[Senate Hearing 109-159]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-159
 
           AN ASSESSMENT OF THE PRESIDENT'S MANAGEMENT AGENDA

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

                                HEARING

                               before the

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL 
                                SECURITY

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 21, 2005

                               __________

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs


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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                      Amy B. Newhouse, Chief Clerk


FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL 
                                SECURITY

                     TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska                  THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island      DANIEL AKAKA, Hawaii
ROBERT F. BENNETT, Utah              MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico         FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia             MARK PRYOR, Arkansas

                      Katy French, Staff Director
                   Sean Davis, Legislative Assistant
                 Sheila Murphy, Minority Staff Director
            John Kilvington, Minority Deputy Staff Director
                       Liz Scranton, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Coburn...............................................     1
    Senator Collins..............................................     3
    Senator Akaka................................................     3
    Senator Lautenberg...........................................     4
    Senator Carper...............................................     6

                               WITNESSES
                        Thursday, April 21, 2005

Hon. David M. Walker, Comptroller General of the United States, 
  U.S. Government Accountability Office..........................    11
Hon. Clay Johnson, III, Deputy Director for Management, Office of 
  Management and Budget..........................................    14

                     Alphabetical List of Witnesses

Johnson, Hon. Clay, III:
    Testimony....................................................    14
    Prepared statement...........................................    57
Walker, Hon. David M.:
    Testimony....................................................    11
    Prepared statement...........................................    27

                                Appendix

Questions and responses for the record from:
    Mr. Walker...................................................    63
    Mr. Johnson with an attachment...............................    73


