Management Reform: Agencies' Initial Efforts to Restructure Personnel
Operations (Letter Report, 07/13/98, GAO/GGD-98-93).

GAO reviewed the effects of reductions in personnel positions at the
Departments of Agriculture (USDA), Health and Human Services (HHS), the
Interior (DOI), and Veteran Affairs (VA), focusing on: (1) the
activities the agencies have undertaken in restructuring personnel
offices and operations; (2) what performance measures are in place to
gauge results of the restructuring efforts; and (3) issues agencies may
commonly encounter when, in restructuring their personnel operations,
they consider outsourcing automated personnel or payroll services to
another agency or the private sector.

GAO noted that: (1) although the focus of agencies' restructuring
efforts differed across the four departments, their streamlining plans
included reducing the number of employees working in personnel
operations and automating paper-based personnel processes to improve the
responsiveness and quality of personnel-related services; (2) the
reduction in the number of personnelists at the four departments ranged
from 14 to 41 percent between September 1993 and September 1997; (3)
even with reductions of this magnitude, the personnel servicing ratios
for three departments did not change substantially; (4) the departments
sought to boost the efficiency of their personnel offices by automating
their largely paper-based operations; (5) to achieve this increase in
efficiency, the departments generally planned to have new equipment and
software in place before staff reductions were made; (6) however, that
did not occur, and the departments fell behind their original milestones
for implementing new personnel and payroll systems while initial
personnel staff reductions occurred; (7) according to personnel
officials, the four departments had few measures in place to gauge the
results of their personnel operations before restructuring; (8) however,
officials in all four departments recognized the need for measurement,
were developing performance measures to assess future efforts, and, in
some cases, were seeking to more fully assess current costs and
performance to identify specific targets for improvement; (9) in
addition to providing personnel services to their component agencies,
the four departments were developing or purchasing automated personnel
systems with the intention of selling payroll or other key personnel
services to other agencies; (10) agency officials suggested that a
framework was needed with which agencies could obtain information on the
personnel services offered by other federal agencies, the cost of those
services, and their performance characteristics, including service-level
standards; (11) agency officials also suggested the need for a standard
technical format and a core set of requirements for personnel data that
agencies are likely to exchange with each other; and (12) since April
1997, the Office of Personnel Management (OPM) has rechartered the
mission of the Federal Personnel Automation Council and tasked it to
develop a set of core data elements and requirements for personnel
information systems.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-98-93
     TITLE:  Management Reform: Agencies' Initial Efforts to Restructure 
             Personnel Operations
      DATE:  07/13/98
   SUBJECT:  Federal agency reorganization
             Information resources management
             Privatization
             Personnel management
             Payroll systems
             Human resources utilization
             Interagency relations
             Office automation
IDENTIFIER:  National Performance Review
             
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Cover
================================================================ COVER


Report to the Director, Office of Management and Budget

July 1998

MANAGEMENT REFORM - AGENCIES'
INITIAL EFFORTS TO RESTRUCTURE
PERSONNEL OPERATIONS

GAO/GGD-98-93

Efforts to Restructure Personnel Operations

(410134)


Abbreviations
=============================================================== ABBREV

  APHIS - Animal and Plant Health Inspection Service
  BIA - Bureau of Indian Affairs
  CFO - Chief Financial Officer
  CPDF - Central Personnel Data File
  DOE - Department of Energy
  DOI - Department of the Interior
  FTE - full-time equivalents
  HHS - Department of Health and Human Services
  HR - human resource
  MSPB - Merit Systems Protection Board
  NAPA - National Academy of Public Administration
  NPR - National Performance Review
  OMB - Office of Management and Budget
  OPM - Office of Personnel Management
  SSA - Social Security Administration
  USDA - Department of Agriculture
  VA - Department of Veterans Affairs

Letter
=============================================================== LETTER


B-277016

July 13, 1998

The Honorable Jacob J.  Lew
Acting Director
Office of Management and Budget

Dear Mr.  Lew: 

Resource reductions and changing missions, coinciding with the
replacement of aging human resource management information systems,
are driving efforts in federal agencies to restructure their
personnel offices.  Congress has made it clear, through enactment of
a statutory framework with the Government Performance and Results Act
of 1993 as its centerpiece, that it expects agencies to improve their
accountability for resources, including human resources, in
accomplishing agency missions.  In addition, the National Performance
Review (NPR), now called the National Partnership for Reinventing
Government, in 1993, recommended that agencies reduce by half the
costs of administrative positions, including personnel positions, by
1999. 

Between September 1993 and September 1997, the number of civilian
personnelists across government decreased by about 8,900 employees
(or about 21 percent).  In order to gain an understanding of the
initial effects of this reduction, we reviewed four major federal
departments to (1) describe the activities they have undertaken in
restructuring personnel offices and operations; (2) ascertain what,
if any, performance measures are in place to gauge results of the
restructuring efforts; and (3) identify issues agencies may commonly
encounter when, in restructuring their personnel operations, they
consider outsourcing automated personnel and/or payroll services to
another agency or the private sector. 

The four departments whose personnel offices\1 we reviewed were the
Departments of Agriculture (USDA), Health and Human Services (HHS),
the Interior (DOI), and Veterans Affairs (VA), which together employ
roughly one-fourth of the nonpostal federal workforce.  These four
departments provide or plan to provide personnel or payroll services
to other federal agencies.  All four departments took slightly
different approaches to streamlining personnel operations and were in
the early stages of implementing restructuring plans in late 1997,
when we were completing our work.  We use the term "restructuring"
broadly to capture major changes occurring in an organization,
including reorganizations, consolidations, downsizing (reducing the
size of the workforce), quality improvements, streamlining efforts,
the use of new technologies, and reengineering personnel processes,\2
such as the process used to hire employees. 


--------------------
\1 We use the term "personnel offices" with the understanding that
some federal agencies use the term human resource (HR) office and
that the functions handled by a personnel office or an HR office can
vary by agency. 

\2 Business process reengineering is a systematic, disciplined
improvement approach that critically examines, rethinks, and
redesigns mission-delivery processes in order to achieve dramatic
improvements in performance in areas important to customers and
stakeholders. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Although the focus of agencies' restructuring efforts differed across
the four departments, their streamlining plans included reducing the
number of employees working in personnel operations and automating
paper-based personnel processes to improve the responsiveness and
quality of personnel-related services.  The departments and their
agencies made initial cuts in personnel staffing and, as they did,
they consolidated personnel offices and streamlined work processes to
varying degrees.  The reduction in the number of personnelists at the
four departments ranged from 14 to 41 percent between September 1993
and September 1997.  However, even with reductions of this magnitude,
the personnel servicing ratios--a comparison of the number of
employees served to the number of personnelists servicing them--for
three departments did not change substantially.  According to our
analysis of federal workforce data collected by the Office of
Personnel Management (OPM), the departments' ratios did not increase
more because, coinciding with the decrease in the number of
personnelists, departmentwide downsizing had simultaneously reduced
the number of employees served.  Nevertheless, as of September 1997,
the ratio ranged from 103:1 at VA to 47:1 at HHS. 

The departments sought to boost the efficiency of their personnel
offices by automating their largely paper-based operations.  To
achieve this increase in efficiency, the departments generally
planned to have new equipment and software in place before staff
reductions were made.  However, that did not occur.  The departments
fell behind their original milestones for implementing new personnel
and payroll systems while initial personnel staff reductions occurred
which, in some cases, led to delays in their overall scheduled
completion dates.  According to officials at the four departments,
converting to the new systems has taken much longer than expected.  A
number of factors contributed to these milestone delays, such as the
need for greater system testing than was initially anticipated. 

The four departments, according to personnel officials, had few
measures in place to gauge the results of their personnel operations
before restructuring.  However, officials in all four departments
recognized the need for measurement, were developing performance
measures to assess future efforts, and, in some cases, were seeking
to more fully assess current costs and performance to identify
specific targets for improvement.  For example, VA and a USDA agency
reported having developed measures to evaluate certain outputs of
their personnel operations.  A performance measure that personnel
officials of the four departments said they used was the personnel
servicing ratio.  Personnel officials stressed that although the
personnel servicing ratio is a broad measure of efficiency, it does
not measure how well a personnel office meets the needs of its
customers as they work to accomplish organizational missions.  The
departments generally had not fully implemented measures to assess
such key performance results as how responsive personnel offices have
been to customers, the quality of personnel services provided, and
the cost of providing specific services.  Without performance
measures, departments and component agencies will find it difficult
to determine the timeliness of personnel services, the satisfaction
levels of those who use the services, and other attributes of
effective personnel operations. 

According to agency officials, among issues agencies may encounter
when purchasing personnel and payroll services are (1) the inability
of service providers to deliver services when scheduled, (2) the lack
of a common framework to identify the various services being offered,
and (3) the lack of common format and requirements to permit agencies
to fully and efficiently exchange automated personnel data. 

