Background HUD’s Working Capital Fund Currently Finances Externally Provided Shared Services HUD’s WCF was established in 2016 to provide a mechanism for the department to centralize and fund federal shared services used across HUD offices and agencies. According to its Committee Charter, the three goals of the WCF are to: align incentives for efficient enterprise operations through users paying for goods and services; establish accurate and timely cost estimates for goods and services; improve planning, increase visibility and transparency, and support the efficient and effective delivery of goods and services. To begin WCF operations in fiscal year 2016, HUD transferred approximately $44 million in funding from the salaries and expenses accounts of OCFO and OCHCO to the newly established WCF. In fiscal year 2017, the WCF began to bill its customers—17 HUD offices that purchase services financed through the fund—directly for their estimated use of services. HUD’s WCF is different from other intragovernmental revolving funds that we have previously reviewed in that it does not fund internally provided services at this time. The WCF is currently used as a centralized funding method to pay for the costs of four established shared services agreements—or interagency agreements—between HUD and three external shared service providers: USDA’s National Finance Center (NFC) and Treasury’s Administrative Resource Center (ARC) and Shared Services Programs. See table 1 for more information about the agencies providing shared services to HUD. According to WCF Division officials, HUD plans to expand the WCF in the future to finance both internal and additional external goods and services. For example, the WCF’s fiscal years 2019 and 2020 budget justifications requested funding to centralize and support activities such as a Data Management Initiative and the Real Estate Assessment Center’s (REAC) physical and financial assessment services, respectively. However to date, HUD did not receive budgetary authority to proceed with including either activity in the WCF. Several offices within HUD share responsibility for the management and operations of the WCF, including the WCF Division and business line offices. See figure 1 for information on the WCF’s financial operations and entities involved. HUD Does Not Fully Define Roles or Assess Results for Achieving Operational and Cost Efficiencies HUD Defines Most WCF Roles and Responsibilities, Except for Achieving Efficiencies HUD defines most of the roles and responsibilities for management and oversight of the WCF. According to HUD policy and guidance documents: The WCF Committee provides financial and operational oversight of the WCF, including advising and supporting the WCF’s strategic direction and providing annual approval of the WCF financial plan and budget, among other responsibilities. The Committee includes representation from OCFO leadership and all customer offices. The WCF Division within OCFO oversees the financial management of the fund, including managing day-to-day operations and establishing cost accounting for all shared services and customers that use the fund. In addition, the WCF Division supports customers with WCF-specific services, such as billing and service usage reports. OCFO and OCHCO manage the provision of the services financed through the WCF to customer offices. As the designated business line offices, OCFO and OCHCO oversee the quality and timely delivery of services, including monitoring service provider performance and serving as the liaisons between HUD customer offices and service providers concerning any issues with service quality. WCF Customers place orders with the WCF Division to receive services from the external service providers. In addition, customers reimburse the WCF for their estimated use of those services. However, HUD also performs additional actions to support the efficient and effective delivery of goods and services consistent with the goals of the WCF. Specifically, the WCF Division conducts business process analyses to identify opportunities for efficiencies across the department. Yet, there is no mention in guidance of the roles and responsibilities of the WCF Division, business line offices, or other stakeholders in identifying, monitoring, and implementing the actions recommended because of these analyses. In support of the WCF’s goal to support efficient and effective delivery of goods and services, the WCF Division provides quarterly usage reports to customers and business line offices and assists them with monitoring their consumption and associated costs of shared services. WCF Division officials told us they conduct a more detailed review of the data when they find anomalies, such as unusually high volumes of transactions. WCF Division officials told us that they will collaborate with the responsible business line office to conduct a business process analysis, which is used to identify actionable ways to address the cause of the high service volume and costs in specific circumstances. A business process analysis is generally conducted when there is an availability of resources, support from the business line office, and potential for cost savings or operational efficiencies. For example, in 2018, in response to an increase in the volume of two service areas overseen by OCFO—help desk calls and commercial purchase order accruals—the WCF Division examined data and determined that HUD could reduce its service volume and costs. See text box below. Working Capital Fund (WCF) Business Process Analysis Help desk calls: The WCF Division found that an unnecessarily high number of customer calls to help desks for password resets were contributing to higher costs to the department. For example, more than 20 percent of customer calls to Treasury ARC’s financial management help desk were from customers requesting password resets, which can be manually resolved without calling the help desk and incurring a transaction fee. In fiscal year 2019, the cost to HUD per financial management help desk call was about $128. According to the WCF Division Director, the WCF Division presented its findings to OCFO leadership and the WCF Committee, including five recommendations targeted at reducing system password reset call volume and future costs to the department. Commercial purchase order transactions: Commercial purchase order accruals are more costly because they are manually processed. Among other findings, the WCF Division’s analysis determined that changing OCFO’s current business process for obligations below a certain threshold could reduce the volume of transactions processed. The OCFO official told us that OCFO plans to implement one of the recommendations with a new process for recording those accruals in the first quarter of fiscal year 2020 to reduce the volume of transactions. According to the WCF Division’s analyses, the implementation of this recommendation could achieve potential annual costs savings of nearly $600,000. However, OCFO has not taken actions to address seven remaining recommendations, which the WCF Division found could produce additional benefits, including potential cost savings of more than $400,000 annually. The OCFO official told us that OCFO plans to examine HUD’s fiscal year 2019 service usage to determine the effectiveness of the actions it has already taken to reduce the help desk call and commercial purchase order transaction volume. The estimated help desk call volume and associated cost to HUD for a given year, as agreed upon in HUD’s agreement with Treasury ARC, is generally based on the average of the previous 2 years’ call