    Managing for Results: Agency Progress in Linking Performance
    Plans With Budgets and Financial Statements (04-JAN-02,
    GAO-02-236).

    This report updates GAO's previous assessments of agencies'
    experiences in linking performance plans and budgets under the
    Government Performance and Results Act of 1993 (GPRA). GAO has
    also included in this report an initial assessment of the
    approaches used by agencies to link performance plans with their
    audited annual financial statements. Over the first four years of
    agency efforts to implement GPRA, GAO observed that agencies
    continue to tighten the required linkage between their
    performance plans and budget requests. Of the agencies GAO
    reviewed over this period, all but three met the basic
    requirement of the act to define a linkage between their
    performance plans and the program activities in their budget
    requests, and most of the agencies in GAO's review had moved
    beyond this basic requirement to indicate some level of funding
    associated with expected performance described in the plan. More
    importantly, more agencies each year--almost 75 percent in fiscal
    year 2002 compared to 40 percent in fiscal year 1999--were able
    to show a direct link between expected performance and requested
    program activity funding levels--the first step in defining the
    performance consequences of budgetary decisions. However, GAO has
    also observed that the nature of these linkages varies
    considerably. Most of the agencies in GAO's review associated
    funding requests with higher, more general levels of expected
    performance, rather than the more detailed ''performance goals or
    sets of performance goals'' suggested in the Office of Management
    and Budget guidance. Similarly, agencies' initial efforts to link
    performance plans to their statements of net cost are encouraging
    and improving, but some presentations were more informative than
    others. However, various approaches were used to present this
    information, ranging from broad linkages of overall agency costs
    to general goals to more specific descriptions of component
    organization costs by strategic objective.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-02-236
        ACCNO:   A02631
      TITLE:     Managing for Results: Agency Progress in Linking
    Performance Plans With Budgets and Financial Statements
         DATE:   01/04/2002
      SUBJECT:   Audit reports
    	     Budget administration
    	     Budgeting
    	     Financial statements
    	     Performance measures
    	     Reporting requirements
    	     Government Performance and Results Act
    	     (GPRA)

    	     GPRA

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    GAO-02-236

    United States General Accounting Office

    GAO Report to the Ranking Minority Member, Committee on Governmental
    Affairs, U.S. Senate

    January 2002

    MANAGING FOR RESULTS

    Agency Progress in Linking Performance Plans With Budgets and Financial
    Statements

                                          a

    GAO-02-236

    Contents

    Letter

    Results in Brief
    Background
    Progress Made Linking Plans With Budgets but Nature of Linkages

    Could Be Improved Efforts to Link Plans to Cost Statements Are Encouraging
    but

    Improvements Are Needed Recent Initiatives by OMB Concluding Observations
    Agency Comments

    1 3 4

    8

    22 34 38 41

    Appendixes
                Appendix I:                      Scope and Methodology                      44
                                                         Scope                              44
                                                      Methodology                           46
                              Table 1: Agency Status in Linking Plans and Budgets, Fiscal
      Tables                                             Year
                                                         2002                               12
                             Table 2: Agencies That Linked Performance Plans With Net Cost
                                        Statements, Fiscal Years 1999 and 2000              23
                                          Table 3: Performance Plans Reviewed               45

    Figures Figure 1:  Figure 2: Figure 3: Figure  4: Figure 5: Figure 6: Figure
    7: Figure 8:

    GPRA Performance Planning, Budget, and Net Cost
    Model 8
    Agencies Show Progress in Linking Plans and Budgets,
    Fiscal Years 1999 Through 2002 10
    Change in HUD's Presentation of Performance
    Plan-Budget Linkages, Fiscal Years 2000 and 2001 14
    HUD's Presentation of Performance Plan-Budget
    Linkages, Fiscal Year 2002 15
    Agencies Used Multiple Approaches to Link Plans and
    Budgets 17
    ACF Used Aggregation and Consolidation to Link
    Program Activities to Sets of Performance Goals 18
    EPA Consolidated Funding Allocations by Strategic
    Objective 19
    NRC Linked Program Activities and Funding Allocations
    by General Goal 20

    Contents

    Figure 9: Forest Service Linked Multiple Budget Accounts With
    Multiple Strategic Objectives 21
    Figure 10: Agencies Used Multiple Approaches to Link Plans and

    Net Cost Statements. 24
    Figure 11: VA Reported Net Cost by Program Area 25
    Figure 12: NRC Associated Net Cost With General Goals 27
    Figure 13: DOE Associated Net Cost With General Goals 29
    Figure   14:   DOE  Used   Subordinate   Schedules  to   Report  Costs   for

    Each General Goal Against Related Program Activities
    From Its Budget 30
    Figure 15: Treasury Showed Net Cost by General Goal in Its
    Consolidated Statement 32
    Figure 16: Treasury Used Subordinate Schedules to Report Net Cost
    by General Goal and Responsibility Segment 33

    A

    United States General Accounting Office Washington, D.C. 20548

    January 4, 2002

    The Honorable Fred Thompson Ranking Minority Member Committee on
    Governmental Affairs United States Senate

    Dear Senator Thompson:

    As you requested, this report updates our previous assessments of agencies'
    experiences in linking performance plans and budgets under the Government
    Performance and Results Act of 1993 (GPRA).1 As agreed with your staff, we
    have also included in this report an initial assessment of the approaches
    used by agencies to link performance plans with their audited annual
    financial statements. Pursuing a closer alignment between performance
    planning, budgeting, and financial reporting is essential in supporting the
    transition to a more results-oriented and accountable federal government.
    For example, developing a discrete allocation between requested budget
    funding and expected performance goals is a critical first step in defining
    the performance consequences of budgetary decisions. Comparably, linking
    performance and financial information is both a key feature of sound
    management-reinforcing the connection between resources consumed and results
    achieved-and an important element in presenting to the public a useful and
    informative perspective on federal spending.

    The trend information in this report can be useful for the Congress and
    others in considering the administration's new management reform agenda. As
    part of this agenda and the proposed Managerial Flexibility Act of 2001, the
    Office of Management and Budget (OMB) has proposed several steps to better
    achieve transparency in performance, budgeting, and accounting and will
    attempt to integrate more completely information about cost and program
    performance during the fiscal year 2003 budget process.

    1Performance Budgeting: Initial Experiences Under the Results Act in Linking
    Plans With Budgets (GAO/AIMD/GGD-99-67, Apr. 12, 1999), and Performance
    Budgeting: Fiscal Year 2000 Progress in Linking Plans With Budgets
    (GAO/AIMD-99-239R, July 30, 1999).

    We used the same universe of 35 agencies2 reviewed in our previous reports
    to discuss the progress shown in making funding allocations to performance
    goals and to identify the approaches used to associate performance goals
    with budgetary requests. Specifically, we determined whether each agency (1)
    linked its performance plans to program activities3 in its budget, (2)
    presented funding estimates for expected levels of performance, and (3)
    clearly indicated how the funding estimates were derived or allocated from
    the program activities in its budget request. In our two previous
    assessments covering fiscal years 1999 and 2000, we focused solely on the
    extent to which agencies described in their performance plans the linkage
    between their goals and budget requests. However, for the fiscal year 2001
    and 2002 performance plans, we also looked at the nature of the linkage-that
    is, the level of the agency's performance planning structure (i.e., general
    goals, strategic objectives, or performance goals)-related to the program
    activities in the agency's budget.

