Results-Oriented Budget Practices in Federal Agencies (01-AUG-01,
GAO-01-1084SP). 						 
								 
GAO analyzed federal government budget practices in order to	 
produce a framework for agency budget practices that can guide an
agency toward incorporating performance information into the	 
budget process. GAO also reviewed challenges to implementing	 
results-oriented budget practices that were identified by a panel
of agency budget officials.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-1084SP					        
    ACCNO:   A01702						        
  TITLE:     Results-Oriented Budget Practices in Federal Agencies    
     DATE:   08/01/2001 
  SUBJECT:   Balanced budgets					 
	     Budget administration				 
	     Funds management					 
	     Performance measures				 
	     Agency missions					 
	     Interagency relations				 
	     Private sector practices				 
	     Planning-Programming Budgeting System		 
	     Government Performance and Results Act		 
	     (GPRA)						 
								 

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GAO-01-1084SP
     
Theme 1: Performance Informs Budget Formulation and Implementation

Theme 1: Performance Informs Budget Formulation and Implementation For
budget formulation, agency management:

provides general guidance to program officials on agency goals, performance
issues, and resource constraints;

requests input from program officials on the relative priority of new and
existing programs and proposed changes to funding levels based on a review
of changes in costs, performance issues, and other relevant factors;

uses the input on relative priorities, changes in costs, performance issues,
and other factors to weigh competing needs and decide funding levels for
existing and new programs; communicates management?s decisions to program
officials; and provides an opportunity to appeal the decisions;

coordinates with other entities to achieve common goals and avoid
duplication; justifies its budget request both within the agency and
externally (e.g., with the department, the Congress, OMB) in terms of how
requested funds will contribute to the accomplishment of agency goals; and

informs its staff of departmental, OMB, and congressional actions on the
budget request and obtains feedback from program officials on the
implications of those actions for agency goals.

For budget implementation, agency management:

provides guidance to program officials on changes in agency goals,
performance issues, and resource constraints;

requests updated information from program officials on the relative priority
of new and existing programs and proposed changes to funding levels based on
a review of changes in costs, performance issues, and other relevant
factors;

uses the input on relative priorities, changes in costs, performance issues,
and other factors to weigh competing needs and decide existing and new
program funding levels; communicates its decisions about funding
allocations; and provides an opportunity to appeal the decisions;

Request for Views

United States General Accounting Office

GAO

August 2001 RESULTS- ORIENTED BUDGET PRACTICES IN FEDERAL AGENCIES

GAO- 01- 1084SP

Page 1 GAO- 01- 1084SP Results- Oriented Budget Practices

August 2001 HEADS OF DEPARTMENTS AND AGENCIES This Request for Views on
?Results- Oriented Agency Budget Practices? is our initial attempt to
describe a framework for agency budget practices that can help guide an
agency toward incorporating performance information into the budget process.
Also included in this publication are challenges to implementing results-
oriented budget practices that were identified by a panel of agency budget
officials who reviewed the practices.

OMB Circular A- 11 guidance for fiscal year 2003 budget formulation
instructs certain agencies to develop performance- based budgets for
selected programs. Although connections between specific performance and
funding levels can be difficult to make, efforts to infuse performance
information into budget deliberations has the potential to change the terms
of debate from simple inputs to outputs and outcomes.

We are seeking comments on the framework to further refine it and better
understand the challenges to implementation. The next phase of this work
will involve identifying and sharing examples of agencies that have found
innovative ways to implement these or related practices. We believe that
sharing agency experiences can provide benchmarks for other agencies to use
or adapt to their environment. With that in mind, we are also seeking
examples of agencies that have implemented results- oriented budget
practices and that can serve as a guide to others.

This Request for Views is located on the Internet on GAO?s Home Page
(http:// www. gao. gov) under ?Other Publications.? Additional copies can be
obtained from the U. S. General Accounting Office, Room 1100, 700 4th

United States General Accounting Office Washington, DC 20548

Appendix I: Results- Oriented Agency Budget Practices

Page 2 GAO- 01- 1084SP Results- Oriented Budget Practices

Street, NW, Washington, DC 20548, or by calling (202) 512- 6200 or TDD (202)
512- 2537. Please send comments by December 31, 2001, to

views@ gao. gov or to Denise Fantone, Assistant Director, Strategic Issues,
at the U. S. General Accounting Office, 441 G Street, NW, Room 4062,
Washington, DC 20548.

Paul L. Posner Managing Director Strategic Issues

Appendix I: Results- Oriented Agency Budget Practices

Page 3 GAO- 01- 1084SP Results- Oriented Budget Practices

In the 1990s the Congress laid out a statutory and management framework that
provides the foundation for strengthening government performance and
accountability. The Government Performance and Results Act (GPRA), a major
component of this framework, required agencies to establish missions, goals,
and performance measures as well as clearer linkages between resources and
results. 1 We recognize that, while many agencies have made significant
progress in implementing GPRA, much remains to be done to better integrate
and infuse performance information in management decision- making, including
budgeting. This was made evident in a recent GAO survey in which we found
that fewer than 50 percent of federal managers surveyed said they used
performance information to a great or very great extent to set program
priorities or allocate resources. 2

To expand the use of performance information in budgeting, this year the
President proposed a major initiative that involves:

 an emphasis on fully integrating budget and performance information;

 calculating the full cost of programs and activities; and

 increasing the quality, usefulness, and amount of performance information
in the President?s Budget.

As part of this initiative, OMB?s spring planning guidance to Cabinet
departments and selected major independent agencies included a list of
outcomes and related outputs and required the departments and agencies to
provide integrated budget and performance information for the listed
outcomes and outputs in their fiscal year 2003 performance plans. 3

Efforts to more clearly link resources to results in federal agencies are
not new, and we have had the opportunity to learn from previous efforts.
Since 1950, the federal government has attempted several governmentwide
initiatives designed to better align spending decisions with expected

1 Other significant legislation includes the CFO Act and related
legislation, which created a structure for more businesslike management and
reporting of the government?s finances, and the Clinger- Cohen and Paperwork
Reduction Acts, which required agencies to take an orderly, planned approach
to their information technology needs.

