Management Reform: Assessing the President's Management Agenda	 
(21-APR-05, GAO-05-574T).					 
                                                                 
As part of its work to improve the management and performance of 
the federal government, GAO monitors progress and continuing	 
challenges related to the President's Management Agenda (PMA).	 
The Administration has looked to GAO's high-risk program to help 
shape various governmentwide initiatives, including the PMA. GAO 
remains committed to working with the Congress and the		 
Administration to help address these important and complex	 
issues. 							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-574T					        
    ACCNO:   A22078						        
  TITLE:     Management Reform: Assessing the President's Management  
Agenda								 
     DATE:   04/21/2005 
  SUBJECT:   Accountability					 
	     Agency missions					 
	     Electronic government				 
	     Erroneous payments 				 
	     Executive agencies 				 
	     Federal property management			 
	     Financial management				 
	     Human capital					 
	     Internal controls					 
	     Performance management				 
	     Performance measures				 
	     Presidential budgets				 
	     Program management 				 
	     Real property					 
	     Strategic planning 				 
	     Productivity in government 			 
	     Human capital management				 
	     Policies and procedures				 
	     Performance-based pay				 
	     GAO High Risk Series				 
	     OMB Program Assessment Rating Tool 		 
	     President's Management Agenda			 

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GAO-05-574T

United States Government Accountability Office

GAO Testimony

Before the Subcommittee on Federal Financial Management, Government
Information, and International Security, U.S. Senate

For Release on Delivery

Expected at 2:30 p.m. EDT MANAGEMENT REFORM

Thursday, April 21, 2005

                  Assessing the President's Management Agenda

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

GAO-05-574T

[IMG]

April 21, 2005

MANAGEMENT REFORM

Assessing the President's Management Agenda

  What GAO Found

The administration's implementation of the PMA has been a very positive
initiative. It has served to raise the visibility of key management
challenges, increased attention to achieving outcome-based results, and
reinforced the need for agencies to focus on making sustained improvements
in addressing long-standing management problems, including items on GAO's
high-risk list. Our work shows that agencies have made progress in the
areas covered by the PMA, and the Office of Management and Budget (OMB)
has indicated it will continue to focus on high-risk areas during the
President's second term. Importantly, OMB needs to place additional
attention on the Department of Defense's (DOD) many high-risk areas and
overall business transformation efforts. While considerable progress has
been made in connection with PMA issues, a number of significant
challenges remain.

o  In the area of financial performance, the PMA recognizes the importance
of timely, accurate and useful financial information and sound internal
control. Agencies made significant progress in meeting accelerated
financial statement reporting deadlines, and OMB has refocused attention
on improving internal controls. However, agencies face several challenges-
improvement lags on financial management reforms, especially at DOD which
must overhaul its financial management and business operations.

o  The PMA established a separate initiative for improper payments to
ensure that agency managers are held accountable for meeting the goals of
the Improper Payments Information Act of 2002. Effective implementation of
this Act will be an important step toward addressing this area, which
involves tens of billions of dollars.

o  The PMA recognizes that people are an important organizational asset. A
governmentwide framework for advancing human capital reform is needed to
avoid further fragmentation within the civil service, ensure management
flexibility as appropriate, allow a reasonable degree of consistency,
provide adequate safeguards within the overall civilian workforce, and
help maintain a level playing field among federal agencies competing for
talent.

o  The initiative to integrate management and performance issues with
budgeting is critical for progress in government performance and
management. OMB's Program Assessment Rating Tool (PART) is designed to use
results-oriented information to assess programs in the budget formulation
process. However, more should be done to assess how each program fits
within the broad portfolio of tools and strategies used to accomplish
federal missions.

o  Many e-government initiatives are showing tangible results. However,
the government continues to face challenges, such as establishing a
federal enterprise architecture intended to provide a framework to guide
agencies' enterprise architectures and investments.

o  The inclusion of real property asset management on the PMA, an
executive order, and agencies' actions are all positive steps in an area
that had been neglected for years. However, the underlying conditions-such
as excess and deteriorating properties-continue to exist. More needs to be
done in areas such as improving capital planning amongagencies.

United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the President's Management Agenda
(PMA), which has been a very positive initiative. The administration's
implementation of the PMA has demonstrated its commitment to improving
federal management and performance. It has served to raise the visibility
of key management challenges, increased attention to achieving
outcome-based results, and reinforced the need for agencies to focus on
making sustained improvements in addressing longstanding problems,
including items on GAO's high-risk list.1 I believe the concept of using
red, yellow, and green stoplights both to indicate agencies' status and
focus on progress made is an innovative approach. By calling attention to
successes and needed improvements, the focus that PMA and the scorecards
bring is certainly a step in the right direction, and our work shows that
progress has been made in a number of important areas over the last
several years. Importantly, OMB needs to place additional attention on the
Department of Defense's many high-risk areas and business transformation
efforts.

Significant challenges remain particularly at the Department of Defense
(DOD), where 14 of the 25 high-risk areas exist. GAO identifies areas that
are at high risk due to their greater vulnerabilities to fraud, waste,
abuse, and mismanagement as well as the need for broad based
transformations to address major economy, efficiency, or effectiveness
challenges. DOD's current and historical approach to business
transformation has not proven effective in achieving meaningful and
sustainable progress, and change is necessary in order to expedite a
broad-based transformation. For years, we have reported on inefficiencies
and the lack of adequate transparency and appropriate accountability
across DOD's major business areas, resulting in billions of dollars of
wasted resources annually. DOD has not taken the steps it needs to take to
overhaul its financial management and related business operations.

The Bush Administration has looked to our high-risk program to help shape
various governmentwide initiatives, including the PMA, which has at its
base many of the areas we had previously designated as high risk. To its
credit, the Office of Management and Budget (OMB) has worked closely with
a number of agencies that have high-risk issues, in many cases
establishing action plans and milestones for agencies to complete needed

1 GAO, High-Risk Series: An Update (GAO-05-207, January 2005).

actions to address areas that we have designated as high risk. In this
regard, Clay Johnson, OMB's Deputy Director for Management, recently
reaffirmed the Bush Administration's desire to refocus on GAO's high-risk
list in order to make as much progress as possible in the President's
second term. This is very encouraging. OMB will need to be engaged
seriously on a sustained basis to make progress on a range of challenges
that are costing taxpayers billions of dollars each year. Continued
oversight by the Congress will also be key, and in the case of some areas,
legislative actions will be needed.

In the PMA, the President has identified five governmentwide initiatives
that are interrelated and support each other-improved financial
performance, strategic management of human capital, budget and performance
integration, electronic government, and competitive sourcing. The PMA also
includes program initiatives on eliminating improper payments and real
property asset management. Today, as agreed with the subcommittee, my
statement will focus on the progress made in these five governmentwide and
the two program initiatives in PMA and the next steps our work shows will
be key to effectively enhance the management and performance of the
federal government. I will also highlight the importance of congressional
oversight in continuing to provide the attention needed to improve
management and performance across the federal government and ensure
accountability. This testimony draws upon our wide-ranging work on federal
management and transformation issues, including analysis of PMA
initiatives and the President's 2006 Budget of the U.S Government. We
conducted our work in accordance with generally accepted government
auditing standards.

