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[Beginning of Front Cover] 


United States Government Accountability Office: 

Performance and Accountability Highlights: 

Fiscal Year 2006: 

Serving the Congress and the Nation: 




[End of Front Cover] 

Serving The Congress: 

GAO’S Mission: 

GAO exists to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people. 

Core Values: Accountability: 

We help the Congress oversee federal programs and operations to ensure 
accountability to the American people. GAO’s analysts, auditors, 
lawyers, economists, information technology specialists, investigators, 
and other multidisciplinary professionals seek to enhance the economy, 
efficiency, effectiveness, and credibility of the federal government 
both in fact and in the eyes of the American people. 

Core Values: Integrity: 

We set high standards for ourselves in the conduct of GAO's work. Our 
agency takes a professional, objective, fact-based, nonpartisan, 
nonideological, fair, and balanced approach to all activities. 
Integrity is the foundation of reputation, and GAO's people and 
approach to its work, are designed to ensure both. 

Core Values: Reliability: 

We at GAO want our work to be viewed by the Congress and the American 
public as reliable. We produce high quality reports, testimony, 
briefings, legal opinions, and other products and services that are 
timely, accurate, useful, clear, and candid. 

Scope Of Work: 

GAO performs a range of oversight-, insight-, and foresight-related 
engagements, a vast majority of which are conducted in response to 
congressional mandates or requests. GAO’s engagements include 
evaluations of federal programs; performance, financial and management 
audits; policy analyses; legal opinions; bid protest adjudications; and 

Source: GAO. 

[End of Serving the Congress] 

From the Comptroller General: 

Figure: Photograph of the Comptroller General of the United States, 
David M. Walker: 

[See PDF for Image of Comptroller General] 

Source: GAO. 

[End of Picture of Comptroller General] 

January 2007: 
I am now more than halfway through my 15-year tenure as Comptroller 
General of the United States. As time has passed, I have become more 
impressed with the breadth and quality of GAO’s work, the ability and 
commitment of our staff, and the positive impact GAO’s products and 
activities have on the economy, efficiency, effectiveness, and equity 
of federal programs supporting Americans everywhere. We strive each 
year to provide our client—the Congress—with the objective, fact-based, 
and reliable information it needs to improve the accountability of the 
federal government, and on the basis of our performance outcomes and 
the feedback we received from the Congress, we definitely accomplished 
this goal again in fiscal year 2006. 

We generally exceeded the targets we set for all of our performance 
measures that indicate our ability to produce results for the nation. I 
am extremely proud to say that we helped the federal government achieve 
a total of $51 billion in financial benefits—a record high for us that 
represents a $105 return on every dollar the Congress invested in us. 
As a result of our work we also documented 1,342 nonfinancial benefits 
that like our financial benefits, helped to improve services to the 
public, change laws, and transform government operations. Our client-
focused performance measures indicate that the Congress valued our work 
and was very pleased with it overall. For example, senior GAO 
executives and I delivered testimonies at 240 hearings covering a range 
of topics, including the tax gap and tax reform, U.S. border security, 
Iraq and Hurricane Katrina activities, and issues affecting the health 
and pay of military servicemembers. Our testimonies significantly 
surpassed the fiscal year 2006 target we set as well as our actual 
performance over the last 4 years, and 92 percent of the congressional 
staff responding to our client feedback survey either strongly or 
generally agreed that our testimonies and written products were 
delivered on time to them. Though we were 6 percentage points shy of 
our timeliness target, we will continue our quest to improve the 
timeliness of our products. In addition, we also met or exceeded four 
of our eight performance measures that gauge how well we developed, 
challenged, and managed our workforce. 

I am also proud that we received a clean opinion from an external, 
independent auditor on our financial statements. I am confident that 
the performance information and the financial data included in our full 
performance and accountability report and this highlights booklet are 
complete and reliable. 

Reflecting on fiscal year 2006, I am reminded how often our work has 
focused on the major issues affecting this nation, such as the federal 
government’s efforts to relieve the suffering and recover from the 
devastation of hurricanes Katrina and Rita and improve disaster 
preparedness and coordination for the future. In fiscal year 2006 we 
issued over 30 reports and testimonies related to disaster 
preparedness, response, and reconstruction. In numerous reports and 
testimonies, we also examined how the federal government funded and 
fought the global war on terrorism and the war in Iraq; managed the 
cost of prescription drugs for Medicare enrollees; and safeguarded 
sensitive information systems to protect U.S. citizens from the 
unauthorized use of their Social Security numbers, passports, and other 
personal information. In these and other areas of our work—some of 
which are highlighted later in this report—millions of average Americans 
benefited from our recommendations that were subsequently implemented 
by various federal agencies and the Congress. 

We worked hard in fiscal year 2006 to help members of the Congress and 
the public better understand the trends and challenges facing the 
United States and its position in the world and to grasp the long-term 
and collateral implications of current policy paths. Through a number 
of reports, testimonies, presentations, and partnerships, we built on 
our groundbreaking report called 21st Century Challenges: Reexamining 
the Base of the Federal Government. This unprecedented effort 
highlights several demographic, economic, and other trends—such as 
longer life spans, slowing workforce growth, and a large national 
deficit—that will have a significant adverse impact on our nation’s 
fiscal future. The report also asks a series of questions about, among 
other things, mandatory and discretionary spending and tax policy. I, 
along with representatives from a broad range of concerned groups, 
discussed the serious fiscal imbalances facing the United States at 
town hall meetings in 10 different cities across the country. This 
“Fiscal Wake-up Tour,” sponsored by the Concord Coalition, has helped 
to increase awareness about the nation’s worsening financial situation 
and encourage discussion about possible solutions. I carried this 
message to congressional decision makers through various testimonies 
and information sessions with various congressional caucuses and many 
congressional members. In addition, we continued to examine federal 
areas and programs at risk of fraud, waste, abuse, and mismanagement 
and those in need of broad-based transformations, and added another 
troubled program to our high-risk list—the National Flood Insurance 

Change is not only essential for progress and innovation in the federal 
government as a whole, it is essential for the agencies and 
organizations that support the government, too—and GAO is no exception. 
During fiscal year 2006 we implemented a number of changes internally 
to move us toward our goal of becoming a world-class professional 
services organization. For example, we restructured our midlevel, 
policy analyst staff into two separate pay ranges in response to market 
data collected last year during the development of our competency-based 
performance appraisal system for analysts. These data showed that our 
prior Band II pay range encompassed two distinct levels of 
responsibility, and we made changes to ensure that we achieve the goal 
of equal pay for work of equal value over time. We also established 
market-based pay ranges for our professional and administrative support 
staff as we had done previously for our analyst staff. In addition, we 
began a comprehensive review of how we recruit both mission and mission 
support staff. The review team focused on five broad areas: college 
recruitment, candidate assessment, annual hiring, negotiating and 
processing job offers, and recruiting issues affecting administrative 
and support staff. We also began an outreach program to recruit 
candidates for our new executive exchange program that will give 
private sector employees at various companies, including accounting 
firms and think tanks, a direct hands-on experience in the public 

It is vital for all organizations to understand the big picture, learn 
from the past, and be prepared for the future; we attempted to do these 
things in fiscal year 2006 by taking steps to position our workforce 
for the coming years. These actions helped to address some issues 
associated with our various human capital management challenges. We 
also took actions to address our other management challenges focused on 
securing the information we collect and produce and our physical 
environment. However, a significant challenge for us in fiscal year 
2006 was, and will remain in the near term, the federal budget. We and 
other federal agencies took steps to deal with constrained budgets. We 
are currently operating under a continuing resolution at our fiscal 
year 2006 funding level. During the past fiscal year, we tried to 
absorb this funding reduction without seriously disrupting our 
operations by modifying the timing of our hiring decisions and offering 
eligible staff the opportunity to retire early on a targeted, expedited 
basis. We will continue to actively manage these challenges in the 

During the rest of my tenure I intend to place additional attention on 
helping the Congress examine and address the nation’s longterm fiscal 
outlook, health care reform, and the need to transform the Department 
of Defense. We will also work to enhance collaboration with our sister 
agencies in the legislative branch and continue to build partnerships 
with various accountability and other good government organizations. 
When it comes to improving government performance, strengthening 
accountability, and enhancing public trust, I take seriously my 
responsibility as Comptroller General and pledge to continue to guide 
GAO in its efforts to help the government work better for the benefit 
of the American people. 

Signed by: 

David M. Walker: 
Comptroller General of the United States 

[End of From the Comptroller General] 

About GAO: 

We exist to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people. 

GAO is an independent, nonpartisan, professional services agency in the 
legislative branch of the federal government. Commonly known as the 
“audit and investigative arm of the Congress” or the “congressional 
watchdog,” we examine how taxpayer dollars are spent and advise 
lawmakers and agency heads on ways to make government work better. 

As a legislative branch agency, we are exempt from many laws that apply 
to the executive branch agencies. However, we generally hold ourselves 
to the spirit of many of the laws, including 31 U.S.C. 3512 (commonly 
referred to as the Federal Managers’ Financial Integrity Act), the 
Government Performance and Results Act of 1993, and the Federal 
Financial Management Improvement Act of 1996.[Footnote 1]  Accordingly, 
this performance and accountability report for fiscal year 2006 
supplies what we consider to be information that is at least equivalent 
to that supplied by executive branch agencies in their annual 
performance and accountability reports. 

We accomplish our mission by providing reliable information and 
informed analysis to the Congress, to federal agencies, and to the 
public; and we recommend improvements, when appropriate, on a wide 
variety of issues. Three core values—accountability, integrity, and 
reliability—form the basis for all of our work, regardless of its 
origin. These are described on the inside front cover of this report. 

To accomplish our mission, we use a strategic planning and management 
process that is based on a hierarchy of four elements—key efforts, 
performance goals, strategic objectives, and strategic goals. Our 
strategic plan framework, described below, outlines our four strategic 
goals and 21 strategic objectives— the two highest levels in the 
hierarchy—that guided our work during fiscal year 2006. Our work is 
primarily aligned under the first three strategic goals, which span 
issues that are both domestic and international, affect the lives of 
all Americans, and influence the extent to which the federal government 
serves the nation’s current and future interests (see fig. 1). The 
fourth goal is our only internal one and is aimed at maximizing our 
productivity. Complete descriptions of the steps in our strategic 
planning and management process are included in our strategic plan for 
fiscal years 2004 through 2009, which is available on our Web site at 

Throughout GAO, we maintain a workforce of highly trained professionals 
with degrees in many academic disciplines, including accounting, law, 
engineering, public and business administration, economics, and the 
social and physical sciences. About three-quarters of our approximately 
3,200 employees are based at our headquarters in Washington, D.C; the 
rest are deployed in 11 field offices across the country. Staff in 
these field offices are aligned with our research, audit, and 
evaluation teams and perform work in tandem with our headquarters 

GAO Field Locations: 

Los Angeles: 
San Francisco: 

The pages that follow offer highlights of our performance and 
accountability report for fiscal year 2006. We also present our 
condensed financial statements and the independent auditor’s opinion on 
them. If you would like additional information, please see the full-
length version of our performance and accountability report and other 
performance-related documents at [Hyperlink,]. 

Serving the Congress and the Nation: GAO's Strategic Plan Framework: 


GAO exists to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people. 


* Long-Term Fiscal Imbalance; 

* National Security; 

* Global Interdependence; 

* Changing Economy; 

* Demographics; 

* Science and Technology; 

* Quality of Life; 

* Governance; 

Goals and Objectives: 

Provide Timely, Quality Service to the Congress and the Federal 
Government to... 

Address Current and Emerging Challenges to the Well-Being and Financial 
Security of the American People related to... 

* Health care needs and financing; 

* Education and protection of children; 

* Work opportunities and worker protection; 

* Retirement income security; 

* Effective system of justice; 

* Viable communities; 

* Natural resources use and environmental protection; 

* Physical infrastructure; 

Provide Timely, Quality Service to the Congress and the Federal 
Government to... 

Respond to Changing Security Threats and the Challenges of Global 
Interdependence involving... 

* Emerging threats; 

* Military capabilities and readiness; 

* Advancement of U.S. interests; 

* Global market forces; 

Help Transform the Federal Government's Role and How It Does 
Business to Meet 21st Century Challenges by assessing... 

* Roles in achieving federal objectives; 

* Government transformation; 

* Key management challenges and program risks; 

* Fiscal position and financing of the government; 

Maximize the Value of GAO by Being a Model Federal Agency and a World- 
Class Professional Services Organization in the areas of... 

* Client and customer satisfaction; 

* Strategic leadership; 

* Institutional knowledge and experience; 

* Process improvement; 

* Employer of choice: 

Core Values: 

* Accountability; 

* Integrity; 

* Reliability; 

Fiscal Years 2004-2009. 

Source: GAO. 

[End of GAO's Strategic Plan Framework] 

Figure 1: Examples of How GAO Assisted the Nation: 

A Table listing GAO's strategic goals and what it accomplished to reach 
those goals. 