2 Managing for Results: Federal Managers? Views on Key Management Issues
Vary Widely Across Agencies (GAO- 01- 592, May 25, 2001). 3 Office of
Management and Budget, Circular No. A- 11, ?Preparing and Submitting Budget
Estimates? (July 17, 2001).

Appendix I: Results- Oriented Agency Budget Practices

Page 4 GAO- 01- 1084SP Results- Oriented Budget Practices

performance- what is commonly referred to as ?performance budgeting.? GAO
studied performance budgeting initiatives, such as Zero- Base Budgeting,
Management by Objectives, and Planning- ProgrammingBudgeting- System, and
found that performance budgeting should not be viewed in simplistic terms-
that is, resource allocation cannot be mechanically linked to results. We
concluded that the promise of any performance budgeting initiative lies in
its potential to infuse performance information more explicitly into
budgetary deliberations, thereby changing the terms of debate from simple
inputs to outputs and outcomes. 4

The purpose of this draft is to supplement the well- established legal and
regulatory structure for federal budgeting 5 by presenting an initial
framework that describes the practices an agency could use to link
performance information to the budget process- what we are calling

?results- oriented? agency budget practices. 6 Results- oriented agency
budget practices are the activities, processes, and capacities that can help
an agency to incorporate performance information into its internal budget
deliberations and requests for funding and to identify opportunities to make
better use of available resources to accomplish agency goals.

The next phase of our work in this area is to showcase successful
applications of these practices. Therefore, we will be identifying agencies
that have shown innovation in implementing one or more of these practices to
share with the budget community.

We developed an initial set of results- oriented agency budget practices by
reviewing literature on performance management and budgeting and speaking to
budget experts. Although some of the literature we reviewed focused on
executive branch departments and agencies, much of it focused on the
congressional budget process or on the budget processes of state and local
governments and other countries. Where applicable, we

4 Performance Budgeting: Past Efforts Offer Insights for GPRA Implementation

(GAO/ AIMD- 97- 46, March 27, 1997). 5 Title 31 of the United States Code
provides the legal foundation for the federal budget process in the
executive branch. OMB issues guidance to agencies to ensure compliance with
these budget laws and to obtain the information it needs to formulate the
President?s Budget.

6 In this draft, ?agency? refers to a major subordinate organization within
a department (usually identified as a bureau in the President?s Budget) and
nondepartmental independent agencies. Scope and

Methodology

Appendix I: Results- Oriented Agency Budget Practices

Page 5 GAO- 01- 1084SP Results- Oriented Budget Practices

adapted the information to describe how performance information could be
used for budget formulation and implementation in federal agencies. 7 We
also drew on GAO reviews and other studies of agency budgeting. To
supplement the literature we spoke to budget experts inside and outside of
GAO about results- oriented agency budget practices.

To test our initial findings from the literature and budget experts, we
conducted a case study of budget formulation and implementation practices at
the Small Business Administration. 8 The case study helped us to refine the
practices and begin to understand how the practices fit together as a
framework.

Finally, to obtain an operational perspective on the framework, we invited
input from a panel of senior agency budget officials who commented on the
importance of the practices for achieving agency goals and the challenges to
implementing those practices. The panel consisted of seven senior budget
officials from a judgmentally selected sample of federal agencies. The
panelists represented one commission, two independent agencies, and four
agencies from three departments. For the panel discussion, we provided the
panelists with a questionnaire and asked them to rate each practice in terms
of how important it is to an agency in achieving the agency?s goals and note
if they thought the practice was difficult to carry out. We focused the
panel discussion on areas where there was greater disagreement about the
importance of a practice for helping to achieve agency goals or where the
panelists believed a practice was difficult to carry out. We revised the
framework to reflect the panelists? operational perspective and described
the practices in greater detail.

7 Budget formulation is the process of developing an agency?s budget request
for inclusion in the President?s Budget and its supporting justifications
for the Congress. Budget implementation is the process of developing
operating plans for the upcoming fiscal year; implementing the plans by
allocating, obligating, monitoring, and reallocating budgetary resources;
and reporting on the resulting obligations and outlays.

8 We conducted the case study as part of a larger review of performance and
accountability at the agency. See Major Management Challenges and Program
Risks: Small Business Administration (GAO- 01- 260, January 2001).

Appendix I: Results- Oriented Agency Budget Practices

Page 6 GAO- 01- 1084SP Results- Oriented Budget Practices

The framework is organized into four themes that emphasize different
dimensions of results- oriented agency budget practices. The first theme
focuses on the budget process and asserts that performance should inform
agency decisions during budget formulation and implementation. Themes 2 and
3 focus on an agency?s capacity to produce reliable budget estimates and to
relate performance, budget, spending, and workforce information in a
credible and useful manner. Theme 4 focuses on agency effectiveness and
efficiency by emphasizing that an agency should continuously improve its
programs and operations and seek approaches to maximize limited resources.
Figure 1 depicts the framework for results- oriented agency budget
practices.

Figure 1: Framework for Results- Oriented Agency Budget Practices

For each theme we lay out a series of agency practices- consisting of
activities, processes, and capacities- that are intended to describe how an
agency could better inform its budget decision- making and find ways to make
better use of available resources to accomplish agency goals.

We view the practices as desirable dimensions of budgeting that could be
implemented in many different ways by agencies. The characteristics and
Framework for

Results- Oriented Budget Practices in Federal Agencies

Can relate performance, budget, spending, and workforce

information

Theme 3

Produces reliable estimates of costs and resources

Theme 2

Improved ability to manage for resul s

Continuously seeks improvement

Theme 4

Performance informs budget formulation and implementation

Theme 1

Appendix I: Results- Oriented Agency Budget Practices

Page 7 GAO- 01- 1084SP Results- Oriented Budget Practices

circumstances that make organizations different from one another must be
recognized when considering the applicability of the practices.

In appendix I, we provide a more detailed description of the practices.
Where relevant we have also noted specific laws, regulations, or other
guidance that relate to the practice and apply to federal agencies
generally.

The framework does not reflect every aspect of the budget process. For
example, there are other aspects of budget law and guidance, such as those
related to fund control and accountability, that we treat as givens.
Similarly, we assume that agencies will comply with appropriations and other
laws and guidance and respond to OMB and department directions in
formulating and implementing their budgets.

