President's Management Agenda: Review of OMB's Improved Financial
Performance Scorecard Process (16-NOV-06, GAO-07-95).		 
                                                                 
The President's Management Agenda (PMA) focuses attention on	 
ensuring resources entrusted to the federal government are well  
managed and used wisely. The Office of Management and Budget	 
(OMB) developed standards to measure success and a PMA scorecard 
that gives a "green", "yellow" or "red score" by agency. Green	 
indicates success, yellow indicates mixed results, and red	 
indicates unsatisfactory results. For the Improved Financial	 
Performance Initiative, GAO was asked to (1) study and evaluate  
OMB's process and criteria for awarding a green score for current
status and progress and (2) provide examples of how agency	 
managers use financial data to better manage on a day-to-day	 
basis. To fulfill these objectives, GAO interviewed OMB and	 
agency officials and examined OMB and agency documentation	 
relevant to OMB's scoring process.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-95						        
    ACCNO:   A63509						        
  TITLE:     President's Management Agenda: Review of OMB's Improved  
Financial Performance Scorecard Process 			 
     DATE:   11/16/2006 
  SUBJECT:   Accountability					 
	     Auditing standards 				 
	     Evaluation criteria				 
	     Evaluation methods 				 
	     Financial management				 
	     Financial management systems			 
	     Financial statement audits 			 
	     Internal controls					 
	     Performance appraisal				 
	     Performance measures				 
	     Program evaluation 				 
	     President's Management Agenda			 

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GAO-07-95

   

     * [1]Results in Brief
     * [2]Background
     * [3]OMB Has a Reasonably Designed Scorecard Process, but Documen

          * [4]OMB Has Reasonable Scoring Criteria and Helpful Guidance for
          * [5]Enhanced Documentation Would Benefit the Overall Scoring Pro

     * [6]Agency-Provided Examples Describing the Use of Financial Dat
     * [7]Conclusions
     * [8]Recommendations for Executive Action
     * [9]Agency Comments and Our Evaluation
     * [10]Appendix I: September 30, 2006, Executive Branch Management
     * [11]Appendix II: Comments from the Office of Management and Budg
     * [12]Appendix III: GAO Contact and Staff Acknowledgments

          * [13]GAO Contact
          * [14]Acknowledgments

               * [15]Order by Mail or Phone

Report to the Subcommittee on Government Management, Finance, and
Accountability, Committee on Government Reform, House of Representatives

United States Government Accountability Office

GAO

November 2006

PRESIDENT'S MANAGEMENT AGENDA

Review of OMB's Improved Financial Performance Scorecard Process

GAO-07-95

Contents

Letter 1

Results in Brief 3
Background 5
OMB Has a Reasonably Designed Scorecard Process, but Documentation of the
Process Could Be Enhanced 8
Agency-Provided Examples Describing the Use of Financial Data to Manage
Programs 16
Conclusions 19
Recommendations for Executive Action 19
Agency Comments and Our Evaluation 19
Appendix I September 30, 2006, Executive Branch Management Scorecard 21
Appendix II Comments from the Office of Management and Budget 22
Appendix III GAO Contact and Staff Acknowledgments 24

Table

Table 1: Dates When Agencies Received Their Current Status and Progress
Green Scores 12

Figures

Figure 1: Improved Financial Performance Initiative Scorecard Criteria 10
Figure 2: Current Status Scores and Progress Scores for Improved Financial
Performance Initiative 12

Abbreviations

BAJA Budget Automation, Justification and Administration

CFO Chief Financial Officer

DOE Department of Energy

EBSA Employee Benefits Security Administration

Education Department of Education

EPA Environmental Protection Agency

ETA Employment and Training Administration

FFMIA Federal Financial Management Improvement Act

FSA Federal Student Aid

Labor Department of Labor

NSF National Science Foundation

OCFO Office of the Chief Financial Officer

OMB Office of Management and Budget

ORBIT OCFO Reporting and Business Intelligence Tool

OSRTI Office of Superfund Remediation and Technology Innovation

PAR performance and accountability report

PMA President's Management Agenda

SSA Social Security Administration

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separately.

United States Government Accountability Office

Washington, DC 20548

November 16, 2006

The Honorable Todd R. Platts Chairman The Honorable Edolphus Towns Ranking
Minority Member Subcommittee on Government Management, Finance, and
Accountability Committee on Government Reform House of Representatives

In August 2001, the Bush administration launched the President's
Management Agenda (PMA) with the stated purpose of focusing attention on
ensuring that the resources entrusted to the federal government are well
managed and wisely used. The PMA targets five management
initiatives--strategic management of human capital, competitive sourcing,
improved financial performance, expanded electronic government, and budget
and performance integration. The Office of Management and Budget (OMB)
developed criteria to measure success and a PMA scorecard to track agency
progress for each of the five initiatives. The scorecard employs a traffic
light grading system to indicate both the agencies' current status in
achieving the PMA goals and the periodic progress made by agencies for
each of the five initiatives --"green" indicates success, "yellow"
indicates mixed results, and "red" indicates unsatisfactory results. While
the PMA is primarily intended to be an internal management tool to drive
improvements for these five management initiatives, the resulting scores
are publicly disseminated on OMB's Web site, in the annual Financial
Report of the United States Government, and the annual Budget of the
United States Government.

