GAO Performance and Accountability Highlights: Fiscal Year 2005  
(01-JAN-06, GAO-06-2SP).					 
                                                                 
This report presents the highlights of GAO's fiscal year 2005	 
Performance and Accountability report. In short, fiscal year 2005
was an exceptional year for GAO. For example, we received a clean
opinion from independent auditors on our financial statements and
met or exceeded targets for 10 of 14 key performance measures,	 
while setting or matching all-time records for 3 measures. We	 
documented $39.6 billion in financial benefits--a return of $83  
for every dollar we spent--and over 1,400 nonfinancial		 
benefits--a record for us. The work we did to produce these	 
benefits helped to shape important legislation, such as the	 
Intelligence Reform and Terrorism Prevention Act of 2004 (Pub. L.
No. 108-458), and increase the efficiency of various federal	 
programs, thus improving the lives of millions of Americans. In  
addition, the rate at which our recommendations were implemented 
by the Congress or federal agencies rose to 85 percent in fiscal 
year 2005, and the percentage of our fiscal year 2005 products	 
containing recommendations increased to 63 percent--exceeding the
targets we set for both of these measures this year. In addition,
in the first year that we are reporting our progress on our 8 new
measures related to our people, we met or exceeded the targets	 
for 6 of them related to retention and employee satisfaction. We 
came close to, but did not achieve, the targeted performance	 
related to our new hire rate--the ratio of the number of people  
hired to the number of people we planned to hire--and the	 
percentage of people that accepted our employment offers.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-2SP 					        
    ACCNO:   A45237						        
  TITLE:     GAO Performance and Accountability Highlights: Fiscal    
Year 2005							 
     DATE:   01/01/2006 
  SUBJECT:   Accountability					 
	     Agency missions					 
	     Cost control					 
	     Financial management				 
	     Internal controls					 
	     Performance measures				 
	     Productivity in government 			 
	     Quality control					 
	     Strategic planning 				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-06-2SP

     

     * Front Cover
     * Inside Front Cover
     * From the Comptroller General
     * About GAO
          * GAO's Strategic Plan Framework
          * Examples of How GAO Assisted the Nation
     * GAO's Performance
          * Results Measures
               * Financial and Other Benefits
                    * Financial Benefits
                    * Other Benefits
               * Past Recommendations Implemented
               * New Products Containing Recommendations
          * Client Measures
               * Testimonies
                    * Selected Testimony Issues
               * Timeliness
          * People Measures
          * Goal 1 Results
          * Goal 2 Results
          * Goal 3 Results
          * Goal 4 Results
     * 21st Century Challenges
     * GAO's High-Risk Program
     * Strategies for Achieving Our Goals
          * Strategic and Annual Work Planning
          * Collaborating with Others
          * Using Our Internal Experts
     * Addressing Management Challenges That Could Affect Our Performance
          * The Human Capital Challenge
          * The Information Security Challenge
          * The Physical Security Challenge
     * Mitigating External Factors That Could Affect Our Performance
     * Managing Our Resources
          * Resources Used to Achieve Our Fiscal Year 2005 Performance Goals
               * Audit Advisory Committee
          * Planned Resources to Achieve Our Fiscal Year 2006 Performance
            Goals
     * From the Chief Financial Officer
     * Financial Management Accountability
          * Financial Systems and Internal Controls
          * Limitation on Financial Statements
          * Purpose of Each Financial Statement
     * Independent Auditor's Report
     * Financial Statements
     * From the Inspector General
     * Image Sources
     * Providing Comments on This Report
     * Obtaining Copies of GAO Documents
     * Inside Back Cover
     * Back Cover

Source: See Image Sources.

January 2006

By nearly every measure, GAO has once again produced excellent results in
serving the Congress and the American people, and this summary performance
and accountability report highlights our results for fiscal year 2005. Our
business involves helping to improve performance and ensure accountability
in connection with a broad range of federal programs, policies, and
activities. Simply put, we try to help improve the way the federal
government works for the benefit of all of our nation's citizens both now
and in the future. To determine our success, we set performance targets
and follow financial management and quality control practices that help
ensure that we are making the best use of the federal funds invested in
us. I am very pleased to report that in addition to strong financial and
nonfinancial external performance results, GAO received clean opinions
from external, independent auditors on our financial statements and on our
performance audit and financial audit quality assurance systems. We also
identified a broad range of issues that could seriously affect the
stability and prosperity of the nation in the years to come. The following
paragraphs highlight our performance in each of these areas.

With respect to our performance measures, I am especially pleased to
report that we met or exceeded targets for 10 of our 14 performance
measures, while setting or matching all-time records for 3 measures. We
documented $39.6 billion in financial benefits-a return of $83 for every
dollar we spent-and over 1,400 nonfinancial benefits-a record for us. The
work we did to produce these benefits helped to shape important
legislation, such as the Intelligence Reform and Terrorism Prevention Act
of 2004 (Pub. L. No. 108-458), and increase the efficiency of various
federal programs, thus improving the lives of millions of Americans. In
addition, the rate at which our recommendations were implemented by the
Congress or federal agencies rose to 85 percent in fiscal year 2005, and
the percentage of our fiscal year 2005 products containing recommendations
increased to 63 percent-exceeding the targets we set for both of these
measures this year. Our performance in these two areas set an all-time
record for recommendations implemented and matched the record we set in
fiscal year 2004 for the percentage of new products with recommendations.
We delivered 179 testimonies, slightly missing our target of 185. We also
missed by just 1 percent our target of providing 98 percent of our
products to the Congress when promised. In addition, in the first year
that we are reporting our progress on our 8 new measures related to our
people, we met or exceeded the targets for 6 of them related to retention
and employee satisfaction. We came close to, but did not achieve, the
targeted performance related to our new hire rate-the ratio of the number
of people hired to the number of people we planned to hire-and the
percentage of people that accepted our employment offers.

As in past years, during fiscal year 2005, our work covered a number of
major topics of concern to the nation and, in some cases, the world. For
example, we reported on the nation's long-term fiscal challenges, the
financial condition of the airline industry, spending and reconstruction
activities related to Iraq and Afghanistan, and strengthening the visa
process as an antiterrorism tool. We also examined the Department of
Defense's transformation challenges, base realignment and closure issues,
increasing the strategic focus of federal acquisitions, protecting against
identity theft, oversight of electricity markets, zero down payment
mortgages, and immigration enforcement. We testified many times before the
Congress, contributing to the public debate on a variety of topics that
included issues relating to Social Security, national security, homeland
security, health care, tax policy and administration, and government
transformation efforts. A list of topics on which we testified appears on
page 28 of this summary report.

The American people benefited this year as federal agencies took a wide
range of actions based on our analyses and recommendations, while our
efforts also heightened the visibility of issues needing attention. We
feel fortunate and honored that in a significant majority of cases, our
clients and federal agencies listen to what GAO has to say and act on our
recommendations. Furthermore, virtually all of our reports are pub lished
and available on our Web site (http://www.gao.gov ), keeping us
accountable to the American people.

Once again we have received a clean audit opinion on our financial
statements, and on page 62 of this summary report we have included the
independent auditor's condensed report stating that we presented our
financial statements fairly and maintained effective internal control
processes. The auditors also reported no instances of noncompliance with
applicable laws and regulations. Additionally, I am most pleased to report
the results of the first-ever review of our quality assurance system used
to conduct our performance audits, which involves work performed in
virtually all parts of GAO. This review- which was performed by an
international team of auditors from seven countries led by the Office of
the Auditor General of Canada-assessed whether our quality assurance
policies and procedures were suitably designed and operating effectively;
the review resulted in a clean opinion. Their April 2005 audit report also
cited a number of exemplary practices at GAO, such as our strategic
planning process, proactive working relationship with the Congress,
quality assurance framework, audit risk assessment process, and high-risk
list. The international team also offered us some suggestions for
improvement, including streamlining certain requirements for low-risk
assignments, a suggestion that we are already working to implement.
Similarly, as we have in the past, we received a clean opinion resulting
from a separate audit of our quality assurance system for our financial
audits. The auditors concluded that our system of quality control for the
accounting and auditing practice was designed to meet applicable quality
control standards and was complied with for the period reviewed, providing
us reasonable assurance of conforming to applicable professional
standards.

In fiscal year 2005, we issued two products that will assist the Congress
as it addresses a broad range of future challenges. Our report entitled
21st Century Challenges: Reexamining the Base of the Federal Government
provides a series of illustrative questions related to 12 areas of federal
activity as well as our perspective on various strategies and approaches
that should be considered as a possible means to address the many
challenges and opportunities that we face in the 21st century. Drawing on
our institutional knowledge and extensive program evaluation and
performance assessment work for the Congress, we presented over 200
specific 21st century questions illustrating the types of hard choices our
nation needs to face as it reexamines what the federal government should
do, how it should do it, and how it should be financed. (See p. 33 for
more information about our 21st century challenges report.) We also issued
our High-Risk Series: An Update, which identifies federal areas and
programs at risk of fraud, waste, abuse, and mismanagement and those in
need of broad-based transformations. The issues affecting many of these
areas and programs may take years to address, and the report will serve as
a useful guide for the Congress's future programmatic deliberations and
oversight activities. The current administration has looked to our
high-risk program in shaping governmentwide initiatives such as the
President's Management Agenda, which has at its base many of the areas we
had previously identified as high risk. The Office of Management and
Budget, in consultation with us, is currently working to ensure that
agencies develop detailed action plans to address high-risk areas, with
the ultimate objective, over time, of seeing these items removed from our
high-risk list.

This year we also continued to take steps internally to be a model federal
agency and a world-class professional services organization. These steps
helped us to address our three major management challenges-human capital,
physical security, and information security. Through the GAO Human Capital
Reform Act of 2004, the Congress granted GAO several additional human
capital flexibilities that will allow us, among other things, to move to
an even more performance-oriented and market-based compensation system.
Our most valuable asset continues to be our people, and the flexibilities
granted in this act will help us to continue to modernize our
peo-ple-related policies and strategies, which, in turn, will help to
ensure that we are well equipped to serve the Congress and the American
people in the years to come. As a result, we are continuing to take a
range of actions designed to modernize our human capital policies and
practices. In fiscal year 2005, we adopted a broad pay band approach and a
more perfor-mance-oriented pay system for our administrative staff. We
also made considerable progress in moving to a more mar-ket-based and
skills-, knowledge-, and performance-oriented classification and pay
systems for all of our employees.

In today's world, we should partner for progress with other key players.
We believe strongly in doing so in order to maximize our value and
mitigate risk within current and expected resource levels. Fiscal year
2005 included several major milestones in our outreach efforts. Most
notably, we led the adoption of the first-ever strategic plans for the
International Organizational of Supreme Audit Institutions and the
National Intergovernmental Audit Forum.

In short, fiscal year 2005 was a very successful year for us. Our complete
performance and accountability report, which is available on our Web site
at http://www.gao.gov , describes our many contributions toward improving
the government. I am confident that the performance data and financial
information in that report and this summary are complete and reliable. I
believe that GAO remained true to its core values of accountability,
integrity, and reliability throughout the year and that

 those who read this report will agree that the taxpayers received an excellent
                       return on their investment in GAO.

David M. Walker Comptroller General of the United States

Source: GAO.

The U.S. Government Accountability Office (GAO) is an independent,
nonpartisan, professional services agency in the legislative branch of the
federal government. Commonly known as the "audit and investigative arm of
the Congress" or the "congressional watchdog," we examine how taxpayer
dollars are spent and advise lawmakers and agency heads on ways to make
government work better.

Our mission is 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 accomplish our mission by providing reliable information and
informed analysis to the Congress, to federal agencies, and to the public;
and we recommend improvements, when appropriate, on a wide variety of
issues. Three core values-account-ability, integrity, and reliability-form
the basis for all of our work, regardless of its origin. These are
described on the inside front cover of this summary.

