Human Capital: Increasing Agencies' Use of New Hiring		 
Flexibilities (13-JUL-04, GAO-04-959T). 			 
                                                                 
Improving the federal hiring process is critical given that the  
executive branch hired nearly 95,000 new employees during fiscal 
year 2003 and significant hiring may continue over the next few  
years. In May 2003, GAO issued a report highlighting several key 
problems in the federal hiring process. That report concluded	 
that the process needed improvement and included recommendations 
to address the problems. Last month, GAO issued a follow-up to	 
that report and testified before Congress on the status of recent
efforts to improve the federal hiring process. As part of this	 
work, GAO also assessed the extent to which federal agencies are 
using two new hiring flexibilities: category rating and 	 
direct-hire authority. Category rating permits an agency manager 
to select a job candidate placed in a best-qualified category	 
rather than being limited to three candidates under the "rule of 
three." Direct-hire authority allows an agency to appoint	 
individuals to positions without adherence to certain competitive
examination requirements when there is a severe shortage of	 
qualified candidates or a critical hiring need. Today, GAO's	 
statement highlights the extent to which agencies are using the  
new hiring flexibilities, points out some likely reasons why	 
agencies are not using or making greater use of them, and	 
suggests approaches that can help increase their use.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-959T					        
    ACCNO:   A10920						        
  TITLE:     Human Capital: Increasing Agencies' Use of New Hiring    
Flexibilities							 
     DATE:   07/13/2004 
  SUBJECT:   Government job appointments			 
	     Hiring policies					 
	     Policy evaluation					 
	     Labor force					 
	     Personnel management				 
	     Personnel recruiting				 
	     Performance measures				 
	     Federal employees					 
	     Human capital					 

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GAO-04-959T

United States Government Accountability Office

GAO Testimony

Subcommittee on Civil Service and Agency Organization, Committee on
Government Reform, House of Representatives

For Release on Delivery 
Expected at 10:00 a.m. EDT HUMAN CAPITAL 
Tuesday, July 13, 2004 

              Increasing Agencies' Use of New Hiring Flexibilities

Statement of J. Christopher Mihm Managing Director, Strategic Issues

                                       A

GAO-04-959T 

Highlights of GAO-04-959T, a testimony before the Subcommittee on Civil
Service and Agency Organization, Committee on Government Reform, House of
Representatives

Improving the federal hiring process is critical given that the executive
branch hired nearly 95,000 new employees during fiscal year 2003 and
significant hiring may continue over the next few years.

In May 2003, GAO issued a report highlighting several key problems in the
federal hiring process. That report concluded that the process needed
improvement and included recommendations to address the problems. Last
month, GAO issued a follow-up to that report and testified before this
subcommittee on the status of recent efforts to improve the federal hiring
process. As part of this work, GAO also assessed the extent to which
federal agencies are using two new hiring flexibilities: category rating
and direct-hire authority. Category rating permits an agency manager to
select a job candidate placed in a best-qualified category rather than
being limited to three candidates under the "rule of three." Directhire
authority allows an agency to appoint individuals to positions without
adherence to certain competitive examination requirements when there is a
severe shortage of qualified candidates or a critical hiring need.

Today, GAO's statement highlights the extent to which agencies are using
the new hiring flexibilities, points out some likely reasons why agencies
are not using or making greater use of them, and suggests approaches that
can help increase their use.

www.gao.gov/cgi-bin/getrpt?GAO-04-959T.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact J. Christopher Mihm at (202)
512-6806 or [email protected].

July 13, 2004

HUMAN CAPITAL

Increasing Agencies' Use of New Hiring Flexibilities

Although Congress, the Office of Personnel Management (OPM), and agencies
have all recently undertaken efforts to help improve the federal hiring
process, agencies report they are making limited use of the two new hiring
flexibilities contained in the Homeland Security Act of 2002: category
rating and direct-hire authority. These flexibilities could help agencies
in expediting and controlling their hiring processes. GAO surveyed members
of the interagency Chief Human Capital Officers Council (CHCO) to
determine the extent to which their respective agencies were using the new
hiring flexibilities and to identify barriers to greater use of these
flexibilities. Frequently cited barriers included (1) the lack of OPM
guidance for using the flexibilities, (2) the lack of agency policies and
procedures for using the flexibilities, (3) the lack of flexibility in OPM
rules and regulations, and (4) concern about possible inconsistencies in
the implementation of the flexibilities within the department or agency.