The goals of the Improved Financial Performance Initiative (the focus of
this report) are consistent with the goals envisioned in the Chief
Financial Officers (CFO) Act, which, among other things, are to improve
agencies' financial management and provide for the production of complete,
reliable, timely, and consistent financial information for use by the
executive branch and Congress in the financing, management, and evaluation
of federal programs. As of September 30, 2006, 8 of 26 agencies scored by
OMB had a green current status score in the area of Improved Financial
Performance and 24 of 26 agencies had green progress scores. To better
understand the process and criteria by which OMB assesses agencies in the
area of Improved Financial Performance, you requested that we (1) study
and evaluate OMB's process and criteria for awarding a green designation
for current status and progress and (2) provide examples of how agency
managers use financial data to better manage their agencies on a
day-to-day basis for those agencies that had achieved a green current
status score for the Improved Financial Performance Initiative, as of
September 30, 2004. At that time, six agencies had green current status
scores: the Departments of Education (Education), Energy (DOE),^1 and
Labor (Labor); the Environmental Protection Agency (EPA); the National
Science Foundation (NSF); and the Social Security Administration (SSA).

To address the first objective and obtain an understanding of the scoring
process, we interviewed OMB and agency officials and reviewed relevant
literature, including documents available on OMB's Web site and agency
performance and accountability reports (PAR), which include audited
financial statements. We reviewed OMB's published scorecard criteria and
the reference guide OMB prepared to help agencies understand the green
criteria and prepare for discussions and demonstrations with OMB on how
the agencies were meeting the scoring criteria. Also, we independently
assessed whether agencies had met the seven yellow current status scoring
criteria. Initially, OMB would not provide us access to the key documents
used in the scoring process because it considered these documents to be
deliberative and predecisonal. These documents, which are described in the
background section of this report, included the agency quarterly
scorecards, Proud to Be documents, and Green Plans. After OMB received a
draft of our report for comment describing this initial scope limitation,
OMB granted us access to review these documents on its premises but still
would not provide us access to its written comments on agency plans or
other communications, such as emails, relating to the scoring
determinations. This particular restriction did not significantly limit
our ability to fulfill the objectives of this review.

To address the second objective, we reviewed agency documents, including
agency PARs. We interviewed agency officials and attended briefings by
personnel of the six agencies in our review, at which officials
demonstrated examples of how financial information was used to make
decisions about their programs. However, we did not determine how
widespread the use of these examples was throughout the agencies. We also
did not verify that the use of the information ultimately resulted in
better decisions or better-managed programs. We did not obtain information
from the agencies that obtained a green current status score for Improved
Financial Performance subsequent to September 30, 2004, including the
Department of Commerce, the Department of State, the General Services
Administration, and the Smithsonian Institution.

^1DOE's current status score was downgraded to red in December 2005
because it received a disclaimer of opinion on its fiscal year 2005
consolidated financial statements and was not in compliance with the
Federal Financial Management Improvement Act (FFMIA). DOE's current status
score remained red as of September 30, 2006.

We performed our work in accordance with generally accepted government
auditing standards. We conducted our initial work from April 2005 through
March 2006. We updated our work from July 2006 through November 2006 after
OMB provided us access to the agency quarterly scorecards, Green Plans,
and Proud to Be documents.

Results in Brief

Overall, OMB has established reasonable scoring criteria and helpful
guidance describing what agencies must do to achieve "green scores" for
the Improved Financial Performance Initiative. OMB has also designed and
implemented a quarterly scoring process to assess whether agencies have
met these criteria and are making progress in expanding the routine use of
financial data in management decision making in key areas of operations.
OMB's established scoring criteria address the fundamental aspects of
sound financial management and require clean audit opinions, sound
internal controls, compliance with applicable laws and regulations, and
financial systems that are compliant with federal standards. Seven of the
nine current status scoring criteria (i.e., the yellow or compliance
criteria) relate to these aspects and are objective and verifiable using
publicly available information. The remaining two green or results
criteria are more subjective and require OMB's staff to make judgments
about whether the criteria have been satisfied. These two criteria require
agencies to (1) demonstrate that they currently produce accurate and
timely financial information that is used by management to inform decision
making and drive results in key areas of operations and (2) have a plan
(referred to as a Green Plan) to continuously expand the routine use of
financial data in decision making in additional areas of operations. We
found OMB's staff were actively engaged in this scoring process and met
regularly with agency officials to discuss progress in meeting the scoring
criteria and to provide input into agencies' data expansion efforts.

While OMB's scoring process is reasonable and useful as an internal
management tool, we did note some opportunities for OMB to enhance the
process. Specifically, the factors supporting OMB's key decisions and
judgments relating to the more subjective green criteria were not fully
documented. Some of the factors were discussed in the documentation OMB
made available for our review, but OMB officials had to provide us with
additional verbal explanations in order for us to better understand the
rationale for awarding the green scores. Further, the Green Plans and
updates to these plans, which are key documents used in the scoring
process, lacked evidence of OMB's review and approval. Also, there was no
formalized process to track the receipt of Green Plans or subsequent
updates. Consequently, it was difficult to readily identify the most
current plan on file. To help ensure consistency and continuity in the
scoring process over time and as the staff involved change, it would be
advantageous to OMB to more systematically document these and other
factors that are critical to these decisions.