The majority of our work is undertaken in response to congressional
mandates or requests. However, as authorized by our enabling legislation,
we also independently allocate a lim-

                                 GAO's History

The Budget and Accounting Act of 1921 required the President to issue an
annual federal budget and established GAO as an independent agency to
investigate how federal dollars are spent. In the early years, we mainly
audited vouchers, but after World War II we started to perform more
comprehensive financial audits that examined the economy and efficiency of
government operations. By the 1960s, GAO had begun to perform the type of
work we are noted for today-program evaluation-which examines whether
government programs are meeting their objectives.

ited portion of our resources for work performed under the Comptroller
Gen-eral's authority. To perform both types of efforts, we maintain a
workforce of highly trained professionals with degrees in many academic
disciplines, including accounting, law, engineering, public and business
administration, economics, and the social and physical sciences. About
three-quarters of our approximately 3,200 employees are based at our
headquarters in Washington, D.C.; the rest are deployed in 11 field
offices across the country. Almost all of our staff are organized into 13
teams that support our three external strategic goals. Our other staff
support our fourth strategic goal (an internal goal) and work in various
staff offices, including General Counsel and Congressional Relations.

To ensure that we are well positioned to meet the Congress's current and
future needs, we update our 6-year strategic plan every 3 years,
consulting extensively during the update with our clients on Capitol Hill
and with other experts (see our complete strategic plan on the Web at
www.gao.gov/sp/d04534sp.pdf ). Our strategic plan is based on a hierarchy
of four elements-strategic goals, strategic objectives, performance goals,
and key efforts. We use the strategic plan as a blueprint to lay out the
areas in which we expect to conduct research, audits, analyses, and
evaluations to meet our clients' needs. This then allows us to allocate
the resources we receive from the Congress accordingly. Our strategic plan
framework is shown on page 9 .

Our work is primarily aligned under the first three strategic goals, which
span issues that are both domestic and international, affect the lives of
all Americans, and influence the extent to which the federal government
serves the nation's current and future interests. The fourth goal is our
only internal one and is aimed at maximizing our productivity through such
efforts as investing steadily in information technology to support our
work; ensuring the safety and security of our people, information, and
assets; pursuing human capital transformation; and leveraging our
knowledge and experience. On page 10 , we list by strategic goal some
examples of the work we performed during fiscal year 2005.

Each year, we hold ourselves accountable to the Congress and to the
American people for our performance. As a legislative branch agency, we
differ in some ways from executive branch agencies. We are, for instance,
exempt from many laws applicable to the executive branch. However, we hold
ourselves to the spirit of many of these laws, including 31 U.S.C. 3512
(commonly referred to as the Federal Managers' Financial Integrity Act),
the Government Performance and Results Act of 1993, and the Federal
Financial Management Improvement Act of 1996.

The pages that follow offer highlights of our performance and
accountability report for fiscal year 2005. We also present condensed
financial statements and the independent auditor's opinion on them. If you
would like additional information, please see the full-length version of
our performance and accountability report and other perfor-mance-related
documents at www.gao.gov/sp.html .

                    Examples of How GAO Assisted the Nation

GAO strategic goal Description In fiscal year 2005, GAO provided
information that helped to...

Provide timely, quality service to the Congressand the federal government
to address current and emerging challenges to the well-being and financial
security of the American people.

     + Improve the transition from active duty to civilian status for
       veteranswith serious war-related injuries
     + Address long-term health care financing pressures on state and local
       government budgets
     + Identify challenges with transferring the Medicare appeals processfrom
       the Social Security Administration and the Department of Health and
       Human Services
     + Improve patient safety at Department of Veterans Affairs hospitals
     + Improve the security of Social Security numbers
     + Address the challenges of pension reform
     + Strengthen the security screening process for passengersand checked
       baggage at the nation'sairports
     + Improve the oversight of Federal Housing Administration single-family
       and multifamily lenders
     + Improve the oversight of electricity marketsby the Federal Energy
       Regulatory Commission
     + Identify challengesassociated with the Department of Energy'snuclear
       facility designs
     + Monitor the growth in the digital television market
     + Analyze issues contributing to the declining financial condition of
       the airline industry

Provide timely, quality service to the Congressand the federal government
to respond to changing security threatsand the challenges of global
interdependence.

     + Improve the management of funds for the Global War on Terrorism
     + Increase the security of cargo containers to prevent terrorist
       activity
     + Alert the Congress to issuesaffecting the Department of Defense'smajor
       weapon systems
     + Analyze funding options for a new federal foreign assistance
       program-the Millennium Challenge Account
     + Promote government efforts to address threats to the security of the
       nation's information systems
     + Strengthen the visa processasan antiterrorism tool
     + Improve management of the U.S. Coast Guard's Deepwater program
     + Shape the debate on improving military pay and benefits
     + Strengthen the U.S.strategic export control system
     + Identify improvements needed to secure the telecommunicationsand
       information systemsused by U.S. financial markets

Help transform the federal government's role and how it doesbusiness to
meet 21st century challenges.

     + Increase the public'sunderstanding of the federal
       government'slong-term fiscal challenges
     + Implement governmentwide civil service reforms
     + Oversee federal tax policy
     + Increase debts collected from criminals
     + Decrease improper payments made by the U.S. Department of
       Agriculture's Food Stamp Program and other federal agencies
     + Manage multibillion-dollar information technology modernizationsand
       investmentsat the Department of Homeland Security and Office of
       Personnel Management
     + Improve agencies' strategic purchasing practices
     + Examine changes in key areas of federal activity that could affect the
       federal government's fiscal future
     + Enhance the knowledge base on comprehensive national indicators

4       Maximize the       fS Foster among other federal agencies GAO's    
                              innovative human capital                        
         value of GAO by                   practices, such asbroad pay bands; 
                                              performance-based compensation; 
          being a model       and workforce planning and staffing strategies, 
                                                      policies, and processes 
     federal agency and a     fS Share GAO's model businessand management     
     world-classprofessional  processesand other transformation-related       
                              information with counterpart organizations in   
                              the United Statesand abroad                     
             services         
          organization.       

                               GAO's Performance

In fiscal year 2005, the Congress focused its attention on a broad array
of challenging issues affecting the safety, health, and well-being of
Americans here and abroad, and we were able to provide the objective,
fact-based information these decision makers needed to stimulate debate,
change laws, and improve federal programs for the betterment of the
nation. For example, as the war in Iraq continued, we examined how the
Department of Defense (DOD) supplied vehicles, body armor, and other
materiel to the troops in the field; contributed to the debate on military
compensation; and highlighted the need to improve health, vocational
rehabilitation, and employment services for seriously injured soldiers
transitioning from the battlefield to civilian life. We also kept pace
with the Con-gress's information needs about ways to better protect
America from terrorism by issuing products and delivering testimonies that
addressed issues such as security gaps in the nation's passport operations
that threaten public safety and federal efforts needed to improve the
security of checked baggage at airports and cargo containers coming
through U.S. ports. We explored the financial crisis that weakened the
airline industry and the impact of this situation on the traveling public
and airline employees' pensions.

In addition, we helped to focus the attention of the Congress and the
public on issues affecting the fiscal security and economic stability of
the nation in the long term. In the second quarter of fiscal year 2005, we
issued two products that will assist the Congress as it addresses future
challenges. Our report entitled 21st Century Challenges: Reexamining the
Base of the Federal Government provides a series of illustrative questions
related to 12 areas of federal activity as well as our perspective on
various strategies and approaches that should be considered as possible
means to address the issues and questions raised in the report. Drawing on
our institutional knowledge and extensive program evaluation and
performance assessment work for the Congress, we presented over 200
specific 21st century questions illustrating the types of hard choices our
nation needs to face as it reexamines what the federal government does and
how it does it. We also issued our High-Risk Series: An Update, which
identifies federal areas and programs at risk of fraud, waste, abuse, and
mismanagement and those in need of broad-based transformations. The issues
affecting many areas and programs discussed in these two products may take
years to address, and these products will serve as a useful guide for the
Congress's future programmatic deliberations and oversight activities.
(See pp. 33 and 35 for more information about our 21st century challenges
and high-risk reports, respectively.) We performed all this work and more
in accordance with our strategic plan, guided by our core values, and
consistent with our professional standards.

As we assisted the Congress in fiscal year 2005, we monitored our
performance using 14 annual performance measures that capture the results
of our work; the assistance we provided to our client-the Congress; and
our ability to attract, retain, develop, and lead a highly professional
workforce ( see table 1 ). These measures indicate that we had an
impressive year-we met or exceeded our performance targets for 10 of our
14 measures. Two of our results measures-financial benefits and other
benefits-illustrate the outcomes of our work and our value to the nation
because they track federal dollars saved or better used and programmatic
improvements implemented as a result of our work. Two additional results
measures track recommendations implemented and new products with
recommendations that help us to achieve financial and other benefits. Our
client measures-testimo-nies and timeliness-indicate how well we, as an
information provider, serve the Congress, and our people measures reflect
how well we manage our staff to achieve the results that we do.

In fiscal year 2005, we accomplished real results for the nation,
surpassing our financial benefits target for the year and exceeding our
annual target and all-time record for other (nonfinancial) benefits. Our
financial benefits of $39.6 billion represent an $83 return on every
dollar invested in us, and the more than 1,400 other benefits resulting
from our work helped to improve the efficiency and effectiveness of
government programs that serve the public. In addition, we exceeded our
targets for the percentages of past recommendations implemented and new
products with recommendations by 5 percentage points and 8 percentage
points, respectively.

We did not achieve the targets we set for testimonies and timeliness.
Several testimonies we had scheduled were postponed or canceled so that
the Congress could turn its attention to the Supreme Court nominations
and, during the last months of the fiscal year, to Hurricane Katrina and
its aftermath. However, we believe we served the Congress very well during
fiscal year 2005. Based on feedback through an electronic survey completed
by a sample of our congressional clients who requested our testimonies and
significant products, 96 percent of the responses concerning their overall
satisfaction with our products were favorable.

           Table 1: Agencywide Summary of Annual Measures and Targets

Source: GAO.

Notes: N/A indicates the information is not available or the target is not
applicable. Our fiscal year 2006 target for the percentage of products
with recommendations differs from the target we reported for this measure
in our fiscal year 2006 performance plan posted on our Web page in June
2005. On the basis of our performance in fiscal year 2005, we increased
this target by 5 percentage points.

Concerning our eight people measures, for which we began to hold managers
accountable in fiscal year 2005, we are happy to report that we met or
exceeded our annual targets for all but two of them-new hire rate and
acceptance rate. Our performance in this area indicates that we did a very
good job developing, productively using, and managing our staff, but need
to improve our recruiting and hiring processes, which we have taken steps
to do.

Results Measures

Focusing on outcomes and the efficiency of the processes needed to achieve
them is fundamental to accomplishing our mission. The following measures
indicate that we have fulfilled our mission and delivered results that
benefit the nation.

Financial and Other Benefits

We describe many of the benefits produced by our work as either financial
or other (nonfinancial) benefits. Both types of benefits result from our
efforts to provide information to the Congress that helped to (1) change
laws and regulations, (2) improve services to the public, and (3) promote
sound agency and governmentwide management. In many cases, the benefits we
claimed in fiscal year 2005 are based on work we did in past years because
it often takes the Congress and agencies time to implement our
recommendations or to act on our findings. To claim either type of
benefit, our staff must document the connection between the benefits
reported and the work that we performed.

  Financial Benefits

Our findings and recommendations produce measurable financial benefits for
the federal government when the Congress or agencies act on them and the
funds are made available to reduce government expenditures or are
reallocated to other areas. The monetary effect realized can be the result
of changes in

     + business operations and activities;
     + the structure of federal programs; or
     + entitlements, taxes, or user fees.

For example, financial benefits could result if the Congress were to
reduce the 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 asset sales-that our work helped to produce. In fiscal year 2005,
our work generated $39.6 billion in financial benefits. Of this amount,
$19 billion (or approximately 48 percent) resulted from changes in laws or
regulations.

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. We convert
all estimates involving past and future years to their net present value
and use actual dollars to represent estimates involving only the current
year. Financial benefit amounts vary depending on the nature of the
benefit, and we can claim financial benefits over multiple years based on
a single agency or congressional action. To ensure conservative estimates
of net financial benefits, reductions in operating cost are typically
limited to 2 years of accrued reductions. Multiyear reductions in
long-term projects, changes in tax laws, program terminations, or sales of
government assets are limited to 5 years. Estimates come from non-GAO
sources and are reduced by any identifiable offsetting costs. These
non-GAO sources are typically the agency that acted on our work, a
congressional committee, or the Congressional Budget Office.

