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GAO Issues Report: Community Development Financial Institutions - Analysis of Annual and Emergency Assistance and Treasury Efforts to Address Program Risks
WASHINGTON, Jan. 21 -- The Government Accountability Office has issued a report (GAO-23-105952) entitled "Community Development Financial Institutions - Analysis of Annual and Emergency Assistance and Treasury Efforts to Address Program Risks."Here are excerpts of summaries associated with the report.
What GAO Found: "Community development financial institutions (CDFI) and minority depository institutions (MDI) provide financial services to underserved communities. The Department of the Treasury assists eligible institutions through annual CDFI Program awards. Treasury received additional funds ... Show Full Article WASHINGTON, Jan. 21 -- The Government Accountability Office has issued a report (GAO-23-105952) entitled "Community Development Financial Institutions - Analysis of Annual and Emergency Assistance and Treasury Efforts to Address Program Risks." Here are excerpts of summaries associated with the report. What GAO Found: "Community development financial institutions (CDFI) and minority depository institutions (MDI) provide financial services to underserved communities. The Department of the Treasury assists eligible institutions through annual CDFI Program awards. Treasury received additional fundsin 2021 for three COVID-19-related assistance programs--Rapid Response Program, Emergency Capital Investment Program, and Equitable Recovery Program (see table). GAO found that awards for the first two of these programs were larger than typical CDFI Program awards, which had a median of $400,000 in fiscal year 2021.
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Table: Status of Awards from Treasury's Emergency Assistance Programs for Community Development Financial Institutions and Minority Depository Institutions
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GAO's analysis of CDFI Program and Rapid Response Program data found that recipients have used awards mainly to provide financial products and to increase reserves. Financial products provided by CDFI Program recipients in fiscal years 2016-2020 mainly funded home purchases, businesses, and microenterprises.
Treasury took steps to address potential risks to program integrity created by aspects of the emergency programs. For example:
* Risk-based application reviews. Treasury allowed higher-risk institutions to be eligible for the Rapid Response Program and the Equitable Recovery Program to be inclusive of institutions from more communities (e.g., those with low levels of bank deposits). To address potential risks, Treasury's process called for additional reviews of such applicants.
* Ability-to-pay requirement. The Emergency Capital Investment Program requires recipients to pay Treasury dividends or interest in exchange for a capital investment. To help ensure recipients can pay the amounts due, Treasury required institutions to have at least a 1-to-1 ratio of net income to the dividend or interest amount to be eligible for an investment.
Treasury is also developing a risk-based process for reviewing Rapid Response Program and Equitable Recovery Program recipients and is finalizing policies for post-award reporting and award monitoring for the Emergency Capital Investment Program. These efforts are intended to monitor whether the funds are being used as intended."
Why GAO Did This Study: "Access to credit and capital is vital to economic development but is limited in many low- and moderate-income communities underserved by traditional financial institutions. The economic effects of the COVID-19 pandemic have further stressed these communities, which often rely on CDFIs and MDIs--generally smaller, community-based organizations--for financial products and services.
The Consolidated Appropriations Act, 2021, appropriated $188 million to Treasury's existing CDFI Program and supplemental programs. It also appropriated $12 billion in emergency assistance for three new Treasury programs designed to help CDFIs and MDIs respond to the impacts of COVID-19, most of which has been awarded. Two of the new programs required Treasury to award funds expeditiously.
GAO was asked to assess Treasury's distribution of funds, efforts to ensure program integrity, and the use of Treasury's funding. This report examines (1) the types of institutions that received funds from the CDFI Program or the 2021 emergency programs and how much they received, (2) how recipients have used CDFI Program and Rapid Response Program funds, and (3) steps Treasury took to address risks posed by the emergency programs.
To conduct this work, GAO analyzed Treasury data, reviewed Treasury policies and procedures, and interviewed Treasury officials."
The report was sent to Sen. Pat Toomey, R-Pennsylvania, ranking member of the Senate Banking, Housing, and Urban Affairs Committee, on Jan. 20, 2023.
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December 21, 2022
To: The Honorable Pat Toomey, Ranking Member, Committee on Banking, Housing, and Urban Affairs, United States Senate
Dear Mr. Toomey:
Access to credit and capital is vital to economic development but is limited in many low- and moderate-income communities underserved by traditional financial institutions. These communities often rely on community development financial institutions (CDFI) and minority depository institutions (MDI) for financial products and services. CDFIs include community development banks, credit unions, and nonregulated institutions such as loan and venture capital funds. They are certified by the Department of the Treasury and have a primary mission of promoting community development. MDIs are generally regulated banks or credit unions primarily owned by one or more minority individuals, or institutions that serve a predominantly minority community and whose board of directors and account holders are comprised primarily of minorities./1
The communities CDFIs and MDIs serve were further stressed by the economic effects of the COVID-19 pandemic. In response, Congress enacted provisions in the Consolidated Appropriations Act, 2021, that provide assistance to CDFIs and MDIs. The act appropriated $188 million to Treasury's existing CDFI Program (and supplemental programs) and $12 billion in emergency assistance for three new Treasury programs designed to help CDFIs and MDIs respond to the impacts of COVID-19./2 The CDFI Program, which receives annual appropriations, was created in 1994 and offers competitive financial and technical assistance awards to qualified CDFIs to support and enhance their ability to meet community needs./3 The three emergency programs are the Rapid Response Program (RRP), Equitable Recovery Program (ERP), and Emergency Capital Investment Program (ECIP)./4 RRP and ECIP required Treasury to make grants to or capital investments in CDFIs and MDIs on an expedited basis.
You asked us to examine Treasury's distribution of funds to CDFIs and MDIs--including steps to ensure emergency program integrity--and to evaluate the use and impact of program awards. This report examines (1) the types of institutions that received funds from the CDFI Program or the 2021 emergency programs and how much they received, (2) how recipients have used CDFI Program and RRP funds, and (3) steps Treasury took to address risks posed by the emergency programs.
Additionally, appendix I discusses the extent of and findings from research on the economic impact of the CDFI Program and emergency programs, and it presents demographic and socioeconomic analysis of CDFI Program recipients and project locations.
For objective 1, we analyzed Treasury data on awards and award recipients under the CDFI Program (for fiscal years 2019-2021), RRP, and ECIP./5 For the CDFI Program, we began with fiscal year 2019 data because certain earlier data were unreliable for the analysis we performed. For objective 2, we analyzed data that CDFI Program recipients reported to Treasury from fiscal year 2016 through June 30, 2022, and data that RRP recipients reported from the program's inception through June 30, 2022, on the general categories of activities they funded with their awards. Additionally, for the CDFI Program, we analyzed Treasury data on all of the loans and investments recipients made in fiscal years 2016-2020, regardless of funding source. To assess the reliability of Treasury's data, we reviewed Treasury documentation and conducted electronic testing, including checks for outliers, missing data fields, and erroneous values. We determined these data were sufficiently reliable for purposes of characterizing program recipients, award amounts, and uses of funds.
