Fiscal Year 2005 Budget Request: U.S. General Accounting Office  
(04-MAR-04, GAO-04-474T).					 
                                                                 
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. GAO's work covers virtually every area in	 
which the federal government is or may become involved, anywhere 
in the world. Perhaps just as importantly, our work sometimes	 
leads us to sound the alarm over problems looming just beyond the
horizon--such as our nation's enormous long-term fiscal 	 
challenges--and help policymakers address these challenges in a  
timely and informed manner. This testimony focuses on GAO's (1)  
fiscal year 2003 performance and results; (2) efforts to maximize
our effectiveness, responsiveness, and value; and (3) budget	 
request for fiscal year 2005 to support the Congress and serve	 
the American people.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-474T					        
    ACCNO:   A09402						        
  TITLE:     Fiscal Year 2005 Budget Request: U.S. General Accounting 
Office								 
     DATE:   03/04/2004 
  SUBJECT:   Best practices					 
	     Best practices reviews				 
	     Agency missions					 
	     Information resources management			 
	     Budget authority					 
	     Budgets						 
	     Future budget projections				 
	     Cost control					 
	     National preparedness				 
	     Performance measures				 
	     Personnel management				 
	     Strategic planning 				 
	     Human capital					 

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GAO-04-474T

                    United States General Accounting Office

GAO Testimony

Before the Subcommittee on the Legislative Branch, Committee on
Appropriations, U.S. Senate

For Release on Delivery

Expected at 11:00 a.m. EST FISCAL YEAR 2005

Thursday, March 4, 2004

BUDGET REQUEST

                         U.S. General Accounting Office

Statement of David M. Walker, Comptroller General of the United States

GAO-04-474T

Mr. Chairman and Members of the Subcommittee:

I am pleased to appear before the subcommittee today, having recently
completed my fifth year as the Comptroller General of the United States
and head of the U.S. General Accounting Office. 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. In the years ahead, our
support to the Congress will likely prove even more critical because of
the pressures created by our nation's large and growing long-term fiscal
imbalance, which is driven primarily by known demographic and rising
health care trends. These pressures will require the Congress to make
tough choices regarding what the government does, how it does business,
and who will do the government's business in the future. GAO's work covers
virtually every area in which the federal government is or may become
involved, anywhere in the world. Perhaps just as importantly, our work
sometimes leads us to sound the alarm over problems looming just beyond
the horizon-such as our nation's enormous long-term fiscal challenges-and
help policymakers address these challenges in a timely and informed
manner.

My testimony today will focus on GAO's progress during my first five years
as Comptroller General. I will highlight our (1) fiscal year 2003
performance and results; (2) efforts to maximize our effectiveness,
responsiveness, and value; and (3) budget request for fiscal year 2005 to
support the Congress and serve the American people. Following is a
summary:

o  	The funding we received in fiscal year 2003 allowed us to conduct work
that addressed many of the difficult issues confronting the nation,
including diverse and diffuse security threats, selected government
transformation challenges, and the nation's long-term fiscal imbalance.
Perhaps the foremost challenge facing government decision makers this year
was ensuring the security of the American people. By providing
professional, objective, and nonpartisan information and analyses, we
helped inform the Congress and the executive branch agencies on key
security issues, such as the nature and scope of threats confronting the
nation's nuclear weapons facilities, its information systems, and all
areas of its transportation infrastructure, as well as the challenges
involved in creating the Department of Homeland Security. Our work was
also driven by changing demographic trends, which led us to focus on such
areas as the quality of care in the nation's nursing homes and the risks
to the government's single-employer pension

insurance program. Our work in these and other areas covered programs that
involve billions of dollars and touch millions of lives. Importantly, in
fiscal year 2003, GAO generated a $78 return for each $1 appropriated to
our agency.

o  	With the Congress's support, we have demonstrated that becoming world
class does not require a substantial increase in the number of staff
authorized, but rather maximizing the efficient and effective use of the
resources available to us. We have worked with you to obtain targeted
funding for areas critical to GAO such as information technology,
security, and human capital management. We are grateful to the Congress
for supporting our efforts through pending legislation that, if passed,
would give us additional human capital flexibilities. During tight budget
times, these flexibilities would allow us, among other things, more
options to deal with mandatory pay and related costs.

o  	In keeping with my belief that the federal government needs to
exercise a greater degree of fiscal discipline, we have kept our request
to $486 million, an increase of only 4.9 percent over fiscal year 2004. I
also applaud the Congress's request that all legislative branch agencies
examine how they could work toward a more transparent budget presentation.
In keeping with the Congress's intent, we are continuing our efforts to
revamp our budget presentation to make the linkages between funding and
program areas more clear. I hope that in the future the Congress will be
able to use such performance information to make tough choices on funding,
thereby enabling it to avoid acrossthe-board reductions that penalize
agencies that exercise fiscal discipline and generate high returns on
investment and real results.

