R E P O R T of SENATOR FRED THOMPSON Chairman of the COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE on MANAGEMENT CHALLENGES FACING THE NEW ADMINISTRATION Part 1: Financial Management Issues Part 2: Federal Workforce Challenges Part 3: Results-Oriented Governance

[Senate Prints 106-62]
[From the U.S. Government Publishing Office]

106th Congress S. Prt.
2d Session COMMITTEE PRINT 106-62
_______________________________________________________________________

R E P O R T

SENATOR FRED THOMPSON

Chairman of the

COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE

MANAGEMENT CHALLENGES FACING THE NEW ADMINISTRATION

Part 1: Financial Management Issues

Part 2: Federal Workforce Challenges

Part 3: Results-Oriented Governance

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

OCTOBER 2000

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U.S. GOVERNMENT PRINTING OFFICE
67-613 WASHINGTON : 2000

C O N T E N T S

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Page
Introduction..................................................... 1

Part 1: Financial Management Issues:

Overview and Summary............................................. 2
Status of Federal Financial Statements and Systems............... 4
Extent and Consequences of Financial Management Problems......... 7
Getting To Solutions: An Overall Framework....................... 11
Restoring the ``M'' in OMB....................................... 12
Specific Actions To Improve Financial Management................. 14
Endnotes......................................................... 17
Appendix......................................................... 18

Part 2: Federal Workforce Challenges

Overview and Summary............................................. 21
The Federal Workforce Crisis..................................... 23
How Workforce Problems Impede Agency Missions.................... 24
The Need for Fundamental Changes in Workforce Management......... 26
The Private Sector Contrast...................................... 27
Lack of Leadership on Workforce Planning......................... 28
What Needs To be Done?........................................... 30
Endnotes......................................................... 32

Part 3: Results-Oriented Governance

Overview and Summary............................................. 33
The Need To Improve Federal Performance.......................... 37
The Promise of the Results Act................................... 41
Lack of Results From the Results Act So Far...................... 42
Why the Lack of Progress?........................................ 45
Getting Better Results From the Results Act...................... 47
Other Steps Toward Performance-Based Government.................. 48
Endnotes......................................................... 51

MANAGEMENT CHALLENGES FACING THE NEW ADMINISTRATION

PART 1: FINANCIAL MANAGEMENT ISSUES

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INTRODUCTION

On the eve of the upcoming elections and transition to a
new Administration and a new Congress, attention centers on
policy agendas. However, for our new leaders to succeed with
their agendas, they also will need to focus on how the Federal
Government executes policy. The work of the Governmental
Affairs Committee in recent years points to a series of core
capacity problems that pervade the Federal Government and
severely limit its ability to implement policies and accomplish
its missions. The problems, which are interrelated, include
Federal financial management issues, Federal workforce (or
``human capital'') challenges, and the need for results-
oriented governance in the Federal sector.
Capacity problems of the magnitude that face the Federal
Government would trigger the immediate and urgent attention of
any rational private sector executive. Unfortunately, these
problems have festered for years under the radar screens of
Federal policy-makers. Continued inattention to these problems
will threaten the ability of our new leaders to implement their
policy agendas and to provide our citizens the essential
services they need and deserve. As one writer pointedly
observed:

[L]ike any good chief executive officer, the President
can ill afford to ignore some of the less sexy--but no
less important--issues that plague the Federal
Government. Tackling problems with the employee merit
system, improving agency performance and implementing
information technology management reforms won't get
George W. Bush or Al Gore on the front pages of The New
York Times or The Washington Post. But ignoring them
could.\1\
---------------------------------------------------------------------------
\1\ Matthew Weinstock, An Agenda for Government's Next CEO,
Government Executive Magazine (September 2000), p. 94.

The extent of the capacity problems facing the Federal
Government is not open to serious question. These problems have
been documented repeatedly by the General Accounting Office
(GAO), agency Inspectors General (IGs), and other objective
sources. The problems are not ideological or partisan. They
pose the same obstacles to achieving policy objectives of the
left or the right, of Republicans or Democrats. Therefore,
resolving them should be a priority for the next Administration
and Congress regardless of their political makeup.
Daunting as many of the problems may be, they are solvable.
In most cases, it is clear what needs to be done. The main
challenge is mustering the will to resolve them and the
commitment to follow through until the job is done. The
solutions usually center on sustained attention and cooperation
by both the Executive Branch and Congress. While some
additional legislation may be necessary, our statute books
already contain the basic tools to do the job. Targeted funding
often will be needed. However, the necessary investments, even
when substantial, pale in comparison to the waste that can be
eliminated and the performance improvements that can be
obtained.
Senator Fred Thompson, Chairman of the Governmental Affairs
Committee, issues this series of transition reports to focus on
the three core capacity problems that will face the incoming
Administration and Congress: Financial Management Issues (Part
1), Federal Workforce Challenges (Part 2), and Results-Oriented
Governance (Part 3). These transition reports describe the
three problems, discuss their nature and root causes, and
propose ways of solving them. The reports are intended to
stimulate action on the part of our incoming leaders and
provide them a useful framework for this important task.
----------

OVERVIEW AND SUMMARY

This is one in a series of transition reports that describe
core capacity problems facing the Federal Government, discuss
their nature and root causes, and propose ways of solving them.
The reports are intended to stimulate action on the part of the
incoming Administration and Congress, and to provide them a
framework for this important task. This report deals with the
need for results-oriented governance at the Federal level.
Other reports address Federal workforce challenges and the need
for results-oriented governance at the Federal level.
The vast majority of Federal agencies lack financial
systems that can provide reliable information on a real-time
basis to support policy-making and day-to-day management of
Federal operations. Federal financial management problems are
deep-seated and challenging. IGs have listed financial
management as one of the ``top 10'' most serious problems
facing 21 of the 24 major Federal agencies. Financial
management is the direct subject of five of the 26 current GAO
``high-risk'' problem areas. It is a major contributing factor
to many more GAO high-risk and IG top 10 problems. Financial
management problems have persisted for years and won't be
solved overnight. The most disturbing aspect of these problems,
however, is that we seem to be making little demonstrable
progress to resolve them.
More agencies are getting ``unqualified'' (``clean'')
opinions on their annual financial statements. However, some
agencies with huge budgets, are not. Consequently, the Federal
Government as a whole is not close to being able to balance its
books. Furthermore, according to GAO, the vast majority of
Federal agencies lack financial systems that comply with basic
statutory requirements or provide reliable information that can
be used for day-to-day management. Indeed, many agencies get
clean opinions despite, rather than because of, their financial
systems. Getting a clean opinion can mask deficiencies in an
agency's underlying financial systems and divert resources from
fixing them.
The consequences of these shortcomings go far beyond
technical compliance concerns. They result in incalculable
taxpayer losses to fraud, waste, and error. They divert Federal
benefits and services away from those who legitimately depend
upon them. They deprive decisionmakers of the ability to make
informed policy decisions, oversee programs, hold agencies and
programs accountable for their performance, and get results for
the American people. For example:

No one knows how many tax dollars are lost to
outright fraud, waste, and other improper payments since the
government does not systematically track such losses. However,
from the few available sources that do exist, the Committee has
documented almost $230 billion in waste. This includes
overpayments exceeding $20 billion in just a handful of
programs.

Financial management weaknesses impede the
delivery of benefits and services to our citizens. Agencies
have trouble getting the right benefits to the right people on
a timely basis, or even responding to their inquiries promptly
and accurately. The Internal Revenue Service (IRS) provides
billions in tax credits to the wrong taxpayers, while
qualifying taxpayers fail to get billions in tax credits to
which they are entitled. After taxpayers have settled their
cases, IRS often fails to release liens against their property
within the deadline prescribed by law.

Enormous amounts of financial, medical, and other
sensitive personal information provided by our citizens are at
risk of inappropriate disclosure and use due to massive
information security weaknesses and ineffective controls in
most financial management systems.

In order to solve these problems, it is essential that the
incoming Administration bring a sense of commitment and urgency
to the task and that the incoming Congress provide vigorous
oversight and support. Our success in resolving the Year 2000
(Y2K) Computer Problem provides a model for addressing other
problems. It featured aggressive Congressional oversight,
strong and centralized Executive Branch leadership, persistent
follow-up with specific performance goals and benchmarks, and
support through necessary funding and other resources. We need
to bring the same sense of urgency and commitment to resolving
financial management and other problems.
An essential first step is that agencies candidly
acknowledge the extent and seriousness of the problems. This
does not always happen today. Second, neither the
Administration nor Congress can be content with the minimal
pace of current progress, which tends to feature expressions of
good intentions rather than demonstrable results. We need to
develop firm commitments for concrete improvements and follow
through on them. Third, the new Administration needs to ensure
that the Office of Management and Budget (OMB) carries out its
central leadership role and statutory responsibilities for
improving financial management across the government. OMB has
failed to do so in recent years.
Within this overall framework, there are a number of
specific actions that can make real improvements in financial
management. As detailed in this report, they include:

Using the Government Performance and Results Act
(``Results Act'') to establish specific and measurable goals
for financial management improvement and to report progress on
meeting these goals.

Systematically disclosing and quantifying major
overpayment problems in annual agency financial statements and
coupling this disclosure with specific error-reduction targets.

Enhancing data sharing and verification in order
to improve the accuracy of eligibility determinations under
Federal programs.

Systematically addressing and tracking progress
to implement GAO and IG recommendations for financial
management improvements.

Adopting financial management ``best practices''
from leading private sector and government organizations.

Providing necessary resources and incentives to
improve financial management, and imposing real sanctions where
remedial action is not forthcoming.

Using recovery auditing to recoup overpayments
and to invest a portion of the proceeds to make improvements
that will avoid future overpayments.

STATUS OF FEDERAL FINANCIAL STATEMENTS AND SYSTEMS

Expectations for sound financial management. Most major
Federal agencies have difficulty meeting the minimum
expectations of laws designed to ensure sound financial
management in the Federal Government. These laws include the
Chief Financial Officers (CFO) Act of 1990, which requires
annual financial statement audits, and the Federal Financial
Management Improvement Act of 1996 (FFMIA), which calls for
agencies to comply with basic accounting and financial
management standards. In testifying about the government's many
challenges in meeting these requirements, a GAO official
observed:

[F]rom the outset today, I want to dispel the notion
that this is merely a compliance issue. The
expectations in the CFO Act and the FFMIA are integral
to producing the data needed to efficiently and
effectively manage the day-to-day operations of the
Federal Government and provide accountability to the
taxpayers. When Federal agencies can meet these
expectations, they will have achieved what the
Comptroller General has referred to as the ``end
game''--systems and processes that routinely generate
reliable, useful, and timely information the government
needs to assure accountability to taxpayers, manage for
results, and help decisionmakers make timely, well-
informed judgments. ¹

Financial statement results. Unfortunately, we are nowhere
close to achieving this ``end game.'' The Federal Government as
a whole cannot pass the annual financial audit required by the
CFO Act. Such an audit is the staple of any private sector
business. For the last 3 fiscal years, GAO has issued a
``disclaimer'' opinion on the consolidated financial statements
of the U.S. Government. That means that the government's
financial statements do not provide reliable information for
decisionmakers or the public. GAO identified ``over $350
billion of adjustments and reclassifications'' that had to be
made in order to reconcile information used to prepare the
government's fiscal year (FY) 1999 financial statements. Even
with these adjustments, the books were still out of balance by
$24 billion. ²
Some individual agencies likewise cannot pass their own
annual financial audits. Fifteen of the 24 major agencies
received ``unqualified'' audit opinions for FY 1999. Four
agencies--Education, Justice, Treasury, and the Environmental
Protection Agency (EPA)--received ``qualified'' opinions. Five
agencies--Agriculture, Defense, Housing and Urban Development
(HUD), the Office of Personnel Management, and the U.S. Agency
for International Development--received ``disclaimer''
opinions. While these results are a net improvement over FY
1998, they fell well short of OMB's goal. Furthermore, two
agencies (EPA and HUD) regressed from their FY 1998 opinions.
Clean audit opinions are only the start. While getting a
``clean'' audit opinion is important, this alone does not
evidence sound financial management. A clean opinion simply
means that an agency's financial information is accurate as of
one day of the year--the last day of the fiscal year. It
provides no assurance that the agency can actually produce and
use reliable financial data on a real-time basis. In fact, it
normally takes Federal agencies 6 months after the close of the
fiscal year to establish the accuracy of their balance sheets
as of the last day of the prior year. Some agencies cannot even
meet this 6-month statutory deadline.
Furthermore, the Comptroller General testified that some
agencies were able to get clean opinions only through what he
described as ``heroic efforts.'' These efforts entail
painstakingly reconstruct-ing basic information about agency
spending on programs and activities. Their financial systems
could not routinely provide this information. Indeed, he went
on to say, ``Agency financial systems overall are in poor
condition and cannot provide reliable financial information for
managing day-to-day government operations and holding managers
accountable.'' ³
A clean opinion actually can be misleading by masking
deficiencies in an agency's underlying financial systems. For
example, GAO notes that the Transportation Department's core
accounting system was not the primary source for the financial
data that lead to its clean opinion. Because its core system
was so unreliable, the Department had to make about 800
adjusting entries totaling $36 billion to get its ``clean''
opinion. ⁴ Furthermore, time-consuming and ad hoc
efforts to get clean opinions can be counter-productive since
they divert agency financial managers from fixing the
underlying problems. GAO states:

The extraordinary efforts that many agencies go through
to produce auditable financial statements are not
sustainable in the long term. These efforts use
significant resources that could and should be used for
other important financial-related work. ⁵

The Department of Health and Human Services (HHS) and the
IRS were other agencies that got clean opinions only through
time-consuming, manually-intensive, and error-prone processes
that involved billions of dollars of adjustments. The Education
Department is still another example of an agency whose
ostensible progress for FY 1999 was generally the result of
time-consuming and ad hoc efforts rather than genuine
improvements in its financial systems. Education received a
``qualified'' opinion on its financial statements for FY 1999,
which is better than the ``disclaimer'' opinion it got for FY
1998. However, the Department's internal control problems
actually worsened in FY 1999. For example, Education
misreported $7.5 billion in its FY 1999 accounts; failed to
remit to the Treasury $2.7 billion in collections from its
Federal Family Education Loan Program (FFELP) as required by
law; and had a discrepancy of $700 million in its FFELP account
balance. Also, continued weaknesses in security controls
exposed Education's sensitive grant and loan data to deliberate
or inadvertent, misuse, destruction, or improper disclosure.
⁶
The true test of financial management fitness. Annual
compliance audits under FFMIA provide the best indication of
whether agencies can produce the data needed to manage their
day-to-day operations efficiently and effectively. However, 21
of the 24 major agencies failed to substantially comply with
FFMIA standards for FY 1999. ⁷ The FY 1999 FFMIA
results represent no improvement whatsoever over FY 1998, when
the same 21 agencies failed their FFMIA audits. They represent
a step backward from FY 1997, when 20 agencies failed. In
summary, the GAO report on FFMIA results for FY 1999 observes
that, for 3 straight years now, ``the vast majority of
agencies' financial management systems fall short of the CFO
Act and FFMIA goal to provide reliable, useful, and timely
information on an ongoing basis for day-to-day management and
decisionmaking.'' ⁸
An important feature of FFMIA is the requirement that non-
compliant agencies develop ``remediation plans'' to describe
what actions they will take to fix their problems and come into
compliance. However, GAO found that the majority of agency
remediation plans were inadequate and had improved only
slightly over FY 1998. According to GAO, ``many plans still
lacked detailed steps, target dates, and descriptions of the
resources needed for executing the corrective actions.'' Two of
the 21 agencies found to be non-compliant (the Federal
Emergency Management Agency and the Social Security
Administration) did not submit remediation plans at all because
they disagreed with the finding of non-compliance. ⁹
GAO also reported that OMB failed to meet its statutory
obligations under FFMIA. When an agency determines, contrary to
an audit finding, that it does comply with FFMIA, the law
requires OMB to review the agency's determination and report on
the findings to appropriate Congressional committees. GAO
states that ``OMB is not reviewing and has not reviewed such
determinations in order to report to the Congress.''
¹⁰
The following table shows the results of recent CFO Act
financial statement audits and FFMIA reviews for the 24 major
agencies:

FINANCIAL STATEMENT AUDIT AND FFMIA RESULTS
----------------------------------------------------------------------------------------------------------------
FFMIA
Agency FY 1998 Opinion FY 1999 Opinion Compliant?
----------------------------------------------------------------------------------------------------------------
Agriculture......................... Disclaimer Disclaimer No
Commerce............................ Unqualified Unqualified No
Defense............................. Disclaimer Disclaimer No
Education........................... Disclaimer Qualified No
Energy.............................. Qualified Unqualified Yes
HHS................................. Qualified Unqualified No
HUD................................. Unqualified Disclaimer No
Interior............................ Unqualified Unqualified No
Justice............................. Disclaimer Qualified No
Labor............................... Unqualified Unqualified No
State............................... Unqualified Unqualified No
Transportation...................... Disclaimer Unqualified No
Treasury............................ Qualified Qualified No
Veterans Affairs.................... Qualified Unqualified No
AID................................. Disclaimer Disclaimer No
EPA................................. Unqualified Qualified No
FEMA................................ Unqualified Unqualified No
GSA................................. Unqualified Unqualified No
NASA................................ Unqualified Unqualified Yes
NSF................................. Unqualified Unqualified Yes
NRC................................. Unqualified Unqualified No
OPM................................. Disclaimer Disclaimer No
SBA................................. Unqualified Unqualified No
SSA................................. Unqualified Unqualified No

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Source: GAO

EXTENT AND CONSEQUENCES OF FINANCIAL MANAGEMENT PROBLEMS

Scope of the problems. GAO has designated financial
management as a high-risk problem at the Defense Department,
the Forest Service, the Federal Aviation Administration, and
the IRS. IGs have designated financial management a top 10
management problem at all 24 major agencies except the Energy
Department, the General Services Administration, and the Social
Security Administration. The following examples illustrate the
impact of these problems at two agencies.
IRS. Financial management problems at IRS contribute to
four separate GAO high-risk areas. Clearly, IRS auditors would
come down hard on any business or individual taxpayer who kept
their books and records as poorly as IRS does. A recent GAO
audit identified IRS accounting errors that, if uncorrected,
would have caused a misstatement of over $100 million in the
agency's financial statements for FY 1999. GAO's audit also
revealed serious internal control problems, such as the
following:

Delays of over 10 years in posting payments made
by taxpayers to their accounts.

Failure to offset refunds to taxpayers against
their outstanding tax liabilities. In one case, IRS paid a
refund of $15,000 to a taxpayer who owed almost $350,000 in
back taxes.

Delays in correcting erroneous tax assessments
resulting from data input mistakes. In one case, it took IRS 18
months to correct an input error that resulted in an assessment
of over $160,000 against a taxpayer who was actually due a
refund. IRS apparently knew the assessment was erroneous 10
months before it was corrected.

Delays in releasing property liens against
taxpayers. In 25 percent of cases examined by GAO, IRS failed
to release its liens against taxpayers who had settled their
tax liability within the statutory deadline. In one case, IRS
had not released its lien 14 months after settlement with the
taxpayer. ¹¹

The Defense Department (DOD). DOD is the most deficient of
all agencies in failing to provide basic financial
accountability. Financial management at DOD as a whole has been
a GAO high-risk problem area since 1995. GAO recently
testified:

Material financial management deficiencies identified
at DOD, taken together, continue to represent the
single largest obstacle that must be effectively
addressed to achieve an unqualified opinion on the U.S.
Government's consolidated financial statements. DOD's
vast operations--with an estimated $1 trillion in
assets, nearly $1 trillion in reported liabilities and
a reported net cost of operations of $378 billion in
fiscal year 1999--have a tremendous impact on the
government's consolidated financial reporting. To date,
no major part of DOD has yet to pass the test of an
independent audit; auditors consistently have issued
disclaimers of opinion because of pervasive weaknesses
in DOD's financial management systems, operations, and
controls. ¹²

One major source of these problems is the cacophony of non-
integrated systems that DOD tries to operate--168 separate
systems in all. The following graphic illustrates the number
and ``relationships'' of the systems DOD uses for just one of
its business areas--contract and vendor payments:
[GRAPHIC] [TIFF OMITTED] T7613.001

It is virtually impossible to operate rationally in such a
morass. Indeed, during FY 1999, DOD spent almost one-third of
all its contract payments to make adjustments to previous
contract payments. Overall, the IG found that DOD had to make
$7.6 trillion in accounting adjustments in order to prepare its
financial statements. Countless items fall through the many
cracks in these systems. In 1999, GAO reported that the Navy
wrote off more than $3 billion in inventory as ``lost in
transit.'' When the Army took an inventory of its assets in
1999, it found 56 airplanes, 32 tanks, and 36 Javelin command
launch units for which it had no records. A visit to one Army
ammunition depot found 835 ``quantity and location
discrepancies'' for over 3,000 ready-to-fire, hand-held rockets
and rocket launchers--obviously, very sensitive items requiring
strict controls. DOD data shows that over half the in-hand
inventory items it can find, valued at about $37 billion,
exceed its current requirements.
Improper payments. One direct consequence of poor financial
management is the exposure of taxpayer dollars to massive
fraud, waste, and abuse. The work of the Governmental Affairs
Committee, based on GAO and IG reports, documents huge losses
to our citizens from fraudulent and other erroneous payments of
taxpayer funds. Based on a review of improper payments that
agencies disclosed in their own financial statements for FY
1998, GAO identified $19.1 billion in improper payments for
that year alone. ¹³ This report covered only the
nine agencies that voluntarily disclosed improper payments for
17 major programs. GAO noted that, while the full extent of
improper payments was unknown, ``[i]mproper payments are much
greater than have been disclosed thus far in agency financial
statement reports, as shown by our prior audits and those of
agency Inspectors General.'' ¹⁴
The Committee confirmed that the $19.1 billion figure was
only the tip of the iceberg. Adding up wasted taxpayer dollars
that had been documented and quantified in various GAO and IG
reports, the Committee came up with a cumulative figure of $220
billion in waste, fraud, and abuse. This figure included $35
billion in overpayments. ¹⁵
The problem of erroneous payments appears to be getting
worse. When GAO updated for FY 1999 improper payments disclosed
in agency financial statements, the total had grown to $20.7
billion. ¹⁶ When the Committee recently updated its
analysis of waste documented in GAO and IG reports, the total
had grown to almost $230 billion. This included improper
payments of over $47 billion. (See the Appendix to this
report.)
Several programs consistently make billions of dollars in
improper payments that represent significant portions of their
entire budgets. Examples are Medicare, Supplemental Security
Income, and food stamps. Another example is the Earned Income
Tax Credit (EITC). Erroneous EITC payments have been estimated
at as much as $9.3 billion annually. This is over 30 percent of
all EITC claims, which total about $30 billion annually. At the
same time, it has been estimated that as few as 65 percent of
eligible taxpayers receive the EITC credit. ¹⁷ Given
these problems, Congress authorized IRS to spend a total of
$716 million over 5 years to improve EITC administration.
However, IRS has not established Results Act performance goals
to address the EITC problems. It also has failed to provide
meaningful outcome data on the impact of the funds provided by
Congress to improve EITC administration. ¹⁸
Ineffective information security. Weak security controls
over sensitive information are a major factor underlying
financial management problems. Information security weaknesses
affect almost all agencies and constitute a GAO-designated
governmentwide high-risk problem. They place enormous amounts
of Federal assets at risk of inadvertent or deliberate misuse,
financial information at risk of unauthorized modification or
destruction, sensitive information at risk of inappropriate
disclosure, and critical operations at risk of disruption. Of
the 21 agencies that failed to comply with FFMIA, all had
serious weaknesses in the area of information security.
Agencies in denial. We will never generate demonstrable
improvements in financial management until agencies
forthrightly acknowledge the seriousness of their problems. As
the following examples indicate, some agencies are still in
denial.
In a recent ``Progress Review and Accomplishment Report''
by HUD on its ``2020 Management Reforms'' stated: ``HUD's once
vulnerable financial management system is now reliable,
accurate and timely.'' However, the HUD IG reported that the
serious weaknesses in HUD's financial systems persist today and
led to a disclaimer of opinion on the agency's financial
statements for FY 1999. ¹⁹
An Education Department spokesperson recently stated: ``Our
position is that we have adequate financial controls in place
to provide for the smooth operation of our financial systems
here at the Education Department.'' ²⁰ That position
is not shared by the agency's IG or GAO. The IG listed ``long-
standing problems with financial management'' as the number one
management challenge facing the Department. ²¹
Likewise, GAO recently testified that Education ``has
experienced persistent financial management weaknesses'' for
years and that these ``serious internal control and financial
management systems weaknesses continued to plague the agency''
during FY 1999. ²²
Student financial aid programs have been included on GAO's
high-risk list since its inception in 1990. However,
Education's commitment to resolving these problems appears
questionable. GAO expressed concern that the Education
Department's Office of Student Financial Assistance, which was
recently reconstituted as a so-called ``performance-based
organization,'' has not established any performance goals to
resolve the problems that make its programs high-risk.
²³ In 1998, Congress enacted a law designed to
enable Education to verify income information with IRS as a
means of enhancing student assistance eligibility
determinations. ²⁴ This law remains unimplemented
nearly 2 years after its enactment, while Education, Treasury,
and OMB engage in seemingly intractable discussions over what
to do.
OMB is in the forefront of agencies in denial. OMB's own
performance report for FY 1999 seriously overstated the number
of agencies that got clean audit opinions. It criticized GAO's
report on massive FFMIA non-compliance, discussed previously,
as being too negative and failing to ``acknowledge that the
agencies are moving steadily in the right direction.''

GETTING TO SOLUTIONS: AN OVERALL FRAMEWORK

Solving financial management problems starts with an
overall framework that applies equally to most of the Federal
Government's other core capacity problems. The model for this
framework can be found in the successful resolution of the Y2K
computer conversion--probably the single most far-reaching and
important management challenge of recent years.
A host of GAO and IG reports laid out the extent of the Y2K
problem and its root causes. The Executive Branch, particularly
OMB, initially downplayed the problem. However, intense
Congressional oversight ignited public concern and forced the
Executive Branch to take the problem more seriously. Once that
happened, the Executive Branch and Congress worked hand-in-hand
to solve it. Action plans were developed, performance goals
were set, and accountability was maintained through regular
progress reports. Management and oversight responsibility over
the agencies was centralized in a special unit of the Executive
Office of the President under the outstanding leadership of
John Koskinen. Congress conducted systematic oversight and
provided the funding and other legislative support needed to
carry through on solutions.
While it would be hard to replicate the degree of public
awareness and the sense of urgency that accompanied Y2K, the
steps used to resolve it can readily be transferred to other
problems like financial management. In essence, these steps
require the Federal Government to:

Acknowledge fully and candidly the nature of the
problem as well as its dimensions and consequences. This can be
politically difficult, but it is absolutely essential.

Identify the root causes of the problem and
existing recommendations to address it. Most major problems,
including financial management, are the subject of a host of
GAO and IG reports and ``open'' (unresolved) recommendations.
Often the same recommendations are reiterated year after year.
Thus, a road map to solutions usually exists.

Muster the will and ongoing commitment to solve
the problem. To be effective, this must come from the highest
leadership levels of the Administration and the agencies. As
GAO observed: ``We learned from the Year 2000 experience that
proactive leadership at the highest levels of government is one
of the most important factors in prompting attention and action
on a widespread problem.'' ²⁵

Establish specific and measurable performance
goals to embody the commitments and systematically track them
in order to assess progress and ensure follow through and
accountability. As discussed below, the Results Act provides an
excellent tool for setting goals and measuring success.

Provide necessary support and incentives--both
positive and negative--to implement solutions. This includes
funding and other resources. It should also include rewards for
progress and remedial actions (along with real consequences, as
appropriate) for lack of progress.

RESTORING THE ``M'' IN OMB

One of the prerequisites to converting the above framework
into concrete actions is strong central leadership, support,
and oversight within the Executive Branch. This was a key
element in resolving Y2K and is equally important for other
systemic, crosscutting management challenges such as financial
management. Unfortunately, the agency charged by law with this
responsibility--OMB--has not been up to the task in recent
years.
The former Bureau of the Budget was reconstituted as OMB by
a Reorganization Plan during the Nixon Administration.
²⁶ President Nixon's message to Congress
transmitting the Reorganization Plan stated that OMB would be
``the President's principal arm for the exercise of his
managerial functions.'' He added that ``creation of the Office
of Management and Budget represents far more than a mere change
of name for the Bureau of the Budget. It represents a basic
change in concept and emphasis, reflecting the broader
management needs of the Office of the President.''
Congress subsequently reaffirmed and expanded OMB's
management responsibilities on several occasions. Most notably,
the CFO Act of 1990 established the Deputy Director for
Management position at OMB as ``the chief official responsible
for financial management in the U.S. Government.''
²⁷ During Senate consideration of this legislation,
former Governmental Affairs Committee Chairman Glenn said of
the new Deputy OMB Director for Management: ``This high level
official, appointed by the President, with the advice and
consent of the Senate, will be responsible for the `M' in OMB
and for integrating and coordinating important financial
management functions with other management and budget functions
at OMB.'' Senator Glenn stressed the importance of improving
Federal financial management:

Currently, there are hundreds of different accounting
systems in the government, and few comply with
generally accepted government accounting standards.
These current practices do not show the actual costs of
running the Federal Government. . . . There is no way
that we in the Senate can fully determine the
programmatic impacts of the legislative decisions we
make on the basis of information reported. To make
matters worse, often the information is reported in
such an untimely manner that the decisions must be and
are regularly made with dated, inaccurate information.

It is time that the Federal Government had a position,
a Deputy Director for Management at OMB, that could be
held accountable for these shortcomings. Someone who
would be responsible for supplying the Executive Branch
and the Congress with reliable, consistent, timely, and
complete financial information, while focusing
attention to the management of government, which is
often lost in our battles over the budget.
²⁸

The foregoing objectives have yet to be realized. Sadly,
Senator Glenn's summary of the government's financial
management problems in 1990 still holds true today. In numerous
contexts, including addressing financial management problems,
OMB has failed to fulfill its leadership role. According to
many observers, the ``M'' has virtually disappeared from OMB. A
1994 reorganization of OMB, known as ``OMB 2000,'' shifted most
of the agency's resources to the budget side and greatly
diminished its capacity to carry out its management functions.
It is clear from OMB's own Results Act plans and reports that
the agency has little regard for its management
responsibilities, including those specifically grounded in
statute. Indeed, OMB's most recent draft strategic plan
contains nothing of substance addressing any of its management
responsibilities.
OMB's failure to meet its management responsibilities has
prompted calls for an entirely separate ``office of
management'' in the Executive Office of the President. This is
one way to achieve the central leadership on management that is
so sorely needed. However, there is obvious power to linking
management and budget decisions, as the expansion of OMB was
intended to accomplish. OMB views its fundamental role as being
``staff to the President.'' ²⁹ Therefore, in the
final analysis, OMB's enthusiasm for its management
responsibilities is directly proportional to the President's
level of interest in management issues. If the incoming
President gives sufficient priority to management improvements,
OMB will surely follow suit.