Strategic Goal 1: 
Description: Provide Timely, quality service to the Congress and the 
federal government to address current and emerging challenges to the 
well-being and financial security of the American people; 
In Fiscal 
year 2006, GAO provided information that helped to: 
* protect Social Security numbers from abuse; 
* ensure the effectiveness of federal investments in science, 
technology, engineering, and mathematics education programs; 
* identify actions needed to improve Federal Emergency Management 
Agency (FEMA) and REd Cross coordination for the 2006 hurricane season; 
* highlight weaknesses in the Department of Health and Human Services' 
communications with beneficiaries about the new Medicare prescription 
drug benefit; 
* identify funding formula and drug pricing disparities in the federal 
AIDS/HIV program; 
* strengthen the oversight of clinical laboratories; 
* identify challenges the Department of Homeland Security (DHS) faces 
in controlling illegal immigration into the United States; 
* assess the thoroughness of the federal fair housing complaint and 
investigation process; 
* improve the management of federal oil and natural gad royalty 
* develop a strategy for managing wildfires; 
* focus on the short- and long-term challenge of financing the nation's 
transportation infrastructure; 
* identify outdated mail delivery performance standards used by the 
U.S. Postal Service (USPS). 

Strategic Goal: 2; 
Description: Provide timely, quality service to the Congress and the 
federal government to respond to changing security threats and the 
challenges of global interdependence; 
In Fiscal year 2006, GAO provided 
information that helped to: 
* identify current and future funding and cost issues related to 
Department of Defense (DOD) operations in Iraq and Afghanistan; 
* highlight inefficiencies that could hinder DOD's efforts to reform 
its business operations; 
* improve controls over the issuance of passports and visas and 
increase fraud prevention; 
* improve catastrophic disaster preparedness, response, and recovery; 
* improve the ability of federal agencies to cost effectively acquire 
goods and services; 
* improve the management of payments to U.S. producers injured 
financially by unfairly traded imports; 
* alert the Congress to companies that are marketing costly mutual fund 
products with low returns to military servicemembers; 
* identify steps needed to overhaul investment and management processes 
supporting major DOD acquisitions; 
* improve security at nuclear power plants; 
* improve DHS's ability to detect nuclear smuggling at U.S. ports; 
* promote government efforts to secure sensitive systems and 
* highlight the cost concerns of small public companies that must 
comply with internal control and auditing provisions of the Sarbanes- 
Oxley Act. 

Strategic Goal: 3; 
Description: Help transform the federal government's role and how it 
does business to meet the 21st century challenges; 
In Fiscal year 2006, GAO provided information that helped to: 
* improve congressional oversight of the process for reviewing foreign 
direct investment; 
* strengthen DOD's information systems modernization efforts; 
* highlight serious technical and cost challenges affecting the 
purchase of a critical weather satellite; 
* highlight key practices federal agencies should adopt to prevent data 
breaches and better protect the personal information of U.S. citizens; 
* monitor the development of the 2010 decennial census; 
* identify strategies to reduce the gap between the taxes citizens pay 
and the taxes actually owed; 
* focus attention on the revenue consequences of tax expenditures; 
* identify fraud, waste, and abuse in a component of FEMA's disaster 
assistance program; 
* emphasize the importance of reliable cost information for improving 
governmentwide cost efficiency; 
* expose government contractors who used for personal gain federal 
payroll taxes withheld from their employees. 

Strategic Goal: 4; 
Description: Maximize the value of GAO being a model federal agency and 
a world-class professional services organization; 
In Fiscal year 2006, 
GAO provided information that helped to: 
* foster among other federal agencies GAO's innovative human capital 
practices, such as broad pay bands; performance-based compensation; and 
workforce planning and staffing strategies, policies, and processes; 
* share GAO's model business and management processes with counterpart 
organizations in the United States and abroad. 

Source: GAO. 

[End of How GAO Assisted the Nation] 

[End of About GAO] 

GAO’s Performance: 

The work we did in fiscal year 2006 as well as some of our past work 
contributed greatly to our impressive performance shown in table 1. In 
fiscal year 2006, we added internal operations measures to our 
scorecard of results, client, and people measures. We used these new 
measures to assess how well our internal administrative services help 
employees do their jobs or improve the quality of their work life. 

Table 1: Agencywide Summary of Annual Measures and Targets: 

Performance Measure: Results: Financial benefits (dollars in billions); 
2002 Actual: $37.7 billion; 
2003 Actual: $35.4 billion; 
2004 Actual: $44.0 billion; 
2005 Actual: $39.6 billion; 
2006: Target: $39.0 billion; 
2006: Actual: $51.0 billion; 
Met/Not Met: Met; 
2007 Target: $40.0 billion. 

Performance Measure: Results: Nonfinancial benefits; 
2002 Actual: 906; 
2003 Actual: 1,043; 
2004 Actual: 1,197; 
2005 Actual: 1,409; 
2006: Target: 1,050; 
2006: Actual: 1,342; 
Met/Not Met: Met; 
2007 Target: 1,100. 

Performance Measure: Results: Past recommendations implemented; 
2002 Actual: 79%; 
2003 Actual: 82%; 
2004 Actual: 83%; 
2005 Actual: 85%; 
2006: Target: 80%; 
2006: Actual: 82%; 
Met/Not Met: Met; 
2007 Target: 80%. 

Performance Measure: Results: New products with recommendations; 
2002 Actual: 53%; 
2003 Actual: 55%; 
2004 Actual: 63%; 
2005 Actual: 63%; 
2006: Target: 60%; 
2006: Actual: 65%; 
Met/Not Met: Met; 
2007 Target: 60%. 

Performance Measure: Client: Testimonies; 
2002 Actual: 216; 
2003 Actual: 189; 
2004 Actual: 217; 
2005 Actual: 179; 
2006: Target: 210; 
2006: Actual: 240; 
Met/Not Met: Met; 
2007 Target: 185. 

Performance Measure: Client: Timeliness[A]; 
2002 Actual: N/A[B]; 
2003 Actual: N/A; 
2004 Actual: 89%; 
2005 Actual: 90%; 
2006: Target: 98%; 
2006: Actual: 92%; 
Met/Not Met: Not met; 
2007 Target: 95%[C]. 

Performance Measure: People: New hire rate; 
2002 Actual: 96%; 
2003 Actual: 98%; 
2004 Actual: 98%; 
2005 Actual: 94%; 
2006: Target: 97%; 
2006: Actual: 94%; 
Met/Not Met: Not met; 
2007 Target: 95%[D]. 

Performance Measure: People: Acceptance rate; 
2002 Actual: 81%; 
2003 Actual: 72%; 
2004 Actual: 72%; 
2005 Actual: 71%; 
2006: Target: 75%; 
2006: Actual: 70%; 
Met/Not Met: Not met; 
2007 Target: 72%[D]. 

Performance Measure: People: Retention rate: with retirements; 
2002 Actual: 91%; 
2003 Actual: 92%; 
2004 Actual: 90%; 
2005 Actual: 90%; 
2006: Target: 90%; 
2006: Actual: 90%; 
Met/Not Met: Met; 
2007 Target: 90%[D]. 

Performance Measure: People: Retention rate: Without retirements; 
2002 Actual: 97%; 
2003 Actual: 96%; 
2004 Actual: 95%; 
2005 Actual: 94%; 
2006: Target: 94%; 
2006: Actual: 94%; 
Met/Not Met: Met; 
2007 Target: 94%[D]. 

Performance Measure: People: Staff development; 
2002 Actual: 71%; 
2003 Actual: 67%; 
2004 Actual: 70%; 
2005 Actual: 72%; 
2006: Target: 74%; 
2006: Actual: 76%; 
Met/Not Met: Met; 
2007 Target: 75%. 

Performance Measure: People: Staff utilization; 
2002 Actual: 67%; 
2003 Actual: 71%; 
2004 Actual: 72%; 
2005 Actual: 75%; 
2006: Target: 75%; 
2006: Actual: 75%; 
Met/Not Met: Met; 
2007 Target: 78%. 

Performance Measure: People: Leadership; 
2002 Actual: 75%; 
2003 Actual: 78%; 
2004 Actual: 79%; 
2005 Actual: 80%; 
2006: Target: 80%; 
2006: Actual: 79%; 
Met/Not Met: Not met; 
2007 Target: 80%. 

Performance Measure: People: Organizational climate; 
2002 Actual: 67%; 
2003 Actual: 71%; 
2004 Actual: 74%; 
2005 Actual: 76%; 
2006: Target: 75%; 
2006: Actual: 73%; 
Met/Not Met: Not met; 
2007 Target: 76%. 

Performance Measure: Internal operations[E]: Help get job done; 
2002 Actual: N/A; 
2003 Actual: 3.98; 
2004 Actual: 4.01; 
2005 Actual: 4.10; 
2006: Target: 4.00; 
2006: Actual: N/A; 
Met/Not Met: N/A; 
2007 Target: 4.00. 

Performance Measure: Internal operations[E]: Quality of work life; 
2002 Actual: N/A; 
2003 Actual: 3.86; 
2004 Actual: 3.96; 
2005 Actual: 3.98; 
2006: Target: 4.00; 
2006: Actual: N/A; 
Met/Not Met: N/A; 
2007 Target: 4.00. 

Source: GAO. 

Note: Information explaining all of the measures included in this table 
appears in the Data Quality and Program Evaluations section of the full 
performance and accountability report. 

[A] Since fiscal year 2004 we have collected data from our client 
feedback survey on the quality and timeliness of our products, and in 
fiscal year 2006 we began to use the independent feedback from this 
survey as a basis for determining our timeliness. 

[B] N/A indicates that the data are not available yet or are not 
applicable because we did not collect the data during this period. 

[C] Our fiscal year 2007 target for timeliness shown above differs from 
the target we reported for this measure in our fiscal year 2007 
performance budget in January 2006. Specifically, we decreased our 
timeliness target by 3 percentage points to create a challenging target 
given our new method for calculating this measure. 

[D] Our fiscal year 2007 targets for the first four people measures 
shown above differ from the targets we reported for these measures in 
our fiscal year 2007 performance budget in January 2006. Specifically, 
we lowered the new hire rate target by 2 percentage points and the 
acceptance rate target by 3 percentage points and decreased by 1 
percentage point each of the targets associated with retention rate. We 
made these adjustments on the basis of our past performance and future 
budget projections. 

[E] For our internal operations measures, we will report actual data 
for fiscal year 2006 once data from our November 2006 internal customer 
satisfaction survey have been analyzed. 

[End of table] 

Results Measures: 

Focusing on outcomes and the efficiency of the processes needed to 
achieve them is fundamental to accomplishing our mission. The following 
measures indicate that we have fulfilled our mission and delivered 
results that benefit the nation. 

Financial Benefits and Nonfinancial Benefits: 

We describe many of the results produced by our work as either 
financial or nonfinancial benefits. Both types of benefits result from 
our efforts to provide information to the Congress that helped to (1) 
change laws and regulations, (2) improve services to the public, and 
(3) promote sound agency and governmentwide management. In many cases, 
the benefits we claimed in fiscal year 2006 are based on work we did in 
past years because it often takes the Congress and agencies time to 
implement our recommendations or to act on our findings. 

Financial Benefits: 

Our findings and recommendations produce measurable financial benefits 
for the federal government when the Congress or agencies act on them 
and the funds are made available to reduce government expenditures or 
are reallocated to other areas. The monetary effect realized can be the 
result of changes in: 

* business operations and activities; 

* the structure of federal programs; or: 

* entitlements, taxes, or user fees. 

For example, financial benefits could result if the Congress were to 
reduce the annual cost of operating a federal program or lessen the 
cost of a multiyear program or entitlement. Financial benefits could 
also result from increases in federal revenues—because of changes in 
laws, user fees, or asset sales—that our work helped to produce. 

Financial benefits included in our performance measures are net 
benefits—that is, estimates of financial benefits that have been 
reduced by the costs associated with taking the action that we 
recommended. We convert all estimates involving past and future years 
to their net present value and use actual dollars to represent 
estimates involving only the current year. Financial benefit amounts 
vary depending on the nature of the benefit, and we can claim financial 
benefits over multiple years based on a single agency or congressional 
action. To ensure conservative estimates of net financial benefits, 
reductions in operating cost are typically limited to 2 years of 
accrued reductions. Multiyear reductions in long-term projects, changes 
in tax laws, program terminations, or sales of government assets are 
limited to 5 years. In general, estimates come from non-GAO sources and 
are reduced by any identifiable offsetting costs. These non-GAO sources 
are typically the agency that acted on our work, a congressional 
committee, or the Congressional Budget Office. 

To document financial benefits, our staff complete reports documenting 
accomplishments that are linked to specific products or actions. All 
accomplishment reports for financial benefits are documented and 
reviewed by (1) another GAO staff member not involved in the work and 
(2) a senior executive in charge of the work. Also, a separate unit, 
our Quality and Continuous Improvement office, reviews all financial 
benefits and approves benefits of $100 million or more, which amounted 
to 96 percent of the total dollar value of benefits recorded in fiscal 
year 2006. Our Office of Inspector General (IG) also performed an 
independent review of accomplishment reports claiming benefits of $100 
million or more in fiscal year 2006. Figure 2 lists several of our 
major financial benefits for fiscal year 2006 and briefly describes 
some of our work contributing to financial benefits. 

