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    GAO-01-627SP

    Report to the Chairman, Committee on Foreign Relations, U. S. Senate

    United States General Accounting Office

    GAO

    April 2001 FOREIGN AFFAIRS Changes to Germany's Implementation of the Hague
    Child Abduction Convention

    GAO- 01- 423

    Page i GAO- 01- 423 Parental Child Abduction Letter 1

    Appendix I Consular Assistance to Left- Behind Parents 11

    Appendix II Scope and Methodology 13

    Appendix III GAO Contact and Staff Acknowledgments 14

    Tables

    Table 1: German Initiatives to Improve Handling of Hague Convention Cases 4
    Table 2: Consular Assistance to Left- Behind Parents (FY 1999- 2000) 12
    Contents

    Page 1 GAO- 01- 423 Parental Child Abduction

    April 10, 2001 The Honorable Jesse A. Helms Chairman, Committee on Foreign
    Relations United States Senate

    Dear Mr. Chairman: Over the past several years, the United States has been
    critical of Germany's handling of international parental child abduction
    cases that have been filed by U. S. parents. 1 Both the executive and
    legislative branches of the U. S. government have criticized Germany for not
    fully and consistently following the criteria and procedures established
    under the 1980 Hague Convention on the Civil Aspects of International Child
    Abduction, 2 which governs such cases. The primary criticisms include the

    inappropriate use by German courts of certain provisions of the Hague
    Convention to justify retaining an abducted child in Germany, the length of
    time it has taken to adjudicate cases, and the failure to enforce left-
    behind parents' visitation rights. In September 2000, in response to your
    concerns about the rights of left- behind parents, we reported on the status
    and outcome of cases that U. S. parents have filed with Germany. 3 This
    second report identifies actions that Germany has taken or plans it has
    under way to reform its handling of international parental child abduction
    cases and how these actions may affect U. S. cases. We also obtained
    information about what State Department officers stationed in Germany are
    doing to assist left- behind parents. This information is contained in
    appendix I.

    To identify German actions and plans and how they may affect U. S. cases, we
    met with German government officials, judges, and lawyers in seven cities in
    Germany during November 2000. We also interviewed Department of State
    officials in headquarters and in Germany. In addition, we reviewed the
    status and outcome of the 43 U. S. cases that had been opened after German
    authorities began changing their handling of Hague Convention

    1 International parental child abduction occurs when a parent removes a
    child from the United States or retains a child outside the United States,
    with the intent to obstruct the parental rights (including visitation
    rights) of the left- behind parent. 18 U. S. C. 1204.

    2 29 ILM 1501 (1980). 3 Foreign Affairs: Status of U. S. Parental Child
    Abductions to Germany, Sweden, and Austria (GAO/ NSIAD- 00- 226BR, Sept. 8,
    2000).

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 01- 423 Parental Child Abduction

    cases in July 1999. More details about our scope and methodology can be
    found in appendix II.

    In response to U. S. and other countries' concerns, German authorities have
    pledged their commitment to take steps to improve the handling of Hague
    Convention cases, and Germany has taken actions to address two of the three
    primary criticisms. Germany has established a task force to monitor German
    reforms and active cases, initiated efforts to build expertise among judges
    deciding Hague Convention cases, and changed its processes to accelerate
    case handling. Our analysis of information obtained in Germany and case data
    in Washington, D. C., indicates that changes are under way that may
    positively affect case handling. However, because many of these reforms are
    recent, we believe it will take time for case outcomes to fully reflect
    their effect. Despite these reforms, Germany has not acted to improve
    enforcement of visitation rights granted by German courts. The German
    courts' reluctance to enforce visitation orders is hampering Germany's
    efforts to improve its handling of Hague Convention cases.

    The 1980 Hague Convention on the Civil Aspects of International Child
    Abduction governs how international parental child abduction disputes are
    adjudicated. It requires that party states identify a lead government agency
    (called a “central authority”) to serve as a central point of
    contact and to initiate or facilitate judicial or administrative
    proceedings. The State Department's Office of Children's Issues, 4 Bureau of
    Consular Affairs, is the central authority for the United States. Germany
    has identified the Federal Prosecutor General 5 as its central authority.

    The United States and other countries, especially France and the United
    Kingdom, have expressed concerns about German authorities' handling of Hague
    Convention cases. In May 1999, State reported to Congress that the German
    administrative and judicial processing of abduction cases took 18 months or
    longer, a period State considered unacceptable. 6 In October

    4 State Department's Office of Children's Issues formulates, develops, and
    coordinates policies and programs on international parental child
    abductions. 5 The German Federal Prosecutor General's office has no
    counterpart in the United States.

    6 Report on Compliance With the Hague Convention on the Civil Aspects of
    International Child Abduction (Washington, D. C.: Department of State, May
    1999). Results in Brief

    Background

    Page 3 GAO- 01- 423 Parental Child Abduction

    2000, State further reported that the systemic failure of German courts to
    enforce contempt 7 sanctions allowed abducting parents to resist enforcement
    of visitation orders indefinitely. 8 In addition, a May 2000 congressional
    resolution cited Germany, along with other countries, for not meeting their
    commitments under the Hague Convention. 9 Also, media in both the United
    States and Germany have actively reported on this issue, focusing on a
    number of high- profile, controversial cases. We reported that between
    January 1, 1995, and May 15, 2000, there were 257 cases where U. S. parents
    sought the return of, or visitation with, their children in Germany.
    According to the State Department, there were 17 cases pending German
    judicial action as of March 1, 2001.

    In June 2000, for the first time since both countries signed (and became
    states party to) the Hague Convention, discussion of specific cases was
    elevated to the presidential level. At that time, President Clinton and
    Chancellor Schroeder, the German head of Government, met in Berlin and,
    according to the State Department, discussed a number of high- profile
    abduction cases among other bilateral issues. Their meeting resulted in the
    establishment of a U. S.- German working group on international parental
    child abductions. The working group met on June 27, July 24 and 25,
    September 25 and 26, 2000, and January 8 and 9, 2001, to discuss the
    concerns of each country and to seek solutions.

    Since July 1999, Germany has taken steps designed to improve its handling of
    parental child abduction cases under the 1980 Hague Convention. The most
    significant actions are summarized in table 1. Our analysis of information
    obtained in Germany and case data in Washington, D. C., indicates that these
    changes may have a positive effect on current and future cases. Because most
    German actions are very recent, however, it will take time for case outcomes
    to fully reflect their effect. These changes may not affect cases already
    decided by German courts. Although the task force is working to find
    acceptable solutions on some closed cases, German authorities said they will
    not revisit prior court rulings. State

    7 Contempt is the failure to obey a court order issued for another party's
    benefit. 8 Report on Compliance With the Hague Convention on the Civil
    Aspects of International Child Abduction (Washington, D. C.: Department of
    State, Oct. 2000).

    9 H. Con. Res. 293. Sweden and Austria were also cited in this resolution.
    German Initiatives to

    Improve Handling of Hague Convention Cases

    Page 4 GAO- 01- 423 Parental Child Abduction

    Department officials accepted this position even though they disagreed with
    some past decisions.

    Table 1: German Initiatives to Improve Handling of Hague Convention Cases
    Goal Action Status

    Facilitate the resolution of difficult cases and monitor reforms.

    Establish 5- member task force within the Ministry of Justice.

    Created in October 2000 and funded through September 2003. Enhance expertise
    among German judges on Hague Convention provisions and cases.

    Reduce the number of courts and judges that hear Hague Convention cases.

    Implement judicial training programs sponsored by the Ministry of Justice
    nationwide.

    Effective July 1999, the number of courts authorized to hear Hague
    Convention cases was reduced from 600 to 24.

    Courts in Munich and Dusseldorf reduced to two the number of judges that
    adjudicate Hague Convention cases in November 2000.

    Training seminars conducted in January and February 2001 for 48 family court
    judges representing 22 of the 24 German family courts. Additional training
    is scheduled for late 2001.

    Accelerate case decisions. Reengineer its system for processing cases and
    scheduling hearings.

    Central Authority implemented reforms in October 2000. Source: GAO synthesis
    of information provided by German officials.

    Germany established a special task force in October 2000 to lead German
    efforts to improve its handling of Hague Convention cases. The task force
    has five members, including a family court judge, a family law specialist,
    and two senior- level Ministry of Justice officials who joined the task
    force for bilateral discussions on parental child abduction cases with the
    United States. Based on our discussions with members of the task force, they
    appear to understand Germany's obligations under the Hague Convention and
    the areas in which German reforms may be needed. The task force has been
    funded for 3 years, until September 2003. The task force director explained
    that improvements in Germany's handling of these cases should increase over
    the life of the task force and that, as a result, there should be no need to
    extend the task force beyond that time. The task force has two primary
    responsibilities: assisting in the resolution of difficult cases and
    facilitating and monitoring reforms in German institutions.

    The task force's influence over difficult cases is limited because German
    courts, which enjoy substantial independence under Germany's constitution,
    make the final decisions on abduction cases. Nevertheless, the director said
    that there were a number of actions that the task force planned to take to
    help facilitate consistent case outcomes. For example, the task force plans
    to provide information to the German youth authority Facilitating the
    Resolution

    of Difficult Cases and Monitoring Reforms

    Page 5 GAO- 01- 423 Parental Child Abduction

    on Hague Convention provisions and to left- behind parents and their lawyers
    regarding German legal processes and institutions. The task force director
    indicated that it also plans to promote out- of- court, nonjudicial
    mediation, especially for long- standing, difficult cases, including cases
    in which a court has ruled against a left- behind parent. Because the German
    task force had been active for only a few months without having concluded
    any of its initiatives, we could not determine whether it could affect the
    outcome of U. S. cases. As of March 1, 2001, the task force told us that
    they were actively involved with six high- profile cases already decided by
    German courts.

    Regarding the reform process, the task force is monitoring court proceedings
    and decisions and collecting data on observations by other governments and
    left- behind parents regarding how German authorities are handling these
    cases. Using this information, the task force will determine whether and to
    what extent it needs to get involved to facilitate the resolution of
    specific cases or encourage systemic change. The task force also serves as a
    facilitator for the German reforms discussed below.

    According to the Permanent Bureau of the Hague Secretariat, which monitors
    treaties on private international law, a well- trained and experienced
    judiciary is key to effectively implementing the Hague Convention. German
    government officials and judges told us that lack of judicial familiarity
    with the application of Hague Convention provisions has been a major problem
    affecting case decisions. German judges told us that a judge might not be
    familiar with the Hague Convention because he or she may not have previously
    presided over a Convention case.

    The Hague Convention requires that, barring extreme circumstances, children
    be returned to their country of habitual residence. Once returned, a court
    in that country will decide custody. However, German officials and lawyers
    indicated that because of limited experience with Hague Convention
    requirements, some German judges may view their role differently. In these
    cases, German judges may believe that they are expected to decide the
    child's custody, applying German family law, rather than applying Hague
    Convention provisions. This could result in a judge ruling in favor of the
    abducting parent and denying return. To enhance Hague Convention expertise,
    German authorities have limited the number of courts and judges hearing such
    cases and have begun training them on the Hague Convention provisions.
    Enhancing Hague

    Convention Expertise Among German Judges

    Page 6 GAO- 01- 423 Parental Child Abduction

    To promote judicial expertise in handling Hague Convention cases, the German
    parliament enacted legislation in July 1999, limiting the number of courts
    with jurisdiction to hear Hague Convention cases from 600 to 24. This
    resulted in a reduction in the number of judges with jurisdiction to hear
    such cases from approximately 2,000 to 200 judges. This legislative
    initiative, supported by the United States, was largely in response to
    criticism and pressure from France and the United Kingdom, two Hague
    Convention party states with long- standing concerns about German courts'
    decisions on Hague Convention cases.

    In September 2000, in addition to the nationwide reductions, the German
    State Secretary encouraged further reductions in the number of judges
    hearing Hague Convention cases. According to a judge with the task force,
    the Ministry of Justice cannot order a reduction; it can only be reached and
    made effective by the judges themselves. Family courts in Munich and
    Dusseldorf have decided to reduce the number of judges hearing such cases to
    two- a primary and secondary judge. Other family courts in Germany have
    expressed interest in following the Munich and Dusseldorf courts but have
    not yet acted.

    According to German lawyers handling Hague Convention cases, the
    concentration of Hague cases among fewer judges should improve case
    handling. For example, they said that the reduction in the number of judges
    hearing cases should result in fewer applications of the Article 13b
    exception to the Hague Convention. Under this exception, a party state can
    deny the return of a child if the return, in the court's opinion, would pose
    a grave risk to the child's mental or physical well- being. According to
    officials from the Hague Secretariat and the U. S. and German governments,
    this exception should be narrowly applied and not liberally used as a
    vehicle for denying a child's return. However, according to the State
    Department, some German judges have interpreted the exception too liberally
    and made “unconscionably broad” use of the Hague Convention
    exception in a number of cases. The German task force acknowledged that
    German judges used this exception too liberally in some past cases.

    In our September 2000 report on the status of U. S. parental child
    abductions to Germany, we reported that, for the 172 closed cases where the
    child was not returned to the United States, German courts used the Article
    13b exception 14 times (or 8 percent). Since September, German courts under
    the new 24- court system used the Article 13b exception once. That is, for
    cases handled under the new court structure, German courts used the Article
    13b exception once in 30 (3 percent) cases, compared with 14 instances in
    172 (8 percent) decided cases under the old structure. Limiting the Number
    of Courts

    and Judges That Adjudicate Hague Convention Cases

    Page 7 GAO- 01- 423 Parental Child Abduction

    To further familiarize judges with Hague Convention standards and
    procedures, the Ministry of Justice coordinated two 3- day training
    conferences in January and February 2001. 10 The training conferences were
    an effort to enhance common knowledge and expertise about the goals of the
    Hague Convention among German judges with jurisdiction over these cases.
    These conferences focused on the (1) creation and goals of the Hague
    Convention, (2) legal jurisdiction and provisions under the Convention, and
    (3) return and access rights and their enforcement under the Convention.
    Ministry of Justice officials told us that their role was limited to
    facilitating and coordinating the conferences while knowledgeable and
    experienced judges and lawyers conducted conference sessions for
    participating judges. 11

    In addition, Germany, the United States, and the Hague Secretariat have
    discussed plans to convene a conference among a number of Hague Convention
    party states in late 2001 to promote consistency in Convention
    interpretation and foster closer relationships. This conference would cover
    such topics as the intent of the Hague Convention, restricted use of
    Convention exception provisions, and enforcement of return and access
    decisions.

    According to the Permanent Bureau of the Hague Secretariat, prompt access to
    the courts is a key factor to the effective implementation of the Hague
    Convention. The longer a child remains in his environment, and bonds with
    the abducting parent, the less willing a court may be to order the child's
    return. In its May 1999 report, State cited Germany for lengthy case
    processing. We reported in September 2000 that German authorities took a
    median of 288 days to process Hague Convention abduction and access cases.
    Although Germany has not established a specific time limit for case
    adjudication, the German task force acknowledged that German courts have
    taken too long to adjudicate abduction cases in the past.

    10 The January training conference was conducted in Recklinghausen, Germany,
    for 25 family court judges, and the February conference was conducted in Bad
    Nauheim, Germany, for 23 family court judges.

    11 The U. S. embassy has proposed to support German judicial training by
    sponsoring child custody seminars for German family judges. These seminars
    would consist of three 1- day events throughout Germany and feature U. S.
    and German speakers on Hague Convention implementation issues. Through
    State's International Visitor Program, the U. S. embassy plans to sponsor
    visits in fiscal years 2001 and 2002 by German judges to the United States
    to meet with their U. S. counterparts. Implementing Judicial Training

    Programs Nationwide Accelerating Case Decisions Through Reengineered Case
    Application Filing Procedures and Court Notification

    Page 8 GAO- 01- 423 Parental Child Abduction

    Officials from the central authority in Bonn told us that they have changed
    their administrative procedures to expedite case application filing and
    court notification. In October 2000, the central authority established a
    policy to fully process and forward applications to the competent court
    within 7 days of receipt of a complete application. Before October 2000, the
    central authority took about 30 days. Only one of the cases we reviewed was
    opened after October 2000, when the new administrative procedures were put
    in place. This case was originally sent to the German central authority,
    which promptly transferred the case to French authorities upon learning from
    the U. S. left- behind parent that the abducting parent had fled to France.

    In addition to lengthy administrative procedures, German Ministry of Justice
    officials conceded that German proceedings can be too lengthy, citing some
    judges' desire to hear the child's opinion and to request lengthy
    psychological reports from German youth authorities. Obtaining a child's
    testimony and youth reports are standard practices for deciding domestic
    custody cases. Collecting and analyzing all of this evidence before making a
    decision takes considerable time. According to one Ministry official, judges
    will depend less on psychological reports, which are geared more for
    domestic child custody cases, as they become more knowledgeable of Hague
    Convention procedures and requirements, which do not require such evidence.
    According to U. S. and German central authority officials, Hague Convention
    cases in Germany are being processed more expeditiously than before. Of the
    43 U. S. cases opened since July 1999, when the number of courts and judges
    was reduced, 30 were closed by January 31, 2001. The median duration of
    cases was 147 days. For cases closed from January 1, 1995, through June 30,
    1999, the median duration case was 304 days.

    Despite international criticism, some German courts are still reluctant to
    enforce court- ordered visitation rights of left- behind parents. German
    Ministry of Justice officials conceded that enforcement remains a problem
    and acknowledged that their ministry needs to work with the courts to change
    existing practices. The State Department indicated that it is seeking
    comprehensive information about German judicial enforcement practices and
    exploring options to encourage reforms. State officials told us that failure
    to enforce court- ordered visitation undermines the Hague Convention. We
    believe that, if this problem persists, the impact of the reforms being
    implemented could be undermined. German Courts

    Reluctant to Enforce Visitation Orders

    Page 9 GAO- 01- 423 Parental Child Abduction

    In its October 6, 2000, compliance report to Congress, the State Department
    reported that German courts systematically fail to enforce court- ordered
    visitation, thus allowing abducting parents to resist enforcement of orders
    indefinitely. We identified two cases where leftbehind parents in the United
    States were seeking the enforcement of their German court- ordered
    visitation rights. In both cases, German judges failed to enforce the orders
    when the abducting parent refused to cooperate. According to German judges,
    domestic law does not permit the use of physical force 12 to enforce
    visitation orders. In addition, they told us that they are reluctant to
    employ existing sanctions because they fear that such actions would have a
    detrimental affect on the child. For example, incarcerating an abducting
    parent, which is one of the enforcement tools available to German judges,
    will separate the child from the parent. According to German judges, this
    could impact the child psychologically.

    State officials are seeking detailed information about Germany's judicial
    enforcement mechanisms and exploring ways to encourage German courts to
    change existing practices. They indicated that they have raised this issue
    at each of the working group meetings since June 2000. Although enforcement
    of visitation orders was not on the agenda for Secretary of State Colin
    Powell's February 20, 2001, meeting in the United States with Germany's
    Foreign Minister Joschka Fischer, the topic was discussed during a U. S.-
    German bilateral meeting in the Netherlands on March 29, 2001. State
    indicated that it plans to continue raising the issue at all future meetings
    with German officials on the task force and at the central authority. State
    also plans to reserve positions in the International Visitor Program for
    German judges to discuss enforcement of visitation orders, among other
    issues. According to State, although the United States can attempt to
    influence German actions, only German authorities can make the decision to
    act.

    Germany's initiatives to enhance judicial expertise and accelerate case
    processing are steps that have potential to (1) positively affect German
    application of the provisions of the Hague Convention and (2) reduce the
    time taken to adjudicate cases. Because the reforms are recent, there are
    only a limited number of cases to demonstrate the actual effect of the
    initiatives. Germany has not acted, however, to improve its enforcement of
    visitation orders. This is a key concern of the State Department. Moreover,

    12 Such force would include physically separating a child from the abducting
    parent. Conclusions

    Page 10 GAO- 01- 423 Parental Child Abduction

    we believe that the failure to address the German courts' reluctance to
    enforce visitation orders could undermine Germany's efforts to improve its
    handling of Hague Convention cases.

    We obtained oral comments on a draft of this report from the Department of
    State's Office of Children's Issues, Bureau of Consular Affairs, which
    agreed with the report's conclusion and provided us with technical comments
    that we incorporated as appropriate.

    We are sending copies of this report to the Honorable Colin L. Powell, the
    Secretary of State, and interested congressional committees. We will make
    copies available to others upon request.

    Please contact me on (202) 512- 4128 if you or your staff have any questions
    about this report. Another GAO contact and staff acknowledgments are listed
    in appendix III.

    Sincerely yours, Jess T. Ford, Director International Affairs and Trade
    Agency Comments

    and Our Response

    Appendix I: Consular Assistance to LeftBehind Parents

    Page 11 GAO- 01- 423 Parental Child Abduction

    The State Department's consulate offices can provide a variety of incountry
    assistance to left- behind parents involved in child custody conflicts. The
    State Department's Office of Children's Issues 1 in Washington, D. C., can
    request consular officers to locate and report on the child's welfare,
    conduct home visits, and assist in obtaining case status information. In
    addition, the U. S. embassy and consulate offices can provide left- behind
    parents with information on attorneys who handle Hague Convention cases and
    can contact or refer a left- behind parent to German agencies that can
    provide assistance.

    According to U. S. consular officials in Germany, a common request from
    left- behind parents is to obtain the telephone number where the child can
    be reached. In more complicated cases where a left- behind parent has had no
    contact with the child, consular officials may be asked to write letters to
    various registration offices in Germany to locate the child's relatives.
    Consular officials can also perform home visits with the child when
    requested by a left- behind parent and consented to by the foreign parent.
    According to State, consular officers conduct most home visits unless (1)
    the foreign parent refuses a visit, (2) a child lives a great distance from
    the consular office, or (3) the workload of the consular official prohibits
    a personal visit. In addition, U. S. consular officials can obtain from
    German authorities information about the status of cases and report this
    information to both parents. They can also seek clarification as to how a
    particular aspect of a case is proceeding.

    According to U. S. consular officials in Germany, 97 inquiries about child
    welfare and location and 23 home visits were conducted in fiscal years 1999
    and 2000 (see table 2).

    1 State Department's Office of Children's Issues provides direction to
    foreign service posts on assistance to left- behind parents. Appendix I:
    Consular Assistance to LeftBehind

    Parents

    Appendix I: Consular Assistance to LeftBehind Parents

    Page 12 GAO- 01- 423 Parental Child Abduction

    Table 2: Consular Assistance to Left- Behind Parents (FY 1999- 2000)
    Instances Assistance FY 1999 FY

    2000

    Inquiries conducted about abducted child's welfare and location 42 55 Visits
    requested by Office of Children's Issues on behalf of leftbehind parent 18
    28

    Residential welfare visits of abducted child conducted 9 14 Visits attempted
    but denied by abducting parent a 3 7 Visits not attempted b 6 7 Inquiries
    made into case status c 13 17 a German Youth Authority officials may visit
    abducted U. S. children when the abducting parent does not permit visits by
    consular officials. Also, if an abducting parent denies a consular visit,
    then German courts can intervene. However, as explained earlier in this
    report, German courts may not intervene; they have been reluctant to enforce
    visitation orders for left- behind parents in U. S. cases. b U. S. consular
    officers explained that they could not perform requested visits where the
    child lived a

    great distance from the consular office or when the workload of the consular
    official prohibited a personal visit. c U. S. consular officers made
    specific inquiries for left- behind parents into the status of their cases.

    Source: Information reported by the U. S. consulates in Berlin, Dusseldorf,
    Frankfurt, Hamburg, and Munich, Germany.

    In addition to citing specific services they provide to left- behind
    parents, U. S. consular officials told us that they have been more closely
    involved in helping the Office of Children's Issues to monitor the
    resolution of U. S. Hague Convention cases since U. S. government attention
    on U. S. children abducted to Germany heightened in 2000. During our
    fieldwork in November 2000, we found that these officials were involved in
    organizing meetings and maintaining communication with the German central
    authority and Ministry of Justice on the status of U. S. cases. For example,
    consular officials in Berlin provided logistical support for U. S.- German
    working group meetings held in July and September 2000.

    Appendix II: Scope and Methodology Page 13 GAO- 01- 423 Parental Child
    Abduction

    Our review focused on congressional concerns about Germany's handling of U.
    S. parental child abduction cases under the Hague Convention. To gather
    information for our analysis, we interviewed more than 40 key officials and
    representatives from the State Department, the German government, the Hague
    Secretariat in the Netherlands, and organizations dedicated to researching
    and understanding issues associated with international parental child
    abduction.

    To identify what actions Germany has taken or plans it has under way to
    address U. S. concerns about Germany's handling of parental child abduction
    cases, we reviewed State Department reports from May 1999 to January 2001
    that documented systemic problems with Germany's implementation of the Hague
    Convention and identified German actions taken or planned. These reports
    also identified State's goals and timetables for Germany to take remedial
    measures. To confirm and expand our understanding of information in these
    reports, we conducted fieldwork in Berlin, Bonn, Cologne, Dusseldorf,
    Frankfurt, Munich, and Potsdam, Germany. We interviewed senior German
    justice ministry officials, local family court judges, social workers, and
    private attorneys in those cities. We also interviewed officials from the
    German central authority, U. S. officials in Germany supporting State
    Department efforts to resolve abduction cases, and a French judge, seconded
    to the German Ministry of Justice to work on difficult German- French Hague
    Convention cases.

    To determine how Germany's actions have affected the handling and outcome of
    U. S. cases, we reviewed the status, outcome, and other characteristics of
    cases adjudicated after German authorities began taking actions. We reviewed
    files that State's Office of Children's Issues maintains on cases initiated
    by left- behind parents from July 1999, when Germany began to concentrate
    the number of family courts hearing international abduction cases under the
    Hague Convention, through January 2001. These files included administrative,
    judicial, and communicative information related to each case.

    We recorded the results of our analysis of State's files in a database and
    subsequently performed independent checks to ensure that data for each case
    were accurate. We compared the outcomes of cases opened and closed from July
    1999 through January 2001 with those outcomes from cases opened and closed
    from January 1995 through June 1999.

    We performed our work from October 2000 through March 2001 in accordance
    with generally accepted government auditing standards. Appendix II: Scope
    and Methodology

    Appendix III: GAO Contact and Staff Acknowledgments

    Page 14 GAO- 01- 423 Parental Child Abduction

    John Brummet, (202) 512- 5260 In addition to the contact named above,
    Michael Zola, Janice Villar Morrison, and Mark Dowling made key
    contributions to this report. Appendix III: GAO Contact and Staff

    Acknowledgments GAO Contact Acknowledgments

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    Report to the Chairman, Committee on Health, Education, Labor, and Pensions,
    U. S. Senate

    April 2001 MEDICAL PRIVACY REGULATION

    Questions Remain About Implementing the New Consent Requirement

    GAO- 01- 584

    Page i GAO- 01- 584 Patient Consent Letter 1

    Appendix I Selected State Statutes on Consent 10

    Appendix II Organizations Interviewed 12 Abbreviations AHA American Hospital
    Association AMA American Medical Association HHS Department of Health and
    Human Services HPP Health Privacy Project MGMA Medical Group Management
    Association Contents

    Page 1 GAO- 01- 584 Patient Consent

    April 6, 2001 The Honorable James M. Jeffords Chairman, Committee on Health,
    Education,

    Labor, and Pensions United States Senate

    Dear Mr. Chairman: Although there is a strong consensus supporting the
    protection of patient confidentiality, views differ as to the best ways in
    practice to achieve that goal. Pressures are increasing from insurers,
    providers, and researchers to draw on medical records to study treatment
    outcomes and monitor expenditures, activities that are becoming increasingly
    common as medical records are computerized and large databases compiled. In
    recognition of these trends, the Health Insurance Portability and
    Accountability Act of 1996 called for the development of comprehensive
    privacy standards that would establish rights for patients with respect to
    their medical records and define the conditions for using and disclosing
    personally identifiable health information. 1 On December 28, 2000, the
    Department of Health and Human Services (HHS) issued the final regulation on
    privacy, and it is now under review by the Congress and the new Secretary of
    HHS. 2

    One prominent point of disagreement is whether the federal government should
    require health providers to obtain patient consent prior to their use or
    disclosure of personal medical information for purposes of treatment,
    payment, and routine health care management activities. You asked us to
    examine the consent requirement in the federal privacy regulation and assess
    (1) how it differs from the types of consent providers currently obtain from
    patients and (2) its potential consequences for patients and providers. You
    also asked us to review how states that have passed health privacy laws
    addressed the patient consent issue, and we have included

    1 P. L. 104- 191, sec. 264, 110 Stat. 1936, 2033. 2 65 Fed. Reg. 82,462
    (2000). The final regulation was originally set to become effective February
    26, 2001, with most entities required to comply no later than February 26,
    2003. To comply with the requirements of the Congressional Review Act,
    however, HHS changed the effective date to April 14, 2001, with most
    entities required to comply no later than April 14, 2003. 66 Fed. Reg.
    12,434 (2001). Subsequently, HHS published notice that it would accept
    comments on the regulation through March 30, 2001. 66 Fed. Reg. 12, 738
    (2001).

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 01- 584 Patient Consent

    this information in appendix I. To meet your request, we contacted 18
    organizations, including groups representing patients, providers, and health
    plans as well as a group practice, an integrated health care system, a large
    chain pharmacy, and a regional health plan. (See app. II.) In addition, we
    reviewed the regulation and spoke with HHS representatives responsible for
    its development. We performed our work in March 2001 in accordance with
    generally accepted government auditing standards.

    The privacy regulation's consent requirement will be more of a departure
    from current practice for some providers than for others. Most health care
    providers, with the exception of pharmacists, obtain consent from patients
    to release information to insurers for payment purposes. The new requirement
    adds pharmacists to those providers obligated to obtain written consent
    before they can use or disclose patient information for routine health care
    purposes. These purposes now include treatment and a range of health care
    management activities as well as payment. Supporters of the requirement
    believe that the process of signing a consent form provides an opportunity
    to inform and focus patients on their privacy rights. Others, however, are
    skeptical and assert that most patients will simply sign the form with
    little thought. In addition, provider and other organizations interviewed
    are concerned that the new consent requirement poses implementation
    difficulties. They contend that it could cause delays in filling
    prescriptions for patients who do not have written consents on file with
    their pharmacies, impede the ability of hospitals to obtain patient
    information prior to admission, hamper efforts to assess health care quality
    by precluding the use of patient records from years past, and increase
    administrative burdens on providers.

    The final medical privacy regulation requires that most providers obtain
    patient consent to use or disclose health information before engaging in
    treatment, payment, or health care operations. 3 As defined in the
    regulation, health care operations include a variety of activities such as
    undertaking quality assessments and improvement initiatives, training future
    health care professionals, conducting medical reviews, and case

    3 The regulation uses the term “consent” when referring to
    written permission sought prior to use or disclosure of personal health
    information for these purposes. It uses the term “authorization”
    when referring to written permission required for nonroutine uses and
    disclosures of information, such as releases to a patient's attorney or to
    an employer for personnel decisions. Results in Brief

    Background

    Page 3 GAO- 01- 584 Patient Consent

    management and care coordination programs. The consent form must alert
    patients to the provider's notice of privacy practices (described in a
    separate document) and notify them of their right to request restrictions on
    the use and disclosure of their information for routine health care
    purposes. Providers are not required to treat patients who refuse to sign a
    consent form, nor are they required to agree to requested restrictions. The
    consent provision applies to all covered providers that have a direct
    treatment relationship with patients. 4 The regulation also specifies
    several circumstances where such prior patient consent is not required. 5
    The privacy regulation does not require health plans to obtain written
    patient consent. 6

    This approach to patient consent for information disclosures differs from
    that in HHS' proposed privacy regulation, issued for public comment November
    3, 1999. The proposed regulation would have permitted providers to use and
    disclose information for treatment, payment, and health care operations
    without written consent. At the time, HHS stated that the existing consent
    process had not adequately informed patients of how their medical records
    could be used. Comments HHS received on this provision were mixed. Some
    groups approved of this approach, saying it would ensure that covered
    entities could share information to provide effective clinical care and
    operate efficiently, while not creating administrative requirements that
    would add little to individual privacy. However, others wrote that
    individuals should be able to control to whom, and under what circumstances,
    their individually identifiable health

    4 For example, primary care physicians and surgeons have a direct treatment
    relationship with patients. In addition, outpatient pharmacists are
    generally considered to have such a relationship. They fill prescriptions
    written by other providers, but they furnish the prescription and advice
    about the prescription directly to the patient, not through another treating
    provider. On the other hand, radiologists and pathologists generally have
    indirect treatment relationships with patients because they deliver
    diagnostic services based on the orders of other providers and the results
    of those services are furnished to the patient through the direct treating
    provider. Consequently, for these providers, medical records could be used
    for management reviews of their performance without patient consent.

    5 These include (1) in emergency treatment situations, if the provider
    attempts to obtain such consent as soon as reasonably practicable after the
    delivery of treatment, (2) if the provider is required by law to treat the
    individual, and attempts to obtain consent but is unable to do so, and (3)
    if a provider attempts to obtain consent from the individual but is unable
    to do so because of communication barriers, and he or she determines that
    the individual's consent to receive treatment is clearly implied from the
    circumstances.

    6 Industry representatives told us that health plans often obtain patient
    consent. Plans may ask new enrollees to sign a form that allows access to
    their medical records for payment and, sometimes, health care operations.

    Page 4 GAO- 01- 584 Patient Consent

    information would be disclosed, even for routine treatment, payment, or
    health care operations.

    The extent to which the privacy regulation's consent requirement will be a
    departure from business as usual varies by type of provider. Under current
    practices, physicians and hospitals generally obtain consent to use patient
    data for processing insurance claims, but they obtain consent substantially
    less often for treatment or health care operations. 7 Pharmacists, however,
    typically do not have consent procedures in place for any of the routine
    purposes included in the regulation. Specifically:

    ? Most, but not all, physicians get signed written consent to use patient
    data for health insurance payment. Exceptions to this practice include
    emergency situations and patients who choose to pay for their treatment

    “out of pocket” to avoid sharing sensitive information with an
    insurer. However, physicians do not typically seek approval to use patient
    data to carry out treatment or health care operations.

    ? Nearly all hospitals routinely obtain written consent at the time of
    admission, at least for release of information to insurance companies for
    payment purposes. 8 A 1998 study of large hospitals found that 97 percent of
    patient consent forms sought release of information for payment, 50 percent
    addressed disclosure of records to other providers, and 45 percent requested
    consent for utilization review, peer review, quality assurance, or
    prospective review- the types of health care management activities
    considered health care operations in the federal privacy regulation. 9

    ? Pharmacies do not routinely obtain patient consent related to treatment
    (i. e., before filling a prescription), payment, or health care operations.
    However, industry representatives told us that pharmacies conducting disease
    management programs (specialized efforts to ensure appropriate
    pharmaceutical use by patients with certain chronic conditions) typically

    7 It is also common for patients to sign consent forms before undergoing an
    invasive procedure. However, these consents have to do with informing the
    patient about possible risks and benefits of the treatment, not disclosure
    and use of the data.

    8 Similar to physician practices, hospital exceptions include patients who
    choose to “selfpay”

    for treatment, and emergency situations, such as when a patient arrives
    unconscious at the emergency room with no one to act on his or her behalf.

    9 J. F. Merz, P. Sankar, S. S. Yoo, “Hospital Consent for Disclosure
    of Medical Records,” Journal of Law, Medicine and Ethics (Fall 1998),
    p. 241. Most Providers

    Obtain Consent to Disclose Patient Data for Insurance Payment

    Page 5 GAO- 01- 584 Patient Consent

    seek consent to share information with physicians about the patients'
    condition, medical regimen, and progress.

    The new consent requirement makes several important changes to current
    practices that have implications for patients and providers. For patients,
    they will be made aware that their personal health information may be used
    or disclosed for a broad range of purposes including health care operations.
    Other provisions of the privacy regulation grant patients additional
    protections, including the right to access their records, to request that
    their records be amended, to obtain a history of disclosures, and to request
    restrictions on how their information is used. For providers directly
    treating patients, they will have a legal obligation to obtain prior written
    consent and to use a form that meets specific content requirements.

    Supporters of the consent requirement argue that the provision gives
    patients an opportunity to be actively involved in decisions about the use
    of their data. Yet, many groups recognize that signing a provider's consent
    form does not, per se, better inform patients of how their information will
    be used or disclosed. In addition, most provider organizations we
    interviewed told us that the privacy regulation's consent requirement will
    be a challenge to implement and may impede some health care operations.

    The American Medical Association (AMA), the Bazelon Center for Mental Health
    Law, and the Health Privacy Project (HPP) indicated that the consent process
    offers important benefits to patients. These groups view the process of
    signing a consent form as a critical tool in focusing patient attention on
    how personal health information is being used. They assert that only
    providing patients with a notice of privacy practices is not sufficient
    because most patients are not likely to understand its importance, much less
    read it. The patient advocacy groups told us that the act of signing the
    consent can help make patients aware of their ability to affect how their
    information is used. This heightened awareness, in turn, may make patients
    more likely to read the notice of privacy practices or to discuss privacy
    issues with their health care provider. HPP cited the process of signing
    consent as offering an “initial moment” in which patients have
    an opportunity to raise questions about privacy concerns and learn more
    about the options available to them. This opportunity may be especially
    valuable to patients seeking mental health and other sensitive health care
    services. Perceived Benefits for

    Patients and Implementation Concerns Among Industry Groups

    Consent Requirement Intended to Raise Privacy Awareness

    Page 6 GAO- 01- 584 Patient Consent

    In contrast, many groups we interviewed question the value of the consent
    form for patients. For example, the Medical Group Management Association
    (MGMA) and the American Hospital Association (AHA) assert that the process
    of signing a consent form may be perfunctory, at best, and confusing, at
    worst. To some extent, patient advocacy groups we spoke with agree. They say
    that patients will be under pressure to sign the form without reading the
    notice, as providers can condition treatment upon obtaining consent. They
    contend that many patients may not find the consent process meaningful. They
    maintain that nevertheless it should be required for the benefit it offers
    patients who may be particularly interested in having a say about how their
    health information will be used.

    Health plan and provider organizations we interviewed told us that the
    consent requirement poses implementation difficulties for patients and
    providers both during the regulation's initial implementation and beyond.
    The extent of these challenges and their potential implications vary by type
    of provider. In general, these organizations do not favor written consents
    for routine uses of patient information, although they support the
    regulation's requirement to provide patients with privacy notices.

    The consent requirement would require pharmacists to change their current
    practices. Under the regulation, a patient must sign a consent form before a
    pharmacist can begin filling the prescription. According to the American
    Pharmaceutical Association and the National Association of Chain Drug
    Stores, this requirement would result in delays and inconvenience for
    patients when they use a pharmacy for the first time. 10 Also, pharmacies
    would not be able to use patient information currently in their systems to
    refill prescriptions or send out refill reminders before receiving patient
    consent to do so. In addition, patients who spent time in different parts of
    the country and were accustomed to transferring their prescriptions to out-
    of- state pharmacies would have to provide consent to one or more pharmacies
    before their prescriptions could be filled. Pharmacy and other organizations
    have suggested that the privacy regulation should recognize a physician-
    signed prescription as indicative of patient consent or that pharmacies
    could be considered indirect providers and thus not subject to the consent
    requirement.

    10 These organizations believe that a consent form obtained by one retailer
    could serve for others in a chain within the same state. Industry
    Representatives

    Anticipate Difficulties in Implementing the Consent Requirement

    Page 7 GAO- 01- 584 Patient Consent

    Hospital organizations also raised concern about disruption of current
    practice and some loss of efficiency. AHA and Allina Health System
    representatives stated that the consent requirement could impede the ability
    of hospitals to collect patient information prior to admission, thus
    creating administrative delays for hospitals and inconvenience for some
    patients. In advance of nonemergency admissions, hospitals often gather
    personal data needed for scheduling patient time in operating rooms,
    surgical staff assignments, and other hospital resources. If the regulation
    is interpreted to include such activities as part of treatment or health
    care operations, hospitals would be required to get the patient's signed
    consent before setting the preadmissions process in motion. Either a form
    would have to be mailed or faxed to the patient and sent back, or the
    patient would have to travel to the hospital to sign it.

    Physician and hospital groups expressed concern that the requirement would
    hinder their ability to conduct health care management reviews using
    archived records. For example, AMA and AHA told us that the regulation will
    not permit them to use much of the patient data gathered under previous
    consent forms. While the regulation has a transition provision that allows
    providers to rely on consents acquired before the regulation takes effect,
    the continuing validity of those preexisting consents would be limited to
    the purposes specified on the consent form. In most cases, the purposes
    specified were either treatment or billing. This means that providers would
    not be able to draw on those data for other purposes, including common
    health care management functions, such as provider performance evaluations,
    outcome analyses, and other types of quality assessments. 11 Moreover, they
    said that in many cases it might not be feasible to retroactively obtain
    consent from former patients. Some have suggested revising the regulation to
    allow providers to use, without consent, all health information created
    prior to the regulation's effective date.

    All of the organizations representing providers and health plans anticipate
    an additional administrative burden associated with implementing the new
    consent procedures, but the magnitude of the potential burden is uncertain.
    For example, if the use of new forms elicits more questions from patients
    about medical records privacy, as the provision's supporters expect will
    happen, providers will have to devote more staff time to

    11 In commenting on a draft of this report, HHS took issue with this
    interpretation of the transition provision. See Agency Comments.

    Page 8 GAO- 01- 584 Patient Consent

    explaining consent and discussing their information policies. Similarly,
    health plan and provider advocates contend that focusing patients' attention
    on their right to request restrictions on how their information is used
    could result in many more patients seeking to exercise that right. This,
    some believe, would require increased staff time for considering,
    documenting, and tracking restrictions.

    The privacy regulation expands the scope of the consent process to include
    the use and disclosure of personal health information for a wide range of
    purposes. This may help some patients become aware of how their medical
    information may be used. However, in general, provider and health plan
    representatives believe that the consent requirement's benefits are
    outweighed by its shortcomings, including delays in filling prescriptions,
    impediments to hospital preadmission procedures, and difficulty in using
    archived patient information. Regardless of the presence of the consent
    requirement, providers are obligated under the regulation to protect the
    confidentiality of patient information. Moreover, with or without the
    consent requirement, patients' rights established by the privacy regulation-
    to see and amend their records, to learn of all authorized uses of their
    information, and to request restrictions on disclosures- remain unchanged.

