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YEAR 2000 READINESS OF HUD, TREASURY, AND FEDERAL FINANCIAL REGULATORY AGENCIES

TUESDAY, MARCH 24, 1998
U.S. HOUSE OF REPRESENTATIVES,
Committee on Banking and Financial Services,
Washington, DC.

    The committee met, pursuant to notice, at 2:23 p.m., in room 2128, Rayburn House Office Building, Hon. James A. Leach, [chairman of the committee], presiding.

    Present: Chairman Leach; Representatives Lazio, Castle, LaFalce, and Sherman.

    Chairman LEACH. The hearing will come to order, and I apologize for the delay in getting started. We had some discussions on the nuclear war issue in the back room.

    Mr. KOSKINEN. Sounds like the right priorities.

    Chairman LEACH. Well, that means credit unions and banks.

    [Laughter.]

    In any regard, today the committee continues its series of oversight hearings on the so-called ''Year 2000'' computer problem. In the first two hearings, the committee limited its focus to the Year 2000 status of the financial regulatory agencies, and the banks, thrifts, and credit unions under the committee's jurisdiction. I'm pleased to report that since our last hearing in February, the House and Senate have both passed, and the President signed into law, legislation which stems from this committee in January to strengthen the authority of the thrift and credit union regulators to address certain aspects of this problem.
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    Today, the committee is adding to its Year 2000 oversight agenda other departments and agencies—primarily HUD and Treasury—whose programs and services fall under the jurisdiction of the committee. Among the questions we will address are the following: What exactly are the Year 2000 stakes at Treasury and HUD? Is there risk of public harm if the computer systems in these departments fail, or is the risk, if any, only one of inconvenience? Are Year 2000 problems being addressed in a timely manner? What, if anything, does this committee need to do to ensure Federal services continue uninterrupted?

    In the case of the Treasury, the committee notes that the latest OMB report raises concerns about the Year 2000 problems of the Financial Management Services, FMS, which handles 850 million Federal payments a year, worth a total of $1 trillion. Now, those payments impact some 100 million people, including elderly and disabled Social Security beneficiaries and veterans. The committee also notes that OMB has raised concerns about Year 2000 problems at the Mint, which recently added 19 more items to its mission-critical list. In the area of cost, the committee notes that the multiyear price tag for Treasury's Year 2000 remediation programs has risen to $1.43 billion, and second only to the Department of Defense, and that Treasury has pending before Congress a request for nearly $175 million in a Fiscal Year 1998 supplemental to meet its rising Y2K costs.

    Turning to HUD, we're told by the department that if its disbursements system failed, no transactions would be produced by Treasury for payment to homeowners, landlords, neighborhood community associations, public and Indian housing authorities, State housing authorities or mortgage investors. We're also informed that FHA computer systems handle some eight million mortgage insurance records.
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    The committee is interested in the broader issue of national readiness as well for the year 2000. While the committee is responsible for monitoring the readiness of agencies under its immediate jurisdiction, ultimately, their welfare and the welfare of their constituencies is highly dependent on efforts of other agencies and sectors of the economy beyond our jurisdiction. Thus, it will not be sufficient for banks, for example, to depend only on their own Year 2000 fixes. They must rely as well on the Year 2000 readiness of their local phone company. They must rely on the Year 2000 readiness of local business borrowers if their outstanding loans are to be repaid. And, they must rely on local power companies for electricity. Clearly, this illustrates why there is such a compelling need for national leadership and coordination to ensure that all Federal agencies, State and local governments, and the private sector, adequately prepare to handle the transition.

    In that regard, I'm pleased to welcome today the President's new appointee to chair the Year 2000 Conversion Council. We look forward to finding out what his and the Administration's strategic plan is for preventing a breakdown in key Federal services, as well as for ensuring the viability of key national infrastructures in banking and finance, public health, transportation, telecommunications, and electrical power.

    I also want to extend a special welcome to our witnesses from GAO who have conducted extensive work for the committee on issues relating to this problem, and now agencies such as HUD, as well as the financial regulatory agencies. We look forward to GAO's counsel in directing the committee's attention to those issues which require our attention.

    At this time, I'd like to ask if John LaFalce has an opening statement.
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    Mr. LAFALCE. I thank you, Mr. Chairman.

    This is the third hearing the Banking Committee has held on the Year 2000 computer problem, but it's appropriate that we have today's hearing and even more, for I do not believe that the American public and the majority of businesses yet fully grasp the significance or magnitude of the challenge we face.

    In a very short time, computers have become central to almost every economic activity in which we engage, both personally as individuals, and as business and labor market participants. Computers not only compute payrolls, bank statements, mortgages, and car loans, but also compute dates and lot numbers on food items; the research analysis of DNA; mail-order shopping; hospital patient records; health insurance. The list is endless. We do not yet fully comprehend the potential adverse impact on everyone, in every walk of life, if the Y2K problem is not fixed.

    According to DRI estimates, the Y2K problem could cost the United States alone $119 billion in lost economic output between now and the year 2001. The economic growth rate next year could be .3 percentage points lower than it otherwise would be as companies divert resources to fix the problem. And Y2K could cut another one-half percentage point in the year 2000 and another in year 2001. Some economists are actually predicting a 35 percent to 40 percent chance of recession directly related to Y2K.

    Y2K could cause inflation to rise. It could cause productivity to drop. As demand for skilled laborers—specifically computer programmers—and wages rise in order to fix the problem, inflation could also rise. According to the Information Technology Association of America, the U.S. already has 350,000 job vacancies for computer scientists and programmers. Companies may have to divert resources in labor and capital to fixing, rather than creating or installing productivity-enhancing programs. Thus, the potential fall in U.S. productivity.
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    The amount of time and skilled labor needed to meet this challenge is mind-boggling. The Software Productivity Research Group estimates that finding, fixing, and testing all Year 2000-affected software would require over 700,000 person-years. This partly explains the demand for new workers in management consulting and accounting firms that have hired 200,000 new workers over the past two years. Bank of America in San Francisco has 1,000 people working full time examining 200 million lines of computer code at a cost of $250 million. Chase Manhattan expects to spend $250 million over the next two years, and CitiCorp expects to spend almost $450 million. Y2K may cost the 35 largest U.S. regional banks about $2 billion for the three years ending in 1999. The smaller banks are at a tremendous disadvantage because they do not have the resources to cope with the problem or the wherewithal to hire much-in-demand programmers to fix the problem.

    So, Mr. Chairman, it is essential that we oversee very closely the progress the agencies under our committee's jurisdiction are making on meeting these deadlines. HUD's critical housing programs, Treasury's central functions from bond markets to IRS, and the Federal Reserve and other financial institution regulators' responsibilities for banks, credit unions, and thrifts must not be interrupted because of massive computer failures.

    Mr. Chairman, I believe it's essential for us to examine at a later date the status of banks and businesses worldwide in regard to their efforts to adjust to the Year 2000 computer challenge. Or even if we in the United States are able to meet our deadline for adjusting our computers, we still are linked with banks and businesses, and therefore computers, in the global economy. And so, we must really all work together globally, too, to fix this problem.