The PMA initiative to improve financial performance is aimed at ensuring
that federal financial systems produce accurate and timely information to
support operating, budget, and policy decisions. It focuses on key issues
such as data reliability, clean financial statement audit opinions, and
effective internal control and financial management systems. Our work in
these areas over a number of years demonstrates the importance of the
improvement efforts that are underway. The Congress enacted a number of
statutory reforms during the 1990s in the area of financial management.
Although progress has been made under the PMA, the federal government is a
long way from successfully implementing these reforms.

Reliable information, including cost data, is critical for effective
performance measurement to support program management decisions in areas
ranging from program efficiency and effectiveness to sourcing and

  Improved Financial Performance

contract management. For effective management, this information must not
only be timely and reliable, but also both useful and used. Under this PMA
initiative, agencies are expected to implement integrated financial and
performance management systems that routinely produce information that is
(1) timely-to measure and affect performance immediately, (2) useful-to
make more informed operational and investing decisions, and (3)
reliable-to ensure consistent and comparable trend analysis over time and
to facilitate better performance measurement and decision making.
Producing timely, useful, and reliable information is critical for
achieving the goals that the Congress established in the Chief Financial
Officers (CFO) Act of 1990 and other federal financial management reform
legislation.

The executive branch management scorecard for the financial performance
area not only recognizes the importance of achieving an unqualified or
"clean" opinion from auditors on financial statements, but also focuses on
the fundamental and systemic issues that must be addressed in order to
routinely generate timely, accurate, and useful financial information and
provide sound internal control and effective compliance systems, which
represents the end goal of the CFO Act.2

For fiscal year 2004, OMB accelerated agencies' financial statement
reporting date to November 15, 2004, as compared with January 30, 2004,
for fiscal year 2003. Twenty-two of twenty-three CFO Act agencies were
able to issue their fiscal year 2004 financial statements by the
accelerated reporting date, a significant improvement in the timeliness of
these statements. Eighteen of these agencies were able to attain
unqualified audit opinions on their financial statements. At the same
time, the growing number of CFO Act agencies that restated certain of
their financial statements for fiscal year 2003 to correct errors emerged
as an issue of concern that merits close scrutiny. Eleven of the
twenty-three CFO Act agencies fell into this category in fiscal year 2004,
as compared with at least five CFO Act agencies that had restatements of
prior year financial statements in fiscal year 2003. Frequent restatements
to correct errors can undermine public trust and confidence in both the
entity and all responsible parties.

The scorecard also measures whether agencies have any material internal
control weaknesses or material noncompliance with laws and regulations,

2 31 U.S.C. S:S: 901-903.

and whether agencies meet Federal Financial Management Improvement Act
(FFMIA) of 1996 requirements.3 As stated in the PMA, without sound
internal controls and accurate and timely financial information, it will
not be possible to accomplish the President's agenda to secure the best
performance and highest measure of accountability for the American people.

Reinforcing the PMA's emphasis on effective internal controls, OMB revised
Circular A-123, Management's Responsibility for Internal Control in
December, 2004. These revisions recognize that effective internal control
is critical to improving federal agencies' effectiveness and
accountability and to achieving the goals that the Congress established in
1950 and reaffirmed in 1982 with passage of the Federal Managers'
Financial Integrity Act (FMFIA).4 The Circular correctly recognizes that
instead of considering internal control as an isolated management tool,
agencies should integrate their efforts to meet the FMFIA requirements
with other efforts to improve effectiveness and accountability. Internal
control should be an integral part of the entire cycle of planning,
budgeting, management, accounting, and auditing. It should support the
effectiveness and the integrity of every step of the process and provide
continual feedback to management.

We support OMB's efforts to revitalize FMFIA, particularly the
principlesbased approach in the revised Circular A-123 for establishing
and reporting on internal control that should increase accountability.
This approach provides a floor for expected behavior, rather than a
ceiling, and by its nature, calls for greater judgment on the part of
those applying the principles. Accordingly, clear articulation of
objectives, the criteria for measuring whether the objectives have been
successfully achieved and the rigor with which these criteria are applied
will be critical. Providing agencies with supplemental guidance and
implementation tools, which OMB and the CFO Council are developing, is
particularly important in light of the varying levels of maturity in
internal control across government as well as the divergence in
implementation of a principles-based approach that is typically found
across entities with varying capabilities.

A challenge of great complexity that many agencies face is ensuring that
underlying financial management processes, procedures, and information

3 Public Law 104-208, S:S: 801-808, September 30, 1996. 4 31 U.S.C. S:S:
1113, 3512.

systems are in place for effective program management. Agencies need to
take steps to (1) continuously improve internal controls and underlying
financial and management information systems to ensure that managers and
other decision makers have reliable, timely, and useful financial
information to ensure accountability; (2) measure, control, and manage
costs; (3) manage for results; and (4) make timely and fully informed
decisions about allocating limited resources. Meeting FFMIA requirements
presents long-standing, significant challenges that will only be met
through time, investment, and sustained emphasis on correcting
deficiencies in federal financial management systems. The widespread
systems problems facing the federal government need sustained management
commitment at the highest levels of government to ensure that these needed
modernizations come to fruition. PMA provides the visibility needed for
sustaining these efforts.

Much work remains to be done across government to improve financial
performance, as shown by the December 2004 scorecards. Of the 23 CFO Act
agencies that OMB scored, 15 were rated red for financial performance.
This is not surprising, considering the well-recognized need to transform
financial management and other business processes at agencies such as the
Department of Defense (DOD), the results of our analyses under FFMIA, the
various financial management operations we have designated as high risk,
and known long-standing material weaknesses. Seven agencies improved their
scores to green from the initial baseline evaluation for financial
performance which was as of September 30, 2001; however, several agencies'
scores declined, reflecting increased challenges. Overhauling financial
management represents a challenge that goes far beyond financial
accounting to the very fiber of an agency's business operations and
management culture, particularly at agencies with longstanding problems,
such as DOD. For the new Department of Homeland Security (DHS),
establishing sound financial management is a critical success factor.

In the area of financial performance, the federal government is a long way
from successfully implementing needed financial management reforms.
Widespread financial management system weaknesses, poor recordkeeping and
documentation, weak internal controls, and the lack of information have
prevented the federal government from having the cost information it needs
to effectively and efficiently manage operations through measuring the
full cost and financial performance of programs and accurately reporting a
large portion of its assets, liabilities, and costs. The government's
ability to adequately safeguard significant assets has been impaired by
these conditions.

Across government, there is a range of financial management improvement
initiatives under way that, if effectively implemented, will improve the
quality of the government's financial management and reporting. Federal
agencies have started to make progress in their efforts to modernize their
financial management systems and improve financial management performance
as called for in PMA. However, until these challenges are adequately
addressed, they will continue to present a number of adverse implications
for the federal government and the taxpayers. At the same time, the need
for timely, reliable, and useful financial and performance information is
greater than ever. Our nation's large and growing long-term fiscal
imbalance, which is driven largely by known demographic trends and rising
health care costs, coupled with new homeland security and defense
commitments and the recent downward trend in revenue as a share of gross
domestic product, serves to sharpen the need to fundamentally review and
re-examine the base of federal entitlement, discretionary, and other
spending and tax policies. Clearly, tough choices will be required to
address the resulting structural imbalance.

