GAO: Supporting Congress for the 21st Century (Testimony, 07/18/2000,
GAO/T-OCG-00-10).

Pursuant to a congressional request, GAO discussed four strategic goals
for how it plans to support Congress in dealing with many complex issues
and the challenges of government for the 21st Century.

GAO noted that: (1) to provide timely, quality service to Congress and
the federal government and to address current and emerging challenges to
the well-being and financial security of the American people, GAO will
focus significant resources on: (a) researching possible options to meet
the health care needs of an aging and diverse population; (b) examining
ways to ensure a secure retirement for older Americans; (c) reviewing
the social safety net for Americans in need; (d) supporting efforts to
provide for an educated citizenry and a productive workforce; (e)
helping Congress strengthen a system of justice that is effective in
controlling crime, illegal drug use, and illegal immigration; (f)
providing analysis and other support concerning the effectiveness of
investments in communities and economic development; and (g) researching
ways to increase responsible stewardship of natural resources and the
environment; (2) to provide timely, quality service to Congress and the
federal government and to respond to changing threats to national
security and the challenges of global interdependence, GAO will focus
significant resources on: (a) helping Congress respond to diffuse
threats to national and global security; (b) providing analysis and
other support to ensure military capabilities and readiness; (c)
supporting efforts to advance and protect U.S. international interests;
and (d) reviewing ways to recognize and respond to the impact of global
market forces on U.S. economic and security interests; (3) to support
the transition to a more results-oriented and accountable federal
government, GAO will focus on: (a) analyzing the federal government's
fiscal position; (b) examining ways to strengthen approaches for
financing the government and determining accountability for the use of
taxpayer dollars; (c) facilitating governmentwide management and
institutional reforms needed to build and sustain high-performing
organizations and more effective government; and (d) recommending
economy, efficiency, and effectiveness improvements in federal agency
programs; and (4) to maximize its value by being a model organization
for the federal government, GAO will focus on: (a) implementing a model
strategic and annual planning and reporting process; (b) aligning human
capital policies and practices to support the agency's mission; (c)
cultivating and fostering effective congressional and agency relations;
(d) developing efficient and responsive business processes; and (e)
building an integrated and reliable information technology
infrastructure.

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

 REPORTNUM:  T-OCG-00-10
     TITLE:  GAO: Supporting Congress for the 21st Century
      DATE:  07/18/2000
   SUBJECT:  Agency missions
	     Productivity in government
	     Accountability
	     Strategic planning
	     Internal controls
	     Congressional/executive relations
	     Decision making
	     Globalization
	     National defense operations
	     Financial management
IDENTIFIER:  International Auditor Fellowship Program
	     Medicare Program
	     Earned Income Tax Credit
	     Y2K
	     Medicaid Program
	     HUD Section 8 Housing Assistance Program
	     Supplemental Security Income Program
	     SSI
	     Social Security Program
	     Medicare Hospital Insurance Trust Fund
	     EIC
	     AIDS
	     SDI Theater High Altitude Area Defense System
	     DOD National Missile Defense System
	     Internet

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GAO/T-OCG-00-10

   * For Release on Delivery
     Expected at
     10 a.m.

Tuesday,

July 18, 2000

GAO/T-OCG-00-10

gao: supporting congress for the 21st century

        Statement of David M. Walker

Comptroller General of the United States

Testimony

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

United States General Accounting Office

GAO

Mr. Chairman, Congressman Turner, and Members of the Subcommittee:

I am pleased to appear before you today to discuss the work of the General
Accounting Office (GAO). We welcome this opportunity to highlight the
important role that GAO plays to support the Congress for the benefit of the
American people.

In my testimony today, I will discuss the many national and international
concerns that confront our nation and the Congress, the ways in which GAO
can support the Congress now and in the future, and GAO's performance in
accomplishing its mission. While GAO has evolved over the years, its current
mission is straightforward: GAO exists to support the Congress in meeting
its constitutional responsibilities and to help improve the performance and
accountability of the federal government for the benefit of the American
people.

Evolution of GAO

During the 1920s and 1930s, GAO focused on pre-audit payment work and
whether government spending had been handled legally. The bulk of GAO's work
centered on the auditing of agency vouchers; GAO clerks checked vouchers and
settled the accounts of executive branch disbursing officers. Departments
and agencies sent their vouchers to GAO, which checked the legality,
propriety, and accuracy of expenditures.

GAO's workload increased in the 1930s as federal money poured into New Deal
recovery and relief efforts to combat the Great Depression during President
Franklin D. Roosevelt's administration. GAO, which started out with about
1,700 employees, had a workforce that numbered nearly 5,000 by 1939.
Although Washington remained the center of GAO's activities, the agency's
auditors first began doing fieldwork in the mid-1930s. For one early
fieldwork assignment, GAO looked at the operation of government agriculture
programs in Kentucky and several southern states.

With the U.S. entry into World War II, GAO faced enormous challenges. The
agency continued to do the same type of work it had done before the war but
with vastly increased volume. Defense production soared after 1941 as the
nation's factories geared up to meet the demands of war. Government offices
expanded, churning out mountains of expenditure forms for GAO to examine.
GAO reviewed defense contracts and audited the accounts of Army and Navy
disbursing officers. The war effort created a blizzard of transportation
vouchers for GAO to review as the government used the nation's rails and
roads to carry freight and troops. GAO hired additional audit clerks and
freight examiners, nearly tripling the size of the agency to nearly 15,000
by 1946. The paperwork was so intense that GAO faced a backlog of 35 million
unaudited vouchers in 1945 and had to spend several years catching up on
work. Overall, GAO handled a staggering backlog of paperwork as a result of
the war: in 1947, GAO reconciled 490 million checks and audited 92,000
accountable officers' accounts, 5 million transportation vouchers, 1.5
million contracts, and 260 million postal money orders.

GAO's wartime experiences spelled the end of the voucher-checking era. The
increase in paperwork showed how difficult it was for a single agency to
keep up with examining every government disbursement. The war also
highlighted a number of accountability issues. In the 1940s, then
Comptroller General Warren repeatedly pointed to the lack of accountability
of government corporations and problems with contract fraud. Warren
applauded the passage in 1945 of the Government Corporation Control Act,
which authorized the auditing of wholly owned government corporations and
mixed ownership corporations. Responding to the requirements of the act,
Warren created a Corporation Audits Division in 1945. He began hiring
accountants to perform annual audits of government corporations.

With passage of the Budget and Accounting Procedures Act of 1950, GAO as a
whole shifted to comprehensive auditing of government agencies. Instead of
concentrating on individual fiscal transactions, GAO began reviewing
financial management and internal controls at government agencies.
Responsibility for checking vouchers shifted to the various executive
agencies, as GAO focused on prescribing accounting principles, performing
audits on agency sites, and checking financial controls and procedures.

The move to comprehensive auditing represented a major turning point for
GAO. At the same time, GAO returned to its pre-war size. The agency reduced
the number of voucher clerks in its employ and began hiring accountants.
Indeed, the modern GAO began to emerge in the 1950s and 1960s.

GAO responded to its new mission by recruiting and training a broader array
of staff, and working to set standards that professionalized the workforce.
To keep a watchful eye on spending at home and abroad, GAO formally
established a network of field offices throughout the United States in the
early 1950s and opened a European office in 1952. The scope of GAO's work
expanded again during the 1960s as President Johnson initiated the Great
Society's War on Poverty. The number of federal grants-in-aid rose sharply
and the rapid growth in federally assisted programs placed enormous
administrative control burdens on government at all levels.

Let me note at this point that all the Comptrollers General made substantial
contributions to GAO, and I am particularly pleased to be here with my
immediate predecessors, Elmer Staats and Charles Bowsher-both made enormous
contributions to the agency. First came Comptroller General Staats, who took
office in 1966, and was a driving force behind GAO's emphasis on program
evaluation and making the agency's work more useful to the Congress.

The growth in congressionally based work, combined with the expansion of
government programs, was responsible for a significant change in the makeup
of GAO's employees. GAO's staff, mostly accountants, began to change to fit
these new assignments. In the 1970s, GAO started recruiting social
scientists, computer professionals, and experts in such fields as health
care, science, public policy, and information management. In 1980, most of
the agency's auditors and management analysts were reclassified as
evaluators to reflect GAO's varied work. During Staats' tenure, GAO relied
on new technological tools as well as employees with diverse academic
degrees. In the 1970s and 1980s, the agency made increasing use of computers
in its audit and administrative operations.