To document financial benefits, our staff complete reports documenting
accomplishments that are linked to specific products or actions. All
accomplishment reports for financial benefits are documented and reviewed
by

(1) another GAO staff member not involved in the work and (2) a senior
executive in charge of the work. Also, a separate unit reviews all
financial benefits and approves benefits of $100 million or more, which
amounted to 94 percent of the total dollar value of benefits recorded in
fiscal year 2005. Additionally, our Inspector General (IG) performs an
independent review of all accomplishment reports claiming benefits of $500
million or more, which represented about 78 percent in fiscal year 2005.

Figure 1 lists several of our major financial benefits reported in fiscal
year 2005 and briefly describes some of our work contributing to financial
benefits.

    Figure 1: GAO'sSelected Major Financial Benefits Reported in Fiscal Year

                           Source: See Image Sources.

Source: GAO.

  Other Benefits

Many of the benefits that result from our work cannot be measured in
dollar terms. During fiscal year 2005, we recorded a total of 1,409 other
benefits. We documented 75 instances where the information we provided to
the Congress resulted in statutory or regulatory changes, 595 instances
where federal agencies used our information to improve services to the
public, and 739 instances where agencies improved core business processes
or governmentwide reforms as a result of our work. These actions spanned
the full spectrum of issues, from identifying that some soldiers had not
been reimbursed for military-related travel costs they personally incurred
to highlighting weaknesses in the Social Security Administration's
policies for verifying birth certificates when issuing replacement Social
Security cards. In figure 2 we provide examples of some of the other
benefits we claimed as accomplishments in fiscal year 2005. The laws that
we cite in the first section of this figure were passed in fiscal year
2005.

Figure 2: GAO'sSelected Other (Nonfinancial) Benefits Reported in Fiscal
Year 2005

                           Source: See Image Sources.

Ronald W.       We assisted the Congress in crafting major improvements to 
                   a program                                                  
Reagan National intended to compensate individuals who worked in DOE       
Defense         facilities and developed illnesses related to radiation    
Authorization   and hazardous materials exposure. In a 2004 report, we     
                   identified features of the originally enacted program that 
Act for Fiscal  would likely lead to inconsistent benefit outcomes for     
Year 2005 (Pub. claimants, in part because the program depended on the     
L.              varying state workers compensation systems to provide some 
                   benefits. We also presented several options for            
No. 108-375)    improving the consistency of benefit outcomes and a        
                   framework for                                              
                   assessing these options. When the Congress enacted the     
                   Ronald W. Reagan                                           
                   National Defense Authorization Act for Fiscal Year 2005,   
                   it revamped this                                           
                   energy employees benefit program. Among other changes,     
                   this law                                                   
                   federalized the payment of worker compensation benefits    
                   for eligible energy                                        
                   contractor employees and provided a schedule of uniform    
                   benefit payments.                                          
                   (Goal 1)                                                   

Consolidated AppropriationsAct, 2005 (Pub. L. No. 108-447)

At the time of our August 2003 report, the original 1999 expiration date
for the franchise fund pilots operating at six federal agencies had been
extended three times. These franchise funds, authorized by the Government
Management Reform Act of 1994, are part of a group of 34 intragovernmental
revolving funds that were created to provide common administrative support
services required by many federal agencies, including, for example,
information technology (IT) infrastructure support services. We concluded
that increasing the period of authorization would help ease concerns of
current and potential clients about franchise fund stability and might
allow franchise funds to add new business lines, and we suggested that the
authorizations be extended for longer periods. The Congress provided
permanent authority to the Treasury franchise fund in the Consolidated
Appropriations Act, 2005, passed on December 8, 2004. (Goal 3)

Also in 2003, we reported that most agencies could not retain the proceeds
from the sale of unneeded property and this acted as a disincentive to
disposing of unneeded property. We stated in our high-risk report on
federal real property that it may make sense to permit agencies to retain
proceeds for reinvestment in real property where a need
exists.Subsequently, in the Consolidated Appropriations Act, 2005, the
Congress authorized the Administrator of GSA to retain the net proceeds
from the conveyance of real and related personal property. These proceeds
are to be deposited into the Federal Buildings Fund and are to be used as
authorized for GSA's real property capital needs. (Goal 1)

In December 2003, we reported that 184 out of 213 Alaska Native villages
are affected, to some extent, by flooding and erosion. However, these
villages often have difficultyqualifying for federal assistance to combat
their flooding and erosion problems. In our report, we recommended that
the Denali Commission adopt a policy to guide investment decisions and
project designs in villages affected by flooding and erosion. In this
legislation, the Congress provided the Secretary of the Army authority to
carry out "structural and non-structural projects for storm damage
prevention and reduction, coastal erosion, and ice and glacial damage in
Alaska, including relocation of affected communities and construction of
replacement facilities." (Goal 1)

To improve the federal government's ability to collect billions of dollars
of outstanding criminal debt, we recommended in a 2001 report, that the
Department of Justice work with other agencies involved in criminal debt
collection to develop a strategic plan that would improve interagency
processes and coordination with regard to criminal debt collection
activities. The conference report that accompanied the Consolidated
Appropriations Act, 2005, directed the Attorney General to assemble an
interagency task force for the purpose of better managing, accounting for,
reporting, and collecting criminal debt. (Goal 3)

Encouraged the  For the 2000 Census, the United States Census Bureau       
                   (Bureau) printed                                           
Census Bureau   material used to train census workers only in English,     
                   except in Puerto Rico                                      
to produce      where training materials were available in Spanish.        
                   However, to better                                         
training        prepare census workers-some of whom speak Spanish as their 
                   first                                                      
materials in    language-to locate migrant farm workers and other          
                   hard-to-count groups,                                      
other languages we recommended that the Bureau consider providing training 
                   materials in                                               
                   languages other than English to targeted areas. In         
                   response to our                                            
                   recommendation, the Bureau is researching foreignlanguage  
                   data collection                                            
                   methods as part of its preparations for the 2006 Census    
                   test and, more                                             
                   generally, plans to identify areas and operations that     
                   will require in-language                                   
                   training materials for areas with very large, new migrant  
                   populations where it                                       
                   will not be possible to hire bilinguals. Moreover, the     
                   Bureau's June 2005                                         
                   request for proposals for a Field Data Collection          
                   Automation System includes                                 
                   a requirement for the contractor to provide training       
                   applications and materials                                 
                   in English and Spanish for the handheld computers          
                   enumerators are to use                                     
                   to count nonrespondents. (Goal 3)                          

Source: GAO.

In addition to the financial and other benefits claimed in fiscal year
2005 from our work, we also achieved the following results.

Past Recommendations Implemented

One way we measure our effect on improving the government's
accountability, operations, and services is by tracking the percentage of
recommendations that we made 4 years ago that have since been implemented.
At the end of fiscal year 2005, 85 percent of the recommendations we made
in fiscal year 2001 had been implemented, primarily by executive branch
agencies. Putting these recommendations into practice will generate
tangible benefits for the nation in the years ahead. The 85 percent
implementation rate for fiscal year 2005 exceeded our target for the year
by 5 percentage points as well as our actual performance for the last 4
years. Because agencies need time to act on recommendations, 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.

New Products Containing Recommendations

This year, about 63 percent of the 637 written products we issued
(excluding testimonies) contained recommendations. We track the percentage
of new products with recommendations because we want to encourage staff to
develop recommendations that when implemented by the Congress and
agencies, produce financial and other benefits for the nation. However, by
setting our target at 55 percent, we recognize that our products do not
always include recommendations and that the Congress and agencies often
find such informational reports just as useful as those that contain
recommendations. Our informational reports have the same analytical rigor
and meet the same quality standards as those with recommendations and,
similarly, can help to bring about significant financial and other
benefits. Hence, this measure allows us ample leeway to respond to
requests that result in reports without recommendations.

Client Measures

To fulfill the Congress's information needs, we strive to deliver the
results of our work orally as well as in writing at a time agreed upon
with our clients.

Testimonies

Our clients often invite us to testify on our current and past work when
it addresses issues that congressional committees are examining through
the hearing process. During fiscal year 2005, experts from our staff
testified at 179 congressional hearings covering a wide range of complex
issues. For example, our senior executives testified on improving the
security of nuclear material, federal oversight of mutual funds, and the
management and control of DOD's excess property. ( See p. 28 for a summary
of issues we testified on by strategic goal in fiscal year 2005.) Over 70
of our testimonies were related to high-risk areas and programs, which are
discussed on page 35 .

However, in spite of our willingness to testify for our clients, we did
not meet our fiscal year 2005 target of 185 testimonies, primarily because
congressional committees either canceled or postponed several hearings at
which our senior executives were scheduled to testify to focus instead on
key events such as Hurricane Katrina.

Timeliness

We track the percentage of our products that are delivered on or before
the day we agreed to with our clients because it is critical that our work
be done on time for it to be used by policymakers. In fiscal year 2005 we
missed our target of providing 98 percent of them by the promised date.

As part of its periodic review of our performance measures, the IG
independently examined our process for calculating product timeliness and
found evidence that some staff may be inconsistently applying the policy
for changing a committed issue date, which ultimately affects the
reliability of this measure. The IG also noted that the internal reporting
approach may not adequately represent the most complete assessment of the
requesters' satisfaction with our ability to deliver products when our
clients need them. The IG recommended that GAO management strengthen the
guidance for determining timeliness and consider developing an
alternative, more independent measure to gauge performance in this area.
Therefore, begin-ning in fiscal year 2006, we will use the results of our
client feedback survey as a barometer for how well we are getting our
products to the Congress when it needs them. We will use this survey as
the primary data source for our external timeliness measure because the
responses come directly from our clients and are free from significant
input by our staff. However, we will continue to use our current process
as a supplemental check for determining timeliness. For further
information about this measure, see page 87 in our full performance and
accountability report.

People Measures

We could not have performed as well as we did in fiscal year 2005 without
the support and commitment of our highly professional, multidisciplinary
staff. Our ability to hire, develop, retain, and lead staff is critical to
fulfilling our mission of serving the Congress and the American people.
Since 2002, we have refined our processes for measuring how well we manage
our human capital and have benchmarked our performance in this area.
Fiscal year 2005 was the first year we held our managers accountable for
our eight people measures, and we met six of them-slightly missing our
targets for new hire rate and acceptance rate by only a few percentage
points. These measures are directly linked to our goal 4 strategic
objective of becoming a professional services employer of choice.

On the pages that follow our selected list of testimonies, we highlight
our performance under each of our strategic goals; discuss our 21st
century challenges report and high-risk update; and describe strategies
for achieving those strategic goals, our management challenges, the
external factors we face, and the resources we used to achieve our
performance results.

                           Selected Testimony Issues

  Fiscal Year 2005

GOAL 1:

Address Challenges to the Well-Being and Financial Security of the
American People

     + Head Start grants management
     + Preparing for an influenza pandemic
     + Overseeing the U.S. food supply
     + Retirement options for seniors
     + Long-term health care costsand government budgets
     + Energy demand in the 21st century
     + Postal service reform legislation
     + Veterans' disability claims
     + Social Security reform
     + Wildland fire management
     + Medicaid financing issues
     + Meeting the future demand for energy in the United States
     + National air traffic system
     + Amtrak's Acela train
     + Protecting nuclear material handled at science and environmental sites
     + Providing services to seriously injured veterans
     + Rural housing service
     + Federal real property
     + Endangered Species Act
     + Federal oversight of the E-rate program

GOAL 2:

Respond to Changing Security Threats and the Challenges of Globalization

     + Army's modular forces
     + U.S. passport fraud
     + Cargo security strategies
     + Acquisition challenges facing the Navy's DD(X) destroyer program
     + Tactical aircraft modernization
     + DOD security clearances
     + Oil for Food program
     + Unmanned aerial vehicles
     + Condition of Coast Guard aircraft and shipsused in deep waters
     + Managing violations of restricted air space
     + Federal oversight of mutual funds to ensure investor security
     + Portsecurity
     + Protecting U.S. officials overseas from terrorist attacks
     + DOD'sbusinesstransformation
     + Transportation security issues
     + Implementing laws that protect the security of information
     + DOD's national security personnel system
     + Acquisition challenges facing the Army's future combat systems

GOAL 3:

Help Transform the Federal Government's Role and How It Does Business

     + Long-term fiscal issuesaffecting the federal government
     + Gaps in military pay and benefits
     + 21st century challenges for the federal government
     + Air Force procurement protests
     + Human capital transformation at DHS
     + Preparing for emergenciesat federal agencies
     + Space shuttle workforce issues
     + Reducing the tax gap
     + U.S. government financial statements
     + Management and control of DOD's excess property
     + Pricing federal multiple award contracts
     + Performance budgeting
     + High-risk federal programs
     + Army National Guard travel reimbursement issues
     + Space acquisitionsand investment planning
     + Improper Payments Information Act
     + Agencies' continuity of operations plans
     + DHS's Student and Exchange Visitor Information System

Source: See Image Sources.