For objective 3, we reviewed Treasury's policies and procedures for the emergency programs. We identified potential program risks by examining program eligibility and targeting requirements, recipient selection processes, and post-award financial terms and reporting requirements. We also compared the policies and procedures for the emergency programs to those for the CDFI Program to identify streamlined processes that could introduce risks to program integrity. We reviewed agency documentation and interviewed Treasury officials to determine whether and how Treasury addressed the risks we identified. Additionally, we reviewed documentation describing Treasury mechanisms to help prevent fraud, waste, and abuse in the emergency programs. Because the emergency programs were in the early stages of implementation, we did not evaluate the extent to which Treasury's approach aligned with leading practices for fraud risk management. We also reviewed information on Treasury's assessment of improper payment risks. Finally, we reviewed Treasury Office of Inspector General (OIG) reports on the emergency programs and Treasury documentation of steps taken to address OIG recommendations. Appendix II describes our scope and methodology in greater detail.
We conducted this performance audit from March 2022 to December 2022 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.
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Agency Comments
We provided a draft of this report to the Department of the Treasury for review and comment. Treasury provided technical comments, which we incorporated as appropriate.
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Table, footnotes and the full text of the GAO report are posted at: https://www.gao.gov/assets/gao-23-105952.pdf
GAO Issues Report: Veterans Benefits - VA Could Enhance Outreach for Its Solid Start Program by Increasing Collaboration With Veterans Organizations
WASHINGTON, Jan. 21 -- The Government Accountability Office has issued a report (GAO-23-105699) entitled "Veterans Benefits - VA Could Enhance Outreach for Its Solid Start Program by Increasing Collaboration with Veterans Organizations."Here are excerpts of summaries associated with the report.
What GAO Found: "The Department of Veterans Affairs (VA) has implemented Solid Start--an outreach program to help support the well-being of new veterans--by proactively phoning all eligible veterans three times during their first year after separation. During phone calls, Solid Start representatives inform ... Show Full Article WASHINGTON, Jan. 21 -- The Government Accountability Office has issued a report (GAO-23-105699) entitled "Veterans Benefits - VA Could Enhance Outreach for Its Solid Start Program by Increasing Collaboration with Veterans Organizations." Here are excerpts of summaries associated with the report. What GAO Found: "The Department of Veterans Affairs (VA) has implemented Solid Start--an outreach program to help support the well-being of new veterans--by proactively phoning all eligible veterans three times during their first year after separation. During phone calls, Solid Start representatives informveterans of specific VA benefits based on their needs and interests, such as education and employment counseling. Once representatives speak with the veteran, they follow up with a personalized email with more information (see figure).
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Figure: Examples of Supports for New Veterans, Including Solid Start Communication Milestones
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Note: The Transition Assistance Program, with limited exceptions, is a mandatory program that helps separating service members prepare for their transition to civilian life. For the Solid Start program, if VA Solid Start representatives speak with a veteran, they send a personalized follow-up email. General informational emails are also sent throughout the year of eligibility. VA continues to offer benefits and resources to veterans after the first year of separation. Veterans organizations are non-governmental organizations that assist veterans with a range of services.
VA monitors Solid Start's performance by tracking the percentage of answered calls and analyzing whether veterans who were successfully contacted used a greater number of benefits than those who were not contacted. In 2021, representatives successfully contacted about 71 percent of eligible veterans. VA's analysis showed these veterans used benefits, such as VA health care, to a greater extent than their peers who did not speak with a Solid Start representative. Solid Start had less success in reaching veterans under age 23.
All seven veterans organizations GAO spoke with identified outreach challenges in two areas: (1) communication tools, such as cold calls; and (2) building relationships with veterans who may hesitate to speak with Solid Start representatives. VA is addressing some of these challenges, such as by text messaging for younger veterans. Although veterans organizations are well positioned to connect with hard-to-reach veterans, VA has not collaborated with these organizations to identify or address any additional gaps, such as outreach to veterans experiencing homelessness, struggling to use technology, or those hesitant to speak to VA directly. VA's Strategic Plan calls for VA to collaborate with groups such as veterans organizations to identify gaps in service and build partnerships to leverage shared resources. VA may be better able to connect with hard-to-reach veterans by further collaborating with veterans organizations."
Why GAO Did This Study: "Many new veterans face significant difficulties reintegrating into civilian life during their first year of separation from service. Younger veterans, the population that includes more veterans who recently transitioned, experience higher rates of suicide than other veterans, according to VA. VA's Solid Start program was launched in 2019 to help connect new veterans to their benefits and other available supports.
GAO was asked to review VA's Solid Start program. This report examines (1) how VA implemented and monitors the Solid Start program, and (2) any outreach challenges for Solid Start and how VA addressed them. GAO reviewed relevant VA documentation on program implementation, monitoring, participation metrics, and evaluation plans and interviewed VA officials. GAO also interviewed officials from seven veterans organizations to obtain their perspective on any Solid Start outreach challenges. Veterans organizations were selected for diversity in number and types of constituents served, and based on the organizations' previous engagement with the Solid Start program."
What GAO Recommends: "GAO is making one recommendation to VA, to further collaborate with veterans organizations in identifying and addressing outreach gaps, and assessing Solid Start outreach strategies for hard-to-reach groups of veterans. VA agreed with the recommendation."
The report was sent to Sen. Kevin Cramer, R-North Dakota, Sen. Maggie Hassan, D-New Hampshire, Rep. Jack Bergman, R-Michigan, Rep. David Joyce, R-Ohio, and Rep. Elissa Slotkin, D-Michigan, on Jan. 19, 2023.
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January 5, 2023
To: Congressional Requesters
Veterans in their first year of separation from uniformed service experience suicide rates approximately twice the overall rate for all veterans, according to Executive Order 13822, which established a policy to support the health and well-being of service members and veterans./1 To help implement the policy and connect new veterans to their benefits, the Executive Order also directed several agencies to create a joint action plan to improve access to mental health care and suicide prevention resources during the first year after leaving the military. As a result, the Department of Veterans Affairs (VA) launched the Solid Start program in 2019 to proactively connect new veterans with resources and benefits, including mental health and other medical care, employment assistance, and education assistance./2 To be eligible for Solid Start, individuals must be former service members who have separated from full-time active duty./3 Service members from all branches of service are eligible for Solid Start for 365 days after their separation from active duty./4
You asked us to examine the Solid Start program. This report examines (1) how VA has implemented and monitors Solid Start, and (2) any Solid Start outreach challenges and how VA has addressed them.
