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



 
         LEGISLATIVE BRANCH APPROPRIATIONS FOR FISCAL YEAR 2007

                              ----------                              


                       WEDNESDAY, APRIL 26, 2006

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:30 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Wayne Allard (chairman) presiding.
    Present: Senator Allard.

                    GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF DAVID M. WALKER, COMPTROLLER GENERAL OF 
            THE UNITED STATES
ACCOMPANIED BY:
        GENE L. DODARO, CHIEF OPERATING OFFICER
        SALLYANNE HARPER, CHIEF ADMINISTRATIVE OFFICER
        GEORGE G. STRADER, CONTROLLER

               OPENING STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. The hour of 10:30 having arrived and 
staying on schedule like we do, we're going to call the 
Subcommittee on the Legislative Branch to order. This is a 
hearing on the 2007 budget for the Government Accountability 
Office (GAO). We will meet today to take testimony on the 
fiscal year 2007 budget request for the Government 
Accountability Office, as well as review other GAO matters.
    Welcoming our witnesses this morning, we have Mr. David 
Walker, Comptroller General; Gene Dodaro, Chief Operating 
Officer; Sallyanne Harper, Chief Administrative Officer; and 
George Strader, GAO's Controller. I look forward to hearing how 
you are implementing goal setting and tying that in with your 
budget figures and employee performance.

           NEW YORK TIMES ARTICLE ON MISSILE DEFENSE PROGRAM

    Before we discuss GAO's fiscal 2007 budget request, I'd 
like to take a few moments to discuss an issue of deep concern 
to me. On April 2 of this year, the New York Times published a 
story alleging that the Government Accountability Office--and I 
quote, ``ignored evidence that contractors doctored data, 
skewed test results, and made false claims,'' close quote, in a 
2002 report on missile defense. The article was based on 
information provided by Mr. Subrata Ghoshroy, a GAO analyst who 
is on loan to the Massachusetts Institute of Technology.
    The information provided by Mr. Ghoshroy raises several 
troubling issues and calls into question the integrity of the 
GAO's investigative process. Even more disturbing are Mr. 
Ghoshroy's accusations that GAO personnel deliberately 
undermined this investigation and possibly altered documents to 
avoid investigating key items that might have lead to 
revelations of contractor fraud.
    I am especially interested in knowing how GAO made a 
unilateral decision to alter the scope of the investigation 
without securing the concurrence of the members who requested 
the investigation.
    Mr. Walker, I realize that some have used this issue to 
promote their own political agenda. In the context of this 
hearing, the policy does not interest me, really. I am 
interested in the process. And as the subcommittee responsible 
for overseeing the GAO, I believe we have an obligation to get 
to the bottom of the allegations. The GAO's reputation and 
credibility depends upon its ability to accurately investigate 
the executive branch on behalf of Congress. Accountability, 
integrity, and reliability are GAO's core tenets and I think we 
need to maintain those.
    So Mr. Walker, please proceed with your statement.
    Mr. Walker. Sure. Would you like me to address that issue 
now.
    Senator Allard. Yes.
    And then, let's go ahead and move on to your budget.

          MR. WALKER'S RESPONSE TO THE NEW YORK TIMES ARTICLE

    Mr. Walker. That'll be great. Thank you, Mr. Chairman. It's 
a pleasure to be back before you and I look forward to talking 
about the budget. But let me go ahead and address this issue, 
because I think it is important we try to put it to rest.
    First, the allegations lack merit. Just because they are 
printed, doesn't mean they are true. I can tell you that we 
conducted three internal reviews on this matter. Any time that 
I received a complaint, from either Mr. Berman or Mr. Ghoshroy, 
I expeditiously took steps to try to review those. I 
commissioned three internal reviews and all of those reviews 
came out to say that the assertions lacked merit.
    Furthermore, there was a prize winning investigative 
reporter from 1 of the top 10 papers in the United States--who 
spent months last year conducting an independent investigation 
of this. And after months, the reporter determined that it 
lacked merit and was not worthy of publication.
    Furthermore, I think it's important for you to know, that 
this report was 1 of about 4,000 that we've issued in the last 
several years. It's also one of many that we've issued on 
national missile defense, and we take our quality control 
procedures very seriously. We want you to be able to rely upon 
our work and for the American people to be able to rely on our 
work. I think it's important for you to also know that last 
year we had two independent peer reviews conducted of GAO's 
quality assurance processes. One by KPMG on our financial 
audits. One by a multinational team lead by Canada, involving 
seven countries who looked at our quality control procedures 
and non-financial audit work. You can rely on our work.

            LESSONS LEARNED FROM MISSILE DEFENSE ENGAGEMENT

    Now with regard to lessons learned. There are two important 
lessons learned from this engagement. Number one, we never 
should have accepted it from day one. We were asked to do work 
on a matter that, after further investigation, was pending in 
the Federal courts. In my view, there was an attempt to get GAO 
to intervene in private party litigation and to use GAO's work 
to further that private party litigation. That is wholly 
inappropriate, in my opinion.
    So first, we made a mistake by accepting the engagement. 
But after it became clear, and after we had accepted to do some 
work, that we were being asked to do something relating to 
litigation that was pending, we made an attempt to modify the 
objectives of the engagement, in order to be able to do 
something without directly intervening in that litigation.
    In doing that, we made a second mistake. And that is, when 
we communicated with the requestor's staff about the need to 
make a change and what our change would be, we did not 
communicate it in writing. That was a mistake. As a result, 
that led to an expectation gap between the requestor and us as 
well as I think, this particular employee who is on a leave of 
absence, who has dogged us ever since.
    We have modified our procedures with regard to engagement 
acceptance. We have also modified our procedures with regard to 
modifying engagement objectives after we've accepted an 
engagement. We have not had any other instances like this 
occur, and I can assure you we'll do everything we can to make 
sure it doesn't reoccur. But I can also assure you, that you 
can rely upon our work including that report.

                 BACKGROUND ON MISSILE DEFENSE ARTICLE

    Senator Allard. Now, I'm just going to follow up with a 
question and we'll just get this off the table and move on with 
the budget. It's really unusual for a GAO employee to come 
forward like this. I can't recall any, and you indicated in 
your testimony that has never happened. In this particular 
instance, what caused your analyst to complain to the press, 
from your point of view?
    Mr. Walker. Mr. Chairman, to a certain extent, I would be 
speculating. I think the problem is, that the analyst wanted us 
to do the original work and when we modified the scope of the 
engagement to make sure that we did not interject GAO into 
ongoing litigation, I think the analyst had difficulty 
accepting that, even though it was very consistent with GAO's 
longstanding policy well before I was at GAO, that we won't 
interject ourselves into pending litigation.
    I think the analyst also had difficulty in understanding 
that while every person's opinion counts at GAO, no matter what 
your position is, no matter what your level is, no matter what 
your classification is, in the final analysis while everybody 
needs to be heard and is heard, we make institutional 
decisions.
    Senator Allard. And this was in a lawsuit that he had a 
personal interest in?
    Mr. Walker. To my knowledge, he didn't have a personal 
interest. But it's also my understanding; he may have known 
some of the parties who did have a personal interest in the 
litigation. That's something that we're following up on. Since 
the report appeared in the New York Times, I have received 
information from a party, not in government, but a very high 
ranking official who's aware of this situation, who believes 
that there may have been some relationships that need to be 
reviewed, and we are in the process of doing that. These are 
allegations. They may or may not be true. And unless and until 
we review it and investigate it, I would prefer not to go into 
more detail. But I would be more than happy to keep you 
apprised, as I promised Congressman Berman as well as Senator 
Grassley to keep them apprised.
    Senator Allard. Well I would appreciate that. I'm glad that 
you feel that you've learned some things. We all make mistakes 
occasionally and we need to learn from those mistakes. But 
aside from that, do you think the review was taken in the most 
professional and unbiased manner possible?
    Mr. Walker. You can rely on that work, Mr. Chairman. The 
other thing that one has to keep in mind, is the Justice 
Department was already well aware of this matter.
    Senator Allard. Yes.
    Mr. Walker. And so, this was not something new. This was 
not something where people were relying on GAO to be able to 
advise the Justice Department as to whether or not the 
Government's interest should be protected. In fact, the Justice 
Department conducted its own independent review, it's my 
understanding, to determine whether and to what extent they 
should intervene in this action. They decided not to intervene 
in this action.
    I can tell you, Mr. Chairman, we have spent a tremendous 
amount of time institutionally, as well as myself individually, 
and we've spent a significant amount of taxpayer resources 
taking this matter very seriously. I'm just hoping we're to the 
point that we can move forward.

         PRIOR DISCUSSIONS WITH THE CONGRESS ON MISSILE DEFENSE

    Senator Allard. Yes. You've now talked to Mr. Berman and 
Senator Grassley about this misjudgment that you've made in 
taking on the case and subsequently had to change the scope. 
Even though it was after the fact, did they agree in light of 
the court case, that this is a change that needed to be made?
    Mr. Walker. They understand and they accept what we did and 
why we did it. I've spoken to Mr. Berman on several occasions 
over several years about this. In fact, I was very surprised 
when the article appeared in the New York Times, because there 
had been no attempt to communicate with me on this for almost 2 
years. After all the efforts I had taken, and that we 
institutionally had taken on this, it was really a surprise to 
me. In fact, the letter that resulted in the New York Times 
article--the 41 page letter, dated December 19, 2005, was never 
provided to me or anybody else at GAO. We had to get it off of 
Mr. Berman's website the day after it appeared in the New York 
Times.
    Senator Allard. I see.
    Mr. Walker. I will say for the record, that I had the 
professional courtesy to send Subrata Ghoshroy a copy of my 
response to his letter, which I think obviously, is 
appropriate.

   GOVERNMENT ACCOUNTABILITY OFFICE'S POLICY ON ENGAGEMENTS PENDING 
                               LITIGATION

    Senator Allard. Yes. Now your policy, prior to 2002, has 
not been to take on studies that might involve you in a court 
case. Is that the policy now?
    Mr. Walker. Our policy was and remains not to have GAO 
directly address issues that are pending before the Federal 
courts.
    Senator Allard. Is it just Federal courts or is it local 
courts too?
    Mr. Walker. It's general--it's any court. But typically, 
its Federal courts when somebody would be involving us to do 
anything regarding Federal spending, programs or whatever else. 
We never should have accepted it. Once we did accept it, we 
endeavored to try to be able to modify the objectives to not 
directly intervene. But that created certain expectation gaps 
within our organization and outside our organization. In fact, 
I communicated with Mr. Berman about this within the last 
couple of weeks and I think we both agree, that rather than 
modify the objectives, we probably should have said, we're not 
going to do anything.
    Senator Allard. Yes.
    Mr. Walker. Because it created certain expectation gaps. 
So, as you know, no good deed goes unpunished. I mean you're 
trying to provide some type of service. But we have learned 
lessons. In summary, you can rely on this report and we did 
take the complaints very seriously.

     GOVERNMENT ACCOUNTABILITY OFFICE'S QUALITY CONTROL PROCEDURES

    Senator Allard. Now how does GAO deal with concerns that 
are raised by analysts as to the direction the report is going 
in or the conclusions being drawn during the course of the job?
    Mr. Walker. Let me provide an overview of our quality 
control procedures, Mr. Chairman. I think it would help. As you 
can imagine, we receive 25 to 50 requests in a typical week 
from the Congress for us to do work. Every Monday afternoon, 
Gene Dodaro, our Chief Operating Officer, after getting input 
from me, chairs a meeting reviewing all of those requests 
involving the managing directors of all of our key teams, and 
we make a decision, typically within 10 days, on whether or not 
we're going to accept it. We also assign who is going to be the 
leader. We also identify, given the nature of the work, the 
complexity of the work, what we're being asked to do, and who 
the other key stakeholders are that need to be involved. For 
most of the work that we do, there are multiple key 
stakeholders, or multiple organizations, as was the case with 
this report. There are usually a number of key organizations 
that have to be involved to bring the right skills and 
knowledge together to do the best job and to mitigate related 
risk.
    Then staff are assigned. We have an extensive quality 
control process that includes periodic status reports on each 
major engagement. We also have a quality control process that 
includes internal reviews of all draft reports. We have a 
quality control process that includes providing an opportunity 
for any of the agencies that would be affected, to comment on 
the report before it is made final. If there are differences of 
opinion within our agency between key stakeholders, they are to 
buck it up the chain of command. If necessary, to my level, to 
get it resolved.
    Interestingly with regard to this report, we have a policy 
where before we issue any report, every stakeholder that's 
assigned to the engagement has to sign off on the report. That 
was the case here, including the person who's complaining.
    Senator Allard. So the person who's raising the complaint 
signed off on the report?
    Mr. Walker. He signed off on the report.

  ENSURING THE GOVERNMENT ACCOUNTABILITY OFFICE REPORTS ARE IMPARTIAL

    Senator Allard. Okay. Now, what steps do you take to ensure 
that your employees or consultants that you are working with 
don't have an over sympathetic relationship with individuals 
involved in your investigation, in a way that might distort the 
outcome of that report?
    Mr. Walker. As you know, Mr. Chairman, we have professional 
independence standards that relate to GAO. We also have 
supplemental internal policies and procedures. We set a very 
high bar on both institutional independence, as well as 
individual independence with regard to particular engagements. 
So when we're staffing, we're looking for that. The people have 
to let us know if they think they have any potential 
impairments that we need to be aware of. I would ask Gene 
Dodaro, our Chief Operating Officer, to comment in more detail.
    Senator Allard. Mr. Dodaro.
    Mr. Dodaro. Good morning, Senator. We have several 
different safeguards in place. Annually, each employee is to 
sign a statement of independence, saying that they are free 
from any personal impairments. Every employee also files a 
financial disclosure statement that's reviewed by their 
supervisor, so we can tell if they have any financial interest 
that may be an issue.
    Then, when individual engagements are staffed, every 
employee is reminded that they are to notify their manager if 
they have any personal or other conflicts with their assignment 
to that engagement. And then, they sign off on every individual 
engagement.
    Now, we didn't have that particular procedure in place back 
when this engagement was conducted, but we've added it since 
then. We've always had the annual certification. We've always 
had the requirement that each employee notify managers if they 
have any conflicts of interest.
    So the burden is on individual employees to notify 
managers. But we do have institutional safeguards and do some 
independent checking, as well.
    Senator Allard. Okay. And just kind of a summary question 
here. Mr. Dodaro, you mentioned a couple lessons learned. Can 
we just get a summary of lessons learned and then actions that 
have been taken, so that doesn't happen again?
    Mr. Walker. Absolutely, Mr. Chairman. We'd be happy to 
provide that for the record.
    Senator Allard. If you would, please.
    Mr. Walker. We will do it.
    [The information follows:]

