DHS Program Costs: Reporting Program-Level Operations and Support Costs to Congress Would Improve Oversight

O&S costs—the costs used to operate and sustain a program—can account for up to 70 percent of a program's total cost. End users rely on O&S funds for maintenance, spares, and personnel. DHS programs initially identify O&S costs in their life-cycle cost estimate at the outset of the acquisition. This estimate informs the program's budget and affects the amount the department designates for the program's use. In 2015, GAO found that DHS's budget requests did not reflect all estimated costs—including O&S—for certain programs, which limits visibility for decision makers.

GAO was asked to review O&S activities for major acquisition programs at DHS. This report examines the extent that (1) DHS's budget management and reporting affects operations and oversight, and (2) cost estimates are comprehensive and accurate, as well as regularly updated.

GAO selected a non-generalizable sample of 11 major acquisition programs, based on asset type and acquisition status, as case studies from selected DHS components. GAO analyzed selected programs' O&S cost estimates, funding, and spending. In addition, GAO interviewed DHS officials at the headquarters, component, and program office level.

While the Department of Homeland Security's (DHS) budget management provides flexibility to conduct operations, such as shifting funds to programs within the same mission area to cover unforeseen needs, budget reporting does not provide Congress with insight into specific programs' operations and support O&S costs. The O&S budget information that DHS reports to Congress is oriented by mission—for example, Integrated Operations—instead of by program—for example, the Multi-Role Enforcement Aircraft Program. The figure depicts the mission-oriented nature of the budget.

While some program-oriented O&S data are available at the component level, this information does not appear in DHS's budget reports to Congress. This disparity is due in part to the manner in which the department reports budget information. However, these limitations are not insurmountable. Standards for internal controls state that managers should communicate quality information, in this case full program costs. Providing additional data on O&S costs in budget reports would preserve DHS's flexibility in its use of funds while providing Congress a better understanding of the budgetary and programmatic effect of its funding decisions.

GAO reviewed the O&S portion of the most recently approved cost estimates for selected programs and found that 10 of the 11 estimates provided a complete accounting of all resources and associated cost elements. Further, all the programs had appropriately updated their cost estimates as required, a GAO best practice in cost estimating. Due to the sensitive nature of some programs' cost models, GAO could not verify all aspects of accuracy for all estimates reviewed.

GAO is making three recommendations, including that DHS work with Congress to add program-level O&S funding details to the budget information it provides Congress. DHS concurred.

Operations and support (O&S) costs make up the majority—sometimes  over 70 percent—of an acquisition program’s total lifetime costs. For  fiscal year 2017, the Department of Homeland Security (DHS) requested  over $34 billion for O&S. These costs can include funding for fuel and  other consumables, spare parts, and personnel who operate and maintain  equipment. Also, as a system becomes operational, users rely on O&S  funds for support through the duration of the system’s lifetime. However, if  information on such costs is vague or inconsistent, Congress’s ability to  conduct oversight would be limited, which in turn can affect its funding  decisions for major acquisition programs. If programs experience O&S  funding shortfalls, they may fall short of operational goals or not be able  to address maintenance needs.

We found in April 2015 that DHS’s funding plans for major acquisition  programs did not reflect all of the estimated costs for certain programs,  particularly for O&S, resulting in potential operational shortfalls.  Specifically, we found that the U.S. Coast Guard programs we reviewed  did not provide complete O&S information. This kind of information  shortfall could hinder DHS leadership’s assessment of plans for delivering  capabilities to operators to conduct their missions. We made a  recommendation to DHS, with which the department concurred, to  account for all O&S funding DHS plans to allocate to each of the Coast  Guard’s major acquisition programs. DHS and the Coast Guard are  continuing to address this recommendation.

You asked us to evaluate O&S activities for DHS’s major acquisition  programs. This report assesses, for selected major acquisition programs,  the extent that (1) DHS’s budget management and reporting affects  operations and oversight; and (2) O&S life-cycle cost estimates (LCCEs)  are comprehensive and accurate, as well as regularly updated.

To conduct our work, we reviewed the DHS Major Acquisition Oversight  List as of April 2017 and selected 11 major acquisition programs from five  components to serve as case studies for our review. We selected a non- generalizable sample of programs, and their corresponding components,  in various stages of the acquisition cycle, including programs in  deployment. Our case studies included a mix of information technology  and other programs that are not generalizable, but provide insight into  DHS’s O&S activities.

We reviewed fiscal year 2017 DHS budget documents for major  acquisition program funding information, but did not find sufficient  granularity of O&S data to do our work. As a result, we developed and  disseminated a data collection instrument for distribution to DHS program  offices to gather information on selected programs’ budget requests,  budget authority, obligations, and expenditures, including personnel  expenditures, from fiscal years 2015 to 2017. We analyzed program  responses to compare expenditures and obligations to program budget  requests. We also analyzed the DHS portion of the fiscal year 2018  President’s budget request to identify changes to that document.

