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Testimony :



Before the Subcommittee on Government Efficiency and Financial 

Management, Committee on Government Reform, House of Representatives:



For Release on Delivery

Expected at 10:30 a.m. EST

Wednesday, March 26, 2003:



Management Reform:



Continuing Progress in Implementing Initiatives in the President’s 

Management Agenda:



Statement of Patricia A. Dalton, Director

Strategic Issues:



GAO-03-556T:



GAO Highlights:



Highlights of GAO-03-556T, a report to Subcommittee on Government 

Efficiency and Financial Management, Committee on Government Reform, 

House of Representatives



Why GAO Did This Study:



As part of its work to improve the management and the performance of 

the federal government, GAO monitors progress and continuing 

challenges related to the five crosscutting initiatives in the 

President’s Management Agenda (PMA). The President cited GAO’s high-

risk areas and major management challenges in developing these 

initiatives. GAO remains committed to working with the Congress and 

the Administration to help address these complex issues.



What GAO Found



There has been continuing progress in implementing the five 

crosscutting PMA initiatives to improve the management and performance 

of the federal government. However, progress has been uneven, and a 

continuing focus is needed to improve the management and performance 

of the federal government and ensure accountability. 



These five crosscutting PMA initiatives are interrelated and must be 

addressed in an integrated way.



* Strategic human capital management: Considerable progress has been 

made in this area since we designated it as high risk in 2001. Serious

human capital shortfalls, however, continue to erode the ability of 

many agencies, and threaten the ability of others, to economically, 

efficiently, and effectively perform their missions.

* Budget and performance integration: The administration has set forth 

an ambitious agenda for performance budgeting but the federal 

government has a long way to go before it can meet its goals. More 

explicitly infusing performance information into resource allocation 

decisions is critical for further progress in government performance 

and management.

* Improved financial performance: This initiative is aimed at ensuring 

that federal financial systems produce accurate and timely information 

to support operating, budget, and policy decisions. Although a range 

of improvements is under way, much work remains to be done across 

government.

* Expanded electronic government: E-government offers many 

opportunities to better serve the public, make government more 

efficient and effective, and reduce costs. Although substantial 

progress has been made, the government has not yet fully reached its

potential in this area.

*Competitive sourcing: The administration has committed to using 

competitions to determine whether public or private sources should 

provide commercial services. OMB has proposed changes to the 

procedures for conducting public-private competitions under its 

Circular A-76. However, some of the proposed changes are not 

consistent with sourcing principles or recommendations of the 

Commercial Activities Panel. 



Congressional support has proven to be critical in sustaining interest 

in management initiatives over time. A focus on the quality of program 

performance and effective management is critical today, and now is the 

time to act.



What GAO Recommends:



We are not making any recommendations in this testimony, but these 

steps can further progress: 

*OMB’s support will be needed as agencies identify targeted investment 

opportunities to address human capital shortfalls. Over time, 

comprehensive human capital reform is needed.

* Congress and the executive branch need better information about the 

link between resources and results to prioritize competing claims on 

the federal budget.

* Quality financial management systems are crucial for agencies to 

achieve PMA goals.

* E-government initiatives require effective risk-management and 

comprehensive strategies to guide agencies efforts.

* Continued emphasis on improving public-private competitions is 

needed.



www.gao.gov/cgi-bin/getrpt?GAO-00-556T.

To view the full report, including the scope and methodology, click on 

the link above. For more information, contact Patricia A. Dalton at 

(202) 512-6806 or daltonp@gao.gov.



Mr. Chairman and Members of the Subcommittee:



I am pleased to be here today to discuss continuing progress in 

implementing the President’s Management Agenda (PMA) initiatives to 

improve the management and performance of the federal government. PMA 

points out important challenges for the federal government and is 

intended to focus agencies’ efforts on making needed improvements. It 

establishes priorities for five crosscutting challenges and nine 

program initiatives. There are clear links between the PMA initiatives 

and the high-risk areas and major management challenges covered in our 

2003 and 2001 Performance and Accountability and High-Risk Series. Many 

of these issues are complex and long-standing, and we are committed to 

working with Congress and the administration to help address them.



The President’s 2004 budget recognized that although progress has been 

made, it has been uneven and there needs to be a continuing focus on 

improving effectiveness and getting results from federal spending. As 

discussed in our 2003 Governmentwide Perspective,[Footnote 1] several 

major trends, including diffuse security threats and national 

preparedness, globalization, a shift to knowledge-based economies, and 

advances in science and technology, are driving the need for federal 

agencies to transform their cultures and operations. Budgetary 

flexibility has been shrinking for some time and long-range fiscal and 

demographic pressures affect the long-term outlook of the federal 

government. The retirement of the baby boom generation and rising 

health care costs threaten to overwhelm our nation’s finances. Within 

this context, government leaders must be accountable for making needed 

changes to resolve high-risk areas, address major management 

challenges, and position the federal government to take advantage of 

emerging opportunities and meet future challenges.



Today, as agreed with the subcommittee, my statement will focus on the 

progress made in the five crosscutting initiatives in PMA and the next 

steps our work shows will be key to effectively enhance the management 

and performance of the federal government. I will also highlight the 

importance of transparency and congressional oversight in continuing to 

provide the attention needed to improve management and performance 

across the federal government and ensure accountability. Overall, there 

has been continuing progress in implementing the governmentwide PMA 

initiatives. This progress, however, has been uneven and a continuing 

focus is needed to improve the management and performance of the 

federal government and ensure accountability. This testimony draws upon 

our wide-ranging ongoing and completed work on federal management and 

transformation issues and analysis of PMA initiatives and the 

President’s 2004 Budget of the U.S Government. We conducted our work in 

accordance with generally accepted government auditing standards.