    Question. How has GAO responded to the allegations about the 
February 2002 missile defense program report and what changes, if any, 
have you made to GAO's internal processes as a result?
    Answer. We have taken these concerns very seriously. In total, I 
initiated three internal reviews to respond to the concerns and most 
recently, in April 2006, provided a detailed response to Senator 
Grassley and Representative Berman addressing questions about the 
report. In summary,
  --The three internal reviews that have been conducted, including one 
        by our Inspector General, found that our 2002 report was done 
        in accordance with generally accepted government auditing 
        standards and the allegations raised were not substantiated. In 
        particular, these reviews determined that there was no credible 
        evidence supporting the assertion of conflicts of interest by 
        GAO personnel involved with the engagement nor was there any 
        credible evidence that would raise questions regarding the 
        integrity of our workpapers.
  --The missile defense report's findings represent the consensus view 
        of our most senior technical and professional staff. 
        Differences of opinion during the course of the work were 
        resolved by the time the report was issued, as evidenced by the 
        signatures of all the ``stakeholders'' on the engagement, 
        including the employee making the assertions. As a result, we 
        continue to stand behind the report. While the employee who 
        made the allegations, like all the other team members did play 
        a role in this engagement, he was one of four technical people 
        involved in the project. In addition, while all GAO employees' 
        opinions are important and sought, the opinion of a single 
        individual is not sufficient to create an institutional 
        position.
  --Importantly, the objective of our engagement was not to adjudicate 
        whether false claims had or had not been made nor did we 
        attempt to do so. In hindsight, we should not have accepted the 
        original July 2000 request because of the then-ongoing 
        litigation over the central issues involved in the sensor test. 
        Once we identified the need to restructure the engagement in 
        order to be consistent with long-standing GAO policy involving 
        matters pending before the courts, we took corrective action to 
        avoid directly inserting GAO into the issues that were the 
        subject of the litigation. The Justice Department was already 
        aware of allegations of false claims prior to GAO issuing its 
        report. Furthermore, the Justice Department conducted its own 
        review of this matter and decided not to pursue it. As I have 
        noted in previous communications on this matter, we should have 
        done a better job of communicating to the requester that we 
        were revising our audit scope and objectives and documenting 
        such revisions. Clearly this communication gap underlies the 
        fundamental misunderstanding that is at the heart of this 
        dispute both internally and externally, which has now consumed 
        a significant amount of time and taxpayer resources over 
        several years.
  --GAO has a strong, clear, and consistent record of aggressively 
        pursuing fraud, waste, abuse, and mismanagement within 
        government, including the Defense Department, in general, and 
        defense contracting and weapons acquisitions, in particular. In 
        fact, eight individual DOD areas are on GAO's high risk list 
        including weapons systems acquisition and several government 
        wide high risk areas apply to DOD as well. Our reviews of 
        missile defense issues have been an important part of this body 
        of work.
    In part as a result of the 2002 missile defense report, we have 
clarified our written policies and introduced new procedures pertaining 
to requests for work that deal with issues in litigation. Our written 
policies have been revised to emphasize that our Office of General 
Counsel should help identify and analyze any ongoing or anticipated 
litigation that could affect the engagement acceptance decision, and 
that this office should be consulted about such matters. In addition, 
the July 2004 update to our Congressional Protocols specifies that one 
of the factors that will be considered in determining whether to accept 
congressional requests is whether the matter is pending before 
administrative or judicial forums. We also have been giving greater 
attention to this issue at our weekly Engagement Acceptance Meeting, 
where all new congressional requests and mandates are discussed to 
determine, among other things, whether the work should be done and the 
appropriate level of Office of Comptroller General involvement. Known 
or potential issues involving litigation are discussed at the 
Engagement Acceptance Meeting as part of deciding whether GAO should 
accept the engagement. Lastly, we hold bi-weekly Engagement Review 
Meetings to discuss progress or issues on ongoing assignments that may 
require senior GAO management attention, such as litigation that may 
have been initiated since an engagement was begun and that may impact 
the engagement's scope or objectives.
    Regarding the issue of communicating changes in the scope of GAO 
work to requesters, once I became aware of the miscommunication on the 
missile defense engagement, we strengthened our internal policies and 
practices to protect against such communication problems in the future. 
Specifically, our practice is now to not only discuss significant 
changes in the scope of work, but also to document this discussion with 
a letter to the requester outlining the changes. Additional 
communication requirements in the protocols include holding discussions 
and sending documenting letters concerning our acceptance/declination 
of a request; and our agreement with the requester on the terms of the 
engagement. The practice of providing briefings and sending letters to 
the requester whenever there is a significant change in the objectives 
or scope of an engagement--coupled with the attention we give to these 
issues in Engagement Acceptance and Engagement Review Meetings--should 
help ensure solid communications with our congressional clients on 
these issues.
    In regard to assuring the independence of GAO staff, at the start 
of each engagement, the engagement's Director discusses the need to 
maintain independence with the engagement team and asks if anyone has 
any independence issues. This discussion is documented. If an 
individual's personal impairment cannot be mitigated, the individual 
will not perform the audit. When the design of an engagement is 
completed and documented (referred to as a design matrix), all 
engagement staff and stakeholders certify on the design matrix that 
they are free of any impairments to their independence and that they 
will notify their supervisor if such impairments should arise.
    Finally, it is our longstanding policy and practice that GAO's 
professional staff represent their independence by (1) signing an 
annual Statement of Independence stating that they have no personal or 
external impairments and understand the requirements for independence 
as stated in our professional standards (Generally Accepted Government 
Auditing Standards), (2) identifying financial interests and filing an 
annual Financial Disclosure report that is reviewed by Executive 
Committee members, Managing Directors, or designees; and (3) reporting 
to their Managing Director when they are seeking employment at the 
entity being audited and obtaining their Managing Director's approval 
to engage in outside activities.
    Question. What policies and practices have you put in place to 
assure that (1) GAO does not accept requests for work on matters 
involving pending litigation, (2) changes in the scope of work are 
communicated to requesters, and (3) GAO staff are free of any 
impairments related to the subject or conduct of an engagement?
    Answer. It has been our long-standing policy to generally avoid 
addressing any issue that is directly related to a matter pending in 
the Courts. In addition, we do not believe it is appropriate to use GAO 
as a means of advancing the interests or positions of private parties 
in pending litigation, whether intentionally or unintentionally. As a 
general rule, we will seek to avoid such engagements unless we believe 
we can structure our work to avoid influencing or directly interfering 
with pending litigation.
    In part as a result of the 2002 missile defense report, we have 
clarified our written policies and introduced new procedures pertaining 
to requests for work that deal with issues in litigation. Our written 
policies have been revised to emphasize that our Office of General 
Counsel should help identify and analyze any ongoing or anticipated 
litigation that could affect the engagement acceptance decision, and 
that this office should be consulted about such matters. In addition, 
the July 2004 update to our Congressional Protocols specifies that one 
of the factors that will be considered in determining whether to accept 
congressional requests is whether the matter is pending before 
administrative or judicial forums. We also have been giving greater 
attention to this issue at our weekly Engagement Acceptance Meeting, 
where all new congressional requests and mandates are discussed to 
determine, among other things, whether the work should be done and the 
appropriate level of Office of Comptroller General involvement. Lastly, 
we hold bi-weekly Engagement Review Meetings to discuss progress or 
issues on ongoing assignments that may require senior GAO management 
attention, such as litigation that may have been initiated since an 
engagement was begun and that may impact the engagement's scope or 
objectives.
    Regarding the issue of communicating changes in the scope of GAO 
work to requesters, once we became aware of the miscommunication on the 
missile defense engagement, we strengthened our internal policies and 
practices to protect against such communication problems in the future. 
Specifically, our practice is now to not only discuss significant 
changes in the scope of work, but also to document this discussion with 
a letter to the requester outlining the changes. Additional 
communication requirements in the protocols include holding discussions 
and sending documenting letters concerning our acceptance/declination 
of a request; and our agreement with the requester on the terms of the 
engagement. The practice of providing briefings and sending letters to 
the requester whenever there is a significant change in the objectives 
or scope of an engagement--coupled with the attention we give to these 
issues in Engagement Acceptance and Engagement Review Meetings--should 
help ensure solid communications with our congressional clients on 
these issues.
    In regard to assuring the independence of GAO staff, at the start 
of each engagement, the engagement's Director discusses the need to 
maintain independence with the engagement team and asks if anyone has 
any independence issues. This discussion is documented. If an 
individual's personal impairment cannot be mitigated, the individual 
will not perform the audit. When the design of an engagement is 
completed and documented (referred to as a design matrix), all 
engagement staff and stakeholders certify on the design matrix that 
they are free of any impairments to their independence and that they 
will notify their supervisor if such impairments should arise.
    Finally, it is our longstanding policy and practice that GAO's 
professional staff represent their independence by (1) signing an 
annual Statement of Independence stating that they have no personal or 
external impairments and understand the requirements for independence 
as stated in our professional standards (Generally Accepted Government 
Auditing Standards), (2) identifying financial interests and filing an 
annual Financial Disclosure report that is reviewed by Executive 
Committee members, Managing Directors, or designees; and (3) reporting 
to their Managing Director when they are seeking employment at the 
entity being audited and obtaining their Managing Director's approval 
to engage in outside activities.

  GOVERNMENT ACCOUNTABILITY OFFICE'S FISCAL YEAR 2005 ACCOMPLISHMENTS

    Senator Allard. Okay. Let's go ahead and proceed with your 
budget, and hear what you have to say in that regard.
    Mr. Walker. Thank you, Mr. Chairman. I appreciate that very 
much. I want to thank you for the opportunity to appear before 
you again, and I want to thank your subcommittee for your past 
support. Briefly, I'd like to touch on some of our 
accomplishments for last year, and then our budget request for 
2007.
    In the last fiscal year, ended September 30, 2005, as you 
know, GAO is trying to lead by example in transforming what we 
do and how we do business, focusing on positive results that 
benefit the Congress and the American people. Last year, we met 
or exceeded 10 of our 14 performance measures. We matched or 
set all time records for three of those performance measures. 
We achieved $39.6 billion in financial benefits. That's an $83 
return for every $1 invested in GAO. That's number one in the 
world. Nobody's even close. Nobody else is even in double 
digits. We had a 93 percent positive client feedback score and 
we set all time records on our employee feedback scores. So on 
all dimensions; it was a very good year.
    We issued two strategic documents of critical importance to 
the Congress and the country. The first was our ``High Risk 
Update'' listing high risk programs, functions, and activities 
in the Federal Government. The second one was our ``21st 
Century Challenges'' document, which I know Mr. Chairman, 
you've seen. This document lays out a series of questions that 
need to be asked and answered in order to re-engineer the 
Government to address 21st century challenges and capitalize on 
related opportunities.
    We strengthened various partnerships, both domestically and 
internationally. For example, we led the effort to develop the 
first ever strategic plan for auditors general around the 
world, modeled after GAO's plan. We also led the effort that 
resulted in the first ever National Intergovernmental Audit 
Forum strategic plan which involves Federal, State, and local 
auditors. It's important that we partner for progress, because 
we all have limited resources, if we're going to achieve 
maximum results.
    We successfully completed, as I mentioned before, two 
external peer reviews, providing assurance to the Congress and 
the American people in connection with our quality control 
processes. They resulted not only in clean opinions, but also a 
number of global good practices that were identified.
    A couple of areas for continuous improvement were noted in 
the reports, and we are taking steps in light of those 
recommendations. We have implemented additional flexibilities 
provided by this Congress, dealing with our human capital 
classification and compensation systems. We now have market-
based pay ranges for all GAO personnel. We now have a 
compensation system that pays based upon skills, knowledge, and 
performance. We also have extended pay banding to all of our 
administrative personnel. There are no GAO employees on the GS 
system. Not one.
    We are a window to the future, Mr. Chairman, with regard to 
this area. We most recently--and this is in fiscal 2006, had to 
accomplish the most difficult thing we'll ever do internally 
and that is to make tough decisions for our so-called Band II, 
or mid-level senior auditors, investigators, analysts, and 
evaluators, to determine which ones should benefit from higher 
pay ranges that came out of the pay study and which ones should 
not.
    We found when that pay study came out, that it was good 
news and bad news. The good news was, depending on a person's 
level of responsibilities and their performance; they should 
have the opportunity to earn up to $10,000 more than under our 
old system. The bad news was that if some persons were not 
leading on a recurring basis or their performance did not 
justify, we were paying them too much. And so, we had to go 
through a system, on an individual by individual basis, which I 
am happy to answer questions on if you so desire, that resulted 
in decisions for applicable individuals, including some 
resulting from personal appeals that came to me.
    In the final analysis, we've got only 1 percent of our Band 
II employees that have made independent appeals to our external 
review body. I think that is a minor miracle, and we obviously 
look forward to working with that body to resolve those 
appeals.

   GOVERNMENT ACCOUNTABILITY OFFICE'S FISCAL YEAR 2007 BUDGET REQUEST

    As far as 2007, as has been the case, we are trying to be 
modest with regard to our budget requests. We know the country 
is in a deficit situation. We're asking for about a 5-percent 
increase relating directly and overwhelmingly to mandatory and 
uncontrollable increases.
    I would respectfully suggest, Mr. Chairman that you not 
just consider what our increase is for this year, but also how 
we've been treated over the last several years. For example, 
since fiscal 2000, GAO's budget has increased 10 percent in 
constant dollars. The average legislative branch constant 
dollar increase during the same period is 36 percent. So I 
would respectfully suggest that you not just look at what we're 
asking for now, but how we've been treated in the past and what 
results we're generating for the Congress and the American 
people, making the tough decisions that you're going to have to 
make, with regard to limited resource allocations.
    We're asking for 50 additional full-time equivalents 
(FTEs). The reason we're asking for them, is that we're facing 
increasing supply and demand imbalances in congressional 
requests versus our ability to address those requests in a 
timely manner in several areas, such as healthcare and homeland 
security.
    And last, we're asking for a few targeted investments based 
on a business case, one time money that we would hopefully get 
funded for and will reverse out of our base, for things like 
replacing our 20 year old financial management system and 
enhancing our physical and information security requirements. 
In that regard, Mr. Chairman, it's not just for us, but we're 
one of several contingent sites for the Congress in the event 
of an unexpected catastrophic event.

