Performance and Accountability Highlights: Fiscal 2002		 
(01-JAN-03, GAO-03-306SP).					 
                                                                 
Presented are highlights of GAO's performance and accountability 
report for fiscal 2002. In the spirit of the Government 	 
Performance and Results Act, this annual report informs the	 
Congress and the American people about what we have achieved on  
their behalf. Importantly, GAO received a clean opinion from	 
independent auditors on our financial statements for the 16th	 
consecutive year. The financial information and the data	 
measuring GAO's performance contained in this report are complete
and reliable.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-306SP					        
    ACCNO:   A06017						        
  TITLE:     Performance and Accountability Highlights: Fiscal 2002   
     DATE:   01/01/2003 
  SUBJECT:   Accountability					 
	     Agency missions					 
	     Performance measures				 
	     Strategic planning 				 
	     High Risk Series 2003				 

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GAO-03-306SP

a a

U.S . G E N E R A L AC C O U N T I N G O F F I C E S E RV I N G T H E C O
N G R E S S A N D T H E N AT I O N

Performance and Accountability

H I G H L I G H T S Fiscal 2002

GAO*S MISSION CORE VALUES SERVING THE CONGRESS

GAO exists to support the Congress in meeting its constitutional
responsibilities and to help improve the performance and ensure the

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

INTEGRITY RELIABILITY ACCOUNTABILITY

We help the Congress oversee federal programs and operations to ensure
accountability to the American people. GAO*s analysts, auditors, lawyers,
economists, information technology specialists, investigators, and other
multidisciplinary professionals seek to enhance the economy, efficiency,
effectiveness, and credibility of the federal government both in fact and
in the eyes of the American people.

We set high standards for ourselves in the conduct of GAO*s work. Our
agency takes a professional, objective, fact- based, nonpartisan,
nonideological, fair, and balanced approach to all activities. Integrity
is the foundation of reputation, and the GAO approach to work ensures
both.

We at GAO want our work to be viewed by the Congress and the American
public as reliable. We produce high- quality reports,

testimony, briefings, legal opinions, and other products and services that
are timely, accurate, useful, clear, and candid.

Source: NARA and GAO.

GAO performs a range of oversight-, insight-, and foresight- related
engagements, a vast majority of which are conducted in response to
congressional mandates or requests. GAO's engagements

include evaluations of federal programs and performance, financial and
management audits, policy analyses, legal opinions, bid protest
adjudications, and investigations.

SCOPE OF WORK

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 1

From the Comptroller General

January 31, 2003 It is indeed a pleasure to present GAO*s performance and
accountability report for fiscal 2002. In the spirit of the Government
Performance and Results Act (GPRA), this annual report informs the
Congress and the American people about what we have achieved on their
behalf. Importantly, we received a clean opinion from independent auditors
on our financial statements for the 16th consecutive year. I am confident
that the financial information and the data measuring GAO*s performance
contained in this report are complete and reliable. The year 2002 was
marked by certain new and unprecedented

challenges for the federal government. In the aftermath of the September
11, 2001, terrorist attacks and the delivery of anthrax spores through the
mail, securing the safety of Americans at home and abroad became the
foremost national priority. It was also a year of economic challenges: not
just falling stock

prices, but diminished public confidence in certain corporate institutions
and in the ability of government to effectively oversee financial markets.
The troubles experienced at Enron and other corporations and the related
conduct of auditors and various other parties had far reaching effects.

The threat of terrorism and the damage done to Americans* economic well-
being in 2002 were but two challenges among many* some of them long-
standing challenges with which the Congress continues to grapple. The
nation*s changing demographics, the educational needs of its children, the
long- term viability of Social Security and Medicare, the rising cost of
health care and the millions of Americans who are uninsured, the
vulnerability of the government*s computer systems to sabotage,

the requirements of the armed forces in the face of new threats to
national security* these and other challenges continued to engage the
attention of the Congress and therefore helped define the year*s
priorities at GAO.

2 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

As a key source of objective information and analysis, GAO played a
crucial role in supporting congressional decision making. For example,
GAO*s work informed the debate over national preparedness strategy,
helping the Congress answer questions about the associated costs and
program trade- offs and providing perspectives on how best to organize and
manage the new Transportation Security Administration and the new

Department of Homeland Security. GAO*s input was a major factor in helping
to shape the Sarbanes- Oxley Act, which created the Public Company
Accounting Oversight Board as well as new rules to strengthen corporate
governance and ensure auditor independence. Further, GAO*s work helped the
Congress develop and enact election reform legislation in the form of the
Help America Vote Act of 2002.

The Congress and the executive agencies took a wide range of actions based
on GAO analyses and recommendations. These included reducing improper
payments under the Medicare program, reducing the risks associated with
agriculture loan programs, and improving the oversight of contingency
appropriations for defense. In total, GAO*s efforts helped the Congress
and government leaders achieve $37.7 billion in financial benefits* an $88
return on every dollar invested in GAO.

That return on the public*s investment in GAO extends beyond dollar
savings to improvements in how the government serves its citizens. Whether
by spurring efforts to coordinate emergency preparedness by federal,
state, and local agencies; by informing the Congress and the public about
the risks involved

in private pension plans; or by helping federal agencies improve their
oversight of the nation*s food safety system, GAO is contributing directly
to bettering Americans* daily lives. Another way we do this is by raising
congressional and public

awareness of emerging national problems. For example, we underscored for
the Congress the prevalence of security weaknesses at American seaports,
the nature and growing cost of identity theft, weaknesses in export
controls over sophisticated weapons technologies, inadequacies in nursing
home care, and shortages of children*s vaccines. The more the nation*s
leaders

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 3

in the public, nonprofit, and private sectors know about these growing
challenges, the sooner they will be able to craft effective responses.

Access to the information the Congress wishes to have became a special
issue for GAO during the year when, for the first time in our history, we
used our statutory authority to file suit in order to obtain certain
government records from an executive branch official. The action came
about after we received congressional requests from four Senate Committee
Chairs and Subcommittee Chairs and two House Members for information on
meetings between private- sector individuals and a White House energy task
force chaired by the Vice President on the development of the President*s
proposed National Energy Policy. Starting in May 2001, we sought limited
factual information from the Vice President in his capacity as chairman of
the National Energy Policy Development Group. He refused to disclose a
range of information, such as the dates, locations, subjects, and
attendees involved in the group*s meetings with external parties. We
repeatedly explained our explicit statutory audit and access authority,
streamlined our requests, and offered the White House flexibility in how
the information might be provided. Furthermore, the administration did not
take advantage of the statutory provision that could have prevented a suit
and

did not claim executive privilege. We reluctantly filed suit in federal
district court in February 2002 under the provisions of GAO*s statutory
authorities, asking the court to direct that the requested records be
produced. In December 2002, the district court dismissed our suit for lack

of standing. In doing so, the court did not address the merits of the
case* including GAO*s fundamental audit or access rights* but instead
ruled that as Comptroller General, I lacked standing to enforce this
agency*s access rights in court. In his ruling, the judge stated that the
issues involved and the nature of the congressional interest in the
records were not sufficient to have the court decide the dispute. We
strongly disagree with the court*s ruling, but as this report goes to
press, we are reviewing the court*s decision and analyzing its basis and
potential implica

4 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

tions. Once this review is completed and we have consulted with the
Congress*s leadership on a bipartisan basis, I will decide whether to
appeal the decision to the circuit court.