Staats was also a leader in recognizing the importance of international
interaction in the accountability field. He made major contributions to the
development of the International Organization of Supreme Audit Institutions
(INTOSAI), which includes 179 countries, and he also created an
international fellows program at GAO to provide support, training, and
guidance to a cadre of key individuals from accountability organizations
worldwide. Eighty-nine countries have participated in the International
Auditor Fellowship Program and 279 individuals have graduated from the
program since 1979. Indeed, 12 former fellows have since become the Auditors
General in their countries, and many more have served as Deputies or in
other high-level posts.

Comptroller General Bowsher also made major contributions to GAO and to the
improvement of financial management and government operations. Bowsher
continued the emphasis on personnel improvement, strengthening the
recruitment of people with diverse professional backgrounds and providing
them with improved tools and work incentives. He expanded GAO's training
curriculum and strengthened the Training Institute.

Bowsher also helped to lead the government's growing emphasis on management
reform and performance and accountability issues. During his tenure, Bowsher
paid close attention to budget issues, warned about the dangers of the
increasing deficit, and worked to improve federal financial management. In
part due to GAO's work and leadership, the Congress passed a series of laws
designed to improve the management and performance of government, including:

   * the Chief Financial Officers Act-which created CFOs in all major
     agencies;
   * the Government Performance and Results Act-which created a requirement
     for measuring and reporting on agencies' performance;
   * the Paperwork Reduction Act of 1995-which streamlined government
     paperwork and reporting requirements;
   * the Government Management Reform Act-which requires the government to
     prepare an annual consolidated financial statement audited by GAO;
   * the Federal Acquisition Streamlining Act-which is helping to make
     government acquisition more efficient and effective; and
   * the Single Audit Act.

During Bowsher's tenure, GAO first began doing general management reviews,
which looked at broad organizational and management issues at government
agencies. GAO also initiated a series of high-risk reports, now issued every
2 years, to provide information on federal activities susceptible to waste,
fraud, abuse, and mismanagement.

When I became Comptroller General in November 1998, I committed GAO to
helping the Congress address issues that will define the 21st century.
Today, GAO conducts a wide range of financial and performance audits and
program evaluations and reviews the business and mission of government.
GAO's work covers everything from the challenges of an aging population and
the demands of the information age to emerging national security threats and
the complexities of globalization. GAO is also committed to management
reform-to helping government agencies become organizations that are
results-oriented and accountable to the public.

Ultimately, we may find that GAO needs a new name-the words "general
accounting office" do not really capture our more complex role anymore. It
might be more appropriate to consider something closer to "government
accountability office." It more clearly conveys our role and the
expectations of our clients in the Congress, the press, and the public. It
might also help us in our recruiting efforts in the increasingly competitive
marketplace.

GAO's core values of accountability, integrity, and reliability reflect its
dedication to good government and professional standards. Accountability
describes the nature of GAO's work in helping Congress oversee federal
programs and operations to ensure effective and efficient government for the
American people. The agency's work reflects integrity because it is
professional, objective, fact-based, nonpartisan, nonideological, fair and
balanced. GAO strives also for reliability by providing high-quality
information that is timely, accurate, useful, clear, and candid.

GAO relies on a workforce of highly trained professionals who hold degrees
in many academic disciplines, such as accounting, law, engineering, public
and business administration, economics, and the social and physical
sciences. I am extremely proud of GAO's workforce, of its dedication and
excellence, and of its service to the betterment of government and the
country. One of my principal goals for GAO is that we not only work to
improve government, but that we also work to improve ourselves. I look for
GAO to become a model organization in the federal government and I am
convinced that, because of our employees, we will achieve that goal.

GAO's Accomplishments

During fiscal year 1999, GAO made substantial contributions to help the
Congress and the executive branch agencies improve government programs and
services. It provided more than $20 billion in direct financial benefits,
recommended over 600 actions that have led to improvements in government
operations, and provided 229 testimonies requested by congressional
committees. While many of GAO's contributions cannot be quantified in dollar
terms, those that can be quantified show that GAO returned over $57 for
every $1 appropriated to the agency in fiscal year 1999.

Figure 1: Financial Benefits

GAO succeeds in its mission when its findings and recommendations lead to
improvements wherever federal dollars are spent. The following examples
illustrate some of the financial benefits that GAO has helped the Congress
and the executive branch achieve:

   * To help the government better realize the value of its assets, GAO
     suggested ways the Congress and the Department of Energy (DOE) could
     increase the profitability of oil sold from the federally owned Naval
     Petroleum Reserve at Elk Hills, California. GAO testified before the
     Congress that the government would see a greater return from the sale
     of Elk Hills than from retaining ownership. GAO's suggestions for
     changes to the sale process were adopted by DOE, resulting in proceeds
     of over
     $1.5 billion above the original sale price.
   * GAO has helped agencies to achieve greater savings from more efficient
     operations. The Congress recently enacted legislation based in part on
     GAO's recommendations to strengthen Medicare's safeguards against fraud
     and abuse. These improvements saved the Medicare program approximately
     $2.2 billion over fiscal years 1998 and 1999. Similarly, GAO
     recommendations included in Medicare program legislation will produce a
     gradual reduction, through fiscal year 2001, in the overly generous
     "adjustment factor" designed to compensate teaching hospitals for
     higher Medicare costs. This legislative change is estimated to produce
     $1.5 billion in savings for the program in fiscal years 1999 and 2000.
   * GAO has made recommendations to streamline the tax system and help
     support the Congress in its long-term fiscal decisions. Based on GAO's
     evaluations, for instance, the Congress changed the tax laws pertaining
     to the Earned Income Tax Credit. Specifically, the government avoided
     an estimated $1.3 billion in payments for the 5-year period ending in
     fiscal year 2000 through changes to the wealth, capital gains, and
     passive income tests for the Earned Income Tax Credit eligibility
     criteria. Similarly, as part of the Small Business Job Protection Act,
     the Congress phased out tax credits to corporations for certain income
     earned in Puerto Rico and U.S. possessions. GAO's work on this issue
     contributed to an estimated
     $1.3 billion in financial benefits for fiscal years 1996 through 2000.
   * GAO also helped the Congress and agencies identify and reduce
     unnecessary spending. As part of its ongoing work in housing issues,
     GAO has provided assistance to improve the accuracy of the Department
     of Housing and Urban Development's (HUD) budget and resource estimates.
     GAO reported that HUD's method for estimating funding for its Section 8
     housing assistance resulted in requests that exceeded the agency's
     needs. The Congress directed HUD to submit revised estimates, after
     which HUD's fiscal year 1998 budget was reduced by about $1.3 billion
     in light of the streamlined projections. As a result, the Congress also
     rescinded
     $2.4 billion from HUD's fiscal year 1998 supplemental request. GAO's
     recommendations helped HUD avoid additional costs of about $1.1 billion
     in fiscal year 1999. Based in part on these examples, GAO audits and
     recommendations helped the Department save an estimated $5.3 billion in
     fiscal years 1998 and 1999.
   * Similarly, as part of its assistance to the Congress in reviewing the
     fiscal year 1999 Department of Defense (DOD) budget request for
     military personnel, GAO identified areas where the budget could be
     reduced. These included excess manpower costs due to over estimated
     military personnel levels, unnecessary advance pay, and funds not
     needed due to gains from changes in foreign currency exchange rates. As
     a result of GAO's work, the Congress reduced the fiscal year 1999
     military personnel budget for active and reserve forces by about $609
     million without compromising overall readiness.

In addition to the financial benefits resulting from GAO's work, the
agency's efforts also contribute to numerous qualitative improvements in
government operations and services. During fiscal year 1999, GAO contributed
to 607 such benefits achieved by the government, a 13-percent increase over
fiscal year 1998. Benefits resulting from GAO's recommendations included
better public safety and consumer protection, more efficient and effective
government operations and services, help in ensuring Year 2000 readiness,
and improvements to computer security.

Figure 2: Improved Government Operations Resulting From GAO Recommendations

Some examples of GAO's contributions to improved government operations
follow:

Public Health and Safety

   * GAO's reports have also convinced some states to improve their oversight of
nursing homes. In response to GAO's finding that serious complaints of poor
nursing home care frequently are not investigated for months, Maryland's
legislature approved funding for a 57 percent increase in its surveyor
staff, and the state agency revamped its processes to emphasize a faster
review of serious complaints.