Figure 2: GAO’s Selected Major Financial Benefits Reported in Fiscal 
Year 2006: 

Description: Ensured continued monetary benefits from federal spectrum 
auctions. In 1993 the Congress provided the Federal Communications 
Commission (FCC) authority to use auctions to assign certain spectrum 
licenses, and since then the FCC has conducted 59 auctions that have 
generated over $14.5 billion for the U.S. Treasury. However, critics of 
these auctions asserted, among other things, that auctions raised 
consumer prices, slowed infrastructure deployment, and distorted 
competition. The FCC's auction authority was scheduled to expire on 
September 30, 2007. We reported that auctions had little to no negative 
impact on the wireless industry and are more effective than previous 
assignment mechanisms. We therefore recommended that the Congress 
consider extending the FCC's auction authority beyond the scheduled 
expiration date, which it acted on in 2006. Additionally, the Congress 
established December 31, 2006, as the target date for the completion of 
the digital television (DTV) transition and eventual auction of a 
substantial portion of this spectrum --however, this date could be 
extended if an insufficient number of households adopt DTV 
technologies. We reported in 2002 that the DTV transition would be 
unlikely to occur in 2006 and at the request of the Congress, we 
examined the cost of a subsidy program for DTV technologies to speed 
the DTV transition. In 2005, we testified and provided information on 
(1) the potential cost of a DTV technologies program under various 
scenarios and (2) issues and complexities in the administration of a 
subsidy program. Using much of our work during its deliberations on 
these issues, the Congress subsequently passed legislation that among 
other things, (1) sanctioned a DTV subsidy program and (2) extended the 
FCC's auction authority until 2011. The Congressional Budget Office 
projects a net savings of $7.2 billion from 2006 through 2010, which 
has a net present value of about $6.1 billion. (Goal 1); 
Amount: $6.1 billion. 

Description: Encouraged DOD to identify and reduce unobligated funds in 
the military services' operations and maintenance budget. DOD estimates 
that in past years the Congress has reduced its operations and 
maintenance accounts by an average of almost $200 million a year on the 
basis of our unobligated balance analyses. Therefore, to address the 
persistent problem of unobligated balances and to protect DOD 
resources, DOD reduced by about $4.3 billion the military services' 
operations and maintenance baseline program at the appropriation level 
for fiscal years 2007 through 2011 using a methodology similar to the 
one we used to identify unobligated balances. DOD officials stated that 
they took this action because they would rather make the adjustments 
themselves than have the Congress make reductions based on our annual 
analyses. The net present value of the $4.3 billion reduction by DOD is 
about $3.9 billion. (Goal 2); 
Amount: $3.9 billion. 

Description: Recommended payment methods that cut Medicare costs for 
durable medical equipment, orthotics, and prosthetics. Medicare's 
supplementary medical insurance program (Medicare Part B) spent almost 
$7.8 billion for durable medical equipment, prosthetics, orthotics, and 
supplies in 2002 on behalf of its beneficiaries. For most of these 
items, Medicare payments are primarily based on historical charges from 
the mid-1980s, adjusted for inflation in some years, rather than market 
prices. We have repeatedly reported that Medicare payments for some 
medical equipment and supplies are out of line with actual market 
prices. This can occur when providers' costs for equipment and supplies 
have declined over time as competition and efficiencies have increased. 
We suggested several options to the Congress to better align Medicare 
fees with market prices, such as giving the Centers for Medicare & 
Medicaid Services (CMS) authority to conduct competitive bidding for 
these items. The Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 requires CMS to implement competitive 
acquisition of durable medical equipment, off-the-shelf orthotics, and 
supplies in 10 of the largest metropolitan statistical areas in 2007, 
80 of the largest areas in 2009, and in other areas thereafter. CMS can 
use information on the amounts paid in competitive acquisition areas to 
adjust Medicare payments in other localities. The Congressional Budget 
Office estimated that competitive bidding and the other changes to 
payment methods for durable medical equipment, orthotics, prosthetics, 
and supplies would result in a net reduction in Medicare spending of 
$6.8 billion from fiscal years 2005 through 2013. The Congressional 
Budget Office's estimate would result in a present value financial 
benefit to the Supplementary Medical Insurance Trust Fund of $2.972 
billion for fiscal year 2005 through fiscal year 2009. After 
subtracting estimated costs, the net present value of the total 
financial benefit is $2.905 billion. (Goal 1); 
Amount: $2.9 billion. 

Description: Helped to ensure that certain USPS retirement-related 
benefits would be funded. The Office of Personnel Management (OPM) 
analyzed the funding of USPS's retirement plans and reported in 2002 
that the current level of pension fund contributions would result in a 
surplus of funds and that this surplus would adequately cover future 
pension benefit obligations. At the request of the Congress, we 
reviewed this analysis and a proposal by the administration to change 
the funding formula. We emphasized to the Congress that even though 
USPS had projected a funds surplus, at the time we conducted our review 
USPS had not yet funded $40 billion to $50 billion in postretirement 
health benefits. In response, the Congress passed Pub. L. No. 108-018, 
the Postal Civil Service Retirement System Funding Reform Act of 2003, 
which, among other things, required that any reduction in USPS's annual 
pension fund after 2005 resulting from changes to the funding formula 
be held in an escrow account. The Congress wanted the funds made 
available from any pension payment reductions to be used to address 
USPS's unfunded postretirement health obligations. In 2005, USPS 
determined that it would not generate enough revenue in 2006 to fully 
fund the $3.1 billion escrow requirement for that fiscal year. USPS 
responded by raising postal rates effective January 2006 solely to fund 
the escrow requirement. This action by USPS avoided substantial costs 
to the federal government in the form of appropriations that would have 
been used to cover the escrow shortfall. Raising rates to fund the 
escrow account is projected to result in additional revenue during 
fiscal year 2006 that has a net present value of about $2.2 billion. 
(Goal 3); 
Amount: $2.2 billion. 

Description: Identified recoverable costs for the Tennessee Valley 
Authority (TVA). In past years, we reported that TVA--an independent 
federal government corporation that among other things, provides the 
public with electricity produced by several dams constructed in the 
Tennessee Valley area--had far greater financing and deferred asset 
costs than its competitors. TVA's financial condition gives it little 
flexibility to meet potential future competitive challenges, threatens 
its long- term viability, and places the federal government at 
financial risk. We also reported that the costs associated with TVA's 
three mothballed nuclear units (referred to in our work as deferred 
assets) did not represent viable construction projects and concluded 
that generally accepted accounting principles required TVA to begin 
immediately writing off and recovering the cost of these assets. We 
identified several options for improving TVA's financial condition, 
including raising its electricity rates and using the additional cash 
generated from the rate increase to reduce borrowing or pay down debt. 
In July 2005, TVA announced a rate increase of 7.5 percent effective 
October 1, 2005. This action by TVA will avoid substantial costs to the 
federal government in the form of appropriations that would have to be 
used to address TVA's fiscal challenges. TVA projects that the 7.5 
percent rate increase will provide about $524 million in additional 
annual revenue beginning in fiscal year 2006 and will enable it to 
reduce its debt and amortize the $3.9 billion deferred asset balance 
from one of its mothballed nuclear plants. This financial benefit 
pertains to the first 5 years of the rate increase. The net present 
value of the associated increase in federal revenues is about $1.8 
billion over 5 years. (Goal 3); 
Amount: $1.8 billion. 

Description: Helped to increase collections of civil debt. In July 
2001, we reported that the Department of Justice's (Justice) financial 
litigation units, which are responsible for both criminal and civil 
debt collection, did not have adequate procedures for enforcing 
collections. We made a number of recommendations to the Attorney 
General to help the units improve criminal debt collections and stem 
the growth in reported uncollected criminal debt. One such 
recommendation was to reinforce policies and procedures for entering 
cases into debt tracking systems; filing liens; issuing demand letters, 
delinquent notices, and default notices; performing asset discovery 
work; and using other enforcement techniques. These policies and 
procedures are applicable to the units' civil as well as criminal debt 
collection efforts. In January 2002, Justice completed actions to 
address this recommendation. In conjunction with implementing our 
recommendation, Justice has also provided training materials to unit 
staff involved in debt collection. These actions helped it to increase 
collections of civil debt by about $683.8 million in fiscal year 2002, 
and $719.4 million in fiscal year 2003. The net financial benefit has a 
present value of about $1.58 billion. (Goal 3); 
Amount: $1.6 billion. 

Description: Encouraged the Department of Housing and Urban Development 
(HUD) to take actions to reduce improper payments. For many years HUD 
had done very little to oversee third-party entities (such as local 
public housing agencies and property owners) that are responsible for 
administering its rental assistance programs, including determining 
subsidy amounts and household eligibility. HUD responded to the high- 
risk designation by establishing the Rental Housing Integrity 
Improvement Project in the spring of 2001. As part of the Rental 
Housing Integrity Improvement Project initiative, HUD developed annual 
goals for reducing improper payments from the baseline fiscal year 2000 
level: 15 percent by fiscal year 2003 and 30 percent by fiscal year 
2004. HUD implemented on-site reviews of program administrators--a key 
component of the Rental Housing Integrity Improvement Project 
initiative--starting in June 2002. Other significant actions initiated 
under the Rental Housing Integrity Improvement Project included 
automating the process used to verify tenant-reported income, offering 
additional training to program administrators, and improving program 
guidance. HUD has met its goals for reducing improper payments and 
attributed this reduction to the aggressive steps it has taken under 
the Rental Housing Integrity Improvement Program initiative. The amount 
of financial benefit is the reduction in the estimated improper 
payments in fiscal years 2003 and 2004 relative to those in fiscal year 
2000. The computed reductions were $658 million in fiscal year 2003 and 
$660 million in fiscal year 2004--a total of $1.318 billion with a net 
present value of $1.43 billion. (Goal 1); 
Amount: $1.4 billion. 

Description: Supported the Department of Energy's (DOE) efforts to 
reduce its carryover funds. Beginning in its 2001 annual report on 
carryover balances, DOE formally acknowledged our role in helping the 
agency identify, monitor, and reduce its uncosted obligations--funds 
that have been allocated to specific projects, but have not yet been 
spent and are not needed to meet near-term commitments. These uncosted 
obligations are essentially carryover balances that could be used to 
reduce future budget requests. In 1992, we identified (1) uncosted 
obligations as a growing DOE problem and (2) the need for an effective 
system to monitor these funds. Over the years, DOE has developed an 
analytical approach to better identify the portion of its uncosted 
obligations that could be used to offset annual appropriations 
requests, and we have monitored its efforts through our annual review 
of the DOE budget. In 2001, the Congress began working with DOE on how 
to use the carryover balances to offset programmatic costs and reduce 
potential budget requests, and DOE has continued to analyze and provide 
information to the Congress on its reprogramming of carryover balances. 
The appropriation reductions resulting from the congressional actions 
taken in concert with DOE--in response to our work--for fiscal years 
2001 through 2005 are about $1 billion. The implementation costs are 
considered negligible. The net present value is about $1.2 billion. 
(Goal 1); 
Amount: $1.2 billion. 

Source: GAO. 

[End of table] 

[End of Financial Benefits] 

Nonfinancial Benefits: 

Many of the benefits that result from our work cannot be measured in 
dollar terms. During fiscal year 2006, we recorded a total of 1,342 
nonfinancial benefits. We documented 667 instances where federal 
agencies used our information to improve services to the public, 61 
instances where the information we provided to the Congress resulted in 
statutory or regulatory changes, and 614 instances where agencies 
improved core business processes or governmentwide reforms as a result 
of our work. In figure 3, we provide examples of some of the 
nonfinancial benefits we claimed as accomplishments in fiscal year 
2006. The laws that we cite in the first section of this figure were 
passed in fiscal year 2006. 

Figure 3: GAO's Selected Nonfinancial Benefits Reported in Fiscal Year 

Nonfinancial benefits that helped to change laws: 

Deficit Reduction Act of 2005, Pub. L. No. 109-171: 

Our work is reflected in this law in different ways: 

* Strengthening Medicaid program integrity. Our 2005 work was 
considered in writing the provisions of this act that provided for the 
creation of the Medicaid Integrity Program--which seeks to combat 
fraud, waste, and abuse in the Medicaid program--and specified 
appropriations to fund the program. Consistent with our findings, the 
act also required CMS to devote more staff to combating Medicaid 
provider fraud and abuse; to develop a comprehensive plan for the 
Medicaid Integrity Program every 5 fiscal years; and to report annually 
to the Congress on the use, and the effectiveness of activities 
supporting the use, of the appropriated funds. (Goal 1). 

* Improving oversight of the states' performance under the Temporary 
Assistance for Needy Families (TANF) program. We determined that 
differences in how states define the categories of work that count 
toward meeting the federal work requirements under TANF led to 
inconsistent measurement across states and to work participation data 
that could not be used to compare the performance of states. We also 
found that some states lacked internal controls to help ensure the work 
data were reliable. Congressional staff relied heavily on our report in 
writing provisions of this act that require HHS to provide additional 
direction and oversight regarding how to count and verify TANF work 
participation. (Goal 1). 

