Fiscal Year 2006 Budget Request: U.S. Government Accountability  
Office (23-MAY-05, GAO-05-447T).				 
                                                                 
We are grateful to the Congress for providing us with the support
and resources that have helped us in our quest to be a		 
world-class professional services organization. We are proud of  
the work we accomplish as we continue to provide our		 
congressional clients with professional, objective, fact-based,  
non-partisan, non-ideological, fair, balanced, and reliable	 
information in a timely manner regarding how well government	 
programs and policies are working and, when needed,		 
recommendations to make government work better. We believe that  
investing in GAO produces a sound return and results in 	 
substantial benefits to the Congress and 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 current and projected budget deficit and long-term	 
fiscal imbalance. These fiscal pressures will require the	 
Congress to make tough choices regarding what the government	 
should do, how it will do its work, who will help carry out its  
work in the future, and how government will be financed in the	 
future. We summarized the larger challenges facing the federal	 
government in our recently issued 21st Century Challenges report.
In this report, we emphasize the critical need to bring the	 
federal government's programs and policies into line with 21st	 
century realities. Continuing on our current unsustainable fiscal
path will gradually erode, if not suddenly damage, our economy,  
our standard of living, and ultimately our national security. We,
therefore, must fundamentally reexamine major spending and tax	 
policies and priorities in an effort to recapture our fiscal	 
flexibility and ensure that our programs and priorities respond  
to emerging security, social, economic, and environmental changes
and challenges in the years ahead. We believe that GAO can be of 
invaluable assistance in helping the Congress address these	 
challenges. This testimony focuses on our (1) performance and	 
results with the funding you provided us in fiscal year 2004, (2)
streamlining and management improvement efforts under way, and	 
(3) budget request for fiscal year 2006 to support the Congress  
and serve the American people.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-447T					        
    ACCNO:   A24777						        
  TITLE:     Fiscal Year 2006 Budget Request: U.S. Government	      
Accountability Office						 
     DATE:   05/23/2005 
  SUBJECT:   Agency missions					 
	     Budget activities					 
	     Budget administration				 
	     Budget authority					 
	     Future budget projections				 
	     Human capital					 
	     Human capital planning				 
	     Performance measures				 
	     Personnel management				 
	     Staff utilization					 
	     Strategic planning 				 
	     Past fiscal year					 
	     Budget requests					 

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GAO-05-447T

United States Government Accountability Office

GAO Testimony

Before the Committee on Appropriations,

                            House of Representatives

For Release on Delivery Expected at 2:00 p.m. EDT Monday, May 23, 2005

FISCAL YEAR 2006 BUDGET REQUEST

                     U.S. Government Accountability Office

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

GAO-05-447T

Mr. Chairman and Members of the Committee:

I am pleased to appear before you today in support of the fiscal year 2006
budget request for the U.S. Government Accountability Office (GAO). This
request is necessary to help us continue 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.

We are grateful to the Congress for providing us with the support and
resources that have helped us in our quest to be a world-class
professional services organization. I am proud of the work we accomplish
as we continue to provide our congressional clients with professional,
objective, fact-based, non-partisan, non-ideological, fair, balanced, and
reliable information in a timely manner regarding how well government
programs and policies are working and, when needed, recommendations to
make government work better. We believe that investing in GAO produces a
sound return and results in substantial benefits to the Congress and 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 current and projected budget deficit and long-term fiscal
imbalance. These fiscal pressures will require the Congress to make tough
choices regarding what the government should do, how it will do its work,
who will help carry out its work in the future, and how government will be
financed in the future.

We summarized the larger challenges facing the federal government in our
recently issued 21st Century Challenges report.1 In this report, we
emphasize the critical need to bring the federal government's programs and
policies into line with 21st century realities. Continuing on our current
unsustainable fiscal path will gradually erode, if not suddenly damage,
our economy, our standard of living, and ultimately our national security.
We, therefore, must fundamentally reexamine major spending and tax
policies and priorities in an effort to recapture our fiscal flexibility
and ensure that our programs and priorities respond to emerging security,
social, economic, and environmental changes and challenges in the years
ahead. I believe that GAO can be of invaluable assistance in helping the
Congress address these challenges.

1GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).

My testimony today will focus on our (1) performance and results with the
funding you provided us in fiscal year 2004, (2) streamlining and
management improvement efforts under way, and (3) budget request for
fiscal year 2006 to support the Congress and serve the American people.