    HHS provided written technical comments on a draft of this report. In them,
    HHS remarked on the consent requirement's applicability to archived patient
    medical records. Agency officials explained that a consent for either
    treatment, payment, or health care operations acquired before the
    regulation's compliance date would be valid for continued use or disclosure
    of those data for all three of these purposes after that date. Under this
    interpretation, for example, prior consents to disclose patient information
    for insurance claims would permit uses for the full range of health care
    operations as well, unless specifically excluded in the consent that the
    patient signed. In our view, a better understanding of the implications of
    this provision may emerge from any revisions to the final regulation.

    Referring to material in appendix I, the agency expressed concern that we
    overgeneralized current state consent laws, which have complex requirements
    and vary significantly from one to another. HHS pointed out that some state
    laws require written consent in some circumstances that would be considered
    treatment, payment, or health care operations. We recognize that state laws
    are complex and vary widely in the type of health Concluding

    Observations Agency Comments

    Page 9 GAO- 01- 584 Patient Consent

    care information that is protected and the stringency of those protections.
    While it is difficult to generalize about state laws, we found that the
    statutes in the 10 states we examined were fairly consistent in not
    requiring written consent for the full range of uses and disclosures of
    patient information for treatment, payment, and health care operations.

    The agency provided other technical comments that we incorporated where
    appropriate.

    We are sending copies of this report to the Honorable Tommy G. Thompson,
    Secretary of HHS, and others who are interested. We will also make copies
    available to others on request.

    If your or your staff have any questions, please call me at (312) 220- 7600
    or Rosamond Katz, Assistant Director, at (202) 512- 7148. Other key
    contributors to this report were Jennifer Grover, Joel Hamilton, Eric
    Peterson, and Craig Winslow.

    Sincerely yours, Leslie G. Aronovitz, Director Health Care- Program
    Administration

    and Integrity Issues

    Appendix I: Selected State Statutes on Consent

    Page 10 GAO- 01- 584 Patient Consent

    To examine how state privacy laws address the issue of patient consent to
    use health information, we reviewed certain laws in 10 states (Hawaii,
    Maine, Maryland, Minnesota, Montana, Rhode Island, Texas, Virginia,
    Washington, and Wyoming). 1 We found that none of these state privacy
    statutes include a consent requirement as broad as that found in the privacy
    regulation. 2 Although they generally prohibit using or disclosing protected
    health information without the patient's permission, they include
    significant exceptions not present in the federal regulation. Essentially,
    none of the state statutes we reviewed requires consent for the full range
    of uses and disclosures of patient information for treatment and health care
    operations. The Minnesota and Wyoming statutes require consent to use
    patient health information for payment purposes. 3

    Two states recently attempted to enhance patient control over their personal
    health information. In 1996, Minnesota enacted a law that placed stringent
    consent requirements on the use of patient data for research. It stipulated
    that patient records created since January 1, 1997, not be used for research
    without the patient's written authorization. Because such authorization was
    not obtained at the start of treatment, researchers had to retroactively
    seek permission. They soon found that many patients did not respond to
    requests for such authorization, either to approve or to reject the use of
    their data. The law was amended to permit the use of records in cases where
    the patient had not responded to two requests for

    1 These states were suggested to us by privacy law experts. The state laws
    reviewed were: Haw. Rev. Stat. sect.sect. 323C- 1 – 323C- 55 (2000); Me. Rev.
    Stat. Ann. tit. 22, sect. 1711- C (West 2000); Md. Code Ann., Health- General sect.sect.
    4- 301 – 4- 307 (2000); Minn. Stat. sect. 144.335 (2000); Mont. Code Ann.
    sect.sect. 50- 16- 501 – 50- 16- 553 (2000); R. I. Code R. sect. 5- 37. 3- 1
    – 5- 37. 3- 11; Tex. Health & Safety Code Ann. sect.sect. 241.151 – 241-
    156 (West 2000); Va. Code Ann. sect. 32. 1- 127.1: 03 (Michie 2000); Wash. Rev.
    Code sect.sect. 70. 02.005 – 70. 02.904 (2000); Wyo. Stat. sect.sect. 35- 2- 605
    – 35- 2- 617 (Michie 2000).

    2 Some state laws require additional safeguards related to the use or
    disclosure of certain types of health care information, such as HIV status
    or mental health records. However, none of the laws we examined established
    the type of two- tiered system of written permission involving both consent
    for treatment, payment, and health care operations and authorization for
    most other uses and disclosures. Two recent comprehensive surveys of state
    laws related to the protection of health care information are Lisa L. Dahm,
    50- State Survey on Patient Health Care Record Confidentiality, Health
    Lawyers: Expert Series

    (Washington, D. C.: American Health Lawyers Association, June 1999) and Joy
    Pritts and others, The State of Health Privacy: An Uneven Terrain
    (Washington, D. C.: Health Privacy Project, Institute for Health Care
    Research and Policy, Georgetown University, Aug. 1999).

    3 The relevant language in the Washington statute is nearly identical to
    that in the Wyoming law. According to an official in the Washington attorney
    general's office, however, consent is not required to use or disclose health
    information for payment purposes in Washington. Appendix I: Selected State
    Statutes on

    Consent

    Appendix I: Selected State Statutes on Consent

    Page 11 GAO- 01- 584 Patient Consent

    authorization mailed to the patient's last known address. At one major
    research institution in Minnesota, the Mayo Clinic, that change decreased
    the percentage of patient records that the patient consent requirement made
    unavailable for studies from 20.7 percent to 3.2 percent. 4

    In late 1998, Maine enacted a comprehensive law requiring specific patient
    authorization for many types of disclosures and uses of health information.
    The law took effect January 1, 1999, but was soon suspended by the state
    legislature in response to numerous complaints from the public. Particularly
    problematic was that “hospital directory” information could not
    be released without the patient's specific written authorization. Therefore,
    until routine paperwork was completed, hospitals could not disclose
    patients' room or telephone numbers when friends, family, or clergy tried to
    contact or visit them. Based on this experience, the Maine legislature
    substantially modified the law, which became effective on February 1, 2000.
    Among other changes, the revised law allows a hospital to list current
    patients in a publicly available directory unless a patient specifically
    requests to be excluded. 5

    4 See S. J. Jacobsen and others, “Potential Effect of Authorization
    Bias on Medical Record Research,” Mayo Clinic Proceedings, Vol. 74,
    No. 3 (April 1999), p. 333. Mayo Clinic researchers remain concerned that
    variations in the rate of refusal among different patient groups, for
    example, young versus old, may tend to skew the results obtained from these
    data.

    5 The federal privacy regulation permits hospital directory information to
    be disclosed as long as the patient has been given an opportunity to object
    to its disclosure and has not done so.

    Appendix I: Selected State Statutes on Consent

    Page 12 GAO- 01- 584 Patient Consent

    Appendix II: Organizations Interviewed Page 12 GAO- 01- 584 Patient Consent

    We included the following organizations in our review: Allina Health System
    American Association of Health Plans American Cancer Society American
    Hospital Association American Medical Association American Pharmaceutical
    Association AvMed Health Plan Bazelon Center for Mental Health Law Beaver
    Medical Group Blue Cross and Blue Shield Association CVS Pharmacy, Inc.
    Health Care Compliance Association Healthcare Leadership Council Health
    Privacy Project Margret\ A Consulting, LLC Medical Group Management
    Association National Association of Chain Drug Stores National Association
    of Public Hospitals and Health Systems Appendix II: Organizations
    Interviewed

    (290022)

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    government improved public health and safety, strengthened national
    security, better protected consumers, and improved its financial management
    and information systems. We also contributed critical information to public
    debates on Social Security and Medicare reform and called attention to
    looming problems such as the security of government computer systems and the
    knowledge and skills needed in the federal workforce in coming years.
    Taxpayers benefited from the near- record $23 billion in savings identified
    through our work- a $61 return on every dollar invested in GAO.

    I am particularly pleased that we were able to achieve these results in the
    midst of significant change within GAO. After completing our first strategic
    plan last year, we realigned our organization to better meet our goals and
    objectives, and we

    began to institute new ways of doing business. We also gained new
    legislative authorities to help us address our human capital requirements
    and help ensure that GAO remains prepared to meet the Congress's needs in
    the future.

    These needs are formidable. The nation's leaders are faced with complex,
    controversial, and multidimensional issues that require a more strategic,
    long- range, and integrated perspective than in the past. While record
    budget surpluses are projected for the next 10 years, the longterm
    obligations associated with our aging population will result in serious and
    increasing pressure on future federal budgets. Moreover, changes in
    technology, in the nature of threats to national security, and in the
    interrelationships of national economies, among other developments, suggest
    the need to reassess what government does and how it does it in the 21st
    century.

    Looking toward fiscal year 2002, we believe the work we plan to undertake
    and our efforts to become a model agency will help the Congress address
    these challenges. As we move ahead, we look forward to the continued support
    of the Congress and to working even more closely with Members and their
    staffs. Their support- and the dedication and commitment of our GAO team-
    are the driving forces behind our continued success in serving the Congress
    and the American people.

    DAVID M. WALKER

    COMPTROLLER GENERAL OF THE UNITED S TATES

    FRO M T H E C O M P T RO L L E R G E N E R A L 2

    MANAGEMENT DISCUSSION AND ANALYSIS 5

    Agencywide Performance and Plans 7 Fiscal Year 2000 9 Fiscal Year 2001 20
    Fiscal Year 2002 22

    Strategic Goal 1: Performance and Plans 23

    Well- Being and Financial Security of the American People

    Fiscal Year 2000 25 Fiscal Years 2001 and 2002 27

    Strategic Goal 2: Performance and Plans 28

    Changing Security Threats and Challenges of Global Interdependence

    Fiscal Year 2000 30 Fiscal Years 2001 and 2002 32

    Strategic Goal 3: Performance and Plans 33

    Results- Oriented and Accountable Federal Government

    Fiscal Year 2000 35 Fiscal Years 2001 and 2002 37

    Strategic Goal 4: Performance and Plans 38

    GAO as a Model Organization for the Federal Government

    Fiscal Year 2000 38 Fiscal Years 2001 and 2002 41

    Strategies and Challenges- Achieving Our Goals 42 Coordination to Address
    Crosscutting Issues 44 Major Management Challenges- Internal Factors That
    Could Affect

    Our Performance in Fiscal Year 2002 External Factors That Could Affect
    Performance 55 Procedures to Verify and Validate GAO's Performance Data 57
    Program Evaluation 67 TABLE OF CONTENTS

    3

    Highlights of Resources Needed to Achieve Our Fiscal Year 2002 Performance
    Goals 69

    Organization and Structure 71

    Overview of Financial Statements 73

    Financial Systems and Internal Controls 74 FINANCIAL STATEMENTS AND NOTES 77
    REPORT OF THE AUDIT ADVISORY COMMITTEE 95 INDEPENDENT AUDITOR'S REPORT 96
    APPENDIXES

    Appendix I: Goal 1 Accomplishments and Performance Goals 100

    Appendix II: Goal 2 Accomplishments and Performance Goals 124

    Appendix III: Goal 3 Accomplishments and Performance Goals 139

    Appendix IV: Goal 4 Accomplishments and Performance Goals 150

    TA B L E O F C O N T E N T S 4

    MANAGEMENT DISCUSSION AND ANALYSIS

    As the investigative arm of the Congress, GAO evaluates the economy,
    efficiency, and effectiveness of a wide range of federal policies and
    programs. Primarily in response to congressional requests and mandates- but
    also through our own targeted research and development efforts- we publish
    thousands of reports and other documents each year and provide a number of
    related services to support legislative oversight and improve government
    operations. By making recommendations to improve the practices and
    operations of government agencies, GAO contributes to more effective federal
    spending. Our work also helps to raise the public's trust and confidence in
    the federal government.

    5

    6 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Consistent with the spirit of the Government Performance and Results Act of
    1993 (GPRA), GAO operates under a broad strategic plan- currently covering
    fiscal years 2000 through 2005. To drive our work toward the goals
    envisioned in the strategic plan, we also developed detailed strategic
    objective plans and report our results yearly to the Congress and the
    public. In addition, last year we published our first performance plan for
    fiscal year 2001. This year, in response to the Congress's desire to have
    financial and performance management information presented in a more
    cohesive way, we have merged three documents:

    our performance report for fiscal year 2000, our accountability report for
    fiscal year 2000, and our performance plan for fiscal year 2002.

    This document presents (1) the results GAO achieved in fiscal year 2000, the
    first year under our new strategic plan, (2) a status report on what we
    expect to accomplish in fiscal year 2001, (3) our performance plan for
    fiscal year 2002, and (4) our financial statements and the independent
    auditor's report for fiscal year 2000. We will deal first with the agency as
    a whole, then discuss our performance and plans by strategic goal, and
    finally present assessments of our financial systems and internal controls.

    6

    7

    Agencywide Performance and Plans

    Annual Quantitative Performance Measures and Targets, Fiscal Years 1997-
    2002

    1997 1998 1999 2000 2001 2002 Type Measure Actual Actual Actual Target a
    Actual Target Target

    Outcome Financial benefits (billions)

    Annual $20.9 $19.7 $20.1 $22.0 $23.2 $23.0 $24.0 4- year average $18.4 $18.4
    $19.5 $20.7 $21.0 $21.5 $22.6

    Other benefits

    Annual 391 537 607 620 788 700 b 720 4- year average 266 354 451 539 581 658
    704

    Recommendations implemented c

    4- year implementation rate 74% 69% 70% 73% 78% 75% 75%

    Intermediate outcome Testimonies

    Annual 182 256 229 230 263 150 b 233 4- year average 208 216 212 224 233 225
    219

    Recommendations made

    Annual 836 987 940 950 1,224 975 1,000 4- year average 946 848 898 928 997
    1,032 1,035

    Annual Management Measures and Targets, Fiscal Years 1997- 2002 Management
    Timeliness

    Annual 91% 93% 96% 100% 96% 100% 100% 4- year average d d 88% d 94% d d

    3- Year Qualitative Performance Goals, Fiscal Years 2000- 2002 Qualitative
    Performance goals: 94

    Expect to meet or exceed 100% Do not expect to meet 0% Not started 0%

    Note: Agencywide totals may differ from the sum of the amounts on the tables
    for Strategic Goals 1, 2, and 3 because when multiple units participate in
    an engagement, credit may be reflected under more than one of the Goals. a
    Because GAO did not have a performance plan for fiscal year 2000, the
    figures in this column were

    referred to in past documents as “estimates.” They served the
    same function as the targets we now set in our performance plans. b This is
    a revised target. For the original target, please see GAO's revised final
    performance plan for

    fiscal year 2001, available at www. gao. gov. c This measure gauges the
    implementation rate of recommendations made 4 years prior to each

    respective fiscal year. d Data were not collected for this measure in fiscal
    years 1994 and 1995; a 4- year average could not be

    calculated for actual performance. We do not set 4- year average targets for
    timeliness.

    SERVING THE CONGRESS GAO'S STRATEGIC PLAN FRAMEWORK

    TO ADDRESS CURRENT AND EMERGING CHALLENGES TO THE

    WELL- BEING AND FINANCIAL SECURITY

    OF THE AMERICAN PEOPLE

    HELP THE CONGRESS AND THE FEDERAL GOVERNMENT

    GAO exists to support the Congress in meeting its Constitutional
    responsibilities and to help improve the performance and accountability of

    the federal government for the benefit of the American people. MISSION

    THEMES

    Demographics Security Globalization Quality of Life Security Technology

    PROVIDE TIMELY, QUALITY SERVICE TO THE CONGRESS AND THE FEDERAL GOVERNMENT

    GOALS CORE VALUES

    Accountability Integrity Reliability

    Health care needs and financing Retirement income security Social safety net
    Education/ workforce issues Effective system of justice Community investment
    Natural resources use and environmental protection

    Physical infrastructure

    OBJECTIVES

    TO RESPOND TO CHANGING THREATS TO NATIONAL SECURITY

    AND THE CHALLENGES

    OF GLOBAL INTERDEPENDENCE

    TO A MORE RESULTS- ORIENTED AND ACCOUNTABLE

    FEDERAL GOVERNMENT

    SUPPORT THE TRANSITION

    MAXIMIZE THE VALUE OF GAO

    Government Performance and Accountability

    BY BEING A MODEL ORGANIZATION

    FOR THE FEDERAL GOVERNMENT

    Diffuse security threats Military capabilities and readiness

    Advancement of U. S. interests

    Global market forces Fiscal position of the

    government Government financing and accountability

    Governmentwide management reforms

    Economy, efficiency, and effectiveness improvements in federal agencies

    Client relations Strategic and annual planning

    Human capital Core business and supporting processes

    Information technology services

    In fiscal year 2000, GAO achieved more than $23 billion in financial
    benefits for the American taxpayer and recorded more than 700 other actions
    taken in response to our recommendations to improve how the federal
    government operates. We also completed a number of major initiatives to
    improve the way GAO itself operates. For example, we issued our first
    strategic plan for the 21st century- based on input from the Congress and
    supplemented by our own expertise and other outreach efforts- that
    established four strategic goals for our agency, as the diagram to the left
    shows. Additionally, we established protocols that govern our interaction
    with the Congress to ensure greater satisfaction with our work and equitable
    treatment of all requesters. We realigned the agency to better support the
    Congress and to prepare ourselves to meet the future challenges outlined in
    our strategic plan within current and expected resource levels. We also
    began implementing a range of new and enhanced human capital and information
    technology strategies to better position GAO for future success.

    The sections that follow describe GAO's results for fiscal year 2000, the
    status of what we expect to accomplish in fiscal year 2001, and our plans
    for fiscal year 2002.

    Fiscal Year 2000

    GAO assesses its performance in two ways: quantitatively and qualitatively.
    The quantitative measures tabulate such things as the dollar savings to the
    American taxpayer from GAO's work, the number of instances in which our work
    led to improvements in government operations or services, and the rate at
    which our recommendations are implemented. The quantitative results are
    compared with annual targets to determine whether we are performing as well
    as planned. The qualitative measures are whether we meet, exceed, or fail to
    meet performance goals for which results are assessed every 3 years. For
    example, in fiscal year 2000, we began work on a qualitative performance
    goal to address the long- term fiscal health

    9

    10 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    of the federal government. We will assess our efforts to meet that goal at
    the end of fiscal year 2002. The 94 qualitative performance goals are listed
    in appendixes I through IV.

    Quantitative Results

    For fiscal year 2000, our performance exceeded all five of our five
    quantitative targets. Under a separate management measure of timeliness, we
    achieved a 96- percent success rate for delivering our products on time,
    falling short of our idealistic 100- percent target. The chart on page 7
    shows the trends in quantitative results since 1997 and also provides 4-
    year rolling averages that serve to show those trends without the effects of
    one- time or unusual circumstances and shifts in congressional priorities
    and workloads.

    $23.2 Billion in Direct Financial Benefits Were Realized. These results
    exceeded our target of $22 billion and were up from the previous year's
    results of $20.1 billion.

    11

    GAO Work at

    FRAUDANDABUSEIN MEDICARE

    Helping to Prevent

    F- 22AIRCRAFTPROGRAM

    Cutting Costs of the

    HUD FUNDING

    Recapturing Excess

    GAO had long advocated increased funding specifically for activities to pre
    vent fraud and abuse in the Medicare program. In 1996, the Congress passed
    the Health Insurance Portability and

    Accountability Act, which provided the additional funding. As a result of
    these activities, the Medicare program's net savings were about $3 billion
    in fiscal year 2000.

    In a series of reports beginning in the mid- 1990s, GAO questioned various
    aspects of the Air Force's F- 22 aircraft acquisition program. We reported
    that the acquisition strategy was risky and that the program was
    experiencing cost growth, manufacturing problems with test aircraft, and
    testing delays. Our analysis

    helped the Congress reduce the final fiscal year 2000 appropriation request
    for the F- 22 by about $552 million and to identify conditions that should
    be met before the Department of Defense could begin full production.

    GAO identified funding from several sources in the Department of Housing

    Urban Development's budget, including unexpended balances no longer needed,
    that could be recaptured in fiscal years 1998 and 1999. The Congress
    rescinded $1.65 billion from the Section 8 housing program's fiscal year
    1998 budget authority and rejected $1.3 billion

    of HUD's fiscal year 1999 request for housing assistance for a total
    reducand tion of $2.95 billion. Subsequently, GAO and HUD worked together to
    revise HUD's analysis to show that, by using recaptured funds, HUD had
    sufficient funding to meet its needs.

    12 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    We achieve our financial benefits when our recommendations are implemented
    to make the government more efficient, to improve the budgeting and spending
    of tax dollars, and to strengthen the management of federal resources.
    Estimated financial benefits include budget reductions, costs avoided,
    resources reallocated, and revenue enhancements. Because it takes time for
    agencies to implement GAO's recommendations and document savings, the
    financial benefits we report in a given year may be based on work we
    performed in the current or previous years.

    788 Actions Were Taken to Improve Government Operations or Services. Our
    results exceeded our target of 620 actions taken and were up from the
    previous year's 607 actions taken.

    These benefits represent improved government operations and services. We
    measure these benefits by tabulating the number of cases in which our
    recommendations have prompted federal agencies or the Congress to take
    action.

    The 788 actions reported for fiscal year 2000 include measures to improve
    public safety and consumer protection, to establish more effective and
    efficient government operations, and to safeguard the nation's physical and
    information infrastructure.

    GAO has evaluated the information security programs and controls over
    critical systems at numerous federal agencies and recommended numerous
    improvements, most recently at three Treasury agencies, the Department of
    Energy, the Department of Veterans Affairs, and the Environmental Protection
    Agency. In September 2000, GAO issued a governmentwide perspective

    on federal information security that covered Inspector General and GAO audit
    findings reported since July 1999. We concluded that weak security continues
    to be a widespread problem that places critical and sensitive federal
    operations at risk of tampering, disruption, and inappropriate disclosure.
    The Health Care Financing Administration

    (HCFA) and several states- including California, Maryland, and Michigan-
    improved their oversight and enforcement of nursing homes' quality of care
    standards in response to GAO's recommendations highlighting weaknesses in
    existing processes. Improvements included increased funding for nursing home
    surveyors,

    Our work on human capital issues helped focus the attention of the executive
    and legislative branches on the importance of these issues, particularly
    their importance in managing for results.We helped spur the administration
    to make human capital a priority management objective in the fiscal year
    2001 budget submission, and our framework for human capital selfassessment
    is being used at agencies,

    including the Social Security Administration, the Small Business
    Administration, the National Aeronautics and Space Administration, and the
    Environmental Protection Agency. This framework is also used throughout GAO
    to help guide our research and development work and our congressionally
    driven examinations of how well agencies are pursuing strategic human
    capital management. more prompt investigation of complaints

    alleging serious harm to residents, more immediate enforcement actions for
    homes with repeated serious problems, a reorganization of HCFA's regional
    staff to improve consistency in oversight, and increased funding for
    administrative law judges to reduce the backlog of appealed enforcement
    actions.

    GAO Work at

    NURSINGHOMEQUALITY OFCARE

    Improving

    HUMANCAPITALPRACTICES

    Improving

    INFORMATIONSECURITY

    Strengthening

    13

    14 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    78 Percent of the Recommendations We Made 4 Years Ago Were Implemented. Our
    results exceeded our target of 73 percent and were up from the previous
    year's rate of 70 percent.

    We measure our progress in improving the government's accountability,
    operations, and services by tracking the percentage of recommendations we
    made 4 years ago that have since been implemented. For example, 78 percent
    of the recommendations we made in fiscal year 1996 had been implemented by
    the end of fiscal year 2000. We use a 4- year interval because our
    historical data show that agencies often need this time to take action on
    our recommendations. Implemented recommendations correct the underlying
    causes of problems, weaknesses in internal controls, failures to comply with
    laws and regulations, or other matters impeding effective and efficient
    performance.

    263 Testimonies Were Given Before the Congress. Our results exceeded our
    target of 230 and were up from the previous year's total of 229 testimonies.

    Because one of GAO's primary functions is to support the Congress in
    carrying out its decision- making and oversight responsibilities, the number
    of times our experts testify before congressional panels each year is an
    indicator of our responsiveness and the impact, importance, and value of our
    work. In fiscal year 2000, GAO witnesses testified before 104 different
    congressional committees and subcommittees on a broad range of topics,
    including arms control, health care, Social Security, human capital, nuclear
    waste cleanup, wildfires, aviation safety and security, international trade,
    computer security, financial management reform, and budget issues.

    15

    16 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    1,224 Recommendations Were Made During the Year. Our results exceeded our
    target of 950 recommendations and were up from the previous year's total of
    940.

    Our investigations and analyses can lead to improved government performance
    when we make recommendations to federal agencies. We recommend specific
    actions to improve the economy, efficiency, and effectiveness of federal
    operations and aim to effect significant financial and other benefits to
    taxpayers. We therefore track the number of recommendations contained in the
    products we issue each year.

    17 96 Percent of Our Products Were Delivered on Time. Our results fell short
    of our idealistic

    target of 100- percent on- time delivery. In addition to the five measures
    already discussed, we use a management measure of timeliness. For our work
    to be useful, our congressional clients must have it on a timely basis.
    Therefore, we compare actual product delivery dates with the dates we agreed
    to with our clients. We set an idealistic target of 100 percent to emphasize
    the importance we place on being responsive to our clients. Although we did
    not meet this target- and we believe it will remain a challenge because of
    our increasing workload and external factors beyond our control- we will
    continue to emphasize timeliness. Fully implementing our new matrix and risk
    management strategies should help improve our on- time delivery.

    Qualitative Results

    As of the end of fiscal year 2000, we expected to meet or exceed all 94 of
    our 3- year qualitative performance goals, although progress toward some had
    been slowed because we did not receive all the resources we requested.

    These 94 qualitative performance goals lay out the key efforts and potential
    outcomes we hope to achieve for each of our strategic objectives. We will
    evaluate whether we met, exceeded, or failed to meet them at the end of
    fiscal year 2002. Our performance on these

    18 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    goals will meet expectations when we provide information or make
    recommendations on the key efforts when viewed collectively. Our performance
    will exceed expectations when we provide information or make recommendations
    that congressional decisionmakers and others use toward achieving the
    potential outcomes listed in the relevant strategic objective plans
    (available at www. gao. gov). The performance goals are listed in the
    appendixes to this report.

    Management Highlights

    GAO continued to enhance its effectiveness and efficiency through a variety
    of means during fiscal year 2000, including developing a strategic plan,
    establishing congressional protocols, realigning the agency, restructuring
    the field offices, implementing key human capital initiatives, and
    increasing the use of information technology.

    To improve the way we serve the Congress, we developed our first strategic
    plan for the 21st century and established congressional protocols to govern
    our interaction with our congressional clients. The strategic plan describes
    our role and mission in the federal government; the trends, conditions, and
    external factors underlying our plan; and our goals, objectives, and
    strategies for serving the Congress. Over 90 percent of our work is mandated
    or requested by congressional Committee and Subcommittee Chairs, Ranking
    Members, or individual Members. The congressional protocols, which underwent
    a 9- month pilot test, provide clear, transparent, consistently applied
    policies and practices for GAO's relations with the Congress to reduce
    miscommunication and ensure that all requesters are treated equitably.

    To align GAO's structure with the goals in our strategic plan, we
    reorganized both our field and headquarters operations. The changes were
    primarily designed to

    better align resources with our strategic plan, eliminate a layer of
    managerial hierarchy,

    19

    reduce the number of organizational units, increase internal and external
    coordination, clarify the roles and responsibilities of management, increase
    the number of personnel who perform rather than manage or review work, and
    increase the critical mass and enhance the flexibility of field resources.

    Working closely with the Congress throughout the year led to the enactment
    of the GAO Personnel Flexibility Act (P. L. 106- 103), a major human capital
    milestone. The act, signed into law in October 2000, grants the Comptroller
    General the authority to establish new senior- level scientific and
    technical positions; to offer targeted voluntary early- outs and buyouts;
    and to carry out reductions in force to downsize, realign, or correct skills
    imbalances within our agency. To gain a fuller understanding of our human
    capital resources and needs, we completed our first human capital self-
    assessment. We also administered a knowledge and skills inventory and an
    employee preference survey. To help attract skilled employees to carry out
    GAO's mission in the future, we also significantly increased our recruiting
    and college relations efforts on the nation's campuses. To engage our
    employees more fully in improving the agency's performance, we established
    the Comptroller General's Employee Advisory Council and implemented an
    employee suggestion program that received more than 800 submissions in its
    first year of operation.

    Throughout the year, we continued to improve our use of information
    technology, as a tool for productivity and knowledge management. To provide
    our teams of analysts with a mechanism for simplifying and standardizing
    their work, we launched the EAGLE, a prototype of a comprehensive Web- based
    guide to conducting GAO engagements. Finally, we continued to enhance the
    capabilities of our computer network and successfully made our systems Y2K
    compliant. We also began a number of projects on enabling technologies,
    including software upgrades, the deployment of notebook computers, and
    improved remote access to allow our teams to work more efficiently in the
    field.

    20 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Fiscal Year 2001

    The nation's leaders continue to be faced with a number of complex,
    controversial, and multidimensional issues that require a more strategic,
    longer- range, and more integrated approach. The close margins in both the
    presidential and congressional elections reinforce the need for a
    professional and objective organization such as GAO to gather facts and lay
    out options to help policymakers reach timely and informed decisions. As
    part of our role in assisting with the presidential transition and the new
    Congress, we developed an external Web site with links to GAO contacts and
    reports on the major executive branch agencies, which was completed at the
    beginning of fiscal year 2001. A top priority in fiscal year 2001 will be
    working with leaders on the Hill to help strengthen the Congress's approach
    to oversight, with an emphasis on looking hard at what government does, how
    it does it, and the long- term consequences of today's policy choices. Our
    2001 Performance and Accountability Series and High- Risk Update will serve
    as a solid foundation for congressional oversight.

    We are also preparing to carry out two new responsibilities assigned by the
    106th Congress. We will chair a panel to review the process established
    under the Office of Management and Budget's Circular A- 76 to allow the
    government to use competitive sourcing to obtain services from the private
    sector that would otherwise be performed by federal employees. If the needed
    funding is provided, we will also review the costs and benefits of major
    regulations under the Truth in Regulating Act (P. L. 106- 312, Oct. 17,
    2000).

    With our agency's realignment nearing completion and a year's experience
    with using our strategic plan to drive our work, we reset some of our
    quantitative performance targets for fiscal year 2001 and posted them on the
    Web in a revised performance plan. At the agency level, the targets remained
    the same, with two exceptions: On the basis of a reassessment of what we
    expect to result from our work, we raised our target for other benefits from
    640 actions taken on our recommendations to 700. We reduced our target for
    the number of times we expect to testify before the Congress from 250 to
    150. We made this change for

    21

    several reasons: First, the number of hearings typically conducted in years
    when both a new Congress and a new administration take office is lower than
    in other years. Second, the delay in the presidential transition resulted in
    fewer congressional hearings being held. Finally, the 50/ 50 split in the
    Senate and the change in leadership of many House committees also reduced
    the number of hearings being held.

    Our other targets for fiscal year 2001 call for GAO to achieve $23 billion
    in financial benefits, a 75- percent implementation rate for recommendations
    we made 4 years ago, and 975 new recommendations for improved government
    operations and services.

    For our management measure of timeliness, we will continue to work toward
    our idealistic target of delivering 100 percent of our products on time. In
    addition, we have adjusted some of our qualitative performance goals now
    that we have a clearer understanding of how to put our strategic plan into
    action. Later in this report, we cover the targets for each of our four
    strategic goals and revisions to the qualitative performance goals.

    A number of other plans are under way as this report goes to press. Building
    on the success of GAO's congressional protocols, we will now implement an
    expanded client feedback system and issue protocols governing our dealings
    with federal agencies. We are forming several new high- level advisory
    bodies to gain the expertise of business leaders, former Cabinet officials,
    and experts on accounting, recruiting, and other key issues. In turn, we
    plan to be more active in lending our own expertise to the federal, state,
    local, and international accountability communities by convening working
    groups and participating in global forums. Internally, we will complete our
    realignment of our mission support organization. We will begin promulgating
    regulations to implement the human capital legislation passed in fiscal year
    2000 and seek authority to help us attract and retain additional skilled and
    knowledgeable staff. A new competency- based performance appraisal system
    for analysts will be completed along with the staff training needed to
    ensure the implementation is effective.

    22 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Fiscal Year 2002

    For fiscal year 2002, we have set targets that call for GAO to meet or
    exceed this year's performance targets. Our targets for fiscal year 2002 are
    as follows:

    $24 billion in financial benefits, 720 actions taken on our recommendations,
    a 75- percent implementation rate for recommendations we made 4 years ago,
    233 testimonies given before the Congress, and 1,000 new recommendations
    made to improve government operations and services.

    We will also continue to pursue our management measure of 100- percent on-
    time delivery. We have requested a budget for fiscal year 2002 of about
    $430.3 million to maintain current operations and serve the Congress as
    outlined in our strategic plan. This funding level will allow us to fully
    staff at our total authorized level of 3,275 full- time equivalent (FTE)
    personnel. The additional staff will be used to increase program emphasis in
    areas of congressional and public interest and concern, such as government
    computer security, Social Security solvency, education, economic
    development, Medicare reform, and international affairs.

    With this budget, we also would continue our human capital and information
    technology initiatives. The increased funding will be used, among other
    things, to improve our training, performance- based rewards and
    compensation, and network operating and application systems that have not
    kept pace with the agency's needs and current government and industry
    standards. Our request also includes $5.2 million to carry out
    responsibilities created by the Truth in Regulating Act to analyze certain
    economically significant regulations.

    In the next sections of this report, our results for fiscal year 2000 and
    performance plan for fiscal year 2002 will be examined for each of our four
    strategic goals. Subsequent sections

    23

    will describe our strategies for meeting those goals, our coordination with
    other organizations on crosscutting issues, the major management challenges
    GAO faces, the external factors that could affect our performance, the
    procedures we use to verify and validate our performance data, and how we
    evaluate our performance.

    Strategic Goal 1: Performance and Plans

    Provide Timely, Quality Service to the Congress and the Federal Government
    to Address Current and Emerging Challenges to the Well- Being and Financial
    Security of the American People

    Annual Quantitative Performance Measures and Targets, Fiscal Years 1997-
    2002

    1997 1998 1999 2000 2001 2002 Type Measure Actual Actual Actual Target a
    Actual Target Target

    Outcome Financial benefits (billions)

    Annual $8.4 $10.8 $13.8 $13.0 $14.1 $12.65 b $13.00 4- year average $6.8
    $7.5 $9.8 $11.5 $11.8 $12.84 $13.39

    Other benefits

    Annual 116 177 140 140 182 196 b 198 4- year average 88 114 129 143 154 174
    179

    Recommendations implemented c

    4- year implementation rate 70% 69% 72% 73% 72% 75% 75%

    Intermediate outcome Testimonies

    Annual 99 130 123 115 131 71 b 104 4- year average 105 110 110 117 121 114
    107

    Recommendations made

    Annual 273 285 350 325 435 349 b 357 4- year average 297 245 278 308 336 355
    373

    3- Year Qualitative Performance Goals, Fiscal Years 2000- 2002 Qualitative
    Performance goals: 42

    Expect to meet or exceed 100% Do not expect to meet 0% Not started 0%

    a Because GAO did not have a performance plan for fiscal year 2000, the
    figures in this column were referred to in past documents as
    “estimates.” They served the same function as the targets we now
    set in our performance plans. b This is a revised target. For the original
    target, please see GAO's revised final performance plan for

    fiscal year 2001, available at www. gao. gov. c This measure gauges the
    implementation rate of recommendations made 4 years prior to each

    respective fiscal year.

    24 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    In keeping with our mission to support the Congress in carrying out its
    constitutional responsibilities, our first strategic goal focuses on several
    of the aspirations of the American people that were defined by the Founders:
    to “establish justice, insure domestic tranquility, ... promote the
    general welfare, and secure the blessings of liberty to ourselves and our
    posterity ....” Our aging and increasingly diverse population, rapid
    technological change, and Americans' desire to improve the quality of life
    all have major policy and budgetary implications for the federal government.
    In particular, growing commitments to the elderly will challenge the
    capacity of a smaller generation of workers to finance the competing needs
    and wants brought to the federal doorstep. Our first goal, therefore, is to
    help the Congress and the federal government address the challenges that
    affect the well- being and financial security of the American people,
    recognizing the constraints of available resources and economic capacity.

    To ensure that we provide timely, quality service to support the decision-
    making of the Congress as a whole and of its Committees dealing with the
    well- being and financial security of the American people, we have
    established eight strategic objectives:

    the health care needs of an aging and diverse population, a secure
    retirement for older Americans, the social safety net for Americans in need,
    an educated citizenry and a productive workforce, an effective system of
    justice, investment in communities and economic development, responsible
    stewardship of natural resources and the environment, and a safe and
    efficient national physical infrastructure.

    25

    Fiscal Year 2000

    In working toward this Strategic Goal in fiscal year 2000, we exceeded four
    of our five annual performance targets:

    We achieved measurable financial benefits of about $14.1 billion- more than
    $1 billion above our target for the year, which was $13 billion.

    We recorded 182 actions taken on our recommendations by executive branch
    agencies or the Congress to improve government operations or services, again
    exceeding the target, which was 140 actions.

    The implementation rate for the recommendations we made to executive branch
    agencies 4 years ago was 72 percent, just short of our target of 73 percent.
    Because the performance target was set at an approximate level and the
    deviation from that level was slight, we believe our overall performance was
    not affected.

    We testified 131 times before the Congress on matters concerning the well-
    being and financial security of the American people, exceeding our target of
    115 testimonies.

    We made 435 new recommendations to executive branch agencies to further
    improve their operations and services, a third more than our target of 325
    recommendations.

    In addition, we expect to meet or exceed all 42 qualitative performance
    goals by the end of fiscal year 2002. These performance goals are listed in
    appendix I, along with details of our fiscal year 2000 accomplishments in
    helping the Congress and the federal government address current and emerging
    challenges to the well- being and financial security of the American people.

    GAO produced a major body of work analyzing the challenges facing the
    longterm financial solvency, stability, and sustainability of the Social
    Security program, including developing and applying criteria for evaluating
    reform

    GAO Work at

    SOCIALSECURITY REFORM

    Analyzing

    AIRLINE COMPETITION

    Improving Maximizing

    proposals. Our criteria provide a clear, consistent, and objective
    analytical framework that the Congress, program officials, and the public
    can use in evaluating legislative reforms.

    Our congressionally requested work on airline competition paid off, with the
    Congress's passing legislation that addressed critical barriers to increased
    competition. Our work showed that limitations on the numbers of arrivals and
    departures (called slot controls) inhibit the ability of some airlines to
    serve new markets.The new law en courages more vigorous competition by
    phasing out slot controls at three major

    airports, increases slots for new- entrant airlines, increases slots for
    airlines with limited access, and requires that the Department of
    Transportation grant additional slots to airlines that increase regional jet
    service to small- hub airports. Several of those small cities now receive
    improved service from airlines operating regional jets.

    Acting on a GAO recommendation, the Congress required the Department of
    Energy to recover from commercial customers an appropriate share of the
    expected costs for work involving the

    decontamination and decommissioning of the Department's uranium enrich ment
    plants. More than $731 million in additional collections resulted.

    26

    THEURANIUM ENRICHMENT PROGRAM

    27

    on the

    Among the current and emerging challenges to the well- being and financial
    security of the American people that we testified on:

    Air traffic control Airline competition Amtrak's financial condition Gun
    control Health care Homelessness Housing programs Intercity passenger rail
    Long- term care insurance Medicare Nuclear waste cleanup Nursing homes
    Prescription drug benefits Social Security Truck safety Welfare reform
    Wildfire dangers Worker protection

    Fiscal Year 2001 and 2002

    Guided by our final decisions on realigning the agency's structure to the
    goals in our strategic plan, we allocated 914 full- time equivalent staff to
    Goal 1. We revised some of our quantitative targets to reflect these
    decisions as indicated on the table on page 23 and expect to meet our other
    quantitative targets for fiscal year 2001. In addition, we revised 18 of our
    42 qualitative performance goals to more accurately reflect the scope of
    work being done under Goal 1. The tables in appendix I show these changes to
    our performance goals.

    Looking ahead to fiscal year 2002, we have requested 965 full- time
    equivalent staff for Goal 1. The additional staff will be used to increase
    emphasis on Social Security solvency, economic development, and Medicare
    reform. Given these resources, we set the following targets: GAO Hill

    $13 billion in financial benefits, 198 actions taken on our recommendations
    to improve government operations or services, and a 75- percent
    implementation rate for the recommendations we made 4 years ago.

    These performance targets will continue to focus our attention on work that
    provides financial benefits and other improvements in government operations.
    We also set targets of delivering 104 testimonies and making 357
    recommendations to executive agencies, two measures of the value of our work
    for congressional decision- making and for identifying opportunities for
    improving federal operations that yield benefits to taxpayers. As open
    markets and rapidly developing technology create an increasingly
    interconnected

    28 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Strategic Goal 2: Performance and Plans

    Provide Timely, Quality Service to the Congress and the Federal Government
    to Respond to Changing Security Threats and the Challenges of Global
    Interdependence

    Annual Quantitative Performance Measures and Targets, Fiscal Years 1997-
    2002

    1997 1998 1999 2000 2001 2002 Type Measure Actual Actual Actual Target a
    Actual Target Target

    Outcome Financial benefits (billions)

    Annual $9.5 $5.8 $3.0 $4.0 $5.5 $5.1 b $5.3 4- year average $7.6 $7.4 $6.3
    $5.6 $6.0 $4.9 $4.7

    Other benefits

    Annual 78 73 80 95 129 162 b 163 4- year average 38 50 65 81 90 111 134

    Recommendations implemented c

    4- year implementation rate 84% 76% 65% 73% 84% 75% 75%

    Intermediate outcome Testimonies

    Annual 45 45 37 40 56 36 b 62 4- year average 37 38 40 42 46 44 48

    Recommendations made

    Annual 241 242 255 250 376 283 b 291 4- year average 329 272 266 247 279 289
    301

    3- Year Qualitative Performance Goals, Fiscal Years 2000- 2002 Qualitative
    Performance goals: 20

    Expect to meet or exceed 100% Do not expect to meet 0% Not started 0%

    a Because GAO did not have a performance plan for fiscal year 2000, the
    figures in this column were referred to in past documents as
    “estimates.” They served the same function as the targets we now
    set in our performance plans. b This is a revised target. For the original
    target, please see GAO's revised final performance plan for

    fiscal year 2001, available at www. gao. gov. c This measure gauges the
    implementation rate of recommendations made 4 years prior to each

    respective fiscal year.