In addition to providing personnel services to their component
agencies, the four departments were developing or purchasing
automated personnel systems with the intention of selling payroll or
other key personnel services to other agencies--also referred to as
cross-servicing.  Since their automation plans in some cases were
behind schedule, none of the four could provide the upgraded
personnel services as soon as planned.  This situation has already
affected the plans of certain agencies to obtain services, which is
further complicated by the need for agencies to address the Year 2000
date conversion problem.  For example, the Department of Energy (DOE)
initially planned to use DOI's payroll services because its own
payroll system was not Year 2000 compliant.  However, DOE cancelled
its agreement because of the time and costs involved in building an
interface between their respective systems to allow the exchange of
data.  DOE plans now to make its existing payroll system Year 2000
compliant. 

Agency officials with whom we spoke suggested that a framework was
needed with which agencies could obtain information on the personnel
services offered by other federal agencies, the costs of those
services, and their performance characteristics, including
service-level standards.  As part of our review, we spoke with
officials at several agencies who said that their agencies were
considering purchasing personnel and payroll services from other
federal agencies or the private sector.  However, they said that
information available from provider agencies on the operational
performance and cost of personnel and payroll services was limited,
except for the National Finance Center.  The four provider agencies
we reviewed had limited data on the specific costs of their personnel
and payroll processes, although they were beginning to capture more
data.  Without adequate information on the services being offered,
the service quality, and their costs, an agency will have a difficult
time making an informed decision on whether to purchase personnel and
payroll services from another government agency. 

Agency officials with whom we spoke also suggested the need for a
standard technical format and a core set of requirements for
personnel data that agencies are likely to exchange with each other. 
In April 1997, we reported on the need for core requirements.\3

Since then, OPM has rechartered the mission of the Federal Personnel
Automation Council and tasked it to develop a set of core data
elements and requirements for personnel information systems.  Also,
the President has established an Administrative Management Council to
direct attention to administrative matters governmentwide.  We are
making recommendations designed to focus these efforts on the
parallel need for common performance measures. 


--------------------
\3 Management Reform:  Initial Observations on Agencies'
Restructuring of the Human Resource Management Function
(GAO/GGD-97-68R, Apr.  14, 1997). 


   BACKGROUND
------------------------------------------------------------ Letter :2

In the 1990s, Congress constructed a statutory framework to address
long-standing weaknesses in federal operations, improve federal
management practices, and provide greater accountability for the use
of resources and achieving results.  This framework included as its
essential elements the Government Performance and Results Act of 1993
and key financial management and information technology reform
legislation:  the Chief Financial Officers Act of 1990--as expanded
by the Government Management Reform Act of 1994--and the Paperwork
Reduction Act of 1995 and the Clinger-Cohen Act of 1996,
respectively. 

In 1993, NPR recommended to the President that agencies reduce by
half the costs related to central management control positions, by
1999.  NPR targeted administrative costs and positions, such as
managers, personnel specialists, budget analysts, procurement
specialists, and other headquarters staff positions to reduce
administrative layers at headquarters and streamline field
structures.  NPR estimated that these central control positions cost
about $35 billion a year in salaries and benefits.  To achieve NPR's
streamlining goals, in 1994, the Office of Management and Budget
(OMB) required agencies to prepare streamlining plans detailing, in
addition to other things, how they planned to reduce these targeted
positions. 

The typical federal personnel office carries out a wide range of
functions related to the management of an organization's people, from
the time they apply for a position to the time they leave.  This
includes establishing policies and carrying out activities, many of
which are prescribed by federal law.  The range of personnel
functions generally includes, but is not limited to, recruitment and
employment (including workforce diversity), classification (i.e.,
determining the appropriate grade and classification series of a
position), merit promotion, and employee and labor relations.  A
personnel office collects and maintains data related to the
employment process.  Personnel activities include such tasks as
advertising positions to be filled, verifying candidate information,
processing paperwork on health insurance and other employee benefits,
and processing paperwork on employee discipline and promotions. 

Although agencies use automation to store and analyze various pieces
of personnel information (e.g., employees' occupations, grades, and
performance ratings) and process payroll data, personnel
administration has been largely a paper-based, labor-intensive
operation, as often is the case with administrative functions.  Each
year, hundreds of federal personnel offices process millions of
personnel actions that affect the federal workforce of almost 1.9
million civilian, nonpostal employees.  For example, nearly every
official personnel action affecting a specific employee, such as a
promotion, begins with the preparation of a Standard Form 52,
"Request for Personnel Action." And when the request is approved, it
is followed by the preparation of a Standard Form 50, "Notification
of Personnel Action." Figure 1 shows various processes that typically
are included in personnel operations. 

   Figure 1:  Federal Personnel
   Processes

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

Source:  GAO analysis. 

Federal efforts to reduce administrative overhead positions,
including personnel, somewhat parallel streamlining efforts in the
private sector.  For example, human resource managers in the private
sector have been asked to integrate the company's personnel
management practices with its business goals and objectives while
also providing cost-effective, traditional personnel services. 
Private sector human resource managers increasingly are expected to
quantify their operations' return on investment or what "value-added"
the function provides.  In the federal sector, cost concerns have
forced managers to reexamine the role of the personnel function and
its relationship as a support function to the mission of the agency. 
For example, the Results Act recognizes the importance of human
resource management as a key element for achieving performance goals
as part of agencies' strategic and annual performance plans.  We have
suggested that agencies' performance plans that contain a description
of how workforce knowledge, skills, and abilities can contribute to
the achievement of program performance goals would be most useful to
congressional decisionmakers.\4

In addition to the reexaminations that are taking place about the
role of the personnel function and its relationship to mission
accomplishment, the departments' restructuring efforts also were
taking place within a context of evolving concerns about the federal
human resource management system's statutory and regulatory
framework.  These concerns, which have been expressed by agencies,
OPM, NPR, and Congress, center on striking the best balance among the
priorities of managerial flexibility and decentralization on the one
hand, and systemwide consistency and adherence to merit principles on
the other.  How these priorities are balanced and any changes to
current regulatory or statutory requirements may have important
implications for federal human resource management and personnel
offices, as well as how personnel services are provided to line
managers. 

In planning how to restructure personnel operations and what
personnel processes to automate, agencies are now required by the
Clinger-Cohen Act of 1996\5 to reassess their work processes to
determine whether their administrative and mission-related business
processes should be improved before investing in major information
systems to support them.  As federal agencies decide how to
streamline administrative support functions, they must choose among
options for providing automated personnel and payroll services.  Such
options include purchasing personnel and/or payroll services from
another government agency (or franchise, also called
cross-servicing)\6 or contracting with the private sector. 


--------------------
\4 Agencies' Annual Performance Plans Under the Results Act:  An
Assessment Guide to Facilitate Congressional Decisionmaking
(GAO/GGD/AIMD-10.1.18, Feb.  1998, Version 1). 

\5 The Omnibus Consolidated Appropriations Act of 1997 (P.L. 
104-208) renamed both the Federal Acquisition Act of 1996 (P.L. 
104-106, Div.  D) and the Information Technology Reform Act of 1996
(P.L.  104-106, Div.  E) as the "Clinger-Cohen Act of 1996." For
related reports see Executive Guide:  Improving Mission Performance
Through Strategic Information Management and Technology
(GAO/AIMD-94-115, May 1994) and Business Process Reengineering
Assessment Guide (GAO/AIMD-10.1.15, Apr.  1997). 

\6 A franchise is an entrepreneurial activity within a government
organization that provides common administrative support services to
other agencies or other components within the same agency.  A
franchise may offer one or more common administrative services and
generally conducts its business (1) on a reimbursable basis, (2) in a
manner that fosters competition, and (3) within appropriate standards
and legal authorities for both the service rendered and the method
for accounting for franchise expenditures and charges.  Under such
arrangements, a government entity remains fully responsible for the
provision of affected services and maintains control over management
decisions, while another entity operates the function or performs the
service. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To meet our first objective in this self-initiated review--to
describe the activities that have taken place in restructuring
personnel offices and operations--we first surveyed 24 CFO agencies
(as designated by the Chief Financial Officers Act of 1990), which
employ most executive branch employees--to identify those that were
restructuring personnel operations.  These 24 CFO agencies represent
about 97 percent of the nonpostal, full-time workforce of the
executive branch.  From among those that were restructuring personnel
operations, we reviewed USDA, DOI, HHS, and VA to obtain further
information about restructuring activities at these agencies.  We
selected these agencies primarily because they said they were using
business process reengineering as an approach to restructuring and/or
were providing or planning to provide personnel and payroll services
to other agencies.  We interviewed personnel officials from the four
departments and selected component agencies to obtain information on
the reasons for restructuring, the planning in preparation for
restructuring, the activities undertaken to restructure, and the
status of restructuring efforts.  We also reviewed the restructuring
plans of the four departments and component agencies.  (The component
agencies we reviewed are listed in app.  I.)

