Of The Government B.io6190

I

ON APPROPRIATIONS

HOUSE OF REPR

Significant Audit

Findings In T

Departments

ties

Of The Government B.io6190

BY THE COMPTR,

OF THE UNITED’S

COMPTROLLER

GENERAL

OF THE

WASHINGTON.

D.C.

UNITED

STATES

20848

B-106190

The Honorable George H. Mahon

Chairman, Committee on Appropriations

House of Representatives

G”

Dear Mr.

Chairman:

This report

contains

significant

audit findings

developed

during our audits and other examinations

in the civil

departThese findings

pertain

ments and agencies of the Government.

for the most part to matters

on which we believe

administrative

action,

and in some cases legislative

action,

is required

to

achieve greater

economy or efficiency

in Government operations,

Some findings

and recommendations

on which the departments

and agencies have reported

that corrective

action was being

t.aken also have been included because we have not yet observed

the effectiveness

of the reported

action.

This compilation

is made in response to the request that

information

of this type be made available

to your Committee

before the commencement of appropriation

hearings at each

session of the Congress.

Concurrently

with the release of this

we are sending to the departments

and agencies copies

report,

of the sections

specifically

applicable

to them so that they

may be in a position

to answer any inquiries

which may be made

on these matters

during the appropriation

hearings.

A report

on significant

audit findings

partment of Defense and the three military

being submitted

separately.

Sincerely

involving

departments

yours,

Comptroller

General

of the United States

the Deis

Contents

Page

.

DEPARTMENTOF AGRICULTURE

Agricultural

Stabilization

and Conservation

Commodity Credit Corporation

Export Marketing Service

Farmers Home Administration

Food and Nutrition

Service

Soil Conservation Service

1

Service

and

.

DEPARTMENTOF COMMERCE

National Oceanic and Atmospheric

Administration

13

15

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

Health Services and Mental Health Administration

National Institutes

of Health

Office of Education

Social and Rehabilitation

Service

Social Security Administration

17

19

20

22

24

31

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

Community Development

General Insurance

Housing Production and Mortgage Credit

Interstate

Land Sales

33

35

38

39

46

DEPARTMENTOF THE INTERIOR

Bureau of Reclamation

Geological Survey

Southwestern Power Administration

47

49

50

52

DEPARTMENTOF JUSTICE

Law Enforcement Assistance

53

55

57

Administration

DEPARTMENTOF LABOR

Manpower Administration

Occupational

Safety and Health

n

4

3

6

9

10

11

Administration

59

65

DEPARTMENTOF STATE, AGENCYFOR INTERNATIONAL DEVELOPMENT

67

DEPARTMENTOF TRANSPORTATION

Department-wide

Federal Aviation

Rdminis':ration

National Highway Traffi c Safety Administration

National Railroad Passenger Corporation

(AMTRAK)

77

79

80

82

83

DEPARTMENTOF THE TREASURY

Internal

Revenue Service

International

Financial

Affairs

U.S. Customs Service

87

89

90

92

ATOMIC ENERGYCOMMISSION

Director

of Regulation

95

97

DISTRICT OF COLUMBIA GOVERNMENT

courts

Department of Corrections

Department of Environmental

Services

Department of Highways and Traffic

Department of Human Resources

Executive Office of the Commissioner

Page

99

101

102

103

104

105

106

ENVIRONMENTALPROTECTIONAGENCY

107

EXPORT-IMPORTBANK OF THE UNITED STATES

113

FEDERAL COMMUNICATIONSCOMMISSION

119

GENERALSERVICES ADMINISTRATION

Automated Data and Telecommunications

Federal Supply Service

National Archives and Records Service

Public Buildings

Service

123

125

126

128

130

Service

INTER-AMERICAN FOUNDATION

133

NATIONAL AERONAUTICSAND SPACE ADMINISTRATION

137

0 FFICE OF ECONOMICOPPORTUNITY

Economic Development Division

Experimental Research Division

External Audit Division

Office of Legal Services

State and Local Government Division

141

143

145

147

149

151

OFFICE OF MANAGEMENT

AND BUDGET

153

RENEGOTIATION BOARD

157

TENNESSEEVALLEY AUTHORITY

161

UNITED STATES CIVIL SERVICE COMMISSION

165

UNITED STATES POSTAL SERVICE

171

VETERANS ADMINISTRATION

175

VARIOUS DEPARTMENTSAND AGENCIES

Civil Service Commission, Off'ice of Management and Budget,

and Department of Labor

Department of Agriculture

and Department of Health, Education,

and Welfare

Department of Agriculture;

Department of Health, Education,

and Welfare; Department of Justice;

Department of the

Treasury; and Office of Management and Budget

Department of Agriculture;

Department of Health, Education,

and Welfare; Department of Labor; Office of Economic

Opportunity;

and Office of p4anagement and Budget

181

l

-

1

182

183

185

187

1

Page

VARIOUS DEPARTMENTS AND AGENCIES (continued)

Department

of Agriculture

and Department

of the Interior

Department

of Agriculture,

Department

of State,

and

Agency for International

Development

Department

of Commerce;

Department

of Defense;

General

Services

Administration;

Department

of Health,

Education,

and Welfare;

Department

of Labor;

and Veterans

Administration

Department

of Commerce,

Department

of the Interior,

and

Office

of Management

and Budget

Department

of Defense,

General

Services

Administration,

and Tennessee

Valley

Authority

Department

of Defense

and Department

of State

Department

of the Interior,

Department

of Agriculture,

Department

of Defense,

and the General

Services

Administration

Department

of Justice

and Department

of State

Department

of Justice

and Department

of the Treasury

Department

of Labor and Department

of Health,

Education,

and Welfare

Office

of Management

and Budget,

Corps of Engineers,

Department

of Housing

and Urban Development,

and Department

of

Transportation

Office

of Management

and Budget

and General

Services

Administration

189

191

193

197

199

201

205

207

209

211

213

215

DEPARTMENTOF AGRICULTURE

Contents

Page

AGRICULTURALSTABILIZATION AND CONSERVATIONSERVICE AND COMMODITY

CREDIT CORPORATION

Need intensifies

to amend legislation

to reduce Government losses

on the peanut price-support

program

Fees for processing price-support

loans and storage facility

and

equipment loans not related to actual costs

EXPORT MARKETING SERVICE

Russian wheat sales and weaknesses in Agriculture's

wheat export subsidy program

FARMERSHOMEADMINISTRATION

Ways to improve effectiveness

of rural

business

3

3

4

6

management of

6

loan programs

9

9

FOOD AND NUTRITION SERVICE

Need for more accurate information

on schools not participating

in

the school lunch program and on the cost of lunches served under

the program

10

SOIL CONSERVATIONSERVICE

Progress in meeting important objectives

of the Great Plains

Conservation Program could be improved

11

1

10

11

DEPARTMENT OF AGRICULTURE

AGRICULTURAL STABILIZATION

AND CONSERVATION SERVICE AND

COMMODITY CREDIT CORPORATION

.

Need intensifies

reduce

Government

peanut

price-supnort

to amend legislation

losses

on the

program

to

In May 1968 GAO reported

to the Congress

that

the Commodity

Credit

Corporation

(CCC) had lost

about

$270 million

on the peanut

price-support

program

between

1955 and 1966 and would lose at least

$248 million

over the

next 5 years 9 1967 through

1971.

At that

time GAO recommended

that

the

Department

develop

for the Congress’

consideration

a program

to more effectively

control

peanut

production.

Because the program

was not changed

and CCC incurred

greater

losses,

GAO reassessed

the program

to determine

what should

be done to effectively

control

production

and reduce

losses.

In an April

1973 report

to the Congress,

GAO stated

that

the Agricultural

Adjustment

Act of 1938, as amended,

requires

the Secretary

of

Agriculture

to control

peanut

production

on the basis

of demand but

specifies

also that he authorize

annually

not less than 1,610,OOO

acres

for growing

peanuts.

The sponsors

of the act had expressed

hope that

this

acreage

would be sufficient

on all occasions

to supply

the edible

trade

without

any substantial

surplus.

Since 1955, however,

fewer than 1,610,OOO

acres have been needed annually

to satisfy

commercial

demand because

advances

in farm technology

have increased

yields

per acre by an average

of

70 pounds a year.

An average

of 1,015,OOO

acres annually

would have produced the necessary

supply

during

1967 through

1971.

Under the program,

CCC has to buy the surplus

peanuts

and store

them

until

they are sold.

CCC sells

them for significantly

lower prices

than it

From 1967 through

1971 CCC recovered

through

sales

53 perpays for them.

cent of its cost of buying

surplus

peanuts

and lost

$279 million

on the

program,

a 66-percent

increase

over the loss of $168 million

from 1962

through

19 66.

In March 1972 the Department’s

Agricultural

Stabilization

and Conservation

Service

(ASCS), which

administers

the program

for CCC,

if the present

program

were continued,

losses

from 1973

projected

that,

through

1977 would total

$537 million,

a 92-percent

increase

over the

losses

incurred

between

1967 and 1971.

.

Although

GAO made no recommendations

to the Department,

it recommended

to the Congress

that

the Agricultural

Adjustment

Act of 1938 be amended to

rescind

the minimum acreage

provision

to give the Secretary

more flexibility

to adjust

production

so that

it will

be consistent

with commercial

demand.

Although

the Department

agreed

that

such a change could help bring

peanut

production

more in line

with

demand,

it said that

it was not completely

satisfied

that

the change was the most desirable

solution

in the

long run.

It said further

that

it was studying

GAO’s recommendation

and

possible

alternatives.

3

DEPARTMENT OF AGRICULTURE

AAGRICULTURAL STABILIZATION

.\ND CONSERVATION SERVICE AND

CObiblODITY CREDIT CORPORATION (continued)

GAO recognized

demand more in line

would not preclude

of the Department’s

that

alternatives

existed

for bringing

production

and

but noted

that

removal

of the minimum acreage

provision

any actions

the Secretary

may wish to take as a result

study of alternatives.

(B-163484,

Apr.

13, 1973.)

Fees for processing

price-support

and storage

facility

and equipment

not related

to actual

costs

loans

loans

GAO examined

into

the fee assessment

policies

concerning

its processing

of price-support

loans

equipment

loans

authorized

under CCC programs,

and practices

of

and storage

facility

ASCS

and

Title

V of the Independent

Offices

Appropriation

Act of 1952 and

Circular

No. A-25 of the Office

of Management

and Budget

state

that

Government activities

which

provide

identifiable

recipients

with

special

benefits

or privileges

should

be financially

self-sustaining

to the maximum extent

possible.

The act states

that

fair

and equitable

fees should

be prescribed

which

consider

direct

and indirect

costs

to the Government,

value

to the

recipients,

public

policy

or interest

served,

and other

pertinent

facts.

Circular

No. A-25 states

that,

in addition

to those

costs

directly

related

to the activity,

the cost to the Government

should

include

a proportionate

share of an agency) s management

and supervisory

costs

and that

the cost of

providing

the service

should

be reviewed

every year and fees should

be

adjusted

as necessary.

GAO’s review

showed that ASCS charged

fees for processing

loans--established

in 1969 and based on 1967 information--that

directly.related

to the costs

which should

have been recovered

charge

for processing

storage

facility

and equipment

loans.

antiually.review

its costs

to process

these

loans.