volume. As such, changes in usage in 1 year will not necessarily result in lower service costs in the next year, but HUD may realize cost savings over time if usage is consistently lower. While they have a process for identifying opportunities for efficiencies through the business process analyses, WCF Division officials acknowledged that they have not defined and documented the WCF Division’s own roles and responsibilities with regard to the analyses. WCF Division officials told us they are focused on other priorities, such as new business line proposals. However, they told us that they are open to defining these roles in the future. There are additional reasons why the WCF Division has not defined and documented roles and responsibilities for these activities. For example, Division officials told us that the Division faces organizational challenges which may limit its own ability to monitor and implement actions. First, as previously discussed, the business line offices are responsible for managing and overseeing the service lines. According to WCF Division officials, the business line offices are primarily responsible for identifying opportunities to achieve efficiencies with service usage, such as through conducting business process analyses. As such, WCF Division officials told us that they can support those offices by monitoring their usage and helping to identify actions to reduce high service volume and costs, but it is ultimately the business line offices’ responsibility to implement any changes to their own processes to improve service usage. In addition, given its location within OCFO, Division officials stated that the WCF Division has more leverage with OCFO to work with those officials to identify business process improvements. WCF Division officials told us that they have not collaborated with OCHCO or made recommendations for actions OCHCO could take to promote efficient and effective usage of the service lines it oversees. While the Division hopes to work with OCHCO to perform the same types of analyses, the WCF Division Director told us that making recommendations to OCHCO would be viewed as outside of its area of authority. According to Division officials, it is the role of the WCF Committee to provide oversight over the business line offices and ensure that such actions are implemented. However, officials acknowledged that these roles and responsibilities related to the business process analyses should be more clearly delineated in the WCF Handbook. Key operating principles for effective management of WCFs state that agencies should clearly delineate roles and responsibilities by defining key areas of authority and responsibility. In addition, federal standards for internal control state that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the agency’s objectives. As part of this, management should develop an organizational structure with an understanding of the overall responsibilities and assign those responsibilities to discrete units to enable the organization to operate in an efficient and effective manner. Without clearly defining and documenting these roles and responsibilities, it is unclear who is responsible for identifying, monitoring, and implementing actions through the business process analyses to address inefficiencies with service usage across HUD. As a result, opportunities to more efficiently and effectively deliver goods and services may not be fully and consistently implemented across the department. HUD Has Established Performance Metrics but Does Not Assess Results of Business Process Analyses to Understand How They Support Efficient Delivery of Services HUD established eight total performance metrics which, according to WCF Division officials, are intended to align with one or more of the WCF’s three goals (see table 2). In fiscal year 2018, the WCF Division developed a draft performance scorecard to measure and track WCF performance in areas such as data and analysis, financial management, and stakeholder engagement. Division officials told us that they use 2019 data as their performance baseline for the scorecard and will continue to review and further develop the fund’s metrics and targets. Part of one of the WCF’s goals is to support the efficient delivery of goods and services. Some of the WCF’s metrics, such as those targeting timeliness, will help the WCF Division improve its efficiency with respect to managing the fund. For example, usage report timeliness measures the number of weeks it takes for the WCF Division to share usage reports with customers. As previously discussed, the WCF Division conducts other activities, such as its business process analyses, that are also intended to support efficient service delivery. However, HUD does not assess the results of the WCF Division’s business process analyses to better understand how they contribute to the WCF’s goal. We previously reported that high- performing agencies continuously assess their efforts to improve performance. As part of this, agencies use fact-based understandings of how their activities contribute to accomplishing the mission and broader results. The WCF Division Director told us they have considered metrics to assess broader results of WCF Division activities such as efficiencies, but noted that it is difficult to quantify cost savings attributable to the WCF. This is due, in part, to the fact that HUD’s service agreements are firm- fixed price contracts, meaning that a change in the volume of services HUD consumes in a given year will not result in direct cost savings that same year. However, HUD could assess the results of the WCF Division’s business process analyses, which identified measurable operational and cost efficiencies that HUD could achieve through implementing the division’s recommendations. For example, as previously discussed, in its analysis of help desk calls, the WCF Division identified potential efficiencies that it could track that would contribute to cost savings over time. While some of the recommendations may not directly result in cost savings, the Division identified other efficiencies such as process improvements that could improve the quality of services that it is capable of tracking. For example, the WCF Division determined that changes to HUD’s processes could improve the accuracy of purchase order accrual estimates. Assessing the results of the WCF Division’s business process analyses would help HUD better understand how the Division’s efforts contribute to its goal of supporting the efficient delivery of goods and services. Without doing so, HUD risks not fully realizing more than $1 million in total potential annual savings identified by the WCF Division’s analyses and freeing up resources that could be realigned for other departmental priorities. In addition to tracking progress towards its own goal, assessing these results would allow HUD to demonstrate how the WCF Division contributes to a 2018 cross-agency priority goal of improving the use, quality, and availability of administrative shared services, as well as the department’s related strategic objective to organize and deliver services more efficiently. WCF Handbook Includes Current and Complete Information on Policies and Procedures In response to our review, HUD updated the WCF Handbook—the primary reference guide for customers and stakeholders on WCF operations—to include more current and complete information on WCF policies and procedures. For example, prior to February 2020, we found that the Handbook was not reconciled with more recently developed draft WCF procedures for contract and budget execution, and invoicing and