged in outreach efforts with the Better Business Bureaus, which includes conference presentations, as well as meeting with several bureaus in order to educate them on OCC’s customer assistance services and to enable OCC to better understand the nature and volume of complaints received by the Better Business Bureaus involving national banks. In addition, OCC officials are requesting that Better Business Bureaus update their Web sites to include a link to OCC. Also, during fiscal year 2005, representatives from CAG and OCC’s Community Affairs office held outreach meetings with national consumer group organizations, such as the Consumer Federation of America, American Association of Retired Persons, and the National Association of Consumer Agency Administrators. Among some of the states’ attorneys general with whom we spoke, there is the perception that OCC is not willing to cooperate in protecting citizens, as evidenced, in part, by their perception of OCC’s unwillingness to share information on consumer complaint outcomes. Most state attorneys general staff with whom we spoke said they are willing to forward complaints to OCC, but they have not been receiving what they perceive to be adequate information on the outcome of referrals.\",\n \"According to OCC officials, it is agency policy to send the consumer a letter acknowledging receipt of a complaint submitted to OCC. If a complaint is forwarded to OCC from another agency, it is OCC’s policy to send a copy of the acknowledgment letter to the forwarding agency. Nonetheless, some state attorneys general and other state officials said that, in their experience, OCC does not provide any information about the resolution of the complaints, which is what state officials want. However, in commenting on a draft of this report, OCC officials told us that if state officials request information on the resolution of an individual complaint, OCC will notify them of the outcome. Specifically, they said that an attorney from OCC’s Community and Consumer Law Division will contact the state official once a case is closed and will discuss the case. Although it is not a written policy, OCC officials told us these contacts are common practice.\",\n \"“Where you believe there is a broader issue, such as the applicability of a particular State law to national banks generally, or if you have information that a specific national bank is engaged in a particular practice affecting multiple customers that is predatory, unfair or deceptive, this information should be communicated to the OCC’s Office of Chief Counsel for coordination.” The MOU was sent to all state attorneys general as well as the National Association of Attorneys General (NAAG) and the Conference of State Bank Supervisors (CSBS). Some of the officials from banking departments and the offices of attorneys general that we interviewed as well as representatives of CSBS said they viewed OCC’s proposed MOU as unsatisfactory because, in their view, it essentially favored the OCC.\",\n \"In a written response to the OCC Comptroller, declining to sign the MOU, one state’s attorney general described the proposal as one where “states send complaints to OCC with the idea that, at some later date, we would have the right to inquire about the results of the ’resolution’ of the matter obtained by OCC.” In addition, some of the state officials with whom we spoke believed that signing the proposed MOU would amount to a tacit agreement to the principles of the banking activities and the visitorial powers rules. “Nothing in this MOU is intended to or shall be construed to affect, modify, or imply any conclusion regarding the jurisdiction or authority of either of the agencies or affect the rights or obligations of the agencies under existing law concerning the scope of the respective jurisdiction of each of the agencies to supervise, examine or regulate the regulated institutions covered by this MOU.” Only one state official signed the original 2003 Memorandum, and according to OCC, to date, no additional state officials have signed the 2004 version. Consumer groups also expressed misgivings about forwarding complaints to OCC.\",\n \"Many of the groups with whom we spoke viewed CAG’s centralized location as a shortcoming because they believe that the CAG staff thus could not be familiar with current lending practices that pose high risk to consumers or problematic institutions in local areas. The consumer advocates we interviewed said an in-depth understanding of local real estate conditions was necessary to prevent predatory lending abuses. Furthermore, they said that OCC’s 60-day time frame is too long to effectively address many of their clients’ acute needs, such as when immediate action is needed to stop a foreclosure proceeding. We note however, that the other federal bank regulators and three of the six state regulators with whom we spoke all have a 60-day goal for resolving complaints. According to OCC officials, the agency centralized its consumer operations in Houston because it offers efficiency advantages. FDIC officials said they are consolidating their complaint handling operations for the same reasons. OCC examiners we interviewed also pointed out that a central facility makes sense, given that national banks operate across state lines and have so many customers in multiple markets.\",\n \"According to CAG and bank supervision staff, funneling data to, and analyzing it in, one location provides more potential for seeing national trends and potential problems. However, there are also potential drawbacks to having only one operational facility available for any such customer function, as it increases the likelihood that there might be disruptions in service. For example, during Hurricane Rita in September 2005, telephones were not staffed for 4 days at CAG, due to the evacuation of Houston. However, consumers were able to submit complaints by either E-mail or fax. During that period, OCC received 14 faxes opening new cases, as well as 184 E-mails—34 from bankers and 150 from consumers. Of those complaints from consumers, 16 were from Members of Congress. OCC staff said these numbers are in-line with normal activity levels. When we asked about the closure, the Ombudsman replied that he decided to obey the evacuation notice issued by Houston-area officials, and while this may have resulted in some backlog of cases, his first priority was ensuring the safety of the Houston OCC employees. In December 2005, OCC began seeking private-sector support for the CAG facility, in order to expand its telephone\",\n \"service hours.\",\n \"This expansion will give OCC the ability to quickly expand CAG’s telephone operating hours in the event of an emergency, and because the third-party vendor will be located outside of Houston, those staff will be able to help OCC continue to serve consumers, even if the Houston office is unable to operate. Some consumer groups and state officials stated that the recent banking activities and visitorial powers rules could potentially increase the number of complaints OCC receives, since now OCC will more likely handle all complaints pertaining to national banks and their operating subsidiaries. These groups and officials argued that OCC did not have the capacity to adequately handle any new volume. Furthermore, they contend OCC could not match the resources (i.e., personnel and hours of operations) of state banking departments, consumer credit divisions, and offices of state attorneys general that currently work to resolve complaints and, more broadly, to identify fraudulent and abusive practices. However, we note that state banking departments and state attorneys general handle other types of consumer complaints, such as complaints about automobile dealers, mortgage brokers, and check cashers.\",\n \"Since OCC issued the preemption rules in January 2004, the volume of complaints, according to CAG data, has remained fairly steady. In fact, between 2000 and 2004 complaints received by OCC have decreased 37 percent. According to OCC staff, complaint volume was high around 2000 due to a settlement with a large national bank on credit card disclosure issues. CAG data for 2005, while available only through June at the time of our review, indicate a potential increase in the volume of complaints when compared with 2004. CAG officials believe that the conversion from state charters to federal charters of two large banks in 2004 accounts for the increase. That is, customers of those banks who had complaints previously contacted the appropriate state regulator and either the Federal Reserve or FDIC, which jointly regulate state chartered banks. After the banks converted to federal charters, customers contacted OCC concerning any complaints. These data suggest that an increase to levels of complaints experienced before the 2004 preemption rules could be absorbed by current OCC resources.\",\n \"Further, CAG data show that the total number of complaints, in any given year, received from state offices, including banking departments and states’ attorneys generals, is a relatively small percentage of the total number of complaints; therefore, any increase in referrals to OCC from those offices might not have a dramatic effect on total overall volume. Nevertheless, concerns that OCC resources were not equivalent to those of a state attorney general or state banking department were still prevalent among some of those with whom we spoke at the state level. However, OCC officials said that they have staff—beyond CAG—that work on consumer protection issues, including bank examiners in compliance supervision and attorneys in the Community and Consumer Law and Enforcement and Compliance divisions. Until 2004, OCC staffed the CAG’s toll-free telephone line 4 days a week, 8 hours a day, but now has service 5 days. One measure OCC uses to gauge how effectively it is servicing customers is the wait time for callers to speak with a CAG representative. OCC officials told us their goal is to answer 80 percent of CAG calls within 3 minutes or less.\",\n \"According to OCC data, between June 2004 and November 2005, CAG met this goal, although wait times generally were longer for Spanish speaking services. In addition, to accommodate the expected increase in call volume due to recent charter conversions, OCC has recently hired more CAG specialists. Lastly, in December 2005, OCC began seeking private-sector support for the CAG facility, in order to expand its telephone service hours. A third-party vendor will handle routine matters, such as providing materials to satisfy noncomplex questions, obtaining information from callers that is necessary to open a case file, routing the caller to the appropriate OCC specialist and providing the status of an open case. In addition, the vendor’s employees will be able to direct the many callers who have concerns that pertain to institutions not regulated by OCC to the appropriate regulator. OCC plans to begin expanding the CAG’s telephone hours of operation after vendor selection and training is completed.\",\n \"Overall, OCC’s consumer complaint handling operations appear to be in- line with practices of other regulators, with OCC handling a larger volume of complaints than the other bank regulators, likely reflecting its position as the supervisor of banks that account for the majority of the nation’s bank assets. A significant portion of OCC’s and other regulators’ work involves providing or clarifying information for bank customers who have questions and/or have misunderstood a bank product or service. Officials from all four regulators said that assisting consumers through the complaint process is an important part of their efforts to educate consumers about financial products and services. Two of the federal bank regulators collect some feedback from consumers who make complaints or inquiries; OCC does not. In contrast, OCC does seek feedback from banks after every examination, through a survey. Given that part of OCC’s mission is to ensure that consumers of national banks’ products and services are treated fairly and have fair access to financial services, obtaining feedback from bank customers who contact CAG should be useful in improving both its service to customers and helping banks to do likewise.\",\n \"Moreover, federal standards reflected in GPRA require that government agencies measure their progress toward goals, including those related to serving the public. OCC measures its timeliness in serving consumers with complaints and inquiries as one indicator of its performance and discloses the results in reports that are publicly available. However, because those reports combine data on complaints and data on inquiries—which are questions or comments that are subject to an immediate, simple answer and typically require less time to handle—they overstate OCC’s performance in meeting its timeliness goal for resolving actual complaints. OCC appears to make appropriate use of the data CAG collects and analyzes by informing banks about their performance in relation to consumer complaints and by using the data to inform its examination and supervisory activities. CAG’s analysis of complaint data is presented to bank officials annually and used to identify any concerns. OCC examiners reported CAG data as useful tools in scoping examinations and in assessing areas of risk. We documented instances when examiners’ audit plans were influenced by information from CAG. We also identified instances when information gathered from CAG complaints and additional research by supervisory staff contributed to the development of\",\n \"supervision policies and guidance.\",\n \"The concerns expressed by a broad range of consumer advocates and state officials indicate some uneven understanding of OCC’s process for handling consumer complaints, possibly contributing to the lack of trust that the agency will be aggressive in protecting consumers’ interests. Because these concerns may inhibit state officials or consumer advocates from sharing information with or referring consumer complaints to OCC, they could adversely affect the agency’s effectiveness in regulating banks or assisting bank customers who have complaints. Consumer advocates and others are concerned about CAG’s centralized location and its capacity to handle complaints particularly if the volume of complaints should increase. Recent efforts such as outreach to the Better Business Bureaus and development of a revised brochure for consumers regarding CAG are appropriate steps designed to better inform the public of its process and services. However, the distribution plans for the brochure focus on the banks and rely on them to share the brochure with bank customers, if the banks wish.\",\n \"Given that the former Comptroller has acknowledged that OCC and state officials “have a mutual interest in ensuring that consumers are protected from illegal, predatory, unfair, or deceptive practices,” it is essential that OCC undertakes outreach to key state partners—regulators and consumer advocates—in a manner that effectively and efficiently informs the public, and especially customers of national banks, about what CAG does and how state officials and OCC can work together to protect consumers. Such efforts cannot only raise awareness among the states about OCC’s efforts and capabilities to assist consumers, it might help allay the suspicion and mistrust we identified and construct a path for better cooperation between OCC, state officials, and consumer advocates in the future. To identify ways to improve its process for handling consumer complaints and inquiries and its efforts to better inform, educate, and serve bank customers, we recommend that the Comptroller of the Currency take the following three actions: Develop and implement a feedback mechanism to receive input and measure satisfaction of bank customers who have used CAG services.\",\n \"Revise the data publicly reported on timeliness to reflect complaints resolved within the 60-day goal separately from data reported on inquiries resolved within the time frame. Develop and implement a comprehensive plan to inform bank customers, consumer advocates, state attorneys general, and other appropriate entities of OCC’s role in handling consumer inquiries or complaints about national banks. The plan could include such steps as directly distributing an informational brochure to some bank customers and meeting with state and local consumer advocates and appropriate state officials to describe OCC’s role and processes for assisting bank customers and others who raise consumer protection concerns. We obtained written comments on a draft of this report from the Comptroller of the Currency; they are presented in appendix II. OCC generally concurred with the report and agreed with our three recommendations. Specifically, OCC stated that a broader comparison of consumer protection activities, including those of state agencies, would have provided a clearer picture of protections available to consumers, but it acknowledged that such a comparison was beyond the scope of our report.\",\n \"Regarding the recommendations, OCC said it will develop and implement a customer feedback mechanism to receive input and measure satisfaction of those who have used CAG services. OCC also agreed to revise the data that it publicly reports on timeliness to reflect complaints resolved within the 60-day goal separately from data reported on inquiries. Finally, OCC acknowledged that state officials may not be aware that it does have some practices currently in place to inform state officials of the outcome of consumer complaints, and therefore it will undertake additional outreach to state agencies to make them aware of those options. Therefore, OCC agreed with our recommendation that it develop and implement a comprehensive plan to inform bank customers, consumer advocates, state attorneys general, and other appropriate entities of its role in handling consumer inquiries or complaints about national banks. OCC also provided technical comments that we have incorporated, as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of this report until 30 days from the report date.\",\n \"At that time, we will provide copies of this report to the Comptroller of the Currency and interested congressional committees. We also will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-8678 or woodd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors are acknowledged in appendix III. To describe how the Office of the Comptroller of the Currency (OCC) handles consumer complaints and to compare how its process compares with that of other bank regulators, we interviewed officials in OCC’s Customer Assistance Group (CAG), as well as their relevant counterparts at the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of Thrift Supervision (OTS). We visited the CAG office in Houston, Texas, and observed its work, including a review of 18 closed cases to learn what information CAG collects from complaints. In addition, we reviewed CAG’s policies and procedures that relate to consumer complaint processing.\",\n \"To describe how the four regulators resolve the complaints they handle, we requested complaint data for calendar years 2000 through 2004. Specifically, we obtained information about the source and resolution (outcomes) of complaints, the banking products or services involved, and the amount of time the regulators took to resolve them. The data came from four different databases: (1) OCC’s REMEDY database, (2) the Federal Reserve’s Complaint Analysis Evaluation System and Reports (CAESAR), (3) FDIC’s Specialized Tracking and Reporting System (STARS), and (4) OTS’ Consumer Complaint System (CCS). We obtained data from OCC, the Federal Reserve, FDIC, and OTS in September 2005 that covered calendar years 2000 through 2004. For purposes of this report, we sought to use REMEDY, CAESAR, STARS, and CCS data to describe the number of cases each regulator handled, what products consumers complained about, how the regulators disposed of complaints, the number of complaints and inquiries the regulators forwarded to other federal agencies, and how long it took the regulators to resolve complaints. To assess the reliability of data from the four databases, we reviewed relevant documentation and interviewed agency officials.\",\n \"We also had the agencies produce the queries or data extracts they used to generate the data we requested. Also, we reviewed the related queries, data extracts, and the output for logical consistency. We determined these data to be sufficiently reliable for use in our report. To make general comparisons about the source and resolution of complaints between the four regulators, we created categories that include all of the codes each regulator used to describe the sources and resolutions of complaints. Officials of the Federal Reserve, FDIC, OTS and OCC agreed with our categorization of their respective source and resolution codes. The source categories were “consumer,” “federal,” “state,” and “other.” The resolution categories consisted of (1) regulators provide consumers additional information, (2) complaint is withdrawn or tabled due to litigation, (3) regulators determine that bank was not in error, and (4) regulators determine that bank was in error. Using the codes, we sorted each of the regulators’ complaints and tallied the number of complaints that fell into each category.\",\n \"We also sorted the complaints by codes indicating the type of bank product or service and confirmed for certain products, such as credit cards, that the codes represented the entire universe of complaints about the product. To describe how long it takes to resolve a complaint, we requested from each regulator a frequency count of how many complaints were resolved within and over 60 days. To describe how CAG’s efforts related to OCC’s supervision of national banks, we interviewed OCC officials and reviewed related documents about how consumer complaint data influence bank examinations and guidance. We interviewed CAG officials and examiners at six national banks concerning how CAG shares consumer complaint information and how information is used by bank examiners. In addition, we interviewed bank officials to learn what information CAG provides the banks and how banks use the information. To identify issues raised by consumer advocates and state officials, we conducted site visits in four states: California, Georgia, New York, and North Carolina. The site visits included interviews of state attorneys general, banking regulators, banking officials and local consumer advocate groups, as well as analysis of relevant documents.\",\n \"We also interviewed state officials in two additional states, Iowa and Idaho. We selected these locations, in part, based on their experience with state consumer protection laws. In addition, we interviewed representatives of national consumer groups, including the Center for Responsible Lending, Consumer Federation of America, National Community Reinvestment Coalition, National Consumer Law Center, and Association of Community Organizations for Reform Now. Also, we interviewed representatives of national trade groups for state officials in Washington, D.C., including the Conference of State Bank Supervisors and the National Association of Attorneys General. We conducted our work in California, Georgia, New York, North Carolina, Texas, and Washington, D.C., from October 2004 through December 2005 in accordance with generally accepted government auditing standards. In addition to those named above, Katie Harris (Assistant Director), Nancy Eibeck, Jamila Jones, Landis Lindsey, James McDermott, Kristeen McLain, Suen-Yi Meng, Marc Molino, David Pittman, Barbara Roesmann, Paul Thompson, and Mijo Vodopic made key contributions to this report.\"\n]","isConversational":false}}},{"rowIdx":10887,"cells":{"id":{"kind":"string","value":"train_10887"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"Since fiscal year 2006, Congress has annually prohibited the use of federal funds to inspect horses destined for food, effectively prohibiting domestic slaughter. The U.S. Department of Agriculture (USDA) is responsible for overseeing the welfare of horses transported for slaughter. Congress directed GAO to examine horse welfare since cessation of domestic slaughter in 2007. GAO examined (1) the effect on the U.S. horse market, if any, since cessation; (2) any impact of these market changes on horse welfare and on states, local governments, tribes, and animal welfare organizations; and (3) challenges, if any, to USDA's oversight of the transport and welfare of U.S. horses exported for slaughter. GAO analyzed horse price and shipping data, and interviewed officials from USDA, state and local governments, tribes, the livestock industry, and animal welfare organizations, and reviewed documents they provided.. Since domestic horse slaughter ceased in 2007, the slaughter horse market has shifted to Canada and Mexico. From 2006 through 2010, U.S. horse exports for slaughter increased by 148 and 660 percent to Canada and Mexico, respectively. As a result, nearly the same number of U.S. horses was transported to Canada and Mexico for slaughter in 2010--nearly 138,000--as was slaughtered before domestic slaughter ceased. Available data show that horse prices declined since 2007, mainly for the lower-priced horses that are more likely to be bought for slaughter. GAO analysis of horse sale data estimates that closing domestic horse slaughtering facilities significantly and negatively affected lower-to-medium priced horses by 8 to 21 percent; higher-priced horses appear not to have lost value for that reason. Also, GAO estimates the economic downturn reduced prices for all horses by 4 to 5 percent. Comprehensive, national data are lacking, but state, local government, and animal welfare organizations report a rise in investigations for horse neglect and more abandoned horses since 2007. For example, Colorado data showed that investigations for horse neglect and abuse increased more than 60 percent from 975 in 2005 to 1,588 in 2009. Also, California, Texas, and Florida reported more horses abandoned on private or state land since 2007. These changes have strained resources, according to state data and officials that GAO interviewed. State, local, tribal, and horse industry officials generally attributed these increases in neglect and abandonments to cessation of domestic slaughter and the economic downturn. Others, including representatives from some animal welfare organizations, questioned the relevance of cessation of slaughter to these problems. USDA faces three broad challenges in overseeing the welfare of horses during transport to slaughter. First, among other management challenges, the current transport regulation only applies to horses transported directly to slaughtering facilities. A 2007 proposed rule would more broadly include horses moved first to stockyards, assembly points, and feedlots before being transported to Canada and Mexico, but delays in issuing a final rule have prevented USDA from protecting horses during much of their transit to slaughtering facilities. In addition, GAO found that many owner/shipper certificates, which document compliance with the regulation, are being returned to USDA without key information, if they are returned at all. Second, annual legislative prohibitions on USDA's use of federal funds for inspecting horses impede USDA's ability to improve compliance with, and enforcement of, the transport regulation. Third, GAO analysis shows that U.S. horses intended for slaughter are now traveling significantly greater distances to reach their final destination, where they are not covered by U.S. humane slaughter protections. With cessation of domestic slaughter, USDA lacks staff and resources at the borders and foreign slaughtering facilities that it once had in domestic facilities to help identify problems with shipping paperwork or the condition of horses before they are slaughtered. GAO suggests that Congress may wish to reconsider restrictions on the use of federal funds to inspect horses for slaughter or, instead, consider a permanent ban on horse slaughter. GAO recommends that USDA issue a final rule to protect horses through more of the transportation chain to slaughter and consider ways to better leverage resources for compliance activities. USDA agreed with GAO's recommendations and noted specific actions it will take to implement them."},"documents":{"kind":"list like","value":["The Federal Agriculture Improvement and Reform Act of 1996 (1996 Farm Bill) authorized USDA to issue guidelines for the regulation of the commercial transportation of horses and other equines for slaughter by persons regularly engaged in that activity within the United States. The statute gives USDA authority to regulate the commercial transportation of equines to slaughtering facilities, which the statute indicates include assembly points, feedlots, or stockyards. The authority to carry out this statute was delegated to USDA’s Animal and Plant Health Inspection Service (APHIS). Pursuant to this authority, APHIS issued a regulation, “Commercial Transportation of Equines to Slaughter” (transport regulation), in 2001. In 2001, APHIS also established the transport program. This program seeks to ensure that horses being shipped for slaughter are transported safely and humanely. In addition, USDA’s Food Safety Inspection Service (FSIS) carries out the Humane Methods of Slaughter Act and related regulations, which require the humane handling of livestock, including horses, in connection with slaughter. APHIS’s transport regulation establishes a number of requirements that owners/shippers (shippers) must meet for horses transported to slaughter.","The regulation states that shippers must (1) provide horses with food, water, and rest for at least 6 hours prior to loading; (2) provide horses adequate floor space in whatever conveyance (e.g., a trailer) is being used; (3) segregate all stallions and other aggressive equines; and (4) ensure that trailers are free of sharp protrusions, are not double-decked, and have adequate ventilation. If a trip is longer than 28 hours, horses must be unloaded and provided at least 6 hours of food, water, and rest before being reloaded. Horses cannot be shipped to slaughter unless they are accompanied by an “Owner/Shipper Certificate—Fitness to Travel to a Slaughter Facility” (owner/shipper certificate) certifying that the horses are fit for travel. The certificate must state that horses are over 6 months of age, are not blind in both eyes, can bear weight on all four limbs, are able to walk unassisted, and are not likely to foal (i.e., give birth) during transport. Figure 1 provides an example of this certificate. Shippers found to be in violation of the transport regulation can face penalties of $5,000 per horse, per violation.","As of fall 2007, the last three horse slaughtering facilities in the United States were closed following unsuccessful challenges to state laws banning the practice. According to USDA data, those facilities, two in Texas and one in Illinois, slaughtered almost 105,000 horses in 2006—the last full year of operations—and exported more than 17,000 metric tons of horsemeat, which was valued at about $65 million at that time. Regarding the Texas facilities, in January 2007, the U.S. Court of Appeals for the Fifth Circuit ruled that a 1949 Texas law banning the sale or possession of horsemeat applied to them. They ceased operations in May 2007. Regarding the Illinois facility, the state enacted a law in May 2007 making it illegal to slaughter horses for human consumption. In September 2007, the U.S. Court of Appeals for the Seventh Circuit upheld this slaughter ban, and the Illinois facility ceased operations that month.","Since fiscal year 2006, Congress also has taken annual actions in appropriations legislation that have effectively prevented the operation of horse slaughtering facilities in the United States by prohibiting USDA’s use of federal funds to (1) inspect horses being transported for slaughter and (2) inspect horses intended for human consumption at slaughtering facilities. The 1996 Farm Bill authorized the issuance of guidelines for the regulation of the commercial transportation of equines for slaughter as well as the conduct of any inspections considered necessary to determine compliance. The Federal Meat Inspection Act requires inspection of certain animals, including cattle, sheep, swine, goats, and horses, before they are slaughtered and processed into products for human food to ensure that meat and meat products from those animals are unadulterated, wholesome, and properly labeled. However, Congress prohibited USDA from using appropriated funds to pay for these inspections, effective 120 days after enactment of the fiscal year 2006 appropriations legislation on November 10, 2005.","Following the prohibitions, the three domestic slaughtering facilities open at that time petitioned USDA to create a voluntary fee-for-service inspection program for horses prior to slaughter, and USDA created such a program in early 2006, allowing required inspections, and, thus, domestic slaughtering, to continue. The congressional prohibition on use of appropriated funds continued in fiscal year 2007, but, as previously discussed, the plants had already been shut down by state law that year. In fiscal year 2008, Congress renewed the prohibition on the use of appropriated funds for inspections on horses being transported to slaughter and at slaughtering facilities, and it added a new prohibition on the use of appropriated funds for implementation or enforcement of the fee-for-service program. These prohibitions were continued in fiscal years 2009 through 2011. These prohibitions notwithstanding, U.S. horses intended for slaughter are still allowed to be transported within the United States under the oversight of USDA’s transport program and exported to slaughtering facilities in Canada and Mexico. In September 2010, USDA’s Office of Inspector General (OIG) reported, in part, on the operations of the transport program.","The OIG found that APHIS needs to improve its controls for ensuring that horses being shipped to foreign facilities for slaughter are treated humanely. For example, APHIS does not deny authorization to shippers with a record of inhumanely transporting horses intended for slaughter from shipping other loads of horses, even if unpaid fines are pending for previous violations. The OIG also found deficiencies in how APHIS tags horses that have been inspected and approved for shipment to foreign slaughtering facilities. For example, the agency requires shippers to mark such horses with backtags, which are intended to allow APHIS to trace horses back to their owner and also to verify that horses have passed inspection by an accredited veterinarian. However, APHIS lacked an appropriate control to track individual horses by backtag number on approved shipping documents so that it could perform reconciliations, investigate violations, and initiate enforcement actions, as appropriate. In addition, the OIG noted that APHIS needs to obtain the resources necessary to adequately oversee the transport program and issue in final a proposed rule that would broaden the scope of the agency’s regulation of horses being shipped to foreign slaughtering facilities.","In its official response to the OIG report, APHIS concurred with the OIG’s findings and recommendations related to the transport program, and APHIS proposed specific actions and time frames for implementing the recommendations. For example, APHIS agreed to work with USDA’s Office of General Counsel and complete by May 31, 2011, an evaluation of “the best options to revise regulations necessary that will establish an agencywide policy that those who have violated the humane handling regulations and failed to pay the associated penalties shall not receive endorsement of any subsequently requested shipping documents.” The U.S. slaughter horse market has changed since domestic slaughter for food ceased in 2007, particularly in terms of increased exports to Canada and Mexico and lower domestic sales and prices, especially for lower- value horses, according to our analysis of available trade data and horse auction sales data. The number of horses slaughtered in the United States decreased from 1990 (345,900 horses) through 2002 (42,312 horses), according to available data from USDA’s National Agricultural Statistics Service. At the same time, the reported number of slaughtering facilities dropped from at least 16 U.S.","facilities that operated in the 1980s to 7 facilities in 1994 to as few as 2 in 2002. Beginning in 2003, however, the number of horses slaughtered began rising through 2006, the last full year of domestic slaughtering operations, when nearly 105,000 horses were slaughtered in the United States. According to USDA officials, this increase can be explained, in part, by the reopening of a horse slaughtering facility in DeKalb, Illinois, in 2004 that increased domestic slaughtering capacity. This facility had been closed for 2 years following a fire set by anti-slaughter arsonists. Because all domestic slaughtering facilities closed by September 2007, however, the number of horses being slaughtered in the United States dropped to zero by the end of that year. Figure 2 shows the changes in the number of horses slaughtered in the United States from 1990 through 2007. Before 2007, horses were slaughtered in domestic slaughtering facilities only when the horsemeat was destined for consumption by humans or zoo animals. Currently, pet food and other products, including glue, may still be obtained from the corpses of horses that are hauled to rendering plants for disposal.","The production of these products is not covered by the requirements of the Federal Meat Inspection Act and is therefore not affected by the current ban on the use of appropriated funds for the ante- mortem inspection of horses destined for human consumption. According to a transport program official, USDA is not aware of any domestic facility slaughtering horses for any purpose, including for zoos, as of the end of 2010. USDA identified at least three establishments—in Colorado, Nebraska, and New Jersey—that import horsemeat for repackaging and distribution to purchasers in the United States who feed the meat to animals at zoos and circuses. With the cessation of domestic slaughter, U.S. exports of horses intended for slaughter increased to Canada and Mexico, the current locations of all North American horse slaughtering facilities. As of the end of 2010, Canada had four such facilities, and Mexico three, that were the principal destinations of U.S. horses exported for slaughter. According to USDA officials, this increase in exports began, in part, because shippers were anticipating the closure of the three horse slaughtering facilities in the United States at that time.","From 2006 through 2010, Canadian and Mexican imports increased by 148 percent and 660 percent, respectively, with the total number of horses imported from the United States for slaughter increasing from about 33,000 in 2006 to about 138,000 in 2010. In addition, the total number of horses exported for all purposes, including breeding and showing, also increased from 2006 through 2010, as shown in figure 3. According to USDA officials, some horses exported for purposes other than slaughter were likely “feeder” horses that were ultimately sent to slaughtering facilities at a later time. For example, feeder horses may be sent to a Canadian or Mexican feedlot for fattening before subsequently being sent to a slaughtering facility in that country. The extent to which horses are exported as feeder horses is unknown, according to USDA officials. The total number of U.S. horses sent to slaughter in 2006, the last full year of domestic slaughter, was comprised of horses slaughtered domestically (i.e., 104,899, as shown in fig. 2) and those sent for slaughter in Canada or Mexico (i.e., 32,789, as shown in fig. 3)—for a total of 137,688 horses. Taken together, the 137,984 U.S.","horses that were sent to slaughter in Canada or Mexico in 2010 is approximately equal to the total number of horses slaughtered in 2006. Additional certification may affect Canadian and Mexican exports of horsemeat to Europe and, in turn, may affect the future export of horses intended for slaughter from the United States to these countries. In 2010, the European Union began prohibiting the importation of horsemeat from horses treated with certain drugs and requiring countries to document withdrawal periods for horses treated with other drugs before meat from such horses could be imported to the European Union. Those regulations precipitated similar regulations in Canada and Mexico. For example, Canadian requirements went into effect on July 31, 2010, banning specific medications, such as phenylbutazone—the most common anti- inflammatory medication given to horses—and requiring a 180-day withdrawal period for other medications, such as fentanyl, an analgesic. Also, since November 30, 2009, Mexico has required an affidavit by transporters that horses have been free from certain medications for 180 days prior to shipment. Furthermore, effective July 31, 2013, the European Union will require lifetime medication records for all horses slaughtered in non-European Union countries before accepting imports of","horsemeat from those countries.","According to APHIS and horse industry sources, these requirements could result in shippers certifying that their horses are free of medication residues without having first-hand knowledge or documentation of the horses’ status for the previous 180 days. With regard to sales, many of the State Veterinarians said that fewer horse sales have occurred and fewer auctions have operated within their states since 2007, in part, because of lower horse prices and sale commissions since the cessation of domestic slaughter. As a result, they said, horse owners have fewer options for getting rid of horses they no longer want. There also has been reduction in the number of commercial shippers doing business since the cessation of slaughter. In reviewing USDA documentation, we found that more than 110 shippers operated from 2005 through 2006—the 2 years prior to the cessation of domestic slaughter in 2007—and fewer than 50 shippers operated from 2008 through 2009.","Some in the horse industry, as well as the State Veterinarians, generally attributed this decrease to the closing of horse auctions around the country, reflecting a smaller market and the lower profit margins resulting from the increased costs of transporting horses intended for slaughter to Canada and Mexico. Horse industry representatives also stated that the closing of domestic slaughtering facilities has dramatically affected the prices of horses. National data on horse prices do not exist, but data from individual auctions are available. For example, the Billings, Montana, horse auction, one of the nation’s largest, which also sells horses purchased for slaughter, reported a large increase in the percentage of lower-priced horses sold—the type of horse that typically ends up at slaughter—and a general decrease in sale prices. In May 2005, approximately 25 percent of “loose” horses—less expensive horses that are run through the auction ring without a rider or saddle—sold for less than $200 at that auction, whereas in May 2010, about 50 percent of loose horses sold for less than that amount.","The economic downturn in the United States that started in December 2007 also likely affected horse prices, according to the academic experts and industry representatives we consulted. Since many U.S. horses are used for recreational purposes, they are generally thought to be luxury goods, and their ownership is sensitive to upturns and downturns in the general economy. Furthermore, some horse sellers could no longer afford to keep their horses, and potential buyers also were not able to offer as much to buy horses or were not in the market to purchase horses at all, according to some industry observers. In particular, a considerable number of horse owners are from lower-to-moderate income households and are less able to withstand the effects of a recession, according to academic experts. For example, one study estimated that up to 45 percent of horse owners have an annual household income of between $25,000 and $75,000. According to several State Veterinarians, those owners are more likely to have problems affording the care of their horses during an economic downturn.","To estimate the impact of the cessation of domestic slaughter on horse prices, we collected price data on more than 12,000 sale transactions from spring 2004 through spring 2010 from three large horse auctions located in the western, southern, and eastern United States. Our analysis of these data controlled for the economic downturn and other factors that are auction- and horse-specific, such as a horse’s breed/type, age, and gender, which may also affect prices. Horse sale prices ranged from a minimum of $4 to a maximum of $48,500, with most of these sales clustered at the lower end of the price range. Figure 4 shows the distribution of these sales prices, including the median and average price per head. Our analysis also shows a statistically significant reduction in average sale price across all price categories after the cessation of slaughter in 2007, as shown in figure 5. For example, the average sale price for horses in the lowest price category (20th percentile), dropped by about $110 per head (from $433 to $323), and the average price for the highest price category (80th percentile) dropped by about $140 per head (from $2,380 to $2,241).","The other variables that we considered included season of year of the auction, auction location, and percentage of “no sales” (horses that did not receive a bid acceptable to the seller) for each auction. The effect on price was not statistically significant for that category. These estimates suggest that the closing of domestic horse slaughtering facilities had a significant and negative impact on horse prices at the low- to-mid levels of price at these auctions, while relatively higher-priced horses appear not to have lost their value due to the cessation of slaughter. Appendix II provides further details on the results of our analysis. Horse welfare in the United States has generally declined since 2007, as evidenced by a reported increase in horse abandonments and an increase in investigations for horse abuse and neglect. The extent of the decline is unknown due to a lack of comprehensive, national data, but state officials attributed the decline in horse welfare to many factors, but primarily to the cessation of domestic slaughter and the U.S. economic downturn. Abandoned, abused, and neglected horses present challenges for state and local governments, tribes, and animal welfare organizations.","In response, some states and tribes have taken several actions to address these challenges and the demand on their resources. In interviewing the 17 State Veterinarians, we asked whether the states had data for cases of horse abandonments, abuse, and neglect. Most veterinarians from these states, including some with the largest horse populations—California, Florida, and Texas—said they do not routinely collect such data because, in part, their resources are limited and jurisdiction of animal welfare is usually a local (e.g., county) responsibility. Nearly all the State Veterinarians, however, reported anecdotes indicating that cases of abandonments and abuse or neglect have increased in recent years. For example, several State Veterinarians, including those from California, Florida, and Texas, reported an increase in horses abandoned on private or state park land since 2007, although specific data quantifying those abandonments were not available. In addition, states that do collect some data reported increases in abandonments or investigations of abuse and neglect since the cessation of domestic slaughter. For example, data from Colorado showed a 50- percent increase in investigations for abuse and neglect from 1,067 in 2005 to 1,588 in 2009.","Similarly, data from Indiana indicated that horse abuse and neglect investigations more than doubled from 20 in 2006 to 55 in 2009. In addition, organizations representing localities, especially counties and sheriffs, have reported an increasing problem. For example, the Montana Association of Counties reported that the number of horses being abandoned by their owners has rapidly increased since horse slaughter for human consumption was halted in the United States, but the association did not have specific data. In addition, the National Association of Counties reported that the increasing abandonment problem is not exclusive to Montana or the West but is happening nationwide. We also asked the 17 State Veterinarians whether horse welfare, in general, had improved, declined, or remained about the same in their states over the last 5 years. Without exception, these officials reported that horse welfare had generally declined, as evidenced by a reported increase in cases of horse abandonment and neglect. They most frequently cited two factors that contributed to the decline in horse welfare—the cessation of domestic slaughter in 2007 and the economic downturn—although they generally were careful not to pin the decline on any single factor.","Other factors that they generally cited include poor weather conditions (e.g., drought in western states); the cost of horse disposal methods (e.g., veterinarian-assisted euthanasia); the increasing costs of feeding and caring for horses; and the lack of auction markets to sell horses. Among the factors affecting horse owners, the State Veterinarians said a horse owner’s decision to abandon a horse generally related to (1) cessation of domestic slaughter, (2) poor economic conditions, and (3) low horse prices or lack of sale opportunities. They also said the factors most often related to a horse owner’s neglect of a horse were (1) poor economic conditions, (2) the cost of horse care and maintenance, and (3) lower horse prices. Several State Veterinarians pointed out that, in their professional experience, very few owners directly physically abuse their horses, which would be a crime. More common, however, were owners who neglected the feeding and proper care—such as providing farrier services (i.e., hoof care) and vaccinations—of their horses.","Thus, based on the information these officials provided, the primary drivers for the increase in abandonment and neglect cases are the cessation of domestic slaughter, causing lower horse prices and difficulty in selling horses, and the economic downturn, affecting horse owners’ ability to properly care for their animals. As discussed, our analysis also showed that the cessation of slaughter and the economic downturn generally reduced horse prices at our selected auctions; in particular, the cessation affected prices for the low-to-mid range priced horses that are more frequently abandoned and neglected. Furthermore, regarding neglect, some State Veterinarians, noting that people are more inclined to take care of that which has value, said that the drop in horse prices affected some owners’ interest in caring for their animals, especially if their financial situation had declined. With regard to the entities most affected by the increase in abandoned and neglected horses, the State Veterinarians generally said that counties, including sheriffs, bear the responsibility for investigating potential cases affecting horse welfare.","Many State Veterinarians, particularly from western states, indicated that their offices did not have the resources to support the counties beyond providing expert veterinary advice regarding conditions of abandoned and neglected horses, such as opining on a horse’s nutritional status (known as “body scoring”). State and local governments, tribes, and animal welfare organizations, especially horse rescues, are facing growing pressures to care for abandoned and neglected horses at a time of economic recession and tight budgets. According to the State Veterinarians, counties and animal welfare organizations bear the costs of collecting and caring for abandoned horses, while county governments generally bear the costs of investigating reports of neglect. These officials said horse rescue operations in their states are at, or near, maximum capacity, with some taking on more horses than they can properly care for since the cessation of domestic slaughter. One State Veterinarian added that his office is reluctant to pressure horse rescues in his state to take on additional animals because of this problem, even though alternatives are lacking.","Some State Veterinarians also described situations in which counties and sheriff departments were reluctant to investigate reports of abandoned or neglected horses because these jurisdictions lacked resources to deal with the consequences of finding such animals. In some cases, these officials said local jurisdictions may lack the resources even to initiate such investigations, let alone to take possession of and care for these animals. And in cases where an investigation results in horse seizures, local jurisdictions may have to appeal for the public’s help in caring for the animals. For example, the Montana State Veterinarian and his staff described a recent situation in their state involving the seizure of hundreds of neglected horses, many of which had low body scores and would not have survived the winter without intervention. These horses were seized from a ranch owner near Billings, Montana, in January 2011 who was no longer able to afford their care. Because of the strain placed on state and county resources to care for so many animals, these jurisdictions had to seek private donations of hay to feed these horses. Figure 7 shows some of the horses seized in this case.","Tribes also reported increases in abandonments on their land, exacerbating the overpopulation of horse herds on tribal lands. According to 2009 data from the Northwest Tribal Horse Coalition (now the National Tribal Horse Coalition), the number of horses on its tribal lands exceeded 30,000 horses. When we met with representatives of tribes in the western United States, they showed us significant degradation of their lands as a result of the over-grazing by large populations of wild horses, as shown in figure 8. They explained that the increase in abandoned horses on their lands has compounded the challenge of restoring native and religiously- significant species of plants to their land—an effort often paid for, in part, by the federal government. Moreover, domesticated horses abandoned on public lands generally have poor survival prospects, according to officials from the Department of the Interior’s Bureau of Land Management (BLM). These horses are unfamiliar with which wild plants are edible and are likely to be shunned or hurt by wild horses. These abandoned horses may also introduce diseases to wild herds.","The effects of the increasing number of abandoned or neglected horses have been felt by local animal welfare organizations as well—in particular, the horse rescues and local societies for the prevention of cruelty to animals that work with local officials to place such horses, according to the State Veterinarians. The total number of rescues and their capacities is unknown because there is no national registry or association for horse rescues. However, both the National Association of Counties and the Unwanted Horse Coalition estimated that the nationwide capacity of rescue facilities is about 6,000 horses. They also reported that the vast majority of these facilities are already full. Some State Veterinarians told us that some rescue organizations have taken on more horses than they can properly care for, especially in an economic environment in which donations have declined; as a result, horses at some of these organizations’ facilities have been seized. For example, it has been reported that horse rescues in California, Florida, New York, and West Virginia have recently had their animals seized by local authorities because they were not properly caring for them, and others in New Hampshire and Pennsylvania closed due to financial difficulties.","In addition, the increase in unwanted domesticated horses available for sale or being abandoned on public lands is affecting the federal government’s ability to manage wild horse and burro populations. Most of these wild animals are found on lands managed by BLM and USDA’s Forest Service in the western United States. From 1971 through 2007, BLM removed over 267,000 wild horses and burros from these lands, and during the same period, approximately 235,700 of these animals were adopted by the public under a BLM program that promotes these adoptions. As we reported in 2008, BLM has, however, experienced a steady decline in adoptions in recent years, which agency officials attributed, in part, to the large number of domesticated horses flooding the market. More recently, BLM officials said that annual adoptions had fallen from about 8,000 in 2005 to about 3,000 in 2010. In an October 2010 Web message, the BLM Director estimated that the number of horses and burros on lands the agency manages exceeds by about 12,000 the number that would allow these lands to remain sustainable for other uses and species.","According to BLM officials, in addition to natural reproduction in wild horse and burro herds, the increasing number of domesticated horses being abandoned on public lands has contributed to this overpopulation problem. Other officials, including those from animal welfare organizations, questioned the relevance of the cessation of domestic slaughter to the rise in abandoned and neglected horses, which they attributed more to the economic downturn. For example, in March 2010, Animal Welfare Institute representatives said that since a 1998 California ban on dealing in horses intended for slaughter, their organization has offered a $1,000 reward for notification of abandoned horses but has never received a tip. In addition, the Humane Society of the United States and the United Animal Nations reported that there has been no documented rise in abuse and neglect cases in California since the 1998 ban. United Animal Nations also reported there was no documented rise in abuse and neglect cases in Illinois following the 2-year closure of the horse slaughtering facility in that state in 2002.","Furthermore, Humane Society of the United States officials said that owners who abandon horses are going to abandon them regardless of having the option for domestic slaughter, adding that there were instances of horse abandonment near domestic horse slaughtering facilities before they closed. These officials acknowledged that there are no good data on horse abandonments but noted an increase in abandonments of all kinds of domesticated animals as the economy worsened. Some states took actions related to horse welfare and slaughter even before the cessation of domestic slaughter in 2007. For example, in 1998, California made it illegal to export horses for the purpose of having them slaughtered for human consumption outside the state. Specifically, California law makes it unlawful for any person to possess; to import into or export from the state; or to sell, buy, give away, hold, or accept any horse with the intent of killing or having another kill that horse, if that person knows or should have known that any part of that horse will be used for human consumption.","Several state officials told us that this ban is difficult to enforce because it may be difficult to show when an owner knew or should have known that a buyer intended that animal for slaughter. For example, if an owner transports a horse to an auction in another state (e.g., Montana or Texas), it may be difficult to prove that the owner specifically intended to sell the horse for slaughter or should have known that the buyer of the horse intended to sell the horse for slaughter. In addition, since 2007, states and tribes have taken a variety of legislative or other actions related to horse welfare or slaughter. For example, in 2009 Montana passed a law that allows horse owners to surrender horses that they cannot afford to maintain to the state at a licensed livestock market without being charged with animal cruelty. Also, Colorado authorized the inclusion of a checkbox on state income tax return forms allowing taxpayers to make a contribution to the Colorado Unwanted Horse Alliance.","In authorizing the program, the Colorado legislature found that the number of unwanted horses is increasing; most horse rescue facilities are operating at capacity and have limited ability to care for additional horses; and incidences of horse abuse and neglect are rising. In addition, Kentucky passed a law in the spring of 2010 creating the Kentucky Equine Health and Welfare Council and charged it with developing regional centers of care for unwanted, abused, neglected, or confiscated equines; creating a system of voluntary certification of equine rescue and retirement operations; and suggesting statutory changes affecting equine health, welfare, abuse, and neglect issues. Also, in 2009, the National Congress of American Indians and the Northwest Tribal Horse Coalition passed resolutions supporting domestic slaughter to manage overpopulated horse herds. A number of the 17 states that we examined have also enacted laws related to horse welfare and slaughter since the cessation of domestic slaughter. For example: Arkansas, Oklahoma, Utah, and Wyoming passed resolutions urging Congress to facilitate the resumption of horse slaughtering in the United States and oppose federal legislation that would ban domestic slaughter.","North Dakota and South Dakota passed similar resolutions urging Congress to reinstate and fund federal inspection programs for horse slaughter and processing. Montana passed a law that would make it easier to establish a horse slaughtering facility by making it harder for those opposing such a plant to get an injunction against it while challenging various permits that the plant would need to operate. In his 2009 testimony in support of the bill, the chair of Montana’s Farm Bureau cited rising numbers of unwanted horses and associated costs. Wyoming amended its existing law to provide that strays, livestock, and feral livestock, including horses, may be sent to slaughter as an alternative to auction or destruction. The legislative changes also provided that the state could enter into agreements with meat processing plants whereby meat from livestock disposed of by slaughter could be sold to state institutions or nonprofits at cost or to for-profit entities at market rate.","Several states are seeking to reopen domestic horse slaughter facilities, under a provision of the Food, Conservation, and Energy Act of 2008, which authorized USDA to establish a new voluntary cooperative program under which small state-inspected establishments would be eligible to ship meat and poultry products in interstate commerce. USDA recently finalized a rule to implement the program, but USDA officials said that the rule does not include horsemeat, because recent appropriations legislation has prohibited the use of federal funds for inspecting horses prior to slaughter. And although, under the proposed program, the inspections would be done by state officials, federal law requires USDA to reimburse the state for at least 60 percent of the associated costs. However, as noted by USDA officials, the prohibition in appropriations legislation against using federal funds for inspecting horse at slaughter would preclude these reimbursements. USDA officials said the same issue would preclude tribal slaughtering facilities from shipping horsemeat in interstate or international commerce as well. USDA faces three challenges in its oversight of the welfare of horses during their transport for slaughter. First, APHIS faces several specific management challenges in implementing the transport program.","Second, legislative prohibitions on using federal funds for inspecting horses prior to slaughter impede USDA’s ability to ensure horse welfare. Third, the cessation of domestic slaughter has diminished APHIS’s effectiveness in overseeing the transport and welfare of horses intended for slaughter. Several management challenges are affecting APHIS’s implementation of the transport program. These challenges include (1) delays in issuing a final rule to give the agency greater oversight over horses transported for slaughter to protect their welfare; (2) limited staff and funding that complicates the agency’s ability to ensure the completion, return, and evaluation of owner/shipper certificates; and (3) a lack of current, formal agreements with Canadian, Mexican, and state officials whose cooperation is needed for program implementation. APHIS’s transport regulation sets minimum care standards to protect horse welfare, but it applies only when the horses are being moved directly to slaughtering facilities, at which point shippers designate the horses as “for slaughter” on an owner/shipper certificate and move the horses directly to slaughtering facilities. Consequently, the regulation does not apply to horses that are moved first to an assembly point, feedlot, or stockyard before going to slaughter.","For example, a horse’s journey to slaughter may have covered several states, from point-of-purchase at an auction to an assembly point, such as a farm; from the assembly point to a feedlot or stockyard; and from the feedlot or stockyard to a point near a slaughtering facility or a border crossing where the slaughter designation was first made. In reviewing a generalizable sample of nearly 400 owner/shipper certificates from before and after cessation of domestic slaughter in 2007, we found that shippers usually designated horses as “for slaughter” on the final leg of their journey to a slaughtering facility, as allowed under the current regulation. For example, prior to cessation in 2007, shippers sometimes designated horses near the U.S. facility in which they would be slaughtered. Specifically, we found cases in which horses shipped to the slaughtering facility in DeKalb, Illinois, were designated for slaughter at a point just a few miles from the plant. Similarly, since cessation in 2007, shippers sometimes made this designation near border crossings with Canada or Mexico.","For example, since cessation, we found shipments of horses being designated for slaughter in Shelby, Montana, about 36 miles from the border crossing into Canada and in El Paso, Texas, about 10 miles from where they cross the border into Mexico. According to APHIS officials, in virtually all of these cases, without a “for slaughter” designation, it is likely that before reaching these designation points, the horses already had traveled for long distances within the United States without the protection of the APHIS transport regulation to ensure their humane treatment. For example, some of the horses may have been transported in double-deck trailers intended for smaller livestock animals; as discussed, the APHIS transport regulation prohibits the use of this type of trailer after the designation for slaughter is made. To address this issue, APHIS proposed, in November 2007, to amend the existing transport regulation to extend APHIS’s oversight of horses transported for slaughter to more of the transportation chain that these horses pass through. The proposed rule defines equine for slaughter as an equine transported to intermediate assembly points, feedlots, and stockyards, as well as directly to slaughtering facilities.","The current regulation does not define equine for slaughter and only applies to those equines being transported directly to slaughtering facilities. APHIS has experienced repeated delays in issuing a final rule that would extend APHIS’s oversight of horses being transported for slaughter. According to USDA officials, the delay is the result of a number of factors, including, competing priorities and the need to address substantive, public comments on the proposed rule that resulted in reclassifying it as significant under Executive Order 12866. As of June 2011, USDA officials said they anticipate issuing the final rule by the end of calendar year 2011. APHIS officials noted that this change to the transport regulation could help address another issue as well. Specifically, the regulation currently does not apply to shippers transporting horses to Canada as feeder horses. As discussed, some U.S. horses exported for purposes other than slaughter (i.e., not designated for slaughter on an owner/shipper certificate) may be feeder horses that are ultimately sent to slaughtering facilities at a later time. According to APHIS officials, the number of feeder horses has likely grown with the increase in total horse exports to Canada since 2007.","Because feeder horses are not designated for slaughter before crossing the border, they are not covered by the transport regulation at any point in their journey. If the transport regulation is amended, however, as APHIS has proposed, the designation “equine for slaughter” would apply to these animals during the leg of their trip from the U.S. auction where they were purchased to the border crossing, including any intermediate stops within the United States at assembly points, feedlots, and stockyards. Such a designation would place those animals under the protection afforded by APHIS’s oversight. APHIS officials also noted that the provision of the 1996 Farm Bill authorizing the transport regulation is the only federal statute that regulates the transportation of horses, and they commented on the irony that horses designated for slaughter are provided greater protection, under current federal law and the transport regulation, than other horses in commercial transit. Over the past 6 fiscal years, the transport program’s annual funding has varied, generally declining from a high of over $306,000 in fiscal year 2005 to about $204,000 in fiscal year 2010.","This funding primarily provides for the salaries and expenses of two staff, one of whom is the national compliance officer, who inspects conveyances and owner/shipper certificates for compliance with the transport regulation, with the remainder going to travel costs. The two program officials stated that the program’s limited funding, particularly for travel, has significantly curtailed their ability to provide coverage at border crossings and to work with shippers and inspectors in foreign slaughtering facilities to ensure compliance with the transport regulation. For example, with one compliance officer, the program cannot adequately cover the numerous border crossings on the Canadian and Mexican borders through which shipments of horses intended for slaughter move. In April 2011, transport program officials said they recently had begun training inspectors in APHIS’s Western region and Texas area office to assist the program at southern border crossings by, in part, collecting owner/shipper certificates and returning them to APHIS headquarters. However, these officials said they did not have a written plan or other document that describes this initiative, including the number of staff to be involved, their anticipated duties to support the transport program, and the time frames for implementing the initiative.","Hence, while this appears to be a positive step, we were unable to evaluate the potential usefulness of this initiative. Figure 9 provides information on the transport program’s funding for fiscal years 2005 through 2010. According to program officials, the reduction in funds in 2009 was the result of a cut in travel funds that were allocated to other APHIS programs. The program officials added that the seesaw nature of the program’s funding, as well as the fact the program has just two staff, has affected their ability to ensure compliance with, and enforce, the transport regulation and contributed to year-to-year variations in the number of violations found. In addition, because of limited staff and funding, APHIS stopped entering information from owner/shipper certificates into an automated database in 2005. Agency officials said that the database was used in the early years of the transport program to document demographic information, such as the identity of shippers and origin of horses they shipped. However, after several years, this information was well established, and there was no need to continue to collect data for this purpose.","They also said that the database did not provide beneficial information for protecting horse welfare that justified the cost of maintaining the database. Nonetheless, automating the certificate data would make it easier for the agency to analyze them to, for example, identify potential problem areas for management attention and possible enforcement action, such as patterns of violations or other problems associated with particular shippers, border crossings, or slaughtering facilities. It would also allow the agency to easily identify buying trends and common shipping routes. Furthermore, automating data from the certificates on the number of horses in each shipment could potentially provide USDA a more accurate count of the number of U.S. horses exported for slaughter. At present, to estimate the number of horses exported for this purpose, USDA’s Foreign Agricultural Service pieces together Canadian and Mexican data on horses imported for slaughter and makes certain extrapolations to arrive at an approximate number since no official U.S. trade data exist on horses exported for slaughter. Federal internal control standards call for agencies to obtain, maintain, and use relevant, reliable, and timely information for program oversight and decision making, as well as for measuring progress toward meeting agency","performance goals.","Furthermore, the Office of Management and Budget’s implementing guidance directs agency managers to take timely and effective action to correct internal control deficiencies. APHIS’s lack of a reliable means of collecting, tracking, and analyzing owner/shipper certificates constitutes an internal control weakness and leaves the agency without key information and an important management tool for enforcement of the transport regulation. With the cessation of domestic slaughter and the transport program’s limited staff and funding, APHIS relies on the cooperation of officials from Canada and Mexico working at border crossings and in their countries’ slaughtering facilities to help the agency implement the transport regulation. APHIS has sought similar cooperation from officials working for the Texas Department of Agriculture regarding horses exported through Texas border crossings. The effectiveness of these cooperative arrangements has been uneven, in part because APHIS lacks current, formal written agreements with its foreign and state counterparts to better define the parameters of this cooperation and ensure continuity over time as the personnel involved change.","We have previously reported that by using informal coordination mechanisms, agencies may rely on relationships with individual officials to ensure effective collaboration and that these informal relationships could end once personnel move to their next assignments. Regarding Canada, representatives of APHIS and the Canadian Food Inspection Agency (CFIA) signed a letter of intent in October 2002 outlining their shared responsibilities for enforcement of the transport regulation. Each country pledged to help the other enforce its regulations. For example, to assist APHIS, CFIA agreed to ensure, either at points of entry or slaughtering facilities, the following regarding shipments of U.S.","horses to Canada for slaughter: health certificates for the horses are endorsed by USDA-accredited veterinarians within the 30 days prior to export; horses are clinically healthy, fit for travel, and transported humanely to the points of entry; owner/shipper certificates are properly completed, including the date, time, and location the horses were loaded; horses are listed correctly on the owner/shipper certificate, so that for example, the backtags on the horses match the backtags listed on the certificate; an ante-mortem inspection of each horse is performed; date and time the shipment arrived at the facility is noted on the copies of all relevant documents (e.g., owner/shipper certificates) are returned to APHIS each month. APHIS officials said they rely on owner/shipper certificates, properly completed by shippers and CFIA officials, as appropriate, and returned by CFIA to APHIS for compliance and enforcement purposes. For example, APHIS needs information on the timing of the loading and off-loading of a shipment of horses to assess whether a shipper complied with regulatory requirements related to the amount of time a shipment is in transit. Figure 10 highlights sections of the owner/shipper certificate that are to be completed by shippers or Canadian or Mexican","officials.","In reviewing a generalizable sample of certificates returned by CFIA from 2005 through 2009, however, we found instances in which certificates were not properly completed by either the shipper or CFIA officials. Based on the results of our review, we estimate that about 52 percent of certificates were missing key information that should have been filled in by either the shipper (e.g., loading date and time, or certification that the horses were fit for transport) or CFIA (e.g., arrival date and time, or slaughtering facility identification). In addition, we estimate that about 29 percent of certificates returned to APHIS were missing some or all of the information to be provided by CFIA officials at the slaughtering facility. Moreover, in our review of these certificates we noted that the extent to which they were returned incomplete from CFIA to APHIS increased over time. For example, from 2005 through 2006, the 2 years prior to the cessation of domestic slaughter in the United States, we estimate that about 48 percent of certificates were missing key information that should have been completed by either the shippers or CFIA officials.","However, from 2008 through 2009, the 2 years after the cessation, we estimate that about 60 percent of certificates were missing key information. This increase suggests that the growth in U.S. horse exports for slaughter since the cessation has been accompanied by an increase in problems with owner/shipper certificates needed by APHIS for enforcement purposes. However, APHIS and CFIA have not revisited this agreement since 2002 to reflect changes since the cessation of slaughter in 2007, when the volume of horses exported to Canada increased significantly and APHIS became more dependent upon cooperation from Canadian border officials and CFIA inspectors in slaughtering facilities. Regarding Mexico, APHIS lacks a written agreement with its relevant counterpart, Mexico’s Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación (SAGARPA), to promote cross-border cooperation. APHIS officials said that they drafted an agreement in 2002, similar to the one with CFIA, and that APHIS had contacts with SAGARPA about finalizing it during 2002 and 2003. However, according to APHIS officials, the Mexican agency did not provide a response consenting to the agreement, and APHIS has not renewed the effort to get an agreement since 2003.","Thus, these officials said, enforcing the transport regulation along the southern border is more difficult than along the northern border with Canada. Moreover, while shippers on the northern border can drive their conveyances directly into Canada, U.S. shippers generally are not insured to travel into Mexico. As a result, shippers unload their horses before crossing the border, where SAGARPA officials inspect the horses. The horses are subsequently loaded onto a Mexican conveyance for transport to a Mexican slaughtering facility. In the absence of a formal, written agreement between APHIS and SAGAPRA or the Texas Department of Agriculture, APHIS does not receive official cooperation from Mexican or Texas officials. As a consequence, owner/shipper certificates may not be correctly filled out by the shippers and collected, completed, and returned to APHIS from either the border crossing or the Mexican slaughtering facility with information about shipment dates and times and horse conditions. In some cases, APHIS had an informal understanding with SAGARPA officials at a border crossing that they would collect and return the certificates to APHIS.","In other cases, at Texas border crossings, employees of the Texas Department of Agriculture informally cooperated with APHIS by collecting and returning the certificates to the agency and alerting it to possible violations of the transport regulation. However, these informal arrangements have not been sustained over time and have not been sufficient to ensure the return of certificates to APHIS. For example, as of March 2011, APHIS transport program officials said they have not received any owner/shipper certificates from Texas border crossings in more than a year. Although some U.S. horses intended for slaughter are exported through a border crossing in New Mexico, the majority of horses bound for Mexico pass through the Texas crossings. Thus, program officials said their ability to enforce the transport regulation for shipments of horses exported through these border crossings has been severely hampered. In addition to the more recent problem with certificates not being returned from the Texas border crossings, we reviewed a generalizable sample of owner/shipper certificates returned from the southern border from 2005 through 2009 to determine the extent to which they were correctly completed by shippers and SAGARPA officials.","Based on the results of our review, we estimate that about 48 percent of these certificates from 2005 through 2009 were missing key information to be provided by either shippers or SAGARPA officials. Moreover, about 54 percent of certificates from 2008 through 2009 were missing such information, suggesting an increase in problems associated with the recent increase in exports to Mexico of horses intended for slaughter. In addition, we estimate that about 39 percent of certificates returned to APHIS were missing some or all information, including the date and time the horses were unloaded at the border, to be provided by SAGARPA officials. Legislative prohibitions have impeded USDA’s ability to protect horse welfare since fiscal year 2006. First, as discussed, appropriations bills for fiscal years 2006 through 2010 have prohibited APHIS from using federal funds to inspect horses being transported for slaughter. As a result, according to agency officials, the transport program’s compliance officer may only inspect the owner/shipper certificates associated with the shipment of horses and the conveyance on which the horses are transported.","That is, only while inspecting these items may the officer also incidentally observe any potential violations of the transport regulation regarding the physical condition of the horses because of the annual prohibition on the expenditure of federal funds on inspecting horses. The compliance officer said this makes it difficult to ensure that horses are transported humanely to slaughter and to collect information on potential violations that is needed for APHIS to pursue enforcement actions. For example, while inspecting a conveyance being used to transport horses intended for slaughter in 2010, the compliance officer found that a mare in the shipment had given birth to a foal. Because the transport regulation requires shippers to verify that horses are not likely to give birth during shipment, the birth of a foal in transit represented a potential violation. However, because of the prohibition on using funds to inspect horses, the officer was unable to inspect the horses to determine which mare had given birth. Thus, the opportunity was lost to document a potential violation of the regulation by the shipper.","Moreover, according to the officer, compliance probably has suffered because shippers are aware that transport program officials cannot inspect horses in transit to substantiate potential violations. According to APHIS officials, another impediment to their investigations of potential violations of the transport regulation is USDA’s lack of subpoena authority to access the records of alleged violators or to compel persons to testify in administrative hearings and to produce documentary evidence for such hearings. Specifically, although USDA has such authority under several other APHIS-administered statutes (e.g., Animal Health Protection Act, Horse Protection Act, and Plant Protection Act), it does not have this authority under the authorizing legislation for the transport regulation—the 1996 Farm Bill. According to APHIS officials, the agency would welcome the addition of subpoena authority to promote enforcement of the slaughter horse transport regulation. Second, USDA also has been prohibited from using federal funds to inspect horses prior to slaughter for human consumption at slaughtering facilities.","As discussed, the Federal Meat Inspection Act requires inspection of all cattle, sheep, swine, goats, and horses before they are slaughtered and processed into products for human food and to ensure that meat and meat products from these animals are unadulterated, wholesome, and properly labeled. Prior to the appropriations prohibition, and before the cessation of domestic slaughter, FSIS officials in U.S. slaughtering facilities inspected the condition of horses before slaughter as well as the horsemeat after slaughter. The prohibition on the use of funds for required inspections has, in effect, banned the slaughter of horses for food in the United States, and, as a consequence, moved this slaughter to other countries where USDA lacks jurisdiction and where the Humane Methods of Slaughter Act does not apply. Therefore, USDA is less able to ensure the welfare of horses at slaughter. And, as was the case with horses in transit to slaughter, APHIS officials speculated that compliance with the transport regulation has suffered because shippers are aware that the program can no longer leverage the assistance of USDA personnel in slaughtering facilities to ensure the completion of shipping paperwork or note the condition of individual horses in a","shipment.","This view seems consistent with our analysis of shipping certificates which found, as discussed, a statistically significant increase in incomplete certificates after the cessation of domestic slaughter. In addition, these officials noted that the loss of FSIS’s assistance in slaughtering facilities, as well as the prohibition on APHIS’s inspections of horses in transit, has led to a general decline in investigation cases since 2007. Figure 11 shows the number of investigation cases and alleged violators for fiscal years 2005 through 2010. According to APHIS and animal protection officials, horse welfare is likely to suffer as a consequence of horses traveling significantly farther to slaughter since the cessation of domestic slaughter, including an increased possibility of injuries when horses are confined in a conveyance with other horses over longer transport distances and travel times. As these officials explained, horses are by nature fight or flight animals, and when grouped in confinement, they tend to sort out dominance. In the tight quarters of a conveyance, weaker horses are unable to escape from more dominant and aggressive animals and, thus, are more prone to sustaining injuries from kicks, bites, or bumping into other horses or the walls of the","conveyance.","Moreover, once a shipment of U.S. horses has crossed the border into Canada or Mexico, APHIS no longer has authority to oversee their welfare, and these animals may be in transit for long distances in these countries before reaching a slaughtering facility. For example, the slaughtering facilities in Mexico that process U.S. horses are located near Mexico City, well within the interior of the country. In addition, the conveyances that horses are transferred to for travel in Mexico are not subject to the requirements of the transport regulation. Our analysis of a sample of owner/shipper certificates for 2005 through 2009 showed that, in 2005 and 2006, before domestic slaughter ceased, horses traveled an average of 550 miles after being designated for slaughter. In contrast, in 2008 and 2009, after domestic slaughter ceased, our analysis showed horses intended for slaughter traveled an average of 753 miles—an increase of about 203 miles.","(The actual distances that the horses traveled, on average, before and after the cessation is likely to be greater than what our analysis showed because some shippers were prone to designate horses intended for slaughter close to the slaughtering facility before cessation, or near the border after cessation.) Over the longer distances horses now travel to Canadian and Mexican slaughtering facilities, APHIS is less able to effectively implement the transport regulation to protect horse welfare. Figure 12 provides an example of contrasting shipping routes and relative travel distances from before and after domestic slaughter ceased. In addition, since the cessation of domestic slaughter, USDA has been less able to help BLM prevent the slaughter of wild horses and burros. Wild horses and burros may be adopted, but title does not pass to the adopter until 1 year after the adoption, upon a determination that the adopter has provided humane conditions, treatment, and care for the animal over that period. Upon transfer of title, the animals lose their status as wild free- roaming horses and burros.","As we reported in 2008, from 2002 through the end of domestic slaughter in September 2007, about 2,000 former BLM horses were slaughtered by owners to whom title to the horses had passed. When horses were slaughtered domestically, FSIS inspectors in slaughtering facilities watched for horses bearing the BLM freeze mark indicative of the wild horse and burro program. They would then alert BLM officials so that the title status of these animals could be checked to ensure that BLM horses were not slaughtered. As a result of FSIS’s assistance during the same time period, at least 90 adopted wild horses that were still owned by the government were retrieved from slaughtering facilities before they could be slaughtered. However, now that the slaughter of U.S. horses occurs in Canada and Mexico, FSIS can no longer provide this assistance. Furthermore, shippers are not required to identify BLM horses on owner/shipper certificates, but in reviewing nearly 400 owner/shipper certificates, we found indications that six adopted BLM horses had been shipped across the border for slaughter. Because inspection officials in foreign slaughtering facilities have no obligation to check with BLM or other U.S.","authorities before slaughtering these animals, it is unknown whether title for those animals had passed to the adopter or how many more BLM horses may have been shipped across the border for slaughter. The slaughter of horses for any purpose, especially for human consumption, is a controversial issue in the United States that stems largely from how horses are viewed, whether from an historic, work, show, recreation, or commodity point of view. As a result, there is tension between federal law mandating the inspection of horses and certain other animals at slaughter (i.e., the Federal Meat Inspection Act) and annual appropriations acts prohibiting the use of funds to inspect horses at, or being transported to, slaughtering facilities. What may be agreed upon, however, is that the number of U.S. horses that are purchased for slaughter has not decreased since domestic slaughter ceased in 2007. Furthermore, an unintended consequence of the cessation of domestic slaughter is that those horses are traveling farther to meet the same end in foreign slaughtering facilities where U.S. humane slaughtering protections do not apply.","Their journey from point-of-purchase to slaughtering facilities in other countries, with multiple potential stops in- between at assembly points, feedlots, and stockyards, includes the possibility of being shipped in conveyances designed for smaller animals or confined in these conveyances for excessive time periods. The current transport regulation, the Commercial Transportation of Equines to Slaughter regulation, does not apply until a shipment is designated for slaughter, which can be the last leg of a longer journey. A 2007 proposed rule to amend the regulation, which would define “equines for slaughter” and extend APHIS’s oversight and the regulation’s protections to more of the transportation chain, has not been issued as final as of June 2011. To adequately implement the transport regulation and oversee the welfare of horses intended for slaughter, the horse transport program must ensure that owner/shipper certificates are completed, returned, and evaluated for enforcement purposes. Many certificates are not now returned, and others are returned incomplete. Furthermore, because of limited staff and funding and these missing and incomplete certificates, the program is less able to identify potential violations of the transport regulation. The program also stopped automating certificate data.","Even with the present limitations of incomplete and missing certificates, automating these data is important for management oversight of compliance with the regulation and to direct scarce program resources to the most serious problem areas. Moreover, in time, as corrective actions are taken, these data will likely become even more useful for oversight purposes. If the proposed rule to extend APHIS’s authority to more of the transportation chain is issued as final, the program’s credibility will be further challenged unless APHIS identifies ways to leverage other agency resources to ensure compliance with the transport regulation. With U.S. horses now being shipped to Canada and Mexico for slaughter, APHIS depends upon cooperation with these countries, or state officials at the borders, to help it implement the transport regulation, but it does not have effective agreements that make clear each party’s obligations and that help ensure cooperation will continue as personnel change. APHIS developed an agreement with Canadian officials in 2002, but recently the agency has been receiving incomplete owner/shipper certificates from them, raising questions about the current agreement’s effectiveness and whether both APHIS and Canadian officials have the same understanding about the assistance APHIS seeks.","Furthermore, APHIS does not have formal cooperative agreements with its Mexican counterpart and the Texas Department of Agriculture—the entities that oversee most U.S. horses exported to Mexico for slaughter. APHIS has not received any owner/shipper certificates from either of these entities in more than a year. Recent, annual congressional actions to prohibit the use of federal funds to inspect horses in transit or at slaughtering facilities have complicated APHIS’s ability to implement the transport regulation, thus horses now travel longer distances to foreign slaughtering facilities. APHIS lacks jurisdiction in these countries, and it can no longer depend on the help it once received from other USDA officials present in domestic slaughtering facilities to catch potential violations of the transport regulation. Even after the recent economic downturn is taken into account, horse abandonment and neglect cases are reportedly up, and appear to be straining state, local, tribal, and animal rescue resources. Clearly, the cessation of domestic slaughter has had unintended consequences, most importantly, perhaps, the decline in horse welfare in United States.","In light of the unintended consequences on horse welfare from the cessation of domestic horse slaughter, Congress may wish to reconsider the annual restrictions first instituted in fiscal year 2006 on USDA’s use of appropriated funds to inspect horses in transit to, and at, domestic slaughtering facilities. Specifically, to allow USDA to better ensure horse welfare and identify potential violations of the Commercial Transportation of Equines to Slaughter regulation, Congress may wish to consider allowing USDA to again use appropriated funds to inspect U.S. horses being transported to slaughter. Also, Congress may wish to consider allowing USDA to again use appropriated funds to inspect horses at domestic slaughtering facilities, as authorized by the Federal Meat Inspection Act. Alternatively, Congress may wish to consider instituting an explicit ban on the domestic slaughter of horses and export of U.S. horses intended for slaughter in foreign countries.","To better protect the welfare of horses transported to slaughter, we recommend that the Secretary of Agriculture direct the Administrator of APHIS to take the following four actions: Issue as final a proposed rule to amend the Commercial Transportation of Equines to Slaughter regulation to define “equines for slaughter” so that USDA’s oversight and the regulation’s protections extend to more of the transportation chain. In light of the transport program’s limited staff and funding, consider and implement options to leverage other agency resources to assist the program to better ensure the completion, return, and evaluation of owner/shipper certificates needed for enforcement purposes, such as using other APHIS staff to assist with compliance activities and for automating certificate data to identify potential problems requiring management attention. Revisit, as appropriate, the formal cooperative agreement between APHIS and CFIA to better ensure that the agencies have a mutual understanding of the assistance APHIS seeks from CFIA on the inspection of U.S. horses intended for slaughter at Canadian slaughtering facilities, including the completion and return of owner/shipper certificates from these facilities.","Seek a formal cooperative agreement with SAGARPA that describes the agencies’ mutual understanding of the assistance APHIS seeks from SAGARPA on the inspection of U.S. horses intended for slaughter at Mexican border crossings and slaughtering facilities and the completion and return of owner/shipper certificates from these facilities. In the event that SAGARPA declines to enter into a formal cooperative agreement, seek such an agreement with the Texas Department of Agriculture to ensure that this agency will cooperate with the completion, collection, and return of owner/shipper certificates from Texas border crossings through which most shipments of U.S. horses intended for slaughter in Mexico pass. We provided a draft of this report to USDA for review and comment. In written comments, which are included in appendix III, USDA agreed with the report’s recommendations. Regarding the first recommendation, USDA said it will move as quickly as possible to issue a final rule, but first it must formally consult with the Tribal Nations that are experiencing particularly serious impacts from abandoned horses. USDA said that if it can successfully conclude these negotiations in the next 2 months, it would publish the final rule by the end of calendar year 2011.","However, USDA also said that it needs time to thoughtfully consider those consultations in regards to the regulation’s implementation. Regarding the second recommendation, USDA noted it is training additional APHIS port personnel in Slaughter Horse Transport Program enforcement activities at Texas ports of embarkation and plans to expand this effort in fiscal year 2012 within the allocated budget. USDA also stated it is training administrative personnel to evaluate owner/shipper certificates for enforcement purposes, and it will explore whether new technologies have made the process of entering information from those certificates into a database less costly in order to do so within existing funding. Regarding the third recommendation, USDA said it would consult with CFIA and propose revisions to the current cooperative agreement. Regarding the fourth recommendation, USDA indicated it will consult with SAGARPA and the Texas Department of Agriculture and propose the development of formal agreements with one or both. We are sending copies of this report to the appropriate congressional committees, the Secretary of Agriculture, and other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov.","If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or shamesl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Our report objectives were to examine (1) the effect on the U.S. horse market, if any, since domestic slaughter of horses for food ceased in 2007; (2) the impact, if any, of these changes on horse welfare and on states, local governments, tribes, and animal welfare organizations; and (3) challenges, if any, to the U.S. Department of Agriculture’s (USDA) oversight of the transport and welfare of U.S. horses exported for slaughter.","In general, to address these objectives, we reviewed documents and/or interviewed officials from USDA, including the Animal and Plant Health Inspection Service (APHIS), Food Safety Inspection Service, Foreign Agricultural Service, National Agricultural Statistics Service, and the Office of Inspector General; other federal agencies such as the Department of the Interior’s Bureau of Land Management, Department of Commerce, Department of Labor’s Bureau of Labor Statistics, and Congressional Research Service; state and local governments, including the National Association of State Departments of Agriculture, Montana Association of Counties, National Association of Counties, National Sheriffs Association, and Western State Sheriffs Association; and Native American tribes, including several Great Plains Tribes, the Northwest Tribal Horse Coalition, and several Southwestern Tribes.","We also reviewed documents and/or interviewed representatives from livestock industry organizations, including the American Association of Equine Practitioners, American Horse Council, American Veterinary Medical Association, Florida Animal Industry Technical Council, Maryland Horse Industry Board, Livestock Marketing Association, United Horsemen’s Front, United Organizations of the Horse, Unwanted Horse Coalition, and commercial horse auctions located in various states, including Alabama, Arkansas, Montana, Oklahoma, Pennsylvania, and Virginia; and animal welfare organizations, including the American Society for the Prevention of Cruelty to Animals, Animal Law Coalition, Animal Welfare Institute, Equine Welfare Alliance, and Humane Society of the United States. In addition, we reviewed published literature related to the horse industry and livestock slaughter, and we interviewed academic experts who have researched and written about these issues. Furthermore, we reviewed relevant federal and state legislation regarding horse inspection, slaughter, transport, and/or welfare, including bills proposed but not enacted in the 111th U.S. Congress and by state legislatures, and related federal regulations, including USDA’s Commercial Transportation of Equines to Slaughter regulation and related guidance.","To determine the extent to which slaughter for non-food purposes occurs in the United States, we identified facilities that had been reported to slaughter horses for other purposes (e.g., food for animals at zoos and circuses) and interviewed the Slaughter Horse Transport Program’s compliance officer about the officer’s examinations into these facilities’ operations. We also visited border crossings in New Mexico and Texas, horse auctions in Montana and Pennsylvania, and tribal lands in the northwest United States to observe the handling of horse shipments at the border, horse sale procedures, and wild and abandoned horse management challenges, respectively. To further examine the effect on the U.S. horse market, if any, since the cessation of domestic slaughter, we used an econometric analysis and regression methods to estimate the effect of the cessation on horse prices, while considering the effects of the U.S. economic downturn (i.e., recession) and horse- and auction-specific variables. We did this analysis because we found few current studies addressing the effect of the cessation on horse prices in the economic literature. In undertaking this work, we collaborated with Dr.","Mykel Taylor, Assistant Professor and Extension Economist in the School of Economic Sciences at Washington State University, who was studying this issue at the time we began our work and previously had modeled and written about the determinants of horse prices. We obtained data for our analysis from multiple sources. Regarding horse prices, we obtained sale price and horse characteristic data on 12,003 sale transactions from spring 2004 through spring 2010 at three large horse auctions located in Montana, Oklahoma, and Virginia. Specifically, we extracted data from price sheets and catalogue information published or otherwise provided by the owners of these auctions. We chose these auctions because they were located in geographically diverse parts of the country. In addition, these auctions regularly sell lower-value horses, as well as more expensive horses valued for leisure, work, or show purposes. Some, but not all, of the lower-valued horses in the data are bought for slaughter, including some referred to as “grade” or “loose” horses. We assumed that if there was an effect from the cessation of domestic horse slaughter, prices for lower-valued horses would be most impacted.","Consequently, we did not include data in our analysis from auctions catering to very high-priced racing and show horses. We also obtained data from the Department of Labor’s Bureau of Labor Statistics on changes in unemployment in each of the regions in which the horse auctions we selected are located. We used these unemployment data as a proxy for the economic downturn experienced in recent years. We performed quality tests and interviewed knowledgeable agency officials and auction representatives about the sources of the data and the controls in place to maintain the data’s integrity, and we found the data to be sufficiently reliable for the purposes of this report. Using these data, we analyzed whether there was a significant reduction in average sale price per head after the cessation of domestic slaughter. For purposes of our analysis, the period prior to cessation included spring 2004 through 2006, and the period after cessation included 2007 through spring 2010 (because most domestic slaughtering facilities were closed by early 2007).","To evaluate the potential reasons for this reduction in price, we also developed a hedonic model, which allows one to describe the price of a good (e.g., a horse) as a function of the value of intrinsic characteristics of that good (e.g., a horse’s breed, age, and gender). Thus, we specified a horse’s sale price as a function of variables that describe its physical attributes, such as breed, age, and gender; auction-specific variables, such as region of the country and season of the year; and other variables, such as the cessation of domestic slaughter and economic downturn. We used the quantile regression technique to derive coefficients to explain the impact on horse prices for each variable in the model. Quantile regression is a statistical method that provides information about the relationship between an outcome variable (e.g., horse prices) and explanatory variables (e.g., cessation of slaughter) at different points in the distribution of the outcome variable. This type of regression is more appropriate than standard linear regression for several reasons.","For example, we wanted to determine the estimated effects of the cessation at various points across the entire distribution of sales prices in our data, instead of on just the average value (i.e., mean), as in linear regression. Also, the approach is more appropriate when using data from separate sources, such as the three auctions in different parts of the country. In addition, because our price data were highly skewed (i.e., included mostly lower- and mid-priced horses), we transformed prices to a natural logarithmic scale in the regression in order to obtain a better statistical fit for our model. There are several potential limitations to this type of modeling. For example, all of the variables influencing an outcome may not be known, and there are likely to be limitations in the data available for the analysis. For example, the price of a horse may also be related to other attributes such as quality of pedigree and performance characteristics (e.g., championships or titles won), but information on these variables was not available for all horses in our analysis.","In addition, other characteristics of a horse, such as health, demeanor, and general appearance may also affect the price buyers are willing to pay, but those characteristics are difficult to measure and, therefore, were not available for our analysis. Nevertheless, despite these limitations, this type of regression is useful for developing estimates of the impacts from, and an indication of the relative importance of, various variables to an outcome. In our analysis, we estimated the impact of the cessation on horse prices, while considering other relevant variables, on horse sale price for five price quantiles (20th, 40th, 50th, 60th, and 80th percentiles). As discussed, the other variables in our analysis included a horse’s physical characteristics, such as breed/type, age, and gender. Regarding breed, the data contained a total of 27 horse breeds, but for purposes of our analysis, we categorized horses into one of seven variables—Quarter horses, Paint horses, Appaloosas, ponies and miniature horses, Thoroughbreds, combined “other,” and “grade.” Grade horses are sold without breed designation, are often sold in groups, and are usually the lowest-priced horses available at an auction.","Regarding age, horses in our data ranged from 1 to 32 years old, and we included age as a continuous variable in our analysis. We also used a related variable, the square of a horse’s age, to account for changes in a buyer’s willingness to purchase a horse as its age increases. Regarding gender, we used “indicator” variables for mare, stallion, and gelding (a neutered male horse). In addition, we used two interactive variables to explain how the gender and age of a horse could interact to affect its sale price—(1) interacting mare with age and (2) interacting gelding with age. For example, the price of a mare may increase early in her life as she is able to produce foals but may decline when she becomes too old to breed consistently. To capture information that was auction-specific, we included several additional variables in our analysis. First, we measured the percentage of “no-sale” horses at each auction. In general, these horses were not sold by their owners because they did not receive high enough final bids for these horses at auction.","We also included a variable denoting whether an auction was in the western, southern, or eastern region of the United States. In addition, we included variables to delineate whether an auction was held in the spring or fall seasons. Industry experts we contacted said spring auctions generally are larger and bring higher prices than fall auctions, when owners may be more anxious to sell their horses rather than have to feed them through the winter. We included the cessation of slaughter as an indicator variable in our analysis, with “0” indicating the period prior to the cessation of domestic slaughter in 2007, and “1” for the period after. For purposes of our analysis, the period prior to cessation included spring 2004 through 2006, and the period after cessation included 2007 through spring 2010 (because most domestic slaughtering facilities were closed by early 2007). To measure the effect of the economic downturn, we used a variable based on average monthly unemployment rates from the Bureau of Labor Statistics for the 12-month period prior to the date of each auction.","These data are compiled by Census Divisions or by geographic region; we used the data for those Census Divisions or regions that correspond to the locations of the three auctions. More specifically, we averaged the unemployment rate data for the 12-month period prior to the date of each auction because we assumed that buyers and sellers would make transaction decisions based on economic conditions for a period before the date of the auction, not just on conditions at the time of the auction. In order to review the soundness of our methodology and results, we asked five academic experts in agricultural economics to review a draft of our model specifications and discussion of results for fatal flaws. We chose these experts because they have published articles related to the horse industry and livestock slaughter issues. These experts generally found the model specifications and results credible. Several offered specific technical comments related to the presentation of the model results, which we incorporated, as appropriate. Additional information about the results of our analysis is in appendix II.","To further examine the impact, if any, of horse market changes on horse welfare and states, local governments, tribes, and animal welfare organizations, we used semi-structured interviews to systematically collect the views of the State Veterinarian (an appointed position) in 17 states. These states included the 10 with the largest horse populations, and the 10 with the largest horse economies—a total of 14 states. In addition, we added Montana, New Mexico, and Wyoming at the suggestion of representatives of the horse industry and animal welfare organizations, who indicated that these states had unique perspectives on border or tribal issues related to horses. In some cases, the State Veterinarian was joined by other state officials, such as members of the state livestock board, for these interviews. The results of the interviews are not generalizable to all State Veterinarians but provide information about the situations faced by these 17 states. Semi-structured interviews follow a standard structure to systematically gather information from the target audience.","In our case, we wanted to systematically collect information from these 17 states on (1) horse sales and prices; (2) export, trade, and transport of horses; (3) abandoned and adopted horses; (4) horse abuse and neglect cases; (5) legislation related to horse slaughter and welfare; and (6) other factors generally affecting horse welfare. Using software called NVivo, we then performed a qualitative content analysis of the results of these interviews to identify common themes and the frequency with which certain issues were raised. Content analysis is a methodology for structuring and analyzing written material. Specifically, we developed a coding and analysis scheme to capture information on factors that may explain changes in the horse industry in these states. Such factors included the cessation of domestic slaughter; economic conditions; restrictions on the use of certain drugs in horses slaughtered for human consumption; and changes in horse breeding, disposal, care and maintenance, prices, sales, and such inputs as the cost of feed.","We also developed a coding and analysis scheme to capture information on factors related to horse owners’ potential responses to those changes, including abandoning, neglecting, abusing, and hoarding horses, as well as factors related to horse welfare such as being harmed by unfamiliar herds and traveling farther to slaughter. In addition, we developed a coding and analysis scheme to identify state and local responses to changes in the horse industry, including impacts on resources, costs, investigations, and legislation. The content analysis was conducted by two GAO analysts with the assistance of a GAO methodologist. Discrepancies in coding were generally discussed and resolved between the analysts; on occasion, the methodologist weighed in to resolve a discrepancy. To further examine challenges, if any, to USDA’s oversight of the transport and welfare of U.S. horses exported for slaughter, we identified and analyzed a generalizable sample of about 400 horse shipping forms, known as owner/shipper certificates, for the period 2005 through 2009, to determine whether (1) the certificates were properly completed and (2) horses were traveling farther to slaughter since the cessation of domestic slaughter in 2007 than they were traveling prior to the cessation.","Each owner/shipper certificate represents one load or shipment of horses. APHIS maintains these forms at its headquarters offices in Riverdale, Maryland, in hardcopy, sorted by year and shipper. As there were no electronic records of the sample frame (i.e., the universe of certificates) from which we could randomly sample and we initially did not know the total number of certificates on file, we selected a stratified, systematic random sample from the hardcopy certificates for the period. We chose to stratify the sample frame into three strata (i.e., time periods) so we would be able to compare estimates of certificate completeness and the distances horses traveled before and after 2007. Specifically, we systematically selected 396 certificates, including 192 for 2005 through 2006, the 2 years prior to the cessation of domestic slaughter; 84 for 2007; and 120 for 2008 through 2009, the 2 years after the cessation. In the course of selecting this sample, we determined that there were nearly 16,000 certificates on file for these years, including 7,671 certificates for 2005 through 2006, 3,378 certificates for 2007, and 4,787 certificates for 2008 through 2009.","Because we followed a probability procedure based on random selections of our starting points (e.g., first select the 25th certificate in the 2005 through 2006 strata and every 40th certificate thereafter), our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we expressed our confidence in the precision of our particular sample’s results as a 95 percent confidence interval. This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. To estimate the degree to which owner/shipper certificates were properly completed by the shipper and by Canadian and Mexican officials, we extracted information from the certificates that APHIS uses to help determine compliance with the Commercial Transportation of Equines to Slaughter regulation, such as the loading date, time, and location; certification that the horses were fit for transport; the identity of the receiving slaughtering facility; and the date and time the shipment arrived.","Using our sample of certificates, we calculated estimates of the degree of completeness of all certificates returned to APHIS from slaughtering facilities or border crossings from 2005 through 2009 and tested the change over time for statistical significance. In order to estimate the distance that horses traveled, on average, we extracted information on each shipment’s origination (i.e., loading) point and destination (i.e., off-loading) point from the certificates. Regarding shipments that went to former U.S. slaughtering facilities, we used the Transportation Routing Analysis Geographic Information System (TRAGIS) model developed by the Department of Energy to estimate driving miles between the origination point, such as an auction, farm, feedlot, or stockyard, and the slaughtering facility. Because TRAGIS includes only U.S. roads, we used a different approach for calculating distances beyond the U.S. border to foreign slaughtering facilities. First, based on USDA information on the border crossings most often used to export shipments of horses intended for slaughter, we used TRAGIS to calculate the distance from an origination point to several border crossings. Then, for each border crossing, we used commercial software available on the Web to estimate the distance from these crossings to a foreign slaughtering facility.","We then combined the results and selected the combination that resulted in the shortest potential distance traveled from the origination point to the slaughtering facility. As a result, our estimates of the total distance traveled to foreign slaughtering facilities are likely to be underestimates. We conducted this performance audit from April 2010 through June 2011, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. For our econometric analysis of horse sale prices from three large geographically-dispersed horses auctions, we conducted a hedonic quantile regression to estimate the impact of a number of explanatory variables, including the cessation of domestic horse slaughter; the economic downturn (i.e., recession); horse attributes such as breed, age, and gender; and the location and timing of horse auctions, on the full range of values of the outcome variable—horse sale prices.","We were particularly interested in the impact of the cessation and economic downturn, as these factors have been cited as reasons for recent changes in the horse industry. Appendix I includes a detailed explanation of our methodology for this analysis. A discussion of the results for the separate variables in the model follows: Age of horse. The results show that age is an important variable in explaining horse prices in these auctions. The positive sign for a horse’s age and negative sign for the age squared, indicate that young horses will increase in price as they age, but older horses will start to decline in price as they age. Moreover, the positive effect of age becomes zero for mares and geldings between 11 and 12 years of age, while stallions continue to increase in price for approximately 5 more years. Gender of horse. The results indicate that the value of horses varies both by their gender and the interaction of their gender and age. Specifically, the results show that the price of geldings is initially higher than both stallions and mares. This premium holds until approximately age 12, when the premium relative to stallions has gone","to zero.","Mares do not sell at a premium relative to stallions at any point in the age distribution. Location and timing of auction. The results indicate that a horse sold at either the eastern or southern auctions would fetch a higher price than an identical horse sold at the western auction. The premium for horses sold at the eastern auction is greater than the premium for horses sold at the southern auction. The timing of an auction—spring versus fall—was also statistically significant and suggests that horses sold in the fall tend to sell at a discount, although this effect diminishes for the higher price categories. This may be because owners may be more anxious to sell their horses in the fall rather than feed them through the winter. Auction no-sales percentage. The results suggest that for every 1 percent increase in an auction’s “no-sales” percentage, price decreased by about 2 percent across quantiles. That result was highly statistically significant and consistent across all horse price quantiles.","This phenomenon may result from sellers having certain expectations of acceptable bid prices, and, if those expectations are not met, they may be willing to wait for a later auction date to try selling the horse again. Horse buyers may have expectations, as well, that prices will be falling even lower and wait until the next auction. This may be especially true during a period of economic slowdown, according to experts. Horse breed/type. The results suggest that Quarter horses sold at a premium, relative to grade horses, which do not have a declared breed registry. Ponies also tend to sell at a premium relative to grade horses, for those ponies sold in the higher categories (i.e., quantiles). An unexpected result was that other breed types, Paint horses, Appaloosas, and Thoroughbred horses sold at either a discount or did not show statistically significant difference in price, relative to grade horses. This could have been due to the small number of observations compared to other breeds and that for certain breeds, such as Appaloosas, there could be a lack of buyers for these types of horses. Economic downturn.","The results show that the recession or downturn in the general economy caused a consistently negative effect on horse prices across the range of price categories. This effect was greater, in dollar terms, for the higher price categories. Across the five price categories, we estimate that for each percentage point increase in average unemployment in the relevant regions, horse prices decreased by 5.2, 5.2, 4.8, 4.7, and 4.8 percentage points, respectively. Cessation of domestic slaughter. The results show that the cessation was related to declines in prices for lower- to middle-value horses but diminished for higher-value horses (i.e., horses in the higher price categories in the table). For example, in the first three price categories, horse prices declined by 21, 10, and 8 percentage points, respectively. Table 2 lists the results, expressed as semi-log coefficients, of the hedonic quantile regression for five categories of horse sale prices—the 20th, 40th, 50th (median), 60th, and 80th percentiles. From the table, we see that most of the regression estimates for the model have the expected directional signs and are statistically significant.","The retransformed results, from the semi-log form back to dollar and percentage changes, are presented for our two variables of interest—cessation of domestic slaughter and economic downturn—in table 1 of this report. In addition to the contact named above, James R. Jones, Jr., Assistant Director; Jim Ashley; Mark Braza; Antoinette Capaccio; Barbara El Osta; Emily Gunn; Terrance N. Horner, Jr.; Armetha Liles; Kimberly Lloyd; Jeff Malcolm; John Mingus; Kim Raheb; and Carol Herrnstadt Shulman made key contributions to this report. Live Animal Imports: Agencies Need Better Collaboration to Reduce the Risk of Animal-Related Diseases. GAO-11-9. November 8, 2010. Humane Methods of Slaughter Act: Weaknesses in USDA Enforcement. GAO-10-487T. March 4, 2010. Humane Methods of Slaughter Act: Actions Are Needed to Strengthen Enforcement. GAO-10-203. February 19, 2010. Humane Methods of Slaughter Act: USDA Inspectors’ Views on Enforcement. GAO-10-244SP. February 19, 2010. Veterinarian Workforce: The Federal Government Lacks a Comprehensive Understanding of Its Capacity to Protect Animal and Public Health. GAO-09-424T. February 26, 2009. Veterinary Workforce: Actions Are Needed to Ensure Sufficient Capacity for Protecting Public and Animal Health. GAO-09-178. February 4, 2009. Bureau of Land Management: Effective Long-Term Options Needed to Manage Unadoptable Wild Horses. GAO-09-77. October","9, 2008.","Humane Methods of Handling and Slaughter: Public Reporting on Violations Can Identify Enforcement Challenges and Enhance Transparency. GAO-08-686T. April 17, 2008. USDA: Information on Classical Plant and Animal Breeding Activities. GAO-07-1171R. September 13, 2007. National Animal Identification System: USDA Needs to Resolve Several Key Implementation Issues to Achieve Rapid and Effective Disease Traceback. GAO-07-592. July 6, 2007. Workplace Safety and Health: Safety in the Meat and Poultry Industry, While Improving, Could Be Further Strengthened. GAO-05-96. January 12, 2005. Humane Methods of Slaughter Act: USDA Has Addressed Some Problems but Still Faces Enforcement Challenges. GAO-04-247. January 30, 2004."],"string":"[\n \"The Federal Agriculture Improvement and Reform Act of 1996 (1996 Farm Bill) authorized USDA to issue guidelines for the regulation of the commercial transportation of horses and other equines for slaughter by persons regularly engaged in that activity within the United States. The statute gives USDA authority to regulate the commercial transportation of equines to slaughtering facilities, which the statute indicates include assembly points, feedlots, or stockyards. The authority to carry out this statute was delegated to USDA’s Animal and Plant Health Inspection Service (APHIS). Pursuant to this authority, APHIS issued a regulation, “Commercial Transportation of Equines to Slaughter” (transport regulation), in 2001. In 2001, APHIS also established the transport program. This program seeks to ensure that horses being shipped for slaughter are transported safely and humanely. In addition, USDA’s Food Safety Inspection Service (FSIS) carries out the Humane Methods of Slaughter Act and related regulations, which require the humane handling of livestock, including horses, in connection with slaughter. APHIS’s transport regulation establishes a number of requirements that owners/shippers (shippers) must meet for horses transported to slaughter.\",\n \"The regulation states that shippers must (1) provide horses with food, water, and rest for at least 6 hours prior to loading; (2) provide horses adequate floor space in whatever conveyance (e.g., a trailer) is being used; (3) segregate all stallions and other aggressive equines; and (4) ensure that trailers are free of sharp protrusions, are not double-decked, and have adequate ventilation. If a trip is longer than 28 hours, horses must be unloaded and provided at least 6 hours of food, water, and rest before being reloaded. Horses cannot be shipped to slaughter unless they are accompanied by an “Owner/Shipper Certificate—Fitness to Travel to a Slaughter Facility” (owner/shipper certificate) certifying that the horses are fit for travel. The certificate must state that horses are over 6 months of age, are not blind in both eyes, can bear weight on all four limbs, are able to walk unassisted, and are not likely to foal (i.e., give birth) during transport. Figure 1 provides an example of this certificate. Shippers found to be in violation of the transport regulation can face penalties of $5,000 per horse, per violation.\",\n \"As of fall 2007, the last three horse slaughtering facilities in the United States were closed following unsuccessful challenges to state laws banning the practice. According to USDA data, those facilities, two in Texas and one in Illinois, slaughtered almost 105,000 horses in 2006—the last full year of operations—and exported more than 17,000 metric tons of horsemeat, which was valued at about $65 million at that time. Regarding the Texas facilities, in January 2007, the U.S. Court of Appeals for the Fifth Circuit ruled that a 1949 Texas law banning the sale or possession of horsemeat applied to them. They ceased operations in May 2007. Regarding the Illinois facility, the state enacted a law in May 2007 making it illegal to slaughter horses for human consumption. In September 2007, the U.S. Court of Appeals for the Seventh Circuit upheld this slaughter ban, and the Illinois facility ceased operations that month.\",\n \"Since fiscal year 2006, Congress also has taken annual actions in appropriations legislation that have effectively prevented the operation of horse slaughtering facilities in the United States by prohibiting USDA’s use of federal funds to (1) inspect horses being transported for slaughter and (2) inspect horses intended for human consumption at slaughtering facilities. The 1996 Farm Bill authorized the issuance of guidelines for the regulation of the commercial transportation of equines for slaughter as well as the conduct of any inspections considered necessary to determine compliance. The Federal Meat Inspection Act requires inspection of certain animals, including cattle, sheep, swine, goats, and horses, before they are slaughtered and processed into products for human food to ensure that meat and meat products from those animals are unadulterated, wholesome, and properly labeled. However, Congress prohibited USDA from using appropriated funds to pay for these inspections, effective 120 days after enactment of the fiscal year 2006 appropriations legislation on November 10, 2005.\",\n \"Following the prohibitions, the three domestic slaughtering facilities open at that time petitioned USDA to create a voluntary fee-for-service inspection program for horses prior to slaughter, and USDA created such a program in early 2006, allowing required inspections, and, thus, domestic slaughtering, to continue. The congressional prohibition on use of appropriated funds continued in fiscal year 2007, but, as previously discussed, the plants had already been shut down by state law that year. In fiscal year 2008, Congress renewed the prohibition on the use of appropriated funds for inspections on horses being transported to slaughter and at slaughtering facilities, and it added a new prohibition on the use of appropriated funds for implementation or enforcement of the fee-for-service program. These prohibitions were continued in fiscal years 2009 through 2011. These prohibitions notwithstanding, U.S. horses intended for slaughter are still allowed to be transported within the United States under the oversight of USDA’s transport program and exported to slaughtering facilities in Canada and Mexico. In September 2010, USDA’s Office of Inspector General (OIG) reported, in part, on the operations of the transport program.\",\n \"The OIG found that APHIS needs to improve its controls for ensuring that horses being shipped to foreign facilities for slaughter are treated humanely. For example, APHIS does not deny authorization to shippers with a record of inhumanely transporting horses intended for slaughter from shipping other loads of horses, even if unpaid fines are pending for previous violations. The OIG also found deficiencies in how APHIS tags horses that have been inspected and approved for shipment to foreign slaughtering facilities. For example, the agency requires shippers to mark such horses with backtags, which are intended to allow APHIS to trace horses back to their owner and also to verify that horses have passed inspection by an accredited veterinarian. However, APHIS lacked an appropriate control to track individual horses by backtag number on approved shipping documents so that it could perform reconciliations, investigate violations, and initiate enforcement actions, as appropriate. In addition, the OIG noted that APHIS needs to obtain the resources necessary to adequately oversee the transport program and issue in final a proposed rule that would broaden the scope of the agency’s regulation of horses being shipped to foreign slaughtering facilities.\",\n \"In its official response to the OIG report, APHIS concurred with the OIG’s findings and recommendations related to the transport program, and APHIS proposed specific actions and time frames for implementing the recommendations. For example, APHIS agreed to work with USDA’s Office of General Counsel and complete by May 31, 2011, an evaluation of “the best options to revise regulations necessary that will establish an agencywide policy that those who have violated the humane handling regulations and failed to pay the associated penalties shall not receive endorsement of any subsequently requested shipping documents.” The U.S. slaughter horse market has changed since domestic slaughter for food ceased in 2007, particularly in terms of increased exports to Canada and Mexico and lower domestic sales and prices, especially for lower- value horses, according to our analysis of available trade data and horse auction sales data. The number of horses slaughtered in the United States decreased from 1990 (345,900 horses) through 2002 (42,312 horses), according to available data from USDA’s National Agricultural Statistics Service. At the same time, the reported number of slaughtering facilities dropped from at least 16 U.S.\",\n \"facilities that operated in the 1980s to 7 facilities in 1994 to as few as 2 in 2002. Beginning in 2003, however, the number of horses slaughtered began rising through 2006, the last full year of domestic slaughtering operations, when nearly 105,000 horses were slaughtered in the United States. According to USDA officials, this increase can be explained, in part, by the reopening of a horse slaughtering facility in DeKalb, Illinois, in 2004 that increased domestic slaughtering capacity. This facility had been closed for 2 years following a fire set by anti-slaughter arsonists. Because all domestic slaughtering facilities closed by September 2007, however, the number of horses being slaughtered in the United States dropped to zero by the end of that year. Figure 2 shows the changes in the number of horses slaughtered in the United States from 1990 through 2007. Before 2007, horses were slaughtered in domestic slaughtering facilities only when the horsemeat was destined for consumption by humans or zoo animals. Currently, pet food and other products, including glue, may still be obtained from the corpses of horses that are hauled to rendering plants for disposal.\",\n \"The production of these products is not covered by the requirements of the Federal Meat Inspection Act and is therefore not affected by the current ban on the use of appropriated funds for the ante- mortem inspection of horses destined for human consumption. According to a transport program official, USDA is not aware of any domestic facility slaughtering horses for any purpose, including for zoos, as of the end of 2010. USDA identified at least three establishments—in Colorado, Nebraska, and New Jersey—that import horsemeat for repackaging and distribution to purchasers in the United States who feed the meat to animals at zoos and circuses. With the cessation of domestic slaughter, U.S. exports of horses intended for slaughter increased to Canada and Mexico, the current locations of all North American horse slaughtering facilities. As of the end of 2010, Canada had four such facilities, and Mexico three, that were the principal destinations of U.S. horses exported for slaughter. According to USDA officials, this increase in exports began, in part, because shippers were anticipating the closure of the three horse slaughtering facilities in the United States at that time.\",\n \"From 2006 through 2010, Canadian and Mexican imports increased by 148 percent and 660 percent, respectively, with the total number of horses imported from the United States for slaughter increasing from about 33,000 in 2006 to about 138,000 in 2010. In addition, the total number of horses exported for all purposes, including breeding and showing, also increased from 2006 through 2010, as shown in figure 3. According to USDA officials, some horses exported for purposes other than slaughter were likely “feeder” horses that were ultimately sent to slaughtering facilities at a later time. For example, feeder horses may be sent to a Canadian or Mexican feedlot for fattening before subsequently being sent to a slaughtering facility in that country. The extent to which horses are exported as feeder horses is unknown, according to USDA officials. The total number of U.S. horses sent to slaughter in 2006, the last full year of domestic slaughter, was comprised of horses slaughtered domestically (i.e., 104,899, as shown in fig. 2) and those sent for slaughter in Canada or Mexico (i.e., 32,789, as shown in fig. 3)—for a total of 137,688 horses. Taken together, the 137,984 U.S.\",\n \"horses that were sent to slaughter in Canada or Mexico in 2010 is approximately equal to the total number of horses slaughtered in 2006. Additional certification may affect Canadian and Mexican exports of horsemeat to Europe and, in turn, may affect the future export of horses intended for slaughter from the United States to these countries. In 2010, the European Union began prohibiting the importation of horsemeat from horses treated with certain drugs and requiring countries to document withdrawal periods for horses treated with other drugs before meat from such horses could be imported to the European Union. Those regulations precipitated similar regulations in Canada and Mexico. For example, Canadian requirements went into effect on July 31, 2010, banning specific medications, such as phenylbutazone—the most common anti- inflammatory medication given to horses—and requiring a 180-day withdrawal period for other medications, such as fentanyl, an analgesic. Also, since November 30, 2009, Mexico has required an affidavit by transporters that horses have been free from certain medications for 180 days prior to shipment. Furthermore, effective July 31, 2013, the European Union will require lifetime medication records for all horses slaughtered in non-European Union countries before accepting imports of\",\n \"horsemeat from those countries.\",\n \"According to APHIS and horse industry sources, these requirements could result in shippers certifying that their horses are free of medication residues without having first-hand knowledge or documentation of the horses’ status for the previous 180 days. With regard to sales, many of the State Veterinarians said that fewer horse sales have occurred and fewer auctions have operated within their states since 2007, in part, because of lower horse prices and sale commissions since the cessation of domestic slaughter. As a result, they said, horse owners have fewer options for getting rid of horses they no longer want. There also has been reduction in the number of commercial shippers doing business since the cessation of slaughter. In reviewing USDA documentation, we found that more than 110 shippers operated from 2005 through 2006—the 2 years prior to the cessation of domestic slaughter in 2007—and fewer than 50 shippers operated from 2008 through 2009.\",\n \"Some in the horse industry, as well as the State Veterinarians, generally attributed this decrease to the closing of horse auctions around the country, reflecting a smaller market and the lower profit margins resulting from the increased costs of transporting horses intended for slaughter to Canada and Mexico. Horse industry representatives also stated that the closing of domestic slaughtering facilities has dramatically affected the prices of horses. National data on horse prices do not exist, but data from individual auctions are available. For example, the Billings, Montana, horse auction, one of the nation’s largest, which also sells horses purchased for slaughter, reported a large increase in the percentage of lower-priced horses sold—the type of horse that typically ends up at slaughter—and a general decrease in sale prices. In May 2005, approximately 25 percent of “loose” horses—less expensive horses that are run through the auction ring without a rider or saddle—sold for less than $200 at that auction, whereas in May 2010, about 50 percent of loose horses sold for less than that amount.\",\n \"The economic downturn in the United States that started in December 2007 also likely affected horse prices, according to the academic experts and industry representatives we consulted. Since many U.S. horses are used for recreational purposes, they are generally thought to be luxury goods, and their ownership is sensitive to upturns and downturns in the general economy. Furthermore, some horse sellers could no longer afford to keep their horses, and potential buyers also were not able to offer as much to buy horses or were not in the market to purchase horses at all, according to some industry observers. In particular, a considerable number of horse owners are from lower-to-moderate income households and are less able to withstand the effects of a recession, according to academic experts. For example, one study estimated that up to 45 percent of horse owners have an annual household income of between $25,000 and $75,000. According to several State Veterinarians, those owners are more likely to have problems affording the care of their horses during an economic downturn.\",\n \"To estimate the impact of the cessation of domestic slaughter on horse prices, we collected price data on more than 12,000 sale transactions from spring 2004 through spring 2010 from three large horse auctions located in the western, southern, and eastern United States. Our analysis of these data controlled for the economic downturn and other factors that are auction- and horse-specific, such as a horse’s breed/type, age, and gender, which may also affect prices. Horse sale prices ranged from a minimum of $4 to a maximum of $48,500, with most of these sales clustered at the lower end of the price range. Figure 4 shows the distribution of these sales prices, including the median and average price per head. Our analysis also shows a statistically significant reduction in average sale price across all price categories after the cessation of slaughter in 2007, as shown in figure 5. For example, the average sale price for horses in the lowest price category (20th percentile), dropped by about $110 per head (from $433 to $323), and the average price for the highest price category (80th percentile) dropped by about $140 per head (from $2,380 to $2,241).\",\n \"The other variables that we considered included season of year of the auction, auction location, and percentage of “no sales” (horses that did not receive a bid acceptable to the seller) for each auction. The effect on price was not statistically significant for that category. These estimates suggest that the closing of domestic horse slaughtering facilities had a significant and negative impact on horse prices at the low- to-mid levels of price at these auctions, while relatively higher-priced horses appear not to have lost their value due to the cessation of slaughter. Appendix II provides further details on the results of our analysis. Horse welfare in the United States has generally declined since 2007, as evidenced by a reported increase in horse abandonments and an increase in investigations for horse abuse and neglect. The extent of the decline is unknown due to a lack of comprehensive, national data, but state officials attributed the decline in horse welfare to many factors, but primarily to the cessation of domestic slaughter and the U.S. economic downturn. Abandoned, abused, and neglected horses present challenges for state and local governments, tribes, and animal welfare organizations.\",\n \"In response, some states and tribes have taken several actions to address these challenges and the demand on their resources. In interviewing the 17 State Veterinarians, we asked whether the states had data for cases of horse abandonments, abuse, and neglect. Most veterinarians from these states, including some with the largest horse populations—California, Florida, and Texas—said they do not routinely collect such data because, in part, their resources are limited and jurisdiction of animal welfare is usually a local (e.g., county) responsibility. Nearly all the State Veterinarians, however, reported anecdotes indicating that cases of abandonments and abuse or neglect have increased in recent years. For example, several State Veterinarians, including those from California, Florida, and Texas, reported an increase in horses abandoned on private or state park land since 2007, although specific data quantifying those abandonments were not available. In addition, states that do collect some data reported increases in abandonments or investigations of abuse and neglect since the cessation of domestic slaughter. For example, data from Colorado showed a 50- percent increase in investigations for abuse and neglect from 1,067 in 2005 to 1,588 in 2009.\",\n \"Similarly, data from Indiana indicated that horse abuse and neglect investigations more than doubled from 20 in 2006 to 55 in 2009. In addition, organizations representing localities, especially counties and sheriffs, have reported an increasing problem. For example, the Montana Association of Counties reported that the number of horses being abandoned by their owners has rapidly increased since horse slaughter for human consumption was halted in the United States, but the association did not have specific data. In addition, the National Association of Counties reported that the increasing abandonment problem is not exclusive to Montana or the West but is happening nationwide. We also asked the 17 State Veterinarians whether horse welfare, in general, had improved, declined, or remained about the same in their states over the last 5 years. Without exception, these officials reported that horse welfare had generally declined, as evidenced by a reported increase in cases of horse abandonment and neglect. They most frequently cited two factors that contributed to the decline in horse welfare—the cessation of domestic slaughter in 2007 and the economic downturn—although they generally were careful not to pin the decline on any single factor.\",\n \"Other factors that they generally cited include poor weather conditions (e.g., drought in western states); the cost of horse disposal methods (e.g., veterinarian-assisted euthanasia); the increasing costs of feeding and caring for horses; and the lack of auction markets to sell horses. Among the factors affecting horse owners, the State Veterinarians said a horse owner’s decision to abandon a horse generally related to (1) cessation of domestic slaughter, (2) poor economic conditions, and (3) low horse prices or lack of sale opportunities. They also said the factors most often related to a horse owner’s neglect of a horse were (1) poor economic conditions, (2) the cost of horse care and maintenance, and (3) lower horse prices. Several State Veterinarians pointed out that, in their professional experience, very few owners directly physically abuse their horses, which would be a crime. More common, however, were owners who neglected the feeding and proper care—such as providing farrier services (i.e., hoof care) and vaccinations—of their horses.\",\n \"Thus, based on the information these officials provided, the primary drivers for the increase in abandonment and neglect cases are the cessation of domestic slaughter, causing lower horse prices and difficulty in selling horses, and the economic downturn, affecting horse owners’ ability to properly care for their animals. As discussed, our analysis also showed that the cessation of slaughter and the economic downturn generally reduced horse prices at our selected auctions; in particular, the cessation affected prices for the low-to-mid range priced horses that are more frequently abandoned and neglected. Furthermore, regarding neglect, some State Veterinarians, noting that people are more inclined to take care of that which has value, said that the drop in horse prices affected some owners’ interest in caring for their animals, especially if their financial situation had declined. With regard to the entities most affected by the increase in abandoned and neglected horses, the State Veterinarians generally said that counties, including sheriffs, bear the responsibility for investigating potential cases affecting horse welfare.\",\n \"Many State Veterinarians, particularly from western states, indicated that their offices did not have the resources to support the counties beyond providing expert veterinary advice regarding conditions of abandoned and neglected horses, such as opining on a horse’s nutritional status (known as “body scoring”). State and local governments, tribes, and animal welfare organizations, especially horse rescues, are facing growing pressures to care for abandoned and neglected horses at a time of economic recession and tight budgets. According to the State Veterinarians, counties and animal welfare organizations bear the costs of collecting and caring for abandoned horses, while county governments generally bear the costs of investigating reports of neglect. These officials said horse rescue operations in their states are at, or near, maximum capacity, with some taking on more horses than they can properly care for since the cessation of domestic slaughter. One State Veterinarian added that his office is reluctant to pressure horse rescues in his state to take on additional animals because of this problem, even though alternatives are lacking.\",\n \"Some State Veterinarians also described situations in which counties and sheriff departments were reluctant to investigate reports of abandoned or neglected horses because these jurisdictions lacked resources to deal with the consequences of finding such animals. In some cases, these officials said local jurisdictions may lack the resources even to initiate such investigations, let alone to take possession of and care for these animals. And in cases where an investigation results in horse seizures, local jurisdictions may have to appeal for the public’s help in caring for the animals. For example, the Montana State Veterinarian and his staff described a recent situation in their state involving the seizure of hundreds of neglected horses, many of which had low body scores and would not have survived the winter without intervention. These horses were seized from a ranch owner near Billings, Montana, in January 2011 who was no longer able to afford their care. Because of the strain placed on state and county resources to care for so many animals, these jurisdictions had to seek private donations of hay to feed these horses. Figure 7 shows some of the horses seized in this case.\",\n \"Tribes also reported increases in abandonments on their land, exacerbating the overpopulation of horse herds on tribal lands. According to 2009 data from the Northwest Tribal Horse Coalition (now the National Tribal Horse Coalition), the number of horses on its tribal lands exceeded 30,000 horses. When we met with representatives of tribes in the western United States, they showed us significant degradation of their lands as a result of the over-grazing by large populations of wild horses, as shown in figure 8. They explained that the increase in abandoned horses on their lands has compounded the challenge of restoring native and religiously- significant species of plants to their land—an effort often paid for, in part, by the federal government. Moreover, domesticated horses abandoned on public lands generally have poor survival prospects, according to officials from the Department of the Interior’s Bureau of Land Management (BLM). These horses are unfamiliar with which wild plants are edible and are likely to be shunned or hurt by wild horses. These abandoned horses may also introduce diseases to wild herds.\",\n \"The effects of the increasing number of abandoned or neglected horses have been felt by local animal welfare organizations as well—in particular, the horse rescues and local societies for the prevention of cruelty to animals that work with local officials to place such horses, according to the State Veterinarians. The total number of rescues and their capacities is unknown because there is no national registry or association for horse rescues. However, both the National Association of Counties and the Unwanted Horse Coalition estimated that the nationwide capacity of rescue facilities is about 6,000 horses. They also reported that the vast majority of these facilities are already full. Some State Veterinarians told us that some rescue organizations have taken on more horses than they can properly care for, especially in an economic environment in which donations have declined; as a result, horses at some of these organizations’ facilities have been seized. For example, it has been reported that horse rescues in California, Florida, New York, and West Virginia have recently had their animals seized by local authorities because they were not properly caring for them, and others in New Hampshire and Pennsylvania closed due to financial difficulties.\",\n \"In addition, the increase in unwanted domesticated horses available for sale or being abandoned on public lands is affecting the federal government’s ability to manage wild horse and burro populations. Most of these wild animals are found on lands managed by BLM and USDA’s Forest Service in the western United States. From 1971 through 2007, BLM removed over 267,000 wild horses and burros from these lands, and during the same period, approximately 235,700 of these animals were adopted by the public under a BLM program that promotes these adoptions. As we reported in 2008, BLM has, however, experienced a steady decline in adoptions in recent years, which agency officials attributed, in part, to the large number of domesticated horses flooding the market. More recently, BLM officials said that annual adoptions had fallen from about 8,000 in 2005 to about 3,000 in 2010. In an October 2010 Web message, the BLM Director estimated that the number of horses and burros on lands the agency manages exceeds by about 12,000 the number that would allow these lands to remain sustainable for other uses and species.\",\n \"According to BLM officials, in addition to natural reproduction in wild horse and burro herds, the increasing number of domesticated horses being abandoned on public lands has contributed to this overpopulation problem. Other officials, including those from animal welfare organizations, questioned the relevance of the cessation of domestic slaughter to the rise in abandoned and neglected horses, which they attributed more to the economic downturn. For example, in March 2010, Animal Welfare Institute representatives said that since a 1998 California ban on dealing in horses intended for slaughter, their organization has offered a $1,000 reward for notification of abandoned horses but has never received a tip. In addition, the Humane Society of the United States and the United Animal Nations reported that there has been no documented rise in abuse and neglect cases in California since the 1998 ban. United Animal Nations also reported there was no documented rise in abuse and neglect cases in Illinois following the 2-year closure of the horse slaughtering facility in that state in 2002.\",\n \"Furthermore, Humane Society of the United States officials said that owners who abandon horses are going to abandon them regardless of having the option for domestic slaughter, adding that there were instances of horse abandonment near domestic horse slaughtering facilities before they closed. These officials acknowledged that there are no good data on horse abandonments but noted an increase in abandonments of all kinds of domesticated animals as the economy worsened. Some states took actions related to horse welfare and slaughter even before the cessation of domestic slaughter in 2007. For example, in 1998, California made it illegal to export horses for the purpose of having them slaughtered for human consumption outside the state. Specifically, California law makes it unlawful for any person to possess; to import into or export from the state; or to sell, buy, give away, hold, or accept any horse with the intent of killing or having another kill that horse, if that person knows or should have known that any part of that horse will be used for human consumption.\",\n \"Several state officials told us that this ban is difficult to enforce because it may be difficult to show when an owner knew or should have known that a buyer intended that animal for slaughter. For example, if an owner transports a horse to an auction in another state (e.g., Montana or Texas), it may be difficult to prove that the owner specifically intended to sell the horse for slaughter or should have known that the buyer of the horse intended to sell the horse for slaughter. In addition, since 2007, states and tribes have taken a variety of legislative or other actions related to horse welfare or slaughter. For example, in 2009 Montana passed a law that allows horse owners to surrender horses that they cannot afford to maintain to the state at a licensed livestock market without being charged with animal cruelty. Also, Colorado authorized the inclusion of a checkbox on state income tax return forms allowing taxpayers to make a contribution to the Colorado Unwanted Horse Alliance.\",\n \"In authorizing the program, the Colorado legislature found that the number of unwanted horses is increasing; most horse rescue facilities are operating at capacity and have limited ability to care for additional horses; and incidences of horse abuse and neglect are rising. In addition, Kentucky passed a law in the spring of 2010 creating the Kentucky Equine Health and Welfare Council and charged it with developing regional centers of care for unwanted, abused, neglected, or confiscated equines; creating a system of voluntary certification of equine rescue and retirement operations; and suggesting statutory changes affecting equine health, welfare, abuse, and neglect issues. Also, in 2009, the National Congress of American Indians and the Northwest Tribal Horse Coalition passed resolutions supporting domestic slaughter to manage overpopulated horse herds. A number of the 17 states that we examined have also enacted laws related to horse welfare and slaughter since the cessation of domestic slaughter. For example: Arkansas, Oklahoma, Utah, and Wyoming passed resolutions urging Congress to facilitate the resumption of horse slaughtering in the United States and oppose federal legislation that would ban domestic slaughter.\",\n \"North Dakota and South Dakota passed similar resolutions urging Congress to reinstate and fund federal inspection programs for horse slaughter and processing. Montana passed a law that would make it easier to establish a horse slaughtering facility by making it harder for those opposing such a plant to get an injunction against it while challenging various permits that the plant would need to operate. In his 2009 testimony in support of the bill, the chair of Montana’s Farm Bureau cited rising numbers of unwanted horses and associated costs. Wyoming amended its existing law to provide that strays, livestock, and feral livestock, including horses, may be sent to slaughter as an alternative to auction or destruction. The legislative changes also provided that the state could enter into agreements with meat processing plants whereby meat from livestock disposed of by slaughter could be sold to state institutions or nonprofits at cost or to for-profit entities at market rate.\",\n \"Several states are seeking to reopen domestic horse slaughter facilities, under a provision of the Food, Conservation, and Energy Act of 2008, which authorized USDA to establish a new voluntary cooperative program under which small state-inspected establishments would be eligible to ship meat and poultry products in interstate commerce. USDA recently finalized a rule to implement the program, but USDA officials said that the rule does not include horsemeat, because recent appropriations legislation has prohibited the use of federal funds for inspecting horses prior to slaughter. And although, under the proposed program, the inspections would be done by state officials, federal law requires USDA to reimburse the state for at least 60 percent of the associated costs. However, as noted by USDA officials, the prohibition in appropriations legislation against using federal funds for inspecting horse at slaughter would preclude these reimbursements. USDA officials said the same issue would preclude tribal slaughtering facilities from shipping horsemeat in interstate or international commerce as well. USDA faces three challenges in its oversight of the welfare of horses during their transport for slaughter. First, APHIS faces several specific management challenges in implementing the transport program.\",\n \"Second, legislative prohibitions on using federal funds for inspecting horses prior to slaughter impede USDA’s ability to ensure horse welfare. Third, the cessation of domestic slaughter has diminished APHIS’s effectiveness in overseeing the transport and welfare of horses intended for slaughter. Several management challenges are affecting APHIS’s implementation of the transport program. These challenges include (1) delays in issuing a final rule to give the agency greater oversight over horses transported for slaughter to protect their welfare; (2) limited staff and funding that complicates the agency’s ability to ensure the completion, return, and evaluation of owner/shipper certificates; and (3) a lack of current, formal agreements with Canadian, Mexican, and state officials whose cooperation is needed for program implementation. APHIS’s transport regulation sets minimum care standards to protect horse welfare, but it applies only when the horses are being moved directly to slaughtering facilities, at which point shippers designate the horses as “for slaughter” on an owner/shipper certificate and move the horses directly to slaughtering facilities. Consequently, the regulation does not apply to horses that are moved first to an assembly point, feedlot, or stockyard before going to slaughter.\",\n \"For example, a horse’s journey to slaughter may have covered several states, from point-of-purchase at an auction to an assembly point, such as a farm; from the assembly point to a feedlot or stockyard; and from the feedlot or stockyard to a point near a slaughtering facility or a border crossing where the slaughter designation was first made. In reviewing a generalizable sample of nearly 400 owner/shipper certificates from before and after cessation of domestic slaughter in 2007, we found that shippers usually designated horses as “for slaughter” on the final leg of their journey to a slaughtering facility, as allowed under the current regulation. For example, prior to cessation in 2007, shippers sometimes designated horses near the U.S. facility in which they would be slaughtered. Specifically, we found cases in which horses shipped to the slaughtering facility in DeKalb, Illinois, were designated for slaughter at a point just a few miles from the plant. Similarly, since cessation in 2007, shippers sometimes made this designation near border crossings with Canada or Mexico.\",\n \"For example, since cessation, we found shipments of horses being designated for slaughter in Shelby, Montana, about 36 miles from the border crossing into Canada and in El Paso, Texas, about 10 miles from where they cross the border into Mexico. According to APHIS officials, in virtually all of these cases, without a “for slaughter” designation, it is likely that before reaching these designation points, the horses already had traveled for long distances within the United States without the protection of the APHIS transport regulation to ensure their humane treatment. For example, some of the horses may have been transported in double-deck trailers intended for smaller livestock animals; as discussed, the APHIS transport regulation prohibits the use of this type of trailer after the designation for slaughter is made. To address this issue, APHIS proposed, in November 2007, to amend the existing transport regulation to extend APHIS’s oversight of horses transported for slaughter to more of the transportation chain that these horses pass through. The proposed rule defines equine for slaughter as an equine transported to intermediate assembly points, feedlots, and stockyards, as well as directly to slaughtering facilities.\",\n \"The current regulation does not define equine for slaughter and only applies to those equines being transported directly to slaughtering facilities. APHIS has experienced repeated delays in issuing a final rule that would extend APHIS’s oversight of horses being transported for slaughter. According to USDA officials, the delay is the result of a number of factors, including, competing priorities and the need to address substantive, public comments on the proposed rule that resulted in reclassifying it as significant under Executive Order 12866. As of June 2011, USDA officials said they anticipate issuing the final rule by the end of calendar year 2011. APHIS officials noted that this change to the transport regulation could help address another issue as well. Specifically, the regulation currently does not apply to shippers transporting horses to Canada as feeder horses. As discussed, some U.S. horses exported for purposes other than slaughter (i.e., not designated for slaughter on an owner/shipper certificate) may be feeder horses that are ultimately sent to slaughtering facilities at a later time. According to APHIS officials, the number of feeder horses has likely grown with the increase in total horse exports to Canada since 2007.\",\n \"Because feeder horses are not designated for slaughter before crossing the border, they are not covered by the transport regulation at any point in their journey. If the transport regulation is amended, however, as APHIS has proposed, the designation “equine for slaughter” would apply to these animals during the leg of their trip from the U.S. auction where they were purchased to the border crossing, including any intermediate stops within the United States at assembly points, feedlots, and stockyards. Such a designation would place those animals under the protection afforded by APHIS’s oversight. APHIS officials also noted that the provision of the 1996 Farm Bill authorizing the transport regulation is the only federal statute that regulates the transportation of horses, and they commented on the irony that horses designated for slaughter are provided greater protection, under current federal law and the transport regulation, than other horses in commercial transit. Over the past 6 fiscal years, the transport program’s annual funding has varied, generally declining from a high of over $306,000 in fiscal year 2005 to about $204,000 in fiscal year 2010.\",\n \"This funding primarily provides for the salaries and expenses of two staff, one of whom is the national compliance officer, who inspects conveyances and owner/shipper certificates for compliance with the transport regulation, with the remainder going to travel costs. The two program officials stated that the program’s limited funding, particularly for travel, has significantly curtailed their ability to provide coverage at border crossings and to work with shippers and inspectors in foreign slaughtering facilities to ensure compliance with the transport regulation. For example, with one compliance officer, the program cannot adequately cover the numerous border crossings on the Canadian and Mexican borders through which shipments of horses intended for slaughter move. In April 2011, transport program officials said they recently had begun training inspectors in APHIS’s Western region and Texas area office to assist the program at southern border crossings by, in part, collecting owner/shipper certificates and returning them to APHIS headquarters. However, these officials said they did not have a written plan or other document that describes this initiative, including the number of staff to be involved, their anticipated duties to support the transport program, and the time frames for implementing the initiative.\",\n \"Hence, while this appears to be a positive step, we were unable to evaluate the potential usefulness of this initiative. Figure 9 provides information on the transport program’s funding for fiscal years 2005 through 2010. According to program officials, the reduction in funds in 2009 was the result of a cut in travel funds that were allocated to other APHIS programs. The program officials added that the seesaw nature of the program’s funding, as well as the fact the program has just two staff, has affected their ability to ensure compliance with, and enforce, the transport regulation and contributed to year-to-year variations in the number of violations found. In addition, because of limited staff and funding, APHIS stopped entering information from owner/shipper certificates into an automated database in 2005. Agency officials said that the database was used in the early years of the transport program to document demographic information, such as the identity of shippers and origin of horses they shipped. However, after several years, this information was well established, and there was no need to continue to collect data for this purpose.\",\n \"They also said that the database did not provide beneficial information for protecting horse welfare that justified the cost of maintaining the database. Nonetheless, automating the certificate data would make it easier for the agency to analyze them to, for example, identify potential problem areas for management attention and possible enforcement action, such as patterns of violations or other problems associated with particular shippers, border crossings, or slaughtering facilities. It would also allow the agency to easily identify buying trends and common shipping routes. Furthermore, automating data from the certificates on the number of horses in each shipment could potentially provide USDA a more accurate count of the number of U.S. horses exported for slaughter. At present, to estimate the number of horses exported for this purpose, USDA’s Foreign Agricultural Service pieces together Canadian and Mexican data on horses imported for slaughter and makes certain extrapolations to arrive at an approximate number since no official U.S. trade data exist on horses exported for slaughter. Federal internal control standards call for agencies to obtain, maintain, and use relevant, reliable, and timely information for program oversight and decision making, as well as for measuring progress toward meeting agency\",\n \"performance goals.\",\n \"Furthermore, the Office of Management and Budget’s implementing guidance directs agency managers to take timely and effective action to correct internal control deficiencies. APHIS’s lack of a reliable means of collecting, tracking, and analyzing owner/shipper certificates constitutes an internal control weakness and leaves the agency without key information and an important management tool for enforcement of the transport regulation. With the cessation of domestic slaughter and the transport program’s limited staff and funding, APHIS relies on the cooperation of officials from Canada and Mexico working at border crossings and in their countries’ slaughtering facilities to help the agency implement the transport regulation. APHIS has sought similar cooperation from officials working for the Texas Department of Agriculture regarding horses exported through Texas border crossings. The effectiveness of these cooperative arrangements has been uneven, in part because APHIS lacks current, formal written agreements with its foreign and state counterparts to better define the parameters of this cooperation and ensure continuity over time as the personnel involved change.\",\n \"We have previously reported that by using informal coordination mechanisms, agencies may rely on relationships with individual officials to ensure effective collaboration and that these informal relationships could end once personnel move to their next assignments. Regarding Canada, representatives of APHIS and the Canadian Food Inspection Agency (CFIA) signed a letter of intent in October 2002 outlining their shared responsibilities for enforcement of the transport regulation. Each country pledged to help the other enforce its regulations. For example, to assist APHIS, CFIA agreed to ensure, either at points of entry or slaughtering facilities, the following regarding shipments of U.S.\",\n \"horses to Canada for slaughter: health certificates for the horses are endorsed by USDA-accredited veterinarians within the 30 days prior to export; horses are clinically healthy, fit for travel, and transported humanely to the points of entry; owner/shipper certificates are properly completed, including the date, time, and location the horses were loaded; horses are listed correctly on the owner/shipper certificate, so that for example, the backtags on the horses match the backtags listed on the certificate; an ante-mortem inspection of each horse is performed; date and time the shipment arrived at the facility is noted on the copies of all relevant documents (e.g., owner/shipper certificates) are returned to APHIS each month. APHIS officials said they rely on owner/shipper certificates, properly completed by shippers and CFIA officials, as appropriate, and returned by CFIA to APHIS for compliance and enforcement purposes. For example, APHIS needs information on the timing of the loading and off-loading of a shipment of horses to assess whether a shipper complied with regulatory requirements related to the amount of time a shipment is in transit. Figure 10 highlights sections of the owner/shipper certificate that are to be completed by shippers or Canadian or Mexican\",\n \"officials.\",\n \"In reviewing a generalizable sample of certificates returned by CFIA from 2005 through 2009, however, we found instances in which certificates were not properly completed by either the shipper or CFIA officials. Based on the results of our review, we estimate that about 52 percent of certificates were missing key information that should have been filled in by either the shipper (e.g., loading date and time, or certification that the horses were fit for transport) or CFIA (e.g., arrival date and time, or slaughtering facility identification). In addition, we estimate that about 29 percent of certificates returned to APHIS were missing some or all of the information to be provided by CFIA officials at the slaughtering facility. Moreover, in our review of these certificates we noted that the extent to which they were returned incomplete from CFIA to APHIS increased over time. For example, from 2005 through 2006, the 2 years prior to the cessation of domestic slaughter in the United States, we estimate that about 48 percent of certificates were missing key information that should have been completed by either the shippers or CFIA officials.\",\n \"However, from 2008 through 2009, the 2 years after the cessation, we estimate that about 60 percent of certificates were missing key information. This increase suggests that the growth in U.S. horse exports for slaughter since the cessation has been accompanied by an increase in problems with owner/shipper certificates needed by APHIS for enforcement purposes. However, APHIS and CFIA have not revisited this agreement since 2002 to reflect changes since the cessation of slaughter in 2007, when the volume of horses exported to Canada increased significantly and APHIS became more dependent upon cooperation from Canadian border officials and CFIA inspectors in slaughtering facilities. Regarding Mexico, APHIS lacks a written agreement with its relevant counterpart, Mexico’s Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación (SAGARPA), to promote cross-border cooperation. APHIS officials said that they drafted an agreement in 2002, similar to the one with CFIA, and that APHIS had contacts with SAGARPA about finalizing it during 2002 and 2003. However, according to APHIS officials, the Mexican agency did not provide a response consenting to the agreement, and APHIS has not renewed the effort to get an agreement since 2003.\",\n \"Thus, these officials said, enforcing the transport regulation along the southern border is more difficult than along the northern border with Canada. Moreover, while shippers on the northern border can drive their conveyances directly into Canada, U.S. shippers generally are not insured to travel into Mexico. As a result, shippers unload their horses before crossing the border, where SAGARPA officials inspect the horses. The horses are subsequently loaded onto a Mexican conveyance for transport to a Mexican slaughtering facility. In the absence of a formal, written agreement between APHIS and SAGAPRA or the Texas Department of Agriculture, APHIS does not receive official cooperation from Mexican or Texas officials. As a consequence, owner/shipper certificates may not be correctly filled out by the shippers and collected, completed, and returned to APHIS from either the border crossing or the Mexican slaughtering facility with information about shipment dates and times and horse conditions. In some cases, APHIS had an informal understanding with SAGARPA officials at a border crossing that they would collect and return the certificates to APHIS.\",\n \"In other cases, at Texas border crossings, employees of the Texas Department of Agriculture informally cooperated with APHIS by collecting and returning the certificates to the agency and alerting it to possible violations of the transport regulation. However, these informal arrangements have not been sustained over time and have not been sufficient to ensure the return of certificates to APHIS. For example, as of March 2011, APHIS transport program officials said they have not received any owner/shipper certificates from Texas border crossings in more than a year. Although some U.S. horses intended for slaughter are exported through a border crossing in New Mexico, the majority of horses bound for Mexico pass through the Texas crossings. Thus, program officials said their ability to enforce the transport regulation for shipments of horses exported through these border crossings has been severely hampered. In addition to the more recent problem with certificates not being returned from the Texas border crossings, we reviewed a generalizable sample of owner/shipper certificates returned from the southern border from 2005 through 2009 to determine the extent to which they were correctly completed by shippers and SAGARPA officials.\",\n \"Based on the results of our review, we estimate that about 48 percent of these certificates from 2005 through 2009 were missing key information to be provided by either shippers or SAGARPA officials. Moreover, about 54 percent of certificates from 2008 through 2009 were missing such information, suggesting an increase in problems associated with the recent increase in exports to Mexico of horses intended for slaughter. In addition, we estimate that about 39 percent of certificates returned to APHIS were missing some or all information, including the date and time the horses were unloaded at the border, to be provided by SAGARPA officials. Legislative prohibitions have impeded USDA’s ability to protect horse welfare since fiscal year 2006. First, as discussed, appropriations bills for fiscal years 2006 through 2010 have prohibited APHIS from using federal funds to inspect horses being transported for slaughter. As a result, according to agency officials, the transport program’s compliance officer may only inspect the owner/shipper certificates associated with the shipment of horses and the conveyance on which the horses are transported.\",\n \"That is, only while inspecting these items may the officer also incidentally observe any potential violations of the transport regulation regarding the physical condition of the horses because of the annual prohibition on the expenditure of federal funds on inspecting horses. The compliance officer said this makes it difficult to ensure that horses are transported humanely to slaughter and to collect information on potential violations that is needed for APHIS to pursue enforcement actions. For example, while inspecting a conveyance being used to transport horses intended for slaughter in 2010, the compliance officer found that a mare in the shipment had given birth to a foal. Because the transport regulation requires shippers to verify that horses are not likely to give birth during shipment, the birth of a foal in transit represented a potential violation. However, because of the prohibition on using funds to inspect horses, the officer was unable to inspect the horses to determine which mare had given birth. Thus, the opportunity was lost to document a potential violation of the regulation by the shipper.\",\n \"Moreover, according to the officer, compliance probably has suffered because shippers are aware that transport program officials cannot inspect horses in transit to substantiate potential violations. According to APHIS officials, another impediment to their investigations of potential violations of the transport regulation is USDA’s lack of subpoena authority to access the records of alleged violators or to compel persons to testify in administrative hearings and to produce documentary evidence for such hearings. Specifically, although USDA has such authority under several other APHIS-administered statutes (e.g., Animal Health Protection Act, Horse Protection Act, and Plant Protection Act), it does not have this authority under the authorizing legislation for the transport regulation—the 1996 Farm Bill. According to APHIS officials, the agency would welcome the addition of subpoena authority to promote enforcement of the slaughter horse transport regulation. Second, USDA also has been prohibited from using federal funds to inspect horses prior to slaughter for human consumption at slaughtering facilities.\",\n \"As discussed, the Federal Meat Inspection Act requires inspection of all cattle, sheep, swine, goats, and horses before they are slaughtered and processed into products for human food and to ensure that meat and meat products from these animals are unadulterated, wholesome, and properly labeled. Prior to the appropriations prohibition, and before the cessation of domestic slaughter, FSIS officials in U.S. slaughtering facilities inspected the condition of horses before slaughter as well as the horsemeat after slaughter. The prohibition on the use of funds for required inspections has, in effect, banned the slaughter of horses for food in the United States, and, as a consequence, moved this slaughter to other countries where USDA lacks jurisdiction and where the Humane Methods of Slaughter Act does not apply. Therefore, USDA is less able to ensure the welfare of horses at slaughter. And, as was the case with horses in transit to slaughter, APHIS officials speculated that compliance with the transport regulation has suffered because shippers are aware that the program can no longer leverage the assistance of USDA personnel in slaughtering facilities to ensure the completion of shipping paperwork or note the condition of individual horses in a\",\n \"shipment.\",\n \"This view seems consistent with our analysis of shipping certificates which found, as discussed, a statistically significant increase in incomplete certificates after the cessation of domestic slaughter. In addition, these officials noted that the loss of FSIS’s assistance in slaughtering facilities, as well as the prohibition on APHIS’s inspections of horses in transit, has led to a general decline in investigation cases since 2007. Figure 11 shows the number of investigation cases and alleged violators for fiscal years 2005 through 2010. According to APHIS and animal protection officials, horse welfare is likely to suffer as a consequence of horses traveling significantly farther to slaughter since the cessation of domestic slaughter, including an increased possibility of injuries when horses are confined in a conveyance with other horses over longer transport distances and travel times. As these officials explained, horses are by nature fight or flight animals, and when grouped in confinement, they tend to sort out dominance. In the tight quarters of a conveyance, weaker horses are unable to escape from more dominant and aggressive animals and, thus, are more prone to sustaining injuries from kicks, bites, or bumping into other horses or the walls of the\",\n \"conveyance.\",\n \"Moreover, once a shipment of U.S. horses has crossed the border into Canada or Mexico, APHIS no longer has authority to oversee their welfare, and these animals may be in transit for long distances in these countries before reaching a slaughtering facility. For example, the slaughtering facilities in Mexico that process U.S. horses are located near Mexico City, well within the interior of the country. In addition, the conveyances that horses are transferred to for travel in Mexico are not subject to the requirements of the transport regulation. Our analysis of a sample of owner/shipper certificates for 2005 through 2009 showed that, in 2005 and 2006, before domestic slaughter ceased, horses traveled an average of 550 miles after being designated for slaughter. In contrast, in 2008 and 2009, after domestic slaughter ceased, our analysis showed horses intended for slaughter traveled an average of 753 miles—an increase of about 203 miles.\",\n \"(The actual distances that the horses traveled, on average, before and after the cessation is likely to be greater than what our analysis showed because some shippers were prone to designate horses intended for slaughter close to the slaughtering facility before cessation, or near the border after cessation.) Over the longer distances horses now travel to Canadian and Mexican slaughtering facilities, APHIS is less able to effectively implement the transport regulation to protect horse welfare. Figure 12 provides an example of contrasting shipping routes and relative travel distances from before and after domestic slaughter ceased. In addition, since the cessation of domestic slaughter, USDA has been less able to help BLM prevent the slaughter of wild horses and burros. Wild horses and burros may be adopted, but title does not pass to the adopter until 1 year after the adoption, upon a determination that the adopter has provided humane conditions, treatment, and care for the animal over that period. Upon transfer of title, the animals lose their status as wild free- roaming horses and burros.\",\n \"As we reported in 2008, from 2002 through the end of domestic slaughter in September 2007, about 2,000 former BLM horses were slaughtered by owners to whom title to the horses had passed. When horses were slaughtered domestically, FSIS inspectors in slaughtering facilities watched for horses bearing the BLM freeze mark indicative of the wild horse and burro program. They would then alert BLM officials so that the title status of these animals could be checked to ensure that BLM horses were not slaughtered. As a result of FSIS’s assistance during the same time period, at least 90 adopted wild horses that were still owned by the government were retrieved from slaughtering facilities before they could be slaughtered. However, now that the slaughter of U.S. horses occurs in Canada and Mexico, FSIS can no longer provide this assistance. Furthermore, shippers are not required to identify BLM horses on owner/shipper certificates, but in reviewing nearly 400 owner/shipper certificates, we found indications that six adopted BLM horses had been shipped across the border for slaughter. Because inspection officials in foreign slaughtering facilities have no obligation to check with BLM or other U.S.\",\n \"authorities before slaughtering these animals, it is unknown whether title for those animals had passed to the adopter or how many more BLM horses may have been shipped across the border for slaughter. The slaughter of horses for any purpose, especially for human consumption, is a controversial issue in the United States that stems largely from how horses are viewed, whether from an historic, work, show, recreation, or commodity point of view. As a result, there is tension between federal law mandating the inspection of horses and certain other animals at slaughter (i.e., the Federal Meat Inspection Act) and annual appropriations acts prohibiting the use of funds to inspect horses at, or being transported to, slaughtering facilities. What may be agreed upon, however, is that the number of U.S. horses that are purchased for slaughter has not decreased since domestic slaughter ceased in 2007. Furthermore, an unintended consequence of the cessation of domestic slaughter is that those horses are traveling farther to meet the same end in foreign slaughtering facilities where U.S. humane slaughtering protections do not apply.\",\n \"Their journey from point-of-purchase to slaughtering facilities in other countries, with multiple potential stops in- between at assembly points, feedlots, and stockyards, includes the possibility of being shipped in conveyances designed for smaller animals or confined in these conveyances for excessive time periods. The current transport regulation, the Commercial Transportation of Equines to Slaughter regulation, does not apply until a shipment is designated for slaughter, which can be the last leg of a longer journey. A 2007 proposed rule to amend the regulation, which would define “equines for slaughter” and extend APHIS’s oversight and the regulation’s protections to more of the transportation chain, has not been issued as final as of June 2011. To adequately implement the transport regulation and oversee the welfare of horses intended for slaughter, the horse transport program must ensure that owner/shipper certificates are completed, returned, and evaluated for enforcement purposes. Many certificates are not now returned, and others are returned incomplete. Furthermore, because of limited staff and funding and these missing and incomplete certificates, the program is less able to identify potential violations of the transport regulation. The program also stopped automating certificate data.\",\n \"Even with the present limitations of incomplete and missing certificates, automating these data is important for management oversight of compliance with the regulation and to direct scarce program resources to the most serious problem areas. Moreover, in time, as corrective actions are taken, these data will likely become even more useful for oversight purposes. If the proposed rule to extend APHIS’s authority to more of the transportation chain is issued as final, the program’s credibility will be further challenged unless APHIS identifies ways to leverage other agency resources to ensure compliance with the transport regulation. With U.S. horses now being shipped to Canada and Mexico for slaughter, APHIS depends upon cooperation with these countries, or state officials at the borders, to help it implement the transport regulation, but it does not have effective agreements that make clear each party’s obligations and that help ensure cooperation will continue as personnel change. APHIS developed an agreement with Canadian officials in 2002, but recently the agency has been receiving incomplete owner/shipper certificates from them, raising questions about the current agreement’s effectiveness and whether both APHIS and Canadian officials have the same understanding about the assistance APHIS seeks.\",\n \"Furthermore, APHIS does not have formal cooperative agreements with its Mexican counterpart and the Texas Department of Agriculture—the entities that oversee most U.S. horses exported to Mexico for slaughter. APHIS has not received any owner/shipper certificates from either of these entities in more than a year. Recent, annual congressional actions to prohibit the use of federal funds to inspect horses in transit or at slaughtering facilities have complicated APHIS’s ability to implement the transport regulation, thus horses now travel longer distances to foreign slaughtering facilities. APHIS lacks jurisdiction in these countries, and it can no longer depend on the help it once received from other USDA officials present in domestic slaughtering facilities to catch potential violations of the transport regulation. Even after the recent economic downturn is taken into account, horse abandonment and neglect cases are reportedly up, and appear to be straining state, local, tribal, and animal rescue resources. Clearly, the cessation of domestic slaughter has had unintended consequences, most importantly, perhaps, the decline in horse welfare in United States.\",\n \"In light of the unintended consequences on horse welfare from the cessation of domestic horse slaughter, Congress may wish to reconsider the annual restrictions first instituted in fiscal year 2006 on USDA’s use of appropriated funds to inspect horses in transit to, and at, domestic slaughtering facilities. Specifically, to allow USDA to better ensure horse welfare and identify potential violations of the Commercial Transportation of Equines to Slaughter regulation, Congress may wish to consider allowing USDA to again use appropriated funds to inspect U.S. horses being transported to slaughter. Also, Congress may wish to consider allowing USDA to again use appropriated funds to inspect horses at domestic slaughtering facilities, as authorized by the Federal Meat Inspection Act. Alternatively, Congress may wish to consider instituting an explicit ban on the domestic slaughter of horses and export of U.S. horses intended for slaughter in foreign countries.\",\n \"To better protect the welfare of horses transported to slaughter, we recommend that the Secretary of Agriculture direct the Administrator of APHIS to take the following four actions: Issue as final a proposed rule to amend the Commercial Transportation of Equines to Slaughter regulation to define “equines for slaughter” so that USDA’s oversight and the regulation’s protections extend to more of the transportation chain. In light of the transport program’s limited staff and funding, consider and implement options to leverage other agency resources to assist the program to better ensure the completion, return, and evaluation of owner/shipper certificates needed for enforcement purposes, such as using other APHIS staff to assist with compliance activities and for automating certificate data to identify potential problems requiring management attention. Revisit, as appropriate, the formal cooperative agreement between APHIS and CFIA to better ensure that the agencies have a mutual understanding of the assistance APHIS seeks from CFIA on the inspection of U.S. horses intended for slaughter at Canadian slaughtering facilities, including the completion and return of owner/shipper certificates from these facilities.\",\n \"Seek a formal cooperative agreement with SAGARPA that describes the agencies’ mutual understanding of the assistance APHIS seeks from SAGARPA on the inspection of U.S. horses intended for slaughter at Mexican border crossings and slaughtering facilities and the completion and return of owner/shipper certificates from these facilities. In the event that SAGARPA declines to enter into a formal cooperative agreement, seek such an agreement with the Texas Department of Agriculture to ensure that this agency will cooperate with the completion, collection, and return of owner/shipper certificates from Texas border crossings through which most shipments of U.S. horses intended for slaughter in Mexico pass. We provided a draft of this report to USDA for review and comment. In written comments, which are included in appendix III, USDA agreed with the report’s recommendations. Regarding the first recommendation, USDA said it will move as quickly as possible to issue a final rule, but first it must formally consult with the Tribal Nations that are experiencing particularly serious impacts from abandoned horses. USDA said that if it can successfully conclude these negotiations in the next 2 months, it would publish the final rule by the end of calendar year 2011.\",\n \"However, USDA also said that it needs time to thoughtfully consider those consultations in regards to the regulation’s implementation. Regarding the second recommendation, USDA noted it is training additional APHIS port personnel in Slaughter Horse Transport Program enforcement activities at Texas ports of embarkation and plans to expand this effort in fiscal year 2012 within the allocated budget. USDA also stated it is training administrative personnel to evaluate owner/shipper certificates for enforcement purposes, and it will explore whether new technologies have made the process of entering information from those certificates into a database less costly in order to do so within existing funding. Regarding the third recommendation, USDA said it would consult with CFIA and propose revisions to the current cooperative agreement. Regarding the fourth recommendation, USDA indicated it will consult with SAGARPA and the Texas Department of Agriculture and propose the development of formal agreements with one or both. We are sending copies of this report to the appropriate congressional committees, the Secretary of Agriculture, and other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov.\",\n \"If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or shamesl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Our report objectives were to examine (1) the effect on the U.S. horse market, if any, since domestic slaughter of horses for food ceased in 2007; (2) the impact, if any, of these changes on horse welfare and on states, local governments, tribes, and animal welfare organizations; and (3) challenges, if any, to the U.S. Department of Agriculture’s (USDA) oversight of the transport and welfare of U.S. horses exported for slaughter.\",\n \"In general, to address these objectives, we reviewed documents and/or interviewed officials from USDA, including the Animal and Plant Health Inspection Service (APHIS), Food Safety Inspection Service, Foreign Agricultural Service, National Agricultural Statistics Service, and the Office of Inspector General; other federal agencies such as the Department of the Interior’s Bureau of Land Management, Department of Commerce, Department of Labor’s Bureau of Labor Statistics, and Congressional Research Service; state and local governments, including the National Association of State Departments of Agriculture, Montana Association of Counties, National Association of Counties, National Sheriffs Association, and Western State Sheriffs Association; and Native American tribes, including several Great Plains Tribes, the Northwest Tribal Horse Coalition, and several Southwestern Tribes.