                           PREPARED STATEMENT

    So, we're not just trying to take care of ourselves and our 
people, we're also trying to be in a position to help the 
Congress in the event that the Congress needs to use our 
facilities, which has already happened once in the history of 
the republic. I hope it won't happen again. But if it does, we 
want to be ready.
    Thank you, Mr. Chairman.
    [The statement follows:]
                 Prepared Statement of David M. Walker
    Mr. Chairman and Members of the Committee: I am pleased to appear 
before the Committee today in support of the fiscal year 2007 budget 
request for the U.S. Government Accountability Office (GAO). This 
request will help us continue our support of the Congress in meeting 
its constitutional responsibilities and will help improve the 
performance and ensure the accountability of the federal government for 
the benefit of the American people.
    Budget constraints in the federal government grew tighter in fiscal 
years 2005 and 2006. In developing our fiscal year 2007 budget, we 
considered those constraints consistent with GAO's and the Committee's 
desire to ``lead by example.'' In fiscal year 2007, we are requesting 
budget authority of $509.4 million, a reasonable 5 percent increase 
over our fiscal year 2006 revised funding level. In the event Congress 
acts to hold federal pay increases to 2.2 percent, our requested 
increase will drop to below 5 percent. This request will allow us to 
continue making improvements in productivity, maintain our progress in 
technology and other transformation areas, and support a full-time 
equivalent (FTE) staffing level of 3,267. This represents an increase 
of 50 FTEs over our planned fiscal year 2006 staffing level and will 
allow us to rebuild our workforce to a level that will position us to 
better respond to increasing supply and demand imbalances in areas such 
as disaster assistance, the global war on terrorism, homeland security, 
forensic auditing, and health care.
    I am proud of the work we accomplished this past fiscal year in 
support of the Congress and the American people. We provided our 
congressional clients with timely, objective, and reliable information 
on how well government programs and policies are working and, when 
needed, recommendations for improvement. In the years ahead, our 
support to the Congress will likely prove to be even more critical 
because of the pressures created by our nation's current and projected 
budget deficit and growing long-term fiscal imbalance. Indeed, as it 
considers those fiscal pressures, the Congress will be grappling with 
tough choices about what government does, how it does business, and who 
should do the government's business. GAO is a valuable tool for helping 
the Congress review, reprioritize, and revise existing mandatory and 
discretionary spending programs and tax policies. Additionally, through 
its involvement domestically with the federal, state, and local audit 
community and internationally with its national audit office 
counterparts, GAO has played--and will continue to play--an important 
role in helping to ensure the financial integrity of U.S. funds 
expended at home and abroad. GAO-led efforts to develop and implement 
the first-ever strategic plans for the National Intergovernmental Audit 
Forum and the International Organization of Supreme Audit Institutions 
have helped improve the effectiveness of these audit organizations and 
GAO to work more efficiently and cost-effectively.
    In an effort to identify areas for potential improvement, GAO 
underwent two peer reviews in fiscal year 2005. We obtained a clean 
opinion on our performance audit practice from an international team of 
experienced auditors--the first time that we have sought such an 
opinion. The independent reviewers concluded that we have designed and 
implemented an effective system of quality controls to provide 
reasonable assurance of complying with generally accepted government 
auditing standards, which are designed to ensure that audits of 
government activities are objective, independent, and reliable. This 
opinion validated that the Congress and the American people can rely on 
our work and products. Also during fiscal year 2005, GAO received an 
unqualified report, or clean opinion, on the results of the external 
peer review of its financial audit practice. External peer reviews are 
conducted on a 3-year cycle, and this is the fourth such clean opinion 
that GAO has received from an external peer reviewer since the program 
began in fiscal year 1996. The external peer reviewer, KPMG LLP, found 
that the system of quality control for GAO's financial auditing 
practice met professional standards and that GAO in fact complied with 
the standards.
    In fiscal year 2005, we met or exceeded targets for 10 of our 14 
performance measures, while setting or matching all-time records for 3 
measures. We documented $39.6 billion in financial benefits--a return 
of $83 for every dollar we spent--and over 1,400 nonfinancial 
benefits--a record for us. Our targets for fiscal years 2006 and 2007 
will continue to challenge the agency in our efforts to support the 
Congress and serve the American people. Beginning with fiscal year 
2006, we will add 2 internal operations measures to the list. These 2 
new performance measures will assess how well our mission and people 
are supported by our infrastructure operations staff.
    In fiscal year 2005, we issued two products that will assist the 
Congress as it addresses future challenges. Recognizing the importance 
and scope of these reports, we provided a copy to every member of 
Congress and each Committee, as well as the White House. Our report 
entitled 21st Century Challenges: Reexamining the Base of the Federal 
Government provides a series of illustrative questions related to 12 
areas of federal activity as well as our perspective on various 
strategies and approaches that should be considered as a possible means 
to address the issues and questions raised in the report. Drawing on 
our institutional knowledge and extensive program evaluation and 
performance assessment work for the Congress, we presented over 200 
specific 21st century questions illustrating the types of hard choices 
our nation needs to face as it reexamines what the federal government 
should do, how it should do it, and how it should be financed. We also 
issued our High-Risk Series: An Update, which identifies federal areas 
and programs at risk of fraud, waste, abuse, and mismanagement and 
those in need of broad-based transformations. The issues affecting many 
of these areas and programs may take years to address, and the report 
will serve as a useful guide for the Congress's future programmatic 
deliberations and oversight activities. The current administration has 
looked to our high-risk program in shaping governmentwide initiatives 
such as the President's Management Agenda, which has at its base many 
of the areas we had previously identified as high risk. The Office of 
Management and Budget (OMB), in consultation with GAO, is currently 
working to ensure that agencies develop detailed action plans to 
address high-risk areas, with the ultimate objective, over time, of 
seeing these items removed from our high-risk list.
    As in past years, during fiscal year 2005, our work covered a 
number of major topics of concern to the nation and, in some cases, the 
world. For example, we reported on the nation's long-term fiscal 
challenges, the financial condition of the airline industry, spending 
and reconstruction activities related to Iraq and Afghanistan, and 
strengthening the visa process as an antiterrorism tool. We also 
examined the Department of Defense's (DOD's) transformation challenges, 
base realignment and closure issues, increasing the strategic focus of 
federal acquisitions, protecting against identity theft, the oversight 
of electricity markets, zero down-payment mortgages, and immigration 
enforcement. We testified many times before the Congress, contributing 
to the public debate on a variety of topics that included Social 
Security reform, pension reform, postal reform, GSE oversight, wildland 
fire management, gasoline prices, the flu vaccine, veterans' health 
care, benefits for members of the Reserves and National Guard, digital 
broadcast television, long-term health care financing, passport fraud 
detection, reducing the tax gap, information security, and a range of 
financial management and accountability issues. In addition, we 
conducted a range of work on a variety of legislative branch agencies 
and projects, including the Capitol Visitor Center, the Architect of 
the Capitol, and the U.S. Capitol Police.
    This past year we also continued to take steps internally to help 
us achieve our goal of being a model federal agency and a world-class 
professional services organization. These steps helped us to address 
our three major management challenges--human capital, physical 
security, and information security. Through the GAO Human Capital 
Reform Act of 2004, the Congress granted GAO several additional human 
capital flexibilities that will allow us, among other things, to move 
to an even more performance-oriented and market-based compensation 
system. As you have heard me say many times, our most valuable asset is 
our people, and the flexibilities granted in this act will help us to 
continue to modernize our people-related policies and strategies, 
which, in turn, will help ensure that we are well-equipped to serve the 
Congress and the American people in the years to come. As a result, we 
are continuing to take a range of actions designed to modernize our 
human capital policies and practices. In fiscal year 2005, we adopted a 
broad pay band approach and a more performance-oriented pay system for 
our administrative staff. In fiscal year 2006, we implemented a more 
market-based and skills-, knowledge-, and performance-oriented 
classification and pay system for all of our employees.
    My testimony today will focus on our budget request for fiscal year 
2007 to support the Congress and serve the American people and on our 
performance and results with the funding you provided us in fiscal year 
2005.
         gao's fiscal year 2007 request to support the congress
    Our fiscal year 2007 budget request will provide us the resources 
necessary to achieve our performance goals in support of the Congress 
and the American people. This request will allow GAO to improve 
productivity and maintain progress in technology and other 
transformation areas. We continue to streamline GAO, modernize our 
policies and practices, and leverage technology so that we can achieve 
our mission more effectively and efficiently. These continuing efforts 
allow us to enhance our performance without significant increases in 
funding. Our fiscal year 2007 budget request represents a modest 
increase of about $25 million (or 5 percent) over our fiscal year 2006 
revised funding level--primarily to cover uncontrollable mandatory pay 
and price level increases. This request reflects a reduction of nearly 
$5.4 million in nonrecurring fiscal year 2006 costs used to offset the 
fiscal year 2007 increase. This request also includes about $7 million 
in one-time fiscal year 2007 costs, which will not recur in fiscal year 
2008, to upgrade our business systems and processes.
    As the Congress addresses the devastation in the Gulf Coast region 
from Hurricane Katrina and several other major 2005 hurricanes, GAO is 
supporting the Congress by assessing whether federal programs assisting 
the people of the Gulf region are efficient and effective and result in 
a strong return on investment. In order to address the demands of this 
work; better respond to the increasing number of demands being placed 
on GAO, including a dramatic increase in health care mandates; and 
address supply and demand imbalances in our ability to respond to 
congressional interest in areas such as disaster assistance, homeland 
security, the global war on terrorism, health care, and forensic 
auditing, we are seeking your support to provide the funding to rebuild 
our staffing level to the levels requested in previous years. We 
believe that 3,267 FTEs is an optimal staffing level for GAO that would 
allow us to more successfully meet the needs of the Congress.
    In preparing this request and taking into account the effects of 
the fiscal year 2006 rescission, we revised our workforce plan to 
reduce fiscal year 2005 hiring and initiated a voluntary early 
retirement opportunity for staff in January 2006. These actions better 
support GAO's strategic plan for serving the Congress, better align 
GAO's workforce to meet mission needs, correct selected skill 
imbalances, and allow us to increase the number of new hires later in 
fiscal year 2006. Our revised hiring plan represents an aggressive 
hiring level that is significantly higher than in recent fiscal years, 
and it is the maximum number of staff we could absorb during fiscal 
year 2006. These actions will also position us to more fully utilize 
our planned FTE levels of 3,217 and 3,267 in fiscal years 2006 and 
2007, respectively.
    Our fiscal year 2007 budget request includes approximately $502 
million in direct appropriations and authority to use about $7 million 
in estimated revenue from rental income and reimbursable audit work. 
Table 1 summarizes the changes we are requesting in our fiscal year 
2007 budget.

                     TABLE 1.--FISCAL YEAR 2007 BUDGET REQUEST, SUMMARY OF REQUESTED CHANGES
                                             [Dollars in thousands]
----------------------------------------------------------------------------------------------------------------
                                                                                                    Cumulative
                        Budget category                              FTEs            Amount         percentage
                                                                                                      change
----------------------------------------------------------------------------------------------------------------
Fiscal year 2006 enacted budget authority.....................           3,217        $489,560   ...............
    Less: rescission..........................................  ..............          (4,896)  ...............
                                                               -------------------------------------------------
      Fiscal year 2006 revised budget authority...............  ..............        $484,664   ...............
                                                               =================================================
Fiscal year 2007 requested changes:
    Nonrecurring fiscal year 2006 costs.......................  ..............         ($5,380)              (1)
    Mandatory pay costs.......................................              50          18,469                3
    Price level changes.......................................  ..............           4,073                4
    Relatively controllable costs.............................  ..............           7,528   ...............
    Adjustment due to rounding................................  ..............               1   ...............
                                                               -------------------------------------------------
      Subtotal--requested changes.............................              50         $24,691                5
                                                               -------------------------------------------------
      Total fiscal year 2007 budget authority required to                3,267        $509,355   ...............
       support GAO operations.................................
----------------------------------------------------------------------------------------------------------------
Source: GAO.

    Our fiscal year 2007 budget request supports three broad program 
areas: Human Capital, Engagement Support, and Infrastructure 
Operations. Consistent with our strategic goal to be a model agency, we 
have undertaken a number of initiatives to implement performance-based, 
market-oriented compensation systems; adopt best practices; benchmark 
service levels and costs; streamline our operations; cross-service and 
outsource activities; and leverage technology to increase efficiency, 
productivity, and results.
    The Human Capital Program provides the resources needed to support 
a diverse, highly educated, knowledge-based workforce comprising 
individuals with a broad array of technical and program skills and 
institutional memory. This workforce represents GAO's human capital--
its greatest asset--and is critical to the agency's success in serving 
the Congress and the nation. Human Capital Program costs represent 
nearly 80 percent of our requested budget authority.
    To further ensure our ability to meet congressional needs, we plan 
to allocate approximately $17 million for Engagement Support to: 
conduct travel, a critical tool to accomplish our mission of following 
the federal dollar cross the country and throughout the world, and to 
ensure the quality of our work; contract for expert advice and 
assistance when needed to meet congressional timeframes for a 
particular audit or engagement; and ensure a limited presence in the 
Middle East to provide more timely, responsive information on U.S. 
activities in the area.
    In addition, we plan to allocate about $91 million--or about 18 
percent of our total request--for Infrastructure Operations programs 
and initiatives to provide the critical infrastructure to support our 
work. These key activities include information technology, building 
management, knowledge services, human capital operations, and support 
services.
                    performance, results, and plans
    In fiscal year 2005, the Congress focused its attention on a broad 
array of challenging issues affecting the safety, health, and well-
being of Americans here and abroad, and we were able to provide the 
objective, fact-based information that decision makers needed to 
stimulate debate, change laws, and improve federal programs for the 
betterment of the nation. For example, as the war in Iraq continued, we 
examined how DOD supplied vehicles, body armor, and other materiel to 
the troops in the field; contributed to the debate on military 
compensation; and highlighted the need to improve health, vocational 
rehabilitation, and employment services for seriously injured soldiers 
transitioning from the battlefield to civilian life. We kept pace with 
the Congress's information needs about ways to better protect America 
from terrorism by issuing products and delivering testimonies that 
addressed issues such as security gaps in the nation's passport 
operations that threaten public safety and federal efforts needed to 
improve the security of checked baggage at airports and cargo 
containers coming through U.S. ports. We also explored the financial 
crisis that weakened the airline industry and the impact of this 
situation on the traveling public and airline employees' pensions. We 
performed this work in accordance with our strategic plan for serving 
the Congress, consistent with our professional standards, and guided by 
our core values (see appendix 1). See table 2 for examples of how GAO 
assisted the nation in fiscal year 2005.

                      TABLE 2.--EXAMPLES OF HOW GAO ASSISTED THE NATION IN FISCAL YEAR 2005
----------------------------------------------------------------------------------------------------------------
 Goal          Description                            GAO provided information that helped to
----------------------------------------------------------------------------------------------------------------
    1 Provide timely, quality    Improve the transition from active duty to civilian status for veterans with
       service to the Congress    serious war-related injuries
       and the federal           Address long-term health care financing pressures on state and local
       government to address      government budgets
       current and emerging      Identify challenges associated with transferring the Medicare appeals process
       challenges to the well-    from the Social Security Administration and HHS
       being and financial       Improve patient safety at Department of Veterans' Affairs hospitals
       security of the American  Improve the security of Social Security numbers
       people                    Address the challenges of pension reform
                                 Strengthen the security screening process for passengers and checked baggage
                                  at the nation's airports
                                 Improve the oversight of Federal Housing Administration single-family and
                                  multifamily lenders
                                 Improve the oversight of electricity markets by the Federal Energy Regulatory
                                  Commission
                                 Identify challenges associated with the Department of Energy's (DOE's)
                                  nuclear facility designs
                                 Monitor the growth in the digital television market
                                 Analyze issues contributing to the declining financial condition of the
                                  airline industry
    2 Provide timely, quality    Improve the management of funds for the global war on terrorism
       service to the Congress   Increase the security of cargo containers to prevent terrorist activity
       and the federal           Alert the Congress to issues affecting the DOD's major weapon systems
       government to respond to  Analyze funding options for a new federal foreign assistance program--the
       changing security          Millennium Challenge Account
       threats and the           Promote government efforts to address threats to the security of the nation's
       challenges of global       information systems
       interdependence           Strengthen the visa process as an antiterrorism tool
                                 Improve management of the U.S. Coast Guard's Deepwater Program
                                 Shape the debate on improving military pay and benefits
                                 Strengthen the U.S. strategic export control system
                                 Identify improvements needed to secure critical IT systems used by U.S.
                                  financial markets
                                 Report to the Congress on the 2005 base realignment and closures (BRAC)
                                  defense transformation
    3 Help transform the         Increase the public's understanding of the federal government's long-term
       federal government's       fiscal challenges
       role and how it does      Implement governmentwide civil service reforms
       business to meet 21st     Oversee federal tax policy
       century challenges        Increase debts collected from criminals
                                 Decrease improper payments made by the USDA Food Stamp Program and other
                                  federal agencies
                                 Manage multibillion dollar IT modernizations and investments at the
                                  Department of Homeland Security (DHS) and Office of Personnel Management
                                 Improve agencies' strategic purchasing practices
                                 Examine changes in key areas of federal activity that could affect the
                                  federal government's fiscal future
                                 Enhance the knowledge base on comprehensive national indicators
                                 Improve postal operations through reform legislation
    4 Maximize the value of GAO  Foster among other federal agencies GAO's innovative human capital practices,
       by being a model federal   such as broad pay bands; performance-based compensation; and workforce
       agency and a world-class   planning and staffing strategies, policies, and processes
       professional services     Share GAO's model business and management processes and other transformation-
       organization               related information with counterpart organizations in the United States and
                                  abroad
----------------------------------------------------------------------------------------------------------------
      Source: GAO.

                outcomes of our work and the road ahead
    During fiscal year 2005 we monitored our performance using 14 
annual performance measures that capture the results of our work; the 
assistance we provided to the Congress; and our ability to attract, 
retain, develop, and lead a highly professional workforce (see table 
3). For example, in fiscal year 2005 our work generated $39.6 billion 
in financial benefits, primarily from actions agencies and the Congress 
took in response to our recommendations. Of this amount, about $19 
billion resulted from changes to laws or regulations, $12.8 billion 
resulted from agency actions based on our recommendations to improve 
services to the public, and $7.7 billion resulted from improvements to 
core business processes. See figure 1 for examples of our fiscal year 
2005 financial benefits.

                           TABLE 3.--AGENCYWIDE SUMMARY OF ANNUAL MEASURES AND TARGETS
                                              [Dollars in billions]
----------------------------------------------------------------------------------------------------------------
                                 2001        2002        2003        2004        2005        2006        2007
    Performance measures        Actual      Actual      Actual      Actual      Actual      Target      Target
----------------------------------------------------------------------------------------------------------------
Results:
    Financial benefits......       $26.4       $37.7       $35.4       $44.0       $39.6       $39.0       $40.0
    Other benefits..........      $799        $906      $1,043      $1,197      $1,409      $1,050      $1,100
    Past recommendations            79          79          82          83          85          80          80
     implemented (percent)..
    New products with               44          53          55          63          63          60          60
     recommendations
     (percent)..............
Client:
    Testimonies.............       151         216         189         217         179         210         185
    Timeliness (percent)....        95          96          97          97          97          98          98
People:
    New hire rate (percent).       N/A          96          98          98          94          97          97
    Acceptance rate                N/A          81          72          72          71          75          75
     (percent)..............
    Retention rate with             91          91          92          90          90          90          91
     retirements (percent)..
    Retention rate without          95          97          96          95          94          94          95
     retirements (percent)..
    Staff development              N/A          71          67          70          72          74          75
     (percent)..............
    Staff utilization              N/A          67          71          72          75          75          78
     (percent)..............
    Leadership (percent)....       N/A          75          78          79          80          80          80
    Organizational climate         N/A          67          71          74          76          75          76
     (percent)..............
----------------------------------------------------------------------------------------------------------------
Source: GAO.
Note: N/A indicates the information is not available or the target is not applicable.
In fiscal year 2006, we will add two internal operations measures to our list of performance measures on which
  we report. These measures will help us determine how well our internal operations (1) help employees get their
  jobs done and (2) improve employees' quality of life in the workplace.


