F-35 Joint Strike Fighter: DOD Needs to Update Modernization Schedule and Improve Data on Software Development

What GAO Found

The Department of Defense (DOD) delayed the completion of key testing until problems with the F-35 aircraft simulator are resolved, which GAO also reported last year, and will again delay its full-rate production decision. In August 2020, the program office determined the aircraft simulator—to be used to replicate complex test scenarios that could not be accomplished in real-world environment testing—did not fully represent F-35 capabilities and could not be used for further testing until fixed. Since then, program officials have been developing a new plan to ensure the simulator works as intended. Until they finalize the plan and fix the simulator, the next production milestone date—which would formally authorize DOD’s transition from development to full production—remains undetermined (see figure).

F-35 Operational Test Schedule and Key Events through 2021, as of November 2020

DOD is now in its third year of its modernization effort, known as Block 4, to upgrade the hardware and software of the aircraft. While DOD added another year to the schedule, GAO found the remaining development time frame is not achievable. The program routinely underestimated the amount of work needed to develop Block 4 capabilities, which has resulted in delays, and has not reflected historical performance into its remaining work schedule. Unless the F-35 program accounts for historical performance in the schedule estimates, the Block 4 schedule will continue to exceed estimated time frames and stakeholders will lack reliable information on when capabilities will be delivered.

GAO found the F-35 program office collects data on many Block 4 software development metrics, a key practice from GAO’s Agile Assessment Guide, but has not met two other key practices for monitoring software development progress. Specifically, the F-35 program office has not implemented tools to enable automated data collection on software development performance, a key practice. The program’s primary reliance on the contractor’s monthly reports, often based on older data, has hindered program officials’ timely decision-making. The program office has also not set software quality performance targets, inconsistent with another key practice. Without these targets, the program office is less able to assess whether the contractor has met acceptable quality performance levels.

Why GAO Did This Study

The F-35 Lightning II Joint Strike Fighter program remains DOD’s most expensive weapon system program. DOD is 3 years into a development effort that is loosely based on Agile software development processes to modernize the F-35 aircraft’s capabilities. With this approach, DOD intends to incrementally develop, test, and deliver small groups of new capabilities every 6 months. Congress included provisions in two statutes for GAO to review the F-35 program.

This report addresses the F-35 operational testing status, DOD’s Block 4 modernization development schedule, and how the F-35 program office implements key practices for evaluating Agile software development progress. To assess cost and schedule concerns identified in prior years, GAO selected three key practices that focus on evaluating Agile software development progress. GAO reviewed DOD and contractor documentation and interviewed DOD officials and contractor representatives.