payments. The WCF Handbook now includes these procedures, which contain detailed information about administrative and funds control responsibilities. For example, the procedures describe the WCF Division Director’s cash management responsibilities and designation as the WCF’s Funds Control Officer, as well as roles of WCF customer program and budget officers. In addition, during the course of our review, the WCF Division updated its Handbook to include current information on other policies and procedures. For example, the Handbook now reflects the WCF’s performance metrics, which we previously discussed were initially developed by the WCF Division in 2018, and changes to other key policies, such as the implementation of the WCF’s full cost recovery model in 2019. HUD now has reasonable assurance that its primary reference guide, the WCF Handbook, provides a current and complete understanding of existing WCF policies, consistent with federal standards for internal controls. HUD Has Established a Process to Recover the WCF’s Costs and Has Fully Developed and Documented Policies for Its Unexpended Balances HUD Has a Process Designed to Equitably and Transparently Recover the WCF’s Estimated Costs The WCF’s price and cost allocation methodology is designed to equitably and transparently recover HUD’s annual costs for externally provided shared services financed through the fund. According to HUD officials, the WCF has roughly recovered its costs of financing HUD’s annual shared service agreements since its establishment in 2016. To recover its costs, the WCF Division has a process to divide HUD’s total cost of shared services among the 17 customer offices based on their estimated service usage. For fiscal years 2016 through 2018, the WCF reported a negative accumulated operating result of $400,372, meaning that it reported it recovered nearly all of its costs since its inception. During this time period, the WCF reported years of positive and negative net operating results. Revolving funds such as the HUD WCF are designed to break even over the long term; therefore, year-to-year fluctuations are to be expected. Table 3 provides a detailed breakdown of HUD’s reported cost recovery. Equitable Cost Recovery According to WCF Division officials, its shared service providers set annual prices for each service line at the outset of the fiscal year using their own pricing methodologies. The service providers then bill HUD in aggregate for an agreed-upon price under annual interagency agreements at firm-fixed prices. As illustrated in figure 2, the WCF Division determines how much each customer office will pay into the WCF for its respective share of HUD’s total shared service costs using internally developed cost drivers and customers’ expected service usage. The cost drivers were selected by the WCF Committee, and are subject to annual review. According to WCF Division officials, the cost drivers are generally similar to those established by the external providers to maintain a clear connection between customer usage and provider charges. In some cases, however, the provider uses a nonunit based cost driver, such as “level of effort.” In those instances the WCF Division uses cost drivers which vary from the providers. According to HUD documentation, “employee count” is a common alternative driver used to fairly and equitably distribute costs among customers. In addition to the direct costs of HUD’s shared services, HUD officials told us that the WCF received authority to collect reimbursement from HUD customers for the WCF Division’s overhead costs in fiscal year 2019. The WCF’s overhead covers operational expenses, including: WCF Division staff salaries and benefits, travel, support contracts, supplies and materials, and training. Customers are billed for a percentage of the overhead based on their share of HUD’s total shared service costs. This charge is included as an individual line item in customers’ WCF billing statements. Transparent Cost Recovery The WCF Division shares information on pricing and its cost allocation process with customers in several ways. The WCF Handbook includes the billing process, which describes the method for allocating costs among customers. The WCF Division provides customer offices with a billing model which illustrates how costs are allocated across customers by service line. Customer invoices are broken out to show how customers are charged for each service. In addition, the WCF Division provides quarterly usage reports to customers to help them understand their service consumption. According to WCF Division officials, the WCF Division holds meetings and meets with customer offices one-on-one to explain the information provided. Participants in two of our three focus groups said that the WCF cost allocation model increases accountability and is a more equitable and fair distribution of service costs. Participants in all three focus groups said the WCF improved transparency over the old service model because they can see and consider the costs of their shared service usage. For example, one participant told us that, before the WCF, customers did not directly pay for their shared services and, as a result, did not think about costs. HUD Has Developed Policies for Managing the WCF’s Unexpended Balance The WCF Division has processes to estimate and manage the WCF’s unexpended balance, including establishing an operating reserve requirement. Properly managing unexpended balances is essential for ensuring self-sufficiency of the fund. Part of the unobligated balance includes an operating reserve which, according to WCF Division officials, is needed to finance ongoing revolving activities, facilitate payments, cover discrepancies between actual and projected shared service costs, and ensure continuity in case of funding disruptions. Evaluating Unexpended Balances: A Framework for Understanding In 2013, we identified the following questions for agencies and decision makers to consider when evaluating unexpended balances in federal budget accounts. Findings based on these questions can provide managers with important information about financial challenges and opportunities which may exist; in turn, this information may help guide more effective account and program management. In fiscal year 2017, the size of the WCF’s unexpended balance increased by 60 percent from $10 million to $16 million, and it was relatively stable from fiscal years 2017 to 2018, as shown in table 4. While the WCF Division does not actually provide the shared services that it finances, nor manage dispute resolution between customers and service providers, it does communicate with customers on fund-related issues—such as shared service billing and usage reports. Key operating principles for effective management of working capital funds state that to be flexible to customer input and needs, agencies should communicate with customers regularly and in a timely manner, and develop a process to assess whether customer demands are met. The WCF Division communicates and interacts directly with customers through a variety of channels. For example, WCF Division officials told us that they: organize quarterly WCF Committee meetings, hold meetings to provide information and answer questions about interpreting usage reports, and use an email inbox for communication between Division staff and customers. The WCF Division will also contact customers directly when issues, such as anomalies in shared service usage, are identified. Customers in all three focus groups reported that they turn to the WCF Division when issues or questions about WCF-related issues arise, and