   * GAO has also made significant contributions to improving criminal
     justice. For instance, GAO has reported on the prevalence and costs of
     identity fraud involving the illegal use of another person's
     identifying information (such as name, date of birth, or Social
     Security number) to commit financial crimes. Illegal activities range
     from the unauthorized use of a credit card to a comprehensive takeover
     of financial accounts. Largely in response to GAO's work, the Congress
     enacted legislation that criminalized the theft and misuse of personal
     identifying information and provided legal recognition for the victims
     of fraud.
   * Transportation safety is another important area in which GAO has helped
     to improve government operations and the public's quality of life. In
     one instance, GAO reported that the Federal Railroad Administration
     (FRA) had few regulations involving passenger car safety for Amtrak or
     commuter rail operations. As a result, inspectors provided little
     oversight of passenger car safety. GAO recommended that the agency
     establish appropriate criteria for the condition of safety control
     components on passenger cars. Addressing GAO's recommendation, FRA
     established comprehensive structural safety standards for passenger
     equipment and created more stringent safety standards for high-speed
     passenger rail service.

More Efficient Government

   * In addition to its reviews of individual agencies, GAO has developed
techniques and practices that can be applied across the government. This
work has made significant contributions to agencies' abilities to develop
and implement sound security policies. The information security management
practices identified in GAO's executive guides have been incorporated into
policy guidance at many federal agencies. Additionally, GAO's Federal
Information System Controls Audit Manual is now used by most major federal
audit entities to evaluate computer-related controls.

In discussing GAO's contributions and accomplishments, it is important that
we engage in a select amount of research and development work to ensure that
GAO can meet the institutional needs of the Congress over the long term.
This investment has made major contributions to the performance, stability,
and accountability of the government and the protection of tax dollars. As I
will discuss later in this testimony, GAO's flexibility to engage in this
important component of our work has been increasingly constrained by other
demands on our resources.

Among the most important work that GAO has done are reviews related to the
Year 2000 (Y2K) computing challenge. GAO's work on Y2K began through its
research and development program, but the vital importance of this issue has
manifested itself in many congressional requests for work that the agency
received in fiscal years 1998 and 1999. In early 1997, GAO designated Y2K as
a high-risk area to highlight the government's exposure. Throughout 1997,
1998, and 1999, GAO worked closely with the Congress on Y2K issues-including
this subcommittee. The Senate created the Special Committee on Year 2000
Technology Problem and the House called on this Subcommittee and the
Subcommittee on Technology of the Committee on Science to lead its Y2K
monitoring. With leadership from you, Mr. Chairman, and your colleagues,
congressional committees examined the implications of Y2K on various
government operations and in key economic sectors.

GAO produced a set of four guides to help organizations confront the
problem. GAO also issued over 160 reports detailing specific findings and
made over 100 recommendations to agencies and to the President's Council on
Year 2000 Conversion for improving the government's readiness. For example,
GAO recommended that the President's Council on Year 2000 Conversion require
agencies to develop contingency plans for all critical core business
processes. Accordingly, the Office of Management and Budget clarified its
contingency plan instructions and, along with the Chief Information Officers
Council, adopted GAO's business continuity and contingency planning guide
for federal use, thus reducing the risks of disruption to major programs and
services.

Finally, let me note that GAO is proud of its record in providing timely
service to the Congress. As figure 3 indicates, GAO has consistently
improved its ability to promptly meet congressional requests. In 1999, GAO
provided the Congress 96 percent of its products on time.

Figure 3: Product Timeliness

Complex Issues and Governance Challenges

Figure 4: GAO History: 1921 to the Present

Likewise, it comes as no surprise that as a result of the increasing
complexity and breadth of issues facing the Congress, the legislature is
availing itself of GAO's services and support on an unprecedented and
accelerating basis. While 70 percent of GAO's work was done as a result of
congressional requests in 1996, it was 95 percent in 1999. Overall,
congressional requests for GAO work have increased from 10 percent in 1966,
at the start of the Staats era, to 95 percent, at the beginning of my term.
Part of the reason for the Congress's increased reliance on GAO in recent
years is the result of our ability to add unique value to the products and
service we provide. With the advent of agency inspectors general and other
similar organizations, GAO is no longer the only federal entity charged with
improving the accountability of government. Nevertheless, GAO is the only
agency that can consistently provide the Congress and the executive branch
with analysis, options, and recommendations that are long range, broad, in
coverage, and integrated in the development and presentation of critical
information. GAO's efforts are multilateral and cognizant of the
international implications of issues ranging from security to the
environment. And they also reflect the nuances of American federalism,
ensuring that implications of service delivery and devolution on state and
local governments and on the private and nonprofit sectors are factored into
all of its work. In the end, there is no question that effective stewardship
must consider how increasingly diverse approaches to public sector
responsibilities are leading to diffuse accountability.

I am convinced that GAO is now entering another significant era that will
take its place on the timeline of the agency's historic key events. GAO has
worked hard to make the transition from an accounting and pre-audit
environment to become a diversified, multidisciplinary accountability and
professional services organization. As I have discussed, my predecessors did
a tremendous amount to ensure that GAO had the capacity and capabilities to
serve the Congress and prepare for the future during their tenure. And I, at
the start of the 21st century, have begun to do the same thing.

Clearly, much has already changed as GAO has grappled with this critical
transition. As the following graphs show, GAO has over the years seen
considerable changes in its staffing and budget allocations-levels that,
unfortunately, did not generally reflect its workload and the growing
demands placed on it by the Congress. Reductions in its resource levels,
combined with increases and shifts in its workload have in recent years
prompted GAO to take strong measures to more efficiently accomplish its
mission. For example, GAO has taken significant steps to consolidate its
field office structure. GAO has been able to close field offices both in the
United States and overseas-much of it through attrition-and achieve gains in
productivity and collaborative work environments. At the same time, GAO's
flexibility has been reduced by extensive changes to the mix of its
products-as mentioned, virtually all of its work is done at the request of
the Congress, and an increasing amount of that stems from mandates.

The following charts highlights the changes I am discussing:

Figure 5: GAO Staff Levels

Figure 6: History of Field Office Structure

Figure 7: Work Conducted for the Congress

Since I became Comptroller General, one of the most important activities in
which GAO has been engaged is the development of its first strategic plan
for the 21st century. This document is a blueprint for how GAO will support
the Congress as it continues to face complex issues and challenges. Building
on global changes that are impacting society on a variety of levels, GAO's
strategic plan develops a comprehensive and focused structure of long-term
goals and objectives to support the Congress in its legislative, oversight,
and investigative roles. GAO worked closely with legislative and committee
leadership, individual members, and staff in the development of this
strategic plan. Thus, this plan not only incorporates congressional views
about what it believes to be important and emerging issues, it also
establishes a framework for seeing fundamental constitutional
responsibilities in the context of current challenges and emerging changes
in the coming years.

GAO has developed a set of strategic goals and objectives that will help to
support the Congress in its decision-making and improve the performance and
accountability of the executive branch. GAO's plan presents four strategic
goals that will help the Congress perform its constitutional
responsibilities and ensure GAO's ability to continue providing effective,
quality support to its clients.

The due diligence that GAO has expended to develop its strategic plan in
concert with the Congress has identified a number of complex issues that are
not easily solved. These issues are reflected in the goals and objectives of
the plan and will serve as the guide for GAO's work priorities in the coming
years. Many of these issues will take years to resolve satisfactorily, but
by focusing on these issues now, the Congress will be much better positioned
to meet its responsibilities for governing as it begins to confront these
current and emerging challenges.

There is no question that the cold war has ended, and we won. In addition,
after nearly 30 years of budget deficits, the combination of hard choices
and remarkable economic growth has led to budget surpluses. As a result, we
transition into this new century with different security concerns and an
improved financial position relatively free of the deficit constraints of
the recent past. In order to prepare effectively for the future, however, we
must fully explore the major dynamic that will shape the United States and
its place in the world and adequately prepare the federal government to meet
the challenges that lie ahead. This subcommittee is uniquely positioned to
consider these broad-based and crosscutting challenges and what needs to be
done to address them.