SPECIFIC ACTIONS TO IMPROVE FINANCIAL MANAGEMENT

Within the above overall framework, there are many specific
actions that can and should be taken to address financial
management problems.
Establishment of specific performance goals and measures to
resolve financial management problems. The Results Act provides
an excellent mechanism for (1) establishing firm commitments to
resolve financial management problems, through performance
goals and (2) tracking progress against those goals through
annual performance reports. Also, the annual government-wide
performance plan required by the Results Act is well suited to
establishing government-wide financial management improvement
goals and re-enforcing the most important agency-specific
goals.
To their credit, a number of agencies have established some
performance goals dealing with financial management. The most
common goal is to get a clean opinion on the agency's annual
financial statements. It is also noteworthy that financial
management is addressed in the ``Priority Management
Objectives'' (so-called ``PMOs'') that appear in the
President's Annual Budget. The FY 2001 PMO on ``improving
financial management information'' includes a performance goal
that 22 of the 24 CFO Act agencies obtain clean opinions.
³⁰
These specific performance goals are commendable. However,
agencies and OMB should also establish Results Act performance
goals to get at the underlying weaknesses that prevent them
from using their financial systems for day-to-day management.
As discussed previously, such goals would encourage agencies to
invest their resources in making lasting improvements to their
financial systems. One way to do this is to establish
performance goals for compliance with FFMIA requirements. Such
efforts will inevitably assist the agencies' overall
performance measurement efforts.
There are other areas in which agencies and OMB could adopt
financial management performance-improvement goals. For
example, the FY 2001 PMOs target additional government-wide
problem areas that implicate financial management such as
improving information technology and security and verifying the
accuracy of Federal benefit determinations. For the most part,
however, these PMOs lack specific performance goals and
measures that could be used to track progress toward solving
the problems they address.
Disclosure of erroneous payments, coupled with error-
reduction targets. A powerful line of attack against the
massive overpayment problems that plague the Federal Government
is to disclose overpayment levels in annual financial
statements and combine that disclosure with performance goals
to reduce them. GAO found that only a few agencies now disclose
their overpayments. Thus, it recommended that OMB:

Develop and issue guidance to executive agencies to
assist them in (1) developing and implementing a
methodology for annually estimating and reporting
improper payments for major Federal programs and (2)
developing goals and strategies to address improper
payments in their annual performance plans.
³¹

By a letter dated November 5, 1999, Chairman Thompson urged
OMB Director Lew to implement these GAO recommendations. In his
January 2000 response, Director Lew agreed to issue guidelines
for estimating overpayments. OMB has yet to follow through on
that commitment.
Experience with the Medicare program demonstrates the value
of measuring overpayments and then setting specific targets to
reduce them. Using these combined techniques, Medicare has
shown a dramatic overall reduction in its overpayments in
recent years, even though overpayments rose again in FY 1999.
The incoming Administration should ensure that OMB meets its
commitment to require disclosure of major overpayment problems
in annual financial statements. If OMB fails to do so, the new
Congress should legislate such a requirement.
Improved data sharing among agencies. Of course, the best
solution to erroneous payments is not to make them in the first
place. According to a recent GAO report, ³²
inadequate or incorrect information often leads agencies to
make erroneous eligibility determinations under various Federal
programs, thus resulting in erroneous payments. Improved data
sharing between Federal agencies, or between Federal agencies
and other parties such as State agencies, could enhance
eligibility decisions and thus reduce improper payments. For
example, GAO found that hundreds of millions of dollars in
Supplemental Security Income payments and payments under the
Temporary Assistance for Needy Children (TANF) program could
have been avoided or detected more quickly through enhanced
data sharing.
The GAO report makes a number of recommendations to the
Congress and the Executive Branch on ways to enhance data
sharing. ³³ Some of these recommendations involve
policy judgments that balance improved data sharing against
privacy and other considerations. Other recommendations are
aimed at improving data sharing that agencies already are
authorized to conduct. One recommendation is that OMB lead an
inter-agency effort to develop an overall strategy to improve
data sharing operations across all Federal benefit and loan
programs.
The new Administration and Congress should carefully review
the GAO recommendations for improved data sharing. Agencies
also should take steps to improve their internal coordination
and use of eligibility information already available to them.
In this regard, the IG at HHS found that HHS paid millions of
dollars for equipment and services allegedly provided to
Medicare beneficiaries after the agency's own records indicated
that the beneficiaries had died. ³⁴
One very specific but long overdue action is resolving the
impasse over implementation of the Education-IRS data
verification provision in the Higher Education Act Amendments
of 1998. As discussed previously, this provision has remained
in limbo since its enactment 2 years ago. Education, Treasury,
and OMB have yet to take action either to make use of the
existing authority or to seek any legislative changes that they
deem necessary.
Implementing GAO and IG recommendations. Myriad GAO and IG
reports exist on virtually all aspects of agency financial
management problems. Many of these reports analyze the causes
of the problems and make recommendations for corrective action.
These reports and recommendations provide a wealth of
information and advice that agencies should use to the greatest
extent possible. OMB's guidance to Federal agencies states that
each agency should establish systems to assure the prompt and
proper resolution and implementation of audit recommendations.
³⁵ In addition, agencies are required by law to
report to Congress on their actions in response to GAO
recommendations. ³⁶
In August 1999 letters to the heads of the major agencies,
Chairman Thompson stressed the need for agencies to resolve and
implement audit recommendations related to their major
management problems, including financial management. He noted
that many agencies continued to have a number of unresolved
audit recommendations. On the basis of the written responses to
the Chairman's letters and subsequent Committee staff meetings
with agency officials, it appears that most agencies have made
some progress in dealing with the IG and GAO recommendations.
Some agencies, such as Interior, have established specific
performance goals related to implementing audit
recommendations. ³⁷ Other agencies need to do a
better job.
Financial management best practices. GAO recently studied
the financial management practices and improvement strategies
of private sector firms and State governments that are leaders
in financial management. ³⁸ Based on this study, GAO
issued an ``executive guide'' that contains many case examples
and strategies that can benefit the Federal Government.
³⁹ Just a few of the strategies are:

Establish and monitor specific performance goals
and measures that reflect the finance operation's role in
meeting mission objectives.

Benchmark financial management practices and
processes with recognized leaders in order to measure
performance and identify best practices.

Place more emphasis on providing reliable and
timely data that directly support strategic decisionmaking and
improvements in overall agency performance.

Identify high-volume accounting processes or
transactions that do not directly support the agency's mission
(low-value, low risk) and consolidate, streamline, outsource,
or eliminate them.

Resources and incentives. Agencies that have fully
acknowledged their financial management problems and have
developed credible remedial actions deserve the support
necessary to implement those actions. Obviously, this includes
providing necessary funding. Overhauling or replacing
ineffective financial management systems can be expensive.
However, making the necessary investments is well worth the
cost. Conversely, failing to make needed investments is penny-
wise and pound-foolish. For example, the Agriculture
Department's financial systems are chronically incapable of
producing useful information. Yet, Department officials told
the Committee staff that fixing the problems would cost less
than the amount left over each year from the Department's
unobligated funds.
In addition to funding remedial actions that are well
thought out, Congress needs to impose real consequences for
agencies that aren't improving. For example, funds that are
available for performance bonuses, travel, and other
administrative costs of the agency (particularly perks for
political appointees) might be ``fenced off '' for use only to
improve financial management.
Recovery auditing. ``Recovery auditing'' is a valuable tool
to both recoup overpayments resulting from financial management
weaknesses and provide resources to remedy those weaknesses.
Recovery auditing is a technique employed by many private
sector firms that utilizes computer software programs to
analyze contract and payment records in order to identify
discrepancies between what was owed and what was paid. It
focuses on obvious but inadvertent errors, such as duplicate
payments or failure to get credit for applicable discounts and
allowances.
------ --
----

The preceding recommendations need serious consideration
and deliberation by key decisionmakers in Washington. If
implemented, these recommendations could demonstrate
significant movement in addressing the financial management
challenges that face the Federal Government.

ENDNOTES

1. Financial Management: Agencies Face Many Challenges in
Meeting the Goals of the Federal Financial Management
Improvement Act, GAO/T-AIMD-00-178 (June 6, 2000), pp. 1-2.
2. Auditing the Nation's Finances: Fiscal Year 1999
Results Continue to Highlight Major Issues Needing Resolution,
GAO/T-AIMD-00-137 (March 31, 2000), pp. 10-11.
3. Id., p. 3.
4. Financial Management: Federal Financial Management
Improvement Act Results for Fiscal Year 1999, GAO/AIMD-00-307
(September 2000), pp. 18-19.
5. Id., p. 42.
6. Financial Management: Financial Management Challenges
Remain at the Department of Education, GAO/T-AIMD-00-323
(September 19, 2000), pp. 6-11.
7. The only three agencies that passed muster were the
Energy Department, NASA, and the National Science Foundation.
8. Financial Management: Federal Financial Management
Improvement Act Results for Fiscal Year 1999, op. cit. note 5,
p. 2.
9. Id., pp. 29-30.
10. Id., p. 30.
11. Financial Audit: IRS' Fiscal Year 1999 Financial
Statements, GAO/AIMD-00-76 (February 2000), pp. 13-14, 28-29.
12. Department of Defense: Progress in Financial Management
Reform, GAO/T-AIMD/NSIAD-00-163 (May 9, 2000), p. 1 (Emphasis
supplied).
13. Financial Management: Increased Attention Needed to
Prevent Billions in Improper Payments, GAO/AIMD-00-10 (October
1999).
14. Id., p. 6.
15. Governmental Affairs Committee Press Release: Thompson
Details $220 Billion in Government Waste (January 24, 2000).
16. Financial Management: Improper Payments Reported in
Fiscal Year 1999 Financial Statements, GAO/AIMD-00-261R (July
27, 2000).
17. Treasury Department IG for Tax Administration,
Management Advisory Report: Administration of the Earned Income
Credit, Ref. No. 2000-40-160 (September 2000), p. iii.
18. Ibid.
19. See Statement of Susan Gaffney before the Subcommittee
on Housing and Transportation of the Senate Banking Committee
on Management and Performance Issues Facing HUD (September 26,
2000), pp. 10-11.
20. Government Executive Daily Briefing, Agency
Overpayments Rise Above $20 Billion, September 13, 2000.
21. Department of Education Office of Inspector General,
Semiannual Report to Congress No. 40, October 1, 1999-March 31,
2000, p. 15.
22. Financial Management: Education's Financial Management
Problems Persist, GAO/T-AIMD-00-180 (May 24, 2000), pp. 1, 3.
23. Observations on the Department of Education's Fiscal
Year 1999 Performance Report and Fiscal Year 2001 Performance
Plan, GAO/HEHS-00-128R (June 30, 2000), p. 2.
24. Section 484(q) of the Higher Education Act, as amended,
20 U.S.C. Sec. 1091(q).
25. Financial Management: Federal Financial Management
Improvement Act Results for Fiscal Year 1999, op cit. note 5,
p. 42.
26. Reorganization Plan No. 2 of 1970, 31 U.S.C. Sec. 501
note.
27. 31 U.S.C. Sec. 502(c).
28. 136 Cong. Rec. 35767-68.
29. See generally, OMB's Draft Strategic Plan for FY 2001-
2005 and a letter from Sally Katzen dated August 8, 2000,
transmitting the Draft Plan to Chairman Thompson.
30. See Budget of the U.S. Government, FY 2001, pp. 294-
295.
31. Financial Management: Increased Attention Needed to
Prevent Billions in Improper Payments, op cit. note 14, p. 42.
32. Benefit and Loan Programs: Improved Data Sharing Could
Enhance Program Integrity, GAO/HEHS-00-119 (September 2000).
33. Id., pp. 43-44.
34. Governmental Affairs Committee Press Release: Medicare
Paying for Health Care for the Dead, March 13, 2000.
35. OMB Circular A-50.
36. 31 U.S.C. Sec. 720.
37. See Department of the Interior Fiscal Year 2001 Annual
Performance Plan, p. 101.
38. The private sector organizations were Boeing, the Chase
Manhattan Bank, General Electric, Hewlett-Packard, Owens
Corning, and Pfizer. The State governments were Massachusetts,
Texas, and Virginia.
39. Executive Guide: Creating Value Through World-class
Financial Management, GAO/AIMD-00-134 (April 2000).

APPENDIX

Governmental Affairs Committee's Estimate of Government Waste, Fraud and
Abuse as Documented in GAO and IG Reports
------------------------------------------------------------------------
Explanation and
Amount Agency Reference
------------------------------------------------------------------------
$1.3 billion.................. Agriculture Reported Food
Stamp Program
overpayments for
FY 1999. (GAO/
AIMD-00-261R, p.
4)
$6.5 million.................. Agriculture Improper research
expenditures.
(Agriculture IG
letter, 11/29/
99, encl., pp. 5-
6)
$4.8 million.................. Commerce National
Technical
Information
Service (NTIS)
cumulative
losses, FY 1995-
98. (Commerce IG
letter, 12/13/
99, encl., p.
16)
$1.9 million.................. Commerce Amount the
National Oceanic
and Atmospheric
Administration
(NOAA) spends
annually on its
in-house
aircraft above
comparable
private sector
costs. (Commerce
IG letter, 12/13/
99, encl., p.
19)
$14 billion................... Defense DOD's inventories
contain $11
billion for
which Defense
has no need; the
Navy wrote off
$3 billion of
inventory as
lost in transit.
(GAO/T-NSIAD-99-
83, pp. 4, 7-8)
$1.5 billion.................. Defense New inventory
ordered by DOD 1
year in excess
of its current
needs. (GAO/T-
NSIAD-99-83, pp.
5)
$500 million.................. Defense Potential annual
fraud and abuse
in the military
health care
program,
TRICARE. (GAO/
HEHS-99-142, p.
2)
$984 million.................. Defense Between fiscal
years 1994 and
1998, DOD
contractors
voluntarily
returned $984
million that DOD
had erroneously
paid them. (GAO/
AIMD-00-10, p.
18)
$25.3 million................. Defense Military
Retirement Fund
payments for FY
1999. (GAO/AIMD-
00-261R, p. 4)
$3.3 billion.................. Education In FY 1997, the
Federal
Government paid
out more than
$3.3 billion to
make good its
guarantee on
defaulted
student loans.
(GAO/OCG-99-5,
p. 7)
------------------------------------------------------------------------

