Government Management: Observations on OMB's Management Leadership
Efforts (Testimony, 05/12/98, GAO/T-GGD/AIMD-98-148).

This testimony discusses the Office of Management and Budget's (OMB)
efforts to set policy and oversee the management of the executive
branch. GAO (1) outlines OMB's wide-ranging management responsibilities,
noting that the question of whether to integrate or separate management
and budget functions has been long debated; (2) discusses the
effectiveness of OMB's management leadership, which, in GAO's view, has
been uneven; and (3) discusses factors that appear to help sustain
improvements in federal management.

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

 REPORTNUM:  T-GGD/AIMD-98-148
     TITLE:  Government Management: Observations on OMB's Management 
             Leadership Efforts
      DATE:  05/12/98
   SUBJECT:  Presidential budgets
             Congressional/executive relations
             Agency missions
             Federal procurement
             Federal agency reorganization
             Financial statement audits
             Computer security
             Public administration
             Financial management systems
             Information resources management
IDENTIFIER:  Management By Objectives Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Government Management,
Information and Technology
Committee on Government Reform and Oversight
House of Representatives

For Release on Delivery
Expected at
10:00 a.m.  EDT
Tuesday
May 12, 1998

GOVERNMENT MANAGEMENT -
OBSERVATIONS ON OMB'S
MANAGEMENT LEADERSHIP
EFFORTS

Statement of J.  Christopher Mihm
Associate Director, Federal Management and
Workforce Issues
General Government Division

and

Paul L.  Posner, Director, Budget Issues
Accounting and Information Management Division

GAO/T-GGD/AIMD-98-148

GAO/GGD/AIMD-98-148T


(410318/935272)


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

  CFO - Chief Financial Officers
  CIO - Chief Information Officers
  DDM - Deputy Director for Management
  FASA - Federal Acquisition Streamlining Act
  OFFM - Office of Federal Financial Management
  OFPP - Office of Federal Procurement Policy
  OIRA - Office of Information and Regulatory Affairs
  OMB - Office of Management and Budget
  PRA - Paperwork Reduction Act
  RMO - Resource Management Office

GOVERNMENT MANAGEMENT: 
OBSERVATIONS ON OMB'S MANAGEMENT
LEADERSHIP EFFORTS
==================================================== Chapter STATEMENT

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss our observations on the
Office of Management and Budget's (OMB) efforts to carry out its
responsibilities to set policy and oversee the management of the
executive branch. 

Today, we will cover three major points.  First, we will provide an
outline of OMB's wide-ranging management responsibilities and note
that the question of whether to integrate or separate management and
budget functions has been long debated.  Second, we will discuss the
effectiveness of OMB's management leadership which, in our view, has
been uneven.  Finally, we will discuss the factors that appear to
contribute to progress in sustaining improvements in federal
management.  Our observations are made on the basis of work we are
currently doing and have done at federal agencies and at OMB. 

As you know, OMB supports the president by preparing the president's
budget, coordinating the president's legislative agenda, leading
efforts to improve the management of the executive branch, and
providing policy analysis and advice.  Congress has also enacted many
statutes that have assigned to OMB a leadership role for a variety of
governmentwide policy and oversight responsibilities in areas such as
financial management, information resources, and general management,
as well as for regulatory and procurement issues. 


   OMB HAS WIDE-RANGING MANAGEMENT
   RESPONSIBILITIES
-------------------------------------------------- Chapter STATEMENT:1

OMB was established under presidential reorganization authority in
1970, in large part to increase the attention given to management
issues in the federal government.  OMB is the lead agency for
overseeing a framework of recently enacted financial, information
resources, and performance planning and measurement reforms designed
to improve the effectiveness and responsiveness of federal agencies. 
This framework contains as its core elements financial management
improvement legislation, including the Chief Financial Officers (CFO)
Act of 1990, the Government Management Reform Act of 1994, and the
Federal Financial Management Improvement Act of 1996; information
technology reforms, including the Paperwork Reduction Act (PRA) of
1995 and the Clinger-Cohen Act of 1996; and the Government
Performance and Results Act of 1993 (the Results Act). 