Three of GAO's strategic plan goals focus on how GAO can help support the
Congress in dealing with many complex issues and the challenges of
government. These goals, the strategic objectives, and the major thematic
issues that influence them are as follows:

Provide Timely, Quality Service to the Congress and the Federal Government
to Address Current and Emerging Challenges to the Well-Being and Financial
Security of the American People

To support the Congress in its decision-making in this area, GAO will focus
significant resources on the following important strategic objectives:

   * researching possible options to meet the health care needs of an aging
     and diverse population;
   * examining ways to ensure a secure retirement for older Americans;
   * reviewing the social safety net for Americans in need;
   * supporting efforts to provide for an educated citizenry and a
     productive workforce;
   * helping the Congress strengthen a system of justice that is effective
     in controlling crime, illegal drug use, and illegal immigration;
   * providing analysis and other support concerning the effectiveness of
     investments in communities and economic development;
   * researching ways to increase responsible stewardship of natural
     resources and the environment; and
   * helping the Congress maintain a safe and efficient national physical
     infrastructure.

One of the important issues that reflect this goal and its objectives is
Demographics. The profound changes forecast in the age and composition of
our population will have enormous consequences for the retirement and health
care entitlement programs as well as programs supporting the workforce.

The population is growing older. By 2030, about one fifth of the U.S.
population is projected to be over age 65, compared with about 13 percent in
1998. Also by 2030, Medicare beneficiaries, who include the disabled as well
as the elderly, are expected to account for 20 percent of the population.
The result will be that fewer workers will be paying into Social Security
for every person receiving benefits. As shown in figure 8, in 1955, almost 9
persons were paying into Social Security for every person receiving
benefits. Today, the ratio is down to 3.4 to 1, and, by 2030, it is
projected to be about 2 to 1.

Note: Projections based on intermediate assumptions of The 2000 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivors
Insurance and Disability Insurance Trust Funds.

Source: Office of the Actuary, Social Security Administration.

These trends will have enormous financial repercussions for the solvency and
sustainability of federal entitlement programs. The Medicare Hospital Trust
Fund has operated in the red since 1992 and is projected to face insolvency
in 2025. Social Security expenditures are expected to exceed payroll tax
revenues beginning in 2015, with trust funds being depleted by 2037.

But crafting a solution to financing these entitlement programs involves
more than the traditional approach of closing the gap between projected
expenditures and revenues over a fixed time period, such as 75 years.
Rather, any financing solution needs to achieve sustainable solvency that
balances projected expenditures and revenues without requiring us to
frequently revisit the financing of these programs.

Figure 9: Medicare's Hospital Insurance Trust Fund Faces Insolvency in
Note: Projections based on intermediate assumptions of The 2000 Annual
Report of the Board of Trustees of the Federal Hospital Insurance Trust
Fund.

Source: GAO analysis of data from the Office Management and Budget and the
Office of the Actuary, Health Care Financing Administration.

Figure 10: Social Security Finances

Source: GAO analysis of data from the Office of the Chief Actuary, Social
Security Administration.

The population is also becoming more diverse. Women and minorities as a
proportion of the workforce have grown significantly. This trend, along with
the increased use of part-time and other flexible work arrangements, has
implications for federal policies and programs related to education,
training, childcare, immigration, and retirement, and other areas. Although
the increased presence of women and minorities caused substantial growth in
the U.S. labor force in recent decades, this trend seems to be changing.
Projections for the future are that the annual growth in the labor force
will be only about 1 percent in the short term and that this growth rate may
even decline over the long term. These trends further exacerbate the current
tight labor market for specialized skills and key sections of the economy,
suggesting the need for more policies designed to encourage people to
retreat gradually from work rather than plunge into retirement.

Another major concern is Quality of life. It has improved for many but not
for all Americans. At the same time, prosperity is placing greater stresses
on the quality of life.

The long period of strong economic performance has been accompanied by
economic prosperity. People are typically living longer, with average life
expectancy rising to age 76 over the past 20 years, while unemployment has
fallen to low levels, and violent crimes have dropped by 20 percent since
1990. The quality of the physical environment has also improved, as levels
of major air and water pollutants have dropped since 1970.

However, many challenges remain. For example, the disparities between the
net worth of those without a high school education and those with more
education increased between 1989 and 1998. While unemployment has reached
record or near-record lows for African-Americans and Hispanics, unemployment
rates for these two groups still stand at nearly twice the rate for whites,
and more than 40 million Americans lack health insurance. Given the large
federal role in health care delivery and financing, there is a need to weigh
the needs of Americans against their wants and the overall affordability of
health care considered by policymakers.

At the same time prosperity is placing greater stresses on quality of life.
Greater economic activity, for example, increases air and highway traffic
and heightens concerns about congestion, safety, and environmental quality.
The shift to a more technologically based economy raises long term concerns
about education, while population growth and geographic shifts, such as
urban sprawl, place greater strains on transportation and other
infrastructure. Over the coming years, these demands for new investment will
increasingly come into competition with other national priorities, creating
difficult choices for the federal government.

Provide Timely, Quality Service to the Congress and the Federal Government
to Respond to Changing Threats to National Security and the Challenges of
Global Interdependence

To support the Congress in its decision-making in this area, GAO will focus
significant resources on the following important strategic objectives:

   * helping the Congress respond to diffuse threats to national and global
     security,
   * providing analysis and other support to ensure military capabilities
     and readiness,
   * supporting efforts to advance and protect U.S. international interests,
     and
   * reviewing ways to recognize and respond to the impact of global market
     forces on U.S. economic and security interests.

Several of the important themes influencing this goal and its objectives
include globalization and national security. Globalization, or the
interdependence of enterprises, economies, and governments, presents new
opportunities for U.S. producers and consumers, but also new challenges for
the country.

With rapid advances in technology and the ease with which people,
enterprises, and goods can cross borders, the economies and activities of
nations have become increasingly interdependent. From 1960 through 1997,
world exports increased from about 12 percent to about 24 percent of world
GDP (gross domestic product). Multinational enterprises are an important
part of the trend towards globalization. In 1997, 63 percent of U.S. exports
and 40 percent of U.S. imports were associated with U.S. parent corporations
or their foreign affiliates.

Figure 11: World Exports as Percentage of GDP

The United States has been a principal architect of an open world trading
system and has benefited greatly. However, open trade has increased the
complexities of maintaining the U.S. economy. Interdependence of the U.S.
and foreign economies is illustrated by foreign investment in U.S. business,
which has increased to over $200 billion in 1998, an amount nearly three
times that invested the year before.

As the U.S. economy becomes increasingly linked with the global economy,
international trade is growing in importance as a foreign policy issue. At
the same time, significant national security issues also need to be
considered. The effectiveness of regional and global trade arrangements in
achieving their desired outcomes is being questioned at home and abroad.
Critics have expressed concern that the United States has not been
sufficiently aggressive in monitoring and enforcing over 300 international
trade agreements that cover hundreds of billions of dollars in trade and
affect millions of U.S. jobs, and that some decisions by the World Trade
Organization could compromise U.S. sovereignty.

Recent financial crises in developing nations highlight the implications of
the interdependence of economies and financial systems. For example, the
emergence of financial difficulties in Thailand in 1997 was followed by
financial crises in Indonesia and Korea, and eventually Russia and Brazil.
Fear that these crises could severely affect U.S. economic and security
interests have (1) focused attention on the interdependence of U.S. and
global economies and (2) raised questions about what can be done to prevent
or contain the spread of such crises. The International Monetary Fund is a
key organization that the United States cooperates with to maintain global
economic stability. Prompted by financial crises and government corruption
in some countries, questions have been raised regarding their effectiveness
and roles in maintaining the health of the global finance and trade systems
and resolving countries' financial crises.

Economic and financial interdependence are not the only global trends with
implications for this country. Increased globalization of information
technology has resulted in significant new security and privacy threats to
our nation's information network. Similarly, the spread of diseases around
the world, like AIDS, and the global nature of environmental problems affect
us and also call for a coordinated international response. Thus, in the
future, federal responses to problems will increasingly have to consider
international as well as national dimensions.

The nation's security concerns reflect new, diverse, and diffuse threats of
national, economic, and personal dimensions. Less restricted trade,
expanding democracy and capitalism, and rapidly developing technology have
broadened security concerns and changed the way the United States prepares
for conflict. In addition to more conventional military threats, the United
States is confronting threats from terrorism; the proliferation of weapons
of mass destruction; information warfare; the international drug trade; and
other more diffuse sources, which are harder to identify, respond to, and
contain. Figure 12 shows the countries that possess weapons of mass
destruction posing national security concerns to the United States.

Figure 12: Countries With Weapons of Mass Destruction Posing National
Security Concerns

Sources: DOD and State Department.

The bombings in New York City in 1993 and in Oklahoma City in 1995 have
elevated concerns about the spread of terrorism to the United States. More
than 40 federal agencies, offices, and bureaus spend over $10 billion a year
to combat terrorism.

