[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




                 MANAGEMENT AND THE PRESIDENT'S BUDGET

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
                        AND FINANCIAL MANAGEMENT

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 26, 2003

                               __________

                           Serial No. 108-45

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

89-242              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director

     Subcommittee on Government Efficiency and Financial Management

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee          EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio           PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma              MAJOR R. OWENS, New York
CANDICE S. MILLER, Michigan          CAROLYN B. MALONEY, New York
MICHAEL R. TURNER, Ohio

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     Mike Hettinger, Staff Director
                Kara Cralles, Professional Staff Member
                 Larry Brady, Professional Staff Member
                          Amy Laudeman, Clerk
          Mark Stephenson, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 26, 2003...................................     1
Statement of:
    Dalton, Patricia A., Director, Strategic Issues, U.S. General 
      Accounting Office; Edward R. McPherson, Chief Financial 
      Officer, U.S. Department of Agriculture; Angela B. Styles, 
      Administrator for Federal Procurement Policy, Office of 
      Management and Budget; and Mark A. Forman, Associate 
      Director, Information Technology and E-Government, Office 
      of Management and Budget...................................    11
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas.............................................     7
Letters, statements, etc., submitted for the record by:
    Dalton, Patricia A., Director, Strategic Issues, U.S. General 
      Accounting Office, prepared statement of...................    14
    McPherson, Edward R., Chief Financial Officer, U.S. 
      Department of Agriculture:
        Followup questions and responses.........................    96
        Prepared statement of....................................    40
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     4
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas, prepared statement of......................     9
    Styles, Angela B., Administrator for Federal Procurement 
      Policy, Office of Management and Budget:
        Followup questions and responses.........................    93
        Prepared statement of....................................    70

 
                 MANAGEMENT AND THE PRESIDENT'S BUDGET

                              ----------                              


                       WEDNESDAY, MARCH 26, 2003

                  House of Representatives,
Subcommittee on Government Efficiency and Financial 
                                        Management,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:30 a.m., in 
room 2154, Rayburn House Office Building, Hon. Todd R. Platts 
(chairman of the subcommittee) presiding.
    Present: Representatives Platts, Blackburn, Towns, and 
Maloney.
    Staff present: Mike Hettinger, staff director; Dan Daly, 
counsel; Kara Cralles and Larry Brady, professional staff 
members; Mark Stephenson, professional staff member; and Jean 
Gosa, assistant clerk.
    Mr. Platts. I want to welcome you to the Subcommittee on 
Government Efficiency and Financial Management's first hearing 
in the 108th Congress. I am eager to investigate some of the 
issues that face the operation of the Federal Government and 
build on some of the ideas that the distinguished former-
Chairman Steve Horn examined. At a time of increasing 
government deficits, greater efficiency and financial 
accountability in administration of Federal Government 
operations is an ever-increasing top priority. I look forward 
to working with my esteemed colleagues on this subcommittee 
throughout the 108th session.
    Today the Subcommittee on Government Efficiency and 
Financial Management is holding the first of a series of three 
hearings on ``Governing With Accountability.'' This hearing 
will focus on the President's Management Agenda and the impact 
the agenda has had on the improvement and operational 
efficiency and effectiveness of the executive branch. We will 
also explore how the President's Management Agenda has impacted 
the budget numbers included in the President's fiscal year 2004 
budget.
    Since I was first elected to office as a member of the 
Pennsylvania State Assembly, one of my main concerns has 
consistently been to ensure that government entities operate in 
the most efficient and accountable manner possible. In the 
State Assembly, I sat on a committee that examined many of 
these issues at the State level and since being elected to the 
U.S. House of Representatives, my interest in accountability 
and efficiency has grown significantly. I am pleased to have 
the opportunity to explore these issues with my colleagues at 
the Federal level.
    The Federal Government has a responsibility to the 
taxpayers of this country to be productive and accountable. 
Unfortunately, many agencies are unable to demonstrate the 
value that they provide for the tax dollars that are spent on 
the programs they administer. Unfortunately, waste and 
inefficiency are found throughout the Federal Government. Only 
improved management and accountability will begin to address 
these problems.
    President Bush and his administration are to be strongly 
commended for having made improving the efficiency and 
effectiveness of Government a top priority. The President's 
Management Agenda, which was unveiled in August 2001, targets 
five major areas of Government that need well-focused 
attention: first, hiring and retaining a skilled, motivated 
Federal work force; eliminating the Government's pervasive 
inability to properly manage its money; ensuring that Federal 
programs achieve effective results from their massive 
investment of tax dollars; expanding electronic government; and 
increasing public-private competition for commercial-type 
Federal functions.
    Building on the Government Performance and Results Act, an 
executive branch management scorecard was developed to evaluate 
agencies' performance in each of these five areas. The 
scorecard uses a traffic light approach: green for success, 
yellow for mixed results, and red for unsatisfactory. The 
Office of Management and Budget does the scoring. This is the 
second year that agencies have been graded on each of these 
five areas. The initial agency scores for fiscal year 2001 were 
predominantly red. In fiscal year 2002, agencies were not only 
graded on their current status in implementing these management 
initiatives, they were also graded on their level of progress. 
Since last year, in the fiscal year 2002 report, agencies' 
status scores continue to show red results. However, the 
agencies are making progress, as evidenced by the large number 
of agencies with green lights on their progress scorecards.
    Today we will have several witnesses who are well versed on 
the President's Management Agenda and the progress that 
agencies are making. We are honored to have one of our esteemed 
colleagues, Congressman Pete Sessions from Texas, who is the 
chairman of the Results Caucus. Congressman Sessions is joining 
us today as our first witness and as a participant in the 
hearing. After Mr. Sessions' statement, we will proceed to our 
seated panel of witnesses: Ms. Pat Dalton, Director of 
Strategic Issues at the General Accounting Office; the 
Honorable Mr. McPherson, who is the Chief Financial Officer at 
the Department of Agriculture and as a proud Member of the 
Congress representing the 19th District, also a native of the 
19th District of Pennsylvania, so I am especially glad to have 
a fellow native 19th District resident here; the Honorable 
Angela Styles, Administrator for Federal Procurement Policy at 
the Office of Management and Budget; and, finally, Mr. Mark 
Forman, Associate Director of Information Technology and E-
Government at the Office of Management and Budget. I certainly 
look forward to hearing each of your testimonies here today.
    I also look forward to working with our distinguished 
ranking member, Mr. Ed Towns, whose experience and insight will 
be very valuable for this committee. I respect his deep 
involvement in the community he serves and look forward to 
working closely with him and all members of the committee.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]