are generally satisfied with the Division’s communication and responsiveness. HUD Has Not Reviewed Shared Services to Ensure Strong Performance and Customer Satisfaction HUD’s business line offices—those offices that oversee HUD’s agreements for externally provided shared services—have mechanisms to communicate with customers and obtain feedback on shared service quality. For example, an official from OCFO—the office that oversees financial management, procurement, and travel services—told us that OCFO has an email inbox dedicated to questions and concerns regarding services. Officials from OCHCO—which oversees human resource (HR)- related services—told us that OCHCO holds recurring meetings with customer offices and reviews feedback from government-wide employee surveys. That feedback is then used to inform HUD’s annual negotiations for HR-related shared services and improve service delivery. According to the WCF Division Director, the WCF Committee quarterly meetings provide an additional opportunity for customer offices to provide feedback to business line offices on shared services. Business line office officials also told us they monitor data on service provider performance and go directly to the provider when discrepancies between the provider’s actual performance and agreed-upon performance metrics are identified. However, while participants in all three of our focus groups acknowledged that OCFO and OCHCO are the designated points of contact for day-to- day issues, participants in two of our three focus groups mentioned that they have not been given opportunities to provide feedback on overall shared service quality. In addition, all three customer focus groups expressed some level of dissatisfaction with the quality of HR services, particularly with hiring. For example, participants in at least one of our focus groups identified the following issues with HR services: complications and excessive time consumption associated with resolving inquiries; HR service providers operating without specialized skills and knowledge relevant to HUD offices and programs; and inadequate adaption to spikes in service demand. The WCF Division Director told us that the WCF Committee has not conducted periodic reviews of WCF business lines since HUD transitioned to shared services. According to the WCF Committee Charter, the WCF Committee is responsible for conducting and overseeing periodic reviews of WCF business lines, as appropriate, to ensure effective management, strong performance, and customer satisfaction. In addition, federal standards for internal control call for periodic reviews of policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives or addressing related risks. According to the WCF Division Director, at this time the committee does not have plans to conduct such reviews. OCHCO officials told us that they are aware of customer complaints with the quality of HR services. According to officials, HUD has a new Chief Human Capital Officer as of May of 2019 who is taking action to obtain feedback on services by engaging directly with HUD customers through listening sessions. OCHCO officials told us they will introduce action plans in fiscal year 2020 to address recurring issues and customer complaints. In addition to these plans and the feedback OCHCO already obtains, OCHCO officials acknowledged that periodic reviews of the service line, as called for in the committee charter, would be valuable. Without conducting periodic reviews of shared services, HUD may not have a comprehensive understanding of whether customer needs are being met and could be missing out on opportunities to identify potential areas for improvement with the performance and management of services for which it is paying. Given the concerns customers in our focus groups told us about HR service lines, HUD should consider making it the first service line that is subject to a review. Conclusions WCFs provide agencies with an opportunity to operate more efficiently by consolidating services and creating incentives for customers to exercise cost control. HUD could maximize the potential of these opportunities by ensuring that it has a solid framework in place for managing the WCF before it expands to include additional shared services. During the course of our review, HUD took important steps to ensure that the WCF Handbook—the primary reference guide for WCF operations— includes up-to-date and complete information on WCF policies and procedures. Providing access to current and complete information on the management of the WCF promotes an understanding of who should be held accountable, and helps ensure that funds are effectively managed. HUD also took steps to fully document its processes to effectively manage the operating reserves. This will be particularly important as HUD continues to consider expanding the services provided through the WCF. By documenting its existing operating reserve policies, HUD is better positioned to address potential risk and to identify opportunities to achieve budgetary savings or redirect resources to other priorities. However, there are additional opportunities for improvement. Defining roles and responsibilities promotes a clear understanding of who will be held accountable for specific tasks or duties. Most of HUD’s WCF roles and responsibilities are defined in guidance. However, while the WCF Division performs important business process analyses that identity opportunities to improve the efficiency of services, consistent with the goals of the WCF, HUD has not defined roles and responsibilities for the business process analyses, including who is responsible for identifying, monitoring, and implementing actions to achieve the efficiencies. This makes it difficult to hold offices accountable. By clearly defining the responsibilities of the WCF Division, business line offices, and other stakeholders, such as the WCF Committee, HUD could better ensure the business process improvements are being implemented fully and consistently across the department. Moreover, assessing the results of the WCF Division’s business process analyses would help HUD better understand how the Division’s efforts contribute to its goal of supporting the efficient delivery of goods and services. This would better position HUD to achieve the more than $1 million in potential annual savings identified by the WCF Division’s analyses. Finally, opportunities for customers to provide input about services in a timely manner enables agencies to regularly assess whether customer needs are being met. WCF customers have several ways that they can communicate day-to-day concerns about shared services to the business line offices. However, they raised larger concerns during our focus groups, particularly about the quality of the externally provided human resource related services that deserve attention. Periodic assessments of WCF business lines would provide a more comprehensive understanding of customers’ overall satisfaction and would help HUD identify potential areas for improvement with the services for which they pay. Recommendations for Executive Action We are making a total of three recommendations to HUD. The Secretary of HUD should define and document roles and responsibilities for identifying opportunities to promote more efficient shared service usage through business process analyses, including defining roles for monitoring and implementing actions recommended because of these analyses. (Recommendation 1) The Secretary of HUD, in conjunction with OCFO, should ensure that the results of the WCF Division’s business process analyses are assessed to better understand how these analyses contribute to the WCF’s established goal to support the efficient delivery of enterprise goods and services. (Recommendation 2) The Secretary of HUD should ensure that the WCF Committee conducts periodic reviews of WCF business lines, as authorized in the WCF Committee Charter, to ensure effective management, strong performance, and customer satisfaction. