GAO Lists Areas to Improve Tax Compliance, Enforcement

The gap between federal revenue and spending has created a long-term fiscal imbalance.¹ Absent fiscal policy changes, this imbalance leads to continuous growth in federal debt that is unsustainable. Addressing this imbalance will require long-term changes to both spending and revenue, which will likely require difficult fiscal policy decisions. Significant action to mitigate this imbalance must be taken soon to minimize the disruption to individuals and the economy.

In the near term, executive branch agencies and Congress can act to improve the efficiency and effectiveness of government programs and activities. Opportunities to take action exist in areas where federal programs or activities are fragmented, overlapping, or duplicative. To bring these opportunities to light, Congress included a provision in statute for GAO to identify and report annually to Congress on federal programs, agencies, offices, and initiatives -- either within departments or government-wide -- that have duplicative goals or activities.² As part of this work, we also identify additional opportunities to achieve greater efficiency and effectiveness that result in cost savings or enhanced revenue collection.

In our first four annual reports issued from 2011 through 2014, we presented 188 areas where opportunities existed for executive branch agencies or Congress to reduce, eliminate, or better manage fragmentation, overlap, or duplication; achieve cost savings; or enhance revenue.³ Figure 1 outlines the definitions we use for fragmentation, overlap, and duplication for this work. In these first four reports, we identified approximately 440 actions that executive branch agencies and Congress could take to address the opportunities for greater efficiency and effectiveness that we identified.

 

Figure 1: Definitions of Fragmentation, Overlap, and

 

Duplication

 

 

 

This report is our fifth in the series, and it identifies additional areas where a broad range of federal agencies may be able to achieve greater efficiency or effectiveness. For each area, we suggest actions that the executive branch or Congress could take to reduce, eliminate, or better manage fragmentation, overlap, or duplication, or achieve other financial benefits. In addition to identifying new areas, we have continued to monitor the progress executive branch agencies and Congress have made in addressing the areas we previously identified. In 2013, we launched GAO's Action Tracker, a publicly accessible website that allows executive branch agencies, Congress, and the public to track the progress the government is making in addressing the issues we have identified. We plan to add areas and suggested actions identified in future reports to GAO's Action Tracker and periodically update the status of all identified areas and activities.

Section I of this report presents new areas in which we found evidence that fragmentation, overlap, or duplication exists among federal programs or activities. Although it may be appropriate for multiple agencies or entities to be involved in the same programmatic or policy area due to the nature or magnitude of the federal effort, the instances of fragmentation, overlap, or duplication we describe in Section I occur in areas where multiple programs and activities may be creating inefficiencies. Section II describes new areas where the federal government may achieve cost savings or enhance revenue collections. This report is based upon work GAO previously conducted in accordance with generally accepted government auditing standards or GAO's quality assurance framework.⁴ See appendix II for more information on our scope and methodology.

New Opportunities Exist to Improve Efficiency and Effectiveness Identified across the Federal Government

In this report, we present 66 actions that the executive branch or Congress could take to improve efficiency and effectiveness across 24 areas that span a broad range of government missions and functions. We suggest 20 actions to address 12 new areas in which we found evidence of fragmentation, overlap, or duplication in government missions such as agriculture, defense, health, homeland security, information technology, international affairs, and science and the environment. In addition, we present 46 opportunities for executive branch agencies or Congress to take actions to reduce the cost of government operations or enhance revenue collections for the U.S. Treasury across 12 areas of government.

20 Suggested Actions to Address New Evidence of Fragmentation, Overlap, or Duplication in 12 Areas

We consider programs or activities to be fragmented when more than one federal agency (or more than one organization within an agency) is involved in the same broad area of national need, which may result in inefficiencies in how the government delivers services, including the following example:

• Consumer Product Safety Oversight: Oversight of consumer product safety involves at least 20 federal agencies, including the Consumer Product Safety Commission (CPSC), resulting in fragmented oversight across agencies. Although agencies reported that the involvement of multiple agencies with various expertise can help ensure more comprehensive oversight by addressing a range of safety concerns, they also noted that fragmentation can result in unclear roles and potential regulatory gaps. In addition, we found that although the agencies we reviewed for a November 2014 report collaborated on a variety of issues, they also reported that they face challenges when they work collaboratively. These challenges include staying informed about the regulatory activities of other agencies, coordinating on jurisdictional issues, and considering options to share data rather than purchasing the same data under multiple contracts.

• Although a number of agencies have an oversight role in consumer product safety, no single entity has the expertise or authority to address the full scope of product safety activities. Moreover, some oversight agencies are independent regulatory agencies and not subject to the Office of Management and Budget's (OMB) interagency planning process and review of draft rules within the executive branch. In past work, GAO has noted that interagency mechanisms or strategies to coordinate programs that address crosscutting issues may reduce potentially duplicative, overlapping, and fragmented efforts. To strengthen coordination and achieve greater efficiency in oversight across consumer product safety agencies more broadly, we suggested that Congress consider establishing a formal comprehensive oversight mechanism for consumer product safety agencies to address crosscutting issues as well as inefficiencies related to fragmentation and overlap such as communication and coordination challenges and jurisdictional questions between agencies. Mechanisms could include, for example, formalizing relationships and agreements among consumer product safety agencies or establishing a task force or interagency work group. CPSC, the Department of Homeland Security (DHS), the Department of Housing and Urban Development, and the Department of Commerce's National Institute of Standards and Technology agreed with GAO's matter for congressional consideration, while the remaining agencies neither agreed nor disagreed.

• Nonemergency Medical Transportation: Forty-two programs across six different federal departments provide nonemergency medical transportation (NEMT) to individuals who cannot provide their own transportation due to age, disability, or income constraints.⁵ For example, NEMT programs at both Medicaid, within the Department of Health and Human Services (HHS), and the Department of Veterans Affairs (VA) have similar goals (to help their respective beneficiaries access medical services), serve potentially similar beneficiaries (those individuals who have disabilities, are low income, or are elderly), and engage in similar activities (providing NEMT transportation directly or indirectly).

• We found a number of challenges to coordination for these programs. For example, Medicaid and VA largely do not participate in NEMT coordination activities in the states we visited, in part because both programs are designed to serve their own populations of eligible beneficiaries. We also found that using certain coordination strategies -- in particular, cost or ride sharing -- could increase the risk of Medicaid funds being spent for individuals who do not qualify for Medicaid benefits. Without proper controls, cost or ride sharing with other non-Medicaid programs could allow for improper payments for individuals who do not qualify for Medicaid. Because Medicaid and VA are important to NEMT, as they provide services to potentially over 90 million individuals, greater interagency cooperation is needed to enhance services to transportation-disadvantaged individuals. An interagency coordinating council was developed to enhance federal, state, and local coordination activities, and it has taken some actions to address human service-transportation program coordination. However, the council has provided limited leadership and has not convened since 2008. For example, the council has not issued key guidance documents that could promote coordination, including an updated strategic plan.

  To improve efficiency, we recommended that the Department of Transportation, which chairs the interagency coordinating council, should take steps to enhance coordination among the programs that provide NEMT. In response to this recommendation, DOT agreed that more work is needed to increase coordination activities with all HHS agencies, especially the Centers for Medicare & Medicaid Services (CMS). DOT also said the Federal Transit Administration is asking its technical assistance centers to assist in developing responses to NEMT challenges.

• DOD US Family Health Plan: The US Family Health Plan (USFHP) -- a statutorily required component of the Department of Defense's (DOD) Military Health System -- duplicates the same TRICARE Prime benefit that is offered to military beneficiaries by DOD managed care support contractors.⁶ The USFHP was initially incorporated into the Military Health System in 1982 when Congress enacted legislation transferring ownership of certain U.S. Public Health Service hospitals to specific health care providers, referred to as designated providers under the program. During the implementation of the TRICARE program in the 1990s, Congress required the designated providers to offer the TRICARE Prime benefit to their enrollees in accordance with the National Defense Authorization Act (NDAA) for Fiscal Year 1997. Today, the USFHP remains a health care option required by statute to be available to eligible beneficiaries in certain locations, despite TRICARE's national presence through the managed care support contractors. However, the USFHP has largely remained unchanged, and its role has not since been reassessed within the Military Health System.

• DOD contracts with managed care support contractors to administer TRICARE Prime -- TRICARE's managed care option -- in three regions in the United States (North, South, and West). Separately, TRICARE Prime is offered through the USFHP by designated providers in certain locations within the same three TRICARE regions that are served by a managed care support contractor. Thus, the USFHP offers military beneficiaries the same TRICARE Prime benefit that is offered by the managed care support contractors across much of the same geographic service areas and through many of the same providers. As a result, DOD has incurred added costs by paying the USFHP designated providers to simultaneously administer the same TRICARE Prime benefit to the same population of eligible beneficiaries in many of the same locations as the managed care support contractors. To eliminate this duplication within DOD's health system and potentially save millions of dollars, we suggested that Congress terminate the statutorily required USFHP.

• EPA's and FDA's Laboratory Inspections: The Environmental Protection Agency (EPA) and the Food and Drug Administration (FDA) within HHS may be duplicating each other's work by inspecting the same laboratories. Although EPA and FDA entered into an interagency agreement to collaborate on laboratory inspections in 1984, the agreement was not renewed in 2004 and formal communication ended by 2007. We found in May 2014 that they do not regularly communicate about scheduled inspections or share results from completed inspections.⁷ For example, one laboratory in Maryland was inspected by both EPA and FDA eight times from fiscal year 2005 to fiscal year 2012. A representative from this laboratory told us that some of the information in the laboratory's toxicology studies FDA officials examined during a 2011 inspection could have been shared with EPA officials. By not collaborating and communicating regularly, EPA and FDA may be missing opportunities to improve efficiency and effectiveness. For example, if EPA knew in advance that a laboratory was recently inspected by FDA, EPA inspectors could use FDA's inspection results to inform their decision regarding whether to conduct their own inspection. Moreover, information-sharing between agencies could help them leverage limited resources, because each agency can only inspect a certain number of laboratories each year.

• To avoid potentially duplicative inspections and use limited resources more efficiently, we recommended that EPA and FDA take actions to regularly collaborate and share information on laboratory inspections through a formal written agreement such as a memorandum of understanding that outlines how the two agencies plan to regularly collaborate and share information on inspections. In response to our recommendation, EPA agreed to work with FDA to develop written procedures that outline how EPA and FDA plan to collaborate and share information on laboratory inspections. However, EPA stated that it did not agree that a formal memorandum of understanding between the two agencies was necessary. We agree and note that we did not prescribe the type of agreement the agencies should undertake and offered a memorandum of understanding as one example. FDA agreed with our recommendation but reiterated that there are legitimate reasons why some laboratory inspections may be conducted by both agencies at a single laboratory within a short period of time.

We suggest 46 actions that the executive branch and Congress can take to reduce the cost of government operations and enhance revenue collections for the U.S. Treasury in 12 areas. Examples of these actions include rescinding unobligated funds, re-examining the appropriate size of the Strategic Petroleum Reserve, modifying the way Medicare pays certain cancer hospitals, and increasing tax revenue collections.

