oversight

Major Management Challenges and Program Risks: A Governmentwide Perspective

Published by the Government Accountability Office on 2003-01-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Performance and Accountability Series




January 2003
               Major Management
               Challenges and
               Program Risks
               A Governmentwide
               Perspective




GAO-03-95
               a
This Series
This report is part of a special GAO series, first issued in 1999 and updated in
2001, entitled the Performance and Accountability Series: Major Management
Challenges and Program Risks. The 2003 Performance and Accountability Series
contains separate reports covering each cabinet department, most major
independent agencies, and the U.S. Postal Service. This report provides a
governmentwide perspective on transforming the way the government does
business in order to meet 21st century challenges and address long-term fiscal
needs. The companion 2003 High-Risk Series: An Update identifies areas at high risk
due to either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency, or
effectiveness. A list of all of the reports in this series is included at the end of
this report.
                                                    January 2003


                                                    PERFORMANCE AND ACCOUNTABILITY SERIES


Highlights of GAO-03-95, a report to                A Governmentwide Perspective
Congress included as part of GAO’s
Performance and Accountability Series




In its 2001 Governmentwide                          The federal government is in a period of profound transition and faces an
Perspective, GAO identified                         array of challenges and opportunities to enhance performance, ensure
operational challenges, such as the                 accountability, and position the nation for the future. Several major trends,
continuing need to implement                        including diffuse security threats and national preparedness, globalization, a
management reforms, and                             shift to knowledge-based economies, and advances in science and
discussed the need to address
human capital and other strategic
                                                    technology, drive the need for federal agencies to transform their cultures
challenges, particularly the longer-                and operations. Any examination of what the federal government can
term budget outlook. The                            accomplish also must consider long-range fiscal and demographic pressures
information GAO presents in this                    that affect the long-term outlook. The retirement of the baby boom
report is intended to help sustain                  generation and rising health care costs threaten to overwhelm our nation’s
congressional attention in                          finances. A fundamental reassessment of government programs and
addressing the challenges                           activities can help address our long-range fiscal challenges and weed out
government faces in doing business                  programs that are outdated or ineffective and update needed programs so
in the 21st century. This report is                 that they are better aligned, well targeted, and efficient.
part of a special series of reports
on governmentwide and agency-                       Some agencies have begun transformation efforts to fundamentally change
specific issues.
                                                    their cultures to become more results-oriented, customer-focused, and
                                                    collaborative in nature. For example, the U.S. Postal Service in its long-term
To prepare for the future, the role                 outlook and transformation, which continue to be high risk, faces challenges
of the federal government and how                   in managing its finances, human capital, and infrastructure. In addition, the
it does business must be                            Internal Revenue Service has a multifaceted effort to transform its
transformed. The federal                            operations under way and the Department of Defense is in the process of
government must reexamine                           transforming and improving its business operations.
existing entitlement programs,
other spending policies, and tax                    Establishing the Department of Homeland Security (DHS) also provides a
preferences, in order to help                       unique challenge and opportunity to transform government. GAO has
address its long-term fiscal                        designated implementing and transforming DHS as high risk for three
challenges and create additional
                                                    reasons. First, the implementation and transformation of DHS is an
budgetary flexibility to meet
current and emerging needs.                         enormous undertaking that will take time to achieve in an effective and
Agencies must continue to build                     efficient manner. Second, components being merged into DHS already face
their fundamental management                        a wide array of existing challenges. Finally, failure to effectively carry out its
capabilities, resolve high-risk areas,              mission would expose the nation to potentially very serious consequences.
and address their major
management challenges in order to                   Successful transformation efforts build upon the principals of effective
effectively address the nation’s                    management, including strategic planning; organizational alignment; human
most pressing priorities and take                   capital strategies; performance-based management and budgeting focused
advantage of emerging                               on results; and sound financial, information technology, acquisition, change,
opportunities. For example,                         and knowledge management practices. The President’s Management Agenda
various parties should work
                                                    has focused agencies’ efforts on achieving key management and
together to continue to enact
needed human capital reforms.                       performance improvements, and our work shows that agencies have made
                                                    progress, although more needs to be done. There is no more important
www.gao.gov/cgi-bin/getrpt?GAO-03-95.               management reform than for agencies to transform their cultures to respond
                                                                                                                              st
                                                    to the transition that is taking place in the role of government in the 21
To view the full report, click on the link above.
For more information, contact Victor S.             century. Building on lessons learned, major programs and operations need
Rezendes at (202) 512-6806 or                       urgent attention and transformation to ensure that the government functions
rezendesv@gao.gov.                                  in the most economical, efficient, and effective manner possible.
Contents



Transmittal Letter                                                                                              1


A Governmentwide                                                                                                 2

Perspective

Performance and                                                                                                 47

Accountability and
High-Risk Series




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                     Page i                                           GAO-03-95 A Governmentwide Perspective
A
United States General Accounting Office
Washington, D.C. 20548
                                                                                             Comptroller General
                                                                                             of the United States




           January 2003                                                                                             T
                                                                                                                    ransmL
                                                                                                                         ta
                                                                                                                          ileter




           The President of the Senate
           The Speaker of the House of Representatives

           This report addresses the challenges and opportunities the federal government faces to enhance its
           performance, ensure greater accountability, and better position the nation for the future. It describes
           the major trends, including demographic, health care, and other pressures that affect our nation's
           long-term fiscal outlook. These trends continue to drive the need for a major transformation in
           government, and some agencies have related efforts under way. This report also discusses the
           continuing need to build fundamental management capacity across government in order to resolve
           high-risk areas and effectively address major management challenges.

           This analysis should help the new Congress and the administration carry out their responsibilities and
           improve government for the benefit of the American people. For additional information about this
           report, please contact Victor S. Rezendes, Managing Director, Strategic Issues, at (202) 512-6806 or at
           rezendesv@gao.gov.




           David M. Walker
           Comptroller General
           of the United States




                                     Page 1                                    GAO-03-95 A Governmentwide Perspective
A Governmentwide Perspective


             As the pace of change accelerates in every aspect of American life,
             government is faced with a range of new and complex challenges. The
             events of September 11, 2001, have started in motion a series of dramatic
             changes in the federal government and in working relationships between
             various levels of government and the private sector throughout the nation
             and the world. As the new Department of Homeland Security begins to
             take shape, there is a recognized urgency to fix known problems and
             prepare to effectively address potential and emerging threats.

             Several major trends—such as the increasing interconnectedness of global
             markets and economies as well as the long-term fiscal trends facing the
             federal government—will also frame the nature and scope of decisions
             expected to confront government policymakers and managers in the
             future. Within this context, government leaders must be accountable for
             making needed changes to position the federal government to take
             advantage of emerging opportunities and meet future challenges.

             Focusing on accountable, results-oriented management can help the
             federal government operate effectively within a broad network that
             includes other governmental organizations, nongovernmental
             organizations, and the private sector. Using this results-oriented
             framework, the federal government also needs to engage in a
             comprehensive review, reassessment, reprioritization, and as appropriate,
             reengineering of what the government does, how it does business, and in
             some instances, who does the government’s business.

             Some federal agencies already have transformation efforts under way.
             Lessons that are learned as these and other agencies gain experience can
             inform and contribute to future transformation efforts. The President’s
             Management Agenda (PMA) is also helping to focus attention on the steps
             needed to address key challenges and produce a more results-oriented and
             accountable government.

             By addressing known problems and building fundamental management
             capacity, the federal government can improve its performance and deliver
             economical, efficient, and effective programs and services that the
             American people need in a cost-effective and fiscally sustainable manner.




             Page 2                                  GAO-03-95 A Governmentwide Perspective
                          A Governmentwide Perspective




Evolving Trends Are       Any examination of the federal government—both how it is organized and
                          how it functions—must be done in the context of the trends that shape
Shaping the United        American society and the United States’ place in the world.
States and Its Place in
the World
                          Major trends include
                           • the national and global response to terrorism and other threats to personal and
                             national security;

                           • the increasing interdependence of enterprises, economies, civil society, and national
                             governments, referred to as globalization;

                           • the shift to market-oriented, knowledge-based economies;

                           • an aging and more diverse U.S. population;

                           • advances in science and technology and the opportunities and challenges created by
                             these changes;

                           • challenges and opportunities to maintain and improve the quality of life for the nation,
                             communities, families, and individuals; and

                           • the increasingly diverse nature of governance structures and tools.