Effective Management Is Required to Create and Sustain High-performing 

Organizations:



The President cited our work on high-risk areas and major management 

challenges in developing his initiatives, and implementation of PMA has 

reinforced the need to focus agencies’ efforts on achieving key 

management and performance improvements. Our work shows that agencies 

have made progress in these areas--although more needs to be done. A 

focus on the quality of program performance and effective management is 

critical today, and now is the time to act. Building on lessons 

learned, major programs and operations need urgent attention and 

transformation to ensure that the government functions as economically, 

efficiently, and effectively as possible. Management reform will be 

vitally important for agencies to transform their cultures to respond 

to the transition that is taking place in the role of government in the 

21ST century.



The Executive Branch Management Scorecards have highlighted agencies’ 

progress in achieving management and performance improvements. We have 

found that the value in the scorecards is not, in fact, in the scoring, 

but in the degree to which scores lead to a sustained focus and 

demonstrable improvements. The Office of Management and Budget (OMB) 

uses a grading system of red, yellow, and green, to indicate agencies’ 

status in achieving the standards of success. It also assesses and 

reports progress using a similar “stoplight” system. Although we 

collaborated in some cases with OMB and the lead agencies regarding the 

broad standards of success, we have not had the opportunity to review 

the more specific criteria that OMB uses to assess each agency’s 

progress on these initiatives nor have we examined the specific 

evidence that OMB used to assess the agency’s accomplishments.



By calling attention to needed improvements, the focus that PMA and the 

scorecards bring is certainly a step in the right direction. PMA 

initiatives are consistent in key aspects with the statutory reforms 

related to financial management, information technology, and results-

oriented management that Congress enacted during the 1990s. In crafting 

that framework, Congress sought to provide a basis for improving the 

federal government’s effectiveness, financial condition, and operating 

performance.



Central to effectively addressing the government’s management problems 

and providing a solid base for successful transformation efforts is the 

recognition that fundamental management practices and principles cannot 

be addressed in an isolated or piecemeal fashion separate from the 

other major management challenges and high risks facing federal 

agencies. Rather, these efforts are mutually reinforcing and must be 

addressed in an integrated way to ensure that there is the needed 

management capacity to drive a broader transformation of the cultures 

of federal agencies.



The President has identified five crosscutting management initiatives 

that are interrelated and support each other. A comprehensive planning 

process that establishes clear goals and objectives linked to decision-

making and resource allocation processes will continue to be critical 

in achieving the desired results and the synergy that can advance and 

support governmentwide transformation efforts. These five initiatives 

are:



* strategic human capital management,



* budget and performance integration,



* improved financial performance,



* expanded electronic government, and:



* competitive sourcing.



Strategic Human Capital Management:



People are an agency’s most important organizational asset, and 

strategic human capital management should be the centerpiece of any 

serious change management initiative or any effort to transform the 

cultures of government agencies. Considerable progress has been made in 

this area since we designated it as high risk in 2001.[Footnote 2] 

Legislation has been enacted that, among other things, creates the 

Chief Human Capital Officer (CHCO) position within federal departments, 

and a CHCO Council, expanded voluntary early retirement and buyout 

authority, authorized the use of category rating in the hiring of 

applicants instead of the “rule of three,” and requires agencies to 

discuss human capital approaches in Government Performance and Results 

Act (GPRA) plans and reports.[Footnote 3]



Serious human capital shortfalls, however, continue to erode the 

ability of many agencies, and threaten the ability of others, to 

economically, efficiently, and effectively perform their missions. 

Plainly, the major problem is not federal employees. Rather, it is the 

lack of a consistent strategic approach to marshaling, managing, and 

maintaining the human capital needed to maximize government performance 

and ensure its accountability. An organization’s people define its 

character, affect its capacity to perform, and represent the knowledge 

base of the organization.



Although progress has been made, it remains clear that today’s federal 

human capital strategies are not appropriately constituted to meet 

current and emerging challenges or drive the needed transformation 

across the federal government. Specifically, agencies continue to face 

challenges in four key areas:



* Leadership: Top leadership in agencies must provide the committed and 

inspired attention needed to address human capital and related 

organizational transformation issues.



* Strategic human capital planning: Agencies’ human capital planning 

efforts need to be more fully and demonstrably integrated with mission 

and critical program goals.



* Acquiring, developing, and retaining talent: Additional efforts are 

needed to improve recruiting, hiring, professional development, and 

retention strategies to ensure that agencies have the needed talent.



* Results-oriented organizational cultures: Agencies continue to lack 

organizational cultures that promote high performance and 

accountability and that empower and include employees in setting and 

accomplishing programmatic goals.



One step in meeting the government’s human capital challenges is for 

agency leaders to identify and make use of all the appropriate 

administrative authorities available to them to manage their people 

both effectively and equitably. Much of the authority agency leaders 

need to manage human capital strategically is already available under 

current laws and regulations, as recognized by PMA. We recently 

reported on a set of practices that are key to the effective use of 

flexibilities.[Footnote 4] These practices are shown in figure 1.