For our first objective, we reviewed relevant agency documents to describe program operations and monitoring tools for the Solid Start program, such as annual reports, and outreach materials. We reviewed VA's data on the percentage of veterans who answered Solid Start phone calls for veterans who left the service on or after October 18, 2019, when eligibility for Solid Start began, through August 2022. We reviewed VA's analysis, which compared the number of benefits used by successfully contacted veterans, with the number of benefits used by veterans who did not answer any Solid Start calls. We also reviewed VA's analysis of successful contact data disaggregated by age, gender, and branch of service./5 We assessed the reliability of the data by reviewing existing information about the data and the system that produced them, and interviewing agency officials knowledgeable about the data. We determined that these data were sufficiently reliable for the purposes of our reporting objectives. We also interviewed VA officials about their program implementation and monitoring methods.
For our second objective, we looked at challenges VA has experienced reaching veterans through Solid Start, challenges veterans have experienced in taking advantage of Solid Start resources, and how VA has addressed these challenges. Specifically, we interviewed representatives of five selected veteran service organizations (VSO) and two community-based organizations serving veterans to determine any challenges their veteran constituents have experienced with the Solid Start program./6 We selected organizations that varied in number and types of constituents served, and based on the organization's previous engagement with the Solid Start program./7 During these interviews, we discussed each organization's views of the type and level of outreach that Solid Start provides to its constituents, any challenges veterans may face in participating in the program, the organization's level of communication and collaboration with VA on Solid Start, and any ways in which the program could be improved. Information we gathered from these interviews, while not generalizable, provides insight into the veteran community's observations of the Solid Start program.
We also interviewed VA officials about outreach challenges the program has experienced, as well as their perspective on the outreach challenges that veterans organizations observed. In addition, we interviewed officials from VA and veterans organizations about the extent to which they had collaborated on outreach, and compared those efforts to the agency's strategic plan for fiscal years 2022 through 2028, and to their communication plan for Solid Start.
We conducted this performance audit from February 2022 to January 2023 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.
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Conclusions
VA's Solid Start program connects new veterans to crucial benefits and resources to help overcome significant difficulties they may face in reintegrating to civilian life. While VA is taking steps to address outreach challenges, its success with hard-to-reach groups--such as reaching veterans experiencing homelessness or those who underwent traumatic experiences in the military--may be enhanced by further collaborating with veterans organizations such as VSOs. Veterans organizations may be well positioned to help address these challenges because they already work directly with many veterans seeking assistance. Veterans organizations can leverage their relationships with these hard-to-reach veterans to provide them with information about Solid Start directly and encourage them to engage with Solid Start representatives.
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Recommendations for Executive Action
The VA's Under Secretary for Benefits should collaborate with veterans organizations, such as VSOs, in identifying and addressing any outreach gaps, and assessing Solid Start outreach strategies for hard-to-reach groups of veterans.
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Agency Comments
We provided a draft of this report to VA for review and comment. In its formal comments, which are reproduced in appendix II, VA agreed with the recommendation. VA also provided technical comments, which we incorporated, as appropriate.
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Figure, footnotes and the full text of the GAO report are posted at: https://www.gao.gov/assets/gao-23-105699.pdf
GAO Issues Report: Abusive Tax Schemes - Additional Steps Could Further IRS Efforts to Detect and Deter Promoters
WASHINGTON, Jan. 19 -- The Government Accountability Office has issued a report (GAO-23-105843) entitled "Abusive Tax Schemes - Additional Steps Could Further IRS Efforts to Detect and Deter Promoters."Here are excerpts of summaries associated with the report.
What GAO Found: "The Internal Revenue Service (IRS) has taken steps to identify and stop promoters who arrange and market abusive tax schemes. Such schemes involve various kinds of arrangements designed to circumvent tax laws or evade taxes. IRS's investigations into promoters vary in complexity and may span across different organizational ... Show Full Article WASHINGTON, Jan. 19 -- The Government Accountability Office has issued a report (GAO-23-105843) entitled "Abusive Tax Schemes - Additional Steps Could Further IRS Efforts to Detect and Deter Promoters." Here are excerpts of summaries associated with the report. What GAO Found: "The Internal Revenue Service (IRS) has taken steps to identify and stop promoters who arrange and market abusive tax schemes. Such schemes involve various kinds of arrangements designed to circumvent tax laws or evade taxes. IRS's investigations into promoters vary in complexity and may span across different organizationalunits within IRS, as shown in the figure below. In fiscal years 2021 and 2022, IRS conducted hundreds of investigations that resulted in tens of millions of dollars in penalties assessed.
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Figure: Principal IRS Organizational Units Involved in Abusive Tax Scheme Promoter Investigations
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Currently, IRS is aware of over 40 types of abusive tax schemes involving promoters. One method IRS uses to identify these promoters is information referrals from the public. GAO found that the public can refer information to IRS on a number of forms, few of which can be submitted online. GAO previously recommended that IRS take steps to improve its referral programs by developing a consolidated, online referral submission tool.
Additionally, one of IRS's key public communication tools for abusive tax schemes, its annual Dirty Dozen list, does not include information on how to report promoters of suspected abusive tax schemes. Adding instructions to the Dirty Dozen list about how to submit information on promoters may allow IRS to better leverage information from the public and increase its ability to identify and stop promoters of abusive tax schemes.
IRS created the Office of Promoter Investigations in 2021 to coordinate IRS's response to promoters of abusive tax schemes. The office works to design, develop, and deliver the major activities that help detect and deter abusive tax schemes and their promoters. Although the office has developed strategic goals to fulfil its mission, it has not yet finalized and communicated outcome-oriented performance goals and measures within IRS. Finalizing outcome-oriented performance goals and measures will allow the Office of Promoter Investigations to better evaluate its efficacy and ensure it is meeting its mission."
Why GAO Did This Study: "Abusive tax schemes threaten our tax system's integrity and contribute to the tax gap--the difference between taxes owed and paid. Often, abusive tax schemes are marketed by promoters and include complex, multi-layer transactions to attempt to conceal the true nature and ownership of the taxable income or assets. To address abusive tax schemes and their promoters, IRS created the Office of Promoter Investigations in 2021.
GAO was asked to review IRS actions to address abusive tax schemes and those who promote and enable them. This report (1) describes how IRS conducts promoter investigations and presents summary data on these investigations; (2) evaluates how IRS educates taxpayers about referring information on promoters to IRS; and (3) evaluates to what extent IRS's reorganization plan for promoter investigations was consistent with key practices and the extent to which IRS is prepared to evaluate the performance of its new office."
What GAO Recommends: "GAO recommends that IRS (1) amend the Dirty Dozen list publication to tell taxpayers how to refer information on promoters to IRS; and (2) finalize outcome-oriented goals and performance measures for the Office of Promoter Investigations. IRS agreed with the recommendations."
The report was sent to Sen. Charles Grassley, R-Iowa, ranking member of the Senate Judiciary Committee, on Jan. 17, 2023.
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December 15, 2022
To: The Honorable Chuck Grassley, Ranking Member, Committee on the Judiciary, United States Senate
Dear Senator Grassley:
Abusive tax schemes involve various kinds of arrangements designed to circumvent tax laws or evade taxes./1 These abusive tax schemes contribute to the tax gap--the difference between the taxes people and businesses legally owe, and what they annually pay voluntarily and on time. In recent years, the Internal Revenue Service (IRS) has estimated the average gross tax gap to be $496 billion per year./2 Furthermore, if taxpayers believe some individuals and businesses are not paying their fair share of taxes, it undermines confidence in our tax system and erodes voluntary compliance.