           AN ASSESSMENT OF THE PRESIDENT'S MANAGEMENT AGENDA

                              ----------                              


                        THURSDAY, APRIL 21, 2005

                                     U.S. Senate,  
            Subcommittee on Federal Financial Management,  
        Government Information, and International Security,
                            of the Committee on Homeland Security  
                                          and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Tom Coburn, 
Chairman of the Subcommittee, presiding.
    Present: Senators Coburn, Collins, Akaka, Carper, and 
Lautenberg.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. The Subcommittee will come to order. One 
the things we are going to try do with our Subcommittee is run 
on a timely basis. I know the Senate does not have the 
reputation for doing that, but we are going to lead by example.
    This year the Federal Government is expected to spend 
almost $2.5 trillion, making our Federal budget larger than the 
economies of Canada, Mexico, and Australia combined. Put 
another way, Washington will spend more than $22,000 per 
American household this year--$22,000. That is more than the 
average household income of Oklahoma.
    Regardless of one's politics, that is a lot of money. The 
American public has entrusted both Congress and the President 
with ensuring that those dollars are spent wisely. Therefore, 
this Subcommittee convened this hearing today to discuss 
current efforts by the Administration to strengthen the 
management and accountability of Federal programs. The 
Subcommittee Ranking Member, Senator Carper, and I, have had a 
long interest in ensuring that taxpayer dollars are spent 
wisely and efficiently.
    While Congress has the responsibility to appropriate the 
funds necessary to operate the government, the Executive Branch 
is charged with implementing the will of Congress and managing 
the day-to-day activities of myriad Federal programs. Since 
assuming office in January 2001, President Bush has sought to 
make the Federal Government more effective by setting clear 
goals, bringing reform to entitlement programs, and focusing 
Federal resources on programs that are effective.
    In 2001, the Office of Management and Budget (OMB) launched 
the President's Management Agenda, referred to as PMA. The PMA 
contains a multi-part strategy to strengthen the management of 
Federal programs and activities and improve government 
accountability.
    The PMA is the latest in a series of initiatives over the 
past 40 years designed to improve the performance and 
accountability of Federal agencies. Beginning with President 
Johnson's ``Planning Programming and Budgeting System'' in 
1966, each successive initiative has been built on the 
foundation of its predecessors. President Nixon introduced his 
``Management by Objective'' that aimed to expose redundant and 
ineffective programs by identifying goals and expected results 
for Federal programs. Later, President Carter introduced the 
zero-based budgeting concept in 1977 that forced each program 
to prove its value on an annual basis.
    GPRA, the Government Performance Results Act of 1993, 
signed by President Clinton, is the most recent legislative 
effort regarding budget and performance integration. GPRA 
directed Federal agencies to improve management, clarify 
program responsibility, and account for program performance 
through strategic and annual performance plans. The Program 
Assessment Rating Tool (PART), which is an integral component 
of PMA, builds on GPRA and seeks to better align budgetary 
decisions with program performance.
    As we will hear from our witnesses, the PMA consists of 
five government-wide initiatives: Strategic management of human 
capital, competitive sourcing, improved financial performance, 
e-Government, and budget and performance integration. Each of 
these initiatives has been developed to streamline Federal 
programs, to improve the availability and use of important 
information regarding programmatic and budgetary decisions, and 
to help the Federal Government meet future challenges.
    Through today's assessment of the PMA, we hope to discuss 
such questions as: In what areas has the PMA been most 
successful and where can it be more effective? What lessons 
have been learned and how have those lessons been integrated 
and applied?
    We are pleased to have with us representatives from the 
Government Accountability Office (GAO), and the Office of 
Management and Budget, who will offer their assessments 
regarding how Congress and OMB can work better together to 
manage this country's finances.
    We are privileged to have the Hon. David Walker, 
Comptroller General of the Government Accountability Office, 
with us today. GAO has extensive experience with not only the 
PMA but also GPRA and its predecessor initiatives. Mr. Walker 
will shed some light on the effectiveness of the PMA and the 
interaction between PMA's PART process, which aims to link 
program performance with the budget process, and GPRA.
    We will also hear from the Hon. Clay Johnson III, the 
Deputy Director for Management at the Office of Management and 
Budget, who will provide us with OMB's perspective on the PMA 
today. I particularly look forward to hearing from Mr. Johnson 
regarding the budget and performance integration initiative and 
the PART process. I am also interested to hear more regarding 
how the Federal Government is matching money spent on hundreds 
of programs with program results. Can we achieve the desired 
results more efficiently, more effectively, and at a lower cost 
to taxpayers? I look forward to discussing with both of you 
ways in which the Executive and Legislative Branches can better 
work to ensure that taxpayer dollars are spent wisely.
    Before I introduce our witnesses, I would like to recognize 
my Chairman, Senator Collins, who may wish to make an opening 
statement.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you very much, Mr. Chairman. I want 
to congratulate you on chairing what I think is your first 
Subcommittee hearing since coming to the Senate. You have been 
a real champion of the taxpayer, always on the watch for waste, 
fraud, and abuse. I am very pleased that you have chosen to 
join our Committee, which historically has played an important 
role in identifying and fighting fraud, waste, and abuse in 
government programs.
    In particular, you have accepted the daunting task of 
ensuring that Federal agencies are spending taxpayers' dollars 
wisely and efficiently through the oversight of their financial 
and information technology management. More and more, as our 
witnesses well know, financial management systems and 
technology play a key role in our ongoing efforts to combat 
waste, fraud, and abuse, and to ensure that the taxpayers get 
full value for their investment.
    Our continued success in this area, then, will depend 
heavily on the effectiveness of these management systems. 
Furthermore, the failure of several high-profile Federal IT 
systems, such as the FBI's Trilogy program, are among the most 
prominent examples of wasteful Federal spending in recent 
years.
    So, the topic you have chosen for your first hearing, the 
President's Management Agenda, is an important one and one that 
I have discussed with both of our witnesses many times. I think 
that this Subcommittee is going to help ensure that tax dollars 
are well spent, and I very much am delighted to have you here 
in your new capacity, and I congratulate you for your 
leadership.
    Senator Coburn. Thank you, Madam Chairman. Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. I want to 
recognize the presence of our Chairman, Senator Collins, and 
thank her for her good work as Chairman of the full Committee 
on Homeland Security and Governmental Affairs. As the former 
Ranking Member of this Subcommittee, I want to wish you, Mr. 
Chairman, and your Ranking Member, Senator Carper, well. Our 
former colleague, Senator Peter Fitzgerald, and I held many 
hearings, and successfully sponsored legislation to increase 
financial transparency within the Federal Government, and draw 
attention to the national security needs of our country. I know 
you are truly committed to government efficiency and 
accountability, Mr. Chairman, and I look forward to working 
with you.
    I also want to join you in welcoming our witnesses today, 
both of whom appeared before the Subcommittee on Oversight of 
Government Management 2 months ago to discuss GAO's high-risk 
list. At our hearing I expressed my disappointment that so many 
areas within the Department of Defense remain on the list. Out 
of the 25 high-risk area on this year's list, eight are unique 
to DOD, and several more are government-wide issues that 
directly impact DOD. These deficiencies keep DOD from getting a 
clean audit and result in billions of dollars in waste.
    As the Ranking Member of both OGM and Armed Services 
Readiness Subcommittees, I have worked hard to improve the 
efficiency of DOD programs and operations. I know the 
Comptroller General will discuss some of DOD's management 
shortfalls, and I applaud his persistent focus on the 
Department's financial performance and program accountability.
    Mr. Chairman, last week, I joined with Senator Ensign and 
Senator Voinovich, who are the Chairmen of the Armed Services 
Readiness and Oversight of Government Management Subcommittees 
respectively, to introduce S. 780, legislation to create a new 
position of Deputy Secretary of Defense for Management. Our 
bill is based on a recommendation made by Mr. Walker, and I 
invite you to cosponsor this measure that will designate one 
person accountable for the integration and implementation of 
management and defense business reforms.
    Another area within the President's Management Agenda is 
strategic management of human capital. Again, pointing to 
problems in DOD and a recommendation of the Comptroller 
General, I note that DOD has failed to develop a comprehensive, 
strategic workforce plan to guide its human capital efforts.
    These are the issues; these are the concerns that we are 
looking at. I look forward to working with you, Mr. Chairman, 
Senator Carper and, of course, Senator Collins, and I wish all 
of you well. Thank you.
    Senator Coburn. Thank you, Senator Akaka. Senator 
Lautenberg.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thanks, Mr. Chairman, and my good 
wishes also for your first venture as Chairman, and the subject 
is a very important one. I am glad it is being taken up. So I 
thank you for convening this hearing.
    Mr. Chairman, I come from the business world, and I started 
a company with a couple of other fellows whose father, like 
mine, came from factory employment. I left that company 23 
years ago that now employs more than 40,000 people, and we 
would never have gotten there if I had not run a tight ship and 
I knew what I expected from my program managers, and I held 
them accountable. But I also rewarded their successes. The 
result was an outstanding growth record for more than 40 years.
    So I understand and I applaud the President's desire to 
instill the best management practices in our Federal 
Government. We should be demanding accountability from our 
government programs and making sure they accomplish the goals 
we set out for them. Government can be and often is a great 
force for good in America. It provides health care for poor and 
the elderly and it helps kids go to college. If I had not had 
the GI bill to boost me along, I never would have, frankly, 
been able to go to college as I did. Government also helps keep 
our communities vital and does research to fight childhood 
disease and disability.
    Mr. Chairman, we have to make sure these programs are 
accomplishing their goals. It is not only a matter of spending 
the taxpayers' money wisely, although we must always do that. 
It is a matter of making sure that money we spend in government 
gets to the people who need it, actually doing the good work 
that is required out there in the country.
    But I learned something else in my business years, and you 
get what you pay for. So we may have to make sure that we are 
measuring the right things. We cannot allow program evaluations 
to look simply at expenditures without looking at the 
successes. And I also want to express a serious concern about 
one of the five key pillars of the PMA, and it is called 
competitive outsourcing.
    Now, last year, the government held 217 competitions with 
about 12,500 full-time jobs at stake. Federal workers competed 