    Financial Benefits: $15.6 Billion (Target: $19.6 Billion)

     o Reducing nuclear waste cleanup costs: Financial benefits valued at
       $4.5 billion arose from costsavoided after the implementation of our
       recommendation that DOE seek legislation to allow more economical
       treatment and disposal of high-level nuclear wastes.
     o Improving air traffic control systems: The Federal Aviation
       Administration (FAA) reviewed itsFacilitiesand Equipment account and
       reduced its initial budget request by $393 million for several air
       traffic systems that had experienced chronic delaysand cost overruns,
       largely by targeting vulnerabilities that we had identified in our
       analysesand by using management processes we recommended based our
       past work.
     o Identifying funds to address hazardous waste sites: Our work hasbeen
       instrumental in the Environmental Protection Agency's efforts to
       identify, deobligate, and reuse $189.3 million in unspent funds from
       expired projects in the Superfund program, which has offset the need
       for additional appropriations.
     o Identifying a potentially duplicative structure for job training
       funding: We suggested that the Department of Labor's (DOL) proposal
       for a new $250 million program for community-based jobtraining grants
       would create a new administrative structure for allocating training
       funds to community collegesand may duplicate the system currently in
       place. Based on our work, the Congressappropriated $125 million
       instead of DOL's initial request.

    Other Benefits: 277 (Target: 240 Other Benefits)

     o Paying properly for power wheelchairs for Medicare beneficiaries: On
       the basis of our finding that the information provided to Medicare
       contractors that process wheelchair claims-one of the program's most
       expensive items-provided insufficient detail, new requirements were
       established to make more information available.
     o Monitoring states' inventories of childhood vaccines: The Centers for
       Disease Control and Prevention implemented our recommendation to
       develop astrategic plan that includessteps to monitor childhood
       vaccine supplies in state depots, which should help ensure that the
       adequate inventoriesare available.
     o Estimating tobacco retailer violation rates: Our work led the
       Department of Health and Human Services (HHS) to increase oversight of
       states' monitoring of tobacco retailers; for example, HHS now
       visitsstates to help assessthe accuracy and completeness of tobacco
       outlet listsand works with states to improve standardization of
       inspection protocols.

Sources: GAO, United States Mint coin image.

Source: See Image Sources.

    Financial Benefits: $13.0 Billion (Target: $9.4 Billion)

     o Improving DOD's missile defense system acquisitions: A financial
       benefit of about $4.7 billion stemmed from our findings that the
       Missile Defense Agency could scale back itssystem development
       effortsuntil required technologiesare more mature.
     o Improving management of funds for officers' housing: In May 2004, we
       reported that 13renovation projects for general and flag officer
       quarters-6 Navy and 7 Marine Corps-exceeded the services' cost
       estimatesand that about 45 percent of the increased costs were related
       to customer-driven changes. The Congresssubsequently reduced the
       services' (Army, Navy, Air Force, and Marines) family housing
       operationsand maintenance budget requestsby about $10.8 million in
       total citing our work on thissubject.

    Other Benefits:365 (Target:300 Other Benefits)

     o Improving controls covering technology exports: We found that a gap in
       control regulationscovering exports with both militaryand civilian
       applications could enable individuals in most countries to legally
       obtain these items without any U.S. government review and that these
       itemscould be used to help makea cruise missile or unmanned aerial
       vehicle. The Department of Commerce subsequently proposed
       modifications to its regulations to help close the regulatory gap.
     o Strengthening the visa process as an antiterrorism tool: Using our
       work asa primary guide, the Department of State strengthened the visa
       processasan antiterrorism tool by,among other things, issuing guidance
       emphasizing national security as the department's first priority in
       the visaprocess; developing over 80 standard operating procedures to
       ensure that consular officersproperly review visaapplicationsand
       effectively fulfill their national security responsibilities; and
       developing and enhancing training on analytic interviewing techniques,
       fraud prevention, counterterrorism, and use of a name check system for
       passportsand visaapplications.
     o Ensuring decisions to transfer U.S. weapons and technologies to
       foreign governments are adequately informed: We found that the
       National Disclosure Policy Committee-which approves or denies requests
       for exceptions to the criteriaused to determine if classified weapons
       or technologies can be released to the requesting country-was
       operating with outdated Central Intelligence Agency risk assessments.
       Acting on our recommendations, the committee'sExecutive Secretariat
       requested that the Central Intelligence Agency provide updated risk
       assessments for 23 countries, and those assessmentsare under way.

                  Sources: GAO, United States Mint coin image.

Source: See Image Sources.

    Financial Benefits: $11.0 Billion (Target: $8.5 Billion)

     o Improving IRS's methodology for pursuing delinquent taxes: A financial
       benefit of about $1.8billion stemmed from our findings that led IRS to
       increase revenue collectionsby improving itscapacity to assess the
       collectibility of delinquent taxesand to decide on which debts to
       focuscollection efforts.
     o Avoiding costs associated with the Small Business Administration's
       (SBA) loan monitoring system: We recommended that SBA perform
       benefit-cost analyses for systemsalternatives to better ensure that
       the agency would meet its needs for a new loan monitoring system at
       the lowest cost. Asa result, SBA stopped its in-house system
       development work and contracted with a firm to perform its loan
       monitoring services. Consequently, we were able to document cost
       avoidances that led to $5.6 million in financial benefits this fiscal
       year.

    Other Benefits: 767 (Target: 460 Other Benefits)

o  Adding rigor to the Coast Guard's oversight of Deepwater program
contractors: We found that

(1) the Coast Guard's evaluation of a contractor responsible for
developing and delivering assets for the Deepwater program-established to
modernize the Coast Guard'saging fleet of shipsand aircraft-lacked the
necessary rigor to be effective and (2) two subcontractors were solely
responsible for deciding whether to compete assets or make the assets
themselves. Based on our recommendations, the Coast Guard improved the
criteria for assessing the system integrator'sperformance and required the
subcontractors to provide notification of decisions to make assetsvalued
at $10 million or more.

     o Preventing improper sales of sensitive clothing and textile items: On
       the basis of our findingsthat it improperly sold over the Internet
       excess clothing with reflectant properties that prevent detection with
       infrared technologies, DOD issued a more stringent policy, which
       determined that these itemsare of asufficiently critical and sensitive
       nature to require total destruction-an action that should help prevent
       thissensitive technology from falling into the wrong hands.
     o Improving accountability at DOL: We recommended that the Office of
       Management and Budget (OMB) revise itsaudit guidance related to
       testing to be able to positively state whether agency financial
       management systems comply with requirements (positive assurance).
       DOL's IG advised us that it had followed our advice and became the
       first federal agency to provide positive assurance.
     o Improving NASA's cost-estimating processes: Acting on our
       recommendations, NASA hasremoved barriers to cost estimation-such as
       the lack of reliable financial and performance dataand the lack of
       incentives to measure and monitor cost trends-and improved its
       cost-estimating practice. Sources: GAO, United States Mint coin image.

Source: See Image Sources.

     o Improving dissemination of GAO products: We continued our pilot to
       produce and disseminate GAO reports in an electronic format, and based
       on the positive client feedback we received on the approximately 25
       reports we provided in electronic format, we plan to make the use of
       electronic products routine. We also improved the process for creating
       and posting to our Website the electronic supplements to our reports,
       enabling our staff to view all features of asupplement before it is
       posted on the Internet, easing navigation within the electronic
       supplement, and more readily identifying the product asa GAO product.
     o Enhancing our classification and compensation systems: We directly
       linked the process for determining compensation to an individual's
       performance, as reflected on the appraisal, and used amarket-based
       compensation study that allowsus to design a competitive, fair, and
       equitable compensation program that isaligned with competitive labor
       markets in which we compete for talent. In addition, our
       administrative and professional support staff completed their first
       year under abroadband pay system and a competency-based performance
       system.
     o Improving engagement support services: We revised the Audit
       Documentation Set to help ensure that our engagementsare consistent
       with the generally accepted auditing standardsand our Quality
       Assurance Framework and that our work and engagement-related decisions
       havebeen systematically documented. The streamlined and simplified
       document eliminates duplicate requirementsand documentation of steps,
       thereby saving staff time.
     o Improving customer service through use of Web-based technology: We
       upgraded our Web-based time and attendance system and our automated
       competency-based performance system, developed and implemented a
       Web-based request system for scheduling GAO vansand drivers that
       transport our staff to official meetings, redesigned the Web-based
       phone book, and deployed a major enhancement to our Web-based employee
       locator system.
     o Ensuring our IT security: We installed personal firewall software,
       implemented changes to ensure desktop security and foil spyware, and
       implemented an integrated security approach for our Web-based systems.
     o Ensuring our physical security: We enhanced our physical security by
       completing perimeter security efforts, including installation of
       high-speed rollup doors, guard booths, undervehicle cameras, pop-up
       barriers, and a perimeter plinth wall.

                  Sources: GAO, United States Mint coin image.

                            21st Century Challenges

We have long had a statutory responsibility for monitoring the condition
of the nation's finances. Recently, in our role as the auditor of the U.S.
govern-ment's consolidated financial statements, we included an emphasis
paragraph in our audit report for the fiscal year ended September 30,
2005, expressing our concern that the nation's current fiscal path is
unsustainable and that tough choices by the President and the Congress are
necessary in order to address the nation's large and growing long-term
fiscal imbalance. This conclusion is based on the results of our long-term
budget model, which we have used since 1992.

Over the long term, the nation's growing fiscal imbalance stems primarily
from the aging of the population, rising health care costs, and lower
federal revenues as a percentage of the economy. These trends are
compounded by the presence of near-term deficits arising from new
discretionary and mandatory spending as well as lower revenues as a share
of the economy. Absent significant changes on the spending side, the
revenue side, or both sides of the budget, these long-term deficits will
encumber a growing share of federal resources and test the capacity of
current and future generations to afford both today's and tomorrow's
commitments. Continuing on this unsustainable path will gradually erode,
if not suddenly damage, our economy, our standard of living, and
ultimately our national security.

Addressing the nation's long-term fiscal imbalances constitutes a major
transformational challenge that may take a generation to resolve. Given
the size of our projected deficit, we will not be able to grow our way out
of this prob-lem-tough choices will be required. In addition, traditional
incremental approaches to budgeting will need to give way to more
fundamental and periodic reexaminations of the base of government,
ultimately covering discretionary and mandatory programs as well as the
revenue side of the budget. The nature and magnitude of the fiscal,
security, 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.

We produced the 21st century challenges report (see 21st Century
Challenges: Reexamining the Base of the Federal Government, GAO-05-325SP )
to help the Congress review and reconsider the base of federal spending
and tax programs. It is intended as one input among many that the Congress
will receive as it decides what its agenda will be for oversight and
program review. We have framed the issues presented as illustrative
questions for policymakers to consider as a supplement to their own
efforts. The questions are drawn from our issued work, our strategic plan
prepared in consultation with the Congress, input from several IGs, and
the institutional knowledge of our staff. They cover discretionary
spending; mandatory spending, including entitlements; and tax policies and
programs. While answers to these questions may draw on our work and that
of others, only elected officials can and should decide which questions to
address as well as how and when to address them.

Having identified the major fiscal challenge facing the nation, and given
our role in supporting the Congress, we believe that we also have an
obligation to provide policymakers with support in identifying issues and
options that could help to address these fiscal pressures. In our 21st
century challenges report, we built on our past and pending work-about 90
percent of which was requested by the Congress or required by law-to
provide policymakers with a comprehensive compendium of those areas
throughout government that could be ripe for reexamination and review. The
report is consistent with our other products, such as our high-risk
reports (discussed on p. 35 ), in that it pulls together our insights and
previous work for the Congress to help with its budget and programmatic
deliberations and oversight activities.