* Addressing domestic violence. In 2005, we reported that specifically 
addressing domestic violence is important to ensuring that marriage and 
responsible fatherhood programs address its dangers. We concluded that 
while most of these programs did not address the issues of domestic 
violence explicitly, evidence suggested that these issues should be 
explicitly addressed. Our findings influenced lawmakers to require 
through this act that all entities seeking grants to fund marriage 
promotion and responsible fatherhood programs describe how they will 
address domestic violence. (Goal 1). 

* Improving oversight of schools that are lenders. Congressional 
members cited our report on Federal Family Education Loan Program 
lenders as a catalyst for helping them to enact changes addressing the 
lending, contracting, and compliance practices on which we had 
reported. As a result, critical program measures are now in place to 
cover all school lenders, allowing the Department of Education 
(Education) to assess the adequacy of loan procedures, the financial 
resources of lenders, and the accreditation status of all school 
lenders. (Goal 1). 

Safe and Timely Interstate Placement of Foster Children Act of 2006, 
Pub. L. No. 109-239: 

Our work found that data to assess the timeliness of interstate 
placements of foster children were lacking, and that HHS was not able 
to identify states that may need improvements in their processes or may 
be burdened by other states' requests for assistance with placements. 
Congressional staff stated that our findings played a critical role in 
deliberations on the bill that became this act. Consistent with our 
findings, the act requires a state receiving a request to place a child 
for adoption or foster care to complete a home study within 60 days and 
requires the state making the request to respond within 14 days of 
receiving the home study. In addition, the act authorizes funding for 
an incentive program of $1,500 for every home study completed within 30 
days and requires that state plans for child welfare services include 
reference to state efforts to facilitate orderly and timely intrastate 
and interstate placements. (Goal 1). 

Nonfinancial benefits that helped to improve services to the public: 

Strengthening passport and visa issuance processes: 

Our work led the Department of State (State), in coordination with 
other agencies, to improve passport and visa controls. Thousands of 
names have been added to data systems to prevent persons with 
outstanding federal felony warrants from obtaining passports to leave 
the United States, passport information sharing among law enforcement 
agencies has increased, and staff received additional fraud prevention 
training. Also, State directed overseas posts to strengthen visa 
oversight and improve compliance with internal control requirements to 
ensure the integrity of the visa function; increase information 
sharing, especially regarding visa applicants who may pose security 
risks; and improve visa officers' ability to detect fraudulent visa 
applicants. (Goal 2). 

Identified vulnerabilities in the process to verify personal 
information about new drivers: 

To help make states less vulnerable to identity fraud, we recommended 
that the Social Security Administration (SSA) match drivers license 
verification requests submitted by states with SSA's records of 
deceased Social Security number (SSN) owners. At the time of our 
review, SSA was already matching requests with the names, birth dates, 
and SSNs of living SSN owners. By March 2006, SSA had implemented the 
software needed to modify its batch verification process and had begun 
notifying state agencies when the SSNs they were checking on belonged 
to deceased individuals. (Goal 1). 

Contributed to the increased visibility of a transportation information 
sharing program for seniors: 

We recommended that the Administration on Aging take the lead in 
developing a plan--in consultation with the Coordinating Council--for 
publicizing the Eldercare Locator Service as a central forum for 
sharing information on senior transportation and for reaching out to 
seniors and providers who do not use the Internet. In response, 
Administration on Aging officials developed a multifaceted marketing 
campaign to broaden awareness of the service, especially among special 
target groups such as low-income seniors. In addition, the 
Administration on Aging is working to increase public awareness of the 
service through its partnerships with various community and faith- 
based organizations, businesses, and special interest groups. (Goal 1). 

Identified a problem with untimely pay allowances to deployed soldiers: 

In an April 2005 report, we concluded that deployed military 
servicemembers and their families may face more financial problems 
related to pay than their nondeployed counterparts. We found that 
almost 6,000 servicemembers had experienced delays in obtaining their 
family separation allowance each month during their deployment. As a 
result of our recommendation, DOD's military pay operations 
organizations notified their field staff that the family separation 
allowance process should start immediately once they are notified that 
such a transaction is necessary so that the allowance begins within 30 
days of a servicemember's deployment if it is certain the servicemember 
will be on temporary duty for more than 30 days. (Goal 2). 

Helped to protect the public from exposure to pesticides in tobacco 

The Department of Agriculture implemented our recommendation to 
periodically review and update the pesticides used on tobacco for which 
the department sets residue limits and conducts test. At the time of 
our review in 2003, the department tested tobacco for 20 pesticides 
using 15 residue limits. The department currently tests domestic and 
imported tobacco for 36 pesticides using 44 residue limits and will 
continue to review and update the list of pesticides it tests for and 
establish residue limits. (Goal 1). 

Nonfinancial benefits that helped to promote sound agency and 
governmentwide management: 

Improved the quality of federal voluntary voting system standards: 

Our work on federal voluntary voting equipment standards, and the 
processes for managing them, identified weaknesses that could impede 
effective management of voting systems throughout their life cycles and 
resulted in recommendations for adding usability and quality assurance 
requirements to the standards. The federal Voluntary Voting System 
Guidelines, issued by the U.S. Election Assistance Commission in 
December 2005, satisfied our recommendations by adding requirements for 
usability (such as voter verification of ballots) and accessibility 
(for persons with visual, hearing, mobility, or other limitations), as 
well as quality assurance provisions for voting system vendors. In 
addition, our work recognized that no federal entity held statutory 
authority for updating the standards and asked the Congress to consider 
explicitly assigning this responsibility. The approval of the 2005 
federal guidelines demonstrated the first time federal voting system 
standards were updated by the commission, under authority granted by 
the Help America Vote Act of 2002. The updated standards will help 
increase citizens' confidence and ease in voting, while the execution 
of federal responsibility for maintaining voting standards increases 
the likelihood that they will be current, complete, relevant, and 
utilized by the states. (Goal 3). 

Highlighted weaknesses in the Federal Aviation Administration's (FAA) 
control over computers and other assets: 

During our audit of FAA we found that the agency lacked adequate 
controls over purchases to ensure that physical assets were recorded 
and accounted for in its property management system. We also observed 
instances where computers were not stored in separate and secured 
storage rooms, which gave employees unlimited access to these assets. 
In the fall of 2003, FAA reemphasized that responsible staff should 
record all newly acquired assets in the agency's property management 
system within 30 days of receipt and subsequently revised its guidance 
to require staff to document their entries in the system within 30 
days. FAA also revised its guidance outlining storage requirements for 
high-risk assets, such as computers and computer-related equipment, and 
established procedures to ensure that only authorized personnel have 
access to secured areas where such items are stored. (Goal 3). 

Strengthened oversight of federal personnel actions: 

In our February 2002 report on conversions of political appointees in 
the federal government from noncareer to career positions, we referred 
17 conversions to OPM for its review and action because the 
circumstances surrounding each case could have given the appearance of 
favoritism or political preference even if proper procedures were 
followed. OPM took a number of actions in 2005 in response to our work, 
such as giving four of the six candidates who were bypassed for 
positions priority consideration for equivalent vacancies. OPM also 
took disciplinary action on two of its employees who handled the 
conversions. (Goal 3). 

Encouraged federal agencies to seek savings on purchase cards: 

We recommended that the Director of the Office of Management and Budget 
(OMB) focus governmentwide management attention on the need to take 
advantage of opportunities to achieve savings on purchase card buys for 
goods and services that support official federal activities. In 2005, 
OMB issued a new appendix to its Circular A-123 to consolidate and 
update governmentwide charge card requirements. It also established 
minimum standards and best practices for management of the government 
charge card program. In related guidance, OMB also directs purchase 
card managers to be aware of any agencywide or multi-agencywide 
contracts that will yield better pricing for their organizations. (Goal 

Identified improper payments in DOD's travel accounts: 

As part of our audit of internal controls over DOD's centrally billed 
travel accounts, we found that DOD had made potentially improper 
reimbursements on about 27,000 travel claims. These payments were 
improper because the airline tickets that the travelers claimed as 
reimbursable expenses were actually purchased by DOD for the travelers. 
We recommended that DOD periodically issue guidance to its officials 
who approve travel vouchers instructing them on how to determine 
reimbursable airline ticket expenses. (Goal 3). 

Source: GAO. 

[End of table] 

In addition to the nonfinancial benefits claimed in fiscal year 2006 
from our audit work, the Congress and the public also benefited from 
some of our other activities. For example: 

* On the basis of our work, we referred a number of issues to agency 
inspectors general and the Internal Revenue Service(IRS) for further 
investigation and follow-up. Specifically, we referred to FEMA's 
Inspector General 7,000 cases of possible criminal fraud that occurred 
in the agency's Individuals and Households Program for disaster 
assistance during the aftermath of Hurricane Katrina. We also referred 
to IRS 25 cases involving federal contractors who did not forward 
payroll taxes withheld from their employees and other taxes to IRS and 
15 charities that also engaged in abusive and potentially criminal 
activity related to the federal tax system and the Combined Federal 
Campaign-an annual charity drive that gives federal employees the 
opportunity to contribute to more than 22,000 charities. 

* We issued appropriations law decisions and opinions on, among other 
things, the purposes for which appropriated funds may be used, the 
proper disposition of funds received by the government, and potential 
Antideficiency Act violations. We also established a repository of 
Antideficiency Act reports and developed a Web site to make selected 
information from those reports publicly available. 

* We handled more than 1,000 protests filed by bidders who challenged 
the way individual federal procurements were conducted or how federal 
contracts were awarded, and we issued merit decisions on more than 400 
protests addressing a wide range of issues involving compliance with, 
and the interpretation of, procurement statutes and regulations. In 
fiscal year 2006, we addressed a number of significant protests 
addressing government contracts associated with the aftermath of 
Hurricane Katrina and the war in Iraq. 

* We issued the third edition of volume II of The Principles of Federal 
Appropriations Law, commonly known as the Red Book. The Red Book is 
considered the primary resource in the federal financial community. 

Past Recommendations Implemented: 

One way we measure our effect on improving the government’s 
accountability, operations, and services is by tracking the percentage 
of recommendations that we made 4 years ago that have since been 
implemented. At the end of fiscal year 2006, 82 percent of the 
recommendations we made in fiscal year 2002 had been implemented, 
primarily by executive branch agencies. Putting these recommendations 
into practice will generate tangible benefits for the nation in the 
years ahead. 

New Products Containing Recommendations: 

This year, about 65 percent of the 672 written products we issued 
(excluding testimonies) contained recommendations. We track the 
percentage of new products with recommendations because we want to 
encourage staff to develop recommendations that when implemented by the 
Congress and agencies, produce financial and nonfinancial benefits for 
the nation. However, by setting our target at 60 percent, we recognize 
that our products do not always include recommendations and that the 
Congress and agencies often find such informational reports just as 
useful as those that contain recommendations. Our informational reports 
have the same analytical rigor and meet the same quality standards as 
those with recommendations and, similarly, can help to bring about 
significant financial and nonfinancial benefits. Hence, this measure 
allows us ample leeway to respond to requests that result in reports 
without recommendations. 

Client Measures: 

To fulfill the Congress’s information needs, we strive to deliver the 
results of our work orally as well as in writing when our clients need 


Our clients often invite us to testify on our current and past work 
when it addresses issues that congressional committees are examining 
through the hearing process. During fiscal year 2006, experts from our 
staff testified at 240 congressional hearings covering a wide range of 
complex issues. For example, our senior executives testified on a 
variety of issues, including freight rail rates, AIDS assistance 
programs, and federal contracting. (See below for a summary of issues 
we testified on by strategic goal in fiscal year 2006.) Over 100 of the 
hearings where we testified were related to high-risk areas and 
programs (see p. 42 in our full fiscal year 2006 performance and 
accountability report). In fiscal year 2006, we significantly exceeded 
our target of testimonies at 210 hearings by 14 percent and surpassed 
our performance on this measure over the last 4 years. The Congress 
asked our executives to testify about 30 times this fiscal year on 
Hurricane Katrina issues and about 30 times on issues related to 
terrorism and the Iraq conflict, which helped us to perform 
exceptionally well in this area. 

Selected Testimony Issues: 

Goal 1: 
Address Challenges to the Well-Being and Financial Security of the 
American people: 

* Health savings accounts; 
* Guardianships that protect incapacitated seniors; 
* Lake Pontchartrain hurricane protection project; 
* Funds to first responders for 9/11 health problems; 
* Immigration enforcement at worksites; 
* Future air transportation system; 
* Nursing home care for veterans; 
* Passenger rail security issues; 
* Freight railroad rates; 
* AIDS drug assistance programs; 
* Federal Housing Administration reforms; 
* Improving intermodal transportation; 
* Hanford nuclear waste treatment plant; 
* Evaluations of supplemental educational services; 
* Factors affecting gasoline prices; 
* Telecommunication spectrum reform; 
* H-1B visa program; 
* Federal crop insurance program. 

Goal 2: 
Respond to Changing Security Threats and the Challenges of 

* A comprehensive strategy to rebuild Iraq; 
* Deploying radiation detection equipment in other countries; 
* Protecting military personnel from unscrupulous financial products; 
* Sensitive information at DOD and DOE; 
* Hurricane Katrina preparedness, response, and recovery; 
* Alternative mortgage products; 
* Global War on terrorism costs; 
* Transportation Security Administration (TSA) Secure Flight Program; 
* DOD's business systems modernization; 
* U.S. tactical aircraft; 
* National Capital Region Homeland Security Strategic Plan; 
* Polar-orbiting operational environmental satellites; 
* Worldwide AIDS relief plan; 
* Financial stability and management of the National Flood Insurance 
* Information security laws; 
* Procurement controls at the United Nations. 