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    I thank the Chair.

    Chairman LEACH. Thank you, John.

    Mr. Lazio.

    Mr. LAZIO. Thank you, Mr. Chairman.

    I want to thank you for your leadership. As Mr. LaFalce has mentioned, this is the third in a series of hearings on an issue that will only become more important as we approach the year 2000.

    I'm somewhat hopeful, given that among the agencies of the committee's jurisdiction, there is evidence that HUD is well on its way to the Year 2000 compliance and that is, particularly gratifying because HUD is, otherwise, an agency that has been called at risk by GAO, I think, since 1994. And, NAPA has been stinging in its criticism of the department. According to OMB, as of February, HUD was certified as a ''Tier 2 agency'' within its three-tier classification, meaning that HUD is doing better than many agencies, but items of concern still remain.

    The Subcommittee on Government Management, Information and Technology also rated HUD's efforts at a B-level, putting HUD among the top third of the 24 agencies the subcommittee rated. The Housing Subcommittee is also working with GAO to monitor HUD's information system. And I might note, Mr. Chairman, that there are 90 data systems, and their efforts at trying to integrate those systems are exceptionally important, an effort which will, invariably, have an impact on the department's Y2K work.
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    Also, I want to take this opportunity to once again, emphasize the excellent work and the cooperation that we've had with the General Accounting Office. It's been very important in terms of oversight for the subcommittee and, in general, for this Member and this Chairman. They've been a key part of our ability to probe policy.

    I look forward to continue working with the Chairman and the Administration to ensure that HUD, an agency that provides assistance for some four million families in public and assisted housing, and insures mortgages for almost seven million homeowners, is well prepared for January 1, 2000.

    I thank the Chairman.

    Chairman LEACH. Well, thank you, Rick.

    Let me welcome our first witness, and our first witness comes with a title that has never been before this committee before because it's a title that has seldom been before any committee in the Congress. But, the gentleman that holds the title is well known to the Congress with a high reputation of distinction and public service, and we welcome Mr. John Koskinen, who is Chairman of the President's Council on Year 2000 Conversion. We thank you for coming and we wish you good luck in your job.

    Please proceed, sir.

STATEMENT OF JOHN A. KOSKINEN, ASSISTANT TO PRESIDENT CLINTON; CHAIRMAN, PRESIDENT'S COUNCIL ON YEAR 2000 CONVERSION
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    Mr. KOSKINEN. Thank you, Mr. Chairman.

    I'm pleased to appear before the committee to discuss the Year 2000 problem and my new role as Chair of the President's Council on Year 2000 Conversion, and with your permission, I'll submit for the record my full statement and summarize it here.

    Chairman LEACH. Without objection, of course.

    Mr. KOSKINEN. Thank you.

    I'd like to start by thanking you and the other Members of the committee for your ongoing interest in raising public awareness about the Year 2000 problem to help ensure that systems are ready for January 1, 2000. In particular, I would like to applaud the committee for its work on H.R. 3116, the Examination Parity and Year 2000 Readiness for Financial Institutions Act, which the President was pleased to sign last Friday. In signing this bill, the President called the Year 2000 problem one of the great challenges of the information age in which we live.

    Like each of you, the President wants to ensure that individuals in the public and private sectors are doing all they can to meet that challenge. Therefore, last month he issued Executive Order 13073 creating the President's Council on Year 2000 Conversion. He has also made it clear recently, at a meeting of his cabinet, that agency heads bear the full responsibility for the successful preparation of their agency's mission-critical systems for the transition to the year 2000.
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    Recent reports from Congressman Horn and OMB on Year 2000 progress in Federal agencies share a common finding. Agencies are making progress, but the rate of that progress needs to increase. No problem facing us is more pressing, especially since, unlike other Washington problems, neither the President nor Congress can force the deadline back.

    There is no question that the challenges are great, and I'm confident that the Council can play an important role in helping to meet them. However, we need to carefully structure the Council's activities to maximize its effectiveness. GAO, which has done very valuable work in this area, has recently circulated a draft report recommending actions for the Council. I have shared detailed comments on the draft with GAO, which I will submit for the record, but we generally agree with much of what they have to say.

    From my perspective, I think it is important for the Council not to interfere with or duplicate the good work that is currently underway in the agencies and is being done by other interagency management councils. The Council should also build on, rather than try to replace, the important oversight role that OMB is playing in monitoring and reporting information gathered from the agencies.

    However, we have an obligation to the public to view this as more than just a Federal systems problem. We need to adopt a global perspective, and I think the Council's real contribution will be made by coordinating the agencies' work with those outside the Federal Government.

    Individual agencies have a major role to play in this regard. For example, I think the Council can be more effective by enlisting and supporting agencies like the Treasury Department or the Federal Reserve as a coordinator on outreach to financial institutions, empowering them to determine the appropriate measures Government should take to ensure progress in this area.
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    Let me now turn to describing more specifically what the Council will be doing. We will monitor the progress of those responsible for fixing the problems in Federal agencies. I have already begun to embark on what I fondly refer to as my ''Agency-of-the-Day Tours,'' where I am meeting with agency heads, their deputies, their Chief Information Officers, and individuals leading their Year 2000 efforts to discuss their situations. In each meeting, I have been asking three key questions about the status of the work on their systems: What are their major risks? And, what are the significant obstacles to removing those risks? What contingency plans are appropriate in light of that analysis?

    I am also talking to agencies about the external systems with which they interface, particularly their data exchanges with State and local governments. Even if all of the Federal Government's mission-critical systems function effectively on January 1, 2000, the public will still suffer substantial adverse consequences if our systems cannot communicate with the external systems with which they need to exchange data to operate key Federal programs.

    Let me discuss, briefly, specific meetings I've had with two agencies of concern to you that the Chairman mentioned in his opening statement, the Treasury Department and the Department of Housing and Urban Development. I have met with Secretary Rubin and his senior management team and am pleased to report that Treasury is clearly focused on this problem at the highest levels. The Secretary, Treasury's Chief Operating Officer and its Chief Information Officer gave me a detailed update on the progress they are making. Systems of particular concern are those at the Internal Revenue Service and the Financial Management Service. The IRS has the challenge of dealing with the Year 2000 problem at the same time it continues to work on a modernization program that will transcend the year 2000. However, the new IRS Commissioner is very experienced in these areas, and I think there is sound basis for the confidence being placed in him.
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    FMS also has been a source of some concern in light of its interactions with virtually every Federal department. Here too, a new management team has directed its attention away from relying only on a complete replacement of critical systems, which will be completed over time, and is now focused on ensuring that the existing operation will function effectively as we move into the year 2000.