against private contractors for their jobs. The public 
employees won the competition more than 90 percent of the time. 
And I note from my own experience that what I had by way of 
support when I was in the corporate sector was very efficient 
and well done, but I see people in government who come to work 
for a heck of a lot less than they would make in the private 
side, with as much enthusiasm and commitment as we see in the 
private side.
    So I ask my colleagues, are we spending more energy on 
competing jobs than its ultimately worth? Instead of having 
Federal employees spend time competing for their jobs, why 
don't we just let them do their jobs? And not without measure 
and not without expectations of success and commitment.
    I always found in my business experience that the employees 
were our greatest asset, because if we had good performance by 
our employees, the customers would come, and the same thing is 
true, I believe, in government. If the programs are successful, 
if it shows an attempt by government to improve life's 
conditions, then we will get the support of the people out 
there.
    So we have to maintain good and dedicated employees as part 
of our organization, and we have to try to keep them reasonably 
happy. You have to invest in them, help them plan for the 
future. The Federal Government hasn't done this enough, in my 
judgment, because very often we throw employee compensation in 
a basket called waste, fraud, and abuse, and that is not always 
the case. Indeed, GAO found that during the downsizing in the 
1990's, the Federal Government did not plan well for its future 
in human capital needs. As a result, the Federal workforce has 
suffered.
    Mr. Chairman, we all know that we have to treat people 
right to get results. We hope that contracting out jobs, 
because the government has decided on a policy--we have to 
examine what it is that we get for the changes we make, and I 
am sure that you will do that, and I thank you, Mr. Chairman.
    Senator Coburn. Thank you, Senator.
    It is a great privilege for me to have as a Ranking Member 
and integral, even part of this Subcommittee, Senator Carper. 
Of note, both of our initials are T.C., so that makes for a lot 
of fun at times.
    I want to commit to him now that this Subcommittee will be 
run on a bipartisan basis. It will be partisan only on issues 
that are important to the future of this country, and he has 
demonstrated his commitment through his life, his votes, and 
his service to care about the future of our country and to care 
about its economic consequences through waste. And so I could 
not have somebody that I am, first of all, closer to or aligned 
with in terms of his dedication, and I am very pleased that he 
is the Ranking Member on this Subcommittee.
    And I also know that he has an extreme interest in not only 
making sure we spend our money wisely but the money that is due 
the Federal Government from income taxes that are not collected 
that should be collected is something that we are going to look 
at, and I make that commitment to him at this hearing that we 
will do that.
    Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Mr. Chairman. I am glad I came 
just for that introduction. [Laughter.]
    For my colleagues and our guests, along with Senators Lamar 
Alexander, George Voinovich, and Mark Pryor, I asked our 
leaders, we asked Senators Tom Daschle and Bill Frist at the 
end of last year if we could put together really a school for 
new Senators modeled after the New Governors School within the 
National Governors' Association--plunk it right down in the 
middle of the U.S. Senate--and it gave me an opportunity to get 
to know then Senator-elect Coburn and his wife and all the 
other new Members. It was a wonderful experience for me. I 
don't know that it was of great help to our incoming Members, 
but it sure was helpful to those of us who hosted it and gave 
us real insights into our new colleagues. And I am delighted 
that we ended up--T.C. West and T.C. East--on the same 
Subcommittee and have the chance to work together. And he has 
been in the Senate now--for what?--3 or 4 months, and I think 
he has shown as much vigilance in trying to do something about 
the budget deficit as anybody around, and God knows when we are 
pushing $400 billion in Federal budget deficit, we need some 
vigilance and some leadership, and I know we have it right here 
to my left.
    I like being on your right, to the right of you.
    Senator Coburn. You are actually on my left to them. 
[Laughter.]
    Senator Carper. I have a statement I would like to offer, 
if I could, Mr. Chairman.
    Senator Coburn. Please do.
    Senator Carper. All right. First of all, let me just say to 
General Walker--I saw him almost as much as I saw my wife this 
week. This is the second hearing today that he has testified 
at, and I don't know how--maybe they have cloned you. I don't 
know. There are days I wish we could clone me. That is a scary 
thought. But we are glad you are here, and, Mr. Johnson, 
welcome, we look forward to hearing from both of you.
    I think it is most appropriate, Mr. Chairman and my 
colleagues, that at our first hearing we are going to get an 
update on the President's Management Agenda, and while I don't 
agree with every single aspect of what the President has put 
forward, I do applaud him and his team for working aggressively 
since his first days in Washington to try to make our 
government work a little bit better and a little bit smarter. 
At a time when our Federal budget deficit is not just 
approaching $400 billion, but I believe if you add in the 
supplemental, the emergency supplemental that is before us 
today in the Senate, if you add that in, we are going to be 
running a deficit that will exceed $400 billion, and we need to 
do all that we can to make every dollar count.
    The Chairman and I have already been talking about not only 
making sure that we are doing the right thing on the spending 
side and so forth, but to make sure the folks, businesses or 
individuals, who owe taxes, that they legally owe, that we are 
doing the very best job that we can to make sure we collect 
those dollars. Actually, frankly, we are looking forward to 
hearing from both of you and from the folks you lead to see how 
we might do that better.
    But I was pleased to learn that many agencies are now 
getting a better handle on their finances--not all, but many. 
Agencies are apparently getting their annual written financial 
statements in earlier, and I believe most of those statements 
are in better shape than they have been in years gone by, and I 
think we all agree that is real progress.
    I am also pleased the Administration is beginning this year 
to tackle the problem of improper payments, and more than $45 
billion, I am told, in improper payments were made in fiscal 
year 2004. If that is true, if that is even close to being 
true, that is a huge number. Whether it is $45 or $35 or $25 
billion, we need to work together to tackle this problem, 
because with every double payment that goes out or 
inappropriate payment that goes out with every individual 
vendor who accidentally or fraudulently receives a payment that 
he or she is not entitled to, a worthy program is denied 
resources that could be put to better use.
    I look forward to our hearing today about how OMB intends 
to meet the President's goals for reducing improper payments. I 
would also like to hear about what might need to be done to 
strengthen our agencies' internal controls to detect and 
prevent wasteful and unnecessary payments before they happen.
    That said, I do have some concerns about the way that some 
of the initiatives in the President's Management Agenda are 
being implemented. The President's initiatives to improve human 
capital management across the Federal Government is a good 
example, and some of his initiatives in this area are most 
worthwhile, and I think they are supported by just about all of 
us.
    It is difficult for many agencies to bring qualified 
personnel on board, for example, and this job will be even more 
difficult in the coming years as workers from my generation, 
the boomers, begin to retire.
    In addition, there is some logic to the idea that employee 
performance should play a bigger role in determining how an 
individual is paid. I believed that as a Governor, and I 
believe that today. If personnel reform proposals currently 
being implemented at the Department of Defense and the 
Department of Homeland Security are indications of how we 
intend to address these and other human capital problems, in 
some respects we may want to go back to the drawing board.
    I don't need to remind everybody, Mr. Chairman, on this 
Subcommittee that the employees at the Department of Defense 
and the employees at the Department of Homeland Security are 
for the most part opposed to the new personnel systems at their 
departments. Some of them may be even suing to prevent the new 
systems from going into effect out of a concern that proposals 
in areas like employee appeal and union rights go much too far.
    Some are also concerned that the proposed pay-for-
performance systems each Department will be phasing in don't 
provide employees with enough protection against favoritism or 
other potential management abuses. This is having an effect, I 
am told, on morale, and the two Departments could very well 
have an impact on recruitment and retention in the future, and 
we have all got to be mindful of that and attentive to it.
    Before we talk about exporting from the Department of 
Defense or Department of Homeland Security to other agencies, 
as the President has suggested, we just need to be mindful of 
these concerns and, I think, to address them.
    And I also have some concerns that I would like to share, 
Mr. Chairman, about the President's competitive sourcing 
initiatives. I think maybe Senator Lautenberg may have been 
addressing this. I am not sure. While I support the idea of 
increased competition for Federal work that is not inherently 
governmental, I am not entirely comfortable with the degree to 
which the revised rules governing how competitions should be 
run may favor private bidders in some respects and make it more 
difficult to be sure that the bidder who can do the best work 
at the lowest price always winds up with the contract.
    I would like to see the rules further revised so that 
Federal employees always have the right to reorganize 
themselves and to put their best bid forward, and I would also 
like to see Federal employees given the same right that their 
competitors in the private sector have to protest decisions 
made by an agency in a competition. I believe we need to work 
to refine the rules so we can always say that the winner of a 
public-private competition is the party that can give the best 
value to the taxpayers for their money.
    And, finally, I would also like to briefly address the 
President's initiatives on performance-based budgeting and the 
mechanism being used to enforce it, and that is the Program 
Assessment Rating Tool. I think it uses an acronym. I don't 
like to use acronyms, so I am going to try to continue to say 
that phrase over again: Program Assessment Rating Tool.
    I will never be one who will argue that a program that is 
ineffective or that has served its purpose and is no longer 
needed should continue to receive funding. I am not interested 
in that; neither are you. However, we need to be careful before 
deeming a program a failure and defunding it. And the Program 
Assessment Rating Tool is, I think, an interesting proposal. I 
have no problem looking at programs on a regular basis to 
determine whether or not they are accomplishing what they are 
intended for them to accomplish when we first created them. We 
need to be certain, though, that the Program Assessment Rating 
Tool or whatever mechanism we use to make these evaluations is 
separated from politics and ideology and is closely coordinated 
with existing mechanisms that agencies and Congress use to 
align budgets with program goals and outcomes.
    We also need to make sure that a program's intended 
beneficiaries outside of Washington have a say before an 
evaluation is completed.
    I am going to stop there, Mr. Chairman. I have a bit more, 
but I would just ask unanimous consent for it to be entered for 
the record. We welcome our witnesses, and thank you very much.
    Senator Coburn. Without objection, it will be entered.
    [The prepared statement of Senator Carper follows:]