                          The changes in national and world conditions that have occurred in the last
                          2 years have increased concerns regarding the national and global response
                          to terrorism and other threats to personal and national security. Although
                          the nature of security threats changed with the end of the cold war, the
                          reality of these threats was brought painfully home by the attacks of
                          September 11, 2001. These events heightened public recognition of the
                          seriousness of these challenges, enhanced the focus on and priority given
                          to national preparedness and homeland security issues, and led to
                          increased resources being dedicated to addressing these challenges. Since
                          time, attention, and resources are not unlimited, these changes in national
                          and world conditions alter the context within which all governmental roles,
                          initiatives, programs, and priorities are evaluated. The nation must embark
                          upon strategies that are affordable and sustainable and that integrate the
                          capabilities of all levels of government, as well as the private sector,
                          community groups, and individuals.

                          Diffuse and changing security threats are not the only forces affecting the
                          United States and its government. In part, these changing threats stem
                          from another major trend: rapid advances in technology and the increased



                          Page 3                                           GAO-03-95 A Governmentwide Perspective
A Governmentwide Perspective




movement of goods and people across borders. Globalization—growing
worldwide interdependence—affects economic and financial structures as
well as the ability of any individual nation to impose standards or
regulations. The government increasingly must be aware of international
dimensions when weighing policy options and taking action, and policy
discussions are likely to be multilateral rather than bilateral in nature.

Not only are nations and their economies more interdependent, but also
the very nature of these economies has been changing. The shift to market-
oriented, knowledge-based economies is occurring throughout much of the
world. This shift affects productivity—and so economic growth—and can
raise questions about income distribution, investment in human capital,
and the measurement of economic performance. It also has pivotal
implications for immigration, trade, and retirement policies.

Both globalization and the changing nature of domestic and global
economies are tied in part to advances in technology. Technological
advances present significant opportunities, but they also present new
challenges for society and government. Dramatic increases in computer
interconnectivity, especially in the use of the Internet, continue to
revolutionize the way our government, our nation, and much of the world
communicate and conduct business. However, this widespread
connectivity also poses significant risks to our computer systems and,
more important, to the critical operations and infrastructure they support.

While information technology stands out as one major technological force
of the era, developments in biotechnology also are leading to changes in
society. For example, improved understanding of diseases has led to new
therapies and treatments, and genetically modified crops have the potential
to dramatically improve people’s health and nutrition. In addition to the
vast opportunities science and technology present to improve the
performance of the economy, government, and the relationship of the
government to its citizens, the impact on quality of life issues can also be
significant. However, quality of life issues—such as access to health care,
affordable housing, and education—also continue to present challenges to
governments at all levels.

In most federal mission areas—such as homeland security, affordable
housing and higher education assistance—national goals are increasingly
achieved through the participation of many organizations. State and local
governments, nonprofit institutions, private corporations, and even
international institutions and governing bodies, all play vital roles in



Page 4                                   GAO-03-95 A Governmentwide Perspective
                            A Governmentwide Perspective




                            formulating and implementing federal initiatives. Promoting effective
                            partnerships with third parties in the formulation and design of complex
                            national initiatives will prove increasingly vital to achieving key outcomes,
                            such as protecting the nation from the threat of terrorism.



Long-term Fiscal and        As the nation and government policymakers grapple with the challenges
Demographic Trends Are      presented by these evolving trends, they do so in the context of an
                            overwhelming fact: the fiscal pressures created by the retirement of the
Crucial in Framing Debate
                            baby boom generation and rising health care costs threaten to overwhelm
about the Role of the       the nation’s fiscal future. In 2008—only 5 years from now—the first wave
Federal Government in the   of baby boomers become eligible to claim Social Security. Between now
Future                      and 2030, the share of the population aged 65 or older is projected to grow
                            from 12 percent to about 20 percent. In addition, labor force growth in
                            2025 is expected to be less than a third of what it is today. Absent a growth
                            in productivity, this decline in labor force growth will lead to slower growth
                            in the economy—and in federal revenues.

                            Long-range simulations can be helpful in understanding the context within
                            which the government will operate; these simulations may be especially
                            useful because the long-term outlook is heavily driven by demographics.
                            Our long-range budget simulations make it clear that the status quo is not
                            sustainable. The future fiscal gap is too great for any realistic expectation
                            that the country can grow its way out of the problem. Failure to reexamine
                            the retirement and health care programs driving the long-term outlook will
                            put the nation on an unsustainable fiscal course, absent major changes in
                            tax and/or spending policies. In addition, failure to reprioritize other
                            claims on the budget will make it increasingly difficult to finance the rest of
                            the government, let alone respond to compelling new priorities and needs.

                            As figure 1 shows, overall budgetary flexibility has been shrinking for some
                            time. In the last 2 decades, mandatory spending1—excluding net interest—
                            as a share of the budget has jumped by nearly 10 percentage points to
                            consume more than half of the federal budget.



                            1
                             Mandatory spending is spending that is determined by laws other than appropriations acts.
                            It includes such programs as Social Security, Medicare, Medicaid, farm price supports, and
                            some veterans’ benefits. Discretionary spending refers to spending determined through the
                            appropriations process. It includes national defense, homeland security, the judicial system,
                            federal education assistance, national parks, the National Institutes of Health,
                            transportation programs, and various other operations of government.




                            Page 5                                            GAO-03-95 A Governmentwide Perspective
                                               A Governmentwide Perspective




Figure 1:       Federal Spending for Mandatory and Discretionary Programs, Fiscal Years 1962, 1982, and 2002
                          1962                                       1982                                        2002a

                     6%                                                                                     8%
                                                           11%



      26%                                                                                                                36%
                                    68%                                     44%

                                                     45%                                             56%




                                                     Discretionary

                                                     Mandatory

                                                     Net interest
Source: Office of Management and Budget.
                                               a
                                               Office of Management and Budget’s July 2002 current services estimate.


                                               We prepare long-term budget simulations that seek to illustrate the likely
                                               fiscal consequences of the coming demographic tidal wave and rising
                                               health care costs. Our latest long-term budget simulations reinforce the
                                               need for change in the major cost drivers—Social Security and health care
                                               programs. As shown in figure 2, by mid-century, absent reform of these
                                               entitlement programs, projected federal revenues may be adequate to pay
                                               little beyond interest on the debt and Social Security benefits. Further, the
                                               shift from surplus to deficit means that the nation will move into the future
                                               in a weaker fiscal position than was previously the case. 2




                                               2
                                                These simulations assume that tax reductions enacted in 2001 do not sunset and
                                               discretionary spending grows with the economy. They also assume payment of currently
                                               scheduled Social Security benefits even after the Social Security Trust Fund is exhausted in
                                               2041.




                                               Page 6                                              GAO-03-95 A Governmentwide Perspective
A Governmentwide Perspective




Figure 2: Composition of Spending as a Share of Gross Domestic Product (GDP),
Assuming Discretionary Spending Grows with GDP, the Tax Cuts Do Not Sunset, and
Payments of Currently Scheduled Social Security Benefits Continue
40 Percent of GDP




30
                                 Revenue




20




10




 0
        2000                  2015         2030    2050
     Fiscal year

               All other spending

               Medicare and Medicaid
               Social Security

               Net interest

Source: GAO.



Although the need for structural change in Social Security is widely
recognized, this change would not be sufficient to overcome the long-term
fiscal challenges confronting the nation. For example, the long-term fiscal
imbalance would not come close to being eliminated even if Social Security
benefits were to be limited to currently projected trust fund revenues,
because Medicare and Medicaid—spending for which is driven by both
demographics and rising health care costs—present an even greater
problem. Absent a change in design, these two health programs together
are projected to nearly triple as a share of GDP over the next half-century.

Early action to change these programs would yield the highest fiscal
dividends for the federal budget and would provide a longer period for
prospective beneficiaries to make adjustments in their own planning.
Waiting to build economic resources and reform future claims entails
significant risks. To begin with, we lose an important window during which
today’s relatively large workforce could increase saving and enhance



Page 7                                            GAO-03-95 A Governmentwide Perspective
                            A Governmentwide Perspective




                            productivity, two elements critical to growing the future economy. We also
                            lose the opportunity to reduce the burden of interest payments, thereby
                            leaving the relatively smaller workforce of the future a legacy of higher
                            debt as well as entitlement spending for the elderly. Furthermore, we risk
                            losing the opportunity to phase in changes gradually so that all can make
                            the adjustments needed in private and public plans to accommodate this
                            historic shift. Unfortunately, the long-range challenge has become more
                            difficult, and the window of opportunity to address the entitlement
                            challenge is narrowing. As the baby boom generation retires and the
                            number of those entitled to these retirement benefits grows, the difficulties
                            of reform will be compounded. Accordingly, it remains more important
                            than ever to deal with these issues over the next several years.