    29

    world, the United States faces new threats and opportunities. Threats to
    national security come from regional instabilities, the spread of terrorism,
    and the proliferation of nuclear and other weapons of mass destruction. They
    come also from the interdependence of global economic and financial systems
    and the vulnerabilities of the information technology used to conduct many
    vital functions- from international commerce to warfare.

    At the same time, the end of the Cold War and the globalization of markets
    have created new opportunities for our nation as a whole and for American
    producers and consumers. Consequently, while trying to anticipate and
    address the new threats to national security, the federal government also
    tries to promote foreign policy goals, trade policies, and other strategies
    to help the nations in every corner of the world that are our military
    allies and trading partners.

    In light of this complex array of global issues, the second goal of our
    strategic plan is to help the Congress and the federal government respond to
    changing security threats and the challenges of global interdependence. To
    ensure that we provide timely, quality service to support the decision-
    making of the Congress as a whole and of its Committees dealing with
    security and global interdependence issues, we have established four
    strategic objectives:

    responding to diffuse threats to national and global security, ensuring
    military capabilities and readiness, advancing and protecting U. S.
    international interests, and responding to the impact of global market
    forces on U. S. economic and security interests.

    30 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Fiscal Year 2000

    In working toward this Strategic Goal in fiscal year 2000, we exceeded all
    of our annual performance targets:

    We achieved measurable financial benefits of about $5.5 billion- more than
    37 percent above our target, which was $4 billion.

    We recorded 129 actions taken on our recommendations by executive branch
    agencies or the Congress to improve government operations or services, again
    exceeding the target, which was 95 cases.

    The implementation rate for the recommendations we made to executive branch
    agencies 4 years ago was 84 percent, well above our target of 73 percent.

    We testified 56 times before the Congress on national security and global
    interdependence issues, exceeding our target of 40 testimonies.

    We made 376 new recommendations to executive branch agencies to further
    improve their operations and services, 50 percent more than our target of
    250 recommendations.

    In addition, we expect to meet or exceed all 20 qualitative performance
    goals by the end of fiscal year 2002. These performance goals are listed in
    appendix II, along with details of our fiscal year 2000 accomplishments in
    helping the Congress and the federal government respond to changing security
    threats and the challenges of global interdependence.

    31

    GAO Wor k at

    NAVY' S IN- TRANSIT INVENTORY

    TRADE AGREEMENTS

    At the request of several Members of Congress, GAO examined how the Navy
    reconciled its in- transit inventory records and found that the Navy had
    lost accountability over $3 billion in inventory. In response, the Navy
    established a task force that, for fiscal years 1999 and 2000, resolved
    errors

    GAO identified procedural and structural problems in the government's
    monitoring and enforcement of its trade agreements. We found inconsistencies
    and weaknesses in trade archiving practices that prevented the government
    from determining the number of agreements it is party to. We also identified
    human capital and other capacity weaknesses that limited key agencies' trade
    monitoring and enforce valued at $802 million. Had this reconciliation

    not occurred, the Navy could have bought additional inventory not knowing
    that it already had the items in stock.

    Despite the presence of two large NATO- led forces, the Balkans remain
    volatile. GAO's work has shown that the international operations in Bosnia
    and Kosovo face severe obstacles to achieving enduring peace and stability.
    Most local leaders and members of their respective ethnic groups have not
    embraced the political and social recon ciliation needed to build
    multiethnic,

    democratic societies. Our work has also shown that the international
    community has not provided the resources that the United Nations mission in
    Kosovo says it needs. If progress is not made in these matters, violence may
    escalate or armed conflict may result.

    ment abilities. In response, the key agencies improved the accuracy and
    utility of their trade archives and are enhancing efforts to achieve
    compliance with trade agreement provisions, to improve coordination and
    teamwork in monitoring and enforcement activities across the government, and
    to update mechanisms for obtaining private sector input on trade policy.

    Revamping Stabilizing Evaluating

    THE BALKANS

    GAO Hill on the

    Fiscal Year 2001 and 2002

    Guided by our final decisions on realigning the agency's structure to the
    goals in our strategic plan, we allocated 685 full- time equivalent staff to
    Goal 2. We revised some of our quantitative targets for fiscal year 2001 to
    reflect these decisions, as indicated on the table on page 28, and expect to
    meet our quantitative targets for fiscal year 2001. In addition, we revised
    4 of our 20 qualitative performance goals to more accurately reflect the
    scope of work being done under Goal 2. The tables in appendix II show these
    changes to our performance goals.

    Looking ahead to fiscal year 2002, we have requested 720 full- time
    equivalent staff for this goal. The additional staff will be used to
    increase our work on international affairs and trade. Given these resources,
    we set the following targets:

    $5.3 billion in financial benefits, 163 actions taken on our recommendations
    to improve government operations or services, and a 75- percent
    implementation rate for the recommendations we made 4 years ago.

    These performance targets will continue to focus our attention on work that
    provides financial benefits and other improvements in government operations.
    We also set targets of delivering 62 testimonies and making 291
    recommendations to executive agencies, two measures of the value of our work
    for congressional decision- making and in identifying opportunities for
    improving federal operations that yield benefits to taxpayers.

    Among the changing security threats and challenges of global interdependence
    we testified on:

    AIDS crisis in Africa Anthrax vaccine immunization Arms control Aviation
    security Bosnia Chemical and biological defense Colombian drugs Combating
    terrorism Critical infrastructure protection Defense acquisitions Drug
    control Export controls I Love You virus International child abductions
    Micronesia Military personnel Peacekeeping operations Trade with European
    Union United Nations management reforms Weapons of mass destruction World
    Trade Organization

    32

    33

    Strategic Goal 3: Performance and Plans

    Support the Transition to a More Results- Oriented and Accountable Federal
    Government

    Annual Quantitative Performance Measures and Targets, Fiscal Years 1997-
    2002

    1997 1998 1999 2000 2001 2002 Type Measure Actual Actual Actual Target a
    Actual Target Target

    Outcome Financial benefits (billions)

    Annual $8.6 $4.6 $4.5 $5.0 $5.1 $5.25 b $5.7 4- year average $5.2 $5.2 $5.7
    $5.7 $5.7 $4.86 $5.1

    Other benefits

    Annual 216 311 414 415 503 342 b 359 4- year average 145 200 274 339 361 393
    405

    Recommendations implemented c

    4- year implementation rate 69% 65% 78% 74% 77% 75% 75%

    Intermediate outcome Testimonies

    Annual 57 96 100 85 105 43 b 67 4- year average 66 75 79 84 90 86 79

    Recommendations made

    Annual 322 460 335 370 413 343 b 352 4- year average 321 332 355 372 383 388
    361

    3- Year Qualitative Performance Goals, Fiscal Years 2000- 2002 Qualitative
    Performance goals: 15

    Expect to meet or exceed 100% Do not expect to meet 0% Not started 0%

    a Because GAO did not have a performance plan for fiscal year 2000, the
    figures in this column were referred to in past documents as
    “estimates.” They served the same function as the targets we now
    set in our performance plans. b This is a revised target. For the original
    target, please see GAO's revised final performance plan for

    fiscal year 2001, available at www. gao. gov. c This measure gauges the
    implementation rate of recommendations made 4 years prior to each

    respective fiscal year.

    As we enter the 21st century, American citizens are increasingly demanding
    improved government services and better stewardship of public resources. The
    federal government is adopting the principles of performance- based
    management in an effort to address these demands. This approach to managing
    government integrates thinking about organizational structure; program and
    service delivery strategies; and the use of technology, reliable financial
    information, and effective human capital strategies into decisions about the
    results the government intends to achieve. Many initiatives now under way
    across government to improve operations and strengthen accountability are
    being driven by management reforms statutorily

    34 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    established by the Congress in the 1990s. Yet the reforms did not encompass
    all areas of government management, in particular, human capital strategic
    planning and management at a governmentwide level.

    The reforms that have been adopted have profound implications for what
    government does (the products and services it delivers), how it is
    organized, and how it performs. Consequently, government decisionmakers and
    managers are adopting new ways of thinking, considering different ways of
    achieving goals, and using new information to guide decisions. At the same
    time, with budget surpluses now projected for the coming years, the U. S.
    government faces a new set of challenges, in both the long and near terms,
    in making budget decisions.

    To ensure that we support the transition to a more results- oriented and
    accountable federal government, we have established four strategic
    objectives:

    analyzing the federal government's long- term and near- term fiscal
    position, outlook, and options; strengthening approaches for financing the
    government and determining accountability for the use of taxpayer dollars;
    facilitating governmentwide management and institutional reforms needed to
    build and sustain high- performing organizations and more effective
    government; and recommending economy, efficiency, and effectiveness
    improvements in federal agency programs.

    35

    Fiscal Year 2000

    In working toward this Strategic Goal in fiscal year 2000, we exceeded all
    five of our annual performance targets:

    We achieved measurable financial benefits of about $5.1 billion-$ 100
    million more than our target of $5 billion.

    We recorded 503 actions taken on our recommendations by executive branch
    agencies or the Congress to improve government operations or services, again
    exceeding the target, which was 415 actions.

    The implementation rate for the recommendations we made to executive branch
    agencies 4 years ago was 77 percent, exceeding our target of 74 percent.

    We testified 105 times before the Congress on making government more results
    oriented and accountable, exceeding our target of 85 testimonies.

    We made 413 new recommendations to executive branch agencies to further
    improve their operations and services- well beyond our target of 370
    recommendations.

    In addition, we expect to meet or exceed all 15 qualitative performance
    goals by the end of fiscal year 2002. These performance goals are listed in
    appendix III, along with details of our fiscal year 2000 accomplishments in
    supporting the transition to a more results- oriented and accountable
    federal government.

    GAO Work at

    SBA'S DISASTER LOAN PROGRAM ESTIMATES

    Improving Informing

    THE GOVERNMENT PERFORMANCE AND RESULTS ACT

    Implementing

    CONGRESSIONAL DELIBERATIONS ON TAX POLICY

    In reviewing information the Small Business Administration developed and
    used to prepare its financial statements for fiscal years 1997 and 1998, GAO
    identified errors in the method SBA used to estimate the cost of the
    Disaster Loan Program. In response, SBA developed a

    new approach to estimate its program's costs using actual historical data,
    which decreased the estimated cost of the loan program. During fiscal years
    1999 and 2000, about $609 million in benefits resulted.

    The nation's evolving economy and the size and complexity of the current IRS
    Code raise policy issues for the Con gress. For example, the rapid develop
    ment of electronic commerce has fueled debate about whether online transac
    tions should be taxed. During the debate over whether to extend the ban on

    state and local sales taxes on electronic commerce, GAO provided the Con
    gress with a unique perspective on the potential revenue losses to state and
    local governments. In addition, our prior work on better targeting the
    Earned Income Credit continued to generate substantial savings of over $600
    million.

    GAO assisted the Congress and execu tive branch agencies with the difficult
    cultural changes needed to create high performing agencies.As part of this
    work, we assessed agencies' efforts under GPRA and made specific recom
    mendations on how the Congress and the executive branch could work together
    to ensure that results- oriented

    processes are useful to and used by decisionmakers. We also worked with the
    Congress to ensure that agencies resolve management problems that undercut
    or undermine programs. Our work for the Senate on the key at tributes of
    high- performing organizations is being used as a basis for oversight and
    decision- making.

    36

    $5.7 billion in financial benefits, 359 actions taken on our recommendations
    to improve government operations or services, and a 75- percent
    implementation rate for the recommendations we made 4 years ago.

    37

    Among the issues we testified on pertaining to the transition to a more
    results- oriented and accountable federal government:

    Budget issues Computer security District of Columbia reforms Electronic
    government Federal management challenges Financial management reform
    Government facility security Government in the 21st century Government
    program oversight GPRA congressional oversight Human capital Managing in the
    new millennium Money laundering Security breaches at federal agencies U. S.
    government financial statement

    audit Y2K leadership and partnership

    Fiscal Year 2001 and 2002

    Guided by our final decisions on realigning the agency's structure to the
    goals in our strategic plan, we allocated 942 full- time equivalent staff to
    Goal 3. We revised some of our quantitative targets to reflect these
    decisions, as indicated on the table on page 33, and are on track to meet
    our quantitative targets for fiscal year 2001. In addition, we revised 1 of
    our 15 qualitative performance goals to more accurately reflect the scope of
    work being done under Goal 3. The tables in appendix III show that change to
    the performance goals.

    Looking ahead to fiscal year 2002, we have requested 976 full- time
    equivalent staff for this goal. The additional staff will be used to
    increase our emphasis on federal human capital management, government
    computer security, and analyses of economically significant regulations.
    Given these resources, we set the following targets: GAO Hill on the

    These performance targets will continue to focus our attention on work that
    provides financial benefits and other improvements in government operations.
    We also set targets of delivering 67 testimonies and making 352
    recommendations to executive agencies, two measures of the value of our work
    for congressional decision- making and in identifying opportunities for
    improving federal operations that yield benefits to taxpayers.

    38 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Strategic Goal 4: Performance and Plans

    Maximize the Value of GAO by Being a Model Organization for the Federal
    Government

    3- Year Qualitative Performance Goals, Fiscal Years 2000- 2002 Qualitative
    Performance goals: 17

    Expect to meet or exceed 100% Do not expect to meet 0% Not started 0%

    To carry out our responsibilities to the Congress and the American people
    successfully, GAO must be perceived as credible and must lead by example.
    Our fourth strategic goal provides the framework for enhancing and
    sustaining our organizational credibility.

    To ensure that we maximize the value of GAO by being a model organization
    for the federal government, we have established five strategic objectives:

    cultivate and foster effective congressional and agency relations, implement
    a model strategic and annual planning and reporting process, align human
    capital policies and practices to support GAO's mission, develop efficient
    and responsive business processes, and build an integrated and reliable
    information technology infrastructure.

    Fiscal Year 2000

    To help guide our efforts in achieving Strategic Goal 4, we originally
    established three quantitative annual performance measures and targets:
    timeliness, product quality, and multiunit products. In our revised final
    fiscal year 2001 performance plan, we made the timeliness measure an overall
    GAO management measure. This change will provide greater focus and emphasis
    on meeting client needs.

    39

    We discontinued the product quality measure at the end of the second quarter
    of fiscal year 2000 primarily because it did not adequately capture the
    evolving environment at GAO. Our increased emphasis on risk management and
    matrix management requires us to build quality into our work and products
    prior to issuance and to view quality through our clients' eyes. Therefore,
    we are developing a new measure of product quality based on client feedback
    and new internal assessments.

    Eight percent of our products were issued as multiunit products in fiscal
    year 2000- that is, they were issued jointly by two or more of GAO's units.
    While this was up from our experience of 5 percent in fiscal year 1999, it
    was below our target of 9 percent. We have, however, eliminated this measure
    for fiscal year 2001 for several reasons. It was originally intended as an
    indicator of whether GAO's units were sharing resources with one another.
    But the risk management and matrix management strategies we implemented last
    year now provide more active senior management and ensure that needed
    resources are made available, regardless of where they are housed in the
    agency. Moreover, because this measure had relatively little meaning outside
    of GAO, we are seeking a better way to measure our matrix management
    efforts.

    We expect to meet or exceed all 17 qualitative performance goals by the end
    of fiscal year 2002. These performance goals are listed in appendix IV,
    along with details of our fiscal year 2000 accomplishments in maximizing the
    value of GAO as a model organization for the federal government.

    GAO Work at

    STRATEGICALLY WITH ACCOUNTABILITY

    Managing

    SERVICE TO THE

    Improving

    HUMAN CAPITAL

    Managing

    GAO developed its first strategic plan for the 21st century, based on input
    from the Congress and supplemented by GAO's expertise and other out reach
    efforts. We subsequently developed our performance plan for fiscal year 2001
    to directly link our

    strategic goals with what managers and staff do day to day. Also in fiscal
    year 2000, GAO issued its first accountability report to the Congress,
    documenting our performance and accountability during fiscal year 1999.

    In fiscal year 2000, GAO piloted congressional protocols to guide our
    interactions with the Congress and to ensure our accountability.The final
    protocols have since been issued and reflect refinements made in response to
    feedback from Members of the

    Congress and their staffs.The protoCONGRESS cols will allow us to better
    serve the Congress, improve satisfaction with our work, and ensure equitable
    treatment for all congressional requesters.

    Because of our work with key committees during fiscal year 2000, the
    Congress passed the GAO Personnel Flexibility Act, which provides the
    Comptroller General with the authority to better position our workforce for
    the future. rately, we completed our first human

    concapital self- assessment and a knowlgressional

    edge and skills inventory, significantly increased our recruiting and
    college relations efforts, and enhanced training opportunities.We also
    established an employee advisory council and an Sepaemployee suggestion
    program.

    40

    Fiscal Year 2001 and 2002

    For fiscal year 2001, we are continuing to make progress in most areas,
    although we received insufficient funds to support several of our
    initiatives, such as those for additional enabling technology and human
    capital support. We allocated 614 full- time equivalent staff to our work on
    Strategic Goal 4. While we are making progress toward our performance goals,
    achieving them by the end of fiscal year 2002 will depend on having
    sufficient resources for projects delayed by the funding shortfall in fiscal
    year 2001. The tables in appendix IV show changes to the performance goals.

    For fiscal year 2002, we have again requested 614 full- time equivalent
    staff to work on our efforts to maximize the value of GAO as a model
    organization for the federal government. We have, however, requested
    additional funding to continue our initiatives in human capital, enabling
    technology, and several other key efforts. In the human capital area, we
    plan to continue our efforts to enhance our performance- based rewards and
    compensation program, to improve training to address skill gaps and maximize
    productivity, and to increase our ability to attract and retain high-
    quality staff by providing benefits comparable to those of other federal
    government agencies. Funding to continue technology initiatives will allow
    us to upgrade software and hardware to ensure our network's continued
    enhancement, to reengineer existing business processes to support our
    strategic goals and objectives, and to improve the security of our network.

    41

    42 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Strategies and Challenges- Achieving Our Goals

    The Government Performance and Results Act directs agencies to articulate
    not just goals but also strategies for achieving their goals. The strategies
    emphasize the need to work with other organizations on crosscutting issues
    and to mitigate internal and external factors that could impair performance.
    The next sections describe how we plan to approach these opportunities and
    challenges. From there, we will turn to how we will assess our efforts
    through our performance data and through program evaluations.

    For GAO, achieving our strategic goals and objectives rests, for the most
    part, on providing professional, objective, fact- based, nonpartisan,
    nonideological, fair, and balanced information. We support the Congress in a
    variety of ways:

    evaluations of federal policies and the performance of agencies and
    programs; oversight of government operations through financial and other
    management audits to determine whether public funds are spent efficiently,
    effectively, and in accordance with applicable laws; investigations to
    assess whether illegal or improper activities are occurring; analyses of the
    financing for government activities; various engagements in which we consult
    proactively with agencies, when appropriate, to help guide their efforts
    toward positive results; legal opinions to determine whether agencies are in
    compliance with applicable laws and regulations; policy analyses to assess
    needed actions and the implications of proposed actions; and additional
    assistance to the Congress in support of its oversight and decision- making
    responsibilities.

    Most of these strategies have long been part of GAO's traditional role as
    the Congress's “watchdog” agency. One strategy we are
    increasingly emphasizing, however, is that of the

    43

    constructive engagement, which calls for our staff to consult or collaborate
    with agency staff and help them improve their programs and operations.
    Ultimately, a high- performing government requires that agencies incorporate
    best management practices and use relevant benchmarking information in the
    way they conduct their day- to- day business. Rather than waiting for
    agencies to produce results that we can analyze to pinpoint weaknesses,
    these engagements are designed to help federal agencies obtain positive
    results the first time. This approach is yielding results in our oversight
    and due diligence responsibilities for ensuring the economy, efficiency, and
    effectiveness of government operations. While we are committed to employing
    a constructive engagement approach when appropriate, we will do so in a way
    that does not compromise our independence.

    For example, the Congress mandated that we use a constructive engagement
    approach with the Department of Education to evaluate the feasibility of
    using various market mechanisms to determine the lender yield for Federal
    Family Education Loans under the Higher Education Act of 1965. In response,
    during fiscal year 2000, GAO and Education convened the Market Mechanisms
    Study Group, which comprised representatives from the Department of
    Treasury, OMB, and the Congressional Budget Office, as well as others from
    the financial services community and participants in student loan programs.
    The group released a draft of its findings for public comment in January
    2001 and anticipates releasing the final report in May 2001.

    We have also begun to issue assessment guides to help agencies compare their
    operations against best practices. Of particular note, using our guide on
    assessing the maturity of information technology investments, the
    Immigration and Naturalization Service assessed its investment management
    capability and then worked with GAO to verify the accuracy of its
    assessment. The resulting report describes the maturity of the Service's
    current practices, the associated funding risks, and the specific steps
    required for improvement. The latest addition to the series of assessment
    guides, Human Capital: A Self- Assessment Checklist for Agency Leaders, was
    issued in September 2000 and is being used by GAO analysts and planners in

    44 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    other agencies. As more is learned from their experiences with the
    checklist, we will refine and update the document.

    To further encourage constructive engagements and provide clearly defined,
    welldocumented, transparent policies and practices for carrying out our work
    for the Congress, we are developing protocols that will govern GAO's work at
    federal agencies and elsewhere. The protocols identify what GAO expects of
    agencies and what agencies can expect from GAO. Our goal is to maximize GAO
    and agency interactions and in so doing enable GAO to better meet the needs
    of the Congress, improve the performance and accountability of the federal
    government for the benefit of the American people, and ensure consistent
    treatment of all agencies.

    As part of our strategies for achieving our goals and objectives, we are
    coordinating our work with the wider accountability community, both
    domestically and internationally, and are confronting challenges inside GAO
    and in the environment in which we and the Congress operate.

    Coordination to Address Crosscutting Issues

    Although GAO is unique in the scope of its activities to support the
    Congress and to improve the performance and accountability of government, it
    shares with other members of the accountability community similar visions
    and values. Each member has a different role, responsibility, and expertise,
    but collectively, they advance the principles of good government through a
    variety of activities.

    To take advantage of opportunities to work collaboratively, we continue to
    ensure that our work complements the efforts of others and that crosscutting
    goals are mutually reinforcing and efficiently implemented. Toward this end,
    GAO established the External Liaison office. Its mission is to enhance
    proactive working relationships with domestic and international

    45

    accountability organizations; foreign, state, and local government agencies;
    and selected colleges, universities, and not- for- profit entities. The
    External Liaison is to provide a cohesive, seamless structure for carrying
    out GAO's mission and goals, in concert with those of the other entities, to
    advance GAO's goals with the ultimate objective of making government better.

    To collaborate more effectively with these organizations, we conduct four
    types of activities:

    develop and promote standards for government auditing, federal accounting,
    and federal financial management systems; identify and promote “best
    practices” in public management; leverage resources and services to
    better identify opportunities for collaboration to improve government
    operations; and convene and participate in forums, boards, councils, and
    other bodies to share knowledge.

    Develop and Promote Standards for Government Auditing and Federal Accounting

    In consultation with others in the accountability community, we update
    government auditing standards for addressing emerging issues; participate in
    the development of federal accounting standards; and as required by law,
    issue and update standards for internal controls in the federal government.
    Of particular note, GAO and the President's Council on Integrity and
    Efficiency (PCIE) worked cooperatively during fiscal year 2000 to

    ACCOUNTABILITY COMMUNITY

    Organizations we work with include:

    Association of Government Accountants Chief Financial Officers Council Chief
    Information Officers Council Congressional Budget Office Congressional
    Research Service Domestic Working Group Executive Council on Integrity and
    Efficiency Federal Accounting Standards Advisory Board Financial Accounting
    Standards Board Global Working Group Government Accounting Standards Board
    Inspectors General Intergovernmental Audit Forum International Auditor
    Fellowship Program International Organization of Supreme Audit

    Institutions Joint Financial Management Improvement

    Program Office of Management and Budget President's Council on Integrity and
    Efficiency Private Sector Council State and Local Auditors

    46 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    develop a draft- for- comment of the Financial Audit Manual for performing
    financial statement audits of federal entities. The benefits of a unified
    manual are significant. Its adoption should relieve some of the burden that
    agencies face in staying current with ever- changing audit requirements and
    expectations. The manual will also improve consistency among agency audits.
    The most important outcome of this process will be financial statement
    audits of the highest quality and the greatest usefulness that provide the
    best possible accountability over taxpayer- provided resources. GAO and PCIE
    issued the draft manual in December 2000 and will issue the final version in
    May 2001.

    We coordinate closely with the Office of Management and Budget (OMB) and the
    Department of the Treasury in developing federal accounting standards and
    preparing and auditing the U. S. government's financial statements. Since
    1990, GAO, OMB, and Treasury have jointly developed federal accounting
    principles through an advisory committee- the Federal Accounting Standards
    Advisory Board (FASAB). In October 1999, the American Institute of Certified
    Public Accountants recognized FASAB as the source of generally accepted
    accounting principles (GAAP) for federal entity financial statements. This
    recognition means that for the first time, federal entities have a body of
    GAAP on which to base financial statements. Maintaining GAAP through this
    partnership with the executive branch and with adequate representation of
    the public interest improves federal accountability.

    GAO also coordinates with OMB on the guidance for agencies' GAAP- based
    financial reports. That guidance is contained in OMB's bulletins on the form
    and content of financial statements and on auditing requirements. GAO
    consults with OMB on the technical aspects of this crucial guidance. In
    addition, we maintain effective liaison with the Financial Accounting
    Standards Board (FASB), which issues accounting standards for the private
    sector, and the Government Accounting Standards Board (GASB), which issues
    accounting standards for state and local entities.

    To help ensure that the generally accepted government auditing standards the
    Comptroller General issues continue to meet the needs of the auditing
    community and the public it

    47

    serves, the Comptroller General appointed the Advisory Council on Government
    Auditing Standards to review the standards and recommend necessary changes.
    The Council consists of experts in financial and performance auditing drawn
    from all levels of government, private enterprise, public accounting, and
    academia. These standards are widely used by government and private sector
    auditors in audits of federal, state, and local government programs as well
    as in audits of entities receiving federal assistance. In addition, to
    ensure a better understanding and consistent application of the standards,
    GAO staff provide technical advice and outreach to the audit community by
    responding to requests for guidance, conducting training at regional and
    national conferences, and maintaining an Internet site on the standards and
    the process used to set them.

    Internationally, GAO is a member of the International Organization of
    Supreme Audit Institutions (INTOSAI). The Comptroller General is a member of
    INTOSAI's Board of Governors and chairs INTOSAI's committee on accounting.
    GAO is an active member of INTOSAI's audit standards, internal control
    standards, information technology, and public debt committees. The
    Comptroller General also chairs the executive committee of the national
    intergovernmental audit forum.

    Identify and Promote Best Practices in Public Management

    To facilitate governmentwide management and institutional reforms, we will
    continue to develop and promote best practices to build and sustain high-
    performing organizations. For example, we developed an executive guide to
    help federal agencies maximize the success of their Chief Information
    Officers (CIO), who were assigned responsibility by the ClingerCohen Act to
    promote the effective design and operation of all major information
    resources for the executive agencies. The guide offers a generic framework
    of core principles and critical success factors for agency executives to
    follow in supporting their CIOs. We also issued an executive guide that
    highlighted best practices in creating value through world- class financial
    management.

    48 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    GAO is also collaborating with the Chief Information Officers Council to
    develop guidance defining the practical steps involved in developing,
    implementing, and maintaining an enterprise architecture. Enterprise
    architecture- the roadmap that shows how an entity can move, in terms of
    both business and technology, from its current operation to its desired
    operation in the future- is required by legislation and by OMB.

    In addition, we assisted the CIO Council, OMB, and the National Institute of
    Standards and Technology in developing an Information Technology Security
    Assessment Framework to aid in conducting assessments of agencies' security
    programs and in measuring incremental progress. By collaborating with other
    organizations in the development of the framework, we helped to ensure
    consistency between executive branch guidance and GAO's audit criteria.

    Leverage Resources and Services Through Collaboration to Improve Government
    Operations

    We recognize that we can meet our goals and strategic objectives more
    efficiently and effectively if our work complements that of others. To
    ensure that we target the right issues, provide balanced perspectives, and
    develop practical recommendations, we work with members of the
    accountability community, including federal, state, and international audit
    organizations; academic and professional organizations; agency Inspector
    General (IG) offices; and our sister agencies, the Congressional Budget
    Office (CBO) and the Congressional Research Service (CRS). In addition, we
    are exploring new ways of working with other federal, state, local, and
    international accountability organizations to better serve our respective
    clients. These efforts will include a domestic working group of
    representatives from federal IG and state and local government audit offices
    and a global working group of the Comptroller General's international
    counterparts.

    In addition to GAO, CBO and CRS support the Congress and may assist it in
    connection with the same agency, program, and policy areas as GAO. Senior
    mangers from all three agencies meet quarterly to identify opportunities to
    work together to better serve the

    49

    Congress. For example, we recently provided CBO, CRS, and congressional
    staff with electronic access to our active assignment list to help keep them
    informed of our ongoing work. We also worked with CRS staff to hold a
    conference on ways to conduct oversight of federal agencies and programs.

    We also collaborate with executive branch agencies. For example, our
    Physical Infrastructure team has a continuing, reciprocal relationship with
    the Federal Aviation Administration (FAA) to enhance both agencies'
    expertise. At FAA's request, GAO developed and piloted training in fiscal
    years 1999 and 2000 for aviation safety inspectors on conducting effective
    internal audits. In fiscal year 2001, FAA will assume responsibility for
    conducting the training on its own. FAA, meanwhile, admits our analysts to
    its courses and has loaned us, on a long- term basis, one of its
    instructional platforms with over 100 computer- based aviation classes on
    topics such as the air traffic control system and new navigational systems
    that help aircraft avoid crashes.

    Our Office of Special Investigations (OSI) regularly collaborates with other
    organizations to improve government operations. Because of its
    investigations related to international money laundering, OSI will meet with
    Delaware officials in the coming year to discuss potential weaknesses in the
    state's incorporation laws governing non- U. S. entities. OSI is also
    collaborating with federal agencies to reduce potential weaknesses found in
    security procedures at various federal facilities. OSI and the Department of
    Defense's IG plan to collaborate on several investigative efforts to test
    the security of military materiel and weapons. Through GAO's FraudNET- a
    system for reporting fraud, waste, abuse, or mismanagement of federal funds-
    OSI collaborates with IGs at other agencies and with law enforcement
    agencies. OSI evaluates allegations received by FraudNET and, when
    appropriate, conveys information to IGs or regulators for follow- up. With
    the transition to an online system, the quality of the allegations FraudNET
    receives has improved, and opportunities for coordinating work and referring
    investigative findings have increased.

    50 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    In addition, GAO's Applied Research and Methods team helps other agencies
    improve their analytic capacities by reviewing federal agencies' information
    development activities, developing methodologies, and fostering knowledge
    transfer in the federal and professional evaluation communities.

    Convene and Participate in Forums, Boards, Councils, and Other Bodies to
    Share Knowledge

    To advance principles of improved performance and accountability, we help
    convene and participate in related forums with other government audit
    organizations. For example, INTOSAI- the professional organization of 179
    national audit offices from around the world- holds triennial congresses to
    share experiences, discuss issues, and recommend ways of improving
    government accountability worldwide. The 17th International Congress of
    Supreme Audit Institutions will take place in Seoul, Korea, in October 2001.
    The United States will chair one of the major themes- the contributions of
    supreme audit agencies to public management reforms.

    In addition, in January 2001, the Comptroller General hosted the second
    annual informal global working group meeting, where the heads of 11 of GAO's
    counterparts from the G- 7 and other selected countries met at GAO to
    discuss emerging issues of mutual concern and to hear each other's
    experiences. To further promote knowledge sharing internationally, GAO
    publishes the International Journal of Government Auditing on behalf of
    INTOSAI and sponsors the annual International Auditor Fellowship Program.

    In March 2001, the Comptroller General hosted and chaired, for the first
    time, an informal domestic working group, consisting of six federal IG, six
    state, and six local government audit officials, to discuss matters of
    mutual concern. This group will supplement the intergovernmental audit forum
    and will meet annually to share knowledge through informal exchanges.

    51

    The Comptroller General is also initiating a Comptroller General's Advisory
    Board of widely recognized experts in areas pertaining to each of GAO's
    strategic objectives. Among its other responsibilities, the advisory board
    will assist GAO in developing a revised strategic plan for fiscal years 2002
    through 2007. The board's first annual meeting is scheduled for April 2001.

    We also coordinate with the Chief Financial Officers Council to address
    crosscutting accounting, financial systems, internal control, and financial
    reporting issues and with the Chief Information Officers Council to address
    governmentwide matters concerning information technology issues, including
    investment, management, evaluation, and security. With the Joint Financial
    Management Improvement Program, we participate in the development of federal
    financial systems' standards and requirements and other initiatives to
    improve government management.

    Major Management Challenges- Internal Factors That Could Affect Our
    Performance in Fiscal Year 2002

    Like any organization, GAO faces major management challenges in
    accomplishing our strategic goals and objectives. With the vast majority of
    our resources devoted to staff salary and benefits, the area of human
    capital presents a major challenge. A significant percentage of our current
    workforce is nearing retirement age. Moreover, marketplace, demographic,
    economic, and technological changes indicate that competition for skilled
    workers will be greater in the future. Another major management challenge is
    to build an integrated and reliable information technology infrastructure
    that supports the achievement of our goals.

    52 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Human Capital

    GAO has completed a comprehensive assessment of its human capital and has
    identified succession planning, skill imbalances, and other issues that need
    to be addressed. We found, for instance, that a third of our analysts and
    related staff will be eligible to retire by the end of fiscal year 2004,
    along with more than half of our senior managers. We found that as a result
    of a 5- year hiring freeze, which began in 1992 to downsize GAO and was then
    extended to achieve mandated funding reductions, we have a lot fewer
    analysts at the entry- level than at the senior and management levels.
    Maintaining adequate skills also was identified as a key human capital
    issue, especially the need to train senior executives in key competencies
    such as leadership, communications, and conflict resolution. Because of
    resource constraints, training for executives had been drastically reduced
    for a number of years after fiscal year 1993. In addition, technical skills,
    such as actuarial and information technology skills, were not sufficiently
    available within GAO for us to effectively assist the Congress in meeting
    its oversight responsibilities.

    We have made progress in assessing many of our human capital challenges. For
    example, we recently realigned the agency and reallocated resources to
    better support the Congress and meet the future challenges outlined in our
    strategic plan. We also completed a first- ever electronic knowledge and
    skills assessment and inventory that will be used to staff engagements more
    effectively and help identify skill gaps and succession planning needs
    within the agency. In addition, staff recently completed an employee
    assignment preference survey, the results of which, along with the knowledge
    and skills inventory, will be used to help us accommodate staff preferences
    when making work assignments to meet our institutional needs. We also
    revised performance standards for all staff to

    incorporate GAO's core values and strategic goals; update descriptions of
    performance to better reflect the current nature of GAO's work; and to
    include key management and performance concepts, such as leadership by
    example, client service, and measurable results.

    53

    We have begun a major initiative to develop a competency- based performance
    model and to update performance standards for analysts to reflect prevailing
    best practices. Similarly, we plan to update the performance systems for our
    attorneys and mission support staff in fiscal year 2001. We have
    reestablished and are expanding training opportunities for our senior
    executives. In addition, we have significantly revised and enhanced our
    recruitment and college relations program. Efforts at colleges and
    universities are under way to recruit diverse, high- caliber staff with the
    skills and abilities GAO needs to achieve our strategic goals and
    objectives. To engage our employees more fully in improving the agency's
    performance, we established the Comptroller General's Employee Advisory
    Council and implemented an employee suggestion program that received more
    than 800 submissions in its first year of operation. And lastly, the
    Congress has provided us with legislative authority that gives us greater
    flexibility to manage our human capital more effectively.

    While we are making progress, we need to continue many of these efforts and
    initiate others to successfully address our human capital challenges. To
    provide greater recruitment and retention incentives, we need to enrich our
    performance- based rewards, compensation, and employee benefit programs,
    such as transportation subsidies, to make them comparable to those offered
    in the executive branch and the private sector. We also need to update our
    training curriculum and professional development programs to address the
    organizational, change management, and technical needs, both of individuals
    and of the agency. In addition, as we expand our recruitment effort, we need
    to continue enhancing training for new entrylevel staff.

    Information Technology

    We have greatly improved our information technology (IT) infrastructure
    during the past year, but other challenges remain. During fiscal year 2000,
    we initiated a comprehensive review of our IT infrastructure to identify
    opportunities to increase our efficiency, effectiveness, and productivity.
    We also began an effort to map our business processes to the IT architecture
    and to link future IT investments to our business goals. We designed and

    54 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    implemented several software tools and products to streamline access to data
    and report processing, which included providing better access to online
    policy, protocols, and procedures for managing the engagement process; to
    legal and other resources at the desktop; and to enhanced software and
    graphics capability. In addition, we developed a number of Web- based
    knowledge- sharing applications, such as a productivity and knowledge
    management tool that provides a one- stop guide to conducting GAO
    engagements. We also recently completed development of a Web site that
    provides information for the congressional and presidential transitions
    (www. gao. gov/ transition/). Numerous subscriptions and databases,
    previously available only in hardcopy, are now available through our
    agency's network. In addition, we continued systemic upgrades of network
    software, hardware, and communications tools to ensure quick response times
    and increased productivity.

    While many gains have been made, we face several IT challenges. We need to
    continue initiatives designed to increase employee productivity, maximize
    the use of technology, and enhance the tools available at the desktop. For
    example, we have aging agencywide management information systems that need
    to be replaced with integrated, Web- based applications centered around a
    common data model; these systems were developed in- house over two decades
    ago and are obsolete and incapable of interfacing within our network
    environment. Our network operating and applications systems are outdated
    versions and must be upgraded soon to ensure continued vendor support and
    compatibility with industry standards and with the software used by other
    federal agencies. Also, to increase productivity and facilitate greater
    interaction among our staff, federal agencies, and other external contacts,
    our videoconferencing capability needs to be extended to the agencywide
    network. That capability will allow us to conduct training seminars,
    conferences and engagement interviews with federal agency officials, and to
    transmit telecasts to GAO staff. In addition, we need to strengthen the
    security of our network operating environment by implementing features such
    as network intrusion detection software, secure communication devices, and
    automated system monitoring tools. Finally, we need to upgrade our computer
    security facility to ensure GAO's continued ability (1) to conduct effective
    testing of complex, diverse, and interconnected executive branch systems and
    (2) to attract and retain skilled, technical staff.

    55

    External Factors That Could Affect Performance

    Several external factors could affect the achievement of our performance
    goals, including national and international upheavals, changes in political
    leadership, the resources we receive, and limitations imposed on our work by
    other organizations or limitations on the ability of other federal agencies
    to make the improvements we recommend. For example, as the Congress focuses
    on unpredictable events, such as domestic or international economic crises,
    election controversies, wars, or natural disasters, the mix of work we are
    asked to undertake could change, diverting our resources from some of our
    strategic objectives and performance goals. We can and do mitigate the
    impact of these events on the achievement of our goals by

    being alert to possibilities that could shift the Congress's, and therefore
    our, priorities; continuing to identify in our products and meetings with
    the Congress conditions that could trigger new priorities; and quickly
    redirecting our resources, as appropriate, so that we can deal with major
    changes that do occur.

    During fiscal year 2001, both a new Congress and a new administration are
    beginning work. Consequently, we are strengthening existing ties and quickly
    establishing working relationships with the new leaders and Members of
    Congress and with key department and agency heads to ensure the continued
    relevance and effectiveness of our work. Maintaining and strengthening these
    relationships in fiscal year 2002 is essential to successfully completing
    our strategic objectives and performance goals. Realistically, the extended
    transition associated with this new administration and the 107th Congress,
    the 50/ 50 split in the Senate, and the many new committee chairs in the
    House may reduce the opportunities we have to provide testimony at
    congressional hearings and limit the responsiveness of agencies to our
    recommendations. In addition, achieving our strategic goals will depend on
    having sufficient budgetary resources available. Many of these external
    factors are beyond our control; however, we will take action to continue to
    enhance our overall performance and the related results.

    56 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Certain externally imposed limitations could also affect our achievement of
    specific performance goals. For example, because we do not have audit
    authority with respect to foreign government entities and international
    institutions, our ability to conduct thorough analyses of some issues is
    affected by the level of openness and voluntary cooperation we can obtain.
    Also, the sensitivity of overall foreign policy concerns and the need to
    ensure the safety of GAO personnel may cause us to restrict the scope of our
    work in some instances. Regardless, we will continue to monitor
    international events, to work closely with our congressional clients, and to
    maintain broad- based staff expertise so that we can quickly adjust the
    focus of our work to meet emerging needs.

    In some situations GAO needs access to records in the private sector or at
    the state or local level that we do not have a statutory right to obtain.
    When this occurs, our ability to thoroughly analyze issues is affected by
    the level of voluntary cooperation we receive.

    Our efforts to improve the government's performance and accountability could
    be hampered if agencies lack the capacity to develop and effectively use
    performance and cost information to make improvements. It will be important
    for the Congress and top agency managers to sustain the current strong
    commitment to reforming federal management and to addressing major
    management challenges and high- risk areas. We will continue to work closely
    with agency heads and program managers of OMB and the Department of the
    Treasury, chief financial officers, and the IG community to foster improved
    performance and accountability.

    Also, we will continue providing management leadership and technical
    assistance and will help build capacity by working proactively with agencies
    and participating in forums and on interagency and intergovernmental boards,
    councils, and other information- sharing organizations. Moreover, through
    our frequent contacts with a range of congressional committees, we will
    continue to stress the importance of this effort and the role of improved
    performance and financial information in more effectively, efficiently, and
    economically managing government operations and providing needed
    accountability.

