Government Management: Addressing High Risks and Improving Performance
and Accountability (Testimony, 02/10/99, GAO/T-OCG-99-23).

Pursuant to a congressional request, GAO discussed the major challenges
faced by the government in improving its performance and strengthening
accountability, focusing on agencies' need to: (1) adopt an effective
results orientation; (2) improve the use of information technology to
achieve results; (3) strengthen financial management decision-making and
accountability; and (4) build, maintain, and marshal the human capital
needed to achieve results.

GAO noted that: (1) many agencies continue to struggle to implement
basic tenets of performance-based management called for by the
Government Performance and Results Act; (2) the uneven pace of progress
across government is not surprising; agencies are in the early years of
undertaking the changes that performance-based management entails; (3)
ineffective and outmoded organizational and program structures
frequently have undermined agencies' effectiveness; (4) challenges
agencies confront range from the need for clearer lines of
accountability to streamlining organizations in response to changing
circumstances; (5) resolving the year 2000 computing problem is the most
pervasive, time-critical risk facing the government; (6) over the past 2
years, preparedness has improved markedly, but significant challenges
remain and time is running out; (7) continuing computer security
weaknesses put critical federal operations at great risk; (8) much more
needs to be done to ensure that systems and data supporting essential
federal operations are adequately protected; (9) widespread financial
system weaknesses, problems with fundamental recordkeeping, incomplete
documentation, and weak internal controls prevented the government from
accurately reporting a large portion of its assets, liabilities, and
costs; (10) these deficiencies undermine agencies' ability to accurately
measure costs and effectively safeguard federal assets and manage
operations; (11) providing cost information also remains a key
challenge; (12) new standards require agencies to develop measures of
the full costs of carrying out a mission, producing products, or
delivering services to promote comparison of the costs of various
programs and results; (13) the rapid pace of social and technological
change and shifts in agency strategies to achieve their missions pose
continuing challenges to attract and develop skilled staff; (14) skills
gaps in critical areas undermine agencies' effectiveness and efforts to
address high-risk areas; and (15) overall, human capital must become a
more prominent issue for the government as agencies become more
performance-based.

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

 REPORTNUM:  T-OCG-99-23
     TITLE:  Government Management: Addressing High Risks and Improving 
             Performance and Accountability
      DATE:  02/10/99
   SUBJECT:  Interagency relations
             Computer security
             Internal controls
             Accountability
             Performance measures
             Personnel management
             Information resources management
             Risk management
             Financial management
IDENTIFIER:  Y2K
             Performance and Accountability Series 1999
             
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Cover
================================================================ COVER


Before the Committee on Government Reform, House of Representatives

For Release on Delivery
Expected at
10 a.m.
Wednesday,
February 10, 1999

GOVERNMENT MANAGEMENT - ADDRESSING
HIGH RISKS AND IMPROVING
PERFORMANCE AND ACCOUNTABILITY

Statement of David M.  Walker
Comptroller General of the United States

GAO/T-OCG-99-23

GAO/OCG-99-23T


(918955)


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

  CFO - chief financial officer
  FBI - Federal Bureau of Investigation
  OMB - Office of Management and Budget

============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

I am pleased to be here today to discuss actions needed to address
high-risk problems and improve performance and accountability across
the federal government.  It is particularly gratifying to present our
findings before this Committee, given its long-standing commitment
to, and support of, our High-Risk Series.  This Committee also
deserves recognition as one of the key initiators of our new
Performance and Accountability Series. 

Our set of performance and accountability detailed reports and the
latest update to our high-risk series were issued to the Congress on
January 25, 1999.\1 Collectively, these reports show the serious
challenges that must be confronted to achieve more efficient,
effective, and economical federal operations and to build greater
public respect for, and confidence in, their government.  Providing
this analysis at the beginning of the 106th Congress is an important
way to assist congressional committees in shaping their oversight and
legislative agendas. 

To further enhance understanding of these critical challenges, today
I am sending each member of Congress an executive summary of the
Performance and Accountability and High-Risk Series.\2 This document
outlines the actions needed to address these major management
challenges and reduce risks to government performance and operations. 
It summarizes an extensive amount of GAO analyses covering virtually
the entire federal government in a concise, highly readable document;
I plan to provide more summaries in such a format to augment detailed
GAO reports and communicate more effectively with Members on
important issues. 


--------------------
\1 Performance and Accountability Series:  Major Management
Challenges and Program Risks (GAO/OCG-99-1 through GAO/OCG-99-21,
January 1999) and High-Risk Series:  An Update (GAO/HR-99-1, January
1999). 

\2 Performance and Accountability and High-Risk Series:  Major
Management Challenges and Risks:  An Executive Summary
(GAO/OCG-99-ES, February 1999). 