The structure of U.S. armed forces has been reviewed a number of times since
the end of the Cold War, resulting in substantial reductions. The Congress
has expressed concern that the forces that remain may not be sufficient to
implement the national military strategy and may not be sufficiently
prepared to respond to the threats of the 21st century. In February 1999,
the President proposed that DOD begin the first sustained increase in
defense spending in 15 years, calling for additional resources totaling $112
billion over the next 6 years. In particular, defending the United States
against an intercontinental ballistic missile attack from a rogue nation and
protecting U.S. and allied deployed forces from theater missile attacks is
receiving considerable attention. This year, activities leading to the
President's deployment decision on a National Missile Defense system are
moving ahead and improvements to key theater missile defense systems, such
as the Theater High Altitude Area Defense system, are being instituted. The
President has proposed about $24 billion in total funding of national and
theater missile defense from 2001 through 2005.

Should disruptions occur, increasing reliance on complex interconnected
computer systems essential to public well-being and the economy has created
serious new vulnerabilities. Protection of transportation, energy, emergency
services, financial services, and communication systems- is becoming
increasingly important because they rely heavily on information technology.
Criminals, terrorists, and others, working anonymously from remote locations
and with relatively limited resources, can now use computers to severely
disrupt this infrastructure. An example of disruptions that could occur is
provided by recent denial-of-service attacks on popular web-sites.

Support the Transition to a More Results-Oriented and Accountable Federal
Government

The reforms that have been adopted so far have profound implications for
what government does, how it is organized, and how it performs its services
to the country and its citizens. Consequently, government decisionmakers and
managers are adopting new ways of thinking, considering different ways of
achieving goals, and using new information to guide decisions. At the same
time, with budget surpluses now projected for the coming years, the U.S.
government faces a new set of challenges, in both the near and long terms,
in making budget decisions.

To support the Congress in its decision-making in this area, GAO will focus
significant resources on the following important strategic objectives:

   * analyzing the federal government's long-term and near-term fiscal
     position, outlook, and options;
   * examining ways to strengthen approaches for financing the government
     and determining accountability for the use of taxpayer dollars;
   * facilitating governmentwide management and institutional reforms needed
     to build and sustain high-performing organizations and more effective
     government; and
   * recommending economy, efficiency, and effectiveness improvements in
     federal agency programs.

A number of important issues influence this goal and its objectives. They
include a stable federal budgetary future, technological innovation, and
improvements in the operations and service provision of government agencies.

Future Budget Issues. Our federal government has gone from budget deficit to
surplus as a result of a burgeoning economy and difficult decisions by the
Congress and the executive branch to control spending. Compared to the
deficits of recent decades, today's surplus represents a historic
turnaround, and current projections show surpluses continuing over the
10-year budget window, as figure 13 illustrates.

Note: These projections assume that discretionary spending grows at the rate
of inflation after 2000.

Source: Budget of the U.S. Government, Fiscal Year 2001,Office of Management
and Budget and the Congressional Budget Office's January 2000 projections.

This picture of today's fiscal good fortune, however, masks a change in the
composition of federal spending during the past few decades. Relative to
federal spending subject to annual appropriations-defense and nondefense
discretionary spending-the share devoted to federal health programs and
Social Security payments has grown steadily over time. Correspondingly, the
share available for all other programs, including defense, has decreased, as
shown in figure 14.

Figure 14: Distribution of Federal Spending, 1962-99

Our long-term projections illustrate the consequences for the federal
budget, assuming that these trends continue. While we may enjoy annual
surpluses for some time, long-term projections show a resumption of a
pattern of deficits emerging after the anticipated demographic tidal wave
hits. Because of this coming demographic shift, to move into the future
without making changes to federal retirement and health programs-Social
Security, Medicare, and Medicaid-is to envision a very different role for
the federal government. Even assuming, for example, that the Congress and
the President adhere to the often-stated goal of saving the Social Security
surpluses, our long-term model shows a world by 2030 in which these three
programs alone would require almost three-quarters of total federal revenue.
Budgetary flexibility would be drastically constrained, and little room
would be left for such spending on programs for national defense, the young,
infrastructure, and law enforcement. The government and the taxpayers will
increasingly need to distinguish between wants, needs, and affordability of
programs and services in the coming years. Figure 15 shows spending as a
share of GDP under the "Eliminate Non-Social Security Surpluses" simulation.

Note: Revenue as a share of GDP falls from its 2000 level of 20.3 percent to
slightly below CBO's level due to unspecified permanent policy actions that
reduce revenue and increase spending to eliminate the non-Social Security
surpluses. The "Eliminate Non-Social Security Surpluses" simulation can only
be run through 2068 due to the elimination of the capital stock.

Source: GAO's April 2000 analysis.

In addition there are other looming fiscal pressures, such as:

   * clean-up costs from federal operations that yield hazardous wastes,
     including defense facilities and weapon systems;
   * future claims on federal insurance programs by an increasing number of
     retired federal employees and military personnel; and
   * demands for new investment to modernize physical infrastructure, public
     buildings, transportation systems, and sewage and water treatment
     plants that are beginning to deteriorate or become obsolete.

Today's surplus represents both opportunity and obligation. While the new
surplus projections offer an opportunity to address today's needs, we should
not forget our stewardship responsibility to reduce the debt burden and
increase the choices we leave to future generations, to provide a strong
foundation for future economic growth and to ensure that future commitments
are both adequate and affordable. Continued debt reduction and entitlement
reforms are both critical to promoting a more sustainable budget and economy
for the long term. In the near- and medium-term, surpluses will depend on
continued economic growth and fiscal restraint.

Technological innovation, especially in information technology, has enhanced
productivity, but also created new vulnerabilities.

Information technology has transformed the ways we communicate, learn, use
information, conduct commerce, practice health care, and build and design
products. This trend is expected to accelerate, with investment in
information technology expected to account for 40 percent of all capital
investment in the United States by 2004. Roughly 172 million people around
the world will have Internet access in the year 2000, and by 2003 and that
number is expected to double. Businesses that produce computers, software,
semiconductors, and communications equipment have accounted for over a third
of the growth in the U.S. economy since 1992. Government too is being
affected, with information technology providing new, more responsive and
efficient ways of delivering services and information to citizens, in such
areas as tax administration, higher education, transportation safety, and
environmental protection.

Source: eMarketer (1999).

The connectivity and interdependence created through information technology
also creates vulnerabilities. Computer security risks associated with the
widespread use of information create the potential for disruptions to
federal agencies and the private sector in aviation, banking, law
enforcement, emergency services, and other critical services. The privacy
and confidentiality of medical records, credit histories, and other personal
data on millions of individuals stored in electronic databases are also at
potential risk. Unless appropriately controlled, computerized operations can
offer those with criminal or other malicious intentions numerous
opportunities for committing fraud, tampering with data, or disrupting vital
operations.

Faced with public demand for more economical, efficient, and effective
government, countries around the world are undertaking major reform
initiatives to improve government performance and accountability. These
reform efforts being undertaken in major democracies are taking a generally
consistent direction, requiring government organizations to focus more on
results and less on process.

In the United States, American citizens are increasingly demanding improved
government services and better stewardship of public resources. In an effort
to meet these demands, the federal government is adopting the principles of
performance-based management. As mentioned earlier, legislation enacted in
the 1990s has provided a statutory framework that includes the Government
Performance and Results Act of 1993, the Chief Financial Officers (CFO) Act
of 1990 and related financial management legislation, and information
technology reform legislation, including the Clinger-Cohen Act of 1996 and
the Paperwork Reduction Act of 1995.

The impetus for government reform came in part as a reaction to poor
performance, continuing disclosures of waste, and chronic budget deficits.
However, the fact that the federal budget has turned the corner from deficit
to surplus does not reduce the importance of effective and efficient
government-nor does it reduce the importance of fiscal discipline. After a
decade of focusing on deficit reduction, we know there are pent-up demands
for using the projected budget surpluses. The challenge for policymakers
will be to meet public expectations of government while maintaining the
financial discipline necessary to avoid a return to deficits. Again, there
is also the obligation for Americans to distinguish between needs, wants and
affordability.

The effective implementation of the statutory framework to improve the
performance, management, and accountability of the federal government,
although important, is not an end in itself. Rather, the implementation of
the framework is the means to an end-improved federal performance through
enhanced executive branch and congressional decision-making and oversight.
Performance improvements occur only when congressional and executive branch
decisionmakers use information resulting from these reforms to help inform
decisions and improve the performance and accountability of the federal
government.