In developing the 21st century questions posed in the report, we reflected
on the inventory of future forces working to reshape American society, our
place in the world, and the various roles and responsibilities of the
federal government that were presented in our strategic plan. The specific
questions raised for each area were informed by a set of generic
evaluation criteria that are useful in evaluating any government program,
policy, function, or activity. The criteria are framed as questions and
are designed to address the legislative basis for the program, its purpose
and continued relevance, its effectiveness in achieving goals and
outcomes, its efficiency and targeting, its affordability, its
sustainability, and its management. We used these criteria to generate
specific 21st century questions about those programs and priorities
already identified. The 21st century questions illustrate the kinds of
issues that a reexamination and review initiative needs to address.

                            GAO's High-Risk Program

Issued to coincide with the start of each new Congress, our high-risk
update has helped sustain attention from members of the Congress who are
responsible for oversight and from executive branch officials who are
accountable for performance. Our high-risk program focuses on major
government programs and operations that need urgent attention or
transformation to ensure that our government functions in the most
economical, efficient, and effective manner possible. Overall, our
high-risk program has served to identify and help resolve a range of
serious weaknesses that involve substantial resources and provide critical
services to the public. Our latest report, released in January 2005,
highlights 25 troubled areas across government. Of the 43 areas that have
appeared on our high-risk list since 1990, 16 have improved enough to be
removed from the list and 2 have been consolidated with other areas.

Our high-risk program includes the following four high-risk areas added in
fiscal year 2005:

     + establishing appropriate and effective information-sharing mechanisms
       to improve homeland security,
     + DOD approach to business transformation,
     + DOD personnel security clearance program, and

fS management of interagency contracting.

We also removed the high-risk designation from three areas: Education's
student financial aid programs, FAA's financial management, and USDA's
Forest Service financial management.

In fiscal year 2005, excluding our high-risk update report and its
companion testimony, we issued 183 reports and delivered 75 testimonies
related to our high-risk areas and documented related financial benefits
totaling about $26 billion. For example, we examined challenges in the
implementation and transformation of DHS, such as strengthening internal
controls and addressing weaknesses in financial systems, fully
establishing and institutionalizing a departmentwide strategic framework
for managing information, and addressing systematic problems in human
capital and acquisition systems, resulting in 19 reports and 11
testimonies. We also evaluated the Medicare program and found weaknesses
in program management and oversight of patient safety and care,
inefficient payment policies, and areas vulnerable to fraud and abuse. Our
work in this area resulted in approximately $3.9 billion in financial
benefits for fiscal year 2005. Our efforts continue to bring attention to
areas in urgent need of improvement and to help the Congress and federal
government institute reforms to address these high-risk areas.

To learn more about our work on the go to http://www.gao.gov/ high-risk
areas shown in table 2 or to docsearch/featured/highrisk.html . download
the high-risk update in full,

Table 2: GAO's 2005 High-Risk List

            Year GAO'sdesignated strategic 2005 high-risk area high-risk goal

              Addressing challenges in broad-based transformations

                   Strategic Human Capital Managementa 2001 3

2001 1

U.S. PostalService Transformation Efforts and Long-Term Outlooka

                     Managing Federal Real Propertya 2003 1

Protecting the Federal Government's Information Systems and the 1997 3
Nation's Critical Infrastructures

Implementing and Transforming the Department of Homeland 2003 2 Security

Establishing Appropriate and Effective Information-Sharing 2005 3
Mechanisms to Improve Homeland Security

                DOD Approach to Business Transformationa 2005 2

                    DOD BusinessSystems Modernization 1995 3

                DOD Personnel Security Clearance Program 2005 2

                  DOD Support Infrastructure Management 1997 2

                        DOD Financial Management 1995 3

DOD Supply Chain Management (formerly Inventory 1990 2 Management)

                     DOD Weapon Systems Acquisition 1990 2

                 Managing federal contracting more effectively

                         DOD Contract Management 1992 2

                         DOE Contract Management 1990 1

                        NASA Contract Management 1990 2

                  Management of Interagency Contracting 2005 2

Assessing the efficiency and effectiveness of tax law administration
Enforcement of Tax Lawsa,b                                      1990     3 
IRS Business Systems Modernizationc                             1995     3 
Modernizing and safeguarding insurance and benefit programs            
Modernizing Federal Disability Programsa                        2003     1 
Pension Benefit Guaranty Corporation Single-Employer Insurance  2003     1 
Programa                                                               
Medicare Programa                                               1990     1 
Medicaid Programa                                               2003     1 
HUD Single-Family Mortgage Insurance and Rental Housing         1994     1 
Assistance Programs                                                    
Other                                                                  
FAA Air Traffic Control Modernization                           1995     3 

Source: GAO. aLegislation is likely to be necessary as a supplement to
actions by the executive branch, in order to effectively address this
high-risk area. bTwo high-risk areas-collection of unpaid taxes and earned
income credit noncompliance-have been consolidated to make this area. cThe
IRSfinancial management high-risk area has been incorporated into this
high-risk area.

                       Strategies for Achieving Our Goals

The Government Performance and Results Act directs agencies to articulate
not just goals, but also strategies for achieving those goals. As detailed
in the following sections, our strategies primarily emphasize providing
information from our work to the Congress and the public in a variety of
forms and continuing and strengthening our internal operations. Our
strategies also emphasize the importance of two overarching approaches:
(1) working with other organizations on crosscutting issues and (2)
effectively addressing the challenges to achieving our agency's goals and
recognizing the internal and external factors that could impair our
performance. Through these strategies, which have proven successful for us
for a number of years, we plan to achieve the level of performance that is
needed to meet our performance measures and our multiyear performance
goals that in turn will allow us to achieve our strategic goals.

In fiscal year 2005, we devoted 87 percent of our engagement resources to
work requested or mandated by the Congress. We initiated the remaining 13
percent of the engagement work under the Comptroller General's authority.
Much of this work was related to government programs and operations that
we have identified as high risk for fraud, abuse, and mismanagement;
reviews of agencies' budget requests; and various emerging challenges that
are of broad-based interest to the Congress, such as the cost of the
Global War on Terrorism and the status of the reconstruction efforts in
Iraq.1 By making recommendations to improve the accountability,
operations, and services of government agencies, we contribute to
increasing the effectiveness of federal spending and enhancing the
taxpayers' trust and confidence in their government. Collectively, our
products always contain information and often conclusions and
recommendations that allow us to achieve our external strategic goals.

Another means of ensuring that we are achieving our goals is to examine
the impact of our past work and use that information to shape our future
work. We evaluate actions taken by federal agencies and the Congress in
response to our past recommendations by monitoring the status of our open
recommendations and reporting our findings annually to the Congress and
the public ( http://www.gao.gov/ openrecs.html). Similarly, we will use
our biennial high-risk report, most recently issued in January 2005, to
provide a status report on major government operations that we consider
high risk because they are vulnerable to waste, fraud, abuse, and
mismanage

1In fiscal years 2003 and 2004, the work performed under the Comptroller
General's authority represented 8 percent and 10 percent, respectively, of
our engagement efforts.

ment or are in need of broad-based transformation. And we will use our
report on 21st century challenges, which was issued in February 2005, to
alert the nation's leaders to current and emerging issues facing the
nation, including the long-range budget challenge, the human capital
crisis, postal reforms, and the federal government's financial management
efforts.

Achieving our strategic goals and objectives also requires strategies for
coordinating with other organizations with similar or complementary
missions; we use advisory panels and other bodies to inform our strategic
and annual work planning. We also initiate and support collaborative
national and international audit, technical assistance, and other
knowledge-sharing efforts.

Strategic and Annual Work Planning

Through a series of forums, advisory boards, and panels; periodic
environmental scans; and our speakers' series, we gather information and
perspectives for our strategic and annual planning efforts. In fiscal year
2005, the Comptroller General convened various experts from the public,
private, and nonprofit sectors in a series of forums and panels intended
to enhance our understanding of emerging issues and to identify
opportunities for action.

     + In December 2004, we hosted a forum on long-term fiscal challenges and
       issued a report summarizing the discussion in February 2005.
     + In February 2005, we convened a forum on defined benefits pension
       plans, the results of which were reported in June 2005.
     + In March 2005, we convened a roundtable involving the accountability
       community on long-term fiscal challenges, the results of which were
       summarized and shared with the participants.
     + Throughout 2005, we held five sessions of our speakers' series,
       Conversations on 21st Century Challenges, wherein prominent leaders
       discuss emerging themes and their implications for public policy. In
       2005, we also initiated the Auditors General Speakers' Series that
       provides unique international perspectives in support of our work;
       speakers included the auditors general of China, Ireland, South Korea,
       and Saudi Arabia.

Advisory boards and panels also support our strategic and annual work
planning by alerting us to issues, trends, and lessons learned across the
national and international audit communities that we should factor into
our work. These groups include the Comptroller General's Advisory Board
whose 40 members from the public and private sectors have broad expertise
in areas related to our strategic objectives.

Through the National Intergovernmental Audit Forum, chaired by the
Comptroller General and 10 regional intergovernmental audit forums, we
consult regularly with federal inspectors general and state and local
auditors. In addition, through the Domestic Working Group, the Comptroller
General and the heads of 18 federal, state, and local audit organizations
exchange information and seek opportunities to collaborate.

We also work with a number of issue-specific and technical panels to
improve our strategic and annual work planning, including the following:

     + The Advisory Council on Government Auditing Standards provides us
       guidance on promulgating auditing standards. These standards
       articulate auditors' responsibilities when examining government
       organizations; programs; activities; functions; and government
       assistance received by contractors, nonprofits, and other
       nongovernmental organizations. The council's work ensured that the
       revised standards would be generally accepted and feasible.
     + The Accountability Advisory Council, made up of experts in the
       financial management community, advises us on audits of the U.S.
       government's consolidated financial

statements and emerging issues involving financial management and
accountability reporting.

     + The Executive Council on Information Management and Technology, whose
       19 members are experts from the public and private sectors and
       representatives of related professional organizations, helps us to
       identify high-risk and emerging issues in the IT arena.
     + The Comptroller General's Educators' Advisory Panel, composed of
       deans, professors, and other academics from prominent universities
       across the United States, advises us on recruiting, retaining, and
       developing staff and on strategic planning matters.

Internationally, we serve on the board and have several leadership roles
in the International Organization of Supreme Audit Institutions
(INTOSAI)-the professional organization of the national audit offices of
186 countries. During the fall of 2004, the INTOSAI Congress unanimously
adopted a 5-year strategic plan-the first in INTOSAI's 50-year
history-that was developed by a 10-nation task force chaired by the
Comptroller General. This plan has provided the foundation for the
Governing Board to engage member institutions in advancing professional
audit standards and promoting knowledge sharing.

Collaborating with Others

By collaborating with others, we have strengthened professional standards,
provided technical assistance, leveraged resources, and developed best
practices. In our work with INTOSAI, we chair the accounting and reporting
committee, and we are an active member of INTOSAI's auditing standards,
internal control and accounting standards, and other technical committees.
We publish INTOSAI's quarterly International Journal of Government
Auditing in five languages to foster global understanding of standards,
best practices, and technical issues. To help ensure that the public
sector's perspectives are reflected in the International Federation of
Accountants Standards Development project, we are working as a member of
INTOSAI's Professional Standards Committee as it collaborates closely with
the International Auditing Assurance Standards Board and the World Bank to
develop international auditing standards.

To build capacity in national audit offices around the world, we conduct
an international audit fellows program for mid- to senior-level staff from
other countries. In 2005, 20 audit fellows from Africa, Asia, Europe,
Latin America, and the Middle East spent about 4 months at GAO learning
how we are organized to do our work, how we plan our work, and what
methodologies we use, particularly for performance audits. As part of our
strategy to promote continuous learning and sustainability once the
fellows return to their countries, we are working with major donors-such
as the World Bank and the U.S. Agency for International Development-to
identify or support relevant capacity-building projects in fellows'
institutions. Six current and seven former auditors general as well as
several deputy auditors general, including the current chair of INTOSAI,
are graduates of this program.