\",\n \"We also reviewed documents and/or interviewed representatives from livestock industry organizations, including the American Association of Equine Practitioners, American Horse Council, American Veterinary Medical Association, Florida Animal Industry Technical Council, Maryland Horse Industry Board, Livestock Marketing Association, United Horsemen’s Front, United Organizations of the Horse, Unwanted Horse Coalition, and commercial horse auctions located in various states, including Alabama, Arkansas, Montana, Oklahoma, Pennsylvania, and Virginia; and animal welfare organizations, including the American Society for the Prevention of Cruelty to Animals, Animal Law Coalition, Animal Welfare Institute, Equine Welfare Alliance, and Humane Society of the United States. In addition, we reviewed published literature related to the horse industry and livestock slaughter, and we interviewed academic experts who have researched and written about these issues. Furthermore, we reviewed relevant federal and state legislation regarding horse inspection, slaughter, transport, and/or welfare, including bills proposed but not enacted in the 111th U.S. Congress and by state legislatures, and related federal regulations, including USDA’s Commercial Transportation of Equines to Slaughter regulation and related guidance.\",\n \"To determine the extent to which slaughter for non-food purposes occurs in the United States, we identified facilities that had been reported to slaughter horses for other purposes (e.g., food for animals at zoos and circuses) and interviewed the Slaughter Horse Transport Program’s compliance officer about the officer’s examinations into these facilities’ operations. We also visited border crossings in New Mexico and Texas, horse auctions in Montana and Pennsylvania, and tribal lands in the northwest United States to observe the handling of horse shipments at the border, horse sale procedures, and wild and abandoned horse management challenges, respectively. To further examine the effect on the U.S. horse market, if any, since the cessation of domestic slaughter, we used an econometric analysis and regression methods to estimate the effect of the cessation on horse prices, while considering the effects of the U.S. economic downturn (i.e., recession) and horse- and auction-specific variables. We did this analysis because we found few current studies addressing the effect of the cessation on horse prices in the economic literature. In undertaking this work, we collaborated with Dr.\",\n \"Mykel Taylor, Assistant Professor and Extension Economist in the School of Economic Sciences at Washington State University, who was studying this issue at the time we began our work and previously had modeled and written about the determinants of horse prices. We obtained data for our analysis from multiple sources. Regarding horse prices, we obtained sale price and horse characteristic data on 12,003 sale transactions from spring 2004 through spring 2010 at three large horse auctions located in Montana, Oklahoma, and Virginia. Specifically, we extracted data from price sheets and catalogue information published or otherwise provided by the owners of these auctions. We chose these auctions because they were located in geographically diverse parts of the country. In addition, these auctions regularly sell lower-value horses, as well as more expensive horses valued for leisure, work, or show purposes. Some, but not all, of the lower-valued horses in the data are bought for slaughter, including some referred to as “grade” or “loose” horses. We assumed that if there was an effect from the cessation of domestic horse slaughter, prices for lower-valued horses would be most impacted.\",\n \"Consequently, we did not include data in our analysis from auctions catering to very high-priced racing and show horses. We also obtained data from the Department of Labor’s Bureau of Labor Statistics on changes in unemployment in each of the regions in which the horse auctions we selected are located. We used these unemployment data as a proxy for the economic downturn experienced in recent years. We performed quality tests and interviewed knowledgeable agency officials and auction representatives about the sources of the data and the controls in place to maintain the data’s integrity, and we found the data to be sufficiently reliable for the purposes of this report. Using these data, we analyzed whether there was a significant reduction in average sale price per head after the cessation of domestic slaughter. For purposes of our analysis, the period prior to cessation included spring 2004 through 2006, and the period after cessation included 2007 through spring 2010 (because most domestic slaughtering facilities were closed by early 2007).\",\n \"To evaluate the potential reasons for this reduction in price, we also developed a hedonic model, which allows one to describe the price of a good (e.g., a horse) as a function of the value of intrinsic characteristics of that good (e.g., a horse’s breed, age, and gender). Thus, we specified a horse’s sale price as a function of variables that describe its physical attributes, such as breed, age, and gender; auction-specific variables, such as region of the country and season of the year; and other variables, such as the cessation of domestic slaughter and economic downturn. We used the quantile regression technique to derive coefficients to explain the impact on horse prices for each variable in the model. Quantile regression is a statistical method that provides information about the relationship between an outcome variable (e.g., horse prices) and explanatory variables (e.g., cessation of slaughter) at different points in the distribution of the outcome variable. This type of regression is more appropriate than standard linear regression for several reasons.\",\n \"For example, we wanted to determine the estimated effects of the cessation at various points across the entire distribution of sales prices in our data, instead of on just the average value (i.e., mean), as in linear regression. Also, the approach is more appropriate when using data from separate sources, such as the three auctions in different parts of the country. In addition, because our price data were highly skewed (i.e., included mostly lower- and mid-priced horses), we transformed prices to a natural logarithmic scale in the regression in order to obtain a better statistical fit for our model. There are several potential limitations to this type of modeling. For example, all of the variables influencing an outcome may not be known, and there are likely to be limitations in the data available for the analysis. For example, the price of a horse may also be related to other attributes such as quality of pedigree and performance characteristics (e.g., championships or titles won), but information on these variables was not available for all horses in our analysis.\",\n \"In addition, other characteristics of a horse, such as health, demeanor, and general appearance may also affect the price buyers are willing to pay, but those characteristics are difficult to measure and, therefore, were not available for our analysis. Nevertheless, despite these limitations, this type of regression is useful for developing estimates of the impacts from, and an indication of the relative importance of, various variables to an outcome. In our analysis, we estimated the impact of the cessation on horse prices, while considering other relevant variables, on horse sale price for five price quantiles (20th, 40th, 50th, 60th, and 80th percentiles). As discussed, the other variables in our analysis included a horse’s physical characteristics, such as breed/type, age, and gender. Regarding breed, the data contained a total of 27 horse breeds, but for purposes of our analysis, we categorized horses into one of seven variables—Quarter horses, Paint horses, Appaloosas, ponies and miniature horses, Thoroughbreds, combined “other,” and “grade.” Grade horses are sold without breed designation, are often sold in groups, and are usually the lowest-priced horses available at an auction.\",\n \"Regarding age, horses in our data ranged from 1 to 32 years old, and we included age as a continuous variable in our analysis. We also used a related variable, the square of a horse’s age, to account for changes in a buyer’s willingness to purchase a horse as its age increases. Regarding gender, we used “indicator” variables for mare, stallion, and gelding (a neutered male horse). In addition, we used two interactive variables to explain how the gender and age of a horse could interact to affect its sale price—(1) interacting mare with age and (2) interacting gelding with age. For example, the price of a mare may increase early in her life as she is able to produce foals but may decline when she becomes too old to breed consistently. To capture information that was auction-specific, we included several additional variables in our analysis. First, we measured the percentage of “no-sale” horses at each auction. In general, these horses were not sold by their owners because they did not receive high enough final bids for these horses at auction.\",\n \"We also included a variable denoting whether an auction was in the western, southern, or eastern region of the United States. In addition, we included variables to delineate whether an auction was held in the spring or fall seasons. Industry experts we contacted said spring auctions generally are larger and bring higher prices than fall auctions, when owners may be more anxious to sell their horses rather than have to feed them through the winter. We included the cessation of slaughter as an indicator variable in our analysis, with “0” indicating the period prior to the cessation of domestic slaughter in 2007, and “1” for the period after. For purposes of our analysis, the period prior to cessation included spring 2004 through 2006, and the period after cessation included 2007 through spring 2010 (because most domestic slaughtering facilities were closed by early 2007). To measure the effect of the economic downturn, we used a variable based on average monthly unemployment rates from the Bureau of Labor Statistics for the 12-month period prior to the date of each auction.\",\n \"These data are compiled by Census Divisions or by geographic region; we used the data for those Census Divisions or regions that correspond to the locations of the three auctions. More specifically, we averaged the unemployment rate data for the 12-month period prior to the date of each auction because we assumed that buyers and sellers would make transaction decisions based on economic conditions for a period before the date of the auction, not just on conditions at the time of the auction. In order to review the soundness of our methodology and results, we asked five academic experts in agricultural economics to review a draft of our model specifications and discussion of results for fatal flaws. We chose these experts because they have published articles related to the horse industry and livestock slaughter issues. These experts generally found the model specifications and results credible. Several offered specific technical comments related to the presentation of the model results, which we incorporated, as appropriate. Additional information about the results of our analysis is in appendix II.\",\n \"To further examine the impact, if any, of horse market changes on horse welfare and states, local governments, tribes, and animal welfare organizations, we used semi-structured interviews to systematically collect the views of the State Veterinarian (an appointed position) in 17 states. These states included the 10 with the largest horse populations, and the 10 with the largest horse economies—a total of 14 states. In addition, we added Montana, New Mexico, and Wyoming at the suggestion of representatives of the horse industry and animal welfare organizations, who indicated that these states had unique perspectives on border or tribal issues related to horses. In some cases, the State Veterinarian was joined by other state officials, such as members of the state livestock board, for these interviews. The results of the interviews are not generalizable to all State Veterinarians but provide information about the situations faced by these 17 states. Semi-structured interviews follow a standard structure to systematically gather information from the target audience.\",\n \"In our case, we wanted to systematically collect information from these 17 states on (1) horse sales and prices; (2) export, trade, and transport of horses; (3) abandoned and adopted horses; (4) horse abuse and neglect cases; (5) legislation related to horse slaughter and welfare; and (6) other factors generally affecting horse welfare. Using software called NVivo, we then performed a qualitative content analysis of the results of these interviews to identify common themes and the frequency with which certain issues were raised. Content analysis is a methodology for structuring and analyzing written material. Specifically, we developed a coding and analysis scheme to capture information on factors that may explain changes in the horse industry in these states. Such factors included the cessation of domestic slaughter; economic conditions; restrictions on the use of certain drugs in horses slaughtered for human consumption; and changes in horse breeding, disposal, care and maintenance, prices, sales, and such inputs as the cost of feed.\",\n \"We also developed a coding and analysis scheme to capture information on factors related to horse owners’ potential responses to those changes, including abandoning, neglecting, abusing, and hoarding horses, as well as factors related to horse welfare such as being harmed by unfamiliar herds and traveling farther to slaughter. In addition, we developed a coding and analysis scheme to identify state and local responses to changes in the horse industry, including impacts on resources, costs, investigations, and legislation. The content analysis was conducted by two GAO analysts with the assistance of a GAO methodologist. Discrepancies in coding were generally discussed and resolved between the analysts; on occasion, the methodologist weighed in to resolve a discrepancy. To further examine challenges, if any, to USDA’s oversight of the transport and welfare of U.S. horses exported for slaughter, we identified and analyzed a generalizable sample of about 400 horse shipping forms, known as owner/shipper certificates, for the period 2005 through 2009, to determine whether (1) the certificates were properly completed and (2) horses were traveling farther to slaughter since the cessation of domestic slaughter in 2007 than they were traveling prior to the cessation.\",\n \"Each owner/shipper certificate represents one load or shipment of horses. APHIS maintains these forms at its headquarters offices in Riverdale, Maryland, in hardcopy, sorted by year and shipper. As there were no electronic records of the sample frame (i.e., the universe of certificates) from which we could randomly sample and we initially did not know the total number of certificates on file, we selected a stratified, systematic random sample from the hardcopy certificates for the period. We chose to stratify the sample frame into three strata (i.e., time periods) so we would be able to compare estimates of certificate completeness and the distances horses traveled before and after 2007. Specifically, we systematically selected 396 certificates, including 192 for 2005 through 2006, the 2 years prior to the cessation of domestic slaughter; 84 for 2007; and 120 for 2008 through 2009, the 2 years after the cessation. In the course of selecting this sample, we determined that there were nearly 16,000 certificates on file for these years, including 7,671 certificates for 2005 through 2006, 3,378 certificates for 2007, and 4,787 certificates for 2008 through 2009.\",\n \"Because we followed a probability procedure based on random selections of our starting points (e.g., first select the 25th certificate in the 2005 through 2006 strata and every 40th certificate thereafter), our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we expressed our confidence in the precision of our particular sample’s results as a 95 percent confidence interval. This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. To estimate the degree to which owner/shipper certificates were properly completed by the shipper and by Canadian and Mexican officials, we extracted information from the certificates that APHIS uses to help determine compliance with the Commercial Transportation of Equines to Slaughter regulation, such as the loading date, time, and location; certification that the horses were fit for transport; the identity of the receiving slaughtering facility; and the date and time the shipment arrived.\",\n \"Using our sample of certificates, we calculated estimates of the degree of completeness of all certificates returned to APHIS from slaughtering facilities or border crossings from 2005 through 2009 and tested the change over time for statistical significance. In order to estimate the distance that horses traveled, on average, we extracted information on each shipment’s origination (i.e., loading) point and destination (i.e., off-loading) point from the certificates. Regarding shipments that went to former U.S. slaughtering facilities, we used the Transportation Routing Analysis Geographic Information System (TRAGIS) model developed by the Department of Energy to estimate driving miles between the origination point, such as an auction, farm, feedlot, or stockyard, and the slaughtering facility. Because TRAGIS includes only U.S. roads, we used a different approach for calculating distances beyond the U.S. border to foreign slaughtering facilities. First, based on USDA information on the border crossings most often used to export shipments of horses intended for slaughter, we used TRAGIS to calculate the distance from an origination point to several border crossings. Then, for each border crossing, we used commercial software available on the Web to estimate the distance from these crossings to a foreign slaughtering facility.\",\n \"We then combined the results and selected the combination that resulted in the shortest potential distance traveled from the origination point to the slaughtering facility. As a result, our estimates of the total distance traveled to foreign slaughtering facilities are likely to be underestimates. We conducted this performance audit from April 2010 through June 2011, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. For our econometric analysis of horse sale prices from three large geographically-dispersed horses auctions, we conducted a hedonic quantile regression to estimate the impact of a number of explanatory variables, including the cessation of domestic horse slaughter; the economic downturn (i.e., recession); horse attributes such as breed, age, and gender; and the location and timing of horse auctions, on the full range of values of the outcome variable—horse sale prices.\",\n \"We were particularly interested in the impact of the cessation and economic downturn, as these factors have been cited as reasons for recent changes in the horse industry. Appendix I includes a detailed explanation of our methodology for this analysis. A discussion of the results for the separate variables in the model follows: Age of horse. The results show that age is an important variable in explaining horse prices in these auctions. The positive sign for a horse’s age and negative sign for the age squared, indicate that young horses will increase in price as they age, but older horses will start to decline in price as they age. Moreover, the positive effect of age becomes zero for mares and geldings between 11 and 12 years of age, while stallions continue to increase in price for approximately 5 more years. Gender of horse. The results indicate that the value of horses varies both by their gender and the interaction of their gender and age. Specifically, the results show that the price of geldings is initially higher than both stallions and mares. This premium holds until approximately age 12, when the premium relative to stallions has gone\",\n \"to zero.\",\n \"Mares do not sell at a premium relative to stallions at any point in the age distribution. Location and timing of auction. The results indicate that a horse sold at either the eastern or southern auctions would fetch a higher price than an identical horse sold at the western auction. The premium for horses sold at the eastern auction is greater than the premium for horses sold at the southern auction. The timing of an auction—spring versus fall—was also statistically significant and suggests that horses sold in the fall tend to sell at a discount, although this effect diminishes for the higher price categories. This may be because owners may be more anxious to sell their horses in the fall rather than feed them through the winter. Auction no-sales percentage. The results suggest that for every 1 percent increase in an auction’s “no-sales” percentage, price decreased by about 2 percent across quantiles. That result was highly statistically significant and consistent across all horse price quantiles.\",\n \"This phenomenon may result from sellers having certain expectations of acceptable bid prices, and, if those expectations are not met, they may be willing to wait for a later auction date to try selling the horse again. Horse buyers may have expectations, as well, that prices will be falling even lower and wait until the next auction. This may be especially true during a period of economic slowdown, according to experts. Horse breed/type. The results suggest that Quarter horses sold at a premium, relative to grade horses, which do not have a declared breed registry. Ponies also tend to sell at a premium relative to grade horses, for those ponies sold in the higher categories (i.e., quantiles). An unexpected result was that other breed types, Paint horses, Appaloosas, and Thoroughbred horses sold at either a discount or did not show statistically significant difference in price, relative to grade horses. This could have been due to the small number of observations compared to other breeds and that for certain breeds, such as Appaloosas, there could be a lack of buyers for these types of horses. Economic downturn.\",\n \"The results show that the recession or downturn in the general economy caused a consistently negative effect on horse prices across the range of price categories. This effect was greater, in dollar terms, for the higher price categories. Across the five price categories, we estimate that for each percentage point increase in average unemployment in the relevant regions, horse prices decreased by 5.2, 5.2, 4.8, 4.7, and 4.8 percentage points, respectively. Cessation of domestic slaughter. The results show that the cessation was related to declines in prices for lower- to middle-value horses but diminished for higher-value horses (i.e., horses in the higher price categories in the table). For example, in the first three price categories, horse prices declined by 21, 10, and 8 percentage points, respectively. Table 2 lists the results, expressed as semi-log coefficients, of the hedonic quantile regression for five categories of horse sale prices—the 20th, 40th, 50th (median), 60th, and 80th percentiles. From the table, we see that most of the regression estimates for the model have the expected directional signs and are statistically significant.\",\n \"The retransformed results, from the semi-log form back to dollar and percentage changes, are presented for our two variables of interest—cessation of domestic slaughter and economic downturn—in table 1 of this report. In addition to the contact named above, James R. Jones, Jr., Assistant Director; Jim Ashley; Mark Braza; Antoinette Capaccio; Barbara El Osta; Emily Gunn; Terrance N. Horner, Jr.; Armetha Liles; Kimberly Lloyd; Jeff Malcolm; John Mingus; Kim Raheb; and Carol Herrnstadt Shulman made key contributions to this report. Live Animal Imports: Agencies Need Better Collaboration to Reduce the Risk of Animal-Related Diseases. GAO-11-9. November 8, 2010. Humane Methods of Slaughter Act: Weaknesses in USDA Enforcement. GAO-10-487T. March 4, 2010. Humane Methods of Slaughter Act: Actions Are Needed to Strengthen Enforcement. GAO-10-203. February 19, 2010. Humane Methods of Slaughter Act: USDA Inspectors’ Views on Enforcement. GAO-10-244SP. February 19, 2010. Veterinarian Workforce: The Federal Government Lacks a Comprehensive Understanding of Its Capacity to Protect Animal and Public Health. GAO-09-424T. February 26, 2009. Veterinary Workforce: Actions Are Needed to Ensure Sufficient Capacity for Protecting Public and Animal Health. GAO-09-178. February 4, 2009. Bureau of Land Management: Effective Long-Term Options Needed to Manage Unadoptable Wild Horses. GAO-09-77. October\",\n \"9, 2008.\",\n \"Humane Methods of Handling and Slaughter: Public Reporting on Violations Can Identify Enforcement Challenges and Enhance Transparency. GAO-08-686T. April 17, 2008. USDA: Information on Classical Plant and Animal Breeding Activities. GAO-07-1171R. September 13, 2007. National Animal Identification System: USDA Needs to Resolve Several Key Implementation Issues to Achieve Rapid and Effective Disease Traceback. GAO-07-592. July 6, 2007. Workplace Safety and Health: Safety in the Meat and Poultry Industry, While Improving, Could Be Further Strengthened. GAO-05-96. January 12, 2005. Humane Methods of Slaughter Act: USDA Has Addressed Some Problems but Still Faces Enforcement Challenges. GAO-04-247. January 30, 2004.\"\n]","isConversational":false}}},{"rowIdx":10888,"cells":{"id":{"kind":"string","value":"train_10888"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"As of October 2010, the Office of the Director of National Intelligence reported that 3.9 million federal employees (military and civilians) and contractors hold security clearances. DOD comprises the vast majority of government security clearances. Longstanding backlogs and delays in the security clearance process led GAO to place the DODs Personnel Security Clearance Program on its high-risk list in 2005. Delays in issuing clearances can result in millions of dollars of additional cost to the federal government and could pose a national security risk. DOD and others have taken steps to address these issues and additional concerns with clearance documentation used to determine eligibility for a clearance. As a result, in 2011, GAO removed the program from its high-risk list. This testimony addresses (1) the key actions that led GAO to remove DODs security clearance program from its high-risk list and (2) the additional actions that can enhance the security clearance reform efforts. This statement is based on prior GAO reports and testimonies on DODs personnel security clearance program and governmentwide suitability and security clearance reform efforts. Since GAO first identified the Department of Defenses (DOD) Personnel Security Clearance Program as a high-risk area, DOD, in conjunction with Congress and executive agency leadership, took actions that resulted in significant progress toward improving the processing of security clearances. Congress held more than 14 oversight hearings to help oversee key legislation, such as the Intelligence Reform and Terrorism Prevention Act of 2004, which helped focus attention and sustain momentum of the governmentwide reform effort. In addition, the committed and collaborative efforts of DOD, the Office of the Director of National Intelligence (ODNI), Office of Management and Budget (OMB), and Office of Personnel Management (OPM) as leaders of the Suitability and Security Clearance Performance Accountability Council (Performance Accountability Council) demonstrated commitment to and created a vision for the reform effort, which led to significant improvements in the timeliness of processing security clearances. As a result, in 2011, GAO removed DODs Personnel Security Clearance Program from its high-risk list because of the agencys progress in improving timeliness, development of tools and metrics to assess quality, and commitment to sustaining progress. Specifically, GAO found that DOD met the 60-day statutory timeliness objective for processing initial clearances in fiscal year 2010 by processing 90 percent of its initial clearances in an average of 49 days. In addition, DOD developed two quality tools to evaluate completeness of investigation documentation and agencies' adjudication process regarding the basis for granting security clearances. Moreover, DOD, ODNI, OMB, and OPM developed and are in the process of implementing 15 metrics that assess the timeliness and quality of investigations, adjudications, reciprocity and automation of security clearances. Even with the significant progress in recent years, sustained leadership attention to the following additional actions, on which GAO has previously reported, can enhance the security clearance reform efforts of executive branch agencies and the Performance Accountability Council: Continue to implement, monitor, and update outcome-focused performance measures. The development of tools and metrics to monitor and track quality are positive steps, but full implementation of these tools and measures will enable the executive branch to demonstrate progress in quality improvements and contribute to greater visibility over the clearance process. Seek opportunities to enhance efficiencies and manage costs related to the reform effort. Given the current fiscal constraints, identifying long-term funding requirements for the security clearance process is critical for the executive branch to sustain the reform effort. Further, the reform efforts are a venue to facilitate the identification of efficiencies in areas including information technology and investigation and adjudication case management processes. Create a sound requirements process for determining which positions require clearances and level of clearances. A sound requirements determination process may help ensure that workload and costs are not higher than necessary by ensuring that clearances are only requested for positions when needed and that the appropriate clearance level is requested."},"documents":{"kind":"list like","value":["Since we identified DOD’s Personnel Security Clearance program as a high-risk area, DOD, in conjunction with Congress and other executive agency leadership, took actions that resulted in significant progress toward resolving problems we identified with the security clearance program. In 2011, we removed DOD’s personnel security clearance program from our high-risk list because of the agency’s progress in improving timeliness and the development of tools and metrics to assess quality, as well as DOD’s commitment to sustaining progress. Importantly, congressional oversight and the committed leadership of the Suitability and Security Clearance Performance Accountability Council (Performance Accountability Council) –which has been responsible for overseeing security clearance reform efforts since 2008—greatly contributed to the progress of DOD and the governmentwide security clearance reform. Leadership in Congress and the executive branch demonstrated commitment to reforming the security clearance process to address longstanding problems associated with the personnel security clearance program. As we have previously noted, top leadership must be committed to organizational transformation. Specifically, leadership must set the direction, pace, and tone and provide a clear, consistent rationale that brings everyone together behind a single mission. Figure 1 illustrates key events related to the Suitability and Personnel Security Clearance","Reform Effort.","Congressional legislation and oversight has helped focus attention and sustain momentum to improve the processing of security clearances not only for DOD but governmentwide. The Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) established, among other things, milestones for reducing the time to complete initial clearances. We previously identified best practices for agencies to successfully transform their cultures including among other things, setting implementation goals and a timeline to build momentum and show progress from day one. IRTPA established an interim objective to be met by December 2006 under which DOD and other agencies that adjudicate security clearances were to make a decision on at least 80 percent of initial clearance applications within 120 days, on average. Further, IRTPA called for the executive branch to implement a plan by December 17, 2009, under which, to the extent practical, at least 90 percent of decisions are made on applications for an initial personnel security clearance within 60 days, on average.","Additionally, IRTPA required the executive branch to begin providing annual reports to Congress in 2006 on the progress made the preceding year toward meeting IRTPA’s objectives for security clearances, including the length of time agencies took to complete the investigations and adjudications—the decision as to whether an individual should be granted eligibility for a clearance. GAO has testified on security clearance reform before this committee as well as the (1) Subcommittee on Intelligence Community Management, House Permanent Select Committee on Intelligence, (2) the Subcommittee on Government Management, Organization, and Procurement, House Committee on Oversight and Government Reform, and (3) Subcommittee on Readiness, House Committee on Armed Services. security clearance reform efforts. After that meeting, OMB, ODNI, DOD, OPM, and GAO provided a memorandum on May 31, 2010 to Chairman Akaka containing a matrix with 15 metrics for assessing the timeliness and quality of investigations, adjudications, reciprocity (an agency’s acceptance of a background investigation or clearance determination completed by any authorized investigative or adjudicative agency), and automation. The development of these metrics played a key role in GAO’s decision to remove DOD’s Personnel Security Clearance program from the high-risk list.","Furthermore, we have noted for many years the central role that the Government Performance and Results Act (GPRA) could play in identifying and fostering improved coordination across related federal program efforts. The GPRA Modernization Act of 2010 (GPRAMA) for a more coordinated and crosscutting approach to achieve meaningful results. GPRAMA provides an opportunity for agencies to collect and report more timely and useful performance information on crosscutting programs. This performance information can play an important role in congressional decision making. In fact, Mr. Chairman, we conducted work for you focusing on how Congress can use such information to address challenges facing the government. DOD’s personnel security clearance program was one of three case studies we used to illustrate how Congress has used agency performance information in its decision making. Pub. L. No. 111-352, 124 Stat. 3886 (2011). GPRAMA amended the Government Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 (1993). placed the program on our high-risk list, top executive branch leadership put in place an effort to reform the security clearance process.","For example, in 2007, DOD and ODNI formed the Joint Security Clearance Process Reform Team, known as the Joint Reform Team, to improve the security clearance process governmentwide. Specifically, they tasked the Joint Reform Team to execute joint reform efforts so that they achieve IRTPA timeliness goals and improve the processes related to granting security clearances. In 2008, the President in a memorandum called for a reform of the security clearance program and subsequently issued an executive order establishing the Performance Accountability Council. Under the executive order, this council is accountable to the President for leading the implementation of reform, including aligning security and suitability processes, holding agencies accountable for implementation, and establishing goals and metrics for progress. DOD worked with the Joint Reform Team and the Performance Accountability Council to develop a corrective action plan to improve timeliness and demonstrate progress toward reforming the security clearance process. For example, DOD’s leadership, in conjunction with the Joint Reform Team, developed a plan for reform that continuously evolved to incorporate new goals and address identified issues.","To communicate these plans, the Joint Reform Team issued an initial reform plan in April 2008 that presented a new seven-step design intended to streamline the security clearance process, including the use of a more sophisticated electronic application, a more flexible investigation process, and the establishment of ongoing evaluation procedures between formal clearance investigations. The report was updated in December 2008 to include an outline of reform progress and further plans, and in March 2009 the Joint Reform Team issued its Enterprise Information Technology Strategy for the security clearance and suitability reform program. Then, in line with GAO recommendations, DOD worked with the Performance Accountability Council to issue a strategic framework that the council included in its 2010 report to the President. The strategic framework identified key governmentwide reform goals and identified the root causes for timeliness delays and delays to agencies honoring reciprocity. It also set forth a governmentwide mission, performance measures, a communications strategy, roles and responsibilities, and metrics to measure the quality of security clearance investigations and adjudications. DOD continues to work with the Performance Accountability Council to sustain clearance reform efforts and enhance transparency and accountability through annual reporting to Congress.","DOD issued guidance on adjudication standards. In May 2009, we found that although DOD asserted that adjudicators follow a risk- management approach for granting security clearances, DOD had not issued formal guidance clarifying if and under what circumstances adjudicators can adjudicate incomplete investigative reports—such as missing information relevant to residences, employment, or education. As a result, we recommended that DOD issue guidance that clarifies when adjudicators may use incomplete investigative reports as the basis for granting clearances. Subsequently, on November 8, 2009, the Under Secretary of Defense for Intelligence issued guidance on adjudication standards that outline the minimum documentation requirements adjudicators must adhere to when documenting personnel security clearance determinations for cases with potentially damaging information. On March 10, 2010, the Under Secretary of Defense for Intelligence issued additional guidance that clarifies when adjudicators may use incomplete investigative reports as the basis for granting clearances. This guidance provides standards that can be used for the sufficient explanation of incomplete investigative reports. Further, according to DOD officials, in 2010, DOD created a Performance Accountability Directorate within the Directorate of Security to provide oversight and accountability for the DOD Central Adjudication Facilities that process DOD adjudicative decisions.","One of DOD’s key actions that led to the removal of its personnel security clearance program from our high-risk list was that DOD was able to demonstrate its progress in having implemented corrective measures. Longstanding backlogs and delays in the clearance process led to our initial designation of this area as high risk. For example, in 2004, we testified that from fiscal year 2001 through fiscal year 2003, the average time for DOD to determine clearance eligibility for industry personnel increased by 56 days to over 1 year. In 2005, we reported that DOD could not estimate the full size of its backlog, but we identified over 350,000 cases exceeding established timeframes for determining eligibility. Moreover, in 2007 and 2009, we reported that clearances continued to take longer than the timeliness goals prescribed in IRTPA. In 2011, we reported that DOD processed 90 percent of initial clearances in an average of 49 days for federal civilians, military, and industry personnel and met the 60-day statutory timeliness objective for processing all initial clearances in fiscal year 2010.","Also we found that DOD completed 90 percent of initial clearances for industry personnel in an average of 63 days for all the data we reviewed in fiscal year 2010,demonstrating an improvement from what we found in 2004, when the average processing time for industry personnel was over a year. Our high-risk designation was based not only on problems with timeliness but also incomplete documentation of investigations and adjudications. We reported on missing documentation in investigative reports prepared by OPM that DOD adjudicators had used to make clearance eligibility decisions. In 2009, we estimated that 87 percent of about 3,500 OPM investigative reports provided to DOD in July 2008 were missing required documentation, which in most cases pertained to residences, employment, and education. DOD adjudicators granted clearance eligibility without requesting missing investigative information or fully documenting unresolved issues in 22 percent of DOD’s adjudicative files. These findings led us to recommend that OPM and DOD, among other things, develop and report metrics on completeness and other measures of quality for investigations and adjudications that address the effectiveness of the new procedures. DOD agreed and implemented our recommendations regarding adjudication.","OPM neither concurred nor nonconcurred with our recommendation; however, as noted earlier, OPM has taken steps to develop metrics. Subsequently, DOD developed two quality tools to evaluate completeness of documentation used to determine clearance eligibility. First, the Rapid Assessment of Incomplete Security Evaluations (RAISE) tracks the quality of investigations conducted by OPM. Results of RAISE will be reported to the Director of National Intelligence, which, as the Security Executive Agent of the Performance Accountability Council, will arbitrate any potential disagreements between OPM and DOD and clarify policy questions. DOD deployed RAISE to four Central Adjudication Facilities from July to October 2010 and planned to complete deployment to the remaining Central Adjudication Facilities by calendar year 2011. According to DOD officials, as of June 2012 this tool has been deployed to all of DOD’s non-intelligence agencies adjudication facilities. Although the Joint Reform Team is considering using it in the future, it is not being used by other executive agencies. Second, in 2008 DOD developed the Review of Adjudication Documentation Accuracy and Rationales (RADAR), which tracks the quality of clearance adjudications.","In 2009, the Under Secretary of Defense for Intelligence directed DOD Central Adjudication Facilities to provide adjudication case records to the Defense Personnel Research Center for analysis. According to DOD officials, the department plans to use results of the RADAR assessments to monitor Central Adjudication Facilities’ compliance with documentation policies, communicate performance to the Central Adjudication Facilities, identify potential weaknesses and training needs, increase compliance, and establish trend data. DOD has completed a pilot program for the use of RADAR and began its implementation for the Army, Defense Industrial Security Clearance Office, and Navy Central Adjudication Facilities in September 2010. In addition to these assessment tools, in 2010 DOD, OMB, ODNI, and OPM developed 15 metrics that assess the timeliness and quality of investigations, adjudications, reciprocity, and automation. The quality metrics, in turn, can be used to gauge progress and assess the quality of the personnel security clearance process. These metrics represented positive developments that could contribute to greater visibility over the clearance process. Having assessment tools and performance metrics in place is a critical initial step toward instituting a program to monitor and independently validate the effectiveness and sustainability of corrective measures.","The combination of congressional reporting requirements, the strategic framework, and the development of quality metrics, will help ensure transparency throughout the reform effort. It is important not only to have metrics but to use them to guide implementation. By using metrics for timeliness, DOD was able to show progress over time that helped build momentum to reach the final goal. DOD’s security clearance reform effort aligned with our criteria for removal from the high-risk list in fiscal year 2011. However, security clearance reform extends beyond DOD throughout the executive branch. This is evidenced by the oversight structure, through the Performance Accountability Council, and broad executive branch participation in the reform effort. Building on the factors for reforming the security process that we have reported in the past, continued leadership and attention, such as continuing to monitor and update outcome-focused performance measures, seeking opportunities to enhance efficiency and managing costs, and ensuring a strong requirements determination process, may enhance the security clearance reform effort. DOD has developed tools to monitor quality as well as participated in the development and tracking of quality metrics for OPM’s investigations and DOD’s adjudications through the Performance Accountability Council.","We view the development of quality metrics as a positive step towards creating greater visibility over the quality of the clearance process and identifying specific quantifiable targets linked to goals that can be measured objectively. Moreover, leaders and others need to use these metrics to gauge progress toward improvements. Further, the development of performance measures related to the security clearance process by the Performance Accountability Council aligns with our previous recommendation to develop outcome-focused performance measures to continually evaluate the progress of the reform effort. We have also previously reported on the importance of continually assessing and evaluating programs as a good business practice, including evaluating metrics to help ensure that they are effective and updated when necessary.the reform and that DOD and OPM complete implementation of the As a result, it is important to sustain the momentum of quality tools and metrics so that the executive branch can demonstrate progress in improving the quality of investigations and adjudications. Leaders of the reform effort have consistently stated that implementation of reform will be incremental, and therefore, it is important that the information necessary to capture performance is up-to-date.","The Performance Accountability Council quality metrics were developed subsequent to the issuance of the 2010 Strategic Framework, which articulates the goals of the security and suitability process reform. As a result, the 2010 Strategic Framework did not include a detailed plan or guidance for the implementation of the quality metrics. Further, the May 31, 2010 memorandum in which the Performance Accountability Council detailed its metrics did not discuss how often the metrics will be reexamined for continuous improvement. Moreover, according to DOD, the tools and metrics to assess quality have not been fully implemented. For example, while DOD has implemented its RAISE tool for investigation quality, it is not being used by other executive branch agencies— including OPM, which conducts the investigations and would be the appropriate agency to take actions to improve investigation quality— although the Joint Reform Team is considering using it in the future. Without these tools and metrics the executive branch will be unable to demonstrate progress in improving quality. Emphasis on quality in clearance processes should promote positive outcomes, including more reciprocity among agencies in accepting each others’ clearances.","Building quality throughout clearance processes is important, but government agencies have not paid the same attention to quality as they have to timeliness. The emphasis on timeliness is due in part to the requirements and objectives established in IRTPA regarding the speed with which clearances should be completed. Our work has repeatedly called for more emphasis on quality. As previously noted, IRTPA required an annual report of progress and key measurements as to the timeliness of initial security clearances in February of each year from 2006 through 2011. It specifically required those reports to include the periods of time required for conducting investigations, adjudicating cases, and granting clearances. IRTPA required the executive branch to implement a plan by December 2009 in which, to the extent practical, 90 percent of initial clearances were completed within 60 days, on average. In its initial reports, the executive branch reported only on the average of the fastest 90 percent of clearances and excluded the slowest 10 percent. We previously reported that full visibility was limited by the absence of comprehensive reporting of initial clearance decisions timeliness.","Consistent with our recommendation, the executive branch began reporting on the remaining 10 percent in its 2010 and 2011 reports. However, the IRTPA requirement for the executive branch to annually report on its timeliness expired last year. More recently, in 2010, the Intelligence Authorization Act of 2010 established a new requirement that the President annually report the total amount of time it takes to process certain security clearance determinations for the previous fiscal year for each element of the Intelligence Community. The Intelligence Authorization Act of 2010 requires, among other things, annual reports from the President to Congress that include the total number of active security clearances throughout the United States government, to include both government employees and contractors. Its timeliness reporting requirement, however, applies only to the elements of the Intelligence Community. Unlike the IRTPA reporting requirement, the requirement to submit these annual reports does not expire. Further, the Intelligence Authorization Act requires two additional one-time reports: first, a report to Congress by the President including metrics for adjudication quality, and second, a report to the congressional intelligence committees by the Inspector General of the Intelligence Community on reciprocity.","The report containing metrics for adjudication quality summarizes prior information on developed tools and performance measures; however, it does not provide additional information on the implementation or update of the performance measures that were identified in the May 2010 memorandum on quality metrics. Additionally, according to an ODNI official, the report on reciprocity has not been provided, although these reports were required 180 days after the law was enacted on Oct 7, 2010. The Intelligence Authorization Act of 2010 reporting requirement on reciprocity—an agency’s acceptance of a background investigation or clearance determination completed by any authorized investigative or adjudicative agency—is the first time the executive branch has been required to report on this information since the reform effort began. Further, in 2010 we reported that although there are no governmentwide metrics to comprehensively track when and why reciprocity is granted or denied, agency officials stated that they routinely take steps to honor previously granted security clearances. We found that agencies do not consistently document the additional steps they have taken prior to granting a reciprocal clearance.","For example, the Navy keeps electronic documentation, the Department of Energy and the Department of the Treasury keep paper documentation, and the Army and the Air Force do not maintain any documentation on the additional steps taken to accept a previously granted security clearance. Consequently, there is no consistent tracking of the amount of staff time spent on the additional actions that are taken to honor a previously granted security clearance. In addition, agencies do not consistently and comprehensively track the extent to which reciprocity is granted. OPM has a metric to track reciprocity, but this metric captures limited information, such as numbers of requested and rejected investigations, but not the number of cases in which a previously granted security clearance was or was not honored. Similarly, the metrics proposed by the Performance Accountability Council do not track the extent to which reciprocity is or is not ultimately honored.","For example, metrics proposed by the Performance Accountability Council, such as the number of duplicate requests for investigations, percentage of applications submitted electronically, number of electronic applications submitted by applicants but rejected by OPM as unacceptable because of missing information or forms, and percentage of fingerprint submissions determined to be “unclassifiable” by the Federal Bureau of Investigation, provide useful information but do not track the extent to which reciprocity is or is not ultimately honored. Without comprehensive, standardized metrics to track reciprocity, and documentation of the process, decision makers lack a complete picture of the extent to which reciprocity is granted and the challenges to honoring previously granted security clearances. To further improve governmentwide reciprocity, in 2010 we recommended that the Deputy Director of Management, OMB, in the capacity as Chair of the Performance Accountability Council, develop comprehensive metrics to track reciprocity and then report the findings from the expanded tracking to Congress. OMB generally concurred with our recommendation, stating that the Performance Accountability Council is working to develop these additional metrics.","According to a 2011 report on security clearance performance metrics, the executive branch is making progress toward developing metrics to track reciprocity specifically with the intelligence community agencies. We are encouraged by the Performance Accountability Council’s development of quality metrics, which include some metrics for tracking reciprocity. These are positive steps that can contribute to greater visibility of the clearance process, but these measures have not yet been fully implemented or their effectiveness assessed. Our previous work has highlighted the importance of the executive branch enhancing efficiency and managing costs related to the reform effort. For example, in 2008, we noted that one of the key factors to consider in current and future reform efforts was the long-term funding requirements. Further, in 2009, we found that reform-related reports did not detail what reform objectives require funding, how much they will cost, or where funding will come from. Furthermore, the reports did not estimate potential cost savings resulting from the streamlined process. At that time, senior reform leaders stated that cost estimates had not been completed by the Joint Reform Team or the agencies affected by reform as it was too early.","Accordingly, we recommended that reform leaders issue a strategic framework that contained the long-term funding requirements of reform, among other things. Consequently, in February 2010, the Performance Accountability Council issued a strategic framework that responded to our recommendation; however, that framework did not detail funding requirements. Instead, it noted that DOD and OPM would cover costs for major information technology acquisitions. As reform leaders, through the Performance Accountability Council, consider changes to the current clearance processes, they should ensure that Congress is provided with the long-term funding requirements necessary to implement any such reforms. Those funding requirements to implement changes to security clearance processes are necessary to enable the executive branch to compare and prioritize alternative proposals for reforming the clearance processes. For example, DOD officials told us that it was unable to conduct quality assessment of adjudications during fiscal year 2011 due to lack of funding. In addition, DOD officials noted that the department is using its tool to assess the quality of investigations. However, there is no evidence that this tool is being used by other agencies to assess the quality of investigations.","Given current fiscal constraints, identifying the long-term costs is critical for decision-makers to compare and prioritize alternative proposals for completing the transformation of the security clearance process. Without information on longer-term funding requirements necessary to implement the reform effort, Congress lacks the visibility it needs to fully assess appropriations requirements. We most recently reported on two areas of opportunity for which the executive branch may be able to identify efficiencies: information technology and investigation and adjudication case management and processes. In February 2012, we reported that information technology investments were one of OPM’s background investigations programs’ three main cost drivers. While these investments represent less than 10 percent of OPM’s fiscal year 2011 reported costs, they have increased more than 682 percent over 6 years (in fiscal year 2011 dollars), from about $12 million in fiscal year 2005 to over $91 million in fiscal year 2011. Moreover, we reported that OPM’s investigation process reverts its electronically-based investigation back into paper-based files.","In November 2010, the Deputy Director for Management of the Office of Management and Budget testified that OPM now receives over 98 percent of investigation applications electronically, yet we observed that it is continuing to use a paper-based investigation processing system and converts electronically submitted applications to paper. OPM officials stated that the paper-based process is required because a small portion of their customer agencies do not have electronic capabilities. Furthermore, OPM’s process has not been studied to identify efficiencies. As a result, OPM may be simultaneously investing in process streamlining technology while maintaining a less-efficient and duplicative paper-based process. We recommended that OPM take actions to identify process efficiencies, including its use of information technology to complete investigations, which could lead to cost savings within its background investigation processes. OPM concurred with our recommendation and commented that these actions also reinforce a Federal Investigative Services priority and that the agency will continue to map its process to achieve maximum process efficiencies and identify potential cost savings.","In commenting on our final report, OPM stated in a May 25, 2012 letter to us that it is taking a number of actions that could lead to cost savings within its background investigation process. For example, OPM noted it is conducting a study of business processes identifying time savings and efficiencies for future Federal Investigative Services’ business processes which will conclude by December 2013. In February 2012, as part of our annual report on opportunities to reduce duplication, overlap and fragmentation, we reported that multiple agencies have invested in or are beginning to invest in potentially duplicative, electronic case management and adjudication systems despite governmentwide reform effort goals that agencies leverage existing technologies to reduce duplication and enhance reciprocity. According to DOD officials, DOD began the development of its Case Adjudication Tracking System in 2006 and, as of 2011, invested a total of $32 million to deploy the system. The system helped DOD achieve efficiencies with case management and an electronic adjudication module for secret level cases that did not contain issues, given the volume and types of adjudications performed.","According to DOD officials, after it observed that the Case Adjudication Tracking System could easily be deployed to other agencies at a low cost, the department intended to share the technology with interested entities across the federal government. For example, the Department of Energy is piloting the electronic adjudication module of DOD’s system, and, according to DOD officials, the Social Security Administration is also considering adopting the system. In addition to DOD, Department of Justice officials said they began developing a similar system in 2007 at a cost of approximately $15 million. In an effort to better manage the adjudication portion of the suitability and security clearance process, agencies have transitioned or plan to transition from a paper-based to an electronic adjudication case- management system. Although the investment in electronic case- management systems will likely lead to process efficiencies, agencies may not be leveraging adjudication technologies in place at other executive branch agencies to minimize duplication. One of these other agencies, the National Reconnaissance Office, is itself a component of DOD. would have to initially invest approximately $300,000 for implementation, plus any needed expenditures related to customizations, and long-term support and maintenance, which could require approximately","$100,000 per year.","Officials from OPM, one of the five other agencies developing or seeking funds to develop similar systems, explained that they plan to develop an electronic case-management system that is synchronized with its governmentwide background investigations system that would be available for their customer agencies to purchase. OPM released a request for information to evaluate the options for this system. DOD responded to OPM’s request for information by performing a comparative analysis of its own case-management system and said that it believes its system meets the needs set out in OPM’s request for information. However, OPM officials said that DOD’s system would cost too much money for smaller agencies to adopt, so OPM plans to continue exploring other options that would allow customer agencies access to their electronic case-management system without the need to make an expensive initial investment. Additionally, OPM officials said that their effort is intended to promote process efficiency by further integrating OPM with its more than 100 customer agencies. However, some OPM customer agencies, including DOD, which makes up approximately 75 percent of OPM’s investigation workload, expressed concern that such a system would likely be redundant to currently available case- management technology.","Further, any overhead costs related to the development of an OPM system would be incorporated into OPM’s operating costs, which could affect investigation prices. The investment in electronic case-management systems aligns with the reform effort’s goal to automate information technology capabilities to improve the timeliness, efficiency, and quality of existing security clearance and suitability determinations systems. It also will likely lead to process efficiencies; however, agencies may be unclear how they might achieve cost savings through leveraging adjudication technologies in place at other executive branch agencies. In its March 2009 Enterprise Information Technology Strategy, the Joint Reform Team stated that agencies will leverage existing systems to reduce duplication and enhance reciprocity. Moreover, the Performance Accountability Council is positioned to promote coordination and standardization related to the suitability and security clearance process through issuing guidance to the agencies. The reform effort’s strategic framework includes cost savings in its mission statement, but this framework lacks specificity regarding how agencies might achieve costs savings. Without specific guidance, the opportunities to minimize duplication and achieve cost savings may be lost.","Therefore, in 2012 we recommended that OMB as the Chair of the Performance Accountability Council expand and specify reform-related guidance to help ensure that reform stakeholders identify opportunities for cost savings, such as preventing duplication in the development of electronic case management.OMB concurred with our recommendation. In February 2008 and in subsequent reports, we have noted the importance of having a sound requirements determination process for security clearances. Specifically, a sound requirements determination process may help ensure that workload and costs are not higher than necessary. Further, the Performance Accountability Council’s reformed security clearance process identified determining if a position requires a security clearance as the first step of the process. Specifically, the clearance process begins with establishing whether a position requires a clearance, and if so, at what level. The numbers of requests for initial and renewal clearances and the levels of such clearance requests are two ways to look at outcomes of requirements setting in the clearance process. As of October 2010, the Director of National Intelligence reported that 3.9 million federal employees (military and civilian) and contractors hold security clearances.","Moreover, OPM reported that its cost to conduct background investigations for much of the executive branch outside the intelligence agencies increased about 79 percent from about $602 million in fiscal year 2005 to over $1.1 billion in fiscal year 2011. In our prior work, DOD personnel, investigations contractors, and industry officials told us that the large number of requests for investigations could be attributed to many factors. For example, they ascribed the large number of requests to the heightened security concerns that resulted from the September 11, 2001, terrorist attacks. They also attributed the large number of investigations to an increase in the operations and deployments of military personnel and to the increasingly sensitive technology that military personnel, government employees, and contractors come in contact with as part of their jobs. Having a large number of cleared personnel can give the military services, agencies, and industry a great deal of flexibility when assigning personnel, but the investigative and adjudicative workloads that are required to provide clearances and that flexibility further tax the clearance process. A change in the higher level of clearances being requested also increases the investigative and adjudicative workloads.","For example, top secret clearances must be renewed twice as often as secret clearances (i.e., every 5 years versus every 10 years). More specifically, the average investigative report for a top secret clearance takes about 10 times as many investigative staff hours as the average investigative report for a secret clearance. As a result, the investigative workload increases about 20-fold. Additionally, the adjudicative workload increases about 4-fold, because in our previous work, DOD officials estimated that investigative reports for a top secret clearance took about twice as long to review as an investigative report for a secret clearance. Further, a top secret clearance needs to be renewed twice as often as the secret clearance. In August 2006, OPM estimated that approximately 60 total staff hours are needed for each investigation for an initial top secret clearance and 6 total staff hours are needed for the investigation to support a secret or confidential clearance. The doubling of the frequency along with the increased effort to investigate and adjudicate each top secret reinvestigation adds costs and workload for the government.","For fiscal year 2012, OPM’s standard base prices are $4,005 for an investigation for an initial top secret clearance; $2,711 for an investigation to renew a top secret clearance, and either $228 or $260 for an investigation for a secret clearance. As we reported in February 2012, these base prices can increase if triggered by the circumstances of a case, such as issues related to credit or criminal history checks. For example, in 2011, DOD officials stated that the prices contained in OPM’s Federal Investigative Notices are not always reflective of the amount DOD actually pays for an investigation, as a result of these circumstances. Further, the cost of getting and maintaining a top secret clearance for 10 years is almost 30 times greater than the cost of getting and maintaining a secret clearance for the same period. For example, an individual getting a top secret clearance for the first time and keeping the clearance for 10 years would cost the government a total of $6,716 in current year dollars ($4,005 for the initial investigation and $2,711 for the reinvestigation after the first 5 years).","In contrast, an individual receiving a secret clearance and maintaining it for 10 years would result in a total cost to the government of $228 ($228 for the initial clearance that is good for 10 years). Requesting a clearance for a position in which it will not be needed, or in which a lower level clearance would be sufficient, will increase investigative workload and thereby costs unnecessarily. We are currently reviewing the process that the executive branch uses to determine whether a position requires a security clearance for the Ranking Member of the House Committee on Homeland Security, and the expected issuance date for this report is this summer. In conclusion, Mr. Chairman, Mr. Johnson, and Members of the Subcommittee, as evidenced by our removal of the DOD’s security clearance program from our high-risk list, we are strongly encouraged by the progress that the Performance Accountability Council, and in particular, DOD, has made over the last few years. DOD has shown progress by implementing recommendations, improving overall timeliness, and taking steps to integrate quality into its processes.","The progress that has been made with respect to the overall governmentwide reform efforts would not be possible without committed and sustained leadership of Congress and by the senior leaders involved in the Performance Accountability Council as well as their dedicated staff. Continued oversight and stewardship of the reform efforts is the cornerstone to sustaining momentum and making future progress. As the executive branch continues to move forward to enhance the suitability and security clearance reform, the actions to monitor quality and enhance efficiency will be key to enhance the progress made on timeliness to date. Chairman Akaka, Ranking Member Johnson, and Members of the Subcommittee, this concludes my prepared statement, and I would be pleased to answer any questions that you may have. Thank you. For further information on this testimony, please contact Brenda S. Farrell, Director, Defense Capabilities and Management, who may be reached at (202) 512-3604. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Lori Atkinson (Assistant Director), Grace Coleman, Sara Cradic, James Krustapentus, Gregory Marchand, Jillena Roberts, and Amie Steele.","Background Investigations: Office of Personnel Management Needs to Improve Transparency of Its Pricing and Seek Cost Savings. GAO-12-197. Washington, D.C.: February 28, 2012. GAO’s 2011 High-Risk Series: An Update. GAO-11-394T. Washington, D.C.: February 17, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 16, 2011. Personnel Security Clearances: Overall Progress Has Been Made to Reform the Governmentwide Security Clearance Process. GAO-11-232T. Washington, D.C.: December 1, 2010. 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DOD Personnel Clearances: DOD Faces Multiple Challenges in Its Efforts to Improve Clearance Processes for Industry Personnel. GAO-08-470T. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Improved Annual Reporting Would Enable More Informed Congressional Oversight. GAO-08-350. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Delays and Inadequate Documentation Found for Industry Personnel. GAO-07-842T. Washington, D.C.: May 17, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. DOD Personnel Clearances: Additional OMB Actions Are Needed to Improve the Security Clearance Process. GAO-06-1070. Washington, D.C.:","September 28, 2006.","DOD Personnel Clearances: New Concerns Slow Processing of Clearances for Industry Personnel. GAO-06-748T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Funding Challenges and Other Impediments Slow Clearances for Industry Personnel. GAO-06-747T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Government Plan Addresses Some Long- standing Problems with DOD’s Program, But Concerns Remain. GAO-06-233T. Washington, D.C.: November 9, 2005. DOD Personnel Clearances: Some Progress Has Been Made but Hurdles Remain to Overcome the Challenges That Led to GAO’s High-Risk Designation. GAO-05-842T. Washington, D.C.: June 28, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005. DOD Personnel Clearances: Preliminary Observations Related to Backlogs and Delays in Determining Security Clearance Eligibility for Industry Personnel. GAO-04-202T. Washington, D.C.: May 6, 2004. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately."],"string":"[\n \"Since we identified DOD’s Personnel Security Clearance program as a high-risk area, DOD, in conjunction with Congress and other executive agency leadership, took actions that resulted in significant progress toward resolving problems we identified with the security clearance program. In 2011, we removed DOD’s personnel security clearance program from our high-risk list because of the agency’s progress in improving timeliness and the development of tools and metrics to assess quality, as well as DOD’s commitment to sustaining progress. Importantly, congressional oversight and the committed leadership of the Suitability and Security Clearance Performance Accountability Council (Performance Accountability Council) –which has been responsible for overseeing security clearance reform efforts since 2008—greatly contributed to the progress of DOD and the governmentwide security clearance reform. Leadership in Congress and the executive branch demonstrated commitment to reforming the security clearance process to address longstanding problems associated with the personnel security clearance program. As we have previously noted, top leadership must be committed to organizational transformation. Specifically, leadership must set the direction, pace, and tone and provide a clear, consistent rationale that brings everyone together behind a single mission. Figure 1 illustrates key events related to the Suitability and Personnel Security Clearance\",\n \"Reform Effort.\",\n \"Congressional legislation and oversight has helped focus attention and sustain momentum to improve the processing of security clearances not only for DOD but governmentwide. The Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) established, among other things, milestones for reducing the time to complete initial clearances. We previously identified best practices for agencies to successfully transform their cultures including among other things, setting implementation goals and a timeline to build momentum and show progress from day one. IRTPA established an interim objective to be met by December 2006 under which DOD and other agencies that adjudicate security clearances were to make a decision on at least 80 percent of initial clearance applications within 120 days, on average. Further, IRTPA called for the executive branch to implement a plan by December 17, 2009, under which, to the extent practical, at least 90 percent of decisions are made on applications for an initial personnel security clearance within 60 days, on average.\",\n \"Additionally, IRTPA required the executive branch to begin providing annual reports to Congress in 2006 on the progress made the preceding year toward meeting IRTPA’s objectives for security clearances, including the length of time agencies took to complete the investigations and adjudications—the decision as to whether an individual should be granted eligibility for a clearance. GAO has testified on security clearance reform before this committee as well as the (1) Subcommittee on Intelligence Community Management, House Permanent Select Committee on Intelligence, (2) the Subcommittee on Government Management, Organization, and Procurement, House Committee on Oversight and Government Reform, and (3) Subcommittee on Readiness, House Committee on Armed Services. security clearance reform efforts. After that meeting, OMB, ODNI, DOD, OPM, and GAO provided a memorandum on May 31, 2010 to Chairman Akaka containing a matrix with 15 metrics for assessing the timeliness and quality of investigations, adjudications, reciprocity (an agency’s acceptance of a background investigation or clearance determination completed by any authorized investigative or adjudicative agency), and automation. The development of these metrics played a key role in GAO’s decision to remove DOD’s Personnel Security Clearance program from the high-risk list.\",\n \"Furthermore, we have noted for many years the central role that the Government Performance and Results Act (GPRA) could play in identifying and fostering improved coordination across related federal program efforts. The GPRA Modernization Act of 2010 (GPRAMA) for a more coordinated and crosscutting approach to achieve meaningful results. GPRAMA provides an opportunity for agencies to collect and report more timely and useful performance information on crosscutting programs. This performance information can play an important role in congressional decision making. In fact, Mr. Chairman, we conducted work for you focusing on how Congress can use such information to address challenges facing the government. DOD’s personnel security clearance program was one of three case studies we used to illustrate how Congress has used agency performance information in its decision making. Pub. L. No. 111-352, 124 Stat. 3886 (2011). GPRAMA amended the Government Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 (1993). placed the program on our high-risk list, top executive branch leadership put in place an effort to reform the security clearance process.\",\n \"For example, in 2007, DOD and ODNI formed the Joint Security Clearance Process Reform Team, known as the Joint Reform Team, to improve the security clearance process governmentwide. Specifically, they tasked the Joint Reform Team to execute joint reform efforts so that they achieve IRTPA timeliness goals and improve the processes related to granting security clearances. In 2008, the President in a memorandum called for a reform of the security clearance program and subsequently issued an executive order establishing the Performance Accountability Council. Under the executive order, this council is accountable to the President for leading the implementation of reform, including aligning security and suitability processes, holding agencies accountable for implementation, and establishing goals and metrics for progress. DOD worked with the Joint Reform Team and the Performance Accountability Council to develop a corrective action plan to improve timeliness and demonstrate progress toward reforming the security clearance process. For example, DOD’s leadership, in conjunction with the Joint Reform Team, developed a plan for reform that continuously evolved to incorporate new goals and address identified issues.\",\n \"To communicate these plans, the Joint Reform Team issued an initial reform plan in April 2008 that presented a new seven-step design intended to streamline the security clearance process, including the use of a more sophisticated electronic application, a more flexible investigation process, and the establishment of ongoing evaluation procedures between formal clearance investigations. The report was updated in December 2008 to include an outline of reform progress and further plans, and in March 2009 the Joint Reform Team issued its Enterprise Information Technology Strategy for the security clearance and suitability reform program. Then, in line with GAO recommendations, DOD worked with the Performance Accountability Council to issue a strategic framework that the council included in its 2010 report to the President. The strategic framework identified key governmentwide reform goals and identified the root causes for timeliness delays and delays to agencies honoring reciprocity. It also set forth a governmentwide mission, performance measures, a communications strategy, roles and responsibilities, and metrics to measure the quality of security clearance investigations and adjudications. DOD continues to work with the Performance Accountability Council to sustain clearance reform efforts and enhance transparency and accountability through annual reporting to Congress.\",\n \"DOD issued guidance on adjudication standards. In May 2009, we found that although DOD asserted that adjudicators follow a risk- management approach for granting security clearances, DOD had not issued formal guidance clarifying if and under what circumstances adjudicators can adjudicate incomplete investigative reports—such as missing information relevant to residences, employment, or education. As a result, we recommended that DOD issue guidance that clarifies when adjudicators may use incomplete investigative reports as the basis for granting clearances. Subsequently, on November 8, 2009, the Under Secretary of Defense for Intelligence issued guidance on adjudication standards that outline the minimum documentation requirements adjudicators must adhere to when documenting personnel security clearance determinations for cases with potentially damaging information. On March 10, 2010, the Under Secretary of Defense for Intelligence issued additional guidance that clarifies when adjudicators may use incomplete investigative reports as the basis for granting clearances. This guidance provides standards that can be used for the sufficient explanation of incomplete investigative reports. Further, according to DOD officials, in 2010, DOD created a Performance Accountability Directorate within the Directorate of Security to provide oversight and accountability for the DOD Central Adjudication Facilities that process DOD adjudicative decisions.\",\n \"One of DOD’s key actions that led to the removal of its personnel security clearance program from our high-risk list was that DOD was able to demonstrate its progress in having implemented corrective measures. Longstanding backlogs and delays in the clearance process led to our initial designation of this area as high risk. For example, in 2004, we testified that from fiscal year 2001 through fiscal year 2003, the average time for DOD to determine clearance eligibility for industry personnel increased by 56 days to over 1 year. In 2005, we reported that DOD could not estimate the full size of its backlog, but we identified over 350,000 cases exceeding established timeframes for determining eligibility. Moreover, in 2007 and 2009, we reported that clearances continued to take longer than the timeliness goals prescribed in IRTPA. In 2011, we reported that DOD processed 90 percent of initial clearances in an average of 49 days for federal civilians, military, and industry personnel and met the 60-day statutory timeliness objective for processing all initial clearances in fiscal year 2010.\",\n \"Also we found that DOD completed 90 percent of initial clearances for industry personnel in an average of 63 days for all the data we reviewed in fiscal year 2010,demonstrating an improvement from what we found in 2004, when the average processing time for industry personnel was over a year. Our high-risk designation was based not only on problems with timeliness but also incomplete documentation of investigations and adjudications. We reported on missing documentation in investigative reports prepared by OPM that DOD adjudicators had used to make clearance eligibility decisions. In 2009, we estimated that 87 percent of about 3,500 OPM investigative reports provided to DOD in July 2008 were missing required documentation, which in most cases pertained to residences, employment, and education. DOD adjudicators granted clearance eligibility without requesting missing investigative information or fully documenting unresolved issues in 22 percent of DOD’s adjudicative files. These findings led us to recommend that OPM and DOD, among other things, develop and report metrics on completeness and other measures of quality for investigations and adjudications that address the effectiveness of the new procedures. DOD agreed and implemented our recommendations regarding adjudication.\",\n \"OPM neither concurred nor nonconcurred with our recommendation; however, as noted earlier, OPM has taken steps to develop metrics. Subsequently, DOD developed two quality tools to evaluate completeness of documentation used to determine clearance eligibility. First, the Rapid Assessment of Incomplete Security Evaluations (RAISE) tracks the quality of investigations conducted by OPM. Results of RAISE will be reported to the Director of National Intelligence, which, as the Security Executive Agent of the Performance Accountability Council, will arbitrate any potential disagreements between OPM and DOD and clarify policy questions. DOD deployed RAISE to four Central Adjudication Facilities from July to October 2010 and planned to complete deployment to the remaining Central Adjudication Facilities by calendar year 2011. According to DOD officials, as of June 2012 this tool has been deployed to all of DOD’s non-intelligence agencies adjudication facilities. Although the Joint Reform Team is considering using it in the future, it is not being used by other executive agencies. Second, in 2008 DOD developed the Review of Adjudication Documentation Accuracy and Rationales (RADAR), which tracks the quality of clearance adjudications.\",\n \"In 2009, the Under Secretary of Defense for Intelligence directed DOD Central Adjudication Facilities to provide adjudication case records to the Defense Personnel Research Center for analysis. According to DOD officials, the department plans to use results of the RADAR assessments to monitor Central Adjudication Facilities’ compliance with documentation policies, communicate performance to the Central Adjudication Facilities, identify potential weaknesses and training needs, increase compliance, and establish trend data. DOD has completed a pilot program for the use of RADAR and began its implementation for the Army, Defense Industrial Security Clearance Office, and Navy Central Adjudication Facilities in September 2010. In addition to these assessment tools, in 2010 DOD, OMB, ODNI, and OPM developed 15 metrics that assess the timeliness and quality of investigations, adjudications, reciprocity, and automation. The quality metrics, in turn, can be used to gauge progress and assess the quality of the personnel security clearance process. These metrics represented positive developments that could contribute to greater visibility over the clearance process. Having assessment tools and performance metrics in place is a critical initial step toward instituting a program to monitor and independently validate the effectiveness and sustainability of corrective measures.\",\n \"The combination of congressional reporting requirements, the strategic framework, and the development of quality metrics, will help ensure transparency throughout the reform effort. It is important not only to have metrics but to use them to guide implementation. By using metrics for timeliness, DOD was able to show progress over time that helped build momentum to reach the final goal. DOD’s security clearance reform effort aligned with our criteria for removal from the high-risk list in fiscal year 2011. However, security clearance reform extends beyond DOD throughout the executive branch. This is evidenced by the oversight structure, through the Performance Accountability Council, and broad executive branch participation in the reform effort. Building on the factors for reforming the security process that we have reported in the past, continued leadership and attention, such as continuing to monitor and update outcome-focused performance measures, seeking opportunities to enhance efficiency and managing costs, and ensuring a strong requirements determination process, may enhance the security clearance reform effort. DOD has developed tools to monitor quality as well as participated in the development and tracking of quality metrics for OPM’s investigations and DOD’s adjudications through the Performance Accountability Council.\",\n \"We view the development of quality metrics as a positive step towards creating greater visibility over the quality of the clearance process and identifying specific quantifiable targets linked to goals that can be measured objectively. Moreover, leaders and others need to use these metrics to gauge progress toward improvements. Further, the development of performance measures related to the security clearance process by the Performance Accountability Council aligns with our previous recommendation to develop outcome-focused performance measures to continually evaluate the progress of the reform effort. We have also previously reported on the importance of continually assessing and evaluating programs as a good business practice, including evaluating metrics to help ensure that they are effective and updated when necessary.the reform and that DOD and OPM complete implementation of the As a result, it is important to sustain the momentum of quality tools and metrics so that the executive branch can demonstrate progress in improving the quality of investigations and adjudications. Leaders of the reform effort have consistently stated that implementation of reform will be incremental, and therefore, it is important that the information necessary to capture performance is up-to-date.\",\n \"The Performance Accountability Council quality metrics were developed subsequent to the issuance of the 2010 Strategic Framework, which articulates the goals of the security and suitability process reform. As a result, the 2010 Strategic Framework did not include a detailed plan or guidance for the implementation of the quality metrics. Further, the May 31, 2010 memorandum in which the Performance Accountability Council detailed its metrics did not discuss how often the metrics will be reexamined for continuous improvement. Moreover, according to DOD, the tools and metrics to assess quality have not been fully implemented. For example, while DOD has implemented its RAISE tool for investigation quality, it is not being used by other executive branch agencies— including OPM, which conducts the investigations and would be the appropriate agency to take actions to improve investigation quality— although the Joint Reform Team is considering using it in the future. Without these tools and metrics the executive branch will be unable to demonstrate progress in improving quality. Emphasis on quality in clearance processes should promote positive outcomes, including more reciprocity among agencies in accepting each others’ clearances.\",\n \"Building quality throughout clearance processes is important, but government agencies have not paid the same attention to quality as they have to timeliness. The emphasis on timeliness is due in part to the requirements and objectives established in IRTPA regarding the speed with which clearances should be completed. Our work has repeatedly called for more emphasis on quality. As previously noted, IRTPA required an annual report of progress and key measurements as to the timeliness of initial security clearances in February of each year from 2006 through 2011. It specifically required those reports to include the periods of time required for conducting investigations, adjudicating cases, and granting clearances. IRTPA required the executive branch to implement a plan by December 2009 in which, to the extent practical, 90 percent of initial clearances were completed within 60 days, on average. In its initial reports, the executive branch reported only on the average of the fastest 90 percent of clearances and excluded the slowest 10 percent. We previously reported that full visibility was limited by the absence of comprehensive reporting of initial clearance decisions timeliness.\",\n \"Consistent with our recommendation, the executive branch began reporting on the remaining 10 percent in its 2010 and 2011 reports. However, the IRTPA requirement for the executive branch to annually report on its timeliness expired last year. More recently, in 2010, the Intelligence Authorization Act of 2010 established a new requirement that the President annually report the total amount of time it takes to process certain security clearance determinations for the previous fiscal year for each element of the Intelligence Community. The Intelligence Authorization Act of 2010 requires, among other things, annual reports from the President to Congress that include the total number of active security clearances throughout the United States government, to include both government employees and contractors. Its timeliness reporting requirement, however, applies only to the elements of the Intelligence Community. Unlike the IRTPA reporting requirement, the requirement to submit these annual reports does not expire. Further, the Intelligence Authorization Act requires two additional one-time reports: first, a report to Congress by the President including metrics for adjudication quality, and second, a report to the congressional intelligence committees by the Inspector General of the Intelligence Community on reciprocity.\",\n \"The report containing metrics for adjudication quality summarizes prior information on developed tools and performance measures; however, it does not provide additional information on the implementation or update of the performance measures that were identified in the May 2010 memorandum on quality metrics. Additionally, according to an ODNI official, the report on reciprocity has not been provided, although these reports were required 180 days after the law was enacted on Oct 7, 2010. The Intelligence Authorization Act of 2010 reporting requirement on reciprocity—an agency’s acceptance of a background investigation or clearance determination completed by any authorized investigative or adjudicative agency—is the first time the executive branch has been required to report on this information since the reform effort began. Further, in 2010 we reported that although there are no governmentwide metrics to comprehensively track when and why reciprocity is granted or denied, agency officials stated that they routinely take steps to honor previously granted security clearances. We found that agencies do not consistently document the additional steps they have taken prior to granting a reciprocal clearance.\",\n \"For example, the Navy keeps electronic documentation, the Department of Energy and the Department of the Treasury keep paper documentation, and the Army and the Air Force do not maintain any documentation on the additional steps taken to accept a previously granted security clearance. Consequently, there is no consistent tracking of the amount of staff time spent on the additional actions that are taken to honor a previously granted security clearance. In addition, agencies do not consistently and comprehensively track the extent to which reciprocity is granted. OPM has a metric to track reciprocity, but this metric captures limited information, such as numbers of requested and rejected investigations, but not the number of cases in which a previously granted security clearance was or was not honored. Similarly, the metrics proposed by the Performance Accountability Council do not track the extent to which reciprocity is or is not ultimately honored.\",\n \"For example, metrics proposed by the Performance Accountability Council, such as the number of duplicate requests for investigations, percentage of applications submitted electronically, number of electronic applications submitted by applicants but rejected by OPM as unacceptable because of missing information or forms, and percentage of fingerprint submissions determined to be “unclassifiable” by the Federal Bureau of Investigation, provide useful information but do not track the extent to which reciprocity is or is not ultimately honored. Without comprehensive, standardized metrics to track reciprocity, and documentation of the process, decision makers lack a complete picture of the extent to which reciprocity is granted and the challenges to honoring previously granted security clearances. To further improve governmentwide reciprocity, in 2010 we recommended that the Deputy Director of Management, OMB, in the capacity as Chair of the Performance Accountability Council, develop comprehensive metrics to track reciprocity and then report the findings from the expanded tracking to Congress. OMB generally concurred with our recommendation, stating that the Performance Accountability Council is working to develop these additional metrics.\",\n \"According to a 2011 report on security clearance performance metrics, the executive branch is making progress toward developing metrics to track reciprocity specifically with the intelligence community agencies. We are encouraged by the Performance Accountability Council’s development of quality metrics, which include some metrics for tracking reciprocity. These are positive steps that can contribute to greater visibility of the clearance process, but these measures have not yet been fully implemented or their effectiveness assessed. Our previous work has highlighted the importance of the executive branch enhancing efficiency and managing costs related to the reform effort. For example, in 2008, we noted that one of the key factors to consider in current and future reform efforts was the long-term funding requirements. Further, in 2009, we found that reform-related reports did not detail what reform objectives require funding, how much they will cost, or where funding will come from. Furthermore, the reports did not estimate potential cost savings resulting from the streamlined process. At that time, senior reform leaders stated that cost estimates had not been completed by the Joint Reform Team or the agencies affected by reform as it was too early.\",\n \"Accordingly, we recommended that reform leaders issue a strategic framework that contained the long-term funding requirements of reform, among other things. Consequently, in February 2010, the Performance Accountability Council issued a strategic framework that responded to our recommendation; however, that framework did not detail funding requirements. Instead, it noted that DOD and OPM would cover costs for major information technology acquisitions. As reform leaders, through the Performance Accountability Council, consider changes to the current clearance processes, they should ensure that Congress is provided with the long-term funding requirements necessary to implement any such reforms. Those funding requirements to implement changes to security clearance processes are necessary to enable the executive branch to compare and prioritize alternative proposals for reforming the clearance processes. For example, DOD officials told us that it was unable to conduct quality assessment of adjudications during fiscal year 2011 due to lack of funding. In addition, DOD officials noted that the department is using its tool to assess the quality of investigations. However, there is no evidence that this tool is being used by other agencies to assess the quality of investigations.\",\n \"Given current fiscal constraints, identifying the long-term costs is critical for decision-makers to compare and prioritize alternative proposals for completing the transformation of the security clearance process. Without information on longer-term funding requirements necessary to implement the reform effort, Congress lacks the visibility it needs to fully assess appropriations requirements. We most recently reported on two areas of opportunity for which the executive branch may be able to identify efficiencies: information technology and investigation and adjudication case management and processes. In February 2012, we reported that information technology investments were one of OPM’s background investigations programs’ three main cost drivers. While these investments represent less than 10 percent of OPM’s fiscal year 2011 reported costs, they have increased more than 682 percent over 6 years (in fiscal year 2011 dollars), from about $12 million in fiscal year 2005 to over $91 million in fiscal year 2011. Moreover, we reported that OPM’s investigation process reverts its electronically-based investigation back into paper-based files.\",\n \"In November 2010, the Deputy Director for Management of the Office of Management and Budget testified that OPM now receives over 98 percent of investigation applications electronically, yet we observed that it is continuing to use a paper-based investigation processing system and converts electronically submitted applications to paper. OPM officials stated that the paper-based process is required because a small portion of their customer agencies do not have electronic capabilities. Furthermore, OPM’s process has not been studied to identify efficiencies. As a result, OPM may be simultaneously investing in process streamlining technology while maintaining a less-efficient and duplicative paper-based process. We recommended that OPM take actions to identify process efficiencies, including its use of information technology to complete investigations, which could lead to cost savings within its background investigation processes. OPM concurred with our recommendation and commented that these actions also reinforce a Federal Investigative Services priority and that the agency will continue to map its process to achieve maximum process efficiencies and identify potential cost savings.\",\n \"In commenting on our final report, OPM stated in a May 25, 2012 letter to us that it is taking a number of actions that could lead to cost savings within its background investigation process. For example, OPM noted it is conducting a study of business processes identifying time savings and efficiencies for future Federal Investigative Services’ business processes which will conclude by December 2013. In February 2012, as part of our annual report on opportunities to reduce duplication, overlap and fragmentation, we reported that multiple agencies have invested in or are beginning to invest in potentially duplicative, electronic case management and adjudication systems despite governmentwide reform effort goals that agencies leverage existing technologies to reduce duplication and enhance reciprocity. According to DOD officials, DOD began the development of its Case Adjudication Tracking System in 2006 and, as of 2011, invested a total of $32 million to deploy the system. The system helped DOD achieve efficiencies with case management and an electronic adjudication module for secret level cases that did not contain issues, given the volume and types of adjudications performed.\",\n \"According to DOD officials, after it observed that the Case Adjudication Tracking System could easily be deployed to other agencies at a low cost, the department intended to share the technology with interested entities across the federal government. For example, the Department of Energy is piloting the electronic adjudication module of DOD’s system, and, according to DOD officials, the Social Security Administration is also considering adopting the system. In addition to DOD, Department of Justice officials said they began developing a similar system in 2007 at a cost of approximately $15 million. In an effort to better manage the adjudication portion of the suitability and security clearance process, agencies have transitioned or plan to transition from a paper-based to an electronic adjudication case- management system. Although the investment in electronic case- management systems will likely lead to process efficiencies, agencies may not be leveraging adjudication technologies in place at other executive branch agencies to minimize duplication. One of these other agencies, the National Reconnaissance Office, is itself a component of DOD. would have to initially invest approximately $300,000 for implementation, plus any needed expenditures related to customizations, and long-term support and maintenance, which could require approximately\",\n \"$100,000 per year.\",\n \"Officials from OPM, one of the five other agencies developing or seeking funds to develop similar systems, explained that they plan to develop an electronic case-management system that is synchronized with its governmentwide background investigations system that would be available for their customer agencies to purchase. OPM released a request for information to evaluate the options for this system. DOD responded to OPM’s request for information by performing a comparative analysis of its own case-management system and said that it believes its system meets the needs set out in OPM’s request for information. However, OPM officials said that DOD’s system would cost too much money for smaller agencies to adopt, so OPM plans to continue exploring other options that would allow customer agencies access to their electronic case-management system without the need to make an expensive initial investment. Additionally, OPM officials said that their effort is intended to promote process efficiency by further integrating OPM with its more than 100 customer agencies. However, some OPM customer agencies, including DOD, which makes up approximately 75 percent of OPM’s investigation workload, expressed concern that such a system would likely be redundant to currently available case- management technology.\",\n \"Further, any overhead costs related to the development of an OPM system would be incorporated into OPM’s operating costs, which could affect investigation prices. The investment in electronic case-management systems aligns with the reform effort’s goal to automate information technology capabilities to improve the timeliness, efficiency, and quality of existing security clearance and suitability determinations systems. It also will likely lead to process efficiencies; however, agencies may be unclear how they might achieve cost savings through leveraging adjudication technologies in place at other executive branch agencies. In its March 2009 Enterprise Information Technology Strategy, the Joint Reform Team stated that agencies will leverage existing systems to reduce duplication and enhance reciprocity. Moreover, the Performance Accountability Council is positioned to promote coordination and standardization related to the suitability and security clearance process through issuing guidance to the agencies. The reform effort’s strategic framework includes cost savings in its mission statement, but this framework lacks specificity regarding how agencies might achieve costs savings. Without specific guidance, the opportunities to minimize duplication and achieve cost savings may be lost.\",\n \"Therefore, in 2012 we recommended that OMB as the Chair of the Performance Accountability Council expand and specify reform-related guidance to help ensure that reform stakeholders identify opportunities for cost savings, such as preventing duplication in the development of electronic case management.OMB concurred with our recommendation. In February 2008 and in subsequent reports, we have noted the importance of having a sound requirements determination process for security clearances. Specifically, a sound requirements determination process may help ensure that workload and costs are not higher than necessary. Further, the Performance Accountability Council’s reformed security clearance process identified determining if a position requires a security clearance as the first step of the process. Specifically, the clearance process begins with establishing whether a position requires a clearance, and if so, at what level. The numbers of requests for initial and renewal clearances and the levels of such clearance requests are two ways to look at outcomes of requirements setting in the clearance process. As of October 2010, the Director of National Intelligence reported that 3.9 million federal employees (military and civilian) and contractors hold security clearances.\",\n \"Moreover, OPM reported that its cost to conduct background investigations for much of the executive branch outside the intelligence agencies increased about 79 percent from about $602 million in fiscal year 2005 to over $1.1 billion in fiscal year 2011. In our prior work, DOD personnel, investigations contractors, and industry officials told us that the large number of requests for investigations could be attributed to many factors. For example, they ascribed the large number of requests to the heightened security concerns that resulted from the September 11, 2001, terrorist attacks. They also attributed the large number of investigations to an increase in the operations and deployments of military personnel and to the increasingly sensitive technology that military personnel, government employees, and contractors come in contact with as part of their jobs. Having a large number of cleared personnel can give the military services, agencies, and industry a great deal of flexibility when assigning personnel, but the investigative and adjudicative workloads that are required to provide clearances and that flexibility further tax the clearance process. A change in the higher level of clearances being requested also increases the investigative and adjudicative workloads.\",\n \"For example, top secret clearances must be renewed twice as often as secret clearances (i.e., every 5 years versus every 10 years). More specifically, the average investigative report for a top secret clearance takes about 10 times as many investigative staff hours as the average investigative report for a secret clearance. As a result, the investigative workload increases about 20-fold. Additionally, the adjudicative workload increases about 4-fold, because in our previous work, DOD officials estimated that investigative reports for a top secret clearance took about twice as long to review as an investigative report for a secret clearance. Further, a top secret clearance needs to be renewed twice as often as the secret clearance. In August 2006, OPM estimated that approximately 60 total staff hours are needed for each investigation for an initial top secret clearance and 6 total staff hours are needed for the investigation to support a secret or confidential clearance. The doubling of the frequency along with the increased effort to investigate and adjudicate each top secret reinvestigation adds costs and workload for the government.\",\n \"For fiscal year 2012, OPM’s standard base prices are $4,005 for an investigation for an initial top secret clearance; $2,711 for an investigation to renew a top secret clearance, and either $228 or $260 for an investigation for a secret clearance. As we reported in February 2012, these base prices can increase if triggered by the circumstances of a case, such as issues related to credit or criminal history checks. For example, in 2011, DOD officials stated that the prices contained in OPM’s Federal Investigative Notices are not always reflective of the amount DOD actually pays for an investigation, as a result of these circumstances. Further, the cost of getting and maintaining a top secret clearance for 10 years is almost 30 times greater than the cost of getting and maintaining a secret clearance for the same period. For example, an individual getting a top secret clearance for the first time and keeping the clearance for 10 years would cost the government a total of $6,716 in current year dollars ($4,005 for the initial investigation and $2,711 for the reinvestigation after the first 5 years).\",\n \"In contrast, an individual receiving a secret clearance and maintaining it for 10 years would result in a total cost to the government of $228 ($228 for the initial clearance that is good for 10 years). Requesting a clearance for a position in which it will not be needed, or in which a lower level clearance would be sufficient, will increase investigative workload and thereby costs unnecessarily. We are currently reviewing the process that the executive branch uses to determine whether a position requires a security clearance for the Ranking Member of the House Committee on Homeland Security, and the expected issuance date for this report is this summer. In conclusion, Mr. Chairman, Mr. Johnson, and Members of the Subcommittee, as evidenced by our removal of the DOD’s security clearance program from our high-risk list, we are strongly encouraged by the progress that the Performance Accountability Council, and in particular, DOD, has made over the last few years. DOD has shown progress by implementing recommendations, improving overall timeliness, and taking steps to integrate quality into its processes.\",\n \"The progress that has been made with respect to the overall governmentwide reform efforts would not be possible without committed and sustained leadership of Congress and by the senior leaders involved in the Performance Accountability Council as well as their dedicated staff. Continued oversight and stewardship of the reform efforts is the cornerstone to sustaining momentum and making future progress. As the executive branch continues to move forward to enhance the suitability and security clearance reform, the actions to monitor quality and enhance efficiency will be key to enhance the progress made on timeliness to date. Chairman Akaka, Ranking Member Johnson, and Members of the Subcommittee, this concludes my prepared statement, and I would be pleased to answer any questions that you may have. Thank you. For further information on this testimony, please contact Brenda S. Farrell, Director, Defense Capabilities and Management, who may be reached at (202) 512-3604. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Lori Atkinson (Assistant Director), Grace Coleman, Sara Cradic, James Krustapentus, Gregory Marchand, Jillena Roberts, and Amie Steele.\",\n \"Background Investigations: Office of Personnel Management Needs to Improve Transparency of Its Pricing and Seek Cost Savings. GAO-12-197. Washington, D.C.: February 28, 2012. GAO’s 2011 High-Risk Series: An Update. GAO-11-394T. Washington, D.C.: February 17, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 16, 2011. Personnel Security Clearances: Overall Progress Has Been Made to Reform the Governmentwide Security Clearance Process. GAO-11-232T. Washington, D.C.: December 1, 2010. Personnel Security Clearances: Progress Has Been Made to Improve Timeliness but Continued Oversight Is Needed to Sustain Momentum. GAO-11-65. Washington, D.C.: November 19, 2010. DOD Personnel Clearances: Preliminary Observations on DOD’s Progress on Addressing Timeliness and Quality Issues. GAO-11-185T. Washington, D.C.: November 16, 2010. Personnel Security Clearances: An Outcome-Focused Strategy and Comprehensive Reporting of Timeliness and Quality Would Provide Greater Visibility over the Clearance Process. GAO-10-117T. Washington, D.C.: October 1, 2009. Personnel Security Clearances: Progress Has Been Made to Reduce Delays but Further Actions Are Needed to Enhance Quality and Sustain Reform Efforts. GAO-09-684T. Washington, D.C.: September 15, 2009. Personnel Security Clearances: An Outcome-Focused Strategy Is Needed to Guide Implementation of the Reformed Clearance Process. GAO-09-488. Washington, D.C.: May 19, 2009.\",\n \"DOD Personnel Clearances: Comprehensive Timeliness Reporting, Complete Clearance Documentation, and Quality Measures Are Needed to Further Improve the Clearance Process. GAO-09-400. Washington, D.C.: May 19, 2009. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Personnel Security Clearances: Preliminary Observations on Joint Reform Efforts to Improve the Governmentwide Clearance Eligibility Process. GAO-08-1050T. Washington, D.C.: July 30, 2008. Personnel Clearances: Key Factors for Reforming the Security Clearance Process. GAO-08-776T. Washington, D.C.: May 22, 2008. Employee Security: Implementation of Identification Cards and DOD’s Personnel Security Clearance Program Need Improvement. GAO-08-551T. Washington, D.C.: April 9, 2008. Personnel Clearances: Key Factors to Consider in Efforts to Reform Security Clearance Processes. GAO-08-352T. Washington, D.C.: February 27, 2008. DOD Personnel Clearances: DOD Faces Multiple Challenges in Its Efforts to Improve Clearance Processes for Industry Personnel. GAO-08-470T. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Improved Annual Reporting Would Enable More Informed Congressional Oversight. GAO-08-350. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Delays and Inadequate Documentation Found for Industry Personnel. GAO-07-842T. Washington, D.C.: May 17, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. DOD Personnel Clearances: Additional OMB Actions Are Needed to Improve the Security Clearance Process. GAO-06-1070. Washington, D.C.:\",\n \"September 28, 2006.\",\n \"DOD Personnel Clearances: New Concerns Slow Processing of Clearances for Industry Personnel. GAO-06-748T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Funding Challenges and Other Impediments Slow Clearances for Industry Personnel. GAO-06-747T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Government Plan Addresses Some Long- standing Problems with DOD’s Program, But Concerns Remain. GAO-06-233T. Washington, D.C.: November 9, 2005. DOD Personnel Clearances: Some Progress Has Been Made but Hurdles Remain to Overcome the Challenges That Led to GAO’s High-Risk Designation. GAO-05-842T. Washington, D.C.: June 28, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005. DOD Personnel Clearances: Preliminary Observations Related to Backlogs and Delays in Determining Security Clearance Eligibility for Industry Personnel. GAO-04-202T. Washington, D.C.: May 6, 2004. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.\"\n]","isConversational":false}}},{"rowIdx":10889,"cells":{"id":{"kind":"string","value":"train_10889"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"Many Americans spend frustrating hours each year stuck in traffic. While estimates vary, the Department of Transportation (DOT) estimates that traffic congestion costs the United States $200 billion each year, and that more than one-quarter of total annual travel time in metropolitan areas occurs in congested conditions. Road pricing or congestion pricingassessing tolls that vary with the level of congestion or time of dayaims to motivate drivers to share rides, use transit, travel at less congested times, or pay to use tolled lanes. Since the first U.S. congestion pricing project opened in 1995, 19 project sponsors have 41 pricing projects in operation or under construction. About 400 miles of priced highway lanes including nearly 150 miles on the New Jersey Turnpike are in operation today with current tolls varying from 25 cents to $14. All U.S. projects in operation are either High Occupancy Toll (HOT) lanes, which charge solo drivers to use newly constructed lanes or carpool lanes, or peak-period pricing projects, which charge a lower toll on already tolled roads, bridges and tunnels during offpeak periods. GAO examined (1) the federal role in supporting congestion pricing, (2) results of U.S. congestion pricing projects, and (3) emerging issues in congestion pricing. Eight project sponsors have current and completed evaluations on at least 1 project, for a total of 14 evaluated projects, all of which GAO reviewed. GAO interviewed officials about the performance of their pricing projects and effects. DOT provided technical comments, which GAO incorporated as appropriate. DOT approves all congestion pricing projects on roadways that receive federal funds and provides grants for project studies, implementation, and evaluation. Nearly all HOT lane projects and most peak-period pricing projects in operation today received federal funds at one time or another. DOTs largest programs for congestion relief, the Urban Partnership Agreement and Congestion Reduction Demonstration programs, have provided grant funds totaling nearly $800 million since 2006 to six metropolitan areas to implement pricing and other strategies. DOT requires sponsors of congestion pricing projects to monitor and evaluate performance and, for HOT lanes when applicable, ensure that a federal standard for minimum traffic speeds is met. The 14 congestion pricing projects that have current and complete evaluations generally show that pricing can help reduce congestion, although other results are mixed, and not all possible relevant impacts have been assessed. HOT lane projects, which aim to reduce congestion by decreasing travel time and increasing speed and the number of vehicles using the lane, have reduced congestion, but some HOT lane projects also added new lanes, and studies did not distinguish the extent to which performance improvements were due to added lanes or pricing. In addition, although the number of cars using HOT lanes has risen, there were fewer people in those cars because of an increase in the proportion of toll-paying solo drivers or a decrease in carpools. Peak-period pricing projects, which aim to reduce congestion by encouraging drivers to travel at off-peak times, have shifted some travel to those times. Other congestion pricing effectssuch as equity income impactshave not always been evaluated. Potential concerns include income equity (whether low-income drivers are disproportionately affected by congestion pricing) and geographic equity (whether one geographic area is more negatively affected than another, such as when traffic diversion occurs). These impacts are important to assess as they address the public and elected officials concerns about the effects of pricing on travelers and communities. Ongoing multi-year evaluations across six metropolitan areas will assess the performance and effects of congestion pricing projects using a specific set of measures to assess the effectiveness of congestion reduction strategies. Concerns about equity may grow as pricing projects become more widespread. New projects are under construction, and several metropolitan areas have networks of HOT lanes planned that will expand the relatively limited use of pricing today. Equity concerns may become more acute where sponsors are using pricing not only to manage congestion, but also to raise revenue to build new projects. Raising revenue can be at odds with managing congestion (e.g., increasing passenger throughput) if higher tolls can produce more revenue from fewer paying vehicles. Options to address equity issues include using a portion of toll revenues to finance public transit service."},"documents":{"kind":"list like","value":["Traffic congestion is caused by more vehicles on a road than it is designed to accommodate, and it can be exacerbated by several factors. For example, bottlenecks at highway interchanges or on bridges and tunnels can worsen congestion. Vehicles traveling at different speeds can increase the average amount of space between cars, thus not efficiently using all space available in a lane. Stop-and-go traffic leads to increased queuing and periodic events such as traffic accidents and roadway construction can compound already congested conditions. Although a transportation system is designed to handle a certain number of vehicles, the flow of traffic can be improved at certain times and places such as during rush hours or at bottlenecks. Congestion pricing is designed to improve the flow of traffic by charging drivers a toll that can vary with the level of congestion or time of day. Drivers pay a higher price for using a lane or roadway at times of heavy traffic, and a lower price when and where traffic is light. To avoid toll payment, drivers may choose to share rides, use transit, travel at less congested (generally off-peak) times, or travel on less congested routes.","Drivers who place a high value on time may choose to pay the toll to use the priced lane during congested times in return for a faster and more reliable trip. Alternatively, drivers who wish to pay a discounted toll on an already tolled roadway can travel at off-peak times. Economists generally believe that congestion pricing has the potential to alleviate congestion on roadways in an economically efficient way. Those who value a fast and reliable trip will pay for the option. Drivers who place a lower value on time will choose to stay in the unpriced and potentially more congested roadways. Economists believe that congestion pricing can also enhance economic efficiency by making drivers take into account the external costs they impose on others when making their travel choices. Any given driver’s highway use entails extra costs that the driver does not bear, in the form of congestion, noise, and pollution. Thus, paying a toll that reflects a driver’s value of time and covers external costs can potentially reduce congestion and the demand for road space at peak periods.","We have reported that the existing infrastructure can be managed more efficiently and that congestion pricing could be one method to do so. All congestion pricing projects in the United States have used either (1) High Occupancy Toll (HOT) lanes or (2) peak-period pricing on already tolled facilities. HOT lanes have been created by constructing new lanes or converting existing carpool or High Occupancy Vehicle (HOV) lanes, some of which had been previously underused, and allowing solo drivers to use these lanes if they pay a toll. Users of the prior HOV-only lanes, such as carpools and express buses, generally continue to use the lanes for free and are allowed to use newly constructed HOT lanes for free as well. HOT lane operators seek to influence the number of vehicles in the HOT lane and maintain 45- to 55-mile-per-hour travel speeds through “dynamic” pricing—that is, increasing or decreasing tolls in real time depending on traffic in the HOT lane. Peak-period pricing on already tolled highways, bridges, and tunnels or on new or planned replacement facilities is another type of congestion pricing project in the United States.","In this type of pricing, tolls are fixed higher during peak travel times and lower during off-peak times to encourage drivers to use the roadway off- peak. Three HOT lane projects have used a hybrid approach to dynamic and peak-period pricing called “variable” pricing. Variable pricing uses a pre-set schedule of tolls that is periodically revised to account for changes in congestion or other factors. Since the first U.S. congestion pricing project was implemented in Orange County, California, in 1995, 19 project sponsors have initiated 41 pricing projects on highways, bridges, and tunnels. Projects operate in Georgia, Utah, Colorado, Maryland, and New Jersey with multiple projects in California, Florida, New York, Texas, Virginia, Minnesota, and Washington State. Of the 41 pricing projects, 30 are completed and open to traffic. The 30 opened projects include 12 HOT lane projects and 18 peak-period priced facilities, covering about 400 miles of priced lanes. Projects range in length from 4.1 miles on the State Route (SR) 133 in Orange County, California, to nearly 150 miles on the New Jersey Turnpike, and charge tolls varying from 25 cents to $14.","Eleven HOT lane projects are under construction; in addition, 2 of the 12 HOT lane projects in operation are extending the length of their tolled lanes. Figure 1 shows congestion pricing projects in operation and under construction including extensions to existing projects. Appendix II provides additional details on congestion pricing projects and toll rates. More metropolitan areas across the country are using or plan to use pricing as a way to relieve congestion on highways and bridges, and some regions are planning to implement networks of HOT lanes. Dallas- Ft. Worth, Atlanta, Minneapolis-St. Paul, Seattle, and the San Francisco Bay Area have networks of HOT lanes in their long-term plans. For example, the Metropolitan Transportation Commission of the San Francisco Bay Area proposes to add a 570-mile HOT lane network by 2025 as part of its 35-year regional plan. The Washington State Department of Transportation proposes to convert carpool lanes to HOT lanes on nearly 300 miles in the Seattle/Puget Sound area. Such networks are also being considered in Los Angeles, Washington, D.C., and the Miami-Ft. Lauderdale area. Congestion pricing has raised equity concerns among the public and elected officials.","In general, an analysis of equity issues examines how costs and benefits of projects are distributed among members of society. In the transportation economics literature, four concepts of equity are cited. The extent to which members of the same group are treated equally; for example, whether some people with the same income pay a larger amount in taxes or fees. The extent to which those who benefit from a project, such as a new lane, pay for those benefits; for example, is the lane paid for by a toll on users or by a state sales tax paid in part by persons who may not use or benefit from the lane? How the costs and benefits of a project are distributed across members of different groups such as high- and low-income people; for example, whether all groups pay in proportion to their income or whether low-income people pay proportionally more of their income for tolls than high-income people.","The extent to which those who impose social costs bear those costs; for example, whether polluters or drivers on crowded highways pay the full social cost of their driving, or, if a toll causes diversion from the tolled highway to adjacent neighborhoods, those neighborhoods incur the costs of pollution and crowding. While recognizing that all of these concepts of equity cited in the literature may be important, public and elected officials’ concerns regarding congestion pricing have been primarily with the latter two concepts of equity, in particular, what is termed income equity and geographic equity. Income equity refers to whether the costs of congestion pricing that users incur are proportional to their incomes, or whether low-income drivers are disproportionately affected. For example, low-income drivers may spend a greater proportion of their income to pay to travel at preferred times or incur greater costs in travel time by choosing alternate unpriced routes. High-income drivers, who, economists generally believe, place a higher value on their time, may be more likely to pay the toll and benefit from a faster trip than low-income drivers, thus possibly generating income equity concerns.","Geographic equity refers to how equally the costs and benefits associated with congestion pricing are distributed within an affected metropolitan area. For example, if one corridor in a metropolitan area has congestion pricing and another does not, drivers in the tolled corridor may incur greater costs than drivers in the untolled corridor because of the tolls they pay or the increase in travel time they incur by choosing an alternate route. Furthermore, drivers who choose to avoid the tolls and take an alternate route may contribute to congestion on the alternate route. Such diversion of traffic from tolled routes within a corridor can reduce the performance of the alternate untolled routes and negatively affect surrounding neighborhoods. Issues of equity are further complicated if this traffic is diverted through low-income and minority communities. The transportation economics literature also suggests that the equity impacts of congestion pricing be assessed in comparison to alternatives—namely the predominant sources of funding roadways, such as motor fuel and sales taxes.","Comparing these sources could address whether those who benefit from a project, such as a new lane, pay for those benefits; for example, is the lane paid for by users of the facility or by persons who may not use or benefit from the lane? According to the Transportation Research Board, it may be the case that tolling and pricing provide a more equitable means of funding roadways than these other alternatives. We have reported that tolling is consistent with the “user pay” principle because tolling a particular road and using the tolls collected to build and maintain that road more closely link the costs with the distribution of the benefits that users derive from it. As a general rule, charging tolls on highways constructed with federal funds is prohibited. However, Congress has enacted several exceptions that authorize DOT to permit tolling in certain instances. DOT approves all congestion pricing projects on any roadway that receives federal funds. DOT approval grants the project sponsor permission to have congestion pricing on newly constructed roadwaysand lanes and converted HOV lanes through three programs. DOT also approves design exceptions and environmental reviews that allow for pricing on federally funded","roads.","DOT awarded funding to study, implement, and evaluate congestion pricing projects and DOT programs require monitoring and evaluation of pricing projects, although the level of detail varies by program. When applicable, DOT oversees projects and certifies that program performance standards have been met. Congress has authorized DOT to approve tolling, which can include congestion pricing, through three programs. Table 1 provides a summary of the three DOT congestion pricing programs and number of operational or under construction congestion pricing projects authorized under each program. DOT has also approved design exceptions for certain highway projects that include congestion pricing. DOT has approved exceptions to highway standards to allow for changes to highways to increase capacity within the existing right of way or “footprint.” The Florida Department of Transportation received design exceptions for I-95 in Miami to convert parts of the median and shoulder lanes and to narrow other lanes from the standard 12 feet to 11 feet to make two HOT lanes in each direction. The Minnesota Department of Transportation has received design exceptions to convert shoulder lanes for electronic tolling and bus service during peak periods on I-35W in Minneapolis.","This lane also serves as a HOT lane for solo drivers who pay a toll during the same period. The Minnesota Department of Transportation’s design exceptions included changes in lane width and shoulder width as well as advisory speed limits. In accordance with the National Environmental Policy Act of 1969, as amended (NEPA) and its implementing regulations as well as Executive Order 12898, DOT reviews projects to assess their anticipated environmental and socioeconomic impacts and to determine their need for any additional reviews. Projects that are deemed to have significant environmental impacts must prepare an Environmental Impact Statement. When it is unclear whether or not a significant environmental impact will occur as a result of the project’s impacts, an Environmental Assessment must be prepared. Environmental impacts may include effects on air, noise, water quality, wildlife, and wetlands. Additionally, projects may be required to undergo an environmental justice assessment to determine its impacts on low-income and minority populations. Projects that a federal agency has previously determined to have no significant environmental impacts may receive a categorical exclusion, meaning that they do not have to complete an Environmental Impact Statement or Environmental Assessment to comply with NEPA.","DOT has approved categorical exclusions for congestion pricing projects that do not lead directly to construction and changes in the facility’s “footprint” in accordance with NEPA implementing regulations, along with projects that include new electronics and communications systems for tolling. According to project sponsors that we interviewed, pricing projects that have not changed a facility’s “footprint,” such as HOV to HOT lane conversions or peak-period pricing on already tolled highways, bridges, and tunnels, have received categorical exclusions. In addition, projects that have narrowed the width of lanes and converted medians and shoulder lanes that have not involved changing the “footprint” of the highway have received categorical exclusions. DOT has provided funds to promote congestion pricing through several programs that involve tolling—the Urban Partnership Agreement (UPA) and Congestion Reduction Demonstration (CRD) programs and the Value Pricing Pilot Program (VPPP). UPA and CRD, the largest programs that involve tolling, advance congestion pricing through funding awards from 10 separate grant programs. As part of one-time initiatives, the UPA and CRD participants—Seattle, Washington; San Francisco, California; Minneapolis-St. Paul, Minnesota; Miami-Ft.","Lauderdale, Florida; Los Angeles, California; and Atlanta, Georgia—were provided approximately $800 million through grant programs to implement tolling as well as transit, technology, and telecommunications strategies to reduce congestion. Funds have been used to build new HOT lanes, convert HOV lanes to HOT lanes, establish electronic tolling systems, and purchase buses for express bus service on HOT lanes. In addition, DOT has provided about $100 million in grants for studies, implementation, and some evaluations of congestion pricing projects through VPPP since it was established in fiscal year 1998. Nearly all congestion pricing projects in operation have received VPPP funds at one time or another for these purposes. About a third of total VPPP grants were awarded to fund three of the six UPA participants—Seattle in fiscal year 2007 and Minnesota and San Francisco in fiscal year 2008. that, Congress authorized $11 million in fiscal year 2005 and $12 million per year for fiscal years 2006 through 2009 for projects that involve highway pricing, of which $3 million per year was set aside for nontolling projects, such as parking and car sharing projects. See appendix III for a list of VPPP grants and activities from fiscal years","1999 through 2010.","San Francisco’s SFPark uses congestion pricing by adjusting parking meter and garage prices up or down based on the demand for parking. Drivers can receive real-time information about where parking is available and at which price using personal mobile devices such as iPhones. This “demand-responsive” pricing encourages drivers to park in underused areas and garages, reducing demand for parking in overused areas. VPPP funds have been used to: Study the potential of pricing in a corridor or region or the feasibility of a particular pricing project. Studies have examined the benefits of implementing variable pricing on an already tolled facility such as the Florida Turnpike in Miami-Dade County and the Pennsylvania Turnpike near Pittsburgh and Philadelphia. VPPP-funded studies have also examined the feasibility of extending HOT Lanes such as I-15 in San Diego, California. Implement elements of projects. Lee County, Florida, used a grant to purchase transponder readers for electronic tolling on two of its bridges. The Washington State Department of Transportation used VPPP funds to install electronic tolling technology on the SR 520 bridge that determine changes in tolls based on congestion. Evaluate specific projects.","Evaluations studied the results and challenges of implementing pricing projects including SR 91 in Orange County, California; I-15 in San Diego; California; I-394 in Minneapolis, Minnesota; and I-10 and U.S. 290 in Houston, Texas. In addition to the funding provided through VPPP, federal funding is available for congestion pricing projects through other programs. For example, federal credit assistance available under the Transportation Infrastructure Finance and Innovation Act program has been used to help finance construction of HOT lanes for 7 projects including those on I-495 in Virginia, I-635/I-35E in Texas, and I-595 in Florida. In addition, states receive nearly $40 billion a year in federal funding for highways through a series of grant programs collectively known as the Federal-Aid Highway Program. These grant programs have also been used to help finance the construction of congestion pricing projects. The HOV Facilities program requires project sponsors to annually monitor and report HOT lane traffic speeds and is the only DOT tolling program that requires project sponsors to meet an annual performance standard.","In the case of an HOV facility with a speed limit greater than 50 miles per hour, vehicles must be able to travel at least 45 miles per hour 90 percent of the time during weekday morning and evening peak hours over a 180- day period. If this standard is not met, the road operator must make changes to bring the facility back into compliance. Such changes could include raising tolls on paying cars or changing carpooling requirements to achieve the standard. DOT established this speed requirement because HOV lanes, by law, are transit “fixed guideway” facilities that encourage transit use and thus traffic must maintain speeds compatible with express bus service. Nearly all HOV to HOT lane conversions in operation have been authorized under either the HOV Facilities program or VPPP (and its predecessor, the Congestion Pricing Pilot Program). Projects that were authorized under HOV Facilities have this performance requirement. DOT monitors the reported performance of HOT lanes authorized under the HOV Facilities program. According to DOT officials, there has not been a case in which a HOT lane has not met the standard. Pub. L. No. 109-59, § 1604(b)(7)(A).","construction and construction has not begun on the fifth, no performance reporting for completed ELD projects currently exists. DOT also requires project sponsors that receive VPPP funds to monitor and evaluate the performance of their projects so that the agency can report results biannually to Congress as required by statute. Project sponsors report five categories of effects—(1) driver behavior, traffic volumes, and travel speeds; (2) transit ridership; (3) air quality; (4) equity for low-income individuals; and (5) availability of funds for transportation programs. As with the ELD program, projects that receive VPPP grants are not required to meet specific performance standards. Under the UPA and CRD programs, DOT has provided funds to the Battelle Memorial Institute to conduct an independent national evaluation of the effectiveness of the program’s four congestion reduction strategies—tolling, transit, technology, and telecommuting. Projects will be assessed individually and results compared across all projects in the six metropolitan areas according to specific metrics. These metrics include reductions in congestion delay and duration; increases in the number of cars and people in cars (i.e., vehicle and passenger throughput), and shifts to travel during off-peak times, among other factors.","See appendix IV for list of performance and monitoring requirements for federal programs for congestion pricing projects. Evaluations of 14 congestion pricing projects in the United States have generally shown reduced congestion, although other results are mixed, and not all possible relevant effects have been assessed. HOT lane projects, which aim to improve the flow of traffic and throughput with increased speeds and decreased travel times, have reduced congestion by increasing vehicle throughput, and have generally shown reduced congestion, increased speeds, and decreased travel times in the priced and unpriced lanes. Some HOT lane projects have added new lanes and thus, for these projects, the effects of pricing on performance have not been distinguished from the effects of the added lane. In addition, although the number of cars using HOT lanes has risen, there were fewer people in the cars—a fact attributed to an increase in the share of toll-paying solo drivers or a decrease in carpooling on HOT lanes. Peak-period pricing projects that aim to reduce congestion by encouraging drivers to travel at off-peak times have shifted some drivers to travel during those times.","Other effects of congestion pricing projects, such as equity income impacts, have not always been evaluated. Evaluating these impacts is important to address public and elected officials’ concerns about the effects of pricing on travelers and communities. Not evaluating these effects leads to an incomplete understanding of the full effects of pricing. Of the project sponsors that have operational congestion pricing, 8 have a current and completed evaluation of at least one of their projects, for a total of 14 evaluated projects. These eight evaluations assess five HOT lane projects and nine peak-period pricing projects, as shown in figure 2. For a description of our objectives, scope, and methodology in analyzing the congestion pricing projects, see appendix I. Because of differences in project objectives and in DOT’s monitoring and evaluation requirements, the completed evaluations vary in which aspects of performance they report. No evaluation has assessed the performance of congestion pricing across projects. In addition, the evaluations represent an assessment of the results of the projects at specific points in time. Were the evaluations on-going or repeated at different time intervals, it is possible that the results would differ.","The most common measures used across the evaluations have been travel time and speed, throughput, off-peak travel, transit ridership, and equity. Table 2 lists and defines these five common performance measures and definitions used in congestion pricing project evaluations. Evaluations of HOT lane projects, which are designed to improve travel time and speed, have shown improvements. Both travel time and travel speed improved on at least some sections of all five HOT lane projects that were evaluated. Sometimes the improved travel times in the HOT lanes also led to improved travel times in the adjacent unpriced lanes because solo drivers paid to switch to the HOT lanes. For example, on SR 167 in Seattle, peak-hour travel speeds on the adjacent unpriced lanes increased as much as 19 percent compared with travel speeds in 2007 while speeds on the HOT lanes remained about the same, averaging the speed limit of 60 miles per hour.evaluation of I-15 in San Diego, drivers in the HOT lanes reportedly saved up to 20 minutes more than drivers in the adjacent unpriced lanes during the most congested times. Neither project included a new lane.","Two other HOT lane projects—on I-95 in Miami and SR 91 in Orange County — included two new lanes in each direction, which also helped improve travel times and speed. On I-95, for example, which Florida Department of Transportation officials identified as the most heavily congested highway in the state before pricing began in 2008, the evaluation reported that drivers have reportedly saved about 14 minutes in the HOT lanes and 11 minutes in the adjacent unpriced lanes per trip. Evaluations of the I-95 and SR 91 projects did not, however, isolate the effects of the added lane and pricing on performance. Isolating such effects is challenging because even if a study accounts for the increased vehicle throughput on the new lanes, it may then understate the throughput the other lanes could have handled if the new lanes had not been added. Evaluations of the nine peak-period pricing projects with completed evaluations reported no effects on travel time and speed. Two of these evaluations—of the New Jersey Turnpike and Lee County bridges— analyzed these effects.","Although travel times on the New Jersey Turnpike improved from 2000 to 2001 when electronic tolling and peak-period pricing were introduced at the same time, the project evaluation attributed the improvement mostly to electronic tolling and not to pricing. Evaluations of all five HOT lane projects reported an increase in vehicle throughput—as measured by traffic volumes—on the HOT lanes and sometimes on the adjacent unpriced lanes and attributed this increase to both congestion pricing and the addition of new lanes. For example, according to a 2006 evaluation of the I-394 project in Minneapolis, vehicle throughput in the HOT lanes increased by 9 to 13 percent and by 5 percent in the adjacent unpriced lanes after the lanes opened. A 2000 evaluation of the SR 91 project in Orange County estimated that vehicle throughput increased 21 percent on the entire roadway. Four of the five HOT lane project evaluations that tracked the average number of people in a car (known as average vehicle occupancy) showed a decrease in the number of passengers per car.","Thus, while there were more cars using the HOT lanes, there were, on average, fewer people in the cars, which project sponsors attributed to an increase of the share of toll-paying solo drivers or a decrease in carpooling in the HOT lanes. In addition, evaluations of two projects assessed passenger throughput which takes into account the number of people riding buses as well as the average vehicle occupancy rate to estimate the total number of people moved through the roadway. According to the evaluations, passenger throughput on I-15 in San Diego increased slightly between 1997 and 1998, and then decreased between 1998 and 1999, and passenger throughput on I-95 in Miami increased 42 percent between 2008 and 2010 on the HOT lanes—a result the evaluation attributed to an increase in toll-paying solo drivers, transit ridership, and the addition of two HOT lanes. Evaluations of peak-period pricing projects found no increase in throughput due to congestion pricing. Specifically, evaluations of the New Jersey Turnpike and Lee County bridges assessed the impact of pricing on traffic volume and found no changes in vehicle throughput or average vehicle occupancy due to pricing that differed from overall traffic trends.","To evaluate two of the five HOT lane projects—I-15 in San Diego and SR 91 in Orange County—project sponsors surveyed drivers to determine whether they changed their trips to travel at off-peak times. According to the I-15 survey results, some traffic shifted from the middle of the peak rush hour to the “peak-shoulder” times—the times directly before and after peak periods. However, the sponsors did not explain why this shift occurred. Drivers surveyed for the SR 91 evaluation said that the level of congestion affected their travel time decisions more than the presence of the toll. Project sponsors that did not study shifts to off-peak travel times said they did not do so because, in one case, the sponsor did not see the HOT lanes as offering incentives that would encourage peak-period travelers to shift their travel to off-peak periods, and, in another case, the sponsor was not required to study shifts to off-peak travel but would consider doing so in the future. Sponsors of peak-period pricing projects conducted more robust studies of off-peak travel because it was a more explicit goal of their projects. These studies showed some success in reducing congestion during peak times.","Evaluations for two of the three peak-period pricing projects showed that drivers chose to take trips at off-peak times on highways, bridges, and tunnels to take advantage of discounted tolls. For example, according to a 2005 performance evaluation of traffic on bridges and tunnels into New York City conducted by the City University of New York for the Port Authority of New York and New Jersey, car and truck traffic increased in off-peak periods for most crossings. The evaluation reported more significant improvements in the morning before the peak periods than after the peak periods at the end of the day, which the evaluation attributed to drivers finding it easier to arrive at work early than to arrive at work later. According to this survey, a majority of drivers had little flexibility to change their schedule to travel at off-peak times. For example, truck drivers said that they could not adjust their delivery schedules to travel at off-peak times. Furthermore, drivers said that the toll difference of $1 was not great enough to influence them to change their travel time. Despite this, a significant minority could alter their travel departure times between 30 minutes and 2","hours.","Thirty-five of the 505 surveyed drivers representing 7.4 percent of passenger trips said that they changed their travel behavior as a result of the project. According to the Port Authority, the 7.4 percent change in passenger trips to off-peak times is significant, since small changes can have exponential effects because of traffic queuing. An evaluation of peak-period pricing on the New Jersey Turnpike based on a driver survey found that work schedules or a desire to avoid traffic created a greater incentive for determining when to travel than a slightly lower toll for off-peak travel. Thus, it appears that drivers chose to travel at off-peak times because of congestion and not because of modest differences in price. Evaluations of four of the five HOT lane projects assessed changes in transit ridership, but results were mixed. I-95 in Miami was the only one with demonstrated increases in transit ridership. Between 2008 and 2010, the average weekday ridership on the I-95 express bus increased by 57 percent, from about 1,800 riders in 2008 to more than 2,800 in 2010. About 38 percent of these riders reported in a transit rider survey that they used to drive alone.","The other three HOT lane project evaluations found no increase in transit ridership on buses using the HOT lanes as a result of the project. While transit ridership reportedly increased on I-15 in San Diego, the evaluation stated that this increase was not linked to the project. Evaluations of all three peak-period pricing projects assessed whether drivers shifted to transit, but none found evidence of any changes in transit ridership. Many efforts have been made to assess the effects of congestion pricing projects on equity, including income equity (the distribution of costs and benefits of congestion pricing between low- and high-income drivers) and geographic equity (the relative effects of congestion pricing on two geographic areas, including the effects of any traffic diversion). Three of the eight evaluations, covering one HOT lane project and three peak- period projects, attempted to assess both income and geographic equity, and none attempted to assess other effects on equity, such as whether members of the same group are treated differently or to what extent the beneficiaries of a project, such as a new lane, pay for those benefits.","Evaluations for four of the five HOT lane projects attempted to assess equity through surveys or focus groups of travelers concerning their use of congestion pricing projects; however, different elements of equity were evaluated. For example, three of the four HOT lane project evaluations that assessed equity did so by considering the effects of congestion pricing on drivers of different income levels. Results for these three projects—SR 91 in Orange County, I-394 in Minneapolis, and SR 167 in Seattle—indicated that drivers of all incomes used the HOT lanes, but high-income drivers used them more often than low-income drivers.addition, evaluations for all four HOT lane projects—SR 91 in Orange County, I-394 in Minneapolis, SR 167 in Seattle, and I-15 in San Diego— found that drivers liked having the option of using the HOT lanes and thus were supportive of them. The fifth HOT lane project—I-95 in Miami—has not undergone an assessment of the effect of congestion pricing on low- In income drivers because, according to the project sponsor, the benefits of congestion pricing—including increased travel speeds—accrue to all users. Evaluations of the nine peak-period pricing projects considered different elements of equity and found few impacts.","However, all three projects were previously tolled and toll discounts were offered for travel at off-peak times. Thus, no tolls, including those for peak periods, were raised. The New Jersey Turnpike Authority evaluated the income and ethnicity of those who shifted to the off-peak times, while the Lee County Department of Transportation assessed the age, gender, and work schedules of those who shifted to the off-peak times. Both project sponsors also surveyed drivers, who said they thought the off-peak discounts were equitable and the pricing program fair. However, the sample sizes for both these surveys were small; thus, the results may not provide reliable estimates for the various subgroups they measured. Evaluating geographic equity—or the effects of any traffic diverted from HOT lanes or from peak-period priced highways, bridges and tunnels onto unpriced lanes and roads—would provide decision makers with information about potential negative effects, such as whether traffic on the unpriced alternatives increased. The sponsor of one of the five HOT lanes projects—SR 91 in Orange County—studied diversion and reported that traffic was drawn to the roadway and its HOT lanes because the priced lanes were new and added capacity.","Sponsors of the other four HOT lane projects did not evaluate traffic diversion for several reasons, according to the sponsors. First, drivers can choose to drive in the unpriced lanes and none of the projects took away an unpriced lane—only HOV lanes were converted. Furthermore, two of the HOT lane projects added a lane to the roadway and allowed solo drivers to use a previously underused HOV lane. As a result, the sponsors said they expected drivers to be diverted to the HOT lanes, not away from them. Second, even if they had anticipated traffic diversion to alternative roads, the sponsors said they would not have surveyed drivers or asked them to maintain travel diaries because these methods were expensive and challenging to implement. They added that electronic data collection methods, such as GPS tracking in vehicles, transponder tracking, and license plate tracking, can be expensive and raise privacy issues. Two peak-period pricing project sponsors—the New Jersey Turnpike Authority and the Lee County Department of Transportation—studied traffic diversion to adjacent unpriced roads and found no evidence of diversion. According to the studies, such diversion would not be likely for these roadways because there are no comparable","alternative routes.","Furthermore, the projects were previously tolled and congestion pricing was implemented with off-peak discounts. As for the HOT lane projects, traffic diversion may be less of a concern if a highway, bridge, or tunnel was previously priced than if it was previously unpriced. Sponsors of one HOT lane project—SR 167 in Seattle—and one peak- period pricing project—the New Jersey Turnpike—evaluated the impact of pricing on minorities. An environmental justice assessment for SR 167 found that there would not be a disproportionate effect on minorities because there was a small minority population in the area, the project was limited to 9 miles southbound and 11 miles northbound, and there were unpriced alternatives—adjacent lanes and roads—that could be used.be no disproportionate effect on minority populations; however, as mentioned before, the survey sample size was small and therefore its results cannot be generalized to all users. The 2005 New Jersey Turnpike evaluation found that there would Evaluations of three HOT lane projects—I-15 in San Diego, SR 91 in Orange County, and I-394 in Minneapolis—and one peak-period pricing project—the New Jersey Turnpike—assessed environmental effects. All four evaluations assessed the impacts of pricing on air quality, and one HOT lane project—I-394—also","assessed noise impacts.","The air quality assessments, designed to test whether air quality improved as experts said it could with fewer cars idling in traffic, showed mixed results: minimal air quality improvements were reported on I-15, I-394, and the New Jersey Turnpike, but no effects on SR 91. The noise impact assessment on I-394 found that there would be no significant noise impacts resulting from pricing. The completed performance evaluations provide some information as to the effectiveness of congestion pricing, but the UPA and CRD evaluation framework has the potential to provide decision makers with a more consistent and comprehensive picture of the effects of pricing. The UPA and CRD evaluations which began in 2009 will collect data on UPA and CRD projects in the six metropolitan areas for 1 year before a project is implemented and then for another year after it has been implemented to assess its effects. The evaluation framework will provide standard performance measures such as travel times and vehicle throughput and help develop a more comprehensive study of congestion pricing, including increased monitoring of passenger throughput and socio- economic information of HOT lane users.","Performance measures and detailed metrics will be used to assess individual projects and across projects, which has not been consistently done so far. The evaluation framework will also assess the impacts of pricing on low-income drivers and changes in their travel time and distance traveled as a result of pricing. Travel diary surveys will be conducted at two of the UPA sites, which may provide some basis to study equity impacts including whether driver behavior changes based on income, such as diverting traffic to adjacent unpriced roads. In addition, the evaluation framework will include surveys to assess transit ridership for all projects that have a transit element. Despite the potential for greater understanding of the effects of congestion pricing as part of the UPA and CRD evaluation framework, evaluations have only been completed in one of the six metropolitan areas—and this was for its first phase. Thus we cannot assess the evaluation framework or surveys’ effectiveness until they are completed. DOT expects to have all of the UPA project evaluations completed by 2014. Income and geographic equity concerns may become more prevalent as congestion pricing becomes more widespread.","Such concerns could be particularly relevant for HOT lane projects with a potential for large toll increases, such as projects that must meet HOV Facilities program performance requirements to maintain traffic speeds of 45 to 55 miles per hour. Tolls on pricing projects in operation are relatively low, but can be as high as a dollar per mile. Though currently capped, these tolls could be raised if necessary to maintain the required traffic speeds. In turn, higher toll rates could lead to more traffic diversion if drivers chose not to pay for HOT lanes and took adjacent unpriced lanes or roads instead. These concerns may be particularly acute in the future for projects designed to use pricing not only to manage congestion but also to meet toll revenue targets. SR 520 in Seattle, which began pricing in December 2011, will generate toll revenues to pay for bonds to build a replacement bridge. All cars, including carpools, pay a toll that varies up to $5.00. Registered vanpools, express buses, and emergency vehicles have free use. Because this is the first project to toll a previously untolled bridge and there are parallel alternative routes, traffic diversion may become","a concern.","According to traffic models from the area’s transportation planning council, traffic could increase on the parallel Interstate route by 5 to 8 percent and on an alternative state road by 5 percent. Geographic equity concerns could be minimized by introducing tolling on both the Interstate and state road because drivers on all three routes would then pay a toll and diversion from tolled routes to untolled routes would be less of a concern. However, according to officials in the Seattle metropolitan area, the public and elected officials are opposed to tolling these other routes. Several other projects under construction involve public-private partnerships that plan to use toll revenues to pay for construction debt, operations, maintenance, and provide a return to private investors. However, meeting revenue targets can be at odds with policies to increase throughput on highways and bridges by encouraging more people to use carpools and express bus service. According to one expert, project sponsors seeking to maximize revenue could in theory charge a higher toll and make more money off of fewer paying vehicles.","Raising revenue could be at odds with managing congestion (e.g., increasing passenger throughput) if higher tolls can produce more revenue from fewer paying vehicles. In addition, as we have previously reported, tolls on roadways operated by private concessionaires can be expected to be higher than on comparable facilities operated by public agencies. Three projects—I-495 in Northern Virginia and the LBJ Express (I-635/I-35E) and North Tarrant Express (I-820-SH 121/183) in Dallas-Ft. Worth—are public-private partnerships in which the private operator sets the toll rate. I-595 project in Broward County, Florida, is also a public-private partnership, but the state department of transportation has retained the authority to set the toll rate. In addition, I-95 in Miami has raised its carpool occupancy requirements for free use from two to three passengers. Thus, two-passenger carpools pay a toll to use the HOT lanes or use the adjacent unpriced lanes. According to the Florida Department of Transportation, it has not studied the impact of pricing on two-passenger carpools and therefore does not know how many people have been affected. conversion of HOV lanes or the addition of new lanes.bridge in Seattle is the only previously unpriced facility to be fully priced.","According to experts, pricing existing unpriced lanes and roadways could lead to geographic equity concerns as drivers divert to alternate routes to avoid tolls. While future pricing projects may raise equity concerns, these concerns should be weighed against the potential benefits, including enhancing economic efficiency, increasing throughput, and reducing congestion. For example, greater use of pricing could enhance economic efficiency by discouraging solo driving and making alternatives such as carpooling or taking transit more appealing, thus resulting in more efficient use of existing roadways. Such changes in drivers’ behavior could also improve throughput and reduce congestion. In addition, as previously discussed, the equity impacts of congestion pricing can also be assessed in comparison to the equity concerns raised by the alternatives—namely the prevalent sources of funding roadways such as motor fuel and sales taxes. A number of options are also available to address equity issues. One such option is to use a portion of toll revenues for alternative transportation modes in the highway corridor, such as express bus service on HOT lanes. In general, bus riders are disproportionately lower- income individuals who would benefit from both reduced congestion on the HOT lanes and increased transit investments","from toll revenues.","In a survey of Seattle residents, public support for tolling the SR 520 bridge grew substantially if a portion of the toll revenue was dedicated to transit, even if tolls had to be significantly higher to pay for transit service. As part of its UPA program funding, Seattle has received grant funds for new buses to begin service on the SR 520 bridge. Other UPA program participants, including Minnesota and Miami, have received DOT grants for express bus service on HOT lanes. Under the ELD program, Federal law permits the use of excess toll revenue for eligible highway and/or transit service; however, pricing projects generally have not had excess revenues. Officials with the transportation planning council for the Minneapolis-St. Paul area told us that revenues from the I-394 project have generally not exceeded the project’s operational costs and therefore local transit funds are being used, as they were before the project was initiated, to provide express bus service on the HOT lanes. The San Diego Association of Governments also has used bus fare revenue to fund express bus service on I-15 in San Diego because the HOT lanes have not generated enough toll revenues to pay","for bus service.","In addition to the availability of revenues, the effectiveness of providing revenues to transit to address equity also depends on the availability of transit service and traveler commuting patterns. Transit may not be an option for some travelers given the location of homes, jobs, and other travel destinations. I-25 in Denver has taken steps to address equity among passengers and drivers on the HOT lanes by setting its peak period toll rate based on the fare charged to express bus passengers on the HOT lanes. Thus, as the fare for express bus passengers increases, the toll rate for drivers to use the HOT lanes also increases. An additional option to address equity issues would be to use toll revenues to reimburse low-income drivers, whether by exempting them from paying tolls or by providing them with a tax credit for the difference between the toll and transit fares. However, such reimbursement programs would involve complex efforts to determine and verify drivers’ low-income status. Nonetheless, some states such as California offer discounted utility rates for eligible households and in these states, transportation agencies have considered whether to use these preexisting mechanisms for eligibility and enforcement to provide discounted","toll rates.","However, no pricing project has used this option. Some experts have noted that discounts on tolls for low-income drivers would counteract the goal of reducing congestion because the discounts would encourage continued driving. Instead, they propose charging the same tolls to all users, but returning revenues to affected groups, such as groups of vehicle owners or a class of residents. VPPP federal funds were used to study the potential of providing credits for low-income highway users in Alameda County, California but no pricing project has used this option. To provide insight on environmental justice issues, DOT approved two VPPP grants for fiscal year 2010-2011 to assess the impacts of pricing on low-income drivers. One grant, for I-30 in Dallas-Ft. Worth is to examine environmental justice issues related to pricing I-30 through the use of Intelligent Transportation Systems technology.","According to DOT, “the project is important because it will provide more data on environmental justice and pricing, given that there is little experience with strategies designed to address these issues related to the introduction of pricing.” The other grant, for a pricing project in Hartford, Connecticut, is to study the application of pricing and the impacts of environmental justice issues that resulted from the original construction of a project. Many highway projects increase the capacity of a roadway by converting shoulders or narrowing lanes which has the advantage of eliminating the need to widen highway and acquire additional property—of particular advantage in urban areas. Several congestion pricing projects have employed this strategy. For example, the Minnesota Department of Transportation has converted bus-only shoulder lanes on I-35W in Minneapolis to serve as HOT lanes during peak periods and has narrowed traffic lanes from 12 feet to 11 feet. In addition, as previously noted, the Florida Department of Transportation has incorporated portions of its medians and shoulders and narrowed traffic lanes from 12 feet to 11 feet to create two HOT lanes on I-95 in Miami.","Moreover, two new projects—Loop 1 in Austin and I-94 in Minneapolis—will create new capacity by using shoulders and narrowing traffic lanes. The Loop 1 project will reduce shoulder width and incorporate parts of the shoulders to create an express lane, while the I-94 project may, if implemented, use shoulders and narrowed traffic lanes to create a HOT lane between Minneapolis and St. Paul. According to the project sponsor, I-94 does not have the space to build new HOT lanes if shoulders are not incorporated. Projects that convert shoulders and narrow lanes to create new lanes, including congestion pricing projects, raise concerns about driver safety and highway operations that transportation planners must address. Additional lanes on converted shoulders remove the safety refuge areas for motorists during vehicle breakdowns and emergencies and must be approved by DOT. According to the American Association of State Highway Transportation Officials, highways with paved shoulders have lower accident rates. Paved shoulders provide space to make evasive maneuvers; accommodate driver error; and add a recovery area to regain control of a vehicle, among other things.","In addition, an analysis by the Highway Safety Information System sponsored by DOT reported that narrowing lanes or using shoulders to expand urban highways increased accidents by 10 percent. With traffic moving faster in the additional (or HOT) lane and slower in the unpriced lanes, the potential for sideswiping and lane-changing accidents increases. Another study conducted by the Texas Transportation Institute found that maintaining a shoulder and a wider HOV lane than adjacent unpriced lanes can help mitigate safety concerns. FHWA officials in Florida suggested that some of these safety issues could be mitigated using an incident management system, such as the one the Florida Department of Transportation has used on I-95 since 2008. As a condition of approving several design exceptions, FHWA required the Florida Department of Transportation to implement Intelligent Transportation Systems to mitigate safety issues related to incorporating a shoulder and narrowing lanes on I-95 in Miami. While using an incident management system does not prevent incidents from occurring, cameras can survey highways and detect incidents such as accidents, debris, and stalled vehicles. Highway message signs then convey information to drivers about the incidents and traffic conditions.","Florida Department of Transportation staff can summon emergency, police, and tow truck crews to resolve problems and direct traffic. Thus, in the event of an incident on the HOT lanes, the lanes can be closed and, because there are no permanent barriers between the HOT lanes and the adjacent unpriced lanes, traffic can be diverted to the adjacent unpriced lanes. In the event of an accident in the unpriced lanes, the lanes can be closed and traffic diverted to the HOT lanes and tolls temporarily lifted. Since the HOT lanes on I-95 opened for traffic in December 2008, preliminary safety data found that the number of reported incidents involving accidents, debris, and stalled vehicles in the northbound express lanes increased from 132 in fiscal year 2009 to 209 in fiscal year 2010. Florida Department of Transportation officials have suggested, however, that the actual number of incidents may not have increased but that incidents are now tracked more accurately. In addition, according to FHWA officials in Florida, the number and severity of crashes declined after the I-95 HOT lanes became operational. In their view, the HOT lanes decreased congestion, and as a result, fewer rear-end crashes occurred.","Additionally, FHWA officials stated that they have not seen evidence of more sideswiping since the traffic lanes were narrowed to form the HOT lanes. The UPA and CRD National Evaluation will assess the safety impacts of pricing, including the number of accidents and their severity and any change in the perception of safety by travelers and emergency personnel since pricing began. Although traffic congestion has declined recently in many metropolitan areas, future demand for travel during peak times is expected to increase as the population grows and the economy recovers. Fiscal and environmental concerns prevent building new capacity in many metropolitan areas. Transportation decision makers have a variety of traffic demand management tools, including road or congestion pricing, to more efficiently operate and manage their infrastructure. Pricing has the potential to reduce congestion by influencing drivers to carpool, use transit, or drive at off-peak travel times. Congestion pricing has, where evaluated, helped reduce congestion. However, it is difficult to draw overall conclusions about the effectiveness of pricing because only half the sponsors with projects now open to traffic have evaluated their projects.","Other results, where available, are mixed, as project sponsors have used different measures to assess performance and little has been done to compare performance across projects. Where congestion pricing projects have also added lanes, the results of pricing have not been distinguished from the results of adding capacity. Finally, congestion pricing’s impact on traveler behavior and equity has yet to be fully explored. Congestion pricing in the United States is in its relative infancy. With about 400 miles of priced lanes in operation, which includes 150 miles of the New Jersey Turnpike, pricing has not been implemented beyond a limited number of locations. However, its popularity is growing. New projects under construction and in planning will not only increase the number of roadway miles that use congestion pricing, they will also change the character of pricing in the United States, as some will be operated privately and some will add congestion-priced tolls to previously nontolled roadways. The changing character of congestion pricing and the new challenges it brings make improving the understanding of congestion pricing even more important.","While a more complete understanding of the potential benefits and effects of congestion pricing is needed, we are not making a recommendation in this report because the evaluations conducted through the UPA and CRD programs are an important step to furthering understanding of the relevant benefits and effects of pricing. These evaluations of pricing projects address reservations we have about gaps in knowledge about such projects—for example, these evaluations will compare results across projects to assess the effectiveness of congestion reduction strategies and assess several measures of equity. In addition, monitoring and reporting on the five ELD projects could also provide better information about the performance of pricing and its effects. However, only one of the six UPA and CRD metropolitan sites has been evaluated and only for its first phase and four of the five ELD projects are under construction. As such, we cannot assess the evaluation framework or their results until projects and their evaluations are complete. DOT provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date.","At that time, we will send copies of this report to congressional subcommittees with responsibilities for surface transportation issues and the Secretary of Transportation. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or herrp@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made significant contributions to this report are listed in appendix V. Our work was focused on the performance of congestion pricing projects on highways, bridges and tunnels in the United States and issues associated with developing and implementing pricing projects. We examined (1) the federal role in supporting congestion pricing, (2) results of congestion pricing projects in the United States, and (3) emerging issues in congestion pricing projects. Our scope was limited to assessing congestion pricing projects in the United States that involved passenger vehicles. We did not review other types of congestion pricing such as priced parking facilities.","We collected information on pricing projects directly from the 19 project sponsors of the 41 operational or under construction congestion pricing projects and received comments and validation of data from project sponsors. To address the federal role in supporting congestion pricing, we reviewed pertinent legislation and regulations; prior GAO reports and testimonies; and relevant documents from the U.S. Department of Transportation (DOT), state departments of transportation, and metropolitan planning organizations (MPO). This included policy documents from the Federal Highway Administration (FHWA) and various public presentations made by FHWA officials. We interviewed FHWA and Federal Transit Administration (FTA) officials, officials from state DOTs and MPOs, experts from academia and policy institutions, the Congressional Research Service (CRS), and the Congressional Budget Office (CBO). Our discussions with FHWA included DOT’s programs that involve tolling—Value Pricing Pilot Program (VPPP), High Occupancy Vehicle (HOV) Facilities, Express Lanes Demonstration, Section 129 program, the Interstate System Reconstruction and Rehabilitation Toll Pilot Program, and the Interstate System Construction Toll Pilot Program. We also discussed the Urban Partnership Agreement (UPA) and Congestion Reduction Demonstration (CRD) programs—one-time initiatives that were established with 10 separate federal grant programs.","We discussed the eligibility and performance monitoring requirements of the federal programs and associated projects and verified this information with DOT documents. We also collected data of VPPP and UPA and CRD program funding from DOT and corroborated the status of the project data in interviews with FHWA. We analyzed the VPPP and UPA and CRD program funding to assess how federal funds are used to support congestion pricing projects. We interviewed sponsors of pricing projects that received federal funds on how the funds were used and with what results. We reviewed relevant FHWA environmental assessment manuals and interviewed FHWA officials about the environmental review process. We also interviewed FHWA field staff and project sponsors regarding their individual project’s environmental review process. To determine the results of congestion pricing projects in the United States, we reviewed performance evaluation reports from eight project sponsors that covered 14 of the 30 operational pricing projects. The remaining project sponsors did not have current and completed evaluations because their projects had opened too recently for sponsors to have evaluated them or because projects had changed significantly in character since they were studied and thus the original evaluations are no longer","relevant.","In addition, one project evaluation did not use pre- and post-data to measure performance and thus the impact of pricing could not be measured. Two project sponsors (one sponsor of the SR 261, SR 241, and SR 133 in Orange County, California and one sponsor of the SR 73 in Orange County, California) did not perform evaluations of their peak-period priced highways. Two project sponsors (one for I-15 in Salt Lake City, Utah, and one for I-10 and US 290 in Houston, Texas) completed performance evaluations, however these three highways have significantly changed in character since then and thus the original evaluations are no longer relevant. For example, I- 15 in Salt Lake City currently uses electronic tolling with dynamic pricing whereas when the project was evaluated a monthly decal with a static toll was used. I-10 was evaluated as one HOT lane with free access of carpools of 3 passengers but is now 2 HOT lanes with free access for carpools of 2 passengers. In addition, although US 290 was assessed in the I-10 evaluation, no pre- and post-data were used to measure the impact of pricing on performance.","The project sponsor of I-25 in Denver, Colorado reported on monthly counts of traffic volumes and other measures but did not do so before and after pricing was introduced; therefore, we were unable to use the data to compare with other projects. Three project sponsors (I-680 in Alameda County, California; the San Francisco-Oakland Bay Bridge in California; and MD-200 in Montgomery County, Maryland) implemented projects recently and have not had adequate time to evaluate the projects. Three other projects—I-35 W in Minneapolis, Minnesota, which has the same project sponsor as I-394; SR 520 in Seattle, Washington, which has the same project sponsor as SR 167; and I-85 in Atlanta, Georgia—became operational recently and have also not been evaluated. I-35W, SR 520, and I-85 will be assessed as part of the UPA evaluations.","The eight project sponsors with current and completed evaluations we reviewed were I-95 in Miami, Florida; I-15 in San Diego, California; SR 91 in Orange County, California; SR 167 in Seattle, Washington; I-394 in Minneapolis, Minnesota; the New Jersey Turnpike, New Jersey; two bridges in Lee County, Florida; and four bridges and two tunnels managed by the Port Authority of New York and New Jersey, New York. For each, we assessed the studies’ methodology to determine whether or not the data reported was valid and sufficient for our analysis. However, we did not conduct a thorough assessment of the quality of the evaluations’ methods as our objective was to assess the projects’ performance results where available. Once we determined which data was sufficiently reliable for our uses, we summarized the results reported in each performance evaluation for each project. The eight performance evaluations assessed various performance measures such as traffic speed, travel time, throughput, and transit ridership. The performance measures we focused our analysis on were: travel time and speed, throughput, off-peak travel, transit ridership, and equity.","As a basis for assessing what performance measures we should review, we used a list of performance measures, some of which are outlined in the DOT’s UPA and CRD National Evaluation Framework. We chose these measurement areas because they were the most commonly reported in the evaluations and because they are the most commonly required measures for projects with federal monitoring requirements. We corroborated our choice of measures with FHWA and the Battelle Memorial Institute which is conducting the UPA evaluations using similar measures. We then compared the projects by qualitatively assessing the results for the five performance measures listed above and counting how many of the projects reported positive or negative results in each performance measurement category. We could not quantitatively compare results across projects because they did not use the same metrics and thus were assessed and reported differently according to project sponsor preference and resources. Project evaluations covered specific time periods and thus performance results are only for those time periods. Projects’ performance results may have changed since evaluations were completed.","We discussed with Battelle Memorial Institute, Texas Transportation Institute, and the Volpe National Transportation Systems Center the UPA and CRD evaluation framework including its performance measures and metrics as well as challenges of conducting an evaluation across multiple projects. We also conducted site visits for the SR 167 and SR 520 projects in Seattle, Washington; I-95 project in Miami, Florida; and I-394 and I-35W in Minneapolis-St. Paul, Minnesota. We selected our site visits based on a judgmental sample of projects with completed evaluations; these sites included both HOT lanes and peak-period priced projects in different geographical areas of the United States. For each site visit, we met with relevant officials from state DOT, officials from the FHWA division office, project sponsors, and officials from local agencies such as the MPO and transit agencies. Discussion with project sponsors included clarifying the goal of the pricing projects and evaluations of the project performance. In addition to conducting interviews, we collected relevant documents, including environmental analyses, performance evaluations, and traveler surveys, and analyzed these documents as necessary. Where appropriate, we corroborated the interviews with documents obtained from project sponsors and FHWA.","To identify the emerging issues in congestion pricing projects, we reviewed literature on congestion pricing, equity, environmental justice, traffic diversion, safety and other topics related to the benefits, costs, and trade-offs associated with congestion pricing. We reviewed prior GAO reports and analyses and reports from the FHWA, CRS, CBO, and industry experts and organizations that have evaluated the impacts of congestion pricing projects. We discussed our review of the reports with FHWA and FTA officials, officials from state DOTs and MPOs, and transportation experts from academia and think-tanks. We identified and interviewed experts with published work on congestion pricing and its impacts. Discussions with officials and experts included the costs and benefits of congestion pricing projects, trends in pricing designs and implementation, and methods to mitigate negative impacts. We also provided a copy of the draft report to a group of experts for an independent review. We selected these experts because they have published numerous studies analyzing the benefits and challenges of congestion pricing and its effects that are prominent in the transportation literature, and come from a cross section of institutions including academia, research organizations, and the private sector.","We considered and incorporated their comments into the final report as appropriate. Group of Experts that Reviewed Draft Congestion Pricing Report Tod Litman, Researcher, Victoria Transport Policy Institute Lee Munnich, Professor, Senior Fellow and Director, State and Local Policy Program, Hubert H. Humphrey School of Public Affairs, University of Minnesota Robert Poole, Jr., Director of Transportation Policy, Reason Foundation Joseph L. Schofer, Professor, Northwestern University Brian Taylor, Professor of Urban Planning/Director, Institute of Transportation Studies, Luskin School of Public Affairs, UCLA David Ungemah, Senior Planning Manager, Parsons Brinckeroff Martin Wachs, Senior Principal Researcher, RAND Corporation We conducted this performance audit from October 2010 to January 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.","Date pricing operational December 1995 16- miles (4-mile extension under construction) Salt Lake City, Utah 40 miles (11-mile extension under construction) Dynamic pricing $0.50-$9.00 7 miles (15-mile extension under construction) Dynamic pricing $0.30-$1.75 Dynamic pricing $1.55- $13.95 7 miles (in operation, 11 are under construction) Variable pricing $0-$5.00 The New Jersey Turnpike discontinued off-peak discounts to out-of-state vehicles as of July 2011. As of September 2011, 1 mile of MD 200 extension is under procurement. Project Express Lanes System Concept Study Strategies to Manage Traffic and Parking Strategies to Manage On- Street Parking and Reduce Congestion From Circling Vehicles.","Project Evaluate the application of cordon/area pricing within major activity centers in the downtown Los Angeles core and build out a network of HOT lanes Study the application of pricing on the I-84 Viaduct, Hartford, CT including assessing the impacts of environmental justice issues that resulted from the original construction of the viaduct Study the application of full facility pricing to the I- 95 Corridor from New York to New Haven, CT and identify how toll revenues would be applied to provide strong support for transit Evaluate a two-tiered pricing on an existing toll facility and develop performance measures to track the changes in congestion, air quality, safety, livability and other factors that would result. Project Study will look at a transit credit program designed to provide occasional free use of the HOT lane for regular transit users when they need to drive, and a parking pricing program at a park and ride lot with free parking and shuttle services added from a more distant lot. Influencing Travel Behavior and Considering Environmental Justice. Would examine important environmental justice issues related to pricing I- 30, through the use of innovative Intelligent Transportation Systems (ITS) technology.","The project is important because it will provide more data on environmental justice and pricing, given that there is little experience with strategies designed to address environmental justice issues related to the introduction of pricing. This project was selected because it met the statutory eligibility criteria and was highly qualified for the above stated reasons. Therefore, this project meets the evaluation criteria for innovation, equity, and congestion reduction. Project 183A Turnpike Pilot Downstream Impacts. Pilot implements a peak period toll in conjunction with dynamic ridesharing on an existing congested toll road. Would explore applying dynamic ridesharing as an equity mitigation strategy. An actual field trial is included as part of project. The road opens in 2012. The local agencies are contributing their own funds to support the project. Therefore, this project meets the evaluation criteria for innovation, livability, sustainability, equity, congestion reduction, safety and state of good repair. Fiscal year 2008-2009 grants were part of the one-time Urban Partnership Agreement initiative. Performance metric Report percentage of time facility is operating at a minimum average speed of 50 mph broken down by daily averages a.m. peak, off-peak, and p.m. peak hours. Performance and monitoring requirement Annual reporting","to U.S. DOT required.","Changes in mode split/ridership/vehicle occupancies of priced versus general purpose (or adjacent free) lanes on lane availability for the managed lanes during this time, including the length of time each such lane was unavailable. Report number of declared High Occupancy Vehicles (HOV) for the year and differences from the previous year (on a total and percentage-change basis) broken into daily averages by a.m. peak and p.m. peak for the managed lanes. Report number of buses (i.e., registered non-revenue accounts) for the year and differences from the previous year on a total and percentage-change basis) broken into daily averages by a.m. peak, off-peak, and p.m. peak for the managed lanes. Report average toll charged for the year and differences from the previous year (on a total and percentage-change basis), broken into daily averages, by a.m. peak, off-peak, and p.m. peak for managed lanes. Change in criteria pollutant emissions at the regional level (particle pollution, ground-level ozone, carbon monoxide, sulfur oxides, nitrogen oxides and lead) during the current year and differences from the previous year (on a total and percentage-change basis) utilizing reasonably available and reliable air quality reporting tolls and mechanisms.","Traffic speed on priced lane to maintain express bus service Report a minimum average operating speed of 45 mph on the HOV lanes with a speed limit of over 50 mph or not more than 10 mph below the speed limit for HOV lanes with a speed limit less than 50 mph. This speed must be maintained for 90 percent of the time over 180 days during morning or evening weekday peak. Annual certification required by U.S. DOT. If performance standards not met, actions must be taken to comply. Performance and monitoring requirement No certification required by U.S. DOT as no specific performance standards must be met. However, participants are required to report on “value pricing” elements up to 10 years. Multi-year project-specific and national evaluations which U.S. DOT is overseeing.","Percent change in route/corridor travel time by time of day Percent change in the travel time index for comparisons across sites (having corridors of differing lengths) Percent change in number of hours of the day with congested conditions and the number of congested travel links per day Percent change in average travel speeds by hour of the day Percent change in travel time reliability and planning time index Percent change in vehicle and person trips by time of day and person and vehicle throughput Change in traveler perceptions about congestion after deployment of strategies Level of service in tolled lanes Travel-time reliability in tolled lanes Average occupants per vehicle of tolled lanes versus general purpose lanes Use of tolling options Traffic density in tolled lanes Travel-time reliability (seasonally controlled) Days exceeding reliability and performance thresholds End-to-end travel time Service reliability User ratings of service performance Corridor ridership Corridor mode split (%) Socio-economic and geographic distribution of benefits including: tolls paid and adaptation costs; change in travel time and distance by group; total transportation cost; environmental impacts Public perception of the individualized equity impacts of pricing Spatial distribution of revenue reinvestment Reduction in criteria pollutants Reduction in","noise Reduction in vehicle miles traveled Qualitative assessment of perceived benefits of the Reductions in estimated fuel use Use and impact of alternative fuel vehicles for transit improvements Percentage change in crash rate by type and severity Percentage change in time to clear accidents Change in the perception of safety by service patrol operators, state patrol officers, medical first responders, and bus operators Change in the perception of safety by travelers This is a sample of UPA and CRD performance analyses that include measures and metrics related to the effects of congestion pricing.","Other UPA and CRD analyses will look at telecommuting/travel demand management and technology as well as impacts on businesses, goods movement, and nontechnical success factors. In addition to the contact named above, Steve Cohen (Assistant Director), Maureen Luna-Long, Sarah Jones, Thanh Lu, Michael Kendix, Sara Ann Moessbauer, James Wozny, Elizabeth Eisenstadt, Crystal Wesco, and Josh Ormond made key contributions to this report."],"string":"[\n \"Traffic congestion is caused by more vehicles on a road than it is designed to accommodate, and it can be exacerbated by several factors. For example, bottlenecks at highway interchanges or on bridges and tunnels can worsen congestion. Vehicles traveling at different speeds can increase the average amount of space between cars, thus not efficiently using all space available in a lane. Stop-and-go traffic leads to increased queuing and periodic events such as traffic accidents and roadway construction can compound already congested conditions. Although a transportation system is designed to handle a certain number of vehicles, the flow of traffic can be improved at certain times and places such as during rush hours or at bottlenecks. Congestion pricing is designed to improve the flow of traffic by charging drivers a toll that can vary with the level of congestion or time of day. Drivers pay a higher price for using a lane or roadway at times of heavy traffic, and a lower price when and where traffic is light. To avoid toll payment, drivers may choose to share rides, use transit, travel at less congested (generally off-peak) times, or travel on less congested routes.\",\n \"Drivers who place a high value on time may choose to pay the toll to use the priced lane during congested times in return for a faster and more reliable trip. Alternatively, drivers who wish to pay a discounted toll on an already tolled roadway can travel at off-peak times. Economists generally believe that congestion pricing has the potential to alleviate congestion on roadways in an economically efficient way. Those who value a fast and reliable trip will pay for the option. Drivers who place a lower value on time will choose to stay in the unpriced and potentially more congested roadways. Economists believe that congestion pricing can also enhance economic efficiency by making drivers take into account the external costs they impose on others when making their travel choices. Any given driver’s highway use entails extra costs that the driver does not bear, in the form of congestion, noise, and pollution. Thus, paying a toll that reflects a driver’s value of time and covers external costs can potentially reduce congestion and the demand for road space at peak periods.\",\n \"We have reported that the existing infrastructure can be managed more efficiently and that congestion pricing could be one method to do so. All congestion pricing projects in the United States have used either (1) High Occupancy Toll (HOT) lanes or (2) peak-period pricing on already tolled facilities. HOT lanes have been created by constructing new lanes or converting existing carpool or High Occupancy Vehicle (HOV) lanes, some of which had been previously underused, and allowing solo drivers to use these lanes if they pay a toll. Users of the prior HOV-only lanes, such as carpools and express buses, generally continue to use the lanes for free and are allowed to use newly constructed HOT lanes for free as well. HOT lane operators seek to influence the number of vehicles in the HOT lane and maintain 45- to 55-mile-per-hour travel speeds through “dynamic” pricing—that is, increasing or decreasing tolls in real time depending on traffic in the HOT lane. Peak-period pricing on already tolled highways, bridges, and tunnels or on new or planned replacement facilities is another type of congestion pricing project in the United States.\",\n \"In this type of pricing, tolls are fixed higher during peak travel times and lower during off-peak times to encourage drivers to use the roadway off- peak. Three HOT lane projects have used a hybrid approach to dynamic and peak-period pricing called “variable” pricing. Variable pricing uses a pre-set schedule of tolls that is periodically revised to account for changes in congestion or other factors. Since the first U.S. congestion pricing project was implemented in Orange County, California, in 1995, 19 project sponsors have initiated 41 pricing projects on highways, bridges, and tunnels. Projects operate in Georgia, Utah, Colorado, Maryland, and New Jersey with multiple projects in California, Florida, New York, Texas, Virginia, Minnesota, and Washington State. Of the 41 pricing projects, 30 are completed and open to traffic. The 30 opened projects include 12 HOT lane projects and 18 peak-period priced facilities, covering about 400 miles of priced lanes. Projects range in length from 4.1 miles on the State Route (SR) 133 in Orange County, California, to nearly 150 miles on the New Jersey Turnpike, and charge tolls varying from 25 cents to $14.