Figure 1: Key Practices for Effective Use of Human Capital 

Flexibilities:



[See PDF for image]



[End of figure]



Another step in meeting the government’s human capital challenges is 

for policymakers to continue to pursue incremental legislative reforms 

to give agencies additional tools and flexibilities to hire, manage, 

and retain the human capital they need, particularly in critical 

occupations. The National Aeronautics and Space Administration (NASA), 

for example, is facing shortages in its workforce which could likely 

worsen as the workforce continues to age and the pipeline of talent 

shrinks.[Footnote 5] This dilemma is more pronounced among areas 

crucial to NASA’s ability to perform its mission, such as engineering, 

science, and information technology. NASA is addressing this challenge 

through strategic planning, a new workforce planning and analysis 

system, and requesting additional personnel flexibilities, among other 

initiatives.



Over time, however, it will be important for all interested parties to 

work together to identify the kinds of comprehensive legislative 

reforms in the human capital area that should be enacted. These reforms 

should place greater emphasis on knowledge, skills, and performance in 

connection with federal employment, promotion, and compensation 

decisions. This summer the Comptroller General will be convening a 

forum to discuss the key actions needed for significant human capital 

reform.



Federal agencies need to continue to incorporate a crucial ingredient 

found in successful organizations: organizational cultures that promote 

high performance and accountability. Effective performance systems 

align organizational goals with daily operations and thereby create a 

“line of sight” between an individual’s efforts and results that the 

organization is trying to achieve. In doing so, performance management 

systems can be a strategic tool to drive internal change and achieve 

external results by creating a shared perspective and demonstrating how 

unit, team, and individual performance can contribute to overall 

organizational goals. Agencies can also foster a results-oriented 

culture by the way that they treat and manage their people, building 

commitment and accountability through involving and empowering 

employees. Effective changes can only be made and sustained through the 

cooperation of leaders, union representatives, and employees throughout 

an organization. We have work under way, at the request of Congress, to 

assess the extent to which employees are involved in the formation of 

the human resource system at the Department of Homeland Security.



We collaborated with the Office of Personnel Management (OPM) and OMB 

in developing language for the standards for success that OPM released. 

As OPM, OMB, and the agencies learn to evaluate themselves against the 

standards for success in implementing strategic human capital 

management approaches, OPM and OMB will need to ensure that the 

standards are consistently and appropriately applied while they assess 

agencies’ progress in managing their human capital. Importantly, OMB’s 

support will be needed as agencies identify targeted investment 

opportunities to address human capital shortfalls. In the final 

analysis, modern, effective, and credible human capital strategies will 

be essential in order to maximize the performance and ensure the 

accountability of the government for the benefit of the American 

people.



Budget and Performance Integration:



PMA recognized that improvements in the management of human capital, 

financial performance, and expanding electronic government, and 

competitive sourcing matter little if they are not linked to program 

performance and resource allocation decisions. The administration has 

set forth an ambitious agenda for performance budgeting, calling for 

agencies to develop cost accounting systems and proposing to better 

align the federal budget structure with their performance goals. Such 

efforts to begin implementing a consistent and transparent framework 

for performance budgeting and financial information are key steps 

needed to provide a greater focus on performance and improve 

congressional decision making as envisioned in GPRA, but the federal 

government has a long way to go before it can meet these goals.



Performance-based budgeting can help shift the focus of debate from 

inputs to outcomes and results, enhancing the government’s ability to 

gauge performance and assess competing claims for scarce 

resources.[Footnote 6] Building on the statutory framework that 

Congress enacted over the last decade, performance budgeting requires 

results-oriented performance information generated by federal agencies 

in response to GPRA, and cost accounting data generated in response to 

provisions of the Chief Financial Officers (CFO) Act. Sustained 

leadership attention, however, is needed to build on this foundation.



Integrating management and performance issues with budgeting is 

absolutely critical for progress in government performance and 

management. Such integration is obviously important to ensuring that 

management initiatives obtain the resource commitments and sustained 

leadership commitment throughout government needed to be successful. 

Moreover, the budget process is one of the major processes in the 

federal government in which programs and activities come up for regular 

review and reexamination. Thus there is a compelling need to ensure 

that trade-offs are informed by reliable information on results and 

costs.



Performance budgeting can help shift the focus of budgetary debates and 

oversight activities by changing the agenda of questions asked. 

Performance information can help policymakers address a number of 

questions such as whether programs are (1) contributing to their stated 

goals, (2) well-coordinated with related initiatives at the federal 

level or elsewhere, and (3) targeted to those most in need of services 

or benefits. Results-oriented information is also needed for better 

day-to-day management and agency decision-making. It can provide 

information on what outcomes are being achieved, whether resource 

investments have benefits that exceed their costs, and whether program 

managers have the requisite capacities to achieve promised results.



While budget reviews have always involved discussions of program 

performance, such discussions have not always been conducted in a 

common language or with transparency. Last year, OMB introduced a 

formal assessment tool into the deliberations. PART--the Program 

Assessment Rating Tool--is the central element in the performance 

budgeting piece of the PMA. Potentially, PART can complement GPRA’s 

focus on increasing the supply of credible performance information by 

promoting the demand for this information in the budget formulation 

process. PART’s greatest contribution may turn out to be its usefulness 

in focusing discussions between OMB and the agencies about progress 

towards planned performance; about what progress has been made toward 

achieving specific program goals and objectives; and about what tools 

and strategies may be used to bring about improvements. As with 

performance budgeting in general, no assessment tool can magically 

resolve debates or answer questions. Rather, it is likely to be a 

useful screen to help identify programs for further evaluation.