Governmental Affairs Committee's Estimate of Government Waste, Fraud and
Abuse as Documented in GAO and IG Reports--Continued
------------------------------------------------------------------------
Explanation and
Amount Agency Reference
------------------------------------------------------------------------
$177 million.................. Education Estimated Pell
Grant
overpayments
during 1995-96
caused by under-
reporting of
income.
(Education IG
letter, 12/8/99,
encl., p. 6; IG
Report ACN: 11-
50001 (January
1997))
$10 billion................... Energy From 1980 through
1996, the
Department of
Energy
terminated
before
completion 31
major systems
acquisition
projects after
expenditures of
over $10
billion. (GAO/
OCG-99-6, p. 12)
$1.7 billion.................. Energy Estimated cost
overruns in
building the
National
Ignition
Facility caused
by poor lab
management and
inadequate DOE
oversight. (GAO/
RCED-00-141, pp.
4-5)
$13.5 billion................. HHS Estimate of
Medicare fee-for-
service
overpayments for
FY 1999. (GAO/
AIMD-00-261R, p.
4)
$2.2 billion.................. HHS State Medicaid
financing
schemes. (HCFA
estimate for FY
2000). GAO/T-
HEHS-00-193, p.
2)
$1 billion.................... HHS Improper Medicare
payments in 1998
for
rehabilitation
services. (HHS
IG letter, 12/7/
99, encl., pp. 7-
8)
$600 million.................. HHS Medicare fee-for-
service cost
reports for FY
1999. (GAO/AIMD-
00-261R, p. 4)
$935 million.................. HUD HUD estimates
erroneous rent
subsidy payments
for FY 1999.
(GAO/AIMD-00-
261R, p. 4)
$1.2 billion.................. Interior Revenues lost as
a result of
changes in
Interior
irrigation
assistance
repayment
policies.
(Interior IG
letter, 12/1/99,
encl., p. 17)
$43 million................... Interior Amount by which
fluid mineral
royalties may
have been
underpaid.
(Interior IG
letter, 12/1/99,
encl. 1, p. 21)
$25.8 million................. Interior Losses identified
in various IG
reviews based on
fees that
Interior failed
to collect or
misused.
(Interior IG
letter, 12/1/99,
encl., pp. 16-
17)
$18.2 million................. Interior Losses on land
exchanges that
did not comply
with applicable
requirements.
(Interior IG
letter, 12/1/99,
encl., p. 23)
$142.3 million................ Labor Unemployment
Insurance
payments for FY
1999. (GAO/AIMD-
00-261R, p. 4)
$19.2 million................. Labor Federal
Employees'
Compensation Act
payments for FY
1999. (GAO/AIMD-
00-261R, p. 4)
$708 million.................. NASA Cumulative cost
overruns on the
International
Space Shuttle.
(NASA IG letter,
12/1/99, encl.,
p. 13)
$30.5 million................. OPM Cost of 1%
premium
surcharge OPM
has paid
carriers (so
far) to cover
their costs
resulting from
enrollment
discrepancies in
the Federal
Employees Health
Benefit Program.
This figure
represents the
government's
share; plan
subscribers have
paid another
$11.9 million.
(OPM IG letters
of 12/1/99,
encl., p. 4, and
of 1/7/00, p. 1)
$1.8 billion.................. OPM Estimated annual
losses to fraud,
waste, and abuse
in the Federal
Employees Health
Benefit Program.
(OPM IG letter,
12/1/99, encl.,
p. 6)
$16.2 million................. SBA Cost of defaulted
SBA-guaranteed
loans for which
the guarantee
should not have
been honored.
(SBA IG letter,
12/2/99, encl.,
p. 1)
$3.7 million.................. SBA Cost of
additional
questionable SBA-
guaranteed
loans. (SBA IG
letter, 12/2/99,
encl., p. 4)
$84 million................... SBA Value of Section
7(a) loans that
are under
criminal
investigation
and may have
been procured by
fraud. (SBA IG
letter, 12/2/99,
encl., p. 20)
$27 million................... SBA Estimated loss to
the government
from loans
procured by
false
certifications.
(SBA IG letter,
12/2/99, encl.,
p. 1)
$1.578 billion................ SSA Supplemental
Security Income
(SSI)
overpayments for
FY 1999. (GAO/
AIMD-00-261R, p.
4)
------------------------------------------------------------------------

MANAGEMENT CHALLENGES FACING THE NEW ADMINISTRATION

PART 2: FEDERAL WORKFORCE CHALLENGES

----------

OVERVIEW AND SUMMARY

This is one in a series of transition reports that
describes core capacity problems facing the Federal Government,
discusses their nature and root causes, and proposes ways of
solving them. The reports are intended to stimulate action on
the part of the incoming Administration and Congress, and to
provide them a framework for this important task. This report
deals with Federal workforce challenges. Other reports address
financial management and the need for results-oriented
governance at the Federal level.
The Federal Government's workforce problems have received
little attention, although many experts recognize that they are
reaching an increasingly critical stage. Most agencies face
serious challenges in hiring, retaining, developing, and
motivating a workforce with the right skills to achieve their
mission results. These problems have been exacerbated in recent
years by random ``downsizing'' that reduced agency staffs
without regard to the skills, experience, and performance of
departing employees in relation to agency missions. Typically,
downsizing was accomplished by ``buyouts'' and early retirement
offers to experienced employees--thereby causing significant
``brain drain.'' There is mounting evidence that workforce
deficiencies at agencies limit their capacity to serve the
public and make them more vulnerable to fraud, waste, and
mismanagement.
The Senate Committee on Governmental Affairs is responsible
for overseeing the government-wide application of the Federal
merit system and human resources policies. The current civil
service system, a product of the 1978 Civil Service Reform Act
of 1978, was created in large part to further standardize some
human resource requirements and incorporate into law the merit
system principles of fairness, equity, and earned achievement
in public employment. There is broad consensus that this system
lacks the flexibility necessary to meet today's workforce
needs. Such flexibility would enable individual workers and
their agencies to focus less on conforming to centralized human
resource requirements and more on developing human resource
policies and practices that support their own mission-related
needs.
One expert observed that the current system ``underwhelms
at almost every task it undertakes . . . It is slow in the
hiring, almost useless in the firing, overly permissive in the
promoting, [and] out of touch with actual performance in the
rewarding . . .'' ¹ Agencies also suffer from
inefficient and wasteful organizational structures with bloated
hierarchies and excessive layers of management. Even more
fundamentally, the basic civil service model--built around a
30-year career from entry level to retirement with virtually
guaranteed job security--does not fit a contemporary workforce
that favors greater mobility and has different motivations than
in the past.
Strategic workforce planning is essential to the success of
private sector organizations. They realize the importance of
having employees with the right skills and abilities to
accomplish their missions. However, Federal workforce issues
have been neglected for years. The Comptroller General
describes workforce management as the ``missing link'' in
efforts to improve the Federal Government's performance and
accountability. The Administration, especially the Office of
Management and Budget (OMB), is only now acknowledging the
seriousness of the government's workforce problems.
Furthermore, the agency charged with administering the Federal
Government's personnel laws, the Office of Personnel Management
(OPM), has lacked the requisite leadership from the
Administration to address successfully these problems. Most
agencies are far behind the curve in addressing these problems.
Therefore, the problems require immediate attention and
concerted action. The following are a few recommendations to
begin to address these problems:

The Administration must provide much greater
leadership in addressing critical workforce problems. In
particular, it needs to develop specific remedial plans for
which they and the agencies can be held accountable. With this
greater leadership, the Administration would encourage OMB and
OPM to move away from the status quo and consider personnel
reforms in an open and objective way. It is obvious to all that
the current system is broken. OPM should become a partner in
developing solutions.

Agencies need to undertake comprehensive
workforce planning to: (1) determine their workforce needs in
relation to their current functions; (2) assess how their
existing workforce compares to their needs; and (3) develop
strategies to bridge the gaps between the workforce they need
and the one they have.

In accordance with OMB guidance, agencies should
establish Results Act performance goals and measures to address
their most serious workforce problems and thereby assume
accountability for solving them. Agencies should start with
problems that lend themselves to immediate action such as
improving recruitment practices and linking employee
performance appraisals to performance results. (See below.)

OPM should ensure that agencies' program managers
fully understand and use the many personnel flexibilities that
are now available to them under current laws and regulations.
As noted above, OPM also should help develop changes to current
laws and regulations to ensure that agencies can effectively
obtain and manage the workforces they need to achieve their
mission results.

Agencies should directly link performance
assessments and rewards for agency managers to the agency's
performance results. Steps should be taken as well to ensure
that all agency employees are accountable for their performance
and are rewarded based on their performance.

Agencies should take immediate action to reduce
recruiting and hiring delays and provide better feedback to job
applicants.

The foregoing recommendations are just a start toward
resolving the Federal Government's critical workforce problems.
Additional recommendations are sure to emerge if these long
neglected problems get the attention they clearly require.

THE FEDERAL WORKFORCE CRISIS

No longer a ``quiet crisis.'' For some time now, experts
have referred to a ``quiet crisis'' in the Federal public
service. Clearly, the workforce problems confronting the
Federal Government have reached an even more critical stage in
recent years. A workforce capable of conducting the Federal
Government's business is crucial to the effective
implementation of government policies. One leading expert, Paul
C. Light of The Brookings Institution, observed:

Ultimately, effective governance is impossible if
government cannot attract talented citizens to serve at
all levels of the hierarchy. As Alexander Hamilton
warned 200 years ago in The Federalist Papers, ``a
government ill executed, whatever it may be in theory,
must be in practice a bad government.'' Citizens cannot
have confidence in the integrity of the democratic
process if their leaders cannot honor the promises they
make, but those leaders cannot honor the promises they
make if government cannot attract the talent necessary
to both draft and execute the laws. ²

Paul Light paints a bleak picture of a current Federal
personnel system ``that underwhelms at almost every task it
undertakes.'' Specifically:

It is slow in the hiring, almost useless in the firing,
overly permissive in the promoting, out of touch with
actual performance in the rewarding, penurious in the
training, and utterly absent in the management of a
vast and hidden workforce of contractors and
consultants who work side by side, desk by desk with
the civil service. ³

The impact of non-strategic ``downsizing.'' The staffs of
many Federal agencies suffer from imbalances in skills and
experience as well as structural problems. The spate of
``downsizing'' during the 1990's substantially reduced the
number of regular, full-time Federal employees. Whether this
downsizing really made the Federal Government much smaller is
doubtful. According to Paul Light, the ``era of big
government'' is still very much with us. ⁴ It
clearly did not make the government smarter. The downsizing was
accomplished indiscriminately through attrition, early
retirements, and ``buyouts'' that resulted in random, across-
the-board staff reductions. Little or no consideration was
given to the relative impact of the jobs eliminated--or the
skills, experience, or performance of departing employees--on
accomplishing agency missions. There is no evidence that this
downsizing improved the efficiency or effectiveness of the
Federal Government. On the contrary, the evidence suggests that
the non-strategic way in which downsizing was accomplished
actually detracted from the capacity of agencies to carry out
essential functions and made them more vulnerable to fraud,
waste, and mismanagement.
The General Accounting Office (GAO) found that lack of
strategic planning during the initial phases of downsizing
threatened the ability of some agencies to achieve their
missions. The Comptroller General recently testified that ``it
is by no means clear that the current workforce is adequately
balanced to properly execute agencies' missions today, nor that
adequate plans are in place to ensure the appropriate balance
in the future.'' ⁵ His testimony illustrates the
perverse consequences of non-strategic downsizing. Agencies
hoped to offset the loss of skilled employees by greater
reliance on information technology (IT). However, due to staff
reductions, they lack the skilled employees needed to take
advantage of technology, and they are at a competitive
disadvantage in hiring IT professionals. They also appear to
lack the necessary in-house expertise to oversee IT work that
they have outsourced to contractors. ⁶
A top-heavy Federal workforce. Downsizing also has
distorted the shape of the Federal workforce, making it more
top heavy and less efficient. Not surprisingly, the greatest
impact of downsizing occurred at the lowest levels of
government. As Paul Light puts it, ``The Federal Government
eliminated primarily the jobs that were the easiest to cut,
meaning the ones with the highest attrition and the lowest
political profile.'' ⁷ While middle management
levels ostensibly were reduced, this often amounted to nothing
more than changing titles. Thus, in reality, the number of
political appointees, senior executives, and middle managers
remained steady while layers of hierarchy actually expanded.
This effect is apparent in the title glut of recent years.
From 1993 to 1998, a number of new senior level positions were
established with such titles as ``deputy to the deputy
secretary,'' ``principal assistant deputy under secretary,''
and ``associate principal deputy assistant secretary.''
⁸ While contributing to greater layering and
diffused accountability, high numbers of political appointees
also are expensive. According to the Congressional Budget
Office, capping the number of political appointees at 2,000
would save the taxpayers about $900 million in salary costs
over 10 years. ⁹

HOW WORKFORCE PROBLEMS IMPEDE AGENCY MISSIONS

The Comptroller General regards workforce (or what he
refers to as ``human capital'') problems as an impending crisis
for the Federal Government. He has labeled human capital
management as the ``missing link'' in efforts to improve the
Federal Government's performance and accountability.
¹⁰ He adds that human capital management is likely
to emerge as a new government-wide problem area when GAO
updates its ``high-risk list'' of Federal program activities
most vulnerable to fraud, waste, abuse, and mismanagement:

[T]he widespread lack of attention to strategic human
capital management may be creating a fundamental
weakness in Federal management, possibly even putting
at risk the Federal Government's ability to
efficiently, economically, and effectively deliver
products and services to the taxpayers in the future.
These shortcomings in the Federal Government's human
capital management systems could well earn them GAO's
high-risk designation when the next High Risk Series is
issued in 2001. ¹¹

Likewise, Inspectors General (IGs) at nine major Federal
agencies have listed workforce problems as one of the top 10
most serious management challenges that their agencies face.
¹² Staffing problems underlie many other IG-
identified top 10 management challenges at a number of major
agencies, such as the lack of expertise to effectively oversee
Federal contracts and grants and to provide effective service
to the public.
GAO and IG reports are replete with specific examples of
how staffing problems adversely affect the ability of Federal
agencies to accomplish their missions.
Department of Housing and Urban Development (HUD). ``An
insufficient mix of staff with the proper skills'' was a key
factor causing GAO to designate HUD programs across the board
as high-risk. ¹³ Along the same lines, the HUD IG
recently testified:

The adequacy of staff resources in the Department has
long been a concern of the OIG and a root cause of many
of HUD's material weaknesses. Our audits have
consistently found a mismatch between the number and
complexity of HUD's programs and the capability of HUD
staff to administer those programs. ¹⁴

These longstanding workforce problems were exacerbated by
random downsizing at HUD, as well as more recent staffing
upheavals brought on by the Department's ``community builders''
initiative. Despite the apparent lack of staff capacity to
effectively carry out its existing programs, HUD consistently
seeks to add more programs to the workload of its already
beleaguered staff.
Social Security Administration (SSA). The IG at SSA has
noted that the combined effect of staff downsizing and hiring
restrictions, on the one hand, and the increasing volume and
complexity of caseloads on the other, threatens SSA's ability
to provide quality service to the public:

The quality of service SSA provides to its customers
continues to be a challenge facing the Agency. . . .
The [Social Security Advisory] Board expressed concern
about the effect of personnel downsizing and hiring
restrictions on SSA's service delivery mechanism. Such
constraints limit the Agency's ability to strengthen
and revitalize employee ranks by bringing in new
employees with new skills. This condition exists at the
same time that caseloads continue to grow in volume and
complexity. . . . The effects of low staffing levels
for the customer include: delays in scheduling
appointments; crowded reception areas; long waiting
times; and inadequate telephone service. At the same
time, the Agency is affected by attrition, high
turnover, and increased backlogs of pending actions.
¹⁵