To address our second objective--to ascertain what, if any,
performance measures are in place to gauge the results of
restructuring activities--we discussed with responsible officials of
the four departments and component agencies whether their
organizations had or were developing measures to assess the
performance of the restructured personnel offices and operations. 
Where measures were said to exist, we reviewed the documentation that
described and supported the measure.  In addition, to better
understand the major issues associated with restructuring personnel
operations and performance measurement, we reviewed current
literature on the two subjects and spoke with performance measurement
experts from the National Academy of Public Administration (NAPA) and
the Saratoga Institute.\7

In connection with our second objective, we computed one common
measure--the personnel servicing ratio--to assess progress in
restructuring.  To compute the ratios, we obtained September 1993 and
September 1997 data from OPM's Central Personnel Data File (CPDF) on
the number of employees and personnelists at the 24 agencies we
surveyed.  These personnelists were in the federal Personnel
Management and Industrial Relations occupational group--GS-200s--that
NPR specifically targeted for reduction.  We used the NPR definition
of personnel specialist with the understanding that some agencies
classify some employees working in personnel offices in other
occupations, such as program analysts (GS-345) or management analysts
(GS-343).  In addition, all personnel specialists in the GS-200 group
may not have worked in personnel offices; some may have worked in
allied offices, such as training and counseling. 

To address our third objective--to identify issues agencies may
commonly encounter as they consider purchasing automated personnel
and payroll services--we interviewed officials from the departments
and component agencies who were involved in the development or
purchase of computer hardware and/or software for use in
personnel/payroll operations.  We obtained information from these
interviews on the decision processes for acquiring new technology,
the challenges that surface in acquiring new technology, and the
status of implementing the new technology at their departments and
agencies.  We also met with officials from OMB and OPM and
representatives of two governmentwide councils to discuss
governmentwide efforts to streamline personnel operations, including
the use of technology to automate personnel processes.  (For
additional information on our objectives, scope, and methodology, see
app.  I.)

We did our work in the Washington, D.C., metropolitan area and at
several other locations listed in appendix I between October 1996 and
January 1998 in accordance with generally accepted government
auditing standards.  We requested comments on a draft of this report
from the Directors of OMB and OPM, the Secretaries of DOE, DOI, HHS,
USDA, and VA, or their designees.  A discussion of their comments
appears at the end of this letter, and their written comments are
included in appendixes II through VIII. 


--------------------
\7 NAPA is an independent, nonpartisan, nonprofit, congressionally
chartered organization that assists federal, state, and local
governments in improving their performance.  The Saratoga Institute
is a human resources research and consulting company that specializes
in benchmarking performance of human resource management. 


   AGENCIES' ACTIVITIES TO
   RESTRUCTURE PERSONNEL OFFICES
------------------------------------------------------------ Letter :4

The four departments we reviewed generally approached the
restructuring of their personnel offices with the intent of achieving
staff reductions.  Although all four departments reduced the number
of personnelists they employed by 14 percent or more, the personnel
servicing ratio for three of the four departments did not change as
much.  Another key component of the departments' restructuring plans
was to install new technology--hardware and/or software--to automate
paper-based personnel processes and thereby improve the
responsiveness and quality of personnel services.  However, for
various reasons, such as an agency deciding to do additional system
testing, these automation efforts had all fallen behind schedule. 


      RESTRUCTURING APPROACHES
      AIMED AT ACHIEVING STAFF
      REDUCTIONS
---------------------------------------------------------- Letter :4.1

The four departments we reviewed had all developed restructuring
plans.  One of the primary goals of those plans was to reduce
administrative staff, including the number of employees working in
personnel offices.  In reducing their administrative staffs, the
departments were responding to a number of factors.  One major
impetus was the 1993 NPR recommendation to reduce administrative
staff.  Other major factors were the governmentwide reality of
operating with reduced budgets, exemplified by a succession of budget
agreements between Congress and the administration, as well as the
requirement in the Federal Workforce Restructuring Act to reduce
governmentwide full-time equivalent positions.  USDA was also
responding to 1994 legislation that directed it to reorganize and to
reduce its workforce.  There were also cases, such as VA, where the
departments or their agencies started their restructuring efforts to
improve customer service before governmentwide efforts began in the
1990s.  In deciding how to restructure, each department had to
confront its own particular set of circumstances and challenges. 

As of late 1997, officials in each of the four departments
characterized the status of their personnel office restructuring as
generally nearing the end of its initial stages of implementation.  A
brief summary of those restructuring efforts is presented next. 


         DEPARTMENT OF
         AGRICULTURE'S
         RESTRUCTURING EFFORTS
-------------------------------------------------------- Letter :4.1.1

Between September 1993 and September 1997, USDA reduced its personnel
staff departmentwide from 2,463 to 2,035 employees, a decrease of
about 17 percent.  One of the primary reasons for this restructuring
was a major, departmentwide reorganization and downsizing required by
the Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994.\8

After reducing personnel staff, USDA initiated an HR project using a
business process reengineering approach to (1) define and document
the existing business framework through which personnel offices
performed their mission, (2) identify any problems that were present
in personnel operations, and (3) identify opportunities for improving
those operations.  This project was part of an
initiative--Modernization of Administrative Processes Program--that
USDA had begun in 1989 to streamline administrative processes and
supporting systems departmentwide.  Although several of its projects
would likely continue under other USDA organizations, the
modernization initiative itself was terminated in 1997 by the Acting
Assistant Secretary for Administration because the initiative had
only modest accomplishments.  For example, only two of seven active
projects to improve the administrative function had reached the pilot
stage. 

Certain USDA agencies had begun to restructure their personnel
operations apart from the 1989 initiative and the 1994 legislative
mandate to reorganize.  For example, the Forest Service had been
consolidating personnel operations in its 10 regions since the
mid-1980s, and had eliminated 56 of its 160 personnel offices as of
September 1997.  It planned to further reduce the 104 offices to
fewer than 40. 


--------------------
\8 The act requires USDA to (1) reduce the number of full-time
equivalents (FTE) by at least 7,500 by the end of fiscal year 1999,
(2) reduce the number of FTEs so that the percentage reduction in
headquarters is at least twice the percentage reduction in the field
offices, (3) consolidate headquarters offices, and (4) combine field
offices and jointly use field resources.  We reported on USDA's
response to the act in U.S.  Department of Agriculture:  Update on
Reorganization and Streamlining Efforts (GAO/RCED-97-186R, June 24,
1997). 


         DEPARTMENT OF HEALTH AND
         HUMAN SERVICES'
         RESTRUCTURING EFFORTS
-------------------------------------------------------- Letter :4.1.2

HHS reduced its personnel staff by about 320 employees over the
period from September 1993 to September 1997, a decrease of about 14
percent.\9 HHS' restructuring efforts focused on reorganizing and
consolidating the department's personnel offices.  The individual
agencies within HHS developed separate plans to restructure their
personnel offices in conjunction with the departmentwide
reorganization.  According to HHS personnel officials, the NPR
recommendations, budget constraints, and specific changes required by
legislation were the primary motivators for restructuring personnel
operations.  Other factors cited by HHS officials that influenced
HHS' restructuring decision included OMB exerting pressure on the
department to improve its administrative processes and the findings
of two organizational studies conducted by HHS in 1993 and 1995. 

HHS' streamlining and reinvention strategy included three parts.  The
first part of the strategy was to separate personnel policy from
personnel operations at HHS headquarters, which was accomplished in
1995.  The second part of the strategy was to create the Program
Support Center, which was established in 1995.  The Center operates
the automated personnel and payroll system for the Department and
provides personnel administration services for the Office of the
Secretary, the Administration on Aging, and for the Center's
employees.  According to HHS officials and documents, establishing
the Center has helped HHS reduce duplicative administrative services
and the number of administrative employees.  The third part of HHS'
restructuring strategy was to delegate authority in personnel and
other administrative and management operations to its component
agencies.  For example, as part of HHS' broader restructuring
efforts, HHS delegated to the health agencies that formerly comprised
the Public Health Service their own delegation of HR authorities. 


--------------------
\9 According to OPM data, HHS had 2,265 personnelists as of September
1993.  This number included personnelists who were employed by the
Social Security Administration (SSA).  As of September 1997, HHS had
1,240 personnelists, not including SSA's employees.  SSA separated
from HHS in 1995 to become an independent agency.  To determine the
change in the number of personnelists, we added SSA's personnelists
to HHS' personnelists for 1997 and then subtracted the 1993 figure
from the new 1997 figure, for a reduction of 319 employees. 


         DEPARTMENT OF THE
         INTERIOR'S RESTRUCTURING
         EFFORTS
-------------------------------------------------------- Letter :4.1.3

DOI reduced its personnel staff from 1,787 to 1,062 employees between
September 1993 and September 1997, which was a decrease of about 41
percent.  DOI's nine bureaus mainly restructured their personnel
offices through consolidating offices, reorganizing bureaus, and
downsizing the workforce through attrition and reductions-in-force. 
For example, the personnel office of DOI's Office of Surface Mining
agreed to provide personnel services to the Bureau of Indian Affairs
(BIA).  After the agreement was reached, DOI eliminated BIA's
personnel policy and operations staff at its central office in
Washington, D.C., which had provided service to the Eastern Area. 
BIA also shifted coverage of personnel services for the Eastern Area
to the Anna Darco, Oklahoma, area office and for BIA's Education
Division to the Albuquerque, New Mexico, area office. 