Improper payments are a longstanding, widespread, and significant problem
in the federal government. The Congress enacted the Improper Payments
Information Act (IPIA) of 2002 to address this issue of improper
payments.5 The separate improper payments PMA program initiative began in
the first quarter of fiscal year 2005. Previously, agency efforts related
to improper payments were tracked along with other financial management
activities as part of the Improved Financial Performance initiative. The
objective of establishing a separate initiative for improper payments was
to ensure that agency managers are held accountable for meeting the goals
of the IPIA and are therefore dedicating the necessary attention and
resources to meeting IPIA requirements.

Across the federal government, improper payments occur in a variety of
programs and activities, including those related to health care, contract
management, federal financial assistance, and tax refunds. Improper
payments include inadvertent errors, such as duplicate payments and
miscalculations, payments for unsupported or inadequately supported
claims, payments for services not rendered, payments to ineligible
beneficiaries, and payments resulting from fraud and abuse by program

  Eliminating Improper Payments

5 31 U.S.C. S: 3321 note.

participants and/or federal employees. Many improper payments occur in
federal programs that are administered by entities other than the federal
government, such as states, municipalities, and intermediaries such as
insurance companies. Generally, improper payments result from a lack of or
an inadequate system of internal control, but some result from program
design issues.

Federal agencies' estimates of improper payments based on available
information for fiscal year 2004 exceeded $45 billion. This estimate could
increase significantly over the next several years as agencies become more
effective at estimating and reporting improper payment amounts for
programs and activities that are susceptible to significant improper
payments. Of the 15 agencies identified for this PMA initiative, no
agencies were rated green and 10 were rated red in the first scores for
this initiative as of December 31, 2004.

These results are consistent with our previous work both agencywide and in
specific program areas. For example, our preliminary reviews of 29 federal
agencies' fiscal year 2004 PARs suggest that a number of agencies were not
well positioned to meet the reporting requirements of IPIA. Additionally,
improper payments for specific programs have been identified as a
high-risk area. For example, the Centers for Medicare & Medicaid Services
has made improvements in assessing the level of improper payments,
collecting overpayments from providers, and building the foundation for
modernizing its information technology. Nevertheless, much work remains to
be done given the magnitude of its challenges in safeguarding program
payments. This includes more effectively overseeing Medicare's claims
administration contractors, managing the agency's information technology
initiatives, and strengthening financial management processes across
multiple contractors and agency units. In light of these challenges and
the program's size and fiscal significance, Medicare remains on our list
of high-risk programs. For Medicaid, an estimate of improper payments was
not reported for fiscal year 2004.

Our prior work has demonstrated that attacking improper payments requires
a strategy appropriate to the organization and its particular risks. We
have found that entities using successful strategies to help address their
improper payments shared a common focus of improving the internal control
system-the first line of defense in safeguarding assets and preventing and
detecting errors and fraud. As discussed in the Comptroller

General's Standards for Internal Control in the Federal Government,6 the
components of any control system are:

o  control environment-creating a culture of accountability,

o  	risk assessment-performing analyses of program operations to determine
if risks exist,

o  control activities-taking actions to address identified risk areas,

o  	information and communications-using and sharing relevant, reliable,
and timely information, and

o  	monitoring-tracking improvement initiatives and identifying additional
actions needed to further improve program efficiency and effectiveness.

Effective implementation of the IPIA will be an important step towards
addressing the longstanding, significant issue of improper payments. OMB
has an important role, and we support their efforts to call attention to
this issue. Fiscal year 2004 represents the first year that federal
agencies were required to report improper payment information required by
the IPIA in their Performance and Accountability Reports (PAR). IPIA
raised improper payments to a new level of importance by requiring federal
agencies to annually review all programs and activities and identify those
that may be susceptible to significant improper payments. Federal agencies
are required to estimate the annual amount of improper payments for those
programs and activities identified as susceptible to significant improper
payments. The law further requires federal agencies to report to the
Congress the improper payment estimates and information on the actions the
agency is taking to reduce the improper payments. OMB implementation
guidance required that estimates and, if applicable, the corrective action
report, be included in federal agencies' PARs beginning with fiscal year
2004.7

OMB's guidance addresses the specific reporting requirements called for in
the act and lays out the general steps agencies are to perform to meet
those requirements. The guidance defines key terms used in the law, such
as programs and activities, and offers criterion that clarify the meaning
of the term significant improper payments. It requires that agencies use
statistical sampling when estimating improper payments and sets
statistical sampling confidence and precision levels for estimation
purposes. It also requires that agencies report the results of their
improper

6 GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 7 OMB Memorandum
M-03-13, May 21, 2003.

  Strategic Human Capital Management

payment activities in their annual PAR. The ultimate success of the
legislation and the PMA initiative hinges on each agency's diligence and
commitment in identifying, estimating, determining the causes of, taking
corrective actions, and measuring progress in reducing all improper
payments. Designating this area as a separate program initiative under the
PMA, will bring visibility to this problem that we hope will lead to
action and further progress.

The PMA recognizes that people are an important organizational asset to an
agency. Under the PMA, agencies are to implement a comprehensive human
capital plan that aligns with agency mission and goals. Considerable
progress has been made in strategic human capital management since we
designated it as high risk in 2001.8 For example, OMB recently reported
that agencies are making improvements in addressing key human capital
challenges. Nevertheless, ample opportunities exist for agencies to
improve their strategic human capital management to achieve results and
respond to current and emerging challenges. Specifically, agencies
continue to face challenges in four key areas:

o  	Leadership: Agencies need sustained leadership to provide the focused
attention essential to completing multiyear transformations.

o  	Strategic Human Capital Planning: Agencies need effective strategic
workforce plans to identify and focus their human capital investments on
the long-term issues that best contribute to results.

o  	Acquiring, Developing, and Retaining Talent: Agencies need to continue
to create effective hiring processes and use flexibilities and incentives
to retain critical talent and reshape their workforces.

o  	Results-Oriented Organizational Cultures: Agencies need to reform
their performance management systems so that pay and awards are linked to
performance and organizational results.

Going forward, federal agencies need to develop and effectively implement
the human capital approaches that best meet their needs, resources,
context, and authorities. While these approaches will depend on each
organization's specific situation, leading public sector organizations
build an infrastructure that at a minimum, includes (1) a

8GAO, High-Risk Series: An Update (GAO-01-263, January 2001).

human capital planning process that integrates the agency's human capital
policies, strategies, and programs with its program goals, mission, and
desired outcomes; (2) the capabilities to effectively develop and
implement a hew human capital system; and importantly, (3) the existence
of a modern, effective, and credible performance management system that
includes adequate safeguards (such as reviews and appeal processes) to
ensure fair, effective, non-discriminatory, and credible implementation of
the new system. Our observations follow.

Conducting strategic human capital planning: Such planning aligns human
capital programs with programmatic goals and develops strategies to
acquire, develop, and retain staff to achieve these goals.9 As part of the
PMA, agencies are to implement a workforce planning system to identify and
address gaps in mission critical occupations and competencies and develop
succession strategies.

