GAO Updateby Jeanette Franzel and Maxine Hattery**GAO Adds Three Issues, Drops One, on 2009 “High-Risk” List GAO’s update of its list of federal programs, policies, and operations that are at “high risk” for waste, fraud, abuse, and mismanagement or are in need of broad-based transformation was released in January. Acting Comptroller General Gene L. Dodaro announced the addition of three new areas to the list: regulatory system governing U.S. financial institutions and markets, the Food and Drug Administration’s (FDA) oversight of medical products, and the Environmental Protection Agency’s (EPA) assessment and control of toxic chemicals. “The three areas added to this year’s High-Risk List are all vital to the public’s well being,” Dodaro said in announcing the new release at a bipartisan briefing on Capitol Hill with leaders of the Senate Homeland Security and Governmental Affairs Committee and the House Oversight and Government Reform Committee. At the same time, Dodaro said, enough progress had been made to remove one item from the list: the Federal Aviation Administration’s air traffic control modernization. The list is updated every 2 years and released at the start of each new Congress to help in setting oversight agendas. There are now 30 programs and operations on the High-Risk List. There were 14 areas on the list when the program was started in 1990. Since then, there have been 37 additions, 19 removals (eight of which were among the original 14), and 2 areas that were consolidated. The Department of Defense continues to dominate the High-Risk List. “The military’s lack of progress is of growing concern to GAO,” Dodaro said. “DOD owns eight areas on the High-Risk List outright, and it shares government-wide responsibility for an additional seven areas.” Of the three additions, the financial regulatory system is no surprise. GAO confirms that the financial crisis has revealed major weaknesses in the system, which failed to keep pace with such market trends as the emergence of large, interconnected financial conglomerates, and the development of new, complex investment products. Regarding the second addition to the High-Risk List, GAO states that the FDA needs to improve the data it uses to manage the foreign drug inspection program, do more inspections of foreign drug manufacturing, more systemically review advertising and promotional claims, and ensure that drug sponsors accurately report clinical trial results. Finally, controlling toxic chemicals is the issue that puts the EPA on the list. Its Integrated Risk Information System, which contains assessments of more than 500 toxic chemicals, is at serious risk of becoming obsolete, because the EPA has been unable to keep its existing assessments current or to complete assessments of important chemicals of concern. GAO is removing the FAA’s air traffic control modernization program from its 2009 list because of FAA’s progress in addressing most of the root causes of its past problems and the agency’s commitment to sustaining progress. In announcing the release of the 2009 update of the High-Risk List, Dodaro also noted that progress had been made—though not yet enough to remove the high-risk designation—in many of the areas remaining on the list. High-Risk Series: An Update, January 2009, GAO-09-271, is available online at http://www.gao.gov/docsearch/featured/highrisk.html. GAO’s Oversight of the Financial Crisis Under the Emergency Economic Stabilization Act, which was signed into law on October 3, 2008, GAO is responsible for reporting to Congress every 60 days on its monitoring of the Troubled Asset Relief Program (TARP), including
On December 2, 2008, GAO issued its first 60-day report on the TARP. Focusing on transactions, infrastructure, the system of control, contracting, and performance indicators, GAO found that the Department of the Treasury had yet to address a number of critical issues, including those involving the Capital Purchase Program (CPP)—a preferred stock and warrant purchase program through which Treasury provided more than $150 billion to 52 institutions as of November 25, 2008. GAO found that Treasury had yet to address how it will ensure that CPP is achieving its goals and monitoring compliance with limitations on executive compensation and dividend payments. As a result of its study and to help ensure the integrity, accountability, and transparency of CPP, GAO recommended improvements in reporting and communication, hiring and staffing, internal control, preventing conflicts of interest, and ensuring that participating institutions comply with key program requirements. On January 30, 2009, GAO issued its second 60-day report on the TARP. As of January 23, 2009, Treasury had disbursed about $293.7 billion of the $700 billion in program funds. Most of the funds (about $194.2 billion) went to purchase preferred shares of 317 financial institutions under CPP. In response to GAO’s recommendations in the first report, Treasury developed plans to survey the largest 20 institutions monthly to monitor lending and other activities and to analyze quarterly monitoring data (call reports) for all institutions. GAO called the monthly survey “a step toward greater transparency and accountability for the largest institutions,” but said additional action is needed to better ensure accountability for all participating institutions. Treasury has not yet finalized its plans for developing a system for detecting noncompliance with key requirements of the program. It has made limited progress in communicating an overall strategy for TARP—continuing to respond to institution- and industry-specific needs—and has not yet developed a strategic approach to explain how its various programs work together to fulfill TARP’s purposes or how it will use the remaining funds. GAO also reported—while recognizing the need for swift