Agency managers we contacted generally supported the Improved Financial
Performance Initiative because it has helped to focus top management's
attention on the financial management challenges confronting the agencies.
Managers and staff at each of the six agencies we visited provided
examples of how they were currently using financial as well as performance
data to make management decisions related to controlling costs, budgeting,
allocating resources, and managing contracts and grants. These activities,
if performed routinely, provide management with valuable,
decision-enhancing information. For example, Education's office of Federal
Student Aid (FSA) developed an activity-based cost accounting system to
better analyze and manage its costs. As a result, FSA reported to us that
it had reduced the unit cost for loan consolidations from $115 per unit to
$66 per unit over an 18-month period. Agency officials told us that some
of the examples or activities demonstrated to us were also previously
demonstrated to OMB to show that the agency was using financial data to
help inform management decision making. However, because of the
documentation issues discussed above, we were not able to determine
specifically which example or examples formed the basis for OMB's green
decisions.

To help strengthen OMB's scoring process for the Improved Financial
Performance Initiative, we recommend that the Director of OMB direct the
Office of Federal Financial Management to establish a process to more
systematically document

           o the basis for all key decisions and judgments made in
           determining agency green scores and
           o the receipt and review and approval of Green Plans, including
           updates used in the scoring process.

We provided a draft of this report for comment to the Director of OMB. We
also provided applicable sections of the draft report to officials of
Education, DOE, Labor, EPA, NSF, and SSA. In comments on a draft of this
report, OMB stated that it generally concurs with these recommendations
and outlined steps it is taking in response to our recommendations.

Background

In August 2001, the President launched a Management Reform Agenda to
"address the most apparent deficiencies for which the opportunity to
improve performance is the greatest." OMB, in conjunction with the
President's Management Council, developed standards for success in each of
five governmentwide initiatives. The five governmentwide initiatives
include strategic management of human capital, competitive sourcing,
improved financial performance, expanded electronic government, and budget
and performance integration.

OMB utilizes an Executive Branch Management Scorecard to track results
toward achieving the goals of the PMA. The scorecard, issued quarterly,
employs a traffic light grading system. Scores for each of the five
initiatives are given for both "current status" and "progress." Initial
scores were developed in 2001 for 26 executive agencies, including 23 of
the 24 CFO Act agencies, the U.S. Army Corps of Engineers, the Smithsonian
Institution, and OMB itself.^2 The first current status scorecard was
issued by OMB on September 30, 2001, while progress scores were first
issued on June 30, 2002. See appendix I for the September 30, 2006, OMB
scorecard.

There are separate current status criteria for each of the five
governmentwide initiatives. Scores for "current status" are based on the
scorecard standards for success developed by OMB with input from the
President's Management Council^3 and experts throughout government and
academe. According to OMB, these standards have been refined based on
continued experience implementing the PMA. For all five governmentwide
initiatives, OMB assesses an agency's "progress" on a case-by-case basis
against the deliverables and time lines established for each initiative.
The green, yellow, and red score criteria range from successfully
implementing plans to plans being in serious jeopardy of failure absent
significant management intervention.

^2The Department of Homeland Security was added to the scorecard after it
was established on January 24, 2003, and the Federal Emergency Management
Agency was deleted from the scorecard after becoming a part of the
Department of Homeland Security effective March 1, 2003.

^3The President's Management Council advises and assists the President in
ensuring that government reform is implemented throughout the executive
branch. The Council's functions include improving overall executive branch
management; coordinating management-related efforts to improve government;
ensuring the adoption of new management practices in agencies; and
identifying examples of, and providing mechanisms for, interagency
exchange of information about best management practices.

This report, as requested, focuses on the Improved Financial Performance
Initiative, which OMB has described as a management tool. Under this
initiative, agencies are expected to implement integrated financial and
performance systems that routinely produce information that is timely,
useful, and reliable to facilitate better performance measurement and
decision making. This should help achieve the goals that Congress
established in the CFO Act, including

           o provide for improvement, in each agency of the federal
           government, of systems of accounting, financial management, and
           internal controls to ensure the issuance of reliable financial
           information and to deter fraud, waste, and abuse of government
           resources and
           o provide for the production of complete, reliable, timely, and
           consistent financial information for use by the executive branch
           of the government and Congress in the financing, management, and
           evaluation of federal programs.

Agency quarterly scorecards; corrective action plans; Green Plans,
including updates; annual Proud to Be documents; and the annual PAR plus
some additional documentation are used by OMB in the scoring process for
the Improved Financial Performance Initiative. The following summarizes
the content of these documents and describes how they relate to one
another.

The agency quarterly scorecards have three columns and are prepared using
a standardized template. The first column shows the current status color
score and a checklist that shows whether an agency has met each of the
green and yellow criteria. The second column shows the progress color
score and some of the factors for the score, including actions taken and
actions planned to expand the use of financial data in day-to-day
operations. The third column provides space for general comments,
including comments on the status of efforts to prepare or update the
agency Green Plans, matters relating to individual initiatives, and in
some cases explanations for changes to agency's scores.