                            Concerns regarding the long-term picture are increasing, as the crunch is
                            getting closer. We have work under way regarding how to describe the
                            range and measurement of fiscal exposures—from explicit liabilities such
                            as environmental costs to the more implicit exposures presented by life-
                            cycle costs of capital acquisition or disaster assistance.

                            Making government adapt to meet the challenges of the future is broader
                            than revisiting entitlement programs. A fundamental review of what the
                            federal government does, how it does it, and in some cases, who does the
                            government’s business will be required. It will also require a review of a
                            range of federal spending, regulatory, and tax policies.



A Fundamental Review Is     If government is to be able to deal with these trends, it cannot accept as
Needed to Ensure Relevant   “givens” all of its existing major programs, policies, and operations.
                            Rather, the relevance or “fit” of particular federal programs, policies, or
and Sustainable             activities to today’s world and the future must be reexamined. This
Government Programs         reassessment, while a challenge in itself, can help create the fiscal
                            flexibility needed to address emerging needs by weeding out programs that
                            are outdated or ineffective and updating needed programs so that they are
                            better aligned, well targeted, and efficient. Such a reassessment must
                            include both mandatory and discretionary spending and tax preferences.
                            In addition, examining interrelationships with other governmental and
                            nongovernmental programs can help determine the appropriate role for the
                            federal government.

                            It is always easier to subject proposals for new activities or programs to
                            greater scrutiny than existing ones undergo. Treating existing activities as
                            “givens” and forcing new proposals to compete only with each other,



                            Page 8                                   GAO-03-95 A Governmentwide Perspective
A Governmentwide Perspective




however, move the nation further from, rather than nearer to, budgetary
surplus. In looking forward, it is important to reflect on how much things
have changed. We must strive to maintain a government that is effective
and relevant to a changing society—a government that is as free as possible
of outmoded commitments and operations that can inappropriately
encumber the future. In addition, policymakers need to consider the
difference between “wants,” “needs,” and overall “affordability” and long-
term “sustainability” when setting priorities and allocating resources.

Finally, any reassessment of federal missions and strategies should include
an examination of the entire set of tools that the federal government can
use to address national objectives. The tools for implementing federal
programs include direct spending, loans and loan guarantees, tax
expenditures, and regulations. For example, as shown in figure 3, in fiscal
year 2000, the federal health care and Medicare budget functions included
$37 billion in discretionary budget authority, $319 billion in entitlement
outlays, $5 million in loan guarantees, and $91 billion in tax expenditures.



Figure 3: Relative Reliance on Policy Tools in the Health Care Budget Functions,
Fiscal Year 2000



                                    20%



                                           8%
                72%




         Tax expenditures

         Discretionary budget authority

         Mandatory outlays
Source: Office of Management and Budget.

Note: Loan guarantees account for about $5 million, or about 0.001 percent, of the approximately
$447 billion in total federal health care resources.




Page 9                                                GAO-03-95 A Governmentwide Perspective
                         A Governmentwide Perspective




                         In most federal mission areas—from low-income housing to food safety to
                         higher education assistance—national goals are achieved through the use
                         of a variety of tools and, increasingly, through the participation of many
                         organizations that are beyond the direct control of the federal government.
                         This environment provides unprecedented opportunities to change the way
                         federal agencies are structured to do business internally and across
                         boundaries with state and local governments, nongovernmental
                         organizations, private businesses, and individual citizens.

                         This transformation is made more challenging at a time when many states
                         and localities are facing the tightest fiscal conditions they have seen in a
                         decade, with fiscal pressures stemming from slowing revenue growth and
                         unanticipated expenditures. The recent economic downturn and stock
                         market declines have caused state revenues to slide, while other
                         developments, such as health care price increases and unexpected
                         homeland security threats, have greatly increased spending demands.
                         There is evidence that the fiscal and policy issues that each level of
                         government in our system faces are increasingly intertwined. The
                         expansion of federal policy objectives has been accompanied by a growing
                         reliance on state and local governments. State and local governments have
                         been confronted with the challenge of addressing their own needs while at
                         the same time assuming stewardship for a growing number of national
                         needs. Together, such trends are forcing policymakers to make difficult
                         fiscal and policy choices, and these decisions will become more painful
                         over time.



Agencies Have            Together these trends—including security and preparedness, globalization,
                         a shift to knowledge-based economies, advances in science and technology,
Transformation Efforts   and an aging population, along with the long-range fiscal challenges facing
Under Way To Meet 21st   the government—drive the need for agencies to transform their cultures
                         and operations. In response to these trends, some agencies have already
Century Challenges       begun these transformations.

                         As part of its transformation efforts, the federal government needs to
                         create a culture that moves from

                         • process to results,

                         • stovepipes to matrixes,

                         • hierarchical to flatter and more horizontal structures,



                         Page 10                                  GAO-03-95 A Governmentwide Perspective
A Governmentwide Perspective




• an inward focus to an external (citizen, customer, and stakeholder)
  focus,

• micro-management to employee empowerment,

• reactive behavior to proactive approaches,

• avoiding new technologies to embracing and leveraging them,

• hoarding knowledge to sharing knowledge,

• avoiding risk to managing risk, and

• protecting “turf” to forming partnerships.

There is a compelling need to elevate, integrate, and institutionalize
responsibility for transformational efforts within federal agencies to help
ensure success.3 This can help provide the continuing, focused attention
needed to complete multiyear transformation change efforts. How this is
accomplished must be determined within the context of the specific facts
and circumstances surrounding that agency and its own challenges and
opportunities. All such efforts, however, build upon the existing
mechanisms for ensuring accountability. Congressional oversight
continues to play a key role in fostering continuous improvement. Public
reporting mechanisms, such as the annual performance plans and
performance reports required by the Government Performance and Results
Act of 1993 (GPRA), and audited financial statements prepared under the
1990 Chief Financial Officers (CFO) Act and the 1994 Government
Management Reform Act, also provide useful information and help keep
transformation efforts on track and accountable for achieving progress and
results.

One clear example of the challenges involved in governmental
transformation efforts can be seen in examining efforts related to the
transformation of the U.S. Postal Service, an area that we designated as
high risk in April 2001. Additionally, both the Internal Revenue Service
(IRS) and the Department of Defense (DOD) face a range of long-term


3
 U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief Operating
Officer Concept: A Potential Strategy to Address Federal Governance Challenges,GAO-03-
192SP (Washington, D.C.: Oct. 4, 2002).




Page 11                                       GAO-03-95 A Governmentwide Perspective
                           A Governmentwide Perspective




                           challenges and have actions under way to address the fundamental need to
                           transform how they do business now and in the future. Also, establishing
                           the new Department of Homeland Security presents a wide range of
                           transformation issues. Other agencies have also begun major
                           transformation efforts, including the National Aeronautics and Space
                           Administration (NASA), the Federal Aviation Administration (FAA), and
                           the Federal Bureau of Investigation (FBI).



The Postal Service’s       The rapid changes in technology, particularly in the use of E-mail and the
Transformation Continues   Internet, security concerns, and increased competition, have all played a
                           part in framing the significant challenges facing the Postal Service. In the
to Be High Risk
                           nearly 2 years since we designated the Service’s transformation efforts and
                           long-term outlook as a high-risk area, it has experienced financial
                           difficulties and struggled to fulfill its mission of providing high-quality
                           universal service while remaining self-supporting. These financial
                           difficulties are not just a cyclical phenomenon—mail volumes have
                           stagnated or declined in an increasingly competitive environment. The
                           Service has developed a transformation plan, which it can use to make
                           progress on specific actions under its existing authority. The Service’s
                           ability to control costs and improve productivity is key to improving its
                           financial situation. Historically, it has had difficulty achieving productivity
                           improvements and cost savings in two of its most costly areas—its
                           workforce and its expansive physical infrastructure.4

                           One of the key challenges of the Service’s transformation will be realigning
                           its infrastructure and workforce to support its business model for the 21st
                           century. The issue of excess and underutilized property, part of the
                           governmentwide high-risk area of federal real property, needs to be part of
                           the Service’s efforts to control costs and achieve its long-term
                           transformation.5 Also, facility consolidations and closures may be needed
                           to align the Service’s operating network more closely with its changing
                           business model.




