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Performance and Accountability Series:

January 2003:

Major Management Challenges and Program Risks:

A Governmentwide Perspective:


This Series:

This report is part of a special GAO series, first issued in 1999 

and updated in 2001, entitled the Performance and Accountability 

Major Management Challenges and Program Risks. The 2003 Performance and 

Accountability Series contains separate reports covering each cabinet 

department, most major independent agencies, and the U.S. Postal 

Service. This report provides a governmentwide perspective on 

transforming the way the government does business in order to meet 

21st century challenges and address long-term fiscal needs. The 

2003 High-Risk Series: An Update identifies areas at high risk due to 

either their greater vulnerabilities to waste, fraud, abuse, and 

mismanagement or major challenges associated with their economy, 

efficiency, or effectiveness. A list of all of the reports in this 

series is included at the end of this report.

GAO Highlights:

Highlights of GAO-03-95, a report to Congress included as part of 

GAO’s Performance and Accountability Series

Why GAO Did This Report:

In its 2001 Governmentwide Perspective, GAO identified operational 

challenges, such as the continuing need to implement management 

and discussed the need to address human capital and other strategic 

challenges, particularly the longer-term budget outlook.  The 

information GAO presents in this report is intended to help sustain 

congressional attention in addressing the challenges government 

faces in doing business in the 21st century.  This report is part 

of a special series of reports on governmentwide and agency-specific 


What GAO Found:

The federal government is in a period of profound transition and faces

 an array of challenges and opportunities to enhance performance, 

ensure accountability, and position the nation for the future.  

Several major trends, including diffuse security threats and national 

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

and advances in science and technology, drive the need for federal 

agencies to transform their cultures and operations.  Any examination 

of what the federal government can accomplish also must consider long-

range fiscal and demographic pressures that affect the long-term 

outlook.  The retirement of the baby boom generation and rising health 

care costs threaten to overwhelm our nation’s finances.  

A fundamental reassessment of government programs and activities 

can help address our long-range fiscal challenges and weed out 

programs that are outdated or ineffective and update needed programs 

so that they are better aligned, well targeted, and efficient.

Some agencies have begun transformation efforts to fundamentally change

 their cultures to become more results-oriented, customer-focused, and 

collaborative in nature.  For example, the U.S. Postal Service in its 

long-term outlook and transformation, which continue to be high risk, 

faces challenges in managing its finances, human capital, and 

infrastructure.  In addition, the Internal Revenue Service has a 

multifaceted effort to transform its operations under way and the 

Department of Defense is in the process of transforming and improving 

its business operations.  

Establishing the Department of Homeland Security (DHS) also provides 

a unique challenge and opportunity to transform government.  GAO has 

designated implementing and transforming DHS as high risk for three 

reasons.  First, the implementation and transformation of DHS is an 

enormous undertaking that will take time to achieve in an effective and 

efficient manner.  Second, components being merged into DHS already 

face a wide array of existing challenges.  Finally, failure to 

effectively carry out its mission would expose the nation to 

potentially very serious consequences.

Successful transformation efforts build upon the principals of 

effective management, including strategic planning; organizational 

alignment; human capital strategies; performance-based management 

and budgeting focused on results; and sound financial, information 

technology, acquisition, change, and knowledge management practices.  

The President’s Management Agenda has focused agencies’ efforts on 

achieving key management and performance improvements, and our work 

shows that agencies have made progress, although more needs to be done.  

There is no more important management reform than for agencies to 

transform their cultures to respond to the transition that is 

taking place in the role of government in the 21st century.  

Building on lessons learned, major programs and operations need 

urgent attention and transformation to ensure that the government 

functions in the most economical, efficient, and effective manner 


What Remains to Be Done:

To prepare for the future, the role of the federal government and 

how it does business must be transformed.  The federal government 

must reexamine existing entitlement programs, other spending 

policies, and tax preferences in order to help address its long-term 

fiscal challenges and create additional budgetary flexibility to meet 

current and emerging needs.  Agencies must continue to build their 

fundamental management capabilities, resolve high-risk areas, and 

address their major management challenges in order to effectively 

address the nation’s most pressing priorities and take advantage of 

emerging opportunities.  For example, various parties should work 

together to continue to enact needed human capital reforms.

To view the full report, click on the link above.

For more information, contact Victor S. Rezendes at (202) 512-6806 


Transmittal Letter:

A Governmentwide Perspective:

Performance and Accountability and High-Risk Series:

This is a work of the U.S. Government and is not subject to 

copyright protection in the United States. It may be reproduced 

and distributed  in its entirety without further permission 

from GAO. It may contain copyrighted graphics, images or other 

materials. Permission from the copyright holder may be necessary 

should you wish to reproduce copyrighted materials separately 

from GAO’s product.

Transmittal Letter January 2003:

The President of the Senate

The Speaker of the House of Representatives:

This report addresses the challenges and opportunities the federal 

government faces to enhance its performance, ensure greater 

accountability, and better position the nation for the future. It 

describes the major trends, including demographic, health care, and 

other pressures that affect our nation’s long-term fiscal outlook. 

These trends continue to drive the need for a major transformation in 

government, and some agencies have related efforts under way. This 

report also discusses the continuing need to build fundamental 

management capacity across government in order to resolve high-risk 

areas and effectively address major management challenges.

This analysis should help the new Congress and the administration carry 

out their responsibilities and improve government for the benefit of 

the American people. For additional information about this report, 

please contact Victor S. Rezendes, Managing Director, Strategic Issues, 

at (202) 512-6806 or at

David M. Walker

Comptroller General

of the United States:

Signed by David M. Walker

[End of section]

A Governmentwide Perspective:

As the pace of change accelerates in every aspect of American life, 

government is faced with a range of new and complex challenges. The 

events of September 11, 2001, have started in motion a series of 

dramatic changes in the federal government and in working relationships 

between various levels of government and the private sector throughout 

the nation and the world. As the new Department of Homeland Security 

begins to take shape, there is a recognized urgency to fix known 

problems and prepare to effectively address potential and emerging 


Several major trends--such as the increasing interconnectedness of 

global markets and economies as well as the long-term fiscal trends 

facing the federal government--will also frame the nature and scope of 

decisions expected to confront government policymakers and managers in 

the future. Within this context, government leaders must be accountable 

for making needed changes to position the federal government to take 

advantage of emerging opportunities and meet future challenges.

Focusing on accountable, results-oriented management can help the 

federal government operate effectively within a broad network that 

includes other governmental organizations, nongovernmental 

organizations, and the private sector. Using this results-oriented 

framework, the federal government also needs to engage in a 

comprehensive review, reassessment, reprioritization, and as 

appropriate, reengineering of what the government does, how it does 

business, and in some instances, who does the government’s business.

Some federal agencies already have transformation efforts under way. 

Lessons that are learned as these and other agencies gain experience 

can inform and contribute to future transformation efforts. The 

President’s Management Agenda (PMA) is also helping to focus attention 

on the steps needed to address key challenges and produce a more 

results-oriented and accountable government.

By addressing known problems and building fundamental management 

capacity, the federal government can improve its performance and 

deliver economical, efficient, and effective programs and services that 

the American people need in a cost-effective and fiscally sustainable 


Evolving Trends Are Shaping the United States and Its Place in the 


Any examination of the federal government--both how it is organized and 

how it functions--must be done in the context of the trends that shape 

American society and the United States’ place in the world.

[See PDF for image]

[End of figure]

The changes in national and world conditions that have occurred in the 

last 2 years have increased concerns regarding the national and global 

response to terrorism and other threats to personal and national 

security. Although the nature of security threats changed with the end 

of the cold war, the reality of these threats was brought painfully 

home by the attacks of September 11, 2001. These events heightened 

public recognition of the seriousness of these challenges, enhanced the 

focus on and priority given to national preparedness and homeland 

security issues, and led to increased resources being dedicated to 

addressing these challenges. Since time, attention, and resources are 

not unlimited, these changes in national and world conditions alter the 

context within which all governmental roles, initiatives, programs, and 

priorities are evaluated. The nation must embark upon strategies that 

are affordable and sustainable and that integrate the capabilities of 

all levels of government, as well as the private sector, community 

groups, and individuals.

Diffuse and changing security threats are not the only forces affecting 

the United States and its government. In part, these changing threats 

stem from another major trend: rapid advances in technology and the 

increased movement of goods and people across borders. Globalization--

growing worldwide interdependence--affects economic and financial 

structures as well as the ability of any individual nation to impose 

standards or regulations. The government increasingly must be aware of 

international dimensions when weighing policy options and taking 

action, and policy discussions are likely to be multilateral rather 

than bilateral in nature.

Not only are nations and their economies more interdependent, but also 

the very nature of these economies has been changing. The shift to 

market-oriented, knowledge-based economies is occurring throughout 

much of the world. This shift affects productivity--and so economic 

growth--and can raise questions about income distribution, investment 

in human capital, and the measurement of economic performance. It also 

has pivotal implications for immigration, trade, and retirement 


Both globalization and the changing nature of domestic and global 

economies are tied in part to advances in technology. Technological 

advances present significant opportunities, but they also present new 

challenges for society and government. Dramatic increases in computer 

interconnectivity, especially in the use of the Internet, continue to 

revolutionize the way our government, our nation, and much of the world 

communicate and conduct business. However, this widespread connectivity 

also poses significant risks to our computer systems and, more 

important, to the critical operations and infrastructure they support.

While information technology stands out as one major technological 

force of the era, developments in biotechnology also are leading to 

changes in society. For example, improved understanding of diseases has 

led to new therapies and treatments, and genetically modified crops 

have the potential to dramatically improve people’s health and 

nutrition. In addition to the vast opportunities science and technology 

present to improve the performance of the economy, government, and the 

relationship of the government to its citizens, the impact on quality 

of life issues can also be significant. However, quality of life 

issues--such as access to health care, affordable housing, and 

education--also continue to present challenges to governments at all 


In most federal mission areas--such as homeland security, affordable 

housing and higher education assistance--national goals are 

increasingly achieved through the participation of many organizations. 

State and local governments, nonprofit institutions, private 

corporations, and even international institutions and governing bodies, 

all play vital roles in formulating and implementing federal 

initiatives. Promoting effective partnerships with third parties in the 

formulation and design of complex national initiatives will prove 

increasingly vital to achieving key outcomes, such as protecting the 

nation from the threat of terrorism.