    To assess the extent to which performance planning and financial statements
    were related, we reviewed the statement of net cost from the fiscal year
    1999 and 2000 audited financial statements for the 24 agencies covered by
    the Chief Financial Officers Act of 1990 (CFO Act), as amended. The
    statement of net cost, a required component of the annual financial
    statement, is expected under OMB's guidance to present the net cost of
    operations based on the missions and outputs described in the agency's
    performance plan and budget structure. Fiscal year 1999 was the first year
    for which agencies could provide both performance reports under GPRA and
    audited financial statements under the CFO Act; fiscal year 2000 statements
    were reviewed to indicate progress made by the agencies and also to assess
    the nature of the linkages.

    2See appendix I for a list of these agencies and the methodology used to
    select them. As of August 15, 2001, 3 of these 35 agencies-the Department of
    Agriculture's Food and Nutrition Service and the departments of Defense and
    Education-had not released fiscal year 2002 performance plans and were
    therefore not considered in our assessment of fiscal year 2002 plans. In
    this report, we refer to a performance plan, whether of a department,
    agency, or bureau, as an "agency plan."

    3The term "program activity" refers to the list of projects and activities
    shown for each account in the appendix to the Budget of the United States
    Government. Subject to OMB clearance and generally resulting from
    negotiations between agencies and appropriations subcommittees, program
    activity structures are intended to provide a meaningful representation of
    the operations financed by a specific budget account.

    Appendix I provides additional details on our scope and methodology.

    Results in Brief Over the first 4 years of agency efforts to implement GPRA,
    we have observed that agencies continue to tighten the required linkage
    between their performance plans and budget requests. Of the agencies we
    reviewed over this period, all but three met the basic requirement of the
    act to define a linkage between their performance plans and the program
    activities in their budget requests, and most of the agencies in our review
    had moved beyond this basic requirement to indicate some level of funding
    associated with expected performance described in the plan. Most
    importantly, more agencies each year-almost 75 percent in fiscal year 2002
    compared to 40 percent in fiscal year 1999-were able to show a direct link
    between expected performance and requested program activity funding
    levels-the first step in defining the performance consequences of budgetary
    decisions. However, we have also observed that the nature of these linkages
    varies considerably. Most of the agencies in our review associated funding
    requests with higher, more general levels of expected performance, rather
    than the more detailed "performance goals or sets of performance goals"
    suggested in OMB guidance.

    Similarly, agencies' initial efforts to link performance plans to their
    statements of net cost are encouraging and improving, but some presentations
    were more informative than others. For fiscal year 2000, 13 of the 24
    agencies covered by the CFO Act, compared to 10 in fiscal year 1999,
    reported net costs in their audited annual financial statements using a
    structure that was based on their performance planning structure. However, a
    variety of approaches were used to present this information, ranging from
    broad linkages of overall agency costs to general goals to more specific
    descriptions of component organization costs by strategic objective.

    OMB's recent initiatives and guidance to agencies are consistent with and
    reinforce our observations that agencies have made progress in achieving the
    goals of GPRA and the CFO Act but that additional effort is needed to
    clearly describe the relationship between performance expectations,
    requested funding, and consumed resources. The uneven extent and pace of
    development described in this report should be seen as a reflection of the
    mission complexity and variety of operating environments across federal
    agencies. Describing the planned and actual use of resources in terms of
    measurable results remains an essential action that will continue to require
    time, adaptation, and effort on the part of all agencies.

    Background Both GPRA and the CFO Act are key components of a statutory
    framework that the Congress put in place during the 1990s to promote a new
    focus on results and improved management.4 Among their complementary
    purposes, both acts seek to improve congressional decision-making by
    providing information on the relative effectiveness and efficiency of
    federal programs and spending, and to help federal managers improve service
    delivery by providing them with information about program results, cost, and
    service quality.

    Among its major purposes, GPRA aims for a closer and clearer linkage between
    requested resources and expected results. The general concept of linking
    performance information with budget requests is commonly known as
    performance budgeting.5 GPRA establishes a basic foundation for performance
    budgeting by requiring that an agency's annual performance plan cover each
    program activity in the President's budget request for that agency. GPRA
    does not specify any level of detail or required components needed to
    achieve this coverage. Further, the act recognizes that agencies' program
    activity structures are often inconsistent across budget accounts for the
    purposes of the act and thus gives agencies the flexibility to consolidate,
    aggregate, or disaggregate program activities, so long as no major function
    or operation of the agency is omitted or minimized.

    4Managing for Results: The Statutory Framework for Performance-Based
    Management and Accountability (GAO/GGD/AIMD-98-52, Jan. 28, 1998).

    5In this report, the term "performance budgeting" refers generally to the
    process of linking expected results to budgets, but not to any particular
    approach. For a discussion of past federal initiatives and the evolution of
    the concept and techniques of performance budgeting in the federal
    government, see Performance Budgeting: Past Initiatives Offer Insights for
    GPRA Implementation (GAO/AIMD-97-46, Mar. 27, 1997).

    OMB's original guidance regarding this provision of the act set forth an
    additional criterion: Plans should display, generally by GPRA program
    activity, the funding level to be applied to achieve performance goals. OMB
    defined the term "GPRA program activity" to mean that which results from the
    agency's consolidating, aggregating, or disaggregating the program
    activities shown in the President's budget submission. That is, OMB expected
    agency performance plans to show how amounts from the agency's budget
    request would be allocated to the performance goals displayed in the plan.
    In subsequent guidance for fiscal years 2000 and 2001, OMB stated that
    "agencies should show significant further progress in associating funding
    with specific performance goals or sets of goals." As part of its
    preparation for the President's fiscal year 2002 budget, OMB tasked each
    agency to develop integrated performance plans and budgets. Agencies were
    asked to assess their own progress on such issues as the method of
    presentation of plans and budgets; the extent of alignment between
    performance objectives, budget accounts, and program activity structures;
    and the precision of funding allocations made to each of the plan's
    objectives. Consistent with our recommendations in April 1999,6 OMB stated
    its intent to use this information as a baseline for further discussions on
    efforts to improve the relationship between performance planning and
    budgets.

    The CFO Act, as amended, sought to remedy the government's lack of timely,
    reliable, useful, and consistent financial information. Twenty-four agencies
    are required to prepare financial statements annually, and have them
    audited. The statements include, among other required presentations, a
    statement of net cost. Audited financial statements are intended to improve
    accountability over government operations, and the statement of net cost, in
    particular, is intended to provide timely and reliable cost information to
    (1) help ensure that resources are spent efficiently to achieve expected
    results and (2) compare alternative courses of action. OMB guidance further
    states that statements of net cost should both reflect an agency's major
    programs classified by the missions and outputs described in its strategic
    and annual performance plans prepared under GPRA and be consistent with
    managerial cost accounting standards.7

    6GAO/AIMD/GGD-99-67, Apr. 12, 1999.

    7Statement of Federal Financial Accounting Standards No. 4, Managerial Cost
    Accounting Concepts and Standards for the Federal Government, July 31, 1995.
    Agencies were expected to comply with this standard beginning with fiscal
    year 1998.

    In March 2000, federal agencies issued their first performance reports under
    GPRA, summarizing and discussing performance results for fiscal year 1999.
    Thus, fiscal year 1999 offered the first opportunity to link annual
    performance planning and reporting under GPRA with annual audited financial
    statements under the CFO Act. OMB's guidance to agencies on the preparation
    of annual performance reports did not define a specific format.8 However, in
    its form and content guidance for financial statements, OMB clarified the
    importance and manner of linking performance report information with
    financial statements.9 The guidance stated that performance information in
    the annual financial statement's narrative overview should be consistent
    with information previously included in the agency's plans and budget
    documents and should be linked to the programs presented in the statement of
    net cost.