                           4
                            U.S. General Accounting Office, Major Management Challenges and Program Risks: U.S.
                           Postal Service, GAO-03-118 (Washington, D.C.: January 2003); and High-Risk Series: An
                           Update, GAO-03-119 (Washington, D.C.: January 2003).
                           5
                            U.S. General Accounting Office, High-Risk Series: Federal Real Property, GAO-03-122
                           (Washington, D.C.: January 2003).




                           Page 12                                        GAO-03-95 A Governmentwide Perspective
                         A Governmentwide Perspective




                         Progress is also needed in aligning the Service’s workforce planning and
                         performance systems to its changing business model. Continued
                         communication and cooperation between labor and management on
                         difficult human capital issues will be critical in achieving transformation
                         goals. The Service also needs to work with the Congress, the President’s
                         Commission on the United States Postal Service, and other stakeholders to
                         address a range of unresolved transformation issues. The time has come
                         for comprehensive and fundamental reform with the key continuing to be
                         the need to find common ground in building a viable postal system for the
                         21st century.



IRS Has Transformation   IRS’s modernization encompasses changes to virtually every aspect of IRS,
Efforts Under Way        from its organizational structure and business processes to its technology
                         and ways of measuring and managing the performance of the agency and
                         its approximately 100,000 employees. Through modernization, the
                         Congress expects IRS to provide top-quality service and, in doing so, to
                         efficiently collect revenues for the Treasury.

                         IRS has made important progress, but its transformation continues to be a
                         work in process, and its modernization is a massive and multifaceted effort
                         that will take at least a decade to complete. The IRS Restructuring and
                         Reform Act of 1998 established the Congress’s expectation that IRS
                         modernize to better meet taxpayer needs. Implemented together,
                         improvements in five areas—business processes, organizational structure,
                         performance measurement, managerial accountability, and new technology
                         or business systems—are intended to improve taxpayer service and
                         compliance. Each initiative is a major undertaking, and in combination
                         they are particularly ambitious and complex. While IRS has made progress
                         in all five areas, we have identified a number of challenges that must be met
                         if IRS is to successfully transform itself into an agency that provides top
                         quality service and efficiently collects revenue:

                         • Improving service to taxpayers: The progress that IRS has made to
                           date in modernizing itself has laid a foundation for improvement but has
                           not yet provided the quality of service that taxpayers, the Congress, and
                           IRS management agree is needed. A theme in our recent reports on
                           taxpayer service is the need for improved management. Specifically, we
                           recommended explicit goal setting, improved performance measures,
                           and more program evaluations. Similarly, we have noted the importance
                           of human capital management to improve service to taxpayers. For




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   example, we have pointed out that IRS’s new performance management
   system could be a powerful tool to help IRS achieve its mission.

• Collection of unpaid taxes: Collecting taxes due the government has
  always been a challenge for IRS, but in recent years the challenge has
  grown. We have highlighted large and pervasive declines in IRS’s
  compliance and collections programs. To reverse these trends, IRS is in
  various stages of planning and implementing management
  improvements, including reengineering compliance and collections
  practices, collecting better data about noncompliance, and investing in
  modern financial and information systems. Because of the potential
  revenue losses and the threat to voluntary compliance, this is a high-risk
  area.

• Earned income credit noncompliance: The design of the earned
  income credit may contribute to the significant compliance problems
  that have been associated with the credit. As we have reported, unlike
  other income transfer programs that have staff to review documents and
  other evidence before judging applicants to be qualified to receive
  assistance, the earned income credit was designed to be administered
  through the tax system and relies more directly on the self-reported
  qualifications of individuals. The Commissioner of Internal Revenue
  and the Secretary of the Treasury have convened a joint task force to
  develop recommendations to better administer the credit and make it
  easier for taxpayers to comply with the rules. However, until IRS has
  designed and implemented effective controls to deal with
  noncompliance and the erroneous refunds in the billions of dollars that
  result, this will remain a high-risk area.

• Establishing measures comparable over time and collecting sufficient
  performance data: A sound organizational performance and human
  capital management system is essential for assessing how well IRS
  meets its goals and for making program improvements. IRS has made
  progress in revamping its performance management system by using its
  strategic planning, budgeting, and performance management process to
  reconcile competing priorities and initiatives within the realities of
  available resources. However, our work has shown that IRS could do a
  better job of designing and implementing performance measures and
  program evaluation practices that support its ongoing business
  operations, modernization efforts, and budget requests.




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• Addressing financial management weaknesses to develop reliable cost-
  based performance information: Financial management weaknesses—
  a high-risk area since 1995—limits IRS’s ability to develop reliable, cost-
  based performance information and to ensure that resources were spent
  in accordance with laws, regulations, and management policy. IRS has
  made significant progress in addressing its financial management
  weaknesses, including addressing controls over budgetary activity and
  its accountability over property and equipment. However, resolving
  many of IRS’s most serious problems will require a sustained, long-term
  commitment of resources; continued involvement of senior
  management; and sustained progress in systems modernization.

• Managing the business systems modernization program: IRS’s
  multibillion-dollar business systems modernization program is critical
  to the success of the agency’s efforts to transform its manual, paper-
  intensive business operations and fulfill its obligations under the IRS
  Restructuring and Reform Act. IRS has made important progress in
  establishing long overdue modernization of its management capabilities,
  and in acquiring the foundational system infrastructure and the system
  applications that will permit the agency to operate more effectively and
  efficiently; but significant challenges and risks remain. We continue to
  designate IRS’s business systems modernization as a high-risk area for
  two interrelated reasons. First, the scope and complexity of the
  program is growing. Second, IRS's modernization management capacity
  is still maturing. We have continued to emphasize the importance of
  establishing sound management controls to guide IRS's business
  systems modernization projects. Although IRS has made important
  progress in a number of areas, we remain concerned that its systems
  modernization projects may encounter additional cost, schedule, and
  performance problems.6

• Implementing effective computer security: IRS relies extensively on
  computer information systems to perform basic functions such as
  processing tax returns and payments, maintaining sensitive taxpayer
  information, and generating refunds. Although IRS has made important
  progress improving computer security controls, much remains to be
  done to resolve the significant security weaknesses that continue to
  exist within IRS’s computing environment and to be able to promptly
  address new security threats and risks as they emerge. Such weaknesses


6
GAO-03-119.




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                              can impair the agency’s ability to perform vital functions, and can
                              increase the risk of unauthorized disclosure, modification, or
                              destruction of taxpayer information. Until IRS corrects known
                              weaknesses and fully implements its agencywide computer security
                              program, IRS systems and sensitive taxpayer information will remain at
                              risk.



DOD Is in the Process of   DOD’s transformation will require cultural change and business process
Transforming and           reengineering that will take years to accomplish, and a commitment from
                           both the executive and legislative branches of government. Even before
Improving Its Business
                           the events of September 11, increased globalization, changing security
Operations                 threats, and rapid technological advances were prompting fundamental
                           changes in the environment in which DOD operates. DOD’s transformation
                           involves a strategic imperative needed to meet the security challenges of
                           the new century. DOD has emphasized force transformation as necessary
                           to effectively anticipate, counter, and eliminate the emergence of
                           unconventional threats overseas and at home. At the same time, DOD has
                           embarked on a series of efforts to improve its core business processes.

                           Many of DOD’s business processes are mired in old, inefficient procedures
                           and legacy systems, some of which go back to the 1950s and 1960s. As the
                           security environment has shifted from a Cold War structure to one of many
                           and varied threats, DOD has not kept pace with the changing capabilities
                           and productivity of the modern business environment. In view of the
                           events of September 11 and the federal government’s short- and long-term
                           budget challenges, it is more important than ever that DOD effectively
                           transform its business processes to ensure it gets the most from every
                           dollar spent. These trends place a premium on increasing strategic
                           planning; enhancing results orientation; and ensuring effective
                           accountability, transparency, and the use of integrated approaches.7

                           Significant management problems, however, continue to hamper the
                           economy, efficiency, effectiveness, and accountability of DOD’s business
                           processes, placing mission capabilities at risk by misspending funds that
                           could be directed to higher priorities, such as modernization and readiness.
                           Organizations throughout DOD need to continue reengineering their
                           business processes and striving for greater operational efficiency.