Goal 3: 
Help Transform the Federal Government's Role and How It Does Business: 

* Contract management challenges rebuilding Iraq; 
* DOD's financial and business management transformation; 
* Business tax reform; 
* Astronaut exploration vehicle risks; 
* Improving federal financial management governmentwide; 
* Long-term fiscal challenges; 
* Federal contracting during disasters; 
* Improving tax compliance to reduce tax gap; 
* Protecting the privacy of personal information; 
* DOD acquisition incentives; 
* Decennial census costs; 
* Information security weaknesses at the Department of Veterans' 
* Improper federal payments for Hurricane Katrina relief; 
* Strengthening OPM's ability to lead human capital reform; 
* Public/Private recovery plan for the Internet; 
* Tax system abuses by General Services Administration contractors; 
* Compensation for federal executives and judges. 

[See Image Sources for source of background pictures] 

[End of Selected Testimony Issues] 


To be useful to the Congress, our products must be available when our 
client needs them. In fiscal year 2006, we used the results of our 
client feedback survey as a barometer for how well we are getting our 
products to our congressional clients when they need the information. 
We used this survey as the primary data source for our external 
timeliness measure because the responses come directly from our 
clients. In fiscal year 2006 we missed our timeliness target by 6 
percentage points. We pilot tested this survey in 2002 and 2003 and 
began collecting actual data in 2004. 

We tally responses from the survey we send to key staff working for the 
requesters of our testimony statements and our more significant written 
products (e.g., engagements assigned an interest level of “high” by our 
senior management[Footnote 2] and those requiring an investment of 500 
staff days or more). Each survey asks the client whether the product 
was delivered on time. Because our products often have multiple 
requesters, we often survey more than one congressional staff person 
per product. In fiscal year 2006, we sought feedback on more than 50 
percent of the written products (including all testimonies) we issued 
that year and had a 28 percent response rate from the congressional 
staff surveyed. We received comments from one or more people for 53 
percent of the products for which we sent surveys. Overall, 92 percent 
of those responding to the survey either strongly or generally agreed 
that our products were delivered on time. 

People Measures: 

We could not have performed as well as we did in fiscal year 2006 
without the support and commitment of our highly professional, 
multidisciplinary staff. Our ability to hire, develop, retain, and lead 
staff is critical to fulfilling our mission of serving the Congress and 
the American people. 

New Hire Rate and Acceptance Rate: 

Our new hire rate is the ratio of the number of people hired to the 
number we planned to hire. Annually, we develop a workforce plan that 
takes into account projected workload changes, as well as other changes 
such as retirements, other attrition, promotions, and skill gaps. The 
workforce plan for the upcoming year specifies the number of planned 
hires and, for each new hire, specifies the pay plan, skill type, and 
level. The plan is conveyed to each of our units to guide hiring 
throughout the year. Progress toward achieving the workforce plan is 
monitored monthly by the Chief Operating Officer and the Chief 
Administrative Officer. Adjustments to the workforce plan are made 
throughout the year, if necessary, to reflect changing needs and 
conditions. In fiscal year 2006, our adjusted plan was to hire 450 
staff. However, we were only able to bring on board 392 staff by year-
end. Of the 450 staff positions, 33 positions were carried over to 
fiscal year 2007 because the applicants could not start until the new 
fiscal year. 

Our acceptance rate measure is a proxy for GAO’s attractiveness as an 
employer and an indicator of our competitiveness in bringing in new 
talent. It is the ratio of the number of applicants accepting offers to 
the number of offers made. We missed the targets we set for new hire 
rate and acceptance rate by 3 percentage points and 5 percentage 
points, respectively. Our calculations for each of these measures do 
not include offers extended to applicants for fiscal year 2006 
vacancies who accepted but will not report for duty until the first 
quarter of fiscal year 2007. In addition, we made a conscious decision 
during the summer to adjust our hiring targets for fiscal year 2007. 
This was done because our future budget forecast indications were that 
we may not be able to support hiring at levels we requested in our 
fiscal year 2007 budget request. We therefore reduced the number of new 
hires in the summer to put us in a better position at the end of fiscal 
year 2006 for managing full-time equivalents (FTE) into the next fiscal 
year until the Congress appropriates funds for our fiscal year 2007 
budget. (For more about our recruitment strategy and performance in 
fiscal year 2006, see app. 1, p. 176 in our full performance and 
accountability report for fiscal year 2006.) 

Retention Rate: 

We continuously strive to make GAO a place where people want to work. 
Once we have made an investment in hiring and training people, we would 
like them to stay with us. This measure is one indicator of whether we 
are attaining this objective. We calculate this measure by taking 100 
percent of the on-board strength minus the attrition rate, where 
attrition rate is defined as the number of separations divided by the 
average on-board strength. We calculate this measure with and without 
retirements. We met each of our retention rate targets in fiscal year 
2006. Our actual retention rate including retirements has been 
relatively flat over the last 5 years, and our actual retention rate 
excluding retirements has generally declined by 1 percentage point each 
year during this period. 

Staff Development and Utilization, Leadership, and Organizational 

One way that we measure how well we are supporting our staff and 
providing an environment for professional growth and improvement is 
through our annual employee feedback survey. This Web-based survey, 
which is conducted by an outside contractor to ensure the 
confidentiality of every respondent, is administered to all of our 
employees once a year. Through the survey, we encourage our staff to 
indicate what they think about GAO’s overall operations, work 
environment, and organizational culture and how they rate our 
managers—from their immediate supervisors to the Executive Committee—on 
key aspects of their leadership styles. The survey consists of over 100 

In fiscal year 2006, 80 percent of our employees completed the survey, 
and we met our target for two of the four measures and slightly missed 
the remaining two targets. We first conducted this survey in fiscal 
year 2002, and since then favorable responses to our staff utilization 
question increased steadily and leveled off in fiscal year 2006. 
Favorable responses to our leadership question also increased from 
fiscal years 2002 through 2005, dropping only slightly in fiscal year 
2006. In fiscal year 2006, we also revised some of the demographic 
questions to match the categories used by the Partnership for Public 
Service to determine our standing in the annual Best Places to Work in 
the Federal Government rankings. We were cited as one of seven federal 
agencies included in an article entitled “Great Places to Work” 
published in the November 2005 issue of Washingtonian magazine. 

Internal Operations Measures: 

Our mission and people are supported by our internal administrative 
services, including information management, building management, 
knowledge services, human capital, financial management, and other 
services. In fiscal year 2006, we used two new performance measures to 
assess our performance related to how well our internal administrative 
services help employees get their jobs done or improve employees’ 
quality of work life. These measures are directly related to our goal 4 
strategic objectives of continuously enhancing GAO’s business and 
management processes and becoming a professional services employer of 

Helping to Get the Job Done and Contributing to Work Life Quality: 

We use information from our annual customer satisfaction survey to set 
targets and assess our performance for both of these measures along 
with baseline data that we recorded for them in fiscal year 2003 and 
fiscal year 2004. The first measure encompasses 21 services that help 
employees get their jobs done, such as Internet access, desktop 
computer equipment, voice and video communication systems, shared 
service centers for copying and courier assistance, travel services, 
and report production. The second measure encompasses another 10 
services that affect quality of work life, such as assistance related 
to pay and benefits, building security and maintenance, and workplace 
safety and health. Using survey responses, we calculate a composite 
score for each service category that reflects employee ratings for (1) 
satisfaction with the service and (2) importance of the service. (For a 
more in-depth explanation of these measures see table 16 in Part II of 
our full performance and accountability report for fiscal year 2006.) 

On the pages that follow, we describe the resources we used to achieve 
our performance results, our management challenges, and the external 
factors we face that could affect our future performance. 

[End of GAO's Performance] 

Managing Our Resources: 

Resources Used to Achieve Our Fiscal Year 2006 Performance Goals: 

Our financial statements for fiscal year 2006 received an unqualified 
opinion from an independent auditor. The auditor also found our 
internal controls to be effective—which means that no material 
weaknesses were identified—and the auditor reported substantial 
compliance with the requirements for financial systems in the Federal 
Financial Management Improvement Act of 1996. In addition, the auditor 
found no instances of noncompliance with the laws or regulations in the 
areas tested. The statements and their accompanying notes, along with 
the auditor’s report, appear later in this report. Table 2 summarizes 
key data. Compared with the statements of large and complex agencies in 
the executive branch, our statements present a relatively simple 
picture of a small yet very important agency in the legislative branch. 
We focus most of our financial activity on the execution of our 
congressionally approved budget with most of our resources devoted to 
the human capital needed for our mission of supporting the Congress 
with professional, objective, fact-based, nonpartisan, nonideological, 
fair, and balanced information and analysis. 

Table 2: GAO’s Financial Highlights: Resource Information: 

(Dollars in millions) 

Total budgetary resources[A]; 
Fiscal year 2006: $497.2 million; 
Fiscal year 2005: $491.5 million. 

Total outlays[A]; 
Fiscal year 2006: $488.1 million; 
Fiscal year 2005: $478.7 million. 

Net cost of operations: Goal 1: Well-being and Financial security of 
the American people; 
Fiscal year 2006: $191.9 million; 
Fiscal year 2005: $197.7 million. 

Net cost of operations: Goal 2: Changing security threats and 
challenges of globalization; 
Fiscal year 2006: $154.7 million; 
Fiscal year 2005: $144.2 million. 

Net cost of operations: Goal 3: Transforming the federal government's 
Fiscal year 2006: $146.8 million; 
Fiscal year 2005: $147.3 million. 

Net cost of operations: Goal 4: Maximizing the value of GAO; 
Fiscal year 2006: $23.7 million; 
Fiscal year 2005: $22.0 million. 

Net cost of operations: Less reimbursable services not attributable to 
Fiscal year 2006: ($5.6 million); 
Fiscal year 2005: ($5.4 million). 

Total net cost of operations[A]; 
Fiscal year 2006: $511.5 million; 
Fiscal year 2005: $505.8 million. 

Actual FTEs: 
Fiscal year 2006: 3,194; 
Fiscal year 2005: 3,189. 

Source: GAO. 

[A] The net cost of operations figures include nonbudgetary items, such 
as imputed pension and depreciation costs, which are not included in 
the figures for total budgetary resources or total outlays. 

[End of Table] 

Our budget consists of an annual appropriation covering salaries and 
expenses, and revenue from reimbursable audit work and rental income. 
For fiscal year 2006, our total budgetary resources increased by $5.7 
million from fiscal year 2005. This increase consists of funds needed 
to cover mandatory and uncontrollable costs and a one time transfer of 
budgetary authority from the U.S. Agency for International Development 
(USAID) for the analysis of U.S.-funded international basic education 

Our total assets were $105.6 million, consisting mostly of property and 
equipment (including the headquarters building, land and improvements, 
and computer equipment and software) and funds with the U.S. Treasury. 
The largest dollar change in our assets was in the net value of 
property and equipment, which decreased by $7 million in fiscal year 
2006 as a result of normal depreciation amounts being greater than 
asset purchases. Total liabilities of $97.5 million were composed 
largely of employees’ accrued annual leave, amounts owed to other 
government agencies, accounts payable, and employees’ salaries and 
benefits. The greatest change in the liabilities is an increase in 
workers’ compensation liability. For fiscal year 2006 GAO engaged an 
independent actuarial firm to calculate the Federal Employees’ 
Compensation Act (FECA) liability. The methodology used to calculate 
the liability this year more closely reflects GAO’s claims’ experience 
when compared to the formula provided by Labor used in prior years. 

The net cost of operating GAO during fiscal year 2006 and fiscal year 
2005 was approximately $511 million and $506 million, respectively. 
Expenses for salaries and related benefits accounted for 79 and 78 
percent of our net cost of operations in fiscal years 2006 and 2005, 
respectively. Figure 4 shows how our fiscal year 2006 costs break down 
by category. 

Figure 4: Use of Fiscal Year 2006 Funds by Category: 

[See PDF for Image] - graphic text: 

Pie chart with five items. 

Percentage of Total Net Costs: 

Salaries and benefits: 79.2%; 
Building and hardware maintenance services: 11.4%; 
Rent (space and hardware): 2.3%; 
Depreciation: 2.5%; 
Other: 4.6%. 

Source: GAO. 

[End of Figure] 

We report net cost of operations according to our four strategic goals, 
consistent with our strategic plan. As table 2 indicates, goal 2 
accounted for the greatest dollar increase in our net cost of 
operations from fiscal year 2005 through fiscal year 2006. The increase 
is due to work on Hurricane Katrina and Iraq as well as continued 
efforts in the area of homeland security. However, goal 1 accounted for 
the largest proportion of net costs in fiscal year 2006 (see fig.5). 

Figure 5: Percentage of Total Net Costs for Fiscal Year 2006: 

[See PDF for Image] - graphic text: 

Pie chart with four items. 