    57

    Procedures to Verify and Validate GAO's Performance Data

    We emphasize the importance of reliable and valid information in our work
    through (1) standards, policies, and procedures; (2) management's use of
    performance information; and (3) independent reviews of our work. First, our
    standards, policies, and procedures provide guidance on assessing the
    reliability and validity of performance information. Specifically, our
    Government Auditing Standards (often referred to as generally accepted
    government auditing standards) contain the core standards governing our
    work. Our Policy and Procedures Manual provides additional guidance,
    including procedures on verifying and validating the information used in
    specific performance measures. We reinforce the content and application of
    these standards, policies, and procedures by training all staff conducting
    GAO work. Second, management's use of our performance information on a
    routine basis further helps to ensure its reliability and validity. Data are
    provided to managers for decisionmaking, and their feedback on these data
    helps to ensure that the data are properly recorded.

    Third, additional reviews- conducted by both internal and external groups-
    help ensure that all of our work is consistent with generally accepted
    government auditing standards and with our policies and procedures. We are
    also in the process of identifying possible external entities to conduct a
    peer review of our performance auditing. These reviews include the
    following:

    internal reviews of management controls to ensure compliance with provisions
    of 31 U. S. C. 3512, formerly the Federal Managers' Financial Integrity Act;
    internal reviews to determine how well selected GAO work and products comply
    with our core values and professional standards; internal inspections of
    quality controls for our financial auditing; reviews by our Office of the
    Inspector General to assess key performance measures; peer reviews of our
    financial audits by a public accounting firm; and

    58 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    audits of our financial statements by a public accounting firm that reviews
    internal controls relevant to these financial statements and the compliance
    of our financial management system with the Federal Financial Management
    Improvement Act.

    Data Limitations and Responses

    Generally, our measures are better suited to examining trends in performance
    over a number of years than to making conclusions about our overall level of
    performance in any given year. We rely on trends for several reasons. The
    benefits our work produces may not be realized for a number of years because
    of the complexity of issues we address and the schedules during which the
    Congress and the executive branch may act on our recommendations. Also,
    opportunities to produce benefits vary and can influence the volume of
    accomplishments recorded in any given year.

    To provide a clear indication of trends, we report results that are averaged
    over a 4- year period. However, we also report yearly totals to allow
    comparisons between any 2 specific years and to more readily identify
    underlying factors affecting trends. We also ensure that our criteria are
    consistently applied each year to allow these comparisons. In addition,
    because a simple enumeration of our performance does not adequately capture
    the breadth and depth of our work, we provide each year a qualitative
    assessment of the extent to which we have successfully met our multiyear
    performance goals. This assessment considers how our work contributes to the
    potential outcomes identified in our strategic objective plans.

    Current Performance Measures

    Financial Benefits

    Background and Context: Our findings and recommendations directly or
    indirectly contribute to congressional decision- making and executive branch
    actions that result in significant financial benefits to taxpayers. These
    benefits include budget reductions, costs avoided,

    59

    resources reallocated, and revenue enhancements that are documented as
    either directly attributable to, or significantly influenced by, our work.
    The funds made available in response to our findings and recommendations may
    be used to reduce government expenditures or may be reinvested in other
    areas.

    Data Limitations: Not every financial benefit from our work can be readily
    estimated or directly attributed to GAO. Estimates are based on both
    objective and subjective data, and as a result, judgment is required. We use
    data provided by an agency or an independent third party- such as the
    Congressional Budget Office or a congressional committee- to make our
    estimates. Moreover, GAO's policy requires conservative estimation of
    financial benefits. Therefore, we believe that the total of the estimated
    benefits from our findings and reommendations understates our overall
    contribution to congressional decision- making and executive branch actions.

    Verification/ Validation: Policies and procedures guide the estimation of
    financial benefits and their attribution to GAO. We require estimates to be
    based on independent sources, reduced by any identifiable offsetting costs,
    and limited to the first 2 years of implementation. Benefits are estimated
    in internal written reports that are formally reviewed to ensure they meet
    the same documentation and quality standards as any external GAO product. In
    addition, our Quality and Risk Management office reviews benefit claims in
    excess of $100 million, and our Office of the Inspector General reviews
    claims in excess of $1 billion. Benefits are revised if new information
    significantly affects the estimated values.

    Data Sources: Internal listing of accomplishment reports.

    Other Benefits

    Background and Context: Our findings and recommendations also contribute to
    congressional decision- making and executive branch actions that result in
    significant improvements to agency management or performance- for example,
    by strengthening internal control processes- but do not have directly
    measurable financial benefits. This measure is the

    60 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    number of actions that the Congress or agencies have taken in response to
    our findings and recommendations.

    Data Limitations: Other benefits vary in significance. Also, because not all
    benefits can be directly attributed to our findings and recommendations or
    documented, this measure understates our overall contribution toward
    improving government.

    Verification/ Validation: Policies and procedures require internally written
    reports to record the other benefits of our findings and recommendations.
    These reports are formally reviewed within GAO to ensure the appropriateness
    of the claimed accomplishment, including attribution to GAO's work. These
    reports must meet the same documentation and quality standards as any GAO
    product.

    Data Sources: Internal listing of accomplishment reports.

    Recommendations Implemented

    Background and Context: As part of our audit responsibilities under
    generally accepted government auditing standards, we follow up and report
    yearly to the Congress on the status of actions taken by the Congress and
    agencies in response to our recommendations. This measure is the percentage
    rate of implementation of recommendations made 4 years prior to a given
    fiscal year. For example, the fiscal year 2002 implementation rate is the
    percentage of recommendations made in fiscal year 1998 that were implemented
    by fiscal year 2002. Prior experience has shown that if a recommendation has
    not been implemented within 4 years, it is not likely to be implemented.

    Data Limitations: Because the measure is based on the implementation of
    recommendations made 4 years prior to any given fiscal year, the measured
    value for any given year will not reflect the results of GAO's activities
    undertaken within that year. In addition, this measure may not include all
    actions proposed or initiated by agencies. Specifically, agencies may

    61

    report actions in response to our recommendations, but we may determine that
    these actions are insufficient or do not adequately implement our
    recommendations. In these cases, recommendations will be recorded as not
    implemented even though the agency has proposed or taken some actions.

    Verification/ Validation: GAO policies and procedures specify that staff
    must verify with sufficient supporting documentation that an agency's
    reported actions are adequately being implemented. Our staff may interview
    agency officials, obtain agency documents, access agency databases, or
    obtain information from the agency's Office of the Inspector General.
    Internal review procedures are intended to ensure that claims regarding the
    implementation of recommendations are consistent and meet our quality
    requirements. Information on recommendations implemented is maintained in a
    database managed by an external contractor that routinely conducts software-
    based checks of data consistency and completeness and annually performs more
    exhaustive checks for data integrity.

    Data Sources: The percentage of recommendations implemented is derived from
    GAO's document database. Information entered into the database is collected
    through our recommendation follow- up system.

    Testimonies

    Background and Context: The Congress may request that GAO testify at
    hearings on various issues. Testimony is one of our most important forms of
    communication with the Congress, and the total number of testimonies
    reflects the importance and value of our institutional knowledge in
    assisting congressional decision- making.

    Data Limitations: The number of testimonies in any given year may reflect
    congressional interest in work completed that year, in the previous year,
    and work in progress. Additionally, the number each year depends on the
    Congress's agenda. Therefore, year- to- year variations in the total number
    of testimonies may be influenced by factors other than the quality of our
    performance in any specific year.

    62 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Verification/ Validation: Teams are responsible for notifying GAO's
    Congressional Relations office of upcoming hearings. Notices of these
    hearings are entered into a tracking system. Staff are assigned
    responsibility for monitoring the progress and status of planned hearings
    within their teams.

    Data Sources: Internal listing of hearings planned and held.

    Recommendations Made

    Background and Context: Recommendations in our products help to ensure that
    benefits will result from our work. These recommendations reflect specific
    actions that can be taken to improve federal programs. Where appropriate, we
    strive for recommendations that are directed at resolving the cause of
    identified problems; that are addressed to parties who have the authority to
    act; and that are specific, feasible, and cost- effective to the extent
    practical.

    Data Limitations: We provide a variety of products and services that meet
    the needs of our congressional clients but may not lead to recommendations.
    For example, the Congress may require descriptive information on federal
    programs or analyses of the potential consequences of alternative program
    design options. This information is intended to assist the Congress in its
    oversight of federal agencies or in its formulation of policy and
    legislation but does not lend itself to recommendations. Consequently, this
    measure underestimates the extent to which GAO assists the Congress and
    federal agencies.

    Verification/ Validation: An external contractor reviews all GAO products
    distributed through a formal process, prepares summaries that identify
    products containing recommendations, and verifies this information through
    our recommendation follow- up system. Also, GAO managers are provided with
    reports on the recommendations being tracked to help ensure that the
    contractor has correctly identified the recommendations contained in
    reports.

    Data Sources: GAO's document database.

    63 Timeliness

    Background and Context: The likelihood that GAO's products will be used is
    enhanced if they are produced when needed to support congressional and
    agency decision- making about government programs. We monitor the extent to
    which our products are completed by dates agreed to with our clients. This
    measure is the proportion of GAO's products that are issued by the date to
    which we have formally committed. In our revised final fiscal year 2001
    performance plan, we made the timeliness measure an overall GAO measure.
    This will provide greater focus and emphasis on meeting client needs.

    Data Limitations: We measure the timeliness of key external products but
    exclude internal products.

    Verification/ Validation: Aggregate and job- specific timeliness data are
    given to managers monthly, who advise of any anomalies. The software used to
    prepare the monthly reports is verified by comparing job- specific detail
    from the reports with the same detail on original data files maintained by
    an external contractor. At job completion, data on job target and completion
    dates are reported to the manager, who reviews and signs the report to
    confirm its accuracy.

    Data Sources: Our automated Mission and Assignment Tracking System, which is
    used to monitor job progress on an ongoing basis.

    Qualitative Performance Measures

    Background and Context: Our work is of value to different audiences and is
    used in a variety of ways that may not be reflected in our quantitative
    performance measures. For this reason, we complement our quantitative goals
    with qualitative goals to be achieved over a 3- year period, currently from
    fiscal year 2000 through fiscal year 2002. These goals are listed in
    appendixes I through IV, by strategic goal and objective.

    64 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    The qualitative measures are whether we meet, exceed, or fail to meet the
    performance goals for which results are assessed every 3 years. Our
    performance meets expectations when we provide information or make
    recommendations on the key efforts when viewed collectively. Our performance
    exceeds expectations when we provide information or make recommendations
    that congressional decisionmakers and others use toward achieving the
    potential outcomes described in the relevant strategic objective plan. The
    key efforts and potential outcomes are listed in the relevant strategic
    objective plans covering fiscal years 2000 through 2002.

    Gauges of “use” include, among other things, congressional
    decisionmakers' requests for other support, such as assisting in the
    development of oversight agendas, commenting on bills, helping to craft
    hearings, or providing questions for deliberations; citations in
    congressional documents, such as bills, laws, committee reports, or the
    Congressional Record; and information showing how agencies use our products.
    We also plan to develop a congressional feedback system and to track
    references to our work by the media, universities, and other organizations.

    We have provided an assessment of progress toward these goals in this report
    and will do so again next year. Our performance report for fiscal year 2002
    will provide a final assessment of the extent to which performance has met,
    exceeded, or failed to meet expectations for each of these goals over the 3-
    year period.

    Data Limitations: Because our use of qualitative goals is new, we do not yet
    have sufficient experience to determine their limitations. Success will
    depend upon the continued refinement of the goals, definitions of key terms,
    and standards for making assessments.

    Verification/ Validation: The assessments of progress against each 3- year
    goal will be supported by specific examples in internal written reports,
    receive formal internal review, and meet the same documentation and quality
    standards as any external GAO product. In addition,

    65

    GAO's Quality and Risk Management office will review the reports for
    consistency and ensure that requirements are met.

    Data Sources: GAO managers' assessments of success in meeting goals,
    supported by documented examples of accomplishments.

    Revising GAO's Performance Measures

    In fiscal year 2001, as laid out in our strategic plan, we began assessing
    our performance measures and, as appropriate, began developing new measures
    to track progress toward our strategic goals and annual targets. We believe
    this assessment is appropriate, given that we have a new strategic plan, a
    newly realigned organization that is consistent with our strategic goals and
    objectives, and two new management strategies to improve how we accept and
    manage engagements. The assessment will focus on how we can establish a
    “balanced scorecard” of performance measures to evaluate our
    performance in three key areas:

    Clients: What feedback do we receive from our clients about the services we
    are providing? Results: Are we producing the desired results- supporting the
    Congress and improving government outcomes- in an efficient manner? People:
    Are we successfully attracting, retaining, supporting, developing,
    deploying, leading, and recognizing our staff?

    To move to a balanced scorecard, GAO will be developing new measures based
    on client feedback and our performance in key human capital activities. For
    the “results” category, we will refine a number of our current
    measures, for example, financial benefits, other benefits, and timeliness.
    Most of the new measures and the refinements to existing measures are
    scheduled to be implemented in fiscal year 2002, which means we will report
    results in our fiscal year 2002 performance report.

    66 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Discontinued Measures

    Quality Review Scores

    Our final performance plan for fiscal year 2001 included a performance
    measure of how well GAO's products adhered to applicable auditing policies
    and procedures. At the end of the second quarter of fiscal year 2000,
    however- after the plan was published- we discontinued this measure. As a
    post- issuance measure, it did not reflect the evolving environment at GAO,
    where the increased emphasis on risk and matrix management requires building
    quality into our work and products prior to issuance. These management
    strategies emphasize a more proactive and systematic method to ensure that
    our products comply with GAO's core values, applicable professional
    standards, and reporting requirements. In addition, while this measure
    attempted to put a quantitative value on quality, the results were very
    similar for all of our operating units, meaning that it was not very useful
    in our efforts to improve our products and increase our ability to serve our
    clients.

    A measure of product quality should look at our products through the eyes of
    their users. Thus, we are developing a mechanism to obtain client feedback
    on our products as part of our balanced scorecard strategy. We will,
    however, continue our quality control practice of having senior managers
    review a statistically valid sample of products to make sure they comply
    with our core values and professional standards. The results will be one of
    the inputs used to continuously build quality into our products.

    Multiunit Products

    Our final performance plan for fiscal year 2001 included a performance
    measure for multiunit products. This was our first attempt at measuring
    matrix management by focusing on published products issued jointly by more
    than one of our teams and offices. We decided not to use this performance
    measure in fiscal year 2001 for three reasons. First, we were concerned that
    it did not adequately capture the extensive collaboration needed within and
    across units, which goes beyond that required to simply produce a published
    report. Second,

    67

    instead of just measuring the extent to which matrix management is
    occurring, we need to assess how well it is working. Finally, and most
    importantly, the new risk and matrix management strategies we implemented
    last year provide more proactive senior management involvement in our work
    processes. For instance, the new engagement acceptance meetings and
    engagement review meetings we conduct involve senior managers early in key
    decisions, such as whether to accept an engagement and what resources to
    allocate to it and determining the level of senior management involvement.
    As a result, we believe we have a more proactive approach to ensuring that
    the appropriate resources are devoted to each engagement regardless of where
    in our agency those resources are housed. Moreover, because this measure had
    relatively little meaning outside of GAO, we are seeking a better way to
    measure matrix management efforts.

    Program Evaluation

    To assess the extent to which our work improves the performance and
    accountability of the federal government, we track agencies' implementation
    of our recommendations. Much of the benefit from GAO's work results from
    agencies' responding to our recommendations by taking specific actions to
    improve their performance and accountability. GAO's continued attention to
    whether our recommendations are being implemented helps ensure that the
    benefits of our audit work are realized. A recommendation is closed when it
    has been implemented, when actions have been taken that essentially meet the
    recommendation's intent, or when circumstances have changed and the
    recommendation is no longer valid. The results of our evaluations of actions
    taken in response to our recommendations are reported quantitatively in our
    performance reports as the implementation rate.

    Each GAO team is responsible for actively tracking the status of open
    recommendations. The primary sources of information on their status are the
    agencies themselves. We verify the information they supply to ensure that
    the recommended actions are being taken and, to the

    68 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    extent possible, that the desired results are being achieved. We use the
    results of our analysis to determine the need for further work in an area.
    If, for example, an agency has not undertaken a recommended action that we
    consider to be still valid and worthwhile, we may decide to pursue further
    action with agency officials or undertake additional work.

    Early each calendar year, we provide a report to the House and Senate
    Appropriations Committees on the status of GAO's open recommendations. The
    report is intended for use by congressional oversight and authorization
    committees, as well as by the Appropriations Committees, in preparing for
    hearings and budget deliberations. The report's database describes the most
    recent actions taken on open recommendations and is on the Internet.

    Separately, title 31 U. S. C. 720 requires agencies to submit, within a
    specific period, written statements to the House and Senate Committees on
    Appropriations, the House Committee on Government Reform, and the Senate
    Committee on Governmental Affairs explaining actions taken or planned in
    response to GAO recommendations made to heads of agencies.

    Additional reviews- conducted by internal and external groups- help ensure
    that our work is consistent with generally accepted government auditing
    standards and with our policies and procedures. The reviews include internal
    reviews of management controls and business processes, annual internal
    inspections of the quality control system for our financial auditing
    practice, peer reviews of the quality control system for our financial audit
    practice by a public accounting firm (conducted every 3 years), and reviews
    by our Office of the Inspector General. For example, the team that inspected
    our quality controls for financial auditing for the period from January 1,
    2000, through September 30, 2000, rendered an unqualified opinion and found
    no matters requiring a letter of comment. We are pursuing ways to expand the
    use of peer review to our performance audits. Also, the Quality and Risk
    Management office is developing additional methods to evaluate our ability
    to build quality into products and to ensure compliance with our core values
    and applicable professional standards.

    69

    Highlights of Resources Needed to Achieve Our Fiscal Year 2002 Performance
    Goals

    GAO has requested a budget of $430.3 million for fiscal year 2002 to support
    the Congress as outlined in our strategic plan and to maintain current
    operations. This funding level will allow us to fully staff at our
    authorized level of 3,275 full- time equivalent personnel.

    More than 80 percent of GAO's budget will be used to compensate and provide
    benefits to its human capital- our greatest asset. The next largest
    proportion of its budget- about $51.2 million- is for contract services
    supporting both GAO's mission- direct work and administrative operations,
    including information technology, training, and building operation and
    maintenance services. About $12.3 million will be spent on travel and
    transportation, critical components to accomplishing and ensuring the
    quality of GAO's mission- direct activities. The remainder will be used for
    office equipment and space rentals; telephone, videoconferencing, and data
    communications services; and other operating expenses, including supplies
    and materials, printing and reproduction, and furniture and equipment. Our
    request includes $5.2 million to carry out responsibilities created by the
    Truth in Regulating Act.

    During fiscal year 2002, we plan to increase our investments in human
    capital and information technology to help maximize the productivity and
    impact of our current workforce. To help ensure our ability to attract,
    retain, and reward high- quality staff, we plan to devote additional
    budgetary resources to our performance- based rewards and recognition and
    training programs. For example, increased resources will be targeted to
    continue an initiative begun in fiscal year 2000 to address skill gaps,
    maximize staff productivity and effectiveness, update our training
    curriculum to address organizational and technical needs, and provide
    training to new staff. Major efforts are also planned and under way to
    revise our performance

    70 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    appraisal system for our analyst, legal, and mission support staff. We will
    continue to focus our hiring efforts in fiscal year 2002 on recruiting
    entry- level staff to help reshape the organization's human capital profile.

    On the information technology front, we plan to continue our technology
    initiatives designed to increase employee productivity, facilitate
    knowledge- sharing, maximize the use of technology, and enhance employee
    tools available at the desktop. We will also upgrade to Microsoft Office
    2000 to ensure continued vendor maintenance, support, and compatibility with
    industry standards. Additional resources also are targeted to revamping the
    information technology systems supporting our engagement tracking system and
    implementing system features necessary to ensure a secure network operating
    environment.

    The following table provides an overview of how our budgetary and human
    capital resources will be allocated among the four strategic goals and by
    budget program activity.

    Strategic Dollars in Full- time

    goal thousands equivalent staff

    Goal 1

    Provide timely, quality service to the Congress and the federal $100,737 965
    government to address current and emerging challenges to the well- being and
    financial security of the American people

    Goal 2

    Provide timely, quality service to the Congress and the federal 78,936 720
    government to respond to changing security threats and the challenges of
    global interdependence

    Goal 3

    Support the transition to a more results- oriented and accountable 112,814
    976 federal government

    Goal 4

    Maximize the value of GAO by being a model 137,808 614 organization for the
    federal government

    Total $430,295 3,275

    71

    Organization and Structure

    Created in 1921 as a result of the Budget and Accounting Act, GAO is
    headquartered in downtown Washington, D. C., at 441 G Street, Northwest, in
    a building placed on the National Register of Historic Places as a symbol of
    what in 1951 represented a new age in federal office design. It is across
    the street from the Pension Building (now the National Building Museum),
    which served as GAO's home prior to the construction of the GAO building in
    the late 1940s. Over 70 percent of GAO's approximately 3,200 employees are
    located at the headquarters building, with the remaining staff located in
    field offices throughout the United States.

    During fiscal year 2000, GAO began to realign its structure to better
    support the Congress and to prepare the agency to meet the future challenges
    outlined in GAO's strategic plan. At headquarters, staff formerly arrayed
    mainly in 5 divisions and 31 issue areas were restructured into 13 teams
    focused on research, audit, and evaluation work: Acquisition and Sourcing
    Management; Applied Research and Methods; Defense Capabilities and
    Management; Education, Workforce, and Income Security; Financial Management
    and Assurance; Financial Markets and Community Investment; Health Care;
    Information Technology; International Affairs and Trade; Natural Resources
    and Environment; Physical Infrastructure; Strategic Issues; and Tax
    Administration and Justice. Smaller specialized units support the teams and
    the agency as a whole. The Office of General Counsel, for instance, provides
    legal services to the Comptroller General and GAO's teams. Mission offices,
    including Quality and Risk Management, Product and Process Improvement,
    Congressional Relations, Public Affairs, and mission support offices, such
    as human capital and the controller, support the agency in achieving its
    goals and objectives.

    72 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    In the field, the realignment better aligned resources with the strategic
    plan, concentrated field resources in fewer locations with greater critical
    mass, and clarified the roles and responsibilities of field management,
    among other things. Five of our 16 field offices- Kansas City, Portland,
    Raleigh, Sacramento, and St. Louis- closed in November 2000, affecting about
    4 percent of GAO's workforce. Employees at those locations had the
    opportunity to apply for jobs within GAO and were given assistance in
    finding jobs with other employers.

    Like any organization that seeks to be a model for others, GAO cannot remain
    static in the face of rapid change and evolving client needs. Through the
    realignment and other initiatives, we have eliminated a layer of management,
    reduced the number of internal “silos” and field offices,
    increased our client focus, adopted formal core values for the agency,
    implemented more effective matrix management techniques, placed stronger
    emphasis on our human capital, and improved the alignment of programmatic
    capabilities with our new strategic plan.

    East Central

    Atlanta Boston Dayton Hunstville Norfolk

    Chicago Dallas Denver

    Los Angeles Seattle San Francisco

    Chief Mission Support & Chief Financial Officer

    CMSO/ CFO Field Office

    FO

    Legal Services and Ethics Counselor

    Comptroller General CG- CEO

    Chief Operating Officer COO

    Inspector General IG LSE CMSO/ MPA

    Quality & Risk Management

    QRM General Counsel

    GC

    Opportunity & Inclusiveness

    West

    Managing Directors for

    Operations

    MDO

    Controller/ Adminstrative

    Services Office

    CASO

    Knowledge Services

    KSO

    Human Capital

    Officer

    HCO

    Information Systems

    and Technology

    Services

    ISTS IAT

    FMA EWIS FMCI HC

    NRE PI TAJ

    IT ASM DCM

    Goal 2 Goal 3 Goal 1

    Goal 4 Goal 2

    Goal 3 Goal 1

    Financial Markets & Community

    Investment

    FMCI

    Financial Management &

    Assurance

    FMA

    Information Technology

    IT

    Physical Infrastructure

    PI

    Natural Resources & Environment

    NRE

    Education, Workforce & Income Security

    Strategic Issues & Methods

    ARM

    Applied Research Budget and

    Appropriations Law

    BAL

    Office of Special Investigations

    Tax Administration

    & Justice

    TAJ

    Acquisition & Sourcing Management

    ASM

    International Affairs &

    Trade

    IAT

    Defense Capabilities & Management

    DCM

    Health Care

    HC

    Mission and Operations M& O

    Office of Special Investigations GCOSI

    Procurement Law PL

    Customer Relations CMSO/ CR Management and

    Policy Analysis

    PA

    Applied Research and Methods

    Product and Process Improvement Strategic Issues

    Congressional Relations

    External Liaison Public Affairs

    PPI SI

    CR ARM EL

    O& I GCOSI Attorneys

    SI EWIS

    73

    Overview of Financial Statements

    GAO's financial statements and accompanying notes begin on page 76. Our
    financial statements for the fiscal year ended September 30, 2000, were
    audited by an independent auditor, Clifton Gunderson, LLP. The independent
    auditor rendered an unqualified opinion on GAO's financial statements and an
    unqualified opinion on the effectiveness of GAO's internal controls over
    financial reporting and compliance with laws and regulations. In addition,
    the independent auditor found no reportable instances of noncompliance with
    selected provisions of laws and regulations. In the opinion of the
    independent auditor, the financial statements are presented fairly in all
    material respects and are in conformity with generally accepted accounting
    principles.

    The net cost of operating GAO during fiscal years 2000 and 1999 was
    approximately $404 million and $390 million, respectively. Expenses for
    salaries and related benefits continue to account for about 75 percent of
    GAO's net cost of operations. Activities in the issue areas related to
    justice, tax policy, financial institutions, and general management, along
    with those related to education and employment, health care, and income
    security, were responsible for most of the increase. For fiscal year 2001
    reporting, GAO plans to report our net cost of operations according to our
    four major Strategic Goals, an appropriate measure of cost consistent with
    our new strategic planning process.

    74 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    Financial Systems and Internal Controls

    GAO recognizes the importance of strong financial systems and internal
    controls to ensure our accountability, integrity, and reliability. To
    achieve a high level of quality, management maintains a quality control
    program and seeks advice and evaluation from both internal and external
    sources. Specifically, through internal reviews and peer review activities,
    we obtain reasonable assurances that our audit and evaluation work conforms
    with all applicable professional requirements, including generally accepted
    government auditing standards.

    GAO's Inspector General (IG) conducts audits and investigations and
    functions as an independent fact- gathering and technical adviser to the
    Comptroller General. This year, as a result of IG efforts, we have
    strengthened our policies and internal controls on information technology
    contractor oversight, accountable personal property, charge card usage, and
    processing classified information on computers. We have also improved
    enforcement of requirements for filing annual financial disclosure
    statements and maintaining GAO building parking privileges.

    GAO utilizes an Audit Advisory Committee, which assists the Comptroller
    General in overseeing the effectiveness of our financial reporting and audit
    processes, internal controls over financial operations, and processes to
    ensure compliance with laws and regulations relevant to GAO's financial
    operations. The Committee consists of the following three distinguished
    individuals:

    Sheldon S. Cohen (Chairman) is a certified public accountant and practicing
    attorney in Washington, D. C.; former Commissioner and Chief Counsel of the
    Internal Revenue Service; and Senior Fellow of the National Academy of
    Public Administration.

    75

    Alan B. Levenson is a practicing attorney in Washington, D. C., and a former
    senior official at the Securities and Exchange Commission.

    Katherine D. Ortega is a certified public accountant, former Treasurer of
    the United States, former Commissioner of the Copyright Royalty Tribunal,
    and a former member of the President's Advisory Committee on Small and
    Minority Business.

    GAO is committed to fulfilling the internal control objectives of 31 U. S.
    C. 3512, formerly the Federal Managers' Financial Integrity Act (FMFIA).
    Although GAO is not subject to FMFIA, we comply voluntarily with the act's
    requirements. Our internal controls are designed to provide reasonable
    assurance that obligations and costs are in compliance with applicable laws
    and regulations; funds, property, and other assets are safeguarded against
    loss from unauthorized acquisition, use, or disposition; and revenues and
    expenditures applicable to GAO's operations are properly recorded and
    accounted for to enable our agency to prepare reliable accounts and
    financial reports and maintain accountability over our assets.

    GAO's management assesses compliance with these controls through a series of
    comprehensive internal reviews, applying the evaluation criteria in OMB's
    guidance (Circular A- 123, Management Accountability and Control) for
    implementing FMFIA. The results of these reviews are discussed with GAO's
    Audit Advisory Committee, and action is taken to correct deficiencies as
    they are identified.

    GAO has assessed our internal controls as of September 30, 2000, based on
    the criteria mentioned above for effective internal controls in the federal
    government. On the basis of this assessment, we believe that we have
    effective internal controls in place, as of September 30, 2000.
    Additionally, GAO's independent auditors have provided an unqualified
    opinion on GAO's internal controls over financial reporting and compliance
    with all applicable laws and regulations. Consistent with GAO's evaluation,
    the auditor found no material internal control weaknesses.

    76 M A N AG E M E N T D I S C U S S I O N A N D A N A LYSI S

    In addition, GAO is committed to fulfilling the objectives of the Federal
    Financial Management Improvement Act (FFMIA) of 1996. Although not subject
    to FFMIA, GAO voluntarily complies with its requirements. We believe that we
    have implemented and maintained financial systems that comply substantially
    with federal financial management systems requirements, applicable federal
    accounting standards, and the United States Government Standard General
    Ledger at the transaction level as of September 30, 2000, and for the fiscal
    year then ended. GAO made this assessment based on criteria established
    under FFMIA and guidance issued by OMB. Also, in their testing, GAO's
    auditors did not identify any instances of substantial noncompliance with
    FFMIA.

    U. S. GENERAL ACCOUNTING OFFICE BALANCE SHEET AS OF SEPTEMBER 30, 2000 AND
    1999

    Dollars in Thousands 2000 1999

    Assets

    Intragovernmental Funds with the U. S. Treasury $55,115 $53,343 Accounts
    receivable 487 1,222 Other 369 382 Property and equipment, net 74, 863 62,
    617

    Total Assets $130,834 $117,564 Liabilities Liabilities Covered by Budgetary
    Resources

    Intragovernmental Accounts payable $5, 801 $5, 909 Salaries and benefits
    2,502 2,292 Other liabilities 1,042 986 Salaries and benefits 15, 094 13,
    982 Employee travel 663 657 Accounts payable 7,041 7,986

    Total liabilities covered by budgetary resources 32, 143 31, 812 Liabilities
    Not Covered by Budgetary Resources

    Accrued annual leave and other 27, 573 26, 334 Workers' compensation 10, 121
    10, 150 Comptrollers General retirement plan 2,441 2,492 Capital leases
    7,730 6,671 Deferred lease revenue 8,550

    Total liabilities not covered by budgetary resources 56, 415 45, 647 Total
    Liabilities $88,558 $77,459

    Net Position

    Unexpended appropriations $23,515 $22,777 Cumulative results of operations
    18, 761 17, 328

    Total net position 42, 276 40, 105 Total Liabilities and Net Position
    $130,834 $117,564

    The accompanying notes are an integral part of these statements.

    77 F I N A N C I A L S TAT E M E N T S

    U. S. GENERAL ACCOUNTING OFFICE STATEMENT OF NET COST FOR FISCAL YEARS ENDED
    SEPTEMBER 30, 2000 AND 1999

    Dollars in Thousands 2000 1999

    Net Costs by Program Area

    National Defense, Security and International Relations, and Other Related
    Issues $87,094 $84,942

    Less reimbursable services Net program cost 87, 094 84, 942

    Financial Audits, Systems, Information Management and Technology Issues 83,
    937 84, 617

    Less reimbursable services (778) (997) Net program cost 83, 159 83, 620

    Energy, Agriculture, Environment, Housing, Transportation, and Natural
    Resources Issues 75, 927 73, 815

    Less reimbursable services Net program cost 75, 927 73, 815

    Justice, Tax Policy, Financial Institutions, and General Management Issues
    63, 750 57, 718

    Less reimbursable services (6) Net program cost 63, 750 57, 712

    Education and Employment, Health Care and Income Security Issues 58, 989 55,
    148

    Less reimbursable services (33) Net program cost 58, 989 55, 115

    Legal Services 26, 017 24, 461 Less reimbursable services Net program cost
    26, 017 24, 461

    Special Investigations and Investigative Support 6,275 6,288 Less
    reimbursable services Net program cost 6,275 6,288

    Senior management and staff 3,627 4,778 Less reimbursable services not
    attributable to programs (712) (456)

    Net Cost of Operations $404,126 $390,275

    The accompanying notes are an integral part of these statements.

    78

    U. S. GENERAL ACCOUNTING OFFICE STATEMENT OF CHANGES IN NET POSITION FOR
    FISCAL YEARS ENDED SEPTEMBER 30, 2000 AND 1999

    Dollars in Thousands 2000 1999

    Net Cost of Operations $404,126 $390,275 Financing Sources (other than
    reimbursable services)

    Appropriations used 376,640 365,009 Federal employee retirement benefit
    costs

    paid by OPM and imputed to GAO 19, 009 19, 839 Amortization of deferred
    lease revenue 503 Intragovernmental transfer of property and equipment (556)
    (1,176)

    Total Financing Sources 395,596 383,672 Net Results of Operations (8,530)
    (6,603) Net Increase (Decrease) in Unexpended Appropriations 738 (10,003)
    Change in Net Position (7, 792) (16,606) Net Position - Beginning of Fiscal
    Year 40, 105 56, 711 Reinstatement of the GAO Building and Land as

    a Multi- Use Heritage Asset 9,963 Net Position - End of Fiscal Year $42,276
    $40,105

    The accompanying notes are an integral part of these statements.

    79 F I N A N C I A L S TAT E M E N T S

    U. S. GENERAL ACCOUNTING OFFICE STATEMENT OF BUDGETARY RESOURCES FOR FISCAL
    YEARS ENDED SEPTEMBER 30, 2000 AND 1999

    Dollars in Thousands 2000 1999

    Budgetary Resources Made Available

    Current year appropriations $377,561 $354,268 Transfers of budget authority,
    net 125 1,000 Unobligated appropriations, beginning of fiscal year 4,477
    2,166 Reimbursable services 1,490 1,492 Cost sharing and pass- through CPA
    contract reimbursements 7,000 9,669

    Total Budgetary Resources Made Available $390,653 $368,595 Status of
    Budgetary Resources

    Obligations incurred $386,081 $363,856 Unobligated appropriations, end of
    fiscal year 4,264 4,477 Lapsed budget authority 308 262

    Total Status of Budgetary Resources $390,653 $368,595 Outlays

    Obligations incurred $386,081 $363,856 Less: Reimbursable services (1, 490)
    (1,492)

    Cost sharing and pass- through CPA contract reimbursements (7,000) (9,669)
    Obligated balance, net - beginning of fiscal year 48, 866 55, 632 Less:
    Obligated balance, net - end of fiscal year (50, 851) (48,866)

    Total Outlays $375,606 $359,461

    The accompanying notes are an integral part of these statements.

    80

    U. S. GENERAL ACCOUNTING OFFICE STATEMENT OF FINANCING FOR FISCAL YEARS
    ENDED SEPTEMBER 30, 2000 AND 1999

    Dollars in Thousands 2000 1999

    Obligations and Nonbudgetary Resources

    Obligations incurred $386,081 $363,856 Less: Reimbursable services (1, 490)
    (1,492)

    Cost sharing and pass- through CPA contract reimbursements (7,000) (9,669)
    Financing imputed from OPM for federal

    employee benefit cost subsidies 19, 009 19, 839 Amortization of deferred
    lease revenue 503 Intragovernmental transfer of property and equipment (556)
    (1,176)

    Total obligations as adjusted, and nonbudgetary resources 396,547 371,358
    Resources That Do Not Fund Net Cost of Operations

    Net (increase) decrease in unliquidated obligations (951) 12,314 Costs
    capitalized on the balance sheet (9,204) (8,425) Expenses to be funded by
    future appropriations 1,159 215

    Total resources that do not fund net cost of operations (8,996) 4,104 Costs
    That Do Not Require Resources

    Depreciation 16, 575 14, 813

    Net Cost of Operations $404,126 $390,275

    The accompanying notes are an integral part of these statements.

    81 F I N A N C I A L S TAT E M E N T S

    82 NOT E S TO F I N A N C I A L S TAT E M E N T S

    Notes to Financial Statements Note 1. Summary of Significant Accounting
    Policies

    Reporting Entity

    The accompanying financial statements present the financial position, net
    cost of operations, changes in net position, budgetary resources, and
    financing of the United States General Accounting Office (GAO), an agency of
    the legislative branch of the federal government. The financial activity
    presented relates primarily to the execution of GAO's congressionally
    approved budget. GAO's budget consists of an annual appropriation covering
    salaries and expenses and a building expenditure fund. The financial
    statements, except for federal employee benefit costs paid by the Office of
    Personnel Management (OPM) and imputed to GAO, do not include the effects of
    centrally administered assets and liabilities related to the federal
    government as a whole, such as interest on the federal debt, which may in
    part be attributable to GAO; they also do not include activity related to
    GAO's trust function described in Note 11.

    Basis of Accounting

    The Federal Accounting Standards Advisory Board (FASAB) was established in
    October 1990 by the Secretary of the Treasury, the Director of the Office of
    Management and Budget (OMB), and the Comptroller General (FASAB Principals).
    The mission of FASAB is to recommend proposed accounting standards to the
    Principals after considering the financial and budgetary information needs
    of the congressional oversight groups, executive agencies, and the needs of
    other users of federal financial information. When FASAB has developed a
    proposed concept or standard, FASAB will submit it to the Principals, who
    will have 90 days to review the statement or concept and communicate any
    objections. If none of the Principals objects, the statement or concept will
    become final guidance for federal financial reporting entities.

    83

    In April 2000, the American Institute of Certified Public Accountants
    (AICPA) recognized FASAB as the body that promulgates generally accepted
    accounting principles (GAAP) for federal reporting entities. These
    principles differ from budgetary reporting principles. The differences
    relate primarily to the capitalization and depreciation of property and
    equipment, as well as the recognition of other long- term assets and
    liabilities in the accompanying financial statements. Also, for purposes of
    the financial statements, budgetary appropriations are recognized as a
    financing source when goods and services are received or benefits are
    provided.

    Basis of Presentation

    GAO's 2000 financial statements have been prepared on the accrual basis of
    accounting in conformity with GAAP for the federal government and OMB
    Bulletin 97- 01, Form and Content of Agency Financial Statements, as
    amended. Accordingly, revenues are recognized when earned and expenses are
    recognized when incurred, without regard to receipt or payment of cash,
    respectively.

    Funds With the U. S. Treasury

    GAO's receipts and disbursements are processed by the U. S. Treasury. Funds
    with the U. S. Treasury represent appropriated funds available to pay
    liabilities and to finance authorized purchase commitments.

    Accounts Receivable

    GAO's accounts receivable are due principally from federal government
    corporations and other federal agencies for audit and other reimbursable
    services.

    Property and Equipment

    On October 28, 1988, Public Law 100- 545 transferred control of the GAO
    building and land in Washington, D. C., from the General Services
    Administration (GSA) to GAO without a monetary exchange. At the time of
    transfer, the depreciated value of the building was

    84 NOT E S TO F I N A N C I A L S TAT E M E N T S

    $15,664,000 and the book value of land was $1,191,000. GAO recorded the
    building and the land as assets at the values stated above. The GAO building
    is listed in the National Register of Historic Places and has been
    designated as, and is GAO's only heritage asset. Maintenance of the building
    has been kept on a current basis. Beginning with the 1996 financial
    statements, the GAO building and land were removed from the Balance Sheet
    and reported in a separate supplementary section of annual stewardship
    information under the requirements of Statement of Federal Financial
    Accounting Standards (SFFAS) Nos. 6 and 8 then in effect.

    SFFAS No. 16, effective for periods beginning after September 30, 1999, was
    issued to amend the measurement and reporting requirement for multi- use
    heritage assets as originally prescribed in SFFAS Nos. 6 and 8. SFFAS No. 16
    calls for accounting for multi- use heritage assets as general property,
    plant, and equipment to be included in the balance sheet and depreciated.
    Therefore, the GAO building and land have been recorded on the 2000
    financial statements at their value set on the day of transfer from GSA.
    Accumulated depreciation has been adjusted to reflect the depreciation
    charges not taken in 1996 through 1999. The building is depreciated on a
    straight- line basis over 25 years. The amounts reinstated are as follows:

    Dollars in Thousands Building acquisition value $15,664 Land acquisition
    value 1,191

    Total 16,855

    Less accumulated depreciation through September 30, 1999 (6,892)

    Addition to Total Assets and Net Position $9, 963

    Property and equipment costing more than $5,000 is capitalized at cost. Bulk
    purchases of lesser- value items that aggregate more than $100,000 are also
    capitalized at cost. These assets are depreciated on a straight- line basis
    over the estimated useful life of the property, ranging from 2 to 20 years.

    85 Liabilities

    Liabilities represent the amounts that are likely to be paid by GAO as a
    result of transactions that have already occurred; however, no liability is
    paid by GAO absent an appropriation. Liabilities for which an appropriation
    has not been enacted are, therefore, classified as liabilities not covered
    by budgetary resources. Although future appropriations to fund these
    liabilities are likely and anticipated, it is not certain that
    appropriations will be enacted to fund these liabilities.

    Federal Employee Benefits

    SFFAS No. 5, Accounting for Liabilities of the Federal Government, requires
    that GAO recognize its share of the cost of providing future pension
    benefits to eligible employees over the period of time that services are
    rendered. The pension expense recognized in the financial statements equals
    the current service cost for GAO's employees for the accounting period less
    the amount contributed by the employees. The measurement of the service cost
    requires the use of an actuarial cost method and assumptions, with the
    factors applied by GAO provided by OPM, the agency that administers the
    plan. The excess of the recognized pension expense over the amount
    contributed by GAO represents the amount being financed directly through the
    Civil Service Retirement and Disability Fund administered by OPM. This
    amount is considered imputed financing to GAO.