DOI departmental and bureau officials cited two reasons for
restructuring personnel operations in the department--budgetary
constraints and NPR recommendations and guidelines.  In October 1994,
after the bureaus rejected an earlier proposal to regionalize all
personnel operations, DOI issued a plan for the department that
detailed objectives, principles, approaches, and strategies for
streamlining administrative operations.  According to the plan, the
bureaus were asked to review their organizations to identify
strategies to reduce management layers, increase the span of control
for supervisors, and reduce their headquarters' functions by as much
as 50 percent.  Each bureau was to devise its own plan to meet the
departmental goals. 

Under the streamlining plan, authority for personnel matters would be
delegated to line managers of DOI's nine bureaus so that they could
accomplish operating missions.  According to departmental and bureau
officials, this delegation has been made but with varying degrees of
success.  According to officials at one bureau, the concept of
managers assuming personnel work was not realistic without
fundamentally changing the personnel requirements and the associated
processes to fulfill those requirements. 


         DEPARTMENT OF VETERANS
         AFFAIRS' RESTRUCTURING
         EFFORTS
-------------------------------------------------------- Letter :4.1.4

Between September 1993 and September 1997, VA reduced its personnel
staff from 2,880 to 2,387 employees, a decrease of approximately 17
percent.  According to VA officials, although VA's personnel staffing
has been reduced, customer satisfaction with personnel services was
the primary factor that led VA to restructure its personnel
operations.  VA's initial restructuring of personnel offices began in
the Veterans Health Administration and the Veterans Benefits
Administration, which together employ most of the VA workforce. 
Since then, VA has taken a departmentwide approach to restructuring
its personnel and payroll operations, referred to as "HR LINK$."

Key features of this departmentwide approach include a national
"shared service center" to process personnel transactions for all of
VA and a newly designed three-tiered approach to address the
questions and concerns of employees and managers.  At the first tier,
a generalist is to answer routine inquiries and process simple
transactions.  If an inquiry goes beyond the assistance the
generalist can provide, it goes to a specialist at the second tier
who is to provide problem-solving, issue resolution, and advice or
counsel based on the specific needs of the case.  If assistance is
needed above the specialist's expertise, then a small staff of
experts at the third tier is to provide or facilitate answers on
department policy, program design, or resolve complex case work.  VA
had a four-phase strategy for implementing the remaining activities
of its restructuring plan and was in the second phase as of late
1997.  VA officials planned to complete departmentwide implementation
by December 1999. 

According to VA officials and documents, VA's aim in developing its
approach was to improve the delivery of personnel service and to have
the personnel function more directly assist program managers in
accomplishing the mission of the organization.  To determine how
personnel services could be improved and made more useful to
managers, VA compared its personnel operations with the personnel
operations of leading private and public sector organizations and
used a business process reengineering approach to streamline its
personnel processes.  Expanding on that effort, VA's September 1997
HR managers' conference focused on how the human resource function
can become a strategic partner in supporting managers and employees
in accomplishing VA's mission.  The purpose of the conference, as
stated in conference materials, was "to develop effective strategies
and accountable action plans, with relevant stakeholders, to optimize
value-added and measurable human resource services for the changing
VA, and to clarify responsibilities in the new HR/Payroll model."


      PERSONNEL SERVICING RATIOS
      GENERALLY DID NOT CHANGE
      SUBSTANTIALLY
---------------------------------------------------------- Letter :4.2

Personnel officials we interviewed referred to their personnel
servicing ratios as a key indicator when they spoke about
restructuring personnel operations.  As previously stated,
governmentwide reductions of personnelists totaled about 8,900
employees or about a 21-percent reduction.  The reductions in the
number of personnelists at the four departments we reviewed ranged
from 14 to 41 percent, or an average of about 22 percent.  In
contrast to the large reductions in the number of personnelists,
however, the personnel servicing ratios for the departments, except
for DOI, did not change as substantially from September 1993 to
September 1997 because of downsizing in other parts of the agencies. 
For example, although USDA reduced the number of personnelist by 17
percent, USDA's personnel servicing ratio decreased from 55 employees
served by 1 personnelist (55:1) to 54 employees served by 1
personnelist (54:1), which was still below the federal average of 56
employees served by 1 personnelist (56:1).  DOI reduced its number of
personnelists by 41 percent and improved its servicing ratio from
48:1 to 68:1.  VA's 1993 and 1997 servicing ratios were well above
the federal average at 95:1 and 103:1, respectively.  Table 1 shows
the ratios for the four departments and the ratios for the 24 CFO
agencies combined.  As mentioned previously, the 24 CFO agencies
employ most of the federal civilian workforce. 



                                Table 1
                
                  Personnel Servicing Ratios for the 4
                  Departments and the 24 CFO Agencies
                 Combined, September 1993 and September
                                  1997

                                Sept. 1993    Sept. 1997
                                 personnel     personnel
                                 servicing     servicing     Change in
Agency                             ratio\a       ratio\a         ratio
----------------------------  ------------  ------------  ------------
USDA                                  55:1          54:1          (-1)
HHS\b (with SSA)                    (57:1)   47:1 (64:1)       n/a (7)
DOI                                   48:1          68:1            20
VA                                    95:1         103:1             8
24 CFO agencies                       51:1          56:1             5
----------------------------------------------------------------------
\a These data include part-time and temporary employees (see app. 
I).  A department's personnel servicing ratio may be lower when
excluding part-time and temporary employees.  For example, VA's 1997
ratio when only including full-time, permanent employees was 83:1. 
These data do not include vacant positions, which may also change an
agency's ratio. 

\b HHS' 1993 ratio and bracketed 1997 ratio include personnelists
employed by SSA.  SSA separated from HHS in 1995.  Therefore, in
1993, all SSA employees were counted in HHS' workforce, which was not
the case in 1997.  If SSA personnelists were added to the number of
HHS personnelists to make the 1997 data more comparable to 1993 data,
HHS' 1997 personnel servicing ratio would be 64:1, rather than 47:1. 

Source:  GAO analysis of data from OPM's CPDF, as of September 1993
and September 1997. 

The personnel servicing ratios for the four departments did not
increase more because, at least in part, the overall number of
employees served also decreased between September 1993 and September
1997.  In addition to reducing personnel staff, each department also
downsized other parts of its workforce.  For example, according to
data from OPM's CPDF, USDA had about 25,700 fewer employees in
September 1997 than it did in September 1993, a decrease of about 19
percent.  In comparison, the number of personnelists at USDA
decreased by 17 percent. 


      USE OF NEW TECHNOLOGY, KEY
      COMPONENT OF RESTRUCTURING
      PLANS, IS BEHIND SCHEDULE
---------------------------------------------------------- Letter :4.3

As part of their restructuring efforts, the four departments planned
that new hardware and/or software technology--designed to reduce
paperwork and workload for personnel staff--would be in place before
personnel staff reductions were made.  To this end, each department
was developing or purchasing new technology for automating personnel
transactions.\10 In some cases, the departments had begun to automate
the processes for classifying and staffing positions, which
streamlined those processes and reduced the time necessary to process
certain transactions, such as employee hiring and promotions. 
However, across all four departments, much of the new automation was
not in place even though personnel staff reductions had occurred. 

As of late 1997, the departments were behind their original
milestones for implementing the new personnel and payroll systems. 
For example, USDA officials were deciding whether to provide an
automated "front-end processing" supplement to its core
payroll/personnel system by developing software in-house or
purchasing commercially available software.  Pilot tests of both
software products were planned to develop information on which to
base the decision.  HHS' Program Support Center, which is to serve
all of HHS, was converting its existing system to use commercially
available software to upgrade its personnel and payroll system, as
well as testing the converted system.  DOI had been developing a
system for processing personnel and payroll transactions, including
automating SF-52s, since the late-1980s, but it was not fully
operational departmentwide as of January 1998.  VA had rescheduled
the opening of its national service center from September 1997 to
March 1998 to allow more time for programming and testing the new
information system.  However, VA officials remained confident that
the new system would be implemented departmentwide by December 1999,
as projected, because key implementation steps were being done in
parallel rather than in sequence. 

Officials of the four departments and their agencies told us that
efforts to upgrade technology have been resource intensive and have
taken longer than expected.  Specifically, some officials said that
when restructuring efforts began they had not fully appreciated the
need to (1) assess existing automated systems before making changes,
(2) have technology in place before downsizing personnel staff, and
(3) allow sufficient time for testing the new technology.  One option
these officials recommended to other agencies to facilitate the
conversion process was to consider purchasing commercially available
software rather than building new personnel information and payroll
systems in-house.  Few commercial software programs suitable to the
departments' needs, according to officials at two departments, were
available when the departments began to develop their automated
systems in-house. 