                                    Summary

In summary:

o  	The funding we received in fiscal year 2004 allowed us to audit and
evaluate a number of major topics of concern to the nation and, in some
cases, the world. For example, we reported on the reconstruction efforts
in Afghanistan and Iraq; important concerns about pay and other support
for the National Guard and Reserve forces; numerous topics related to
homeland and national security, including improving operations of the
Departments of Homeland Security and Defense; curbing the use of
counterfeit identity documents; and making the nation's transportation
system safer from potential acts of terrorism. We also continued to raise
concerns about the nation's long-term fiscal imbalance, summarized key
health care statistics and published a proposed framework for related
reforms, and provided staff support for the 9/11 Commission. In fiscal
year 2004, we exceeded or equaled our all-time record for six of our seven
key performance indicators while continuing to improve our client and
employee feedback results. I am especially pleased to report that we
documented $44 billion in financial benefits-a return of $95 for every
dollar spent, or $13.7 million per employee. In fiscal year 2004, we also
recorded 1,197 other benefits that could not be measured in dollar terms
including benefits that helped to change laws, to improve services to the
public and to promote sound agency and governmentwide management. Also,
experts from our staff testified at 217 congressional hearings covering a
wide range of important public policy issues during fiscal year 2004.

o  	Shortly after I was appointed Comptroller General, I determined that
our agency would undertake a transformation effort. This effort is
consistent with the elements of House Report (H.Rpt.) 108-577 that focus
on improving the efficiency and effectiveness of operations at legislative
branch agencies. Our transformation effort has enabled us to eliminate a
management layer, streamline our organization, reduce our overall
footprint, and centralize many of our support functions. Currently, over
50 percent of our support staff are contractors, allowing us to devote
more of our staff resources to our mission work. We recently surveyed
managers of agency support operations and identified additional activities
that potentially could be filled through alternative sourcing strategies.
In fiscal years 2005 and 2006, we will further assess the feasibility of
using

alternative sourcing for these activities. I would be pleased to brief you
at a later date on our preliminary analyses.

o  In developing our fiscal year 2006 budget, we have taken into

consideration the overall federal budget constraints and the committee's
desire to lead by example. Accordingly, we are requesting $493.5 million
which represents a modest increase of 4 percent over fiscal year 2005.
This increase is primarily for mandatory pay costs and price level
changes. This budget request will allow us to continue to maximize
productivity, operate more effectively and efficiently, and maintain the
progress we have made in technology and other areas, but it does not allow
us sufficient funding to support a staffing level of 3,269-the staffing
level that we requested in previous years. Even as we are tempering our
budget request, it needs to be acknowledged that there are increasing
demands on GAO's resources. For example, the number of congressional
mandates for GAO studies, such as GAO reviews of executive branch and
legislative branch operations, has increased more than 15 percent since
fiscal year 2000. While we have reduced our planned staffing level for
fiscal years 2005 and 2006 in order to keep our request modest, we believe
that the staffing level we requested in previous years is a more optimal
staffing level for GAO and would allow us to better meet the needs of the
Congress and provide the return on investment that both the Congress and
the American people expect. We will be seeking your commitment and support
to provide the funding needed to rebuild our staffing levels over the next
few fiscal years, especially as we approach a point where we may be able
to express an opinion on the federal government's consolidated financial
statements.

In fiscal year 2004, much of our work examined the effectiveness of the
federal government's day-to-day operations, such as administering benefits
to the elderly and other needy populations, providing grants and loans to
college students, and collecting taxes from businesses and individuals.
Yet, we remained alert to emerging problems that demanded the attention of
lawmakers and the public. For example, we continued to closely monitor
developments affecting the Iraq war, defense transformation, homeland
security, social security, health care, the U.S. Postal Service, civil
service reform, and the nation's private pension system. We also informed
policymakers about long-term challenges facing the nation, such as the
federal government's financial condition and fiscal outlook, new security
threats in the post-cold war world, the aging of America and its impact on
our health care and retirement systems, changing economic conditions, and
the increasing demands on our infrastructure-from highways to water
systems. We provided congressional committees, members, and

Fiscal Year 2004 Performance and Results

staff with up-to-date information in the form of reports, recommendations,
testimonies, briefings, and expert comments on bills, laws, and other
legal matters affecting the federal government. We performed this work in
accordance with the GAO Strategic Plan for serving the Congress,
consistent with our professional standards, and guided by our core values.
See appendix I for our Strategic Plan Framework for serving the Congress
and the nation.

                              Outcomes of Our Work

In fiscal year 2004, our work generated $44 billion in financial benefits,
primarily from recommendations we made to agencies and the Congress (see
fig. 1). Of this amount, about $27 billion resulted from changes to laws
or regulations, $11 billion resulted from agency actions based on our
recommendations to improve services to the public, and $6 billion resulted
from improvements to core business processes, both governmentwide and at
specific agencies, resulting from our work (see fig. 2). Our findings and
recommendations produce measurable financial benefits for the federal
government when the Congress or agencies act on them. The funds that are
saved can then be made available to reduce government expenditures or be
reallocated to other areas. The monetary effect realized can be the result
of changes in

o  business operations and activities;

o  the structure of federal programs; or

o  entitlements, taxes, or user fees.

For example, financial benefits could result if the Congress were able to
reduce its annual cost of operating a federal program or lessen the cost
of a multiyear program or entitlement. Financial benefits could also
result from increases in federal revenues-due to changes in laws, user
fees, or sales-that our work helped to produce. Financial benefits
included in our performance measures are net benefits-that is, estimates
of financial benefits that have been reduced by the costs associated with
taking the action that we recommended. Figure 3 lists several of our major
financial benefits for fiscal year 2004 and briefly describes some of our
work contributing to financial benefits.