The federal government is now facing one of the most transformational
changes to the civil service in half a century. Today's challenge is to
define the appropriate roles and day-to-day working relationships for OPM
and individual agencies as they collaborate on developing innovative and
more effective hiring systems. Moreover, human capital expertise within
the agencies must be up to the challenge for this transformation to be
successful and enduring.

Chairwoman Davis, Mr. Davis, and Members of the Subcommittee:

I appreciate the opportunity to be here today to continue the important
discussion about efforts to improve the federal hiring process. As you are
aware, federal agencies need effective hiring processes to compete for
talented people in a highly competitive job market. Given that the
executive branch hired nearly 95,000 new employees in fiscal year 2003 and
may continue significant hiring over the next few years, improving the
government's hiring process is critical. Over the years, there has been
widespread recognition that the federal hiring process all too often does
not meet the needs of agencies in achieving their missions, the needs of
managers in filling positions with the right talent, nor the needs of
applicants for a timely, efficient, transparent, and merit-based process.

In May 2003, we issued a report highlighting several key problems in the
federal hiring process.1 That report concluded that federal hiring needed
improvements, and we made several recommendations to address problems with
key parts of the hiring process. Specifically, we recommended that the
Office of Personnel Management (OPM) take additional actions to assist
agencies in strengthening the hiring process. Moreover, we reported that
agencies must take greater responsibility for maximizing the efficiency
and effectiveness of their individual hiring processes within the current
statutory and regulatory framework that Congress and OPM have provided.

Last month, we issued a follow-up report, done at the request of the
Chairwoman and Mr. Davis, that focused on recent governmentwide efforts to
improve federal hiring, and we also provided testimony before this
subcommittee summarizing the work done for that report.2 Our report last
month also addressed your request that we include information on the
extent to which agencies were using two new hiring flexibilities contained
in the Homeland Security Act of 2002.3  One of these hiring flexibilities,

1U.S. General Accounting Office, Human Capital: Opportunities to Improve
Executive Agencies' Hiring Processes, GAO-03-450 (Washington, D.C.: May
30, 2003).

2U.S. General Accounting Office, Human Capital: Additional Collaboration
Between OPM and Agencies Is Key to Improved Federal Hiring, GAO-04-797
(Washington, D.C.: June 7, 2004) and U.S. General Accounting Office, Human
Capital: Status of Efforts to Improve Federal Hiring, GAO-04-796T
(Washington, D.C.: June 7, 2004).

3These hiring flexibilities are contained in the Chief Human Capital
Officers Act of 2002, Title XIII of the Homeland Security Act of 2002.
Pub. L. No. 107-296 (Nov. 25, 2002).

known as category rating, permits an agency to select a job candidate
placed in a best-qualified category rather than being limited to three
candidates under the "rule of three." The other hiring flexibility, often
referred to as direct hire, allows an agency to appoint people to
positions without adherence to certain competitive examination
requirements when there is a severe shortage of qualified candidates or a
critical hiring need. Various agency officials from across the federal
government often previously cited both of these hiring flexibilities as
needed tools to help in improving the federal hiring process.

As agreed with the subcommittee, today I will highlight information that
we gathered and analyzed about the extent to which agencies are using the
new hiring flexibilities and point out some likely reasons why agencies
are not using or making greater use of these new flexibilities. Our work
to address these issues was based on interviews with officials from OPM
and the interagency Chief Human Capital Officers (CHCO) Council, the
results of our April 2004 survey of 22 of the 23 agency members serving on
the CHCO Council, and our review of OPM documents as well as data from
OPM's central database of governmentwide personnel information. I also
will suggest, based on our prior work, some approaches that agencies and
OPM can employ to better use existing authorities.