    The standard also requires that GAO recognize a current- period expense for
    the future cost of post- retirement health benefits and life insurance for
    its employees while they are still working. GAO accounted for and reported
    this expense in its financial statements in a manner similar to that used
    for pensions, with the exception that employees and GAO do not make current
    contributions to fund these future benefits.

    Annual Leave, Sick and Other Leave

    Annual leave is recognized as an expense and a liability as it is earned;
    the liability is reduced as leave is taken. The accrued leave liability is
    principally long- term in nature. Sick leave and other types of leave are
    expensed as leave is taken.

    86 NOT E S TO F I N A N C I A L S TAT E M E N T S

    Contingencies

    GAO has certain claims and lawsuits pending against it. When claims are
    expected to result in payments, and the payment amounts can be reasonably
    estimated, appropriate provision is included in the accompanying financial
    statements. In the opinion of management and legal counsel, the resolution
    of other claims and lawsuits will not materially affect the financial
    position or operations of GAO.

    Reclassifications

    Certain amounts for 1999 have been reclassified to conform with the 2000
    presentation of those amounts.

    Note 2. Property and Equipment, Net

    The composition of property and equipment as of September 30, 2000, is as
    follows:

    Dollars in Thousands

    Acquisition Accumulated Book Classes of Property and Equipment Value
    Depreciation Value

    Building $15,664 $7,519 $8,145 Land 1,191 - 1,191 Building improvements
    97,757 56,132 41,625 Computer and other equipment, and software 46,973
    31,226 15,747 Leasehold improvements 4,888 4,510 378 Assets under capital
    lease 14,916 7,139 7,777

    Total Property and Equipment $181,389 $106,526 $74,863

    87

    The composition of property and equipment as of September 30, 1999, is as
    follows:

    Dollars in Thousands

    Acquisition Accumulated Book Classes of Property and Equipment Value
    Depreciation Value

    Building improvements $85,852 $48,026 $37,826 Computer and other equipment,
    and software 46,379 28,673 17,706 Leasehold improvements 4,797 4,376 421
    Assets under capital lease 11,030 4,366 6,664

    Total Property and Equipment $148,058 $85,441 $62,617

    Note 3. Lease of Space to U. S. Army Corps of Engineers

    The U. S. Army Corps of Engineers (COE) entered into an agreement with GAO
    to lease the entire third floor of the GAO building. COE provided all
    funding for the third floor renovation. Occupancy began August 3, 2000, for
    an initial period of 3 years, with options to renew on an annual basis for 7
    additional years. Total rental revenue to GAO includes a base rent, which
    remains constant for the entire 10- year period, plus the lease agreement
    calls for operating expense reimbursements at a fixed amount for the first 3
    years, with escalations from year 4 through year 10.

    In addition, COE paid for the design, construction, and renovation of one-
    half of the sixth floor to be occupied by GAO. The renovations have been
    capitalized by GAO at a cost of $9,052,612. GAO will repay COE for the
    entire cost of the renovations in the form of rental credits during the
    first 3 lease years. Rental credits have been recorded as deferred lease
    revenue and will be amortized over a 3- year lease term. The current year
    amortization of deferred lease revenue is reported on the Statement of
    Changes in Net Position as a financing source and on the Statement of
    Financing as a nonbudgetary resource.

    The net amount of rental revenue due to GAO each year is the total revenue
    less the amortization of the deferred lease revenue. Fiscal year 2000 rents
    received by GAO, net of the deferred lease revenue amortization, amounted to
    $189,000. This amount is included in

    88 NOT E S TO F I N A N C I A L S TAT E M E N T S

    Reimbursable Services on the Statements of Budgetary Resources and
    Financing. Net rental revenue for the 10- year period is as follows:

    Dollars in Thousands

    Amortization Fiscal Year Ending Total Rental of Deferred Rental Revenue
    September 30 Revenue Lease Revenue Received or Due

    2000 $692 $503 $189 2001 4,189 3,018 1,171 2002 4,189 3,018 1,171 2003 4,214
    2,514 1,700 2004 4,345 - 4,345 2005 4,398 - 4,398 2006- 2010 22,064 - 22,064

    Total $44,091 $9,053 $35,038

    Note 4. Net Position

    GAO's operations do not require permanent capital and are not expected to
    generate an operating surplus or deficit. Net Position is composed of two
    elements- unexpended appropriations and cumulative results of operations.
    Unexpended appropriations includes appropriations not yet obligated or
    expended, i. e., unobligated appropriations and unliquidated obligations.
    Unobligated appropriations were $4,264,000 as of September 30, 2000, and
    $4,477,000 as of September 30, 1999; unliquidated obligations were
    $19,251,000 as of September 30, 2000, and $18,300,000 as of September 30,
    1999. Cumulative results of operations includes the amounts accumulated over
    the years by GAO from its financing sources less its expenses, including
    donations and transfers of capitalized assets and an amount representing
    GAO's liabilities not covered by budgetary resources. The former represents
    GAO's investment in capitalized assets, including supplies, net of capital
    lease liability and deferred lease revenue liability.

    Liabilities not covered by budgetary resources represent aggregate amounts
    of congressionally authorized long- term liabilities (annual leave, workers'
    compensation, retirement benefits for Comptrollers General and severance
    pay) that are expected to be funded by future years' appropriations.

    89

    Note 5. Net Cost of Operations

    The Statement of Net Cost shows the full and net operating costs of GAO's
    major programs. Expenses for salaries and related benefits for fiscal years
    2000 and 1999 amounted to $302,985,000 and $291,860,000, respectively, which
    were about 75 percent of GAO's annual net cost of operations. Included in
    the net cost of operations are federal employee benefit costs paid by OPM
    and imputed to GAO of $19,009,000 in fiscal year 2000 and $19,839,000 in
    fiscal year 1999. Revenues from reimbursable services earned by a program
    area are shown as an offset against the full cost of the program to arrive
    at its net cost. These revenues consist primarily of billings to federal
    government corporations for financial statement audits performed by GAO and
    to federal agencies for detailed GAO employees performing GAO mission-
    related work. Earned revenues that are insignificant or cannot be associated
    with a major program area are shown in total. Revenues from reimbursable
    services for fiscal years 2000 and 1999 amounted to $1,490,000 and
    $1,492,000, respectively. The net cost of operations represents GAO's
    operating costs that must be funded by financing sources other than revenues
    earned from reimbursable services. These financing sources are presented in
    the Statement of Changes in Net Position.

    Note 6. Net Financing Sources

    GAO's financing sources, other than reimbursable services, consist of
    appropriations used, imputed financing and amortization of deferred lease
    revenue, less transfers- out. Appropriations are considered used as a
    financing source when goods and services are received or benefits are
    provided. This is true whether the goods, services, and benefits are paid
    prior to the reporting date or are payable as of that date, and whether the
    appropriations are used for items that are recorded as expenses or are
    capitalized. Imputed financing is the offset to the federal employee benefit
    costs paid by OPM and imputed to GAO that are reported on the Statement of
    Net Cost. Amortization of deferred lease revenue represents the current
    year, nonbudgetary financing source used to cover the sixth floor
    renovation. Transfers- out

    90 NOT E S TO F I N A N C I A L S TAT E M E N T S

    represent the book value of capitalized assets transferred from GAO to other
    federal agencies without reimbursement.

    Note 7. Spending Authority From Budget Transfers and Reimbursements

    Budgetary resources made available to GAO include spending authority from
    budget transfers and reimbursements arising from both revenues earned by GAO
    from providing services to other federal entities for a price (reimbursable
    services) and cost sharing and pass- through contract arrangements with
    other federal entities. Fiscal year 2000 budget transfers consisted of
    budget authority transferred in from OMB for a management review of the
    operations of the Office of National Drug Control Policy. Budget transfers
    in fiscal year 1999 consisted of budget authority transferred in from the U.
    S. Agency for International Development for assessing disaster recovery
    assistance related to Hurricane Mitch and from the Department of Health and
    Human Services for specified studies of the Organ Procurement and
    Transplantation Network. Reimbursements from cost sharing and pass- through
    contract arrangements consisted primarily of collections from other federal
    entities for the support of FASAB and collections from other federal
    entities that utilize standing GAO contracts for obtaining accounting and
    auditing services from CPA firms. The costs and reimbursements for these
    activities are not included in the Statement of Net Cost.

    Note 8. Leases

    Capital Leases

    GAO has entered into capital leases for office and computer equipment under
    which the ownership of the equipment covered under the leases transfers to
    GAO when the leases expire. When GAO enters into these leases, the present
    value of the future lease payments is capitalized, net of imputed interest,
    and recorded as a liability. The acquisition value and accumulated
    depreciation of GAO's capital leases are shown in Note 2, Property and
    Equipment, Net. As of September 30, 2000 and 1999, the capital leases
    liability was $7,730,000 and $6,671,000, respectively.

    91

    The lease agreements are written as annual fiscal- year contracts that are
    subject to the availability of funding. The agreements contain a lease- to-
    purchase provision, and there is no penalty for cancelling the lease and
    returning the equipment before the end of the lease term. GAO's estimated
    future minimum lease payments under the terms of the leases are as follows:

    Dollars in Thousands

    Fiscal Year Ending September 30 Total

    2001 $4,655 2002 2,472 2003 1,360 2004 116 2005 0 Total Estimated Future
    Lease Payments $8,603 Less: Imputed Interest ( 873)

    Net Capital Lease Liability $7,730 Operating Leases

    GAO leases office space from GSA and has entered into various other
    operating leases for office communication and computer equipment. Lease
    costs for office space and equipment for fiscal years 2000 and 1999 amounted
    to approximately $7,800,000 and $7,483,000, respectively. GAO's estimated
    future minimum lease payments are as follows:

    Dollars in Thousands

    Fiscal Year Ending September 30 Total

    2001 $6,421 2002 5,078 2003 3,606 2004 1,665 2005 1,337 Thereafter 114

    Total Estimated Future Lease Payments $18,221

    Note 9. Federal Employee Benefits

    All permanent employees participate in the contributory Civil Service
    Retirement System (CSRS) or the Federal Employees Retirement System (FERS),
    which became effective

    92 NOT E S TO F I N A N C I A L S TAT E M E N T S

    January 1, 1987. Temporary employees and employees participating in FERS are
    covered under the Federal Insurance Contributions Act (FICA). GAO makes
    contributions to CSRS, FERS, and FICA and matches employee contributions to
    the thrift savings component of FERS up to 5 percent of basic pay. The
    pension expense recognized in GAO's financial statements for fiscal years
    2000 and 1999 amounted to approximately $35,061,000 and $34,906,000,
    respectively. These amounts include pension costs financed by OPM and
    imputed to GAO of $11,285,000 and $11,899,000, respectively. To the extent
    that employees are covered by FICA, the taxes they pay to the program and
    the benefits they will eventually receive are not recognized in GAO's
    financial statements. However, the payments to FICA that GAO makes are
    recognized as operating expenses. These payments amounted to approximately
    $10,314,000 and $9,765,000 during fiscal years 2000 and 1999, respectively.
    Similarly, to the extent that GAO employees are covered by the thrift
    savings component of FERS, GAO payments to the plan are operating expenses.
    GAO's costs associated with the thrift savings component of FERS during
    fiscal years 2000 and 1999 amounted to approximately $5,010,000 and
    $4,535,000, respectively.

    In addition, all permanent employees are eligible to participate in the
    contributory Federal Employees Health Benefit Program (FEHBP) and Federal
    Employees Group Life Insurance Program (FEGLIP) and may continue to
    participate after retirement. GAO makes contributions to FEHBP and FEGLIP
    for active employees to pay for their current benefits. GAO's contributions
    for active employees are recognized as operating expenses and, during fiscal
    years 2000 and 1999, amounted to approximately $9,881,000 and $9,349,000,
    respectively. Using the cost factors supplied by OPM, GAO has also
    recognized an expense in its financial statements for the future cost of
    post- retirement health benefits and life insurance for its employees. These
    costs amounted to approximately $7,724,000 and $7,940,000 during fiscal
    years 2000 and 1999, respectively, and are financed by OPM and imputed to
    GAO.

    Comptrollers General and their surviving beneficiaries who qualify and so
    elect to participate are paid retirement benefits by GAO under a separate
    retirement plan. These benefits are

    93

    paid from current year appropriations and amounted to approximately $251,700
    and $246,700 during fiscal years 2000 and 1999, respectively. Since GAO is
    responsible for future payments under this plan, the estimated present value
    of accumulated plan benefits is recorded as an unfunded liability. The
    estimated present value of accumulated plan benefits was $2,441,000 as of
    September 30, 2000, and $2,492,000 as of September 30, 1999.

    Note 10. Workers' Compensation

    The Federal Employees' Compensation Act (FECA) provides income and medical
    cost protection to covered federal civilian employees injured on the job,
    employees who have incurred a work- related occupational disease, and
    beneficiaries of employees whose death is attributable to a job- related
    injury or occupational disease. Claims incurred for benefits for GAO
    employees under FECA are administered by the Department of Labor (DOL) and
    are ultimately paid by GAO. GAO recorded an estimated liability for claims
    incurred as of September 30, 2000 and 1999, and expected to be paid in
    future periods. The total liability also includes amounts paid to claimants
    by DOL as of September 30, 2000 and 1999 of $2,113,000 and $2,146,000,
    respectively, but not yet reimbursed to DOL by GAO.

    Note 11. Davis- Bacon Act Trust Function

    GAO is responsible for administering for the federal government the trust
    function of the Davis- Bacon Act receipts and payments. GAO maintains this
    fund to pay claims relating to violations of the Davis- Bacon Act and
    Contract Work Hours and Safety Standards Act. Under these acts, DOL
    investigates violation allegations to determine if federal contractors owe
    additional wages to covered employees. If DOL concludes that a violation has
    occurred, GAO collects the amount owed from the contracting federal agency,
    deposits the funds into an account with the U. S. Treasury, and remits
    payment to the employee. GAO is accountable to the Congress and the public
    for the proper administration of the assets held in the trust. Trust assets
    under GAO's administration totaled approximately $4,878,000 on

    94

    September 30, 2000. These assets are not the assets of GAO or the federal
    government and are held for distribution to appropriate claimants. During
    fiscal year 2000, receipts and disbursements in the trust amounted to
    $2,197,000 and $2,088,000, respectively. Since the trust assets and related
    liabilities are not assets and liabilities of GAO, they are not included in
    the accompanying financial statements.

    The Audit Advisory Committee assists the Comptroller General in overseeing
    the U. S. General Accounting Office's (GAO) financial operations. As part of
    that responsibility, the Committee meets with agency management and its
    internal and external auditors to review and discuss GAO's external
    financial audit coverage, the effectiveness of GAO's internal controls over
    its financial operations, and its compliance with certain laws and
    regulations that could materially impact GAO's financial statements. The
    Committee reviews the findings of the internal and external auditors, and
    GAO's responses to those findings, to ensure that GAO's plan for corrective
    action includes appropriate and timely follow- up measures. In addition, the
    Committee reviews and comments on the draft Performance and Accountability
    Report, including its financial statements. The Committee met twice during
    fiscal year 2000. During these sessions, the Committee met with the internal
    and external auditors without GAO management being present.

    Sheldon S. Cohen Chairman Audit Advisory Committee

    95

    Report of the Audit Advisory Committee

    96

    Independent Auditor's Report

    97

    98 I N D E P E N D E N T AU D I TO R ' S R E P O RT

    99

    APPENDIX I

    GOAL 1 ACCOMPLISHMENTS AND PERFORMANCE GOALS

    Provide Timely, Quality Service to the Congress and the Federal Government
    to Address Current and Emerging Challenges to the Well- Being and Financial
    Security of the American People

    This appendix provides details of selected accomplishments during fiscal
    year 2000, categorized by strategic objective. The performance goals we set
    for fiscal years 2000 through 2002 for each objective and any revisions to
    them follow each set of accomplishments.

    Strategic Objective 1.1

    The Health Care Needs of an Aging and Diverse Population Helping to Prevent
    Fraud and Abuse in Medicare: GAO had long advocated increased funding for
    activities to prevent fraud and abuse in the Medicare program, and in 1996,
    the Congress passed the Health Insurance Portability and Accountability Act,
    which provided the additional funding. As a result of these activities, the
    Medicare program's net savings were about $3 billion in fiscal year 2000.

    Improving Management and Oversight of Medicare Operations: In response to
    our work on oversight of Medicare operations, the Health Care Financing
    Administration (HCFA) overhauled its program for evaluating the performance
    of its claims administration contractors, representing nearly 60 companies.
    As we recommended, HCFA instituted a targeted and nationally uniform
    approach to contractor evaluation that should provide the agency with a
    clearer and more informative picture of contractors' performance in
    processing claims and conducting program integrity activities. Also, in
    response to our work, HCFA made major changes to its

    100

    101

    regional and central office reporting structure to better hold officials
    accountable for their oversight of Medicare's contractor- managed day- to-
    day operations.

    Informing the Debate on Medicare Reform: Mindful of the need to ensure the
    Medicare program's long- term sustainability, the Congress relied on an
    ensemble of GAO reports to identify directions for Medicare reform. For
    example, our work on long- term budget projections and program management
    inefficiencies alerted policymakers to the need for significant program
    changes. At the same time, our analyses showing excess payments to managed
    care plans, factors contributing to their declining participation in
    Medicare+ Choice, and the implementation challenges embedded in program
    reform proposals alerted the Congress to the complexities and trade- offs
    associated with largescale reform and benefit expansions.

    Improving Medicare's Payment Policies: Medicare has implemented several new
    provider payment methods intended to slow spending growth while maintaining
    access to care. Our reports and testimonies consistently state the need for
    Medicare payment policies to ensure that provider payments are adequate,
    that payments reflect differences in beneficiary needs, and that providers
    have the appropriate incentives to deliver services in a costeffective
    manner. Under the payment method for home health care, for example, we noted
    that provider payments could go up, while services delivered to
    beneficiaries could actually decline. The Congress delayed further
    reductions in home health payments until we complete a mandated study on
    this topic. Under the payment method for skilled nursing facility services,
    we determined that even though aggregate spending appears adequate, payment
    rates for the highest- cost cases might be too low, which could impair
    access to care. The Congress mandated that we evaluate the impact of
    targeted payment increases and the overall financial health of the nursing
    home industry. Regarding payments for physician services, we identified
    several components of Medicare's method that need refinement to improve the
    equity of payments. The Congress mandated that we investigate specific
    modifications to the payments for oncology services and delayed changes to
    the payments for the pharmaceuticals they provided until we have completed
    another mandated study on drug pricing.

    Improving Private Health Insurance Coverage: GAO's work on strengthening
    consumer protections for and improving access to private health insurance
    contributed to congressional consideration of several proposed reforms. Our
    report and testimony on the Mental Health Parity Act highlighted ways in
    which employers have continued to provide limited coverage for mental health
    as the Congress considered whether to reauthorize the 1996 law. In addition,
    several of our reports were used during Conference Committee consideration
    of major provisions of the patient protection and access legislation (H. R.
    2990), including our findings on (1) the number and characteristics of
    individuals likely to be

    102 A P P E N D I X I

    eligible for the proposed health insurance tax deduction; (2) the experience
    of existing small business health insurance purchasing cooperatives as
    models of the proposed HealthMarts; and (3) the federal government's
    enforcement of the Health Insurance Portability and Accountability Act of
    1996, the same model proposed for federal enforcement of the patient
    protection legislation.

    Sharing VA and DOD's Health Resources: To save federal dollars, the
    Department of Veterans Affairs (VA) and the Department of Defense (DOD) have
    sought ways to share excess health care resources. VA and DOD officials have
    found that by sharing resources, better use of their local facilities,
    staff, and equipment; in some cases, beneficiary access and patient
    satisfaction have improved. However, most sharing is occurring between a
    small number of VA and DOD facilities. GAO identified and reported on the
    barriers inhibiting sharing and made a number of recommendations to overcome
    them. As a result, both agencies have refocused efforts to increase
    cooperation. Also, additional opportunities exist for VA and DOD to jointly
    purchase pharmaceuticals and obtain greater discounts from manufacturers. In
    fiscal year 2000, the two agencies will save an estimated $32 million from
    jointly awarded national committed- use contracts with suppliers. GAO's
    analysis showed that more could be saved by expanding the use of these
    contracts. As a result of our recommendation, DOD and VA have increased
    joint pharmaceutical contracting, thereby reducing drug costs by millions of
    dollars.

    Analyzing VA's Infrastructure: As much as 25 percent of VA's annual health
    care budget is spent to operate, maintain, and improve roughly 4,700
    buildings and 18,000 acres of property- including unused and underused
    hospitals and other facilities. Without a major restructuring of capital
    assets, billions of dollars will be used in the operation of hundreds of
    unneeded or underused VA buildings over the next few years. We reported that
    VA had made limited progress toward implementing a capital asset realignment
    process and estimated the opportunity cost of delay was as high as $1
    million a day. GAO recommended that VA develop asset- restructuring plans
    for all health care markets to guide investment decision- making. To respond
    to this recommendation, VA will soon implement its Capital Asset Realignment
    Services (CARES) program- to be carried out in three phases over 3 years-
    which involves assessing each network's health care requirements,
    identifying service delivery options to meet these requirements, and
    realigning capital assets accordingly. Successful implementation of CARES
    could result in significant savings for VA.

    Preventing TRICARE Fraud and Abuse: GAO has identified significant
    shortcomings in DOD's efforts to identify and prevent fraud and abuse. GAO's
    analyses validated that DOD and its contractors have paid little attention
    to fraud and abuse issues and that DOD could be losing hundreds of millions
    of dollars because of fraudulent activities.

    103

    GAO's recommendations for improving the programs resulted in DOD's agreeing
    to include in its military health system strategic plan how DOD will combat
    fraud and abuse and designate employees to oversee the implementation of new
    fraud prevention requirements.

    Budgeting DOD's Custodial Care Benefit: During GAO's efforts to evaluate the
    reasonableness of the Defense Health Care Program's budget request for
    fiscal years 2000- 2001, significant issues arose concerning the basis for
    DOD's estimates for expanding the custodial care benefit. GAO's analyses of
    DOD's historical and current spending patterns for this type of care
    indicated that its request of $100 million annually was overstated. As a
    result of GAO's work, DOD reduced its budget request to $20 million.

    Improving TRICARE Claims Processing: As part of its assessment of health
    care claims processing, GAO reported that increasing electronic claims
    submission and Web- based services would reduce claims processing costs and
    improve customer service. GAO's analyses found that processing DOD claims
    cost several times as much as processing Medicare claims-$ 7.50 compared
    with $1.78 per claim on average. As a result of GAO's analyses, the Congress
    instructed DOD to increase electronic claims submission with the goal of
    saving hundreds of millions of dollars.

    Learning Public Health Lessons From the West Nile Virus Outbreak: In fall
    1999, the mosquito- borne West Nile virus- a virus never before seen in this
    hemisphere- killed seven people in the New York City area and made dozens
    more very sick. Even though this was a natural occurrence, it can serve as a
    source of lessons about detecting and responding to an act of biological
    terrorism. GAO investigated this outbreak and established a thorough
    chronological account of the significant events and communications that
    occurred, from doctors and others who first saw the symptoms and from the
    officials mounting a response. From these efforts, GAO was able to identify
    lessons learned for public health and bioterrorism preparedness.

    Analyzing Biomedical Research: GAO found that the National Institutes of
    Health (NIH) had made less progress in implementing a requirement that
    certain clinical trials be designed and carried out to permit valid analysis
    by sex than it had in implementing other aspects of its policy to ensure the
    inclusion of women in clinical research. NIH quickly took several actions in
    response to GAO's findings and recommendations. It revised its guidelines on
    conducting and reporting on analyses of differences in Phase III clinical
    trials outcomes by sex and race/ ethnicity; required grant recipients to
    describe plans to conduct such analyses, as appropriate, and report on the
    results in Progress Reports and Competitive Renewal Applications; and
    developed instructions for reviewers and scientific review administrators.
    In addition, the Department of Health and Human Services

    104 A P P E N D I X I

    We revised the goal to reflect the broader nature of the work, which will
    look at access, quality, and costeffectiveness in addition to infrastructure
    issues.

    (HHS) held a symposium on issues pertaining to analysis of study results by
    sex, which focused on GAO's findings.

    Minimizing Foodborne Illnesses: At a time when increased public awareness of
    foodborne illnesses has heightened concerns about the federal government's
    effectiveness in ensuring the safety of the nation's food supply, GAO's work
    has been used extensively during congressional consideration of food safety
    issues. In particular, GAO has served as an honest broker of information on
    the shortcomings of the federal food safety system. GAO's analyses and
    recommendations for improving food safety have been directed at the Food and
    Drug Administration and the Department of Agriculture (USDA). For example,
    our work resulted in USDA's agreeing to create a new scientific, risk- based
    food safety inspection system referred to as the Hazard Analysis and
    Critical Control Point system. In implementing the system, USDA agreed to
    better clarify food inspectors' roles, responsibilities, and training needs.

    Strategic Objective 1.1

    Health Care Needs and Financing, Progress Toward FY 2000- 2002 Performance
    Goals

    Progress assessment Performance goal Comment

    Evaluate Medicare reform, financing, and operations

    Assess trends and issues in private health insurance coverage

    Assess actions and options for improving the Department of Veterans Affairs'
    and the Department of Defense's health care facilities and services,
    including realigning capital assets to reduce unneeded physical
    infrastructure

    Evaluate the effectiveness of federal programs to promote and protect the
    public health

    Assess the effectiveness of federal food safety programs

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    105 Strategic Objective 1.2

    A Secure Retirement for Older Americans Analyzing Social Security Reform:
    GAO produced a major body of work analyzing the challenges facing the long-
    term financial solvency, stability, and sustainability of the Social
    Security program, including developing and applying criteria for evaluating
    reform proposals. Our criteria provide a clear, consistent, and objective
    analytical framework that the Congress, program officials, and the public
    can use in evaluating legislative reforms.

    Improving SSA's Customer Service: The Social Security Administration (SSA)
    has improved service to its customers as a result of GAO's work and
    recommendations. Subsequent to a GAO recommendation, the agency has taken
    steps to expand its automated 800 number service. It has also significantly
    improved the clarity and readability of the benefit statement it mails to
    almost every U. S. worker each year. In addition, GAO found that several
    types of letters SSA sends to the public each year did not clearly
    communicate key points about the recipient's eligibility for benefits, and
    the agency has begun a major initiative to improve these letters. Finally,
    GAO has stressed the importance of developing a plan to meet the increasing
    demands expected for service in the future, and the SSA has recently
    developed a formal vision for service in the year 2010.

    Evaluating Proposed Pension Reforms: GAO provided useful and timely
    information to aid congressional consideration of various pension reforms.
    Our work on “top- heavy” pension rules and on cash balance
    pension plans helped foster a greater understanding of the way pension
    coverage is provided and identified areas where protections of workers'
    benefits may be weak. In response to our recommendations, the Department of
    Labor is considering changes to its disclosure requirements for companies
    converting to cash balance plans.

    Improving PBGC's Contract Management: GAO's evaluation of the Pension
    Benefit Guaranty Corporation's (PBGC) contracting management has fostered
    change in the way the corporation does business. In response to our
    recommendations, the corporation is beginning the process of better linking
    its organizational structure, staffing, and contracting decisions to its
    long- term strategic planning process and is taking actions to improve
    competition and oversight in its contracting process. These changes, taken
    together, will improve efficiency and cost- effectiveness, which in turn
    will improve service to beneficiaries.

    106 A P P E N D I X I

    Strategic Objective 1.2

    Retirement Income Security, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Assess the implications of various Social Security reform proposals within a
    developed framework and evaluation criteria

    Identify opportunities to foster greater pension coverage, increase private
    savings, participation and ensure adequate retirement income levels by
    private pension systems

    The wording was revised slightly to better articulate the focus of the goal.

    Identify opportunities to improve the ability of the Pension Benefit
    Guaranty Corporation's and the Department of Labor's Pension and Welfare
    Benefits Administration's programs federal agencies and programs to
    administer and protect workers'

    retirement benefits in private pension systems

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 1.3

    The Social Safety Net for Americans in Need Better Understanding the Status
    of Welfare Recipients: Our work continues to provide an objective source of
    information to the Congress on the results of the sweeping changes that it
    made to the nation's cash assistance program for needy families with
    children. For example, our report on sanctions under welfare reform provided
    the first national picture of the extent to which welfare recipients
    received benefit reductions or terminations for not complying with work or
    other requirements. Congressional and federal agency officials have cited
    our comprehensive review of studies of families that have left welfare as an
    authoritative source of information. Our report on work- site activities for
    welfare recipients recommended that the Department of Health and Human
    Services identify and disseminate information on promising work- site
    approaches used by states and localities. The Department agreed with this
    recommendation.

    Improving Nursing Home Quality of Care: HCFA and several states- including
    California, Maryland, and Michigan- improved their oversight and enforcement
    of nursing homes' quality care standards in response to GAO's
    recommendations highlighting weaknesses in existing processes. These
    improvements included increased funding for nursing home surveyors, more
    prompt investigation of complaints alleging serious harm to nursing home
    residents, more immediate enforcement actions for homes with repeated
    serious problems, a reorganization of HCFA's regional staff to improve
    consistency in nursing home over

    The goal was broadened to acknowledge the pivotal role played in this area
    by federal agencies other than the Department of Labor and the Pension
    Benefit Guaranty Corporation (e. g., the Treasury Department and the
    Internal Revenue Service).

    107

    sight, and increased funding for administrative law judges to reduce the
    backlog of appealed enforcement actions pending on nursing homes.

    Financing Health Care for Low- Income Populations: GAO reported and
    testified on several aspects of Medicaid and the State Children's Health
    Insurance Program, including extending Medicaid coverage to children with
    disabilities and delivering on statutory managed care protections for
    children with special needs. We also testified on two different financing
    schemes or unacceptable practices that states are using to inappropriately
    maximize federal funding and supplant the statutorily required state or
    local share of program expenditures. In the case of school- based Medicaid
    services, HCFA acted promptly to disallow over $100 million in improper
    payments in one state alone. HCFA and the Congress also implemented our
    recommendations to close another existing loophole that at present allows
    states to draw down and retain excessive federal payments for Medicaid-
    covered services in local government facilities. HCFA estimates that these
    actions will save the federal government more than $55 billion over 10
    years.

    More Accurately Budgeting the Food Stamp Program: Because of declining
    participation rates and a strong national economy, GAO questioned the
    Agriculture Department's budget requesting $18.4 billion for benefits and $1
    billion in contingency funds for the Food Stamp program. We pointed out that
    only about $17 billion in benefits had been provided to recipients in 1998
    and that the participation rate for the first half of 1999 had continued to
    decline. Following our work, the Congress provided $17.1 billion for
    benefits and $100 million for contingencies- a difference of $2.2 billion.

    Improving Rural Housing Assistance: In response to a congressional request,
    we reviewed rural housing assistance programs run by the departments of
    Agriculture and Housing and Urban Development. We found that these programs
    serve similar markets and provide similar products. To optimize the federal
    role in rural housing, we suggested that the Congress consider requiring
    that these agencies examine their single- family insured lending programs to
    take advantage of the best practices of each, while ensuring that targeted
    populations are not adversely affected. The departments agreed that ways of
    improving rural housing opportunities should be explored.

    Helping to Prevent Disability Program Overpayments: GAO found that
    inattention by SSA in verifying recipients' eligibility for the Supplemental
    Security Income (SSI) program had contributed to fraud, waste, abuse, and
    overpayments. Subsequently, in response to GAO's designation of the SSI
    program as high risk, SSA developed a strategy that included processing more
    SSI financial redeterminations. Increasing these redeterminations prevented
    $592 million in overpayments in fiscal year 1999.

    108 A P P E N D I X I

    Helping People With Disabilities Return to Work: Based in part on a body of
    GAO work that identified opportunities to improve federal disability
    programs' efforts to return people with disabilities to the workplace, the
    Congress passed the Ticket to Work and Work Incentives Improvement Act,
    which included

    expanding the availability of health care services for people with
    disabilities who work; expanding beneficiaries' access to vocational
    rehabilitation, employment, or other support services from an employment
    network of their choice; and establishing an outreach program to provide
    accurate information on work incentives to disabled beneficiaries.

    Improving VA's Disability Claims Processing: VA provides over $20 billion a
    year in disability compensation and pension benefits to more than 3 million
    veterans, family members, and survivors. In March 1999, we reported that
    while VA has taken steps to measure the accuracy of its claims- processing
    decisions, additional measures were needed to ensure that error- prone cases
    are identified and procedures for reviewing the accuracy of claims meet the
    government's internal control standards. GAO recommended, among other
    things, that VA implement a claims- processing accuracy review function that
    meets the government's internal control standard on separation of duties and
    the program performance audit standard on organizational independence. On
    the basis of our work, the Congress passed legislation requiring VA to
    establish a quality assurance program that meets generally applicable
    governmental standards for independence and internal controls.

    109 Strategic Objective 1.3

    Social Safety Net, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Analyze the results of welfare reform Evaluate federal and state program
    strategies for financing and overseeing chronic and long- term health care

    Assess states' experiences in providing health insurance coverage for
    previously uninsured lowincome children populations

    Identify opportunities to provide more costeffective food assistance
    programs and housing assistance programs

    Identify ways to improve federal disability programs support for people with
    disabilities

    Analyze the effectiveness and efficiency of child support enforcement and
    child welfare programs in serving their target populations

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 1.4

    An Educated Citizenry and a Productive Workforce Seeking Ways to Make Early
    Childhood Programs More Effective: GAO issued several reports and testified
    on what is known about the effectiveness of early childhood programs. To
    assist the continuing congressional interest in these programs, we also
    updated our report on the multiplicity of early childhood programs and what
    issues would need to be addressed to ascertain if opportunities for
    efficiency existed through consolidation.

    Strengthening Accountability in Educating Disadvantaged Students: GAO found
    accountability was lacking in the nation's $8 billion Title I program, which
    is intended to meet the needs of economically and educationally
    disadvantaged students. In particular, GAO found that most states are not
    positioned to hold schools and school districts accountable for the
    educational outcomes of disadvantaged students. GAO recommended, among other
    things, that the Department of Education help the states improve the quality
    of assessment data to better determine whether the Title I program is
    effective and whether students are making educational progress.

    We modified the wording of the goal to broaden the focus beyond children.

    We revised the goal to broaden the scope of our work to include access
    issues.

    We added this goal addressing child welfare and child support issues because
    of the intense concern the Congress has shown about these issues.

    110 A P P E N D I X I

    Managing High- Risk Student Financial Assistance Programs: In reviewing the
    Department of Education's performance plans, GAO noted that there were no
    goals or objectives that directly address one of the key outcomes that the
    Department identified as an important mission area- less fraud, waste, and
    error in student assistance programs. We concluded that because the
    vulnerabilities of the student financial assistance programs place the
    federal government at risk of incurring high costs, the Department should
    have goals and objectives that directly address the need to improve
    management and oversight of these programs. We expressed concern that the
    Office of Student Financial Assistance- the newly established performance-
    based organization that administers the programs- did not have a goal or
    objective to address the issues needed to remove the programs from GAO's
    high- risk list. After GAO issued its report, the Department revised its
    strategic plan to include a performance goal of improving the integrity of
    its financial aid program and a number of strategies that could potentially
    address GAO's concern.

    Enhancing the Understanding of the Workforce Investment Act's Implementation
    and Impact:

    To assist the Congress in assessing the need for amendments to the
    legislation, GAO has begun monitoring the implementation of the act and the
    progress states have made to integrate employment and training services. In
    evaluating states' readiness to implement the act, we found mixed progress,
    and not all states were fully ready to implement the act on July 1, 2000,
    when it took full effect. States and localities confronted several
    challenges as they tried to integrate their services, including developing
    the infrastructure to support an integrated program and developing an
    integrated approach while responding at the same time to the requirements of
    the individual federal programs. In addition, we identified several
    integrated service delivery approaches that showed promise. In an
    examination of employment and training programs, we noted that multiple
    programs exist to serve similar target populations and that policymakers
    might consider taking advantage of the opportunity the act provides to
    integrate or consolidate program services.

    Adjusting to a Changing Workforce: Changing patterns of work, new workforce
    arrangements, tight labor markets, and short supplies of skilled workers
    have focused the Congress's attention on the nation's laws governing the
    workforce. The Congress used GAO's work during its consideration of issues
    related to the white collar designation in the Fair Labor Standards Act, the
    use of workplace protections offered to contingent workers, and the increase
    in the use of skilled foreign workers to temporarily fill skilled worker
    shortages.

    Increasing the Labor Market Participation of Dislocated Workers: GAO has
    begun a comprehensive examination of dislocated worker programs to assist
    the Congress in addressing these issues. Recently completed work focused on
    federal assistance to trade- displaced

    111

    workers, highlighting recent trends in worker certifications, the extent to
    which program services and benefits have been used, and the reemployment and
    wage outcomes for workers served by the programs. We recommended changes to
    the program structure and management, including improved performance
    measurement systems and more effective internal controls. In addition, in an
    examination of the foreign guest worker program targeted at highly skilled
    workers, we found inadequacies in the law and operations that (1) limit the
    ability to ensure that these workers meet program requirements and (2)
    increase the program's vulnerability to abuse. We recommended that the
    Congress consider legislative changes to address these problems. We also
    identified ways that the government and employers are working to improve the
    information technology skills of the nation's workforce.

    Strategic Objective 1.4

    Education/ Workforce Issues, Progress Toward FY 2000- 2002

    Progress assessment Performance goal Comment

    Analyze the efectiveness and efficiency of early childhood care and
    education programs in serving their target populations

    Assess options for federal, state, and local programs to effectively address
    demographic changes the educational and the infrastructure needs of the
    education system elementary and secondary students

    Assess opportunities to better manage

    postsecondary, vocational, and adult education programs costs and better
    target federal aid to the neediest students and deliver more effective
    services

    Analyze the impact of programs designed to raise worker skills and ensure
    employers have the workers they need the recently enacted Workforce
    Investment Act on the delivery of employment and training services

    This goal was combined with the one directly below because implementation of
    the Workforce Investment Act is part of the larger issue of analyzing the
    impact of federal job training issues.

    Analyze programs designed to raise worker skills and ensure employers have
    the skilled workers they need

    The revised goal clarifies that it is addressing postsecondary school
    students and broadens the scope to include focusing on more efficient ways
    of providing effective services. The goal was revised to clearly indicate
    that it is

    related to elementary and secondary students rather than to higher education
    and to broaden the scope of our work to encompass overall educational needs.

    This goal was merged with the goal immediately above.

    Assess the success of various enforcement strategies to protect workers
    while minimizing employers' burden in the changing environment of work

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    112 A P P E N D I X I

    Strategic Objective 1.5

    An Effective System of Justice Strengthening the Crime Prevention Grant
    Program: GAO made multiple recommendations to improve the Department of
    Justice's Weed and Seed program- a program intended to “weed”
    out drugs and crime in infested neighborhoods and “seed” those
    locales with programs to foster community development. The assistance is
    intended to end when grantees are likely to be able to sustain themselves.
    As we recommended, the Department improved the program's internal controls
    and monitoring and developed criteria for determining when grantees are
    self- sustaining so that the program can reduce or withdraw funding as soon
    as it is appropriate to do so. These actions can enhance the efficiency of
    program operations and ensure that funds are spent only where they are
    needed.

    Helping to Prevent Drug Abuse: GAO recommended to HHS that drug court
    programs funded by discretionary and block grants collect and maintain
    follow- up data on their participants' criminal recidivism and drug use
    relapses. In response, (1) discretionary grant recipients underwent process
    and impact evaluations and participated in a national crosssite evaluation
    that included the collection of follow- up data, and (2) HHS obtained
    clearance from the Office of Management and Budget to include voluntary
    performance measures in the annual Substance Abuse Prevention and Treatment
    Block Grant application.

    Assessing the Impact of INS Detention Policy: The Immigration and
    Naturalization Service (INS) is to detain aliens who attempt to enter the
    country by engaging in fraud or misrepresentation and those who arrive with
    fraudulent, improper, or no documentation. If an INS officer determines that
    they have a credible fear of persecution or torture (if returned to their
    home country) and do not pose a risk of flight or a danger to the community,
    they can be released from INS custody to await a hearing before an
    immigration judge. Our review of 2,351 cases in which aliens were released
    and subsequently received an immigration judge's decision showed that 40
    percent of them had not appeared for their scheduled removal hearing. The
    Department of Justice estimates that, over time, the failure to appear rate
    will be about 25 percent. We recommended that INS reevaluate its policy of
    favoring the release of aliens found to have a credible fear of persecution.

    Evaluating Customs' Search Practices: Of about 140 million international
    airline passengers entering the United States during fiscal years 1997 and
    1998, Customs inspectors selected 102,000 for some form of personal search
    for contraband. Only 5 percent of the searched passengers were subjected to
    strip- searches or an X- ray. Our analysis showed that searched passengers
    of particular races and gender were more likely than other passengers to be
    strip- searched or X- rayed. However, in some cases, those types of
    passengers were

    113

    not as likely to be found carrying contraband. We recommended that Customs
    analyze its personal search data to better target passengers carrying
    contraband. As a result of the attention focused on this issue, Customs has
    changed some of its selection practices.

    Implementing an Innovative Contracting Approach: Following a GAO
    recommendation, the Bureau of Prisons implemented an innovative contracting
    approach to use Medicarebased benchmarking for competing bids. The
    benchmarking approach allowed contracting officials to (1) identify the best
    value among competing bids, (2) solicit lower prices through enhanced
    competition, and (3) provide for more accurate payment of medical bills.

    Strategic Objective 1.5

    Effective System of Justice, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Identify ways to improve federal agencies' response to crime

    Assess the effectiveness of federal programs to control illegal drug use

    Identify ways to administer our nation's immigration laws more efficiently
    and effectively

    Assess the administrative efficiency and effectiveness of the federal court
    and prison systems

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 1.6

    Investment in Communities and Economic Development Recapturing Excess HUD
    Funding: GAO identified funding from several sources in the Department of
    Housing and Urban Development's (HUD) budget, including unexpended balances
    no longer needed, that could be recaptured in fiscal years 1998 and 1999.
    The Congress rescinded $1.65 billion from the Section 8 fiscal year 1998
    budget authority and rejected $1.3 billion of HUD's fiscal year 1999 request
    for housing assistance, for a total reduction of $2.95 billion.
    Subsequently, GAO and HUD worked together to revise HUD's analysis to show
    that, by using recaptured funds, HUD had sufficient funding to meet its
    needs.