Long-term Fiscal and Demographic Trends Are Crucial in Framing Debate 

about the Role of the Federal Government in the Future:

As the nation and government policymakers grapple with the challenges 

presented by these evolving trends, they do so in the context of an 

overwhelming fact: the fiscal pressures created by the retirement of 

the baby boom generation and rising health care costs threaten to 

overwhelm the nation’s fiscal future. In 2008--only 5 years from now--

the first wave of baby boomers become eligible to claim Social 

Security. Between now and 2030, the share of the population aged 65 or 

older is projected to grow from 12 percent to about 20 percent. In 

addition, labor force growth in 2025 is expected to be less than a 

third of what it is today. Absent a growth in productivity, this 

decline in labor force growth will lead to slower growth in the 

economy--and in federal revenues.

Long-range simulations can be helpful in understanding the context 

within which the government will operate; these simulations may be 

especially useful because the long-term outlook is heavily driven by 

demographics. Our long-range budget simulations make it clear that the 

status quo is not sustainable. The future fiscal gap is too great for 

any realistic expectation that the country can grow its way out of the 

problem. Failure to reexamine the retirement and health care programs 

driving the long-term outlook will put the nation on an unsustainable 

fiscal course, absent major changes in tax and/or spending policies. In 

addition, failure to reprioritize other claims on the budget will make 

it increasingly difficult to finance the rest of the government, let 

alone respond to compelling new priorities and needs.

As figure 1 shows, overall budgetary flexibility has been shrinking for 

some time. In the last 2 decades, mandatory spending[Footnote 1]--

excluding net interest--as a share of the budget has jumped by nearly 

10 percentage points to consume more than half of the federal budget.

Figure 1: Federal Spending for Mandatory and Discretionary Programs, 

Fiscal Years 1962, 1982, and 2002:

[See PDF for image]

[A] Office of Management and Budget’s July 2002 current services 


[End of figure]

We prepare long-term budget simulations that seek to illustrate the 

likely fiscal consequences of the coming demographic tidal wave and 

rising health care costs. Our latest long-term budget simulations 

reinforce the need for change in the major cost drivers--Social 

Security and health care programs. As shown in figure 2, by mid-

century, absent reform of these entitlement programs, projected federal 

revenues may be adequate to pay little beyond interest on the debt and 

Social Security benefits. Further, the shift from surplus to deficit 

means that the nation will move into the future in a weaker fiscal 

position than was previously the case.[Footnote 2]

Figure 2: Composition of Spending as a Share of Gross Domestic Product 

(GDP), Assuming Discretionary Spending Grows with GDP, the Tax Cuts Do 

Not Sunset, and Payments of Currently Scheduled Social Security 

Benefits Continue:

[See PDF for image]

[End of figure]

Although the need for structural change in Social Security is widely 

recognized, this change would not be sufficient to overcome the long-

term fiscal challenges confronting the nation. For example, the long-

term fiscal imbalance would not come close to being eliminated even if 

Social Security benefits were to be limited to currently projected 

trust fund revenues, because Medicare and Medicaid--spending for which 

is driven by both demographics and rising health care costs--present an 

even greater problem. Absent a change in design, these two health 

programs together are projected to nearly triple as a share of GDP over 

the next half-century.

Early action to change these programs would yield the highest fiscal 

dividends for the federal budget and would provide a longer period for 

prospective beneficiaries to make adjustments in their own planning. 

Waiting to build economic resources and reform future claims entails 

significant risks. To begin with, we lose an important window during 

which today’s relatively large workforce could increase saving and 

enhance productivity, two elements critical to growing the future 

economy. We also lose the opportunity to reduce the burden of interest 

payments, thereby leaving the relatively smaller workforce of the 

future a legacy of higher debt as well as entitlement spending for the 

elderly. Furthermore, we risk losing the opportunity to phase in 

changes gradually so that all can make the adjustments needed in 

private and public plans to accommodate this historic shift. 

Unfortunately, the long-range challenge has become more difficult, and 

the window of opportunity to address the entitlement challenge is 

narrowing. As the baby boom generation retires and the number of those 

entitled to these retirement benefits grows, the difficulties of reform 

will be compounded. Accordingly, it remains more important than ever to 

deal with these issues over the next several years.

Concerns regarding the long-term picture are increasing, as the crunch 

is getting closer. We have work under way regarding how to describe the 

range and measurement of fiscal exposures--from explicit liabilities 

such as environmental costs to the more implicit exposures presented by 

life-cycle costs of capital acquisition or disaster assistance.

Making government adapt to meet the challenges of the future is broader 

than revisiting entitlement programs. A fundamental review of what the 

federal government does, how it does it, and in some cases, who does 

the government’s business will be required. It will also require a 

review of a range of federal spending, regulatory, and tax policies.

A Fundamental Review Is Needed to Ensure Relevant and Sustainable 

Government Programs:

If government is to be able to deal with these trends, it cannot accept 

as “givens” all of its existing major programs, policies, and 

operations. Rather, the relevance or “fit” of particular federal 

programs, policies, or activities to today’s world and the future must 

be reexamined. This reassessment, while a challenge in itself, can help 

create the fiscal flexibility needed to address emerging needs by 

weeding out programs that are outdated or ineffective and updating 

needed programs so that they are better aligned, well targeted, and 

efficient. Such a reassessment must include both mandatory and 

discretionary spending and tax preferences. In addition, examining 

interrelationships with other governmental and nongovernmental 

programs can help determine the appropriate role for the federal 


It is always easier to subject proposals for new activities or programs 

to greater scrutiny than existing ones undergo. Treating existing 

activities as “givens” and forcing new proposals to compete only with 

each other, however, move the nation further from, rather than nearer 

to, budgetary surplus. In looking forward, it is important to reflect 

on how much things have changed. We must strive to maintain a 

government that is effective and relevant to a changing society--a 

government that is as free as possible of outmoded commitments and 

operations that can inappropriately encumber the future. In addition, 

policymakers need to consider the difference between “wants,” “needs,” 

and overall “affordability” and long-term “sustainability” when setting 

priorities and allocating resources.

Finally, any reassessment of federal missions and strategies should 

include an examination of the entire set of tools that the federal 

government can use to address national objectives. The tools for 

implementing federal programs include direct spending, loans and loan 

guarantees, tax expenditures, and regulations. For example, as shown in 

figure 3, in fiscal year 2000, the federal health care and Medicare 

budget functions included $37 billion in discretionary budget 

authority, $319 billion in entitlement outlays, $5 million in loan 

guarantees, and $91 billion in tax expenditures.

Figure 3: Relative Reliance on Policy Tools in the Health Care Budget 

Functions, Fiscal Year 2000:

[See PDF for image]

Note: Loan guarantees account for about $5 million, or about 0.001 

percent, of the approximately $447 billion in total federal health care 


[End of figure]

In most federal mission areas--from low-income housing to food safety 

to higher education assistance--national goals are achieved through the 

use of a variety of tools and, increasingly, through the participation 

of many organizations that are beyond the direct control of the federal 

government. This environment provides unprecedented opportunities to 

change the way federal agencies are structured to do business 

internally and across boundaries with state and local governments, 

nongovernmental organizations, private businesses, and individual 


This transformation is made more challenging at a time when many states 

and localities are facing the tightest fiscal conditions they have seen 

in a decade, with fiscal pressures stemming from slowing revenue growth 

and unanticipated expenditures. The recent economic downturn and stock 

market declines have caused state revenues to slide, while other 

developments, such as health care price increases and unexpected 

homeland security threats, have greatly increased spending demands. 

There is evidence that the fiscal and policy issues that each level of 

government in our system faces are increasingly intertwined. The 

expansion of federal policy objectives has been accompanied by a 

growing reliance on state and local governments. State and local 

governments have been confronted with the challenge of addressing their 

own needs while at the same time assuming stewardship for a growing 

number of national needs. Together, such trends are forcing 

policymakers to make difficult fiscal and policy choices, and these 

decisions will become more painful over time.

Agencies Have Transformation Efforts Under Way To Meet 21ST Century 


Together these trends--including security and preparedness, 

globalization, a shift to knowledge-based economies, advances in 

science and technology, and an aging population, along with the long-

range fiscal challenges facing the government--drive the need for 

agencies to transform their cultures and operations. In response to 

these trends, some agencies have already begun these transformations.

As part of its transformation efforts, the federal government needs to 

create a culture that moves from:

* process to results,

* stovepipes to matrixes,

* hierarchical to flatter and more horizontal structures,

* an inward focus to an external (citizen, customer, and stakeholder) 


* micro-management to employee empowerment,

* reactive behavior to proactive approaches,

* avoiding new technologies to embracing and leveraging them,

* hoarding knowledge to sharing knowledge,

* avoiding risk to managing risk, and:

* protecting “turf” to forming partnerships.

There is a compelling need to elevate, integrate, and institutionalize 

responsibility for transformational efforts within federal agencies to 

help ensure success.[Footnote 3] This can help provide the continuing, 

focused attention needed to complete multiyear transformation change 

efforts. How this is accomplished must be determined within the context 

of the specific facts and circumstances surrounding that agency and its 

own challenges and opportunities. All such efforts, however, build upon 

the existing mechanisms for ensuring accountability. Congressional 

oversight continues to play a key role in fostering continuous 

improvement. Public reporting mechanisms, such as the annual 

performance plans and performance reports required by the Government 

Performance and Results Act of 1993 (GPRA), and audited financial 

statements prepared under the 1990 Chief Financial Officers (CFO) Act 

and the 1994 Government Management Reform Act, also provide useful 

information and help keep transformation efforts on track and 

accountable for achieving progress and results.

One clear example of the challenges involved in governmental 

transformation efforts can be seen in examining efforts related to the 

transformation of the U.S. Postal Service, an area that we designated 

as high risk in April 2001. Additionally, both the Internal Revenue 

Service (IRS) and the Department of Defense (DOD) face a range of long-

term challenges and have actions under way to address the fundamental 

need to transform how they do business now and in the future. Also, 

establishing the new Department of Homeland Security presents a wide 

range of transformation issues. Other agencies have also begun major 

transformation efforts, including the National Aeronautics and Space 

Administration (NASA), the Federal Aviation Administration (FAA), and 

the Federal Bureau of Investigation (FBI).