[GRAPHIC] [TIFF OMITTED] T9242.001

[GRAPHIC] [TIFF OMITTED] T9242.002

    Mr. Platts. I now yield to the gentleman from New York, Mr. 
Towns, for the purpose of making an opening statement.
    Mr. Towns. Thank you very much, Mr. Chairman. Let me 
congratulate you on being chosen to lead the subcommittee and 
thank you for holding this hearing. I am looking forward to 
working with you, and let me just say to you that in spite of 
the negative things you heard about me, you should wait and let 
time answer that question. Mr. Chairman, in spite of all the 
negative things you heard about me, you should wait around and 
let time answer that question. But, anyway on a serious note, 
there is a long history of working together in a productive 
manner in this committee. I am confident we will continue that 
tradition in this Congress.
    Today's hearing focuses on the President's Management 
Agenda to improve the performance and accountability in Federal 
Government. Initiatives such as these have been going on for 
more than 50 years and have been undertaken by administrations 
of both political parties. This should come as no surprise 
because increasing the efficiency of the Federal Government 
requires a sustained and concerted effort. Additionally, it has 
not been a partisan issue.
    While some of these efforts have been more successful than 
others, they are all worthwhile. The public deserves a 
Government that is effective and responsive.
    Improving the management of the Federal Government may be 
more critical now than ever before in the history of this 
country. The impending retirement of a significant number of 
workers from the Federal Government requires agencies to plan 
and forecast their staff skills, needs, and competencies. The 
rise of global terrorism and the creation of the new Department 
of Homeland Security require the Government to be focused on 
performance-based measures.
    With that said, I do have some concerns, Mr. Chairman, with 
the agenda. Although I do believe that we should look to the 
private sector as a model to make the Government more 
efficient, we cannot forget that the Federal Government is not 
a private business. There are some distinctions that should not 
be eliminated. For example, the Civil Service system has served 
this Nation well and it should not be systematically 
dismantled.
    Additionally, the President's agenda would grade agencies 
on their success in contracting out government jobs to the 
private sector. I oppose this objective. I think it is 
wrongheaded to measure agencies in their ability to meet such a 
goal.
    I look forward to hearing from today's witnesses on the 
progress the administration is making on its management agenda 
as well as their response to some of the concerns that I have 
raised.
    On that note, Mr. Chairman, I yield back, and I am eager to 
listen to the witnesses.
    Mr. Platts. Thank you, Mr. Towns.
    I would now like to welcome our esteemed colleague from 
Texas, Mr. Pete Sessions. Mr. Sessions is a former member of 
the Government Reform Committee and is currently chairman of 
the House Results Caucus. The Results Caucus is comprised of 
eight members who are dedicated to making the Government more 
fiscally responsible and efficient. We are honored to have Mr. 
Sessions today as both a witness and a participant in the 
hearing.
    We appreciate your joining us, and we welcome you now to 
proceed with your statement.

 STATEMENT OF HON. PETE SESSIONS, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF TEXAS

    Mr. Sessions. Chairman, thank you so much. It is a great 
honor for me to be with you at this important event today.
    And for those people with longer tooths, and there are a 
good number of them in the audience today, including Angela 
Styles and Robert Shay, who have been a part of this process 
for a long time.
    I want to say, Mr. Chairman, that I believe that you will 
be a part of a legacy that was established by Chairman Horn, 
who, years ago, when he undertook this task as subcommittee 
chairman, began the process to deal with not only Government 
efficiency, but also what I think was inherently good for 
employees of the Federal Government, and that is to make their 
jobs better so that they would find more enrichment in what 
they did, as well as pay. And I think that Chairman Horn had 
that legacy.
    One of the other things, Mr. Chairman, that he brought to 
the table was the scorecard. The scorecard that we have before 
us today is the one that is immediately to my left that is the 
newest one that we are working from. And today, in particular 
today, what I would like to do is to highlight at least one 
area, and that is if we look at competitive outsourcing or 
competitive sourcing, as it is called. As we look at that, you 
will see that it is entirely red on the left side of the chart. 
This is as of the end of last year; it is an internal rating; 
it is how each of the agencies are rated on the kind of 
performance that they have had.
    Without jumping all over people, I would like to say it is 
probably the toughest area. It is an area that there is not 
complete agreement on, certainly not within the administration, 
nor within Government employees who comprise not only the 
union, but other governmental bodies.
    What is important to look at is that we are seeing progress 
that is being made, and this is one thing that Chairman Horn, 
through this subcommittee and through other factors, put into 
play. We want to find where we are moving from one color to the 
next, obviously from green to yellow, yellow to red. But you 
will see that on this chart there are a good number of arrows 
which designate an upward mobility and upward trend. I think 
today part of the focus of this hearing is going to be about 
competitive sourcing, and it will be important to hear what 
those witnesses who we have in front of us will say.
    The good part of this is that from the scorecard there has 
been an 11 percent improvement since September 11, 2001, and 
that means that the Government has had to become more efficient 
and look at, inherently, those things that it should be doing, 
and I am proud of that.
    Also, I would like to note today that the private sector 
has really been a huge part of this success; they have not only 
worked with the Government and government employees, but they 
have worked to find ways to solve problems that the Government 
has had, and I think it has had, in a big sense, a way for the 
Government to work together with these outside industries to 
find success in what they are doing.
    Also, Mr. Chairman, I would like to note and also to ask 
unanimous consent that it would be accepted into the record an 
article that appeared in the Washington Post, dated March 25, 
that talks about more than one-third of Federal employees who 
took part in a governmentwide survey said they were considering 
leaving their jobs. And I think that should be something that 
should be part of some discussion and certainly what this 
subcommittee would look at, but I would ask unanimous consent 
that be accepted.
    Mr. Platts. Without objection, it is accepted.
    Mr. Sessions. Last, the things that I wanted to focus on 
today that I believe have a lot to do with the success of this 
administration, a lot of it to do with Angela Styles. Angela 
Styles, as Administrator for Procurement Policy for the Bush 
administration, I believe has been a part of a new A-76 
process. And there are three things in particular that I would 
like to highlight which I think that are good, and that is that 
the new A-76 process will speed up competitions. The current 
average today is about 3 years within DOD for A-76s to be 
accepted, and there are new initiatives that will encourage 
agencies to take no more than 12 months to complete 
competition. That is important because people don't want to get 
into a competitive circumstance if they do not know what the 
end result would be for time.
    No. 2, it makes government functions visible to the public. 
What they are doing is that we are requiring the Government 
agencies to now make public all the things that they wish to do 
when they deal with commercial inventories and how they are 
dealing with the circumstances to have commercial and 
competitive sourcing.
    And, last, it implements the President's Management Agenda. 
And I believe that this President is well on target to 
understanding Government efficiency and the things that in this 
new era Government needs to do to assume its role so that the 
taxpayers of this country and the people are well served.
    With that said, Mr. Chairman, I want to thank you for the 
opportunity to be here with you today. I do intend to be here 
for a few minutes and hear the testimony that comes forth. 
Thank you.
    [The prepared statement of Hon. Pete Sessions follows:]

    [GRAPHIC] [TIFF OMITTED] T9242.003
    
    [GRAPHIC] [TIFF OMITTED] T9242.004
    
    Mr. Platts. Thank you, Mr. Sessions, for your statement and 
again for joining us and giving your years of focus and 
experience on the issues of Government efficiency and results. 
We certainly look forward to continuing to work with you and 
all members of the Results Caucus as we move forward this 
session.
    I would like now to administer the oath to our witnesses 
and would ask that each witness and anyone who might be 
advising each of the witnesses during their testimony to stand, 
raise their right hands, and take the oath together. We will 
then proceed to the testimony.
    [Witnesses sworn.]
    Mr. Platts. Thank you. You may be seated. And the clerk 
will note that all witnesses have affirmed the oath.
    I would like to now proceed to the testimonies. Ms. Dalton, 
we will begin with you, followed by Mr. McPherson, Ms. Styles, 
and Mr. Forman. The subcommittee appreciates the substantive 
written testimonies that each of the witnesses have submitted 
and we have had the chance to review, and I would ask that each 
witness keep their oral testimony to less than 5 minutes.
    Before we begin, I would also like to recognize that we are 
delighted to have Ms. Styles' soon to be 4-year-old daughter 
Ellie here with us today and, my understanding, getting to 
witness her mother testifying for the first time.
    Ms. Styles. Thank you very much. She is here today in the 
back. Or she was. She may have already had to leave.
    Mr. Platts. Well, hopefully we didn't scare her off. I will 
have to do better and have my little 4-year-old girl Kelsey 
with me next time so they can have a joint effort to be more 
entertained than maybe hearing us speak. But we are delighted 
to have her with us.
    Ms. Styles. Thank you very much.
    Mr. Platts. Ms. Dalton, if you would please proceed with 
your testimony.