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    GAO identified 59 for-profit college conversions that occurred from January 2011 through August 2020, almost all of which involved the college's sale to a tax-exempt organization. In about one-third of the conversions, GAO found that former owners or other officials were insiders to the conversion—for example, by creating the tax-exempt organization that purchased the college or retaining the presidency of the college after its sale (see figure). While leadership continuity can benefit a college, insider involvement in a conversion poses a risk that insiders may improperly benefit—for example, by influencing the tax-exempt purchaser to pay more for the college than it is worth. Once a conversion has ended a college's for-profit ownership and transferred ownership to an organization the Internal Revenue Service (IRS) recognizes as tax-exempt, the college must seek Department of Education (Education) approval to participate in federal student aid programs as a nonprofit college. Since January 2011, Education has approved 35 colleges as nonprofit colleges and denied two; nine are under review and 13 closed prior to Education reaching a decision. Figure: Example of a For-Profit College Conversion with Officials in Insider Roles IRS guidance directs staff to closely scrutinize whether significant transactions with insiders reported by an applicant for tax-exempt status will exceed fair-market value and improperly benefit insiders. If an application contains insufficient information to make that assessment, guidance says that staff may need to request additional information. In two of 11 planned or final conversions involving insiders that were disclosed in an application, GAO found that IRS approved the application without certain information, such as the college's planned purchase price or an appraisal report estimating the college's value. Without such information, IRS staff could not assess whether the price was inflated to improperly benefit insiders, which would be grounds to deny the application. If IRS staff do not consistently apply guidance, they may miss indications of improper benefit. Education has strengthened its reviews of for-profit college applications for nonprofit status, but it does not monitor newly converted colleges to assess ongoing risk of improper benefit. In two of three cases GAO reviewed in depth, college financial statements disclosed transactions with insiders that could indicate the risk of improper benefit. Education officials agreed that they could assess this risk through its audited financial statement review process and could develop procedures to do so. Until Education develops and implements such procedures for new conversions, potential improper benefit may go undetected. A for-profit college may convert to nonprofit status for a variety of reasons, such as wanting to align its status and mission. However, in some cases, former owners or other insiders could improperly benefit from the conversion, which is impermissible under the Internal Revenue Code and Higher Education Act of 1965, as amended. GAO was asked to examine for-profit college conversions. This report reviews what is known about insider involvement in conversions and to what extent IRS and Education identify and respond to the risk of improper benefit. GAO identified converted for-profit colleges and reviewed their public IRS filings. GAO also examined IRS and Education processes for overseeing conversions, interviewed agency officials, and reviewed federal laws, regulations and agency guidance. GAO selected five case study colleges based on certain risk factors, obtained information from college officials, and reviewed their audited financial statements. In three cases, GAO also reviewed Education case files. Because of the focus on IRS and Education oversight, GAO did not audit any college in this review to determine whether its conversion improperly benefitted insiders. GAO is making three recommendations, including that IRS assess and improve conversion application reviews and that Education develop and implement procedures to monitor newly converted colleges. IRS said it will assess its review process and will evaluate GAO's other recommendation, as discussed in the report. Education agreed with GAO's recommendation. For more information, contact Melissa Emrey-Arras at (617) 788-0534 or emreyarrasm@gao.gov.
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  • Science and Technology: Strengthening and Sustaining the Federal Science and Technology Workforce
    In U.S GAO News
    What GAO Found Strengthening human capital management at federal agencies, particularly those with science and technology missions, can help agencies build a diverse, highly qualified, and agile workforce. GAO's past work demonstrates three key areas for strengthening and sustaining the federal science and technology workforce. Strategic workforce planning to identify gaps and future needs. To successfully implement their missions, agencies need to identify current skill gaps and future needs in their workforce, and select the right human capital strategies to address them. However, GAO's prior work has identified science and technology workforce strategic planning challenges that agencies have not fully addressed. For example, in October 2019, GAO evaluated major agencies' implementation of cybersecurity workforce planning strategies for information technology (IT) workers. GAO found that most of the 24 federal agencies had not fully implemented five of the eight key workforce activities that GAO identified because of reasons such as competing priorities and limited resources. GAO recommended that the 18 agencies fully implement the eight key IT workforce planning activities. Thirteen agencies agreed with the recommendation, while the other five expressed a range of views; however, while some agencies have made progress, none have fully implemented the recommendation. Improving federal pay and hiring. Agencies may experience challenges in recruiting and retaining a diverse, highly-qualified workforce due to differences in pay compared to private sector employers and challenges related to the hiring process. Generally, federal agencies have seven broadly available government-wide special payment authorities to help address recruitment and retention challenges. In December 2017, GAO reported that the Office of Personnel Management (OPM) collects data on use of these authorities but had not analyzed how much the authorities help improve recruitment and retention. GAO also reported that the agency may be missing