The CFO Act mandated significant financial management reforms and
established the Deputy Director for Management (DDM) position within
OMB.  In addition to serving as the government's key official for
financial management, the DDM is to coordinate and supervise a wide
range of general management functions of OMB.  These functions
include those relating to managerial systems, such as the systematic
measurement of performance; procurement policy; regulatory affairs;
and other management functions, such as organizational studies,
long-range planning, program evaluation, and productivity
improvement. 

OMB is responsible for providing guidance and oversight for various
other laws and executive orders as well.  For example, the Federal
Acquisition Streamlining Act (FASA) requires that executive agency
heads set cost, performance, and schedule goals for major acquisition
programs and that OMB report to Congress on agencies' progress in
meeting these goals.  Executive Order 12866 directs OMB to coordinate
the review of agencies' rules and regulations to ensure that they
impose the least burden, are consistent between agencies, focus on
results over process, and are based on sound cost/benefit analysis. 
OMB also has been responsible since 1967, through its Circular A-76,
for carrying out executive branch policy to rely on competition
between the federal workforce and the private sector for providing
commercial goods and services. 


   HISTORICALLY, THERE HAVE BEEN
   QUESTIONS ABOUT WHETHER TO
   INTEGRATE OR SEPARATE
   MANAGEMENT AND BUDGET FUNCTIONS
-------------------------------------------------- Chapter STATEMENT:2

OMB's perennial challenge is to carry out its central management
leadership responsibilities in such a way that leverages
opportunities of the budget process, while at the same time ensuring
that management concerns receive appropriate attention in an
environment driven by budget and policy decisions.  Concern that OMB
and its predecessor agency, the Bureau of the Budget, lacked the
support and institutional capacity necessary to sustain management
improvement efforts throughout the executive branch has prompted
numerous calls for changes in the past. 

During the past 50 years, a number of presidential advisory groups
have recommended changes designed to strengthen the Office's central
management leadership.  In response to the recommendations of one of
these groups, the Ash Council, the Bureau of the Budget was
reorganized in 1970 and renamed OMB, thereby signaling the intent to
heighten the management focus in the agency.  However, the creation
of OMB did not ensure that an institutionalized capacity for
governmentwide management leadership would be sustained, nor did it
establish how OMB should balance its budget and management
responsibilities.  As a result, observers have continued to debate
how to best ensure that management issues can be effectively
considered within the context of--yet without being overwhelmed
by--the budget process.  Some observers have advocated integrating
the two functions, while others have proposed the creation of
dedicated offices or a separate agency to provide governmentwide
management leadership. 

Prior OMB reorganizations, reflecting these different points of view,
have alternated between seeking to more directly integrate management
into the budget review process and creating separate management
offices.  Previous congressional and OMB attempts to elevate the
status of management by creating separate management units within OMB
sought to ensure that an adequate level of effort was focused on
management issues.  Underscoring its concern that management issues
receive appropriate attention, Congress established the DDM position
to provide top-level leadership to improve the management of the
federal government. 

In 1994, OMB reorganized to integrate its budget analysis, management
review, and policy development roles, in an initiative called "OMB
2000." This reorganization was the most recent of a series of
attempts to bolster OMB's management capacity and influence.  To
carry out its responsibilities, OMB's Resource Management Offices
(RMO) are responsible for examining agency budget, management, and
policy issues.  Linking management reforms to the budget has, at a
minimum, provided the opportunity to include management issues as
part of the president's yearly budget reviews--a regularly
established framework for making decisions. 

The RMOs' efforts are supplemented by three OMB statutory offices
created by Congress:  (1) the Office of Federal Financial Management
(OFFM) to guide the establishment of systems and controls needed for
agencies' financial management; (2) the Office of Federal Procurement
Policy (OFPP) to provide overall direction for executive agencies'
procurement policies, regulations, and procedures; and (3) the Office
of Information and Regulatory Affairs (OIRA) to direct and oversee
agencies' management of information resources and reduction of
unnecessary paperwork.  The OMB 2000 initiative reduced the statutory
offices' staffing levels and transferred their responsibilities for
overseeing agencies' implementation of many governmentwide management
initiatives to the RMOs.\1

This increased OMB's reliance on RMO managers and staff to focus on
management issues and coordinate their activities with the statutory
offices.\2 In fiscal year 1997, OMB obligated $56 million and
employed over 500 staff. 