\",\n \"Eleven HOT lane projects are under construction; in addition, 2 of the 12 HOT lane projects in operation are extending the length of their tolled lanes. Figure 1 shows congestion pricing projects in operation and under construction including extensions to existing projects. Appendix II provides additional details on congestion pricing projects and toll rates. More metropolitan areas across the country are using or plan to use pricing as a way to relieve congestion on highways and bridges, and some regions are planning to implement networks of HOT lanes. Dallas- Ft. Worth, Atlanta, Minneapolis-St. Paul, Seattle, and the San Francisco Bay Area have networks of HOT lanes in their long-term plans. For example, the Metropolitan Transportation Commission of the San Francisco Bay Area proposes to add a 570-mile HOT lane network by 2025 as part of its 35-year regional plan. The Washington State Department of Transportation proposes to convert carpool lanes to HOT lanes on nearly 300 miles in the Seattle/Puget Sound area. Such networks are also being considered in Los Angeles, Washington, D.C., and the Miami-Ft. Lauderdale area. Congestion pricing has raised equity concerns among the public and elected officials.\",\n \"In general, an analysis of equity issues examines how costs and benefits of projects are distributed among members of society. In the transportation economics literature, four concepts of equity are cited. The extent to which members of the same group are treated equally; for example, whether some people with the same income pay a larger amount in taxes or fees. The extent to which those who benefit from a project, such as a new lane, pay for those benefits; for example, is the lane paid for by a toll on users or by a state sales tax paid in part by persons who may not use or benefit from the lane? How the costs and benefits of a project are distributed across members of different groups such as high- and low-income people; for example, whether all groups pay in proportion to their income or whether low-income people pay proportionally more of their income for tolls than high-income people.\",\n \"The extent to which those who impose social costs bear those costs; for example, whether polluters or drivers on crowded highways pay the full social cost of their driving, or, if a toll causes diversion from the tolled highway to adjacent neighborhoods, those neighborhoods incur the costs of pollution and crowding. While recognizing that all of these concepts of equity cited in the literature may be important, public and elected officials’ concerns regarding congestion pricing have been primarily with the latter two concepts of equity, in particular, what is termed income equity and geographic equity. Income equity refers to whether the costs of congestion pricing that users incur are proportional to their incomes, or whether low-income drivers are disproportionately affected. For example, low-income drivers may spend a greater proportion of their income to pay to travel at preferred times or incur greater costs in travel time by choosing alternate unpriced routes. High-income drivers, who, economists generally believe, place a higher value on their time, may be more likely to pay the toll and benefit from a faster trip than low-income drivers, thus possibly generating income equity concerns.\",\n \"Geographic equity refers to how equally the costs and benefits associated with congestion pricing are distributed within an affected metropolitan area. For example, if one corridor in a metropolitan area has congestion pricing and another does not, drivers in the tolled corridor may incur greater costs than drivers in the untolled corridor because of the tolls they pay or the increase in travel time they incur by choosing an alternate route. Furthermore, drivers who choose to avoid the tolls and take an alternate route may contribute to congestion on the alternate route. Such diversion of traffic from tolled routes within a corridor can reduce the performance of the alternate untolled routes and negatively affect surrounding neighborhoods. Issues of equity are further complicated if this traffic is diverted through low-income and minority communities. The transportation economics literature also suggests that the equity impacts of congestion pricing be assessed in comparison to alternatives—namely the predominant sources of funding roadways, such as motor fuel and sales taxes.\",\n \"Comparing these sources could address whether those who benefit from a project, such as a new lane, pay for those benefits; for example, is the lane paid for by users of the facility or by persons who may not use or benefit from the lane? According to the Transportation Research Board, it may be the case that tolling and pricing provide a more equitable means of funding roadways than these other alternatives. We have reported that tolling is consistent with the “user pay” principle because tolling a particular road and using the tolls collected to build and maintain that road more closely link the costs with the distribution of the benefits that users derive from it. As a general rule, charging tolls on highways constructed with federal funds is prohibited. However, Congress has enacted several exceptions that authorize DOT to permit tolling in certain instances. DOT approves all congestion pricing projects on any roadway that receives federal funds. DOT approval grants the project sponsor permission to have congestion pricing on newly constructed roadwaysand lanes and converted HOV lanes through three programs. DOT also approves design exceptions and environmental reviews that allow for pricing on federally funded\",\n \"roads.\",\n \"DOT awarded funding to study, implement, and evaluate congestion pricing projects and DOT programs require monitoring and evaluation of pricing projects, although the level of detail varies by program. When applicable, DOT oversees projects and certifies that program performance standards have been met. Congress has authorized DOT to approve tolling, which can include congestion pricing, through three programs. Table 1 provides a summary of the three DOT congestion pricing programs and number of operational or under construction congestion pricing projects authorized under each program. DOT has also approved design exceptions for certain highway projects that include congestion pricing. DOT has approved exceptions to highway standards to allow for changes to highways to increase capacity within the existing right of way or “footprint.” The Florida Department of Transportation received design exceptions for I-95 in Miami to convert parts of the median and shoulder lanes and to narrow other lanes from the standard 12 feet to 11 feet to make two HOT lanes in each direction. The Minnesota Department of Transportation has received design exceptions to convert shoulder lanes for electronic tolling and bus service during peak periods on I-35W in Minneapolis.\",\n \"This lane also serves as a HOT lane for solo drivers who pay a toll during the same period. The Minnesota Department of Transportation’s design exceptions included changes in lane width and shoulder width as well as advisory speed limits. In accordance with the National Environmental Policy Act of 1969, as amended (NEPA) and its implementing regulations as well as Executive Order 12898, DOT reviews projects to assess their anticipated environmental and socioeconomic impacts and to determine their need for any additional reviews. Projects that are deemed to have significant environmental impacts must prepare an Environmental Impact Statement. When it is unclear whether or not a significant environmental impact will occur as a result of the project’s impacts, an Environmental Assessment must be prepared. Environmental impacts may include effects on air, noise, water quality, wildlife, and wetlands. Additionally, projects may be required to undergo an environmental justice assessment to determine its impacts on low-income and minority populations. Projects that a federal agency has previously determined to have no significant environmental impacts may receive a categorical exclusion, meaning that they do not have to complete an Environmental Impact Statement or Environmental Assessment to comply with NEPA.\",\n \"DOT has approved categorical exclusions for congestion pricing projects that do not lead directly to construction and changes in the facility’s “footprint” in accordance with NEPA implementing regulations, along with projects that include new electronics and communications systems for tolling. According to project sponsors that we interviewed, pricing projects that have not changed a facility’s “footprint,” such as HOV to HOT lane conversions or peak-period pricing on already tolled highways, bridges, and tunnels, have received categorical exclusions. In addition, projects that have narrowed the width of lanes and converted medians and shoulder lanes that have not involved changing the “footprint” of the highway have received categorical exclusions. DOT has provided funds to promote congestion pricing through several programs that involve tolling—the Urban Partnership Agreement (UPA) and Congestion Reduction Demonstration (CRD) programs and the Value Pricing Pilot Program (VPPP). UPA and CRD, the largest programs that involve tolling, advance congestion pricing through funding awards from 10 separate grant programs. As part of one-time initiatives, the UPA and CRD participants—Seattle, Washington; San Francisco, California; Minneapolis-St. Paul, Minnesota; Miami-Ft.\",\n \"Lauderdale, Florida; Los Angeles, California; and Atlanta, Georgia—were provided approximately $800 million through grant programs to implement tolling as well as transit, technology, and telecommunications strategies to reduce congestion. Funds have been used to build new HOT lanes, convert HOV lanes to HOT lanes, establish electronic tolling systems, and purchase buses for express bus service on HOT lanes. In addition, DOT has provided about $100 million in grants for studies, implementation, and some evaluations of congestion pricing projects through VPPP since it was established in fiscal year 1998. Nearly all congestion pricing projects in operation have received VPPP funds at one time or another for these purposes. About a third of total VPPP grants were awarded to fund three of the six UPA participants—Seattle in fiscal year 2007 and Minnesota and San Francisco in fiscal year 2008. that, Congress authorized $11 million in fiscal year 2005 and $12 million per year for fiscal years 2006 through 2009 for projects that involve highway pricing, of which $3 million per year was set aside for nontolling projects, such as parking and car sharing projects. See appendix III for a list of VPPP grants and activities from fiscal years\",\n \"1999 through 2010.\",\n \"San Francisco’s SFPark uses congestion pricing by adjusting parking meter and garage prices up or down based on the demand for parking. Drivers can receive real-time information about where parking is available and at which price using personal mobile devices such as iPhones. This “demand-responsive” pricing encourages drivers to park in underused areas and garages, reducing demand for parking in overused areas. VPPP funds have been used to: Study the potential of pricing in a corridor or region or the feasibility of a particular pricing project. Studies have examined the benefits of implementing variable pricing on an already tolled facility such as the Florida Turnpike in Miami-Dade County and the Pennsylvania Turnpike near Pittsburgh and Philadelphia. VPPP-funded studies have also examined the feasibility of extending HOT Lanes such as I-15 in San Diego, California. Implement elements of projects. Lee County, Florida, used a grant to purchase transponder readers for electronic tolling on two of its bridges. The Washington State Department of Transportation used VPPP funds to install electronic tolling technology on the SR 520 bridge that determine changes in tolls based on congestion. Evaluate specific projects.\",\n \"Evaluations studied the results and challenges of implementing pricing projects including SR 91 in Orange County, California; I-15 in San Diego; California; I-394 in Minneapolis, Minnesota; and I-10 and U.S. 290 in Houston, Texas. In addition to the funding provided through VPPP, federal funding is available for congestion pricing projects through other programs. For example, federal credit assistance available under the Transportation Infrastructure Finance and Innovation Act program has been used to help finance construction of HOT lanes for 7 projects including those on I-495 in Virginia, I-635/I-35E in Texas, and I-595 in Florida. In addition, states receive nearly $40 billion a year in federal funding for highways through a series of grant programs collectively known as the Federal-Aid Highway Program. These grant programs have also been used to help finance the construction of congestion pricing projects. The HOV Facilities program requires project sponsors to annually monitor and report HOT lane traffic speeds and is the only DOT tolling program that requires project sponsors to meet an annual performance standard.\",\n \"In the case of an HOV facility with a speed limit greater than 50 miles per hour, vehicles must be able to travel at least 45 miles per hour 90 percent of the time during weekday morning and evening peak hours over a 180- day period. If this standard is not met, the road operator must make changes to bring the facility back into compliance. Such changes could include raising tolls on paying cars or changing carpooling requirements to achieve the standard. DOT established this speed requirement because HOV lanes, by law, are transit “fixed guideway” facilities that encourage transit use and thus traffic must maintain speeds compatible with express bus service. Nearly all HOV to HOT lane conversions in operation have been authorized under either the HOV Facilities program or VPPP (and its predecessor, the Congestion Pricing Pilot Program). Projects that were authorized under HOV Facilities have this performance requirement. DOT monitors the reported performance of HOT lanes authorized under the HOV Facilities program. According to DOT officials, there has not been a case in which a HOT lane has not met the standard. Pub. L. No. 109-59, § 1604(b)(7)(A).\",\n \"construction and construction has not begun on the fifth, no performance reporting for completed ELD projects currently exists. DOT also requires project sponsors that receive VPPP funds to monitor and evaluate the performance of their projects so that the agency can report results biannually to Congress as required by statute. Project sponsors report five categories of effects—(1) driver behavior, traffic volumes, and travel speeds; (2) transit ridership; (3) air quality; (4) equity for low-income individuals; and (5) availability of funds for transportation programs. As with the ELD program, projects that receive VPPP grants are not required to meet specific performance standards. Under the UPA and CRD programs, DOT has provided funds to the Battelle Memorial Institute to conduct an independent national evaluation of the effectiveness of the program’s four congestion reduction strategies—tolling, transit, technology, and telecommuting. Projects will be assessed individually and results compared across all projects in the six metropolitan areas according to specific metrics. These metrics include reductions in congestion delay and duration; increases in the number of cars and people in cars (i.e., vehicle and passenger throughput), and shifts to travel during off-peak times, among other factors.\",\n \"See appendix IV for list of performance and monitoring requirements for federal programs for congestion pricing projects. Evaluations of 14 congestion pricing projects in the United States have generally shown reduced congestion, although other results are mixed, and not all possible relevant effects have been assessed. HOT lane projects, which aim to improve the flow of traffic and throughput with increased speeds and decreased travel times, have reduced congestion by increasing vehicle throughput, and have generally shown reduced congestion, increased speeds, and decreased travel times in the priced and unpriced lanes. Some HOT lane projects have added new lanes and thus, for these projects, the effects of pricing on performance have not been distinguished from the effects of the added lane. In addition, although the number of cars using HOT lanes has risen, there were fewer people in the cars—a fact attributed to an increase in the share of toll-paying solo drivers or a decrease in carpooling on HOT lanes. Peak-period pricing projects that aim to reduce congestion by encouraging drivers to travel at off-peak times have shifted some drivers to travel during those times.\",\n \"Other effects of congestion pricing projects, such as equity income impacts, have not always been evaluated. Evaluating these impacts is important to address public and elected officials’ concerns about the effects of pricing on travelers and communities. Not evaluating these effects leads to an incomplete understanding of the full effects of pricing. Of the project sponsors that have operational congestion pricing, 8 have a current and completed evaluation of at least one of their projects, for a total of 14 evaluated projects. These eight evaluations assess five HOT lane projects and nine peak-period pricing projects, as shown in figure 2. For a description of our objectives, scope, and methodology in analyzing the congestion pricing projects, see appendix I. Because of differences in project objectives and in DOT’s monitoring and evaluation requirements, the completed evaluations vary in which aspects of performance they report. No evaluation has assessed the performance of congestion pricing across projects. In addition, the evaluations represent an assessment of the results of the projects at specific points in time. Were the evaluations on-going or repeated at different time intervals, it is possible that the results would differ.\",\n \"The most common measures used across the evaluations have been travel time and speed, throughput, off-peak travel, transit ridership, and equity. Table 2 lists and defines these five common performance measures and definitions used in congestion pricing project evaluations. Evaluations of HOT lane projects, which are designed to improve travel time and speed, have shown improvements. Both travel time and travel speed improved on at least some sections of all five HOT lane projects that were evaluated. Sometimes the improved travel times in the HOT lanes also led to improved travel times in the adjacent unpriced lanes because solo drivers paid to switch to the HOT lanes. For example, on SR 167 in Seattle, peak-hour travel speeds on the adjacent unpriced lanes increased as much as 19 percent compared with travel speeds in 2007 while speeds on the HOT lanes remained about the same, averaging the speed limit of 60 miles per hour.evaluation of I-15 in San Diego, drivers in the HOT lanes reportedly saved up to 20 minutes more than drivers in the adjacent unpriced lanes during the most congested times. Neither project included a new lane.\",\n \"Two other HOT lane projects—on I-95 in Miami and SR 91 in Orange County — included two new lanes in each direction, which also helped improve travel times and speed. On I-95, for example, which Florida Department of Transportation officials identified as the most heavily congested highway in the state before pricing began in 2008, the evaluation reported that drivers have reportedly saved about 14 minutes in the HOT lanes and 11 minutes in the adjacent unpriced lanes per trip. Evaluations of the I-95 and SR 91 projects did not, however, isolate the effects of the added lane and pricing on performance. Isolating such effects is challenging because even if a study accounts for the increased vehicle throughput on the new lanes, it may then understate the throughput the other lanes could have handled if the new lanes had not been added. Evaluations of the nine peak-period pricing projects with completed evaluations reported no effects on travel time and speed. Two of these evaluations—of the New Jersey Turnpike and Lee County bridges— analyzed these effects.\",\n \"Although travel times on the New Jersey Turnpike improved from 2000 to 2001 when electronic tolling and peak-period pricing were introduced at the same time, the project evaluation attributed the improvement mostly to electronic tolling and not to pricing. Evaluations of all five HOT lane projects reported an increase in vehicle throughput—as measured by traffic volumes—on the HOT lanes and sometimes on the adjacent unpriced lanes and attributed this increase to both congestion pricing and the addition of new lanes. For example, according to a 2006 evaluation of the I-394 project in Minneapolis, vehicle throughput in the HOT lanes increased by 9 to 13 percent and by 5 percent in the adjacent unpriced lanes after the lanes opened. A 2000 evaluation of the SR 91 project in Orange County estimated that vehicle throughput increased 21 percent on the entire roadway. Four of the five HOT lane project evaluations that tracked the average number of people in a car (known as average vehicle occupancy) showed a decrease in the number of passengers per car.\",\n \"Thus, while there were more cars using the HOT lanes, there were, on average, fewer people in the cars, which project sponsors attributed to an increase of the share of toll-paying solo drivers or a decrease in carpooling in the HOT lanes. In addition, evaluations of two projects assessed passenger throughput which takes into account the number of people riding buses as well as the average vehicle occupancy rate to estimate the total number of people moved through the roadway. According to the evaluations, passenger throughput on I-15 in San Diego increased slightly between 1997 and 1998, and then decreased between 1998 and 1999, and passenger throughput on I-95 in Miami increased 42 percent between 2008 and 2010 on the HOT lanes—a result the evaluation attributed to an increase in toll-paying solo drivers, transit ridership, and the addition of two HOT lanes. Evaluations of peak-period pricing projects found no increase in throughput due to congestion pricing. Specifically, evaluations of the New Jersey Turnpike and Lee County bridges assessed the impact of pricing on traffic volume and found no changes in vehicle throughput or average vehicle occupancy due to pricing that differed from overall traffic trends.\",\n \"To evaluate two of the five HOT lane projects—I-15 in San Diego and SR 91 in Orange County—project sponsors surveyed drivers to determine whether they changed their trips to travel at off-peak times. According to the I-15 survey results, some traffic shifted from the middle of the peak rush hour to the “peak-shoulder” times—the times directly before and after peak periods. However, the sponsors did not explain why this shift occurred. Drivers surveyed for the SR 91 evaluation said that the level of congestion affected their travel time decisions more than the presence of the toll. Project sponsors that did not study shifts to off-peak travel times said they did not do so because, in one case, the sponsor did not see the HOT lanes as offering incentives that would encourage peak-period travelers to shift their travel to off-peak periods, and, in another case, the sponsor was not required to study shifts to off-peak travel but would consider doing so in the future. Sponsors of peak-period pricing projects conducted more robust studies of off-peak travel because it was a more explicit goal of their projects. These studies showed some success in reducing congestion during peak times.\",\n \"Evaluations for two of the three peak-period pricing projects showed that drivers chose to take trips at off-peak times on highways, bridges, and tunnels to take advantage of discounted tolls. For example, according to a 2005 performance evaluation of traffic on bridges and tunnels into New York City conducted by the City University of New York for the Port Authority of New York and New Jersey, car and truck traffic increased in off-peak periods for most crossings. The evaluation reported more significant improvements in the morning before the peak periods than after the peak periods at the end of the day, which the evaluation attributed to drivers finding it easier to arrive at work early than to arrive at work later. According to this survey, a majority of drivers had little flexibility to change their schedule to travel at off-peak times. For example, truck drivers said that they could not adjust their delivery schedules to travel at off-peak times. Furthermore, drivers said that the toll difference of $1 was not great enough to influence them to change their travel time. Despite this, a significant minority could alter their travel departure times between 30 minutes and 2\",\n \"hours.\",\n \"Thirty-five of the 505 surveyed drivers representing 7.4 percent of passenger trips said that they changed their travel behavior as a result of the project. According to the Port Authority, the 7.4 percent change in passenger trips to off-peak times is significant, since small changes can have exponential effects because of traffic queuing. An evaluation of peak-period pricing on the New Jersey Turnpike based on a driver survey found that work schedules or a desire to avoid traffic created a greater incentive for determining when to travel than a slightly lower toll for off-peak travel. Thus, it appears that drivers chose to travel at off-peak times because of congestion and not because of modest differences in price. Evaluations of four of the five HOT lane projects assessed changes in transit ridership, but results were mixed. I-95 in Miami was the only one with demonstrated increases in transit ridership. Between 2008 and 2010, the average weekday ridership on the I-95 express bus increased by 57 percent, from about 1,800 riders in 2008 to more than 2,800 in 2010. About 38 percent of these riders reported in a transit rider survey that they used to drive alone.\",\n \"The other three HOT lane project evaluations found no increase in transit ridership on buses using the HOT lanes as a result of the project. While transit ridership reportedly increased on I-15 in San Diego, the evaluation stated that this increase was not linked to the project. Evaluations of all three peak-period pricing projects assessed whether drivers shifted to transit, but none found evidence of any changes in transit ridership. Many efforts have been made to assess the effects of congestion pricing projects on equity, including income equity (the distribution of costs and benefits of congestion pricing between low- and high-income drivers) and geographic equity (the relative effects of congestion pricing on two geographic areas, including the effects of any traffic diversion). Three of the eight evaluations, covering one HOT lane project and three peak- period projects, attempted to assess both income and geographic equity, and none attempted to assess other effects on equity, such as whether members of the same group are treated differently or to what extent the beneficiaries of a project, such as a new lane, pay for those benefits.\",\n \"Evaluations for four of the five HOT lane projects attempted to assess equity through surveys or focus groups of travelers concerning their use of congestion pricing projects; however, different elements of equity were evaluated. For example, three of the four HOT lane project evaluations that assessed equity did so by considering the effects of congestion pricing on drivers of different income levels. Results for these three projects—SR 91 in Orange County, I-394 in Minneapolis, and SR 167 in Seattle—indicated that drivers of all incomes used the HOT lanes, but high-income drivers used them more often than low-income drivers.addition, evaluations for all four HOT lane projects—SR 91 in Orange County, I-394 in Minneapolis, SR 167 in Seattle, and I-15 in San Diego— found that drivers liked having the option of using the HOT lanes and thus were supportive of them. The fifth HOT lane project—I-95 in Miami—has not undergone an assessment of the effect of congestion pricing on low- In income drivers because, according to the project sponsor, the benefits of congestion pricing—including increased travel speeds—accrue to all users. Evaluations of the nine peak-period pricing projects considered different elements of equity and found few impacts.\",\n \"However, all three projects were previously tolled and toll discounts were offered for travel at off-peak times. Thus, no tolls, including those for peak periods, were raised. The New Jersey Turnpike Authority evaluated the income and ethnicity of those who shifted to the off-peak times, while the Lee County Department of Transportation assessed the age, gender, and work schedules of those who shifted to the off-peak times. Both project sponsors also surveyed drivers, who said they thought the off-peak discounts were equitable and the pricing program fair. However, the sample sizes for both these surveys were small; thus, the results may not provide reliable estimates for the various subgroups they measured. Evaluating geographic equity—or the effects of any traffic diverted from HOT lanes or from peak-period priced highways, bridges and tunnels onto unpriced lanes and roads—would provide decision makers with information about potential negative effects, such as whether traffic on the unpriced alternatives increased. The sponsor of one of the five HOT lanes projects—SR 91 in Orange County—studied diversion and reported that traffic was drawn to the roadway and its HOT lanes because the priced lanes were new and added capacity.\",\n \"Sponsors of the other four HOT lane projects did not evaluate traffic diversion for several reasons, according to the sponsors. First, drivers can choose to drive in the unpriced lanes and none of the projects took away an unpriced lane—only HOV lanes were converted. Furthermore, two of the HOT lane projects added a lane to the roadway and allowed solo drivers to use a previously underused HOV lane. As a result, the sponsors said they expected drivers to be diverted to the HOT lanes, not away from them. Second, even if they had anticipated traffic diversion to alternative roads, the sponsors said they would not have surveyed drivers or asked them to maintain travel diaries because these methods were expensive and challenging to implement. They added that electronic data collection methods, such as GPS tracking in vehicles, transponder tracking, and license plate tracking, can be expensive and raise privacy issues. Two peak-period pricing project sponsors—the New Jersey Turnpike Authority and the Lee County Department of Transportation—studied traffic diversion to adjacent unpriced roads and found no evidence of diversion. According to the studies, such diversion would not be likely for these roadways because there are no comparable\",\n \"alternative routes.\",\n \"Furthermore, the projects were previously tolled and congestion pricing was implemented with off-peak discounts. As for the HOT lane projects, traffic diversion may be less of a concern if a highway, bridge, or tunnel was previously priced than if it was previously unpriced. Sponsors of one HOT lane project—SR 167 in Seattle—and one peak- period pricing project—the New Jersey Turnpike—evaluated the impact of pricing on minorities. An environmental justice assessment for SR 167 found that there would not be a disproportionate effect on minorities because there was a small minority population in the area, the project was limited to 9 miles southbound and 11 miles northbound, and there were unpriced alternatives—adjacent lanes and roads—that could be used.be no disproportionate effect on minority populations; however, as mentioned before, the survey sample size was small and therefore its results cannot be generalized to all users. The 2005 New Jersey Turnpike evaluation found that there would Evaluations of three HOT lane projects—I-15 in San Diego, SR 91 in Orange County, and I-394 in Minneapolis—and one peak-period pricing project—the New Jersey Turnpike—assessed environmental effects. All four evaluations assessed the impacts of pricing on air quality, and one HOT lane project—I-394—also\",\n \"assessed noise impacts.\",\n \"The air quality assessments, designed to test whether air quality improved as experts said it could with fewer cars idling in traffic, showed mixed results: minimal air quality improvements were reported on I-15, I-394, and the New Jersey Turnpike, but no effects on SR 91. The noise impact assessment on I-394 found that there would be no significant noise impacts resulting from pricing. The completed performance evaluations provide some information as to the effectiveness of congestion pricing, but the UPA and CRD evaluation framework has the potential to provide decision makers with a more consistent and comprehensive picture of the effects of pricing. The UPA and CRD evaluations which began in 2009 will collect data on UPA and CRD projects in the six metropolitan areas for 1 year before a project is implemented and then for another year after it has been implemented to assess its effects. The evaluation framework will provide standard performance measures such as travel times and vehicle throughput and help develop a more comprehensive study of congestion pricing, including increased monitoring of passenger throughput and socio- economic information of HOT lane users.\",\n \"Performance measures and detailed metrics will be used to assess individual projects and across projects, which has not been consistently done so far. The evaluation framework will also assess the impacts of pricing on low-income drivers and changes in their travel time and distance traveled as a result of pricing. Travel diary surveys will be conducted at two of the UPA sites, which may provide some basis to study equity impacts including whether driver behavior changes based on income, such as diverting traffic to adjacent unpriced roads. In addition, the evaluation framework will include surveys to assess transit ridership for all projects that have a transit element. Despite the potential for greater understanding of the effects of congestion pricing as part of the UPA and CRD evaluation framework, evaluations have only been completed in one of the six metropolitan areas—and this was for its first phase. Thus we cannot assess the evaluation framework or surveys’ effectiveness until they are completed. DOT expects to have all of the UPA project evaluations completed by 2014. Income and geographic equity concerns may become more prevalent as congestion pricing becomes more widespread.\",\n \"Such concerns could be particularly relevant for HOT lane projects with a potential for large toll increases, such as projects that must meet HOV Facilities program performance requirements to maintain traffic speeds of 45 to 55 miles per hour. Tolls on pricing projects in operation are relatively low, but can be as high as a dollar per mile. Though currently capped, these tolls could be raised if necessary to maintain the required traffic speeds. In turn, higher toll rates could lead to more traffic diversion if drivers chose not to pay for HOT lanes and took adjacent unpriced lanes or roads instead. These concerns may be particularly acute in the future for projects designed to use pricing not only to manage congestion but also to meet toll revenue targets. SR 520 in Seattle, which began pricing in December 2011, will generate toll revenues to pay for bonds to build a replacement bridge. All cars, including carpools, pay a toll that varies up to $5.00. Registered vanpools, express buses, and emergency vehicles have free use. Because this is the first project to toll a previously untolled bridge and there are parallel alternative routes, traffic diversion may become\",\n \"a concern.\",\n \"According to traffic models from the area’s transportation planning council, traffic could increase on the parallel Interstate route by 5 to 8 percent and on an alternative state road by 5 percent. Geographic equity concerns could be minimized by introducing tolling on both the Interstate and state road because drivers on all three routes would then pay a toll and diversion from tolled routes to untolled routes would be less of a concern. However, according to officials in the Seattle metropolitan area, the public and elected officials are opposed to tolling these other routes. Several other projects under construction involve public-private partnerships that plan to use toll revenues to pay for construction debt, operations, maintenance, and provide a return to private investors. However, meeting revenue targets can be at odds with policies to increase throughput on highways and bridges by encouraging more people to use carpools and express bus service. According to one expert, project sponsors seeking to maximize revenue could in theory charge a higher toll and make more money off of fewer paying vehicles.\",\n \"Raising revenue could be at odds with managing congestion (e.g., increasing passenger throughput) if higher tolls can produce more revenue from fewer paying vehicles. In addition, as we have previously reported, tolls on roadways operated by private concessionaires can be expected to be higher than on comparable facilities operated by public agencies. Three projects—I-495 in Northern Virginia and the LBJ Express (I-635/I-35E) and North Tarrant Express (I-820-SH 121/183) in Dallas-Ft. Worth—are public-private partnerships in which the private operator sets the toll rate. I-595 project in Broward County, Florida, is also a public-private partnership, but the state department of transportation has retained the authority to set the toll rate. In addition, I-95 in Miami has raised its carpool occupancy requirements for free use from two to three passengers. Thus, two-passenger carpools pay a toll to use the HOT lanes or use the adjacent unpriced lanes. According to the Florida Department of Transportation, it has not studied the impact of pricing on two-passenger carpools and therefore does not know how many people have been affected. conversion of HOV lanes or the addition of new lanes.bridge in Seattle is the only previously unpriced facility to be fully priced.\",\n \"According to experts, pricing existing unpriced lanes and roadways could lead to geographic equity concerns as drivers divert to alternate routes to avoid tolls. While future pricing projects may raise equity concerns, these concerns should be weighed against the potential benefits, including enhancing economic efficiency, increasing throughput, and reducing congestion. For example, greater use of pricing could enhance economic efficiency by discouraging solo driving and making alternatives such as carpooling or taking transit more appealing, thus resulting in more efficient use of existing roadways. Such changes in drivers’ behavior could also improve throughput and reduce congestion. In addition, as previously discussed, the equity impacts of congestion pricing can also be assessed in comparison to the equity concerns raised by the alternatives—namely the prevalent sources of funding roadways such as motor fuel and sales taxes. A number of options are also available to address equity issues. One such option is to use a portion of toll revenues for alternative transportation modes in the highway corridor, such as express bus service on HOT lanes. In general, bus riders are disproportionately lower- income individuals who would benefit from both reduced congestion on the HOT lanes and increased transit investments\",\n \"from toll revenues.\",\n \"In a survey of Seattle residents, public support for tolling the SR 520 bridge grew substantially if a portion of the toll revenue was dedicated to transit, even if tolls had to be significantly higher to pay for transit service. As part of its UPA program funding, Seattle has received grant funds for new buses to begin service on the SR 520 bridge. Other UPA program participants, including Minnesota and Miami, have received DOT grants for express bus service on HOT lanes. Under the ELD program, Federal law permits the use of excess toll revenue for eligible highway and/or transit service; however, pricing projects generally have not had excess revenues. Officials with the transportation planning council for the Minneapolis-St. Paul area told us that revenues from the I-394 project have generally not exceeded the project’s operational costs and therefore local transit funds are being used, as they were before the project was initiated, to provide express bus service on the HOT lanes. The San Diego Association of Governments also has used bus fare revenue to fund express bus service on I-15 in San Diego because the HOT lanes have not generated enough toll revenues to pay\",\n \"for bus service.\",\n \"In addition to the availability of revenues, the effectiveness of providing revenues to transit to address equity also depends on the availability of transit service and traveler commuting patterns. Transit may not be an option for some travelers given the location of homes, jobs, and other travel destinations. I-25 in Denver has taken steps to address equity among passengers and drivers on the HOT lanes by setting its peak period toll rate based on the fare charged to express bus passengers on the HOT lanes. Thus, as the fare for express bus passengers increases, the toll rate for drivers to use the HOT lanes also increases. An additional option to address equity issues would be to use toll revenues to reimburse low-income drivers, whether by exempting them from paying tolls or by providing them with a tax credit for the difference between the toll and transit fares. However, such reimbursement programs would involve complex efforts to determine and verify drivers’ low-income status. Nonetheless, some states such as California offer discounted utility rates for eligible households and in these states, transportation agencies have considered whether to use these preexisting mechanisms for eligibility and enforcement to provide discounted\",\n \"toll rates.\",\n \"However, no pricing project has used this option. Some experts have noted that discounts on tolls for low-income drivers would counteract the goal of reducing congestion because the discounts would encourage continued driving. Instead, they propose charging the same tolls to all users, but returning revenues to affected groups, such as groups of vehicle owners or a class of residents. VPPP federal funds were used to study the potential of providing credits for low-income highway users in Alameda County, California but no pricing project has used this option. To provide insight on environmental justice issues, DOT approved two VPPP grants for fiscal year 2010-2011 to assess the impacts of pricing on low-income drivers. One grant, for I-30 in Dallas-Ft. Worth is to examine environmental justice issues related to pricing I-30 through the use of Intelligent Transportation Systems technology.\",\n \"According to DOT, “the project is important because it will provide more data on environmental justice and pricing, given that there is little experience with strategies designed to address these issues related to the introduction of pricing.” The other grant, for a pricing project in Hartford, Connecticut, is to study the application of pricing and the impacts of environmental justice issues that resulted from the original construction of a project. Many highway projects increase the capacity of a roadway by converting shoulders or narrowing lanes which has the advantage of eliminating the need to widen highway and acquire additional property—of particular advantage in urban areas. Several congestion pricing projects have employed this strategy. For example, the Minnesota Department of Transportation has converted bus-only shoulder lanes on I-35W in Minneapolis to serve as HOT lanes during peak periods and has narrowed traffic lanes from 12 feet to 11 feet. In addition, as previously noted, the Florida Department of Transportation has incorporated portions of its medians and shoulders and narrowed traffic lanes from 12 feet to 11 feet to create two HOT lanes on I-95 in Miami.\",\n \"Moreover, two new projects—Loop 1 in Austin and I-94 in Minneapolis—will create new capacity by using shoulders and narrowing traffic lanes. The Loop 1 project will reduce shoulder width and incorporate parts of the shoulders to create an express lane, while the I-94 project may, if implemented, use shoulders and narrowed traffic lanes to create a HOT lane between Minneapolis and St. Paul. According to the project sponsor, I-94 does not have the space to build new HOT lanes if shoulders are not incorporated. Projects that convert shoulders and narrow lanes to create new lanes, including congestion pricing projects, raise concerns about driver safety and highway operations that transportation planners must address. Additional lanes on converted shoulders remove the safety refuge areas for motorists during vehicle breakdowns and emergencies and must be approved by DOT. According to the American Association of State Highway Transportation Officials, highways with paved shoulders have lower accident rates. Paved shoulders provide space to make evasive maneuvers; accommodate driver error; and add a recovery area to regain control of a vehicle, among other things.\",\n \"In addition, an analysis by the Highway Safety Information System sponsored by DOT reported that narrowing lanes or using shoulders to expand urban highways increased accidents by 10 percent. With traffic moving faster in the additional (or HOT) lane and slower in the unpriced lanes, the potential for sideswiping and lane-changing accidents increases. Another study conducted by the Texas Transportation Institute found that maintaining a shoulder and a wider HOV lane than adjacent unpriced lanes can help mitigate safety concerns. FHWA officials in Florida suggested that some of these safety issues could be mitigated using an incident management system, such as the one the Florida Department of Transportation has used on I-95 since 2008. As a condition of approving several design exceptions, FHWA required the Florida Department of Transportation to implement Intelligent Transportation Systems to mitigate safety issues related to incorporating a shoulder and narrowing lanes on I-95 in Miami. While using an incident management system does not prevent incidents from occurring, cameras can survey highways and detect incidents such as accidents, debris, and stalled vehicles. Highway message signs then convey information to drivers about the incidents and traffic conditions.\",\n \"Florida Department of Transportation staff can summon emergency, police, and tow truck crews to resolve problems and direct traffic. Thus, in the event of an incident on the HOT lanes, the lanes can be closed and, because there are no permanent barriers between the HOT lanes and the adjacent unpriced lanes, traffic can be diverted to the adjacent unpriced lanes. In the event of an accident in the unpriced lanes, the lanes can be closed and traffic diverted to the HOT lanes and tolls temporarily lifted. Since the HOT lanes on I-95 opened for traffic in December 2008, preliminary safety data found that the number of reported incidents involving accidents, debris, and stalled vehicles in the northbound express lanes increased from 132 in fiscal year 2009 to 209 in fiscal year 2010. Florida Department of Transportation officials have suggested, however, that the actual number of incidents may not have increased but that incidents are now tracked more accurately. In addition, according to FHWA officials in Florida, the number and severity of crashes declined after the I-95 HOT lanes became operational. In their view, the HOT lanes decreased congestion, and as a result, fewer rear-end crashes occurred.\",\n \"Additionally, FHWA officials stated that they have not seen evidence of more sideswiping since the traffic lanes were narrowed to form the HOT lanes. The UPA and CRD National Evaluation will assess the safety impacts of pricing, including the number of accidents and their severity and any change in the perception of safety by travelers and emergency personnel since pricing began. Although traffic congestion has declined recently in many metropolitan areas, future demand for travel during peak times is expected to increase as the population grows and the economy recovers. Fiscal and environmental concerns prevent building new capacity in many metropolitan areas. Transportation decision makers have a variety of traffic demand management tools, including road or congestion pricing, to more efficiently operate and manage their infrastructure. Pricing has the potential to reduce congestion by influencing drivers to carpool, use transit, or drive at off-peak travel times. Congestion pricing has, where evaluated, helped reduce congestion. However, it is difficult to draw overall conclusions about the effectiveness of pricing because only half the sponsors with projects now open to traffic have evaluated their projects.\",\n \"Other results, where available, are mixed, as project sponsors have used different measures to assess performance and little has been done to compare performance across projects. Where congestion pricing projects have also added lanes, the results of pricing have not been distinguished from the results of adding capacity. Finally, congestion pricing’s impact on traveler behavior and equity has yet to be fully explored. Congestion pricing in the United States is in its relative infancy. With about 400 miles of priced lanes in operation, which includes 150 miles of the New Jersey Turnpike, pricing has not been implemented beyond a limited number of locations. However, its popularity is growing. New projects under construction and in planning will not only increase the number of roadway miles that use congestion pricing, they will also change the character of pricing in the United States, as some will be operated privately and some will add congestion-priced tolls to previously nontolled roadways. The changing character of congestion pricing and the new challenges it brings make improving the understanding of congestion pricing even more important.\",\n \"While a more complete understanding of the potential benefits and effects of congestion pricing is needed, we are not making a recommendation in this report because the evaluations conducted through the UPA and CRD programs are an important step to furthering understanding of the relevant benefits and effects of pricing. These evaluations of pricing projects address reservations we have about gaps in knowledge about such projects—for example, these evaluations will compare results across projects to assess the effectiveness of congestion reduction strategies and assess several measures of equity. In addition, monitoring and reporting on the five ELD projects could also provide better information about the performance of pricing and its effects. However, only one of the six UPA and CRD metropolitan sites has been evaluated and only for its first phase and four of the five ELD projects are under construction. As such, we cannot assess the evaluation framework or their results until projects and their evaluations are complete. DOT provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date.\",\n \"At that time, we will send copies of this report to congressional subcommittees with responsibilities for surface transportation issues and the Secretary of Transportation. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or herrp@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made significant contributions to this report are listed in appendix V. Our work was focused on the performance of congestion pricing projects on highways, bridges and tunnels in the United States and issues associated with developing and implementing pricing projects. We examined (1) the federal role in supporting congestion pricing, (2) results of congestion pricing projects in the United States, and (3) emerging issues in congestion pricing projects. Our scope was limited to assessing congestion pricing projects in the United States that involved passenger vehicles. We did not review other types of congestion pricing such as priced parking facilities.\",\n \"We collected information on pricing projects directly from the 19 project sponsors of the 41 operational or under construction congestion pricing projects and received comments and validation of data from project sponsors. To address the federal role in supporting congestion pricing, we reviewed pertinent legislation and regulations; prior GAO reports and testimonies; and relevant documents from the U.S. Department of Transportation (DOT), state departments of transportation, and metropolitan planning organizations (MPO). This included policy documents from the Federal Highway Administration (FHWA) and various public presentations made by FHWA officials. We interviewed FHWA and Federal Transit Administration (FTA) officials, officials from state DOTs and MPOs, experts from academia and policy institutions, the Congressional Research Service (CRS), and the Congressional Budget Office (CBO). Our discussions with FHWA included DOT’s programs that involve tolling—Value Pricing Pilot Program (VPPP), High Occupancy Vehicle (HOV) Facilities, Express Lanes Demonstration, Section 129 program, the Interstate System Reconstruction and Rehabilitation Toll Pilot Program, and the Interstate System Construction Toll Pilot Program. We also discussed the Urban Partnership Agreement (UPA) and Congestion Reduction Demonstration (CRD) programs—one-time initiatives that were established with 10 separate federal grant programs.\",\n \"We discussed the eligibility and performance monitoring requirements of the federal programs and associated projects and verified this information with DOT documents. We also collected data of VPPP and UPA and CRD program funding from DOT and corroborated the status of the project data in interviews with FHWA. We analyzed the VPPP and UPA and CRD program funding to assess how federal funds are used to support congestion pricing projects. We interviewed sponsors of pricing projects that received federal funds on how the funds were used and with what results. We reviewed relevant FHWA environmental assessment manuals and interviewed FHWA officials about the environmental review process. We also interviewed FHWA field staff and project sponsors regarding their individual project’s environmental review process. To determine the results of congestion pricing projects in the United States, we reviewed performance evaluation reports from eight project sponsors that covered 14 of the 30 operational pricing projects. The remaining project sponsors did not have current and completed evaluations because their projects had opened too recently for sponsors to have evaluated them or because projects had changed significantly in character since they were studied and thus the original evaluations are no longer\",\n \"relevant.\",\n \"In addition, one project evaluation did not use pre- and post-data to measure performance and thus the impact of pricing could not be measured. Two project sponsors (one sponsor of the SR 261, SR 241, and SR 133 in Orange County, California and one sponsor of the SR 73 in Orange County, California) did not perform evaluations of their peak-period priced highways. Two project sponsors (one for I-15 in Salt Lake City, Utah, and one for I-10 and US 290 in Houston, Texas) completed performance evaluations, however these three highways have significantly changed in character since then and thus the original evaluations are no longer relevant. For example, I- 15 in Salt Lake City currently uses electronic tolling with dynamic pricing whereas when the project was evaluated a monthly decal with a static toll was used. I-10 was evaluated as one HOT lane with free access of carpools of 3 passengers but is now 2 HOT lanes with free access for carpools of 2 passengers. In addition, although US 290 was assessed in the I-10 evaluation, no pre- and post-data were used to measure the impact of pricing on performance.\",\n \"The project sponsor of I-25 in Denver, Colorado reported on monthly counts of traffic volumes and other measures but did not do so before and after pricing was introduced; therefore, we were unable to use the data to compare with other projects. Three project sponsors (I-680 in Alameda County, California; the San Francisco-Oakland Bay Bridge in California; and MD-200 in Montgomery County, Maryland) implemented projects recently and have not had adequate time to evaluate the projects. Three other projects—I-35 W in Minneapolis, Minnesota, which has the same project sponsor as I-394; SR 520 in Seattle, Washington, which has the same project sponsor as SR 167; and I-85 in Atlanta, Georgia—became operational recently and have also not been evaluated. I-35W, SR 520, and I-85 will be assessed as part of the UPA evaluations.\",\n \"The eight project sponsors with current and completed evaluations we reviewed were I-95 in Miami, Florida; I-15 in San Diego, California; SR 91 in Orange County, California; SR 167 in Seattle, Washington; I-394 in Minneapolis, Minnesota; the New Jersey Turnpike, New Jersey; two bridges in Lee County, Florida; and four bridges and two tunnels managed by the Port Authority of New York and New Jersey, New York. For each, we assessed the studies’ methodology to determine whether or not the data reported was valid and sufficient for our analysis. However, we did not conduct a thorough assessment of the quality of the evaluations’ methods as our objective was to assess the projects’ performance results where available. Once we determined which data was sufficiently reliable for our uses, we summarized the results reported in each performance evaluation for each project. The eight performance evaluations assessed various performance measures such as traffic speed, travel time, throughput, and transit ridership. The performance measures we focused our analysis on were: travel time and speed, throughput, off-peak travel, transit ridership, and equity.\",\n \"As a basis for assessing what performance measures we should review, we used a list of performance measures, some of which are outlined in the DOT’s UPA and CRD National Evaluation Framework. We chose these measurement areas because they were the most commonly reported in the evaluations and because they are the most commonly required measures for projects with federal monitoring requirements. We corroborated our choice of measures with FHWA and the Battelle Memorial Institute which is conducting the UPA evaluations using similar measures. We then compared the projects by qualitatively assessing the results for the five performance measures listed above and counting how many of the projects reported positive or negative results in each performance measurement category. We could not quantitatively compare results across projects because they did not use the same metrics and thus were assessed and reported differently according to project sponsor preference and resources. Project evaluations covered specific time periods and thus performance results are only for those time periods. Projects’ performance results may have changed since evaluations were completed.\",\n \"We discussed with Battelle Memorial Institute, Texas Transportation Institute, and the Volpe National Transportation Systems Center the UPA and CRD evaluation framework including its performance measures and metrics as well as challenges of conducting an evaluation across multiple projects. We also conducted site visits for the SR 167 and SR 520 projects in Seattle, Washington; I-95 project in Miami, Florida; and I-394 and I-35W in Minneapolis-St. Paul, Minnesota. We selected our site visits based on a judgmental sample of projects with completed evaluations; these sites included both HOT lanes and peak-period priced projects in different geographical areas of the United States. For each site visit, we met with relevant officials from state DOT, officials from the FHWA division office, project sponsors, and officials from local agencies such as the MPO and transit agencies. Discussion with project sponsors included clarifying the goal of the pricing projects and evaluations of the project performance. In addition to conducting interviews, we collected relevant documents, including environmental analyses, performance evaluations, and traveler surveys, and analyzed these documents as necessary. Where appropriate, we corroborated the interviews with documents obtained from project sponsors and FHWA.\",\n \"To identify the emerging issues in congestion pricing projects, we reviewed literature on congestion pricing, equity, environmental justice, traffic diversion, safety and other topics related to the benefits, costs, and trade-offs associated with congestion pricing. We reviewed prior GAO reports and analyses and reports from the FHWA, CRS, CBO, and industry experts and organizations that have evaluated the impacts of congestion pricing projects. We discussed our review of the reports with FHWA and FTA officials, officials from state DOTs and MPOs, and transportation experts from academia and think-tanks. We identified and interviewed experts with published work on congestion pricing and its impacts. Discussions with officials and experts included the costs and benefits of congestion pricing projects, trends in pricing designs and implementation, and methods to mitigate negative impacts. We also provided a copy of the draft report to a group of experts for an independent review. We selected these experts because they have published numerous studies analyzing the benefits and challenges of congestion pricing and its effects that are prominent in the transportation literature, and come from a cross section of institutions including academia, research organizations, and the private sector.\",\n \"We considered and incorporated their comments into the final report as appropriate. Group of Experts that Reviewed Draft Congestion Pricing Report Tod Litman, Researcher, Victoria Transport Policy Institute Lee Munnich, Professor, Senior Fellow and Director, State and Local Policy Program, Hubert H. Humphrey School of Public Affairs, University of Minnesota Robert Poole, Jr., Director of Transportation Policy, Reason Foundation Joseph L. Schofer, Professor, Northwestern University Brian Taylor, Professor of Urban Planning/Director, Institute of Transportation Studies, Luskin School of Public Affairs, UCLA David Ungemah, Senior Planning Manager, Parsons Brinckeroff Martin Wachs, Senior Principal Researcher, RAND Corporation We conducted this performance audit from October 2010 to January 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.\",\n \"Date pricing operational December 1995 16- miles (4-mile extension under construction) Salt Lake City, Utah 40 miles (11-mile extension under construction) Dynamic pricing $0.50-$9.00 7 miles (15-mile extension under construction) Dynamic pricing $0.30-$1.75 Dynamic pricing $1.55- $13.95 7 miles (in operation, 11 are under construction) Variable pricing $0-$5.00 The New Jersey Turnpike discontinued off-peak discounts to out-of-state vehicles as of July 2011. As of September 2011, 1 mile of MD 200 extension is under procurement. Project Express Lanes System Concept Study Strategies to Manage Traffic and Parking Strategies to Manage On- Street Parking and Reduce Congestion From Circling Vehicles.\",\n \"Project Evaluate the application of cordon/area pricing within major activity centers in the downtown Los Angeles core and build out a network of HOT lanes Study the application of pricing on the I-84 Viaduct, Hartford, CT including assessing the impacts of environmental justice issues that resulted from the original construction of the viaduct Study the application of full facility pricing to the I- 95 Corridor from New York to New Haven, CT and identify how toll revenues would be applied to provide strong support for transit Evaluate a two-tiered pricing on an existing toll facility and develop performance measures to track the changes in congestion, air quality, safety, livability and other factors that would result. Project Study will look at a transit credit program designed to provide occasional free use of the HOT lane for regular transit users when they need to drive, and a parking pricing program at a park and ride lot with free parking and shuttle services added from a more distant lot. Influencing Travel Behavior and Considering Environmental Justice. Would examine important environmental justice issues related to pricing I- 30, through the use of innovative Intelligent Transportation Systems (ITS) technology.\",\n \"The project is important because it will provide more data on environmental justice and pricing, given that there is little experience with strategies designed to address environmental justice issues related to the introduction of pricing. This project was selected because it met the statutory eligibility criteria and was highly qualified for the above stated reasons. Therefore, this project meets the evaluation criteria for innovation, equity, and congestion reduction. Project 183A Turnpike Pilot Downstream Impacts. Pilot implements a peak period toll in conjunction with dynamic ridesharing on an existing congested toll road. Would explore applying dynamic ridesharing as an equity mitigation strategy. An actual field trial is included as part of project. The road opens in 2012. The local agencies are contributing their own funds to support the project. Therefore, this project meets the evaluation criteria for innovation, livability, sustainability, equity, congestion reduction, safety and state of good repair. Fiscal year 2008-2009 grants were part of the one-time Urban Partnership Agreement initiative. Performance metric Report percentage of time facility is operating at a minimum average speed of 50 mph broken down by daily averages a.m. peak, off-peak, and p.m. peak hours. Performance and monitoring requirement Annual reporting\",\n \"to U.S. DOT required.\",\n \"Changes in mode split/ridership/vehicle occupancies of priced versus general purpose (or adjacent free) lanes on lane availability for the managed lanes during this time, including the length of time each such lane was unavailable. Report number of declared High Occupancy Vehicles (HOV) for the year and differences from the previous year (on a total and percentage-change basis) broken into daily averages by a.m. peak and p.m. peak for the managed lanes. Report number of buses (i.e., registered non-revenue accounts) for the year and differences from the previous year on a total and percentage-change basis) broken into daily averages by a.m. peak, off-peak, and p.m. peak for the managed lanes. Report average toll charged for the year and differences from the previous year (on a total and percentage-change basis), broken into daily averages, by a.m. peak, off-peak, and p.m. peak for managed lanes. Change in criteria pollutant emissions at the regional level (particle pollution, ground-level ozone, carbon monoxide, sulfur oxides, nitrogen oxides and lead) during the current year and differences from the previous year (on a total and percentage-change basis) utilizing reasonably available and reliable air quality reporting tolls and mechanisms.\",\n \"Traffic speed on priced lane to maintain express bus service Report a minimum average operating speed of 45 mph on the HOV lanes with a speed limit of over 50 mph or not more than 10 mph below the speed limit for HOV lanes with a speed limit less than 50 mph. This speed must be maintained for 90 percent of the time over 180 days during morning or evening weekday peak. Annual certification required by U.S. DOT. If performance standards not met, actions must be taken to comply. Performance and monitoring requirement No certification required by U.S. DOT as no specific performance standards must be met. However, participants are required to report on “value pricing” elements up to 10 years. Multi-year project-specific and national evaluations which U.S. DOT is overseeing.\",\n \"Percent change in route/corridor travel time by time of day Percent change in the travel time index for comparisons across sites (having corridors of differing lengths) Percent change in number of hours of the day with congested conditions and the number of congested travel links per day Percent change in average travel speeds by hour of the day Percent change in travel time reliability and planning time index Percent change in vehicle and person trips by time of day and person and vehicle throughput Change in traveler perceptions about congestion after deployment of strategies Level of service in tolled lanes Travel-time reliability in tolled lanes Average occupants per vehicle of tolled lanes versus general purpose lanes Use of tolling options Traffic density in tolled lanes Travel-time reliability (seasonally controlled) Days exceeding reliability and performance thresholds End-to-end travel time Service reliability User ratings of service performance Corridor ridership Corridor mode split (%) Socio-economic and geographic distribution of benefits including: tolls paid and adaptation costs; change in travel time and distance by group; total transportation cost; environmental impacts Public perception of the individualized equity impacts of pricing Spatial distribution of revenue reinvestment Reduction in criteria pollutants Reduction in\",\n \"noise Reduction in vehicle miles traveled Qualitative assessment of perceived benefits of the Reductions in estimated fuel use Use and impact of alternative fuel vehicles for transit improvements Percentage change in crash rate by type and severity Percentage change in time to clear accidents Change in the perception of safety by service patrol operators, state patrol officers, medical first responders, and bus operators Change in the perception of safety by travelers This is a sample of UPA and CRD performance analyses that include measures and metrics related to the effects of congestion pricing.\",\n \"Other UPA and CRD analyses will look at telecommuting/travel demand management and technology as well as impacts on businesses, goods movement, and nontechnical success factors. In addition to the contact named above, Steve Cohen (Assistant Director), Maureen Luna-Long, Sarah Jones, Thanh Lu, Michael Kendix, Sara Ann Moessbauer, James Wozny, Elizabeth Eisenstadt, Crystal Wesco, and Josh Ormond made key contributions to this report.\"\n]","isConversational":false}}},{"rowIdx":10890,"cells":{"id":{"kind":"string","value":"train_10890"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"The Fair and Accurate Credit Transactions (FACT) Act of 2003 which amended the Fair Credit Reporting Act (FCRA), contains provisions intended to help consumers remedy the effects of identity theft. For example, section 609(e) of the amended FCRA gives identity theft victims the right to obtain records of fraudulent business transactions, and section 609(d) requires the Federal Trade Commission (FTC) to develop a model summary of identity theft victims' rights. This report provides information on (1) outreach efforts to inform consumers, businesses, and law enforcement entities about section 609(e); (2) the views of relevant groups on the provision's expected impact; and (3) FTC's process for developing its model summary of rights and views on the summary's potential usefulness. Some efforts to educate consumers, business entities, and local law enforcement officials about their rights and obligations under section 609(e), which grants identity theft victims access to fraudulent business transaction records, were under way as of June 2005--notably by the FTC, U.S. Postal Inspection Service, International Association of Chiefs of Police, and National Credit Union Administration. For example, FTC had a number of outreach efforts on section 609(e) including coverage in conferences and presentations as well as information available through its Web site, toll-free hotline, and identity theft publications. While many of the other federal regulators and law enforcement agencies have undertaken outreach efforts on identity theft, most did not specifically include information on section 609(e). FTC staff indicated that the public education campaign on identity theft prevention mandated to be implemented by December 2005 by the FACT Act will also include coverage of section 609(e). According to FTC, law enforcement agency officials, and consumer advocacy group representatives we spoke with, section 609(e) should help victims to remedy the effects of identity theft more quickly. Other cited benefits include allowing victims to build stronger cases that could assist law enforcement agencies in developing intelligence data for their investigations. However, due to the limited experience with victims attempting to obtain business records, it is too early to assess the actual effectiveness of the section 609(e) provisions. Consumer groups and state agencies identified some potential problems with the timeliness of business transaction data and the extent of documents needed to verify a victim's identity theft claim. Given the newness of the provision, additional experience is needed to verify the validity of these potential concerns or other concerns not yet anticipated. FTC staff told us that as part of their overall FACT Act outreach efforts, they intend to monitor the implementation of section 609(e) to determine whether the provision is working as intended. Most of the agencies and groups we spoke with had favorable views of FTC's process to develop the model summary of identity theft victim rights mandated under section 609(d). FTC published its final form of the summary on November 30, 2004, and as required by FTC's guidance, the three national credit reporting agencies told us they began distributing a summary to consumers who contacted them with identity theft concerns before January 31, 2005. While most of the groups that we contacted felt that FTC had been responsive to their comments, consumer advocacy groups identified two potential concerns. These potential concerns center on the limited availability of a Spanish version of the summary of rights and the clarity of the model summary of rights to the general population. However, due to the limited time that the summary has been available, it is too early to determine the extent of any implementation issues."},"documents":{"kind":"list like","value":["The Identity Theft and Assumption Deterrence Act of 1998 made identity theft a federal crime. Although FTC does not have the authority to bring criminal cases, the act established FTC as the federal clearinghouse for identity theft complaints. FTC is required to keep a log of such complaints and to notify consumers that their complaints have been received. In response to this requirement, in November 1999 FTC established the Identity Theft Data Clearinghouse to gather information from consumers who file complaints or inquire about identity theft. FTC inputs this information into its Consumer Sentinel database, which is used by more than 1,000 law enforcement agencies. According to FTC, the number of identity theft complaints it has received has steadily risen each year— climbing from 31,000 in 2000 to 247,000 in 2004. FTC staff noted that the increase in reported instances of identity theft may in part reflect enhanced consumer awareness and willingness to report such crimes. However, not all identity theft victims contact FTC. No single federal law enforcement agency has primary jurisdiction over identity theft crimes.","Identity theft is not typically a stand-alone crime but rather a component of one or more crimes such as bank fraud, credit card fraud, social program fraud, tax refund fraud, and mail fraud. For example, a fraudster might steal another individual’s personal identifying information in one city and use the information to commit credit card fraud and mail fraud in another city or state. Consequently, a number of federal law enforcement agencies can have a role in investigating identity theft crimes, including the Federal Bureau of Investigation (FBI), Internal Revenue Service, U.S. Postal Inspection Service, U.S. Secret Service, and the Social Security Administration’s Office of the Inspector General. The Department of Justice (DOJ) prosecutes federal identity theft cases. The FACT Act of 2003, among other things, strengthened victims’ rights with respect to identity theft and gave FTC and businesses a larger role in dealing with identity theft crimes. The act also highlighted the need for law enforcement agencies to assist victims in documenting their identity theft crime. Section 609(e) requires business entities to provide victims of identity theft with information on fraudulent business transactions—for example, copies of applications for credit or records of purchases.","In the past, businesses have been reluctant to provide such information, fearing their potential exposure to lawsuits for the inappropriate disclosure of sensitive personal financial information. To address this concern, Congress added a provision protecting businesses from civil liability claims for disclosing such information. In addition, the FACT Act reinforces the need for police to assist victims in taking official reports. These reports can then be used to substantiate claims of identity theft when alleged victims request, for example, copies of business records involving instances of potential fraud. The FACT Act also requires that FTC develop a model summary of rights for consumers who believe that they are victims of identity theft (see app. II). CRAs are required to provide a substantially similar version of the model summary of identity theft victim rights to any consumer who “contacts a consumer reporting agency and expresses a belief that the consumer is a victim of fraud or identity theft.” As previously mentioned, the act mandated that FTC launch a public campaign on how to prevent identity theft by December 2005, but did not specifically require that section 609(e) be included in the campaign.","At the time of our review, some efforts to educate consumers, business entities, and local enforcement officials about their rights and obligations under section 609(e)—notably efforts undertaken by the FTC, U.S. Postal Inspection Service, International Association of Chiefs of Police, and National Credit Union Administration—were under way. We found that while most of the federal agencies and law enforcement agencies and other groups that we contacted were engaged in outreach related to identity theft issues, those efforts generally did not have a component specifically addressing section 609(e). In particular, FTC staff told us that outreach for section 609(e) would be part of broader efforts to educate the public, business entities, and law enforcement officials about identity theft and FACT Act provisions and that outreach on 609(e) would increase beginning in December 2005 as part of its public identity theft campaign. As of June 2005, outreach efforts by a variety of interest groups, including businesses and their trade groups, federal law enforcement agencies, and banking regulators, were also just beginning. Most of these groups saw FTC as having primary responsibility for outreach.","FTC staff told us that they have undertaken a number of outreach efforts to educate the public, law enforcement, and others on the FACT Act, including section 609(e). However, FTC staff explained that section 609(e) is only one tool in the resources available to victims for remedying the effects of identity theft and that FTC’s first priority is to make those affected aware of all of the relevant provisions contained in the FACT Act. Since 2004, FTC in conjunction with federal law enforcement agencies has cosponsored six conferences and presentations geared directly to local law enforcement, which included a discussion on the FACT Act. In addition, since January 2004 FTC has participated in more than 50 conferences, seminars, and presentations on the FACT Act involving attorneys, bar associations, business trade groups, financial institutions and state regulators. FTC staff told us that these outreach efforts addressed increasing the awareness of section 609(e) provisions, as appropriate to the particular audience.","Other FTC outreach efforts on section 609(e) include links on FTC’s Web site at www.consumer.gov/idtheft to its model summary of identity theft victim rights and other information on identity theft, a toll-free hotline (1-877-IDTHEFT) offering counseling to help consumers who want or need more information about dealing with the consequences of identity theft, and FTC’s Consumer Response Center and Distribution Office that provides publications on identity theft, among other topics. For example, FTC recently updated its identity theft booklet, renamed Take Charge: Fighting Back Against Identity Theft, to incorporate the FACT Act requirements, including section 609(e). Further, FTC has included section 609(e) in the mandated summary of identity theft victim rights that the CRAs began distributing in January 2005. At the time of our review, this summary was the primary mechanism for providing consumers with information on their right to obtain business records on potentially fraudulent transactions. According to FTC staff, FTC’s Web site on identity theft included links to section 609(e) as of its effective date of June 1, 2004, which was subsequently integrated into an updated identity theft Web site.","According to FTC staff, section 609(e) will also be incorporated into the public education campaign that FTC is required by the FACT Act to implement by December 2005 which will help increase outreach on the provisions. FTC staff told us that the agency has conducted outreach on privacy, consumer reporting, identity theft, and related legislation and regulations for several years and that the initiatives target consumers, businesses, and law enforcement agencies. FTC conducts its identity theft education campaign through its Web site, printed publications, conferences and presentations, syndicated news articles and newscasts, training sessions, communications with state attorneys general, and visits to high school and college campuses. It also holds seminars for small businesses that may not be active with trade groups. Additionally, the agency provides counseling over the telephone to consumers who contact FTC with complaints or inquiries about identity theft. FTC staff explained that the agency attempts to leverage its resources to conduct outreach—that is, it relies on consumers, law enforcement agencies, and businesses to spread the relevant information it provides among one another.","FTC staff stated that the mandated public education campaign would build upon and become a component of FTC’s ongoing consumer and business education campaigns. FTC staff stated that the mandated campaign will be under way by the December 2005 deadline and will include coverage of section 609(e). The staff told us that in terms of its identity theft outreach to consumers, FTC’s priority is for consumers to know that FTC is the organization that consumers should contact if they need information or assistance with identity theft problems. They added that requesting business transaction records under section 609(e) is not the first step an identity theft victim takes to restore his or her credit. According to FTC staff, the campaign will focus on all aspects of identity theft prevention and remediation as well as informing consumers, businesses, and law enforcement agencies about the new rights and responsibilities discussed in section 609(e) and other provisions that are useful to consumers. At the time of our review, FTC could not provide us with information on the exact extent of coverage that section 609(e) would receive in FTC’s outreach materials to consumers and businesses.","FTC did provide us with a copy of its identity theft public education solicitation dated June 1, 2005. According to the solicitation, one of the expected targets of the campaign are identity theft victims with the goal of assisting those victims in the recovery process by teaching them the steps to take to reclaim their good names. FTC plans to evaluate the effectiveness of the public outreach campaign using various means. According to the solicitation, the program plan for the public education campaign is expected to include strategies for monitoring and evaluation of program results. FTC staff also told us that they also intend to monitor and evaluate the results of this contract through traffic to the identity theft Web site, publications distribution, and identity theft complaints to the FTC. We found that a variety of outreach efforts on identity theft were under way or were being planned by businesses, trade groups, law enforcement agencies, federal banking regulators, and consumer groups. We were able to obtain only limited information on efforts undertaken by businesses and their trade groups and associations.","A few business trade group representatives told us that they had been active in reaching out to their constituents on identity theft issues through presentations and newsletters. These representatives told us that it was likely that the level of awareness among midsize and large business entities regarding the FACT Act and section 609(e) was greater than among small businesses, because larger businesses were more likely to belong to trade groups and associations and to have more internal legal resources. The representatives also told us that at the time of our review business entities and their trade groups were focused on other issues likely to have a more direct impact on their operations than section 609(e), such as working with Congress on bankruptcy legislation, which was ultimately passed and became law on April 20, 2005. Most of the federal law enforcement officials that we contacted had general identity theft outreach efforts under way that included some form of outreach on the FACT Act, although few specifically included information that addressed section 609(e). Rather, most of these groups focused on general identity theft prevention rather than on the section 609(e) provisions.","Officials from one federal law enforcement agency indicated that their identity theft outreach efforts that include FACT Act provisions were in the initial stages of implementation. These efforts are designed to reach consumers, businesses, and law enforcement entities. For example, as previously discussed, federal law enforcement agencies such as DOJ, FBI, the U.S. Postal Inspection Service, and the Secret Service have held joint conferences on identity theft, including a discussion of the FACT Act, and invited local police to attend. As shown in figure 1, one effort that did specifically address section 609(e) and was directed to law enforcement agencies was an advertisement developed by the U.S. Postal Inspection Service that prominently noted the new tools for law enforcement and new rights of victims under the FACT Act, including section 609(e). The International Association of Chiefs of Police (IACP) has also specifically addressed section 609(e) in the information that it has disseminated on identity theft. An IACP official told us that a lack of awareness among local police departments of the new provision could make it problematic for some identity theft victims to get local police departments to take a police report.","The IACP official also emphasized the importance of ensuring that police were aware of the FACT Act and of their responsibility to take reports to validate an identity theft claim. The official added that local police were likely to become increasingly involved in identity theft crimes because these officers are committed to being responsive to the citizens within their communities. To address the perceived lack of awareness among local police, the IACP featured articles on identity theft and the FACT Act, including section 609(e), in its January through April 2005 editions of Police Chief magazine. The IACP official also stated that the association was in the process of finalizing a national report on identity theft that would be released in print, on the Internet, and on a CD, and would be featured at conferences. The report will discuss policies and recommended procedures under current laws and describe the responsibilities, including the FACT Act requirements, of law enforcement. While all of the federal banking regulators provided general identity theft outreach, only the National Credit Union Administration specifically addressed the section 609(e) provision in its identity theft outreach efforts.","Each of the regulator’s general identity theft outreach included conducting presentations, posting related information on their Web site, and publishing identity theft literature or brochures. For example, the Federal Deposit Insurance Corporation (FDIC) published materials such as Consumer News, which featured articles on identity theft but did not address the provisions of section 609(e). The only regulator that we identified as having specifically addressed section 609(e) was the National Credit Union Administration which issued a Regulatory Alert in January 2005 informing credit unions about the FACT Act’s provisions including section 609(e). Some officials noted that the Federal Financial Institutions Examination Council (FFIEC) had recently formed an interagency task force, to among other things, address how federal banking regulators could ensure that regulated institutions were in compliance with the new requirements. These officials added that their agencies had not yet established any outreach efforts specific to section 609(e) because they were waiting for the results of the recently formed FFIEC task force, in order to avoid duplicating the task force’s efforts.","Some consumer groups we contacted maintained FACT Act information on their Web sites and educated identity theft victims who contacted them in some instances by providing telephone counseling and printed publications. Officials from one consumer group acknowledged FTC’s mandated campaign as a key outreach tool and suggested that the campaign should also include initiatives directed to businesses. These officials explained that it was important that business entities understand their obligations and roles under section 609(e). Specifically, the officials stated that these initiatives should involve business groups such as the Better Business Bureau, the U.S. Chamber of Commerce, the National Retail Federation, state retailer associations, and TRUSTe®. FTC staff told us that they often use associations in their outreach as an effective method to help spread information. The limited anecdotal information that FTC had on victims who attempted to obtain business transaction records related to identity theft suggested that not all businesses were aware of their obligations under section 609(e). According to FTC staff, a few identity theft victims had contacted FTC and reported that they were unable to obtain business transaction records related to the theft of their identity.","According to FTC, these instances were caused primarily by businesses’ lack of knowledge about their obligations under the FACT Act. Once FTC informed these business entities about their obligations, the victims were able to obtain the necessary transaction records. Most agencies and groups that we spoke with had done some general identity theft outreach and had planned or already had under way a few efforts that focused on section 609(e), but viewed FTC as having the primary responsibility for providing outreach on the FACT Act, including section 609(e). FTC staff told us that they intend to evaluate the effectiveness of FTC’s mandated identity theft campaign, which will include the 609(e) provisions, but emphasized that FTC’s first priority is outreach to consumers, businesses, and law enforcement on the FACT Act, an effort that would occur over time. As a result, more time is needed to disseminate information about the section 609(e) provisions and determine how useful the provision is in helping victims correct their credit files and resolve their cases.","While not all identity theft victims will need section 609(e), FTC, law enforcement agencies and consumer groups with whom we spoke believed that the provision giving victims access to data on fraudulent business transactions would help in resolving identity theft cases. In particular, law enforcement agencies told us that the information would help victims build stronger cases to present to law enforcement agencies and should provide more of the data that are needed to identify patterns or trends in identity theft practices. Noting that victims of identity theft often have difficulty getting local police to take a report to help substantiate an identity theft crime, consumer advocacy groups also told us that they believed that the new provision should make filing these reports easier. State agencies and consumer advocacy groups also identified some potential concerns with the provision. Among these were the timeliness of the data provided to victims and a concern that businesses could require excessive documentation from victims to support an identity theft claim.","FTC staff told us that depending on the specific circumstances, not all identity theft victims will need to assert their rights under section 609(e) but that section 609(e) would be extremely useful for those victims who need additional documentation to support their disputes of fraudulent accounts. Representatives from federal law enforcement agencies and IACP said that it was too early to determine whether victims were finding it easier to get local police to take identity theft reports and that local law enforcement agencies might not yet be fully aware of the requirements of this provision. But representatives of federal law enforcement agencies and consumer advocacy groups said that the new provision should help empower victims of identity theft by giving these victims access to data on fraudulent business transactions that could help resolve the crimes. The officials explained that before Congress created section 609(e), victims had generally been unable to obtain data on fraudulent business transactions because businesses feared being held liable for providing the information. To address this concern, Congress established limitations in the FACT Act provision so that businesses could not be held liable for disclosing such information to victims.","Representatives of businesses we spoke to said that addressing the liability issue in the law had removed the barrier to providing information on allegedly fraudulent transactions to victims of identity theft. One consumer group told us that having records of fraudulent business transactions, such as copies of checks or signed applications for credit, would allow victims to prove that someone else was responsible—for instance, by comparing signatures. Without these records, victims may have no way of proving that the transactions were fraudulent and could be forced to pay the bills themselves. Officials from law enforcement agencies told us that as an added benefit, victims would be able to gather more information on their cases that may prompt law enforcement agencies into opening an investigation. In turn, law enforcement officials could use that information to assess the nature and scope of alleged crimes of identity theft. Additionally, law enforcement officials anticipated that the information would help investigators build cases more quickly and identify patterns or trends in identity theft practices.","For instance, the information could help identify the frequency of certain types of fraud and the locations being targeted, allowing investigators to better determine whether individual crimes were part of a larger operation. However, federal and state law enforcement officials pointed out that having more information might not necessarily lead to an increase in prosecutions. In fact, one of the states we contacted that had a similar identity theft law told us that the number of police investigations or prosecutions of identity theft crimes had not increased since the state law had been in effect. The officials explained that workloads and other priorities often determined the types of investigations and prosecutions law enforcement undertake. Consumer advocacy groups we interviewed noted that in the past, victims of identity theft sometimes had difficulty getting local police to take reports about the crimes, although police reports help substantiate victims’ claims. As we reported in 2002, getting local police to file a police report is a critical first step in being able to investigate the crime and in undoing the impacts of identity theft.","The consumer advocacy groups noted that the new provision will increase pressure on local police to take reports because these reports can play a key role in verifying the identity theft victim’s right to access information. These groups pointed out that in California, which has a similar identity theft law already in place, local police who were aware of their obligations under the state law were more likely to take identity theft reports. One consumer advocacy group told us they expect a similar outcome with the FACT Act provision. Additionally, officials from the two states—California and Washington—that have enacted similar identity theft laws agreed that since their laws had been in place, police had generally been more willing to take reports from identity theft victims. Officials from one of the states told us that law enforcement agencies there had also been more active in discussing identity theft issues. Representatives of a consumer advocacy group and law enforcement agencies acknowledged that the overall number of police reports charging identity theft crimes was increasing but noted that it was difficult to attribute this increase to any one cause, including the FACT Act.","For instance, one consumer advocacy group we spoke with attributed the increasing willingness of local police to take these reports to the fact that identity theft was a growing problem and that the public was generally more aware of it. Officials from law enforcement agencies also pointed out that the difficulty of filing local police reports was only one of the frustrations victims of identity theft faced. For example, the amount of time required to clean up credit and the lack of criminal prosecutions for these crimes are even more frustrating for victims, and both of the issues remain unresolved. Representatives of state agencies and consumer advocacy groups with whom we spoke identified two potential concerns about the provision. First, the provision gives businesses 30 days from the date of a victim’s request to provide information on fraudulent business transactions—a time period that some feel is too long. For instance, officials from one state agency and a consumer advocacy group we spoke to stressed the importance of providing information quickly so that victims could begin clearing their credit files and resolving their cases.","Several of those we spoke with recommended 2 weeks as a more reasonable length of time for victims to gain access to records and pointed out that states such as California and Washington, which have similar identity theft laws, ask business entities to respond faster. California’s privacy laws require that businesses respond within 10 business days of receiving the person’s request (which must include a copy of the police report and identifying information). Washington’s identity theft law does not specify a time frame for responding to requests for records, but state officials stated that business entities are encouraged to respond within a reasonable amount of time. State officials from both California and Washington noted that victims in their respective states had generally been able to obtain data on fraudulent business transactions within their respective time frames. In contrast, business entities we spoke with believed that there could be complicated situations in which it might be difficult to respond within the 30-day time period. Additionally, representatives from two law enforcement groups said that the 30-day time period appeared to be reasonable.","They explained that businesses might need the time to review the request and verify a victim’s identity and added that the 30 days could reflect the reality of running a business with competing priorities. FTC staff said that although they did not know how long businesses were taking to respond to victims, it would be unfortunate if businesses were in fact taking the full 30 days. While these officials agreed that victims needed to obtain information promptly in order to resolve their cases, they noted that the 30-day time period had been established to give businesses additional time to respond to requests if needed. Because the law affects a wide range of businesses, the officials told us, it must allow for a wide range of circumstances. Consumer advocacy groups were also concerned with the discretion the provision gives to businesses to request additional documentation— beyond a police report—as proof of a victim’s claim of identity theft. Under the provision, businesses may require victims to provide a copy of a standardized affidavit of identity theft or an acceptable affidavit of fact as well as a police report.","FTC, in conjunction with credit grantors and consumer advocates, has developed the Identity Theft Affidavit, a standard form victims can use to report information on, for example, fraudulent accounts that have been opened. The affidavit of fact is a business’ own form used by a victim for documenting alleged identity theft. However, consumer groups we spoke with said that a police report should be sufficient evidence to verify an identity theft claim and questioned the amount of information businesses actually needed. Representatives of CRAs also pointed out that a broad range of what could be characterized as identity theft reports existed. These representatives explained that any law enforcement group, whether civil or criminal, could take an identity theft report, raising concerns about the consistency of the information being reported and the possibility that the credit repair industry could misuse it. Additionally, officials in California and Washington told us that victims of identity theft in their states had experienced difficulties trying to obtain data on fraudulent business transactions immediately after their state laws were enacted. The officials attributed the initial difficulties to the fact that businesses were probably not aware of the new statutes.","Officials in California told us that they had developed a template for a letter that victims could send to businesses. The letter provides information both on the law and on penalties for noncompliance and had been effective in getting businesses to comply. Officials in Washington told us that they had provided education to consumers, businesses, and the law enforcement community early on. For instance, the business community was involved in disseminating information on the requirements of the law, and a law enforcement “tool kit” was developed that provided information on the law and criminal provisions. As mentioned earlier, we were only able to obtain opinions from a limited number of businesses or industry representatives, including trade associations, on the experiences of businesses in complying with section 609(e) or the expected impact of this provision. Several of the national business and industry representatives we contacted declined our requests for comments because they had limited information to share with us on the likely extent of awareness within the business community on this provision. While we did manage to gather some opinions from a few businesses and associations, the information obtained was extremely limited.","FTC staff told us that as part of their overall FACT Act outreach efforts, they intend to monitor the implementation of section 609(e) to determine whether any additional efforts are necessary to ensure that the provision is working as Congress intended. They also stated that they would use their law enforcement authority as appropriate if they determined that a business or businesses were not complying with the provisions of section 609(e). Officials and representatives of federal agencies and consumer groups we contacted believe that the FTC’s new summary of rights will be useful to victims of identity theft. As mandated by the FACT Act, FTC published its final summary of rights in November 2004, and CRAs began distributing a version of the summary to consumers in January 2005. Federal banking agencies spoke favorably of FTC’s process for soliciting comments while the agency was developing the model summary. However, some consumer groups told us that they still had some potential concerns with the final document. These potential concerns included the lack of a requirement that CRAs make the summary available in other languages, specifically Spanish, and the general readability of the summary.","In response to these potential concerns, FTC stated that while CRAs are not required to provide the summary in other languages, FTC’s consumer model summary does contain a statement in Spanish directing consumers to FTC to obtain additional information. FTC has made a Spanish version available on its identity theft Web site. FTC also stated that it had tried to use plain language in the summary, and it recognized the need for additional outreach efforts. We also noted that overall FTC’s final summary was more concise and used shorter sentences than its draft summary, resulting in a document that we found generally easy to read. On November 30, 2004, FTC published its final version of the model summary of identity theft rights as mandated by the FACT Act (see app. II). The summary highlights the major rights FCRA provides to identity theft victims seeking to remedy the effects of fraud or identity theft.","These include the right to obtain free file disclosures, the right to file fraud alerts, the right to obtain documents or information relating to transactions involving the consumers’ personal information, and the right to prevent consumer reporting agencies from reporting information that is the result of identity theft. As outlined in FTC’s guidance, CRAs were to begin distributing by January 31, 2005, a “substantially similar” version of FTC’s summary to consumers who believed they had been victims of fraud or identity theft. According to representatives with whom we spoke, these agencies had begun distributing their summaries of identity theft victim rights before this date. The representatives also noted that the summaries distributed were very similar to the FTC’s model summary of rights. Under the FACT Act, the FTC was required to consult with the federal banking agencies and the NCUA in preparing the model summary of consumers’ rights. Federal banking agency officials told us that FTC had effectively promoted collaboration among the regulators in developing the summary of identity theft rights. Federal banking agency officials also stated that FTC solicited comments on two draft versions.","The officials told us that although they did not have substantive concerns with either version, they did provide editorial comments. These officials said that they suggested, among other things, avoiding technical terms, using fewer acronyms, shortening sentences, and in general focusing on keeping the summary easy to read by using simple English. Additionally, the federal banking agency officials stated that FTC had substantially incorporated the agencies’ input. Officials of law enforcement agencies and representatives of consumer groups whom we contacted believed that the summary should provide useful information for victims of identity theft. For instance, officials from two law enforcement agencies stated that the model summary would be a significant aid to victims. The officials explained that in the past victims had often felt helpless because of the limited avenues available to them in resolving their cases. With the summary of rights, however, victims can learn about concrete steps they can take to help themselves. Similarly, consumer advocacy groups believed that the summary of rights contained information that would be useful to victims of identity theft and added that the document would be among the most important tools in implementing the changes to the FACT Act.","These groups also stated that FTC’s model summary of rights would be useful in setting the standards for efforts by media and nongovernmental organizations to educate consumers about their credit reporting rights in general. Some consumer advocacy groups we spoke with identified two potential concerns with FTC’s final model summary of rights. First, these groups pointed out that FTC did not require CRAs to make the model summary of rights available in other languages, primarily Spanish, and that access to bilingual information was especially important to those persons whose dominant or sole language is Spanish. According to these groups, the Census 2000 figures indicate that nearly 19.6 million U.S. citizens between the ages of 18 and 64 spoke Spanish and that one-third of this group spoke English “not well” or “not at all.” FTC staff told us that while the CRAs were not required to provide a copy of the summary in other languages, the final summary did contain a Spanish statement telling consumers to contact the FTC for information in Spanish and giving both the agency’s mailing and Web site addresses. A Spanish translation of the summary of rights is available on FTC’s identity theft","Web site.","Finally, FTC staff told us that FTC targets certain populations in its ongoing public outreach efforts and expects to continue to do so in the context of its mandated public campaign on identity theft prevention. The three nationwide CRAs we contacted provided us with copies of their summaries of rights for identity theft victims that the agencies had begun distributing to consumers in January 2005. Only one of the agencies had made a summary of rights available in Spanish; the other two had placed a Spanish statement similar to FTC’s on their summaries directing consumers to FTC for information in Spanish. Officials from the CRAs told us that they distributed the model summary of rights to consumers who notified them of potential identity theft and not, in general, to every consumer who contacted them. Second, consumer advocacy groups were concerned that the model summary would not be easy to read and understand.","A comment letter to the FTC from nine consumer advocacy groups said that the model summary of rights should be tested for readability before it was finalized to ensure that it could be easily understood by all consumers, including those with limited education and those who did not speak English as their primary language. The letter stated that having a readable summary was vital to ensuring that consumers were aware of their rights with respect to identity theft, especially those consumers who might not be familiar with the financial services world. One consumer group we spoke with also stressed that readability, which includes the organization of the document and format, was important for any public message. In response to the comments the agency received, FTC’s final rule stated that the agency had tried as far as possible to use plain language in the summary and agreed that the notices needed to be supplemented by outreach efforts, which the agency said it intended to undertake.","FTC staff also told us that while they did not have the document reviewed by a private readability expert, they did have the document reviewed internally for presentation and clarity by FTC’s Office of Consumer and Business Education. In our review of FTC’s draft and final summary of identity theft rights, we found that overall FTC’s final summary was more concise and used shorter sentences than its draft summary. Several of the comments to FTC had suggested streamlining the information to improve the clarity of the document. As a result, the final summary was generally easy to read. Section 609(e) is intended to help victims of identity theft obtain access to data on fraudulent business transaction records that could help in repairing the damage, financial and otherwise, that crimes of identity theft can inflict. However, because section 609(e) has been in effect only a short time (since June 2004), it is too soon to assess the effectiveness of the provision.","Because efforts to alert consumers, business entities, and local law enforcement agencies on their rights and responsibilities under section 609(e) were in their early stages, it is also too soon to determine the extent of the awareness and use of section 609(e) by these groups. The FACT Act mandates that FTC conduct outreach on identity theft prevention, and most of the groups we contacted felt that FTC should have primary responsibility on identity theft issues. FTC is in a unique position because it already has an existing dialogue with the critical groups involved in section 609(e) through its ongoing outreach efforts on identity theft issues, its interaction with consumers who use its identity theft hotline and consumer complaint database, and its mandated campaign on identity theft prevention. In contrast, no other agency or group maintains public outreach efforts that are as far reaching as the FTC’s. FTC intends to assess the effectiveness of its mandated identity theft campaign which will include coverage of section 609(e).","Such an assessment would be useful as a means of determining the extent that consumers, businesses, and local law enforcement agencies are aware of their rights and obligations under section 609(e), the extent of any implementation issues, and whether the new provision is helping consumers as intended to remedy the effects of identity theft. Similarly, experience with victims who have attempted to obtain business records is limited by the short period of time that has elapsed since the act went into effect. It is too early to assess the actual impact of section 609(e) on consumers’ ability to get business records relating to suspected fraudulent transactions. While consumer groups and state agencies identified some potential problems with the provision, additional experience and input from identity theft victims will be needed to determine whether these concerns prove to be valid and what, if any, other issues may arise. While FTC’s process for developing its mandated model summary of identity theft victim rights was viewed favorably and CRAs had begun distributing a similar version of the summary to consumers, some potential concerns with the summary of rights were noted.","These potential concerns center primarily on the limited availability of a Spanish version of the summary of rights and, to a lesser extent, on the clarity of the summary of rights to the general population. While it is too early to determine the extent of any implementation issues, FTC efforts to monitor the implementation of section 609(e) should provide additional information on the usefulness of the summary of rights in aiding identity theft victims. We are sending copies of this report to interested congressional committees and subcommittees; the Chairman, FTC; the Attorney General; the Director, FBI; the Secretary of Homeland Security; the Commissioner, Social Security Administration; the Chief Postal Inspector, U.S. Postal Inspection Service; the Director, U.S. Secret Service; the Chairman, Federal Deposit Insurance Corporation; the Chairman, Board of Governors of the Federal Reserve System; the Acting Comptroller of the Currency; the Acting Director, Office of Thrift Supervision; the Chairman, National Credit Union Administration; and the Secretary of the Treasury. We will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.","If you have any questions concerning this report, please contact me at (202) 512-8678 or hillmanr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other staff who contributed to this report are Harry Medina, Tania Calhoun, Heather Dignan, and Janet Fong. Our reporting objectives were to (1) provide information on outreach efforts to consumers, businesses, and local law enforcement agencies on the provision in the Fair and Accurate Credit Transactions (FACT) Act of 2003 that allows identity theft victims to obtain business records relating to fraudulent transactions; (2) describe the views and opinions of relevant federal agencies, private business entities, and consumer groups regarding the expected impact of the provision; and (3) discuss the process used by the Federal Trade Commission (FTC) to develop the model summary of rights of identity theft victims mandated in the FACT Act and examine the opinions of related groups on this process.","To address all three objectives, we contacted representatives of FTC and five federal law enforcement agencies that are involved in the investigation and prosecution of identity theft crimes—Department of Justice, Federal Bureau of Investigation, Social Security Administration, U.S. Postal Inspection Service, and U.S.","Secret Service—and the International Association of Chiefs of Police, which includes the heads of police departments around the country and abroad; met with officials of the five federal banking regulators—Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision— regarding compliance by federally insured depository institutions with the FACT Act provision and their interaction with consumers on identity theft issues; spoke with representatives of the three national credit reporting agencies (CRAs)—Experian, Equifax, and Transunion—which play a key role in distributing the summary of identity theft victim rights and in helping identity theft victims correct their credit records; held meetings with representatives of two states—California and Washington—that had previously enacted identity theft laws with provisions similar to the section 609(e) to obtain their views on the expected effectiveness of the federal provision; contacted five consumer advocacy groups—Consumers Union, Identity Theft Resource Center, National Consumer Law Center, Privacy Rights Clearinghouse, and U.S.","Public Interest Research Group—that were identified as being active in identity theft issues to obtain their views and perspectives as representatives of consumers and identity theft victims; and obtained limited information from a few businesses and trade associations on these subjects. Specifically, we contacted officials from state retailers’ associations in California, Florida, and Texas, as well as the Coalition to Implement the FACT Act which represents a range of trade associations and business entities that furnish and use consumer information, including financial services companies and retail associations. We also attempted to contact other businesses and associations through other groups such as the U.S. Chamber of Commerce and a private consultant. However, these businesses and associations declined to offer comments, in some cases citing their limited exposure to these provisions. For all the groups that we contacted, we reviewed information pertaining to identity theft and the FACT Act that was available to consumers on their Web sites. We obtained and examined information associated with their outreach programs. However, we did not perform test callings of FTC’s identity theft hotline to determine how the FACT Act provisions had been incorporated. We also did not interview identity theft victims.","Additionally, to describe the process FTC used to develop the model summary of rights of identity theft victims required by the FACT Act and the views of groups that commented on the process, we reviewed a variety of documents from the agency and other sources. These documents included FTC’s draft and final versions of the model summary, final guidance on model disclosures, public comment letters FTC received on the draft, and other summaries of identity theft victims’ rights created by the CRAs. We conducted our work in Washington, D.C., and San Francisco, California, from September 2004 through June 2005 in accordance with generally accepted government auditing standards. Para informacion en espanol, visite www.consumer.gov/idtheft o escribe a la FTC, Consumer Response Center, Room 130-B, 600 Pennsylvania Avenue, N.W. Washington, D.C., 20580. You are receiving this information because you have notified a consumer reporting agency that you believe that you are a victim of identity theft. Identity theft occurs when someone uses your name, Social Security number, date of birth, or other identifying information, without authority, to commit fraud.","For example, someone may have committed identity theft by using your personal information to open a credit card account or get a loan in your name. For more information, visit www.consumer.gov/idtheft or write to: FTC, Consumer Response Center, Room 130-B, 600 Pennsylvania Avenue, N.W. Washington, D.C., 20580. The Fair Credit Reporting Act (FCRA) gives you specific rights when you are, or believe that you are, the victim of identity theft. Here is a brief summary of the rights designed to help you recover from identity theft. 1. You have the right to ask that nationwide consumer reporting agencies place “fraud alerts” in your file to let potential creditors and others know that you may be a victim of identity theft. A fraud alert can make it more difficult for someone to get credit in your name because it tells creditors to follow certain procedures to protect you. It also may delay your ability to obtain credit. You may place a fraud alert in your file by calling just one of the three nationwide consumer reporting agencies. As soon as that agency processes your fraud alert, it will notify the other two, which then also must place","fraud alerts in your file.","Equifax: 1-800-525-6285; www.equifax.com Experian: 1-888-EXPERIAN (397-3742); www.experian.com TransUnion: 1-800-680-7289; www.transunion.com An initial fraud alert stays in your file for at least 90 days. An extended alert stays in your file for seven years. To place either of these alerts, a consumer reporting agency will require you to provide appropriate proof of your identity, which may include your Social Security number. If you ask for an extended alert, you will have to provide an identity theft report. An identity theft report includes a copy of a report you have filed with a federal, state, or local law enforcement agency, and additional information a consumer reporting agency may require you to submit. For more detailed information about the identity theft report, visit www.consumer.gov/idtheft. 2. You have the right to free copies of the information in your file (your “file disclosure”). An initial fraud alert entitles you to a copy of all the information in your file at each of the three nationwide agencies, and an extended alert entitles you to two free file disclosures in a 12-month period following the placing of the alert.","These additional disclosures may help you detect signs of fraud, for example, whether fraudulent accounts have been opened in your name or whether someone has reported a change in your address. Once a year, you also have the right to a free copy of the information in your file at any consumer reporting agency, if you believe it has inaccurate information due to fraud, such as identity theft. You also have the ability to obtain additional free file disclosures under other provisions of the FCRA. See www.ftc.gov/credit. 3. You have the right to obtain documents relating to fraudulent transactions made or accounts opened using your personal information. A creditor or other business must give you copies of applications and other business records relating to transactions and accounts that resulted from the theft of your identity, if you ask for them in writing. A business may ask you for proof of your identity, a police report, and an affidavit before giving you the documents. It also may specify an address for you to send your request. Under certain circumstances, a business can refuse to provide you with these documents. See www.consumer.gov/idtheft. 4.","You have the right to obtain information from a debt collector. If you ask, a debt collector must provide you with certain information about the debt you believe was incurred in your name by an identity thief – like the name of the creditor and the amount of the debt. 5. If you believe information in your file results from identity theft, you have the right to ask that a consumer reporting agency block that information from your file. An identity thief may run up bills in your name and not pay them. Information about the unpaid bills may appear on your consumer report. Should you decide to ask a consumer reporting agency to block the reporting of this information, you must identify the information to block, and provide the consumer reporting agency with proof of your identity and a copy of your identity theft report. The consumer reporting agency can refuse or cancel your request for a block if, for example, you don’t provide the necessary documentation, or where the block results from an error or a material misrepresentation of fact made by you. If the agency declines or rescinds the block, it must notify","you.","Once a debt resulting from identity theft has been blocked, a person or business with notice of the block may not sell, transfer, or place the debt for collection. 6. You also may prevent businesses from reporting information about you to consumer reporting agencies if you believe the information is a result of identity theft. To do so, you must send your request to the address specified by the business that reports the information to the consumer reporting agency. The business will expect you to identify what information you do not want reported and to provide an identity theft report. To learn more about identity theft and how to deal with its consequences, visit www.consumer.gov/idtheft, or write to the FTC. You may have additional rights under state law. For more information, contact your local consumer protection agency or your state attorney General. In addition to the new rights and procedures to help consumers deal with the effects of identity theft, the FCRA has many other important consumer protections. They are described in more detail at www.ftc.gov/credit."],"string":"[\n \"The Identity Theft and Assumption Deterrence Act of 1998 made identity theft a federal crime. Although FTC does not have the authority to bring criminal cases, the act established FTC as the federal clearinghouse for identity theft complaints. FTC is required to keep a log of such complaints and to notify consumers that their complaints have been received. In response to this requirement, in November 1999 FTC established the Identity Theft Data Clearinghouse to gather information from consumers who file complaints or inquire about identity theft. FTC inputs this information into its Consumer Sentinel database, which is used by more than 1,000 law enforcement agencies. According to FTC, the number of identity theft complaints it has received has steadily risen each year— climbing from 31,000 in 2000 to 247,000 in 2004. FTC staff noted that the increase in reported instances of identity theft may in part reflect enhanced consumer awareness and willingness to report such crimes. However, not all identity theft victims contact FTC. No single federal law enforcement agency has primary jurisdiction over identity theft crimes.\",\n \"Identity theft is not typically a stand-alone crime but rather a component of one or more crimes such as bank fraud, credit card fraud, social program fraud, tax refund fraud, and mail fraud. For example, a fraudster might steal another individual’s personal identifying information in one city and use the information to commit credit card fraud and mail fraud in another city or state. Consequently, a number of federal law enforcement agencies can have a role in investigating identity theft crimes, including the Federal Bureau of Investigation (FBI), Internal Revenue Service, U.S. Postal Inspection Service, U.S. Secret Service, and the Social Security Administration’s Office of the Inspector General. The Department of Justice (DOJ) prosecutes federal identity theft cases. The FACT Act of 2003, among other things, strengthened victims’ rights with respect to identity theft and gave FTC and businesses a larger role in dealing with identity theft crimes. The act also highlighted the need for law enforcement agencies to assist victims in documenting their identity theft crime. Section 609(e) requires business entities to provide victims of identity theft with information on fraudulent business transactions—for example, copies of applications for credit or records of purchases.\",\n \"In the past, businesses have been reluctant to provide such information, fearing their potential exposure to lawsuits for the inappropriate disclosure of sensitive personal financial information. To address this concern, Congress added a provision protecting businesses from civil liability claims for disclosing such information. In addition, the FACT Act reinforces the need for police to assist victims in taking official reports. These reports can then be used to substantiate claims of identity theft when alleged victims request, for example, copies of business records involving instances of potential fraud. The FACT Act also requires that FTC develop a model summary of rights for consumers who believe that they are victims of identity theft (see app. II). CRAs are required to provide a substantially similar version of the model summary of identity theft victim rights to any consumer who “contacts a consumer reporting agency and expresses a belief that the consumer is a victim of fraud or identity theft.” As previously mentioned, the act mandated that FTC launch a public campaign on how to prevent identity theft by December 2005, but did not specifically require that section 609(e) be included in the campaign.\",\n \"At the time of our review, some efforts to educate consumers, business entities, and local enforcement officials about their rights and obligations under section 609(e)—notably efforts undertaken by the FTC, U.S. Postal Inspection Service, International Association of Chiefs of Police, and National Credit Union Administration—were under way. We found that while most of the federal agencies and law enforcement agencies and other groups that we contacted were engaged in outreach related to identity theft issues, those efforts generally did not have a component specifically addressing section 609(e). In particular, FTC staff told us that outreach for section 609(e) would be part of broader efforts to educate the public, business entities, and law enforcement officials about identity theft and FACT Act provisions and that outreach on 609(e) would increase beginning in December 2005 as part of its public identity theft campaign. As of June 2005, outreach efforts by a variety of interest groups, including businesses and their trade groups, federal law enforcement agencies, and banking regulators, were also just beginning. Most of these groups saw FTC as having primary responsibility for outreach.\",\n \"FTC staff told us that they have undertaken a number of outreach efforts to educate the public, law enforcement, and others on the FACT Act, including section 609(e). However, FTC staff explained that section 609(e) is only one tool in the resources available to victims for remedying the effects of identity theft and that FTC’s first priority is to make those affected aware of all of the relevant provisions contained in the FACT Act. Since 2004, FTC in conjunction with federal law enforcement agencies has cosponsored six conferences and presentations geared directly to local law enforcement, which included a discussion on the FACT Act. In addition, since January 2004 FTC has participated in more than 50 conferences, seminars, and presentations on the FACT Act involving attorneys, bar associations, business trade groups, financial institutions and state regulators. FTC staff told us that these outreach efforts addressed increasing the awareness of section 609(e) provisions, as appropriate to the particular audience.\",\n \"Other FTC outreach efforts on section 609(e) include links on FTC’s Web site at www.consumer.gov/idtheft to its model summary of identity theft victim rights and other information on identity theft, a toll-free hotline (1-877-IDTHEFT) offering counseling to help consumers who want or need more information about dealing with the consequences of identity theft, and FTC’s Consumer Response Center and Distribution Office that provides publications on identity theft, among other topics. For example, FTC recently updated its identity theft booklet, renamed Take Charge: Fighting Back Against Identity Theft, to incorporate the FACT Act requirements, including section 609(e). Further, FTC has included section 609(e) in the mandated summary of identity theft victim rights that the CRAs began distributing in January 2005. At the time of our review, this summary was the primary mechanism for providing consumers with information on their right to obtain business records on potentially fraudulent transactions. According to FTC staff, FTC’s Web site on identity theft included links to section 609(e) as of its effective date of June 1, 2004, which was subsequently integrated into an updated identity theft Web site.\",\n \"According to FTC staff, section 609(e) will also be incorporated into the public education campaign that FTC is required by the FACT Act to implement by December 2005 which will help increase outreach on the provisions. FTC staff told us that the agency has conducted outreach on privacy, consumer reporting, identity theft, and related legislation and regulations for several years and that the initiatives target consumers, businesses, and law enforcement agencies. FTC conducts its identity theft education campaign through its Web site, printed publications, conferences and presentations, syndicated news articles and newscasts, training sessions, communications with state attorneys general, and visits to high school and college campuses. It also holds seminars for small businesses that may not be active with trade groups. Additionally, the agency provides counseling over the telephone to consumers who contact FTC with complaints or inquiries about identity theft. FTC staff explained that the agency attempts to leverage its resources to conduct outreach—that is, it relies on consumers, law enforcement agencies, and businesses to spread the relevant information it provides among one another.\",\n \"FTC staff stated that the mandated public education campaign would build upon and become a component of FTC’s ongoing consumer and business education campaigns. FTC staff stated that the mandated campaign will be under way by the December 2005 deadline and will include coverage of section 609(e). The staff told us that in terms of its identity theft outreach to consumers, FTC’s priority is for consumers to know that FTC is the organization that consumers should contact if they need information or assistance with identity theft problems. They added that requesting business transaction records under section 609(e) is not the first step an identity theft victim takes to restore his or her credit. According to FTC staff, the campaign will focus on all aspects of identity theft prevention and remediation as well as informing consumers, businesses, and law enforcement agencies about the new rights and responsibilities discussed in section 609(e) and other provisions that are useful to consumers. At the time of our review, FTC could not provide us with information on the exact extent of coverage that section 609(e) would receive in FTC’s outreach materials to consumers and businesses.\",\n \"FTC did provide us with a copy of its identity theft public education solicitation dated June 1, 2005. According to the solicitation, one of the expected targets of the campaign are identity theft victims with the goal of assisting those victims in the recovery process by teaching them the steps to take to reclaim their good names. FTC plans to evaluate the effectiveness of the public outreach campaign using various means. According to the solicitation, the program plan for the public education campaign is expected to include strategies for monitoring and evaluation of program results. FTC staff also told us that they also intend to monitor and evaluate the results of this contract through traffic to the identity theft Web site, publications distribution, and identity theft complaints to the FTC. We found that a variety of outreach efforts on identity theft were under way or were being planned by businesses, trade groups, law enforcement agencies, federal banking regulators, and consumer groups. We were able to obtain only limited information on efforts undertaken by businesses and their trade groups and associations.\",\n \"A few business trade group representatives told us that they had been active in reaching out to their constituents on identity theft issues through presentations and newsletters. These representatives told us that it was likely that the level of awareness among midsize and large business entities regarding the FACT Act and section 609(e) was greater than among small businesses, because larger businesses were more likely to belong to trade groups and associations and to have more internal legal resources. The representatives also told us that at the time of our review business entities and their trade groups were focused on other issues likely to have a more direct impact on their operations than section 609(e), such as working with Congress on bankruptcy legislation, which was ultimately passed and became law on April 20, 2005. Most of the federal law enforcement officials that we contacted had general identity theft outreach efforts under way that included some form of outreach on the FACT Act, although few specifically included information that addressed section 609(e). Rather, most of these groups focused on general identity theft prevention rather than on the section 609(e) provisions.\",\n \"Officials from one federal law enforcement agency indicated that their identity theft outreach efforts that include FACT Act provisions were in the initial stages of implementation. These efforts are designed to reach consumers, businesses, and law enforcement entities. For example, as previously discussed, federal law enforcement agencies such as DOJ, FBI, the U.S. Postal Inspection Service, and the Secret Service have held joint conferences on identity theft, including a discussion of the FACT Act, and invited local police to attend. As shown in figure 1, one effort that did specifically address section 609(e) and was directed to law enforcement agencies was an advertisement developed by the U.S. Postal Inspection Service that prominently noted the new tools for law enforcement and new rights of victims under the FACT Act, including section 609(e). The International Association of Chiefs of Police (IACP) has also specifically addressed section 609(e) in the information that it has disseminated on identity theft. An IACP official told us that a lack of awareness among local police departments of the new provision could make it problematic for some identity theft victims to get local police departments to take a police report.\",\n \"The IACP official also emphasized the importance of ensuring that police were aware of the FACT Act and of their responsibility to take reports to validate an identity theft claim. The official added that local police were likely to become increasingly involved in identity theft crimes because these officers are committed to being responsive to the citizens within their communities. To address the perceived lack of awareness among local police, the IACP featured articles on identity theft and the FACT Act, including section 609(e), in its January through April 2005 editions of Police Chief magazine. The IACP official also stated that the association was in the process of finalizing a national report on identity theft that would be released in print, on the Internet, and on a CD, and would be featured at conferences. The report will discuss policies and recommended procedures under current laws and describe the responsibilities, including the FACT Act requirements, of law enforcement. While all of the federal banking regulators provided general identity theft outreach, only the National Credit Union Administration specifically addressed the section 609(e) provision in its identity theft outreach efforts.\",\n \"Each of the regulator’s general identity theft outreach included conducting presentations, posting related information on their Web site, and publishing identity theft literature or brochures. For example, the Federal Deposit Insurance Corporation (FDIC) published materials such as Consumer News, which featured articles on identity theft but did not address the provisions of section 609(e). The only regulator that we identified as having specifically addressed section 609(e) was the National Credit Union Administration which issued a Regulatory Alert in January 2005 informing credit unions about the FACT Act’s provisions including section 609(e). Some officials noted that the Federal Financial Institutions Examination Council (FFIEC) had recently formed an interagency task force, to among other things, address how federal banking regulators could ensure that regulated institutions were in compliance with the new requirements. These officials added that their agencies had not yet established any outreach efforts specific to section 609(e) because they were waiting for the results of the recently formed FFIEC task force, in order to avoid duplicating the task force’s efforts.\",\n \"Some consumer groups we contacted maintained FACT Act information on their Web sites and educated identity theft victims who contacted them in some instances by providing telephone counseling and printed publications. Officials from one consumer group acknowledged FTC’s mandated campaign as a key outreach tool and suggested that the campaign should also include initiatives directed to businesses. These officials explained that it was important that business entities understand their obligations and roles under section 609(e). Specifically, the officials stated that these initiatives should involve business groups such as the Better Business Bureau, the U.S. Chamber of Commerce, the National Retail Federation, state retailer associations, and TRUSTe®. FTC staff told us that they often use associations in their outreach as an effective method to help spread information. The limited anecdotal information that FTC had on victims who attempted to obtain business transaction records related to identity theft suggested that not all businesses were aware of their obligations under section 609(e). According to FTC staff, a few identity theft victims had contacted FTC and reported that they were unable to obtain business transaction records related to the theft of their identity.\",\n \"According to FTC, these instances were caused primarily by businesses’ lack of knowledge about their obligations under the FACT Act. Once FTC informed these business entities about their obligations, the victims were able to obtain the necessary transaction records. Most agencies and groups that we spoke with had done some general identity theft outreach and had planned or already had under way a few efforts that focused on section 609(e), but viewed FTC as having the primary responsibility for providing outreach on the FACT Act, including section 609(e). FTC staff told us that they intend to evaluate the effectiveness of FTC’s mandated identity theft campaign, which will include the 609(e) provisions, but emphasized that FTC’s first priority is outreach to consumers, businesses, and law enforcement on the FACT Act, an effort that would occur over time. As a result, more time is needed to disseminate information about the section 609(e) provisions and determine how useful the provision is in helping victims correct their credit files and resolve their cases.\",\n \"While not all identity theft victims will need section 609(e), FTC, law enforcement agencies and consumer groups with whom we spoke believed that the provision giving victims access to data on fraudulent business transactions would help in resolving identity theft cases. In particular, law enforcement agencies told us that the information would help victims build stronger cases to present to law enforcement agencies and should provide more of the data that are needed to identify patterns or trends in identity theft practices. Noting that victims of identity theft often have difficulty getting local police to take a report to help substantiate an identity theft crime, consumer advocacy groups also told us that they believed that the new provision should make filing these reports easier. State agencies and consumer advocacy groups also identified some potential concerns with the provision. Among these were the timeliness of the data provided to victims and a concern that businesses could require excessive documentation from victims to support an identity theft claim.\",\n \"FTC staff told us that depending on the specific circumstances, not all identity theft victims will need to assert their rights under section 609(e) but that section 609(e) would be extremely useful for those victims who need additional documentation to support their disputes of fraudulent accounts. Representatives from federal law enforcement agencies and IACP said that it was too early to determine whether victims were finding it easier to get local police to take identity theft reports and that local law enforcement agencies might not yet be fully aware of the requirements of this provision. But representatives of federal law enforcement agencies and consumer advocacy groups said that the new provision should help empower victims of identity theft by giving these victims access to data on fraudulent business transactions that could help resolve the crimes. The officials explained that before Congress created section 609(e), victims had generally been unable to obtain data on fraudulent business transactions because businesses feared being held liable for providing the information. To address this concern, Congress established limitations in the FACT Act provision so that businesses could not be held liable for disclosing such information to victims.\",\n \"Representatives of businesses we spoke to said that addressing the liability issue in the law had removed the barrier to providing information on allegedly fraudulent transactions to victims of identity theft. One consumer group told us that having records of fraudulent business transactions, such as copies of checks or signed applications for credit, would allow victims to prove that someone else was responsible—for instance, by comparing signatures. Without these records, victims may have no way of proving that the transactions were fraudulent and could be forced to pay the bills themselves. Officials from law enforcement agencies told us that as an added benefit, victims would be able to gather more information on their cases that may prompt law enforcement agencies into opening an investigation. In turn, law enforcement officials could use that information to assess the nature and scope of alleged crimes of identity theft. Additionally, law enforcement officials anticipated that the information would help investigators build cases more quickly and identify patterns or trends in identity theft practices.\",\n \"For instance, the information could help identify the frequency of certain types of fraud and the locations being targeted, allowing investigators to better determine whether individual crimes were part of a larger operation. However, federal and state law enforcement officials pointed out that having more information might not necessarily lead to an increase in prosecutions. In fact, one of the states we contacted that had a similar identity theft law told us that the number of police investigations or prosecutions of identity theft crimes had not increased since the state law had been in effect. The officials explained that workloads and other priorities often determined the types of investigations and prosecutions law enforcement undertake. Consumer advocacy groups we interviewed noted that in the past, victims of identity theft sometimes had difficulty getting local police to take reports about the crimes, although police reports help substantiate victims’ claims. As we reported in 2002, getting local police to file a police report is a critical first step in being able to investigate the crime and in undoing the impacts of identity theft.\",\n \"The consumer advocacy groups noted that the new provision will increase pressure on local police to take reports because these reports can play a key role in verifying the identity theft victim’s right to access information. These groups pointed out that in California, which has a similar identity theft law already in place, local police who were aware of their obligations under the state law were more likely to take identity theft reports. One consumer advocacy group told us they expect a similar outcome with the FACT Act provision. Additionally, officials from the two states—California and Washington—that have enacted similar identity theft laws agreed that since their laws had been in place, police had generally been more willing to take reports from identity theft victims. Officials from one of the states told us that law enforcement agencies there had also been more active in discussing identity theft issues. Representatives of a consumer advocacy group and law enforcement agencies acknowledged that the overall number of police reports charging identity theft crimes was increasing but noted that it was difficult to attribute this increase to any one cause, including the FACT Act.\",\n \"For instance, one consumer advocacy group we spoke with attributed the increasing willingness of local police to take these reports to the fact that identity theft was a growing problem and that the public was generally more aware of it. Officials from law enforcement agencies also pointed out that the difficulty of filing local police reports was only one of the frustrations victims of identity theft faced. For example, the amount of time required to clean up credit and the lack of criminal prosecutions for these crimes are even more frustrating for victims, and both of the issues remain unresolved. Representatives of state agencies and consumer advocacy groups with whom we spoke identified two potential concerns about the provision. First, the provision gives businesses 30 days from the date of a victim’s request to provide information on fraudulent business transactions—a time period that some feel is too long. For instance, officials from one state agency and a consumer advocacy group we spoke to stressed the importance of providing information quickly so that victims could begin clearing their credit files and resolving their cases.\",\n \"Several of those we spoke with recommended 2 weeks as a more reasonable length of time for victims to gain access to records and pointed out that states such as California and Washington, which have similar identity theft laws, ask business entities to respond faster. California’s privacy laws require that businesses respond within 10 business days of receiving the person’s request (which must include a copy of the police report and identifying information). Washington’s identity theft law does not specify a time frame for responding to requests for records, but state officials stated that business entities are encouraged to respond within a reasonable amount of time. State officials from both California and Washington noted that victims in their respective states had generally been able to obtain data on fraudulent business transactions within their respective time frames. In contrast, business entities we spoke with believed that there could be complicated situations in which it might be difficult to respond within the 30-day time period. Additionally, representatives from two law enforcement groups said that the 30-day time period appeared to be reasonable.\",\n \"They explained that businesses might need the time to review the request and verify a victim’s identity and added that the 30 days could reflect the reality of running a business with competing priorities. FTC staff said that although they did not know how long businesses were taking to respond to victims, it would be unfortunate if businesses were in fact taking the full 30 days. While these officials agreed that victims needed to obtain information promptly in order to resolve their cases, they noted that the 30-day time period had been established to give businesses additional time to respond to requests if needed. Because the law affects a wide range of businesses, the officials told us, it must allow for a wide range of circumstances. Consumer advocacy groups were also concerned with the discretion the provision gives to businesses to request additional documentation— beyond a police report—as proof of a victim’s claim of identity theft. Under the provision, businesses may require victims to provide a copy of a standardized affidavit of identity theft or an acceptable affidavit of fact as well as a police report.\",\n \"FTC, in conjunction with credit grantors and consumer advocates, has developed the Identity Theft Affidavit, a standard form victims can use to report information on, for example, fraudulent accounts that have been opened. The affidavit of fact is a business’ own form used by a victim for documenting alleged identity theft. However, consumer groups we spoke with said that a police report should be sufficient evidence to verify an identity theft claim and questioned the amount of information businesses actually needed. Representatives of CRAs also pointed out that a broad range of what could be characterized as identity theft reports existed. These representatives explained that any law enforcement group, whether civil or criminal, could take an identity theft report, raising concerns about the consistency of the information being reported and the possibility that the credit repair industry could misuse it. Additionally, officials in California and Washington told us that victims of identity theft in their states had experienced difficulties trying to obtain data on fraudulent business transactions immediately after their state laws were enacted. The officials attributed the initial difficulties to the fact that businesses were probably not aware of the new statutes.\",\n \"Officials in California told us that they had developed a template for a letter that victims could send to businesses. The letter provides information both on the law and on penalties for noncompliance and had been effective in getting businesses to comply. Officials in Washington told us that they had provided education to consumers, businesses, and the law enforcement community early on. For instance, the business community was involved in disseminating information on the requirements of the law, and a law enforcement “tool kit” was developed that provided information on the law and criminal provisions. As mentioned earlier, we were only able to obtain opinions from a limited number of businesses or industry representatives, including trade associations, on the experiences of businesses in complying with section 609(e) or the expected impact of this provision. Several of the national business and industry representatives we contacted declined our requests for comments because they had limited information to share with us on the likely extent of awareness within the business community on this provision. While we did manage to gather some opinions from a few businesses and associations, the information obtained was extremely limited.\",\n \"FTC staff told us that as part of their overall FACT Act outreach efforts, they intend to monitor the implementation of section 609(e) to determine whether any additional efforts are necessary to ensure that the provision is working as Congress intended. They also stated that they would use their law enforcement authority as appropriate if they determined that a business or businesses were not complying with the provisions of section 609(e). Officials and representatives of federal agencies and consumer groups we contacted believe that the FTC’s new summary of rights will be useful to victims of identity theft. As mandated by the FACT Act, FTC published its final summary of rights in November 2004, and CRAs began distributing a version of the summary to consumers in January 2005. Federal banking agencies spoke favorably of FTC’s process for soliciting comments while the agency was developing the model summary. However, some consumer groups told us that they still had some potential concerns with the final document. These potential concerns included the lack of a requirement that CRAs make the summary available in other languages, specifically Spanish, and the general readability of the summary.\",\n \"In response to these potential concerns, FTC stated that while CRAs are not required to provide the summary in other languages, FTC’s consumer model summary does contain a statement in Spanish directing consumers to FTC to obtain additional information. FTC has made a Spanish version available on its identity theft Web site. FTC also stated that it had tried to use plain language in the summary, and it recognized the need for additional outreach efforts. We also noted that overall FTC’s final summary was more concise and used shorter sentences than its draft summary, resulting in a document that we found generally easy to read. On November 30, 2004, FTC published its final version of the model summary of identity theft rights as mandated by the FACT Act (see app. II). The summary highlights the major rights FCRA provides to identity theft victims seeking to remedy the effects of fraud or identity theft.\",\n \"These include the right to obtain free file disclosures, the right to file fraud alerts, the right to obtain documents or information relating to transactions involving the consumers’ personal information, and the right to prevent consumer reporting agencies from reporting information that is the result of identity theft. As outlined in FTC’s guidance, CRAs were to begin distributing by January 31, 2005, a “substantially similar” version of FTC’s summary to consumers who believed they had been victims of fraud or identity theft. According to representatives with whom we spoke, these agencies had begun distributing their summaries of identity theft victim rights before this date. The representatives also noted that the summaries distributed were very similar to the FTC’s model summary of rights. Under the FACT Act, the FTC was required to consult with the federal banking agencies and the NCUA in preparing the model summary of consumers’ rights. Federal banking agency officials told us that FTC had effectively promoted collaboration among the regulators in developing the summary of identity theft rights. Federal banking agency officials also stated that FTC solicited comments on two draft versions.\",\n \"The officials told us that although they did not have substantive concerns with either version, they did provide editorial comments. These officials said that they suggested, among other things, avoiding technical terms, using fewer acronyms, shortening sentences, and in general focusing on keeping the summary easy to read by using simple English. Additionally, the federal banking agency officials stated that FTC had substantially incorporated the agencies’ input. Officials of law enforcement agencies and representatives of consumer groups whom we contacted believed that the summary should provide useful information for victims of identity theft. For instance, officials from two law enforcement agencies stated that the model summary would be a significant aid to victims. The officials explained that in the past victims had often felt helpless because of the limited avenues available to them in resolving their cases. With the summary of rights, however, victims can learn about concrete steps they can take to help themselves. Similarly, consumer advocacy groups believed that the summary of rights contained information that would be useful to victims of identity theft and added that the document would be among the most important tools in implementing the changes to the FACT Act.\",\n \"These groups also stated that FTC’s model summary of rights would be useful in setting the standards for efforts by media and nongovernmental organizations to educate consumers about their credit reporting rights in general. Some consumer advocacy groups we spoke with identified two potential concerns with FTC’s final model summary of rights. First, these groups pointed out that FTC did not require CRAs to make the model summary of rights available in other languages, primarily Spanish, and that access to bilingual information was especially important to those persons whose dominant or sole language is Spanish. According to these groups, the Census 2000 figures indicate that nearly 19.6 million U.S. citizens between the ages of 18 and 64 spoke Spanish and that one-third of this group spoke English “not well” or “not at all.” FTC staff told us that while the CRAs were not required to provide a copy of the summary in other languages, the final summary did contain a Spanish statement telling consumers to contact the FTC for information in Spanish and giving both the agency’s mailing and Web site addresses. A Spanish translation of the summary of rights is available on FTC’s identity theft\",\n \"Web site.\",\n \"Finally, FTC staff told us that FTC targets certain populations in its ongoing public outreach efforts and expects to continue to do so in the context of its mandated public campaign on identity theft prevention. The three nationwide CRAs we contacted provided us with copies of their summaries of rights for identity theft victims that the agencies had begun distributing to consumers in January 2005. Only one of the agencies had made a summary of rights available in Spanish; the other two had placed a Spanish statement similar to FTC’s on their summaries directing consumers to FTC for information in Spanish. Officials from the CRAs told us that they distributed the model summary of rights to consumers who notified them of potential identity theft and not, in general, to every consumer who contacted them. Second, consumer advocacy groups were concerned that the model summary would not be easy to read and understand.\",\n \"A comment letter to the FTC from nine consumer advocacy groups said that the model summary of rights should be tested for readability before it was finalized to ensure that it could be easily understood by all consumers, including those with limited education and those who did not speak English as their primary language. The letter stated that having a readable summary was vital to ensuring that consumers were aware of their rights with respect to identity theft, especially those consumers who might not be familiar with the financial services world. One consumer group we spoke with also stressed that readability, which includes the organization of the document and format, was important for any public message. In response to the comments the agency received, FTC’s final rule stated that the agency had tried as far as possible to use plain language in the summary and agreed that the notices needed to be supplemented by outreach efforts, which the agency said it intended to undertake.\",\n \"FTC staff also told us that while they did not have the document reviewed by a private readability expert, they did have the document reviewed internally for presentation and clarity by FTC’s Office of Consumer and Business Education. In our review of FTC’s draft and final summary of identity theft rights, we found that overall FTC’s final summary was more concise and used shorter sentences than its draft summary. Several of the comments to FTC had suggested streamlining the information to improve the clarity of the document. As a result, the final summary was generally easy to read. Section 609(e) is intended to help victims of identity theft obtain access to data on fraudulent business transaction records that could help in repairing the damage, financial and otherwise, that crimes of identity theft can inflict. However, because section 609(e) has been in effect only a short time (since June 2004), it is too soon to assess the effectiveness of the provision.\",\n \"Because efforts to alert consumers, business entities, and local law enforcement agencies on their rights and responsibilities under section 609(e) were in their early stages, it is also too soon to determine the extent of the awareness and use of section 609(e) by these groups. The FACT Act mandates that FTC conduct outreach on identity theft prevention, and most of the groups we contacted felt that FTC should have primary responsibility on identity theft issues. FTC is in a unique position because it already has an existing dialogue with the critical groups involved in section 609(e) through its ongoing outreach efforts on identity theft issues, its interaction with consumers who use its identity theft hotline and consumer complaint database, and its mandated campaign on identity theft prevention. In contrast, no other agency or group maintains public outreach efforts that are as far reaching as the FTC’s. FTC intends to assess the effectiveness of its mandated identity theft campaign which will include coverage of section 609(e).\",\n \"Such an assessment would be useful as a means of determining the extent that consumers, businesses, and local law enforcement agencies are aware of their rights and obligations under section 609(e), the extent of any implementation issues, and whether the new provision is helping consumers as intended to remedy the effects of identity theft. Similarly, experience with victims who have attempted to obtain business records is limited by the short period of time that has elapsed since the act went into effect. It is too early to assess the actual impact of section 609(e) on consumers’ ability to get business records relating to suspected fraudulent transactions. While consumer groups and state agencies identified some potential problems with the provision, additional experience and input from identity theft victims will be needed to determine whether these concerns prove to be valid and what, if any, other issues may arise. While FTC’s process for developing its mandated model summary of identity theft victim rights was viewed favorably and CRAs had begun distributing a similar version of the summary to consumers, some potential concerns with the summary of rights were noted.\",\n \"These potential concerns center primarily on the limited availability of a Spanish version of the summary of rights and, to a lesser extent, on the clarity of the summary of rights to the general population. While it is too early to determine the extent of any implementation issues, FTC efforts to monitor the implementation of section 609(e) should provide additional information on the usefulness of the summary of rights in aiding identity theft victims. We are sending copies of this report to interested congressional committees and subcommittees; the Chairman, FTC; the Attorney General; the Director, FBI; the Secretary of Homeland Security; the Commissioner, Social Security Administration; the Chief Postal Inspector, U.S. Postal Inspection Service; the Director, U.S. Secret Service; the Chairman, Federal Deposit Insurance Corporation; the Chairman, Board of Governors of the Federal Reserve System; the Acting Comptroller of the Currency; the Acting Director, Office of Thrift Supervision; the Chairman, National Credit Union Administration; and the Secretary of the Treasury. We will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.\",\n \"If you have any questions concerning this report, please contact me at (202) 512-8678 or hillmanr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other staff who contributed to this report are Harry Medina, Tania Calhoun, Heather Dignan, and Janet Fong. Our reporting objectives were to (1) provide information on outreach efforts to consumers, businesses, and local law enforcement agencies on the provision in the Fair and Accurate Credit Transactions (FACT) Act of 2003 that allows identity theft victims to obtain business records relating to fraudulent transactions; (2) describe the views and opinions of relevant federal agencies, private business entities, and consumer groups regarding the expected impact of the provision; and (3) discuss the process used by the Federal Trade Commission (FTC) to develop the model summary of rights of identity theft victims mandated in the FACT Act and examine the opinions of related groups on this process.\",\n \"To address all three objectives, we contacted representatives of FTC and five federal law enforcement agencies that are involved in the investigation and prosecution of identity theft crimes—Department of Justice, Federal Bureau of Investigation, Social Security Administration, U.S. Postal Inspection Service, and U.S.\",\n \"Secret Service—and the International Association of Chiefs of Police, which includes the heads of police departments around the country and abroad; met with officials of the five federal banking regulators—Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision— regarding compliance by federally insured depository institutions with the FACT Act provision and their interaction with consumers on identity theft issues; spoke with representatives of the three national credit reporting agencies (CRAs)—Experian, Equifax, and Transunion—which play a key role in distributing the summary of identity theft victim rights and in helping identity theft victims correct their credit records; held meetings with representatives of two states—California and Washington—that had previously enacted identity theft laws with provisions similar to the section 609(e) to obtain their views on the expected effectiveness of the federal provision; contacted five consumer advocacy groups—Consumers Union, Identity Theft Resource Center, National Consumer Law Center, Privacy Rights Clearinghouse, and U.S.\",\n \"Public Interest Research Group—that were identified as being active in identity theft issues to obtain their views and perspectives as representatives of consumers and identity theft victims; and obtained limited information from a few businesses and trade associations on these subjects. Specifically, we contacted officials from state retailers’ associations in California, Florida, and Texas, as well as the Coalition to Implement the FACT Act which represents a range of trade associations and business entities that furnish and use consumer information, including financial services companies and retail associations. We also attempted to contact other businesses and associations through other groups such as the U.S. Chamber of Commerce and a private consultant. However, these businesses and associations declined to offer comments, in some cases citing their limited exposure to these provisions. For all the groups that we contacted, we reviewed information pertaining to identity theft and the FACT Act that was available to consumers on their Web sites. We obtained and examined information associated with their outreach programs. However, we did not perform test callings of FTC’s identity theft hotline to determine how the FACT Act provisions had been incorporated. We also did not interview identity theft victims.\",\n \"Additionally, to describe the process FTC used to develop the model summary of rights of identity theft victims required by the FACT Act and the views of groups that commented on the process, we reviewed a variety of documents from the agency and other sources. These documents included FTC’s draft and final versions of the model summary, final guidance on model disclosures, public comment letters FTC received on the draft, and other summaries of identity theft victims’ rights created by the CRAs. We conducted our work in Washington, D.C., and San Francisco, California, from September 2004 through June 2005 in accordance with generally accepted government auditing standards. Para informacion en espanol, visite www.consumer.gov/idtheft o escribe a la FTC, Consumer Response Center, Room 130-B, 600 Pennsylvania Avenue, N.W. Washington, D.C., 20580. You are receiving this information because you have notified a consumer reporting agency that you believe that you are a victim of identity theft. Identity theft occurs when someone uses your name, Social Security number, date of birth, or other identifying information, without authority, to commit fraud.\",\n \"For example, someone may have committed identity theft by using your personal information to open a credit card account or get a loan in your name. For more information, visit www.consumer.gov/idtheft or write to: FTC, Consumer Response Center, Room 130-B, 600 Pennsylvania Avenue, N.W. Washington, D.C., 20580. The Fair Credit Reporting Act (FCRA) gives you specific rights when you are, or believe that you are, the victim of identity theft. Here is a brief summary of the rights designed to help you recover from identity theft. 1. You have the right to ask that nationwide consumer reporting agencies place “fraud alerts” in your file to let potential creditors and others know that you may be a victim of identity theft. A fraud alert can make it more difficult for someone to get credit in your name because it tells creditors to follow certain procedures to protect you. It also may delay your ability to obtain credit. You may place a fraud alert in your file by calling just one of the three nationwide consumer reporting agencies. As soon as that agency processes your fraud alert, it will notify the other two, which then also must place\",\n \"fraud alerts in your file.\",\n \"Equifax: 1-800-525-6285; www.equifax.com Experian: 1-888-EXPERIAN (397-3742); www.experian.com TransUnion: 1-800-680-7289; www.transunion.com An initial fraud alert stays in your file for at least 90 days. An extended alert stays in your file for seven years. To place either of these alerts, a consumer reporting agency will require you to provide appropriate proof of your identity, which may include your Social Security number. If you ask for an extended alert, you will have to provide an identity theft report. An identity theft report includes a copy of a report you have filed with a federal, state, or local law enforcement agency, and additional information a consumer reporting agency may require you to submit. For more detailed information about the identity theft report, visit www.consumer.gov/idtheft. 2. You have the right to free copies of the information in your file (your “file disclosure”). An initial fraud alert entitles you to a copy of all the information in your file at each of the three nationwide agencies, and an extended alert entitles you to two free file disclosures in a 12-month period following the placing of the alert.\",\n \"These additional disclosures may help you detect signs of fraud, for example, whether fraudulent accounts have been opened in your name or whether someone has reported a change in your address. Once a year, you also have the right to a free copy of the information in your file at any consumer reporting agency, if you believe it has inaccurate information due to fraud, such as identity theft. You also have the ability to obtain additional free file disclosures under other provisions of the FCRA. See www.ftc.gov/credit. 3. You have the right to obtain documents relating to fraudulent transactions made or accounts opened using your personal information. A creditor or other business must give you copies of applications and other business records relating to transactions and accounts that resulted from the theft of your identity, if you ask for them in writing. A business may ask you for proof of your identity, a police report, and an affidavit before giving you the documents. It also may specify an address for you to send your request. Under certain circumstances, a business can refuse to provide you with these documents. See www.consumer.gov/idtheft. 4.\",\n \"You have the right to obtain information from a debt collector. If you ask, a debt collector must provide you with certain information about the debt you believe was incurred in your name by an identity thief – like the name of the creditor and the amount of the debt. 5. If you believe information in your file results from identity theft, you have the right to ask that a consumer reporting agency block that information from your file. An identity thief may run up bills in your name and not pay them. Information about the unpaid bills may appear on your consumer report. Should you decide to ask a consumer reporting agency to block the reporting of this information, you must identify the information to block, and provide the consumer reporting agency with proof of your identity and a copy of your identity theft report. The consumer reporting agency can refuse or cancel your request for a block if, for example, you don’t provide the necessary documentation, or where the block results from an error or a material misrepresentation of fact made by you. If the agency declines or rescinds the block, it must notify\",\n \"you.\",\n \"Once a debt resulting from identity theft has been blocked, a person or business with notice of the block may not sell, transfer, or place the debt for collection. 6. You also may prevent businesses from reporting information about you to consumer reporting agencies if you believe the information is a result of identity theft. To do so, you must send your request to the address specified by the business that reports the information to the consumer reporting agency. The business will expect you to identify what information you do not want reported and to provide an identity theft report. To learn more about identity theft and how to deal with its consequences, visit www.consumer.gov/idtheft, or write to the FTC. You may have additional rights under state law. For more information, contact your local consumer protection agency or your state attorney General. In addition to the new rights and procedures to help consumers deal with the effects of identity theft, the FCRA has many other important consumer protections. They are described in more detail at www.ftc.gov/credit.\"\n]","isConversational":false}}},{"rowIdx":10891,"cells":{"id":{"kind":"string","value":"train_10891"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"Breast cancer is the second leading cause of cancer deaths among American women. In 2001, 192,200 new cases of breast cancer were diagnosed and 40,200 women died from the disease. The probability of survival increases significantly, however, when breast cancer is discovered in its early stages. Currently, the most effective technique for early detection of breast cancer is screening mammography, an X-ray procedure that can detect small tumors and breast abnormalities up to two years before they can be detected by touch. Nationwide data indicate that mammography services are generally adequate to meet the growing demand. Between 1998 and 2000, both the population of women 40 and older and the extent to which they were screened increased by 15 percent. Although mammography services are generally available, women in some locations have problems obtaining timely mammography services in some metropolitan areas. However, the greatest losses in capacity have come in rural counties. In all, 121 counties, most of them rural, have experienced a drop of more than 25 percent in the number of mammography machines in the last three years. Officials from 37 of these counties reported that the decrease had not had a measurable adverse effect on the availability of mammography services. By contrast, in 18 metropolitan counties that lost a smaller percentage of their total capacity, officials in half of the counties reported service disruptions. Officials from six other urban areas, including Houston and Los Angeles, reported that public health facilities serving low income women had long waiting times. However, most women whose clinical exam or initial mammogram indicated a need for a follow-up mammogram were able to get appointments within one to three weeks."},"documents":{"kind":"list like","value":["Research studies, including eight large randomized clinical trials with 11- 20 years of followup, indicated that widespread use of mammography could reduce breast cancer mortality. The benefit of mammography has recently been challenged by two Danish researchers and an NCI advisory panel made up of independent experts; they cite serious flaws in six of the eight clinical trials that showed benefits. However, subsequent to the Danish report and the NCI panel’s statement, both NCI and the U.S Preventive Services Task Force reiterated their recommendations for regular mammography screening. While acknowledging the methodological limitations in these trials, the U.S. Preventive Services Task Force concluded that the flaws in these studies were unlikely to negate the reasonable consistent and significant mortality reductions observed in these trials. The effectiveness of mammography as a cancer detection technique is directly tied to the quality of mammography procedures. Concerned about the quality of mammography procedures provided by the nation’s mammography facilities, the Congress enacted the Mammography Quality Standards Act (MQSA) of 1992, which imposed standards effective October 1, 1994. FDA has major oversight responsibilities, including establishing quality standards for mammography equipment and personnel and certifying and inspecting each facility to ensure it","provides quality services.","For mammography personnel, such as radiologic technologists and interpreting physicians, FDA specifies detailed qualifications and continuing training requirements. Mammography technologists are required to be licensed by a state or certified by the American Registry of Radiologic Technologists in general radiography, and meet additional mammography-specific training and continuing education and experience requirements. Similarly, FDA specifies that all interpreting physicians be licensed in a state and certified in the specialty by an appropriate board, such as the American Board of Radiology, and meet certain mammography-specific medical training, as well as continuing education and experience requirements. FDA collects detailed information about each facility when a facility is initially certified. FDA has established a database that incorporates data from the certification process and from its annual inspection program. Besides facility identification information, the database contains information on the number of machines, personnel, and whether the facility is active or no longer certified. Medicare, the federal government’s health insurance program for people age 65 and above, is the nation’s largest purchaser of health services. Beginning in 1991, Medicare provided coverage of annual mammography screening for women beneficiaries. Medicare is administered by CMS.","As a part of its health care improvement program, since 1999, CMS and a set of contractors, called peer review organizations, have been involved in monitoring and improving the quality of care, including increasing mammography screening rates among women Medicare beneficiaries. The nation’s overall capacity to meet the growing demand for mammography services is generally adequate. Between 1998 and 2000, the use of services, as measured by the number of mammograms provided to women age 40 and older, increased nearly 15 percent. The most recent data on capacity show that the total number of machines and radiologic technologists available to perform mammography services increased 11 percent and 21 percent respectively from October 1998 to October 2001. During this same period, the total number of mammography facilities decreased about 5 percent, indicating that facilities were consolidating or becoming somewhat larger. The average number of mammograms performed per machine increased slightly but was considerably below estimates of full capacity. The one potentially negative development is in personnel, where the number of new entrants into the field—as measured by the number of persons who sit for mammography technologist or diagnostic radiology examinations for the first time—has dropped each year","since 1997.","The use of mammography as a tool for detecting early cancer continues to increase. Data from CDC’s Behavioral Risk Factor Surveillance System indicate a continuing increase in national mammography screening rates. The proportion of women age 40 and over who had received a mammogram within the past year increased from 58 percent in 1998 to about 64 percent in 2000. These screening rate increases, coupled with the growth of this population, have resulted in significant increases in the number of mammograms provided each year. Based on CDC’s data on screening rates and Bureau of Census population data, we estimate that the total number of mammograms received by women 40 and above nationwide has increased nearly 15 percent, from about 35 million in 1998 to more than 40 million in 2000. These increases in mammography utilization extended across nearly every state. Using the screening rates and the Bureau of Census population data, we computed the number of mammograms received by women age 40 and above on a state-by-state basis.","Between 1998 and 2000, screening rates for women in this age group increased in all but one state (i.e., Oklahoma) and the District of Columbia, and 39 states had an increase of more than 10 percent in the total number of women age 40 and above who had received a mammogram within the past year. The nation’s capacity to provide mammography services, as measured by the numbers of machines and radiologic technologists available to perform mammography services, has also increased. FDA’s data show that between October 1998 and October 2001, the total number of mammography machines and radiologic technologists available nationwide to perform mammography services increased 11 percent and 21 percent respectively (see table 1). While FDA’s data showed that the total number of certified facilities has decreased about 5 percent between 1998 and 2001, the average number of machines per facility increased from 1.22 in 1998 to 1.42 in 2001. Overall, the 5 percent decrease in facilities has been offset by the 16 percent increase in the number of machines per facility and the increase in personnel.","The current average number of mammograms actually being performed per machine appears to be well below estimates of how many mammograms could be performed, if equipment is operating at full capacity. While there is no uniform standard on the number of mammograms that a mammography machine can do in a day, FDA officials estimated that one machine and one full-time technologist can potentially perform between 16 and 20 mammograms in an 8-hour work day, or between 4,000 to 5,000 mammograms a year (assuming 5 days a week and 50 weeks a year). Using CDC’s data on mammography screening rates, Bureau of Census data on the population of women age 40 and older, and FDA’s data on the number of machines, we computed the average number of mammograms performed per machine. At the national level, the average number of mammograms per machine was 2,759 in 1998. While this average number of mammograms per machine had increased to 2,840 in 2001, it was still well under 4,000, the lower end range of estimated full capacity.","At the state level, the average number of mammograms per machine in 2001 ranged from a low of 1,790 in Alaska to a high of 3,720 in Maryland. While the number of radiologic technologists has increased in the past in general proportion with the increase in mammography utilization, certain trends bear monitoring. According to an American Hospital Association survey, the job vacancy rate for radiologic technologists was 18 percent in 2001, and 63 percent of hospitals reported that they had more difficulty recruiting radiologic technologists than the previous year. Data from ARRT show the rate of increase for certified mammography technologists through 2000 has slowed down substantially in recent years. Similarly, the number of new entrants to the field, as represented by the number of first- time examinees for the mammography certificate, declined substantially each year from 1996 through 2000 (see table 2). In addition, while comprehensive data are not available on the total number of radiologists available to interpret mammograms, the limited data available also indicate that the availability of radiologists may bear watching.","For example, data from the employment placement service of the American College of Radiology show an increasing ratio of job listings per job seeker for radiologists –from 1.3 in 1998 to 3.8 in 2000. Also, data from the American Board of Radiology show that the number of first-time candidates who sit for diagnostic radiology examination has declined each year from 1997 through 2001 (see table 3). Because of local factors such as a shortage of personnel or closure of certain facilities, waiting times for routine mammograms could be several months in certain locations. Nationwide, 241 counties had a net loss of mammography machines between October 1998 and October 2001, with 121 of them losing more than 25 percent. Our follow-up at 55 rural and metropolitan counties where reductions occurred indicated that lengthy appointment waiting times for mammography services were primarily in metropolitan locations. Our county-by-county analysis of data on equipment shows that overall, 241 counties had a net loss in the number of mammography machines between October 1998 and October 2001. Of these counties, 121 lost more than 25 percent of their machines. This number represents counties spread throughout the nation.","These counties together contained less than 1.9 percent of the total U.S. population in the 2000 census. We conducted an analysis to determine what had occurred in those counties close to the 121 counties that lost more than 25 percent of their machines. In general, the adjacent counties showed an increase in the number of machines, with nearly all of the 121 counties being within 50 miles of a county that gained machines. Thus, residents in most of the counties that lost services appear to be able to draw on increased resources nearby. Because data are not available to measure the effect of capacity loss on the mammography utilization rates at the county level, we randomly selected 37 of the 121 counties that lost more than 25 percent of their machines for in-depth analysis at the local level. These 37 counties are located in 19 states (see appendix I for a list of these 37 counties). Over three quarters of these counties are in nonmetropolitan areas. Eighteen of the counties we selected had one facility and 11 had no facility at all in 2001.","We interviewed state and local officials familiar with conditions in these counties, asking them to assess the impact of the loss of facilities. With two exceptions, officials generally reported no significant problems. They said existing facilities in the county or neighboring counties were able to provide needed services, and the longest appointment waiting time reported for routine screening mammograms was 1 month or less, which they considered to be reasonable. In most counties where women had to travel to neighboring counties for services, the travel distance was less than 40 miles, which officials considered common in rural areas. Several officials also said that some counties were served by mobile facilities that travel to their areas. In metropolitan counties, the picture was more mixed than for rural counties. To examine the extent of problems in metropolitan areas, we selected 18 additional counties (including the District of Columbia) from a list of counties that lost the largest number of machines. All of these counties are classified as metropolitan counties (see appendix I for a list of these counties).","As we did for the rural counties, we contacted state and local officials and asked them to assess the impact of the loss of machines on women’s access to services. These officials reported wide variations in availability of services. While no problems were reported in nine counties, officials in the other nine counties reported a variety of problems. The nine counties with problems are concentrated in five metropolitan areas— Baltimore, Boston, the District of Columbia, and San Antonio and Wichita Falls, Texas. For example, officials in three counties surrounding the Baltimore metropolitan area reported an average waiting time of up to 3 months for screening mammograms and 2 to 3 weeks for follow-up diagnostic mammograms. Similarly, a survey conducted by Massachusetts officials in April 2001 found that, in the Boston metropolitan area, appointment waiting time for screening mammograms ranged from 1 to 20 weeks, depending on facilities. In the District of Columbia, officials reported that the only facility available in one part of the city had up to an 8-week backlog of appointments, while the rest of the city generally did not have significant problems.","In addition to contacting these 18 counties, we also contacted state and local officials to inquire about six other urban areas—Buffalo, Chicago, Houston, Los Angeles, New York, and Tallahassee—where no significant number of machines was lost but problems were cited by state and local officials or media reports. Officials familiar with situations in these cities reported that most of the problems were limited to certain facilities. For example, an official in Buffalo said that one well-known facility there had a 3-month waiting list for appointments while others could accommodate appointments within 2 weeks. In Chicago, Houston, and Los Angeles, long waiting time problems were concentrated in public health facilities that served low income populations. In New York and Tallahassee, long waiting times of 5 to 6 months were reported in 2000, but our recent interviews with officials found no significant problem. In almost all cases where some problems were reported, officials said that women who needed a diagnostic mammogram generally were able to get appointments within 1 to 3 weeks. Several factors have contributed to the waiting time problems in the nine metropolitan counties and the six urban areas that we identified.","Among the reasons provided by state and local officials were the following: Demand for services grew while capacity declined. In the Baltimore area, for example, officials said that a shortage of technologists and financial difficulty caused many facilities to consolidate or shut down, resulting in a net decrease in capacity, while the demand for services continued to grow. High demand for services at some facilities. In cities such as Buffalo, Boston, Houston, and Los Angeles, where variation was more on a facility- by-facility basis, officials provided various reasons for the high demand at some facilities. For example, such factors as facilities’ reputations, physicians’ referral patterns, and large patient workload from public assistance programs cause some facilities to have a large backlog of appointments. Some women may experience waiting time problems because they are restricted by insurance coverage as to where they can go for services. Inability to meet FDA’s quality requirements. Several officials told us that many small facilities with old machines had shut down because they could not meet FDA quality requirements. For example, an official from Los Angeles said that one provider had shut down three mobile units during the last 2 years because","of quality problems.","Temporary interruptions in availability. The waiting time problems may also be caused by the closure of one or more large facilities—a temporary problem that often resolves itself when new facilities open or existing facilities expand in the area. For example, lengthy waiting problems in Tallahassee in 2000 were largely generated by the closure of one large mammography facility but a local public assistance program official told us in March 2002 that women in her program could get appointments within 2 weeks as the result of a recent opening of one new facility. In addition to these factors, state and local officials also frequently raised concerns about the adequacy of the Medicare reimbursement rate, particularly in the high cost metropolitan areas. However, during the course of our work, CMS implemented a statutory change to the method for determining the Medicare reimbursement rate for screening mammography. The new method includes geographic adjustments for cost differences among areas and resulted in significant rate increases for high cost areas. In general, the increase in mammography equipment and personnel has been sufficient to meet the steady increase in demand for mammography services.","However, while the general buildup of personnel has been in line with the growth in the use of services, the last few years show a substantial decline in the number of new entrants to the fields, which could result in a reversal in this trend. If this reversal occurs, more personnel shortage problems could arise in the future. Some instances of long waiting times for services are occurring. Consolidation of facilities and increases in demand can create a strain on service availability in specific communities. However, appointment delays are primarily for screening mammograms rather than for follow-up diagnostic mammograms. These conditions, which can be temporary, may be exacerbated by local physicians’ referral patterns, patients’ insurance coverage, or local shortages in available personnel. We provided FDA with a draft of the report for review and comment. FDA responded that it found the report to be accurate and it had no other general comments. In addition, FDA provided technical comments, which we incorporated as appropriate. Appendix II contains FDA’s written response. As arranged with your offices, unless you release its contents earlier, we plan no further distribution of this report until 10 days after its issue date.","At that time, we will send copies to the secretary of health and human services, the commissioner of FDA, the director of NCI, the director of CDC, the administrator of CMS, appropriate congressional committees, and other interested parties. If you or your staff have any questions about this report, please contact me at (202) 512-7250. Other contacts and major contributors are included in appendix III. To compare recent trends in the use of mammography services with changes in facilities, equipment, and personnel available to deliver these services, we did the following. We used data from CDC’s Behavioral Risk Factor Surveillance System for calendar years 1998 and 2000 (the most recent year available) to estimate mammography screening rates for women age 40 and older on a state-by- state basis. To estimate the number of mammograms provided to these women in 1998 and 2000, we then multiplied these screening rates by the population of women age 40 and over, using Census’ population estimates for 1998 and the 2000 Census population. We used FDA’s national database on mammography facilities to assess the change in the total numbers of certified facilities, machines, and radiological technologists at national, state, and county","levels.","We compared the characteristics of facilities operating on October 1, 1998, with those operating 3 years later on October 1, 2001. FDA estimated an error rate of less than 1 percent for the data on mammography facilities. We excluded facilities in Puerto Rico, other U.S. territories, and federal facilities operated by the Department of Defense and the Department of Veteran Affairs from the analysis. To identify geographical areas where the capacity to perform mammography services had decreased, and to assess the effect of these decreases on access to services, we used FDA’s national database to identify counties that lost mammography machines and focused on those that lost more than 25 percent of their machines from October 1, 1998, to October 1, 2001. To determine if machines became more available in areas close to these counties, we analyzed what had happened to the number of machines in nearby counties. Because data were not available to measure the effect of changes in capacity on mammography utilization rates at the county level, we carried out follow-up interviews with state and local officials in a random sample of 37 counties that lost more than 25 percent of their machines (see","table 4).","Because over three quarters of these counties are in nonmetropolitan areas, we selected an additional 18 counties (including the District of Columbia) from a list of counties that lost the largest number of machines (though not enough to reduce the number by more than 25 percent). All of these 18 counties are in metropolitan areas. We also made additional inquiries about six other urban areas—Buffalo, Chicago, Houston, Los Angeles, New York, and Tallahassee—where problems had been cited by state and local officials or media reports. Table 5 lists the 18 counties and their metropolitan areas. Because no systematic data were available on waiting times and travel distances for mammography services, we relied on observations of state and local officials about the situations at each location. For each selected location, both rural and metropolitan, we interviewed officials familiar with the availability of mammography services in these areas to obtain their views on whether women in their areas were experiencing problems with long waiting times for appointments and/or long travel distance to obtain services.","These officials generally included state radiation control personnel contracted by FDA to conduct annual onsite inspections of mammography facilities; state and local public health officials involved in CDC’s Breast and Cervical Cancer Early Detection Program, which contracts with mammography facilities in each state to provide screening and diagnostic mammograms to underserved women; and in some locations, officials of Medicare peer review organizations contracted by CMS to monitor and improve the quality of care, including increasing statewide mammography screening rates for Medicare beneficiaries. While most of these officials have not conducted any formal studies to gather this type of information, some have conducted informal surveys about waiting times and others were able to provide estimates of waiting times and travel distances through their involvement and frequent contacts with mammography facilities. In addition, we interviewed representatives from several professional organizations, such as the American College of Radiology, the American Cancer Society, and ARRT, along with officials of FDA, CDC, NCI, and CMS. We performed our work from June 2001 through March 2002 in accordance with generally accepted government auditing standards. In addition to those named above, Jennifer Cohen and Stan Stenersen made key contributions to this report."],"string":"[\n \"Research studies, including eight large randomized clinical trials with 11- 20 years of followup, indicated that widespread use of mammography could reduce breast cancer mortality. The benefit of mammography has recently been challenged by two Danish researchers and an NCI advisory panel made up of independent experts; they cite serious flaws in six of the eight clinical trials that showed benefits. However, subsequent to the Danish report and the NCI panel’s statement, both NCI and the U.S Preventive Services Task Force reiterated their recommendations for regular mammography screening. While acknowledging the methodological limitations in these trials, the U.S. Preventive Services Task Force concluded that the flaws in these studies were unlikely to negate the reasonable consistent and significant mortality reductions observed in these trials. The effectiveness of mammography as a cancer detection technique is directly tied to the quality of mammography procedures. Concerned about the quality of mammography procedures provided by the nation’s mammography facilities, the Congress enacted the Mammography Quality Standards Act (MQSA) of 1992, which imposed standards effective October 1, 1994. FDA has major oversight responsibilities, including establishing quality standards for mammography equipment and personnel and certifying and inspecting each facility to ensure it\",\n \"provides quality services.