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    Improving HUD's Monitoring of Lenders and Management of Foreclosed
    Properties: In response to our recommendations that it more effectively
    monitor lender performance, HUD implemented procedures for targeting high-
    risk lenders for quarterly on- site reviews. In our congressionally
    requested review, we found, among other things, that HUD did not focus its
    monitoring process on the riskiest lenders. Also in response to a
    congressional request, we reviewed HUD's procedures for managing and
    reducing its inventory of properties that it acquires through foreclosures.
    We found that many contractors who maintain these properties did not provide
    adequate maintenance and security, leading to declining property values in
    the surrounding community. Additionally, real estate contractors were
    focusing their sales efforts on properties that had recently been added to
    the inventory, resulting in an increase in the number of properties in the
    inventory over 6 months. We recommended that HUD implement more effective
    methods such as instituting a system of incentives and penalties to
    encourage contractors to reduce the number of properties that are in the
    inventory over 6 months. We believe that the incentives and penalties should
    encourage the contractors to reduce the number of older properties and also
    maintain those properties while in inventory.

    Enhancing Tracking of Community and Support Service Outcomes: GAO reported
    that collection of data on community and support services at certain (HOPE
    VI) urban revitalization sites was inconsistent. In response to our
    recommendations, HUD hired a contractor to devise a tracking system so HUD
    could collect accurate baseline data and outcomebased measures. HUD now
    requires housing authorities with HOPE VI developments to supply data
    quarterly showing community and support service progress, including data on
    residents completing job training, being placed in jobs, and participating
    in family counseling and substance abuse programs.

    Enhancing Fair Lending Practices: Our report on fair lending documented that
    lenders were against conducting self- testing of their lending practices
    because the results of those tests could be used as evidence of lending
    discrimination. The Congress removed this potential by creating a legal
    privilege for voluntary self- testing, and the Federal Reserve and HUD
    issued implementing regulations.

    Developing Options to Manage Urban Growth: In response to a congressional
    request, GAO examined how federal programs and policies influence the
    ability of states and local communities to plan for and manage growth. Our
    report discussed ways to improve coordination among federal agencies and
    presented options for changes to federal programs that invest in local
    infrastructure, revitalize neighborhoods, develop downtown areas, and
    preserve farmland and open space. We provided the Congress with policy
    options across a range of federal programs as well as ideas for improving
    interagency coordination on crosscutting issues. In addition, our survey of
    nearly 2,000 cities and

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    counties across the United States created a comprehensive national database;
    one that captured the growth- related concerns and priorities of America's
    communities and their views on the influence of a broad range of federal
    policies and practices. These survey results created a springboard for
    further study and analysis and are available publicly on GAO's Web site.

    Improving USDA's Farm Loan Programs: In 1990, we classified USDA's farm loan
    programs as high- risk programs because they entailed significant risk to
    the government of major financial losses. Since then, the Congress and USDA
    have taken a number of corrective actions, partly as a result of GAO's work,
    that have improved the financial condition of the farm loan programs. The
    unpaid principal on USDA's loan portfolio held by delinquent borrowers was
    reduced by about $600 million between September 1998 and September 2000.
    This progress provides the basis for GAO to remove the program's high- risk
    designation (see High- Risk Series: An Update, GAO- 01- 263, Jan. 2001,
    available at www. gao. gov). However, we noted that because of an unpaid
    principal of about $16.6 billion in active direct and guaranteed farm loans,
    the Congress and USDA need to continue monitoring to ensure that
    improvements in the financial integrity of the farm loan programs continue.

    Investigating “Cramming” Complaints: We testified and reported
    on “cramming”- the inclusion of unauthorized, misleading, or
    deceptive charges on residential and business telephone bills. Despite an
    overall decline in complaints nationally, 15 states reported increases in
    consumer complaints about cramming. Also, 22 states received complaints from
    small businesses about a new form of cramming, involving unauthorized
    charges for Internet Web page design and services. In response, federal and
    state regulators are taking additional enforcement actions against crammers.

    Improving Airline Competition: Our congressionally requested work on airline
    competition paid off, with the Congress passing legislation that addressed
    critical barriers to increased competition. Our work showed that limitations
    on the numbers of arrivals and departures (called slot controls) inhibit the
    ability of some airlines to serve new markets. The new law encourages more
    vigorous competition by phasing out slot controls at three major airports,
    increases slots for new- entrant airlines, increases slots for airlines with
    limited access, and requires that the Department of Transportation (DOT)
    grant additional slots to airlines that increase regional jet service to
    small- hub airports. Several of those smaller cities now receive improved
    service from airlines operating regional jets.

    Analyzing Space Shuttle Safety: As the nation's only launch system capable
    of carrying people to and from space, the space shuttle is critical to the
    National Aeronautics and Space Administration's (NASA) space programs such
    as the multibillion- dollar

    116 A P P E N D I X I

    International Space Station. GAO testified and reported on the negative
    effects of downsizing the shuttle workforce by one- third. Examples include
    insufficient staffing in key areas, overwork and fatigue, and a demographic
    shape and skill mix that jeopardize the shuttle program's ability to
    “hand off ” leadership roles to the next generation and achieve
    a higher flight rate to support assembly of the International Space Station.
    NASA is using GAO's human capital self- assessment checklist in ongoing
    workforce planning and discussions with the Office of Management and Budget.

    Improving the Services Provided by SBA's 8( a) Program: GAO's work on the
    Small Business Administration's (SBA) business development program provided
    the Congress and SBA with the first customer feedback on the program and
    insights into weaknesses in the program's information system. We found that
    almost all firms joined the program to obtain 8( a) contracts, wanted SBA to
    provide contracting assistance, and were more satisfied with the program if
    they had received a contract. Yet, access by firms to 8( a) contracts- long
    considered the program's biggest benefit- remains a problem, and SBA's 8( a)
    information system does not meet the needs of headquarters or district
    officials. We recommended that SBA take a number of actions to better meet
    the purpose of the program, the needs and expectations of the firms, and its
    ability to determine how well the program is working. As a result of our
    work, SBA is implementing changes to target business development and
    procurement assistance to the needs of particular 8( a) firms and to produce
    better information on the program's performance.

    Budgeting Disaster Relief Funds More Accurately: In response to a
    congressional request, we reported that the Federal Emergency Management
    Agency (FEMA) uses inaccurate data to compute the remaining costs for past
    disasters. The inaccuracies stemmed from a mistake in the process that FEMA
    used in extracting data from its financial information system. FEMA has
    taken steps to correct this problem. We also found that to estimate the
    remaining need for disaster funds in a calendar year, FEMA uses a constant
    rate of decline starting in October, even though hurricanes, which typically
    occur in late summer and early fall, cause a major draw on FEMA funds. We
    recommended changes in how FEMA estimates the timing and cost of future
    disasters. FEMA officials acknowledged that some inaccuracies have occurred
    in reports but have not yet informed us of their plans to respond to them.

    Helping to Prevent Insurance Fraud: GAO found that state insurance
    regulators were not prepared to prevent or detect a $200 million investment
    scam perpetrated among multiple insurers for nearly an 8- year period. Among
    the regulatory weaknesses cited, GAO found that inadequate professional
    skepticism and long- standing information- sharing issues among federal and
    state financial regulators delayed detection of the scam for years. GAO made
    recommendations to state insurance commissioners, the National Association

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    of Insurance Commissioners, and the U. S. Attorney General to shore up
    regulatory weaknesses and develop more routine processes for sharing and
    coordinating information on common regulatory oversight matters.

    Improving Mutual Fund Disclosures: Mutual funds experienced incredible
    growth since the 1980s and held $5.5 trillion of assets at the end of 1998.
    With 44 percent of U. S. households owning mutual funds, transparent
    information on the fees these funds charge is important to investors.
    However, GAO found that competition between firms and the fee disclosures
    they make may not be sufficiently influencing the level of fees mutual funds
    charge. In response to GAO's recommendation, the Securities and Exchange
    Commission is planning to expand these disclosures to provide investors with
    more information.

    Strategic Objective 1.6

    Community Investment, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Identify how federal agencies can streamline and improve their programs to
    facilitate the delivery of grants, loans, and other types of economic
    assistance to communities

    Assess how the federal government can minimize financial risk in mortgage
    assistance

    housing finance

    Assess the effectiveness of current federal farm subsidies and the extent to
    which the 1996 Farm Bill has programs and policies to reduced agriculture's
    dependence on federal subsidies and improved its competitiveness

    Assess the impact of transportation, telecommunications, and postal policies
    on competition and consumers

    Assess the costs and outcomes of the federal investment in science and
    technology programs

    Identify cost- effective and efficient ways to assist small and minority-
    owned businesses

    Determine how federal disaster assistance costs can be reduced and targeted
    to the most costeffective mitigation measures

    Assess the regulatory effectiveness of programs and policies in ensuring
    access to financial services and deterring fraud and abuse

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    The wording of the goal was revised to clarify the broader scope of the work
    we are doing.

    The wording of the goal was changed to better articulate the scope of the
    work we are doing.

    The wording of the goal was changed to expand its focus beyond subsidies and
    the 1996 Farm Bill.

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    Strategic Objective 1.7

    Responsible Stewardship of Natural Resources and the Environment
    Strengthening the Land Exchange Process: Land exchanges- trading federal
    land for nonfederal land of similar market value- have long been used by the
    Bureau of Land Management and the Forest Service to supplement funds that
    are appropriated to purchase nonfederal land. GAO reported numerous land
    exchanges in which the agencies gave more than market value for nonfederal
    land they acquired and received less than market value for federal land they
    conveyed, totaling about $28 million in losses to taxpayers. In addition,
    GAO found that the Bureau- under the umbrella of its land exchange program-
    illegally sold federal land and retained at least $17 million in proceeds
    and interest to buy nonfederal land; these cash proceeds instead should have
    been deposited into the Treasury and subject to congressional appropriation.
    In response to our work, both agencies immediately increased management
    oversight of their ongoing exchanges. In addition, the Bureau identified
    cash balances of about $4 million and deposited them into the Treasury, took
    steps to initiate a financial audit of these unauthorized cash transactions,
    and clarified its policies and guidance on land exchanges.

    Managing Wildfire Prevention: “Federal Experts Saw Massive Wildfires
    Coming” read an August 7, 2000, news headline. The article was
    referring to GAO's April 1999 report on wildfires. Since then, GAO has used
    the increased risk of uncontrollable and often catastrophic wildfires as an
    example of the need for “strategic budgeting” to address issues
    that are not aligned with the current budget and organizational structures
    of the four major federal land management agencies. Responding to the
    wildfires that burned over 6.5 million acres of public and private land in
    2000, the Congress appropriated an additional $240 million in fiscal year
    2001 to reduce hazardous fuels in high- risk locations where wildlands and
    urban areas meet. GAO testified on the need for the four land management
    agencies to act quickly to develop a framework to spend funds effectively
    and to account accurately for what they accomplish with the funds.

    Addressing Energy Policy Issues: GAO provided impartial analyses and
    commentary on energy price increases and related issues that were used by
    the Congress in addressing (1) disproportionate increases in gasoline prices
    on the West Coast compared with the rest of the United States, (2) the
    limited role of alternative fuel vehicles in reducing the nation's
    dependence on petroleum, (3) the value in a $1.25 billion government-
    industry partnership to develop a highly efficient automobile, and (4)
    opportunities for increasing the federal government's $3.2 billion in oil
    and gas royalties.

    Improving Water Pollution Monitoring: GAO has played a significant role in
    providing impartial research and analyses that were used by the Congress as
    it considered how to

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    best address the complex and controversial aspects of controlling water
    pollution, particularly concerning the issue of nonpoint sources of
    pollution. In fiscal year 2000, GAO issued several key reports and testified
    before House and Senate committees with jurisdiction over water issues. For
    example, the Congress used our reports on water quality data gaps in
    assessing whether water quality data were sufficient to support significant
    policy decisions. The monitoring weaknesses identified by GAO were cited in
    the report accompanying the Senate's fiscal year 2001 appropriations bill
    for the Environmental Protection Agency (EPA), which called on EPA to
    address these weaknesses, and were also cited in a legislative proposal
    calling for increased funding for nonpoint source pollution control.

    Restoring the Florida Everglades: Restoring the South Florida ecosystem,
    which includes the Everglades, is one of the most significant and
    complicated environmental initiatives ever undertaken. GAO found that the
    ability to accomplish the ecosystem's restoration in a timely and efficient
    manner was at risk unless a strategic plan to guide the restoration and a
    mechanism to resolve the inevitable conflicts were developed. The Congress
    directed the South Florida Ecosystem Restoration Task Force, a multiagency
    group responsible for coordinating and facilitating the restoration effort,
    to develop a strategic plan as outlined by GAO. GAO's analyses and
    recommendations for improving the planning and management of the restoration
    effort also resulted in congressional direction to the task force to develop
    (1) a conflict resolution process, (2) an estimate of the total costs to
    restore the ecosystem, and (3) a land acquisition plan to supplement the
    strategic plan.

    Improving Superfund Program Management: Given the environmental and public
    health importance of cleaning up the nation's tens of thousands of abandoned
    hazardous waste sites and the large financial commitment involved, improving
    the management of EPA's Superfund program has been an area of ongoing
    congressional interest, including recent congressional attention to the
    program's future policy direction. For over a decade, GAO has designated the
    program as being at high risk because recurring management problems
    heightened the potential for waste, fraud, abuse, and mismanagement. GAO's
    numerous recommendations have provided a detailed framework to assist the
    Congress and EPA in their efforts to strengthen Superfund program
    management. In recent years, the agency has made significant progress
    implementing GAO's recommendations and is doing a better job in such areas
    as considering human health and environmental risks in setting its clean- up
    funding priorities and attempting to recover more costs from parties
    responsible for site contamination. This progress provides the basis for GAO
    to remove the program's high- risk designation (see High- Risk Series: An
    Update, GAO- 01- 263, Jan. 2001, available at www. gao. gov).

    Maximizing the Uranium Enrichment Program: Acting on a GAO recommendation,
    the Congress required the Department of Energy to recover from commercial
    customers an

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    appropriate share of the expected costs for work that involved the
    decontamination and decommissioning of the Department's uranium enrichment
    plants. More than $731 million in additional collections resulted.

    Strategic Objective 1.7

    Natural Resources Use and Environmental Protection, Progress Toward FY 2000-
    2002 Performance Goals

    Progress assessment Performance goal Comment

    Assess the costs and outcomes of federal strategies for managing federally
    owned lands and the adequacy of legislative and regulatory guidance for
    resolving conflicts and making choices among competing land uses

    Assess the impact of energy and environmental policies and regulations on
    the availability of secure and reliable sources of energy

    Assess the costs and outcomes of federal pollution control strategies and
    opportunities for more cost- effective approaches

    Assess opportunities to improve the management and cleanup of hazardous and
    nuclear waste sites

    Assess U. S. efforts to address global and international environmental
    challenges

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 1.8

    A Safe and Efficient National Physical Infrastructure Focusing on
    Infrastructure Needs: To help the Congress understand the full range of
    infrastructure investment needs and spending trends on highways, airports,
    and federal facilities, GAO laid out a series of best practices that could
    help ensure that infrastructure investments produce the maximum benefits.
    Our work has increased awareness and helped focus attention on new
    infrastructure requirements and on major gaps in needed maintenance for
    existing infrastructure. We also reported that the Federal Buildings Fund
    does not provide sufficient revenues to meet the billions of dollars needed
    for repairs and alterations in buildings the General Services Administration
    (GSA) manages. GSA is moving to implement our recommendations to improve the
    overall management and oversight of its repairs and alterations program.

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    Eliminating High- Speed Rail Project: Florida's governor canceled a planned
    $6 billion- to$ 8 billion high- speed rail project as a result of concerns
    GAO raised about the cost estimates, financing requirements, ridership, and
    the project's extremely ambitious construction schedule. The governor's
    action eliminated the need for a $295 million federal obligation to cover
    the cost of federal credit. The project's sponsors had planned to seek a $2
    billion loan through the Transportation Infrastructure Finance and
    Innovation Act of 1998. The $295 million would have consumed over half of
    the funds authorized by the act to cover the cost of federal loans.

    Assessing the Challenges Involved in Expanding Airport Capacity: In response
    to a congressional request, we found that the greatest environmental
    challenge facing airports now and in the future as they attempt to grow and
    balance their growth with its effects on the environment is noise. Balancing
    growth with ensuring water quality and air quality also presents challenges.
    We recommended that the Administrator of the Federal Aviation Administration
    (FAA) communicate with airports about the requirements for environmental
    reviews and document the results of the reviews and communicate these
    results to airport officials. We also recommended that the Administrator,
    EPA, in coordination with FAA, clarify guidance for determining that airport
    expansion projects conform to requirements of the Clean Air Act and provide
    airport officials with the expertise necessary to meet air quality
    requirements.

    Ensuring the Safety of Our Drinking Water: In a nationwide survey done for
    several congressional requesters, GAO identified serious shortfalls in the
    funding available to help local drinking water systems comply with public
    health regulations- considering needed investments in both physical
    infrastructure and essential quality assurance activities, such as training
    water system operators. As a result of reports by GAO and others,
    congressional leaders expect to consider a major water infrastructure bill
    in the upcoming session.

    Improving Aviation Inspections: During the course of a congressionally
    requested review of FAA's safety program, GAO learned of serious concerns
    about inspector staffing deficiencies at a field office that could have
    jeopardized FAA's ability to ensure safety compliance for a major carrier
    that had a record of safety compliance problems. Inspector turnover at that
    field office had reduced the number of inspectors familiar with the troubled
    carrier. In addition, airline expansion plans within the field office's
    territory, combined with another airline's plans to relocate within the
    territory, further exacerbated the staffing situation. At the time of our
    review, FAA management was unaware of the potential problem. However, the
    week after we highlighted these concerns, FAA sent a team to assess the
    field office's staffing. FAA confirmed the problem, assigned additional
    staff on a temporary basis, and made further plans to reevaluate staffing
    needs at the field office.

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    Strengthening Aviation Safety and Security Enforcement: Responding to a
    congressional request on FAA's safety and inspection program, GAO reported
    that FAA had not established guidance on allocating its enforcement
    resources to cases with the most significant safety implications. GAO
    recommended that FAA develop guidance for its inspectors to help them
    distinguish major from minor violations, which would facilitate FAA's
    efforts to better focus its resources. In response to our recommendation,
    FAA revised its enforcement guidance to focus resources and efforts on
    identified areas of critical safety and security noncompliance.

    Reducing FAA's Funding: As a result of our review of FAA's fiscal year 2000
    budget request, the Congress reduced FAA's appropriation by $38.5 million.
    By interviewing FAA officials and examining project schedules and other
    documents, we identified several projects and an operations account line
    item as candidates for budget reductions.

    Assessing Amtrak's Financial Viability: In response to a congressional
    request, we reported on Amtrak's operating and capital costs and the
    availability of federal and nonfederal funds for Amtrak's capital
    investments. Similar to our past reports, we found that Amtrak's costs are
    growing and far exceed the expected funds available. We recommended that
    Amtrak develop measures of productivity for its different lines of business
    and that it adopt a multiyear capital spending plan that identifies its
    capital investment needs for at least 5 years, prioritizes these needs in
    accordance with corporate goals and strategies, establishes specific
    measurable benefits from these investments, and identifies specific funding
    sources to meet these needs.

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    The wording was revised to better articulate the scope of the work it
    covers.

    The wording was changed to show that the focus is wider than transportation
    projects.

    The wording was revised to reflect that our focus is on all infrastructure
    projects' impacts on the environment and the economy, not just the impact of
    transportation projects.

    The goal was deleted because its issues will be addressed under the first
    goal above and under the performance goal- assess the costs and outcomes of
    federal pollution control strategies and opportunities for more cost-
    effective approaches- found in the previous strategic goal.

    The wording was changed to show that the goal extends to other agencies'
    efforts as well (e. g., the National Transportation Safety Board's).

    This goal was eliminated because financing is the key issue facing Amtrak,
    and we will do the work under the broader scope of the revised second
    performance goal: “Assess alternative methods for financing
    infrastructure needs.” This goal was deleted because these issues will
    be covered under our performance goals related to the federal investment in
    science and technology under strategic objective 1.6 and in the new
    performance goal listed at the bottom of this chart.

    This goal was added to guide our work on the Postal Service's
    infrastructure, regulatory oversight, quality of service, and human capital
    programs.

    This goal was added to encompass work on the nonmilitary federal facilities
    portfolio, including the national laboratories.

    Strategic Objective 1.8

    Physical Infrastructure, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Identify the full range of infrastructure investment needs and spending
    trends at the federal, state, and local levels; best practices; and
    potential solutions for improved decision- making on infrastructure
    investments

    Assess alternative methods for financing transportation projects
    infrastructure needs

    Analyze the environmental and economic impact of transportation facilities
    infrastructure

    on surrounding communities and alternatives for reducing congestion and
    delays

    Assess the investments required to meet federal safe drinking water and
    wastewater treatment standards and the alternatives for cost- effectively
    maintaining, repairing, and replacing communities' drinking water,
    wastewater, and solid waste infrastructure

    Assess the Department of Transportation's efforts to reduce accidents,
    injuries, and fatalities

    improve safety in all transportation modes Assess Amtrak's financial
    viability

    Assess the cost- effectiveness of upgrading and maintaining the nation's
    federal laboratories

    Assess the viability of the Postal Service and its mission

    Assess the stewardship of the federal facilities portfolio

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    APPENDIX II

    GOAL 2 ACCOMPLISHMENTS AND PERFORMANCE GOALS

    Provide Timely, Quality Service to the Congress and the Federal Government
    to Respond to Changing Security Threats and the Challenges of Global
    Interdependence

    This appendix provides details of selected accomplishments during fiscal
    year 2000, categorized by strategic objective. The performance goals we set
    for fiscal years 2000 through 2002 for each objective and any revisions to
    them follow each set of accomplishments.

    Strategic Objective 2.1

    Responding to Diffuse Threats to National and Global Security Strengthening
    Security at Federal Buildings and Airports: At the request of a House
    Judiciary Subcommittee, GAO assessed the potential risks to the security of
    federal buildings and airports from the use of counterfeit law enforcement
    badges and credentials, which are readily available publicly and through the
    Internet. During the investigation, GAO's special agents posed as plain-
    clothed law enforcement officers and successfully breached security at 19
    secure federal buildings and two airports. By displaying fake badges and
    credentials, the agents were able to enter agency buildings while claiming
    to be armed, carried briefcases that were never searched, and, in one case,
    drove a rental van into the courtyard of a federal building without
    inspection. At the two airports, agents obtained boarding passes and
    firearms permits to carry weapons aboard flights for which they had
    purchased tickets. As a result of the Subcommittee's hearing on GAO's
    investigation and report, the Enhanced Federal Security Act of 2000 was
    passed, making it a federal crime to enter, or attempt to enter, federal
    property or the secure area of an airport under false pretenses.

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    Supporting Legislative Reforms to Combat Terrorism: GAO supported
    congressional decision- making on proposed reforms to programs to combat
    terrorism. For example, we formally commented on a bill to change the
    management of selected counterterrorism programs. In addition, we monitored
    a congressionally mandated, national- level counterterrorism exercise to see
    if it met its objectives. Aside from specific legislative reforms, GAO
    supported congressional hearings by testifying five times on programs to
    combat terrorism.

    Safeguarding Nuclear Material: A primary national security concern of the
    United States and Russia is the 650 metric tons of highly enriched uranium
    and plutonium in Russia that are highly attractive to theft and that have
    weak security controls. GAO has reported that this program has placed only a
    small amount of material under improved security controls and that the
    Department of Energy (DOE) has already spent more than its original cost
    estimate for the entire program. We recommended, and the Secretary of Energy
    agreed to develop, new cost estimates and time frames for completing the
    program.

    Assessing Biological Weapons Risks: The former Soviet Union covertly
    developed the world's largest offensive biological weapons program, using a
    network of research institutes. After the fall of the Soviet Union, Russia
    cut funding for these institutes. However, the United States remains
    concerned about Russia's biological weapons capability. The U. S. response
    has been to fund collaborative research activities with the institutes to
    (1) reduce their incentives to work with hostile states and groups and (2)
    increase their openness to the West. The executive branch has sought a 10-
    fold increase in funding to achieve these objectives. GAO concluded, through
    an evaluation of the U. S. efforts, that expanding the program will pose
    certain risks to the United States. The key risks include sustaining
    Russia's existing biological weapons infrastructure, maintaining or
    advancing Russian scientists' skills to develop offensive biological
    weapons, and the potential misuse of U. S. assistance for offensive
    research. GAO's conclusions have resulted in the Congress's raising serious
    questions with the executive branch concerning the program's advisability.

    Curtailing Ineffective Chemical Weapons Program: In 1995, GAO first raised
    concerns about a pilot chemical weapons elimination facility to be built in
    Russia in a report on weapons of mass destruction. A year later, in 1996,
    GAO issued a second report, and as a result, the Department of Defense (DOD)
    and the Congress restricted the use of funds for the pilot project. In its
    most recent report in 1999, GAO reported that the pilot facility would be
    unlikely to achieve its intended result of accelerating Russian chemical
    elimination without billions more being spent on infrastructure and four
    additional facilities. As a matter for consideration, GAO suggested that the
    Congress have DOD identify sources for the additional funding. Subsequently,
    the House Armed Services Committee in its fiscal year 2000 report barred DOD
    from spending any future funds on

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    the pilot project. The final law barred DOD from funding the project-
    avoiding costs of about $493 million for fiscal years 2000 through 2003.

    Strengthening Nuclear Nonproliferation Efforts: Nuclear nonproliferation and
    safety continue to be among the highest national security concerns of the
    Congress and the administration. GAO's work in these areas has had a major
    impact, including a redirection of DOE's international nonproliferation and
    safety assistance programs so that they more effectively and efficiently
    achieve U. S. national security goals. Specifically, the Congress has
    legislatively mandated the implementation of our numerous report
    recommendations, and DOE and other agencies have acted on them. In the case
    of DOE's program to employ Russian weapons scientists, our recommendations
    have greatly improved what was a faltering program. Similarly, U. S. nuclear
    safety assistance is now targeted to the most pressing safety concerns with
    Soviet- designed reactors, and real safety improvements are being achieved.

    Enhancing DOE's Security: Over the last few years, reports by independent
    commissions, congressional committees, and the intelligence community have
    identified pervasive weaknesses in DOE's security. GAO has played a
    significant role in bringing these weaknesses to national attention. For
    example, the President's Foreign Intelligence Advisory Board relied heavily
    on GAO's work in reporting on loosely controlled programs for thousands of
    foreign visitors to DOE's national laboratories and inadequate systems for
    controlling classified documents. This past year, GAO's work for the
    Congress included reporting on more than 75 incidents of attempted espionage
    against DOE laboratories' personnel traveling overseas and Internet- based
    computer attacks that disrupted research activities at some DOE national
    laboratories. GAO also testified numerous times before the Congress on the
    overall security situation at DOE and pointed out that sustained management
    will be needed to improve it.

    Reducing Information Security Risks: In October 2000, legislation was
    enacted (as part of the Defense Authorization Bill) that included several
    provisions for strengthening federal information security that had been
    developed based on GAO's best practices and audit work. During fiscal years
    1999 and 2000, GAO worked with congressional staff to develop these and
    other provisions for consideration by the Congress. This new legislation
    requires each federal agency to implement an updated framework for managing
    its information security risks and requires annual independent audits for an
    initial period of 2 years.

    Strengthening Information Security: GAO has evaluated the information
    security programs and controls over critical systems at numerous federal
    agencies and made numerous recommendations for improvement. During fiscal
    year 2000, these agencies included

    127

    Treasury's Internal Revenue Service, Financial Management Service, and
    Bureau of Public Debt; the Department of Energy; the Department of Veterans
    Affairs; and the Environmental Protection Agency. In addition, in September
    2000, GAO issued a summary report that provided a governmentwide perspective
    on the status of federal information security. This report, which covered
    Inspector General and GAO audit findings reported since July 1999, concluded
    that weak information security continues to be a widespread problem that
    places critical and sensitive federal operations at risk of tampering,
    disruption, and inappropriate disclosure.

    Increasing Information Technology Infrastructure Protection: GAO examined
    the national strategy for Critical Infrastructure Protection (CIP), which is
    described in Presidential Decision Directive 63 (PDD 63), and provided
    comments on the implementation guidance in the National Plan for Information
    Systems Protection. GAO identified the need for the National Security
    Council and the Office of Management and Budget to more clearly define roles
    and responsibilities in responding to information- based attacks. We also
    provided comments on proposed legislation (H. R. 4246) intended to
    facilitate the exchange of information between government and industry. At
    the request of Members of the Congress, GAO identified key challenges to
    monitoring threats and determining when an attack is under way, including
    issues related to collecting, correlating, analyzing, and disseminating
    warning information in a timely manner. In May 2000, GAO responded quickly
    to congressional requests for testimony on the “I love you”
    virus and provided a comprehensive assessment of the impact of the virus on
    federal agencies. GAO also reported on opportunities for applying lessons
    learned from remediating the Year 2000 problem to critical infrastructure
    protection.

    Improving Battlefield Automation: The Army expects that providing
    information technologies to soldiers operating in the battlefield will
    increase survivability, lethality, and tempo of operations. In response to a
    congressional request, we continued to review key critical Army digitization
    systems. The $2.1 billion Land Warrior system will allow soldiers to know
    precisely where they are on the battlefield, where friendly forces are, and
    where enemy forces and obstacles are. We found that DOD's oversight of the
    program was insufficient; that the current configuration was not able to
    operate with another key digitized battlefield system; and that the program
    had not resolved technical and human factor problems that may render the
    system ineffective, such as overweight equipment. We made several
    recommendations directed at improving program monitoring, oversight,
    testing, and operability with other key Army digitized battlefield systems.

    128 A P P E N D I X I I

    Strengthening Aviation Security: Based in part on our testimony on airport
    screeners, legislation has been recently enacted that significantly expands
    the training and testing requirements for airport security checkpoint
    screeners. Additionally, we reported in June 2000 that long- standing
    problems continue to reduce the effectiveness of airport screeners and,
    although the Federal Aviation Administration (FAA) has established
    performance improvement goals for screeners, it has not developed adequate
    plans or performance measures. We recommended that FAA (1) complete and
    implement an integrated plan to tie its various efforts to improve
    screeners' performance to the achievement of its goals and (2) establish
    additional performance goals to better measure and ensure the success of its
    improvement efforts. FAA agreed with our recommendations and is taking
    action to implement them.

    Strategic Objective 2.1

    Diffuse Security Threats, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Analyze the effectiveness of federal agencies' programs to combat terrorism

    Assess the effectiveness of U. S. programs and agreements to prevent the
    proliferation of nuclear, biological, and chemical weapons

    Assess U. S. efforts to protect computer- supported critical infrastructure
    for business and government

    Assess the Department of Defense's ability to retain information superiority
    on the battlefield

    Assess the effectiveness of the Department of Transportation's oversight of
    domestic and internationaL aviation security

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 2.2

    Ensuring Military Capabilities and Readiness Retargeting Defense Spending:
    GAO examined DOD's funding for contingency operations and reported in
    September 1999 that since combat operations in Kosovo ended earlier than
    anticipated, as much as $475 million in fiscal year 1999 funding could be
    made available to reduce fiscal year 2000 funding. GAO also reported that
    additional amounts- which at the time were unquantifiable- could also become
    available. Subsequently, the conferees on the fiscal year 2000 defense
    appropriations reduced the contingency operations funding by $665 million.

    This goal has been moved to Strategic Objective 2.2 because it is more
    relevant to ensuring military capabilities and readiness.

    129

    Lowering DOD's Funding: GAO reviewed the reasonableness of DOD's budget
    requests for fiscal year 2000 to assist subcommittees in their appropriation
    and authorization deliberations. On the basis of GAO's findings, the
    Congress reduced (1) the military personnel request by $334.7 million; (2)
    the operation and maintenance request by $417.6 million; and (3) the
    procurement and research, development, test, and evaluation request by $500
    million. The reductions did not affect readiness because DOD did not have as
    many personnel onboard as expected, the foreign currency exchange rates for
    programs outside the United States (most of the operations and maintenance
    funds) were more favorable than expected, and procurement funds were
    available because programs' schedules slipped or they had performance
    problems.

    Reducing the Vulnerability of Navy Ships: GAO reported on the vulnerability
    of Navy ships to cruise missile attacks and the lack of a comprehensive
    strategy to address shortfalls in ship self- defense capability. The Navy
    agreed with the findings and is currently developing a strategy as
    recommended in the GAO report.

    Correcting Deficiencies in the Anthrax Immunization Program: Concerns have
    been raised about DOD's anthrax immunization program since the Department
    began immunizing its 2.4 million U. S. military personnel- including active
    and reserve component personnel. For example, some Gulf War veterans are
    suffering from unexplained illnesses that they believe might have been
    caused by anthrax vaccine shots that they received during the war. Also,
    some active duty and reserve members have expressed concerns about the
    safety and efficacy of the vaccine. In response to various congressional
    requests, we have reported and testified three times on (1) the need for a
    six- shot regimen and annual booster shots; (2) the short- and long- term
    safety of the vaccine; (3) the efficacy of the vaccine; (4) the extent to
    which problems the Food and Drug Administration found in the vaccine
    production facility in Michigan could compromise the safety, efficacy, and
    quality of the vaccine; and (5) the impact of the vaccination program on
    retention among Guard and Reserve pilots and other crew members. In
    addition, we assessed the State Department's efforts to administer anthrax
    vaccine at U. S. diplomatic missions overseas. Both DOD and the State
    Department have concurred with our findings and have agreed to institute
    measures to correct the deficiencies we identified.

    Identifying Gaps in Knowledge About Gulf War Illnesses: Many of the
    approximately 700,000 veterans of the Persian Gulf War have reported
    illnesses since the war's end in 1991, and over 10 percent have sought and
    completed health examinations through the Department of Veterans Affairs
    (VA) or DOD. We reported that while the federal government has expended
    substantial resources on research and the investigation of this matter, many
    basic questions remain. Answers to more complex questions about the causes
    of Gulf War veterans' increased rates of reporting ill health are difficult
    to derive, in part because

    130 A P P E N D I X I I

    problems in identifying veterans' specific exposures persist. In addition,
    we testified about weaknesses in contracting for services supporting these
    investigations and some duplication of effort across the agencies. Both VA
    and DOD concurred with our recommendation that the interagency coordinating
    group report its progress in addressing the research objectives identified
    in 1995.

    Assessing Satisfaction With Military Life: GAO testified before the House
    Armed Services Committee on the preliminary results of DOD's 1999 survey of
    66,000 active duty military members. The survey results indicate that more
    military personnel are satisfied with their way of life (about 50 percent)
    than are dissatisfied (about 29 percent). Personnel who spent 5 months or
    more away from home (about 19 percent) were less satisfied than those who
    spent less time away. Lastly, more than half of all military personnel (53
    percent) reported being financially secure. However, some enlisted personnel
    (about 22 percent) reported financial difficulties. The Congress found this
    information useful as it planned continuing increases in military pay and
    retirement benefits and considered funding increases for military health
    care and housing.

    Cutting Costs of F- 22 Aircraft Program: In a series of reports beginning in
    the mid- 1990s, GAO questioned various aspects of the Air Force's F- 22
    aircraft acquisition program. We reported that the acquisition strategy was
    risky and that the program was experiencing cost growth and manufacturing
    problems with test aircraft as well as testing delays. Our analysts helped
    the Congress reduce the final fiscal year 2000 appropriation request for the
    F- 22 by about $552 million and identify conditions that should be met
    before the Department of Defense can begin production.

    Identifying Best Practices: GAO's body of work on best practices has shown
    that leading commercial firms have reduced the time and cost of developing
    new, more sophisticated products by separating technology development from
    product development and by insisting that technology be demonstrably mature
    before applying it to a product. GAO showed that DOD's successful programs
    employed similar practices, whereas its problematic programs attempted to
    develop technology and the weapon system at the same time. GAO recommended
    that DOD adopt these practices to improve the outcomes of its weapon system
    programs. In October 2000, DOD embraced these practices in a major revision
    of the policies and procedures that guide weapon system acquisitions.

    Improving Joint Strike Fighter Program: At the request of the House
    Government Reform Subcommittee on National Security, Veterans' Affairs and
    International Relations, GAO reviewed the Joint Strike Fighter tactical
    aircraft program and found that it was following DOD's traditional approach
    of maturing technology at the same time the weapon system is being
    developed. Our previous work on best commercial practices showed that
    leading

    131

    commercial firms and successful DOD programs matured key technologies before
    product development began. Employing standards developed by National
    Aeronautics and Space Administration (NASA) and used to a limited extent by
    DOD, GAO determined that eight critical Joint Strike Fighter technologies
    were at unacceptably low levels of maturity given the stage of the program.
    GAO recommended that DOD mature these technologies before beginning the
    engineering and manufacturing development of the Joint Strike Fighter to
    avoid future cost growth and schedule delays. The Congress directed the
    program to delay the engineering and manufacturing development decision date
    by 3 months and reduced funding for that phase by $150 million so that these
    technologies could be matured to acceptable levels.

    Reducing Antitank Weapon Procurements: The Congress has expressed concern
    that although the number of potential enemy tanks and armored vehicles has
    been reduced by 80 percent since the end of the Cold War in 1990, DOD has
    continued to invest billions to maintain and improve its inventory of
    weapons for attacking tank and armored vehicles. GAO reported that DOD's
    master plan for spending $17 billion acquiring new weapons to attack tanks
    and other armored targets overstates requirements, does not reflect reduced
    threats, and lacks the supporting data and analysis the Congress requires.
    On the basis of GAO's report, the Congress reduced DOD's annual funding
    requests for several such weapons by over $100 million.

    Revising Acquisition Strategy for High- Mobility Trailers: GAO reported on
    Army contracting procedures that resulted in the award of a 5- year contract
    to acquire 7,563 highmobility trailers without testing to ensure they met
    requirements. After receiving 6,700 trailers, Army testing found that they
    were not usable because of safety problems and because they damaged the
    vehicles towing them. Following GAO's report, the Army revised its
    acquisition strategy for acquiring over 18,000 additional trailers.

    Modernizing DOD's Logistics: GAO reviewed DOD's plans for reengineering and
    modernizing its logistics program. The reengineering efforts goal is to
    increase efficiency, improve performance, and reduce logistics system
    operations costs of about $84 billion. Despite progress the Department has
    made with its restructuring effort, our recent review identified several
    concerns or uncertainties about incompleteness, overly optimistic
    implementation schedules, the potential for savings associated with specific
    initiatives, the effect of the initiatives on combat forces, and other
    factors. To enhance reengineering efforts, we have recommended that DOD (1)
    develop an overarching plan that integrates the individual service and
    defense agency logistics plans; (2) reassess its schedule for testing,
    evaluating, and implementing the initiatives; (3) establish a methodology
    showing the savings or improvements that come from reengineering concepts;
    and (4) reassess its approach for addressing various combat command
    concerns, such as the presence of increasing

    132 A P P E N D I X I I

    numbers of contractor personnel on the battlefield. On the basis of our
    recommendations, DOD is reviewing service reengineering plans for
    consistency with DOD- wide Logistics Strategic Planning objectives and will
    tie various service initiatives into an overarching plan.

    Revamping Navy's In- Transit Inventory: At the request of several Members of
    the Congress, GAO examined how the Navy reconciled its in- transit inventory
    records and found that the Navy had lost accountability over $3 billion in
    in- transit inventory. In response, the Navy established a task force that,
    for fiscal year 2000, resolved errors valued at $650 million. Had this
    reconciliation not occurred, the Navy could have bought additional inventory
    not knowing that it already had the items in stock. The task force also
    corrected errors totaling about $152 million for fiscal year 1999. Total
    costs avoided were about $802 million over the 2 fiscal years.

    Improving the Management of a Key Nuclear Project: In response to a
    congressional request, GAO examined the status of DOE's National Ignition
    Facility. The facility is an important component of an integrated program to
    maintain the safety and reliability of the nation's nuclear arsenal. DOE
    estimates that this facility will eventually cost about $3.5 billion and be
    completed in 2008- over a $1 billion increase in cost and 6 years later than
    originally estimated. These cost increases and schedule delays have been
    attributed to poor contractor management and inadequate DOE oversight,
    including inadequate technical and management skills to oversee the project.
    We recommended that DOE arrange for an independent scientific and technical
    review of the facility's remaining technical challenges as they related to
    the project's cost and schedule. We also recommended that the Secretary of
    Energy not reallocate funds from the nuclear weapons program to the facility
    until the impact of various options on the overall program were examined. As
    a result, the Congress has made half of its fiscal year 2001 $130 million
    appropriation for the facility contingent on DOE's meeting certain
    conditions. DOE must certify that the facility has been rebaselined and is
    within cost and schedule through the second quarter of fiscal year 2001. The
    Congress also required GAO to analyze the facility's new baseline and DOE's
    progress with keeping the project on cost and schedule and to report on the
    facility's role in the nuclear weapons program.

    133 Strategic Objective 2.2

    Military Capabilities and Readiness, Progress Toward FY 2000- 2002
    Performance Goals

    Progress assessment Performance goal Comment

    Assess development of an appropriate and ready force structure of people,
    weapons, and facilities equipment for the post- Cold War period

    Assess improvements in personnel recruiting, retention, and quality of life

    Assess modernization of the Department of Defense's ability to acquire and
    modernize

    weapons systems cost- effectively and revisions of acquisition practices

    Assess improvements in the responsiveness and effectiveness of the
    logistical support systems and support infrastructure

    Assess the Department of Energy's efforts to maintain a safe and reliable
    nuclear weapons stockpile

    Assess the Department of Defense's ability to retain information superiority
    on the battlefield

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 2.3

    Advancing and Protecting U. S. International Interests Stabilizing the
    Balkans: Despite the presence of two large forces led by the North Atlantic
    Treaty Organization (NATO), the Balkans remain volatile. GAO's work has
    shown that the international operations in Bosnia and Kosovo face severe
    obstacles to achieving enduring peace and stability. Most local leaders and
    members of their respective ethnic groups have not embraced the political
    and social reconciliation needed to build multiethnic, democratic societies.
    Our work has also shown that the international community has not provided
    the resources that the United Nations (UN) mission in Kosovo says it needs,
    particularly for building a civilian police force. If progress is not made
    with these matters, violence may escalate or armed conflict may result.