SSA's Performance Report for Fiscal Year 1999 confirms that
it is falling short of many of its customer service performance
goals.
Patent and Trademark Office (PTO). Experts maintain that
the combined effect of increasing applications and
inexperienced staff at the Commerce Department's PTO has
resulted in undeserving patents slipping through. This, in
turn, poses a critical threat to an economy that runs on
intellectual property. One expert was quoted as saying,
``Patent quality in this country is a joke. It's getting
worse.'' ¹⁶
National Aeronautics and Space Administration (NASA). Last
year, NASA lost all four of its spacecraft bound for Mars. This
cost taxpayers hundreds of millions of dollars and brought the
entire Mars program to a halt. These problems did not stem from
the risks inherent in space exploration. Instead, they resulted
from simple negligence resulting in part from inexperienced
staff and inadequate oversight of contractors. Likewise, GAO
reports that an insufficient staff with the proper
qualifications poses threats to the performance and safety of
NASA's space shuttle program. ¹⁷

THE NEED FOR FUNDAMENTAL CHANGES IN WORKFORCE MANAGEMENT

Rethinking current systems. Solutions to our workforce
problems will not come easily. For one thing, the Federal
Government faces daunting recruiting challenges both at
professional and leadership levels. In this regard, Paul Light
observes:

Sad to say, when young Americans are asked to picture
themselves in public service careers, particularly at
the Federal level, they picture themselves in deadend
jobs where seniority, not performance, rules. And when
more seasoned Americans are asked to picture themselves
in appointive office, they picture themselves in a
nomination and confirmation process characterized by
endless inspection, over-disclosure, and delays at both
ends of Pennsylvania Avenue. ¹⁸

Clearly, the basic assumptions underlying the current civil
service system no longer hold true today. In particular, we
need to rethink our current civil service paradigm of a large
and permanent Federal bureaucracy composed of cradle-to-grave
careerists. We need to develop a new paradigm to fit a
contemporary National workforce that features much greater
mobility and very different motivations than in the past. In
this regard, Paul Light states:

Designed to sustain 30-year careers with one way in at
the entry level and one way out at retirement, the
government-centered public service is increasingly
unattractive to a workforce that will change jobs and
sectors frequently, and to workers who are much more
focused on challenging work than security. Gone are the
days when talented employees would endure hiring delays
and a mind-numbing application process to get an entry-
level government job. Gone, too, are the days when
talented employees would accept slow but steady
advancement through towering government bureaucracies
in exchange for a 30-year commitment. In the midst of a
growing labor shortage, government is becoming an
employer of last resort, one that caters more to the
security-craver than the risk-taker. ¹⁹

Comptroller General Walker also emphasizes the need to
rethink our current approach to the Federal workforce in light
of changing conditions:

Changes in the demographics of the Federal workforce,
in the education and skills required of its workers,
and in basic Federal employment structures and
arrangements are all continuing to unfold. The Federal
workforce is aging; the baby boomers, with their
valuable skills and experience, are drawing nearer to
retirement; new employees joining the Federal workforce
today have different expectations from the generation
that preceded them. In response to an increasingly
competitive job market, Federal agencies will need the
tools and flexibilities to attract, hire, and retain
top-flight talent. . . . Agencies' employment
structures and working arrangements will also be
changing, and the workplace will need to accommodate a
greater mix of full-time, part-time, and temporary
workers; more contracting-out; less job security; and
the possibility of additional government downsizing and
realignments. ²⁰

Improving the basics. It will be difficult to overcome some
of the challenges the Federal Government faces in attracting
the kind of workforce it needs. The government does not do a
good job even in areas that are readily within its control. A
recent survey of new hires by the Federal Government's own
Merit Systems Protection Board (MSPB) identified basic problems
in the recruiting process. For example, respondents reported
that the time between submission of an application and being
scheduled for an interview was unreasonably long, as was the
time between being told they had a job and being able to report
for work. The respondents also complained of not receiving
timely feedback, or receiving no feedback at all, on the status
of their applications. Finally, they did not receive the
quality of service they expected from Federal hiring personnel.
Among other things, the MSPB recommended that agencies expedite
their hiring processes and improve service to applicants.
²¹

THE PRIVATE SECTOR CONTRAST

Approaches to workforce management represent a stark
contrast between the private sector and the Federal Government.
The Federal Government has devoted little attention to
workforce planning. As discussed previously, this lack of
attention was most pronounced in the recent downsizing.
Downsizing was nothing but a numbers game. Agencies simply
reduced in-house staffing without reducing or streamlining any
of their functions. By contrast, private sector firms take a
strategic approach to workforce issues. They analyze which of
their functions are important and effective, and which are not.
They concentrate on improving the important things that they
do. With regard to staffing, successful private sector
organizations give very high priority to analyzing their
workforce needs and ensuring that they are met. These firms
systematically identify the skills and characteristics that
their leaders and employees need to get the job done and make
the investments needed to hire, develop, and retain a workforce
that embodies and can sustain these competencies.
In 1999, GAO surveyed private sector firms that are
regarded as leaders in workforce or ``human capital''
management in order to identify common principles that underlay
their success. GAO identified 10 such common principles in all,
which included the following:

Treat human capital management as being
fundamental to strategic business management. Integrate human
capital considerations when identifying the mission, strategic
goals, and core values of the organization as well as when
designing and implementing operational policies and practices.

Hire, develop, and sustain leaders according to
leadership characteristics identified as essential to achieving
specific missions and goals. Identify the leadership traits
needed to achieve high performance of mission and goals. Build
and sustain the organization's pool of leaders through
recruiting, hiring, development, retention, and succession
policies and practices targeted at producing leaders with the
identified characteristics.

Hire, develop, and retain employees according to
competencies. Identify the competencies--knowledge, skills,
abilities, and behaviors--needed to achieve high performance of
mission and goals, and build and sustain the organization's
talent pool through recruiting, hiring, development, and
retention policies and practices targeted at building and
sustaining those competencies.

Use performance management systems, including pay
and other meaningful incentives, to link performance to
results. Provide incentives and hold employees accountable for
contributing to the achievement of mission and goals. Reward
those employees who meet or exceed clearly defined and
transparent standards of high performance.

Measure the effectiveness of human capital
policies and practices. Evaluate and make fact-based decisions
on whether human capital policies and practices support high
performance of mission and goals. Identify the performance
return on human capital investments. ²²

LACK OF LEADERSHIP ON WORKFORCE PLANNING

Unfortunately, the Executive Branch has paid scant
attention to Federal workforce issues. There are some
indications that its central management agencies--OMB and OPM--
are beginning to take the Federal Government's workforce crisis
seriously. However, they are coming to these problems quite
late and, as a result, most agencies remain far behind the
curve.
For the past 3 fiscal years, OMB has included a set of so-
called ``Priority Management Objectives'' (PMOs) as part of the
Government-wide Performance Plan under the Government
Performance and Results Act (``Results Act''). The PMOs are
designed to capture the Federal Government's ``biggest
management challenges.'' Although the PMOs for FY 1999 and 2000
made no mention of Federal workforce problems, the FY 2001
version includes a PMO entitled, ``Align Federal human
resources to support agency goals.'' ²³ It states
that OPM will:

design a ``prototype workforce planning model''
to help agencies strategically assess their human resources
needs;

``work with'' agencies on labor-management
initiatives to ``empower'' managers and employees to improve
customer service and get mission results;

encourage agencies to make better use of existing
personnel flexibilities and submit any necessary legislative
proposals.

In addition, OMB's guidance for agency Annual Performance
Plans under the Results Act for FY 2001 specifically addresses
workforce issues for the first time. It states:

The annual plan should include a performance goal(s)
covering major human resources strategies, such as
recruitment, retention, skill development and training,
and appraisals linked to program performance, that help
support the agency's programs. ²⁴

This new emphasis on workforce problems is encouraging.
However, given the lack of emphasis in the past, most agencies
have yet to address these problems. GAO has found that
strategic workforce management was ``notably absent'' from
agency Annual Performance Plans submitted under the Results
Act. ²⁵ Thus, there is much ground to make up.
The lack of foresight and leadership on the part of the
Administration is particularly striking. Indeed, one
publication recently editorialized on OPM's late entry into
Federal workforce problems:

The Office of Personnel Management has watched for
years as the effects of downsizing and aging on the
Federal workforce have reached crisis proportions. Now
it comes out with a strategic plan to help agencies
improve retention, hiring, training and other human-
resource issues. In short, the OPM plan is too late . .
. OPM should be leading the effort to address nagging
human-resource issues well before the crisis stage.
Unfortunately, it took until this year for the
Administration to acknowledge that human resources is a
government-wide management priority . . . What would
have been far more useful for the next Administration
and Congress when they take office in January is not a
list of ideas to solve problems, but a list of problems
that have been solved. ²⁶

Based on reviews of OPM's past Results Act plans and
reports, GAO found that OPM has made little progress toward the
following key outcomes:

The Federal Government has an appropriately
constituted workforce with the proper skills to carry out its
missions.

Federal employees are evaluated, rewarded, and
otherwise held accountable for their performance. ²⁷

According to the GAO report, ``OPM officials said that
fundamental changes to the performance management framework
were not deemed necessary.'' ²⁸ OPM has displayed
resistance to change in the status quo. Its reaction to
legislative reforms the Comptroller General proposed for GAO's
own workforce is a case in point. GAO faces essentially the
same workforce challenges as most other agencies. To its
credit, GAO is actively attempting to resolve them. However, in
a letter to Congress, OPM Director Lachance stated that the
personnel reforms GAO sought, which the Comptroller General
deemed essential to restructuring his workforce, ``would be
inconsistent with the Administration's policies for the
Executive Branch.'' She added, ``If Congress chooses to allow
these changes for GAO, it must be clear in the legislative
history that it has done so without precedence for the
Executive Branch.'' ²⁹

WHAT NEEDS TO BE DONE?

The incoming Administration will have to give much higher
priority to addressing the Federal Government's workforce
crisis if it is to effectively execute its agenda and provide
our citizens the essential services they need. The new
Administration should start by charging OPM and OMB with
developing new approaches that fit contemporary workforce
trends as well as the needs of the Federal Government of the
21st Century.
This will require both long-term and short-term strategies.
Over the long term, there is a clear need to reconsider what
the Federal Government should do and how best to do it. As past
problems with downsizing demonstrate, it makes no sense to
restructure the Federal workforce without restructuring what
the workforce needs to do. Only after current Federal
operations and structures themselves have been redesigned and
rationalized can the government's workforce be redesigned in a
meaningful way. This is the difference between random
``downsizing'' and strategic ``rightsizing.'' At the same time,
the Federal Government needs to develop near-term approaches
that can at least ameliorate the current crisis in Federal
workforce management. The following recommendations cover some
actions that need to be started immediately.
Greater leadership on critical workforce problems. OMB and
OPM have acknowledged the seriousness of the Federal
Government's workforce problems. Now, the White House, OMB, and
OPM, need to demonstrate strong executive leadership by putting
forward specific proposals to address these problems. For
example, OMB should develop more results-oriented goals to
address workforce problems in the Government-wide Performance
Plan. It also needs to include specific performance targets and
measures to accompany those goals. For its part, OPM needs to
be more open-minded and objective when it comes to changes in
current personnel requirements. There is overwhelming sentiment
that Federal personnel systems are fundamentally broken. They
clearly don't enable agencies to align their workforces with
their missions and to hold employees accountable for their
performance. Yet, as illustrated by its reaction to GAO's
proposals, OPM seems to be reflexively hostile to even modest
reforms.
Workforce planning. As discussed previously, many agencies
face serious staff deficits and imbalances in terms of having
the workforce they need to perform their current missions
efficiently and effectively. An initial means of addressing
this problem is for agencies to undertake comprehensive
workforce planning. Specifically, agencies should: (1)
determine their workforce needs (number of employees, skill,
experience levels, etc.) in relation to their current
functions; (2) assess how their existing workforce compares to
their needs; and (3) develop strategies to bridge the gaps
between the workforce they have and the workforce they need.
These strategies should encompass hiring, training,
reorganizing, and ``rightsizing'' as appropriate. OPM is in the
early stages of developing an automated program that will
assist agencies in some aspects of evaluating their workforces.
However, OPM will have to do much more to produce a useful and
comprehensive workforce planning model that agencies need.
Performance goals to address workforce problems. In
accordance with OMB guidance, agencies should establish Results
Act performance goals and measures to address their most
serious workforce challenges and to ensure accountability.
Comprehensive performance goals and strategies probably need to
await completion of the workforce planning referred to above.
However, agencies can start with those areas that lend
themselves to immediate action such as improving their
recruitment practices and linking employee performance
appraisals to performance results. (See below.)
Personnel flexibilities. OPM must ensure that agencies are
aware of, and fully understand how to use, those personnel
flexibilities that are now available to them by law and current
regulations. Given the complex and arcane nature of personnel
requirements, it is clear that many agencies lack this
understanding now. As stated above, OPM also needs to
objectively consider and assist in developing changes to
current personnel laws, rules, and practices to enable agencies
to effectively develop, align, and manage their workforces so
as to accomplish their mission results. The question is not
whether fundamental changes are needed, but what they should
be. Any increase in flexibility must be linked to
accountability, as well as adherence to the merit system
principles.
Linking performance to results. Accountability for
performance results will become a reality for Federal employees
when it is directly linked to their individual performance
assessments and rewards. Some agencies have already started
doing this for senior managers. OPM recently issued regulations
requiring such a linkage for Senior Executive Service staff.
Obviously, it is more difficult to link agency performance
results to the individual performance of non-managerial
employees. However, much can be done to enhance performance
accountability on the part of all employees.
Improving recruiting practices. The Federal Government
faces many serious recruitment and retention challenges, some
of which it has limited ability to influence. However, as
recent reports and a host of anecdotes indicate, the government
brings some recruitment problems on itself that are entirely
within its control and easily remedied. For example, the MSPB
report suggests that the government could improve its
recruiting chances significantly by reducing inordinate delays
in hiring decisions and simply treating applicants with common
courtesy.

------ --
----

The foregoing recommendations are by no means exhaustive.
Now that the Federal Government's workforce problems are
finally getting attention, more solutions are sure to emerge.
However, the above recommendations are intended to initiate
discussion by all interested parties in improving the way the
government works.