Credible performance information can facilitate a fundamental 

reassessment of what the government does and how it does business by 

focusing on the outcomes achieved with budgetary resources. Therefore, 

the goals and measures that agencies establish must address program 

results. Our work has shown that agencies had at least some goals and 

measures that address program results, but improvement is needed to 

ensure that agencies measure performance toward a comprehensive set of 

goals that focus on results.[Footnote 7] In addition, it is important 

for performance measures to provide complete information. For example, 

in measuring customer satisfaction, the Small Business Administration 

uses results of its survey of successful disaster loan applicants, but 

unsuccessful applicants are not surveyed, which is likely to produce 

positively skewed responses.[Footnote 8]



Understanding performance issues requires an in-depth evaluation of the 

factors contributing to the program results. Targeted evaluation 

studies can be designed to detect important program side effects or to 

assess the comparative advantages of current programs to alternative 

strategies for achieving a program’s goals. Further, although the 

evaluation of programs in isolation may be revealing, it is often 

critical to understand how each program fits with a broader portfolio 

of tools and strategies to accomplish federal missions and performance 

goals. Such an analysis is necessary to capture whether a program 

complements and supports other related programs, whether it is 

duplicative and redundant, or whether it actually works at cross-

purposes with other initiatives.



Furthermore, while no data are perfect, agencies need to have 

sufficiently credible performance data to provide transparency of 

government operations so that Congress, program managers, and other 

decision makers can use the information. However, limited confidence in 

the credibility of performance data has been one of the major 

weaknesses in GPRA implementation. Based on our review of agencies 

fiscal year 2000 and 2001 performance reports, agencies are not 

consistently assessing the completeness and reliability of their 

performance data as required by the Reports Consolidation Act of 

2000.[Footnote 9]



In attempting to link resources to results, it also will be important 

to measure the full costs of the resources associated with performance 

goals using consistent definitions of costs between and among programs. 

In looking ahead, the integration of reliable cost accounting data into 

budget debates needs to become a key part of the performance budgeting 

agenda. Also, the current budget does not always help policymakers 

consider the long-term costs associated with some activities that 

commit the government to future spending. This may limit the attention 

given to the future sustainability and flexibility of the government’s 

fiscal position and the cost effectiveness of existing programs.



Although clearly much more remains to be done, together GPRA and the 

CFO Act have laid the foundation for performance budgeting by 

establishing infrastructures in the agencies to improve the supply of 

information on performance and costs. Merely the number of programs 

“killed” or a measurement of funding changes against performance 

“grades” cannot measure the success of performance budgeting. Rather, 

success must be measured in terms of the quality of the discussion, the 

transparency of the information, the meaningfulness of that information 

to key stakeholders, and how it is used in the decision-making process. 

The determination of priorities is a function of competing values and 

interests that may be informed by performance information but also 

reflects such factors as equity, unmet needs, and the perceived 

appropriate role of the federal government in addressing these needs. 

If members of Congress and the executive branch have better information 

about the link between resources and results, they can make the trade-

offs and choices cognizant of the many and often competing claims on 

the federal budget.



Improved Financial Performance:



The PMA initiative to improve financial performance is aimed at 

ensuring that federal financial systems produce accurate and timely 

information to support operating, budget, and policy decisions. It 

focuses on key issues such as data reliability, clean financial 

statement audit opinions, and effective financial management systems 

and internal control. Our work also demonstrates the importance of 

improvement efforts that are under way. In the area of financial 

performance, however, we have pointed out that the federal government 

is a long way from successfully implementing the statutory reforms that 

Congress enacted during the 1990s.



Reliable cost data are critical for effective performance measurement 

to support program management decisions in areas ranging from program 

efficiency and effectiveness to sourcing and contract management. For 

effective management, this information must not only be timely and 

reliable, but also both useful and used. Under this PMA initiative, 

agencies are expected to implement integrated financial and performance 

management systems that routinely produce information that is (1) 

timely--to measure and affect performance immediately, (2) useful--to 

make more informed operational and investing decisions, and 

(3) reliable--to ensure consistent and comparable trend analysis over 

time and to facilitate better performance measurement and decision 

making. This result is a key to successfully achieving the goals that 

Congress established in the CFO Act and other federal financial 

management reform legislation.



The executive branch management scorecard for the financial performance 

area not only recognizes the importance of achieving an unqualified or 

“clean” opinion from auditors on financial statements, but also focuses 

on the fundamental and systemic issues that must be addressed in order 

to routinely generate timely, accurate, and useful financial 

information and provide sound internal control and effective compliance 

systems.



PMA stated that a clean financial audit is a basic prescription for any 

well-managed organization, and recognized that “most federal agencies 

that obtain clean audits only do so after making extraordinary, labor-

intensive assaults on financial records.” Receiving a clean opinion on 

annual financial statements is an important milestone, which 21 of the 

24 agencies designated under the CFO Act achieved for fiscal year 2002.



Even more critical, however, is the capability and quality of the 

supporting financial management systems in ensuring that agencies can 

meet the scorecard measures for timely, accurate, and useful financial, 

program cost, and other important management information needed for 

decision making and monitoring government performance every day. The 

scorecard also measures whether agencies have any material internal 

control weaknesses or material noncompliance with laws and regulations, 

and whether agencies meet Federal Financial Management Improvement Act 

(FFMIA)[Footnote 10] requirements. As stated in PMA, without sound 

internal controls and accurate and timely financial information, it 

will not be possible to accomplish the President’s agenda to secure the 

best performance and highest measure of accountability for the American 

people.