Abusive tax schemes marketed by promoters range from highly complex, multi-layer transactions to basic schemes. These schemes often attempt to conceal the true value and ownership of the taxable income and assets. Some promoters may be paid tax preparers./3 We recently reported on two potentially abusive tax schemes that have been an enforcement priority for IRS--micro-captive insurance and syndicated conservation easements./4
IRS has stated it needs to improve its ability to identify and deter promoters and stop abusive tax schemes before the promoter can widely market them. In April 2021, IRS announced the creation of the new Office of Promoter Investigations (OPI). OPI's work includes the design, development, and management of major activities to help detect and deter abusive tax schemes and their promoters.
You asked us to review IRS actions to address abusive tax schemes and those who promote and enable them. This report: (1) describes how IRS conducts promoter investigations and presents summary data on those investigations; (2) evaluates how IRS educates taxpayers about referring information on promoters to IRS; and (3) evaluates to what extent IRS's reorganization plan for OPI was consistent with key practices and the extent to which IRS is prepared to evaluate the performance of OPI.
To describe IRS's current promoter investigations, the process for conducting those investigations, and summary data on the number of investigations and penalties assessed, we reviewed IRS documentation on processes and procedures for promoter investigations. We also reviewed written responses to questions submitted to IRS regarding promoter investigations. We interviewed IRS officials regarding sources of information on abusive tax schemes and their promoters. We also interviewed the officials on how IRS uses this information to identify abusive tax schemes and promoters. We reviewed IRS data on the number of promoter investigations in fiscal years 2021 and 2022 and any financial results of those investigations. We found the data to be sufficiently reliable to report the number of open and closed promoter investigations, and the dollar amount of any penalties assessed.
To evaluate how IRS educates taxpayers about referring information on promoters to IRS, we first reviewed our prior work that evaluated IRS referral programs./5 We then conducted keyword searches of IRS.gov to identify guidance to taxpayers about how they can refer information on abusive tax schemes and suspected promoters of those schemes to IRS. We found several webpages and one IRS brochure that contained information relevant to reporting abusive tax schemes and promoters of those schemes. We reviewed the content of these webpages and the brochure, as well as the content of any linked referral forms. We additionally reviewed annual IRS communications (from 2014 to 2022) that warn taxpayers about abusive tax schemes to see if those communications included instructions to taxpayers about how to refer information to IRS about abusive tax schemes and their promoters. We then assessed this IRS guidance and communication against information and communications principles from Standards for Internal Control in the Federal Government./6 We also consulted leading practices on designing and implementing control activities to prevent and detect fraud from our A Framework for Managing Fraud Risks in Federal Programs (Fraud Risk Framework)./7
To assess the extent to which IRS's reorganization plan for OPI was consistent with key practices and the extent to which IRS is prepared to evaluate the performance of OPI, we first identified key practices we previously reported for agency reorganization and reform efforts as well as specific actions outlined in the Internal Revenue Manual. We determined which key practices were most relevant to OPI efforts and reviewed IRS documents related to OPI implementation. We then assessed the extent to which IRS actions and documents were consistent with these selected practices./8 To assess the extent to which IRS is prepared to evaluate the performance of OPI, we identified efforts OPI took to collaborate across IRS by reviewing agency documentation and by interviewing agency officials. We compared IRS's identification and use of performance goals and measures to selected leading management practices. We identified the selected leading practices by reviewing our work on performance management and accountability that sets forth a general framework for federal agencies to define mission and desired outcomes, measure performance, and use performance information./9
We conducted this performance audit from February 2022 to December 2022 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.
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Conclusions
Abusive tax schemes threaten the integrity and fairness of our nation's tax system. IRS's OPI has undertaken many activities to improve IRS's response to promoter-driven abusive tax schemes, including revising IRS internal policies and procedures and engaging internal and external stakeholders. OPI is also beginning to leverage data analytics to detect more promoters. IRS and OPI, however, could improve their efforts to investigate promoters of abusive tax schemes in two key areas: external referrals and performance measurement.
Currently, taxpayers wanting to refer information to IRS about promoters of abusive tax schemes encounter a referral process that can be confusing. Taxpayers also have limited options to submit this information online. We previously reported on this situation in 2016. At that time, we recommended that IRS take steps to improve its referral programs by developing a consolidated, online referral submission tool. In June 2022, we designated this a priority open recommendation. By taking action to implement this recommendation, IRS may be able to decrease taxpayer confusion and increase the number of referrals it receives.
During our current review, we also found that in recent years IRS's annual Dirty Dozen list--its widely publicized vehicle for alerting the public to abusive tax schemes--has not included information on how the public might refer information about promoters of abusive tax schemes. By including such information on its Dirty Dozen list, IRS may better enlist the broader public to help identify abusive tax schemes and their promoters.
We also found that while OPI has begun to develop outcome-oriented performance goals and measures, the office has yet to finalize them and share them within IRS. OPI has been operating for over 1 year, without performance goals and measures in place. OPI may not ever be fully able to evaluate its own efficacy, since the total population of abusive tax schemes and their promoters is unknown, but by establishing outcome-oriented performance goals and measures, OPI could provide evaluation metrics to help IRS ensure that its new office is improving IRS' response to known abusive schemes and their promoters.
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Recommendations for Executive Action
We are making the following two recommendations to IRS:
The Commissioner of Internal Revenue should ensure that the Director of the Office of Communications, in collaboration with other IRS organizational units as appropriate, amends the Dirty Dozen list publication to include telling taxpayers how to refer information to IRS on preparers and promoters involved in abusive tax schemes. (Recommendation 1)
The Commissioner of Internal Revenue should ensure that the Director of the Office of Promoter Investigations finalizes outcome-oriented goals and performance measures to evaluate the effectiveness of OPI. (Recommendation 2)
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Agency Comments and Our Evaluation
We provided a draft of this report to IRS for review and comment. In its comments, reproduced in appendix II and summarized below, IRS agreed with our recommendations.
IRS agreed with our recommendation to amend the Dirty Dozen list publication to include instructions for taxpayers on how to refer information to IRS on preparers and promoters involved in abusive tax schemes. Specifically, IRS stated it will include referral information in news releases regarding abusive tax schemes.
IRS also agreed with our recommendation to finalize outcome-oriented goals and performance measures to evaluate the effectiveness of OPI. IRS also provided technical comments, which we incorporated as appropriate.
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Figure, footnotes and the full text of the GAO report are posted at: https://www.gao.gov/assets/gao-23-105843.pdf
GAO Issues Report: Public Health Preparedness - HHS Could Improve Oversight of Research Involving Enhanced Potential Pandemic Pathogens
WASHINGTON, Jan. 19 -- The Government Accountability Office has issued a report (GAO-23-105455) entitled "Public Health Preparedness - HHS Could Improve Oversight of Research Involving Enhanced Potential Pandemic Pathogens."Here are excerpts of summaries associated with the report.