 STATEMENTS OF PATRICIA A. DALTON, DIRECTOR, STRATEGIC ISSUES, 
  U.S. GENERAL ACCOUNTING OFFICE; EDWARD R. MCPHERSON, CHIEF 
 FINANCIAL OFFICER, U.S. DEPARTMENT OF AGRICULTURE; ANGELA B. 
STYLES, ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY, OFFICE OF 
MANAGEMENT AND BUDGET; AND MARK A. FORMAN, ASSOCIATE DIRECTOR, 
 INFORMATION TECHNOLOGY AND E-GOVERNMENT, OFFICE OF MANAGEMENT 
                           AND BUDGET

    Ms. Dalton. Thank you, Mr. Chairman, Mr. Towns, Mr. 
Sessions. It is a pleasure to be here today to discuss the 
continuing progress in implementing the President's Management 
Agenda.
    There are clear links between the agenda's initiatives in 
the high-risk areas and major management challenges recently 
identified by GAO in our Performance and Accountability and 
High-Risk Series. Many of these issues are complex and 
longstanding.
    Overall, there has been continuing progress in implementing 
the governmentwide initiatives. This progress, however, has 
been uneven, and a continuing focus is needed to improve the 
management and performance of the Federal Government and ensure 
proper accountability. Further, it is important to recognize 
that fundamental management practices and principles cannot be 
addressed in an isolated or piecemeal fashion, but must be 
addressed in an integrated way.
    Today, my statement will focus on the five crosscutting 
initiatives identified in the President's agenda, and the next 
steps that our work shows will be key to effectively enhancing 
the management and performance of the Federal Government.
    The first area in the agenda is strategic human capital 
management. People are an agency's most important asset, and 
strategic human capital management should be the centerpiece of 
any serious change management initiative or any effort to 
transform the cultures of government agencies. Considerable 
progress has been made in this area since we designated it as a 
high-risk area in 2001. However, agencies continue to face 
challenges in leadership; human capital planning; acquiring, 
developing, and retaining talent; and developing results-
oriented cultures. It is important for agency leaders to 
identify and make use of all appropriate administrative 
authorities available to them to manage their people both 
effectively and equitably.
    We recently reported on a set of practices that are key to 
the effective use of flexibilities. They include: plan 
strategically and make targeted investments; ensure stakeholder 
input in developing policies and procedures; educate managers 
and employees on the availability and use of existing 
flexibilities; streamline and improve administrative processes; 
build transparency and accountability into the system; and 
change the organizational culture.
    Another step in meeting the Government's human capital 
challenges is for policymakers to continue to pursue 
legislative reforms to give agencies additional tools and 
flexibilities to hire, manage, and retain the human capital 
they need, particularly in critical occupations.
    The second area in the President's Management Agenda is 
budget and performance integration. Performance-based budgeting 
could help shift the focus of debate from inputs to outcomes 
and results, enhancing the Government's ability to gauge 
performance and assess competing claims for scarce resources. 
More explicitly, infusing performance information into resource 
allocation decisions is critical for further progress in 
government performance and management.
    Last year, OMB introduced a formal assessment tool into the 
deliberations: the PART, the Program Assessment Rating Tool. 
Potentially, PART can complement the Results Act's focus on 
increasing the supply of credible performance information by 
promoting the demand for this information in the budget 
formulation process. Though progress has been made, 
improvements are still needed in the quality of both 
performance and cost data. If Members of Congress and the 
executive branch have better information about the link between 
resources and results, they can make the tradeoffs and choices 
cognizant of the many and often competing claims on the Federal 
budget.
    Improving financial performance is a third area in the 
agenda. This initiative, to improve financial performance, is 
aimed at ensuring that Federal financial systems produce 
accurate and timely information to support operating, budget, 
and policy decisions. It focuses on key issues such as data 
reliability, clean financial statement audit opinions, and 
effective financial management systems and internal control. 
Though significant progress has been made, we have pointed out 
that the Federal Government is a long way from successfully 
implementing the statutory reforms that Congress enacted during 
the 1990's.
    Widespread financial management system weaknesses, poor 
recordkeeping and documentation, weak internal controls, and 
lack of information have prevented the Government from having 
all the cost information needed to effectively and efficiently 
manage its operations. Steps need to be taken to continuously 
improve internal controls in the underlying financial and 
management information systems to ensure quality data.
    Expanded electronic government is the fourth area in the 
agenda. It offers many opportunities to better serve the 
public, make Government more efficient and effective, and 
reduce cost. Though many of the initiatives are showing 
tangible results, progress has been uneven. Our review of 
planning documents from the e-government initiatives have found 
important aspects, such as collaboration and a focus on 
identifying customer needs, that need to be better incorporated 
into the plans. We have made a number of recommendations on 
improving these efforts to the Director of OMB. Also, adequate 
security and privacy protection must be built into the 
initiatives.
    The final area of the President's Management Agenda, 
competitive sourcing, is an area where the administration has 
committed to simplifying and improving the procedures for 
evaluating public and private sources. As has been noted here, 
the OMB has just proposed changes to Circular A-76. The 
proposed circular is consistent with many of the sourcing 
principles and recommendations adopted by the Commercial 
Activities Panel that was chaired by the Comptroller General. 
The proposal should promote sourcing decisions that reflect the 
best overall value to the agencies, rather than just the lowest 
cost. There are several areas, however, where the proposed 
revisions to the circular were not consistent with the 
principles or recommendations of the panel. Specifically, these 
include the absence of a link between sourcing policy and 
agencies' missions, unnecessarily complicated source selection 
procedures, and certain unrealistic time-frames and 
insufficient guidance on calculating savings.
    In conclusion, my testimony today has highlighted that 
serious and disciplined efforts are needed to improve the 
management and performance of Federal agencies and to ensure 
accountability.
    Mr. Chairman, thank you for the opportunity to participate 
in today's hearing, and I welcome any questions.
    [The prepared statement of Ms. Dalton follows:]