--------------------
\1 OIRA retained its oversight responsibilities for regulatory and
paperwork issues. 

\2 See Office of Management and Budget:  Changes Resulting From the
OMB 2000 Reorganization (GAO/GGD/AIMD-96-50, Dec.  29, 1995) and OMB
2000:  Changes Resulting From the Reorganization of the Office of
Management and Budget (GAO/T-GGD/AIMD-96-68, Feb.  7, 1996). 


   THE EFFECTIVENESS OF OMB'S
   MANAGEMENT LEADERSHIP HAS BEEN
   UNEVEN
-------------------------------------------------- Chapter STATEMENT:3

During the past 3 years, OMB has focused increased attention on
management issues, but there is much more that needs to be done. 
Today, we will highlight some of those issues that have been both of
particular concern to this Committee and the subject of our recent
work. 


      GREATER ATTENTION TO
      FINANCIAL MANAGEMENT ISSUES
------------------------------------------------ Chapter STATEMENT:3.1

OMB's DDM and the OFFM, in concert with the CFO Council, have led
governmentwide efforts to focus greater attention on financial
management issues.  OMB has played a pivotal role in fostering
ongoing financial management reforms ranging from improved financial
systems and reporting to new accounting standards.  We are seeing
positive results from OMB's efforts.  For example, eight agencies
obtained unqualified opinions on their fiscal year 1997 audited
financial statements, and OMB set a performance goal for it to assist
21 of the 24 CFO Act agencies to obtain unqualified and timely audit
opinions on their annual financial statements for fiscal year 1999. 
In the 1997 Federal Financial Management Status Report and Five-Year
Plan, OMB and the CFO Council discussed accomplishments and future
plans in eight priority areas, such as improving financial management
systems and implementing the Results Act.  OMB also worked with the
Department of the Treasury and GAO as part of the Federal Accounting
Standards Advisory Board to create a comprehensive set of accounting
and cost accounting standards that establish a framework for
financial reporting and accountability.  In addition, as we reported
on March 31, 1998, the federal government prepared consolidated
financial statements that have been subjected to an independent audit
for the first time in the nation's history.\3

Despite this progress, we were not able to form an opinion on the
reliability of the consolidated financial statements because of
serious deficiencies such as the inability to properly account for
and report billions of dollars of property, equipment, materials and
supplies.  These deficiencies are the result of widespread material
internal control and financial systems weaknesses that significantly
impair the federal government's ability to adequately safeguard
assets, ensure proper recording of transactions, and ensure
compliance with laws and regulations.  With a concerted effort, the
federal government as a whole can continue to make progress toward
generating reliable financial information on a regular basis.  Annual
financial statement audits are essential to ensuring the
effectiveness of the improvements now under way. 


--------------------
\3 Financial Audit:  1997 Consolidated Financial Statements of the
United States Government (GAO/AIMD-98-127, Mar.  31, 1998). 


      STREAMLINING THE PROCUREMENT
      PROCESS
------------------------------------------------ Chapter STATEMENT:3.2

OMB's OFPP has worked to implement FASA and the Clinger-Cohen Act. 
OFPP has also been working to streamline the procurement process,
promote efficiency, and encourage a more results-oriented approach to
planning and monitoring contracts.  OFPP is spearheading a
multi-agency effort to revise parts of the Federal Acquisition
Regulation.  For example, a major revision to Part 15 completed last
year will contribute greatly to a more flexible, simplified, and
efficient process for selecting contractors in competitively
negotiated acquisitions.  OFPP also developed best practices guides
to help agencies draft statements of work, solicitations, and quality
assurance plans, as well as to aid in awarding and administering
performance-based service contracts.  OFPP issued a best practices
guide for multiple award task and delivery order contracting to
encourage agencies to take advantage of new authorities under FASA. 
In addition, OMB has encouraged agencies to buy commercial products,
conduct electronic commerce, and to consolidate their ordering to
take advantage of the buying power of the federal government. 