    Across the departments and agencies of the federal government, performance
    plans, budget presentations, and cost accounting structures can vary
    considerably, depending on the missions, organizational arrangements, and
    other specific operating characteristics of the entity. GPRA does not
    require a standard format or establish expectations or limitations on an
    agency's number of performance goals and objectives, but it does generally
    describe a three-level performance planning architecture. An agency's
    strategic and annual performance plans are expected to include

    * general goals, which define, typically in outcome terms, how an agency
    will carry out its mission over an extended period;

    * strategic (or general) objectives, which describe a more specific level of
    accomplishment within a specific general goal to help assess whether a
    general goal was or is being achieved; and

    * annual performance goals, which define a target level of performance
    expressed as a tangible, measurable objective, in outcome or output terms.

    8Preparation and Submission of Budget Estimates, OMB Circular A-11, Sec.
    232.1 and 232.3, July 1999.

    9Form and Content of Agency Financial Statements, OMB Bulletin No. 97-01,
    Oct. 16, 1996.

    The federal budget structure is similarly diverse. The current account
    structure was not created as a single integrated framework, but rather
    developed over time to reflect the many roles it has been asked to play and
    to address the diverse needs of its many users.10 However, annual budget
    presentations can be generally described as providing funding information
    (1) on an agency basis, (2) by budget account within the agency, and (3) for
    separate program activities funded within a specific budget account.

    Finally, cost accounting information, to be useful, must rely on consistent
    and uniform terminology for concepts, practices, and techniques but also
    must allow agencies sufficient flexibility to reflect their unique operating
    environments and to meet the needs of different user groups. Toward this
    end, the managerial cost accounting standard describes a common but
    generalized structure applicable to all federal agencies to capture the cost
    of operations at three levels:

    * on an entitywide (or agency) basis;

    * by responsibility segment, defined as a component of the reporting entity
    that is responsible for carrying out a mission, conducting a major line of
    activity, or producing one or a group of related products or services; and

    * by segment outputs, that is, the cost centers associated with the separate
    types of outputs produced within each responsibility segment.

    Figure 1 depicts these generalized planning, budgeting, and cost accounting
    structures. Although these terms are not necessarily analogous and will
    change in specific circumstances-for example one agency may refer to its
    top-level goals as "business lines" while another may use the term
    "strategic goals"-the model can provide a useful comparative structure
    across unique agency adaptations. We use it as such in this report.
    Nevertheless, while this model can be useful in graphically portraying
    approaches and relationships across agencies, it is important to emphasize
    that each structure is independent and somewhat stylistic and becomes
    informative only when adapted to a specific agency context.

    10For  additional discussion of this issue, see Budget  Account Structure: A
    Descriptive Overview (GAO/AIMD-95-179, Sept. 18, 1995).

    Figure 1: GPRA Performance Planning, Budget, and Net Cost Model

    The agencies in our review continued to show the capacity for meeting a
    basic requirement of GPRA: to "prepare an annual performance plan covering
    each program activity set forth in the budget." In addition, these agencies
    continued to show progress in translating these plan-budget linkages into
    budgetary terms, thus indicating the performance consequences of their
    budget proposals. For example, nearly 75 percent of the agencies we reviewed
    for fiscal year 2002, compared to 40 percent in fiscal year 1999, were able
    to associate some level of their performance plans with a specific
    allocation of requested funding. Our review also showed, however, that there
    was substantial variation in the manner-and therefore the resulting
    informative value-in which these linkages were being achieved. For example,
    some agencies related general goals to entire budget accounts while others
    were able to associate sets of performance goals with GPRA program
    activities.

                                    Source: GAO.

    Progress Made Linking Plans With Budgets but Nature of Linkages Could Be
    Improved

    Continued Improvement in Connecting Resources to Results

    Over the 4-year period of our review, fewer agency plans failed to show how
    their performance goals covered the program activities in their budget
    requests, and more agency plans clearly indicated proposed funding
    allocations linked to performance expectations. Figure 2 summarizes our
    assessments for fiscal years 1999 through 2002 while table 1 indicates our
    assessments by agency for fiscal year 2002. Figure 2 is displayed in
    percentage terms because, for fiscal year 2002, our universe of agencies
    changed from 35 to 32. As of August 15, 2001, the departments of Defense and
    Education, and the Food and Nutrition Service of the Department of
    Agriculture had not released fiscal year 2002 plans.11

    Figure 2 can be characterized as follows. Fewer agencies failed to show a
    link between plans and budgets (group A); fewer agencies showed a link but
    did not show funding information (group B); and fewer agencies showed a link
    and indicated funding information, but did not show how the funds were
    derived from the budget request (group C). Thus, over the 4-year period in
    our review, more agencies established links between their performance plans
    and their budgets and translated those links into budgetary terms (group D).

    11With respect to their fiscal year 2001 plans, these agencies were assessed
    as  follows:  Defense, group  A; Education  and Food and  Nutrition Service,
    group D.

    Figure 2: Agencies Show  Progress in Linking Plans and Budgets, Fiscal Years
    1999
    Through 2002

    Source: GAO analysis.

    Note: For  fiscal years 1999 through 2001 our  universe was 35 agency plans;
    for fiscal year 2002, 32
    agency plans. For more information, see appendix I, "Scope and Methodology."

    Group A in table 1 and figure 2 indicates agency plans for fiscal year 2002
    that did not portray a clear link between the plan's goals and the budget's
    program activities. It is worth noting that the agency composition of this
    group has changed substantially over time as agencies experimented with
    different presentation methods for their plans.12 Also, although no linkage
    between the plan's performance goals and the budget's program activities was
    described in these agency plans, the 2002 performance plans for each agency
    in group A did include general funding estimates.13

    12Two agencies moved out of this group in fiscal year 2000 (Social Security
    Administration and National Institutes of Health) and three moved in (the
    Department of Commerce, the Federal Bureau of Investigation, and the Federal
    Highway Administration). In fiscal year 2001, the Federal Highway
    Administration and the Rural Housing Administration moved out, but the
    Department of State moved in. Lastly, in fiscal year 2002, the Federal
    Bureau of Investigation and the Immigration and Naturalization Service moved
    out, while the Internal Revenue Service move in.

    Specific agency circumstances can also affect the manner and extent of
    linkage presented in the performance plan. For example, IRS is in the midst
    of an agencywide modernization effort, as required by the Revenue
    Restructuring Act of 1998. As part of this effort, IRS reorganized and also
    implemented a new strategic planning and budget process that included a new
    mission statement and goal structure. While IRS did not show a clear link in
    its performance plan between these new goals and its fiscal year 2002 budget
    submission, we noted that the IRS Oversight Board did make this link in its
    independent budget submission.

    13For example, the Department of Commerce chose to present a departmentwide
    plan, which included funding estimates for strategic objectives but did not
    indicate how the performance goals or the funding estimates were related to
    program activities. As described in appendix I, we accepted the agency's
    definition of what constituted its annual plan and thus did not consider
    Commerce's subordinate bureau plans because these plans were not
    specifically included as component parts of the department's plan. Some of
    these plans, however, did provide useful linkages. See Observations on the
    Fiscal Year 1999 Annual Program Performance Report and Fiscal Years 2000 and
    2001 Annual Performance Plans for Selected Science Agencies Within the
    Department of Commerce (GGD-00-197R, Sept. 25, 2000).