    [GRAPHIC] [TIFF OMITTED] T9242.005
    
    [GRAPHIC] [TIFF OMITTED] T9242.006
    
    [GRAPHIC] [TIFF OMITTED] T9242.007
    
    [GRAPHIC] [TIFF OMITTED] T9242.008
    
    [GRAPHIC] [TIFF OMITTED] T9242.009
    
    [GRAPHIC] [TIFF OMITTED] T9242.010
    
    [GRAPHIC] [TIFF OMITTED] T9242.011
    
    [GRAPHIC] [TIFF OMITTED] T9242.012
    
    [GRAPHIC] [TIFF OMITTED] T9242.013
    
    [GRAPHIC] [TIFF OMITTED] T9242.014
    
    [GRAPHIC] [TIFF OMITTED] T9242.015
    
    [GRAPHIC] [TIFF OMITTED] T9242.016
    
    [GRAPHIC] [TIFF OMITTED] T9242.017
    
    [GRAPHIC] [TIFF OMITTED] T9242.018
    
    [GRAPHIC] [TIFF OMITTED] T9242.019
    
    [GRAPHIC] [TIFF OMITTED] T9242.020
    
    [GRAPHIC] [TIFF OMITTED] T9242.021
    
    [GRAPHIC] [TIFF OMITTED] T9242.022
    
    [GRAPHIC] [TIFF OMITTED] T9242.023
    
    [GRAPHIC] [TIFF OMITTED] T9242.024
    
    [GRAPHIC] [TIFF OMITTED] T9242.025
    
    [GRAPHIC] [TIFF OMITTED] T9242.026
    
    [GRAPHIC] [TIFF OMITTED] T9242.027
    
    Mr. Platts. Thank you, Ms. Dalton, for your testimony.
    And before we proceed with Mr. McPherson, I would just like 
to recognize that our subcommittee vice chairwoman, the 
honorable lady from Tennessee, Ms. Blackburn, has joined us. 
Thanks for being with us.
    Mr. McPherson, the floor is yours.
    Mr. McPherson. Mr. Chairman, members of the subcommittee, 
thank you for the opportunity to represent this administration 
in discussing results of the Financial Management Initiative of 
President Bush's Management Agenda.
    I am particularly honored to appear before Chairman Platts' 
Subcommittee on Government Efficiency and Financial Management, 
as I was raised in your district, in Gettysburg, PA, where we 
still have our family home built there by my great-grandfather 
130 years ago.
    My remarks today focus on two elements. First, let us look 
briefly at selected results thus far of the President's 
Financial Management Initiative across the Federal Government. 
Second, I will describe the valuable results we have achieved 
at the Department of Agriculture as a way of providing the 
subcommittee with a practical sense of what is possible in 
financial management for the benefit of the American taxpayer.
    As the members of this subcommittee know, the President has 
made improving financial performance a key initiative of his 
management agenda. To give just a few examples of our progress 
governmentwide, 21 of the Government's 24 Chief Financial 
Officer Act agencies received clean opinions on their audited 
financial statements. The Department of Education, FEMA, and 
NASA reclaimed the clean audits they had recently lost. The 
Department of the Treasury and the Social Security 
Administration produced audited financial statements by 
November 15, implementing 2 years early the administration's 
goal to have audited financial statements 45 days after the end 
of the fiscal year. The Departments of Energy and Labor have 
improved their status scores and the Department of Energy 
successfully addressed major management challenges identified 
in its most recent performance and accountability report. Labor 
has addressed problems with its financial management systems 
and is aggressively working to reduce erroneous Unemployment 
Insurance payments.
    We are by no means out of the woods, Mr. Chairman. The 
Department of Defense is still unable to produce audited 
financial statements, and the Small Business Administration's 
status deteriorated because its auditor found inconsistencies 
between the budget and accounting for asset sales.
    Now let us focus on the valuable results at the Department 
of Agriculture simply as a way of providing the subcommittee 
with a practical sense of what is possible in financial 
management to the benefit of the American taxpayer.
    As context, at the Department of Agriculture, I am 
responsible for the financial leadership of an enterprise that, 
were it a private company, would be one of the largest 
companies in the United States. With $72 billion in annual 
spending, 112,705 full-time equivalent staff years, and $123 
billion in assets, the Department of Agriculture is exceeded 
generally in size only by four companies: General Motors, Ford, 
Exxon, and Wal-Mart. So we are about the same size, roughly, 
and in diversity of lines of business as General Electric.
    In addition, through our National Finance Center in New 
Orleans, LA, we operate an item processing and recordkeeping 
service in executing payroll for one-third of all Federal 
employees and providing administrative services for more than 
120 government entities, including the Thrift Savings Plan that 
has 3 million participants with $100 billion in investment 
assets. Last year alone, the National Finance Center processed 
$26 billion in payroll disbursements and $12 billion of 
retirement plan contributions.
    Here is a description of what is possible to achieve in 
financial management. The Department of Agriculture, and all of 
its agencies, including the Forest Service, for the first time 
received unqualified or ``clean'' opinions on annual financial 
audits from the Office of the Inspector General in fiscal year 
2002. In all previous audits, the Office of the Inspector 
General was unable to express any opinion on USDA's 
consolidated financial statements because the value of assets, 
liabilities, budgetary resources, net costs and related items 
could not be determined. In short, Agriculture, one of the 
largest enterprises in America, had never before produced 
timely financial statements free of significant errors or 
misstatements in its entire 140-year history.
    With slightly more than a year's worth of work, the 
Department of Agriculture and all its agencies for the first 
time received a clean opinion in fiscal year 2002. This 
valuable breakthrough was achieved using existing taxpayer 
funding by skilled career government executives and dedicated 
associates already in place. Specific results that led to our 
achieving sufficient internal control and data integrity to 
merit a clean audit opinion include the following items: 
massive revamping of business, financial management and 
accounting processes, and completing the installation of a 
standard general accounting system requiring 17 major 
conversions; determining the program cost or present value 
cash-flows of $100 billion in loans; reconciling accurately and 
timely over $100 billion in annual cash receipts and 
disbursements in 393 Treasury accounts; transforming the Forest 
Service financial management activities effectively; correcting 
accounting deficiencies on $10 billion of real and personal 
property; implementing a unified corporate controller 
organization that integrates accountability for financial 
management processes and systems throughout USDA; and reducing 
the number of material deficiencies by more than 40 percent, a 
noteworthy achievement that reflects an environment of 
improving internal control.
    Meanwhile, our associates in New Orleans, LA, at the 
National Finance Center, which is a strategic Federal asset 
within USDA with over 4 million customers, also achieved 
valuable results in financial management. Specifically, the 
Office of Personnel Management and the Office of Management and 
Budget selected the National Finance Center to serve as one of 
the Government's payroll providers under the President's e-
Payroll initiative to consolidate Federal payroll functions. 
The National Finance Center became one of four government 
Inaugural Agencies receiving certification to deliver trusted, 
secure electronic transactions through a public key 
infrastructure encryption system. Public key infrastructure is 
an important global competitive advantage in the conduct of 
electronic commerce. The National Finance Center integrated 
members of the uniformed services into the Thrift Savings Plan 
System in fiscal year 2002. To date, over 300,000 members of 
the uniformed services have enrolled in the Thrift Savings 
Plan. The National Finance Center developed the Centralized 
Enrollment Clearing House System to match and reconcile over 32 
million insurance carrier and enrollee records annually for 4 
million participants in the Office of Personnel Management's 
Federal Employees Health Benefits plan.
    We have also taken effective financial management actions 
to improve our lending for farmers, housing and rural 
development in terms of transaction approval, portfolio 
management, and debt collection. At the end of fiscal year 
2002, USDA had approximately $100 billion in loans and $29 
billion in credit guarantees, or a total of $129 billion of 
credit risk, about 32 percent of the entire debt owed to the 
Federal Government.
    USDA's problem credit at the end of last year totaled $14.5 
billion, consisting of $8.3 billion of non-performing assets, 
$4.9 billion of defaulted guarantees that have been 
restructured, and $1.3 billion of gross charge-offs in fiscal 
year 2002.
    About $10.5 billion of this $14.5 billion relates to 
international sovereign risk credit in the Commodity Credit 
Corporation, leaving $4 billion in domestic credit that is 
combined from Farm Service Agency and Rural Development.
    Importantly, during 2002, USDA collected $945 million of 
delinquent debt, $682 million through agencies using our 
internal tools, and $263 million through the Department of 
Treasury's Administrative Offset Program and other Debt 
Collection Improvement Act techniques. In fiscal year 2002 USDA 
referred to the Treasury Offset Program 98 percent of the $1.4 
billion of eligible delinquent receivables and 96 percent of 
the $364 million of loans eligible for cross-servicing compared 
to only 14 percent in the prior year.
    Our lending agencies are focused on managing these loan 
portfolios effectively, including reviewing transaction 
approval processes, loan systems, collateral management, and 
evaluating the piloting of loan sales.
    In summary, I have seen during the past 18 months that 
bureaucracies produce results with leaders who instill laser-
like clarity of ownership, or individual accountability. 
Ultimately, people are the only source of a sustainable 
competitive advantage, and I believe in people. In most every 
instance that I have cited today, one person with courage led 
valuable change by substituting new successes in place of 
rhetoric or business as usual. I assure you, Mr. Chairman and 
members of the subcommittee, that the people who produced these 
results are honored to serve the American taxpayer and will 
continue to do so as part of President Bush's Management 
Agenda.
    [The prepared statement of Mr. McPherson follows:]