The Postal Service’s Transformation Continues to Be High Risk:

The rapid changes in technology, particularly in the use of E-mail and 

the Internet, security concerns, and increased competition, have all 

played a part in framing the significant challenges facing the Postal 

Service. In the nearly 2 years since we designated the Service’s 

transformation efforts and long-term outlook as a high-risk area, it 

has experienced financial difficulties and struggled to fulfill its 

mission of providing high-quality universal service while remaining 

self-supporting. These financial difficulties are not just a cyclical 

phenomenon--mail volumes have stagnated or declined in an increasingly 

competitive environment. The Service has developed a transformation 

plan, which it can use to make progress on specific actions under its 

existing authority. The Service’s ability to control costs and improve 

productivity is key to improving its financial situation. Historically, 

it has had difficulty achieving productivity improvements and cost 

savings in two of its most costly areas--its workforce and its 

expansive physical infrastructure.[Footnote 4]

One of the key challenges of the Service’s transformation will be 

realigning its infrastructure and workforce to support its business 

model for the 21ST century. The issue of excess and underutilized 

property, part of the governmentwide high-risk area of federal real 

property, needs to be part of the Service’s efforts to control costs 

and achieve its long-term transformation.[Footnote 5] Also, facility 

consolidations and closures may be needed to align the Service’s 

operating network more closely with its changing business model.

Progress is also needed in aligning the Service’s workforce planning 

and performance systems to its changing business model. Continued 

communication and cooperation between labor and management on difficult 

human capital issues will be critical in achieving transformation 

goals. The Service also needs to work with the Congress, the 

President’s Commission on the United States Postal Service, and other 

stakeholders to address a range of unresolved transformation issues. 

The time has come for comprehensive and fundamental reform with the key 

continuing to be the need to find common ground in building a viable 

postal system for the 21ST century.

IRS Has Transformation Efforts Under Way:

IRS’s modernization encompasses changes to virtually every aspect of 

IRS, from its organizational structure and business processes to its 

technology and ways of measuring and managing the performance of the 

agency and its approximately 100,000 employees. Through modernization, 

the Congress expects IRS to provide top-quality service and, in doing 

so, to efficiently collect revenues for the Treasury.

IRS has made important progress, but its transformation continues to be 

a work in process, and its modernization is a massive and multifaceted 

effort that will take at least a decade to complete. The IRS 

Restructuring and Reform Act of 1998 established the Congress’s 

expectation that IRS modernize to better meet taxpayer needs. 

Implemented together, improvements in five areas--business processes, 

organizational structure, performance measurement, managerial 

accountability, and new technology or business systems--are intended to 

improve taxpayer service and compliance. Each initiative is a major 

undertaking, and in combination they are particularly ambitious and 

complex. While IRS has made progress in all five areas, we have 

identified a number of challenges that must be met if IRS is to 

successfully transform itself into an agency that provides top quality 

service and efficiently collects revenue:

* Improving service to taxpayers: The progress that IRS has made to 

date in modernizing itself has laid a foundation for improvement but 

has not yet provided the quality of service that taxpayers, the 

Congress, and IRS management agree is needed. A theme in our recent 

reports on taxpayer service is the need for improved management. 

Specifically, we recommended explicit goal setting, improved 

performance measures, and more program evaluations. Similarly, we have 

noted the importance of human capital management to improve service to 

taxpayers. For example, we have pointed out that IRS’s new performance 

management system could be a powerful tool to help IRS achieve its 


* Collection of unpaid taxes: Collecting taxes due the government has 

always been a challenge for IRS, but in recent years the challenge has 

grown. We have highlighted large and pervasive declines in IRS’s 

compliance and collections programs. To reverse these trends, IRS is in 

various stages of planning and implementing management improvements, 

including reengineering compliance and collections practices, 

collecting better data about noncompliance, and investing in modern 

financial and information systems. Because of the potential revenue 

losses and the threat to voluntary compliance, this is a high-risk 


* Earned income credit noncompliance: The design of the earned income 

credit may contribute to the significant compliance problems that have 

been associated with the credit. As we have reported, unlike other 

income transfer programs that have staff to review documents and other 

evidence before judging applicants to be qualified to receive 

assistance, the earned income credit was designed to be administered 

through the tax system and relies more directly on the self-reported 

qualifications of individuals. The Commissioner of Internal Revenue and 

the Secretary of the Treasury have convened a joint task force to 

develop recommendations to better administer the credit and make it 

easier for taxpayers to comply with the rules. However, until IRS has 

designed and implemented effective controls to deal with noncompliance 

and the erroneous refunds in the billions of dollars that result, this 

will remain a high-risk area.

* Establishing measures comparable over time and collecting sufficient 

performance data: A sound organizational performance and human capital 

management system is essential for assessing how well IRS meets its 

goals and for making program improvements. IRS has made progress in 

revamping its performance management system by using its strategic 

planning, budgeting, and performance management process to reconcile 

competing priorities and initiatives within the realities of available 

resources. However, our work has shown that IRS could do a better job 

of designing and implementing performance measures and program 

evaluation practices that support its ongoing business operations, 

modernization efforts, and budget requests.

* Addressing financial management weaknesses to develop reliable cost-

based performance information: Financial management weaknesses--a 

high-risk area since 1995--limits IRS’s ability to develop reliable, 

cost-based performance information and to ensure that resources were 

spent in accordance with laws, regulations, and management policy. IRS 

has made significant progress in addressing its financial management 

weaknesses, including addressing controls over budgetary activity and 

its accountability over property and equipment. However, resolving many 

of IRS’s most serious problems will require a sustained, long-term 

commitment of resources; continued involvement of senior management; 

and sustained progress in systems modernization.

* Managing the business systems modernization program: IRS’s 

multibillion-dollar business systems modernization program is critical 

to the success of the agency’s efforts to transform its manual, paper-

intensive business operations and fulfill its obligations under the IRS 

Restructuring and Reform Act. IRS has made important progress in 

establishing long overdue modernization of its management capabilities, 

and in acquiring the foundational system infrastructure and the system 

applications that will permit the agency to operate more effectively 

and efficiently; but significant challenges and risks remain. We 

continue to designate IRS’s business systems modernization as a high-

risk area for two interrelated reasons. First, the scope and complexity 

of the program is growing. Second, IRS’s modernization management 

capacity is still maturing. We have continued to emphasize the 

importance of establishing sound management controls to guide IRS’s 

business systems modernization projects. Although IRS has made 

important progress in a number of areas, we remain concerned that its 

systems modernization projects may encounter additional cost, schedule, 

and performance problems.[Footnote 6]

* Implementing effective computer security: IRS relies extensively on 

computer information systems to perform basic functions such as 

processing tax returns and payments, maintaining sensitive taxpayer 

information, and generating refunds. Although IRS has made important 

progress improving computer security controls, much remains to be done 

to resolve the significant security weaknesses that continue to exist 

within IRS’s computing environment and to be able to promptly address 

new security threats and risks as they emerge. Such weaknesses can 

impair the agency’s ability to perform vital functions, and can 

increase the risk of unauthorized disclosure, modification, or 

destruction of taxpayer information. Until IRS corrects known 

weaknesses and fully implements its agencywide computer security 

program, IRS systems and sensitive taxpayer information will remain at 


DOD Is in the Process of Transforming and Improving Its Business 


DOD’s transformation will require cultural change and business process 

reengineering that will take years to accomplish, and a commitment from 

both the executive and legislative branches of government. Even before 

the events of September 11, increased globalization, changing security 

threats, and rapid technological advances were prompting fundamental 

changes in the environment in which DOD operates. DOD’s transformation 

involves a strategic imperative needed to meet the security challenges 

of the new century. DOD has emphasized force transformation as 

necessary to effectively anticipate, counter, and eliminate the 

emergence of unconventional threats overseas and at home. At the same 

time, DOD has embarked on a series of efforts to improve its core 

business processes.

Many of DOD’s business processes are mired in old, inefficient 

procedures and legacy systems, some of which go back to the 1950s and 

1960s. As the security environment has shifted from a Cold War 

structure to one of many and varied threats, DOD has not kept pace with 

the changing capabilities and productivity of the modern business 

environment. In view of the events of September 11 and the federal 

government’s short-and long-term budget challenges, it is more 

important than ever that DOD effectively transform its business 

processes to ensure it gets the most from every dollar spent. These 

trends place a premium on increasing strategic planning; enhancing 

results orientation; and ensuring effective accountability, 

transparency, and the use of integrated approaches.[Footnote 7]

Significant management problems, however, continue to hamper the 

economy, efficiency, effectiveness, and accountability of DOD’s 

business processes, placing mission capabilities at risk by misspending 

funds that could be directed to higher priorities, such as 

modernization and readiness. Organizations throughout DOD need to 

continue reengineering their business processes and striving for 

greater operational efficiency. Addressing DOD’s performance and 

accountability challenges and high-risk areas is crucial in ensuring 

that inefficiencies no longer make the cost of carrying out missions 

unnecessarily high and, more importantly, increase the risk associated 

with those missions. DOD’s transformation demands integrated solutions 

to these areas.

* DOD has emphasized transforming its support infrastructure, but 

infrastructure management continues to be a high-risk area. DOD and 

others have been concerned over the amount of funding devoted to its 

support infrastructure and the impact this has on its ability to devote 

more funding to weapon system modernization and other critical needs.

* Problems with the department’s financial management operations date 

back decades, and DOD’s financial management remains high risk. 

Previous attempts at reform have largely proven to be unsuccessful 

despite good intentions and significant efforts. Overhauling the 

department’s financial management operations represents a challenge 

that goes far beyond financial accounting to the very fiber of DOD’s 

range of business operations and management culture. The department has 

underscored its commitment to reform, but it must be able to 

effectively account for the funding it receives and carry out its 

stewardship responsibilities for the vast amount of equipment and 

inventories used in support of military operations.

* To transform its business operations, DOD is spending billions of 

dollars to modernize its information technology systems. Since we first 

designated DOD’s systems modernization as a high-risk area in 1995, DOD 

has had limited success in modernizing its information technology 

environment because it has yet to fully implement our recommendations 

aimed at addressing its underlying modernization management weaknesses, 

including lack of an integrated set of enterprise architectures, 

effective investment management practices, and effective acquisition 

processes. DOD has taken some steps to implement our recommendations 

addressing the weaknesses we identified. For example, DOD has begun to 

develop a departmentwide enterprise architecture for its financial and 

related operations, including ensuring alignment of this architecture 

with others in DOD.