    We also discussed the implications of the Year 2000 problem for the banking industry, particularly on an international level, and the roles Treasury and international financial organizations, like the IMF and the World Bank, can play in increasing awareness and facilitating information exchanges among nations. Secretary Rubin has been a leader in raising awareness to this problem in meetings around the world, and he is committed to continue doing so at upcoming international meetings, both here in the United States and abroad.

    While I was not able to meet with Secretary Cuomo prior to my testimony today, I did meet with members of HUD's senior management team, including Acting Deputy Secretary Saul Ramirez, HUD's Chief Financial Officer, and its Year 2000 project manager. HUD is focused on the problem at the highest levels as well, and my meeting with the senior management team was also very productive. HUD is presently on schedule to meet the new OMB governmentwide goals for ensuring that systems are Year 2000 compliant, and the Secretary receives regular reports on the department's progress.

    HUD has also begun to reach out to its business partners, which include mortgage companies, State and local public housing authorities, and the Nation's cities, to increase awareness and offer assistance. In the event that these business partners experience their own system failures, HUD has developed contingency plans to ensure that the Department will still be able to receive and process important data.
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    To conserve time, let me proceed to my final thought, which is that the Council needs to, as I noted, work with the agencies to reach out to other domestic and international organizations as well. Treasury and HUD have already agreed to do this to ensure that, to the extent possible, we minimize Year 2000-related disruptions in a global economy that is increasingly dependent upon the electronic exchange of financial and other data. We will do everything we can to ensure that other nations, as well as foreign organizations, are devoting the appropriate level of attention to the Year 2000 problem.

    As I've stated in other fora, there is no doubt that the Year 2000 problem poses significant challenges to our Government, the Nation, and the world. While it is important to increase worldwide attention to the urgent necessity of solving this problem, we need to avoid creating panic and precipitous, counterproductive activity. The best way for us to spend the next 21 months will be to address the challenges that lie before us, in a very aggressive but measured way, and marshal the resources at our disposal in the most effective way possible.

    Mr. Chairman, I thank the committee for its continued interest in the Year 2000 problem. Your efforts have made, and continue to make, a valuable contribution to the public dialogue about this matter, and I look forward to continuing to work with you. I will be happy to answer any questions that you, or other members of the panel, may have.

    Chairman LEACH. Well, I thank you, sir.

    I want to begin with the issue of resources, human resources, in particular, and I know there is some concern at the GAO with some Commerce Department assessments on the methodology that judgments arrived at. But, the strong anecdotal evidence from my State is that we have an enormous shortage of software engineering talent, and that there are real jobs going unfilled. And so, one of the proposals in Congress is to increase the visa numbers for this particular area. Does your office have a position on this?
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    Mr. KOSKINEN. We do not at this time, Mr. Chairman. In my agency meetings, we have been discussing the issue of personnel resources. Thus far, the agencies seem comfortable that they have the resources they need. We have also encouraged OPM to meet with the Chief Information Officers Council, which they did last week, and all of the deputy secretaries, in a forum known as the President's Management Council. OPM has discussed with them the existing authorities that agencies have to provide incentive bonuses for people to join the Federal Government in this area, and the use of retention compensation and other incentives to make sure that we don't lose personal resources that will become increasingly valuable over the next two years.

    OPM has also stated that they will consider working with the agencies to allow them to bring back into the Government retired personnel who have a unique and particular expertise in this area. So at this stage, we think that from the Federal Government's standpoint, internally, this is a manageable problem. I don't have enough information about the nationwide situation to be able to respond beyond that.

    Chairman LEACH. Well, let me go on because I would like to suggest that there are two issues. I address a little different one than the one you responded to, but they are very interlinked.

    One is as a national resource are there sufficient people in this arena to deal, not only with the Y2K problem, but software engineering in general? And we have a H1B Visa Program that allows a given number of people in under this visa. There are proposals to approximately double it from 46,000 to 90,000 or so a year.
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    I'm rather impressed with that proposal and I think it's something that makes a great deal of common sense for the country. And, I would hope that your office would give attention to it, because you might well be a rudder of judgment on that issue. But, based upon documentation from companies in my State, and I realize my State is 1 of 50, there is staggering demand for software talent. And, one of the new evidences of it is, not only the jobs that are going unmet—in one of my towns, one company has an open invitation for 400 software engineers that simply don't exist. But, it is a fact that this is the first time in my memory that graduates of Iowa State University are being offered bonuses to sign up. I've never heard of bonuses for jobs, and that is a fairly strong, evidentiary circumstance.

    But, we've also had a perversion in our immigration laws that I think is bizarre that, from time to time over the last forty years, we have given advantages to nontalented people over talented people, and I'm enough of an American chauvinist to think that we ought to bias our laws toward people of mathematical talent. And, I would hope your office would give this issue a serious review.

    The second issue relates to our Government versus the private sector. And, you've given a very optimistic appraisal, one that I'm not convinced is warranted. I'm hearing more and more anecdotal observations that very good people are being offered substantially higher salaries outside the Government. And, it just happens that in several of these areas of Y2K import, the Government has a great obligation to be prepared. And so, it's a very worrisome phenomenon to think in terms of a possible talent shortage. And, now are you confident in your appraisal?

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    Mr. KOSKINEN. I'm confident in my appraisal as of today, but, as I noted, I have asked OPM to monitor this situation closely. We had a meeting last week with all the agency chief information officers and OPM to discuss this. OPM has an Information Technology Human Resources Subcommittee that the CIO's will now interface with. We will continue to monitor this issue, because I am concerned that entry-level employees who have been here a relatively short period of time and those who are eligible to retire—groups representing both ends of the employment spectrum—are the ones we are most at risk of losing to industry. On the other hand, there are incentives to work for the Federal Government, in terms of public service and other issues, and the immediate short-term focus on Y2K will, of course, end two years from now. I think we need to pay attention to it.

    A corollary issue that we are focused on is that, as we move forward, we need to be able to marshal personnel resources within the Government. There may come a time at which a given agency will have completed the work on its mission-critical systems. Rather than having valuable and scarce resources continue to work on less important systems in that agency, we may need to develop programs where we move, either employees or contractors, from one agency to another that is still confronting major systems problems.

    So I think we need to look at both issues—the problem you're talking about, which is ''can we attract,'' and more importantly, ''retain'' our critical set of personnel resources; and the need to look at them, not as agency-specific, but as a governmentwide resource. I think the latter is important, because there is a set of major systems in this Government that we cannot allow to fail. If we need to divert or move resources on a temporary basis from one place to another, I think we're going to need to be able to do that.

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    Chairman LEACH. Good. I want to turn to John, but I'd like to request a formal response from your office in the next several weeks on this H1B Program. That is, I want to set up—I'm going to ask you to respond in writing to the committee on your opinion of it.

    Mr. KOSKINEN. That's fine. I'd be delighted to do that. But I think I will draw a distinction between the Y2K shortage and the longer-term computer software issues, which are not my immediate concern. I have, as you know, enough to handle with the Y2K problem, but I would be delighted.