Summary	In summary, our recent work found the following. Although
Congress, OPM, and agencies have all undertaken efforts to help improve
the federal hiring process, agencies report they are making limited use of
the new hiring flexibilities: category rating and direct hire. In our
April 2004 survey of CHCO Council members, 21 of the 22 respondents cited
at least one barrier that they said prevented or hindered their agencies
from using or making greater use of these hiring flexibilities. Frequently
cited barriers included:

o  the lack of OPM guidance for using the flexibilities,

o  the lack of agency policies and procedures for using the flexibilities,

o  the lack of flexibility in OPM rules and regulations, and

o 	concern about possible inconsistencies in the implementation of the
flexibilities within the department or agency.

The follow-up report that we issued last month on the federal hiring
process included no new recommendations. We did, however, underscore our
prior recommendations on which we believe additional attention is needed.
On the basis of our work, OPM's recent efforts and the CHCO Council
members' views do not appear consistent, which suggests that defining the
appropriate roles and day-to-day working relationships for OPM and
individual agencies is essential as they further collaborate on developing
innovative and more effective hiring systems. At the subcommittee hearing
on hiring last month, OPM identified a wide range of efforts it has
undertaken to assist agencies in using the new hiring authorities,
including a number of important initiatives that took place after we
surveyed CHCO Council members. Moreover, since that hearing, OPM has taken
further action with the goal of helping to ensure that agencies are aware
of the hiring flexibilities available to them and assisting agencies in
taking full advantage of these available flexibilities.

  Agencies Appear to Be Making Limited Use of New Hiring Flexibilities

Despite agency officials' past calls for hiring reform, agencies appear to
be making limited use of category rating and direct-hire authority, the
two new hiring flexibilities created by Congress in November 2002 and
implemented by OPM in June 2003. Data on the actual use of these two
hiring flexibilities are not readily available, but most CHCO Council
members responding to our April 2004 survey indicated that their agencies
are making little or no use of either flexibility. Indeed, all but one of
the 22 CHCO Council members responding to our recent survey identified at
least one barrier to using the new hiring flexibilities. OPM officials
also confirmed with us that based on their contacts and communications
with agencies, it appeared that the agencies were making limited use of
the new hiring flexibilities. The limited use of category rating is
somewhat unexpected given the views of human resources directors we
interviewed 2 years ago. As noted in our May 2003 report, many agency
human resources directors indicated that numerical rating and the rule of
three were key obstacles in the hiring process. Category rating was
authorized to address those concerns.

CHCO Council Members Category rating is an alternative rating and
selection procedure that can Offered Various Reasons for  provide agency
managers with a larger pool of qualified job candidates Limited Use of
Category  from which to select than numerical ranking and the rule of
three, while

also protecting veterans' preference. Under category rating, job
candidatesRating

are assigned to quality categories-such as "best qualified" or "highly

qualified"-following an assessment of their knowledge and skills against
job-related criteria. The names of all candidates in the highest quality
group are then sent to the selecting official and are available for
selection. If the highest quality group contains a veteran, the veteran
must be hired unless an objection to hiring the veteran is sustained by
OPM. If the number of candidates falling into the highest quality group is
inadequate, applicants from the next highest quality group of eligible
candidates can also be referred to the agency manager for selection.

Given the lack of available data on the extent to which agencies were
using the newly authorized category rating flexibility, we asked about
this issue in our April 2004 survey of the CHCO Council members. A
majority (13 of

22) of the officials responding to our survey said that their agencies
were using category rating to "little or no extent" (see fig. 1). In
narrative responses to our survey questions about category rating, several
respondents said that their agencies were not using category rating but
were considering options, developing procedures, or establishing pilot
programs. For example, a CHCO Council member from a cabinet-level
department said that his department had developed procedures for
implementing category rating and had included this flexibility as a tool
in the department's hiring plan for fiscal year 2004. Another Council
member representing a department said that the department had drafted a
policy on the use of category rating and was establishing a program to
pilot the use of this hiring flexibility with at least one occupation.