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report for comment to the Departments of Agriculture (USDA), Housing and Urban Development (HUD), and the Treasury. In our draft report, we made five recommendations to HUD. HUD provided written comments, which are reproduced in appendix II. HUD officials agreed with four of the recommendations and described some steps they have taken or plan to take to address them. HUD sought additional clarification on one of the recommendations. One draft recommendation was that HUD ensure that existing WCF policies and procedures are current and complete, consolidated in the WCF Handbook, and made easily accessible to customers and stakeholders. HUD officials agreed with this recommendation, and during their review of the draft report, they provided documentation to show that they had updated the WCF Handbook in line with our draft recommendation. Another draft recommendation was that HUD fully document all existing processes related to the management of the WCF’s unexpended balances and operating reserve. HUD officials also agreed with this recommendation, and provided documentation to show that they had established written processes in line with our draft recommendation. As such, we revised our final report to include both actions taken by HUD in February 2020 and to remove these two recommendations. In its written comments, HUD sought clarification on recommendation 1. On February 26, 2020, we spoke with HUD officials and clarified that the recommendation is more specifically targeted to the roles and responsibilities for identifying, monitoring, and implementing actions related to the business process analysis and efficiency efforts than the general guidance that HUD identified in its written comments. We added additional clarification to the report where appropriate. In addition to the written comments we received, USDA, HUD, and Treasury provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees; the Secretaries of USDA, HUD, and Treasury; and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have questions about this report, please contact Tranchau (Kris) T. Nguyen at (202) 512-6806 or nguyentt@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Working Capital Fund Customer Offices Represented in Our Focus Groups Appendix II: Comments from the Department of Housing and Urban Development Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the above contact, Thomas J. McCabe (Assistant Director), Mackenzie D. Verniero (Analyst-in-Charge), Michael Alleyne, Jacqueline Chapin, Andrew J. Howard, Jason Marshall, Steven Putansu, and Alicia White made major contributions to this report. Ronald La Due Lake also contributed to this report.


Background Headquartered in Washington, D.C., the Corps has eight divisions established generally according to watershed boundaries and 38 districts that carry out its Civil Works program. Corps headquarters primarily develops policies and provides agency oversight. The Assistant Secretary of the Army for Civil Works, appointed by the President, sets the strategic direction for the agency and has principal responsibility for the overall supervision of functions relating to the Civil Works program. The Chief of Engineers—a military officer—oversees the Corps’ civil works and military missions. The eight divisions—Great Lakes and Ohio River, Mississippi Valley, North Atlantic, Northwestern, Pacific Ocean, South Atlantic, South Pacific, and Southwestern—coordinate Civil Works projects in the districts within their respective divisions. Corps districts are responsible for planning, engineering, constructing, and managing Civil Works projects. Section 219 Program Overview and Funding Process Congress established the Section 219 program in the 1992 WRDA, which authorized the Corps to provide planning and design assistance to nonfederal sponsors in carrying out 18 environmental infrastructure projects, located in certain specified locations around the United States. For example, the 1992 WRDA authorized the Corps to provide assistance for a combined sewer overflow treatment facility for the city of Atlanta, Georgia. In subsequent acts, Congress authorized the Corps to provide construction assistance for Section 219 projects, in addition to planning and design, and significantly expanded the number of authorized projects. From 1992 through 2007, Congress authorized a total of 310 Section 219 projects, with the most recent and largest number of project authorizations occurring in 2007 (see table 1). For Section 219 projects, Congress specifies the geographic location (e.g., city, county), amount of authorized dollars, and purpose or scope of the project (e.g., development of drainage facilities to alleviate flooding problems). In general, Section 219 projects fall into one or more of the following types of projects: Drinking water treatment and distribution. Projects that build water treatment plants, water storage tanks, and water distribution lines. Wastewater treatment. Projects that build sewage treatment plants, wastewater collection systems, and facilities that purify treated wastewater for irrigation and other purposes. Stormwater management. Projects that help improve the management of storm sewers, eliminate or control sewer overflows, and address flooding. According to Corps data, of the 310 originally authorized Section 219 projects, 58 have been deauthorized and were no longer active, as of November 2018. The Corps is required by the 1986 WRDA, as amended, to annually identify all authorized projects that have not received obligations in the preceding 5 full fiscal years and submit that list to Congress. If funds are not obligated for planning, design, or construction of a project on that list during the next fiscal year, the project is deauthorized. The Secretary of the Army publishes a list of deauthorized projects in the Federal Register. Based on this process, the Corps considered deauthorizing 197 additional Section 219 projects in its fiscal year 2017 report to Congress. However, the 2018 WRDA provided that the projects identified for deauthorization in the Corps’ fiscal year 2017 report were generally not to be deauthorized unless they met certain additional requirements. The Corps allocates funding for Section 219 projects and other environmental infrastructure programs from the construction account. That account generally receives no-year appropriations through the Energy and Water Development Appropriations Act—meaning the appropriation remains available for obligation for an indefinite period of time. Prior to fiscal year 2012, the conference reports accompanying the annual Energy and Water Development Appropriations Acts generally listed individual Section 219 projects and specific allocations of funding for each project. However, since fiscal year 2012, Congress has not provided allocation direction for individual projects, but instead generally has designated an amount in reports and joint explanatory statements for environmental infrastructure overall, ranging from about $30 million to $55 million annually. According to Corps data, from fiscal years 1992 through 2017, the Corps expended over $440 million on Section 219 projects. Process for Managing Section 219 Projects