   IMPROVING PERFORMANCE AND
   ACCOUNTABILITY ACROSS
   GOVERNMENT
---------------------------------------------------------- Chapter 0:1

My testimony today focuses on the major challenges faced by
government in improving its performance and strengthening
accountability.  They are

  -- Adopting an effective results orientation. 

  -- Improving the use of information technology to achieve results. 

  -- Strengthening financial management for decision-making and
     accountability. 

  -- Building, maintaining, and marshaling the human capital needed
     to achieve results. 

A central part of this challenge is giving adequate attention to
resolving high-risk problems.  Since 1990, we have identified
government operations that are "high risk" because of their greater
vulnerabilities to waste, fraud, abuse, and mismanagement.  This
effort brought a much needed focus on problems that are costing the
government billions of dollars. 

To help, we have made hundreds of recommendations to improve these
high-risk operations.  Overall, agencies are making progress in
trying to correct these problems and the Congress has acted through
hearings and legislation.  Sustained attention is needed to make
further headway.  High-risk problems are highlighted throughout this
statement and listed in appendix I. 


   ADOPTING AN EFFECTIVE RESULTS
   ORIENTATION
---------------------------------------------------------- Chapter 0:2

The cornerstone of efforts to implement performance-based management
is the adoption of a results orientation.  Many agencies continue to
struggle to implement basic tenets of performance-based management
called for by the Government Performance and Results Act.  The uneven
pace of progress across government is not surprising; agencies are in
the early years of undertaking the changes that performance-based
management entails. 


      DEFINING GOALS AND MEASURES
-------------------------------------------------------- Chapter 0:2.1

Too often, the government has failed to manage on the basis of a
clear understanding of the results expected to be achieved and how
performance will be gauged.  These understandings are vital because
programs are designed and implemented in dynamic environments;
competing program priorities and stakeholders' needs must
continuously be balanced and new needs addressed. 



   (See figure in printed
   edition.)


      ALIGNING ACTIVITIES TO MEET
      DEMANDS
-------------------------------------------------------- Chapter 0:2.2

Ineffective and outmoded organizational and program structures
frequently have undermined agencies' effectiveness.  Challenges
agencies confront range from the need for clearer lines of
accountability to streamlining organizations in response to changing
circumstances.  All federal agencies share the ongoing need to ensure
that their organizational structures and program approaches
efficiently support the accomplishment of mission-related goals. 



   (See figure in printed
   edition.)


      RATIONALIZING CROSSCUTTING
      EFFORTS
-------------------------------------------------------- Chapter 0:2.3

Virtually all of the results that the government strives to achieve
require the concerted and coordinated efforts of two or more
agencies.  However, mission fragmentation and program overlap are
widespread and programs are not always well-coordinated.  This wastes
scarce funds, frustrates taxpayers, and limits overall program
effectiveness.  Table 1 illustrates this problem, found in over 30
programs across government and covering nearly a dozen federal
missions. 



                                Table 1
                
                   Areas of Fragmentation and Overlap

Mission areas                       Programs
----------------------------------  ----------------------------------
Agriculture                          Food safety

Commerce and housing credit          Financial institution regulation

Community and regional               Community development
development                          Economic development
                                     Emergency preparedness
                                     Housing
                                     Rural development

Education, training,                 Early childhood programs
employment and social                Employment training
services                             Student aid

General science, space, and          High performance computing
technology                           National laboratories
                                     Research and development
                                    facilities
                                     Small business innovation
                                    research

General government                   Federal statistical agencies

Health                               Long-term care
                                     Substance abuse
                                     Nuclear health and safety
                                     Telemedicine

Income security                      Child care
                                     Welfare and related programs
                                     Youth programs

International affairs                Educational programs
                                     Policy formulation and
                                    implementation

Law enforcement                      Border inspections
                                     Drug control
                                     Investigative authority
                                     Drug trafficking
                                     Combating terrorism

Natural resources and                Federal land management
environment                          International environmental
                                    programs
                                     Hazardous waste cleanup
                                     Water quality
----------------------------------------------------------------------


   (See figure in printed
   edition.)


      CREATING PERFORMANCE
      PARTNERSHIPS
-------------------------------------------------------- Chapter 0:2.4

Federal agencies are working with their state partners to instill
performance-based approaches to managing intergovernmental programs. 
Partnership agreements centered on results-oriented goals and
measures can be an effective vehicle for achieving results while
providing states with needed flexibility.  However, in some cases the
government could do a better job. 



   (See figure in printed
   edition.)


      DEVELOPING AND USING
      PERFORMANCE INFORMATION
-------------------------------------------------------- Chapter 0:2.5

An environment that focuses on results needs different information
from that traditionally collected.  Obtaining more credible
results-oriented performance information is essential for (1)
accurately assessing agencies' progress in achieving goals and (2) in
cases where sufficient progress is not being made, for identifying
opportunities for improvement. 