The value of information in serving our clients is driven home to us every
day at GAO. It is not just a matter of obtaining facts from the executive
branch but also of observing best practices in and out of government and
how they are or can be applied. For instance, how well the government
delivers on its promises

frequently depends on how well it applies fundamental modern management
principles. Strategic planning, organizational alignment, performance
management, financial management, information technology, human capital
strategy, knowledge

management, and change management are key elements in maximizing
performance and ensuring accountability. We have significantly increased
the amount of our work focused on

these areas to enhance the implementation of these principles throughout
the federal government.

We don*t just preach modern management principles at GAO. We practice what
we preach, and we aim to lead by example. We continued this year to make
significant progress in improving our human capital programs, our
information technology capabilities, and our change management practices.
All of these are key areas in which we seek to be a model for other
federal agencies.

Visitors to GAO headquarters may have felt, as I do, that the building
itself somehow

conveys a sense of solidity and purpose. There is a new

plaque in the lobby of GAO headquarters that commemorates another quality
of the organization and its people: a readiness to contribute in

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 5

whatever way may be needed to support our country, the Congress, and the
continuity of representative government. On October 23, 2001, with only 3
days* notice, we opened our doors to the 435 members of the House of
Representatives and selected members of their staffs. As they set up
quarters at GAO, their Capitol Hill offices were checked for traces of
anthrax. It was the first time since the War of 1812, when the Capitol and
the White House were burned, that the House of Representatives sought
alternative housing. Working with congressional and contractor staff, we
were able

to provide the telecommunications, computer, and other services needed to
conduct the business of the House as 1,200 members of our staff shifted to
alternative locations. Through it all, our work went on, and we continued
to issue reports and to testify on issues important to the Congress and
the public. I am very proud of how, in a time of uncertainty, the people
of GAO responded with a positive attitude in doing whatever their country
required and an unwavering resolve to continue their work. Knowing this
organization as I do, I was not surprised.

In summary, fiscal 2002 was truly an exceptional year. I believe that
those who read this report will agree with me that taxpayers receive an
excellent return on their investment in GAO.

David M. Walker Comptroller General of the United States

In fiscal 2002, GAO served the Congress

Create a national preparedness strategy at the federal, state, and local
levels that will make Americans safer from terrorism

Devise election reforms to restore voter confidence

Protect investors through better oversight of the securities industry and
the accounting profession

Ensure a safer national food supply

Expose the inadequacy of nursing home care

Make income tax collection fair, effective, and less painful to taxpayers
Strengthen public schools* accountability for educating children

Keep sensitive American technologies out of the wrong hands

Protect American armed forces confronting chemical or biological weapons

Identify the risks to employees in private pension programs

Identify factors causing the shortage of children*s vaccines

Assist the postal system in addressing anthrax and various management
challenges

and the American people by helping to *

Identify security risks at ports, airports, and transit systems

Save billions by bringing sound business practices to the Department of
Defense

Foster human capital strategic management to create a capable, effective,
well- managed federal workforce

Ensure that the armed forces are trained and equipped to meet the nation*s
defense commitments

Enhance the safety of Americans and foreign nationals at U. S.
installations worldwide

Assess ways of improving border security through biometric technologies
and other means

Reduce the international debt problems faced by poor countries

Reform the way federal agencies manage their finances

Protect government computer systems from security threats

Enhance the transition to e- government* the new *electronic connection*
between government and the public

8 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

Introduction

The U. S. General Accounting Office is an independent, nonpartisan,
professional services agency in the legislative branch that is commonly
regarded as the audit, evaluation, and investigative arm of the

Congress. Created in 1921 as a result of the Budget and Accounting Act,
GAO*s *watchdog* role has evolved over the decades as the Congress
expanded our statutory authority and called on us with increasing
frequency for support in carrying out its legislative and oversight
responsibilities. Today, we examine the full breadth and

scope of federal activities and programs, publish thousands of reports and
other documents annually, and provide a number of related services
intended to aid decision makers and the general public alike. We also
study national and global trends to anticipate their implications for
public policy. By making recommendations to improve the accountability,
operations, and services of government

agencies, GAO contributes not only to the increased effectiveness of
federal spending, but also to the enhancement of the taxpayers* trust and
confidence in their government. To accomplish our mission, we rely on a

workforce of highly trained professionals who hold degrees in many
academic disciplines, including accounting, law, engineering, public and
business administration, economics, computer science, and the social and
physical sciences. They are arrayed in 13 research, audit, and evaluation
teams and one temporary

or *virtual* team on national preparedness. These teams are backed by
staff offices and mission support units. About three- quarters of our
approximately

3,200 employees are based at our headquarters in Washington, D. C.; the
rest are deployed in 11 field offices. On the pages that follow, we
summarize

our performance for fiscal 2002. We also present condensed financial
statements and the independent auditor*s opinion on them. If you would
like additional information, please see the full- length version of our
performance and accountability report at www. gao. gov/ sp. html. Our
performance plan for fiscal 2004

will be available through that same page as soon as the budget process
permits.

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 9

GAO*s Performance

Fiscal 2002 was a year of challenges, not just for GAO but also for the
Congress and the nation GAO serves. The nation*s vulnerabilities were
exposed in a series of crises* America*s vulnerability to sophisticated
terrorist networks, America*s vulnerability to bioterrorism waged through
mechanisms as mundane as the daily mail, and America*s vulnerability to
corporate misconduct capable of wiping out jobs, pensions, and investments
virtually overnight. As the Congress*s priorities evolved to

meet these crises, GAO*s challenge was to respond quickly and effectively
to our congressional clients* changing needs. Under our original strategic
plan, published

in spring 2000, we had already streamlined and realigned GAO*s structure
and resources to better serve the Congress in its legislative, oversight,
and investigative roles. The new human capital initiatives we had begun,
including recruiting, hiring, and professional development, equipped us to
operate in a constantly changing knowledge environment. The steps that we
took to enhance our information technology capabilities served to increase
our productivity, consistency, and responsiveness. And with work already
under way across a spectrum of critical policy and performance issues, we
had a head start toward meeting the Congress*s needs in a year of
unexpected and often tumultuous events.

We were, for instance, asked to assist with the deliberations over the
Department of Homeland Security*s formation by looking into questions
involving flexibilities for managing human capital, information sharing,
management, acquisition, budget and program transfer

authorities; and lessons available from other reorganizations in the
public and private sectors. Teams with different specialties from across
GAO collaborated on that effort and also pursued specific aspects of
national preparedness. For example, building on an extensive

body of completed work, we provided important information to the Congress
as it drafted the Aviation and Transportation Security Act, while
providing continuing assistance with information on aviation, port, and
transit security. Building on our previous work on the

outbreak of West Nile virus and our examination of state and local efforts
to meet the challenges all epidemics pose* those of detection and
treatment* we aided the Congress*s decision making about how to equip and
organize the Department of Homeland Security to prepare for and respond to
bioterrorism. We were also deeply involved in congressional

efforts to address terrorism insurance issues* raising alternative
strategies and suggesting guiding principles based on past efforts to
assist industries and firms in times of crisis, such as

10 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

GAO*S PERFORMANCE

the savings and loan industry and, more recently, the aviation industry.
As we gathered information and conducted analyses for the Congress,
developed recommendations for improvements, and detailed the potential
ramifications of policies to address the national problems the Congress
was confronting, we continued work on the issues that the Congress had
faced before homeland security gripped the nation*s attention. Among these
was a wide range of issues that also directly affect the lives of
Americans:

We, f or instance, helped policymakers probe the issues behind the
shortages in the supplies of vaccines for childhood illnesses, such as
measles, mumps, rubella, and tetanus, clarifying the variety of
contributing

factors and exploring the key questions, such as how more manufacturing
and competition can be encouraged, how adequate oversight can be provided,
and how stockpiles can be amassed. Our work also helped policymakers*

and the public* understand private pension issues in the wake of the Enron
bankruptcy and other corporate failures, including the questions they
raised for workers nationwide. For instance, in early 2002, the
Comptroller General convened a forum on corporate governance,
transparency, and accountability that highlighted a

number of systemic issues, including concerns related to employee pension
and savings plans. And we alerted the Congress to weaknesses

that may exist in the legal protections for employee pensions. We
highlighted the ways in which

employers* stock investment decisions can increase the risks to which
employees* pension plans are exposed and recommended improvements to the
information employees must receive. We also issued a guide for Members of
Congress, their staffs, and the public called Answers to Key Questions
about Private Pension Plans (www. gao. gov/ cgi- bin/ getrpt? rptno=

GAO- 02- 745sp), which explains in easy- to- understand terms the concepts
and rules that last year became sharply relevant to the future economic
security of millions of Americans.

Our work on the elections process contributed to reform legislation
drafted in response to the voting problems that came to national
prominence in the November 2000 presidential election. A series of our
reports disclosed major challenges involving the people, processes, and
technology used at each stage of the election process* registering voters,
absentee and early voting, preparing

for and conducting election day activities, and tabulating votes in the
10,000 local election jurisdictions nationwide. The legislation passed by

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 11

GAO*S PERFORMANCE Selected Public Laws to Which GAO Contributed During
Fiscal 2002 Included *

Prescription Drug User Fee Amendments of 2002, P. L. 107- 188

Best Pharmaceuticals for Children Act, P. L. 107- 1092

No Child Left Behind Act of 2001, P. L. 107- 110

Food Stamp Reauthorization Act of 2002, P. L. 107- 171

Help America Vote Act of 2002, P. L. 107- 252

Homeland Security Act of 2002, P. L. 107- 296

Public Health Security and Bioterrorism Preparedness and Response Act of
2002, P. L. 107- 188

Aviation and Transportation Security Act, P. L. 107- 71

Department of Defense Appropriation Act, 2003, P. L. 107- 248

Department of Defense and Emergency Supplemental Appropriations for
Recovery From and Response to Terrorist Attacks on the United States Act,
2002, P. L. 107- 117

Bob Stump National Defense Authorization Act for Fiscal Year 2003, P. L.
107- 314

Foreign Relations Authorization Act, Fiscal Year 2003, P. L. 107- 228

Small Business Paperwork Relief Act of 2002, P. L. 107- 198

Federal Information Security Management Act of 2002, P. L. 107- 347

Sarbanes- Oxley Act of 2002, P. L. 107- 204

National Defense Authorization Act for Fiscal Year 2002, P. L. 107- 107

Legislative Branch Appropriations, Fiscal Year 2002, P. L. 107- 68

Improper Payments Information Act of 2002, P. L. 107- 300

Tr ade Act of 2002, P. L. 107- 210

Terrorism Risk Insurance Act of 2002, P. L. 107- 297

E- Government Act of 2002, P. L. 107- 347

12 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

GAO*S PERFORMANCE

the Congress addresses federal subsidies for voting machinery, standards
for the equipment, improved voter registration rolls, and

improved access for voters with disabilities. By year*s end, we had
testified 216 times

before the Congress, sometimes on as little as 24 hours* notice, on a
range of issues, including those listed on the next page. We had filled
hundreds of urgent requests for information. We had developed 1,950
recommendations for improving the government*s operations, including, for
example, those we made

to the Secretary of State calling for the development of a governmentwide
plan to help other countries combat nuclear smuggling and those we made to
the Chairman of the Federal Energy Regulatory Commission calling for his
agency to develop an action plan for overseeing competitive energy
markets. We also had continued to track the recommendations we had made in
past years, checking to see that they had been implemented and, if not,
whether we needed to do follow- up work on problem

areas. We found, in fact, that 79 percent of the recommendations we had
made in fiscal 1998 had been implemented, a significant step when the work
we have done for the Congress becomes a catalyst for creating tangible
benefits for the American people.

ISSUES ON WHICH GAO TESTIFIED DURING FISCAL 2002

GOAL 2 GOAL 3 GOAL 1

Well- Being and Financial Security of the American People Changing
Security Threats and

Challenges of Globalization Transforming the Federal Government*s Role

Aviation security Bioterrorism Blood supplies Child Welfare Childhood
vaccines Coast Guard*s security missions Customs* cargo inspections
Disability programs EPA cabinet status FBI reorganization Federal property
management

reform Food safety Highway trust fund Housing HUD management reform
Identity theft Immigration enforcement Indian tribal recognition Intercity
passenger rail Long- term care Medicare payments Nuclear waste storage
Nursing homes Postal Service challenges Public health aspects of homeland
security

Retiree health insurance SBA*s human capital challenges Social Security
reform Tr ansit safety and security VA health care Welfare reform Wildfire
threats Workforce development

A- 76 competitive sourcing Anthrax vaccine Ballistic missile defense
Chemical and biological preparedness

Combating terrorism Compact with Micronesia Conflict diamonds Debt relief
for poor countries Encroachment on training ranges Export controls Food
aid Foreign language needs Gulf War illnesses Information security aspects
of homeland security

International trade Nuclear smuggling Organizational aspects of homeland
security

SEC*s human capital challenges Strategic seaport protection Terrorism
insurance U. S. overseas presence Weapons of mass destruction

Contract management Contracting for services Corporate governance and

accountability Debt collection DOD financial management Electronic
Government Act of 2002 Electronic- government security Enterprise
architecture Federal budget issues Federal building security Federal
financial management

reform Federal rulemaking requirements Freedom to Manage Act Human capital
strategy Illegal tax schemes and scams Intergovernment aspects of homeland
security

IRS modernization Medicaid financial management NASA*s management
challenges President*s Management Agenda Purchase card controls Securing
America*s borders U. S. government*s financial statements

Source: GAO.

14 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

GAO*S PERFORMANCE

In fiscal 2002, we recorded 906 instances in which our work led to
improvements in government operations or programs. For example, by acting
on GAO*s findings or recommendations, the federal government has taken
important steps toward enhancing aviation safety, improving

pediatric drug labeling based on research, better targeting of funds to
high- poverty school districts, greater accountability in the federal
acquisition process, and more effective delivery of disaster recovery
assistance to other nations, among other achievements.

Note: Changes GAO made to its methodology for tabulating financial
benefits caused the fiscal 2002 results to increase about 11 percent. See
the full- length version of this report at www. gao. gov/ sp. html for
details.

In another 115 instances, federal action on GAO*s findings or
recommendations produced financial benefits for the American people: a
total of $37.7 billion was achieved by making government services more
efficient, improving the budgeting and spending of tax dollars, and
strengthening the management of

federal resources. Increased funding for improved safeguards against fraud
and abuse helped the Medicare program to better control improper payments
of $8.1 billion over 2 years, for instance, and better policies and
controls reduced

losses from farm loan programs by about $4.8 billion across 5 years.
Altogether, GAO*s fiscal 2002 financial benefits

translate into a financial return on investment of $88 for every dollar
budgeted for GAO. Of our seven agencywide annual performance

targets (see the table), only one was not met: timeliness. While we
provided 96 percent of our products to their congressional requesters by
the

37.7 30.0 26.4 23.2 20.1

Actual Target Actual Source: GAO.