      IMPROVING CAPITAL
      DECISION-MAKING
------------------------------------------------ Chapter STATEMENT:3.3

OMB's efforts to improve capital decision-making are a third example
of where OMB's leadership efforts are yielding some results.  For
example, OMB has required agencies to submit 5-year capital spending
plans and justifications--thus encouraging the use of flexible
funding mechanisms--and also held the first OMB Director's review on
this issue.\4

OMB added a new section to its fiscal year 1998 budget preparation
instructions that outlined several broad principles for planning and
monitoring acquisition and required agencies to develop baseline cost
schedules and performance measurement goals.  OMB has also
implemented other policy and guidance changes to support new
management decision-making requirements and the Chief Information
Officers (CIO) Council has adopted the establishment of sound capital
planning and investment management practices as one of its strategic
goals.  The development of the "Raines' Rules"--requiring agencies to
satisfy a set of investment management criteria before funding major
systems investments--can potentially serve to further underscore the
link between information technology management and spending
decisions.  These investment management practices are also required
under the PRA and the Clinger-Cohen Act.  The extent to which the
Raines Rules make a difference will depend on how well and how
consistently they are applied. 


--------------------
\4 Capital Programming Guide, Version 1, July 1997 (Executive Office
of the President, OMB).  OMB's Capital Programming Guide provides a
range of guidance, from linking capital decisions to strategic goals
and objectives to analyzing and ranking potential investments.  We
provided input to OMB's latest guidance on capital program planning. 
Also see Executive Guide:  Leading Practices in Capital
Decision-Making Exposure Draft (GAO/AIMD-98-110, Apr.  1998). 


      ENHANCING INFORMATION
      SECURITY
------------------------------------------------ Chapter STATEMENT:3.4

To address widespread weaknesses in federal information security, the
CIO Council, under OMB's leadership, has taken some significant
actions, which include designating information security as one of six
priority areas and establishing a Security Committee.  The Committee,
in turn, has developed a preliminary plan for addressing various
aspects of the problem and taken steps to increase security awareness
and improve federal incident-response capabilities.  However, much
more needs to be done to monitor agency performance in this area and
to ensure that the various management, policy, technical, and legal
aspects of information security are effectively addressed. 
Continuing reports of information security problems are disturbing
because federal agencies rely on automated systems and related
security controls to support virtually all of their critical
operations and assets and to ensure the confidentiality of enormous
amounts of sensitive data.  Our recent audit of the government's
fiscal year 1997 financial statements identified serious information
security weaknesses at all 24 CFO agencies.  Moreover, we are finding
that most agencies have not addressed enhancing information security
in their fiscal year 1999 performance plans. 


      INCREASING YEAR 2000
      COMPLIANCE
------------------------------------------------ Chapter STATEMENT:3.5

Agencies' computer systems' Year 2000 compliance remains a concern,
and serious vulnerabilities remain, although OMB, the President's
Council on Year 2000 Conversion, and the CIO Council all have focused
attention on increasing compliance.  Ensuring that computer systems
are Year 2000 compliant represents the widest-scale system and
software conversion effort ever attempted.\5 As the year 2000 grows
closer and the breadth of the work that remains has become known, OMB
has shed its initial optimism and the federal government's response
to the crisis has increased.  For example, at the urging of Congress,
OMB issued guidance requiring agencies to develop contingency plans
for critical core business processes and supporting systems.\6 More
recently, OMB provided additional guidance stating that these
contingency plans can be carried out in accordance with GAO's
contingency planning guide.\7 The establishment of the President's
Council on Year 2000 Conversion provides an opportunity for the
executive branch to take further key implementation steps to avert
disruptions to critical services, as we outlined in our recent
report.\8 To date, however, progress has been slow, and agencies'
schedules often leave no room for delay.  Many major departments have
already missed earlier deadlines.  At the current pace, it is clear
that not all mission critical systems will be fixed in time, and
additional attention therefore needs to be given to those systems
that serve the highest priorities. 


--------------------
\5 Year 2000 Computing Crisis (GAO/T-AIMD-98-101, Mar.  18, 1998). 