Much work remains to be done across government to improve financial 

performance, as shown by the December 2002 scorecards. Of the 22 CFO 

Act agencies that OMB scored,[Footnote 11] 15 were in the red category 

for financial performance.[Footnote 12] This is not surprising, 

considering the well-recognized need to transform financial management 

and other business processes at agencies such as the Department of 

Defense, the results of our analyses under FFMIA, and the various 

financial management operations we have designated as high risk. Four 

agencies improved their scores from the initial baseline evaluation for 

financial performance as of September 30, 2001;[Footnote 13] however, 

two agencies’ scores declined, reflecting increased challenges. 

Overhauling financial management represents a challenge that goes far 

beyond financial accounting to the very fiber of a department’s 

business operations and management culture, particularly at agencies 

with longstanding problems, such as DOD.[Footnote 14] Further, 

establishing sound financial management will be a critical success 

factor for the implementation of the Department of Homeland 

Security.[Footnote 15]



In the area of financial performance we have continued to point out 

that the federal government is a long way from successfully 

implementing needed financial management reforms. Widespread financial 

management:



system weaknesses, poor recordkeeping and documentation, weak internal 

controls, and the lack of information have prevented the government 

from having the cost information needed to effectively and efficiently 

manage operations through measuring the full cost and financial 

performance of programs and accurately reporting a large portion of its 

assets, liabilities, and costs. The government’s ability to adequately 

safeguard significant assets has been impaired by these conditions.



One of the challenges that many agencies face is the difficulty of 

ensuring that underlying financial management processes, procedures, 

and information systems are in place for effective program management. 

Agencies need to take steps to continuously improve internal controls 

and underlying financial and management information systems to ensure 

that managers and other decision makers have reliable, timely, and 

useful financial information to ensure accountability; measure, 

control, and manage costs; manage for results; and make timely and 

fully informed decisions about allocating limited resources. In October 

2002, we reported that meeting FFMIA requirements presents long-

standing, significant challenges that will only be met through time, 

investment, and sustained emphasis on correcting deficiencies in 

federal financial management systems.[Footnote 16] The widespread 

systems problems facing the federal government need sustained 

management commitment at the highest levels of government to ensure 

that these needed modernizations come to fruition. PMA provides the 

visibility needed for sustaining these efforts.



This PMA initiative also focuses special attention on addressing 

erroneous payments, credit card abuse in the federal government, and 

asset management. These areas, on which we have reported problems and 

challenges, have undermined government financial performance.[Footnote 

17] Our work has shown, for example, that the Centers for Medicare & 

Medicaid Services (CMS) has made improvements in assessing the level of 

improper payments, collecting overpayments from providers, and building 

the foundation for modernizing its information technology. 

Nevertheless, much work remains to be done, given the magnitude of its 

challenges to safeguard program payments. This includes more 

effectively overseeing Medicare’s claims administration contractors, 

managing the agency’s information technology initiatives, and 

strengthening financial management processes across multiple 

contractors and agency units. In light of these challenges and the 

program’s size and fiscal significance, Medicare remains on our list of 

high-risk programs.[Footnote 18]



Across government, there is a range of financial management improvement 

initiatives under way that, if effectively implemented, will improve 

the quality of the government’s financial management and reporting. 

Federal agencies have started to make progress in their efforts to 

modernize their financial management systems and improve financial 

management performance as called for in PMA.



In August 2001, the Principals of the Joint Financial Management 

Improvement Program (JFMIP) began a series of periodic meetings and 

have agreed on key financial management reform issues such as better 

defining measures for financial management success.[Footnote 19] The 

Executive Branch Management Scorecard embraces these new measures. The 

JFMIP Principals also agreed that agency financial statement reporting 

should be significantly accelerated to improve the timeliness of the 

government’s financial statements and to discourage costly efforts 

designed to obtain unqualified opinions on financial statements without 

addressing underlying systems challenges. For fiscal year 2004, audited 

agency financial statements are to be issued no later than November 15, 

with the U.S. government’s audited consolidated financial statements 

becoming due by December 15. Two agencies, the Department of the 

Treasury and the Social Security Administration, met the accelerated 

date for fiscal year 2002. Although many actions have been taken, the 

continued leadership and personal commitment of the Principals is 

necessary to continue the momentum for improving the government’s 

financial management and performance.



Expanded Electronic Government:



Electronic government (e-government) offers many opportunities to 

better serve the public, make government more efficient and effective, 

and reduce costs. Federal agencies have implemented a wide array of e-

government applications, including using the Internet to collect and 

disseminate information and forms; buy and pay for goods and services; 

submit bids and proposals; and apply for licenses, grants, and 

benefits. Although substantial progress has been made, the government 

has not yet fully reached its potential in this area.[Footnote 20]



Recognizing the magnitude of challenges facing the federal government, 

Congress has enacted important legislation to guide the development of 

e-government. In 1998, Congress enacted the Government Paperwork 

Elimination Act, which requires federal agencies to provide the public, 

when practicable, the option of submitting, maintaining, and disclosing 

required information electronically. More recently the E-Government Act 

of 2002 includes provisions to promote the use of the Internet and 

other information technologies to provide government services 

electronically; strengthen agency information security; and define how 

to manage the federal government’s growing information technology human 

capital needs. In addition, this act established an Office of 

Electronic Government within OMB to provide strong central leadership 

and full-time commitment to promoting and implementing e-government.