Fiscal Year 2003 Performance and Results

GAO is a key source of professional and objective information and analysis
and, as such, plays a crucial role in supporting congressional decision
making. For example, in fiscal year 2003, as in other years, the
challenges that most urgently engaged the attention of the Congress helped
define our priorities. Our work on issues such as the nation's ongoing
battle against terrorism, Social Security and Medicare reform, the
implementation of major education legislation, human capital
transformations at selected federal agencies, and the security of key
government information systems all helped congressional members and their
staffs to develop new federal policies and programs and oversee ongoing
ones. Moreover, the Congress and the executive agencies took a wide range
of actions in fiscal year 2003 to improve government operations, reduce
costs, or better target budget authority based on GAO's

analyses and recommendations. In fiscal year 2003, GAO served the Congress
and the American people by helping to

o  	identify steps to reduce improper payments and credit card fraud in
government programs;

o  	restructure government and improve its processes and systems to
maximize homeland security;

o  	prepare the financial markets to continue operations if terrorism
recurs;

o  update and strengthen government auditing standards;

o  improve the administration of Medicare as it undergoes reform;

o  encourage and help guide federal agency transformations;

o  contribute to congressional oversight of the federal income tax system;

o  	identify human capital reforms needed at the Department of Defense,
the Department of Homeland Security, and other federal agencies;

o  	raise the visibility of long-term financial commitments and imbalances
in the federal budget;

o  	reduce security risks to information systems supporting the nation's
critical infrastructures;

o  oversee programs to protect the health and safety of today's workers;

o  	ensure the accountability of federal agencies through audits and
performance evaluations; and

o  	serve as a model for other federal agencies by modernizing our
approaches to managing and compensating our people.

To ensure that we are well positioned to meet the Congress's future needs,
we update our 6-year strategic plan every 2 years, consulting extensively
during the update with our clients in the Congress and with other experts
(see app. I for our strategic plan framework).

The following table summarizes selected performance measures and targets
for fiscal years 1999 through 2005. Highlights of our fiscal year 2003

accomplishments and their impact on the American public are shown in the
following sections.

Table 1: Selected Annual Measures and Targets for Fiscal Years 1999-2005

                              Dollars in billions

                                  Fiscal year

Performance measure

  1999 2000 2001 2002 2003 2003 2004 Actual Actual Actual Actual Target Actual
                                 Target Target

      Financial benefits $20.1 $23.2 $26.4 $37.7a $32.5 $35.4 $35.0 $36.0

               Other benefits 607 788 799 906 800 1,043 900b 900

Past recommendations
implemented 70% 78% 79% 79% 77% 82% 79%b 79%

New recommendations
made 940 1,224 1,563 1,950 1,250 2,175 1,500b 1,500

                 Testimonies 229 263 151 216 180 189 190 b 180

                   Timeliness 96% 96% 95% 96% 98% 97% 98% 98%

Source: GAO.

aChanges GAO made to its methodology for tabulating financial benefits in
part caused our results to increase beginning with the fiscal year 2002
results.

bOn the basis of past performance and expected future work, we revised
these targets after we issued our fiscal year 2004 performance plan. The
original targets were 820 for other benefits, 77 percent for past
recommendations implemented, 1,250 for new recommendations made, and 200
for testimonies.

                               Benefits Reported

Many of the benefits produced by our work can be quantified as dollar
savings for the federal government (financial benefits), while others
cannot (other benefits). Both types of benefits resulted from our efforts
to provide information to the Congress that helped (1) improve services to
the public, (2) provide information that resulted in statutory or
regulatory changes, and (3) improve core business processes and advance
governmentwide management reforms.

In fiscal year 2003, our work generated $35.4 billion in financial
benefits- a $78 return on every dollar appropriated to GAO. The funds made
available in response to our work may be used to reduce government
expenditures or reallocated by the Congress to other priority areas. Nine
accomplishments accounted for nearly $27.4 billion, or 77 percent, of our
total financial benefits for fiscal year 2003. Six of these
accomplishments totaled $25.1 billion. Table 2 lists selected major
financial benefits in fiscal year 2003 and describes the work contributing
to financial benefits over $500 million.

     Table 2: GAO's Selected Major Financial Benefits for Fiscal Year 2003

Dollars in millions

                               Description Amount

Financial benefits exceeding $1 billion

Updated the Consumer Price Index (CPI): Recommended that the Bureau of
Labor Statistics periodically update the expenditure weights of its market
basket of goods and services used to calculate the CPI to make it more
timely and representative of consumer expenditures. The Bureau agreed to
do this every 2 years, and the CPI for January 2002 reflected the new
weights. The adjustments have resulted in, among other things, lower
federal expenditures on programs like Social Security that use the CPI to
calculate benefits.

Eliminated Medicaid's upper payment limit loophole: Identified a weakness
in Medicaid's upper payment limit methodology that allowed states to make
excessive payments to local, government-owned nursing facilities and then
have the facilities return the payments to the states, creating the
illusion that they made large Medicaid payments in order to generate
federal matching payments. Closing the loophole prevented the federal
government from making significant federal matching payments to states
above those intended by Medicaid.

Made funds available for lighter-weight weapons systems: Identified the
Crusader artillery system as a duplicative weapons system that was
inconsistent with the Department of the Army's plans to transform itself
into a lightweight combat force. The Department of Defense (DOD)
terminated the Crusader program, resulting in costs avoided.

Reduced the cost of federal housing programs: Improved management of the
Department of Housing and Urban Development's unexpended balances
resulting in the recapture of unobligated funds.

Reduced the cost of DOD's services acquisition process: Examined the
acquisition practices of leading commercial companies and recommended a
more strategic approach for acquiring services at DOD, which was
implemented.

Avoided costs associated with an increase in the skilled nursing
facilities rate: Determined that the Congress's increase in the nursing
component of Medicare's daily rate for skilled nursing facilities had
little effect on increasing the ratios of nursing staff to patients in
these facilities. The nursing component increase expired on October 1,
2002, and despite arguments from the nursing facility industry, the
nursing component increase has not been reinstated.

$9,200

5,900

3,900

3,400 1,700 1,000

Selected financial benefits between $500 million and $1 billion

Recovered Supplemental Security Income (SSI) overpayments: Identified
weaknesses in the Social Security Administration's (SSA) efforts to
recover SSI overpayments that led to the development of SSA's automated
reconciliation process.