* DOD’s investment in weapons is growing rapidly as DOD pushes to 

transform itself to meet a new range of threats, but DOD continues to 

experience significant problems, including cost increases, schedule 

delays, and performance shortfalls in developing and acquiring weapons 


* As the government’s largest purchaser, DOD and its senior leadership 

is committed to improving and streamlining its acquisition practices as 

it adjusts to a changing acquisition environment. Contract management 

remains a high-risk area, including the need to improve acquisition of 

services and ensure the appropriate use of contracting techniques and 

approaches by overcoming long-standing contract payment issues, 

managing health care contracts, and improving the acquisition 


* DOD’s inventory management practices represent one of the most 

serious weaknesses in DOD’s logistics operations, and the long-term 

solution to this high-risk area necessitates that DOD reengineer its 

entire logistics operations to include the development of a long-range 

strategic vision and a coordinated approach to logistics management.

DOD’s transformation initiative will only succeed with the right 

incentives, transparency, and accountability mechanisms. While DOD 

recognizes the need for internal transformation and budget reform, its 

goals are challenging, and its strategic plan currently is not set up 

to allow DOD to implement and measure progress toward achieving its 

performance goals in an integrated fashion. In addition to building on 

a foundation of sound strategic planning, sustained committed 

leadership is needed to maintain continuity. One way to ensure 

sustained and committed leadership would be to create a full time 

position, such as a chief management officer position, that would 

provide the sustained attention essential for addressing key 

stewardship responsibilities, such as strategic planning, performance 

management, and financial management, in an integrated manner while 

helping to facilitate the transformation processes within DOD. Equally 

important is the Congress’s responsibility to provide the necessary 

review and visible leadership to demonstrate its commitment to reform 

and oversight.

Establishing the Department of Homeland Security Provides a Unique 

Opportunity to Transform Government:

We have designated the implementation and transformation of the 

Department of Homeland Security (DHS) as high risk for three 

reasons.[Footnote 8] First, the implementation and transformation is an 

enormous undertaking that will take time to achieve in an effective and 

efficient manner. Second, components being merged into DHS already face 

a wide array of existing challenges. Finally, failure to effectively 

carry out its mission would expose the nation to potentially very 

serious consequences.

DHS, with an anticipated budget of almost $40 billion and an estimated 

170,000 employees, will be the third largest agency in the federal 

government. DHS will combine 22 agencies specializing in various 

disciplines, including law enforcement, border security, biological 

research, disaster mitigation, and computer security. Further, DHS will 

take on some non-homeland-security activities, such as the Coast 

Guard’s marine safety responsibilities and the Federal Emergency 

Management Agency’s natural disaster response functions. The new 

department is being formed with responsibility for a wide array of 

existing major management challenges and program risks. For instance, 

one DHS directorate’s responsibility includes the protection of 

critical information systems--an area that we have designated high 

risk. Further, the components merging into the new department, 

including the Immigration and Naturalization Service (INS) and the 

Transportation Security Administration (TSA), face a range of 

fundamental management capacity issues, such as strategic human capital 

risks, critical information technology challenges, and financial 

management vulnerabilities. The new components also confront an array 

of challenges and risks to program operations, such as the challenges 

TSA faced in meeting baggage screening deadlines and the difficulties 

INS has had in tracking aliens due to unreliable address information.

Only through the effective integration and collaboration of these 

diverse entities will the nation achieve the synergy that can help 

provide better security against terrorism. The magnitude of these 

responsibilities, combined with the challenge and complexity of the 

transformation, underscores the perseverance and dedication that will 

be required of all DHS’s leaders, employees, and stakeholders to 

achieve success. The new department must grapple not only with 

operational issues that will require immediate attention to better 

secure our borders or to enhance information sharing, but also create a 

well run, sustainable department for the long term.

Mergers of this magnitude carry significant risks, including lost 

productivity and inefficiencies. In September 2002, we convened a forum 

to identify and discuss useful practices and lessons learned from major 

private and public sector mergers, acquisitions, and 

transformations.[Footnote 9] The participants included a cross section 

of leaders in the public and private sectors who have had experience 

managing large-scale mergers and acquisitions, as well as leading 

academics and others who have studied these efforts. While there is no 

one right way to manage a successful transformation, the following key 

practices can serve as a guide to DHS and other agencies as they seek 

to transform and meld disparate cultures in response to governance 


* Ensure that top leadership drives the transformational change.

* Establish a coherent mission and integrated strategic goals to guide 

the transformation.

* Focus on a key set of principles and priorities at the outset of the 


* Set implementation goals and a timeline to build momentum and show 

progress from day one.

* Dedicate an implementation team to manage the transformation process.

* Use the performance management system to define responsibility and 

ensure accountability for change.

* Establish a communication strategy to create shared expectations and 

report on related progress.

* Involve employees to obtain their ideas and gain ownership for the 


* Build a world-class organization.

Generally, successful transformations of large organizations, even 

those undertaking less strenuous reorganizations and with less pressure 

for immediate results, can take from 5 to 7 years to achieve in a 

sustainable manner. Moreover, critical aspects of DHS’s success will 

depend on well-functioning relationships with third parties that will 

take time to establish and maintain, including those with other federal 

agencies with homeland security responsibilities, such as the State 

Department, the FBI and Central Intelligence Agency, DOD, and the 

Department of Health and Human Services, as well as with state and 

local governments, and the private sector. Creating and sustaining a 

structure that can leverage partners and stakeholders will be necessary 

to effectively implement the national homeland security strategy.

Building an effective department will require consistent and sustained 

leadership from top management to ensure the needed transformation of 

disparate agencies, programs, and missions into an integrated 

organization. To achieve success, the end result should not simply be a 

collection of components in a new department, but the transformation of 

the various programs and missions into a high performance, focused 

organization. DHS will need to build a successful transformation that 

instills the organization with important management principles; rapidly 

implements a phased-in transition plan; leverages the new department 

and other agencies in executing the national homeland security 

strategy; and builds collaborative partnerships with federal, state, 

local, and private sector organizations. Actions that must be taken to 

ensure the success of DHS over the long term include:

* a comprehensive transformation,

* strong partnerships,

* management capacity, and:

* performance milestones and an oversight structure.

Accountability is a critical factor in ensuring the success of the new 

department. The oversight entities of the executive branch, including 

OMB and the Office of Homeland Security, will have a vital role to play 

in ensuring expected performance and accountability. Likewise, 

cognizant congressional committees, with their long term and broad 

institutional roles, will also play a role in overseeing the 

transformation of the federal government as it meets the demands of its 

homeland security mission. The DHS legislation instructs both Houses of 

the Congress to review their committee structures in light of the 

reorganization of homeland security responsibilities within the 

executive branch, and the Congress has begun to explore ways to 

facilitate conducting its responsibilities in a more consolidated and 

integrated manner. During this period of transformation, the Congress 

may need to periodically reassess its structure to maximize the 

effectiveness of its DHS oversight.

The November 2002 enactment of legislation creating DHS represents a 

historic moment of almost unprecedented action by the federal 

government to fundamentally transform how the nation will protect 

itself from terrorism. Rarely in the country’s past has such a large 

and complex reorganization of government occurred or been developed 

with such a singular and urgent purpose. DHS’s national security 

mission is of such importance that its failure could have serious 

consequences on our intergovernmental system, our citizens’ health and 

safety, and our economy. The government now has the chance to transform 

itself by developing a strong and effective cabinet department that 

will, among other things, protect U.S. borders, improve intelligence 

and information-sharing activities, and prevent and respond to 

potential terrorist acts.

Other Agencies Have Begun Transformation Efforts:

NASA, FAA, and FBI are examples of other executive branch agencies that 

have recognized that they must change with the times in considering 

what they do and how they do it. NASA is facing difficulties--

particularly in maintaining a skilled workforce, controlling costs, and 

providing effective oversight for important projects--that have been 

debilitating to important space missions.[Footnote 10] Recognizing the 

need for change at NASA, the Administrator has articulated a new vision 

to eliminate stovepipes; become more integrated and results oriented; 

and reduce risks while working more economically, efficiently, and 

effectively. FAA is another agency where key trends have heightened the 

need for transformation to implement new ways of ensuring 

transportation security and improving safety, mobility, and economic 

growth. FAA faces an impending wave of air traffic controller 

retirements, and has had difficulties in implementing new processes and 

technologies. It faces long-standing problems in financial management 

and air traffic control modernization efforts, and although FAA has 

made important progress in addressing these problems, more remains to 

be done.[Footnote 11] At the FBI, any changes must be part of, and 

consistent with, broader governmentwide transformations that are under 

way.[Footnote 12] This is especially true because the FBI, although it 

will not be moving to DHS, must work closely with DHS’s components as 

the new department is put into place. Every American also has a stake 

in ensuring the success of the FBI’s efforts to defend the public from 

terrorist and criminal actions.

* Although NASA is in the very early stages of its transformation, it 

has taken positive steps to address its management problems, such as 

undertaking new initiatives to reshape and strengthen its workforce. 

The challenge ahead for NASA will be to maintain the momentum to 

transform, to effectively use existing and new authorities to 

strategically manage its people, and to quickly implement the tools 

needed to strengthen management and oversight. In undertaking its 

transformation efforts, NASA must tackle the root causes of problems 

impeding the agency’s performance and accountability. This will require 

instituting a results-oriented culture that fosters knowledge-sharing 

and empowers NASA’s workforce to accomplish programmatic goals while 

making sure that the agency adheres to rigorous and effective 

management controls to prevent cost overruns and scheduling problems, 

transforming the financial management organization so that it better 

supports NASA’s core mission, and sustaining commitment to change.

* Faced with growing air traffic and aging equipment, FAA initiated an 

ambitious effort to modernize its air traffic control system in 1981. 

However, many of the modernization projects have experienced cost 

overruns, schedule delays, and performance shortfalls. Our work has 

identified the root causes of the modernization program’s problems. FAA 

has made important progress in addressing these root causes, but more 

must be done to institutionalize mature software acquisition processes, 

enforce the enterprise architecture, and implement effective investment 

management processes. With FAA expecting to spend about $16 billion 

through 2007 on new air traffic control systems, actions to address 

these root causes are critical. In addition, FAA expects to convert to 

its property system and general accounting system modules by the end of 

2003. Subsequently, FAA’s financial statement audits will provide a 

comprehensive test of the ability of these systems to function in the 

complex FAA environment. FAA continues to make substantial progress in 

developing its cost accounting information capabilities. Cost 

accounting data are critical to support decisions about resource needs 

and to adequately control major projects, such as the multibillion-

dollar air traffic control modernization program.