What GAO Found: "The Department of Health and Human Services (HHS) oversees high-risk research involving potential pandemic pathogens, which are defined as likely highly transmissible and virulent, and capable of causing significant morbidity or mortality. SARS-CoV-2, which causes COVID-19 disease, is an example of ... Show Full Article WASHINGTON, Jan. 19 -- The Government Accountability Office has issued a report (GAO-23-105455) entitled "Public Health Preparedness - HHS Could Improve Oversight of Research Involving Enhanced Potential Pandemic Pathogens." Here are excerpts of summaries associated with the report. What GAO Found: "The Department of Health and Human Services (HHS) oversees high-risk research involving potential pandemic pathogens, which are defined as likely highly transmissible and virulent, and capable of causing significant morbidity or mortality. SARS-CoV-2, which causes COVID-19 disease, is an example ofa pandemic pathogen. In 2017, HHS developed an oversight policy (the Framework) that requires funding agencies to refer proposed research that is "reasonably anticipated to create, transfer, or use enhanced potential pandemic pathogens" to the Department for an additional review of associated risks and benefits, among other things.
GAO found that HHS's Framework does not fully meet the key elements of effective oversight identified in past work. For example, the Framework does not provide a standard to help funding agencies interpret what "reasonably anticipated" means. Until HHS develops and documents such a standard, the Framework allows for subjective and potentially inconsistent interpretations of the requirement--leaving HHS without assurance the department is reviewing all necessary research proposals.
HHS also oversees research involving certain pandemic pathogens through its Federal Select Agent Program--a list-based program regulating the possession, use, and transfer of certain pathogens. However, HHS faces trade-offs in adding newly emerged pathogens, like SARS-CoV-2, to the list because, as officials told GAO, doing so would impede the public health response by burdening diagnostic and treatment facilities with additional reporting and inspection requirements. The statute authorizing the Federal Select Agent Program limits HHS's ability to waive or postpone these requirements during public health emergencies for a maximum of 60 days. HHS has not assessed the risk this limitation poses to its oversight of known pandemic pathogens. Until the risk of this statutory limitation is assessed and action taken to mitigate any risks, HHS will continue to face tradeoffs between impeding public health response efforts and allowing high-risk research involving known pandemic pathogens to be conducted without appropriate HHS oversight."
Why GAO Did This Study: "Research involving pandemic pathogens is crucial to ensure the nation's ability to prepare for, respond to, and recover from public health threats. For example, such research resulted in COVID-19 vaccines and therapeutics to prevent severe disease or death. However, a number of incidents and research projects--including research that enhanced the transmissibility of influenza between mammals--have raised questions about the adequacy of HHS oversight of the safety of such research.
The CARES Act includes a provision for GAO to report on ongoing federal efforts to prepare for, respond to, and recover from COVID-19. This report examines the extent to which HHS's oversight Framework for enhanced potential pandemic pathogen research is effective; and gaps that exist in HHS's broader oversight of such research, among other things.
GAO reviewed HHS's oversight policies and programs as well as documentation for selected research grants. GAO also assessed the Framework against GAO's elements of effective oversight. GAO interviewed HHS officials and select subject matter experts from the research biosafety and biosecurity community."
What GAO Recommends: "GAO is making three recommendations to improve HHS's oversight of research, including developing and documenting a standard for "reasonably anticipated" and assessing the risk of statutory limitations. HHS neither agreed nor disagreed with two of the recommendations and agreed with the third."
The report was sent to Rep. Kay Granger, R-Texas, chair, Rep. Rosa L. DeLauro, D-Connecticut, ranking member of the House Appropriations Committee, Rep. Cathy McMorris Rodgers, R-Washington, chair, Rep. Frank Pallone Jr., D-New Jersey, ranking member of the House Energy and Commerce Committee, Rep. Mark Green, R-Tennessee, chairman, Rep. Bennie G. Thompson, D-Mississippi, ranking member of the House Homeland Security Committee, Rep. James Comer, R-Kentucky, chairman, Rep. Jamie Raskin, D-Maryland, ranking member of the House Oversight and Accountability Committee, Rep. Jason Smith, R-Missouri, chairman, and Rep. Richard E. Neal, D-Massachusetts, ranking member of the House Ways and Means Committee, on Jan. 18, 2023.
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January 18, 2023
To: Congressional Committees
High-risk life science research has been a topic of interest in recent congressional hearings./1 High-risk research that results in the acquisition of new or enhanced biological characteristics in microorganisms is of particular concern, as it can involve enhancing the transmissibility or virulence of pathogens./2 By enhancing these features, this research typically aims to improve understanding of pathogens, their interactions with human hosts, and their pandemic potential. It can be used to better inform public health and preparedness efforts and develop medical countermeasures. For example, this type of research led to the development of influenza vaccines.
Oversight to ensure the biosafety and biosecurity of pandemic pathogens is a responsibility shared across multiple departments. Generally, the Department of Health and Human Services (HHS) and its component agencies--including the Administration for Strategic Preparedness and Response (ASPR),/3 the National Institutes of Health (NIH), the Food and Drug Administration (FDA), and the Centers for Disease Control and Prevention (CDC)--are most directly involved in leading public health preparedness and response efforts, and associated research./4
Over the last 10 years, a number of incidents have led to questions about the nature and adequacy of U.S. government oversight of pathogens with pandemic potential and laboratory safety more generally. Such incidents included HHS-funded research in 2012 that involved the manipulation of avian influenza viruses to create human pathogens with pandemic potential, as well as unrelated laboratory safety lapses that could have released dangerous pathogens./5
In 2017, HHS instituted a new oversight framework for HHS-funded enhanced potential pandemic pathogen research (hereafter referred to as the Framework). The Framework defines a potential pandemic pathogen as being "likely highly transmissible and likely capable of wide and uncontrollable spread in human populations" and "likely highly virulent and likely to cause significant morbidity and/or mortality in humans." It further defines an enhanced potential pandemic pathogen as one resulting from the enhancement of the transmissibility and/or virulence of a pathogen./6 This new Framework was developed in response to guidance from the White House Office of Science and Technology Policy (OSTP) recommending federal departments adopt a department-level pre-funding review mechanism for federally funded research that is anticipated to create, transfer, or use enhanced pathogens with pandemic potential./7 White House OSTP works with the White House National Security Council to coordinate policy across the federal government.
The CARES Act includes a provision for GAO to conduct and report on its monitoring and oversight of activities and funds to prepare for, respond to, and recover from COVID-19./8 This report focuses on HHS's oversight of research with potential pandemic pathogens, which HHS funds to assess the pandemic potential of emerging infectious agents such as viruses, and to inform public health and preparedness efforts. Specifically, in this report, we
1. describe how HHS uses its Framework and other programs to oversee federally funded research involving enhanced potential pandemic pathogens;
2. assess the extent to which HHS's Framework has the elements of effective oversight;
3. examine what gaps exist in HHS's broader oversight of research involving enhanced potential pandemic pathogens; and
4. assess the extent to which HHS oversees privately funded research.