                           7
                            U.S. General Accounting Office, Major Management Challenges and Program Risks:
                           Department of Defense, GAO-03-98 (Washington, D.C.: January 2003).




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Addressing DOD’s performance and accountability challenges and high-risk
areas is crucial in ensuring that inefficiencies no longer make the cost of
carrying out missions unnecessarily high and, more importantly, increase
the risk associated with those missions. DOD’s transformation demands
integrated solutions to these areas.

• DOD has emphasized transforming its support infrastructure, but
  infrastructure management continues to be a high-risk area. DOD and
  others have been concerned over the amount of funding devoted to its
  support infrastructure and the impact this has on its ability to devote
  more funding to weapon system modernization and other critical needs.

• Problems with the department’s financial management operations date
  back decades, and DOD’s financial management remains high risk.
  Previous attempts at reform have largely proven to be unsuccessful
  despite good intentions and significant efforts. Overhauling the
  department’s financial management operations represents a challenge
  that goes far beyond financial accounting to the very fiber of DOD’s
  range of business operations and management culture. The department
  has underscored its commitment to reform, but it must be able to
  effectively account for the funding it receives and carry out its
  stewardship responsibilities for the vast amount of equipment and
  inventories used in support of military operations.

• To transform its business operations, DOD is spending billions of dollars
  to modernize its information technology systems. Since we first
  designated DOD’s systems modernization as a high-risk area in 1995,
  DOD has had limited success in modernizing its information technology
  environment because it has yet to fully implement our
  recommendations aimed at addressing its underlying modernization
  management weaknesses, including lack of an integrated set of
  enterprise architectures, effective investment management practices,
  and effective acquisition processes. DOD has taken some steps to
  implement our recommendations addressing the weaknesses we
  identified. For example, DOD has begun to develop a departmentwide
  enterprise architecture for its financial and related operations, including
  ensuring alignment of this architecture with others in DOD.

• DOD’s investment in weapons is growing rapidly as DOD pushes to
  transform itself to meet a new range of threats, but DOD continues to
  experience significant problems, including cost increases, schedule




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   delays, and performance shortfalls in developing and acquiring weapons
   systems.

• As the government’s largest purchaser, DOD and its senior leadership is
  committed to improving and streamlining its acquisition practices as it
  adjusts to a changing acquisition environment. Contract management
  remains a high-risk area, including the need to improve acquisition of
  services and ensure the appropriate use of contracting techniques and
  approaches by overcoming long-standing contract payment issues,
  managing health care contracts, and improving the acquisition
  workforce.

• DOD’s inventory management practices represent one of the most
  serious weaknesses in DOD’s logistics operations, and the long-term
  solution to this high-risk area necessitates that DOD reengineer its
  entire logistics operations to include the development of a long-range
  strategic vision and a coordinated approach to logistics management.

DOD’s transformation initiative will only succeed with the right incentives,
transparency, and accountability mechanisms. While DOD recognizes the
need for internal transformation and budget reform, its goals are
challenging, and its strategic plan currently is not set up to allow DOD to
implement and measure progress toward achieving its performance goals
in an integrated fashion. In addition to building on a foundation of sound
strategic planning, sustained committed leadership is needed to maintain
continuity. One way to ensure sustained and committed leadership would
be to create a full time position, such as a chief management officer
position, that would provide the sustained attention essential for
addressing key stewardship responsibilities, such as strategic planning,
performance management, and financial management, in an integrated
manner while helping to facilitate the transformation processes within
DOD. Equally important is the Congress’s responsibility to provide the
necessary review and visible leadership to demonstrate its commitment to
reform and oversight.




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Establishing the             We have designated the implementation and transformation of the
Department of Homeland       Department of Homeland Security (DHS) as high risk for three reasons.8
                             First, the implementation and transformation is an enormous undertaking
Security Provides a Unique   that will take time to achieve in an effective and efficient manner. Second,
Opportunity to Transform     components being merged into DHS already face a wide array of existing
Government                   challenges. Finally, failure to effectively carry out its mission would
                             expose the nation to potentially very serious consequences.

                             DHS, with an anticipated budget of almost $40 billion and an estimated
                             170,000 employees, will be the third largest agency in the federal
                             government. DHS will combine 22 agencies specializing in various
                             disciplines, including law enforcement, border security, biological
                             research, disaster mitigation, and computer security. Further, DHS will
                             take on some non-homeland-security activities, such as the Coast Guard’s
                             marine safety responsibilities and the Federal Emergency Management
                             Agency’s natural disaster response functions. The new department is being
                             formed with responsibility for a wide array of existing major management
                             challenges and program risks. For instance, one DHS directorate’s
                             responsibility includes the protection of critical information systems—an
                             area that we have designated high risk. Further, the components merging
                             into the new department, including the Immigration and Naturalization
                             Service (INS) and the Transportation Security Administration (TSA), face a
                             range of fundamental management capacity issues, such as strategic
                             human capital risks, critical information technology challenges, and
                             financial management vulnerabilities. The new components also confront
                             an array of challenges and risks to program operations, such as the
                             challenges TSA faced in meeting baggage screening deadlines and the
                             difficulties INS has had in tracking aliens due to unreliable address
                             information.

                             Only through the effective integration and collaboration of these diverse
                             entities will the nation achieve the synergy that can help provide better
                             security against terrorism. The magnitude of these responsibilities,
                             combined with the challenge and complexity of the transformation,
                             underscores the perseverance and dedication that will be required of all
                             DHS’s leaders, employees, and stakeholders to achieve success. The new
                             department must grapple not only with operational issues that will require

                             8
                              U.S. General Accounting Office, Major Management Challenges and Program Risks: The
                             Department of Homeland Security, GAO-03-102 (Washington, D.C.: January 2003); and
                             GAO-03-119.




                             Page 19                                      GAO-03-95 A Governmentwide Perspective
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immediate attention to better secure our borders or to enhance information
sharing, but also create a well run, sustainable department for the long
term.

Mergers of this magnitude carry significant risks, including lost
productivity and inefficiencies. In September 2002, we convened a forum
to identify and discuss useful practices and lessons learned from major
private and public sector mergers, acquisitions, and transformations.9 The
participants included a cross section of leaders in the public and private
sectors who have had experience managing large-scale mergers and
acquisitions, as well as leading academics and others who have studied
these efforts. While there is no one right way to manage a successful
transformation, the following key practices can serve as a guide to DHS
and other agencies as they seek to transform and meld disparate cultures in
response to governance challenges:

• Ensure that top leadership drives the transformational change.

• Establish a coherent mission and integrated strategic goals to guide the
  transformation.

• Focus on a key set of principles and priorities at the outset of the
  transformation.

• Set implementation goals and a timeline to build momentum and show
  progress from day one.

• Dedicate an implementation team to manage the transformation
  process.

• Use the performance management system to define responsibility and
  ensure accountability for change.

• Establish a communication strategy to create shared expectations and
  report on related progress.




9
 U.S. General Accounting Office, Highlights of a GAO Forum: Mergers and
Transformation: Lessons Learned for a Department of Homeland Security and Other
Federal Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).




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• Involve employees to obtain their ideas and gain ownership for the
  transformation.

• Build a world-class organization.

Generally, successful transformations of large organizations, even those
undertaking less strenuous reorganizations and with less pressure for
immediate results, can take from 5 to 7 years to achieve in a sustainable
manner. Moreover, critical aspects of DHS’s success will depend on well-
functioning relationships with third parties that will take time to establish
and maintain, including those with other federal agencies with homeland
security responsibilities, such as the State Department, the FBI and Central
Intelligence Agency, DOD, and the Department of Health and Human
Services, as well as with state and local governments, and the private
sector. Creating and sustaining a structure that can leverage partners and
stakeholders will be necessary to effectively implement the national
homeland security strategy.

Building an effective department will require consistent and sustained
leadership from top management to ensure the needed transformation of
disparate agencies, programs, and missions into an integrated organization.
To achieve success, the end result should not simply be a collection of
components in a new department, but the transformation of the various
programs and missions into a high performance, focused organization.
DHS will need to build a successful transformation that instills the
organization with important management principles; rapidly implements a
phased-in transition plan; leverages the new department and other agencies
in executing the national homeland security strategy; and builds
collaborative partnerships with federal, state, local, and private sector
organizations. Actions that must be taken to ensure the success of DHS
over the long term include:

• a comprehensive transformation,

• strong partnerships,

• management capacity, and

• performance milestones and an oversight structure.