We analyzed the O&S portion of DHS-approved LCCEs against criteria  from GAO’s Cost Estimating and Assessment Guide, focusing on the  characteristics of comprehensiveness and accuracy. We also assessed  each program’s LCCE updates against DHS acquisition policy.

We interviewed officials at DHS headquarters; component program and  budget offices; Coast Guard Surface Forces Logistics Center in  Baltimore, Maryland; Coast Guard Aviation Logistics Center in Elizabeth  City, North Carolina; Transportation Security Administration at Reagan  National Airport in Washington, D.C.; Customs and Border Protection’s  Southwest Border Regional Headquarters in Albuquerque, New Mexico;  Customs and Border Protection’s Tucson Air Branch in Tucson, Arizona;  and the Border Patrol’s Nogales Station in Nogales, Arizona. We chose  these locations as we could often discuss multiple programs during a  single site visit. For example, we discussed both of our Coast Guard  aircraft programs at the Aviation Logistics Center. Appendix I contains  detailed information on our scope and methodology.

We conducted this performance audit from November 2016 to April 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

After the 2002 consolidation of 22 agencies into a single department,  DHS had, until recently, different appropriation structures and budget  management practices based on agencies’ enacted appropriations prior  to DHS consolidation. DHS reported that, with over 70 different  appropriations and over 100 formal program/project activity (PPA)  accounts, it operated for over a decade with significant budget disparities  and inconsistencies across its components. The lack of uniformity  hindered visibility, inhibited comparisons between programs, and  complicated spending decisions.

To address some of these inconsistencies, DHS proposed a new,  common appropriations structure to Congress in 2014, according to  officials. The House Appropriations Committee then included language  regarding a common appropriations structure for the President’s budget  request in its report that accompanied a proposed House fiscal year 2015  DHS Appropriations Bill. The language in the report directed the DHS  Office of the Chief Financial Officer to work with the DHS components,  the Office of Management and Budget, and the Committee to establish a  common appropriations structure for the President’s budget request.  While the specific appropriations bill that the report accompanied did not  become law, Congress subsequently enacted a common appropriations  structure for the department. DHS’s fiscal year 2016 President’s budget  request was the first to use this common appropriations structure.

Under the common appropriations structure, DHS uses these four  enacted accounts to capture the following costs:

Research and development – includes funds to support the search  for new or refined knowledge and ideas as well as improved products  or processes to yield future benefits;

Procurement, construction, and improvements – provides funds  for planning, operational development, engineering and purchase of  one or more assets prior to deployment.

Operations and support – provides funds necessary for operations,  mission support, and associated management and administration  activities, including salaries. Operational costs can include funding for  fuel and other consumables as well as personnel. Maintenance costs  can include routine or critical maintenance, spare parts, and additional  personnel; and

Federal assistance – provides monetary or non-monetary support to  any entity through various types of loans, grants, and other means.

Within each component’s budget request, the four appropriations  accounts are subdivided into mission-oriented PPAs that correspond to  the components’ varied operations. One PPA can include costs for  multiple programs and funding for programs may cross multiple PPAs.  For example, in the fiscal year 2017 congressional budget justification— the formal budget submission from DHS that comprises its portion of the  President’s annual budget submission—Customs and Border Protection’s  Integrated Fixed Towers and UH-60 helicopter programs both requested  O&S funds through the Securing America’s Borders PPA. Other  examples of PPAs include Transportation Screening Operations and  Securing and Expediting Trade and Travel. Figure 1 shows the  relationship between DHS appropriations PPAs.

DHS components use the mission-oriented PPAs to develop component  budget requests within the President’s budget request. The DHS budget  request includes components’ requested funds within the four  appropriations accounts, including O&S, and their PPAs.

DHS also uses the PPAs in its monthly execution reports to Congress to  communicate its obligations and expenditures, along with other  information. The monthly execution report mirrors the format of the  congressional budget justification by providing execution data organized  by appropriation account and mission-oriented PPA. This monthly  snapshot includes personnel costs as part of the O&S costs they report.

The Future Years Homeland Security Program is a database that  contains 5-year funding plans for DHS’s major acquisition programs and  is used to prepare a report to Congress that supplements information in  the annual budget request. In addition to the information presented in the  budget submission and monthly execution report, this document  organizes funding projections by major acquisition program. The 5-year  plans in the Future Years Homeland Security Program are intended to  allow the department to achieve its goals more efficiently than an  incremental approach based on 1-year plans and articulate how the  department will achieve its strategic goals within fiscal constraints.

DHS Acquisition Process and Life-Cycle Cost Estimates

The establishment of DHS in 2002 consolidated 22 agencies from  multiple cabinet-level departments and independent agencies into a  single organization. To help manage its portfolio of acquisition programs,  DHS established policies and processes for acquisition management, test  and evaluation, and resource allocation. The department uses these  policies and processes to acquire and deliver systems that are intended  to close critical capability gaps and enable DHS to execute its mission.  Figure 2 outlines the acquisition life-cycle for major acquisition programs  at DHS.