The government's human capital management has emerged as the missing link in
the statutory and management framework that the Congress and the executive
branch have established to provide for a results-oriented federal
government.

Federal employees should be viewed not as costs to be cut, but as assets to
be valued. Only when the right employees are on board and provided the
training, technology, structure, incentives, and accountability to work
effectively is organizational success possible. Modern human capital
management principles recognize that employees are a critical asset for
success, and that an organization's human capital policies and practices
must be designed, implemented, and assessed by the standard of how well they
support the organization's mission and goals.

As with the private sector, there have been-and will be-many changes in the
demographics of the federal workforce, the education and skills required of
its workers, and basic employment structures and work arrangements used to
accomplish jobs. The federal workforce is aging: the baby boomers, with
their valuable skills and experience, are drawing near to retirement; new
employees joining the federal workforce today have different employment
options and different career expectations than the generation that preceded
them. In response to an increasingly competitive job market, federal
agencies will need the tools and flexibility to attract, hire, retain, and
reward top-flight talent. More and more, the work that federal agencies do
requires a knowledge-based workforce that is sophisticated in new
technologies, flexible, and open to continuous learning. Agencies'
employment structures and working arrangements will also be changing, and
the workplace will need to accommodate greater flexibility and uncertainty.

The implications of the downsizing of federal workforce over the past decade
are also significant. From fiscal year 1990 through fiscal year 1999, the
number of nonpostal civilian federal employees fell from about 2.3 million
to about 1.9 million. Moreover, new permanent hires fell from about 118,000
in fiscal year 1990 to a low of about 48,000 in 1994, before beginning a
slow rise to about 71,500 in fiscal year 1998.

In cutting back on hiring of new staff in order to reduce the number of
employees, agencies also reduced the influx of new people with the new
competencies needed to sustain excellence. Also, our reviews have found, for
example, that a lack of adequate strategic and workforce planning during the
initial rounds of downsizing by some agencies affected their ability to
achieve organizational missions. We intend to do more work on the
implications of downsizing and of the government's human capital approach
generally. Nevertheless, our view today is that the widespread lack of
attention to strategic human capital management may be creating a
fundamental weakness in federal management, possibly even putting at risk
the federal government's ability to efficiently, economically, and
effectively deliver products and service to the taxpayers in the future.

Information Technology, if leveraged properly, can be an effective tool for
high-quality, cost-effective government services. Information technology
effectively integrated into strategic plans and performance management
practices can lead to increased customer satisfaction, government
productivity gains, and significant cost reductions-increasingly important
attributes to a government with a declining employee base.

Moreover, the government depends heavily on computer systems and networks to
implement vital public services supporting national defense, revenue
collections, and social benefits. The global expansion of information
technology has resulted in significant new information security and privacy
threats to our information networks and technology infrastructure.

Such risks are of particular concern at the federal level. Recent audit
reports issued by us and by agency inspectors general show that most of the
largest federal agencies have significant computer security weaknesses.
These weaknesses place critical federal operations, such as national
defense, tax collection, law enforcement, air traffic control, and benefit
payments, at significant risk of disruption as well as fraud and
inappropriate disclosures. In February 1997 and again in January 1999, our
reports to the Congress designated information security as a governmentwide
high-risk area.

At the same time, the government does not always effectively plan, procure,
and implement major technology investments. For years, federal agencies have
struggled with delivering promised system capabilities on time and within
budget. IRS spent more than $3 billion in the late 1980s and early 1990s on
systems modernization without producing commensurate value. Accordingly, our
work over the last decade has focused on strengthening federal agency
management of IT investment. We continue to ask whether agencies are
spending their technology dollars on the right things (i.e., investments
that return business value in excess of costs) and whether they are
investing in technology the right way (i.e., employing management and
engineering practices that are disciplined and effective). In particular, we
developed guidance, based on best practices in the public and private
sectors. We have also made hundreds of recommendations to improve management
of large-scale IT investments in many major departments and agencies.

Maximize the Value of GAO by Being a Model Organization for the Federal
Government

Besides supporting the Congress directly through helping the legislature
respond to emerging issues and government challenges, GAO also supports the
Congress by maximizing its own value and seeking to be a model agency in the
federal government. To successfully carry out its responsibilities to the
Congress and the American people, GAO first and foremost must be perceived
as credible and must lead by example. In conjunction with the agency's
mission and core values, GAO must, among other things, be professional,
objective, fact-based, nonpartisan, nonideological, fair, and balanced in
all of its audit, investigation, and evaluation work. The internal focus of
the fourth goal provides a framework for enhancing GAO's effectiveness and
helping to improve performance and accountability throughout the agency.

To ensure its ability to support the Congress in its decision-making, GAO
will focus significant resources on the following important strategic
objectives:

   * implementing a model strategic and annual planning and reporting
     process,
   * aligning human capital policies and practices to support the agency's
     mission,
   * cultivating and fostering effective congressional and agency relations,
   * developing efficient and responsive business processes, and
   * building an integrated and reliable information technology
     infrastructure.

As mentioned throughout this testimony, GAO is utilizing its strategic plan
to help the Congress, the executive branch, and itself confront the many
current and emerging complex issues facing the American people. The plan
provides an opportunity to constructively manage a difficult process of
change and uncertainty regarding critical national and international issues,
now and in the future.

GAO is also utilizing the strategic plan to manage our own transition. The
plan not only represents a road map of how GAO will support the Congress in
handling issues faced by the country, but it also charts the approach we
will use to guide our efforts to strengthen that support and to ensure that
GAO has the capacity to serve the Congress effectively in the 21st century.

Likewise, to accomplish the objectives for GAO's internal improvements will
take the dedication and persistence of all of our talented employees.

As you know, Mr. Chairman, I am personally committed to the successful
implementation of GPRA. I have seen in my public and private sector careers
how GPRA's purposes of improved performance and accountability can be
achieved through the disciplined application of the goal-setting, planning,
performance measurement, and reporting requirements of the act. That's why
GAO's strategic plan and associated annual performance plan are consistent
with the requirements and best practices of GPRA. We seek, through our
strategic and annual planning process, to "lead by example" by being a model
for implementation of GPRA. We are not required to comply with GPRA, but we
believe that its requirements make good business sense.

As another example of our decision to voluntarily comply with
congressionally created management reforms and to "lead by example," GAO
issued in March its first-ever accountability report. This report discussed
how GAO's work benefited the Congress and the American people. The
Accountability Report is different from GAO's previous years' annual
reports. It reviewed GAO's accomplishments in meeting its mission consistent
with applicable professional standards and our core values of
accountability, integrity, and reliability. The report also included our
financial statements and an unqualified opinion from the agency's
independent auditor.

Realignment. In order to better support the Congress and maximize the value
of our strategic plan, in April I announced a realignment of GAO. This
realignment, the first in more than 15 years, will be implemented beginning
in October 2000, although the planning and transition activities have
already begun. As I've discussed in my testimony, the increasing complexity
of issues and the accelerating change in government-major factors in GAO's
strategic plan-helped us realize that this realignment was necessary to
better position GAO for serving the future needs of the Congress. Our goal
is to better serve our client by making GAO more responsive, more flexible -
and more focused on our client. GAO must become more capable of handling
multiple responsibilities in a rapidly changing environment-all while
adhering to our core values and applicable professional standards. We
recognize that the government of tomorrow must be leaner, that it must
eliminate bureaucracy and multiple management layers, that agencies must
respect future fiscal and budgetary realities, and that they must be
performance-driven and results-oriented organizations. GAO's realignment is
part of our effort to lead the federal government by example-we are certain
that this realignment will eliminate management layers, reduce silos, and
improve coordination, productivity, and team-building throughout the
organization.

The realignment will ensure a continued ability to provide timely, quality
work; will build on efforts to provide broad oversight support; will enhance
client communications and feedback; and will maintain a high-level of return
on investment. The realignment also gives us a great opportunity to
comprehensively focus on how to make our processes work better to serve our
staff and our clients, and how we can broaden and retool our products to
make them as useful as possible to the Congress in the years ahead.
Moreover, the realignment will help us to enhance our long-term capacity by
improving recruitment and retention; building a succession plan; focusing on
emerging issues; and leveraging technology opportunities for improvements to
clients, processes, and employees.