• Rescinding unobligated funds: Congress may wish to consider permanently rescinding the entire $1.6 billion balance of the U.S. Enrichment Corporation (USEC) Fund, a revolving fund in the U.S. Treasury. As part of a 2001 GAO legal opinion, we determined that the USEC Fund was available for two purposes, which have been fulfilled: (1) environmental clean-up expenses associated with the disposition of depleted uranium at two specific facilities and (2) expenses of USEC privatization. Regarding the first authorized purpose, the construction of intended facilities associated with the disposition of depleted uranium has been completed. Regarding the second authorized purpose, USEC privatization was completed in 1998 when ownership of USEC was transferred to private investors. In an April 2014 report to Congress, the Department of Energy's (DOE) National Nuclear Security Administration stated that the USEC Fund was one of two sources of funding that it was exploring to finance research, development, and demonstration of national nuclear security-related enrichment technologies. However, this is not one of the authorized purposes of the USEC Fund. Transparency in budget materials is important for informing congressional decisions, and DOE's efforts to utilize USEC Fund monies instead of general fund appropriations diminish that transparency. The House of Representatives included language to permanently rescind the USEC Fund in H.R. 4923, Energy and Water Development and Related Agencies Appropriations Act, which passed the House on July 10, 2014. However, the rescission was not included in Public Law 113-235, Consolidated and Further Continuing Appropriations Act, 2015. As of March 2015, legislation containing a similar rescission had not been introduced in the 114th Congress.

• Re-examining the appropriate size of the Strategic Petroleum Reserve: DOE should assess the appropriate size of the Strategic Petroleum Reserve (SPR) to determine whether excess crude oil could be sold to fund other national priorities. The United States holds the SPR so that it can release oil to the market during supply disruptions to protect the U.S. economy from damage. After decades of generally falling U.S. crude oil production, technological advances have contributed to increasing U.S. production. Monthly crude oil production has increased by almost 68 percent from 2008 through April 2014, and increases in production in 2012 and 2013 were the largest annual increases since the beginning of U.S. commercial crude oil production in 1859, according to the Energy Information Administration (EIA).⁸

• As of September 2014, the reserve had 106 days of imports, which DOE estimated was valued at about $45 billion as of December 2014. As a member of the International Energy Agency, the United States is required to maintain public and private reserves of at least 90 days of net imports and to release these reserves and reduce demand during oil supply disruptions. We found in September 2014 that DOE had taken steps to assess aspects of the SPR but had not recently reexamined its size. Without such a reexamination, DOE cannot be assured that the SPR is holding an appropriate amount of crude oil. If, for example, DOE found that 90 days of imports was an appropriate size for the SPR, it could sell crude oil worth $6.7 billion and use the proceeds to fund other national priorities. In addition, by reducing the SPR to 90 days, DOE may be able to reduce its operating costs by about $25 million per year.⁹ DOE concurred with our recommendation, stating that a broad, long-range review of the SPR is needed and that it has initiated a process for conducting a comprehensive reexamination of the appropriate size of the SPR.

• Modifying the way Medicare pays certain cancer hospitals: To better control Medicare spending and generate cost savings of almost $500 million per year, Congress should consider changing Medicare's payment methods for certain cancer hospitals. Medicare pays the majority of hospitals using an approach known as the inpatient and outpatient prospective payment systems (PPS). Under a PPS, hospitals are paid a predetermined amount based on the clinical classification of each service they provide to beneficiaries. Beginning in 1983, in response to concern that certain cancer hospitals would experience payment reductions under such a system, Congress required the establishment of criteria under which 11 cancer hospitals are currently exempted from the inpatient PPS and receive payment adjustments under the outpatient PPS. Since these cancer hospitals were first established in the early 1980s, cancer care and Medicare's payment system have changed significantly. Advances in techniques and drugs have increased treatment options and allowed for more localized delivery of care. Along with these developments, the primary setting for cancer care has shifted from the inpatient setting to the outpatient setting. In addition, Medicare's current payment system better recognizes the resource intensity of hospital care than the system put in place in 1983.

• While most hospitals are paid a predetermined amount based on the clinical classification of each service they provide to beneficiaries, Medicare generally pays these 11 cancer hospitals based on their reported costs, providing little incentive for efficiency. We found that if beneficiaries who received care at the 11 cancer hospitals had received inpatient and outpatient services at nearby PPS teaching hospitals, Medicare might have realized substantial savings in 2012. Specifically, we estimated inpatient savings of about $166 million; we calculated outpatient savings of about $303 million if forgone payment adjustments were returned to the Medicare Trust Fund.¹⁰ Until Medicare pays these cancer hospitals in a way that encourages greater efficiency, Medicare remains at risk for overspending.

• Increasing tax revenue collections: Our 2015 annual report includes 21 actions that the federal government should take to potentially enhance tax revenue in the billions of dollars. Reducing the tax gap -- the difference between taxes owed and taxes paid on time -- by 1 percent through improved collections could increase tax revenues by almost $4 billion annually. Given that individual income tax misreporting accounts for the largest portion of the estimated annual $385 billion net tax gap, even small changes in IRS's enforcement programs could result in hundreds of millions of dollars of increased revenue.

• Specifically, we recommended that IRS develop and implement a strategy to better estimate the extent and nature of misreporting by partnerships and S corporations and the effectiveness of partnership examinations in detecting this misreporting.¹¹ In May 2014, we reported that IRS does not know the full extent of partnership and S corporation income misreporting. We estimated a rough order of magnitude of partnership and S corporation income misreported by individuals to be $91 billion per year in lost tax revenue for tax years 2006 through 2009. Further, IRS has limited information on the effectiveness of its examinations in detecting income misreporting by partnerships. For example, IRS estimated that 3 percent to 22 percent of identified misreporting by partnerships was double counted due to income flowing from one partnership to another or to other related parties. Without reliable information on the extent of partnership misreporting, or the results of its partnership examinations, IRS cannot make fully informed decisions about whether its allocation of enforcement resources across business types is justified. IRS stated that it had not fully evaluated our recommendations but said it would consider all of our recommendations and identify appropriate IRS actions while keeping resource limitations in mind.

Finally, in addition to issues identified in our annual reports, in our February 2015 high-risk series update, we identified options to help reduce the risk of tax refund fraud due to identity theft.¹³ Identity theft occurs when an identity thief files a fraudulent tax return using a legitimate taxpayer's identifying information and claims a refund. IRS estimates it paid out $5.8 billion (the exact number is uncertain) in fraudulent refunds in filing season 2013 due to identity theft. While there are no simple solutions to combating identity refund fraud, we identified various options that could help, some of which would require legislative action. Because some of these options represent a significant change to the tax system that could likely burden taxpayers and impose significant costs to IRS for systems changes, it is important for IRS to assess the relative costs and benefits of the options. This assessment will help ensure an informed discussion among IRS and relevant stakeholders -- including Congress -- on the best option (or set of options) for preventing identity theft refund fraud.

Executive Branch Agencies and Congress Continue to Address Actions That Span the Federal Government

In addition to the new actions identified for this report, we have continued to monitor the progress that executive branch agencies or Congress have made in addressing the issues we identified in our last four reports. In our 2011-2014 annual reports, we identified approximately 440 actions that the executive branch and Congress could take to reduce, eliminate, or better manage fragmentation, overlap, or duplication or achieve other potential financial benefits.

Overall Progress on 2011-2014 Actions

Executive branch agencies and Congress have made progress in addressing a number of the actions we previously identified (fig. 2).¹⁴ In total, as of March 6, 2015, the date we completed our audit work, we found that 169 (37 percent) were addressed, 179 (39 percent) were partially addressed, and 90 (20 percent) were not addressed.¹⁵ An additional 46 actions have been assessed as addressed over the past year. These addressed actions include 13 actions identified in 2011, 14 actions identified in 2012, 11 actions identified in 2013, and 8 identified in 2014. See appendix IV for a list of all areas and the status of related actions.

 

Figure 2: Progress in Addressing 2011, 2012, 2013, and 2014

 

Actions as of the 2014 and 2015 Annual Reports

 

 

 

Note: Actions assessed as "consolidated or other" are not assessed due to additional work or other information we considered. Additionally, 2014 actions were not assessed in 2014 since that was the year that the actions were identified.

We estimated that executive branch and congressional efforts to address suggested actions resulted in roughly $20 billion in financial benefits from fiscal years 2011 through 2014, with another approximately $80 billion in additional benefits projected to be accrued through 2023.¹⁶

Table 1 outlines a selection of our addressed actions that have resulted in or are expected to result in cost savings or enhanced revenue.

^b In addition, the first $250 million in fees collected each fiscal year are, consistent with existing law, to be deposited in the Aviation Security Capital Fund for use in supporting aviation security-related airport capital improvement projects or for other purposes specified in statute. See 49 U.S.C. §§ 44923(h), 44940(i).

^c See 49 U.S.C. § 44940(i) (identifying, among other things, the specific amount to be credited as offsetting receipts and deposited in the general fund of the U.S. Treasury each fiscal year, 2014 through 2023).

^d The Bipartisan Budget Act further revoked TSA's authority to collect the Aviation Security Infrastructure Security Fee, which TSA had been collecting from air carriers pursuant 49 U.S.C. § 44940(a)(2). See Pub. L. No. 113-67, § 601(a), 127 Stat. at 1187.

• Domestic Ethanol Production: In our 2011 annual report, we stated that the ethanol tax credit would cost about $5 billion in forgone revenues in 2011 and that Congress could reduce annual revenue losses by addressing duplicative federal efforts directed at increasing domestic ethanol production. To reduce these revenue losses, we suggested that Congress consider whether revisions to the ethanol tax credit were needed and suggested options to consider, including allowing the credit for the volumetric ethanol excise tax (for fuel blenders that purchase and blend ethanol with gasoline) to expire at the end of 2011. Congress allowed the tax credit to expire at the end of 2011.

• Farm Program Payments: We reported in our 2011 annual report that Congress could save up to $5 billion annually by reducing or eliminating direct payments to farmers. These are fixed annual payments based on a farm's history of crop production. Farmers received them regardless of whether they grew crops and even in years of record income. Direct payments were expected to be transitional when first authorized in 1996, but subsequent farm bills continued these payments.¹⁷ Congress passed the Agricultural Act of 2014, which eliminated direct payments to farmers and should save approximately $4.9 billion annually from fiscal year 2015 through fiscal year 2023, according to the Congressional Budget Office.

• Combat Uniforms: In our 2013 annual report, we found that DOD's fragmented approach could lead to increased risk on the battlefield for military personnel and increased development and acquisition costs. In response, DOD developed and issued guidance on joint criteria to help ensure that future service-specific uniforms will provide equivalent levels of performance and protection. In addition, a provision in the National Defense Authorization Act for Fiscal Year 2014 established as policy that the Secretary of Defense shall eliminate the development and fielding of service-specific combat and camouflage utility uniforms in order to adopt and field common uniforms for specific environments to be used by all members of the armed forces.¹⁸ Most recently, the Army chose not to introduce a new family of camouflage uniforms into its inventory, in part, because of this legislation, resulting in a cost avoidance of about $4.2 billion over 5 years.