The practices do not include those aspects of the budget process that are
the primary responsibility of the department, such as coordinating the
preparation of budget requests within the department. 9 The framework is
oriented toward agency rather than department budget practices because there
is a closer connection between performance and the day- to- day management
of resources at the agency level. However, since agency budgets are the
building blocks of departmental budgets, some aspects of the framework may
also apply at the department level.

Finally, the framework is an attempt to describe the contribution that the
budget function can make to an agency?s capacity to manage for results. It
is not intended to be a comprehensive treatment of all the management
functions that contribute to agency results. Clearly, the budget function
should work in concert with program management and other management
functions, such as human capital management, accounting, procurement, and
information technology management to achieve agency goals.

9 Formulation of an agency?s budget request is an iterative process in which
requested resources are subject to external scrutiny and change as the
agency?s request is first weighed against other department programs and
priorities and the department?s request is weighed against other executive
branch priorities.

Appendix I: Results- Oriented Agency Budget Practices

Page 8 GAO- 01- 1084SP Results- Oriented Budget Practices

Overall the panel reacted positively to our efforts to develop a framework
and generally agreed that the practices were important for achieving agency
goals. In this section we list and briefly describe the practices for each
of the themes. The panel also identified practices that were more difficult
to implement and discussed the various challenges to implementation, which
we summarize at the end of this section. The challenges are significant. Our
subsequent work will focus on the progress agencies are making toward
overcoming these challenges to better manage for results. Results- Oriented

Budget Practices and Panel Discussion

Appendix I: Results- Oriented Agency Budget Practices

Page 9 GAO- 01- 1084SP Results- Oriented Budget Practices

The first theme focuses on the budget process and asserts that performance
should inform agency resource decisions during budget formulation and
implementation. Infusing performance information into budgetary
deliberations may improve the agency?s ability to manage for results by
increasing the likelihood that resource allocation decisions will reflect
performance concerns. For example, performance information should be used to
support claims for resources, to evaluate those claims, and to make
decisions on tradeoffs between competing needs.

For both budget formulation and implementation, Theme 1 practices emphasize
communication and feedback between agency management and its program and
other offices about the resources needed to achieve agency performance goals
and objectives. During budget formulation, agency management should provide
context in the form of general guidance to program managers on proposed
agency goals, 10 existing performance issues, and resource constraints.

10 Hereafter, ?program managers? refers to officials responsible for program
areas as well as support services. Theme 1: Performance

Informs Budget Formulation and Implementation

Appendix I: Results- Oriented Agency Budget Practices

Page 10 GAO- 01- 1084SP Results- Oriented Budget Practices

Appendix I: Results- Oriented Agency Budget Practices

Page 11 GAO- 01- 1084SP Results- Oriented Budget Practices

Because program managers are in a position to understand the performance
implications of different funding levels, management should obtain their
input on desired funding levels based, in part, on how the funding addresses
current and potential performance gaps and the relative priorities of their
activities. Agency management should then use this information to evaluate
competing needs and to determine funding levels to request and provide
program managers an opportunity to appeal its decisions.

In formulating the budget request, agency management should also seek input
from outside the agency on issues affecting the agency?s performance. For
example, the agency should coordinate with other entities with similar or
complementary goals. The agency should justify its budget request in terms
of how requested funding levels contribute to achieving agency goals and
should inform staff of budgetary actions so that agency management can
elicit feedback on performance issues. Similarly, when requesting
postappropriations budget changes, the agency should communicate the results
to program managers and determine the implications, if any, for achieving
agency goals.

During budget implementation an agency needs to reconcile appropriated funds
and congressional priorities with its earlier budget request and current
operating needs. For example, agency management should update its guidance
on program goals, performance issues, or resource constraints to reflect
significant changes since the formulation of the budget. An agency may need
to revisit the priorities established during budget formulation to make
informed decisions about how to allocate funding that may be more or less
than requested. Similar to formulation, agency management should then use
this information to evaluate competing needs and determine final program
funding levels.

To help managers meet their goals, after appropriations are enacted, the
agency should allocate in a timely manner funds needed for program
operations. To keep performance on track, the agency should routinely
monitor performance, spending, and available resources and make adjustments
as needed after obtaining input from program managers on the performance
implications.

In contrast to Theme 1, which is keyed to the annual budget cycle, the next
two themes address an agency?s capacity to produce quality information for
decisionmakers during the budget process. An agency?s costs and budgetary
resources will change from year to year based on a Theme 2: Produces

Reliable Estimates of Costs and Resources

Appendix I: Results- Oriented Agency Budget Practices

Page 12 GAO- 01- 1084SP Results- Oriented Budget Practices

Theme 2: Produces Reliable Estimates of Costs and Resources Agency
management:

bases its budget estimates on reasonable assumptions about factors affecting
program costs or budgetary resources;

looks back to assess the accuracy of previous estimates and, if necessary,
makes appropriate adjustments to its estimating methods;

considers how its policy, program, and funding decisions may affect spending
or budgetary resources for other programs within the agency; and

considers the short- and long-term funding implications of its program or
policy decisions.

variety of factors. Often, agencies must grapple with the challenge of
achieving performance goals with flat or declining budgetary resources and
increasing costs. Theme 2 practices focus on providing decisionmakers with
reliable estimates of program costs and budgetary resources to build
credible requests for the resources an agency needs to achieve its goals.

The practices in this theme are premised on the notion that agencies that
base their budget estimates on the most up- to- date and reasonable
assumptions will be better equipped to make tradeoffs between covering cost
increases and meeting other programmatic needs. Those that ignore persistent
differences between estimated and actual costs or budgetary resources will
face greater uncertainty and have less time to plan for potential funding
imbalances. Furthermore, agencies that make an effort to identify how
funding decisions that affect one area of spending or budgetary resources
might also affect other areas will have more information with which to
address unanticipated funding or performance issues that may arise. In
addition, decisionmakers need good cost estimates to assess the
affordability and desirability of policy and program options that may have
long- term cost implications.