The realignment reduces the number of issue areas from 31 to 11. It
eliminates the traditional GAO divisions and strengthens team-based matrix
management. We are creating a risk-based management approach that will
reduce the number and sequential nature of our product reviews. We will
increase empowerment and accountability at the senior executive level. We
also will leverage new teams to focus on external issues important to our
many stakeholders, and on methodological issues, and strategic studies. And
we will create employee pools of generalists to increase our flexibility and
enhance development.

At the same time, we have taken a number of other important steps to improve
GAO to better serve the Congress. We've created a more effective Engagement
Acceptance and Review Meeting process to help senior management direct and
oversee work assignments. We've developed an employee feedback system and
facilitated an active employee suggestion program that has achieved
bottom-line benefits, and we have established a Comptroller General Employee
Advisory Council, with which I will meet every quarter to discuss current
and emerging issues of mutual interest and concern. And, as I mentioned
earlier, we are continuing to consolidate and reduce our field offices to
streamline our operations, reduce silos, and improve productivity. Earlier
this year, I announced that we would be reducing our field offices from 16
to 11 effective November 2000.

Human Capital. As part of the realignment efforts, GAO needs to invest more
heavily in its people. Targeted investments need to be made in our training,
performance rewards and incentives, and performance appraisal systems. We
have begun efforts to strengthen and redesign our performance appraisal
system to better assess employee strengths and weaknesses, identify training
needs, reward and recognize exceptional performance, and improve performance
at all levels. We have a goal of implementing a new performance appraisal
system for our evaluators beginning in fiscal year 2001, but no later than
fiscal year 2002.

Efforts also are underway to develop a skills and knowledge inventory system
that will be used to identify skill gaps and training and succession
planning needs, both at an institutional and individual level, and to staff
assignments more effectively. We will continue to correct skill gaps and
increase staff productivity and effectiveness through training. To maximize
this investment, we are reviewing and updating our training curriculum to
address the organizational, behavioral, and technical needs of our staff.

GAO's overall human capital situation also is of growing concern. GAO faces
many of the same difficult personnel issues the executive branch is now
confronting. Our current human capital profile has succession planning,
structural, and skills imbalance problems that we need to address if we are
to maintain and build our capacity to support the Congress and achieve the
goals of our strategic plan in the 21st century. For example, nearly 34
percent of our evaluator and related staff will be eligible to retire by the
end of fiscal year 2004. In addition, about 55 percent of our senior
executives and 48 percent of our management evaluators will become eligible
to retire by that time. Other critical positions, such as attorneys,
criminal investigators, and mission support, are also vulnerable.

Figure 17: Current Evaluator and Related Staff Retirement Eligible by End of
FY 2004

Note: Current staff onboard at end of fiscal year 1999.

Another human capital issue is more structural in terms of staffing. As
illustrated in the following graphics, we are sparse at the entry-level-a
result of the 5-year hiring freeze we began in 1992-and rather bulky in the
middle. We have been more fortunate than many agencies, in that our
attrition rate is extremely low. We believe this low rate reflects the
quality and dedication of our employees as well as the strength of our
recent human capital management improvements. Cultural transitions of major
organizations are never easy to accomplish, and I would certainly not claim
that it will be easy for GAO. Still, through a combination of employee
communications and outreach efforts, most of our staff recognize that change
is not only good for GAO at this time, it is imperative for the future.

Figure 18: GAO's New Hires

GAO's significant human capital imbalances and risks stem from dramatic
budgetary cuts, downsizing, hiring freezes, and other related actions from
1992 through1997. Over that period, GAO underwent budgetary cuts totaling 33
percent in constant fiscal year 1992 dollars. In order to achieve these
budgetary reductions, GAO staff was reduced by 39 percent. These actions
have had a considerable impact on GAO's human capital structure. Figure 19
shows GAO's human capital profile as of fiscal years 1989 and 2000.

Figure 19: GAO's Human Capital Profile

GAO has turned to contracted resources to achieve its mission and
mission-support requirements. Contract funding in inflation adjusted dollars
has increased from $13.1 million in 1981 to $29.2 million in 1999.

Clearly, GAO needs assistance to meet its looming human capital challenges.
The agency has made considerable progress in confronting its problems, but
more needs to be done. In order to effect the realignment, strengthen our
human capital profile, and position GAO to fulfill its strategic plan and
support the future needs of the Congress, GAO has requested legislation from
the Congress to

   * give GAO the flexibility to appoint scientific, technical, or
     professional staff to senior-level positions with the same pay, rights,
     and other attributes as members of the Senior Executive Service;
   * authorize voluntary early retirement for selected individual employees
     for the purpose of realigning the agency's workforce;
   * authorize separation payments for realignment purposes; and
   * authorize the Comptroller General to release officers and employees in
     RIFs which are carried out for purposes of downsizing, realignment or
     correcting skills imbalances.

This legislation would be a supplement to administrative actions that we
have taken and will be taking in the near future, and it is based on a sound
business case focused on enabling us to better support Congress in the
future. The legislation would be used to realign GAO, not to downsize it,
and would only be for GAO-the legislation would have no effect on the
executive branch agencies. It also would provide relief from applying
certain reduction-in-force (RIF) provisions that could result in an even
more unbalanced workforce than exists today and a consequent detrimental
impact on our ability to serve the Congress. RIFs would be used only as a
last resort. I want to stress that our proposal would maintain the statutory
preference for veterans and that we have no intention of de-emphasizing our
attempts to attain and maintain a high-quality and diverse workforce. Also,
to provide us greater ability to attract and retain technical talent, the
legislation would provide authority comparable to that of the executive
branch to compensate selected scientific and technical staff at
senior-executive pay levels. We would use such authority, if granted,
sparingly to address specific targeted needs, such as information technology
specialists and actuaries.

Client Focus. The Congress continues to turn to GAO for assistance on
significant issues facing the nation-in fact, we face record demands for our
services. As illustrated in the following graphic, congressional requests
and mandates for GAO services have increased in recent years. From a
long-term historical viewpoint, requests for GAO's services have never been
higher, and we anticipate that this historic growth will continue as the
Congress grapples with increasingly complex and contentious issues requiring
greater contextual sophistication. GAO, perhaps more than any other
organization, is positioned through its broad-based skills, knowledge, and
expertise to support the Congress in meeting responsibilities that will only
become more difficult as the 21st century evolves. Figure 20 shows
congressional requests as a percentage of GAO's work from fiscal year 1992
through fiscal year 1999.

Figure 20: Work Conducted for the Congress, Fiscal Years 1992 - 1999

During fiscal year 1999, we were called upon to testify 229 times before 93
congressional committees or subcommittees as shown in Figure 21 below.
Examples of important testimonies that helped the Congress in its oversight
include our performance accountability and high-risk series, which depict
the government's major management challenges and program risks; Social
Security reform proposals; financial and operational aspects of the
International Monetary Fund; DOD's anthrax vaccination program, and Medicare
reform.

Figure 21: Testimonies

GAO has recently strengthened its client outreach program to assist both GAO
and the Congress in understanding how best to meet congressional needs. We
plan to meet regularly with the Senate and House leadership, all Committee
Chairs and Ranking Minority Members, and members of our appropriations and
oversight committees to obtain feedback on our performance and to help guide
work plans in the context of the strategic plan. Our realignment is a
critical component in improving our communications and outreach with the
Congress and ensuring that we continue to maintain and foster ways to help
the Congress meet its responsibilities.

GAO has expanded its electronic link to Congress, and we are now providing a
list of active assignments. We plan to provide other products and
information through this link in the future. Through consultation with key
congressional leaders, members, and staff, we also have developed a set of
clearly defined, well documented, and transparent protocols, intended to be
consistently applied in setting priorities, allocating resources,
recognizing existing commitments, and serving the Congress. These protocols
will help GAO to better serve the Congress and improve customer
satisfaction, to close "expectation gaps" between the Congress and GAO
wherever they exist, to ensure equitable treatment of all requesters
consistent with the protocols, and to maintain and strengthen GAO's
performance and accountability. We began implementing these protocols in
January of this year and will test them until August 2000. We will finalize
them by October 2000.

GAO is also interested in fostering constructive engagement with executive
branch stakeholders and enhancing the partnership between the Congress and
GAO by strengthening oversight in order to improve the performance and
accountability of government. For instance, it is important to work closely
with agencies-while maintaining our independence-and to utilize our skills,
knowledge, and experience in working cooperatively to improve government
operations. For example, we have successfully worked with a variety of
agencies on Y2K and with IRS to face management problems and improve
government operations. I am convinced there are additional opportunities for
developing constructive engagements while maintaining the integrity of our
principal mission as an accountability organization.