opportunities to promote strategic use of these authorities by providing guidance and tools on assessing effectiveness. Similarly, in August 2016, GAO reported that OPM and hiring agencies had not used hiring data to analyze the effectiveness of hiring authorities. Across these reports, GAO made six recommendations to assess and improve the use of pay and hiring authorities. OPM generally agreed with GAO's recommendations, and has implemented two of the six recommendations, but has not fully implemented the other four. Addressing factors that affect the federal work environment. Factors affecting the working environment may also influence agencies' ability to attract, hire, and retain personnel. For example, GAO reported in September 2020 that individuals who experience sexual harassment are more likely to leave their jobs. Also, in March 2015, GAO reported that impediments to interacting with non-federal scientific peers because, for example, of restrictions on conference participation can be a disincentive to federal employment. Agency officials told GAO that scientists and engineers establish their professional reputations by presenting research at conferences to have their work published and, without such opportunities, researchers may find federal employment less desirable. Addressing such factors could help agencies build and sustain a diverse, highly-skilled science and technology workforce. Why GAO Did This Study The federal workforce is critical to agencies' ability to address the complex social, economic, and security challenges facing the United States. However, across government, mission critical skill gaps are undermining the ability of federal agencies to carry out their missions. Federal agencies face the difficult task of staying apace of advances in science and technology while competing for talent with the private sector, universities, and non-profit research centers. GAO has had long-standing concerns about federal agencies' strategic human capital management, an issue highlighted in GAO's High Risk Series since 2001. This testimony summarizes GAO's insights based on a wide range of GAO work covering various human capital management- and science and technology-related issues from March 2015 through February 2021. In particular, the statement focuses on (1) workforce planning to help ensure agencies are better positioned to implement their missions; (2) opportunities and challenges to recruiting a diverse, high-qualified science and technology workforce; and (3) factors that can affect the work environment. For this testimony, GAO selected prior work across human capital management- and science and technology-related topics.
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  • Airport Funding: Information on Grandfathered Revenue Diversion and Potential Implications of Repeal
    In U.S GAO News
    According to the Federal Aviation Administration's (FAA) data for fiscal years 1995 through 2018, nine airport owners—also known as “airport sponsors”—lawfully diverted airport revenue amounts ranging from $0 to over $840 million by a sponsor in 1 year. These “grandfathered” airport sponsors are currently exempt from federal requirements to use all airport revenue solely for airport purposes (see figure). Together, these sponsors own 32 airports serving millions of passengers a year. Five of these sponsors are city or state governments, which regularly diverted airport revenue into their general funds for government programs and services. Four of these sponsors are transportation authorities, which diverted varying amounts for various transportation-related purposes, such as supporting maritime ports or transit systems. Three of the transportation authorities also secured bonds using revenue from their various activities, including airport revenue, to finance airport and non-airport assets. Airport Sponsors That Have Reported Grandfathered Revenue Diversion, as of 2018 According to selected stakeholders, a repeal of grandfathered revenue diversion would have complex legal and financial implications for transportation authorities. Transportation authority officials said that a repeal would inherently reduce their flexibility to use revenues across their assets and could lead to a default of their outstanding bonds if airport revenues could no longer be used to service debt; exempting outstanding bonds could alleviate some financial concerns. For city and state government sponsors, a loss in general fund revenue could result in reduced government services, though they said a phased-in repeal could help in planning for lost revenue. In 1982, a federal law was enacted that imposed constraints on the use of airport revenue (e.g., concessions, parking fees, and airlines' landing fees), prohibiting “diversion” for non-airport purposes in order to ensure use on airport investment and improvement. However, the law exempted “grandfathered” airport sponsors—those with state or local laws providing for such diversion—from this prohibition. Viewpoints vary on whether these airport sponsors should be allowed to continue to lawfully divert revenue. The FAA Reauthorization Act of 2018 provides for GAO to examine grandfathered airport revenue diversion. This report examines: (1) how much revenue has been diverted annually by grandfathered airport sponsors and how these revenues have been used, and (2) selected stakeholders' perspectives on potential implications of repealing the law allowing revenue diversion. GAO analyzed FAA financial data on grandfathered airports' revenue diversion for fiscal years 1995 through 2018, all years such data were available. GAO also analyzed relevant documents such as state and local laws, and airport sponsors' bond documents. GAO interviewed FAA officials and relevant stakeholders, including officials from nine grandfathered airport sponsors and representatives from bond-rating agencies, airline and airport associations, and airlines that serve grandfathered airports that were selected based on those with the greatest passenger traffic. For more information, contact Heather Krause at (202) 512-2834 or krauseh@gao.gov.
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    In Crime News
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  • Defined Contribution Plans: Federal Guidance Could Help Mitigate Cybersecurity Risks in 401(k) and Other Retirement Plans
    In U.S GAO News