                  PREPARED STATEMENT OF SENATOR CARPER

    Thank you, Mr. Chairman. I'm pleased to join you here today at the 
first hearing of the Subcommittee on Federal Financial Management, 
Government Information and International Security. Our name is long, 
our jurisdiction is broad and issues we'll be focusing on over the next 
2 years are vitally important ones. I look forward to working with you 
in a bipartisan way to help our government be a better steward of 
taxpayer dollars and to make our Nation safer from terrorism.
    I think it's very appropriate, Mr. Chairman, that at our first 
hearing we'll be hearing an update on the President's Management 
Agenda. While I don't agree with every aspect of what the President has 
put forward, I applaud him for working aggressively since his first 
days in Washington to try to make government work better and smarter.
    At a time when our Federal budget deficit is soaring, we need to do 
all we can to make every dollar count. I was pleased to learn, then, 
that many agencies are now getting a better handle on their finances. 
Agencies are apparently getting their annual financial statements in 
earlier. And I believe most of those statements are in better shape 
than they have been in years past. this is real progress.
    I'm also pleased that the administration is beginning this year to 
tackle the problem of improper payments. More than $45 billion in 
improper payments were made in 2004. We need to work together to tackle 
this problem. With every double payment that goes out, with every 
individual or vendor or accidentally or fraudulently receives a payment 
he or she is not entitled to, a worthy program is denied resources that 
could be put to good use.
    I look forward to hearing today about how OMB intends to meet the 
President's ambitious goals for reducing improper payments. I'd also 
like to hear about what might need to be done to strengthen agencies' 
internal controls to detect and prevent wasteful and unnecessary 
payments before they happen.
    That said, I'm concerned about the way some of the initiatives in 
the President's Management Agenda are being implemented. The 
President's initiative to improve human capital management across the 
Federal Government is a good example.
    Some of the President's personnel proposals are worthwhile. It's 
difficult for many agencies to bring qualified personnel onboard, for 
example. This job will be even more difficult in the coming years as 
Federal workers from my generation begin to retire in the coming years. 
In addition, there's some logic to the idea that employee performance 
should play a bigger role in determining how an individual is paid. If 
the personnel reform proposals currently being implemented at the 
Department of Defense and the Department of Homeland Security are 
indications of how we intend to address these and other human capital 
problems, however, we might need to go back to the drawing board.
    I don't need to remind anyone on this Subcommittee that the 
employees at the Department of Defense and the Department of Homeland 
Security are very much opposed to the new personnel systems at their 
departments. Some of them are even suing to prevent the new systems 
from going into effect out of concern that proposals in areas like 
employee appeals and union rights go much too far. Some are also 
concerned that the proposed pay-for-performance systems each department 
will be phasing in don't provide employees with enough protection 
against favoritism and other management abuses. This is having an 
impact on morale in the two departments and could very well have an 
impact on recruitment and retention in the future. Before we talk about 
exporting the Defense or Homeland Security models to other agencies, as 
the President has suggested, we need to address some of these issues.
    I also have concerns about the President's competitive sourcing 
initiative. While I support the idea of increasing competition for 
Federal work that's not inherently governmental, I'm uncomfortable with 
the degree to which the revised rules governing how competitions should 
be run favor private bidders, in some respects, and make it more 
difficult to be sure that the bidder who can do the best work at the 
lowest price winds always up with the contract. I'd like to see the 
rules further revised so that Federal employees always have the right 
to reorganize themselves and put their best bid forward. I'd also like 
to see Federal employees given the same right that their competitors in 
the private sector have to protest decisions made by an agency in a 
competition. We need to work to refine the rules so we can always say 
that the winner of a public-private competition is the party that can 
give taxpayers the best value for their money.
    Finally, I'd also like to address briefly the President's 
initiative on performance-based budgeting and the mechanism being used 
to enforce it--the Program Assessment Rating Tool, or PART.
    I'll never be one who'd argue that a program that's ineffective or 
that has served its purpose and is no longer needed should continue to 
receive funding. However, we need to be careful before deeming a 
program a failure and de-funding it.
    PART is an interesting proposal. I have no problem looking at 
programs on a regular basis to determine whether or not they're 
accomplishing what we intended for them to accomplish when we first 
created them. We need to be certain, however, that PART or whatever 
mechanism we use to make these evaluations is separated from politics 
and ideology and is closely coordinated with existing mechanisms 
agencies and Congress use to align budgets with program goals and 
outcomes. We also need to make sure that a program's intended 
beneficiaries outside of Washington have a say before an evaluation is 
completed.
    In closing, Mr. Chairman, I'd like to say something about the 
President's Management Agenda and its impact on the budget. The 
President's FY 2006 budget proposal states that the management agenda 
is a critical component of his plan to cut the budget deficit in half 
by 2009. I have doubts about that plan for a variety of reasons. It's 
clear to me, however, that even full and successful implementation of 
the management agenda won't get us there. I can help, but it won't get 
the job done on its own.
    Non-defense discretionary spending, the target of many of the 
spending reductions in the President's budget proposal, makes up only 
about 16 percent, I believe, of the total Federal budget. I'm sure we 
can find ways to improve the management of some of the funding in that 
16 percent, or even to find and eliminate waste or inefficient use of 
resources. If we truly want to tackle the fiscal problems facing us 
right now, however, we'll need to take a look at the entire budgetary 
picture, on the spending and revenue side, and make some tough 
decisions.
    Thank you, Mr. Chairman, for holding this hearing. I look forward 
to working with you on these issues in the coming years.