Agencies are experiencing significant challenges to deploying the right
skills, in the right places, at the right time in the wake of extensive
downsizing during the early 1990s that was done largely without sufficient
consideration of the strategic consequences. Agencies are also facing a
growing number of employees who are eligible for retirement and are
finding it difficult to fill certain mission-critical jobs, a situation
that could significantly drain agencies' institutional knowledge. For
example, the achievement of DOD's mission is dependent in large part on
the skills and expertise of its civilian workforce. We recently reported
that DOD's future strategic workforce plans may not result in workforces
that possess the critical skills and competencies needed.10 Among other
things, DOD and the components do not know what competencies their staff
needs to do their work now and in the future and what type of recruitment,
retention, and training and professional development workforce strategies
should be developed and implemented to meet future organizational goals.
It is questionable whether DOD's implementation of its new personnel
reforms will result in the maximum effectiveness and value.

Building the capability to develop and implement human capital systems: An
essential element to acquiring, developing, and retaining a high-quality

9 GAO, Human Capital: Key Principles for Effective Strategic Workforce
Planning, GAO-04-39 (Washington, D.C.: Dec. 11, 2003).

10 GAO, DOD Civilian Personnel: Comprehensive Strategic Workforce Plans
Needed, GAO-04-753 (Washington, D.C.: June 30, 2004).

workforce is effective use of human capital flexibilities. These
flexibilities represent the policies and practices that an agency has the
authority to implement in managing its workforce. As part of the PMA,
agencies are to establish goals to accelerate their hiring processes,
monitor their progress, and implement needed improvements.

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
the Office of Personnel Management (OPM) have provided and recommended
that OPM take additional actions to assist agencies in strengthening the
federal hiring process.11 We subsequently reported that although Congress,
OPM, and agencies have all undertaken efforts to help improve the federal
hiring process, agencies appeared to be making limited use of the new
hiring flexibilities provided by Congress in 2002-category rating and
direct hire.12

Consistent with our findings and recommendations, OPM has taken a number
of important actions to assist agencies in their use of hiring
flexibilities. For example, 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 in interim regulation. Also,
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.

Implementing modern, effective, and credible performance management
systems: Effective performance management systems can help drive internal
change and achieve external results. Such systems are not merely used for
expectation setting and rating processes, but are also used to facilitate
two-way communication so that discussions about individual and
organizational performance are integrated and ongoing. Leading public
sector organizations have created a clear linkage-"line of sight"- between
individual performance and organizational success. Under the

11 GAO, Human Capital: Opportunities to Improve Executive Agencies' Hiring
Processes, GAO-03-450 (Washington, D.C.: May 30, 2003).

12 GAO, Human Capital: Increasing Agencies' Use of New Hiring
Flexibilities, GAO-04-959T (Washington, D.C.: July 13, 2004); Human
Capital: Additional Collaboration Between OPM and Agencies Is Key to
Improved Federal Hiring, GAO-04-797 (Washington, D.C.: June 7, 2004); and
Human Capital: Status of Efforts to Improve Federal Hiring, GAO-04-796T
(Washington, D.C.: June 7, 2004).

  Framework for Human Capital Reform

PMA, agencies are to establish performance appraisal plans for all senior
executives and managers that link to agency mission, goals, and outcomes.

Recently, Congress and the administration have sought to modernize senior
executive performance management systems by establishing a new
performance-based pay system for the Senior Executive Service (SES) that
is designed to provide a clear and direct linkage between SES performance
and pay.13 With the new system, an agency can raise the pay cap for its
senior executives if OPM certifies and OMB concurs that the agency's
performance management system, as designed and applied, makes meaningful
distinctions based on relative performance. However, data suggest that
more work is needed in making such distinctions. Agencies rated about 75
percent of senior executives at the highest level their systems permit in
fiscal year 2003, the most current year for which data are available,
which is about the same percent of executives as fiscal year 2002.

Congress has recently given agencies such NASA, DHS, and DOD statutory
authorities to help them manage their human capital strategically to
achieve results. Consequently, in this environment, the federal government
is quickly approaching the point where "standard governmentwide" human
capital policies and processes are neither standard nor governmentwide. To
be effective, human capital reform needs to avoid further fragmentation
within the civil service, ensure reasonable consistency within the overall
civilian workforce, and help maintain a reasonably level playing field
among federal agencies competing for talent.

To help advance the discussion concerning how governmentwide human capital
reform should proceed, GAO and the National Commission on the Public
Service Implementation Initiative hosted a forum on whether there should
be a governmentwide framework for human capital reform and, if so, what
this framework should include.14 While there were divergent views among
the forum participants, there was general agreement on a set

13 See section 1322 of Public Law 107-296, November 25, 2002, and section
1125 of Public Law 108-136, November 24, 2003.

14 GAO and the National Commission on the Public Service Implementation
Initiative, Highlights of a Forum: Human Capital: Principles, Criteria,
and Processes for Governmentwide Federal Human Capital Reform, GAO-05-69SP
(Washington, D.C.: Dec. 1, 2004).

of principles, criteria, and processes that would serve as a starting
point for further discussion in developing a governmentwide framework in
advancing needed human capital reform, as shown in figure 1.

                 Figure 1: Principles, Criteria, and Processes

o  	Principles that the government should retain in a framework for reform
because of their inherent, enduring qualities:

o  	Merit principles that balance organizational mission, goals, and
performance objectives with individual rights and responsibilities

o  Ability to organize, bargain collectively, and participate through
labor organizations

o  Certain prohibited personnel practices

o  Guaranteed due process that is fair, fast, and final

o  	Criteria that agencies should have in place as they plan for and
manage their new human capital authorities:

o  Demonstrated business case or readiness for use of targeted authorities

o  	An integrated approach to results-oriented strategic planning and
human capital planning and management

o  Adequate resources for planning, implementation, training, and
evaluation

o  	A modern, effective, credible, and integrated performance management
system that includes adequate safeguards to help ensure equity and prevent
discrimination

o  	Processes that agencies should follow as they implement new human
capital authorities:

o  	Prescribing regulations in consultation or jointly with the Office of
Personnel Management

o  	Establishing appeals processes in consultation with the Merit Systems
Protection Board

o  	Involving employees and stakeholders in the design and implementation
of new human capital systems

o  Phasing in implementation of new human capital systems

o  Committing to transparency, reporting, and evaluation

o  Establishing a communications strategy

o  Assuring adequate training

Source: GAO.

There is general recognition for a need to continue to develop a
governmentwide framework for human capital reform that Congress and the
administration can implement to enhance performance, ensure
accountability, and position the nation for the future. Nevertheless, how
it is done, when it is done, and on what basis it is done can make all the
difference. Agencies authorized to implement any statutory authority

  Budget and Performance Integration

should demonstrate that they have the capacity, not just the design, to do
so. The principles, criteria, and processes suggested above can help
ensure consistency when granting both (1) agency-specific human capital
authorities so agencies can design and implement effective human capital
systems to help them address 21st century challenges and succeed in their
transformations and (2) governmentwide reform to provide broad consistency
where desirable and appropriate.