\",\n \"For mammography personnel, such as radiologic technologists and interpreting physicians, FDA specifies detailed qualifications and continuing training requirements. Mammography technologists are required to be licensed by a state or certified by the American Registry of Radiologic Technologists in general radiography, and meet additional mammography-specific training and continuing education and experience requirements. Similarly, FDA specifies that all interpreting physicians be licensed in a state and certified in the specialty by an appropriate board, such as the American Board of Radiology, and meet certain mammography-specific medical training, as well as continuing education and experience requirements. FDA collects detailed information about each facility when a facility is initially certified. FDA has established a database that incorporates data from the certification process and from its annual inspection program. Besides facility identification information, the database contains information on the number of machines, personnel, and whether the facility is active or no longer certified. Medicare, the federal government’s health insurance program for people age 65 and above, is the nation’s largest purchaser of health services. Beginning in 1991, Medicare provided coverage of annual mammography screening for women beneficiaries. Medicare is administered by CMS.\",\n \"As a part of its health care improvement program, since 1999, CMS and a set of contractors, called peer review organizations, have been involved in monitoring and improving the quality of care, including increasing mammography screening rates among women Medicare beneficiaries. The nation’s overall capacity to meet the growing demand for mammography services is generally adequate. Between 1998 and 2000, the use of services, as measured by the number of mammograms provided to women age 40 and older, increased nearly 15 percent. The most recent data on capacity show that the total number of machines and radiologic technologists available to perform mammography services increased 11 percent and 21 percent respectively from October 1998 to October 2001. During this same period, the total number of mammography facilities decreased about 5 percent, indicating that facilities were consolidating or becoming somewhat larger. The average number of mammograms performed per machine increased slightly but was considerably below estimates of full capacity. The one potentially negative development is in personnel, where the number of new entrants into the field—as measured by the number of persons who sit for mammography technologist or diagnostic radiology examinations for the first time—has dropped each year\",\n \"since 1997.\",\n \"The use of mammography as a tool for detecting early cancer continues to increase. Data from CDC’s Behavioral Risk Factor Surveillance System indicate a continuing increase in national mammography screening rates. The proportion of women age 40 and over who had received a mammogram within the past year increased from 58 percent in 1998 to about 64 percent in 2000. These screening rate increases, coupled with the growth of this population, have resulted in significant increases in the number of mammograms provided each year. Based on CDC’s data on screening rates and Bureau of Census population data, we estimate that the total number of mammograms received by women 40 and above nationwide has increased nearly 15 percent, from about 35 million in 1998 to more than 40 million in 2000. These increases in mammography utilization extended across nearly every state. Using the screening rates and the Bureau of Census population data, we computed the number of mammograms received by women age 40 and above on a state-by-state basis.\",\n \"Between 1998 and 2000, screening rates for women in this age group increased in all but one state (i.e., Oklahoma) and the District of Columbia, and 39 states had an increase of more than 10 percent in the total number of women age 40 and above who had received a mammogram within the past year. The nation’s capacity to provide mammography services, as measured by the numbers of machines and radiologic technologists available to perform mammography services, has also increased. FDA’s data show that between October 1998 and October 2001, the total number of mammography machines and radiologic technologists available nationwide to perform mammography services increased 11 percent and 21 percent respectively (see table 1). While FDA’s data showed that the total number of certified facilities has decreased about 5 percent between 1998 and 2001, the average number of machines per facility increased from 1.22 in 1998 to 1.42 in 2001. Overall, the 5 percent decrease in facilities has been offset by the 16 percent increase in the number of machines per facility and the increase in personnel.\",\n \"The current average number of mammograms actually being performed per machine appears to be well below estimates of how many mammograms could be performed, if equipment is operating at full capacity. While there is no uniform standard on the number of mammograms that a mammography machine can do in a day, FDA officials estimated that one machine and one full-time technologist can potentially perform between 16 and 20 mammograms in an 8-hour work day, or between 4,000 to 5,000 mammograms a year (assuming 5 days a week and 50 weeks a year). Using CDC’s data on mammography screening rates, Bureau of Census data on the population of women age 40 and older, and FDA’s data on the number of machines, we computed the average number of mammograms performed per machine. At the national level, the average number of mammograms per machine was 2,759 in 1998. While this average number of mammograms per machine had increased to 2,840 in 2001, it was still well under 4,000, the lower end range of estimated full capacity.\",\n \"At the state level, the average number of mammograms per machine in 2001 ranged from a low of 1,790 in Alaska to a high of 3,720 in Maryland. While the number of radiologic technologists has increased in the past in general proportion with the increase in mammography utilization, certain trends bear monitoring. According to an American Hospital Association survey, the job vacancy rate for radiologic technologists was 18 percent in 2001, and 63 percent of hospitals reported that they had more difficulty recruiting radiologic technologists than the previous year. Data from ARRT show the rate of increase for certified mammography technologists through 2000 has slowed down substantially in recent years. Similarly, the number of new entrants to the field, as represented by the number of first- time examinees for the mammography certificate, declined substantially each year from 1996 through 2000 (see table 2). In addition, while comprehensive data are not available on the total number of radiologists available to interpret mammograms, the limited data available also indicate that the availability of radiologists may bear watching.\",\n \"For example, data from the employment placement service of the American College of Radiology show an increasing ratio of job listings per job seeker for radiologists –from 1.3 in 1998 to 3.8 in 2000. Also, data from the American Board of Radiology show that the number of first-time candidates who sit for diagnostic radiology examination has declined each year from 1997 through 2001 (see table 3). Because of local factors such as a shortage of personnel or closure of certain facilities, waiting times for routine mammograms could be several months in certain locations. Nationwide, 241 counties had a net loss of mammography machines between October 1998 and October 2001, with 121 of them losing more than 25 percent. Our follow-up at 55 rural and metropolitan counties where reductions occurred indicated that lengthy appointment waiting times for mammography services were primarily in metropolitan locations. Our county-by-county analysis of data on equipment shows that overall, 241 counties had a net loss in the number of mammography machines between October 1998 and October 2001. Of these counties, 121 lost more than 25 percent of their machines. This number represents counties spread throughout the nation.\",\n \"These counties together contained less than 1.9 percent of the total U.S. population in the 2000 census. We conducted an analysis to determine what had occurred in those counties close to the 121 counties that lost more than 25 percent of their machines. In general, the adjacent counties showed an increase in the number of machines, with nearly all of the 121 counties being within 50 miles of a county that gained machines. Thus, residents in most of the counties that lost services appear to be able to draw on increased resources nearby. Because data are not available to measure the effect of capacity loss on the mammography utilization rates at the county level, we randomly selected 37 of the 121 counties that lost more than 25 percent of their machines for in-depth analysis at the local level. These 37 counties are located in 19 states (see appendix I for a list of these 37 counties). Over three quarters of these counties are in nonmetropolitan areas. Eighteen of the counties we selected had one facility and 11 had no facility at all in 2001.\",\n \"We interviewed state and local officials familiar with conditions in these counties, asking them to assess the impact of the loss of facilities. With two exceptions, officials generally reported no significant problems. They said existing facilities in the county or neighboring counties were able to provide needed services, and the longest appointment waiting time reported for routine screening mammograms was 1 month or less, which they considered to be reasonable. In most counties where women had to travel to neighboring counties for services, the travel distance was less than 40 miles, which officials considered common in rural areas. Several officials also said that some counties were served by mobile facilities that travel to their areas. In metropolitan counties, the picture was more mixed than for rural counties. To examine the extent of problems in metropolitan areas, we selected 18 additional counties (including the District of Columbia) from a list of counties that lost the largest number of machines. All of these counties are classified as metropolitan counties (see appendix I for a list of these counties).\",\n \"As we did for the rural counties, we contacted state and local officials and asked them to assess the impact of the loss of machines on women’s access to services. These officials reported wide variations in availability of services. While no problems were reported in nine counties, officials in the other nine counties reported a variety of problems. The nine counties with problems are concentrated in five metropolitan areas— Baltimore, Boston, the District of Columbia, and San Antonio and Wichita Falls, Texas. For example, officials in three counties surrounding the Baltimore metropolitan area reported an average waiting time of up to 3 months for screening mammograms and 2 to 3 weeks for follow-up diagnostic mammograms. Similarly, a survey conducted by Massachusetts officials in April 2001 found that, in the Boston metropolitan area, appointment waiting time for screening mammograms ranged from 1 to 20 weeks, depending on facilities. In the District of Columbia, officials reported that the only facility available in one part of the city had up to an 8-week backlog of appointments, while the rest of the city generally did not have significant problems.\",\n \"In addition to contacting these 18 counties, we also contacted state and local officials to inquire about six other urban areas—Buffalo, Chicago, Houston, Los Angeles, New York, and Tallahassee—where no significant number of machines was lost but problems were cited by state and local officials or media reports. Officials familiar with situations in these cities reported that most of the problems were limited to certain facilities. For example, an official in Buffalo said that one well-known facility there had a 3-month waiting list for appointments while others could accommodate appointments within 2 weeks. In Chicago, Houston, and Los Angeles, long waiting time problems were concentrated in public health facilities that served low income populations. In New York and Tallahassee, long waiting times of 5 to 6 months were reported in 2000, but our recent interviews with officials found no significant problem. In almost all cases where some problems were reported, officials said that women who needed a diagnostic mammogram generally were able to get appointments within 1 to 3 weeks. Several factors have contributed to the waiting time problems in the nine metropolitan counties and the six urban areas that we identified.\",\n \"Among the reasons provided by state and local officials were the following: Demand for services grew while capacity declined. In the Baltimore area, for example, officials said that a shortage of technologists and financial difficulty caused many facilities to consolidate or shut down, resulting in a net decrease in capacity, while the demand for services continued to grow. High demand for services at some facilities. In cities such as Buffalo, Boston, Houston, and Los Angeles, where variation was more on a facility- by-facility basis, officials provided various reasons for the high demand at some facilities. For example, such factors as facilities’ reputations, physicians’ referral patterns, and large patient workload from public assistance programs cause some facilities to have a large backlog of appointments. Some women may experience waiting time problems because they are restricted by insurance coverage as to where they can go for services. Inability to meet FDA’s quality requirements. Several officials told us that many small facilities with old machines had shut down because they could not meet FDA quality requirements. For example, an official from Los Angeles said that one provider had shut down three mobile units during the last 2 years because\",\n \"of quality problems.\",\n \"Temporary interruptions in availability. The waiting time problems may also be caused by the closure of one or more large facilities—a temporary problem that often resolves itself when new facilities open or existing facilities expand in the area. For example, lengthy waiting problems in Tallahassee in 2000 were largely generated by the closure of one large mammography facility but a local public assistance program official told us in March 2002 that women in her program could get appointments within 2 weeks as the result of a recent opening of one new facility. In addition to these factors, state and local officials also frequently raised concerns about the adequacy of the Medicare reimbursement rate, particularly in the high cost metropolitan areas. However, during the course of our work, CMS implemented a statutory change to the method for determining the Medicare reimbursement rate for screening mammography. The new method includes geographic adjustments for cost differences among areas and resulted in significant rate increases for high cost areas. In general, the increase in mammography equipment and personnel has been sufficient to meet the steady increase in demand for mammography services.\",\n \"However, while the general buildup of personnel has been in line with the growth in the use of services, the last few years show a substantial decline in the number of new entrants to the fields, which could result in a reversal in this trend. If this reversal occurs, more personnel shortage problems could arise in the future. Some instances of long waiting times for services are occurring. Consolidation of facilities and increases in demand can create a strain on service availability in specific communities. However, appointment delays are primarily for screening mammograms rather than for follow-up diagnostic mammograms. These conditions, which can be temporary, may be exacerbated by local physicians’ referral patterns, patients’ insurance coverage, or local shortages in available personnel. We provided FDA with a draft of the report for review and comment. FDA responded that it found the report to be accurate and it had no other general comments. In addition, FDA provided technical comments, which we incorporated as appropriate. Appendix II contains FDA’s written response. As arranged with your offices, unless you release its contents earlier, we plan no further distribution of this report until 10 days after its issue date.\",\n \"At that time, we will send copies to the secretary of health and human services, the commissioner of FDA, the director of NCI, the director of CDC, the administrator of CMS, appropriate congressional committees, and other interested parties. If you or your staff have any questions about this report, please contact me at (202) 512-7250. Other contacts and major contributors are included in appendix III. To compare recent trends in the use of mammography services with changes in facilities, equipment, and personnel available to deliver these services, we did the following. We used data from CDC’s Behavioral Risk Factor Surveillance System for calendar years 1998 and 2000 (the most recent year available) to estimate mammography screening rates for women age 40 and older on a state-by- state basis. To estimate the number of mammograms provided to these women in 1998 and 2000, we then multiplied these screening rates by the population of women age 40 and over, using Census’ population estimates for 1998 and the 2000 Census population. We used FDA’s national database on mammography facilities to assess the change in the total numbers of certified facilities, machines, and radiological technologists at national, state, and county\",\n \"levels.\",\n \"We compared the characteristics of facilities operating on October 1, 1998, with those operating 3 years later on October 1, 2001. FDA estimated an error rate of less than 1 percent for the data on mammography facilities. We excluded facilities in Puerto Rico, other U.S. territories, and federal facilities operated by the Department of Defense and the Department of Veteran Affairs from the analysis. To identify geographical areas where the capacity to perform mammography services had decreased, and to assess the effect of these decreases on access to services, we used FDA’s national database to identify counties that lost mammography machines and focused on those that lost more than 25 percent of their machines from October 1, 1998, to October 1, 2001. To determine if machines became more available in areas close to these counties, we analyzed what had happened to the number of machines in nearby counties. Because data were not available to measure the effect of changes in capacity on mammography utilization rates at the county level, we carried out follow-up interviews with state and local officials in a random sample of 37 counties that lost more than 25 percent of their machines (see\",\n \"table 4).\",\n \"Because over three quarters of these counties are in nonmetropolitan areas, we selected an additional 18 counties (including the District of Columbia) from a list of counties that lost the largest number of machines (though not enough to reduce the number by more than 25 percent). All of these 18 counties are in metropolitan areas. We also made additional inquiries about six other urban areas—Buffalo, Chicago, Houston, Los Angeles, New York, and Tallahassee—where problems had been cited by state and local officials or media reports. Table 5 lists the 18 counties and their metropolitan areas. Because no systematic data were available on waiting times and travel distances for mammography services, we relied on observations of state and local officials about the situations at each location. For each selected location, both rural and metropolitan, we interviewed officials familiar with the availability of mammography services in these areas to obtain their views on whether women in their areas were experiencing problems with long waiting times for appointments and/or long travel distance to obtain services.\",\n \"These officials generally included state radiation control personnel contracted by FDA to conduct annual onsite inspections of mammography facilities; state and local public health officials involved in CDC’s Breast and Cervical Cancer Early Detection Program, which contracts with mammography facilities in each state to provide screening and diagnostic mammograms to underserved women; and in some locations, officials of Medicare peer review organizations contracted by CMS to monitor and improve the quality of care, including increasing statewide mammography screening rates for Medicare beneficiaries. While most of these officials have not conducted any formal studies to gather this type of information, some have conducted informal surveys about waiting times and others were able to provide estimates of waiting times and travel distances through their involvement and frequent contacts with mammography facilities. In addition, we interviewed representatives from several professional organizations, such as the American College of Radiology, the American Cancer Society, and ARRT, along with officials of FDA, CDC, NCI, and CMS. We performed our work from June 2001 through March 2002 in accordance with generally accepted government auditing standards. In addition to those named above, Jennifer Cohen and Stan Stenersen made key contributions to this report.\"\n]","isConversational":false}}},{"rowIdx":10892,"cells":{"id":{"kind":"string","value":"train_10892"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"The Department of Labor's Office of Workers' Compensation Programs (OWCP) paid $2.1 billion in medical and death benefits and received about 174,000 new injury claims during fiscal year 2000. GAO found that (1) one in four appealed claims' decisions are reversed or remanded to OWCP district offices for additional consideration and a new decision because of questions about or problems with the initial claims decision; (2) OWCP set a goal of informing 96 percent of claimants within 110 days of the date of the hearing; (3) nearly all doctors used by OWCP to provide opinions on injuries claimed were board certified and state licensed, and were specialists in areas consistent with the injuries they evaluate; and (4) OWCP has used mailed surveys, telephone surveys, and focus groups to measure customer satisfaction. The Labor inspector general is monitoring fraud within OWCP's workers compensation program and using the claims examiners as one source in identifying potentially fraudulent claims."},"documents":{"kind":"list like","value":["FECA (5 USC 8101, et seq.) authorizes federal civilian employees compensation for wage loss and medical and death benefits for treatment of injuries sustained or for diseases contracted during the performance of duty. OWCP is responsible for administering and adjudicating the federal workers’ compensation program. During fiscal year 2000, OWCP’s paid workers’ compensation totaled about $2.1 billion including wage loss, medical, and death benefits stemming from job-related injuries and OWCP received approximately 174,000 new injury claims. A workers’ compensation claim is initially submitted to an OWCP district office and is evaluated by a claims examiner. The examiner must determine whether the claimant has met all of the following criteria for obtaining benefits: The claim must have been submitted in a timely manner. An original claim for compensation for disability or death must be filed within 3 years of the occurrence of the injury or death. The claimant must have been an active federal employee at the time of injury. The injury, illness, or death had to have occurred in a claimed accident. The injury, illness, or death must have occurred in the performance of duty.","The claimant must be able to prove that the medical condition for which compensation or medical benefits is claimed is causally related to the claimed injury, illness, or death. Since medical evidence is an important component in determining whether an accident described in a claim caused the claimed injury and if the claimed injury caused the claimed disability, workers’ compensation claims are typically accompanied by medical evidence from the claimant’s treating physician. Considerable weight is typically given to the treating physician’s assessment and diagnosis. However, should the OWCP claims examiner conclude that the claimant’s recovery period seems to be outside the norm or that a better understanding of the medical condition is needed to clarify the nature of the condition or extent of disability, the examiner may obtain a second medical assessment of the claimant’s condition. In such instances, a second opinion physician, who is selected by a medical consulting firm contracted by an OWCP’s district office, reviews the case, examines the claimant, and provides a report to OWCP.","If the second opinion physician’s reported determination conflicts with the claimant physician’s opinion regarding the injury or condition, the claims examiner determines if the conflicting opinions are of “equal value.” If the claims examiner considers the two conflicting opinions to be of equal value, OWCP appoints a third or “referee physician” to evaluate the claim and render an independent medical opinion. Claims may be approved in full or part, or denied. For example, a claimant may be paid full wage loss benefits and provided physical and vocational rehabilitation services, but denied a request for a medical procedure. When all or part of a claim is denied the claimant has three avenues of recourse: (1) an oral hearing or a review of the written record by the Branch of Hearings and Review (BHR), (2) reconsideration of the claim decision by a different claims examiner within the district office, or (3) a review of the claim by the Employees Compensation Appeals Board (ECAB). Under the first appeal option, the claimant can request an oral hearing or a review of the claim’s written record by a BHR hearing representative.","At an oral hearing, the claimant can testify in person, be represented by a designated representative, or submit written evidence. The employing agency may attend but not participate unless invited to do so by the BHR hearing representative or the claimant. For either a hearing or review of the record, the hearing representative decides whether to affirm the initial decision, reverse the initial decision and administer benefits to the claimant, or remand the claim to the district office for a new decision. A second option to the claimant is to request reconsideration of the decision at the district office. During reconsideration, the district office reevaluates its initial decision and the decision-making process to ensure that it properly considered all facets of the claim. This reconsideration is typically performed by a senior claims examiner who played no role in making the original decision. After the entire record and resulting decision are reevaluated, the claims examiner decides whether to affirm the initial decision denying all or part of the claim or to modify the initial decision. Generally the final appeal available to the claimant is made to the ECAB.","The ECAB consists of three members who are appointed by the secretary of labor. The board was created within DOL but outside OWCP to give federal employees the same administrative due process of law and appellate review that most nongovernment workers enjoy under workers’ compensation laws in most states. While regulations prohibit the claimant from submitting new evidence during this phase, the ECAB is not limited by previous “findings of fact” by the district office or BHR and can therefore reevaluate the evidence and determine if the law was appropriately applied. As with the other appeals levels, ECAB renders decisions that affirm the district office’s decision, remand all or part of the claimant’s appealed decision to the district office for additional review, or reverse the district office’s decision. While OWCP regulations do not require claimants to exercise these three methods of appeal in any particular order, certain restrictions apply that, in effect, encourage claimants to file appeals in a specific sequence—first going to the BHR, then requesting another review at the OWCP district office, and finally involving the ECAB.","For example, the regulations state that a claimant seeking a BHR hearing on a decision must not have previously requested reconsideration of that decision regardless of whether the earlier request was granted. However, the BHR director said that claimants may, and sometimes do, choose to request a district office reconsideration first because the decisions on claims appealed through reconsideration are made in a more timely manner. Not withstanding the regulatory provision, OWCP explained that a claimant may request a discretionary oral hearing by BHR after receiving a reconsideration decision and both OWCP procedures and ECAB precedent require OWCP to exercise its discretion in considering such a request. Appendix I contains a graphic presentation of OWCP’s claims adjudication process. We performed our work in Washington, D.C., from March 2001 through April 2002 in accordance with generally accepted government auditing standards.","To assist us in addressing the objectives, we reviewed a statistical sample of more than 1,200 of the estimated 8,100 appealed claims for which a decision was rendered by OWCP’s BHR or DOL’s ECAB during the period from May 1, 2000, through April 30, 2001, to determine the following: (1) the primary reasons why appealed decisions were reversed or claims were remanded to the OWCP district offices for further development, (2) the amount of time OWCP took to inform claimants of hearing decisions, (3) whether OWCP used certified and licensed physicians whose areas of specialty were consistent with the injuries evaluated, and (4) the methods OWCP uses to identify customer satisfaction and potential claimant fraud. Additional information on the scope and methodology of our review and approaches for addressing these and other objectives is presented in appendix II and confidence intervals and other statistical information regarding our work are presented in appendix III. From May 1, 2000, to April 30, 2001, decisions were rendered by BHR or ECAB on approximately 8,100 appealed claims.","BHR or ECAB affirmed an estimated 67 percent of these initial decisions as being correct and properly handled by the district office, but reversed or remanded an estimated 31 percent of the decisions—25 percent because of questions or problems with OWCP’s review of medical and nonmedical information or management of claims files, and 6 percent because of additional evidence being submitted by the claimant after the initial decision. The following figure characterizes the outcome of BHR and ECAB reviews of appealed claims. For those claims decisions that were reversed or remanded, the figure shows the reason, including (1) evaluation of evidence problems, (2) mismanagement of claims file problems, or (3) new evidence submitted by the claimant. Based on a statistical sample of appealed claims decisions made during the period May 1, 2000, through April 30, 2001, we estimate that 25 percent of the appealed claims decisions (approximately 2,000 of 8,100) were reversed or remanded because of questions about or problems associated with the initial decision by OWCP.","These included problems with (1) the initial evaluation of medical evidence (e.g., physicians’ examinations, diagnoses, or x-rays) or nonmedical evidence (e.g., coworker testimonies) or (2) management of the claim file (e.g., failure to forward a claim file to ECAB in a timely manner). Problems in evaluating medical evidence frequently involved OWCP failing to properly identify medical conflicts between the conclusions of the claimant’s physician and OWCP’s second opinion physician, and therefore not appointing a referee physician as required by FECA. OWCP has interpreted the FECA requirement to apply only when the opinions of the two physicians involved are of equal value, that is, when both physicians have rendered comparably supported findings and opinions. Other initial claims decisions were reversed or remanded when BHR or ECAB determined that nonmedical evidence had not been properly evaluated. One example of this involved the OWCP provision that when suitable work is found for the claimant, benefits will terminate. For example, based on its review of a job offer to a claimant who had work restrictions—such as not being able to lift over 50 pounds—an OWCP district office decided that the job represented suitable work and terminated the claimant’s compensation.","However, when that decision was appealed by the claimant, BHR identified a flaw in the job offer. In order for OWCP to meet its burden of showing that an offered job is suitable for a claimant, both the duties and physical requirements of the job need to be fully described in the job offer. For this claim, the job offer had only set forth the duties, such as inputting social security numbers on a keyboard. The BHR representative decided that the offer did not describe the physical requirements associated with the job and thus, did not “allow the district office to properly determine whether the offered job was suitable work within the claimant’s work restrictions.” BHR concluded that the district improperly terminated the claimant’s compensation and directed that the claimant’s monetary compensation be reinstated. We estimate that 21 percent of appealed claims were remanded and reversed due to problems with evaluating medical or nonmedical evidence. Some remands and reversals result from OWCP failing to administer claims files in accordance with FECA or OWCP guidance for claims management.","The guidance includes (1) a description of the information that is to be maintained in the claim file and transmitted by OWCP to the requestor (i.e., BHR or ECAB) and (2) requires claims files to be transmitted within 60 days after a request is received. Failure to meet this 60-day requirement was one of the more common deficiencies in claims file management in our sample. For example, ECAB initially requested a claim file for one injured worker from OWCP on April 29, 2000. On December 19, 2000 (almost 8 months later), the Board notified OWCP that the claim file had not been transferred and that if the file was not received within 30 days, ECAB would issue orders remanding the case to the relevant district office for “reconstruction and proper assemblage of the record.” As of March 12, 2001—more than 10 months after the initial ECAB request —the claim file had still not been transferred and the claim was remanded back to the district office. We estimate that 4 percent of appealed claims were reversed or remanded by the BHR or ECAB for claims file management problems.","For claims that were initially denied and then the decisions were reversed by the BHR or ECAB due to problems identified with the initial evaluation of evidence or mismanagement of claims files, there are delays in claimants receiving benefits to which they were entitled. According to OWCP, the average amount of time that elapsed from the date an appeal was filed with BHR or ECAB until a decision was rendered was 7 months and 18 months, respectively, in fiscal year 2000. Thus, while claimants are provided benefits retroactively to the date of the initial decision when a claim is reversed, they may be forced to go without benefits for what can be extended periods and may have to incur additional expenses, such as representatives’ fees, during appeals that are not reimbursable. We also found that 6 percent of appealed claims decisions were reversed or remanded because of new evidence being submitted by the claimant after the initial decision was made.","OWCP regulations allow claimants to submit new evidence to support their claims at any time from the rendering of the initial claim decision until 30 days—or more with an extension—after the BHR hearing or review of the record occurs. Additional evidence could include medical reports from different physicians or new testimonial evidence from coworkers that in some significant way were expected to modify the circumstances concerning the injury or its treatment and make the previous decision by OWCP now inappropriate. Upon appeal of the earlier district office decision, the BHR representative determines whether the new evidence is sufficient to remand the claim back to the district office for further review, or to reverse the initial decision. OWCP monitors remands and reversals by the BHR and ECAB to identify certain trends in appeals decisions. Steps OWCP says it takes include reviewing ECAB decisions and preparing an advisory calling claims examiners’ attention to selected ECAB decisions which may represent a pattern of district office error or are otherwise instructive. Where more notable problems are identified through ECAB reviews, a bulletin describing the correct procedures may be issued or training might be provided.","While OWCP similarly monitors reasons for BHR reversing and remanding claims decisions, this information, or any suggested corrective actions are not disseminated to claims examiners in as systematic a manner as is done for ECAB decisions. Clearly, these actions are providing some information on remands and reversals, which might be helpful to OWCP and its district offices. However, this information is not fostering a full understanding of the underlying reasons for remands and reversals occurring at their current rates and what other actions might be taken to address those factors. For example, OWCP might detect that a district office is failing to appoint referee physicians when required. OWCP might then notify district offices that such a problem was occurring, but with the information currently available, it would not be able to identify how frequently the problem was occuring or the underlying reasons— (1) are inexperienced claims examiners not sufficiently aware of the requirement for a referee physician when a conflict of medical opinions of equal value occurs, or (2) are examiner’s experiencing difficulty in determining whether two physicians’ opinions were of equal value? Without such information on causes, it would be difficult to address these problems.","We believe that OWCP needs to examine the steps now being taken to determine whether more can be done to identify and track specific reasons for claims decision remands and reversals. With such information, OWCP may be able to act to address those underlying causes and in so doing, reduce remand and reversal rates. OWCP officials told us that they have not conducted such an overall examination of its current process. Instead OWCP said they continue to adjust their monitoring and communication process (circulars and bulletins) based on available information. Finally, OWCP indicated that the rate of OWCP remands and reversals was similar to that of other compensation organizations. They provided us a comparison of four organizations whose rates were similar or greater than theirs; the four were DOL’s Black Lung Program, the Social Security Administration’s Disability Program, and the North Dakota and Washington states’ workers’ compensation programs. Except for the SSA program, no information was provided nor do we have information concerning how comparable the programs are; thus we cannot determine the validity of such a comparison.","Regarding SSA, their reversal rate may not be comparable to OWCP’s because of considerable emphasis on SSA physicians’ testimony for initial claims decisions and the claimants’ and their physicians’ testimony during adjudication hearings, resulting in high reversal rates. FECA requires that OWCP notify claimants in writing of hearing decisions “within 30 days after the hearing ends.” OWCP’s interpretation of the hearing process allows up to 110 days before almost all claimants are to be notified of decisions. In establishing guidelines for meeting this provision of the act, the BHR director told us that the hearing record is not closed until two separate but concurrent processes are completed. 1. Printing and reviewing of hearing transcript: The time needed to print and review the hearing transcript could range from as few as 25 days to as many as 47 calendar days from the hearing date. A contractor prints the hearing transcript, which generally takes from 5 to 7 calendar days. The claimant and the claimant’s employing agency then review the transcript of the hearing for up to 20 calendar days.","If the employing agency provides comments, OWCP provides the claimant with the agency's comments and an additional 20 calendar days to respond to those comments. 2. Submitting new evidence: OWCP gives the claimant 30 calendar days from the date of the hearing to submit additional medical evidence. If the claimant needs additional time to provide more medical evidence, the regulations allow the OWCP hearing representatives to use their discretion to grant a claimant a one-time extension period, that may be for up to several months. OWCP officials stressed the importance of all the evidence being considered before a decision is made since if the decision is appealed to ECAB any subsequent review by the ECAB is limited to the evidence in the claim record at the time of the preceding decision. Given the potentially wide variance in the number of days before OWCP can close a hearing record, an OWCP official said they have attempted to establish realistic standards for notifying claimants of hearing decisions.","OWCP has established two goals for the timing of notifying claimants of final hearing decisions: (1) notifying 70 to 85 percent of the claimants within 85 calendar days, and (2) informing 96 percent of claimants within 110 calendar days following the date of the hearing. Based upon our review of the applicable legislation, we determined that OWCP has the authority to interpret the FECA requirement for claimant notification in this manner. Of an estimated 2,945 appealed claims for which BHR rendered a decision on a hearing during our review period, notification letters for an estimated 2,256 (or 77 percent) were signed by OWCP officials within 85 days of the date of the hearing and an estimated 2,716 (or 92 percent) of the claims were signed within 110 days of the hearing date. OWCP officials signed an estimated 158 (or 5 percent) of the claimants’ notification letters from 111 to 180 days after the hearing date and 70 claims (or 2 percent) from 181 to more than 1 year after the hearing date. Our review showed that OWCP referee physicians were board certified and licensed in their specialties.","In addition, we found that OWCP’s second opinion and referee physicians had specialties that were appropriate for claimant injuries in nearly all the cases we examined. Although neither FECA nor OWCP’s procedures manual require second opinion physicians to be board certified, the procedures manual states that OWCP should select physicians from a roster of “qualified” physicians and “specialists in the appropriate branch of medicine.” The manual further requires that for referee physicians “the services of all available and qualified board-certified specialists will be used as far as possible.” The manual allows for using a noncertified physician in special situations, stating “a physician who is not board-certified may be used if he or she has special qualifications for performing the examination,” but the OWCP medical official making that decision must document the reasons for the selection in the case record. Based on our statistical sample, we estimate that at least 94 percent of OWCP’s contracted second opinion physicians and at least 99 percent of the contracted referee physicians were board certified. In making these determinations, we used information from the American Board of Medical Specialties (ABMS), the umbrella organization for the approved medical specialty boards in the","United States.","In addition, OWCP provided documentation verifying certifications of some of the physicians in our sample. For the remaining 6 and 1 percent of the second opinion and referee physicians in our sample, respectively, we lacked information to determine whether they were or were not certified. Although neither FECA nor OWCP regulations specifically require either second opinion or referee physicians to be licensed by the state in which they practice, OWCP officials stated that OWCP expects that all physicians will have state medical licenses. Based on our sample of physicians, we estimated that at least 96 percent of the second opinion physicians and at least 99 percent of the referee physicians had current state medical licenses. For the 4 and 1 percent of the remaining physicians respectively, we did not have sufficient information to determine whether or in what state they were licensed. An estimated 98 percent of OWCP’s second opinion and referee physicians appeared to have specialties relevant to the types of claimant injuries they evaluated.","While there is no requirement for referee physicians to have specialties relevant to the types of injuries evaluated, OWCP officials told us that a directory is used to select referee physicians—with appropriate specialties—to examine the type of injury the claimant incurred. For the remaining physicians in our sample, that is the remaining 2 percent, the conclusion was that they had specialties which were not appropriate for the type of injuries examined. For example, a cardiologist—acting as a second opinion physician—examined a claimant for residuals of hypertension that were aggravating the claimant’s kidney disease. The claimed injury appeared to be associated with kidney rather than heart disease. Therefore, it would have been appropriate for the claimant to be treated by a nephrologist (kidney specialist). For assistance in reviewing relevancy of physician specialties, we contracted with a Public Health Service (PHS) physician. With that assistance, we were able to review our sample of claimants’ injuries and the board specialties of the physician(s) who evaluated them to determine if the knowledge possessed by physicians with a specific specialty would allow them to fully understand the nature and extent of the type of injury evaluated.","OWCP uses surveys of randomly selected claimants and focus groups to monitor the extent of customer satisfaction with several dimensions of the claims program, including responsiveness to telephone inquiries. OWCP claims examiners and employing agencies serve as primary information sources for identifying potentially fraudulent claims. When such potential fraud is detected, DOL’s IG investigates the circumstances and, if appropriate, prosecutes the claimants and others involved. OWCP obtains information concerning customer satisfaction with the handling of claims through surveys of claimants and conducting focus groups with employing agencies. Since 1996, OWCP has used a contractor to conduct customer satisfaction surveys via mail about once each year to determine claimants’ perceptions on several aspects of the implementation of the workers’ compensation program, including overall service, for example, whether claimants knew their rights when notified of claims decisions and the timeliness of written responses to claimants’ inquiries. The questionnaires did not include questions specific to the appealed claims process, but some of the respondents may have based their responses on experiences encountered when appealing claims. In the 2000 survey, customers indicated a 52 percent satisfaction rate with the overall workers compensation program, and a 47 percent dissatisfaction rate.","The level of claimant satisfaction indicated in their responses for specific issues in the surveys have been largely mixed (i.e., more positive responses for some questions and more negative responses for other questions). For example, survey responses in fiscal year 1998 showed that 34 percent of the respondents were satisfied with the timeliness of responses to their written questions to OWCP concerning claims, while 63 percent were not, and 35 percent were satisfied with the promptness of benefit payments, while 26 percent were not satisfied. Based on these and previous survey results, OWCP took actions including creating a committee to address several customer satisfaction issues, such as determining if the timeliness of written responses could be improved. In fiscal year 2001, OWCP took two additional steps to measure customer satisfaction. First, OWCP used another contractor to conduct a telephone survey of 1,400 claimants focused on the quality of customer service provided by the district offices. As of March 25, 2002, a contractor was still evaluating the results of this survey. Second, OWCP held focus group meetings with employing agency officials in the Washington, D.C., and Cleveland, Ohio, district offices’ jurisdictions.","An OWCP official stated that this effort provided an open forum for federal agencies to express concerns with all aspects of OWCP service. In the Washington D.C. focus group, employing agency officials expressed their belief that some of the claims approved by OWCP did not have merit. The report on that meeting did not specify whether this concern applies to appealed claims decisions. The report documenting the Cleveland focus group effort indicated that employing agencies were frustrated about not being informed of OWCP claims decisions and several agencies said they continued to put through medical bills only to be told by the employees that their claims had been denied. The DOL’s IG—using information from claims examiners and other sources—monitors, investigates, and prosecutes fraudulent claims made by federal workers. The IG’s office provides guidance to claims examiners for identifying and reporting claimant fraud, including descriptions of situations or “red flags” that could be potentially fraudulent claims. Red flags include such items as excessive prescription drug requests and indications of unreported income. DOL’s Audits and Investigations Manual requires claims examiners and other employees to report all allegations of wrongdoing or criminal violations—including the submission of false claims by","employees—to the IG’s office.","Once a potentially fraudulent claim is identified, the IG will review information submitted by the claimant, coworkers, physicians, and others. The IG may also conduct additional investigations of claimants and medical providers suspected of defrauding the program, such as surveillance of claimants and undercover operations aimed at determining if a physician is knowingly participating in fraudulent claims. For example, an IG agent— wearing a transmitter—might pose as a postal worker and visit a doctor who has been identified as providing supporting opinions for OWCP claimants with questionable injuries. The agent could then tell the doctor that the claim of injury is in fact false but that they need time off for personal reasons, for example to get married. If the doctor agrees to support such a false claim, the doctor would then be charged with fraud. Of approximately 600,000 workers’ compensation claims filed with district offices from fiscal years 1998 through 2001, the IG opened 513 investigations involving potential fraud. Of these, 212 led to indictments and 183 resulted in convictions against claimants and physicians.","One out of four OWCP initial claims decisions (approximately 25 percent) was either reversed or remanded upon appeal because of questions about or problems with either OWCP’s evaluation of medical and nonmedical evidence or improper management of claims files. For the appealed claims that were eventually reversed because of problems with the initial decision, benefits to which claimants were entitled are delayed. While benefits are usually granted retroactively in such cases, going without those deserved benefits for what might be extended periods might create hardships for claimants. Further, representatives’ fees and some other additional expenses that claimants might incur during the appeals process are generally not reimbursed by OWCP. While OWCP monitors certain information on BHR and ECAB remands and reversals to identify problems in district office decisions, and distributes much of this information to district offices, that information does not fully identify underlying causes of the problems. An examination of the monitoring steps OWCP is currently taking and a determination of what other information could help OWCP and its district offices to address underlying causes could result in a reduction of the rate of remands and reversals.","We recommend that the secretary of labor require the director of OWCP to examine the steps now being taken to determine whether more can be done to identify and track specific reasons for remands and reversals— including improper evaluation of evidence and mismanagement of claim files—and address their underlying causes. We obtained comments on this report from the Assistant Secretary for Employment Standards, Department of Labor. The Assistant Secretary agreed with our conclusions regarding the timing of notifying claimants on hearing results; physician certification, licensing and specialties; and processes used by OWCP to monitor customer satisfaction and potential claimant fraud. The Assistant Secretary raised concerns, however, with our conclusions related to the frequency of and reasons for reversals and remands of initial OWCP claims decisions when appealed by the claimant. Following is a presentation of key comments from the Assistant Secretary and our responses to those comments. A principal comment regarding the report and its conclusions relates to the use of BHR and ECAB decision summaries to determine the rate of remands and reversals due to (a) introduction of new information, (b) mismanagement of case files and (c) district office problems in evaluating claim evidence.","In short, OWCP asserts that BHR and ECAB summary decisions are inadequate to make such determinations. The Assistant Secretary also expresses the belief that a “large portion” of decisions that our review showed were reversed or remanded because of questions about or problems with the initial decision (as opposed to new evidence being submitted), were in fact reversed or remanded because of new evidence being submitted. We disagree. Decision summaries we reviewed clearly indicated specific reasons for each reversal or remand and our analysis fully accounted for remands and reversals that were ordered by the BHR and ECAB due to the introduction of new information by the claimant. For example, in the summary of one decision remanded by the ECAB due to an evidence evaluation problem, the BHR had originally decided that a claimant was not entitled to benefits. The BHR decision was based on a second opinion physician’s report and several reports from the claimant’s two physicians’ all of which preceded the BHR decision.","The BHR “representative found that the opinions of the (claimants) attending physicians could not be afforded any great weight as their opinions were based on the fact that the (claimant) was performing duties requiring repetitive shoulder movements, and this was not true.” In remanding the decision, ECAB determined that there were “discrepancies between the opinions of the (claimant’s physicians) and the (second opinion physician) that there is a conflict in the medical opinion evidence as to the cause of the (claimant’s) current condition and, therefore, the case will be remanded” for the appointment of a referee physician. An example of a decision where new evidence was submitted, was an ECAB decision summary that stated that the decision was remanded back to the OWCP district office “because (claimant) submitted relevant and pertinent evidence not previously considered by the office.” Cases are frequently reviewed by claims examiners on arrival and may be remanded if late arriving evidence is sufficient to meet the claimant’s burden of proof. These claims examiner remands prior to hearing are frequently based on the review of evidence not available to the district office examiner.","It appears that the GAO investigators entirely excluded these cases from their sample. OWCP is incorrect. Our sample, as indicated in our report, was drawn from all appealed case decisions made during a 1-year period and therefore encompassed all affirmations, remands and reversals that were made before hearings, after hearings and those for the record during that 12 month period. The percent of appeals reversed or remanded by the ECAB may be the purest indicator of district office oversight or error. We note that, based on our sample, the rate of ECAB remands and reversals was approximately 23 percent, which closely approximates the composite remand and reversal rate for both BHR and ECAB of 25 percent. The report also conflates its analysis of remands and reversals. Remands and reversals must be distinguished. A remand does not reverse the denial of a claim and direct the examiner to pay the denied benefit. It may, for example, direct the examiner to ask further questions of the reporting physician, after which the district office issues a new decision that considers the doctor’s further response. The new decision may reinstate the original denial or award the benefit.","We have added wording to our report to make the distinction clear. However, because our analysis focused on the same issue for both, i.e. questions about or problems with initial claims decisions made at OWCP district offices, we believe it is appropriate to use reversals and remands as a combined indicator. In summary, the report’s presentation of the ratio of remands and reversals caused by new evidence, as opposed to “errors” in the original decision, is seriously flawed. We have attached a chart that provides the actual outcomes from the two appeal bodies for FY 2001. Following the actual procedures we have described, we believe that all (BHR) decisions in which a hearing was held reflect new information to some degree. As for the other categories, our experience is that half the remands/reversals prior to hearing and most of the remands/reversals following reviews on the record are based on the submission of new evidence. This analysis yields the conclusion that well over half of the (BHR) remands/decisions reflect the consideration of new evidence or new argument.","We agree that new evidence is submitted and considered in many cases throughout the life of a claim, which may involve a number of separate appeals. However, our review of decision summaries clearly showed the reasons for remand or reversal of initial claims decisions when appealed. Those reasons, which also were provided to claimants in explaining why the decision on their claim was being remanded or reversed, included (1) questions about or problems with the availability or consideration of evidence at the time of the initial decision, or (2) problems with case file management; and (3) new evidence or information being introduced. The chart provided by OWCP does not present any information on such specific reasons for remands and reversals. In fact, in response to our request for such specific information at the end of our review, we were told by OWCP officials that OWCP did not have such information. The report characterizes four percent of cases as due to “mismanagement of claim files.” This phrase is not defined and only one example is offered. With no definition and only one example, the phrase “mismanagement” appears to be unsupported.","We believe the discussion concerning “mismanagement of claim files” adequately defines the issue. In addition, the example provided is for illustrative purposes. GAO’s recommendation appears to be based on (1) the substantial overestimation of the contribution of OWCP errors to the remand/reversal rate and (2) a generalization that no systematic study of the “underlying causes” of remands and reversals has been undertaken by OWCP. OWCP explained its many and varied approaches to decision monitoring and quality improvement to the GAO team, and we do not understand the basis for this generalization. In fact, OWCP does react to data showing trends from ECAB decisions and hearing decisions, provides appropriate training to claims examiners, and is fully committed to continuing to monitor the outcomes of appeals. While we agree that OWCP takes a number of actions to monitor decision reversals and remands, and in fact we recognize many of these in our report, our estimates of the rates and reasons for remands and reversals are statistically valid.","Our recommendation is based upon (1) the importance of ensuring that claimants receive benefits to which they are entitled as promptly as possible; (2) the level of initial claims decision remands and reversals upon appeal; and (3) our conclusion that there may be opportunities for OWCP to better identify the reasons for and address the underlying causes of remands and reversals. GAO acknowledged the basis for OWCP’s application of a hearing standard which allows for 110 days for hearing decision notification, including time for the claimant’s review of testimony and opportunity to comment. Our report describes how OWCP has interpreted the FECA requirement and established a target of notifying most claimants of the decision on their appeal within 110 days of the date of the hearing. We did not assess whether this is an appropriate target. Finally, DOL indicated that, consistent with our recommendation, they would review and enhance their systems for monitoring results of its claims adjudication process “to better achieve improvements in our claims review.” DOL also provided technical comments which we incorporated in the report as appropriate. DOL’s comments are reprinted in appendix IV.","As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to the ranking minority member and to the secretary of labor. We will also make copies available to others on request at that time. Major contributors to this report were Boris Kachura, Assistant Director; Thomas Davies Jr., Project Manager; Ellen Grady, Senior Analyst; Chad Holmes, Analyst; and Karen Bracey, Senior Operations Research Analyst. Based on interviews with OWCP officials and reviews of OWCP operational guidance, when a federal employee is injured at work and becomes disabled, the employee files a claim with the employing federal agency. All claims that involve medical expenses or lost work time or both are then forwarded by the agency to 1 of OWCP’s 12 district offices. Figure 2 characterizes OWCP’s claims process, including the claims adjudication process. In your March 2001 letter, you asked GAO to examine several issues related to OWCP’s workers’ compensation claims adjudication process.","To meet this objective, we reviewed a probability sample of over 1,200 decision summaries from about 8,100 ECAB and BHR claims appeal decisions made between May 1, 2000, and April 30, 2001, on claimant appeals. As part of our review of the decisions made by BHR and ECAB on appeals, we first categorized the decisions in our sample into three groups: (1) affirmed (the decision made on the initial claim was not changed), (2) remanded (the claim was sent back by either ECAB or the BHR to the cognizant district office for additional review or action and a new decision), or (3) reversed (the initial decision made on the claim by the district office or BHR was determined by BHR or ECAB to be incorrect and was therefore changed—in most cases a claim or portion of a claim that had been denied was changed to an approval). For each claim that had been remanded or reversed, we then analyzed the decision summaries to determine the basis for the BHR or ECAB decision.","To determine the extent to which OWCP was complying with FECA’s requirements that (1) a referee physician be appointed to resolve conflicts in medical opinions between claimant physicians and OWCP’s second opinion physicians and (2) claimants be informed of the outcome of hearings in a timely manner, we performed several steps. For the first of these two objectives, we reviewed FECA legislation and OWCP regulations and interviewed OWCP officials to identify the specific requirements related to referee physicians. From our statistical sample of claims appeal decisions, we then identified decisions in which at some point during the history of the claim, there had been a conflict in the medical opinions between the claimant’s attending physician and an OWCP second opinion physician. For this subset, we relied upon the decisions of the BHR and ECAB as reflected in decision summaries to determine the extent to which referee physicians were appointed as required. In addition, we identified the frequency that claims were remanded or reversed by the BHR and ECAB because a referee physician should have been but was not appointed.","Regarding the length of time taken by OWCP to notify claimants about hearing outcomes, we reviewed the relevant FECA requirement and OWCP’s guidelines and goals and interviewed OWCP officials. We limited our review on this objective to claims decisions rendered by BHR, because ECAB decision summaries did not contain the dates needed for our analysis. Accordingly, we selected a subset of BHR cases from our sample, and calculated the number of days between the date of the hearing and the date of the final hearing decisions. In making our calculation, we used the date of the BHR decision letter as the claimant notification date. To determine whether the physicians involved in reviewing claims were board certified, we used another subset of claims appeal decisions from our sample, and relied on information from the American Board of Medical Specialties’ (ABMS) website (www.abms.org). ABMS is the umbrella organization for approved medical specialty boards in the United States. We compared the names and specialties of the second opinion and referee physicians to the database to determine whether these physicians were board certified.","We looked for an exact or close match of names while allowing for obvious spelling errors in the name or other minor discrepancies, such as missing initials. Although most of the board certification verifications were done by querying the ABMS website and printing copies of the certifications, when necessary we also contacted ABMS by telephone to obtain verbal verification on board certifications or used ABMS’ directory book for calendar year 2002. For those physicians whose certifications we were not able to readily verify, we asked OWCP to provide documentation of the board certifications, which they did for a number of physicians. In determining whether second opinion and referee physicians used by OWCP had state licenses, we used the same sample subset as we used in verifying board certifications. In making the state license determinations, we generally focused on the state in which the employee resided for BHR decisions, and the state in which the employing agency was located in for ECAB decisions. We relied on a variety of resources in that search, including www.docboard.org (a public service site) and individual state medical board web sites for printed documentation.","We also phoned staff in various state medical board offices for verbal confirmation for some physicians. We again looked for an exact or close match of name while allowing for spelling and other minor differences. In addition, since physicians are required to have state medical licenses in order to become board certified, any physicians whom we could not verify as licensed through state sources were considered to be licensed if we had determined the physicians were board certified. Also, while the dates of physician involvement on individual cases could have taken place anytime during or even preceding the May 1, 2000, through April 30, 2001 period of our review, we made our determinations for state licenses as of December 31, 2001. We also determined whether second opinion and referee physicians contracted for by OWCP possessed the appropriate medical specialty to evaluate and fully understand the nature and extent of the claimant’s particular illness or injury. To do this, we drew another subset of the appealed claims decisions for which we could determine that a second or referee physician was involved, and that we could identify the nature of the claimant’s injury and the physician’s medical specialty.","We contracted with a Public Health Service (PHS) physician to review the injuries of the claimants in this sample and determine whether the board specialties of the physician(s) who evaluated those injuries were appropriate. To determine how OWCP identifies problems with its appeals process, levels of customer satisfaction, and potential claimant fraud, we interviewed OWCP officials—including the deputy director and director of BHR—and reviewed documentation provided by OWCP, including reports from several annual customer (claimant) surveys and focus groups of federal agencies. In addition, we interviewed officials in DOL’s IG, analyzed IG guidance on detecting and investigating potential fraudulent activity, and reviewed IG annual reports that discussed the identification and prosecution of claimant fraud. We did our work in Washington, D.C., from March 2001 through April 2002. Our work was done in accordance with generally accepted government auditing standards. To help accomplish some of our objectives we reviewed a probability sample of over 1,200 ECAB and BHR decisions issued between May 1, 2000, and April 30, 2001. This appendix describes how we selected decisions for review and provides the sampling error of estimates presented in this report that we made from our sample. ECAB and BHR","cases were sampled separately.","We obtained a list of ECAB decisions issued between May 1, 2000, and April 30, 2001. The listed decisions were classified as either remands or nonremands and a simple random sample of each of the two classifications was selected. BHR decision files covering the period of our review were stored in folders in three filing cabinets. Each folder was divided into two compartments. We took separate systematic samples from the front and back compartments of the folders in the cabinets. Since the file cabinets contained some decisions that fell outside our review period, we estimated, based on our sample, the number of decisions in the three filing cabinets that were issued between May 1, 2000, and April 30, 2001. Using these sampling methods described above, we obtained a sample of over 1,200 decisions. Each sampled decision was weighted in our analysis to account statistically for all appealed claims decisions issued between May 1, 2000, and April 30, 2001, including those that were not sampled. The estimates we made from our sample and the sampling errors associated with these estimates are given in the table below.","The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files.","To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select “Subscribe to daily E-mail alert for newly released products” under the GAO Reports heading."],"string":"[\n \"FECA (5 USC 8101, et seq.) authorizes federal civilian employees compensation for wage loss and medical and death benefits for treatment of injuries sustained or for diseases contracted during the performance of duty. OWCP is responsible for administering and adjudicating the federal workers’ compensation program. During fiscal year 2000, OWCP’s paid workers’ compensation totaled about $2.1 billion including wage loss, medical, and death benefits stemming from job-related injuries and OWCP received approximately 174,000 new injury claims. A workers’ compensation claim is initially submitted to an OWCP district office and is evaluated by a claims examiner. The examiner must determine whether the claimant has met all of the following criteria for obtaining benefits: The claim must have been submitted in a timely manner. An original claim for compensation for disability or death must be filed within 3 years of the occurrence of the injury or death. The claimant must have been an active federal employee at the time of injury. The injury, illness, or death had to have occurred in a claimed accident. The injury, illness, or death must have occurred in the performance of duty.\",\n \"The claimant must be able to prove that the medical condition for which compensation or medical benefits is claimed is causally related to the claimed injury, illness, or death. Since medical evidence is an important component in determining whether an accident described in a claim caused the claimed injury and if the claimed injury caused the claimed disability, workers’ compensation claims are typically accompanied by medical evidence from the claimant’s treating physician. Considerable weight is typically given to the treating physician’s assessment and diagnosis. However, should the OWCP claims examiner conclude that the claimant’s recovery period seems to be outside the norm or that a better understanding of the medical condition is needed to clarify the nature of the condition or extent of disability, the examiner may obtain a second medical assessment of the claimant’s condition. In such instances, a second opinion physician, who is selected by a medical consulting firm contracted by an OWCP’s district office, reviews the case, examines the claimant, and provides a report to OWCP.\",\n \"If the second opinion physician’s reported determination conflicts with the claimant physician’s opinion regarding the injury or condition, the claims examiner determines if the conflicting opinions are of “equal value.” If the claims examiner considers the two conflicting opinions to be of equal value, OWCP appoints a third or “referee physician” to evaluate the claim and render an independent medical opinion. Claims may be approved in full or part, or denied. For example, a claimant may be paid full wage loss benefits and provided physical and vocational rehabilitation services, but denied a request for a medical procedure. When all or part of a claim is denied the claimant has three avenues of recourse: (1) an oral hearing or a review of the written record by the Branch of Hearings and Review (BHR), (2) reconsideration of the claim decision by a different claims examiner within the district office, or (3) a review of the claim by the Employees Compensation Appeals Board (ECAB). Under the first appeal option, the claimant can request an oral hearing or a review of the claim’s written record by a BHR hearing representative.\",\n \"At an oral hearing, the claimant can testify in person, be represented by a designated representative, or submit written evidence. The employing agency may attend but not participate unless invited to do so by the BHR hearing representative or the claimant. For either a hearing or review of the record, the hearing representative decides whether to affirm the initial decision, reverse the initial decision and administer benefits to the claimant, or remand the claim to the district office for a new decision. A second option to the claimant is to request reconsideration of the decision at the district office. During reconsideration, the district office reevaluates its initial decision and the decision-making process to ensure that it properly considered all facets of the claim. This reconsideration is typically performed by a senior claims examiner who played no role in making the original decision. After the entire record and resulting decision are reevaluated, the claims examiner decides whether to affirm the initial decision denying all or part of the claim or to modify the initial decision. Generally the final appeal available to the claimant is made to the ECAB.\",\n \"The ECAB consists of three members who are appointed by the secretary of labor. The board was created within DOL but outside OWCP to give federal employees the same administrative due process of law and appellate review that most nongovernment workers enjoy under workers’ compensation laws in most states. While regulations prohibit the claimant from submitting new evidence during this phase, the ECAB is not limited by previous “findings of fact” by the district office or BHR and can therefore reevaluate the evidence and determine if the law was appropriately applied. As with the other appeals levels, ECAB renders decisions that affirm the district office’s decision, remand all or part of the claimant’s appealed decision to the district office for additional review, or reverse the district office’s decision. While OWCP regulations do not require claimants to exercise these three methods of appeal in any particular order, certain restrictions apply that, in effect, encourage claimants to file appeals in a specific sequence—first going to the BHR, then requesting another review at the OWCP district office, and finally involving the ECAB.\",\n \"For example, the regulations state that a claimant seeking a BHR hearing on a decision must not have previously requested reconsideration of that decision regardless of whether the earlier request was granted. However, the BHR director said that claimants may, and sometimes do, choose to request a district office reconsideration first because the decisions on claims appealed through reconsideration are made in a more timely manner. Not withstanding the regulatory provision, OWCP explained that a claimant may request a discretionary oral hearing by BHR after receiving a reconsideration decision and both OWCP procedures and ECAB precedent require OWCP to exercise its discretion in considering such a request. Appendix I contains a graphic presentation of OWCP’s claims adjudication process. We performed our work in Washington, D.C., from March 2001 through April 2002 in accordance with generally accepted government auditing standards.\",\n \"To assist us in addressing the objectives, we reviewed a statistical sample of more than 1,200 of the estimated 8,100 appealed claims for which a decision was rendered by OWCP’s BHR or DOL’s ECAB during the period from May 1, 2000, through April 30, 2001, to determine the following: (1) the primary reasons why appealed decisions were reversed or claims were remanded to the OWCP district offices for further development, (2) the amount of time OWCP took to inform claimants of hearing decisions, (3) whether OWCP used certified and licensed physicians whose areas of specialty were consistent with the injuries evaluated, and (4) the methods OWCP uses to identify customer satisfaction and potential claimant fraud. Additional information on the scope and methodology of our review and approaches for addressing these and other objectives is presented in appendix II and confidence intervals and other statistical information regarding our work are presented in appendix III. From May 1, 2000, to April 30, 2001, decisions were rendered by BHR or ECAB on approximately 8,100 appealed claims.\",\n \"BHR or ECAB affirmed an estimated 67 percent of these initial decisions as being correct and properly handled by the district office, but reversed or remanded an estimated 31 percent of the decisions—25 percent because of questions or problems with OWCP’s review of medical and nonmedical information or management of claims files, and 6 percent because of additional evidence being submitted by the claimant after the initial decision. The following figure characterizes the outcome of BHR and ECAB reviews of appealed claims. For those claims decisions that were reversed or remanded, the figure shows the reason, including (1) evaluation of evidence problems, (2) mismanagement of claims file problems, or (3) new evidence submitted by the claimant. Based on a statistical sample of appealed claims decisions made during the period May 1, 2000, through April 30, 2001, we estimate that 25 percent of the appealed claims decisions (approximately 2,000 of 8,100) were reversed or remanded because of questions about or problems associated with the initial decision by OWCP.\",\n \"These included problems with (1) the initial evaluation of medical evidence (e.g., physicians’ examinations, diagnoses, or x-rays) or nonmedical evidence (e.g., coworker testimonies) or (2) management of the claim file (e.g., failure to forward a claim file to ECAB in a timely manner). Problems in evaluating medical evidence frequently involved OWCP failing to properly identify medical conflicts between the conclusions of the claimant’s physician and OWCP’s second opinion physician, and therefore not appointing a referee physician as required by FECA. OWCP has interpreted the FECA requirement to apply only when the opinions of the two physicians involved are of equal value, that is, when both physicians have rendered comparably supported findings and opinions. Other initial claims decisions were reversed or remanded when BHR or ECAB determined that nonmedical evidence had not been properly evaluated. One example of this involved the OWCP provision that when suitable work is found for the claimant, benefits will terminate. For example, based on its review of a job offer to a claimant who had work restrictions—such as not being able to lift over 50 pounds—an OWCP district office decided that the job represented suitable work and terminated the claimant’s compensation.\",\n \"However, when that decision was appealed by the claimant, BHR identified a flaw in the job offer. In order for OWCP to meet its burden of showing that an offered job is suitable for a claimant, both the duties and physical requirements of the job need to be fully described in the job offer. For this claim, the job offer had only set forth the duties, such as inputting social security numbers on a keyboard. The BHR representative decided that the offer did not describe the physical requirements associated with the job and thus, did not “allow the district office to properly determine whether the offered job was suitable work within the claimant’s work restrictions.” BHR concluded that the district improperly terminated the claimant’s compensation and directed that the claimant’s monetary compensation be reinstated. We estimate that 21 percent of appealed claims were remanded and reversed due to problems with evaluating medical or nonmedical evidence. Some remands and reversals result from OWCP failing to administer claims files in accordance with FECA or OWCP guidance for claims management.\",\n \"The guidance includes (1) a description of the information that is to be maintained in the claim file and transmitted by OWCP to the requestor (i.e., BHR or ECAB) and (2) requires claims files to be transmitted within 60 days after a request is received. Failure to meet this 60-day requirement was one of the more common deficiencies in claims file management in our sample. For example, ECAB initially requested a claim file for one injured worker from OWCP on April 29, 2000. On December 19, 2000 (almost 8 months later), the Board notified OWCP that the claim file had not been transferred and that if the file was not received within 30 days, ECAB would issue orders remanding the case to the relevant district office for “reconstruction and proper assemblage of the record.” As of March 12, 2001—more than 10 months after the initial ECAB request —the claim file had still not been transferred and the claim was remanded back to the district office. We estimate that 4 percent of appealed claims were reversed or remanded by the BHR or ECAB for claims file management problems.\",\n \"For claims that were initially denied and then the decisions were reversed by the BHR or ECAB due to problems identified with the initial evaluation of evidence or mismanagement of claims files, there are delays in claimants receiving benefits to which they were entitled. According to OWCP, the average amount of time that elapsed from the date an appeal was filed with BHR or ECAB until a decision was rendered was 7 months and 18 months, respectively, in fiscal year 2000. Thus, while claimants are provided benefits retroactively to the date of the initial decision when a claim is reversed, they may be forced to go without benefits for what can be extended periods and may have to incur additional expenses, such as representatives’ fees, during appeals that are not reimbursable. We also found that 6 percent of appealed claims decisions were reversed or remanded because of new evidence being submitted by the claimant after the initial decision was made.\",\n \"OWCP regulations allow claimants to submit new evidence to support their claims at any time from the rendering of the initial claim decision until 30 days—or more with an extension—after the BHR hearing or review of the record occurs. Additional evidence could include medical reports from different physicians or new testimonial evidence from coworkers that in some significant way were expected to modify the circumstances concerning the injury or its treatment and make the previous decision by OWCP now inappropriate. Upon appeal of the earlier district office decision, the BHR representative determines whether the new evidence is sufficient to remand the claim back to the district office for further review, or to reverse the initial decision. OWCP monitors remands and reversals by the BHR and ECAB to identify certain trends in appeals decisions. Steps OWCP says it takes include reviewing ECAB decisions and preparing an advisory calling claims examiners’ attention to selected ECAB decisions which may represent a pattern of district office error or are otherwise instructive. Where more notable problems are identified through ECAB reviews, a bulletin describing the correct procedures may be issued or training might be provided.\",\n \"While OWCP similarly monitors reasons for BHR reversing and remanding claims decisions, this information, or any suggested corrective actions are not disseminated to claims examiners in as systematic a manner as is done for ECAB decisions. Clearly, these actions are providing some information on remands and reversals, which might be helpful to OWCP and its district offices. However, this information is not fostering a full understanding of the underlying reasons for remands and reversals occurring at their current rates and what other actions might be taken to address those factors. For example, OWCP might detect that a district office is failing to appoint referee physicians when required. OWCP might then notify district offices that such a problem was occurring, but with the information currently available, it would not be able to identify how frequently the problem was occuring or the underlying reasons— (1) are inexperienced claims examiners not sufficiently aware of the requirement for a referee physician when a conflict of medical opinions of equal value occurs, or (2) are examiner’s experiencing difficulty in determining whether two physicians’ opinions were of equal value? Without such information on causes, it would be difficult to address these problems.\",\n \"We believe that OWCP needs to examine the steps now being taken to determine whether more can be done to identify and track specific reasons for claims decision remands and reversals. With such information, OWCP may be able to act to address those underlying causes and in so doing, reduce remand and reversal rates. OWCP officials told us that they have not conducted such an overall examination of its current process. Instead OWCP said they continue to adjust their monitoring and communication process (circulars and bulletins) based on available information. Finally, OWCP indicated that the rate of OWCP remands and reversals was similar to that of other compensation organizations. They provided us a comparison of four organizations whose rates were similar or greater than theirs; the four were DOL’s Black Lung Program, the Social Security Administration’s Disability Program, and the North Dakota and Washington states’ workers’ compensation programs. Except for the SSA program, no information was provided nor do we have information concerning how comparable the programs are; thus we cannot determine the validity of such a comparison.\",\n \"Regarding SSA, their reversal rate may not be comparable to OWCP’s because of considerable emphasis on SSA physicians’ testimony for initial claims decisions and the claimants’ and their physicians’ testimony during adjudication hearings, resulting in high reversal rates. FECA requires that OWCP notify claimants in writing of hearing decisions “within 30 days after the hearing ends.” OWCP’s interpretation of the hearing process allows up to 110 days before almost all claimants are to be notified of decisions. In establishing guidelines for meeting this provision of the act, the BHR director told us that the hearing record is not closed until two separate but concurrent processes are completed. 1. Printing and reviewing of hearing transcript: The time needed to print and review the hearing transcript could range from as few as 25 days to as many as 47 calendar days from the hearing date. A contractor prints the hearing transcript, which generally takes from 5 to 7 calendar days. The claimant and the claimant’s employing agency then review the transcript of the hearing for up to 20 calendar days.\",\n \"If the employing agency provides comments, OWCP provides the claimant with the agency's comments and an additional 20 calendar days to respond to those comments. 2. Submitting new evidence: OWCP gives the claimant 30 calendar days from the date of the hearing to submit additional medical evidence. If the claimant needs additional time to provide more medical evidence, the regulations allow the OWCP hearing representatives to use their discretion to grant a claimant a one-time extension period, that may be for up to several months. OWCP officials stressed the importance of all the evidence being considered before a decision is made since if the decision is appealed to ECAB any subsequent review by the ECAB is limited to the evidence in the claim record at the time of the preceding decision. Given the potentially wide variance in the number of days before OWCP can close a hearing record, an OWCP official said they have attempted to establish realistic standards for notifying claimants of hearing decisions.\",\n \"OWCP has established two goals for the timing of notifying claimants of final hearing decisions: (1) notifying 70 to 85 percent of the claimants within 85 calendar days, and (2) informing 96 percent of claimants within 110 calendar days following the date of the hearing. Based upon our review of the applicable legislation, we determined that OWCP has the authority to interpret the FECA requirement for claimant notification in this manner. Of an estimated 2,945 appealed claims for which BHR rendered a decision on a hearing during our review period, notification letters for an estimated 2,256 (or 77 percent) were signed by OWCP officials within 85 days of the date of the hearing and an estimated 2,716 (or 92 percent) of the claims were signed within 110 days of the hearing date. OWCP officials signed an estimated 158 (or 5 percent) of the claimants’ notification letters from 111 to 180 days after the hearing date and 70 claims (or 2 percent) from 181 to more than 1 year after the hearing date. Our review showed that OWCP referee physicians were board certified and licensed in their specialties.\",\n \"In addition, we found that OWCP’s second opinion and referee physicians had specialties that were appropriate for claimant injuries in nearly all the cases we examined. Although neither FECA nor OWCP’s procedures manual require second opinion physicians to be board certified, the procedures manual states that OWCP should select physicians from a roster of “qualified” physicians and “specialists in the appropriate branch of medicine.” The manual further requires that for referee physicians “the services of all available and qualified board-certified specialists will be used as far as possible.” The manual allows for using a noncertified physician in special situations, stating “a physician who is not board-certified may be used if he or she has special qualifications for performing the examination,” but the OWCP medical official making that decision must document the reasons for the selection in the case record. Based on our statistical sample, we estimate that at least 94 percent of OWCP’s contracted second opinion physicians and at least 99 percent of the contracted referee physicians were board certified. In making these determinations, we used information from the American Board of Medical Specialties (ABMS), the umbrella organization for the approved medical specialty boards in the\",\n \"United States.\",\n \"In addition, OWCP provided documentation verifying certifications of some of the physicians in our sample. For the remaining 6 and 1 percent of the second opinion and referee physicians in our sample, respectively, we lacked information to determine whether they were or were not certified. Although neither FECA nor OWCP regulations specifically require either second opinion or referee physicians to be licensed by the state in which they practice, OWCP officials stated that OWCP expects that all physicians will have state medical licenses. Based on our sample of physicians, we estimated that at least 96 percent of the second opinion physicians and at least 99 percent of the referee physicians had current state medical licenses. For the 4 and 1 percent of the remaining physicians respectively, we did not have sufficient information to determine whether or in what state they were licensed. An estimated 98 percent of OWCP’s second opinion and referee physicians appeared to have specialties relevant to the types of claimant injuries they evaluated.\",\n \"While there is no requirement for referee physicians to have specialties relevant to the types of injuries evaluated, OWCP officials told us that a directory is used to select referee physicians—with appropriate specialties—to examine the type of injury the claimant incurred. For the remaining physicians in our sample, that is the remaining 2 percent, the conclusion was that they had specialties which were not appropriate for the type of injuries examined. For example, a cardiologist—acting as a second opinion physician—examined a claimant for residuals of hypertension that were aggravating the claimant’s kidney disease. The claimed injury appeared to be associated with kidney rather than heart disease. Therefore, it would have been appropriate for the claimant to be treated by a nephrologist (kidney specialist). For assistance in reviewing relevancy of physician specialties, we contracted with a Public Health Service (PHS) physician. With that assistance, we were able to review our sample of claimants’ injuries and the board specialties of the physician(s) who evaluated them to determine if the knowledge possessed by physicians with a specific specialty would allow them to fully understand the nature and extent of the type of injury evaluated.\",\n \"OWCP uses surveys of randomly selected claimants and focus groups to monitor the extent of customer satisfaction with several dimensions of the claims program, including responsiveness to telephone inquiries. OWCP claims examiners and employing agencies serve as primary information sources for identifying potentially fraudulent claims. When such potential fraud is detected, DOL’s IG investigates the circumstances and, if appropriate, prosecutes the claimants and others involved. OWCP obtains information concerning customer satisfaction with the handling of claims through surveys of claimants and conducting focus groups with employing agencies. Since 1996, OWCP has used a contractor to conduct customer satisfaction surveys via mail about once each year to determine claimants’ perceptions on several aspects of the implementation of the workers’ compensation program, including overall service, for example, whether claimants knew their rights when notified of claims decisions and the timeliness of written responses to claimants’ inquiries. The questionnaires did not include questions specific to the appealed claims process, but some of the respondents may have based their responses on experiences encountered when appealing claims. In the 2000 survey, customers indicated a 52 percent satisfaction rate with the overall workers compensation program, and a 47 percent dissatisfaction rate.\",\n \"The level of claimant satisfaction indicated in their responses for specific issues in the surveys have been largely mixed (i.e., more positive responses for some questions and more negative responses for other questions). For example, survey responses in fiscal year 1998 showed that 34 percent of the respondents were satisfied with the timeliness of responses to their written questions to OWCP concerning claims, while 63 percent were not, and 35 percent were satisfied with the promptness of benefit payments, while 26 percent were not satisfied. Based on these and previous survey results, OWCP took actions including creating a committee to address several customer satisfaction issues, such as determining if the timeliness of written responses could be improved. In fiscal year 2001, OWCP took two additional steps to measure customer satisfaction. First, OWCP used another contractor to conduct a telephone survey of 1,400 claimants focused on the quality of customer service provided by the district offices. As of March 25, 2002, a contractor was still evaluating the results of this survey. Second, OWCP held focus group meetings with employing agency officials in the Washington, D.C., and Cleveland, Ohio, district offices’ jurisdictions.\",\n \"An OWCP official stated that this effort provided an open forum for federal agencies to express concerns with all aspects of OWCP service. In the Washington D.C. focus group, employing agency officials expressed their belief that some of the claims approved by OWCP did not have merit. The report on that meeting did not specify whether this concern applies to appealed claims decisions. The report documenting the Cleveland focus group effort indicated that employing agencies were frustrated about not being informed of OWCP claims decisions and several agencies said they continued to put through medical bills only to be told by the employees that their claims had been denied. The DOL’s IG—using information from claims examiners and other sources—monitors, investigates, and prosecutes fraudulent claims made by federal workers. The IG’s office provides guidance to claims examiners for identifying and reporting claimant fraud, including descriptions of situations or “red flags” that could be potentially fraudulent claims. Red flags include such items as excessive prescription drug requests and indications of unreported income. DOL’s Audits and Investigations Manual requires claims examiners and other employees to report all allegations of wrongdoing or criminal violations—including the submission of false claims by\",\n \"employees—to the IG’s office.\",\n \"Once a potentially fraudulent claim is identified, the IG will review information submitted by the claimant, coworkers, physicians, and others. The IG may also conduct additional investigations of claimants and medical providers suspected of defrauding the program, such as surveillance of claimants and undercover operations aimed at determining if a physician is knowingly participating in fraudulent claims. For example, an IG agent— wearing a transmitter—might pose as a postal worker and visit a doctor who has been identified as providing supporting opinions for OWCP claimants with questionable injuries. The agent could then tell the doctor that the claim of injury is in fact false but that they need time off for personal reasons, for example to get married. If the doctor agrees to support such a false claim, the doctor would then be charged with fraud. Of approximately 600,000 workers’ compensation claims filed with district offices from fiscal years 1998 through 2001, the IG opened 513 investigations involving potential fraud. Of these, 212 led to indictments and 183 resulted in convictions against claimants and physicians.\",\n \"One out of four OWCP initial claims decisions (approximately 25 percent) was either reversed or remanded upon appeal because of questions about or problems with either OWCP’s evaluation of medical and nonmedical evidence or improper management of claims files. For the appealed claims that were eventually reversed because of problems with the initial decision, benefits to which claimants were entitled are delayed. While benefits are usually granted retroactively in such cases, going without those deserved benefits for what might be extended periods might create hardships for claimants. Further, representatives’ fees and some other additional expenses that claimants might incur during the appeals process are generally not reimbursed by OWCP. While OWCP monitors certain information on BHR and ECAB remands and reversals to identify problems in district office decisions, and distributes much of this information to district offices, that information does not fully identify underlying causes of the problems. An examination of the monitoring steps OWCP is currently taking and a determination of what other information could help OWCP and its district offices to address underlying causes could result in a reduction of the rate of remands and reversals.\",\n \"We recommend that the secretary of labor require the director of OWCP to examine the steps now being taken to determine whether more can be done to identify and track specific reasons for remands and reversals— including improper evaluation of evidence and mismanagement of claim files—and address their underlying causes. We obtained comments on this report from the Assistant Secretary for Employment Standards, Department of Labor. The Assistant Secretary agreed with our conclusions regarding the timing of notifying claimants on hearing results; physician certification, licensing and specialties; and processes used by OWCP to monitor customer satisfaction and potential claimant fraud. The Assistant Secretary raised concerns, however, with our conclusions related to the frequency of and reasons for reversals and remands of initial OWCP claims decisions when appealed by the claimant. Following is a presentation of key comments from the Assistant Secretary and our responses to those comments. A principal comment regarding the report and its conclusions relates to the use of BHR and ECAB decision summaries to determine the rate of remands and reversals due to (a) introduction of new information, (b) mismanagement of case files and (c) district office problems in evaluating claim evidence.\",\n \"In short, OWCP asserts that BHR and ECAB summary decisions are inadequate to make such determinations. The Assistant Secretary also expresses the belief that a “large portion” of decisions that our review showed were reversed or remanded because of questions about or problems with the initial decision (as opposed to new evidence being submitted), were in fact reversed or remanded because of new evidence being submitted. We disagree. Decision summaries we reviewed clearly indicated specific reasons for each reversal or remand and our analysis fully accounted for remands and reversals that were ordered by the BHR and ECAB due to the introduction of new information by the claimant. For example, in the summary of one decision remanded by the ECAB due to an evidence evaluation problem, the BHR had originally decided that a claimant was not entitled to benefits. The BHR decision was based on a second opinion physician’s report and several reports from the claimant’s two physicians’ all of which preceded the BHR decision.\",\n \"The BHR “representative found that the opinions of the (claimants) attending physicians could not be afforded any great weight as their opinions were based on the fact that the (claimant) was performing duties requiring repetitive shoulder movements, and this was not true.” In remanding the decision, ECAB determined that there were “discrepancies between the opinions of the (claimant’s physicians) and the (second opinion physician) that there is a conflict in the medical opinion evidence as to the cause of the (claimant’s) current condition and, therefore, the case will be remanded” for the appointment of a referee physician. An example of a decision where new evidence was submitted, was an ECAB decision summary that stated that the decision was remanded back to the OWCP district office “because (claimant) submitted relevant and pertinent evidence not previously considered by the office.” Cases are frequently reviewed by claims examiners on arrival and may be remanded if late arriving evidence is sufficient to meet the claimant’s burden of proof. These claims examiner remands prior to hearing are frequently based on the review of evidence not available to the district office examiner.\",\n \"It appears that the GAO investigators entirely excluded these cases from their sample. OWCP is incorrect. Our sample, as indicated in our report, was drawn from all appealed case decisions made during a 1-year period and therefore encompassed all affirmations, remands and reversals that were made before hearings, after hearings and those for the record during that 12 month period. The percent of appeals reversed or remanded by the ECAB may be the purest indicator of district office oversight or error. We note that, based on our sample, the rate of ECAB remands and reversals was approximately 23 percent, which closely approximates the composite remand and reversal rate for both BHR and ECAB of 25 percent. The report also conflates its analysis of remands and reversals. Remands and reversals must be distinguished. A remand does not reverse the denial of a claim and direct the examiner to pay the denied benefit. It may, for example, direct the examiner to ask further questions of the reporting physician, after which the district office issues a new decision that considers the doctor’s further response. The new decision may reinstate the original denial or award the benefit.\",\n \"We have added wording to our report to make the distinction clear. However, because our analysis focused on the same issue for both, i.e. questions about or problems with initial claims decisions made at OWCP district offices, we believe it is appropriate to use reversals and remands as a combined indicator. In summary, the report’s presentation of the ratio of remands and reversals caused by new evidence, as opposed to “errors” in the original decision, is seriously flawed. We have attached a chart that provides the actual outcomes from the two appeal bodies for FY 2001. Following the actual procedures we have described, we believe that all (BHR) decisions in which a hearing was held reflect new information to some degree. As for the other categories, our experience is that half the remands/reversals prior to hearing and most of the remands/reversals following reviews on the record are based on the submission of new evidence. This analysis yields the conclusion that well over half of the (BHR) remands/decisions reflect the consideration of new evidence or new argument.\",\n \"We agree that new evidence is submitted and considered in many cases throughout the life of a claim, which may involve a number of separate appeals. However, our review of decision summaries clearly showed the reasons for remand or reversal of initial claims decisions when appealed. Those reasons, which also were provided to claimants in explaining why the decision on their claim was being remanded or reversed, included (1) questions about or problems with the availability or consideration of evidence at the time of the initial decision, or (2) problems with case file management; and (3) new evidence or information being introduced. The chart provided by OWCP does not present any information on such specific reasons for remands and reversals. In fact, in response to our request for such specific information at the end of our review, we were told by OWCP officials that OWCP did not have such information. The report characterizes four percent of cases as due to “mismanagement of claim files.” This phrase is not defined and only one example is offered. With no definition and only one example, the phrase “mismanagement” appears to be unsupported.\",\n \"We believe the discussion concerning “mismanagement of claim files” adequately defines the issue. In addition, the example provided is for illustrative purposes. GAO’s recommendation appears to be based on (1) the substantial overestimation of the contribution of OWCP errors to the remand/reversal rate and (2) a generalization that no systematic study of the “underlying causes” of remands and reversals has been undertaken by OWCP. OWCP explained its many and varied approaches to decision monitoring and quality improvement to the GAO team, and we do not understand the basis for this generalization. In fact, OWCP does react to data showing trends from ECAB decisions and hearing decisions, provides appropriate training to claims examiners, and is fully committed to continuing to monitor the outcomes of appeals. While we agree that OWCP takes a number of actions to monitor decision reversals and remands, and in fact we recognize many of these in our report, our estimates of the rates and reasons for remands and reversals are statistically valid.\",\n \"Our recommendation is based upon (1) the importance of ensuring that claimants receive benefits to which they are entitled as promptly as possible; (2) the level of initial claims decision remands and reversals upon appeal; and (3) our conclusion that there may be opportunities for OWCP to better identify the reasons for and address the underlying causes of remands and reversals. GAO acknowledged the basis for OWCP’s application of a hearing standard which allows for 110 days for hearing decision notification, including time for the claimant’s review of testimony and opportunity to comment. Our report describes how OWCP has interpreted the FECA requirement and established a target of notifying most claimants of the decision on their appeal within 110 days of the date of the hearing. We did not assess whether this is an appropriate target. Finally, DOL indicated that, consistent with our recommendation, they would review and enhance their systems for monitoring results of its claims adjudication process “to better achieve improvements in our claims review.” DOL also provided technical comments which we incorporated in the report as appropriate. DOL’s comments are reprinted in appendix IV.\",\n \"As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to the ranking minority member and to the secretary of labor. We will also make copies available to others on request at that time. Major contributors to this report were Boris Kachura, Assistant Director; Thomas Davies Jr., Project Manager; Ellen Grady, Senior Analyst; Chad Holmes, Analyst; and Karen Bracey, Senior Operations Research Analyst. Based on interviews with OWCP officials and reviews of OWCP operational guidance, when a federal employee is injured at work and becomes disabled, the employee files a claim with the employing federal agency. All claims that involve medical expenses or lost work time or both are then forwarded by the agency to 1 of OWCP’s 12 district offices. Figure 2 characterizes OWCP’s claims process, including the claims adjudication process. In your March 2001 letter, you asked GAO to examine several issues related to OWCP’s workers’ compensation claims adjudication process.\",\n \"To meet this objective, we reviewed a probability sample of over 1,200 decision summaries from about 8,100 ECAB and BHR claims appeal decisions made between May 1, 2000, and April 30, 2001, on claimant appeals. As part of our review of the decisions made by BHR and ECAB on appeals, we first categorized the decisions in our sample into three groups: (1) affirmed (the decision made on the initial claim was not changed), (2) remanded (the claim was sent back by either ECAB or the BHR to the cognizant district office for additional review or action and a new decision), or (3) reversed (the initial decision made on the claim by the district office or BHR was determined by BHR or ECAB to be incorrect and was therefore changed—in most cases a claim or portion of a claim that had been denied was changed to an approval). For each claim that had been remanded or reversed, we then analyzed the decision summaries to determine the basis for the BHR or ECAB decision.\",\n \"To determine the extent to which OWCP was complying with FECA’s requirements that (1) a referee physician be appointed to resolve conflicts in medical opinions between claimant physicians and OWCP’s second opinion physicians and (2) claimants be informed of the outcome of hearings in a timely manner, we performed several steps. For the first of these two objectives, we reviewed FECA legislation and OWCP regulations and interviewed OWCP officials to identify the specific requirements related to referee physicians. From our statistical sample of claims appeal decisions, we then identified decisions in which at some point during the history of the claim, there had been a conflict in the medical opinions between the claimant’s attending physician and an OWCP second opinion physician. For this subset, we relied upon the decisions of the BHR and ECAB as reflected in decision summaries to determine the extent to which referee physicians were appointed as required. In addition, we identified the frequency that claims were remanded or reversed by the BHR and ECAB because a referee physician should have been but was not appointed.\",\n \"Regarding the length of time taken by OWCP to notify claimants about hearing outcomes, we reviewed the relevant FECA requirement and OWCP’s guidelines and goals and interviewed OWCP officials. We limited our review on this objective to claims decisions rendered by BHR, because ECAB decision summaries did not contain the dates needed for our analysis. Accordingly, we selected a subset of BHR cases from our sample, and calculated the number of days between the date of the hearing and the date of the final hearing decisions. In making our calculation, we used the date of the BHR decision letter as the claimant notification date. To determine whether the physicians involved in reviewing claims were board certified, we used another subset of claims appeal decisions from our sample, and relied on information from the American Board of Medical Specialties’ (ABMS) website (www.abms.org). ABMS is the umbrella organization for approved medical specialty boards in the United States. We compared the names and specialties of the second opinion and referee physicians to the database to determine whether these physicians were board certified.\",\n \"We looked for an exact or close match of names while allowing for obvious spelling errors in the name or other minor discrepancies, such as missing initials. Although most of the board certification verifications were done by querying the ABMS website and printing copies of the certifications, when necessary we also contacted ABMS by telephone to obtain verbal verification on board certifications or used ABMS’ directory book for calendar year 2002. For those physicians whose certifications we were not able to readily verify, we asked OWCP to provide documentation of the board certifications, which they did for a number of physicians. In determining whether second opinion and referee physicians used by OWCP had state licenses, we used the same sample subset as we used in verifying board certifications. In making the state license determinations, we generally focused on the state in which the employee resided for BHR decisions, and the state in which the employing agency was located in for ECAB decisions. We relied on a variety of resources in that search, including www.docboard.org (a public service site) and individual state medical board web sites for printed documentation.\",\n \"We also phoned staff in various state medical board offices for verbal confirmation for some physicians. We again looked for an exact or close match of name while allowing for spelling and other minor differences. In addition, since physicians are required to have state medical licenses in order to become board certified, any physicians whom we could not verify as licensed through state sources were considered to be licensed if we had determined the physicians were board certified. Also, while the dates of physician involvement on individual cases could have taken place anytime during or even preceding the May 1, 2000, through April 30, 2001 period of our review, we made our determinations for state licenses as of December 31, 2001. We also determined whether second opinion and referee physicians contracted for by OWCP possessed the appropriate medical specialty to evaluate and fully understand the nature and extent of the claimant’s particular illness or injury. To do this, we drew another subset of the appealed claims decisions for which we could determine that a second or referee physician was involved, and that we could identify the nature of the claimant’s injury and the physician’s medical specialty.\",\n \"We contracted with a Public Health Service (PHS) physician to review the injuries of the claimants in this sample and determine whether the board specialties of the physician(s) who evaluated those injuries were appropriate. To determine how OWCP identifies problems with its appeals process, levels of customer satisfaction, and potential claimant fraud, we interviewed OWCP officials—including the deputy director and director of BHR—and reviewed documentation provided by OWCP, including reports from several annual customer (claimant) surveys and focus groups of federal agencies. In addition, we interviewed officials in DOL’s IG, analyzed IG guidance on detecting and investigating potential fraudulent activity, and reviewed IG annual reports that discussed the identification and prosecution of claimant fraud. We did our work in Washington, D.C., from March 2001 through April 2002. Our work was done in accordance with generally accepted government auditing standards. To help accomplish some of our objectives we reviewed a probability sample of over 1,200 ECAB and BHR decisions issued between May 1, 2000, and April 30, 2001. This appendix describes how we selected decisions for review and provides the sampling error of estimates presented in this report that we made from our sample. ECAB and BHR\",\n \"cases were sampled separately.\",\n \"We obtained a list of ECAB decisions issued between May 1, 2000, and April 30, 2001. The listed decisions were classified as either remands or nonremands and a simple random sample of each of the two classifications was selected. BHR decision files covering the period of our review were stored in folders in three filing cabinets. Each folder was divided into two compartments. We took separate systematic samples from the front and back compartments of the folders in the cabinets. Since the file cabinets contained some decisions that fell outside our review period, we estimated, based on our sample, the number of decisions in the three filing cabinets that were issued between May 1, 2000, and April 30, 2001. Using these sampling methods described above, we obtained a sample of over 1,200 decisions. Each sampled decision was weighted in our analysis to account statistically for all appealed claims decisions issued between May 1, 2000, and April 30, 2001, including those that were not sampled. The estimates we made from our sample and the sampling errors associated with these estimates are given in the table below.\",\n \"The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files.\",\n \"To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select “Subscribe to daily E-mail alert for newly released products” under the GAO Reports heading.\"\n]","isConversational":false}}},{"rowIdx":10893,"cells":{"id":{"kind":"string","value":"train_10893"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"For decades, the Navy has been striving to improve its ability to detect potential enemy submarines before they can get within effective weapons range of U.S. forces. In 1985, the Navy established the Surveillance Towed Array Sensor System (SURTASS) Low Frequency Active (LFA) sonar program to develop a long-range capability for detecting a new generation of quieter Soviet nuclear and diesel submarines operating principally in the open ocean. However, as the Navy conducted testing of the system in the mid-1990s, some public interest groups and scientists raised concerns that SURTASS/LFA may cause harm to marine mammals. The Navy discontinued operational testing of the system and initiated an environmental impact statement process. The Navy will not begin testing or operating the system until it receives a Letter of Authorization from the National Marine Fisheries Service. A decision on the authorization is expected later in 2002. SURTASS/LFA will increase the Navy's capability to detect submarines in the open ocean, where the system was originally intended to operate. The Navy has considered a number of existing alternatives to SURTASS/LFA and found that the system provides long-range detection capabilities not available with other systems."},"documents":{"kind":"list like","value":["The primary goal of antisubmarine warfare is to protect U.S. ships and assets from enemy submarines. Undersea surveillance and detection of submarines are a critical part of this mission. During the Cold War, the Navy relied on a combination of fixed, mobile, passive, and active sonar systems to detect enemy nuclear and diesel submarines, particularly those from the Soviet Union. Passive sonar systems “listen” or receive signals, whereas active systems send out signals to search for targets and receive an echo or response. The systems are used on mobile platforms, such as Navy surface ships, submarines, and aircraft, and in fixed arrays that are laid or buried across the ocean floor in various strategic locations. However, because of technology advancements, the Soviet Union and other countries developed quieter submarines. As a result, submarines became harder to detect, and the Navy grew concerned that enemy submarines could get within effective weapons range of U.S. ships and assets. The Navy determined it needed a system that could detect quiet submarines at great distances. In response to this need, the Navy launched the SURTASS/LFA program in 1985, which was originally designed for use in open oceans.","The SURTASS/LFA system operates in conjunction with the Navy’s existing passive SURTASS sonar system. The two components, as illustrated in figure 1, make up a mobile acoustic undersea surveillance system that is intended to provide detection, cueing, localization, and tracking information on modern quiet nuclear and diesel submarines for the battle group or other tactical commanders. The passive component detects sounds or echoes from undersea objects through the use of hydrophones on a receiving array that is towed behind the ship. The active or transmitting component of the system sends high-intensity, low frequency sonar from transducers suspended by a cable under the ship. The active signal will produce a return echo that, when received, provides location and range data on submerged objects. The system uses 18 pairs of undersea transducers and 18 shipboard high-power amplifiers. The SURTASS/LFA system is heavy, weighing 327,000 pounds, and requires a specially designed ship to carry and operate it. The Navy plans to use two SURTASS/LFA systems. The first was installed in 1992 on the research vessel Cory Chouest. The other system, completed in 1993, will be installed on the twin-hull auxiliary general-purpose ocean surveillance ship, T-AGOS-23, which the Navy designed","to carry the SURTASS system.","The ship was originally scheduled for delivery in 1994, but construction was delayed due to the bankruptcy of the contractor and it will not be completed until late 2002. The Navy estimates that it has cost approximately $375 million to develop and produce the two systems and that it will spend an additional $40 million to field and operate the systems through fiscal year 2009. These estimates do not include the cost of the ships. During the course of developing and testing the SURTASS/LFA system, environmental interest groups, including the Natural Resources Defense Council, began to raise concerns that the system may cause harm to marine mammals. Environmentalists were concerned that the high- intensity sound emitted by the system could cause physical damage to marine mammals and adversely affect their behavior. In August 1995, in a letter to the Secretary of the Navy, the Natural Resources Defense Council questioned whether the Navy had complied with all applicable environmental laws and regulations. In response to growing public concerns and recognition that further assessment of the system was needed, the Navy decided to initiate an environmental impact statement process.","As part of this process, the Navy conducted a scientific research program from 1997 to 1998 to test the effects of low frequency sonar on a limited number of whale species off the coasts of California and Hawaii. The Navy distributed a draft environmental impact statement for public comment in 1999 and issued a final environmental impact statement in 2001. The Navy concluded in the environmental impact statement that the potential impact or injury to marine mammals from SURTASS/LFA is negligible. As reflected in the environmental impact statement, this is based on using the system with certain proposed geographic restrictions and monitoring to prevent harm to marine mammals. Because there is some potential for incidental harm to marine mammals, the Navy must obtain a Letter of Authorization from the National Marine Fisheries Service before SURTASS/LFA can be used. The National Marine Fisheries Service issued a draft authorization for public comment in 2001, which concurred with the findings of the Navy’s environmental impact statement. If approved, the authorization would allow the Navy to use the SURTASS/LFA system with certain specified mitigation measures and restrictions.","These measures include limiting (1) sonar sound levels to 180 decibels within 12 nautical miles of any coastline or in any designated biologically important offshore area and (2) sound levels to 145 decibels in known recreational or commercial dive sites. In addition, the authorization would require the Navy to monitor marine mammals from the ship visually and with passive and high frequency active sonar. If marine mammals were detected, the Navy would be required to shut down LFA operations to prevent, to the greatest extent possible, marine mammals’ exposure to potentially harmful sound levels. The decision on the authorization is expected later in 2002. Notwithstanding the mitigation measures outlined by the Letter of Authorization, environmental organizations are still expected to oppose the use of the SURTASS/LFA. They have indicated that although conclusive evidence has not been established regarding the harmful effects of the SURTASS/LFA on marine mammals, enough is known about the potential adverse effects of sound on marine mammals to warrant no further use of the system. They have also questioned the usefulness of the system to the Navy.","The Navy has also recognized gaps exist in scientific knowledge about the impact of the system on marine mammals, but it considers that the risk is minimal and not enough to warrant ceasing its use. In addition, the Navy has stated that it has done an extensive amount of testing, research, and analysis regarding the use of SURTASS/LFA and marine mammals and that current information combined with the planned mitigation and monitoring procedures and ongoing research, support resuming SURTASS/LFA operations. Furthermore, the Navy has emphasized that the need for a long-range detection capability still exists. Based on initial testing conducted to date, SURTASS/LFA appears to provide long-range undersea detection capabilities in the deep, open ocean that surpass any system planned or in existence. However, the system may not be as effective in littoral waters. A final operational evaluation must still be conducted to determine the overall effectiveness and suitability of the system, and while Navy officials are developing a plan to evaluate the system, they have not yet defined what testing will be conducted in littoral areas. The primary benefit of SURTASS/LFA is that it will provide a significant increase in long-range undersea detection capability in","the open ocean.","Active sonar at low frequencies is more effective and transmits further undersea because its absorption rate in water is relatively low. Because of this, a low frequency active signal can travel several hundreds of miles if unimpeded. In contrast, mid frequency and high frequency sonar transmits on the order of tens of miles. Therefore, low frequency active sonar can potentially cover an area of the ocean vastly greater than sonar at higher frequencies. In addition, a benefit of active sonar is its ability to seek out targets rather than wait passively for a target to approach. As a result, a system such as SURTASS/LFA can provide the means to detect enemy submarines before they can get within the effective weapons range of U.S. ships. Also, because it is mobile, the system provides greater deployment flexibility and can detect target information in areas beyond the reach of fixed sonar systems according to Navy officials. Moreover, the SURTASS/LFA technology can provide long-range detection with less assets and operators than other technologies. SURTASS/LFA also has several operational limitations, including the amount of coverage it can provide and its vulnerabilities.","The Navy plans to use a total of only two systems, with one deployed to the Pacific Fleet and the other to the Atlantic Fleet to support antisubmarine missions. Therefore, the amount of area the system can cover will be limited. The Navy recognizes that two systems are not sufficient to meet operational requirements and prefers to have more. In addition, SURTASS/LFA may be vulnerable to attack because the ships carrying the systems will not have onboard defense systems. The ships are also relatively slow and therefore incapable of remaining close enough to the transiting battlegroup to be protected. Furthermore, because SURTASS/LFA transmits an active, high volume signal, it can readily reveal its location, which further increases its vulnerability. However, the Navy concluded that the operational limitations are outweighed by the benefit of long-range detection. Results of SURTASS/LFA testing to date show that the system will increase the Navy’s capability to detect modern submarines at long range in deep, open ocean areas. Starting in 1989 through 1992, the Navy conducted a series of developmental tests on SURTASS/LFA that were focused on validating the performance of a demonstration system in these areas.","The objectives of these tests were to obtain an increased understanding of technical performance issues such as the long-range transmission of signals and signal processing techniques. Based on the successful results of these tests, the Navy concluded the system performance requirements were achievable and decided to proceed with full-scale engineering development. In 1992, the Navy began conducting operational tests using an engineering development model that more closely represented the operational SURTASS/LFA system. The purpose of these tests was to determine the performance of the system under more realistic at-sea conditions and against more realistic threat scenarios, including quiet submarines. Numerous tests were performed to assess the system’s capabilities in deep waters, such as in the middle of the Atlantic Ocean. These tests concluded that SURTASS/LFA could detect targets at long range and resulted in recommendations that the program continue with its development. In addition, a test in 1994 determined that the engineering development model performed well enough that the system could be introduced to the fleet as an interim capability. However, operational testing revealed some reliability and maintainability problems with critical software. Navy officials told us that they intend to resolve these issues before the overall","operational evaluation is complete.","While testing has demonstrated that SURTASS/LFA can increase detection in the open ocean, the system has shown limited capability in littoral waters. Tests indicate the system provides some detection capability in littoral waters but at a range that is significantly less than that achieved in the open ocean. Moreover, the effectiveness of SURTASS/LFA generally decreases closer to shore as the water becomes more shallow. Navy officials told us that these results were expected and can be attributed to system design and geographic characteristics. The characteristics of low absorption rate and low frequency signal that make SURTASS/LFA effective for extended ranges in the deep, open ocean are the same characteristics that limit its effectiveness in littoral waters. For example, littoral waters, particularly along coastlines, typically have more complex and prominent floor features than those in the open ocean. In littoral areas, sonar signals may reverberate or rebound off the ocean floor making target detection difficult. The littoral environment is also more acoustically harsh because it has shifting currents, variable water densities, and shallow water depth. As a result, active sonar signals— particularly those at low frequency—reverberate and degrade more than they do in the open ocean.","In addition, the littoral environment has more magnetic anomalies, which can severely degrade bearing accuracy. Littoral waters also have more shipping traffic and greater ambient noise, making it much more difficult for the system to distinguish and detect threat submarines from other noise-generating vessels. In addition, the presence of more shipwrecks and near shore debris in these locations increases the number of false targets and, therefore, increases the challenges to detect, locate, and distinguish threat submarines. Although the Navy has largely completed developmental testing and conducted a series of initial operational tests of the SURTASS/LFA system, it must still complete a final operational test and evaluation to establish the operational effectiveness and suitability of the system. Currently, this evaluation is planned for fiscal year 2004, providing the program receives authorization from the National Marine Fisheries Service. The Navy planned for the evaluation to primarily focus on demonstrating the system’s capabilities in the open ocean. Although the test evaluation master plan was updated in 1996, the concept of operations and the original operational requirements have not been updated to reflect the Navy’s shift in focus to littoral threats.","In accordance with Department of Defense guidelines, a system should be tested under realistic conditions and in environments where it is intended to be used. In addition, any testing and operations will have to be in compliance with applicable operating restrictions such as the National Marine Fisheries Service Letter of Authorization. Currently, Navy working groups are in the process of updating a concept of operations for the SURTASS/LFA system and developing the test evaluation master plan that will be used to conduct the operational evaluation. However, they have not decided on the extent to which the system will be tested in littoral areas. Since the beginning of the program, the Navy has considered a number of existing and potential alternatives to SURTASS/LFA, and each time it found that the system provides long-range detection capabilities other systems could not provide. Available technologies offer different capabilities and practical limitations. Although SURTASS/LFA provides increased detection ranges, the Navy advocates a “tool box” approach that uses a mix of complementary technologies to detect enemy submarines. Existing passive, active, and nonacoustic technologies have a limited capability to detect submarines at long range.","Passive sensors, for example, are effective at short range but have become more limited in their capability since the development of quieter submarines. Even though recent improvements to passive systems have extended their range, submarine quieting measures have lowered submarine noise levels to nearly the level of the ambient noise of natural sounds in the ocean. As a result, the Navy is concerned that an enemy submarine could get within effective weapons’ range of U.S. forces before passive systems could make contact with an enemy submarine. Passive systems by the nature of how they operate are environmentally benign because they do not transmit sound. Active sensors systems that can be used from aircraft provide extended ranges and large area coverage, but large area coverage requires a high number of assets of both aircraft and sensors to be deployed. Antisubmarine warfare aircraft are expensive to operate, and they require shore-based facilities, which are limited because of continued decreases to the number of these installations. A shipboard system, such as SURTASS/LFA, provides the advantage of extended range and duration of searches, but when it is used in a continuous search mode, it has the drawback of revealing the","ship’s position.","The Navy determined that nonacoustic technologies, such as radar, laser, magnetic, infrared, electronic, optical, hydrodynamic, and biological sensors, have demonstrated some utility in detecting submarines. Their usefulness, however, is limited by range of detection, unique operating requirements, meteorological/oceanographic disturbances, and/or a requirement that the submarine be at or near the surface for detection. Today, nuclear submarines can remain submerged at considerable depths indefinitely, and new battery technology and air-independent propulsionhave increased the time that diesel submarines can remain at depth. The capabilities of passive, active, and nonacoustic technologies vary depending on whether they are used on fixed, mobile, and deployable platforms. During the Cold War, the Navy relied on a comprehensive system of fixed undersea acoustic sensors as its primary means of initial detection of enemy submarines. In recent years, the Navy’s Submarine Surveillance Program has undergone a major transition from emphasis on maintaining a large, dispersed surveillance force to detect and track Soviet submarines to a much smaller force. As a result, a number of fixed acoustic arrays have been turned off, placed in stand-by status, or damaged and not repaired. Fixed systems have a number of practical constraints such as requiring long lead times","to install.","They are also expensive, require extensive maintenance, and run the risk of being discovered, avoided, or tapped into. On the other hand, mobile systems are not limited to a specific location and can be deployed to areas of interest to the fleet at any time. Mobile systems also have the benefit of providing coverage in locations beyond the range of fixed systems or augmenting the capabilities of fixed systems. In the late-1990s, the Navy prepared an evaluation of alternatives on the requirements for long-range active undersea surveillance in a white paper. The evaluation examined expanding current technologies, developing new technologies, and improving the LFA system.","The paper concluded that increasing the numbers of antisubmarine warfare search, detection, and attack platforms in an attempt to flood the target area with search systems requires a high number of assets and a large number of operators and results in high costs due to the continued use of multiple systems; increasing the number of assets also does not solve the problems of high false contact rates, short detection ranges, and danger to the sensor platform itself because an active signal discloses the ship’s position; developing new passive systems will have a marginal potential to improve sensor detection ranges unless a new technology, yet to be identified, emerges; and improving the performance levels of active sonar systems like LFA addresses the critical issue of the range at which the threat submarine is detected. More recently, in 2001, the Navy conducted a comprehensive evaluation of existing and emerging antisubmarine warfare technologies that involved several expert panels consisting of Navy officials and representatives from the scientific, academic, and intelligence communities. The objective of this evaluation was to assess current and planned detection technologies to determine where the Navy has shortfalls in capability and where to invest future resources.","A total of 125 technologies and concepts were initially evaluated and 16 were selected for additional analysis. The 16 technologies and concepts were analyzed against criteria that included robustness, operational suitability, survivability, technical maturity, potential operational effectiveness, deployment flexibility and responsiveness, and potential overall impact and military utility. The SURTASS/LFA program received high ratings for all criteria except for survivability. As a result of the panels’ analyses, the Navy determined that SURTASS/LFA provides the needed extended range coverage and deployment flexibility and reduces the need for multiple assets, all at a comparatively low operational and per unit cost. With fewer assets devoted to submarine detection, naval commanders can use the additional assets to manage and control the undersea battle space. Because of these benefits, the Navy plans to rely on the SURTASS/LFA to detect and locate enemy submarines at greater distances before they get within effective weapons range. While SURTASS/LFA is effective at long range detection, Navy officials still conclude that there is no single system capable of providing all Navy submarine detection capabilities and advocate the use of multiple, complementary systems or a “tool box” approach to meet this need.","The most effective approach to conducting antisubmarine warfare operations is a “layered defense” beginning with a long detection range, early warning sensor, followed by short-range tactical active and passive sonars designed to coordinate the engagement of targets detected by the long-range system. The Navy continues to identify and develop new antisubmarine warfare technologies as well as explore new applications of existing technologies. Because no single antisubmarine technology or system meets all of the Navy’s undersea surveillance and detection requirements, the Navy continues acquisition and development efforts to increase detection efficiency and to respond to new threat challenges. A key focus of these efforts has been in developing antisubmarine warfare capabilities for littoral areas. The Navy is in the process of refining and developing a variety of alternatives to take advantage of LFA technology, but without its current limitations. For example, the Navy is exploring a higher frequency, lighter, and compact LFA system design, which incorporates several advantages to enhance performance in shallow water. However, it is too soon to assess whether these new developments will improve submarine detection capabilities.","Currently, the Navy is preparing for the overall operational evaluation of the SURTASS/LFA but has not developed a test plan or decided on the extent to which the system will be tested in littoral waters. Without testing in littoral areas, the Navy will not know whether the system is suitable and effective where the enemy threat is of increasing concern and detection is more challenging. In addition, testing results would provide users with a better understanding of the system’s capabilities and help the Navy make more informed decisions about investments in future submarine detection efforts. During our review, we noted to Navy officials that if they intend on operating the system in littoral areas, then they should conduct testing to gain a better understanding of the system’s advantages and limitations and how to use it most effectively in the Navy’s “tool box” approach to antisubmarine warfare. In response, Navy officials indicated they would reconsider what testing to include in the operational evaluation.","Before the Navy operates SURTASS/LFA in littoral areas, we recommend that the Secretary of the Navy direct program officials to establish a test plan and conduct testing of the system to demonstrate its capabilities in those areas. In written comments to a draft of our report, DOD agreed with our recommendation. In addition, DOD also provided technical comments that we incorporated into the report as appropriate. DOD’s comments appear in appendix I.","To acquire information about the SURTASS/LFA program, including requirements, alternatives, acquisition, development, operations, threat assessments, history, and current status, we interviewed officials and obtained documentation from the SURTASS program office (PMW-182); the Space and Naval Warfare Command’s Intelligence, Surveillance, and Reconnaissance Directorate (PD-18); Office of the Principal Deputy Assistant Secretary of the Navy (Research, Development, and Acquisition); Office of the Deputy Assistant Secretary of the Navy for Mine and Undersea Warfare; Office of the Chief of Naval Operations Antisubmarine Warfare Requirements Division; Office of the Chief of Naval Operations Undersea Surveillance Branch; Office of the Commander Submarines Atlantic; Office of the Commander Undersea Surveillance Operations; Integrated Undersea Surveillance System Command Center; TAGOS project office, Military Sealift Command; USNS Impeccable (T-AGOS-23); Office of Naval Research; Office of Naval Intelligence; Defense Intelligence Agency; and the Naval Undersea Warfare Center. To obtain information about SURTASS/LFA operational testing, effectiveness, suitability, and performance, we interviewed officials and obtained documentation from the Office of the Director of Operational Testing and Evaluation, Office of the Assistant Secretary of Defense; the Office of the Navy Commander Operational Test and Evaluation; and many of the above identified organizations.","To obtain information about environmental issues, requirements, assessments, and monitoring and mitigation plans, we interviewed officials and obtained documentation from the Office of the Assistant Secretary of the Navy for Installations and Environment; Office of the Chief of Naval Operations, Environmental Planning and National Environmental Policy Act Compliance Branch; the State of California Coastal Commission; the State of Hawaii Department of Land and Natural Resources; Marine Acoustics Inc; the National Marine Fisheries Service; the Marine Mammal Commission; the Natural Resources Defense Council; Rainbow Friends Animal Sanctuary; and the Keystone Center. We performed our work from July 2001 through March 2002 in accordance with generally accepted government auditing standards. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to interested congressional committees; the Secretary of Defense; the Secretary of the Navy; and the Director, Office of Management and Budget. We also will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.","Please contact me at (202) 512-4530 or John Oppenheim at (202) 512-3111 if you or your staff have any questions concerning this report. Other major contributors to this report were Dorian Dunbar, Gary Middleton, Adam Vodraska, and Allen Westheimer."],"string":"[\n \"The primary goal of antisubmarine warfare is to protect U.S. ships and assets from enemy submarines. Undersea surveillance and detection of submarines are a critical part of this mission. During the Cold War, the Navy relied on a combination of fixed, mobile, passive, and active sonar systems to detect enemy nuclear and diesel submarines, particularly those from the Soviet Union. Passive sonar systems “listen” or receive signals, whereas active systems send out signals to search for targets and receive an echo or response. The systems are used on mobile platforms, such as Navy surface ships, submarines, and aircraft, and in fixed arrays that are laid or buried across the ocean floor in various strategic locations. However, because of technology advancements, the Soviet Union and other countries developed quieter submarines. As a result, submarines became harder to detect, and the Navy grew concerned that enemy submarines could get within effective weapons range of U.S. ships and assets. The Navy determined it needed a system that could detect quiet submarines at great distances. In response to this need, the Navy launched the SURTASS/LFA program in 1985, which was originally designed for use in open oceans.\",\n \"The SURTASS/LFA system operates in conjunction with the Navy’s existing passive SURTASS sonar system. The two components, as illustrated in figure 1, make up a mobile acoustic undersea surveillance system that is intended to provide detection, cueing, localization, and tracking information on modern quiet nuclear and diesel submarines for the battle group or other tactical commanders. The passive component detects sounds or echoes from undersea objects through the use of hydrophones on a receiving array that is towed behind the ship. The active or transmitting component of the system sends high-intensity, low frequency sonar from transducers suspended by a cable under the ship. The active signal will produce a return echo that, when received, provides location and range data on submerged objects. The system uses 18 pairs of undersea transducers and 18 shipboard high-power amplifiers. The SURTASS/LFA system is heavy, weighing 327,000 pounds, and requires a specially designed ship to carry and operate it. The Navy plans to use two SURTASS/LFA systems. The first was installed in 1992 on the research vessel Cory Chouest. The other system, completed in 1993, will be installed on the twin-hull auxiliary general-purpose ocean surveillance ship, T-AGOS-23, which the Navy designed\",\n \"to carry the SURTASS system.\",\n \"The ship was originally scheduled for delivery in 1994, but construction was delayed due to the bankruptcy of the contractor and it will not be completed until late 2002. The Navy estimates that it has cost approximately $375 million to develop and produce the two systems and that it will spend an additional $40 million to field and operate the systems through fiscal year 2009. These estimates do not include the cost of the ships. During the course of developing and testing the SURTASS/LFA system, environmental interest groups, including the Natural Resources Defense Council, began to raise concerns that the system may cause harm to marine mammals. Environmentalists were concerned that the high- intensity sound emitted by the system could cause physical damage to marine mammals and adversely affect their behavior. In August 1995, in a letter to the Secretary of the Navy, the Natural Resources Defense Council questioned whether the Navy had complied with all applicable environmental laws and regulations. In response to growing public concerns and recognition that further assessment of the system was needed, the Navy decided to initiate an environmental impact statement process.\",\n \"As part of this process, the Navy conducted a scientific research program from 1997 to 1998 to test the effects of low frequency sonar on a limited number of whale species off the coasts of California and Hawaii. The Navy distributed a draft environmental impact statement for public comment in 1999 and issued a final environmental impact statement in 2001. The Navy concluded in the environmental impact statement that the potential impact or injury to marine mammals from SURTASS/LFA is negligible. As reflected in the environmental impact statement, this is based on using the system with certain proposed geographic restrictions and monitoring to prevent harm to marine mammals. Because there is some potential for incidental harm to marine mammals, the Navy must obtain a Letter of Authorization from the National Marine Fisheries Service before SURTASS/LFA can be used. The National Marine Fisheries Service issued a draft authorization for public comment in 2001, which concurred with the findings of the Navy’s environmental impact statement. If approved, the authorization would allow the Navy to use the SURTASS/LFA system with certain specified mitigation measures and restrictions.\",\n \"These measures include limiting (1) sonar sound levels to 180 decibels within 12 nautical miles of any coastline or in any designated biologically important offshore area and (2) sound levels to 145 decibels in known recreational or commercial dive sites. In addition, the authorization would require the Navy to monitor marine mammals from the ship visually and with passive and high frequency active sonar. If marine mammals were detected, the Navy would be required to shut down LFA operations to prevent, to the greatest extent possible, marine mammals’ exposure to potentially harmful sound levels. The decision on the authorization is expected later in 2002. Notwithstanding the mitigation measures outlined by the Letter of Authorization, environmental organizations are still expected to oppose the use of the SURTASS/LFA. They have indicated that although conclusive evidence has not been established regarding the harmful effects of the SURTASS/LFA on marine mammals, enough is known about the potential adverse effects of sound on marine mammals to warrant no further use of the system. They have also questioned the usefulness of the system to the Navy.\",\n \"The Navy has also recognized gaps exist in scientific knowledge about the impact of the system on marine mammals, but it considers that the risk is minimal and not enough to warrant ceasing its use. In addition, the Navy has stated that it has done an extensive amount of testing, research, and analysis regarding the use of SURTASS/LFA and marine mammals and that current information combined with the planned mitigation and monitoring procedures and ongoing research, support resuming SURTASS/LFA operations. Furthermore, the Navy has emphasized that the need for a long-range detection capability still exists. Based on initial testing conducted to date, SURTASS/LFA appears to provide long-range undersea detection capabilities in the deep, open ocean that surpass any system planned or in existence. However, the system may not be as effective in littoral waters. A final operational evaluation must still be conducted to determine the overall effectiveness and suitability of the system, and while Navy officials are developing a plan to evaluate the system, they have not yet defined what testing will be conducted in littoral areas. The primary benefit of SURTASS/LFA is that it will provide a significant increase in long-range undersea detection capability in\",\n \"the open ocean.\",\n \"Active sonar at low frequencies is more effective and transmits further undersea because its absorption rate in water is relatively low. Because of this, a low frequency active signal can travel several hundreds of miles if unimpeded. In contrast, mid frequency and high frequency sonar transmits on the order of tens of miles. Therefore, low frequency active sonar can potentially cover an area of the ocean vastly greater than sonar at higher frequencies. In addition, a benefit of active sonar is its ability to seek out targets rather than wait passively for a target to approach. As a result, a system such as SURTASS/LFA can provide the means to detect enemy submarines before they can get within the effective weapons range of U.S. ships. Also, because it is mobile, the system provides greater deployment flexibility and can detect target information in areas beyond the reach of fixed sonar systems according to Navy officials. Moreover, the SURTASS/LFA technology can provide long-range detection with less assets and operators than other technologies. SURTASS/LFA also has several operational limitations, including the amount of coverage it can provide and its vulnerabilities.\",\n \"The Navy plans to use a total of only two systems, with one deployed to the Pacific Fleet and the other to the Atlantic Fleet to support antisubmarine missions. Therefore, the amount of area the system can cover will be limited. The Navy recognizes that two systems are not sufficient to meet operational requirements and prefers to have more. In addition, SURTASS/LFA may be vulnerable to attack because the ships carrying the systems will not have onboard defense systems. The ships are also relatively slow and therefore incapable of remaining close enough to the transiting battlegroup to be protected. Furthermore, because SURTASS/LFA transmits an active, high volume signal, it can readily reveal its location, which further increases its vulnerability. However, the Navy concluded that the operational limitations are outweighed by the benefit of long-range detection. Results of SURTASS/LFA testing to date show that the system will increase the Navy’s capability to detect modern submarines at long range in deep, open ocean areas. Starting in 1989 through 1992, the Navy conducted a series of developmental tests on SURTASS/LFA that were focused on validating the performance of a demonstration system in these areas.\",\n \"The objectives of these tests were to obtain an increased understanding of technical performance issues such as the long-range transmission of signals and signal processing techniques. Based on the successful results of these tests, the Navy concluded the system performance requirements were achievable and decided to proceed with full-scale engineering development. In 1992, the Navy began conducting operational tests using an engineering development model that more closely represented the operational SURTASS/LFA system. The purpose of these tests was to determine the performance of the system under more realistic at-sea conditions and against more realistic threat scenarios, including quiet submarines. Numerous tests were performed to assess the system’s capabilities in deep waters, such as in the middle of the Atlantic Ocean. These tests concluded that SURTASS/LFA could detect targets at long range and resulted in recommendations that the program continue with its development. In addition, a test in 1994 determined that the engineering development model performed well enough that the system could be introduced to the fleet as an interim capability. However, operational testing revealed some reliability and maintainability problems with critical software. Navy officials told us that they intend to resolve these issues before the overall\",\n \"operational evaluation is complete.\",\n \"While testing has demonstrated that SURTASS/LFA can increase detection in the open ocean, the system has shown limited capability in littoral waters. Tests indicate the system provides some detection capability in littoral waters but at a range that is significantly less than that achieved in the open ocean. Moreover, the effectiveness of SURTASS/LFA generally decreases closer to shore as the water becomes more shallow. Navy officials told us that these results were expected and can be attributed to system design and geographic characteristics. The characteristics of low absorption rate and low frequency signal that make SURTASS/LFA effective for extended ranges in the deep, open ocean are the same characteristics that limit its effectiveness in littoral waters. For example, littoral waters, particularly along coastlines, typically have more complex and prominent floor features than those in the open ocean. In littoral areas, sonar signals may reverberate or rebound off the ocean floor making target detection difficult. The littoral environment is also more acoustically harsh because it has shifting currents, variable water densities, and shallow water depth. As a result, active sonar signals— particularly those at low frequency—reverberate and degrade more than they do in the open ocean.\",\n \"In addition, the littoral environment has more magnetic anomalies, which can severely degrade bearing accuracy. Littoral waters also have more shipping traffic and greater ambient noise, making it much more difficult for the system to distinguish and detect threat submarines from other noise-generating vessels. In addition, the presence of more shipwrecks and near shore debris in these locations increases the number of false targets and, therefore, increases the challenges to detect, locate, and distinguish threat submarines. Although the Navy has largely completed developmental testing and conducted a series of initial operational tests of the SURTASS/LFA system, it must still complete a final operational test and evaluation to establish the operational effectiveness and suitability of the system. Currently, this evaluation is planned for fiscal year 2004, providing the program receives authorization from the National Marine Fisheries Service. The Navy planned for the evaluation to primarily focus on demonstrating the system’s capabilities in the open ocean. Although the test evaluation master plan was updated in 1996, the concept of operations and the original operational requirements have not been updated to reflect the Navy’s shift in focus to littoral threats.\",\n \"In accordance with Department of Defense guidelines, a system should be tested under realistic conditions and in environments where it is intended to be used. In addition, any testing and operations will have to be in compliance with applicable operating restrictions such as the National Marine Fisheries Service Letter of Authorization. Currently, Navy working groups are in the process of updating a concept of operations for the SURTASS/LFA system and developing the test evaluation master plan that will be used to conduct the operational evaluation. However, they have not decided on the extent to which the system will be tested in littoral areas. Since the beginning of the program, the Navy has considered a number of existing and potential alternatives to SURTASS/LFA, and each time it found that the system provides long-range detection capabilities other systems could not provide. Available technologies offer different capabilities and practical limitations. Although SURTASS/LFA provides increased detection ranges, the Navy advocates a “tool box” approach that uses a mix of complementary technologies to detect enemy submarines. Existing passive, active, and nonacoustic technologies have a limited capability to detect submarines at long range.\",\n \"Passive sensors, for example, are effective at short range but have become more limited in their capability since the development of quieter submarines. Even though recent improvements to passive systems have extended their range, submarine quieting measures have lowered submarine noise levels to nearly the level of the ambient noise of natural sounds in the ocean. As a result, the Navy is concerned that an enemy submarine could get within effective weapons’ range of U.S. forces before passive systems could make contact with an enemy submarine. Passive systems by the nature of how they operate are environmentally benign because they do not transmit sound. Active sensors systems that can be used from aircraft provide extended ranges and large area coverage, but large area coverage requires a high number of assets of both aircraft and sensors to be deployed. Antisubmarine warfare aircraft are expensive to operate, and they require shore-based facilities, which are limited because of continued decreases to the number of these installations. A shipboard system, such as SURTASS/LFA, provides the advantage of extended range and duration of searches, but when it is used in a continuous search mode, it has the drawback of revealing the\",\n \"ship’s position.\",\n \"The Navy determined that nonacoustic technologies, such as radar, laser, magnetic, infrared, electronic, optical, hydrodynamic, and biological sensors, have demonstrated some utility in detecting submarines. Their usefulness, however, is limited by range of detection, unique operating requirements, meteorological/oceanographic disturbances, and/or a requirement that the submarine be at or near the surface for detection. Today, nuclear submarines can remain submerged at considerable depths indefinitely, and new battery technology and air-independent propulsionhave increased the time that diesel submarines can remain at depth. The capabilities of passive, active, and nonacoustic technologies vary depending on whether they are used on fixed, mobile, and deployable platforms. During the Cold War, the Navy relied on a comprehensive system of fixed undersea acoustic sensors as its primary means of initial detection of enemy submarines. In recent years, the Navy’s Submarine Surveillance Program has undergone a major transition from emphasis on maintaining a large, dispersed surveillance force to detect and track Soviet submarines to a much smaller force. As a result, a number of fixed acoustic arrays have been turned off, placed in stand-by status, or damaged and not repaired. Fixed systems have a number of practical constraints such as requiring long lead times\",\n \"to install.\",\n \"They are also expensive, require extensive maintenance, and run the risk of being discovered, avoided, or tapped into. On the other hand, mobile systems are not limited to a specific location and can be deployed to areas of interest to the fleet at any time. Mobile systems also have the benefit of providing coverage in locations beyond the range of fixed systems or augmenting the capabilities of fixed systems. In the late-1990s, the Navy prepared an evaluation of alternatives on the requirements for long-range active undersea surveillance in a white paper. The evaluation examined expanding current technologies, developing new technologies, and improving the LFA system.\",\n \"The paper concluded that increasing the numbers of antisubmarine warfare search, detection, and attack platforms in an attempt to flood the target area with search systems requires a high number of assets and a large number of operators and results in high costs due to the continued use of multiple systems; increasing the number of assets also does not solve the problems of high false contact rates, short detection ranges, and danger to the sensor platform itself because an active signal discloses the ship’s position; developing new passive systems will have a marginal potential to improve sensor detection ranges unless a new technology, yet to be identified, emerges; and improving the performance levels of active sonar systems like LFA addresses the critical issue of the range at which the threat submarine is detected. More recently, in 2001, the Navy conducted a comprehensive evaluation of existing and emerging antisubmarine warfare technologies that involved several expert panels consisting of Navy officials and representatives from the scientific, academic, and intelligence communities. The objective of this evaluation was to assess current and planned detection technologies to determine where the Navy has shortfalls in capability and where to invest future resources.\",\n \"A total of 125 technologies and concepts were initially evaluated and 16 were selected for additional analysis. The 16 technologies and concepts were analyzed against criteria that included robustness, operational suitability, survivability, technical maturity, potential operational effectiveness, deployment flexibility and responsiveness, and potential overall impact and military utility. The SURTASS/LFA program received high ratings for all criteria except for survivability. As a result of the panels’ analyses, the Navy determined that SURTASS/LFA provides the needed extended range coverage and deployment flexibility and reduces the need for multiple assets, all at a comparatively low operational and per unit cost. With fewer assets devoted to submarine detection, naval commanders can use the additional assets to manage and control the undersea battle space. Because of these benefits, the Navy plans to rely on the SURTASS/LFA to detect and locate enemy submarines at greater distances before they get within effective weapons range. While SURTASS/LFA is effective at long range detection, Navy officials still conclude that there is no single system capable of providing all Navy submarine detection capabilities and advocate the use of multiple, complementary systems or a “tool box” approach to meet this need.\",\n \"The most effective approach to conducting antisubmarine warfare operations is a “layered defense” beginning with a long detection range, early warning sensor, followed by short-range tactical active and passive sonars designed to coordinate the engagement of targets detected by the long-range system. The Navy continues to identify and develop new antisubmarine warfare technologies as well as explore new applications of existing technologies. Because no single antisubmarine technology or system meets all of the Navy’s undersea surveillance and detection requirements, the Navy continues acquisition and development efforts to increase detection efficiency and to respond to new threat challenges. A key focus of these efforts has been in developing antisubmarine warfare capabilities for littoral areas. The Navy is in the process of refining and developing a variety of alternatives to take advantage of LFA technology, but without its current limitations. For example, the Navy is exploring a higher frequency, lighter, and compact LFA system design, which incorporates several advantages to enhance performance in shallow water. However, it is too soon to assess whether these new developments will improve submarine detection capabilities.\",\n \"Currently, the Navy is preparing for the overall operational evaluation of the SURTASS/LFA but has not developed a test plan or decided on the extent to which the system will be tested in littoral waters. Without testing in littoral areas, the Navy will not know whether the system is suitable and effective where the enemy threat is of increasing concern and detection is more challenging. In addition, testing results would provide users with a better understanding of the system’s capabilities and help the Navy make more informed decisions about investments in future submarine detection efforts. During our review, we noted to Navy officials that if they intend on operating the system in littoral areas, then they should conduct testing to gain a better understanding of the system’s advantages and limitations and how to use it most effectively in the Navy’s “tool box” approach to antisubmarine warfare. In response, Navy officials indicated they would reconsider what testing to include in the operational evaluation.\",\n \"Before the Navy operates SURTASS/LFA in littoral areas, we recommend that the Secretary of the Navy direct program officials to establish a test plan and conduct testing of the system to demonstrate its capabilities in those areas. In written comments to a draft of our report, DOD agreed with our recommendation. In addition, DOD also provided technical comments that we incorporated into the report as appropriate. DOD’s comments appear in appendix I.\",\n \"To acquire information about the SURTASS/LFA program, including requirements, alternatives, acquisition, development, operations, threat assessments, history, and current status, we interviewed officials and obtained documentation from the SURTASS program office (PMW-182); the Space and Naval Warfare Command’s Intelligence, Surveillance, and Reconnaissance Directorate (PD-18); Office of the Principal Deputy Assistant Secretary of the Navy (Research, Development, and Acquisition); Office of the Deputy Assistant Secretary of the Navy for Mine and Undersea Warfare; Office of the Chief of Naval Operations Antisubmarine Warfare Requirements Division; Office of the Chief of Naval Operations Undersea Surveillance Branch; Office of the Commander Submarines Atlantic; Office of the Commander Undersea Surveillance Operations; Integrated Undersea Surveillance System Command Center; TAGOS project office, Military Sealift Command; USNS Impeccable (T-AGOS-23); Office of Naval Research; Office of Naval Intelligence; Defense Intelligence Agency; and the Naval Undersea Warfare Center. To obtain information about SURTASS/LFA operational testing, effectiveness, suitability, and performance, we interviewed officials and obtained documentation from the Office of the Director of Operational Testing and Evaluation, Office of the Assistant Secretary of Defense; the Office of the Navy Commander Operational Test and Evaluation; and many of the above identified organizations.\",\n \"To obtain information about environmental issues, requirements, assessments, and monitoring and mitigation plans, we interviewed officials and obtained documentation from the Office of the Assistant Secretary of the Navy for Installations and Environment; Office of the Chief of Naval Operations, Environmental Planning and National Environmental Policy Act Compliance Branch; the State of California Coastal Commission; the State of Hawaii Department of Land and Natural Resources; Marine Acoustics Inc; the National Marine Fisheries Service; the Marine Mammal Commission; the Natural Resources Defense Council; Rainbow Friends Animal Sanctuary; and the Keystone Center. We performed our work from July 2001 through March 2002 in accordance with generally accepted government auditing standards. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to interested congressional committees; the Secretary of Defense; the Secretary of the Navy; and the Director, Office of Management and Budget. We also will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.\",\n \"Please contact me at (202) 512-4530 or John Oppenheim at (202) 512-3111 if you or your staff have any questions concerning this report. Other major contributors to this report were Dorian Dunbar, Gary Middleton, Adam Vodraska, and Allen Westheimer.\"\n]","isConversational":false}}},{"rowIdx":10894,"cells":{"id":{"kind":"string","value":"train_10894"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"Missing among the Department of Defense's (DOD) portfolio of systems is a capability to track stationary and moving enemy vehicles on land or at sea in any type of weather, day or night, from space. To meet this need, DOD and the intelligence community are collaborating on the ambitious Space-Based Radar (SBR) program. By leveraging the newest generation of radar technologies, the SBR concept promises to deliver high-quality data to a wide array of users. DOD intends to start product development in 2006 and to field SBR satellites as quickly as possible so that warfighters, the intelligence community, and national decision makers can gain a better understanding of what adversaries are doing in specific locations around the world. GAO reviewed the SBR program to assess DOD's progress in attaining the knowledge it needs by 2006 in terms of customer needs (or requirements) and resources. Although SBR is 2 years away from product development, the program already faces major challenges. DOD officials say SBR will likely be the most expensive and technically challenging space system ever built by DOD. The acquisition time frame is much shorter than what has been achieved in the past for other complex satellite systems. Finally, DOD is setting precedence by taking the lead on developing SBR with the intelligence community as a partner. Most DOD space programs that GAO has reviewed in the past several decades were hampered by schedule and cost growth and performance shortfalls. Problems were largely rooted in a failure to match requirements with resources when starting product development. Commitments were made without knowing whether technologies being pursued would work as intended. To avoid these problems, leading commercial firms have adopted a knowledge-based model that enables decision makers to be reasonably certain about their products at critical junctures and helps them make informed investment decisions. Although DOD has taken positive steps to strengthen the involvement of senior leaders within DOD and the intelligence community in setting requirements, SBR's concept of operations has not been approved and signed by requirements boards for either of the two partners. Without documentation and formal approval, it is unclear who will be held accountable for setting requirements or how disagreements among SBR's partners will be resolved when DOD moves SBR into ensuing phases of acquisition. DOD has adopted noteworthy practices to gain knowledge about SBR's resources. These include maximizing the use of systems engineering to close gaps between requirements and resources; estimating all of SBR's costs; exploring alternatives for SBR if the Transformational Communications Architecture (TCA)--the communications infrastructure that is expected to relay SBR data across a network of users--incurs schedule and performance shortfalls; and asking contractors to propose multiple operations concepts for SBR with or without TCA. Despite these accomplishments, DOD is at risk of knowledge gaps. SBR's critical technologies will not be mature when product development starts, as called for by best practices. One of TCA's primary components may not be ready in time to support SBR data. These knowledge gaps make it harder for DOD to reliably estimate how much time and money are needed to complete SBR's development. If TCA is delayed, DOD's alternatives may involve reducing SBR's capabilities or significantly increasing program cost. Without sufficient knowledge, DOD may not be able to determine by the time SBR's product development starts in 2006 whether space-based radar is best suited to tracking moving targets on land or at sea or whether air-based radar would provide enough capabilities at far less cost. More specific analyses would help DOD weigh the merits of various alternatives and assess how much to invest in the SBR acquisition program versus air platforms with similar capabilities."