    Senator Carper. And, Mr. Chairman, I just look forward to 
working with you and----
    Senator Coburn. Well, I just wanted to let my accountant 
come out in me a little bit. I do have a degree in accounting, 
and although I am a physician----
    Senator Carper. Well, you are multi----
    Senator Coburn. I want for the record to note that the real 
deficit this year is going to be $640 billion. It is going to 
be a $410 billion deficit. We are going to add $80 billion on a 
supplemental right now, and we are going to steal $150 billion 
from Social Security that we are going to write an IOU for. So 
in terms of the debt of the country this year, the deficit is 
going to be at a minimum $640 billion. That is a real problem.
    Let me thank our witnesses for coming. A brief 
introduction, if I may. You are both very well known to the 
Senate. The first witness is Hon. David Walker, Comptroller 
General of the United States. He began his 15-year term as the 
Nation's chief accountability officer and was appointed in 1998 
as head of the U.S. General Accounting Office, now referred to 
as the Government Accountability Office. Through his role as 
Comptroller General, Mr. Walker oversees GAO's work to improve 
the performance and accountability of the Federal Government, 
including measures to improve the efficient use of taxpayers' 
dollars.
    Before his appointment as Comptroller General, Mr. Walker 
had executive-level experience in both government and private 
industry. He worked for Arthur Andersen LLP between 1989 and 
1998 where he was partner and global managing director for 
human capital services practice in Atlanta, Georgia. While a 
partner at Arthur Andersen, he served as a public trustee for 
Social Security and Medicare from 1990 to 1995.
    Our second witness is the Hon. Clay Johnson III, Deputy 
Director for Management at the Office of Management and Budget. 
In his role he provides government-wide leadership to Executive 
Branch agencies to improve agency and program performance. 
Prior to this position, Mr. Johnson served as Assistant to the 
President for Presidential Personnel and as Executive Director 
of the Bush-Cheney transition team. From 1995 to 2000, he also 
served as appointments director and chief of staff for then-
Governor George Bush.
    Similar to Mr. Walker, prior to his government service he 
had an impressive career in the private sector as chief 
operating officer of the Dallas Museum of Art, president of 
Horchow and Neiman Marcus mail order divisions.
    I would like to thank you both for being here. In the 
interest of time, your full statements will be made a part of 
the record, and I would ask that you limit your opening 
statements to 5 minutes. Mr. Walker.

 TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL OF 
    THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Walker. Chairman Coburn, Senator Carper, and Senator 
Lautenberg, it is a pleasure to be back before you. Let me 
congratulate you, Mr. Chairman, on your assuming this 
chairmanship. I am very excited about the fact that you are 
very interested in these issues. You have a lot of enthusiasm 
for them. I know that Senator Carper and Senator Lautenberg and 
others do as well. So I look forward to a long and mutually 
beneficial relationship on issues of mutual interest and 
concern to the country.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 27.
---------------------------------------------------------------------------
    I will provide an executive summary of my statement in the 
interest of time.
    This hearing is about the President's Management Agenda, 
and let me state for the record that we believe that this has 
been a very positive initiative in the aggregate. The 
Administration's implementation of the President's Management 
Agenda has demonstrated its commitment to improving Federal 
management and performance. It has served to raise the 
visibility of key management challenges, increased attention to 
achieving outcome-based result, and reinforced the need for 
agencies to focus on making sustained improvements in 
addressing longstanding problems, including the items on GAO's 
high-risk list. I might note that there is a very strong 
correlation between the President's Management Agenda and GAO's 
high-risk list, and that is not an accident. In fact, we worked 
together in a very constructive manner to make progress on a 
whole range of fronts, not just limited to the high-risk list 
but with a special emphasis on the high-risk list.
    As was mentioned by Senator Akaka, 14 of 25 high-risk areas 
relate to the Department of Defense, directly or indirectly. 
DOD is clearly the biggest major challenge that we have in the 
business transformation effort in the Federal Government for 
any single agency, and yet there are a number of challenges 
that span a number of agencies within the Federal Government. 
If I can, a few words about each of the key areas on the 
President's Management Agenda.
    First, financial management. In general, there has been 
improvement with regard to financial management over the last 
several years. We are continuing to see, as compared to several 
years ago, a higher number of agencies that are receiving clean 
opinions in their financial statements. There was an agreement 
early in the Bush Administration between GAO, OMB, and the 
Treasury Department to raise the bar on what is the standard 
for success in financial management. It is not just a clean 
opinion. The standard is also no major internal control 
weaknesses, no major compliance problems, and timely, accurate 
and useful information to make informed decisions on a day-to-
day basis. While we have continued to make progress with regard 
to clean opinions on the financial statements, less than five 
of the agencies have met that entire list of criteria, and DOD 
is the laggard for all of the Federal Government with regard to 
financial management.
    I might also note there has been an acceleration of the due 
date of audited financial statements and related annual 
reports. Specifically, last year, by November 15, the agencies 
had to report and then the consolidated financial statements 
were issued on December 15. That is 45 days after the end of 
the year for the agencies, 75 days after the end of the year 
for the Federal Government, a very impressive improvement. At 
the same point in time, we did see an increase in the number of 
agency statements that had to be restated from the prior year, 
which reinforces the importance of getting the systems and 
controls in place such that you can have not only timely but 
reliable financial information.
    With regard to the second area, eliminating improper 
payments, you properly pointed out, Senator Carper, there were 
about $45 billion in improper payments for fiscal year 2004. 
That is probably understated because there are still some 
agencies that have not reported and there are others that are 
refining their methodology. It is, however, important to note 
that improper payments do not necessarily represent fraud, 
waste, and abuse. Some of those improper payments may, in fact, 
have been bona fide items but there was not a proper 
documentation at the time the payment was made, and so not all 
of those represent fraud, waste, abuse, and mismanagement. But 
clearly it is an unacceptable number, and more needs to be done 
in order to be able to get that number down.
    With regard to the strategic management of human capital, 
as Senator Lautenberg mentioned--I strongly agree that people 
are the most valuable asset in a knowledge-based enterprise, 
especially in a knowledge-based economy. For the most part, 
that is what the government is and, therefore, it is important 
to recognize that reality.
    I would respectfully suggest more progress has been made in 
the area of human capital in the last several years than in the 
last couple of decades, in large part not just efforts within 
the Executive Branch, but also because of actions by the 
Congress.
    But I would also agree it is not important just to give 
management reasonable flexibility so we could modernize our 
human capital policies and procedures to recognize 21st Century 
realities. There need to be adequate safeguards and controls to 
prevent abuse, and proper implementation of these authorities. 
Doing this at DOD and at DHS, is of critical importance. How 
you implement human capital reform matters, and the process 
that you use is just as important as the policy framework that 
you are employing.
    Another initiative on the President's management agenda is 
budget and performance integration. The Program Assessment 
Rating Tool has strong conceptual merit. It is not perfect. No 
tool is perfect. But the idea that you need to focus more on 
how to link resources to results, how you can end up making 
agencies accountable to focus on whether or not they are making 
a difference in the lives of the American people, and whether 
or not they are generating a positive return on investment. 
This clearly has strong conceptual merit.
    Unfortunately, it has not yet been used to a great extent 
in determining actual resource allocations, and in order for 
this tool to have a real meaningful and lasting impact, it has 
got to translate into budget proposal actions by the 
President--which it has to a certain extent, and I am sure that 
Clay Johnson will talk about that. However, it has to be used 
on Capitol Hill and incorporated into Congressional 
decisionmaking in order to make a real and lasting difference.
    Chairman Coburn, as you know, and Senator Carper and 
Senator Lautenberg, because all of you have gotten a copy of 
the report, ``21st Century Challenges: Reexamining the Base of 
the Federal Government,'' never before have we had such a 
compelling need to understand what works and what does not work 
because we are on an imprudent and unsustainable fiscal path. 
We need to make some tough choices and we need to have solid 
facts in order to be able to understand what is working and 
what is not.
    The next initiative is e-Government, and I am about done, 
Mr. Chairman. The Administration is focusing primarily on 25 
OMB-sponsored e-Government initiatives where progress is mixed, 
but it is an area where additional progress is being made.
    And last, for now, is the competitive sourcing issue. This 
is a complex and controversial topic. I will say that the 
Administration did issue a new A-76 regulation that, in large 
part, was consistent with the recommendations of the Commercial 
Activities Panel, which I chaired. I will also note that the 
Congress passed and we have now operationalized the authority 
for agency tender officials to appeal decisions under A-76 on 
behalf of employees to the GAO. We look forward to executing 
that responsibility within the statutory 100-day period.
    Thank you very much, Mr. Chairman. I look forward to 
answering any questions you may have.
    Senator Coburn. Thank you, General Walker. Mr. Johnson.