• Overseas Defense Posture: In our 2012 annual report, we suggested the Secretary of Defense should direct appropriate organizations within DOD to complete a business case analysis, including an evaluation of alternative courses of action, for the strategic objectives that have to this point driven the decision to implement tour normalization in South Korea -- that is, a DOD initiative to transform its defense posture in South Korea. DOD subsequently evaluated the costs and benefits and decided not to move forward with the full tour normalization initiative because it was not affordable. DOD's decision to not move forward with this initiative resulted in a cost avoidance of $3.1 billion from fiscal years 2012 through 2016. In addition, DOD fully addressed our recommended actions to develop comprehensive cost information and re-examine alternatives to planned initiatives. For example, the data that DOD reports to Congress now reflect all cost categories for new or ongoing funded posture initiatives in support of enduring operations that, according to DOD officials, have been approved by the Secretary of Defense. To further facilitate congressional oversight of plans to realign U.S. defense posture in the Pacific, DOD made corrective actions for mitigating financial risks and better defining future requirements, as we recommended. As a result of these actions, DOD decision makers will have additional fiscal context in which to review posture plans and requirements, and congressional committees should have a better understanding of the potential funding requirements associated with DOD budget requests.

• Employment and Training: Congress and executive branch agencies have also taken actions to help address the proliferation of certain employment programs and improve the delivery of benefits. Specifically, in June 2012, we reported on 45 programs administered by nine federal agencies that supported employment for people with disabilities and found these programs were fragmented and often provided similar services to similar populations.¹⁹ The Workforce Innovation and Opportunity Act, enacted in July 2014, eliminated three programs that supported employment for people with disabilities, including the Veterans' Workforce Investment Program, administered by the Department of Labor, and the Migrant and Seasonal Farm worker Program and Projects with Industry, administered by the Department of Education.²⁰ In addition, OMB worked with executive agencies to propose consolidating or eliminating two other programs, although Congress did not take action and both programs continued to receive funding. The Workforce Innovation and Opportunity Act also helped to promote efficiencies for some of the 47 employment and training programs that support a broader population (including people with and without disabilities), which we reported on in 2011. In particular, this law requires states to develop a unified state plan that covers all designated core programs in order to receive certain funding. As a result, states' implementation of the requirement may enable them to increase administrative efficiencies in employment and training programs -- a key objective of our prior recommendations.

Although Congress and executive branch agencies have made progress toward addressing the actions we have identified, further steps are needed to fully address the remaining actions, as shown in table 2. More specifically, 57 percent of the actions addressed to executive branch agencies and 66 percent of the actions addressed to Congress identified in our 2011-2014 reports remain partially or not addressed.²¹

       Table 2: Status of 2011-2014 Actions Directed to Congress and the

 

Figure 3: Fiscal Year 2014 Obligations and

 

Number of Actions by Agency

 

 

 

Notes: Individual actions are counted multiple times, when they are directed to more than one federal department or agency. Percentages are rounded to the nearest whole percent for items greater than 1 percent.

^b Treasury's percentage of fiscal year 2014 obligations includes interest on the national debt.

^c The judicial branch represented 0.2 percent of federal obligations in fiscal year 2014.

^d Actions have also been directed to agencies and other federal entities that each represented less than 0.2 percent of federal obligations in fiscal year 2014.

Reducing Contract Spending through Strategic Sourcing

In our 2013 annual report, we reported that federal agencies could achieve significant cost savings annually by expanding and improving their use of strategic sourcing -- a contracting process that moves away from numerous individual procurement actions to a broader aggregated approach. In particular, DOD, DHS, DOE, and VA accounted for 80 percent of the $537 billion in federal procurement spending in fiscal year 2011, but reported managing about 5 percent, or $25.8 billion, through strategic sourcing efforts. In contrast, leading commercial firms leverage buying power by strategically managing 90 percent of their spending -- achieving savings of 10 percent or more of total procurements costs. While strategic sourcing may not be suitable for all procurement spending, we reported that a reduction of 1 percent from procurement spending at these agencies would equate to over $4 billion in savings annually. However, a lack of clear guidance on metrics for measuring success has hindered the management of ongoing strategic sourcing efforts across the federal government. Since our 2013 report, OMB has made progress by issuing guidance on calculating savings for government-wide strategic sourcing contracts, and in December 2014 it issued a memorandum on category management that, among other things, identifies federal spending categories suitable for strategic sourcing. These categories cover some of the government's largest spending categories, including information technology and professional services. According to OMB, these categories accounted for $277 billion in fiscal year 2013 federal procurements. This level of spending suggests that by using smarter buying practices the government could realize billions of dollars in savings. In addition, the administration has identified expanded use of high-quality, high-value strategic sourcing solutions as one of its cross-agency priority goals, which are a limited set of outcome-oriented, federal priority goals. However, until OMB sets government-wide goals and establishes metrics, the government may miss opportunities for billions in cost savings through strategic sourcing.

More Effectively Targeting Defense Resources

Our work on defense has highlighted opportunities to improve efficiencies, reduce costs, and address overlapping and potentially duplicative services that result from multiple entities providing the same service, including the following examples.

• Combatant Command Headquarters Costs: Our body of work has raised questions about whether DOD's efforts to reduce headquarters overhead will result in meaningful savings. In 2013, the Secretary of Defense directed a 20 percent cut in management headquarters spending throughout DOD, to include the combatant commands and service component commands. In June 2014 we found that mission and headquarters-support costs for the five geographic combatant commands and their service component commands we reviewed more than doubled from fiscal years 2007 through 2012, to about $1.7 billion. We recommended that DOD more systematically evaluate the sizing and resourcing of its combatant commands. If the department applied the 20 percent reduction in management headquarters spending to the entire $1.7 billion DOD used to operate and support the five geographic combatant commands in fiscal year 2012, we reported that DOD could achieve up to an estimated $340 million in annual savings.

• Tactical Wheeled Vehicles: DOD spends billions of dollars each year to procure tactical wheeled vehicles, which are used to transport people, weapons, and cargo. Since 2008, GAO has identified tactical wheeled vehicle procurement as being at risk for duplication, and in 2009 GAO recommended that DOD develop a unified acquisition strategy. As of February 2015, DOD no longer plans to issue a comprehensive Tactical Wheeled Vehicle Roadmap, originally expected for release in the spring of 2013. The purpose of the roadmap was to document agreements and plans between DOD and the military services and to address our recommendation to reduce the risk of duplication. According to an official at the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, sharp reductions in fleet modernization funds prompted DOD to no longer use the roadmap approach. Instead, the department will evaluate each investment opportunity in terms of future force structure, fleet composition, best value, affordability, joint capabilities, and survivability through the joint capabilities integration development system and acquisition management system framework. Prior to this decision, DOD had taken numerous steps to address cost effectiveness and potential duplication within the tactical wheeled vehicle portfolio, as we recommended, but it stopped short of developing a comprehensive tactical wheeled vehicle strategy. Without a comprehensive roadmap that describes strategies and goals for the entire tactical wheeled vehicle portfolio, it will likely be difficult for DOD to ensure risk reduction and avoid duplication in future acquisitions of tactical wheeled vehicles, which could drive up acquisition and support costs. We maintain that a comprehensive strategy would help DOD manage the risk of duplication and cost growth.

• Electronic Warfare: We reported in 2011 that all four military services in DOD had been separately developing and acquiring new airborne electronic attack systems and that spending on new and updated systems was projected to total more than $17.6 billion during fiscal years 2007-2016. While the department has taken steps to better inform its investments in airborne electronic attack capabilities, it has yet to assess its plans for developing and acquiring two new expendable jamming decoys to determine if these initiatives should be merged.²²

More Efficiently Managing Information Technology Investments

The federal government planned to spend at least $79 billion on information technology (IT) in fiscal year 2015. The magnitude of these expenditures highlights the importance of avoiding duplicative investments to better ensure the most efficient use of resources. Opportunities remain to reduce or better manage duplication and the cost of government operations in critical IT areas, many of which require agencies to work together to improve systems, including the following examples.

• Information Technology Investment Portfolio Management: To better manage existing IT systems, in March 2012 OMB launched the Portfolio Stat initiative. PortfolioStat requires agencies to conduct an annual, agency-wide review of their IT portfolios to reduce commodity IT spending and demonstrate how their IT investments align with their missions and business functions, among other things. In 2014, we found that while the 26 federal agencies required to participate in PortfolioStat had made progress in implementing OMB's initiative, weaknesses existed in agencies' implementation of the initiative, such as limitations in the Chief Information Officer's authority. In the President's Fiscal Year 2016 Budget submission, the administration proposes to use PortfolioStat to drive efficiencies in agencies' IT programs. As noted in our recent high-risk series update, we have made more than 60 recommendations to improve OMB and agencies' implementation of PortfolioStat and provide greater assurance that agencies will realize the nearly $6 billion in savings they estimated they would achieve through fiscal year 2015.²⁴

• Federal Data Centers: In September 2014, we found that consolidating federal data centers would provide an opportunity to improve government efficiency and achieve cost savings and avoidances of about $5.3 billion by fiscal year 2017. Although OMB has taken steps to identify data center consolidation opportunities across agencies, weaknesses exist in the execution and oversight of the consolidation efforts. Specifically, we reported many agencies are not fully reporting their planned savings to OMB as required; GAO estimates that the savings have been underreported to OMB by approximately $2.2 billion. It will continue to be important for agencies to complete their inventories and implement their plans for consolidation to better ensure continued progress toward OMB's planned consolidation, optimization, and cost-savings goals.

• Information Technology Operations and Maintenance: Twenty-seven federal agencies plan to spend about $58 billion -- almost three-quarters of the overall $79 billion budgeted for federal IT in fiscal year 2015 -- on the operations and maintenance of legacy investments. Given the magnitude of these investments, it is important that agencies effectively manage them to better ensure the investments (1) continue to meet agency needs, (2) deliver value, and (3) do not unnecessarily duplicate or overlap with other investments. Accordingly, OMB developed guidance that calls for agencies to analyze (via operational analysis) whether such investments are continuing to meet business and customer needs and are contributing to meeting the agency's strategic goals. In our 2013 annual report, we reported that agencies did not conduct such an analysis on 52 of the 75 major existing information technology investments we reviewed.²⁵

• As a result, there was increased potential for these information technology investments in operations and maintenance -- totaling $37 billion in fiscal year 2011 -- to result in waste and duplication. To avoid wasteful or duplicative investments in operations and maintenance, we recommended that agencies analyze all information technology investments annually and report the results of their analyses to OMB. Agencies have made progress in performing some operational analyses; however, until the agencies fully implement their policies and ensure complete and thorough operational analyses are being performed on their multi billion-dollar operational investments, there is increased risk that these agencies will not know whether these investments fully meet their intended objectives, therefore increasing the potential for waste and duplication.

• Geospatial Investments: In a 2013 report, we found that 31 federal departments and agencies invested billions of dollars to collect, maintain, and use geospatial information -- information linked to specific geographic locations that supports many government functions, such as maintaining roads and responding to natural disasters. We found that federal agencies had not effectively implemented policies and procedures that would help them identify and coordinate geospatial data acquisitions across the government, resulting in duplicative investments.