..

that

In a’ July

ASCS:

1972

report

--Systematically

storage

facility

for recovering

fullest

extent

public

policy,

--Review

the costs

as necessary.

to

the

Secretary

of

Agriculture,

price-support

were not

and did not

ASCS did not

GAO recommended

establish

fees for processing

price-support

loans and

and equipment

loans

on a basis

that

would provide

the related

costs,

including

overhead

costs,

to the

possible

and would consider

value

to the recipient,

interest

served,

and other

pertinent

facts.

of

these

activities

every

year

and adjust

the

fees

ASCS replied

that,

although

it did not totally

agree with GAO’s recommendat ions,

it would review

its loan-fee

arrangements.

On May 31, 1973,

ASCS issued

a directive

to its State

and county

offices

ordering

an increase

in price-support

loan service

fees,

beginning

with loans made in the 1973

4

l

DEPARTMENTOF AGRICULTURE

AGRICULTURALSTABILIZATION

AND CONSERVATIONSERVICE AND

COMMODITYCREDIT CORPORATION(continued)

crop year.

However, ASCS rescinded these increases on June 22, 1973, in

response to Executive Order 11723, dated June 13, 1973, which froze certain

prices for a maximum of 60 days. ASCS officials

advised GAO in September

and August 1973, respectively,

that:

--The price-support

loan service fees were no longer frozen under

Phase IV guidelines

and it was considering

increasing such fees

for the 1974 crop year.

--The matter of establishing

a fee for processing storage facility

and equipment loans was still

under consideration.

(B-163484,

July 13, 1972.)

DEPARTMENT OF AGRICULTURE

EXPORT MARKETING

SERVICE

Russian

wheat sales

and weaknesses

in Agriculture

Is management

of

wheat export

subsidy

program

The President

announced

the sign ing of an agreement

with Russia

on

July 8, 1972, making

$750 million

in credit

available

for 3 years

for purchasing

various

U.S. grains.

By then Russia

was already

purchasing

U.S.

wheat.

Within

a few weeks,

cash and credit

wheat sales

to Russia,

heavily

subsidized

by the U.S. Government,

approximated

$700 million,

the largest

private

grain

sales

in U.S. history.

I

1

The wheat export

subsidy

program

began in 1949 to help the United

States

meet its obligation

to export

wheat at prices

agreed

to under

the

International

Wheat Agreement.

The program’s

major

objectives

are to

generally

insure

that

U.S. wheat

is competitive

in world

markets

and to

reduce

Government

wheat

inventories.

The Export

Marketing

Service

establishes

daily

subsidy

rates

for

wheat.

The Service

has maintained

a zero subsidy

rate

for all

types

of

wheat since

September

22, 1972,

allowing

wheat prices

to seek their

own

levels,

but,

during

the preceding

4 months,

rates

ranged

from a few cents

to as high as 51 cents

a bushel,

Before

its suspension,

the program

incurred

about

$4.3 billion

in subsidy

costs

for exporting

about

10.5 billion

bushels

of U.S. wheat.

There is little

doubt

that

the program

has been

instrumental

in competitively

pricing

U.S. wheat moving

into

export

markets.

GAO reported

to the Congress

that

the large

sales

of U.S. wheat

to

Russia

and other

exports

in the summer of 1972 caused a dramatic

rise

in the

price

of U.S. wheat.

Hard Winter

wheat

sold at gulf

ports

for $1.68

a

bushel

in July brought

$2.49

a bushel

in September

and even more later.

An

export

goal of 650 million

bushels

and a fiscal

year 1973 budget

estimate

of $67 million

in subsidy

mushroomed

to 1.1 billion

bushels

in exports

and

over $300 million

in subsidy.

tbtaling

addition

Agriculture

claims

that

about

$457 million

to other

benefits.

the U.S. Treasury

as a result

of the

will

accrue

wheat sales

net benefits

to Russia

in

Agriculture

is committed

to pay over $300 million

in subsidies

on the

Russian

and other

export

sales.

GAO expressed

the belief

that many of these

sales would have been made even with

reduced

subsidies

and that Agriculture

should

have responded

more rapidly

to the available

information

and reduced

or eliminated

the subsidies

sooner.

Wheat

export

subsidy

6

program

After

October

1971 the key determinant

in establishing

daily

wheat subsidy rates

was the export

target

price.

The difference

between

the target

price

and the domestic

price

was the daily

export

subsidy

rate.

Maintenance

of a low target

price

throughout

the period

of the Russian

sales

and for

6

1

DEPARTMENT OF AGRICULTURE

m

*

EXPORT MARKETING

SERVICE

(continued)

several

subsequent

Government

to pay

weeks was a crucial

excessive

subsidies.

factor

in

obligating

the

U.S.

GAO questioned

the maintenance

of a low target

price

in view of available intelligence

reports

and analyses

indicating

adverse

Russian

crop conditions.

Agriculture

also knew that

the United

States

was the dominant

wheat

supplier

and that

purchasers

of large

supplies

had to come to the

United

States.

Agriculture

officials

recognized

early

in 1972 that

the world

wheat

situation

was changing

but decided

against

increasing

the export

target

price

for several

reasons.

GAO expected

to find

a detailed

analysis

to

support

such a major policy

decision,

but it seems to have been based

largerly

on intuitive

judgments

made by Agriculture

officials.

Speculating

in

subsidy

registrations

Changes made in 1967 to the basic

wheat export

subsidy

program,

ting

subsidy

registrations

at exporters’

options,

and other

program

in effect

at the time of the Russian

wheat

sales

tended

to minimize

and created

an environment

whereby

exporters

could make substantial

Although

Agriculture

sought

to increase

the flexibility

for exporters

price

U.S. wheat competitively

in international

markets,

the program

appropriate

administrative

controls.

permitfeatures

risks

profits.

to

lacked

Some exporters

making

sales

in August

1972 registered

weeks later

at higher

subsidy

rates.

In five

examples,

of about

$604,493

was paid.

Had exporters

been required

the subsidy

would have been $286,188,

the dates

of sales,

sales

several

a total

subsidy

to register

on

or $318,305

less.

Export

the program

exporters.

no evidence

competition

Marketing

Service

had allowed

excess

Carrying-charge

officials

profit

contend

there

is

because

of intense

that

among

payments

In addition

to the basic

export

subsidy,

Agriculture

provided

a

carrying-charge

subsidy

to cover

the estimated

costs

of owning wheat

for

future

delivery,

The subsidy

registration

date,

instead

of the sale date,

is used to calculate

subsidy

entitlement.

In 28 instances

totaling

about

$360,000,

had the sale contract

dates

rather

than the registration

dates

determined

the carrying-charge

subsidies,

the payments

would have been

about

$350,000

less.

Program

h

evaluation

needs

Despite

annual

subsidy

outlays

of millions

not comprehensively

evaluated

the wheat export

evaluations

indicating

that

the subsidy

program

dismissed

by operating

officials.

7

of dollars,

Agriculture

subsidy

program.

Limited

was not fully

effective

has

were

DEPARTMENT OF AGRICULTURE

EXPORT MARKETING

SERVICE

(continued)

GAO examined

several

pertinent

statistical

relationships

indicative

of

program

effectiveness.

It concluded,

on the basis

of making U.S. wheat

competitive

in international

markets,

that Agriculture

seemed to have paid

greater

subsidies

than the marketplace

required.

Other agricultural

economists

questioned

the need for subsidy

payments

and suggested

that

the

program

needed

to be completely

reevaluated,

The major GAO recommendation

to the Secretary

of Agriculture

was that

the wheat,export

subsidy

program

be reviewed

in its entirety

and that

its

reinstatement

be predicated

on a meaningful

justification

for its existence.

ment

tion

The Secretary

of Agriculture

said GAO’s study would help the Departimprove

the program.

The Secretary

agreed

with GAO’s major

recommendabut took issue with

GAO on some other

observations

and conclusions.

GAO suggested

that

the Congress

should

consider

requiring

that

agencies

develop

definitive

ground

rules

so that

expected

benefits

from exports

can

be appropriately

weighed

against

their

impact

on various

segments

of the

domestic

economy,

(B-176943,

July 9, 1973.)

DEPARTMENT OF AGRICULTURE

FARMERS HOME ADMINISTRATION

Ways to improve

.rural

business

c

It

/’’

I

*/:

effectiveness

loan programs

of

The Economic

Opportunity

Act of 1964, as amended,

authorized

several

One of these programs-special

programs

to combat poverty

in rural

areas.

the Economic

Opportunity

Cooperative

Loan Program--administered

by the

Farmers

Home Administration

(FHA) provided

loans

to cooperative

associations

in rural

areas.

Although

the program

was terminated

could be helpful

to FHA in administering

dustrial

loan programs

authorized

by the

on June 30, 1971,

GAO’s findings

the new rural

business

and inRural

Development

Act of 1972.

GAO found that

many economic

opportunity

cooperatives

encountered

problems,

such as weak management

and adverse

market

conditions,

and

therefore

failed

to stay in business

or became delinquent

in their

loan

repayments.

Not all problems

encountered

by the cooperatives

could

have

been foreseen.

Many problems,

however,

could have been identified

and

corrected

had FHA required

adequate

determinations

of the economic

soundness

and feasibility

of cooperative

projects

and had FHA improved

its policies

and procedures

for supervising

and evaluating

cooperatives’

activities.

In accordance

with

GAO’s recommendations

for implementing

the business

and industrial

loan programs

authorized

by the Rural

Development

Act of

1972,

FHA stated

that

it (1) was preparing

regulations

that

would require

applications

for loan assistance

to include

feasibility

studies,

marketing

agreements,

management

evaluations,

and an analysis

of the adequacy

of working capital,

(2) had taken

steps

to provide

employee

training,

(3) had considered

additional

staffing

of new types

of professional

and technical

skills,

and (4) would,

when practical,

express

program

objectives

in specific

goals

and use such goals

to periodically

measure

program

effectiveness.

fiscal

FHA plans

to

year 1974.

implement

(B-114873,

the new business

May 2, 1973.)

9

and industrial

loan

programs

in

DEPARTMENTOF AGRICULTURE

FOODAND NUTRITION SERVICE

Need for more accurate information

on schools not participating

in the

school lunch program and on the cost

of lunches served under the program

Food and Nutrition

Service (FNS) statistics

showed that, in fiscal

year’

q

1972, 82,900 schools, with about 45 million

students enrolled,

were partici-‘,

However, FNS data also showed that,

/

pating in the school lunch program.

schools, with about

‘I*

early in the 1971-72 school year, about 24,900 eligible

8.7 million

students enrolled,

were not participating

in the program.

About

18,100 of these schools did not have any type of food service;

and FNS identified

at least 4,400, with 1.4 million

students enrolled,

as needy schools.

An FNS survey in March 1972 showed that about 1.5 million

needy students

attending participating

schools were not eating free or reduced-price

lunches,

GAO found that some schools did not participate

because they lacked the

equipment and facilities

to prepare and serve the food and others did not

participate

for reasons based on local preference or on special local conditions not susceptible

to Federal persuasion.

FNS did not have reliable

data concerning which schools needed assistance and the extent of their

needs. Such data would help FNS resolve these problems and determine the

assistance or changes in administrative

policies

or legislation

needed to

enable such schools to participate.

GAO also found that FNS had not sufficiently

guided the schools on how

to compute accurate per-lunch costs which FNS needs to insure that Federal

reimbursements do not exceed the actual cost of lunches, as required by

existing

legislation.

GAO recommended that actions be taken to obtain better information

on

schools needing assistance and the extent of their needs, promote the school

lunch program, and define reimbursable

costs,

The Department generally

agreed with GAO’s conclusions

and described actions that were being taken to

implement the recommendations,

(B-178564, June 29, 1973.)