   (See figure in printed
   edition.)


   IMPROVING THE USE OF
   INFORMATION TECHNOLOGY TO
   ACHIEVE RESULTS
---------------------------------------------------------- Chapter 0:3

The government is heavily dependent on computer systems and networks
to implement vital public services supporting national defense,
revenue collection, and social benefits.  However, billions of
dollars have been wasted for computer systems that failed to deliver
expected results.  To the extent that billions in planned annual
obligations for information technology can be spent more wisely,
federal programs will operate more efficiently with less cost.  To
accomplish this, the government faces a number of critical
challenges. 


      ADDRESSING THE URGENT YEAR
      2000 COMPUTING CHALLENGE
-------------------------------------------------------- Chapter 0:3.1

Resolving the Year 2000 computing problem is the most pervasive,
time-critical risk facing government today.  Unless adequate actions
are taken, key federal operations--national defense, benefit
payments, air traffic management, and more--could be seriously
disrupted.  Over the past 2 years, preparedness has improved
markedly, but significant challenges remain and time is running out. 

   Figure 1:  Year 2000 Progress

   (See figure in printed
   edition.)

To help agencies mitigate Year 2000 risks, we produced guides on
enterprise readiness, business continuity and contingency planning,
and testing.  We also issued over 70 reports and made over 100
recommendations to improve the readiness of the government as a whole
and of a wide range of individual agencies.  The scope of this
problem extends beyond federal operations--it spans all spectrums of
our national economy as well as globally.  Accordingly, we
recommended that the President's Council on Year 2000 Conversion
develop a comprehensive picture of the nation's readiness by key
economic sector--including risks posed by international links.  The
Council has adopted a sector-based focus to increase awareness and
has begun developing a national assessment. 


      RESOLVING SERIOUS
      INFORMATION SECURITY
      WEAKNESSES
-------------------------------------------------------- Chapter 0:3.2

Continuing computer security weaknesses put critical federal
operations and assets at great risk.  Such problems make it easier
for individuals and groups to obtain sensitive information, commit
fraud, or disrupt operations.  In today's environment, these threats
include a range of military enemies, criminals, and terrorists who
have the capability to severely disrupt or damage the systems and
infrastructures upon which our nation depends. 

Much more needs to be done to ensure that systems and data supporting
essential federal operations are adequately protected.  First,
individual agencies need to proactively manage risk and strengthen
computer security programs by adopting best practices, such as those
we described in a May 1998 executive guide entitled Information
Security Management:  Learning From Leading Organizations
(GAO/AIMD-98-68).  Second, stronger governmentwide leadership is
essential.  A May 1998 presidential directive established entities
within the National Security Council and the FBI to address critical
infrastructure issues.  Consistent with our recommendations, OMB and
the National Security Council are working collaboratively to increase
governmentwide focus on this issue, but these efforts are only in
their early stages. 


      ENSURING THAT INVESTMENTS
      IMPROVE SERVICES
-------------------------------------------------------- Chapter 0:3.3

Agencies are making some strides in improving information technology
investment strategies, but current practices fall short of statutory
expectations established by the 1995 Paperwork Reduction Act and the
1996 Clinger-Cohen Act. 

   Figure 2:  Key Information
   Technology Challenges

   (See figure in printed
   edition.)

The following four troubled multibillion dollar modernizations, which
we have designated high risk, illustrate the vital importance of
meeting these challenges.  Their ultimate success is key to the
government's future ability to deliver critical services--safe and
efficient air travel, modern tax processing and customer service
operations, and improved weather forecasting--as well as improving
systems that support national defense operations. 



   (See figure in printed
   edition.)


   STRENGTHENING FINANCIAL
   MANAGEMENT FOR DECISION-MAKING
   AND ACCOUNTABILITY
---------------------------------------------------------- Chapter 0:4

Reliable and timely information is essential to ensure adequate
accountability, manage for results, and make timely and well-informed
judgments.  However, such information historically has not been
routinely available across government.  The combination of reforms
ushered in by the Results Act and the Chief Financial Officers (CFO)
Act will, if successfully implemented, generate the necessary
foundation to effectively run performance-based organizations. 

The CFO Act requires agencies to routinely produce sound cost and
performance information.  Toward that end, the 24 largest departments
and agencies have been required to prepare annual audited financial
statements beginning with fiscal year 1996.  Eleven of these agencies
received unqualified audit opinions for fiscal year 1997--up from 6
for fiscal year 1996. 

   Figure 3:  FY 1997 Financial
   Statement Audit Opinions

   (See figure in printed
   edition.)