},"documents":{"kind":"list like","value":["To assess DOD’s progress in attaining the knowledge it needs before the start of product development, we examined the resources (technology, communications infrastructure, and funding) committed and planned for the program as well as the users’ needs for an SBR system. We considered DOD’s plans for maturing the critical technologies when we obtained technology-readiness information for each critical technology (as well as its mature backup technology) against best practice standards to determine if they will be sufficiently mature when DOD plans to start product development. We also reviewed the SBR risk management plans and concept development contract information. We discussed these documents and issues with representatives from Air Force Space Command, Peterson Air Force Base, Colorado; and the SBR Joint Program Office, Space and Missile Systems Center, Los Angeles Air Force Base, California. To determine SBR’s role in a larger DOD architecture, we met with officials from the Joint Chiefs of Staff, Washington, D.C.; and the Air Force Directorate of Space Acquisitions, Arlington, Virginia. We also consulted past GAO reports to determine the relationship between SBR and the Transformational Communications Architecture.","To determine the scope and completeness of the analysis of alternatives and its follow-on study to identify the optimal ways to gather information on ground moving targets from radars based in space versus air, we met with officials from Air Force Space Command; DOD Office of the Director, Program Analysis and Evaluation, Washington, D.C.; Air Force Directorate of Requirements for Space, Crystal City, Virginia; and the Air Force Studies and Analyses Agency, Arlington, Virginia. We also talked with an official from the Air Force Office of Aerospace Studies, Kirtland Air Force Base, New Mexico. We discussed overarching programmatic issues—including the level of coordination between DOD and the intelligence community—with representatives from the Air Force Directorate of Space Acquisitions. We were not able to obtain meetings with members of the Mission Requirements Board (a board within the intelligence community responsible for approving program requirements) or the intelligence agencies to discuss their stake in the SBR program. We performed our work from November 2003 through June 2004 in accordance with generally accepted government auditing standards.","SBR represents the first time that DOD has taken the lead on developing a major national security space capability with the intelligence community as a partner. Because of this partnership, SBR’s acquisition process is more complex than that used for typical DOD programs. While DOD and the intelligence community will likely use all the data that SBR produces, their priorities differ. DOD’s warfighting community is particularly interested in tracking targets moving over land or sea as well as other objects of interest. The intelligence community is more focused on obtaining detailed global imagery and combining it with other data for advanced processing. SBR is expected to meet both needs and be fully integrated with other space and non-space systems, including TCA, which is to transmit SBR’s data to receivers in the air, at sea, or on the ground. A key advantage of radar in space is having the ability to “see” through clouds and sand storms and any type of weather, day or night. Radar-equipped aircrafts, on the other hand, require U.S. air dominance to collect radar information and must steer clear of hostile areas—the result being limited radar coverage.","The SBR concept offers other added features, including electronic steering of the radar signal toward a particular area and capturing high volumes of very fine resolution radar images of targets and terrain. With the ability to perform these functions almost simultaneously, SBR is expected to help analysts gain a better understanding of what is occurring in specific locations. To help meet some of its goals, DOD plans to leverage key technologies that were developed in the late 1990s to demonstrate a space-based radar capability. According to DOD officials, contractors developed some satellite hardware and prototype components under the Discoverer II program, which began in 1998 and was to identify and validate by 2008 the capability of tracking mobile ground targets from space. Discoverer II, comprising two radar demonstration satellites, was a joint initiative by the Air Force, DOD’s Defense Advanced Research Projects Agency, and the intelligence community’s National Reconnaissance Office. DOD officials told us that the Discoverer II program had reached the preliminary design review phase when it was cancelled in 2000 because of cost and schedule uncertainties, poorly explained requirements, and the lack of a coherent vision to transition the system to operational use.","The Secretary of Defense concluded that space-based radar could provide a military advantage and in 2001 approved SBR as a new major defense acquisition program, delegating it to the Air Force. In July 2003, an independent cost assessment team consisting of representatives from DOD and the intelligence community estimated that $28.6 billion would be needed to pay for SBR’s life-cycle costs—development, production, launch, and operation. The program entered the study phase in August 2003. The Air Force has requested $328 million for SBR in fiscal year 2005 and has programmed about $4 billion for the program from fiscal years 2005 to 2009. Given concerns about affordability and readiness, the Fiscal Year 2005 Defense Appropriations Conference Report reduced funding for SBR to $75 million, with the direction to return this effort back to the technology development phase. In 2003, Congress reduced the Air Force’s $274 million budget request for SBR by $100 million due to concerns about technology maturity and schedule. DOD has scheduled the start of product development for mid-fiscal year 2006, with production starting at the end of fiscal year 2008 and the first satellite to be launched at the end of fiscal year 2012.","Figure 1 shows SBR’s acquisition schedule in fiscal years. In the past several decades, DOD’s space acquisitions have experienced problems that have driven up costs by hundreds of millions, even billions, of dollars; have stretched schedules by years; and have increased performance risks. In some cases, capabilities have not been delivered to the warfighter after decades of development. Our reports have shown that these problems, common among many weapon acquisitions, are largely rooted in a failure to match the customer’s requirements (desired capabilities) with the developer’s resources (technical knowledge, timing, and funding) when starting an acquisition program. In particular, our past work has shown that for space systems, product development was often started based on a rigid set of requirements that proved to be unachievable within a reasonable development time frame. Other cases involved unstable requirements. In some cases where requirements had been identified and approved, even more requirements were added after the program began. When technology did not perform as planned, adding resources in terms of time and money became the primary option for solving problems because the customer’s expectations about the product’s performance capabilities already had been set.","The path traditionally taken by space programs—and other DOD weapon system programs—stands in sharp contrast to that taken by leading commercial firms. Our extensive body of work shows that leading companies use a product development model that helps reduce risks and increase knowledge when developing new products. This best practices model enables decision makers to be reasonably certain about their products at critical junctures during development and helps them make informed investment decisions. This knowledge-based process can be broken down into three cumulative knowledge points. Knowledge point 1: A match must be made between the customer’s requirements and the developer’s available resources before product development starts. As noted earlier, DOD plans to start SBR product development in 2006. Knowledge point 2: The product’s design must be stable and must meet performance requirements before initial manufacturing begins. Knowledge point 3: The product must be producible within cost, schedule, and quality targets and demonstrated to be reliable before production begins. Systems engineering is a technical management tool that provides the knowledge necessary at knowledge point 1 to translate requirements into specific, achievable capabilities.","With systems engineering knowledge in hand, acquisition decision makers and developers can work together to close gaps between requirements and available resources—well before product development starts. Some gaps can be resolved by the developer’s investments, while others can be closed by finding technical or design alternatives. Remaining gaps—capabilities the developer does not have or cannot get without increasing the price and timing of the product beyond what decision makers will accept—must be resolved through trade-offs and negotiations. Effective use of this tool enables decision makers to move on to knowledge point 2 and to produce a stable product design. DOD has recently issued a new acquisition policy for space systems, partly intended to address past acquisition problems and provide capability to users quicker. However, we recently reported that the policy is not likely to achieve these goals because it allows programs to continue to develop technologies after product development starts. Our past work has shown that this approach makes it more difficult to estimate cost and schedule at the onset of product development and increases the likelihood that programs will encounter technical problems that could disrupt design and production and require more time and money to","address than anticipated.","Over the long run, the extra investment required to address these problems could reduce funding for developing other technological advances, slow the overall modernization effort, delay capabilities for the warfighter, and force unplanned—and possibly unnecessary—trade-offs between space and other weapon system programs. By contrast, DOD’s revised policy for other weapon acquisitions encourages programs to mature technologies to the point of being tested in an operational environment before beginning product development. We recommended that DOD modify its policy to separate technology development from product development so that needs can be matched with available technology, time, and money at the start of a new program. We also reported that DOD’s space acquisition policy does not require DOD to commit to setting aside funding for space acquisitions. Hence, there is no guarantee that the resources needed to meet requirements will be there on any individual program when needed.","This makes it difficult for DOD as a whole to make corporate-level and trade-off decisions— which will likely be needed when DOD begins the SBR acquisition because (1) costs are significantly increasing for other critical space systems such as the Space-Based Infrared System High, the Transformational Satellite, and the Evolved Expendable Launch Vehicle and (2) DOD is planning to undertake additional new programs, such as the Space-Based Space Surveillance system and a new version of the Global Positioning System. DOD is revising its new space acquisition policy partly to address these issues; however, the revision was not available for review at the time of this review. DOD has bolstered the SBR acquisition program by increasing senior leader and stakeholder involvement in setting requirements. However, DOD is not fully documenting commitments made during the requirements approval process before progressing to the next acquisition phase, nor has it established a process to resolve potential disagreements that may occur after approval. Clouding the approval of requirements is that DOD’s current space acquisition policy does not provide specific guidance for acquisitions that involve partnerships between DOD and the intelligence community.","Providing senior-level oversight are three new groups created expressly for the SBR program: the Executive Steering Group, which advises the Requirements/Capabilities Group and the Joint Senior Acquisition Group. Members of these groups come from DOD, National Reconnaissance Office, and National Geospatial-Intelligence Agency. All key stakeholders are expected to have open and honest discussions about what can and cannot be done within desired time frames, budgetary constraints, and achievable technologies. Figure 2 shows how these groups work with SBR’s joint program office and requirements review boards for DOD and the intelligence community. A primary benefit of having an oversight structure for the SBR program, which involves many decision makers from across multiple organizations, is that the right people are involved in the decision-making process and can work together to lock in their requirements. The intent is to avoid problems of the past in which a program incurs cost, schedule, and performance risks because decision makers continue to negotiate and make trade-offs even after designers and engineers have started technology development and design work.","Figure 3 shows the likely outcomes if requirements are poorly defined and are not approved or, in the case of SBR, if requirements are adequately defined and approved early in the study phase. DOD officials reported to us that the oversight groups have achieved informal consensus on requirements for SBR. However, this approval has not been formalized and it is unclear as to whether and how it might be formalized. Moreover, it is unclear how disagreements that may occur after initial approval will be resolved. Regardless of how many stakeholders have been invited to join in decision making or how much expertise is included in SBR’s oversight function, overall success of the SBR program hinges in part on whether the requirements are clear, stable, and achievable and whether DOD and the intelligence community demonstrate commitment and accountability by formally approving the requirements. In an acquisition decision memorandum, the Under Secretary of the Air Force requested that DOD and the intelligence community approve the initial capabilities document and concept of operations before the request for proposals was released in January 2004 for concept development contracts.","DOD officials told us that the Joint Requirements Oversight Council and the intelligence community’s Mission Requirements Board approved the initial capabilities document, and there are memoranda documenting these decisions. The Joint Requirements Oversight Council reviewed the concept of operations, provided comments, but did not approve it. According to DOD officials, during a meeting of the SBR Executive Steering Group, high-level officials from the intelligence community verbally approved the concept of operations, but there is no documentation recording this approval. Agreement is critical because DOD and the intelligence community are placing different emphasis on desired capabilities for SBR. An independent assessment of the SBR program determined that requirements were adequate to enter the study phase, which started in August 2003, but cautioned that the requirements needed to be converged among all stakeholders and users. Table 1 shows the type of knowledge that decision makers expect to gain from the initial capabilities document and the concept of operations. A defined requirements approval process helps decision makers resolve disagreements that may occur and ensure they will remain committed to their decisions after formal approval.","Based on our past reports on uncovering problems and our best practice work, we believe that the steps in a formal approval process include: explaining how decision makers’ requirements and comments are obtained and addressed; identifying the officials and/or the organizations responsible for taking specific approval action; establishing a mechanism and time frame for providing approval or establishing a system for addressing unresolved issues as they relate to key program documentation; and assessing changes to approved requirements based on their effect on the program’s cost and schedule. While DOD has taken steps to increase senior leader and stakeholder involvement in setting requirements and addressing acquisition issues, DOD is not fully documenting commitments made during the requirements approval process, nor has it established a process to resolve potential disagreements that may occur after approval. DOD is also taking positive steps to attain the knowledge needed to understand what resources will be needed to develop SBR’s capabilities and to mitigate risks.","These include: relying on systems engineering to translate requirements into specific, achievable capabilities and to close gaps between requirements and resources; adopting a more comprehensive cost estimating technique to identify SBR’s life-cycle costs; exploring alternatives for SBR if TCA—the infrastructure that DOD is depending on to transmit SBR’s data—incurs schedule slips; and asking two concept development contractors to each propose at least two different operations concepts for SBR with and without TCA. However, the path that SBR is on has potential for knowledge gaps when making investment decisions, the types of gaps that have hampered other space programs in the past. Specifically, it is expected that some critical SBR technologies will not be mature when product development starts, that is, not tested in a relevant or operational environment. Typical outcomes of this lack of knowledge are significant cost and schedule increases because of the need to fix problems later in development. Furthermore, TCA, a new, more robust communications infrastructure that could transmit SBR’s imagery data much more quickly than the current infrastructure, is facing uncertainties. Specifically, one of TCA’s primary components, the Transformational Satellite, may not be ready in time to support SBR.","Without mature technologies and faced with a possible slip in the Transformational Satellite’s schedule, DOD will be less able to accurately estimate total system costs before the start of product development. In addition, DOD and the Air Force may not have knowledge needed to make corporate level trade-offs between SBR and other air-based radar systems at the time it plans to make a commitment to invest in the SBR acquisition program. DOD has undertaken an analysis to weigh the merits of space-based radar. At this time, it is not known whether this analysis will be a detailed examination of the capabilities and costs of each individual radar option and combined with other radar platforms or whether the analysis will be a less rigorous examination of the mix of radar options. DOD is planning to aggressively address technology, affordability, and integration issues by, in part, instituting robust systems engineering processes and procedures. Systems engineering is a technical management tool for gaining information on a broad array of activities related to the development of a system.","For SBR, DOD plans to perform systems engineering work on requirements and their allocation, interface definitions, trade studies, risk management, performance analysis and modeling, environmental and safety planning, test planning, program protection planning, information assurance, and configuration control. Applying systems engineering to these activities would give DOD the insight and knowledge it needs to better manage the program, including ways to reduce risk and ensure the viability of concepts and requirements. DOD has also decided to take a more comprehensive approach to estimating SBR’s life-cycle costs. According to the SBR program director, this marks the first time DOD has willingly presented all related costs to develop, acquire, produce, maintain, operate, and sustain the system. DOD officials stated that they wanted to identify not just direct costs, but also costs for associated infrastructure such as the costs related to modifying the ground system that will be used to support SBR as well as other systems. According to DOD, about $8 billion of the $28.6 billion life-cycle cost estimate represents costs that in the past, would not have been included in space program total cost estimates.","Taking steps to more comprehensively identify SBR and SBR related costs is a positive step and will help DOD manage its portfolio of space programs. Although DOD hopes to rely on TCA to support SBR data transmissions, it is taking a proactive approach to identify and assess the viability of TCA alternatives. First, in April 2004, DOD awarded two 2-year contracts for concept development efforts that call for the identification of alternatives to TCA. For each alternative identified, the contractor is to conduct an assessment of the cost, risk, and effect on SBR’s performance. DOD officials told us that when SBR initiates product development in 2006, it would know whether TCA will be available to support SBR or whether to pursue a TCA alternative. In addition, DOD also awarded two contracts totaling $510,000 for a yearlong study to propose several alternatives to TCA capable of supporting SBR’s communications requirements and to analyze the viability of such alternatives. These actions have put DOD in a better position to ensure the program is successful. The two 2-year contracts that DOD awarded in April 2004 also require that at least two different viable SBR operations concepts be proposed.","DOD is expecting each contractor to fully develop the alternative operations concepts. These alternative concepts could involve using unique radar processing techniques. According to DOD, it will work with each of the contractors to pare down the alternatives to a single best concept for each contractor. For the remainder of the contract performance period, the contractors would focus their attention on fleshing out the details associated with these concepts. This approach will put DOD in a better position when the time comes to select a single contractor to design the SBR system. DOD officials have said that SBR will likely be the most technically challenging, software-intensive, and complex space system ever built by DOD. The two key pieces of hardware needed to give SBR a radar capability from space—the electronically scanned array (which steers the radar signal to an area of interest) and the on-board processor (the radar-processing unit aboard SBR)—face the highest amount of risk. The electronically scanned array can scan multiple areas of interest virtually simultaneously, allowing for simplified satellite design over conventional technology offering mechanical slew radar.","The on-board processor is expected to allow the processing radar data to assure the timely and thorough delivery of imagery data that will be downlinked for transmission to the warfighter. To minimize the potential for technology development problems after the start of product development, DOD uses an analytical tool to assess technology maturity for many weapon system acquisition programs. Called Technology Readiness Levels (TRL), this tool associates a TRL with different levels of demonstrated performance, ranging from paper studies to actual application of the technology in its final form. The value of using a tool based on demonstrated performance is that it can presage the likely consequences of incorporating a technology at a given level of maturity into a product’s development, enabling decision makers to make informed choices. Our previous reviews have found the use of TRLs, which range from 1 to 9, to be a best practice. (See app. I for a description of the TRL levels.) The critical technologies that will support the SBR program currently range from TRL 3 to 5. A TRL 3 means that most of the work performed so far has been based on analytical and laboratory studies.","At a TRL 5, the basic technology components are integrated and tested in a simulated or laboratory environment. Table 2 shows the current TRL for each of SBR’s critical technologies and the expected TRL at product development start in 2006. In general, the program office’s key risk reduction efforts are scheduled to mature these technologies to TRL 5 by the middle of fiscal year 2006. These efforts include the awarding of research and development contracts to three payload contractors for efforts to continue to develop and mature these components (the electronically scanned array and on-board processor). The period of performance of each contract is about 2.5 years. To mature the electronically scanned array and on-board processor technologies from a TRL 3/4 to 5, the contractors plan to conduct various developmental and integrative tasks in about 3 years. For example, one contractor plans to conduct 18 tasks to develop the electronically scanned array and 8 tasks to integrate the on-board processor with other system components. In addition, the development of the integrated circuits and programmable microcircuits that support the on-board processor requires extensive tests and evaluations and the radiation-hardening requirement further complicates the development.","Given the challenges of the state-of-the-art technologies being developed and the algorithms involved, the testing programs must be rigorous and transparent and the results fully documented. We have determined that the time allotted to mature the SBR technologies to TRL 5 is ambitious given the tasks that need to be accomplished. Furthermore, the development of the signal processing algorithms and communications downlink involves significant software development. Based on our past experience of software assessments in other programs, the establishment of a structured testing regime for software development has always been underestimated. By planning to start product development in fiscal year 2006 with technologies at TRL 5, DOD is very likely to continue designing the system and to conduct other program activities at the same time it builds representative models of key technologies and tests them in an environment that simulates space conditions (such as a vacuum chamber). This approach is common with DOD space acquisitions but has a problematic history. Our past work has shown that it can lead to significant cost and schedule increases because of the need to fix problems later in development. A continuing problem is that software needs are poorly understood at","the beginning of a program.","We have previously recommended that DOD not allow technologies to enter into a weapon system’s product development until they are assessed at a TRL 7, meaning a prototype has been demonstrated in an operational environment. DOD has accepted lower TRL thresholds for space programs because testing in an operational environment—in space, for example, or even in a relevant environment—is difficult and costly. However, DOD’s new space acquisition policy does not identify what the minimum TRL level should be before starting product development for space programs, how risks should be mitigated if technologies are included in programs without full testing, or how lower TRL levels affect the confidence of cost and schedule estimates. Moreover, the policy does not address the option of maturing technologies outside a program and pulling them in once they prove to be viable. One way to mitigate technology risk is to rely on backup technologies, should newer technologies prove to be problematic during product development. According to DOD officials, there are backup technologies that are more mature for each of SBR’s critical technologies. The backups are the same technologies but rely on a previous and more mature version.","Using previous versions of these technologies would result in a lower level of desired performance—such as a reduced area collection rate, a reduction in the total number of targets collected per satellite per day, increased product delivery time frames to the user, an increased weight of the spacecraft, and higher cost. For example, more mature versions of the electronically scanned array exist and if used, would result in a reduction in its performance level. In addition, some previous versions of SBR technologies have not been demonstrated or tested in space. But according to DOD officials, even with backup technologies, the total performance of the SBR system can be maintained through systems engineering trades. DOD says it has been able to leverage some of the key technologies (such as the electronically scanned array) that were under development during the previous effort, Discoverer II, to demonstrate a space-based radar capability. Current plans call for TCA to transmit SBR’s large volume of data to ground-, air-, ship-, and space-based systems. However, one of TCA’s primary components, the Transformational Satellite—which will use technologies that DOD has never before tried in space—is facing uncertainties in its scheduled 2011 launch.","DOD started product development for the Transformational Satellite in December 2003 even though technologies were immature. If the Transformational Satellite falters but SBR launches as expected in 2012, then DOD will have a fully operational, new-generation satellite that is missing its primary means of data transmission. Recognizing the challenges, DOD is to decide by November 2004 whether to move forward or delay the Transformational Satellite’s acquisition program and instead procure another Advanced Extremely High Frequency satellite, which already are under development and are based on mature technologies. Our analysis shows that alternatives to TCA may involve a greater reliance on processing aboard the SBR satellites, thereby increasing software development efforts. This approach would reduce the volume of data requiring transmission, allowing conventional satellite systems, such as the Advanced Extremely High Frequency satellites, to handle the transmission. Another likely alternative is to have SBR satellites transmit only selected portions of data, again, so that the Advanced Extremely High Frequency satellite could handle the lower volume of information. Finally, a dedicated system of satellites could be fielded for the sole purpose of transmitting SBR data, significantly increasing program cost and raising affordability issues.","Currently, DOD is working closely with officials from the Transformational Satellite program office to evaluate the relative merits of various alternatives and to document the interfaces needed between SBR and the Transformational Satellite for each alternative. During the course of our audit work, SBR program officials met weekly with the Transformational Satellite program’s integrated product teams and were coordinating efforts on a memorandum of agreement on requirements development, joint engineering practices, and studies of air- and space-based options. Based on a notional constellation of nine (plus one spare) satellites operating in low-earth orbit, an independent cost assessment in 2003 put SBR’s cost at the $28.6 billion mark, making SBR the most expensive DOD space system ever built. When this initial cost estimate is revised in 2006, before SBR’s product development starts, DOD is to have decided a number of issues, such as how many satellites are to be acquired, what their capabilities will be, and at what altitude(s) the satellites are to operate. This system refinement allows DOD to develop a more realistic total system cost estimate—a critical knowledge point if a successful match between requirements and resources is to be made.","However, if DOD begins product development with less than mature technologies and without knowing the availability of TCA, accurate cost estimates for SBR will be much more difficult to prepare. We have previously reported that improving the reliability of cost estimates is critical and affords DOD decision makers with the appropriate information to decide whether a weapon system is worth the overall investment and whether the time is right to proceed with such an investment. Once a total cost is known, DOD needs to secure the funding so it can design, produce, operate, and sustain the system. DOD may also lack knowledge needed to make a corporate-level decision as to how much it should invest in SBR versus air platforms with similar capabilities at the time it begins the SBR acquisition program. In November 2003, the Air Force completed an analysis of alternatives (AOA) for SBR, which was supposed to evaluate whether space- or air-based radar platforms (such as manned and unmanned aircraft with radar capabilities) or a combination of both are better suited for tracking moving targets on land or at sea and analyze the capabilities and costs of each suitable option.","However, DOD officials raised a concern that the AOA only weighed the merits of various space-based solutions. The Air Force decided to undertake a follow-on study to explore the optimal ways to gather information on ground moving targets from radars based in space versus air. The plan is to also use this follow-on study as part of DOD’s preparations for submitting a fiscal year 2006 budget to Congress to secure funding for SBR and other radar systems on air platforms. A more thorough AOA, completed before the start of the study phase, might conceivably have determined that air-based radar could provide many or most of the capabilities promised by space-based radar but at a fraction of the cost. Moreover, this type of analysis could help DOD officials better decide whether SBR should be initiated at a later date, when critical technologies will have been matured, or when the communications infrastructure to support SBR will be available. DOD officials have mentioned other ongoing studies that are examining the optimal mix between SBR and other platforms for specific capabilities, such as ground-moving target indication.","However, it is unclear as to the extent these studies will be factored into the SBR product development start decision. DOD has recently embarked on a discovery and exploration phase for its SBR program. During this period, it is critical for programs to work toward closing knowledge gaps about requirements, technologies, funding, and other resources so they can be positioned to succeed when DOD decides to commit to making significant investments. For SBR, this would mean testing technologies to the point of knowing they can work as intended before starting program development, securing agreement on requirements with the intelligence community, and fully assessing the cost and benefits and risks of relying on TCA and alternatives, including different mixes of air and space-based platforms. DOD is taking positive steps toward this end, but without maturing critical technologies or securing formal commitment on requirements, it will not be able to assure decision makers that the program can be completed within cost and schedule estimates.","Should DOD decide to proceed on a path that leaves open important questions, including those about technologies, then it should do so with (1) assessments of technical risks and what additional resources (in terms of time and money) would be needed to address problems that may occur during development as well as what trade-offs would need to be made with other space programs should DOD need to invest additional resources in SBR, and (2) a formal commitment for providing additional resources if problems do occur. To better ensure that DOD and its intelligence community partners obtain the additional knowledge they need to determine whether and when to begin the SBR acquisition program, we recommend that the Secretary of Defense direct the Under Secretary of the Air Force to: Direct the SBR Executive Steering Group to ensure that outcomes from the requirements management process are formally approved and documented as the program proceeds through product development before an investment is made beyond technology and concept development for the SBR program. This group should identify how key document review comments are to be obtained and addressed and identify all the officials and/or organizations responsible for taking specific approval","action.","In addition, the group should establish a mechanism and time frame for providing approval/disapproval. Finally, the group should establish a formal mechanism for addressing unresolved issues as they relate to key program documentation, as well as how changes to approved requirements will be assessed. Modify DOD’s space acquisition policy to reflect protocols for setting requirements when DOD undertakes programs in partnership with the intelligence community. Delay approval to commit funding to product development (key decision point B) for SBR until technologies have been demonstrated in a relevant or operational environment so DOD can more reliably estimate the resources needed to complete the program.","If the Under Secretary determines that the program should go forward with less mature technologies, then we recommend that the Under Secretary (1) undertake an assessment of the backup technologies that may lessen capability and add cost to the program and the additional time and money that may be required to meet SBR’s performance objectives to address those risks, (2) undertake an assessment of trade-offs that may need to be made with other space programs to assure SBR’s successful outcome, and (3) secure formal commitments from DOD to provide funding for total estimated costs as well as costs estimated to address potential technical risks. Strengthen the ongoing study of options for tracking ground-moving targets by ensuring this work includes: (1) a full range of air and space options; (2) measures of effectiveness that would help justify choosing SBR over air options; and (3) the possibility of having to rely on TCA alternatives for space options. This work should also consider the results of analyses being conducted by other DOD entities on tracking ground- moving targets.","We received written comments on a draft of this report from the Deputy Under Secretary of Defense (Programs, Requirements, and Resources) within the Office of the Under Secretary of Defense for Intelligence. DOD generally agreed with our findings and our recommendation to strengthen its study of SBR alternatives. DOD partially agreed with our recommendations to strengthen its requirement setting process for SBR and to demonstrate SBR technologies in a relevant or operational environment before committing to product development. DOD did not agree with our recommendation to modify its acquisition policy to strengthen requirements setting. In commenting on our recommendations, DOD agreed in principle with the need to extensively define, analyze, and validate requirements for SBR, but it did not believe this necessitated a different requirements setting process than the one that is in place for SBR or changes to its space acquisition policy or that additional controls were needed within the program’s study phase. To clarify, our recommendation was not intended to construct a new requirements setting process or supplant activities undertaken by the Joint Requirements Oversight Council or the Mission Requirements Board, as DOD asserts.","Rather, we recommend that DOD build on the positive requirements setting procedures it has already put in place by instituting controls and mechanisms that ensure transparency, discipline, and accountability with requirements setting. As noted in our report, while DOD has taken steps to increase senior leader and stakeholder involvement in requirements setting, it is not fully documenting commitments made during the requirements approval process, nor has it established a process to resolve potential disagreements that may occur after approval. It is important that this discipline be instilled in the study phase and throughout the SBR effort. As noted in previous reports, many space programs have not been executed within cost and schedule estimates because of an inability to establish firm requirements and to make and enforce trade-off decisions. For SBR, the potential for difficulty in requirements setting is higher because of the distinct needs of the intelligence community and DOD’s desire to integrate SBR with other radar platforms.","Moreover, revising the acquisition policy to clearly communicate protocols that should be followed when DOD undertakes space programs in the future involving diverse users—such as the intelligence community, military services, industry, and/or other agencies—would further help DOD to rationalize requirements setting and to solidify relationships with users, which DOD reported was a top SBR management issue. In regard to our recommendation to delay product development until SBR technologies are sufficiently matured, DOD stated that it has planned for critical and most other enabling technologies to be demonstrated at least at the component level in a relevant environment on the ground. DOD also stated that where technically feasible and fiscally feasible, it planned to pursue on-orbit demonstrations. It also stated it has taken some actions relating to our recommendation such as accounting for technical risks in the costing and budgeting process. DOD asserted, however, that our recommendation encourages pursuit of older, more proven, technologies.","We recommended that DOD pursue relevant or operational environment demonstrations of all critical technologies and even an integrated system before committing to a formal acquisition program because this practice enables a program to align customer expectations with resources, and therefore minimize problems that could hurt a program in its design and production phase and drive up costs and schedule. Further, we agree that continuing to develop leading edge technology is important for space system capabilities. However, history has shown and we have repeatedly reported that conducting technology development within a product environment consistently delays the delivery of capability to the user, robs other programs of necessary funds through unanticipated cost overruns, and, consequently, can result in money wasted and fewer units produced than originally stated as necessary. A technology development environment is more forgiving and less costly than a delivery-oriented acquisition program environment. Events such as test “failures,” new discoveries, and time spent in attaining knowledge are considered normal in this environment. Further, judgments of technology maturity have proven to be insufficient as the basis for accurate estimates of program risks as it relates to cost, schedule, and capability.","Lastly, our report noted that DOD was taking positive actions to gain knowledge about technology readiness, including strengthening systems engineering, undertaking risk assessments, and assessing various technical concepts. Given the potential cost of the program, our recommendation focuses on taking these steps further by assessing what trade-offs may need to be made with other space programs should the program encounter technical problems that require more time and money than anticipated and securing commitments to provide resources needed to address such problems. DOD’s detailed comments are provided in appendix II. We plan to provide copies of this report to the Secretary of Defense, the Secretary of the Air Force, and interested congressional committees. We will make copies available to others upon request. In addition, the report will be available on the GAO Web site at http://www.gao.gov. If you or your staff has any questions concerning this report, please contact me at (202) 512-4841 or Arthur Gallegos at (303) 572-7368. Other key contributors to the report include Tony Beckham, Cristina Chaplain, Lily Chin, Maria Durant, Nancy Rothlisberger, and Hai V. Tran. Appendix I: TRL Scale for Assessing Critical Technologies Lowest level of technology readiness.","Scientific research begins to be translated into applied research and development (R&D). Examples might include paper studies. Invention begins. Once basic principles are observed, practical applications can be invented. Examples are still limited to paper studies. Active R&D is initiated. This includes analytical studies and laboratory studies to physically validate analytical predictions of separate elements of the technology. Examples include components that are not yet integrated or representative. Basic technological components are integrated to establish that they will work together. This is relatively “low fidelity” compared to the eventual system. Examples include integration of “ad hoc” hardware in a laboratory. Fidelity of breadboard technology increases significantly. Basic technological components are integrated with reasonably realistic supporting elements so that the technology can be tested in simulated environment. Examples include “high fidelity” laboratory integration of components. Representative model or prototype system, which is well beyond the breadboard tested for level 5, is tested in a relevant environment. Represents a major step up in a technology’s demonstrated readiness. Examples include testing a prototype in a high-fidelity laboratory environment or in a simulated operational environment. Prototype near, or at, planned operational system.","Represents a major step up from TRL 6, requiring demonstration of an actual system prototype in an operational environment such as an aircraft, vehicle, or space. Technology has been proven to work in its final form and under expected conditions. In almost all cases, this TRL represents the end of true system development. Examples include Developmental Test and Evaluation of the system in its intended weapon system to determine if it meets design specifications. Actual application of the technology in its final form and under mission conditions, such as those encountered in Operational Test and Evaluation. Examples include using the system under operational mission conditions. The following are GAO’s comments on the Department of Defense’s letter dated June 29, 2004. 1. DOD stated that DOD does not require formal approval for the concepts of operations from the Joint Requirements Oversight Council or the Mission Requirements Board, but noted that the Joint Requirements Oversight Council communicated agreement in a memo.","As we reported, the Under Secretary of the Air Force requested that both DOD and the intelligence community approve the initial capabilities document and concept of operations in light of the complexity of SBR’s acquisition process, the partnership with the intelligence community, and the proposed integration with other radar platforms. 2. DOD stated that it is not engaged in a partnership with the intelligence community on SBR, as our report states. Specifically, DOD stated that SBR is wholly funded in the defense budget and that a programmatic commitment with the intelligence community does not exist. DOD’s SBR System Acquisition Strategy was signed by senior-level officials from DOD, National Reconnaissance Office, and the National Geospatial-Intelligence Agency and approved on January 14, 2004. This strategy states that the Air Force, in close partnership with the National Reconnaissance Office and National Geospatial-Intelligence Agency, is responsible for leading development of an SBR capability. This strategy further identifies the responsibilities related to SBR that each mission partner (National Reconnaissance Office and National Geospatial-Intelligence Agency) is supposed to carry out. We disagree with DOD’s assertion that these organizations must provide funding to SBR in order to consummate a partnership.","Because SBR is being justified on the basis of the system’s ability to provide intelligence, surveillance, and reconnaissance products to both DOD and the intelligence community, the part of the budget used is not relevant to our finding. 3. To clarify, we did not recommend that DOD pursue lower risk technologies that would result in lower levels of desired performance. Instead, we reported that DOD might have to resort to using backup technologies if the current ones prove to be problematic during product development. We recommended that DOD should assess the cost to the program of having to use the backup technologies DOD has already identified in terms of time and money. The Government Accountability Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability.","The fastest and easiest way to obtain copies of GAO documents at no cost is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts newly released reports, testimony, and correspondence on its Web site. To have GAO e-mail you a list of newly posted products every afternoon, go to www.gao.gov and select “Subscribe to Updates.”"],"string":"[\n \"To assess DOD’s progress in attaining the knowledge it needs before the start of product development, we examined the resources (technology, communications infrastructure, and funding) committed and planned for the program as well as the users’ needs for an SBR system. We considered DOD’s plans for maturing the critical technologies when we obtained technology-readiness information for each critical technology (as well as its mature backup technology) against best practice standards to determine if they will be sufficiently mature when DOD plans to start product development. We also reviewed the SBR risk management plans and concept development contract information. We discussed these documents and issues with representatives from Air Force Space Command, Peterson Air Force Base, Colorado; and the SBR Joint Program Office, Space and Missile Systems Center, Los Angeles Air Force Base, California. To determine SBR’s role in a larger DOD architecture, we met with officials from the Joint Chiefs of Staff, Washington, D.C.; and the Air Force Directorate of Space Acquisitions, Arlington, Virginia. We also consulted past GAO reports to determine the relationship between SBR and the Transformational Communications Architecture.\",\n \"To determine the scope and completeness of the analysis of alternatives and its follow-on study to identify the optimal ways to gather information on ground moving targets from radars based in space versus air, we met with officials from Air Force Space Command; DOD Office of the Director, Program Analysis and Evaluation, Washington, D.C.; Air Force Directorate of Requirements for Space, Crystal City, Virginia; and the Air Force Studies and Analyses Agency, Arlington, Virginia. We also talked with an official from the Air Force Office of Aerospace Studies, Kirtland Air Force Base, New Mexico. We discussed overarching programmatic issues—including the level of coordination between DOD and the intelligence community—with representatives from the Air Force Directorate of Space Acquisitions. We were not able to obtain meetings with members of the Mission Requirements Board (a board within the intelligence community responsible for approving program requirements) or the intelligence agencies to discuss their stake in the SBR program. We performed our work from November 2003 through June 2004 in accordance with generally accepted government auditing standards.\",\n \"SBR represents the first time that DOD has taken the lead on developing a major national security space capability with the intelligence community as a partner. Because of this partnership, SBR’s acquisition process is more complex than that used for typical DOD programs. While DOD and the intelligence community will likely use all the data that SBR produces, their priorities differ. DOD’s warfighting community is particularly interested in tracking targets moving over land or sea as well as other objects of interest. The intelligence community is more focused on obtaining detailed global imagery and combining it with other data for advanced processing. SBR is expected to meet both needs and be fully integrated with other space and non-space systems, including TCA, which is to transmit SBR’s data to receivers in the air, at sea, or on the ground. A key advantage of radar in space is having the ability to “see” through clouds and sand storms and any type of weather, day or night. Radar-equipped aircrafts, on the other hand, require U.S. air dominance to collect radar information and must steer clear of hostile areas—the result being limited radar coverage.\",\n \"The SBR concept offers other added features, including electronic steering of the radar signal toward a particular area and capturing high volumes of very fine resolution radar images of targets and terrain. With the ability to perform these functions almost simultaneously, SBR is expected to help analysts gain a better understanding of what is occurring in specific locations. To help meet some of its goals, DOD plans to leverage key technologies that were developed in the late 1990s to demonstrate a space-based radar capability. According to DOD officials, contractors developed some satellite hardware and prototype components under the Discoverer II program, which began in 1998 and was to identify and validate by 2008 the capability of tracking mobile ground targets from space. Discoverer II, comprising two radar demonstration satellites, was a joint initiative by the Air Force, DOD’s Defense Advanced Research Projects Agency, and the intelligence community’s National Reconnaissance Office. DOD officials told us that the Discoverer II program had reached the preliminary design review phase when it was cancelled in 2000 because of cost and schedule uncertainties, poorly explained requirements, and the lack of a coherent vision to transition the system to operational use.\",\n \"The Secretary of Defense concluded that space-based radar could provide a military advantage and in 2001 approved SBR as a new major defense acquisition program, delegating it to the Air Force. In July 2003, an independent cost assessment team consisting of representatives from DOD and the intelligence community estimated that $28.6 billion would be needed to pay for SBR’s life-cycle costs—development, production, launch, and operation. The program entered the study phase in August 2003. The Air Force has requested $328 million for SBR in fiscal year 2005 and has programmed about $4 billion for the program from fiscal years 2005 to 2009. Given concerns about affordability and readiness, the Fiscal Year 2005 Defense Appropriations Conference Report reduced funding for SBR to $75 million, with the direction to return this effort back to the technology development phase. In 2003, Congress reduced the Air Force’s $274 million budget request for SBR by $100 million due to concerns about technology maturity and schedule. DOD has scheduled the start of product development for mid-fiscal year 2006, with production starting at the end of fiscal year 2008 and the first satellite to be launched at the end of fiscal year 2012.\",\n \"Figure 1 shows SBR’s acquisition schedule in fiscal years. In the past several decades, DOD’s space acquisitions have experienced problems that have driven up costs by hundreds of millions, even billions, of dollars; have stretched schedules by years; and have increased performance risks. In some cases, capabilities have not been delivered to the warfighter after decades of development. Our reports have shown that these problems, common among many weapon acquisitions, are largely rooted in a failure to match the customer’s requirements (desired capabilities) with the developer’s resources (technical knowledge, timing, and funding) when starting an acquisition program. In particular, our past work has shown that for space systems, product development was often started based on a rigid set of requirements that proved to be unachievable within a reasonable development time frame. Other cases involved unstable requirements. In some cases where requirements had been identified and approved, even more requirements were added after the program began. When technology did not perform as planned, adding resources in terms of time and money became the primary option for solving problems because the customer’s expectations about the product’s performance capabilities already had been set.\",\n \"The path traditionally taken by space programs—and other DOD weapon system programs—stands in sharp contrast to that taken by leading commercial firms. Our extensive body of work shows that leading companies use a product development model that helps reduce risks and increase knowledge when developing new products. This best practices model enables decision makers to be reasonably certain about their products at critical junctures during development and helps them make informed investment decisions. This knowledge-based process can be broken down into three cumulative knowledge points. Knowledge point 1: A match must be made between the customer’s requirements and the developer’s available resources before product development starts. As noted earlier, DOD plans to start SBR product development in 2006. Knowledge point 2: The product’s design must be stable and must meet performance requirements before initial manufacturing begins. Knowledge point 3: The product must be producible within cost, schedule, and quality targets and demonstrated to be reliable before production begins. Systems engineering is a technical management tool that provides the knowledge necessary at knowledge point 1 to translate requirements into specific, achievable capabilities.\",\n \"With systems engineering knowledge in hand, acquisition decision makers and developers can work together to close gaps between requirements and available resources—well before product development starts. Some gaps can be resolved by the developer’s investments, while others can be closed by finding technical or design alternatives. Remaining gaps—capabilities the developer does not have or cannot get without increasing the price and timing of the product beyond what decision makers will accept—must be resolved through trade-offs and negotiations. Effective use of this tool enables decision makers to move on to knowledge point 2 and to produce a stable product design. DOD has recently issued a new acquisition policy for space systems, partly intended to address past acquisition problems and provide capability to users quicker. However, we recently reported that the policy is not likely to achieve these goals because it allows programs to continue to develop technologies after product development starts. Our past work has shown that this approach makes it more difficult to estimate cost and schedule at the onset of product development and increases the likelihood that programs will encounter technical problems that could disrupt design and production and require more time and money to\",\n \"address than anticipated.\",\n \"Over the long run, the extra investment required to address these problems could reduce funding for developing other technological advances, slow the overall modernization effort, delay capabilities for the warfighter, and force unplanned—and possibly unnecessary—trade-offs between space and other weapon system programs. By contrast, DOD’s revised policy for other weapon acquisitions encourages programs to mature technologies to the point of being tested in an operational environment before beginning product development. We recommended that DOD modify its policy to separate technology development from product development so that needs can be matched with available technology, time, and money at the start of a new program. We also reported that DOD’s space acquisition policy does not require DOD to commit to setting aside funding for space acquisitions. Hence, there is no guarantee that the resources needed to meet requirements will be there on any individual program when needed.\",\n \"This makes it difficult for DOD as a whole to make corporate-level and trade-off decisions— which will likely be needed when DOD begins the SBR acquisition because (1) costs are significantly increasing for other critical space systems such as the Space-Based Infrared System High, the Transformational Satellite, and the Evolved Expendable Launch Vehicle and (2) DOD is planning to undertake additional new programs, such as the Space-Based Space Surveillance system and a new version of the Global Positioning System. DOD is revising its new space acquisition policy partly to address these issues; however, the revision was not available for review at the time of this review. DOD has bolstered the SBR acquisition program by increasing senior leader and stakeholder involvement in setting requirements. However, DOD is not fully documenting commitments made during the requirements approval process before progressing to the next acquisition phase, nor has it established a process to resolve potential disagreements that may occur after approval. Clouding the approval of requirements is that DOD’s current space acquisition policy does not provide specific guidance for acquisitions that involve partnerships between DOD and the intelligence community.\",\n \"Providing senior-level oversight are three new groups created expressly for the SBR program: the Executive Steering Group, which advises the Requirements/Capabilities Group and the Joint Senior Acquisition Group. Members of these groups come from DOD, National Reconnaissance Office, and National Geospatial-Intelligence Agency. All key stakeholders are expected to have open and honest discussions about what can and cannot be done within desired time frames, budgetary constraints, and achievable technologies. Figure 2 shows how these groups work with SBR’s joint program office and requirements review boards for DOD and the intelligence community. A primary benefit of having an oversight structure for the SBR program, which involves many decision makers from across multiple organizations, is that the right people are involved in the decision-making process and can work together to lock in their requirements. The intent is to avoid problems of the past in which a program incurs cost, schedule, and performance risks because decision makers continue to negotiate and make trade-offs even after designers and engineers have started technology development and design work.\",\n \"Figure 3 shows the likely outcomes if requirements are poorly defined and are not approved or, in the case of SBR, if requirements are adequately defined and approved early in the study phase. DOD officials reported to us that the oversight groups have achieved informal consensus on requirements for SBR. However, this approval has not been formalized and it is unclear as to whether and how it might be formalized. Moreover, it is unclear how disagreements that may occur after initial approval will be resolved. Regardless of how many stakeholders have been invited to join in decision making or how much expertise is included in SBR’s oversight function, overall success of the SBR program hinges in part on whether the requirements are clear, stable, and achievable and whether DOD and the intelligence community demonstrate commitment and accountability by formally approving the requirements. In an acquisition decision memorandum, the Under Secretary of the Air Force requested that DOD and the intelligence community approve the initial capabilities document and concept of operations before the request for proposals was released in January 2004 for concept development contracts.\",\n \"DOD officials told us that the Joint Requirements Oversight Council and the intelligence community’s Mission Requirements Board approved the initial capabilities document, and there are memoranda documenting these decisions. The Joint Requirements Oversight Council reviewed the concept of operations, provided comments, but did not approve it. According to DOD officials, during a meeting of the SBR Executive Steering Group, high-level officials from the intelligence community verbally approved the concept of operations, but there is no documentation recording this approval. Agreement is critical because DOD and the intelligence community are placing different emphasis on desired capabilities for SBR. An independent assessment of the SBR program determined that requirements were adequate to enter the study phase, which started in August 2003, but cautioned that the requirements needed to be converged among all stakeholders and users. Table 1 shows the type of knowledge that decision makers expect to gain from the initial capabilities document and the concept of operations. A defined requirements approval process helps decision makers resolve disagreements that may occur and ensure they will remain committed to their decisions after formal approval.\",\n \"Based on our past reports on uncovering problems and our best practice work, we believe that the steps in a formal approval process include: explaining how decision makers’ requirements and comments are obtained and addressed; identifying the officials and/or the organizations responsible for taking specific approval action; establishing a mechanism and time frame for providing approval or establishing a system for addressing unresolved issues as they relate to key program documentation; and assessing changes to approved requirements based on their effect on the program’s cost and schedule. While DOD has taken steps to increase senior leader and stakeholder involvement in setting requirements and addressing acquisition issues, DOD is not fully documenting commitments made during the requirements approval process, nor has it established a process to resolve potential disagreements that may occur after approval. DOD is also taking positive steps to attain the knowledge needed to understand what resources will be needed to develop SBR’s capabilities and to mitigate risks.\",\n \"These include: relying on systems engineering to translate requirements into specific, achievable capabilities and to close gaps between requirements and resources; adopting a more comprehensive cost estimating technique to identify SBR’s life-cycle costs; exploring alternatives for SBR if TCA—the infrastructure that DOD is depending on to transmit SBR’s data—incurs schedule slips; and asking two concept development contractors to each propose at least two different operations concepts for SBR with and without TCA. However, the path that SBR is on has potential for knowledge gaps when making investment decisions, the types of gaps that have hampered other space programs in the past. Specifically, it is expected that some critical SBR technologies will not be mature when product development starts, that is, not tested in a relevant or operational environment. Typical outcomes of this lack of knowledge are significant cost and schedule increases because of the need to fix problems later in development. Furthermore, TCA, a new, more robust communications infrastructure that could transmit SBR’s imagery data much more quickly than the current infrastructure, is facing uncertainties. Specifically, one of TCA’s primary components, the Transformational Satellite, may not be ready in time to support SBR.\",\n \"Without mature technologies and faced with a possible slip in the Transformational Satellite’s schedule, DOD will be less able to accurately estimate total system costs before the start of product development. In addition, DOD and the Air Force may not have knowledge needed to make corporate level trade-offs between SBR and other air-based radar systems at the time it plans to make a commitment to invest in the SBR acquisition program. DOD has undertaken an analysis to weigh the merits of space-based radar. At this time, it is not known whether this analysis will be a detailed examination of the capabilities and costs of each individual radar option and combined with other radar platforms or whether the analysis will be a less rigorous examination of the mix of radar options. DOD is planning to aggressively address technology, affordability, and integration issues by, in part, instituting robust systems engineering processes and procedures. Systems engineering is a technical management tool for gaining information on a broad array of activities related to the development of a system.\",\n \"For SBR, DOD plans to perform systems engineering work on requirements and their allocation, interface definitions, trade studies, risk management, performance analysis and modeling, environmental and safety planning, test planning, program protection planning, information assurance, and configuration control. Applying systems engineering to these activities would give DOD the insight and knowledge it needs to better manage the program, including ways to reduce risk and ensure the viability of concepts and requirements. DOD has also decided to take a more comprehensive approach to estimating SBR’s life-cycle costs. According to the SBR program director, this marks the first time DOD has willingly presented all related costs to develop, acquire, produce, maintain, operate, and sustain the system. DOD officials stated that they wanted to identify not just direct costs, but also costs for associated infrastructure such as the costs related to modifying the ground system that will be used to support SBR as well as other systems. According to DOD, about $8 billion of the $28.6 billion life-cycle cost estimate represents costs that in the past, would not have been included in space program total cost estimates.\",\n \"Taking steps to more comprehensively identify SBR and SBR related costs is a positive step and will help DOD manage its portfolio of space programs. Although DOD hopes to rely on TCA to support SBR data transmissions, it is taking a proactive approach to identify and assess the viability of TCA alternatives. First, in April 2004, DOD awarded two 2-year contracts for concept development efforts that call for the identification of alternatives to TCA. For each alternative identified, the contractor is to conduct an assessment of the cost, risk, and effect on SBR’s performance. DOD officials told us that when SBR initiates product development in 2006, it would know whether TCA will be available to support SBR or whether to pursue a TCA alternative. In addition, DOD also awarded two contracts totaling $510,000 for a yearlong study to propose several alternatives to TCA capable of supporting SBR’s communications requirements and to analyze the viability of such alternatives. These actions have put DOD in a better position to ensure the program is successful. The two 2-year contracts that DOD awarded in April 2004 also require that at least two different viable SBR operations concepts be proposed.\",\n \"DOD is expecting each contractor to fully develop the alternative operations concepts. These alternative concepts could involve using unique radar processing techniques. According to DOD, it will work with each of the contractors to pare down the alternatives to a single best concept for each contractor. For the remainder of the contract performance period, the contractors would focus their attention on fleshing out the details associated with these concepts. This approach will put DOD in a better position when the time comes to select a single contractor to design the SBR system. DOD officials have said that SBR will likely be the most technically challenging, software-intensive, and complex space system ever built by DOD. The two key pieces of hardware needed to give SBR a radar capability from space—the electronically scanned array (which steers the radar signal to an area of interest) and the on-board processor (the radar-processing unit aboard SBR)—face the highest amount of risk. The electronically scanned array can scan multiple areas of interest virtually simultaneously, allowing for simplified satellite design over conventional technology offering mechanical slew radar.\",\n \"The on-board processor is expected to allow the processing radar data to assure the timely and thorough delivery of imagery data that will be downlinked for transmission to the warfighter. To minimize the potential for technology development problems after the start of product development, DOD uses an analytical tool to assess technology maturity for many weapon system acquisition programs. Called Technology Readiness Levels (TRL), this tool associates a TRL with different levels of demonstrated performance, ranging from paper studies to actual application of the technology in its final form. The value of using a tool based on demonstrated performance is that it can presage the likely consequences of incorporating a technology at a given level of maturity into a product’s development, enabling decision makers to make informed choices. Our previous reviews have found the use of TRLs, which range from 1 to 9, to be a best practice. (See app. I for a description of the TRL levels.) The critical technologies that will support the SBR program currently range from TRL 3 to 5. A TRL 3 means that most of the work performed so far has been based on analytical and laboratory studies.\",\n \"At a TRL 5, the basic technology components are integrated and tested in a simulated or laboratory environment. Table 2 shows the current TRL for each of SBR’s critical technologies and the expected TRL at product development start in 2006. In general, the program office’s key risk reduction efforts are scheduled to mature these technologies to TRL 5 by the middle of fiscal year 2006. These efforts include the awarding of research and development contracts to three payload contractors for efforts to continue to develop and mature these components (the electronically scanned array and on-board processor). The period of performance of each contract is about 2.5 years. To mature the electronically scanned array and on-board processor technologies from a TRL 3/4 to 5, the contractors plan to conduct various developmental and integrative tasks in about 3 years. For example, one contractor plans to conduct 18 tasks to develop the electronically scanned array and 8 tasks to integrate the on-board processor with other system components. In addition, the development of the integrated circuits and programmable microcircuits that support the on-board processor requires extensive tests and evaluations and the radiation-hardening requirement further complicates the development.\",\n \"Given the challenges of the state-of-the-art technologies being developed and the algorithms involved, the testing programs must be rigorous and transparent and the results fully documented. We have determined that the time allotted to mature the SBR technologies to TRL 5 is ambitious given the tasks that need to be accomplished. Furthermore, the development of the signal processing algorithms and communications downlink involves significant software development. Based on our past experience of software assessments in other programs, the establishment of a structured testing regime for software development has always been underestimated. By planning to start product development in fiscal year 2006 with technologies at TRL 5, DOD is very likely to continue designing the system and to conduct other program activities at the same time it builds representative models of key technologies and tests them in an environment that simulates space conditions (such as a vacuum chamber). This approach is common with DOD space acquisitions but has a problematic history. Our past work has shown that it can lead to significant cost and schedule increases because of the need to fix problems later in development. A continuing problem is that software needs are poorly understood at\",\n \"the beginning of a program.\",\n \"We have previously recommended that DOD not allow technologies to enter into a weapon system’s product development until they are assessed at a TRL 7, meaning a prototype has been demonstrated in an operational environment. DOD has accepted lower TRL thresholds for space programs because testing in an operational environment—in space, for example, or even in a relevant environment—is difficult and costly. However, DOD’s new space acquisition policy does not identify what the minimum TRL level should be before starting product development for space programs, how risks should be mitigated if technologies are included in programs without full testing, or how lower TRL levels affect the confidence of cost and schedule estimates. Moreover, the policy does not address the option of maturing technologies outside a program and pulling them in once they prove to be viable. One way to mitigate technology risk is to rely on backup technologies, should newer technologies prove to be problematic during product development. According to DOD officials, there are backup technologies that are more mature for each of SBR’s critical technologies. The backups are the same technologies but rely on a previous and more mature version.\",\n \"Using previous versions of these technologies would result in a lower level of desired performance—such as a reduced area collection rate, a reduction in the total number of targets collected per satellite per day, increased product delivery time frames to the user, an increased weight of the spacecraft, and higher cost. For example, more mature versions of the electronically scanned array exist and if used, would result in a reduction in its performance level. In addition, some previous versions of SBR technologies have not been demonstrated or tested in space. But according to DOD officials, even with backup technologies, the total performance of the SBR system can be maintained through systems engineering trades. DOD says it has been able to leverage some of the key technologies (such as the electronically scanned array) that were under development during the previous effort, Discoverer II, to demonstrate a space-based radar capability. Current plans call for TCA to transmit SBR’s large volume of data to ground-, air-, ship-, and space-based systems. However, one of TCA’s primary components, the Transformational Satellite—which will use technologies that DOD has never before tried in space—is facing uncertainties in its scheduled 2011 launch.\",\n \"DOD started product development for the Transformational Satellite in December 2003 even though technologies were immature. If the Transformational Satellite falters but SBR launches as expected in 2012, then DOD will have a fully operational, new-generation satellite that is missing its primary means of data transmission. Recognizing the challenges, DOD is to decide by November 2004 whether to move forward or delay the Transformational Satellite’s acquisition program and instead procure another Advanced Extremely High Frequency satellite, which already are under development and are based on mature technologies. Our analysis shows that alternatives to TCA may involve a greater reliance on processing aboard the SBR satellites, thereby increasing software development efforts. This approach would reduce the volume of data requiring transmission, allowing conventional satellite systems, such as the Advanced Extremely High Frequency satellites, to handle the transmission. Another likely alternative is to have SBR satellites transmit only selected portions of data, again, so that the Advanced Extremely High Frequency satellite could handle the lower volume of information. Finally, a dedicated system of satellites could be fielded for the sole purpose of transmitting SBR data, significantly increasing program cost and raising affordability issues.\",\n \"Currently, DOD is working closely with officials from the Transformational Satellite program office to evaluate the relative merits of various alternatives and to document the interfaces needed between SBR and the Transformational Satellite for each alternative. During the course of our audit work, SBR program officials met weekly with the Transformational Satellite program’s integrated product teams and were coordinating efforts on a memorandum of agreement on requirements development, joint engineering practices, and studies of air- and space-based options. Based on a notional constellation of nine (plus one spare) satellites operating in low-earth orbit, an independent cost assessment in 2003 put SBR’s cost at the $28.6 billion mark, making SBR the most expensive DOD space system ever built. When this initial cost estimate is revised in 2006, before SBR’s product development starts, DOD is to have decided a number of issues, such as how many satellites are to be acquired, what their capabilities will be, and at what altitude(s) the satellites are to operate. This system refinement allows DOD to develop a more realistic total system cost estimate—a critical knowledge point if a successful match between requirements and resources is to be made.\",\n \"However, if DOD begins product development with less than mature technologies and without knowing the availability of TCA, accurate cost estimates for SBR will be much more difficult to prepare. We have previously reported that improving the reliability of cost estimates is critical and affords DOD decision makers with the appropriate information to decide whether a weapon system is worth the overall investment and whether the time is right to proceed with such an investment. Once a total cost is known, DOD needs to secure the funding so it can design, produce, operate, and sustain the system. DOD may also lack knowledge needed to make a corporate-level decision as to how much it should invest in SBR versus air platforms with similar capabilities at the time it begins the SBR acquisition program. In November 2003, the Air Force completed an analysis of alternatives (AOA) for SBR, which was supposed to evaluate whether space- or air-based radar platforms (such as manned and unmanned aircraft with radar capabilities) or a combination of both are better suited for tracking moving targets on land or at sea and analyze the capabilities and costs of each suitable option.\",\n \"However, DOD officials raised a concern that the AOA only weighed the merits of various space-based solutions. The Air Force decided to undertake a follow-on study to explore the optimal ways to gather information on ground moving targets from radars based in space versus air. The plan is to also use this follow-on study as part of DOD’s preparations for submitting a fiscal year 2006 budget to Congress to secure funding for SBR and other radar systems on air platforms. A more thorough AOA, completed before the start of the study phase, might conceivably have determined that air-based radar could provide many or most of the capabilities promised by space-based radar but at a fraction of the cost. Moreover, this type of analysis could help DOD officials better decide whether SBR should be initiated at a later date, when critical technologies will have been matured, or when the communications infrastructure to support SBR will be available. DOD officials have mentioned other ongoing studies that are examining the optimal mix between SBR and other platforms for specific capabilities, such as ground-moving target indication.\",\n \"However, it is unclear as to the extent these studies will be factored into the SBR product development start decision. DOD has recently embarked on a discovery and exploration phase for its SBR program. During this period, it is critical for programs to work toward closing knowledge gaps about requirements, technologies, funding, and other resources so they can be positioned to succeed when DOD decides to commit to making significant investments. For SBR, this would mean testing technologies to the point of knowing they can work as intended before starting program development, securing agreement on requirements with the intelligence community, and fully assessing the cost and benefits and risks of relying on TCA and alternatives, including different mixes of air and space-based platforms. DOD is taking positive steps toward this end, but without maturing critical technologies or securing formal commitment on requirements, it will not be able to assure decision makers that the program can be completed within cost and schedule estimates.\",\n \"Should DOD decide to proceed on a path that leaves open important questions, including those about technologies, then it should do so with (1) assessments of technical risks and what additional resources (in terms of time and money) would be needed to address problems that may occur during development as well as what trade-offs would need to be made with other space programs should DOD need to invest additional resources in SBR, and (2) a formal commitment for providing additional resources if problems do occur. To better ensure that DOD and its intelligence community partners obtain the additional knowledge they need to determine whether and when to begin the SBR acquisition program, we recommend that the Secretary of Defense direct the Under Secretary of the Air Force to: Direct the SBR Executive Steering Group to ensure that outcomes from the requirements management process are formally approved and documented as the program proceeds through product development before an investment is made beyond technology and concept development for the SBR program. This group should identify how key document review comments are to be obtained and addressed and identify all the officials and/or organizations responsible for taking specific approval\",\n \"action.\",\n \"In addition, the group should establish a mechanism and time frame for providing approval/disapproval. Finally, the group should establish a formal mechanism for addressing unresolved issues as they relate to key program documentation, as well as how changes to approved requirements will be assessed. Modify DOD’s space acquisition policy to reflect protocols for setting requirements when DOD undertakes programs in partnership with the intelligence community. Delay approval to commit funding to product development (key decision point B) for SBR until technologies have been demonstrated in a relevant or operational environment so DOD can more reliably estimate the resources needed to complete the program.\",\n \"If the Under Secretary determines that the program should go forward with less mature technologies, then we recommend that the Under Secretary (1) undertake an assessment of the backup technologies that may lessen capability and add cost to the program and the additional time and money that may be required to meet SBR’s performance objectives to address those risks, (2) undertake an assessment of trade-offs that may need to be made with other space programs to assure SBR’s successful outcome, and (3) secure formal commitments from DOD to provide funding for total estimated costs as well as costs estimated to address potential technical risks. Strengthen the ongoing study of options for tracking ground-moving targets by ensuring this work includes: (1) a full range of air and space options; (2) measures of effectiveness that would help justify choosing SBR over air options; and (3) the possibility of having to rely on TCA alternatives for space options. This work should also consider the results of analyses being conducted by other DOD entities on tracking ground- moving targets.\",\n \"We received written comments on a draft of this report from the Deputy Under Secretary of Defense (Programs, Requirements, and Resources) within the Office of the Under Secretary of Defense for Intelligence. DOD generally agreed with our findings and our recommendation to strengthen its study of SBR alternatives. DOD partially agreed with our recommendations to strengthen its requirement setting process for SBR and to demonstrate SBR technologies in a relevant or operational environment before committing to product development. DOD did not agree with our recommendation to modify its acquisition policy to strengthen requirements setting. In commenting on our recommendations, DOD agreed in principle with the need to extensively define, analyze, and validate requirements for SBR, but it did not believe this necessitated a different requirements setting process than the one that is in place for SBR or changes to its space acquisition policy or that additional controls were needed within the program’s study phase. To clarify, our recommendation was not intended to construct a new requirements setting process or supplant activities undertaken by the Joint Requirements Oversight Council or the Mission Requirements Board, as DOD asserts.\",\n \"Rather, we recommend that DOD build on the positive requirements setting procedures it has already put in place by instituting controls and mechanisms that ensure transparency, discipline, and accountability with requirements setting. As noted in our report, while DOD has taken steps to increase senior leader and stakeholder involvement in requirements setting, it is not fully documenting commitments made during the requirements approval process, nor has it established a process to resolve potential disagreements that may occur after approval. It is important that this discipline be instilled in the study phase and throughout the SBR effort. As noted in previous reports, many space programs have not been executed within cost and schedule estimates because of an inability to establish firm requirements and to make and enforce trade-off decisions. For SBR, the potential for difficulty in requirements setting is higher because of the distinct needs of the intelligence community and DOD’s desire to integrate SBR with other radar platforms.\",\n \"Moreover, revising the acquisition policy to clearly communicate protocols that should be followed when DOD undertakes space programs in the future involving diverse users—such as the intelligence community, military services, industry, and/or other agencies—would further help DOD to rationalize requirements setting and to solidify relationships with users, which DOD reported was a top SBR management issue. In regard to our recommendation to delay product development until SBR technologies are sufficiently matured, DOD stated that it has planned for critical and most other enabling technologies to be demonstrated at least at the component level in a relevant environment on the ground. DOD also stated that where technically feasible and fiscally feasible, it planned to pursue on-orbit demonstrations. It also stated it has taken some actions relating to our recommendation such as accounting for technical risks in the costing and budgeting process. DOD asserted, however, that our recommendation encourages pursuit of older, more proven, technologies.\",\n \"We recommended that DOD pursue relevant or operational environment demonstrations of all critical technologies and even an integrated system before committing to a formal acquisition program because this practice enables a program to align customer expectations with resources, and therefore minimize problems that could hurt a program in its design and production phase and drive up costs and schedule. Further, we agree that continuing to develop leading edge technology is important for space system capabilities. However, history has shown and we have repeatedly reported that conducting technology development within a product environment consistently delays the delivery of capability to the user, robs other programs of necessary funds through unanticipated cost overruns, and, consequently, can result in money wasted and fewer units produced than originally stated as necessary. A technology development environment is more forgiving and less costly than a delivery-oriented acquisition program environment. Events such as test “failures,” new discoveries, and time spent in attaining knowledge are considered normal in this environment. Further, judgments of technology maturity have proven to be insufficient as the basis for accurate estimates of program risks as it relates to cost, schedule, and capability.\",\n \"Lastly, our report noted that DOD was taking positive actions to gain knowledge about technology readiness, including strengthening systems engineering, undertaking risk assessments, and assessing various technical concepts. Given the potential cost of the program, our recommendation focuses on taking these steps further by assessing what trade-offs may need to be made with other space programs should the program encounter technical problems that require more time and money than anticipated and securing commitments to provide resources needed to address such problems. DOD’s detailed comments are provided in appendix II. We plan to provide copies of this report to the Secretary of Defense, the Secretary of the Air Force, and interested congressional committees. We will make copies available to others upon request. In addition, the report will be available on the GAO Web site at http://www.gao.gov. If you or your staff has any questions concerning this report, please contact me at (202) 512-4841 or Arthur Gallegos at (303) 572-7368. Other key contributors to the report include Tony Beckham, Cristina Chaplain, Lily Chin, Maria Durant, Nancy Rothlisberger, and Hai V. Tran. Appendix I: TRL Scale for Assessing Critical Technologies Lowest level of technology readiness.\",\n \"Scientific research begins to be translated into applied research and development (R&D). Examples might include paper studies. Invention begins. Once basic principles are observed, practical applications can be invented. Examples are still limited to paper studies. Active R&D is initiated. This includes analytical studies and laboratory studies to physically validate analytical predictions of separate elements of the technology. Examples include components that are not yet integrated or representative. Basic technological components are integrated to establish that they will work together. This is relatively “low fidelity” compared to the eventual system. Examples include integration of “ad hoc” hardware in a laboratory. Fidelity of breadboard technology increases significantly. Basic technological components are integrated with reasonably realistic supporting elements so that the technology can be tested in simulated environment. Examples include “high fidelity” laboratory integration of components. Representative model or prototype system, which is well beyond the breadboard tested for level 5, is tested in a relevant environment. Represents a major step up in a technology’s demonstrated readiness. Examples include testing a prototype in a high-fidelity laboratory environment or in a simulated operational environment. Prototype near, or at, planned operational system.\",\n \"Represents a major step up from TRL 6, requiring demonstration of an actual system prototype in an operational environment such as an aircraft, vehicle, or space. Technology has been proven to work in its final form and under expected conditions. In almost all cases, this TRL represents the end of true system development. Examples include Developmental Test and Evaluation of the system in its intended weapon system to determine if it meets design specifications. Actual application of the technology in its final form and under mission conditions, such as those encountered in Operational Test and Evaluation. Examples include using the system under operational mission conditions. The following are GAO’s comments on the Department of Defense’s letter dated June 29, 2004. 1. DOD stated that DOD does not require formal approval for the concepts of operations from the Joint Requirements Oversight Council or the Mission Requirements Board, but noted that the Joint Requirements Oversight Council communicated agreement in a memo.\",\n \"As we reported, the Under Secretary of the Air Force requested that both DOD and the intelligence community approve the initial capabilities document and concept of operations in light of the complexity of SBR’s acquisition process, the partnership with the intelligence community, and the proposed integration with other radar platforms. 2. DOD stated that it is not engaged in a partnership with the intelligence community on SBR, as our report states. Specifically, DOD stated that SBR is wholly funded in the defense budget and that a programmatic commitment with the intelligence community does not exist. DOD’s SBR System Acquisition Strategy was signed by senior-level officials from DOD, National Reconnaissance Office, and the National Geospatial-Intelligence Agency and approved on January 14, 2004. This strategy states that the Air Force, in close partnership with the National Reconnaissance Office and National Geospatial-Intelligence Agency, is responsible for leading development of an SBR capability. This strategy further identifies the responsibilities related to SBR that each mission partner (National Reconnaissance Office and National Geospatial-Intelligence Agency) is supposed to carry out. We disagree with DOD’s assertion that these organizations must provide funding to SBR in order to consummate a partnership.\",\n \"Because SBR is being justified on the basis of the system’s ability to provide intelligence, surveillance, and reconnaissance products to both DOD and the intelligence community, the part of the budget used is not relevant to our finding. 3. To clarify, we did not recommend that DOD pursue lower risk technologies that would result in lower levels of desired performance. Instead, we reported that DOD might have to resort to using backup technologies if the current ones prove to be problematic during product development. We recommended that DOD should assess the cost to the program of having to use the backup technologies DOD has already identified in terms of time and money. The Government Accountability Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability.\",\n \"The fastest and easiest way to obtain copies of GAO documents at no cost is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts newly released reports, testimony, and correspondence on its Web site. To have GAO e-mail you a list of newly posted products every afternoon, go to www.gao.gov and select “Subscribe to Updates.”\"\n]","isConversational":false}}},{"rowIdx":10895,"cells":{"id":{"kind":"string","value":"train_10895"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"This testinony discusses the Department of Veterans Affairs (VA) pension program, which provides economic benefits to wartime veterans age 65 and older or who have disabilities that are unrelated to their military service, as well as to their surviving spouses and dependent children. To qualify for VA pension benefits, a claimant must have limited income and assets. Recently, concerns have been raised that some organizations are marketing financial products and other services to help individuals whose assets exceed the programs financial eligibility thresholds qualify for these benefits. These organizations may charge substantial fees for products and services that may not always be in claimants best long-term interests. In our report released today on VAs pension program, we identified vulnerabilities in VAs procedures for assessing financial eligibility. We also found that there is no prohibition on claimants transferring assets prior to applying for benefits, and some claimants do so. Other means-tested programs, such as Medicaid, conduct a look-back review to determine if an individual has transferred assets for less than fair market value, and if so, may deny eligibility for benefits for a period of time. This control helps ensure that only those in financial need receive benefits. This testimony is based on our report and focuses on what is known about organizations that are marketing financial products and services to veterans and survivors to enable them to qualify for VA pension benefits. In summary, we identified over 200 organizations that market financial and estate planning services to help pension claimants with excess assets qualify for pension benefits. These organizations consist primarily of financial planners and attorneys who offer products such as annuities and trusts. All 19 organizations our investigative staff contacted said a claimant can qualify for pension benefits by transferring assets before applying, which is permitted under the program. Two organization representatives said they helped pension claimants with substantial assets, including millionaires, obtain VAs approval for benefits. Some products and services provided, such as deferred annuities, may not be suitable for the elderly because they may not have access to their funds within their expected lifetime without facing high withdrawal fees. Also, such asset transfers may result in ineligibility for Medicaid coverage for long-term care for a period of time. The majority of the 19 organizations contacted charged fees, ranging from a few hundred dollars for benefits counseling to $10,000 for establishment of a trust. In our report we asked Congress to consider establishing a look-back and penalty period for pension claimants who transfer assets prior to applying for pension benefits, similar to other federally supported means-tested programs, such as Medicaid. We also recommended that VA obtain timely information on asset transfers, strengthen income and asset verification processes, and provide clearer guidance to claims processors. VA concurred with our recommendations and agreed that a look back and penalty period for asset transfers was needed."},"documents":{"kind":"list like","value":["In fiscal year 2011, VA provided about $ 4.3 billion in pension benefits for about 517,000 recipients. These benefits are available to low-income wartime veterans who are 65 and older, or who are under age 65 but are permanently and totally disabled due to conditions unrelated to their military service. Surviving spouses and dependent children may also qualify for these benefits. Average annual payments in fiscal year 2011 were $9,669 for veterans and $6,209 for survivors. VA provides pension benefits through its Veterans Benefits Administration (VBA), and claims processors assess claims at VBA’s three PMCs. VA also accredits representatives of veterans service organizations, attorneys, and claims agents to assist claimants with the preparation and To become accredited, an submission of VA claims at no charge. individual must meet certain requirements set forth in federal law. To qualify for pension benefits, claimants’ countable income must not exceed annual pension limits that are set by statute.","These income limits are also the maximum annual pension payment that a beneficiary may receive and may vary based on whether claimants are veterans or survivors, their family composition, as well as whether they need enhanced benefits, such as aid and attendance or housebound benefits.example, to qualify for pension benefits in 2012 a veteran with no dependents and who is in need of aid and attendance benefits cannot have income that exceeds $20,447. In determining if a claimant’s income is below program thresholds, VA includes recurring sources of income such as Social Security retirement and disability benefits, but not income from public assistance programs such as Supplemental Security Income (SSI). See 38 C.F.R. § 3.275. For claimants who are veterans, VA also assesses the net worth of the veteran’s spouse to determine financial eligibility. determine if claimants’ financial resources are sufficient to pay for their expenses without assistance from VA. VA pension claimants may also be eligible for other means-tested programs, such as Medicaid, a joint federal-state health care financing program that provides coverage for long-term care services for certain individuals who meet specific income and resource thresholds.","Each state administers its Medicaid program and establishes specific income and resource eligibility requirements that must fall within federal standards. Similarly, the SSI program provides cash benefits to individuals who are 65 or older, blind, or disabled who have limited income and whose resources are $2,000 or less. We identified over 200 organizations located throughout the country that market their services to help veterans and their surviving spouses qualify for VA pension benefits by transferring or preserving excess assets. These organizations consist primarily of financial planners and attorneys offering products and services such as annuities and the establishment of trusts, to enable potential VA pension claimants with excess assets to meet financial eligibility criteria for VA pension benefits. For example, one organization’s website advertised that it develops financial plans which include various insurance products, and that its specific area of expertise is to help VA pension claimants with hundreds of thousands of dollars in assets obtain approval for these benefits.","Under current federal law and regulations, VA pension claimants are allowed to transfer assets and reduce their net worth prior to applying for benefits, so services being marketed and provided by these organizations to qualify for VA pension benefits are legally permissible under program rules. In contrast, for Medicaid—another means tested program—federal law explicitly restricts eligibility for coverage for long term care for certain individuals who transfer assets for less than fair market value prior to applying., As a result, when an individual applies for Medicaid coverage for long-term care, states conduct a look-back—a review to determine if the applicant transferred assets for less than fair market value prior to applying. Individuals who have transferred assets for less than fair market value during the 60 months prior to applying may be denied eligibility for long- term care coverage for a period of time, known as the penalty period. For example, gifting assets would generally be considered a transfer of assets for less than fair market value and result in a penalty period.","Also, under the SSI program, claimants who transfer assets for less than fair market value prior to applying may become ineligible for these benefits for up to 36 months. During our investigative calls, all 19 organizations correctly noted that pension claimants can legally transfer assets prior to applying. They indicated it is possible to qualify for VA pension benefits despite having excess assets, and almost all provided information on how to transfer these assets. (See figure 1 for transcript excerpts of calls with organizations on services they provide to qualify for VA pension benefits.) A number of different strategies may be used to transfer pension claimants’ excess assets so that they meet financial eligibility thresholds. Among the 19 organizations our investigative staff contacted, about half advised transferring excess assets into an irrevocable trust with a family member as the trustee to direct funds to pay for the veteran’s expenses. A similar number also advised placing excess assets into some type of annuity. Among these, several advised placing excess assets into an immediate annuity that generates income for the client. In employing this strategy, assets that VA would count when determining financial eligibility for pension benefits are","converted into monthly income.","This monthly income would fall below program thresholds and enable the claimant to still qualify for the benefits. About one-third of the organizations recommended strategies that included the use of both annuities and trusts. For example, one organization we contacted advised repositioning some excess assets into an irrevocable trust, with the son as the trustee, and placing remaining excess assets into a deferred annuity that would not be completely accessible, since most of the funds could not be withdrawn without a penalty. In addition, several organization representatives we interviewed also told us they may advise using caretaker agreements to enable a client to qualify for VA pension benefits. Organizations told us this strategy generally involves the pension claimant transferring assets to family members as part of a contract, in exchange for caretaker services to be provided by these family members for the remainder of the claimant’s lifetime. Some organization representatives we interviewed told us that transferring assets to qualify for VA pension benefits is advantageous for elderly pension claimants because it enables them to have more income to pay for care expenses and remain out of a nursing home for a longer period of time.","For example, representatives from one organization said the use of immediate income annuities allows pension claimants to increase their monthly income that, combined with the VA pension, could help pay for assisted living or in-home care costs. Other financial planners and attorneys said if claimants do not conduct financial or estate planning to qualify for the VA pension and instead spend down their assets prior to applying, the monthly amount of the pension benefit they eventually receive may be insufficient to pay for their long-term care. They said that, as a result, these claimants may decide to seek Medicaid coverage for nursing home care because of their lack of financial resources, when they could have remained in an assisted living facility or at home with the aid of the VA pension. Some of these organizations told us that nursing home care financed by Medicaid is more costly for the government than if the veteran had received the VA pension benefit and obtained care in a lower-cost assisted living facility. Many organizations we identified also conduct presentations on VA pension benefits at assisted living or retirement communities to identify prospective clients.","According to attorneys and officials from state attorneys general offices we spoke with, managers of assisted living facilities or retirement communities may have an interest in inviting organization representatives to conduct presentations on VA pension benefits because these benefits allow them to obtain new residents by making the costs more affordable. For example, we obtained documentation indicating that one retirement community paid an organization representative a fee for a new resident he helped the facility obtain. Another community in another state paid organization representatives fees to assist residents in completing the VA pension application. Some products may not be suitable for elderly veterans because they may lose access to funds they may need for future expenses, such as medical care. To help elderly clients become financially eligible for VA pension benefits, some organizations may sell deferred annuities which would make the client unable to access the funds in the annuity during their expected lifetime without facing high withdrawal fees, according to some attorneys we spoke with.","An elderly advocacy organization representative we spoke with also noted that elderly individuals are impoverishing themselves by purchasing these products when they may need the transferred assets to pay for their long-term care expenses. As part of our investigative work, one organization provided a financial plan to qualify for VA pension benefits that included both an immediate annuity as well as a deferred annuity for an 86-year-old veteran that would generate payments only after the veteran’s life expectancy. Some organizations that assist in transferring assets to qualify people for VA pension benefits may not consider the implications of these transfers on eligibility for Medicaid coverage for long-term care. Individuals who transfer assets to qualify for the VA pension may become ineligible for Medicaid coverage for long-term care services they may need in the future. For example, asset transfers that may enable someone to qualify for the VA pension program, such as gifts to someone not residing in a claimant’s household, the purchase of deferred annuities, or the establishment of trusts, may result in a delay in Medicaid eligibility if the assets were transferred for less than fair market value during Medicaid’s 60-month look-back period.","According to several attorneys we spoke with, some organization representatives are unaware or are indifferent to the adverse effects on Medicaid eligibility of the products and services they market to qualify for the VA pension. As a result, potential pension claimants may be unaware that the purchase of these products and services may subsequently delay their eligibility for Medicaid. In addition to the potential adverse impact of transferring assets, we heard concerns that marketing strategies used by some of these companies may be misleading. According to several attorneys we spoke with, some organization representatives market their services in a way that may lead potential pension claimants and their family members to believe they are veterans advocates working for a nonprofit organization, or are endorsed by VA. As a result, they may fail to realize these representatives are primarily interested in selling financial products. For example, some organization representatives may tell attendees during presentations at assisted living facilities that their services consist of providing information on VA pension benefits and assisting with the application, and do not disclose they are insurance agents selling annuities to help people qualify for these benefits.","One elder law attorney we spoke with said many attendees at these presentations may have Alzheimer’s disease or dementia and are not in a position to make decisions about their finances. Therefore, they are vulnerable to being convinced that they must purchase a financial product to qualify for these benefits. Concerns have also been raised that VA’s accreditation of individuals to assist with applying for VA benefits may have unintended consequences. According to attorneys and officials in one state, organization representatives use their VA accreditation to assist in preparing claims as a marketing tool that generates trust and allows them to attract clients. Claimants may not understand that this accreditation only means that the individual is proficient in VA’s policies and procedures to assist in preparing and submitting VA benefits claims and does not ensure the products and services these individuals are selling are in claimants’ best interests. Finally, some organizations may provide erroneous information to clients, or fail to follow through on assisting them with submitting the pension application, which can adversely affect pension claimants.","For example, one veteran said he was told by an organization representative to sell his home prior to applying for the VA pension and that he did not have to report the proceeds from the sale on the application. He followed this advice and was approved for benefits, but VA later identified these assets, which caused him to incur a debt to VA of $40,000 resulting from a benefit overpayment. Organizations may also promise assistance with the application process to any interested pension claimant but, unbeknownst to the claimant, may not follow through in providing this service if the claimant does not want to transfer assets. For example, the daughter of a veteran we spoke with, who sought application assistance from an organization representative, told us the representative never submitted her father’s pension claim to VA as promised. She learned of this about a year after she thought the claim was submitted and had to reapply through a county veterans service officer. Her father was approved 2 months later but passed away less than a month after his approval.","She believes her father could have received benefits for a year if the representative had submitted the claim, and believes the representative did not do so because she did not want to use his services to transfer assets. The costs of services provided by these organizations to assist in qualifying for VA pension benefits varied, but organizations may be charging prohibited fees. Among the 19 organizations our investigative staff contacted for this review, about one-third said they did not charge for their services to help qualify claimants for VA pension benefits. For example, financial planners told us that, generally, there are no direct costs associated with transferring assets into an annuity, but that costs would be included in the terms of the annuity, such as the commission earned by the insurance agent. Among organizations that did charge for services, fees ranged from a few hundred dollars for benefits counseling up to $10,000 for the establishment of a trust.","Also, although federal law prohibits charging fees to assist in completing and submitting applications for VA benefits, representatives from veterans advocacy groups and some attorneys we spoke with raised concerns that these organizations may be charging for fees related to the application, or find ways to circumvent this prohibition, such as by claiming they are charging for benefits counseling. For example, one organization our investigative staff contacted charged $850 to have an attorney work on the application process, a $225 analysis fee, and $1,600 for the establishment of a trust. Another organization representative indicated he charged a “long term planning fee” of $1,200 to be paid prior to services being provided. The organization representative asked that someone other than the veteran pay this fee, claiming that only disinterested third parties can be charged fees but not the veteran. Also, in a case identified by officials in one state, a veteran was charged $3,000 by an individual for assistance in applying for VA pension benefits which were ultimately denied. In addition, concerns have been raised that fees charged may be excessive for the services provided.","For example, in July 2011, California enacted a law generally prohibiting unreasonable fees from being charged for these services. The VA pension program provides a critical benefit to veterans, many of whom are elderly and have limited financial resources to support themselves. Current federal law allows individuals to transfer assets prior to applying for VA pension benefits and still be approved. As a result, claimants who have sufficient assets to pay for their expenses can transfer these assets and qualify for this means-tested benefit. This arrangement circumvents the intended purpose of the program and wastes taxpayer dollars. A number of organizations help claimants with these asset transfers, but some of the products and services provided may have adverse implications for the claimant such as delaying eligibility for Medicaid coverage for long-term care or causing claimants to lose access to their financial resources. Accordingly, we asked Congress to consider establishing a look-back and penalty period for pension claimants who transfer assets at less than fair market value prior to applying for pension benefits, similar to other federally supported means- tested programs. Chairman Kohl, Ranking Member Corker, and Members of the Committee, this concludes my prepared statement.","I would be pleased to answer any questions that you may have at this time. For further information about this testimony, please contact Daniel Bertoni at (202) 512-7215 or bertonid@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Other key contributors to this testimony include Jeremy Cox, Paul Desaulniers, Alex Galuten, Nelson Olhero, Martin Scire, and Walter Vance. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately."],"string":"[\n \"In fiscal year 2011, VA provided about $ 4.3 billion in pension benefits for about 517,000 recipients. These benefits are available to low-income wartime veterans who are 65 and older, or who are under age 65 but are permanently and totally disabled due to conditions unrelated to their military service. Surviving spouses and dependent children may also qualify for these benefits. Average annual payments in fiscal year 2011 were $9,669 for veterans and $6,209 for survivors. VA provides pension benefits through its Veterans Benefits Administration (VBA), and claims processors assess claims at VBA’s three PMCs. VA also accredits representatives of veterans service organizations, attorneys, and claims agents to assist claimants with the preparation and To become accredited, an submission of VA claims at no charge. individual must meet certain requirements set forth in federal law. To qualify for pension benefits, claimants’ countable income must not exceed annual pension limits that are set by statute.\",\n \"These income limits are also the maximum annual pension payment that a beneficiary may receive and may vary based on whether claimants are veterans or survivors, their family composition, as well as whether they need enhanced benefits, such as aid and attendance or housebound benefits.example, to qualify for pension benefits in 2012 a veteran with no dependents and who is in need of aid and attendance benefits cannot have income that exceeds $20,447. In determining if a claimant’s income is below program thresholds, VA includes recurring sources of income such as Social Security retirement and disability benefits, but not income from public assistance programs such as Supplemental Security Income (SSI). See 38 C.F.R. § 3.275. For claimants who are veterans, VA also assesses the net worth of the veteran’s spouse to determine financial eligibility. determine if claimants’ financial resources are sufficient to pay for their expenses without assistance from VA. VA pension claimants may also be eligible for other means-tested programs, such as Medicaid, a joint federal-state health care financing program that provides coverage for long-term care services for certain individuals who meet specific income and resource thresholds.\",\n \"Each state administers its Medicaid program and establishes specific income and resource eligibility requirements that must fall within federal standards. Similarly, the SSI program provides cash benefits to individuals who are 65 or older, blind, or disabled who have limited income and whose resources are $2,000 or less. We identified over 200 organizations located throughout the country that market their services to help veterans and their surviving spouses qualify for VA pension benefits by transferring or preserving excess assets. These organizations consist primarily of financial planners and attorneys offering products and services such as annuities and the establishment of trusts, to enable potential VA pension claimants with excess assets to meet financial eligibility criteria for VA pension benefits. For example, one organization’s website advertised that it develops financial plans which include various insurance products, and that its specific area of expertise is to help VA pension claimants with hundreds of thousands of dollars in assets obtain approval for these benefits.\",\n \"Under current federal law and regulations, VA pension claimants are allowed to transfer assets and reduce their net worth prior to applying for benefits, so services being marketed and provided by these organizations to qualify for VA pension benefits are legally permissible under program rules. In contrast, for Medicaid—another means tested program—federal law explicitly restricts eligibility for coverage for long term care for certain individuals who transfer assets for less than fair market value prior to applying., As a result, when an individual applies for Medicaid coverage for long-term care, states conduct a look-back—a review to determine if the applicant transferred assets for less than fair market value prior to applying. Individuals who have transferred assets for less than fair market value during the 60 months prior to applying may be denied eligibility for long- term care coverage for a period of time, known as the penalty period. For example, gifting assets would generally be considered a transfer of assets for less than fair market value and result in a penalty period.\",\n \"Also, under the SSI program, claimants who transfer assets for less than fair market value prior to applying may become ineligible for these benefits for up to 36 months. During our investigative calls, all 19 organizations correctly noted that pension claimants can legally transfer assets prior to applying. They indicated it is possible to qualify for VA pension benefits despite having excess assets, and almost all provided information on how to transfer these assets. (See figure 1 for transcript excerpts of calls with organizations on services they provide to qualify for VA pension benefits.) A number of different strategies may be used to transfer pension claimants’ excess assets so that they meet financial eligibility thresholds. Among the 19 organizations our investigative staff contacted, about half advised transferring excess assets into an irrevocable trust with a family member as the trustee to direct funds to pay for the veteran’s expenses. A similar number also advised placing excess assets into some type of annuity. Among these, several advised placing excess assets into an immediate annuity that generates income for the client. In employing this strategy, assets that VA would count when determining financial eligibility for pension benefits are\",\n \"converted into monthly income.\",\n \"This monthly income would fall below program thresholds and enable the claimant to still qualify for the benefits. About one-third of the organizations recommended strategies that included the use of both annuities and trusts. For example, one organization we contacted advised repositioning some excess assets into an irrevocable trust, with the son as the trustee, and placing remaining excess assets into a deferred annuity that would not be completely accessible, since most of the funds could not be withdrawn without a penalty. In addition, several organization representatives we interviewed also told us they may advise using caretaker agreements to enable a client to qualify for VA pension benefits. Organizations told us this strategy generally involves the pension claimant transferring assets to family members as part of a contract, in exchange for caretaker services to be provided by these family members for the remainder of the claimant’s lifetime. Some organization representatives we interviewed told us that transferring assets to qualify for VA pension benefits is advantageous for elderly pension claimants because it enables them to have more income to pay for care expenses and remain out of a nursing home for a longer period of time.\",\n \"For example, representatives from one organization said the use of immediate income annuities allows pension claimants to increase their monthly income that, combined with the VA pension, could help pay for assisted living or in-home care costs. Other financial planners and attorneys said if claimants do not conduct financial or estate planning to qualify for the VA pension and instead spend down their assets prior to applying, the monthly amount of the pension benefit they eventually receive may be insufficient to pay for their long-term care. They said that, as a result, these claimants may decide to seek Medicaid coverage for nursing home care because of their lack of financial resources, when they could have remained in an assisted living facility or at home with the aid of the VA pension. Some of these organizations told us that nursing home care financed by Medicaid is more costly for the government than if the veteran had received the VA pension benefit and obtained care in a lower-cost assisted living facility. Many organizations we identified also conduct presentations on VA pension benefits at assisted living or retirement communities to identify prospective clients.\",\n \"According to attorneys and officials from state attorneys general offices we spoke with, managers of assisted living facilities or retirement communities may have an interest in inviting organization representatives to conduct presentations on VA pension benefits because these benefits allow them to obtain new residents by making the costs more affordable. For example, we obtained documentation indicating that one retirement community paid an organization representative a fee for a new resident he helped the facility obtain. Another community in another state paid organization representatives fees to assist residents in completing the VA pension application. Some products may not be suitable for elderly veterans because they may lose access to funds they may need for future expenses, such as medical care. To help elderly clients become financially eligible for VA pension benefits, some organizations may sell deferred annuities which would make the client unable to access the funds in the annuity during their expected lifetime without facing high withdrawal fees, according to some attorneys we spoke with.\",\n \"An elderly advocacy organization representative we spoke with also noted that elderly individuals are impoverishing themselves by purchasing these products when they may need the transferred assets to pay for their long-term care expenses. As part of our investigative work, one organization provided a financial plan to qualify for VA pension benefits that included both an immediate annuity as well as a deferred annuity for an 86-year-old veteran that would generate payments only after the veteran’s life expectancy. Some organizations that assist in transferring assets to qualify people for VA pension benefits may not consider the implications of these transfers on eligibility for Medicaid coverage for long-term care. Individuals who transfer assets to qualify for the VA pension may become ineligible for Medicaid coverage for long-term care services they may need in the future. For example, asset transfers that may enable someone to qualify for the VA pension program, such as gifts to someone not residing in a claimant’s household, the purchase of deferred annuities, or the establishment of trusts, may result in a delay in Medicaid eligibility if the assets were transferred for less than fair market value during Medicaid’s 60-month look-back period.\",\n \"According to several attorneys we spoke with, some organization representatives are unaware or are indifferent to the adverse effects on Medicaid eligibility of the products and services they market to qualify for the VA pension. As a result, potential pension claimants may be unaware that the purchase of these products and services may subsequently delay their eligibility for Medicaid. In addition to the potential adverse impact of transferring assets, we heard concerns that marketing strategies used by some of these companies may be misleading. According to several attorneys we spoke with, some organization representatives market their services in a way that may lead potential pension claimants and their family members to believe they are veterans advocates working for a nonprofit organization, or are endorsed by VA. As a result, they may fail to realize these representatives are primarily interested in selling financial products. For example, some organization representatives may tell attendees during presentations at assisted living facilities that their services consist of providing information on VA pension benefits and assisting with the application, and do not disclose they are insurance agents selling annuities to help people qualify for these benefits.\",\n \"One elder law attorney we spoke with said many attendees at these presentations may have Alzheimer’s disease or dementia and are not in a position to make decisions about their finances. Therefore, they are vulnerable to being convinced that they must purchase a financial product to qualify for these benefits. Concerns have also been raised that VA’s accreditation of individuals to assist with applying for VA benefits may have unintended consequences. According to attorneys and officials in one state, organization representatives use their VA accreditation to assist in preparing claims as a marketing tool that generates trust and allows them to attract clients. Claimants may not understand that this accreditation only means that the individual is proficient in VA’s policies and procedures to assist in preparing and submitting VA benefits claims and does not ensure the products and services these individuals are selling are in claimants’ best interests. Finally, some organizations may provide erroneous information to clients, or fail to follow through on assisting them with submitting the pension application, which can adversely affect pension claimants.\",\n \"For example, one veteran said he was told by an organization representative to sell his home prior to applying for the VA pension and that he did not have to report the proceeds from the sale on the application. He followed this advice and was approved for benefits, but VA later identified these assets, which caused him to incur a debt to VA of $40,000 resulting from a benefit overpayment. Organizations may also promise assistance with the application process to any interested pension claimant but, unbeknownst to the claimant, may not follow through in providing this service if the claimant does not want to transfer assets. For example, the daughter of a veteran we spoke with, who sought application assistance from an organization representative, told us the representative never submitted her father’s pension claim to VA as promised. She learned of this about a year after she thought the claim was submitted and had to reapply through a county veterans service officer. Her father was approved 2 months later but passed away less than a month after his approval.\",\n \"She believes her father could have received benefits for a year if the representative had submitted the claim, and believes the representative did not do so because she did not want to use his services to transfer assets. The costs of services provided by these organizations to assist in qualifying for VA pension benefits varied, but organizations may be charging prohibited fees. Among the 19 organizations our investigative staff contacted for this review, about one-third said they did not charge for their services to help qualify claimants for VA pension benefits. For example, financial planners told us that, generally, there are no direct costs associated with transferring assets into an annuity, but that costs would be included in the terms of the annuity, such as the commission earned by the insurance agent. Among organizations that did charge for services, fees ranged from a few hundred dollars for benefits counseling up to $10,000 for the establishment of a trust.\",\n \"Also, although federal law prohibits charging fees to assist in completing and submitting applications for VA benefits, representatives from veterans advocacy groups and some attorneys we spoke with raised concerns that these organizations may be charging for fees related to the application, or find ways to circumvent this prohibition, such as by claiming they are charging for benefits counseling. For example, one organization our investigative staff contacted charged $850 to have an attorney work on the application process, a $225 analysis fee, and $1,600 for the establishment of a trust. Another organization representative indicated he charged a “long term planning fee” of $1,200 to be paid prior to services being provided. The organization representative asked that someone other than the veteran pay this fee, claiming that only disinterested third parties can be charged fees but not the veteran. Also, in a case identified by officials in one state, a veteran was charged $3,000 by an individual for assistance in applying for VA pension benefits which were ultimately denied. In addition, concerns have been raised that fees charged may be excessive for the services provided.\",\n \"For example, in July 2011, California enacted a law generally prohibiting unreasonable fees from being charged for these services. The VA pension program provides a critical benefit to veterans, many of whom are elderly and have limited financial resources to support themselves. Current federal law allows individuals to transfer assets prior to applying for VA pension benefits and still be approved. As a result, claimants who have sufficient assets to pay for their expenses can transfer these assets and qualify for this means-tested benefit. This arrangement circumvents the intended purpose of the program and wastes taxpayer dollars. A number of organizations help claimants with these asset transfers, but some of the products and services provided may have adverse implications for the claimant such as delaying eligibility for Medicaid coverage for long-term care or causing claimants to lose access to their financial resources. Accordingly, we asked Congress to consider establishing a look-back and penalty period for pension claimants who transfer assets at less than fair market value prior to applying for pension benefits, similar to other federally supported means- tested programs. Chairman Kohl, Ranking Member Corker, and Members of the Committee, this concludes my prepared statement.\",\n \"I would be pleased to answer any questions that you may have at this time. For further information about this testimony, please contact Daniel Bertoni at (202) 512-7215 or bertonid@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Other key contributors to this testimony include Jeremy Cox, Paul Desaulniers, Alex Galuten, Nelson Olhero, Martin Scire, and Walter Vance. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.\"\n]","isConversational":false}}},{"rowIdx":10896,"cells":{"id":{"kind":"string","value":"train_10896"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"The Department of Defense (DOD) budgets billions of dollars each year to purchase and repair the spare parts needed to maintain its weapons systems and support equipment. The quality of the spare parts can greatly determine if the Department's investment of funds is effective, efficient, and economical. This report examines the Navy's Product Quality Deficiency Reporting Program and the extent to which the program has gathered the data needed for the analysis, correction, and prevention of deficiencies in spare parts. GAO found that data on parts defects identified at the time of installation were underreported. Data on parts that failed after some operation but before their expected design life were not collected as part of this program. In the quality reports GAO reviewed, some key information was omitted on the cause of the parts' failures and some reports did not identify who was responsible for the defects. To a large extent, the program's ineffectiveness can be attributed to lack of management, limited training and incentives to report deficiencies, and competing priorities for the staff resources needed to carry out the program."},"documents":{"kind":"list like","value":["The Department budgets billions of dollars each year to purchase and repair spare parts and has established various programs to help ensure product quality throughout the acquisition and repair processes. According to Navy and Defense Logistics Agency quality assurance officials, although it is normal in manufacturing processes that some deficient parts will be delivered to the end users, the rate of deficiencies is to be managed and controlled to acceptable levels. In fact, according to these officials, spare parts quality is of greater importance in today’s environment of increased deployments, extended preventive maintenance cycles, and just-in-time deliveries of parts. A Defense Logistics Agency joint-service directive for quality deficiency reporting regulates Department activities. The directive establishes a Department-wide system for the military services and other activities to report, investigate, and correct the causes of individual problems and identify trends and recurring deficiencies. The system is to be used to document the quality of spare parts delivered for use in the maintenance and repair processes and is the key program for documenting quality deficiency data Navy-wide.","When deficient parts are delivered and are detected by end users, such as military supply or maintenance personnel, these users are required to report the details of the deficiencies under a uniform set of guidelines. Each military service and agency manages its own quality deficiency reporting program. The Navy’s Product Quality Deficiency Reporting Program is designed to document and report unsatisfactory material, initiate corrective action to fix or replace deficient items, grant credit or compensation for items, and take actions to prevent recurrence. The program applies to all Navy activities. Navy activities report quality deficiency data both internally and to a broader program, known as the Product Data Reporting and Evaluation Program, where it is managed as one of several databases. This broader program is a Navy-wide automated system for collecting data on the quality of material and products furnished by contractors. The quality deficiency report is also one of several records used in the Navy’s Red/Yellow/Green Program, another Product Data Reporting and Evaluation Program application used to reduce the risk of receiving nonconforming products and late shipments.","The Assistant Secretary of the Navy for Research, Development, and Acquisition has program authority and sets policy, and the Naval Sea Systems Command administers the Product Quality Deficiency Reporting Program. Navy program executive officers, program managers, and commanders of the naval systems commands are to process quality deficiency reports for their systems and equipment in accordance with instructions and to ensure people are properly trained in reporting deficiencies. Quality deficiency reporting data are generally sent to a screening point, such as the Navy’s Inventory Control Point, for review and forwarding to an appropriate item manager or action point to determine the causes and who is responsible for the deficiencies. Once a determination is made and final disposition occurs, the quality deficiency reporting database is to be updated to reflect the results. The Navy’s Product Quality Deficiency Reporting Program has been largely ineffective in gathering the data needed for analyses so that Navy managers can accurately report on and correct deficiencies in the quality of spare parts being provided to end users, including maintenance personnel in field activities.","Specifically, the program data were incomplete and of limited value because they were underreported, did not include information on parts that failed prematurely, and omitted key data on the causes of failures. To a large extent, the program’s ineffectiveness can be attributed to limited training and incentives to report deficiencies, lack of management emphasis, and competing priorities for the staff resources needed to carry out the program. In addition, a contributing cause of the program’s ineffectiveness may be a lack of Navy-wide visibility into program results. Many deficiencies in the quality of new and rebuilt parts occur that have not been reported to the program. As a result, program data are unreliable and can be misleading in determining the significance of deficient parts and conducting trend analyses. Using information gathered under the program, the Navy produces an annual report summarizing quality deficiency data, such as the number of deficiency reports, the value of deficient material, and related information on new and reworked material, including rebuilt parts. Data system managers said this report is the most comprehensive attempt to collect and analyze Navy-wide quality deficiency data.","The May 2000 report showed that during calendar years 1997-99 the number of deficiency reports averaged about 6,500 per year, representing all parts that were reported as deficient at the time of installation by the Naval Sea Systems Command, the Naval Air Systems Command, and the Naval Supply Systems Command. Each report identified one or more deficient parts to be evaluated for possible quality problems. During our visits to a number of ship and aircraft maintenance and operating units, we were told that not all deficiencies on parts that failed at the time of installation were reported, and we found that the estimated extent of underreporting varied. For example, one ship maintenance unit that handled munitions systems reported most deficiencies. However, an aircraft squadron commander said his unit documented quality deficiency problems and knew of the reporting requirements, but the unit rarely reported these problems to the quality deficiency program because there was no incentive to do so. In addition, Navy supervisor of shipbuilding officials at one facility told us that the full-time position dedicated to quality deficiency reporting had been eliminated and the work was reassigned to another staff member as a collateral duty.","As a result, the number of quality deficiency reports dropped from about 200 each year in calendar years 1997 and 1998 to 34 in calendar year 2000. Also, Navy officials said several major Navy program offices have their own internal systems for handling parts quality deficiencies and do not share this information with the Navy’s quality deficiency reporting program. While these examples are not intended to reflect the experience of all Navy units, they indicate how the data gathered by the program can vary among units based on factors other than the actual numbers of quality deficiencies encountered by maintenance personnel. Various unit commanders indicated that their efforts to report spare parts quality deficiencies were limited because accurate and complete data needed for the reporting process were not available on the failed parts and increased resources would be needed to make meaningful improvements in the availability of these data. Due to the underreporting, the interpretation of program data can be misleading.","For example, in a March 2001 two-page report to the Congress on how the Department planned to improve its quality assurance program, the Principal Deputy Under Secretary of Defense, Acquisition, Technology, and Logistics stated that the Department used product quality deficiency reports as a key method to measure the quality of the products it purchased. The Department stated that it had no evidence of a systemic quality problem and that a decreasing number of investigated quality deficiency reports recorded in recent years may indicate that product quality is getting better. However, after we discussed our findings with the Department about the underreporting of quality deficiencies in the Navy, the Department stated in its report that if user feedback is not input into the system and investigated, due to reduced staffing, this metric fails to be a valid measure. According to Navy and Defense Logistics Agency quality assurance officials, the trend in the number of deficiencies reported may reflect the level of resources dedicated to filling out and analyzing deficiency reports rather than the actual number of deficiencies found by maintenance personnel.","The Navy does not attempt to use the Product Quality Deficiency Reporting Program to collect a major category of quality deficiencies— those involving parts that failed prematurely, that is, after some operation but before the end of their expected design life. Premature failure data are important to determine if there are problems with particular parts or suppliers of parts. Consequently, not knowing the full extent of deficiencies can prevent meaningful analyses of quality problems on a systemwide basis. Under the May 1997 joint-service directive on quality deficiency reporting, the Navy could capture data on premature equipment failures, including parts, as part of its program, as the Army, the Air Force, and the Marine Corps agreed to do. Although the joint-service directive states that it is applicable to a broad range of deficiencies, including premature failures, the Navy did not agree to this application. It has instead used deficiency reporting to identify mainly new or newly reworked parts that fail, as specified in a 1993 version of the joint-service directive.","Navy quality assurance officials said the program was limited to capturing data on those parts because some type of warranty might be involved or they might obtain replacement parts or reimbursements from the suppliers. However, after we discussed this issue with Assistant Secretary of the Navy, Research, Development, and Acquisition officials, they said that premature failures should be included in the Navy program. They said that in April 2001 they approved the Navy’s use of a new draft version of the joint-service directive that includes the requirement to report premature failures as quality deficiencies. While the Navy has not captured data on premature parts failures under the Product Quality Deficiency Reporting Program, Naval Air Systems Command officials said they have attempted to identify these deficiencies through their Engineering Investigation Request Program. However, they said that resource shortages have limited this program mainly to the analysis of mission-critical and safety-of-life requests for engineering investigations, and that as a result, many premature parts failure requests were not analyzed. Without validation and analysis of the causes of these failures, managers are not in a position to take corrective or preventive action.","Furthermore, Naval Air Systems Command-wide data on engineering investigation requests were not available, and reports have not been combined with quality deficiency reports to provide managers with a systemwide view of spare parts problems. According to Navy and Defense Logistics Agency quality assurance officials, premature parts failures are an important aspect of quality, and without this data the Navy is not in a position to completely identify its problems with parts and suppliers. Premature parts failures could indicate problems in design, manufacture, or installation that, if not corrected, could lead to unanticipated parts shortages and increased costs. Quality deficiency reporting data that were collected under the program have been of limited value because they frequently lacked key information on the causes of the parts failures and identification of whom was responsible. Navy and Defense Logistics Agency quality assurance officials said that identifying whether a contractor is responsible for deficiencies is important for obtaining credits or refunds and preventing recurring problems. We reviewed the Navy’s systemwide database of quality deficiencies for the Naval Air, the Naval Sea, and the Naval Supply Systems Commands.","We reviewed the number of reports submitted during calendar years 1997-99 (19,124 reports) and determined their status as of September 20, 2000. We found that in most cases the causes of problems had not been identified in the database and responsibility for the deficiencies had not been determined. Specifically, we found that about 72 percent (13,675) of the reports did not identify the specific causes for the failures, which is information needed for effective corrective and preventive actions, and about 70 percent (13,287) of the reports did not identify who—a private contractor or a Navy or other government activity—was responsible for the deficiencies. According to Navy and Defense Logistics Agency quality assurance officials, analyzing product quality deficiencies to determine causes and responsibilities for failures is often difficult, time-consuming, and staff intensive. They said that the information needed to fill out the deficiency form is not always available, the deficient part might have been damaged or misplaced, or the part may not be forwarded for analysis to determine the cause of the deficiency. Also, a supplier might have provided a replacement part and not identified the cause of the problem. They said problems were more likely among","deployed units.","Officials at units we visited identified similar problems. According to an Assistant Secretary of the Navy, Research, Development and Acquisition official, when the Navy screening points receive a quality deficiency report, they work with the originators to provide the missing descriptive data and decide if an in-depth analysis is needed. If an analysis is needed, other problems may arise such as a lack of access to contractor information, which can prevent a complete analysis of the cause of a quality deficiency. The need for completed quality deficiency reporting to identify cause and responsibility for the deficiencies is important to achieving program results and is especially important for the Navy and the Defense Logistics Agency to obtain some type of credit for deficient parts, where allowed by the parts contract. Credit can involve a contractor providing replacement parts or monetary consideration. Also, determining responsibility is the first step in providing feedback to the supplier that deficient material has been provided, manufacturing or repair processes must be reviewed, and corrective actions may be necessary. Without such a determination, neither credit nor quality parts may be obtained. According to Navy quality assurance officials, this information is also needed for","other Navy programs.","For example, the Navy’s Red/Yellow/Green Program is designed to help reduce the risk of receiving products that do not conform to requirements and late shipments. This program uses quality deficiency reports as one of the key inputs to the evaluation, but only when such reports show that a specific contractor was found to be responsible for the deficiencies in parts. However, since the quality deficiency data we examined were so often incomplete, many of the reports lacked the needed information. According to Navy and Defense Logistics Agency quality assurance officials, the lack of complete and reliable quality deficiency data limits their usefulness in identifying suppliers of deficient parts. In addition to the problems of incomplete and underreported data, concerns about using the data to determine the extent of spare parts quality deficiencies are twofold. First, to be meaningful, the number of quality deficiencies identified should be compared with the total number of parts used, but the data to compute such a deficiency rate are often not available.","Second, even if a deficiency rate could be determined, criteria for determining what constitutes a reasonable deficiency rate for a particular part have not been established for the quality deficiency reporting program as it has been, for example, for the Red/Yellow/Green Program. Navy officials at many levels—maintenance personnel, program officials, quality assurance managers, and Command-level staff—indicated that program ineffectiveness is to some extent the result of a lack of action by Navy management to emphasize the importance of the program to the Navy. In addition, Navy officials identified the following causes of program ineffectiveness: Limited training to supply, maintenance, and key command personnel explaining reporting procedures, types of quality deficiencies to be reported, and benefits to the Navy to be derived from the program. Limited incentives and competing priorities for available staff resources to fill out the quality deficiency reports and do all their other work as well. Lack of Navy-wide visibility into the results being derived from the program. According to Navy quality assurance officials, some training that covers filling out the standardized quality deficiency reporting form has been given, but it has not been effective in encouraging additional quality deficiency reporting.","Navy and Defense Logistics Agency quality assurance officials said that their sailors and their commanders do not receive training on the importance of the quality deficiency reporting program to the Navy. Without such training, reporting quality deficiencies does not become a priority within units. Officials within the Naval Systems Commands told us that compliance with quality deficiency reporting has diminished because fewer resources have been available to carry out tasks that are deemed more essential. They indicated that if maintenance personnel must choose between repairing needed equipment and filling out quality deficiency reports, they choose the repair work to support their primary mission. Limited incentives exist at the unit level to encourage compliance with program reporting requirements because financial credits for deficient parts are often not returned to the reporting units, so unit commands may not see the credits as an incentive to expend resources for quality deficiency reporting. They also said that new automation and decision support tools might help facilitate the deficiency reporting and analysis processes and therefore improve compliance with reporting requirements. Navy and Defense Logistics Agency quality assurance officials said that clearly reported program results could stimulate greater management emphasis and staff","support for the program.","However, while the program is designed to provide a basis for reporting, correcting, and preventing spare parts quality deficiencies, the results are not always measured or clearly reported. For example, a Navy-wide annual report shows that during the 3-year period 1997-99, quality deficiency reports submitted from the Naval Air, Sea, and Supply Systems Commands identified about $466 million in rejected material, mostly on aircraft parts. The meaning of these data, however, is unclear because information is not available on what portion of the rejected material was investigated, was found deficient, and yielded some type of credit or reimbursement from contractors to the government. Also, the data did not include any reporting of parts design modifications, manufacturing changes, or other actions taken based on quality deficiency reporting in order to prevent recurrence of problems. Without such reporting of results, program weaknesses such as incomplete data may not appear to be important issues to Navy and Department managers. According to Navy quality assurance officials, although one Navy instruction governs the analysis of quality deficiency reports, the level of execution can vary significantly among units, depending on the program emphasis assigned and resources made available.","For example, Navy Inventory Control Point officials who manage ships’ quality deficiency reporting told us they track the quality deficiencies and identify costs avoided and recovered from contractors. Their internal metrics for fiscal years 1998 through 2000 identified several million dollars in replacement items, refunds, and credits received from contractors that they said were directly attributable to quality deficiency reports. They said that cost avoidance is an important measure of results and should be tracked and reported Navy-wide along with other metrics. However, they said that such reporting is not required and the extent of reporting varies significantly among the Naval Air, Sea, and Supply Systems Commands and their subordinate units. Without an effective Navy-wide program to document feedback from users of parts on the quality deficiencies they encounter, Navy managers lack the data needed to fully assess the extent and seriousness of spare parts quality problems. Furthermore, to the extent that the data are incomplete or are not analyzed to determine the causes of and accountability for deficiencies, managers cannot effectively correct quality problems, address supplier issues, or ensure high quality when buying or rebuilding spare parts.","Such activities are important because they can affect the safety, readiness, mission performance capabilities, and support costs of military forces. The Navy’s Product Quality Deficiency Reporting Program has been largely ineffective in meeting these management needs due to weaknesses in program implementation, including insufficient training, limited incentives and automation support, competing priorities for staff resources, and a lack of Navy-wide measurement of program results. A stronger quality deficiency reporting program would better enable management to take corrective and preventive actions that over time can result in both mission performance improvements and cost reductions.","Given the importance of high quality spare parts to safety, readiness, mission performance, and support costs, and the role that an effective Product Quality Deficiency Reporting Program can play in helping to ensure high quality, we recommend that the Secretary of Defense direct the Secretary of the Navy to increase the program’s levels of (1) training, describing what quality deficiencies to report, how to report them, and why it is important to the Navy; (2) incentives, including financial credits back to the reporting unit where appropriate to encourage participation; (3) automation support, to simplify and streamline reporting and analysis; and (4) management emphasis provided to the program, as necessary, to determine the causes, trends, and responsibilities for parts failures and achieve greater compliance with joint-service requirements, including reporting on parts that fail before the end of their design life, and require program officials to measure and periodically report to the appropriate Defense and Navy managers the results of the program in such areas as actions taken to correct parts quality deficiencies, prevent recurrences, and obtain credits or reimbursements from suppliers for deficient products.","In written comments on a draft of this report, Department of Defense concurred with our recommendations. It stated that the Navy would initiate the recommended enhancements to the Navy Product Quality Deficiency Reporting Program no later than September 15, 2001. In addition, the Navy will provide a status update to the Office of the Secretary of Defense on accomplishments and remaining challenges no later than March 15, 2002. The Department’s comments are presented in their entirety in appendix I. To determine whether the Navy’s Product Quality Deficiency Reporting Program has been effective in gathering the data needed for analyses, correction, and prevention of deficiencies in spare parts, we analyzed the completeness of the quality deficiency data contained in the Navy’s Product Deficiency Reporting and Evaluation Program database. These data cover aircraft, ships, and other spare parts in the Navy, including parts managed for the Navy by the Defense Logistics Agency. For comparison purposes, we also analyzed data from the Navy’s Maintenance and Material Management System, which is designed to track maintenance support data on how often a part failure is involved.","We discussed the causes of underreporting of quality deficiencies, the lack of reporting of premature failures, the omission of data in deficiencies being reported, and the causes of program weaknesses with Department, Navy, and Defense Logistics Agency officials. Specifically, work was conducted at headquarters offices, including the Office of the Under Secretary of Defense (Acquisition, Technology, and Logistics); the Office of the Assistant Secretary of the Navy (Research, Development, and Acquisition); and the Naval Air Systems, the Naval Sea Systems, and the Naval Supply Systems Commands. Work was also conducted at the Naval Inventory Control Point activities in Mechanicsburg and Philadelphia, Pennsylvania, who have assumed responsibility for quality deficiency reporting functions. In addition, work was done at Navy field activities in different geographical areas, including Lemoore and San Diego, California; Norfolk, Virginia; and Portsmouth, New Hampshire. The Marine Corps aircraft quality deficiency reporting is managed by the Naval Air Systems Command and was included in our review. The Marine Corps operates a separate program for ground equipment that was not included in this review. We conducted our work between August 2000 and June 2001 in accordance with generally accepted government auditing standards.","We are sending copies of this report to the Secretaries of Defense and the Navy; the Commandant of the Marine Corps; the Director, Defense Logistics Agency; the Director, Office of Management and Budget; and appropriate congressional committees. We will also make copies available to others upon request. Please contact me at (202) 512-8412 if you or your staff have any questions regarding this report. Key contributors to this report were Allan Roberts; Lionel Cooper; Gary Kunkle; Jean Orland; Lawson Gist, Jr.; Robert B. Brown; and Nancy Ragsdale. Army Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness (GAO-01-772, July 31, 2001). Navy Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness (GAO-01-771, July 31, 2001). Air Force Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness (GAO-01-587, June 27, 2001). Major Management Challenges and Program Risks: Department of Defense (GAO-01-244, Jan. 2001). High-Risk Series: An Update (GAO-01-263, Jan. 2001). Defense Inventory: Improved Management Framework Needed to Guide Navy Best Practice Initiatives (GAO/NSIAD-00-1, Oct. 21, 1999)."],"string":"[\n \"The Department budgets billions of dollars each year to purchase and repair spare parts and has established various programs to help ensure product quality throughout the acquisition and repair processes. According to Navy and Defense Logistics Agency quality assurance officials, although it is normal in manufacturing processes that some deficient parts will be delivered to the end users, the rate of deficiencies is to be managed and controlled to acceptable levels. In fact, according to these officials, spare parts quality is of greater importance in today’s environment of increased deployments, extended preventive maintenance cycles, and just-in-time deliveries of parts. A Defense Logistics Agency joint-service directive for quality deficiency reporting regulates Department activities. The directive establishes a Department-wide system for the military services and other activities to report, investigate, and correct the causes of individual problems and identify trends and recurring deficiencies. The system is to be used to document the quality of spare parts delivered for use in the maintenance and repair processes and is the key program for documenting quality deficiency data Navy-wide.\",\n \"When deficient parts are delivered and are detected by end users, such as military supply or maintenance personnel, these users are required to report the details of the deficiencies under a uniform set of guidelines. Each military service and agency manages its own quality deficiency reporting program. The Navy’s Product Quality Deficiency Reporting Program is designed to document and report unsatisfactory material, initiate corrective action to fix or replace deficient items, grant credit or compensation for items, and take actions to prevent recurrence. The program applies to all Navy activities. Navy activities report quality deficiency data both internally and to a broader program, known as the Product Data Reporting and Evaluation Program, where it is managed as one of several databases. This broader program is a Navy-wide automated system for collecting data on the quality of material and products furnished by contractors. The quality deficiency report is also one of several records used in the Navy’s Red/Yellow/Green Program, another Product Data Reporting and Evaluation Program application used to reduce the risk of receiving nonconforming products and late shipments.\",\n \"The Assistant Secretary of the Navy for Research, Development, and Acquisition has program authority and sets policy, and the Naval Sea Systems Command administers the Product Quality Deficiency Reporting Program. Navy program executive officers, program managers, and commanders of the naval systems commands are to process quality deficiency reports for their systems and equipment in accordance with instructions and to ensure people are properly trained in reporting deficiencies. Quality deficiency reporting data are generally sent to a screening point, such as the Navy’s Inventory Control Point, for review and forwarding to an appropriate item manager or action point to determine the causes and who is responsible for the deficiencies. Once a determination is made and final disposition occurs, the quality deficiency reporting database is to be updated to reflect the results. The Navy’s Product Quality Deficiency Reporting Program has been largely ineffective in gathering the data needed for analyses so that Navy managers can accurately report on and correct deficiencies in the quality of spare parts being provided to end users, including maintenance personnel in field activities.\",\n \"Specifically, the program data were incomplete and of limited value because they were underreported, did not include information on parts that failed prematurely, and omitted key data on the causes of failures. To a large extent, the program’s ineffectiveness can be attributed to limited training and incentives to report deficiencies, lack of management emphasis, and competing priorities for the staff resources needed to carry out the program. In addition, a contributing cause of the program’s ineffectiveness may be a lack of Navy-wide visibility into program results. Many deficiencies in the quality of new and rebuilt parts occur that have not been reported to the program. As a result, program data are unreliable and can be misleading in determining the significance of deficient parts and conducting trend analyses. Using information gathered under the program, the Navy produces an annual report summarizing quality deficiency data, such as the number of deficiency reports, the value of deficient material, and related information on new and reworked material, including rebuilt parts. Data system managers said this report is the most comprehensive attempt to collect and analyze Navy-wide quality deficiency data.\",\n \"The May 2000 report showed that during calendar years 1997-99 the number of deficiency reports averaged about 6,500 per year, representing all parts that were reported as deficient at the time of installation by the Naval Sea Systems Command, the Naval Air Systems Command, and the Naval Supply Systems Command. Each report identified one or more deficient parts to be evaluated for possible quality problems. During our visits to a number of ship and aircraft maintenance and operating units, we were told that not all deficiencies on parts that failed at the time of installation were reported, and we found that the estimated extent of underreporting varied. For example, one ship maintenance unit that handled munitions systems reported most deficiencies. However, an aircraft squadron commander said his unit documented quality deficiency problems and knew of the reporting requirements, but the unit rarely reported these problems to the quality deficiency program because there was no incentive to do so. In addition, Navy supervisor of shipbuilding officials at one facility told us that the full-time position dedicated to quality deficiency reporting had been eliminated and the work was reassigned to another staff member as a collateral duty.\",\n \"As a result, the number of quality deficiency reports dropped from about 200 each year in calendar years 1997 and 1998 to 34 in calendar year 2000. Also, Navy officials said several major Navy program offices have their own internal systems for handling parts quality deficiencies and do not share this information with the Navy’s quality deficiency reporting program. While these examples are not intended to reflect the experience of all Navy units, they indicate how the data gathered by the program can vary among units based on factors other than the actual numbers of quality deficiencies encountered by maintenance personnel. Various unit commanders indicated that their efforts to report spare parts quality deficiencies were limited because accurate and complete data needed for the reporting process were not available on the failed parts and increased resources would be needed to make meaningful improvements in the availability of these data. Due to the underreporting, the interpretation of program data can be misleading.\",\n \"For example, in a March 2001 two-page report to the Congress on how the Department planned to improve its quality assurance program, the Principal Deputy Under Secretary of Defense, Acquisition, Technology, and Logistics stated that the Department used product quality deficiency reports as a key method to measure the quality of the products it purchased. The Department stated that it had no evidence of a systemic quality problem and that a decreasing number of investigated quality deficiency reports recorded in recent years may indicate that product quality is getting better. However, after we discussed our findings with the Department about the underreporting of quality deficiencies in the Navy, the Department stated in its report that if user feedback is not input into the system and investigated, due to reduced staffing, this metric fails to be a valid measure. According to Navy and Defense Logistics Agency quality assurance officials, the trend in the number of deficiencies reported may reflect the level of resources dedicated to filling out and analyzing deficiency reports rather than the actual number of deficiencies found by maintenance personnel.\",\n \"The Navy does not attempt to use the Product Quality Deficiency Reporting Program to collect a major category of quality deficiencies— those involving parts that failed prematurely, that is, after some operation but before the end of their expected design life. Premature failure data are important to determine if there are problems with particular parts or suppliers of parts. Consequently, not knowing the full extent of deficiencies can prevent meaningful analyses of quality problems on a systemwide basis. Under the May 1997 joint-service directive on quality deficiency reporting, the Navy could capture data on premature equipment failures, including parts, as part of its program, as the Army, the Air Force, and the Marine Corps agreed to do. Although the joint-service directive states that it is applicable to a broad range of deficiencies, including premature failures, the Navy did not agree to this application. It has instead used deficiency reporting to identify mainly new or newly reworked parts that fail, as specified in a 1993 version of the joint-service directive.\",\n \"Navy quality assurance officials said the program was limited to capturing data on those parts because some type of warranty might be involved or they might obtain replacement parts or reimbursements from the suppliers. However, after we discussed this issue with Assistant Secretary of the Navy, Research, Development, and Acquisition officials, they said that premature failures should be included in the Navy program. They said that in April 2001 they approved the Navy’s use of a new draft version of the joint-service directive that includes the requirement to report premature failures as quality deficiencies. While the Navy has not captured data on premature parts failures under the Product Quality Deficiency Reporting Program, Naval Air Systems Command officials said they have attempted to identify these deficiencies through their Engineering Investigation Request Program. However, they said that resource shortages have limited this program mainly to the analysis of mission-critical and safety-of-life requests for engineering investigations, and that as a result, many premature parts failure requests were not analyzed. Without validation and analysis of the causes of these failures, managers are not in a position to take corrective or preventive action.\",\n \"Furthermore, Naval Air Systems Command-wide data on engineering investigation requests were not available, and reports have not been combined with quality deficiency reports to provide managers with a systemwide view of spare parts problems. According to Navy and Defense Logistics Agency quality assurance officials, premature parts failures are an important aspect of quality, and without this data the Navy is not in a position to completely identify its problems with parts and suppliers. Premature parts failures could indicate problems in design, manufacture, or installation that, if not corrected, could lead to unanticipated parts shortages and increased costs. Quality deficiency reporting data that were collected under the program have been of limited value because they frequently lacked key information on the causes of the parts failures and identification of whom was responsible. Navy and Defense Logistics Agency quality assurance officials said that identifying whether a contractor is responsible for deficiencies is important for obtaining credits or refunds and preventing recurring problems. We reviewed the Navy’s systemwide database of quality deficiencies for the Naval Air, the Naval Sea, and the Naval Supply Systems Commands.\",\n \"We reviewed the number of reports submitted during calendar years 1997-99 (19,124 reports) and determined their status as of September 20, 2000. We found that in most cases the causes of problems had not been identified in the database and responsibility for the deficiencies had not been determined. Specifically, we found that about 72 percent (13,675) of the reports did not identify the specific causes for the failures, which is information needed for effective corrective and preventive actions, and about 70 percent (13,287) of the reports did not identify who—a private contractor or a Navy or other government activity—was responsible for the deficiencies. According to Navy and Defense Logistics Agency quality assurance officials, analyzing product quality deficiencies to determine causes and responsibilities for failures is often difficult, time-consuming, and staff intensive. They said that the information needed to fill out the deficiency form is not always available, the deficient part might have been damaged or misplaced, or the part may not be forwarded for analysis to determine the cause of the deficiency. Also, a supplier might have provided a replacement part and not identified the cause of the problem. They said problems were more likely among\",\n \"deployed units.\",\n \"Officials at units we visited identified similar problems. According to an Assistant Secretary of the Navy, Research, Development and Acquisition official, when the Navy screening points receive a quality deficiency report, they work with the originators to provide the missing descriptive data and decide if an in-depth analysis is needed. If an analysis is needed, other problems may arise such as a lack of access to contractor information, which can prevent a complete analysis of the cause of a quality deficiency. The need for completed quality deficiency reporting to identify cause and responsibility for the deficiencies is important to achieving program results and is especially important for the Navy and the Defense Logistics Agency to obtain some type of credit for deficient parts, where allowed by the parts contract. Credit can involve a contractor providing replacement parts or monetary consideration. Also, determining responsibility is the first step in providing feedback to the supplier that deficient material has been provided, manufacturing or repair processes must be reviewed, and corrective actions may be necessary. Without such a determination, neither credit nor quality parts may be obtained. According to Navy quality assurance officials, this information is also needed for\",\n \"other Navy programs.\",\n \"For example, the Navy’s Red/Yellow/Green Program is designed to help reduce the risk of receiving products that do not conform to requirements and late shipments. This program uses quality deficiency reports as one of the key inputs to the evaluation, but only when such reports show that a specific contractor was found to be responsible for the deficiencies in parts. However, since the quality deficiency data we examined were so often incomplete, many of the reports lacked the needed information. According to Navy and Defense Logistics Agency quality assurance officials, the lack of complete and reliable quality deficiency data limits their usefulness in identifying suppliers of deficient parts. In addition to the problems of incomplete and underreported data, concerns about using the data to determine the extent of spare parts quality deficiencies are twofold. First, to be meaningful, the number of quality deficiencies identified should be compared with the total number of parts used, but the data to compute such a deficiency rate are often not available.\",\n \"Second, even if a deficiency rate could be determined, criteria for determining what constitutes a reasonable deficiency rate for a particular part have not been established for the quality deficiency reporting program as it has been, for example, for the Red/Yellow/Green Program. Navy officials at many levels—maintenance personnel, program officials, quality assurance managers, and Command-level staff—indicated that program ineffectiveness is to some extent the result of a lack of action by Navy management to emphasize the importance of the program to the Navy. In addition, Navy officials identified the following causes of program ineffectiveness: Limited training to supply, maintenance, and key command personnel explaining reporting procedures, types of quality deficiencies to be reported, and benefits to the Navy to be derived from the program. Limited incentives and competing priorities for available staff resources to fill out the quality deficiency reports and do all their other work as well. Lack of Navy-wide visibility into the results being derived from the program. According to Navy quality assurance officials, some training that covers filling out the standardized quality deficiency reporting form has been given, but it has not been effective in encouraging additional quality deficiency reporting.\",\n \"Navy and Defense Logistics Agency quality assurance officials said that their sailors and their commanders do not receive training on the importance of the quality deficiency reporting program to the Navy. Without such training, reporting quality deficiencies does not become a priority within units. Officials within the Naval Systems Commands told us that compliance with quality deficiency reporting has diminished because fewer resources have been available to carry out tasks that are deemed more essential. They indicated that if maintenance personnel must choose between repairing needed equipment and filling out quality deficiency reports, they choose the repair work to support their primary mission. Limited incentives exist at the unit level to encourage compliance with program reporting requirements because financial credits for deficient parts are often not returned to the reporting units, so unit commands may not see the credits as an incentive to expend resources for quality deficiency reporting. They also said that new automation and decision support tools might help facilitate the deficiency reporting and analysis processes and therefore improve compliance with reporting requirements. Navy and Defense Logistics Agency quality assurance officials said that clearly reported program results could stimulate greater management emphasis and staff\",\n \"support for the program.\",\n \"However, while the program is designed to provide a basis for reporting, correcting, and preventing spare parts quality deficiencies, the results are not always measured or clearly reported. For example, a Navy-wide annual report shows that during the 3-year period 1997-99, quality deficiency reports submitted from the Naval Air, Sea, and Supply Systems Commands identified about $466 million in rejected material, mostly on aircraft parts. The meaning of these data, however, is unclear because information is not available on what portion of the rejected material was investigated, was found deficient, and yielded some type of credit or reimbursement from contractors to the government. Also, the data did not include any reporting of parts design modifications, manufacturing changes, or other actions taken based on quality deficiency reporting in order to prevent recurrence of problems. Without such reporting of results, program weaknesses such as incomplete data may not appear to be important issues to Navy and Department managers. According to Navy quality assurance officials, although one Navy instruction governs the analysis of quality deficiency reports, the level of execution can vary significantly among units, depending on the program emphasis assigned and resources made available.\",\n \"For example, Navy Inventory Control Point officials who manage ships’ quality deficiency reporting told us they track the quality deficiencies and identify costs avoided and recovered from contractors. Their internal metrics for fiscal years 1998 through 2000 identified several million dollars in replacement items, refunds, and credits received from contractors that they said were directly attributable to quality deficiency reports. They said that cost avoidance is an important measure of results and should be tracked and reported Navy-wide along with other metrics. However, they said that such reporting is not required and the extent of reporting varies significantly among the Naval Air, Sea, and Supply Systems Commands and their subordinate units. Without an effective Navy-wide program to document feedback from users of parts on the quality deficiencies they encounter, Navy managers lack the data needed to fully assess the extent and seriousness of spare parts quality problems. Furthermore, to the extent that the data are incomplete or are not analyzed to determine the causes of and accountability for deficiencies, managers cannot effectively correct quality problems, address supplier issues, or ensure high quality when buying or rebuilding spare parts.\",\n \"Such activities are important because they can affect the safety, readiness, mission performance capabilities, and support costs of military forces. The Navy’s Product Quality Deficiency Reporting Program has been largely ineffective in meeting these management needs due to weaknesses in program implementation, including insufficient training, limited incentives and automation support, competing priorities for staff resources, and a lack of Navy-wide measurement of program results. A stronger quality deficiency reporting program would better enable management to take corrective and preventive actions that over time can result in both mission performance improvements and cost reductions.\",\n \"Given the importance of high quality spare parts to safety, readiness, mission performance, and support costs, and the role that an effective Product Quality Deficiency Reporting Program can play in helping to ensure high quality, we recommend that the Secretary of Defense direct the Secretary of the Navy to increase the program’s levels of (1) training, describing what quality deficiencies to report, how to report them, and why it is important to the Navy; (2) incentives, including financial credits back to the reporting unit where appropriate to encourage participation; (3) automation support, to simplify and streamline reporting and analysis; and (4) management emphasis provided to the program, as necessary, to determine the causes, trends, and responsibilities for parts failures and achieve greater compliance with joint-service requirements, including reporting on parts that fail before the end of their design life, and require program officials to measure and periodically report to the appropriate Defense and Navy managers the results of the program in such areas as actions taken to correct parts quality deficiencies, prevent recurrences, and obtain credits or reimbursements from suppliers for deficient products.\",\n \"In written comments on a draft of this report, Department of Defense concurred with our recommendations. It stated that the Navy would initiate the recommended enhancements to the Navy Product Quality Deficiency Reporting Program no later than September 15, 2001. In addition, the Navy will provide a status update to the Office of the Secretary of Defense on accomplishments and remaining challenges no later than March 15, 2002. The Department’s comments are presented in their entirety in appendix I. To determine whether the Navy’s Product Quality Deficiency Reporting Program has been effective in gathering the data needed for analyses, correction, and prevention of deficiencies in spare parts, we analyzed the completeness of the quality deficiency data contained in the Navy’s Product Deficiency Reporting and Evaluation Program database. These data cover aircraft, ships, and other spare parts in the Navy, including parts managed for the Navy by the Defense Logistics Agency. For comparison purposes, we also analyzed data from the Navy’s Maintenance and Material Management System, which is designed to track maintenance support data on how often a part failure is involved.\",\n \"We discussed the causes of underreporting of quality deficiencies, the lack of reporting of premature failures, the omission of data in deficiencies being reported, and the causes of program weaknesses with Department, Navy, and Defense Logistics Agency officials. Specifically, work was conducted at headquarters offices, including the Office of the Under Secretary of Defense (Acquisition, Technology, and Logistics); the Office of the Assistant Secretary of the Navy (Research, Development, and Acquisition); and the Naval Air Systems, the Naval Sea Systems, and the Naval Supply Systems Commands. Work was also conducted at the Naval Inventory Control Point activities in Mechanicsburg and Philadelphia, Pennsylvania, who have assumed responsibility for quality deficiency reporting functions. In addition, work was done at Navy field activities in different geographical areas, including Lemoore and San Diego, California; Norfolk, Virginia; and Portsmouth, New Hampshire. The Marine Corps aircraft quality deficiency reporting is managed by the Naval Air Systems Command and was included in our review. The Marine Corps operates a separate program for ground equipment that was not included in this review. We conducted our work between August 2000 and June 2001 in accordance with generally accepted government auditing standards.\",\n \"We are sending copies of this report to the Secretaries of Defense and the Navy; the Commandant of the Marine Corps; the Director, Defense Logistics Agency; the Director, Office of Management and Budget; and appropriate congressional committees. We will also make copies available to others upon request. Please contact me at (202) 512-8412 if you or your staff have any questions regarding this report. Key contributors to this report were Allan Roberts; Lionel Cooper; Gary Kunkle; Jean Orland; Lawson Gist, Jr.; Robert B. Brown; and Nancy Ragsdale. Army Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness (GAO-01-772, July 31, 2001). Navy Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness (GAO-01-771, July 31, 2001). Air Force Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness (GAO-01-587, June 27, 2001). Major Management Challenges and Program Risks: Department of Defense (GAO-01-244, Jan. 2001). High-Risk Series: An Update (GAO-01-263, Jan. 2001). Defense Inventory: Improved Management Framework Needed to Guide Navy Best Practice Initiatives (GAO/NSIAD-00-1, Oct. 21, 1999).\"\n]","isConversational":false}}},{"rowIdx":10897,"cells":{"id":{"kind":"string","value":"train_10897"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"Delays in processing federal equal employment opportunity (EEO) complaints, apparent or perceived lack of fairness and impartiality in complaint processing, and fear of retaliation in the workplace have been long-standing concerns of the Equal Employment Opportunity Commission (EEOC), other federal agencies, and Congress. Based on a Notification and Federal Employee Antidiscrimination and Retaliation Act mandate, GAO analyzed (1) factors that EEO practitioners have identified as impeding the fair, prompt, and impartial processing of federal EEO complaints and (2) actions that EEO practitioners and other stakeholders think could be taken to help address those factors. GAO also identified actions that EEOC is taking to improve the federal complaint process. GAO surveyed 65 EEO practitioners representing a wide cross section of professionals knowledgeable about the federal EEO complaint process, who were selected from 16 federal agencies that accounted for about 88 percent of complaints filed in fiscal year 2005, EEOC, and private sector attorneys' offices. GAO did not assess the validity of practitioners' views or evaluate the effectiveness of initiatives. GAO analyzed and grouped into eight, the factors that EEO practitioners identified as those they believed impeded the fair, prompt, and impartial processing of federal EEO complaints: (1) lack of accountability by some agency officials and EEOC practitioners in carrying out their responsibilities; (2) lack of sufficient resources by some EEO programs and EEOC to fulfill their responsibilities; (3) lack of independence by some agency officials, including undue interference by some agency legal counsel and human resources officials in EEO matters; (4) insufficient knowledge and skills by some agency officials and EEO practitioners; (5) lack of authority by some EEO officials to dismiss cases that have no merit and lack of subpoena power by EEOC administrative judges (AJ); (6) lack of clarity in regulation and some guidance and consistent decisions from EEOC; (7) lack of effective communication by some EEO practitioners of relevant oral and written information to participants and that alternative dispute resolution is available; and (8) lack of a firm commitment by some agency management and EEO officials to the EEO process. The practitioners' views do not represent the official views of the selected agencies and should not be generalized to conclude that all federal agencies and EEO practitioners are deficient in all factors identified. Also, a few stakeholders GAO contacted stated that without the perception that the complaint process is fair, people may choose to not participate in it; GAO believes this concern is important and has been accounted for within the discussion of several of the factors. EEO practitioners surveyed and stakeholders suggested potential solutions to address the factors practitioners identified and provided information on relevant changes their agencies had made to the process. For example, to strengthen accountability, practitioners reported establishing measures for timeliness and quality for agency EEO professionals and those contracted to perform EEO complaint functions. To strengthen EEO staff's independence, several practitioners and stakeholders offered that agencies should adhere more clearly to existing EEOC requirements on delineating the roles of the agency general counsels in the EEO process. Stakeholders offered potential advantages and disadvantages to allowing complainants to file directly with EEOC as a means to avoid real or perceived conflicts of allowing an agency to investigate a complaint against itself. Several practitioners and EEOC officials stated that providing subpoena authority to AJs could help improve the efficiency of the EEO complaint process by compelling witnesses to testify. To help agencies achieve model EEO programs, EEOC has begun to measure agencies' progress in such areas as the timeliness of investigations. In June 2008, EEOC announced a proposal that includes provisions that may address some of the factors that practitioners identified. The proposal would require that agency EEO programs comply with EEOC regulations and other guidance and that EEOC review those programs for compliance. The proposal also would permit agencies to conduct pilot projects to test new ways to process EEO complaints that are not presently included in existing regulations."