Percentage of Total Net Costs: 

Goal 1: 37.1%; 
Goal 2: 29.9%; 
Goal 3: 28.4%; 
Goal 4: 4.6%. 

Source: GAO. 

[End of Figure] 

Planned Resources to Achieve Our Fiscal Year 2007 Performance Goals: 

As we go to press on this highlights of our full performance and 
accountability report, the Congress has not yet completed action on our 
fiscal year 2007 budget, and we, like most other federal government 
agencies, are operating at fiscal year 2006 levels under a continuing 
resolution through February 15, 2007, pending enactment of the fiscal 
year 2007 appropriations bills for the federal government. We requested 
$509.4 million—an increase of 5 percent over our fiscal year 2006 
revised funding level—primarily to cover uncontrollable mandatory pay 
and price level increases and an FTE increase to help address supply 
and demand imbalance issues in responding to congressional requests for 
studies in areas such as health care, disaster assistance, homeland 
security, the global war on terrorism, and forensic auditing. At this 
time, the House has approved a 2 percent increase and the full Senate 
has not acted on our budget request. Once final appropriations 
decisions are enacted, we will adjust our resources to reflect the 
appropriated amount. 

[End of Managing our Resources] 

Addressing Management Challenges That Could Affect Our Performance: 

At GAO, management challenges are identified by the Comptroller 
General, the Executive Committee, and the agency’s senior executives 
through the agency’s strategic planning, management, and budgeting 
processes. Our progress in addressing the challenges is monitored 
through our annual performance and accountability process. Under 
strategic goal 4, we establish performance goals focused on each of our 
management challenges, track our progress in completing the key efforts 
for those performance goals quarterly, and report each year on our 
progress toward meeting the performance goals. Each year we ask our IG 
to examine management’s assessment of the challenges and the agency’s 
progress in addressing them. (The IG's assessment is included later in this document.) 

For fiscal year 2006, we continued to address three management 
challenges— physical security, information security, and human capital. 
We anticipate that we may need to continue to address all three of 
these management challenges in future years because they are evolving 
and will require us to continuously identify ways to adapt and improve. 

Physical Security Challenge: 

We continue to take essential actions to protect our people and our 
assets to ensure continuity of agency operations. The domestic and 
international climate demands that we constantly assess our physical 
security profile and seek ways to improve and strengthen it. We took 
positive steps in fiscal year 2006 to centralize and strengthen our 
policies and operations, improve our internal and external 
communications and information-sharing efforts, and upgrade and enhance 
our technical capabilities. 

In the third quarter of fiscal year 2006, we established our Office of 
Emergency Preparedness to help ensure that GAO can continue to carry 
out its functions in the face of natural or man-made disasters or other 
disruptions. The unit also provides policy and oversight for GAO’s 
emergency planning activities, including continuity of operations, 
information systems disaster recovery, GAO building occupant emergency 
plans, and shelter-in-place plans, and better integration with GAO’s 
field offices. 

To strengthen our internal and external communications and information 
sharing we meet on a regular basis with the Legislative Branch 
Continuity of Operations Plan Working Group as well as the Executive 
Branch Continuity of Operations Working Group. The Office of Emergency 
Preparedness provides proactive coordination with sister agencies in 
the legislative branch, executive branch agencies, and local law 
enforcement in the area of contingency planning and for 
information/intelligence-sharing purposes. In fiscal year 2006 we also 
sought to better inform, educate, and prepare our staff by conducting a 
shelter-in-place drill; conducting awareness activities in September, 
National Preparedness Month; and briefing approximately 1,100 employees 
in the areas of handling classified information, handling sensitive but 
unclassified information, shelter in place, identity theft, DOE 
security requirements, and espionage. 

In fiscal year 2007, we plan to complete a number of initiatives to 
help address many of the aspects of the physical security management 
challenge. For example, we will begin implementing the Integrated 
Electronic Security System by installing turnstiles and upgrading the 
access control and intrusion detection systems for headquarters. In 
addition, the Office of Emergency Preparedness plans to update the 
continuity of operations plan; develop and disseminate a pandemic 
influenza implementation plan; create a working group and establish 
continuity points of contact throughout GAO to help ensure that the 
needs of the organization, including GAO’s field locations, are 
considered in developing and implementing emergency plans; and create 
an emergency preparedness Web site on GAO’s intranet. 

The Information Security Challenge: 

Information system security continues to be a critical activity in 
ensuring our information system and assets are effectively protected 
and free from compromise. In fiscal year 2006, we established a wide 
range of goals and implemented numerous initiatives to address 
information system security. These included implementing 
centralized/correlated auditing of network servers and devices to 
effectively monitor and better secure our computing assets within GAO, 
refining our information security procedures to maintain compliance 
with new federal guidance, implementing improvements to our disaster 
recovery operations, and improving our ability to respond and recover 
in the event of a disruption by implementing additional technologies to 
lessen our risks. These efforts are described in detail in appendix 3 
of our full performance and accountability report for fiscal year 2006. 

In fiscal year 2007, we will further address the challenge of keeping 
our systems and information secure by, among other things, focusing on 
data protection using encryption at the desktop, increasing our 
vigilance of the centralized auditing of network servers and devices to 
better secure our computing assets within GAO and responding to new and 
updated security guidance from the National Institute of Standards and 
Technology and OMB. 

Human Capital Challenge: 

Recruiting, rewarding, and retaining a highly qualified, high-
performing, and diverse workforce in today’s competitive environment 
remains one of our most important challenges. In fiscal year 2006, we 
completed a comprehensive review of our recruitment and hiring 
activities, resulting in over 40 recommendations, which will begin to 
be implemented in fiscal year 2007 in the areas of college recruitment, 
candidate assessment, interviewing/hiring, offer negotiating and 
processing, and administrative and professional support staff and other 
hires. In addition, we continued to utilize hiring flexibilities and a 
variety of sourcing strategies, including our student employment 
program. By working with outside organizations, such as the Hispanic 
Association of Colleges and Universities, we have sought to strengthen 
our workforce diversity. To improve consistency in the consideration 
process we revised our entry-level analyst hiring strategy. The 
interview process is now more centralized and structured than in the 

One of our greatest challenges is maintaining the right mix of 
experienced and knowledgeable staff to carry out our engagements and 
meet our client’s needs. GAO is facing unusual circumstances because of 
continuity and succession concerns resulting from downsizing and 
reduced hiring in the 1990s. Currently, over 41 percent of GAO’s 
analysts and related staff have fewer than 5 years of agency 
experience, requiring even greater emphasis on learning and development 
than previously. To help ensure that our newest entry-level staff 
acquire the skills they need to become proficient performers as quickly 
as possible, we implemented a training and development program 
consisting of 12 courses encompassing 159 hours of orientation and core 
analytic skills training that must be completed by entry-level 
employees within their first 2 years with GAO. Courses are developed to 
align with GAO’s strategic goals as well as the competencies we use to 
manage performance and evaluate proficiency. 

We continued to focus on implementing and enhancing a market-based 
compensation system in which (1) pay ranges are set to be competitive 
with the labor markets in which GAO competes for talent; (2) all staff 
have the opportunity, but not the entitlement, to advance to the top of 
the pay range; and (3) pay ranges may overlap to adequately reward 
expertise, leadership, and performance. GAO’s compensation system is 
the result of a 2-year effort in which a leading compensation 
consulting firm assisted us in establishing salary ranges for GAO 
employees that are competitive with those of comparable organizations, 
including selected government, not-for-profit, and professional 
services entities in the labor markets in which GAO competes for 
talent. In fiscal year 2006, our efforts to further enhance our 
compensation systems included restructuring our Band II analyst 
position, creating two pay ranges to better align individual staff 
according to whether a Band II employee has responsibility for work 
activities involving the development of staff. We also adopted the use 
of a standardized rating score in our competency-based appraisal 
system, to mitigate differences in organizational rating patterns and 
convert an employee’s appraisal average to a number that reflects the 
relative position of an individual appraisal average to a comparative 
group average. Finally, we decoupled from the General Schedule annual 
across-the-board increase, and established a new performance-oriented 
market-based compensation system that includes an annual adjustment 
component. (For a discussion of our personnel flexibilities, see 
appendix 2 in our full performance and accountability report for fiscal 
year 2006.) 

Some of the key efforts planned in this area for fiscal year 2007 
include the following: 

* Implementing the recruitment task force recommendations; 

* Establishing a community of practice involving senior leadership, 
recruiters, and human capital professionals to enhance the recruiting 
and hiring process; 

* Implementing a voluntary mentoring program to maximize successful 
development at GAO; 

* Enhancing the leadership development programs to prepare managerial 

* Improving the integration of human capital metrics systems; 

* Increasing the transparency and the staff’s knowledge of the market-
based compensation process. 

[End of Addressing Management Challenges] 

Mitigating External Factors That Could Affect Our Performance: 

Several external factors could affect the achievement of our 
performance goals, including the amount of resources we receive, shifts 
in the content and volume of our work, and various national and 
international developments. Limitations imposed on our work by other 
organizations or limitations on the ability of other federal agencies 
to make the improvements we recommend are additional factors that could 
affect the achievement of our goals. 

As the Congress focuses on unpredictable events—such as terrorism, 
natural disasters, and military conflicts and threats abroad—the mix of 
work we are asked to undertake may change, diverting our resources from 
some strategic objectives and performance goals. We can and do mitigate 
the impact of these events on the achievement of our goals in various 
ways. For example in fiscal year 2006, we: 

*  stayed abreast of current events (such as protecting our ports and 
borders and preventing possible pandemics) and communicated frequently 
with our congressional clients in order to be alert to possibilities 
that could shift the Congress’s priorities or trigger new priorities; 

* quickly redirected our resources when appropriate (e.g., on the cost 
and recovery efforts related to Hurricane Katrina) so that we could 
deal with major changes as they occurred; 

* maintained broad-based staff expertise (i.e., in our Social Security, 
health care financing, and homeland security areas) so that we could 
readily address emerging needs; and: 

* initiated research under the Comptroller General’s authority on 
several selected topics, including various issues relating to Iraq, the 
U.S. federal elections, and our 21st century challenges and high-risk 

We are experiencing heavy demand from the Congress for work in a number 
of subject areas, especially in the disaster recovery and preparedness 
areas in the aftermath of Hurricane Katrina and in the health care 
area. Our ability to effectively manage this demand could have an 
impact on our ability to meet our performance targets. We will continue 
to manage these requests in order to minimize any negative impact they 
may have on our ability to meet the needs of the Congress and the 
American people. Given large current federal budget deficits and the 
nation’s longrange fiscal imbalance, the Congress is likely to place 
increasing emphasis on fiscal constraint. While it is unclear how we 
will ultimately be affected, it is reasonable to assume that any 
attempt to exercise additional budgetary discipline in the legislative 
branch will include our agency. As a result, while we believe that we 
submit reasonable and responsible budget requests and we know that the 
return on investment that we generate is unparalleled, we must plan and 
prepare for the possibility of significant and recurring constraints on 
the resources made available to the agency. In addition, because almost 
80 percent of our budget is composed of people-related costs, any 
serious budget situation will likely have an impact on our human 
capital policies and practices. This, in turn, would have an impact on 
our ability to serve the Congress and meet our performance targets. 
While, as noted above, the nature and extent of any such budget 
constraints cannot be determined at the present time, our executive 
team is engaged in a range of related planning activities. It is both 
appropriate and prudent for us to engage in such planning. At the same 
time, we are hopeful that the Congress will recognize that performance-
based budgeting concepts would support providing additional resources 
to entities with prudent budget requests and proven performance 
results. If the Congress employs such an approach, we should be in a 
good position to continue to provide a high rate of return on the 
resources invested in the agency. 

A growing area for us involves our work on bid protests. As required by 
law, our General Counsel prepares Comptroller General procurement law 
decisions that resolve protests filed by disappointed bidders. These 
bidders challenge the way individual federal procurements are being 
conducted or how the contracts were awarded. In recent years, we have 
experienced an increase in the number of bid protests that have been 
filed, and in fiscal year 2005 the Congress enacted legislation that 
expanded our authority to allow certain representatives of affected 
government employees to protest when the private sector wins a private-
public competition. We will continue to monitor our workload in this 
area to ensure that we meet our statutory responsibilities with minimal 
negative impact on our other work. 

Another external factor is the extent to which we can obtain access to 
certain types of information. With concerns about operational security 
being unusually high at home and abroad, we may have more difficulty 
obtaining information and reporting on sensitive issues. Historically, 
our auditing and information gathering have been limited whenever the 
intelligence community is involved. In addition, we have not had the 
authority to access or inspect records or other materials held by other 
countries or, generally, by the multinational institutions that the 
United States works with to protect its interests. Consequently, our 
ability to fully assess the progress being made in addressing several 
national and homeland security issues may be hampered. Given the 
heightened security environment, we also anticipate that more of our 
reports may be subject to classification reviews than in the past, 
which means that the public dissemination of these products may be 
limited. We plan to work with the Congress to identify both legislative 
and nonlegislative opportunities for strengthening our access authority 
as necessary and appropriate. 

[End of Mitigating External Factors] 

From the Chief Financial Officer: 

Figure: Picture of the Chief Financial Officer, Sallyanne Harper: 

[See PDF for Image] 

Source: GAO. 