  FIGURE 1.--GAO'S SELECTED MAJOR FINANCIAL BENEFITS REPORTED IN FISCAL
                                YEAR 2005
                        [In millions of dollars]
------------------------------------------------------------------------
                          Description                            Amount
------------------------------------------------------------------------
Reduced funding for a missile defense system..................       4.7
    In an April 2003 report, we stated that to successfully
  develop an effective and suitable missile defense system,
  the Missile Defense Agency must be willing to adopt
  knowledge-based acquisition practices that have made other
  developers successful. Our report acknowledged that the
  agency's development strategy for the Kinetic Energy
  Interceptor Program included knowledge-based practices, but
  concluded that the agency had not implemented two important
  practices: (1) using well-developed technologies during
  system integration and (2) fully testing a system before
  fielding it. In response, the Missile Defense Agency is
  scaling back development of the Kinetic Energy Interceptor
  Program until technologies are mature. Over a 5-year period--
  from fiscal years 2005 through 2009--program funding will be
  reduced by about $5.2 billion, which has a net present value
  of about $4.7 billion.
Avoided higher costs associated with a nuclear waste disposal        4.5
 process......................................................
    In a June 2003 report, we recommended that DOE pursue
  legislative clarification from the Congress because of a
  legal challenge that threatened DOE's ability to proceed
  with its less costly strategy for treating and disposing of
  radioactive tank wastes with lower concentrations of
  radioactivity. DOE estimated that pursuing a more expensive
  treatment and disposal strategy suitable for wastes with
  higher concentrations of radioactivity would increase waste
  treatment disposal costs by $55 billion to $60 billion at
  its Savannah River Site. The fiscal year 2005 National
  Defense Authorization Act contained a provision that
  clarified DOE's authority to follow its planned treatment
  and disposal strategy, thus avoiding a more costly process.
  We calculated that the net present value of the cost
  avoidance for fiscal years 2005 through 2009 was about $4.5
  billion.
Improved the Army's force structure...........................       3.4
    In a report examining the Army's force structure, we
  recommended that the Army establish mission criteria to
  provide a firmer basis for its Strategic Reserve, Domestic
  Support, and Homeland Defense force requirements. Such
  criteria would help to ensure that the Army had the right
  number and types of soldiers available for these purposes.
  Rather than request additional end strength, the Army
  reconfigured its existing force's structure. In April 2003,
  DOD reported that the Army had included force structure
  changes in its fiscal year 2004 budget, which supported
  increased units for military police; military intelligence;
  special forces; and chemical, civil affairs, and
  psychological operations. Based on this action, the Army has
  been able to rebalance its force structure to create needed
  units with minimal increases in authorized end strength. The
  amount shown represents the net present value of the force
  structure changes over a 5-year period (fiscal years 2004
  through 2008).
Reduced the cost of federally subsidized housing projects.....       2.7
    We determined that the Department of Housing and Urban
  Development (HUD) had not developed the systems it needed to
  track the status of unexpended balances in its project-based
  Section 8 housing program and therefore could not use this
  information to help manage the program and formulate budget
  requests for it. As a result of our work, the Congress
  required HUD to better enforce the legislative provisions
  requiring the recapture of capital funds not being utilized
  by public housing authorities. In fiscal year 2005, we
  documented--using HUD data--that a financial benefit of
  about $2.7 billion in current dollars resulted from HUD's
  recapture of about $2.5 billion of fiscal year 2003 dollars.
Avoided costs associated with higher payment rates at skilled        2.0
 nursing homes................................................
    In 2002, we assessed the impact of a 16.6 percent increase
  in Medicare's daily rate for skilled nursing facilities on
  nurse staffing ratios. Our analysis showed that nurse
  staffing ratios changed little from April 1, 2001, through
  September 30, 2002--the period during which the rate
  increase was in effect. In fiscal year 2003, the cost to the
  federal government of reinstating the payment rate increase
  was approximately $1 billion per year. Since we issued our
  report, the Congress has considered reinstating the rate
  increase, but it has chosen not to, largely on the basis of
  our analysis. The net present value of the annual cost
  avoidance for fiscal years 2004 and 2005 is $2 billion.
Increased tax revenues........................................       1.8
    We reported that the Internal Revenue Service (IRS) did
  not have systems or procedures in place to allow it to
  identify and actively pursue unpaid tax cases that may have
  some collection potential. Based on our work, IRS has taken
  action to better assess the potential for collecting unpaid
  tax assessment cases and has used that information to better
  target its collection efforts. Specifically, in 2004 IRS
  began implementing a sophisticated modeling technology to
  identify productive and less productive cases to ensure that
  its resources are devoted to cases with a higher likelihood
  of collection and to help prevent premature suspension of
  collection efforts. IRS's analysis of the yield on
  collection cases after employing this modeling in fiscal
  year 2004 shows that this yield increased by about $1.8
  billion (in current year dollars), or 8.4 percent from the
  previous year (fiscal year 2003), without significant
  staffing level increases.
Ensured continued investment in the General Services                 1.3
 Administration's (GSA) online purchasing system..............
    As of 2003, GSA had spent $84 million to develop,
  implement, and maintain Advantage, a system for ordering
  products and services online. However, 5 years after the
  system was launched, only 35 percent of all government-
  contracted vendors participated in the program, and agencies
  were largely using the system to compare pricing. To ensure
  GSA's level of investment matched customer needs, we
  recommended that the agency develop a business case for a
  system such as Advantage, and in January 2005, GSA selected
  a new business strategy that would significantly enhance the
  system's capabilities to serve as a broker between buyers
  and suppliers and provide agencies with an automated tool
  for formulating acquisition requirements and developing
  requests for quotes. GSA projects over $1.5 billion in
  financial benefits to result from electronic transactions,
  spend analysis (analysis of expenditures that shows how
  money is spent on goods and services), a searchable
  procurement data repository, and competitive pricing. This
  financial benefit has a net present value of just over $1.3
  billion.
Reduced Navy and Air Force appropriations.....................       1.3
    DOD policy requires the Defense Working Capital Fund to
  maintain cash levels to cover 7 to 10 days of operational
  cash and 6 months of capital asset disbursements. Our
  analysis showed that the January 2004 reported actual cash
  balance for the Air Force Working Capital Fund exceeded the
  10-day cash requirement by about $1.5 billion, and the
  Navy's Working Capital Fund reported actual cash balance
  exceeded the budgeted cash balance by $659 million and $408
  million at the end of fiscal years 2002 and 2003,
  respectively. The Congress reduced the Navy and Air Force
  fiscal year 2005 Operation and Maintenance appropriations by
  just under $1.3 billion due to excessive cash amounts.
Eliminated the National Aeronautics and Space Administration's       1.1
 (NASA) Prometheus 1 project..................................
    We issued a report questioning whether NASA had
  established the initial justification for its investment in
  the Prometheus 1 project and how the agency planned to
  ensure that critical nuclear power and propulsion system
  technologies were sufficiently developed to support deep
  space probes like the Jupiter Icy Moons Orbiter. We also
  reported that the approved Prometheus 1 funding profile was
  inadequate to support the planned mission--a launch to
  Jupiter's Icy Moons in 2015. NASA has subsequently deferred
  the Jupiter Icy Moons Orbiter mission indefinitely, reducing
  the agency's funding needs by about $1.22 billion through
  fiscal year 2009; the net present value of this reduction is
  over $1.1 billion.
Reduced the budget request for a new foreign assistance              1.0
 program......................................................
    In March and June 2004, we provided the Congress with
  information to help it assess the President's $2.5 billion
  fiscal year 2005 budget request for the Millennium Challenge
  Account--a new foreign assistance program intended to
  provide economic assistance to countries that demonstrate a
  commitment to ruling justly, investing in people, and
  encouraging economic freedom. Our work provided the Congress
  with a framework for identifying relationships and trade-
  offs between funding levels, compact length, and number of
  compacts (i.e., agreements). Our analysis indicated that by
  reducing assistance target levels, the length of compacts or
  both with participating countries, the program could operate
  at a lower funding level. We also estimated the effect of
  funding compacts partly from future appropriations. Our work
  facilitated the Congress's decision to reduce the
  appropriation for the Millennium Challenge Account in fiscal
  year 2005 to $1.5 billion.
------------------------------------------------------------------------

    Many of the benefits that result from our work cannot be measured 
in dollar terms. During fiscal year 2005, we recorded a total of 1,409 
other benefits. For instance, we documented 75 instances where 
information we provided to the Congress resulted in statutory or 
regulatory changes, 595 instances where federal agencies improved 
services to the public, and 739 instances where agencies improved core 
business processes or governmentwide reforms were advanced. These 
actions spanned the full spectrum of national issues, from ensuring the 
safety of commercial airline passengers to identifying abusive tax 
shelters. See figure 2 for additional examples of GAO's other benefits 
in fiscal year 2005.

              FIGURE 2.--GAO'S SELECTED OTHER (NONFINANCIAL) BENEFITS REPORTED IN FISCAL YEAR 2005
----------------------------------------------------------------------------------------------------------------
                                                                      Description
----------------------------------------------------------------------------------------------------------------
OTHER BENEFITS THAT HELPED TO CHANGE
                LAWS


Intelligence Reform and Terrorism     Our work is reflected in this law in different ways. In our May 2004
 Prevention Act of 2004 (Pub. L. No.   testimony on the use of biometrics for aviation security, we reported on
 108-458).                             the need to identify how biometrics will be used to improve aviation
                                       security prior to making a decision to design, develop, and implement
                                       biometrics. Using information from our statement, the House introduced a
                                       bill on July 22, 2004, directing the Transportation Security
                                       Administration (TSA) to establish system requirements and performance
                                       standards for using biometrics, and establish processes to (1) prevent
                                       individuals from using assumed identities to enroll in a biometric system
                                       and (2) resolve errors. These provisions were later included in an
                                       overall aviation security bill and were eventually included in the
                                       Intelligence Reform and Terrorism Prevention Act of 2004, enacted in
                                       December 2004.
                                      We conducted a body of work assessing the physical screening of airport
                                       passengers and their checked baggage. We found that the installation of
                                       systems that are in line with airport baggage conveyor systems may result
                                       in financial benefits, according to TSA estimates for nine airports. We
                                       also found that the effectiveness of the advance passenger screening
                                       under the process known as Secure Flight was not certain. TSA agreed to
                                       take corrective actions in these areas, and the Congress required TSA in
                                       the Intelligence Reform and Terrorism Protection Act to prepare a plan
                                       and guidelines for installing in-line baggage screening systems, and
                                       enacted measures to promote Secure Flight's development and
                                       implementation.
Real ID Act of 2005 (Pub. L. No. 109- We reported on the verification of identity documents for drivers'
   13).                                licenses, noting that visual inspection of key documents lent itself to
                                       possible identity fraud. To demonstrate this, our investigators were able
                                       to obtain licenses in two states using counterfeit documents and the
                                       Social Security numbers of deceased persons. The Congress established
                                       federal identification standards for state drivers' licenses and other
                                       such documents and mandated third-party verification of identity
                                       documents presented to apply for a driver's license.
Ronald W. Reagan National Defense     We assisted the Congress in crafting major improvements to a program
 Authorization Act for Fiscal Year     intended to compensate individuals who worked in DOE facilities and
 2005 (Pub. L. No. 108-375).           developed illnesses related to radiation and hazardous materials
                                       exposure. In a 2004 report, we identified features of the originally
                                       enacted program that would likely lead to inconsistent benefit outcomes
                                       for claimants, in part because the program depended on the varying state
                                       workers compensation systems to provide some benefits. We also presented
                                       several options for improving the consistency of benefit outcomes and a
                                       framework for assessing these options. When the Congress enacted the
                                       Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005,
                                       it revamped this energy employees' benefit program. Among other changes,
                                       this law federalized the payment of worker compensation benefits for
                                       eligible energy contractor employees and provided a schedule of uniform
                                       benefit payments.
Federal Lands Recreation Enhancement  Our work over the past several years has helped the Congress to establish
 Act (Pub. L. No. 108-447).            and assess the impacts of the recreational fee demonstration program.
                                       Under this trial program, the Congress authorized the National Park
                                       Service, the Fish and Wildlife Service, the Bureau of Land Management,
                                       and the Forest Service to charge fees to visitors to, among other things,
                                       reduce the maintenance backlog at federal parks and historic places and
                                       protect these lands from visitor impacts. Since the program's inception
                                       in 1996, we have identified issues that needed to be addressed to improve
                                       the program's effectiveness that included providing (1) a more permanent
                                       source of funds to enhance stability, since the current program had to be
                                       reauthorized every 2 years; (2) the participating agencies with greater
                                       flexibility in how and where they apply fee revenues; and (3)
                                       improvements in interagency coordination in the collection and use of
                                       revenue fees to better serve visitors by making the payment of fees more
                                       convenient and equitable and reducing visitor confusion about similar or
                                       multiple fees being charged at nearby or adjacent federal recreational
                                       sites. As a result of this body of work, the Congress addressed these
                                       issues by passing the Federal Lands Recreation Enhancement Act in
                                       December 2004. This act permits federal land management agencies to
                                       continue charging fees at campgrounds, rental cabins, high-impact
                                       recreation areas, and day-use sites that have certain facilities. The act
                                       also provides for a nationally consistent interagency program, more on-
                                       the-ground improvements at recreation sites across the nation, enhanced
                                       visitor services, a new national pass for use across interagency federal
                                       recreation sites and services, and public involvement in the program.
Consolidated Appropriations Act,      Our work is reflected in this law in different ways. At the time of our
 2005 (Pub. L. No. 108-447).           August 2003 report, the original 1999 expiration date for the franchise
                                       fund pilots operating at the Departments of Commerce, Veterans Affairs,
                                       Health and Human Services, the Interior, and the Treasury and at the
                                       Environmental Protection Agency had been extended three times. These
                                       franchise funds, authorized by the Government Management Reform Act of
                                       1994, are part of a group of 34 intragovernmental revolving funds that
                                       were created to provide common administrative support services required
                                       by many federal agencies. For example, the Commerce Franchise Fund's
                                       business line provides IT infrastructure support services to the agency.
                                       We concluded that increasing the period of authorization would help ease
                                       concerns of current and potential clients about franchise fund stability
                                       and might allow franchise funds to add new business lines, and we
                                       suggested that the authorizations be extended for longer periods. The
                                       Congress provided permanent authority to the Treasury franchise fund in
                                       the Consolidated Appropriations Act, 2005, passed on December 8, 2004.
                                      In 2003, we reported that most agencies could not retain the proceeds from
                                       the sale of unneeded property and this acted as a disincentive to
                                       disposing of unneeded property. We stated in our high-risk report on
                                       federal real property that it may make sense to permit agencies to retain
                                       proceeds for reinvestment in real property where a need exists.
                                       Subsequently, in the Consolidated Appropriations Act, 2005, the Congress
                                       authorized the Administrator of GSA to retain the net proceeds from the
                                       conveyance of real and related personal property. These proceeds are to
                                       be deposited into the Federal Buildings Fund and are to be used as
                                       authorized for GSA's real property capital needs.
                                      In December 2003, we reported that 184 out of 213 Alaska Native villages
                                       are affected, to some extent, by flooding and erosion. However, these
                                       villages often have difficulty qualifying for federal assistance to
                                       combat their flooding and erosion problems. In our report, we recommended
                                       that the Denali Commission adopt a policy to guide investment decisions
                                       and project designs in villages affected by flooding and erosion. In this
                                       legislation, the Congress provided the Secretary of the Army with the
                                       authority to carry out ``structural and non-structural projects for storm
                                       damage prevention and reduction, coastal erosion, and ice and glacial
                                       damage in Alaska, including relocation of affected communities and
                                       construction of replacement facilities.''
Consolidated Appropriations Act,      To improve the federal government's ability to collect billions of dollars
 2005 (Pub. L. No. 108-447).           of outstanding criminal debt, we recommended in a 2001 report, that the
                                       Department of Justice work with other agencies involved in criminal debt
                                       collection, including the Administrative Office of the U.S. Courts, the
                                       Department of the Treasury (Treasury), and OMB, to develop a strategic
                                       plan that would improve interagency processes and coordination with
                                       regard to criminal debt collection activities. The conference report that
                                       accompanied the Consolidated Appropriations Act, 2005, directed the
                                       Attorney General to assemble an interagency task force for the purposes
                                       of better managing, accounting for, reporting, and collecting criminal
                                       debt.


    OTHER BENEFITS THAT HELPED TO
   IMPROVE SERVICES TO THE PUBLIC


Encouraged improvements in the        Our report found that the Department of Education's (Education) system for
 process for ensuring states'          resolving noncompliance with the Individuals with Disabilities in
 compliance with education laws for    Education Act is protracted. We found that resolution of noncompliance
 the disabled.                         cases often takes several years, in part because Education took a year on
                                       average from the time it identified noncompliance to issue a report
                                       citing the noncompliance. We therefore recommended that Education improve
                                       its system of resolving noncompliance by shortening the amount of time it
                                       takes to issue a report of noncompliance and by tracking changes in
                                       response times under the new monitoring process. In response to our
                                       recommendation, Education has instituted an improved process for managing
                                       and tracking the various phases of the monitoring process, which includes
                                       the creation of a database to facilitate this tracking. This new tracking
                                       system will enable Education to better monitor the status of existing
                                       noncompliance, and thus enable the department to take appropriate action
                                       when states fail to come into compliance in a timely manner.
Identified a weakness in Medicare's   In 2004, we found that the 24-hour 1-800-MEDICARE help line, operated by
 telephone assistance service.         the Centers for Medicare and Medicaid Services (CMS), did not answer 10
                                       percent of the calls we placed to test its accuracy, often because it
                                       automatically transferred some calls to claims administration contractors
                                       that were not open for business at the time of the call. This call
                                       transfer process prohibited callers from accessing information during
                                       nonbusiness hours, even though 1-800-MEDICARE operates 24 hours a day. As
                                       a result, we recommended that CMS revise the routing procedures of 1-800-
                                       MEDICARE to ensure that calls are not transferred or referred to claims
                                       administration contractors' help lines during nonbusiness hours. In
                                       response, CMS finished converting its call routing procedures. As a
                                       result, calls placed after normal business hours will be routed to the
                                       main 1-800-MEDICARE help line for assistance.
Highlighted the need for increased    United States Department of Agriculture scientists at the Plum Island
 security at a federal disease         Animal Disease Center research contagious animal diseases that have been
 research facility.                    found in other countries. The mission of the facility, now administered
                                       by DHS, is to develop strategies for protecting the nation's animal
                                       industries and exports from these foreign animal diseases. In our
                                       September 2003 report, Combating Bioterrorism: Actions Needed to Improve
                                       Security at Plum Island Animal Disease Center, we made several
                                       recommendations to improve security at the facility and reduce
                                       vulnerability to terrorist attacks. Among other things, we recommended
                                       that the Secretary of Homeland Security, in consultation with the
                                       Secretary of Agriculture, enhance incident response capability by
                                       increasing the size of the guard force. DHS has informed us that this has
                                       been completed. According to the Director of Plum Island, DHS has more
                                       than doubled the number of guards assigned on each shift on Plum Island.