Financial Benefits Dollars in billions

0 10

20 30

40 2002 2002 2001 2000 1999

0 100 200 300 400 500 600 700 800 900 1000 906 770 799 788

607

Actual Target Actual Source: GAO.

Other Benefits Number of actions

2002 2002 2001 2000 1999

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 15

GAO*S PERFORMANCE

date promised, we did not hit this measure*s target of 98 percent on- time
delivery. The year*s turbulent events played a part in our missing the
target, causing us to delay work in progress when higher- priority
requests came in from the Congress. We know we will continue to face
factors beyond our control as we strive to improve our performance in this
area. But we believe the agency protocols we are piloting will help clar
ify aspects of our interactions with the

agencies we evaluate and audit and, thus, expedite our work in ways that
could improve the timeliness of our final products. We also believe that
our continuing investments in human capital and information technology
will improve our timeliness while allowing us to maintain our high level
of productivity and performance overall. Annual Measures and Targets

1999 Actual

2000 Actual

2001 Actual

2002 4- year avg. Actual

2003 Target Performance measure Target Actual

Financial benefits (billions) $20.1 $23.2 $26.4 $30.0 $37.7 a $26.9 $32.5
b

Other benefits 607 788 799 770 906 775 800 b

Past recommendations implemented 70% 78% 79% 75% 79% N/ A 77%

New recommendations made 940 1,224 1,563 1,200 1,950 1,419 1,250 b

New products with recommendations 33% 39% 44% 45% 53% 42% 50%

Testimonies 229 263 151 200 216 215 180 b

Timeliness 96% 96% 95% 98% 96% 96% 98%

a Changes GAO made to its methodology for tabulating financial benefits
caused the fiscal 2002 results to increase about 11 percent. See the full-
length version of this report at www. gao. gov/ sp. html for details.

b Four targets published in GAO*s performance plan for fiscal 2003 were
subsequently revised based on more current information. Two were raised;
two were lowered. The original targets were financial benefits, $35
billion; other benefits, 785; recommendations made, 1,200; and
testimonies, 210.

N/ A = not applicable

16 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

GAO*S PERFORMANCE

At the beginning of fiscal 2002, as we prepared an updated draft of our
strategic plan for congressional comment* extending the plan to fiscal
2007 and factoring in developments that had occurred since we first issued
it in fiscal 2000* it was clear that the world had changed considerably.
When the original plan was issued, the nation had been enjoying a period
of peace and prosperity, with large budget surpluses projected into the
future. When the updated plan went onto the Web in 2002, the nation was at
war against terrorism, both within and outside its borders. The economic
outlook had become difficult to predict. And the federal government faced
the return of serious, long- range budget deficits and the burden they
impose on the nation*s future prosperity. The updated plan carried forward
the

four strategic goals we had already established as the organizing
principles for a body of work that is as wide- ranging as the interests
and concerns of the Congress itself. While these strategic goals, shown on
page 18 with their strategic

objectives, help us plan our work and assess our progress in fulfilling
our mission to serve the Congress and the nation, they are not separate
endeavors. We developed them with the intention of moving away from
*siloed** or compartmentalized* approaches to doing business on a matrixed
basis. As the challenges facing policymakers grow more complex and
interdependent, the

only way a knowledge- based, multidisciplinary professional services
organization such as GAO can be effective is to be flexible and capable of
responding quickly to change. As a result, we have sought more
cooperative, partnerial

approaches that maximize the skills and expertise of people working
together toward the same ends. In later sections of this booklet, we
highlight

our performance under each of our strategic goals and the strategies and
challenges involved in achieving those goals* including the management
challenges and external factors we face. We also summarize how we used our

resources in fiscal 2002, including our costs by strategic goal.

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 17

GAO*S PERFORMANCE Helping the Government Improve Performance and
Accountability

Every 2 years, with the start of each new Congress, GAO issues an update
of the high- risk series, which identifies and reports on federal programs
and operations that have greater vulnerabilities to waste, fraud, abuse,
and mismanagement or that have major challenges associated with their
economy, efficiency, or effectiveness.

Lasting solutions to high- risk problems offer the potential to save
billions of dollars, dramatically improve service to the American public,
strengthen public confidence and trust in the performance and
accountability of the national government, and ensure the ability of
government to deliver on its promises.

Since 1990, the Congress*s and federal agencies* commitment to resolving
serious, long- standing high- risk problems has paid off* the root causes
of half the 14 high- risk areas on our original list have been addressed.
This sustained commitment continues to produce results. In 2001, GAO
identified 23 high- risk areas. Since then, demonstrable progress has been
made in virtually all of them. GAO has increasingly used the high- risk
designation to draw attention to

the challenges faced by government programs and operations in need of
broad- based transformation. Three of the new high- risk areas on the 2003
list fall into that category, while a fourth new area involves fraud,
waste, abuse, and mismanagement, the type of problem GAO continues to
identify.

To learn more about these new high- risk areas, to review the full list of
high- risk areas, or to download the update in full, go to www. gao. gov/
pas/ 2003/.

CORE VALUES

Fiscal 2002- 2007

.. Health care needs and financing

.. Education and protection of children

.. Work opportunities and worker protection

.. Retirement income security

.. Effective system of justice

.. Viable communities

.. Natural resources use and environmental protection

.. Physical infrastructure

Address Current and Emerging Challenges to the Well- Being and Address
Current and Emerging Challenges to the Well- Being and Financial Security
of the American People Financial Security of the American People related
to . . . related to . . .

.. Diffuse security threats

.. Military capabilities and readiness

.. Advancement of U. S. interests

.. Global market forces

Respond to Changing Security Threats and the Challenges of Respond to
Changing Security Threats and the Challenges of Global Interdependence
Global Interdependence involving . . . involving . . .

.. Roles in achieving federal objectives

.. Human capital and other capacity for serving the public

.. Progress toward results- oriented, accountable, and relevant government

.. Fiscal position and financing of the government

Help Transform the Federal Government Help Transform the Federal
Government*s Role and How It s Role and How It Does Business to Meet 21st
Century Challenges Does Business to Meet 21st Century Challenges by
assessing . . . by assessing . . .

.. Client and customer service

.. Leadership and management focus

.. Institutional knowledge and experience

.. Process improvement

.. Employer of choice

Maximize the Value of GAO by Being a Model Federal Agency and Maximize the
Value of GAO by Being a Model Federal Agency and a World- Class
Professional Services Organization a World- Class Professional Services
Organization in the areas of . . . in the areas of . . .

Provide Timely, Quality Service to the Congress and the Provide Timely,
Quality Service to the Congress and the Federal Federal Government to
Government to . . . . . . GOALS & OBJECTIVES THEMES

Demographics Security

and Preparedness

Globalization Changing Economy

Science and Technology

Quality of Life

Governance

SERVING THE CONGRESS GAO*S STRATEGIC PLAN FRAMEWORK

MISSION GAO exists to support the Congress in meeting its constitutional
responsibilities and to help improve the performance and ensure the
accountability

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

Source: GAO.