Figure 1: CHCO Council Members' Responses on the Extent to Which Their
Agencies Are Using Category Rating

Number of agencies 14

12

10

8

6

4

2

0 Little or Some Moderate Great Very great No basis/

no extent extent extent extent extent not

                                   applicable

Source: CHCO Council members' responses to GAO questionnaire.

We also surveyed CHCO Council members about the most significant barriers,
if any, preventing or hindering their agencies from using or making
greater use of the newly authorized category rating flexibility in their
hiring processes. Although the responses provided by the Council members
varied (see fig. 2), the most frequently cited barriers to using category
rating were (1) the lack of policies and procedures within the department
or agency for using the flexibility, (2) the lack of OPM guidance for
using the flexibility, (3) a need to reprogram the agency's automated
systems to handle the new process, (4) rigid OPM rules and regulations,
and (5) concern about possible inconsistencies in implementation. In
narrative responses to our survey questions about category rating, a few
CHCO Council members said that their agencies were not using or making
greater use of category rating because of key stakeholders' lack of
understanding about the application of veterans' preference and the
Luevano consent

decree.4 One respondent said that each agency has had to research best
practices and lessons learned prior to implementing this alternative
rating system. Another Council member from a major department said that
agencies need a governmentwide champion to advance the use of category
rating in their hiring processes.

4 The Luevano consent decree is a 1981 agreement that settled a lawsuit
alleging that a written test, Professional and Administrative Careers
Examination (PACE), had an adverse impact on African Americans and
Hispanics. See Luevano v. Campbell, 93 F.R.D. 68 (D.D.C. 1981). The
consent decree called for the elimination of PACE and required replacing
it with alternative examinations. In response to the consent decree, OPM
developed the Administrative Careers with America examination. The consent
decree also established two special hiring programs, Outstanding Scholar
and Bilingual/Bicultural, for limited use in filling former PACE
positions.

Figure 2: CHCO Council Members' Responses on the Most Significant Barriers
Preventing or Hindering Their Agencies' Use of Category Rating

Lack of agency policies and procedures

Lack of OPM guidance

Need to reprogram automated systems

Rigid OPM rules and regulations

Concern about possible inconsistencies in implementation

Lack of OPM technical assistance

Lack of expertise needed for implementation

Reluctance within agency to change

Lack of an OPM clearinghouse 01234567

Source: CHCO Council members' responses to GAO questionnaire.

Note: Respondents could select up to three barriers.

In our April 2004 survey of CHCO Council members, we also asked about the
extent to which OPM had assisted their agencies in using category rating
and their level of satisfaction or dissatisfaction with that assistance.
In narrative responses to our survey questions about category rating, a
CHCO Council member representing a major department said, for example,
that the department was reluctant to use category rating until OPM
provided further guidance on use of the flexibility. Another respondent
said that OPM responded to ad hoc questions related to the technical
application of category rating, but generally defers to the agency to make
the final determination. This respondent suggested that it would be
beneficial for OPM to broadly address technical issues for agencies rather
than on an ad hoc basis. Another respondent remarked that unresolved

questions around the use of category rating may be common to all agencies
and that OPM should provide additional implementation guidance in question
and answer format.

    CHCO Council Members Cited Several Barriers to Use of Direct-Hire
    Authority

Direct-hire authority allows agencies to appoint candidates directly to
positions where OPM determines there is a severe shortage of candidates or
a critical hiring need. When making appointments under the newly
authorized direct-hire authority, agencies are not required to numerically
rate and rank applicants nor apply the rule of three or veterans'
preference. Agencies would still provide public notice of the vacancies
and screen all applicants to ensure that they meet the basic qualification
requirements of the position to be filled.

Given the lack of available data on the extent to which agencies were
using the new direct-hire authority, we asked about this issue in our
April 2004 survey of the CHCO Council members. A majority (17 of 22) of
the officials responding to our survey said that their agencies were using
direct hire to "some extent" or to "little or no extent" (see fig. 3). In
narrative responses to our survey questions about direct hire, several
respondents stated that their agencies had used direct-hire authority to
fill various medical positions and small numbers of information technology
security positions. Several respondents also said that their agencies had
not yet used direct-hire authority but were assessing the options for
doing so. For example, a CHCO Council member representing an independent
agency said that the agency had not thus far decided if it still had
positions in a shortage category and would make such a determination after
completing its workforce analysis and strategic assessments. A Council
member from a cabinet-level department said that it had determined a need
for direct-hire authority for acquisition specialists and was developing a
request to OPM. Another Council member representing a large department
said that the department's components were aware of the newly authorized
direct-hire authority but they had not yet identified situations for which
they would request OPM's approval to use the authority.