    What GAO Found In their role administering private sector employer-sponsored defined contribution (DC) retirement plans, such as 401(k) plans, plan sponsors and their service providers—record keepers, third party administrators, custodians, and payroll providers—share a variety of personally identifiable information (PII) and plan asset data among them to assist with carrying out their respective functions (see figure). The PII exchanged for DC plans typically include participant name, Social Security number, date of birth, address, username/password; plan asset data typically includes numbers for both retirement and bank accounts. The sharing and storing of this information can lead to significant cybersecurity risks for plan sponsors and their service providers, as well as plan participants. Data Sharing Among Plan Sponsors and Service Providers in Defined Contribution Plans Federal requirements and industry guidance exist that could mitigate cybersecurity risks in DC plans, such as requirements that pertain to entities that directly engage in financial activities involving DC plans. However, not all entities involved in DC plans are considered to have such direct engagement, and other cybersecurity mitigation guidance is voluntary. Federal law nevertheless requires plan fiduciaries to act prudently when administering plans. However, the Department of Labor (DOL) has not clarified fiduciary responsibility for mitigating cybersecurity risks, even though 21 of 22 stakeholders GAO interviewed expressed the view that cybersecurity is a fiduciary duty. Further, DOL has not established minimum expectations for protecting PII and plan assets. DOL officials told GAO that the agency intends to issue guidance addressing cybersecurity-related issues, but they were unsure when it would be issued. Until DOL clarifies responsibilities for fiduciaries and provides minimum cybersecurity expectations, participants' data and assets will remain at risk. Why GAO Did This Study Cyber attacks against information systems (IT) are perpetuated by individuals or groups with malicious intentions, from stealing identities to appropriating money from accounts. DC plans, which allow individuals to accumulate tax-advantaged retirement savings, increasingly rely on the internet and IT systems for their administration. Accordingly, the need to secure these systems has become paramount. Ineffective data security controls can result in significant risks to plan data and assets. In 2018, DC plans enrolled 106 million participants and held nearly $6.3 trillion in assets, according to DOL. This report examines (1) the data that sponsors and providers exchange during the administration of DC plans and their associated cybersecurity risks, and (2) efforts to assist sponsors and providers to mitigate cybersecurity risks during the administration of DC plans. GAO interviewed key entities involved with DC plans, such as sponsors and record keepers, DOL officials and industry stakeholders; and reviewed relevant federal laws, regulations, and guidance.
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  • Small Business Loans: SBA Generally Incorporated Key Elements for Estimating Subsidy Cost of 7(a) Program
    In U.S GAO News
    The Small Business Administration (SBA) develops its subsidy cost estimates for the 7(a) loan guarantee program—that is, estimates of the program's net long-term cost to the government—using a cash flow model. The model uses historical data, econometric equations, and macroeconomic projections to estimate cash flows—such as guarantee fees, SBA purchases of defaulted loans, and recoveries on those loans—for the loans SBA expects to guarantee in the next fiscal year. The net present value of the cash flows (value in current dollars) is the subsidy cost estimate. SBA generally incorporated key elements of subsidy cost estimation into its estimates for the 7(a) program for the fiscal year 2020 budget. Specifically, GAO found that SBA's estimation process was largely consistent with eight key elements GAO previously identified that help ensure subsidy estimates are supported, reliable, and reasonable. For example, SBA generally validated historical data, documented the cash flow model and key assumptions, analyzed the sensitivity of estimates to alternative assumptions, and had documented policies and procedures. SBA made changes in its estimation process that collectively increased the 7(a) program's subsidy cost to $99 million for fiscal year 2020 (a 0.33 percent subsidy rate when expressed as the cost per dollar of credit assistance) from $0 for fiscal year 2019 (0 percent subsidy rate). Some of these changes were routine updates to data and economic assumptions used in the cash flow model, while others were revisions to the estimation process. Additionally, some individual changes increased the subsidy costs, while others decreased it. Some of the changes that had the largest impact on the subsidy rate included the following: Incorporating the President's economic assumptions for fiscal year 2020 decreased the rate by 0.27 percentage points. Updating the basis for the size and composition of the loan cohort SBA expected to guarantee in fiscal year 2020 increased the rate by 0.21 percentage points. Revising the methodology for estimating purchase amounts for defaulted loans to better reflect the outstanding loan balance at the time of purchase increased the rate by 0.21 percentage points. The 7(a) program is SBA's largest loan guarantee program for small businesses, with about $95 billion in outstanding loan principal as of the end of fiscal year 2019. Federal agencies that provide credit assistance are generally required to estimate the net long-term cost to the government—known as the subsidy cost—for each annual cohort of loans. SBA initially estimated a zero subsidy cost for each cohort from fiscal years 2014 through 2019, but estimated that the fiscal year 2020 cohort would have a positive subsidy cost and require appropriations. GAO was asked to evaluate SBA's subsidy estimation process for the 7(a) program. This report examines (1) how SBA estimates 7(a) subsidy costs, (2) the extent to which SBA incorporated key elements of subsidy cost estimation into its estimation process for the fiscal year 2020 budget, and (3) the changes SBA made in its estimation process for the fiscal year 2020 budget. GAO reviewed SBA documentation on its estimation process, including information on SBA's cash flow model, and compared SBA's process to key elements that GAO previously identified ( GAO-16-269 ). GAO also interviewed officials from SBA, the Office of Management and Budget, and outside auditors and contractors that annually review SBA's process and model. For more information, contact William B. Shear at (202) 512-8678 or shearw@gao.gov.
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