Accountability is a critical factor in ensuring the success of the new
department. The oversight entities of the executive branch, including OMB



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and the Office of Homeland Security, will have a vital role to play in
ensuring expected performance and accountability. Likewise, cognizant
congressional committees, with their long term and broad institutional
roles, will also play a role in overseeing the transformation of the federal
government as it meets the demands of its homeland security mission. The
DHS legislation instructs both Houses of the Congress to review their
committee structures in light of the reorganization of homeland security
responsibilities within the executive branch, and the Congress has begun to
explore ways to facilitate conducting its responsibilities in a more
consolidated and integrated manner. During this period of transformation,
the Congress may need to periodically reassess its structure to maximize
the effectiveness of its DHS oversight.

The November 2002 enactment of legislation creating DHS represents a
historic moment of almost unprecedented action by the federal
government to fundamentally transform how the nation will protect itself
from terrorism. Rarely in the country’s past has such a large and complex
reorganization of government occurred or been developed with such a
singular and urgent purpose. DHS’s national security mission is of such
importance that its failure could have serious consequences on our
intergovernmental system, our citizens’ health and safety, and our
economy. The government now has the chance to transform itself by
developing a strong and effective cabinet department that will, among
other things, protect U.S. borders, improve intelligence and information-
sharing activities, and prevent and respond to potential terrorist acts.




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Other Agencies Have Begun   NASA, FAA, and FBI are examples of other executive branch agencies that
Transformation Efforts      have recognized that they must change with the times in considering what
                            they do and how they do it. NASA is facing difficulties—particularly in
                            maintaining a skilled workforce, controlling costs, and providing effective
                            oversight for important projects—that have been debilitating to important
                            space missions.10 Recognizing the need for change at NASA, the
                            Administrator has articulated a new vision to eliminate stovepipes; become
                            more integrated and results oriented; and reduce risks while working more
                            economically, efficiently, and effectively. FAA is another agency where key
                            trends have heightened the need for transformation to implement new
                            ways of ensuring transportation security and improving safety, mobility,
                            and economic growth. FAA faces an impending wave of air traffic
                            controller retirements, and has had difficulties in implementing new
                            processes and technologies. It faces long-standing problems in financial
                            management and air traffic control modernization efforts, and although
                            FAA has made important progress in addressing these problems, more
                            remains to be done.11 At the FBI, any changes must be part of, and
                            consistent with, broader governmentwide transformations that are under
                            way.12 This is especially true because the FBI, although it will not be
                            moving to DHS, must work closely with DHS’s components as the new
                            department is put into place. Every American also has a stake in ensuring
                            the success of the FBI’s efforts to defend the public from terrorist and
                            criminal actions.

                            • Although NASA is in the very early stages of its transformation, it has
                              taken positive steps to address its management problems, such as
                              undertaking new initiatives to reshape and strengthen its workforce.
                              The challenge ahead for NASA will be to maintain the momentum to
                              transform, to effectively use existing and new authorities to strategically
                              manage its people, and to quickly implement the tools needed to
                              strengthen management and oversight. In undertaking its
                              transformation efforts, NASA must tackle the root causes of problems


                            10
                               U.S. General Accounting Office, Major Management Challenges and Program Risks:
                            National Aeronautics and Space Administration, GAO-03-114 (Washington, D.C.: January
                            2003).
                            11
                               U.S. General Accounting Office, Major Management Challenges and Program Risks:
                            Department of Transportation, GAO-03-108 (Washington, D.C.: January 2003).
                            12
                               U.S. General Accounting Office, Major Management Challenges and Program Risks:
                            Department of Justice, GAO-03-105 (Washington, D.C.: January 2003).




                            Page 23                                       GAO-03-95 A Governmentwide Perspective
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       impeding the agency’s performance and accountability. This will require
       instituting a results-oriented culture that fosters knowledge-sharing and
       empowers NASA’s workforce to accomplish programmatic goals while
       making sure that the agency adheres to rigorous and effective
       management controls to prevent cost overruns and scheduling
       problems, transforming the financial management organization so that it
       better supports NASA’s core mission, and sustaining commitment to
       change.

• Faced with growing air traffic and aging equipment, FAA initiated an
  ambitious effort to modernize its air traffic control system in 1981.
  However, many of the modernization projects have experienced cost
  overruns, schedule delays, and performance shortfalls. Our work has
  identified the root causes of the modernization program’s problems.
  FAA has made important progress in addressing these root causes, but
  more must be done to institutionalize mature software acquisition
  processes, enforce the enterprise architecture, and implement effective
  investment management processes. With FAA expecting to spend about
  $16 billion through 2007 on new air traffic control systems, actions to
  address these root causes are critical. In addition, FAA expects to
  convert to its property system and general accounting system modules
  by the end of 2003. Subsequently, FAA’s financial statement audits will
  provide a comprehensive test of the ability of these systems to function
  in the complex FAA environment. FAA continues to make substantial
  progress in developing its cost accounting information capabilities.
  Cost accounting data are critical to support decisions about resource
  needs and to adequately control major projects, such as the multibillion-
  dollar air traffic control modernization program.

• The key elements of the FBI’s ongoing reorganization include shifting
  some resources from long-standing areas of focus, such as drugs, to
  counterterrorism and intelligence; building analytic capability; and
  recruiting to address selected skill gaps.13 The FBI has begun its
  transformation by reorganizing its operations to strengthen its
  management structure and enhance accountability. The next phase is
  for the FBI to build a national terrorism response capability that is
  larger as well as more mobile, agile, and flexible.




13
     GAO-03-105.




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Effective Management    Leading public and private organizations here in the United States and
                        abroad have found that for organizations to successfully transform
Is Required to Create   themselves, they must often fundamentally change their culture so that
and Sustain High-       they are more results-oriented, customer-focused, and collaborative in
                        nature. Top leadership involvement and clear lines of accountability for
Performing              making management improvements are critical to overcoming natural
Organizations           resistance to change, marshaling the resources needed to improve
                        management, and building and maintaining commitment to new ways of
                        doing business. Strategic human capital management must be the
                        centerpiece of any serious change-management initiative or effort to
                        transform the cultures of government agencies. In addition, successful
                        transformations build on an integrated approach, with careful attention to
                        fundamental public sector management practices and principles, such as
                        strong financial, information technology, and acquisition management.

                        The experiences of successful major change management initiatives in
                        large private and public sector organizations suggest that it can often take
                        at least 5 to 7 years before such initiatives are fully implemented and the
                        related cultures are transformed in a sustainable manner. A combination of
                        practices, including top leadership support, a long-term strategic
                        perspective, and a dedicated implementation team, can help provide the
                        continuing, focused attention needed to complete multiyear transformation
                        and change efforts.

                        The fiscal year 2002 President’s Management Agenda (PMA) points out
                        important challenges for the federal government and is intended to focus
                        agencies’ efforts on making progress in achieving management and
                        performance improvements.14 The 2002 PMA focuses on 14 areas of
                        improvement where it believes the greatest opportunities to improve
                        performance exist. There are clear linkages between the five
                        governmentwide initiatives and the nine program-specific initiatives
                        identified by the administration and the high-risk areas and major
                        management challenges covered in this 2003 and our 2001 Performance
                        and Accountability High-Risk Series.15 For example, in 2001 we designated


                        14
                         The President’s Management Agenda. Executive Office of the President, Office of
                        Management and Budget. Fiscal Year 2002.
                        15
                         U.S. General Accounting Office, Performance and Accountability Series, GAO-01-241
                        through 262 (Washington, D.C.: January 2001), and High-Risk Series: An Update, GAO-01-
                        263 (Washington, D.C.: January 2001).




                        Page 25                                        GAO-03-95 A Governmentwide Perspective
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strategic human capital management as a governmentwide high-risk area
that presents a pervasive challenge throughout the federal government, and
this is also one of the President’s governmentwide initiatives. The other
crosscutting presidential initiatives include competitive sourcing,
improved financial performance, expanded electronic government, and
budget and performance integration.



 The 2002 President’s Management Agenda’s Governmentwide Reforms
 Strategic Management of Human Capital: Flatten the federal hierarchy, reduce the time
 to make decisions, and increase the number of employees that provide services to
 citizens. The reform also will pursue targeted civil service reforms, such as performance-
 based compensation and management flexibilities to recruit, retain, and reward a high-
 quality workforce.