* The key elements of the FBI’s ongoing reorganization include shifting 

some resources from long-standing areas of focus, such as drugs, to 

counterterrorism and intelligence; building analytic capability; and 

recruiting to address selected skill gaps.[Footnote 13] The FBI has 

begun its transformation by reorganizing its operations to strengthen 

its management structure and enhance accountability. The next phase is 

for the FBI to build a national terrorism response capability that is 

larger as well as more mobile, agile, and flexible.

Effective Management Is Required to Create and Sustain High-Performing 


Leading public and private organizations here in the United States and 

abroad have found that for organizations to successfully transform 

themselves, they must often fundamentally change their culture so that 

they are more results-oriented, customer-focused, and collaborative in 

nature. Top leadership involvement and clear lines of accountability 

for making management improvements are critical to overcoming natural 

resistance to change, marshaling the resources needed to improve 

management, and building and maintaining commitment to new ways of 

doing business. Strategic human capital management must be the 

centerpiece of any serious change-management initiative or effort to 

transform the cultures of government agencies. In addition, successful 

transformations build on an integrated approach, with careful attention 

to fundamental public sector management practices and principles, such 

as strong financial, information technology, and acquisition 


The experiences of successful major change management initiatives in 

large private and public sector organizations suggest that it can often 

take at least 5 to 7 years before such initiatives are fully 

implemented and the related cultures are transformed in a sustainable 

manner. A combination of practices, including top leadership support, a 

long-term strategic perspective, and a dedicated implementation team, 

can help provide the continuing, focused attention needed to complete 

multiyear transformation and change efforts.

The fiscal year 2002 President’s Management Agenda (PMA) points out 

important challenges for the federal government and is intended to 

focus agencies’ efforts on making progress in achieving management and 

performance improvements.[Footnote 14] The 2002 PMA focuses on 14 areas 

of improvement where it believes the greatest opportunities to improve 

performance exist. There are clear linkages between the five 

governmentwide initiatives and the nine program-specific initiatives 

identified by the administration and the high-risk areas and major 

management challenges covered in this 2003 and our 2001 Performance and 

Accountability High-Risk Series.[Footnote 15] For example, in 2001 we 

designated strategic human capital management as a governmentwide high-

risk area that presents a pervasive challenge throughout the federal 

government, and this is also one of the President’s governmentwide 

initiatives. The other crosscutting presidential initiatives include 

competitive sourcing, improved financial performance, expanded 

electronic government, and budget and performance integration.

[See PDF for image]

[End of figure]

The items on the PMA are also consistent in key aspects with the 

federal government’s statutory framework of financial management, 

information technology, and results-oriented management reforms 

enacted during the 1990s. In crafting that framework, the Congress 

sought to provide a basis for improving the federal government’s 

effectiveness, financial condition, and operating performance.

Central to effectively addressing the federal government’s management 

problems and providing a solid base for successful transformation 

efforts is recognition that these fundamental management practices and 

principles cannot be addressed in an isolated or piecemeal fashion 

separate from the other major management challenges and high risks 

facing federal agencies. Rather, these efforts are mutually reinforcing 

and must be addressed in an integrated way to ensure that they drive a 

broader transformation of the cultures of federal agencies.

Strategic Human Capital Management Is Key to Transforming Government:

Strategic human capital management should be the centerpiece of any 

serious change management initiative or any effort to transform the 

cultures of government agencies.[Footnote 16] The PMA has identified 

the strategic management of human capital as one of its initiatives, 

citing the fact that we had designated strategic human capital 

management as a governmentwide high-risk area in 2001. The Office of 

Management and Budget (OMB) and the Office of Personnel Management 

(OPM) released standards for success in this area, reflecting language 

that was developed in collaboration with us. The Homeland Security Act 

of 2002 provided DHS with significant flexibility to design a modern 

human capital system and also included significant provisions related 

to governmentwide human capital management. This act includes the 

creation of Chief Human Capital Officers (CHCO) and a CHCO Council, 

expanded voluntary early retirement and buy-out authority, 

authorization for the use of categorical ranking in the hiring of 

applicants instead of the “rule of three,” a requirement to discuss 

human capital approaches in GPRA plans and reports, and other 

provisions. These efforts and others have raised expectations for 

agency performance in this area.

Serious human capital shortfalls, however, continue to erode the 

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

economically, efficiently, and effectively perform their missions. 

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

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

maintaining the human capital needed to maximize government performance 

and ensure its accountability. People are an agency’s most important 

organizational asset. An organization’s people define its character, 

affect its capacity to perform, and represent the knowledge base of the 


The first step in meeting the government’s human capital challenges is 

for agency leaders to identify and make use of all the appropriate 

administrative authorities available to them to manage their people 

both effectively and equitably. Much of the authority agency leaders 

need to manage human capital strategically is already available under 

current laws and regulations, as recognized by the PMA. The second step 

is for policymakers to continue to pursue incremental legislative 

reforms to give agencies additional tools and flexibilities to hire, 

manage, and retain the human capital they need, particularly in 

critical occupations. The third step is for all interested parties to 

work together to identify the kinds of comprehensive legislative 

reforms in the human capital area that should be enacted over time. 

These reforms should place greater emphasis on knowledge, skills, and 

performance in connection with federal employment, promotion, and 

compensation decisions.

Agencies can improve their performance by the way that they treat and 

manage their people, building commitment and accountability through 

involving and empowering employees. All members of an organization must 

understand the rationale for making organizational and cultural 

changes, because everyone has a stake in helping to shape and implement 

initiatives as part of agencies’ efforts to meet current and future 

challenges. Effective changes can only be made and sustained through 

the cooperation of leaders, union representatives, and employees 

throughout an organization.

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

standards for success in implementing strategic human capital 

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

standards are consistently and appropriately applied while they assess 

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

support will be needed as agencies identify targeted investment 

opportunities to address human capital shortfalls.

Effective Performance Management Focuses on Results:

Results-oriented organizations focus on strategic planning that 

includes involvement of stakeholders; assessment of internal and 

external environments; and an alignment of activities, core processes, 

and resources to support mission-related outcomes. A well-defined 

mission and clear, well-understood strategic goals are essential in 

helping agencies make intelligent trade-offs among short-and long-term 

priorities and ensure that program and resource commitments are 


The mission, goals, and core values of an organization must become the 

focus for transformation--defining the culture and serving as a nexus 

for employees to unite and rally around. As the new Department of 

Homeland Security takes shape, for example, it will be important to 

focus on articulating a clear overarching mission and core values that 

will draw employees together and provide a clear focus in support of 

the new agency’s objectives. In successful transformation efforts, 

developing, communicating, and constantly reinforcing the mission, 

goals, and core values give employees a sense of what the organization 

intends to accomplish, as well as how they fit in with the new 

organization and what they can do to help it succeed.

In many cases, transformation efforts will entail organizational 

realignment to better achieve results and clarify accountability. 

Attention to organizational alignment is needed to help shape an 

efficient and effective federal government for the 21stcentury by 

pursuing organizational approaches that recognize the reality of 

evolving global, technological, workforce, and other dynamics and needs 

associated with a transition to a knowledge-based economy. For example, 

as competitive sourcing, e-government, financial management, and other 

initiatives lead to changes in how agencies do business, agencies may 

need to change how they are organized.

As agencies transform themselves, they will need to achieve a better 

balance among results, client/customer expectations, and employee 

issues. Performance management systems serve as the basis for setting 

expectations for employees’ roles in the transformation process. An 

effective performance management system can foster institutional, unit, 

and individual performance and accountability. In addition, providing 

information on individual and organizational performance can help 

agencies determine progress made, demonstrate results achieved, and 

plan how to meet future challenges.

Performance-Based Budgeting Supported by Credible Performance 

Information Can Contribute to Better Decisions and Enhance Debate:

The budget process provides an opportunity to review programs and 

activities each year. Building on the statutory framework that the 

Congress enacted over the last decade, performance budgeting requires 

results-oriented performance information generated by federal agencies 

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

provisions of the CFO Act. Sustained leadership attention, however, is 

needed to build on this foundation. Developing credible information on 

outcomes achieved through federal programs remains a work in progress 

as agencies struggle, for example, to define their contributions to 

results, which in many cases are influenced only partially by federal 


If budget decisions are to be based in part on performance data, there 

is a compelling need to ensure that trade-offs are informed by reliable 

information on outcomes and costs. Performance-based budgeting can help 

shift the focus of debate from inputs to outcomes and results, 

enhancing the government’s ability to gauge performance and assess 

competing claims for scarce resources.[Footnote 17] The determination 

of priorities is a matter of weighing competing values and interests 

that may be informed by performance information but also reflects such 

factors as equity, unmet needs, and the appropriate role of the federal 

government in addressing these needs. While performance information is 

only one factor to be considered in the debate about the appropriate 

role for the federal government and the need for various programs and 

policies, it can shift the focus to what really matters--such as lives 

saved. Credible performance information can facilitate a fundamental 

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

focusing on the outcomes achieved with budgetary resources.

In this context, performance questions do not have a single budgetary 

answer. Performance problems may well prompt budget cuts or program 

eliminations, but they may also inspire enhanced investments and 

reforms in program design and management if the program is deemed to be 

of sufficiently high priority to the nation. Conversely, even a program 

that is found to be exceeding its performance expectations can be a 

candidate for budgetary cuts if it is a lower priority than other 

competing claims in the process.

Homeland security is a good example of both the need for public 

education about government performance goals and the challenges 

presented by changing priorities.  In the face of terrorist attacks, 

for example, eliminating all risk is not an attainable goal. Rather, 

proposals to reduce risk must be evaluated on numerous dimensions--

their dollar cost and their impact on other goals and values.  

Decisions on the level of resources and how to allocate them, as well 

as how to balance security against other societal goals and values, are 

necessary.  However, absent available public information in an 

understandable form, such decisions may not be accepted.  There will 

always be disagreements on these issues, but public education and 

reliable performance information can help move the debate on important 

policy questions to a more informed plane.