},"documents":{"kind":"list like","value":["The federal EEO complaint process consists of two stages, informal, or precomplaint counseling, and formal. Appendix II contains information on EEO laws applicable to federal employees. Under existing regulations, before filing a complaint, an employee must consult an EEO counselor at the agency in order to try to informally resolve the matter. The employee must contact an EEO counselor within 45 days of the matter alleged to be discriminatory or, in the case of a personnel action, within 45 days of the effective date of the action. Counselors are to advise individuals that when the agency agrees to offer alternative dispute resolution (ADR) in the particular case, they may choose to participate in either counseling or in ADR. Counseling is to be completed within 30 days from the date the employee contacted the EEO office unless the employee and agency agree to an extension of up to an additional 60 days. If ADR is chosen, the parties have 90 days in which to attempt resolution. If the matter is not resolved within these time frames, the counselor is required to inform the employee in writing of his or her right to file a formal discrimination complaint","with the agency.","After a complainant files a formal discrimination complaint, the agency must decide whether to accept or dismiss the complaint and notify the complainant. If the agency dismisses the complaint, the complainant has 30 days to appeal the dismissal to EEOC. If the agency accepts the complaint, it has 180 days to investigate the accepted complaint from the date the complaint was filed and provide the complainant with a copy of the investigative file. Within 30 days of receipt of the copy of the investigative file, the complainant must choose between requesting (1) a hearing and decision from an AJ or (2) a final decision from the agency. When a hearing is not requested, the agency must issue a final agency decision (FAD) within 60 days on the merits of a complaint. A complainant may appeal an agency’s final decision to EEOC within 30 days of receiving the final decision. In cases where a hearing is requested, the complaint is assigned to an EEOC AJ, and the AJ has 180 days to issue a decision and send the decision to the complainant and the agency. If the AJ issues a finding of discrimination, he or she is","to order appropriate relief.","After the AJ decision is issued, the agency has 40 days to issue a final order notifying the complainant whether the agency will fully implement the decision of the AJ, after which the employee has 30 days to file an appeal with EEOC of the agency’s final order. If the agency issues an order notifying the complainant that the agency will not fully implement the decision of the AJ, the agency also must file an appeal with EEOC at the same time. Following an appeal decision, both the complainant and the agency have 30 days in which to request reconsideration of EEOC’s appeal decision. Decisions on appeals are issued by EEOC’s Office of Federal Operations (OFO), on behalf of the commission. A complainant may file a civil action in federal district court at various points during and after the administrative process. The filing of a civil action will terminate the ongoing administrative processing of the complaint. A complainant may file a civil action within 90 days of receiving the agency’s final decision or order or EEOC’s final decision.","A complainant may also file a civil action after 180 days from filing a complaint with his or her agency or after filing an appeal with EEOC, if no final action or decision has been made. Figure 1 shows the EEO complaint process. In addition to regulations governing the EEO complaint process, EEOC has issued guidance in the form of management directives (MD) to help agencies process complaints and create a model EEO program. MD-110, revised in November 1999, provides federal agencies with policies, procedures, and guidance relating to processing EEO complaints, including, among other things, the authority of the EEO director and the director’s reporting relationship to the agency head, mandatory training requirements for EEO counselors and investigators, procedures for counseling and ADR, and the role of the AJ. In 2003, EEOC issued MD-715 which, among other things, establishes requirements for federal a gencies to create model EEO programs, including guidance for proactive prevention of unlawful discrimination.","Under MD-715, each agency is to have an efficient and fair dispute resolution process and effective systems for evaluating the impact and effectiveness of its EEO program and us e a complaint tracking and monitoring system that permits the agency to identify the location, status, and length of time elapsed at each stage of the process and othe r information necessary to analyze complaint activity and identify trends. Among other requirements, EEOC regulations generally provide that agencies are to complete investigations of formal complaints within 180 days of their receipt and issue FADs within 60 days for those cases where a hearing is not requested. When a hearing is requested, AJs are to issue decisions within 180 days of receiving the complaint files from an agency. EEOC regulations do not set time frames for resolving appeals, but in its most recent strategic plan, EEOC has set an annual performance measure thin that by 2012 70 percent of federal sector appeals are to be resolved wi180 days. From fiscal years 2005 through 2007, appeals closures have averaged from 194 to 230 days.","Table 1 shows that although federal agencies have made improvements in the time it takes to process formal EEO complaints, they are still not meeting the deadlines in regulation. The table includes data from EEOC’s annual reports on the federal workfo on average processing days for investigations and FADs on merits of complaints, both including the U.S. Postal Service—which has the larges number of EEO complaints—and without it, because the Postal Service complaint volume affects average processing times. These data show in fiscal year 2007, the Postal Service completed investigations in an average of 106 days and FADs in 28 days. Table 1 also shows average that processing days for EEOC hearings decisions, which on average have exceeded requirements. When asked to identify factors that impeded the prompt, fair, and impartial processing of EEO complaints at their agencies and describe how those factors impeded the process, selected EEO practitioners provided hundreds of responses. Because these practitioners represent different parts of the complaint process and some of the practitioners may only be familiar with their part of the process, we could not tally the number of responses under each factor.","While recognizing that the factors the practitioners identified are not necessarily discrete, we analyzed and grouped them into eight broad categories of factors and then asked those same EEO practitioners to rank them in terms of their importance for improving the federal EEO complaint process.","These factors and their rankings are (1) lack of accountability on the part of some agency management officials and EEO practitioners in carrying out their responsibilities; (2) insufficient resources for some agency EEO offices and EEOC to fulfill their responsibilities; (3) lack of independence concerning the potential conflict of having agencies conduct their own EEO complaint investigations and the undue influence of some agency legal counsel and human resources officials on the EEO process; (4) insufficient knowledge and skills by some agency officials, complainants, and EEO practitioners to fulfill their responsibilities; (5) lack of authority by some EEO officials to dismiss cases that have no merit and lack of subpoena power by EEOC AJs; (6) lack of clarity in regulation and some guidance and consistent decisions from EEOC; (7) lack of effective communication by some EEO practitioners of relevant oral and written information to participants in the process and that ADR (e.g., conciliation, facilitation, or mediation) is available; and (8) lack of a firm commitment by some agency management and EEO officials to the EEO process. In our discussions with stakeholders, they generally concurred with these eight factors.","In addition, a few stakeholders identified the perception of unfairness as an overarching theme. These stakeholders commented that without the perception that the complaint process is fair, people may be frustrated and choose to not participate in it. We discussed with these stakeholders that fairness is indeed one of the goals of the EEO complaints process, along with promptness and impartiality. The perception that the system is not fair, among other issues, has led to calls for reform and is directly related to our effort in this review to identify factors that need to be addressed. We agree that this concern is important and believe it has been accounted for within the context of the discussion on factors related to accountability; independence; and clarity in regulation, guidance, and consistent EEOC decisions. The eight factors are consistent with concerns raised previously about problems with the federal sector EEO complaint process.","For example, in November 2002, EEOC held an open meeting to address issues with the EEO complaint process amid concerns from stakeholders representing both complainants and federal agencies that the process is “much too slow, far too expensive, unnecessarily cumbersome, and given to potential conflicts of interest.” In March 2003, a coalition of civil rights employee advocates and other stakeholder groups submitted a seven-step proposal to EEOC commissioners to improve the federal sector EEO complaint process. This proposal included steps to make ADR mandatory for managers in the informal and formal stages of the administrative process and have EEO directors report directly to the agency head, and a recommendation that EEOC adopt a uniform standard for what states a claim of employment discrimination. Additionally, in September 2006, the commission held a meeting where stakeholders discussed the practices that work in obtaining a timely, thorough, and complete investigation as well as the barriers that prevent such investigations. One issue raised in that meeting was the lack of consequences (related to accountability) for agencies that do not comply with the 180-day requirement to complete investigations.","A commissioner noted that a double standard exists, because a complaint would be dismissed if a complainant missed any of the deadlines. The quality of investigations was another issue—for both in- house and contract investigations. One participant stated that clear benchmarks need to exist with respect to the quality of the report of investigation, noting that in the end a poor investigation hurts the agency as well as the employee. EEO practitioners indicated that there appear to be no consequences for some agency officials or EEOC practitioners for not adhering to time frames established in EEOC regulations. For example, if an employee files a formal discrimination complaint, an agency must decide whether to accept the complaint and has 180 days to investigate an accepted complaint. In cases where the complainant requests a hearing from an EEOC AJ, the AJ generally has 180 days to issue a decision after the complaint file has been received from the agency. While many respondents cited agencies and EEOC for not adhering to time frames, some also said that a lack of timely cooperation by complainants delayed the processing of complaints.","Many EEO practitioners across the various practitioner groups identified a lack of resources—staff and funding at some agency EEO offices and at EEOC—as impeding the timely processing of federal EEO complaints. For example, an EEO director and an investigator stated that because of understaffing, regulatory time limits are often exceeded. Another agency practitioner said that internal delays are also caused by a lack of resources in agency EEO offices. Several EEO practitioners stated that retirements and reassignments have made it difficult to keep counselors in agency EEO offices. Others mentioned problems with staffing levels at EEOC. One AJ noted that because of a lack of support staff, AJs spent time copying files, filing documents, making all of their own travel arrangements, and preparing closed case files for mailing. Figure 2 shows that as of fiscal year 2008, the number of AJs has decreased by about 13 percent since fiscal year 2005 while EEOC’s hearings inventory has increased by 10 percent, and EEOC’s appropriations have generally remained constant, increasing by less than 1 percent.","EEO practitioners raised concerns regarding the potential conflict of having agencies conduct their own EEO complaint investigations and agency offices or functions improperly interfering in the EEO complaint process (i.e., legal counsel and human resources professionals). For example, an AJ stated that agency-conducted investigations remain an impediment to impartiality and characterized such investigations as the “fox guarding the henhouse.” EEO practitioners specifically raised concerns regarding the perceived conflict of agency offices or functions improperly interfering in the EEO complaint process. For example, a plaintiff’s attorney stated that one problem that impedes the prompt and fair processing of complaints is the intrusion of agency defense counsel into the EEO process, despite EEOC’s guidance that agencies’ EEO functions and defense functions must remain separate. This practitioner further stated that many EEO offices get legal advice from the same agency component that defends the agency—a direct conflict of interest. An AJ added that although human resources and EEO offices should work together in resolving complaints and grievances, they should be totally separated in the processing of EEO complaints because often allegations about personnel actions, including promotions, reassignments, and h involve the human resources office as the responsible management official.","Many EEO practitioners expressed concerns that some participants EEO complaint process, including EEO investigators, agency EEO directors, agency management, and EEO counselors, are not sufficiently knowledgeable of EEO regulations and guidance and of their responsibilities within the process. For example, several respondents cited a general lack of knowledge of EEO or employment discrimination l aw by agency personnel processing complaints (e.g., EEO counselors and investigators). Many respondents cited poor quality of EEO investigations and several cited investigators’ lack of skills. As one AJ remarked, when investigations are of poor quality, the parties are required to engage in discovery at the EEOC level, which takes time and delays processing. Several practitioners raised concerns about AJs as well, including that some of them have insufficient experience and training and that the qual of the work they perform is not systematically monitored or addressed. EEO practitioners cited several concerns that some individuals and organizations responsible for carrying out federal EEO programs did not have sufficient authority to fulfill their responsibilities, including the of sufficient authority to dismiss cases that do not meet criteria for discrimination and the lack of subpoena power to compel witnesses to egal testify and provide","requested documents.","According to an agency l counsel, an AJ, and plaintiffs’ attorneys, the inability to subpoena witnesses during EEOC hearings can delay fact-finding and presents a difficulty to complainants in trying to prove their claims when witnesse federal witnesses (e.g., witnesses are reluctant to testify, including non who are no longer with the agency). Some EEO practitioners indicated that more guidance is needed from EEOC on regulations and MDs and that EEOC decisions need to follow judicial precedent and need to be consistent. Respondents provided numerous comments about the lack of consistency of AJ decisions with case law, and EEOC officials also acknowledged this concern. An AJ said that inconsistent EEOC OFO appellate decisions make it difficult for AJs and other parties to know what to do in certain situations. Another practitioner, an EEO investigator, stated that EEOC OFO appellate decisions can be inconsistent and unclear, making procedural decisions (e.g., dismissals) a “gamble.” According to EEO practitioners, some individuals and organizations responsible for carrying out federal EEO programs sometimes do not effectively communicate relevant oral and written information on the EEO process to participants in a timely and effective manner.","Also, as an agency legal counsel stated, it can be difficult at times to understand the actions alleged in a complaint, which results in further follow-up (sometimes more than once) with complainants to get the necessary information. Further, an AJ stated that an impediment to the early resolution of complaints is the lack of a requirement for managers to participate in ADR or mediation. EEO practitioners stated that some agency management and other individuals responsible for carrying out federal EEO programs lack a firm commitment to fair and timely processing of complaints. The lack of top management commitment to the EEO program can have a cascading effect on other officials and staff. For example, one practitioner stated that if executive management does not support the EEO complaint process, other management officials give it little importance or priority. An EEO investigator cited a lack of urgency at most agencies in resolving and investigating EEO complaints. EEO practitioners and other stakeholders provided potential solutions that they believe address the factors they identified as well as information on changes their agencies had made to the EEO complaint process.","These practitioners also raised other options, beyond the potential solutions, for changing the EEO complaint process. EEOC has several initiatives under way or proposed for improving equal opportunity in the federal workforce. EEOC regulations require federal agencies to provide for the prompt, fair, and impartial processing of complaints and for the review and evaluation of managerial and supervisory performance to help ensure vigorous enforcement of equal opportunity. Further, according to EEOC’s MD-715, a model EEO program will hold managers, supervisors, EEO officials, and personnel officers accountable for the effective implementation and management of the agency’s program. A majority of the respondents from the agencies and EEOC, as well as plaintiffs’ attorneys, identified agency management, agency EEO directors, EEO investigators, and EEOC management as the top four groups of EEO practitioners for which they believed that it was very or extremely important to strengthen accountability. Measures of accountability outlined in MD-715 include evaluating managers and supervisors on efforts to ensure equality of opportunity for all employees and routinely reviewing personnel policies to ensure that they are consistently applied and fairly implemented.","For fiscal year 2007, EEOC reported that in fiscal year 2006 117 of the 167 agencies that submitted MD-715 reports, or 70 percent, indicated that managers and supervisors were rated on their commitment to EEO. For strengthening accountability, EEO practitioners suggested ways to better hold accountable (1) agency management and EEO staff, including directors, counselors, and investigators; (2) EEOC management, AJs, and appellate attorneys; and (3) EEO complainants. For example, an EEO director suggested that implementing performance-based accountability measures for EEO directors could improve the timeliness and quality of complaint processing, which could enhance the fairness and impartiality of the EEO complaint process. Another practitioner advocated adopting measurable EEO performance standards for managers and supervisors at the GS-13 level and above. In its June 2008 notice of proposed rulemaking, EEOC included a requirement that an agency that has not completed an EEO investigation within the 180-day time limit is to notify the complainant in writing that the investigation is not complete, when it will be completed, and that the complainant has the right to request a hearing or file a lawsuit.","EEOC stated its belief that such a requirement may shorten delays in agency investigations by providing an incentive for agencies to complete investigations in a timely manner. Several EEO practitioners stated that just as accountability within agencies is important, EEOC should also be held more accountable for adhering to time frames for steps in the process, such as issuing a hearing decision. As for holding complainants more accountable, one practitioner felt that a complaint should be dismissed if the complainant fails to cooperate if the agency has met its responsibilities. The practitioner, an investigator, offered that complainants should be accountable for participating in a requested EEOC hearing after discovery and depositions have been conducted. According to this practitioner, EEOC should not allow the complainant to withdraw and request a FAD at this stage—if the complainant withdraws from the hearing at this stage, the complaint should be dismissed with no further action. Some respondents said that their organizations established time thresholds and quality standards for internal processes. For example, an EEO investigator reported that the timely processing of complaints has been tied to performance standards to help ensure that cases are promptly processed.","Another EEO investigator’s agency established goals and measures for timeliness according to EEOC regulations and instituted quality standards for each centralized EEO process. Further, the agency established timelines and quality standards for both contractors and agency EEO professionals, and the agency developed measures in internal databases to track and monitor timelines and quality on daily, weekly, monthly, quarterly, and annual bases. An EEO director from another agency also reported that the agency achieved success in processing complaints by implementing performance-based accountability measures (i.e., internal timeliness and quality controls), including the following: standard operating procedures, stringent internal deadlines, timeliness and quality assurance review processes, timeliness and quality elements in results-based performance standards, management oversight, and EEO staff training. Finally, an EEO director reported that his agency had put in place a departmental accountability policy to track disciplinary and corrective actions taken as a result of discrimination-related misconduct. Because of numerous concerns raised both before and during the commission’s September 2006 meeting and subsequent focus group discussions, EEOC officials stated that the commission performed a limited assessment of the quality of agency investigations by having AJs complete surveys during selected periods from 2005 to 2007.","Overall, from the limited assessment, the AJs reported that most of the reports of investigation were complete and well organized, containing enough evidence to allow the AJ to proceed with the hearing process. However, the AJs reported that several agencies routinely submitted reports of investigation that were particularly lacking and described common deficiencies, including reports being disorganized and containing duplicative materials, being incomplete and always late, and containing an investigator’s statement of the claim that was legally insufficient. EEOC officials noted that the commission is considering developing a formal Quality Control Evaluation system that would rate the quality of agency investigations. However, EEOC officials did not provide a proposed time frame for this effort. Respondents also reported their agencies’ making greater use of information technology to process and track complaints. One practitioner noted that his agency had automated several features of the EEO complaint process, including the format of decisions through use of boilerplate language that can be selected for routine matters; parts of decision writing with its forms, such as coversheets, code sheets, and envelopes; and storage of case files that are scanned into the Adobe Acrobat program, thereby expediting the reviewing, bookmarking, and searching","of these files.","One EEO director reported that her agency standardized EEO complaint forms, installed the forms on compact discs that were furnished to all counselors, trained the counselors in the use of the electronic forms, and purchased an automated complaints tracking system to simplify and standardize EEO-related reports. Several practitioners (EEO directors, an EEO counselor, agency legal counsel, and an investigator) indicated that their agencies had put in place a complaints tracking system, which helps in the preparation of standardized reports. Without a system like this one, several reported, much time is consumed finding the information that needs to be in such reports. An official from EEOC’s Office of Field Programs indicated that EEOC has begun piloting an electronic case management system to provide more expeditious hearings case processing. Additionally, a senior official from MSPB described several actions that MSPB has taken to improve its operations, including establishing an electronic filing program and a repository of electronic documents that are available to the parties in cases. Regulations and EEOC MD-715 state that agencies should allocate sufficient resources to their EEO programs to, among other things, ensure that unlawful discrimination in the workplace is promptly corrected and addressed.","More than three-quarters of the respondents from the agencies and EEOC as well as plaintiffs’ attorneys stated that it would be very or extremely important to improve the current allocation of resources for EEOC AJs, while about three-quarters of respondents felt that improvement in the current allocation of resources for EEO investigators, agency EEO directors, and EEOC management was very or extremely important. Although it is important for agencies to provide sufficient resources for EEO programs, it is equally important for those programs to use those resources efficiently. One practitioner, an EEO investigator, reported two ways her agency uses resources efficiently. First, the investigator stated that her agency was shifting away from staff investigators and FAD writers to greater reliance on contractors and that the two firms her agency used delivered good quality products and were faster and more cost-effective than agency staff. Second, the investigator also reported that her agency was engaged in an activity-based costing exercise, so staff must account for all complaint-processing-related tasks, which her office can then cost out to the bureau where the complaints arose, allowing the bureaus to focus on early resolution to keep costs down.","In addition, the greater use of information technology by some agencies, which was cited earlier as assisting agencies in saving time, can also help them in keeping costs down. An EEO director stated that EEOC should have the capacity to process workloads and accept evidence, records, and files electronically. At EEOC, where its hearings inventory has increased but its appropriations have generally remained constant, EEOC officials said that as of April 2009, the agency was in the process of completing draft instructions to implement the pilot “Three-Track Case Management Process” system for hearings that the agency expects will result in quicker resolutions and shorter processing times through expedited discovery and hearing time frames using its existing resources. Under this process, AJs would prioritize their cases based on complexity, using one of three tracks: fast, regular, or complex. Further, it is necessary that agencies assess the quality as well as the costs associated with contracted investigations and proposed FADs.","EEOC’s 2004 report on federal sector investigations and costs found that some agencies were incurring additional costs when they had to supplement the investigative report or require the contractor to conduct additional work, which could contribute to delays in meeting time frames. Several practitioners mentioned that agencies need to have better reviewers for sufficiency of investigations and to do quality control. For example, an agency legal counsel stated that at his agency, the EEO office reviews contracted reports of investigation and draft FADs but that reports of investigation were not always reviewed for completeness and relevance before being provided to the complainants. This practitioner pointed out that because of the lack of a quality review, often the agency or the complainant needed to get additional documents in discovery, although the agency had already paid for the preparation of a report of investigation. Within agencies, EEOC regulations and MD-110 require that EEO directors should be under the immediate supervision of the head of the agency.","Placing the EEO director in this position underscores the importance of equal opportunity to the mission of the agency and helps ensure that the EEO director is able to act with the greatest degree of independence. In its fiscal year 2007 report on the federal workforce, EEOC reported that 61 percent of the EEO directors reported to the agency head. In addition, EEOC’s MD-110 states that to maintain the integrity of the EEO investigative process, it should be kept separate from the agency’s personnel function, to avoid conflicts of interest or the appearance of such conflicts. Moreover, MD-110 states that separating the agency’s representatives and the offices responsible for defending the agency against EEO complaints from those responsible for conducting EEO complaint investigations enhances the credibility of the EEO office and the integrity of the EEO complaint process. At least three-quarters of plaintiffs’ attorneys and respondents from EEOC indicated that strengthening independence for EEO directors and EEO investigators was very or extremely important. Further, several EEO practitioners believe that agencies should adhere more clearly to existing EEOC requirements on delineating the roles of the agency general counsels in the EEO complaint process.","For example, an EEO director stated that EEO legal advisors should be separate and distinct from the agency’s legal office and should report to the head of the civil rights office instead of to agency legal counsel. Several EEO practitioners also stated that agency human resources offices should be required to avoid activities or actions that may be construed as having undue influence. An AJ favored having clear firewalls between the human resources and EEO offices when investigating complaints. In its March 2003 proposal, the coalition of civil rights employee advocates and other stakeholder groups recommended that EEOC’s regulations and MD-110 be changed to clearly prohibit agency actions that interfere with the independent judgment of the EEO investigator. Noting that stakeholders have complained of intrusion in the operations of the agency EEO office by staff responsible for defending the agency against complaints of discrimination and that such intrusion could affect the impartiality of the investigation, EEOC officials stated that EEOC has draft guidance on the intrusion into the EEO process by agency counsel, especially in the informal part of the process, which is being reviewed by the commissioners.","Because of the concern that the practice of allowing an agency to investigate a complaint against itself can represent either a clear conflict of interest or the appearance of such conflict, practitioners cited filing complaints directly with EEOC as a means of avoiding such conflicts. Allowing such filings would alter the current administrative complaint process. Stakeholders cited several advantages to having EEOC conduct investigations. One advantage would be its potential to reduce concerns regarding independence, conflicts of interest, and perceptions of unfairness surrounding the existing federal EEO complaint process. Another advantage stakeholders cited was EEOC’s potential to leverage its expertise, which in addition to administering the federal sector EEO process, promulgating regulations, providing EEO training, and collecting governmentwide data on EEO activities, also includes investigating private sector complaints of discrimination.","According to stakeholders, potential disadvantages of transferring investigations to EEOC included adding an immense burden along with insufficient resources for EEOC to handle the larger workload, which would add more time to the complaint process and compound the time it takes EEOC to make decisions in EEO complaint processing, and creating tension between the various roles the agency is responsible for when one agency is afforded too many functions (e.g., investigations, decisions, and appeals) under the EEO process, which may impair neutrality, fairness, and accountability. EEOC officials noted that an overwhelming number of stakeholders who testified at the September 7, 2006, commission meeting or participated in focus groups conducted after that meeting recommended that EEOC take over the investigative function in its entirety from the agencies or that some type of independent body apart from EEOC assume this function. According to EEOC officials, stakeholders cited the conflict of interest perception and agencies’ failure to complete their investigations in a timely manner as the principal reasons.","EEOC also noted its belief that having it conduct the federal sector investigations would also bring efficiency, uniformity, and quality to the process as the commission would either hire a cadre of investigators dedicated to the federal sector or possibly act as a conduit for contract investigations. In the past, EEOC stated that fiscal realities have prevented it from assuming responsibility for all federal sector investigations, noting that in fiscal year 2008, agencies conducted over 11,000 investigations at a cost of a little more than $36 million. Thus, according to EEOC officials, the resource implications of EEOC assuming the investigative function would be considerable, and the various ways of funding investigations by EEOC need further study. Several EEO practitioners mentioned addressing independence through the use of contractors for conducting investigations and drafting FADs. The Postal Service’s Office of Inspector General reported that the Postal Service contracts investigations to enhance the independence and neutrality of the EEO administrative process and to improve the overall quality and efficiency of investigations. The report states that a single office from the Postal Service National EEO Investigative Services Office oversees investigations and contract FAD writers.","This report did not address the quality of the investigations. As mentioned earlier, it is important that agencies review the quality of contract investigations. In its 2004 report on federal sector EEO investigations and cost, EEOC cited the importance of federal agencies having EEO programs staffed with employees who have the necessary knowledge, skills, and abilities to help reduce the time it takes to conduct investigations. More than three- quarters of our survey respondents from the agencies and EEOC as well as plaintiffs’ attorneys pointed to the importance of investigators enhancing their current level of knowledge and skills in the federal EEO complaint process. Almost three-quarters of respondents cited enhancing the knowledge and skills of EEO directors and agency management as very or extremely important, and about two-thirds of respondents cited enhancing the knowledge and skills of EEO counselors as very or extremely important. Several EEO practitioners offered suggestions for enhancing the knowledge and skills of EEO staff. For example, a plaintiffs’ attorney offered that counselors should be required to spend at least 8 hours observing an experienced counselor before providing counseling.","EEOC’s MD-110 requires at least 32 hours of counselor training before providing counseling as well as 8 hours of continuing annual training. As for investigators, another plaintiffs’ attorney, noting that the minimum requirements in EEOC guidance for investigators is insufficient, stated that EEOC should expand the minimum training and experience requirements and require additional annual continuing education. Similar to the training required for counselors, MD-110 also requires at least 32 hours of investigator training before conducting investigations as well as 8 hours of continuing annual training. Several practitioners and stakeholders suggested that investigators should receive some kind of certification. One practitioner recommended that EEOC certify individual investigator credentials through a combination of agency-provided training or by licensing training programs that meet EEOC-established minimum requirements, and require every investigator, whether in-house agency employee or contract investigator, to apply for and be certified as meeting the minimum requirements. Some respondents said that their organizations had improved training for EEO staff. For example, an EEO director reported that her agency has standardized its basic and advanced EEO counselor training class. The director’s office has coordinated with the agency’s ADR office and office of inspector general to participate in the","training.","All bureaus send counselors to the same course, and counselors are issued credentials at the end of the training by the agency. An EEO counselor reported that her agency trained all EEO specialists to be EEO counselors and investigators and to write dismissals and FADs. This practitioner noted that providing all EEO staff with all available EEOC training can enhance their understanding of the process from start to finish, thereby increasing completeness, accuracy, and effectiveness of complaint processing. An EEO counselor from another agency reported that at her agency there is a focus on developing the legal analysis skill set of EEO specialists who process complaints. During team meetings, the EEO specialists review intake decisions and FADs that they have prepared, and the specialists brief the team on the legal analysis conducted and the rationale for decisions. Counselors attend these meetings to increase their understanding of the bases for dismissal, the types of questions that need to be asked during the counseling inquiry, and the legal implications of new case decisions.","Almost all EEOC practitioners and plaintiffs’ attorneys and a majority of agency respondents indicated that it would be important to increase the current level of authority of EEOC AJs, and most respondents cited increasing authority for agency EEO directors as very or extremely important. EEO practitioners cited a need for subpoena power for AJs, who currently do not have this authority. In addition, EEO practitioners expressed the desire for expanded authority for (1) EEO directors to dismiss complaints of discrimination and (2) EEOC to order discipline against managers who discriminate. Practitioners also expressed a desire for EEOC to make sufficient use of its authority to sanction agencies that do not complete investigations on time. Several EEO practitioners felt that allowing AJs to subpoena witnesses would improve the EEO complaint process. An agency legal counsel cited cases where the agency and complainant suffer when potential witnesses, such as those who are no longer with the agency, refuse to testify. Until AJs are given such power, a plaintiffs’ attorney felt that the administrative complaint process cannot serve its intended purpose as a viable alternative to litigation in federal courts.","While EEOC AJs have authority to sanction an agency for failure to produce an approved witness who is a federal employee, they do not have the authority to subpoena the statements of individuals and therefore have no mechanism with which to compel the testimony of witnesses who are not current federal employees. With respect to subpoena power, according to MSPB officials, the board has delegated to its regional directors/chief administrative judges and AJs the authority to subpoena witnesses. EEOC officials also favor granting EEOC’s AJs subpoena power, noting that AJs have often voiced the belief that their lack of subpoena power is a significant defect in the hearings process, in many cases hindering their ability to conduct full and fair hearings. For instance, without subpoena authority, it is often difficult for AJs to compel a potential witness for the complainant, such as an agency’s outside medical personnel or a contractor employee, to testify on the complainant’s behalf. Although AJs use a variety of means to try to persuade former employees, contractors, and outside medical personnel to testify, it would be more efficient if AJs possessed subpoena authority.","EEOC officials stated that having subpoena authority would further ensure that AJs have access to all relevant evidence. However, according to EEOC’s Office of Legal Counsel, granting subpoena power to AJs would potentially require a statutory change. According to a senior EEOC official, EEOC has not sought such a statutory change. An example of expanded authority for EEO directors relates to the dismissal of complaints of discrimination. EEOC regulations set out circumstances under which complaints can be dismissed, including complaints that fail to state a claim of discrimination. In this regard, EEOC has consistently reversed agencies’ dismissals for failure to state a claim where the agency dismissal is based on the agency’s view of the ultimate merit of the complaint allegations. An EEO investigator stated that EEO directors should be given the authority to make a merit analysis to dismiss those claims that are frivolous and show self-defeating evidence to ensure quicker and less costly processing of cases. In cases that are dismissed, complainants could still appeal such decisions to EEOC.","As for the authority to order discipline for managers who have been found to have discriminated, EEOC’s practice is to advise rather than direct agencies to consider disciplining such managers. In addition, the No FEAR Act requires agencies to report information annually on disciplinary actions taken. The act also requires the President’s designee, the Office of Personnel Management (OPM), to undertake a study of best practices among agencies for taking disciplinary action for conduct inconsistent with antidiscrimination laws and whistleblower protection laws. OPM issued the advisory guidelines in September 2008; agencies have not yet reported actions they have taken consistent with these guidelines. EEOC regulations provide for sanctions against parties for failure (without good cause shown) to respond fully and in a timely fashion to an order of an AJ, to discovery requests, or to requests for the attendance of witnesses. Sanctions include the drawing of adverse inferences against, or exclusion of other evidence offered by, the noncomplying party, issuing a decision fully or partially in favor of the opposing party, or such other actions as appropriate.","Specifically, AJs may impose monetary sanctions where the agency has failed to complete an investigation that is timely, adequate, or both, including requiring agencies to bear the costs for the complainant to obtain depositions or other discovery. EEOC’s OFO can also sanction agencies at the appellate level. Some practitioners stated that EEOC does not make sufficient use of its sanctioning authority. On the matter of sanctioning authority, EEOC officials stated that AJs are guided by OFO decisions on sanction authority, that the agency is considering issuing further guidance to AJs, and that it will include training on the appropriate use of sanctions in federal sector training of AJs to be held later in 2009. In commenting on the importance of increasing the clarity and consistency of antidiscrimination laws (e.g., Title VII of the Civil Rights Act), EEOC regulations and guidance (e.g., MD-110 and MD-715), and EEOC decisions (e.g., decisions by AJs and appellate attorneys), the majority of EEO practitioners responding felt that it was most important to increase the clarity and consistency of EEOC decisions.","Primarily, practitioners indicated that increasing the consistency of decisions at several levels within EEOC was very or extremely important: decisions from EEOC’s OFO appellate attorneys, decisions by AJs, and decisions resulting from requests for reconsideration of appeals decisions. An EEO investigator suggested that EEOC’s OFO should index its decisions and cross-check them for consistency so that only those decisions that express a cogent, correct application of the law should be indexed and made available as precedent. According to a senior EEOC official, EEOC began to conduct quality reviews of AJ decisions in fiscal year 2007 by reviewing a sample of files from all offices to assess the legal adequacy of decisions and the consistency with case law as well as to determine whether time frames were met. The official said that EEOC officials share the results of the reviews with AJs through monthly conference calls and quarterly video conferences. In addition, according to EEOC, through a technical assistance group, EEOC staff visit selected field offices to review files for cases and decisions.","Noting the importance of the AJ position, one practitioner stated that EEOC should establish better qualifications for its AJs, including a minimum of 5 years litigation or related EEO or civil rights experience and that the position should be given a higher grade to make the position more competitive. MSPB, which also employs AJs to hear and decide appeals from former and current federal employees, applicants for federal employment, and federal annuitants concerning any matter over which the board has appellate jurisdiction, hires AJs in the range of GS-13s through GS-15s and has established timeliness, quality, and production standards for their performance. At EEOC, AJs can be hired at the GS-11 to the GS-13 level with promotion potential to GS-14. EEOC officials stated that the agency recognizes that a range of experience is important to adjudicate complex federal employment cases. Some practitioners indicated that they would like EEOC to make changes to its regulations or guidance. For example, one practitioner, a plaintiffs’ attorney, stated that EEOC should review its federal sector regulations with the aim of identifying and eliminating (or modifying) those provisions that undermine effectiveness and fairness.","An agency legal counsel stated that EEOC must establish clear guidelines for the conduct of agency counsel and their role in the EEO process. Practitioners and stakeholders expressed the need for clarification regarding the dismissal of complaints, specifically addressing dismissals for (1) failure to state a claim (including complaints alleging a hostile work environment), (2) abuse of the process, and (3) failure to cooperate. Also, in its March 2003 proposal, the coalition of civil rights employee advocates and other stakeholder groups recommended that EEOC adopt uniform standards for what states a claim of employment discrimination. Under this recommendation, complaints could be dismissed on these grounds either at the agency, before the complaints are investigated, or after a hearing request is submitted. While noting that its regulations provide standards for dismissing complaints that do not state a claim and that based on case law, EEOC has also broadly construed what actions may constitute a claim, EEOC officials stated that the commission is considering recommendations by internal and external stakeholders to provide additional guidance. EEOC MD-110 states that in the precomplaint process, counselors should create an atmosphere that is open to good communication and dialogue.","EEOC regulations require agencies to establish ADR programs, and EEOC MD-715 encourages the widespread use of an ADR program that facilitates the early, effective, and efficient informal resolution of disputes. According to EEOC, such programs can help agencies to avoid the time and costs associated with more formal dispute resolution processes and improve workforce communication and morale. Almost all respondents indicated that improving communication during the informal or precomplaint phase, claim acceptance/dismissal, and complaint investigation was very or extremely important. Also, about three-quarters of respondents indicated that improving communication during ADR was very or extremely important. Several EEO practitioners suggested that ADR should be used more often in disputes or even made mandatory. For example, a plaintiffs’ attorney offered that for ADR to be successful, agencies need to ensure that officials do not merely “go through the motion” on ADR but that an official at an appropriate level of authority represents management and that this official has settlement authority. In addition, in its March 2003 proposal, a coalition of civil rights employee advocates and other stakeholder groups recommended making ADR mandatory for managers in the informal and formal stages of the administrative process and for EEOC","hearings.","Several counselors reported that their agencies gave employees the option of using ADR in the informal and formal stages of the EEO complaint process as a means for resolving an EEO concern. According to one counselor, using ADR in this way focuses both parties on the objective of resolving the conflict rather than defending their respective positions. Another counselor reported that at her agency, at the time that contact is made with the informal EEO process, her agency gives employees the option—explained verbally and in writing—of traditional counseling or mediation (i.e., a type of ADR) when they initially begin the informal EEO process. Mediation is offered 100 percent of the time at initial contact, and ADR may be offered again in the formal stage of the process if the case proceeds. This practitioner found that offering ADR services is helpful in resolving complaints at the lowest possible level. Almost universally, stakeholder groups believed that counseling should be done at agencies, and EEOC also favors leaving the counseling responsibilities with the agencies.","Two stakeholders explained that EEO counselors who work in an agency possess a familiarity with the organization’s operations, culture, and leadership and that keeping counseling at the agencies enables counselors to see problems firsthand while giving agencies opportunities to correct problems and demonstrate some commitment to EEO principles. EEOC officials stated that stakeholders have recommended that the commission ensure that during counseling, agencies provide better, more understandable, and more consistent information describing the EEO process and complainants’ rights and responsibilities therein. In its 2008 performance and accountability report, EEOC noted that precomplaint EEO counseling and ADR programs addressed many employee concerns before they resulted in formal complaints. Of the 37,809 instances of counseling in fiscal year 2007, about 56 percent did not result in a formal complaint because of either settlement by the parties or withdrawal from the EEO process. According to EEOC’s 2007 report, agencies’ ADR offer, participation, and resolution rates varied widely. For example, the Postal Service offered ADR in about 93 percent of precomplaint counseling, while the other agencies’ offer rate was about 71 percent, with some agencies not offering ADR in any counseling sessions. The governmentwide ADR participation rate in fiscal year","2007 was 48 percent.","The Postal Service, which requires management to participate, reported the highest rate of ADR participation (about 76 percent) compared with the average participation rate of about 25 percent among other agencies. According to EEOC’s 2007 annual report, complainants rejected ADR offers 10 times more often than agencies. Similarly, the Postal Service had an overall resolution rate of about 75 percent, while the rate for other agencies was about 46 percent. EEOC officials reported taking a number of actions to encourage more use of ADR, such as updating EEOC’s federal sector ADR Web page to improve the delivery of information on the benefits of ADR and ADR best practices; providing technical assistance through e-mail, telephone contacts, and on-site visits, as requested; and participating in federal ADR work groups and agency conferences. The commission also reported establishing the Federal Appellate Settlement Team (FAST) Program to utilize ADR techniques to resolve EEO appeals that have been filed in OFO. The FAST Program focuses on appeals that have been decided based on FADs on the merits. According to EEOC, qualified EEOC staff, who are experts in federal sector EEO law, conduct ADR to assist parties in reaching a mutually satisfactory","agreement.","Participation in the FAST Program is voluntary for both parties. Two practitioners made suggestions that would further communication outside of an ADR program. One described a precomplaint resolution program to address all issues involving the terms and conditions of employment, including EEO complaints. This practitioner stated that the program generally has been successful in resolving issues that do not belong in the EEO process, addressing matters before they become formal EEO complaints, and correcting situations that could result in a hostile environment or harassment claims. An EEO counselor suggested increased training in conflict management and effective communication for employees and supervisors as well as including conflict management in both performance plans to focus the responsibility for resolving everyday conflicts on the parties themselves, rather than bringing in a third party. Our prior work has shown that commitment from top management is key to successful management improvement initiatives. For example, our work on leading diversity management identified top management commitment as a fundamental element in the implementation of diversity management initiatives.","Similarly, EEOC MD-715 emphasizes the importance of demonstrating commitment to equality of opportunity for all employees and applicants for employment that is communicated throughout the agency from the top down. Agency heads have many ways to demonstrate commitment to equal opportunity and a workplace free of discriminatory harassment, but one important way is to provide the EEO director with “a seat at the table,” that is, access to the agency head. Having the EEO director report to the head of the agency sends a message to employees and managers about the importance of and commitment to the EEO program. An EEO practitioner stated that agencies should adhere more clearly to existing EEOC requirements on delineating the reporting lines of authority for EEO directors. EEOC advises that following each yearly submission of the MD-715 report to EEOC, EEO directors should present the “state of the EEO program” to the agency head outlining, among other things, the effectiveness, efficiency, and legal compliance of the agency’s EEO program. EEOC reported in its fiscal year 2007 annual report that 63 percent of EEO directors presented such a report.","EEOC also emphasized that ensuring that the EEO professionals are involved with and consulted on management and deployment of human resources, providing managers with training in EEO-related matters, having managers and employees involved in implementing the EEO program, and informing employees of the EEO program are other important aspects of demonstrating commitment to the EEO program. A majority of respondents indicated that it would be very or extremely important for agency management, agency EEO directors, and EEO investigators to reinforce their current level of commitment to the federal EEO complaint process. According to one EEO practitioner, agencies need to make the EEO function a priority, in terms of importance, expectations, and oversight. Another demonstrated means of support from the agency head, as one practitioner stated, is adequate funding and staffing of the EEO function within the agency. For example, an EEO counselor indicated that agencies have to move away from “dumping” agency employees in EEO offices and instead staff those offices with individuals who have the appropriate skill sets, perhaps even legal backgrounds, to develop credible programs.","According to a plaintiffs’ attorney, EEO must receive support from agency heads, and EEOC’s most recent federal workforce report shows that a significant percentage of agency heads did not issue an annual statement supporting EEO as recommended by EEO guidance. The practitioner suggested that agency heads who could not bother to issue a statement certainly could not be bothered to make EEO an agency priority. In its fiscal year 2007 annual report, EEOC reported that of the 167 agencies and subcomponents that submitted fiscal year 2006 MD-715 reports, 68 percent of the agencies issued EEO policy statements, an increase over the 50 percent of the 158 agencies and subcomponents that submitted MD-715 reports in fiscal year 2005. Stakeholders raised other options for changing how EEO complaints are processed that were outside of the eight factors that we used to group participant and stakeholder responses and solutions.","For example: Some stakeholders noted the considerable amount of time that can elapse from the filing of a formal EEO complaint through the administrative process to the potential conclusion of the matter in federal court and suggested that complainants be given the choice of using the administrative or the judicial process but not be permitted to use both. Under this option, stakeholders provided that the administrative process could afford the right to a judicial appeal of that administrative decision to a U.S. federal court of appeals. Other stakeholders, concerned with the multiple forums that complainants have available, suggested an administrative tribunal, which could handle all variety of issues, including discrimination, prohibited personnel practices, and unfair labor practices. Stakeholders indicated that this could avoid the problem of a matter going to more than one forum and could avoid the difficulty encountered (and mistakes made in assessing the nature of a complaint) by a complainant when faced with making a forum choice at the outset. Some stakeholders raised concern over the number of complaints accepted into the process that should not be (i.e., frivolous, not discrimination) and supported having EEO complaints go through a similar process as unfair","labor practice allegations.","With unfair labor practice allegations, an investigation by an independent third party serves to eliminate matters that should not go forward before a full- scale hearing is afforded. Some stakeholders observed that under options in which an individual goes directly to a third party with allegations, the adversarial nature of the process could potentially increase. One stakeholder observed that such options could require mandatory ADR to minimize this potential effect. Concern was also raised by another stakeholder that some options may serve to preclude lower-graded employees from pursuing claims where the option does not provide for a cost-free investigation. Through the use of several initiatives introduced in fiscal year 2008, EEOC is seeking to help federal agencies achieve model EEO programs where they can make employment decisions that are free from discrimination and that remove barriers to free and open workplace competition. One such tool is EEOC’s EEO Program Compliance Assessment (EPCA), a type of scorecard that is divided into two sections. In the EEO program activities section, EEOC evaluated agencies on selected indicators under each model element of MD-715 using fiscal year 2006 data and reports.","Among the indicators measured were timeliness of investigations, FADs, and submission of complaint files for hearings and appeals. EEOC also measured agencies’ use of ADR. EPCA does not evaluate agencies on the quality of their investigations, but according to EEOC officials, the Commission is currently examining how to incorporate agencies’ quality of investigations as a performance measure under EPCA. In the EEO program outcome indicators section, EPCA includes selected responses from OPM’s fiscal year 2006 Federal Human Capital Survey to five survey questions as “proxy outcome indicators” to gauge each agency’s progress in creating a fair and inclusive workplace. The outcome indicators section also includes workforce analyses based on race, national origin, gender, and targeted disabilities that show how a particular agency’s workforce is composed by major occupation and compare it to the civilian labor force; provides an odds ratio analysis on promotions in the senior grade levels; and shows agencies how they compare to the federal government as a whole on various climate and other issues. During our audit work, agencies’ EPCA results were available to the public on EEOC’s Web site; however, EEOC has since removed the results.","According to a senior EEOC official, EEOC is evaluating the appropriate use of the program indicators in EPCA in an attempt to ensure that the indicators chosen are accurate measures of the performance of agency EEO programs. The official did not provide a time frame for this evaluation. In addition to EPCA, EEOC stated in its fiscal year 2008 performance and accountability report that a key strategy in its efforts to be more responsive to federal agencies was the continued development of its relationship management pilot. This initiative was first piloted in fiscal year 2004 and involves EEOC personnel partnering with EEO staff in 11 agencies in a consultative relationship to improve customer service and help them successfully implement the essential elements of MD-715’s model EEO program. In addition to these activities, EEOC staff provide trend analysis feedback to selected agencies on their MD-715 submissions, and EEOC is conducting on-site reviews of five agencies with high underrepresentation of racial minorities at the Senior Executive Service level and of another agency to investigate a spike in retaliation complaints. Finally, in June 2008, EEOC announced a proposal that brought together previous EEOC commissioners’ efforts.","Among the changes contained in the notice, are the following: A requirement that agency EEO programs comply with EEOC regulations, MDs (MD-110 and MD-715), and management bulletins and that EEOC will review agency programs for compliance. Permission from EEOC for agencies to conduct pilot projects—usually for not more than 12 months—for processing complaints in ways other than those prescribed in EEOC regulations (Part 1614). A requirement that an agency that has not completed an EEO investigation within the 180-day time limit notify the complainant in writing that the investigation is not complete and when it will be completed and that the complainant has the right to request a hearing or file a lawsuit. The proposals for EEOC to review compliance with its regulations, MDs, and other guidance and to provide additional notification to complainants have the potential for an immediate impact on the EEO complaint process. By reviewing compliance, EEOC could address several of the factors that EEO practitioners indicated impede the timely processing of complaints and independence.","For example, requiring agency compliance with regulations and MDs delineating the reporting lines of authority for EEO Directors and the roles of agency offices of general counsel in the EEO complaint process could help strengthen the independence of EEO professionals to fulfill their responsibilities. As we stated earlier, EEOC stated its belief that a requirement to notify the complainant in writing about complaints that have not been investigated within 180 days may provide an incentive for agencies to complete investigations in a timely manner. Pilot projects could provide helpful data with which EEOC could make decisions about future improvements to the federal sector EEO complaint process. For example, the Department of Defense (DOD) had the authority to operate pilot programs outside of the procedural requirements prescribed by EEOC to improve processes for the resolution of EEO complaints by civilian employees of DOD. DOD operated three such programs between 2005 and 2007, although only one of the three DOD pilot programs met the criteria of “operating outside of EEOC regulations.” The other two operated within the framework of EEOC regulations by increasing the use of ADR to informally settle disputes before they became formal complaints.","Our prior work on the DOD pilot programs showed the importance of having a sound evaluation plan, including key features that are essential for assessing the performance of the pilot programs and making determinations regarding the wider applications of the pilot programs. Some key features of a sound evaluation plan include the following: Well-defined, clear, and measurable objectives. Measures that are directly linked to the program objectives. Criteria for determining pilot program performance. A way to isolate the effects of the pilot programs. A data analysis plan for the evaluation design. A detailed plan to ensure that data collection, entry, and storage are reliable and error free. In addition to the importance of having a strong evaluation program, our work on the DOD pilots also identified lessons learned that can be instrumental for EEOC and potential pilot program officials as they consider whether to institute pilot projects to address concerns that have been identified with the EEO complaint process. For example, it is important to (1) involve senior management and stakeholder groups in designing, implementing, and evaluating the pilot program to help with buy-in; (2) emphasize the importance of customer feedback; and (3) include mechanisms to","solicit such feedback.","As of May 2009, EEOC had not issued its notice of proposed rulemaking outlining such specific features as the number of pilot projects, how they will operate, or how they will be evaluated. The solutions that EEO practitioners and others have offered to improve the quality and timeliness of investigations may provide candidates for the pilot projects, allowing EEOC to make data-driven decisions about changes to the federal EEO complaint process. Equal opportunity in the federal workplace is key to enabling federal agencies to meet the complex needs of our nation. Agencies must make a firm commitment to the principles of equal opportunity and make those principles a fundamental part of agency culture so that all employees can compete on a fair and level playing field and have the opportunity to achieve their potential, without regard to race, color, religion, national origin, age, gender, or disability. Holding agencies accountable for adhering to EEOC regulations and guidance will help EEOC to ensure that the EEO complaint process is operating as intended. EEO practitioners and others have identified shortcomings in the operation of the federal EEO process at both the agencies and EEOC.","Some of these shortcomings could potentially be addressed through additional guidance that EEOC has stated it intends to issue in such areas as the appropriate relationship between EEO offices and offices involved in defending the agencies against discrimination complaints as well as what constitutes a claim; it will be important for the commission to follow through with this guidance. Additionally, EEOC is considering allowing agencies to conduct pilot projects for processing complaints outside of EEOC regulations. If agencies were to participate in pilot projects, it would be important for them to have well-developed evaluation plans that include key evaluation features. Pilots that are undertaken without sound evaluation plans increase the likelihood of insufficient or unreliable data, limiting confidence in pilot project results. Without confidence in pilot project results, EEOC will be limited in its decision making regarding the pilot projects, and to the extent that proposed changes in the federal EEO complaint process require congressional action, Congress will be limited in its decision making about the pilot projects’ potential broader application.","If pilot projects are approved by EEOC, we recommend that the Acting Chairman of EEOC take the following two actions: Direct pilot project officials to develop for each pilot project an evaluation plan that includes key features to improve the likelihood that pilot project evaluations will yield sound results, such as well-defined, clear, and measurable objectives; measures that are directly linked to the program objectives; criteria for determining pilot program performance; a way to isolate the effects of the pilot programs; a data analysis plan for the evaluation design; and a detailed plan to ensure that data collection, entry, and storage are reliable and error free. Direct commission staff to review and approve pilot projects’ evaluation plans to increase the likelihood that evaluations will yield methodologically sound results, thereby supporting effective program and policy decisions. We provided a draft of this report to EEOC for review and comment. In a June 24, 2009, letter, EEOC’s Acting Chairman agreed with our recommendations and stated that EEOC plans on implementing them.","The Acting Chairman further stated that EEOC is committed to improving the timeliness of complaint processing, enhancing the quality of the investigative reports as well as the hearing and appellate decisions, and ensuring greater accountability by all parties in the federal sector complaint process. EEOC’s letter is reprinted in appendix III. We are sending copies of this report to the Attorney General; the Acting Chairman, Equal Employment Opportunity Commission; and interested congressional committees and subcommittees. The report also is available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-6806 or stalcupg@gao.gov if you or your staffs have any questions about this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. As agreed with interested congressional committees, this report provided the results of our analysis of (1) factors that practitioners identified that they believe impede the prompt, fair, and impartial processing of federal equal employment opportunity (EEO) complaints and (2) actions that practitioners and other stakeholders think could be taken to address those","factors.","We also included information on what the Equal Employment Opportunity Commission (EEOC) is doing to improve equal opportunity in the federal workforce. For the purposes of this review, we surveyed individuals whose work roles and responsibilities put them in regular contact with the federal EEO complaint process, thereby ensuring their familiarity with and knowledge about the process. Based on prior GAO work on the EEO process, we identified seven categories of individuals familiar with the federal EEO complaint process. We termed these individuals “EEO practitioners” and collected their informed views concerning the EEO complaint process. We derived our seven categories of practitioners from three sources: individual agencies, EEOC, and the plaintiffs’ attorney community. Agency practitioners we surveyed included the EEO directors responsible for administering agency EEO programs, EEO counselors responsible for reviewing the complainants initial allegations and advising them on their roles and responsibilities in the EEO process, EEO investigators responsible for investigating EEO complaints, and legal counsels responsible for advising and defending agencies against EEO complaints. EEOC practitioners included the EEOC administrative judges (AJ) responsible for adjudicating complaints, conducting hearings, and issuing decisions on EEO complaints, and EEOC appeals attorneys responsible for processing appeals of","decisions.","The plaintiffs’ attorneys represent individual employees who filed EEO complaint cases. We obtained e-mail addresses, physical addresses, and telephone numbers for all EEO practitioners in order to contact them. To attain a wide representation of agencies, we selected agency-level EEO practitioners from 17 agencies based on agency size, complaint activity, and investigation source (in-house versus contractor) as of fiscal year 2005. In an effort to obtain a sufficiently representative and diverse group of large, medium, and small agencies from which to begin our selection process, we focused on agencies that had reported at least 50 complaints filed in fiscal year 2005, the number of employees at agencies, and the mechanism the agencies used to investigate complaints—primarily agency employees, contract investigators, or a mix of in-house and contract investigators in fiscal year 2005. The 17 agencies that we selected on the basis of the number of complaints filed and the mechanism for EEO investigations were the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, the Interior, Justice, Transportation, the Treasury, State, and Veterans Affairs; the Environmental Protection Agency; the General Services Administration; the Office of Personnel Management; and the U.S. Postal Service.","EEO complaints filed at the selected 17 agencies in the aggregate represented 91 percent of EEO complaints filed governmentwide in fiscal year 2005. We decided against including the Department of Justice (Justice) after agency officials said that their practitioners’ survey responses first would have to undergo vetting within the agency. Under those conditions, we could not allow Justice practitioners to participate in the survey. We so advised Justice representatives during a telephone conference, during which we also proposed interviewing Justice officials later in the engagement about possible changes to the EEO complaint process. Justice representatives agreed to participate under those conditions. The decision not to include Justice left us with 16 agencies that in the aggregate represented 87.5 percent of EEO complaints filed governmentwide in fiscal year 2005. Finally, for a total of 17 agencies, we included EEOC because of the roles that its AJs play in adjudicating hearings of EEO complaints and its appeals attorneys play in adjudicating appeals of decisions on those complaints.","EEO Practitioner Selection To recruit EEO practitioners from the 16 agencies, we contacted EEO directors at these agencies by telephone and e-mail, informed them about the nature of our review, requested their participation in the survey, and asked them to nominate EEO counselors, investigators, and agency counsel. We contacted EEOC officials to recruit EEOC AJs and appeals attorneys. We also contacted plaintiffs’ attorneys from the private sector. The selected practitioners represent different parts of the complaint process, and some of the practitioners may only be familiar with their part of the process. We recruited an equal number of individuals from each category of EEO practitioners to attain a wide representation of agencies and reduce possible bias in the final results. To achieve a more independent distribution of agency practitioners, we selected our final list of practitioners from 16 agencies (not including EEOC) in an effort to reduce the risk of collaborative responses caused by horizontal integration.","We recruited no more than 3 practitioners for each of the four categories of agency practitioners (i.e., directors, counselors, investigators, and agency counsels) to lessen the likelihood that any of the agencies would have all categories of practitioners and ensure a broader perspective on the issues. In all, we selected 36 practitioners, 9 from each group of agency practitioners. We did not select a member of every practitioner group from every agency. In addition to the agency practitioners, we also sought the perspectives of practitioners from EEOC, which administers and provides guidance and oversees the federal EEO complaint process. We asked EEOC supervisors and nonsupervisors to nominate EEOC AJs and appeals attorneys to participate in the survey. To recruit AJs, we also considered recommendations from EEOC management and from an organization representing EEOC AJs, contacted nominees and asked them to participate in the survey and to recommend other AJs for participation, and then contacted the nominees to request their involvement. We selected nine EEOC appeals attorneys and nine EEOC AJs. Finally, we selected nine plaintiffs’ attorneys after considering relevant information from other EEO practitioners and people in the EEO community.","To address our objectives, we primarily used two Web-based surveys to systematically collect and distill knowledge from the EEO practitioners we had selected. Our first Web-based survey consisted of open-ended questions that were designed to capture the practitioners’ narrative responses. Specifically, we asked practitioners three questions: (1) Based on your experience as an EEO practitioner, what are the most important factors you have observed that materially impede the prompt, fair, and impartial processing of complaints at your agency, or at EEOC, and how have those factors impeded complaint processing? (2) What specific changes could be made to address the factors you listed above, in order to promote the prompt, fair, and impartial processing of federal EEO complaints? (3) What changes have been made to the EEO complaint process at your agency? What effects did these changes have on the prompt, fair, and impartial processing of EEO complaints at your agency? Before launching each survey, we conducted a series of pretests with internal and external EEO practitioners, including some actual survey respondents. The goals of the pretests were to check that (1) the questions were clear and unambiguous and (2) the terminology was used correctly.","To conduct pretests, we selected representatives from several practitioner categories, provided them with survey drafts for their review, and interviewed them either in person or by teleconference to obtain their opinions about the language, format, and tone of questions in the survey. Based on the reactions of practitioners, we changed the survey content and format during pretesting as necessary. We also conducted usability tests that entailed checking each practitioner’s password, user name, and link to ensure their operability before we launched the Web survey. To activate the survey, we posted it to the Internet. We notified the 63 EEO practitioners of the availability of the questionnaire with an e-mail message that contained a unique user name and password that allowed each respondent to log on and fill out a questionnaire while preventing respondents from gaining access to the surveys of others. Using their access information, practitioners could access the survey on the Internet at any time and could complete it at their convenience. If practitioners did not respond to the confidential link we provided, we accepted official submissions for responses in another format (e.g., e-mail).","Access to the Phase I survey formally began on April 9, 2007, after which practitioners had approximately 8 weeks from April 2007 through May 2007 to complete the survey. While the survey was ongoing, we wrote follow-up e-mails and made telephone calls to practitioners who did not initially respond to the survey to ensure that we made every effort to reach them. Of the 63 practitioners to whom we made the Phase I survey available, 1 practitioner informed us that she did not work in one of our practitioner categories. As she was the only respondent from her agency, we sent the survey to another EEO practitioner at that agency. When we did not receive a response from another practitioner at another agency, we then sent the survey to an official from her agency, because that official’s office is in charge of the discrimination complaint counseling and investigation processes and alternative dispute resolution. Thus, we selected 65 practitioners to participate in the Phase I Web-based survey. By June 2007, of the 65, 62, or about 95 percent of the EEO practitioners, had completed the Phase I survey. Responses to the survey express only the views and","attitudes of the practitioners.","Once the Phase I survey was complete, we conducted a content analysis of practitioners’ open-ended narrative responses to that survey. We developed a coding system that was based on the type of practitioner, the individual respondent, sequential numbers to identify the response, and the type (solution or factor) of response. We assigned individual codes to each sentence or paragraph provided by each practitioner. Based on our content analysis of Phase I responses, we developed a list of eight broad categories of factors—accountability, knowledge and skills, authority, independence, commitment, resources, communication, and laws and guidance—into which we grouped the responses. We also included “Other” and “Not applicable” categories where we placed that very small number of responses that did not fit under the eight factors. Some Phase I survey responses may have addressed multiple issues and so may have been classified into more than one of these factors. We did not assess the validity of the practitioners’ views of impediments or solutions to the EEO complaint process or evaluate the effectiveness of initiatives that agency EEO practitioners said their agencies had implemented to improve their complaint processes.","We report the views of practitioners who are knowledgeable of the federal EEO complaint process, but these views do not represent the official views of the 17 agencies. In addition, the practitioners’ views cannot be generalized to all federal agencies and EEO practitioners for some or all of the factors identified. After categorizing all responses according to the eight broad factors, we used the results as a basis for developing the closed-ended questions that made up the Phase II survey and asked practitioners to rank on a scale of 1 through 8 the solutions they considered to be most important for improving the current federal EEO complaint process. As we had done for the Phase I survey, we conducted pretests of the Phase II survey with practitioners to ensure that our questions were clear and unambiguous and that the terminology was being used correctly. For pretest subjects, we selected representatives from each of the practitioner categories and included some actual survey respondents. We provided them with survey drafts for their review and interviewed them in person or by telephone. We modified the draft survey to address feedback we received from pretesters.","The Phase II survey formally began on January 10, 2008. We sent the survey to the 62 EEO practitioners who responded to the Phase I survey. Survey respondents took approximately 8 weeks, from January 2008 through February 2008, to complete the second phase of the survey. We wrote follow-up e-mails and made numerous telephone calls to contact practitioners who did not initially respond to the survey to ensure that we obtained responses from as many practitioners as possible. In all, 56, or about 90 percent, of the 62 practitioners completed the Phase II survey, which refines the results of the Phase I survey by asking respondents to provide their views as to where directed improvements in the EEO complaint process for each of the eight broad factors from the Phase I survey could have the greatest effect. The Phase II survey asked respondents to rank each of the eight factors identified in the Phase I survey from highest to lowest in terms of importance for improving the federal EEO complaint process.","Once respondents completed the Phase II survey, we computed overall rankings of the factors according to the order of frequency in which respondents ranked them as most, second most, or third most important. The views expressed by the survey respondents do not represent the views of GAO. We also gathered information to address our second objective by interviewing representatives from a variety of stakeholder organizations in the federal EEO complaint process, including federal employee unions, federal executive and managers associations, agency attorneys’ associations, and federal employee organizations, to obtain their views regarding possible changes that could be made to the federal EEO complaint process and the advantages and disadvantages of implementing such changes. We selected these stakeholder organizations based on a literature search, recommendations from EEOC, and our professional judgment in an effort to compile a diverse list of organizations with involvement in EEO activities or that represented specific groups protected by EEO laws. The stakeholder organizations we contacted for this review do not represent all of the potential stakeholder organizations from specific groups protected by EEO laws.","Using a preliminary list we developed, we obtained the names, street addresses, and e-mail addresses of officials from these organizations and conducted interviews with representatives from these organizations in their headquarters offices and in facilitated group meetings at GAO headquarters. Before conducting the stakeholder interviews, we e-mailed representatives a document that contained preliminary information from our Phase I survey and descriptions of several possible options for reassigning responsibilities for operating federal EEO investigations, counseling, hearings, and appeals to EEOC, another agency, or a hypothetical entity. We provided this information to enable stakeholders to review the document before interviews where it would serve as a point of discussion. During these interviews, we asked stakeholder organization representatives whether they thought our eight broad factors adequately captured the complex issues in the federal EEO complaint process and to identify the advantages and disadvantages of implementing the structural options that we had described for changing the EEO complaint process. We analyzed the views of these stakeholder organization representatives by reviewing their observations concerning our eight broad factors as well as their observations on the possible options for making changes to the EEO complaint process.","To identify actions taken by EEOC to improve the federal EEO complaint process, we reviewed EEOC documents and interviewed commission officials. We did not evaluate the effectiveness of actions EEOC reported taking. We conducted this performance audit from May 2006 through August 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Title VII of the Civil Rights Act of 1964, as amended, makes it illegal for employers, including federal agencies, to discriminate against their employees or job applicants on the basis of race, color, religion, sex, or national origin. The Equal Pay Act of 1963 protects men and women who perform substantially equal work in the same establishment from sex- based wage discrimination. The Age Discrimination in Employment Act of 1967, as amended, prohibits employment discrimination against individuals who are 40 years of age or older.","Sections 501 and 505 of the Rehabilitation Act of 1973, as amended, prohibit discrimination against qualified individuals with disabilities who work or apply to work in the federal government. Federal agencies are required to provide reasonable accommodation to qualified employees or applicants for employment with disabilities, except when such accommodation would cause an undue hardship. In addition, a person who files a complaint or participates in an investigation of an EEO complaint or who opposes an employment practice made illegal under any of the antidiscrimination statutes is protected from retaliation. The EEOC is responsible for enforcing all of these laws. In addition to the contact named above, Anthony Lofaro, Belva Martin, and Kiki Theodoropoulos, Assistant Directors; Gerard Burke; Jeff Dawson; Brandon Haller; Karin Fangman; Jeff Niblack; and Greg Wilmoth made major contributions to this report."],"string":"[\n \"The federal EEO complaint process consists of two stages, informal, or precomplaint counseling, and formal. Appendix II contains information on EEO laws applicable to federal employees. Under existing regulations, before filing a complaint, an employee must consult an EEO counselor at the agency in order to try to informally resolve the matter. The employee must contact an EEO counselor within 45 days of the matter alleged to be discriminatory or, in the case of a personnel action, within 45 days of the effective date of the action. Counselors are to advise individuals that when the agency agrees to offer alternative dispute resolution (ADR) in the particular case, they may choose to participate in either counseling or in ADR. Counseling is to be completed within 30 days from the date the employee contacted the EEO office unless the employee and agency agree to an extension of up to an additional 60 days. If ADR is chosen, the parties have 90 days in which to attempt resolution. If the matter is not resolved within these time frames, the counselor is required to inform the employee in writing of his or her right to file a formal discrimination complaint\",\n \"with the agency.\",\n \"After a complainant files a formal discrimination complaint, the agency must decide whether to accept or dismiss the complaint and notify the complainant. If the agency dismisses the complaint, the complainant has 30 days to appeal the dismissal to EEOC. If the agency accepts the complaint, it has 180 days to investigate the accepted complaint from the date the complaint was filed and provide the complainant with a copy of the investigative file. Within 30 days of receipt of the copy of the investigative file, the complainant must choose between requesting (1) a hearing and decision from an AJ or (2) a final decision from the agency. When a hearing is not requested, the agency must issue a final agency decision (FAD) within 60 days on the merits of a complaint. A complainant may appeal an agency’s final decision to EEOC within 30 days of receiving the final decision. In cases where a hearing is requested, the complaint is assigned to an EEOC AJ, and the AJ has 180 days to issue a decision and send the decision to the complainant and the agency. If the AJ issues a finding of discrimination, he or she is\",\n \"to order appropriate relief.\",\n \"After the AJ decision is issued, the agency has 40 days to issue a final order notifying the complainant whether the agency will fully implement the decision of the AJ, after which the employee has 30 days to file an appeal with EEOC of the agency’s final order. If the agency issues an order notifying the complainant that the agency will not fully implement the decision of the AJ, the agency also must file an appeal with EEOC at the same time. Following an appeal decision, both the complainant and the agency have 30 days in which to request reconsideration of EEOC’s appeal decision. Decisions on appeals are issued by EEOC’s Office of Federal Operations (OFO), on behalf of the commission. A complainant may file a civil action in federal district court at various points during and after the administrative process. The filing of a civil action will terminate the ongoing administrative processing of the complaint. A complainant may file a civil action within 90 days of receiving the agency’s final decision or order or EEOC’s final decision.\",\n \"A complainant may also file a civil action after 180 days from filing a complaint with his or her agency or after filing an appeal with EEOC, if no final action or decision has been made. Figure 1 shows the EEO complaint process. In addition to regulations governing the EEO complaint process, EEOC has issued guidance in the form of management directives (MD) to help agencies process complaints and create a model EEO program. MD-110, revised in November 1999, provides federal agencies with policies, procedures, and guidance relating to processing EEO complaints, including, among other things, the authority of the EEO director and the director’s reporting relationship to the agency head, mandatory training requirements for EEO counselors and investigators, procedures for counseling and ADR, and the role of the AJ. In 2003, EEOC issued MD-715 which, among other things, establishes requirements for federal a gencies to create model EEO programs, including guidance for proactive prevention of unlawful discrimination.\",\n \"Under MD-715, each agency is to have an efficient and fair dispute resolution process and effective systems for evaluating the impact and effectiveness of its EEO program and us e a complaint tracking and monitoring system that permits the agency to identify the location, status, and length of time elapsed at each stage of the process and othe r information necessary to analyze complaint activity and identify trends. Among other requirements, EEOC regulations generally provide that agencies are to complete investigations of formal complaints within 180 days of their receipt and issue FADs within 60 days for those cases where a hearing is not requested. When a hearing is requested, AJs are to issue decisions within 180 days of receiving the complaint files from an agency. EEOC regulations do not set time frames for resolving appeals, but in its most recent strategic plan, EEOC has set an annual performance measure thin that by 2012 70 percent of federal sector appeals are to be resolved wi180 days. From fiscal years 2005 through 2007, appeals closures have averaged from 194 to 230 days.\",\n \"Table 1 shows that although federal agencies have made improvements in the time it takes to process formal EEO complaints, they are still not meeting the deadlines in regulation. The table includes data from EEOC’s annual reports on the federal workfo on average processing days for investigations and FADs on merits of complaints, both including the U.S. Postal Service—which has the larges number of EEO complaints—and without it, because the Postal Service complaint volume affects average processing times. These data show in fiscal year 2007, the Postal Service completed investigations in an average of 106 days and FADs in 28 days. Table 1 also shows average that processing days for EEOC hearings decisions, which on average have exceeded requirements. When asked to identify factors that impeded the prompt, fair, and impartial processing of EEO complaints at their agencies and describe how those factors impeded the process, selected EEO practitioners provided hundreds of responses. Because these practitioners represent different parts of the complaint process and some of the practitioners may only be familiar with their part of the process, we could not tally the number of responses under each factor.\",\n \"While recognizing that the factors the practitioners identified are not necessarily discrete, we analyzed and grouped them into eight broad categories of factors and then asked those same EEO practitioners to rank them in terms of their importance for improving the federal EEO complaint process.\",\n \"These factors and their rankings are (1) lack of accountability on the part of some agency management officials and EEO practitioners in carrying out their responsibilities; (2) insufficient resources for some agency EEO offices and EEOC to fulfill their responsibilities; (3) lack of independence concerning the potential conflict of having agencies conduct their own EEO complaint investigations and the undue influence of some agency legal counsel and human resources officials on the EEO process; (4) insufficient knowledge and skills by some agency officials, complainants, and EEO practitioners to fulfill their responsibilities; (5) lack of authority by some EEO officials to dismiss cases that have no merit and lack of subpoena power by EEOC AJs; (6) lack of clarity in regulation and some guidance and consistent decisions from EEOC; (7) lack of effective communication by some EEO practitioners of relevant oral and written information to participants in the process and that ADR (e.g., conciliation, facilitation, or mediation) is available; and (8) lack of a firm commitment by some agency management and EEO officials to the EEO process. In our discussions with stakeholders, they generally concurred with these eight factors.\",\n \"In addition, a few stakeholders identified the perception of unfairness as an overarching theme. These stakeholders commented that without the perception that the complaint process is fair, people may be frustrated and choose to not participate in it. We discussed with these stakeholders that fairness is indeed one of the goals of the EEO complaints process, along with promptness and impartiality. The perception that the system is not fair, among other issues, has led to calls for reform and is directly related to our effort in this review to identify factors that need to be addressed. We agree that this concern is important and believe it has been accounted for within the context of the discussion on factors related to accountability; independence; and clarity in regulation, guidance, and consistent EEOC decisions. The eight factors are consistent with concerns raised previously about problems with the federal sector EEO complaint process.\",\n \"For example, in November 2002, EEOC held an open meeting to address issues with the EEO complaint process amid concerns from stakeholders representing both complainants and federal agencies that the process is “much too slow, far too expensive, unnecessarily cumbersome, and given to potential conflicts of interest.” In March 2003, a coalition of civil rights employee advocates and other stakeholder groups submitted a seven-step proposal to EEOC commissioners to improve the federal sector EEO complaint process. This proposal included steps to make ADR mandatory for managers in the informal and formal stages of the administrative process and have EEO directors report directly to the agency head, and a recommendation that EEOC adopt a uniform standard for what states a claim of employment discrimination. Additionally, in September 2006, the commission held a meeting where stakeholders discussed the practices that work in obtaining a timely, thorough, and complete investigation as well as the barriers that prevent such investigations. One issue raised in that meeting was the lack of consequences (related to accountability) for agencies that do not comply with the 180-day requirement to complete investigations.\",\n \"A commissioner noted that a double standard exists, because a complaint would be dismissed if a complainant missed any of the deadlines. The quality of investigations was another issue—for both in- house and contract investigations. One participant stated that clear benchmarks need to exist with respect to the quality of the report of investigation, noting that in the end a poor investigation hurts the agency as well as the employee. EEO practitioners indicated that there appear to be no consequences for some agency officials or EEOC practitioners for not adhering to time frames established in EEOC regulations. For example, if an employee files a formal discrimination complaint, an agency must decide whether to accept the complaint and has 180 days to investigate an accepted complaint. In cases where the complainant requests a hearing from an EEOC AJ, the AJ generally has 180 days to issue a decision after the complaint file has been received from the agency. While many respondents cited agencies and EEOC for not adhering to time frames, some also said that a lack of timely cooperation by complainants delayed the processing of complaints.\",\n \"Many EEO practitioners across the various practitioner groups identified a lack of resources—staff and funding at some agency EEO offices and at EEOC—as impeding the timely processing of federal EEO complaints. For example, an EEO director and an investigator stated that because of understaffing, regulatory time limits are often exceeded. Another agency practitioner said that internal delays are also caused by a lack of resources in agency EEO offices. Several EEO practitioners stated that retirements and reassignments have made it difficult to keep counselors in agency EEO offices. Others mentioned problems with staffing levels at EEOC. One AJ noted that because of a lack of support staff, AJs spent time copying files, filing documents, making all of their own travel arrangements, and preparing closed case files for mailing. Figure 2 shows that as of fiscal year 2008, the number of AJs has decreased by about 13 percent since fiscal year 2005 while EEOC’s hearings inventory has increased by 10 percent, and EEOC’s appropriations have generally remained constant, increasing by less than 1 percent.\",\n \"EEO practitioners raised concerns regarding the potential conflict of having agencies conduct their own EEO complaint investigations and agency offices or functions improperly interfering in the EEO complaint process (i.e., legal counsel and human resources professionals). For example, an AJ stated that agency-conducted investigations remain an impediment to impartiality and characterized such investigations as the “fox guarding the henhouse.” EEO practitioners specifically raised concerns regarding the perceived conflict of agency offices or functions improperly interfering in the EEO complaint process. For example, a plaintiff’s attorney stated that one problem that impedes the prompt and fair processing of complaints is the intrusion of agency defense counsel into the EEO process, despite EEOC’s guidance that agencies’ EEO functions and defense functions must remain separate. This practitioner further stated that many EEO offices get legal advice from the same agency component that defends the agency—a direct conflict of interest. An AJ added that although human resources and EEO offices should work together in resolving complaints and grievances, they should be totally separated in the processing of EEO complaints because often allegations about personnel actions, including promotions, reassignments, and h involve the human resources office as the responsible management official.\",\n \"Many EEO practitioners expressed concerns that some participants EEO complaint process, including EEO investigators, agency EEO directors, agency management, and EEO counselors, are not sufficiently knowledgeable of EEO regulations and guidance and of their responsibilities within the process. For example, several respondents cited a general lack of knowledge of EEO or employment discrimination l aw by agency personnel processing complaints (e.g., EEO counselors and investigators). Many respondents cited poor quality of EEO investigations and several cited investigators’ lack of skills. As one AJ remarked, when investigations are of poor quality, the parties are required to engage in discovery at the EEOC level, which takes time and delays processing. Several practitioners raised concerns about AJs as well, including that some of them have insufficient experience and training and that the qual of the work they perform is not systematically monitored or addressed. EEO practitioners cited several concerns that some individuals and organizations responsible for carrying out federal EEO programs did not have sufficient authority to fulfill their responsibilities, including the of sufficient authority to dismiss cases that do not meet criteria for discrimination and the lack of subpoena power to compel witnesses to egal testify and provide\",\n \"requested documents.\",\n \"According to an agency l counsel, an AJ, and plaintiffs’ attorneys, the inability to subpoena witnesses during EEOC hearings can delay fact-finding and presents a difficulty to complainants in trying to prove their claims when witnesse federal witnesses (e.g., witnesses are reluctant to testify, including non who are no longer with the agency). Some EEO practitioners indicated that more guidance is needed from EEOC on regulations and MDs and that EEOC decisions need to follow judicial precedent and need to be consistent. Respondents provided numerous comments about the lack of consistency of AJ decisions with case law, and EEOC officials also acknowledged this concern. An AJ said that inconsistent EEOC OFO appellate decisions make it difficult for AJs and other parties to know what to do in certain situations. Another practitioner, an EEO investigator, stated that EEOC OFO appellate decisions can be inconsistent and unclear, making procedural decisions (e.g., dismissals) a “gamble.” According to EEO practitioners, some individuals and organizations responsible for carrying out federal EEO programs sometimes do not effectively communicate relevant oral and written information on the EEO process to participants in a timely and effective manner.\",\n \"Also, as an agency legal counsel stated, it can be difficult at times to understand the actions alleged in a complaint, which results in further follow-up (sometimes more than once) with complainants to get the necessary information. Further, an AJ stated that an impediment to the early resolution of complaints is the lack of a requirement for managers to participate in ADR or mediation. EEO practitioners stated that some agency management and other individuals responsible for carrying out federal EEO programs lack a firm commitment to fair and timely processing of complaints. The lack of top management commitment to the EEO program can have a cascading effect on other officials and staff. For example, one practitioner stated that if executive management does not support the EEO complaint process, other management officials give it little importance or priority. An EEO investigator cited a lack of urgency at most agencies in resolving and investigating EEO complaints. EEO practitioners and other stakeholders provided potential solutions that they believe address the factors they identified as well as information on changes their agencies had made to the EEO complaint process.\",\n \"These practitioners also raised other options, beyond the potential solutions, for changing the EEO complaint process. EEOC has several initiatives under way or proposed for improving equal opportunity in the federal workforce. EEOC regulations require federal agencies to provide for the prompt, fair, and impartial processing of complaints and for the review and evaluation of managerial and supervisory performance to help ensure vigorous enforcement of equal opportunity. Further, according to EEOC’s MD-715, a model EEO program will hold managers, supervisors, EEO officials, and personnel officers accountable for the effective implementation and management of the agency’s program. A majority of the respondents from the agencies and EEOC, as well as plaintiffs’ attorneys, identified agency management, agency EEO directors, EEO investigators, and EEOC management as the top four groups of EEO practitioners for which they believed that it was very or extremely important to strengthen accountability. Measures of accountability outlined in MD-715 include evaluating managers and supervisors on efforts to ensure equality of opportunity for all employees and routinely reviewing personnel policies to ensure that they are consistently applied and fairly implemented.\",\n \"For fiscal year 2007, EEOC reported that in fiscal year 2006 117 of the 167 agencies that submitted MD-715 reports, or 70 percent, indicated that managers and supervisors were rated on their commitment to EEO. For strengthening accountability, EEO practitioners suggested ways to better hold accountable (1) agency management and EEO staff, including directors, counselors, and investigators; (2) EEOC management, AJs, and appellate attorneys; and (3) EEO complainants. For example, an EEO director suggested that implementing performance-based accountability measures for EEO directors could improve the timeliness and quality of complaint processing, which could enhance the fairness and impartiality of the EEO complaint process. Another practitioner advocated adopting measurable EEO performance standards for managers and supervisors at the GS-13 level and above. In its June 2008 notice of proposed rulemaking, EEOC included a requirement that an agency that has not completed an EEO investigation within the 180-day time limit is to notify the complainant in writing that the investigation is not complete, when it will be completed, and that the complainant has the right to request a hearing or file a lawsuit.\",\n \"EEOC stated its belief that such a requirement may shorten delays in agency investigations by providing an incentive for agencies to complete investigations in a timely manner. Several EEO practitioners stated that just as accountability within agencies is important, EEOC should also be held more accountable for adhering to time frames for steps in the process, such as issuing a hearing decision. As for holding complainants more accountable, one practitioner felt that a complaint should be dismissed if the complainant fails to cooperate if the agency has met its responsibilities. The practitioner, an investigator, offered that complainants should be accountable for participating in a requested EEOC hearing after discovery and depositions have been conducted. According to this practitioner, EEOC should not allow the complainant to withdraw and request a FAD at this stage—if the complainant withdraws from the hearing at this stage, the complaint should be dismissed with no further action. Some respondents said that their organizations established time thresholds and quality standards for internal processes. For example, an EEO investigator reported that the timely processing of complaints has been tied to performance standards to help ensure that cases are promptly processed.\",\n \"Another EEO investigator’s agency established goals and measures for timeliness according to EEOC regulations and instituted quality standards for each centralized EEO process. Further, the agency established timelines and quality standards for both contractors and agency EEO professionals, and the agency developed measures in internal databases to track and monitor timelines and quality on daily, weekly, monthly, quarterly, and annual bases. An EEO director from another agency also reported that the agency achieved success in processing complaints by implementing performance-based accountability measures (i.e., internal timeliness and quality controls), including the following: standard operating procedures, stringent internal deadlines, timeliness and quality assurance review processes, timeliness and quality elements in results-based performance standards, management oversight, and EEO staff training. Finally, an EEO director reported that his agency had put in place a departmental accountability policy to track disciplinary and corrective actions taken as a result of discrimination-related misconduct. Because of numerous concerns raised both before and during the commission’s September 2006 meeting and subsequent focus group discussions, EEOC officials stated that the commission performed a limited assessment of the quality of agency investigations by having AJs complete surveys during selected periods from 2005 to 2007.\",\n \"Overall, from the limited assessment, the AJs reported that most of the reports of investigation were complete and well organized, containing enough evidence to allow the AJ to proceed with the hearing process. However, the AJs reported that several agencies routinely submitted reports of investigation that were particularly lacking and described common deficiencies, including reports being disorganized and containing duplicative materials, being incomplete and always late, and containing an investigator’s statement of the claim that was legally insufficient. EEOC officials noted that the commission is considering developing a formal Quality Control Evaluation system that would rate the quality of agency investigations. However, EEOC officials did not provide a proposed time frame for this effort. Respondents also reported their agencies’ making greater use of information technology to process and track complaints. One practitioner noted that his agency had automated several features of the EEO complaint process, including the format of decisions through use of boilerplate language that can be selected for routine matters; parts of decision writing with its forms, such as coversheets, code sheets, and envelopes; and storage of case files that are scanned into the Adobe Acrobat program, thereby expediting the reviewing, bookmarking, and searching\",\n \"of these files.\",\n \"One EEO director reported that her agency standardized EEO complaint forms, installed the forms on compact discs that were furnished to all counselors, trained the counselors in the use of the electronic forms, and purchased an automated complaints tracking system to simplify and standardize EEO-related reports. Several practitioners (EEO directors, an EEO counselor, agency legal counsel, and an investigator) indicated that their agencies had put in place a complaints tracking system, which helps in the preparation of standardized reports. Without a system like this one, several reported, much time is consumed finding the information that needs to be in such reports. An official from EEOC’s Office of Field Programs indicated that EEOC has begun piloting an electronic case management system to provide more expeditious hearings case processing. Additionally, a senior official from MSPB described several actions that MSPB has taken to improve its operations, including establishing an electronic filing program and a repository of electronic documents that are available to the parties in cases. Regulations and EEOC MD-715 state that agencies should allocate sufficient resources to their EEO programs to, among other things, ensure that unlawful discrimination in the workplace is promptly corrected and addressed.\",\n \"More than three-quarters of the respondents from the agencies and EEOC as well as plaintiffs’ attorneys stated that it would be very or extremely important to improve the current allocation of resources for EEOC AJs, while about three-quarters of respondents felt that improvement in the current allocation of resources for EEO investigators, agency EEO directors, and EEOC management was very or extremely important. Although it is important for agencies to provide sufficient resources for EEO programs, it is equally important for those programs to use those resources efficiently. One practitioner, an EEO investigator, reported two ways her agency uses resources efficiently. First, the investigator stated that her agency was shifting away from staff investigators and FAD writers to greater reliance on contractors and that the two firms her agency used delivered good quality products and were faster and more cost-effective than agency staff. Second, the investigator also reported that her agency was engaged in an activity-based costing exercise, so staff must account for all complaint-processing-related tasks, which her office can then cost out to the bureau where the complaints arose, allowing the bureaus to focus on early resolution to keep costs down.\",\n \"In addition, the greater use of information technology by some agencies, which was cited earlier as assisting agencies in saving time, can also help them in keeping costs down. An EEO director stated that EEOC should have the capacity to process workloads and accept evidence, records, and files electronically. At EEOC, where its hearings inventory has increased but its appropriations have generally remained constant, EEOC officials said that as of April 2009, the agency was in the process of completing draft instructions to implement the pilot “Three-Track Case Management Process” system for hearings that the agency expects will result in quicker resolutions and shorter processing times through expedited discovery and hearing time frames using its existing resources. Under this process, AJs would prioritize their cases based on complexity, using one of three tracks: fast, regular, or complex. Further, it is necessary that agencies assess the quality as well as the costs associated with contracted investigations and proposed FADs.\",\n \"EEOC’s 2004 report on federal sector investigations and costs found that some agencies were incurring additional costs when they had to supplement the investigative report or require the contractor to conduct additional work, which could contribute to delays in meeting time frames. Several practitioners mentioned that agencies need to have better reviewers for sufficiency of investigations and to do quality control. For example, an agency legal counsel stated that at his agency, the EEO office reviews contracted reports of investigation and draft FADs but that reports of investigation were not always reviewed for completeness and relevance before being provided to the complainants. This practitioner pointed out that because of the lack of a quality review, often the agency or the complainant needed to get additional documents in discovery, although the agency had already paid for the preparation of a report of investigation. Within agencies, EEOC regulations and MD-110 require that EEO directors should be under the immediate supervision of the head of the agency.\",\n \"Placing the EEO director in this position underscores the importance of equal opportunity to the mission of the agency and helps ensure that the EEO director is able to act with the greatest degree of independence. In its fiscal year 2007 report on the federal workforce, EEOC reported that 61 percent of the EEO directors reported to the agency head. In addition, EEOC’s MD-110 states that to maintain the integrity of the EEO investigative process, it should be kept separate from the agency’s personnel function, to avoid conflicts of interest or the appearance of such conflicts. Moreover, MD-110 states that separating the agency’s representatives and the offices responsible for defending the agency against EEO complaints from those responsible for conducting EEO complaint investigations enhances the credibility of the EEO office and the integrity of the EEO complaint process. At least three-quarters of plaintiffs’ attorneys and respondents from EEOC indicated that strengthening independence for EEO directors and EEO investigators was very or extremely important. Further, several EEO practitioners believe that agencies should adhere more clearly to existing EEOC requirements on delineating the roles of the agency general counsels in the EEO complaint process.\",\n \"For example, an EEO director stated that EEO legal advisors should be separate and distinct from the agency’s legal office and should report to the head of the civil rights office instead of to agency legal counsel. Several EEO practitioners also stated that agency human resources offices should be required to avoid activities or actions that may be construed as having undue influence. An AJ favored having clear firewalls between the human resources and EEO offices when investigating complaints. In its March 2003 proposal, the coalition of civil rights employee advocates and other stakeholder groups recommended that EEOC’s regulations and MD-110 be changed to clearly prohibit agency actions that interfere with the independent judgment of the EEO investigator. Noting that stakeholders have complained of intrusion in the operations of the agency EEO office by staff responsible for defending the agency against complaints of discrimination and that such intrusion could affect the impartiality of the investigation, EEOC officials stated that EEOC has draft guidance on the intrusion into the EEO process by agency counsel, especially in the informal part of the process, which is being reviewed by the commissioners.\",\n \"Because of the concern that the practice of allowing an agency to investigate a complaint against itself can represent either a clear conflict of interest or the appearance of such conflict, practitioners cited filing complaints directly with EEOC as a means of avoiding such conflicts. Allowing such filings would alter the current administrative complaint process. Stakeholders cited several advantages to having EEOC conduct investigations. One advantage would be its potential to reduce concerns regarding independence, conflicts of interest, and perceptions of unfairness surrounding the existing federal EEO complaint process. Another advantage stakeholders cited was EEOC’s potential to leverage its expertise, which in addition to administering the federal sector EEO process, promulgating regulations, providing EEO training, and collecting governmentwide data on EEO activities, also includes investigating private sector complaints of discrimination.\",\n \"According to stakeholders, potential disadvantages of transferring investigations to EEOC included adding an immense burden along with insufficient resources for EEOC to handle the larger workload, which would add more time to the complaint process and compound the time it takes EEOC to make decisions in EEO complaint processing, and creating tension between the various roles the agency is responsible for when one agency is afforded too many functions (e.g., investigations, decisions, and appeals) under the EEO process, which may impair neutrality, fairness, and accountability. EEOC officials noted that an overwhelming number of stakeholders who testified at the September 7, 2006, commission meeting or participated in focus groups conducted after that meeting recommended that EEOC take over the investigative function in its entirety from the agencies or that some type of independent body apart from EEOC assume this function. According to EEOC officials, stakeholders cited the conflict of interest perception and agencies’ failure to complete their investigations in a timely manner as the principal reasons.\",\n \"EEOC also noted its belief that having it conduct the federal sector investigations would also bring efficiency, uniformity, and quality to the process as the commission would either hire a cadre of investigators dedicated to the federal sector or possibly act as a conduit for contract investigations. In the past, EEOC stated that fiscal realities have prevented it from assuming responsibility for all federal sector investigations, noting that in fiscal year 2008, agencies conducted over 11,000 investigations at a cost of a little more than $36 million. Thus, according to EEOC officials, the resource implications of EEOC assuming the investigative function would be considerable, and the various ways of funding investigations by EEOC need further study. Several EEO practitioners mentioned addressing independence through the use of contractors for conducting investigations and drafting FADs. The Postal Service’s Office of Inspector General reported that the Postal Service contracts investigations to enhance the independence and neutrality of the EEO administrative process and to improve the overall quality and efficiency of investigations. The report states that a single office from the Postal Service National EEO Investigative Services Office oversees investigations and contract FAD writers.\",\n \"This report did not address the quality of the investigations. As mentioned earlier, it is important that agencies review the quality of contract investigations. In its 2004 report on federal sector EEO investigations and cost, EEOC cited the importance of federal agencies having EEO programs staffed with employees who have the necessary knowledge, skills, and abilities to help reduce the time it takes to conduct investigations. More than three- quarters of our survey respondents from the agencies and EEOC as well as plaintiffs’ attorneys pointed to the importance of investigators enhancing their current level of knowledge and skills in the federal EEO complaint process. Almost three-quarters of respondents cited enhancing the knowledge and skills of EEO directors and agency management as very or extremely important, and about two-thirds of respondents cited enhancing the knowledge and skills of EEO counselors as very or extremely important. Several EEO practitioners offered suggestions for enhancing the knowledge and skills of EEO staff. For example, a plaintiffs’ attorney offered that counselors should be required to spend at least 8 hours observing an experienced counselor before providing counseling.\",\n \"EEOC’s MD-110 requires at least 32 hours of counselor training before providing counseling as well as 8 hours of continuing annual training. As for investigators, another plaintiffs’ attorney, noting that the minimum requirements in EEOC guidance for investigators is insufficient, stated that EEOC should expand the minimum training and experience requirements and require additional annual continuing education. Similar to the training required for counselors, MD-110 also requires at least 32 hours of investigator training before conducting investigations as well as 8 hours of continuing annual training. Several practitioners and stakeholders suggested that investigators should receive some kind of certification. One practitioner recommended that EEOC certify individual investigator credentials through a combination of agency-provided training or by licensing training programs that meet EEOC-established minimum requirements, and require every investigator, whether in-house agency employee or contract investigator, to apply for and be certified as meeting the minimum requirements. Some respondents said that their organizations had improved training for EEO staff. For example, an EEO director reported that her agency has standardized its basic and advanced EEO counselor training class. The director’s office has coordinated with the agency’s ADR office and office of inspector general to participate in the\",\n \"training.\",\n \"All bureaus send counselors to the same course, and counselors are issued credentials at the end of the training by the agency. An EEO counselor reported that her agency trained all EEO specialists to be EEO counselors and investigators and to write dismissals and FADs. This practitioner noted that providing all EEO staff with all available EEOC training can enhance their understanding of the process from start to finish, thereby increasing completeness, accuracy, and effectiveness of complaint processing. An EEO counselor from another agency reported that at her agency there is a focus on developing the legal analysis skill set of EEO specialists who process complaints. During team meetings, the EEO specialists review intake decisions and FADs that they have prepared, and the specialists brief the team on the legal analysis conducted and the rationale for decisions. Counselors attend these meetings to increase their understanding of the bases for dismissal, the types of questions that need to be asked during the counseling inquiry, and the legal implications of new case decisions.\",\n \"Almost all EEOC practitioners and plaintiffs’ attorneys and a majority of agency respondents indicated that it would be important to increase the current level of authority of EEOC AJs, and most respondents cited increasing authority for agency EEO directors as very or extremely important. EEO practitioners cited a need for subpoena power for AJs, who currently do not have this authority. In addition, EEO practitioners expressed the desire for expanded authority for (1) EEO directors to dismiss complaints of discrimination and (2) EEOC to order discipline against managers who discriminate. Practitioners also expressed a desire for EEOC to make sufficient use of its authority to sanction agencies that do not complete investigations on time. Several EEO practitioners felt that allowing AJs to subpoena witnesses would improve the EEO complaint process. An agency legal counsel cited cases where the agency and complainant suffer when potential witnesses, such as those who are no longer with the agency, refuse to testify. Until AJs are given such power, a plaintiffs’ attorney felt that the administrative complaint process cannot serve its intended purpose as a viable alternative to litigation in federal courts.\",\n \"While EEOC AJs have authority to sanction an agency for failure to produce an approved witness who is a federal employee, they do not have the authority to subpoena the statements of individuals and therefore have no mechanism with which to compel the testimony of witnesses who are not current federal employees. With respect to subpoena power, according to MSPB officials, the board has delegated to its regional directors/chief administrative judges and AJs the authority to subpoena witnesses. EEOC officials also favor granting EEOC’s AJs subpoena power, noting that AJs have often voiced the belief that their lack of subpoena power is a significant defect in the hearings process, in many cases hindering their ability to conduct full and fair hearings. For instance, without subpoena authority, it is often difficult for AJs to compel a potential witness for the complainant, such as an agency’s outside medical personnel or a contractor employee, to testify on the complainant’s behalf. Although AJs use a variety of means to try to persuade former employees, contractors, and outside medical personnel to testify, it would be more efficient if AJs possessed subpoena authority.\",\n \"EEOC officials stated that having subpoena authority would further ensure that AJs have access to all relevant evidence. However, according to EEOC’s Office of Legal Counsel, granting subpoena power to AJs would potentially require a statutory change. According to a senior EEOC official, EEOC has not sought such a statutory change. An example of expanded authority for EEO directors relates to the dismissal of complaints of discrimination. EEOC regulations set out circumstances under which complaints can be dismissed, including complaints that fail to state a claim of discrimination. In this regard, EEOC has consistently reversed agencies’ dismissals for failure to state a claim where the agency dismissal is based on the agency’s view of the ultimate merit of the complaint allegations. An EEO investigator stated that EEO directors should be given the authority to make a merit analysis to dismiss those claims that are frivolous and show self-defeating evidence to ensure quicker and less costly processing of cases. In cases that are dismissed, complainants could still appeal such decisions to EEOC.\",\n \"As for the authority to order discipline for managers who have been found to have discriminated, EEOC’s practice is to advise rather than direct agencies to consider disciplining such managers. In addition, the No FEAR Act requires agencies to report information annually on disciplinary actions taken. The act also requires the President’s designee, the Office of Personnel Management (OPM), to undertake a study of best practices among agencies for taking disciplinary action for conduct inconsistent with antidiscrimination laws and whistleblower protection laws. OPM issued the advisory guidelines in September 2008; agencies have not yet reported actions they have taken consistent with these guidelines. EEOC regulations provide for sanctions against parties for failure (without good cause shown) to respond fully and in a timely fashion to an order of an AJ, to discovery requests, or to requests for the attendance of witnesses. Sanctions include the drawing of adverse inferences against, or exclusion of other evidence offered by, the noncomplying party, issuing a decision fully or partially in favor of the opposing party, or such other actions as appropriate.\",\n \"Specifically, AJs may impose monetary sanctions where the agency has failed to complete an investigation that is timely, adequate, or both, including requiring agencies to bear the costs for the complainant to obtain depositions or other discovery. EEOC’s OFO can also sanction agencies at the appellate level. Some practitioners stated that EEOC does not make sufficient use of its sanctioning authority. On the matter of sanctioning authority, EEOC officials stated that AJs are guided by OFO decisions on sanction authority, that the agency is considering issuing further guidance to AJs, and that it will include training on the appropriate use of sanctions in federal sector training of AJs to be held later in 2009. In commenting on the importance of increasing the clarity and consistency of antidiscrimination laws (e.g., Title VII of the Civil Rights Act), EEOC regulations and guidance (e.g., MD-110 and MD-715), and EEOC decisions (e.g., decisions by AJs and appellate attorneys), the majority of EEO practitioners responding felt that it was most important to increase the clarity and consistency of EEOC decisions.\",\n \"Primarily, practitioners indicated that increasing the consistency of decisions at several levels within EEOC was very or extremely important: decisions from EEOC’s OFO appellate attorneys, decisions by AJs, and decisions resulting from requests for reconsideration of appeals decisions. An EEO investigator suggested that EEOC’s OFO should index its decisions and cross-check them for consistency so that only those decisions that express a cogent, correct application of the law should be indexed and made available as precedent. According to a senior EEOC official, EEOC began to conduct quality reviews of AJ decisions in fiscal year 2007 by reviewing a sample of files from all offices to assess the legal adequacy of decisions and the consistency with case law as well as to determine whether time frames were met. The official said that EEOC officials share the results of the reviews with AJs through monthly conference calls and quarterly video conferences. In addition, according to EEOC, through a technical assistance group, EEOC staff visit selected field offices to review files for cases and decisions.\",\n \"Noting the importance of the AJ position, one practitioner stated that EEOC should establish better qualifications for its AJs, including a minimum of 5 years litigation or related EEO or civil rights experience and that the position should be given a higher grade to make the position more competitive. MSPB, which also employs AJs to hear and decide appeals from former and current federal employees, applicants for federal employment, and federal annuitants concerning any matter over which the board has appellate jurisdiction, hires AJs in the range of GS-13s through GS-15s and has established timeliness, quality, and production standards for their performance. At EEOC, AJs can be hired at the GS-11 to the GS-13 level with promotion potential to GS-14. EEOC officials stated that the agency recognizes that a range of experience is important to adjudicate complex federal employment cases. Some practitioners indicated that they would like EEOC to make changes to its regulations or guidance. For example, one practitioner, a plaintiffs’ attorney, stated that EEOC should review its federal sector regulations with the aim of identifying and eliminating (or modifying) those provisions that undermine effectiveness and fairness.\",\n \"An agency legal counsel stated that EEOC must establish clear guidelines for the conduct of agency counsel and their role in the EEO process. Practitioners and stakeholders expressed the need for clarification regarding the dismissal of complaints, specifically addressing dismissals for (1) failure to state a claim (including complaints alleging a hostile work environment), (2) abuse of the process, and (3) failure to cooperate. Also, in its March 2003 proposal, the coalition of civil rights employee advocates and other stakeholder groups recommended that EEOC adopt uniform standards for what states a claim of employment discrimination. Under this recommendation, complaints could be dismissed on these grounds either at the agency, before the complaints are investigated, or after a hearing request is submitted. While noting that its regulations provide standards for dismissing complaints that do not state a claim and that based on case law, EEOC has also broadly construed what actions may constitute a claim, EEOC officials stated that the commission is considering recommendations by internal and external stakeholders to provide additional guidance. EEOC MD-110 states that in the precomplaint process, counselors should create an atmosphere that is open to good communication and dialogue.\",\n \"EEOC regulations require agencies to establish ADR programs, and EEOC MD-715 encourages the widespread use of an ADR program that facilitates the early, effective, and efficient informal resolution of disputes. According to EEOC, such programs can help agencies to avoid the time and costs associated with more formal dispute resolution processes and improve workforce communication and morale. Almost all respondents indicated that improving communication during the informal or precomplaint phase, claim acceptance/dismissal, and complaint investigation was very or extremely important. Also, about three-quarters of respondents indicated that improving communication during ADR was very or extremely important. Several EEO practitioners suggested that ADR should be used more often in disputes or even made mandatory. For example, a plaintiffs’ attorney offered that for ADR to be successful, agencies need to ensure that officials do not merely “go through the motion” on ADR but that an official at an appropriate level of authority represents management and that this official has settlement authority. In addition, in its March 2003 proposal, a coalition of civil rights employee advocates and other stakeholder groups recommended making ADR mandatory for managers in the informal and formal stages of the administrative process and for EEOC\",\n \"hearings.\",\n \"Several counselors reported that their agencies gave employees the option of using ADR in the informal and formal stages of the EEO complaint process as a means for resolving an EEO concern. According to one counselor, using ADR in this way focuses both parties on the objective of resolving the conflict rather than defending their respective positions. Another counselor reported that at her agency, at the time that contact is made with the informal EEO process, her agency gives employees the option—explained verbally and in writing—of traditional counseling or mediation (i.e., a type of ADR) when they initially begin the informal EEO process. Mediation is offered 100 percent of the time at initial contact, and ADR may be offered again in the formal stage of the process if the case proceeds. This practitioner found that offering ADR services is helpful in resolving complaints at the lowest possible level. Almost universally, stakeholder groups believed that counseling should be done at agencies, and EEOC also favors leaving the counseling responsibilities with the agencies.\",\n \"Two stakeholders explained that EEO counselors who work in an agency possess a familiarity with the organization’s operations, culture, and leadership and that keeping counseling at the agencies enables counselors to see problems firsthand while giving agencies opportunities to correct problems and demonstrate some commitment to EEO principles. EEOC officials stated that stakeholders have recommended that the commission ensure that during counseling, agencies provide better, more understandable, and more consistent information describing the EEO process and complainants’ rights and responsibilities therein. In its 2008 performance and accountability report, EEOC noted that precomplaint EEO counseling and ADR programs addressed many employee concerns before they resulted in formal complaints. Of the 37,809 instances of counseling in fiscal year 2007, about 56 percent did not result in a formal complaint because of either settlement by the parties or withdrawal from the EEO process. According to EEOC’s 2007 report, agencies’ ADR offer, participation, and resolution rates varied widely. For example, the Postal Service offered ADR in about 93 percent of precomplaint counseling, while the other agencies’ offer rate was about 71 percent, with some agencies not offering ADR in any counseling sessions. The governmentwide ADR participation rate in fiscal year\",\n \"2007 was 48 percent.\",\n \"The Postal Service, which requires management to participate, reported the highest rate of ADR participation (about 76 percent) compared with the average participation rate of about 25 percent among other agencies. According to EEOC’s 2007 annual report, complainants rejected ADR offers 10 times more often than agencies. Similarly, the Postal Service had an overall resolution rate of about 75 percent, while the rate for other agencies was about 46 percent. EEOC officials reported taking a number of actions to encourage more use of ADR, such as updating EEOC’s federal sector ADR Web page to improve the delivery of information on the benefits of ADR and ADR best practices; providing technical assistance through e-mail, telephone contacts, and on-site visits, as requested; and participating in federal ADR work groups and agency conferences. The commission also reported establishing the Federal Appellate Settlement Team (FAST) Program to utilize ADR techniques to resolve EEO appeals that have been filed in OFO. The FAST Program focuses on appeals that have been decided based on FADs on the merits. According to EEOC, qualified EEOC staff, who are experts in federal sector EEO law, conduct ADR to assist parties in reaching a mutually satisfactory\",\n \"agreement.\",\n \"Participation in the FAST Program is voluntary for both parties. Two practitioners made suggestions that would further communication outside of an ADR program. One described a precomplaint resolution program to address all issues involving the terms and conditions of employment, including EEO complaints. This practitioner stated that the program generally has been successful in resolving issues that do not belong in the EEO process, addressing matters before they become formal EEO complaints, and correcting situations that could result in a hostile environment or harassment claims. An EEO counselor suggested increased training in conflict management and effective communication for employees and supervisors as well as including conflict management in both performance plans to focus the responsibility for resolving everyday conflicts on the parties themselves, rather than bringing in a third party. Our prior work has shown that commitment from top management is key to successful management improvement initiatives. For example, our work on leading diversity management identified top management commitment as a fundamental element in the implementation of diversity management initiatives.\",\n \"Similarly, EEOC MD-715 emphasizes the importance of demonstrating commitment to equality of opportunity for all employees and applicants for employment that is communicated throughout the agency from the top down. Agency heads have many ways to demonstrate commitment to equal opportunity and a workplace free of discriminatory harassment, but one important way is to provide the EEO director with “a seat at the table,” that is, access to the agency head. Having the EEO director report to the head of the agency sends a message to employees and managers about the importance of and commitment to the EEO program. An EEO practitioner stated that agencies should adhere more clearly to existing EEOC requirements on delineating the reporting lines of authority for EEO directors. EEOC advises that following each yearly submission of the MD-715 report to EEOC, EEO directors should present the “state of the EEO program” to the agency head outlining, among other things, the effectiveness, efficiency, and legal compliance of the agency’s EEO program. EEOC reported in its fiscal year 2007 annual report that 63 percent of EEO directors presented such a report.\",\n \"EEOC also emphasized that ensuring that the EEO professionals are involved with and consulted on management and deployment of human resources, providing managers with training in EEO-related matters, having managers and employees involved in implementing the EEO program, and informing employees of the EEO program are other important aspects of demonstrating commitment to the EEO program. A majority of respondents indicated that it would be very or extremely important for agency management, agency EEO directors, and EEO investigators to reinforce their current level of commitment to the federal EEO complaint process. According to one EEO practitioner, agencies need to make the EEO function a priority, in terms of importance, expectations, and oversight. Another demonstrated means of support from the agency head, as one practitioner stated, is adequate funding and staffing of the EEO function within the agency. For example, an EEO counselor indicated that agencies have to move away from “dumping” agency employees in EEO offices and instead staff those offices with individuals who have the appropriate skill sets, perhaps even legal backgrounds, to develop credible programs.\",\n \"According to a plaintiffs’ attorney, EEO must receive support from agency heads, and EEOC’s most recent federal workforce report shows that a significant percentage of agency heads did not issue an annual statement supporting EEO as recommended by EEO guidance. The practitioner suggested that agency heads who could not bother to issue a statement certainly could not be bothered to make EEO an agency priority. In its fiscal year 2007 annual report, EEOC reported that of the 167 agencies and subcomponents that submitted fiscal year 2006 MD-715 reports, 68 percent of the agencies issued EEO policy statements, an increase over the 50 percent of the 158 agencies and subcomponents that submitted MD-715 reports in fiscal year 2005. Stakeholders raised other options for changing how EEO complaints are processed that were outside of the eight factors that we used to group participant and stakeholder responses and solutions.\",\n \"For example: Some stakeholders noted the considerable amount of time that can elapse from the filing of a formal EEO complaint through the administrative process to the potential conclusion of the matter in federal court and suggested that complainants be given the choice of using the administrative or the judicial process but not be permitted to use both. Under this option, stakeholders provided that the administrative process could afford the right to a judicial appeal of that administrative decision to a U.S. federal court of appeals. Other stakeholders, concerned with the multiple forums that complainants have available, suggested an administrative tribunal, which could handle all variety of issues, including discrimination, prohibited personnel practices, and unfair labor practices. Stakeholders indicated that this could avoid the problem of a matter going to more than one forum and could avoid the difficulty encountered (and mistakes made in assessing the nature of a complaint) by a complainant when faced with making a forum choice at the outset. Some stakeholders raised concern over the number of complaints accepted into the process that should not be (i.e., frivolous, not discrimination) and supported having EEO complaints go through a similar process as unfair\",\n \"labor practice allegations.\",\n \"With unfair labor practice allegations, an investigation by an independent third party serves to eliminate matters that should not go forward before a full- scale hearing is afforded. Some stakeholders observed that under options in which an individual goes directly to a third party with allegations, the adversarial nature of the process could potentially increase. One stakeholder observed that such options could require mandatory ADR to minimize this potential effect. Concern was also raised by another stakeholder that some options may serve to preclude lower-graded employees from pursuing claims where the option does not provide for a cost-free investigation. Through the use of several initiatives introduced in fiscal year 2008, EEOC is seeking to help federal agencies achieve model EEO programs where they can make employment decisions that are free from discrimination and that remove barriers to free and open workplace competition. One such tool is EEOC’s EEO Program Compliance Assessment (EPCA), a type of scorecard that is divided into two sections. In the EEO program activities section, EEOC evaluated agencies on selected indicators under each model element of MD-715 using fiscal year 2006 data and reports.\",\n \"Among the indicators measured were timeliness of investigations, FADs, and submission of complaint files for hearings and appeals. EEOC also measured agencies’ use of ADR. EPCA does not evaluate agencies on the quality of their investigations, but according to EEOC officials, the Commission is currently examining how to incorporate agencies’ quality of investigations as a performance measure under EPCA. In the EEO program outcome indicators section, EPCA includes selected responses from OPM’s fiscal year 2006 Federal Human Capital Survey to five survey questions as “proxy outcome indicators” to gauge each agency’s progress in creating a fair and inclusive workplace. The outcome indicators section also includes workforce analyses based on race, national origin, gender, and targeted disabilities that show how a particular agency’s workforce is composed by major occupation and compare it to the civilian labor force; provides an odds ratio analysis on promotions in the senior grade levels; and shows agencies how they compare to the federal government as a whole on various climate and other issues. During our audit work, agencies’ EPCA results were available to the public on EEOC’s Web site; however, EEOC has since removed the results.\",\n \"According to a senior EEOC official, EEOC is evaluating the appropriate use of the program indicators in EPCA in an attempt to ensure that the indicators chosen are accurate measures of the performance of agency EEO programs. The official did not provide a time frame for this evaluation. In addition to EPCA, EEOC stated in its fiscal year 2008 performance and accountability report that a key strategy in its efforts to be more responsive to federal agencies was the continued development of its relationship management pilot. This initiative was first piloted in fiscal year 2004 and involves EEOC personnel partnering with EEO staff in 11 agencies in a consultative relationship to improve customer service and help them successfully implement the essential elements of MD-715’s model EEO program. In addition to these activities, EEOC staff provide trend analysis feedback to selected agencies on their MD-715 submissions, and EEOC is conducting on-site reviews of five agencies with high underrepresentation of racial minorities at the Senior Executive Service level and of another agency to investigate a spike in retaliation complaints. Finally, in June 2008, EEOC announced a proposal that brought together previous EEOC commissioners’ efforts.\",\n \"Among the changes contained in the notice, are the following: A requirement that agency EEO programs comply with EEOC regulations, MDs (MD-110 and MD-715), and management bulletins and that EEOC will review agency programs for compliance. Permission from EEOC for agencies to conduct pilot projects—usually for not more than 12 months—for processing complaints in ways other than those prescribed in EEOC regulations (Part 1614). A requirement that an agency that has not completed an EEO investigation within the 180-day time limit notify the complainant in writing that the investigation is not complete and when it will be completed and that the complainant has the right to request a hearing or file a lawsuit. The proposals for EEOC to review compliance with its regulations, MDs, and other guidance and to provide additional notification to complainants have the potential for an immediate impact on the EEO complaint process. By reviewing compliance, EEOC could address several of the factors that EEO practitioners indicated impede the timely processing of complaints and independence.\",\n \"For example, requiring agency compliance with regulations and MDs delineating the reporting lines of authority for EEO Directors and the roles of agency offices of general counsel in the EEO complaint process could help strengthen the independence of EEO professionals to fulfill their responsibilities. As we stated earlier, EEOC stated its belief that a requirement to notify the complainant in writing about complaints that have not been investigated within 180 days may provide an incentive for agencies to complete investigations in a timely manner. Pilot projects could provide helpful data with which EEOC could make decisions about future improvements to the federal sector EEO complaint process. For example, the Department of Defense (DOD) had the authority to operate pilot programs outside of the procedural requirements prescribed by EEOC to improve processes for the resolution of EEO complaints by civilian employees of DOD. DOD operated three such programs between 2005 and 2007, although only one of the three DOD pilot programs met the criteria of “operating outside of EEOC regulations.” The other two operated within the framework of EEOC regulations by increasing the use of ADR to informally settle disputes before they became formal complaints.\",\n \"Our prior work on the DOD pilot programs showed the importance of having a sound evaluation plan, including key features that are essential for assessing the performance of the pilot programs and making determinations regarding the wider applications of the pilot programs. Some key features of a sound evaluation plan include the following: Well-defined, clear, and measurable objectives. Measures that are directly linked to the program objectives. Criteria for determining pilot program performance. A way to isolate the effects of the pilot programs. A data analysis plan for the evaluation design. A detailed plan to ensure that data collection, entry, and storage are reliable and error free. In addition to the importance of having a strong evaluation program, our work on the DOD pilots also identified lessons learned that can be instrumental for EEOC and potential pilot program officials as they consider whether to institute pilot projects to address concerns that have been identified with the EEO complaint process. For example, it is important to (1) involve senior management and stakeholder groups in designing, implementing, and evaluating the pilot program to help with buy-in; (2) emphasize the importance of customer feedback; and (3) include mechanisms to\",\n \"solicit such feedback.\",\n \"As of May 2009, EEOC had not issued its notice of proposed rulemaking outlining such specific features as the number of pilot projects, how they will operate, or how they will be evaluated. The solutions that EEO practitioners and others have offered to improve the quality and timeliness of investigations may provide candidates for the pilot projects, allowing EEOC to make data-driven decisions about changes to the federal EEO complaint process. Equal opportunity in the federal workplace is key to enabling federal agencies to meet the complex needs of our nation. Agencies must make a firm commitment to the principles of equal opportunity and make those principles a fundamental part of agency culture so that all employees can compete on a fair and level playing field and have the opportunity to achieve their potential, without regard to race, color, religion, national origin, age, gender, or disability. Holding agencies accountable for adhering to EEOC regulations and guidance will help EEOC to ensure that the EEO complaint process is operating as intended. EEO practitioners and others have identified shortcomings in the operation of the federal EEO process at both the agencies and EEOC.\",\n \"Some of these shortcomings could potentially be addressed through additional guidance that EEOC has stated it intends to issue in such areas as the appropriate relationship between EEO offices and offices involved in defending the agencies against discrimination complaints as well as what constitutes a claim; it will be important for the commission to follow through with this guidance. Additionally, EEOC is considering allowing agencies to conduct pilot projects for processing complaints outside of EEOC regulations. If agencies were to participate in pilot projects, it would be important for them to have well-developed evaluation plans that include key evaluation features. Pilots that are undertaken without sound evaluation plans increase the likelihood of insufficient or unreliable data, limiting confidence in pilot project results. Without confidence in pilot project results, EEOC will be limited in its decision making regarding the pilot projects, and to the extent that proposed changes in the federal EEO complaint process require congressional action, Congress will be limited in its decision making about the pilot projects’ potential broader application.\",\n \"If pilot projects are approved by EEOC, we recommend that the Acting Chairman of EEOC take the following two actions: Direct pilot project officials to develop for each pilot project an evaluation plan that includes key features to improve the likelihood that pilot project evaluations will yield sound results, such as well-defined, clear, and measurable objectives; measures that are directly linked to the program objectives; criteria for determining pilot program performance; a way to isolate the effects of the pilot programs; a data analysis plan for the evaluation design; and a detailed plan to ensure that data collection, entry, and storage are reliable and error free. Direct commission staff to review and approve pilot projects’ evaluation plans to increase the likelihood that evaluations will yield methodologically sound results, thereby supporting effective program and policy decisions. We provided a draft of this report to EEOC for review and comment. In a June 24, 2009, letter, EEOC’s Acting Chairman agreed with our recommendations and stated that EEOC plans on implementing them.\",\n \"The Acting Chairman further stated that EEOC is committed to improving the timeliness of complaint processing, enhancing the quality of the investigative reports as well as the hearing and appellate decisions, and ensuring greater accountability by all parties in the federal sector complaint process. EEOC’s letter is reprinted in appendix III. We are sending copies of this report to the Attorney General; the Acting Chairman, Equal Employment Opportunity Commission; and interested congressional committees and subcommittees. The report also is available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-6806 or stalcupg@gao.gov if you or your staffs have any questions about this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. As agreed with interested congressional committees, this report provided the results of our analysis of (1) factors that practitioners identified that they believe impede the prompt, fair, and impartial processing of federal equal employment opportunity (EEO) complaints and (2) actions that practitioners and other stakeholders think could be taken to address those\",\n \"factors.\",\n \"We also included information on what the Equal Employment Opportunity Commission (EEOC) is doing to improve equal opportunity in the federal workforce. For the purposes of this review, we surveyed individuals whose work roles and responsibilities put them in regular contact with the federal EEO complaint process, thereby ensuring their familiarity with and knowledge about the process. Based on prior GAO work on the EEO process, we identified seven categories of individuals familiar with the federal EEO complaint process. We termed these individuals “EEO practitioners” and collected their informed views concerning the EEO complaint process. We derived our seven categories of practitioners from three sources: individual agencies, EEOC, and the plaintiffs’ attorney community. Agency practitioners we surveyed included the EEO directors responsible for administering agency EEO programs, EEO counselors responsible for reviewing the complainants initial allegations and advising them on their roles and responsibilities in the EEO process, EEO investigators responsible for investigating EEO complaints, and legal counsels responsible for advising and defending agencies against EEO complaints. EEOC practitioners included the EEOC administrative judges (AJ) responsible for adjudicating complaints, conducting hearings, and issuing decisions on EEO complaints, and EEOC appeals attorneys responsible for processing appeals of\",\n \"decisions.\",\n \"The plaintiffs’ attorneys represent individual employees who filed EEO complaint cases. We obtained e-mail addresses, physical addresses, and telephone numbers for all EEO practitioners in order to contact them. To attain a wide representation of agencies, we selected agency-level EEO practitioners from 17 agencies based on agency size, complaint activity, and investigation source (in-house versus contractor) as of fiscal year 2005. In an effort to obtain a sufficiently representative and diverse group of large, medium, and small agencies from which to begin our selection process, we focused on agencies that had reported at least 50 complaints filed in fiscal year 2005, the number of employees at agencies, and the mechanism the agencies used to investigate complaints—primarily agency employees, contract investigators, or a mix of in-house and contract investigators in fiscal year 2005. The 17 agencies that we selected on the basis of the number of complaints filed and the mechanism for EEO investigations were the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, the Interior, Justice, Transportation, the Treasury, State, and Veterans Affairs; the Environmental Protection Agency; the General Services Administration; the Office of Personnel Management; and the U.S. Postal Service.\",\n \"EEO complaints filed at the selected 17 agencies in the aggregate represented 91 percent of EEO complaints filed governmentwide in fiscal year 2005. We decided against including the Department of Justice (Justice) after agency officials said that their practitioners’ survey responses first would have to undergo vetting within the agency. Under those conditions, we could not allow Justice practitioners to participate in the survey. We so advised Justice representatives during a telephone conference, during which we also proposed interviewing Justice officials later in the engagement about possible changes to the EEO complaint process. Justice representatives agreed to participate under those conditions. The decision not to include Justice left us with 16 agencies that in the aggregate represented 87.5 percent of EEO complaints filed governmentwide in fiscal year 2005. Finally, for a total of 17 agencies, we included EEOC because of the roles that its AJs play in adjudicating hearings of EEO complaints and its appeals attorneys play in adjudicating appeals of decisions on those complaints.\",\n \"EEO Practitioner Selection To recruit EEO practitioners from the 16 agencies, we contacted EEO directors at these agencies by telephone and e-mail, informed them about the nature of our review, requested their participation in the survey, and asked them to nominate EEO counselors, investigators, and agency counsel. We contacted EEOC officials to recruit EEOC AJs and appeals attorneys. We also contacted plaintiffs’ attorneys from the private sector. The selected practitioners represent different parts of the complaint process, and some of the practitioners may only be familiar with their part of the process. We recruited an equal number of individuals from each category of EEO practitioners to attain a wide representation of agencies and reduce possible bias in the final results. To achieve a more independent distribution of agency practitioners, we selected our final list of practitioners from 16 agencies (not including EEOC) in an effort to reduce the risk of collaborative responses caused by horizontal integration.\",\n \"We recruited no more than 3 practitioners for each of the four categories of agency practitioners (i.e., directors, counselors, investigators, and agency counsels) to lessen the likelihood that any of the agencies would have all categories of practitioners and ensure a broader perspective on the issues. In all, we selected 36 practitioners, 9 from each group of agency practitioners. We did not select a member of every practitioner group from every agency. In addition to the agency practitioners, we also sought the perspectives of practitioners from EEOC, which administers and provides guidance and oversees the federal EEO complaint process. We asked EEOC supervisors and nonsupervisors to nominate EEOC AJs and appeals attorneys to participate in the survey. To recruit AJs, we also considered recommendations from EEOC management and from an organization representing EEOC AJs, contacted nominees and asked them to participate in the survey and to recommend other AJs for participation, and then contacted the nominees to request their involvement. We selected nine EEOC appeals attorneys and nine EEOC AJs. Finally, we selected nine plaintiffs’ attorneys after considering relevant information from other EEO practitioners and people in the EEO community.\",\n \"To address our objectives, we primarily used two Web-based surveys to systematically collect and distill knowledge from the EEO practitioners we had selected. Our first Web-based survey consisted of open-ended questions that were designed to capture the practitioners’ narrative responses. Specifically, we asked practitioners three questions: (1) Based on your experience as an EEO practitioner, what are the most important factors you have observed that materially impede the prompt, fair, and impartial processing of complaints at your agency, or at EEOC, and how have those factors impeded complaint processing? (2) What specific changes could be made to address the factors you listed above, in order to promote the prompt, fair, and impartial processing of federal EEO complaints? (3) What changes have been made to the EEO complaint process at your agency? What effects did these changes have on the prompt, fair, and impartial processing of EEO complaints at your agency? Before launching each survey, we conducted a series of pretests with internal and external EEO practitioners, including some actual survey respondents. The goals of the pretests were to check that (1) the questions were clear and unambiguous and (2) the terminology was used correctly.\",\n \"To conduct pretests, we selected representatives from several practitioner categories, provided them with survey drafts for their review, and interviewed them either in person or by teleconference to obtain their opinions about the language, format, and tone of questions in the survey. Based on the reactions of practitioners, we changed the survey content and format during pretesting as necessary. We also conducted usability tests that entailed checking each practitioner’s password, user name, and link to ensure their operability before we launched the Web survey. To activate the survey, we posted it to the Internet. We notified the 63 EEO practitioners of the availability of the questionnaire with an e-mail message that contained a unique user name and password that allowed each respondent to log on and fill out a questionnaire while preventing respondents from gaining access to the surveys of others. Using their access information, practitioners could access the survey on the Internet at any time and could complete it at their convenience. If practitioners did not respond to the confidential link we provided, we accepted official submissions for responses in another format (e.g., e-mail).\",\n \"Access to the Phase I survey formally began on April 9, 2007, after which practitioners had approximately 8 weeks from April 2007 through May 2007 to complete the survey. While the survey was ongoing, we wrote follow-up e-mails and made telephone calls to practitioners who did not initially respond to the survey to ensure that we made every effort to reach them. Of the 63 practitioners to whom we made the Phase I survey available, 1 practitioner informed us that she did not work in one of our practitioner categories. As she was the only respondent from her agency, we sent the survey to another EEO practitioner at that agency. When we did not receive a response from another practitioner at another agency, we then sent the survey to an official from her agency, because that official’s office is in charge of the discrimination complaint counseling and investigation processes and alternative dispute resolution. Thus, we selected 65 practitioners to participate in the Phase I Web-based survey. By June 2007, of the 65, 62, or about 95 percent of the EEO practitioners, had completed the Phase I survey. Responses to the survey express only the views and\",\n \"attitudes of the practitioners.\",\n \"Once the Phase I survey was complete, we conducted a content analysis of practitioners’ open-ended narrative responses to that survey. We developed a coding system that was based on the type of practitioner, the individual respondent, sequential numbers to identify the response, and the type (solution or factor) of response. We assigned individual codes to each sentence or paragraph provided by each practitioner. Based on our content analysis of Phase I responses, we developed a list of eight broad categories of factors—accountability, knowledge and skills, authority, independence, commitment, resources, communication, and laws and guidance—into which we grouped the responses. We also included “Other” and “Not applicable” categories where we placed that very small number of responses that did not fit under the eight factors. Some Phase I survey responses may have addressed multiple issues and so may have been classified into more than one of these factors. We did not assess the validity of the practitioners’ views of impediments or solutions to the EEO complaint process or evaluate the effectiveness of initiatives that agency EEO practitioners said their agencies had implemented to improve their complaint processes.\",\n \"We report the views of practitioners who are knowledgeable of the federal EEO complaint process, but these views do not represent the official views of the 17 agencies. In addition, the practitioners’ views cannot be generalized to all federal agencies and EEO practitioners for some or all of the factors identified. After categorizing all responses according to the eight broad factors, we used the results as a basis for developing the closed-ended questions that made up the Phase II survey and asked practitioners to rank on a scale of 1 through 8 the solutions they considered to be most important for improving the current federal EEO complaint process. As we had done for the Phase I survey, we conducted pretests of the Phase II survey with practitioners to ensure that our questions were clear and unambiguous and that the terminology was being used correctly. For pretest subjects, we selected representatives from each of the practitioner categories and included some actual survey respondents. We provided them with survey drafts for their review and interviewed them in person or by telephone. We modified the draft survey to address feedback we received from pretesters.\",\n \"The Phase II survey formally began on January 10, 2008. We sent the survey to the 62 EEO practitioners who responded to the Phase I survey. Survey respondents took approximately 8 weeks, from January 2008 through February 2008, to complete the second phase of the survey. We wrote follow-up e-mails and made numerous telephone calls to contact practitioners who did not initially respond to the survey to ensure that we obtained responses from as many practitioners as possible. In all, 56, or about 90 percent, of the 62 practitioners completed the Phase II survey, which refines the results of the Phase I survey by asking respondents to provide their views as to where directed improvements in the EEO complaint process for each of the eight broad factors from the Phase I survey could have the greatest effect. The Phase II survey asked respondents to rank each of the eight factors identified in the Phase I survey from highest to lowest in terms of importance for improving the federal EEO complaint process.\",\n \"Once respondents completed the Phase II survey, we computed overall rankings of the factors according to the order of frequency in which respondents ranked them as most, second most, or third most important. The views expressed by the survey respondents do not represent the views of GAO. We also gathered information to address our second objective by interviewing representatives from a variety of stakeholder organizations in the federal EEO complaint process, including federal employee unions, federal executive and managers associations, agency attorneys’ associations, and federal employee organizations, to obtain their views regarding possible changes that could be made to the federal EEO complaint process and the advantages and disadvantages of implementing such changes. We selected these stakeholder organizations based on a literature search, recommendations from EEOC, and our professional judgment in an effort to compile a diverse list of organizations with involvement in EEO activities or that represented specific groups protected by EEO laws. The stakeholder organizations we contacted for this review do not represent all of the potential stakeholder organizations from specific groups protected by EEO laws.\",\n \"Using a preliminary list we developed, we obtained the names, street addresses, and e-mail addresses of officials from these organizations and conducted interviews with representatives from these organizations in their headquarters offices and in facilitated group meetings at GAO headquarters. Before conducting the stakeholder interviews, we e-mailed representatives a document that contained preliminary information from our Phase I survey and descriptions of several possible options for reassigning responsibilities for operating federal EEO investigations, counseling, hearings, and appeals to EEOC, another agency, or a hypothetical entity. We provided this information to enable stakeholders to review the document before interviews where it would serve as a point of discussion. During these interviews, we asked stakeholder organization representatives whether they thought our eight broad factors adequately captured the complex issues in the federal EEO complaint process and to identify the advantages and disadvantages of implementing the structural options that we had described for changing the EEO complaint process. We analyzed the views of these stakeholder organization representatives by reviewing their observations concerning our eight broad factors as well as their observations on the possible options for making changes to the EEO complaint process.\",\n \"To identify actions taken by EEOC to improve the federal EEO complaint process, we reviewed EEOC documents and interviewed commission officials. We did not evaluate the effectiveness of actions EEOC reported taking. We conducted this performance audit from May 2006 through August 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Title VII of the Civil Rights Act of 1964, as amended, makes it illegal for employers, including federal agencies, to discriminate against their employees or job applicants on the basis of race, color, religion, sex, or national origin. The Equal Pay Act of 1963 protects men and women who perform substantially equal work in the same establishment from sex- based wage discrimination. The Age Discrimination in Employment Act of 1967, as amended, prohibits employment discrimination against individuals who are 40 years of age or older.\",\n \"Sections 501 and 505 of the Rehabilitation Act of 1973, as amended, prohibit discrimination against qualified individuals with disabilities who work or apply to work in the federal government. Federal agencies are required to provide reasonable accommodation to qualified employees or applicants for employment with disabilities, except when such accommodation would cause an undue hardship. In addition, a person who files a complaint or participates in an investigation of an EEO complaint or who opposes an employment practice made illegal under any of the antidiscrimination statutes is protected from retaliation. The EEOC is responsible for enforcing all of these laws. In addition to the contact named above, Anthony Lofaro, Belva Martin, and Kiki Theodoropoulos, Assistant Directors; Gerard Burke; Jeff Dawson; Brandon Haller; Karin Fangman; Jeff Niblack; and Greg Wilmoth made major contributions to this report.\"\n]","isConversational":false}}},{"rowIdx":10898,"cells":{"id":{"kind":"string","value":"train_10898"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"Pursuant to congressional requests, GAO reviewed bank and thrift sales of mutual funds, focusing on: (1) the extent and nature of bank and thrift mutual fund sales activities; (2) banks' and thrifts' disclosure of their mutual fund sales practices; and (3) the regulatory framework for overseeing bank and thrift mutual fund operations. GAO found that: (1) as of the end of 1993, about 2,300 banks and thrifts were involved in mutual fund sales and about 114 institutions had established their own mutual funds; (2) during the 5 previous years, the value and numbers of bank-owned funds grew faster than the mutual fund industry as a whole and banks and thrifts became major sellers of nonproprietary funds; (3) banks and thrifts sell mutual funds to retain customers and increase fees; (4) in February 1994, bank regulators issued guidelines on policies and procedures that financial institutions are to follow in selling nondeposit investment products due to their concern that banks and thrifts are not disclosing the risks of investing in mutual funds; (5) GAO visits to selected banks and thrifts in 1994 disclosed that only about one-third of the institutions followed the disclosure guidelines, while nearly one-fifth of the institutions failed to disclose any risks; (6) the bank regulators are including steps in their examinations to assess how well these institutions are complying with the guidelines; (7) the existing regulatory framework is inadequate to deal with the rapid increase in banks' and thrifts' involvement in securities sales and management; (8) banks that directly sell to customers are predominantly regulated by bank regulators, while securities regulators mainly oversee banks which sell or advise through affiliates or third party brokers; (9) the existing regulatory framework could lead to inconsistent or overlapping regulatory treatment of the same activity and to conflict among the regulators; and (10) conflicts of interest may arise between banks' mutual fund activities and traditional banking functions."},"documents":{"kind":"list like","value":["The mutual fund industry’s growth in the last decade has been phenomenal. At the end of 1984, mutual funds managed assets totaling about $371 billion. By 1990 managed assets had grown to over $1 trillion, and by December 1994 this figure had doubled to about $2.2 trillion, second only to the $2.4 trillion in total deposits held in U.S. commercial banks. According to the Investment Company Institute (ICI), the national trade association of the mutual fund industry, there are a number of reasons for the industry’s growth. These include appreciation in the value of assets held by the mutual funds; additional purchases by existing shareholders; the introduction of new types of products and services; the growth of the retirement plan market; increased investment by institutional investors; the introduction of new distribution channels—such as banks; and a shift by individual investors from direct investments in stocks, bonds, and other securities to investment in securities through mutual funds. Also, in recent years investors have shifted to mutual funds in an attempt to obtain a better investment return than has been available through alternative investments, such as certificates of deposit.","A mutual fund, formally known as an open-end investment company, pools the money of many investors. These investors, which can be either individuals or institutions, have similar investment objectives, such as maximizing income or having their investment capital appreciate in value. Their money is invested by a professional manager in a variety of securities to help the investors in the fund reach their objectives. By investing in a mutual fund, investors are able to obtain the benefits of owning a diversified portfolio of securities rather than a limited number of securities. This can lessen the risks of ownership. In addition, investors gain access to professional money managers, whose services they might otherwise be unable to obtain or afford. Each dollar that an investor puts into a mutual fund represents some portion of ownership in that fund. Funds must calculate their share price on days on which purchase or redemption requests have been made based on the market value of the assets in the fund’s portfolio, after expenses, divided by the number of shares outstanding. This leads to a figure known as the net asset value (NAV). Per-share values change as the value of the assets in","the fund’s portfolio changes.","Investors can sell their shares back to the fund at any time at the current NAV. Many newspapers carry the purchase and redemption prices for mutual funds on a daily basis. A mutual fund is owned by its hundreds or thousands of shareholders. A board of directors is responsible for overseeing the fund’s investment policies and objectives. The board generally does not do the work of the fund itself, but instead contracts with third parties to provide the necessary services. The Investment Company Act of 1940 requires that at least 40 percent of the board of directors be independent of the fund, its adviser, and underwriter. One of the functions of the board is to approve the mutual fund’s contracts with its investment adviser. The investment adviser plays a key role in the operation of a mutual fund. The investment adviser manages the fund’s investment portfolio by deciding what securities to buy and sell in accordance with the fund’s stated investment objectives.","Other functions of the board include choosing the administrator, who generally acts as the fund’s manager by keeping the books and records, filing necessary reports with the Securities and Exchange Commission (SEC), and calculating NAV; the distributor or “underwriter,” who either sells the fund’s shares directly to the public or enters into agreements with broker-dealers or banks that will in turn sell them to retail customers; the transfer agent, who keeps track of fund shareholders and maintains information about the number of shares owned by investors; and the custodian, who is responsible for safeguarding the cash and securities assets of the fund, paying for securities when they are purchased by the fund, and collecting the income due when securities are sold. Mutual funds are sold to the public in two basic ways: directly to the public or through a sales force, such as a broker. With direct marketing, funds often solicit customers through newspaper, television, and magazine advertising or direct mail. These funds typically have low or no sales fees, or “loads.” Funds that are marketed primarily through a sales force are usually available through a variety of channels, including brokers, financial planners, banks, and insurance","agents.","These sales people may be compensated through a load, which is included in the price at which the fund’s shares are offered; through a distribution fee paid by the fund; or both. The mutual fund activities of banks and thrifts are subject to a number of federal and state securities and banking laws and regulations—and to the shared oversight of a variety of federal and state securities and banking regulators. In general, the mandate of securities laws is to protect investors through full and timely disclosures, while many banking laws are geared to protecting depositors and ensuring bank safety and soundness. The principal securities laws that apply to mutual funds are the Investment Company Act of 1940; a companion law, the Investment Advisers Act of 1940; and the Securities Act of 1933. These laws are intended to foster full disclosure of the risks involved in buying mutual funds and to protect investors. The Investment Company Act requires all mutual funds to register with SEC.","The act contains numerous requirements relating to the operation of funds, including rules on the composition and election of boards of directors, disclosure of investment objectives and policies, approval of investment advisory and underwriting contracts, limitations on transactions with affiliates, permissible capital structures, custodial arrangements, reports to shareholders, and corporate reorganizations. Investment advisers to mutual funds, except banks, are subject to the Investment Advisers Act, which requires that any firm in the business of advising others as to the value of securities register with SEC. The Advisers Act also imposes reporting requirements on registered investment advisers and subjects them to restrictions against fraudulent, deceptive, or manipulative acts or practices. The Securities Act of 1933 requires that all publicly offered shares of any issuer, including mutual funds, be registered with SEC. In addition, SEC has adopted rules under that act to require extensive disclosures in a fund’s prospectus, including information about the fund’s investment objectives and policies, investment risks, and all fees and expenses. The act also regulates mutual fund advertising. In addition to the above laws, another securities law, the Securities Exchange Act of 1934, regulates how shares in mutual funds are sold.","This act requires that persons distributing shares or executing purchase or sale transactions in mutual fund shares be registered with SEC as securities broker-dealers. SEC oversees the regulation of mutual funds and their investment advisers under the Investment Company Act and the Investment Advisers Act. SEC reviews disclosure documents, such as prospectuses, and inspects mutual fund operations. It also registers and inspects investment advisers. Broker-dealers who sell mutual funds are regulated and examined by SEC and the National Association of Securities Dealers (NASD). NASD was established pursuant to the Securities Exchange Act of 1934 as a self-regulatory organization for brokerage firms, including those that engage in mutual fund distribution, and is itself subject to SEC’s oversight. SEC and NASD regulate broker-dealers by regularly examining broker-dealer operations on-site and investigating customer complaints. NASD has also established Rules of Fair Practice, which govern standards for advertising and sales literature, including filing requirements, review procedures, approval and recordkeeping obligations, and general standards. In addition, NASD tests individuals to certify their qualifications as registered representatives and has primary responsibility for regulating advertising and sales literature used to solicit and sell mutual funds to investors.","The Securities Exchange Act of 1934 exempts banks from its broker-dealer registration requirements. As a result, banks may choose to have their own employees sell mutual funds and other nondeposit investment instruments without the need to be associated with an SEC-registered broker-dealer or subject to NASD oversight. In those instances, the banking regulators, instead of NASD, are responsible for overseeing the sales activities of bank employees. Banks are also exempt from being defined as investment advisers under the Investment Advisers Act. As a result, banks may serve as investment advisers to mutual funds without registering with SEC. However, some banking organizations place their advisory activities in a nonbank subsidiary of a bank holding company. In these cases, the subsidiary is required to register as an investment adviser and is subject to SEC oversight under the Investment Advisers Act. In addition to the oversight provided by securities regulators, a number of banking laws apply to banking organizations’ mutual fund activities. One such law is the Glass-Steagall Act, which was enacted in 1933.","The Glass-Steagall Act was designed to curb perceived securities abuses and speculative investments by banks that were thought to have contributed to the collapse of commercial banking in the early 1930s. The act prohibits certain securities activities by banks and their affiliates. For example, the act generally prohibits all banks from underwriting (publicly distributing new issues of securities) and dealing (trading for its own account) in certain securities directly. It also prohibits Federal Reserve System member banks from purchasing certain securities for the bank’s own account and from having interlocking management relationships with firms that are engaged primarily or principally in underwriting securities.Until the early 1980s, Glass-Steagall was viewed as prohibiting banks from engaging in most mutual fund activities. Since then, a series of federal banking agency decisions and court rulings have eroded the Glass-Steagall restrictions and allowed banks to engage in a wide variety of mutual fund activities that had not been permitted previously. These include serving as the investment adviser to a mutual fund, selling mutual funds to retail and institutional customers, and offering various administrative services, such as recordkeeping and custodial functions. Essentially, banks can now do everything but underwrite a mutual fund.","While the Glass-Steagall Act restricts banks’ mutual fund activities, the actual powers granted banks to engage in these activities and the framework for their regulation and oversight are found in other laws. The powers of national banks to engage in mutual fund activities are contained in the National Bank Act, which is administered by the Office of the Comptroller of the Currency (OCC). State-chartered banks derive their powers from the state laws under which they are chartered, subject to restrictions imposed by the Federal Reserve Act if they are members of the Federal Reserve System. State-chartered banks that are members of the Federal Reserve System are supervised by the Federal Reserve Board as well as by state-level banking authorities. Federally insured state-chartered banks that are not Federal Reserve members are subject to regulation and oversight by the Federal Deposit Insurance Corporation (FDIC) under the Federal Deposit Insurance Act and state banking authorities. The powers of bank holding companies are found in the Bank Holding Company Act of 1956, which is administered by the Federal Reserve Board.","The authority for thrifts and their affiliates to engage in mutual fund activities is contained in federal and state laws applicable to savings and loan associations, particularly the Home Owners’ Loan Act and the Federal Deposit Insurance Act. Thrifts are supervised by the Office of Thrift Supervision (OTS). This report was prepared in response to requests from the former Chairmen of the House Committee on Banking, Finance, and Urban Affairs and the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce that we examine the disclosure and sales practices of banks with respect to mutual funds. Our objectives were to (1) determine the extent and nature of bank and thrift involvement in mutual fund sales, (2) assess whether the sales practices followed by banks and thrifts provide bank customers adequate disclosures of the risks of investing in mutual funds, and (3) analyze whether the existing framework for regulation and oversight of bank and thrift mutual fund sales practices and proprietary fund operations adequately protects investors.","To determine the extent and nature of bank and thrift involvement in mutual fund sales, we gathered and analyzed information on the size of the mutual fund market, the level of bank and thrift participation in it, and the methods by which banks and thrifts market mutual funds to their customers. To do this, we obtained data from Lipper Analytical Services, Incorporated, a well-known source of data on the mutual fund industry. Lipper maintains a database of information on bank-related mutual funds and publishes a semiannual report, “Lipper Bank-Related Fund Analysis,” which we used as a source for some of the information in this report. We also used other information accumulated by Lipper on the mutual fund industry as a whole. We did not verify the data we obtained from Lipper; however, we asked Lipper to provide us a detailed description of the methods it uses to accumulate data and the internal controls it employs to ensure its accuracy. We used the description to determine that these methods and controls would provide reasonable assurance that the information supplied by Lipper was accurate.","In addition, we determined that Lipper’s mutual fund data are widely used in the financial services industry and are considered reliable by those who use it. Because Lipper’s database does not cover the extent to which nonproprietary funds are sold through banks, we also surveyed a random sample of 2,610 banks and 850 thrifts to obtain comprehensive data on which of these institutions offer mutual funds for sale, the types of funds they sold, and their recent sales data. In addition, to obtain additional information on the characteristics of mutual fund sales through banks and thrifts, we reviewed pertinent regulatory and industry studies, particularly a survey of mutual funds that was released by ICI in November 1994. To determine whether the sales practices followed by banks and thrifts provide bank customers adequate disclosures of the risks of investing in mutual funds, we developed and mailed a questionnaire to a random sample of banks and thrifts asking these institutions to provide information concerning how and by whom mutual funds are sold to retail customers, how sales personnel are compensated, whether written policies and procedures have been established, and the types of disclosures that are made to retail","customers.","Posing as bank customers interested in a mutual fund investment, we also visited a randomly selected sample of 89 central offices of banks and thrifts in 12 cities. The purpose of these visits was to observe and document the sales practices of institutions selling mutual funds and to test whether salespersons were following the federal banking regulators’ guidance concerning mutual fund sales programs. A detailed explanation of the methodology we used in our survey questionnaire and in our visits to banks and thrifts is contained in appendix I. To gain an understanding of how the existing regulatory framework for overseeing bank sales of mutual funds protects investors, we (1) interviewed selected bank and thrift regulators, securities regulators, bank and thrift officials, and industry representatives in Washington, D.C.; New York, New York; Boston, Massachusetts; Philadelphia, Pennsylvania; San Francisco, California; and Chicago, Illinois; (2) reviewed relevant literature, congressional testimony, studies, regulations, and laws; and (3) reviewed and analyzed financial regulators’ examination policies, procedures, reports, and workpapers. We did our work between May 1993 and December 1994 in accordance with generally accepted government auditing standards.","We provided a draft of this report to FDIC, the Federal Reserve, NASD, OCC, OTS, and SEC for comment. Their comments are presented and evaluated in Chapters 3 and 4, and their letters are reprinted in full in appendixes IV through IX, along with our additional comments. The organizations also suggested several technical changes to clarify or improve the accuracy of the report. We considered these suggestions and made changes where appropriate. Since restrictions on banks’ mutual fund activities were liberalized in the 1980s, banks and thrifts have rapidly expanded their participation in the mutual fund industry. Many institutions have established their own families of mutual funds, called proprietary funds, and the sales of these funds as a percentage of total industry sales have grown sharply. Banks and thrifts have also become major sales outlets for nonproprietary mutual funds. Institutions with assets greater than $1 billion are more likely to sell mutual funds than are those with less assets, but most of the institutions that have begun selling mutual funds since the end of 1991 are the smaller ones.","Most banks and thrifts reported that they sell mutual funds for two reasons: to keep their customers and to increase their fee income. As of December 31, 1993, about 114 bank and thrift companies had established proprietary mutual funds. These are funds for which a bank or one of its subsidiaries or affiliates acts as the investment adviser and that are marketed primarily through the bank. Most of these have been established by very large banking organizations; of the 114 companies that had proprietary funds as of December 31, 1993, 79 were among the top 100 bank holding companies in the United States. During the 5 years between the end of 1988 and the end of 1993, the growth of bank proprietary funds in terms of the value of assets managed by the funds has been much greater than the growth of the industry as a whole. As shown in table 2.1, between December 31, 1988, and December 31, 1993, the value of assets managed by bank proprietary funds grew from about $46 billion, or 6 percent of the industry total, to about $219 billion, or 11 percent of the industry total.","Although banks greatly increased their sales of mutual funds to retail customers during the 5 years, the increase in their sales to institutional customers was even greater. Retail sales grew by 324 percent, and institutional sales grew by 443 percent. Nearly $119 billion of the $219 billion (54 percent) of the assets in bank proprietary funds at year-end 1993 were in funds marketed primarily to institutional customers. In contrast, only about 10 percent of the assets in nonproprietary funds were marketed primarily to institutional customers. The number of proprietary funds offered by banks also grew faster than the industry as a whole. As shown in table 2.2, as of December 31, 1988, there were 317 bank proprietary funds, representing about 13 percent of the 2,372 total mutual funds in existence at that time. By December 31, 1993, banks offered 1,415 proprietary mutual funds, or 24 percent of the industry total of 5,851 funds. Table 2.2 also shows that, while more than one-half of the assets in bank funds were in money market funds, the greatest growth, both in the number of funds offered and assets managed, was in taxable fixed-income (bond) funds, followed by equity funds.","In addition to sales of proprietary funds, banks and thrifts also have become major sales outlets for nonproprietary funds. These are funds managed by an independent fund company and sold by the bank or bank affiliate. Nonproprietary funds are also available to investors outside the bank through an unaffiliated broker-dealer. According to data compiled by ICI, 1,780 nonproprietary funds were available through the bank channel (banks and thrifts) at the end of 1993. This represents a 62-percent increase from the 1,100 funds available as of the end of 1991. ICI’s data also show that new sales of fixed-income and equity funds through the bank channel rose from $28.1 billion in 1991 to $67.5 billion in 1993. However, because sales of fixed-income and equity funds through nonbank channels also rose considerably, the percentage of sales through the bank channel to total sales increased only slightly, from 13 percent in 1991 to 14 percent in 1993. In addition, ICI found that about 55 percent of banks’ sales of fixed-income and equity funds in 1991 was attributable to sales of nonproprietary funds. This figure rose to 59 percent in 1992, then dropped to 51 percent in 1993.","An ICI official told us that the increase in bank sales of nonproprietary funds in 1992 was caused by a strong demand for equity funds—a segment of the market in which bank proprietary funds were not as well represented as were nonproprietary funds. In 1993, there was a surge in demand for fixed-income funds, a segment in which bank funds were well represented. Also, by 1993 banks had introduced more equity funds. As a result, bank sales of proprietary funds increased in 1993 compared to their sales of nonproprietary funds. ICI’s data show that, as of the end of 1993, the assets of funds attributable to bank sales were about $298 billion, or 14.2 percent of the $2.1 trillion in total mutual fund assets. This figure includes both proprietary and nonproprietary funds sold through banks and thrifts. In 1991, the comparable percentage was 11.6 percent, and in 1992, 13.8 percent. In breaking down the total between money market funds and long-term funds (fixed-income and equity funds), ICI found that in 1993, nearly 29 percent of all money market fund assets were attributable to bank and thrift sales.","Less than 9 percent of long-term fund assets were attributable to bank and thrift sales, indicating the relatively strong presence of banking institutions in the money market fund area. However, the 9 percent of long-term fund assets attributable to bank and thrift sales at year-end 1993 represents a near doubling of the comparable figure at year-end 1991. On the basis of the responses to the questionnaire we sent to a nationwide sample of banks and thrifts, we estimate that nearly 17 percent, or about 2,300 of the approximately 13,500 banks and thrifts in the United States, were offering mutual funds for sale as of the end of 1993. The results also indicated that the larger the size of the institution, the greater the likelihood that it had a mutual fund sales program. About 74 percent of the banks with $1 billion or more in assets had mutual fund sales programs, but only 11 percent of the banks with assets less than $150 million sold mutual funds. Similarly, about 60 percent of thrifts with assets of $1 billion or more had sales programs, but only about 3 percent of thrifts with assets less than $100 million sold","mutual funds.","Our data also show that while larger institutions are more likely to sell mutual funds, smaller institutions are increasingly introducing mutual fund sales programs. We estimate that about 49 percent of all banks and thrifts that had mutual fund sales programs began selling funds within the last 2 years. About 74 percent of those banks entering the mutual fund sales arena over the previous 2 years had assets of less than $250 million. About 94 percent of the banks and thrifts responding to our questionnaire cited retention of customers as of great or very great importance in their decisions to begin selling mutual funds to their retail customers, and about 49 percent reported that fee income was of great or very great importance in their decisions. However, fee income may become more important after sales begin. Discussions we had with bank officials showed that once the mutual fund sales program is established, the objectives of the program may broaden to include the generation of fee income.","For example, an official of one very large bank with a large and widely marketed family of proprietary funds told us that initially the bank began offering uninsured investments, including mutual funds, as a defensive measure to retain customers. The bank now offers a full line of investment products and recognizes this as a key customer service and revenue-generator. A July 1994 survey by Dalbar Financial Services, Inc., of Boston, Massachusetts, a mutual funds research and consulting firm, confirmed that fee income becomes more important as a mutual fund sales program matures. Dalbar’s survey of over 200 bank executives indicated that while almost half of the respondents said they got into the business to retain customers, only 36 percent said that was still their top priority. In contrast, about 30 percent of the bankers said that they were now in the business to increase fee income, up from 19 percent who said that was the reason they got into the business in the first place.","In response to the rapid growth of sales of mutual funds by banks and concerns that bank customers may be confused or ill-informed about the differences between mutual funds and traditional bank products, the federal banking regulators have increased their regulatory and supervisory oversight of banks’ mutual fund sales activities. Our visits to banking institutions demonstrated the need for this increased emphasis as well as for continued vigilance by regulators. We estimate that about one-third of the institutions that sold mutual funds in the 12 metropolitan areas we sampled fully complied with the bank regulators’ guidance on disclosing the risks of investing in mutual funds. Further, about one-third of the institutions did not clearly distinguish their mutual fund sales area from the deposit-taking areas of the bank as stated in the guidance. Many banking institutions paid employees in the deposit-taking areas to refer customers to mutual fund sales representatives. During our visits to the institutions we found that these employees complied with statements in the guidance about not providing investment advice. However, some of the sales literature we were provided did not clearly and conspicuously disclose the risks of investing in mutual funds.","As banking institutions have become major retailers of mutual funds, regulators, Congress, and the public have become increasingly concerned that investors who are likely to purchase mutual funds through a bank or thrift may not fully understand the differences between these investments and traditional bank savings products, such as certificates of deposit and money market deposit accounts. In particular, there is concern that sales of mutual funds in a bank lobby or through bank employees may mislead customers into believing that mutual funds are federally insured. Further, bank customers may not understand that even mutual funds that appear to be conservative investments, such as government bond funds, may be subject to fluctuations in value and could involve loss of principal. In November 1993, SEC released the results of a survey taken to determine the degree to which investors understand the risks associated with mutual funds. The survey was limited to 1,000 randomly selected households, 47 percent of which reported that they owned shares of mutual funds. The survey results indicated that confusion about the risks of investing in mutual funds was not limited to those who purchased mutual funds through a bank.","For example, 66 percent of the investors in the survey who bought money market mutual funds through a bank and 41 percent of all holders of mutual funds incorrectly believed that these funds are federally insured. In addition, 39 percent of all mutual fund holders and 49 percent of those who purchased a mutual fund through a bank incorrectly believed that mutual funds purchased from a stockbroker are federally insured. Between June and October 1993, each of the four banking regulators—OCC, FRS, FDIC, and OTS—issued guidance to the institutions they regulate concerning how sales of mutual funds and other nondeposit investment products should be conducted. In February 1994, the four regulators jointly issued the “Interagency Statement on Retail Sales of Nondeposit Investment Products.” This new guidance superseded the guidelines previously issued and unified the guidance to banks and thrifts on the policies and procedures that they should follow in selling mutual funds and other nondeposit investment products. The interagency statement contains guidelines on disclosures and advertising, the physical setting and circumstances for bank sales of investment products, qualifications and training of sales personnel, suitability and sales practices, compensation practices, and internal control systems.","In particular, it emphasizes that banking institutions are to ensure that bank customers are made aware that the products (1) are not FDIC-insured; (2) are not deposits or other obligations of the institution; (3) are not guaranteed by the institution; and (4) involve investment risks, including possible loss of principal. The statement applies to bank employees as well as employees of either an affiliated or unaffiliated third-party broker-dealer when the sales activity occurs on the premises of the institution. It also applies to sales resulting from a referral of retail customers by the institution to a third party when the institution receives a benefit from the referral. With regard to qualifications and training of sales personnel, the guidance states that if bank personnel sell or recommend securities, the training they receive should be the substantive equivalent of that required for personnel qualified to sell securities as registered representatives under the securities laws. Oral disclosure of the risks of mutual fund investing is very important in making sure that customers fully understand the nature of these investments.","On the basis of our visits to 89 banking institutions in 12 metropolitan areas, we estimate that about 32 percent of the institutions in these areas that sell mutual funds completely disclosed the risks associated with investing in mutual funds in accordance with the banking regulators’ guidance. In addition, disclosure of the risks of investing in bond funds was inadequate, when compared to the guidance, at about 31 percent of the institutions. However, there were no misleading references to Securities Investor Protection Corporation (SIPC) insurance during our visits. The most important difference between a bank’s mutual fund investments and deposits is the risk to the investor. Bank depositors’ accounts are insured up to $100,000 by FDIC. Mutual funds are not insured against market loss and, consequently, are more risky to the investor. The guidance issued by the banking regulators states that retail customers must be clearly and fully informed about the nature and risks associated with nondeposit investment products.","Specifically, when nondeposit investment products are either recommended or sold to retail customers, the disclosures must specify that the product is (1) not insured by FDIC; (2) not a deposit or other obligation of the institution; (3) not guaranteed by the institution; and (4) subject to investment risks, including possible loss of the principal amount invested. The interagency guidance states that these disclosures should be provided to the customer orally during any sales presentation, orally when investment advice concerning nondeposit investment products is provided, orally and in writing prior to or at the time an investment account is opened to purchase these products, and in advertisements and other promotional materials. In addition, guidance issued by NASD in December 1993 stated that its bank-affiliated members must develop procedures that require registered sales persons to reiterate to customers, in all oral and written communications, the material differences between insured depository instruments and investments in securities that carry risk to principal. The NASD guidance specifically noted that advertising and sales presentations should disclose that mutual funds purchased through banks are not deposits of, or guaranteed by, the bank and are not federally insured or otherwise guaranteed by the federal","government.","The interagency guidance emphasizes that bank customers should clearly and fully understand the risks of investing in mutual funds. Therefore, we tested whether the sales representative made the disclosures called for in the interagency guidance without our prompting. We found that sales personnel at many of the institutions we visited in our survey of bank sales practices did not fully comply with the disclosure requirements. As shown in figure 3.1, sales personnel at an estimated 32 percent of the banks and thrifts we visited disclosed all four of the critical facts concerning the nature and risks associated with mutual fund investments during their sales presentations, and less than half (43 percent) disclosed at least three of the four risks. At the other end of the disclosure spectrum, sales personnel at 19 percent of the institutions did not mention any of the four risks. Because of the small size of our sample, none of the differences in performance between bank and broker-dealer employees that could be identified are statistically significant. Less than half of each group made all the disclosures called for in the guidance.","For example, an estimated 44 percent of bank employees disclosed all four risks, as compared to 32 percent who were employees of broker-dealers. Similarly, about 6 percent of bank employees failed to make any of the disclosures called for in the guidance, and 18 percent of the broker-dealers made no disclosures. Investors who purchase mutual funds through a bank or thrift are likely to be more conservative than those who purchase mutual funds elsewhere and to be more interested in purchasing a bond fund because they believe these funds are relatively safe. However, the prices of bonds and bond mutual funds are affected by changes—or the expectations of changes—in interest rates. In general, the value of bonds and bond mutual funds moves in the opposite direction of interest rates. If interest rates rise on new bonds, the prices of older ones decline. Thus, investors who own shares of bond mutual funds could find that the value of their investment is worth less than they paid for it if interest rates go up after they purchased the funds.","NASD has recognized that investors with deposits, such as maturing certificates of deposit, may be interested in purchasing bond mutual funds because of their higher yields, but they may not be aware of the risks posed by these investments. In December 1993, NASD told its members that they “...have a significant obligation in their oral as well as their written communications to provide customers, seeking non-depository alternatives to depository accounts, with full and fair disclosure of the material differences between the products, especially the greater degree of risk to capital that the customer may experience.” With regard to bond funds, NASD stated that investors should receive clear disclosures that although such funds may pay higher rates than certificates of deposit, their NAVs are sensitive to interest rate movement, and a rise in interest rates can result in a decline in the value of the customer’s investment. In our visits, we wanted to determine whether the salesperson fully explained the effect of interest rate fluctuations—either up or down—on the value of the underlying bonds in a bond mutual fund and, consequently, the value of the fund shares.","We estimated that at 66 percent of the institutions sales personnel explained the effect of interest rate movement on the value of the underlying bonds in the fund and the value of the fund shares. At 31 percent of the institutions the explanations were either nonexistent or unclear to us. About 3 percent of the institutions visited did not sell bond funds. “He explained that although bond funds are more conservative, they are still exposed to risk, especially as interest rates rise, prices of bond funds decline. He stressed that before recommending any particular fund he would need to discuss our personal financial information.” “Early in his presentation, the representative discussed in general terms the impact of the movement of interest rates on bond values. When asked about the safety of bonds, he provided more detail on the relationship of bond values and changes in interest rates. He used an example that clearly illustrated the relationship along with discussing the impact of the recent decision by the Federal Reserve to raise interest rates on current bond values.” “The sales representative did a very good job of explaining the effect of interest rate fluctuations on the value","of bonds.","The representative put no particular emphasis on either stock or bond funds. She clearly explained the difference in terms of risk and discussed the effect of interest rate fluctuations on bond funds early on.” “He said a lot about bond funds, but was very unclear. If he made this relationship, I missed it. He said bonds had higher yield, but were more volatile. He also said that they were FDIC insured ’like CDs’.” “The salesperson provided very little information on bond funds other than they are “safe” relative to stocks. She stressed that all of the bank’s funds are safe because they are relatively conservative funds.” A critical part of the disclosure issue is the use of potentially misleading or confusing information concerning FDIC insurance coverage for mutual fund investments. The banking regulators’ guidance statement states that when any sales presentations involve reference to insurance coverage by any entity other than FDIC, such as SIPC, a state insurance fund, or a private insurance company, the customer must be provided with clear and accurate explanations to minimize any possible confusion with FDIC insurance.","Further, the guidance states that such representations should not suggest or imply that any alternative insurance coverage is the same as or similar to FDIC insurance. In our visits, we did not observe any instances of inadequate or confusing or misleading references to SIPC during the sales presentations. Selling or recommending mutual funds or other nondeposit investment products on the premises of a depository institution may give the impression that the products are FDIC-insured or are obligations of the depository institution. To minimize confusion, the guidance states that sales or recommendations of nondeposit investment products on the premises of the institution should be conducted in a physical location distinct from the retail deposit-taking area. In situations where physical considerations prevent sales of nondeposit products from being conducted in a distinct area, the institution has a responsibility to ensure that appropriate measures are in place to minimize customer confusion. In our visits to banking institutions, we evaluated what measures had been taken to clearly separate their retail deposit-taking areas, such as teller windows and new account desks where accounts and deposits could be taken, from the area where nondeposit investment products were sold.","As part of our visits, we observed the physical layout of the bank to ascertain whether the bank clearly distinguished its mutual funds/investment services sales area from its traditional banking activities area. In some cases, we were directed to separate offices located in another building, where we also evaluated the physical layout of those offices. We looked for such things as partitions, roping, separate cubicles, floor space, and glass walls. We also looked for signs and other means of visible communications to differentiate the area from the traditional banking activities. At the end of the visit, we evaluated the extent to which the facilities appeared to clearly separate the areas for mutual funds sales activities from traditional banking activities. “There was no separation of mutual funds and banking activities. The sales representative sat at an unmarked desk in the middle of the bank floor. There were no signs present. However, her business cards were on the desk. All brochures of mutual fund activities were in her desk drawer. No signs indicating non-FDIC insured, non-bank product or potential loss of principal.” “There was nothing at all to indicate mutual fund sales. No signs, no posters, no brochures,","nothing.","In fact, we thought the sales area would be in the adjacent loan section, where we were told to enter. But there were no signs there. The only clue was a sign on the person’s desk saying that he was a registered representative for a company. For the entire time we were in the bank until we met with him, we could not have known that they sold mutual funds. The mutual fund sales desk was co-located in an area offering traditional banking activities such as new accounts and customer service. The mutual fund sales desk did not contain any signs or displays to distinguish it from other banking activities. In fact, the mutual fund sales desk was located next to the main bank reception desk near the front door of the bank. (All desks were separated by 3-foot partitions).” “The bank floor space was extremely limited. Desks were fairly close together—all bank activities were in close proximity to one another. Although the space was limited, there was a hanging sign clearly marked “Investment Services.” There was one sign on the desk approximately 10” x 12” displaying the proprietary fund which stated non-FDIC insured and not","guaranteed by the bank.","This information was at the bottom of the sign and readable, the size of the print was fine. A kiosk next to the desk also identified the same information. Overall, disclosure was fairly clear to a new customer.” “Two desks were located at the far end of the lobby approximately 25 feet from the teller windows. They were the only 2 desks in that space—one desk belonged to the mutual fund sales representative and the other to his assistant. Both desks faced the lobby with the representative’s desk on the right if one were looking at the mutual fund area. To the right of the representative’s desk was a very large (3’x 5’), lighted sign indicating the sale of mutual funds. A rack of mutual fund brochures was to the right of the sign. No other bank activities were near the mutual fund area.” The banking regulators’ guidance states that “in no case” should tellers and other employees, while located in the routine deposit-taking area, such as the teller window, make general or specific investment recommendations regarding nondeposit investment products, qualify a customer as eligible to purchase such products, or accept orders for such products, even","if unsolicited.","However, tellers and other employees who are not authorized to sell nondeposit investment products may refer customers to individuals who are specifically designated and trained to assist customers interested in the purchase of such products. Most of the banks and thrifts that sold mutual funds indicated in their responses to our questionnaire that they limited their employees—tellers, other branch employees, and bank and branch managers—to referring customers to designated nondeposit investment sales personnel. The activities of bank tellers were the most restricted—only about 3 percent were permitted to do anything other than refer customers to designated investment sales personnel. Other bank branch employees who were not licensed to sell securities, such as those who open new accounts and process loan applications, and branch managers were less restricted—about 13 percent of bank branch employees and 18 percent of branch managers were allowed to perform sales activities other than refer customers to designated sales representatives.","With regard to the specific activities that bank and thrift employees are allowed to perform, about 1 percent of the banks and thrifts that sold mutual funds reported that they allowed tellers to discuss the investment needs of the customer and noninsured products available through the institution; about 8 percent of other branch employees and 12 percent of branch managers were permitted to perform this function. Almost none of the institutions reported that they permitted tellers or other branch employees to suggest that a customer should invest in a specific investment product. Less than 2 percent reported that they allowed branch managers to offer specific investment advice to customers. NASD noted that if these activities were permitted to occur in the deposit-taking area of the bank they would appear to violate the interagency guidance. In addition, if a bank broker-dealer is involved and the bank employees performing these activities are unregistered, current NASD rules, which prohibit unregistered persons from providing investment advice, would also appear to be violated. In our visits to banks in 12 metropolitan areas, we found that most banks and thrifts were limiting the activities of personnel in the deposit-taking area of the","bank.","We found that only 1 percent of bank tellers we met discussed investment needs in general or noninsured products available through the bank. None of these discussions related to specific investments. The guidance permits institutions to pay tellers and other bank employees who are not authorized to sell investment products nominal, one-time, fixed dollar fees for each referral to a sales representative whether or not a transaction takes place. SEC, however, has taken the position that referral fees to financial institution personnel who are not qualified to sell investment products should be eliminated. According to SEC, because investors who purchase securities on the premises of a financial institution may not be aware that the securities are not guaranteed by that institution or by the federal government, the payment of referral fees creates an inappropriate incentive for unqualified bank employees to offer unauthorized investment advice to their customers. In addition, in December 1994, NASD issued a notice requesting comment on proposed amendments to its rules governing broker-dealers operating on the premises of financial institutions.","Under these proposed rules changes, broker-dealers would be prohibited from making any payments, including referral fees, to individuals employed with the financial institution who are not registered representatives of the broker-dealer. As of June 1995, NASD had completed its review of 284 comment letters received on its proposal, and the letters were being considered by NASD’s bank broker-dealer committee. About 43 percent of the institutions that responded to our questionnaire indicated that they compensated at least one of the following groups with referral payments: tellers, other unlicensed branch employees, and bank and branch managers. According to officials of several banking institutions, these payments are typically for $5 or $10 and not contingent on whether a sale is actually made. Our evaluation of proprietary fund sales literature obtained from the banks we visited showed that the great majority of documents contained disclosures of the risks of investing in mutual funds. However, in some cases the disclosures were not clear and conspicuous. Under SEC rules, fund advertisements and sales literature may not be materially misleading. Money market funds, in particular, must disclose prominently that their shares are not insured or guaranteed by the U.S.","Government, and that there can be no assurance that the fund will be able to maintain a stable net asset value of $1.00 per share. In