An agency is required to file a corrective action plan when it has a
material weakness or has received a current status red score. Corrective
action plans state how an agency plans to correct its financial management
deficiencies. Filing the corrective action plan may enable an agency to
obtain a green score for progress.^4

The Green Plan is a living document that an agency will periodically
update and expand. It acts as the agreement between OMB and the agency on
the agency's near- and long-term areas of focus and what key actions and
goals will be tracked on the quarterly agency scorecard. Green Plans must
be approved by OMB. Beginning in fiscal year 2005, for current status, if
an agency has a yellow score, and therefore is working toward a green
score, or had a green score, it is required to provide OMB a Green Plan.

Agencies submit the Proud to Be document to OMB in June following a
standardized template. It documents the goals an agency would be proud to
achieve during the next 12 months. There is a section for each PMA
initiative (all five management areas), which gives the status for the
Standards for Success (scoring criteria) and lists key milestones. For the
Improved Financial Management sections the following information is
included: (1) checklists for green and yellow standards, (2) key
milestones for the last quarter of the current fiscal year and the first
three quarters of the next fiscal year and also ongoing items, and (3) key
results that the agency would be proud to achieve. These milestones cover
initiatives included in the agency Green Plans.

The PAR is completed each November and, among other things, contains an
agency's annual financial statements and the related independent auditor's
report on those statements. It also includes the auditors report on
internal controls and compliance with laws and regulations. The PAR is the
principle support for whether the yellow criteria have been met.

According to an OMB official, the specific documentation maintained by OMB
to support the Improved Financial Performance scores varies by agency and
can include but is not limited to the following:

^4See Implementation Guide for OMB Circular A-123, Management's
Responsibility for Internal Control, Appendix A, Internal Control over
Financial Reporting, 41-45 (July 2005), for detailed guidance regarding
corrective action plans.

           o agency quarterly scorecard;
           o the Green Plan (beginning first quarter fiscal year 2005);
           o Proud to Be document;
           o PAR (also includes the major management challenges used by OMB
           to see if agency plans are dealing with these challenges);
           o corrective action plans (submitted by an agency if there is a
           material weaknesses in its financial performance);
           o reports on Anti-Deficiency Act violations;^5 
           o written OMB questions and the agency's responses; and
           o briefing documentation, including slides and system screen
           prints.

OMB Has a Reasonably Designed Scorecard Process, but Documentation of the
Process Could Be Enhanced

OMB has developed reasonable scoring criteria and helpful guidance
describing what agencies must do to achieve "green scores" for the
Improved Financial Performance Initiative. OMB has also designed and
implemented a quarterly scoring process to assess whether agencies have
met these criteria and are making progress in expanding the routine use of
financial data in management decision making in key areas of operations.
Implementation of OMB's scoring process has clearly been a catalyst to
improve financial management and to encourage agency managers to use
financial data to enhance decision making as envisioned under the CFO Act.
While OMB's scoring process is reasonable and useful as an internal
management tool, based on the six agencies we reviewed, we noted some
opportunities for OMB to enhance its documentation of the scoring process.

OMB Has Reasonable Scoring Criteria and Helpful Guidance for Developing Green
Plans

OMB has developed reasonable scoring criteria for the Improved Financial
Performance Initiative. Separate criteria exist for the current status and
progress scores. There are seven yellow (or compliance) criteria and two
additional green (or results) criteria that must be satisfied to receive a
green current status score. The seven yellow criteria address the
fundamental aspects of sound financial management and require clean audit
opinions, sound internal controls, compliance with laws and regulations,
and financial systems that comply with federal standards. Most of the
yellow criteria are assessed annually and are verifiable using the
agencies' annual PARs. OMB considers meeting the yellow criteria as a
proxy for having timely, reliable financial information. The two
additional green criteria are more subjective and require OMB to make
judgments about whether the agencies have met the criteria. These green
criteria require agencies to (1) demonstrate that they currently produce
accurate and timely financial information that is used by management to
inform decision making and drive results in key areas of operations and
(2) have plans (i.e., the Green Plans) to expand the routine use of
financial information in decision-making in additional areas of
operations.

^5The Anti-Deficiency Act generally prohibits agencies from making
obligations and expenditures in excess of the appropriations or
apportionments of appropriations made to them. 31 U.S.C. SS 1341, 1342,
1349-51, 1511-1519.

According to an OMB official, the progress scores depend on agencies'
success in implementing the Green Plan initiatives or corrective actions
needed to address identified financial management weaknesses (when an
agency has not achieved a green current status score) within established
milestones. Based on OMB's criteria, if an agency is successfully
implementing its plans within expected time frames, the agency will
receive a green progress score. Conversely, if an agency's plans are not
likely to achieve the objectives or if there are significant slippages in
meeting the milestones, the agency would receive a yellow or possibly even
a red progress score.

Current status and progress criteria in effect as of the December 31,
2005, scorecard, when the last change was made to the scoring criteria,
are as shown in figure 1.