Figure 1: GAO's Financial Benefits

Figure 2: Types of Financial Benefits Recorded in Fiscal Year 2004 from Our Work

 Figure 3: GAO's Selected Major Financial Benefits Reported in Fiscal Year 2004

Description Amount

Eliminated Medicaid's upper payment limit loophole. We identified a
weakness in Medicaid's upper payment limit $10,073
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 had 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. The amount shown represents the
net present value of estimated financial benefits for fiscal years 2005
and 2006-the final years for which benefits can
be claimed.

Updated the Consumer Price Index (CPI). We recommended that the Bureau of
Labor Statistics periodically update $5,074
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. For federal programs that use the CPI as
an index for determining benefits, the
adjustments have resulted in decreased federal expenditures (e.g., reduced
Social Security cost-of-living adjustments)
and increased federal revenues, such as reductions in the growth of
personal exemptions for federal income taxes.
The amount shown represents projected financial benefits for fiscal year
2007, the fifth and final year for which we will
allow benefits to be claimed for this action.

Reduced costs associated with Medicare spending on home health care. We
reported in 2002 that Medicare's $4,661
payments for home health care episodes were, on average, about 35 percent
higher than the estimated costs of home
health care provided in the first 6 months of 2001. Our report helped to
ensure that the Congress did not delay or
eliminate a scheduled reduction in Medicare home health payments that had
risen rapidly from the late 1980s through
the mid-1990s.

Reduced the cost of federal housing programs. We determined that the
Department of Housing and Urban $3,638
Development (HUD) did not have the information it needed to routinely
calculate and track unexpended balances in its
housing and community development programs. As a result of our work, the
Congress required HUD to prepare
quarterly reports on unexpended balances for each program, and HUD
management committed to closely monitor
these balances and identify amounts available for recapture.

Improved the use of the Iraqi Freedom Fund. We reported that the military
services may not obligate all of the funds $3,490
appropriated for the global war on terrorism in fiscal year 2003 as
required. Thus, the Congress rescinded $3.49 billion
from the September 2003 balance remaining in the Iraqi Freedom Fund as
part of the Fiscal Year 2004 Department of
Defense Appropriations Act. These funds were made available for other
purposes.

Description Amount

Reduced costs associated with preparing the Department of Defense's (DOD)
financial statements. We $2,057
determined that DOD's initial plans to obtain a favorable fiscal year 2004
audit opinion were not feasible or cost
effective. Therefore, instead of moving $2.2 billion to fund the DOD
components' efforts focused on a fiscal year 2004
audit opinion, the DOD Comptroller shifted $184 million to begin
auditability assessments and audits, as applicable, as
part of a long-term strategy to improve DOD's fiscal accountability. The
Comptroller's decision not to reprogram the
funds allowed DOD to use over $2 billion for other purposes during the
fiscal year.

Modified the focus of funding for DOD's V-22 Osprey aircraft program. We
highlighted for DOD officials-before $1,618
full production of the aircraft was scheduled to begin-numerous risks and
unknowns that existed in the V-22 Osprey
program because of inadequate testing and evaluation. We reported these
concerns to a blue-ribbon investigative
panel established after a second fatal crash of the V-22. As a result of
our work, the blue-ribbon panel recommended
that DOD temporarily reduce the production of the V-22 to a minimum level
to free up funds to better address the
research and development issues we raised. The Congress reduced the
procurement funding for purchasing V-22
aircraft from the planned 37 to 11 for each of fiscal years 2003 and 2004.
This action allowed some funds to be used
for development testing of the V-22 aircraft, but the remaining funds were
made available for other purposes.

Eliminated unnecessary military funding from the budget. We recommended
that requested fiscal year 2004 funds $1,353
be eliminated for three terminated military operations involving Iraq's
compliance with various United Nations
resolutions, Operations Northern and Southern Watch and Operation Desert
Spring. These funds were made available
for other purposes.

Improved DOD's contracting and acquisition practices. We developed a
strategic framework-based on the best $868
practices of leading private-sector companies-to guide DOD's services
contracting reforms and recommended
changes in DOD's organizational structure and approach to acquiring goods
and services, such as using cross
functional teams and spend analyses to coordinate key purchases and
leverage buying power for the agency. As a
result of work done by us and others, the Congress cut DOD's budget in its
fiscal year 2003 appropriation in
anticipation of expected savings. This accomplishment amends a financial
benefit we claimed in fiscal year 2002 and
represents an additional benefit in fiscal year 2004-the final year for
which a benefit can be claimed.

Source: GAO.

Many of the benefits that result from our work cannot be measured in
dollar terms. During fiscal year 2004, we recorded a total of 1,197 other
benefits (see fig. 4). We documented 74 instances where information we
provided to the Congress resulted in statutory or regulatory changes, 570
instances where federal agencies improved services to the public, and 553
instances where agencies improved core business processes or
governmentwide reforms were advanced (see fig. 5). These actions spanned
the full spectrum of national issues, from ensuring the safety of
commercial airline passengers to identifying abusive tax shelters. See
figure 6 for examples of other benefits we claimed as accomplishments in
fiscal year 2004.