To implement this PMA initiative, OMB has selected 25 e-government 

efforts that focus on a wide variety of services, aiming to simplify 

and unify agency work processes and information flows, provide one-stop 

services to citizens, and enable information to be collected on line 

once and reused, rather than being collected many times. For example, 

Recreation One-Stop is a Web portal for a single point of access to 

information about parks and other recreation areas. There are other e-

government efforts that do not necessarily rely on the Internet, such 

as the e-payroll initiative to consolidate federal payroll systems. The 

results from these e-government initiatives, according to OMB, could 

produce several billions of dollars in savings from improved 

operational efficiency. To obtain such savings--and significantly 

improve service to citizens--it will be critically important that these 

efforts are well managed as the government undertakes the challenging 

task of turning good ideas into real-world results.



While many of the e-government initiatives are showing tangible 

results, progress has been uneven. Our review of the planning documents 

for the e-government initiatives highlight the critical importance of 

management and oversight to their success.[Footnote 21] Important 

aspects--such as collaboration among agencies and other governmental 

entities and a focus on identifying and addressing customers’ needs--

had not been incorporated into early program plans for many of the 

projects, and major uncertainties in funding and milestones were not 

uncommon. In particular, fewer than half addressed collaboration and 

customer focus, despite the importance of these topics to e-government 

strategy and goals. Similarly, the accuracy of estimated costs in the 

funding plans was questionable and some of the estimates changed 

significantly between May and September 2002. Accurate cost, schedule, 

and performance information is essential to ensure that projects are on 

schedule and achieve their goals.



In order to help ensure the success of the President’s objective of 

expanding e-government to improve the potential value of government to 

citizens, we have recommended that the Director of OMB ensure that the 

managing partners for all e-government initiatives (1) focus on 

customers by soliciting input from the public and conducting user needs 

assessments, (2) work with partner agencies to develop and document 

effective collaboration strategies, and (3) provide OMB with adequate 

information to monitor the cost, schedule, and performance.[Footnote 

22]



Increasingly, the challenges that the government faces are 

multidimensional problems that cut across numerous programs, agencies, 

and governmental tools. For example, a critical aspect of implementing 

effective e-government solutions and developing and deploying major 

systems development projects is ensuring that robust information 

security is built into these endeavors early and is periodically 

revisited.



Since we designated computer security in the federal government as high 

risk in 1997, there is evidence that pervasive weaknesses continue. For 

example, although the Internal Revenue Service (IRS) had corrected or 

mitigated many of the computer security weaknesses identified in our 

previous reports, much more needs to be done to resolve the significant 

control weaknesses that continue within IRS’ computing environment and 

to be able to promptly address new security threats and risks as they 

emerge.[Footnote 23] Related risks have escalated, in part because of 

the rapid increase in computer interconnectivity and increasing 

dependence on computers to support critical operations and 

infrastructures, such as power distribution, water supply, national 

defense, and emergency services. This year, we expanded this high-risk 

area to include protecting information systems that support our 

nation’s critical infrastructures. Among the actions essential to 

sustaining federal information security improvements are the agencies’ 

development of effective risk management programs and the development 

of a comprehensive strategy to guide agencies’ efforts.



The growth in electronic information--as well as the new security 

threats facing our nation--highlight privacy issues. On-line privacy 

has emerged as one of the key--and most contentious--issues surrounding 

the continued evolution of the Internet. The government cannot realize 

the full potential of the Internet until people are confident that the 

government will protect their privacy when they visit its web sites. We 

have made recommendations to strengthen governmentwide privacy guidance 

and oversight of agency practices that OMB has not yet implemented. For 

example, we recommended that the Director of OMB determine whether 

current oversight strategies are adequate to ensure agencies’ adherence 

to web site privacy policies and whether the policies will need further 

revision as web practices continue to evolve.[Footnote 24]



Competitive Sourcing:



As part of the PMA initiative to achieve efficient and effective 

competition between public and private sources, the administration has 

committed to simplifying and improving the procedures for evaluating 

public and private sources. Among the factors that agencies must 

consider as they determine how best to meet their missions is whether 

the public or private sector would be the most appropriate provider of 

the services the government needs. Aspects of the current process for 

making such decisions have been criticized as cumbersome, complicated, 

and slow. Against this backdrop, and in response to a requirement in 

the National Defense Authorization Act for fiscal year 2001, the 

Comptroller General convened a panel of experts to study the current 

process used by the government to make sourcing decisions. The 

Commercial Activities Panel, consisting of representatives from 

agencies, federal labor unions, private industry, and other individuals 

with expertise in this area, conducted a yearlong study. The panel 

members heard repeatedly about the importance of competition and its 

central role in fostering economy, efficiency, and continuous 

performance improvement. The panel strongly supported continued 

emphasis on competition and concluded that whenever the government is 

considering converting work from one sector to another, public-private 

competitions should be the norm, consistent with the principles adopted 

unanimously by the panel.[Footnote 25]



As part of the administration’s efforts to advance this PMA initiative 

and implement the recommendations of the Commercial Activities Panel, 

OMB published proposed changes to Circular A-76 for public comment. 

This circular sets forth federal policy for determining whether federal 

employees or private contractors will perform commercial activities 

associated with conducting the government’s business. In January, the 

Comptroller General commented on OMB’s proposed revision, and noted 

that in many ways it was consistent with the sourcing principals and 

recommendations adopted by the Commercial Activities Panel.[Footnote 

26] In particular, the proposal stresses the use of competition in 

making sourcing decisions and, through reliance on procedures contained 

in the Federal Acquisition Regulation, should result in a more 

transparent, expeditious, fair, and consistently applied competitive 

process. The proposal should promote sourcing decisions that reflect 

the best overall value to the agencies, rather than just the lowest 

cost. Importantly, the proposed revision also should result in greater 

accountability for performance, regardless of the service provider 

selected.