    Chairman LEACH. Well, that's fair enough, but I do think there is an overlap. And, I don't think even though one is of a shorter duration, although, if things don't go well it might be a little longer duration than we like.

    Mr. KOSKINEN. I would be pleased to respond to that proposal.

    Chairman LEACH. Good. Great. Thank you.

    Mr. LaFalce.

    Mr. LAFALCE. Thank you, Mr. Chairman.

    I'm hesitant to ask questions in this area, because it's all too easy to reveal my ignorance, but I will proceed anyway.

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    [Laughter.]

    I really want your guidance now. What should we be doing in Congress to be helpful, above and beyond having a hearing such as this? That's one question. And, what should Executive branch agencies be doing and regulatory agencies be doing, such as the Fed and the SEC, and so forth? Then, what should the private sector be doing? And the private sector is a multiplicity of companies. You have your behemoths, but then you also have your very small ''mom and pop stores,'' too. So, what should the small business be doing, in particular, who's got half-a-dozen employees, but depends upon the computer? And then what should the individual who has a computer at home be doing who uses the computer to check up on his or her stocks, to find out the latest news, to e-mail, to pay bills, and so forth? And is there even a problem for that individual at home who uses the computer for those types of purposes?

    Mr. KOSKINEN. How many minutes do I have to respond to all of those questions?

    [Laughter.]

    Let me start at the top. In terms of being helpful, first, I would not underestimate the significant contribution you and other committees have made in raising the level of public awareness to this problem. The hearings have been significant, and I think we have seen good responses as a result of them. As to your last point, I think this is an important problem for all of us.

    Congresswoman Morella and I were talking before this hearing about how important it is, wherever we go, not to give Y2K speeches necessarily, but to continue to tell to people that we all think this is important. This is a national and a global issue, and we need to ask all of the audiences out there, are you satisfied that you have—in your corporations, in your operations, in your daily lives—acknowledged that there is a problem I should be concerned about, and asked: ''What should I do about it?'' Individual consumers can ask their banks. They can ask their grocery stores. They can ask everyone else with whom they conduct business. ''Will my credit card work? Will my ATM card work? What have you done about it?'' Because what we need to do is to continue to reinforce the serious global nature of this problem.
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    I'm telling Cabinet secretaries the same thing as they go out to speak to groups—large and small. It's important for people to understand that we're not saying the sky is falling or is about to fall, but that this is an important issue. The only way we're going to be able to deal with it in the time remaining is to get as many people in as many areas as possible to ask questions like are we satisfied that our systems are going to work?

    In terms of what we can do in the Executive branch and regulatory agencies, I look at this as a three-stage problem. First, and this is a question I've been asking the agencies in my meetings with them, what are we doing about our systems? You need to ask that question about congressional systems. You have a set of computer systems that support House operations.

    Beyond that, we have to look at the parties with whom these systems communicate. Where do we fund payments? Where do we get information, and are those data exchanges going to work from the standpoint of the Federal Government? And then beyond that, we have to reach out and say, who is out there operating in our areas of concern that we don't regulate, we don't exchange data with, but we have a great public interest in their continued successful operation? There are State and local governments. There are large, private sector entities. There are energy companies. There are local distribution companies.

    As you know, in this age, virtually everybody is dependent upon electronic transfer of financial and other data. So, we need the agencies to solve their own problems. They need to worry about the people they relate to. Then they need to exercise leadership in their areas of expertise in the private sector and internationally to increase the level of awareness, share information about solutions, and, at a minimum, be able to judge where there will be problems for which we need to have contingency plans.
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    When you look at the private sector, I think you're right to focus on small- and medium-size businesses, which frequently don't have information technology departments and often rely upon vendors for their existing software upgrades or services. Again, I think that when you talk to small businesses, and the SBA has a good website on this, we need them to ask their vendors, their suppliers, and their bankers: are you Y2K compliant? Am I going to have a problem on Monday, January 3, 2000?

    Mr. LAFALCE. And what do they do about their own computers? I mean, you're not going to get the small businessman to worry about everybody he's dealing with, or she's dealing with.

    Mr. KOSKINEN. Well, I think he ought to.

    Mr. LAFALCE. Now, that's fine. They ought to. I suppose we all—but I think it's going to be difficult to get a small businessperson to start making inquiries about others. But, what should the small businessperson be thinking about his own computer capacity, and his own problem?

    Mr. KOSKINEN. Most small- or medium-sized businesses rely upon outside vendors and service suppliers. They don't have their own software development departments. So I think that they need to ask the people they rely on, is there a problem in the operation of my financial system or my payroll system that will affect my day-to-day operations? They don't have to know anything about bits and bytes and how this problem is solved, but it's a perfectly legitimate question for them to be asking their experts, whether they are their vendors or the people they relied upon when they originally set up the system.
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    With regard to individuals, I'm not a computer expert either, but my understanding is that anyone who purchased computers and software in the last two to three years should not have a problem. If a person is doing the functions you discussed, the nature of the problem is likely to be that the date may not be correct as it shows up, or when they log on, they may have to set the date manually. But, for most personal computers, specifically for word processing and electronic mail functions, there should not be much of a difficulty. The problem comes when you start to do date-sensitive calculations or when you're running processes that depend upon imbedded chips in hardware or when you're running old programs in old systems.

    Mr. LAFALCE. Thank you.

    Chairman LEACH. In your testimony, sir, there is no reference to the prospect of doing a national assessment of Y2K readiness. Are you considering such cross-spectrum of private and public sector circumstances? Would that be a very helpful thing to do?

    Mr. KOSKINEN. In effect, we're going to do, I hope, a national assessment on a sector-by-sector basis. I think that no matter how many people you gave me to manage this issue, there's no way to start looking at an operation as complex as the United States and its operations, economically and otherwise, and do an independent assessment in the time we have remaining. So the strategy I am following is to build upon the work that's already been done. In the area of critical infrastructure, we want to look at basic sectors like energy, telecommunications and transportation to find out who is the logical leader at the Federal level and will they assume responsibility, both for outreach and assessment.
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    For instance, I met with the Secretary of Transportation, the Deputy Secretary, as well as the FAA Administrator, and they willingly agreed that they should take responsibility for working with those in the transportation sector, even though it's not regulated by the Federal Government, to develop an assessment. What is the status in rail transportation, in other surface transportation? What's the status internationally?

    In a lot of places, we don't have the authority to require anybody to give us the information, but this is important, and I think most people in the private sector understand we're all in this together. We need to harness existing organizations, whether they be business organizations or affinity groups, to jointly try to determine where we are, what the nature of the problem is, and what we can all do to solve it. Now, when we get done with that, I think we will begin to pull together not a national assessment on a regular quarterly basis, but an assessment of where our risks really are. Based on that information, we will, at a minimum, be able to figure out what contingency plans we need to deal with those difficulties.

    Chairman LEACH. Well, thank you. You have an Executive Order that authorizes other agencies to participate in some sort of conversion council. Have you invited the Fed to be part of that?