Programs initially identify costs—including those for O&S—in their  department-approved LCCE during the analysis phase. When a program  becomes operational while still going through its acquisition milestones,  programs may use O&S funds during the obtain or deploy phases. For  example, the Coast Guard has several operational National Security  Cutters, but is also obtaining additional cutters; therefore, it would use  O&S funds for support of deployed cutters and procurement funds for  acquisition of additional cutters.

GAO’s Cost Estimating and Assessment Guide notes four characteristics  of a high quality cost estimate: comprehensive, well documented,  accurate, and credible. Specifically, a comprehensive cost estimate  should include all costs of the program for the O&S phase, while  reflecting the current schedule, and should document all ground rules and  assumptions. Furthermore, an accurate cost estimate should provide for  results that are based on historical data, if available, while containing few,  if any, minor errors.

DHS acquisition policy has generally required components to update  LCCEs at Acquisition Decision Events, up until the deployment phase,  since 2008. However, since issuance of the department’s October 2011  acquisition policy revision, LCCE revisions must also be DHS-approved.  Prior to the 2008 policy, GAO found that nearly two-thirds of programs did  not have life-cycle cost estimates. Each of our 11 selected programs  has an approved cost estimate. Table 1 lists the programs selected for  our study.

In accordance with DHS policy and GAO’s Cost Estimating and  Assessment Guide, the O&S costs in the LCCE should inform the O&S  portion of the program’s budget request and the funds provided to the  program. Accordingly, as programs use these funds in the obtain or  deploy phases, they should update the LCCE with spending data to  reflect actual costs. Figure 3 illustrates this feedback cycle.

To help facilitate this feedback process, DHS issued a memorandum in  January 2016 reminding components that an annual updated LCCE is  required for each major acquisition program that has not reached full  operational capacity. According to this memorandum, components must  submit this cost estimate by April 1st of each year and should include the  incurred costs to date through the prior fiscal year as well as how these  costs track to prior LCCEs.

Mission-Oriented Budget Management Provides Operational Flexibility, but Limits Visibility of O&S Costs in Reports to Congress

According to agency officials, DHS’s mission-oriented budget  management provides operational flexibility in using O&S funding.  However, DHS’s budget justifications and reports aggregate programs’  O&S data, limiting oversight of major acquisition programs’ O&S costs.  While some program-oriented O&S data are available at the component  level, this information does not appear in DHS’s budget reports to  Congress. This disparity is due, in part, to the format of the budget  reports.

Consolidated O&S Funds Provide Operational Flexibility

Officials across DHS identified operational flexibility as the primary benefit  of the department’s mission-oriented budget management. The mission- oriented PPA accounts allow, to a limit, components to move funds  between major acquisition programs. For example, officials from Customs  and Border Protection’s Air and Marine Operations Division stated they  consolidate O&S funds within a single account, which makes them more  responsive to mission changes. If a new mission requires a specific  aircraft capability, flexible O&S funds will support using that asset, as  opposed to another. This flexibility is also apparent in other kinds of  change or trade-offs components can make in deploying their systems.  We could not identify the frequency with which programs or operators  made these operational trade-offs because of limitations in the data we  obtained. A few examples include the following:  Asset Trade-Off: Customs and Border Protection officials told us they  manage aircraft usage to meet mission needs while remaining within the  overall O&S budget for the Integrated Operations PPA. At times, they use  a less expensive and less capable asset that can still complete the  mission as a cost-saving technique. For example, officials told us the UH- 60 Helicopter cost per flight hour is nearly three times the cost of a  smaller helicopter. The smaller aircraft does not have the same  capabilities as the UH-60, but operators can save money and sufficiently  complete the mission with this aircraft, according to officials.

Inventory Trade-Off: Coast Guard officials responsible for maintaining  aircraft, such as the Medium Range Surveillance Aircraft, noted that  recent budget constraints affected their ability to buy sufficient spare  parts. To address this shortfall, they sometimes pulled working parts from  aircraft that were grounded and awaiting maintenance to install on aircraft  already undergoing maintenance.

Contract or Upgrade Trade-Off: Immigration and Customs  Enforcement’s TECS Modernization program requested $3 million in O&S  funding for fiscal year 2017, but the program did not receive this funding.  To mitigate this unexpected shortfall, officials described how they adapted  their contracting strategy to stretch funding through the fiscal year until  they could receive full funding in fiscal year 2018. Officials stated that  additional proposed funding cuts in fiscal year 2018 would leave the  program unable to meet its minimum operating costs. According to  officials, the program has several mitigation plans that will reduce cost  through a new contract and reductions in data housing center costs.