There are several areas, however, where the proposed revisions to the 

circular were not consistent with the principles or recommendations of 

the panel. Specifically, these include the absence of a link between 

sourcing policy and agency missions, unnecessarily complicated source 

selection procedures, certain unrealistic time frames, and insufficient 

guidance on calculating savings. Federal sourcing policy should support 

agency missions, goals, and objectives. In other words, sourcing policy 

is not just about choosing among potential service providers. Rather, 

an agency’s sourcing policy should be viewed as part of an overall 

strategy for how best to accomplish the mission of the agency, 

including how it conducts human capital planning. The circular requires 

that agencies report the savings that accrue from A-76 competitions but 

does not provide any guidance on how savings are to be calculated. Our 

work examining the use of Circular A-76 in the Department of Defense 

has shown a lack of consistency among and even within the military 

services in how they calculate savings. Additional OMB guidance, 

additional training, technical resources, or other support for agency 

officials would be helpful for agency officials in preparing for and 

participating in public-private competitions.



The critical issue for all affected parties is how the government’s 

sourcing policies are implemented. In this regard, one of the panel’s 

sourcing principles was that the government should avoid arbitrary 

numerical or full-time equivalent goals.[Footnote 27] This principle is 

based on the concept that the success of government programs should be 

measured by the results achieved in terms of providing value to the 

taxpayer, not the size of the in-house or contractor workforce. 

Although the proposed revised circular contains no numerical targets or 

goals for competitive sourcing, this has been a controversial area in 

the past. In our view, the administration needs to avoid arbitrary 

targets or quotas, or any goal that is not based on considered research 

and analysis.



Continuing Attention Is Needed to Improve Management and Performance 

Across the Federal Government:



As my testimony today has highlighted, serious and disciplined efforts 

are needed to improve the management and performance of federal 

agencies and to ensure accountability. Along with OMB’s leadership in 

implementing PMA, it will only be through the attention of Congress, 

the administration, and federal agencies, that progress can be 

sustained and, more importantly, accelerated. To be successful, 

management improvement initiatives must become a part of agencies’ 

programs and day-to-day actions.



Congressional support has proven to be critical in sustaining interest 

in management initiatives over time. Congress has served as an 

institutional champion for many of the management reform initiatives 

over the years, such as the CFO Act and GPRA. Congress has also 

provided a consistent focus for oversight and has reinforced important 

policies. Making pertinent and reliable information available will be 

necessary for Congress to adequately assess agencies’ progress toward 

PMA initiatives and to ensure accountability for results.



To facilitate congressional oversight and support executive branch 

performance and decision making, the administration could develop and 

use a governmentwide performance plan. This plan, required under the 

GPRA, could become a valuable tool to help Congress and the executive 

branch address critical federal performance and management issues by 

building on the knowledge about the range of programs and tools, 

including baseline and trend information, that are directed toward 

achieving similar results. The first governmentwide performance plan 

was issued in February 1998, and it reflected the challenges of 

preparing a plan for an entity as large and diverse as the federal 

government. We noted that, among other things, attention was needed to 

emphasize an integrated, governmentwide perspective throughout the 

plan.[Footnote 28]



Preparing a governmentwide plan could build on the administration’s 

efforts to assess progress across the government as well as contribute 

to efforts to compare the performance results across similar programs 

that address common outcomes. Although there has been limited progress, 

efforts to date have not provided the Congress and others with an 

integrated perspective on the extent to which programs and tools 

contribute to national goals and position the government to 

successfully meet 21ST century demands.



Mr. Chairman, we are pleased to be able to participate in this hearing 

today and look forward to participating in future oversight hearings 

you have planned on specific PMA initiatives. We have issued a large 

body of reports, guides, and tools on issues directly relevant to PMA, 

and we plan to continue to actively support congressional and agency 

actions to address today’s challenges and prepare for the future. As I 

have discussed in my statement today, although efforts to transform 

agencies by improving their management and performance are under way, 

more remains to be done to ensure that the government has the capacity 

to deliver on its promises and meet current and emerging needs. 

Decisive action and sustained attention will be necessary to transform 

the federal government, maximize its performance, and ensure 

accountability.



:



This concludes my prepared statement. I would be pleased to respond to 

any questions that you or other members of the subcommittee may have.



(450197):



FOOTNOTES



[1] U.S. General Accounting Office, Major Management Challenges and 

Program Risks: A Governmentwide Perspective, GAO-03-95 (Washington, 

D.C.: January 2003).



[2] U.S. General Accounting Office, High-Risk Series: Strategic Human 

Capital Management, GAO-03-120 (Washington, D.C.: January 2003); and 

High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: January 

2003).



[3] Category rating allows a selecting official to select a candidate 

from all qualified candidates instead of limiting the selecting 

official to only the top three ranked candidates as set forth in 5 USC 

Section 3318(a).



[4] U.S. General Accounting Office, Human Capital: Effective Use of 

Flexibilities Can Assist Agencies in Managing Their Workforces, GAO-03-

2 (Washington, D.C.: Dec. 6, 2002).