Reduced DOD's implementation risks and purchase costs for the Navy-Marine
Corps intranet: Highlighted the need for various management controls
related to the acquisition and implementation of the Navy-Marine Corps
intranet. As a result, DOD modified the Navy-Marine Corps intranet
contract and reduced contract amounts in fiscal year 2002 and fiscal year
2003, reduced program risks, and increased the likelihood that the program
will be acquired and implemented successfully.

Ensured Defense Emergency Response funds are better targeted: Identified
millions of dollars in unobligated DOD Emergency Response funding, a
portion of which the Congress rescinded or directed DOD to reallocate for
other fund purposes.

                                    990 780

                                      517

Source: GAO.

Many of the benefits that flow to the American people from our work cannot
be measured in dollar terms. During fiscal year 2003, we recorded a total
of 1,043 other benefits-up from 607 in fiscal year 1999. As shown in
appendix II, we documented instances where information we provided to the
Congress resulted in statutory or regulatory changes, where federal
agencies improved services to the public and where agencies improved core
business processes or governmentwide reforms were advanced.

These actions spanned the full spectrum of national issues, from securing
information technology systems to improving the performance of state child
welfare agencies. We helped improve services to the public by

o  	Strengthening the U.S. visa process as an antiterrorism tool. Our
analysis of the U.S. visa-issuing process showed that the Department of
State's visa operations were more focused on preventing illegal immigrants
from obtaining nonimmigrant visas than on detecting potential terrorists.
We recommended that State reassess its policies, consular staffing
procedures, and training program. State has taken steps to adjust its
policies and regulations concerning the screening of visa applicants and
its staffing and training for consular officers.

o  	Enhancing quality of care in nursing homes. In a series of reports and
testimonies since 1998, we found that, too often, residents of nursing
homes were being harmed and that programs to oversee nursing home quality
of care at the Centers for Medicare and Medicaid Services were not fully
effective in identifying and reducing such problems. In 2003, we found a
decline in the proportion of nursing homes that harmed residents but made
additional recommendations to further improve care.

o  	Making key contributions to homeland security. Drawing on an extensive
body of completed and ongoing work, we identified specific vulnerabilities
and areas for improvement to protect aviation and surface transportation,
chemical facilities, sea and land ports, financial markets, and
radioactive sealed sources. In response to our recommendations, the
Congress and cognizant agencies have undertaken specific steps to improve
infrastructure security and improve the assessment of vulnerabilities.

o  	Improving compliance with seafood safety regulations. We reported that
when Food and Drug Administration (FDA) inspectors identified serious
violations at seafood processing firms, it took FDA 73 days on average,
well above its 15-day target. Based on our recommendations, FDA now issues
warning letters in about 20 days.

We helped to change laws in the following ways:

o  	We highlighted the National Smallpox Vaccination program volunteers'
concerns about losing income if they sustained injuries from an
inoculation. As a result, the Smallpox Emergency Personnel Protection Act
of 2003 (Pub. L. No. 108-20) provides benefits and other

compensation to covered individuals injured in this way.

o  	We performed analyses that culminated in the enactment of the Postal
Civil Service Retirement System Funding Reform Act of 2003 (Pub. L. No.
108-18), which reduced USPS's pension costs by an average of $3 billion
per year over the next 5 years. The Congress directed that the first 3
years of savings be used to reduce USPS's debt and hold postage rates
steady until fiscal 2006.

We also helped to promote sound agency and governmentwide management by

o  	Encouraging and helping guide agency transformations. We highlighted
federal entities whose missions and ways of doing business require
modernized approaches, including the Postal Service and the Coast Guard.
Among congressional actions taken to deal with modernization issues, the
House Committee on Government Reform established a special panel on postal
reform and oversight to work with the President's Commission on the Postal
Service on recommendations for comprehensive postal reform. Our
recommendations to the Coast Guard led to better reporting by the Coast
Guard and laid the foundation for key revisions the agency intended to
make to its strategic plan.

o  	Helping to advance major information technology modernizations. Our
work has helped to strengthen the management of the complex
multibillion-dollar information technology modernization program at the
Internal Revenue Service (IRS) to improve operations, promote better
service, and reduce costs. For example, IRS implemented several of our
recommendations to improve software acquisition, enterprise architecture
definition and implementation, and risk management and to better balance
the pace and scope of the program with IRS's capacity to effectively
manage it.

o  	Supporting controls over DOD's credit cards. In a series of reports
and testimonies beginning in 2001, we highlighted pervasive weaknesses in
DOD's overall credit card control environment, including the proliferation
of credit cards and the lack of specific controls over its
multibillion-dollar purchase and travel card programs. DOD has taken many
actions to reduce its vulnerabilities in this area.

Benefits to State and Local While our primary focus is on improving
government operations at the

Governments 	federal level, sometimes our work has an impact at the state
and local levels. To the extent feasible, in conducting our audits and
evaluations, we

cooperate with state and local officials. At times, our work results will
have local applications, and local officials will take advantage of our
efforts. We are conducting a pilot to determine the feasibility of
measuring the impact of our work on state and local governments. The
following are examples we have collected during our pilot where our work
is relevant for state and local government operations:

o  	Identity theft. Effective October 30, 1998, the Congress enacted the
"Identity Theft and Assumption Deterrence Act of 1998" prohibiting the
unlawful use of personal identifying information, such as names, Social
Security numbers, and credit card numbers. GAO report GGD-98-100BR is
mentioned prominently in the act's legislative history. Subsequently, a
majority of states have enacted identity theft laws. Sponsors of some of
these state enactments-Alaska, Florida, Illinois, Michigan, Pennsylvania,
and Texas-mentioned the federal law and/or our report. For example, in
1999, Texas enacted SB 46, which is modeled after the federal law. Justice
officials said that enactment of state identity theft laws has
multijurisdictional benefits to all levels of law enforcement- federal,
state, and local.