• In a 2015 report, we reported that federal agencies had made progress in implementing policies and procedures.²⁶ However, critical items remained incomplete, including coordinating activities with state governments, which also use a variety of geospatial datasets -- including address data and aerial imagery -- to support their missions. We found that a new initiative to create a national address database could potentially result in significant savings for federal, state, and local governments. To foster progress in developing such a national database, we suggested that Congress consider assessing existing statutory limitations on address data. We also recommended that the interagency coordinating body for geospatial information (1) establish subcommittees and working groups to assist in furthering a national address database; and (2) identify discrete steps to further a national imagery program benefitting governments at all levels. Finally, we recommended that the Director of OMB require agencies to report on their efforts to implement policies and procedures before making new investments in geospatial data. OMB generally agreed with this recommendation. In addition, in March 2015, the Geospatial Data Act of 2015 was introduced and includes provisions to improve oversight and help reduce duplication in the management of geospatial data, consistent with our recommended actions.²⁷ Fully addressing the actions in our two reports could help reduce duplicative investments and the risk of missing opportunities to jointly acquire data, potentially saving millions of dollars.²⁸

• DOD and Department of Veterans Affairs (VA) Electronic Health Records System: DOD and VA have abandoned their plans to develop a single electronic system for health records that both departments would share. Although the departments' 2008 study showed that over 97 percent of inpatient functional requirements were common to both DOD and VA, they have decided to pursue separate electronic health record system modernization efforts. In a February 2014 report, we found that the departments had based this decision on the assertion that pursuing separate systems would be less expensive and faster than the single, shared-system approach.²⁹ However, the departments had not supported this assertion with cost and schedule estimates that compared the separate efforts with estimates for the single-system approach. As a result, we recommended that VA and DOD develop and compare the estimated cost and schedule of their current and previous approaches to creating an interoperable electronic health record and, if applicable, provide a rationale for pursuing a more costly or time-consuming approach. We also recommended that the departments develop plans for interoperability and ensure the Interagency Program Office -- established by law to act as a single point of accountability for the departments' development of interoperable health records -- has control over needed resources and clearer lines of authority.³⁰ The departments generally agreed with our recommendations. Through continued duplication of efforts, the departments may be incurring unnecessary system development and operation costs and missing opportunities to support higher-quality health care for servicemembers and veterans.

Improving Fiscal Oversight of Medicare and Medicaid

Over the years, we have identified a number of actions that have the potential for sizable cost savings through improved fiscal oversight in the Medicare and Medicaid programs. For example, CMS could save billions of dollars by improving the accuracy of its payments to Medicare Advantage programs, such as through methodology adjustments to account for diagnostic coding differences between Medicare Advantage and traditional Medicare.³¹ In addition, we found that federal spending on Medicaid demonstrations could be reduced by billions of dollars if HHS were required to improve the process for reviewing, approving, and making transparent the basis for spending limits approved for Medicaid demonstrations.³² In particular, our work between 2002 and 2014 has shown that HHS approved several demonstrations without ensuring that they would be budget neutral to the federal government.

To address this issue, we suggested that Congress could require the Secretary of Health and Human Services to improve the Medicaid demonstration review process, through steps such as improving the review criteria, better ensuring that valid methods are used to demonstrate budget neutrality, and documenting and making clear the basis for the approved limits. We concluded in August 2014, that HHS's approval of $778 million dollars of hypothetical costs (i.e., expenditures the state could have made but did not) in the Arkansas demonstration spending limit and the department's waiver of its cost-effectiveness requirement is further evidence of our long-standing concerns that HHS is approving demonstrations that may not be budget-neutral.³³ HHS's approval of the Arkansas demonstration suggests that the Secretary may continue to approve section 1115 Medicaid demonstrations that raise federal costs, inconsistent with the department's policy of budget neutrality. We maintain that enhancing the process HHS uses to demonstrate budget neutrality of its demonstrations could save billions in federal expenditures.

In our February 2015 high-risk series update, we reported that while CMS had taken positive steps to improve Medicare and Medicaid oversight in recent years, in several areas, CMS had still to address some issues and recommendations, and improper payment rates have remained unacceptably high.³⁴ We have reported that to achieve and demonstrate reductions in the amount of Medicare improper payments, CMS should fully exercise its authority related to strengthening its provider and supplier enrollment provisions and address our open recommendations related to prepayment and postpayment claims review activities. Similarly, in the area of Medicaid, we have made recommendations targeted at (1) improving the completeness and reliability of key data needed for ensuring effective oversight, (2) implementing effective program integrity processes for managed care, (3) ensuring clear reporting of overpayment recoveries, and (4) refocusing efforts on program integrity approaches that are cost-effective. Table 3 summarizes selected recommendations we have made to reduce improper payments in these important areas. These recommendations, if effectively implemented, could improve program management, help reduce improper payments in these programs, and achieve cost savings.

Improving use of automated edits.^a In November 2012, we reported that use of prepayment edits saved Medicare at least $1.76billion in fiscal year 2010, but savings could have been greater if prepayment edits had been more widely used.^b

Monitoring postpayment claims reviews. To improve the efficiency and effectiveness of Medicare program integrity efforts, were commended in July 2014 that CMS reduce differences between contractor postpayment review requirements, when possible, and monitor the database used to track recovery audit activities to ensure that all data were submitted, accurate, and complete.^c

Removing Social Security numbers from Medicare cards. The health insurance claims number on Medicare beneficiaries' cards includes as one component the Social Security number of the beneficiary (or other eligible person, such as a spouse). This introduces risks that the beneficiaries' personal information could be obtained and used to commit identity theft.^d To better position the agency to efficiently and cost-effectively identify, design, develop, and implement a solution to address this issue, we recommended that CMS direct the initiation of an IT project for identifying, developing, and implementing changes that would have to be made to CMS's affected systems.

Implementing actions authorized by the Patient Protection and Affordable Care Act (PPACA). We reported in our February 2015 update to our high-risk series that CMS should fully exercise its PPACA authority related to strengthening its provider and supplier enrollment provisions.^e The following summarizes additional open recommendations and procedures authorized by PPACA that CMS should implement to make progress toward fulfilling the four outstanding criteria to remove Medicare improper payments from our high-risk list. CMS should

• require a surety bond for certain types of at-risk providers and suppliers;

• publish a proposed rule for increased disclosures of prior actions taken against providers and suppliers enrolling or revalidating enrollment in Medicare, such as whether the provider or supplier has been subject to a payment suspension from a federal health care program;

• establish core elements of compliance programs for providers and suppliers;

• improve automated edits that identify services billed in medically unlikely amounts;

• develop performance measures for the Zone Program Integrity Contractors who explicitly link their work to the agency's Medicare FFS program integrity performance measures and improper payment reduction goals; and

• require Medicare administrative contractors to share information about the underlying policies and savings related to their most effective edits.

Increasing oversight of managed care. Most Medicaid beneficiaries are in managed care, and managed care expenditures have been growing at a faster rate than fee-for-service expenditures. In May 2014, we reported that most state and federal program integrity officials we interviewed told us that they did not closely examine managed care payments, focusing on fee-for-service claims instead.^g To help improve the efficiency and effectiveness of program integrity efforts, we recommended that CMS require states to conduct audits of payments to and by managed care organizations, update managed care guidance on program integrity practices, and provide states with additional support in overseeing managed care program integrity.

Strengthening program integrity. Although CMS has taken positive steps to oversee program integrity efforts in Medicaid, other actions remain, such as improving reporting of key data, strengthening its efforts to calculate return on investment for its program integrity efforts, and using knowledge gained from its comprehensive reviews of states to better focus audit resources and improve recovery of improper payments.

Source: GAO. | GAO-15-404SP

^b See GAO, Medicare Program Integrity: Greater Prepayment Control Efforts Could Increase Savings and Better Ensure Proper Payment, GAO-13-102 (Washington,D.C.: Nov. 13, 2012).

^c GAO, Medicare Program Integrity: Increased Oversight and Guidance Could Improve Effectiveness and Efficiency of Postpayment Claims Reviews, GAO-14-474 (Washington,D.C.: July 18, 2014). We suggest actions related to monitoring postpayment claims reviews in this report; see area 7: Medicare Postpayment Claims Reviews.

^d See GAO, Medicare Information Technology: Centers for Medicare and Medicaid Services Needs to Pursue a Solution for Removing Social Security Numbers from Cards, GAO-13-761 (Washington,D.C.: Sept. 10, 2013).

^e See GAO, High-Risk Series: An Update, GAO-15-290 (Washington, D.C.: Feb. 11, 2015).

^f See GAO, Medicaid: Additional Federal Action Needed to Further Improve Third-Party Liability Efforts, GAO-15-208 (Washington,D.C.: Jan. 28, 2015).

^g See GAO, Medicaid Program Integrity: Increased Oversight Needed to Ensure Integrity of Growing Managed Care Expenditures, GAO-14-341 (Washington,D.C.: May 19, 2014).

Over the last 4 years, our work identified multiple opportunities for the government to increase revenue collections. For example, in 2014, we identified three actions that Congress could authorize that could increase tax revenue collections from delinquent taxpayers by hundreds of millions of dollars over a 5-year period: limiting issuance of passports to applicants, levying payments to Medicaid providers, and identifying security clearance applicants.³⁵ For example, Congress could consider requiring the Secretary of State to prevent individuals who owe federal taxes from receiving passports. We found that in fiscal year 2008, passports were issued to about 16 million individuals; about 1 percent of these collectively owed more than $5.8 billion in unpaid federal taxes as of September 30, 2008. According to a 2012 Congressional Budget Office estimate, the federal government could save about $500 million over a 5-year period by revoking or denying passports to those with certain federal tax delinquencies.

In addition, in our 2011 annual report, we highlighted the area of improper payments as having the potential for significant cost savings and reported on the federal government's challenges in determining the full extent to which improper payments occur and in ensuring appropriate actions are being taken to reduce them. In addition to Medicare and Medicaid, the Earned Income Tax Credit (EITC) has one of the highest estimates of improper payments government-wide.³⁶ In particular, in fiscal year 2014, IRS reported program payments of $65.2 billion for the EITC. According to IRS, an estimated 27.2 percent, or $17.7 billion, of these program payments were improper.³⁷ The estimated EITC improper payment rate has remained relatively unchanged since fiscal year 2003 (the first year IRS was required to report estimates of these payments to Congress), but the amount of improper EITC payments has increased from an estimated $10.5 billion in fiscal year 2003 to nearly $18 billion in fiscal year 2014.³⁸

We have highlighted the persistent problems with improper EITC payments for years, and it is a factor underlying our continued designation of IRS Enforcement of Tax Laws as a high-risk area.³⁹ As we have reported, although the EITC program has been modified a number of times since its enactment in 1975 to reduce complexity and help improve the program's administration, complexity remains a key factor contributing to improper payments in the program. Among other things, IRS uses audits to help identify EITC improper payments, and in June 2014, we reported that about 45 percent of correspondence audits (audits done by mail) that closed in fiscal year 2013 focused on EITC issues. However, the effectiveness of these audits may be limited because of regular backlogs in responding to taxpayers since 2011 and unclear correspondence that generates additional work for IRS, such as phone calls to IRS examiners. These issues impose unnecessary burdens on taxpayers and costs for IRS. IRS acknowledged these concerns and the limitations faced in significantly reducing EITC improper payments using the traditional audit process. Consequently, IRS has initiated several programs to address EITC improper payments, such as increasing outreach and education to taxpayers and return preparers.

In addition to these efforts, additional IRS and legislative actions are likely necessary to make any meaningful reduction in improper payments. We have recommended a number of executive branch actions or matters for congressional consideration that if effectively implemented, could help to reduce EITC improper payments (table 4).