 Competitive Sourcing: Bring the power of competition to improve efficiency and
 encourage innovation throughout the federal government. The initiative requires agencies
 to compete commercial type functions between public and private sectors.

 Improved Financial Performance: The first step will be to reduce the $20.7 billion in
 estimated annual erroneous payments made by the federal government. In the long run,
 this reform will improve the timeliness, use, and accuracy of federal financial systems.

 Expanded Electronic Government: Tap the power of the Internet to make the government
 more “Citizen-centered” and to make interacting with government easier, cheaper,
 quicker, and more comprehensible.

 Budget and Performance Integration: Fully integrate performance measures in the
 federal budget process so that resource allocation is tied to specific outcomes. Replace
 the tired focus on budgeted dollars with a fresh emphasis on real results.


The items on the PMA are also consistent in key aspects with the federal
government’s statutory framework of financial management, information
technology, and results-oriented management reforms enacted during the
1990s. In crafting that framework, the Congress sought to provide a basis
for improving the federal government’s effectiveness, financial condition,
and operating performance.

Central to effectively addressing the federal government’s management
problems and providing a solid base for successful transformation efforts is
recognition that these fundamental management practices and principles
cannot be addressed in an isolated or piecemeal fashion separate from the
other major management challenges and high risks facing federal agencies.



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                          A Governmentwide Perspective




                          Rather, these efforts are mutually reinforcing and must be addressed in an
                          integrated way to ensure that they drive a broader transformation of the
                          cultures of federal agencies.



Strategic Human Capital   Strategic human capital management should be the centerpiece of any
Management Is Key to      serious change management initiative or any effort to transform the
                          cultures of government agencies.16 The PMA has identified the strategic
Transforming Government
                          management of human capital as one of its initiatives, citing the fact that
                          we had designated strategic human capital management as a
                          governmentwide high-risk area in 2001. The Office of Management and
                          Budget (OMB) and the Office of Personnel Management (OPM) released
                          standards for success in this area, reflecting language that was developed
                          in collaboration with us. The Homeland Security Act of 2002 provided DHS
                          with significant flexibility to design a modern human capital system and
                          also included significant provisions related to governmentwide human
                          capital management. This act includes the creation of Chief Human Capital
                          Officers (CHCO) and a CHCO Council, expanded voluntary early
                          retirement and buy-out authority, authorization for the use of categorical
                          ranking in the hiring of applicants instead of the “rule of three,” a
                          requirement to discuss human capital approaches in GPRA plans and
                          reports, and other provisions. These efforts and others have raised
                          expectations for agency performance in this area.

                          Serious human capital shortfalls, however, continue to erode the ability of
                          many agencies, and threaten the ability of others, to economically,
                          efficiently, and effectively perform their missions. Plainly, the major
                          problem is not federal employees. Rather, it is the lack of a consistent
                          strategic approach to marshaling, managing, and maintaining the human
                          capital needed to maximize government performance and ensure its
                          accountability. People are an agency’s most important organizational asset.
                          An organization’s people define its character, affect its capacity to perform,
                          and represent the knowledge base of the organization.

                          The first step in meeting the government’s human capital challenges is for
                          agency leaders to identify and make use of all the appropriate
                          administrative authorities available to them to manage their people both
                          effectively and equitably. Much of the authority agency leaders need to

                          16
                           U.S. General Accounting Office, High Risk Series: Strategic Human Capital
                          Management, GAO-03-120 (Washington, D.C.: January 2003).




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                        manage human capital strategically is already available under current laws
                        and regulations, as recognized by the PMA. The second step is for
                        policymakers to continue to pursue incremental legislative reforms to give
                        agencies additional tools and flexibilities to hire, manage, and retain the
                        human capital they need, particularly in critical occupations. The third
                        step is for all interested parties to work together to identify the kinds of
                        comprehensive legislative reforms in the human capital area that should be
                        enacted over time. These reforms should place greater emphasis on
                        knowledge, skills, and performance in connection with federal
                        employment, promotion, and compensation decisions.

                        Agencies can improve their performance by the way that they treat and
                        manage their people, building commitment and accountability through
                        involving and empowering employees. All members of an organization
                        must understand the rationale for making organizational and cultural
                        changes, because everyone has a stake in helping to shape and implement
                        initiatives as part of agencies’ efforts to meet current and future challenges.
                        Effective changes can only be made and sustained through the cooperation
                        of leaders, union representatives, and employees throughout an
                        organization.

                        As OMB, OPM, and the agencies learn to evaluate themselves against the
                        standards for success in implementing strategic human capital
                        management approaches, OMB and OPM will need to ensure that the
                        standards are consistently and appropriately applied while they assess
                        agencies’ progress in managing their human capital. Importantly, OMB’s
                        support will be needed as agencies identify targeted investment
                        opportunities to address human capital shortfalls.



Effective Performance   Results-oriented organizations focus on strategic planning that includes
Management Focuses on   involvement of stakeholders; assessment of internal and external
                        environments; and an alignment of activities, core processes, and
Results
                        resources to support mission-related outcomes. A well-defined mission
                        and clear, well-understood strategic goals are essential in helping agencies
                        make intelligent trade-offs among short- and long-term priorities and
                        ensure that program and resource commitments are sustainable.

                        The mission, goals, and core values of an organization must become the
                        focus for transformation—defining the culture and serving as a nexus for
                        employees to unite and rally around. As the new Department of Homeland
                        Security takes shape, for example, it will be important to focus on



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                             articulating a clear overarching mission and core values that will draw
                             employees together and provide a clear focus in support of the new
                             agency’s objectives. In successful transformation efforts, developing,
                             communicating, and constantly reinforcing the mission, goals, and core
                             values give employees a sense of what the organization intends to
                             accomplish, as well as how they fit in with the new organization and what
                             they can do to help it succeed.

                             In many cases, transformation efforts will entail organizational realignment
                             to better achieve results and clarify accountability. Attention to
                             organizational alignment is needed to help shape an efficient and effective
                             federal government for the 21st century by pursuing organizational
                             approaches that recognize the reality of evolving global, technological,
                             workforce, and other dynamics and needs associated with a transition to a
                             knowledge-based economy. For example, as competitive sourcing, e-
                             government, financial management, and other initiatives lead to changes in
                             how agencies do business, agencies may need to change how they are
                             organized.

                             As agencies transform themselves, they will need to achieve a better
                             balance among results, client/customer expectations, and employee issues.
                             Performance management systems serve as the basis for setting
                             expectations for employees’ roles in the transformation process. An
                             effective performance management system can foster institutional, unit,
                             and individual performance and accountability. In addition, providing
                             information on individual and organizational performance can help
                             agencies determine progress made, demonstrate results achieved, and plan
                             how to meet future challenges.



Performance-Based            The budget process provides an opportunity to review programs and
Budgeting Supported by       activities each year. Building on the statutory framework that the Congress
                             enacted over the last decade, performance budgeting requires results-
Credible Performance
                             oriented performance information generated by federal agencies in
Information Can Contribute   response to GPRA, and cost accounting data generated in response to
to Better Decisions and      provisions of the CFO Act. Sustained leadership attention, however, is
Enhance Debate               needed to build on this foundation. Developing credible information on
                             outcomes achieved through federal programs remains a work in progress
                             as agencies struggle, for example, to define their contributions to results,
                             which in many cases are influenced only partially by federal funds.




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If budget decisions are to be based in part on performance data, there is a
compelling need to ensure that trade-offs are informed by reliable
information on outcomes and costs. Performance-based budgeting can
help shift the focus of debate from inputs to outcomes and results,
enhancing the government’s ability to gauge performance and assess
competing claims for scarce resources.17 The determination of priorities is
a matter of weighing competing values and interests that may be informed
by performance information but also reflects such factors as equity, unmet
needs, and the appropriate role of the federal government in addressing
these needs. While performance information is only one factor to be
considered in the debate about the appropriate role for the federal
government and the need for various programs and policies, it can shift the
focus to what really matters—such as lives saved. Credible performance
information can facilitate a fundamental reassessment of what the
government does and how it does business by focusing on the outcomes
achieved with budgetary resources.

In this context, performance questions do not have a single budgetary
answer. Performance problems may well prompt budget cuts or program
eliminations, but they may also inspire enhanced investments and reforms
in program design and management if the program is deemed to be of
sufficiently high priority to the nation. Conversely, even a program that is
found to be exceeding its performance expectations can be a candidate for
budgetary cuts if it is a lower priority than other competing claims in the
process.