Figure 1: Improved Financial Performance Initiative Scorecard Criteria

aAlthough OMB guidance calls for auditors to provide negative assurance
when reporting on an agency system's FFMIA compliance, as stated in GAO,
Financial Management: Improvements Under Way but Serious Financial Systems
Problems Persist, [16]GAO-06-970 (Washington, D.C.: Sept. 26, 2006), we
believe that a statement of positive assurance is a statutory requirement
under FFMIA. In addition, negative assurance may provide the false
impression that the agencies' systems substantially comply with the
requirements of FFMIA. FFMIA is set forth at 31 U.S.C. S 3512 note.

The Improved Financial Performance Initiative current status criteria have
evolved over the years, while the progress criteria have remained
substantially the same. The following are key changes that OMB has made to
the current status criteria:

           o As of September 30, 2004, the yellow criteria were amended to
           require an unqualified opinion on the agency's financial
           statements. For fiscal years 2001 through 2003, the yellow
           criteria required only an opinion on the financial statements.^6 
           o For the first quarter of fiscal year 2006, the yellow criteria
           for internal control weaknesses and the Federal Managers'
           Financial Integrity Act^7 were changed from "no material
           weaknesses" to "no repeat material weaknesses." According to an
           OMB official, the criteria were revised to incorporate the
           December 21, 2004, revision to OMB Circular No. A-123,
           Management's Responsibility for Internal Control, effective in
           fiscal year 2006. This official added that agencies can report
           material weaknesses pursuant to OMB Circular No. A-123 without
           fear of their green current status score for Improved Financial
           Performance being negatively affected.
           o For the first quarter of fiscal year 2006, the words "and
           timely" were added to the second green criterion, which now reads
           "currently produces accurate and timely financial information."

A summary of the initial and September 30, 2006, quarterly current status
and progress scores for the Improved Financial Performance Initiative for
the 26 government agencies scored by OMB is shown in figure 2.

^6For example, a qualified opinion would have been acceptable under the
previous criteria but not under the current criteria. A qualified opinion
relates to a nonpervasive departure from generally accepted accounting
principles or a nonpervasive scope limitation.

^731 U.S.C. S 3512 (c), (d).

Figure 2: Current Status Scores and Progress Scores for Improved Financial
Performance Initiative

Table 1 shows when the six agencies we reviewed first received a green
score for current status and progress for the Improved Financial
Performance Initiative.

Table 1: Dates When Agencies Received Their Current Status and Progress
Green Scores

                                                        Progress--date agency 
                           Current status--date agency  received first green  
Agency                  received first green score   score                 
National Science        9/30/2001                    6/30/2002             
Foundation                                                                 
Environmental           6/30/2003                    9/30/2002             
Protection Agency                                                          
Social Security         6/30/2003                    6/30/2002             
Administration                                                             
Department of Education 12/31/2003                   12/31/2002            
Department of Energy    6/30/2004                    6/30/2002             
Department of Labor     9/30/2004                    6/30/2002             

Source: OMB scorecards.

Since receiving its Improved Financial Performance Initiative green scores
for current status and progress, each agency included in our review,
except for DOE and Labor, has maintained its quarterly green scores
through September 30, 2006. DOE received a red current status score for
the Improved Financial Performance Initiative as of December 31, 2005. DOE
received the red score because the agency received a disclaimer of opinion
from its auditor on its fiscal year 2005 consolidated financial
statements, meaning that the auditor was unable to express an opinion, and
was not in compliance with FFMIA. DOE implemented a new financial
accounting system in April 2005 and adopted a new chart of accounts.
Because of various issues with the system, DOE was unable to provide
accurate financial data and could not always provide supporting documents
required for the audit. This limited the scope of the auditor's work. DOE
continued to receive a red current status score through September 30,
2006.

DOE received a yellow progress score for the Improved Financial
Performance Initiative as of March 31, 2005. This score returned to green
as of June 30, 2006. Additionally, Labor's progress score slipped from
green to yellow as of March 31, 2006, but rebounded the next quarter. For
both agencies, the quarterly agency scorecards provided explanations for
the change in these progress scores.

In July 2005, OMB issued a reference guide, entitled Achieving Green in
Financial Performance, to help agencies understand the green current
status criteria and what is required to prepare an acceptable Green Plan
to satisfy these criteria. Agency officials told us that the guidance was
helpful to them. Specifically the guidance provides the following
information. First, it explains what is required to meet the green current
status criteria for (1) producing accurate timely financial information
used by management to inform decision making and drive results in key
areas of operations and (2) implementing a plan to continuously expand the
scope of its routine data used to inform management decision making in
additional crucial areas of operations. Second, it lists three primary
areas of information and related detailed components of these areas for
each initiative in the agencies' Green Plans that must be approved by OMB
to satisfy the green criteria. These areas are

           o financial (or business) goals that are critical to management,
           o how data are used strategically to achieve the goals, and
           o how success is measured (e.g., reduce cost, increase efficiency)
           to provide evidence that the desired goal is being achieved.

Third, the guidance gives agencies some general assistance concerning
discussions with OMB, including demonstrations and describing how the
criteria are being met. Finally, the guidance provides examples of
initiatives accepted by OMB under the green criteria. According to an OMB
official, the guidance is currently being revised and will include
additional examples of initiatives accepted by OMB in determining green
scores.

The useful guidance provided to agencies for implementing the Improved
Financial Performance Initiative, combined with the specific criteria
established by OMB, result in a reasonably designed scorecard process for
this PMA initiative.