   Table 4: Selected GAO Matters and Recommendations That Could Help

We have also identified opportunities to implement program benefit offsets, in which certain program benefits for individuals are reduced in recognition of other benefits received. Examples include the following:

• Social Security Offsets: In our 2011 annual report, we reported that the Social Security Administration (SSA) needs data from state and local governments on retirees who receive pensions from employment not covered under Social Security to better enforce offsets and ensure benefit fairness. In particular, SSA needs this information to fairly and accurately apply the Government Pension Offset, which generally applies to spouse and survivor benefits, and the Windfall Elimination Provision, which applies to retired worker benefits. The Social Security's Government Pension Offset and Windfall Elimination Provision takes noncovered employment into account when calculating Social Security benefits. While information on receipt of pensions from noncovered employment is available for federal pension benefits from the federal Office of Personnel Management (OPM), it is not available to SSA for many state and local pension benefits. The President's Fiscal Year 2016 Budget submission re-proposed legislation that would require state and local governments to provide information on their noncovered pension payments to SSA so that the agency can apply the Government Pension Offset and Windfall Elimination Provision. The proposal includes funds for administrative expenses, with a portion available to states to develop a mechanism to provide this information. Also, we continue to suggest that Congress consider giving IRS the authority to collect the information that the SSA needs to administer these offsets. Providing information on the receipt of state and local noncovered pension benefits to SSA could help the agency more accurately and fairly administer the Government Pension Offset and Windfall Elimination Provision and could result in an estimated $2.4 billion-6.5 billion in savings over 10 years if enforced both retrospectively and prospectively. If Social Security only enforced the offsets prospectively, the overall savings would be less as it would not reduce benefits already received.

• Disability and Unemployment Benefits: In our 2014 annual report, we found that 117,000 individuals received concurrent cash benefit payments, in fiscal year 2010, from the Disability Insurance and Unemployment Insurance programs totaling more than $850 million because current law does not preclude the receipt of overlapping benefits. Individuals may be eligible for benefit payments from both Disability Insurance and Unemployment Insurance due to differences in the eligibility requirements; however, in such cases, the federal government is replacing a portion of lost earnings not once, but twice. The President's Fiscal Year 2016 Budget submission proposes to eliminate these overlapping benefits, and during the 113th Congress, bills had been introduced in both the U.S. House of Representatives and the Senate containing language to reduce Disability Insurance payments to individuals for the months they collect Unemployment Insurance benefits. According to the Congressional Budget Office (CBO), this action could save $1.2 billion over 10 years in the Social Security Disability Insurance program. Congress should consider passing legislation to offset Disability Insurance benefit payments for any Unemployment Insurance benefit payments received in the same period.

       Table 5: Selected Areas with Associated Cost-Savings and

Addressing fragmentation, overlap, and duplication within the federal government is challenging. Even with sustained leadership, these are difficult issues to address because they may require agencies and Congress to re-examine (within and across various mission areas) the fundamental structure, operation, funding, and performance of a number of long-standing federal programs or activities with entrenched constituencies. As we have previously reported, these challenges are compounded by a lack of reliable budget and performance information. If fully and effectively implemented, the GPRA Modernization Act of 2010 (GPRAMA) and the Digital Accountability and Transparency Act of 2014 (DATA Act) hold promise for helping to improve performance and budget information and helping to address challenges in identifying and addressing areas of fragmentation, overlap, and duplication.⁴⁰

• GPRAMA establishes a framework aimed at taking a more crosscutting and integrated approach to focusing on results and improving government performance. Effective implementation of GPRAMA could help clarify desired outcomes, address program performance spanning multiple organizations, and facilitate future actions to reduce, eliminate, or better manage fragmentation, overlap, and duplication.⁴¹

• The DATA Act requires actions that would help make spending data comparable across programs, allowing executive branch agencies and Congress to accurately measure the costs and magnitude of federal investments. As we have previously reported, better data and a greater focus on expenditures and outcomes are essential to improving the efficiency and effectiveness of federal efforts.⁴²

Part one provides four steps for analysts to identify and evaluate instances of fragmentation, overlap or duplication:

Part two provides guidance to help policymakers reduce or better manage fragmentation, overlap, and duplication. It includes two sections, one for congressional decision makers and one for executive branch leaders.

This report was prepared under the coordination of Orice Williams Brown, Managing Director, Financial Markets and Community Investment, who may be reached at (202) 512-8678 or williamso@gao.gov; and A. Nicole Clowers, Director, Financial Markets and Community Investment, who may be reached at (202) 512-8678 or clowersa@gao.gov. Specific questions about individual issues may be directed to the area contact listed at the end of each summary.

² Pub. L. No. 111-139, § 21, 124 Stat. 29 (2010), 31 U.S.C. § 712 Note. See appendix I for the list of congressional addressees for this work.

³ GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington,D.C.: Mar. 1, 2011), 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue, GAO-12-342SP (Washington,D.C.: Feb. 28, 2012), 2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits, GAO-13-279SP (Washington,D.C.: Apr. 9, 2013),and 2014 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits, GAO-14-343SP (Washington,D.C.:Apr. 8, 2014).

⁴ We conducted the work for Area 16: U.S. Enrichment Corporation Fund under GAO's quality assurance framework. We use this framework when we conduct routine nonaudits, such as technical assistance provided to Congress. GAO's quality assurance framework requires that we plan and perform the engagement to meet our stated objectives and to discuss any limitations in our work. We maintain that the information and data obtained, and the analysis conducted, provide a reasonable basis for our findings and conclusions.

⁵ The six federal departments are the Departments of Agriculture, Health and Human Services, Education, Housing and Urban Development, Transportation, and Veterans Affairs.

⁶ TRICARE-eligible beneficiaries include active duty personnel and their dependents, medically eligible Reserve and National Guard personnel and their dependents, and retirees and their dependents and survivors.

⁷ Both EPA and FDA conduct laboratory inspections to test laboratories' compliance with the agencies' Good Laboratory Practices (GLP), which are intended to ensure the quality and integrity of data. For example, FDA's GLP regulations ensure the quality and integrity of the data for nonclinical laboratory studies of investigational drugs, medical devices, food additives, and other products.

⁸ EIA is a statistical agency within the Department of Energy that collects, analyzes, and disseminates independent information on energy issues.

⁹ The estimated operation savings was based on GAO's calculation of the amount of oil in excess of 90 days of net imports as of September 2014 and DOE's assessment of its annual operating cost for the SPR at $0.25 per barrel.

¹⁰ We estimated this inpatient savings amount within a range of plus or minus $4 million at a 95 percent confidence level. This savings estimate covers 9 of the 11 cancer hospitals due to missing 2012 data for 2 hospitals.

¹¹ Partnerships and S corporations are flow-through entities, which are entities that generally do not pay taxes themselves on income, but instead, pass income or losses to their partners and shareholders, who must include that income or loss on their income tax returns.

¹² GAO, New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness, GAO-14-500 (Washington,D.C.: July 10, 2014).

¹³ GAO, High-Risk Series: An Update, GAO-15-290 (Washington, D.C.: Feb. 11, 2015).

¹⁴ In assessing actions suggested for Congress, we applied the following criteria: "addressed" means relevant legislation has been enacted and addresses all aspects of the action needed; "partially addressed" means a relevant bill has passed a committee, the House of Representatives, or the Senate, or relevant legislation has been enacted but only addressed part of the action needed; and "not addressed" means a bill may have been introduced but did not pass out of a committee, or no relevant legislation has been introduced. In assessing actions suggested for the executive branch, we applied the following criteria: "addressed" means implementation of the action needed has been completed; "partially addressed" means the action needed is in development, or started but not yet completed; and "not addressed" means the administration, the agencies, or both have made minimal or no progress toward implementing the action needed.

¹⁵ Twenty actions were categorized as "consolidated or other" and were not assessed due to additional audit work or other information we considered.

¹⁶ In calculating these estimates, we relied on estimates from the Congressional Budget Office and the Joint Committee on Taxation, where possible. We also developed estimates based on agencies' data and used agencies' developed estimates. The totals reflect a summary of these estimates, which relied on different data sources and methodologies and considered different time periods. They represent a rough estimate of financial benefits and have been rounded down to the nearest $5 billion.

¹⁷ According to the conference report accompanying the 1996 Farm Bill, production flexibility contract payments -- the precursors to direct payments, which were similar in design -- were established to help farmers make a transition to basing their planting decisions on market signals rather than on government programs. Accordingly, production flexibility contract payments were scheduled to decrease over time and expire in 2002. Federal Agricultural Improvement and Reform Act of 1996, Pub. L. No. 104-127, 110 Stat. 888. However, farm bills passed in 2002 and 2008 continued these payments as "direct payments."

¹⁸ Subject to certain exceptions, the provision also prohibits the military departments from adopting new pattern designs or uniform fabrics unless they will be adopted by all services or the uniform is already in use by another service. See Pub. L. No. 113-66, § 352(a), (b) (2013). In addition, DOD must issue implementing guidance requiring the military departments to, among other things, ensure that new uniforms meet commanders of combatant command's geographic and operational requirements and continually work together to assess and develop new uniform technologies to improve warfighter survivability. See Pub. L. No. 113-66, § 352(f).

¹⁹ GAO's February 2012 annual report on opportunities to reduce duplication, overlap, and fragmentation across the federal government included 50 programs that supported employment for people with disabilities in fiscal year 2010. GAO later updated its analyses to exclude, for example, programs that had been phased out or ended as of April 2012. In June 2012, GAO reported on 45 programs that supported employment for people with disabilities.

²⁰ Funding for Projects with Industry was eliminated in fiscal year 2011. As a result, we excluded it from our list of 45 programs in our June 2012 report.

²¹ Twenty actions, or 4 percent, have been consolidated into other areas and are no longer been assessed due to additional work or other information that we considered.

²² DOD employs expendable jamming decoys to degrade enemy air defense systems with the purpose of allowing U.S. aircraft to operate within threat environments.

²³ GAO-15-290.

²⁴ GAO-15-290.

²⁵ Our review included major information technology investments at DOD, HHS, DHS, Treasury, and VA.

²⁶ GAO, Progress Needed on Identifying Expenditures, Building and Utilizing a Data Infrastructure, and Reducing Duplicative Efforts, GAO-15-193 (Washington, D.C.: Feb. 12, 2015).

²⁷ S. 740, 114^th Cong. (2015).

²⁸ We have added the recommendations from GAO-15-193 to GAO's Action Tracker.

²⁹ GAO, Electronic Health Records: VA and DOD Need to Support Cost and Schedule Claims, Develop Interoperability Plans, and Improve Collaboration, GAO-14-302 (Washington, D.C.: Feb. 27, 2014).

³⁰ We have added the recommendations from GAO-14-302 to GAO's Action Tracker.

³¹ Medicare Advantage is the private plan alternative to the original Medicare program. Medicare Advantage plans are paid a fixed, per member, per month payment to provide all services covered under original Medicare. This payment does not vary on the basis of the services beneficiaries receive.

³² Under Section 1115 of the Social Security Act, the Secretary of Health and Human Services can approve waivers of certain Medicaid requirements, and provide states with new spending authorities, for purposes of implementing Medicaid demonstration projects. The demonstrations under the law are for purposes of testing new ways to operate state programs and deliver services, and agency policy requires that the programs not increase federal spending.

³³ GAO, Medicaid Demonstrations: HHS's Approval Process for Arkansas's Medicaid Expansion Waiver Raises Cost Concerns, GAO-14-689R (Washington, D.C.: Aug. 8, 2014).

³⁴ GAO-15-290.

³⁵ Federal law does not expressly prohibit an individual with unpaid federal taxes from being granted a security clearance; however, delinquent tax debt does pose a potential vulnerability that must be considered in making a broader determination of whether an applicant should be granted a security clearance.