    Mr. KOSKINEN. I will be meeting with the Fed and I will invite them to participate on the Council. I've already met with some of the regulatory agencies. For instance, I had a good meeting with Chairman Levitt and his staff at the SEC, and they will have a member on the Council as well.

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    Chairman LEACH. Good. You're quoted in a article in something called Federal Computer Week as suggesting that legislation similar to that initiated in this committee and signed by the President might be needed to help agencies address the problem with their contractors. Could you elaborate further on that?

    Mr. KOSKINEN. At this time, we're still discussing that. It appears that the Department of Health and Human Services, and the Health Care Financing Administration in particular, has statutory contractual limitations on its ability to assess their contractors' Year 2000 progress. I think we may soon need to change that to give HCFA as much authority as we can to ensure that those service providers are actually able to run the Medicare and Medicaid transactions come the year 2000.

    Chairman LEACH. In Canada, there's been a recent Y2K task force which has issued a report in which it recommended that the Canadian Government in awarding all loans, grants, or other assistance ask for evidence in Year 2000 compliance. Should our government take a similar approach?

    Mr. KOSKINEN. One of the first issues we're going to talk about when we get agency representatives for the Council is the issue of our relationship to grantees. At a minimum, I am encouraging every agency as I meet with them, to begin to at least discuss with their grantees the importance of the grantee being able to function. Those grantees are sometimes nonprofit organizations, sometimes they are State and local government entities.

    We have two issues with grantees. First, will they be Year 2000-compliant in terms of the interfaces they use to exchange data with us? Second, but equally important, is that it won't do us a whole lot of good to give money to a grantee that is then going to, in fact, not be able to function because of the Year 2000 problem. I think we need to discuss whether or not we make it contingent on the grants they already have. But, at a minimum, we need to ensure that there are very focused conversations going on between Federal agencies and their grantees about the importance of the grantee being able to function effectively as we make the transition to the year 2000.
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    Chairman LEACH. Are you far enough along to be able to hazard any assessments on vendors to the financial community?

    Mr. KOSKINEN. No. I have met with the FDIC, and as I said, the SEC and the OTS. I think that the regulators, generally, have done an excellent job independently, in response to interest of this committee and others, in terms of reaching out to regulated entities. And as I noted, the bill you passed will allow the OTS and the Credit Union Administration to look at the Year 2000 progress of vendors to their regulated entities.

    At this stage, I think there is a level of uncertainty and concern about the ability of vendors and suppliers to financial institutions, and we all have a stake in the institutions doing well, to deliver on their promises. At this stage, there do not appear to be known significant risks or problems, but we are at the front end of monitoring that. I gather all the banks will be reviewed by the middle of this year, and I think that we will have a much better appreciation of the vendor problems through the normal regulatory review process.

    Chairman LEACH. Well, I will say this committee has gotten anecdotal evidence again that the vendors may not be in as great shape as we'd hope. And, certainly, the efforts of individual institutions, for example, in the credit union industry, to ask the vendors if their compliance has resulted in nonresponses. And, I think, a part of it relates to the fact that I think vendors are scared to death that if they respond, even though they might be compliant, that they may take on a legal liability, which is an awkward problem, too, to be frank. And, might be a circumstance of either loss of work, or to be frank, might be a circumstance of legal liability when silence is more prudential. And so, it's an oddity of getting assessments. Have you run into that problem?
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    Mr. KOSKINEN. I have not independently reviewed the materials that led up to the passage of the legislation. As I said, I have met with the FDIC and the OTS, and I understand the process they've gone through. I think everyone is focused on this critical point, and that is, to ensure that not only your systems work, but those you rely upon as well. If vendors are providing you back-office services or other support services, it's incumbent upon you to ensure that those services will continue to be provided. If they are supplying you with software or other supplies, again, it is important for you to be able to ascertain that those are not going to create more problems than they solve.

    But again, at this stage, I think there will be some peripheral concerns. Our hope is to keep them peripheral. One way to do that is to determine, as soon as possible, where the problems are going to be so that people can either change vendors, change suppliers, or at a minimum be able to build contingency plans around possible failures.

    Again, back to Congressman LaFalce's question, one of my concerns about the small- and medium-sized businesses is that a lot of them are just assuming that their vendors, suppliers, and servicers will be compliant to the extent that they are even focused on the issue. My concern is that as we get closer to the year 2000, we could end up discovering that a lot of vendors and back-office suppliers to small businesses and others are not going to be able to function, which will leave important parts of the economy at some risk.

    Chairman LEACH. Well, thank you. I would only conclude by saying that there are sometimes difficulties in making assessments in almost any area of endeavor. I mean, for example, whether there is a real or partial shortage of software talent in this country for which slightly increasing visas might be helpful. But, it seems to me that sometimes one needs a little insurance policy, too.
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    Mr. KOSKINEN. No doubt.

    Chairman LEACH. And, I'm not at all convinced, but that there is a lack of insurance in this area at this time. And, when you compare all the demands worldwide, we could have a major problem in that in the financial services area it's critical for our own needs that we have things in order, but there is also an enormous international opportunity if we're compliant and others are not. This becomes a circumstance, in my judgment, where you could have a run on American financial institutions worldwide that could be very healthy for our economy in the long run. And so, I think we have a vested interest to err on the side of prudence and to err on the side of a safety net of talented workers. And, I hope your office gives that consideration.

    And frankly, as I've looked at these proposals on the H1B Program, it strikes me that they're fairly conservative, and I would increase the numbers even more than is currently in the congressional setting. But, I think it might be very interesting from your office's focal point to assess that issue very seriously. And so, I simply repeat my earlier observations and hope you do.

    Anyway, thank you very much, Mr. Koskinen.

    Mr. KOSKINEN. Thank you, Mr. Chairman.

    Chairman LEACH. Our next witness is Mr. Joel C. Willemssen who is the Director of the Civil Agencies Information Systems, Accounting and Information Management Division of the General Accounting Office. And, you're accompanied by Mr. Jack L. Brock, Jr. from your department. Is that correct?
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    Mr. WILLEMSSEN. Yes, Mr. Chairman.

    I'm here to discuss governmentwide Year 2000 issues and those issues at HUD. And, Mr. Brock has responsibility within GAO for the financial institutions' Year 2000 issue.

    Chairman LEACH. Good. Well, before you begin, let me comment on something Mr. Lazio indicated earlier, and that is the very fine work of the GAO in this area. And, it's my view that there are many issues where symbolically the GAO is more appropriate to do this work and has provided a more forthcoming effort. And, I'm very appreciative of the perspective that you brought to the subject.

    Please begin.

STATEMENT OF JOEL C. WILLEMSSEN, DIRECTOR, CIVIL AGENCIES INFORMATION SYSTEMS, GENERAL ACCOUNTING OFFICE

    Mr. WILLEMSSEN. Thank you, Mr. Chairman.