Figure 4: Other Benefits

Figure 5: Types of Other Benefits Recorded in Fiscal Year 2004 from Our
Work

Figure 6: GAO's Selected Other (Nonfinancial) Benefits Reported in Fiscal
Year 2004

Vision 100-Century of Aviation Reauthorization Act, Pub. L. We worked
closely with the Congress to draft language that was

No. 108-176

included in this law related to curriculum and certification requirements
for aviation mechanics. The language, which was based on recommendations
we had made, included a requirement that the Federal Aviation
Administration update and revise curriculum standards for aviation
mechanics.

                  Medicare Prescription Drug, Improvement, and

         Congress included six provisions in the law based on analyses

                 Modernization Act of 2003, Pub. L. No. 108-173

and recommendations we made. For example, our work found that Medicare's
method for establishing payment rates for drugs obtained under Medicare
Part B-which covers doctors' services, outpatient hospital care, and some
other nonhospital services- was flawed because it based payments on
nonmarket-driven price estimates. The law addressed these issues by
lowering payment rates in 2004 for drugs covered by Part B to more closely
reflect acquisition costs and by changing the method for calculating these
payment rates in 2005, basing these rates on a market-driven estimate.
Also, partly on the basis of our work, the Congress modified the
eligibility criteria for small rural hospitals to qualify as critical
access hospitals under the Medicare program. This change provides
flexibility for some additional hospitals to consider conversion. Because
of Medicare's payment methodology, converting to a critical access
hospital may help bolster a hospital's financial condition, allowing it to
continue to provide services to patients.

           Consolidated Appropriations Act, 2004, Pub. L. No. 108-199

We found that HUD could make more accurate eligibility decisions for
individuals seeking housing assistance if it had access to more timely
income information available from the Department of Health and Human
Service's Office of Child Support Enforcement's National Directory of New
Hires. We recommended that HUD match applicants and current recipients of
its rental housing assistance programs with the new hires database. This
law gives HUD access to information from the database that will better
ensure that only eligible individuals receive housing assistance.

National Defense Authorization Act for Fiscal Year 2004, Pub. L. No.
108-136

We testified that most existing federal performance appraisal systems,
including a vast majority of DOD's systems, are not designed to support a
meaningful performance-based personnel system, and agencies should have to
demonstrate that these systems are modern, effective, and valid in order
to receive any additional performance-based flexibilities. We suggested
that the Congress establish a governmentwide fund whereby agencies could
apply for funds to modernize their performance management systems and
ensure that those systems have adequate safeguards to prevent abuse. This
law established the Human Capital Performance Fund to support all
executive agencies as they plan for and carry out performance-based
rewards for their civilian employees.

Helped to Ensure the Safety of Shellfish 	In July 2001, we reported that
the Food and Drug Administration's (FDA) oversight of states' shellfish
safety programs was not riskbased and thus FDA was not using its limited
resources wisely. To better ensure shellfish safety, we recommended that
FDA identify risk factors for each of its program elements (growing area
classification, processing and shipping, and control of harvest). FDA
developed a scoring system for these factors. FDA shellfish specialists
compute a total risk score of high, medium, or low that determines the
frequency of the evaluation of that program element. High-risk elements
were to be evaluated every year beginning in fiscal year 2003, medium-risk
elements every second year beginning in fiscal year 2004, and low-risk
elements every third year beginning in fiscal year 2005.

Identified the Need for Better Criteria to Determine Highly Our report
found that states did not have the information needed to Qualified
Teachers determine whether teachers had met criteria to be considered
highly qualified, as required by the No Child Left Behind Act.
Specifically, states did not have the information they needed to develop
methods to evaluate the subject area knowledge of teachers. To help states
determine the number of highly qualified teachers they have and the
actions they need to take to meet the requirements for highly qualified
teachers by the end of the 2005-2006 school year, we recommended that the
Secretary of Education provide more information to states about methods to
evaluate subject area knowledge of current teachers. In January 2004,
Education issued a revised version of the guidance "Improving Teacher
Quality," which contains more information on how to evaluate subject area
knowledge to meet the federal definition of a highly qualified teacher.
Specifically, the guidance includes a new section that, among other
things, defines evaluation standards and factors to consider when
developing them. Encouraged VA to Clarify the Array of Home Health Care We
recommended that the Department of Veterans Affairs (VA)

Services Available to Veterans 	specify in policy whether three home
health services-home-based primary care, homemaker/home health aide, and
skilled home health care-are to be available to all enrolled veterans. In
response, VA published an information letter on October 1, 2003,
clarifying that, according to VA policy, the three home health services
are to be available for all enrolled, eligible veterans in need of such
services. The information letter was distributed to all facilities through
e-mail and is available on the VA Web site.

Identified the Need for More Specific Criteria to Select for We found that
the Internal Revenue Service (IRS) is investing more

Audit Tax Returns from Large Corporations	in audits of large corporations
and getting less in return. To improve the audits of tax returns filed by
large corporations, we recommended that IRS provide more specific
objective criteria and procedures to guide the selection of large
corporate tax returns and classification of tax issues with high audit
potential across the districts. In March 2002, IRS implemented a process
for scoring returns in order to fully implement a plan to place these
returns in the field for audit. IRS has begun to identify high-risk
returns from corporate and partnership tax returns using the Discriminant
Analysis System.