Accountability Integrity Reliability Accountability Integrity Reliability

18 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

Well- being and financial security of American people

Goal 1 Goal 2 Goal 3 Goal 4 Results Goal 1 Goal 1*s Cost: $178.3 Million

39% of GAO*s Total $24.1 billion in financial benefits -Safeguarding
Medicare from fraud and abuse, $8.1 billion -Improving HUD*s budget
practices, $4.9 billion -Reducing losses from farm loans, $4.8 billion
-Reducing costs of hazardous waste cleanup at Hanford, $1.5 billion
-Additional financial benefits, $4.8 billion

226 other benefits -Improving pediatric drug research and labeling
-Simplifying requirements for food stamp eligibility and benefits -Better
targeting education funds to high- poverty school districts -Protecting
taxpayers from faulty analyses of major public works programs -222
additional benefits

524 new recommendations made -Develop strategy for expanding stockpiles of
childhood vaccines -Develop an action plan for overseeing competitive
energy markets -522 additional improvements recommended

111 testimonies -Aviation security -Bioterrorism -Food safety -Nursing
homes -107 additional hearings on topics of national importance

Source: GAO.

Changing security threats and challenges

of globalization Goal 1 Goal 2 Goal 3 Goal 4

Results Goal 2

$8.4 billion in financial benefits -Reducing DOD*s foreign currency
exchange estimates, $1.5 billion -Consolidating and modernizing DOD's
computer center activities, $859 million -Reducing funding for the V- 22
development program, $763.8 million -Better management of DOD*s satellite
capacity, $702 million -Additional financial benefits, $4.6 billion

218 other benefits -First steps toward unifying homeland security efforts
-Stronger measures to prevent unapproved export of missile parts -More
effective delivery of disaster recovery assistance to other nations
-Improving Peace Corps* safety and security practices -214 additional
benefits

618 new recommendations made -Develop governmentwide plan to help other
countries combat nuclear smuggling -Make engineering and manufacturing
investments in technologies proven to be mature -Develop overall
investment plan for the National Security Space Strategy -615 additional
improvements recommended

38 testimonies -Combating terrorism -Chemical and biological preparedness
-Conflict diamonds -Foreign language needs -34 additional hearings on
topics of national importance Source: GAO.

Goal 2*s Cost: $110.5 Million 24% of GAO*s Total

Goal 1 Goal 2 Goal 3 Goal 4 Goal 3

$5.2 billion in financial benefits -Improving Defense Department*s
computer centers* operations, $859 million -Improving collection of nontax
debts owed to the U. S. government, $300 million -Additional financial
benefits, $4 billion

462 other benefits -Greater accountability in the federal acquisition
process -Improved implementation of Paperwork Reduction Act -Data
stewardship strategies to protect individuals* privacy -Audit testing
approach for forensic audits to identify fraud, waste, and abuse -Improved
government debt management -457 additional benefits

808 new recommendations made -Better protect government credit cards from
misuse -Audit agencies* compliance with cost accounting standards
-Reassess the requirements for recertifying eligibility for the Earned
Income

Tax Credit -805 additional improvements recommended

65 testimonies -Intergovernmental aspects of homeland security -Contract
management -Corporate governance and accountability -Human capital
-Illegal tax schemes and scams -U. S. government's financial statements
-59 additional hearings on topics of national importance Source: GAO.

Transforming the federal government*s

role

Goal 3*s Cost: $141 Million 31% of GAO*s Total

Results

Goal 4 Goal 4

Maximize the value of GAO Goal 1 Goal 2 Goal 3

Sharpen focus on clients* and customers* requirements -Piloted Web- based
feedback system for congressional clients -Provided emergency relocation
support -Developing agency and international protocols

Enhance leadership and promote management excellence -Increased security
of GAO*s facilities and information systems -Maintained integrity in
financial management -Continued to provide leadership in human capital
strategy and management

Leverage institutional knowledge and experience -Improved management of
agency records -Piloted knowledge- sharing among GAO units -Increased
capacity through knowledge- sharing and collaboration

Continuously improve business and management processes -Improved guidance
and tracking for GAO engagements -Developed *highlights* page to
encapsulate information from a GAO report on a single page -Donated excess
computer equipment to schools

Become professional services employer of choice -Implemented competency-
based performance system for analysts, specialists, and attorneys
-Developed new training process and expanded executive training
opportunities -Continued recruitment focus on diversity

Source: GAO. Goal 4*s Cost: $25.3 Million

6% of GAO*s Total

Results

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 23

Strategies and Challenges

As the audit, evaluation, and investigative arm of the Congress, GAO has a
unique role to play. Within the legislative branch, we are the only agency
with staff in the field, conducting performance analyses and financial
accounting among other congressionally requested activities, and reporting
our findings not only to our congressional clients but also to the
American public. While we work with the Inspectors General

at every federal agency, our engagements differ from theirs in that ours
are often more strategic and longer- range in nature, governmentwide in
scope, and initiated by requests from the Congress. Achieving our goals
and objectives rests, for the most part, on providing professional,

fact- based, balanced, nonpartisan information. We develop and present
this information in a number of ways to support the Congress in carrying
out its constitutional responsibilities, including the following:

evaluating federal policies and the performance of agencies;

overseeing government operations through financial and other management
audits to determine whether public funds are spent efficiently,
effectively, and in accordance with applicable laws;

investigating whether illegal or improper activities are occurring;

analyzing the financing for government activities;

conducting constructive engagements in which we work proactively with
agencies, when appropriate, to provide advice that may assist their
efforts toward positive results;

providing legal opinions that determine whether agencies are in compliance
with applicable laws and regulations;

conducting policy analyses to assess needed actions and the implications
of proposed actions; and

providing additional assistance to the Congress in support of its
oversight and decision- making responsibilities.

Because achieving our strategic goals and objectives also requires
strategies for coordinating with other organizations with similar or
complementary missions, we use advisory panels and other bodies

to inform GAO*s strategic and annual work planning, and

initiate and support collaborative national and international audit,
technical assistance, and other

knowledge- sharing efforts. Those two types of strategic working
relationships allow us to extend our institutional knowledge and
experience and, in turn, to improve our service to the Congress and the
American people. Our External Liaison office takes the lead

and provides strategic focus for the work with crosscutting organizations,
while our research, audit, and evaluation teams

24 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

STRATEGIES AND CHALLENGES

lead the work with most of the issue- specific organizations. Among these
efforts is our work with

the International Organization of Supreme Audit Institutions (INTOSAI)*
the professional organization of the national audit offices of 184
countries. During fiscal 2002, GAO led a 10- nation

task force in developing a strategic planning framework for the
organization that was approved in October 2002. In fiscal 2003, the task
force will expand the framework into a comprehensive strategic plan. The
Comptroller General also leads the Global Working Group, in which the
heads of GAO*s counterparts from 15 countries discuss mutual challenges,
share experiences, and identify opportunities for collaboration with one
another. GAO also chairs INTOSAI*s accounting standards committee and is
an active member of the auditing standards, internal control standards,
and public debt committees.

Domestically, the Comptroller General chairs the National
Intergovernmental Audit Forum, and through 10 regional intergovernmental
audit forums, GAO consults regularly with federal inspectors general and
state and local auditors. In addition, through the Domestic Working Group,
the Comptroller General and the heads of 18 federal, state, and local
audit organizations exchange

information and seek opportunities to collaborate. The Comptroller General
is also one of the four principals of the

Joint Financial Management Improvement Program, who are actively fostering
financial management reform governmentwide.