The PMA recognized that improvements in the management of human 

capital, competitive sourcing, financial performance, and expanding 

electronic government matter little if they are not linked to resource 

allocation decisions. The administration has set forth an ambitious 

agenda for performance budgeting, calling for agencies to develop cost 

accounting systems and proposing to better align the federal budget 

structure with their performance goals. Such efforts to implement a 

consistent and transparent framework for performance budgeting and 

financial information are key steps needed to provide a greater focus 

on performance as envisioned in GPRA, but the federal government has a 

long way to go before it can meet these goals. In the long run, for 

example, sustaining a credible performance-based focus in budgeting 

will require significant improvements in evaluation capacities and 

information on program costs and outcomes across federal agencies as 

well as the third parties that implement federal programs. OMB’s 

Program Assessment Rating Tool (PART) will take performance budgeting 

in a new direction by completing performance assessments on a sample of 

programs that will be considered in making budget decisions for the 

fiscal year 2004 budget to be presented in February 2003.

The President’s governmentwide performance plan, required under GPRA, 

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

branch address critical federal performance and management issues by 

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

including baseline and trend information, that are directed toward 

achieving similar results. The governmentwide plan could build on the 

Administration’s PART initiative by comparing the performance results 

across similar programs addressing common outcomes. Efforts to date 

have not provided the Congress and others with an integrated 

perspective on the extent to which programs and tools contribute to 

national goals, such as improved health and safety.

Improving Financial Management:

The federal government has a stewardship obligation to prevent fraud, 

waste, and abuse; to use tax dollars appropriately; and to ensure 

financial accountability to the President, the Congress, and the 

American people. Timely, accurate, and useful financial information is 

essential for making operating decisions day-to-day; managing the 

government’s operations more efficiently, effectively, and 

economically; meeting the goals of federal financial management reform 

legislation (such as the CFO Act); supporting results-oriented 

management approaches; and ensuring accountability on an ongoing basis.

In identifying improved financial performance as one of its five 

governmentwide initiatives, the PMA stated that a clean financial audit 

is a basic prescription for any well-managed organization, and 

recognized that “most federal agencies that obtain clean audits only do 

so after making extraordinary, labor-intensive assaults on financial 

records.” Further, the PMA stated that without sound internal controls 

and accurate and timely financial information, it is not possible to 

accomplish the President’s agenda to secure the best performance and 

highest measure of accountability for the American people.

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

that the federal government is a long way from successfully 

implementing the statutory reforms the Congress enacted during the 

1990s. Widespread financial management system weaknesses, poor 

recordkeeping and documentation, weak internal controls, and the lack 

of information have prevented the government from having the cost 

information needed to effectively and efficiently manage operations or 

accurately report a large portion of its assets, liabilities, and 


The President’s initiative focused on reducing erroneous benefit and 

assistance payments. Our work has shown, for example, that the Centers 

for Medicare & Medicaid Services (CMS) has made improvements in 

assessing the level of improper payments, collecting overpayments from 

providers, and building the foundation for modernizing its information 

technology. Nevertheless, much work remains to be done, given the 

magnitude of its challenge to safeguard program payments. This includes 

more effectively overseeing Medicare’s claims administration 

contractors, managing the agency’s information technology initiatives, 

and strengthening financial management processes across multiple 

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

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

high-risk programs.

In addition, our concerns about the difficulties CMS faces in managing 

Medicaid--a program of enormous size, growth, and diversity--have 

grown, and we have designated this as a new high-risk area. Medicaid, 

which pays for both acute health care and long-term care services for 

about 44 million low-income Americans, has been subject to 

exploitation. Key problems we have identified in recent years include 

schemes by some states to improperly leverage federal funds, state 

waiver programs that inappropriately increase the federal government’s 

financial liability, and insufficient federal and state oversight to 

ensure that payments made to health care providers are accurate and 

appropriate. CMS and the Congress have taken several significant 

actions to curb states’ financing schemes, but waiver program approvals 

remain questionable and states’ claims scrutiny activities are uneven.

One of the challenges faced by HHS in the Medicare and Medicaid 

programs is common to many agencies--the difficulties in ensuring that 

underlying financial management processes, procedures, and information 

are in place for effective program management. Agencies need to take 

steps to continuously improve internal controls and underlying 

financial and management information systems to ensure that managers 

and other decision makers have reliable, timely, and useful financial 

information to ensure accountability; measure, control, and manage 

costs; manage for results; and make timely and fully informed decisions 

about allocating limited resources. In October 2002, we reported that 

meeting the requirements of the Federal Financial Management 

Improvement Act presents long-standing, significant challenges that 

will only be met through time, investment, and sustained emphasis on 

correcting deficiencies in federal financial management 

systems.[Footnote 18] The widespread systems problems facing the 

federal government need sustained management commitment at the highest 

levels of government to ensure that these needed modernizations come to 


In August 2001, the Principals of the Joint Financial Management 

Improvement Program (JFMIP)--the Secretary of the Treasury, the 

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

of the United States--began a series of periodic meetings that have 

resulted in unprecedented substantive deliberations and agreements 

focused on key financial management reform issues such as better 

defining measures for financial management success. These measures 

include being able to routinely provide timely, accurate, and useful 

financial information and having no material internal control 

weaknesses or material noncompliance with laws and regulations and 

Federal Managers Financial Integrity Act requirements, which are 

essential to meeting the expectations of the CFO Act and the PMA. In 

addition, the JFMIP Principals have agreed to significantly accelerate 

financial statement reporting so that the government’s financial 

statements are more timely and to discourage costly efforts designed to 

obtain unqualified opinions on financial statements without addressing 

underlying systems challenges. For fiscal year 2004, audited agency 

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

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

becoming due by December 15.

Across government, there are a range of financial management 

improvement initiatives under way that, if effectively implemented, 

will improve the quality of the government’s financial management and 

reporting. Federal agencies have started to make progress in their 

efforts to modernize their financial management systems and improve 

financial management performance as called for in the PMA. Our April 

2002 testimony on the U.S. government’s consolidated financial 

statements for fiscal years 2001 and 2000 found that the largest 

impediment to an unqualified opinion continues to be DOD’s serious 

financial management problems, which we have designated as high risk 

since 1995.[Footnote 19] DOD faces financial management problems that 

are pervasive, complex, long-standing, and deeply rooted in virtually 

all business operations throughout the department.[Footnote 20] 

Overhauling financial management represents a challenge that goes far 

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

business operations and management culture. In September 2001, the 

Secretary of Defense announced a DOD-wide initiative intended to 

transform the full range of the department’s business processes, 

including decades-old financial systems.

Other important developments, including the financial collapse of major 

corporations like Enron and the associated serious lapses in ethical 

behavior have resulted in severe criticism of virtually all areas of 

the nation’s financial reporting and auditing systems, which are 

fundamental to maintaining investor confidence in our capital markets. 

These developments raised a number of systemic issues for congressional 

consideration, focusing on four overarching areas--corporate 

governance, the independent audit of financial statements, oversight of 

the accounting profession, and accounting and financial reporting 

issues. To help inform this work, we convened two forums on corporate 

governance, transparency, and accountability to discuss and obtain a 

range of views on these issues.[Footnote 21]

Also, with input from the Comptroller General’s Advisory Council on 

Government Auditing Standards, we issued significant changes to the 

independence requirements in the Government Auditing Standards to 

provide that, in some circumstances, it is not appropriate for auditors 

to perform both audit and consulting services for the same 

client.[Footnote 22] In this way, we have helped to enhance the 

public’s respect for and confidence in the independence of auditors of 

government financial statements, programs, and operations.

Effectively Leveraging Information Technology Capabilities:

Information technology (IT) is a key element of management reform 

efforts that can help dramatically reshape government to improve 

performance and reduce costs. Advances in the use of IT and the 

Internet are continuing to change the way that federal agencies 

communicate, use and disseminate information, deliver services, and 

conduct business. However, for federal agencies to realize IT’s 

promise, significant challenges will need to be overcome.

Pursuing Opportunities for Electronic Government:

Electronic government (e-government) offers many opportunities to 

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

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

government applications, including using the Internet to collect and 

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

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

benefits. Although substantial progress has been made, the government 

has not yet fully reached its potential in this area.[Footnote 23] 

Recognizing the importance of e-government, the President has 

designated expanded e-government as one of the governmentwide 

priorities in the PMA.

To support this priority, OMB developed an implementation strategy for 

24 strategic multiagency e-government initiatives. However, the 

documents used to select these initiatives generally did not include 

information addressing collaboration and customer focus. The related 

work and funding plans agencies submitted to OMB in May 2002 provided 

insufficient information for OMB to monitor the status of the 24 e-

government initiatives. In order to help ensure the success of the 

President’s objective of expanding e-government to improve the 

potential value of government to citizens, we recommended that the 

Director of OMB ensure that the managing partners for all 24 e-

government initiatives (1) focus on customers by soliciting input from 

the public and conducting user needs assessments; (2) work with partner 

agencies to develop and document effective collaboration strategies; 

and (3) provide OMB with adequate information to monitor the cost, 

schedule, and performance of the 24 e-government initiatives.[Footnote 


Improving The Collection, Use, and Dissemination of Government 


As agencies increasingly move to an operational environment in which 

electronic--rather than paper--records provide comprehensive 

documentation of their activities and business processes, a variety of 

issues have emerged. For example, in the records management arena, a 

2001 National Archives and Records Administration (NARA) study found 

that although agencies were creating and maintaining records 

appropriately, the value of most electronic records had not been 

assessed nor their disposition determined, as required by statute. 

Further, records of historical value were not being identified and 

provided to NARA for preservation, and may be at risk of loss. Our 

review at four agencies confirmed the results of this study.[Footnote 


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

threats facing our nation--are also highlighting new privacy issues. 