    OTHER BENEFITS THAT HELPED TO
      PROMOTE SOUND AGENCY AND
      GOVERNMENTWIDE MANAGEMENT



Recommended a process to increase     DOD spending on service contracts approaches $100 billion annually, but
 the efficiency of DOD procurements.   DOD's management of services procurement is inefficient and ineffective
                                       and the dollars are not always well spent. Many private companies have
                                       changed management practices based on analyzing spending patterns and
                                       coordinating procurement efforts in order to achieve major savings. We
                                       recommended that DOD adopt the effective spend analysis processes used by
                                       these leading companies and use technology to automate spend analysis to
                                       make it repeatable. In response, DOD is developing new technology to do
                                       that. According to DOD and contractor project managers, one phase of the
                                       project was completed in December 2004. In March 2005, DOD approved a
                                       business case analysis to seek follow-on funding for developing a DOD-
                                       wide spend analysis system.
Improved the Air Force's oversight    As part of our audit of Air Force purchase card controls, we identified
 of purchase card transactions.        transactions that Air Force officials acknowledged to be fraudulent as
                                       well as potentially fraudulent transactions that the Air Force had not
                                       identified. To improve Air Force oversight of purchase card activity and
                                       facilitate the identification of systemic weaknesses and deficiencies in
                                       existing internal control and the development of additional control
                                       activities, we recommended that the Air Force establish an agencywide
                                       database of known purchase card fraud cases. In lieu of establishing a
                                       separate agencywide database, during fiscal year 2003, the Air Force
                                       Office of Special Investigations initiated quarterly reporting on its
                                       purchase card investigations to the DOD IG for macro-level analysis of
                                       systemic weaknesses in the program. Our ongoing collaboration with the
                                       DOD IG on DOD's purchase card program confirmed that the Air Force's
                                       Office of Special Investigations is working effectively with DOD's IG on
                                       data-mining techniques for detection of potentially improper and
                                       fraudulent purchase card transactions. As a result of our work, the Air
                                       Force has taken action to reduce the financial risk associated with
                                       undetected fraud and abuse in its purchase card program.
Encouraged the Census Bureau to       For the 2000 Census, the United States Census Bureau (Bureau) printed
 produce training materials in other   material used to train census workers only in English, except in Puerto
 languages.                            Rico where training materials were available in Spanish. However, to
                                       better prepare census workers--some of whom speak Spanish as their first
                                       language--to locate migrant farm workers and other hard-to-count groups,
                                       we recommended that the Bureau consider providing training materials in
                                       languages other than English to targeted areas. In response to our
                                       recommendation, the Bureau is researching foreign-language data
                                       collection methods as part of its preparations for the 2006 Census test
                                       and, more generally, plans to identify areas and operations that will
                                       require in-language training materials for areas with very large, new
                                       migrant populations where it will not be possible to hire bilinguals.
                                       Moreover, the Bureau's June 2005 request for proposals for a Field Data
                                       Collection Automation System includes a requirement for the contractor to
                                       provide training applications and materials in English and Spanish for
                                       the handheld computers enumerators are to use to count nonrespondents.
----------------------------------------------------------------------------------------------------------------
Source: GAO.

    One way we measure our effect on improving the government's 
accountability, operations, and services is by tracking the percentage 
of recommendations that we made 4 years ago that have since been 
implemented. At the end of fiscal year 2005, 85 percent of the 
recommendations we made in fiscal year 2001 had been implemented, 
primarily by executive branch agencies. Putting these recommendations 
into practice will generate tangible benefits for the nation over many 
years.
    During fiscal year 2005, experts from our staff testified at 179 
congressional hearings covering a wide range of complex issues (see 
table 4). For example, our senior executives testified on improving the 
security of nuclear material, federal oversight of mutual funds, and 
the management and control of DOD's excess property. Over 70 of our 
testimonies were related to high-risk areas and programs (see table 5).
         Table 4.--Selected Testimony Issues, Fiscal Year 2005
Goal 1: Address Challenges to the Well-Being and Financial Security of 
        the American People
Head Start grants management
Retirement options for seniors
Postal service reform legislation
Wildland fire management
National air traffic system
Providing services to seriously injured veterans
Endangered Species Act
Preparing for influenza pandemic
Long-term health care costs and government budgets
Veterans' disability claims
Medicaid financing issues
Amtrak's Acela train
Rural housing service
Federal oversight of the E-rate program
Overseeing the U.S. food supply
Energy demand in the 21st century
Social Security reform
Meeting the future demand for energy in the United States
Protecting nuclear material handled at science and environmental sites
Federal real property
Goal 2: Respond to Changing Security Threats and the Challenges of 
        Globalization
Army's modular forces
Acquisition challenges facing the Navy's DD(X) destroyer program
Oil for Food program
Managing violations of restricted air space
Protecting U.S. officials overseas from terrorist attacks
Implementing laws that protect the security of information
U.S. passport fraud
Tactical aircraft modernization
Unmanned aerial vehicles
Federal oversight of mutual funds to ensure investor security
DOD's business transformation
DOD's national security personnel system
Cargo security strategies
DOD security clearances
Condition of Coast Guard aircraft and ships used in deep waters
Port security
Transportation security issues
Acquisition challenges facing the Army's future combat systems
Goal 3: Help Transform the Federal Government's Role and How it Does 
        Business
Long-term fiscal issues affecting the federal government
Air Force procurement protests
Space shuttle workforce issues
Management and control of DOD's excess property
High-risk federal programs
Improper Payments Information Act
Gaps in military pay and benefits
Human capital transformation at DHS
Reducing the tax gap
Pricing federal multiple award contracts
Army National Guard travel reimbursement issues
Agencies' continuity of operations plans
21st century challenges for the federal government
Preparing for emergencies at federal agencies
U.S. government financial statements
Performance budgeting
Space acquisitions and investment planning
DHS's Student and Exchange Visitor Information System
                        gao's high-risk program
    Issued to coincide with the start of each new Congress, our high-
risk update, first used in 1993, has helped Members of the Congress who 
are responsible for oversight and executive branch officials who are 
accountable for performance. Our high-risk program focuses on major 
government programs and operations that need urgent attention or 
transformation to ensure that our government functions in the most 
economical, efficient, and effective manner possible. Overall, our 
high-risk program has served to identify and help resolve a range of 
serious weaknesses that involve substantial resources and provide 
critical services to the public. Table 5 details our 2005 high-risk 
list.

                   TABLE 5.--GAO'S 2005 HIGH-RISK LIST
------------------------------------------------------------------------
                                                               Year
                   2005 high-risk area                      designated
                                                             high risk
------------------------------------------------------------------------
Addressing challenges in broad-based transformations:
    Strategic Human Capital Management \1\..............            2001
    U.S. Postal Service Transformation Efforts and Long-            2001
     Term Outlook \1\...................................
    Managing Federal Real Property \1\..................            2003
    Protecting the Federal Government's Information                 1997
     Systems and the Nation's Critical Infrastructures..
    Implementing and Transforming the Department of                 2003
     Homeland Security..................................
    Establishing Appropriate and Effective Information-             2005
     Sharing Mechanisms to Improve Homeland Security....
    DOD Approach to Business Transformation \1\.........            2005
    DOD Business Systems Modernization..................            1995
    DOD Personnel Security Clearance Program............            2005
    DOD Support Infrastructure Management...............            1997
    DOD Financial Management............................            1995
    DOD Supply Chain Management (formerly Inventory                 1990
     Management)........................................
    DOD Weapon Systems Acquisition......................            1990
Managing federal contracting more effectively:
    DOD Contract Management.............................            1992
    DOE Contract Management.............................            1990
    NASA Contract Management............................            1990
    Management of Interagency Contracting...............            2005
Assessing the efficiency and effectiveness of tax law
 administration:
    Enforcement of Tax Laws \1\ \2\.....................            1990
    IRS Business Systems Modernization \3\..............            1995
Modernizing and safeguarding insurance and benefit
 programs:
    Modernizing Federal Disability Programs \1\.........            2003
    Pension Benefit Guaranty Corporation Single-Employer            2003
     Insurance Program \1\..............................
    Medicare Program \1\................................            1990
    Medicaid Program \1\................................            2003
    HUD Single-Family Mortgage Insurance and Rental                 1994
     Housing Assistance Programs........................
Other: Federal Aviation Administration (FAA) Air Traffic            1995
 Control Modernization..................................
------------------------------------------------------------------------
\1\ Legislation is likely to be necessary, as a supplement to actions by
  the executive branch, in order to effectively address this high-risk
  area.
\2\ Two high-risk areas--collection of unpaid taxes and earned income
  credit noncompliance--have been consolidated to make this area.
\3\ The IRS financial management high-risk area has been incorporated in
  this high-risk area.

Source: GAO.

                           concluding remarks
    We are grateful for the Congress's continued support of our joint 
effort to improve government and for providing the resources that allow 
us to be a world-class professional services organization. We are proud 
of the positive impact we have been able to affect in government over 
the past year and believe an investment in GAO will continue to yield 
substantial returns for the Congress and the American people. Our 
nation will continue to face significant challenges in the years ahead. 
GAO's expertise and involvement in virtually every facet of government 
positions us to provide the Congress with the timely, objective, and 
reliable information it needs to discharge its constitutional 
responsibilities.
    This concludes my statement. I would be pleased to answer any 
questions the Members of the Committee may have.
   appendix i.--serving the congress--gao's strategic plan framework


              COST FOR 50 ADDITIONAL FULL-TIME EQUIVALENTS

    Senator Allard. Well thank you for your testimony. Total, 
you're going to have about a $25 million request, which is 5 
percent over fiscal year 2006 and we'll look very closely at 
your request. We've got 50 new employees that are coming on. 
You have about 3,217 employees now, according to the facts that 
I have here. Now, we've tried to break that out on the employee 
costs at $7.5 million. So I was just doing some quick math 
here. That's $150,000 per employee. I'm kind of curious. That's 
not salary. I'm sure there's benefits figured in there, and 
insurance, and other things, retirement plan, everything else. 
So I just want to have you verify how it is, that you come up 
with $150,000.
    Mr. Walker. Sure.
    Let me provide an overview, and I'm going to turn to 
Sallyanne Harper to provide some additional information, Mr. 
Chairman, with your indulgence.
    Senator Allard. Okay.
    Mr. Walker. The compensation adjustments are for several 
things. Number one, to bring us up to our full compliment of 
3,217. We've been authorized that for a full FTE level, but we 
haven't been there in several years. We're now on track to do 
that and, therefore, to the extent that we do that, we're going 
to need some money to be able to maintain that next year.
    Second, for pay increases. Our policy is, if you're 
performing at meets expectation or better on all applicable 
competencies and you're paid within applicable competitive 
compensation ranges, you're going to get some across-the-board 
pay adjustment. In addition to that, you're going to get an 
additional adjustment based on how you do relative to your 
peers.
    Senator Allard. So the $7.5 million not only includes the 
new 50 employees, but also there is some pay increase 
adjustments figured in.
    Mr. Walker. That's correct, Mr. Chairman.
    Senator Allard. Okay. So the $150,000 is entirely too 
generous.
    Mr. Walker. That's correct, Mr. Chairman. And then, we have 
the 50 employees, not all of which are going to be hired on day 
one. They'll be hired throughout the year.
    Senator Allard. Yes.
    Mr. Walker. And depending upon what you finally give us for 
a budget, it will determine how many we can hire, if we can 
hire them, and when we can hire them.

         CALCULATING THE TOTAL EMPLOYEE COST TO THE GOVERNMENT

    But you raise an excellent point, which I would like to 
reinforce. And that is, we're trying to get our employees to 
understand more about the concept of total compensation, which 
you and I have talked about before. It's not just how much you 
pay in cash, in the form of salary, bonuses, incentive awards, 
and things of that nature, but it's also how much you receive 
in the form of healthcare, pension, and other benefits. In our 
budget, the average load factor that we have to bare directly 
is about 24 percent, I believe.
    However, when you consider the fact that some costs are 
borne by the Office of Personnel Management (OPM), with regard 
to things like the Civil Service Retirement System (CSRS) cost, 
et cetera, the actual load factor is about 31 percent. So for 
every $1 we pay somebody, they receive compensation of $1.31 
because of other benefits that ultimately, the taxpayers have 
to pay.
    But I would ask Sallyanne if she's got anything she wants 
to add on this.
    Ms. Harper. Mr. Chairman, the only thing that----
    Senator Allard. So, I just want to clarify, if I might, 
before we move to the last statement. So, if you pay them a $1, 
there's one-third of that----
    Mr. Walker. Added----
    Senator Allard [continuing]. Added on. It would add on as 
additional benefits. So the $1 that you talk about in actual 
cash, becomes $1.32 because of the benefits of the employee.
    Mr. Walker. Two points, Mr. Chairman. For our budget, which 
is before you, the $1 becomes $1.24. For our financial 
statements, which is important, which is ultimately what the 
taxpayers have to bear, $1 becomes $1.31.
    Senator Allard. I see. Okay.
    Ms. Harper. The only addition I would make, Mr. Chairman, 
is that we do disproportionately hire into the analyst core and 
that is a higher salary rate in general, than other portions of 
our budget. So the evaluators, the analysts, and particularly 
the specialists are going to have a higher initial compensation 
rate than people in the administrative and professional 
services community.
    Mr. Walker. It's important, Mr. Chairman, to note for the 
record, that last year, over 90 percent of the people that we 
hired as auditors, investigators, analysts, evaluators, and 
attorneys had advanced degrees from top schools in the country. 
We are hiring some of the Nation's best and brightest, and it's 
very, very important that we be able to compensate them 
appropriately, because we are only as good as our people.
    Senator Allard. Particularly in what you're trying to 
accomplish, that's your personnel incentive.
    Mr. Walker. Eighty percent of our budget is personnel cost.
    Senator Allard. Yes.
    Mr. Walker. And so, if we don't get adequately funded, it 
starts cutting into the bone pretty quickly.

                           EARLY RETIREMENTS

    Senator Allard. Let me move on to early retirements. Would 
you please explain your criteria for approving voluntary early 
retirement applications and ensuring that areas where there is 
a supply and demand imbalance or a recruiting challenge, are 
not negatively impacted?
    Mr. Walker. Well thank you for the question and let me also 
thank you and your colleagues for giving us the legislative 
authority that we needed to make more intelligent decisions in 
this area.
    Basically, several years ago, we sought and the Congress 
gave us authority to be able to target early retirement offers 
to a greater extent, than previously was the case; you also 
gave us the authority to say no. Basically, we're trying to use 
early retirement offers to help realign GAO's workforce, to be 
able to reallocate resources from areas where we have more 
supply than demand, to areas where we have more demand than 
supply. We're also trying to use it to try to help with 
succession planning. Because as you probably recall, Mr. 
Chairman, before I came to GAO, we had a hiring freeze for 
about 5 years. We were downsized 40 percent. And so, we had a 
real gap in our development pipeline and a very high and 
increasing percentage of people that were going to be eligible 
for retirement.
    The bottom line is anybody can come forward and seek early 
retirement. But whether or not they're going to be approved, is 
based upon what we need from a workforce standpoint to meet our 
client demands, and we also consider the performance of the 
individual. We're not looking to lose people in areas where we 
have supply and demand imbalances and ones that are top 
performers. We're looking to try to use this as a strategic 
workforce realignment tool.
    Most people that come forward are approved, but not all.

       GOVERNMENT ACCOUNTABILITY OFFICE'S MARKET-BASED PAY SYSTEM

    Senator Allard. Okay. Now let's go to your GAO pay system. 
You've gone into it in some detail already. What are the major 
objectives of your market-based pay system and how would you 
assess your success in meeting those objectives?
    Mr. Walker. There are a number of objectives, Mr. Chairman. 
Number one, the overall objective is that we want to be able to 
attract, retain, motivate, and reward a top flight workforce. 
Compensation is one element to do that, but it's only one. As 
you know, Mr. Chairman, those of us--yourself, myself, all of 
us here included, don't come into Government to maximize our 
net worth. We come into Government to maximize our abilities 
and to make a difference. And it's not just about the money, 
it's also about the difference that you can make in the lives 
of others.
    But we need to be competitive with those organizations that 
we actually compete for talent. Whether that be the Office of 
Management and Budget (OMB), whether that be the Congressional 
Budget Office (CBO), whether that be the think tanks, or 
whether that be the major accounting firms, whom we actually 
compete with for talent, based upon hiring and to whom we lose 
people. So we wanted to make sure that we achieve that 
objective. We also wanted to make sure that we were targeting 
our limited resources. Because, we have limited resources. 
Therefore, we are targeting money to where the market requires 
it and where performance supports it. We want to target our 
dollars based on skills, knowledge, and performance.
    And so my view is, by conducting our first ever competitive 
compensation study in the history of GAO, which was created in 
1921, we are now in a much better position to provide 
reasonable assurance that we are paying competitively and 
allocating our dollars more intelligently. I think that's not 
only in our interest, it's in the Congress' and the country's 
interest.
    Senator Allard. Yes. I applaud you for those efforts in 
that area. They're not unique in the private sector, but 
certainly unique on the Government's sector.