o  	Pipeline safety. Our report GAO-RCED-00-128, Pipeline Safety: The
Office of Pipeline Safety Is Changing How It Oversees the Pipeline
Industry, found that the Department of Transportation's Office of Pipeline
Safety was reducing its reliance on states to help oversee the safety of
interstate pipelines. The report stated that allowing states to
participate in this oversight could improve pipeline safety. As a result,
the Office of Pipeline Safety modified its Interstate Pipeline Oversight
Program for 2001-2002 to allow greater opportunities for state
participation.

o  	Temporary Assistance for Needy Families Grant Program. We reported on
key national and state labor market statistics and changes in the levels
of cash assistance and employment activities in five selected states. We
also highlighted the fact that the five states had faced severe fiscal
challenges and had used reserve funds to augment their spending above the
amount of their annual Temporary Assistance for Needy Families block grant
from the federal government.

GAO's High-Risk Program 	Issued to coincide with the start of each new
Congress, our high-risk update lists government programs and functions in
need of special attention or transformation to ensure that the federal
government functions in the most economical, efficient, and effective
manner possible. This is especially important in light of the nation's
large and growing longterm fiscal imbalance. Our latest report, released
in January 2003,

spotlights more than 20 troubled areas across government.1 Many of these
areas involve essential government services, such as Medicare, housing
programs, and postal service operations that directly affect the lives and
well-being of the American people.

Our high-risk program, which we began in 1990, includes five high-risk
areas added in 2003:

o  	implementing and transforming the new Department of Homeland Security,

o  modernizing federal disability programs,

o  federal real property,

o  Medicaid program, and

o  	Pension Benefit Guaranty Corporation's (PBGC) single-employer pension
insurance program.2

In fiscal year 2003, we also removed the high-risk designation from two
programs:

o  	the Social Security Administration's Supplemental Security Income
program, and

o  	Asset Forfeiture programs administered by the U.S. Departments of
Justice and the Treasury.

In fiscal 2003, we issued 208 reports and delivered 112 testimonies
related to high-risk areas, and our related work resulted in financial
benefits totaling almost $21 billion. Our sustained focus on high-risk
problems also has helped the Congress enact a series of governmentwide
reforms to strengthen financial management, improve information
technology, and create a more results-oriented and accountable federal
government. The President's Management Agenda for reforming the federal
government mirrors many of the management challenges and program risks
that we

1U.S. General Accounting Office, High Risk Series: An Update, GAO-03-119
(Washington, D.C.: January 2003).

2We added this issue in July 2003 after we published the January 2003
update.

have reported on in our performance and accountability series and highrisk
updates, including a governmentwide initiative to focus on strategic
management of human capital.

Following GAO's designation of federal real property as a high-risk issue,
the Office of Management and Budget (OMB) has indicated its plans to add
federal real property as a new program initiative under the President's
Management Agenda. OMB recently issued an executive order on federal real
property that addresses many of GAO's concerns, including the need to
better emphasize the importance of government property to effective
management. We have an ongoing dialog with OMB regarding the high-risk
areas, and OMB is working with agency officials to address many of our
high-risk areas. Some of these high-risk areas may require additional
authorizing legislation as one element of addressing the problems.

Our fiscal year 2003 high-risk list is shown in table 3.

Table 3: GAO's 2003 High-Risk List

Year designated High-risk area high-risk

Addressing challenges in broad-based transformations

Strategic human capital managementa 2001

U.S. Postal Service transformation efforts and long-term outlooka 2001

Protecting information systems supporting the federal government 1997 and
the nation's critical infrastructures

Implementing and transforming the new Department of Homeland 2003 Security

Modernizing federal disability programsa 2003

Federal real propertya 2003

Ensuring major technology investments improve services

Federal Aviation Administration (FAA) air traffic control 1995
modernization

IRS business systems modernization 1995

DOD systems modernization 1995

                    Providing basic financial accountability

DOD financial management 1995

Forest Service financial management 1999

FAA financial management 1999

IRS financial management 1995

Reducing inordinate program management risks

Medicare programa 1990

Medicaid programa 2003

Earned income credit noncompliance 1995

Collection of unpaid taxes 1990

DOD support infrastructure management 1997

DOD inventory management 1990

HUD single-family mortgage insurance and rental assistance 1994 programs

Student financial aid programs 1990

Pension Benefit Guaranty Corporation's (PBGC) single-employer 2003 pension
insurance program

Year designated High-risk area high-risk

Managing large procurement operations more efficiently

DOD weapon systems acquisition 1990

DOD contract management 1992

Department of Energy contract management 1990

NASA contract management 1990

Source: GAO.

aAdditional authorizing legislation is likely to be required as one
element of addressing this high-risk area.

                                  Testimonies

During fiscal year 2003 GAO executives testified at 189 congressional
hearings-sometimes with very short notice-covering a wide range of complex
issues. Testimony is one of our most important forms of communication with
the Congress; the number of hearings at which we testify reflects, in
part, the importance and value of our expertise and experience in various
program areas and our assistance with congressional decision making. The
following figure highlights, by GAO's three external strategic goals for
serving the Congress, examples of issues on which we testified during
fiscal year 2003.