    As requested, I'll briefly summarize our views on where the Federal Government is at on Year 2000, and also at HUD. And then, Mr. Brock was going to briefly summarize our work on the financial institutions, if that's acceptable?

    Chairman LEACH. Of course.
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    Mr. WILLEMSSEN. Thank you, Mr. Chairman.

    Regarding the overall Year 2000 issue, while some progress has been made in addressing Year 2000 readiness, serious risks remain. At the current pace of many agencies, not all mission-critical systems are going to be fixed in time. The appointment of Mr. Koskinen to head the Year 2000 Conversion Council is an opportunity to provide the necessary leadership. We've provided a draft report to Mr. Koskinen laying out our recommendations to address this area. And, I wanted to briefly highlight some of those recommendations.

    First, it's critical that we establish governmentwide priorities. Such priority setting is essential to make sure that the most important systems are fixed on time. Those priorities need to be based on criteria such as health, safety, financial impact, and also our national defense.

    Second, for those selected governmentwide priorities, we need to make sure that the Executive branch has end-to-end operational testing of those systems crossing agency boundaries. As you mentioned earlier, validation is a critical element in this.

    Third, we need to make sure contingency plans are done for the most mission-critical business processes. As we get closer to the deadline, it's more and more apparent that some agencies are going to run out of time. We need backup in the event that that happens.

    Fourth, the Executive branch needs an independent verification strategy involving inspectors general or other independent organizations to make sure that what agencies are reporting on their programs is accurate and complete, and also to make sure that their testing strategies and contingency plans are in place.
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    Fifth, an area that you mentioned up front, the area of information technology personnel is absolutely crucial in the Year 2000 area. We have begun to see more and more reports from selected departments and agencies that they are having difficulty being able to retain and attract the necessary talent to deal with this particular issue.

    And, finally, we need to start thinking about Y2K beyond the boundaries of the major Federal agencies. This is a national economic issue. Mr. Koskinen and his council need to address it as such.

    Let me briefly turn to HUD. HUD clearly recognizes the importance of Year 2000. They've established a Year 2000 project office. They've issued guidance. They've developed an overall Year 2000 strategy. Overall, a fairly sound program, however, there are some risks. For its 30 mission-critical systems that are undergoing renovation—currently, 20 of those are behind HUD's own schedule. Now, the delays on some of those systems are fairly significant because they are getting dangerously close to failure dates. That is the first date that a system will actually fail.

    In HUD's case, the failure date of some of those systems is not January 1, 2000. It is a year to 15 months before that. Let me give you one quick example. HUD's system for processing claims made by lenders under defaulted single-family home loans is 75 days behind schedule for renovation. So, the system is now scheduled to be implemented on November 4, 58 days before its January 1, 1999 failure date. This system processes on average about $350 million monthly of lenders' claims for defaulted guaranteed loans. So, if this system fails, then lenders will not get paid on time.
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    Now, we're encouraged that the department recognizes these kinds of slippages and is willing to divert resources from lower priority activities to these mission-critical systems. We support those kind of endeavors.

    And that concludes a quick summary of my statement. If I may, I'll turn it over to Mr. Brock to give you a summary in the financial institutions area.

    Chairman LEACH. Mr. Brock.

STATEMENT OF JACK L. BROCK, JR., DIRECTOR, GOVERNMENTWIDE AND DEFENSE INFORMATION SYSTEMS, GENERAL ACCOUNTING OFFICE

    Mr. BROCK. Thank you, Mr. Chairman.

    I will also summarize. Let me start off with answering Mr. LaFalce's question about what can the committee do. And, one of the things that the committee is doing, and has done, that's been very effective with the financial institutions is having quarterly meetings, which they are now having in conjunction with the Senate Banking Committee, where all the regulators come up and give a very specific update of their progress, actions taken, problems being faced, and so forth. And through our meetings with the individual regulators, we found that these meetings that they have with you have been very effective at sharpening their perspective, at their actions—defining their actions, and so forth. So, I would encourage you to keep that level of oversight. That has worked very well.
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    As Joel mentioned, the year 2000 is a big problem, and it's a particularly big problem with financial institutions. With the exception of a very, very few credit unions that we found that are entirely manual, every single financial institution, whether it be a bank, a thrift, or a credit union is vulnerable. And, the size is staggering. There are over 22,000 insured financial institutions, $6 trillion in assets and over $3 trillion in deposits. So it doesn't take much imagination to see that if we have a problem in a few of these institutions you're creating a real problem in the Nation's monetary supply and the flow of capital to and fro. So, it's a big issue. It's important. We feel that the regulators that we're looking at are accepting it as a very important issue, and they're dealing with it in, I think, a reasonable manner. That's not to say that they couldn't have done better, but that right now, the actions that they are taking are reasonable.

    We do, however, have some initial concerns, which I hope will be addressed, but I'd like to focus more in my statement, I think, about the real challenge that's going to be faced this summer when the crunch time hits and you're going to have some very, very difficult decisions about the tradeoffs you're willing to accept in order to assure a reasonable level of Y2K compliance.

    All of the regulators went through an initial round of assessments. And at the three regulators that we've looked at to date—that's FDIC, OTS, and NCUA—they identified a number of institutions that had some level of concern. For example, FDIC identified over 200 banks that weren't adequately addressing Year 2000 risks and 500 banks that were relying on third-party servicers that had not followed up with these servicers to determine their readiness.
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    We reported last week that OTS had identified 170 thrifts as being at high-risk due to poor performance in conducting awareness and assessment-phase activities. NCUA has advised us that it has sent out formal agreements for corrective action to over 4,800 credit unions that were determined not to be making sufficient progress in at least one awareness or assessment-phase category. So, you have a fair number of institutions that are having some problem at this point.

    As, I mentioned, we have completed an initial assessment at your request of OTS, FDIC, and NCUA. We're in the process of looking at OCC, and the Federal Reserve. We'll be reporting on those, I would guess, within the next two to three months. Additionally, we're doing a very detailed assessment of the key Federal Reserve Systems. Primarily, at some check-clearing systems and Fed-wire to take a very specific look at the controls that are in place for those systems.

    We found that the regulators have done a good job at making institutions aware of the problem, and they've also done a good job at collectively beginning to examine the capabilities of the service providers and the vendors. However, we have also found that they started late. Every one of them started late. This is an issue that should have been started years, and years, and years ago.

    Effectively, last year, a year-and-a-half ago, was when most of the institutions got started. As a result, it compresses your time schedule. The latter phases, which many of the institutions are just now getting into are, in fact, the phases of the process that take the longest. And, if you have a problem in those phases, sometimes it's very difficult to develop any sort of remedial action. It's becoming too late.
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    Second, we found that some of the key guidance that was being issued by FFIEC should have, in fact, been issued much earlier. For example, last week, FFIEC just issued the service and vendor guidance on how to interact with your service provider or your vendor, and guidance on how to relate to your corporate customers. These are things that banks need to be doing, or financial institutions need to be doing, during the early phases of assessment. If, in fact, institutions have not done this because they're waiting for FFIEC guidance—they're late. If, in fact, some institutions have been doing it, but not doing it correctly, or not doing enough—then they're also late.