Because O&S funding represents the money available to end users to  carry out their missions, we attempted to use program-level data to  identify O&S funding shortfalls for our selected programs. Potentially, this  information could also identify how frequently system users are making  these trade-offs. However, the components’ use of consolidated funds for  certain programs makes O&S costs difficult to see, particularly at  Customs and Border Protection’s Air and Marine Operations Division.  This component relies on aggregated O&S accounting and could not  provide program-level O&S cost information for the Multi-Role  Enforcement Aircraft and UH-60 Helicopter programs. As a result, we  could not obtain usable information. However, Customs and Border  Protection Officials also informed us that they are replacing their internal  maintenance cost tracking system, which could help improve expenditure  tracking in the future.

Reports to Congress Do Not Consistently Identify Program-Specific O&S Information

DHS first used its common appropriations structure—which DHS  proposed and Congress enacted—to address appropriations and budget  management inconsistencies in its fiscal year 2016 budget submission.  The common appropriation structure streamlined its appropriations, but  the resulting reports that the department provides to Congress obscure  O&S costs for individual programs. Additionally, while DHS has program- level expenditure data for most of the programs we reviewed, it also relies  on fragmented financial management systems that further limit reporting.

Budget Request and Expenditure Reporting Lacks Consistent Program-Level O&S Information

The PPAs DHS uses to communicate its annual budget requests and  projections, as well as monthly obligations and expenditures, are mission- oriented. As a result, the budget reports DHS provides to Congress do  not always present a clear accounting of individual programs’ O&S costs.

Congressional Budget Justification – Requests for total program O&S  funds are not always visible in the DHS congressional budget justification.  This document’s mission-oriented reporting within the O&S section  continues to combine program-level data within PPAs, as they were for  previous budgets. Beginning in fiscal year 2018, DHS added O&S  information to the individual program funding request summaries that  appear in the procurement, construction, and improvements section of the  budget justification, which describes acquisition funding requests.  According to officials, this line shows requested funding for O&S for the  coming fiscal year and two prior years.

Our review of the fiscal year 2018 congressional budget justification found  this information for 5 of our 11 selected programs. However, these  program-level details did not appear in the O&S section of the same  document, except for one program: Customs and Border Protection’s  TECS Modernization program, which recently transitioned to its  deployment phase. Of the remaining programs we reviewed that did not  have clear O&S information in this document, two were Customs and  Border Protection programs: the Multi-Role Enforcement Aircraft and UH- 60 Helicopter. Three were Coast Guard programs: the Long Range  Surveillance Aircraft program, the Medium Range Surveillance Aircraft  Program, and the National Security Cutter. Both of these components  consolidate their O&S funds, meaning they can direct available funds  based on program needs. As stated above, this practice also makes it  difficult to provide program-level O&S cost information and as a result, the  O&S information DHS added to its procurement section is blank for these  programs. This new information also does not include programs that  completed their procurement phase as DHS requests O&S funds for  programs in the deployment phase. Therefore programs in deployment  still lack clear program-level O&S data in the congressional budget  justification. For example, the Secure Flight program completed  procurement and does not have an entry in the procurement section and  therefore lacking O&S information.

Monthly Execution Reports – DHS provides monthly execution reports  to Congress that include O&S expenditure, obligation, and other budget  data, organized by PPA. These reports consist of summary information at  the PPA level, again obscuring individual programs’ O&S costs. For  example, the Customs and Border Protection PPA cited above would  include multiple programs in the same way.

Visibility of DHS’s O&S costs by program is further limited in  congressional budget submissions, as personnel costs are not fully  captured. For nearly all of our selected programs, we could not identify  funding for personnel who operate and maintain program assets within  the congressional budget justification or monthly execution report.  Program officials stated that, in certain cases, personnel costs are funded  in mission–oriented PPAs not clearly associated with the program.  According to officials, Customs and Border Protection’s Integrated Fixed  Towers program is an example of this scenario. In other cases, the  personnel funding associated with a program appears within the same  PPA but may fund operations for more than one program. As a result, the  full O&S cost of a program—inclusive of operating and supporting  personnel—is not clear in the budget request and execution report.

Federal standards for internal control state that managers should  communicate quality information to external bodies. DHS is not clearly  communicating to Congress the full O&S costs of its programs—inclusive  of operating and supporting personnel—in congressional budget  justifications and execution reporting. By comparison, agencies such as  the National Aeronautics and Space Administration (NASA) and the  Department of Defense directly request individual programs’ O&S costs,  at least until projects launch or begin operations in NASA’s case. Further,  our best practices on capital decision making state that good budgeting  requires that the full costs of a project be considered when making  decisions to provide resources. Providing data on full program costs  permits Congress to better understand the long term costs of a program  and the budgetary and programmatic effect of its decisions. While the  recent change DHS made to its congressional budget justification to  include program-level O&S cost information in the procurement section is  an improvement, Congress still lacks complete information regarding  DHS O&S costs as such data are absent from monthly execution  reporting.