    [GRAPHIC] [TIFF OMITTED] T9242.028
    
    [GRAPHIC] [TIFF OMITTED] T9242.029
    
    [GRAPHIC] [TIFF OMITTED] T9242.030
    
    [GRAPHIC] [TIFF OMITTED] T9242.031
    
    [GRAPHIC] [TIFF OMITTED] T9242.032
    
    [GRAPHIC] [TIFF OMITTED] T9242.033
    
    [GRAPHIC] [TIFF OMITTED] T9242.034
    
    [GRAPHIC] [TIFF OMITTED] T9242.035
    
    [GRAPHIC] [TIFF OMITTED] T9242.036
    
    [GRAPHIC] [TIFF OMITTED] T9242.037
    
    [GRAPHIC] [TIFF OMITTED] T9242.038
    
    [GRAPHIC] [TIFF OMITTED] T9242.039
    
    [GRAPHIC] [TIFF OMITTED] T9242.040
    
    [GRAPHIC] [TIFF OMITTED] T9242.041
    
    [GRAPHIC] [TIFF OMITTED] T9242.042
    
    [GRAPHIC] [TIFF OMITTED] T9242.043
    
    [GRAPHIC] [TIFF OMITTED] T9242.044
    
    [GRAPHIC] [TIFF OMITTED] T9242.045
    
    [GRAPHIC] [TIFF OMITTED] T9242.046
    
    [GRAPHIC] [TIFF OMITTED] T9242.047
    
    [GRAPHIC] [TIFF OMITTED] T9242.048
    
    [GRAPHIC] [TIFF OMITTED] T9242.049
    
    [GRAPHIC] [TIFF OMITTED] T9242.050
    
    [GRAPHIC] [TIFF OMITTED] T9242.051
    
    [GRAPHIC] [TIFF OMITTED] T9242.052
    
    [GRAPHIC] [TIFF OMITTED] T9242.053
    
    [GRAPHIC] [TIFF OMITTED] T9242.054
    
    [GRAPHIC] [TIFF OMITTED] T9242.055
    
    Mr. Platts. Thank you, Mr. McPherson, for your testimony.
    And before we proceed, I was challenged and restrained in 
cutting a fellow native 19th District resident off on the time 
limit, but if we can try to stay to our 5 minutes, and then we 
can have more time to get into questions, that would be great.
    You may proceed.
    Ms. Styles. Chairman Platts, Congressman Towns, Congressman 
Sessions, and members of the subcommittee, I am pleased to have 
this opportunity to discuss competitive sourcing and our 
proposed changes to OMB Circular A-76.
    As most of you know, competitive sourcing is a 
governmentwide initiative to encourage competition for the 
performance of government activities that are commercial in 
nature. Using OMB Circular A-76, departments and agencies have 
been asked to ``determine whether commercial activities should 
be performed under contract with commercial sources or in-house 
using Government facilities and personnel.'' Competitive 
sourcing is a means to an end, with the means being public-
private competition and the end being better management of our 
Government, better service for our citizens, and lower costs 
for our taxpayers.
    I cannot emphasize enough that competitive sourcing is not 
about outsourcing; nor is it about downsizing the work force. 
Rather, competitive sourcing is about creating incentives and 
opportunities for efficiency and innovation through 
competition. No one in this administration cares who wins a 
public-private competition. But we care very much that 
government service is provided by those best able to do so in 
terms of cost and quality, be that the private sector or the 
Government itself.
    After nearly 2 years of hard work with the agencies, I am 
pleased to see a large number of our Federal managers accepting 
this difficult challenge. They are, for the first time, 
building an infrastructure for and institutionalizing public-
private competition. For example, the Department of Veterans 
Affairs is opening up 52,000 positions to competition over the 
next 5 years, initiating studies of 25,000 of them in 2003 
alone. At the Federal Aviation Administration, 2,700 Federal 
flight services personnel are participating in a public-private 
competition across the country. Similarly, the Department of 
Energy has started public-private competition for a variety of 
functions, such as computer personnel, graphic designers, and 
financial services personnel, at locations nationwide.
    Despite our progress, overall use of competitive sourcing 
remains weak. This is not surprising when considering that the 
current processes governing sourcing decisions are time-
consuming and unnecessarily complicated. We are committed to 
improving how agencies determine whether commercial activities 
will be performed by the public or private sector.
    Last November, we proposed major changes to this process, 
OMB Circular A-76, including changes to help agencies more 
easily distinguish between commercial and inherently 
governmental activities; making processes simpler and easier to 
understand, using the well-tested practices in the Federal 
Acquisition Regulation; more fully accommodating a program's 
need for best value and innovation, while still requiring cost 
to remain a factor in all competitions and the deciding factor 
in many competitions. We also are committed to ensuring that 
sourcing decisions are made in real time by imposing deadlines 
that would reduce the cycle time from the current delay-plagued 
3 years that Congressman Sessions mentioned, to an average of 1 
year, 12 months.
    We have been working aggressively to consider the more than 
700 comments that were submitted on the proposed rule. In 
analyzing the public comments, we are keeping a keen eye for 
areas where the processes and results may fall short of 
expectations.
    We are aiming to complete our review of the public comments 
shortly so that agencies may take advantage of a transformed 
process.
    In conclusion, we are asking Federal agencies to reconsider 
how they accomplish their missions. We are also asking them to 
test assumptions about the best provider through the 
competitive process. Competitive sourcing is laying the 
groundwork for improved mission performance with quality 
service at the lowest possible cost.
    Like any other effort that seeks to fundamentally transform 
the way we do business, this initiative has its challenges. But 
if we are steadfast in our commitment to competition, which 
lies at the heart of competitive sourcing, we will no doubt 
deliver the quality service that our taxpayers deserve.
    That concludes my prepared remarks.
    [The prepared statement of Ms. Styles follows:]