Similar to other Civil Works projects, the Corps generally becomes involved in Section 219 projects when a nonfederal sponsor contacts the Corps for assistance on an authorized project. Corps districts gather additional information on the project from the nonfederal sponsor and determine if it is ready to be initiated. Once the Corps receives an appropriation from Congress, the agency decides whether to allocate funding to the project. If the project is selected to receive funding, it enters the preconstruction engineering and design phase. The purpose of this phase is to complete any additional planning studies and all of the detailed technical studies and designs—such as environmental impact studies—needed to begin construction. During this phase, the Corps also completes an environmental assessment of the proposed project. To initiate construction, the Corps and the nonfederal sponsor sign a project partnership agreement that specifies how the parties will collaborate, their respective roles and responsibilities, and the terms and conditions under which they will execute their responsibilities. The project partnership agreement typically requires the sponsor to provide without cost to the U.S. government all lands, easements, rights-of-way, relocations, and disposal areas necessary for the construction and subsequent maintenance of the project; maintain and operate the project after completion without cost to the provide cash or work-in-kind contributions to make the sponsor’s total contribution equal to 25 percent if the value of the sponsor’s land contribution does not equal or exceed 25 percent of the project cost. The Corps manages the construction phase, contracting out construction work to private engineering and construction contractors. Throughout the construction phase, the Corps oversees the contractors’ work, performing routine inspections to ensure it meets the Corps’ design and engineering specifications. During construction, the Corps, the nonfederal sponsor, and the private contractor typically appoint representatives to a project coordination team that meets regularly until the period of construction ends. Upon notification by the District Engineer that construction is complete, the nonfederal sponsor is responsible for operations and maintenance. Figure 1 shows the major steps in managing a Section 219 project. From Fiscal Years 2013 through 2017, the Corps Spent About $81 Million on 29 Section 219 Projects to Develop Drinking Water, Wastewater, and Stormwater Infrastructure The Corps expended about $81 million on 29 Section 219 projects from fiscal years 2013 through 2017, which included various types of projects such as drinking water treatment and distribution, wastewater treatment, and stormwater management. Examples of these projects include the following: Drinking Water Treatment and Distribution. The Corps manages a Section 219 project that includes the development of water desalination infrastructure in various sections of the South Perris community, located east of Los Angeles, California. In general, the South Perris area relies on a mixture of groundwater and water imported from different sources, including the Colorado River. According to the Corps’ environmental assessment, various factors, such as drought, caused the community to supplement its drinking water supply through increased use of groundwater; however, the groundwater in the area historically contained high salt content. Since the project’s authorization in fiscal year 2001 through fiscal year 2017, the Corps has helped construct groundwater wells and pipelines, which connect to drinking water treatment facilities that reduce the amount of salt in the water (see fig. 2). According to the nonfederal sponsor for the South Perris project, the overall project has provided benefits such as creating a local potable water source to meet anticipated population growth and reducing the community’s dependence on imported water. Wastewater Treatment. The Corps manages a Section 219 project that includes the rehabilitation of sewer lines within the metropolitan area of St. Louis, Missouri. The city’s wastewater system dates back to the 1800s and lacks the capacity to handle large flows. From the project’s authorization in fiscal year 1999 through fiscal year 2017, the Corps has assisted the community, among other things, in sewer rehabilitation of deep tunnels. According to documentation from the Corps’ St. Louis District, the rehabilitation of sewers is important in protecting the health and safety of the public, given the risk of untreated sewage being discharged into the environment. Stormwater Management. The Corps manages a Section 219 project that involves the development of stormwater infrastructure, among other things, across a five-county region (Calumet region) in northern Indiana. For example, flooding is a widespread problem in the region and it has affected commercial corridors, including within Gary, Indiana. From the project’s authorization in fiscal year 1999 through fiscal year 2017, the Corps has been assisting the region with measures to alleviate flooding, such as constructing stormwater storage areas under the street (see fig. 2). According to a nonfederal sponsor we interviewed, the Corps’ efforts in the Calumet region have offered benefits to local communities by, among other things, improving storm drainage in an area that experienced flooding during heavy rainfall. The 29 Section 219 projects with expenditures from fiscal years 2013 through 2017 were located in different parts of the country and managed by six Corps divisions, although the majority of the projects were under the South Pacific Division (10 of the 29 projects) and Great Lakes and Ohio River Division (eight of the 29 projects). The five states with the largest number of projects during this period were California, with nine Section 219 projects; Virginia, with three Section 219 projects; and Michigan, Pennsylvania, and Mississippi, each with two Section 219 projects. These projects varied in terms of the geographic area covered, such as a city, county, or region (e.g., multiple counties). Based on the project descriptions we reviewed, 10 of the projects focused on the environmental infrastructure needs of cities, nine focused on counties and 10 on regions. Projects that cover a broad geographic area, such as those at the county or regional level, generally consist of different types of subprojects. For example, the Cook County, Illinois Section 219 project included several subprojects, such as the construction of water mains and sewer improvements in different areas across the county. Most of the Section 219 projects (24 of the 29 projects) were authorized in 2000 or earlier and were ongoing as of November 2018. Only one of the 29 projects was completed; the project in St. Croix Falls, Wisconsin, was completed in fiscal year 2014. For the St. Croix Falls project, the Corps assisted with improvements to a wastewater treatment plant, such as installing equipment to screen out large solids that otherwise would be released into the St. Croix River. Of the 28 remaining projects that were ongoing, as of November 2018, 17 were in the construction phase, and 11 were in the preconstruction engineering and design phase. Table 2 summarizes information on the 29 projects with expenditures from fiscal years 2013 through 2017 by division and district. See appendix I for additional information on each project, including a detailed description and the total amount of expenditures from fiscal years 2013 through 2017. As previously noted, the Corps spent about $81 million on these 29 