    Evaluating Economic Assistance: GAO evaluated $1.6 billion in U. S. economic
    assistance provided to the Federated States of Micronesia and the Republic
    of the Marshall Islands over 13 years and determined that the funding has
    had little impact on the economic development of the two island nations. GAO
    also determined that little accountability had

    “Equipment” has been substituted for the word
    “facilities” here because infrastructure issues are more clearly
    addressed in the fourth performance goal below.

    The original wording of this goal was revised to better articulate our
    emphasis on cost- effectiveness.

    The words “and support infrastructure” were added to this goal
    to clearly reflect that this goal was meant to include infrastructure
    issues.

    This goal was moved from Strategic Objective 2.1 because it relates more
    closely to Strategic Objective 2.2, Ensuring Military Capabilities and
    Readiness. The goal itself is unchanged.

    134 A P P E N D I X I I

    been exercised over the funding by either Micronesian nation or the United
    States. As a result of GAO's work, the Committee responsible for approving
    U. S. assistance is requiring that strengthened control and accountability
    measures be applied to all future funding.

    Assessing UN Peacekeeping: UN peacekeeping is a controversial issue, and the
    United States pays 25 percent of its cost. During the past year, GAO worked
    closely with the House Committee on International Relations and the Senate
    Committee on Foreign Relations to develop more effective policies on
    peacekeeping. GAO provided these committees with briefings, reports,
    information, and analysis about the cost and effectiveness of UN
    peacekeeping operations and the limits of UN capability. As a result of this
    work

    State modified its position on several ongoing and planned peacekeeping
    operations and agreed to provide more realistic briefings to the Congress on
    proposed operations; and

    the Senate Foreign Relations Committee organized historic meetings with the
    UN Security Council, partly structured around information provided by GAO.

    Assessing UN Reforms: Over the past several years, GAO has examined the UN's
    reform efforts as well as its peacekeeping operations. A key issue has been
    the payment of U. S. arrears. In part because of our effort, the Congress
    enacted legislation that enumerated several preconditions- which GAO had
    advocated- for such payments. More specifically, the legislation requires
    that the President consult with the Congress on each new peacekeeping
    operation and provide annually to the Secretary General of the UN data on
    all costs incurred by the United States in support of Security Council
    resolutions and that the UN develop a standardized methodology for the
    evaluation of its programs.

    Culling the State Department's Excess Property: The State Department owns
    more than $10 billion in real estate at 200 locations overseas. GAO reviewed
    the State Department's efforts to identify and sell excess or underused real
    estate and to use the proceeds for other high- priority real property needs.
    GAO identified real estate at locations that could be sold to provide money
    to meet other real estate needs, described problems that State has had in
    deciding which properties to dispose of, and explained how State uses the
    proceeds from the properties it does sell. As a result, the State Department
    sold

    the Consulate General's residence in Bermuda for $12.5 million; the
    Consulate Compound in Tangier, Morocco, for $1.2 million; and vacant lots in
    Budapest, Hungary, for $326,000.

    135

    Responding to International Child Abductions: GAO had examined international
    parental child abduction- where one parent takes a child from the United
    States or keeps a child overseas, violating the parental rights, including
    visitation, of the parent left behind- and concluded that gaps existed in
    the federal government's response to the threat. This situation has occurred
    even though the Congress passed legislation in 1993 that allows the Justice
    Department to criminally prosecute abducting parents. In response, the
    departments of State and Justice developed an action plan with specific
    objectives, measurable goals, and specific time frames for implementing the
    initiatives. Funding for implementing the action plan was to begin in fiscal
    year 2001.

    Strategic Objective 2.3

    Advancement of U. S. Interests, Progress Toward FY 2000- 2002 Performance
    Goals

    Progress assessment Performance goal Comment

    Analyze the plans, strategies, costs, and results achieved from U. S.
    interventions

    Analyze the effectiveness and management of foreign aid programs and the
    tools to carry them out

    Analyze the costs and implications of U. S. military alliances and
    commitments

    Evaluate the efficiency and accountability of the United Nations and related
    multilateral organizations and the extent to which they are serving U. S.
    interests

    Assess the strategies used to manage U. S. foreign affairs functions and
    activities

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 2.4

    Responding to the Impact of Global Market Forces on U. S. Economic and
    Security Interests Evaluating Trade Agreements: GAO identified procedural
    and structural problems in how the government monitors and enforces its
    trade agreements. For example, we found inconsistencies and weaknesses in
    trade archiving practices that prevented the government from determining how
    many agreements it is party to. We also identified human capital and other
    capacity weaknesses that limited key agencies' trade monitoring and
    enforcement abilities. In response to our recommendations, the key federal
    trade policy agencies improved the accuracy and utility of their trade
    archives and are enhancing efforts to achieve compliance with trade
    agreement provisions, to improve coordination and teamwork on monitoring and
    enforcement activities across the government, and to update mechanisms for
    obtaining private sector input on trade policy.

    136 A P P E N D I X I I

    Assessing WTO's Dispute Settlements: Member countries of the World Trade
    Organization (WTO) have actively used its dispute settlement system during
    the first 5 years. GAO's work showed that the United States and the European
    Union were the most active participants, both as plaintiffs and defendants.
    GAO's analysis showed that the United States has gained more than it has
    lost using the dispute resolution system, and while WTO's cases have
    resulted in a large number of changes in foreign trade practices, their
    effect on U. S. laws and regulations to date has been minimal. Using this
    information as well as other data, the House of Representatives defeated a
    resolution requiring the United States to withdraw from WTO.

    Analyzing U. S.- China Trade: In response to congressional concerns about U.
    S.- China trade relations, GAO was asked to analyze ongoing negotiations
    over China's joining WTO as well as issues pertaining to the Congress's
    granting China permanent normal trade relations status. GAO's reports and
    numerous briefings helped the Congress assess the status of these
    negotiations and the implications of granting this status if China became a
    WTO member. GAO reported that U. S. trade negotiators had generally achieved
    their objectives in a number of areas despite ongoing differences with
    Chinese negotiators in other areas. GAO also reported that certain policy
    options being debated by the Congress could put U. S. business interests at
    a competitive disadvantage because of limitations in existing trade
    agreements between the United States and China. GAO's independent
    assessments helped the Congress conclude that China's membership in the
    World Trade Organization would benefit the commercial interests of U. S.
    firms and that China's tentative commitments warranted passing legislation
    granting it permanent normal trade relations once China became a WTO member.
    The President signed the legislation passed by the Congress.

    Improving Export Promotion Programs: GAO examined the federal government's
    export promotion programs. Exports as a share of U. S. gross domestic
    product rose from 6.4 percent in 1988 to 7.9 percent ($ 672 billion) in
    1998. The U. S. government runs several programs to help businesses promote
    their goods and services overseas, yet GAO reported that the participating
    agencies differed in how they defined export promotion and consequently
    differed in what they characterized as export- promoting activities. In
    response, the agencies involved agreed upon a common definition and what
    would be characterized as an export- promoting activity.

    Analysis of the Defense Trade Security Initiative: In response to industry
    and foreign government concerns about the U. S. export control system, the
    administration announced 17 proposals, collectively known as the Defense
    Trade Security Initiative, in May 2000 to reform that system. The proposals
    included providing arms export licensing exemptions to

    137

    certain countries. The Initiative was intended to ensure that U. S. defense
    companies successfully compete abroad, improve interoperability in coalition
    warfare scenarios, and reduce a gap in military capabilities between the
    United States and its allies. After analyzing the Initiative and the
    decision- making behind it, GAO found that the effects of the Initiative are
    uncertain. Specifically, we reported that there is little assurance that
    underlying problems with the U. S. export control system have been
    sufficiently analyzed to determine what the causes of the problems are or
    that the Initiative will remedy the problems that exist. We found past
    problems with arms export licensing exemptions and cautioned against
    extending similar exemptions to countries until the proper analysis has been
    completed. Our report served as the basis for new statutory requirements for
    the extension of arms export licensing exemptions. The law now requires a
    legally binding agreement between the United States and a foreign country,
    which requires that country to establish export controls that are comparable
    to those of the United States, prior to the granting of an exemption.

    Evaluating Initiative for Heavily Indebted Poor Countries: GAO's analysis
    showed that the enhanced Heavily Indebted Poor Country Initiative, a
    comprehensive approach to debt relief undertaken by the World Bank and the
    International Monetary Fund, will provide significant relief to recipient
    countries. But, given the continued fragility of these countries, the
    initiative is not likely to end the recipient countries' debt problems
    unless they achieve strong, sustained economic growth. GAO noted that the
    Bank's and Fund's assumptions about future economic growth for these
    countries were very optimistic. GAO's analysis also showed that the decline
    in debt service for recipient countries will only “free up”
    resources for poverty reduction if countries continue to borrow at the same
    level and concessional terms as in the years prior to their qualifying for
    debt relief. GAO's analysis has informed both the congressional and
    international debate on debt relief matters.

    Reducing Global Lending Risks: In 1998, the near collapse of Long Term
    Capital Management, a large hedge fund, posed a significant threat to global
    financial markets already unsettled by the Asian crisis and Russian debt
    moratorium. The Federal Reserve perceived the threat to global markets to be
    so great that it mediated a $3.6 billion private sector capital infusion by
    some of the world's largest investment and commercial banks to prevent the
    collapse of the fund. GAO's work for the Congress identified regulatory gaps
    that impeded effective oversight and the need for greater regulatory
    coordination to identify potential systemic threats that cross institutions
    and markets before they reach crisis proportions.

    138 A P P E N D I X I I

    Decimalizing Equity Markets: The United States was the only country left in
    the world that priced and traded securities in fractions rather than
    decimals. GAO's work highlighted the technological challenges industry
    segments face in terms of computing and communications capacity to handle
    increased loads when moving from trades and quotes in fractions to decimals.
    During the course of GAO's continued monitoring and evaluation efforts on
    behalf of the Congress, the New York Stock Exchange began trading in decimal
    prices, and the NASDAQ is expected to do so in spring 2001.

    Improving Online Trading Disclosures: Innovations in information technology
    and financial products have raised the specter that regulators and
    securities industry players may not be able to keep pace. Individual
    investors can now trade without having to use a broker and can place orders
    directly in the marketplace. GAO's work for the Congress suggested ways for
    regulators to ensure that investors were aware of online trading firms'
    technological capacity to handle their orders and provided reliable
    information on day trading based on a review of firms responsible for 95
    percent of day trading volume.

    Strategic Objective 2.4

    Global Market Forces, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Analyze how key trade agreements and programs serve U. S. interests

    Improve understanding of the effects of globalization on the defense
    industry

    Assess how the United States can influence improvements in the world
    financial system and address crises

    Assess the ability of the financial services industry and its regulators to
    maintain a stable and efficient financial system in an era of global
    electronic commerce

    Evaluate how prepared financial regulators are to respond to change and
    innovation

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    The goal was revised to clarify that our focus will be on significant trade
    agreements and programs.

    APPENDIX III

    GOAL 3 ACCOMPLISHMENTS AND PERFORMANCE GOALS

    Support the Transition to a More Results- Oriented and Accountable Federal
    Government

    This appendix provides details of selected accomplishments during fiscal
    year 2000, categorized by strategic objective. The performance goals we set
    for fiscal years 2000 through 2002 for each objective and any revisions to
    them follow each set of accomplishments.

    Strategic Objective 3.1

    Analyze the Federal Government's Long- Term and Near- Term Fiscal Position,
    Outlook, and Options

    Analyzing Budget Issues: As the Congress debated how to use the budget
    surplus, our work helped inform these deliberations on several fronts.
    First, our work using long- term fiscal simulations continued to focus
    attention on the long- term budget outlook for the nation. This work showed
    that, despite current surpluses, the aging of our nation will heighten
    fiscal pressures and eventually reduce our flexibility to respond to other
    emerging national needs over the longer term. These simulations played a key
    role in the ongoing Social Security and Medicare reform debates by
    illustrating the fiscal and economic consequences of the profound
    demographic changes forecast for our nation. Second, by capturing the
    budgetary implications of our work, we helped the Congress identify new,
    performance- oriented approaches to improve the allocation of resources to
    existing claims and programs in the budget. Finally, our work on performance
    budgeting has prompted the Office of Management and Budget (OMB) to make
    changes that clarified and strengthened its guidance to agencies. This
    resulted in improved linkages between agencies' performance plans and their
    budget presentations.

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    140 A P P E N D I X I I I

    Strategic Objective 3.1

    Fiscal Position of the Federal Government, Progress Toward FY 2000- 2002
    Performance Goals

    Progress assessment Performance goal Comment

    Address the long- term fiscal health of the federal government

    Analyze the structure and information for budgetary choices

    Promote effective management of resources Identify budget implications of
    various governmental tools using third parties in federal programs

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 3.2

    Strengthen Approaches for Financing the Government and Determining
    Accountability for the Use of Taxpayer Dollars

    Assessing IRS' Computer Modernization: GAO fulfilled its legislative mandate
    to support the House and Senate Appropriations committees in overseeing the
    Internal Revenue Service's (IRS) high- risk business systems modernization
    program. During this fiscal year, GAO assessed the progress of IRS'
    modernization and its capacity to manage modernization. GAO also provided
    real- time analysis and reporting on four separate IRS requests for release
    of modernization funding. This work enabled the committees to (1) reduce
    IRS' planned modernization spending by about $30 million, (2) avoid
    potentially hundreds of millions of dollars in wasteful spending by not
    allowing funds to be spent on new systems before IRS established the
    required modernization management and technical controls, and (3) direct
    specific actions to bolster IRS' modernization management and technical
    controls and ensure the establishment of the requisite institutional
    capability to modernize effectively.

    Supporting Oversight of IRS: GAO continued to support congressional
    oversight of IRS' operations, including IRS' implementation of the 1998 IRS
    Restructuring and Reform Act, its budget requests, and its administration of
    various tax functions. For example, our testimony on IRS' broad- based
    modernization efforts provided an integrated assessment of the challenges
    IRS continues to face in its tax enforcement and customer service operations
    and its modernization of performance management, information systems, and
    business practices. At the same time, our work generated savings and
    potential reductions in taxpayer burden. Our work on the improved use of
    information returns in IRS' tax

    The performance goal was revised to reflect that we will be examining issues
    that have implications beyond the budgetary arena.

    140

    141

    enforcement operations yielded $83 million in savings this year. IRS also
    agreed to begin tracking information that has the potential of clarifying
    its notices to taxpayers and easing their task in complying with those
    notices.

    Informing Congressional Deliberations on Tax Policy: The nation's evolving
    economy and the size and complexity of the current IRS Code raise policy
    issues for the Congress. For example, the rapid development of electronic
    commerce has fueled debate about whether online transactions should be
    taxed. During the debate over whether to modify states' authority to require
    out- of- state retailers, including Internet retailers, to collect the taxes
    due on their sales, GAO provided the Congress with a unique perspective on
    the potential revenue losses to state and local governments. In addition,
    our prior work on better targeting the Earned Income Credit continued to
    generate substantial savings of over $600 million.

    Auditing Financial Statements: As required by the expanded Chief Financial
    Officers (CFO) Act of 1990, in fiscal year 2000, GAO reported on its audit
    of the U. S. government's consolidated financial statements for fiscal year
    1999. As in the past 2 years, GAO reported that an opinion could not be
    given on the reliability of those statements because of significant
    financial systems weaknesses, problems with fundamental recordkeeping and
    financial reporting, and weak internal controls. Such deficiencies affect
    the government's ability to accurately measure the full cost and financial
    performance of its programs and effectively manage its operations.

    GAO's financial statement audit work has helped to provide momentum in
    individual agencies' progress in achieving positive financial audit results-
    the number of agencies receiving unqualified audit opinions on financial
    statements is steadily increasing from 6 of the 24 CFO Act agencies in
    fiscal year 1996 to 18 in fiscal year 2000. During fiscal year 2000, GAO
    also reported on its audits of fiscal year 1999 financial statements of
    selected agencies and operations with the following results:

    At IRS, GAO pinpointed specific problems, fostered efforts to improve
    financial management systems and operations, and advanced the ability to
    produce reliable financial statements such as those related to custodial
    activities covering virtually all of the government's revenue-$ 1.9 trillion
    of tax revenue.

    At Treasury's Bureau of the Public Debt, GAO helped assure the Congress
    about the reliability of the reported over $3.6 trillion of federal debt
    held by the public and $2 trillion held by federal entities.

    142 A P P E N D I X I I I

    For the Federal Deposit Insurance Corporation, GAO audited and expressed an
    unqualified opinion on financial statements for the Bank Insurance Fund, the
    Savings Association Insurance Fund, and the FSLIC Resolution Fund.

    Ultimately, these efforts are aimed at developing good financial information
    with which to manage operations more efficiently day to day and to achieve
    greater budgetary savings, which is the CFO Act's end goal. Also, GAO issued
    modifications to the government auditing standards that auditors and audit
    organizations use in auditing federal government activities, including
    financial statement audits. In addition, GAO participated in the development
    of Federal Accounting Standards Advisory Board standards.

    Improving SBA's Disaster Loan Program Estimates: In reviewing information
    the Small Business Administration developed and used to prepare its
    financial statements for fiscal years 1997 and 1998, GAO identified errors
    in the method SBA used to estimate the cost of the Disaster Loan Program. In
    response, SBA developed a new approach to estimate its program's costs using
    actual historical data, which decreased the estimated cost of the loan
    program. During fiscal years 1999 and 2000, about $609 million in benefits
    resulted.

    Strengthening Internal Controls: As required by 31 U. S. C. 3512 (formerly
    the Federal Managers' Financial Integrity Act), GAO issued updated standards
    for internal control in the federal government, which form the foundation
    for effectively establishing and maintaining internal control for all
    federal agencies and activities. GAO has identified and recommended
    solutions to internal control weaknesses at major agencies. These agencies
    include

    the Department of Defense (DOD), which has, for instance, taken action to
    (1) improve accountability over its available funding, (2) provide better
    control practices related to sensitive items such as handheld rockets, and
    (3) improve control over costs charged to foreign countries for foreign
    military sales for a savings of $350 million;

    the Department of Health and Human Services (HHS), where GAO identified
    major internal control weaknesses that place at risk billions of dollars
    expended each year for the Medicare program;

    the Department of Housing and Urban Development (HUD), where GAO's work
    identified an error in the method HUD uses to reestimate net revenues of the
    Mutual Mortgage Insurance Fund, making it appear that HUD had more funding
    than was actually available, and the government avoided a potential cost of
    about $1.2 billion;

    143

    the Internal Revenue Service (IRS), where GAO identified and recommended
    solutions to serious internal control deficiencies that affect management of
    unpaid tax assessments, resulting in unpaid taxes and significant taxpayer
    burden;

    the Treasury, where the Financial Management Service upgraded its cash
    controls to help ensure that agencies' requests to cancel previously
    authorized checks and electronic fund transfers are properly processed; and

    the Federal Bureau of Investigation (FBI) and the Drug Enforcement
    Administration, where GAO identified and recommended improvements needed in
    controls over seized drugs and weapons.

    Strategic Objective 3.2

    Government Financing and Accountability, Progress Toward FY 2000- 2002

    Progress assessment Performance goal Comment

    Support congressional oversight of the Internal Revenue Service's
    modernization and reform efforts

    Contribute to congressional deliberations on tax policy

    Strengthen accountability for the federal government's assets and operations

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 3.3

    Facilitate Governmentwide Management and Institutional Reforms Needed to
    Build and Sustain High- Performing Organizations and More Effective
    Government

    Implementing the Government Performance and Results Act: GAO assisted the
    Congress and executive branch agencies with the difficult cultural changes
    needed to create highperforming agencies. As part of this work, we assessed
    agencies' efforts under the act and made specific recommendations on how the
    Congress and the executive branch could work together to ensure that
    results- oriented processes are useful to and used by decisionmakers. We
    also worked with the Congress to ensure that agencies resolve management
    problems that undercut or undermine programs. Our work for the Senate on the
    key attributes of high- performing organizations is being used as a basis
    for oversight and decision- making.

    144 A P P E N D I X I I I

    Improving Financial Management: GAO developed an Executive Guide on world-
    class financial management practices used by leading private sector and
    state government organizations, which agencies across the federal government
    are using to help guide major financial management reform efforts. GAO's
    work has resulted in many improvements in financial management systems and
    controls at agencies such as DOD and IRS and has resulted in the
    identification of many more long- term actions now under way across the
    government that will have a lasting improvement when fully implemented.
    GAO's efforts to issue requirements for agencies' financial systems and to
    fulfill its statutory requirement to report on the compliance of agencies'
    financial management systems with federal accounting standards and other
    requirements under the Federal Financial Management Improvement Act of 1996
    have provided important impetus for agencies to (1) more fully recognize
    serious weaknesses with such systems and (2) modernize these systems. These
    initiatives are directed at developing the information needed for the day-
    to- day management and oversight of programs and operations, which
    represents the Congress's overarching expectation for the CFO Act. Moreover,
    GAO's analyses have helped prompt OMB and the agencies to pay closer
    attention and place greater priority on preventing billions of dollars in
    improper payments reported by agencies and the Treasury to take corrective
    actions that will help maximize the collection of billions of dollars of
    delinquent debt through its governmentwide cross- servicing initiative. Our
    analyses of financial information, such as for the Power Marketing
    Administration's rate setting, provided important assistance to the Congress
    in its oversight of key government activities.

    Assessing Year 2000 Lessons Learned: GAO played a crucial role in the
    government's preparation for, and ability to successfully meet, the Year
    2000 (Y2K) computing challenge. To help agencies mitigate their Y2K risks,
    GAO produced a series of guides providing systematic approaches to
    enterprise readiness, business continuity and contingency planning, testing,
    and day one planning. Federal agencies and other organizations widely used
    these guides to help organize and manage their Y2K programs. In addition,
    GAO issued over 160 reports and testimony statements detailing specific
    findings and recommendations on the Y2K readiness of both the government as
    a whole and of a wide range of specific federal agencies. GAO worked with
    OMB and the President's Council on Year 2000 Conversion to emphasize the
    need for agencies to focus significant attention on resolving the Y2K
    problem. As a result, by December 1999, OMB reported that 99.9 percent of
    the mission- critical systems in the 24 major federal departments and
    agencies were Y2K compliant. During the century change and leap day
    rollover, most Y2K errors were minor and did not affect operations or the
    delivery of services; for the several significant problems that were
    encountered, quick action was taken to fix the problems or to implement
    contingency plans. The results of these efforts provide the basis for GAO to
    remove the high- risk designation for this area (see High- Risk Series: An
    Update,

    GAO- 01- 263, Jan. 2001, available at www. gao. gov).

    145

    Implementing IT Investment Management Processes: GAO has led development of
    and significantly influenced the government's approach to managing and
    controlling its information technology (IT) investments. To assist
    government agencies in effectively implementing the Clinger- Cohen Act, we
    defined a set of critical processes that promote successful information
    technology investment management (ITIM). We produced guidance that
    prioritized these ITIM critical processes. We also developed a method to
    effectively assess an agency's implementation of ITIM. The guidance and
    method were used during our assessment of IT performance and accountability
    at the Small Business Administration, the Coast Guard, and the Immigration
    and Naturalization Service.

    Improving Agencies' IT Modernization Efforts: GAO has produced improvements
    in IT management in agencies throughout the federal government, creating
    stronger institutional IT management processes and controls, and individual
    system development and acquisition projects that are more likely to provide
    expected value and be delivered on time and within budget. For example, our
    work on institutional IT management processes and controls has provided the
    Immigration and Naturalization Service with a roadmap for developing and
    implementing both mature IT investment management processes and an
    enterprise architecture. In addition, our work on individual system projects
    greatly reduced the risks related to the Customs Service's efforts to
    acquire a new import processing system while producing cost avoidance
    savings of about $30 million. Moreover, the progress made by the National
    Weather Service in addressing concerns with its modernization provided the
    basis for GAO to remove the high- risk designation for this area (see

    High- Risk Series: An Update, GAO- 01- 263, Jan. 2001, available at www.
    gao. gov). Also, our work on key decennial census systems contributed to the
    successful deployment and operations of one system and alerted the Census
    Bureau and the Congress to profound risks on another. We reviewed the
    Department of Veterans' Affairs' implementation of our previous
    recommendations focused on the Clinger- Cohen Act's provisions. On the basis
    of that review, we issued additional recommendations to VA, which it is in
    the process of implementing. We recommended that the Social Security
    Administration (SSA) institutionalize the evaluation of IT investments
    through post- implementation reviews and collection of cost, benefit, and
    performance data. SSA subsequently performed these recommendations for its
    Intelligent Workstation/ Local Area Network project. We also provided input
    to OMB on its Circular A- 130 revision and to the Chief Information Officers
    (CIO) Council on its guidance for establishing and maintaining information
    technology enterprise architectures.

    Aiding Clinger- Cohen Act Compliance: GAO continued to collaborate with OMB
    and the CIO Council in developing practical guidance to assist agencies in
    complying with the Clinger- Cohen Act and advancing the government's
    capacity to manage IT investments to improve performance. For example, GAO
    contributed to a CIO Council Guide for

    146 A P P E N D I X I I I

    assessing IT investments' compliance with agency enterprise architectures,
    and GAO is partnering with the CIO Council and OMB in developing a guide for
    developing, implementing, and maintaining enterprise architectures.

    Assessing Internet Privacy: GAO reported on Internet privacy- a critical
    issue that must be addressed if the government is to fully realize the
    potential of the Internet and successfully implement e- government
    initiatives. GAO's report on federal agencies' Web site privacy policies
    identified the progress agencies have made in posting appropriate policies
    but also pointed out that agencies were not consistently posting Privacy Act
    notices on Web pages where they collect substantial amounts of personal
    information from visitors. This report made specific recommendations to OMB
    to strengthen its guidance and oversight. GAO also responded quickly to
    congressional requests for a comparison of federal Web site privacy policies
    with the standards the Federal Trade Commission has proposed for commercial
    Web sites. The resulting report and testimony aided continuing congressional
    debate on the privacy standards needed for both the public and private
    sectors in the electronic age.

    Improving the Success of the 2000 Decennial Census: GAO's work on the
    preparation and conduct of the 2000 Decennial Census continued to provide
    the Congress with “realtime” information on the status of census
    operations. Our work paid particular attention to the consistency of the
    application of the Census Bureau's quality control efforts and the
    efficiency and effectiveness of the Bureau's efforts to follow up on over 40
    million households that did not mail back a census form. In addition, we
    provided the Congress with perspective on the Bureau's plans to adjust the
    census counts for over- and undercounts of the population. Also, our work on
    key decennial census systems contributed to the successful deployment of one
    system and alerted the Bureau and the Congress to profound risks with
    another. The completion of much of the work associated with the decennial
    census provides the basis for GAO to remove the high- risk designation for
    this area (see HighRisk Series: An Update, GAO- 01- 263, Jan. 2001,
    available at www. gao. gov).

    Analyzing Electronic Government Initiatives: GAO's overview assessment of
    federal electronic government initiatives in May 2000 noted progress in
    areas of information dissemination over the Internet and the evolution of
    citizen interaction with government into an “online”
    environment. It also highlighted some significant challenges confronting
    government in making the transition to full electronic service and delivery,
    including (1) effective executive leadership and management; (2) developing
    and sustaining a “citizen as customer” focus; (3) security and
    privacy issues, including the successful adoption of Public Key
    Infrastructure technology; (4) adequate technical infrastructures; and (5)
    sufficient IT human resources to develop and manage Web- based Internet
    applications and solutions. We have reiterated these same concerns in our
    review of OMB's guidance to federal

    147

    agencies on the implementation of the Government Paperwork Elimination Act
    and our review of FirstGov, a Web site intended to serve as a portal to all
    of the federal government's publicly available online information and
    services.

    Assessing DOD's Electronic Commerce: GAO examined DOD's management of its
    electronic commerce program in fiscal year 2000 and found a number of
    program management weaknesses related to organizational placement,
    authority, and funding of the electronic commerce program management office.
    Moreover, we found that the Department's vision of using electronic commerce
    technologies to transform and streamline its business processes was at risk
    because key elements of its overall electronic commerce road map- an
    implementation plan and an electronic commerce architecture, i. e.,
    information systems blueprint- had not been completed. Without these
    elements, the Department did not have the unifying direction needed to carry
    out its electronic commerce program. Subsequently, DOD initiated actions to
    strengthen the role of the program office, move forward on developing an
    electronic commerce architecture, and improve the use of performance
    measures to gauge the success of its electronic commerce initiatives. The
    Department has acted to strengthen the position of the Director of the Joint
    Electronic Commerce Program Office and to charter an Electronic Business
    Board of Directors.

    Improving Human Capital Practices: Our work on human capital issues helped
    focus the attention of the executive and legislative branches on the
    importance of these issues, in particular, on their importance in managing
    for results. Our efforts, involving speeches by the Comptroller General as
    well as other GAO staff presentations and written products, helped spur the
    administration to make human capital a priority management objective in the
    fiscal year 2001 budget submission. Our framework for human capital self-
    assessment is now being used in strategic human capital planning efforts at
    several agencies, including the Social Security Administration, the Small
    Business Administration, the National Aeronautics and Space Administration,
    and the Environmental Protection Agency. It is also used throughout GAO to
    help guide our research and development work and our congressionally driven
    examinations of how well agencies are pursuing strategic human capital
    management in support of their missions and goals. In addition, our report
    on retirement trends in the Senior Executive Service underscored the
    importance of succession planning.

    Ensuring Competitiveness of DOD's Information Technology Contracts: Our work
    disclosed that DOD purchased more than $400 million worth of information
    technology products and services without competition. Competition helps
    federal agencies ensure the best value is obtained in awarding contracts. On
    the basis of our work, and because of concerns that agencies could waste
    taxpayer dollars in the absence of competition, the

    148 A P P E N D I X I I I

    Congress legislated that the Office of Federal Procurement Policy issue
    regulations to ensure that agencies seek competition when buying information
    technology products and services.

    Strategic Objective 3.3

    Governmentwide Management Reforms, Progress Toward FY 2000- 2002 Performance
    Goals

    Progress assessment Performance goal Comment

    Analyze and support efforts to instill results- oriented management across
    the government

    Identify needed improvements to the government's financial management
    infrastructure

    Help build the government's capacity to manage information technology to
    improve performance

    Enhance efforts to manage the collection, use, and dissemination of
    government information in an era of rapidly changing technology

    Identify and facilitate the implementation of human capital practices that
    will improve federal economy, efficiency, and effectiveness

    Improve acquisition policies and practices

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 3.4

    Recommend Economy, Efficiency, and Effectiveness Improvements in Federal
    Agency Programs

    Highlighting Criteria for Determining Performance and Accountability
    Challenges and High Risks: GAO completed an assessment of, and issued a
    publicly available exposure draft on, the methodologies and criteria used to
    determine performance and accountability challenges and those federal
    government programs and functions that should be designated as high risk.
    The criteria consider qualitative and quantitative factors and agencies'
    corrective measures. It also includes criteria for determining
    governmentwide high risk and for removing high- risk designations. The final
    document will be used by GAO auditors in making these determinations and by
    the Congress and the executive branch agencies in understanding our basis
    for reporting in these areas.

    Reviewing Agency Budget Requests: GAO's reviews of agencies' budget requests
    (budget scrubs) provide objective analyses of the President's proposed
    budget for selected programs, activities, or line items. This work has
    helped the Congress in its budget

    149

    deliberations by identifying billions of dollars in proposed financial
    savings that could be used to reduce resources or redirect funding to higher
    priorities. For example, in its fiscal year 2000 budget scrub on HUD, GAO
    identified some programs for which the need for carrying unobligated
    balances was questionable. Taking steps to make more productive use of
    unobligated balances is important for HUD because these balances have grown
    over the past 3 years for some of its programs, such as Homeless Assistance
    ($ 45 million) and Urban Empowerment Zones ($ 105 million), for which HUD
    has requested $234 million in increased funding for fiscal year 2000.

    Improving U. S. Postal Service's E- Commerce Reporting: GAO's work found
    deficiencies in the financial information the Postal Service provided for
    its e- commerce initiatives that raised concerns about the accuracy and
    completeness of the information. As a result of GAO's recommendation that it
    provide complete and accurate information on its e- commerce costs and
    revenues, the Postal Service stated that it is instituting standard
    reporting procedures in this area.

    Strategic Objective 3.4

    Economy, Efficiency, and Effectiveness Improvements in Federal Agencies,
    Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Highlight the specific major management challenges confronting agencies and
    those federal operations at highest risk of fraud, waste, abuse, and
    mismanagement

    Review the economy, efficiency, and effectiveness of key federal agencies
    and activities

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    APPENDIX IV

    GOAL 4 ACCOMPLISHMENTS AND PERFORMANCE GOALS

    To Maximize the Value of GAO by Being a Model Organization for the Federal
    Government

    This appendix provides details of selected accomplishments during fiscal
    year 2000, categorized by strategic objective. The performance goals we set
    for fiscal years 2000 through 2002 for each objective and any revisions to
    them follow each set of accomplishments.

    Strategic Objective 4.1

    Cultivate and Foster Effective Congressional and Agency Relations Improving
    Service to the Congress: In fiscal year 2000, GAO piloted congressional
    protocols to guide our interactions with the Congress and to ensure our
    accountability. The final protocols have since been issued and reflect
    refinements made in response to feedback from Members of the Congress and
    their staffs. The protocols will allow us to better serve the Congress,
    improve satisfaction with our work, and ensure equitable treatment for all
    congressional requesters.

    Strengthening Congressional Relationships: The Comptroller General and
    senior GAO officials have continued outreach efforts to understand how best
    to meet congressional needs and to assist the Congress in using GAO's
    resources and services. During fiscal year 2000, we met with the leadership
    of the Senate and House, Committee Chairs and Ranking Minority Members, and
    Members of our oversight and appropriations committees to increase our
    understanding of their needs and to obtain feedback on our performance.

    150

    Improving Communication With the Congress: Responding to congressional
    concerns that GAO's activities needed to be more transparent, we made our
    active engagement list available to Members of the Congress and their staffs
    as part of the Comptroller General's commitment to effectively serve the
    Congress for the benefit of the American people. Congressional Members and
    staff, as well as staff in the Congressional Budget Office and the
    Congressional Research Service, are able to access the list through the
    House and Senate's internal online systems.

    Strategic Objective 4.1

    Client Relations, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Strengthen communications with our congressional clients

    Implement clearly defined, consistently applied, well documented, and
    transparent policies and protocols for working with the Congress and
    agencies

    Improve internal processes to help GAO's senior executives and staff better
    serve the Congress

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 4.2

    Implement a Model Strategic and Annual Planning and Reporting Process
    Conducting Strategic Planning: In spring 2000, GAO developed its first
    strategic plan for the 21st century based on input from the Congress,
    supplemented by GAO's own expertise and other outreach efforts. Our plan
    focuses on how we intend to support the Congress and help shape a more
    efficient and effective government. Factoring in global changes that are
    having an impact on society at a variety of levels, our strategic plan
    provides a comprehensive and focused structure of goals and objectives to
    support the Congress in its legislative, oversight, appropriations, and
    investigative roles. We worked closely with the Congress's leadership,
    committee leadership, individual Members, and staff in developing this
    strategic plan.

    Improving Performance Planning: In fiscal year 2000, we produced a
    performance plan for fiscal year 2001 to provide direct linkage between the
    strategic goals identified in our strategic plan and what managers and staff
    do day to day. Our performance plan contains the fiscal year 2001
    quantitative and qualitative performance goals and targets we will use to
    gauge our progress toward accomplishing our strategic goals and objectives.

    151

    152 A P P E N D I X I V

    Increasing GAO's Accountability: GAO issued its first accountability report
    to the Congress in 2000, discussing our performance and accountability in
    serving the Congress and the American people in fiscal year 1999. The report
    reviews GAO's accomplishments in meeting our mission and sustaining our core
    values of accountability, integrity, and reliability. The report takes the
    place of the annual report issued in previous years. The shift to an
    accountability report is part of GAO's overall effort, consistent with the
    Government Performance and Results Act (GPRA), to strengthen our performance
    and to hold our agency accountable.

    Realigning Agency to Strategic Plan: The Comptroller General decided, after
    15 months of due diligence and internal and external consultation, to
    realign the agency to respond to significant environmental changes, address
    key business imperatives, and increase flexibility, capacity, and
    effectiveness in serving the Congress as outlined in our strategic plan.
    This realignment is designed to help GAO better support the Congress and
    proactively prepare to meet future challenges within current and expected
    resource levels. To align GAO's structure with the goals in our strategic
    plan, we reorganized both our field and our headquarters operations.

    Strategic Objective 4.2

    Strategic and Annual Planning, Progress Toward FY 2000- 2002 Performance
    Goals

    Progress assessment Performance goal Comment

    Use a strategic planning process that meets the intent of the Government
    Performance and Results Act

    Develop a performance tracking system and publish annual performance plans
    and reports

    Realign organizational structure and resources to the strategic goals and
    objectives

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    153 Strategic Objective 4.3

    Align Human Capital Policies and Practices to Support GAO's Mission
    Establishing Human Capital Baseline: In fiscal year 2000, GAO completed a
    selfassessment of its human capital program to provide a baseline evaluation
    of its human capital management strategies, organizational alignment,
    leadership and special skill resources, and performance culture. This self-
    assessment provides the basis for the key initiatives described below to
    improve our human capital policies and practices.

    Expanding Human Capital Tools and Authorities: During fiscal year 2000, we
    worked with key congressional committees in drafting legislation that was
    enacted in October 2000 and that provides GAO greater flexibility in
    managing its workforce to meet our strategic goals and objectives and to
    better serve the Congress and the American people. This human capital
    legislation provides the Comptroller General with the authority to take the
    following actions:

    Establish senior- level positions to meet GAO's critical scientific,
    technical, or professional needs. The staff serving in senior- level
    positions receive the same pay, rights, and benefits that members of GAO's
    Senior Executive Service (SES) receive. Existing members of the SES may be
    transferred to senior- level positions.

    Offer voluntary early retirement to an employee or groups of employees for
    the purpose of realigning GAO's workforce, correcting skill imbalances, and
    reducing certain high- grade positions. No more than 10 percent of GAO's
    employees may receive an early retirement in a fiscal year.

    Offer separation pay incentives to an employee or groups of employees for
    the same purposes that voluntary early retirement may be offered. No more
    than 5 percent of GAO's employees may receive a separation pay incentive in
    any fiscal year.

    Separate employees during a reduction in force or other adjustment in force
    under regulations that consider the following factors in order of priority:
    tenure, military preference, veterans' preference, performance ratings,
    length of service, and other objective factors such as skills and knowledge.

    Updating Appraisal Systems: In fiscal year 2000, we revised the performance
    standards for all staff to incorporate GAO's core values and strategic
    goals, to update descriptions of performance to better reflect the current
    nature of GAO's work, and to include key management and performance concepts
    of the Comptroller General, such as leadership by example, client service,
    and measurable results. Also, during fiscal year 2000, we began a major
    initiative to develop a competency model and update the performance
    standards for analysts to reflect prevailing best practices.

    154 A P P E N D I X I V

    Improving Recruitment: GAO executives are actively engaged at more than 50
    universities concentrating on attracting productive, motivated people who
    have the right skills to do our work. During fiscal year 2000, recruiting
    brochures and materials were updated to enhance GAO's image in career fairs,
    interviews, and other presentations.

    Matching Staff Knowledge and Skills to Strategic Goals and Objectives:
    During fiscal year 2000, GAO developed a process for gathering and assessing
    information on our staff 's knowledge and skills. All staff completed this
    inventory, which was based on the knowledge and skills needed to implement
    our strategic plan. Staff also completed an employee preference survey
    indicating their placement interests. The information is being used to
    identify skill gaps and succession planning needs within the agency and to
    match employees' interests with the agency's needs.

    Strategic Objective 4.3

    Human Capital, Progress Toward FY 2000- 2002 Performance Goals

    Progress assessment Performance goal Comment

    Develop and implement a strategic human capital plan

    Implement an approach to assessing and inventorying knowledge and skills
    needed to meet our strategic goals and objectives

    Update appraisal systems to support the agency's core values, strategic
    plan, and performance goals

    Improve recruitment, training/ development, and recognition/ reward programs

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 4.4

    Develop Efficient and Responsive Business Processes Inaugurating New
    Management Strategies: We implemented two new management strategies- matrix
    management and risk management- in fiscal year 2000. Matrix management is an
    operational approach that brings together key stakeholders throughout an
    engagement to transcend traditional organizational boundaries, thereby
    maximizing institutional values and minimizing related risks. Risk
    management uses risk to determine the level and degree of involvement
    management and stakeholders must have from an engagement's initiation
    through the issuance of the product. Ensuring that the appropriate
    stakeholders and managers are involved at the right points in time is the
    key principle behind both of these strategies.

    155

    Improving Engagement Management Processes: To effectively implement matrix
    and risk management, we initiated two key management meetings. GAO conducts
    an engagement assignment meeting weekly to review all new congressional
    requests, mandates, and proposals for research and development assignments
    to determine whether the work should be done and, based on risk, the
    appropriate level of Office of Comptroller General involvement. In addition,
    we match critical skills and expertise to our work to ensure that all staff
    contribute regardless of the team designated to lead the work. We then hold
    biweekly engagement review meetings to discuss our progress on high- and
    medium- risk assignments and upcoming reports.

    Strategic Objective 4.4

    Core Business and Supporting Processes, Progress Toward FY 2000- 2002
    Performance Goals

    Progress assessment Performance goal Comment

    Continue improving the Job Management Process and other business processes
    to be more responsive to our clients' needs, reduce administrative burden,
    and expedite product issuance

    Reengineer our product and service lines Enhance coordination with the
    Congressional Budget Office and the Congressional Research Service to
    increase opportunities for collaboration and consultation

    Develop and implement a managerial accounting system

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    Strategic Objective 4.5

    Build an Integrated and Reliable Information Technology Infrastructure
    Completing Y2K Transition: In fiscal year 2000, GAO successfully completed
    the Y2K efforts that ensured that our systems continued to function through
    the century change. We replaced or repaired systems under our direct control
    and worked closely with service providers to test and certify systems that
    run at other government computer sites.