  CHANGES TO THE GOVERNMENT ACCOUNTABILITY OFFICE'S PAY SYSTEM IN THE 
                               PAST YEAR

    Now, what changes in the pay system have occurred in the 
last year? Anything specific that you want to highlight for us?
    Mr. Walker. The biggest changes that have occurred in the 
last year, and when I say the last year, I'm including this 
current fiscal year.
    Senator Allard. Yes.
    Mr. Walker. We now have implemented the new market-based 
compensation ranges. That's number one. Number two, we have 
also implemented a new system for determining annual pay 
adjustments for all of our personnel. And number three, the 
effects of the restructuring that I mentioned before, the so-
called Band II level personnel, that has taken place. Let me 
briefly touch on that, as you know, under the old system of 
compensation in Government, everybody had the right to be paid 
at the pay cap, irrespective of their performance. It was an 
entitlement. It wasn't a matter of if somebody was going to 
make the pay cap, it was only a matter of when they were going 
to make the pay cap. Because until we received an exemption 
from the Congress, we had to give the across-the-board pay 
adjustment that the executive branch had to give every year to 
all employees, irrespective of their performance. And believe 
it or not, on the executive branch side, even unacceptable 
performers are by law, entitled to that adjustment, which I 
would respectfully suggest Congress may want to reconsider. 
Now, there's not very many GAO employees in that category, 
okay? But intellectually it makes no sense.
    So we have implemented new competitive compensation ranges. 
There were pluses and minuses to that. There were some of our 
occupations and some levels, where we've raised our pay ranges, 
both the cap as well as the minimum, are subject to statutory 
limits. As you know, we can't pay what we call a Band III, 
which is an assistant director, more than a GS-15, step 10 
level. And so, that's a constraint.
    But below that, it's market based and everybody has the 
opportunity to make the pay cap, but not necessarily the right. 
For the higher levels you have to perform in excess of certain 
levels in order to be in top end of the pay range. The reason 
is, because there is an overlap with the next level of 
responsibility. Our philosophy is that you can justify paying 
people at a lower level, who are really strong performers as 
much as people as the next level, but you can't justify paying 
below average performers, at a lower level of responsibility, 
more money than somebody at the next level, who might be a 
higher performer would be paid.
    Senator Allard. Yes.

                         BAND II RESTRUCTURING

    Mr. Walker. Now, the most challenging aspect of this, Mr. 
Chairman, has to do with this Band II restructuring. And I'll 
give you a few stats to bring it to life. We had 1,238 Band 
II's when we started this process. That's out of about 3,200 
employees. So you can see, that's the largest component of our 
workforce. When we received the results of the competitive 
compensation study, we had to make the decision on which one of 
those 1,238 should be put in the higher pay range, which gives 
them a chance to make up to $10,000 more, and which ones should 
not. In some cases, individuals may be making more than they 
should be making, based upon the market ranges. We had an 
extensive process that resulted in everybody being able to 
apply. Of the 1,238, 794 applied, 757 were deemed eligible, 409 
were initially placed into the higher Band IIB range. Seventy-
eight of the ones who were not originally placed, appealed 
directly to me. I placed 19 of the 78 into Band IIB. In 
addition, five, who didn't even appeal to me, were placed into 
Band IIB because I modified the relative performance criteria. 
Therefore, some individuals benefited from that change, even 
through they did not appeal.
    So in summary, 433 or 35 percent of all our Band II's, were 
placed in the higher pay range. There are 236 people who, when 
we made the decisions based upon their roles, responsibility, 
relative performance, and potential, did not justify being 
placed into the higher pay range, but were already getting paid 
in the higher pay range. So they were making in excess of 
competitive compensation levels. For those people, we did not 
cut anybody's pay, because they played by the rules. It 
wouldn't be right. It wouldn't be fair.
    At the same time, if they were already paid in excess of 
competitive compensation levels, we didn't give them the 
automatic across-the-board adjustments because they were 
already paid in excess of competition compensation levels. But 
we did give them the right to make additional pay increases, 
based on their performance. And a vast majority did get some 
pay increase even if they didn't get the across-the-board 
adjustment. They will, if they end up getting moved to the next 
level, or as pay ranges change over time. So that's where we 
are. And I apologize, that took a little bit of time, but it's 
a fairly complicated matter.

                 EMPLOYEE PERCEPTION OF NEW PAY SYSTEM

    Senator Allard. Okay. I want to follow up a little more on 
that. What is the morale, after you've implemented that system, 
among the employees?
    Mr. Walker. We do an annual confidential electronic 
employee feedback survey, which we'll do in July and that will 
give us more concrete information on morale. I will give you my 
opinion, based upon extensive interaction with our employees, 
talking to our managing directors, talking to our Employee 
Advisory Council, meeting with our employees, and answering 
their questions.
    My view is that there is no easy way to tell somebody that 
their pay is in excess of competitive compensation levels. 
There's no easy way to tell somebody that you are not going to 
continue to receive across-the-board adjustments that you've 
been receiving year, after year, after year. All right. And so 
my view is that there is a significant percentage of those 
individuals who were not placed into the higher pay range, that 
are disappointed, and I'm sure that that's had some impact on 
their ``morale.''
    At the same point in time, we've taken several steps to try 
to mitigate any adverse morale impact. First, rather than only 
allowing for competitive placements from the so-called lower 
IIA pay range to the higher IIB pay range, once a year, we're 
going to have a second competitive placement process that will 
be effective near the end of June. We've erred on the side of 
generosity in allocating the number of competiting positions, 
so that more people will have an opportunity to make it. We're 
going to do another competitive process next January. So 
basically, that means within a 12-month period of time, we will 
have had three placement cycles, and then we'll move to an 
annual cycle after that.
    My view is that while a significant percentage of the 
people who did not get placed into IIB and my understanding is 
that there were 345 people out of 3,200 roughly, who did not 
receive an across-the-board increase, because of this factor or 
because they were otherwise paid in excess competitive 
compensation levels.
    Obviously, a significant percentage of those people aren't 
happy with the result. But that's a subset of our workforce. 
That's only about 11 percent of our workforce. I feel confident 
that not only was it the right thing to do, but it was 
necessary to do especially given tight budgets.
    The other thing that we did to try to ease the pain which, 
as I said before, was not to cut anybody's pay. In addition we 
told every Band II employee who was onboard in January, that 
they would have the opportunity to earn up to what they 
could've earned under the old system, which in Washington, is 
almost $119,000 a year in cash compensation only, with benefits 
added on top of that. They will have that opportunity to earn 
that but at a slower rate than they could have under the old 
system. So we're preserving their ability to make what they 
could have under the old system at a slower rate, but we're 
providing them an opportunity to make more money if their 
skills, knowledge, roles, responsibility, and performance 
justify. Over the long term, this will clearly be a plus. In 
the short term, sometimes you have to have short-term pain to 
get long-term gain. And that's where we're at.
    Senator Allard. Well, we had a communication from one 
employee here, who felt that somehow or the other, he'd been 
promised that he was automatically going to get this annual 
increase and this particular year, it would have been a 2.6-
percent increase. Do you have any response to that?
    Mr. Walker. Well without knowing the facts, I can say this, 
I never committed, nor would I ever commit to pay an across-
the-board pay increase to an individual who's paid in excess of 
competitive compensation levels. I never committed to that, nor 
would I commit to that.

         POTENTIAL FOR GOVERNMENT-WIDE USE OF MARKET-BASED PAY

    Senator Allard. Okay. Would you recommend this pay system 
be used Government-wide, at this point in time?
    Mr. Walker. I believe there are several aspects of what 
we've done, that have potential merit for broad-based 
application throughout Government. Although each workforce is 
different, and therefore you need to make some changes. For 
example, I believe that individuals who perform at a meets 
expectation level or better, who are paid within competitive 
compensation ranges, should, at a minimum, receive some pay 
adjustment, based upon how the pay ranges change each year.
    In addition to that, I believe that any additional pay 
adjustment that people receive should be based on how they 
perform relative to their peer group. So that means, if you do 
like we do, where we set the bar high on expected performance 
and if you hit that bar for meets expectations, you're going to 
get something. But how much extra you're going to get, depends 
upon how you compare to your peer group, with the top 
performers getting more money than people who are good 
performers, but not top performers.
    I think that framework has a great deal of intellectual 
merit, and when I've gone around speaking to executives and 
others at other agencies, they have found that it is a possible 
bridge from a system where 85 percent of the pay was on auto 
pilot and 15 percent was merit based, to one where everything 
relates to merit, but you're going to get something, as long as 
you're a solid performer. But how much more you'll get, depends 
upon how you do relative to your peers.

            LESSONS LEARNED IN IMPLEMENTING MARKET-BASED PAY

    The other thing that I think makes sense is you've got to 
do market-based compensation studies. Most agencies in 
Government have never done that. When you end up going to broad 
banding, you really need to make sure you make solid decisions 
on how many bands you set up, based upon roles and 
responsibilities. We made two mistakes in 1989. Hindsight is 
always 20/20.
    Senator Allard. Well, you learn.
    Mr. Walker. Yes. We made mistakes in 1989. Number one, we 
combined two GS levels into one pay band that we shouldn't 
have, because they were different roles of responsibility. That 
caused us to have to do this Band II restructuring, because it 
was clear that we had people with different roles and 
responsibilities. Second, the agency assumed that the GS pay 
ranges were reflective of the market.
    Now they may or may not have been in 1989, but they're 
surely not today. So when agencies are moving forward, they 
have to be careful on how many pay bands they set up, based 
upon meaningful differences in roles and responsibilities. 
Then, they need to conduct competitive compensation studies to 
decide what the pay ranges ought to be for those bands.
    The last thing that I would say that's relevant, is that 
it's okay to have overlaps in pay ranges. It's okay from 
somebody in a lower level to have the opportunity to make as 
much or more than the lower end of the pay range at the next 
level. But in my view, the only people that you can justify 
doing that for, are very strong performers. That shouldn't be 
an entitlement. Because otherwise, you don't get equal pay for 
work of equal value, over time. And that's one of our 
objectives too, though I didn't mention it before, that I think 
is an important principle.

                     STAFFING UP TO REDUCE BACKLOGS

    Senator Allard. Last year, you talked about your single 
biggest backlog was in the area of healthcare. Have you fully 
staffed that area, now?
    Mr. Walker. I would ask Gene Dodaro to look at some data. 
We clearly still have a backlog in the healthcare area. But I 
would footnote before Gene gets into the area, the backlog 
we're going to talk to you about, is engagements that we've 
accepted. And one has to use a note of caution, because there 
could be demand on the Hill that we haven't received yet and 
have not accepted yet. In some cases, people don't send us 
things because they already know that we have a backlog. So 
with that footnote, I would ask Gene to give you the backlog 
statistics.
    Senator Allard. Gene.
    Mr. Dodaro. Mr. Chairman, we've begun addressing the 
backlog issue in healthcare and have made a little progress, 
but not much. Basically what's occurring there, because of 
large growth in healthcare expenditures and the interest in 
healthcare, particularly with the addition of the prescription 
drug benefit in Medicare part D, the requests and mandates from 
Congress just keep coming in at a fast pace. And there's also 
more interest now in how FDA handles drug safety issues. 
There's more interest in bioterrorism concerns and public 
health preparedness and readiness. So the range of issues just 
keeps growing, both in the Medicare program, as well as the 
Medicaid program, in public health, and in the regulatory 
structure. So we don't believe we can make much more progress 
unless we add additional people.
    We've also reinforced a process that we've had in place for 
a number of years now, to look at potential mandates. When 
Congress introduces a bill, there's often a requirement for a 
GAO study in there and so, we try to talk to the people once 
the bills are introduced. If it's something that may not fall 
within our scope of our responsibility, or be something that 
we've already addressed we try to deal with it.
    The other big backlog area has been in homeland security. 
And of course following September 11, 2001, a lot of concerns 
about the areas that the Department of Homeland Security is 
addressing. And then, came Hurricanes Katrina and Rita, et 
cetera. And a lot of concern has, as everybody knows, emerged 
about the Federal Government's response in that area. And so 
that has occurred in addition to the continuing concerns about 
air transportation, railroad security, port security, and all 
the other issues that have been addressed. So that's been 
layered on top and is causing an additional backlog in that 
area, as well.
    Ms. Harper. Mr. Chairman, to address the second----
    Senator Allard. Ms. Harper.
    Ms. Harper [continuing]. Part of your question, healthcare 
is on track to be fully staffed. Their hiring is going very 
well this year, so their staff should be fully onboard as we 
come toward the end of the fiscal year.
    Mr. Walker. And the third area, Mr. Chairman, where there's 
a big backlog, is natural resources and the environment, for 
fairly obvious reasons and yourself being from the West, you 
can appreciate some of those issues.

 COMPARATIVE ANALYSIS OF THE GOVERNMENT ACCOUNTABILITY OFFICE'S SUPPLY-
                            DEMAND IMBALANCE

    Senator Allard. Yes. Okay. I'd like to have you provide, 
unless you already have it with you, a comparative analysis of 
GAO's current supply and demand imbalance between staff 
capacity and job demands of the last 5 and 10 years. Can we do 
that with current figures?
    Mr. Walker. We'll be happy to provide data for the record, 
Mr. Chairman.
    [The information follows:]

    Question. For each of GAO's 13 mission areas, please 
compare changes in the supply/demand imbalance between staff 
capacity and job demands for fiscal years 2006, 2001, and 1996. 
How does GAO measure supply and demand as it relates to this 
issue? What criteria does GAO use to identify backlogs?
    Answer. As of the end of March 2006, GAO had 374 requests 
from Congress that had not yet been started (defined as the 
imbalance between supply and demand). This compares to the 361 
requests pending at the end of fiscal year 2001 and 349 
requests pending at the close of fiscal year 1996.
    Pending requests include those (1) assigned to teams but 
still awaiting screening at GAO's weekly Engagement Acceptance 
Meeting, (2) approved at the EAM to start but not yet begun, 
and (3) awaiting staff. It does not include work that is 
contingent on a future due date or event.
    The following table shows the number of pending requests 
for each of GAO's 13 mission teams as of the end of March 2006 
and the end of fiscal year 2001. GAO's mission teams were 
organized by the current Comptroller General beginning in 
fiscal year 2001, so information on their pending requests in 
1996 does not exist.

                    PENDING REQUESTS BY MISSION TEAM
------------------------------------------------------------------------
                 Current Team                     2001 \1\       2006
------------------------------------------------------------------------
Acquisition and Sourcing Management (ASM).....           23           37
Applied Research and Methods (ARM)............            3            3
Defense Capabilities and Management (DCM).....            8           21
Education, Workforce, and Income Security                18           23
 (EWIS).......................................
Financial Management and Assurance (FMA)......            1           44
Financial Markets and Community Investment               15           13
 (FMCI).......................................
Health Care (HC)..............................           84           82
Homeland Security and Justice (HSJ)...........           NA           45
International Affairs and Trade (TAT).........            7           12
Information Technology (IT)...................           17           12
Natural Resources and Environment (NRE).......           59           54
Physical Infrastructure (PI)..................           38           22
Strategic Issues (SI).........................           12            6
------------------------------------------------------------------------
\1\ Tax Administration and Justice (TAJ) had 69 pending requests at the
  end of fiscal year 2001 and the Office of Special Investigations (0SI)
  had 7. TM was merged mainly into HSJ and SI and 0SI was merged mainly
  with FMA and the Office of General Counsel.

           GOVERNMENT ACCOUNTABILITY OFFICE'S HIGH RISK LIST

    Senator Allard. Another area I wanted to cover before we 
bring things to a close is your high risk list. Can you give us 
a rating of how effective that program might be?
    Mr. Walker. Well Mr. Chairman, thank you for asking that 
question. It's a very timely question. I have to give credit to 
my predecessor, Chuck Bowsher and the individuals who were at 
GAO in the early 1990's for creating the high risk list. It's 
been public since around about 1992. Since I've been 
Comptroller General, I've tried to work with our GAO executives 
and others, to make it a much more strategic list. Not just 
focused on fraud, waste, abuse, and mismanagement which will 
never be zero, but also to address major transformation 
challenges facing the Federal Government and to take a more 
strategic approach.
    I'm pleased to say, that a very high percentage of our 
hearings and a very high percentage of our financial benefits 
and other accomplishments, are directly related to the high 
risk list. The Congress is focusing on the high risk list for 
the most part. GAO continues to focus on it. The administration 
is now working with us to create action plans for every high 
risk area. As you know, the President's management agenda is 
based, in large part, on GAO's high risk list and that is not 
an accident.
    Furthermore, GAO's high risk program is being emulated in 
other countries, in other States, and localities and is now on 
the short list for an Innovations in Government Award from 
Harvard. Whether or not we'll be selected, we've made the short 
list. This program is making a difference, and I think it's an 
example of when you're dealing with an entity that's as vast as 
the Federal Government and when you've got limited resources, 
you need to figure out some way to target. We can target, the 
Congress can target, the agencies can target whatever resources 
and authorities they have, to have the most impact. This has 
clearly been a valuable tool in getting that done.
    I don't know if Gene has anything.