In the course of our review, DHS initiated a pilot program to use unique  identifier codes to track O&S expenditures for individual major acquisition  programs. As of January 2018, headquarters officials told us the  department was testing the identifier with three components that have  relatively simple acquisition portfolios: the Domestic Nuclear Detection  Office, Immigration and Customs Enforcement, and the National  Protection and Programs Directorate. Following the pilot, officials plan to  assess whether and how to implement this identifier within other  components’ financial management systems. DHS officials stated that  they intend to use this information to inform O&S cost estimating for  future acquisitions. As of January 2018, DHS did not plan to include the  information in any of the budget information provided to Congress.  According to DHS officials, they would need to work with Congress in  order for Congress to identify how its existing reporting requirements  should change, as they did during the development of a common  appropriations structure in 2015.

Previous Future Years Homeland Security Program Report Contained Program- Level Information

Prior to fiscal year 2018, the Future Years Homeland Security Program  report, which accompanies DHS’s annual budget request, provided  supplemental data on planned funding for major acquisition programs.  For most components, the report included prior year funds and 5 years of  estimated procurement funding for O&S as well as government personnel  costs for each program. DHS removed this reporting in its fiscal years  2018-2022 Future Years Homeland Security Program report. Officials  explained they removed program O&S funding to focus on planned  procurement funding. However, in January 2018, DHS officials stated that  they plan to re-introduce O&S funding for major acquisition programs in  the Future Years Homeland Security Program report for fiscal years  2019-2023. DHS officials based this decision on multiple internal  discussions about the best way to present a more comprehensive view of  programs’ total costs and feedback from key stakeholders, such as the  Office of Management and Budget.

With its intention of reflecting program-level O&S costs in the upcoming  Future Years Homeland Security Program report, to be submitted with the  fiscal year 2019 President’s budget request, DHS officials recognize the  value in such reporting. This change also aligns to federal standards for  internal control and communicating quality information. Re-introducing  O&S program cost information would improve the quality of information  DHS provides to Congress in its Future Years Homeland Security  Program Report. Until DHS takes concrete action to reverse the exclusion  of O&S funding at a major acquisition program level in its Future Years  Homeland Security Program reports, Congress will lack important  information necessary for oversight.

Program-Level O&S Data Exist at Component Level but Not Utilized for Budget Reporting

Programs can generally track detailed O&S obligations and expenditures  within their financial systems; however, department officials told us they  do not request this information. Each component uses a different financial  system to track its O&S costs and report expenses and, in some cases,  must manually transfer data between systems. As a result, headquarters  officials told us they do not have direct access to components’ systems  and request summary information organized by PPA to develop budget  requests and monthly execution reports, in accordance with DHS’s  mission-oriented budget management.

DHS financial management systems are an area we have designated as  high risk since 2003. In September 2013, we found that without sound  internal controls over its financial reporting, DHS is hindered in its ability  to efficiently manage its operations and resources on a daily basis and  provide useful, reliable, and timely financial information for decision  making. At that time, we recommended DHS take steps to integrate  financial management systems and unify the components’ financial  management. In September 2017, we found that despite efforts to  address long-standing financial management system deficiencies, several  factors delayed the Transportation Security Administration and Coast  Guard’s efforts to replace their financial management systems.  Specifically, insufficient resources, an aggressive schedule, complex  requirements, increased costs, and project management and  communication concerns resulted in cost and schedule growth. DHS is  taking steps to mitigate these risks and is revising its acquisition strategy  to replace these systems, based in part on the issues we identified.

Life-Cycle Cost Estimates for All but One Selected Program Were Comprehensive but Many Did Not Provide Evidence of Accuracy, and All Were Updated as Required

The O&S portion of our selected programs’ most recently approved life- cycle cost estimates (LCCEs) were nearly all comprehensive, but lacked  elements of accuracy despite annual and other updates. Program-level  LCCEs are one of the sources DHS components should rely on for  budget development. Specifically, 10 of the 11 selected programs  reviewed either substantially or fully met our best practices criteria for  comprehensiveness, while only 5 substantially or fully met criteria for  accuracy. These programs have met DHS’s acquisition policy that major  acquisition programs generally revise their LCCEs at major acquisition  decision events and generally met DHS’s 2016 requirement for annual  updates.

Ten of 11 O&S Cost Estimates Were Comprehensive

As of December 2017, 10 out of 11 selected programs’ most recent DHS- approved LCCE either substantially or fully met GAO’s four criteria for a  comprehensive cost estimate. Figure 4 depicts the results of our  analysis and the criteria for this characteristic.

GAO best practices in cost estimating note it is important that the O&S  portion of a program’s LCCE be comprehensive. That is, it should provide  an exhaustive and structured accounting of all resources and associated  cost elements—hardware, software, personnel, and so on—required to  deploy and sustain a program. Five programs fully met and 5 programs  substantially met the comprehensive characteristic.

Within those programs that substantially met the characteristic, we found  two reasons programs did not fully address criteria. First, 2 of those  programs partially met the criterion that requires the estimate to  completely define the program, reflect current schedule, and be  technically reasonable. Second, despite substantially meeting the  characteristic, the Customs and Border Protection’s TECS Modernization  program did not have a single, authoritative technical baseline document  that contained all the details to satisfy this specific criterion. Instead,  multiple technical baselines or baseline documents were present.