    Table 1: Agency Status in Linking Plans and Budgets, Fiscal Year 2002

                                                                        D: Linked program
                                                                         activities to
                                                C: Linked program         performance goals,
                                                 activities to               showed funding

     A: No link between  B: Linked program     performance goals;   levels needed to achieve
                                                     showed         goals, and
     program activities activities to        funding levels needed   allocated funding from
            and         performance          to achieve                     program
                                                                          activities to
     performance goals         goals                 goals             performance goals

    *  Commerce  *  Occupational Safety  and *  Federal  Emergency Management  *
    Administration for Children and Health Administration Agency Families

    *  InternalRevenue *  Forest Service *  Agency for International Development
    Service

    * State * General Services Administration * Bureau of Indian Affairs

    * National Institutes of Health * Bureau of Land Management

    * Department of Veterans Affairs * Customs Service

    * Employment Training Administration

    * Energy

    * Environmental Protection Agency

    * Federal Aviation Administration

    * Federal Bureau of Investigation

    * Federal Highway Administration

    * Federal Prison System

    * Health Resources and Service Administration

    * Housing and Urban Development

    * Immigration and Naturalization Service

    * National Park Service

    * National Aeronautical and Space Administration

    * National Science Foundation

    * Nuclear Regulatory Commission

    * Office of Personnel Management

    * Rural Housing Service

    * Small Business Administration

    * Social Security Administration

    Note: Column letters correspond to group letters in figure 2. Source: GAO
    analysis.

    Groups B, C, and D in table 1 and figure 2 include those agencies that, at a
    minimum, indicated how their performance plans covered the program
    activities in their budgets-the basic requirement established by GPRA.
    Groups C and D include agencies that went beyond this basic requirement to
    also provide funding information. Group C shows agencies that

    described a plan-budget linkage and also requested funding levels to achieve
    expected performance. Group D indicates those agencies that not only
    developed the required linkage and provided an estimate of funding
    associated with expected performance, but also clearly indicated how that
    funding was derived or allocated from the program activities of their budget
    requests-the first step in defining the performance consequences of a budget
    decision. As shown in figure 2, there has been steady improvement in
    associating funding information with expected performance (group C plus
    group D)-from 57 percent of the agency plans in our review in fiscal year
    1999 to nearly 90 percent in fiscal year 2002. More importantly, nearly 75
    percent of the agency plans for fiscal year 2002, compared to 40 percent of
    the fiscal year 1999 plans, translated the linkages between expected
    performance and budget program activities into budgetary terms by allocating
    funding from their program activities to elements of the performance plans
    (group D).

    The Department of Housing and Urban Development (HUD) provides an example of
    the progression depicted in figure 2. Figures 3 and 4 show the approaches
    used by HUD in its last three performance plans. In fiscal years 2000 and
    2001, HUD used the same basic format in a summary table to link its general
    goals to its budget accounts and program activities; figure 3 depicts
    selected examples from each plan for comparison. In the fiscal year 2000
    plan, total requested funding for each account or activity was indicated but
    was arrayed by general goal by the use of an "x" rather than a specific
    dollar allocation. In the fiscal year 2001 performance plan, HUD replaced
    the simple "x" marks with funding estimates derived from its fiscal year
    2001 budget request. By using this approach, HUD was able not only to show
    the linkage of its general goals to its budget request but also to indicate
    more clearly the allocation-and thus the performance consequences-of its
    fiscal year 2001 budget request. Subsequently, in its fiscal year 2002 plan,
    the agency removed these summary charts and, in the body of the plan, linked
    its budget request by account or program activity to each of its five
    general goals. Figure 4 is an excerpt of one page from the plan.

     Figure 3: Change in HUD's Presentation of Performance Plan-Budget Linkages,
                             Fiscal Years 2000 and 2001

    Fiscal Year 2000 Performance Plan

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    Note: Dollars in millions. Source: GAO analysis.

    Figure 4: HUD's Presentation of Performance Plan-Budget Linkages, Fiscal
    Year 2002

                  Source: HUD's fiscal year 2002 performance plan.

    While the approaches portrayed in figures 3 and 4 show steady progress in
    developing clearer linkages, it should be noted that HUD linked the highest
    levels of the HUD performance plan- general goals-to program activities.
    Linking funding allocations to more specific performance goals or sets of
    performance goals, as called for under OMB guidance, would make the
    presentations still more informative. HUD's 2002 strategic plan recognizes
    this and notes, "In the following years, HUD will further link our budget
    with the strategic planning and performance measurement processes." HUD has
    already attempted to extend linkages to the strategic objective level. For
    example, in its fiscal year 2000 and 2001 plans, HUD used "x" marks to
    describe the linkages between its budget program activities and the
    strategic objectives within each general goal. In the fiscal year 2002 plan,
    HUD replaced these "x" marks and showed funding allocations by strategic
    objective, although we have reported that the presentation could be
    improved.14

    Agencies Have Developed Many Ways to Link Plans and Budgets

    The HUD example demonstrates that, notwithstanding the progress agencies
    have made in associating plans and budgets, there remain many challenges in
    achieving presentations that are sufficiently clear and precise to be useful
    and informative. Agencies are taking advantage of the flexibility available
    to them under GPRA to establish plan-budget linkages, and it is unlikely,
    given the nature of missions and operating environments, that any one
    approach will fit all circumstances. Nevertheless, it is clear that some
    associations are more informative than others in clarifying the performance
    consequences of budgetary decisions.

    Our assessment indicates that during these first years of GPRA
    implementation, agencies have developed many methods to link their plans
    with their budgets. Figure 5 portrays the variety of associations used by
    agencies to develop performance plans that covered the program activities in
    their budget request. Overall, agencies have associated higher or more
    general levels of their performance plans with lower or more specific levels
    of their budget structures. Of the 29 agencies in our review that linked
    their plans and budgets (groups B, C, and D in table 1), only 5 established
    connections at the performance goal level-the most specific goal level in
    the plans. The remaining 24 agencies were evenly split between links to

    14For further information, see Department of Housing and Urban Development:
    Status of Achieving Key Outcomes and Addressing Major Management Challenges
    (GAO-01-833, July 6, 2001).

    general goals and strategic objectives. Conversely, none of the 29 agencies
    established links to agencywide budget totals-the most general level in a
    budget presentation-and only nine defined links at the next level, budget
    accounts. The remaining 20 agencies established connections to budget
    program activities-the more detailed level of the budget presentations. The
    following examples demonstrate more specifically some of the associations
    portrayed in figure 5.

       Figure 5: Agencies Used Multiple Approaches to Link Plans and Budgets

            Source: GAO analysis of fiscal year 2002 performance plans.

    The Administration for Children and Families (ACF), within the Department of
    Health and Human Services, is an example of an agency that linked
    allocations of requested program activity funding to sets of performance
    goals in its fiscal year 2002 performance plan. As shown in figure 6, ACF
    aggregated and consolidated program activities from multiple budget accounts
    and linked the associated funding information to sets of performance goals,
    which it referred to as "subobjectives," such as child welfare and youth
    programs.

    Figure 6: ACF Used Aggregation and Consolidation to Link Program Activities
    to Sets of Performance Goals

    Note: Dollars in millions. Source: GAO analysis of ACF fiscal year 2002
    performance plan.