Appendix I: Results- Oriented Agency Budget Practices

Page 13 GAO- 01- 1084SP Results- Oriented Budget Practices

Theme 3: Can Relate Performance, Budget, Spending, and Workforce Information

Agency management:

can relate its budget structure to its goals; can relate budget, workforce,
accounting, and performance information; and

can account for both the direct and indirect costs of its programs and
associated goals.

Theme 3 practices address an agency?s capacity to relate performance,
budget, spending, and workforce information. This capacity can facilitate
the implementation of Theme 1 practices that involve incorporating
performance information into budget decisions, such as requesting program
manager input on program performance and funding needs or monitoring program
performance and spending and making adjustments to address performance gaps.

Results- oriented budgeting implies that an agency has the capacity to
relate its budget to its goals. At a minimum, GPRA requires an agency?s
performance plan to cover each program activity in the President?s budget
request for that agency. To meet this requirement and to make progress
toward the goal of integrating agency performance plans and budget requests,
OMB guidance states that agencies should display, by GPRA program activity,
the funding being applied to achieve the performance goals and indicators
for that activity. OMB may also request agencies to provide a crosswalk
between performance goals and the specific budget accounts funding those
goals.

OMB encourages agencies to consider changes to their budget account
structure that would lead to more thematic or functional presentations of
both budget and performance information. An alternative to altering the
budget structure is to use cost accounting concepts to capture how
appropriated funds are spent according to agency goals. For example, an
Theme 3: Can Relate

Performance, Budget, Spending, and Workforce Information

Appendix I: Results- Oriented Agency Budget Practices

Page 14 GAO- 01- 1084SP Results- Oriented Budget Practices

agency could define its goals as cost objects and distribute the agency?s
direct and indirect administrative and program costs against those cost
objects through such methods as direct time charging or other valid cost
allocation methods.

An extension of an agency?s capacity to relate its budget structure to its
goals is the capacity to relate and use budget, accounting, workforce, and
performance information to formulate and implement the budget. The ability
to relate accounting to budget information is fundamental to maintaining
control of and accountability for appropriated funds. The capacity to relate
performance to budget and accounting information entails establishing a
predictable and verifiable relationship between programs, goals, performance
indicators, budgets, and spending and being able to report this information
in an integrated manner for use by management. Furthermore, information on
the agency?s workforce, such as the number of new hires and separations and
salary and benefit levels, is critical to estimating and managing the cost
of the workforce.

Theme 4 practices suggest that agency management should not assume the
status quo in the approach it takes to achieving the agency?s goals from one
budget cycle to the next. The budget process can provide an opportunity for
the agency to review evaluations of its programs and operating methods to
help improve results.

One method agency management should use to identify opportunities to improve
performance is to analyze the full costs of its programs, defined in
context, including unit costs where appropriate. For example, when combined
with effectiveness measures, unit cost measures can help managers see
tradeoffs between competing needs by highlighting the relative costs and
benefits produced by different operating units.

Agency management should also identify potential alternative sources of
funding, if appropriate. For instance, agencies that provide direct services
either to segments of the public or to other agencies could consider
proposing legislation that would give them authority to charge fees to pay
for those services.

Finally, agency management should use information about program
effectiveness and efficiency, such as program evaluations or benchmarking
studies, to challenge existing operating procedures and methods of program
delivery and to identify alternatives that may accomplish agency goals more
efficiently and effectively. Theme 4: Continuously

Seeks Improvement

Appendix I: Results- Oriented Agency Budget Practices

Page 15 GAO- 01- 1084SP Results- Oriented Budget Practices

Theme 4: Continuously Seeks Improvement Agency management:

uses information on program effectiveness, such as program evaluations, to
determine if programs are producing desired results with resources provided
and identifies alternative approaches that could accomplish agency goals
more effectively and efficiently.

analyzes the direct, indirect, and, if possible, unit costs of activities to
identify opportunities to improve effectiveness and efficiency; and

considers the performance and implications of alternative budgetary
resources.

A key challenge cited by the panel of senior agency budget officials was the
difficulty of incorporating agency goals into budgetary decisions given the
tight time constraints of the annual budget cycle. The panelists also cited
challenges to using performance information for budget decisionmaking. For
example, performance information may not be timely or may not be relevant to
new initiatives or goals being proposed. In addition, the panelists spoke of
the difficulty of relating performance, budget, spending, and workforce
information because goal and performance information does not mesh well with
agency budget and accounting information and information systems that could
help relate this information are not always available. A detailed list of
challenges cited by the panelists appears in appendix II.

The next phase of our work will look at how agencies have found innovative
ways to address these challenges and implement resultsoriented agency budget
practices. By sharing examples from these agencies, other agencies may adapt
and apply elements of those practices that, ultimately, may improve their
ability to manage for results. Panel Discussion of

Challenges to Implementation

Next Steps

Appendix I: Results- Oriented Agency Budget Practices Appendix I: Results-
Oriented Agency Budget Practices

Page 16 GAO- 01- 1084SP Results- Oriented Budget Practices

Theme 1: Performance Informs Budget Formulation and Implementation 1

Practices 2 Description For budget formulation, agency management:

1. a. Provides general guidance to program officials on agency goals,
performance issues, and resource constraints.

The agency issues to program managers written guidance on budget formulation
(sometimes called a ?spring planning call? or ?budget call?) that sets the
reporting requirements and funding targets for program- level budget
formulation activities.

The guidance contains the major factors program managers need to consider as
they prepare their requests for resources. Major factors should include the
agency?s goals for the formulation year, performance issues, and funding
targets that will constrain program proposals for increased spending. 1. b.
Requests input from program officials on the relative priority of new and
existing programs and proposed changes to funding levels based on a review
of changed costs, performance issues, and other relevant factors.

The input should provide information on requested funding levels for each
activity. It should also indicate the relative priority of the activities
for accomplishing agency goals so that lower- priority activities can be
weighed against other on- going or new funding proposals. Estimates should
reflect:

 Annualization of personnel costs: The annual cost of existing staff,
including the annualized cost of staff hired during the current fiscal year.

 Annualization of other recurring costs: Of funding provided for the
current year, the annual cost of recurring items, such as rent or ongoing
contractual services, in the budget formulation year.