    Improving Network Security: We also continued progress on initiatives to
    achieve full compliance with the information security requirements in the
    Office of Management and Budget's (OMB) Circular A- 130, including
    establishing security plans for major systems, developing a disaster
    recovery plan, and testing disaster recovery capabilities.

    We dropped this goal to participate in the development of a financial
    management system that will serve all of the agencies in the legislative
    branch.

    156 A P P E N D I X I V

    Assessing Current Information Technology: During fiscal year 2000, we
    initiated a comprehensive review of our information technology (IT) to
    identify additional opportunities for increasing our efficiency,
    effectiveness, and productivity. As part of this assessment, a concept of
    operations is being developed to guide future technology plans. In addition,
    GAO contracted for a “total cost of ownership” assessment that
    will provide both performance and cost metrics to be compared with other
    like government and private institutions. We also initiated an effort to map
    our business processes to the IT architecture and link future investments to
    our business goals.

    Improving Online Access to Information: Several software tools and products
    designed to streamline data access and report processing were implemented,
    including access to online policy, protocols, and procedures for managing
    the engagement process; access to legal and other resources from the
    desktop; and enhanced software and graphics capability. For example, to
    provide our teams of analysts with a mechanism for simplifying and
    standardizing their work, we launched the prototype of a comprehensive, Web-
    based guide to conducting GAO assignments, known as the EAGLE. As part of
    our role in assisting with the presidential transition, we developed an
    external Internet site with links to GAO contacts and reports on the major
    executive branch agencies, which was completed at the beginning of fiscal
    year 2001. Finally, we continued to improve the capabilities of our computer
    network and began a number of projects on enabling technologies, including
    software upgrades, the deployment of notebook computers, and improved remote
    access to allow our teams to work more efficiently on the road.

    Strategic Objective 4.5

    Information Technology Services, Progress Toward FY 2000- 2002 Performance
    Goals

    Progress assessment Performance goal Comment

    Develop a long- term, comprehensive plan for an integrated information
    technology approach

    Develop and implement a short- term, cost- effective approach that begins to
    satisfy GAO's information needs quickly

    Establish performance and cost metrics addressing the quality and value of
    information technology services

    Ensure the availability of required information technology skills

    Legend

    Expect to meet.

    May not be met until after FY 2002. Not applicable. New wording for a
    performance goal is bolded; deleted wording is strike out.

    1 F ROM THE COMPTROLLER GENERAL

    SPRING 2001

    I am pleased to present the highlights of GAO's performance and
    accountability report, which combines our assessment of what we were able to
    accomplish in fiscal year 2000 with our plans for continued progress through
    fiscal year 2002. Looking back at last year, I am proud to say that we
    served the Congress and the American people well.

    Our work resulted in a number of significant improvements to government that
    will benefit all Americans. Among other things, by acting on our
    recommendations, the government improved public health and safety,
    strengthened national security, better protected consumers, and improved its
    financial management and information systems. We also contributed critical
    information to public debates on Social Security and Medicare reform and
    called attention to looming problems such as the security of government
    computer systems and the knowledge and skills needed in the federal
    workforce in coming years. Taxpayers benefited from the near-

    2

    record $23 billion in savings identified through our work- a $61 return on
    every dollar invested in GAO.

    I am particularly pleased that we were able to achieve these results in the
    midst of significant change within GAO. After completing our first strategic
    plan last year, we realigned our organization to better meet our goals and
    objectives, and we began to institute new ways of doing business. We also
    gained new legislative authorities that will help us address our human
    capital requirements and help ensure that GAO remains prepared to meet the
    Congress's needs in the future.

    These needs are formidable. The nation's leaders are faced with a range of
    complex, controversial, and multidimensional issues that require a more
    strategic, long- range, and integrated perspective than in the past. Looking
    toward fiscal year 2002, we believe the work we plan to undertake and our
    efforts to become a model agency will help the Congress address those
    challenges.

    As we move ahead, we look forward to the continued support of the Congress
    and to working even more closely with Members and their staffs. Their
    support- and the dedication and commitment of our GAO team- are the driving
    forces behind our continued success in serving the Congress and the American
    people.

    DAVID M. WALKER

    COMPTROLLER GENERAL OF THE UNITED STATES

    2 F ROM THE COMPTROLLER GENERAL

    3

    As the investigative arm of the Congress, GAO evaluates the economy,
    efficiency, and effectiveness of a wide range of federal policies and
    programs. Primarily in response to congressional requests and mandates- but
    also through our own targeted research and development efforts- we publish
    thousands of reports and other documents each year and provide a number of
    related services to support legislative oversight and improve government
    operations. By making recommendations to improve government programs and
    services, GAO contributes to more effective federal spending. Our work also
    helps to raise the public's trust and confidence in the federal government.

    3

    4

    Consistent with the spirit of the Government Performance and Results Act
    (GPRA) of 1993, GAO operates under a broad strategic plan, one that
    currently covers fiscal years 2000 through 2005. To drive our work toward
    the goals envisioned in the strategic plan, we developed detailed strategic
    objective plans and report our results yearly to the Congress and the
    public. In addition, we publish an annual performance plan to guide our day-
    to- day efforts to meet our strategic goals and objectives. This year, in
    response to the Congress's desire to have financial and performance
    management information presented in a more cohesive format, we have merged
    three documents into one:

    our performance report for fiscal year 2000, our accountability report for
    fiscal year 2000, and our performance plan for fiscal year 2002.

    The combined, full- length report, available at www. gao. gov, represents
    one more step in GAO's efforts to lead by example. These highlights present
    (1) our performance in fiscal year 2000, (2) a brief look ahead at fiscal
    years 2001 and 2002, (3) the strategies we will employ and the challenges we
    face in meeting our strategic goals, and (4) condensed financial statements
    and the accompanying independent auditor's report for fiscal year 2000.

    I N T R O D U C T I O N 4

    5

    In fiscal year 2000, GAO achieved more than $23 billion in financial
    benefits for the American taxpayer and recorded more than 700 actions taken
    in response to our recommendations to improve how the federal government
    operates. We also completed a number of major initiatives to improve the way
    GAO itself operates, among them, our first strategic plan for the 21st
    century. Based on input from the Congress and supplemented by our own
    expertise and other outreach efforts, the plan established four strategic
    goals for our agency. Each of the four goals is supported by a set of
    strategic objectives that guide GAO's work, as the diagram on the next page
    shows.

    5

    TO RESPOND TO CHANGING SECURITY THREATS

    AND THE CHALLENGES

    OF GLOBAL INTERDEPENDENCE

    TO A MORE RESULTS- ORIENTED AND ACCOUNTABLE

    FEDERAL GOVERNMENT

    BY BEING A MODEL ORGANIZATION

    FOR THE FEDERAL GOVERNMENT

    Diffuse security threats Military capabilities and readiness

    Advancement of U. S. interests

    Global market forces Fiscal position of the

    government Government financing and accountability

    Governmentwide management reforms

    Economy, efficiency, and effectiveness improvements in federal agencies

    Client relations Strategic and annual planning

    Human capital Core business and supporting processes

    Information technology services

    SERVING THE CONGRESS GAO'S STRATEGIC PLAN FRAMEWORK

    TO ADDRESS CURRENT AND EMERGING CHALLENGES TO THE

    WELL- BEING AND FINANCIAL SECURITY

    OF THE AMERICAN PEOPLE

    GAO exists to support the Congress in meeting its Constitutional
    responsibilities and to help improve the performance and accountability of

    the federal government for the benefit of the American people. MISSION

    THEMES GOALS

    Health care needs and financing

    Retirement income security Social safety net Education/ workforce issues
    Effective system of justice Community investment Natural resources use and
    environmental protection

    Physical infrastructure

    OBJECTIVES

    Government Performance and Accountability

    SUPPORT THE TRANSITION

    MAXIMIZE THE VALUE OF GAO PROVIDE TIMELY, QUALITY SERVICE TO THE CONGRESS
    AND THE FEDERAL GOVERNMENT

    Demographics Globalization Quality of Life Security Technology

    CORE VALUES

    Accountability Integrity Reliability

    qualitative performance goals, we expect to meet or exceed all 94 by the end
    of fiscal year 2002.

    The chart below shows the trends in our annual results since 1997 and also
    provides 4- year rolling averages that serve to show those trends without
    the effects of one- time or unusual circumstances and shifts in
    congressional priorities and workloads.

    P E R F O R M A N C E

    Our performance for the year exceeded all five of our annual quantitative
    targets for financial benefits, other benefits, recommendations implemented,
    testimonies given, and new recommendations made. Under a separate management
    measure of timeliness, we achieved a 96- percent success rate for delivering
    our products on time but fell short of our idealistic 100- percent target.
    As for our 3- year

    Charting Agencywide

    7 Annual Quantitative Performance Measures, Fiscal Years 1997- 2000

    1997 1998 1999 2000 Type Measure Actual Actual Actual Target Actual

    Outcome Financial benefits (billions)

    Annual $20.9 $19.7 $20.1 $22.0 $23.2 4- year average $18.4 $18.4 $19.5 $20.7
    $21.0

    Other benefits

    Annual 391 537 607 620 788 4- year average 266 354 451 539 581

    Recommendations implemented

    4- year implementation rate 74% 69% 70% 73% 78% Intermediate Testimonies

    outcome Annual 182 256 229 230 263 4- year average 208 216 212 224 233

    Recommendations made

    Annual 836 987 940 950 1,224 4- year average 946 848 898 928 997

    Annual Management Measure, Fiscal Years 1997- 2000

    Management Timeliness

    Annual 91% 93% 96% 100% 96% 4- year average - - 88% - 94%

    3- Year Qualitative Performance Goals, Fiscal Years 2000- 2002 Qualitative
    measure Expect to meet Do not expect Not started

    or exceed to meet

    Performance goals: 94 100% 0% 0% Note: The full report provides details
    about the data in this table.

    8 $23.2 Billion in Direct Financial Benefits Were Realized. These results

    exceeded our target of $22 billion and were up from the previous year's
    results of $20.1 billion.

    We achieve our financial benefits when our recommendations are implemented
    to make government services more efficient, to improve the budgeting and
    spending of tax dollars, and to strengthen the management of federal
    resources. Estimated financial benefits include budget reductions, costs
    avoided, resources reallocated, and revenue enhancements. Because it takes
    time for agencies to implement GAO's recommendations and document savings,
    the financial benefits we report in a given year may be based on work we
    performed in the current or previous years.

    G A O ' S P E R F O R M A N C E

    9

    GAO had long advocated increased funding specifically for activities to
    prevent fraud and abuse in the Medicare program. In 1996, the Congress
    passed the Health Insurance Portability

    and Accountability Act, which provided the additional funding. As a result
    of these activities, the Medicare program's net savings were about $3
    billion in fiscal year 2000.

    delays. Our analysis helped the Congress reduce the final fiscal year 2000
    appropriation request for the F- 22 by about $552 million and to identify
    conditions that should be met before the Department of Defense could begin
    full production.

    GAO identified funding from several sources in the Department of Housing and
    Urban Development's budget, including unexpended balances no longer needed,
    that could be recaptured in fiscal years 1998 and 1999. The Congress
    rescinded $1.65 billion from the Section 8 housing program's fiscal year
    1998 budget authority and rejected

    $1.3 billion of HUD's fiscal year 1999 request for housing assistance for a
    total reduction of $2.95 billion. Subsequently, GAO and HUD worked together
    to revise HUD's analysis to show that, by using recaptured funds, HUD had
    sufficient funding to meet its needs. In a series of reports beginning

    in the mid- 1990s, GAO questioned various aspects of the Air Force's F- 22
    aircraft acquisition program. We reported that the acquisition strategy was
    risky and that the program was experiencing cost growth, manufacturing
    problems with test aircraft, and testing

    10 788 Actions Were Taken to Improve Government Operations or Services.

    Our results exceeded our target of 620 actions taken and were up from the
    previous year's total of 607 actions taken.

    These benefits represent improved government operations and services. We
    measure these benefits by tabulating the number of cases in which our
    recommendations have prompted federal agencies or the Congress to take
    action. The 788 actions reported for fiscal year 2000 include measures to
    improve public safety and consumer protection, to establish more effective
    and efficient government operations, and to safeguard the nation's physical
    and information infrastructure.

    G A O ' S P E R F O R M A N C E

    11

    critical information systems at federal agencies and recommended numerous
    improvements, most recently at three Treasury agencies, the Department of
    Energy, the Department of Veterans Affairs, and the Environmental Protection
    Agency. In September 2000, GAO issued a governmentwide perspective on
    federal information security that The Health Care Financing Administration

    (HCFA) and several states- including California, Maryland, and Michigan-
    improved their oversight and enforcement of nursing homes' quality of care
    standards in response to GAO's recommendations highlighting weaknesses in
    existing processes. Improvements included increased funding for nursing home
    surveyors,

    helped focus the attention of the executive and legislative branches on the
    importance of these issues, particularly in managing for results. We helped
    spur the administration to make human capital a priority management
    objective in the fiscal year 2001 budget submission, and our framework for
    human capital self- assessment is being used at other agencies, including
    the Social Security Administration, the Small Business Administration, the
    National

    Aeronautics and Space Administration, and the Environmental Protection
    Agency. The framework is also used throughout GAO to help guide our research
    and development work and our congressionally driven examinations of how well
    agencies are pursuing strategic human capital management. GAO has evaluated
    the security of more prompt investigation of

    complaints alleging serious harm to residents, more immediate enforcement
    actions for homes with repeated serious problems, a reorganization of HCFA's
    regional staff to improve consistency in oversight, and increased funding
    for administrative law judges to reduce the backlog of appealed enforcement
    actions. Our work on human capital issues

    covered Inspector General and GAO audit findings reported since July 1999.
    We concluded that weak security continues to be a widespread problem that
    places critical and sensitive federal operations at risk of tampering,
    disruption, and inappropriate disclosure.

    12 78 Percent of the Recommendations We Made 4 Years Ago Were

    Implemented. Our results exceeded our target of 73 percent and were up from
    the previous year's rate of 70 percent.

    We measure our progress in improving the government's accountability,
    operations, and services by tracking the percentage of recommendations we
    made 4 years ago that have since been implemented. For example, 78 percent
    of the recommendations we made in fiscal year 1996 had been implemented by
    the end of fiscal year 2000. We use a 4- year interval because our
    historical data show that agencies often need this time to take action on
    our recommendations. Implemented recommendations correct the underlying
    causes of problems, weaknesses in internal controls, failures to comply with
    laws or regulations, or other matters impeding effective and efficient
    performance.

    G A O ' S P E R F O R M A N C E

    13 263 Testimonies Were Given Before the Congress. Our results exceeded our

    target of 230 and were up from the previous year's total of 229 testimonies.
    Because one of GAO's primary functions is to support the Congress in
    carrying out its decision- making and oversight responsibilities, the number
    of times our experts testify before congressional panels each year is an
    indicator of our responsiveness and the impact, importance, and value of our
    work. In fiscal year 2000, GAO witnesses testified before 104 different
    congressional committees and subcommittees on a broad range of topics,
    including arms control, health care, Social Security, human capital, nuclear
    waste cleanup, wildfires, aviation safety and security, international trade,
    computer security, financial management reform, and budget issues.

    14 1,224 Recommendations Were Made During the Year. Our results exceeded

    our target of 950 recommendations and were up from the previous year's total
    of 940.

    Our investigations and analyses can lead to improved government performance
    when we make recommendations to federal agencies. We recommend specific
    actions to improve the economy, efficiency, and effectiveness of federal
    operations and aim to effect significant financial and other benefits to
    taxpayers. We therefore track the number of recommendations contained in the
    products we issue each year.

    96 Percent of Our Products Were Delivered on Time. While our results fell
    short of our idealistic target of 100- percent on- time delivery, we
    delivered the vast majority of our products on time.

    In addition to the five performance measures already discussed, we monitor
    timeliness through a management measure. For our work to be useful, our
    congressional clients must have it on a timely basis. Therefore, we compare
    actual product delivery dates with the dates we agreed to with our clients.
    We set an idealistic target of 100 percent to emphasize the importance we
    place on being responsive to our clients. Although we did

    14 G A O ' S P E R F O R M A N C E

    15

    not meet this target- and we believe it will remain a challenge because of
    our increasing workload and external factors beyond our control- we will
    continue to emphasize timeliness. Fully implementing our new matrix and risk
    management strategies should help improve our on- time delivery.

    100 Percent of Our Qualitative Performance Goals Are on Track. As of the end
    of fiscal year 2000, we expected to meet or exceed all 94 of our 3- year
    performance goals, although progress toward some had been slowed because we
    did not receive all the resources we requested. We will evaluate our success
    at the end of fiscal year 2002.

    These 94 qualitative performance goals lay out the key efforts and potential
    outcomes we hope to achieve for each of our strategic objectives. Our
    performance on these goals will meet expectations when we provide
    information or make recommendations on the key efforts when viewed
    collectively. Our performance will exceed expectations when we provide
    information or make recommendations that congressional decisionmakers and
    others use toward achieving the potential outcomes. Our performance goals
    are listed in the full- length version of this report.

    16

    To present a fuller picture of how we served the Congress in fiscal year
    2000, the following pages provide details on each of our four strategic
    goals. They present the goals' strategic objectives, additional examples of
    our fiscal year 2000 accomplishments, and some of the issues we testified on
    at the request of our congressional clients.

    17

    Provide Timely, Quality Service to the Congress and the Federal Government
    to Address Current and Emerging Challenges to the Well- Being and Financial
    Security of the American People

    Strategic Objectives

    The health care needs of an aging and diverse population A secure retirement
    for older Americans The social safety net for Americans in need An educated
    citizenry and a productive workforce An effective system of justice
    Investment in communities and economic development Responsible stewardship
    of natural resources and the environment A safe and efficient national
    physical infrastructure

    Selected Accomplishments

    Analyzing Social Security Reform

    GAO produced a major body of work analyzing the challenges facing the long-
    term financial solvency, stability, and sustainability of the Social
    Security program, including developing and applying criteria for evaluating
    reform proposals. Our criteria provide a clear, consistent, and objective
    analytical framework that the Congress, program officials, and the public
    can use in evaluating legislative reforms.

    Improving Airline Competition

    Our congressionally requested work on airline competition paid off, with the
    Congress passing legislation that addressed critical barriers to increased
    competition. Our work showed that limitations on the numbers of arrivals and
    departures (called slot controls) inhibit the ability of some airlines to
    serve new markets. The new law encourages more vigorous competition by
    phasing out slot controls at three major airports, increases slots for new-
    entrant airlines, increases slots for airlines with limited access, and
    requires that DOT grant additional slots to airlines that increase regional
    jet service to small- hub airports. Several of those smaller cities now
    receive improved service from airlines operating regional jets.

    Maximizing the Uranium Enrichment Program

    Acting on a GAO recommendation, the Congress required the Department of
    Energy to recover from commercial customers an appropriate share of the
    expected costs for work involving the decontamination and decommissioning of
    the Department's uranium enrichment plants. More than $731 million in
    additional collections resulted.

    Congressional Testimonies

    Issues we testified on included:

    Air traffic control Airline competitiveness Amtrak's financial condition Gun
    control Health care Homelessness Housing programs Intercity passenger rail
    Long- term care insurance Medicare Nuclear waste cleanup Nursing homes
    Prescription drug benefits Social Security Truck safety Welfare reform
    Wildfire dangers Worker protection

    18

    Provide Timely, Quality Service to the Congress and the Federal Government
    to Respond to Changing Security Threats and the Challenges of Global
    Interdependence

    Strategic Objectives

    Responding to diffuse threats to national and global security Ensuring
    military capabilities and readiness Advancing and protecting U. S.
    international interests Responding to the impact of global market forces on
    U. S. economic and security interests

    Congressonal Testimonies

    Issues we testified on included:

    AIDS crisis in Africa Anthrax vaccine immunization Arms control Aviation
    security Bosnia Chemical and biological defense Colombian drugs Combating
    terrorism Critical infrastructure Defense acquisitions Drug control Export
    controls I Love You virus International child abductions Micronesia Military
    personnel Peacekeeping operations Trade with European Union United Nations
    management

    reforms Weapons of mass destruction World Trade Organization

    Selected Accomplishments

    Revamping Navy's In- Transit Inventory

    At the request of several Members of Congress, GAO examined how the Navy
    reconciled its in- transit inventory records and found that the Navy had
    lost accountability over $3 billion in inventory. In response, the Navy
    established a task force that, for fiscal years 1999 and 2000, resolved
    errors valued at about $802 million. Had this reconciliation not occurred,
    the Navy could have bought additional inventory not knowing that it already
    had the items in stock.

    Stabilizing the Balkans

    Despite the presence of two large NATO- led forces, the Balkans remain
    volatile. GAO's work has shown that the international operations in Bosnia
    and Kosovo face severe obstacles to achieving enduring peace and stability.
    Most local leaders and members of their respective ethnic groups have not
    embraced the political and social reconciliation needed to build
    multiethnic, democratic societies. Our work has also shown that the
    international community has not provided the resources that the United
    Nations mission in Kosovo says it needs. If progress is not made in these
    matters, violence may escalate or armed conflict may result.

    Evaluating Trade Agreements

    GAO identified procedural and structural problems in the government's
    monitoring and enforcement of its trade agreements. We found inconsistencies
    and weaknesses in trade archiving practices that prevented the government
    from determining the number of agreements it is party to. We also identified
    human capital and other capacity weaknesses that limited key agencies' trade
    monitoring and enforcement abilities. In response, the key agencies improved
    the accuracy and utility of their trade archives and are enhancing efforts
    to achieve compliance with trade agreement provisions, to improve
    coordination and teamwork in monitoring and enforcement activities across
    the government, and to update mechanisms for obtaining private sector input
    on trade policy.

    19

    Support the Transition to a More Results- Oriented and Accountable Federal
    Government

    Strategic Objectives

    Analyzing the federal government's long- term and near- term fiscal
    position, outlook, and options Strengthening approaches for financing the
    government and determining accountability for the use of taxpayer dollars
    Facilitating governmentwide management and institutional reforms needed to
    build and sustain high- performing organizations and more effective
    government Recommending economy, efficiency, and effectiveness improvements
    in federal agency programs

    Congressonal Testimonies

    Among the issues we testified on:

    Budget issues Computer security District of Columbia reforms Electronic
    government Federal management

    challenges Financial management reform Government facility security
    Government in the 21st

    century Government program

    oversight GPRA congressional oversight Human capital Managing in the new
    millennium

    Money laundering Security breaches at federal

    agencies U. S. government financial

    statement audit Y2K leadership and

    partnership

    Selected Accomplishments

    Improving SBA's Disaster Loan Program Estimates

    In reviewing information the Small Business Administration developed and
    used to prepare its financial statements for fiscal years 1997 and 1998, GAO
    identified errors in the method SBA used to estimate the cost of the
    Disaster Loan Program. In response, SBA developed a new approach to estimate
    its program's costs using actual historical data, which decreased the
    estimated cost of the loan program. During fiscal years 1999 and 2000, about
    $609 million in benefits resulted.

    Informing Congressional Deliberations on Tax Policy

    The nation's evolving economy and the size and complexity of the current IRS
    Code raise policy issues for the Congress. For example, the rapid
    development of electronic commerce has fueled debate about whether online
    transactions should be taxed. During the debate over whether to modify
    states' authority to require out- of- state retailers, including Internet
    retailers, to collect taxes due on their sales, GAO provided the Congress
    with a unique perspective on the potential revenue losses to state and local
    governments. In addition, our prior work on better targeting the Earned
    Income Credit continued to generate substantial savings of over $600
    million.

    Implementing the Government Performance and Results Act

    GAO assisted the Congress and executive branch agencies with the difficult
    cultural changes needed to create high- performing agencies. As part of this
    work, we assessed agencies' efforts under GPRA and made specific
    recommendations on how the Congress and the executive branch could work
    together to ensure that results- oriented processes are useful to and used
    by decisionmakers. We also worked with the Congress to ensure that agencies
    resolve management problems that undercut or undermine programs. Our work
    for the Senate on the key attributes of high- performing organizations is
    being used as a basis for oversight and decision- making.

    20

    Maximize the Value of GAO by Being a Model Organization for the Federal
    Government

    Strategic Objectives

    Cultivate and foster effective congressional and agency relations Implement
    a model strategic and annual planning and reporting process Align human
    capital policies and practices to support GAO's mission Develop efficient
    and responsive business processes Build an integrated and reliable
    information technology infrastructure

    Selected Accomplishments

    Managing Strategically With Accountability

    GAO developed its first strategic plan for the 21st century, based on input
    from the Congress and supplemented by GAO's expertise and other outreach
    efforts. We subsequently developed our performance plan for fiscal year 2001
    to directly link our strategic goals with what managers and staff do day to
    day. Also in fiscal year 2000, GAO issued its first accountability report to
    the Congress, documenting our performance and accountability during fiscal
    year 1999.

    Improving Service to the Congress

    In fiscal year 2000, GAO piloted congressional protocols to guide our
    interactions with the Congress and to ensure our accountability. The final
    protocols have since been issued and reflect refinements made in response to
    feedback from Members of the Congress and their staffs. The protocols will
    allow us to better serve the Congress, improve satisfaction with our work,
    and ensure equitable treatment for all congressional requesters.

    Managing Human Capital

    Because of our work with key congressional committees during fiscal year
    2000, the Congress passed the GAO Personnel Flexibility Act, which provides
    the Comptroller General with the authority to better position our workforce
    for the future. Separately, we completed our first human capital self-
    assessment and a computerized knowledge and skills inventory, significantly
    increased our recruiting and college relations efforts, and enhanced
    training opportunities. We also established an employee advisory council and
    an employee suggestion program.

    Other actions in fiscal year 2000 included:

    realigning our operations to better support the Congress, eliminate a layer
    of management, reduce the number of internal “silos” and field
    offices, and better align resources with our strategic plan;

    continuing to improve our information technology and knowledge- sharing
    applications; and

    organizing a global working group of 14 nations' chief accountability
    officers who met for the first time to discuss emerging issues.

    21

    In fiscal year 2001, our work will continue to focus on the major issues
    facing the Congress, including Social Security solvency, education, economic
    development, Medicare reform, national security, international affairs, and
    government management reforms and computer security. Our teams are in the
    field, gathering facts, providing analyses, and developing recommendations
    to assist congressional decisionmakers.

    21

    22

    Note: We reset our originally published fiscal year 2001 targets for other
    benefits and testimonies. The full- length report discusses these revisions.

    Another top priority in fiscal year 2001 will be working with leaders on the
    Hill to help the Congress strengthen its approach to oversight, with an
    emphasis on looking hard at what government does, how it does it, and the
    long- term consequences of today's policy choices. GAO's 2001 Performance
    and Accountability Series and High- Risk Update will serve as a solid
    foundation for congressional oversight. We also have several key initiatives
    in progress to improve how we serve the Congress, among them:

    Annual Quantitative PerformanceTargets, Fiscal Years 2001- 2002 Type Measure
    2001 2002

    Outcome Financial benefits (billions)

    Annual $23.0 $24.0 4- year average $21.5 $22.6

    Other benefits

    Annual 700 720 4- year average 658 704

    Recommendations implemented

    4- year implementation rate 75% 75% Intermediate Testimonies

    outcome Annual 150 233 4- year average 225 219

    Recommendations made

    Annual 975 1,000 4- year average 1,032 1,035

    Annual Management Target, Fiscal Years 2001- 2002

    Management Timeliness

    Annual 100% 100% 4- year average --

    L O O K I N G A H E A D

    23

    an expanded client feedback system; protocols governing our dealings with
    federal agencies; and new high- level advisory bodies to gain the expertise
    of business leaders, former Cabinet officials, and other experts and to open
    new avenues for sharing our own expertise with other accountability
    organizations.

    We are also preparing to carry out two new responsibilities assigned by the
    previous Congress. We will chair a panel to review the government's A- 76
    process for obtaining services through competitive sourcing. If the needed
    funding is provided, we will also review the costs and benefits of major
    regulations under the Truth in Regulating Act (P. L. 106- 312, Oct. 17,
    2000).

    To continue our efforts to support the Congress and maintain current
    operations, we have requested a budget for fiscal year 2002 of about $430.3
    million. This funding level will allow us to fully staff at our authorized
    total level of 3,275 full- time equivalent personnel. We will increase

    24 L O O K I N G A H E A D

    our emphasis on areas of congressional and public interest and, internally,
    will continue initiatives addressing our two major management challenges:
    human capital and information technology. Our request includes $5.2 million
    to carry out responsibilities created by the Truth in Regulating Act.

    Dollars in Full- time Strategic goal thousands equivalent staff Goal 1
    Provide timely, quality service to the Congress $100,737 965

    and the federal government to address current and emerging challenges to the
    well- being and financial security of the American people

    Goal 2 Provide timely, quality service to the Congress 78,936 720 and the
    federal government to respond to changing security threats and the
    challenges of global interdependence

    Goal 3 Support the transition to a more results- 112,814 976 oriented and
    accountable federal government

    Goal 4 Maximize the value of GAO by being a model 137,808 614 organization
    for the federal government

    Total $430,295 3,275

    25

    The Government Performance and Results Act directs agencies to articulate
    not just goals, but also strategies for achieving their goals. The
    strategies emphasize the need to work with other organizations on
    crosscutting issues and to mitigate internal and external factors that could
    impair performance. For GAO, achieving our strategic goals and objectives
    rests, for the most part, on providing professional, objective, fact- based,
    nonpartisan, nonideological, fair, and balanced information. We support the
    Congress in a variety of ways:

    25

    26

    evaluations of federal policies and the performance of agencies; oversight
    of government operations through financial and other management audits to
    determine whether public funds are spent efficiently, effectively, and in
    accordance with applicable laws; investigations to assess whether illegal or
    improper activities are occurring; analyses of the financing for government
    activities; various engagements in which we consult proactively with
    agencies, when appropriate, to help guide their efforts toward positive
    results; legal opinions to determine whether agencies are in compliance with
    applicable laws and regulations; policy analyses to assess needed actions
    and the implications of proposed actions; and additional assistance to the
    Congress in support of its oversight and decision- making responsibilities.

    As part of these strategies, we are coordinating with the wider
    accountability community, both domestically and internationally, and are
    confronting challenges inside GAO and in the environment in which we and the
    Congress operate.

    S T R AT E G I E S A N D C H A L L E N G E S

    27

    Although GAO is unique in the scope of its activities to support the
    Congress and to improve the performance and accountability of government, it
    shares similar visions and values with other members of the accountability
    community. To coordinate more effectively with these organizations on
    crosscutting domestic and international issues, we conduct four types of
    activities:

    In consultation with other accountability organizations, we update
    government auditing standards to address emerging issues; participate in the
    development of federal accounting and financial management systems
    standards; and, as required by the law, issue and update standards for
    internal controls in the federal government. For example, GAO and the
    President's Council on Integrity and Efficiency will soon issue a jointly
    developed manual on performing federal financial statement audits.

    I S S U E S Coordination to Address Crosscutting

    28

    We develop and promote best practices to build and sustain high- performing
    organizations throughout the government. For example, federal agencies are
    using an executive guide we developed to maximize the success of their chief
    information officers, positions created by the Congress to promote the
    efficient design and operation of all major information resources for
    executive branch agencies.

    We leverage our resources and services by working with accountability
    organizations at every level, local to international; our sister
    congressional agencies; and executive branch agencies. For example, the
    Federal Aviation

    Accountability Community

    Organizations we work with include:

    Association of Government Accountants

    Chief Financial Officers Council Chief Information Officers Council
    Congressional Budget Office Congressional Research Service Domestic Working
    Group Executive Council on Integrity and

    Efficiency Federal Accounting Standards

    Advisory Board Financial Accounting Standards

    Board Global Working Group Government Accounting Standards

    Board Inspectors General Intergovernmental Audit Forum International Auditor
    Fellowship

    Program International Organization of

    Supreme Audit Institutions Joint Financial Management

    Improvement Program Office of Management and Budget President's Council on
    Integrity and

    Efficiency Private Sector Council State and Local Auditors

    S T R AT E G I E S A N D C H A L L E N G E S

    29

    Administration (FAA) is presenting the training we developed at its request
    to prepare safety inspectors to conduct effective internal audits. In
    return, FAA has loaned us one of its training platforms to help our analysts
    gain a fuller understanding of the air traffic control system, new
    navigational systems, and other topics.

    We help convene and participate in forums, boards, and councils to share
    knowledge with other government audit organizations, including international
    congresses and a new informal domestic working group launched by the
    Comptroller General in March 2001 that includes federal inspectors general
    and state and local auditors. We also coordinate with the Chief Financial
    Officers Council to address crosscutting accounting, financial systems,
    internal control, and financial reporting issues and with the Chief
    Information Officers Council to address governmentwide information
    technology issues.

    30

    Like any organization, GAO faces major management challenges in
    accomplishing our strategic goals and objectives. With most of our resources
    devoted to staff salary and benefits, the area of human capital presents a
    major challenge. A significant percentage of our workforce is nearing
    retirement age while marketplace, demographic, economic, and technological
    changes indicate that competition for skilled workers will be greater in the
    future. With our agency realigned to facilitate our work for the Congress
    and new legislative authority in hand to manage our workforce more
    effectively, we are pursuing several initiatives to strengthen our human
    capital. For example, we are recruiting diverse, high- caliber staff with
    the skills and abilities we need to achieve our strategic goals and
    objectives. We will be putting into place a competencybased performance
    appraisal system and using the results of our staff knowledge and skills
    inventory to help us in workforce planning. We have also reestablished and
    are expanding training opportunities for our staff- from the senior
    executives to the new hires.

    Major Management Challenges- Internal Factors

    S T R AT E G I E S A N D C H A L L E N G E S T H AT C O U L D A F F E C T O
    U R P E R F O R M A N C E

    31

    Another major management challenge is building an integrated and reliable
    information technology (IT) infrastructure that supports the achievement of
    our goals. We are conducting a comprehensive review to identify
    opportunities to increase our efficiency, effectiveness, and productivity.
    We are mapping our business processes to our IT architecture and will link
    future IT investments to our business goals. We plan to continue initiatives
    to increase our employees' productivity, maximize the use of technology, and
    enhance the Web- based knowledge- sharing applications on the desktop. We
    must also increase the security of our network.

    A number of external factors could affect our ability to meet our goals and
    objectives. Among them are emerging national issues, international
    developments, and the resources we receive. For instance, during fiscal year
    2001, both a new Congress and a new administration are beginning work. The
    many new committee chairs in the House, a 50/ 50 split in the Senate, and
    the extended transition in progress may affect our planned work. The
    priorities set under the previous Congress may change, new

    External Factors T H AT C O U L D A F F E C T O U R P E R F O R M A N C E

    32

    issues may emerge, and the number of requests we receive for testimony and
    other work may be lower than expected.

    At the international level, to protect the safety of GAO employees, we may
    have to restrict the scope of work on certain issues. Moreover, because we
    do not have audit authority with respect to foreign government entities, our
    ability to conduct thorough analyses of some issues is affected by the level
    of openness and voluntary cooperation we can obtain. In addition, while we
    continue to make progress toward our strategic goals, achieving them will
    depend on having sufficient budgetary resources available, particularly for
    technology and process improvements that support our goal to serve as a
    model agency.

    Although these external factors are beyond our control, we will continue to
    work closely with our congressional clients, to monitor domestic and
    international events, and to maintain broad- based staff expertise so that
    we can quickly adapt to meet emerging needs.

    S T R AT E G I E S A N D C H A L L E N G E S

    33

    Condensed financial statements for GAO appear at the end of these
    highlights. Our detailed statements with their accompanying notes appear in
    the full- length version of this report. Our financial statements for the
    fiscal year that ended September 30, 2000, were audited by an independent
    auditor, Clifton Gunderson LLP. The independent auditor rendered an
    unqualified opinion on GAO's financial statements and an unqualified opinion
    on the effectiveness of GAO's internal controls over financial reporting and
    compliance with laws and regulations. In addition, the independent auditor
    found no reportable instances of noncompliance with selected provisions of
    laws and regulations. In the opinion of the independent auditor, the
    financial statements are presented fairly in all material respects and in
    conformity with generally accepted accounting principles.

    33

    34

    Financial Systems and Internal

    GAO recognizes the importance of strong financial systems and internal
    controls to ensure our accountability, integrity, and reliability. To
    achieve a high level of quality, management maintains a quality control
    program and seeks advice and evaluation from both internal and external
    sources. Specifically, through internal and peer reviews, GAO obtains
    reasonable assurances that our audit and evaluation work conforms to all
    applicable professional requirements, including generally accepted
    government auditing standards. Additionally, GAO's Inspector General
    conducts audits and investigations, and an Audit Advisory Committee assists
    the Comptroller General in overseeing the effectiveness of our financial
    reporting and audit processes, internal controls, and processes to ensure
    compliance with laws and regulations.

    GAO is committed to fulfilling the internal control objectives of 31 U. S.
    C. 3512, formerly the Federal Managers' Financial Integrity Act, and the
    objectives of the Federal Financial Management Improvement Act (FFMIA) of
    1996. We assessed our internal controls as of September 30,

    C O N T R O L S C O N D E N S E D F I N A N C I A L S TAT E M E N T S

    35

    2000, and we believe we had effective controls in place as of that date. In
    addition, on the basis of assessments of our financial systems, we believe
    GAO has implemented and maintained financial systems that comply
    substantially with the objectives of FFMIA for the fiscal year that ended
    September 30, 2000.

    36

    Dollars in Thousands 2000 1999

    Assets

    Intragovernmental funds with the U. S. Treasury $55,115 $53,343 Property and
    equipment, net 74,863 62, 617 Other assets 856 1,604

    Total Assets $130,834 $117,564 Liabilities

    Accounts payable and payroll $32,143 $31,812 Accrued annual leave 27,573
    26,334 Workers' compensation and retirement 12,562 12,642 Capital leases
    7,730 6,671 Deferred lease revenue 8,550

    Total Liabilities 88,558 77,459 Net Position

    Unexpended appropriations $23,515 $22,777 Cumulative results of operations
    18,761 17,328

    Total net position 42,276 40,105 Total Liabilities and Net Position $130,834
    $117,564

    F I N A N C I A L S TAT E M E N T S CONDENSED BALANCE SHEET As of September
    30, 2000 and 1999

    UNITED STATES GENERAL ACCOUNTING OFFICE

    37 F I N A N C I A L S TAT E M E N T S

    CONDENSED STATEMENT OF NET COST For Fiscal Years Ended September 30, 2000
    and 1999

    UNITED STATES GENERAL ACCOUNTING OFFICE

    Dollars in Thousands 2000 1999

    Net Costs by Program Area

    National Defense, Security and International Relations, and Other Related
    Issues $87,094 $84,942

    Financial Audits, Systems, Information Management and Technology Issues
    83,159 83,620

    Energy, Agriculture, Environment, Housing, Transportation, and Natural
    Resources Issues 75,927 73,815

    Justice, Tax Policy, Financial Institutions, and General Management Issues
    63,750 57,712

    Education and Employment, Health Care and Income Security Issues 58,989
    55,115

    Legal Services 26,017 24,461 Special Investigations and Investigative
    Support 6,275 6,288 Senior management and staff 3,627 4,778 Less
    reimbursable services not attributable to programs (712) (456)

    Net Cost of Operations $404,126 $390,275

    38

    Dollars in Thousands 2000 1999

    Net Cost of Operations $404,126 $390,275 Financing Sources (other than
    reimbursable services)

    Appropriations used 376,640 365,009 Employees benefit costs imputed to GAO
    19,009 19,839 Other (53) (1,176)

    Total Financing Sources 395,596 383,672 Net Results of Operations (8,530)
    (6,603) Net Increase (Decrease) in Unexpended Appropriations 738 (10,003)
    Change in Net Position (7,792) (16,606) Net Position - Beginning of Fiscal
    Year 40,105 56,711 Reinstatement of the GAO Building and Land as a Multi-
    Use

    Heritage Asset 9,963 Net Position - End of Fiscal Year $42,276 $40,105

    F I N A N C I A L S TAT E M E N T S CONDENSED STATEMENT OF CHANGES IN NET
    POSITION

    For Fiscal Years Ended September 30, 2000 and 1999

    UNITED STATES GENERAL ACCOUNTING OFFICE

    39 F I N A N C I A L S TAT E M E N T S

    CONDENSED STATEMENT OF BUDGETARY RESOURCES For Fiscal Years Ended September
    30, 2000 and 1999

    UNITED STATES GENERAL ACCOUNTING OFFICE

    Dollars in Thousands 2000 1999

    Budgetary Resources Made Available

    Current year appropriations and transfers $377,686 $355,268 Unobligated
    appropriations, beginning of fiscal year 4,477 2,166 Reimbursements 8,490
    11,161

    Total Budgetary Resources Made Available $390,653 $368,595 Status of
    Budgetary Resources

    Obligations incurred $386,081 $363,856 Unobligated appropriations, end of
    fiscal year 4,264 4,477 Lapsed budget authority 308 262

    Total Status of Budgetary Resources $390,653 $368,595 Outlays

    Obligations incurred $386,081 $363,856 Less: Reimbursements (8,490) (11,161)
    Obligated balance, net - beginning of fiscal year 48,866 55,632 Less:
    Obligated balance, net - end of fiscal year (50,851) (48,866)

    Total Outlays $375,606 $359,461

    40 F I N A N C I A L S TAT E M E N T S

    UNITED STATES GENERAL ACCOUNTING OFFICE

    CONDENSED STATEMENT OF FINANCING For Fiscal Years Ended September 30, 2000
    and 1999

    Dollars in Thousands 2000 1999

    Obligations and Nonbudgetary Resources

    Obligations incurred $386,081 $363,856 Less: Reimbursements (8,490) (11,161)
    Employee benefit costs imputed to GAO 19,009 19,839 Other (53) (1,176)

    Total obligations as adjusted, and nonbudgetary resources 396,547 371,358

    Resources That Do Not Fund Net Cost of Operations

    Net (increase) decrease in unliquidated obligations (951) 12,314 Costs
    capitalized on the balance sheet (9,204) (8,425) Expenses to be funded by
    future appropriations 1,159 215

    Total resources that do not fund net cost of operations (8,996) 4,104 Costs
    That Do Not Require Resources

    Depreciation 16,575 14,813

    Net Cost of Operations $404,126 $390,275

    41
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