The one program in our review that minimally met criteria for  comprehensiveness is the Next Generation Security Networks Priority  Services program. It is “acquisition-only,” meaning that its LCCE includes  the costs to acquire new capabilities for its parent program—Priority  Telecommunication Services. When it has acquired these capabilities, the  parent program becomes responsible for O&S costs. This unique  acquisition relationship is a reason we selected this program, namely to  see how the component would factor O&S costs into its estimate. We also  previously reported on variance in the program’s cost estimate, due to  changes in how the component included O&S costs. Our analysis found  that the Next Generation Networks Priority Services program’s LCCE  contained minimal information on O&S costs. In the program’s recently  updated LCCE, which we did not assess, the National Protection and  Programs Directorate refined the Priority Telecommunication Services’  O&S costs to identify only those attributable to the Next Generation  Networks Priority Services acquisition.

Over Half of Selected Programs Did Not Provide Evidence to Demonstrate Their Cost Estimates Were Accurate

In contrast to the comprehensiveness of programs’ O&S estimates, only 5  of the 11 selected programs we reviewed either fully or substantially met  GAO’s five criteria for accuracy. Accuracy is critical to ensuring a  reliable and well-founded LCCE to support operations. This is important  because these estimates serve as the basis to request program funding  and provide insight into the overall affordability of the acquisition program.  Figure 5 depicts the results of our analysis and the selected criteria for  this characteristic.

Two programs fully met and 3 programs substantially met the criteria we  assessed. Of the programs that substantially met these criteria, we found  a common criterion programs struggled to address: they did not  document, explain, and review variances experienced between planned  and actual costs. DHS acknowledges the importance of including this  information and, in its 2016 memorandum, required its components to  annually provide a detailed description of any differences between  updated and past cost estimates.

Of the 5 programs that partially met criteria for accuracy, we found  several reasons for these results, including our lack of access to the cost  models used to develop the programs’ LCCE and an explanation of any  variances. For example, the Coast Guard was unable to share cost  models for the programs we assessed, due to information sensitivities.  Without access to the cost models, we could not determine whether the  estimates had been properly adjusted for inflation and could not  determine whether the estimates contained few, if any, errors—one of  GAO’s criteria for accuracy. Similar to the results of our  comprehensiveness analysis, the Next Generation Network Priority  Services program did not meet our selected accuracy criteria because it  did not include O&S costs in its LCCE.

Selected Programs Are Generally Following DHS Requirements to Update LCCEs

While we could not determine that selected programs’ LCCEs were  accurate based on the information reviewed, we found that the  department is regularly updating LCCEs, a GAO best practice that  promotes accuracy. All of the programs met DHS requirements to update  their LCCE at each acquisition decision event, as applicable, a policy that  also aligns with our cost estimating best practices. Updating LCCEs is  an important step to maintain the utility of an estimate throughout a  program’s life-cycle and is critical to budget development. Outdated O&S  estimates hamper a program’s ability to analyze changes in costs over  time. For example, they may not reflect fluctuation in the price of fuel,  which could lead to a program requesting insufficient funds for annual  operations. DHS relies on the programs’ LCCEs to develop initial budget  requests, which it subsequently updates with actual expenditures as the  program matures.

As of November 2017, 10 of our 11 selected programs also met DHS’s  requirement for programs not yet in the deployment phase to update their  LCCEs annually. These new requirements to update LCCEs are making  this acquisition document more relevant throughout the life of a program  to inform budget requests. The Coast Guard’s Long Range Surveillance  Aircraft program is the only program we selected that did not meet this  requirement for fiscal year 2017. Coast Guard officials explained that the  program is in the process of revising its LCCE, which is why it did not  have a submission within fiscal year 2017.

While components are following DHS policy, programs may vary in their  approach to updating O&S reporting elements as newer versions of the  LCCE document are developed and approved. For about half of our  programs, we observed changes to O&S cost elements in the LCCE,  which can reflect program changes. This situation is consistent with our  cost estimating best practices, which note that cost elements should be  updated as changes occur and the program becomes better defined. For  example, the Coast Guard’s Medium Range Surveillance Aircraft  program’s original LCCE was completed in 2009, when the Coast Guard  planned to procure a single aircraft type. Since then, the Coast Guard  revised its LCCE in 2012 and 2016 to account for changes to the  program, namely the addition of a second aircraft type. The Medium  Range Surveillance Aircraft program’s 2016 LCCE now includes an  entirely new set of O&S cost elements for both aircraft. Conversely, a  program that has very stable cost elements may not need to make such  changes. Officials from Customs and Border Protection TECS  Modernization program explained they did not alter its cost elements  between its original 2014 LCCE and its 2016 revision because O&S costs  are stable and well-known as the program enters its deployment phase.

Operations and Support (O&S) is the bulk of the taxpayer’s investment in  major acquisition programs and is necessary to meet end user’s needs  for spares, maintenance, and operations. To support this mission, DHS  manages its budget to maximize components’ flexibility to use O&S funds  across major acquisition programs. This aspect of the department’s  budget management did not change with enactment of the common  appropriation structure.