 Reductions for one- time costs: Of funding provided for the current year-
the amount of reductions for items that were one time or time limited in
nature, such as new office equipment, higher than normal travel costs, or
terminated or completed contracts.

 Reasonable assumptions: See practice 2.a.

 Performance issues: How actual performance has compared to goals. The
input should describe the reasons for performance that exceeded or fell
short of goals and whether and how additional budgetary resources might
influence performance against proposed goals.

 Statutory or other relevant changes: Estimates of costs to implement new
legislation or guidance contained in appropriations committee reports.

Related Guidance: OMB Circular A- 11, Sec. 30.

1 In general, the themes and practices are supported in law, such as
sections of titles 5, 31, and 44 of the United States Code. They are also
supported by Standards for Internal Control in the Federal Government (GAO/
AIMD- 00- 21. 3. 1, Nov. 1999); and Office of Management and Budget
circulars A- 11 ?Preparing and Submitting Budget Estimates? (July 17, 2001),
A- 34 ?Instruction on Budget Execution? (November 3, 2000), A- 123
?Management

Accountability and Control? (June 21, 1995), and A- 127 ?Financial
Management Systems? (July 23, 1993). Specific guidance is noted following
the practices.

2 For all practices, we assume that agencies will comply with appropriations
and other laws and guidance and respond to OMB and department directions in
formulating and implementing their budgets. Appendix I: Results- Oriented
Agency Budget

Practices

Appendix I: Results- Oriented Agency Budget Practices

Page 17 GAO- 01- 1084SP Results- Oriented Budget Practices

Practices Description

1. c. Uses the input on relative priorities, changing costs, performance,
and other factors to weigh competing needs and decide funding levels for
existing and new programs; communicates management?s decisions to program
officials; and provides an opportunity to appeal the decisions.

The agency collects program managers? input on priorities and proposed
funding levels and uses the input to make judgments about the funding levels
to be requested in submissions to the department (if applicable), OMB, and
the Congress. Ideally, an agency might rank the competing needs based on
their relative contributions to achieving goals. Note that formulation of an
agency?s budget request is an iterative process in which requested resources
are subject to external scrutiny and change as the agency?s request is first
weighed against other department programs and priorities and the
department?s request is weighed against other executive branch priorities.
Therefore, input obtained from program officials is considered a first step
and many other levels of review and decision- making occur before final
decisions are made.

After collecting and considering program input and making decisions based on
the input, the agency communicates in writing its decisions about the
funding levels being requested for each program. The agency then allows
program officials to provide feedback about the impact of funding increases
or reductions on the performance of their programs and to appeal
management?s decisions. 1. d. Coordinates with other entities to achieve
common goals and avoid duplication. As part of its planning processes, an
agency should consider the environment in

which it operates, identify other key players that contribute to
accomplishing the agency?s mission and goals, and satisfy itself that the
agency is not duplicating the efforts of others or missing opportunities to
improve performance through cooperation. In formulating its budget request,
the agency should incorporate the results of this analysis by allocating
resources to areas where performance can be improved through cooperation
with other entities and away from activities that duplicate the efforts of
others. 1. e. Justifies its budget request both within the agency and
externally (e. g., with the department, the Congress, OMB) in terms of how
requested funds will contribute to the accomplishment of agency goals.

The agency prepares budget justification documents, both for internal and
external review, that demonstrate how the agency?s funding requests relate
to the accomplishment of its goals. The justification documents should
demonstrate how the agency?s funding request would help the agency
accomplish the goals in its annual performance plan. The goals in the annual
performance plan and the agency?s budget justification should be consistent.
The agency should also be prepared to discuss the performance implications
of funding levels that differ from the request.

GPRA requires an agency?s performance plan to cover each program activity in
the President?s budget request for that agency. To meet this requirement, an
agency?s performance plan should demonstrate how all of its budgetary
resources by program activity are associated with the goals in its annual
performance plan. However, an agency?s budget account and program activity
structure does not always neatly crosswalk to the goals in its annual
performance plan. Therefore, GPRA gives agencies the flexibility to
consolidate, aggregate, or disaggregate program activities, so long as no
major function or operation of the agency is omitted or minimized. 3

Related guidance: OMB Circular A- 11, Secs. 51, 220.

3 For a more detailed discussion and examples see Performance Budgeting:
Initial Experiences Under the Results Act in Linking Plans With Budgets

(GAO/ AIMD/ GGD- 99- 67, April 12, 1999).

Appendix I: Results- Oriented Agency Budget Practices

Page 18 GAO- 01- 1084SP Results- Oriented Budget Practices

Practices Description

1. f. Informs its staff of departmental, OMB, and congressional actions on
the budget request and obtains feedback from program officials on the
implications of those actions for agency goals.

The agency should continuously monitor departmental, OMB, and congressional
actions on the budget request and communicate those actions to staff. For
example, agencies can provide timely information by e- mail or through an
internal Web site. The agency should also seek input from program officials
on the implications of those actions for accomplishing the goals in the
agency?s performance plan. For example, to begin contingency planning as
soon as possible, an agency might wish to seek input from program officials
on actions on the budget request that have significant resource
implications, such as those that will require the implementation of a new
program or significant staff reductions.

For budget implementation, agency management:

1. g. Provides guidance to program officials on changes in agency goals,
performance issues, and resource constraints.

Between the time an agency formulates its budget request and the time it
implements its budget, many operating assumptions may have changed. For
example, there may be legislative changes to programs, new performance
issues, or changes in cost assumptions, such as those for rent or health
insurance. As the agency prepares to implement its budget, it should issue
written guidance to program officials on known or anticipated changes in the
agency?s goals, performance issues, and resource constraints since
formulation. For example, if anticipated resources are less than requested
to achieve the goals in the annual performance plan, the agency should
highlight the potential performance gap and begin to address the issue as
part of the performance management and budgeting process. Similarly, updated
performance information could provide information on where performance is
leading or lagging and be useful in planning resource allocation. 1. h.
Requests updated information from program officials on the relative priority
of new and existing programs and proposed changes to funding levels based on
a review of changed costs, performance issues, and other relevant factors.