    [GRAPHIC] [TIFF OMITTED] T9242.056
    
    [GRAPHIC] [TIFF OMITTED] T9242.057
    
    [GRAPHIC] [TIFF OMITTED] T9242.058
    
    [GRAPHIC] [TIFF OMITTED] T9242.059
    
    [GRAPHIC] [TIFF OMITTED] T9242.060
    
    [GRAPHIC] [TIFF OMITTED] T9242.061
    
    [GRAPHIC] [TIFF OMITTED] T9242.062
    
    [GRAPHIC] [TIFF OMITTED] T9242.063
    
    [GRAPHIC] [TIFF OMITTED] T9242.064
    
    [GRAPHIC] [TIFF OMITTED] T9242.065
    
    [GRAPHIC] [TIFF OMITTED] T9242.066
    
    [GRAPHIC] [TIFF OMITTED] T9242.067
    
    [GRAPHIC] [TIFF OMITTED] T9242.068
    
    Mr. Platts. Thank you, Ms. Styles.
    Mr. Forman.
    Mr. Forman. Chairman Platts, Mr. Sessions, and members of 
the committee, thank you for holding this important hearing 
today.
    The vision for the President's Expanding Electronic 
Government Initiative is an order of magnitude improvement in 
the efficiency and effectiveness of Government operations. The 
initiative is already providing enhanced services directly to 
the citizens over the Internet and improving the management of 
the Government's almost $59 billion investment in information 
technology. This investment continues to make the Federal 
Government the largest buyer of IT in the world, and agencies 
are deriving better value from that spending. You know, it is 
said that IT, information technology, spending does not 
automatically provide good management, but there is no question 
in today's environment of e-business, you cannot have good 
management without technology. Indeed, more effective use of 
information technology will improve the Government's overall 
performance. This is occurring within agencies by re-
engineering their operations to support their missions more 
effectively and improve their own infrastructure, and it is 
also occurring across agencies by simplifying and unifying 
activities of the Government around the needs of citizen.
    Mr. Chairman, I would like to talk a little bit about the 
elements of the scorecard. We have very simple criteria, and 
they are documented in the President's performance chapter of 
the budget. And I want to make that very clear because they are 
well embedded in the law of e-government strategy that we 
produced a year ago.
    First of all, we grade agencies on their status and their 
progress with respect to two requirements of the Clinger-Cohen 
Act. First, do they have a decent enterprise architect and, 
second, are they using business cases and a capital planning 
and investment control process. The explicit criteria in the 
score is whether or not they have 100 percent of their major IT 
investments with a solid business case. And I will talk a 
little bit more about what we look for in a solid business 
case. That is directly out of the Clinger-Cohen Act. If you are 
less than 50 percent, you get a ``red''; if you are between 50 
and 100 percent, you get a ``yellow.'' It is quite that simple.
    The second area is IT program management that we grade on. 
Are the agencies running greater than 10 percent cost schedule 
or performance overruns. Again, this is well embedded in the 
law directly out of the Federal Acquisition Streamlining Act 
[FASA], Title V. So if agency IT projects have cost overruns 
greater than 30 percent, the agency gets a ``red''; if they 
have cost overruns, schedule overruns, or performance 
shortfalls less than 10 percent, they get a ``green''; and if 
it is in between, they are ``yellow.''
    Last, one of the key elements that we grade agencies on is 
how well they are doing in securities. It is required in the 
business case. This was established under Clinger-Cohen; the 
Computer Security Act of 1987; the Government Information 
Security Reform Act of 1998; and most recently the Federal 
Information Security Management Act that passed out of this 
committee and was enacted into law, signed by the President 
last December.
    Under the process that we have set forth, each agency has a 
listing of their gaps that is validated by inspectors general 
audits, and there is a plan of action and milestones 
established for each department. We track progress quarterly, 
and the status, obviously. We will be submitting more 
substantial detail on that in our report to Congress from the 
Director of OMB in the next couple weeks or so.
    The other element of the scorecard is whether or not the 
agencies are participating in cross-agency solutions. We know 
we have lots of redundancies in the way agencies buy their 
information technology, but the truth is the Federal Government 
cannot be agency-centered and citizen-centered when we move 
onto the Web; and the President recognized this. He focuses on 
teamwork and the messages and guidance that has been sent out 
to the agency. But at the heart of the President's Management 
Agenda is this notion that we have to become citizen-centered, 
not agency-centered.
    So the scorecard for e-government requires that agencies be 
involved jointly in three out of the four citizen-centered 
groupings: government to citizen; government to business; 
government to government, this important work with State and 
local governments who deliver directly so many of the services; 
and then, finally, how we take care of our own employees, the 
internal efficiency and effectiveness.
    To get to ``green,'' agencies have to be participating in 
three of those areas in developing the solutions, as opposed to 
doing their own siloed approach. If they are involved in one or 
less, they are ``red''; two, obviously they are ``yellow.'' It 
is quite that simple. It is not subjective, it is a very 
objective-based scoring to get to that score.
    But as a result, we are seeing substantial progress. 
Nineteen of these 24 cross-agency initiatives have had key 
deployments, and that continues. But perhaps most importantly, 
we deployed quite a few initiatives in January this year, and I 
have recently received the data. We are No. 4 of all the use of 
the Web, the Federal Government, in relation between our 
transactions with the business community. Almost 50 percent of 
all businesses are on line interacting with us. With citizens 
we are No. 6.
    So the scorecard and the focus on joint work is working, as 
well as the progress as displayed on the chart that Mr. 
Sessions referred to showing progress by the agencies.
    Thank you.
    Mr. Platts. Thank you, Mr. Forman.
    And to all of our witnesses, we appreciate your testimony. 
With this hearing and future hearings, I certainly encourage 
all members of the subcommittee to participate with questions, 
and we will follow the 5-minute rule for questioning the panel 
with each member who wishes to ask questions, having the 
opportunity to question the panel for 5 minutes. And certainly 
after each member has had that opportunity, if we have 
additional rounds of questions to accommodate members, we will 
be glad to continue.
    So I believe I will begin my initial 5 minute period, Ms. 
Dalton, with you. In your testimony you provided, both here in 
person and in your written testimony, you have talked about GAO 
working closely with OMB and the lead agencies in kind of 
reviewing the standards of success. But it is my understanding 
that while you have seen some of the general criteria for 
standards of success, you have not had the opportunity to 
review some of the more specific criteria with OMB. Is there an 
ongoing dialog between you and OMB about having access to that? 
And if so, where do we stand?
    Ms. Dalton. Well, I think the issue really is transparency 
in the whole process, because that provides credibility to what 
we are looking at. We clearly have seen the standards in that 
they are published in the budget. What we haven't seen is some 
of the evidence in terms of what OMB is making their decisions 
on. But there is information that has been published, and I 
think the point that needs to be emphasized in this whole area 
is what the information is showing, you know, is it 
demonstrating concerted efforts by the agencies to address 
these management challenges; is there leadership by OMB and the 
central agencies in making progress; and then is there support 
through oversight in terms of looking how the progress is being 
obtained. If you have transparency in information on how the 
decisions are being made, you have a basis for looking at that. 
As I said, OMB has identified some baseline information, they 
have published criteria, and they clearly are assessing 
progress. Those are very important points.
    From the General Accounting Office's standpoint, we are 
assessing progress by comparing agency information with models 
that we have out, guidelines that we have published, as well as 
with the information that is in the public domain. We have 
developed best practices in terms of many of these areas that 
can be found in our published documents. As I said, 
transparency is going to be critical so that Congress can 
provide the desired oversight.
    Mr. Platts. I certainly share that belief, as we are trying 
to make Government more efficient, that all Members of Congress 
and the public at large, the more we know, the more helpful 
everybody could be to that effort.
    Ms. Dalton. Right.
    Mr. Platts. Ms. Styles and Mr. Forman, is there additional 
detail or more specifics that OMB could share that would allow 
GAO to have maybe a more in-depth understanding of the review 
process?
    Ms. Styles. Well, we have extensive information that was 
published in the budget and is backed up on our Web site, 
particularly for the PART, the Program Assessment Rating Tool. 
We have extensive background information that is available. We 
have had an ongoing dialog with GAO; they actually helped 
prepare the criteria in two of these areas. We do not have a 
current request. I mean, we certainly are very happy to work 
with GAO, but this is, quite frankly, the first that we have 
heard of this, in the testimony. We have 24 ongoing requests 
for information from GAO in-house right now, seven of which we 
received in the past 10 days.
    So I would submit that we are working extensively with them 
in many areas. We are more than happy to continue working with 
them in this area; we just need to know the specifics of the 
information they are looking for, because we believe we have a 
significant amount of transparency and information that is 
available on this on our Web site right now.
    Mr. Platts. Well, hopefully if there are more specifics 
that you believe you aren't having, you haven't been given 
access to, that request could be made; and it sounds like we 
will have a very receptive ear at OMB.
    Ms. Styles. Absolutely.
    Mr. Platts. Thank you.
    I am going to now yield to Mr. Towns to allow him to begin 
his questioning.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin with you, Ms. Styles. Today's Washington Post 
has an article about a survey of Federal workers, which Mr. 
Sessions, I think, alluded to. It indicates that a little over 
one-third of the Federal workers are considering leaving the 