To describe how HHS uses its Framework and other programs to oversee federally funded research involving enhanced potential pandemic pathogens, we reviewed federal regulations, guidance, and policies that HHS and its agencies use to oversee this research. In particular, we focused on how HHS and its agencies oversee the biosafety and biosecurity of this research. Biosafety includes the practices and equipment that ensure that lab workers, the community, and the environment are protected from infectious pathogens and biological hazards. Biosecurity includes the practices to ensure the protection and control of biological materials in laboratories to protect them from theft, loss, or misuse. We interviewed HHS officials, including those from NIH, CDC, and FDA about how they conduct and coordinate oversight.
To examine the extent to which HHS's oversight of enhanced potential pandemic pathogen research has elements of effective oversight, we assessed HHS's policies, agency guidance, and other documentation against GAO's key elements of effective oversight. GAO identified five key elements of effective oversight in prior work in areas where low-probability adverse events can have significant and far-reaching effects.
For example, we have applied these elements in assessing federal oversight of nuclear safety, oil and gas management, and high-containment laboratories./9 These elements are:
- Ability to Perform Reviews. The organization conducting oversight should have the ability to perform reviews, including the working knowledge necessary to review compliance with requirements.
- Transparency. The organization conducting oversight should provide access to key information, as applicable, to those most affected by operations.
- Technical Expertise. The organization conducting oversight should have sufficient staff with the expertise to perform sound safety and security assessments.
- Independence. The organization conducting oversight should be structurally distinct and separate from the entities it oversees.
- Enforcement Authority. The organization conducting oversight should have clear and sufficient authority to require that entities achieve compliance with requirements.
We also obtained and reviewed documentation for the two awards that involved enhancement of potential pandemic pathogens to make them more transmissible and that were reviewed under the Framework. We reviewed the documentation to examine how HHS oversaw the biosafety and biosecurity of the research. Additionally, we interviewed 10 subject matter experts, comprising nine individual researchers, academics, scientific advisory board members, and one organization representing biosafety officers. These subject matter experts were selected because of their roles as current or former members of National Science Advisory Board for Biosecurity (NSABB)--a federal advisory committee that addresses issues related to biosecurity and dual use research-- membership in the Association for Biosafety and Biosecurity, or authorship of recently published academic articles related to the enhancement of potential pandemic pathogens./10 We interviewed these experts about identified and potential risks of research with potential pandemic pathogens. We accessed and reviewed the recorded webcast of NSABB meetings and stakeholder engagement meetings to obtain perspectives from other members of the research biosafety and biosecurity community./11
To identify any gaps that exist in HHS's oversight of research involving enhanced potential pandemic pathogens, we reviewed federal regulations, guidance, and policies that HHS and its agencies use to oversee this research to identify their scope and applicability. In evaluating this information, we compared policies and procedures against federal internal control standards related to assessing and managing risk./12 We also obtained and reviewed publicly available documentation on a research grant that involved studying potential pandemic pathogens rather than enhancing the pathogens' functions and, thus, did not fall within HHS's oversight of research involving potential pandemic pathogens. We reviewed the documentation to examine how NIH identified risks and oversaw the biosafety and biosecurity of the research. We interviewed HHS and agency officials from NIH and CDC about how they conduct and coordinate their oversight. We interviewed officials from OSTP and the National Security Council about broader federal oversight in this area. We also interviewed subject matter experts described above to obtain their perspective on federal oversight of high-risk research.
To assess the extent to which HHS oversees privately funded research, we reviewed federal regulations, guidance, and policies governing research biosafety and biosecurity and examined their scope and applicability. In evaluating this information, we compared policies and procedures against the federal internal control standards related to using quality information and managing risk. We also reviewed past GAO work on this topic.13 We interviewed HHS and agency officials as well as officials from the White House OSTP and the National Security Council about federal oversight for privately funded research.
We conducted this performance audit from September 2021 to January 2023 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.
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Conclusions
Research involving potential pandemic pathogens is crucial for ensuring the nation's ability to prepare for, respond to, and recover from public health threats, such as COVID-19 and mpox. However, it also comes with risks. HHS has taken steps with the development of the Framework to strengthen oversight of research with potential pandemic pathogens.
However, until HHS works with its funding agencies to develop and document a standard for "reasonably anticipated," the Framework allows for subjective and potentially inconsistent interpretations of the criteria for referral, potentially leaving HHS without the assurance that funding agencies are referring all the research proposals that should be referred for departmental review. Furthermore, by working with its funding agencies to identify and publicly share non-sensitive information about the departmental review process--including information on the composition and expertise of those involved in the review process, as well as how the evaluation criteria are applied--HHS would provide researchers, Congress and the public with greater assurance that the departmental review provides meaningful and effective suggestions to address biosafety and biosecurity concerns about research involving enhanced potential pandemic pathogens.
Moreover, HHS faces oversight gaps beyond the Framework. Specifically, until HHS and CDC assess and document the risks posed by the limitations of the existing DSAT exemptions for public health emergencies--including seeking any necessary legislative authority--as it deliberates changes to the DSAT program, CDC will continue to face tradeoffs between impeding public health response efforts and allowing high-risk research involving known pandemic pathogens to be conducted without appropriate CDC oversight.
We maintain that implementing our 2009 recommendation to charge a single federal entity with periodic government-wide strategic evaluations of high-containment laboratories would help HHS assess the risks posed by the lack of oversight of privately funded research that enhances potential pandemic pathogens, and develop mitigation plans, as needed.
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Recommendations
We are making a total of three recommendations to HHS:
The Secretary of Health and Human Services should work with HHS funding agencies to develop and document a standard for "reasonably anticipated" to ensure consistency in identifying research for departmental review that is "reasonably anticipated to create, transfer or use enhanced potential pandemic pathogens." (Recommendation 1)
The Secretary of Health and Human Services should work with HHS funding agencies to identify and share non-sensitive information with researchers, Congress, and the public about the departmental review process for research involving enhanced potential pandemic pathogens, including information on composition and expertise of those involved in the review process and how the evaluation criteria are applied. (Recommendation 2)
As HHS and CDC deliberate any changes to the DSAT program, the Director of the Centers for Disease Control and Prevention should assess and document the risk posed by the limitations of the existing DSAT exemptions for public health emergencies and seek legislative authority as needed. (Recommendation 3)
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Agency Comments and Our Evaluation
We provided a draft of this report for advance review and comment to OSTP, the National Security Council, and HHS. National Security Council officials provided a technical comment, and OSTP officials told us they had no comments. HHS provided written comments, which we have reprinted in appendix I. HHS neither agreed nor disagreed with our first two recommendations to develop and document a standard for "reasonably anticipated" and share non-sensitive information about the departmental review. HHS stated that the department is committed to ensuring careful review and consideration of guidance to enhance the existing Framework and increase transparency. HHS further cited the ongoing work of the NSABB in evaluating the Framework, among other oversight policies and programs, and developing recommendations. HHS noted that the department expects this work to inform its future actions. HHS concurred with our third recommendation that HHS and CDC should assess and document risks posed by the limitations of the existing DSAT exemptions and seek legislative authority as needed. HHS also stated that CDC is collaborating with HHS and the National Security Council to outline existing gaps and potential improvements to the Federal Select Agent Program.