    Figure 7 presents a different approach. The Environmental Protection Agency
    (EPA) linked strategic objectives to its program activities. The EPA
    presentation is aided by its decision to define for each of its budget
    accounts a uniform program activity structure-10 activities, as shown under
    the Science and Technology budget account in figure 7. These 10 activities,
    which correspond to EPA's general goal structure, are applied, as
    appropriate, across each of its budget accounts. Figure 7 portrays how EPA
    is able to consolidate and allocate funding from multiple budget accounts
    using the "clean air" program activity-and general goal-to the strategic
    objective "acid rain."

    Figure 7: EPA Consolidated Funding Allocations by Strategic Objective

    Note: Dollars in millions. Source: GAO analysis of EPA fiscal year 2002
    performance plan.

    The Nuclear Regulatory Commission (NRC) is an example of an agency that
    linked program activities to general goals. Like EPA, NRC defined a program
    activity structure that is identical to its general goals, thus creating a
    direct linkage and allocation of its funding request. However, unlike EPA,
    the NRC plan defines only two performance planning levels-

    general goals and performance goals. For each program activity, the plan
    includes more specific funding information on related "program areas"-in
    effect, disaggregated or subprogram activities. The plan includes specific
    requested funding allocations for each program activity and subprogram
    activity as shown in figure 8. Within each general goal, the plan crosswalks
    each subprogram activity to one or more of the performance goals.

    Figure 8: NRC Linked Program Activities and Funding Allocations by General
    Goal

    Note: Dollars in millions. Source: GAO analysis of NRC fiscal year 2002
    performance plan.

    Figure 9 portrays an agency that clearly indicated in its plan requested
    funding levels at the strategic objective level, and broadly associated
    budget accounts, program activities, and disaggregated program activities

    with these strategic objectives, but did not clearly indicate how or where
    the requested funding was allocated. This is an example of an agency
    assessed as belonging in table 1 as group C, rather than group D. As shown
    in figure 9, the Forest Service associated multiple budget accounts, program
    activities, and subprogram activities with multiple strategic objectives,
    and it was not clear how the funding information shown in the performance
    plan was derived from the budget request.

    Figure 9: Forest Service Linked Multiple Budget Accounts With Multiple
    Strategic Objectives

    Note: Dollars in millions. Source: GAO analysis of Forest Service fiscal
    year 2002 performance plan.

    Each of the above examples portrays methods used by agencies to achieve
    GPRA's required linkage between performance plans and budgets. However, as
    discussed above, most agencies in our review tied funding estimates from
    their budget requests to the higher level general goals or

    strategic objectives in their performance plans rather than the more
    specific performance goals or sets of goals expected under OMB guidance.
    Thus, although there have been improvements since fiscal year 1999 in
    structurally relating performance expectations to requested budgetary
    resources, there is substantial variation in the nature of those
    relationships and resulting differences in how informative and useful the
    linkages may be. Nevertheless, the fact that some agencies have been able to
    achieve more informative presentations, and the general progress that has
    been made since 1999, indicate that potential exists for achieving an
    important goal of GPRA: to demonstrate the performance consequences of
    budget decisions.

    Efforts to Link Plans to Cost Statements Are Encouraging but Improvements
    Are Needed

    Similar to the findings in our assessment of plan-budget linkages, agency
    efforts to more clearly associate results with resources consumed have
    improved from the fiscal year 1999 financial statements to those for fiscal
    year 2000. For example, 13 of the 24 agencies required to prepare financial
    statements used some element of their performance planning structure in
    structuring their statement of net cost, compared to 10 of 24 in 1999.15
    Table 2 lists those agencies that reflected their performance planning
    structure in their statements of net cost. Also similar to the findings in
    our assessment of plan-budget linkages, the usefulness of these
    presentations varied significantly, with most agencies linking costs to the
    highest levels of their goal structure. (See figure 10.)

    15Those agencies that did not use a structure based on their performance
    plans generally used traditional accounting-based presentations that
    captured costs for either the agency in total or for separate organizational
    components ("responsibility segments"). Typically, this structure displayed
    the net cost of operations as governmental and intragovernmental program
    costs less earned revenues plus nonproduction costs.

      Table 2: Agencies That Linked Performance Plans With Net Cost Statements,
                             Fiscal Years 1999 and 2000

    Fiscal Year 1999 Statements of Net Cost Fiscal Year 2000 Statements of Net
    Cost

    * Department of Commerce

    * Department of Energy

    * Department of Justice

    * Department of Labor

    * Department of State

    * Department of the Treasury

    * Department of Veterans Affairs

    * National Aeronautical and Space Administration

    * Nuclear Regulatory Commission

    * U.S. Agency for International Development

    * Department of Commerce

    * Department of Energy

    * Department of Health and Human Services

    * Department of the Interior

    * Department of Justice

    * Department of Labor

    * Department of State

    * Department of the Treasury

    * Department of Veterans Affairs

    * Environmental Protection Agency

    * National Aeronautical and Space Administration

    * Nuclear Regulatory Commission

    * U.S. Agency for International Development

    Source: GAO analysis of fiscal years 1999 and 2000 financial statements.

    Source: GAO analysis of fiscal year 2000 financial statements.

    Note: Agencies portrayed are: Department of Commerce (DOC), Department of
    Energy (DOE), Department of Health and Human Services (HHS), Department of
    the Interior (DOI), Department of Justice (DOJ), Department of Labor (DOL),
    Department of State (State), Department of the Treasury (Treasury),
    Department of Veterans Affairs (VA), Environmental Protection Agency (EPA),
    National Aeronautical and Space Administration (NASA), Nuclear Regulatory
    Commission (NRC), and U.S. Agency for International Development (AID).

    Figure 11 shows the Department of Veterans Affairs (VA) statement of net
    cost from its fiscal year 2000 financial statements. VA structured its
    statement of net cost around its "programs," such as medical care,
    compensation, and education. In its performance plan, VA defined these
    "programs" as the GPRA program activities created by aggregating,
    disaggregating, or consolidating the program activities in its budget
    request and then linked its annual performance goals to this program
    structure. Thus, by showing the net cost of operations for the department
    against the

    same structure used to summarize its annual performance goals and measures,
    VA was able to establish a direct link between results achieved and
    resources consumed.

                 Source: VA fiscal year 2000 financial statements.

    Figure 12 excerpts the statement of net cost from the NRC fiscal year 2000
    financial statements. In this approach, the net cost of operations was shown
    for each NRC general goal. As discussed above, the NRC fiscal year 2002
    performance plan defined only two performance levels-strategic (general)
    goals and performance goals. In addition, NRC defined a structure in which
    its program activities were identical to its general goals, so it became
    straightforward to display requested budget amounts by goal. By structuring
    its statement of net cost around the same general goals, NRC was able to
    create a clear link between performance and requested funding, and between
    resources consumed and results.16

    16Because the statement of net cost is prepared on an accrual basis while
    budget estimates for program activities are developed on an obligations
    basis, the reported figures will likely not match, but they will present a
    planned versus actual perspective linked to the same goal structure.

                 Source: NRC fiscal year 2000 financial statement.

    The Department of Energy (DOE) took an approach similar to NRC's, but then
    went a step further. First, like NRC, DOE used its consolidated statement of
    net cost to report summary, agencywide cost information for each of its
    "business line goals"-the general goals for the agency. Second, DOE then
    used separate notes to the consolidated statement to present the net cost
    for each business line goal and its associated budget program activities.
    The separate notes report net cost of operations for a specific general goal
    using the program activity structure in the DOE budget request. Figure 13
    displays the consolidated statement and figure 14 presents one example of a
    separate note dealing with the business line goal "NNSA and other National
    Security Activities."

                 Source: DOE fiscal year 2000 financial statement.