[End of Figure] 

January 2007: 

I am pleased to report that in fiscal year 2006 the U.S. Government 
Accountability Office continued to focus on leading by example in 
government financial management. For the 20th consecutive year, 
independent auditors gave our financial statements an unqualified 
opinion with no material weaknesses and no major compliance problems. 
In keeping with a widely recognized best practice, we contract with a 
different audit firm every 5 years to ensure that our financial 
operations continue to be reviewed objectively. Consequently, this 
fiscal year we used a different independent accounting firm than we 
have used for the past 5 years to audit our financial statements. The 
financial statements that follow were prepared, audited, and made 
publicly available as an integral part of this performance and 
accountability report 45 days after the end of the fiscal year. In 
addition, for the fifth year in a row, the Association of Government 
Accountants awarded us a certificate of excellence in accountability 
reporting for our fiscal year 2005 performance and accountability 

During fiscal year 2006 we achieved milestones in two major financial 
management initiatives. We successfully implemented the Office of 
Management and Budget’s (OMB) revised Circular A123, Appendix A, which 
provides for federal agencies to take steps to review, document, and 
improve internal control practices. The process was resource intensive, 
requiring substantial time commitment from personnel throughout GAO as 
well as contractors. Our testing team found some internal control 
weaknesses with our existing internal control design and 
implementation. We were able to put remediation plans into place by 
September 30, 2006, for those weaknesses considered to be the highest 
priority. The results of this effort include management’s assurance 
statement regarding the effectiveness of our internal controls, more 
thorough documentation of processes and related internal controls, and 
a vision of how to integrate this effort into our culture for the long 

Another significant milestone this fiscal year was in our efforts to 
replace our outdated financial management system, taking full advantage 
of today’s improved technological offerings. We selected our next 
generation financial management system, along with a service provider, 
after a disciplined process to review and define our financial 
management requirements. As a result, we have entered into an 
interagency agreement with the Department of Transportation (DOT), an 
OMB-designated financial management line of business service provider, 
to implement our new official system of record for fiscal year 2008. We 
are also considering DOT for provision of other financial services as 
part of our strategy of focusing our financial management efforts on 
greater value-added input to our activities by shifting staff away from 
routine transaction processing and toward a greater role in strategic 
business decision analysis and support. 

This fiscal year we explored and implemented multiple improvements to 
streamline our business operations and find potential cost savings to 
the agency. By implementing mandatory electronic earnings and leave 
statements, we have eliminated processing issues and thousands of paper 
forms per year, resulting in a $30,000 per year savings to the agency. 
By outsourcing the domestic and international mail processing function 
and reducing agency mail costs early in fiscal year 2006, we realized a 
32 percent reduction in postage costs this year, improved the level of 
service, and gained more flexibility in the deployment of resources. To 
provide all staff equal access to core training, we implemented a 
structure of “learning hubs,” where training is provided to field-based 
entry-level (Band I) analysts at specified field offices. This 
structure also enables us to use adjunct faculty time more efficiently 
and reduces travel costs associated with core training by 50 percent. 
For more details on these and other goal 4 accomplishments, refer to 
pages 175 to 185 in our full performance and accountability report for 
fiscal year 2006. 

The coming fiscal year promises many challenges, including the 
implementation of our new financial management system and 
institutionalizing the internal control review process begun this year. 
As always, we remain focused on our role in the legislative branch to 
support the Congress in meeting its constitutional responsibilities and 
to help improve the performance and ensure the accountability of the 
government for the benefit of the American people. 

Signed by: 

Sallyanne Harper: 
Chief Financial Officer: 

[End of From the Chief Financial Officer] 

Financial Management Accountability: 

Our condensed financial statements begin after the Independent 
Auditor's Report. Our financial statements for the fiscal years ended 
September 30, 2006 and 2005, were audited by the independent audit 
firms Clifton Gunderson LLP and Cotton & Co. LLP, respectively. 

Clifton Gunderson LLP, rendered an unqualified opinion on our financial 
statements and an unqualified opinion on the effectiveness of our 
internal controls over financial reporting and compliance with laws and 
regulations. The auditor also reported that we have substantially 
complied with the applicable requirements of the Federal Financial 
Management Improvement Act (Improvement Act) of 1996 and found no 
reportable instances of noncompliance with selected provisions of laws 
and regulations. In the opinion of the independent auditor, the 
financial statements are presented fairly in all material respects and 
are in conformity with generally accepted accounting principles. 

Financial Systems and Internal Controls: 

We recognize the importance of strong financial systems and internal 
controls to ensure our accountability, integrity, and reliability. To 
achieve a high level of quality, management maintains a quality control 
program and seeks advice and evaluation from both internal and external 

We complied with the spirit and intent of Appendix A of OMB Circular A-
123, Management’s Responsibility for Internal Control, which provides 
guidance for agencies’ assessments of internal control over financial 
reporting. We performed this assessment by identifying, analyzing, and 
testing internal controls for key business processes. Based on the 
results of the assessment, we have reasonable assurance that internal 
control over financial reporting, as of September 30, 2006, was 
operating effectively and that no material control weaknesses exist in 
the design or operation of the internal controls over financial 
reporting. Additionally, our independent auditor found that we 
maintained effective internal controls over financial reporting and 
compliance with laws and regulations. Consistent with our assessment, 
the auditor found no material internal control weaknesses. 

We are also committed to fulfilling the internal control objectives of 
31 U.S.C. 3512, commonly referred to as the Federal Managers’ Financial 
Integrity Act (Integrity Act). Although we are not subject to the act, 
we comply voluntarily with its requirements. Our internal controls are 
designed to provide reasonable assurance that obligations and costs are 
in compliance with applicable laws and regulations; funds, property, 
and other assets are safeguarded against loss from unauthorized 
acquisition, use, or disposition; and revenues and expenditures 
applicable to our operations are properly recorded and accounted for to 
enable our agency to prepare reliable financial reports and maintain 
accountability over our assets. 

In addition, we are committed to fulfilling the objectives of the 
Improvement Act, which is also covered within 31 U.S.C. 3512. Although 
not subject to the act, we voluntarily comply with its requirements. We 
believe that we have implemented and maintained financial systems that 
comply substantially with federal financial management systems 
requirements, applicable federal accounting standards, and the U.S. 
Government Standard General Ledger at the transaction level as of 
September 30, 2006. We made this assessment based on criteria 
established under the Improvement Act and guidance issued by OMB. 

GAO’s IG also conducts audits and investigations that are internally 
focused, functions as an independent fact-gathering adviser to the 
Comptroller General, and reviews all accomplishment reports totaling 
$500 million or more. During fiscal year 2006, the IG examined 
compliance with our policy and procedures for conflict-of-interest 
determinations, recruiting and hiring, continuing professional 
education, audit documentation security and retention, performancebased 
compensation for administrative professional and support staff, and 
GAO’s information security program. In addition, the IG tests our 
compliance with procedures related to our performance data on a 
rotating basis over a 3-year period; these actions are specifically 
identified in table 16 that begins on page 73 of our full performance 
and accountability report for fiscal year 2006. No material weaknesses 
were reported by the IG. During fiscal year 2006, we completed actions 
related to two IG recommendations and several IG suggestions, none of 
which affected the financial statements. There are no unresolved 

Audit Advisory Committee: 

Assisting the Comptroller General in overseeing the effectiveness of 
our financial reporting and audit processes is a three-member external 
Audit Advisory Committee. The committee’s report for fiscal year 2006 
appears on page 96 in our full performance and accountability report. 
Current members of the committee are: 

* Sheldon S. Cohen (Chairman), a certified public accountant and 
practicing attorney in Washington, D.C., a former Commissioner and 
Chief Counsel of the Internal Revenue Service, and a Senior Fellow of 
the National Academy of Public Administration. 

* Edward J. Mazur, CPA; Member of the Governmental Accounting Standards 
Board, former State Comptroller of Virginia, and a former Controller of 
the Office of Federal Financial Management in OMB. 

* Charles O. Rossotti, senior advisor at The Carlyle Group; former 
Commissioner of the Internal Revenue Service; and founder and former 
Chief Executive Officer and Chairman of American Management Systems, 
Inc., an international business and information technology consulting 

Limitations on Financial Statements: 

Responsibility for the integrity and objectivity of the financial 
information presented in the financial statements in this report rests 
with our managers. The statements were prepared to report our financial 
position and results of operations, consistent with the requirements of 
the Chief Financial Officers Act, as amended (31 U.S.C. 3515) in 
conformity with generally accepted accounting principles for the 
federal government. The statements were prepared from our financial 
records in accordance with the formats prescribed in OMB Circular A-
136, Financial Reporting Requirements. These financial statements 
differ from the financial reports used to monitor and control our 
budgetary resources. However, both were prepared from the same 
financial records. 

Our financial statements should be read with the understanding that as 
an agency of a sovereign entity, the U.S. government, we cannot 
liquidate our liabilities (i.e., pay our bills) without legislation 
that provides resources to do so. Although future appropriations to 
fund these liabilities are likely and anticipated, they are not 

Purpose of Each Financial Statement: 

The condensed financial statements present the following information: 

* A balance sheet presents the combined amounts we had available to use 
(assets) versus the amounts we owed (liabilities) and the residual 
amounts after liabilities were subtracted from assets (net position). 

* A statement of net cost presents the annual cost of our operations. 
The gross cost less any offsetting revenue earned from our activities 
is used to arrive at the net cost of work performed under our four 
strategic goals. 

* A statement of changes in net position presents the accounting items 
that caused the net position section of the balance sheet to change 
from the beginning to the end of the fiscal year. 

* A statement of budgetary resources presents how budgetary resources 
were made available to us during the fiscal year and the status of 
those resources at the end of the fiscal year. 

* A statement of financing reconciles the resources available to us 
with the net cost of operating the agency. 

[End of Financial Management Accountability] 

Independent Auditor’s Report: 
Clifton Gunderson LLP: 
Certified Public Accountants & Consultants: 

Independent Auditor's Report: 

We have audited the accompanying balance sheet of Government 
Accountability Office (GAO) as of September 30, 2006, and the related 
statements of net cost, changes in net position, budgetary resources, 
and financing for the year then ended. In our report dated November 3, 
2006, we expressed an unqualified opinion on those financial 
statements. We performed our audit in accordance with auditing 
standards generally accepted in the United States of America; 
Government Auditing Standards issued by the Comptroller General of the 
United States; and Office of Management and Budget's (OMB) Bulletin 06-
03, Audit Requirements for Federal Financial Statements. The financial 
statements of GAO as of September 30, 2005 were audited by other 
auditors whose report dated November 1, 2005, expressed an unqualified 
opinion on those financial statements. 

In our opinion, the 2006 information set forth in the accompanying 
condensed financial statements is fairly stated, in all material 
respects, in relation to the financial statements from which it has 
been derived. 

Our report also included our opinion that GAO maintained effective 
internal control over financial reporting 9including the safeguarding 
of assets) and compliance with laws and regulations as of September 30, 
2006. We did not evaluate all internal controls relevant to operating 
objectives. In addition, because of inherent limitation sin any 
internal control, misstatements due to error or fraud may occur and not 
be detected. Also, projections of any evaluation of the internal 
control to future periods are subject to the risk that the internal 
control may become inadequate because of changes in conditions, or that 
the degree of compliance with the policies or procedures may 

Our report also included our opinion that GAO's financial management 
systems substantially complied with the requirements of the Federal 
Financial Management Improvement Act of 1996 (FFMIA). 

We also reported that we found no reportable noncompliance with laws 
and regulations tested. However, the objective of our audit was not to 
provide an opinion on overall compliance with laws and regulations, and 
we do not express such an opinion. We did not test compliance with laws 
and regulations, and we do not express such an opinion. We did not test 
compliance with all laws and regulations applicable to GAO. We limited 
our tests of compliance to those laws and regulations required by OMB 
audit guidance that we deemed applicable to the financial statements 
for the fiscal year ended September 30, 2006. We caution that non 
compliance may occur and not be detected by these tests and that such 
testing may not be sufficient for other purposes. Our conclusion on 
compliance with laws and regulations is intended for Congress and GAO's 
management and should not be used by anyone other than these specified 

Signed by: 

Clifton Gunderson LLP: 
Calverton, MD: 
November 3, 2006: 

Centerpark I: 
4041 Powder Mill Road, Suite 410: 
Calverton, Maryland 20703-3106: 
tel: 301-931-2050: 
fax: 301-931-1710: 

[End of Independent Auditor's Report] 

Financial Statements 
U.S. Government Accountability Office: 
Condensed Balance Sheets: 
As of September 30, 2006 and 2005: 
(Dollars in thousands) 

Assets: Intragovernmental assets including funds with the Treasury; 
2006: $64,941; 
2005: $66,755. 

Assets: Property and equipment, net; 
2006: $40,293; 
2005: $47,291. 

Assets: Other; 
2006: $358; 
2005: $310. 

Total Assets; 
2006: $105,592; 
2005: $114,356.  

Liabilities: Intragovernmental Liabilities; 
2006: $16,784; 
2005: $16,188. 

Liabilities: Accounts payable and salaries and benefits; 
2006: $27,667; 
2005: $28,614. 