Further complicating the system delays in the agencies is their need
to comply with the Year 2000 date conversion.  In both the public and
private sectors, the way dates are recorded and computed in many
computer systems is at the root of the Year 2000 compliance problem. 
For the past several decades, systems have typically used two digits
to represent the year, such as "97" representing 1997, to conserve
electronic data storage space and reduce operating costs.  With this
two-digit format, however, the year 2000 is indistinguishable from
1900, 2001 from 1901, and so on.  As a result of this ambiguity,
system or application programs that use dates to perform
calculations, comparisons, or sorting may generate incorrect results. 
Payroll and personnel information systems and programs clearly fit
those categories.  All four departments were aware of this problem
and were taking steps to address the issue.  For example, according
to DOI officials, the personnel information and payroll system they
are developing is designed to be Year 2000 compliant.  DOI plans to
validate and test the new system's compliance in 1999. 


--------------------
\10 As we noted earlier, USDA and VA officials used a business
process reengineering approach; HHS and DOI officials did not.  With
the passage of the Clinger-Cohen Act in 1996, agencies are now
required to assess and reengineer their paperwork processes before
automating them. 


   DEPARTMENTS RECOGNIZED NEED FOR
   MORE PERFORMANCE MEASURES TO
   BETTER ASSESS THE RESULTS OF
   PERSONNEL OPERATIONS
------------------------------------------------------------ Letter :5

The four departments we reviewed had only limited measures in place
to assess the performance of personnel offices and operations but
were developing further measures.  A growing trend in industry and
more recently in government, according to HR experts, is the
expectation that the personnel function needs to quantify its
operations' return on investment or what value-added the function
provides to an organization.\11 In addition, as we previously
reported, without measures of performance, it will be difficult to
track the impact of recent activities to streamline personnel
operations and to know whether the intended results were achieved.\12


--------------------
\11 For example, see Transforming the Civil Service:  Building the
Workforce of the Future, Results of a GAO-Sponsored Symposium
(GAO/GGD-96-35, Dec.  20, 1995). 

\12 Business Process Reengineering Assessment Guide
(GAO/AIMD-10.1.15, Apr.  1997) and Assessing Risks and Returns:  A
Guide for Evaluating Federal Agencies' IT Investment Decision Making
(GAO/AIMD-10.1.13, Feb.  1997). 


      LIMITED PERFORMANCE MEASURES
      IN PLACE TO GAUGE THE
      RESULTS OF RESTRUCTURING
---------------------------------------------------------- Letter :5.1

Focusing the measurement of personnel operations on results
represents a major shift for HR managers in the federal government. 
A 1993 study of federal personnel offices, by the U.S.  Merit Systems
Protection Board (MSPB), highlighted the fact that personnel offices
in the federal government have long been evaluated on the basis of
compliance with laws, rules, and regulations and not on service
delivery or results.\13 The MSPB found little in the way of
performance indicators of service delivery in personnel operations. 
In our survey of the 24 CFO agencies, we found that there had been
little progress since the MSPB study was conducted.  The 24 CFO
agencies reported little if any performance measurement activity. 

More specifically, when we spoke with personnel officials from the
four departments, they told us that they had few measures in place
across the department to track performance or to indicate what
value-added services personnel offices bring to the organization. 
These departments had not routinely gathered the data needed to gauge
operational efficiency and effectiveness.  For example, data were not
usually gathered to measure the costs of personnel and payroll
processes or the level of satisfaction customers had with the quality
and timeliness of the services they received.  A 1996 USDA study
identified 360 operational activities associated with the delivery of
personnel services but identified performance measures for only 6 of
them. 

While not common, we did observe that some agencies had performance
measures in place that were not routinely being used elsewhere.  For
example, at USDA's Animal and Plant Health Inspection Service
(APHIS), officials said they had performance standards in place for a
number of years.  As part of its performance standards, APHIS tracks
how long it takes to carry out certain activities, such as 34 days to
complete the processing of paperwork for promotions. 

One performance measure that agencies' personnel officials
consistently used was the personnel servicing ratio, as discussed
earlier.  For example, DOI issued guidelines to the bureaus to attain
a servicing ratio of 100 employees to 1 personnelist.  VA had
projected a target servicing ratio of 110 to 125 employees to 1
personnelist.  The servicing ratio, while providing a broad measure
of efficiency and an indicator of progress in restructuring, does not
indicate how well an agency's personnel office meets the needs of its
customers--managers and employees--or its contribution to mission
accomplishment.  Performance indicators can aid agencies' efforts to
improve service delivery, efficiency, and quality--key goals of
agencies' restructuring efforts. 


--------------------
\13 Federal Personnel Offices:  Time for A Change?  A Report to the
President and the Congress of the United States by the U.S.  Merit
Systems Protection Board, August 1993. 


      AGENCIES WERE DEVELOPING
      PERFORMANCE MEASURES
---------------------------------------------------------- Letter :5.2

Agency officials we interviewed in all four departments recognized
the need for measurement and were beginning to develop appropriate
measures to assess the performance of personnel offices.  For
example, officials of HHS' National Institutes of Health said they
were working with NAPA to develop specific measures to track the
delegation of authority to line managers and whether line managers
believed that the personnel systems were flexible and easier to use. 
According to HHS officials, HHS also conducts an HR management
indicators survey, which provides managers with data on employee
perceptions of organizational effectiveness.  VA sought to quantify
the costs and performance of its personnel activities as it was
developing its restructuring initiative to identify specific
opportunities for improvement.  Moreover, VA also recently developed
performance measures that it circulated for comment to its personnel
managers, including measures of users' satisfaction with the new
automated personnel system and cost per employee for operating the
new human resource system.  At USDA, the Natural Resources
Conservation Service also planned to use performance measures, for
example, to determine the time personnel staff take to provide lists
of eligible candidates to managers to fill vacant positions. 

A 1997 NAPA study\14 was commissioned by a number of federal
agencies, including HHS and VA, to help personnel offices design
useful measurement systems and to provide information and tools for
that purpose.  While the study emphasized that there is no
one-size-fits-all system of measurement, it did identify four aspects
of HR that should be measured.  The four aspects were (1) financial
measures, such as cost per employee hired and litigation costs; (2)
customer satisfaction measures, such as those associated with
responsiveness and quality; (3) workforce capacity measures, such as
employee satisfaction and education; and (4) process effectiveness,
such as cycle time and productivity. 


--------------------
\14 Measuring Results:  Successful Human Resources Management, NAPA,
August 1997. 


   GOVERNMENTWIDE ISSUES
   CONCERNING THE PURCHASE AND
   DELIVERY OF AUTOMATED PERSONNEL
   SERVICES
------------------------------------------------------------ Letter :6

In restructuring its personnel operations, a federal agency may
decide to purchase personnel and payroll services rather than operate
its own systems.  Congress and the current administration, as with
prior administrations, have encouraged federal agencies to provide
administrative services to other agencies on a reimbursable basis. 
The Director of OMB was authorized by the Government Management
Reform Act of 1994 to designate a number of agencies that can
establish pilot franchise funds to provide common administrative
support services.  Federal agencies may also contract with private
companies for personnel and payroll services.  Among the issues that
agencies may encounter if purchasing personnel and payroll services
is the inability of service providers to deliver services when
scheduled.  Another issue is the lack of a common framework in which
to (1) compare the service quality of personnel and payroll services
that franchise and other federal agencies will provide to agencies
seeking services and (2) permit the efficient exchange of automated
personnel data between agencies and service providers. 


      SERVICES TO BE OBTAINED
      THROUGH CROSS-SERVICING MAY
      NOT BE AVAILABLE AS PLANNED
---------------------------------------------------------- Letter :6.1

Each of the four departments is selling or planned to sell automated
personnel and/or payroll services to other federal agencies, which
was one reason why each department was upgrading its payroll and/or
personnel information system.  Three of the four departments (DOI,
HHS, and VA) were franchise pilots, and USDA's National Finance
Center already provided personnel and payroll services of some extent
to 45 agencies, including us, as of August 1997.  As previously
stated, the departments had all fallen behind schedule in bringing
their proposed systems to operational status.  This situation had
already affected the plans of certain agencies to obtain services. 
For example, DOI had agreed to provide payroll services to DOE if it
were feasible to build an interface with DOE's human resource
information system under development using commercially available
software.  Upon completion of a feasibility study, DOI estimated that
it would take at least 15 months beyond the scheduled delivery date
to provide payroll services to DOE because of the need to develop a
computer interface.  DOI estimated that the interface would cost at
least $3.4 million to develop and between $450,000 and $675,000
annually to operate.  Because of the estimated time lag in the
delivery of services and the associated costs, DOE decided to cancel
its agreement with DOI.  DOE plans to upgrade its existing payroll
system and develop its own interface to DOE's new HR system, which,
according to DOE officials, is Year 2000 compliant. 

The situation of an agency waiting for an uncertain length of time to
receive automated services is further complicated by the need for all
agencies to comply with the Year 2000 date conversion.  According to
DOE officials, one reason why the Department decided to purchase
payroll services from DOI was because its existing personnel
information and payroll systems were not Year 2000 compliant.  The
officials said that DOE will now have to upgrade its payroll system
to make it Year 2000 compliant.  Other agencies may face similar
situations if they cannot obtain personnel and payroll services in a
timely manner from outside providers. 