Other collaborative activities undertaken by our staff during 2005
included the following:

fS Conferring with the Partnership for Public Service (Partnership), a
nonprofit, nonpartisan public service organization committed to making the
government an employer of choice for talented, dedicated Americans through
educational outreach, research, legislative advocacy, and hands-on
partnerships with agencies on workforce management issues. In late 2004,
the Partnership merged with the Private Sector Council, another external
partner organization dedicated to helping the federal government improve
its efficiency, management, and productivity through the cooperative
sharing of knowledge. During 2005, the Partnership has collaborated with
us on a human capital symposium focused on performance management best
practices and

assisted us on a number of

engagements.

     + Actively participating in four Domestic Working Group collaborative
       efforts of federal, state, and local audit officials to address issues
       regarding access to records, grants management, long-term fiscal
       challenges, and governance. Collaborative efforts with the Domestic
       Working Group and the National Association of State Auditors,
       Comptrollers, and Treasurers facilitated our work involving the states
       by fostering a cooperative working relationship with the state
       auditors on over a dozen engagements.
     + Implementing the National Intergovernmental Audit Forum (Forum)
       strategic plan that was adopted in December 2004. This plan was
       developed by a task force composed of federal, state, and local
       auditors and an independent public accountant. The newly established
       committees have begun organizing to implement the plan, which seeks to
       maximize the Forum's effectiveness in promoting good government and
       accountability at all levels of government. In addition, 21 regional
       Forum meetings were held, which brought together auditors at all
       government levels.

Using Our Internal Experts

We coordinated extensively within our own organization on our strategic
and annual performance planning efforts, as well as on the preparation of
our performance and accountability reports. Our efforts are completed
under the overall direction of the Comptroller General and the Chief
Operating Officer. We relied on our Chief Administrative Officer/Chief
Financial Officer and her staff to provide key information, such as the
financial information that is included on page 51 of this report. Her
staff also coordinated with others throughout the agency to provide the
information on goal 4's results (which appears in condensed form on page
32 of this summary report), and provided input on other efforts dealing
with issues that include financial management, budgetary resources,
training, and security. We obtained input on all aspects of our strategic
and annual performance planning and reporting efforts from each of our
engagement teams and organizational units through their respective
managing directors, as well as other staff responsible for planning or
engagement activities in the teams. Staff from Quality and Continuous
Improvement prepared the report, ensuring, among other things, that the
report addressed comments and suggestions received from the Association of
Government Accountants and other reviewers. In short, we involved
virtually every part of GAO and used our internal expertise in our
planning and reporting efforts.

       Addressing Management Challenges That Could Affect Our Performance

At GAO, management challenges are identified by the Comptroller General,
the Executive Committee, and the agency's senior executives through the
agency's strategic planning, management, and budgeting processes. Our
progress in addressing the challenges is monitored through our annual
performance and accountability process. Under strategic goal 4, we
establish performance goals focused on each of our management challenges,
track our progress in completing the key efforts for those performance
goals quarterly, and report each year on our progress toward meeting the
performance goals. Each year we ask our IG to examine management's
assessment of the challenges and the agency's progress in addressing them.
(See p. 68 for the IG's assessment.)

For fiscal year 2005, we continued to address three management
chal-lenges-human capital, information security, and physical security. We
anticipate that we may need to continue to address these management
challenges in future years because they are evolving and will require us
to continuously identify ways to adapt and improve. We revisit the
challenges each year and refine them when appropriate, and when we believe
we have sufficiently addressed these challenges we will remove them from
our list. We will report any changes as we monitor and report on our
progress in addressing the challenges through our annual performance and
accountability process. The following sections describe our recent and
planned efforts to address these challenges.

The Human Capital Challenge

Given our role as a key provider of professional and objective information
and analyses to the Congress, maintaining the right mix of technical
knowledge and expertise as well as general analytical skills is vital to
achieving our mission. We spend about 80 percent of our resources on our
people, but without excellent human capital policies and management
practices, we could run the risk of being unable to lead by example and
meet the expectations of the Congress and the American people. Our ability
to meet the needs of the nation could also be impaired if we do not
receive the funding that we need to adequately staff the agency, invest to
support our people, and reward our top perform-ers-a mitigating external
factor that we discuss below and on page 48 .

To recruit, reward, and retain a highly qualified, high-performing, and
diverse workforce remains one of our most important challenges. We
employed a number of strategies to improve our recruitment efforts and
support our workforce plan, including increasing the use of short-term and
time-limited appointments and direct-hire authorities and implementing a
pilot program for undergraduate cooperative educa-tion program
participants. We also developed our fiscal year 2006 recruitment strategy
to more directly support the agency's workforce plan. The strategy
includes enhancements or expansions of existing programs, such as the
capability to offer internships in the fall and spring as well as the
summer and using special teams to employ targeted recruiting for special
skill sets, hard-to-fill positions, and diversity recruiting.

We continued to enhance our performance management and compensation
systems through new and enhanced policies and processes. To improve our
performance-based compensation system, with the help of a well-regarded
consulting firm, we implemented a revised process for determining
perfor-mance-based compensation that more directly links an individual's
performance, as reflected by his or her appraisal, with his or her
compensation. In June 2005, our administrative and professional support
staff completed their first year under a broadband pay system and a
competency-based performance system. To ensure that these staff understood
the new process and to foster staff acceptance, we employed an aggressive
communication strategy that included meetings with staff as well as
Web-based guides and questions and answers. To design a competitive, fair,
and equitable compensation program aligned with competitive labor markets
in which we compete for talent, we worked with the same consulting firm to
perform a market-based compensation study. Based on the results of the
market-based compensation survey, we have invested significantly in
restructuring our analyst and ana-lyst-related specialist Band II pay band
into two pay levels to better align individual staff with our
institutional compensation policies. We expect many of these compensation
system changes to be implemented in fiscal year 2006.

Finally, we continued providing our staff with courses and opportunities
to develop their knowledge and expertise, build their competency, and
strengthen their leadership skills. We designed and delivered 13 new
com-petency-building courses and implemented an adjunct faculty program to
increase the number of our subject matter experts available to develop
content for new courses, expand the range of courses available, and
provide training throughout the year. Among other efforts, we also
established a group of analysts-in-charge representing various teams
supporting goals 1 through 3 to discuss best practices related to managing
engagements. To deliver required core courses to Band I analyst staff in
field offices, we redistributed and realigned course delivery among three
learning hubs rather than centralizing course delivery in headquarters. We
estimate that this decision will result in a cost avoidance of $500,000 in
travel and per diem, as well as other benefits, such as networking among
and across teams, a sustained focus on learning, larger classes that make
more effective use of adjunct faculty time, and the opportunity to
strengthen matrixed work relationships through shared learning
experiences.

While we have made progress in addressing the human capital challenge,
more work remains to be done. Some of the largest efforts planned in this
area for fiscal year 2006 include

     + implementing the market-based compensation ranges for our analyst and
       analyst-related staff,
     + determining the market-based compensation ranges for our
       administrative professional and support staff,
     + implementing changes necessary to restructure our analyst Band II
       staff,
          * continuing to strengthen our recruiting processes to better meet
            the needs of the agency and support our strategic goals,
          * fS obtaining a better understanding of the retention factors
            affecting GAO, and
     + identifying an appropriate methodology to successfully implement the
       Comptroller General's authority to determine the amount of annual pay
       adjustments.

The Information Security Challenge

Information system security is a critical activity in ensuring our
information system assets are safe and free from compromise. To address
the increasing threats due to compromised information or information
systems, we implemented a wide range of initiatives to strengthen and
protect the security of our information systems and data.

We enhanced the security of our users' workstations by installing personal
firewall software to prevent download of viruses, anti-spyware to identify
and eliminate malicious programs, and automatic activation of the
screensaver. We also locked the GAO intranet home page as the default home
page to prevent spyware from hijacking the default home page and
downloading more spyware.

In support of the requirements in the Federal Information Security
Management Act, we completed remediation of several key weaknesses and
vulnerabilities during fiscal year 2005. These included ensuring that risk
assessments, system security plans, reviews performed under National
Institute of Standards and Technology special publication 800-26, and
letters for authorization to operate were in place and that system test
and evaluation reviews and certifications and accreditations were
developed and completed as necessary.

Finally, we continued to implement initiatives and improvements to our
Disaster Recovery Program. Our most significant accomplishment was the
completion of our vision of the Disaster Recovery Program/Continuity of
Operations, which was approved and signed by the Comptroller General and
the Chief Administrative Officer on May 31, 2005. In support of the
program we also developed emergency preparedness training video material
for headquarters staff and installed an emergency voice and text
notification system on the network.

We anticipate that information security will continue to be one of our
management challenges in the future. In fiscal year 2006, we will further
address that challenge by completing implementation of centralized
auditing of network servers and devices to better secure our computing
assets within GAO, refining our network monitoring procedures to include
the use of correlation products to automate the detection of potentially
harmful threats to our network, implementing improvements to our disaster
recovery operations, and improving our ability to respond and recover in
the event of a disruption by implementing additional technologies to
lessen our risks.

The Physical Security Challenge

The challenge of providing a safe and secure work environment for
employees remains a constant in light of domestic and international events
that can have a profound impact on the way we conduct business in the
United States and around the world. Protecting our people and our assets
is paramount to agency operations. In fiscal year 2005, we initiated
actions to enhance our communication with external agencies, improve our
internal communications and operations, and strengthen the technical and
physical aspects of our emergency preparedness efforts.

Externally, we established or enhanced contacts and procedures with local
agencies to enable us to receive detailed intelligence that would not
necessarily be provided through normal communication channels and to
ensure coordination with the legislative branch in case of emergency. For
example, we established emergency notification procedures with the Federal
Bureau of Investigation Joint Terrorism Task Force; enhanced relocation
procedures and improved relations with the U.S. Capitol Police, the House
Sergeant at Arms, and the Emergency Preparedness Office; and made
arrangements with the District of Columbia government to receive
up-to-date emergency notifications. We are also an active member of the
Legislative Branch Continuity of Operations Plan Working Group, and we
coordinated and participated in a legislative branch tabletop exercise
involving a simulation of a crisis requiring the House of Representatives
to vacate and relocate elsewhere.

Internally, we took several steps to support our goal of providing a safe
and secure work environment. To ensure that our staff know what to do in
case of an emergency, we conducted our first shelter in place drill for
headquarters, and distributed shelter in place plans for the majority of
our field offices and an emergency preparedness brochure for all staff. To
reduce the agency's security risk, we installed an electronic fingerprint
system that improves the speed with which we can obtain screening through
the Federal Bureau of Investigation, including immediate reports if prints
are not acceptable.

To help ensure continued operations, we have completed initiatives in the
areas of technical and physical security. We increased our network access
potential by installing and reactivating additional local area network
ports. This will provide for efficient and effective use of space in the
event that congressional staff need to relocate to our headquarters
building in an emergency.

We plan to continue to assess our security operations to ensure our
ability to meet ever-changing challenges to our security posture. In
fiscal year 2006 we will be completing work on the Integrated Electronic
Security System, which includes installation of turnstiles at
headquarters, implementation of smart card technology, and upgrading
access control and intrusion detection systems for headquarters and the
field offices. Other efforts to meet this continuing challenge include
procurement of an emergency notification system, and designing and
disseminating a more robust security education and awareness program for
headquarters and the field offices.

         Mitigating External Factors That Could Affect Our Performance

Several external factors could affect the achievement of our performance
goals, including the amount of resources we receive, shifts in the content
and volume of our work, and various national and international
developments. Limitations imposed on our work by other organizations or
limitations on the ability of other federal agencies to make the
improvements we recommend are additional factors that could affect the
achievement of our goals.