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Footnotes and the full text of the GAO report are posted at: https://www.gao.gov/assets/gao-23-105455.pdf
GAO Issues Report: DOD Financial Management - Greater Attention and Accountability Needed Over Government-Furnished Property
WASHINGTON, Jan. 19 -- The Government Accountability Office has issued a report (GAO-23-105198) entitled "DOD Financial Management - Greater Attention and Accountability Needed over Government-Furnished Property."Here are excerpts of summaries associated with the report.
What GAO Found: "For years, the Department of Defense (DOD) has struggled to accurately account for government property in the possession of contractors, known as government-furnished property (GFP). DOD has repeatedly revised its planned dates to address a GFP-related material weakness since auditors first reported it in 2001.
* ... Show Full Article WASHINGTON, Jan. 19 -- The Government Accountability Office has issued a report (GAO-23-105198) entitled "DOD Financial Management - Greater Attention and Accountability Needed over Government-Furnished Property." Here are excerpts of summaries associated with the report. What GAO Found: "For years, the Department of Defense (DOD) has struggled to accurately account for government property in the possession of contractors, known as government-furnished property (GFP). DOD has repeatedly revised its planned dates to address a GFP-related material weakness since auditors first reported it in 2001. ** *
Table: Department of Defense's Revisions to Remediation Dates for Addressing the Government-Furnished Property (GFP) Material Weakness
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DOD management has issued multiple memorandums to remediate the long-standing GFP-related material weakness, including a May 2019 memorandum that directed DOD components to establish a baseline of GFP assets. However, GAO found that DOD did not achieve its stated objective for the May 2019 memorandum as a result of challenges with (1) an inefficient and incomplete initial memorandum distribution process, (2) confusion among department officials over memorandum terminology, (3) components' logistical struggles to identify and provide requested data, and (4) a lack of effective management review of the components' progress. Additionally, GAO identified challenges with the Property Functional Council (Council), which DOD established in part to oversee efforts to address the material weakness. For example, the Council did not routinely discuss GFP or the May 2019 memorandum, and did not consistently meet or include all key participants when it did. Without documented processes and procedures for GFP-related memorandum guidance and the Council's operations, DOD increases the risk that it will continue to encounter challenges with its efforts to remediate the GFP-related material weakness.
While DOD has taken steps to address the GFP-related material weakness, GAO found that department-wide efforts have not been comprehensive and sufficiently detailed. Developing a comprehensive department-wide strategy, separate from DOD's overarching financial management strategy, would assist the department in identifying root causes of deficiencies with common solutions across the departments, and clearly defining detailed procedures for achieving tasks and meeting target dates. Without such a strategy, DOD is at an increased risk that its efforts to remediate the GFP material weakness will continue to be insufficient and that it will continue to miss or push back target remediation dates."
Why GAO Did This Study: "DOD's lack of accountability over government property in the possession of contractors has been reported by auditors for decades. This long-standing issue affects the accounting and reporting of GFP and is one of the reasons DOD is unable to produce auditable financial statements. DOD estimated the value of its GFP at over $220 billion; however, that amount is likely significantly understated.
This report, developed in connection with fulfilling GAO's mandate to audit the U.S. government's consolidated financial statements, examines the (1) challenges DOD has encountered in department-wide efforts to address weaknesses related to its accounting for GFP and (2) extent to which DOD has developed a department-wide strategy to address the GFP-related material weakness.
GAO reviewed relevant audit reports, memorandums issued by DOD management, DOD strategy documents, and Council meeting documents; interviewed officials; and analyzed military department reports."
What GAO Recommends: "GAO is making three recommendations, specifically, for DOD to (1) document and implement a process for memorandum distribution and for reviewing components' compliance, (2) document procedures for how the Council and related oversight groups will function, and (3) develop a comprehensive strategy to clearly articulate the detailed DOD-wide efforts to address the GFP material weakness. DOD concurred with one and partially concurred with two of GAO's recommendations."
The report was sent to Rep. Mike Rogers, R-Alabama, chairman, Rep. Adam Smith, D-Washington, ranking member of the House Armed Services Committee, Rep. James Comer, R-Kentucky, chairman, and Rep. Jamie Raskin, D-Maryland, ranking member of the House Oversight and Accountability Committee, on Jan. 17, 2023.
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January 17, 2023
To: Congressional Committees
The Department of Defense (DOD) reported $3.2 trillion in assets in its most recent Agency Financial Report (AFR), which accounts for approximately 65 percent of the federal government's total assets. That amount includes assets in DOD's physical custody as well as assets held by contractors on DOD's behalf, also referred to as government-furnished property (GFP). Federal regulations define GFP as property in the possession of, or directly acquired by, the government and subsequently furnished to the contractor for performance of a contract./1 These GFP assets include property furnished for repairs, maintenance, overhaul, or modification of military equipment. Specifically, contractors can possess assets such as ammunition, missiles, torpedoes, component parts for these end-items, and equipment for specific uses associated with these items.
In 2014, DOD estimated the value of its GFP at over $220 billion; however, that amount is likely significantly understated. For example, in fiscal year 2016, we reported that the Army indicated the actual number of these GFP assets is unknown and that actual quantities may be greatly different than the Army's documented property records reflect./2 DOD's financial statement auditors have reported a material weakness related to GFP./3 The material weakness cited issues such as DOD's inability to reconcile GFP balances and substantiate existence and completeness of GFP assets, as well as a lack of policies and procedures to properly report GFP in its financial statements. DOD's lack of accountability over government property in the possession of contractors has been reported by auditors as far back as 1981. These long-standing issues affect the accounting for and reporting of GFP and are one of the reasons DOD is unable to produce auditable financial statements. DOD is the only major federal agency that has been unable to receive an audit opinion on its department-wide financial statements, which is one of the three major impediments preventing us from expressing an opinion on the accrual-based consolidated financial statements of the U.S. government./4
In response to the continued weaknesses reported in the fiscal year 2018 financial statement audit, the Acting Secretary of Defense issued the Fiscal Year 2019 Financial Statement Audit Priorities. The document detailed goals and priorities of corrective actions to provide the greatest value to DOD operations and identified addressing the GFP weaknesses as a priority for DOD. Following this, the Office of the Under Secretary of Defense (Acquisition and Sustainment) (OUSD (A&S)) issued the Fiscal Year 2019 Audit Priorities: Government Property in Possession of Contractors memorandum on May 11, 2019. This memorandum provided amplified guidance to the components to ensure the accurate and complete accountability of government property in the possession of contractors. The DOD Office of Inspector General (OIG), DOD's financial statement auditor, reported that without accurate accounting records for GFP, DOD could understate these assets and potentially make unnecessary purchases or overstate its GFP and be unprepared to meet future needs./5
We performed this audit in connection with the statutory requirement for GAO to audit the U.S. government's consolidated financial statements, which cover all accounts and associated activities of executive branch agencies, including DOD./6 This report examines the (1) challenges DOD has encountered in department-wide efforts to address weaknesses related to its accounting for GFP in the financial statements and (2) extent to which DOD has developed a department-wide strategy to address the GFP-related material weakness reported by its financial statement auditor.