 HISTORY AND IMPORTANCE OF THE GOVERNMENT ACCOUNTABILITY OFFICE'S HIGH 
                               RISK LIST

    Mr. Dodaro. Mr. Chairman, I've been involved in the program 
since it was created back in 1990 and I can tell you, it has 
tremendous value over time in sustaining attention between 
administrations and with changes in the Congress. A lot of 
these problems require sustained attention over time. And even 
for some of them, the areas that are still on the high risk 
list, even though they have not been taken off yet, there's 
been a lot of progress made because of this sustained 
attention. Medicare, for example, now has a means to measure 
the level of improper payments that they're sending out. That 
didn't exist when we put them on the list back in 1990 and 
that's enabling them to measure the degree of progress that 
they're making and target corrective actions.
    Tax enforcement, the latest measure of the tax gap had 
occurred back in 1988 and because that area has been on the 
high risk list, there has been a new estimate made of the tax 
gap, which is about $300 billion. In the Department of Energy 
(DOE) area for example, on contracting, since we've put that on 
the list, even though they're not taking off yet, they're now 
competing contracts, where they had not been before and other 
progress has been made.
    So it's a very, very effective means and I could tell you, 
when Dave and I have met with heads of agencies, nobody really 
wants to be on the list and they're making concerted progress 
to get off. And they see the benefits of also being on the 
list, to get attention to their area.
    Mr. Walker. But let me footnote, Mr. Chairman, in addition 
to everything that Gene said, by taking a much more strategic 
and transformational approach to the high risk list, I must 
say, that I have actually received two telephone calls from 
heads of agencies, thanking us for putting them on the high 
risk list. And let me tell you why. Because one of the things 
that we've also done, is we've noted which items on the high 
risk list not only require action by the executive branch, but 
also require action by the Congress. And when you look at that 
high risk list, anything that has an asterisk, means that both 
branches of Government have to be involved to create a more 
positive future. In many cases, by putting an item on the high 
risk list, that provides attention and additional momentum for 
changes not just within the executive branch, but also within 
the legislative branch. One example of that, is a topic that 
you talked about earlier, namely human capital reform. We put 
that on our high risk list in January 2000. There's been more 
done administratively and legislatively in the human capital 
area since January 2000, than the 20 years prior to that. 
Therefore, it can make a difference. It is making a difference.

 CRITERIA FOR COMING ON AND OFF THE GOVERNMENT ACCOUNTABILITY OFFICE'S 
                             HIGH RISK LIST

    Senator Allard. Let me serve the role of a devil's 
advocate, we have two that have been on there--DOE and the 
National Aeronautics and Space Administration (NASA) contract 
management. They've been on there forever. And there hasn't 
seemed to be any improvement. Doesn't that diminish the 
effectiveness of your program?
    Mr. Walker. Well we've had a number that have come off over 
the years and we've had some that have come on over the years. 
I can assure you, that people don't come off until they earn 
coming off.
    The other thing that is different here is that within 1 
year of my coming on board, one of the things that we did 
working with GAO's executives and also providing an opportunity 
for comments from the Congress and the executive branch, we 
came up with clearly defined, transparent, and consistently 
applied criteria for what it took to go on the list and what it 
took to come off the list. This has helped tremendously.
    And the last thing I would say is this, the current 
administration is taking the high risk list seriously, as 
evidenced by the fact that they're working with us and the 
agencies to try to develop a specific action plan for each item 
to eventually get off the list. In some cases, it took years 
for people to get where they are, and it's going to take years 
to get off.
    The most prominent example, Mr. Chairman, is that the 
Defense Department has 8 of 25 high risk areas individually and 
shares all 6 of the Government-wide areas. So it has 14 of 25. 
And in many cases, Mr. Chairman, it's not just because it's 
going to take a long time to deal with it and there needs to be 
more attention in the executive branch, it's because there 
needs to be more attention paid in the legislative branch. 
There needs to be more accountability than there has been, in 
many regards.
    Senator Allard. Have we ever had any legislative agencies 
on this list?
    Mr. Walker. This list has been geared toward the executive 
branch, which is an overwhelming percentage of Federal revenues 
and expenditures. And as you might imagine, Mr. Chairman, that 
raises certain sensitivity issues, since we are a sister agency 
to other legislative branch agencies.
    Senator Allard. Just a thought I had. Okay. Before 
concluding the hearing, I would like to thank your staff for 
the exceptional work that they do to support this subcommittee. 
And in particular, Bernard Ungar and Terrell Dorn have been 
steadfast in their commitment to support our oversight of the 
Capitol Visitor Center.
    In addition, Gloria Jarmon and many of your other staff 
provide outstanding advice and guidance to the subcommittee 
routinely and we appreciate their efforts.

                     ADDITIONAL COMMITTEE QUESTIONS

    There will be some additional questions that will be 
submitted to your agency for response in the record.
    [The following questions were not asked at the hearing, but 
were submitted to the Office for response subsequent to the 
hearing:]
              Questions Submitted by Senator Wayne Allard
    Question. GAO's budget requests 50 additional full-time equivalent 
employees. What is the full-year cost for the additional FTEs, and why 
isn't this cost made clear in the budget justification?
    Answer. The full-year cost for 50 full-time equivalent (FTE) staff 
is about $5.8 million using an average annual salary of $116,362 
including benefits. Our workforce plan projects that we will end fiscal 
year 2006 with an onboard strength of 3,350 staff. This staffing level 
will position GAO to utilize 3,217 FTEs in fiscal year 2006 and 3,267 
FTEs in fiscal year 2007.
    The cost to support these staff in fiscal year 2007, assuming no 
other staffing changes, is included in the budget request as part of 
estimated annualization costs. The annualization cost represents the 
difference between the estimated costs to be paid in fiscal year 2006 
and fiscal year 2007. The annualization cost has been reduced by 
expected savings from leave-without-pay and part-time schedules, and 
includes the cost to maintain our student intern and knowledge transfer 
programs. The intern program has been an effective recruitment tool for 
permanent hires, especially in our specialized areas of accounting and 
financial management. The knowledge transfer program is a vital tool in 
our succession planning strategy to help ensure continuity of 
operations.
    Question. Given that GAO's budget was cut below the request in 
fiscal year 2006, how has the agency managed to maintain the fully 
authorized level of FTEs?
    Answer. We expect to be able to maintain 3,217 FTEs in fiscal year 
2006 primarily due to lower average compensation costs than estimated. 
We estimate our actual fiscal year 2006 compensation costs will be 
lower than we estimated in January 2005 at the time our budget request 
was prepared, primarily due to: (1) a lower on-board strength at the 
beginning of fiscal year 2006 than assumed in our budget request; and 
(2) institution of our new compensation program which is market-based 
and more performance-oriented that will result in somewhat lower 
average salary growth than originally expected.
    Question. Given GAO is requesting 50 additional employees, why is 
there a need for $500,000 in additional costs for contract services?
    Answer. Based on our current assessment of trends in engagements 
and audits, we anticipate an increasing demand for technical expertise. 
We expect to continue to rely on external experts and advisors in 
disciplines related to our work in physical infrastructure, education, 
pension simulations, health care, natural resources, economic analyses, 
and survey assistance. Contract services support congressional 
engagements by providing specialized, expert advice and assistance not 
readily available from GAO staff and not necessarily needed on a 
recurring basis. Contract services are also used when certain kinds of 
expertise are needed within a compressed time-frame to meet 
congressional needs for particular engagements, projects, or audits. 
For example, we plan to use contract services to provide expertise on a 
congressional request related to utility tunnels.
    Examples of contract services can range from expert advice on 
specific issues to an analysis of a particular program. We have found 
that contracts--such as with the National Academies--provide an 
efficient, flexible vehicle to obtain technical assistance and 
expertise in highly specialized areas. We have used the expertise of 
the National Academies in such areas as: information on trends in 
printing and dissemination, technologies to protect structures from 
wildfires, environmental indicators, air traffic control modernization 
and privatization, vulnerabilities of federal lands to climate changes, 
and the Capitol Visitor Center.
    Question. GAO's budget includes $3.894 million in ``relatively 
controllable costs'' associated with information technology. Please 
provide a breakout of the projects and activities that comprise the 
$3.894 million estimate, and the projected impact of not funding each 
of these items.
    Answer. In preparing our fiscal year 2007 budget request, we 
vigorously scrubbed our requirements and limited the items included in 
our request to selected, targeted initiatives that we believe are 
essential to our ability to maintain our effectiveness and 
productivity. These initiatives primarily relate to (1) enhancing 
critical business systems and (2) addressing security requirements 
resulting from recent federal guidance. If funding is not directly 
provided for the requested initiatives, we may need to consider 
delaying these improvements which will only result in increased cost 
over time due to future price level increases. Alternatively, we may 
need to consider our staffing levels in fiscal year 2007 in order to 
ensure that we could pursue these initiatives. The following table 
provides additional information on the requested increases for 
Information Technology activities and the impact of not funding these 
items.

     FISCAL YEAR 2007 INCREASES REQUESTED FOR INFORMATION TECHNOLOGY
                               ACTIVITIES
                        [In thousands of dollars]
------------------------------------------------------------------------
                          Activity                              Amount
------------------------------------------------------------------------
Replace GAO's financial management system..................        1,400
    GAO's financial management system needs to be replaced
  now and is a priority effort over the next 2 years. Our
  financial management system is antiquated, is no longer
  supported by the vendor, fails to meet current business
  system requirements, and is in danger of failing. If the
  system is not replaced expeditiously, we run the risk of
  being unable to (1) effectively operate our financial
  management system, (2) produce auditable financial
  statements, and (3) meet internal control standards
  without extensive manual intervention and support.
    In fiscal year 2006, we plan to select a government
  cross-service provider and begin a phased implementation
  in fiscal year 2007. The replacement financial management
  system will provide integrated budgeting, purchasing, and
  accounting functionality while enhancing the information
  available to program managers, and allow us to meet our
  goal of being a model agency.
Enhance the Engagement Management and Job Information                425
 Systems...................................................
    In fiscal years 2006 and 2007, we plan to continue the
  redesign of the Engagement Management System and Job
  Information Systems. With the integration of existing
  systems such as the Congressional Contact System and
  Staffing Information System into the Engagement
  Management System, the new system will provide a more
  robust management tool which will allow one information
  source and access point for planning, staffing, and
  management of GAO's evaluation work. Currently, GAO
  maintains multiple systems with similar data, requiring
  managers to enter redundant data into multiple databases,
  reconcile information to ensure its accuracy, and access
  multiple systems to obtain information needed to manage
  and conduct congressional engagements.
Improve IT security and systems............................        2,069
    In fiscal year 2006, GAO will relocate its alternate
  computing facility for disaster recovery and continuity
  of operations from a commercial site to one that is
  shared with other legislative branch agencies. In fiscal
  years 2006 and 2007, we will continue to implement
  security features to identify and stop potential hackers
  and improve the overall security of the agency's
  information and technology assets.
    In fiscal year 2007, we will initiate the transition to
  Internet Protocol version 6 (IPv6) to comply with federal
  guidance and policy to implement IPv6 by fiscal year
  2008. This will require the upgrade of numerous
  infrastructure devices and GAO applications to ensure
  interoperability and IT security.
    With the completion of installing SIPRNet--DOD's
  Internet for sharing data classified up to the secret
  level--in the field offices, our efforts will shift to
  installing access to DOD's Non-classified Internet
  Protocol Router Network system, NIPRNet, in fiscal year
  2007. Electronic access to DOD's systems allows staff to
  obtain information needed to complete engagements without
  incurring travel costs.
    In addition, we will build upon our design of the
  Hurricane Central Portal to create portals that will
  provide a single access point to enterprise information
  resources, tools, and common applications within the GAO
  network. These portals will facilitate timely and
  effective staff research and access to data needed to
  respond to congressional inquiries. The initial focus
  will be a portal for the core business and analyst
  communities.
                                                            ------------
      Total................................................        3,894
------------------------------------------------------------------------

    Question. GAO's budget proposes $3.819 million in ``relatively 
controllable costs'' associated with building management. Please 
provide a breakout of this requested increase, and the impact of not 
funding these items.
    Answer. In preparing our fiscal year 2007 budget request, we 
vigorously scrubbed our requirements and limited the items included in 
our request to selected, targeted initiatives that we believe are 
essential to our ability to maintain our effectiveness and 
productivity. These initiatives primarily relate to (1) cyclical 
maintenance identified in our 2005 GAO Building Condition Assessment 
Report, and (2) security requirements resulting from recent federal 
guidance. If funding is not directly provided for the requested 
initiatives, we may need to consider delaying these improvements which 
will only result in increased cost over time due to future price level 
increases. Alternatively, we may need to consider our staffing levels 
in fiscal year 2007 in order to ensure that we could pursue these 
initiatives. The following table provides additional information on the 
requested increases for Building Management activities and the impact 
of not funding these items.

 FISCAL YEAR 2007 INCREASE REQUESTED FOR BUILDING MANAGEMENT ACTIVITIES
                        [In thousands of dollars]
------------------------------------------------------------------------
                          Activity                              Amount
------------------------------------------------------------------------
GAO Building Maintenance and Repair........................          922
    In fiscal years 2006 and 2007, we plan to undertake
  several maintenance and repair projects identified in our
  2005 Building Condition Assessment report. In fiscal year
  2007, we plan to continue upgrades to the heating,
  ventilation, and air-conditioning systems, replace the
  cooling towers, upgrade the handicapped lift, and perform
  cyclical maintenance on the building elevators. In order
  to ensure the safety of GAO staff, we could not defer
  critical elements, such as elevator upgrades.
Increase Security For Incoming Mail And Packages...........          400
    We plan to relocate and consolidate our mail and
  package receiving facilities to help ensure the safety
  and security of GAO staff and assets in the event of the
  receipt of hazardous materials.
Upgrade Contract Security Force............................          610
    In fiscal year 2005, we restructured the contract for
  the security force to upgrade the qualifications for the
  security force to Special Police Officers, gradually
  replacing GSA guards. The restructuring will help ensure
  a more professional, secure environment. In fiscal year
  2006, we completed the restructuring of the security
  force and have attained full staffing with special police
  officers. The requested increase represents the
  annualized cost of making the transition from GSA guards
  to special police officers. If the requested funding is
  not available, we would be required to reduce the number
  of officers that we could support and determine other
  ways to help mitigate the potential risks to GAO staff
  and assets.
Integrated Electronic Security System (IESS)...............        1,225
    We plan to implement an IESS at GAO headquarters in
  fiscal year 2006 and expand the system to the field
  offices in fiscal year 2007. The IESS will allow GAO to
  integrate headquarters and field office access control,
  surveillance, and alarm systems and provide the ability
  to monitor field activity from a console in the
  headquarters Command Control Center. We anticipate some
  savings will result from integrating the field offices
  and headquarters control systems and less reliance on the
  Federal Protective Service (FPS) in the field. The
  integrated system will allow GAO to comply with Homeland
  Security Presidential Directive 12 (HSPD 12) which sets
  forth requirements for using government-issued
  identification, Smart Cards, to permit access to federal
  agencies.
Security Investigations....................................          197
    In fiscal year 2006, we will start conducting higher-
  level investigations on contractors and interns to meet
  the requirements of HSPD 12 for the issuance of
  government identification to allow access to federal
  facilities. In addition, in fiscal year 2007, a
  significant number of staff are due for cyclical updates
  of their security clearance which is required to gain
  access to needed information and facilities.
Upgrade Tax Rooms..........................................          225
    We plan to assess secure space in the field offices and
  implement changes needed to comply with Internal Revenue
  Service guidelines for storing tax returns and other
  sensitive information.
Design For Library & 7th Floor.............................          240
    We plan to redesign the physical layout of our library
  facility to (1) reconfigure space to improve work
  collaboration as we reduce our physical collection and
  migrate to greater use of electronic resources, and (2)
  design additional workspace to accommodate displaced GAO
  staff when the GAO Building is used as an alternate
  facility for congressional staff.
                                                            ------------
      Total................................................        3,819
------------------------------------------------------------------------