      LACK OF COMMON FRAMEWORK TO
      INFORM AGENCIES ABOUT
      SERVICES THAT ARE AVAILABLE
---------------------------------------------------------- Letter :6.2

A common concern among the department and agency officials we
interviewed was the lack of a common framework for restructuring
personnel processes and information systems.  The officials suggested
that it would be useful to have, before entering into a
cross-servicing arrangement, descriptions of the services agencies
are offering.  The descriptions could provide cost, performance, and
other information about a service that would help an agency to decide
whether to develop the service in-house or buy the service from
another agency or the private sector.  According to USDA, several
agencies have expressed to the governmentwide Human Resource
Technology Council that costs are not comparable from one service
provider to another because different services are provided and
different assumptions for including costs are used to determine
billing for these services. 

As we reported in October 1997, experiences in private sector
organizations in purchasing automated administrative services show
the need to understand the cost drivers and performance requirements
to make effective "outsourcing" decisions.\15 In our survey of the 24
CFO agencies, several agencies reported that they were considering
various options for obtaining personnel and payroll services, such as
cross-servicing and outsourcing.  However, agency officials told us
that the available information on operational performance and costs
for personnel and payroll services from other federal agencies were
limited (e.g., information on whether the systems work together
without costly interfaces).  This lack of information may be due in
some measure to the less-than-fully operational status of new systems
that agencies may be installing to provide cross-servicing or
franchise services, such as was the status in the four departments we
reviewed.  The four departments had limited processes to routinely
capture specific costs of their personnel and payroll activities but
were beginning to capture more cost data.  For example, VA and USDA
officials were beginning to use activity-based costing to determine
what the costs were to conduct certain activities and were using this
information to help target improvements in their personnel
operations.\16


--------------------
\15 Financial Management:  Outsourcing of Finance and Accounting
Functions (GAO/AIMD/NSIAD-98-43, Oct.  17, 1997). 

\16 Activity-based costing is a set of accounting methods used to
identify and describe costs and required resources for activities
within processes. 


      COMMON FORMAT TO FACILITATE
      DATA EXCHANGES WAS BEING
      DEVELOPED
---------------------------------------------------------- Letter :6.3

Department and agency officials we interviewed said it would be
useful as well to have a standard technical format for data that
agencies are likely to exchange with service providers.  Standard
technical formats, they said, would enable an agency and its service
provider to readily exchange automated data. 

In April 1997, we reported on agencies' concerns about the lack of
core requirements for automated personnel and payroll systems.\17 OPM
recently began taking positive steps to address these concerns by
rechartering the Federal Personnel Automation Council as the Human
Resources Technology Council.  OPM has tasked the Council with
developing a set of core data elements and requirements for personnel
information systems in recognition of the need to develop a
governmentwide strategy for using automation technology.  To improve
the overall efficiency of agency human resources operations, the
President's Management Council tasked the Human Resources Technology
Council to (1) review ongoing development and modernization of human
resource systems across the government and (2) define and standardize
essential functional or information requirements.  The Human
Resources Technology Council issued a report in November 1997
detailing its findings from a governmentwide survey of human
resources information systems.\18 These findings include the
following: 

  -- Human resources and payroll information systems should
     accommodate the flexibility and discretion needed by agency
     management. 

  -- Agencies should make every effort to adopt standard data
     elements and descriptions to provide a degree of
     interoperability and compatibility of human resources
     information systems across the government. 

  -- Analytical processes should be used to critically examine,
     rethink, and redesign agency human resources management programs
     before embarking on the development of new information systems. 

  -- Agencies should review other existing agency information systems
     to determine if any one of them can satisfy their needs before
     making a decision to purchase or develop a new system. 

  -- Agencies' decisions about how and when to replace current
     systems should be based on a business case analysis. 

The Human Resources Technology Council's November 1997 report
recommends that the Council and OPM undertake further study to

  -- develop a strategy to move toward governmentwide electronic
     human resources recordkeeping,

  -- evaluate the cost of implementation and maintenance of human
     resource information systems,

  -- evaluate the best practices of other government entities and the
     private sector, and

  -- ensure that up-to-date functional requirements and data elements
     are identified in the payroll area. 

In addition, in June 1997, the President established an
Administrative Management Council, acknowledging that administrative
management matters deserve attention across agency lines. 


--------------------
\17 GAO/GGD-97-68R. 

\18 Governmentwide Human Resources Information Systems Study, Human
Resources Technology Council, November 26, 1997. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

Initial efforts to restructure personnel operations at USDA, HHS,
DOI, and VA were aimed at reducing personnel office staff and
improving automated systems.  Upgrading system technology was a
primary element of the restructuring plans because the departments
planned to increase operating efficiencies and improve services by
automating paper-based personnel processes.  Each department reduced
the number of personnelists it employed, with reductions ranging from
14 percent at HHS to 41 percent at DOI.  Each department as well was
working to improve its automated systems.  However, the automation
efforts were not completed as planned before reductions in personnel
staffing occurred.  Automation efforts had not been fully implemented
throughout the departments, as of late 1997. 

Although some agencies were beginning to develop and implement
performance measures for personnel operations, it was difficult for
them to assess the performance of their restructured personnel
offices because the offices generally lacked baseline measures to
gauge changes in performance.  The Government Performance and Results
Act of 1993 requires federal agencies to assess how well they are
performing and to do so with appropriate performance measures. 
Without performance measures, departments and agencies will be unable
to determine the timeliness of personnel services, the satisfaction
levels of those who use the services, and other attributes that they
may associate with personnel operations.  Because personnel offices,
regardless of department or agency, generally carry out the same
activities, some performance measures would appear to have widespread
application across agencies, could be used to compare performance
among agencies, and could help to identify best practices in the
delivery of federal personnel services.  Performance measures also
provide a benchmark to assess the effectiveness of reform efforts
such as those taken by the four departments we examined. 

The lagging schedule at the four departments in upgrading the
personnel and payroll systems has had consequences beyond the four,
since each department is providing or plans to provide personnel and
payroll services to other agencies.  An agency may sign up to use
these services, in part, because its own personnel information and
payroll systems are not Year 2000 compliant.  As discussed earlier,
DOE changed its plans to use DOI's payroll services.  One of the
factors, which influenced that decision, was the high cost to develop
and maintain the DOI interface with DOE's new HR information system. 
The second factor was DOE's lack of a "comfort zone" between the
projected date to complete the interface and the year 2000, in the
event delays were encountered in developing and testing the
interface, since DOE's payroll system was not Year 2000 compliant. 
It is imperative that payroll and personnel information systems,
which use dates for many computations and analyses, be Year 2000
compliant or that the agencies have some backup means of accurately
making the necessary computations when 2000 arrives. 

As agencies decide to use alternative approaches for delivering
personnel and payroll services, such as cross-servicing arrangements,
they will need to be assured that the services they are to receive
under these arrangements can and will meet their data and information
needs.  The administration has recognized that a governmentwide
framework for cross-servicing arrangements is needed as agencies
restructure personnel operations.  OPM's Human Resources Technology
Council has begun to focus interagency efforts to develop such a
framework.  Agency officials have suggested that the framework could
include consistent policies, data formatting requirements, and
pricing structures for cross-servicing.  The Council's current
efforts do not include developing common performance measures.  These
initial efforts appear to be a good start and, with further
refinement, would assist agencies in providing common administrative
functions across the federal government as envisioned under the
franchise fund pilot program authorized by the Government Management
Reform Act of 1994. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :8

We recommend that the Director of OMB require agencies to develop
performance measures for personnel operations.  The measures to be
developed should assess key areas, such as the costs of personnel
processes, customer satisfaction with personnel services, workforce
capacity, and process effectiveness. 

To develop measures that would have widespread application, we
recommend that the Director of OPM, in conjunction with the
President's Administrative Management Council, lead an initiative
that helps agencies develop common measures that could be used to
make performance and cost comparisons of personnel operations within
agencies and across government. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

We obtained written comments on a draft report from OMB, OPM, and the
four departments (DOI, HHS, USDA, and VA) whose personnel
restructuring efforts we reviewed.  We also obtained written comments
from DOE because it initially was evaluating alternatives, including
using DOI's payroll services, for providing more efficient services
to its employees.  The agencies' written comments are included in
appendixes II through VIII. 

OMB's Acting Deputy Director for Management said that our draft
report adds considerably to the governmentwide knowledge base on
implementation of new administrative systems, lessons to be learned,
and the need to employ appropriate measures to determine their effect
on organizational and workforce performance.  OMB likewise supported
the need to achieve these objectives and was in general agreement
with our recommendations that agencies develop performance measures
for their personnel operations. 

OMB agreed that agencies should employ performance measures in
assessing the operations of human resources management operations. 
However, OMB also suggested it is premature to require individual
agencies to develop such measures.  Moreover, OMB suggested in its
response that we consolidate our recommendations to focus attention
on OPM's role in developing a set of common performance measures for
human resource management operations. 