Enhanced Documentation Would Benefit the Overall Scoring Process

While OMB's scoring process is reasonably designed and useful as a
management tool, we noted some opportunities for OMB to enhance its
documentation of the process for determining green scores and to help
ensure consistency and continuity of the process over time and as the
staff involved changes. Specifically,

           o key factors supporting OMB's green designations were not fully
           documented;
           o there was little evidence that the Green Plans and updates to
           these plans, which are key documents used in the scoring process,
           had been reviewed and approved by OMB; and
           o there was no formalized process to track the receipt of Green
           Plans or subsequent updates.

As discussed earlier, to obtain and maintain a green current status score,
an agency must satisfy OMB's seven yellow criteria plus two additional
green criteria. We were able to independently assess whether the six
agencies in our review had met OMB's generally objective yellow criteria
as of September 30, 2004, and December 31, 2005. This was done using
publicly available agency PARs that included agency audit reports and
information from OMB on when they received agency interim financial
reports. However, for the other green current status criteria as well as
the progress score criteria, which are more subjective, we could not tell
from the documentation made available to us by OMB the basis for their
overall agency assessments or key decisions or judgments made during the
scorecard process. For example we could not determine which initiatives
were used by OMB to satisfy the green score criteria for agencies in our
review. OMB officials discussed with us factors they considered in
determining if agencies satisfied the green current status criteria, and
these explanations seemed reasonable. We found that OMB staff have been
actively engaged in the scoring process and meet regularly with the
agencies to discuss the agencies' progress in meeting the scoring criteria
and to provide input into agencies' data expansion efforts. According to
an OMB official, OMB uses emails to provide agencies written comments on
agency Green Plans in addition to comments provided during meetings with
agencies, but these communications were not made available to GAO for
review. However, this OMB official also stated, they do not document
specifically how an agency satisfied the green current status or progress
criteria including what key activities or initiatives for using financial
data for decision-making purposes were involved.

In addition, we could not discern how OMB evaluates and determines the
sufficiency of individual initiatives or activities, in relation to key
operations of the agency as a whole, when awarding a green current status
score. OMB's green current status criteria include implementing the Green
Plan to continuously expand the scope of an agency's routine data use to
inform management decision making. According to OMB's Green Plan guidance,
this requires agencies to provide evidence that information is actively
being used to help them achieve results in key areas of operations. An OMB
official stated that OMB personnel have reviewed agency Green Plans and
are satisfied that the plans meet the criteria for covering certain levels
of operations. However, the levels of operations that were required to
satisfy the criteria were not defined. In addition, the official stated
that there is no written documentation or explanation of how an agency has
covered a certain level of operations and therefore was justified in
receiving a green current status score. Documenting these types of key
assessments would help ensure consistency and continuity in OMB's process
for awarding the green scores. This documentation would be particularly
important when changes are made in OMB staff involved in the scoring
process.

During our review, we also found that OMB could not readily identify the
most current Green Plans or updates to the Green Plans for the six
agencies in our review. For example, we were given access to a Green Plan
for each of the six agencies and were told by an OMB official that they
were the current plans. We later saw more recent Green Plans for two of
the six agencies. We were subsequently given access to updates to Green
Plans for three of these agencies. However, it was unclear whether these
were the current updates or if there were any other updates, and two Green
Plans were marked "DRAFT." Further, the plans that were provided to us by
OMB lacked evidence of any review or approval by OMB.

An OMB official acknowledged that OMB had no systematic way of tracking
Green Plans, including identifying what is the current agency Green Plan.
This official added that the only way OMB personnel have for tracking
Green Plans or updates to Green Plans is their written analysis of Green
Plans or updates that are provided to agencies but were not available to
us. A systematic method for tracking Green Plans and documenting the
review of the plans would help ensure that OMB personnel can readily
identify the most current Green Plan on file and whether the plan has been
approved by OMB.

Agency-Provided Examples Describing the Use of Financial Data to Manage Programs

Officials in the six government agencies we contacted generally supported
the scorecard process saying it helped to focus top-level management
attention on financial management issues. Managers and staff at each of
the six agencies we visited provided examples of how their respective
offices were using financial as well as performance data to make
management decisions involving controlling costs, preparing budgets,
allocating resources, and managing contracts and grants. They also
demonstrated some of the system capabilities that facilitated using
financial data in the management decision-making process, including some
of the automated mechanisms used to disseminate data to staff and managers
in a timely manner. These officials said that many of the examples
provided to us were also provided to OMB for the quarterly scoring
process. However, because of previously discussed documentation
limitations, we were not able to determine specifically which example or
examples formed the basis for OMB's green decisions.