We do not take issue with DHS’s mission-oriented budget management  approach; however, with this reliance on broader O&S mission-oriented  program/project activity (PPAs) in reporting, program-specific O&S  information is difficult to discern. DHS’s addition of program-level O&S  information to the procurement, construction, and improvements section  of the congressional budget justification is a positive step, but still does  not address this shortfall for all programs. The identifier pilot program  DHS has underway could add details on O&S costs for major acquisition  programs in addition to those already contained in programs’ life-cycle  cost estimates. Such an action will require additional reporting from the  components, which may be challenging due to the department’s  fragmented financial management systems, as we have observed and  made recommendations on in prior reports. DHS could work with  Congress to identify ways to strengthen its congressional budget  justifications and monthly execution reports by including information on  O&S costs.

DHS’s recent proposal to shift back to reporting program-level O&S  funding in the Future Years Homeland Security Program report  demonstrates that the department sees value in providing such  information to Congress and that such information is available to some  extent. Until DHS takes concrete action to reverse the exclusion of O&S  funding at a major acquisition program level in its Future Years Homeland  Security Program reports, Congress will lack important information  necessary for oversight.

We are making the following three recommendations to DHS:  The Secretary of Homeland Security should work with Congress to add  information to its annual congressional budget justification to show O&S  funding requests for major acquisition programs within current  program/project activity accounts. (Recommendation 1)

The Secretary of Homeland Security should work with Congress to  include O&S data in monthly execution reports at a major acquisition  program level within current program/project activity accounts.  (Recommendation 2)

The DHS Chief Financial Officer should reverse the exclusion of O&S  funding at a major acquisition program level in its Future Years Homeland  Security Program report for all components. (Recommendation 3)

We provided a draft of this report for review and comment to DHS.

DHS provided written comments, which are reproduced in appendix III. In  its comments, DHS concurred with all three of our recommendations and  identified actions it plans to take to address them. DHS also provided  technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees and the Secretary of Homeland Security. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or makm@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report.

Appendix I: Objectives, Scope and Methodology

The House Homeland Security Subcommittee on Oversight and  Management Efficiency asked us to evaluate operations and  maintenance (O&S) activities for the Department of Homeland Security’s  (DHS) major acquisition programs. This report assesses, for selected  major acquisition programs, the extent that (1) DHS budget management  and reporting affects operations and oversight; and (2) life-cycle cost  estimates (LCCEs) are comprehensive and accurate, as well as regularly  updated.

To conduct our work, we reviewed the DHS Major Acquisition Oversight  List as of April 2017 and selected 11 major acquisition programs from five  components to serve as case studies for our review. We selected a non- generalizable sample of programs, and their corresponding components,  based on their stage in the acquisition cycle, including programs in the  deployment phase. We also ensured we had a mix of different DHS  components reflecting the broad spectrum of DHS operations. Our case  studies included four information technology programs and seven other  programs.

To determine how O&S funds are organized within the budget request,  we reviewed the O&S and procurement, construction, and improvements  appropriations accounts within the fiscal year 2017 and 2018  congressional budget justification by program/project activity account  (PPAs) for the 11 programs in our review. We identified the selected  programs within these accounts, as possible. To determine whether the  PPAs we identified in the O&S budget request were all-inclusive of O&S  costs, we developed and disseminated a data collection instrument to  program offices, which collected information on selected programs’ O&S  budget requests, budget authority, obligations, and expenditures,  including personnel expenditures, from fiscal years 2015 to 2017. We  compared this information to our analysis of the congressional budget  justification and conducted follow-up meetings with each of the  component budget offices to understand differences in the data sources  and learn if program obligations and expenditures were included in other  common component PPAs.

To determine the inclusion of personnel costs in the program O&S  expenditures, we reviewed the congressional budget justification and our  data collection instrument for personnel expenditures. We held follow-up  meetings with program offices to discuss to what extent DHS used O&S  PPA funds for personnel costs, identify those PPAs, and whether  personnel costs were shared with other programs.

To determine if monthly execution reports contained program-level O&S  cost information, we reviewed the December 2016 monthly execution  report, as well as DHS guidance to programs on preparing that report, to  determine whether individual program obligations and expenditures could  be identified within the report. We determined that O&S cost information  is reported by mission-oriented PPA in this report and were unable to  identify O&S obligations or expenditures by program. We held follow-up  discussions with DHS officials to discuss how this information is collected  and reported to Congress.

To determine whether O&S costs were included in the Future Years  Homeland Security Program database, we reviewed the fiscal years  2017-2021and 2018-2022 reports from the Future Years Homeland  Security Program database for identification of program costs. We found  that program costs were identified. However, while we are able to  determine the inclusion of O&S costs in the fiscal year 2017-2021 report,  DHS excluded these costs in the fiscal year 2018-2022 report.