ENDNOTES

1. Paul C. Light, The New Public Service (The Brookings
Institution, 1999).
2. Id. p. 2.
3. Id.
4. Another recent book by Paul C. Light, The True Size of
Government (The Brookings Institution, 1999), puts the results
of downsizing into perspective. He points out that most of the
Federal employee reductions were defense-related and were
attributable primarily to the end of the Cold War. He also
notes that a substantial but unknown number of former Federal
jobs migrated to a ``shadow'' Federal workforce made up of
contractors, other private sector employees, and State and
local government employees who are engaged, directly or
indirectly, in carrying out Federal mandates.
5. Human Capital: Managing Human Capital in the 21st
Century, GAO/T-GGD-00-77 (March 9, 2000), p. 5.
6. Id. pp. 4-5.
7. Paul C. Light, The New Public Service, note 1, p. 8.
8. Id. p. 10.
9. Congressional Budget Office, Budget Options (March
2000), p. 279.
10. Id. p. 1.
11. Id. p. 5.
12. These agencies are: EPA, GSA, HUD, Justice, NASA, NSF,
OPM, SSA, and USAID.
13. See Major Management Challenges and Program Risks:
Department of Housing and Urban Development, GAO/OCG-99-8
(January 1999), pp. 7-8.
14. See Statement of Susan Gaffney before the Subcommittee
on Housing and Transportation of the Senate Banking Committee
on Management and Performance Issues Facing HUD (September 26,
2000), p. 3.
15. Letter dated December 7, 1999, to Chairman Thompson
from SSA IG James G. Huse, p. 8.
16. Surge in Ideas, Turnover Swamps Patent Office, USA
Today (September 11, 2000). The head of the Patent Office
dismissed these concerns, stating: ``We're not overwhelmed . .
. We're doing a great job.'' However, the agency's Performance
Report confirms that there is a problem. The agency fell short
of its goal for cycle time of inventions processed, and stated
that achieving the goal in the future ``remains a challenge.''
The agency pointed to the need for hiring to meet increased
workloads. Annual Program Performance Report of the Department
of Commerce, FY 1999, pp. 99-100.
17. Space Shuttle: Human Capital and Safety Upgrade
Challenges Require Continued Attention, GAO/NSIAD/GGD-00-186
(August 2000).
18. Paul C. Light, The New Public Service, note 1, p. 2.
19. Id. p. 1.
20. Human Capital: Managing Human Capital in the 21st
Century, note 4, p. 2.
21. U.S. Merit Systems Protection Board, Competing for
Federal Jobs: Job Search Experiences of New Hires (February
2000), pp. vii-viii. The full report can be found at
www.mspb.gov/studies/studies.html.
22. Human Capital: A Self-Assessment Checklist for Agency
Leaders, GAO/OCG-00-14G (September 2000), pp. 29-31.
23. See Budget of the U.S. Government for Fiscal Year 2001,
p. 298.
24. OMB Circular No. A-11, Part 2, Sec. 220.9(d) (2000).
25. Id. p. 11.
26. OPM Plan: Too Little, Too Late, Federal Times (October
30, 2000), p. 16.
27. Observations on the Office of Personnel Management's
Fiscal Year 1999 Performance Report and Fiscal Year 2001
Performance Plan, GAO/GGD-00-156 (June 2000), pp. 3-4.
28. Id., p. 4.
29. Letters dated June 21, 2000, from OPM Director Janice
R. Lachance to Representatives Steny Hoyer and Henry Waxman.
MANAGEMENT CHALLENGES FACING THE NEW ADMINISTRATION

PART 3: RESULTS-ORIENTED GOVERNANCE

----------

OVERVIEW AND SUMMARY

The General Accounting Office (GAO) ``high-risk''
list of Federal programs and activities most vulnerable to
fraud, waste, and abuse has grown steadily from 14 problem
areas in 1990 to 26 problem areas today. Only one problem area
has been dropped from the high-risk list since 1995.

Each year agency Inspectors General (IGs) list
much the same problems as the ``top 10'' most serious
challenges facing their agencies.

Based on reviews of GAO and IG reports, the
Governmental Affairs Committee documented hundreds of billions
of dollars in Federal overpayments and other forms of waste and
error.

Duplication and fragmentation abound within the
Federal Government. Multiple programs administered by multiple
agencies pursue the same objectives. These so-called
``crosscutting programs'' include 50 homeless assistance
programs administered by eight agencies, 90 early childhood
programs administered by 11 agencies, 160 job training programs
administered by 15 agencies, and 342 economic development
programs administered by at least 12 agencies.

Policy-makers lack results-oriented performance
measures and reliable performance data needed to determine what
agencies and programs are accomplishing. Therefore, they can't
make informed judgments about what's working and what's not;
nor can they make meaningful comparisons among crosscutting
programs.

Results-oriented, performance-based management--a way of
life for private sector businesses and many State and local
governments--is virtually absent from Washington. Federal
agencies and programs accumulate over time, are regularly
funded, and are in effect perpetuated with little scrutiny of
their performance. The attention they get tends to focus on
their activities--amounts of money dispensed, numbers of
regulations issued--rather than what results these activities
achieve.
The Government Performance and Results Act of 1993
(``Results Act'') was designed to change the way Washington
does business and restore public trust by instilling results-
oriented governance at the Federal level. Unfortunately, 7
years after its enactment the Results Act has yet to get
results. Many dedicated Federal employees have worked hard to
make the Act work. However, neither the Administration nor most
agency heads have demonstrated interest or leadership in moving
toward results-oriented governance. The Office of Management
and Budget (OMB) has done little to support this effort.
Likewise, Congress has shown little inclination to factor
performance results into its decisionmaking.
A majority of agencies have yet to establish results-
oriented performance goals, and almost all agencies struggle to
produce reliable performance data. To some extent, this is
understandable since measuring Federal performance results is
often quite challenging. However, many agencies have failed to
use the Results Act effectively to track and improve their
performance even for results that are largely within their
control and more readily measured.
We have reached a critical juncture in terms of
implementing the Results Act and, more fundamentally, moving
Washington toward results-oriented governance. Unless
performance information is improved and actually used in
Federal policy-making, Results Act plans and reports will
degenerate into paperwork exercises and the Act will atrophy.
If this happens, it is likely that Washington will continue to
do business as usual with partisan ideology, special interests,
and arguments over motivation framing the terms of policy
debate. The fate of these initiatives rests squarely with the
next Administration and Congress. The key is what the new
President does. Congress can play a significant role in
encouraging or discouraging results-oriented, performance-based
government. However, only the President and his Administration
can supply the unified leadership, overall perspective, and
consistent focus to turn these concepts into reality. In
particular, the new President needs to lead by example,
embracing results-oriented governance by word and deed. If the
President does this, OMB and the agencies are sure to follow
suit. In all likelihood, Congress also will show much greater
interest.
There are several key actions that the incoming President
and his team can take to move results-oriented governance to
the next level.
Use the Results Act to implement Presidential priorities.
The Results Act offers the new President a powerful tool to
help him articulate and achieve his policy agenda.
Specifically, the President, through OMB, should start by
developing concrete, results-oriented, and measurable
performance goals that would define success in achieving a few
of his priority policy objectives. These commitments should, in
turn, be incorporated directly into performance goals for the
annual Government-wide Performance Plan and for the Results Act
plans of the responsible agencies. Annual Performance Reports
would track progress toward achieving these goals. This
approach would greatly enhance accountability and transparency
in the implementation of key Presidential initiatives. It would
also send a clear signal throughout Washington that the new
President is intent on moving toward results-oriented
governance.
Use the Results Act to establish key expectations for
agencies. A similar approach should be used to set performance
goals defining the most important results that agencies are
expected to achieve. Agency heads should be held personally
accountable for achieving these goals, and the goals should be
incorporated into the performance agreements of their program
managers.
Establish performance goals to resolve mission-critical
management problems. Working in consultation with the IG, GAO,
and OMB, each agency should: (1) systematically identify its
mission-critical management problems; (2) establish specific
performance goals to resolve them; and (3) if a particular
problem does not lend itself to a specific performance goal,
establish an alternative means of ensuring accountability for
its resolution.
Establish consistent performance goals for crosscutting
programs. In the near term, this will encourage better
coordination and management of crosscutting programs. In the
longer term, it will provide the information needed to
rationalize these programs by making informed choices among
them based on their performance results. OMB must play a
leadership role in these efforts.
Enhance the credibility and usefulness of performance data.
Agencies face daunting challenges in obtaining the data needed
to measure their performance results. However, these challenges
must be resolved if results-oriented governance is to become a
reality. Some agencies, such as the Department of Education,
are attempting to deal with their performance data challenges
in ways that could serve as models for other agencies. OMB can
and should help agencies develop strategies for resolving
common data and performance management challenges. Agency IGs
and GAO should also be a valuable source of assistance to
agencies.
Make sure that the doable gets done. While agencies must
continue to work on the more challenging aspects of defining
and measuring their performance results, this should not divert
them from resolving less daunting challenges. Agencies can and
must do a better job of tracking results in those areas that
most readily lend themselves to performance measurement and
accountability.
Use performance information in decisionmaking. Even if
Results Act products are improved to be more useful tools,
these reports must actually be used to shift the terms of
debate in Washington from intentions to results. The
Administration and Congress must work together to
systematically integrate performance information into funding
and other programmatic decisions. Reliable performance data
should be brought to bear on all aspects of Federal policy
development and execution, including authorization, budgeting
and appropriations, and oversight. Both the President and
Congress can take specific steps to encourage the integration
of performance data into decisionmaking.
For his part, the President, acting through OMB, should:

Insist that performance data be incorporated into
annual budget requests and that the annual budget demonstrate,
in a clear and transparent way, how performance results were
factored into budget decisions.

Require that all legislative proposals for new
programs and program reauthorizations that the Executive Branch
submits to Congress: (1) include specific results-oriented
performance goals and measures; (2) include, for
reauthorizations, information on past performance results; (3)
be subject to sunset; and (4) be accompanied by an explanation
of how these proposals relate to, and add value to, any
existing programs having similar objectives.

Require that major rules incorporate specific
results-oriented performance goals and measures, as well as
sunset provisions, as a means of holding them accountable for
performance results.

For its part, the Congress and its committees should:

Conduct regular and systematic oversight of
program performance. Enactment of biennial budgeting would
greatly facilitate enhanced oversight efforts.

Scrutinize performance results in authorization,
appropriations, and oversight hearings.

Clearly and explicitly indicate how performance
results are reflected in authorization and funding decisions.

Adopt Senate and House rules precluding
consideration of program authorization and reauthorization
legislation involving substantial resources unless that
legislation: (1) includes specific results-oriented performance
goals and measures; (2) includes, for reauthorizations,
information on past performance results; (3) is subject to
sunset; and (4) is accompanied by an explanation of how the
programs proposals relate to, and add value to, any existing
programs having similar objectives.

Consistently enforce existing Senate and House
rules against funding unauthorized programs.

Disapprove under the Congressional Review Act
major rules submitted to Congress that do not include results-
oriented performance goals and measures and sunset provisions.

Use performance information to improve service to the
public. Agencies should be required to systematically conduct
objective and meaningful customer surveys and to use the
results to adopt tangible performance goals to improve customer
service. OMB and Congress should oversee this process.
Revive and strengthen the Reorganization Act. There may
well be a need for a long-term comprehensive review of current
Federal agencies in order to identify ways to reduce
duplication and overlap, eliminate unneeded programs and
functions, and perform needed functions more efficiently and
effectively. A more immediate way to at least partially address
duplication and overlap is to reinstate the Reorganization Act.
This Act authorized the President to submit reorganization
plans to Congress that proposed to transfer, consolidate, and
within certain limits abolish, agency functions.

THE NEED TO IMPROVE FEDERAL PERFORMANCE

Low public trust in government. Public opinion polls
consistently show that Americans lack confidence in the Federal
Government. They tend to regard Washington as ineffective,
wasteful, and unresponsive. According to one survey, 84 percent
of Americans believe the Federal Government wastes at least 5
cents of every dollar it spends; 26 percent believe at least 25
cents of every dollar is wasted; and 19 percent believe half of
the government's expenditures are wasted. ¹ Another
survey asked what terms best described their perceptions of the
Federal Government. Only 6 percent of the respondents chose
``efficient'' and only 5 percent chose ``responsive to the will
of the people.'' ²
A recent survey performed for the Federal Government
itself, which was spearheaded by Vice President Gore's National
Performance Review (NPR), found similar results. According to
this survey, ``customer satisfaction'' levels for Federal
agencies were, in the aggregate, only slightly below those of
private sector service organizations. However, quality and
performance expectations for Federal agencies were much lower
than for the private sector organizations. ³
The public's attitude toward the Federal Government seems
to be more one of frustration than anger. Americans want the
Federal Government to work, but do not believe that it does.
Low public confidence in the Federal Government contrasts with
the generally positive view most people have of their own well
being and the strong state of the economy. Evidently, the
public does not credit the Federal Government for the good
things that are happening to them.
Persistent major management problems undermine Federal
performance. Unfortunately, there is ample evidence to support
the public's lack of confidence in the performance of the
Federal Government. The GAO and agency IGs continually report
on hundreds of major management and performance problems that
plague most Federal agencies and persist year after year. One
leading barometer of the Federal Government's performance
problems is GAO's ``high-risk list,'' which tracks those
Federal programs and activities that are most vulnerable to
fraud, waste, and mismanagement. GAO began its high-risk list
in 1990 with 14 problem areas. The list has expanded with every
subsequent update. The current high-risk list, issued in 1999,
consists of 26 problem areas. ⁴ The list keeps
expanding because while new areas are regularly added, few
qualify for removal. Only one high-risk area has been removed
since 1995. Ten of the 14 original high-risk areas from 1990
are still on the list today. The following table shows the
current high-risk areas and the year each was placed on the
list:

------------------------------------------------------------------------
Year
HIGH-RISK PROGRAM OR ACTIVITY designated
------------------------------------------------------------------------
Providing Basic Financial Accountability
1. DOD Financial Management................................ 1995
2. Forest Service Financial Management..................... 1999
3. FAA Financial Management................................ 1999
4. IRS Financial Management................................ 1995
5. IRS Receivables......................................... 1990

Ensuring Major Technology Investments Improve Services
1. Air Traffic Control Modernization....................... 1995
2. Tax Systems Modernization............................... 1995
3. National Weather Service Modernization.................. 1995
4. DOD Systems Development and Modernization Efforts....... 1995

Resolving Serious Information Security Weaknesses.......... 1997

Addressing Urgent Year 2000 Computing Challenge............ 1997

Managing Large Procurement Operations More Efficiently
1. DOD Inventory Management............................ 1990
2. DOD Weapon Systems Acquisition...................... 1990
3. DOD Contract Management............................. 1992
4. Department of Energy Contract Management............ 1990
5. Superfund Contract Management....................... 1990
6. NASA Contract Management............................ 1990

Reducing Inordinate Program Management Risks
1. Medicare............................................ 1990
2. Supplemental Security Income........................ 1997
3. IRS Tax Filing Fraud................................ 1995
4. DOD Infrastructure Management....................... 1997
5. HUD Programs........................................ 1994
6. Student Financial Aid Programs...................... 1990
7. Farm Loan Programs.................................. 1990
8. Asset Forfeiture Programs........................... 1990
9. The 2000 Census..................................... 1997

------------------------------------------------------------------------
Source: GAO.