The current administration has taken several steps to strengthen the
integration of budget, cost, and performance information for which the
Government Performance and Results Act (GPRA), the CFO Act, and the
Government Management Reform Act (GMRA) laid the groundwork. The budget
and performance integration initiative includes elements such as the
Program Assessment Rating Tool (PART) used to review programs, an emphasis
on improving outcome measures, and improving monitoring of program
performance. Another effort is budget restructuring, which is meant to
improve the alignment of resources with performance. None of these efforts
are simple or straightforward.

Integrating management and performance issues with budgeting is absolutely
critical for progress in government performance and management. Such
integration is obviously important to ensuring that management initiatives
obtain the resource commitments and sustained leadership commitment
throughout government needed to be successful. GPRA was enacted to provide
a greater focus on performance in the federal government with the
expectation that this would be linked and integrated with the budget. GPRA
has succeeded in 10 years in expanding the supply of information and
institutionalizing a culture of performance.15

In 2002, OMB introduced a formal assessment tool into executive branch
budget deliberation: PART is the central element in the performance
budgeting piece of the PMA.16 GPRA expanded the supply of performance
information generated by federal agencies. OMB's PART builds on GPRA

15 5 U.S.C. S: 306, 31 U.S.C. S:S: 1115-1119.

16 PART applies 25 questions to all "programs" under four broad topics:
(1) program purpose and design, (2) strategic planning, (3) program
management, and (4) program results (i.e., whether a program is meeting
its long-term and annual goals) as well as additional questions that are
specific to one of seven mechanisms or approaches used to deliver the
program.

by actively promoting the use of results-oriented information to assess
programs in the budget. It has the potential to promote a more explicit
discussion and debate between OMB, the agencies, and the Congress about
the performance of selected programs.

The promise of performance budgeting is that it can help shift the focus
of budgetary debates and oversight activities by changing the agenda of
questions asked. Performance information can help policymakers address a
number of questions such as whether programs are (1) contributing to their
stated goals, (2) well-coordinated with related initiatives at the federal
level or elsewhere, and (3) targeted to those most in need of services or
benefits. Results-oriented information is also needed for better
day-to-day management and agency decisionmaking. It can provide
information on what outcomes are being achieved, whether resource
investments have benefits that exceed their costs, and whether program
managers have the requisite capacities to achieve promised results. PART
reviews are directed towards answering many of these questions; in many
cases these reviews illustrated how far we have to go before performance
information can be used with complete confidence.

While no data are perfect, agencies need to have sufficiently credible
performance data to provide transparency of government operations so that
Congress, program managers, and other decision makers can use the
information. However, as our work on PART and GPRA implementation shows,
limited confidence in the credibility of performance data has been a
longstanding weakness.17

Credible performance information can facilitate a fundamental reassessment
of what the government does and how it does business by focusing on the
outcomes-or program results-achieved with budgetary resources. Our work
has shown that agencies are making progress, but improvement is needed to
ensure that agencies measure performance toward a comprehensive set of
goals that focus on results.18 We have previously reported that
stakeholder involvement appears critical for

17 GAO has suggested various approaches to addressing this and other
challenges in The Government Performance and Results Act: 1997
Governmentwide Implementation Will Be Uneven, GAO/GGD-97-109 (Washington,
D.C.: June 1997).

18 GAO, Performance Reporting: Few Agencies Reported on the Completeness
and Reliability of Performance Data, GAO-02-372 (Washington, D.C.: Apr.
26, 2002); and Managing for Results: Opportunities for Continued
Improvements in Agencies' Performance Plans, GAO/GGD/AIMD-99-215
(Washington, D.C.: July 20, 1999).

getting consensus on goals and measures. Although improving outcome
measures continues to be a major focus of PART reviews, as we reported in
our January 2004 report,19 these assessments are conducted during the
executive branch budget formulation process. An agency's communication
with stakeholders, including Congress, about goals and measures created or
modified during the formulation of the President's budget is likely to be
less than during the development of the agency's own strategic or
performance plan.

Moreover, in order for performance information to more fully inform
resource allocations, decision makers must also feel comfortable with the
appropriateness and accuracy of the performance information and measures
associated with these goals. It is unlikely that decision makers will use
performance information unless they believe it is credible and reliable
and reflects a consensus about performance goals among a community of
interested parties. Similarly, the measures used to demonstrate progress
toward a goal, no matter how worthwhile, cannot serve the interests of a
single stakeholder or purpose without potentially discouraging use of this
information by others.

Regarding OMB's budget restructuring effort, this represents more than
structural or technical changes. It reflects important trade-offs among
different and valid perspectives and needs of these different decision
makers. The structure of appropriations accounts and congressional budget
justifications reflects fundamental choices and incentives considered most
important. As such, changes to the account structure have the potential to
change the nature of management and oversight and ultimately the
relationship among the primary budget decision makers- Congress, OMB, and
agencies.20 This suggests that the goal of enhancing the use of
performance information in budgeting is a multifaceted challenge that must
build on a foundation of accepted goals, credible measures, reliable cost
and performance data, tested models linking resources to outcomes, and
performance management systems that hold agencies and managers accountable
for performance.

19 GAO, Performance Budgeting: Observations on the Use of OMB's Program
Assessment Rating Tool for the Fiscal Year 2004 Budget, GAO-04-174.
(Washington, D.C.: Jan. 30, 2004).

20 GAO, Performance Budgeting: Efforts to Restructure Budgets to Better
Align Resources With Performance, GAO-05-117SP (Washington, D.C.: Feb. 1,
2005).

Understanding performance issues requires an in-depth evaluation of the
factors contributing to the program results. Targeted evaluation studies
can be designed to detect important program side effects or to assess the
comparative advantages of current programs to alternative strategies for
achieving a program's goals. Further, although the evaluation of programs
in isolation may be revealing, it is often critical to understand how each
program fits with a broader portfolio of tools and strategies to
accomplish federal missions and performance goals. Such an analysis is
necessary to capture whether a program complements and supports other
related programs, whether it is duplicative and redundant, or whether it
actually works at cross-purposes with other initiatives. Although the
administration has taken some steps to use PART for crosscutting reviews,
this falls short of the more expansive planning and review process called
for in GPRA.

Although clearly much more remains to be done, the statutory reforms of
the 1990s have laid the foundation for performance budgeting by
establishing infrastructures in the agencies to improve the supply of
information on performance and costs. Merely the number of programs
"killed" or a measurement of funding changes against performance "grades"
cannot measure the success of performance budgeting. Rather, success must
be measured in terms of the quality of the discussion, the transparency of
the information, the meaningfulness of that information to key
stakeholders, and how it is used in the decision-making process. The
determination of priorities is a function of competing values and
interests that may be informed by performance information but also
reflects such factors as equity, unmet needs, and the perceived
appropriate role of the federal government in addressing these needs. If
members of Congress and the executive branch have better information about
the link between resources and results, they can make the trade-offs and
choices cognizant of the many and often competing claims on the federal
budget.