                 Source: DOE fiscal year 2000 financial statement.

    Finally, figures 15 and 16 excerpt the statement of net cost from the
    Department of Treasury fiscal year 2000 financial statements. Treasury
    reported net cost of operations on its consolidated statement for each of
    three program areas-the three "missions" or general goals in its performance
    plan (see figure 15). Treasury noted that the complexity of its
    organizational structure required this approach, with supporting schedules
    used to report the net cost of each program area (general goal) by bureau.
    In figure 16, the subordinate schedule for the three program areas are
    shown. Because Treasury's annual performance plan is also organized by
    bureau ("responsibility segment"), this approach allowed them to associate
    net costs not only with general goals but also with each bureau-and
    therefore each bureau's strategic objectives.

    Source: Department of Treasury fiscal year 2000 financial statement.

    Source: Department of Treasury fiscal year 2000 financial statement.

    As these examples illustrate, agencies are making progress in presenting
    their cost of operations in performance terms. While it is unlikely that a
    single approach to relating performance and financial reporting will fit the
    variety of organizational contexts, missions, performance planning, and
    financial management structures present-and developing-in federal agencies,
    some presentations are more informative than others.17 Moreover, even the
    most meaningful linkages between performance results and resources consumed
    are only as good as the underlying data. As we have reported, agencies must
    first address long-standing problems within their financial systems in order
    to ensure confidence in the completeness and accuracy of annual financial
    statements, including the required statement of net cost.18

    Recent Initiatives by OMB

    During the last 2 years, OMB completed performance budgeting pilots required
    under GPRA and has continued to revise and sharpen its guidance to federal
    agencies on linking plans, budgets, and financial reporting. An important
    development is OMB's announcement of the administration's intention to more
    completely integrate information about cost and performance during its
    annual budget review process. The administration also has proposed a new
    initiative-the Managerial Flexibility Act-to better link budget and
    management decisions to performance by showing the full cost of program
    operations with the output produced in that year. Each of these efforts is
    consistent with and reinforces the basic observations in this report-that
    although agencies have shown progress in their efforts to achieve the goals
    of GPRA and the CFO Act, continued attention is needed to clearly show the
    relationship between performance expectations and budgetary resources, and
    between performance results and resources consumed.

    17It should also be noted that the above discussion only addresses the
    extent of linkage between the statement of net cost and performance planning
    structures. It does not comment, directly or indirectly, on the quality of
    financial management within an agency or the adequacy of its financial
    reporting or managerial cost accounting processes.

    18See Financial Management: FFMIA Implementation Critical for Federal
    Accountability (GAO-02-29, Oct.1, 2001); U.S. Government Financial
    Statements: FY 2000 Reporting Underscores the Need to Accelerate Federal
    Financial Management Reform (GAO-01-570T, Mar. 30, 2001); and Financial
    Management: Agencies Face Many Challenges in Meeting the Goals of the
    Federal Financial Management Improvement Act (GAO/T-AIMD-00-178, June 6,
    2000).

    OMB Performance Budgeting Pilots Useful, but Challenges Remain

    GPRA required OMB to report on the feasibility and advisability of including
    a performance budget as part of the President's budget, and on whether
    legislation requiring performance budgets should be proposed. The act
    defined a performance budget as that which presents varying levels of
    performance resulting from different budgeted amounts. OMB initially
    deferred these pilots-originally to be designated in fiscal years 1998 and
    1999-to give federal agencies time to develop the capability of calculating
    the effects of marginal changes in cost or funding on performance. When
    begun in August 1999, OMB designed the pilots as case studies prepared by
    OMB staff to demonstrate how performance information could be used to
    compare alternatives and to develop funding recommendations for
    incorporation into the President's fiscal year 2001 budget submission.

    On January 18, 2001, OMB reported the results of five performance budgeting
    pilots that explored agencies' capabilities of more formally assessing the
    effects of different funding levels on performance goals. OMB selected the
    pilots19 to reflect a cross section of federal functions and capabilities so
    that a representative range of measurement and reporting issues could be
    explored. In its report, OMB concluded that legislative changes were not
    needed. OMB reported that the pilots demonstrated that assuring further
    performance measurement improvements and steadily expanding the scope and
    quality of performance measures is paramount, and that the existing statute
    provides sufficient latitude for such improvement.

    The pilots also highlighted other issues that have and will continue to
    challenge efforts to more closely link desired performance with annual
    budget requests. For example, for those activities where output performance
    was of principal interest (e.g., military recruitment, continuing disability
    reviews, and premarket reviews and inspections), OMB observed that agency
    information was generally available and useful in developing a funding
    request. However, where outcome performance was of greater interest, OMB
    noted that "recommending a particular funding level is not the primary focus
    of the analysis or decision making process." Rather, "the focus is on how
    funds will be allocated among different uses to achieve program goals and
    what criteria are used to make

    19The pilots included (1) the Food and Drug Administration, (2) military
    recruitment programs at the Department of Defense, (3) diplomatic security
    programs at the Department of State, (4) severely distressed housing
    programs at HUD, and (5) continuing disability reviews in the Social
    Security Administration.

    allocation decisions." For example, OMB observed that the HUD severely
    distressed housing program

    is a "buy-by-the-pound" program. Provide an appropriation and HUD can
    approximate how many units can be removed and replaced in relation to the
    funding level, because per unit demolition, construction and voucher costs
    are readily available and simple to quantify. However, since the program is
    assessed on whether it achieves broader outcomes-such as creating stable,
    economically integrated communities-that do not correlate directly with
    funding levels, the Administration cannot systematically budget for the
    results it wants to see.

    Overall, OMB concluded that the pilots raised several key challenges
    regarding performance budgeting at the federal level including, for example,
    the following:

    * In many instances, measuring the effects of marginal, annual budget
    changes on performance is not precise or meaningful.

    * While continuing to change from an almost total reliance on output
    measures to outcome measures, it will be much more difficult to associate
    specific resource levels with those outcomes, particularly over short
    periods of time.

    * Establishing clear linkages between funding and outcomes will vary by the
    nature of the program and the number of external factors.

    * Delays in the availability of performance data, sometimes caused by
    agencies' reliance on non-federal program partners for data collection, will
    continue to present synchronization problems during budget formulation.

    Continued Refinement of Guidance to Agencies

    OMB has continued to sharpen and clarify its guidance to agencies regarding
    the alignment of performance planning, budget formulation, and financial
    reporting. Both the fiscal year 2002 and 2003 budget guidance included more
    specific expectations about the extent of linkage between performance
    planning and budget formulation. Also, in September 2001, OMB issued revised
    form and content guidance for financial statements that was intended to
    achieve better integration between execution, financial reporting, and
    performance reporting.

    As described above, OMB's guidance for the President's fiscal year 2002
    budget process called for agencies to prepare an integrated performance plan
    and budget, in which the plan would display the amount budgeted for each
    GPRA program activity. If an agency was unable to develop this presentation,
    it was expected to provide to OMB a timetable that would describe the steps
    to be taken to develop the capability of aligning plans and budgets.
    Subsequently, in July 2001, OMB clarified this guidance for the fiscal year
    2003 budget process.20 While noting that agencies had made progress in
    aligning plans and budgets, OMB instructed agencies that the fiscal year
    2003 performance plan "should describe the culminating steps and schedule
    for completing a full alignment of resources with performance." OMB noted
    that this alignment could be phased, with budget information initially
    linked to general goals and strategic objectives and subsequent annual plans
    providing greater detail "until a budget amount can be shown for each GPRA
    program activity."