While we are sensitive to OMB's position, a common framework is
important to help guide agencies' efforts and we do not agree that it
is premature to require agencies to develop such measures, given
their progress to date.  In fact, to be most effective, we would
expect that work on our two recommendations would be done in tandem,
thus building synergies from efforts at both agency and
governmentwide levels.  As OMB points out in its letter, the Merit
Systems Protection Board has noted that 24 federal agency strategic
plans identified at least one specific human resource management
objective and one or more implementing strategies, and about half of
those plans included performance measures that could be used to
assess whether the objectives were being met.  We also point out in
our report that agencies were making progress in developing
performance measures for their personnel operations.  Given the level
of investment in new HR information systems and the movement to
cross-servicing among agencies for HR and payroll services, we
continue to believe that it is important that agencies move quickly
to develop baseline measures to gauge their progress and performance. 
We agree with OMB that OPM must play a central leadership role in
helping to improve the overall quality and responsiveness of human
resource management in agencies.  However, OMB has a leadership role
to play as well.  OMB issues the guidance for agencies' annual
performance plans and is a key recipient and user of those plans. 

The Director of OPM said that OPM shares an interest in working with
the Interagency Council on Administrative Management and other
organizations throughout the government to develop appropriate
performance measures, as our report recommends.  The Director cited
OPM's ongoing efforts with the agencies to develop a human resources
accountability model.  OMB's and OPM's written comments are included
in appendixes II and III, respectively. 

HHS' Inspector General, DOI's Assistant Secretary for Policy,
Management and Budget, and USDA's Director for the Office of Human
Resource Management said that we had accurately reflected their HR
restructuring efforts over the past several years.  The agencies
provided information to clarify and update the draft report, which we
incorporated into this report where appropriate (see written comments
and marginal notations in apps.  IV through VIII). 

On the other hand, in VA's May 22, 1998, letter, the Assistant
Secretary for Policy and Planning said that the draft report fell
short in depicting the scope, magnitude, and complexity of VA's
primary human resource restructuring initiative--the "HR LINK$"
project.  He also stated that this initiative is a model for the
federal government.  We believe that we have accurately described
VA's personnel restructuring efforts.  We agree with VA that the "HR
LINK$" project is a significant, large, and complex undertaking. 
However, as the draft indicated, VA still faces significant
challenges in implementing its approach across the nation, including
incorporating technology upgrades and addressing important
operational details.  VA was still in the prototype stage of the
project and had not fully implemented its project throughout the
department at the conclusion of this review.  Because "HR LINK$" is
in the prototype stage and implementation challenges still remain, we
believe it would be premature to characterize the initiative as a
model for the rest of the federal government.  VA's written comments
are included in appendix VIII. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Chairman and Ranking
Minority Members of the Senate Committee on Governmental Affairs and
its subcommittees on International Security, Proliferation and
Federal Services and Oversight of Government Management,
Restructuring and the District of Columbia; the House Committee on
Government Reform and Oversight and its subcommittees on Civil
Service and Government Management, Information and Technology; the
Secretaries of Agriculture, Energy, Health and Human Services, the
Interior, and Veterans Affairs; the Director, OPM, and other
interested parties.  We will also make copies available to others
upon request. 

Major contributors to this report are listed in appendix IX.  Please
contact me at (202) 512-8676 if you have any questions concerning
this report. 

Sincerely yours,

J.  Christopher Mihm
Associate Director, Federal Management
 and Workforce Issues


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

We had three objectives in this self-initiated review.  Our first
objective was to describe the activities that have taken place in
restructuring federal personnel offices and operations.  Our second
objective was to ascertain whether performance measures are in place
to gauge the results of the restructuring efforts.  Our third
objective was to identify issues agencies may commonly encounter
when, in restructuring their personnel operations, they consider
purchasing automated personnel and/or payroll services from another
agency or the private sector. 

To address our first objective (i.e., to describe activities that
have taken place in restructuring personnel offices and operations),
we identified federal agencies that were restructuring their
personnel offices and operations.  We identified and focused on the
24 agencies that have financial reporting responsibilities under the
Chief Financial Officers (CFO) Act.  These 24 agencies represent
about 97 percent of the career, full-time employees of the executive
branch, and account for over 99 percent of the federal government's
net dollar outlay in fiscal year 1996.  We surveyed officials in the
24 agencies, asking a series of questions such as (1) which
administrative functions, if any, were being restructured and what
methods were used to restructure; (2) how they were measuring or
planned to measure the results of these efforts; and (3) whether new
technology (computer hardware and/or software) was part of the
restructuring plan.  Information the officials provided to our
questions served as the basis for selecting the four departments we
reviewed.  We used information obtained from the four departments to
address all three of our objectives. 

We reviewed USDA, HHS, DOI, and VA because they reported (1) using
business process reengineering as an approach to restructuring, (2)
developing or purchasing new technology, and (3) providing or
planning to provide personnel and payroll services to other
agencies.\1 Because the personnel restructuring activities at USDA,
HHS, and DOI were decentralized, we obtained information from several
of their respective component agencies.  We also obtained information
from the three agencies within VA, although the VA's restructuring
efforts were more centralized.  We generally selected those agencies
in the four departments that had the largest number of employees. 
Table I.1 lists by department the component agencies we selected and
reviewed. 



                               Table I.1
                
                     Component Agencies of the Four
                      Departments That We Reviewed

Department                          Component agency
----------------------------------  ----------------------------------
Department of Agriculture           Animal and Plant Health Inspection
                                    Service
                                    Farm Service Agency
                                    Forest Service
                                    Natural Resources Conservation
                                    Service


Department of Health and Human      Food and Drug Administration
Services                            Indian Health Service
                                    National Institutes of Health


Department of the Interior          Bureau of Indian Affairs
                                    Bureau of Land Management
                                    Bureau of Reclamation
                                    National Park Service
                                    Office of Surface Mining


Department of Veterans Affairs      National Cemetery System
                                    Veterans Benefits Administration
                                    Veterans Health Administration

----------------------------------------------------------------------
In addressing our first objective further, we interviewed personnel
officials of the four departments and the selected component agencies
to obtain information on (1) when restructuring began, (2) the
rationale for restructuring, (3) the plans developed for
restructuring, (4) the activities undertaken to restructure, and (5)
the status of implementation.  The personnel officials we interviewed
were from the central offices of the departments and agencies, and
regional and other field offices.  Specifically, at the field level,
we interviewed personnel officials of

  -- the Bureau of Reclamation in Denver, Colorado;

  -- the Bureau of Land Management, Forest Service, Natural Resources
     Conservation Service, Bureau of Indian Affairs, and Indian
     Health Service in Albuquerque, New Mexico;

  -- the Bureau of Land Management's state office in Santa Fe, New
     Mexico; and

  -- the Veterans Health Administration in Bath, New York. 

In addition, we reviewed the restructuring plans and other
documentation on restructuring provided by the four departments and
their agencies.  For example, we examined the "Reengineering
Blueprint" that details the restructuring plans of the Natural
Resources Conservation Service at USDA.  We also attended planning
conferences held by VA for its human resource managers. 

To address our second objective (i.e., to ascertain whether
performance measures are in place to gauge the results of the
restructuring efforts), we discussed with responsible officials
whether the departments and agencies had developed or were developing
performance measures, whether the measures were "benchmarked" against
leading organizations, and whether the performance measures were
linked to the mission of the department or agency.  Where departments
and agencies had developed performance measures, we examined
documents to determine what measures had been developed.  In
addition, since the restructuring and integration of human resource
management is an evolving area in the private and public sectors, we
reviewed current literature and spoke with experts in the human
resource management area, including officials from NAPA and the
Saratoga Institute, to develop an understanding of the major issues
associated with restructuring personnel operations and performance
measurement. 

In discussing performance measures with the officials, we learned
that the one measure the departments and agencies all used was the
personnel servicing ratio, which compares the number of employees to
the number of personnelists serving them.  To compute personnel
servicing ratios for the four departments and governmentwide and to
determine how those ratios may have changed because of restructuring,
we obtained September 1993 and September 1997 data from OPM's Central
Personnel Data File (CPDF).  The CPDF is a database that contains
individual records for most civilian federal employees and is a
primary source of information on the civilian workforce of the
executive branch.  Data in the CPDF are supplied by the individual
departments and agencies.  We did not verify the data we obtained
from the CPDF database, although we have a review in process that is
examining the reliability of the CPDF database in general. 

In obtaining information on staffing from the CPDF, we extracted data
governmentwide and for each of the 24 CFO agencies, which employ most
of the nonpostal civilian employees in the executive branch.  In
addition, when extracting data on the staffing of personnel offices,
we identified only employees in occupational series GS-200-299,
Personnel Management and Industrial Relations, which was the
personnel series that NPR had targeted for downsizing.\2 We did not
determine whether all of those who were in the occupational series
worked in a personnel office; some unknown number may have worked in
other human resource organizations such as training offices.  On the
other side, we did not identify employees who worked in personnel
offices but who were not in the GS-200 occupational series; for
example, we did not identify secretaries and clerks who worked in
personnel offices.  We extracted CPDF data on all employees,
including part-time and temporary employees.  The staffing numbers we
use in this report provide approximate rather than exact reflections
of the changes in staffing (overall and in personnel offices) at the
four departments and governmentwide.  Alternative definitions of whom
to count as personnelists could change the personnel servicing ratio. 