    Last, contingency planning guidance, which is also critical to institutions, is not due until later this coming month. The late guidance, we believe, can heighten the opportunities or the chances that some financial institutions may not be ready, or it may limit their ability to get ready in a timely manner.

    The last issue we have with the regulators is an issue you were just discussing with Mr. Koskinen and that's the whole area of adequate technical resources. We believe that, for the most part, the regulators that we've looked at do not have adequate technical resources. For example, when we went into NCUA, they had two information system examiners. FDIC had about 108, and OTS had 24. Now, to some degree they're supplementing these with contractors, or hiring a few additional resources, but if you're looking at 22,000 institutions that are entering the most difficult phases of Y2K conversion, we believe there needs to be a stronger technical presence within the regulators to make sure that the work is being done adequately.

    I think the real challenge, though, is coming up. By the end of June, all of the regulators should have completed their onsite evaluations or assessments of the thrifts, the credit unions, and the banks. They should also be through with their assessments of the vendors, and be through with their assessments of the service providers. Taking this information collectively, we believe they should have a good basis for developing some very specific, strategic plans with how they intend to spend the remaining 18 months.
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    I don't believe it's going to be possible to do everything to provide absolute assurance that 22,000 institutions are going to be absolutely ready. So, you need to make some tradeoff decisions about where you're going to focus your attention; what sort of resources will be needed; do you need to bring in additional resources; do you need to pool resources; and do you need to take any sort of extraordinary measures to be ready?

    I'm not suggesting that banks, or thrifts, or credit unions are going to fail, but I am suggesting the tasks that we'll be facing with the five regulators are monumental. They're going to have a great deal of information to make better decisions, and I think that it would be of utmost importance that those tradeoffs that they'll be making need to be examined and considered, that the decisions be brought into focus, and then they need to proceed with due diligence. It's going to be a big job.

    That concludes my summary, Mr. Chairman, and along with Mr. Willemssen, I will be happy to respond to your questions.

    Chairman LEACH. Well, let me begin with one to you, Mr. Brock.

    The Wall Street Journal had an interesting article last week saying that banks may be underestimating the losses to the Year 2000 problem based, not on their own compliance and their vendors' compliance, but based upon their customers' lack of meeting Year 2000 problems. And, therefore, because their customers can't meet these problems, they may be subject to losses, including legal losses. That is, legal liabilities. They could be enormous, and therefore, they may well have loan-loss reserves that they will have to develop because of this issue. 
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    Does that strike you as a credible potential or is that something GAO has not examined?

    Mr. BROCK. Yes. We believe that banks have vulnerability to Year 2000 in two aspects. As one, will their internal systems be ready? And second, is there a potential loss from their customers? So that is a concern.

    Chairman LEACH. Mr. Willemssen, you state and I want to quote you precisely ''. . . that at the current pace, it is clear not all mission-critical systems will be fixed in time.'' Based on that statement, you're suggesting that, basically, some critical Government functions will malfunction. What ones do you think are most likely?

    Mr. WILLEMSSEN. Because of the limited time left and the fact recognized by many now, recognized by us over a year ago, that not everything can be done in time. We would emphasize establishing priorities based on health, safety, financial impact, national defense, and economic impact. So it's not to say that we can choose, at this point in time, which might fail or which may not, we still have a chance to make those choices. And, those are the kind of choices we'd like to see Mr. Koskinen make at this point in time. Recognize that we can't fix everything. Recognize that low priority systems are not going to get fixed, and let's deal with the most urgent mission-critical processes and supporting systems.

    Chairman LEACH. Well, I think that's fair to suggest that, but where do you think the most likely fall is going to come?

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    Mr. WILLEMSSEN. Well, we've conducted a number of evaluations at a variety of civil agencies, and the progress we found is quite uneven. For example, at the opposite ends of the spectrum would be, on one hand, the Social Security Administration, on the other hand, the Federal Aviation Administration. We've evaluated both.

    SSA has had an outstanding program. We still found some risk areas, but they've been working at this for ten years.

    On the other hand, the FAA is way behind. They got a late start. They have not progressed as rapidly as they should have. Fortunately, in the past couple of months, the administrator has become actively engaged and now made that a priority, but there too, at the agency and component agency level, FAA, in this case, we have to look at setting those priorities and recognizing that not everything can be done in time.

    Chairman LEACH. Returning to the subject of quality and qualified workers in this area. We have the general body-worker circumstance. We also have those that are available-to-the-Government circumstance. Are there any laws that need to be amended to either make it easier for OPM to hire former workers or incentive systems put in place to hire new workers?

    Mr. WILLEMSSEN. We haven't yet seen a governmentwide personnel strategy to address Year 2000. That's one of our recommendations. And Mr. Koskinen is in agreement with that recommendation. He met with OPM last week. The initial reaction was it may not be necessary to have legal changes. That we may be able to have an exception with this being of a quasi-emergency nature. But, I don't think the final word is in on that. What we would encourage is that that kind of evaluation needs to be done ASAP so that if legal change is required, that a proposal can be submitted up here.
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    Chairman LEACH. Well, let me ask, are you expecting them to make that assessment or are you going to make it as well? Implying that you might come up with two different assessments in Mr. Koskinen and you. Are you going to make that assessment as well?

    Mr. WILLEMSSEN. We are recommending that they do the assessment and my best guess is we will be asked to evaluate that assessment.

    Chairman LEACH. Well, let me say you now are asked to evaluate it.

    Mr. WILLEMSSEN. OK.

    Chairman LEACH. My long experience with OPM is fairly intransigent on flexibility issues. So, I'm not inclined to immediately assume that they will offer a flexible enough response. And so I hope that you are on top of that very carefully.

    Mr. WILLEMSSEN. Mr. Chairman, if three months from now we're still asking the same sort of question, then I would be greatly concerned also, because this is not a business-as-usual situation. It clearly is a crisis that requires extraordinary measures.

    Mr. BROCK. Mr. Chairman, may I add to that please?

    Chairman LEACH. Of course, Mr. Brock.

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    Mr. BROCK. We have, in effect, made that assessment within the regulators that they do not have adequate technical resources. We questioned that.

    Second, when we visited some of the leading financial institutions, both banks, trading houses, stock exchanges, and things like that, they made a determination some time ago that resources would be critical to making this work. And, they have already taken action, for the most part for retention bonuses, employment incentives, making long-term arrangements with consultants and contractors to lock them in until the year 2000 has passed. That this is an issue that you have a very, very limited opportunity to take action before available resources are taken away or not available.

    I think a question that might come up is that even if the Government takes action, will, in fact, the resources be available, the right people, in the right geographic areas to make a big difference?

    Chairman LEACH. And the right salary levels.

    Mr. BROCK. Yes.