Figure 3: CHCO Council Members' Responses on the Extent to Which Their
Agencies Are Using Direct Hire

Number of agencies 12

10

8

6

4

2

0 Little or no Some Moderate Great Very great No extent extent extent
extent extent basis/not applicable

Source: CHCO Council members' responses to GAO questionnaire.

Additionally, we surveyed CHCO Council members about the most significant
barriers, if any, preventing or hindering their agencies from using or
making greater use of the newly authorized direct-hire authority in their
hiring processes. Although the responses provided by the Council members
varied (see fig. 4), the most frequently cited barriers to using direct
hire were (1) rigid OPM rules and regulations, (2) concern about possible
inconsistent implementation with the department or agency, (3) limited
number of occupations for which the authority could be used, and (4) the
lack of policies and procedures within the agency for using direct hire.
In narrative responses to our survey questions about direct hire, a CHCO
Council member representing a large department said, for example, that
recently OPM officials informally told the department that OPM would
likely disapprove a proposed request for direct-hire authority that the
department desired for a specified occupation, even though at least one
other agency had direct-hire authority for that same occupation. Another
Council member representing an independent agency commented that the
governmentwide direct-hire authorities that OPM has issued cover
occupations generally not applicable to the agency or in which the agency

has an extremely limited number of positions. In contrast, a CHCO Council
member representing a cabinet-level department responded that no barriers
exist for using direct-hire authority.

Figure 4: CHCO Council Members' Responses on the Most Significant Barriers
Preventing or Hindering Their Agencies' Use of Direct Hire

Rigid OPM rules and regulations

Concern about possible inconsistencies in implementation

Limited number of occupations for which the authority could be used

Lack of agency policies and procedures

Lack of expertise needed for implementation

Reluctance within agency to change 0 24 681012

Source: CHCO Council members' responses to GAO questionnaire.

Note: Respondents could select up to three barriers.

In our April 2004 survey of CHCO Council members, we also asked about the
extent to which OPM had assisted their agencies in using direct hire and
their level of satisfaction or dissatisfaction with that assistance. In
narrative responses to our survey questions about direct hire, one
respondent from a cabinet-level department said, for example, that the
department had attempted to use direct-hire authority for information
technology security positions but received inconsistent guidance on the
application of veterans' preference from OPM. A Council member from a
large department said that OPM should delegate authority to approve direct
hire requests to the agencies as permitted by the Homeland Security Act of
2002. A respondent from another department said that the department had
surveyed its components to determine if it should petition OPM for
direct-hire authority, but that most of the positions identified to date
could not be justified based on the OPM criteria.

  Moving Forward to Improve Federal Hiring

In December 2002, we issued a comprehensive report on the effective use of
human capital flexibilities in the federal government, including
flexibilities related to hiring.5 We reported that agencies were often not
maximizing their use of the human capital flexibilities already available
to them, and we identified key practices that agencies can implement to
effectively use such flexibilities (see fig. 5). For example, agencies
need to plan strategically and make targeted investments for how they will
use and fund these authorities. As we emphasized in our report, the
insufficient and ineffective use of flexibilities can significantly hinder
the ability of federal agencies to recruit, hire, retain, and manage their
human capital.