For the first objective, we used publicly available information, such as DOD AFRs and memorandums, and relevant GAO and DOD OIG reports to identify DOD's weaknesses related to GFP and its efforts to address them. We requested all initial and quarterly reports that the military departments--the Army, Navy, and Air Force--submitted, and assessed whether they were consistent with relevant requirements. We also inquired about any documented quality assurance procedures implemented by OUSD (A&S). In addition, we interviewed DOD officials to identify any potential challenges or obstacles related to the military departments' efforts to comply with the May 2019 memorandum. Additionally, we reviewed DOD's Property Functional Council's meeting schedules, minutes, agendas, and participant lists for the period of July 2018 through September 2021 to assess the level of participation by key officials and the consistency of GFP-related discussions.
For the second objective, we reviewed DOD's strategy documents related to remediating the GFP material weakness, as well as DOD's annual Financial Improvement and Audit Remediation reports that detail the status of efforts to address financial audit-related deficiencies at a high level. In addition, we interviewed officials from OUSD (A&S) and OUSD (Comptroller) to further understand the DOD-wide efforts to address the GFP-related material weakness.
We conducted this performance audit from April 2021 to January 2023 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.
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Conclusions
As we and other auditors have previously reported, serious control issues preclude DOD from having accurate and complete GFP records and, therefore, reliable and auditable GFP-related financial information. As a result, DOD financial statement auditors continue to identify a material weakness related to DOD's accounting for its GFP. DOD and the military departments have taken some steps to mitigate the DOD-wide GFP material weakness. Despite these efforts, DOD has made minimal progress in the past 2 decades to remediate the identified deficiencies.
Implementing a process for developing and distributing any DOD-wide, GFP-related memorandums and guidance, outside of memorandums issued by WHS, would help ensure that the military departments are efficiently and effectively implementing the associated requirements. In addition, developing written procedures, such as in a charter, for how the PFC will operate will help ensure that oversight of department-wide remediation efforts related to the GFP material weakness is timely and effective. Finally, a comprehensive department-wide strategy for remediating the GFP material weakness would better position DOD to develop effective and efficient action plans and achievable corrective action dates. This, in turn, would help DOD make meaningful progress in addressing the GFP material weakness, and ultimately help to ensure that DOD has reliable and auditable financial information.
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Recommendations for Executive Action
We are making the following three recommendations to DOD:
The Secretary of Defense should ensure that the Under Secretary for Defense (Acquisition and Sustainment), in collaboration with the Under Secretary of Defense (Comptroller), documents and implements a process for (1) developing and distributing DOD-wide GFP-related guidance in the form of memorandums, including procedures to obtain and incorporate input from military departments, and (2) reviewing military departments' compliance with this guidance. (Recommendation 1)
The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller), in collaboration with the Under Secretary of Defense (Acquisition and Sustainment), documents specific written procedures, such as in a charter, for how the PFC and other related oversight groups will function. The procedures should (1) establish expectations for meeting frequency; (2) establish the group's specific goals and objectives, including expectations for regularly assessing the effectiveness and timeliness of remediation efforts; and (3) identify key participants. (Recommendation 2)
The Secretary of Defense should ensure that the Under Secretary of Defense (Acquisition and Sustainment), in collaboration with the Under Secretary of Defense (Comptroller), develops and documents a comprehensive strategy, separate from the financial management strategy, to clearly articulate the detailed DOD-wide efforts to address the GFP material weakness. The comprehensive strategy should document (1) steps to identify and address root causes of deficiencies, (2) an overall planned remediation date with specific interim target dates based on an analysis of feasible time frames, and (3) steps to reassess actions after significant target dates so that plans can be adjusted as needed. (Recommendation 3)
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Agency Comments and Our Evaluation
We provided a draft of this report to DOD for review and comment. In its written comments, reproduced in appendix I, DOD concurred with one of our three recommendations and partially concurred with the other two recommendations. DOD also provided technical comments, which we incorporated as appropriate.
DOD concurred with recommendation 2 and cited actions it will take to address it. We believe that if implemented effectively, these actions will address this recommendation.
DOD partially concurred with recommendation 1 to document and implement a process for developing and distributing DOD-wide GFPrelated guidance in the form of memorandums, including procedures to obtain and incorporate input from military departments, and to review the military departments' compliance with such guidance. In its written comments, DOD stated that a policy currently exists for developing and distributing guidance and that there is little benefit to creating additional policy specific to GFP. DOD further stated that it would take action to ensure adherence to the existing guidance. DOD acknowledged that components struggled with internal distribution of the May 2019 OUSD (A&S) memorandum, and noted that DOD did not obtain timely or consistent responses. As a result, DOD stated that for similar future requests for military department information, it would require the departments to establish a point of contact for follow-up and compliance.
While we acknowledge that DOD's current policy provides guidance in the form of memorandum templates and formatting directions, it does not include key elements of our recommendation. Specifically, DOD's current policy does not include steps for distributing guidance to help ensure that key communities within the military departments--acquisition, logistics, and financial management--consistently and timely receive GFP memorandum guidance. DOD's existing policy also lacks procedures for management to obtain and incorporate input from the military departments when preparing similar memorandum guidance. Additionally, DOD's current policy lacks procedures for management to review the military departments' compliance with this type of memorandum guidance. Until DOD documents and implements a process that includes these activities, efforts to establish a GFP baseline could remain inefficient and ineffective. Therefore, we continue to believe that this recommendation is warranted.
DOD also partially concurred with recommendation 3. Specifically, in its written comments, DOD stated that it agrees with the recommendation to develop and document a comprehensive strategy to clearly articulate the detailed DOD-wide efforts to remediate the GFP material weakness.
However, DOD stated that the lead for this effort should be the Under Secretary of Defense for Acquisition and Sustainment, in collaboration with the Under Secretary of Defense (Comptroller). We believe that as long as both offices collaborate on this effort, DOD can meet the intent of our recommendation. Therefore, we clarified our recommendation to address DOD's comment.
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Table, footnotes and the full text of the GAO report are posted at: https://www.gao.gov/assets/gao-23-105198.pdf