Figure 1: Selected Issues on Which GAO Testified during Fiscal 2003

ELECTED ISSUES ON HICH GAO

SELECTED SSUES ON WHICH GAO ESTIFIED DURING ISCAL 2003

TESTIFIED URING FISCAL 2003

GOAL 1 Well-Being and Financial Security of the American People

GOAL 1

Nursing home quality

VA health care challenges

Medicare fiscal challenges

SARS

Bioterrorism preparedness

Social Security pension loophole

Risks facing PBGC's single-employer pension program

Social Security reform

Foster care management
Teacher training
Research on Head Start's effectiveness
Changes to VA's Disability Criteria
Unemployment insurance
Workforce Investment Act
FBI reorganization
Transportation for the disadvantaged

Coast Guard transformation
Postal Service transformation
Highway safety
FAA reauthorization
Restoring South Florida ecosystem
Handling invasive species
Postal Service anthrax testing
Social Security disability reviews

Changing Security Threats and Challenges of Globalization

  GOAL 2

Combating terrorism
Chemical and biological terrorism
DOD human capital reforms
Major weapons systems
Modernizing DOD's business systems
Conditions of overseas diplomatic facilities
Russia's nonproliferation program
Customs radiation detection devices

Nuclear security challenges
Border security technology
Agriculture's debt collection challenges
Gulf War illnesses
Preparing financial markets for terrorism
Rightsizing U.S. overseas presence
Mutual funds

GOAL 3 Transforming the Federal Government's Role

GOAL 3

Federal government restructuring efforts
Federal paperwork burden
Federal performance management systems
Implementing the President's Management Agenda
Fragmented federal grant system

Performance budgeting
Effective use of federal funds

Source: See Image Sources..

Paid tax preparer services

Federal sourcing and acquisition

Strategies to address the federal government's improper payments

Government credit card vulnerabilities

Governmentwide financial management reforms

OMB's E-government initiatives

Maximizing GAO's Effectiveness, Responsiveness, and Value

While the vast majority of our products-97 percent-were completed on time
for our congressional clients and customers in fiscal year 2003, we
slightly missed our target of providing 98 percent of them on the promised
day. We track the percentage of our products that are delivered on the day
we agreed to with our clients because it is critical that our work be done
on time for it to be used by policymakers. Though our 97 percent
timeliness rate was a percentage point improvement over our fiscal year
2002 result, it was still a percentage point below our goal. As a result,
we are taking steps to improve our performance in the future by
encouraging matrix management practices among the teams supporting various
strategic goals and identifying early those teams that need additional
resources to ensure the timely delivery of their products to our clients.

The results of our work were possible, in part, because of the changes we
have made to maximize the value of GAO. With the Congress's support, we
have demonstrated that becoming world class does not require substantial
staffing increases, but rather maximizing the efficient and effective use
of the resources available to us. Since I came to GAO, we have developed a
strategic plan, realigned our organizational structure and resources, and
increased our outreach and service to our congressional clients. We have
developed and revised a set of congressional protocols, developed agency
and international protocols, and better refined our strategic and annual
planning and reporting processes. We have worked with you to make changes
in areas where we were facing longer-term challenges when I came to GAO,
such as in the critical human capital, information technology, and
physical security areas. We are grateful to the Congress for supporting
our efforts through pending legislation that, if passed, would give us
additional human capital flexibilities that will allow us, among other
things, to move to an even more performance-based compensation system and
help to better position GAO for the future. As part of our ongoing effort
to ensure the quality of our work, this year a team of international
auditors will perform a peer review of GAO's performance audit work issued
in calendar year 2004.

Making GAO's Work We continued our policy of proactive outreach to our
congressional Accessible to the American clients, the press, and the
public to enhance the visibility of our products. People On a daily basis
we compile and publish a list of our current reports. This

feature has more than 18,000 subscribers, up 3,000 from last year. We also
produced an update of our video on GAO, "Impact 2003." Our external Web
site continues to grow in popularity, having increased the number of hits
in fiscal year 2003 to an average of 3.4 million per month, 1 million

more per month than in fiscal year 2002. In addition, visitors to the site
are downloading an average of 1.1 million files per month. As a result,
demand for printed copies of our reports has dramatically declined,
allowing us to phase out our internal printing capability.

Promoting Sound Financial Management and Improving Strategic Management

For the 17th consecutive year, GAO's financial statements have received an
unqualified opinion from our independent auditors. We prepared our
financial statements for fiscal year 2003 and the audit was completed a
month earlier than last year and a year ahead of the accelerated schedule
mandated by OMB. For a second year in a row, the Association of Government
Accountants awarded us a certificate of excellence; this year the award
was for the fiscal year 2002 annual performance and accountability report.

Aligning GAO's Workforce and Mission Needs

Given our 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.
Because we spend about 80 percent of our resources on our people, we need
excellent human capital management to meet the expectations of the
Congress and the nation. Accordingly, in the past few years, we have
expanded our college recruiting and hiring program and focused our overall
hiring efforts on selected skill needs identified during our workforce
planning effort and to meet succession planning needs. For example, we
identified and reached prospective graduates with the required skill sets
and focused our intern program on attracting those students with the skill
sets needed for our analyst positions. Our efforts in this area were
recognized by Washingtonian magazine, which listed GAO as one of the
"Great Places to Work" in its November 2003 issue. Continuing our efforts
to promote the retention of staff with critical skills, we offered
qualifying employees in their early years at GAO student loan repayments
in exchange for their signed agreements to continue working at GAO for 3
years.

We also have begun to better link compensation, performance, and results.
In fiscal year 2002 and 2003, we implemented a new performance appraisal
system for our analyst, attorney, and specialist staff that links
performance to established competencies and results. We evaluated this
system in fiscal year 2003 and identified and implemented several
improvements, including conducting mandatory training for staff and
managers on how to better understand and apply the performance standards,
and determining appropriate compensation. We will implement a new
competency based

appraisal system, pay banding and a pay for performance system for our
administrative professional and support services staff this fiscal year.