10

DEPARTMENT OF AGRICULTURE

SOIL

CONSERVATION

SERVICE

Progress

in meeting

of the Great Plains

could

be improved

II

*

important

Conservation

objectives

Program

The Soil

Conservation

Service

(SCS),

Department

of Agriculture,

combats

climatic

hazards

in the Great Plains

by helping

farmers,

ranchers,

and other

landowners

and operators

voluntarily

carry

out planned

soil

and water

conservation

practices

through

technical

assistance

and direct

cost sharing

under

contracts

of from 3 to 10 years.

In June 1973 GAO reported

to the Congress

that

progress

in converting

unsuitable

cropland

to permanent

vegetative

cover

and reseeding

badly

depleted

rangeland

had been less than expected

in view of the program’s

legislative

history,

which

stressed

the importance

of meeting

these needs.

To provide

for greater

progress

before

the program’s

scheduled

expiration

in 1981,

GAO recommended

that

SCS (1) revise

its fund allocation

system

to insure

that

program

funds

are used,

to the extent

practical,

for highest

priority

work first

and (2) increase

a $25,000

administrative

limitation

on

any one contract

to recognize

cost

increases

since

the limitation

was established

and to increase

the rate

of achieving

important

program

objectives.

GAO also noted

a conflict

between

the program

and certain

features

of

the commodity

price-support

programs

and suggested

that

the Congress

explore

with

the Department

the feasibility

and desirability

of enacting

legislation

to provide

additional

incentives

for farmers

to convert

unsuitable

cropland

to permanent

vegetative

cover,

giving

consideration

to disincentives

resulting from commodity

price-support

programs.

In

response

--Had

the

to

GAO’s

studied

and will

fund allocation

continue

system,

Department

to study

the feasibility

giving

due consideration

--Had recognized

the inadequacy

of

and was reevaluating

the limitation

of conservation

practices.

t

the

recommendations,

the

$25,000

in view

The Department

did not comment on the conflict

commodity

price-support

programs.

SCS headquarters

agreed

that

the conflict

was one of the significant

progress

of achieving

program

objectives.

(B-114833,

11

stated

that

SCS:

of revising

to priorities.

limitation

per

of the increasing

contract

costs

between

the program

officials,

however,

constraints

on the

June 28, 1973.)

and

DEPARTMENTOF COMMERCE

Contents

Page

NATIONAL OCEANIC AND AT!IOSPHERIC ADIIINISTRATION

Continuation

of the Fish Protein Concentrate

yield only limited

benefits

13

15

Program would

15

DEP.I\RT!IENT OF CO?QIERCE

I;.\TIONXL

OCE-\YIC

Continuation

Fish Protein

r;ould

)-ield

.YiD .JIT\IOSPHERIC XDI\IIYISTR.4TI@N

of the

Concentrate

only limited

Program

benefits

.\t the request

of the Chairman,

Subcommittee

on Fisheries

and Wildlife

Conserration,

House Committee

on !Ierchant

!larine

and Fisheries,

GAO reviewed

the Fish Protein

Concentrate

(FPC) Program

administered

by the Administration’s

Sational

Yarine

Fisheries

Service,

Under this

program

a Governmentoiined experimental

plant

\<as established

at Aberdeen,

Washington,

to

demonstrate

the economic

feasibility

of commercial

production

of FPC.

G.1\0 concluded

that,

although

the plant

was useful

in developing

a

process

for producing

FPC, it did not demonstrate

the economic

feasibility

of commercial

production

of FPC.

The domestic

market

potential

for the

tyPe of FPC produced

by the Service

was limited

at that

time and the U.S.

fishing

industry

Icould not be enhanced

by a commercial

FPC industry.

GXO expressed

the belief

that

the Government

could

realize

only limited

benefits

if it Tiere to continue

operating

an experimental

plant.

It appeared

that

if a strong

domestic

and foreign

need for FPC becomes

evident,

industry

ma)- become interested

and begin

to produce

it.

GAO also expressed

the belief

that,

if an estension

of the program

is authorized,

it would be more beneficial

to move the experimental

plant

to a Gulf

location

in order

to be closer

to the source

of fish

supply.

G.10 suggested

that,

if the Subcommittee

favors

extending

the program,

the Subcommittee

should

include

in a report

on the subject

language

instructing the Service

to (1) continually

develop

information

on the present

and

potential

FPC markets,

both domestic

and foreign,

(2) determine

the present

and future

available

fish

resources

for producing

FPC commercially,

(3) evaluate

sites

on the Atlantic

and Gulf Coasts,

including

a determination

of the detailed

costs

for each site

and industry’s

v;illingness

to participate,

and (4) complete

the research

into

storage

methods

to develop

and demonstrate

alternatives

to using

frozen

fish.

The National

Oceanic

and Atmospheric

Administration

stated

that

GAO’s

report

presented

a fair

evaluation

of the FPC program

and situation

and

that

the information

in the report

was generally

consistent

with

its

records.

(B-157927,

Yay 25, 1973.)

15

DEPARTMENT OF HEALTH,

EDUCATION,

L

AND WELFARE

Contents

Page

HEALTH SERVICES AND MENTAL HEALTH ADMINISTRATION

Need for Neighborhood

Health

Centers

to seek

reimbursements

and to improve

administrative

practices

NATIONAL INSTITUTES

OF HEALTH

Better

management

needed

of

health

research

19

increased

third-party

and operating

19

equipment

by grantees

OFFICE OF EDUCATION

Need for improved

coordination

of federally

assisted

student

programs

in institutions

of higher

education

Additional

efforts

needed

to fully

achieve

the objectives

of

Vocational

Education

Act

20

20

22

aid

22

the

23

SOCIAL AND REHABILITATION

SERVICE

Need to improve

effectiveness

of vocational

rehabilitation

in helping the handicapped

Social

services

have only a minor

impact

on directly

helping

welfare recipients

achieve

self-support

or reduced

dependency

Need to improve

administration

of certain

eligibility

aspects

in

the aid to families

with

dependent

children

program

in Pennsylvania

Some problems

in contracting

for federally

assisted

child-care

services

Improvement

needed

in the administration

of the program

to provide

Medicare

benefits

for welfare

recipients

Problems

in functioning

of State

systems

for reviewing

use of

medical

services

financed

under Medicaid

24

SOCIAL SECURITY

Opportunities

processing

31

ADMINISTRATION

to increase

services

competition

among

suppliers

of

24

25

26

27

28

29

data

31

17

DEPARTMENT OF HEALTH,

HEALTH

D.

AND WELFARE

SERVICES AND MENTAL HEALTH ADMINISTRATION

Need for Neighborhood

increased

third-party

improve

administrative

M

EDUCATION,

Health

Centers

reimbursements

and operating

to seek

and

practices

At the request

of the Chairman,

Subcommittee

on Health,

Senate

Committee

on Labor and Public

Welfare,

GAO reviewed

certain

actions

taken

by the Health

Services

and Mental

Health

Administration

to implement

its announced

policy

of eventually

replacing

direct

Federal

support

in all

of its health

service

delivery

projects

with

increased

third-party

and other

reimbursements.

The Subcommittee

was particularly

interested

in the potential

impact

of

this

policy

on the Neighborhood

Health

Center

(NHC) program

funded

under

Section

314(e)

of the Public

Health

Service

Act (42 U.S.C.

246(e)).

NHCs

provide,

directly

or indirectly,

a range of services

designed

to meet the

majority

of health

needs of a defined

target

population.

These services

include,

as a minimum,

preventive,

diagnostic,

therapeutic,

and general

health

maintenance

elements.

In May 1973 GAO reported

to the Subcommittee

that

NHCs’ administrative

and operating

practices

and the nature

of available

third-party

reimbursement

programs

severely

limited

NHCs’ prospects

to improve

their

level

of selfsupport.

In its

selective

review

of five

NHCs, GAO noted

evidence

of (1)

lack of control

over accounts

receivable,

(2) ineffective

use of available

health

services,

and (3) inadequate

efforts

to qualify

for and use thirdparty

reimbursements.

GAO noted

also that

the NHCs offered

a variety

of

services,

such as nutrition,

optometry,

and speech therapy,

for which

thirdparty

reimbursement

was not available

and that

these

services

would have to

be reduced

or eliminated

if greater

reliance

were placed

on third-party

reimbursement

programs.

GAO expressed

its belief

that

the NHCs could

substantially

increase

their

level

of self-support

by eliminating

inefficient

administrative

and operating practices

and by obtaining

recognition

as providers

of services

eligible

under

Federal

and federally

assisted

programs.

(B-164031(2),

May 2, 1973.)

19

DEPARTMENT OF HEALTH,

NATIONAL

Better

health

INSTITUTES

EDUCATION,

AND WELFARE

OF HEALTH

management

needed

research

equipment

of

by grantees

Research

grants

to such institutions

as universities,

colleges,

and

medical

schools

constitute

the largest

part

of the research

program

of the

These grants

provide

funds

for such

National

Institutes

of Health

(NIH).

expenses

as salaries,

supplies,

travel,

and equipment.

About 13 percent

of

the direct

costs

incurred

under NIH research

grants

was for equipment

during

1965--the

latest

year for which

data was compiled

on funds

spent

in this

category.

GAO reviewed

the management

of major

research

equipment

costing

or more per unit

and reported

to the Secretary

of Health,

Education,

fare

(HEW) on July 17, 1973, that:

-

-4

$1,000

and Wel-

1. Although

HEW instructions

specify

that

a grantee

carefully

screen

existing

equipment

before

purchasing

more and require

that

a grantee

certify

that

equipment

is not already

on hand and available,

institutions

lacked

records

adequate

to enable

them to comply with

these

instructions.

Moreover,

NIH had not issued

guidelines

suitable

for grantees

to carry

out HEW’s instructions.

Adequate

records

would have enabled

researchers

to locate

and

use available

equipment

and would have prevented

unnecessary

expenditure

of

research

money for equipment.

2. At the grantee

institutions

visited,

the most effective

ment was not being

made because

NIH has not taken

appropriate

out HEW instructions

urging

researchers

to share equipment.

use

steps

of

to

equipcarry

3. In 1970 NIH established

an equipment

pool in Bethesda,

Maryland,

for

researchers’

use.

However,

NIH does not require

researchers

to use available

pool equipment

or have any procedures

for determining

whether

researchers’

equipment

needs can be met with

available

equipment.

As a result,

the amount

of equipment

used averaged

only 13 percent

from July

1971 through

February

1972.

Another

factor

contributing

to the low use rate

is that

less than

1 percent

of NIH’s

equipment,

worth

$64 million,

is in the pool.

GAO recommended

--Instruct

screen

all

that

grantees

major

the

Secretary

of

to improve

their

items of equipment

--Issue

guidelines

or instructions

and procedures

for establishing

sharing

equipment.

--Establish

NIH pool

screening

is available

HEW direct

records

before

NIH to:

so that

their

officials

purchasing

new equipment.

to its grantees

equipment

pools

to develop

policies

and other

means for

procedures

to determine

whether

equipment

for use before

purchasing

new research

20

can

from the

equipment.

I

,

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

NATIONAL INSTITUTES OF HEALTH (continued)

--Consider expanding the NIH equipment pool by including

more of NIH's

scientific

equipment and requiring

participation

in the pool, unless

special research situations

or the need for extended continual

usage

of certain equipment requires individual

purchases of equipment.

NIH officials

recommendations.

generally agreed with GAO's findings,

(B-164031(2), July 17, 1973.)

21

conclusions,

and

DEPARTMENT OF HEALTH,

OFFICE

EDUCATION,

AND WELFARE

OF EDUCATION

Need for improved

coordination

of

federally

assisted

student

aid programs

in institutions

of higher

education

The Office

of Education

administers

four major programs

providing

financial

aid to students

attending

colleges,

universities,

and vocational.

schools.