  TESTIMONY OF HON. CLAY JOHNSON III,\1\ DEPUTY DIRECTOR FOR 
          MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Johnson. Mr. Chairman, Senators Carper and Lautenberg, 
I thank you for having me here today. The Federal Government is 
working to ensure taxpayer dollars buy more and go farther 
every year. The American taxpayers expect it, and if they do 
not expect it, they should; and the Federal Government is 
showing that it can deliver.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Johnson appears in the Appendix 
on page 57.
---------------------------------------------------------------------------
    Agencies are better managed and achieving greater results. 
They are managing their finances and investments more 
professionally and efficiently. They are providing better 
service to the American people. They are helping civilian 
employees be more effective and successful, all as David Walker 
has pointed out.
    I personally believe that more has been done in the last 4 
years to really change the way the Federal Government works 
than during any comparable period in recent history. The 
Federal Government has shown that it can change, and it is a 
good thing because, as David Walker points out, we must change. 
We need to change. There is much still to do, but we have 
already defined what we want and can accomplish in the next few 
years, and we want to be held accountable for doing it. I have 
submitted a longer statement for official entry, and I refer 
you to that for an elaboration on those points.
    I look forward to your questions.
    Senator Coburn. Thank you, Mr. Johnson.
    I just want to advise members we have four votes starting 
at 3:45. And so what we will do is we will go through the 
questioning, and if there is no objection--5 minutes apiece, 
and then we will submit any questions that are left after that, 
if we might.
    Let me start with you, Mr. Johnson. The President's 2006 
budget proposal requested or proposed the termination of almost 
100 Federal programs, which would reduce spending by $8.8 
billion alone in fiscal year 20006.
    How did OMB put this list together? How did you determine 
which programs were effective and ineffective? Why did the 
budget propose maintaining or even increasing the budgets for 
some of the programs that were rated ineffective? And how many 
of the programs proposed for termination have been on this list 
before?
    Mr. Johnson. I think I have all of those points, but let me 
go through and remind me if there is something I did not cover.
    We start off evaluating programs with the premise that we 
want programs to work. We are not engaging in a witch hunt by 
trying to get rid of things. At some point, we conclude that we 
have accomplished what we want to accomplish or there is no way 
we can make it work or there is someone--the private sector, a 
State, a municipality--that is better prepared to do that work, 
and we recommend that the program be terminated or be reduced 
or be combined with something else. But we start off with the 
premise that we want programs to work, and we cannot figure out 
how to make them work until we figure out what they are 
accomplishing now. Are there management deficiencies? Are their 
definitions of success accurate? Do they have good performance 
goals, and good output goals, good efficiency measures? Are 
they set up to succeed? Do they have a chance to succeed? Is 
the enabling legislation perhaps in need of some rethinking?
    So that is the primary answer why some programs that are 
considered to be results not demonstrated or ineffective have 
not been recommended for elimination or significant reductions, 
because our first effort is to try to get them to work.
    PART score is--again, someone commented, maybe you, Senator 
Carper--there is nothing magical about the phrase PART or 
Program Assessment Rating Tool, and there are 25 or 30 
questions that we ask, and there is nothing magical about the 
questions, although the issues that they address, I think, are 
magical. Do you have a clear definition of success? Do you have 
a clear definition of at what cost do you want to achieve 
success? How are you performing relative to your standards?
    In a big percentage of the cases--by now it is 30 percent 
of all the programs we have assessed--we cannot demonstrate 
that we are producing a desired result, either because we 
cannot define the desired result; we can define it but we do 
not know how to measure it; or we know how to measure it, but 
we have not had the time yet to collect the measurements to 
tell how we are performing. Thirty percent. When we first 
started this program, it was 40 percent or over 40 percent.
    But the key is that we ask ourselves questions that get at 
what we are doing, what are we accomplishing. We are spending 
the money, but are we getting anything for it? And is what we 
are getting for it satisfactory? And are we getting the money 
we spend over here, a return on that investment compared with 
the spending over here? And if it is lower than this, then 
might we want to reconsider and put more money here and less 
money here and so forth?
    It gives us information that we would not otherwise have to 
have a more intelligent, more results-oriented conversation 
about how we are spending our money. And once we have spent it, 
it gives program management more information and more targets 
about how to spend that money to really make a difference.
    Senator Coburn. So last year, you had these same programs 
running. And in the President's proposal last year for his 
budget, how many programs did you recommend eliminating?
    Mr. Johnson. Last year I think we recommended 50 or 60 
programs be reduced significantly or eliminated.
    Senator Coburn. How many did Congress reduce or eliminate?
    Mr. Johnson. I don't know, but it was less than 10.
    Senator Coburn. But that is an important point for us to 
know. Here we have management under measured guidelines saying 
this is ineffective. Here is why it is not. Are those 40 or so 
that weren't eliminated or modified last year in this list 
again?
    Mr. Johnson. Almost all of them.
    Senator Coburn. So what we are saying is either your 
evaluations of them are wrong or the political situation is 
such that we don't have the courage to address it. I mean, 
there is no question there are politically popular programs 
that might not be effective that we might duck in our 
responsibility to address. There is nothing wrong with saying 
that. It is the real world up here, and we need to know that. 
And we need to talk about the ones that are because we ought to 
be held accountable for it.
    So how do you move us based on what you have put forward--
of course, part of the purpose of this hearing is to find out 
why certain programs are there and what they are or are not 
accomplishing. How do you move us? How do you get the 
information to the members of this body and the House to make 
that happen?
    Mr. Johnson. In the most general sense, we have to make 
performance more important. We have to make performance good 
politics, for instance. We have to pay more attention to the 
performance information that we now have on programs that 
account for more than half the budget. It is about 60 percent 
of the total spending, and this year it will be 80 percent, and 
next year it will be 100 percent.
    So there is more discussion about performance now than 
there was 2 or 3 years ago when there was very little PART 
information and there was really no standard, performance 
information or consistently derived performance information to 
refer to. So it is more than there was before. But it is not 
enough.
    For instance, we have plans and are working to produce a 
website that will show the American people how their money is 
being spent. Eventually all 1,200 programs or so that we have 
in the Federal Government for which we spend all the money will 
be available in lay terms for the average citizen to see what 
the program is intended to do, how it is considered to be 
working, what its goals are, how it is performing relative to 
those goals, how it is performing relative to last year, and, 
most importantly, the plan for improving performance next year.
    The purpose of all this is to try to create in the Federal 
Government a culture that we can and we should improve 
performance of every program every year.
    Senator Coburn. Thank you. Senator Carper.
    Senator Carper. Thanks, Mr. Chairman.
    Mr. Chairman, I know you said the number, and I thought I 
caught it, but what did you say the budget deficit was likely 
to be for this fiscal year when you added in the emergency 
supplemental?
    Senator Coburn. Six hundred forty billion dollars when you 
consider the money we will take from Social Security and write 
an IOU. That does not include all the other funds out there 
that we will take money and write IOUs for.
    Senator Carper. All right. The 100 programs that the 
Administration I think had called for either downsizing or 
eliminating, what was the annualized cost for those programs?
    Mr. Johnson. I think it is $20-some-odd billion.
    Senator Carper. I heard the number $8 billion earlier. What 
was that?
    Mr. Johnson. The 150 programs that we have recommended for 
elimination and reduction, and I think the expenditure of that 
150 is 20-some-odd, and maybe the eliminations is $8 billion.
    I am sorry. We will get back to you with that information.
    Senator Carper. Whether it is $8 or $20 billion, with a 
budget deficit of $600-some billion, if that is all we do, 
clearly it is not enough, which I think reminds us that there 
is not just the domestic discretionary spending but there is 
defense spending, there is entitlement programs, and there are 
revenues and whether or not we are collecting the monies that 
are owed. And together I think they all need to be part of 
reducing the budget deficit.
    I was Governor of my State during the 1990's so I was not 
following quite as closely what was going on down here, but I 
think part of what happened, in order to enable us to actually 
balance the budget and start running surpluses at the end of 
the last decade, one was that revenue growth was very strong, 
the economy was very strong. And that is always helpful. But 
there was, I think, a little bit of work done on both the 
discretionary spending side and on the entitlement side, just a 
little on both sides. So it takes some of all that, so have us 
keep that in mind.
    I want to come back, if I could, to the issue of improper 
payments for a little bit, if you will. And the number $45 
billion is one that I expressed, and I just want to come back. 
Is that an annual number? We believe that as much as $45 
million in improper payments, as you said, not fraudulent, 
maybe not totally wasteful payments, but $45 billion in 
improper payments. Give us some example of payments that may be 
improper, but we would say, well, that is not fraudulent or 
that is not really wasteful, it is improper. Can you give us 
some examples of that?
    Mr. Walker. Sure. The $45 billion, Senator, is annual, and 
that is the fiscal year 2004 estimate from the agencies that 
have reported so far.
    Mr. Johnson. It is $40 billion too much and $5 billion too 
little, so it is a net of $35 billion too much.
    Senator Carper. Oh, OK.
    Mr. Walker. Again, everybody has not reported yet, and many 
agencies are still refining their methodologies. One example 
might be where a payment was made, and it might have been a 
bona fide payment, but they did not have all the supporting 
documentation they should have had in order to make the 
payment.
    Another example is where the program paid something twice, 
and, by the way, under current law, if the Federal Government 
does not pay promptly, it has to pay interest and in some cases 
penalties. On the other hand, if a contractor is paid twice, 
not only does the contractor not have to let us know that, but 
they do not have to pay interest and there is no penalty even 
if they hold on to the money for an extended period of time. We 
do not have a level playing field there. So those would be two 
examples I would give you on each side.
    Senator Carper. Just based on those two examples, is there 
something that you would want to suggest to us that we do in 
response to particularly that last situation?
    Mr. Walker. Well, I have suggested before that Congress 
might want to try to take steps to create a more level playing 
field with regard to overpayments. Specifically whether there 
should be some notification requirement or whether under 
certain circumstances interest should accrue and penalties 
should be imposed.
    Now, in some cases, quite frankly, the government's 
internal controls are poor and its financial systems are so 
poor that the government is part of the problem. On the other 
hand, if the contractor is aware of it, then it is something 
that needs to have additional transparency, and we need to 
improve the related incentives.
    Senator Carper. OK. Well, we might want to explore that a 
bit further with you, if we could.
    One of the things that I think I heard you say, General 
Walker, was that you started talking about this PART program, 
and I noted it said not used fully, and that is as far as I 