The following are highlights of some of the examples provided to us by the
six agencies.

           o EPA officials in the Office of the Chief Financial Officer
           (OCFO) demonstrated to us the Web-based OCFO Reporting and
           Business Intelligence Tool (ORBIT), which according to EPA
           officials, integrates financial, administrative, and program
           performance information to assist agency managers in making
           decisions about their programs and operations. One of ORBIT's
           features is a Management Dashboard, which provides users with a
           quick view of EPA's financial and budgetary status and presents
           information in a series of charts and graphs called analytics to
           alert managers to situations out of normal ranges. For example,
           the appropriation utilization alerts analytics alerts a user with
           a red light if more than 50 percent of an annual appropriation has
           been obligated early in a fiscal year.
           o NSF officials told us that data in grantee financial reports,
           submitted to NSF through FastLane, a real-time Web-based system,
           showed that approximately 10 percent of NSF's grantees reported a
           cash balance at the end of each reporting quarter. This means that
           grantees had either up to a 10-day cash reserve, which NSF
           permits, or in some cases over the 10-day reserve which NSF
           considers to be excess cash. NSF officials added that monitoring
           procedures, which they implemented during fiscal year 2005,
           produced a recovery of over $3.2 million in excess cash held by
           grantees and a 33 percent decrease in the number of grantees
           reporting cash on hand.

           o A DOE Office of Environmental Management official described to
           us how its Web-based Budget Automation, Justification, and
           Administration (BAJA) tool automatically generates and facilitates
           changes to its annual Congressional Budget Submission. Using BAJA,
           the effects of data changes automatically flow throughout the
           document, making the process much quicker and more reliable than
           the old manual process.

           o An SSA official described to us how he used workload information
           from SSA's Unified Measurement System and other financial
           information, such as real-time budget allocation and expenditure
           data, to reallocate workloads (i.e., claims to be processed) among
           two different field offices to better match the available staff
           resources. He told us that in past years, SSA managers did not
           have the allocation tools that are currently available. The
           availability of current budget allocation and spending data
           enabled him to consider the estimated costs of moving staff versus
           moving the work.

           o Officials from Labor's Employee Benefits Security Administration
           (EBSA) told us how they use obligation data from DOLAR$ (Labor's
           core accounting system) and unit cost data from CAM (Labor's cost
           accounting system)^8 to allocate funding resources and otherwise
           manage their business in situations where EBSA is uncertain about
           the amount of funding it will have for a year when the amount of
           its annual appropriation is not known until later in the fiscal
           year. Using the DOLAR$ and CAM data for equivalent prior periods
           and adjusting for mandatory cost increases (e.g., payroll and
           rent), EBSA managers told us that they (1) determine the amount of
           program costs that EBSA can afford to finance within the
           constraints of that funding level; (2) assess whether special or
           extraordinary measures, like a hiring freeze, furloughs, or
           reducing or eliminating certain commitments, are needed to remain
           within that funding level; and (3) then target resources to
           achieve the program's objectives.

           o Officials from Education's FSA office told us they developed an
           activity-based cost accounting system to better manage FSA's
           costs. According to the FSA officials, they used unit cost
           information developed from the cost system as a tool to
           renegotiate and consolidate several contracts relating to the
           administration of FSA's direct loan program and reduced FSA's unit
           cost for loan consolidations from $115 per unit to $66 per unit,
           over a period of 18 months.

           o Labor's Employment and Training Administration (ETA) officials
           described to us how they used financial information to help manage
           construction contracts for the $1.4 billion Job Corps program. ETA
           officials showed us an example of a report that contains
           contractor information, such as company name, contact person,
           narrative of the scope of work, and planned and actual schedule
           dates, along with financial information such as budget, authorized
           spending, and contract modification amounts. ETA officials said
           they use this report to track costs and schedule data in order to
           make decisions related to the contracts during monthly meetings
           between the contractor and Job Corps management.

           o EPA officials in the Office of Superfund Remediation and
           Technology Innovation (OSRTI) demonstrated to us the Web-based
           system called Superfund eFacts, which extracts information from a
           database containing general program information on Superfund sites
           across the nation and also contains financial information from
           EPA's Integrated Financial Management System. OSRTI staff showed
           us eFact's ability to drill down to detailed financial
           information, such as obligation amounts related to a site, by
           clicking on charts and spreadsheets from a listing of Superfund
           sites. EPA officials told us the information in the charts is
           updated nightly and that prior to the implementation of eFacts,
           managers could only get hard copy reports on an ad hoc basis from
           a contractor and that the program and financial information in
           eFacts allows for information to get to managers much faster than
           in the past, saving time and money.

^8For more information on CAM, see GAO, Managerial Cost Accounting
Practices: Leadership and Internal Controls Are Key to Successful
Implementation, [17]GAO-05-1013R (Washington, D.C.: Sept. 2, 2005).

Conclusions

The PMA has generally been viewed positively by agencies because of the
attention it has brought to long-standing management deficiencies,
including financial management. OMB has established reasonable scoring
criteria and helpful guidance for the Improved Financial Performance
Initiative and designed a reasonable scoring process to assess whether
agencies have met these criteria and are making progress in expanding the
routine use of financial data in management decision making in key areas
of operations. The scorecard process has clearly been a catalyst to
improve financial management and to encourage agency managers to use
financial data to enhance decision making as envisioned under the CFO Act.
Better documenting the key decisions would strengthen what is already a
useful internal management tool by helping ensure consistency and
continuity in the process and would enhance the value of the process to
external users.

Recommendations for Executive Action

To help ensure consistency and continuity in the Improved Financial
Performance Initiative scoring process over time and as the staff changes,
we recommend that the Director of OMB direct the Office of Federal
Financial Management to take the following two actions:

           o establish a process to more systematically document the basis
           for all key decisions and judgments made in determining agency
           green scores, and
           o establish a process to document the receipt and review and
           approval of Green Plans, including updates used in the scoring
           process.