Helped to Centralize the Oversight of Major DOD Contracts We examined
various DOD initiatives under way that are intended

to better manage acquisition of services, including drafting policy to
provide better oversight on purchases of high-dollar value services. In
response to our work, the Under Secretary of Defense for Acquisition,
Technology, and Logistics and each of the military departments now have a
management structure in place and a process for reviewing major (i.e.,
large-dollar or program-critical) service acquisitions for adherence to
performance and other contracting requirements. The new policy establishes
a threshold of $500 million or more for selecting service purchases for
review and approval by the military department and possibly DOD
headquarters, allowing DOD to adequately plan major purchases before
committing the government to major expenditures.

Helped to Reduce Fraud, Waste, and Abuse of Agencies' Purchase Cards

In a series of reports and testimonies beginning in 2001, we highlighted
pervasive weaknesses in the government's $16 billion purchase card
program. Our work identified numerous cases of fraud, waste, and abuse at
DOD, HUD, and the Federal Aviation Administration. These agencies have
taken significant steps to implement the hundreds of recommendations we
made to upgrade their controls. Major improvement areas include enhanced
controls over card issuance and cancellation, reduced span of control for
approving officials, increased human capital resources and training, new
performance measures and goals, required advance approval of purchases,
and independent receiving and acceptance of goods and services. These
efforts will substantially reduce the government's vulnerability to fraud,
waste, and abuse in agencies' purchase card programs.

                                  Source: GAO.

                                 Recommendation
                                Acceptance Rate

At the end of fiscal year 2004, 83 percent of the recommendations we made
in fiscal year 2000 had been implemented (see fig. 7), primarily by
executive branch agencies. Putting these recommendations into practice is
generating tangible benefits for the American people. As figure 8
indicates, agencies need time to act on our recommendations. Therefore, we
assess recommendations implemented after 4 years, the point at which
experience has shown that, if a recommendation has not been implemented,
it is not likely to be.

                   Figure 7: Past Recommendations Implemented

Figure 8: Cumulative Implementation Rate for Recommendations Made in
Fiscal Year 2000

During fiscal year 2004, experts from our staff testified at 217
congressional hearings (see fig. 9) covering a wide range of complex
issues. For example, our senior executives testified on the financial
condition of the Pension Benefit Guaranty Corporation's single-employer
program, the effects of various proposals to reform Social Security's
benefit distributions, and enhancing federal accountability through
inspectors general. Nearly half of our testimonies were related to
high-risk areas and programs. See figure 10 for a summary of issues we
testified on, by strategic goal, in fiscal year 2004.

Testimonies That Serve the Congress

                             Figure 9: Testimonies

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. Our latest report, released in January 2005, presents the status
of high-risk areas identified in 2003 and lists new high-risk areas
warranting attention by the Congress and the administration.2

In January 2003, we identified 25 high-risk areas; in July 2003, a
twentysixth high-risk area was added to the list (see table 1). Since
then, progress has been made in all areas, although the nature and
significance of progress varies by area. Federal departments and agencies,
as well as the Congress, have shown a continuing commitment to addressing
these highrisk challenges and have taken various steps to help correct
several of their root causes. GAO has determined that sufficient progress
has been made to remove the high-risk designation from the following three
areas:

o  student financial aid programs,

o  FAA financial management, and

o  Forest Service financial management.

Also, four areas related to IRS have been consolidated into two areas.

This year, we designated four new high-risk areas. The first new area is
establishing appropriate and effective information-sharing mechanisms to
improve homeland security. Federal policy creates specific requirements
for information-sharing efforts, including the development of processes
and procedures for collaboration between federal, state, and local
governments and the private sector. This area has received increased
attention, but the federal government still faces formidable challenges
sharing information among stakeholders in an appropriate and timely manner
to minimize risk.

The second and third new high-risk areas are, respectively, DOD's approach
to business transformation and its personnel security clearance program.
GAO has reported on inefficiencies and inadequate transparency and
accountability across DOD's major business areas, resulting in billions

2GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).

of dollars of wasted resources. Senior leaders have shown commitment to
business transformation through individual initiatives in acquisition
reform, business modernization, and financial management, among others,
but little tangible evidence of actual improvement has been seen to date
in DOD's business operations. DOD needs to take stronger steps to achieve
and sustain business reform on a departmentwide basis. Further, delays by
DOD in completing background investigations and adjudications can affect
the entire government because DOD performs this function for hundreds of
thousands of industry personnel from 22 federal agencies, as well as its
own service members, federal civilian employees, and industry personnel.
The Office of Personnel Management (OPM) is to assume DOD's personnel
security investigative function, but this change alone will not reduce the
shortages of investigative personnel.

The fourth high-risk area is management of interagency contracting.
Interagency contracts can leverage the government's buying power and
provide a simplified and expedited method of procurement. But several
factors can pose risks, including the rapid growth of dollars involved
combined with the limited expertise of some agencies in using these
contracts as well as recent problems related to their management. Various
improvement efforts have been initiated to address interagency
contracting, but improved policies and processes, and their effective
implementation, are needed to ensure that interagency contracting achieves
its full potential in the most effective and efficient manner.