For example, on-line privacy has emerged as one of the key--and most 

contentious--issues surrounding the continued evolution of the 

Internet. The government cannot realize the full potential of the 

Internet until people are confident that the government will protect 

their privacy when they visit its Web sites. We have made 

recommendations to strengthen governmentwide privacy guidance and 

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

example, we recommended that the Director of OMB determine whether 

current oversight strategies are adequate to ensure agencies’ adherence 

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

revision as Web practices continue to evolve.[Footnote 26]

Another important issue involves the use of the Internet and other IT 

to facilitate public access to government information. In our open 

society, public access to information about the government and its 

operations is a strongly held value. In 2001 and 2002, we reported on 

agencies’ progress in developing on-line access to materials required 

by the 1996 Electronic Freedom of Information Act.[Footnote 27] Our 

latest study found that the Department of Justice had implemented our 

prior recommendation to issue guidance encouraging agencies to make all 

required materials available on-line and, as a result, agencies 

continue to make progress in this area. Justice recognizes the need for 

additional agency attention to this issue and is continuing to 

encourage agencies to improve on-line availability. Our recent work at 

the Government Printing Office and the National Technical Information 

Service--which also make government information available to the 

public--has raised questions about the adequacy of the current policies 

and structures in place to ensure public access to 

information.[Footnote 28]

Strengthening Agency Information Security:

Since September 1996, we have reported that poor information security 

is a high-risk area across the federal government with potentially 

devastating consequences.[Footnote 29] Although agencies have taken 

steps to redesign and strengthen their information system security 

programs, our analyses of information security at major federal 

agencies have shown that federal systems were not being adequately 

protected from computer-based threats. Our most recent analyses of 

audit reports for 24 major departments and agencies identified 

significant information security weaknesses in each that put critical 

federal operations and assets at risk.[Footnote 30]

One of the most serious problems currently facing the government is 

cyber critical infrastructure protection, which is protecting the 

information systems that support the nation’s critical infrastructures, 

such as national defense and power distribution. Since the September 11 

attacks, warnings of the potential for terrorist cyber attacks against 

our critical infrastructures have increased. In addition, as greater 

amounts of money are transferred through computer systems, as more 

sensitive economic and commercial information is exchanged 

electronically, and as the nation’s defense and intelligence 

communities increasingly rely on commercially available information 

technology, the likelihood increases that information attacks will 

threaten vital national interests. Among the critical infrastructure 

protection challenges the government faces are 

(1) developing a national critical infrastructure protection strategy, 

(2) improving analysis and warning capabilities, and (3) improving 

information sharing on threats and vulnerabilities. For each of these 

challenges, improvements have been made and continuing efforts are in 

progress, but much more is needed to address them. In particular, we 

have identified and made numerous recommendations over the last several 

years concerning critical infrastructure challenges that still need to 

be addressed. As a result of our concerns in this area, we have 

expanded our information security high-risk area to include cyber 

critical infrastructure protection.[Footnote 31]

Constructing and Enforcing Sound Enterprise Architectures:

Our experience with federal agencies has shown that attempts to 

modernize IT environments without blueprints--models simplifyin the 

complexities of how agencies operate today, how they want to operate in 

the future, and how they will get there--often result in unconstrained 

investment and systems that are duplicative and ineffective. Enterprise 

architectures offer such blueprints. Our February 2002 report on the 

federal government’s use of enterprise architectures found that 

agencies’ use of enterprise architectures was a work in progress, with 

much to be accomplished.[Footnote 32] Nevertheless, opportunities exist 

to significantly improve this outlook by having OMB adopt a 

governmentwide, structured, and systematic approach to promoting 

enterprise architecture use, measuring agency progress, and identifying 

the need for governmentwide enterprise architecture management 

challenges. Accordingly, we made recommendations to OMB to address 

these areas.

Employing Effective IT System And Service Management Practices:

Our work and other best practice research have shown that the 

application of rigorous practices to the acquisition or development of 

IT systems or the acquisition of IT services improves the likelihood of 

success. In other words, the quality of IT systems and services is 

governed largely by the quality of the processes involved in developing 

or acquiring each. For example, using models and methods that define 

and determine organizations’ software-intensive systems process 

maturity that were developed by Carnegie Mellon University’s Software 

Engineering Institute, which is recognized for its expertise in 

software processes, we evaluated several agencies’ software development 

or acquisition processes. We found that agencies are not consistently 

employing rigorous or disciplined system management practices. We have 

made numerous recommendations to agencies to improve their management 

processes, and they have, or plan to, take actions to improve their 

processes.[Footnote 33] With respect to IT services acquisition, we 

identified leading commercial practices for outsourcing IT services, 

which government entities may be able to use to enhance their 

acquisition of IT services.[Footnote 34]

Ensuring Effective Agency IT Investment Practices:

Investments in IT can have a dramatic impact on an organization’s 

performance. If managed effectively, these investments can vastly 

improve government performance and accountability.[Footnote 35] If not, 

however, they can result in wasteful spending and lost opportunities 

for improving delivery of services to the public. Using our Information 

Technology Investment Management maturity framework, our evaluations of 

selected agencies found that while some processes have been put in 

place to help them effectively manage their planned and ongoing IT 

investments, more work remains.[Footnote 36]

IT Management Challenges Are Interdependent:

IT management challenges are interdependent and also affect the 

government’s performance of other management functions. For example, a 

critical aspect of implementing effective e-government solutions and 

developing and deploying major systems development projects is ensuring 

that robust information security is built into these endeavors early 

and is periodically revisited. Increasingly, the challenges that the 

government faces are multidimensional problems that cut across numerous 

programs, agencies, and governmental tools. As a result, strong and 

effective central management leadership for information resources and 

technology is needed in the federal government to address the wide 

range of IT challenges.

Both the Congress and the administration have taken recent action to 

address IT management challenges. For example, late last year the 

Congress passed and the President signed into law the E-Government Act 

of 2002, which seeks to address many of the government’s IT management 

challenges, including e-government, information dissemination, 

privacy, and security. On the administration’s part, in February 2002, 

OMB began an initiative to develop a federal government enterprise 

architecture, whose purpose is to identify opportunities to simplify 

processes and unify work across the agencies and within the lines of 

business of the government. Although the outcome of these initiatives 

cannot yet be predicted with certainty, we strongly support their goal 

of enhancing the management of information technology in the federal 


Acquisition and Contract Management:

Effective acquisition management plays a key role in creating and 

sustaining high-performing organizations. However, the challenges the 

federal government faces in improving acquisition outcomes and reducing 

contract risk are significant. Over the past decade, acquisition 

workforce reductions, increased reliance on services provided by the 

private sector, changes to acquisition processes, and the introduction 

or expansion of alternative contracting approaches, have collectively 

altered the acquisition environment. Adjusting to these environmental 

changes, while striving to improve acquisition outcomes, has proved 

daunting for many agencies. For example, DOD and the Department of 

Energy, the two largest contracting agencies in the federal government, 

continue to experience cost increases, schedule delays, and performance 

shortfalls that expose the government to billions of dollars in 

financial risks.[Footnote 37] Sustained executive leadership; the use 

of strategic, integrated, and enterprise-wide approaches; and attention 

to strong systems of control for acquisition and related business 

processes can promote more consistent, positive acquisition outcomes 

while maintaining integrity and accountability.

Among the factors that agencies must consider as they determine how 

best to meet their missions is whether the public or private sector 

would be the most appropriate provider of the services the government 

needs. Aspects of the current process for making such decisions, 

however, have been criticized as being cumbersome, complicated, and 

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

National Defense Authorization Act for Fiscal Year 2001, the 

Comptroller General of the United States convened a panel of experts to 

study the current process used by the government to make sourcing 

decisions. The Commercial Activities Panel conducted a yearlong study, 

and heard repeatedly about the importance of competition and its 

central role in fostering economy, efficiency, and continuous 

performance improvement. The panel strongly supported continued 

emphasis on competition, and concluded that whenever the government is 

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

competitions should be the norm, consistent with the 10 principles 

adopted unanimously by the panel.[Footnote 38]

One of the sourcing principles adopted by the panel was that the 

federal government’s sourcing policy should avoid arbitrary numerical 

or full-time equivalent (FTE) goals. The principle is based on the 

concept that the success of government programs should be measured by 

the results achieved in terms of providing value to the taxpayer, not 

the size of the in-house or contractor workforce. The federal 

government needs to continue--and even augment--efforts to shift the 

focus of management, resource allocation, and decision making from 

inputs and processes to a greater focus on results and outcomes. In 

this regard, holding managers accountable for results based on a 

specific dollar allocation, rather than on FTE caps, would be a major 

step in the right direction.

As part of the PMA governmentwide initiative to achieve efficient and 

effective competition between public and private sources, the 

administration has committed to simplifying and improving the 

procedures for evaluating public and private sources, to better 

publicizing the activities subject to competition, and to ensuring 

senior level agency attention to the promotion of competition. As part 

of the administration’s efforts to implement the recommendations of the 

Commercial Activities Panel, OMB has published proposed changes to 

Circular A-76 for public comment. This circular sets forth federal 

policy for determining whether federal employees or private contractors 

will perform commercial activities associated with conducting the 

government’s business.

Summary Observations:

In view of the overarching trends and the long-term fiscal challenges 

facing our nation, there is a need to consider the proper role of the 

federal government, how the government should do business in the 

future, and in some instances, who should do the government’s business 

in the 21ST century. Evaluating the role of government and the programs 

it delivers within the context of the major trends and long-term fiscal 

challenges it faces is key in determining how best to address the 

nation’s most pressing priorities. It is increasingly important that 

federal programs use tools to manage effectively across boundaries and 

work in conjunction with the priorities and needs of American citizens; 

international, federal, state, and local governments; and the private 

and nonprofit sectors. This is an opportune time for the Congress to 

carefully consider how to make needed changes in the short term to help 

agencies effectively manage their resources and link resource decisions 

to results, as well as to work toward a comprehensive and fundamental 

reassessment of what the government does, how it does business, and who 

does the government’s business.

There is no more important management reform than for agencies to 

transform their cultures to respond to the transition that is taking 

place in the role of government in the 21ST century. Our high-risk 

program is increasingly focused on those major programs and operations 

that need urgent attention and broad-based transformation in order to 

ensure that our national government functions in the most economical, 

efficient, and effective manner possible. As transformation efforts 

move forward, it will be important to build on the lessons learned by 

large private-and public-sector organizations. Some agencies have 

transformation efforts under way, and the enormous undertaking of 

establishing the new Department of Homeland Security provides a unique 

opportunity to develop a high-performing organization and a network of 

partners who can work effectively together in meeting the nation’s 

homeland security missions.

Large and complex federal agencies must effectively use a mixture of 

critical resources--such as human capital, information technology, and 

financial systems--to fulfill their roles and achieve intended results. 