addition, SEC requires disclosure by bank-sold and bank-advised funds that their shares are not deposits or guaranteed by the bank or insured by any U.S. government agency. Mutual fund advertisements and sales literature are required to be filed with NASD (if the fund’s shares are sold by an NASD member) or with SEC. According to SEC, as a practical matter, most fund ads and sales literature are filed with NASD rather than with SEC. NASD’s advertising department is to review advertisements and sales literature for compliance with both SEC’s rules and the NASD Rules of Fair Practice. In addition to the requirements of the securities regulators, the banking regulators’ guidance states that advertisements and other promotional and sales material about nondeposit investment products sold to retail customers of depository institutions should conspicuously disclose that these products are not insured by FDIC; are not a deposit or other obligation of, or guaranteed by, the institution; and are subject to investment risks, including possible loss of principal.","When we visited banks, we obtained sales literature for proprietary funds, which we analyzed to determine if it contained the required disclosures. In total, we analyzed 26 documents that we obtained at 15 banks. All of the documents we reviewed stated that the funds are not insured by FDIC and not guaranteed by the bank. All but three documents cautioned that mutual fund investments are subject to investment risks, including loss of principal, and all but four disclosed that mutual fund investments are not bank deposits. We also reviewed the literature to determine whether it complied with the interagency guidance instructions that the risks be presented in a conspicuous, clear, and concise manner. We did this by looking at the placement of the disclosures, the size of the print used, the segregation of information in the literature as it pertains to FDIC-insured and noninsured products, and by making judgments about whether any obviously misleading or confusing information was presented. We were particularly concerned with whether any of the sales or marketing brochures suggested or conveyed any inaccurate or misleading impressions that the mutual funds were insured products or guaranteed.","In our subjective evaluation, nearly half of the sales literature had disclosures that were conspicuous and readable to a great or very great extent. However, we characterized about 15 percent of the literature as having little or no success in achieving this objective. None of the advertising and sales brochures describing mutual fund products that we reviewed had the FDIC-insured logo or “Member FDIC” imprinted on them. “The disclosure information on risks is located at the bottom of the back page in very small print. It is very difficult to locate and read. In general, I do not believe the brochure gives proper emphasis to the fact that these funds are not insured by FDIC and may mislead someone into thinking that these funds are backed or guaranteed by the bank. All four brochures have the disclosure statement in small print on the back cover. There is no further discussion of those points in the literature and, in my opinion, the point could be easily overlooked.” “The brochure we received on behalf of the bank itself was an introductory booklet with application materials.","This material all contained the required disclosures basically, although the disclosures do not state lack of FDIC insurance specifically, and disclosures are very small and are placed at the very back, bottom of the page. Very poor job of disclosing risks and uninsured nature. Also, much information is given in the brochure that would give the impression of a very safe, almost guaranteed investment, and very high returns. “ “One possible misleading or confusing statement is that the bank’s name is used on the cover without clearly identifying it as an investment instrument of the securities firm, and not the bank. Another piece of literature in the packet states that the funds are managed by investment professionals at the bank. Finally, the one page disclosure form is covered by other material and is the last item on the right-hand side. However, the disclosure form does have a section for the investor’s signature. The disclosure form is very effective, but it was the last item placed in the information packet. Nowhere in the first five plus pages was there any mention of the four required elements.","A smaller brochure within the information packet included a statement on the back cover in very small print.” In September 1994, OCC released the results of a review it did of materials used by national banks in the sale of mutual funds and annuities. The review included about 8,500 documents that were voluntarily submitted by over 700 banks. The review identified many documents that were not consistent with the interagency statement. Problems uncovered by OCC, together with OCC’s advice on how the problems should be corrected, included the following: Conspicuousness: Not all documents met OCC’s standards—disclosures in type at least as large as the predominant type and boxed, bolded, or bulleted if they appear other than on the cover or at the beginning of the relevant portion of a document. As a result of its review, OCC determined that disclosures on the back of documents were not conspicuous. Also, OCC now encourages banks to make the key disclosures in type that is larger and bolder than the predominant type in the document.","Key disclosures: OCC found that some documents did not include the disclosures that the product was not FDIC-insured, was not a deposit or obligation of the bank, was not guaranteed by the bank, and could result in the possible loss of principal. In some cases, the agency told the affected banks that they could correct the problem by adding stickers that conspicuously provided the disclosure. In other cases, such as when the document contained qualifying remarks that limited the effectiveness of the disclosure, banks were advised to stop distributing the documents in question. Fees: Some documents did not disclose applicable fees, penalties, or surrender charges. OCC counseled banks to make sure that fees were disclosed to customers and suggested that banks develop suitable written acknowledgement forms. SIPC insurance: Some documents contained incomplete or confusing references to SIPC insurance. OCC told banks that they could correct these problems by using printed supplements that provide a more detailed description of SIPC coverage. Relationships: Some documents did not disclose an advisory or other material relationship between the bank or an affiliate of the bank and the mutual fund whose shares were the subject of the document.","Banks were reminded that such relationships should be disclosed. Out-of-date forms: Some banks were using documents supplied by third-party vendors that were not the most current version provided by that vendor and did not contain all of the disclosure messages required by the interagency statement. OCC advised banks to remove and replace outdated forms and establish systems for controlling documents. In commenting on a draft of this report, OCC stated that it is now reviewing sales-related documents as part of its regular on-site examinations and that it is finding that banks have improved their materials. According to the banking regulators’ guidance, personnel who are authorized to sell nondeposit investment products may receive incentive compensation, including commissions. The guidance cautions that incentive programs should not result in unsuitable recommendations or sales to customers. It makes clear that sales personnel in banks should obtain directly from the customer certain minimum information, such as his or her financial and tax status and investment objectives, upon which to base their investment recommendations. However, banks are not prohibited from providing sales personnel greater compensation for selling proprietary, as compared to nonproprietary, funds, nor are they required to disclose any such arrangement","to the customer.","In response to congressional interest in the extent to which incentives exist for sales personnel on bank premises to sell proprietary funds versus nonproprietary funds, our questionnaire asked banks and thrifts to describe their sales compensation policies. We also discussed the issue with a senior NASD official, who told us that it is a common and well-established practice in the industry for a sales representative to receive greater compensation, or a “better payout,” for selling the firm’s proprietary fund over third-party funds. Eleven percent of the banks and thrifts that sold proprietary funds stated that sales personnel in their institutions received greater compensation or special incentives for selling proprietary funds than for selling nonproprietary funds. Of the banks that described their sales compensation policies, most stated that proprietary funds rewarded the salesperson with a greater payout or additional revenue. For example, one bank told us that both proprietary and nonproprietary funds pay a commission of 3.2 percent, but an extra 15 percent is added to the amount of the commission for a proprietary fund.","We also asked the banks and thrifts that received our questionnaire to indicate whether or not sales personnel were expected to meet quotas or targets for the sale of proprietary funds. Eighteen percent of the banks that sold proprietary funds responded that sales personnel were expected to meet sales quotas or targets for proprietary fund sales. Most of the institutions that answered this question indicated that they expected proprietary fund sales to be a certain percentage of all mutual fund or bank product sales, or a specific dollar amount each month. The interagency guidance does not prohibit banks and thrifts from providing confidential financial information to mutual fund sales representatives. However, the guidance states that the institution’s written policies and procedures should include the permissible uses of customer information, but the guidance does not suggest what would or would not be permissible uses. Whether banking institutions should be allowed to share financial information on their customers with broker-dealers is a controversial issue. In March 1994, the North American Securities Administrators Association testified in favor of placing a prohibition on banks’ sharing confidential customer information with any affiliated securities operations.","Also, NASD’s December 1994 proposed rule governing broker-dealers operating on bank premises included a provision that would prohibit its members from using confidential financial information maintained by the financial institution to solicit customers for its broker-dealer services. As of March 1995, NASD was still evaluating comments on its proposal. However, reports in banking industry journals indicated that many banks and banking regulators were strongly opposed to the rule. They characterize the rule as being unfair because (1) nonbank brokerages are permitted to supply their brokers with information about their customers’ use of bank-like services, such as certificates of deposit; and (2) the rule does not clearly define what is meant by confidential customer information. The latter issue could prove to be particularly difficult to resolve. For example, in commenting on a draft of this report, FDIC stated that it knows of no reliable definition of what customer information is confidential and what information is public. FDIC noted that, while banks must comply with laws concerning confidentiality of customer information, it did not want to prohibit the use of information that is otherwise available publicly or among a bank’s affiliates.","To obtain information on the extent to which banks and thrifts were using customer information in their mutual fund sales programs, we asked the institutions that received our questionnaire (1) whether they had written policies and procedures that covered the permissible uses of customer account information; and (2) to describe how they marketed their mutual funds and, if applicable, what customer information was used. About 68 percent of the institutions that responded to the question stated that they had written policies or procedures that described how customer account information is to be used. About 40 percent of the institutions that sold mutual funds stated that they provided customer information, such as account balances or CD maturity dates, to mutual fund sales personnel. Almost half of these (49 percent) said they provided sales personnel CD maturity lists; others said their sales personnel had access to all customer data (24 percent), and a minority (15 percent) provided customer account balances to their sales personnel.","With regard to the use of other marketing techniques that are likely to make use of customer account information, 65 percent of our respondents used telephone calls to market their mutual funds; 63 percent targeted mailings to existing bank customers, such as holders of CDs; and 59 percent used inserts in monthly account statements. Although technically the interagency guidance does not have the same authority as a regulation, each of the banking regulators has developed additional examination procedures to evaluate bank and thrift compliance with the guidelines. In February 1994, about a week after the interagency guidance was issued, OCC issued examination procedures and an internal control questionnaire that specifically address sales of retail nondeposit investment products. OCC officials told us that these examination procedures are being used during the scheduled safety and soundness examination for each bank, which is either once every 12 months for large national banks, or once every 18 months for smaller national banks. The first examinations are to be a complete review of each bank’s mutual fund operations. OCC expected to complete these “benchmark” reviews by the end of 1995. Subsequent examinations could be less exhaustive depending on the results of","the initial examinations.","However, certain components of each review are mandatory, including separation of mutual fund sales activities, compliance with disclosure requirements, and review of suitability determinations. OCC officials told us that as of May 1995, their examinations have not shown any systemic problems with bank mutual fund sales programs. They have identified problems at individual banks, including failure to properly document suitability determinations and uncertainty about responsibilities for overseeing third-party broker-dealers, which they said these banks corrected. They also said that OCC has taken no formal enforcement actions against any bank as a result of the bank’s mutual fund sales program. FDIC issued examination procedures for state nonmember banks participating in the sales of nondeposit investment products on April 28, 1994. According to an FDIC official, these procedures are being applied during the regularly scheduled safety and soundness examinations. FDIC’s procedures require that its examiners complete a questionnaire at each examination or visit in which the bank’s sale of nondeposit investment products is reviewed. The questionnaire includes a variety of questions on whether the bank is complying with various provisions of the interagency guidance.","Copies of the completed questionnaires are to be forwarded to the responsible FDIC regional office, and significant deficiencies found during examinations are to be commented on in the examination report together with the recommended corrective action. An FDIC official told us that as of May 1995 FDIC had not taken enforcement actions against any bank with regard to the operation of the bank’s mutual fund sales program. However, FDIC examiners have found that written agreements between banks and third-party broker-dealers have, in some cases, not been complete. In addition, the examiners have found instances in which banks’ written policies governing their mutual fund programs needed to be more precise. An FDIC official said that FDIC has required banks to correct these problems. He also said that FDIC is conducting its own shopper visits to banks to test bank compliance with the interagency guidance. FDIC expects to complete these visits in late summer 1995 and expects to share the results of these visits with the other banking regulators. On May 26, 1994, the Federal Reserve issued examination procedures for retail sales of nondeposit investment products.","The procedures were to be used during examinations of state banks that are members of the Federal Reserve System as well as during inspections of nonbank subsidiaries that engage in securities sales on bank premises. According to Federal Reserve officials, the examination procedures were being used during annual safety and soundness examinations. All state-chartered banks that are members of the Federal Reserve System are to be examined using the new procedures by the end of 1995. Federal Reserve officials said that no material abuses have been found, but in some cases better recordkeeping and training of employees were needed. With regard to training of bank employees, Federal Reserve examiners have found some instances in which untrained bank employees were performing duties, such as gathering detailed financial information from customers, that are reserved to either licensed broker-dealers or to bank employees with training equivalent to licensed broker-dealers. The official said the Federal Reserve has been emphasizing to banks that employees who are not licensed by NASD are limited in the activities they can perform and has required banks to either appropriately train these employees or take measures to restrict their activities.","In addition to the additional procedures incorporated into the annual safety and soundness examinations, the Federal Reserve conducted an in-depth review of three large banks’ mutual fund programs. Federal Reserve officials told us that they have also developed consumer education seminars for elderly investors that are to be provided at the 12 Federal Reserve banks. Further, they said they are conducting banker education conferences at the 12 Federal Reserve banks to promote banks’ understanding of and conformance with the Federal Reserve’s requirements for mutual fund sales. In April 1994, OTS issued guidelines for examining the securities brokerage activities of thrifts, including mutual fund sales. OTS’ guidelines focus on determining the adequacy of internal controls in containing the level of risk presented to the thrift and minimizing potential customer confusion between FDIC-insured and non-FDIC-insured investment products. The procedures call for the examiners to review advertising and promotional material, disclosure policies, procedures on the use of customer information, compensation policies, referral fees and practices, training and qualification policies and procedures, and systems for ensuring that investment recommendations are suitable for a particular customer.","OTS officials told us that no systemic problems have been found in its examinations of thrifts’ mutual fund programs as of May 1995. At the time of our review, many bank and thrift institutions did not fully comply with the guidance issued by the banking regulators. As a result, customers of those banks and thrifts may not have had accurate and complete information about the risks of investing in mutual funds. In addition, institutions that were not following the guidance opened themselves to the possibility of private lawsuits, particularly under the securities laws, that could affect the safety and soundness of the institution. The banking regulators have recognized the importance of closely monitoring institutions’ mutual fund sales programs and have adopted procedures to be included in periodic safety and soundness examinations, which they are currently implementing. Because the banking regulators have adopted additional examination procedures to help ensure that banks provide customers accurate and complete information about the risks of mutual funds since the completion of our field work, we are not recommending changes to the regulators’ oversight practices at this time.","However, after the interagency guidelines have been in place long enough to provide data for trend analysis, Congress may wish to consider requiring that the banking regulators report on the results of their efforts to improve banks’ compliance with the interagency guidance. In commenting on a draft of this report, OCC, OTS, and the Federal Reserve noted that we visited banks less than a month after the bank regulatory agencies issued the interagency guidance. These banking agencies indicated that the deficiencies we noted may have been attributable to the fact that during this time the institutions were in the process of implementing new procedures, and the agencies had not yet implemented related examination procedures. OCC commented that it believes that bank practices have changed significantly since we completed our visits. OCC also commented that the conclusions, captions, and discussion in this chapter did not adequately distinguish between the adequacy of banks’ oral and written disclosures. OCC believed that our conclusion that disclosure was inadequate appears to refer to the oral disclosure requirements, and the description of banks’ written disclosure efforts did not support a conclusion of inadequate overall compliance.","The Federal Reserve commented that since May 1994 its examiners have been confirming that state member banks are aware of, and making efforts to ensure that their sales programs are in conformance with, the guidelines. According to the Federal Reserve in those few cases where its examiners have discovered deficiencies, the banks in question have taken voluntary corrective action to address the problems. Our visits to banks were made in March and April 1994. The timing of these visits was dictated by our desire to respond promptly to the Committees’ requests for information on the actual practices being followed by banks and thrifts in the sale of mutual funds. As noted in the report, these requests were driven by concern that customers of banking institutions were confused about how mutual funds differ from insured deposit products. Although our visits occurred shortly after the interagency guidance was issued, each regulator had issued guidance in 1993 that banking institutions should have been following. This guidance largely paralleled the February 1994 interagency guidance. For example, on July 19, 1993, OCC released guidance to national banks that covered many of the same areas that were included, and strengthened, in the","February 1994 guidance.","The July 1993 OCC guidance called for banks to take steps to separate, as much as possible, retail deposit-taking and retail nondeposit sales functions. It noted that disclosure of the differences between investment products and insured bank deposits needs to be made conspicuously in all written or oral sales presentations, advertising and promotional materials, and statements that included information on both deposit and nondeposit products. Further, it recommended that banks ensure that their sales personnel are properly qualified and adequately trained to sell investment products. Similar guidelines were issued by the Federal Reserve in June 1993, by OTS in September 1993, and by FDIC in October 1993. While we believe that the results of our shoppers visits to banks and thrifts accurately portray those banks’ mutual fund sales activities at the time of our visits, we also realize that the institutions’ activities may change over time as the regulators implement their new examination procedures to ensure that the institutions comply with the interagency guidelines. We also believe that compliance with the guidelines is essential to ensure that investors obtain accurate and complete information about mutual fund risks.","Thus, we believe that Congress may find it useful in exercising its oversight responsibilities to receive information on the banks’ compliance with the interagency guidelines after the banks and banking regulators have had sufficient time to fully implement their changes. Accordingly, we added a matter for congressional consideration suggesting that once the interagency guidelines have been in place long enough to provide sufficient data for trend analysis, Congress may wish to consider requesting the regulators to provide status reports on the results of their examination efforts. Such reports, for example, could be made a part of congressional oversight hearings. We disagree with OCC’s comment that the report captions do not clearly distinguish between oral and written risk disclosures. (See pp. 29 and 37, for example). Further, we tested the extent of oral disclosures because of the importance placed on these disclosures by the interagency guidance. We believe that this is an appropriate emphasis because customers are highly influenced by what they hear during sales presentations. Further, although we found that most sales literature contained the required disclosures, the disclosures were not always clear and conspicuous.","This paralleled OCC’s own findings in its September 1994 review of national banks that sold mutual funds. (See pp. 39 and 40.) SEC commented that our testing of compliance with the interagency guidelines and discussion of the banking agencies examination procedures, as opposed to compliance with the federal securities laws and rules, appeared to place undue emphasis on the guidelines as a source of consumer protection in this area. SEC summarized the various means by which it and NASD regulate and oversee mutual fund sales practices of broker-dealers, including those operating on bank premises. SEC also outlined the ways in which it and NASD regulate and oversee mutual fund disclosure documents, including registrations, prospectuses, advertising, and sales literature. SEC stated that although the banking regulators’ guidelines are useful, the federal securities laws remain the most important set of investor protection criteria applicable to mutual funds and sales practices of broker-dealers. NASD made similar comments, noting that although the interagency guidelines are directly enforceable over banks and bank employees, they do not provide the bank regulators with direct and equal regulatory authority over SEC-registered NASD member broker-dealers, including the authority to bring enforcement actions for serious violations.","By using the interagency guidance as criteria to assess the sales practices being followed by banks and thrifts, we did not intend to minimize the importance of securities laws and regulations. Rather, we used the interagency guidance because it provided guidelines that applied to all mutual fund sales on bank premises, including indirectly to broker-dealers working under a contractual arrangement with a bank, and it contained bank-specific requirements that we wanted to test. In addition, we noted that the guidelines are similar in many respects to securities rules. The current regulatory framework allows banking institutions to choose how to structure their mutual fund sales and advisory activities and, depending on that structure, how they are regulated. For example, banks can choose to sell mutual funds directly and be subject to oversight by the banking regulators, but not by securities regulators. However, most banks that sell mutual funds choose to do so through affiliates that are subject to the oversight of the securities regulators. Banking regulators also have issued guidance to banks that sell mutual funds through these affiliates.","This creates a potential for different regulatory treatment of the same activity and a potential for conflict and inconsistency among banking and securities regulators. Similar concerns arise for banks and thrifts that can carry out investment adviser activities either in the bank or thrift or in a separate affiliate, although—in this case—most institutions carry out such activities directly rather than in an affiliate. While the banking and securities regulators have been taking steps to better coordinate their efforts, additional coordination could help alleviate differences in regulatory treatment meant to protect customers who buy mutual funds from banks and thrifts. When the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940 were enacted, the 1933 Glass-Steagall Act barred banks from engaging in most securities activities and limited bank securities activities to (1) underwriting and dealing in government securities, which were exempt from Glass-Steagall Act restrictions; and (2) providing brokerage services solely for customer accounts. Because banks were already subject to federal banking regulation, the securities laws exempted banks from the regulatory scheme provided for brokers and dealers and for investment advisers.","However, over the last 2 decades the federal banking regulators and the courts have interpreted the Glass-Steagall Act in ways that allow banks to provide a wide range of brokerage, advisory, and other securities activities comparable to services offered by SEC-registered broker-dealers and investment advisers. Consequently, banks have rapidly expanded their presence in the mutual funds industry. Because of the rapid increase in banks’ mutual fund activities, some Members of Congress and the securities regulators have expressed concern that the current regulatory framework and oversight and enforcement mechanisms have not kept up with changes in the market and may no longer be adequate to protect the interests of investors who purchase mutual funds through a bank. SEC has testified that eliminating the banks’ exemptions from registering as broker-dealers and investment advisers would result in better investor protection and allow uniform regulation of securities activities regardless of industry classifications. SEC contends that when banks sell mutual funds directly using their own employees, customers are not afforded the same level of protection as customers who make their purchases through a broker-dealer.","Specifically, SEC makes the following arguments: Guidelines issued by the banking regulators concerning retail sales of mutual funds are not regulations. Therefore, SEC believes they are not legally enforceable by the bank regulators or customers; are too general; do not contain sufficient provisions for training bank personnel, especially with regard to making suitability determinations; and raise potential problems of regulatory overlap and conflict with respect to registered broker-dealers that assist banks in the sale of securities products. The banking regulators’ primary focus is not investor protection, but the safety and soundness of the institution. As a result, SEC believes bank regulators minimize their disclosure of enforcement actions to protect the bank from adverse customer reactions in contrast to securities regulators, who make their enforcement actions a matter of public record to get maximum deterrent effect. SEC also argues that the securities regulators are better trained and have more expertise in assessing suitability determinations; that is, ensuring that customers make investments that are compatible with their income, assets, and investment goals.","SEC also testified that banks’ exemption from the Investment Advisers Act should be repealed for banks that advise mutual funds and that SEC should have the authority to regulate and inspect the mutual fund advisory and sales activities of banks. In addition, SEC has testified that when banks manage proprietary funds, there may be potential conflicts of interest between the funds and the bank’s other clients—conflicts that SEC may be unable to detect because of its lack of jurisdiction over bank investment advisers. In response to criticisms that their guidelines are inadequate, the banking regulators have argued that, in some cases, their guidance exceeds SEC and NASD requirements for nonbank mutual fund companies. For example, they say the guidance requires banks to disclose orally and in writing to potential customers that their mutual fund investments are not FDIC-insured and are subject to market fluctuations in value. Banks are required to ensure that customers sign written statements acknowledging that they understand the risks associated with mutual fund investments. By contrast, nonbank mutual fund customers are not required to sign written statements acknowledging the risks associated with mutual funds.","Bank regulatory officials also reject the argument that the guidelines represent a less enforceable standard than SEC regulations. The bank regulators have informed banks that the adequacy of their mutual fund operations will be assessed on the basis of the new guidelines during the next scheduled safety and soundness exam. According to the regulators, they will bring any identified deficiencies in bank mutual fund operations to the attention of senior bank managers and directors. The managers and directors will be required to correct these deficiencies within a specified period of time. Failure to make needed improvements could result in a variety of enforcement actions, such as cease and desist orders or civil money penalties. Because of such possible sanctions, the regulators believe that bank managers will establish mutual fund sales operations that comply with the interagency guidelines. Under current laws and regulations, sales of mutual funds in banks can be made either by employees of the bank; by employees of an affiliate, subsidiary, or third-party broker working on behalf of the bank; or by “dual employees”—individuals who work for both the bank and a broker.","If the salesperson is an employee of a broker or is a dual employee, he or she must be registered with NASD and is subject to SEC and NASD oversight. However, because the 1934 act exempts banks from being defined as a “broker” or a “dealer,” a bank can choose to use its own employees to sell mutual funds or other securities. These employees may do so without registering with NASD or being subject to SEC and NASD rules and oversight. Banks that use their own employees to broker securities are not subject to SEC regulation and oversight. However, responses to our questionnaire showed that the vast majority of banks that sell mutual funds on their premises choose to do so through SEC-registered broker-dealers, either affiliates or subsidiaries of banks or third-party broker-dealers, rather than directly by unlicensed bank employees. As shown by table 4.1, only about 8 percent of banking institutions that responded to our questionnaire reported that only their own employees directly sold mutual funds to retail customers.","On the basis of these responses, we estimate that about 180 of the 2,300 banking institutions that were selling mutual funds to their retail customers at the end of 1993 did so directly using only their own employees. About 43 percent reported sales by “dual employees” of the bank or thrift (or its affiliate or subsidiary) and a registered broker-dealer, 29 percent through an affiliated or subsidiary broker-dealer organization, and 38 percent through a networking or leasing arrangement with a registered third-party broker-dealer. When we analyzed these results by bank size, we found that small banks were least likely to sell mutual funds directly with their own employees. Only 7 percent of banks with assets less than $150 million reported selling mutual funds exclusively with their own employees. In contrast, about 14 percent of banks with assets between $250 million and $1 billion responded that their own employees, rather than broker-dealers, sold funds at their banks. According to the American Bankers Association, banks that choose to offer brokerage services directly through the bank do so because they do not yet have sufficient business to justify the expense of employing a registered broker-dealer.","As a result, some in the banking industry have asserted that eliminating banks’ exemption from registering as broker-dealers would unfairly penalize banks that had a small volume of brokerage transactions. To gather information on this issue, we contacted about 80 percent of the banks that reported selling mutual funds through their own employees to find out why they sold funds directly, rather than through a broker-dealer. They cited three reasons for selling funds directly through their own employees: (1) they wanted to maintain control over their relationship with their customers, rather than turn it over to a broker-dealer; (2) they did not do enough business to justify establishing an arrangement with a broker-dealer or setting up their own affiliate; and (3) they sold funds mainly as a convenience to their customers. Three of the banks we contacted sold proprietary funds, although one of these has since switched to selling funds through a third-party broker-dealer. Under the current regulatory framework, broker-dealers that operate on the premises of banks and thrifts are subject to regulation by SEC and indirectly to oversight by banking regulators.","This can cause conflict over what rules these broker-dealers are to follow in conducting their mutual fund sales programs and can also cause duplication of effort and an unnecessary burden on the broker-dealer when the regulators carry out examinations of these activities. For example, in December 1994, NASD released for comment proposed rules governing broker-dealers operating on the premises of banking institutions. According to NASD, these rules are designed to fill a regulatory void by specifically governing the activities of NASD member bank broker-dealers who conduct a securities business on the premises of a financial institution. They differ from the banking regulators’ interagency guidance in several respects. First, the proposed NASD rules prohibit the payment of referral fees by the broker-dealer to employees of the financial institution. The interagency guidance permits payment of these fees. Second, the proposed rules place restrictions on brokers’ use of the bank’s or thrift’s customer lists that are stricter than the interagency guidance. Specifically, the proposed NASD rules state that confidential financial information maintained by the financial institution can not be used to solicit customers for the brokerage.","This appears to rule out the use of information such as certificate of deposit maturity dates and balances. The interagency guidance requires only that the banking institution’s policies and procedures include procedures for the use of information regarding the institution’s customers in connection with the retail sale of nondeposit investment products. Third, the proposed NASD rules appear to place limits on the use of bank or thrift logos in advertising materials. For example, the proposed rules state that advertising and other sales materials that are issued by the broker-dealer must indicate prominently that the broker-dealer services are being provided by the broker-dealer, not the banking institution. Further, the financial institution may only be referenced in a nonprominent manner in advertising or promotional materials solely for the purpose of identifying the location where broker-dealer services are available. In contrast, the interagency guidance requires only that advertising or promotional material clearly identify the company selling the nondeposit investment product and not suggest that the banking institution is the seller. NASD’s proposal has generated controversy in the banking industry.","According to the financial press, some bankers have complained that the proposed NASD rules hold bank brokerages to standards that are higher than for nonbank brokerages. They point out, for example, that, unlike bank brokerages, nonbank brokerages are not required to disclose that mutual funds are not federally insured. In response, an NASD official said that when a customer deals with a brokerage in a bank, that brokerage has a higher responsibility to ensure that the customer understands the risk involved in investing in securities as compared to savings accounts or certificates of deposit. Another area of concern is the potential for overlapping examinations or examinations that may result in conflicting guidance. Under the current regulatory framework, a broker-dealer in a bank could be examined periodically by NASD to determine if it is in compliance with securities rules, by SEC if it is doing an oversight inspection of NASD or is doing an inspection for “cause,” and also by the banking regulators to determine if the bank is complying with the interagency guidance. Although we found that a number of steps have been taken to avoid overlapping and conflicting activities, some problems have not been resolved.","For example, SEC is concerned that the banking regulators, particularly OCC, have begun to examine registered broker-dealers that sell securities in banks and has plans to examine mutual funds advised by banks. SEC testified that because registered broker-dealers and mutual funds are already subject to regulation by SEC and NASD under the federal securities laws, imposing an additional layer of banking regulator examination and oversight is unnecessary and may result in firms receiving inconsistent guidance on compliance issues. Because of SEC’s concern, we reviewed examination guidelines issued by OCC, the Federal Reserve, and FDIC to determine the degree to which they required examiners to review broker-dealer records, especially third-party broker-dealers. OCC’s February 1994 guidelines for examination of retail nondeposit investment sales require that contracts between banks and broker-dealers provide bank examiners access to the records of third-party vendors (broker-dealers). However, the emphasis of the guidelines is on determining whether the bank has exercised the proper management control over the third-party vendor, rather than on a specific examination of the vendor’s operations.","For example, the guidelines state that when (1) preliminary examination findings clearly show that bank management has properly discharged its responsibility to oversee the third party’s operations, (2) only a few complaints have been filed against the vendor, and (3) the vendor’s reports to the bank are timely and properly prepared, examiner access to third-party records should generally be limited to reports furnished to bank management by the vendor. The guidelines are not clear, however, as to what actions examiners are to take if these conditions are not met, stating only that “After making a judgment about the effectiveness of the oversight of third party vendor sales, complete any other examination procedures that appear appropriate.” According to an OCC official, before OCC examiners do a bank inspection, they typically ask the bank to provide the results of the broker-dealer’s last NASD inspection. The NASD inspection report is to be reviewed to determine if it addresses any concerns about the bank’s mutual fund program. If the OCC examiners have concerns about the bank’s mutual fund program, they may do a limited inspection of the broker-dealer’s books and records.","OCC may also direct the bank to hire an accounting firm to audit the broker-dealer if the limited OCC inspection identifies problems. This official said that OCC’s inspection approach is designed to avoid duplication by placing on the bank the responsibility for controlling and overseeing the broker-dealer’s operations. During its inspections, OCC is to check the adequacy of these controls and the bank’s oversight of broker-dealer compliance. According to the OCC official, OCC inspections of the broker-dealer should be a rare event if the bank exercises adequate oversight. In commenting on a draft of this report, OCC reiterated that any inspections of third-party broker-dealers would be limited to pertinent books and records and would not be complete examinations. The Federal Reserve’s examination guidelines do not contain provisions that imply its examiners will review the operations of a third party in detail. The guidelines state that the examination procedures have been tailored to avoid duplication of examination efforts by relying on the most recent examination results or sales practice review conducted by NASD and provided to the third party.","For example, the guidelines state that in making determinations about suitability and sales practices involving registered broker dealers, Federal Reserve examiners should rely on NASD’s review of sales practices or its examination to assess the organization’s compliance with suitability requirements. The emphasis of FDIC’s examination guidelines is similar to the Federal Reserve’s. The guidelines state that examinations of banks that have contracts with a third party should focus on the agreement with the third party and the bank’s methods for determining the vendor’s compliance with bank policies and with provisions of the interagency statement. Banking and securities regulators have begun to take steps to better coordinate their efforts. In January 1995, NASD and the four banking regulators signed an agreement in principle to coordinate their examinations of broker-dealers selling mutual funds and other nondeposit investment products on bank premises. The agreement calls for the agencies to share examination schedules, NASD to share its examination findings with the banking regulators, referral of any violations of banking or securities laws to the appropriate agencies, and other matters. Also in January 1995, NASD agreed to establish a new committee for bank-affiliated brokerages.","This committee is to join 32 other standing NASD committees that represent specific interests; it is to recommend to the NASD board of governors rules and procedures for bank-affiliated brokerages and third-party brokerages that are doing business on bank premises. Many banks now provide investment advice to their own mutual fund families. Because the Investment Advisers Act of 1940 exempts banks from being defined as investment advisers, bank advisers do not have to register with SEC and are not subject to SEC regulations and oversight. As a result, when SEC inspects the records of a bank-advised fund, it does not have the authority to review certain records of the investment adviser that may be pertinent to an examination of the fund’s portfolio transactions. According to SEC officials, when a bank serves as the investment adviser to a mutual fund and is not registered with SEC, SEC is limited to reviewing only the activities of the adviser as the activities relate to the mutual fund. If, for example, the bank serves as the investment adviser to a mutual fund, a pension fund, and private trust funds, SEC can look at the bank’s activities only with respect to","the mutual fund.","SEC can not review the records of the other funds or accounts to determine if conflicts of interest exist or if the mutual fund was disadvantaged in some manner in relation to the other funds the bank is advising by the decisions of the investment adviser. Banks nevertheless may establish a separate SEC-registered subsidiary or affiliate to provide investment advice to a mutual fund, or they may provide such advice directly. While some banks have established SEC-registered subsidiaries or affiliates in which to conduct their mutual fund investment advisory activities, most provide such advice directly. According to SEC’s records, 78 of the 114 (68 percent) banking organizations that provided investment advisory services to mutual funds as of September 1993 did so directly rather than through SEC-registered subsidiaries or affiliates. If the bank chooses to conduct its mutual fund investment advisory activities directly, these activities are overseen principally by the banking regulator responsible for supervising and examining that bank and by SEC to the extent bank advisory activities relate to mutual funds subject to the Investment Company Act. Banks that provide investment advice to their proprietary mutual funds are subject to examinations of these activities by the","banking regulators.","These examinations are carried out regardless of whether the investment advisory function is also subject to inspection by SEC. While the banking regulators’ examinations have traditionally focused on safety and soundness issues, rather than enforcement of securities laws, OCC is drafting guidelines for examination of mutual fund activities that indicate OCC examiners may attempt to determine whether bank and fund practices comply with the Investment Company Act of 1940. This concerns SEC because it believes such guidelines raise potential problems of conflict and overlap among the regulators. OCC officials told us that although the agency has been doing examinations of investment advisers for years as part of the trust examination process, the new examination guidelines will focus examiners’ attention more directly on potential conflicts of interest that can arise when banks advise mutual funds. These potential conflicts of interest may violate securities laws and could enrich fund advisers at the expense of fund investors. The Federal Reserve also examines investment advisers in state-chartered member banks and in subsidiaries of bank holding companies.","If the investment adviser is the trust department of a state member bank, the examination is to be carried out as part of its examination of trust activities. If the investment adviser is a subsidiary of a bank holding company, on-site inspections are to be conducted as an integral part of bank holding company inspections. Although investment advisory subsidiaries of bank holding companies are required to register with SEC and are subject to SEC supervision and examination, the Federal Reserve’s guidelines note that such examinations are infrequent. Therefore, examinations by Federal Reserve Bank examiners are to be undertaken whenever they consider the investment adviser activities to be significant. Among the factors Federal Reserve examiners are to consider in deciding whether to schedule an examination of an investment advisory subsidiary of a bank holding company are volume and type of activity, date and results of previous Federal Reserve Bank and/or SEC inspections, and the extent of services provided to affiliated banks or trust companies. The Federal Reserve’s guidelines for inspections of investment advisory subsidiaries of bank holding companies state that these inspections are primarily focused on safety and soundness considerations and not on compliance with securities laws.","The objectives of these inspections are to (1) determine whether the adviser’s organizational structure and management qualifications are satisfactory; (2) evaluate the adequacy of the adviser’s financial condition and internal controls; (3) review the appropriateness of the adviser’s investment practices; (4) determine whether the institution has adequate policies and procedures to prevent self-dealing and similar improper conflicts; and (5) evaluate compliance with bank holding company laws, regulations, and interpretations. According to an FDIC official, if an FDIC-regulated bank has an affiliate that provides investment advisory services to a proprietary mutual fund, that entity would be supervised and inspected by the Federal Reserve under the holding company inspection system. In addition, a small number of state nonmember banks provide investment advisory services to mutual funds through their trust departments. FDIC examiners are to inspect these advisers as part of FDIC’s overall trust and compliance examination program. The trust examination guidelines address a number of areas involving the investment advisers’ activities. Specifically, the guidelines focus on the advisers’ supervision and organization, operations controls and audits, asset administration, account administration, and conflicts of interest and self-dealing.","Under the current regulatory framework, many banks’ securities activities are subject to review by both the securities and banking regulators. As shown by the responses to our questionnaire, over 90 percent of institutions that sell mutual funds do so through SEC-registered and supervised broker-dealers. These broker-dealers are subject to review by NASD and SEC, who attempt to ensure investor protection through enforcement of the securities laws; and by the banking regulators, who, among other things, attempt to ensure that the institution is operating its mutual fund program in a safe and sound manner and in compliance with the interagency guidance. A similar situation exists in the regulation of investment advisers. We noted, for example, that even when the bank conducts its mutual fund advisory functions in a separate subsidiary, the Federal Reserve continues to conduct its own inspections of these subsidiaries. In addition, OCC is drafting examination guidelines that will call for assessing banks’ compliance with various provisions of the Investment Company Act of 1940.","To the extent that these examinations would be carried out at entities already subject to SEC oversight, banks and their affiliates may be subject to having the same activities examined by two sets of regulators. The securities regulators have proposed that the regulatory framework could be simplified if a system of functional regulation were adopted. Under a “pure” functional regulation system—regulation according to function and not according to entity performing the function—SEC and the other securities regulators would be responsible for ensuring that banks comply with the securities laws. The securities activities of banks would be conducted in separate subsidiaries and affiliates, and banking regulators would be precluded from conducting examinations of the securities subsidiaries and affiliates of banks, which would eliminate duplicative regulation and oversight. However, the Comptroller of the Currency has testified that under this framework, the banking examiners would be unable to properly assess whether the securities activities were affecting the safety and soundness of the bank because they would have to rely on reports from the functional regulator that could be too infrequent, insufficiently detailed, or insufficiently comprehensive to allow the examiners to make a determination.","Eliminating banks’ exemptions from the securities laws would expand SEC’s authority to oversee banks’ securities activities and would appear to address SEC’s concerns that (1) investors are not adequately protected by the securities laws when retail securities sales are made directly by bank employees, and (2) it can not fully examine the transactions of mutual fund investment advisers when the adviser is a bank. However, just eliminating the exemptions does not remove the potential for duplication and conflict between the banking and securities regulators because each group will continue to be involved in supervising banks’ securities activities. In the past, SEC has had trouble keeping up with its existing workload because the size of its inspection staff has not kept pace with the explosive growth in the size and complexity of the mutual fund industry. As a result, the agency was forced to reduce the scope and frequency of its inspections over the past decade.","The size of SEC’s mutual fund company inspection staff began to increase in fiscal year 1994, and the agency believes that with the additional staff it is adding in fiscal year 1995 and has requested for fiscal year 1996, it will be able to examine mutual fund companies and their advisers with reasonable frequency. However, if these additional resources are not approved or if the financial services industry continues to expand as it has in recent years, SEC may continue to face challenges meeting its responsibility to oversee mutual funds and their advisers. SEC’s inspections of investment companies and their related investment advisers are to be carried out by staff in SEC’s regional and district offices in accordance with general examination objectives that are established by SEC’s Office of Compliance Inspections and Examinations at the beginning of each new fiscal year. Each region is responsible for preparing an annual inspection plan that responds to these overall objectives. SEC’s objective for inspecting investment companies and investment advisers during fiscal years 1991 through 1993 was to get the greatest dollar coverage with the limited staff available.","With this in mind, SEC had a program for inspecting investment companies during this period that called for inspecting funds in the 100 largest fund families and all money market funds. To the extent that time was available after SEC completed inspections of the 100 largest fund families and money market funds, SEC’s 1993 program called for its regions and districts to also inspect smaller fund families, with priority to be placed on inspecting families that had never been inspected. Moreover, SEC testified that its investment company inspections were limited in scope, focusing primarily on portfolio management to determine whether fund activities were consistent with the information given investors and whether funds accurately valued their shares. SEC stated, for example, that it rarely scrutinized important activities, such as fund marketing and shareholder services. Inspections of money market funds focused on compliance with a 1940 act rule that specifies the quality and maturity of permissible instruments that may be held for money market funds and the requirements for portfolio diversification. According to SEC officials, SEC staff review the activities of advisers to investment companies concurrent with their examination of the investment company.","In addition, between 1991 and 1993, SEC’s inspection programs called for inspecting all investment advisers with $1 billion or more in assets under management, with about one-third to be done in each of the 3 years. If time permitted, the regions and districts were also to inspect some advisers with less than $1 billion under management that had custody or discretionary management authority over client assets or conducted their business in a way that regional or district office staff believed needed review. For fiscal year 1994, SEC changed its inspection approach to (1) reintroduce an element of surprise into the inspections, and (2) allow the staff to focus on investment companies and advisers that they considered more likely to have problems. To accomplish these objectives, SEC headquarters informed SEC’s regions and districts that they were to inspect all medium and small fund families that had not been examined since 1990 and all new fund families formed during the year. SEC estimated that 350 families had not been inspected since 1990; and many of them, especially those connected with banks, had never been reviewed.","As in preceding years, the guidance stated that, except for families that had never been inspected, inspections should be limited in scope with an emphasis on portfolio management activities. For families connected with banks, staff were to closely review advertising and the procedures by which shares were distributed to shareholders. According to SEC, during fiscal year 1994, its staff conducted inspections of 303 small and medium fund families, including 225 money market portfolios within those families. The staff inspected funds in the 100 largest fund families only when a cause inspection was necessary. With respect to inspections of investment advisers in fiscal year 1994, SEC headquarters instructed SEC’s regions and districts to focus on potentially higher risk small and medium size advisers with discretionary management authority that had not been inspected in the prior 4 years, with no particular emphasis on large entities. SEC reported that as a result of the shift to inspections of smaller, higher risk investment advisers, the assets under management of inspected advisers decreased from $1.7 trillion in 1993 to $520 billion in 1994. However, the number of deficiencies identified increased by 57 percent, from 5,523 to 8,672.","Until recently, SEC believed that it did not have enough staff to properly oversee the mutual fund industry. For example, in November 1993 SEC testified that despite efforts to use its resources more effectively, such as by obtaining data in electronic format and beginning development of a risk assessment program for investment companies, it needed more and better trained people to deal with the mutual fund industry. An SEC official told us that SEC needs a total of 300 examiners to inspect investment companies and 210 examiners to inspect investment advisers. At the end of fiscal year 1994, SEC had about 200 staff assigned to inspections of investment companies and about 50 to inspections of investment advisers. In December 1993, the Office of Management and Budget approved the hiring of 150 additional investment company examiners (50 each year beginning in fiscal year 1994 through 1996). With the additional staff, SEC plans to perform comprehensive inspections of the 50 largest mutual fund families over a 2-year period. Funds in the other families would be inspected comprehensively about once every 4 years.","With respect to investment adviser examiners, in its fiscal year 1996 budget SEC is requesting an additional 193 staff years for the investment adviser inspection activity. If it receives the additional staff, SEC estimates that it will be able to inspect advisers much more frequently than it has in the past. Currently, about 21,000 investment advisers are registered with SEC, but only about 7,000 to 8,000 actually exercise discretion over client assets. According to SEC, it allocates more of its inspection resources to the advisers with discretionary authority and expects to examine these advisers every 6 to 8 years. An SEC official told us that if SEC were required to oversee bank-related investment advisers that are not currently registered with the Commission, it would have little or no effect on their resources because this would add relatively few (fewer than 100) advisers to their total inventory of advisers. Further, SEC staff already examine the activities of many of these advisers during their inspections of the related investment companies. Even if SEC acquires additional inspection staff, it will face major challenges in adhering to its planned inspection schedule.","There have been time lags in hiring new examiners, and they need to be trained over a period of several months. In addition, though there has been a slowdown recently, the number of new mutual funds continues to increase. Also, such issues as the mutual funds’ use of derivatives and personal trading by fund managers have come to the forefront. The increase in the number of banks that manage their own proprietary funds has caused the securities regulators and some in Congress to be concerned as to whether the banking and securities regulations are adequate to prevent certain conflicts of interest when banks operate proprietary mutual funds.","Specific concerns are whether, or under what circumstances, (1) banks should be permitted to serve as custodians for their own mutual funds, (2) banks should be permitted to loan money to their mutual funds, (3) bank funds should be permitted to purchase securities issued by a borrower of the bank when the proceeds are used to pay off a loan to the bank, (4) banks should be permitted to extend credit to customers to purchase shares of bank funds, and (5) limits should exist on interlocking management relationships between banks and their mutual funds. The Investment Company Act of 1940 (the 1940 act) does not prohibit a bank from acting as both the advisor and the custodian for the same mutual fund. This has caused concern among securities regulators that a bank could cause its affiliated (proprietary) mutual fund to select the bank as fund custodian, thereby depriving the fund of an independent custodian and creating the potential for abuse and self-dealing. The fund custodian holds all securities and other fund assets on behalf of the fund.","The 1940 act requires a mutual fund to place and maintain its securities and similar investments in the custody of a bank with aggregate capital and surplus and undivided profits of not less than $500,000; a company that is a member of a national securities exchange; or the fund itself. In practice, the fund custodian is almost always a bank. Although the 1940 act does not prohibit a bank from acting as both adviser and custodian for a mutual fund, SEC’s position is that such banks are subject to its self-custody rule. That rule requires that securities and investments of a mutual fund maintained in the custody of the fund must be verified by actual examination by an independent public accountant at least three times a year, two of which must be without prior notice. These requirements, among others, must be satisfied when a bank acts as adviser (or is affiliated with the adviser) and as custodian or subcustodian of a fund. In addition, SEC has advocated changing the 1940 act to subject affiliated bank custodianships to specific SEC rule-making authority.","Our analysis of the data provided by Lipper showed that as of September 30, 1993, 53 of 114 banks that advised funds also acted as custodians of those funds. According to the SEC official in charge of SEC’s inspections of mutual funds, auditors must file a certificate reflecting securities verification, which SEC examiners typically review when examining the mutual funds. This official noted, however, that the SEC rule requiring verifications three times a year was written when securities were issued in physical form, such as stock certificates. Today, securities are issued in book-entry form rather than in physical form, requiring more elaborate verification procedures. Independent auditors now evaluate the process and controls used by the custodian to make a daily reconciliation of statements of securities held by the mutual fund with the Depository Trust Company (DTC). However, physical examination of pertinent records is still required to review the custodian’s reconciliations. The SEC official also told us that there have been no specific examples of abuses relating to the custody of securities that have occurred when banks also acted as the funds’ investment advisor.","The 1940 act allows a mutual fund to borrow up to one-third of its net asset value from any bank. Because the act does not expressly prohibit a mutual fund from borrowing money from an affiliated bank, securities regulators are concerned that the lack of such a prohibition creates the potential for overreaching by a bank in a loan transaction with an affiliated investment company. Several banking laws, however, restrict banks’ ability to make loans to affiliated mutual funds. For example, section 23A of the Federal Reserve Act prohibits a member bank from lending more than 10 percent of its total capital (capital stock and surplus) to a mutual fund that is advised by the bank or its affiliates and 20 percent to all affiliates (a mutual fund advised by the bank is defined as an affiliate). Section 23B of the Federal Reserve Act states that all such lending must be on an arm’s length basis. The Federal Deposit Insurance Act applies Sections 23A and B restrictions to all federally insured nonmember banks.","Under Regulation Y, the Federal Reserve prohibited banking organizations (bank holding companies and their bank and nonbank subsidiaries) from extending credit to any mutual fund company advised by a bank within the organization or its affiliates. In addition, a rule adopted by FDIC permits nonmember state banks to extend credit to an affiliated mutual fund subject to the Sections 23A and B restrictions. These must be stand-alone banks and not holding companies. Holding companies must comply with Regulation Y. The Federal Reserve’s bank holding company supervision manual contains detailed guidelines for examining for compliance with Sections 23A and B. The chief examiners in three Federal Reserve district offices told us these examinations are conducted regularly. According to the Federal Reserve official responsible for overseeing enforcement actions, the Federal Reserve has never taken any enforcement actions charging that bank holding companies or member banks had violated Sections 23A or B provisions relating to proprietary mutual funds. The 1940 act does not expressly prohibit a mutual fund from purchasing the securities of companies that have borrowed money from an affiliated bank, but it does prohibit most transactions between a fund and its affiliates.","In addition, Sections 23A and 23B of the Federal Reserve Act, which prohibit banks from engaging in certain transactions with affiliates, do not impose restrictions on the ability of proprietary funds to purchase the securities of companies that are borrowers from an affiliated bank. As a result, securities regulators believe that there is a risk that a bank may use its affiliated mutual fund to purchase securities of a financially troubled borrower of the bank. The indebtedness to the bank would be repaid, but the mutual fund may be left with risky or potentially overvalued assets. A Federal Reserve Board attorney told us that while Sections 23A and 23B do not specifically prohibit proprietary funds from purchasing securities from a borrower of the affiliated bank, such activities are generally violations of state conflict-of-interest laws if the participants intend to prop up a weak bank borrower. This official said that the Federal Reserve enforces these laws as part of its examination and compliance process as do state regulators. This official also told us that bank commercial lending departments are prohibited from sharing sensitive loan information with trust departments.","However, if a fund purchases the securities of a bank borrower, such an action would not necessarily be considered a violation of the restrictions. Illegality would depend upon the intent of the participants, that is, an intent to rescue a failing corporate borrower. Similarly, a bank intentionally causing an affiliated fund to acquire the securities of a troubled borrower to shore up the borrower’s finances may be in violation of the affiliated transaction provision of the 1940 act, and the bank would be violating its fiduciary obligations as an adviser to the fund. Officials of two very large banks that we visited told us that it was possible, even likely, that their proprietary funds would make investments in entities to which the bank had loaned money. For example, a bank official told us that if one were to examine his bank’s loan portfolio, it would not be inconceivable to find IBM as a borrower and, likewise, IBM would probably turn up as one of the stocks held by that bank’s mutual fund family.","Even so, this would be coincidental rather than the result of any planned activity, as many of the Fortune 500 companies are likely to be customers of his bank and others like it. Officials at both banks stressed that the lending and investment advising activities are quite separate and that their controls for separating these activities precluded any abuses. To eliminate potential conflicts of interest between securities firms (including mutual funds) and banks, Section 32 of the Glass-Steagall Act and regulations of the Federal Reserve Board prohibit interlocks among officers, directors, and employees of these entities. However, because of interpretations by the Federal Reserve Board and FDIC, there are opportunities for interlocks to occur between banking organizations and mutual funds. Whether these interlocks have resulted in actual problems is uncertain; regulators told us that no cases have been reported. Section 32 of the Glass-Steagall Act, as interpreted by the Federal Reserve Board, prohibits employee, officer, and director interlocks between banks that are members of the Federal Reserve System and mutual funds. The Board has applied Section 32 to bank holding companies; consequently, a bank holding company with member bank subsidiaries may not have an interlock with","a mutual fund.","However, the Board has indicated that interlocks between nonbanking subsidiaries of bank holding companies and securities firms are not subject to Section 32. Therefore, a nonbanking subsidiary of a holding company could have an interlock with a mutual fund. Section 32 does not apply to banks that are not members of the Federal Reserve. Thus, a nonmember state bank could maintain an interlock with a mutual fund. In addition, FDIC’s regulations do not prohibit interlocks between a state nonmember bank and a mutual fund for which it acts as an investment adviser. However, a nonmember bank with a bona fide subsidiary or securities affiliate that engages in mutual fund activities impermissible for the bank itself (such as acting as the fund’s underwriter) would be subject to restrictions. The bona fide subsidiary or securities affiliate may not have common officers with the bank and would be required to have a majority of independent directors. The 1940 act does not prohibit interlocks between banks and investment companies. However, Section 10(c) of the act prohibits a registered investment company from having a majority of its board consist of officers, directors, or employees of any one bank.","The act defines the term “bank” to include a member bank of the Federal Reserve System. In addition, section 10(a) requires that at least 40 percent of a fund’s board members be “disinterested persons.” These are persons who are not to be affiliated with a fund’s adviser, including a bank adviser, or with the fund’s principal underwriter. A bank may serve as the investment adviser to a mutual fund; act as an agent in purchasing mutual funds for customers (i.e., provide discount brokerage services); provide full brokerage services to customers, including investment advice concerning mutual funds; provide administrative services to mutual funds; and serve as the custodian and transfer agent to mutual funds. However, the Glass-Steagall Act prohibits banks that are members of the Federal Reserve System and bank holding companies from sponsoring mutual funds or underwriting and distributing the shares of mutual funds. These restrictions also apply to affiliates of banks that are members of the Federal Reserve System and to nonmember banks. They do not apply, however, to subsidiaries or affiliates of state banks that are not members of the Federal Reserve System.","So, a subsidiary of a state nonmember bank (if it does not have a member bank affiliate) may provide these services, as may an affiliate of a savings association (if it does not have a member bank affiliate). Most parties seem to agree that the restrictions on sponsoring, underwriting, and distributing mutual funds are insignificant in practical terms. Shares of mutual funds are not “underwritten” in the traditional sense, whereby an underwriter commits as principal to purchase large blocks of securities for resale to the public or agrees to use its “best efforts” to sell securities to the public. Instead, investors generally purchase shares of mutual funds either directly from a fund or from securities firms, financial planners, life insurance organizations, or depository institutions. An official of one bank we visited said that he did not regard the Glass-Steagall prohibitions on sponsorship and underwriting as a necessary guard against conflicts of interest.","In his opinion, the original (1933) concern about a bank exposing itself to risk by acting as principal in the underwriting of securities does not apply to the issue of bank sales of mutual funds because the bank sells mutual funds on an agency basis; since it does not act as principal, it does not expose its capital to risk. The major cost of the Glass-Steagall restrictions to banks is that they must contract with unaffiliated distributors that perform underwriting functions in return for fees. One banker told us that the elimination of the Glass-Steagall provisions that prevent commercial banks from underwriting securities would eliminate the banks’ need to hire such organizations and pay such fees. He also said that without Glass-Steagall restrictions, the banks might be able to operate more efficiently. Eliminating banks’ exemption from the Securities Exchange Act of 1934 and requiring that all mutual fund sales by banks be conducted through broker-dealers, as suggested by SEC, currently would affect less than 10 percent of all banks.","Banks that sell mutual funds directly through their own employees rather than a broker-dealer generally do so either because they want to maintain control of their customer relationship or they do not have a sufficient volume of business to justify establishing a relationship with a broker-dealer. Eliminating the exemption would allow SEC and self-regulatory organizations, such as NASD, to enforce the securities laws uniformly in connection with the sale of mutual funds. However, the fact that SEC does not now have oversight of direct retail sales by bank employees does not mean that these banks are free to conduct these sales without any supervision. The bank regulators’ interagency guidance applies to all sales activities on the premises of the banking institution, regardless of whether they are done through a broker-dealer or directly by a bank employee, and the banking regulators have taken steps in their examinations to increase their scrutiny of banks’ compliance with the guidance.","Similarly, removing the exemption from the definition of investment adviser under the Investment Advisers Act of 1940 for banks that advise funds, as suggested by SEC, would allow SEC to more fully inspect previously unregistered advisers to determine that the adviser is carrying out securities transactions in a way that is fair to all of its clients, including the mutual fund. However, removing the exemption may also permit SEC to make limited inspections of bank activities that have been solely within the domain of the banking regulators, such as transactions involving trust accounts. These activities are regularly examined by the banking regulators. The banking regulators’ examinations, however, focus principally on safety and soundness considerations, rather than on compliance with the securities laws. Although removing the exemptions would allow the securities regulators to extend their oversight of banks’ mutual fund activities, this action would not, by itself, resolve conflict and overlap among the regulators. This is because the banking regulators in their role of overseeing the safety and soundness of banks would continue to be involved in conducting examinations and issuing rules and guidance on banks’ securities activities.","Although the regulators have taken some actions to work more closely together, as in the January 1995 agreement between NASD and the banking regulators on coordinating their examinations, there are areas in which additional coordination would be desirable. For example, although NASD’s December 1994 proposed rules governing securities broker-dealers operating on bank premises paralleled the interagency guidance in many respects, they have caused controversy because they contain provisions that differ from the banking regulators’ interagency guidance. NASD officials commenting on this report said these differences are purposeful and provide a more explicit, well-defined, and enforceable approach to regulating these NASD members. In addition, the banking regulators and SEC do not currently have an agreement to coordinate their oversight of investment advisers similar to the one between NASD and the banking regulators for sales practice examinations. SEC is concerned that OCC examiners will be attempting to enforce securities laws as part of their examinations of investment advisers, and it would appear that development of such an agreement, to include a common approach for conducting and coordinating these examinations, would help eliminate overlapping examinations and conflicting guidance.","We recommend that SEC, the Federal Reserve, FDIC, OTS, and OCC work together to develop and approve a common approach for conducting examinations of banks’ mutual fund activities to avoid duplication of effort and conflict, while providing efficient and effective investor protection and ensuring bank safety and soundness. Each of the organizations (SEC, NASD, OCC, FDIC, the Federal Reserve, and OTS) that provided comments on a draft of this report supported our recommendation. Several agencies cited efforts that have been recently completed or are currently under way to work closely together, including implementing the January 1995 agreement between the banking regulators, SEC, and NASD to coordinate examinations. However, OCC believed the report overemphasized the potential for inconsistent or contradictory regulation. In addition, SEC and OCC stated that in June 1995 they reached agreement on a framework for conducting joint examinations of mutual funds and advisory entities in which both agencies have regulatory interests. Their comments indicated that they expect this agreement to result in increased coordination and result in more efficient oversight of bank mutual fund activities. According to SEC, its staff and OCC staff have informally discussed examination procedures and are beginning to schedule joint","examinations.","SEC also stated that its staff has met preliminarily with the staff of FDIC to discuss entering into a similar arrangement."],"string":"[\n \"The mutual fund industry’s growth in the last decade has been phenomenal. At the end of 1984, mutual funds managed assets totaling about $371 billion. By 1990 managed assets had grown to over $1 trillion, and by December 1994 this figure had doubled to about $2.2 trillion, second only to the $2.4 trillion in total deposits held in U.S. commercial banks. According to the Investment Company Institute (ICI), the national trade association of the mutual fund industry, there are a number of reasons for the industry’s growth. These include appreciation in the value of assets held by the mutual funds; additional purchases by existing shareholders; the introduction of new types of products and services; the growth of the retirement plan market; increased investment by institutional investors; the introduction of new distribution channels—such as banks; and a shift by individual investors from direct investments in stocks, bonds, and other securities to investment in securities through mutual funds. Also, in recent years investors have shifted to mutual funds in an attempt to obtain a better investment return than has been available through alternative investments, such as certificates of deposit.\",\n \"A mutual fund, formally known as an open-end investment company, pools the money of many investors. These investors, which can be either individuals or institutions, have similar investment objectives, such as maximizing income or having their investment capital appreciate in value. Their money is invested by a professional manager in a variety of securities to help the investors in the fund reach their objectives. By investing in a mutual fund, investors are able to obtain the benefits of owning a diversified portfolio of securities rather than a limited number of securities. This can lessen the risks of ownership. In addition, investors gain access to professional money managers, whose services they might otherwise be unable to obtain or afford. Each dollar that an investor puts into a mutual fund represents some portion of ownership in that fund. Funds must calculate their share price on days on which purchase or redemption requests have been made based on the market value of the assets in the fund’s portfolio, after expenses, divided by the number of shares outstanding. This leads to a figure known as the net asset value (NAV). Per-share values change as the value of the assets in\",\n \"the fund’s portfolio changes.\",\n \"Investors can sell their shares back to the fund at any time at the current NAV. Many newspapers carry the purchase and redemption prices for mutual funds on a daily basis. A mutual fund is owned by its hundreds or thousands of shareholders. A board of directors is responsible for overseeing the fund’s investment policies and objectives. The board generally does not do the work of the fund itself, but instead contracts with third parties to provide the necessary services. The Investment Company Act of 1940 requires that at least 40 percent of the board of directors be independent of the fund, its adviser, and underwriter. One of the functions of the board is to approve the mutual fund’s contracts with its investment adviser. The investment adviser plays a key role in the operation of a mutual fund. The investment adviser manages the fund’s investment portfolio by deciding what securities to buy and sell in accordance with the fund’s stated investment objectives.\",\n \"Other functions of the board include choosing the administrator, who generally acts as the fund’s manager by keeping the books and records, filing necessary reports with the Securities and Exchange Commission (SEC), and calculating NAV; the distributor or “underwriter,” who either sells the fund’s shares directly to the public or enters into agreements with broker-dealers or banks that will in turn sell them to retail customers; the transfer agent, who keeps track of fund shareholders and maintains information about the number of shares owned by investors; and the custodian, who is responsible for safeguarding the cash and securities assets of the fund, paying for securities when they are purchased by the fund, and collecting the income due when securities are sold. Mutual funds are sold to the public in two basic ways: directly to the public or through a sales force, such as a broker. With direct marketing, funds often solicit customers through newspaper, television, and magazine advertising or direct mail. These funds typically have low or no sales fees, or “loads.” Funds that are marketed primarily through a sales force are usually available through a variety of channels, including brokers, financial planners, banks, and insurance\",\n \"agents.\",\n \"These sales people may be compensated through a load, which is included in the price at which the fund’s shares are offered; through a distribution fee paid by the fund; or both. The mutual fund activities of banks and thrifts are subject to a number of federal and state securities and banking laws and regulations—and to the shared oversight of a variety of federal and state securities and banking regulators. In general, the mandate of securities laws is to protect investors through full and timely disclosures, while many banking laws are geared to protecting depositors and ensuring bank safety and soundness. The principal securities laws that apply to mutual funds are the Investment Company Act of 1940; a companion law, the Investment Advisers Act of 1940; and the Securities Act of 1933. These laws are intended to foster full disclosure of the risks involved in buying mutual funds and to protect investors. The Investment Company Act requires all mutual funds to register with SEC.\",\n \"The act contains numerous requirements relating to the operation of funds, including rules on the composition and election of boards of directors, disclosure of investment objectives and policies, approval of investment advisory and underwriting contracts, limitations on transactions with affiliates, permissible capital structures, custodial arrangements, reports to shareholders, and corporate reorganizations. Investment advisers to mutual funds, except banks, are subject to the Investment Advisers Act, which requires that any firm in the business of advising others as to the value of securities register with SEC. The Advisers Act also imposes reporting requirements on registered investment advisers and subjects them to restrictions against fraudulent, deceptive, or manipulative acts or practices. The Securities Act of 1933 requires that all publicly offered shares of any issuer, including mutual funds, be registered with SEC. In addition, SEC has adopted rules under that act to require extensive disclosures in a fund’s prospectus, including information about the fund’s investment objectives and policies, investment risks, and all fees and expenses. The act also regulates mutual fund advertising. In addition to the above laws, another securities law, the Securities Exchange Act of 1934, regulates how shares in mutual funds are sold.\",\n \"This act requires that persons distributing shares or executing purchase or sale transactions in mutual fund shares be registered with SEC as securities broker-dealers. SEC oversees the regulation of mutual funds and their investment advisers under the Investment Company Act and the Investment Advisers Act. SEC reviews disclosure documents, such as prospectuses, and inspects mutual fund operations. It also registers and inspects investment advisers. Broker-dealers who sell mutual funds are regulated and examined by SEC and the National Association of Securities Dealers (NASD). NASD was established pursuant to the Securities Exchange Act of 1934 as a self-regulatory organization for brokerage firms, including those that engage in mutual fund distribution, and is itself subject to SEC’s oversight. SEC and NASD regulate broker-dealers by regularly examining broker-dealer operations on-site and investigating customer complaints. NASD has also established Rules of Fair Practice, which govern standards for advertising and sales literature, including filing requirements, review procedures, approval and recordkeeping obligations, and general standards. In addition, NASD tests individuals to certify their qualifications as registered representatives and has primary responsibility for regulating advertising and sales literature used to solicit and sell mutual funds to investors.\",\n \"The Securities Exchange Act of 1934 exempts banks from its broker-dealer registration requirements. As a result, banks may choose to have their own employees sell mutual funds and other nondeposit investment instruments without the need to be associated with an SEC-registered broker-dealer or subject to NASD oversight. In those instances, the banking regulators, instead of NASD, are responsible for overseeing the sales activities of bank employees. Banks are also exempt from being defined as investment advisers under the Investment Advisers Act. As a result, banks may serve as investment advisers to mutual funds without registering with SEC. However, some banking organizations place their advisory activities in a nonbank subsidiary of a bank holding company. In these cases, the subsidiary is required to register as an investment adviser and is subject to SEC oversight under the Investment Advisers Act. In addition to the oversight provided by securities regulators, a number of banking laws apply to banking organizations’ mutual fund activities. One such law is the Glass-Steagall Act, which was enacted in 1933.\",\n \"The Glass-Steagall Act was designed to curb perceived securities abuses and speculative investments by banks that were thought to have contributed to the collapse of commercial banking in the early 1930s. The act prohibits certain securities activities by banks and their affiliates. For example, the act generally prohibits all banks from underwriting (publicly distributing new issues of securities) and dealing (trading for its own account) in certain securities directly. It also prohibits Federal Reserve System member banks from purchasing certain securities for the bank’s own account and from having interlocking management relationships with firms that are engaged primarily or principally in underwriting securities.Until the early 1980s, Glass-Steagall was viewed as prohibiting banks from engaging in most mutual fund activities. Since then, a series of federal banking agency decisions and court rulings have eroded the Glass-Steagall restrictions and allowed banks to engage in a wide variety of mutual fund activities that had not been permitted previously. These include serving as the investment adviser to a mutual fund, selling mutual funds to retail and institutional customers, and offering various administrative services, such as recordkeeping and custodial functions. Essentially, banks can now do everything but underwrite a mutual fund.\",\n \"While the Glass-Steagall Act restricts banks’ mutual fund activities, the actual powers granted banks to engage in these activities and the framework for their regulation and oversight are found in other laws. The powers of national banks to engage in mutual fund activities are contained in the National Bank Act, which is administered by the Office of the Comptroller of the Currency (OCC). State-chartered banks derive their powers from the state laws under which they are chartered, subject to restrictions imposed by the Federal Reserve Act if they are members of the Federal Reserve System. State-chartered banks that are members of the Federal Reserve System are supervised by the Federal Reserve Board as well as by state-level banking authorities. Federally insured state-chartered banks that are not Federal Reserve members are subject to regulation and oversight by the Federal Deposit Insurance Corporation (FDIC) under the Federal Deposit Insurance Act and state banking authorities. The powers of bank holding companies are found in the Bank Holding Company Act of 1956, which is administered by the Federal Reserve Board.\",\n \"The authority for thrifts and their affiliates to engage in mutual fund activities is contained in federal and state laws applicable to savings and loan associations, particularly the Home Owners’ Loan Act and the Federal Deposit Insurance Act. Thrifts are supervised by the Office of Thrift Supervision (OTS). This report was prepared in response to requests from the former Chairmen of the House Committee on Banking, Finance, and Urban Affairs and the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce that we examine the disclosure and sales practices of banks with respect to mutual funds. Our objectives were to (1) determine the extent and nature of bank and thrift involvement in mutual fund sales, (2) assess whether the sales practices followed by banks and thrifts provide bank customers adequate disclosures of the risks of investing in mutual funds, and (3) analyze whether the existing framework for regulation and oversight of bank and thrift mutual fund sales practices and proprietary fund operations adequately protects investors.\",\n \"To determine the extent and nature of bank and thrift involvement in mutual fund sales, we gathered and analyzed information on the size of the mutual fund market, the level of bank and thrift participation in it, and the methods by which banks and thrifts market mutual funds to their customers. To do this, we obtained data from Lipper Analytical Services, Incorporated, a well-known source of data on the mutual fund industry. Lipper maintains a database of information on bank-related mutual funds and publishes a semiannual report, “Lipper Bank-Related Fund Analysis,” which we used as a source for some of the information in this report. We also used other information accumulated by Lipper on the mutual fund industry as a whole. We did not verify the data we obtained from Lipper; however, we asked Lipper to provide us a detailed description of the methods it uses to accumulate data and the internal controls it employs to ensure its accuracy. We used the description to determine that these methods and controls would provide reasonable assurance that the information supplied by Lipper was accurate.\",\n \"In addition, we determined that Lipper’s mutual fund data are widely used in the financial services industry and are considered reliable by those who use it. Because Lipper’s database does not cover the extent to which nonproprietary funds are sold through banks, we also surveyed a random sample of 2,610 banks and 850 thrifts to obtain comprehensive data on which of these institutions offer mutual funds for sale, the types of funds they sold, and their recent sales data. In addition, to obtain additional information on the characteristics of mutual fund sales through banks and thrifts, we reviewed pertinent regulatory and industry studies, particularly a survey of mutual funds that was released by ICI in November 1994. To determine whether the sales practices followed by banks and thrifts provide bank customers adequate disclosures of the risks of investing in mutual funds, we developed and mailed a questionnaire to a random sample of banks and thrifts asking these institutions to provide information concerning how and by whom mutual funds are sold to retail customers, how sales personnel are compensated, whether written policies and procedures have been established, and the types of disclosures that are made to retail\",\n \"customers.\",\n \"Posing as bank customers interested in a mutual fund investment, we also visited a randomly selected sample of 89 central offices of banks and thrifts in 12 cities. The purpose of these visits was to observe and document the sales practices of institutions selling mutual funds and to test whether salespersons were following the federal banking regulators’ guidance concerning mutual fund sales programs. A detailed explanation of the methodology we used in our survey questionnaire and in our visits to banks and thrifts is contained in appendix I. To gain an understanding of how the existing regulatory framework for overseeing bank sales of mutual funds protects investors, we (1) interviewed selected bank and thrift regulators, securities regulators, bank and thrift officials, and industry representatives in Washington, D.C.; New York, New York; Boston, Massachusetts; Philadelphia, Pennsylvania; San Francisco, California; and Chicago, Illinois; (2) reviewed relevant literature, congressional testimony, studies, regulations, and laws; and (3) reviewed and analyzed financial regulators’ examination policies, procedures, reports, and workpapers. We did our work between May 1993 and December 1994 in accordance with generally accepted government auditing standards.\",\n \"We provided a draft of this report to FDIC, the Federal Reserve, NASD, OCC, OTS, and SEC for comment. Their comments are presented and evaluated in Chapters 3 and 4, and their letters are reprinted in full in appendixes IV through IX, along with our additional comments. The organizations also suggested several technical changes to clarify or improve the accuracy of the report. We considered these suggestions and made changes where appropriate. Since restrictions on banks’ mutual fund activities were liberalized in the 1980s, banks and thrifts have rapidly expanded their participation in the mutual fund industry. Many institutions have established their own families of mutual funds, called proprietary funds, and the sales of these funds as a percentage of total industry sales have grown sharply. Banks and thrifts have also become major sales outlets for nonproprietary mutual funds. Institutions with assets greater than $1 billion are more likely to sell mutual funds than are those with less assets, but most of the institutions that have begun selling mutual funds since the end of 1991 are the smaller ones.\",\n \"Most banks and thrifts reported that they sell mutual funds for two reasons: to keep their customers and to increase their fee income. As of December 31, 1993, about 114 bank and thrift companies had established proprietary mutual funds. These are funds for which a bank or one of its subsidiaries or affiliates acts as the investment adviser and that are marketed primarily through the bank. Most of these have been established by very large banking organizations; of the 114 companies that had proprietary funds as of December 31, 1993, 79 were among the top 100 bank holding companies in the United States. During the 5 years between the end of 1988 and the end of 1993, the growth of bank proprietary funds in terms of the value of assets managed by the funds has been much greater than the growth of the industry as a whole. As shown in table 2.1, between December 31, 1988, and December 31, 1993, the value of assets managed by bank proprietary funds grew from about $46 billion, or 6 percent of the industry total, to about $219 billion, or 11 percent of the industry total.\",\n \"Although banks greatly increased their sales of mutual funds to retail customers during the 5 years, the increase in their sales to institutional customers was even greater. Retail sales grew by 324 percent, and institutional sales grew by 443 percent. Nearly $119 billion of the $219 billion (54 percent) of the assets in bank proprietary funds at year-end 1993 were in funds marketed primarily to institutional customers. In contrast, only about 10 percent of the assets in nonproprietary funds were marketed primarily to institutional customers. The number of proprietary funds offered by banks also grew faster than the industry as a whole. As shown in table 2.2, as of December 31, 1988, there were 317 bank proprietary funds, representing about 13 percent of the 2,372 total mutual funds in existence at that time. By December 31, 1993, banks offered 1,415 proprietary mutual funds, or 24 percent of the industry total of 5,851 funds. Table 2.2 also shows that, while more than one-half of the assets in bank funds were in money market funds, the greatest growth, both in the number of funds offered and assets managed, was in taxable fixed-income (bond) funds, followed by equity funds.\",\n \"In addition to sales of proprietary funds, banks and thrifts also have become major sales outlets for nonproprietary funds. These are funds managed by an independent fund company and sold by the bank or bank affiliate. Nonproprietary funds are also available to investors outside the bank through an unaffiliated broker-dealer. According to data compiled by ICI, 1,780 nonproprietary funds were available through the bank channel (banks and thrifts) at the end of 1993. This represents a 62-percent increase from the 1,100 funds available as of the end of 1991. ICI’s data also show that new sales of fixed-income and equity funds through the bank channel rose from $28.1 billion in 1991 to $67.5 billion in 1993. However, because sales of fixed-income and equity funds through nonbank channels also rose considerably, the percentage of sales through the bank channel to total sales increased only slightly, from 13 percent in 1991 to 14 percent in 1993. In addition, ICI found that about 55 percent of banks’ sales of fixed-income and equity funds in 1991 was attributable to sales of nonproprietary funds. This figure rose to 59 percent in 1992, then dropped to 51 percent in 1993.\",\n \"An ICI official told us that the increase in bank sales of nonproprietary funds in 1992 was caused by a strong demand for equity funds—a segment of the market in which bank proprietary funds were not as well represented as were nonproprietary funds. In 1993, there was a surge in demand for fixed-income funds, a segment in which bank funds were well represented. Also, by 1993 banks had introduced more equity funds. As a result, bank sales of proprietary funds increased in 1993 compared to their sales of nonproprietary funds. ICI’s data show that, as of the end of 1993, the assets of funds attributable to bank sales were about $298 billion, or 14.2 percent of the $2.1 trillion in total mutual fund assets. This figure includes both proprietary and nonproprietary funds sold through banks and thrifts. In 1991, the comparable percentage was 11.6 percent, and in 1992, 13.8 percent. In breaking down the total between money market funds and long-term funds (fixed-income and equity funds), ICI found that in 1993, nearly 29 percent of all money market fund assets were attributable to bank and thrift sales.\",\n \"Less than 9 percent of long-term fund assets were attributable to bank and thrift sales, indicating the relatively strong presence of banking institutions in the money market fund area. However, the 9 percent of long-term fund assets attributable to bank and thrift sales at year-end 1993 represents a near doubling of the comparable figure at year-end 1991. On the basis of the responses to the questionnaire we sent to a nationwide sample of banks and thrifts, we estimate that nearly 17 percent, or about 2,300 of the approximately 13,500 banks and thrifts in the United States, were offering mutual funds for sale as of the end of 1993. The results also indicated that the larger the size of the institution, the greater the likelihood that it had a mutual fund sales program. About 74 percent of the banks with $1 billion or more in assets had mutual fund sales programs, but only 11 percent of the banks with assets less than $150 million sold mutual funds. Similarly, about 60 percent of thrifts with assets of $1 billion or more had sales programs, but only about 3 percent of thrifts with assets less than $100 million sold\",\n \"mutual funds.\",\n \"Our data also show that while larger institutions are more likely to sell mutual funds, smaller institutions are increasingly introducing mutual fund sales programs. We estimate that about 49 percent of all banks and thrifts that had mutual fund sales programs began selling funds within the last 2 years. About 74 percent of those banks entering the mutual fund sales arena over the previous 2 years had assets of less than $250 million. About 94 percent of the banks and thrifts responding to our questionnaire cited retention of customers as of great or very great importance in their decisions to begin selling mutual funds to their retail customers, and about 49 percent reported that fee income was of great or very great importance in their decisions. However, fee income may become more important after sales begin. Discussions we had with bank officials showed that once the mutual fund sales program is established, the objectives of the program may broaden to include the generation of fee income.\",\n \"For example, an official of one very large bank with a large and widely marketed family of proprietary funds told us that initially the bank began offering uninsured investments, including mutual funds, as a defensive measure to retain customers. The bank now offers a full line of investment products and recognizes this as a key customer service and revenue-generator. A July 1994 survey by Dalbar Financial Services, Inc., of Boston, Massachusetts, a mutual funds research and consulting firm, confirmed that fee income becomes more important as a mutual fund sales program matures. Dalbar’s survey of over 200 bank executives indicated that while almost half of the respondents said they got into the business to retain customers, only 36 percent said that was still their top priority. In contrast, about 30 percent of the bankers said that they were now in the business to increase fee income, up from 19 percent who said that was the reason they got into the business in the first place.\",\n \"In response to the rapid growth of sales of mutual funds by banks and concerns that bank customers may be confused or ill-informed about the differences between mutual funds and traditional bank products, the federal banking regulators have increased their regulatory and supervisory oversight of banks’ mutual fund sales activities. Our visits to banking institutions demonstrated the need for this increased emphasis as well as for continued vigilance by regulators. We estimate that about one-third of the institutions that sold mutual funds in the 12 metropolitan areas we sampled fully complied with the bank regulators’ guidance on disclosing the risks of investing in mutual funds. Further, about one-third of the institutions did not clearly distinguish their mutual fund sales area from the deposit-taking areas of the bank as stated in the guidance. Many banking institutions paid employees in the deposit-taking areas to refer customers to mutual fund sales representatives. During our visits to the institutions we found that these employees complied with statements in the guidance about not providing investment advice. However, some of the sales literature we were provided did not clearly and conspicuously disclose the risks of investing in mutual funds.\",\n \"As banking institutions have become major retailers of mutual funds, regulators, Congress, and the public have become increasingly concerned that investors who are likely to purchase mutual funds through a bank or thrift may not fully understand the differences between these investments and traditional bank savings products, such as certificates of deposit and money market deposit accounts. In particular, there is concern that sales of mutual funds in a bank lobby or through bank employees may mislead customers into believing that mutual funds are federally insured. Further, bank customers may not understand that even mutual funds that appear to be conservative investments, such as government bond funds, may be subject to fluctuations in value and could involve loss of principal. In November 1993, SEC released the results of a survey taken to determine the degree to which investors understand the risks associated with mutual funds. The survey was limited to 1,000 randomly selected households, 47 percent of which reported that they owned shares of mutual funds. The survey results indicated that confusion about the risks of investing in mutual funds was not limited to those who purchased mutual funds through a bank.\",\n \"For example, 66 percent of the investors in the survey who bought money market mutual funds through a bank and 41 percent of all holders of mutual funds incorrectly believed that these funds are federally insured. In addition, 39 percent of all mutual fund holders and 49 percent of those who purchased a mutual fund through a bank incorrectly believed that mutual funds purchased from a stockbroker are federally insured. Between June and October 1993, each of the four banking regulators—OCC, FRS, FDIC, and OTS—issued guidance to the institutions they regulate concerning how sales of mutual funds and other nondeposit investment products should be conducted. In February 1994, the four regulators jointly issued the “Interagency Statement on Retail Sales of Nondeposit Investment Products.” This new guidance superseded the guidelines previously issued and unified the guidance to banks and thrifts on the policies and procedures that they should follow in selling mutual funds and other nondeposit investment products. The interagency statement contains guidelines on disclosures and advertising, the physical setting and circumstances for bank sales of investment products, qualifications and training of sales personnel, suitability and sales practices, compensation practices, and internal control systems.\",\n \"In particular, it emphasizes that banking institutions are to ensure that bank customers are made aware that the products (1) are not FDIC-insured; (2) are not deposits or other obligations of the institution; (3) are not guaranteed by the institution; and (4) involve investment risks, including possible loss of principal. The statement applies to bank employees as well as employees of either an affiliated or unaffiliated third-party broker-dealer when the sales activity occurs on the premises of the institution. It also applies to sales resulting from a referral of retail customers by the institution to a third party when the institution receives a benefit from the referral. With regard to qualifications and training of sales personnel, the guidance states that if bank personnel sell or recommend securities, the training they receive should be the substantive equivalent of that required for personnel qualified to sell securities as registered representatives under the securities laws. Oral disclosure of the risks of mutual fund investing is very important in making sure that customers fully understand the nature of these investments.\",\n \"On the basis of our visits to 89 banking institutions in 12 metropolitan areas, we estimate that about 32 percent of the institutions in these areas that sell mutual funds completely disclosed the risks associated with investing in mutual funds in accordance with the banking regulators’ guidance. In addition, disclosure of the risks of investing in bond funds was inadequate, when compared to the guidance, at about 31 percent of the institutions. However, there were no misleading references to Securities Investor Protection Corporation (SIPC) insurance during our visits. The most important difference between a bank’s mutual fund investments and deposits is the risk to the investor. Bank depositors’ accounts are insured up to $100,000 by FDIC. Mutual funds are not insured against market loss and, consequently, are more risky to the investor. The guidance issued by the banking regulators states that retail customers must be clearly and fully informed about the nature and risks associated with nondeposit investment products.\",\n \"Specifically, when nondeposit investment products are either recommended or sold to retail customers, the disclosures must specify that the product is (1) not insured by FDIC; (2) not a deposit or other obligation of the institution; (3) not guaranteed by the institution; and (4) subject to investment risks, including possible loss of the principal amount invested. The interagency guidance states that these disclosures should be provided to the customer orally during any sales presentation, orally when investment advice concerning nondeposit investment products is provided, orally and in writing prior to or at the time an investment account is opened to purchase these products, and in advertisements and other promotional materials. In addition, guidance issued by NASD in December 1993 stated that its bank-affiliated members must develop procedures that require registered sales persons to reiterate to customers, in all oral and written communications, the material differences between insured depository instruments and investments in securities that carry risk to principal. The NASD guidance specifically noted that advertising and sales presentations should disclose that mutual funds purchased through banks are not deposits of, or guaranteed by, the bank and are not federally insured or otherwise guaranteed by the federal\",\n \"government.\",\n \"The interagency guidance emphasizes that bank customers should clearly and fully understand the risks of investing in mutual funds. Therefore, we tested whether the sales representative made the disclosures called for in the interagency guidance without our prompting. We found that sales personnel at many of the institutions we visited in our survey of bank sales practices did not fully comply with the disclosure requirements. As shown in figure 3.1, sales personnel at an estimated 32 percent of the banks and thrifts we visited disclosed all four of the critical facts concerning the nature and risks associated with mutual fund investments during their sales presentations, and less than half (43 percent) disclosed at least three of the four risks. At the other end of the disclosure spectrum, sales personnel at 19 percent of the institutions did not mention any of the four risks. Because of the small size of our sample, none of the differences in performance between bank and broker-dealer employees that could be identified are statistically significant. Less than half of each group made all the disclosures called for in the guidance.\",\n \"For example, an estimated 44 percent of bank employees disclosed all four risks, as compared to 32 percent who were employees of broker-dealers. Similarly, about 6 percent of bank employees failed to make any of the disclosures called for in the guidance, and 18 percent of the broker-dealers made no disclosures. Investors who purchase mutual funds through a bank or thrift are likely to be more conservative than those who purchase mutual funds elsewhere and to be more interested in purchasing a bond fund because they believe these funds are relatively safe. However, the prices of bonds and bond mutual funds are affected by changes—or the expectations of changes—in interest rates. In general, the value of bonds and bond mutual funds moves in the opposite direction of interest rates. If interest rates rise on new bonds, the prices of older ones decline. Thus, investors who own shares of bond mutual funds could find that the value of their investment is worth less than they paid for it if interest rates go up after they purchased the funds.\",\n \"NASD has recognized that investors with deposits, such as maturing certificates of deposit, may be interested in purchasing bond mutual funds because of their higher yields, but they may not be aware of the risks posed by these investments. In December 1993, NASD told its members that they “...have a significant obligation in their oral as well as their written communications to provide customers, seeking non-depository alternatives to depository accounts, with full and fair disclosure of the material differences between the products, especially the greater degree of risk to capital that the customer may experience.” With regard to bond funds, NASD stated that investors should receive clear disclosures that although such funds may pay higher rates than certificates of deposit, their NAVs are sensitive to interest rate movement, and a rise in interest rates can result in a decline in the value of the customer’s investment. In our visits, we wanted to determine whether the salesperson fully explained the effect of interest rate fluctuations—either up or down—on the value of the underlying bonds in a bond mutual fund and, consequently, the value of the fund shares.\",\n \"We estimated that at 66 percent of the institutions sales personnel explained the effect of interest rate movement on the value of the underlying bonds in the fund and the value of the fund shares. At 31 percent of the institutions the explanations were either nonexistent or unclear to us. About 3 percent of the institutions visited did not sell bond funds. “He explained that although bond funds are more conservative, they are still exposed to risk, especially as interest rates rise, prices of bond funds decline. He stressed that before recommending any particular fund he would need to discuss our personal financial information.” “Early in his presentation, the representative discussed in general terms the impact of the movement of interest rates on bond values. When asked about the safety of bonds, he provided more detail on the relationship of bond values and changes in interest rates. He used an example that clearly illustrated the relationship along with discussing the impact of the recent decision by the Federal Reserve to raise interest rates on current bond values.” “The sales representative did a very good job of explaining the effect of interest rate fluctuations on the value\",\n \"of bonds.\",\n \"The representative put no particular emphasis on either stock or bond funds. She clearly explained the difference in terms of risk and discussed the effect of interest rate fluctuations on bond funds early on.” “He said a lot about bond funds, but was very unclear. If he made this relationship, I missed it. He said bonds had higher yield, but were more volatile. He also said that they were FDIC insured ’like CDs’.” “The salesperson provided very little information on bond funds other than they are “safe” relative to stocks. She stressed that all of the bank’s funds are safe because they are relatively conservative funds.” A critical part of the disclosure issue is the use of potentially misleading or confusing information concerning FDIC insurance coverage for mutual fund investments. The banking regulators’ guidance statement states that when any sales presentations involve reference to insurance coverage by any entity other than FDIC, such as SIPC, a state insurance fund, or a private insurance company, the customer must be provided with clear and accurate explanations to minimize any possible confusion with FDIC insurance.\",\n \"Further, the guidance states that such representations should not suggest or imply that any alternative insurance coverage is the same as or similar to FDIC insurance. In our visits, we did not observe any instances of inadequate or confusing or misleading references to SIPC during the sales presentations. Selling or recommending mutual funds or other nondeposit investment products on the premises of a depository institution may give the impression that the products are FDIC-insured or are obligations of the depository institution. To minimize confusion, the guidance states that sales or recommendations of nondeposit investment products on the premises of the institution should be conducted in a physical location distinct from the retail deposit-taking area. In situations where physical considerations prevent sales of nondeposit products from being conducted in a distinct area, the institution has a responsibility to ensure that appropriate measures are in place to minimize customer confusion. In our visits to banking institutions, we evaluated what measures had been taken to clearly separate their retail deposit-taking areas, such as teller windows and new account desks where accounts and deposits could be taken, from the area where nondeposit investment products were sold.\",\n \"As part of our visits, we observed the physical layout of the bank to ascertain whether the bank clearly distinguished its mutual funds/investment services sales area from its traditional banking activities area. In some cases, we were directed to separate offices located in another building, where we also evaluated the physical layout of those offices. We looked for such things as partitions, roping, separate cubicles, floor space, and glass walls. We also looked for signs and other means of visible communications to differentiate the area from the traditional banking activities. At the end of the visit, we evaluated the extent to which the facilities appeared to clearly separate the areas for mutual funds sales activities from traditional banking activities. “There was no separation of mutual funds and banking activities. The sales representative sat at an unmarked desk in the middle of the bank floor. There were no signs present. However, her business cards were on the desk. All brochures of mutual fund activities were in her desk drawer. No signs indicating non-FDIC insured, non-bank product or potential loss of principal.” “There was nothing at all to indicate mutual fund sales. No signs, no posters, no brochures,\",\n \"nothing.\",\n \"In fact, we thought the sales area would be in the adjacent loan section, where we were told to enter. But there were no signs there. The only clue was a sign on the person’s desk saying that he was a registered representative for a company. For the entire time we were in the bank until we met with him, we could not have known that they sold mutual funds. The mutual fund sales desk was co-located in an area offering traditional banking activities such as new accounts and customer service. The mutual fund sales desk did not contain any signs or displays to distinguish it from other banking activities. In fact, the mutual fund sales desk was located next to the main bank reception desk near the front door of the bank. (All desks were separated by 3-foot partitions).” “The bank floor space was extremely limited. Desks were fairly close together—all bank activities were in close proximity to one another. Although the space was limited, there was a hanging sign clearly marked “Investment Services.” There was one sign on the desk approximately 10” x 12” displaying the proprietary fund which stated non-FDIC insured and not\",\n \"guaranteed by the bank.\",\n \"This information was at the bottom of the sign and readable, the size of the print was fine. A kiosk next to the desk also identified the same information. Overall, disclosure was fairly clear to a new customer.” “Two desks were located at the far end of the lobby approximately 25 feet from the teller windows. They were the only 2 desks in that space—one desk belonged to the mutual fund sales representative and the other to his assistant. Both desks faced the lobby with the representative’s desk on the right if one were looking at the mutual fund area. To the right of the representative’s desk was a very large (3’x 5’), lighted sign indicating the sale of mutual funds. A rack of mutual fund brochures was to the right of the sign. No other bank activities were near the mutual fund area.” The banking regulators’ guidance states that “in no case” should tellers and other employees, while located in the routine deposit-taking area, such as the teller window, make general or specific investment recommendations regarding nondeposit investment products, qualify a customer as eligible to purchase such products, or accept orders for such products, even\",\n \"if unsolicited.\",\n \"However, tellers and other employees who are not authorized to sell nondeposit investment products may refer customers to individuals who are specifically designated and trained to assist customers interested in the purchase of such products. Most of the banks and thrifts that sold mutual funds indicated in their responses to our questionnaire that they limited their employees—tellers, other branch employees, and bank and branch managers—to referring customers to designated nondeposit investment sales personnel. The activities of bank tellers were the most restricted—only about 3 percent were permitted to do anything other than refer customers to designated investment sales personnel. Other bank branch employees who were not licensed to sell securities, such as those who open new accounts and process loan applications, and branch managers were less restricted—about 13 percent of bank branch employees and 18 percent of branch managers were allowed to perform sales activities other than refer customers to designated sales representatives.\",\n \"With regard to the specific activities that bank and thrift employees are allowed to perform, about 1 percent of the banks and thrifts that sold mutual funds reported that they allowed tellers to discuss the investment needs of the customer and noninsured products available through the institution; about 8 percent of other branch employees and 12 percent of branch managers were permitted to perform this function. Almost none of the institutions reported that they permitted tellers or other branch employees to suggest that a customer should invest in a specific investment product. Less than 2 percent reported that they allowed branch managers to offer specific investment advice to customers. NASD noted that if these activities were permitted to occur in the deposit-taking area of the bank they would appear to violate the interagency guidance. In addition, if a bank broker-dealer is involved and the bank employees performing these activities are unregistered, current NASD rules, which prohibit unregistered persons from providing investment advice, would also appear to be violated. In our visits to banks in 12 metropolitan areas, we found that most banks and thrifts were limiting the activities of personnel in the deposit-taking area of the\",\n \"bank.\",\n \"We found that only 1 percent of bank tellers we met discussed investment needs in general or noninsured products available through the bank. None of these discussions related to specific investments. The guidance permits institutions to pay tellers and other bank employees who are not authorized to sell investment products nominal, one-time, fixed dollar fees for each referral to a sales representative whether or not a transaction takes place. SEC, however, has taken the position that referral fees to financial institution personnel who are not qualified to sell investment products should be eliminated. According to SEC, because investors who purchase securities on the premises of a financial institution may not be aware that the securities are not guaranteed by that institution or by the federal government, the payment of referral fees creates an inappropriate incentive for unqualified bank employees to offer unauthorized investment advice to their customers. In addition, in December 1994, NASD issued a notice requesting comment on proposed amendments to its rules governing broker-dealers operating on the premises of financial institutions.\",\n \"Under these proposed rules changes, broker-dealers would be prohibited from making any payments, including referral fees, to individuals employed with the financial institution who are not registered representatives of the broker-dealer. As of June 1995, NASD had completed its review of 284 comment letters received on its proposal, and the letters were being considered by NASD’s bank broker-dealer committee. About 43 percent of the institutions that responded to our questionnaire indicated that they compensated at least one of the following groups with referral payments: tellers, other unlicensed branch employees, and bank and branch managers. According to officials of several banking institutions, these payments are typically for $5 or $10 and not contingent on whether a sale is actually made. Our evaluation of proprietary fund sales literature obtained from the banks we visited showed that the great majority of documents contained disclosures of the risks of investing in mutual funds. However, in some cases the disclosures were not clear and conspicuous. Under SEC rules, fund advertisements and sales literature may not be materially misleading. Money market funds, in particular, must disclose prominently that their shares are not insured or guaranteed by the U.S.\",\n \"Government, and that there can be no assurance that the fund will be able to maintain a stable net asset value of $1.00 per share. In addition, SEC requires disclosure by bank-sold and bank-advised funds that their shares are not deposits or guaranteed by the bank or insured by any U.S. government agency. Mutual fund advertisements and sales literature are required to be filed with NASD (if the fund’s shares are sold by an NASD member) or with SEC. According to SEC, as a practical matter, most fund ads and sales literature are filed with NASD rather than with SEC. NASD’s advertising department is to review advertisements and sales literature for compliance with both SEC’s rules and the NASD Rules of Fair Practice. In addition to the requirements of the securities regulators, the banking regulators’ guidance states that advertisements and other promotional and sales material about nondeposit investment products sold to retail customers of depository institutions should conspicuously disclose that these products are not insured by FDIC; are not a deposit or other obligation of, or guaranteed by, the institution; and are subject to investment risks, including possible loss of principal.\",\n \"When we visited banks, we obtained sales literature for proprietary funds, which we analyzed to determine if it contained the required disclosures. In total, we analyzed 26 documents that we obtained at 15 banks. All of the documents we reviewed stated that the funds are not insured by FDIC and not guaranteed by the bank. All but three documents cautioned that mutual fund investments are subject to investment risks, including loss of principal, and all but four disclosed that mutual fund investments are not bank deposits. We also reviewed the literature to determine whether it complied with the interagency guidance instructions that the risks be presented in a conspicuous, clear, and concise manner. We did this by looking at the placement of the disclosures, the size of the print used, the segregation of information in the literature as it pertains to FDIC-insured and noninsured products, and by making judgments about whether any obviously misleading or confusing information was presented. We were particularly concerned with whether any of the sales or marketing brochures suggested or conveyed any inaccurate or misleading impressions that the mutual funds were insured products or guaranteed.\",\n \"In our subjective evaluation, nearly half of the sales literature had disclosures that were conspicuous and readable to a great or very great extent. However, we characterized about 15 percent of the literature as having little or no success in achieving this objective. None of the advertising and sales brochures describing mutual fund products that we reviewed had the FDIC-insured logo or “Member FDIC” imprinted on them. “The disclosure information on risks is located at the bottom of the back page in very small print. It is very difficult to locate and read. In general, I do not believe the brochure gives proper emphasis to the fact that these funds are not insured by FDIC and may mislead someone into thinking that these funds are backed or guaranteed by the bank. All four brochures have the disclosure statement in small print on the back cover. There is no further discussion of those points in the literature and, in my opinion, the point could be easily overlooked.” “The brochure we received on behalf of the bank itself was an introductory booklet with application materials.\",\n \"This material all contained the required disclosures basically, although the disclosures do not state lack of FDIC insurance specifically, and disclosures are very small and are placed at the very back, bottom of the page. Very poor job of disclosing risks and uninsured nature. Also, much information is given in the brochure that would give the impression of a very safe, almost guaranteed investment, and very high returns. “ “One possible misleading or confusing statement is that the bank’s name is used on the cover without clearly identifying it as an investment instrument of the securities firm, and not the bank. Another piece of literature in the packet states that the funds are managed by investment professionals at the bank. Finally, the one page disclosure form is covered by other material and is the last item on the right-hand side. However, the disclosure form does have a section for the investor’s signature. The disclosure form is very effective, but it was the last item placed in the information packet. Nowhere in the first five plus pages was there any mention of the four required elements.\",\n \"A smaller brochure within the information packet included a statement on the back cover in very small print.” In September 1994, OCC released the results of a review it did of materials used by national banks in the sale of mutual funds and annuities. The review included about 8,500 documents that were voluntarily submitted by over 700 banks. The review identified many documents that were not consistent with the interagency statement. Problems uncovered by OCC, together with OCC’s advice on how the problems should be corrected, included the following: Conspicuousness: Not all documents met OCC’s standards—disclosures in type at least as large as the predominant type and boxed, bolded, or bulleted if they appear other than on the cover or at the beginning of the relevant portion of a document. As a result of its review, OCC determined that disclosures on the back of documents were not conspicuous. Also, OCC now encourages banks to make the key disclosures in type that is larger and bolder than the predominant type in the document.\",\n \"Key disclosures: OCC found that some documents did not include the disclosures that the product was not FDIC-insured, was not a deposit or obligation of the bank, was not guaranteed by the bank, and could result in the possible loss of principal. In some cases, the agency told the affected banks that they could correct the problem by adding stickers that conspicuously provided the disclosure. In other cases, such as when the document contained qualifying remarks that limited the effectiveness of the disclosure, banks were advised to stop distributing the documents in question. Fees: Some documents did not disclose applicable fees, penalties, or surrender charges. OCC counseled banks to make sure that fees were disclosed to customers and suggested that banks develop suitable written acknowledgement forms. SIPC insurance: Some documents contained incomplete or confusing references to SIPC insurance. OCC told banks that they could correct these problems by using printed supplements that provide a more detailed description of SIPC coverage. Relationships: Some documents did not disclose an advisory or other material relationship between the bank or an affiliate of the bank and the mutual fund whose shares were the subject of the document.\",\n \"Banks were reminded that such relationships should be disclosed. Out-of-date forms: Some banks were using documents supplied by third-party vendors that were not the most current version provided by that vendor and did not contain all of the disclosure messages required by the interagency statement. OCC advised banks to remove and replace outdated forms and establish systems for controlling documents. In commenting on a draft of this report, OCC stated that it is now reviewing sales-related documents as part of its regular on-site examinations and that it is finding that banks have improved their materials. According to the banking regulators’ guidance, personnel who are authorized to sell nondeposit investment products may receive incentive compensation, including commissions. The guidance cautions that incentive programs should not result in unsuitable recommendations or sales to customers. It makes clear that sales personnel in banks should obtain directly from the customer certain minimum information, such as his or her financial and tax status and investment objectives, upon which to base their investment recommendations. However, banks are not prohibited from providing sales personnel greater compensation for selling proprietary, as compared to nonproprietary, funds, nor are they required to disclose any such arrangement\",\n \"to the customer.\",\n \"In response to congressional interest in the extent to which incentives exist for sales personnel on bank premises to sell proprietary funds versus nonproprietary funds, our questionnaire asked banks and thrifts to describe their sales compensation policies. We also discussed the issue with a senior NASD official, who told us that it is a common and well-established practice in the industry for a sales representative to receive greater compensation, or a “better payout,” for selling the firm’s proprietary fund over third-party funds. Eleven percent of the banks and thrifts that sold proprietary funds stated that sales personnel in their institutions received greater compensation or special incentives for selling proprietary funds than for selling nonproprietary funds. Of the banks that described their sales compensation policies, most stated that proprietary funds rewarded the salesperson with a greater payout or additional revenue. For example, one bank told us that both proprietary and nonproprietary funds pay a commission of 3.2 percent, but an extra 15 percent is added to the amount of the commission for a proprietary fund.\",\n \"We also asked the banks and thrifts that received our questionnaire to indicate whether or not sales personnel were expected to meet quotas or targets for the sale of proprietary funds. Eighteen percent of the banks that sold proprietary funds responded that sales personnel were expected to meet sales quotas or targets for proprietary fund sales. Most of the institutions that answered this question indicated that they expected proprietary fund sales to be a certain percentage of all mutual fund or bank product sales, or a specific dollar amount each month. The interagency guidance does not prohibit banks and thrifts from providing confidential financial information to mutual fund sales representatives. However, the guidance states that the institution’s written policies and procedures should include the permissible uses of customer information, but the guidance does not suggest what would or would not be permissible uses. Whether banking institutions should be allowed to share financial information on their customers with broker-dealers is a controversial issue. In March 1994, the North American Securities Administrators Association testified in favor of placing a prohibition on banks’ sharing confidential customer information with any affiliated securities operations.\",\n \"Also, NASD’s December 1994 proposed rule governing broker-dealers operating on bank premises included a provision that would prohibit its members from using confidential financial information maintained by the financial institution to solicit customers for its broker-dealer services. As of March 1995, NASD was still evaluating comments on its proposal. However, reports in banking industry journals indicated that many banks and banking regulators were strongly opposed to the rule. They characterize the rule as being unfair because (1) nonbank brokerages are permitted to supply their brokers with information about their customers’ use of bank-like services, such as certificates of deposit; and (2) the rule does not clearly define what is meant by confidential customer information. The latter issue could prove to be particularly difficult to resolve. For example, in commenting on a draft of this report, FDIC stated that it knows of no reliable definition of what customer information is confidential and what information is public. FDIC noted that, while banks must comply with laws concerning confidentiality of customer information, it did not want to prohibit the use of information that is otherwise available publicly or among a bank’s affiliates.\",\n \"To obtain information on the extent to which banks and thrifts were using customer information in their mutual fund sales programs, we asked the institutions that received our questionnaire (1) whether they had written policies and procedures that covered the permissible uses of customer account information; and (2) to describe how they marketed their mutual funds and, if applicable, what customer information was used. About 68 percent of the institutions that responded to the question stated that they had written policies or procedures that described how customer account information is to be used. About 40 percent of the institutions that sold mutual funds stated that they provided customer information, such as account balances or CD maturity dates, to mutual fund sales personnel. Almost half of these (49 percent) said they provided sales personnel CD maturity lists; others said their sales personnel had access to all customer data (24 percent), and a minority (15 percent) provided customer account balances to their sales personnel.\",\n \"With regard to the use of other marketing techniques that are likely to make use of customer account information, 65 percent of our respondents used telephone calls to market their mutual funds; 63 percent targeted mailings to existing bank customers, such as holders of CDs; and 59 percent used inserts in monthly account statements. Although technically the interagency guidance does not have the same authority as a regulation, each of the banking regulators has developed additional examination procedures to evaluate bank and thrift compliance with the guidelines. In February 1994, about a week after the interagency guidance was issued, OCC issued examination procedures and an internal control questionnaire that specifically address sales of retail nondeposit investment products. OCC officials told us that these examination procedures are being used during the scheduled safety and soundness examination for each bank, which is either once every 12 months for large national banks, or once every 18 months for smaller national banks. The first examinations are to be a complete review of each bank’s mutual fund operations. OCC expected to complete these “benchmark” reviews by the end of 1995. Subsequent examinations could be less exhaustive depending on the results of\",\n \"the initial examinations.\",\n \"However, certain components of each review are mandatory, including separation of mutual fund sales activities, compliance with disclosure requirements, and review of suitability determinations. OCC officials told us that as of May 1995, their examinations have not shown any systemic problems with bank mutual fund sales programs. They have identified problems at individual banks, including failure to properly document suitability determinations and uncertainty about responsibilities for overseeing third-party broker-dealers, which they said these banks corrected. They also said that OCC has taken no formal enforcement actions against any bank as a result of the bank’s mutual fund sales program. FDIC issued examination procedures for state nonmember banks participating in the sales of nondeposit investment products on April 28, 1994. According to an FDIC official, these procedures are being applied during the regularly scheduled safety and soundness examinations. FDIC’s procedures require that its examiners complete a questionnaire at each examination or visit in which the bank’s sale of nondeposit investment products is reviewed. The questionnaire includes a variety of questions on whether the bank is complying with various provisions of the interagency guidance.\",\n \"Copies of the completed questionnaires are to be forwarded to the responsible FDIC regional office, and significant deficiencies found during examinations are to be commented on in the examination report together with the recommended corrective action. An FDIC official told us that as of May 1995 FDIC had not taken enforcement actions against any bank with regard to the operation of the bank’s mutual fund sales program. However, FDIC examiners have found that written agreements between banks and third-party broker-dealers have, in some cases, not been complete. In addition, the examiners have found instances in which banks’ written policies governing their mutual fund programs needed to be more precise. An FDIC official said that FDIC has required banks to correct these problems. He also said that FDIC is conducting its own shopper visits to banks to test bank compliance with the interagency guidance. FDIC expects to complete these visits in late summer 1995 and expects to share the results of these visits with the other banking regulators. On May 26, 1994, the Federal Reserve issued examination procedures for retail sales of nondeposit investment products.\",\n \"The procedures were to be used during examinations of state banks that are members of the Federal Reserve System as well as during inspections of nonbank subsidiaries that engage in securities sales on bank premises. According to Federal Reserve officials, the examination procedures were being used during annual safety and soundness examinations. All state-chartered banks that are members of the Federal Reserve System are to be examined using the new procedures by the end of 1995. Federal Reserve officials said that no material abuses have been found, but in some cases better recordkeeping and training of employees were needed. With regard to training of bank employees, Federal Reserve examiners have found some instances in which untrained bank employees were performing duties, such as gathering detailed financial information from customers, that are reserved to either licensed broker-dealers or to bank employees with training equivalent to licensed broker-dealers. The official said the Federal Reserve has been emphasizing to banks that employees who are not licensed by NASD are limited in the activities they can perform and has required banks to either appropriately train these employees or take measures to restrict their activities.\",\n \"In addition to the additional procedures incorporated into the annual safety and soundness examinations, the Federal Reserve conducted an in-depth review of three large banks’ mutual fund programs. Federal Reserve officials told us that they have also developed consumer education seminars for elderly investors that are to be provided at the 12 Federal Reserve banks. Further, they said they are conducting banker education conferences at the 12 Federal Reserve banks to promote banks’ understanding of and conformance with the Federal Reserve’s requirements for mutual fund sales. In April 1994, OTS issued guidelines for examining the securities brokerage activities of thrifts, including mutual fund sales. OTS’ guidelines focus on determining the adequacy of internal controls in containing the level of risk presented to the thrift and minimizing potential customer confusion between FDIC-insured and non-FDIC-insured investment products. The procedures call for the examiners to review advertising and promotional material, disclosure policies, procedures on the use of customer information, compensation policies, referral fees and practices, training and qualification policies and procedures, and systems for ensuring that investment recommendations are suitable for a particular customer.\",\n \"OTS officials told us that no systemic problems have been found in its examinations of thrifts’ mutual fund programs as of May 1995. At the time of our review, many bank and thrift institutions did not fully comply with the guidance issued by the banking regulators. As a result, customers of those banks and thrifts may not have had accurate and complete information about the risks of investing in mutual funds. In addition, institutions that were not following the guidance opened themselves to the possibility of private lawsuits, particularly under the securities laws, that could affect the safety and soundness of the institution. The banking regulators have recognized the importance of closely monitoring institutions’ mutual fund sales programs and have adopted procedures to be included in periodic safety and soundness examinations, which they are currently implementing. Because the banking regulators have adopted additional examination procedures to help ensure that banks provide customers accurate and complete information about the risks of mutual funds since the completion of our field work, we are not recommending changes to the regulators’ oversight practices at this time.\",\n \"However, after the interagency guidelines have been in place long enough to provide data for trend analysis, Congress may wish to consider requiring that the banking regulators report on the results of their efforts to improve banks’ compliance with the interagency guidance. In commenting on a draft of this report, OCC, OTS, and the Federal Reserve noted that we visited banks less than a month after the bank regulatory agencies issued the interagency guidance. These banking agencies indicated that the deficiencies we noted may have been attributable to the fact that during this time the institutions were in the process of implementing new procedures, and the agencies had not yet implemented related examination procedures. OCC commented that it believes that bank practices have changed significantly since we completed our visits. OCC also commented that the conclusions, captions, and discussion in this chapter did not adequately distinguish between the adequacy of banks’ oral and written disclosures. OCC believed that our conclusion that disclosure was inadequate appears to refer to the oral disclosure requirements, and the description of banks’ written disclosure efforts did not support a conclusion of inadequate overall compliance.\",\n \"The Federal Reserve commented that since May 1994 its examiners have been confirming that state member banks are aware of, and making efforts to ensure that their sales programs are in conformance with, the guidelines. According to the Federal Reserve in those few cases where its examiners have discovered deficiencies, the banks in question have taken voluntary corrective action to address the problems. Our visits to banks were made in March and April 1994. The timing of these visits was dictated by our desire to respond promptly to the Committees’ requests for information on the actual practices being followed by banks and thrifts in the sale of mutual funds. As noted in the report, these requests were driven by concern that customers of banking institutions were confused about how mutual funds differ from insured deposit products. Although our visits occurred shortly after the interagency guidance was issued, each regulator had issued guidance in 1993 that banking institutions should have been following. This guidance largely paralleled the February 1994 interagency guidance. For example, on July 19, 1993, OCC released guidance to national banks that covered many of the same areas that were included, and strengthened, in the\",\n \"February 1994 guidance.\",\n \"The July 1993 OCC guidance called for banks to take steps to separate, as much as possible, retail deposit-taking and retail nondeposit sales functions. It noted that disclosure of the differences between investment products and insured bank deposits needs to be made conspicuously in all written or oral sales presentations, advertising and promotional materials, and statements that included information on both deposit and nondeposit products. Further, it recommended that banks ensure that their sales personnel are properly qualified and adequately trained to sell investment products. Similar guidelines were issued by the Federal Reserve in June 1993, by OTS in September 1993, and by FDIC in October 1993. While we believe that the results of our shoppers visits to banks and thrifts accurately portray those banks’ mutual fund sales activities at the time of our visits, we also realize that the institutions’ activities may change over time as the regulators implement their new examination procedures to ensure that the institutions comply with the interagency guidelines. We also believe that compliance with the guidelines is essential to ensure that investors obtain accurate and complete information about mutual fund risks.\",\n \"Thus, we believe that Congress may find it useful in exercising its oversight responsibilities to receive information on the banks’ compliance with the interagency guidelines after the banks and banking regulators have had sufficient time to fully implement their changes. Accordingly, we added a matter for congressional consideration suggesting that once the interagency guidelines have been in place long enough to provide sufficient data for trend analysis, Congress may wish to consider requesting the regulators to provide status reports on the results of their examination efforts. Such reports, for example, could be made a part of congressional oversight hearings. We disagree with OCC’s comment that the report captions do not clearly distinguish between oral and written risk disclosures. (See pp. 29 and 37, for example). Further, we tested the extent of oral disclosures because of the importance placed on these disclosures by the interagency guidance. We believe that this is an appropriate emphasis because customers are highly influenced by what they hear during sales presentations. Further, although we found that most sales literature contained the required disclosures, the disclosures were not always clear and conspicuous.\",\n \"This paralleled OCC’s own findings in its September 1994 review of national banks that sold mutual funds. (See pp. 39 and 40.) SEC commented that our testing of compliance with the interagency guidelines and discussion of the banking agencies examination procedures, as opposed to compliance with the federal securities laws and rules, appeared to place undue emphasis on the guidelines as a source of consumer protection in this area. SEC summarized the various means by which it and NASD regulate and oversee mutual fund sales practices of broker-dealers, including those operating on bank premises. SEC also outlined the ways in which it and NASD regulate and oversee mutual fund disclosure documents, including registrations, prospectuses, advertising, and sales literature. SEC stated that although the banking regulators’ guidelines are useful, the federal securities laws remain the most important set of investor protection criteria applicable to mutual funds and sales practices of broker-dealers. NASD made similar comments, noting that although the interagency guidelines are directly enforceable over banks and bank employees, they do not provide the bank regulators with direct and equal regulatory authority over SEC-registered NASD member broker-dealers, including the authority to bring enforcement actions for serious violations.\",\n \"By using the interagency guidance as criteria to assess the sales practices being followed by banks and thrifts, we did not intend to minimize the importance of securities laws and regulations. Rather, we used the interagency guidance because it provided guidelines that applied to all mutual fund sales on bank premises, including indirectly to broker-dealers working under a contractual arrangement with a bank, and it contained bank-specific requirements that we wanted to test. In addition, we noted that the guidelines are similar in many respects to securities rules. The current regulatory framework allows banking institutions to choose how to structure their mutual fund sales and advisory activities and, depending on that structure, how they are regulated. For example, banks can choose to sell mutual funds directly and be subject to oversight by the banking regulators, but not by securities regulators. However, most banks that sell mutual funds choose to do so through affiliates that are subject to the oversight of the securities regulators. Banking regulators also have issued guidance to banks that sell mutual funds through these affiliates.\",\n \"This creates a potential for different regulatory treatment of the same activity and a potential for conflict and inconsistency among banking and securities regulators. Similar concerns arise for banks and thrifts that can carry out investment adviser activities either in the bank or thrift or in a separate affiliate, although—in this case—most institutions carry out such activities directly rather than in an affiliate. While the banking and securities regulators have been taking steps to better coordinate their efforts, additional coordination could help alleviate differences in regulatory treatment meant to protect customers who buy mutual funds from banks and thrifts. When the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940 were enacted, the 1933 Glass-Steagall Act barred banks from engaging in most securities activities and limited bank securities activities to (1) underwriting and dealing in government securities, which were exempt from Glass-Steagall Act restrictions; and (2) providing brokerage services solely for customer accounts. Because banks were already subject to federal banking regulation, the securities laws exempted banks from the regulatory scheme provided for brokers and dealers and for investment advisers.\",\n \"However, over the last 2 decades the federal banking regulators and the courts have interpreted the Glass-Steagall Act in ways that allow banks to provide a wide range of brokerage, advisory, and other securities activities comparable to services offered by SEC-registered broker-dealers and investment advisers. Consequently, banks have rapidly expanded their presence in the mutual funds industry. Because of the rapid increase in banks’ mutual fund activities, some Members of Congress and the securities regulators have expressed concern that the current regulatory framework and oversight and enforcement mechanisms have not kept up with changes in the market and may no longer be adequate to protect the interests of investors who purchase mutual funds through a bank. SEC has testified that eliminating the banks’ exemptions from registering as broker-dealers and investment advisers would result in better investor protection and allow uniform regulation of securities activities regardless of industry classifications. SEC contends that when banks sell mutual funds directly using their own employees, customers are not afforded the same level of protection as customers who make their purchases through a broker-dealer.\",\n \"Specifically, SEC makes the following arguments: Guidelines issued by the banking regulators concerning retail sales of mutual funds are not regulations. Therefore, SEC believes they are not legally enforceable by the bank regulators or customers; are too general; do not contain sufficient provisions for training bank personnel, especially with regard to making suitability determinations; and raise potential problems of regulatory overlap and conflict with respect to registered broker-dealers that assist banks in the sale of securities products. The banking regulators’ primary focus is not investor protection, but the safety and soundness of the institution. As a result, SEC believes bank regulators minimize their disclosure of enforcement actions to protect the bank from adverse customer reactions in contrast to securities regulators, who make their enforcement actions a matter of public record to get maximum deterrent effect. SEC also argues that the securities regulators are better trained and have more expertise in assessing suitability determinations; that is, ensuring that customers make investments that are compatible with their income, assets, and investment goals.\",\n \"SEC also testified that banks’ exemption from the Investment Advisers Act should be repealed for banks that advise mutual funds and that SEC should have the authority to regulate and inspect the mutual fund advisory and sales activities of banks. In addition, SEC has testified that when banks manage proprietary funds, there may be potential conflicts of interest between the funds and the bank’s other clients—conflicts that SEC may be unable to detect because of its lack of jurisdiction over bank investment advisers. In response to criticisms that their guidelines are inadequate, the banking regulators have argued that, in some cases, their guidance exceeds SEC and NASD requirements for nonbank mutual fund companies. For example, they say the guidance requires banks to disclose orally and in writing to potential customers that their mutual fund investments are not FDIC-insured and are subject to market fluctuations in value. Banks are required to ensure that customers sign written statements acknowledging that they understand the risks associated with mutual fund investments. By contrast, nonbank mutual fund customers are not required to sign written statements acknowledging the risks associated with mutual funds.\",\n \"Bank regulatory officials also reject the argument that the guidelines represent a less enforceable standard than SEC regulations. The bank regulators have informed banks that the adequacy of their mutual fund operations will be assessed on the basis of the new guidelines during the next scheduled safety and soundness exam. According to the regulators, they will bring any identified deficiencies in bank mutual fund operations to the attention of senior bank managers and directors. The managers and directors will be required to correct these deficiencies within a specified period of time. Failure to make needed improvements could result in a variety of enforcement actions, such as cease and desist orders or civil money penalties. Because of such possible sanctions, the regulators believe that bank managers will establish mutual fund sales operations that comply with the interagency guidelines. Under current laws and regulations, sales of mutual funds in banks can be made either by employees of the bank; by employees of an affiliate, subsidiary, or third-party broker working on behalf of the bank; or by “dual employees”—individuals who work for both the bank and a broker.\",\n \"If the salesperson is an employee of a broker or is a dual employee, he or she must be registered with NASD and is subject to SEC and NASD oversight. However, because the 1934 act exempts banks from being defined as a “broker” or a “dealer,” a bank can choose to use its own employees to sell mutual funds or other securities. These employees may do so without registering with NASD or being subject to SEC and NASD rules and oversight. Banks that use their own employees to broker securities are not subject to SEC regulation and oversight. However, responses to our questionnaire showed that the vast majority of banks that sell mutual funds on their premises choose to do so through SEC-registered broker-dealers, either affiliates or subsidiaries of banks or third-party broker-dealers, rather than directly by unlicensed bank employees. As shown by table 4.1, only about 8 percent of banking institutions that responded to our questionnaire reported that only their own employees directly sold mutual funds to retail customers.\",\n \"On the basis of these responses, we estimate that about 180 of the 2,300 banking institutions that were selling mutual funds to their retail customers at the end of 1993 did so directly using only their own employees. About 43 percent reported sales by “dual employees” of the bank or thrift (or its affiliate or subsidiary) and a registered broker-dealer, 29 percent through an affiliated or subsidiary broker-dealer organization, and 38 percent through a networking or leasing arrangement with a registered third-party broker-dealer. When we analyzed these results by bank size, we found that small banks were least likely to sell mutual funds directly with their own employees. Only 7 percent of banks with assets less than $150 million reported selling mutual funds exclusively with their own employees. In contrast, about 14 percent of banks with assets between $250 million and $1 billion responded that their own employees, rather than broker-dealers, sold funds at their banks. According to the American Bankers Association, banks that choose to offer brokerage services directly through the bank do so because they do not yet have sufficient business to justify the expense of employing a registered broker-dealer.\",\n \"As a result, some in the banking industry have asserted that eliminating banks’ exemption from registering as broker-dealers would unfairly penalize banks that had a small volume of brokerage transactions. To gather information on this issue, we contacted about 80 percent of the banks that reported selling mutual funds through their own employees to find out why they sold funds directly, rather than through a broker-dealer. They cited three reasons for selling funds directly through their own employees: (1) they wanted to maintain control over their relationship with their customers, rather than turn it over to a broker-dealer; (2) they did not do enough business to justify establishing an arrangement with a broker-dealer or setting up their own affiliate; and (3) they sold funds mainly as a convenience to their customers. Three of the banks we contacted sold proprietary funds, although one of these has since switched to selling funds through a third-party broker-dealer. Under the current regulatory framework, broker-dealers that operate on the premises of banks and thrifts are subject to regulation by SEC and indirectly to oversight by banking regulators.\",\n \"This can cause conflict over what rules these broker-dealers are to follow in conducting their mutual fund sales programs and can also cause duplication of effort and an unnecessary burden on the broker-dealer when the regulators carry out examinations of these activities. For example, in December 1994, NASD released for comment proposed rules governing broker-dealers operating on the premises of banking institutions. According to NASD, these rules are designed to fill a regulatory void by specifically governing the activities of NASD member bank broker-dealers who conduct a securities business on the premises of a financial institution. They differ from the banking regulators’ interagency guidance in several respects. First, the proposed NASD rules prohibit the payment of referral fees by the broker-dealer to employees of the financial institution. The interagency guidance permits payment of these fees. Second, the proposed rules place restrictions on brokers’ use of the bank’s or thrift’s customer lists that are stricter than the interagency guidance. Specifically, the proposed NASD rules state that confidential financial information maintained by the financial institution can not be used to solicit customers for the brokerage.\",\n \"This appears to rule out the use of information such as certificate of deposit maturity dates and balances. The interagency guidance requires only that the banking institution’s policies and procedures include procedures for the use of information regarding the institution’s customers in connection with the retail sale of nondeposit investment products. Third, the proposed NASD rules appear to place limits on the use of bank or thrift logos in advertising materials. For example, the proposed rules state that advertising and other sales materials that are issued by the broker-dealer must indicate prominently that the broker-dealer services are being provided by the broker-dealer, not the banking institution. Further, the financial institution may only be referenced in a nonprominent manner in advertising or promotional materials solely for the purpose of identifying the location where broker-dealer services are available. In contrast, the interagency guidance requires only that advertising or promotional material clearly identify the company selling the nondeposit investment product and not suggest that the banking institution is the seller. NASD’s proposal has generated controversy in the banking industry.\",\n \"According to the financial press, some bankers have complained that the proposed NASD rules hold bank brokerages to standards that are higher than for nonbank brokerages. They point out, for example, that, unlike bank brokerages, nonbank brokerages are not required to disclose that mutual funds are not federally insured. In response, an NASD official said that when a customer deals with a brokerage in a bank, that brokerage has a higher responsibility to ensure that the customer understands the risk involved in investing in securities as compared to savings accounts or certificates of deposit. Another area of concern is the potential for overlapping examinations or examinations that may result in conflicting guidance. Under the current regulatory framework, a broker-dealer in a bank could be examined periodically by NASD to determine if it is in compliance with securities rules, by SEC if it is doing an oversight inspection of NASD or is doing an inspection for “cause,” and also by the banking regulators to determine if the bank is complying with the interagency guidance. Although we found that a number of steps have been taken to avoid overlapping and conflicting activities, some problems have not been resolved.\",\n \"For example, SEC is concerned that the banking regulators, particularly OCC, have begun to examine registered broker-dealers that sell securities in banks and has plans to examine mutual funds advised by banks. SEC testified that because registered broker-dealers and mutual funds are already subject to regulation by SEC and NASD under the federal securities laws, imposing an additional layer of banking regulator examination and oversight is unnecessary and may result in firms receiving inconsistent guidance on compliance issues. Because of SEC’s concern, we reviewed examination guidelines issued by OCC, the Federal Reserve, and FDIC to determine the degree to which they required examiners to review broker-dealer records, especially third-party broker-dealers. OCC’s February 1994 guidelines for examination of retail nondeposit investment sales require that contracts between banks and broker-dealers provide bank examiners access to the records of third-party vendors (broker-dealers). However, the emphasis of the guidelines is on determining whether the bank has exercised the proper management control over the third-party vendor, rather than on a specific examination of the vendor’s operations.\",\n \"For example, the guidelines state that when (1) preliminary examination findings clearly show that bank management has properly discharged its responsibility to oversee the third party’s operations, (2) only a few complaints have been filed against the vendor, and (3) the vendor’s reports to the bank are timely and properly prepared, examiner access to third-party records should generally be limited to reports furnished to bank management by the vendor. The guidelines are not clear, however, as to what actions examiners are to take if these conditions are not met, stating only that “After making a judgment about the effectiveness of the oversight of third party vendor sales, complete any other examination procedures that appear appropriate.” According to an OCC official, before OCC examiners do a bank inspection, they typically ask the bank to provide the results of the broker-dealer’s last NASD inspection. The NASD inspection report is to be reviewed to determine if it addresses any concerns about the bank’s mutual fund program. If the OCC examiners have concerns about the bank’s mutual fund program, they may do a limited inspection of the broker-dealer’s books and records.\",\n \"OCC may also direct the bank to hire an accounting firm to audit the broker-dealer if the limited OCC inspection identifies problems. This official said that OCC’s inspection approach is designed to avoid duplication by placing on the bank the responsibility for controlling and overseeing the broker-dealer’s operations. During its inspections, OCC is to check the adequacy of these controls and the bank’s oversight of broker-dealer compliance. According to the OCC official, OCC inspections of the broker-dealer should be a rare event if the bank exercises adequate oversight. In commenting on a draft of this report, OCC reiterated that any inspections of third-party broker-dealers would be limited to pertinent books and records and would not be complete examinations. The Federal Reserve’s examination guidelines do not contain provisions that imply its examiners will review the operations of a third party in detail. The guidelines state that the examination procedures have been tailored to avoid duplication of examination efforts by relying on the most recent examination results or sales practice review conducted by NASD and provided to the third party.\",\n \"For example, the guidelines state that in making determinations about suitability and sales practices involving registered broker dealers, Federal Reserve examiners should rely on NASD’s review of sales practices or its examination to assess the organization’s compliance with suitability requirements. The emphasis of FDIC’s examination guidelines is similar to the Federal Reserve’s. The guidelines state that examinations of banks that have contracts with a third party should focus on the agreement with the third party and the bank’s methods for determining the vendor’s compliance with bank policies and with provisions of the interagency statement. Banking and securities regulators have begun to take steps to better coordinate their efforts. In January 1995, NASD and the four banking regulators signed an agreement in principle to coordinate their examinations of broker-dealers selling mutual funds and other nondeposit investment products on bank premises. The agreement calls for the agencies to share examination schedules, NASD to share its examination findings with the banking regulators, referral of any violations of banking or securities laws to the appropriate agencies, and other matters. Also in January 1995, NASD agreed to establish a new committee for bank-affiliated brokerages.\",\n \"This committee is to join 32 other standing NASD committees that represent specific interests; it is to recommend to the NASD board of governors rules and procedures for bank-affiliated brokerages and third-party brokerages that are doing business on bank premises. Many banks now provide investment advice to their own mutual fund families. Because the Investment Advisers Act of 1940 exempts banks from being defined as investment advisers, bank advisers do not have to register with SEC and are not subject to SEC regulations and oversight. As a result, when SEC inspects the records of a bank-advised fund, it does not have the authority to review certain records of the investment adviser that may be pertinent to an examination of the fund’s portfolio transactions. According to SEC officials, when a bank serves as the investment adviser to a mutual fund and is not registered with SEC, SEC is limited to reviewing only the activities of the adviser as the activities relate to the mutual fund. If, for example, the bank serves as the investment adviser to a mutual fund, a pension fund, and private trust funds, SEC can look at the bank’s activities only with respect to\",\n \"the mutual fund.\",\n \"SEC can not review the records of the other funds or accounts to determine if conflicts of interest exist or if the mutual fund was disadvantaged in some manner in relation to the other funds the bank is advising by the decisions of the investment adviser. Banks nevertheless may establish a separate SEC-registered subsidiary or affiliate to provide investment advice to a mutual fund, or they may provide such advice directly. While some banks have established SEC-registered subsidiaries or affiliates in which to conduct their mutual fund investment advisory activities, most provide such advice directly. According to SEC’s records, 78 of the 114 (68 percent) banking organizations that provided investment advisory services to mutual funds as of September 1993 did so directly rather than through SEC-registered subsidiaries or affiliates. If the bank chooses to conduct its mutual fund investment advisory activities directly, these activities are overseen principally by the banking regulator responsible for supervising and examining that bank and by SEC to the extent bank advisory activities relate to mutual funds subject to the Investment Company Act. Banks that provide investment advice to their proprietary mutual funds are subject to examinations of these activities by the\",\n \"banking regulators.\",\n \"These examinations are carried out regardless of whether the investment advisory function is also subject to inspection by SEC. While the banking regulators’ examinations have traditionally focused on safety and soundness issues, rather than enforcement of securities laws, OCC is drafting guidelines for examination of mutual fund activities that indicate OCC examiners may attempt to determine whether bank and fund practices comply with the Investment Company Act of 1940. This concerns SEC because it believes such guidelines raise potential problems of conflict and overlap among the regulators. OCC officials told us that although the agency has been doing examinations of investment advisers for years as part of the trust examination process, the new examination guidelines will focus examiners’ attention more directly on potential conflicts of interest that can arise when banks advise mutual funds. These potential conflicts of interest may violate securities laws and could enrich fund advisers at the expense of fund investors. The Federal Reserve also examines investment advisers in state-chartered member banks and in subsidiaries of bank holding companies.\",\n \"If the investment adviser is the trust department of a state member bank, the examination is to be carried out as part of its examination of trust activities. If the investment adviser is a subsidiary of a bank holding company, on-site inspections are to be conducted as an integral part of bank holding company inspections. Although investment advisory subsidiaries of bank holding companies are required to register with SEC and are subject to SEC supervision and examination, the Federal Reserve’s guidelines note that such examinations are infrequent. Therefore, examinations by Federal Reserve Bank examiners are to be undertaken whenever they consider the investment adviser activities to be significant. Among the factors Federal Reserve examiners are to consider in deciding whether to schedule an examination of an investment advisory subsidiary of a bank holding company are volume and type of activity, date and results of previous Federal Reserve Bank and/or SEC inspections, and the extent of services provided to affiliated banks or trust companies. The Federal Reserve’s guidelines for inspections of investment advisory subsidiaries of bank holding companies state that these inspections are primarily focused on safety and soundness considerations and not on compliance with securities laws.\",\n \"The objectives of these inspections are to (1) determine whether the adviser’s organizational structure and management qualifications are satisfactory; (2) evaluate the adequacy of the adviser’s financial condition and internal controls; (3) review the appropriateness of the adviser’s investment practices; (4) determine whether the institution has adequate policies and procedures to prevent self-dealing and similar improper conflicts; and (5) evaluate compliance with bank holding company laws, regulations, and interpretations. According to an FDIC official, if an FDIC-regulated bank has an affiliate that provides investment advisory services to a proprietary mutual fund, that entity would be supervised and inspected by the Federal Reserve under the holding company inspection system. In addition, a small number of state nonmember banks provide investment advisory services to mutual funds through their trust departments. FDIC examiners are to inspect these advisers as part of FDIC’s overall trust and compliance examination program. The trust examination guidelines address a number of areas involving the investment advisers’ activities. Specifically, the guidelines focus on the advisers’ supervision and organization, operations controls and audits, asset administration, account administration, and conflicts of interest and self-dealing.\",\n \"Under the current regulatory framework, many banks’ securities activities are subject to review by both the securities and banking regulators. As shown by the responses to our questionnaire, over 90 percent of institutions that sell mutual funds do so through SEC-registered and supervised broker-dealers. These broker-dealers are subject to review by NASD and SEC, who attempt to ensure investor protection through enforcement of the securities laws; and by the banking regulators, who, among other things, attempt to ensure that the institution is operating its mutual fund program in a safe and sound manner and in compliance with the interagency guidance. A similar situation exists in the regulation of investment advisers. We noted, for example, that even when the bank conducts its mutual fund advisory functions in a separate subsidiary, the Federal Reserve continues to conduct its own inspections of these subsidiaries. In addition, OCC is drafting examination guidelines that will call for assessing banks’ compliance with various provisions of the Investment Company Act of 1940.\",\n \"To the extent that these examinations would be carried out at entities already subject to SEC oversight, banks and their affiliates may be subject to having the same activities examined by two sets of regulators. The securities regulators have proposed that the regulatory framework could be simplified if a system of functional regulation were adopted. Under a “pure” functional regulation system—regulation according to function and not according to entity performing the function—SEC and the other securities regulators would be responsible for ensuring that banks comply with the securities laws. The securities activities of banks would be conducted in separate subsidiaries and affiliates, and banking regulators would be precluded from conducting examinations of the securities subsidiaries and affiliates of banks, which would eliminate duplicative regulation and oversight. However, the Comptroller of the Currency has testified that under this framework, the banking examiners would be unable to properly assess whether the securities activities were affecting the safety and soundness of the bank because they would have to rely on reports from the functional regulator that could be too infrequent, insufficiently detailed, or insufficiently comprehensive to allow the examiners to make a determination.\",\n \"Eliminating banks’ exemptions from the securities laws would expand SEC’s authority to oversee banks’ securities activities and would appear to address SEC’s concerns that (1) investors are not adequately protected by the securities laws when retail securities sales are made directly by bank employees, and (2) it can not fully examine the transactions of mutual fund investment advisers when the adviser is a bank. However, just eliminating the exemptions does not remove the potential for duplication and conflict between the banking and securities regulators because each group will continue to be involved in supervising banks’ securities activities. In the past, SEC has had trouble keeping up with its existing workload because the size of its inspection staff has not kept pace with the explosive growth in the size and complexity of the mutual fund industry. As a result, the agency was forced to reduce the scope and frequency of its inspections over the past decade.\",\n \"The size of SEC’s mutual fund company inspection staff began to increase in fiscal year 1994, and the agency believes that with the additional staff it is adding in fiscal year 1995 and has requested for fiscal year 1996, it will be able to examine mutual fund companies and their advisers with reasonable frequency. However, if these additional resources are not approved or if the financial services industry continues to expand as it has in recent years, SEC may continue to face challenges meeting its responsibility to oversee mutual funds and their advisers. SEC’s inspections of investment companies and their related investment advisers are to be carried out by staff in SEC’s regional and district offices in accordance with general examination objectives that are established by SEC’s Office of Compliance Inspections and Examinations at the beginning of each new fiscal year. Each region is responsible for preparing an annual inspection plan that responds to these overall objectives. SEC’s objective for inspecting investment companies and investment advisers during fiscal years 1991 through 1993 was to get the greatest dollar coverage with the limited staff available.\",\n \"With this in mind, SEC had a program for inspecting investment companies during this period that called for inspecting funds in the 100 largest fund families and all money market funds. To the extent that time was available after SEC completed inspections of the 100 largest fund families and money market funds, SEC’s 1993 program called for its regions and districts to also inspect smaller fund families, with priority to be placed on inspecting families that had never been inspected. Moreover, SEC testified that its investment company inspections were limited in scope, focusing primarily on portfolio management to determine whether fund activities were consistent with the information given investors and whether funds accurately valued their shares. SEC stated, for example, that it rarely scrutinized important activities, such as fund marketing and shareholder services. Inspections of money market funds focused on compliance with a 1940 act rule that specifies the quality and maturity of permissible instruments that may be held for money market funds and the requirements for portfolio diversification. According to SEC officials, SEC staff review the activities of advisers to investment companies concurrent with their examination of the investment company.\",\n \"In addition, between 1991 and 1993, SEC’s inspection programs called for inspecting all investment advisers with $1 billion or more in assets under management, with about one-third to be done in each of the 3 years. If time permitted, the regions and districts were also to inspect some advisers with less than $1 billion under management that had custody or discretionary management authority over client assets or conducted their business in a way that regional or district office staff believed needed review. For fiscal year 1994, SEC changed its inspection approach to (1) reintroduce an element of surprise into the inspections, and (2) allow the staff to focus on investment companies and advisers that they considered more likely to have problems. To accomplish these objectives, SEC headquarters informed SEC’s regions and districts that they were to inspect all medium and small fund families that had not been examined since 1990 and all new fund families formed during the year. SEC estimated that 350 families had not been inspected since 1990; and many of them, especially those connected with banks, had never been reviewed.\",\n \"As in preceding years, the guidance stated that, except for families that had never been inspected, inspections should be limited in scope with an emphasis on portfolio management activities. For families connected with banks, staff were to closely review advertising and the procedures by which shares were distributed to shareholders. According to SEC, during fiscal year 1994, its staff conducted inspections of 303 small and medium fund families, including 225 money market portfolios within those families. The staff inspected funds in the 100 largest fund families only when a cause inspection was necessary. With respect to inspections of investment advisers in fiscal year 1994, SEC headquarters instructed SEC’s regions and districts to focus on potentially higher risk small and medium size advisers with discretionary management authority that had not been inspected in the prior 4 years, with no particular emphasis on large entities. SEC reported that as a result of the shift to inspections of smaller, higher risk investment advisers, the assets under management of inspected advisers decreased from $1.7 trillion in 1993 to $520 billion in 1994. However, the number of deficiencies identified increased by 57 percent, from 5,523 to 8,672.\",\n \"Until recently, SEC believed that it did not have enough staff to properly oversee the mutual fund industry. For example, in November 1993 SEC testified that despite efforts to use its resources more effectively, such as by obtaining data in electronic format and beginning development of a risk assessment program for investment companies, it needed more and better trained people to deal with the mutual fund industry. An SEC official told us that SEC needs a total of 300 examiners to inspect investment companies and 210 examiners to inspect investment advisers. At the end of fiscal year 1994, SEC had about 200 staff assigned to inspections of investment companies and about 50 to inspections of investment advisers. In December 1993, the Office of Management and Budget approved the hiring of 150 additional investment company examiners (50 each year beginning in fiscal year 1994 through 1996). With the additional staff, SEC plans to perform comprehensive inspections of the 50 largest mutual fund families over a 2-year period. Funds in the other families would be inspected comprehensively about once every 4 years.\",\n \"With respect to investment adviser examiners, in its fiscal year 1996 budget SEC is requesting an additional 193 staff years for the investment adviser inspection activity. If it receives the additional staff, SEC estimates that it will be able to inspect advisers much more frequently than it has in the past. Currently, about 21,000 investment advisers are registered with SEC, but only about 7,000 to 8,000 actually exercise discretion over client assets. According to SEC, it allocates more of its inspection resources to the advisers with discretionary authority and expects to examine these advisers every 6 to 8 years. An SEC official told us that if SEC were required to oversee bank-related investment advisers that are not currently registered with the Commission, it would have little or no effect on their resources because this would add relatively few (fewer than 100) advisers to their total inventory of advisers. Further, SEC staff already examine the activities of many of these advisers during their inspections of the related investment companies. Even if SEC acquires additional inspection staff, it will face major challenges in adhering to its planned inspection schedule.\",\n \"There have been time lags in hiring new examiners, and they need to be trained over a period of several months. In addition, though there has been a slowdown recently, the number of new mutual funds continues to increase. Also, such issues as the mutual funds’ use of derivatives and personal trading by fund managers have come to the forefront. The increase in the number of banks that manage their own proprietary funds has caused the securities regulators and some in Congress to be concerned as to whether the banking and securities regulations are adequate to prevent certain conflicts of interest when banks operate proprietary mutual funds.\",\n \"Specific concerns are whether, or under what circumstances, (1) banks should be permitted to serve as custodians for their own mutual funds, (2) banks should be permitted to loan money to their mutual funds, (3) bank funds should be permitted to purchase securities issued by a borrower of the bank when the proceeds are used to pay off a loan to the bank, (4) banks should be permitted to extend credit to customers to purchase shares of bank funds, and (5) limits should exist on interlocking management relationships between banks and their mutual funds. The Investment Company Act of 1940 (the 1940 act) does not prohibit a bank from acting as both the advisor and the custodian for the same mutual fund. This has caused concern among securities regulators that a bank could cause its affiliated (proprietary) mutual fund to select the bank as fund custodian, thereby depriving the fund of an independent custodian and creating the potential for abuse and self-dealing. The fund custodian holds all securities and other fund assets on behalf of the fund.\",\n \"The 1940 act requires a mutual fund to place and maintain its securities and similar investments in the custody of a bank with aggregate capital and surplus and undivided profits of not less than $500,000; a company that is a member of a national securities exchange; or the fund itself. In practice, the fund custodian is almost always a bank. Although the 1940 act does not prohibit a bank from acting as both adviser and custodian for a mutual fund, SEC’s position is that such banks are subject to its self-custody rule. That rule requires that securities and investments of a mutual fund maintained in the custody of the fund must be verified by actual examination by an independent public accountant at least three times a year, two of which must be without prior notice. These requirements, among others, must be satisfied when a bank acts as adviser (or is affiliated with the adviser) and as custodian or subcustodian of a fund. In addition, SEC has advocated changing the 1940 act to subject affiliated bank custodianships to specific SEC rule-making authority.\",\n \"Our analysis of the data provided by Lipper showed that as of September 30, 1993, 53 of 114 banks that advised funds also acted as custodians of those funds. According to the SEC official in charge of SEC’s inspections of mutual funds, auditors must file a certificate reflecting securities verification, which SEC examiners typically review when examining the mutual funds. This official noted, however, that the SEC rule requiring verifications three times a year was written when securities were issued in physical form, such as stock certificates. Today, securities are issued in book-entry form rather than in physical form, requiring more elaborate verification procedures. Independent auditors now evaluate the process and controls used by the custodian to make a daily reconciliation of statements of securities held by the mutual fund with the Depository Trust Company (DTC). However, physical examination of pertinent records is still required to review the custodian’s reconciliations. The SEC official also told us that there have been no specific examples of abuses relating to the custody of securities that have occurred when banks also acted as the funds’ investment advisor.\",\n \"The 1940 act allows a mutual fund to borrow up to one-third of its net asset value from any bank. Because the act does not expressly prohibit a mutual fund from borrowing money from an affiliated bank, securities regulators are concerned that the lack of such a prohibition creates the potential for overreaching by a bank in a loan transaction with an affiliated investment company. Several banking laws, however, restrict banks’ ability to make loans to affiliated mutual funds. For example, section 23A of the Federal Reserve Act prohibits a member bank from lending more than 10 percent of its total capital (capital stock and surplus) to a mutual fund that is advised by the bank or its affiliates and 20 percent to all affiliates (a mutual fund advised by the bank is defined as an affiliate). Section 23B of the Federal Reserve Act states that all such lending must be on an arm’s length basis. The Federal Deposit Insurance Act applies Sections 23A and B restrictions to all federally insured nonmember banks.\",\n \"Under Regulation Y, the Federal Reserve prohibited banking organizations (bank holding companies and their bank and nonbank subsidiaries) from extending credit to any mutual fund company advised by a bank within the organization or its affiliates. In addition, a rule adopted by FDIC permits nonmember state banks to extend credit to an affiliated mutual fund subject to the Sections 23A and B restrictions. These must be stand-alone banks and not holding companies. Holding companies must comply with Regulation Y. The Federal Reserve’s bank holding company supervision manual contains detailed guidelines for examining for compliance with Sections 23A and B. The chief examiners in three Federal Reserve district offices told us these examinations are conducted regularly. According to the Federal Reserve official responsible for overseeing enforcement actions, the Federal Reserve has never taken any enforcement actions charging that bank holding companies or member banks had violated Sections 23A or B provisions relating to proprietary mutual funds. The 1940 act does not expressly prohibit a mutual fund from purchasing the securities of companies that have borrowed money from an affiliated bank, but it does prohibit most transactions between a fund and its affiliates.\",\n \"In addition, Sections 23A and 23B of the Federal Reserve Act, which prohibit banks from engaging in certain transactions with affiliates, do not impose restrictions on the ability of proprietary funds to purchase the securities of companies that are borrowers from an affiliated bank. As a result, securities regulators believe that there is a risk that a bank may use its affiliated mutual fund to purchase securities of a financially troubled borrower of the bank. The indebtedness to the bank would be repaid, but the mutual fund may be left with risky or potentially overvalued assets. A Federal Reserve Board attorney told us that while Sections 23A and 23B do not specifically prohibit proprietary funds from purchasing securities from a borrower of the affiliated bank, such activities are generally violations of state conflict-of-interest laws if the participants intend to prop up a weak bank borrower. This official said that the Federal Reserve enforces these laws as part of its examination and compliance process as do state regulators. This official also told us that bank commercial lending departments are prohibited from sharing sensitive loan information with trust departments.\",\n \"However, if a fund purchases the securities of a bank borrower, such an action would not necessarily be considered a violation of the restrictions. Illegality would depend upon the intent of the participants, that is, an intent to rescue a failing corporate borrower. Similarly, a bank intentionally causing an affiliated fund to acquire the securities of a troubled borrower to shore up the borrower’s finances may be in violation of the affiliated transaction provision of the 1940 act, and the bank would be violating its fiduciary obligations as an adviser to the fund. Officials of two very large banks that we visited told us that it was possible, even likely, that their proprietary funds would make investments in entities to which the bank had loaned money. For example, a bank official told us that if one were to examine his bank’s loan portfolio, it would not be inconceivable to find IBM as a borrower and, likewise, IBM would probably turn up as one of the stocks held by that bank’s mutual fund family.\",\n \"Even so, this would be coincidental rather than the result of any planned activity, as many of the Fortune 500 companies are likely to be customers of his bank and others like it. Officials at both banks stressed that the lending and investment advising activities are quite separate and that their controls for separating these activities precluded any abuses. To eliminate potential conflicts of interest between securities firms (including mutual funds) and banks, Section 32 of the Glass-Steagall Act and regulations of the Federal Reserve Board prohibit interlocks among officers, directors, and employees of these entities. However, because of interpretations by the Federal Reserve Board and FDIC, there are opportunities for interlocks to occur between banking organizations and mutual funds. Whether these interlocks have resulted in actual problems is uncertain; regulators told us that no cases have been reported. Section 32 of the Glass-Steagall Act, as interpreted by the Federal Reserve Board, prohibits employee, officer, and director interlocks between banks that are members of the Federal Reserve System and mutual funds. The Board has applied Section 32 to bank holding companies; consequently, a bank holding company with member bank subsidiaries may not have an interlock with\",\n \"a mutual fund.