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 our national government, and ensure the ability of
government to deliver on its promises.

Table 1: The Year that Areas on GAO's 2005 High-Risk List were Designated
as High Risk

Year designated Area high risk

Medicare Program 1990

DOD Supply Chain Management 1990a

DOD Weapon Systems Acquisition 1990

DOE Contract Management 1990

NASA Contract Management 1990

Enforcement of Tax Laws 1990b

Year designated Area high risk

DOD Contract Management 1992

HUD Single-Family Mortgage Insurance and Rental Housing 1994 Assistance
Programs

DOD Financial Management 1995

DOD Business Systems Modernization 1995

IRS Business Systems Modernization 1995c

FAA Air Traffic Control Modernization 1995

Protecting the Federal Government's Information Systems and the 1997
Nation's Critical Infrastructures

DOD Support Infrastructure Management 1997

Strategic Human Capital Management 2001

U.S. Postal Service Transformation Efforts and Long-Term Outlook 2001

Medicaid Program 2003

Managing Federal Real Property 2003

Modernizing Federal Disability Programs 2003

Implementing and Transforming the Department of Homeland 2003 Security

Pension Benefit Guaranty Corporation Single-Employer Insurance 2003
Program

Establishing Appropriate and Effective Information-Sharing 2005 Mechanisms
to Improve Homeland Security

DOD Approach to Business Transformation 2005

DOD Personnel Security Clearance Program 2005

Management of Interagency Contracting 2005

Source: GAO.

aThis area was formerly entitled DOD Inventory Management.

bOne of the two high-risk areas that were consolidated to make this
area-Collection of Unpaid Taxes-was designated high risk in 1990. The
other area-Earned Income Credit Noncompliance- was designated high risk in
1995.

cIRS Financial Management has been incorporated into the IRS Business
Systems Modernization high-risk area. Both areas were initially designated
as high risk in 1995.

In fiscal year 2004, we issued 218 reports and delivered 96 testimonies
related to our high-risk areas and programs, and our work involving these
areas resulted in financial benefits totaling over $20 billion. This work,
for example, included 13 reports and 10 testimonies examining problems
with DOD's financial management practices, such as weak internal controls
over travel cards, inadequate management of payments to the Navy's
telecommunications vendors, and abuses of the federal tax system by

DOD contractors, resulting in $2.7 billion in financial benefits. In
addition, we documented $700 million in financial benefits based on
previous work and produced 7 reports and 4 testimonies focusing on, for
example, improving Social Security Administration and Department of Energy
processes that result in inconsistent disability decisions and
inconsistent benefit outcomes.

Shortly after I was appointed in November 1998, I determined that GAO
should undertake a major transformation effort to better enable it to
"lead by example" and better support the Congress in the 21st century.
This effort is consistent with the House Report 108-577 on the fiscal year
2005 legislative branch appropriation that focuses on improving the
efficiency and effectiveness of operations at legislative branch agencies.

Streamlining and Management Improvement Efforts

The Mandate:

H.Rpt. 108-577 directed GAO to work closely with the head of each
legislative branch agency to identify opportunities for streamlining,
crossservicing and outsourcing, leveraging existing technology, and
applying management principles identified as "best practices" in
comparable public and private sector enterprises. H.R. 108-577 also
directed the legislative branch agencies to be prepared to discuss
recommended changes during the fiscal year 2006 appropriations hearing
cycle.

Our agency transformation effort has enabled GAO to become more
results-oriented, partnerial, client-focused, and externally aware, and
less hierarchical, process-oriented, "siloed," and internally focused. The
transformation resulted in reduced organizational layers, fewer field
offices, the elimination of duplication in several areas, and improved our
overall resource allocation. We began our transformation effort by using
the GAO Strategic Plan as a framework to align our organization and its
resources. On the basis of the strategic plan, we streamlined and
realigned the agency to eliminate a management layer, consolidated 35
issue areas into 13 teams, and reduced our field offices from 16 to 11. We
also eliminated the position of Regional Manager-a Senior Executive
Service level position-in the individual field offices and consolidated
the remaining field offices into three regions-the eastern region, the
central region, and the western region, each headed by a single senior
executive. Following the realignment of our mission organization and field
offices, GAO's support organizations were restructured and centralized to
eliminate duplication and to provide human capital, report production and
processing, information systems desk-side support, budget and financial
management, and other services more efficiently to agency staff. This has
resulted in a 14 percent reduction in our support staff since 1998. As

shown in figure 11, these and subsequent measures improved the "shape" of
the agency by decreasing the number of mid-level managers and by
increasing the number of entry level and other staff with the skills and
abilities to accomplish our work.

Note: Profiles represent staffing at the end of each fiscal year. Fiscal
years 2005 and 2006 are projected.