    Figure 5: Key Practices for Effective Use of Human Capital Flexibilities

Plan strategically and make 0M  Obtain agency leadership commitment

targeted investments 	0M  Determine agency workforce needs using
fact-based analysis 0M  Develop strategies that employ appropriate
flexibilities to meet workforce needs 0M  Make appropriate funding
available

Ensure stakeholder input in 0M  Engage the human capital office developing
policies and 0M  Engage agency managers and supervisors procedures 0M 
Involve employees and unions

0M  Use input to establish clear, documented, and transparent policies and
procedures

Educate managers and employees 0M Train human capital staff
on the availability and use of 0M  Educate agency managers and supervisors
on existence and use of flexibilities
flexibilities 0M  Inform employees of procedures and rights

Streamline and improve 0M  Ascertain the source of existing requirements

administrative processes	0M  Reevaluate administrative approval processes
for greater efficiency 0M  Replicate proven successes of others

Build transparency and accountability 0M  Delegate authority to use
flexibilities to appropriate levels within the agency into the system 0M 
Hold managers and supervisors directly accountable

                 0M  Apply policies and procedures consistently

Change the organizational 0M  Ensure involvement of senior human capital
managers in key decision-making processes culture 0M  Encourage greater
acceptance of prudent risk taking and organizational change

0M  Recognize differences in individual job performance and competencies

Source: GAO.

5 U.S. General Accounting Office, Human Capital: Effective Use of
Flexibilities Can Assist Agencies in Managing Their Workforces, GAO-03-2
(Washington, D.C.: Dec. 6, 2002).

In a report we issued in May 2003 related to OPM's role in assisting
federal agencies in using human capital flexibilities, we recommended that
OPM work with and through the new CHCO Council to more thoroughly
research, compile, and analyze information on the effective and innovative
use of these flexibilities.6 We noted that sharing information about when,
where, and how the broad range of personnel flexibilities is being used,
and should be used, could help agencies meet their human capital
management challenges. As we recently testified, OPM and agencies need to
continue to work together to improve the hiring process, and the CHCO
Council should be a key vehicle for this needed collaboration.7 Such
communication and collaboration is especially important given the apparent
widely different views between OPM and at least some agencies regarding
the amount and adequacy of guidance and assistance that OPM has provided.
In order for this collaboration to be effective, agencies need to provide
OPM with timely and comprehensive information about their experiences in
using various approaches and flexibilities to improve their hiring
processes. OPM-working through the CHCO Council-can, in turn, help by
being a facilitator in the collection and exchange of information about
agencies' effective practices and successful approaches to improved
hiring. Such additional collaboration between OPM and agencies could go a
long way in helping the government as a whole and individual agencies to
improve federal hiring efforts.

Since our June 2004 testimony on these issues, OPM has taken some
additional actions in providing further guidance to agencies in using
hiring flexibilities. For example, on June 15, 2004, OPM issued final
regulations on the use of category rating and direct-hire authority,
providing some clarification in response to various comments it had
received on interim regulations. On June 29, 2004, OPM conducted a
training symposium to provide federal agencies with further instruction
and information on ways to improve the quality and speed of the hiring
process. According to OPM, 230 officials from over 30 federal agencies
attended this training session and were encouraged to make better use of
available flexibilities to improve the hiring process. In addition, OPM
recently hosted a briefing to

6U.S. General Accounting Office, Human Capital: OPM Can Better Assist
Agencies in Using Personnel Flexibilities, GAO-03-428 (Washington, D.C.:
May 9, 2003).

7U.S. General Accounting Office, Human Capital: Observations on Agencies'
Implementation of the Chief Human Capital Officers Act, GAO-04-800T
(Washington, D.C.: May 18, 2004).

inform various interest groups about the results of a survey that OPM
conducted on federal hiring.

In conclusion, the federal government is now facing one of the most
transformational changes to the civil service in half a century. This
change is illustrated in the new personnel systems for the Department of
Homeland Security and the Department of Defense and in new hiring
flexibilities provided to all agencies. For this transformation to be
successful and enduring, human capital expertise within the agencies must
be up to the challenge.

Madam Chairwoman and Mr. Davis, this completes my statement. I would be
pleased to respond to any questions that you might have.

Contacts and	For further information on this testimony, please contact J.
Christopher Mihm, Managing Director, Strategic Issues, (202) 512-6806 or
at

Acknowledgments	[email protected]. Individuals making key contributions to
this testimony include K. Scott Derrick and Trina Lewis.

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