³⁶ Congress established the EITC in 1975 to (1) offset the impact of Social Security taxes on low-income families and (2) encourage low-income families to seek employment rather than public assistance. EITC eligibility depends on an individual's earned income. Credit amounts depend on the number of qualifying children who meet age, relationship, and residency tests. The credit gradually increases with income (the phase-in range), plateaus at a maximum amount (the plateau range), and then gradually decreases until it reaches zero (the phaseout range). For EITC, program payments include tax expenditures (a tax credit that offsets income taxes) and outlays (a refund if the credit exceeds the amount of taxes owed).

³⁷ EITC overpayments are the difference between the EITC amount claimed by the taxpayer on his or her return and the amount the taxpayer should have claimed. EITC underpayments are defined as the amount of EITC disallowed by IRS in processing that should have been allowed.

³⁸ These numbers have not been adjusted for inflation.

³⁹ GAO-15-290.

⁴⁰ Pub. L. No. 111-352, 124 Stat. 3866 (2011) (GPRAMA); Pub. L. No. 113-101, 128 Stat. 1146 (2014) (DATA Act).

⁴¹ For GAO's most recent work on GPRAMA, see GAO, Government Efficiency and Effectiveness: Inconsistent Definitions and Information Limit the Usefulness of Federal Program Inventories, GAO-15-83 (Washington D.C.: Oct. 31, 2014); Managing for Results: Selected Agencies Need to Take Additional Efforts to Improve Customer Service, GAO-15-84 (Washington D.C.: Oct. 24, 2014); and Managing for Results: Agencies' Trends in the Use of Performance Information to Make Decisions, GAO-14-747 (Washington D.C.: Sept. 26, 2014). In addition, information on GAO's work on GPRAMA can be found at http://www.gao.gov/key_issues/managing_for_results_in_government/issue_summary.

⁴² See GAO, Federal Data Transparency: Effective Implementation of the DATA Act Would Help Address Government-wide Management Challenges and Improve Oversight, GAO-15-241T (Washington, D.C.: Dec. 3. 2014).

⁴³ See GAO, Fragmentation, Overlap, and Duplication: An Evaluation and Management Guide, GAO-15-49SP (Washington, D.C.: Apr. 14, 2015).

Section I of this report presents 12 areas in which we found evidence of fragmentation, overlap, or duplication among federal government programs.

             Table 1: Fragmentation, Overlap, and Duplication Areas

          Table 2: Cost Savings and Revenue Enhancement Opportunities

This section presents 12 areas in which we found evidence of fragmentation, overlap, or duplication among federal government programs.

By more effectively using data to manage various enforcement programs, the Internal Revenue Service could bolster tax compliance and potentially collect hundreds of millions of dollars in additional revenue.

Why This Area Is Important

The Internal Revenue Service (IRS) has estimated that the gross tax gap -- the difference between taxes owed and taxes paid on time -- was $450 billion for tax year 2006 (the most recent year for which data were available). IRS estimated that it would eventually recover about $65 billion of this amount through late payments and enforcement actions, leaving a net tax gap of $385 billion. Because the net tax gap is so large and the effectiveness of various new IRS enforcement initiatives largely remains to be determined, tax law enforcement is on GAO's High-Risk List.¹ The nation's long-term fiscal challenges heighten the importance of reducing the tax gap. Given that individual income tax misreporting accounts for the largest portion of the tax gap, even small changes in IRS's enforcement programs could result in hundreds of millions of dollars of increased revenue.

What GAO Found

In a series of reports in 2014, GAO identified areas where IRS could improve its enforcement programs and collect additional tax revenue.

IRS Correspondence Audits: Better Management Could Improve Tax Compliance and Reduce Taxpayer Burden

Auditing tax returns is a critical part of IRS's strategy to ensure tax compliance and address the tax gap. Most audits are correspondence audits, which are done by mail, where examiners review taxpayer correspondence and related documentation such as receipts, expense invoices, and payments. For audits closed in fiscal year 2012, correspondence audits accounted for

• 1.1 million (76 percent) of the total 1.5 million individual tax return audits, and

• $9.2 billion (60 percent) of the total $15.3 billion in recommended additional taxes due and refunds disallowed for those audits.

In commenting on this submission, IRS noted that the timing of this audit coincided with delays caused by significant budget issues during fiscal years 2013 and 2014. According to IRS, the agency continues to recover from budget-related setbacks. For example, IRS reports that the Small Businesses/Self-Employed division has improved its responsiveness to answering taxpayer replies within the timeframe stated in their acknowledgment letters. IRS also reports revising phone scripts to better inform taxpayers of delays in processing correspondence and initiating programming changes to allow for flexibility in providing taxpayers with more accurate response timeframes in acknowledgement letters. According to IRS, these letter changes will be effective in January 2016. GAO has asked IRS for more information and will continue to monitor progress on actions intended to reduce the need for taxpayer calls, ensure IRS is providing taxpayers with more realistic response time frames, and is using agency resources more efficiently.

In that same 2014 report, GAO also found that IRS could benefit from more information on performance that is clearly linked to IRS's strategic goals. IRS's strategic plan includes goals for achieving compliance results at the lowest costs while minimizing taxpayer burden by using data to inform resource allocation decisions. Further, Standards for Internal Control in the Federal Government -- as well as performance management practices -- call for agencies to take the following actions: establish program objectives and performance measures that clearly link to agency-wide goals; use accurate and complete performance information and document resource allocation decisions; and promptly evaluate program review findings to determine appropriate actions in response to any improvement recommendations.³ However, IRS

• had no documented criteria on how staff are to use correspondence audit program data to make decisions, such as the number of audits to undertake or which tax issues to audit;

• did not have documented program objectives or linkages between the performance measures and IRS-wide strategic goals for compliance, cost, and taxpayer burden;

• had incomplete correspondence audit measures and data;

• did not leverage some potentially useful, available decision-making data that could provide a more complete picture of audit compliance results and costs -- such as data on actual revenue collections and costs related to answering taxpayer calls and collecting additional taxes assessed from audits; and

• did not have a plan or time frames to evaluate whether it should act on the recommendations of a recent program review that may improve the selection of tax returns for audit and better allocate examiner resources.

Individual Retirement Accounts: IRS Could Bolster Enforcement on Multi-Million Dollar Accounts, but More Direction from Congress Is Needed

Congress has limited annual contributions to individual retirement accounts (IRA) to prevent the tax-favored accumulation of unduly large balances, but there is no total limit on IRA accumulations.⁴ In its October 2014 report, GAO estimated that hundreds of taxpayers have accumulated tens of millions of dollars in their IRA balances, likely by investing in assets unavailable to most investors, such as private stocks -- which may be initially valued very low and if successful, may offer high potential investment returns.⁵ Individuals who invest in these assets using certain types of IRAs, such as Roth IRAs, can escape taxation on investment gains. In addition, hard-to-value, nonpublicly traded assets -- particularly those under direct control of the IRA owner -- also pose a higher risk of the IRA owner engaging in prohibited, nonretirement-related IRA transactions.

To move forward with a service-wide strategy to target enforcement efforts, IRS must first conduct research to understand how many taxpayers (and the amounts associated with IRA assets) are at risk of noncompliance. Research identifying the numbers and types of custodians and taxpayers holding such hard-to-value assets could also help IRS target outreach activities and strategies (such as reminder notices) for improving compliance with IRA asset valuation and prohibited transaction requirements. Beginning for tax year 2015, IRS will require IRA custodians to report additional data about hard-to-value nonpublic assets on annual information returns, Form 5498 IRA Contribution Information. Identifying these taxpayers (and amounts associated with such IRA assets) would provide data for use in examination selection. However, efficient use of the new IRA asset-type data for examination selection depends on IRS approving its plan to digitize the data from paper forms.

IRS officials said IRA valuation cases are audit-intensive and difficult to litigate because of the subjective nature of valuation. In addition, an improper valuation made many years prior to its discovery by IRS may fall outside the 3-year statute of limitations for assessing taxes owed.⁶ Furthermore, according to IRS, noncompliant activity and prohibited transactions are not reflected on any filed tax return and are also difficult to detect within the 3-year statute of limitation period. As IRS gathers more information about IRA asset-type data from the Form 5498, it will be clearer whether the 3-year statute of limitations should be changed for tax assessments with regard to IRAs.

Partnerships and S Corporations: IRS Needs to Improve Information to Address Tax Noncompliance

Income earned through partnerships and S corporations accounts for billions of dollars of unpaid taxes, and their share of business activity is growing.⁷ In May 2014, GAO found that IRS does not know the full extent of partnership and S corporation income misreporting. Using IRS's compliance research studies on flow-through income misreporting by individual taxpayers and considering various caveats and uncertainties, GAO estimated a rough order of magnitude of the misreporting to be $91 billion per year in lost tax revenue for tax years 2006 through 2009.

GAO found that IRS has limited information on the effectiveness of its examinations in detecting income misreporting by partnerships. For example, IRS estimated that 3 percent to 22 percent of identified misreporting by partnerships was double counted due to income flowing from one partnership to another or to other related parties. Further, IRS does not know how income misreporting by partnerships affects taxes paid by partners. As a result, IRS does not have reliable information about its compliance results to fully inform decisions about allocating examination resources across different types of businesses. Without reliable information on the extent of partnership misreporting, or the results of its partnership examinations, IRS cannot make fully informed decisions about whether its allocation of enforcement resources across business types is justified and whether or not to update one of its major partnership examination selection tools, the discriminate income function formula.

IRS's processes for selecting returns to examine could also be improved. IRS officials told GAO that having more return information available electronically might improve examination selection; however, not all partnership and S corporation line items from paper returns are digitized. Further, enhancing digitization of paper-filed partnership and S corporation returns would involve costs to IRS. In the absence of funding for transcription, one way to increase digitization is a statutory mandate requiring increased electronic filing (e-filing) of tax and other returns.⁸ Expanding the mandate would increase digitized data available for examination selection. Improving IRS's selection of partnership and S corporation returns to examine would also benefit compliant taxpayers whose returns may otherwise be selected for examination and would reduce IRS's tax return processing costs.

Large Partnerships: With Growing Number of Partnerships, IRS Needs to Improve Audit Efficiency

In September 2014, GAO found that IRS audits few large partnerships and most audits result in no change to the partnership's return.⁹ For those large partnership audits that did result in a change to the partnership's return, the aggregate amount across all audits was minimal. According to IRS auditors, the audit results may be due to challenges such as finding the sources of income within multiple tiers while meeting the administrative tasks required by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) within specified time frames.¹⁰ For example, IRS auditors said that it can sometimes take months to identify the partner authorized to represent the partnership in the audit, therefore reducing time available to conduct the audit (TEFRA does not require large partnerships to identify this partner on tax returns). Also under TEFRA, unless the partnership elects to be taxed at the entity level (which few do), IRS must pass audit adjustments through the ultimate partners. IRS officials stated that the process of determining each partner's share of the adjustment is paper and labor intensive. When hundreds of partners' returns have to be adjusted, the costs involved limit the number of audits IRS can conduct. Adjusting the partnership return instead of the partners' returns would reduce these costs; however, without legislative action, IRS's ability to do so is limited.