Moreover, the pervasive changes confronting the Congress and the nation
present an opportunity for the Congress to reconsider the approach it takes
to oversight responsibilities. Persistent attention, new models of
performance, and different oversight structures and processes may be
necessary to achieve this objective.

GAO is uniquely positioned to help the Congress examine what government does
and how government does business-by attacking known areas of fraud, waste,
abuse, and mismanagement; reassessing how government provides services;
improving the performance and accountability of government agencies; and
preparing for the government's long-term challenges. GAO can provide support
to the Congress for holding oversight hearings on major agencies and
programs on an annual basis. Based on its insight and knowledge of
government accountability, GAO can provide effectively packaged information
about agencies and programs from a variety of audit and program sources to
support the oversight work of congressional committees, including the
information resulting from the management reforms in the 1990s. GAO
resources can also be leveraged through the strategic plan, support of task
forces and other congressional oversight approaches, increased communication
with committees, and the selective use of detailees.

Information Technology. GAO also seeks to lead the government in the
strategic management and security of effective technology utilization. Over
the years, we have made important strides in-and realized efficiencies
by-introducing technology into the organization. Most recently, we have
successfully managed the Y2K transition. However, we need to maintain and
enhance our ability to take greater advantage of modern technology and
achieve an integrated infrastructure that supports our client service,
strategic planning, human capital, and business process goals and
objectives. To this end we are:

   * developing a long-term comprehensive plan for an integrated information
     technology approach;
   * developing and implementing a short-term, cost-effective approach to
     quickly begin to satisfy GAO's information needs;
   * establishing performance and cost metrics addressing the quality and
     value of information technology services;
   * ensuring the availability of required information technology skills,
   * replacing obsolete hardware and software agency-wide to help ensure the
     efficiency and effectiveness in our operations and enhance our
     productivity, and
   * stabilizing and improving the responsiveness of our network.

It is clear that additional investments will be necessary in the coming
years to increase our enabling technology and knowledge management efforts
to meet the challenges of the future and effectively support Congress.

GAO Initiatives and Challenges

For GAO to achieve its mission and effectively support Congress in the
future, it will be important for us to have the support of the Congress. As
I have mentioned, demand for our work is essentially at an all time high,
especially with regard to mandates and requests from Congress. This change
in the composition of our work has left GAO less flexibility to pursue R&D
work-a component of our services to Congress that we believe is vital to
ensuring that we can help Congress recognize important and emerging issues
before they reach a crisis stage. Clearly, that was the case with our work
in the Y2K area and I have no doubt that there are similar issues out there
that we must be sure to identify and examine before they become major
problems. But this becomes harder and harder for GAO to do as the demands
for our work increase-requests and mandates already represent 95 percent of
our total workload.

It is also extremely important that we maintain and strengthen our capacity
to effectively serve the Congress and meet the growing demand level in the
future. This will require a more stable budgetary and personnel environment
than has been the case historically. Figure 22 clearly reflects a resource
environment that has changed dramatically in the last decade:

Figure 22: GAO Appropriations and Full-Time Equivalent Staff Levels

In an era of shrinking government capacity but expanding demands, vigorous
congressional oversight and growing requests requires a strong GAO. It will
certainly require a more stable GAO, in which budget and personnel levels
remain consistent from year to year and reflect a work plan built from the
strategic plan. A stable funding level not only supports GAO's strong return
on investment of $57 for every $1 spent, it creates the environment
necessary to recruit, retain, compensate, train and motivate a strong and
capable workforce. It is increasingly clear that the continued decline in
the staff levels of the Congress will also necessitate that GAO retain
sufficient resources to ensure effective partnering with the Congress as
well as an institutional memory about government programs and operations.

Without the broad-based assistance and experience of GAO to support the
Congress, the Congress would clearly lose opportunities for obtaining an
array of options, undertaking informed decision-making, and fully pursuing
oversight-all important elements of the Congress' constitutional
responsibilities. Without stable funding and personnel levels, it will be
extremely difficult for GAO engage in the types of partnering so critical to
the future oversight work needed to strengthen government's performance and
accountability. GAO would also have difficulty in taking on some of the
expanded roles that Congress has asked of the agency in recent years, such
as assisting on task forces and commissions without any commensurate
adjustment for resources. As I've discussed in this testimony, without some
immediate stability, GAO faces many of the same problems as other federal
agencies in being able to effectively deliver services now and in the
future. Right now, considerable differences still exist with respect to our
appropriations levels in the House and the Senate-stable funding for GAO
next year is still not assured.

GAO needs funding to support the realignment so critical to our growing
mission. GAO has requested funding to improve compensation comparability
with the executive branch, strengthen performance reward and recognition
programs, reengineer our performance appraisal system, and increase our
staff productivity through training and development as well as new
information technology resources.

At the same time, flexibility may be just as important as resources. The
human capital legislation is one example. Another example is the mandates
issue. Its is becoming difficult to do R&D work, like Y2K, as I mentioned
earlier. Without GAO's ability to pursue research and development issues,
many other consequential issues could go unrecognized and ultimately create
fundamental and serious problems for the Congress and the American people.
We must have a reasonable amount of flexibility to address emerging
challenges before they reach crisis proportions. Thus, I would urge the
Congress to not lose sight of the important balance between mandates,
requests, and research and development in the mix of GAO's work supporting
the Congress.

In addition to the legislative support I've already discussed, GAO will be
assessing whether it may need additional authority from the Congress to
obtain certain types of records for conducting our work. As the budgets,
functions, and points of service of many government programs devolve to
state and local government, private entities and non-profit organizations,
and other third parties, it may become harder for GAO to obtain the records
it needs to complete audits and evaluations. For GAO to effectively do its
job and obtain all the facts, we must have unfettered access to records no
matter where the federal dollar goes and services are delivered.

As I've stressed, we are making major changes in how GAO will face the
future, both to support Congress and to lead the government in strategic
planning, human capital management, information technology, and other areas.
That is why GAO's human capital legislation is so important. The legislation
is absolutely critical to an evolving GAO that is realigning toward a 21st
century Strategic Plan and more modern human capital approaches to meet its
mission.

Moreover, it will important for Congress to consider issues that will help
GAO to recruit, retain and motivate an effective workforce. Clearly, it is
important for GAO to continue to attract bright, able staff, which is
increasingly difficult given the excellent economy and private sector
competition. For GAO-and for most of the federal government-to compete with
the private sector, we must be able to have a more flexible compensation
system that can bring people into government employment at attractive pay
levels. This makes it incumbent on the government to create incentives to
recruit new employees and retain older employees. Congress should consider
establishing incentives such as debt relief for school loans for new hires,
an ability for staff that is eligible to retire to retreat slowly into
retirement through part time work, while obtaining a portion of their
pension, and a provision that allows federal employees-like private sector
employees-to keep frequent flier miles. Many commercial firms, in
recognition of the physical impact and disruption of family life that
results from frequent travel, allow their employees to keep frequent flyer
awards. The federal government has always considered frequent flyer awards
to be property of the government, and sought to reduce travel costs by
requiring their use only for official travel. Six years ago the Congress
enacted this requirement into law, and required the General Services
Administration to promote the use of frequent flyer programs. It is time to
examine whether the financial benefits of trying to make use of frequent
flyer benefits would be outweighed by the recruiting and retention benefits
of allowing personal use of those benefits.

Finally, one area I believe the Congress needs to begin thinking about is
the process for appointment of the Deputy Comptroller General. The current
process was established in 1982. The governing statute provides that a
committee consisting of the Comptroller General, the Speaker of the House
and President Pro Tempore of the Senate, the Majority and Minority leaders,
and the Chairmen and Ranking Minority Members of the Senate Governmental
Affairs and House Government Reform Committees recommend an individual to
the President for appointment. This process has never worked and it is too
complicated. There has been no Deputy Comptroller General since Bob Keller
passed away over two decades ago. There are a number of possible
alternatives to the current process that would avoid conflicts between the
Congress and the administration. For example, I could appoint a deputy with
the approval of at least three members of a panel consisting of the Chairmen
and Ranking Minority Members of our oversight committees. The Director of
the Congressional Budget Office appoints his deputy, whose term is tied to
the Director's just as the Deputy Comptroller General's term is tied to the
Comptroller General's. Let me also note that Gene L. Dodaro, GAO's Chief
Operating Officer, would make a terrific Deputy Comptroller General.

Mr. Chairman, this concludes my prepared statement. I would be pleased to
respond to any questions that you or the other Subcommittee members have.

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