\6 Progress on Year 2000 Conversion, U.S.  Office of Management and
Budget, as of February 15, 1998. 

\7 Year 2000 Computing Crisis:  Business Continuity and Contingency
Planning, Exposure Draft (GAO/AIMD-10.1.19, Mar.  1998). 

\8 Year 2000 Computing Crisis:  Potential for Widespread Disruption
Calls for Strong Leadership and Partnerships (GAO/AIMD-98-85, Apr. 
30, 1998). 


      REVIEWING REGULATIONS
------------------------------------------------ Chapter STATEMENT:3.6

We also have found that improvements are needed in the process used
to review and clear regulations.  We have testified on the
inadequacies of OMB's efforts to meet congressional paperwork
reduction goals.\9 Also, OIRA does not attempt to set priorities for
agencies' regulations on the basis of risk (e.g., the number of lives
saved or injuries avoided).  Concerns have been raised by experts in
regulatory issues that federal regulations are not sufficiently
focused on the factors that pose the greatest risk and that, as a
result, large amounts of money may be spent to accomplish only a
slight reduction in risk.\10 Using these same resources in other
areas that pose higher risks could yield significantly greater
payoffs. 


--------------------
\9 Paperwork Reduction:  Governmentwide Goals Unlikely to Be Met
(GAO/T-GGD-97-114, June 4, 1997); Paperwork Reduction:  Burden
Reduction Goal Unlikely to Be Met (GAO/T-GGD/RCED-96-186, June 5,
1996). 

\10 For example, see Tammy O.  Tengs and John D.  Graham, "The
Opportunity Costs of Haphazard Social Investments in Life-Saving," in
Robert W.  Hahn, ed., Risks, Costs, and Lives Saved (New York: 
1996). 


      IMPLEMENTING OMB'S CIRCULAR
      A-76
------------------------------------------------ Chapter STATEMENT:3.7

OMB's Circular A-76 sets forth federal policy for determining whether
commercial activities associated with conducting the government's
business will be performed by federal employees or private
contractors.  The A-76 process calls for agencies to contract for
commercial services once they have determined on the basis of cost
studies that it would be cost effective to contract out these
services.  Agencies' efforts to undertake cost studies--with the
important exception of the Department of Defense--have declined
significantly in recent years.  OMB undertakes only limited efforts
to monitor or enforce compliance with its A-76 guidance or evaluate
the success of this process. 


      ANALYZING CROSSCUTTING
      ISSUES
------------------------------------------------ Chapter STATEMENT:3.8

Finally, OMB's oversight role across the government can provide the
basis for analyzing crosscutting program design, implementation, and
organizational issues.  We have pointed to the need to integrate the
consideration of the various governmental tools used to achieve
federal goals, such as loans, grants, tax expenditures, and
regulations.  Specifically, we recommended that OMB review tax
expenditures with related spending programs during their budget
reviews.  In addition, our work has provided numerous examples of
mission fragmentation and program overlap within federal missions,
and we have suggested that OMB take the lead in ensuring that agency
Results Act plans address fragmentation concerns.\11 This effort may
be hampered if efforts to resolve problems of program overlap and
fragmentation involve organizational changes, because OMB lacks a
centralized unit charged with raising and assessing
government-organization issues.  OMB has not had such a focal point
since 1982 when it eliminated its Organization and Special Projects
Division. 


--------------------
\11 Managing for Results:  Using the Results Act to Address Mission
Fragmentation and Program Overlap (GAO/AIMD-97-146, Aug.  29, 1997)
contains an annotated bibliography of GAO work on mission
fragmentation and program overlap. 


   SUSTAINING IMPROVEMENTS IN
   FEDERAL MANAGEMENT
-------------------------------------------------- Chapter STATEMENT:4

Mr.  Chairman, the record of OMB's stewardship of management
initiatives that we have highlighted today suggests that creating and
sustaining attention to management improvement is a key to addressing
the federal government's longstanding problems.  In the past,
management issues often remained subordinated to budget concerns and
timeframes, and the leverage the budget could offer to advance
management efforts was not directly used to address management
issues.\12 The experiences to-date suggests that certain factors are
associated with the successful implementation of management
initiatives, regardless of the specific organizational arrangement. 