Expanded Electronic 	Electronic government, or e-government, has been seen
as promising a wide range of benefits based largely on harnessing the
power of the

Government 	Internet to facilitate interconnections and information
exchange between citizens and their government. Federal agencies have
implemented a wide array of e-government applications, including using the
Internet to collect and disseminate information and forms; buy and pay for
goods and services; submit bids and proposals; and apply for licenses,
grants, and

benefits. Although substantial progress has been made, the government
continues to face challenges in fully reaching its potential in this
area.21

Recognizing the magnitude of challenges facing the federal government,
Congress has enacted important legislation to guide the development of
egovernment. Specifically, in December 2002, Congress enacted the
E-Government Act of 2002 with the general purpose of promoting better use
of the Internet and other information technologies to improve government
services for citizens, internal government operations, and opportunities
for citizen participation in government.22 Among other things, the act
required the establishment of an Office of Electronic Government within
OMB to oversee implementation of the act's provisions. The act also
mandated additional actions to strengthen e-government activities in a
number of specific areas, including accessibility and usability of
government information, protection of personal privacy, coordination of
information related to disaster response and recovery, and common
protocols for geographic information systems. Additionally, title III of
the act includes provisions to strengthen agency information security,
known as the Federal Information Security Management Act of 2002.

To implement the PMA initiative, OMB has taken a number of actions. The
centerpiece of the effort has been oversight of 25 high-profile
egovernment projects covering a wide spectrum of government activities,
ranging from the establishment of centralized portals on government
information to eliminating redundant, nonintegrated business operations
and systems.23 For example, Grants.gov is a Web portal for all federal
grant customers to find, apply for, and ultimately manage federal grants
online. Other e-government efforts, such as the e-payroll initiative to
consolidate federal payroll systems, do not necessarily rely on the
Internet. The results of these e-government initiatives, according to OMB,
could produce several billion dollars in savings from improved operational
efficiency. More recently, OMB has initiated efforts to develop common
business

21 GAO, Electronic Government: Initiatives Sponsored by the Office of
Management and Budget Have Made Mixed Progress, GAO-04-561T (Washington,
D.C., March 24, 2004) and GAO, Electronic Government: Proposal Addresses
Critical Challenges, GAO-02-1083T (Washington, D.C., Sept. 18, 2002).

22 Public Law 107-347, December 17, 2002.

23 For more information about the selection of initiatives, see GAO,
Electronic Government: Selection and Implementation of the Office of
Management and Budget's 24 Initiatives, GAO-03-229 (Washington, D.C., Nov.
22, 2002).

driven, government-wide solutions in five e-government "lines of
business": case management, federal health architecture, grants
management, human resources management, and financial management. These
efforts are also expected to reap cost savings and gains in efficiency.

While many e-government initiatives are showing tangible results, we
found, in March 2004, that overall progress on the 25 OMB-sponsored
egovernment initiatives was mixed. At that time we reported that, of the
91 objectives originally defined in the initiatives' work plans, 33 had
been fully or substantially achieved; 38 had been partially achieved; and
for 17, no significant progress had been made. In addition, three of the
objectives were no longer being pursued, because they had been found to be
impractical or inappropriate. We found that the extent to which the 25
initiatives had met their original objectives could be linked to a common
set of challenges that they all faced, including (1) focusing on
achievable objectives that address customer needs, (2) maintaining
management stability through executive commitment, (3) collaborating
effectively with partner agencies and stakeholders, (4) driving
transformational changes in business processes, and (5) implementing
effective funding strategies. Initiatives that had overcome these
challenges generally met with success in achieving their objectives,
whereas initiatives that had problems dealing with these challenges made
less progress.

Additionally, as we reported in December 2004, in most cases, OMB and
federal agencies have taken positive steps toward implementing major
provisions of the E-Government Act of 2002.24 For example, OMB established
the Office of E-Government in April 2003, and published guidance to
federal agencies on implementing the act in August 2003. Apart from
general requirements applicable to all agencies (which we did not review),
we found that in most cases, OMB and designated federal agencies had taken
action to address the act's requirements within stipulated timeframes. To
help ensure that the act's objectives are achieved, we made
recommendations to OMB regarding implementation of the act in the areas of
e-government approaches to crisis preparedness, contractor innovation, and
federally funded research and development.

24 GAO, Electronic Government: Federal Agencies Have Made Progress
Implementing the E-Government Act of 2002, GAO-05-12, (Washington, D.C.,
Dec. 10, 2004).

OMB's PMA scorecard for the expanded electronic government initiative
reflects a broad view of the many components of an effective program for
expanding electronic government. For example, the scorecard assesses
whether an agency has an enterprise architecture25 in place that is linked
to the Federal Enterprise Architecture, which is intended to provide a
government wide framework to guide and constrain federal agencies'
enterprise architectures and information technology investments. The
federal government's efforts in this area are still maturing. In May 2004,
we reported that the Federal Enterprise Architecture remained very much a
work in progress and that agencies' enterprise architectures were likewise
still maturing.26 When we surveyed agencies in 2003, we found that only 20
of 96 agencies had established at least the foundation for effective
architecture management and that the level of maturity had not changed
much over the previous years.27

In addition, OMB's e-government scorecard requires agencies to properly
secure their information technology systems, a task that has been daunting
for many government agencies. We recently reported that although agencies
were generally reporting an increasing number of systems meeting key
statutory information security requirements, challenges nevertheless
remained.28 For example, only 7 of 24 agencies reported that they had
tested contingency plans for 90 percent or more of their systems.
Contingency plans provide specific instructions for restoring critical
systems in case the usual facilities are significantly damaged or cannot
be accessed due to unexpected events, and testing of these plans is
essential to determining whether they will function as intended in an
emergency situation.

25 An enterprise architecture is a blue print, defined largely by
interrelated models, that describes (in both business and technology
terms) an entity's "as is" or current environment, its "to be" or future
environment, and its investment plan for transitioning from the current to
the future environment.

26 GAO, Information Technology: The Federal Enterprise Architecture and
Agencies' Enterprise Architectures Are Still Maturing, GAO-04-798T
(Washington, D.C.: May 19, 2004).

27 GAO, Information Technology: Leadership Remains Key to Agencies Making
Progress on Enterprise Architecture Efforts, GAO-04-40 (Washington, D.C.:
Nov. 17, 2003).

28 GAO, Information Security: Continued Efforts Needed to Sustain Progress
in Implementing Statutory Requirements, GAO-05-483T (Washington, D.C.:
Apr. 7, 2005).

  Competitive Sourcing

The federal government needs to undertake a fundamental review of who will
do the government's business in the 21st Century. In this regard, agencies
are assessing what functions and transactions the private sector could
perform, and in many cases they are asking agency employees to compete
with private entities for this business. The objectives of the PMA
initiative on competitive sourcing are to improve quality and reduce
costs.

Aspects of the government's process for making sourcing decisions had been
criticized as cumbersome, complicated, and slow. Against this backdrop,
and in response to a requirement in the National Defense Authorization Act
for fiscal year 2001, I convened a panel of experts to study the process.
The Commercial Activities Panel, consisting of representatives from
agencies, federal labor unions, private industry, and other individuals
with expertise in this area, conducted a yearlong study. The panel members
heard repeatedly about the importance of competition and its central role
in fostering economy, efficiency, and continuous performance improvement.
The panel strongly supported continued emphasis on competition and
concluded that whenever the government is considering converting work from
one sector to another, public-private competitions should be the norm,
consistent with the 10 overarching principles adopted unanimously by the
panel.29

As part of the administration's efforts to advance this PMA initiative and
implement the recommendations of the Commercial Activities Panel, OMB
revised circular A-76, which sets forth federal policy for determining
whether federal employees or private contractors will perform commercial
activities. The revisions are broadly consistent with the principles and
recommendations of the Panel. In particular, the revised circular stresses
the use of competition in making sourcing decisions and, through reliance
on procedures contained in the Federal Acquisition Regulation, should
result in a more transparent, expeditious, fair, and consistently applied
competitive process. We continue to review various aspects of this
initiative.