Addressing Management Challenges That Could Affect Our Performance

GAO has three management challenges that may affect our performance. Two
of the challenges* human capital and physical security* were identified in
our previous performance and accountability report. We have made progress
in addressing each of these challenges, but we still have work to do. The
third challenge, information security, will replace our previous challenge
of information technology. With the establishment of a stable and reliable
computer network and institutionalized standard routine updates of network
and desktop operating systems and equipment, we will have completed our
work on the original management challenge. However, independent reviews of
our information

security program indicate a need for further improvement. Given GAO*s role
as a key provider of

information and analyses to the Congress, maintaining the right mix of
technical knowledge and expertise as well as general analytical skills is
vital to achieving our mission. We spend about 80 percent of our resources
on our people, but without excellent human capital management, we could
still run the risk of being unable to deliver what the Con

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 25

STRATEGIES AND CHALLENGES

gress and the nation expect from us. In 1999, after an extended hiring
freeze, GAO*s workforce was sparse at the entry

level, and we faced succession planning issues as a large number of our
senior managers and analysts became eligible to retire. The development
and training of our senior executives had been curtailed for funding
reasons. And at the same time, more of our staff needed enhanced technical
skills if they were to assist the Congress effectively. In all those
respects, GAO was little different from the government as a whole. In the
years since, we have addressed these issues in a variety of ways and are
continuing to do so. For example, we developed a recruitment program that
allowed us to hire 430 permanent staff during fiscal 2002, revamped and
modernized the performance appraisal system for analysts and attorneys,
and implemented a succession- planning program.

Over the next several years, we need to continue to address skill gaps,
maximize staff productivity and effectiveness, and reengineer our human
capital processes to make them more user- friendly. We plan to address
skill gaps by further

refining our recruitment and hiring strategies to target gaps identified
through our workforce planning efforts, while taking into account the
significant percentage of our workforce eligible for retirement. We will
reengineer our human capital systems and practices to increase their
efficiency and to take full

advantage of technology. We will also ensure that our staff have the
needed skills and training to function in this reengineered environment.
In addition, we are developing a competency- based

performance system for our mission support employees. During the 108th
Congress, we will

work with our appropriations and oversight committees to achieve enactment
of legislation to support our continuing efforts to be a leader in federal
human capital management and a world- class organization. To build on the
human capital flexibilities provided by the Congress in 2000, we will
identify opportunities for additional flexibilities that would, among
other things, facilitate GAO*s continuing efforts to develop a more
performance- based compensation system, realign our workforce, and provide
greater opportunities for staff to phase into retirement. In the aftermath
of the September 11 terrorist

attacks and subsequent anthrax incidents, our ability to provide a safe
and secure workplace emerged as a challenge for our agency. Protecting our
people and our assets is critical to our ability to carry out our mission.
We devoted additional resources to this area and implemented measures such
as reinforcing vehicle and pedestrian entry points, installing an
additional x- ray machine, adding more security guards, reinforcing

windows, and relocating air sources. We are in the process of researching
and

26 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

STRATEGIES AND CHALLENGES

designing other projects to better control building access and security
around the building. We plan to implement these projects over the next
several years. Ensuring information systems security

and disaster recovery systems that allow for continuity of operations is a
critical requirement for the agency, particularly in light of the events
of September 11 and the anthrax incidents. The risk is that our
information could be compromised and that we would be unable to respond to
the needs of the Congress in an emergency. In light of this risk, and in
keeping with our goal of being a model federal agency, we are implementing
an information security program consistent with the requirements in the
Government Information Security Reform provisions (commonly referred to as
*GISRA*) enacted in the Floyd D. Spence National Defense Authorization Act
for Fiscal Year 2001. We have made progress through our efforts to, among
other things, implement a risk- based, agencywide

security program; provide security training and awareness; and develop and
implement an enterprise disaster recovery solution. However, we need to
complete certain

key actions to be better able to detect intruders in our systems, identify
our users, and recover in the event of a disaster. Among our current
efforts and plans for these areas are completing the installation of
software that helps us detect

intruders on all our internal servers, completing the implementation of a
secure user authentication process, and refining the disaster recovery
plan we developed last year.

At GAO, management challenges are identified by the Comptroller General
and the agency*s senior executives through the agency*s strategic
planning, management, and budgeting processes. Our progress in addressing
the challenges

is monitored through our annual performance and accountability process.
Under strategic goal 4, we establish performance

goals focused on each of our management challenges and track our progress
in completing the key efforts for those performance goals quarterly. The
performance goals are assessed and

updated each year. GAO*s Inspector General reviews management*s assessment
of the challenges and the agency*s progress in addressing them. The
memorandum on the Inspector General*s findings is reprinted at the end of
this report. Mitigating External Factors

That Could Affect Our Performance

Several external factors could affect the achievement of our performance
goals, including national and international

developments and the resources we receive. Limitations imposed on our work
by other organizations or limitations on the ability of other federal agen

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 27

STRATEGIES AND CHALLENGES

cies to make the improvements we recommend are other factors that could
affect the achievement of our goals. As the Congress focuses on
unpredictable

events* such as the global threat posed by sophisticated terrorist
networks, international financial crises, or natural disasters* the mix of
work we are asked to undertake may 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 in various ways:

We are alert to possibilities that could shift the Congress*s and,
therefore, our priorities.

We continue to identify in our products and meetings with the Congress
conditions that could trigger new priorities.

We quickly redirect our resources, when appropriate, so that we can deal
with major changes that do occur.

We maintain broad- based staff expertise so that we can readily address
emerging needs.

As this report goes to press, the uncertainty about our fiscal 2003
funding levels was affecting when we will complete* and, in some cases,
begin* initiatives to address our management challenges and other issues.
Meeting the fiscal 2003 performance targets in this report and completing
the work under

way to meet our 2- year performance goals are contingent on receiving the
resources we are requesting from the Congress. Once actual funding is
known, we may adjust our targets and performance goals to ensure that key
congressional priorities are met.

A final external factor is the extent to which GAO can obtain access to
certain types of information. Most notably, recent developments have
raised concerns

about whether records access challenges are likely to increase in the
future. First, in December 2002, a district court dismissed a lawsuit GAO
filed to obtain information about meetings held with private- sector
individuals by the Vice President, in his capacity as

chairman of the National Energy Policy Development Group, and the group*s
members and staff. The court did not address the merits of the case, but
rather stated that the Comptroller General lacked standing in the matter.
Second, the current administration has shown a

tendency to not readily share certain information with GAO and the
Congress that both have received in the past. In addition, with concerns
about operational

security being unusually high at home and abroad, GAO may have more
difficulty obtaining information and

reporting on sensitive issues. Historically, our auditing and information
gathering has been limited whenever the intelligence community is
involved. Nor have we had the authority to access or

28 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

STRATEGIES AND CHALLENGES

inspect records or other materials held by other countries or, generally,
by the multinational institutions that the United States works with to
protect its interests. Consequently, our ability to fully assess

the progress being made in addressing homeland security issues may be
hampered, and because some of our reports may be subjected to greater
classification reviews than in the past, their public dissemination may be
limited. We will work with the Congress to identify both legislative and
nonlegislative opportunities for strengthening GAO*s access authority as
necessary and appropriate.

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 29

Managing Our Resources

GAO*s financial statements for fiscal 2002 received an unqualified opinion
from an independent auditor. No material weaknesses in internal control
were identified, and the auditor reported substantial

compliance with the requirements in the Federal Financial Management
Improvement Act of 1996 (the Improvement Act) for financial systems. The
auditor found no instances of noncompliance with the laws or regulations
in the areas they tested. The statements and their accompanying notes,
along with the auditor*s report, appear

later in this report. The table below summarizes key data.