In its most recent report on the GAO the current 26 high-
risk problem areas, GAO noted the following:

Collectively, these areas affect almost all of the
government's annual $1.7 trillion in revenue and span
critical government programs and operations from
certain benefit programs to large lending operations,
major military and civilian agency contracting, and
defense infrastructure. Lasting solutions to high-risk
problems offer the potential to save billions of
dollars, dramatically improve services to the American
public, and strengthen confidence in the accountability
and performance of our national government.
⁵

When asked why so little progress has been made in
resolving high-risk problems, the Comptroller General
responded:

In part, it is a matter of changing organizational
cultures and priorities and ensuring accountability for
results. Such accountability must reside with top
agency leadership and should be reinforced by the
Office of Management and Budget (OMB) and Congressional
oversight. . . . The sustained attention and commitment
of top leadership is key to ensuring that good plans
are put in place to get at these high-risk problems and
that tenacious follow-through on the difficult task of
implementing actions in a detailed, comprehensive
manner is completed. . . . These problems can be turned
around but it will require a different level of
commitment than has been exhibited in the past.
⁶

A similar pattern of serious and persistent management
problems emerges from the work of agency IGs. For each of the
past 3 years, the IGs of the 24 major Federal agencies have
reported to Congress on the ``top 10'' most serious performance
problems facing their agencies. Like the GAO high-risk areas,
the top 10 problems identified by the IGs remain much the same
from year to year. ⁷
Duplication and fragmentation in Federal program
activities. Federal agencies and programs have mushroomed over
time, evolving in a largely random manner in response to the
real or perceived needs of the moment. Consequently,
duplication and fragmentation abound. Literally hundreds of
different so-called ``crosscutting'' programs and activities
are directed at the same problems. There is an obvious need to
bring some order out of this chaos. As former Comptroller
General Charles Bowsher stated in testimony before the Senate
Governmental Affairs Committee:

The case for reorganizing the Federal Government is an
easy one to make. Many departments and agencies were
created in a different time and in response to problems
very different from today's. Many have accumulated
responsibilities beyond their original purposes. As new
challenges arose or new needs were identified, new
programs and responsibilities were added to departments
and agencies with insufficient regard to their effects
on the overall delivery of services to the public.
⁸

The current Comptroller General, David Walker, also
stressed problems of duplication and fragmentation in testimony
before the Senate Budget Committee:

[O]ur work has repeatedly shown that mission
fragmentation and program overlap are widespread and
that crosscutting Federal program efforts are not well
coordinated. In program area after program area, we
have found that unfocused and uncoordinated
crosscutting programs waste scarce resources, confuse
and frustrate taxpayers and program beneficiaries, and
limit overall program effectiveness. ⁹

Frequently cited examples of duplication and fragmentation
include: 50 programs to aid the homeless administered by eight
agencies; over 35 different food safety laws administered by 13
agencies; 160 employment and training programs administered by
15 agencies; 342 economic development programs administered by
at least 12 agencies; 90 early childhood development programs
administered by 11 agencies; 59 programs for preventing
substance abuse; and over 40 agencies engaged in anti-terrorism
activities.
Presumably, no one would contend that all of these
crosscutting programs and activities are necessary or that they
are equally effective. However, crosscutting programs rarely
have consistent, results-oriented performance goals that permit
meaningful comparisons. Indeed, they rarely have results-
oriented goals and sufficiently reliable performance data to
assess their individual contributions. Thus, Washington
decisionmakers lack the ability to make informed judgments
about which programs are working and which are not, or to
compare their relative effectiveness.
Furthermore, crosscutting programs operate quite
differently, under diverse and even inconsistent eligibility
criteria. Ironically, the multiplicity of crosscutting programs
aimed at the same beneficiaries, each with its own unique
processes and requirements, often work against those
beneficiaries and cause them to fall through the cracks. For
example, GAO noted:

There are over 90 early childhood programs in 11
Federal agencies and 20 offices. The ``system'' of
multiple early childhood programs with firm cutoffs
could lead to disruptions in services from even slight
changes in a child's family status. While multiple
programs target disadvantaged preschool-aged children,
most such children do not participate in any preschool
program.¹⁰

Inadequate attention to performance in authorization and
funding decisions. In theory, Congress must enact legislation
authorizing or reauthorizing Federal programs before money can
be appropriated for them. The Congressional Budget Office (CBO)
recently reported, however, that Congress enacted about $121
billion in fiscal year (FY) 2000 spending for programs with
expired authorizations. ¹¹ The CBO report doesn't
include funding for programs that have never been authorized.
Although appropriating funds for unauthorized programs violates
both House and Senate rules, these rules are routinely
``waived.'' The appropriations process does not provide
systematic oversight and review of program performance and is
not a substitute for regular program reauthorizations.
Appropriators typically focus on the margins of funding
requests, i.e., whether funding should be increased or
decreased from the prior year's level. Rarely do they consider
whether a program's performance justifies its continued funding
at all.
The need to assess regulatory performance results.
Regulation is another area of Federal activity that needs more
scrutiny of performance results. Much current Federal policy is
prescribed by administrative regulations, through which
agencies exercise the sweeping discretion that Congress
delegates to them. As the Governmental Affairs Committee
observed:

By any measure, Federal agencies are engaged in an
enormous volume of regulatory activity. In a 1997
report to Congress, OMB reported that there are over
130,000 pages of Federal regulations, ``with about 60
Federal agencies issuing regulations at a rate of about
4,000 per year. . . . Federal regulations now affect
virtually all individuals, businesses, State, local and
tribal governments, and other organizations in
virtually every aspect of their lives or operations.''
¹²

Federal rules impose huge economic costs and burdens on our
society. It is essential to ensure that they produce positive
results that are commensurate with their costs. In 1996,
Congress enacted the Congressional Review Act. ¹³
This Act established a process for Congressional review and
potential disapproval of agency regulations, particularly
``major rules'' having an annual economic impact of $100
million or more. Just this year, Congress also enacted the
Truth in Regulating Act. ¹⁴ This Act provides for
analyses by GAO of the potential costs and benefits of major
rules. However, agencies do not routinely specify in measurable
terms the results that their rules are intended to achieve. In
the absence of concrete performance goals, it is difficult to
weigh the costs and potential benefits of rules, assess their
results, and hold them accountable.

THE PROMISE OF THE RESULTS ACT

With little fanfare but strong bipartisan support, Congress
passed and President Clinton signed the Government Performance
and Results Act of 1993, popularly known as the ``Results
Act.'' ¹⁵ As its name indicates, the fundamental
purpose of the Act was to refocus performance measurement and
accountability from the activities of the Federal Government to
the results these activities achieve. Thus, the Governmental
Affairs Committee report on the legislation (S. 20) enacted as
the Results Act stated:

At present, Congressional policymaking, spending
decisions, and oversight are all seriously handicapped
by the lack both of sufficiently precise programs goals
and of adequate program performance information.
Federal managers, too, are greatly disadvantaged in
their own efforts to improve program efficiency and
effectiveness by the same lack of clear goals and
information on results. The goal-setting, performance
measurement, and results reporting requirements of S.
20 are intended to address these needs of Congress and
of Federal program managers.

This reform has the potential to mark a significant
change in the way that managers, policymakers, and the
American people think about what services the
government should provide, and how well it does at
providing them. The legislation will provide the
information necessary to strengthen program management,
to make objective evaluations of program performance,
and to set realistic, measurable goals for future
performance. ¹⁶

The Results Act requires Federal agencies to prepare: (1)
5-year Strategic Plans that set forth the mission results they
seek to achieve and strategic goals to achieve them; (2) Annual
Performance Plans that set performance goals for each fiscal
year; and (3) Annual Performance Reports that describe how the
agency did in achieving its performance goals for the
applicable fiscal year. The Act also requires OMB to prepare
and submit as part of the President's budget an annual
Government-wide Performance Plan.
Judging Federal agencies and programs by the results they
achieve may seem to be nothing more than common sense, but this
concept was revolutionary for Washington. As embodied in the
Results Act, it was intended to produce fundamental
improvements in Federal performance and thereby restore public
trust in the Federal Government. Among the stated purposes of
the Results Act were to:

improve public confidence in the Federal
Government by systematically holding Federal agencies
accountable for achieving program results;

improve Federal program effectiveness and public
accountability by promoting a new focus on results, service
quality, and customer satisfaction; and

improve Federal decisionmaking by providing more
objective information on program performance results and the
relative efficiency and effectiveness of Federal programs and
spending. ¹⁷

LACK OF RESULTS FROM THE RESULTS ACT SO FAR

Recognizing the challenges that the Results Act posed,
Congress delayed full-scale implementation of the Act for
several years in order to allow agencies to gear up to meet its
requirements. The first full cycle of Results Act
implementation was completed in March of 2000 when agencies
submitted their first round of Annual Performance Reports
covering FY 1999. Thus far, the results of Results Act
implementation have been disappointing. Some agencies have done
a good job of establishing meaningful, results-oriented
performance goals and reporting candidly on their performance
against these goals. However, most agencies are struggling to
define and report on their performance in a meaningful,
results-oriented way.
What are agencies accomplishing? The Governmental Affairs
Committee identified several key results for each major Federal
agency and asked GAO to determine whether the agencies' FY 1999
Performance Reports demonstrated progress toward achieving
these results. ¹⁸ The Committee identified a total
of 97 key results for the 24 major agencies. The Performance
Reports demonstrated definite progress toward achieving only 13
of these results, and some progress toward achieving another
26. The Performance Reports demonstrated a clear lack of
progress toward four others. Most disturbing, the Performance
Reports did not provide a sufficient basis to assess
performance for the remaining 54 key results--over half in all.
¹⁹ The following chart lists some of the key results
for which the Performance Reports failed to provide useful
information on agency performance.

------------------------------------------------------------------------
GOALS WITH NO USEFUL PERFORMANCE INFORMATION
-------------------------------------------------------------------------
The Nation has an adequate and reasonably priced food supply
(Agriculture).

Combat readiness is maintained at the desired level
(Defense).

Energy systems are secure, competitive, and serve the needs
of the public (Energy).

The public has prompt access to safe and effective medical
drugs and devices
(Health and Human Services).

U.S. borders are secure from illegal immigration (Justice).

Reduced international crime and terrorism (State).

Tax laws are administered effectively and fairly (Treasury).

Small businesses become self-reliant and successful in the
competitive marketplace
(Small Business Administration).
------------------------------------------------------------------------

In most cases where progress could not be assessed, the
agency either had no relevant performance measures or the
measures it did have were inadequate. For example, reducing the
availability and/or use of illegal drugs was a key outcome for
seven different agencies. None of these agencies had a specific
FY 1999 performance target tied directly to actually reducing
the availability or use of illegal drugs.
The other recurring problem was that performance data were
unavailable at the time the Performance Reports were issued.
The Departments of Education and Health and Human Services
lacked FY 1999 performance data for a number of their key
results at the time their Performance Reports were submitted.
They attributed these problems to reliance on States and other
third parties for much of their performance information. The
Social Security Administration (SSA) also lacked FY 1999 data
for several important measures, for reasons that were unclear.
Lack of performance goals to resolve major management
challenges. The Results Act provides an excellent venue for
agencies to make firm commitments to resolve their major
management problems. These problems are, in themselves, major
impediments to successful achievement of agency goals. With
that in mind, Chairman Thompson wrote to the heads of the 24
agencies in August 1999 urging them to establish specific and
measurable goals to resolve major management problems in their
Annual Performance Plans. The Chairman's letter noted that
OMB's guidance on Results Act implementation specifically
called for this by stating:

Performance goals for management problems should be
included in the annual plan, particularly for problems
whose resolution is mission-critical, or which could
potentially impede achievement of program goals . .
.²⁰

In reviewing FY 2000 Performance Plans last year, GAO found
that agencies had established specific performance goals and
measures for only about 40 percent of the over 300 major
problems that had been identified by GAO and agency IGs.
²¹ Unfortunately, there was no improvement this
year. The agency FY 2001 Performance Plans again established
specific performance goals for only about 40 percent of their
major management problems. Chairman Thompson has issued a more
detailed report on agencies' use of the Results Act to address
major management challenges. ²²
GAO and IG reviews of the FY 1999 Performance Reports offer
little evidence that major management problems are being
remedied. With the notable exception of the Y2K problem, which
all agencies successfully resolved, most of the major
management problems that existed in August 1999 remain today.
For example, Chairman Thompson asked GAO to look specifically
at nine Federal program activities that have long experienced
high levels of fraud, waste, and error. Only three of these
areas were addressed to any degree of specificity in agency
Performance Reports--fraud and error in food stamps, Medicare,
and Supplemental Security Income payments. The following chart
shows six problem areas that had no performance goals or
measures whatsoever.

------------------------------------------------------------------------
PROBLEM AREAS LACKING ANY PERFORMANCE GOALS OR MEASURES
-------------------------------------------------------------------------
Contractor overpayments (Defense).

Student assistance fraud and error (Education).

Medicaid fraud, waste, and error (Health and Human Services).

Fraud, waste, and error in Department of Housing and Urban
Development programs.

Earned Income Tax Credit fraud and error (Treasury).

Fraud and error in the Federal Employee Health Benefits
Program (OPM).
------------------------------------------------------------------------

Not all major management challenges identified by GAO or an
agency IG lend themselves to specific and measurable
performance goals under the Results Act. Nevertheless, few
agencies have made the case that the major management problems
for which they have not established such performance goals
would not benefit by them. Nor, it appears, have they adopted
alternative means of dealing with the problems as suggested in
Chairman Thompson's August 1999 letters.
Little progress in rationalizing duplication and overlap.
The Results Act also provides a valuable tool to address the
problems of overlap and fragmentation described previously. In
the near term, developing consistent performance goals for
crosscutting programs can improve coordination and encourage
agencies to administer them as compatibly as possible. In the
longer term, consistent performance goals can help
decisionmakers assess relative performance and make choices
among crosscutting programs. As GAO observed:

[T]he Results Act should offer a new and structured
framework to address crosscutting issues. . . . [I]f
the Results Act is successfully implemented,
performance information should become available to
clarify the consequences of fragmentation and the
implications of alternative policy and service delivery
options, which, in turn, can affect future decisions
concerning department and agency missions and the
allocation of resources among those missions.
²³

Thus far, agencies have made little progress in using the
Results Act to improve the coordination and consistency of
crosscutting programs. They got off to a slow start when OMB
initially took the position that the Results Act was not
appropriate for these purposes. In response to Congressional
pressure, OMB changed its position. Its current guidance states
in part:

An agency should also review the fiscal year 2001
performance plans of other agencies participating with
it in a cross-cutting program or activity. This review
should focus on assuring that related performance goals
and indicators for a crosscutting program are
consistent and harmonious. As appropriate, agencies
should modify performance goals to bring about greater
synergy and inter-agency support in achieving mutual
goals.²⁴

With each successive round of Annual Performance Plans,
agencies have done a better job of identifying crosscutting
programs and activities and discussing what they have done, or
intend to do, to coordinate them with other agencies. However,
there has been very little progress in the most important
area--actually developing consistent performance goals and
measures for crosscutting programs and activities.

WHY THE LACK OF PROGRESS?