The agency issues written guidance to program managers requesting their
input on their funding needs. The agency could set funding targets that
impose a reasonable limit on what programs can request. By seeking input
from program managers the agency does not assume that all programs will
automatically be funded at a maintenance level. The input should provide
information on requested funding levels for each activity. It should also
indicate the relative priority of the activities for accomplishing agency
goals so that lower- priority activities can be weighed against other on-
going or new funding proposals. Although we list virtually the same factors
here as for formulation (see practice 1. b) the emphasis should be on
significant changes in the factors that may affect priority for funding.
Estimates should reflect:

 Annualization of personnel costs: The annual cost of existing staff,
including the annualized cost of staff hired during the current fiscal year.

 Annualization of other recurring costs: Of funding provided for the
current year- the annual cost of recurring items, such as rent or ongoing
contractual services, in the budget formulation year.

 Reductions for one- time costs: Of funding provided for the current year-
the amount of reductions for items that were one time or time limited in
nature, such as new office equipment, higher than normal travel costs, or
terminated or completed contracts.

 Reasonable assumptions: See practice 2.a.

 Changes in performance issues: How program performance compared to goals
for the most recent year available. The input should describe the reasons
for performance that exceeded or fell short of goals, and whether and how
additional budgetary resources might influence performance against proposed
goals.

 Statutory or other relevant changes: Estimates of costs to implement new

Appendix I: Results- Oriented Agency Budget Practices

Page 19 GAO- 01- 1084SP Results- Oriented Budget Practices

Practices Description

legislation or guidance contained in appropriations committee reports. 1. i.
Uses the input on performance, goals, and other factors to weigh competing
needs and decide existing and new program funding levels; communicates its
decisions about funding allocations; and provides an opportunity to appeal
the decisions.

Because many changes in operating conditions and resource constraints can
occur between budget formulation and implementation, an agency will
generally need to rethink its priorities and reweigh competing needs to
determine the level of funding to be allocated to each program area.
Therefore, the agency should consider program managers? input on proposed
funding levels needed to maintain current services and address new program
needs and should use the input to make judgments about the funding levels to
be allocated.

Prior to making final allocations, the agency communicates in writing its
decisions about the funding levels being allocated to each program. The
agency?s budget process allows program officials to provide feedback about
the impact of funding increases or reductions and to appeal management?s
decisions. 1. j. Allocates funding in a timely manner. To maximize
performance, after appropriations are signed into law, the agency

should allocate in a timely manner funds needed for program operations.
Advance planning, by enabling an agency to make final funding decisions
quickly once funds have been appropriated, is the key to success in this
area.

 Preparing preliminary operating plans based on appropriations actions:

As far in advance of the new fiscal year as practical the agency should ask
program officials to prepare preliminary operating plans based on
preliminary decisions about funding allocations for the upcoming fiscal
year. Because final funding outcomes are uncertain at this point, the agency
should base its plans on the most likely budget outcome and reserve a
portion of the funding to make final adjustments.

 Adjusting the plans when final appropriations actions take place: After
funds have been appropriated, warranted, and apportioned, the agency should
quickly determine final funding allocations based on information from the
preliminary operating plans.

 Allocating appropriated funds as soon as possible thereafter: The agency
should be prepared to quickly inform program officials of final funding
decisions and enter the funding allocations into the agency?s financial
management system.

 Finalize operating plans to be used for monitoring purposes: Program
officials submit final operating plans based on the final allocations. 1. k.
Routinely monitors performance, spending, and budgetary resources and
adjusts allocations as necessary to maximize performance against goals.

The agency has processes in place to collect, analyze, reconcile, and report
periodically during the fiscal year information on performance, spending,
and budgetary resources against plans so that management has credible, up-
to- date information for monitoring and decision- making. Such monitoring
should form the basis for decisions that address performance gaps by looking
for root causes and, if necessary, adjusting funding allocations to rectify
performance problems. In addition, the agency should maximize available
resources by tracking the availability of unobligated balances and
monitoring the status of obligations so funds can be deobligated when they
are no longer needed for a given transaction. There should also be some
indication that program managers are reconciling accounting transactions on
at least a monthly basis.

Related guidance: OMB Circular A- 34, Secs. 30, 80.

Appendix I: Results- Oriented Agency Budget Practices

Page 20 GAO- 01- 1084SP Results- Oriented Budget Practices

Practices Description

1. l. Uses input from program officials on how changes in funding
allocations will affect performance.

The agency makes decisions about changes in funding allocations based in
part on input from program officials on how the changes will affect
performance. For example, the agency should evaluate requests for mid- year
increases in funding in terms of their contribution to the agency?s
performance. Similarly, decisions to reduce a funding allocation midyear to
address other funding priorities should use information on how the reduction
will affect program performance and, if appropriate, revise performance
targets to reflect reduced funding. 1. m. Coordinates program requests for
postappropriations budget changes, requests input from program officials on
the implications of those changes for agency goals, and communicates the
results.

During the fiscal year, an agency may seek supplemental appropriations. If
the agency decides or is required to go forward with a request, a number of
steps need to be taken. OMB?s Circular A- 11 provides guidance on the
materials that must be submitted. The agency obtains input from program
officials about the effect of proposed budget changes on achieving agency
goals and communicates this information in its request for funding changes.
As decisions are made, the agency communicates the information to program
officials.

Related guidance: OMB Circular A- 11, Sec. 110.

Theme 2: Produces Reliable Estimates of Costs and Resources Practices
Description Agency management:

2. a. Bases its budget estimates on reasonable assumptions about factors
affecting program costs or budgetary resources.

OMB Circular A- 11 provides agencies with guidance on certain basic
assumptions about costs to be used in preparing budget requests. For
example, while agencies may consider the effects of inflation on their
costs, budget requests must stay within the budget planning guidance levels
provided by OMB. Regardless of these requirements, however, an agency?s
costs and budgetary resources change from year to year based on a variety of
factors, and agencies must grapple with the challenge of achieving
performance goals while finding funding for programs with increasing costs
or declining resources. Agencies that base their budget estimates on the
most up- to- date and appropriate assumptions will be better equipped to
make tradeoffs between covering these cost increases and other programmatic
needs. An agency should thoroughly explore the factors that are most likely
to affect program costs and budgetary resources, such as inflation,
personnel costs, and program demand. An agency that provides direct services
should be concerned about estimating the demand for that service and should
use appropriate assumptions about demographic and economic changes.