To train our staff to meet the new competencies, we developed an outline
for a new competency-based and role- and task-driven learning and
development curriculum that identified needed core and elective courses
and other learning resources. We also completed several key steps to
improve the structure of our learning organization, including hiring a
Chief Learning Officer and establishing a GAO Learning Board to guide our
learning policy, to set specific learning priorities, and to oversee the
implementation of a new training and development curriculum.

We also drafted our first formal and comprehensive strategic plan for
human capital to communicate both internally and externally our strategy
for enhancing our standing as a model professional services organization,
including how we plan to attract, retain, motivate, and reward a
highperforming and top-quality workforce. We expect to publish the final
plan this fiscal year. Our Employee Advisory Council is now a fully
democratically elected body that advises GAO's senior executives on
matters of interest to our staff. We also established a Human Capital
Partnership Board to gather opinions of a cross section of our employees
about upcoming initiatives and ongoing programs. The 15-member board will
assist our Human Capital Office in hearing and understanding the
perspectives of its customers-our staff.

In addition, we will continue efforts to be ready to implement the new
human capital authorities included in legislation currently pending before
the Senate. This legislation, if passed, would give us more flexibility to
deal with mandatory pay and related costs during tight budgetary times.

Managing Our Information Technology Resources

Our resourceful management of information technology was recognized when
we were named one of the "CIO (Chief Information Officer) 100" by CIO
Magazine, recognizing excellence in managing our information technology
(IT) resources through "creativity combined with a commitment to wring the
most value from every IT dollar." We were one of three federal agencies
named, selected from over 400 applicants, largely representing private
sector firms. In particular, we were cited for excellence in asset
management, staffing and sourcing, and building partnerships, and for
implementing a "best practice"-staffing new projects through internal
"help wanted" ads.

We have expanded and enhanced the IT Enterprise Architecture program we
began in fiscal year 2002. We formally established an Enterprise
Architecture oversight group and steering committee to prioritize our IT
business needs, provide strategic direction, and ensure linkage between
our IT Enterprise Architecture and our capital investment process. We
implemented a number of user friendly Web-based systems to improve our
ability to obtain feedback from our congressional clients, facilitate
access to our information for the external customer, and enhance
productivity for the internal customer. Among the new and enhanced
Web-based systems were

o  	an application to track and access General Counsel work by goal, team,
and attorney;

o  	a Web site on emerging trends and issues to provide information for
our teams and offices as they consult with the Congress; and

o  	an automated tracking application for our staff to monitor the status
of products to be published.

In addition, we developed and released a system to automate an existing
data collection and analysis process, greatly expanding our annual
capacity to review DOD weapons systems programs. As a result, we were able
to increase staff productivity and efficiency and enhance the information
and services provided to the Congress. In the past, we were able to
complete a review annually of eight DOD weapons systems programs. In
fiscal year 2003 we reviewed 30 programs and reported on 26. Within the
next year, that number will grow to 80 per year.

Increasing Information Security

We recognize the ongoing, ever present threat to our shared IT systems and
information assets and continue to promote awareness of this threat,
maintain vigilance, and develop practices that protect information assets,
systems, and services. As part of our continuing emergency preparedness
plan, we upgraded the level of telecommunications services between our
disaster recovery site and headquarters, expanded our remote connectivity
capability, and improved our response time and transmission speed. To
further protect our data and resources, we drafted an update to our
information systems security policy, issued network user policy
statements, hardened our internal network security, expanded our intrusion
detection capability, and addressed concerns raised during the most recent
network vulnerability assessment.

We plan to continue initiatives to ensure a secure environment, detect
intruders in our systems, and recover in the event of a disaster. We are
also continuing to make the investments necessary to enhance the safety
and security of our staff, facilities, and other assets for the mutual
benefit of GAO and the Congress. In addition, we plan to continue
initiatives designed to further increase employees' productivity,
facilitate knowledge sharing, and maximize the use of technology through
tools available at the desktop and by reengineering the systems that
support our business processes.

Providing a Safe and Secure Workplace

On the basis of recommendations resulting from our physical security
evaluation and threat assessment, we continue to implement initiatives to
improve the security and safety of our building and personnel. In terms of
the physical plant improvements, we upgraded the headquarters fire alarm
system and installed a parallel emergency notification system. We
completed a study of personal protective equipment, and based on the
resulting decision paper, we have distributed escape hoods to GAO staff.
We have also made a concerted effort to secure the perimeter and access to
our building. Several security enhancements will be installed in fiscal
year 2004, such as vehicle restraints at the garage ramps; ballistic-rated
security guard booths; vehicle surveillance equipment at the garage
entrances; and state-of-the-art electronic security comprising intrusion
detection, access control, and closed-circuit surveillance systems.

Preparing for Peer Review

GAO's Fiscal Year 2005 Request to Support the Congress

A team of international auditors, led by the Office of the Auditor General
of Canada, will conduct a peer review for calendar year 2004 of our
performance audit work. This entails reviewing our policies and internal
controls to assess the compliance of GAO's work with government audit
standards. The review team will provide GAO with management suggestions to
improve our quality control systems and procedures. Peer reviews will be
conducted every 3 years.

GAO is requesting budget authority of $486 million for fiscal year 2005.
The requested funding level will allow us to maintain our base authorized
level of 3,269 full-time equivalent (FTE) staff to serve the Congress,
maintain operational support at fiscal year 2004 levels, and continue
efforts to enhance our business processes and systems. This fiscal year
2005 budget request represents a modest increase of 4.9 percent over our
fiscal year 2004 projected operating level, primarily to fund mandatory
pay and related costs and estimated inflationary increases. The requested

increase reflects an offset of almost $5 million from nonrecurring fiscal
year 2004 initiatives, including closure of our internal print plant, and
$1 million in anticipated reimbursements from a planned audit of the
Securities and Exchange Commission's (SEC) financial statements. Our
requested fiscal year 2005 budget authority includes about $480 million in
direct appropriations and authority to use $6 million in estimated revenue
from reimbursable audit work and rental income.