These include

the Guaranteed

Student

Loan program,

the National

Dethe

College

Work-Study

program,

and

the

Educafense

Student

Loan program,

The 4 programs

provided

assistance

of

tional

Opportunity

Grant program.

about

$1.7 billion

to approximately

2.3 million

students

in fiscal

year 1971.

GAO examined

the coordination

of these programs

because

student

enrollment

and tuition

costs

have increased

significantly

in recent

year-s and have

added to the demand for financial

assistance

and to the Government’s

potential

liability

in the case of defaulted

loans.

-

-

GAO pointed

out that

seven of

In an August

1972 report

to the Congress,

eight

institutions

visited

generally

awarded

aid to students

under Office

of

Education

programs

that

require

a showing

of need without

considering

whether

the students

also had obtained

or requested

loans

from lending

institutions

As a result,

some students

were

under

the Guaranteed

Student

Loan program.

provided

with

aid in excess

of their

indicated

financial

needs and some students borrowed

under both loan programs

and incurred

large

debts

that

could be difficult

to repay.

GAO reviewed

400 student

aid cases selected

at random from a list

of

approximately

6,500

students

who had obtained

loans under the Guaranteed

Student

Loan program.

Of the 400 students,,

57 (14 percent)

were awarded

aid,

totaling

about

$51,800,

in excess

of their

indicated

financial

needs.

On the

basis

of the sample,

GAO estimated

that

900, or 14 percent

of the 6,500

students,

had been awarded

aid,

totaling

at least

$761,000,

in excess

of their

indicated

needs.

GAO also noted

that

some institutions

have not had

aid funds

to meet the financial

needs of their

students

received

excess

aid made such aid unavailable

to others

tion

one

GAO suggested

that

on the amount that

loan program.

the Congress

consider

a student

may borrow

sufficient

Federal

and that

sutdents

who qualified.

establishing

an overall

limitawhen participating

,in more than

Also,

GAO recommended

that

HEW take certain

actions

to improve

the

coordination

of federally

assisted

student

aid programs.

HEW concurred

in

the intent

of GAO’s recommendations;

however,

prior

to implementing

the

recommendations,

HEW planned

to study

the matter.

(B-164031(1),

Aug. 2,

1972.)

22

who

I

DEPARTMENT OF HEALTH,

OFFICE

OF EDUCATION

Additional

efforts

the objectives

of

EDUCATION,

AND WELFARE

(continued)

needed

to fully

achieve

the Vocational

Education

Act

The objective

of the Vocational

Education

Act of 1963, as amended in

1968,

is to provide

all persons

who need vocational

education

with

access

to

vocational

training

which

is realistic

and suited

to their

needs,

interests,

and abilities.

Particular

emphasis

is placed

on meeting

the needs of the

disadvantaged.

GAO reviewed

Federal

vocational

programs

in California,

Michigan,

Ohio,

and Pennsylvania

to find

out if legislative

objectives

were being

achieved

and to identify

major problems.

These States

received

$104 million,

or

22 percent

of the total

Federal

assistance

for vocational

education,

in fiscal year 1972.

GAO’s review

concentrated

on high school

vocational

education,

because

the States’

programs

emphasized

this

level

of education.

achieve

GAO reported

the objectives

to

the Congress

of the act.

that

additional

GAO noted

that:

efforts

are

needed

to

fully

--The

objective

of the legislation

had not been achieved

nationwide

or

in any of the four States

reviewed.

Thirty-seven

percent

of the

Nation’s

high school

students

presumed

to need vocational

education

were not receiving

it according

to HEW data,

and in the 4 States

even

greater

proportions--44

to 75 percent

--were

not receiving

it.

Vocational

educators

say that

causes

of this

situation

are insufficient

funds

and an unfavorable

image of vocational

education,

However,

no

specific

studies

on the image problem

had been made.

--In

the four

States,

funds

intended

by the act to support

special

programs or services

for disadvantaged

persons

unable

to succeed

in the

regular

vocational

education

program

were often

not used for this

purpose.

This happened

because

some State

and local

education

officials

did not fully

understand

the intended

use of funds

for disadvantaged

persons

and therefore

used these

funds

for regular

vocational

programs.

and independent

evaluators

GAO also reported

that

HEW, the four

States,

believe

that

the current

management

information

system

of HEW and the States

did not provide

sufficient

data to adequately

evaluate

the results

of programs,

Data furnished

to HEW by the States

was often

as required

by the act.

inaccurate

or incomplete.

.

A

HEW concurred

with

all

of GAO’s recommendations

and has taken or promised

to take action

to research

vocational

education’s

financial

and image problems , to properly

control

the use of disadvantaged

funds,

and to improve

the

State

officials

also generally

concurred

with

management

informat

ion sys terns.

GAO’s recommendations,

but they and HEW said that

GAO should

have included

more information

on the accomplishments

and potential

of vocational

education.

Although

GAO found

that

some programs

appeared

to be operating

effectively,

incomplete

and inaccurate

management

information

prevented

unquali(B-164031(1),

Oct. 18,

fied

conclusions

on overall

program

effectiveness.

1972 .)

23

DEP.I\RTbIEST OF HEXLTH,

SOCIA4L .1\ND REH-\BILITXTION

SERVICE

Need to improve

effectiveness

vocational

rehabilitation

the handicapped

in

EDUC.\T ION,

AND WELFARE

of

helping

In April

1973 GAO reported

to the Congress

on its review

of the

effectiveness

of programs

under the Vocational

Rehabilitation

Act.

The

act authorized

Federal

grants

to assist

States

to rehabilitate

handicapped

persons

so they might

prepare

for and engage

in gainful

employment.

The

Rehabilitation

Services

Administration

(RS.4) is responsible

for providing

leadership

to the States

in planning,

developing,

and coordinating

State

programs.

State

vocational

rehabilitation

agencies

carry

out programs

authorized

State

and Federal

costs

for basic

support

services--services

under

the act.

generally

rendered

directly

to handicapped

persons--were

$697 million

(the

Federal

share was $548 million)

for fiscal

year 1972.

Helping

all

handicapped

persons

The vocational

rehabilitation

program

has not been able to help all

handicapped

persons --possibly

7 million-who need and would benefit

from

the program.

The number of persons

rehabilitated

annually,

although

increasis

still

not

as

great

as

RSA’s

estimates

of

the

number

becoming

eligible

ing,

each year (increment).

RSA projects

that

rehabilitations

may exceed its estimates

of the annual

increment

in 5 to 10 years.

Then the universe

of persons

in need would begin

to decrease.

Whether

rehabilitations

will

exceed the increment

within

this

time could be affected

by many factors,

such as new legislation

making more

groups

eligible

for services.

Better

estimates

of the size of the universe

and annual

increment

are needed to properly

plan for the size and direction

of the program

and the resources

needed.

Further,

some of the services

provided

under

this

program

are available

under

other

Federal

programs.

it is probably

not necessary

to

Therefore,

meet the needs of the total

universe

through

resources

available

only to RSA.

Helping

each

handicapped

GAO randomly

selected

reported

closed

in 1970 to

clients,

person

served

and reviewed

820 of the 31,650

determine

how well

the program

3 States

individual

,

although

In many instances

benefits

were limited,

improved

or progressed

to the extent

of their

individual

needed additional

services

even though

they might

have

considerable

extent,

.llthough

large

numbers

of

fully

rehabilitated,

GAO found

competitive

with nonhandicapped

cases

served

some clients

capability.

been assisted

persons

were reported

as having

been

that

many had not become self-sufficient

persons.

24

may have

Others

to a

successor

DEPARTJIENT OF HEALTH,

SOCIAL

AND REH.\BILITATION

SERVICE

EDUCATION,

AND WELFARE

(continued)

GAO made several

recommendations

to HEW which

it believed

would

HEW and State

management

and increase

effectiveness

of the program.

HEW said that

most had

generally

agreed

with

these recommendations.

adopted

or were being worked

out.

(B-164031(3),

Apr.

3, 1973.)

r

Social

services

have only a minor

directly

helping

welfare

recipients

self-support

or reduced

dependency

improve

agencies

been

impact

on

achieve

Social

services

provided

to recipients

of aid to families

with

dependent

children

(AFDC) under provisions

of title

IV, parts

A and C, of the Social

Security

Act are supposed

to help recipients

get off welfare

and to prevent

or reduce

illegitimate

births,

strengthen

family

life,

attain

or retain

personal

independence,

and protect

children.

GAO wanted

to know if the goal of

getting

people

off welfare

is being

achieved

as intended

by the Congress.

although

it has begun developing

HEW has been unable

to answer this

question,

data so that

it can.

GAO reported

to the Congress

in June 1973 that

social

services

had only

a minor

impact

on directly

helping

recipients

to develop

and use the skills

Therefore,

one of

necessary

to achieve

reduced

dependency

or self-support.

It is

the basic

congressional

goals

for the services

has not been achieved.

unrealistic

to expect

that

social

services

can play a major

role

in helping

recipients

achieve

reduced

dependency

or self-support,

considering

the nature

of services

provided,

the method

for determining

who should

receive

certain

and present

economic

constraints.

services,

GAO also

reported

that:

--Because

local

welfare

departments

did not have adequate

systems

to

they could not insure

that

their

service

assess

recipients’

potential,

resources

would be allocated

for the maximum benefit

of recipients.

An inventory

approach

developed

by the Denver Welfare

Department

could

systematically

measure

the employment

potential

of recipients

and lead

to better

resource

allocation.

tration

--Federal

leadership

in services

programs

had

gram accountability

had not been emphasized,

all

levels

of government

needed

strengthening.

not been aggressive,

and administration

--Certain

barriers

which cannot

be influenced

as high unemployment

rates,

greatly

affected

achieved

self-support

or reduced

dependency

limit

the effectiveness

of services.

by social

services,

such

whether

welfare

recipients

and therefore

could

greatly

GAO’s recommendations

and accountability

to the Secretary

of HE.W to

for services

included:

improve

program

using

the inventory

--Start

a number of demonstration

projects,

to assess

the potential

of all welfare

or similar

approaches,

and to allocate

service

resources

accordingly.

25

proat

adminis-

approach

recipients

DEPARTMENT OF HEALTH,

SOCIAL

AND REHABILITATION

SERVICE

EDUCATION,

AND WELFARE

(continued)

--Report

to the Congress

at the

taken

to improve

the allocation

the study.

end of the test

period

of service

resources

on actions

as a result

to be

of

--Develop

by July

1974 in conjunction

with

the Secretary

of Labor

a

system

so certain

characteristics

of recipients--shown

in this

report

to indicate

high potential

for achieving

self-support

or reduced

dependency--serve

as the basis

for determining

which

recipients

registered

under the 1971 amendments

will

be afforded

priority

in receiving

work incentive

program

services,

said

1973.)

HEW, by letter

dated May 22, 1973, agreed

with

that

action

would be taken to implement

them.

Need to improve

certain

eligibility

aid to families

in Pennsylvania

administration

aspects

in

with

dependent

of

the

children

GAO’s recommendations

(B-164031(3),

June

_

and

27,

program

In response

to his request,

GAO reported

to the Chairman,

House Committee

on Ways and Means,

that

administration

of the incapacity

and unemployed

father

eligibility

aspects

of the AFDC program

had not been effective

in Pennsylvania.

GAO reported

also that

this

had been caused by inadequate

guidance

on the part

of HEW, fiscal

problems

in the State,

and increasing

AFDC caseloads.