Understanding the reasons for the poor audit results is difficult because IRS (1) does not have activity codes that track audits of large partnerships returns, and (2) does not break out the audit results because the activity codes are not specific enough to identify large partnerships by asset and partner size.¹¹ Addressing these issues could help IRS officials better allocate audit resources. In addition, IRS does not distinguish between field audits (which examine the partnership's tax return and supporting documentation) and campus audits (which pass through any audit adjustments as a result of the field audit to the partners' tax returns) when counting the number of large partnership audits. Instead, IRS counts both field audits and campus audits when calculating its audit rate for all partnerships, which misrepresents the number of audits that actually verify information reported on tax returns. According to Standards for Internal Control in the Federal Government, managers need accurate and complete information to help ensure efficient and effective use of resources.¹² A single, consistently applied definition could assist IRS in establishing agreement on the scope of large partnership audit efforts and in ensuring that audit results can be assessed. Likewise, modifying IRS's current activity codes in order to identify large partnership returns, and breaking out field and campus audit rate data in order to accurately measure audit results, would allow IRS to analyze and plan resource usage for large partnership audits more efficiently and effectively.

IRS 2015 Budget: Return on Investment Data Needed to Better Set Priorities

In June 2014, GAO found that IRS does not calculate actual Return on Investment (ROI) to evaluate the performance of its initiatives once they are implemented; consequently, it does not have that data to inform decisions about allocating resources to those initiatives in the future. According to IRS officials, one reason they do not calculate actual ROI for enforcement initiatives is because it is difficult to determine which staff have actually worked on a particular initiative over a multiyear period. In addition, IRS officials cite difficulties in tracking ROI-related information on funded initiatives because of difficulties in matching information between IRS systems for formulating and executing its budget. Given these difficulties and the need to make numerous assumptions, the officials believe that any feasible estimates would be too uncertain to be useful.

Comparing projected ROI to actual ROI is consistent with project management concepts, internal control standards, Office of Management and Budget guidance, and GAO's prior work on performance management.¹³ In December 2012, GAO demonstrated how IRS planners could review actual ROI across different enforcement programs and across different groups of cases within these programs to better inform resource allocation decisions.¹⁴ GAO also recommended IRS identify research efforts that would enhance its ability to estimate ROI for specific enforcement activities, including initiatives.¹⁵ In addition, IRS established "funded program codes" (previously known as internal order codes) as a mechanism to track specific initiatives -- such as merchant card and cost basis reporting -- which could be used when estimating the ROI of future initiatives. While not the only factor in making resource decisions, actual ROI could provide useful insights on an initiative's productivity.

Actions Needed and Potential Financial or Other Benefits

GAO suggests that Congress should consider the following:

• Revisiting the use of IRAs to accumulate large balances and considering ways to improve the equity of the existing tax expenditure on IRAs. Options could include limits on (1) the types of assets permitted in IRAs, (2) the minimum valuation for an asset purchased in an IRA, or (3) the amount of assets that can be accumulated in IRAs and employer-sponsored plans that get preferential tax treatment.

• Expanding the mandate that partnerships and S corporations electronically file their tax returns in order to cover a greater share of filed returns.

• Altering the TEFRA audit procedures to require partnerships that have more than a certain number of direct and indirect partners to pay any tax owed due to audit adjustments at the partnership level.

• collect data to analyze whether IRS is responding to taxpayers within the time frames cited in the revised audit notices;

• further revise IRS notices (if delays continue) to provide more realistic response times based on the data and take other appropriate actions to ensure efficient use of IRS tax examiner resources;

• establish formal program objectives;

• ensure that the program measures reflect those objectives;

• clearly link those measures with strategic IRS-wide goals for ensuring compliance in a cost-effective way while minimizing taxpayer burden;

• document how decisions are to be made using performance information;

• track and use other program data that have not been used; and

• develop a plan and timeline for implementing recommendations to improve the selection of correspondence audit workload and allocation of examiner resources, or develop justifications for not implementing the recommendations.

• Approve plans to fully compile and digitize the new data from electronic and paper-filed Form 5498s to ensure the efficient use of the information on nonpublicly traded IRA assets.

• Conduct research using the new Form 5498 data to identify IRAs holding nonpublic asset types and use that information for an IRS-wide strategy to target enforcement efforts.

• Build on research data regarding IRAs holding nonpublic assets, and identify options to provide outreach targeting taxpayers with nonpublic IRA assets and their custodians, such as reminder notices that engaging in prohibited transactions can result in loss of the IRA's tax-favored status.

• Add an explicit caution in the IRA publication for taxpayers about the potential risk of committing a prohibited transaction when investing in nonpublicly traded assets or directly controlling IRA assets.

• Work in consultation with the Department of the Treasury on a legislative proposal to expand the statute of limitations on IRA noncompliance to help IRS pursue valuation-related misreporting and prohibited transactions that may have originated outside the current statute's 3-year window.

• Develop and implement a strategy to better estimate (1) the extent and nature of partnership misreporting, and (2) the effectiveness of partnership examinations in detecting this misreporting.

• Use the better information on noncompliance and program effectiveness to determine whether (1) the differences in examination rates across different types of business entities are justified, and (2) an improved tool for selecting partnerships for examination should be developed.

• track the results of large partnership audits by (1) defining a large partnership based on asset size and number of partners; (2) revising the activity codes to align with the large partnership definition; and (3) accounting separately for field audits and campus audits.

• calculate actual ROI for implemented initiatives, compare the actual ROI to projected ROI, and provide the comparison to budget decision makers for initiatives where IRS allocated resources; and

• use actual ROI calculations as part of resource allocation decisions.

Agency Comments and GAO's Evaluation

In commenting on the five reports issued in May, June, September, and October of 2014 on which these analyses are based, IRS agreed with 13 of the 17 recommendations presented, but did not state whether it agreed or disagreed with 4. For those 13 it agreed with, IRS said it is taking action to address them or further action is contingent on funding. For example, in its response to GAO's recommendation to establish formal program objectives for correspondence audits while ensuring that the program measures reflect those objectives, and clearly link those measures with strategic IRS-wide goals, IRS agreed to ensure that the program objectives and measures established would be linked with the IRS-wide goals. Thus, if implemented effectively, IRS's action should address the intent of these three recommendations.

IRS did not agree or disagree with four of GAO's recommendations, but acknowledged related actions it is taking to address three of these four recommendations. First, in response to GAO's recommendation that IRS develop a plan and timeline for implementing recommendations to improve the selection of correspondence audit workload and allocation of examiner resources, IRS responded it will pursue efforts to improve its workload selection and maximize resource usage, but it did not comment on whether it would develop a plan and timeline for implementing the recommendations. IRS recently noted that the Office of Compliance Analytics has developed a planning tool to optimize distribution of planned starts based on several weighted measures. According to IRS, the tool is being tested in fiscal year 2015. GAO continues to believe it is important that IRS develop a plan and timeline for implementing these recommendations or document and justify its reasons for not doing so. As noted in GAO's June 2014 report, without timely follow-up on the recommendations, it will be difficult to hold IRS managers accountable for ensuring that any improvements needed are made. Furthermore, IRS may delay or miss opportunities to better select workload, allocate resources, reduce taxpayer burden, or otherwise improve the correspondence audit results without implementing these recommendations.

Second, in response to GAO's recommendation to calculate ROI for implemented initiatives, compare the actual ROI to projected ROI and provide the comparison to budget decision makers, IRS agreed that ROI is one of several factors relevant to making resource allocation decisions. However, IRS noted that determining the impact of an initiative will always rely on estimates, as the results of an initiative are the difference between actual results and what would have occurred in the absence of the initiative, which cannot be measured. Given the difficulty IRS has in attributing revenues to specific employees hired under an initiative, officials believe that any feasible estimate would need to be based on numerous assumptions and, therefore would be too uncertain to be useful. For this reason, IRS does not consider this additional analysis an effective use of its scarce research resources. GAO agrees that any post-implementation assessment of an initiative's results would be an estimate. The difficulty and reliability of such assessments would likely vary depending on the specifics of each initiative. GAO's previous recommendation -- that IRS undertake research to improve all of its enforcement resource allocation decisions -- would also enhance its ability to estimate initiative results.¹⁶ In the interim, IRS should be able to provide some information of use to Congress, such as whether funds that were requested for initiatives were actually used in the manner that IRS originally proposed.

Third, in response to GAO's recommendation to develop and implement a strategy to better estimate the extent and nature of partnership misreporting, and the effectiveness of partnership examinations in detecting this misreporting, IRS stated that it had not fully evaluated GAO's recommendations and expressed concern regarding actions requiring a significant expenditure of resources.

Fourth and finally, IRS reiterated this same point concerning GAO's recommendation to use the better information on noncompliance and program effectiveness to determine whether the differences in examination rates across different types of business entities are justified, and whether an improved tool for selecting partnerships for examination should be developed. However, IRS reported it would consider all of GAO's recommendations and would identify appropriate actions while keeping resource limitations in mind. It is these very resource limitations -- which were noted in GAO's May 2014 report -- that underscore the importance of GAO's recommendations to develop better information for making resource allocation decisions.

GAO provided a draft of this report section to IRS for review and comment. IRS provided comments, which were incorporated as appropriate.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from the products in the related GAO products section. For the related products listed, GAO analyzed agency documents and interviewed officials from the Department of the Treasury, IRS, and other parties. GAO analyzed budget data from IRS and related budget documents. GAO also analyzed relevant federal laws, regulations, and procedures.

Related GAO Products

Individual Retirement Accounts: IRS Could Bolster Enforcement on Multi-Million Dollar Accounts, but More Direction from Congress Is Needed. GAO-15-16. Washington, D.C.: October 20, 2014.

Large Partnerships: With Growing Number of Partnerships, IRS Needs to Improve Audit Efficiency. GAO-14-732. Washington, D.C.: September 18, 2014.

IRS 2015 Budget: Long-Term Strategy and Return on Investment Data Needed to Better Manage Budget Uncertainty and Set Priorities. GAO-14-605. Washington, D.C.: June 12, 2014.

IRS Correspondence Audits: Better Management Could Improve Tax Compliance and Reduce Taxpayer Burden. GAO-14-479. Washington, D.C.: June 5, 2014.

Partnerships and S Corporations: IRS Needs to Improve Information to Address Tax Noncompliance. GAO-14-453. Washington, D.C.: May 14, 2014.

Tax Gap: IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources. GAO-13-151. Washington, D.C.: December 5, 2012.

Contact Information

For additional information about this area, contact James R. McTigue, Jr. at (202) 512-9110 or mctiguej@gao.gov.

² GAO, IRS Correspondence Audits: Better Management Could Improve Tax Compliance and Reduce Taxpayer Burden, GAO-14-479 (Washington, D.C.: June 5, 2014).

³ GAO, Auditing and Financial Management: Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1, 1999).

⁴ IRAs serve dual roles by (1) providing a way for individuals not covered by a pension plan to save for retirement and (2) providing a place for retiring workers or individuals changing jobs to roll over, or transfer, their employer-sponsored plan balances. Two types of IRAs are geared toward individuals -- each with its own federal income tax benefits: traditional IRAs and Roth IRAs. Traditional IRA contributions, subject to certain limitations, can be deducted from taxable earnings. Taxes on earnings are deferred until distribution. In contrast, Roth IRA contributions, also subject to certain limitations, are made after tax and distributions are tax free.

⁵ GAO, Individual Retirement Accounts: IRS Could Bolster Enforcement on Multimillion Dollar Accounts, but More Direction from Congress Is Needed, GAO-15-16 (Washington, D.C.: Oct. 20, 2014).