responses—that the lack of a clearly articulated vision has complicated Treasury’s ability to effectively communicate to Congress, the financial markets, and the public on the benefits of TARP and has limited its ability to identify personnel needs. Treasury has also taken steps to address GAO’s recommendations in hiring, conflicts of interest, and contracting oversight. In addition, it has adopted a framework for organizing the development and implementation of its system of internal control for TARP activities and plans to use the framework to develop specific standards and policies, drive communications on expectations, and measure effectiveness of internal control policies and procedures. However, GAO believes that it is too early to see measurable results in many areas, and it will remain difficult to separate the impact of TARP activities from the effect of other economic forces. GAO also has a large portfolio of oversight work that extends beyond TARP, including issues involving derivatives, credit default swaps, and federal government loans to the automakers. GAO is also responsible for auditing the annual financial statements of the Office of Financial Stability, which was established within the Treasury to implement TARP, and for issuing special reports on any issues that emerge. On January 8, 2009, GAO issued a report on the financial regulatory system that lays out options for revamping the regulatory system. According to GAO Director Orice Williams, the report does not make proposal on what the framework should be, but rather suggests what to consider in structuring the framework or crafting a structure proposal. Financial Regulation: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System, January 8, 2009, GAO-09-216. Federal Government Consolidated Audit and TARP For the 12th year in a row, GAO was prevented from expressing an opinion on the consolidated financial statements of the U.S. government—other than the Statement of Social Insurance—because of numerous material internal control weaknesses and other limitations. “While significant progress has been made in improving financial management since the federal government began preparing consolidated financial statements 12 years ago” Acting Comptroller General Gene L. Dodaro said in commenting on the release of the audit report, “three major impediments have continued to prevent us from rendering an opinion on the accrual basis consolidated financial statements over this period of time.” The impediments are: serious financial management problems at the Department of Defense, the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and the federal government’s ineffective process for preparing the consolidated financial statements. Dodaro also called attention to three additional material weaknesses related to improper payments, information security, and tax collection activities and three major federal departments and agencies that did not get clean opinions: the Department of Defense, the Department of Homeland Security, and the National Aeronautics and Space Administration. The next consolidated audit is expected to feel the effects of TARP. Dodaro told members at a recent advisory council meeting, “We need to lay the ground work in our 60-day [TARP] reports to build up to the financial audit report.” As part of the 60-day report, GAO is directed to report on internal control and compliance with applicable laws and regulations, and certain areas will feed into the consolidated financial audit, such as valuation, identifying the TARP reporting entity, and compliance controls. “From the financial audit perspective,” GAO Director Gary Engel said, “we will be looking at this area in coordination with our reporting efforts.” GAO’s audit report is included in the Financial Report of the United States Government, which also includes financial information from the 24 major federal departments and agencies and is issued by the Treasury Department. The Financial Report of the United States Government is available on GAO’s Web site at http://www.gao.gov/financial/fy2008financialreport.html. 2008 PAR and Citizens’ Report The PAR reports on GAO’s work and results in fulfilling its mission, which GAO has defined in four broad strategic goals: helping to address challenges to the well being and economic security of the American people; U.S. national and homeland security efforts; modernizing government to meet current and emerging issues; and an internal goal, enhancing GAO's business and administrative processes through investments in human capital, financial management, information technology, and processes and systems needed to support the agency and Congress. The bottom line on GAO’s accomplishments as presented in the Citizen’s Report: GAO met or exceeded all mission-related targets by, for example, identifying $58.1 billion in financial benefits—a return of $114 for every dollar GAO spent—and nearly 1,400 improvements in government programs and operations. The rate at which GAO's recommendations were implemented by federal agencies or the Congress rose to 83 percent. GAO testified at more than 300 hearings before Congress—the second highest performance in over 25 years. Topics on which GAO testified include progress in U.S. counterterrorism measures and efforts in the Middle East and South Central Asia; the need for stronger regulation over financial institutions; and federal programs and areas considered at high risk for fraud, waste, abuse, and mismanagement. The citizens’ report has been posted on GAO’s web site. Citizens’ Report: Fiscal Year 2008 Summary of GAO’s Performance and Financial Results, January 15, 2009, GAO-09-2SP. U.S. Government Accountability Office: Performance and Accountability Report Fiscal Year 2008, November 14, 2008, GAO-09-1SP. **Jeanette Franzel, Director, Financial Management and Assurance; |