GAO

noted

that:

--Recipients

with minor

impairments,

such as needs for eyeglasses

or

became eligible

for AFDC when Pennsylvania

broadened

its

dentures,

definition

of incapacity

in 1970.

The State

could

do this

because

Federal

regulations

did not describe

an applicant’s

eligibility

in

terms of the extent

to which

the incapacity

must affect

his ability

to support

or care for the child.

--Nonvisible

cent of

all

--Initial

cent

eligibility

information

the unemployed-father

of

--In

74 percent

father

cases,

or overdue.

--Caseworkers

or evaluated

impairments

incapacity

were inadequately

cases included

of the incapacity

redeterminations

in

verified

for about

a GAO sampling.

was not adequately

cases sampled.

cases and

of eligibility

81 percent

of

were late,

did not receive

adequate

training

the adequacy

of State

inservice

To improve

administration

a number of recommendations,

of these

aspects

of

including

the following,

26

verified

35 per-

in

71 per-

the unemployedinadequate,

and HEW had not

training.

monitored

the

GAO made

of HEW.

AFDC program,

to the Secretary

II

DEPARTMENT OF HEALTH,

SOCIAL

AND REHABILITATION

SERVICE

EDUCATION,

AND WELFARE

(continued)

--Revise

the applicable

section

of the Code of Federal

Regulations

in

such a manner that,

for an applicant

to be eligible

for AFDC because

of an incapacity,

the incapacity

must have a direct

or immediately

apparent

bearing

on diminishing

parental

support

or care to the child.

--Determine

similar

whether

to those

initial

eligibility

in Pennsylvania

exist

and redetermination

nationwide.

problems

--Take

the necessary

action,

including

implementation

of HEW’s policy

of reducing

the Federal

share of welfare

payments

to recipients

whose

ineligibility

is detected

after

redeterminations

are due, to insure

that

States

improve

their

eligibility

and redetermination

processes.

HEW generally

to take action

to

sequently

revised

1973.)

agreed

with

GAO’s recommendations

and has taken

implement

them.

The Code of Federal

Regulations

in line

with

GAO’s recommendation.

(B-164031(3),

Some problems

in

federally

assisted

contracting

child-care

or agreed

was subJune 27,

for

services

The Federal

Government

shares

with

the States

the expense

of child-care

services

under

the AFDC program,

the largest

of several

federally

funded

child-care

programs.

In recent

years,

the program

has been expanding

and

concern

about

rapidly

rising

costs

has been expressed.

GAO reported

to the Congress

in June 1973 that

contracted

child-care

services

were provided

in fiscal

year 1971 to about

39,000

children

in

California

and Pennsylvania

at a total

Federal

and State

cost of about

The children

obtained

educational,

social,

nutritional,

and

$60 million.

health

benefits.

In some instances,

the program

enabled

parents

to obtain

or continue

employment

or training.

A significant

number of available

spaces

provided

by contracted

childcare services

were used for children

of nonworking,

nontraining

parents

because

many of those who were working

or training

elected

to make their

own

child-care

arrangements

or applied

for services

after

the nonworking,

nontraining

parents

had already

enrolled

their

children.

Some welfare

recipients

could not get child-care

services

primarily

because

their

communities

could

not provide

the local

share of the cost.

GAO also reported

that

HEW had not (1) provided

adequate

guidance

to

States

to assist

them in contracting

for child-care

services,

(2) implemented

a system

to provide

data for assessing

program

effectiveness,

or (3) adeAs a result

administration

of the program.

quately

monitored

the States’

contract

requirements

and procedures

had weaknesses,

free

child-care

services

were provided

to some financially

ineligible

families,

financially

able

families

were not required

to pay service

fees,

facilities

were underused,

the cost of contracted

childcare

for similar

services

varied

significantly,

State

claims

for reimbursement

were inaccurate

because

of fiscal

weaknesses,

and private

contributions

were inappropriate.

27

DEF.V?TYENT OF HEXLTH.

SQiI.AL

.i.UD REH-\BILIT.1TION

G.-\O recommended

SERVICE

that

EDUC.\TION.

(continued)

HEW:

--.Assist

States

in developing

plans

for

(1) assess

the seriousness

of program

a systematic

method of meeting

priority

--Establish

program

States.

ways

aspects

--Establish

of the

criteria

which

overall

costs

for

--Clarify

ineligible

eligibility

families.

--Help

for

the States

some portion

--Follow

correct

XND CCELF,\RE

to insure

of State

effective

contracts,

gathering

shortcomings

needs.

and timely

including

can be used

the services

requirements

to

help

monitoring

more audits

avoid

up on California

and Pennsylvania

claims

for Federal

funds discussed

the

_

families

the

/

reasonableness

services

to

able

to pay

the

in-

actions

to adjust

in the report,

controlling

of child-care

to

of fiscal

and

by HEW and

providing

for

needed

establish

i

in evaluating

procured.

establish

sliding

fee scales

of child-care

services.

I

--Provide

guidelines

to the Staies’for

contributions

toward

the local

shire

information

and (2)

use

costs,

of

1/

private

.

HEW concurred

with

CAO’s findings

and recommendations,

stating

that

corrective

actions

had been taken or were being

developed.

HEW also advised

GAO that

$622,000

in overclaims

had been recovered

from the State

of

Pennsylvania.

Recent

changes

to Federal

regulations

on social

services

and

revised

Federal

day-care

requirements

will

also affect

some of the problems

discussed

in GAO’s report.

(B-164031(3),

June 13, 1973.)

Improvement

needed

in

the program

to provide

w-elfare

recipients

the administration

Medicare

benefits

of

for

Section

1843 of the Social

Security

Act provides

that

States

may enroll

eligible

welfare

recipients

in Medicare’s

supplementary

benefits

program.

This is referred

to as the buy-in

program

and is managed through

the coordinated

efforts

of the Social

Security

Administration,

Social

and Rehabilitation

Service,

and State

and local

health

and welfare

agencies.

/

As of December

1971 about

2 million

persons

were enrolled

in the buy-in

program.

In 1971 the States

paid about

$134 million

in premiums

on behalf

of

these persons,

The Federal

Government

pays its share of premiums

through

Lledicaid,

but these payments

are limited

to premiums

paid

for persons

receiving cash assistance,

In August

has experienced

eligible

welfare

1973 GAO reported

major

administrative

recipients

were

to

the Congress

that

since

1966 the program

problems.

As a result

(1) not all

enrolled,

because

local

welfare

offices

had

28

.

DEPARTMENT OF HEALTH.

SOCIAL

-

AND REHABILITATION

SERVICE

EDJJCATION.

AND WELFARE

(continued)

not obtained

necessary

information

to enroll

them or because

identification

data was not current

or complete,

and (2) two States

received

about

$2.9 million

in overpayments

for premiums

that

should

have been paid entirely

by the

procedures

did not adequately

identify

premiums

States,

because

the States’

paid for persons

not receiving

cash assistance.

the

GAO made several

recommendations

program.

In response

to these

--It

designed

to

recommendations,

improve

administration

HEW stated

that:

will

reemphasize

to the States

the importance

of periodic

ciliation

of their

lists

of eligible

persons

with

their

lists

enrollees

as a means of identifying

eligible

persons

and the

of timely

enrolling

all

eligible

persons.

of

reconof

urgency

--As a part

of the Medicaid

Management

Information

will

be developed

to assist

States

in identifying

funds paid only on behalf

of persons

receiving

System,

procedures

and claiming

Federal

cash assistance.

--Reviews

have been or will

be made to determine

which have included

persons

not receiving

cash

buy-in

programs

are improperly

claiming

Federal

(B-164031(3),

Aug. 14, 1973.)

whether

any of 29 States

assistance

in their

participation.

Problems

in functioning

reviewing

use of medical

under Medicaid

of State

services

systems

financed

for

At the request

of the Chairman,

House Committee

on Ways and Means,

GAO

reviewed

the functioning

of the utilization

review

systems

under

the Medicaid

program

in Massachusetts

and Maryland.

The purpose

of the review

systems

is

to safeguard

against

unnecessary

medical

care and services

and to insure

that

Medicaid

payments

are reasonable

and consistent

with

efficiency,

economy,

and

quality

care.

GAO concluded

that

neither

State

had developed

an effective

review

Massachusetts’

system,

system

to be applied

uniformly

throughout

the State.

however , produced

some positive

benefits.

The use of regional

dental

consultants

to approve

or disapprove

dental

services

before

the services

were

provided

resulted

in savings

of about

$1.7 million

in calendar

year 1970.

Maryland

established

procedures

to determine

that

claims

paid were for services authorized

and rendered

and did not exceed amounts

established

by the

The Maryland

claims

processing

system,

however,

did not include

proState.

cedures

for identifying

or preventing

duplicate

payments.

GAO reported

that,

because

of the manner

in which

the review

function

is

organized

and operated

in Massachusetts,

it is difficult

to judge

the adequacy of the aggregate

resources

applied

to this

function.

The State

has

recognized

the need for more effective

controls

over all public

assistance

including

those

for Medicaid,

and has developed

a plan for an

expenditures,

State

officials

informed

GAO that

automated

payment

and control

system.

varyland

had the necessary

computer

capability

and funds

for developing

a

29

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

SOCIAL AND REHABILITATION SERVICE (continued)

review

making

system,

reviews.

but

the

GAO recommended

biggest

that

--study

the HEWmodel

offering

opportunity

--provide

officials

for

to

GAO recommended

develop

an effective

by Massachusetts

to

problem

HEW assist

was a lack

of

sufficient

both

States

and monitor

their

system

for the

for improvement

purpose

and

of

design

the systematic

efficiently

accumulation

of

administer

review

adopting

data required

systems.

that HEW assist

Maryland

and monitor

utilization

review

system

and assist

--apply

ties,

its

utilization

--provide

review

for central

system,

and

--assist

participating

adequate

utilization

personnel

review

State

actions

by management

to

intermediate

care

administration

of

the

utilization

skilled

nursing

homes

to

facili-

develop

In commenting

on GAO’s reports,

,HEW outlined

steps

it was taking

to improve utilization

reviews.

In August

1973 HEW told

GAO that

it had undertaken a pilot

project

in Ohio and that,

during

fiscal

year 1974, the Model

System is expected

to be installed

in about

10 States

with planning

and

negotiations

proceeding

on implementing

the system

in additional

States

during

fiscal

year 1975.

HEW also informed

GAO that

an additional

incentive

to meaningful

State

utilization

review

was provided

by a provision

in the

1972 Social

Security

Amendments

which

requires

reduced

Federal

matching

where

the Secretary

had not made a positive

finding

of adequate

utilization

review

HEW informed

GAO that

it is preparing

for the imfor institutional

care.

plementation

of this

provision

by promulgating

additional

regulations

regarding

minimal

utilization

review

activities

and by preparing

for the

(B-164031(3),

Nov. 24, 1972,

and

enforcement

of the provision.

Dec. 21, 1972.)

30

.

to

actions

regulations

hospitals

and

review

plans.

to

features

its

actions

and monitor

Medicaid

for

1

DEPARTMENT OF HEALTH,

SOCIAL

SECURITY

Opportunities

suppliers

*

of

EDUCATION,

AND WELFARE

ADMINISTRATION

to increase

competition

data processing

services

among

At the request

of the Chairman

of the Subcommittee

on Intergovernmental

Relations,

House Committee

on Government

Operations,

GAO examined

procurement policies

and practices

followed

by Nationwide

Mutual

Insurance

Company

under

its contract

with

the Social

Security

Administration

(SSA) in subcontracting

in September

1972 for electronic

data processing

services.