⁶ Generally, IRS has 3 years from the date a return is filed (whether the return is filed on time or not) to make an assessment of tax liability. 26 U.S.C. § 6501(a). The statute of limitations is extended in certain situations, including when a taxpayer submits a fraudulent return or omits reporting a certain amount of gross income on the return.

⁷ Partnerships and S corporations are flow-through entities, which are entities that generally do not pay taxes themselves on income, but instead, pass income or losses to their partners and shareholders, who must include that income or loss on their income tax returns.

⁸ Currently, certain large partnerships and S corporations are required by statute to e-file. 26 U.S.C. § 6011(e)(2) and 26 C.F.R. § 301.6011-5. About 65 percent of partnerships and S corporations e-filed in 2011.

⁹ GAO defines large partnerships as those with 100 or more direct and indirect partners and $100 million or more in assets. Direct partners are partners that have a direct interest in the large partnership during the tax year. Direct partners may include taxable partners (such as a corporation or individual) and nontaxable partners (such as a partnership) that also have direct partners. Indirect partners are partners that have an interest in a partnership through interest in another partnership or other form of pass-through entity.

¹⁰ Pub. L. No. 97-248, §§ 401-407, 96 Stat. 324, 648-671 (1982).

¹¹ These activity codes focus on whether a partnership reported having less or more than 11 partners, as well as reported gross receipts above or below $100,000. IRS has two activity codes for partnerships that pay an entity-level tax at the end of an IRS audit, and that had returns processed prior to January 1988.

¹² GAO/AIMD-00-21.3.1

¹³ Office of Management and Budget (OMB), Preparation and Submission of Strategic Plans, Annual Performance Plans, and Annual Program Performance Results, OMB Circular A-11 (Washington, D.C.: June 2008); OMB, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, OMB Circular A-94 (Washington, D.C.: undated); GAO, Tax Administration: IRS Needs to Further Refine Its Tax Filing Season Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 22, 2002).

¹⁴ GAO, Tax Gap: IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources, GAO-13-151 (Washington, D.C.: Dec. 05, 2012).

¹⁵ One important research effort is to estimate the revenue and costs associated with "marginal" enforcement cases -- cases that would not have been worked if slightly fewer resources had been devoted to a particular enforcement activity.

¹⁶ GAO-13-151.

For the purposes of our analysis, we used the term "fragmentation" to refer to those circumstances in which more than one federal agency (or more than one organization within an agency) is involved in the same broad area of national need and there may be opportunities to improve how the government delivers these services. We used the term "overlap" when multiple agencies or programs have similar goals, engage in similar activities or strategies to achieve them, or target similar beneficiaries. We considered "duplication" to occur when two or more agencies or programs are engaged in the same activities or provide the same services to the same beneficiaries.¹ This report presents 12 areas of fragmentation, overlap, or duplication where greater efficiencies or effectiveness in providing government services may be achievable. We also highlighted 12 other opportunities for potential cost saving or revenue enhancements.

GAO's Approach

Over the course of our 2011 through 2013 annual reports we conducted a systematic and practical examination across the federal government to provide reasonable coverage for areas of potential fragmentation, overlap, and duplication government-wide.² Since then, we continue to consider a variety of factors to determine whether such potential instances or opportunities identified in our routine audit work warrant inclusion in this annual report. Such factors included, but were not limited to, the extent of potential cost savings, opportunities for enhanced program efficiency or effectiveness, the degree to which multiple programs may be fragmented, overlapping, or duplicative, whether issues had been identified by GAO or external sources, and the level of coordination among agency programs.

Each issue area contained in Sections I and II of this report lists any respective GAO reports and publications upon which it is based. Those prior GAO reports contain more detailed information on our supporting work and methodologies. For issues that update prior GAO work, we provide additional information on the methodologies used in that update in the section entitled "How GAO Conducted Its Work" of each issue area.

Identifying Actions

To identify what actions, if any, exist to address fragmentation, overlap, and duplication and take advantage of opportunities for cost savings and enhanced revenues, we reviewed and updated prior GAO work and recommendations to identify what additional actions agencies may need to take and Congress may wish to consider. For example, we used a variety of prior GAO work identifying leading practices that could help agencies address challenges associated with interagency coordination and collaboration and evaluating performance and results achieving efficiencies.³

To identify the potential financial and other benefits that might result from actions addressing fragmentation, overlap, or duplication, we collected and analyzed data on costs and potential savings to the extent it was available. Estimating the benefits that could result from eliminating unnecessary fragmentation, overlap, or duplication was not possible in some cases because information about the extent of duplication among certain programs was not available. Further, the financial benefits that can be achieved from eliminating duplication, overlap, or fragmentation were not always quantifiable in advance of congressional and executive branch decision making, and needed information was not readily available on, among other things, program performance, the level of funding devoted to overlapping programs, or the implementation costs and time frames that might be associated with program consolidations or terminations.

When possible, we also included tables in appendix V that provide a detailed listing of federally-funded program names and associated budgetary information. While there is no standard definition for what constitutes a program, they may include grants, tax expenditures, centers, loans, funds, and other types of assistance. A wide variety of budgetary information may be used to convey the federal commitment to these programs. When available, we collected obligations information for fiscal year 2013 for reporting across issue areas. In some instances, obligations data were not available, but we were able to report other budgetary information, such as appropriations. In other issue areas, we did not report any budgetary information, because such information was either not available or sufficiently reliable. For example, some agencies could not isolate budgetary information for some programs, because the data were aggregated at higher levels.

We assessed the reliability of any computer-processed data that materially affected our findings, including cost savings and revenue enhancement estimates. The steps that GAO takes to assess the reliability of data vary but are chosen to accomplish the auditing requirement that the data be sufficiently reliable given the purposes it is used for in our products. GAO analysts review published documentation about the data system and Inspector General or other reviews of the data. GAO may interview agency or outside officials to better understand system controls and to assure ourselves that we understand how the data are produced and any limitations associated with the data. GAO may also electronically test the data to see if values in the data conform to agency testimony and documentation regarding valid values, or compare data to source documents. In addition to these steps GAO often compares data with other sources as a way to corroborate our findings. Per GAO policy, when data do not materially affect findings and are presented for background purposes only, we may not have assessed the reliability depending upon the context in which the data are presented.

Assessing Status of Actions

To examine the extent to which the legislative and executive branches have made progress in implementing the approximately 440 actions in the 188 areas⁴ we have reported on in previous annual reports on fragmentation, overlap, and duplication, we reviewed relevant legislation and documents such as budgets, policies, strategic and implementation plans, guidance, and other information. We also analyzed, to the extent possible, whether or not financial or other benefits have been attained, and included this information as appropriate. In addition, we discussed the implementation status of the areas with officials at the relevant agencies.

Using the legislation and documentation collected from agencies, GAO analysts and specialists working on defense, domestic, and international areas assessed progress for each of the approximately 440 actions within their areas of expertise. A core group of GAO staff examined all assessments to ensure consistent and systematic application of the criteria, and made adjustments, as appropriate.

We used the following criteria in assessing the status of actions.⁵

• In assessing legislative branch actions, we applied the following criteria: "addressed" means relevant legislation is enacted and addresses all aspects of the action needed; "partially addressed" means a relevant bill has passed a committee, the House of Representatives, or the Senate, or relevant legislation has been enacted but only addressed part of the action needed; and "not addressed" means a bill may have been introduced but did not pass out of a committee, or no relevant legislation has been introduced.⁶

• In assessing executive branch actions we applied the following criteria: "addressed" means implementation of the action needed has been completed; "partially addressed" means the action needed is in development, started but not yet completed; and "not addressed" means the administration, the agencies, or both have made minimal or no progress toward implementing the action needed.

This report is based upon work GAO previously conducted in accordance with generally accepted government auditing standards, or GAO's quality assurance framework. Generally accepted government auditing 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. In addition, Area 16: U.S. Enrichment Corporation Fund was conducted from April 2014 to May 2014 under GAO's quality assurance framework. We use GAO's quality assurance framework when we conduct routine nonaudits, such as technical assistance provided to Congress. GAO's quality assurance framework requires that we plan and perform the engagement to meet our stated objectives and to discuss any limitations in our work. We maintain that the information and data obtained, and the analysis conducted, provide a reasonable basis for our findings and conclusions.

² See GAO-14-343SP.

³ GAO, Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies, GAO-06-15 (Washington, D.C.: Oct. 21, 2005)and Managing for Results: A Guide for Using the GPRA Modernization Act to Help Inform Congressional Decision Making, GAO-12-621SP (Washington, D.C.: June 15, 2012).

⁴ To provide a more accurate picture of the progress made in the identified areas, starting in 2015, we are reporting the status of each action under each area (see appendix IV). New actions are assessed as pending.

⁵ Based on subsequent audit work that we conducted, 12 actions reported in 2011 and 8 actions reported in 2012 were not assessed this year, and we have categorized those areas and actions as "consolidated or other." These actions have either been consolidated, redirected from a Congressional to an executive branch action, or revised to reflect updated information or data that we obtained. In addition, we added 19 new actions to areas on which we reported in 2011-2014, these newly added actions are listed in appendix III. The status of new actions has not yet been assessed.

⁶ On January 6^th, 2015 the 114^th United States Congress convened and all pending legislation from the 113^th Congress expired. Therefore, all of the legislative branch actions that were assessed as partially addressed under the 113^th Congress reverted to not addressed because the relevant bill was not enacted into law before the end of the 113^th Congress and no similar bill has passed out of committee in the 114^th Congress as of March 6, 2015.

 

Table 1: GAO Identified Areas and Assessment of Actions of

 

Fragmentation, Overlap, and Duplication in 2011-2015

 

Annual Reports

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 2: GAO Identified Areas of Cost-Savings and

 

Revenue-Enhancement Opportunities in 2011-2015

 

Annual Reports

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOOTNOTES TO APPENDIX IV

 

² Tables 1 and 2 provide a snapshot of the overall action status for each area, and the ordering of the action status assessments does not correlate with the action numbering on GAO's Action Tracker. For more information on the status of individual actions, please see GAO's Action Tracker.

              Table 1: Defense Acquisitions Programs: Programs and

 HUD  Department of Housing and Urban Development

Notes: Obligations are rounded to the nearest thousand.

^b This amount only includes the obligated funds for the grants, not the obligated amount for the overall program.

^c This amount includes all services and programs offered through the Department of Justice's Psychology Services departments. These departments provide routine mental health screening, evaluation, grief counseling, individual therapy, group therapy, and crisis intervention. Psychology Services departments also provide specialty programming for specific populations.

^d This was a pilot program designed and operated internally by Social Security Administration staff, with assistance from partner agencies in the involved communities. There was no obligated funding for this program in fiscal year 2013.

^e Case identification was through the Serious Mental Illness Treatment Resource and Evaluation Center. Subsequently, targeted outreach was conducted at local medical centers and clinics as part of the overall program of care for veterans with serious mental illness.

Source: Commerce, SBA, and the Congressional Research Service. | GAO-15-404SP

Note: The total amount of U.S. government funds expended on federal export promotion is unclear because comparable budget information for federal agencies involved in export promotion is not readily available.

^b The estimates reported for here include costs to operate and maintain the Jason-2 mission. Development costs for the Jason-3 mission, with the operational environmental satellite scheduled to be launched in fiscal year 2015, are not included.

^c The Physical Oceanographic Real-Time System is a cost-sharing program where local partners provide funding for the sensor systems and their ongoing maintenance.

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