Section 219 projects from fiscal years 2013 through 2017. During that period, expenditures by fiscal year ranged from about $11 million to $22 million. Divisions with the largest percentage of overall expenditures from fiscal years 2013 through 2017 were the South Atlantic Division (36 percent) and Mississippi Valley Division (25 percent). The divisions with the smallest percentage of overall expenditures during the period were the North Atlantic Division (less than 1 percent) and Southwestern Division (4 percent). Table 3 summarizes overall expenditures from fiscal years 2013 through 2017 by division and fiscal year. Of the 29 projects with expenditures from fiscal years 2013 through 2017, 15 projects expended less than $1 million each, representing a total of $2.3 million. The majority of these projects (10 of the 15 projects) were in the preconstruction engineering and design phase. For example, as part of the Cambria, California, project, the Corps expended about $244,000 on preconstruction engineering and design activities, such as evaluating the environmental impacts of constructing a seawater desalination facility. In addition, for the Cumberland County, Tennessee, project, the Corps expended about $261,000 on planning and design for water supply projects. In comparison, 14 of the 29 projects expended more than $1 million each over the same time period, representing a total of $78.2 million. In particular, the Corps spent over half of the funding during this time period on four projects: Calumet Region in Indiana; DeSoto County, Mississippi; Jackson County, Mississippi; and Lakes Marion and Moultrie in South Carolina (see fig. 3). These projects generally consisted of multiple subprojects and covered a wide geographic area. For example, the Calumet Region project has involved over 25 subprojects since its authorization in fiscal year 1999 through August 2018. Through these subprojects, the Corps has managed various activities, including replacing drinking water lines, improving wastewater treatment plants, and installing stormwater infrastructure in a number of cities across Indiana. Additionally, the Lakes Marion and Moultrie project in South Carolina has included a range of subprojects, such as construction of a water treatment plant, construction of a water tower, and installation of water transmission lines across six counties. The Corps Generally Follows Its Standard Budget Prioritization Process for Section 219 Projects but Does Not Use Written Criteria to Rank Projects for Funding The Corps generally follows its standard budget process for prioritizing funding for the Section 219 program. This process involves ranking Section 219 projects for funding by all three levels of the Corps’ organization—districts, divisions, and headquarters. District officials identify Section 219 projects, including subprojects, and other environmental infrastructure projects for potential funding; enter a numerical ranking for each project in the Civil Works Integrated Funding Database; and submit the information to the division through the database. Division officials receive the rankings from each of the multiple districts in the division. Division officials then re-rank the Section 219 and other environmental infrastructure projects from all of their districts against one another. Division officials enter the numerical ranking for all projects across all their districts into the Civil Works Integrated Funding Database and submit the information to headquarters through the database. Headquarters officials receive the rankings from each division. They re-rank the projects from all divisions against each other to generate the final nationwide rankings. Based on the final rankings, not all Section 219 and other environmental infrastructure projects that the divisions submitted will receive funding. Headquarters officials then determine a funding amount for each Section 219 project selected to receive funding and publish these decisions in the agency’s annual work plan. After headquarters publishes the annual work plan, headquarters officials begin to allocate funding to Section 219 projects. However, the Corps does not have written criteria to guide the ranking of Section 219 projects, in contrast to other types of projects. Specifically, in our December 2018 report, we found that the Corps uses written criteria—such as the rate of economic return, populations at risk, and economic impact—to prioritize funding for core mission areas, such as flood risk management and navigation projects. While Corps budget guidance indicates the criteria each core mission area should use in the ranking process, it does not specify criteria for Section 219 or other environmental infrastructure projects. In the absence of written criteria, Corps officials use their discretion on how to rank Section 219 projects for funding, according to Corps headquarters officials. When ranking Section 219 projects for funding, officials in each of the districts we interviewed generally consider whether Section 219 projects can be completed within the fiscal year. However, we found that the districts vary in terms of whether other factors are considered and what those factors are. Specifically, One district considers the level of congressional support and the potential public health impacts of the project. Another district considers the level of congressional support and the dollar value of the project. A third district only considers whether the project can be completed within the fiscal year. At the division level, officials we interviewed stated that they consider, among other things, the level of congressional support for the projects; however, to a large extent they rely on the rankings provided by their respective districts. Headquarters officials said that they primarily focus on ensuring that projects are geographically dispersed across the divisions when assigning final rankings for Section 219 projects. In recent years, congressional direction has indicated that the Corps, when allocating funding, is to consider giving priority for environmental infrastructure projects that have certain characteristics. For example, the Joint Explanatory Statement accompanying the Consolidated Appropriations Act in 2017 directed the Corps to consider characteristics such as projects: with the greater economic impact; in rural communities; in communities with significant shoreline and instances of runoff; in or that benefit counties or parishes with high poverty rates; and in financially distressed municipalities. Corps headquarters, division, and district officials we interviewed said that while they are generally aware of this congressional direction, they do not use it to guide the Section 219 ranking process. According to a division official, written criteria would be helpful for ranking projects across multiple districts and would clarify procedures for new staff. Officials we interviewed in the three districts said, in general, written criteria would clarify the ranking process. For example, one Corps district official stated that written criteria would provide standardization to the ranking process, ensuring that each district is focused on the highest priorities of the agency. According to Corps headquarters officials, although they see value in having written criteria to prioritize Section 219 funding, they have not developed such criteria because the agency considers Section 219 projects to be outside the agency’s core mission areas, such as flood control. According to a 2008 Corps report to Congress, “Funds provided to the Corps for wastewater treatment and municipal and industrial