Nationwide serves

as the carrier,

or organization

making Medicare

payments

for

physicians

’ services

and other

medical

services,

in Ohio and West Virginia.

GAO reported

to the Subcommittee

that

in this

procurement

action

(1)

Nationwide

did not follow

sound,

competitive

procurement

practices

in

developing

specifications

or in soliciting

and evaluating

proposals,

(2)

SSA allowed

Nationwide

considerable

discretion

in determining

how to evaluate

proposals

and what factors

to consider

in selecting

a particular

subcontractor,

and (3) SSA’s stated

policy

of fostering

competition

among the various suppliers

of data processing

services

was not fostered

by this

procuremerit.

Nationwide’s

evaluations

were based on the offerors’

estimates

of the

total

cost of processing

claims

under

each system

rather

than on the offerors’

proposed

prices

for processing

a Medicare

claim.

Because

of the

emphasis

on evaluation

factors

other

than costs,

Nationwide

selected

the

offeror

with

the highest

cost proposal.

SSA made two evaluations

and concluded

that

approval

of

mended award was not warranted

because

of the cost difference

proposal

selected

by Nationwide

and the lowest

cost proposal.

proach

to evaluating

the cost of proposals

and its assumptions

workload,

salary

increases,

and manpower

requirements

differed

wide’s

approach

and assumptions.

the recombetween

the

SSA’s apon future

from Nation-

Nationwide

and the selected

offeror

agreed

to modify

the proposed

subcontract

substantially.

The modifications

involved

guarantees

of the

total

claims

processing

costs;

but,

despite

SSA’s suggestion

that

other

offerors

be given

the opportunity

to compete

on this

basis,

Nationwide

did

not give the other

offers

such an opportunity.

*

GAO expressed

the belief

that

this

procurement

action

was not consistent

with

SSA’s stated

policy

of fostering

competition

among the various

suppliers

of data processing

services

because

(1) SSA’s intervention

to

permit

other

offerors

to respond

to the modified

terms and conditions

was

ineffective

and (2) only

one of the offerors

could meet Nationwide’s

preference

for a proven

online

system.

GAO recommended

SSA should:

that,

in

line

with

its

31

policy

of

fostering

competition,

DEPARTMENT OF HEALTH,

SOCIAL

SECURITY

ADMINISTRATION

EDUCATION,

AND WELFARE

(continued)

--Consider

requiring

that

potential

offerors

be advised,

in writing,

of the evaluation

criteria

which will

be used to evaluate

their

proposals

and that

they be advised

of the relative

importance

that

will

be given

to all

evaluation

factors.

--Give

careful

attention

assumptions

to be used

should

advise

carriers-tractors--just

how the

to be computed.

HEW concurred

structions

to the

in GAO’s

carriers.

to the validity

of the basic

approaches

and

in computing

the total

cost of a proposal

and

as well

as potential

data processing

subconover and above the quoted

prices,

are

factors,

suggestions

(B-164031(4),

and

32

said it would

Aug. 2, 1973.)

revise

its

in-

DEPARTMENTOF HOUSINGAND URBAN DEVELOPMENT

Contents

Page

COMMUNITYDEVELOPMENT

Improvement needed in the San Antonio

Improving the Model Cities Program

GENERALINSURANCE

Actions needed to provide

greater

flood

Model Cities

Program

35

35

36

insurance

protection

38

38

HOUSINGPRODUCTIONAND MORTGAGECREDIT

Benefits could be realized by revising

policies

and practices

for

acquiring

existing

structures

for low-rent public housing

Reducing costs in acquiring

properties

resulting

from defaults on

home loans

Opportunity

for reducing interest

costs

Opportunities

to improve effectiveness

and reduce costs of homeownership assistance programs

Opportunities

to improve effectiveness

and reduce costs of rental

assistance housing ..program

.i

39

INTERSTATE LAND SALES

Improved consumer protection

46

46

needed in interstate

33

land sales

39

41

42

43

44

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

COMMUNITY DEVELOPMENT

Improvement

San Antonio

I

needed

in the

Model Cities

Program

The Model Cities

Program was established

to demonstrate

that

the

environment

and general

welfare

of people

living

in slum and blighted

neighborhoods

could be improved

substantially

through

concentration

of

Federal,

State,

and local

efforts.

A city

demonstration

agency

is responsible

for developing

and executing

the Model Cities

Program

at the

local

level,

and the Department

of Housing

and Urban Development

(HUD) has

overall

administrative

responsibility

at the Federal

level.

Because

of

the importance

of the Model Cities

Program

as a means of demonstrating

new

approaches

to solving

the social,

economic,

and physical

problems

of the

cities,

GAO examined

into major

areas of the planning,

development,

and

implementation

of the program

in San Antonio

from its

inception

in May

1968 to June 1971.

The two functional

areas of the Model Cities

Program

designated

by

the city

demonstration

agency

as having

the highest

priority

were education

and physical

environment.

GAO found

that

the agency had not met its objectives

in implementing

the program

in these

two areas during

the first

2 action

years

of the program.

Although

it is difficult

to identify

major

factors

which

affected

the city

demonstration

agency’s

rate

of progress

in implementing

the Model Cities

Program,

GAO identified

certain

factors

which may have influenced

the results

and/or

impact

of the program.

GAO noted:

--A

minimum

--A

low

--Little

and

of

level

State

of

support

citizen

in

first

year

technical

assistance

between

the

provided

to

agency

Federal

and State

of some projects.

--Difficulty

the

in

and

untimely

GAO recommended

that

program.

demonstration

conflicting

the initiation

--Limited

the

city

--Problems

with

which

delayed

for

of

participation.

coordination

of effort

Federal

and local

agencies.

--Inadequate

agencies.

the

agency

program

the

Secretary

the

regulations

obtaining

financial

support.

evaluations

by

agency.

the

agency

by Federal

and policies

of HUD:

--In

line

with HUD’s program

guidelines,

require

agency to solicit

the views of model-neighborhood

uating

Model Cities

Programs

and projects.

35

the

city

demonstration

residents

in eval-

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

COMMUNITY DEVELOPMENT (continued)

--In

cooperation

with

the city

demonstration

agency,

review

the agency’s

day-to-day

practices

in coordinating

its efforts

with

those

of established

agencies

and after

such a review,

assist

the agency

in

establishing

procedures

necessary

for interagency

cooperation

and

participation.

--Examine

into

the practices

of the city

demonstration

agency in

soliciting

and using

technical

assistance

from Federal

agencies

as appropriate,

assist

the agency

in obtaining

such assistance.

--Require

HUD’s regional

and area offices

to review

the

city

demonstration

agency evaluation

efforts

to insure

agency makes project

evaluations

which

are timely

and

scope to measure

project

impact

and performance.

.

and,

results

of

that

the

of sufficient

HUD generally

agreed

with

GAO’s findings

and recommendations,

HUD

said that,

although

it was certain

that

some difficulty

would continue

in

the management

of the San Antonio

Model Cities

Program,

it was encouraged

by the results

and increasing

responsiveness

at all

government

levels.

HUD also anticipated

that

its decentralization

of the Model Cities

Program

to its area offices

should

further

strengthen

the program

and help alleviate

many of the problems

noted

in the San Antonio

program.

(B-171500,

Jan. 9,

1973.)

Improving

the

Model

Cities

Program

GAO examined

the planning,

implementation,

administration,

and evaluation

of four functional

areas--manpower,

economic

development,

education

and health--of

the Model Cities

Programs

in Kansas City and St. Louis,

Missouri,

and New Orleans,

Louisiana.

These functional

areas were selected

because

(1) they had been designated

by the cities

as high priority

areas,

(2) they required

a high degree

of Federal

agency assistance

and coordination,

and (3) Federal

agencies

allocated

and the cities

spent

significant

amounts

of funds

in these areas.

,

GAO reported

to the Congress

that

the three

cities

had had varying

degrees

of success

in attaining

the annual

goals of their

Model Cities

projects

in the manpower,

economic

development,

and health

areas;

in the

educational

area,

all

three

cities

accomplished

their

annual

project

goals.

The following

weaknesses

in HUD’s and city

demonstration

agencies’

administration

of the program

may have affected

the attainment

of project

goals.

--Development

that was,

of plans

on the basis

in many cases,

neither

--Use of HUD supplemental

of to develop

new and

funds

innovative

to

of data on neighborhood

current

nor sufficiently

conditions

complete.

expand

projects.

instead

36

existing

programs

.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

COMMUNITY DEVELOPMENT (continued)

c

--Lack

local

of success

funds

to

in obtaining

support

the

--Insufficient

progress.

efforts

to

GAO recommended

that

HUD:

Federal

programs.

timely

grant-in-aid

develop

evaluation

funds

or

States

plans

to

measure

and

--Require

city

demonstration

agencies

to periodically

obtain

and

analyze

information

on the extent

and causes

of problems

in the

model neighborhoods

and to use the results

of such analyses

to (1)

plan the types of projects

that

will

help alleviate

the neighborhood

problems

and (2) ascertain

whether

existing

projects

represent

the

most suitable

approaches

to accomplishing

their

program

goals.

--Ascertain,

in its reviews

of cities’

plans,

whether

the cities

are

developing

new and innovative

approaches

to solve

their

social,

and physical

problems

and, when it appears

that

the

economic,

cities

are using

HUD supplemental

funds primarily

to expand

existing

programs,

assist

city

demonstration

agencies,

through

its regional

and area offices,

to develop

new and innovative

projects.

--Examine

city

demonstration

agency efforts

to establish

organizational

structures

(including

staffing)

for conducting

required

evaluations

of projects;

define

program

goals

and objectives

for measuring

progress

and for identifying

problems

of projects;

and use evaluation

and revising

their

comprehensive

plans

results

in planning,

refining,

and in designing

and initiating

new programs

and activities.

--Periodically

agencies

T

-,

to

review

insure

the

that

evaluation

efforts

HUD’s requirements

of city

demonstration

are being

met.

HUD generally

agreed

with

GAO’s findings

and recommendations.

It

said,

however,

that

city

demonstration

agencies’

administrative

capabilities

and economic

conditions,

rather

than insufficient

data,

were the more

salient

causes

of difficulties

in the manpower

and economic

development

areas.

It said also that

neither

the statute

nor HUD’s guidelines

required

innovation

within

each project

or as an essential

approach

to the cities’

longstanding

problems.

GAO believes

that

the legislative

history

of the

Model Cities

Act clearly

shows that

the Congress

anticipated

that

emphasis

would be placed

on new and innovative

projects

and that

supplemental

funds

would be used for such projects.

HUD also stated

deficient.

(B-171500,

that

it was aware

Jan. 16, 1973.)

that

37

local

evaluation

efforts

were

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

GENERAL INSURANCE

Actions

needed

flood

insurance

to provide

protection

greater

To compensate

people

suffering

loss of property

because

of floods,

the

Congress

established

the National

Flood

Insurance

Program

administered

by

GAO reviewed

the program

to dethe Federal

Insurance

Administration

(FIA).

termine

whether

it was meeting

its objectives

to provide

property

owners

with flood

insurance

and to encourage

flood-prone

communities

to adopt

land

use and control

measures

designed

to reduce

flood

damage.

GAO reported

that much more needs to be done if the program

is to

fully

meet its objectives.

Responses

to questionnaires

sent to a sampling

of nonparticipating

communities

indicated

that many communities

were not

Maximum benefits

were not available

to many particiaware of the program.

pating

communities

because

FIA had not made the required

flood

plain

studies.

FIA review

and approval

of communities

’ land use and control

measures

was

not timely,

and FIA had not established

a program

to monitor

community

implementation

of the measures.