Overall, the most charitable way to characterize progress
in implementing the Results Act is ``mixed.'' There are
examples of significant progress toward meeting important
results, as well as equally valuable examples of forthright
disclosure of significant performance shortfalls. However,
these examples tend to be the exceptions rather than the rule.
Most of the initial Performance Reports failed to answer the
fundamental Results Act question: What is the agency
accomplishing in terms of concrete results that matter to the
American people?
Based on the Committee's review of Results Act submissions
and many other contacts with the agencies, it is obvious that
agencies vary greatly in their commitment to results-oriented
performance management and accountability. Some agencies
clearly demonstrate such a commitment and have achieved
impressive results. The Transportation Department has been a
leader from the outset. The Veterans Affairs Department and SSA
have made good progress as well. The Departments of Education
and Health and Human Services appear to be making good efforts,
although they are severely challenged in measuring many of
their key performance results.
Other agencies, such as the Departments of Energy and
Justice, offer no evidence of taking performance-based
accountability seriously. GAO said of the Energy Department's
Performance Report, ``We could not determine what the
Department was trying to accomplish or how it planned to get
there.'' ²⁵ With respect to Justice's Performance
Report, GAO stated, ``Overall, DOJ's progress in achieving
desirable program outcomes cannot be readily determined since
the agency has yet to develop performance goals and measures
that can objectively capture and describe performance
results.'' ²⁶
There appear to be several key reasons for the lack of
greater progress in implementing the Results Act and making the
transition to results-oriented governance. These reasons
include the following.
Lack of leadership commitment. Many dedicated career
employees in many agencies are working very hard to make the
Results Act succeed. They are to be commended for their
efforts. However, their leaders must develop the same
commitment these employees demonstrate if results-oriented
governance is to become a reality at the Federal level. With a
few exceptions, most notably the leaders of the Transportation
Department, this hasn't happened yet. The Administration and
OMB likewise have failed to lead in these efforts. Finally, the
Congress needs to engage much more to bring about results-
oriented decisionmaking.
Measurement and data challenges. Measuring the results of
many agencies and programs poses conceptual challenges, such as
how to gauge reliably whether some results the Federal
Government seeks are occurring and, if they are, how to
attribute causation to Federal efforts. The intended results of
Federal programs often depend on the actions of other
participants, such as State and local governments, and can be
affected by a host of economic, societal and other external
factors beyond the control of the Federal Government. For
example, U.S. Agency for International Development has a
minuscule role in affecting its stated outcomes. In addition,
many results that hinge on widespread societal changes, such as
improved academic achievement and reduced poverty, may not lend
themselves to meaningful results-oriented measurement in annual
increments. The Departments of Education and Health and Human
Services are two agencies that have particular difficulty in
developing annual performance data.
Measuring results also poses a series of practical and even
political challenges. Efforts to obtain the best performance
data often raise concerns in terms of privacy implications and
the reporting burdens they impose. Another difficulty is
attempting to develop overarching, agency-wide goals for
Federal entities that plainly lack any real cohesion. For
example, the Departments of Agriculture and Commerce are, in
effect, ``holding companies'' for organizations with divergent
and sometimes contradictory missions. Finally, given the
massive weaknesses in Federal financial and information
systems, many agencies may have difficulty processing and
analyzing performance data reliably even when the raw data are
available.
In sum, for a variety of reasons, almost all agencies face
substantial challenges in coming up with reliable data needed
to measure their performance. In reviewing agency FY 2000
Performance Plans, GAO found that only four of the 24 major
agencies could produce credible performance data. GAO expressed
less than full confidence in the credibility of performance
data even for those four agencies. GAO emphasized the
seriousness of this problem:

The continuing lack of confidence that the performance
information will be credible is . . . a source of major
concern. . . . The inattention to ensuring that
performance data will be sufficiently timely, complete,
accurate, useful, and consistent is an important
weakness in the performance plans. Ultimately,
performance plans will not be useful to Congressional
decisionmakers unless and until this key weakness is
resolved. ²⁷

Performance measurement problems in areas within Federal
control. It is not surprising that agencies like Education and
Health and Human Services are struggling to measure their
contributions toward achieving results over which they have
limited control. What is more surprising, and disappointing, is
that many agencies seem to be struggling just as much to
measure progress in areas where they have greater control over
their performance. The FY 1999 Performance Reports demonstrate
few results in areas of direct and primary Federal
responsibility such as: Fairly and effectively administering
Federal tax and immigration laws; securing the Nation's
borders; reducing the availability of illegal drugs; preventing
fraud, waste, and abuse in the use of taxpayer dollars;
resolving other major management problems; and providing timely
and accurate services to the public. There is great room for
improvement in these and many other areas, and little excuse
for the current lack of progress.

GETTING BETTER RESULTS FROM THE RESULTS ACT

We have reached a critical juncture when it comes to
implementing the Results Act and, more fundamentally, moving
Washington toward results-oriented governance. Unless
performance information is actually integrated into Federal
policy-making, Results Act plans and reports will degenerate
into paperwork exercises and the Act itself will become the
latest addition to the graveyard of failed Federal management
improvement initiatives. Worse yet, Washington will continue to
do business as usual--with partisan ideology, special
interests, and attacks on motivations framing the terms of
policy debate.
The fate of the Results Act, and with it results-oriented
governance, will be in the hands of the next Administration and
Congress. We have gained enough experience to know how to
implement the Results Act effectively. What remains to be
supplied is the political will to make it happen. The key to
progress depends greatly on what the incoming President does.
Congress can play a significant role in encouraging or
discouraging results-oriented governance. However, only the
President and his Administration can supply the unified
leadership, overall perspective, and consistent focus to
convert it into reality. In particular, the new President needs
to lead by example, embracing performance-based governance in
word and deed. The President must demonstrate that this is a
priority. If he does so, surely the agencies and OMB, and
hopefully the Congress, will get on board.
Using the Results Act to implement Presidential priorities.
The Results Act is a potentially powerful tool that can help
the new President articulate and achieve his policy agenda. By
using the Act in this way, the new President also would send a
clear signal throughout Washington that he is intent on moving
toward results-oriented governance. The President should focus
on a few of his priority policy objectives and develop
concrete, results-oriented, and measurable performance
commitments that would define success in achieving the policy
objectives. These commitments should be translated directly
into goals for the annual Government-wide Performance Plan, as
well as for the Strategic Plans and Performance Plans of the
responsible agencies. Annual Performance Reports would track
progress toward achieving these goals. This approach would
greatly enhance accountability and transparency in the
execution of key Presidential agenda items.
Using the Results Act to establish key expectations for
agencies. A similar approach could be used to define and fix
accountability for the most important results that agencies are
expected to achieve. Agencies are often criticized for
establishing too many Results Act performance goals and failing
to prioritize them. Based on the President's priorities and the
work of his transition teams, a few key outcomes could be
identified and highlighted for priority attention at each
agency. These outcomes would be translated into specific
Results Act goals for which the agency head would be held
personally responsible and by which his or her performance
would be assessed. The goals would also be made part of the
performance assessments of the agency's managers.
Making greater use of the Results Act to address mission-
critical management problems. Despite the repeated admonitions
of Congress and OMB, agencies have not taken full advantage of
the Results Act to address their mission-critical management
problems. Working in consultation with their IGs, GAO and OMB,
each major agency should: (1) systematically identify its
mission-critical management problems; (2) establish specific
Results Act performance goals to resolve them; and (3) if they
determine that a particular problem does not lend itself to a
specific Results Act performance goal, establish an alternative
means of ensuring accountability for its resolution. If
agencies fail to do so voluntarily, Congress should amend the
Results Act to mandate these steps.
Making greater use of the Results Act to address
duplication and fragmentation. Agencies have made good progress
in identifying crosscutting programs and activities in their
Results Act plans. However, they need to take the next and more
important step of establishing consistent and complementary
performance goals within and among agencies for these program
activities. This should force greater coordination and better
management in the near term, and provide a basis for making
rational choices among overlapping and fragmented Federal
agencies and programs. OMB must play a leadership role in
making this happen. OMB should also use the Government-wide
Performance Plan as a vehicle for establishing common goals for
the most significant crosscutting programs and functions.
Improving the credibility and usefulness of performance
data. It is essential that the massive data challenges faced by
most agencies be overcome if performance-based governance is to
become a reality. Some agencies, such as the Department of
Education, are making impressive strides to deal with
performance data challenges. Others must follow suit. Here
again, OMB can play an important role, particularly in helping
agencies develop strategies for resolving common data and
performance management challenges. Agency IGs and GAO should
also be a valuable source of assistance to agencies.
Doing the doable. While agencies must continue to work on
the more challenging aspects of defining and measuring
performance results, this should not distract them from giving
greater priority to resolving less daunting challenges. As
noted previously, agencies can and must do a much better job of
achieving results in those areas of Federal activity that
readily lend themselves to performance measurement and
accountability.

OTHER STEPS TOWARD PERFORMANCE-BASED GOVERNMENT

Changing the Washington culture. The point has been made
repeatedly that results-oriented, performance-based governance
requires fundamental ``culture change'' on the part of
Washington decisionmakers. Policy decisions now turn largely on
abstract and ideologically-driven arguments over whose
proposals stem from better intentions and purer motives.
Decisionmakers are loathe to stray very far from the
orthodoxies of their political ``bases'' and the interests of
their core constituencies. In this environment, there is little
room for objective, fact-based analysis of program performance.
It is unclear whether or to what degree the terms of debate
in Washington can be shifted from battles over intentions and
motivations to engagement on how best to achieve results. If
our next leaders heed the obvious desires of the American
people, they will appreciate the need for less partisanship and
more constructive, bipartisan problem solving. In the final
analysis, of course, most policy decisions are inherently
subjective and political in that they require the balancing of
competing interests. This will never change, nor should it.
However, decisions that are ultimately political can and should
be informed by objective, results-oriented, performance
analysis.
A shift toward meaningful performance-based governance
entails risks for our new leaders. It will require them to
undertake specific performance commitments and to accept
accountability for them. As discussed previously, such culture
change can occur only with the strong leadership of the new
President. At the same time, it is essential that the new
Congress be an ally in this effort. Accountability and risks
must be shared among those in the Administration and the
Congress who develop, authorize, fund, and implement Federal
policies and programs.
Use of performance information for decisionmaking. The
Executive Branch and Congress must systematically integrate
performance information into all aspects of Federal policy
development and execution, including authorization, budgeting
and appropriations, and oversight. Several specific steps would
encourage this:

The President, through OMB, should insist that
performance data be incorporated into annual budget requests
and that the annual budget demonstrate, in a clear and
transparent way, how performance results were factored into
budget decisions. The appropriations committees should likewise
clearly and explicitly indicate how program performance data
and results are reflected in their funding decisions.

The President, through OMB, should require that
all legislative proposals for new and reauthorized programs
submitted by the Executive Branch to Congress: (1) include
specific results-oriented performance goals and measures; (2)
include, for reauthorizations, information on past performance
results; (3) be subject to sunset; and (4) be accompanied by an
explanation of how these proposals relate to, and add value to,
existing programs having similar objectives.

The Senate and the House should adopt rules
precluding consideration of program authorization and
reauthorization legislation that does not include the above
features.

The Senate and House should consistently enforce
their existing rules against funding unauthorized programs.

Congress, through its authorizing and oversight
committees, should conduct regular and systematic oversight of
program performance. Enactment of legislation to move the
budget and appropriations cycle to a biennial basis would free
up much more time for enhanced Congressional oversight.

The President should require by Executive Order
that major rules incorporate specific performance goals and
measures as well as sunset provisions as a means of holding
them accountable for performance results. If the President
declines to impose such requirements administratively, Congress
should legislate them by an amendment to the Congressional
Review Act.

Use of performance information to improve service to the
public. Federal performance is particularly well suited to
tangible performance measurement and improvement in the area of
services provided to the public. This includes processing
applications for benefits and services and responding to
citizen inquiries timely, courteously, and accurately. Agencies
have embraced the notion of improving customer service, and
they have undertaken customer service surveys under the
auspices of the NPR. However, NPR permitted agencies to decide
what aspects of their performance and which customers would be
surveyed. Also, the results of the surveys were not tied
directly to agency performance assessments. Agencies should be
required to systematically conduct more objective and
meaningful customer surveys and to use the results to adopt
appropriate performance goals to improve customer service. OMB
and Congress should oversee this process in order to ensure
objectivity.
Reactivate the Reorganization Act (5 U.S.C. Sec. Sec. 901
et seq.) in order to provide a ready means of implementing
organizational and program reforms. There may well be a need
for a comprehensive review of current Federal agencies in order
to identify ways to reduce duplication and overlap, eliminate
unneeded programs and functions, and perform needed functions
more efficiently and effectively. One way to do this is through
a commission, as proposed in bills such as S. 2306, the
``Government for the 21st Century Act.'' Another approach would
be to enact an across-the-board sunset review process for
existing Federal agencies and programs.
A more immediate way to at least partially address
duplication and overlap is to reinstate the so-called
``Reorganization Act.'' This Act, which ceased to be effective
in 1984, authorized the President to submit reorganization
plans to Congress for expedited consideration. Such
reorganization plans could transfer, consolidate, and within
certain limits abolish agency functions. According to the Act,
a reorganization plan took effect if approved by joint
resolution within 90 legislative days after its submission to
Congress. The Act would be more workable if it permitted
reorganization plans to become effective unless disapproved by
joint resolution within 90 legislative days after submission.
------ --
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Key decisionmakers in the new Administration and the new
Congress should earnestly consider these preceding steps.
Although they are by no means exhaustive, these recommendations
could clearly provide notable progress toward a results-
oriented, performance-based government.

ENDNOTES

1. Washington Times, November 28, 1999.
2. USA Today, December 15, 1999.
3. American Customer Satisfaction Index, Federal Agencies
Government-wide Customer Satisfaction Report for the General
Services Administration (December 1999), p. 38, note 5. The
significance of the satisfaction levels reported in this survey
are questionable since the Federal agencies themselves
designated what they would be rated on and who would rate them.
4. High-Risk Series: An Update, GAO/HR-99-1 (January
1999).
5. Id., p. 7.
6. Performance and Accountability and High-Risk Series:
Responses to Questions, GAO/OCG-99-25R (March 1999), p. 2.
(Emphasis supplied)
7. The one notable exception most recently was the Year
2000 computer conversion problem.
8. Government Reorganization: Issues and Principles, GAO/
T-GGD/AIMD-95-166 (May 17, 1995), at pp. 2-3.
9. Budget Issues: Effective Oversight and Budget
Discipline Are Essential--Even in a Time of Surplus, GAO/T-
AIMD-00-73 (February 1, 2000), p. 11.
10. Management Reform: Continuing Attention Is Needed to
Improve Government Performance, GAO/-GGD-00-128 (May 4, 2000),
p. 13. (Emphasis supplied)
11. CBO, Unauthorized Appropriations and Expiring
Authorizations (January 7, 2000).
12. S. Rept. No. 106-225, pp. 2-3 (1999).
13. Public Law 104-121, title II, 110 Stat. 868, 5 U.S.C.
Sec. Sec. 801-808.
14. Public Law 106-312, 114 Stat. 1248.
15. Public Law 103-62, 107 Stat. 285.
16. S. Rept. No. 103-58 (1993), p. 3.
17. Public Law 103-62, Sec. 2, 107 Stat. 285.
18. The Committee selected the key results in consultation
with GAO and the Congressional Research Service, based on a
review of the agencies' statutory missions and their Strategic
Plans. The selected key results were not designed to cover all
of the agency's important functions, but only a representative
sample.
19. The Governmental Affairs Committee Results Act website
provides detailed information on the GAO findings and the
Committee's analysis for all of the 97 key agency results.
20. OMB Circular No. A-11, Part 2, Sec. 220.9(e).
21. Managing for Results: Opportunities for Continued
Improvements in Agencies' Performance Plans, GAO/GGD/AIMD-99-
215 (July 1999), pp. 13-14.
22. Major Management Challenges Facing Federal Departments
and Agencies, October 2000.
23. Managing For Results: Using the Results Act to Address
Mission Fragmentation and Program Overlap, GAO/AIMD-97-146
(August 1997), pp. 2-3.
24. OMB Circular No. A-11, Part 2, Sec. 220.9(f) (2000).
25. Observations on the Department of Energy's Fiscal Year
1999 Accountability Report and Fiscal Year 2000/2001
Performance Plans, GAO/RCED-00-209R (June 30, 2000), p. 2.
26. Observations on the Department of Justice's Fiscal Year
1999 Performance Report and Fiscal Year 2001 Performance Plan,
GAO/GGD-00-155R (June 30, 2000) pp. 1-2.
27. Managing for Results: Opportunities for Continued
Improvements in Agencies' Performance Plans, GGD/AIMD-99-215
(July 1999), pp. 6-7. The four agencies whose performance data
had some credibility were Education, Justice, Transportation,
and SSA.