    Also, in September 2001, OMB issued revised guidance on the form and content
    of agency financial statements. While the revised guidance did not
    substantially change the statement of net cost, it does significantly alter
    expectations regarding performance and financial reporting. Beginning with
    the fiscal year 2002 reporting cycle, agencies are expected to issue a
    single "performance and accountability report." This report is intended to
    integrate what are typically stand-alone financial reports under the CFO Act
    and stand-alone performance reports under GPRA into a single, consolidated
    report, now permanently authorized by the Reports Consolidation Act of 2000
    (P.L.106-531). The performance and accountability report is expected to
    provide to the Congress and the public a comprehensive and integrated
    picture of each agency's performance. In addition, OMB has accelerated
    reporting dates. For example, fiscal year 2000 reports were generally due at
    the end of March; but under this revised guidance, fiscal year 2001 reports
    will be due by the end of February 2002, and fiscal year 2002 reports by
    February 1, 2003. OMB expects that consolidated and accelerated reporting
    will provide more timely and reliable information to measure and affect
    performance.

    20Preparation and Submission of Budget Estimates, OMB Circular A-11, Jul,
    2001, Sec. 220.8(d).

    The President's Management Agenda

    Lastly, as announced in the Fiscal Year 2002 Budget, OMB released in August
    2001 the President's Management Agenda, which by focusing on 14 targeted
    areas-5 governmentwide goals and 9 program initiatives-seeks to improve the
    management and performance of the federal government. One of the
    governmentwide goals, Budget and Performance Integration, seeks to
    capitalize on the progress made by agencies and to operationalize the
    revised guidance described above.

    According to the President's Management Agenda, as part of the fiscal year
    2003 budget process, OMB plans to formally integrate performance reviews
    with its budget decisions and "to begin to produce performance-based budgets
    starting with the 2003 Budget submission." OMB expects to "work with
    agencies to select objectives for a few important programs, assess what
    programs do to achieve these objectives, how much that costs, and how
    effectiveness could be improved." These actions are expected to produce
    near-term results such as shifting resources among programs devoted to
    similar goals to emphasize those that are most effective, budgeting for the
    full costs of retirement and health care programs, and, over time, to allow
    nonperforming activities to be reformed or terminated. Also, because this
    goal is part of a broader agenda, OMB expects other long-term results. For
    example, control over resources used and accountability for results by
    program managers will be mutually reinforced by the interaction of this goal
    with the President's strategic management of the human capital goal, which
    increases staff and responsibility at the "front line" of service delivery
    and links rewards to performance.

    Concluding Observations

    Aligning performance goals with all key management activities- budgeting,
    financial management, human capital management, capital acquisition, and
    information technology management-is an essential step in the implementation
    of GPRA.21 While alignment is not sufficient to guarantee results-based
    accountability, it is a necessary action to achieve

    21See also Human Capital: A Self-Assessment Checklist for Agency Leaders
    (GAO/OCG-00-14G, Sept. 2000), Executive Guide: Creating Value Through
    World-class Financial Management (GAO/AIMD-00-134, Apr. 2000), Executive
    Guide: Leading Practices in Capital Decision-Making (GAO/AIMD-99-32, Dec.
    1998), Executive Guide: Improving Mission Performance Through Strategic
    Information Management and Technology (GAO/AIMD-94-115, May 1994), and
    Executive Guide: Measuring Performance and Demonstrating Results of
    Information Technology Investments (GAO/AIMD-98-89, Mar.1998).

    two key purposes of the act-to improve congressional decision-making and to
    help federal managers improve service delivery by providing them with
    information on program results. Clearer and closer alignment between an
    agency's performance goals and objectives and its key management activities
    is an important and practical means to emphasize and reinforce results-based
    accountability in the oversight and day-to-day management of programs.

    With respect to the management activities discussed in this report, aligning
    performance plans with both budgeting and financial management offers
    different but complementary perspectives. Linking plans with budgets offers
    the potential for more clearly infusing performance information into
    separate budgetary decisions, both in the Congress and in agency management.
    Certainly, congressional budget decisions are and will remain an exercise in
    political choice, in which performance can be one, but not necessarily the
    only, factor underlying decisions. But clearer and closer association
    between expected performance and budgetary requests can more explicitly
    inform budget discussions and focus them-both in the Congress and in
    agencies-on expected results, rather than on inputs or transactions
    solely.22 Linking performance goals with cost information addresses a
    related but different question: How much has been spent for what was
    achieved? Clearer and closer alignment between performance results and the
    reported net cost of agency operations can assist management by relating
    total resources consumed with actual results achieved. In sum, the closer
    the linkage between an agency's performance goals, its budget presentation,
    and its statement of net cost, then the greater the reinforcement of
    performance management throughout the agency and the greater the reliability
    of budgetary and financial data associated with the performance plans.

    Our assessments indicate that progress has been made. Agencies are
    developing approaches to better link performance plans with budget
    presentations and financial reporting. Progress has been demonstrated both
    in establishing linkages between performance plans and budget requests and
    in translating those linkages into budgetary terms by clearly allocating
    funding from the budget's program activities to performance goals. Progress
    can also be seen in agencies' initial efforts to link annual performance
    reporting with annual audited financial statements. Agencies

    22GAO/AIMD-97-46, Mar. 27, 1997.

    have developed approaches that allow them to better describe their net cost
    of operations in performance terms.

    But our assessment of the nature of the resulting associations also suggests
    that additional effort will be needed. Most of the alignments we have
    observed, as shown in figures 5 and 10, were at relatively high levels of
    performance planning-general goals or strategic objectives-rather than the
    more detailed "performance goal or sets of goals" target defined in OMB
    guidance. As OMB has noted in its most recent guidance, additional
    refinement is needed. For critical management functions to successfully
    emphasize, support, and reinforce the introduction of results-based
    accountability throughout agencies, they will need to address performance
    goals and measures that are meaningful to managers.

    To be sure, GPRA and the entire management agenda prompted by the statutory
    reforms of the 1990s present many daunting challenges to agencies. As we
    have noted,23 the finding of progress made by agencies in these initial
    years of implementation must be tempered by recognition of the continuing
    performance management demands, such as needed improvements in

    * developing and articulating a clear sense of intended results,

    * ensuring that daily operations contribute to results,

    * coordinating crosscutting programs,

    * building the capacity to gather and use performance information, and

    * addressing mission-critical management problems.

    23Managing for Results: Using GPRA to Assist Oversight and Decisionmaking
    (GAO-01-872T, June 19, 2001), Major Management Challenges and Program Risks:
    A Governmentwide Perspective (GAO-01-241, Jan. 2001), Managing for Results:
    Continuing Challenges to Effective GPRA Implementation (GAO/T-GGD-00-178,
    July 20, 2000), and Managing for Results: Opportunities for Continued
    Improvements in Agencies' Performance Plans (GAO/GGD/AIMD-99-215, July 20,
    1999).

    The approaches being developed by federal agencies to more clearly associate
    performance expectations, budgetary requests, and financial reporting
    demonstrate the kind of unique adaptations that will be needed to ensure
    sustained success. The uneven extent and pace of development revealed in our
    assessments should not be surprising given the mission complexity and
    variety of operating environments across federal agencies, and OMB's
    enhanced efforts to incorporate performance information into its budget
    reviews should further stimulate all agencies' interests. As we have
    previously reported,24 the concept of performance budgeting has and will
    likely continue to evolve, and no single definition or approach can be
    expected to encompass the range of needs and changing interests of federal
    decisionmakers. Governmentwide guidance is clearly necessary to prompt
    continued progress, and such guidance should continue to encourage agencies
    to develop their own unique approaches to linking resources and results
    consistent with their different environments and performance management
    challenges. Ultimately, the need to translate the planned and actual use of
    resources into concrete and measurable results remains an essential step in
    achieving a more results-oriented government, and the heterogeneity of the
    federal government suggests that sustained efforts and attention will be the
    hallmark of long-term success.