The external factors that could have the most significant adverse affect
on us are the constrained budget environment in which we currently work
and the uncertain budget future we face. We are experiencing heavy demand
from the Congress for work in a number of subject areas, especially in
disaster recovery and preparedness in the aftermath of Hurricanes Katrina
and Rita and in health care. Given the across-the-board funding reductions
that the Congress is considering for fiscal year 2006, large current
federal budget deficits, and the nation's long-range fiscal imbalance, the
Congress is likely to place an increasing emphasis on fiscal constraint.
While it is unclear how we will ultimately be affected, it is reasonable
to assume that any attempt to exercise additional budgetary discipline in
the legislative branch will include our agency. As a result, while we
believe that we submit reasonable and responsible budget requests and we
know that the return on investment that we generate is unparalleled, we
must plan and prepare for the possibility of significant and recurring
constraints on the resources made available to us. In addition, because
about 80 percent of our budget is composed of people-related costs, any
serious budget situation will have an adverse impact on our human capital
policies and practices and related investment practices. This, in turn,
will have an adverse impact on our ability to serve the Congress and meet
our performance targets. While, as we noted above, the nature and extent
of any such budget constraints cannot be determined at the present time,
our executive team is prudently engaged in a range of related planning
activities that will help us to manage small reductions in our funding
levels and still perform the high-quality work for the Congress that we
are known for. We sincerely strive to lead by example, and are hopeful
that our modest budget requests supported by our sound business case and
proven performance results will encourage the Congress to provide
additional resources to us and other high-performing entities. If the
Congress employs such an approach, we should be in a good position to
continue to provide a high rate of return on the resources invested in the
agency. However, employing an across-the-board cut or other nontargeted
approaches would greatly impede our ability to do our work and may create
perverse incentives for those agencies that are trying to model our
priorities and practices.

A growing area for us also involves our work on bid protests. As required
by law, General Counsel prepares Comptroller General procurement law
decisions that resolve protests filed by disappointed bidders. These
bidders challenge the way individual federal procurements are being
conducted or how the contracts were awarded. In recent years, we have
experienced an increase in the number of bid protests that have been
filed. There is a possibility of a further increase if the executive
branch undertakes a significant number of public or private competitions
under OMB Circular A-76, particularly if statutory changes allow
representatives of employees to protest when the private sector wins these
competitions. We will continue to monitor our workload in this area to
ensure that we meet our statutory responsibilities with minimal negative
impact on our other work.

In addition to current and future budget constraints, another external
factor is the extent to which we can obtain access to certain types of
information. With concerns about operational security being unusually high
at home and abroad, we may have more difficulty obtaining information in a
timely manner and reporting on sensitive issues. Historically, our
auditing and information gathering have been limited whenever the
intelligence community is involved. In addition, we have not had the
authority to access or inspect records or other materials held by other
countries or, generally, by the multinational institutions that the United
States works with to protect its interests. Consequently, our ability to
fully assess the progress being made in addressing national and homeland
security issues may be hampered. Also, we anticipate that more of our
reports may be subject to classification reviews than in the past, which
means that the public dissemination of these products may be limited. We
plan to work with the Congress to identify both legislative and
nonlegislative opportunities for strengthening our access authority as
necessary and appropriate.

As the Congress focuses on unpredictable events-such as natural disasters,
possible public health pandemics, and the global threat posed by
sophisticated terrorist networks-the mix of work we are asked to undertake
may change, diverting our resources from some strategic objectives and
performance goals. We can and do mitigate the impact of these events on
the achievement of our goals in various ways. For example in fiscal year
2005, we

fS stayed abreast of current events (such as the airline industry's
financial crisis and gasoline prices) and communicated frequently with our
congressional clients in order to be alert to possibilities that could
shift the Congress's priorities or trigger new priorities;

     + quickly redirected our resources when appropriate (e.g., on the cost
       and recovery efforts related to Hurricane Katrina) so that we could
       deal with major changes as they occur;
     + maintained broad-based staff expertise (e.g., in our Social Security,
       health care financing, and homeland security areas) so that we could
       readily address emerging needs; and

fS initiated research under the Comptroller General's authority on a
limited number of selected topics, such as U.S. tsunami detection and
preparedness efforts, the status of Iraq's reconstruction, and our 21st
century challenges and high-risk work.

Our ability to effectively manage the demands on our resources could have
an impact on our ability to meet our performance targets. However, we will
continue to manage the congressional requests we receive and the work we
do under the Comptroller General's authority in order to minimize any
negative impact it may have on our ability to meet the needs of the
Congress and the American people.

                             Managing Our Resources

Resources Used to Achieve Our Fiscal Year 2005 Performance Goals

Our financial statements for fiscal year 2005 received an unqualified
opinion from an independent auditor. The auditor found our internal
controls to be effective-which means that no material weaknesses were
identified- and the auditor reported substantial compliance with the
requirements for financial systems in the Federal Financial Management
Improvement Act of 1996. The auditor also found no instances of
noncompliance with the laws or regulations in the areas tested.

Compared with the statements of large and complex agencies in the
executive branch, our statements present a relatively simple picture of a
small yet important agency in the legislative branch. We focus most of our
financial activity on the execution of our congressionally approved budget
with most of our resources devoted to the human capital needed for our
mission of supporting the Congress with professional, objective,
fact-based, nonpartisan, nonideological, fair, and balanced information
and analysis. Table 3 summarizes key data from the financial statements.

Table 3: GAO's Financial Highlights: Resource Information (Dollars in
millions)

Source: GAO. aThe net cost of operations figures include nonbudgetary
items, such as imputed pension and depreciation costs, which are not
included in the figures for total budgetary resources (which include
current and prior year carryover authority) or total outlays.

Our budget consists of an annual appropriation covering salaries and
expenses and revenue from reimbursable audit work and rental income. For
fiscal year 2005, our total budgetary resources increased by $6.3 million
from fiscal year 2004. This increase consists of funds needed to cover
mandatory and uncontrollable costs and a onetime transfer of budgetary
authority from DHS for a review of TSA's calendar year 2000 costs for
screening passengers and property.

Our total assets were $114.4 million, consisting mostly of property and
equipment (including the headquarters building, land and improvements, and
computer equipment and software) and funds with the U.S. Treasury. The
largest dollar change in our assets was in the net value of property and
equipment, which decreased in fiscal year 2005 as a result of normal
depreciation amounts being greater than asset purchases. Total liabilities
of $94.9 million were composed largely of employees' accrued annual leave,
amounts owed to other government agencies, accounts payable, and
employees' salaries and benefits. The greatest changes in the liabilities
were increases in intragovernmental accounts payable and capital lease
liabilities. The increase in intragovernmental accounts payable relates to
amounts due to GSA accrued at the end of the year. The increase in capital
lease liability during fiscal year 2005 is primarily the result of
entering into new leases for the replacement of substantially all the
notebook computers and copiers at GAO headquarters.

The net cost of operating GAO during fiscal year 2005 and fiscal year 2004
was approximately $506 million and $490 million, respectively. Expenses
for salaries and related benefits accounted for 78 and 79 percent of our
net cost of operations in fiscal years 2005 and 2004, respectively. Figure
3 shows how our fiscal year 2005 costs break down by category.

We report net cost of operations according to our four strategic goals,
consistent with our strategic plan. Goal 2 accounted for the greatest
dollar increase in our net cost of operations from fiscal year 2004
through fiscal year 2005. The increase is due to the continued efforts in
homeland security. Costs in goal 4 decreased in fiscal year 2005 as a
result of several goal 4 key efforts being completed during fiscal year
2004, the first year of the 2-year strategic plan period. Examples include
the implementation of the Travel Manager System completed in fiscal year
2004 as well as the development phase efforts for both the
performance-based compensation system and the compe-tency-based appraisal
system.

Figure 3: Use of Fiscal Year 2005 Figure 5: Net Cost by Goal, Funds by
Category Adjusted for Inflation

Figures 4 and 5 show our net costs by goal for fiscal year 2002 through
fiscal year 2005. Figure 4 shows costs unadjusted for inflation, while
figure 5 shows the same costs in 2005 dollars, that is, adjusted for
inflation.

  Figure 4: Net Cost by Goal, Unadjusted for Inflation

Audit Advisory Committee

Assisting the Comptroller General in overseeing the effectiveness of GAO's
financial operations is a three-member external Audit Advisory Committee.
The committee's report for fiscal year 2005 appears after our financial
statements and accompanying notes. Current members of the committee are

     + Sheldon S. Cohen (Chairman), CPA and practicing attorney in
       Washington, D.C., former Commissioner and Chief Counsel of the
       Internal Revenue Service, and Senior Fellow of the National Academy of
       Public Administration.
     + Edward J. Mazur, CPA, member of the Governmental Accounting Standards
       Board, former State

                      Comptroller of Virginia, and former

                      Controller of the Office of Federal

                          Financial Management in OMB.

fS Charles O. Rossotti, Senior Advisor at The Carlyle Group; former
Commissioner of Internal Revenue; and founder and former Chief Executive
Officer and Chairman of American Management Systems, Inc., an
international business and IT consulting firm.

Planned Resources to Achieve Our Fiscal Year 2006 Performance Goals

GAO's resources include budget authority of $490 million for fiscal year
2006 to maintain current operations for serving the Congress as outlined
in our strategic plan and allow us to continue to enhance our
productivity, and maintain the progress we have made in technology and
other transformation areas. This funding level supports 3,217 full-time
equivalent personnel. Our resources include $483 million in direct
appropriations and estimated revenue of $7 million from reimbursable audit
work and rental income. Our fiscal year 2006 resources represent a modest
3 percent increase over fiscal year 2005 resources-primarily to fund
mandatory pay and uncontrollable costs. Following the catastrophic events
of Hurricanes Katrina and Rita, the Congress is considering governmentwide
across-the-board funding reductions that might reduce fiscal year 2006
spending levels, and this could affect our resources. The nature and
extent of any potential funding reduction is unknown.

Our resources support three broad program areas: human capital, mission
operations, and critical infrastructure. We will also continue to address
our major management challenges, which are human capital, information
security, and physical security. For example, on the human capital front,
to ensure our ability to attract and retain a highly qualified,
high-performing, and diverse workforce, our fiscal year 2006 recruitment
strategy enhances or expands existing programs for internships and
professional development, and provides targeted recruiting for special
skill sets and hard-to-fill positions, and to enhance the agency's
diversity recruiting.

In fiscal year 2006, we plan to implement recommendations resulting from
an assessment of our compensation system being conducted by a
well-regarded consulting firm, to ensure that our compensation is fair and
equitable and aligned with competitive labor markets.

On the information security front, to address the increasing threats due
to compromised information or information systems, we will complete an
audit of network servers and refine monitoring techniques. To extend our
ability to securely access and transmit classified data and information,
we completed installation of security features in seven of our field
offices and plan to continue installation at the remaining field offices
in fiscal year 2006.

On the physical security front, we are working to enhance our
communication with external agencies, improve our internal communications
and operations, and strengthen the technical and physical aspects of our
emergency preparedness efforts.

Source: See Image Sources.

January 2006

I am pleased to report that in fiscal year 2005 the U.S. Government
Accountability Office continued to set the standard for excellence in
government financial management. For the 19th consecutive year,
independent auditors gave our financial statements an unqualified opinion
with no material weaknesses and no major compliance problems. The
financial statements that follow were prepared, audited, and made publicly
available as an integral part of this performance and accountability
report 45 days after the end of the fiscal year. In addition, for the
fourth year in a row, the Association of Government Accountants awarded us
a certificate of excellence in accountability reporting for our fiscal
year 2004 annual performance and accountability report.

During fiscal year 2005 we continued to make strides toward our strategic
goal of becoming a model federal agency and a world-class professional
services organization. We are leading the way in performance management
through new and enhanced policies and processes. With the help of a
consultant, we analyzed and designed a competitive, fair, and equitable
compensation program aligned with the labor markets in which GAO competes
for talent. Further, we invested significantly in restructuring our
analysts' and specialists' pay bands to better align compensation with
responsibilities. In June, our administrative staff completed their first
cycle under a similar competency-based system designed to establish a
clear link between employee performance and GAO's mission, core values,
and strategic goals and objectives. This system will enable fair, honest,
and properly applied measures of performance based on standards that are
reasonable, appropriate, and clear to employees. Having a consistent
competency-based performance management system throughout the agency will
help to ensure that the work of all our staff is aligned with our core
values and strategic direction.