GAO recommended

that

FIA send literature

describing

program

benefits

and eligibility

requirements

to officials

of nonparticipating

communities

to help them decide

whether

they should

apply

to participate

in the program.

GAO recommended

also that

FIA use private

engineering

firms

to make flood

plain

studies

to the extent

that

funds

are available

and that

Federal

agencies

cannot

make them on a timely

basis,

GAO further

recommended

that

FIA

review

communities’

land use and control

measures,

notify

communities

having

deficient

measures

of needed

corrective

action,

and establish

a

monitoring

program

of communities’

compliance

with

FIA land use and control

measures.

The Administrator,

FIA, agreed with

GAO’s recommendations

but

that

lack of staff

had prevented

FIA from making

such improvements.

(B-178737,

July

19, 1973.)

38

stated

,

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

HOUSING PRODUCTION AND MORTGAGE CREDIT

Benefits

could be realized

and practices

for acquiring

for low-rent

public

housing

.h

by revising

existing

policies

structures

The low-rent

housing

program

is designed

to make decent,

safe,

and

sanitary

dwellings

available

to low-income

families

at rents

within

their

HUD

provides

financial

and

technical

assistance

to

LHAs,

nancial

means.

low-rent

public

housing

projects

develop

and/or

acquire,

own, and operate

accomplish

this

aim.

To provide

low-rent

public

housing,

LHAs use several

methods--conventional

construction,

turnkey,

direct

acquisition

of existing

privately

dwellings,

and leasing

.

Use of direct

acquisition

does not increase

housing

fiwhich

to

owned

method

supply

GAO reviewed

HUD’s and LHAs’ practices

and procedures

relating

direct

acquisition

method

of obtaining

existing,

occupied

standard

and found

that,

although

the method was expendient,

it had certain

tages which

tended

to make it less desirable

than other

methods.

By using

the direct

acquisition

method,

the LHAs increased

of low-rent

public

housing

but did not directly

help to achieve

housing

goal

f increasing

the housing

supply.

to the

structures

disadvan-

the

the

supply

national

GAO’s review

of 15 projects

in 8 selected

cities

or metropolitan

areas

showed that

LHAs had expended

about

$80 million

to acquire

the projects

HUD ’ s

without

increasing

the supply

of standard

housing

by a single

unit.

analyses

of housing-market

conditions

showed that,

in seven of the eight

cities,

a need for both subsidized

and nonsubsidized

standard

housing

existed

when these projects

were acquired,

The LHAs’ action,

therefore,

did not improve

the overall

condition

of the housing

market.

It appears

that,

in such

cases,

the construction

of new housing

and the rehabilitation

of substandard

housing

would be the preferred

method

and would use Federal

funds more effectively

by adding

to the supply

of standard

housing.

.

GAO proposed

that

HUD limit

its

financial

assistance

to LHAs to the

acquisition

of privately

owned standard

housing

where the supply

of such

housing

exceeds

the demand and terminate

the acquisition

of existing,

occupied,

privately

owned standard

housing

which

is in the planning

or early

development

stages

and use the funds

instead

to finance

the construction

of

new low-rent

public

housing

projects

or to purchase

and rehabilitate

existing

substandard

housing .

HUD did not agree because

it felt

that

such a practice

would be too

restrictive.

despite

an overall

demand for unsubsidized

HUD commented

that,

some structures

would not meet the demand for various

housing

in a community,

reasons.

39

CEF.AXT!fEST3F HOUSISG Q-D URB.V,'DE1-ELOF!~lENT

Hc7USISG FR3DLICTIJS

ASD !IJRTG.AGE CREDIT

(continued)

G-40 agreed

that,

if certain

standard

housing

had a high vacancy

rate

and could be purchased

at an acceptable

price,

acquisition

of such housing

by an LX.4 Icould be beneficial.

Of the 15 projects

reviewed

by GXO, however,

all had 10~ vacancy

rates.

-Acquired

units

used to house

are not being

those most in need

G-A0’ s review

shoried that

the acquisition

of privately

orined standard

housing

generally

had not substantially

reduced

the number of families

or

persons

li\-ing

in substandard

housing,

because

many of the occupants

of the

acquired

housing

units

had previously

lived

in standard

housing.

Some of

the families

occupying

the acquired

units

had incomes

exceeding

the established

limits

entitling

them to public

housing.

Also,

some persons

were

occupying

units

larger

than those suggested

in HUD’s guidelines.

Because only a relatively

small

number of the occupants

of the acquired

housing

projects

included

in G-40’s review

had previously

occupied

substandard

housing,

there

appeared

to be a need for specific

standard

admission policies

to insure

that

those families

or persons

most in need are

given preference.

G-40 suggested

that

the Congress

might wish to require

that

LHXs give

preference

for admission

to public

housing

to occupants

of private

substandard

housing

ox-er those riho are occupying

private

standard

housing.

Hardships

to former

of acquired

properties

occupants

The acquisition

of privately

olined standard

housing

has provided

standard

housing

to certain

low-income

families

sooner

than it could

have

been provided

under the other

methods,

but it has resulted

in (1) hardships

to form.er occupants

of acquired

projects

\<ho were forced

to move and (2)

the people

forced

loss

of tax revenues

to local

governments.

In some cases,

although

HUD regulations

provided

to ‘move were not assisted

in relocating,

for it.

Other

displaced

occupants

were subjected

to physical

and financial

hardships.

G-40 recommended

that HUD, prior

to approving

LHAs’ acquisition

of

require

LHAs to adequately

occupied,

privately

owned standard

housing,

deconstrate

that

housing

of comparable

quality

and rent

existed

in the

and that

adequate

relocation

assistance

would be available

for tenants

be displaced.

action

Because

it

on GAO’s

!;eel to

acquired

;ro.b-ide

is aliaiting

the

recommendation.

insure

that

properties

r;.A<Q’s review

adeq,Jate

indicated

assurance

results

of

its

housing

studies,

area

to

HUD took

prices

of

are reasonable

that

that

HUD needed

to improve

the prices

of acquired

40

its procedures

properties

are

to

no

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

HOUSING PRODUCTION AND MORTGAGE CREDIT

-3

(continued)

GAO recommended

that

HUD establish

appraisal

requirements

for

reasonable.

the direct

acquisition

method

similar

to those established

for the turnkey

method which

requires

that

two independent

cost estimates

be obtained

and

provide

that

the total

price

be no greater

than the average

of the cost

estimates

. Although

HUD agreed with

this

recommendation,

it took no action

pending

the results

of the housing

studies.

(B-114863,

Sept.

7, 1972.)

Reducing

resulting

costs

from

in acquiring

properties

defaults

on home loans

Privately

financed

home loans

are insured

by HUD or are guaranteed

by

the Veterans

Administration

(VA).

VA also makes loans

to veterans

unable

to obtain

private

financing

and to purchasers

of properties

which

VA acWhen a borrower

defaults

on a HUDquired

as a result

of loan defaults.

the lender

terminates

the loan,

acquires

the

insured

or VA-guaranteed

loan,

and

generally

conveys

the

property

to

HUD

or

VA

in

exchange

for

property,

When a borrower

defaults

on a VA-financed

insurance

or guaranty

payments.

loan,

VA terminates

the loan and acquires

the property.

GAO stated

that

the Government

In a report

to the Congress,

foreclosure

costs

on HUD-insured,

VA-guaranteed,

and VA-financed

wider

use of the “power

of sale”

method

of foreclosure.

Defaulted

generally

are terminated

by foreclosures

conducted

in accordance

statutes.

In the District

of Columbia

and in the 26 States

which

the use of the power-of-sale

method

of. foreclosure,

foreclosures

erally

less costly

and less time consuming

than the judicial

and

methods

of foreclosure

authorized

by the other

24 States

because

of-sale

foreclosures

can be completed

without

court

action.

could

reduce

loans

by

loans

with

State

authorize

are genother

the power-

GAO reported

that

costs

could

further

be reduced

by HUD’s and VA’s

greater

emphasis

on the “voluntary

deed” method

of terminating

such loans;

by VA paying

mortgage

claims

on defaulted

loans as HUD does;

and by I-IUD’s

reliance

on mortgagees’

title

evidence

for foreclosed

properties.

GAO recommended

.

that

HUD and VA:

--Provide

mortgagees

to determine

when

properties

securing

with

data

they should

defaulted

on loan

attempt

loans,

--Require

instead

to

justifications

deeds.

mortgagees

of accepting

In addition,

HUD should

title

evidence

for properties

VA should

adopt HUD’s policy

terminating

defaulted

loans

furnish

voluntary

termination

to obtain

costs

to

voluntary

for

enable

deeds

foreclosing

them

to

mortgages

stop requiring

mortgagees

to purchase

additional

acquired

by foreclosure

and conveyed

to HUD.

for paying

mortgagees

for costs

involved

in

and in conveying

the mortgaged

properties

to VA.

GAO also recommended

that

the Congress

establish

a Federal

power-of-sale

foreclosure

insured,

or guaranteed

home mortgages.

41

enact

law

legislation

for all

which

federally

would

financed,

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

HOUSING PRODUCTION AND MORTGAGE CREDIT

(continued]

HUD expressed

support

for new initiatives

to encourage

mortgagees

to

accept

voluntary

deeds but stated

that

mortgagees

are well

aware of the

costs

involved

in either

the voluntary

deed or the foreclosure

method.

HUD

also stated

that

it planned

to amend its mortgage

instructions

to require

justifications

from mortgagees

for foreclosing

in lieu

of accepting

voluntary

deeds,

but has not yet done so.

VA stated

that

its existing

policy

was

GAO believes

HUD and VA need to encourage

mortgagees

to seek a

adequate.

greater

number of voluntary

deeds,

especially

in those

States

where it would

result

in reducing

property

acquisition

costs.

HUD objected

to discontinuing

the purchase

of title

evidence

for foreGAO believes

the

closed

properties

because

many foreclosures

are faulty.

risk

to HUD of title

defects

is minimal

and that

the costs

incurred

by HUD

for additional

title

evidence

are unnecessary.

VA objected

to adopting

HUD’s policy

of paying

mortgagees

for loan

termination

and property

conveyance

costs

on the basis

that

its existing

policies

make VA loans an attractive

investment

and encourage

mortgagees

to

be lenient

with

defaulting

mortgagors.

GAO noted,

however,

that HUD’s policy

also encourages

leniency.

HUD and VA generally

agreed

with

GAO’s recommendation

that

the

establish

a Federal

power-of-sale

foreclosure

law for all federally

insured,

or guaranteed

home mortgages.

(B-114860,

Oct.

20, 1972.)

Opportunity

for

reducing

interest

Congress

financed,

costs

As authorized

by sections

235 and 236 of the National

Housing

Act,

HUD

makes monthly

assistance

payments

to mortgagees

so that

low-income

families

may purchase

or rent housing.

HUD insures

that

the mortgage

loans will

be

paid and charges

the mortgagees

for the insurance

premiums.

HUD’s monthly

assistance

payments

include

the monthly

amounts

of the mortgage

insurance

on the anniversary

month of each mortgage,

the mortgapremiums.

Annually,

gees pay the accumulated

premium

to HUD.

GAO reported

to the Congress

that,

because

HUD’s monthly

assistance

payments

include

the mortgage

insurance

premiums,

HUD is paying

out funds

which

it must collect

from the mortgagees

and that

the Government

loses

the

use of such funds for an average

of 6 months

each year.

GAO estimated

that

the interest

costs

applicable

to the insurance

premiums

for the sections

235

and 236 mortgage

balances

of about

$11 billion

would be at least

$1.6 million

during

fiscal

year 1973.