First, top management support and commitment within both OMB and the
White House is often critical to providing a focus on governmentwide
management issues throughout both the budget process and the
executive agencies themselves.  As our study of OMB 2000 pointed out,
management and performance measurement issues gained considerable
attention in the budget formulation process initially because of the
clear commitment of OMB's leadership.  However, top leadership's
focus can change over time, which can undermine the follow-through
needed to move an initiative from policy development to successful
implementation.  Thus, although top leadership's interest is an
important impetus for the initiation of management policies, it alone
is not sufficient to sustain these initiatives over time. 

Second, a strong linkage with the budget formulation process can be a
key factor in gaining serious attention for management initiatives
throughout government.  Regardless of the location of the leadership,
management initiatives need to be reflected in and supported by the
budget and, in fact, no single organizational arrangement by itself
guarantees this will happen.  Many management policies require
budgetary resources for their effective implementation, whether it be
financial management reform or information systems investment. 
Furthermore, initiatives such as the Results Act seek to improve
decision-making by explicitly calling for performance plans to be
integrated with budget requests.  We have found that previous
management reforms, such as the Planning-Programming-Budgeting-System
and Management By Objectives, suffered when they were not integrated
with routine budget presentations and account structures.\13

Third, effective collaboration with the agencies--through such
approaches as task forces and interagency councils--has emerged as an
important central leadership strategy in both developing policies
that are sensitive to implementation concerns and gaining consensus
and consistent follow-through within the executive branch.  In
effect, agency collaboration serves to institutionalize many
management policies initiated by either Congress or OMB.  In our 1989
report on OMB, we found that OMB's work with interagency councils
were successful in fostering communication across the executive
branch, building commitment to reform efforts, tapping talents that
exist within agencies, keeping management issues in the forefront,
and initiating important improvement projects.  One example of this
collaboration is the continuing success of CFOs and the CFO Council
in leading agencies in addressing a wide range of financial and
related management issues, such as their work, in concert with OMB,
on a strategic plan to upgrade and modernize federal financial
management systems. 

Finally, support from the Congress has proven to be critical in
sustaining interest in management initiatives over time.  Congress
has, in effect, served as the institutional champion for many of
these initiatives, providing a consistent focus for oversight and
reinforcement of important policies.  For example, Congress'--and in
particular this Subcommittee's--attention to the Year 2000 problem,
information management, and financial management, has served to
elevate the problem on the administration's management agenda. 

Separate from the policy decisions concerning how best to organize
and focus attention on governmentwide federal management issues,
there are some intermediate steps that OMB could take to clarify its
responsibilities and improve federal management.  For example, OMB
could more clearly describe the management results it is trying to
achieve, and how it can be held accountable for these results, in its
strategic and annual performance plans.  Many of OMB's strategic and
annual goals were not as results-oriented as they could be. 
Continued improvement in OMB's plans would provide congressional
decisionmakers with better information to use in determining the
extent to which OMB is addressing its statutory management and
budgetary responsibilities, as well as in assessing OMB's
contributions toward achieving desired results.  In our 1995 review
of OMB 2000, we recommended that OMB review the impact of its
reorganization as part of its planned broader assessment of its role
in formulating and implementing management policies for the
government.  OMB has not formally assessed the effectiveness, for
example, of the different approaches taken by its statutory offices
to promote the integration of management and budget issues.  We
believe it is important that OMB understand how the reorganization
has affected its capacity to provide sustained management leadership. 


--------------------
\12 Managing the Government:  Revised Approach Could Improve OMB's
Effectiveness (GAO/GGD-89-65, May 4, 1989). 

\13 Performance Budgeting:  Past Initiatives Offer Insights for GPRA
Implementation (GAO/AIMD-97-46, Mar.  27, 1997). 


------------------------------------------------ Chapter STATEMENT:4.1

Mr.  Chairman, this concludes our statement.  We would be happy to
answer any questions that you or other Members of the Subcommittee
have at this time. 

*** End of document. ***