Related guidance: OMB Circular A- 11, Secs. 30, 32.

Appendix I: Results- Oriented Agency Budget Practices

Page 21 GAO- 01- 1084SP Results- Oriented Budget Practices

Practices Description Agency management:

2. b. Looks back to assess the accuracy of previous estimates and, if
necessary, makes appropriate adjustments to its estimating methods.

Agencies employ a variety of models and other estimating techniques to
forecast costs and budgetary resources for budget formulation and
implementation. Agencies should be concerned about the accuracy of these
models and techniques because inaccurate forecasts can result in higher-
thanplanned program costs or funding shortages that can affect the agency?s
ability to achieve performance goals. To improve the accuracy of its cost or
resource forecast, the agency should periodically examine its estimating
methods and, if necessary, make changes. For example, persistent variations
between planned and actual spending or budgetary resource should be
assessed.

The agency should also review information from audited financial statements
not covered in traditional budget presentations. For example, an agency
should consider factoring in the cost of addressing significant accrued
liabilities, such as the cost of accrued, unfunded annual leave for eligible
retirees.

Related guidance: OMB Circular A- 34, Sec. 30. 2. c. Considers how its
policy, program, and funding decisions may affect spending or budgetary
resources for other programs within the agency.

The agency should not view individual funding, program, or policy decisions
in isolation because they can have ramifications for estimates of the
performance, costs, or budgetary resources of other agency programs. For
example, technology investments may create savings in a variety of programs.
2. d. Considers the short- and long- term funding implications of its
program and policy decisions. When assessing the affordability and
desirability of policy and program options,

the agency should consider the long- term cost implications of these options
while determining how much funding to request in the short term. According
to OMB Circular A- 11, agency budget requests for acquisition of capital
assets must propose full funding to cover the full costs of the project or a
useful segment of the project.

Failure to provide decisionmakers with adequate information about long- term
cost implications may lead to decisions that are based upon incomplete or
misleading information, potentially increasing costs or creating
inefficiencies.

Related guidance: OMB Circular A- 11, Sec. 31.4.

Appendix I: Results- Oriented Agency Budget Practices

Page 22 GAO- 01- 1084SP Results- Oriented Budget Practices

Theme 3: Can Relate Performance, Budget, Spending, and Workforce Information
Practices Description The Agency:

3. a. Can relate its budget structure to its goals. GPRA requires an
agency?s performance plan to cover each program activity in the President?s
budget request for that agency. To meet this requirement, an agency should
have a credible method of relating obligations to goals. However, an
agency?s budget account and program activity structure do not always neatly
crosswalk to the goals in its annual performance plan. To demonstrate the
relationship between budget program activities and goals, an agency may have
to consolidate, aggregate, or disaggregate program activities. 4

There are several approaches available that provide credible methods for
relating obligations to goals. For example, an agency could define its goals
as cost objects and accumulate obligations against those cost objects
through such methods as direct time charging or other valid cost allocation
methods.

Related guidance: OMB Circular A- 11, Secs. 71, 220; OMB Circular A- 123. 3.
b. Can relate budget, workforce, accounting, and performance information.
For budget formulation and implementation, the agency can relate budget,

workforce, accounting, and performance information to support decision-
making. For example:

 Budget reports may show information on program obligations or outlays and
their associated goals or performance measures.

 Accounting information can be rolled up to support budget information. The
agency?s accounting system data on spending ties directly to actual budget
spending and can be used during budget formulation or implementation.

 Data from the agency?s standard general ledger can be crosswalked to the
agency?s SF- 133 Report on Budget Execution and Budgetary Resources and the
actual year column of the Program and Financing Schedule in the President?s
Budget.

 Financial and performance systems use uniform terminology and coding and
avoid duplicating data entry and the use of supplementary systems. The
agency?s budget information systems are linked to performance information so
that reports do not require multiple data entry and agency management can
readily view information on obligations, outlays, and budgetary resources
related to performance. For example, staffing reports link fiscal and
performance data.

Related guidance: OMB circulars A- 11, Sec. 220; A- 34, Sec. 50; and A- 127,
Sec. 7. Treasury Financial Manual Standard General Ledger Supplement.

4 For a more detailed discussion and examples see Performance Budgeting:
Initial Experiences Under the Results Act in Linking Plans With Budgets

(GAO/ AIMD/ GGD- 99- 67, April 12, 1999).

Appendix I: Results- Oriented Agency Budget Practices

Page 23 GAO- 01- 1084SP Results- Oriented Budget Practices

Practices Description The Agency:

3. c. Can account for both the direct and indirect costs of its programs and
associated goals. The agency has an information system that breaks out
spending information into

both direct (e. g., program staff, benefits, rent, contracts, or grants) and
indirect costs (e. g., overhead services such as accounting or human
resources staff or agencywide information technology systems) for the
agency?s programs and associated goals.

Related guidance: Statement of Federal Financial Accounting Standards No. 4,

?Managerial Cost Accounting Concepts and Standards for the Federal
Government,? July 31, 1995.

Theme 4: Continuously Seeks Improvement Practices Description Agency
management:

4. a. Uses information on program effectiveness, such as program
evaluations, to determine if programs are producing desired results with
resources provided and identifies alternative approaches that could
accomplish agency goals more effectively and efficiently.

GPRA calls for agencies to describe the program evaluations used to
establish or revise general goals and objectives and to provide a schedule
of future program evaluations. In addition to agency- sponsored evaluations,
external assessments by auditors, academics, industry, clients, public
interest groups, and others can provide information on the relative
effectiveness and efficiency of agency programs. Program evaluations provide
agency management an important tool for informing decisions about the
tradeoffs between new and existing programs when formulating or implementing
the agency?s budget.

Furthermore, agency management should seek to improve agency performance and
reduce costs by exploring alternative approaches to accomplishing agency
goals. To determine whether alternative approaches to the agency?s work
provide greater value, the agency could, for example: network with other
agencies or their budget offices, benchmark state- of- the- art practices in
organizations with similar missions or service delivery mechanisms, and
track reforms that could bring about efficiencies if implemented.