water supply projects necessarily reduce the amount of funds that instead could be used for the primary mission areas of the Corps. Thus, provision of Civil Works funding for these environmental infrastructure programs negatively affects the Corps’ ability to meet critical mission needs…such as restoring nationally significant ecosystems.” Headquarters officials confirmed that this report accurately reflects the agency’s current position. Corps officials also stated that developing written criteria has not been a priority because Section 219 projects represent a small percentage of the agency’s overall Civil Works budget. Federal standards for internal control states that agencies should use quality information to achieve their objectives by identifying information requirements. The federal standards also call for agencies to design control activities to achieve objectives and respond to risks, such as by clearly documenting internal control in management directives, administrative policies, or operating manuals. By establishing written criteria, the Corps would have greater assurance that its project selections align with a clear set of priorities, such as the characteristics identified in recent congressional direction for the agency to consider when selecting Section 219 projects for funding. Conclusions Since the inception of the Section 219 program in 1992, the Corps has spent over $440 million on water infrastructure projects across its divisions and districts. However, the Corps has not developed written criteria for ranking Section 219 projects for funding as it has for other Civil Works programs within the agency’s core mission areas. Consequently, officials at the district, division, and headquarters levels are using their discretion regarding which factors to consider in ranking Section 219 projects for funding. Further, Congress has provided direction to the Corps on which characteristics to consider in prioritizing Section 219 funding; however, Corps officials stated that they do not use it to guide their ranking of Section 219 projects. By establishing written criteria, the Corps would have greater assurance that its project selections align with a clear set of priorities, such as the characteristics identified in recent congressional direction for the agency to consider when selecting Section 219 projects for funding. Recommendation for Executive Action The Secretary of the Army should direct the Chief of Engineers and Commanding General of the U.S. Army Corps of Engineers to develop written criteria for ranking Section 219 projects for funding, taking into account a clear set of priorities, such as those identified by recent congressional direction. Agency Comments We provided a draft of this report to the Department of Defense for review and comment. In its written comments, reprinted in appendix II, the department concurred with our recommendation and described the actions they plan to take. Specifically, the Corps will develop and document a more rigorous set of priorities in line with those identified by recent Congressional direction. The department also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Chief of Engineers and Commanding General of the U.S. Army Corps of Engineers, and other interested parties. 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) 512-3841 or fennella@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Description of U.S. Army Corps of Engineers Section 219 Projects and Expenditures from Fiscal Years 2013 through 2017 Appendix I: Description of U.S. Army Corps of Engineers Section 219 Projects and Expenditures from Fiscal Years 2013 through 2017 Project description as authorized by statute Water-related environmental infrastructure, Allegheny County, Pennsylvania. A combined sewer overflow treatment facility for the city of Atlanta, Georgia and watershed restoration and development in the regional Atlanta watershed including Big Creek and Rock Creek. Water-related infrastructure for the parishes of East Baton Rouge, Ascension, and Livingston, Louisiana. Water-related infrastructure projects in the counties of Benton, Jasper, Lake, Newton, and Porter, Indiana. Desalination infrastructure, Cambria, California. Water and wastewater infrastructure for the Contra Costa Water District, California. Water-related infrastructure and resource protection and development, Cook County, Illinois. Water supply projects in Cumberland County, Tennessee. Desert Hot Springs, California Resource protection and wastewater infrastructure, Desert Hot Springs, California. Wastewater treatment project in the county of DeSoto, Mississippi. Water supply and wastewater infrastructure projects in the counties of Accomack, Northampton, Lee, Norton, Wise, Scott, Russell, Dickenson, Buchanan, and Tazewell, Virginia. Water-related infrastructure and resource protection, including stormwater management, and development, El Paso County, Texas. Wastewater infrastructure assistance to reduce or eliminate sewer overflows, Genesee County, Michigan. Industrial water reuse project for the Harbor/South Bay area, California. Water infrastructure, Inglewood, California. Provision of an alternative water supply for Jackson County, Mississippi. Wastewater treatment and water supply treatment and distribution projects in the counties of Berkeley, Calhoun, Clarendon, Colleton, Dorchester, and Orangeburg, South Carolina. A project to provide water facilities for the Fox Field Industrial Corridor, Lancaster, California. Alleviation of combined sewer overflows for Lynchburg, Virginia, in accordance with combined sewer overflow control plans adopted by, and currently being implemented by, the non-Federal sponsor. Water-related infrastructure in the counties of Lackawanna, Lycoming, Susquehanna, Wyoming, Pike, Wayne, Sullivan, Bradford, and Monroe, Pennsylvania, including assistance for the Montoursville Regional Sewer Authority, Lycoming County, Pennsylvania. Project description as authorized by statute Water and wastewater infrastructure in Hancock, Ohio, Marshall, Wetzel, Tyler, Pleasants, Wood, Doddridge, Monongalia, Marion, Harrison, Taylor, Barbour, Preston, Tucker, Mineral, Grant, Gilmer, Brooke, and Ritchie Counties, West Virginia. A project to eliminate or control combined sewer overflows in the cities of Berkley, Ferndale, Madison Heights, Royal Oak, Birmingham, Hazel Park, Oak Park, Southfield, Clawson, Huntington Woods, Pleasant Ridge, and Troy, and the village of Beverly Hills, and the Charter Township of Royal Oak, Michigan. Recycled water transmission infrastructure, Eastern Municipal Water District, Perris, California. Alleviation of combined sewer overflows for Richmond, Virginia, in accordance with combined sewer overflow control plans adopted by, and currently being implemented by, the non-federal sponsor. San Ramon Valley, California A project for recycled water for San Ramon Valley, California. Water supply desalination infrastructure, South Perris, California. Wastewater infrastructure, St. Croix Falls, Wisconsin. Projects to eliminate or control combined sewer overflows in the city of St. Louis and St. Louis County, Missouri. Total Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Anne-Marie Fennell, (202) 512-3841 or fennella@gao.gov. Staff Acknowledgments In addition to the contact named above, Vondalee R. Hunt (Assistant Director), Anthony C. Fernandez (Analyst-In-Charge), Patricia Moye, Gloria Ross, and Sheryl Stein made significant contributions to this report. Important contributions were also made by Patricia Donahue, Tim Guinane, Susan Murphy, Sara Sullivan, Kiki Theodoropoulos, and Walter Vance.