Successful transformations build on an integrated approach based upon 

fundamental management principles. Attention to strategic human capital 

management, integrating budget and performance information, improving 

financial management, leveraging information technology, and 

effectively managing acquisition and contract management, are all key 

in achieving success. The PMA has also focused on these important 

challenges for the federal government. We have discussed the status of 

agencies’ current efforts to improve their performance and provided 

suggestions about ways to continue to make progress.

The 2003 performance and accountability and high-risk series reports 

describe over 100 continuing and new major management challenges and 

high-risk areas facing federal agencies. These challenges and risks 

reflect the need for agencies to manage their resources wisely and 

enhance the services that they provide. Some of these challenges and 

risks reflect recent events, such as the need to better prepare for 

biological and chemical acts of terrorism, and others reflect long-

range trends that are affecting the federal government as a whole, such 

as the need to use integrated transportation approaches to enhance our 

nation’s mobility and economic growth.

Continued persistence and perseverance in addressing the high-risk 

areas and major management challenges that we have identified in this 

2003 series will ultimately yield significant benefits. Although we 

recognize that effectively addressing some of these issues will require 

a long time, finding lasting solutions offers the potential to save 

billions of dollars, dramatically improve service to the American 

public, strengthen public trust in our national government, and ensure 

the ability of government to deliver on its promises.

Strong, visionary, and persistent leadership will be needed to address 

today’s challenges and prepare our nation for the future. Both the 

executive branch and congressional leadership will play a vital role in 

achieving a broad transformation of the federal government. The 

Congress has historically acted as an institutional champion for 

initiatives, such as GPRA and the CFO Act, that are intended to improve 

the performance and accountability of the federal government. In 

addition, effective oversight can continue to help improve federal 

performance by examining the program structure agencies use to deliver 

products and services. As part of this oversight, the Congress can 

consider the associated policy and management implications of 

crosscutting programs, and help ensure that the best, most cost-

effective mix of strategies is in place to meet agency and national 


Although efforts to transform agencies by improving their management 

and performance are under way, more remains to be done to ensure that 

the government has the capacity to deliver on its promises and meet 

current and emerging needs. Decisive action and sustained attention 

will be necessary to transform the federal government, maximize its 

performance, and ensure accountability.

[End of section]

Performance and Accountability and High-Risk Series:

Major Management Challenges and Program Risks: A Governmentwide 

Perspective. GAO-03-95.

Major Management Challenges and Program Risks: Department of 

Agriculture. GAO-03-96.

Major Management Challenges and Program Risks: Department of Commerce. 


Major Management Challenges and Program Risks: Department of Defense. 


Major Management Challenges and Program Risks: Department of Education. 


Major Management Challenges and Program Risks: Department of Energy. 


Major Management Challenges and Program Risks: Department of Health and 

Human Services. GAO-03-101.

Major Management Challenges and Program Risks: Department of Homeland 

Security. GAO-03-102.

Major Management Challenges and Program Risks: Department of Housing 

and Urban Development. GAO-03-103.

Major Management Challenges and Program Risks: Department of the 

Interior. GAO-03-104.

Major Management Challenges and Program Risks: Department of Justice. 


Major Management Challenges and Program Risks: Department of Labor. 


Major Management Challenges and Program Risks: Department of State. 


Major Management Challenges and Program Risks: Department of 

Transportation. GAO-03-108.

Major Management Challenges and Program Risks: Department of the 

Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of Veterans 

Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for 

International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental Protection 

Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency 

Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National Aeronautics and 

Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel 

Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business 

Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security 

Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service. 


High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the Federal 

Government and the Nation’s Critical Infrastructures. 


High-Risk Series: Federal Real Property. GAO-03-122.


[1] Mandatory spending is spending that is determined by laws other 

than appropriations acts. It includes such programs as Social Security, 

Medicare, Medicaid, farm price supports, and some veterans’ benefits. 

Discretionary spending refers to spending determined through the 

appropriations process. It includes national defense, homeland 

security, the judicial system, federal education assistance, national 

parks, the National Institutes of Health, transportation programs, and 

various other operations of government. 

[2] These simulations assume that tax reductions enacted in 2001 do not 

sunset and discretionary spending grows with the economy. They also 

assume payment of currently scheduled Social Security benefits even 

after the Social Security Trust Fund is exhausted in 2041. 

[3] U.S. General Accounting Office, Highlights of a GAO Roundtable: The 

Chief Operating Officer Concept: A Potential Strategy to Address 

Federal Governance Challenges,GAO-03-192SP (Washington, D.C.: Oct. 4, 


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

Program Risks: U.S. Postal Service, GAO-03-118 (Washington, D.C.: 

January 2003); and High-Risk Series: An Update, GAO-03-119 (Washington, 

D.C.: January 2003).

[5] U.S. General Accounting Office, High-Risk Series: Federal Real 

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

[6] GAO-03-119.

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

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

January 2003).

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

Program Risks: The Department of Homeland Security, GAO-03-102 

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

[9] U.S. General Accounting Office, Highlights of a GAO Forum: Mergers 

and Transformation: Lessons Learned for a Department of Homeland 

Security and Other Federal Agencies, GAO-03-293SP (Washington, D.C.: 

Nov. 14, 2002).

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

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

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

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

Program Risks: Department of Transportation, GAO-03-108 (Washington, 

D.C.: January 2003).

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

Program Risks: Department of Justice, GAO-03-105 (Washington, D.C.: 

January 2003).

[13] GAO-03-105.

[14] The President’s Management Agenda. Executive Office of the 

President, Office of Management and Budget. Fiscal Year 2002.

[15] U.S. General Accounting Office, Performance and Accountability 

Series, GAO-01-241 through 262 (Washington, D.C.: January 2001), and 

High-Risk Series: An Update, GAO-01-263 (Washington, D.C.: January 


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

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

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

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


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

Implementation Necessary to Achieve Accountability, GAO-03-31 

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

[19] U.S. General Accounting Office, U.S. Government Financial 

Statements: FY 2001 Results Highlight the Continuing Need to Accelerate 

Federal Financial Management Reform, GAO-02-599T (Washington, D.C.: 

Apr. 9, 2002).

[20] GAO-03-98 and GAO-03-119.

[21] U.S. General Accounting Office, Highlights of GAO’s Corporate 

Governance, Transparency and Accountability Forum, GAO-02-494SP 

(Washington, D.C.: Mar. 5, 2002); and GAO Forum on Governance and 

Accountability: Challenges to Restore Public Confidence in U.S. 

Corporate Governance and Accountability Systems, GAO-03-419SP 

(Washington, D.C.: Jan. 24, 2003).

[22]  U.S. General Accounting Office, Government Auditing Standards: 

Amendment No. 3, Independence, GAO-02-388G (Washington, D.C.: January 

2002); and Government Auditing Standards: Answers to Independence 

Standard Questions, GAO-02-870G (Washington, D.C.: July 2002).

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

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

18, 2002).

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

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

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

[25] U.S. General Accounting Office, Information Management: Challenges 

in Managing and Preserving Electronic Records, GAO-02-586 (Washington, 

D.C.: June 17, 2002).

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

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

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

[27] U.S. General Accounting Office, Information Management: Update on 

Implementation of the 1996 Electronic Freedom of Information Act 

Amendments, GAO-02-493 (Washington, D.C.: Aug. 30, 2002); and 

Information Management: Progress in Implementing the 1996 Electronic 

Freedom of Information Act Amendments, GAO-01-378 (Washington, D.C.: 

Mar. 16, 2001).

[28] U.S. General Accounting Office, Information Management: Electronic 

Dissemination of Government Publications, GAO-01-428 (Washington, 

D.C.: Mar. 30, 2001); and Information Management: Dissemination of 

Technical Reports, GAO-01-490 (Washington, D.C.: May 18, 2001).

[29] U.S. General Accounting Office, Information Security: 

Opportunities for Improved OMB Oversight of Agency Practices, GAO/AIMD-

96-110 (Washington, D.C.: Sept. 24, 1996).

[30] U.S. General Accounting Office, Computer Security: Improvements 

Needed to Reduce Risk to Critical Federal Operations and Assets, GAO-

02-231T (Washington, D.C.: Nov. 9, 2001); and Computer Security: 

Progress Made, but Critical Federal Operations and Assets Remain at 

Risk, GAO-03-303T (Washington, D.C.: Nov. 19, 2002).

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

Information Systems Supporting the Federal Government and the Nation’s 

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

[32] U.S. General Accounting Office, Information Technology: Enterprise 

Architecture Use across the Federal Government Can Be Improved, GAO-02-

6 (Washington, D.C.: Feb. 19, 2002).

[33] For example, see, U.S. General Accounting Office, Information 

Technology: Inconsistent Software Acquisition Processes at the Defense 

Logistics Agency Increase Project Risks, GAO-02-9 (Washington D.C.: 

Jan. 10, 2002); HUD Information Systems: Immature Software Acquisition 

Capability Increases Project Risks, GAO-01-962 (Washington D.C.: Sept. 

14, 2001); and Customs Service Modernization: Serious Management and 

Technical Weaknesses Must Be Corrected, GAO/AIMD-99-41 (Washington 

D.C.: Feb. 26, 1999).

[34] U.S. General Accounting Office, Information Technology: Leading 

Commercial Practices for Outsourcing of Services, GAO-02-214 

(Washington, D.C.: Nov. 30, 2001).

[35] U.S. General Accounting Office, Information Technology Investment 

Management: A Framework for Assessing and Improving Process Maturity, 

Exposure Draft, GAO/AIMD-10.1.23 (Washington, D.C.: May 2000).

[36] For example, see U.S. General Accounting Office, United States 

Postal Service: Opportunities to Strengthen IT Investment Management 

Capabilities, GAO-03-3 (Washington, D.C.: Oct. 15, 2002); Information 

Technology: DLA Needs to Strengthen Its Investment Management 

Capability, GAO-02-314 (Washington, D.C.: Mar. 15, 2002); and 

Information Technology: INS Needs to Strengthen Its Investment 

Management Capability, GAO-01-146 (Washington, D.C.: Dec. 29, 2000).

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

Program Risks: Department of Energy, GAO-03-100 (Washington, D.C.: 

January 2003); and GAO-03-98.

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

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

GAO’s Mission:

The General Accounting Office, the investigative arm of Congress, 

exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and accountability 

of the federal government for the American people. GAO examines the use 

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