Related guidance: OMB Circular A- 11, Sec. 210. 4. b. Analyzes the direct,
indirect, and, if possible, unit costs of activities to identify
opportunities to improve effectiveness and efficiency.

The agency tracks the direct, indirect, and, if possible, unit costs of its
activities and uses this information to compare the cost of its activities
to appropriate benchmarks and to bring about improvements in efficiency over
time. Agency management uses this analysis to inform decision- making during
budget formulation and implementation.

Related guidance: OMB Circular A- 11, Sec. 30. 4. c. Considers the
performance and implications of alternative budgetary resources. The agency
explores alternative budgetary resources to accomplish agency

goals more effectively and efficiently. For example, agencies that provide
direct services either to segments of the public or to other agencies could
consider proposing legislation that would give them authority to charge fees
(offsetting collections) to pay for the services.

Appendix I: Results- Oriented Agency Budget Practices Appendix II:
Challenges to Implementing Results- Oriented Agency Budget Practices

Page 24 GAO- 01- 1084SP Results- Oriented Budget Practices

We asked the panel of senior agency budget officials to identify practices
that would be difficult to implement and to discuss some of the challenges
to implementation. The panelists cited general challenges to linking the
planning and budgeting processes as well as specific challenges to using
performance information in the budget process; reallocating funds to address
performance issues; relating budget, performance, and other information; and
examining and improving current operations. The following describes the
challenges discussed by the panel.

 Budgeting and planning have different time horizons: The budget process
focuses on obtaining funding for the upcoming fiscal year. In contrast,
strategic planning has a long- term horizon and establishes goals that can
take multiple years to accomplish.

 Time pressures can drive budgeting: Without top management commitment to
results, the budget process, given its tight time constraints, may proceed
on its own track and may not result in budget decisions aligned with
strategic goals.

 Budget environment is not always flexible: Agencies operate in an
environment where allocations may be restricted by amount or activity so as
to limit flexibility in shifting resources to achieve results.

 Budgets are not usually structured around goals: Performance information
does not mesh well with most agency budget and accounting structures because
budgets usually are structured around organizations, functions, or programs
instead of goals and objectives.

 Changing budget structures is costly and may inhibit tracking costs from
year to year: Adopting a budget structure that is keyed to agency goals
implies that the budget structure would need to change over time to reflect
changing goals. However, the structure of an agency?s budget needs to remain
relatively stable to track costs consistently from one year to the next and
to avoid ad hoc agency reporting or costly changes to financial systems.

 Input from program officials can be inhibited: In an agency where
management is accustomed to making decisions in a top- down manner,
decisions may not reflect input from program officials or other staff
offices and may instead reflect management priorities unrelated to program
performance goals.

 Expectation gaps may be created: Obtaining input from program managers on
their funding priorities related to performance may create Appendix II:
Challenges to Implementing

Results- Oriented Agency Budget Practices Linking Planning and Budgeting
Processes

Using Performance Information to Request and Allocate Resources

Appendix I: Results- Oriented Agency Budget Practices Appendix II:
Challenges to Implementing Results- Oriented Agency Budget Practices

Page 25 GAO- 01- 1084SP Results- Oriented Budget Practices

expectation gaps because an agency must weigh the input and make tradeoffs
that reflect agencywide, rather than program- level, priorities.

 Performance information may not be relevant to new initiatives:

Changes in top management?s priorities or agency goals can reduce the
relevance of prior performance information for budget decisions.

 Performance information may not be timely: For example, an agency
formulating its budget for fiscal year 2003 must submit its request to OMB
by September 2001. As of that date, the last full year of performance
information is fiscal year 2000- three years behind.

 Lack of outcome information: The lack of good information on the
relationship between funding and outcomes makes it difficult to assess
whether funds are allocated or reallocated effectively- in turn making it
difficult to determine whether changes in funding allocations will make a
difference in performance.

 Reprogramming restrictions: Some agencies have reprogramming restrictions
that may inhibit aligning resources to goals.

 Cultural resistance to reallocations: There may be a cultural resistance
to reallocating program funds to address performance issues elsewhere in the
agency.

 Ad hoc approaches often used: The agencies represented at the panel
generally have not chosen to integrate performance information with budget
and spending data, and when they have, they have used ad hoc approaches.

 Crosswalks of limited use: Some found that building crosswalks between
budget accounts and agency goals was of limited use to the agency and
appropriators because funding decisions were keyed to the functions or
organizations in the budget instead of agency goals.

 Planning and budget functions not integrated: Agencies that have not
integrated their planning and budget functions may have difficulty aligning
budget and planning information and providing integrated guidance to program
managers or other staff offices on performance and budgeting issues.

 Information systems not always available: For example, budget officials
are accustomed to producing timely and useful information on spending
against plans, but performance information reports are more sporadic and not
easily linked to spending information.

 Cost of information systems may be prohibitive: The expense of developing
and implementing new information systems might be Reallocating Funds to

Address Performance Issues

Relating Budget, Spending, Workforce, and Performance Information

Appendix I: Results- Oriented Agency Budget Practices Appendix II:
Challenges to Implementing Results- Oriented Agency Budget Practices

Page 26 GAO- 01- 1084SP Results- Oriented Budget Practices

prohibitive because funding for information technology initiatives is
difficult to obtain.

 Indirect costs are difficult to attribute to goals: It can be difficult to
attribute indirect costs, such as information technology or rent, to agency
goals.

 Quality of agency estimates not always basis for decision- making: It may
not be useful to try to perfect spending estimates, particularly for budget
formulation, because the department or OMB can reduce funding regardless of
the quality of the estimates.

 Agencies may lack capacity for program evaluations: Agencies may lack the
capacity and resources to perform their own program evaluations because such
evaluations can be costly and time consuming and agencies lack staff to do
them.

 Alternative revenue sources may be unavailable: The availability of
alternative revenue sources may be limited for some agencies because they
are restricted by statute from charging fees and have difficulty persuading
the Congress to adopt user fees.

 Difficult to evaluate programs implemented by third parties:

Agencies, such as regulatory agencies, that rely in part on third parties to
accomplish their goals may have more difficulty evaluating the effectiveness
of funds spent because the agency has limited control over the actions of
the third parties.

(450051)

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