got. But can you just go back and complete that paragraph for 
us, please?
    Mr. Walker. First, I think it is important to have a 
methodology, and the Program Assessment Rating Tool is the 
Administration's methodology for assessing the effectiveness of 
programs. I think it is important that it apply to all major 
programs. Nothing can really be off the table eventually, and 
we also need to take the same concept with regard to the tax 
side, including tax preferences at some point. Right now it is 
limited to the program side.
    Once the assessment is made, then there has to be a point 
in time where the President will then say, All right, based 
upon this result, we are going to end up either cutting back, 
merging, or eliminating programs, and that is what Mr. Johnson 
was talking about. The Administration does not always do it the 
first time that they have an ineffective result, but after a 
reasonable period of time, they may make such a proposal.
    But then what has to happen is it comes to the Congress, 
and then the key question is: What does the Congress do with 
the information?
    Candidly, we are currently on an imprudent and 
unsustainable fiscal path. The base of government, whether it 
be on the spending side, mandatory or discretionary, or the tax 
side, is unsustainable. One of the things that has to happen is 
a cultural change not just within the Executive Branch, but 
also within the Legislative Branch to understand that every 
dollar spent today on an item that is not effective is a dollar 
we will not have in the future for something that could be 
effective. And every additional dollar of debt today is a tax 
increase for our kids and grandkids in the future. That is 
where we are at. That is how bad our fiscal situation is.
    Senator Carper. Would you describe that as a debt tax?
    Mr. Walker. Well, you do not pay taxes--I think the taxes 
will come before somebody dies.
    Senator Carper. No. Debt, d-e-b-t.
    Mr. Walker. Oh, debt tax. I thought you said ``death tax.'' 
You could call it that, Senator. I will give you credit for 
that.
    Senator Carper. Thank you so much.
    Senator Coburn. Senator Lautenberg.
    Senator Lautenberg. Thanks, Mr. Chairman. Again, we are 
fortunate to have two such distinguished witnesses here, and it 
is hard for me to understand how two such intelligent and 
trained people can be so wrong. But other than that, why---- 
[Laughter.]
    Mr. Chairman, you raised a question in your remarks before 
that I think deserves some kind of a response, and that was in 
talking about the deficit and what is happening. And I find it 
a little bit mysterious to look at the low value of the dollar 
in trading places and to see our trade deficits continue to 
expand. Why? We never seem to get a satisfactory answer to 
that.
    And the other thing, Mr. Chairman, in fairness, lots of 
people who have made their money in business, legitimate 
entrepreneurs, etc., accumulated fortunes in some cases. Why, 
in this time of war, was it necessary to reduce our revenues? I 
will never understand that, and I am a beneficiary--no, I will 
not even describe it that way--I am a recipient of the tax 
breaks? But in terms of the legacy--Mr. Walker, you mentioned 
legacy--to our kids, I have got 10 grandchildren, and the best 
thing I can leave them is not more money because money in a 
society that is disgruntled or worse, it does not do any good. 
I would rather leave them a society that is operating in 
harmony, where everybody has a chance, where life-saving 
research can be conducted, and I do not have to meet with 
parents and families of kids who have diabetes or cerebral 
palsy or autism or other conditions. So when we look at our 
indebtedness, I think we have to look at the whole picture, 
really including the revenue side of things.
    And I would ask either one of you, is the mantra that is 
being followed here shrinking the size of government? Is that 
the principal guidepost, a principal guidepost? Let me put it 
that way.
    Mr. Johnson. No, sir, it is not. It is making the money we 
spend work better.
    Senator Lautenberg. Well, we will all agree to that, but do 
we find that contractors in the case of competing assignments--
I think we had 12,000 of our positions were competed last year; 
91 percent of them, I understand, were won by Federal 
employees. Do they lose their jobs because a private 
contractor--as we saw, by the way, in the thousands who are 
employed as screeners at airports, when we had terrible output 
by the employees of private contractors, still with problems 
but vastly improved from where they used to be.
    How much is due to private contractors being able to pay 
lower wages or reduce benefits? Do we look at that side of 
things? Why will someone do this job for less money? How do 
they get to do it?
    Mr. Walker. Well, Senator, several things. One, first I 
would say that the management agenda from my standpoint is more 
about improving economy, efficiency, effectiveness, and 
responsiveness with regard to existing Federal programs.
    With regard to competitive sourcing, you are correct in 
saying that a majority of the A-76 competitions are won by 
Federal workers. Even in circumstances where they are not, many 
times those Federal workers are hired by the contractor who 
does win because they have knowledge, skills, and experience 
that are of interest to that contractor.
    With regard to compensation, which you touch on, there can 
be differences in compensation between the government and 
private sector. Sometimes the private sector pays more, 
sometimes the government pays more than private sector for 
positions of similar skills and knowledge. I have some directly 
relevant experience in seeing that.
    But one of the things that happens--as you know, having 
been one of the founders of ADP--is through leveraging 
technology and through improving processes, many times you can 
do more with fewer people and at less cost. Therefore, a lot of 
the efficiencies happen through improving processes and 
leveraging technology rather than necessarily solely based upon 
the people dimension.
    Senator Lautenberg. Have you evaluated the morale of the 
people who are part of the review process? Do we know what 
effects it has on employee morale?
    Mr. Walker. We have not done a specific study on that, 
Senator. I will tell you, there is absolutely no question that 
to the extent that you are going through that exercise, it is a 
matter of concern to employees; just as when you end up going 
to a market-based and performance-oriented compensation system, 
that is also a matter of concern to employees.
    That does not necessarily mean you should not do it, but it 
comes back to what I said before. How you do it, when you do 
it, on what basis you do it matters. You need to make sure that 
you have adequate communications and safeguards to maximize the 
chance of success and minimize the possibility of abuse or 
counterproductive consequences.
    Senator Lautenberg. Mr. Walker, you always talk straight, 
and I appreciate it.
    Mr. Chairman, I think this is about the first time that we 
have seen this country reduce taxes while we are at war, and 
that is also a mystifying factor for me.
    Thank you very much.
    Senator Coburn. Thank you, Senator Lautenberg.
    I would just put into the record that the Administration 
asked for slashing of 65 Federal programs in their 2005 budget; 
13 ended up on the chopping block because they had received 
poor grades from the Administration through the PART system. Of 
those 13 program, Congress eliminated one. Two of them they 
increased the funding for, totally proven ineffective, not 
doing what they are supposed to do. That is why I come back to 
the point that I made earlier.
    What you all do and what you all recommend, if we are not 
paying attention, if we are not exposing, if we are not making 
sure that the members of this body understand where we are 
ineffective and allow your processing, observational tools and 
management tools to be used, then it will be for naught, 
because if there is no action on the basis of assessment, there 
is no reason to do the assessment and waste that money.
    Let's just take an example of one and, Mr. Johnson, maybe 
you can help me: Safe and drug-free schools State grants. A 
really important thing to a lot of people. Personally, in 
Oklahoma when they have been associated with those programs, 
but yet it comes up on the block. Why is this State grant 
program listed as ineffective and targeted for elimination? Can 
you tell me?
    Mr. Johnson. I do not know the particulars of that program.
    Senator Coburn. OK.
    Mr. Johnson. PART should clarify what the weaknesses of the 
program are, and I am sorry, but I do not have that program 
information here in front of me.
    Senator Coburn. Is part of the problem with some of the 
programs that Congress does not define further down what they 
want to achieve out of the program? Is part of our problem when 
we have an idea that is there to assist citizens of this 
country, we put the idea out but we do not define it in a clear 
enough and concise way so that the agencies can carry out the 
intent of Congress?
    Mr. Johnson. That is some of the problem where they define 
it maybe in terms of outputs instead of outcomes.
    Another part of the problem is they do not build enough 
accountability measures into the program. A lot of our money is 
spent, whether we give it to States or nonprofit organizations 
or whatever, to do the work locally, and we do not hold them 
accountable for getting something in return for the money.
    Senator Coburn. In other words, no oversight?
    Mr. Johnson. Well, there is oversight but just no 
accountability. We need to have oversight within the agencies, 
and Congress needs to have oversight of the Executive Branch. 
But then we need to have the ability--rules need to allow us, 
laws that authorize and the money appropriated for the programs 
need to allow us to hold local entities accountable for this. 
CDBG, for instance, is much talked about now as part of the 
Strengthening America's Communities Initiative. We generally 
allow municipalities to do pretty much whatever they want to 
with that money. We do not insist that money be used for 
creating economic vitality in low-income areas where there 
would not be economic vitality otherwise. That is why we are 
proposing that be changed.
    Mr. Walker. Senator, can I comment on that?
    Senator Coburn. Sure.
    Mr. Walker. Senator, I think over many years the tendency 
is, if you give more money to it or if you provide an 
additional tax preference, the assumption is that you are going 
to have a positive impact. That is an invalid assumption. There 
is a need to engage in a much more disciplined, fundamental, 
and periodic review not just on the spending side, but also on 
the tax preference side and the regulatory side about what is 
working and what is not working with regard to the base.
    In many cases there is a need to have more transparency 
over what kinds of activities are going on right now. I mean, 
you articulated numbers, but those are probably not widely 
known, and so there needs to be more transparency in order to 
facilitate more accountability both within the Executive Branch 
as well as within the Legislative Branch.
    Senator Coburn. Let me spend a minute. OMB has a scorecard 
rating system, and the scorecard issued December 31, 2004. Of 
the 24 major department agencies listed, OMB received the 
highest number of failing grades. Out of all these agencies 
listed, OMB got the highest number of failing grades, and I 
want to give you a chance to talk with us about that. What is 
the current status of OMB getting its house in order? If you 
are going to be assessing people, you have got to assess 
yourself. And when you have the poorest performance based on 
the number of grades, it is going to question some people's 
right for you to assess them. Talk with us about that, if you 
would.
    Mr. Johnson. And I am assuming here that the adage of ``Do 
as we say not as we do'' won't cut it?
    Senator Coburn. No, I don't think that is going to cut it.
    Mr. Johnson. OK. The most difficult part of the bad grades 
are that--we measure both progress and status. Progress means 
did the agency do what they said they are going to do in the 
last quarter. We had last quarter three red scores, so in three 
out of five cases we did not do what we said we were going to 
do. There is no excuse for that. There were nine in the entire 
Federal Government. This next quarter, I am reasonably certain 
that OMB will have no red scores in progress.
    So, Director Bolton has made it very clear: Red progress 
scores are unacceptable. He talked to the operating people at 
OMB, and we will do as we say we are going to do.
    On the progress scores, I think we have a non-red score in 
the human capital initiative. In the competitive sourcing 
initiative, we will move off red in competitive sourcing 
because we have done a study in the budget performance 
integration. We will move soon off red on budget performance 
integration because we have a strategic plan now, which was 
something we said we were going to do which we had not done.