The most serious difficulties in implementing the CFO Act's goals are
framed by the results of our first-ever audit of the government's
consolidated financial statements for fiscal year 1997.  Widespread
financial system weaknesses, problems with fundamental recordkeeping,
incomplete documentation, and weak internal controls--including
computer controls--prevented the government from accurately reporting
a large portion of its assets, liabilities, and costs.  These
deficiencies undermine agencies' ability to accurately measure costs
and effectively safeguard federal assets and manage operations. 

The President responded by requiring agency heads to submit plans to
OMB to correct deficiencies.  Financial management reform was
designated a top management priority.  The House passed a resolution
urging quick resolution of these problems.  The requirements of the
CFO Act are prompting steady improvements in financial
accountability, but major difficulties must be overcome in high-risk
areas, as depicted below. 



   (See figure in printed
   edition.)

Audited financial statements are essential to providing an annual
public scorecard on accountability.  However, an unqualified audit
opinion, while certainly important, is not an end in itself.  For
some agencies, the preparation of financial statements requires
considerable reliance on ad hoc programming and analysis of data
produced by inadequate systems that are not integrated or reconciled,
and often require significant audit adjustments.  Efforts to obtain
reliable year-end data that are not backed up by fundamental
improvements in underlying financial management systems and
operations to support ongoing program management and accountability
will not achieve the intended results of the CFO Act over the long
term. 

Providing cost information also remains a key challenge.  New
standards require agencies to develop measures of the full costs of
carrying out a mission, producing products, or delivering services to
promote comparison of the costs of various programs and results. 
Developing the necessary information will be a substantial
undertaking; and while there is a broad recognition of the importance
of doing so, for the most part, agencies have just begun this effort. 


   BUILDING, MAINTAINING, AND
   MARSHALING THE HUMAN CAPITAL
   NEEDED TO ACHIEVE RESULTS
---------------------------------------------------------- Chapter 0:5

Leading organizations understand that effectively managing
employees--or human capital--is essential to achieving results.  Only
when the right employees are on board and provided the training,
tools, structure, incentives, and accountability to work effectively
is organizational success possible. 


      ADOPTING A STRATEGIC
      APPROACH
-------------------------------------------------------- Chapter 0:5.1

Human capital planning must be an integral part of an organization's
strategic and program planning; human capital itself should be
thought of not as a cost to be minimized but as an asset to be
enhanced.  The challenge confronting federal agencies as they seek to
become more performance-based is to align their human capital
policies and practices with their program goals and strategies. 



   (See figure in printed
   edition.)


      DEVELOPING STAFF TO MEET
      CRITICAL NEEDS
-------------------------------------------------------- Chapter 0:5.2

The rapid pace of social and technological change and shifts in
agency strategies to achieve their missions pose continuing
challenges to attract and develop skilled staff.  Skills gaps in
critical areas undermine agencies' effectiveness and efforts to
address high-risk areas. 



   (See figure in printed
   edition.)


      CREATING A
      PERFORMANCE-ORIENTED CULTURE
-------------------------------------------------------- Chapter 0:5.3

Moving successfully to a more performance-based approach requires
that organizations better align their human capital policies and
practices with their missions and goals.  New ways of thinking must
be adopted about the goals to be achieved; the organizational
arrangements, program strategies, and partnerships needed to achieve
those goals; and how progress will be measured.  Likewise, employee
incentive and accountability mechanisms need to be aligned with the
goals of the organization.  The failure to constructively involve
staff in an organization's efforts to become more performance-based
means running the risk that the changes will be more difficult and
protracted than necessary. 



   (See figure in printed
   edition.)

Overall, human capital must become a more prominent issue for the
government as agencies become more performance-based.  Financial
management, information technology management, and results-oriented
goalsetting and measurement have all been the subject of major reform
legislation this decade.  As a next step, human capital reforms will
be necessary to fully realize the benefits which can be gained
through a well-defined performance-based management and
accountability framework. 


-------------------------------------------------------- Chapter 0:5.4

In summary, important activities have begun to implement
governmentwide reforms, but more effort is needed to produce
tangible, lasting accountability.  Greater attention also is needed
on human capital strategies to support meaningful and sustainable
management reforms across government. 

GAO is committed to helping the Congress and federal agencies better
serve the American people and prepare for the demands of the 21st
century.  Two of my primary goals for GAO are to help continuously
improve the efficiency, effectiveness, and economy of, and the
accountability over, federal operations and to help enhance the
public's respect for, and confidence in, their government.  In
addition to our ongoing support to the Congress through reports,
testimonies, and consultations, we plan to update the issues
addressed in the Performance and Accountability and High-Risk Series
at the beginning of each new Congress.  This will be an important way
to gauge progress. 

Mr.  Chairman, this concludes my statement.  I would be pleased to
answer questions. 


1999 HIGH-RISK LIST
================================================== Appendix Attachment


*** End of document. ***