To achieve our strategic goals and objectives for serving the Congress, we
must ensure that we have the appropriate human capital, fiscal, and other
resources to carry out our responsibilities. Our fiscal year 2005 request
would enable us to sustain needed investments to maximize the productivity
of our workforce and to continue addressing key management challenges:
human capital, and information and physical security. We will continue to
take steps to "lead by example" within the federal government in these and
other critical management areas.

If the Congress wishes for GAO to conduct technology assessments, we are
also requesting $545,000 to obtain four additional FTEs and contract
assistance and expertise to establish a baseline technology assessment
capability. This funding level would allow us to conduct one assessment
annually and avoid an adverse impact on other high priority congressional
work.

A summary of the requested changes between our fiscal year 2004 and 2005
budget is reflected in table 4:

       Table 4: Summary of Requested Changes for Fiscal Year 2005 Budget

Budget category FTEs Amount

Cumulative percentage change

FY 2004 resourcesa
Appropriation
Estimated revenue (offsetting collections)

Total FY 2004 resources 3,269

$457,606 5,971

$463,577 FY 2005 requested changes

Mandatory pay and related costs
Costs to maintain current operating levels
Nonrecurring FY 2004 costs
New financial audit responsibility for SEC
Continuing improvements/new initiatives

                                    $21,821

                                     4,007

                                    (4,499)

                                    (1,000)

                                 2,203 4.7 5.5

Subtotal-increased funding required to support GAO operations

$22,532

FY 2005 budget authority required to support GAO operations

Less: Estimated revenue (offsetting collections)

FY 2005 appropriation

                                     3,269

                                     3,269

                                    $486,109

                                    (6,119)

                                    $479,990

Establish a baseline technology 4 $545 assessment capability

Total FY 2005 appropriation 3,273 $480,535

Concluding Remarks

Source: GAO.

aIncludes recision of 0.59 percent ($2,751).

We are grateful to the Congress for providing support and resources that
have helped us in our quest to be a world class professional services
organization. The funding we received in fiscal year 2004 is allowing us
to conduct work that addressed many difficult issues confronting the
nation. By providing professional, objective, and nonpartisan information
and analyses, we help inform the Congress and executive branch agencies on
key issues, and covered programs that continue to involve billions of
dollars and touch millions of lives.

I am proud of the outstanding contributions made by GAO employees as they
work to serve the Congress and the American people. In keeping with my
strong belief that the federal government needs to exercise fiscal
discipline, our budget request for fiscal year 2005 is modest, but would
maintain our ability to provide first class, effective, and efficient
support to the Congress and the nation to meet 21st century challenges in
these critical times.

This concludes my statement. I would be pleased to answer any questions
the Members of the Subcommittee may have.

Appendix II: GAO Accomplishments That Helped Change Laws, Improve
Services, or Promote Sound Management

           GAO Efforts That Helped to Change Laws and/or Regulations

Consolidated Appropriations Resolution, 2003, Public Law 108-7. The law
includes GAO's recommended language that the administration's competitive
sourcing targets be based on considered research and sound analysis.

Smallpox Emergency Personnel Protection Act of 2003, Public Law 108-20.
GAO's report on the National Smallpox Vaccination program highlighted
volunteers' concerns about losing income if they sustained injuries from
an inoculation. This statute provides benefits and other compensation to
covered individuals injured in this way.

Postal Civil Service Retirement System Funding Reform Act of 2003, Public
Law 108-18. Analyses performed by GAO and OPM culminated in the enactment
of this law that reduces USPS's pension costs by an average of $3 billion
per year over the next 5 years. The Congress directed that the first 3
years of savings be used to reduce USPS's debt and hold postage rates
steady until fiscal 2006.

Accountability of Tax Dollars Act of 2002, Public Law 107-289. A GAO
survey of selected non-CFO Act agencies demonstrated the significance of
audited financial statements in that community. GAO provided legislative
language that requires 70 additional executive branch agencies to prepare
and submit audited annual financial statements.

Emergency Wartime Supplemental Appropriations Act, 2003, Public Law
108-11. GAO assisted congressional staff with drafting a provision that
made available up to $64 million to the Corporation for National and
Community Service to liquidate previously incurred obligations, provided
that the Corporation reports overobligations in accordance with the
requirements of the Antideficiency Act.

Intelligence Authorization Act for Fiscal Year 2003, Public Law 107-306.
GAO recommended that the Director of Central Intelligence report annually
on foreign entities that may be using U. S. capital markets to finance the
proliferation of weapons, including weapons of mass destruction, and this
statute instituted a requirement to produce the report.

           GAO Efforts That Helped to Improve Services to the Public

Strengthening the U.S. Visa Process as an Antiterrorism Tool. Our analysis
of the U.S. visa-issuing process showed that the Department of State's
visa operations were more focused on preventing illegal immigrants from
obtaining nonimmigrant visas than on detecting potential terrorists. We
recommended that State reassess its policies, consular staffing
procedures, and training program. State has taken steps to adjust its
policies and regulations concerning the screening of visa applicants and
its staffing and training for consular officers.

Enhancing Quality of Care in Nursing Homes. In a series of reports and
testimonies since 1998, we found that, too often, residents of nursing
homes were being harmed and that programs to oversee nursing home quality
of care at the Centers for Medicare and Medicaid Services were not fully
effective in identifying and reducing such problems. In 2003, we found a
decline in the proportion of nursing homes that harmed residents but made
additional recommendations to further improve care.