           Agency Comments and Our Evaluation

Agency Comments and Our Evaluation

In written comments on a draft of this report, OMB's Controller stated she
generally concurs with our recommendations and outlined steps OMB is
taking in response to these recommendations. We also discussed technical
comments with OMB officials, which we have incorporated in the final
report as appropriate. OMB's written comments are reproduced in appendix
II.

We are sending copies of this report to the Director of the Office of
Management and Budget; the Secretaries of Education, Energy, and Labor;
the Administrator, Environmental Protection Agency; the Director, National
Science Foundation; the Commissioner of Social Security; and other
interested parties. Copies will be made available to others upon request.
In addition, this report will be available at no charge on the GAO Web
site at [18]http://www.gao.gov .

If you or your staffs have any questions about this report, please contact
me at (206) 287-4809 or [19][email protected] . Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. Major contributors to this report are
acknowledged in appendix III.

Linda Calbom
Director, Financial Management and Assurance, and Western
Regional Director

Appendix I: September 30, 2006, Executive Branch Management
Scorecard

Appendix II: Comments from the Office of Management and Budget

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Linda Calbom, (206) 287-4809 or [email protected]

Acknowledgments

Staff members who made key contributions to this report include Phil
McIntyre, Assistant Director; Donald Campbell; Richard Cambosos; Lisa
Cyre; Abe Dymond; and Diane Morris.

(190144)

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www.gao.gov/cgi-bin/getrpt?GAO-07-95 .

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Highlights of [28]GAO-07-95 , a report to the Subcommittee on Government
Management, Finance, and Accountability, Committee on Government Reform,
House of Representatives

November 2006

PRESIDENT'S MANAGEMENT AGENDA

Review of OMB's Improved Financial Performance Scorecard Process

The President's Management Agenda (PMA) focuses attention on ensuring
resources entrusted to the federal government are well managed and used
wisely. The Office of Management and Budget (OMB) developed standards to
measure success and a PMA scorecard that gives a "green", "yellow" or "red
score" by agency. Green indicates success, yellow indicates mixed results,
and red indicates unsatisfactory results. For the Improved Financial
Performance Initiative, GAO was asked to (1) study and evaluate OMB's
process and criteria for awarding a green score for current status and
progress and (2) provide examples of how agency managers use financial
data to better manage on a day-to-day basis. To fulfill these objectives,
GAO interviewed OMB and agency officials and examined OMB and agency
documentation relevant to OMB's scoring process.

[29]What GAO Recommends

To help strengthen OMB's scoring process for the Improved Financial
Performance Initiative, GAO made two recommendations for OMB to establish
a process to more systematically document (1) the basis for all key
decisions and judgments made in determining agency green scores and (2)
the receipt and review and approval of Green Plans, including updates,
used in the scoring process. OMB generally concurs with these
recommendations.

OMB has established a reasonable process for assessing and scoring
agencies' current status and progress (two separate scores) under the
Improved Financial Performance Initiative of the PMA. OMB's established
scoring criteria address the fundamental aspects of sound financial
management and are geared toward achievement of the goals envisioned in
the Chief Financial Officers (CFO) Act. Seven of the nine current status
scoring criteria (yellow criteria) are objective and verifiable using
publicly available information. The remaining two green criteria are more
subjective and require OMB to make judgments about whether agencies (1)
currently produce accurate and timely financial information that is used
by management to inform decision making and drive results in key areas of
operations and (2) have acceptable plans (referred to as a Green Plans) to
continuously expand the routine use of financial data in decision making
in additional areas of operations. GAO found OMB's staff were actively
engaged in the scoring process and met regularly with agency officials to
discuss progress in meeting scoring criteria and to provide input into
agencies' efforts to expand the use of financial data in their day-to-day
management of key agency operations. GAO also found opportunities for OMB
to enhance the process by better documenting its assessments of the more
subjective green scoring criteria and by systematically tracking the
receipt and approval of key documents used in the process.

Agency officials generally supported the scorecard process and stated that
it has helped to focus top management's attention on financial management
issues. The six agencies GAO visited (those with green scores as of
September 30, 2004, as requested) provided examples on how they use
financial data as well as performance data to make management decisions
related to controlling costs, budgeting, allocation of resources, and
management of contracts and grants. Agency officials told GAO that some of
the examples or activities demonstrated to GAO were also previously
demonstrated to OMB to show that the agency was using financial data to
help inform management decision-making. OMB officials said they considered
these and other examples in rendering the green scores. However, the
documentation issues discussed above prevented GAO from specifically
determining which examples were used by OMB in making these scoring
decisions.

The Improved Financial Performance Initiative scorecard process has
clearly been a catalyst to improve financial management and to encourage
agency managers to use financial data to enhance decision making as
envisioned under the CFO Act. Better documenting the key decisions would
help strengthen what is already a useful management tool by helping ensure
consistency and continuity in the process and would enhance the value of
the process to external users.

References

Visible links
 
  27. http://www.gao.gov/cgi-bin/getrpt?GAO-07-95
  28. http://www.gao.gov/cgi-bin/getrpt?GAO-07-95
  
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