One issue not fully addressed in the revised Circular was the right of
federal employees or their representatives to file protests challenging
the conduct or the outcomes of public-private competitions. In April 2004,
we

29 Improving the Sourcing Decisions of the Government. Final report of the
Commercial Activities Panel (Washington, D. C.: April 2002).

  Federal Real Property Asset Management

issued a decision holding that federal employees lacked standing to file
such protests under the Competition in Contracting Act (CICA).30 We
pointed out that the Congress would have to amend CICA in order to provide
that right. Congress amended CICA late last year,31 and just last week,
after receiving and considering various public comments, we issued final
regulations implementing the change.32

The federal real property portfolio is vast and diverse-over 30 agencies
control hundreds of thousands of real property assets worldwide, including
facilities and land worth hundreds of billions of dollars. Unfortunately,
much of this vast, valuable portfolio reflects an infrastructure based on
the business model and technological environment of the 1950s. Many of
these assets are no longer effectively aligned with, or responsive to,
agencies' changing missions. Further, many assets are in an alarming state
of deterioration; agencies have estimated restoration and repair needs to
be in the tens of billions of dollars. Maintaining underused or unneeded
federal property is also costly due to day-to-day operational costs, such
as regular maintenance, utilities fees, and security expenses. Compounding
these problems are the lack of reliable governmentwide data for strategic
asset management; a heavy reliance on costly leasing, instead of
ownership, to meet new needs; and the cost and challenge of protecting
these assets against terrorism. In January 2003, we designated federal
real property as a high-risk area due to these longstanding problems.

In February 2004, the President added the Federal Asset Management
Initiative to the President's Management Agenda and signed Executive Order
13327 to address challenges in this area. The order requires senior real
property officers at all executive branch departments and agencies to,
among other things, develop and implement an agency asset management plan;
identify and categorize all real property owned, leased, or otherwise
managed by the agency; prioritize actions needed to improve the
operational and financial management of the agency's real property
inventory; and make life-cycle cost estimations associated with the

30 B-293590.2, April 19, 2004, 2004 CPD P: 82.

31 Public Law 98-369, July 18, 1984, as amended by Public Law 108-375, S:
326(d), October 28, 2004.

32 70 Fed. Reg. 19679-19681 (Apr. 14, 2005).

prioritized actions. In addition, the senior real property officers are
responsible, on an ongoing basis, for monitoring the real property assets
of the agency. The order also established a new Federal Real Property
Council (the Council) at OMB.

In April 2005, OMB officials updated us on the status of the
implementation of the executive order. According to these officials, all
of the senior real property officers are in place, and the Council has
been working to identify common data elements and performance measures to
be captured by agencies and ultimately reported to a governmentwide
database. In addition, OMB officials reported that agencies are working on
their asset management plans. Plans for DOD, the Departments of Veterans
Affairs, (VA) and Energy, and the General Services Administration (GSA)
have been completed and approved by OMB. The Council has also developed
guiding principles for real property asset management. These guiding
principles state that real property asset management must, among other
things, support agency missions and strategic goals, use public and
commercial benchmarks and best practices, employ life-cycle cost-benefit
analysis, promote full and appropriate utilization, and dispose of
unneeded assets.

In addition to these reform efforts, Public Law 108-447 gave GSA the
authority to retain the net proceeds from the disposal of federal property
for fiscal year 2005 and to use such proceeds for GSA's real property
capital needs.33 Also, Public Law 108-422 established a capital asset fund
and gave VA the authority to retain the proceeds from the disposal of its
real property for the use of certain capital asset needs such as
demolition, environmental clean-up, and major repairs.34 And, agencies
such as DOD and VA have made progress in addressing longstanding federal
real property problems and governmentwide efforts in the facility
protection area are progressing. For example:

o  	VA has implemented a process called Capital Asset Realignment for
Enhanced Services (CARES) to address its aging and obsolete portfolio of
health care facilities. In March 2005, we reported that through CARES, VA
identified 136 locations for evaluation of alternative ways to align
inpatient services: 99 of these facilities had potential duplication of
services with

33 Division H, S: 412, December 8, 2004. 34 Sec. 411, November 30, 2004.

another nearby facility or low acute patient workload.35 VA made decisions
to realign inpatient health care services at 30 of these locations. For
example, it will close all inpatient services at five facilities. VA's
decisions on inpatient alignment and plans for further study of its
capital asset needs are tangible steps in improving management of its
capital assets and enhancing health care. Accomplishing its goals,
however, will depend on VA's success in completing its evaluations and
implementing its CARES decisions to ensure that resources now spent on
unneeded capital assets are redirected to health care.

o  	In DOD's support infrastructure management area, which we identified
as high-risk in 1997, DOD has made progress and expects to continue making
improvements. In April 2005, we testified that DOD's infrastructure costs
continue to consume a larger-than-necessary portion of its budget than DOD
believes is desirable.36 For several years, DOD has been concerned

about its excess facilities infrastructure, which affects its ability to
fund weapons system modernization and other critical needs. DOD has
achieved some operating efficiencies from such efforts as base
realignments and closures, consolidations, and business process
reengineering. Despite this progress, much work remains for DOD to
transform its support infrastructure so that it can concentrate resources
on critical needs. DOD also needs to strengthen its recent efforts to
develop and refine its comprehensive long-range plan for its facility
infrastructure to ensure adequate funding for facility sustainment,
modernization, and recapitalization.

o  	In light of the need to invest in facility protection since September
11, funding available for repair and restoration and preparing excess
property for disposal may be further constrained. The Interagency Security
Committee (ISC), which is chaired by DHS, is tasked with coordinating
federal agencies' facility protection efforts, developing standards, and
overseeing implementation. In November 2004, we reported that ISC had made
progress in coordinating the government's facility protection efforts by,
for example, developing security standards for leased space and design
criteria for security in new construction projects.37 Despite this
progress,

35 GAO, VA Health Care: Important Steps Taken to Enhance Veterans' Care By
Aligning Inpatient Services with Projected Needs, GAO-05-160 (Washington,
D.C.: Mar. 2, 2005).

36 GAO, DOD's High-Risk Areas: Successful Business Transformation Requires
Sound Strategic Planning and Sustained Leadership, GAO-05-520T
(Washington, D.C.: Apr. 13, 2005).

37 GAO, Homeland Security: Further Actions Needed to Coordinate Federal
Agencies' Facility Protection Efforts and Promote Key Practices, GAO-05-49
(Washington, D.C.: Nov. 30, 2004).

we found that its actions to ensure compliance with security standards and
oversee implementation have been limited. Nonetheless, the ISC serves as a
forum for addressing security issues, which can have an impact on
agencies' efforts to improve real property management.