                                 ______
                                 
            Questions Submitted by Senator Richard J. Durbin
    Question. How many GAO staff did not perform at a satisfactory 
level (meets expectations or better rating) in 2005 and were thus 
ineligible for purchase power protection?
    Answer. Only 8 staff did not perform at a meets expectation level 
or better and therefore did not receive an annual adjustment. In 
addition, 19 staff did not meet the relative performance requirements 
for satisfactory performance and therefore did not receive an annual 
adjustment.
    Question. What happened to these individuals?
    Answer. The 8 employees whose performance was not at a meets 
expectations level or better did not receive the annual adjustment or 
any other salary increases or performance bonuses. The remaining 19 
employees did not receive the annual adjustment, but were assessed for 
performance based compensation and were eligible to receive a 
performance bonus.
    Question. Were the affected employees aware of the reasons for 
being denied their COLA's?
    Answer. Yes. GAO has implemented a market-based and performance-
oriented compensation system and does not provide an across-the-board 
increase to all employees regardless of their performance, roles and 
responsibilities or salary in relation to the market. Our annual 
adjustment reflects changes in the cost of labor and is one component 
of an employee's compensation. As noted above, some employees were 
ineligible for this adjustment due to their performance.
    Employees who didn't receive adjustments due to ``below 
expectations'' ratings were made aware that their appraisals made them 
ineligible for salary adjustments or performance bonuses. The 19 
employees who didn't receive annual adjustments due to the relative 
performance criteria were considered for performance based 
compensation. All staff can access a performance-based compensation 
report from a web-based system This report contains information about 
employees' ratings, base salary increases and/or performance bonuses, 
but does not provide a specific explanation of why the amount may be a 
bonus rather than a base salary adjustment. Various communications were 
undertaken to inform staff as to the nature and basis for 2006 salary 
adjustments--including who was or was not eligible for the annual 
adjustment component. These included a special Comptroller General 
televised chat for which the briefing materials were posted for all 
staff. A GAO order covering the annual adjustment and performance-based 
compensation process was issued for notice and comment. Lastly, a PBC 
guide with calculation examples was posted on the GAO intranet. Human 
Capital Office staff also provided specific explanations of individual 
salary adjustments to employees upon request.
    Question. What affect has the GAO Human Capital Reform Act had on 
the morale of the employees in your agency?
    Answer. The Human Capital Reform Act (HC II) was passed in July 
2004 and provided GAO with several flexibilities including permanent 
authority for the Comptroller General to offer voluntary early 
retirement, voluntary separation incentive payments, enhanced annual 
leave for key employees, flexible relocation benefits and an executive 
exchange program. In addition, the act authorized the Comptroller 
General to establish revised pay retention regulations and to determine 
the annual salary adjustment for GAO staff rather than increasing 
salaries by the percentage authorized for the General Schedule. The 
Comptroller General's authority to establish the amount of the annual 
adjustment was effective for increases effective on or after October 1, 
2005. Therefore, January 2006 represented the first exercise of this 
authority.
    GAO conducts an annual employee feedback survey to give staff an 
opportunity to provide input on various issues relating to their 
employment at GAO. The results from the 2005 survey which was the first 
conducted since the passage of Public Law 108-271 (May and June 2005) 
show morale improved from the prior year with 71.24 percent of 
employees agreeing or strongly agreeing that their morale was good. In 
the 2004 survey (July and August of 2004), 68.76 percent of employees 
agreed or strongly agreed that their morale was good. While we can't 
attribute changes in morale to this particular legislation or any other 
single factor, the next survey will be conducted in the summer of 2006 
after the HC-II pay flexibilities have been exercised. Employees' 
responses on the morale question have trended upwards in 2003, 2004 and 
2005 and we will track the 2006 responses when the survey is completed 
in light of the legislation and other changes that have occurred in the 
agency in the past year.
    Question. Why did you not allow for a minimum of a two year 
transition period before implementing the GAO annual pay adjustment 
provisions?
    Answer. We did. In 2003, as part of our legislative proposal, the 
Comptroller General laid out plans for a 2-year transition period with 
increases under the new authority occurring in January 2005 at the 
earliest. Public Law 108-271 was passed in July of 2004 and provided 
for implementation of the Comptroller General's annual pay adjustment 
authority to be effective for any increases effective after October 1, 
2005. In January 2005, GAO adjusted employees' salaries at the same 
time and to the same extent as the General Schedule and January 2006 
was the first year in which GAO employees received a different annual 
adjustment than the executive branch.
    Question. Why was the restructuring of GAO senior analysts (Band 
IIs) carried out?
    Answer. As part of our overall human capital transformation 
efforts, GAO has developed and implemented a modern classification 
system and a market-based and more performance-oriented compensation 
system. The principles that guided the development of our 
classification and compensation system are as follows:
  --Enable GAO to attract and retain top talent
  --Result in equal pay for work of equal value over time
  --Reflect the roles and responsibilities that staff are expected to 
        perform
  --Be reasonable, competitive, performance-oriented; and based on 
        skills, knowledge and roles
  --Be affordable and sustainable based on current and expected 
        resource levels
  --Conform to applicable statutory limits.
    The purpose of restructuring the Band II position was to clearly 
distinguish between the roles and responsibilities of those analysts 
who are generally individual contributors and/or sometimes provide 
overall leadership on selected engagements and those who are expected 
to consistently take on a leadership role for a broad range of 
engagements over time. When comparing Band II roles, responsibilities 
and pay to the market, the Watson Wyatt compensation study validated 
that these two roles should have different pay ranges. By better 
linking roles and responsibilities to the appropriate market-based pay 
ranges, senior analysts will be more equitably compensated.
    Question. When did the idea of the senior analyst (Band II) 
restructuring occur to you?
    Answer. The issue of how GAO classifies its analyst staff first 
surfaced in 2000 during the development of GAO's competency-based 
performance system. As part of the competency validation effort, some 
Band II employees reported that certain work activities associated with 
leadership and the development of staff were relevant and important to 
their responsibilities and other employees indicated that they were not 
relevant. As a result of this bimodal response, these work activities 
were not included in the competency-based performance system, but the 
reasons for the differing response remained a matter of concern.
    In preparation for the development of market-based compensation 
ranges, it was essential to address the issue of Band II roles and 
responsibilities in order to ensure appropriate benchmarking with 
comparable positions. The results of the market-based study, which was 
conducted from July to October of 2004, indicated that the different 
Band II roles should have different pay ranges. In response, the Band 
II restructuring effort was formally announced to staff in May 2005, 
placement decisions were relayed to individual employees in December 
2005 and placements actions effected in January 2006.
    Question. Did you ever mention the possibility of restructuring 
GAO's Band IIs during the legislative consideration of your human 
capital proposal? Why not?
    Answer. At the time of the 2003 hearings on human capital II, GAO 
had not formulated any response to address the issues associated with 
Band IIs' roles and responsibilities. We had no idea in 2003 what the 
results, if any, of our market-based compensation study would be.
    Question. What have been the benefits and costs of the Band II 
restructuring process?
    Answer. There are significant benefits to implementing a modern and 
credible classification and compensation system. It supports our 
continuing efforts to achieve our strategic goal of maximizing the 
agency's value by becoming a model federal agency and a world class 
professional services organization. The Band II restructuring process 
was integral to the effort to classify positions to the appropriate 
levels of responsibility and appropriate market-based salary ranges. 
While direct cost savings were not the impetus for our classification 
and compensation initiatives, over 80 percent of our budget is composed 
of people-related costs. Our restructuring of Band II along with the 
agency-wide implementation of a market-based and performance-oriented 
compensation system is a key element in the efficient use of our 
budget. Our previous pay system did not result in equal pay for equal 
work, was financially unsustainable and harmed the agency's ability to 
adequately reward strong performance. The new system will support our 
efforts to attract, retain, award and motivate top talent.
    However, we recognize that there are also costs associated with any 
significant change and the restructuring was difficult for GAO staff, 
particularly for long-term employees directly affected by the 
restructuring. Transformation efforts take patience and perseverance to 
achieve results and we fully expect that employees' acceptance of these 
changes will take time.
    Question. How much did GAO ``save'' by freezing the salaries and 
denying one-half of bonuses earned of its staff?
    Answer. The implementation of a market-based compensation system 
was not designed to save the agency money. In fact, only 47 staff (2.6 
percent) assessed for performance-based compensation and onboard as of 
the effective date of these increases received no salary increase or 
performance bonus this year. Our compensation system is a part of our 
overall transformation effort whose goal is to establish modern, 
effective, and credible human capital policies in order to ensure that 
GAO is well positioned to serve our congressional clients, maximize our 
performance, operate the organization within the resources provided in 
a constrained budget environment, and assure our accountability and 
service to the nation not only now, but also in the future.
    There were 236 Band II Analysts and Specialists who were placed in 
Band IIA and who had salaries in excess of the IIA maximum rate. Under 
the policy adopted to mitigate the impact of the Band II restructuring, 
these staff whose average salary is approximately $109,000 were 
provided 50 percent of their performance-based compensation as a base 
salary adjustment not to exceed the maximum ``transition'' rate. The 
transition rate allows all band IIA employees to earn a maximum salary 
equal to the maximum rate that these employees were eligible to earn in 
2005 as Band IIs, i.e., $118,700 in Washington, D. C. (Note: In some 
locations, the transition maximum was slightly higher than the former 
Band II maximum due to differing locality rates.) If these 236 
employees had been provided with the 2.6 percent annual adjustment and 
the additional 50 percent of their PBC, the added annual cost would 
have been approximately $882,000.
    Question. What is GAO's policy for paying the relocation expenses 
of an employee who requests a transfer from HQ to a region?
    Answer. GAO does not pay the relocation expenses for employees who 
request to be transferred. As required by Federal Travel Regulation 
302.1-1, GAO only offers relocation benefits if GAO determines that a 
transfer is in the interest of the Government. GAO always decides in 
advance of issuing a job announcement if it will offer relocation 
benefits for a position. If the decision is made to offer relocation 
benefits, that notation is made in the job announcement. Employees 
receive relocation benefits only if they are chosen for a position 
which includes relocation benefits in the job announcement. Employees 
who request to transfer from headquarters to a field office (or vise 
versa) are generally allowed to transfer if a position is available, 
however, the agency does not pay their relocation expenses.
    Question. In recent years, GAO, as well as other federal agencies, 
has invested significant resources to upgrade security. Yet, both 
physical and information security remain a management challenge for the 
GAO. Please describe why these areas continue to be a management 
challenge.
    Answer. The continuing dynamics of information technology (IT) and 
security is the primary reason for GAO's management challenge. It is a 
challenge that is not unique to GAO--all federal agencies are dealing 
with this challenge. Essentially, changing security threats, evolving 
security guidance, and new technologies have created an environment in 
a high state of flux. Our experience has already shown that security 
designs implemented today may not have the same effect of protecting 
our information resources from a newly designed threat, or variant of 
an existing threat, tomorrow.
    The explosion of the Internet, e-commerce and web-based services, 
along with the rapidly expanding presence of wireless and other 
computing devices, has created new challenges for protecting IT 
systems, privacy information and other agency information assets. In 
addition, the ease with which technology allows the sharing and 
transfer of information and the portability of cellular devices, tablet 
computers, and PDAs presents ongoing IT security threats--such as 
viruses, worms, spyware, zero day exploits, as well as pharming, 
phishing and spoofing exploits. Unfortunately, these are risks and 
challenges that are not likely to abate as we look forward and as new 
threats and the potential for new exploits emerge.
    The National Institute of Standards and Technology (NIST) has 
significantly increased its government-wide guidance on IT, providing 
more and greater detail in direct response to legislative direction and 
the Federal Information Security Management Act (FISMA). FISMA, in 
turn, has expanded the visibility of each federal agency's IT programs 
and how secure they are--and caused an increase in the workload and 
resources needed to comply with government-wide standards and reporting 
requirements. Furthermore, the guidance on implementing and reporting 
on FISMA requirements, as well as the related NIST standards and 
technology approaches continues to evolve. We foresee an increase 
rather than a decrease in work directly supporting these initiatives.
    Also, directives to move towards new technologies, such as IPv6, 
the next generation Internet protocol, may require a significant 
restructuring of network architectures and network services. (OMB has 
mandated that all Federal agencies must be using IPv6 by June 2008.) By 
implementing some of these new technologies, the existing mechanisms 
implemented to secure the network and information systems may need to 
be discarded and replaced by very different technologies, creating 
their own set of new challenges. Significant changes in technology will 
require additional resources for training and education of staff to 
meet the challenge. In the case of IPv6, it is critical that we develop 
and implement a sound transition plan to acquire, test and deploy the 
needed infrastructure equipment to implement IPv6 and ensure secure 
compatibility and interoperability with customers, clients, business 
partners, and service providers. The full implication of IPv6 
implementation from a security standpoint is just now emerging as 
industry and organizations/agencies gain a greater understanding of the 
protocol.
    In addition, Homeland Security Presidential Directive (HSPD) 12 and 
Office of Management and Budget guidance require federal agencies 
implement a new federal employee identification standard in October 
2006. The technical requirements to implement these directives are 
contained in the Federal Information Processing Standard (FIPS) 201 
guidelines. However, the vendor community is still developing and 
testing products capable of meeting the new standards and requirements. 
Meanwhile, agencies are trying to develop systems and processes to 
implement the new guidelines in a timely fashion in the absence of 
street-ready products.
    Question. What further investments do you believe are necessary to 
resolve the challenge?
    Answer. Due to the dynamic nature of the security and IT 
environments, there is no silver bullet to resolve the challenge. By 
following consistent standards and best practices, GAO has implemented 
a defense-in-depth approach using measured technical security controls 
to protect our information systems and information at the perimeter, 
throughout the network, and at the desktop. We still face mounting 
challenges from changing technologies and multi-vendor solutions. Most 
environments today must still rely on multi-vendor solutions that lack 
appropriate levels of integration. As the industry matures, we should 
see more integrated solutions on the market. GAO's future investments 
will be in support of our desire to consolidate security solutions to a 
limited number of vendors providing integrated effective solutions and 
reporting capabilities. These solutions will require both investments 
in technologies and human resources. As GAO moves forward, we will 
continue to review and update our security tools and approaches to 
ensure they are the most cost effective--and are responsive to ever 
evolving threats.
    Overall, the increasing and more sophisticated outsider threats, 
together with additional legislative mandates, presage a steady level 
of spending, at a minimum, for security initiatives to ensure the 
safeguard of our information resources and compliance with IT security 
regulations. While the composition of IT security funding will likely 
change to meet new security challenges and government wide 
requirements, we don't--at this time--envision overall costs 
decreasing, particularly in light of the required move to IPv6.
    GAO has several actions planned or underway in the area of physical 
security which will help improve our security posture, including an 
integrated access security system which utilizes enhanced Smartcard 
technology, more stringent background investigations for federal 
employees and contractors, and a more robust security force of special 
police officers. However, given the dynamic nature of the nation's 
post-September 11 security environment, the challenge is continually 
evolving.
    Question. What is the status of your effort to install an 
integrated access security system?
    Answer. GAO is working with a solutions provider to work through 
the details of implementing the new technology. During fiscal year 
2006, we plan to establish an Emergency Operations Center in 
headquarters as the focal point of our efforts to integrate physical 
security issues. This Center will allow us to monitor and control 
physical access issues in both headquarters and the field. It will also 
allow us to reduce our reliance in 10 field offices on local Federal 
Protective Service Staff and security forces. We also plan to install 
turnstiles in the headquarters lobby areas, implement Smartcard 
technology consistent with HSPD 12 and FIPS 201, and implement a 
visitor and credential management system in headquarters. In fiscal 
years 2007 and 2008, we plan to phase implementation of the access 
security system to the field offices.
    Question. What is the status of your disaster recovery/continuity 
of operations program?
    Answer. We have put in place a structured plan and process--which 
we test on a periodic basis--for business continuity planning and 
disaster recovery. We have also expanded the capability of our offsite 
alternative computing facility to ensure the recovery and restoration 
of the IT systems that support the agency's business processes in the 
event of a disruption. Expanded capabilities include the installation 
of additional file servers, operating systems, storage, back-up, data 
lines, additional remote access licenses and replication technology to 
synchronize headquarters production data at the alternative computing 
site. And, we are in the process of moving our alternative computing 
facility from a commercial site to the legislative branch facility 
which will save us about $126,000 annually, while providing the 
foundation for better coordination with other legislative branch 
entities. The move will occur during the summer, 2006.
    Question. Given the current environment of fiscal constraint, it is 
unlikely the Congress will be able to fully fund your budget request.
    a. What impact will this have on your plans for an FTE increase?
    b. How will this affect your ability to meet the Congress' needs 
for information?
    Answer. If the Congress is unable to fully funding our budget 
request, we may need to consider delaying some of the requested 
initiatives which will only result in increased cost over time due to 
future price level increases. Alternatively, we may need to consider 
reducing our planned staffing level in fiscal year 2007 in order to 
ensure that we could pursue the critical initiatives.
    GAO already has a significant supply and demand imbalance with 374 
requests from the Congress that had not been started as of March 2006. 
If we are unable to increase our staffing, this imbalance will likely 
continue. We will work with our clients on the Hill to determine their 
priorities for our work, but we will obviously not be able to complete 
all that they have requested.
    Failure to increase our staffing to the requested level would also 
have an impact on the timeliness of our work. While we continue to 
receive good marks on our service to the Congress, we recognize that we 
could always improve the timeliness of our work.

                          SUBCOMMITTEE RECESS

    Senator Allard. The subcommittee stands in recess until 
tomorrow, April 27 at 10:30 a.m., in Senate Dirksen 116, when 
we will take testimony on the progress of the Capitol Visitor 
Center construction. Thank you for your testimony.
    Mr. Walker. Thank you, Mr. Chairman.
    [Whereupon at 11:32 a.m., Wednesday, April 26, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