    In some areas like IT and financial management, there is a 
little complication in that we are tied to the Executive Office 
of the President, and it is hard to audit a separate part of 
the Executive Office of the President.
    Senator Coburn. But you would admit that is an important 
area, the Executive Office of the President? If he is going to 
lead this Nation, he ought to be audited and they ought to be 
efficient and they ought to be doing the same things that 
everybody else in the government is doing.
    Mr. Johnson. Yes, the auditing of the Executive Office of 
the President is important. I don't know about the history of 
that. General Walker could probably talk to that but, yes, we 
should be held accountable.
    Senator Coburn. Well, it is interesting. Here is the little 
scorecard that we have in our packet, and I think have you seen 
this as well. DOD, Defense, has two reds and three yellows. OMB 
has four reds and a yellow. The Corps of Engineers, which I 
find tremendously wasteful in this country in terms of what I 
have seen they have done in my own State, four reds and one 
yellow, which means they are not--what this really says is they 
are not managed well. Right?
    Mr. Johnson. They have opportunities to manage better.
    Senator Coburn. Well, you can look at it that way. If we 
were doing it in a profit scenario in the private sector, some 
heads would roll in terms of management decisions, and so I 
wanted to give you a chance to answer that because that is 
going to be in this, and we need to see--and I guess I would 
like a commitment from you to hear from you, I would like to 
hear directly back to our Subcommittee, to Senator Carper and 
myself, what your performance rating is when you turn the next 
corner and send that back to----
    Mr. Johnson. For OMB.
    Senator Coburn. Yes, sir.
    Mr. Johnson. All right.
    Senator Coburn. Send that back to us. Senator Carper.
    Mr. Johnson. Can I make one comment on the scores?
    Senator Coburn. Sure.
    Mr. Johnson. In the fall of 2001, when the scorecard was 
first utilized--and there are 130 scores there, 5 initiatives, 
26 agencies--110 of them were red, bright red. Right now 40 are 
red, 40 are green, roughly, and 50 are yellow. The average 
agency now is yellow. The average agency 3\1/2\ years ago was 
red. And if you look in detail at what it takes to be yellow, 
it is a very different place. It is a very different place to 
be served by. It is a very different place to work. So OMB has 
not moved as the Federal Government in general has, but overall 
the Federal Government is a very different place, fiscally and 
as a place to work, than it was 4 years ago, and it will be 
better still 4 years from now.
    Senator Coburn. I do not mean to demean your progress.
    Mr. Johnson. I know.
    Senator Coburn. And that is not my intention. I would note 
for the record that the worst-performing agency is the 
Smithsonian, and that is something--although not a great big 
agency, every agency ought to be held accountable to the same 
standards of performance and review and evaluation of their 
stated goals, with the efficiency with which they get there.
    Senator Carper.
    Senator Carper. Thanks, Mr. Chairman. I want to return, Mr. 
Chairman, to this notion of improper payments, and I 
understand, if I have got this right, $40 billion maybe of 
overpayments, $5 billion of underpayments, for a net of about 
$35 billion.
    My first thought is if we could just somehow cut that in 
half, instead of having maybe $35 billion in bad payments, we 
had $17 or $18 billion, that would actually come pretty close 
to being equal to all the those programs that the 
Administration had proposed that we downsize or eliminate.
    Mr. Johnson. Our goal is to eliminate them, not to cut them 
in half.
    Senator Carper. Good. What further steps do the Chairman 
here and myself and Members of this Subcommittee, Members of 
the Senate, what do we need to do to enable you to do that?
    Mr. Johnson. It varies by program. One thing General Walker 
talked about is how we are an information economy and an 
information organization, so you have this person that is 
making the decision about is this person unemployed, is this 
person eligible for this payment or that payment. And the way 
to help that person decide accurately whether the person is 
eligible or not is to give them the information they need.
    So one of the things we have worked with you on, and in a 
couple of cases successfully, is getting permission to get 
employment information before someone over here who is making 
unemployment compensation determinations or income information 
from over here in front of someone who is making a 
determination about student loan eligibility.
    So there are obviously concerns about privacy we have to be 
very sensitive about, but Congress has made it possible to 
provide information from one part of the government to the 
other part of the government to help us be more intelligent 
about these kinds of situations. There will be other situations 
like that, and in the future, openness to that and 
understanding the dollar impact of this and understanding and 
demanding that all the necessary steps be taken to protect 
people's privacy, but at the same time make this information 
available to help us reduce these costs.
    But again, the need is different for each program. There 
are about seven programs through which 90 percent of these 
improper payments are made. And, again, the decision to be 
made, the eligibility decision, is different for each one of 
them.
    Senator Carper. Any idea if any of those are out of the 
Department of Defense or some other particular agency, or are 
they across the government? Are some of them in the defense 
programs as well as nondefense?
    Mr. Walker. There would be some defense programs to 
consider. For example, you talk about both sides of the ledger. 
Part of the issue that Clay Johnson just talked about is data 
sharing so you can do data matching. One aspect is to ensure 
that you are only paying payments to people who are entitled to 
the payment. I would argue that since it is taxpayer money, 
while you have to be concerned with privacy in some 
circumstances, the taxpayers have a need to know and a right to 
know and the agencies that are responsible for administering 
those programs should be able to do reasonable data sharing and 
data matching to make sure the taxpayer money is not abused.
    On the revenue side, one example would be, in cases where 
contractors may be delinquent on their taxes. There needs to be 
more visibility over who we are paying tremendous taxpayer 
money to for contracts at the same point in time they are 
delinquent on their Federal income taxes? That is another 
example of where data sharing and data matching needs to 
happen.
    Senator Carper. I don't know if it is appropriate to ask 
for the record, Mr. Chairman, but, Mr. Johnson, is it possible 
for OMB to share with us on the Subcommittee an example of the 
$45 billion or the $40 billion in overpayments, or maybe just 
share with us by agency what they are?
    Mr. Johnson. Yes.
    Senator Carper. Could you do that, if you would, please.
    Mr. Johnson. Sure.
    Senator Carper. And let me just ask also for the record--if 
both of you could do that, I would appreciate it--if you could 
just submit for the record some specific steps that we ought to 
be taking to empower you to go after, as you suggest, all of 
those improper payments, that would be great.
    Let me change focus, if you could a little bit, Mr. 
Chairman, and to our guests, and I want us to focus a little 
bit on financial statements, the annual financial statements 
that are being submitted. I am wondering what benefits, if any, 
do agencies derive by turning in their annual financial 
statements earlier or on time? The quicker turnaround on these 
statements, does it lead to more errors? Does it lead to 
inaccurate data? Or are we just getting more timely, accurate 
data than maybe was the case before?
    Mr. Johnson. Let me give you the high-level view and then 
for a more detailed answer give it to General Walker.
    Senator Carper. What if he wants to give the high-level 
view?
    Mr. Johnson. That is why I want to jump in here and go 
first. [Laughter.]
    I was afraid you were going to ask.
    It requires a tremendous amount of discipline, day-in and 
day-out financial management discipline throughout the year, so 
that at the end of the year you can publish your audited 
financial statements in 45 days. If you have 5 months, you 
really don't need that day-in and day-out discipline. So the 
key to publishing it is what kind of day-in and day-out 
discipline it demands of the agencies. And everybody just has 
to account for their money day in and day out better in order 
to publish audited financial statements in 45 days. Now, that 
is the high-level view.
    Senator Carper. How about that low-level view, Mr. Walker?
    Mr. Walker. Well, a couple of comments.
    Within the last couple of weeks, I have asked virtually 
every group that I have spoken to, how many of you have read 
the financial statements of the U.S. Government? Less than a 
handful, and it involved hundreds of people.
    Part of the problem is that we do not have enough people 
focused on the annual performance and accountability reports of 
the Federal Government to understand what our true financial 
condition--fiscal imbalance is--and what kind of results are 
being delivered with the resources and authorities agencies 
have.
    But with regard to the issue directly at hand, I believe 
Clay Johnson is right in saying that one of the problems that 
we had before was by giving agencies 5 months to be able to 
publish audited financial statements, what was happening was 
many of them were doing little to nothing during the year; they 
were waiting until at or after the end of the year, spending a 
lot of time and money re-creating records, and basically trying 
to engage in a range of heroic activities that cost a lot of 
money, that took a lot of time in order to publish financial 
statements.
    So by accelerating the date, it reinforces the importance 
of having the right kind of controls and the right kind of 
systems in place so you can provide timely, accurate, and 
useful information on a day-to-day basis. Why, because you do 
not have enough time in 45 days to be able to re-create the 
books, engage in those heroic efforts, and have a prayer of 
getting a clean opinion on your financial statement.
    So it is really a means to an end rather than an end in and 
of itself. Nonetheless, as Chairman Coburn said, last year we 
had a $567 billion budget deficit. This year it is going to be 
over $600 billion. Most people do not know that. You cannot 
change something until you know about it and agree that it is 
something that needs to be changed.
    Senator Coburn. I think the important point is that is a 
tool with which to make decisions to run your agency every day, 
and if you do not have the numbers evaluating your agency, you 
really are just running it by the seat of your pants. And so 
putting accounting and financial controls into running the 
government makes them better, and we do that in every other 
area that is competitive in this country, and we ought to be 
doing in the government.
    I also wanted to make a couple other points, and I know we 
are going to have to go for a vote, and I want to thank each of 
you for being here.
    The competitive bidding process is not designed to get the 
government out of the business. One of the best benefits of it 
is it makes the government more efficient because they know 
they are going to have to competitively bid. And when they know 
that--and one of the things I want to talk to Senator Carper 
about is we have great response in terms of the VA regional 
medical office. When they let employees start really 
participating in making decisions to run it, what we have seen 
is throughput and productivity skyrocket within the VA regional 
medical offices off the model that was started in my home town 
at the VA regional Office in Muskogee, Oklahoma. And it has 
grown throughout the system, throughout the country.
    But one of the parts of good management is allowing 
information to flow up, and once our Federal managers really 
start learning that, what they are going to find is they are 
going to find all sorts of ideas on how we become more 
efficient, we accomplish our tasks, and do it more efficiently.
    I would like for you all to agree--we will have some 
additional questions that we would like it put in writing to 
you, if we may, Senator Carper and myself and other Members of 
the Subcommittee. If you would answer those in a timely 
fashion, we would appreciate it.
    Senator Carper. One last question for you, Mr. Chairman. 
What was your home town?
    Senator Coburn. Muskogee, Oklahoma.
    Senator Carper. So you are an Okie from Muskogee.
    Senator Coburn. I am an OB from Muskogee. [Laughter.]
    Mr. Johnson. But you forget, he does not like acronyms. 
[Laughter.]
    Senator Coburn. I would remind you this is T.C.-squared.
    Thank you all very much for being here.
    [Whereupon, at 3:50 p.m., the Subcommittee was adjourned.]


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