Compared with the statements of large and complex agencies in the
executive branch, GAO*s statements present a rela tively simple picture of
a small agency in

the legislative branch that has most of its financial activity focused on
the execution of its congressionally approved budget and most of its
resources devoted to the human capital needed for its mission of
supporting the Congress with information and analysis.

GAO*s budget consists of an annual appropriation covering salaries and
expenses and revenue from reimbursable audit work and rental income. For
fiscal 2002, GAO*s total budgetary resources increased by $49.7 million
from fiscal 2001. This increase consists primarily of additional current
year appropriations to meet continuing program requirements and $7.6
million in transfers of budget authority to conduct

GAO*s Financial Highlights: Resource Information

Dollars in millions

Fiscal 2001 Fiscal 2002

Total budgetary resources $392.9 $442.6 Total outlays $387.2 $427.8 Net
cost of operations

Goal 1: Well- being and financial security of the American people $161.1
$178.3 Goal 2: Changing security threats and challenges of globalization
93.4 110.5 Goal 3: Transforming the federal government*s role 139.5 141.0
Goal 4: Maximizing the value of GAO 20.7 25.3 Less reimbursable services
not attributable to goals (1.6) (2.1) Total net cost of operations $413.1
$453.0 Actual full- time equivalents 3,110 3,210

Note: The net cost of operations figures include nonbudgetary items, such
as imputed pension and depreciation costs, which are not included in the
figures for total budgetary resources or total outlays.

30 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

MANAGING OUR RESOURCES

safety and security efforts to respond to the events of September 11.
GAO*s total assets were $126.8 million, consisting mostly of property and
equipment (including the headquarters building, land, and improvements and
computer

equipment and software) and funds with the Treasury. Our total liabilities
of roughly $91.7 million were composed largely of employees* accrued
annual leave, amounts owed to other government agencies, accounts payable,
and workers* compensation liability. GAO reports net costs by strategic
goal

to align our net costs with our strategic plan. As the figure indicates,
our first goal, under which we organize our work on challenges to the
well- being and

financial security of the American people, accounted for the largest share
of the costs. We expect this goal to continue to represent the largest
share of our costs. For fiscal 2003, GAO has requested a

budget of $457.8 million to maintain current operations to support the
Congress as outlined in our strategic plan. This funding level* which is 6
percent above our 2002 funding level* would allow us to support our
authorized level of 3,269 full- time- equivalent personnel and includes $4
million to meet nonrecurring requirements to enhance the safety and
security of GAO*s staff. The following table provides an overview

of how our budgetary and human capital resources will be allocated among
GAO*s four strategic goals.

6%

Goal 3

31%

Goal 4 Goal 2

24%

Goal 1

39%

Source: GAO.

Net Cost of Operations FY 2002 total $453 million

GAO*s Revised Fiscal 2003 Budget Strategic Goal

Dollars in millions

Full- time equivalent staff

Goal 1: Well- being and financial security of the American people $177.6
1,275 Goal 2; Changing security threats and challenges of globalization
119.5 854 Goal 3: Transforming the federal government*s role 141.0 985
Goal 4: Maximizing the value of GAO 19.7 1555 Total $457.8 3,269

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 31

MANAGING OUR RESOURCES

Almost 80 percent of GAO*s fiscal 2003 budget will provide for employee
compensation and benefits. The next largest portion of our budget* about
$55 million* is for contract services supporting both GAO*s mission work
and administrative operations, including information technology, training,
security, and building maintenance and operations services. During fiscal
2003, we plan to increase our investments in human capital, information
technology and security, and the safety and security of GAO*s people,

facilities, and other assets.

32 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

Overview of Financial Statements

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. GAO is
committed to fulfilling the internal

control objectives of 31 U. S. C. 3512, formerly the Federal Managers*
Financial Integrity Act (the Integrity Act) and the Federal Financial
Management Improvement Act of 1996 (the Improvement Act). Although GAO is
not subject to the acts, we comply voluntarily with the acts*
requirements. GAO*s management assesses compliance with these controls
through a series of comprehensive internal reviews, applying the
evaluation criteria in the Office of Management and Budget*s guidance for
implementing the Integrity Act. 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, 2002, 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, 2002. Additionally, an independent
auditor found that GAO maintained effective internal controls over
financial

reporting and compliance with laws and regulations. Consistent with GAO*s
evaluation, the auditor found no material internal control weaknesses.

GAO*s Audit Advisory Committee 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. As of September 30, 2002, the committee consisted of

Sheldon S. Cohen (Chairman), 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;

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

Katherine D. Ortega, 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.

Condensed financial statements for GAO follow. Our detailed statements
with their accompanying notes appear in the full- length version of this
report. Our

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 33

FINANCIAL STATEMENTS

financial statements for the fiscal year ended September 30, 2002, were
audited by an independent auditor, Cotton

& Co., LLP, which rendered unqualified opinions on our statements and on
the effectiveness of our internal controls over financial reporting and
compliance with laws and regulations. The auditor also reported that we
had substantially complied with the applicable requirements of the
Improvement Act and found no reportable instances of noncompliance with
selected provisions of laws and regulations. In the opinion of the
auditor, the financial statements are presented fairly in all material
respects and are in conformity with generally accepted accounting
principles.

34 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

FINANCIAL STATEMENTS U. S. General Accounting Office Condensed Balance
Sheet As of September 30, 2002 and 2001

(Dollars in thousands)

2002 2001 Assets

Intragovernmental assets including funds with the U. S. Treasury $62,442
$56,736 Property and equipment, net 63,888 66,318 Other 486 401

Total Assets $126,816 $123,455

Liabilities

Intragovernmental liabilities $16,845 $17,062 Accounts payable and
salaries and benefits 23,227 28,636 Accrued annual leave and other 29,357
27,836 Workers' compensation 12,331 7,954 Capital leases 9,968 5,360

Total Liabilities $91,728 $86,848

Net Position

Unexpended appropriations $29,925 $21,258 Cumulative results of operations
5,163 15,349

Total net position 35,088 36,607

Total Liabilities and Net Position $126,816 $123,455

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 35

FINANCIAL STATEMENTS U. S. General Accounting Office Condensed Statement
of Net Cost For Fiscal Years Ended September 30, 2002 and 2001

(Dollars in thousands)

2002 2001 Net Costs by Goal

Goal 1: Well- being/ financial security of American people $178,381
$161,112 Goal 2: Changing security threats/ challenges of global

Interdependence 110,537 93,440 Goal 3: Transforming the federal
government's role 140,967 139,459 Goal 4: Maximize the value of GAO 25,278
20,695 Less: reimbursable services not attributable to goals (2,128)
(1,652)

Net Cost of Operations $453,035 $413,054

36 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

FINANCIAL STATEMENTS U. S. General Accounting Office Condensed Statement
of Changes in Net Position For Fiscal Years Ended September 30, 2002 and
2001

(Dollars in thousands)

2002 Cumulative

Results of Operations

2002 Unexpended Appropriations

2001 Cumulative

Results of Operations

2001 Unexpended Appropriations

Balances, Beginning of Fiscal Year $15,349 $21,258 $18,761 $23,515

Budgetary Financing Sources

Current year appropriations - 421,844 - 384,020

Appropriations used 419,046 (419,046) 387,148 (387,148) Other - 5,869 -
871

Other Financing Sources

Employee benefit costs imputed to GAO 21,007 - 19,681 Other

2,796 - 2,813 Total

Financing Sources 442,849 8,667 409,642 (2,257)