The inclusion of real property asset management on the President's
Management Agenda, the executive order, and agencies' actions are clearly
positive steps in an area that had been neglected for many years. However,
despite the increased focus on real property issues in recent years, the
underlying conditions-such as excess and deteriorating properties and
costly leasing-continue to exist and more needs to be done to address
various obstacles that led to our high risk designation. For example, the
problems have been exacerbated by competing stakeholder interests in real
property decisions, various legal and budget related disincentives to
businesslike outcomes, and the need for better capital planning among real
property-holding agencies. In light of this, we continue to believe that
there is a need for a comprehensive and integrated transformation strategy
for federal real property. Realigning the government's real property
assets with agency missions, taking into account the requirements of the
future federal role and workplace, will be critical to improving the
government's performance and ensuring accountability within expected
resource limits. A transformation strategy could serve as a useful guide
for implementing further change and achieving such results.

As my testimony today has highlighted, serious and disciplined efforts are
needed to improve the management and performance of federal agencies and
to ensure accountability. Along with OMB's leadership in implementing PMA,
it will only be through the attention of Congress, the administration, and
federal agencies, that progress can be sustained and, more importantly,
accelerated. The stakes associated with federal program performance are
large, both for beneficiaries of these programs and the nation's
taxpayers. Policymaking institutions will be challenged to shift from the
traditional focus on incremental changes in spending or revenues to look
more fundamentally at the programs, policies, functions, and activities in
addressing current and emerging national needs and problems across levels
of government and sectors, including all major areas of the federal
budget-discretionary spending, entitlements and other mandatory spending,
and tax policies and programs.

Congressional support has proven to be critical in sustaining interest in
management initiatives over time. Congress has served as an institutional

  Continuing Attention Is Needed to Improve Management and Performance Across
  the Federal Government

champion for many reform initiatives over the years, such as the CFO Act
and GPRA. Our March 2004 report on GPRA found that it has established a
solid foundation for achieving greater results, but that significant
challenges to GPRA implementation still exist.38 Our survey data suggested
that more federal managers, especially at the SES level, believed that OMB
was paying attention to their agencies' efforts under GPRA. However, we
found inconsistent commitment in other areas where OMB could further
enhance its leadership. Agencies' plans and reports still suffer from
persistent weaknesses and could improve in a number of areas, such as
attention to issues that cut across agency lines, and better information
about the quality of the data that underlie agency performance goals. We
recommended that OMB improve its guidance and oversight of GPRA
implementation, as well as develop a governmentwide performance plan.

As discussed earlier, GPRA requires a governmentwide performance plan, but
OMB has not issued a distinct plan since 1999. Most recently, the
President's fiscal year 2006 budget described agencies' progress in
addressing the PMA and the results of PART reviews of agencies' programs.
While such information is important and useful, alone it is not adequate
to provide a broader and more integrated perspective of planned
performance on governmentwide outcomes. The PART focus on individual
programs needs to be supplemented by a more crosscutting assessment of the
relative contribution of portfolios of programs and tools to broader
outcomes. Most key performance goals of importance-ranging from low income
housing to food safety to counterterrorism-are addressed by a wide range
of discretionary, entitlement, tax, and regulatory approaches that cut
across a number of agencies.

Preparing a governmentwide plan could build on the administration's
efforts to assess progress across the government as well as contribute to
efforts to compare the performance results across similar programs that
address common outcomes. Although there has been limited progress, efforts
to date have not provided the Congress and others with an integrated
perspective on the extent to which programs and tools contribute to
national goals and position the government to successfully meet 21st
century demands.

38 GAO, Results-Oriented Government: GPRA Has Established a Solid
Foundation for Achieving Greater Results, GAO-04-38 (Washington, D.C.,
March 10, 2004).

We also suggested that Congress consider amending GPRA to require that the
President develop a governmentwide strategic plan. Although it generally
agreed with our recommendations, OMB stated that the President's Budget
can serve as both a governmentwide strategic and annual plan. However, we
believe that the budget provides neither a longterm nor an integrated
perspective on the federal government's performance. A strategic plan for
the federal government, supported by a set of key national indicators to
assess the government's performance, position, and progress, could provide
an additional tool for governmentwide reexamination of existing programs,
as well as proposals for new programs. Such a plan could be of particular
value in linking agencies' long-term performance goals and objectives
horizontally across the government and could provide a basis for
integrating, rather than merely coordinating, a wide array of federal
activities. This raises the issue of the need for a set of key indicators
to inform decision makers about the position and progress of the nation as
a whole and to help set agency and program goals and priorities.

Further, given the financial constraints we are likely to face for many
years to come and the trends at work that are changing the world in which
our government operates, a fundamental review of major program and policy
areas is needed to update the federal government's programs and priorities
to meet current and future challenges. Our recent report on 21st Century
Challenges is intended to help the Congress in reviewing and reconsidering
the base of federal spending and tax programs.39 As this Subcommittee is
well aware, the nature and magnitude of the fiscal, security, and economic
and other adjustments that need to be considered are not amenable to
"quick fixes;" rather they will likely require an iterative, thoughtful
process of disciplined changes and reforms over many years. Therefore,
providing an ongoing and consistent focus, such as the PMA has provided on
management reform efforts, is an important element in helping to ensure
that the federal government is managed effectively to achieve results
important to the American people.

Our report on 21st century challenges laid out some of the most pressing
issues for policymakers to consider as the government increasingly relies
on new networks and partnerships to achieve critical results. A complex
network of governmental and nongovernmental entities-such as federal

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

agencies, domestic and international non- or quasi-governmental
organizations, for-profit and not-for-profit contractors, and state and
local governments-contribute to shaping the actual outcomes achieved. Some
of the issues are consistent with those raised by the PMA, such as in the
area of real property asset management-focusing on opportunities to more
strategically manage the federal government's assets to make the federal
portfolio more relevant to current missions and less costly. Moving
forward, some additional questions that are particularly relevant to the
focus of this hearing on improving governance include the following:

o  	In a modern society with advanced telecommunications and electronic
information capabilities, which agencies still need a physical presence in
all major cities?

o  	How can agencies more strategically manage their portfolio of tools
and adopt more innovative methods to contribute to the achievement of
national outcomes?

o  	How can greater coordination and dialogue be achieved across all
levels of government to ensure a concerted effort by the public sector as
a whole in addressing key national challenges and problems?

o  	What are the specific leadership models that can be used to improve
agency management and address transformation challenges? For example,
should we create chief operating officer or chief management officer
positions with term appointments within selected agencies to elevate,
integrate, and institutionalize responsibility and authority for business
management and transformation efforts?

Mr. Chairman, we are pleased to be able to participate in this hearing
today. We have issued a large body of reports, guides, and tools on issues
directly relevant to PMA, and plan to continue to actively support
congressional and agency actions to address today's challenges and prepare
for the future. As I have discussed in my statement today, although
efforts to transform agencies by improving their management and
performance are under way, more remains to be done to ensure that the
government has the capacity to deliver on its promises meet current and
emerging needs, and to remain relevant in the 21st Century. Decisive
action and sustained attention will be necessary to make the hard choices
needed to reexamine and transform the federal government, maximize its
performance, and ensure accountability.

This concludes my prepared statement. I would be pleased to respond to any
questions that you or other members of the subcommittee may have.

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