GAO proposed

that

HUD save such interest

costs

by deducting

the premiums

from the monthly

assistance

payments.

HUD did not agree with

the proposal

and stated

procedures

under the

HUD stated

that

section

236 program

already

met the proposal

objective.

implementing

the proposal

for the section

235 program

would offset

any

savings

that would result

because

of the cost of the additional

work necesGAO disagreed

and therefore

recommended

sary to implement

the proposal.

that

the Congress

authorize

HUD to waive

the mortgage

insurance

premiums

for

the section

235 and 236 housing

programs

similar

to the waiver

of premiums

rcntnl

provided

for mortgages

insured

under

the low- and moderate-income

42

.

.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

HOUSING PRODUCTION AND MORTGAGE CREDIT

(continued]

housing

program

(B-171630,

Nov.

ZZlCd].

Opportunities

and reduce

assistance

authorized

22, 1972.)

by

section

(3)

of

the

National

Housing

Act.

to improve

effectiveness

costs

of homeownership

programs

Low- and moderate-income

families

are assisted

in becoming

homeowners

through

mortgage

insurance,

loans,

and interest

subsidies

administered

by HUD

and the Department

of Agriculture

(USDA].

Because of the magnitude

of Federal

funds

involved

in these programs

and indications

of problems

encountered

in administering

the programs,

GAO reviewed

the programs

to determine

whether

HUD and USDA could

improve

program

effectiveness

and reduce

costs.

In a report

to the Congress,

GAO reported

that

HUD and USDA, in allocatdid not insure

that

all

eligible

families

had the same

ing program

resources,

opportunities

to participate

in the programs

regardless

of where they lived.

The need for subsidized

housing

had not been identified

adequately

and was

not used as the primary

basis

for allocating

limited

resources.

An area’s

capacity

to produce

housing

was a major

factor

in distributing

HUD program

resources

at both national

and local

levels.

Allocations

of USDA program

resources

at the national

level

were based primarily

on prior

years’

housing

production

and allocations

at the local

level

were based primarily

on a firstcome, first-served

basis.

GAO also reported

that

HUD and USDA (1) had approved

for mortgage

insurance or loans housing

with significant

defects

which

concerned

the health

and safety

of the occupants

and (2) had not determined

the causes

of mortgage

defaults

and ways of reducing

the default

rate.

GAO informed

the Congress

that

HUD could

save about

$1 billion

homeownership

assistance

program

were financed

through

Government

rather

than through

private

lenders

because

of the lower

interest

which

the Government

could borrow.

GAO recommended

that

--Insure

that

to identified

program

needs.

--Reinspect

to insure

rected,

sidized

should

HUD and USDA:

resources

are

allocated

primarily

all

houses within

the l-year

warranty

that

housing

defects

have been properly

--Require

in-depth

such studies

to

gram applicants.

if its

borrowings

rate

at

studies

develop

in

proportion

period

after

identified

purchases

and cor-

to determine

reasons

for defaults

and use

guidelines

for screening

and counseling

pro-

USDA should

make separate

allocations

of program

resources

and unsubsidized

housing

loans

according

to need.

In

establish

procedures

or seek legislation,

if necessary,

43

for subaddition,

it

to provide

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

HOUSING PRODUCTION AND MORTGAGE CREDIT

the purchasers

of existing

sellers

for defects

existing

rural

at

(continued)

housing

the time

with a right

of purchase,

of

recourse

to

the

GAO also recommended

that

the Congress

consider

legislation

which would

permit

HUD’s homeownership

assistance

program

to be financed

by the Government rather

than by private

lenders

because

of the possible

savings

in interest costs.

A similar

recommendation

by GAO had previously

been made to the

Congress

on legislation

for financing

rural

housing

programs.

.

HUD said it has increasingly

considered

needs in its allocations

of

program

resources,

and USDA directed

that

at least

50 percent

of its program

resources

be allocated

to subsidized

rural

housing.

GAO believes

that

both

agencies

should

identify

true needs and allocate

resources

accordingly.

within

the constraints

of available

funding,

to make reinHUD agreed,

spections;

USDA notified

its field

staff

to make inspections

prior

to expiration

of the warranty

period.

Both HUD and USDA mentioned

procedures

for

determining

causes

of defaults.

GAO believes,

however,

that

they should

give

attention

to analyzing

causes

of defaults

and minimizing

future

defaults.

it,

USDA said it was considering

as a last

resort,

to advance

a legislative

proposal

which

funds

to correct

any defects.

would

authorize

HUD, the Treasury

Department,

and the Office

of Management

and Budget

agreed

that

the cost of Government

financing

would

be lower

than financing

through

private

lenders

but said

that

factors

other

than cost must be considered.

(B-171630,

Dec. 29, 1972.)

Opportunities

reduce

costs

to improve

effectiveness

and

of rental

assistance

housing

program

GAO reviewed

HUD’s program

to increase

rental

housing

units

for low- and

moderate-income

families

to determine

whether

HUD could

improve

its

effectiveness

and reduce

costs.

The review

showed that

HUD, in allocating

program

resources,

had not insured

that

all

eligible

families

had the same opportunity

to participate

in the rental

assistance

program

regardless

of where they lived.

The need for subsidized

housing

had not been identified

adequately

and had not

been used as the primary

basis

for allocating

the limited

program

resources.

A major factor

in allocating

resources

was an area’s

capability

to produce

housing .

price

vised

GAO also

data in

guidelines

found

that HUD did not adequately

consider

purchase

or option

its land appraisals.

However,

in April

1972, HUD issued

rewhich,

if properly

followed,

should

improve

the appraisals.

In its report

to the Congress,

GAO stated

that HUD could

save about

$1.2 billion

in rental

assistance

program

costs

if mortgage

loans

for fiscal

years

1973 through

1978 could be financed

through

direct

Government

borrowings,

rather

than through

private

lenders,

because

of the lower

interest

rate at which

the Government

could borrow.

44

.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

.

.

HOUSING PRODUCTION AND MORTGAGE CREDIT

(continued)

GAO questioned

whether

existing

incentives

to private

investors,

such

as low capital

investment

and income tax shelters,

would insure

high-quality

management

services

over the lives

of the projects,

Tax shelters,

in

particular,

generally

expire

within

the first

10 years

of project

ownership

and are available

to project

owners regardless

of how well

or how poorly

they manage projects.

GAO recommended

that HUD (1) insure

that

rental

assistance

program

resources

be allocated

primarily

in proportion

to needs and (2) monitor

field

offices’

land valuation

practices

to insure

compliance

with

HUD’s revised

guidelines.

GAO also recommended

that

HUD and the Treasury

Department

should

jointly

study

the adequacy

of project

ownership

incentives

in promoting good project

management

and, if necessary,

take appropriate

action

to

restructure

the incentives.

GAO recommended

that

the Congress

consider

legislation

which would

permit

the rental

assistance

housing

program

to be financed

by the Governmerit,

rather

than by private

lenders,

because

of the possible

savings

in

interest

costs , GAO previously

made similar

recommendations

to the Congress

on the financing

of HUD’s homeownership

assistance

program

and the Department of Agriculture’s

rural

housing

program.

HUD stated

that

it had been considering

a more intensive

effort

to

stimulate

housing

production

where it was most needed

and agreed

that

field

compliance

with

appraisal

,guidelines

needed

to be monitored.

If subsidized

housing

is to be fairly

distributed

throughout

the Nation,

GAO believes

HUD

must identify

true needs and allocate

resources

accordingly.

Treasury

questioned

whether

the existing

tax shelters

encourage

investors

to sell

or neglect

properties

after

the shelters

expire.

HUD believed

that

new incentives,

rather

than a change of existing

incentives,

were

needed

and said that

it planned

to explore

the matter

in depth.

HUD, the Treasury

Department,

and the Office

of

agreed

that

direct

Government

financing

would

result

they favored

the present

method

of private

financing

tars.

(B-171630,

Jan, 10, 1973.)

45

Management

and Budget

in cost savings,

but

because

of other

fac-

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

INTERSTATE

LAND SALES

Imuroved

consumer

nrotection

in interstate

land sales

needed

I

To help protect

the public

in interstate

land transactions,

Congress,

in August

1968,

enacted

the Interstate

Land Sales Full

Act, to be administered

by HUD.

Because HUD received

complaints

in such transactions,

GAO reviewed

how HUD’s Office

of Interstate

Registration

was carrying

out its

regulatory

responsibilities.

the

Disclosure

of abuses

Land

.

GAO’s review

showed that,

because

HUD’s Office

of Interstate

Land

Sales Registration

had only

55 full-time

staff

members and no field

support,

it could not identify

all unregistered

land developers,

effectively

coordinate consumer

protection

activities

with

the States,

and adequately

verify

land developers’

registration

information.

The Office

could not investigate

all significant

violations

of the law or take prompt

enforcement

action

against

developers.

GAO recommended

that

HUD, to the extent

practicable,

decentralize

the Office’s

regulatory

activities-assigning

responsibility

to HUD field

HUD commented

that

it was evaluating

GAO’s recommendation

office

personnel,

and had budgeted

to increase

its permanent

staff

to 74 employees

in fiscal

year 1974.

GAO also

recommended

--Selectively

inspect

verify

the accuracy

and to help determine

that

HUD:

subdivisions

before

and after

registration

to

and reliability

of land developers’

disclosures

the adequacy

of State

regulatory

programs.

--Establish

agreements

with

the States

land subdivisions

and developers.

for

exchanging

information

--Improve

promptly

followup

procedures

to

to consumer

complaints

insure

that

land

referred

by the

--Investigate

consumer

alleged

complaints.

violations

of

who,

to law, fail

to amend

and who may be offering

significant

--Promptly

act against

developers

statements

of record

and property

unregistered

land for sale.

contrary

reports

developers

Office.

on

the

act

respond

indicated

by

HUD disagreed

that

subdivisions

should

be inspected

before

registration

because

it believed

the States

could better

perform

this

function.

GAO believes

that,

until

HUD is reasonably

satisfied

that

the States’

inspection

programs

are adequate,

the Federal

Government

should

take the initiative

in

making such inspections.

more

HUD also

effective

stated

action

it

plans

against

to eliminate

violators.

its complaint

backlog

and

(B-118754,

June 13, 1973.1

46

to

take

’

_

DEPARTMENTOF THE INTERIOR

Contents

Page

BUREAUOF RECLAMATION

Need for reevaluat ion of acreage limitat

benefits

1

ion on irrigation

49

49

GEOLOGICALSURVEY

Improved inspection

and regulation

could reduce the possibility

of oil spills

on the Outer Continental

Shelf

50

SOUTHWESTERN

POWERADMINISTRATION

Financial

progress and problems in

the Southwestern Federal power system

52

47

50

52

DEPARTMENT OF THE INTERIOR

BUREAU OF RECLAMATION

Need for

limitation

reevaluation

on irrigation

of

acreage

benefits

The Reclamation

Act of 1902 limits

to 160 acres

the land on which

any

one owner is entitled

to receive

irrigation

benefits

from a federally

subObjectives

of the limitation

are to break

sidized

water

resources

project.

spread

the- benefits

of the irrigation

proup large,

private

landholdings,

and promote

the family-sized

farm as a

gram to the maximum number of people,

desirable

form of rural

life.

GAO’s review

of the Central

Valley

project,

the largest

project

administered

by the Bureau of Reclamation,

Department

of the Interior,

showed

that

the 160-acre

limitation

had not resulted

in preventing

(1) large

landowners

and farm operators

from benefiting

under