    Agency Comments We provided a draft of this report to the Director of OMB on
    November 8, 2001. On December 7, 2001, a senior OMB official told us that
    OMB would not be providing written comments on the draft. However, this
    official noted that OMB found the report to be useful, well done, and
    constructive. The official said that the agency progress described in this
    report was consistent with and supportive of initiatives which the
    Administration intends to announce in the forthcoming budget submission to
    further promote budgeting and managing for results within the federal
    government.

    As agreed with your offices, unless you publicly announce its contents
    earlier, we plan no further distribution of this report until 30 days from
    the date of this letter. At that time, we will send copies of this report to
    the Chairman, Senate Committee on Governmental Affairs; the Chairman and
    Ranking Minority Member of the House Committee on Governmental

    24GAO/AIMD-97-46, Mar. 27, 1997.

    Reform; other appropriate congressional committees; and the Director, Office
    of Management and Budget. We will also make copies available to others on
    request.

    Please contact me on (202) 512-9573 or Michael J. Curro, Assistant Director,
    on (202) 512-2991 if you or your staff have any questions. Major
    contributors to this report included Jacqueline M. Nowicki and Trevor J.
    Thomson.

    Sincerely yours,

    Paul L. Posner Managing Director, Strategic Issues (Federal Budget Analysis)

    Appendix I

                                Scope and Methodology

    Scope To meet our objectives regarding the linkage between performance plans
    and budgets, we limited our review to the performance plans from the same 35
    departments and agencies that we studied in our initial assessments of
    agency experience in linking performance plans and budget requests.25
    However, as of August 15, 2001, 3 of these 35 agencies-the Department of
    Agriculture's Food and Nutrition Service and the Departments of Defense and
    Education-had not released fiscal year 2002 performance plans and were
    therefore not considered in our assessment of fiscal year 2002 plans. Also,
    we generally focused on bureau-level plans for each department when the
    department specifically identified such plans as components of the
    departmentwide plan. In those cases, we limited our review to the three
    largest bureaus with discretionary spending over $1 billion, or, if none of
    the bureaus in the department had discretionary spending over $1 billion, to
    the two largest bureaus.26

    To meet our objectives regarding the linkages between performance plans and
    statements of net cost, we reviewed the fiscal year 1999 and 2000 statements
    of net cost-a required component of the annual financial statements-to
    identify the reporting structure selected by the agency to report the net
    cost of its operations. We limited this review to the 24 departments and
    independent agencies represented in table 2-those required to prepare annual
    financial statements under the CFO Act. Table 3 lists all of the agencies
    covered in our review.

    25GAO/AIMD/GGD-99-67, Apr. 12, 1999, and GAO/AIMD-99-239R, July 30, 1999.

    26Discretionary spending was used as an indicator of a bureau's relevancy to
    appropriators  because discretionary  funding is affected  by appropriations
    actions.

    Appendix I Scope and Methodology

    Table 3: Performance Plans Reviewed

    Departmentwide Plans

    * Department of Commerce

    * Department of Defense

    * Department of Education

    * Department of Energy

    * Department of Housing and Urban Development

    * Department of State

    * Department of Veterans Affairs

    Bureau-Level Plans

    Department of Agriculture

    * Food and Nutrition Service

    * Forest Service

    * Rural Housing Service Department of Health and Human Services

    * Administration for Children and Families

    * Health Resources and Services Administration

    * National Institutes of Health Department of the Interior

    * Bureau of Indian Affairs

    * Bureau of Land Management

    * National Park Service Department of Justice

    * Federal Prison System

    * Federal Bureau of Investigation

    * Immigration and Naturalization Service Department of Labor

    * Employment and Training Administration

    * Occupational Safety and Health Administration Department of the Treasury

    * Customs Service

    * Internal Revenue Service Department of Transportation

    * Federal Aviation Administration

    * Federal Highway Administration

    Independent Agency Plans

    * Environmental Protection Agency

    * Federal Emergency Management Agency

    * General Services Administration

    * National Aeronautics and Space Administration

    * National Science Foundation

    * Nuclear Regulatory Commission

    * Office of Personnel Management

    * Small Business Administration

    * Social Security Administration

    * U.S. Agency for International Development

    Source: GAO.

                          Appendix I Scope and Methodology

    Methodology In our initial review of agencies' experiences in linking
    performance goals and budget requests, we developed a methodology for
    assessing the plans on a variety of different dimensions and
    characteristics.27 In this review, we used three of those characteristics.

    * Program activities were linked to goals - We identified agencies that
    either (1) linked program activities-directly, or by aggregation,
    disaggregation, or consolidation-to some level of their performance planning
    structure or (2) did not specify this linkage.

    * Plans associated dollars with goals - We identified agencies that either
    (1) associated an amount of funding with some level of their performance
    planning structure or (2) did not identify funding with any aspect of their
    planning structure.

    * Funding was allocated to a discrete set of goals and/or measures - We
    identified agencies that either (1) displayed how requested funding for
    program activities-directly, or by aggregation, disaggregation, or
    consolidation-was allocated among specific or a unique set of performance
    goals or measures or (2) did not indicate an allocation of requested program
    activity funding.

    To assess the nature of linkages between performance plans and agency
    budgets, we reviewed each plan to determine the level of the performance
    planning structure that was used to establish a linkage with the budget's
    program activities. Generally, consistent with expectations in GPRA, agency
    performance plans are organized in a hierarchy of goals. Figure 1 in the
    body of this report presents a generalized portrayal of this hierarchy.

    To assess the extent and nature of linkages between agency performance plans
    and annual financial statements, we compared the statement of net cost
    reporting structure to the entities' performance plan to determine if there
    was correspondence between the two and, if so, the specific level of the
    performance planning structure that was used to establish a linkage.

    To ensure consistency and accuracy in the analysis of both performance plans
    and statements of net cost, two staff members independently reviewed the
    performance plans and financial statements and developed an assessment on
    each characteristic. Differences in assessments were

    27See GAO/AIMD/GGD-99-67, Apr. 12, 1999, appendix I.

    Appendix I Scope and Methodology

    resolved by having a third staff member jointly reevaluate the separate
    assessments to identify and resolve differences.

    The following qualifications apply to this analysis.

    * The agencies in our review were not randomly selected. The results of this
    study cannot be extrapolated to agencies and departments not included in our
    population.

    * Our analysis focused on the linkages described between performance plans,
    budget submissions, and financial reports. We did not assess the
    appropriateness of the goal structure or of individual performance goals and
    measures.28 We also did not independently verify requested funding amounts
    allocated to performance goals.

    * Although we did not verify the information contained in the agencies'
    statements of net cost, independent auditors, as part of the annual
    financial audit, reviewed the information reported in these statements.

    We requested comments on a draft of this report from the Director of OMB and
    incorporated comments as appropriate. We conducted this review from April
    through August 2001 in accordance with generally accepted government
    auditing standards.

    28Additional information on our assessments of agency performance plans can
    be found at the GAO web site (http://www.gao.gov) on the "GAO Reports" page
    under "Special Collections" and "Reports and Plans About GAO."

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