Liabilities: Accrued annual leave and other; 
2006: $30,299; 
2005: $30,093. 

Liabilities: Workers' compensation; 
2006: $15,910; 
2005: $10,357. 

Liabilities: Capital leases; 
2006: $6,872; 
2005: $9,657. 

Total liabilities; 
2006: $97,532; 
2005: $94,909. 

Net Position: Unexpended appropriations; 
2006: $25,951; 
2005: $27,003. 

Net Position: Cumulative results of operations; 
2006: ($17,891); 
2005: ($7,556). 

Total Net Position; 
2006: $8,060; 
2005: $19,447. 

Total Liabilities and Net Position; 
2006: $105,592; 
2005: $114,356. 

The accompanying note is an integral part of these statements. 

[End of Condensed Balance Sheets] 

Financial Statements 
U.S. Government Accountability Office: 
Condensed Statements of Net Cost: 
For Fiscal Years Ended September 30, 2006 and 2005: 
(Dollars in thousands) 

Net Costs by Goal: 
Goal 1: Well-Being/Financial Security of American People;  
2006: $191,880; 
2005: $197,730. 

Goal 2: Changing Security Threats/Challenges of Global Interdependence; 
2006: $154,727; 
2005: $144,200 

Goal 3: Transforming the Federal Government’s Role; 
2006: $146,769; 
2005: $147,318. 

Goal 4: Maximize the Value of GAO; 
2006: $23,664; 
2005: $22,034. 
Less: reimbursable services not attributable to goals; 
2006: ($5,561); 
2005: ($5,432).  

Net Cost of Operations;  
2006: $511,479; 
2005: $505,850. 

The accompanying note is an integral part of these statements. 

[End of Condensed Statements of Net Cost] 

Financial Statements: 
U.S. Government Accountability Office: 
Condensed Statements of Changes in Net Position: 
For Fiscal Years Ended September 30, 2006 and 2005: 

(Dollars in thousands): 

Cumulative Results of Operations, Beginning of fiscal year; 
2006: ($7,556);
2005: ($1,132).  

Budgetary Financing Sources - Appropriations used; 
2006: $476,081; 
2005: $474,118.  

Other Financing Sources: Employee benefit costs imputed to GAO; 
2006: $25,124; 
2005: $25,309. 

Other Financing Sources: Other;  
2006: ($61); 
2005: ($1). 

Total Financing Sources; 
2006: $501,144;  
2005: $499,426. 

Net Cost of Operations; 
2006: ($511,479);  
2005: ($505,850). 

Net Change; 
2006: ($10,335);  
2005: ($6,424). 

Cumulative Results of Operations, End of fiscal year; 
2006: ($17,891); 
2005: ($7,556). 

Unexpended Appropriations, Beginning of fiscal year; 
2006: $27,003; 
2005: $34,621. 

Budgetary Financing Sources and Uses: Current year appropriations; 
2006: $482,395; 
2005: $470,973. 

Budgetary Financing Sources and Uses: Appropriations used; 
2006: ($476,081);  
2005: ($474,118). 

Budgetary Financing Sources and Uses: Permanently not available and 
2006: ($7,366);  
2005: ($4,473). 

Total Unexpended Appropriations, End of fiscal year; 
2006: $25,951; 
2005: $27,003. 

Net Position; 
2006: $8,060;  
2005: $19,447. 

The accompanying note is an integral part of these statements. 

[End of Condensed Statements of Changes in Net Position] 

Financial Statements: 
U.S. Government Accountability Office: 
Condensed Statements of Budgetary Resources: 
For Fiscal Years Ended September 30, 2006 and 2005: 

(Dollars in thousands) 

Budgetary Resources: Unobligated balance, beginning of fiscal year;  
2006: $11,080; 
2005: $14,066. 

Budgetary Resources: Budget authority: Appropriations; 
2006: $482,395; 
2005: $470,973. 

Budgetary Resources: Budget authority: Spending authority from 
offsetting collections; 
2006: $11,119; 
2005: $10,892. 

Budgetary Resources: Budget authority: Subtotal; 
2006: $493,514;  
2005: $481,865. 

Budgetary Resources: Permanently not available and other; 
2006: ($7,366); 
2005: ($4,473).  

Total Budgetary Resources; 
2006: $497,228;  
2005: $491,458. 

Status of Budgetary Resources: Obligations incurred; 
2006: $488,547; 
2005: $480,378. 

Status of Budgetary Resources: Unobligated balance - Apportioned; 
2006: $1,089; 
2005; $1,299. 

Status of Budgetary Resources: Unobligated balance not available; 
2006: $7,592; 
2005: $9,781. 

Total Status of Budgetary Resources;
2006: $497,228;  
2005: $491,458. 

Change in Obligated Balance: Obligated balance, beginning of fiscal 
2006: $54,798; 
2005: $53,103. 

Change in Obligated Balance: Obligations incurred; 
2006: $488,547; 
2005: $480,378. 

Change in Obligated Balance: Less: Gross Outlays; 
2006: ($488,107); 
2005: ($478,683). 

Change in Obligated Balance: Obligated balance, end of fiscal year; 
2006: $55,238; 
2005: $54,798. 

Net Outlays: Gross outlays; 
2006: $488,107; 
2005: $478,683. 

Net Outlays: Less: Offsetting collections; 
2006: ($11,119); 
2005: ($10,892). 

Total Net Outlays;  
2006: $476,988; 
2005: $467,791. 

The accompanying note is an integral part of these statements. 

[End of Condensed Statements of Budgetary Resources] 

Financial Statements: 
U.S. Government Accountability Office: 
Condensed Statements of Financing: 
For Fiscal Years Ended September 30, 2006 and 2005: 

(Dollars in thousands) 

Resources Used to Finance Activities: Budgetary Resources Obligated: 
Obligations incurred; 
2006: $488,547; 
2005: $480,378. 

Resources Used to Finance Activities: Budgetary Resources Obligated: 
Less: reimbursements; 
2006: ($10,930); 
2005: ($10,892). 

Resources Used to Finance Activities: Budgetary Resources Obligated: 
Net Obligations; 
2006: $477,617; 
2005: $469,486. 

Resources Used to Finance Activities: Other Resources: Employee benefit 
costs imputed to GAO; 
2006: $25,124; 
2005: $25,309. 

Resources Used to Finance Activities: Other Resources: Other;
2006: ($61);  
2005: ($1). 

Resources Used to Finance Activities: Other Resources: Net other 
resources used to finance activities; 
2006: $25,063; 
2005: $25,308. 

Total Resources Used to Finance Activities; 
2006: $502,680; 
2005: $494,794. 

Resources Used to Finance Items Not Part of the Net Cost of Operations: 
Net (increase)/decrease in unliquidated obligations; 
2006: ($1,536); 
2005: $4,632. 

Resources Used to Finance Items Not Part of the Net Cost of Operations: 
Costs capitalized on the balance sheet; 
2006: ($8,939); 
2005: ($9,069). 

Resources Used to Finance Items Not Part of the Net Cost of Operations: 
Total resources used to finance items not part of the net cost of 
2006: ($10,475); 
2005: ($4,437). 

Total Resources Used to Finance the Net Cost of Operations
2006: $492,205; 
2005: $490,357. 

Components That Require Resources in Future Periods: Increase in 
workers’ compensation, accrued annual leave, and other liabilities 
2006: $5,764; 
2005: $732. 

Costs That Do Not Require Resources: Depreciation; 
2006: $13,510; 
2005: $14,761. 

Net Cost of Operations;
2006: $511,479;  
2005: $505,850. 

The accompanying note is an integral part of these statements. 

[End of Condensed Statements of Financing] 

[End of Financial Statements] 

Note to Financial Statements:

Summary of Significant Accounting Policies: 

Reporting Entity: 

The accompanying condensed financial statements present the financial 
position, net cost of operations, changes in net position, budgetary 
resources, and financing of the United States Government Accountability 
Office (GAO). GAO, an agency in the legislative branch of the federal 
government, supports the Congress in carrying out its constitutional 
responsibilities. GAO carries out its mission primarily by conducting 
audits, evaluations, analyses, research, and investigations and 
providing the information from that work to the Congress and the public 
in a variety of forms. 

Basis of Accounting: 

GAO’s financial statements have been prepared on the accrual basis of 
accounting in conformity with generally accepted accounting principles 
for the federal government. Accordingly, revenues are recognized when 
earned and expenses are recognized when incurred, without regard to the 
receipt or payment of cash. These principles differ from budgetary 
reporting principles. The differences relate primarily to the 
capitalization and depreciation of property and equipment, as well as 
the recognition of other long-term assets and liabilities. The 
statements were also prepared in conformity with Office of Management 
and Budget (OMB) Circular A-136, Financial Reporting Requirements. 


Intragovernmental assets are those assets that arise from transactions 
with other federal entities. Funds with the U.S. Treasury comprise the 
majority of intragovernmental assets on GAO’s balance sheet. 

Funds with the U.S. Treasury: 

The U.S. Treasury processes GAO’s receipts and disbursements. Funds 
with the U.S. Treasury represent appropriated funds Treasury will 
provide to pay liabilities and to finance authorized purchase 

Property and Equipment: 

Generally, property and equipment individually costing more than 
$15,000 are capitalized at cost. Building improvements and leasehold 
improvements are capitalized when the cost is $25,000 or greater. Bulk 
purchases of lesservalue items that aggregate more than $150,000 are 
also capitalized at cost. Assets are depreciated on a straight-line 
basis over the estimated useful life of the property as follows: 
building improvements, 10 years; computer equipment, software, and 
capital lease assets, ranging from 3 to 6 years; leasehold 
improvements, 5 years; and other equipment, ranging from 5 to 20 years. 

Federal Employee Benefits: 

GAO recognizes its share of the cost of providing future pension 
benefits to eligible employees over the period of time that they render 
services to GAO. The pension expense recognized in the financial 
statements equals the current service cost for GAO’s employees for the 
accounting period less the amount contributed by the employees. The 
excess of the recognized pension expense over the amount contributed by 
GAO and employees represents the amount being financed directly through 
the Civil Service Retirement and Disability Fund administered by OPM. 
This amount is considered imputed financing to GAO. 

The Federal Employees’ Compensation Act (FECA) provides income and 
medical cost protection to covered federal civilian employees injured 
on the job, employees who have incurred a work-related occupational 
disease, and beneficiaries of employees whose death is attributable to 
a job-related injury or occupational disease. Claims incurred for 
benefits for GAO employees under FECA are administered by the 
Department of Labor and are paid, ultimately, by GAO. 

GAO recognizes a current-period expense for the future cost of post 
retirement health benefits and life insurance for its employees while 
they are still working. GAO accounts for and reports this expense in 
its financial statements in a manner similar to that used for pensions, 
with the exception that employees and GAO do not make current 
contributions to fund these future benefits. 

Annual, Sick, and Other Leave: 

Annual leave is recognized as an expense and a liability as it is 
earned; the liability is reduced as leave is taken. The accrued leave 
liability is principally long-term in nature. Sick leave and other 
types of leave are expensed as leave is taken. All leave is funded when 


GAO has certain claims and lawsuits pending against it. Provision is 
included in GAO’s financial statements for losses considered probable 
and estimable. Management believes that losses from certain other 
claims and lawsuits are reasonably possible but are not material to the 
fair presentation of GAO’s financial statements and provision for these 
losses is not included in the financial statements. 

[End of Note to Financial Statements] 

From the Inspector General:

Date: November 2, 2006 
To: Comptroller General 
From: Inspector General – Frances Garcia: 

Subject: GAO Management Challenges and Performance Measures: 

We have examined management’s assessment of the management challenges. 
Based on our work and institutional knowledge, we agree that physical 
security, information security, and human capital are management 
challenges that may affect our performance. We are in agreement with 
management’s assessment of progress made in addressing these 

During fiscal year 2006, we reviewed accomplishment reports totaling 96 
percent of the total dollar value reported, including most 
accomplishment reports of $100 million or more, and found that GAO had 
a reasonable basis for claiming these benefits. In addition, we 
assessed GAO’s processes for determining performance on the number of 
testimonies, the percentage of new products with recommendations, and 
the percentage rate of recommendations implemented and found that 
statistics reported for these measures were reasonable. We also 
completed our review of fiscal year 2005 qualitative measures, which 
led to GAO discontinuing public reporting of these measures and 
retaining them for internal use. 

[End of letter from the Inspector General] 

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[1] The Federal Managers’ Financial Integrity Act requires ongoing 
evaluations and annual reports on the adequacy of the systems of 
internal accounting and administrative control of each agency. The 
Government Performance and Results Act seeks to improve public 
confidence in federal agency performance by requiring that federally 
funded agencies develop and implement accountability systems based on 
performance measurement, including setting goals and objectives and 
measuring progress toward achieving them. The Federal Financial 
Management Improvement Act emphasizes the need to improve federal 
financial management by requiring that federal agencies implement and 
maintain financial management systems that comply with federal 
financial management systems requirements, applicable federal 
accounting standards, and the U.S. Government Standard General Ledger 
at the transaction level. 

[2] As part of our risk-based engagement management process, we 
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Government Accountability Office: 

[End of Performance and Accountability Highlights]