Making Key Contributions to Homeland Security. Drawing upon an extensive
body of completed and ongoing work, we identified specific vulnerabilities
and areas for improvement to protect aviation and surface transportation,
chemical facilities, sea and land ports, financial markets, and
radioactive sealed sources. In response to our recommendations, the
Congress and cognizant agencies have undertaken specific steps to improve
infrastructure security and improve the assessment of vulnerabilities.

Improving Compliance with Seafood Safety Regulations. We reported that
when Food and Drug Administration (FDA) inspectors identified serious
violations at seafood processing firms, it took FDA 73 days on average,
well above its 15-day target. Based on our recommendations, FDA now issues
warning letters in about 20 days.

Strengthening Labor's Management of the Special Minimum Wage Program. Our
review of this program resulted in more accurate measurement of program
participation and noncompliance by employees and prevented inappropriate
payment of wages below the minimum wage to workers with disabilities.

Reducing National Security Risks Related to Sales of Excess DOD Property.
We reported that DOD did not have systems and procedures in place to
maintain visibility and control over 1.2 million chemical and biological
protective suits and certain equipment that could be used to produce crude
forms of anthrax. Unused suits (some of which were defective) and
equipment were declared excess and sold over the Internet. DOD has taken
steps to notify state and local responders who may have purchased
defective suits. Also, DOD has taken action to restrict
chemical-biological suits to DOD use only-an action that should eliminate
the national security risk associated with sales of these sensitive
military items. Lastly, DOD has suspended sales of the equipment in
question pending the results of a risk assessment.

GAO Efforts That Helped to Change Laws and/or Regulations

Protecting the Retirement Security of Workers. We alerted the Congress to
potential dangers threatening the pensions of millions of American workers
and retirees. The pension insurance program's ability to protect workers'
benefits is increasingly being threatened by long-term, structural
weaknesses in the private-defined, pension benefit system. A comprehensive
approach is needed to mitigate or eliminate the risks.

Improving Mutual Fund Disclosures. To improve investor awareness of mutual
fund fees and to increase price competition among funds, we identified
alternatives for regulators to increase the usefulness of fee information
disclosed to investors. Early in fiscal year 2003, the Securities and
Exchange Commission issued proposed rules to enhance mutual fund fee
disclosures using one of our recommended alternatives.

GAO Efforts That Helped to Promote Sound Agency and Governmentwide
Management

Encouraging and Helping Guide Agency Transformations. We highlighted
federal entities whose missions and ways of doing business require
modernized approaches, including the Postal Service, and the Coast Guard.
Among congressional actions taken to deal with modernization issues, the
House Committee on Government Reform established a special panel on postal
reform and oversight to work with the President's Commission on the Postal
Service on recommendations for comprehensive postal reform. We also
reported this year on the Coast Guard's ability to effectively carry out
critical elements of its mission, including its homeland security
responsibilities. We recommended that the Coast Guard develop a blueprint
for targeting its resources to its various mission responsibilities and a
better reporting mechanism for informing the Congress on its
effectiveness. Our recommendations led to better reporting by the Coast
Guard and laid the foundation for key revisions the agency intended to
make to its strategic plan.

Helping DOD Recognize and Address Business Modernization Challenges.
Several times we have reported and testified on the challenges DOD faces
in trying to successfully modernize about 2,300 business systems, and we
made a series of recommendations aimed at establishing the modernization
management capabilities needed to be successful in transforming the
department. DOD has implemented some key architecture management
capabilities, such as assigning a chief architect and creating a program
office, as well as issuing the first version of its business enterprise
architecture in May 2003. In addition, DOD has revised its system
acquisition guidance. By implementing our recommendations, DOD is
increasing the likelihood that its systems investments will support
effective and efficient business operations and provide for timely and
reliable information for decision making.

Helping to Advance Major Information Technology Modernizations. Our work
has helped to strengthen the management of the complex,
multibillion-dollar information technology modernization program at the
Internal Revenue Service (IRS) to improve operations, promote better
service, and reduce costs. For example, IRS implemented several of our
recommendations to improve software acquisition, enterprise architecture
definition and implementation, and risk management and to better balance
the pace and scope of the program with its capacity to effectively manage
it.

Improving Internal Controls and Accountability over Agency Purchases. Our
work examining purchasing and property management practices at FAA
identified several weaknesses in the specific controls and overall control
environment that allowed millions of dollars of improper and wasteful
purchases to occur. Such weaknesses also contributed to many instances of
property items not being recorded in FAA's property management system,
which allowed hundreds of lost or missing property items to go undetected.
Acting on our findings, FAA established key positions to improve
management oversight of certain purchasing and monitoring functions,
revised its guidance to strengthen areas of weakness and to limit the
allowability of certain expenditures, and recorded assets into its
property management system that we identified as unrecorded.

Strengthening Government Auditing Standards. Our publication of the
Government Auditing Standards in June 2003 provides a framework for audits
of federal programs and monies. This comes at a time of urgent need for
integrity in the auditing profession and for transparency and
accountability in the management of scarce resources in the government
sector. The new revision of the standards strengthens audit requirements
for identifying fraud, illegal acts, and noncompliance, and gives clear
guidance to auditors as they contribute to a government that is efficient,
effective, and accountable to the people.

Supporting Controls over DOD's Credit Cards. In a series of reports and
testimonies beginning in 2001, we highlighted pervasive weaknesses in
DOD's overall credit card control environment, including the proliferation
of credit cards and the lack of specific controls over its multibillion
dollar purchase and travel card programs. We identified numerous cases of
fraud, waste, and abuse and made 174 recommendations to improve DOD's
credit card operations. DOD has taken many actions to reduce its
vulnerabilities in this area.

Source: GAO.

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