Federal work force. To me, that is an indication that, first of 
all, the moral is low. I think one of the reasons for that low 
moral may well be the outsourcing initiative that you are 
running out of OMB, telling a large portion of the Federal work 
force that the jobs are in danger of being eliminated, and the 
private sector is being brought in.
    I am just wondering is this a good way to approach the 
problem? We are worried about too many retirements. I think you 
are encouraging them. What are your thoughts on this?
    Ms. Styles. Well, I don't accept the proposition that 
competitive sourcing is demoralizing to our work force. I have 
seen many good, and some bad, examples of competitive sourcing. 
When it is run right and when it is managed well, it infuses 
our work force with pride; they become innovative, they become 
competitive, they become more efficient, and they beat the 
private sector. One of the best examples, the President just 
gave an award to Offutt Air Force Base, where they organized, 
they put together a competitive bid, and they won the 
competitive sourcing. It couldn't be a better example of our 
work force winning and being proud of what they are doing.
    Certainly there are examples that haven't gone as well. 
What we are focusing on is managing better, making sure that 
our work force can compete, that they are trained, that they 
have the resources, and that they can put forward a competitive 
bid, because in the end we are all going to win if we have a 
work force that can compete and can put together a bid that is 
on par with the private sector.
    Mr. Towns. Let me ask you, Ms. Styles, direct conversion of 
functions from Federal employees to the private sector is one 
way in which agencies can meet their competitive sourcing 
quotas. In a recent Senate hearing you made the statement that 
agencies over the last 2 years have made decisions directly 
convert that have not been in the interest of the taxpayers. 
Would you please explain what you mean when you say that?
    Ms. Styles. I am not sure that is an exact quote from the 
hearing. I stated that I am concerned, as well as other people 
at OMB, that agencies could be motivated to make a direct 
conversion under the current circular that would be based on 
something other than lowest cost or best value for the agency. 
When a function is less than 10 people, the current circular 
allows departments or agencies to directly convert that work to 
private sector performance on a decision that it is a fair and 
reasonable cost.
    We would like, and we are considering for the final 
circular, to put in place some additional criteria.
    Mr. Towns. Like what?
    Ms. Styles. Pardon?
    Mr. Towns. Could you give us some indication of what you 
plan to put in, I mean, some idea? You don't have to be 
specific, but generally what you plan to put in.
    Ms. Styles. Sure. We are trying right now, although no 
final decisions have been made, to formulate criteria that 
would ensure that agencies are making a cost-effective 
determination; that they take a look at what the capacity of 
the Federal work force is; that they do up-front planning, 
management assessment and evaluation; and that they look and 
see what are potential private sector costs and compare that to 
the public sector costs before they make a determination to 
send any work out the door. I think what we are looking at 
instead of a direct conversion process is one that has a 
streamlined competition process in almost every instance, but 
one that would give significant flexibility to the agencies to 
do that as they would deem appropriate, and to give them the 
flexibility to manage their agencies as they would deem 
appropriate when we are dealing with smaller functions.
    Mr. Platts. If the ranking member would yield, we will come 
back to you.
    Mr. Towns. I would be delighted to, yes.
    Mr. Platts. I would like to recognize Mr. Sessions.
    Mr. Sessions. Thank you, Mr. Chairman. I have two quick 
questions, if I could, one for the gentlewoman from GAO, Ms. 
Dalton.
    Can you please characterize the work that you are doing 
currently with SBA? It was mentioned that they did not get a 
clean audit.
    Ms. Dalton. Yes, they haven't had a clean audit. There are 
some issues there. I don't have all the specifics on the SBA 
situation; we can provide that for you.
    Mr. Sessions. Good. If you could please provide some sort 
of written feedback from your perspective to the chairman of 
this committee and to this member, and to the gentleman Mr. 
Towns, I would appreciate it, and myself.
    Ms. Dalton. Yes.
    Mr. Sessions. Second question I had, chairman, really deals 
with Mrs. Styles.
    And, by the way, congratulations on your daughter, who 
seems to successfully be in the room. That is pretty good. I 
don't know whether she is still here or not, but she was. I 
don't think my 4-year-old could have done that at all.
    Ms. Styles. And she didn't disrupt the hearing. That was 
good.
    Mr. Sessions. Well, he would have insisted on coming up and 
sitting with me.
    The question I have is related to this streamlining and 
this A-76 process. I am interested in your feedback from a 
Pentagon perspective. The Pentagon is what I would call the 
behemoth of the processes that go on, and I am interested in 
the feedback from a professional aspect that you see in that 
relationship.
    Ms. Styles. I have an excellent relationship with the 
Department of Defense in examining these issues. They have been 
an unparalleled resource in really looking at what works and 
what doesn't work. They have sat down with me for literally 
weeks at a time to assess the draft circular that we sent out 
and to help us in building a final circular that will work not 
only for the Department of Defense, but for the civilian 
agencies as well. I think they are very happy with where we are 
with the circular right now. I think they believe that they can 
improve their processes using this new circular, and 
extensively, dramatically, I think, improve their processes 
under this new circular.
    Mr. Sessions. So it sounds like that the interaction has 
been successful, that they are agreeing with and have provided 
information and feedback to you and are excited about using 
this process.
    Ms. Styles. Absolutely. They have brought in people from 
all over the country that have dealt with the A-76 process, and 
Defense has been doing this for a long time, but they brought 
in people from all over the country to help me, specifically, 
in rewriting the circular and understanding the management 
problems that they have had in specific and varied instances.
    Mr. Sessions. The last question I have, chairman, deals 
with homeland security, and I would direct that to anyone on 
the panel who chooses to respond. I will first go to Ms. Styles 
for the initial response.
    Homeland security has become perhaps the most important 
element of our Government. What do you see as the challenges 
that this subcommittee needs to look at in terms of a movement 
between employees, material, those things that inherently might 
shift and move to where we don't lose assets, resources, 
people; anything that might be contained on this chart. If you 
would characterize that. And if you need to tell us you don't 
know, that would be fine, but I am interested in anyone on the 
panel address that either here or in a followup with a letter, 
specifically related to changes, transfers within agencies as 
they move to homeland security and those things, and the impact 
that you see from the performance measures that might be on 
this board.
    Ms. Styles. I have a brief comment on it, although I think 
we can answer it more extensively for the record. I think when 
we deal with competitive sourcing, people sometimes presume 
that the homeland securities aren't taken into consideration 
when we have private contractors doing activities. And I would 
like to point out that we have private contractors, whether 
that is Lockheed Martin or Boeing, making some of our most 
advanced military technology with the highest level of security 
clearances in secured facilities. So we have, at least since 
World War II, trusted our contractors with very sensitive 
information related to homeland security, and I think that we 
have to realize that we are going to continue to trust our 
contractors with that type of information.
    Mr. Sessions. Chairman, I would ask that if any of the 
other witnesses do have any information that they would like to 
provide in writing, I would be interested in that. I think it 
is a precursor to this subcommittee understanding the 
challenges that are ahead in a massive reorganization for the 
Government, and I appreciate the gentleman's time and I thank 
each of the witnesses.
    Mr. Platts. The Chair thanks the gentleman and certainly 
will share with Mr. Sessions and all members of the committee 
any followup information that can be provided, whether it be on 
the SBA question or homeland security. We preaccept your 
following up with us in that manner.
    Also on the issue of the Small Business Administration, we 
do plan a hearing in May focusing specifically on SBA and the 
challenges they seem to be having.
    Ms. Dalton. Mr. Platts, I would like to just add, on the 
homeland security questions, that the General Accounting Office 
has identified the implementation and transformation of the 
department as a high-risk area; it is one of our newest high-
risk areas, and we have listed a number of things that need to 
be done in order to effectively implement the department, 
including developing a long-term implementation plan that will 
cover the full transformation period, effective human capital 
strategies, and a number of other items; and we do have a 
report out on that issue.
    Mr. Sessions. Chairman, I would like to thank the 
gentlewoman. I would be very interested in this subcommittee 
staying involved in that also. I know the administration pays 
attention to what you have to say, but this Congress needs to 
know those issues too, and I thank you.
    Mr. Platts. Thank you again, Mr. Sessions, for your 
participation and, again, your work with the Results Caucus.
    We have a vote in about 13 minutes, so I am going to try to 
push through so we can hopefully get a few more questions in, 
and know that you all have busy schedules and try to squeeze as 
many in before we run over for the vote, and then for any 
additional comments that you want to share as followup in 
writing, but not to keep you waiting there while we go over to 
vote.
    Mr. McPherson, if I could turn to you and your efforts, 
certainly, a very commendable 18 months at USDA and the 
turnaround we have seen there. If you could touch on a two-part 
question. One is, as you referenced, you are dealing with the 
people you have there. And as I always sound proud to be a 
public servant, I don't look at government service as a bad 
thing, I look at it as a good. You spoke very favorably about 
the department employees and how you have been able to motivate 