During my tenure, GAO has outsourced and cross-serviced many
administrative support activities, which has allowed GAO to devote more of
its resources to mission work. In fiscal year 2004, about two-thirds of
our nonhuman capital costs were spent to obtain critical mission support
services for about 165 activities from the private and public sectors
through outsourcing. Outsourcing contracts include a wide range of mission
support activities, including information technology systems development,
maintenance, and support; printing and dissemination of GAO products;
operation and maintenance of the GAO Headquarters building; information,
personnel, and industrial security activities; records management;
operational support; and audit service support. GAO also meets many of its
requirements through cross-servicing arrangements with other federal
agencies. For example, GAO uses the Department of Agriculture's National
Finance Center to process its personnel/payroll transactions. Also, GAO
uses the legislative branch's long-distance telephone contract, which has
resulted in continual reductions in longdistance rates. GAO also uses a
wide range of contracting arrangements available in the executive branch
for procuring major information technology (IT) services. GAO also uses
the Library of Congress' Federal Library and Information Network to
procure all of its commercial online databases.

Currently, as shown in figure 12, over 50 percent of our staff resources
in the support area are contractors, allowing us to devote more of our
staff

resources to our mission work. We recently surveyed managers of agency
mission support operations and identified additional activities that
potentially could be filled through alternative sourcing strategies. In
fiscal years 2005 and 2006, we will assess the feasibility of alternative
sourcing for these activities using an acquisition sourcing maturity model
and costbenefit analyses.

Utilizing IT effectively is critical to our productivity, success, and
viability. We have applied IT best management practices to take advantage
of a wide range of available technologies such as Web-based applications
and Web-enabled information access, as well as modern, mobile computing
devices such as notebook computers to facilitate our ability to carry out
our work for the Congress more effectively. We make wide use of thirdparty
reviews of our practices and have scored well in measurement efforts such
as total cost of ownership, customer service, and application development.
In fiscal year 2002, an independent study of GAO's IT processes and
related costs revealed that, "GAO is delivering superb IT application
support and development services to the business units at 29 percent less
than the cost it would take the Government peer group to deliver." In
confirmation of these findings, in fiscal year 2003, GAO was one of only
three federal agencies to receive the CIO Magazine 100 Award for
excellence in effectively managing IT resources to obtain the most value
for every IT dollar. We were named to the CIO Magazine's "CIO 100" for our
excellence in managing IT resources in both 2003 and 2004.

Because one of our strategic goals is to maximize our value by serving as
a model agency for the federal government, we adopt best practices that we

have suggested for other agencies, and we hold ourselves to the spirit of
many laws that are applicable only to the executive branch. For example,
we adhere to the best practices for results-oriented management outlined
in the Government Performance and Results Act (GPRA). We have strengthened
our financial management by centralizing authority in a Chief Financial
Officer with functional responsibilities for financial management,
long-range planning, accountability reporting, and the preparation of
audited financial statements, as directed in the Chief Financial Officers
Act (CFO Act). Also, for the eighteenth consecutive year, independent
auditors gave GAO's financial statements an unqualified opinion with no
material weaknesses and no major compliance problems.

In the human capital area, we are clearly leading by example in
modernizing our policies and procedures. For example, we have adopted a
range of strategic workforce policies and practices as a result of a
comprehensive workforce planning effort. Among other things, this effort
has resulted in greatly upgrading our workforce capacity in both IT and
health care policy. We also have updated our performance management and
compensation systems and our training to maximize staff effectiveness and
to fully develop the potential of our staff within both current and
expected resource levels.

We are requesting budget authority of $493.5 million for fiscal year 2006.
This budget request will allow us to continue to maximize productivity,
operate more effectively and efficiently, and maintain the progress we
have made in technology and other areas. However, it does not allow us
sufficient funding to support a staffing level of 3,269-the staffing level
that we requested in previous years. In preparing this request, we
conducted a baseline review of our operating requirements and reduced them
as much as we felt would be prudent. However, with about 80 percent of our
budget composed of human capital costs, we needed to constrain hiring to
keep our fiscal year 2006 budget request modest. We plan to use recently
enacted human capital flexibility from the GAO Human Capital Reform Act of
2004 as a framework to consider such cost savings options as conducting
one or more voluntary early retirement programs and we also plan to review
our total compensation policies and approaches.

There are increasingly greater demands on GAO's resources. Since fiscal
year 2000, we have experienced a 30 percent increase in the number of bid
protest filings. We expect this workload to increase over the coming
months because of a recent change in the law that expands the number of

GAO's Fiscal Year 2006 Request to Support the Congress

parties who are eligible to file protests. In addition, the number of
congressional mandates for GAO studies, such as our reviews of executive
branch and legislative branch operations, has increased more than 15
percent since fiscal year 2000. While we have reduced our planned staffing
level for fiscal years 2005 and 2006, we believe that the staffing level
we requested in previous years is a more optimal staffing level for GAO
and would allow us to successfully meet the future needs of the Congress
and provide the return on investment that the Congress and the American
people expect. We will be seeking your commitment and support to provide
the funding needed to rebuild our staffing levels over the next few fiscal
years, especially as we approach a point where we may be able to express
an opinion on the federal government's consolidated financial statements.
Given current and projected deficits and the demands associated with
managing a growing national debt, as well as challenges facing the
Congress to restructure federal programs, reevaluate the role of
government, and ensure accountability of federal agencies, a strong GAO
will result in substantially greater benefits to the Congress and the
American people.