Net Cost of Operations (453,035) - (413,054) Balances,

End of Fiscal Year $5,163 $29,925 $15,349 $21,258

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 37

FINANCIAL STATEMENTS U. S. General Accounting Office Condensed Statement
of Budgetary Resources For Fiscal Years Ended September 30, 2002 and 2001

(Dollars in thousands)

Budgetary Resources 2002 2001

Current year appropriations $421,844 $384,020 Tr ansfers of budget
authority 7,600 983 Unobligated appropriations, beginning of fiscal year
7,512 4,264 Reimbursements 5,687 3,676

Total Budgetary Resources $442,643 $392,943

Status of Budgetary Resources

Obligations incurred $426,714 $385,319 Unobligated appropriations, end of
fiscal year 14,198 7,512 Lapsed budget authority 1,731 112

Total Status of Budgetary Resources $442,643 $392,943

Relationship of Obligations to Outlays

Obligations incurred $426,714 $385,319 Obligated balance, net - beginning
of fiscal year 48,970 50,851 Less: Obligated balance, net - end of fiscal
year (47,856) (48,970)

Total Outlays $427,828 $387,200

Outlays

Disbursements $427,828 $387,200 Collections (5,687) (3,676)

Net Outlays $422,141 $383,524

38 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

FINANCIAL STATEMENTS U. S. General Accounting Office Condensed Statement
of Financing For Fiscal Years Ended September 30, 2002 and 2001

(Dollars in thousands)

Resources Used to Finance Activities 2002 2001 Budgetary Resources
Obligated

Obligations incurred $426,714 $385,319 Less: Reimbursements (5,687)
(3,676) Net Obligations 421,027 381,643

Other Resources

Employee benefit costs imputed to GAO 21,007 19,681 Other 2,796 2,813 Net
other resources used to finance activities 23,803 22,494

Total resources used to finance activities 444,830 404,137

Resources Used to Finance Items Not Part of the Net Cost of Operations

Net (increase) decrease in unliquidated obligations (1,980) 5,505 Costs
capitalized on the balance sheet (13,180) (13,983) Total resources used to
finance items not part of the net cost of

operations (15,160) (8,478)

Total resources used to finance the net cost of operations 429,670 395,659

Costs That Require Resources in Future Periods

Expenses to be funded by future appropriations 6,213 298

Costs That Do Not Require Resources

Depreciation 17,152 17,097

Net Cost of Operations $453,035 $413,054

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 39

Independent Auditor*s Report

333 NORTH FAIRFAX STREET SUITE 401 ALEXANDRIA, VIRGINIA 22314 703/ 836/
6701 FAX 703/ 836/ 0941 WWW. COTTONCPA. COM DCOTTON@ COTTONCPA. COM DAVID
L. COTTON, CPA, CFE, CGFM . CHARLES HAYWARD, CPA, CFE, CISA . MICHAEL W.
GILLESPIE, CPA, CFE . CATHERINE L. NOCERA, CPA, CISA MATTHEW H. JOHNSON,
CPA, CGFM . SAM HADLEY, CPA, CGFM . COLETTE Y. WILSON, CPA . ALAN
ROSENTHAL, CPA established 1981

Independent Auditor s Report We audited the General Accounting Office*s
(GAO) Balance Sheets as of September 30, 2002, and 2001, and the related
Statements of Net Cost, Changes in Net Position, Budgetary Resources, and
Financing for the years then ended. In our report dated December 11, 2002,
we stated that we found: The 2002 and 2001 financial statements referred
to above are fairly presented, in all material respects, in conformity
with U. S. generally accepted accounting principles, GAO maintained
effective internal control over financial reporting (including
safeguarding of assets) and compliance with laws and regulations as of
September 30, 2002,

GAO*s financial management systems substantially complied with the
applicable requirements of the Federal Financial Management Improvement
Act of 1996 (FFMIA), and

No reportable noncompliance with laws and regulations tested. In our
opinion, the information set forth in the accompanying condensed financial
statements is fairly presented, in all material respects, in relation to
the financial statements from which it has been derived.

We performed our audit and examinations in accordance with Government
Auditing Standards , U. S. generally accepted auditing standards, the
American Institute of Certified Public Accountants* attestation standards,
and Office of Management and Budget (OMB) Bulletin No. 01- 02, Audit
Requirements for Federal Financial Statements.

With respect to our opinion on internal control, misstatements, losses, or
noncompliance may nevertheless occur and not be detected because of
inherent limitations in internal control. Also, projections of any
evaluation of internal control to future periods are subject to the risk
that internal control may become inadequate as the result of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

With respect to our opinion on GAO*s financial management systems*
compliance with FFMIA, our examination does not provide a legal
determination of GAO*s financial management systems compliance with
specified requirements. We are responsible for testing compliance with
selected provisions of laws and regulations that have a direct and
material effect on the financial statements. We did not test compliance
with all laws and regulations applicable to GAO. We limited our tests of
compliance to those laws and regulations required by OMB audit guidance
that we deemed applicable to the financial statements for the fiscal year
ended September 30, 2002. We caution that noncompliance may occur and not
be detected by these tests and that such testing may not be sufficient for
other purposes. Our conclusion on compliance with laws and regulations is
intended solely for the information and use of the management of GAO, OMB,
and

Congress and is not intended to be, and should not be, used by anyone
other than these specified parties. However, this report is a matter of
public record and its distribution is not limited.

COTTON & COMPANY LLP Charles Hayward, CPA Alexandria, Virginia December
11, 2002

40 GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002

Memorandum Date: November 27, 2002

To: Comptroller General

From: Inspector General * Frances Garcia

Subject: Management Challenges We have reviewed management*s assessment of
the management challenges. Based on our work and institutional knowledge,
we agree that human capital, physical security, and information security
are the management challenges that may affect our performance. We are in
agreement with management*s assessment of progress made in addressing
these challenges.

In addition, we reviewed all fiscal 2002 accomplishment reports claiming
financial benefits of $1 billion or more and found that GAO has a
reasonable basis for claiming these benefits. We plan to review the
internal controls for several key performance measures in fiscal 2003.

GAO PERFORMANCE AND ACCOUNTABILITY HIGHLIGHTS 2002 41

Image Sources

This section contains credit and copyright information for images and
graphics in this product, as appropriate, when that information was not
listed adjacent to the image or graphic where presented.

Front cover: GAO (flag), Digital Stock (Capitol), Library of Congress*s
Historic American Engineering Record by Jet Lowe (Statue of Liberty).

Inside front cover: U. S. National Archives and Records Administration
(Bill of Rights, Constitution, Declaration of Independence documents); GAO
(Capitol, flag). Pages 6 & 7 (background images): GAO (flag, Capitol); (c)
1999

Corel Corp. All rights reserved (Statue of Liberty). Pages 6 & 7 (left to
right): (c) 1996 Stock Photography Online (classroom); GAO (password
screen); (c) 1999 Getty Images, Inc. (vaccination); GAO (security scan);
Amtrak (Acela train); GAO

(security gate and nest egg); (c) 1999 Getty Images, Inc. (voters); (c)
1999 PhotoDisc, Inc. (powerlines); Dept. of Defense (missile, soldier).

INTEGRITY RELIABILITY ACCOUNTABILITY

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