Finally, to address our third objective (i.e., to identify issues
agencies encountered as they purchased automated personnel and
payroll services from another agency or the private sector), we
interviewed officials from the departments and component agencies who
were involved in the development and/or purchase of new technology
(hardware and software) for personnel and/or payroll operations. 
From these interviews, we obtained information on decision processes
for acquiring new technology, the challenges that surface in
acquiring new technology, and status of technology implementation. 
To observe agencies' new technology, we visited the Natural Resources
Conservation Service's automation test site in Riverdale, Maryland,
and the operations of automated administrative service centers in
Topeka, Kansas (operated by VA); Denver, Colorado (operated by DOI);
and Rockville, Maryland (operated by HHS).  We also met with
officials from OMB and OPM and representatives from the CFO Council's
Joint Systems Solutions Team and the former Federal Personnel
Automation Council to discuss governmentwide efforts to streamline
personnel operations. 

The four departments and the component agencies had not completed
their personnel restructuring efforts as of late 1997.  Thus, the
information we collected from them can provide only a view of their
restructuring efforts to date.  Since the implementation efforts have
not been completed, we cannot conclude the outcome of their efforts. 
Furthermore, the findings from the four departments and their
component agencies may or may not be representative of the remaining
CFO agencies and other federal agencies that may be restructuring
their personnel offices and operations.  These findings, however,
provide some indication of the kinds of issues other agencies could
face. 

We obtained written comments from the Directors of OMB and OPM, the
Secretaries of DOE, DOI, HHS, USDA, and VA or their designees.  We
obtained written comments from DOE because it initially was
evaluating alternatives, including using DOI's payroll services, for
providing more efficient services to its employees.  A discussion of
their comments appears at the end of the report and their written
responses are included in appendixes II through VIII. 



(See figure in printed edition.)Appendix II

--------------------
\1 Although the four departments reported using a business process
reengineering approach, further discussion with personnel officials
after we selected the departments lead to a clarification that USDA
and VA had used a business process reengineering approach; HHS and
DOI had not. 

\2 We excluded military personnelists in occupational series 204 and
205 since we focused our review on civilian personnel. 


COMMENTS FROM THE OFFICE OF
MANAGEMENT AND BUDGET
=========================================================== Appendix I



(See figure in printed edition.)




(See figure in printed edition.)Appendix III
COMMENTS FROM THE OFFICE OF
PERSONNEL MANAGEMENT
=========================================================== Appendix I



(See figure in printed edition.)


The following is GAO's comment on the Office of Personnel
Management's letter dated June 8, 1998. 

GAO COMMENT

1.  OPM notes in its response that OPM calculates the servicing ratio
differently than we did and suggests that we change the computation
of the ratios in our report.  OPM also said that we used a broader
definition of personnelists than theirs in our ratio calculation. 
First, we include the personnelists, as employees, in the calculation
of total employees to present a more complete measure of the
personnelists' workload.  Personnelists must still process personnel
actions and payroll for their own staff in the same manner as they
would for other employees; and therefore, we believe it is a more
complete way to calculate the ratio.  Including personnelists in
total employees serviced increases the servicing ratios by one (e.g.,
VA's 1993 ratio is 95:1 with personnelists included in total
employees versus 94:1 without personnelists included in total
employees).  Second, we used the definition of personnelists as
defined by the National Performance Review.  Contrary to OPM's
comment, we did not include military personnel specialists in our
calculation of the servicing ratios (see app.  I).  We included
part-time employees in our calculation to, again, give a fuller
efficiency measure of the personnelists' workload, since processing
personnel actions for part-time employees generally requires similar
amounts of effort as required for full-time employees.  As stated in
our report, we believe that the servicing ratio is a rough measure of
efficiency but does not capture the quality of the work performed. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
AGRICULTURE
=========================================================== Appendix I

p.  15. 



(See figure in printed edition.)



(See figure in printed edition.)

See p.  8. 


The following is GAO's comment on the Department of Agriculture's
letter dated June 3, 1998. 

GAO COMMENT

1.  While agencies have cited concerns about the need for changes to
the federal human resource management system's statutory and
regulatory framework to assist the streamlining of their personnel
operations, we have previously reported that agencies are not always
aware of the range of flexibility they have, or have not taken full
advantage of the available flexibility.  Nevertheless, as we noted in
our report, any changes to current regulatory or statutory
requirements may have important implications for federal human
resource management, personnel offices, and how personnel services
are provided to line managers. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
ENERGY
=========================================================== Appendix I



(See figure in printed edition.)




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
=========================================================== Appendix I



(See figure in printed edition.)

Now on p.  8. 



(See figure in printed edition.)


The following are GAO's comments on the Department of Health and
Human Services letter dated May 26, 1998. 

GAO COMMENTS

1.  While agencies have cited concerns about the need for changes to
the federal human resource management system's statutory and
regulatory framework to assist the streamlining of their personnel
operations, we previously reported that agencies are not always aware
of the range of flexibility they have, or have not taken full
advantage of the available flexibility.  Nevertheless, as we noted in
our report, any changes to current regulatory or statutory
requirements may have important implications for federal human
resource management, personnel offices, and how personnel services
are provided to line managers. 

2.  HHS noted in its response that they believe the HHS' ratio would
be clearer if SSA's population was excluded in both 1993 and 1997. 
We included SSA in the calculation of HHS' 1993 ratio for HHS because
SSA's field staff were serviced by HHS' personnelists.  If we were to
calculate the 1993 ratio for HHS without SSA's employees, the HHS'
ratio would be understated. 

3.  We agree with HHS' statement that personnel offices perform
different functions in different work environments.  This is part of
the rationale for our statement that the servicing ratio, although a
general measure of efficiency, does not adequately capture how well
the work is performed, since some offices may provide more services
than others. 




(See figure in printed edition.)Appendix VII
COMMENTS FROM THE DEPARTMENT OF
THE INTERIOR
=========================================================== Appendix I




(See figure in printed edition.)Appendix VIII
COMMENTS FROM THE DEPARTMENT OF
VETERANS AFFAIRS
=========================================================== Appendix I



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Veterans
Affairs letter dated May 22, 1998. 

GAO COMMENTS

1.  VA states that our report criticizes all agencies, including VA,
for falling behind schedule in efforts to restructure personnel
operations.  VA states that "HR LINK$" is not simply an initiative to
replace an aging legacy human resources/payroll system.  VA further
explains that it is completely reinventing and reengineering its
entire HR and payroll processes.  However, VA also acknowledges that
it has experienced some delays in opening its shared service center,
which it considers minimal.  We have included the factual information
about agencies' schedule delays in our report because of its
importance to Congress and to decisionmakers in other federal
agencies who also are making decisions about changes to their
personnel operations.  We feel this is important, given the short
time frames to implement complex technology changes in HR and payroll
operations before the year 2000.  Our draft also noted that, despite
the delays, VA remains confident of meeting its scheduled December
1999 completion date. 

2.  VA believes that (1) we did not adequately depict its experience
in developing performance measures and (2) servicing ratios are not
critical measures for determining its project's success.  On the
contrary, the draft noted that all four departments we reviewed
recognized the need for more performance measures to better assess
the results of personnel operations and described some of the
agencies' efforts to develop performance measures.  We pointed out
that VA recently developed performance measures that it circulated to
its personnel managers for comment.  In our exit conference with VA
officials, they acknowledged that their performance measures
(referred to in VA's letter) were not implemented throughout the
Department.  In regards to the servicing ratio, we agree with VA that
servicing ratios are not a critical measure for determining the
project's success.  We noted in our draft report that "the servicing
ratio, while providing a broad measure of efficiency and an indicator
of progress in restructuring, does not indicate how well an agency's
personnel office meets the needs of its customers--managers and
employees--or its contribution to mission accomplishment."

3.  VA said we took a narrow view of all agencies' projects,
especially VA's.  VA states that its plan is to achieve savings as
different phases of the new delivery model are implemented.  VA
acknowledges that staff reductions have occurred before the delivery
of new technology.  As discussed in our report, agencies' plans
called for new technologies and streamlining of processes in order to
achieve cost savings from staff reductions.  Since staff reductions
have occurred before new technologies are in place, those personnel
staff remaining are doing the same work without gaining the
efficiencies that were expected from using the new technology. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IX

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

John K.  Needham, Assistant Director, Federal Management
 and Workforce Issues
Debra R.  Johnson, Evaluator-in-Charge
Katharine Cunningham, Evaluator
Dion Anderson, Evaluator
Anthony Assia, Senior Evaluator
Michael J.  O'Donnell, Personnel Advisor
Rudy Chatlos, Social Science Analyst
Greg Wilmoth, Social Science Analyst

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

John T.  Christian, Ph.D., Senior Business Process Analyst

OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C. 

James Rebbe, Attorney Advisor


*** End of document. ***