We discussed with DHS and components the financial management  systems used by the five components to track obligations and  expenditures, and the financial management system used by the  Department to develop the monthly execution reports and Future Years  Homeland Security Program database.

To assess the extent to which the DHS budget management and  reporting has affected operations, we reviewed program budget  information including the Congressional budget justification, a data  collection instrument, a monthly execution report to Congress, and the  fiscal years 2017-2021 and fiscal years 2018-2022 reports from the  Future Years Homeland Security Program database. In addition, we  conducted interviews with program personnel to discuss the effect of any  budget shortfall or surplus on their programs.

To assess how DHS incorporated or revised life-cycle cost estimates to  include comprehensive and accurate O&S costs, we analyzed the O&S  portion of DHS-approved LCCEs for the case study programs, as well as  prior versions where applicable, to identify changes in reporting elements  over time. We conducted an abridged analysis of programs’ approved  LCCE against criteria from GAO’s Cost Estimating and Assessment  Guide, with focus on comprehensiveness and portions of accuracy.

Typically in analyzing a cost estimate against GAO best practices, we  examine four characteristics, each defined by multiple criteria:  credible.

For this review, we assessed our case study programs’ LCCEs against  the comprehensive and accurate characteristics, in part, because we  limited our analysis to the O&S portion of programs’ LCCEs and did not  review entire LCCEs. Further, if the cost estimate is not comprehensive  (that is, “complete”), then it cannot fully meet the well documented,  accurate, or credible best practice characteristics. For instance, if the cost  estimate is missing some cost elements, then the documentation will be  incomplete, the estimate will be inaccurate, and the result will not be  credible due to the potential underestimating of costs and the lack of a full  risk and uncertainty analysis.

In addition, we excluded one of the supporting criteria for the accuracy  characteristic, which assesses that the cost estimate results are  unbiased, not overly conservative or optimistic, and based on an  assessment of most likely costs. Because we did not assess program risk  as part of the characteristics we excluded, which also considers potential  bias, we did not analyze programs against this criterion.

We interviewed officials at DHS headquarters; component program and  budget offices; Coast Guard Surface Forces Logistics Center in  Baltimore, Maryland; Coast Guard Aviation Logistics Center in Elizabeth  City, North Carolina; Transportation Security Administration at Reagan  National Airport in Washington, D.C.; Customs and Border Protection  Southwest Border Regional Headquarters in Albuquerque, New Mexico;  Customs and Border Protection Tucson Air Branch in Tucson, Arizona;  and the Border Patrol’s Nogales Station in Nogales, Arizona. We chose  these locations, in part, as we could often discuss multiple programs  during a single site visit. For example, we discussed both of our Coast  Guard aircraft programs at the Aviation Logistics Center.

We conducted this performance audit from November 2016 to April 2018  in accordance with generally accepted government auditing standards.

Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Results of Life-Cycle Cost Estimate Analysis

Using the GAO Cost Estimating and Assessment Guide, GAO cost  experts assessed selected DHS major acquisition programs against 2 of  the 4 characteristics of a quality cost estimate. Please see Appendix I for  a more detailed description of our methodology and why we did not  assess O&S cost estimates against all 4 characteristics.

We determined the overall assessment rating by assigning each  individual rating a value:

Next we averaged the individual assessment ratings to determine the  overall rating for each of the two characteristics. The resulting average  becomes the Overall Assessment as follows:

Table 3 provides our results of selected Custom and Border Patrol  acquisition programs’ individual and overall assessment for the  comprehensive and accuracy characteristics.

Table 4 provides our results of the selected Immigration and Customs  Enforcement acquisition program’s individual and overall assessment for  the comprehensive and accuracy characteristics.

Table 5 provides our results of the selected National Protection and  Programs Directorate program’s individual and overall assessment for the  comprehensive and accuracy characteristics.

Table 6 provides our results of the selected Transportation Security  Administration acquisition programs’ individual and overall assessment  for the comprehensive and accuracy characteristics.

Table 7 provides our results of the selected U.S. Coast Guard acquisition  programs’ individual and overall assessment for the comprehensive and  accuracy characteristics.

Marie A. Mak, (202) 512-4841, or makm@gao.gov.

In addition to the contact named above, J. Kristopher Keener, Assistant  Director; Burns Chamberlain Eckert; Peter Anderson; Jessica Berkholtz;  George Bustamante; Erin Butkowski; Jeff Cherwonik; Juana Collymore;  Matthew T. Crosby; Jennifer Echard; Jason Lee; and Robin Wilson made  key contributions to this report.

Up to 70% of acquisition costs can be incurred after a system or an asset—like a Coast Guard cutter—is deployed. Generally, these are the costs of operating, staffing, and maintaining the acquisition.

But we found that the Department of Homeland Security's budget reporting aggregates these operations and support costs by mission, rather than by individual acquisition program. Therefore, Congress doesn't know how much DHS is actually spending on each acquisition.

We recommended adding this level of detail to DHS's budget report for Congress and other key financial reports.