Table 2 summarizes the changes we are requesting in our fiscal year 2006
budget.

Table 2: Fiscal Year 2006 Budget Request, Summary of Requested Changes

                 Dollars in thousands FY 2006 requested changes

                                                                   Cumulative 
                                                                   percentage 
                                    Budget category     FTEs    Amount change 
            FY 2005 budget authority to support GAO          
                                         operations    3,215         $474,565 

                  Nonrecurring fiscal year 2005 costs         (4,122)   (0.9) 
                                  Mandatory pay costs         20,778   
                                  Price level changes          1,428      3.8 
                        Relatively controllable costs              899 
                         Subtotal - requested changes        $ 18,983     4.0 
           Total FY 2006 budget authority required to                  
                               support GAO operations 3,215  $493,548     4.0 

Source: GAO.

Our budget request supports three broad program areas: Human Capital,
Mission Operations, and Mission Support.

In our Human Capital program, to ensure our ability to attract, retain,
and reward high-quality staff and compete with other employers, we provide
competitive salaries and benefits, student loan repayments, and transit
subsidy benefits. We have undertaken reviews of our classification and
compensation systems to consider ways to make them more market-based and
performance-oriented and to take into consideration market data for
comparable positions in organizations with which we compete for talent.
Our rewards and recognition program recognizes significant contributions
by GAO staff to the agency's accomplishments. As a knowledge-based,
world-class, professional services organization in an environment of
increasingly complex work and accelerating change, we maintain a strong
commitment to staff training and development. We promote a workforce that
continually improves its skills and knowledge.

We plan to allocate funds to our Mission Operations program to conduct
travel and contract for expert advice and assistance.

Travel is critical to accomplishing our mission. Our work covers a wide
range of subjects of congressional interest, plays a key role in
congressional decision making, and can have profound implications and
ramifications for national policy decisions. Our analyses and
recommendations are based on original research, rather than reliance on
third-party source materials. In addition, GAO is subject to professional
standards and core values that uniquely position the agency to support the
Congress in discharging its oversight and other responsibilities under the
Constitution.

We use contracts to obtain expert advice and or assistance not readily
available within GAO, or when expertise is needed within compressed time
frames for a particular project, audit, or engagement. Examples of
contract services include obtaining consultant services, conducting
broadbased studies in support of audit efforts, gathering key data on
specific areas of audit interest, and obtaining technical assistance and
expertise in highly specialized areas.

Mission Support programs provide the critical infrastructure we need to
conduct our work. Mission support activities include the following
programs:

o  	Information Technology: Our IT plan provides a road map for ensuring
that IT activities are fully aligned with and enable achievement of our
strategic and business goals. The plan focuses on improved client service,
IT reliability, and security; it promotes effectiveness, efficiency and
cost

benefit concepts. In fiscal years 2005 and 2006, we plan to continue to
modernize outdated management information systems to eliminate redundant
tasks, automate repetitive tasks, and increase staff productivity. We also
will continue to modernize or develop systems focusing on how analysts do
their work. For example, we enhanced the Weapons Systems Database that we
created to provide the Congress information to support budget
deliberations.

o  	Building Management: The Building Management program provides
operating funds for the GAO Headquarters building and field office
locations, safety and security programs, and asset management. We
periodically assess building management components to ensure program
economy, efficiency and effectiveness. We are currently 8 percent below
the General Services Administration's (GSA) median costs for facilities
management. We continue to look for cost-reducing efficiencies in our
utility usage. Our electrical costs are currently 25 percent below GSA's
median cost. With the pending completion of our perimeter security
enhancements and an automated agency wide access control system, all major
security enhancements will have been completed.

o  	Knowledge Services: As a knowledge-based organization, it is essential
for GAO to gather, analyze, disseminate, and archive information. Our
Knowledge Services program provides the information assets and services
needed to support these efforts. In recent years, we have expanded our use
of electronic media for publications and dissemination; enhanced our
external Web site, resulting in increased public access to GAO products;
and closed our internal print plant and increased the use of external
contractors to print GAO products, increasing the efficiency and
costeffectiveness of our printing operation. Due to recent budget
constraints, we have curtailed some efforts related to archiving paper
records. We currently are implementing an electronic records management
system that will facilitate knowledge transfer, as well as document
retrieval and archival requirements.

o  	Human Capital Operations: In addition, funds will be allocated to
Human Capital Operations and support services to cover outplacement
assistance, employee health and counseling, position management and
classification, administrative support, and transcription and translation
services.

Concluding Remarks 	We appreciate your consideration of our budget request
for fiscal year 2006 to support the Congress. GAO is uniquely positioned
to help provide

the Congress the timely, objective information it needs to discharge its
constitutional responsibilities, especially in connection with oversight

matters. GAO's work covers virtually every area in which the federal
government is or may become involved anywhere in the world. In the years
ahead, GAO's support will prove even more critical because of the
pressures created by our nation's large and growing long-term fiscal
imbalance.

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

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