them, and if you could share some of the secrets of your 
success in motivating USDA employees to take on this financial 
challenge.
    And then also some of the specific tools. You referenced 
both the Debt Collection Improvement Act, but also some 
internal changes or tools you have used. If you could expand on 
what those internal tools are and how we can hope to see them 
replicated elsewhere.
    Mr. McPherson. Thank you very much. I would say that I 
listened, first, carefully to what was important to the program 
managers, that is, the Under Secretaries and the agency heads 
first to understand the view of the challenge on this financial 
management issue from their perspective. Second, I would say we 
developed a very clear and consistent message, that is, we do 
focus on results and we encourage people to act and behave as 
owners and take full responsibility for these tasks. We operate 
at a constructively aggressive pace to get to the essence of a 
solution and improve, and we really do value the leadership and 
talent.
    So how we have taken that message, it begins with Secretary 
Veneman and my associates in the subcabinet level, people like 
J.B. Penn, Mark Ray, Eric Bost. I have become very close with 
the agency heads, particularly when we are working with areas 
like Forest Service and Dale Bosworth. We have a number of 
structured mechanisms to include monthly communications with 
the chief financial officers of these agencies, but we are just 
a meritocracy, an apolitical meritocracy in the financial 
management, and so we are very focused on results, and I think 
that is satisfying to people.
    As to the techniques on the debt collection, the context 
here is those are very valuable results because the numbers are 
so large, and I think it was a case of using what was available 
to us in our own internal tools. We have made some system 
enhancements in the Farm Service Agency and Rural Development 
dealing with the ability to get on top of the credits, track 
collateral. But it really is just basic good banking, effective 
banking, where the people know the customers, credit, 
collateral, cash-flow, and are exercising the stewardship with 
the cash to get effective public policy outcomes. Their mission 
is a little different, obviously, than a commercial lender, but 
it is a lot of just basic techniques to do a good job.
    Mr. Platts. Well, your numbers certainly speak well of the 
efforts. And if there are specific things and a way we could 
further enhance the Debt Collection Act that would allow you to 
continue that success and expand it, and if there are specific 
tools that you reference that are internal that you would be 
able to share with us, and we certainly would be glad to share 
with others that we will be meeting with, like SBA, who aren't 
having maybe the same financial success as USDA is now showing, 
we would welcome them.
    Mr. Towns.
    Mr. Towns. Just a quick question to Mrs. Dalton.
    In your written statement you indicated that the current 
budget does not always help us to consider the long-term costs 
associated with some activities that commit the Government to 
future spending. First of all, what do you mean by that, and 
what are some of these activities and what should we do to 
actually get more complete information to be able to make a 
decision?
    Ms. Dalton. What I was referring to, Mr. Towns, is that 
many of the activities of the Government have a long gestation 
period, and the budget deals with, by its nature, 1-year 
increments, and at times where there is a long-term investment 
decision, you are only seeing that 1-year piece. It is 
important to see the full life-cycle of what the investment 
entails. A more ready example would be probably weapons systems 
acquisition, where it is going to take 5 to 10 years to develop 
a good system. Well, when you look at government activities and 
government programs, oftentimes it takes a long period to see 
results; it takes regular investments over that period, and it 
is important to see that.
    And through the oversight process I think Congress can be 
better informed by looking at the performance goals for a 
particular activity; looking at them through--not just for the 
current year--but looking out 2, 3, 4, and 5 years. When you 
look at an agency's strategic plan, it is looking at those 
long-term goals. And there needs to be associated costs, what 
are the resources that are going to be committed to those 
goals, and seeing that progression also is important so that 
the Congress can make a more informed decision as to what we 
are buying and what services the American people are going to 
be receiving.
    Mr. Towns. Thank you very much.
    Let me just ask a general question, other than Ms. Styles; 
we have heard her on this issue.
    Outsourcing, of course, and morale. Is there a correlation? 
Anyone want to make a comment on that very briefly? Outsourcing 
and morale.
    Mr. McPherson. Let me offer a thought for your 
consideration, Congressman. The purpose, to me, of competitive 
sourcing is to create better enterprises and better jobs for 
people, and competitive sourcing is really a how to do that as 
a choice. So over time I would hope that what was learned in 
industry in the last decade, in terms of alliances, 
partnerships, teaming, joint ventures, the ability to attract 
the best available talent on demand to perform a mission are 
all attractive ways to make better enterprises, more of an open 
architecture, if you will.
    In our own instance, I mentioned the competitive sourcing 
competition on the payroll. We competed 288 jobs in Louisiana 
as part of a very rigorous and purposeful competition to be a 
payroll provider. To date, that is the largest competitive 
sourcing transaction at the Department of Agriculture. And in 
this instance Government won, we won. More to come as that 
process continues. But it just shows the effectiveness, I 
think, of people, career people and cultures of can-do, that 
can do results.
    So those are some overarching thoughts that I have observed 
in the time that I have served in the Federal Government.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Mr. Platts. Thank you, Mr. Towns.
    I am going to squeeze in. I am always running for these 
votes, trying to be in all these places as once.
    But a followup, Mr. McPherson, on some of the things you 
highlighted that allow you to achieve success. Is there 
anything in particular that is your greatest obstacle to 
changing the mind-set, changing the financial accountability of 
our Federal Government agencies?
    Mr. McPherson. This is my first time of serving at the 
Federal level. I experienced no significant barriers. One that 
we have had to break through was an amount of deferred work, 
work that had been accumulated over a number of years, whether 
it dealt with inadequate computer systems, I mentioned 17 
conversions, or feeder systems that handle various items across 
the department, or various reconciliations in terms of cash and 
checking accounts, as I call them, or property records that 
just had not been performed over time. So there was a lot of 
catch-up, and I would say that was probably the biggest 
barrier.
    Mr. Platts. OK. Thank you.
    One final question, and I apologize that it is here at the 
end, for Ms. Styles and Mr. Forman on the issue of the 
scorecard and the fact that OMB is assessing all the agencies 
and yet shows red across the board on the five governmentwide 
initiatives. What is the greatest obstacle to OMB in setting 
that example for everyone else of having green all the way 
across? I do take note that you are either green or yellow in 
the progress, and I am glad to see that, but what is the 
challenge that OMB itself is having in getting to yellow and 
eventually green on those five governmentwide criteria?
    Ms. Styles. I would start off by saying I think we chose 
tough initiatives. I think we chose very problematic areas not 
just at other agencies, but at OMB as well; and it is good for 
OMB to be scored on these. In competitive sourcing, it makes us 
realize the difficult questions and problems that agencies 
confront when they have to look at competitive sourcing and the 
difficult choices that have to be made, and I assume that it is 
the same for the other initiatives as well. I am sure Mark 
Forman can address electronic government or e-government at 
OMB.
    But we also, just so people know that our scores are very 
honest, we don't just score ourselves, we send them to other 
agencies to validate the scores, which they love to do since we 
have been scoring them.
    Mr. Forman. I think the change that we are seeing within 
OMB, largely under the vision of Mitch Daniels, our Director, 
is focused on how we are managing and hold the agency up to 
that same standard that we are holding all the other 
departments and agencies. It is a change. The world has changed 
since last time anyone looked at management, so we, like the 
other agencies, are going through similar cultural issues. I 
don't know if you could say there is any one that stands out, 
but very similar, for example, to the ones that Secretary 
McPherson raised at Agriculture.
    Mr. Platts. Well, we do look forward to all agencies, 
including OMB, to get to that yellow and green, as I am sure 
you as well do, and that you are scoring the other agencies. 
And certainly this effort is very commendable because unless we 
start to scrutinize ourselves, we won't improve, whether it be 
us personally or as agencies and representatives of our 
taxpayers.
    I apologize that we are now out of time and we cannot 
continue with more questions, but I greatly welcome further 
comments that you want to share, and I thank you for your 
testimony here today and the in-depth written testimony, as 
well.
    Working together, the executive branch and Congress, 
certainly we know we can make great strides for more financial 
accountability and Government efficiency for our taxpayers, who 
we all want to serve well.
    But I do thank you for your efforts and being here with us 
today.
    I will quickly thank the staff, both majority and minority 
staff members, who have helped put this hearing together. And 
we will hold the record open for 2 weeks from this day for 
those who want to forward submissions for possible inclusion 
after the fact.
    And just once again thank you.
    This meeting is adjourned.
    [Whereupon, at 11:43 a.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional information submitted for the hearing record 
follows:]

[GRAPHIC] [TIFF OMITTED] T9242.069

[GRAPHIC] [TIFF OMITTED] T9242.070

[GRAPHIC] [TIFF OMITTED] T9242.071

[GRAPHIC] [TIFF OMITTED] T9242.072

[GRAPHIC] [TIFF OMITTED] T9242.073

[GRAPHIC] [TIFF OMITTED] T9242.074

[GRAPHIC] [TIFF OMITTED] T9242.075

[GRAPHIC] [TIFF OMITTED] T9242.076

[GRAPHIC] [TIFF OMITTED] T9242.077

[GRAPHIC] [TIFF OMITTED] T9242.078

[GRAPHIC] [TIFF OMITTED] T9242.079

[GRAPHIC] [TIFF OMITTED] T9242.080

[GRAPHIC] [TIFF OMITTED] T9242.081