We also performed an extensive review of agency operations during fiscal
year 2005 for potential cost savings, outsourcing, streamlining, and other
opportunities to increase operational efficiency and effectiveness, as the
result of a mandate in House Report 108-577. We had previously decided to
cease operations of our internal print plant as a result of a reduced
demand for printed products. The closing of the print plant was completed
in October 2004, and all our printing needs are now met through contracts.
Another area affected by our streamlining efforts this fiscal year was our
accounting branch within the Office of Financial Management. Aiming to
focus our financial management staff on greater value-added input to GAO
activities, we have begun to shift the efforts of our staff away from
routine transaction processing and toward a greater role in strategic
business decision analysis and support. This shift will occur through a
combination of automation, reallocation of resources within GAO, and
outsourcing some data entry functions. Last year's implementation of the
Travel Manager system has enabled us to streamline the auditing of our
travel vouchers and transfer the remaining efforts from financial
management to field office staff, more efficiently using administrative
resources available throughout the agency. We cross-serviced the accounts
payable function to the Department of the Interior's National Business
Center. This center performs invoice receipt, processing, and payment
activities for a number of other agencies; by utilizing the cen-ter's
services, we will realize savings through eliminating data entry positions
and focusing the efforts of the remaining staff on higher end financial
analysis and decision support.

To improve our operations through the use of new technology, we have
embarked on an extensive effort to replace our current financial
management system. Although our current system has served us well over the
years, upgrades are no longer offered and technical support has become
increasingly difficult to find. We have adopted, and are following, best
practice processes to select and implement our next generation financial
management system. This is part of a larger enterprise architecture effort
that will improve integration of all our systems that interact with our
financial data. We also improved our internal communications by
implementing a new system for electronic dissemination and storage of
agencywide communications, a new administrative services Web site, and a
searchable administrative services directory.

Looking forward to fiscal year 2006, we realize that there are many
challenges ahead. In addition to our work on the new financial system, we
continue to voluntarily implement the additional requirements of OMB's
revised Circular A-123, which requires management to specifically
document, assess, and attest to the effectiveness of internal controls
over financial reporting beginning in fiscal year 2006. In addition to
these efforts, we will continue to investigate and implement new
approaches to improve the efficiency and effectiveness of our preparation
of quality products for our clients in the Congress and the American
people.

Sallyanne Harper Chief Financial Officer

                      Financial Management Accountability

Our condensed financial statements begin on page 63 . Our financial
statements for the fiscal years ended September 30, 2005 and 2004, were
audited by an independent auditor, Cotton & Co., LLP (see part III of our
fiscal year 2005 performance and accountability report for our complete
financial statements and the auditor's full report at
http://www.gao.gov/sp.html ).

Cotton & Co., LLP, rendered an unqualified opinion on our financial
statements and an unqualified opinion on the effectiveness of our internal
controls over financial reporting and compliance with laws and
regulations. The auditor also reported that we have substantially complied
with the applicable requirements of the Federal Financial Management
Improvement Act (Improvement Act) of 1996 and found no reportable
instances of noncompliance with selected provisions of laws and
regulations. In the opinion of the independent auditor, the financial
statements are presented fairly in all material respects and are in
conformity with generally accepted accounting principles.

Financial Systems and Internal Controls

We recognize the importance of strong financial systems and internal
controls to ensure our accountability, integrity, and reliability. To
achieve a high level of quality, management maintains a quality control
program and seeks advice and evaluation from both internal and external
sources.

We are committed to fulfilling the internal control objectives of 31
U.S.C. 3512, commonly referred to as the Federal Managers' Financial
Integrity Act (Integrity Act). Although we are not subject to the act, we
comply voluntarily with its requirements. Our internal controls are
designed to provide reasonable assurance that obligations and costs are in
compliance with applicable laws and regulations; funds, property, and
other assets are safeguarded against loss from unauthorized acquisition,
use, or disposition; and revenues and expenditures applicable to our
operations are properly recorded and accounted for to enable our agency to
prepare reliable financial reports and maintain accountability over our
assets.

Our management assesses compliance with these controls through a series of
comprehensive internal reviews, applying the evaluation criteria in OMB's
guidance for implementing the Integrity Act. The results of these reviews
are discussed with our Audit Advisory Committee, and action is taken to
correct deficiencies as they are identified.

We assessed our internal controls as of September 30, 2005, based on the
criteria mentioned above for effective internal controls in the federal
government. On the basis of this assessment, we believe that as of
September 30, 2005, we have effective internal controls in place.
Additionally, our independent auditor found that we maintained effective
internal controls over financial reporting and compliance with laws and
regulations. Consistent with our evaluation, the auditor found no material
internal control weaknesses.

In addition, we are committed to fulfilling the objectives of the
Improvement Act, which is also covered within 31

U.S.C. 3512. Although we are not subject to the act, we voluntarily comply
with its requirements. We believe that we have implemented and maintained
financial systems that comply substantially with federal financial
management systems requirements, applicable federal accounting standards,
and the

United States Government Standard General Ledger at the transaction level
as of September 30, 2005. We made this assessment based on criteria
established under the Improvement Act and guidance issued by OMB. Also,
our auditor reported that we had substantially complied with the
applicable requirements of the Improvement Act as of September 30, 2005.

GAO's IG also conducts audits and investigations that are internally
focused, functions as an independent fact-gathering adviser to the
Comptroller General, and reviews all accomplishment reports totaling $500
million or more. During fiscal year 2005, the IG examined compliance with
our policy and procedures for conflict-of-interest determinations,
recruiting and hiring, performance evaluations, career advancement,
professional development, continuing professional education, GAO's
information security program and practices, the performance-based
compensation process for analysts and attorneys, and benefits for transit
and parking. In addition, the IG independently tests our compliance with
procedures related to our performance data on a rotating basis over a
3-year period. No material weaknesses were reported by the IG. During
fiscal year 2005, we completed actions related to 12 IG recommendations,
none of which affected the financial statements. There are no unresolved
issues.

Limitation on Financial Statements

Responsibility for the integrity and objectivity of the financial
information presented in the financial statements in this report rests
with our managers. The statements were prepared to report our financial
position and results of operations, consistent with the requirements of
the Chief Financial Officers Act, as amended (31 U.S.C. 3515). The
statements were prepared from our financial records in accordance with the
formats prescribed in OMB Circular A-136, Financial Reporting
Requirements. These financial statements differ from the financial reports
used to monitor and control our budgetary resources. However, both were
prepared from the same financial records. Our financial statements should
be read with the understanding that as an agency of a sovereign entity,
the U.S. government, we cannot liquidate our liabilities (i.e., pay our
bills) without legislation that provides resources to do so. Although
future appropriations to fund these liabilities are likely and
anticipated, they are not certain.

Purpose of Each Financial Statement

The condensed financial statements present the following information:

fS A balance sheet presents the combined amounts we had available to use
(assets) versus the amounts we owed (liabilities) and the residual amounts
after liabilities were subtracted from assets (net position).

     + A statement of net cost presents the annual cost of our operations.
       The gross cost less any offsetting revenue earned from our activities
       is used to arrive at the net cost of work performed under our four
       strategic goals.
     + A statement of changes to net position presents the accounting items
       that caused the net position section of the balance sheet to change
       from the beginning to the end of the fiscal year.
     + A statement of budgetary resources presents how budgetary resources
       were made available to us during the fiscal year and the status of
       those resources at the end of the fiscal year.
     + A statement of financing reconciles the resources available to us with
       the net cost of operating the agency.

                          Independent Auditor's Report

U.S. Government Accountability Office

Condensed Balance SheetsAs ofSeptember 30, 2005 and 2004

(Dollars in thousands)

2004 Assets

Intragovernmental assets including funds with the U.S. Treasury

$68,670 Property and equipment, net

49,180 Other 382

$118,232

Total Assets

  Liabilities

Intragovernmental liabilities

$11,248 Accounts payable and salaries and benefits

27,784 Accrued annual leave and other

29,958 Workers' compensation

9,819 Capital leases

5,934

84,743

Total Liabilities

  Net Position

Unexpended appropriations

34,621 Cumulative results of operations

(1,132)

33,489

Total Net Position

$118,232

Total Liabilities and Net Position U.S. Government Accountability Office

CondensedStatementsof Net Cost For Fiscal Years Ended September 30, 2005
and 2004

(Dollars in thousands)

  Net Costs by Goal

Goal 1: Well-being/financial security of American people

$194,731

Goal 2: Changing security threats/challenges of global interdependence

131,660 Goal 3: Transforming the federal government's role

145,761 Goal 4: Maximize the value of GAO

23,410 Less: reimbursable services not attributable to goals

(5,493) $490,069

Net Cost of OperationsU.S. Government Accountability Office
CondensedStatements of Changes in Net Position For Fiscal Years Ended
September 30, 2005 and 2004

(Dollars in thousands)

2004

Cumulative Results of Unexpended OperationsAppropriations

Balances, Beginning of Fiscal Year

$2,338 $40,327

Budgetary FinancingSources

Current year appropriations

- 457,606 Appropriations used

461,503 (461,503) Other - (1,809)

Other FinancingSources

Employee benefit costs imputed to GAO

25,884 -Other (788) -

Total FinancingSources

486,599 (5,706)

(490,069) -

Net Cost of Operations

Balances, End of Fiscal

($1,132) $34,621

  Year U.S. Government Accountability Office CondensedStatements of Budgetary
  ResourcesFor Fiscal Years Ended September 30, 2005 and 2004

(Dollars in thousands)

  Budgetary Resources

Current year appropriations

$457,606 Transfers of budget authority

-Unobligated appropriations, beginning of fiscal year

18,895 Reimbursements

11,021 $487,522

Total Budgetary Resources

  Status of Budgetary Resources

Obligations incurred

$471,647 Unobligated appropriations, end of fiscal year

14,066 Lapsed budget authority

1,809 $487,522

TotalStatus of Budgetary Resources

  Relationship of Obligations to Outlays

Obligations incurred

$471,647 Obligated balance, net - beginning of fiscal year

50,487 Less: Obligated balance, net - end of fiscal year

(53,103) $469,031

Total Outlays

  Outlays

Disbursements

$469,031 Collections

(11,021)

$458,010

Net OutlaysU.S. Government Accountability Office CondensedStatements of
FinancingFor Fiscal Years Ended September 30, 2005 and 2004

(Dollars in thousands)

2004 Resources Used to Finance ActivitiesBudgetary Resources Obligated

Obligations incurred

$471,647 Less: Reimbursements

(11,021) Net obligations 460,626

  Other Resources

Employee benefit costs imputed to GAO

25,884 Other

(788) Net other resources used to finance activities

25,096

485,722

  Total resources used to finance activities

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

Net decrease in unliquidated obligations

876 Costs capitalized on the balance sheet

(11,703)

Total resources used to finance items not part of the net cost of
operations

(10,827)

474,895

  Total resources used to finance the net cost of operations

Components That Require/Generate Resources in Future Periods

Increase/(decrease) in workers' compensation, accrued annual leave, and
other liabilities

(1,630)

Costs That Do Not Require Resources

Depreciation 16,804

$490,069

Net Cost of Operations

                           From the Inspector General

Image Sources

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

Front cover: GAO (flag and Capitol), BrandXPictures (eagle)

Page 1: Digital Stock (Capitol), GAO (Comptroller General photo) Page 16:
GAO (flag background), PhotoDisc (currency icon) Page 20: GAO (flag
background), PhotoDisc (gears icon) Page 29: GAO (flag), BrandXPictures
(USA leaf), CorelDraw

(U.S. map highlighted), United States Mint image (coin)

Page 30: GAO (flag), PhotoDisc (cash airplane), United States Mint Image
(coin) Page 31: GAO flag, PhotoDisc (credit), United States Mint

image (coin)

Page 32: GAO (flag), PhotoDisc (men on field), United States Mint image
(coin) Page 56: Digital Stock (Capitol), GAO (Chief Financial/Admin-

istrative Officer photo) Back cover: GAO (flag and Capitol),
BrandXPictures (eagle)

This is a work of the U.S. government and is not subject to copyright
protection in the UnitedStates. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

Providing Comments on This Report

To provide comments for improving this report, please contact our Chief
Quality Officer, who can be reached at (202) 512-6100, or at [email protected],
or at the following address:

U.S. Government Accountability Office 441 G Street NW, Room 6K17Q
Washington, D.C. 20548

Obtaining Copies of GAO Documents

The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site ( http://www.gao.gov ). Each weekday, GAO posts
newly released reports, testimony, and correspondence on its Web site. To
have GAO e-mail you a list of newly posted products every afternoon, go to
http://www.gao.gov and select "Subscribe to Updates."

However, you can also order GAO documents by mail or by phone. The first
copy of each printed report is free. Additional copies are $2 each. A
check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and MasterCard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent.

Orders should be sent to:

U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548

To order documents by phone, call:

Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 512-6061
*** End of document. ***