    Chairman LEACH. I mean, again the anecdotal evidence is major financial institutions are offering salaries that are above the highest paid people in the Government in these areas. This is a very serious dilemma.

    Well, I appreciate your comments on this and I hope that if anyone is still here from Mr. Koskinen's office, that they recognize we'll be following this closely, too.
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    Mr. LaFalce.

    Mr. LAFALCE. Thank you, Mr. Chairman.

    We could see Year 2000 problems much earlier than the year 2000. Most people say January of 1999. In some instances, even earlier. Is that correct?

    Mr. BROCK. Yes.

    Mr. LAFALCE. OK.

    Now, I was just having a dinner conversation last night with my elderly aunt, and mother, and my very young wife.

    [Laughter.]

    Something else that is going to happen in January of 1999 came up, and that is the automatic transfer of benefits into some type of accounts, such as Social Security benefits. I think it's January of 1999 that that must take place. Correct me, if I'm wrong, staff.

    Chairman LEACH. I think they put some flexibility into it; they have some discretion.

    Mr. LAFALCE. Well, there's agility to waiver—to issue waivers, I know. But I think that's what's called for now. But I'm just curious, if the conversion of these two dates, assuming it is January 1, 1999, and the Year 2000 problem, what are the practical difficulties for somebody who's been receiving a Social Security check in the mail at home is now going to receive their Social Security check in some depository account given the Year 2000 problem? Is there any synergy there? Any?
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    Mr. WILLEMSSEN. There is a relationship, and the key is before fully implementing such kind of electronic transactions, we've got to make sure, and thoroughly test that system to make sure that it works as intended, including testing for the Year 2000 issue.

    Mr. LAFALCE. OK. But go into the mind of an 80-year-old Social Security recipient widow, and if somebody were to tell her, well, there's a Year 2000 problem. How might that affect that person? You say, yes, there is a potential problem. Well, then how would it affect that person?

    Mr. WILLEMSSEN. It could—if not adequately addressed, it could affect that person in terms of the amount on the check being inaccurate, either too low or too high. It could affect that.

    Mr. LAFALCE. Whose check? The Government's check that's deposited?

    Mr. WILLEMSSEN. Correct. It could affect the person by, again, depending on a particular transaction, the individual possibly not getting a check at all.

    Mr. LAFALCE. All right.

    Most of the testimony I've heard, I think, has dealt with the issue of prevention of the problem. Yet, it's my gut feeling that no matter what great-faith efforts we take, we're going to have a problem, and all we can do is minimize the problem to whatever extent is humanly possible.
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    What do we do to cope with the problem, and are we thinking now about ways to cope with the problems that will surely develop? The only question is to what extent will they develop, and is that part of our thinking right now?

    Mr. WILLEMSSEN. It's part of the thinking that's beginning to be initiated. I don't know if Mr. Koskinen had mentioned it, but one of the contacts he's had in his brief tenure is to contact the head of FEMA to start getting that organization involved with the States. Because, again, in the event that we do have some real——

    Mr. LAFALCE. Now FEMA usually deals with natural disasters. Would that be the appropriate agency to help cope with this problem?

    Mr. WILLEMSSEN. But FEMA has a strong State network, and we must keep in mind that our State and local governments are key players in this Year 2000 issue. They have a large number of information systems. They are, in many cases, our most common contact with the average citizen.

    Mr. LAFALCE. Is FEMA involved in the preventive efforts in any way, right now?

    Mr. WILLEMSSEN. I'm not aware of such involvement. We haven't evaluated that.

    Mr. LAFALCE. I guess one of the questions that I would have then is, should we go to an agency that's not involved in the preventive efforts for a leadership role in the remedial efforts once the problem surfaces?
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    Mr. WILLEMSSEN. Well, we have to get a large number of—a variety of key organizations involved in this and we favor an approach focused on key economic sectors, whether it's utilities, telecommunications, small business, financial institutions and get the critical parties together—the already existing interests groups and associations for those areas to lead Federal departments and agencies to State and local governments, so that together we can address this in a common fashion.

    Mr. LAFALCE. Which agency of the Federal Government do you think might be the most knowledgeable on these issues? Department of Commerce, maybe?

    Mr. WILLEMSSEN. Knowledgeable on what?

    Mr. LAFALCE. The Year 2000 problems.

    Mr. WILLEMSSEN. Based on our evaluations, and I will let Mr. Brock add to this—based on my evaluations on the civil side of the Government, I would say that the Social Security Administration, because they started on this program almost ten years ago.

    Mr. LAFALCE. Yes. OK.

    I was just thinking of agencies that could take the lead in helping to cope with these problems. You know, the Department of Defense, all defense-related. What about the civilian, the non-defense? I got reactions as the Social Security Administration would not be an appropriate agency to deal with them or those, or to take the lead, but, you know, I——
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    Mr. WILLEMSSEN. I think as it pertains to small business and individuals, we need to think about actively engaging the Department of Commerce more and the Small Business Administration.

    Mr. LAFALCE. I should have asked this question earlier of Mr. Koskinen. Now, he is the President of the Council on the Year 2000 Conversion, but is the Council made up of Executive branch agencies?

    Mr. WILLEMSSEN. He, as Assistant to the President, and Head of the Council, the Council will have individual representatives from the major Federal departments and agencies, but those are staff with those agencies who are just serving on the Council as one of their many duties.

    Mr. LAFALCE. All right. It would seem to me that there ought to be some Federal agency or task force or operational entity, council, or what have you, responsible for the implementation. Right now, almost everything is auditory, advisory, and so forth, but once the problem hits—and it's not a question of whether, I think, it is. The only question is where, to what extent we're going to have to take very, very forceful remedial measures. And, we better start thinking about that now, and maybe, you at GAO are in a good position. Your report is entitled, ''Strong Leadership Needed to Avoid Disruption of Essential Services,'' primarily, preventative in nature.

    Mr. WILLEMSSEN. Yes, sir.

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    Mr. LAFALCE. Start thinking too, of when the problem does hit, how should we respond?

    Mr. WILLEMSSEN. Yes, sir. If I may mention one other item. We put out a guide last week on contingency planning. Again, somewhat of a preventive measure, but getting closer to what you're addressing, because key elements of that are also what we call ''day-zero'' or ''day-one'' planning. If and when disaster hits, then what are you going to do? We go through the steps that have to be triggered to implement your backup and contingency plans in that case.

    Mr. LAFALCE. Thank you.

    Chairman LEACH. Well, thank you very much, and let me thank both of you again for your work and your organization's work. And as you proceed with this work, if you see areas that you think need to be investigated further that you haven't had formal request, I hope you'll feel free to have a discussion with our office.

    Also, if you see areas where you think there may be legislation that would be helpful, I'd like to have a standing request that you indicate that. And you can do this formally or informally as you see fit. But we very much appreciate your efforts and thank you very much.

    Mr. WILLEMSSEN. Yes, sir. Thank you.

    [Whereupon, at 3:43 p.m. the hearing adjourned, subject to the call of the Chair.]
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