[5] U.S. General Accounting Office, Major Management Challenges and 

Program Risks: National Aeronautics and Space Administration, GAO-03-

114 (Washington, D.C.: Jan. 2003).



[6] U.S. General Accounting Office, Performance Budgeting: 

Opportunities and Challenges, GAO-02-1106T (Washington, D.C.: Sept. 19, 

2002).



[7] U.S. General Accounting Office, Performance Reporting: Few Agencies 

Reported on the Completeness and Reliability of Performance Data, GAO-

02-372 (Washington, D.C.: Apr. 26, 2002); and Managing for Results: 

Opportunities for Continued Improvements in Agencies’ Performance 

Plans, GAO/GGD/AIMD-99-215 (Washington, D.C.: July 20, 1999).



[8] U.S. General Accounting Office, Major Management Challenges and 

Program Risks: Small Business Administration, GAO-03-116 (Washington, 

D.C.: January 2003).



[9] U.S. General Accounting Office, Results-Oriented Management: Agency 

Crosscutting Actions and Plans in Drug Control, Family Poverty, 

Financial Institution Regulation, and Public Health Systems, GAO-03-320 

(Washington, D.C.: Dec. 20, 2002); Results-Oriented Management: Agency 

Crosscutting Actions and Plans in Border Control, Flood Mitigation and 

Insurance, Wetlands, and Wildland Fire Management, GAO-03-321 

(Washington, D.C.: Dec. 20, 2002); and GAO-02-372.



[10] FFMIA requires auditors to report whether agencies’ financial 

management systems comply with federal financial management systems 

requirements, applicable federal accounting standards (U.S. generally 

accepted accounting principles), and the U.S. Government’s Standard 

General Ledger at the transaction level.



[11] The Federal Emergency Management Agency, which was consolidated 

into the Department of Homeland Security, and the Nuclear Regulatory 

Commission were not scored. The Department of Homeland Security also 

received a red in financial performance.



[12] These include the Departments of Agriculture, Commerce, Defense, 

Education, Health and Human Services, Housing and Urban Development, 

the Interior, Justice, State, Transportation, the Treasury, and 

Veterans Affairs; the Agency for International Development; and the 

National Aeronautics and Space Administration. 



[13] The Departments of Energy and Labor, and the Environmental 

Protection Agency and Office of Personnel Management.



[14] U.S. General Accounting Office, Major Management Challenges and 

Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.: 

January 2003); and GAO-03-119.



[15] U.S. General Accounting Office, Homeland Security: Management 

Challenges Facing Federal Leadership, GAO-03-260 (Washington, D.C.: 

Dec. 20, 2002).



[16] U.S. General Accounting Office, Financial Management: FFMIA 

Implementation Necessary to Achieve Accountability, GAO-03-31 

(Washington, D.C.: Oct. 1, 2002).



[17] U.S. General Accounting Office, Financial Management: Coordinated 

Approach Needed to Address the Government’s Improper Payments Problems, 

GAO-02-749 (Washington, D.C.: Aug. 9, 2002); Government Purchase Cards: 

Control Weaknesses Expose Agencies to Fraud and Abuse, GAO-02-676T 

(Washington, D.C.: May 1, 2002); and High-Risk Series: Federal Real 

Property, GAO-03-122 (Washington, D.C.: January 2003).



[18] U.S. General Accounting Office, Major Management Challenges and 

Program Risks: Department of Health and Human Services, GAO-03-101 

(Washington, D.C.: January 2003); and GAO-03-119.



[19] The JFMIP principals are the Secretary of the Treasury, the 

Director of OMB, the Director of OPM, and the Comptroller General of 

the United States.



[20] U.S. General Accounting Office, Electronic Government: Proposal 

Addresses Critical Challenges, GAO-02-1083T (Washington, D.C.: Sept. 

18, 2002).



[21] U.S. General Accounting Office, Electronic Government: Success of 

the Office of Management and Budget’s 25 Initiatives Depends on 

Effective Management and Oversight, GAO-03-495T (Washington, D.C.: Mar. 

13, 2003).



[22] U.S. General Accounting Office, Electronic Government: Selection 

and Implementation of the Office of Management and Budget’s 24 

Initiatives, GAO-03-229 (Washington, D.C.: Nov. 22, 2002).



[23] U.S. General Accounting Office, High-Risk Series: Protecting 

Information Systems Supporting the Federal Government and the Nation’s 

Critical Infrastructures, GAO-03-121 (Washington, D.C.: January 2003); 

and Financial Audit: IRS’ Fiscal Year 2001 and 2000 Financial 

Statements, GAO-02-414 (Washington, D.C.: Feb. 27, 2002).



[24] U.S. General Accounting Office, Internet Privacy: Agencies’ 

Efforts to Implement OMB’s Privacy Policy, GAO/GGD-00-191 (Washington, 

D.C.: Sept. 5, 2000).



[25] Improving the Sourcing Decisions of the Government. Final report 

of the Commercial Activities Panel (Washington, D. C.: April 2002).



[26] U.S. General Accounting Office, Proposed Revisions to OMB Circular 

A-76, GAO-03-391R (Washington, D.C.: Jan. 16, 2003).



[27] Full time equivalent is a measure of staff hours equal to those of 

a full-time employee working 40 hours per week over the course of a 

year.



[28] U.S. General Accounting Office, The Results Act: Assessment of the 

Governmentwide Performance Plan for Fiscal Year 1999, GAO/AIMD/GGD-98-

159 (Washington, D.C.: Sept. 8, 1998).