\",\n \"However, the Board has indicated that interlocks between nonbanking subsidiaries of bank holding companies and securities firms are not subject to Section 32. Therefore, a nonbanking subsidiary of a holding company could have an interlock with a mutual fund. Section 32 does not apply to banks that are not members of the Federal Reserve. Thus, a nonmember state bank could maintain an interlock with a mutual fund. In addition, FDIC’s regulations do not prohibit interlocks between a state nonmember bank and a mutual fund for which it acts as an investment adviser. However, a nonmember bank with a bona fide subsidiary or securities affiliate that engages in mutual fund activities impermissible for the bank itself (such as acting as the fund’s underwriter) would be subject to restrictions. The bona fide subsidiary or securities affiliate may not have common officers with the bank and would be required to have a majority of independent directors. The 1940 act does not prohibit interlocks between banks and investment companies. However, Section 10(c) of the act prohibits a registered investment company from having a majority of its board consist of officers, directors, or employees of any one bank.\",\n \"The act defines the term “bank” to include a member bank of the Federal Reserve System. In addition, section 10(a) requires that at least 40 percent of a fund’s board members be “disinterested persons.” These are persons who are not to be affiliated with a fund’s adviser, including a bank adviser, or with the fund’s principal underwriter. A bank may serve as the investment adviser to a mutual fund; act as an agent in purchasing mutual funds for customers (i.e., provide discount brokerage services); provide full brokerage services to customers, including investment advice concerning mutual funds; provide administrative services to mutual funds; and serve as the custodian and transfer agent to mutual funds. However, the Glass-Steagall Act prohibits banks that are members of the Federal Reserve System and bank holding companies from sponsoring mutual funds or underwriting and distributing the shares of mutual funds. These restrictions also apply to affiliates of banks that are members of the Federal Reserve System and to nonmember banks. They do not apply, however, to subsidiaries or affiliates of state banks that are not members of the Federal Reserve System.\",\n \"So, a subsidiary of a state nonmember bank (if it does not have a member bank affiliate) may provide these services, as may an affiliate of a savings association (if it does not have a member bank affiliate). Most parties seem to agree that the restrictions on sponsoring, underwriting, and distributing mutual funds are insignificant in practical terms. Shares of mutual funds are not “underwritten” in the traditional sense, whereby an underwriter commits as principal to purchase large blocks of securities for resale to the public or agrees to use its “best efforts” to sell securities to the public. Instead, investors generally purchase shares of mutual funds either directly from a fund or from securities firms, financial planners, life insurance organizations, or depository institutions. An official of one bank we visited said that he did not regard the Glass-Steagall prohibitions on sponsorship and underwriting as a necessary guard against conflicts of interest.\",\n \"In his opinion, the original (1933) concern about a bank exposing itself to risk by acting as principal in the underwriting of securities does not apply to the issue of bank sales of mutual funds because the bank sells mutual funds on an agency basis; since it does not act as principal, it does not expose its capital to risk. The major cost of the Glass-Steagall restrictions to banks is that they must contract with unaffiliated distributors that perform underwriting functions in return for fees. One banker told us that the elimination of the Glass-Steagall provisions that prevent commercial banks from underwriting securities would eliminate the banks’ need to hire such organizations and pay such fees. He also said that without Glass-Steagall restrictions, the banks might be able to operate more efficiently. Eliminating banks’ exemption from the Securities Exchange Act of 1934 and requiring that all mutual fund sales by banks be conducted through broker-dealers, as suggested by SEC, currently would affect less than 10 percent of all banks.\",\n \"Banks that sell mutual funds directly through their own employees rather than a broker-dealer generally do so either because they want to maintain control of their customer relationship or they do not have a sufficient volume of business to justify establishing a relationship with a broker-dealer. Eliminating the exemption would allow SEC and self-regulatory organizations, such as NASD, to enforce the securities laws uniformly in connection with the sale of mutual funds. However, the fact that SEC does not now have oversight of direct retail sales by bank employees does not mean that these banks are free to conduct these sales without any supervision. The bank regulators’ interagency guidance applies to all sales activities on the premises of the banking institution, regardless of whether they are done through a broker-dealer or directly by a bank employee, and the banking regulators have taken steps in their examinations to increase their scrutiny of banks’ compliance with the guidance.\",\n \"Similarly, removing the exemption from the definition of investment adviser under the Investment Advisers Act of 1940 for banks that advise funds, as suggested by SEC, would allow SEC to more fully inspect previously unregistered advisers to determine that the adviser is carrying out securities transactions in a way that is fair to all of its clients, including the mutual fund. However, removing the exemption may also permit SEC to make limited inspections of bank activities that have been solely within the domain of the banking regulators, such as transactions involving trust accounts. These activities are regularly examined by the banking regulators. The banking regulators’ examinations, however, focus principally on safety and soundness considerations, rather than on compliance with the securities laws. Although removing the exemptions would allow the securities regulators to extend their oversight of banks’ mutual fund activities, this action would not, by itself, resolve conflict and overlap among the regulators. This is because the banking regulators in their role of overseeing the safety and soundness of banks would continue to be involved in conducting examinations and issuing rules and guidance on banks’ securities activities.\",\n \"Although the regulators have taken some actions to work more closely together, as in the January 1995 agreement between NASD and the banking regulators on coordinating their examinations, there are areas in which additional coordination would be desirable. For example, although NASD’s December 1994 proposed rules governing securities broker-dealers operating on bank premises paralleled the interagency guidance in many respects, they have caused controversy because they contain provisions that differ from the banking regulators’ interagency guidance. NASD officials commenting on this report said these differences are purposeful and provide a more explicit, well-defined, and enforceable approach to regulating these NASD members. In addition, the banking regulators and SEC do not currently have an agreement to coordinate their oversight of investment advisers similar to the one between NASD and the banking regulators for sales practice examinations. SEC is concerned that OCC examiners will be attempting to enforce securities laws as part of their examinations of investment advisers, and it would appear that development of such an agreement, to include a common approach for conducting and coordinating these examinations, would help eliminate overlapping examinations and conflicting guidance.\",\n \"We recommend that SEC, the Federal Reserve, FDIC, OTS, and OCC work together to develop and approve a common approach for conducting examinations of banks’ mutual fund activities to avoid duplication of effort and conflict, while providing efficient and effective investor protection and ensuring bank safety and soundness. Each of the organizations (SEC, NASD, OCC, FDIC, the Federal Reserve, and OTS) that provided comments on a draft of this report supported our recommendation. Several agencies cited efforts that have been recently completed or are currently under way to work closely together, including implementing the January 1995 agreement between the banking regulators, SEC, and NASD to coordinate examinations. However, OCC believed the report overemphasized the potential for inconsistent or contradictory regulation. In addition, SEC and OCC stated that in June 1995 they reached agreement on a framework for conducting joint examinations of mutual funds and advisory entities in which both agencies have regulatory interests. Their comments indicated that they expect this agreement to result in increased coordination and result in more efficient oversight of bank mutual fund activities. According to SEC, its staff and OCC staff have informally discussed examination procedures and are beginning to schedule joint\",\n \"examinations.\",\n \"SEC also stated that its staff has met preliminarily with the staff of FDIC to discuss entering into a similar arrangement.\"\n]","isConversational":false}}},{"rowIdx":10899,"cells":{"id":{"kind":"string","value":"train_10899"},"question":{"kind":"string","value":"Write a detailed summary of the following government report."},"answer":{"kind":"string","value":"The Passenger Rail Investment and Improvement Act of 2008 (PRIIA) expanded FRA's role by, among other things, authorizing grant programs for intercity passenger rail. Section 305 of PRIIA established a Next Generation Equipment Committee to design, develop specifications, and procure standardized rail equipment. FRA awarded approximately $800 million in grant funding for two locomotive and bi-level passenger car procurement projects. GAO was asked to review issues related to FRA's oversight of the grants funding the PRIIA section 305 equipment procurements. This report examines: (1) how FRA has carried out its grants management roles and responsibilities for the PRIIA section 305 equipment procurement projects, and (2) the extent to which FRA's approach has met leading practices and whether FRA's grants management practices could be improved. GAO reviewed grants management policies and practices and identified relevant and applicable leading practices to be used as criteria in assessing FRA's grants management. The Federal Railroad Administration (FRA) initially used a regional oversight and monitoring approach outlined in its Grants Management Manual (Grants Manual) to manage the grants funding the section 305 equipment procurement projects, but in the face of challenges that approach evolved to include additional project-level oversight. When FRA began awarding the grants for the section 305 equipment procurement projects in 2010, its grants management approach was defined by the Grants Manual —including routine and scheduled monitoring—and by the terms of the grant agreements funding the locomotive and bi-level passenger car projects (see figure). As the bi-level car project encountered significant challenges—including major schedule delays—FRA moved to a project structure including increased contractor support to better oversee the locomotive and bi-level car projects in response to problems identified in the bi-level car project's schedule. In August 2015, the bi-level car suffered a structural testing failure, and as of April 2016, production of the bi-level car was on hold, and the final equipment delivery date was unknown. FRA's grants management approach partially follows GAO-identified leading practices for performance monitoring, communication, training, and written documentation, but FRA's approach could be improved by better alignment with those practices. For example, while FRA stated that project progress is measured by tracking scope, schedule, and budget, it has not documented a process to identify project-specific goals and associated performance measures. Establishing a process that ensures project goals are identified, tracked, and fulfilled is a leading practice of effective grants management. Without explicit project goals and associated performance measures, it may be challenging for decision makers to track and assess a project's progress, make decisions about future efforts, and keep grantees accountable for outcomes. In addition, FRA has not provided documentation outlining grantees' expectations or developed written guidance specific to the section 305 equipment procurement projects. An effective grants management framework includes developing and maintaining written documentation as a means to obtain and retain organizational knowledge and to ensure accountability. According to FRA officials, the agency informs grantees of expectations through routine monitoring and technical assistance. However, the lack of written guidance, goals, and performance measures could result in FRA's not receiving sufficient and necessary information from its grantees to carry out its grant oversight activities. GAO recommends, among other things, that the Secretary of Transportation direct FRA to enhance its process for monitoring project performance to include project goals and performance measures that directly link to those goals, and develop and provide written guidance to grantees outlining agency expectations and deliverables. The department concurred with the recommendations."},"documents":{"kind":"list like","value":["FRA is the primary federal agency responsible for issuing and enforcing railroad safety regulations and for distributing federal funds for intercity passenger rail service. PRIIA mandated new responsibilities for FRA to plan, award, and oversee the use of federal funds for intercity passenger rail. The American Recovery and Reinvestment Act of 2009 (Recovery Act) appropriated funding for high-speed rail projects, which resulted in a dramatic increase in federal funding for intercity passenger rail projects. Prior to 2009, FRA had a very limited grant portfolio, receiving appropriations for approximately $30 million in grant funding in fiscal year 2008, for example, primarily for intercity-passenger rail grants to states. With expanded responsibilities, the agency had to quickly award approximately $8 billion in Recovery Act funds while simultaneously developing policies and procedures for grants management. In 2015, FRA managed a portfolio of approximately 200 grants and managed $17.7 billion in obligated grants.","In December 2015, Congress passed the Passenger Rail Reform and Investment Act of 2015 as a title in the Fixing America’s Surface Transportation Act (FAST Act), which authorized a new consolidated rail infrastructure and safety-improvements grant program to assist grantees in financing the cost of improving passenger and freight rail transportation systems. In 2010, when FRA was in the early stages of developing its grant oversight program, GAO identified principles that would become important as FRA transitioned from awarding grants to overseeing their performance. For example, a well-designed and implemented grant oversight program is critical to ensuring effective use of federal grant funds. FRA began drafting a Grants Manual to communicate the agency’s overall approach to grants management in April 2010 when it was in the process of building up its grants management program. This Grants Manual includes procedures developed to address the agency’s expanded responsibilities following the enactment of the Recovery Act. FRA’s 2013 Program Management Plan outlined a “matrixed” organization structure intended to facilitate the flow of skills and information across functions within FRA (see fig. 1 below). FRA’s grant and loan portfolio is further organized into geographically based regional portfolios.","Each regional portfolio is managed by a Regional Team comprised of a team lead—the Regional Manager—and subject matter experts from other FRA offices. Teams are responsible for funding, project delivery, and monitoring and oversight activities. For example, for the section 305 procurement projects, the “project” entails the design, manufacturing, and delivery of the bi-level and locomotive equipment, and FRA is responsible for evaluating and monitoring—from start to finish—all the steps required to ensure successful project delivery. The Regional Manager is responsible for coordinating the entire regional team, and may share some advisory and oversight responsibilities with the designated grant managers—those directly responsible for overseeing and maintaining specific portions of the grants management process. For example, for the two section 305 equipment procurements—the bi-level cars and the locomotives—grant oversight includes collaboration between Regional Managers and Grant Managers within the Office of Railroad Policy and Development, subject matter experts within the Office of Safety and the Office of Chief Counsel, and contractors. Launched in January 2010, the NGEC has developed, adopted, and promulgated six specifications for next-generation corridor equipment.","For example, one of the specifications was to develop and build vehicles for the future or next generation, such as a locomotive capable of speeds up to 125 mph. The NGEC developed standardized specifications intended to make it possible for a group of states to buy equipment faster, at a lower cost, with reduced operating and maintenance costs going forward. Using the NGEC-developed specifications as a foundation for two equipment procurement projects, Caltrans took the lead on the bi- level car project, and IDOT leads the locomotive project. For example, IDOT—representing the Midwest coalition of Missouri, Michigan, and Iowa—serves as the lead state on behalf of itself, Caltrans, and WSDOT in conducting the joint locomotive procurement. Though Caltrans and IDOT are the lead states for the two projects, they have established memorandums of understanding for the equipment with their partner states, including Washington, Missouri, Michigan, Iowa, and Wisconsin. The NGEC is comprised of FRA, Amtrak, state, and industry participants. The NGEC structure includes an Executive Board responsible for writing the technical requirements document and approving the final specifications.","The requirements document outlines the design objectives and specific performance requirements that need to be met for each type of equipment—in the case of the section 305 equipment-procurement projects, diesel electric locomotives and bi-level passenger cars (see fig. 2 below). The specification is a detailed technical document developed by the NGEC Technical Subcommittee intended to address the range of operational considerations needed to procure, design, and manufacture a fleet of bi-level cars or locomotives for use in intercity corridor service. The Technical Subcommittee includes working groups in several functional areas—e.g., structural, electrical, and mechanical—responsible for drafting relevant elements of each technical specification. The NGEC Review Panel evaluates specifications for compliance with the requirements document as well as compliance with regulations regarding safety, accessibility, and operations. The NGEC also has a detailed system for approved specifications and documents to be revised, edited, and updated through a formal process. Six grant agreements between FRA and Caltrans, IDOT, and WSDOT, respectively, are funding the two locomotive and bi-level equipment procurement projects (see table 1 below). FRA entered into two grant agreements with Caltrans, three grant agreements with IDOT, and one grant agreement with WSDOT.","WSDOT’s grant agreement was developed prior to the decision to designate one lead state for each of the two equipment projects. After all 6 grant agreements were executed, the efforts were split into two projects, as Caltrans contracted with Sumitomo Corporation of America and Nippon Sharyo in November 2012 to purchase 130 bi-level cars and IDOT contracted with Siemens in March 2014 to manufacture 47 locomotives. These grants are funded by a mix of Recovery Act and DOT fiscal year 2010 appropriations. For the six grants, approximately 75 percent of the funding is Recovery Act money and four of the six grants have an expenditure deadline of September 30, 2017. FRA’s management of the grants funding the section 305 equipment procurement projects has evolved from a general grants management approach to include additional project-level oversight. This framework is outlined in the Grants Manual—including routine and scheduled monitoring reviews—and in the specific activities outlined in the terms of the grant agreements funding the section 305 equipment procurements. FRA’s approach to manage the section 305 equipment projects evolved as the projects progressed, to include additional involvement in project- level activities.","Specifically, in 2015, FRA transitioned to a project-based oversight structure to carry out its grants management framework for the section 305 equipment procurement projects and, in 2014, used independent contractors to support project oversight. For example, FRA used additional contractor resources to support the agency’s grants management oversight after delays were identified in the bi-level project schedule. Beginning in 2010, FRA implemented its draft grants management framework to manage the post-award phase of the grants funding the section 305 equipment procurement projects. The general framework used to manage FRA’s entire grant portfolio—including the six grants funding the procurements—is described in the agency’s Grants Manual, articulating its oversight and monitoring procedures to track grantees’ performance. After grants are awarded, the general oversight and monitoring procedures described in the Grants Manual are carried out in accordance with the specific terms of the individual grant agreements. According to the Grants Manual and interviews with FRA and state grantee officials, FRA’s monitoring procedures include what is referred to as “routine” and “scheduled” monitoring: Routine monitoring: the periodic review of progress for all active FRA grants to ensure grantees are in compliance with the terms of their respective grant agreements.","For example, FRA’s grant managers review the quarterly progress reports (QPR) grantees typically are required to submit under their grant agreements, describing the status of grant projects, including any issues encountered affecting the scope, schedule, and budget described in the grant agreement. For the section 305 equipment procurement projects, FRA reviews QPRs from Caltrans, IDOT, and WSDOT for their respective grant agreements. While FRA provides grantees with a QPR template that includes fields for narrative descriptions of significant accomplishments and any technical, cost, or schedule problems experienced during the review period, our review of the QPRs FRA provided shows that the information included in these reports varied by grantee. For example, IDOT first reported delays with the bi-level delivery schedule in the first quarter of fiscal year 2013, while the bi-level project lead, Caltrans, did not report schedule problems until the first quarter of fiscal year 2014. In addition, the level of detail regarding identified issues within the QPRs varied.","For example, in the first quarter of fiscal year 2014, IDOT and Caltrans each discussed the bi-level delivery schedule; however, IDOT provided additional information raising concerns that the projected delivery schedule would not meet the September 30, 2017, deadline for the expenditure of funds. FRA officials told us QPRs do not always identify project issues encountered in a given quarter because the agency works informally with grantees to address problems as they arise. According to FRA officials, the agency has developed a new QPR form for grantees that will enable more detailed data on status and progress to be collected. FRA officials told us the agency plans to begin using this form in 2016, but the new QPR forms were not in use at the time of this review. Scheduled monitoring: a detailed annual review of select grant projects’ progress, which FRA officials carry out using desk and/or on- site review sessions. FRA selects grant projects from its full grant portfolio to receive scheduled monitoring using factors such as project type, funding level, the time elapsed since previous monitoring activities, and knowledge of existing project issues.","For the section 305 equipment procurement projects, a series of checklists help guide FRA’s scheduled monitoring reviews. According to the Grants Manual, the results of scheduled monitoring activities are recorded in a monitoring review report and should identify any significant findings (i.e., issues that jeopardize project completion or compliance) and areas of interest (i.e., issues that have the potential to become significant). FRA’s monitoring and oversight procedures require grantees to develop and submit corrective action plans when significant findings—such as issues that put the entire project at risk— are identified, describing the practices that grantees and other stakeholders, as appropriate, will follow to address the identified issues. To date, FRA has conducted 13 scheduled monitoring reviews for the six grants providing funding for the section 305 procurement projects, identifying significant findings associated with the bi-level car project in 2014 and 2015. For example, one monitoring report identified the bi-level design and delivery schedule as a significant finding because the manufacturing timeline did not meet the expenditure deadline. The bi-level schedule delay was reported by FRA in 2013, but at that time it was identified as an area of interest rather than as a significant finding.","While no significant findings have been identified with the locomotive project to date, FRA has identified areas of interest associated with the locomotive project. For example, in a 2015 monitoring report, FRA reported one area of interest for the locomotive project—that the states receiving the locomotive equipment do not yet have an ownership, operation, or maintenance plan in place to manage the equipment upon delivery. As FRA began implementing its general grants management framework, it also began to award the six grants providing funding for the section 305 equipment procurement projects. See figure 3 below for a timeline of FRA’s grants management and section 305 equipment project milestones. FRA’s grant responsibilities are also defined by the six individual grant agreements funding the equipment purchases. As noted above, the grant agreements require that the equipment purchased with federal funds comply with specifications developed by the NGEC. The grant agreements also generally incorporate the requirement that the equipment be procured in a manner consistent with Buy America requirements. In our analysis of the six agreements, we identified areas where FRA has specific responsibilities for the equipment grants as the projects progressed.","Depending on the terms of the particular grants funding the section 305 procurement projects, FRA’s involvement in the locomotive and bi-level project may include reviewing the grantees’ draft requests for proposal (RFP) seeking interest from potential equipment manufacturers, participation in the design review meetings with the grantees and equipment manufacturers, and participation during section 305 equipment testing. Reviewing and approving RFP packages: Three of the grant agreements explicitly require FRA’s review and approval of the grantees’ draft RFPs; the other three grants are either silent or require approval by NGEC. The FRA officials we spoke with explained that the agency’s participation in the proposal review process included reviewing the RFP package to ensure the grantees’ bid solicitations included applicable federal provisions (e.g., Buy America and Davis- Bacon requirements). For example, FRA officials reviewed the RFP for the contract that Caltrans eventually awarded to Nippon-Sharyo. In addition, FRA officials told us the agency had worked to reconcile differences between the various state laws of equipment grantees. According to FRA, the difficulties in reconciling each state’s requirements were a source of delay in awarding the initial procurements.","The grant agreements do not provide for FRA’s participation in the grantee’s bid evaluation or selection process, nor is this process required by applicable federal law. FRA officials told us agency officials were not involved in these processes and did not provide concurrence with IDOT or Caltrans’ bid selections. Reviewing and approving design specifications: Four of the grant agreements explicitly require FRA to approve the design of the bi- level rail car and/or locomotive, while the other grant agreements provide for FRA to review the design specifications as a stakeholder. FRA officials told us agency officials participated in multiple reviews of the manufacturers’ design documents for both the bi-level cars and locomotive equipment —from the initial design concept to a final design plan—to ensure the designs comply with federal safety standards. For example, according to the IDOT officials we met with, FRA officials attend all locomotive design-review meetings and the state submits design documentation to FRA’s safety team for approval. Participation in section 305 equipment testing: Some of the grant agreements provide a role for FRA in the testing of the equipment.","For example, two of the grant agreements specify that FRA will be given the opportunity to witness and approve production tests. Another grant agreement authorizes FRA to verify test results. The FRA officials we spoke with said agency officials participated in equipment testing to ensure the bi-level cars and locomotive equipment meet federal safety standards and that the testing procedures are appropriate. According to Caltrans and IDOT officials, FRA is invited to all inspections and testing for the bi-level equipment. Because the agreements between FRA and the states are cooperative agreements, FRA provides substantial programmatic involvement in the section 305 equipment procurements. As provided in the grant agreements, substantial programmatic involvement means that FRA will assist and coordinate with grantees and participate in grant project activities after the contract is awarded. For example, FRA provides grantees with administrative, programmatic, and technical assistance as needed. The FRA officials we met with said the agency has provided training on the Buy America requirements and the agency’s financial reporting requirement in response to the needs of the section 305 equipment grantees. At the start of the bi-level and locomotive procurements, the extent of FRA’s involvement varied based on the","state’s previous project management experience.","For example, a former FRA official involved at the start of the bi-level car project told us the Caltrans staff managing the project at the beginning did not seek FRA’s involvement beyond the areas described in the grant agreements funding the equipment procurements. These staff had previous procurement experience but lacked experience in industry and manufacturing issues, affecting the state’s ability to effectively manage the project. In addition, Caltrans had prior experience purchasing rail cars and the 305 specification that the NGEC developed for the bi-level cars was based on the “California Car” that Caltrans had purchased between 1995 and 1997. In contrast, the IDOT officials we met with said that since IDOT did not have previous procurement experience, the state proactively sought FRA’s involvement from the start of the locomotive project and hired an industry expert with locomotive experience to help manage the project. For example, FRA reviewed IDOT’s ordering agreement with Siemens (the locomotive manufacturer) and the IDOT officials we spoke with said FRA has participated in monthly meetings with the Midwest Partner states that will be receiving the locomotive equipment from the start of the project.","As the section 305 procurement projects have progressed, the bi-level car project has encountered challenges that jeopardize project completion by the expenditure deadline. While FRA reported issues with the bi-level project’s schedule in a 2013 monitoring review report, the issues facing the bi-level project were not identified as a significant finding—thus, did not require a corrective action plan—until 2014. In 2014, the bi-level project schedule was also reported as a significant issue in an independent review of the project by an FRA consultant. For example, the independent review raised concerns that the level of detail in the bi-level schedule did not meet the project management requirement and that design activities were up to 7 months behind schedule. In FRA’s 2014- scheduled monitoring review report, the bi-level car project’s compressed design and delivery schedule was identified as a significant finding because the schedule posed a risk to the project leading up to the expenditure deadline. Grantees are responsible for developing corrective action plans to resolve significant issues, and FRA officials told us that the agency supported the grantee’s efforts to develop corrective actions in response to the bi-level project issues identified.","For example, in April 2015, FRA convened a meeting with Caltrans, IDOT, and Nippon Sharyo to work through the bi-level project issues. The meeting resulted in a series of corrective actions including replacing Caltrans and contractor program managers and establishing a designated bi-level program manager to oversee activities related to the scope, schedule, and budget of the project. Following that meeting, in May 2015, documentation of the corrective action plan to address bi-level issues revealed that the bi-level project was 14 months behind schedule. In August 2015, the bi-level car schedule encountered an additional setback after the bi-level car shell suffered a structural failure during testing and production stopped for car shell redesign. In a December 2015 monitoring review report, FRA stated that the manufacturers’ project schedule showed a delay of 24 months and that the bi-level project would not be completed by the expenditure deadline. Furthermore, FRA’s monitoring report revealed the agency’s concern with Nippon Sharyo’s quality standards and project management. For example, FRA reported that Nippon Sharyo was increasing risk to the bi-level project by manufacturing bi-level car parts without an accepted car shell design.","As of April 2016, the bi-level production schedule is on hold and the final project equipment delivery date is unknown. To date, FRA has not identified significant findings with the locomotive project through its monitoring reviews, and as of April 2016 the project was on schedule, with planned equipment delivery in June 2017. In addition to FRA’s efforts to address significant issues related to the bi- level car project, FRA’s grants management approach for both of the section 305 equipment procurements has evolved to include additional project-level oversight. In practice, FRA is involved in the procurements at two levels—(1) as grants manager overseeing the state grantees, and (2) increasingly, as support for the underlying activity between the states and their selected contractors in which FRA has elected to participate. As discussed below, this approach includes a revised management structure, informal interaction with section 305 equipment procurement stakeholders, and the use of outside contractors. Revised management structure: FRA initially carried out its grants management framework under the regional oversight structure used to manage its entire grant portfolio.","However, FRA officials told us this regional approach—under which FRA’s management for the six grant agreements funding the section 305 equipment procurement projects was carried out by three different FRA regional teams—was not working for the section 305 equipment procurements. According to the FRA officials we spoke with, it became clear that there should be a single manager responsible for overseeing both projects due in part to the number of grants managers and regional managers involved and due to project management challenges. In 2015, FRA transitioned to a project-based oversight structure for the section 305 equipment projects—referred to as the National Vehicle Program—making the Midwest Regional Manager the primary FRA official responsible for managing and coordinating grantees’ efforts for both the bi-level and locomotive equipment projects, instead of managing the six individual grants. In addition, FRA hired an individual with prior passenger-rail industry experience into the role of the National Vehicle Program Manager, to participate in routine meetings with grantees and report relevant information to the Midwest Regional Manager.","According to one of the grantees we met with, FRA did not initially have sufficient experience to manage the needs of the delivery program, and each of the grantees said turnover in FRA’s grants management staff was a challenge. For example, Caltrans officials worked with three different FRA grants managers and four different FRA regional managers in 5 years, and IDOT officials worked with two regional managers in the same time. According to one grantee, many of the FRA staff involved in the project early on had policy experience but lacked experience in project delivery. According to FRA officials, the agency has continued to experience turnover in key roles associated with the equipment procurements. Informal Interactions with project stakeholders: While FRA continues to apply the monitoring and oversight procedures in its Grants Manual as described above, FRA officials told us frequent and informal interactions—for example, ongoing participation in meetings between project stakeholders such as grantees and equipment manufacturers—help the agency monitor grantees’ performance. Caltrans and IDOT officials told us that FRA officials and consultants currently participate in project-level meetings several times a week.","For example, Caltrans officials told us that FRA officials attend meetings with project stakeholders four times a week, including a quality assurance meeting with Nippon Sharyo and a weekly coordination meeting with IDOT. According to FRA officials we spoke with, these informal interactions are the primary way information about the status of the locomotive and bi-level projects is communicated. In addition, according to FRA, the agency and its contractors have held a series of meetings with Nippon Sharyo to address bi-level rail car project challenges—including discussions related to specific project deficiencies and the manufacturer’s responses to the areas of concern identified by FRA. Additional contractor involvement: In May 2014, FRA awarded a new contract for Monitoring and Technical Assistance Contractors (MTAC) to help manage the equipment procurements, and more recently increased contractor support to meet the growing needs of the bi-level equipment project. The overall role and responsibilities of MTAC contractors are detailed in FRA’s Monitoring Procedures, published in August 2014, and include supporting FRA’s project-level oversight with technical expertise and delivering training and technical assistance to grantees.","The MTAC contract enables contractors with subject-matter expertise to be deployed in response to a range of FRA programs or projects as needed. The FRA officials we met with told us MTAC is not included in the grants management framework described in the Grants Manual because the use of MTAC contractors is dependent on the needs of the grant project, allowing the agency to obtain MTAC support and expertise as needed. For example, FRA has significantly increased MTAC support based on the needs of the section 305 equipment procurement projects and, in particular, the needs of the bi-level project. FRA officials told us they executed a new MTAC contract because the contractor support necessary to oversee the bi-level project was more than the agency anticipated, exceeding the resources provided under the agency’s original contract. MTAC contractors participate in meetings between bi-level and locomotive grantees and vendors and provide project updates to FRA through summary reports of these interactions. In addition, the National Vehicle Program Manager and MTAC contractors meet weekly to discuss the procurements and report relevant project information, including any issues, to FRA’s Midwest Regional Manager who is responsible for overseeing the National Vehicle Program.","FRA officials told us that MTAC’s direct involvement with the grantees receiving funding for the section 305 equipment procurement projects provides FRA with a “boots on the ground perspective” of the project’s status. In addition, MTAC provides Caltrans with technical support and oversees Caltrans project management by participating in weekly meetings with the states and manufacturer. We found that FRA partially follows the grants management leading practices we identified in the areas of performance monitoring, written documentation, training, and communication. Practices in these four areas are closely related, and improvements or shortfalls in one practice may contribute to improvements or shortfalls in another practice. Establishing, documenting, and following practices—and their supporting characteristics—in these four areas can contribute to a more effective grants management framework. Since 2010, FRA has developed policies and procedures in all four areas; however, it has not fully implemented those policies and procedures. Table 2 shows our overall assessment of FRA’s grants management activities compared to leading practices with examples of selected characteristics. Appendix II provides greater detail on our comparison of FRA’s approach with each supporting characteristic for each leading practice.","An effective grants management framework includes establishing a process that ensures project goals are identified, tracked, and fulfilled and deliverables received. FRA partially follows the performance monitoring leading practice area because while FRA developed a strategic vision for the HSIPR program and outlined a monitoring process in its Grants Manual, it does not have project goals or performance measures linked to the grants funding the section 305 equipment procurement projects and it does not fully evaluate the results of monitoring activities. While FRA has developed a strategic vision for the HSIPR program— including promoting energy efficiency, environmental quality, and economic competitiveness—the agency has not formalized project goals for the two section 305 equipment procurement projects or performance measures that clearly link to project goals. FRA officials we met with stated that there is no stand-alone document outlining goals or performance measures for the section 305 equipment procurement projects, and that the officials measure project progress by tracking the scope, schedule, and budget outlined in each grant agreement.","However, the agency has not formalized this approach to performance monitoring, for example in its Grants Manual, or documented specific goals or associated performance measures for the section 305 equipment procurement projects in a way that would demonstrate the agency has a process for comparing actual results against planned performance. Without explicit project goals and associated performance measures, it may be challenging for decision-makers to track and assess a project’s progress, make decisions about future efforts, and keep grantees accountable for outcomes. While FRA outlines its monitoring procedures in the Grants Manual, we found it does not fully evaluate and document results of monitoring activities, including plans for corrective action. As discussed above, FRA outlines a detailed process for routine and scheduled monitoring in its Grants Manual. According to the Federal Standards for Internal Control, management should evaluate the results of monitoring activities and remediate identified internal control deficiencies on a timely basis. In other words, management should determine the appropriate corrective actions in a timely manner based on the identified deficiency.","FRA noted in a 2013 monitoring report for the bi-level car project that the schedule showed that not all rail cars would be delivered by the grant agreement’s expenditure deadline for FRA funding. While this was an issue that directly affected the project’s scope and schedule, FRA did not identify it as a significant finding that would require a corrective action plan. FRA officials ultimately published a corrective action letter to lay out expectations and discuss how to get the project back on schedule in 2015—2 years after the issue was identified in a monitoring report. The DOT Inspector General reported in 2015 that corrective action plan deadlines for several other HSIPR grants had passed without any documentation that grantees took the necessary actions or staff extended deadlines to complete the plans. According to FRA officials, they use internal reports—separate from the routine and scheduled monitoring—to inform agency management about any issues related to a project’s scope, schedule, and budget. However, the procedures for and use of these reports are not formally documented in the Grants Manual as a mechanism for evaluating progress.","Furthermore, it is unclear how the internal reports relate to the monitoring and oversight approach FRA has outlined in its Grants Manual or how they are used to hold grantees accountable for potential risks to their grants. Leading practices emphasize processes used to evaluate and monitor efforts should be formalized and documented. Without evaluating and documenting the results of monitoring activities in a timely manner grant managers may not be able to address risks to a project’s completion, a situation that could have a potential negative impact on the grant. This situation is particularly important for the grants funding the section 305 equipment procurement projects because most of the funding has an expenditure deadline of September 30, 2017, and equipment purchases such as these represent a new type of project for FRA. An effective grants management framework includes developing and maintaining written documentation as a means to obtain and retain organizational knowledge and to ensure accountability for achieving agreed-upon results.","FRA partially follows the written documentation leading practice area because while the agency has developed and maintained written policies and procedures to communicate grants management knowledge among its staff, it has not provided documentation outlining grantee expectations or developed guidance specific to the section 305 equipment procurement projects. FRA has developed and maintained internal grants-management policies and procedures to communicate knowledge among agency staff. For example, FRA’s Grants Manual, the main policy document for agency staff, describes monitoring and oversight activities that staff are expected to conduct. The manual is periodically updated to reflect new federal regulations, such as regulations issued under the Office of Management and Budget’s new uniform guidance for federal awards, and changes in process, such as a more detailed issue escalation process. FRA also developed detailed Monitoring Procedures outlining FRA’s expectations of MTAC contractors and provided guidance to MTAC on its oversight responsibilities. For example, the monitoring procedure for oversight reports outlines the purpose of recurring oversight, documents that MTAC contractors must review, and the format and contents of the reports MTAC contractors must submit.","Finally, in late 2015, FRA began drafting a Portfolio Management Guide with centralized guidance for regional managers—intended to complement the Grants Manual—recognizing that the Grants Manual was primarily written for grants managers. Although FRA has developed and maintained internal grants management policies and procedures, it has not outlined expectations or developed guidance specific to the grants that fund the section 305 equipment procurement projects for grantees. For example, one grantee stated that while the grant agreements include high-level expectations, such as complying with federal regulations and meeting the NGEC technical specifications, expectations specific to the section 305 equipment procurement projects were unclear. According to this grantee, because FRA did not assign a central point of contact for the multi-state projects, each state grantee had to coordinate separately through their own grant manager, and expectations changed with each new state grant manager. All three grantees we spoke with stated that written guidance or procedures to manage the grants funding the section 305 procurement projects would be helpful.","In a 2011 monitoring report, one grantee requested that FRA provide a public, written policy on receiving, reviewing, and accepting deliverables because grantees did not know if or when they would receive feedback from FRA and whether the deliverables being submitted were in an acceptable format or of sufficient quality. Those grantee officials told us that their project manager informally uses the Federal Transit Administration’s (FTA) guidance in the absence of guidance from FRA. In a 2014 monitoring report, one grantee noted that circulars specific to the grant program would be helpful. According to FRA officials we met with, the agency informs grantees of expectations at a “kick-off meeting” when the grant is first awarded and through routine monitoring and targeted training and technical assistance related to items such as Buy America provisions or safety matters. However, according to the U.S. Domestic Working Group’s Grant Accountability Project, written policies serve as guidelines to ensure new grant programs include provisions for holding grantees accountable for properly using funds and achieving agreed-upon results. To date, FRA has not developed written guidance on grants or project management procedures for grants funding the section 305 equipment procurement projects.","According to the Federal Standards for Internal Control, management should implement control activities through policies. For example, management can document responsibilities through policies and communicate policies and procedures so that personnel can implement control activities for their assigned responsibilities. Other agencies have developed detailed written guidance for grantees. For example, FTA developed grants-management circulars on general requirements as well as ones specific to each of its programs, which include the documentation that FTA needs to review and requirements associated with each program. In addition, FTA has developed guidance specific to joint procurements of rail equipment. A lack of guidance could result in FRA’s not receiving sufficient and necessary information from its grantees to carry out its grant oversight activities. An effective grants management framework includes a mechanism that allows grant recipients and agency staff to establish and maintain a level of subject-matter expertise and competence so that they can fulfill their responsibilities. FRA partially follows the training leading practice area because FRA identifies training needs for grantees and agency staff, but it has not developed training on procedures governing the grants funding the section 305 equipment procurement projects. FRA identifies training needs of grantees and agency","staff.","FRA officials stated that they identify grantee training needs formally through scheduled monitoring reports, which specifically ask whether the grantee needs any training or technical assistance. For example, we found that grantees asked for training in 8 of 13 monitoring reports we reviewed, but one grantee asked for training on the terms and conditions of its grant in two consecutive reports. FRA officials stated that agency staff has the opportunity to develop Individual Development Plans to identify training needs for their current positions and development goals. FRA has not developed training on procedures governing the grants funding the section 305 equipment procurement projects for either grantees or agency staff. According to the Federal Standards for Internal Control, management should demonstrate a commitment to develop competent individuals. For instance agencies can enable individuals to develop competencies appropriate for key roles, reinforce standards of conduct, and tailor training based on the needs of the role. FRA provided grantees with a webinar called “Railroads 101,” which covered several broad industry topics, such as train types and basic rail operations.","While the webinar provided to grantees gives a basic overview of the industry, it does not include particular information related to the policies and procedures governing HSIPR grant funds. For example, one grantee said that webinar and in-person trainings on the procedures to manage the grants would be helpful. According to FRA officials, all regional and grants managers can receive project management training; however, new employees often shadow current staff and use electronic systems to learn about their assigned grants. In a 2014 monitoring report, one grantee specifically stated that a training program similar to FTA’s would be very beneficial for grantees. While agency staff can learn on the job, inconsistent understanding of grant administration policies and procedures across the agency could result in risks—such as those related to scope, schedule or budget—not being identified in a timely manner with potential negative impact on a project’s completion or the management of grant funds. For example, the bi-level rail car project’s schedule challenges were not formally reported as significant findings requiring a corrective action plan until 2014, despite schedule concerns noted in a 2013 monitoring report.","DOT operating administrations, such as FRA, have the option to determine grants training requirements though we recognize that resources needed for training, such as budgets and staff time, compete with other agency priorities. FRA officials stated that in 2015 it began to develop e-training modules specific to roles within the regional team structure, such as regional managers. While some recent training efforts have been targeted to meet staff and grantee’s needs, FRA officials acknowledged it is reasonable to formalize training efforts going forward. An effective grants management framework includes establishing an organizational structure, including well-defined reporting lines, to permit the flow of quality information and to assist agency staff and grantees in fulfilling their responsibilities. FRA partially follows the communication leading practice area because, while FRA has developed mechanisms to obtain relevant data based on project information, it does not have a centralized system to monitor grant awards. Since 2012 FRA has established mechanisms to obtain relevant data based on project information requirements.","For example, FRA’s most recent Grants Manual outlines a specific process for grantees’ reporting requirements using a table to outline each step of the process for collecting, reviewing, and approving quarterly progress reports, including the individual responsible for each step and the database or form that should be used to complete the step. The previous version used a narrative format that was less detailed. We found FRA does not use a centralized system to monitor grant awards. FRA uses multiple systems for grants management, including GrantSolutions, Program Management Tracker, and Sharepoint. GrantSolutions and Program Management Tracker are organized by grant agreement number and are used to track grant administration materials—such as financial reports–and program management materials—such as final copies of monitoring and quarterly progress reports—respectively. Since these systems organize information by the grant agreement’s number and information is divided between different systems, there is no central location for materials related to projects funded through multiple grants, such as the section 305 equipment procurement projects. According to the U.S. Domestic Working Group’s Grant Accountability Project, a centralized information system can allow grant management staff to track a grant’s status, tell how well a grantee is performing, and","keep track of problems.","An FRA official stated that the agency considered integrating the two systems to provide a central system that combined grants and project management, but it was ultimately deemed too expensive and technologically challenging. It has been over 5 years since PRIIA significantly expanded FRA’s grant- making role. In that time, FRA has developed a new grants management framework—a large undertaking encompassing all projects funded through its grants—that involved concurrently hiring new staff, developing grants oversight policies and procedures, and awarding grants. In addition, the agency’s grants management role has included overseeing the section 305 equipment procurement projects—a fundamentally new type of project for states to lead, involving technically complex new equipment that FRA had limited experience overseeing. In 2010, we noted that a confluence of factors, including simultaneously carrying out multiple new responsibilities, could pose risks for the use of federal funds for high speed rail projects and that a robust grant-oversight program would be a critical element to making sound federal investments in high speed rail. FRA’s grants management experience with the grants that fund the section 305 equipment procurement projects demonstrates that additional improvements to performance monitoring, written documentation, and training could enable more","effective grants management.","A lack of specific goals and measures can make it difficult to keep grantees accountable and ensure that grantees are making progress toward project deliverables. Further, evaluating and documenting the results of monitoring activities in a timely manner would help FRA to more proactively address risks to a project’s completion as they arise. Providing written guidance to grantees on procedures and agency expectations would help ensure that agency officials obtain the information they need to fulfill their oversight responsibilities. Training can ensure consistent understanding of policies to ensure project risks are identified in a timely manner; however, we recognize that training requires decision makers to make trade-offs based on funding and staff availability, as these resources must be used to meet multiple agency priorities. While using a centralized electronic-grant system could help agency staff better track grant progress, FRA has explored this option and determined that it would be too costly and technologically challenging. The section 305 equipment procurement projects can be used to identify lessons learned to strengthen FRA’s overall grants management framework and project oversight for future grants.","While no new section 305 equipment procurement projects are currently planned, FRA manages and oversees approximately 200 ongoing grant projects and the Passenger Rail Investment and Reform Act of 2015, passed as a title in the FAST Act, authorized a new infrastructure and safety grant program to assist grantees in financing the cost of improving passenger and freight rail transportation systems. While FRA officials began efforts to further formalize grants management procedures during the course of our review—such as drafting a portfolio management guide to centralize guidance related to the regional manager role for project oversight— additional steps could further enhance the agency’s approach to grants management. Improving the agency’s processes to be more proactive in overseeing and monitoring grant performance would help minimize project risk, increase grantee accountability, and improve the efficient and effective use of federal funds for FRA’s grants portfolio. To strengthen FRA’s grants management practices, we recommend the Secretary of Transportation direct the FRA Administrator to take the following actions: 1.","Enhance the process outlined in the Grants Manual to monitor project performance for future grants to include: (1) performance measures directly linked to project goals, and (2) fully incorporating timely and actionable information on grantee performance into FRA’s review process to help determine whether current efforts are in line with the overall project goals. 2. Develop and provide written guidance to grantees to include FRA’s expectations on the type of information grantees should provide, such as guidance specific to deliverables and milestones for each grant project. 3. Analyze training needs and formalize a training plan for grantees and agency staff, which could include training on grant-specific procedures and policies. We provided a draft of this report to Amtrak and the Department of Transportation for review and comment. In written comments, reproduced in appendix III, DOT concurred with GAO’s recommendations. FRA also provided technical comments that were incorporated, as appropriate. Amtrak did not provide comments. We are sending copies of this report to the Secretary of Transportation, the Administrator of the Federal Railroad Administration, and Amtrak. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.","If you or your staff have any questions about this report, please contact me at (202) 512-2834 or flemings@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. This report addresses the following questions: 1) How has FRA carried out its grants management roles and responsibilities regarding the PRIIA section 305 equipment procurement projects? 2) To what extent has FRA’s approach to grants management for the PRIIA section 305 equipment procurements met leading practices and whether FRA’s grants management practices could be improved? To determine how FRA has carried out its grants management roles and responsibilities for the grants funding the section 305 equipment procurement projects, we reviewed FRA policies and other guidance established to outline the agency’s responsibilities, such as the August 2015 Grants Management Manual and the 2013 Program Management Plan.","We reviewed the terms and conditions of the six grant agreements FRA executed with the California Department of Transportation (Caltrans), the Illinois Department of Transportation (IDOT), and the Washington State Department of Transportation (WSDOT) that fund the section 305 equipment procurements to identify project milestones and deliverables, as well as specific activities or points in the administration of the grants where FRA reviews, approves, or concurs with the state grantees on specific project activities. While three of these grants covered broader corridor improvements beyond the equipment projects (Chicago-St. Louis Corridor Improvement, the Chicago-Quad Cities Expansion Program, and the Pacific Northwest Rail Corridor Program), we focused on grant administration and oversight activities related to the tasks associated with the equipment procurements. We did not assess FRA’s grant management activities beyond those applicable to these six grant awards. We reviewed additional documentation related to FRA’s oversight of these six selected grants, including 96 quarterly progress reports provided by FRA for fiscal years 2013 through 2015 and 13 monitoring reports completed by FRA for calendar years 2011 through 2015 to better understand how FRA carries out its grants management roles and responsibilities.","We focused our review on FRA’s grants management activities post-award, including monitoring of grant awards, project oversight, and technical assistance activities. We did not examine the agency’s award issuance or grant closeout processes, as the equipment projects are ongoing at the time of this report’s issuance. We reviewed additional policy and guidance documentation related to the oversight of the section 305 equipment procurement projects, including the relevant Notices of Funding Availability issued by FRA, FRA’s Monitoring Procedures describing the oversight conducted by the Monitoring and Technical Assistance Contractors (MTAC), and the MTAC task order outlining specific tasks and technical assistance contractors may perform for the equipment projects. We also reviewed reports independent consultants provided to FRA, such as reports on the bi-level car project’s status and routine summaries of project-level activities and meetings between state grantees, equipment vendors, and subject matter experts.","To collect additional information about how FRA carried out grants management activities for the locomotive and bi-level car equipment procurements, we interviewed FRA Regional Managers and Grant Managers within the Office of Railroad Policy and Development, subject matter experts within other FRA offices such as the Office of Research, Development and Technology, and the Office of Chief Counsel, and MTAC contractors supporting the agency’s oversight activities. We also interviewed Amtrak officials, California, Illinois, and Washington State departments of transportation, as well as Next Generation Equipment Committee (NGEC) participants and independent consultants involved with the section 305 equipment procurement projects. To assess the extent to which FRA’s approach to grants management for the equipment procurements met leading practices, we identified relevant and applicable leading practices and supporting characteristics that contribute to those practices, using generally accepted grants management practices from a variety of sources (see table 3). Using these sources, we identified four leading grants management practices—communication, written documentation, training, and performance monitoring—as well as specific characteristics of grants management that support these practices.","To assess FRA’s grants management, we reviewed grant documentation and FRA’s grants management plans, policies, and procedures to determine the extent to which FRA’s practices aligned with the supporting characteristics of our leading practices. Each leading practice is aligned with a few supporting characteristics. For example, supporting characteristics for the written documentation practice include: (1) develop and maintain written policies and procedures that communicate knowledge among agency staff, and (2) develop guidance specific to each grant program, including documentation outlining agency and grantee expectations, among others. For additional information on the leading practices and supporting characteristics, see appendix II. We used that information in aggregate to determine the extent to which the leading practice was followed. For example, we reviewed grant documentation, such as quarterly progress reports submitted by grantees and monitoring reports completed by FRA officials for the section 305 equipment procurements from calendar year 2011 through 2015. We also reviewed FRA’s grants management policies and procedures, such as those outlined in the Grants Management Manual and Monitoring Procedures to determine the extent to which the activities and processes described met the supporting characteristics.","We also interviewed officials at FRA and the California, Illinois, and Washington State departments of transportation as well as FRA’s independent contractors. Our assessment of the alignment of FRA’s practices with the supporting characteristics served as the basis for our overall assessment as to whether each leading practice was followed or substantially followed; partially followed; or minimally or not followed. For example, if we found supporting evidence that two of the three characteristics of a practice were substantially followed but the third characteristic was not followed, we determined that the leading practice was partially followed.","The criteria to determine if practices and supporting characteristics were: followed or substantially followed—plans, policies, or processes have been developed and implemented properly for all or nearly all supporting characteristics partially followed—plans, policies, or processes have been developed and implemented properly for some supporting characteristics minimally or not followed—plans, policies, or processes are lacking for all or nearly all supporting characteristics To further determine whether FRA’s grants management practices could be improved, we interviewed FRA and Caltrans, IDOT, and WSDOT officials, NGEC participants, and independent contractors to obtain perspectives on lessons learned from the projects to date, as well as examples of what worked well with the FRA’s management and oversight of the section 305 equipment procurements. We conducted this performance audit from June 2015 to May 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.","We assessed the extent to which the Federal Railroad Administration’s (FRA) approach to grants management for the grants funding the section 305 equipment procurement projects met leading practices and supporting characteristics for grants management that we identified in the areas of performance monitoring, written documentation, training, and communication. We reviewed grant documentation and FRA’s plans, policies, and procedures and analyzed interviews with FRA and grantee officials as well as Monitoring and Technical Assistance Contractors (MTAC). Based on our analysis, we determined the extent to which each characteristic was followed or substantially followed; partially followed; or minimally or not followed. Our assessment of the characteristics served as the basis for our overall assessment on the extent to which each leading practice was followed. We categorized the assessments using the scale below: Followed or substantially followed the leading practice—plans, policies, or processes have been developed and implemented properly for all or nearly all supporting characteristics. Partially followed the leading practice—plans, policies, or processes have been developed and implemented properly for some supporting characteristics. Minimally or did not follow the leading practice—plans, policies, or processes are lacking for all or nearly all supporting characteristics.","Table 4 provides greater detail, including examples, of our comparison of FRA’s grants management approach with the supporting characteristics that are aligned with leading practices. In addition to the individual named above, the following individuals made important contributions to this report: Melissa Bodeau, Steve Cohen, Swati Deo, Derry Henrick, SaraAnn Moessbauer, Malika Rice, Maria Wallace, and Crystal Wesco."],"string":"[\n \"FRA is the primary federal agency responsible for issuing and enforcing railroad safety regulations and for distributing federal funds for intercity passenger rail service. PRIIA mandated new responsibilities for FRA to plan, award, and oversee the use of federal funds for intercity passenger rail. The American Recovery and Reinvestment Act of 2009 (Recovery Act) appropriated funding for high-speed rail projects, which resulted in a dramatic increase in federal funding for intercity passenger rail projects. Prior to 2009, FRA had a very limited grant portfolio, receiving appropriations for approximately $30 million in grant funding in fiscal year 2008, for example, primarily for intercity-passenger rail grants to states. With expanded responsibilities, the agency had to quickly award approximately $8 billion in Recovery Act funds while simultaneously developing policies and procedures for grants management. In 2015, FRA managed a portfolio of approximately 200 grants and managed $17.7 billion in obligated grants.\",\n \"In December 2015, Congress passed the Passenger Rail Reform and Investment Act of 2015 as a title in the Fixing America’s Surface Transportation Act (FAST Act), which authorized a new consolidated rail infrastructure and safety-improvements grant program to assist grantees in financing the cost of improving passenger and freight rail transportation systems. In 2010, when FRA was in the early stages of developing its grant oversight program, GAO identified principles that would become important as FRA transitioned from awarding grants to overseeing their performance. For example, a well-designed and implemented grant oversight program is critical to ensuring effective use of federal grant funds. FRA began drafting a Grants Manual to communicate the agency’s overall approach to grants management in April 2010 when it was in the process of building up its grants management program. This Grants Manual includes procedures developed to address the agency’s expanded responsibilities following the enactment of the Recovery Act. FRA’s 2013 Program Management Plan outlined a “matrixed” organization structure intended to facilitate the flow of skills and information across functions within FRA (see fig. 1 below). FRA’s grant and loan portfolio is further organized into geographically based regional portfolios.\",\n \"Each regional portfolio is managed by a Regional Team comprised of a team lead—the Regional Manager—and subject matter experts from other FRA offices. Teams are responsible for funding, project delivery, and monitoring and oversight activities. For example, for the section 305 procurement projects, the “project” entails the design, manufacturing, and delivery of the bi-level and locomotive equipment, and FRA is responsible for evaluating and monitoring—from start to finish—all the steps required to ensure successful project delivery. The Regional Manager is responsible for coordinating the entire regional team, and may share some advisory and oversight responsibilities with the designated grant managers—those directly responsible for overseeing and maintaining specific portions of the grants management process. For example, for the two section 305 equipment procurements—the bi-level cars and the locomotives—grant oversight includes collaboration between Regional Managers and Grant Managers within the Office of Railroad Policy and Development, subject matter experts within the Office of Safety and the Office of Chief Counsel, and contractors. Launched in January 2010, the NGEC has developed, adopted, and promulgated six specifications for next-generation corridor equipment.\",\n \"For example, one of the specifications was to develop and build vehicles for the future or next generation, such as a locomotive capable of speeds up to 125 mph. The NGEC developed standardized specifications intended to make it possible for a group of states to buy equipment faster, at a lower cost, with reduced operating and maintenance costs going forward. Using the NGEC-developed specifications as a foundation for two equipment procurement projects, Caltrans took the lead on the bi- level car project, and IDOT leads the locomotive project. For example, IDOT—representing the Midwest coalition of Missouri, Michigan, and Iowa—serves as the lead state on behalf of itself, Caltrans, and WSDOT in conducting the joint locomotive procurement. Though Caltrans and IDOT are the lead states for the two projects, they have established memorandums of understanding for the equipment with their partner states, including Washington, Missouri, Michigan, Iowa, and Wisconsin. The NGEC is comprised of FRA, Amtrak, state, and industry participants. The NGEC structure includes an Executive Board responsible for writing the technical requirements document and approving the final specifications.\",\n \"The requirements document outlines the design objectives and specific performance requirements that need to be met for each type of equipment—in the case of the section 305 equipment-procurement projects, diesel electric locomotives and bi-level passenger cars (see fig. 2 below). The specification is a detailed technical document developed by the NGEC Technical Subcommittee intended to address the range of operational considerations needed to procure, design, and manufacture a fleet of bi-level cars or locomotives for use in intercity corridor service. The Technical Subcommittee includes working groups in several functional areas—e.g., structural, electrical, and mechanical—responsible for drafting relevant elements of each technical specification. The NGEC Review Panel evaluates specifications for compliance with the requirements document as well as compliance with regulations regarding safety, accessibility, and operations. The NGEC also has a detailed system for approved specifications and documents to be revised, edited, and updated through a formal process. Six grant agreements between FRA and Caltrans, IDOT, and WSDOT, respectively, are funding the two locomotive and bi-level equipment procurement projects (see table 1 below). FRA entered into two grant agreements with Caltrans, three grant agreements with IDOT, and one grant agreement with WSDOT.\",\n \"WSDOT’s grant agreement was developed prior to the decision to designate one lead state for each of the two equipment projects. After all 6 grant agreements were executed, the efforts were split into two projects, as Caltrans contracted with Sumitomo Corporation of America and Nippon Sharyo in November 2012 to purchase 130 bi-level cars and IDOT contracted with Siemens in March 2014 to manufacture 47 locomotives. These grants are funded by a mix of Recovery Act and DOT fiscal year 2010 appropriations. For the six grants, approximately 75 percent of the funding is Recovery Act money and four of the six grants have an expenditure deadline of September 30, 2017. FRA’s management of the grants funding the section 305 equipment procurement projects has evolved from a general grants management approach to include additional project-level oversight. This framework is outlined in the Grants Manual—including routine and scheduled monitoring reviews—and in the specific activities outlined in the terms of the grant agreements funding the section 305 equipment procurements. FRA’s approach to manage the section 305 equipment projects evolved as the projects progressed, to include additional involvement in project- level activities.\",\n \"Specifically, in 2015, FRA transitioned to a project-based oversight structure to carry out its grants management framework for the section 305 equipment procurement projects and, in 2014, used independent contractors to support project oversight. For example, FRA used additional contractor resources to support the agency’s grants management oversight after delays were identified in the bi-level project schedule. Beginning in 2010, FRA implemented its draft grants management framework to manage the post-award phase of the grants funding the section 305 equipment procurement projects. The general framework used to manage FRA’s entire grant portfolio—including the six grants funding the procurements—is described in the agency’s Grants Manual, articulating its oversight and monitoring procedures to track grantees’ performance. After grants are awarded, the general oversight and monitoring procedures described in the Grants Manual are carried out in accordance with the specific terms of the individual grant agreements. According to the Grants Manual and interviews with FRA and state grantee officials, FRA’s monitoring procedures include what is referred to as “routine” and “scheduled” monitoring: Routine monitoring: the periodic review of progress for all active FRA grants to ensure grantees are in compliance with the terms of their respective grant agreements.\",\n \"For example, FRA’s grant managers review the quarterly progress reports (QPR) grantees typically are required to submit under their grant agreements, describing the status of grant projects, including any issues encountered affecting the scope, schedule, and budget described in the grant agreement. For the section 305 equipment procurement projects, FRA reviews QPRs from Caltrans, IDOT, and WSDOT for their respective grant agreements. While FRA provides grantees with a QPR template that includes fields for narrative descriptions of significant accomplishments and any technical, cost, or schedule problems experienced during the review period, our review of the QPRs FRA provided shows that the information included in these reports varied by grantee. For example, IDOT first reported delays with the bi-level delivery schedule in the first quarter of fiscal year 2013, while the bi-level project lead, Caltrans, did not report schedule problems until the first quarter of fiscal year 2014. In addition, the level of detail regarding identified issues within the QPRs varied.\",\n \"For example, in the first quarter of fiscal year 2014, IDOT and Caltrans each discussed the bi-level delivery schedule; however, IDOT provided additional information raising concerns that the projected delivery schedule would not meet the September 30, 2017, deadline for the expenditure of funds. FRA officials told us QPRs do not always identify project issues encountered in a given quarter because the agency works informally with grantees to address problems as they arise. According to FRA officials, the agency has developed a new QPR form for grantees that will enable more detailed data on status and progress to be collected. FRA officials told us the agency plans to begin using this form in 2016, but the new QPR forms were not in use at the time of this review. Scheduled monitoring: a detailed annual review of select grant projects’ progress, which FRA officials carry out using desk and/or on- site review sessions. FRA selects grant projects from its full grant portfolio to receive scheduled monitoring using factors such as project type, funding level, the time elapsed since previous monitoring activities, and knowledge of existing project issues.\",\n \"For the section 305 equipment procurement projects, a series of checklists help guide FRA’s scheduled monitoring reviews. According to the Grants Manual, the results of scheduled monitoring activities are recorded in a monitoring review report and should identify any significant findings (i.e., issues that jeopardize project completion or compliance) and areas of interest (i.e., issues that have the potential to become significant). FRA’s monitoring and oversight procedures require grantees to develop and submit corrective action plans when significant findings—such as issues that put the entire project at risk— are identified, describing the practices that grantees and other stakeholders, as appropriate, will follow to address the identified issues. To date, FRA has conducted 13 scheduled monitoring reviews for the six grants providing funding for the section 305 procurement projects, identifying significant findings associated with the bi-level car project in 2014 and 2015. For example, one monitoring report identified the bi-level design and delivery schedule as a significant finding because the manufacturing timeline did not meet the expenditure deadline. The bi-level schedule delay was reported by FRA in 2013, but at that time it was identified as an area of interest rather than as a significant finding.\",\n \"While no significant findings have been identified with the locomotive project to date, FRA has identified areas of interest associated with the locomotive project. For example, in a 2015 monitoring report, FRA reported one area of interest for the locomotive project—that the states receiving the locomotive equipment do not yet have an ownership, operation, or maintenance plan in place to manage the equipment upon delivery. As FRA began implementing its general grants management framework, it also began to award the six grants providing funding for the section 305 equipment procurement projects. See figure 3 below for a timeline of FRA’s grants management and section 305 equipment project milestones. FRA’s grant responsibilities are also defined by the six individual grant agreements funding the equipment purchases. As noted above, the grant agreements require that the equipment purchased with federal funds comply with specifications developed by the NGEC. The grant agreements also generally incorporate the requirement that the equipment be procured in a manner consistent with Buy America requirements. In our analysis of the six agreements, we identified areas where FRA has specific responsibilities for the equipment grants as the projects progressed.\",\n \"Depending on the terms of the particular grants funding the section 305 procurement projects, FRA’s involvement in the locomotive and bi-level project may include reviewing the grantees’ draft requests for proposal (RFP) seeking interest from potential equipment manufacturers, participation in the design review meetings with the grantees and equipment manufacturers, and participation during section 305 equipment testing. Reviewing and approving RFP packages: Three of the grant agreements explicitly require FRA’s review and approval of the grantees’ draft RFPs; the other three grants are either silent or require approval by NGEC. The FRA officials we spoke with explained that the agency’s participation in the proposal review process included reviewing the RFP package to ensure the grantees’ bid solicitations included applicable federal provisions (e.g., Buy America and Davis- Bacon requirements). For example, FRA officials reviewed the RFP for the contract that Caltrans eventually awarded to Nippon-Sharyo. In addition, FRA officials told us the agency had worked to reconcile differences between the various state laws of equipment grantees. According to FRA, the difficulties in reconciling each state’s requirements were a source of delay in awarding the initial procurements.\",\n \"The grant agreements do not provide for FRA’s participation in the grantee’s bid evaluation or selection process, nor is this process required by applicable federal law. FRA officials told us agency officials were not involved in these processes and did not provide concurrence with IDOT or Caltrans’ bid selections. Reviewing and approving design specifications: Four of the grant agreements explicitly require FRA to approve the design of the bi- level rail car and/or locomotive, while the other grant agreements provide for FRA to review the design specifications as a stakeholder. FRA officials told us agency officials participated in multiple reviews of the manufacturers’ design documents for both the bi-level cars and locomotive equipment —from the initial design concept to a final design plan—to ensure the designs comply with federal safety standards. For example, according to the IDOT officials we met with, FRA officials attend all locomotive design-review meetings and the state submits design documentation to FRA’s safety team for approval. Participation in section 305 equipment testing: Some of the grant agreements provide a role for FRA in the testing of the equipment.\",\n \"For example, two of the grant agreements specify that FRA will be given the opportunity to witness and approve production tests. Another grant agreement authorizes FRA to verify test results. The FRA officials we spoke with said agency officials participated in equipment testing to ensure the bi-level cars and locomotive equipment meet federal safety standards and that the testing procedures are appropriate. According to Caltrans and IDOT officials, FRA is invited to all inspections and testing for the bi-level equipment. Because the agreements between FRA and the states are cooperative agreements, FRA provides substantial programmatic involvement in the section 305 equipment procurements. As provided in the grant agreements, substantial programmatic involvement means that FRA will assist and coordinate with grantees and participate in grant project activities after the contract is awarded. For example, FRA provides grantees with administrative, programmatic, and technical assistance as needed. The FRA officials we met with said the agency has provided training on the Buy America requirements and the agency’s financial reporting requirement in response to the needs of the section 305 equipment grantees. At the start of the bi-level and locomotive procurements, the extent of FRA’s involvement varied based on the\",\n \"state’s previous project management experience.\",\n \"For example, a former FRA official involved at the start of the bi-level car project told us the Caltrans staff managing the project at the beginning did not seek FRA’s involvement beyond the areas described in the grant agreements funding the equipment procurements. These staff had previous procurement experience but lacked experience in industry and manufacturing issues, affecting the state’s ability to effectively manage the project. In addition, Caltrans had prior experience purchasing rail cars and the 305 specification that the NGEC developed for the bi-level cars was based on the “California Car” that Caltrans had purchased between 1995 and 1997. In contrast, the IDOT officials we met with said that since IDOT did not have previous procurement experience, the state proactively sought FRA’s involvement from the start of the locomotive project and hired an industry expert with locomotive experience to help manage the project. For example, FRA reviewed IDOT’s ordering agreement with Siemens (the locomotive manufacturer) and the IDOT officials we spoke with said FRA has participated in monthly meetings with the Midwest Partner states that will be receiving the locomotive equipment from the start of the project.\",\n \"As the section 305 procurement projects have progressed, the bi-level car project has encountered challenges that jeopardize project completion by the expenditure deadline. While FRA reported issues with the bi-level project’s schedule in a 2013 monitoring review report, the issues facing the bi-level project were not identified as a significant finding—thus, did not require a corrective action plan—until 2014. In 2014, the bi-level project schedule was also reported as a significant issue in an independent review of the project by an FRA consultant. For example, the independent review raised concerns that the level of detail in the bi-level schedule did not meet the project management requirement and that design activities were up to 7 months behind schedule. In FRA’s 2014- scheduled monitoring review report, the bi-level car project’s compressed design and delivery schedule was identified as a significant finding because the schedule posed a risk to the project leading up to the expenditure deadline. Grantees are responsible for developing corrective action plans to resolve significant issues, and FRA officials told us that the agency supported the grantee’s efforts to develop corrective actions in response to the bi-level project issues identified.\",\n \"For example, in April 2015, FRA convened a meeting with Caltrans, IDOT, and Nippon Sharyo to work through the bi-level project issues. The meeting resulted in a series of corrective actions including replacing Caltrans and contractor program managers and establishing a designated bi-level program manager to oversee activities related to the scope, schedule, and budget of the project. Following that meeting, in May 2015, documentation of the corrective action plan to address bi-level issues revealed that the bi-level project was 14 months behind schedule. In August 2015, the bi-level car schedule encountered an additional setback after the bi-level car shell suffered a structural failure during testing and production stopped for car shell redesign. In a December 2015 monitoring review report, FRA stated that the manufacturers’ project schedule showed a delay of 24 months and that the bi-level project would not be completed by the expenditure deadline. Furthermore, FRA’s monitoring report revealed the agency’s concern with Nippon Sharyo’s quality standards and project management. For example, FRA reported that Nippon Sharyo was increasing risk to the bi-level project by manufacturing bi-level car parts without an accepted car shell design.\",\n \"As of April 2016, the bi-level production schedule is on hold and the final project equipment delivery date is unknown. To date, FRA has not identified significant findings with the locomotive project through its monitoring reviews, and as of April 2016 the project was on schedule, with planned equipment delivery in June 2017. In addition to FRA’s efforts to address significant issues related to the bi- level car project, FRA’s grants management approach for both of the section 305 equipment procurements has evolved to include additional project-level oversight. In practice, FRA is involved in the procurements at two levels—(1) as grants manager overseeing the state grantees, and (2) increasingly, as support for the underlying activity between the states and their selected contractors in which FRA has elected to participate. As discussed below, this approach includes a revised management structure, informal interaction with section 305 equipment procurement stakeholders, and the use of outside contractors. Revised management structure: FRA initially carried out its grants management framework under the regional oversight structure used to manage its entire grant portfolio.\",\n \"However, FRA officials told us this regional approach—under which FRA’s management for the six grant agreements funding the section 305 equipment procurement projects was carried out by three different FRA regional teams—was not working for the section 305 equipment procurements. According to the FRA officials we spoke with, it became clear that there should be a single manager responsible for overseeing both projects due in part to the number of grants managers and regional managers involved and due to project management challenges. In 2015, FRA transitioned to a project-based oversight structure for the section 305 equipment projects—referred to as the National Vehicle Program—making the Midwest Regional Manager the primary FRA official responsible for managing and coordinating grantees’ efforts for both the bi-level and locomotive equipment projects, instead of managing the six individual grants. In addition, FRA hired an individual with prior passenger-rail industry experience into the role of the National Vehicle Program Manager, to participate in routine meetings with grantees and report relevant information to the Midwest Regional Manager.\",\n \"According to one of the grantees we met with, FRA did not initially have sufficient experience to manage the needs of the delivery program, and each of the grantees said turnover in FRA’s grants management staff was a challenge. For example, Caltrans officials worked with three different FRA grants managers and four different FRA regional managers in 5 years, and IDOT officials worked with two regional managers in the same time. According to one grantee, many of the FRA staff involved in the project early on had policy experience but lacked experience in project delivery. According to FRA officials, the agency has continued to experience turnover in key roles associated with the equipment procurements. Informal Interactions with project stakeholders: While FRA continues to apply the monitoring and oversight procedures in its Grants Manual as described above, FRA officials told us frequent and informal interactions—for example, ongoing participation in meetings between project stakeholders such as grantees and equipment manufacturers—help the agency monitor grantees’ performance. Caltrans and IDOT officials told us that FRA officials and consultants currently participate in project-level meetings several times a week.\",\n \"For example, Caltrans officials told us that FRA officials attend meetings with project stakeholders four times a week, including a quality assurance meeting with Nippon Sharyo and a weekly coordination meeting with IDOT. According to FRA officials we spoke with, these informal interactions are the primary way information about the status of the locomotive and bi-level projects is communicated. In addition, according to FRA, the agency and its contractors have held a series of meetings with Nippon Sharyo to address bi-level rail car project challenges—including discussions related to specific project deficiencies and the manufacturer’s responses to the areas of concern identified by FRA. Additional contractor involvement: In May 2014, FRA awarded a new contract for Monitoring and Technical Assistance Contractors (MTAC) to help manage the equipment procurements, and more recently increased contractor support to meet the growing needs of the bi-level equipment project. The overall role and responsibilities of MTAC contractors are detailed in FRA’s Monitoring Procedures, published in August 2014, and include supporting FRA’s project-level oversight with technical expertise and delivering training and technical assistance to grantees.\",\n \"The MTAC contract enables contractors with subject-matter expertise to be deployed in response to a range of FRA programs or projects as needed. The FRA officials we met with told us MTAC is not included in the grants management framework described in the Grants Manual because the use of MTAC contractors is dependent on the needs of the grant project, allowing the agency to obtain MTAC support and expertise as needed. For example, FRA has significantly increased MTAC support based on the needs of the section 305 equipment procurement projects and, in particular, the needs of the bi-level project. FRA officials told us they executed a new MTAC contract because the contractor support necessary to oversee the bi-level project was more than the agency anticipated, exceeding the resources provided under the agency’s original contract. MTAC contractors participate in meetings between bi-level and locomotive grantees and vendors and provide project updates to FRA through summary reports of these interactions. In addition, the National Vehicle Program Manager and MTAC contractors meet weekly to discuss the procurements and report relevant project information, including any issues, to FRA’s Midwest Regional Manager who is responsible for overseeing the National Vehicle Program.\",\n \"FRA officials told us that MTAC’s direct involvement with the grantees receiving funding for the section 305 equipment procurement projects provides FRA with a “boots on the ground perspective” of the project’s status. In addition, MTAC provides Caltrans with technical support and oversees Caltrans project management by participating in weekly meetings with the states and manufacturer. We found that FRA partially follows the grants management leading practices we identified in the areas of performance monitoring, written documentation, training, and communication. Practices in these four areas are closely related, and improvements or shortfalls in one practice may contribute to improvements or shortfalls in another practice. Establishing, documenting, and following practices—and their supporting characteristics—in these four areas can contribute to a more effective grants management framework. Since 2010, FRA has developed policies and procedures in all four areas; however, it has not fully implemented those policies and procedures. Table 2 shows our overall assessment of FRA’s grants management activities compared to leading practices with examples of selected characteristics. Appendix II provides greater detail on our comparison of FRA’s approach with each supporting characteristic for each leading practice.\",\n \"An effective grants management framework includes establishing a process that ensures project goals are identified, tracked, and fulfilled and deliverables received. FRA partially follows the performance monitoring leading practice area because while FRA developed a strategic vision for the HSIPR program and outlined a monitoring process in its Grants Manual, it does not have project goals or performance measures linked to the grants funding the section 305 equipment procurement projects and it does not fully evaluate the results of monitoring activities. While FRA has developed a strategic vision for the HSIPR program— including promoting energy efficiency, environmental quality, and economic competitiveness—the agency has not formalized project goals for the two section 305 equipment procurement projects or performance measures that clearly link to project goals. FRA officials we met with stated that there is no stand-alone document outlining goals or performance measures for the section 305 equipment procurement projects, and that the officials measure project progress by tracking the scope, schedule, and budget outlined in each grant agreement.\",\n \"However, the agency has not formalized this approach to performance monitoring, for example in its Grants Manual, or documented specific goals or associated performance measures for the section 305 equipment procurement projects in a way that would demonstrate the agency has a process for comparing actual results against planned performance. Without explicit project goals and associated performance measures, it may be challenging for decision-makers to track and assess a project’s progress, make decisions about future efforts, and keep grantees accountable for outcomes. While FRA outlines its monitoring procedures in the Grants Manual, we found it does not fully evaluate and document results of monitoring activities, including plans for corrective action. As discussed above, FRA outlines a detailed process for routine and scheduled monitoring in its Grants Manual. According to the Federal Standards for Internal Control, management should evaluate the results of monitoring activities and remediate identified internal control deficiencies on a timely basis. In other words, management should determine the appropriate corrective actions in a timely manner based on the identified deficiency.\",\n \"FRA noted in a 2013 monitoring report for the bi-level car project that the schedule showed that not all rail cars would be delivered by the grant agreement’s expenditure deadline for FRA funding. While this was an issue that directly affected the project’s scope and schedule, FRA did not identify it as a significant finding that would require a corrective action plan. FRA officials ultimately published a corrective action letter to lay out expectations and discuss how to get the project back on schedule in 2015—2 years after the issue was identified in a monitoring report. The DOT Inspector General reported in 2015 that corrective action plan deadlines for several other HSIPR grants had passed without any documentation that grantees took the necessary actions or staff extended deadlines to complete the plans. According to FRA officials, they use internal reports—separate from the routine and scheduled monitoring—to inform agency management about any issues related to a project’s scope, schedule, and budget. However, the procedures for and use of these reports are not formally documented in the Grants Manual as a mechanism for evaluating progress.\",\n \"Furthermore, it is unclear how the internal reports relate to the monitoring and oversight approach FRA has outlined in its Grants Manual or how they are used to hold grantees accountable for potential risks to their grants. Leading practices emphasize processes used to evaluate and monitor efforts should be formalized and documented. Without evaluating and documenting the results of monitoring activities in a timely manner grant managers may not be able to address risks to a project’s completion, a situation that could have a potential negative impact on the grant. This situation is particularly important for the grants funding the section 305 equipment procurement projects because most of the funding has an expenditure deadline of September 30, 2017, and equipment purchases such as these represent a new type of project for FRA. An effective grants management framework includes developing and maintaining written documentation as a means to obtain and retain organizational knowledge and to ensure accountability for achieving agreed-upon results.\",\n \"FRA partially follows the written documentation leading practice area because while the agency has developed and maintained written policies and procedures to communicate grants management knowledge among its staff, it has not provided documentation outlining grantee expectations or developed guidance specific to the section 305 equipment procurement projects. FRA has developed and maintained internal grants-management policies and procedures to communicate knowledge among agency staff. For example, FRA’s Grants Manual, the main policy document for agency staff, describes monitoring and oversight activities that staff are expected to conduct. The manual is periodically updated to reflect new federal regulations, such as regulations issued under the Office of Management and Budget’s new uniform guidance for federal awards, and changes in process, such as a more detailed issue escalation process. FRA also developed detailed Monitoring Procedures outlining FRA’s expectations of MTAC contractors and provided guidance to MTAC on its oversight responsibilities. For example, the monitoring procedure for oversight reports outlines the purpose of recurring oversight, documents that MTAC contractors must review, and the format and contents of the reports MTAC contractors must submit.\",\n \"Finally, in late 2015, FRA began drafting a Portfolio Management Guide with centralized guidance for regional managers—intended to complement the Grants Manual—recognizing that the Grants Manual was primarily written for grants managers. Although FRA has developed and maintained internal grants management policies and procedures, it has not outlined expectations or developed guidance specific to the grants that fund the section 305 equipment procurement projects for grantees. For example, one grantee stated that while the grant agreements include high-level expectations, such as complying with federal regulations and meeting the NGEC technical specifications, expectations specific to the section 305 equipment procurement projects were unclear. According to this grantee, because FRA did not assign a central point of contact for the multi-state projects, each state grantee had to coordinate separately through their own grant manager, and expectations changed with each new state grant manager. All three grantees we spoke with stated that written guidance or procedures to manage the grants funding the section 305 procurement projects would be helpful.\",\n \"In a 2011 monitoring report, one grantee requested that FRA provide a public, written policy on receiving, reviewing, and accepting deliverables because grantees did not know if or when they would receive feedback from FRA and whether the deliverables being submitted were in an acceptable format or of sufficient quality. Those grantee officials told us that their project manager informally uses the Federal Transit Administration’s (FTA) guidance in the absence of guidance from FRA. In a 2014 monitoring report, one grantee noted that circulars specific to the grant program would be helpful. According to FRA officials we met with, the agency informs grantees of expectations at a “kick-off meeting” when the grant is first awarded and through routine monitoring and targeted training and technical assistance related to items such as Buy America provisions or safety matters. However, according to the U.S. Domestic Working Group’s Grant Accountability Project, written policies serve as guidelines to ensure new grant programs include provisions for holding grantees accountable for properly using funds and achieving agreed-upon results. To date, FRA has not developed written guidance on grants or project management procedures for grants funding the section 305 equipment procurement projects.\",\n \"According to the Federal Standards for Internal Control, management should implement control activities through policies. For example, management can document responsibilities through policies and communicate policies and procedures so that personnel can implement control activities for their assigned responsibilities. Other agencies have developed detailed written guidance for grantees. For example, FTA developed grants-management circulars on general requirements as well as ones specific to each of its programs, which include the documentation that FTA needs to review and requirements associated with each program. In addition, FTA has developed guidance specific to joint procurements of rail equipment. A lack of guidance could result in FRA’s not receiving sufficient and necessary information from its grantees to carry out its grant oversight activities. An effective grants management framework includes a mechanism that allows grant recipients and agency staff to establish and maintain a level of subject-matter expertise and competence so that they can fulfill their responsibilities. FRA partially follows the training leading practice area because FRA identifies training needs for grantees and agency staff, but it has not developed training on procedures governing the grants funding the section 305 equipment procurement projects. FRA identifies training needs of grantees and agency\",\n \"staff.\",\n \"FRA officials stated that they identify grantee training needs formally through scheduled monitoring reports, which specifically ask whether the grantee needs any training or technical assistance. For example, we found that grantees asked for training in 8 of 13 monitoring reports we reviewed, but one grantee asked for training on the terms and conditions of its grant in two consecutive reports. FRA officials stated that agency staff has the opportunity to develop Individual Development Plans to identify training needs for their current positions and development goals. FRA has not developed training on procedures governing the grants funding the section 305 equipment procurement projects for either grantees or agency staff. According to the Federal Standards for Internal Control, management should demonstrate a commitment to develop competent individuals. For instance agencies can enable individuals to develop competencies appropriate for key roles, reinforce standards of conduct, and tailor training based on the needs of the role. FRA provided grantees with a webinar called “Railroads 101,” which covered several broad industry topics, such as train types and basic rail operations.\",\n \"While the webinar provided to grantees gives a basic overview of the industry, it does not include particular information related to the policies and procedures governing HSIPR grant funds. For example, one grantee said that webinar and in-person trainings on the procedures to manage the grants would be helpful. According to FRA officials, all regional and grants managers can receive project management training; however, new employees often shadow current staff and use electronic systems to learn about their assigned grants. In a 2014 monitoring report, one grantee specifically stated that a training program similar to FTA’s would be very beneficial for grantees. While agency staff can learn on the job, inconsistent understanding of grant administration policies and procedures across the agency could result in risks—such as those related to scope, schedule or budget—not being identified in a timely manner with potential negative impact on a project’s completion or the management of grant funds. For example, the bi-level rail car project’s schedule challenges were not formally reported as significant findings requiring a corrective action plan until 2014, despite schedule concerns noted in a 2013 monitoring report.\",\n \"DOT operating administrations, such as FRA, have the option to determine grants training requirements though we recognize that resources needed for training, such as budgets and staff time, compete with other agency priorities. FRA officials stated that in 2015 it began to develop e-training modules specific to roles within the regional team structure, such as regional managers. While some recent training efforts have been targeted to meet staff and grantee’s needs, FRA officials acknowledged it is reasonable to formalize training efforts going forward. An effective grants management framework includes establishing an organizational structure, including well-defined reporting lines, to permit the flow of quality information and to assist agency staff and grantees in fulfilling their responsibilities. FRA partially follows the communication leading practice area because, while FRA has developed mechanisms to obtain relevant data based on project information, it does not have a centralized system to monitor grant awards. Since 2012 FRA has established mechanisms to obtain relevant data based on project information requirements.\",\n \"For example, FRA’s most recent Grants Manual outlines a specific process for grantees’ reporting requirements using a table to outline each step of the process for collecting, reviewing, and approving quarterly progress reports, including the individual responsible for each step and the database or form that should be used to complete the step. The previous version used a narrative format that was less detailed. We found FRA does not use a centralized system to monitor grant awards. FRA uses multiple systems for grants management, including GrantSolutions, Program Management Tracker, and Sharepoint. GrantSolutions and Program Management Tracker are organized by grant agreement number and are used to track grant administration materials—such as financial reports–and program management materials—such as final copies of monitoring and quarterly progress reports—respectively. Since these systems organize information by the grant agreement’s number and information is divided between different systems, there is no central location for materials related to projects funded through multiple grants, such as the section 305 equipment procurement projects. According to the U.S. Domestic Working Group’s Grant Accountability Project, a centralized information system can allow grant management staff to track a grant’s status, tell how well a grantee is performing, and\",\n \"keep track of problems.\",\n \"An FRA official stated that the agency considered integrating the two systems to provide a central system that combined grants and project management, but it was ultimately deemed too expensive and technologically challenging. It has been over 5 years since PRIIA significantly expanded FRA’s grant- making role. In that time, FRA has developed a new grants management framework—a large undertaking encompassing all projects funded through its grants—that involved concurrently hiring new staff, developing grants oversight policies and procedures, and awarding grants. In addition, the agency’s grants management role has included overseeing the section 305 equipment procurement projects—a fundamentally new type of project for states to lead, involving technically complex new equipment that FRA had limited experience overseeing. In 2010, we noted that a confluence of factors, including simultaneously carrying out multiple new responsibilities, could pose risks for the use of federal funds for high speed rail projects and that a robust grant-oversight program would be a critical element to making sound federal investments in high speed rail. FRA’s grants management experience with the grants that fund the section 305 equipment procurement projects demonstrates that additional improvements to performance monitoring, written documentation, and training could enable more\",\n \"effective grants management.\",\n \"A lack of specific goals and measures can make it difficult to keep grantees accountable and ensure that grantees are making progress toward project deliverables. Further, evaluating and documenting the results of monitoring activities in a timely manner would help FRA to more proactively address risks to a project’s completion as they arise. Providing written guidance to grantees on procedures and agency expectations would help ensure that agency officials obtain the information they need to fulfill their oversight responsibilities. Training can ensure consistent understanding of policies to ensure project risks are identified in a timely manner; however, we recognize that training requires decision makers to make trade-offs based on funding and staff availability, as these resources must be used to meet multiple agency priorities. While using a centralized electronic-grant system could help agency staff better track grant progress, FRA has explored this option and determined that it would be too costly and technologically challenging. The section 305 equipment procurement projects can be used to identify lessons learned to strengthen FRA’s overall grants management framework and project oversight for future grants.\",\n \"While no new section 305 equipment procurement projects are currently planned, FRA manages and oversees approximately 200 ongoing grant projects and the Passenger Rail Investment and Reform Act of 2015, passed as a title in the FAST Act, authorized a new infrastructure and safety grant program to assist grantees in financing the cost of improving passenger and freight rail transportation systems. While FRA officials began efforts to further formalize grants management procedures during the course of our review—such as drafting a portfolio management guide to centralize guidance related to the regional manager role for project oversight— additional steps could further enhance the agency’s approach to grants management. Improving the agency’s processes to be more proactive in overseeing and monitoring grant performance would help minimize project risk, increase grantee accountability, and improve the efficient and effective use of federal funds for FRA’s grants portfolio. To strengthen FRA’s grants management practices, we recommend the Secretary of Transportation direct the FRA Administrator to take the following actions: 1.\",\n \"Enhance the process outlined in the Grants Manual to monitor project performance for future grants to include: (1) performance measures directly linked to project goals, and (2) fully incorporating timely and actionable information on grantee performance into FRA’s review process to help determine whether current efforts are in line with the overall project goals. 2. Develop and provide written guidance to grantees to include FRA’s expectations on the type of information grantees should provide, such as guidance specific to deliverables and milestones for each grant project. 3. Analyze training needs and formalize a training plan for grantees and agency staff, which could include training on grant-specific procedures and policies. We provided a draft of this report to Amtrak and the Department of Transportation for review and comment. In written comments, reproduced in appendix III, DOT concurred with GAO’s recommendations. FRA also provided technical comments that were incorporated, as appropriate. Amtrak did not provide comments. We are sending copies of this report to the Secretary of Transportation, the Administrator of the Federal Railroad Administration, and Amtrak. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.\",\n \"If you or your staff have any questions about this report, please contact me at (202) 512-2834 or flemings@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. This report addresses the following questions: 1) How has FRA carried out its grants management roles and responsibilities regarding the PRIIA section 305 equipment procurement projects? 2) To what extent has FRA’s approach to grants management for the PRIIA section 305 equipment procurements met leading practices and whether FRA’s grants management practices could be improved? To determine how FRA has carried out its grants management roles and responsibilities for the grants funding the section 305 equipment procurement projects, we reviewed FRA policies and other guidance established to outline the agency’s responsibilities, such as the August 2015 Grants Management Manual and the 2013 Program Management Plan.\",\n \"We reviewed the terms and conditions of the six grant agreements FRA executed with the California Department of Transportation (Caltrans), the Illinois Department of Transportation (IDOT), and the Washington State Department of Transportation (WSDOT) that fund the section 305 equipment procurements to identify project milestones and deliverables, as well as specific activities or points in the administration of the grants where FRA reviews, approves, or concurs with the state grantees on specific project activities. While three of these grants covered broader corridor improvements beyond the equipment projects (Chicago-St. Louis Corridor Improvement, the Chicago-Quad Cities Expansion Program, and the Pacific Northwest Rail Corridor Program), we focused on grant administration and oversight activities related to the tasks associated with the equipment procurements. We did not assess FRA’s grant management activities beyond those applicable to these six grant awards. We reviewed additional documentation related to FRA’s oversight of these six selected grants, including 96 quarterly progress reports provided by FRA for fiscal years 2013 through 2015 and 13 monitoring reports completed by FRA for calendar years 2011 through 2015 to better understand how FRA carries out its grants management roles and responsibilities.\",\n \"We focused our review on FRA’s grants management activities post-award, including monitoring of grant awards, project oversight, and technical assistance activities. We did not examine the agency’s award issuance or grant closeout processes, as the equipment projects are ongoing at the time of this report’s issuance. We reviewed additional policy and guidance documentation related to the oversight of the section 305 equipment procurement projects, including the relevant Notices of Funding Availability issued by FRA, FRA’s Monitoring Procedures describing the oversight conducted by the Monitoring and Technical Assistance Contractors (MTAC), and the MTAC task order outlining specific tasks and technical assistance contractors may perform for the equipment projects. We also reviewed reports independent consultants provided to FRA, such as reports on the bi-level car project’s status and routine summaries of project-level activities and meetings between state grantees, equipment vendors, and subject matter experts.\",\n \"To collect additional information about how FRA carried out grants management activities for the locomotive and bi-level car equipment procurements, we interviewed FRA Regional Managers and Grant Managers within the Office of Railroad Policy and Development, subject matter experts within other FRA offices such as the Office of Research, Development and Technology, and the Office of Chief Counsel, and MTAC contractors supporting the agency’s oversight activities. We also interviewed Amtrak officials, California, Illinois, and Washington State departments of transportation, as well as Next Generation Equipment Committee (NGEC) participants and independent consultants involved with the section 305 equipment procurement projects. To assess the extent to which FRA’s approach to grants management for the equipment procurements met leading practices, we identified relevant and applicable leading practices and supporting characteristics that contribute to those practices, using generally accepted grants management practices from a variety of sources (see table 3). Using these sources, we identified four leading grants management practices—communication, written documentation, training, and performance monitoring—as well as specific characteristics of grants management that support these practices.\",\n \"To assess FRA’s grants management, we reviewed grant documentation and FRA’s grants management plans, policies, and procedures to determine the extent to which FRA’s practices aligned with the supporting characteristics of our leading practices. Each leading practice is aligned with a few supporting characteristics. For example, supporting characteristics for the written documentation practice include: (1) develop and maintain written policies and procedures that communicate knowledge among agency staff, and (2) develop guidance specific to each grant program, including documentation outlining agency and grantee expectations, among others. For additional information on the leading practices and supporting characteristics, see appendix II. We used that information in aggregate to determine the extent to which the leading practice was followed. For example, we reviewed grant documentation, such as quarterly progress reports submitted by grantees and monitoring reports completed by FRA officials for the section 305 equipment procurements from calendar year 2011 through 2015. We also reviewed FRA’s grants management policies and procedures, such as those outlined in the Grants Management Manual and Monitoring Procedures to determine the extent to which the activities and processes described met the supporting characteristics.\",\n \"We also interviewed officials at FRA and the California, Illinois, and Washington State departments of transportation as well as FRA’s independent contractors. Our assessment of the alignment of FRA’s practices with the supporting characteristics served as the basis for our overall assessment as to whether each leading practice was followed or substantially followed; partially followed; or minimally or not followed. For example, if we found supporting evidence that two of the three characteristics of a practice were substantially followed but the third characteristic was not followed, we determined that the leading practice was partially followed.\",\n \"The criteria to determine if practices and supporting characteristics were: followed or substantially followed—plans, policies, or processes have been developed and implemented properly for all or nearly all supporting characteristics partially followed—plans, policies, or processes have been developed and implemented properly for some supporting characteristics minimally or not followed—plans, policies, or processes are lacking for all or nearly all supporting characteristics To further determine whether FRA’s grants management practices could be improved, we interviewed FRA and Caltrans, IDOT, and WSDOT officials, NGEC participants, and independent contractors to obtain perspectives on lessons learned from the projects to date, as well as examples of what worked well with the FRA’s management and oversight of the section 305 equipment procurements. We conducted this performance audit from June 2015 to May 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.\",\n \"We assessed the extent to which the Federal Railroad Administration’s (FRA) approach to grants management for the grants funding the section 305 equipment procurement projects met leading practices and supporting characteristics for grants management that we identified in the areas of performance monitoring, written documentation, training, and communication. We reviewed grant documentation and FRA’s plans, policies, and procedures and analyzed interviews with FRA and grantee officials as well as Monitoring and Technical Assistance Contractors (MTAC). Based on our analysis, we determined the extent to which each characteristic was followed or substantially followed; partially followed; or minimally or not followed. Our assessment of the characteristics served as the basis for our overall assessment on the extent to which each leading practice was followed. We categorized the assessments using the scale below: Followed or substantially followed the leading practice—plans, policies, or processes have been developed and implemented properly for all or nearly all supporting characteristics. Partially followed the leading practice—plans, policies, or processes have been developed and implemented properly for some supporting characteristics. Minimally or did not follow the leading practice—plans, policies, or processes are lacking for all or nearly all supporting characteristics.\",\n \"Table 4 provides greater detail, including examples, of our comparison of FRA’s grants management approach with the supporting characteristics that are aligned with leading practices. In addition to the individual named above, the following individuals made important contributions to this report: Melissa Bodeau, Steve Cohen, Swati Deo, Derry Henrick, SaraAnn Moessbauer, Malika Rice, Maria Wallace, and Crystal Wesco.\"\n]","isConversational":false}}}],"truncated":false,"partial":false},"paginationData":{"pageIndex":108,"numItemsPerPage":100,"numTotalItems":17517,"offset":10800,"length":100}},"jwt":"eyJhbGciOiJFZERTQSIsImtpZCI6IjVHZDBvd0g5MTM2eDZjc1FvbE1zcktNWUZoRVFoUm5PVVVybEpjOUhaUEEifQ.eyJyZWFkIjp0cnVlLCJwZXJtaXNzaW9ucyI6eyJyZXBvLmNvbnRlbnQucmVhZCI6dHJ1ZX0sImlhdCI6MTc4NTg4NDk0OCwianRpIjoiZDJiZGQ5NjYtMjFlMi00ZGY2LWFkYjQtMjUwNGYzNjk4NTIyIiwic3ViIjoiL2RhdGFzZXRzL01lbW9yeUFzTW9kYWxpdHkvR292UmVwb3J0IiwiZXhwIjoxNzg1ODg4NTQ4LCJpc3MiOiJodHRwczovL2h1Z2dpbmdmYWNlLmNvIn0.hp--CnviUtE5FnqWmYlVqdzgHNyxrt_nrH7sEyYeztMn4pp0Z8Rx5RHxKomIIldJDtH3o8HrQu5r2wYu1K8WAA","displayUrls":true,"splitSizeSummaries":[{"config":"default","split":"train","numRows":17517,"numBytesParquet":457844401},{"config":"default","split":"validation","numRows":973,"numBytesParquet":26212940},{"config":"default","split":"test","numRows":973,"numBytesParquet":24116173}]},"discussionsStats":{"closed":0,"open":0,"total":0},"fullWidth":true,"hasGatedAccess":true,"hasFullAccess":true,"isEmbedded":false,"savedQueries":{"community":[],"user":[]}}">
id string | question string | answer string | documents list |
|---|---|---|---|
train_10800 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed whether federal and state efforts have been successful in increasing the use of safety belts in motor vehicles, focusing on: (1) the progress that has been made in achieving seat belt use goals; (2) state strategies that have been successful in increasing seat belt use;... | [
"The use of safety belts has long been considered an effective way to reduce deaths and injuries on the nation’s highways. The Department of Transportation (DOT) estimates that 10,000 additional lives could be saved annually if all of the occupants of motor vehicles used safety belts. Safety belt technology has exi... |
train_10801 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the activities of the Consortium for International Earth Science Information Network (CIESIN), focusing on: (1) its mission and funding; (2) the National Aeronautics and Space Administration's (NASA) oversight of CIESIN work on the human dimensions of global change (HDG... | [
"CIESIN (pronounced “season”) was established in 1989 as a private, nonprofit organization chartered by the state of Michigan. It is structured as a consortium of university and nongovernmental research organizations. The current members of the consortium are University of Michigan, Ann Arbor, Michigan; Michigan St... |
train_10802 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO discussed the role of chief information officers (CIO) in the federal government. GAO noted that: (1) as the federal government moves to fully embrace the digital age and focuses on electronic government initiatives, leadership in the management of the government's information r... | [
"To reap the full benefits of new technologies, federal agencies must have effective information management leaders who can transform IT dollars into prudent investments that achieve cost savings, increase productivity, and improve the timeliness and quality of service delivery. This was widely recognized by the Co... |
train_10803 | Write a detailed summary of the following government report. | As the largest provider of financial aid in higher education, with about $134 billion in Title IV funds provided to students in fiscal year 2010, the Department of Education (Education) has a considerable interest in distance education. Distance education--that is, offering courses by the Internet, video, or other form... | [
"Distance education is not a new concept, but in recent years, it has assumed markedly new forms and greater prominence. In the past, distance education generally took the form of correspondence courses— home study courses completed by mail. Distance education today can take many forms and is defined by federal law... |
train_10804 | Write a detailed summary of the following government report. | Corrosion can have a deleterious effect on military equipment and infrastructure in terms of cost, readiness, and safety. Recognizing this concern, the Bob Stump National Defense Authorization Act of Fiscal Year 2003 required the Department of Defense (DOD) to designate an official or organization to oversee and coordi... | [
"The Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics has been designated DOD’s Corrosion Executive. The Corrosion Executive is supported by staff assigned to the Corrosion Office. The Corrosion Office was initially established in 2003 as an independent activity within the Offi... |
train_10805 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the Federal Aviation Administration's (FAA) Safer Skies Initiative, focusing on: (1) to what extent addressing the safety problems to be addressed by the initiative will help reduce the fatal accident rate; (2) what progress the initiative has made in identifying and im... | [
"The Federal Aviation Administration (FAA) has forecast continued growth for commercial and general aviation over the next decade. Growth over the past few decades brought innovations to improve flight safety that contributed to a dramatic lowering of the accident rate by the mid-1970s. Further reductions in the ac... |
train_10806 | Write a detailed summary of the following government report. | The economic well-being of the United States depends on the movement of millions of cargo shipments throughout the global supply chain—the flow of goods from manufacturers to retailers or other end users. However, cargo shipments can present security concerns. CBP is responsible for administering cargo security and fac... | [
"Supply chain security is a principal element of CBP’s layered strategy to protect commerce. In the post-9/11 environment, the movement of cargo shipments throughout the global supply chain from foreign manufacturers, suppliers, or vendors to retailers or other end users in the United States is inherently vulnerabl... |
train_10807 | Write a detailed summary of the following government report. | For federal agencies to become high-performing organizations, top management needs to foster performance-based cultures, find ways to measure performance, and use performance information to make decisions. GAO's survey of federal managers found wide differences in how well individual agencies demonstrated a results-bas... | [
"High-performing organizations reinforce a focus on results through demonstrated top leadership commitment, through positive recognition to employees for their contributions to organizational goals, and by holding managers accountable for results while giving them the necessary decisionmaking authority to achieve t... |
train_10808 | Write a detailed summary of the following government report. | VA operates one of the largest health care systems in the United States, with 168 VA medical centers and more than 1,000 outpatient facilities. Many of these facilities are underutilized and outdated. A previous effort aimed at modernizing and better aligning facilities was not fully implemented. GAO was asked to revie... | [
"The mission of VA is to serve America’s veterans and their dependents. All VA programs are administered through three major administrations— VHA, Veterans Benefits Administration, and the National Cemetery Administration. VA provides medical services to various veteran populations—including an aging veteran popula... |
train_10809 | Write a detailed summary of the following government report. | Since 1998, the Congress and Administration have focused considerable attention on improving the quality of care in the nation's nursing homes, which provide care for about 1.7 million elderly and disabled residents in about 17,000 homes. GAO has earlier reported on serious weaknesses in processes for conducting routin... | [
"Oversight of nursing homes is a shared federal and state responsibility. CMS is the federal agency that manages Medicare and Medicaid and oversees compliance with federal nursing home quality standards. On the basis of statutory requirements, CMS defines standards that nursing homes must meet to participate in the... |
train_10810 | Write a detailed summary of the following government report. | The Medicare program is the nation's largest health insurer with almost 40 million beneficiaries and outlays of over $219 billion annually. Because of the susceptibility of the program to fraud and abuse, Congress enacted the Health Care Fraud and Abuse Control (HCFAC) Program as part of the Health Insurance Portabilit... | [
"In 1990, we designated the Medicare program, which is administered by the Centers for Medicare and Medicaid Services (CMS) in HHS, as at high risk for improper payments because of its sheer size and vast range of participants—including about 40 million beneficiaries and nearly 1 million physicians, hospitals, and ... |
train_10811 | Write a detailed summary of the following government report. | Inflammatory bowel disease (IBD) affects an estimated one million Americans. IBD patients often have difficulty digesting food. As a result, they may require parenteral nutrition (intravenous feeding) or enteral nutrition (tube feeding), medically necessary food products to supplement their diets, and medications. In a... | [
"IBD refers to Crohn’s disease and ulcerative colitis. Crohn’s disease can involve any area of the gastrointestinal tract but most commonly affects the small intestine, which is responsible for the body’s absorption of most needed nutrients, and the beginning of the large intestine, or colon. This inflammation can ... |
train_10812 | Write a detailed summary of the following government report. | The Chairman of the Senate Committee on Finance asked GAO to testify on our nation's low saving and discuss the implications for long-term economic growth. National saving--the portion of a nation's current income not consumed--is the sum of saving by households, businesses, and all levels of government. National savin... | [
"The first deficit we face is the federal budget deficit (see fig. 1). In 2005 the unified federal budget deficit was around $318 billion or 2.6 percent of gross domestic product (GDP). This figure is an approximation of what the federal government absorbs from private saving. Although a single year’s federal defic... |
train_10813 | Write a detailed summary of the following government report. | Pursuant to a legislative requirement, GAO reviewed the Social Security Administration's (SSA) telephone access demonstration project. GAO found that: (1) under one of the two telephone demonstration project configurations tested, telephone access improved significantly, busy-signal rates dropped, and the number of cal... | [
"For many years, the Congress has expressed concerns about the public’s telephone access to SSA. Efforts to improve this access have resulted in a dual system of telephone service (a nationwide 800 number and local office service at more than 800 of SSA’s field offices) and also led to the current demonstration pro... |
train_10814 | Write a detailed summary of the following government report. | As part of its efforts to meet yearly recruitment goals for the military, DOD requested almost $575 million in fiscal year 2017 to conduct advertising intended to increase awareness of military service and ultimately generate leads for potential recruits. Senate Report 114-49 included a provision for GAO to assess DOD'... | [
"Under Title 10 of the United States Code, the Secretary of each Military Department (the Army, the Navy, and the Air Force) has the responsibility to recruit personnel, subject to the authority, direction, and control of the Secretary of Defense. As such, each Secretary has the authority to organize and delegate r... |
train_10815 | Write a detailed summary of the following government report. | Ports, waterways, and vessels handle more than $700 billion in merchandise annually, and an attack on this system could have a widespread impact on global trade and the economy. Within the Department of Homeland Security (DHS), component agencies have responsibility for securing the maritime environment. The U.S. Coast... | [
"In December 2005, we reported that risk management, a strategy for helping policymakers make decisions about assessing risks, allocating resources, and taking actions under conditions of uncertainty, had been endorsed by Congress and the President as a way to strengthen the nation against possible terrorist attack... |
train_10816 | Write a detailed summary of the following government report. | DOD manages nearly $70 billion of conventional ammunition—which includes many types of items other than nuclear and special weapons—at eight Army depots. The military services use automated information systems to manage their inventory. They also compile annual reports that compare ammunition inventory levels against s... | [
"DOD has an extensive organizational structure for managing and overseeing conventional ammunition, with the Army having a prominent role. Since 1975, the Secretary of the Army has served as DOD’s Single Manager for Conventional Ammunition (hereafter referred to as the Single Manager). Under DOD guidance, the Singl... |
train_10817 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the Office of Child Support Enforcement's (OCSE) management of the child support enforcement program, focusing on OCSE progress in: (1) strengthening its partnership with state and local child support enforcement programs; (2) achieving national program goals; (3) impro... | [
"The general well-being of children and families is a critical national policy goal. Current priorities aimed at protecting children and preserving families include an effective child support enforcement program to meet the needs of millions of parents who annually seek child support for their eligible children. In... |
train_10818 | Write a detailed summary of the following government report. | Cyber attacks could have a potentially devastating impact on the nation's computer systems and networks, disrupting the operations of government and businesses and the lives of private individuals. Increasingly sophisticated cyber threats have underscored the need to manage and bolster the cybersecurity of key governme... | [
"Threats to systems supporting critical infrastructure and federal information systems are evolving and growing. Advanced persistent threats—where adversaries that possess sophisticated levels of expertise and significant resources to pursue its objectives repeatedly over an extended period of time—pose increasing ... |
train_10819 | Write a detailed summary of the following government report. | Debates surrounding the reauthorization of welfare reform legislation have involved some discussion regarding outcomes for TANF recipients with physical or mental impairments. To inform this discussion, GAO was asked to report on (1) whether recipients with impairments were as likely to exit TANF as their counterparts ... | [
"PRWORA built upon and expanded state-level welfare reforms to transform federal welfare policy for needy families with children. PRWORA replaced the individual entitlement to benefits under the 61-year-old Aid to Families with Dependent Children (AFDC) program with the TANF block grant, which provides family assis... |
train_10820 | Write a detailed summary of the following government report. | The opportunity for employment is one of the most important magnets attracting illegal aliens to the United States. The Immigration Reform and Control Act (IRCA) of 1986 established an employment eligibility verification process and a sanctions program for fining employers for noncompliance. Few modifications have been... | [
"The Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) of 1996 required INS and SSA to operate three voluntary pilot programs to test electronic means for employers to verify an employee’s eligibility to work, one of which was the Basic Pilot Program. The Basic Pilot Program was designed to test ... |
train_10821 | Write a detailed summary of the following government report. | GAO discussed efforts for improving governmentwide travel management, focusing on a comparison of civilian federal agencies' and private-sector travel management practices. GAO noted that: (1) private-sector organizations have cut travel processing costs and time by consolidating travel management and processing center... | [
"What we found was that leading organizations have cut administrative costs—some cut expense report processing costs by more than 80 percent—and time—what once took 3 weeks can now be done within 48 hours—as a direct result of reengineering how they arrange and process travel. Their total administrative costs per t... |
train_10822 | Write a detailed summary of the following government report. | Over the years, the Department of Defense's (DOD) military compensation system has become an increasingly complex and piecemeal accretion of pays, allowances, benefits, and special tax preferences. DOD leaders have expressed concern that rising compensation costs may not be sustainable in the future and could crowd out... | [
"DOD is one of the nation’s largest employers—employing approximately 1.4 million active duty military personnel and 1.2 million reservists. In addition, 2 million retirees receive pay and benefits from the department. DOD is also the largest employer and trainer of young adults in the United States, recruiting abo... |
train_10823 | Write a detailed summary of the following government report. | This testimony discusses the U.S. government's rule of law assistance efforts in the new independent states of the former Soviet Union. GAO found that these efforts have had limited impact so far, and results may not be sustainable in many cases. U.S. agencies have had some success in introducing innovative legal conce... | [
"Despite some positive developments, U.S. rule of law assistance in the new independent states of the former Soviet Union has achieved limited results, and the sustainability of those results is uncertain. Experience has shown that establishing the rule of law in the new independent states is a complex undertaking ... |
train_10824 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the operations and contributions of the Counterdrug Technology Assessment Center (CTAC), focusing on: (1) how CTAC coordinates its counterdrug research and development (R&D) efforts with other federal agencies to address counterdrug R&D needs that are not being met by o... | [
"A 1987 Department of Defense (DOD) Defense Science Board study on the detection and neutralization of illegal drugs and terrorist devices, such as explosives, concluded, among other things, that better-focused R&D testing and evaluation and acquisition efforts were needed at the federal level. To address this issu... |
train_10825 | Write a detailed summary of the following government report. | GAO discussed the Federal Aviation Administration's (FAA) safety inspection program. GAO noted that: (1) in 1991, FAA created its Safety Performance Analysis System (SPAS) to focus its inspection resources on the pilots, aircraft, and facilities that pose the greatest risk; (2) poor data quality jeopardizes the success... | [
"As early as 1987, we identified the need for FAA to develop criteria for targeting safety inspections to airlines with characteristics that may indicate safety problems and noted that targeting was important because FAA may never have enough resources to inspect all aircraft, facilities, and pilots. FAA employs ab... |
train_10826 | Write a detailed summary of the following government report. | Recent terrorist activity, such as the attempted Times Square bombing, underscores the need for terrorism-related information sharing. Since 2001, all 50 states and some local governments have established fusion centers, where homeland security, terrorism, and other intelligence information is shared. The federal gover... | [
"Nationwide, states and major urban areas have established fusion centers to coordinate the gathering, analysis, and dissemination of law enforcement, homeland security, public safety, and terrorism information. After centers had begun to be established around the country, Congress passed the 9/11 Commission Act to... |
train_10827 | Write a detailed summary of the following government report. | The transformation of the Government Printing Office (GPO) is under way. This report captures the results of our efforts over the past year to assess and help strengthen GPO's transformation and strategic planning efforts. It is the final part of GAO's response to both a mandate requiring GAO to examine the current sta... | [
"GPO’s mission includes both printing government documents and disseminating them to the public. Under the public printing and documents statutes of Title 44 of the U.S. Code, GPO’s mission is to fulfill the printing needs of the federal government and to distribute those printed products to the public. All printin... |
train_10828 | Write a detailed summary of the following government report. | GAO discussed the results of its study on the government's clinical care and medical research programs relating to illnesses that members of the armed forces might have contracted as a result of their service in the Persian Gulf War, focusing on the: (1) efforts of the Departments of Defense (DOD) and Veterans Affairs'... | [
"Before turning to the results of our work in detail, let me briefly provide some background information and discuss the methodology we used for our study. During their deployment associated with the Persian Gulf War, many of the approximately 700,000 veterans of the Gulf War may have been exposed to a variety of p... |
train_10829 | Write a detailed summary of the following government report. | The 1998 terrorist attacks on two U.S. embassies in Africa highlighted security deficiencies in diplomatic facilities, leading the Department of State to embark on an estimated $16 billion embassy construction program. The program's key objective is to provide safe, secure, and cost-effective buildings for employees ov... | [
"The 1998 terrorist bombings of the U.S. embassies in Kenya and Tanzania highlighted the compelling need for safe and secure overseas facilities. Following the bombings, two high-level independent groups cited problems at U.S. overseas facilities. In January 1999, the chairman of the Accountability Review Boards, f... |
train_10830 | Write a detailed summary of the following government report. | The federal government invests billions in information technology (IT) each year to help agencies accomplish their missions. Federal law, particularly the Clinger-Cohen Act of 1996, has defined the role of Chief Information Officer (CIO) as the focal point for IT management within agencies. Given the longstanding chall... | [
"Congress has long recognized that IT has the potential to enable federal agencies to accomplish their missions more quickly, effectively, and economically. However, fully exploiting this potential has presented longstanding challenges to agencies, and despite substantial IT investments, the federal government’s ma... |
train_10831 | Write a detailed summary of the following government report. | In 2009, DHS's TSA began using Secure Flight to screen passengers against high-risk lists. These lists, subsets of the TSDB—the U.S. government's consolidated list of known and suspected terrorists—included the No Fly List, to identify those who should be prohibited from boarding flights, and the Selectee List, to iden... | [
"Several entities located within TSA’s Office of Intelligence and Analysis share responsibility for administering the Secure Flight program. Among these are the Operations Strategy Mission Support Branch, which acts as the program’s lead office; the Secure Flight Operations Branch, which oversees passenger vetting ... |
train_10832 | Write a detailed summary of the following government report. | GAO reviewed the results of the Internal Revenue Service's (IRS) Nonfiler Strategy and opportunities to improve any similar future efforts. GAO found that: (1) IRS actions to achieve its Nonfiler Strategy's goals included deploying examination staff to work on nonfiler cases, increasing other IRS functions' emphasis on... | [
"Section 6012 of the Internal Revenue Code requires individuals, businesses, and other taxable entities with income over a certain threshold amount to file income tax returns. While most individuals and businesses voluntarily comply with this requirement, millions do not. At the beginning of fiscal year 1993, IRS h... |
train_10833 | Write a detailed summary of the following government report. | The increasing popularity of wireless devices that use spectrum, combined with federal spectrum needs for national defense and other public safety activities, have created concerns that a "spectrum crunch" is looming. However, there is also evidence that at any given time or place, spectrum lies fallow or is only inter... | [
"We reviewed federal legislation, regulations, and processes regarding spectrum management and spectrum sharing, including NTIA’s Manual of Regulations and Procedures for the Federal Radio Frequency Management; as well as various FCC plans, notices, orders and other publications related to spectrum management and s... |
train_10834 | Write a detailed summary of the following government report. | A growing share of long-term care spending under Medicaid, a joint federal-state health care program, is for services provided in home and community settings. Medicaid spending on these services—about $80 billion in 2014—now exceeds spending on institutional long term care. Personal care services are key components of ... | [
"Medicaid is jointly financed by the federal government and the states, with the federal government matching most state Medicaid expenditures using a statutory formula that determines a federal matching rate for each state. Medicaid is a significant component of federal and state budgets, with estimated total outla... |
train_10835 | Write a detailed summary of the following government report. | In recent years, private investors have claimed more than $1 billion in NMTCs annually. The credits are combined with private loans and other public funds to support investments in low-income communities. GAO was asked to review the financial structure of NMTCs. This report assesses: (1) the complexity and transparency... | [
"The CDFI Fund is authorized to allocate tax credit authority to CDEs that manage NMTC investments in low-income community development projects. The CDEs are domestic corporations or partnerships with a primary mission of providing investment capital for low-income communities or low-income persons. Some CDEs are e... |
train_10836 | Write a detailed summary of the following government report. | The 2007 Virginia Tech shootings raised questions about how the gunman was able to obtain firearms given his history of mental illness. In the wake of this tragedy, the NICS Improvement Amendments Act of 2007 was enacted to, among other things, provide incentives for states to make more records available for use during... | [
"The permanent provisions of the Brady Handgun Violence Prevention Act (Brady Act) took effect on November 30, 1998. Under the Brady Act, before a federally licensed firearms dealer can transfer a firearm to an unlicensed individual, the dealer must request a background check through NICS to determine whether the p... |
train_10837 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the Health Care Financing Administration's (HCFA) efforts to enhance the quality of care for Medicare beneficiaries, focusing on: (1) the strategies to ensure that Medicare providers furnish quality health care, in both fee-for-service providers and health maintenance o... | [
"In the past decade, Medicare costs have risen at an average rate of over 10 percent per year. This continued growth has prompted stakeholders to seek methods to slow down or reduce the cost of services. Because managed care is viewed as less costly than fee-for-service health care, one proposal put forth is to exp... |
train_10838 | Write a detailed summary of the following government report. | The President has emphasized the importance of safety, efficiency, and accountability in U.S. government staffing overseas by designating the achievement of a rightsized overseas presence as a part of the President's Management Agenda. One of the elements of rightsizing involves relocating certain administrative suppor... | [
"Following the 1998 embassy bombings in Nairobi, Kenya, and Dar es Salaam, Tanzania, a number of reviews called for the reassessment of overseas staffing levels and suggested a series of actions to adjust the overseas presence, including relocating some functions to the United States and to regional centers, where ... |
train_10839 | Write a detailed summary of the following government report. | Congress created NFIP to reduce the escalating costs of federal disaster assistance for flood damage, but also prioritized keeping flood insurance affordable, which transferred the financial burden of flood risk from property owners to the federal government. In many cases, premium rates have not reflected the full ris... | [
"Congress first proposed providing flood insurance in the 1950s, after it became clear that private insurance companies could not profitably provide flood coverage at a price that consumers could afford, primarily because of the catastrophic nature of flooding and the difficulty of determining accurate rates. In 19... |
train_10840 | Write a detailed summary of the following government report. | The threat posed by infectious diseases has grown. New diseases, unknown in the United States just a decade ago, such as West Nile virus and severe acute respiratory syndrome (SARS), have emerged. To detect cases of infectious diseases, especially before they develop into widespread outbreaks, local, state, and federal... | [
"IOM defines an emerging infectious disease as either a newly recognized, clinically distinct infectious disease or a known infectious disease whose reported incidence is increasing in a given place or among a specific population. More than 36 newly emerging infectious diseases were identified between 1973 and 2003... |
train_10841 | Write a detailed summary of the following government report. | Pursuant to a legislative requirement, GAO reviewed the Attorney General's strategy to deter illegal entry into the United States along the southwest border, focusing on: (1) what the strategy calls for; (2) actions taken to implement the strategy along the southwest border; (3) whether available data confirm the strat... | [
"INS’ overall budget has more than doubled within 5 years, from $1.5 billion in fiscal year 1993 to $3.1 billion in fiscal year 1997. INS has spent about $2.3 billion on border enforcement from fiscal years 1994 through 1997. For fiscal year 1997, the combined budget for INS’ Border Patrol and Inspections programs—... |
train_10842 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the Federal Aviation Administration's (FAA) computer security practices, focusing on: (1) whether FAA is effectively managing physical security at air traffic control (ATC) facilities and systems security for its current operational systems; (2) whether FAA is effective... | [
"FAA’s ATC network is an enormous, complex collection of interrelated systems, including navigation, surveillance, weather, and automated information processing and display systems that reside at, or are associated with, hundreds of ATC facilities. These systems and facilities are interconnected by complex communic... |
train_10843 | Write a detailed summary of the following government report. | Four million tons of uranium ore were extracted from mines on the Navajo reservation primarily for developing the U.S. nuclear weapons stockpile. For over 30 years, the Navajo people have lived with the environmental and health effects of uranium contamination from this mining. In 2008, five federal agencies adopted a ... | [
"In keeping with its trust responsibility with respect to Indian tribes, the federal government holds title to the Navajo and Hopi tribal land in trust for the benefit of the tribes and their members. In this context, this section provides information on (1) the Navajo Nation and Hopi Tribe; (2) uranium mining and ... |
train_10844 | Write a detailed summary of the following government report. | In 2011, the federal government provided over $800 million to BIE schools that serve about 41,000 Indian students living on or near reservations. Within the Department of Interior, BIE is part of Indian Affairs, and BIEs director is responsible for the management of all education functions. BIEs mission is to provide... | [
"BIE, formerly known as the Office of Indian Education Programs when it was part of the Bureau of Indian Affairs (BIA), was renamed and established as a separate bureau in 2006. Organizationally, BIE is under the Office of the Assistant Secretary- Indian Affairs (Indian Affairs), and its director reports to the Pri... |
train_10845 | Write a detailed summary of the following government report. | More Americans remaining in the workforce at older ages could lead to benefits at several levels. First, working longer will allow older workers to bolster their retirement savings. Second, hiring and retaining older workers will help employers deal with projected labor shortages. Third, older workers will contribute t... | [
"In the 21st century, older Americans are expected to make up a larger share of the U.S. population, live longer, and spend more years in retirement than previous generations. The share of the U.S. population age 65 and older is projected to increase from 12.4 percent in 2000 to 19.6 percent in 2030 and continue to... |
train_10846 | Write a detailed summary of the following government report. | Member banks of the Federal Reserve must purchase stock in their regional Reserve Bank, but historically received a 6 percent dividend annually on paid-in stock. A provision of the 2015 FAST Act modified the dividend rate formula for 85 larger member banks—and currently reduces the amount these banks receive. The FAST ... | [
"The Federal Reserve Act established the Federal Reserve to operate collectively as the country’s central bank. The Federal Reserve Act established the Federal Reserve as an independent agency with a decentralized structure to ensure that monetary policy decisions would be based on a broad economic perspective from... |
train_10847 | Write a detailed summary of the following government report. | Pursuant to a legislative requirement, GAO provided information on the corrective actions taken by the Army following the deaths of four Ranger students in a 1995 training accident, focusing on the status of: (1) Army Ranger training manning levels required by the fiscal year 1996 National Defense Authorization Act; (2... | [
"The Ranger Training Brigade, located at Fort Benning, Georgia, conducts three phases of Ranger training to develop tactical combat arms and leadership skills in infantry, airborne, air assault, mountaineering, and waterborne operations. The initial training phase is conducted at Fort Benning, the second phase is c... |
train_10848 | Write a detailed summary of the following government report. | District officials have recently reported both a budget gap and a more permanent structural imbalance between costs and revenue raising capacity. They maintain that the structural imbalance largely stems from the federal government's presence and restrictions on the District's tax base. Accordingly, at various times Di... | [
"A perennial issue for federal and District of Columbia officials has been determining the proper level of federal assistance to the District. Federal assistance historically has helped the District offset costs associated with its unique status and position. However, according to District officials, this assistanc... |
train_10849 | Write a detailed summary of the following government report. | For decades, the public has been concerned that lost or stolen dogs and cats could be used in research. The U.S. Department of Agriculture's (USDA) Animal and Plant Health Inspection Service (APHIS) is responsible for the licensing and oversight of dealers who provide animals for research. Random source Class B dealers... | [
"For decades, animal dealers have been providing dogs and cats to scientific researchers. Within this broader group, random source Class B dealers are those who provide dogs and cats that they obtain from pounds, shelters, auction sales, or owners who breed the animals on their premises. For certain research, some ... |
train_10850 | Write a detailed summary of the following government report. | As a new hurricane season approaches, the Federal Emergency Management Agency (FEMA) within the Department of Homeland Security (DHS) faces the simultaneous challenges of preparing for the season and implementing the reorganization and other provisions of the Post-Katrina Emergency Management Reform Act of 2006. The Ac... | [
"Several federal legislative and executive provisions support preparation for and response to emergency situations. The Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act) primarily establishes the programs and processes for the federal government to provide major disaster and emergen... |
train_10851 | Write a detailed summary of the following government report. | The Department of Defense (DOD) asked Congress for $73.2 billion in fiscal year 2007 for research, development, testing, and evaluation (RDT&E). DOD organized this request using program element (PE) codes, which are designed to convey key information about the budget request. DOD also provides documents called budget e... | [
"Under the DOD Financial Management Regulation (FMR), all major new systems are to be identified with a unique PE code. PE codes have 10 positions. In general, each position conveys information, as seen in figure 1. The first and second positions of the PE code illustrated above define the Major Force Program (MFP)... |
train_10852 | Write a detailed summary of the following government report. | In 2000, as part of a multibillion-dollar courthouse construction initiative, the judiciary requested and the General Services Administration (GSA) proposed building a new courthouse in Los Angeles to increase security, efficiency, and space--but construction never began. About $400 million was appropriated for the L.A... | [
"The judiciary pays rent annually to GSA for court-related space. In fiscal year 2010, the judiciary’s rent payments totaled over $1 billion. The judiciary’s rent payments are deposited into GSA’s Federal Buildings Fund, a revolving fund used to finance GSA’s real property services, including the construction and r... |
train_10853 | Write a detailed summary of the following government report. | GAO reviewed the German health care system, focusing on the: (1) effects of nonnegotiable budgets on health care cost and access to care; and (2) status of some of the structural changes intended to control costs over the longer term. GAO found that: (1) during 1993, the German health care sectors generally succeeded i... | [
"About 90 percent of the German population obtains its health insurance through one of the more than 900 Statutory Health Insurance Funds, usually called sickness funds. Virtually all working Germans with an income below a statutory threshold—Deutsche Mark (DM) 68,400 (about $44,200) in 1994—are required to join on... |
train_10854 | Write a detailed summary of the following government report. | USPS faces significant financial challenges. Parcel Select is a key USPS package shipping product to help address these challenges, with revenues growing from $466 million to over $2.5 billion from fiscal year 2009 through fiscal year 2014. As of April 3, 2015, USPS has executed 13 Parcel Select NSAs—customized contrac... | [
"The package delivery market is growing and changing rapidly. In 2013, U.S. businesses and consumers reportedly spent more than $68 billion to ship packages domestically using the three largest national package delivery providers in the U.S.—United Parcel Service (UPS), Federal Express Corporation (FedEx), and USPS... |
train_10855 | Write a detailed summary of the following government report. | Constrained budgets and increasing energy efficiency goals have led federal agencies to explore innovative ways to fund energy improvements, including ESPCs. An expected increase in the use of ESPCs has raised questions about agencies' ability to ensure that the government's interests are protected. ESPCs can span up t... | [
"Several key laws and an executive order directly relate to federal agencies’ use of ESPCs (see table 1). In addition, in December 2011, the President challenged federal agencies to enter into $2 billion in performance-based contracts, including ESPCs and utility energy service contracts through the President’s Per... |
train_10856 | Write a detailed summary of the following government report. | In enacting the Democratic Republic of the Congo (DRC) Relief, Security, and Democracy Promotion Act of 2006 (the Act), Congress established 15 U.S. policy objectives to address the DRC's humanitarian, development, economic and natural resource, governance, and security issues and mandated that GAO review actions taken... | [
"The DRC’s size, location, and wealth of natural resources contribute to its importance to U.S. interests in the region. With an area of more than 900,000 square miles, the DRC is roughly the size of the United States east of the Mississippi River. Located in the center of Africa, the DRC borders nine nations (see ... |
train_10857 | Write a detailed summary of the following government report. | In response to the recession of 2007, Congress passed the American Recovery and Reinvestment Act of 2009 (Recovery Act). Recovery Act funds provided states with fiscal relief and helped to maintain state Medicaid programs through a temporary increase to the federal share of Medicaid funding-the Federal Medical Assistan... | [
"Although every economic downturn reflects varied economic circumstances at the national level and among states, evaluations of prior federal fiscal assistance strategies have identified considerations to guide policymakers as they consider the design of future legislative responses to national economic downturns. ... |
train_10858 | Write a detailed summary of the following government report. | Asset management firms registered in the United States manage more than $70 trillion. MWO firms manage less than 1 percent of those assets. The federal government has an interest in increasing opportunities for MWO businesses. Questions have been raised about how often federal entities use MWO asset managers and the tr... | [
"Institutional investors include public and private entities that pool funds on behalf of others and invest the funds in securities and other investment assets. Examples of institutional investors include federal, state, and local government, and private retirement plans, endowments, and foundations. In 2015, the e... |
train_10859 | Write a detailed summary of the following government report. | GAO discussed: (1) the Health Care Financing Administration's (HCFA) Medicare Transaction System (MTS) and the recommendations GAO made to correct serious weaknesses in its management identified as part of a GAO review; (2) two continuing HCFA initiatives to combat fraud and abuse; and (3) underlying information techno... | [
"Medicare is a huge program. As the nation’s largest health insurer, it serves some 38 million Americans by providing health insurance to those aged 65 and over and to many of the nation’s disabled. It disburses over $200 billion in health care benefits every year, and by 2000 is expected to be processing 1 billion... |
train_10860 | Write a detailed summary of the following government report. | A growing body of research on both private- and public-sector organizations has found that increased levels of engagement—generally defined as the sense of purpose and commitment employees feel towards their employer and its mission—can lead to better organizational performance. This testimony is based on GAO's ongoing... | [
"Engaged employees are more than simply satisfied with their jobs. Instead, engaged employees are passionate about, and energized by what they do, are committed to the organization, the mission, and their job, and are more likely to put forth extra effort to get the job done. take pride in their work, The Merit Sys... |
train_10861 | Write a detailed summary of the following government report. | USPS has reached its statutory borrowing limit and has projected unsustainable losses. GAO's prior work has stated USPS's financial challenges hinder its ability to make capital investments. GAO was asked to review USPS's capital investment process. This report addresses the extent to which USPS follows leading practic... | [
"USPS’s capital investment process incorporates two main activities: planning and project approval (see table 2). In addition, USPS implemented tollgates in December 2006 to enable IRC awareness, involvement, and decision making for all investments greater than $5 million (see fig. 2). According to USPS, tollgates ... |
train_10862 | Write a detailed summary of the following government report. | Investment advisers provide a wide range of services and collectively manage around $54 trillion in assets for around 24 million clients. Unlike banks and broker-dealers, investment advisers typically do not maintain physical custody of client assets. However, under federal securities regulations, advisers may be deeme... | [
"Investment advisers provide a wide range of investment advisory services and help individuals and institutions make financial decisions. From individuals and families seeking to plan for retirement or save for college to large institutions managing billions of dollars, clients seek the services of investment advis... |
train_10863 | Write a detailed summary of the following government report. | The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 directed the Department of Defense (DOD) to develop, by September 2005, a well-defined business enterprise architecture (BEA) and a transition plan. GAO has made numerous recommendations to assist the department in successfully doing so. As pa... | [
"DOD is a massive and complex organization. In fiscal year 2004, the department reported that its operations involved $1.2 trillion in assets, $1.7 trillion in liabilities, over 3.3 million military and civilian personnel, and over $605 billion in net cost of operations. For fiscal year 2005, the department receive... |
train_10864 | Write a detailed summary of the following government report. | DOD encourages the use of FPI contracts because they allow for equitable sharing of costs savings and risk with the shipbuilder. Under FPI contracts, the shipbuilder's ability to earn a profit or a fee is tied to performance. After costs reach the agreed upon target cost, the shipbuilder's profit decreases in relation ... | [
"Navy ships are complex defense systems, using advanced designs with state-of-the-art weapons, communications, and navigation technologies and requiring many years to plan, budget, design, and build. The Navy uses three primary contract types for shipbuilding programs— firm-fixed-price, FPI, and cost-reimbursement ... |
train_10865 | Write a detailed summary of the following government report. | The nation's commercial nuclear power plants are potential targets for terrorists seeking to cause the release of radioactive material. The Nuclear Regulatory Commission (NRC), an independent agency headed by five commissioners, regulates and oversees security at the plants. In April 2003, in response to the terrorist ... | [
"NRC is an independent agency established by the Energy Reorganization Act of 1974 to regulate the civilian use of nuclear materials. It is headed by a five-member commission, with one commission member designated by the President to serve as chairman and official spokesperson. The commission as a whole formulates ... |
train_10866 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO examined the use of Department of Defense (DOD) management fees provided to the Mitre Corporation, focusing on: (1) the adequacy of federal guidance on how fees may be used; (2) ways to reduce contractor management fees and strengthen DOD management fee oversight; and (3) DOD ef... | [
"FFRDCs are federally sponsored entities—operated by universities, nonprofit institutions, or industrial firms under contract with the federal government—that provide research, development, systems engineering, and analytical services to federal government agencies. In awarding these contracts, the government need ... |
train_10867 | Write a detailed summary of the following government report. | A safe and secure civil aviation system is a critical component of the nation's overall security, physical infrastructure, and economic foundation. Billions of dollars and a myriad of programs and policies have been devoted to achieving such a system. Although it is not fully known at this time what actually occurred o... | [
"Some context for my remarks is appropriate. The threat of terrorism was significant throughout the 1990s; a plot to destroy 12 U.S. airliners was discovered and thwarted in 1995, for instance. Yet the task of providing security to the nation’s aviation system is unquestionably daunting, and we must reluctantly ack... |
train_10868 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO provided information on the implementation of the Anti-Car Theft Act, focusing on the: (1) status of national information systems on motor vehicle titles and stolen passenger cars and parts; (2) marking of major component parts of passenger cars with identification numbers; and ... | [
"According to 1992 congressional testimony, thieves turn stolen cars into money in three ways. The most common way is for a thief to take a car to a “chop shop,” where the car is dismantled and its parts are sold as replacement parts for other vehicles. The second way is for a thief to obtain an apparently valid ti... |
train_10869 | Write a detailed summary of the following government report. | An increase in average life expectancy for individuals in the United States is a positive development, but also requires more planning and saving to support longer retirements. At the same time, as life expectancy has not increased uniformly across all income groups, proposed actions to address the effects of longevity... | [
"Because Americans are, on average, living longer and having fewer children, the average age of the population is rising and that trend is expected to continue. As of 2015, people age 65 and over accounted for 15 percent of the population, but by 2045 they are expected to comprise more than 20 percent of the popula... |
train_10870 | Write a detailed summary of the following government report. | The Pilot Records Improvement Act, enacted on October 9, 1996, responded to seven fatal commercial air carrier accidents that were attributed, in part, to errors by pilots who had been hired without background checks. The act, which took effect on February 6, 1997, requires air carriers, before making final hiring deci... | [
"Between 1987 and 1994, errors by pilots whose backgrounds had not been checked prior to hiring were identified as contributing factors in seven crashes of scheduled carriers involving 111 fatalities. The National Transportation Safety Board (NTSB), which investigated these crashes, found that each of the pilots in... |
train_10871 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) computer security, focusing on whether IRS is effectively: (1) managing computer security; and (2) addressing employee browsing of electronic taxpayer data. GAO noted that: (1) over the last 3 years, GAO has reported on a number of c... | [
"IRS relies on automated information systems to process over 200 million taxpayer returns and collect over $1 trillion in taxes annually. IRS operates 10 facilities throughout the United States to process tax returns and other information supplied by taxpayers. These data are then electronically transmitted to a ce... |
train_10872 | Write a detailed summary of the following government report. | Worldwide, about 165 research reactors use highly enriched uranium (HEU) fuel. Because HEU can also be used in nuclear weapons, the National Nuclear Security Administration (NNSA) established the Global Research Reactor Security (GRRS) program to make security upgrades at foreign research reactors whose security did no... | [
"To address our objectives, we reviewed relevant NNSA and IAEA policy, guidelines, and planning documents. For NNSA, we examined its Protection and Sustainability Criteria Document, which describes the DBT—the baseline threat for which security measures should be developed at research reactors in the GRRS program. ... |
train_10873 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) 1996 Intratheater Lift Analysis (ILA), focusing on whether: (1) the analysis and recommendations in the study were appropriately linked; (2) the study considered all options in meeting the requirements for various lift assets; and (3) i... | [
"In the National Defense Authorization Act for Fiscal Year 1991, Congress directed the Department of Defense (DOD) to determine intertheater (from one theater of operations to another) and intratheater (within a theater of operations) mobility requirements for the armed forces and develop an integrated plan to meet... |
train_10874 | Write a detailed summary of the following government report. | The Federal Aviation Administration's (FAA) mission is to promote the safe, orderly, and expeditious flow of air traffic in the U.S. airspace system. To this end, FAA is modernizing its air traffic control systems, a multibillion dollar effort that GAO has designated as a high-risk program. GAO's research into the prac... | [
"FAA’s primary mission is to provide a safe, secure, and efficient global airspace system that promotes airspace safety in the United States and contributes to national security. The agency’s roles include regulating civil aviation, developing and operating a system of air traffic control and navigation for civil a... |
train_10875 | Write a detailed summary of the following government report. | Labor negotiations in the airline industry fall under the Railway Labor Act. Under this act, airline labor contracts do not expire, but instead, become amendable. To help labor and management reach agreement before a strike occurs, the act also provides a process--including possible intervention by the President--that ... | [
"All the major airlines have some union representation of at least part of their labor force. The various crafts or classes that unions typically represent include pilots, flight attendants, mechanics, and dispatchers. Sometimes unions also represent customer service agents and clerical workers, aircraft and baggag... |
train_10876 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reported on employer-provided educational assistance between 1992 and 1994 under section 127 of the Internal Revenue Code (IRC), focusing on: (1) the characteristics of employers providing educational assistance, such as the number of providers and their size; (2) employees elig... | [
"Employer-provided educational assistance refers to educational expenses, such as courses, tuition, and books, that are paid for either directly by the employer or indirectly through reimbursement to employees. Under section 127 of the IRC, the amount for educational assistance that employees receive from their emp... |
train_10877 | Write a detailed summary of the following government report. | The gradual retreat of polar sea ice, combined with an expected increase in human activityshipping traffic, oil and gas exploration, and tourism in the Arctic regioncould eventually increase the need for a U.S. military and homeland security presence in the Arctic. As a result, the Department of Defense (DOD) must ... | [
"Scientific research and projections of the changes taking place in the Arctic vary, but there is a general consensus that Arctic sea ice is diminishing. As recently as September 2011, scientists at the U.S. National Snow and Ice Data Center reported that the annual Arctic minimum sea ice extent for 2011 was the se... |
train_10878 | Write a detailed summary of the following government report. | More than a decade after the 1991 Persian Gulf War, there is continued interest in the federal response to the health concerns of Gulf War veterans. Gulf War veterans' reports of illnesses and possible exposures to various health hazards have prompted numerous federal research projects on Gulf War illnesses. This resea... | [
"Although about 700,000 U.S. military personnel were deployed to the Gulf War in the early 1990s, casualties were relatively light compared with those in previous major conflicts. Some veterans began reporting health problems shortly after the war that they believed might be due to their participation in the confli... |
train_10879 | Write a detailed summary of the following government report. | Military training ranges are important national assets and play a critical role in preparing military forces for their wartime mission. The Department of Defense (DOD) has reported for years that it faces increasing difficulties in carrying out realistic training at its ranges due to various constraints. While encroach... | [
"DOD’s ranges are used primarily to test weapon systems and train military forces; some ranges are used for both testing and training purposes, while others are limited to one use or the other. These ranges represent important national assets for the development and sustainment of U.S. military forces. This report ... |
train_10880 | Write a detailed summary of the following government report. | Congress created the State Children's Health Insurance Program (SCHIP) to reduce the number of uninsured children in low-income families that do not qualify for Medicaid. States have flexibility in structuring their SCHIP programs, and their income eligibility limits vary. Concerns have been raised that individuals mig... | [
"SCHIP is a federal-state program that, in general, allows states to provide health insurance to children in families with incomes of up to 200 percent of FPL, or 50 percentage points above states’ Medicaid eligibility limits that were in place as of March 31, 1997. States submit plans for their use of SCHIP funds ... |
train_10881 | Write a detailed summary of the following government report. | Elder financial exploitation is the illegal or improper use of an older adult's funds or property. It has been described as an epidemic with society-wide repercussions. While combating elder financial exploitation is largely the responsibility of state and local social service, criminal justice, and consumer protection... | [
"Elder financial exploitation, one type of elder abuse, can occur in conjunction with, and might lead to other types of elder abuse.exploitation of older adults can take many forms and perpetrators can include family members, friends, legal guardians, paid caregivers, and strangers. Table 1 provides some examples. ... |
train_10882 | Write a detailed summary of the following government report. | After the terrorist attacks of September 11, 2001, insurance coverage for terrorism largely disappeared. Congress passed the Terrorism Risk Insurance Act (TRIA) in 2002 to help commercial property-casualty policyholders obtain terrorism insurance and give the insurance industry time to develop mechanisms to provide suc... | [
"Under TRIA, Treasury is responsible for reimbursing insurers for a portion of terrorism losses under certain conditions. Payments are triggered when (1) the Secretary of the Treasury certifies that terrorists acting on behalf of foreign interests have carried out an act of terrorism and (2) aggregate insured losse... |
train_10883 | Write a detailed summary of the following government report. | The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) significantly reformed contracting for the administration of claims for Part A, Medicare's hospital insurance, and Part B, which covers outpatient services such as physicians' care. The MMA required the Centers for Medicare & Medicaid Serv... | [
"Federal agencies are generally permitted to contract with any qualified entity for any authorized purpose so long as that entity is not prohibited from receiving government contracts and the contract is not for an inherently governmental function. Agencies are required to use contractors that have a satisfactory r... |
train_10884 | Write a detailed summary of the following government report. | Pursuant to a congressional request, GAO reviewed the revised federal employment tax deposit regulations issued by the Department of the Treasury and the Internal Revenue Service (IRS) on September 24, 1992, focusing on: (1) whether the Treasury and IRS developed the regulations by applying principles from the IRS Comp... | [
"We previously identified problems with the federal employment tax deposit system. In fiscal year 1988, IRS collected employment tax deposits totaling $627 billion from approximately 5 million employers. About one-third of these employers were penalized a total of $2.6 billion for not making timely deposits. In add... |
train_10885 | Write a detailed summary of the following government report. | As the nation's largest energy consumer, the federal government spent about $7 billion in fiscal year 2014 to provide energy to over 275,000 federally owned or leased buildings. Federal law and policies for improving sustainability across the federal government include “green building” provisions—construction and maint... | [
"Federal policy aimed at promoting sustainability in federal facilities sets goals for reducing greenhouse gas emissions and implementing key green building requirements, among other areas. Green building goals established by executive order in 2009 built on previous efforts to establish federal green building poli... |
train_10886 | Write a detailed summary of the following government report. | In January 2004, the Office of the Comptroller of the Currency (OCC)--the federal regulator of national banks--issued rules concerning the extent to which federal law preempts state and local banking laws. Some state officials and consumer groups expressed concerns about a perceived loss of consumer protection. GAO ide... | [
"OCC’s mission focuses on the chartering and oversight of national banks to ensure their safety and soundness, on fair access to financial services, and on fair treatment of bank customers. As of March 2005, the assets of the banks that OCC supervises accounted for approximately 67 percent— about $5.8 trillion—of a... |
train_10887 | Write a detailed summary of the following government report. | Since fiscal year 2006, Congress has annually prohibited the use of federal funds to inspect horses destined for food, effectively prohibiting domestic slaughter. The U.S. Department of Agriculture (USDA) is responsible for overseeing the welfare of horses transported for slaughter. Congress directed GAO to examine hor... | [
"The Federal Agriculture Improvement and Reform Act of 1996 (1996 Farm Bill) authorized USDA to issue guidelines for the regulation of the commercial transportation of horses and other equines for slaughter by persons regularly engaged in that activity within the United States. The statute gives USDA authority to r... |
train_10888 | Write a detailed summary of the following government report. | As of October 2010, the Office of the Director of National Intelligence reported that 3.9 million federal employees (military and civilians) and contractors hold security clearances. DOD comprises the vast majority of government security clearances. Longstanding backlogs and delays in the security clearance process led... | [
"Since we identified DOD’s Personnel Security Clearance program as a high-risk area, DOD, in conjunction with Congress and other executive agency leadership, took actions that resulted in significant progress toward resolving problems we identified with the security clearance program. In 2011, we removed DOD’s pers... |
train_10889 | Write a detailed summary of the following government report. | Many Americans spend frustrating hours each year stuck in traffic. While estimates vary, the Department of Transportation (DOT) estimates that traffic congestion costs the United States $200 billion each year, and that more than one-quarter of total annual travel time in metropolitan areas occurs in congested condition... | [
"Traffic congestion is caused by more vehicles on a road than it is designed to accommodate, and it can be exacerbated by several factors. For example, bottlenecks at highway interchanges or on bridges and tunnels can worsen congestion. Vehicles traveling at different speeds can increase the average amount of space... |
train_10890 | Write a detailed summary of the following government report. | The Fair and Accurate Credit Transactions (FACT) Act of 2003 which amended the Fair Credit Reporting Act (FCRA), contains provisions intended to help consumers remedy the effects of identity theft. For example, section 609(e) of the amended FCRA gives identity theft victims the right to obtain records of fraudulent bus... | [
"The Identity Theft and Assumption Deterrence Act of 1998 made identity theft a federal crime. Although FTC does not have the authority to bring criminal cases, the act established FTC as the federal clearinghouse for identity theft complaints. FTC is required to keep a log of such complaints and to notify consumer... |
train_10891 | Write a detailed summary of the following government report. | Breast cancer is the second leading cause of cancer deaths among American women. In 2001, 192,200 new cases of breast cancer were diagnosed and 40,200 women died from the disease. The probability of survival increases significantly, however, when breast cancer is discovered in its early stages. Currently, the most effe... | [
"Research studies, including eight large randomized clinical trials with 11- 20 years of followup, indicated that widespread use of mammography could reduce breast cancer mortality. The benefit of mammography has recently been challenged by two Danish researchers and an NCI advisory panel made up of independent exp... |
train_10892 | Write a detailed summary of the following government report. | The Department of Labor's Office of Workers' Compensation Programs (OWCP) paid $2.1 billion in medical and death benefits and received about 174,000 new injury claims during fiscal year 2000. GAO found that (1) one in four appealed claims' decisions are reversed or remanded to OWCP district offices for additional consi... | [
"FECA (5 USC 8101, et seq.) authorizes federal civilian employees compensation for wage loss and medical and death benefits for treatment of injuries sustained or for diseases contracted during the performance of duty. OWCP is responsible for administering and adjudicating the federal workers’ compensation program.... |
train_10893 | Write a detailed summary of the following government report. | For decades, the Navy has been striving to improve its ability to detect potential enemy submarines before they can get within effective weapons range of U.S. forces. In 1985, the Navy established the Surveillance Towed Array Sensor System (SURTASS) Low Frequency Active (LFA) sonar program to develop a long-range capab... | [
"The primary goal of antisubmarine warfare is to protect U.S. ships and assets from enemy submarines. Undersea surveillance and detection of submarines are a critical part of this mission. During the Cold War, the Navy relied on a combination of fixed, mobile, passive, and active sonar systems to detect enemy nucle... |
train_10894 | Write a detailed summary of the following government report. | Missing among the Department of Defense's (DOD) portfolio of systems is a capability to track stationary and moving enemy vehicles on land or at sea in any type of weather, day or night, from space. To meet this need, DOD and the intelligence community are collaborating on the ambitious Space-Based Radar (SBR) program.... | [
"To assess DOD’s progress in attaining the knowledge it needs before the start of product development, we examined the resources (technology, communications infrastructure, and funding) committed and planned for the program as well as the users’ needs for an SBR system. We considered DOD’s plans for maturing the cr... |
train_10895 | Write a detailed summary of the following government report. | This testinony discusses the Department of Veterans Affairs (VA) pension program, which provides economic benefits to wartime veterans age 65 and older or who have disabilities that are unrelated to their military service, as well as to their surviving spouses and dependent children. To qualify for VA pension benefits... | [
"In fiscal year 2011, VA provided about $ 4.3 billion in pension benefits for about 517,000 recipients. These benefits are available to low-income wartime veterans who are 65 and older, or who are under age 65 but are permanently and totally disabled due to conditions unrelated to their military service. Surviving ... |
train_10896 | Write a detailed summary of the following government report. | The Department of Defense (DOD) budgets billions of dollars each year to purchase and repair the spare parts needed to maintain its weapons systems and support equipment. The quality of the spare parts can greatly determine if the Department's investment of funds is effective, efficient, and economical. This report exa... | [
"The Department budgets billions of dollars each year to purchase and repair spare parts and has established various programs to help ensure product quality throughout the acquisition and repair processes. According to Navy and Defense Logistics Agency quality assurance officials, although it is normal in manufactu... |
train_10897 | Write a detailed summary of the following government report. | Delays in processing federal equal employment opportunity (EEO) complaints, apparent or perceived lack of fairness and impartiality in complaint processing, and fear of retaliation in the workplace have been long-standing concerns of the Equal Employment Opportunity Commission (EEOC), other federal agencies, and Congre... | [
"The federal EEO complaint process consists of two stages, informal, or precomplaint counseling, and formal. Appendix II contains information on EEO laws applicable to federal employees. Under existing regulations, before filing a complaint, an employee must consult an EEO counselor at the agency in order to try to... |
train_10898 | Write a detailed summary of the following government report. | Pursuant to congressional requests, GAO reviewed bank and thrift sales of mutual funds, focusing on: (1) the extent and nature of bank and thrift mutual fund sales activities; (2) banks' and thrifts' disclosure of their mutual fund sales practices; and (3) the regulatory framework for overseeing bank and thrift mutual ... | [
"The mutual fund industry’s growth in the last decade has been phenomenal. At the end of 1984, mutual funds managed assets totaling about $371 billion. By 1990 managed assets had grown to over $1 trillion, and by December 1994 this figure had doubled to about $2.2 trillion, second only to the $2.4 trillion in total... |
train_10899 | Write a detailed summary of the following government report. | The Passenger Rail Investment and Improvement Act of 2008 (PRIIA) expanded FRA's role by, among other things, authorizing grant programs for intercity passenger rail. Section 305 of PRIIA established a Next Generation Equipment Committee to design, develop specifications, and procure standardized rail equipment. FRA aw... | [
"FRA is the primary federal agency responsible for issuing and enforcing railroad safety regulations and for distributing federal funds for intercity passenger rail service. PRIIA mandated new responsibilities for FRA to plan, award, and oversee the use of federal funds for intercity passenger rail. The American Re... |
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