Homeland security is a good example of both the need for public education
about government performance goals and the challenges presented by
changing priorities. In the face of terrorist attacks, for example,
eliminating all risk is not an attainable goal. Rather, proposals to reduce
risk must be evaluated on numerous dimensions—their dollar cost and
their impact on other goals and values. Decisions on the level of resources
and how to allocate them, as well as how to balance security against other
societal goals and values, are necessary. However, absent available public
information in an understandable form, such decisions may not be
accepted. There will always be disagreements on these issues, but public
education and reliable performance information can help move the debate
on important policy questions to a more informed plane.


17
 U.S. General Accounting Office, Performance Budgeting: Opportunities and Challenges,
GAO-02-1106T (Washington, D.C.: Sept. 19, 2002).




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                      The PMA recognized that improvements in the management of human
                      capital, competitive sourcing, financial performance, and expanding
                      electronic government matter little if they are not linked to resource
                      allocation decisions. The administration has set forth an ambitious agenda
                      for performance budgeting, calling for agencies to develop cost accounting
                      systems and proposing to better align the federal budget structure with
                      their performance goals. Such efforts to implement a consistent and
                      transparent framework for performance budgeting and financial
                      information are key steps needed to provide a greater focus on
                      performance as envisioned in GPRA, but the federal government has a long
                      way to go before it can meet these goals. In the long run, for example,
                      sustaining a credible performance-based focus in budgeting will require
                      significant improvements in evaluation capacities and information on
                      program costs and outcomes across federal agencies as well as the third
                      parties that implement federal programs. OMB’s Program Assessment
                      Rating Tool (PART) will take performance budgeting in a new direction by
                      completing performance assessments on a sample of programs that will be
                      considered in making budget decisions for the fiscal year 2004 budget to be
                      presented in February 2003.

                      The President’s governmentwide performance plan, required under GPRA,
                      could become a valuable tool to help the Congress and the executive
                      branch address critical federal performance and management issues by
                      building on the knowledge about the range of programs and tools.
                      including baseline and trend information, that are directed toward
                      achieving similar results. The governmentwide plan could build on the
                      Administration’s PART initiative by comparing the performance results
                      across similar programs addressing common outcomes. Efforts to date
                      have not provided the Congress and others with an integrated perspective
                      on the extent to which programs and tools contribute to national goals,
                      such as improved health and safety.



Improving Financial   The federal government has a stewardship obligation to prevent fraud,
Management            waste, and abuse; to use tax dollars appropriately; and to ensure financial
                      accountability to the President, the Congress, and the American people.
                      Timely, accurate, and useful financial information is essential for making
                      operating decisions day-to-day; managing the government’s operations
                      more efficiently, effectively, and economically; meeting the goals of federal
                      financial management reform legislation (such as the CFO Act); supporting
                      results-oriented management approaches; and ensuring accountability on
                      an ongoing basis.



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In identifying improved financial performance as one of its five
governmentwide initiatives, the PMA stated that a clean financial audit is a
basic prescription for any well-managed organization, and recognized that
“most federal agencies that obtain clean audits only do so after making
extraordinary, labor-intensive assaults on financial records.” Further, the
PMA stated that without sound internal controls and accurate and timely
financial information, it is not possible to accomplish the President’s
agenda to secure the best performance and highest measure of
accountability for the American people.

In the area of financial performance, we have continued to point out that
the federal government is a long way from successfully implementing the
statutory reforms the Congress enacted during the 1990s. Widespread
financial management system weaknesses, poor recordkeeping and
documentation, weak internal controls, and the lack of information have
prevented the government from having the cost information needed to
effectively and efficiently manage operations or accurately report a large
portion of its assets, liabilities, and costs.

The President’s initiative focused on reducing erroneous benefit and
assistance payments. Our work has shown, for example, that the Centers
for Medicare & Medicaid Services (CMS) has made improvements in
assessing the level of improper payments, collecting overpayments from
providers, and building the foundation for modernizing its information
technology. Nevertheless, much work remains to be done, given the
magnitude of its challenge to safeguard program payments. This includes
more effectively overseeing Medicare’s claims administration contractors,
managing the agency’s information technology initiatives, and
strengthening financial management processes across multiple contractors
and agency units. In light of these challenges and the program’s size and
fiscal significance, Medicare remains on our list of high-risk programs.

In addition, our concerns about the difficulties CMS faces in managing
Medicaid—a program of enormous size, growth, and diversity—have
grown, and we have designated this as a new high-risk area. Medicaid,
which pays for both acute health care and long-term care services for about
44 million low-income Americans, has been subject to exploitation. Key
problems we have identified in recent years include schemes by some
states to improperly leverage federal funds, state waiver programs that
inappropriately increase the federal government’s financial liability, and
insufficient federal and state oversight to ensure that payments made to
health care providers are accurate and appropriate. CMS and the Congress



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have taken several significant actions to curb states’ financing schemes,
but waiver program approvals remain questionable and states’ claims
scrutiny activities are uneven.

One of the challenges faced by HHS in the Medicare and Medicaid
programs is common to many agencies—the difficulties in ensuring that
underlying financial management processes, procedures, and information
are in place for effective program management. Agencies need to take
steps to continuously improve internal controls and underlying financial
and management information systems to ensure that managers and other
decision makers have reliable, timely, and useful financial information to
ensure accountability; measure, control, and manage costs; manage for
results; and make timely and fully informed decisions about allocating
limited resources. In October 2002, we reported that meeting the
requirements of the Federal Financial Management Improvement Act
presents long-standing, significant challenges that will only be met through
time, investment, and sustained emphasis on correcting deficiencies in
federal financial management systems.18 The widespread systems problems
facing the federal government need sustained management commitment at
the highest levels of government to ensure that these needed
modernizations come to fruition.

In August 2001, the Principals of the Joint Financial Management
Improvement Program (JFMIP)—the Secretary of the Treasury, the
Director of OMB, the Director of the OPM, and the Comptroller General of
the United States—began a series of periodic meetings that have resulted in
unprecedented substantive deliberations and agreements focused on key
financial management reform issues such as better defining measures for
financial management success. These measures include being able to
routinely provide timely, accurate, and useful financial information and
having no material internal control weaknesses or material noncompliance
with laws and regulations and Federal Managers Financial Integrity Act
requirements, which are essential to meeting the expectations of the CFO
Act and the PMA. In addition, the JFMIP Principals have agreed to
significantly accelerate financial statement reporting so that the
government’s financial statements are more timely and to discourage costly
efforts designed to obtain unqualified opinions on financial statements
without addressing underlying systems challenges. For fiscal year 2004,


18
 U.S. General Accounting Office, Financial Management: FFMIA Implementation
Necessary to Achieve Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002).




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audited agency financial statements are to be issued no later than
November 15, with the U.S. government’s audited consolidated financial
statements becoming due by December 15.

Across government, there are a range of financial management
improvement initiatives under way that, if effectively implemented, will
improve the quality of the government’s financial management and
reporting. Federal agencies have started to make progress in their efforts
to modernize their financial management systems and improve financial
management performance as called for in the PMA. Our April 2002
testimony on the U.S. government’s consolidated financial statements for
fiscal years 2001 and 2000 found that the largest impediment to an
unqualified opinion continues to be DOD’s serious financial management
problems, which we have designated as high risk since 1995.19 DOD faces
financial management problems that are pervasive, complex, long-
standing, and deeply rooted in virtually all business operations throughout
the department.20 Overhauling financial management represents a
challenge that goes far beyond financial accounting to the very fiber of the
department’s business operations and management culture. In September
2001, the Secretary of Defense announced a DOD-wide initiative intended
to transform the full range of the department’s business processes,
including decades-old financial systems.




19
 U.S. General Accounting Office, U.S. Government Financial Statements: FY 2001 Results
Highlight the Continuing Need to Accelerate Federal Financial Management Reform,
GAO-02-599T (Washington, D.C.: Apr. 9, 2002).
20
     GAO-03-98 and GAO-03-119.




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                         Other important developments, including the financial collapse of major
                         corporations like Enron and the associated serious lapses in ethical
                         behavior have resulted in severe criticism of virtually all areas of the
                         nation’s financial reporting and auditing systems, which are fundamental to
                         maintaining investor confidence in our capital markets. These
                         developments raised a number of systemic issues for congressional
                         consideration, focusing on four overarching areas—corporate governance,
                         the independent audit of financial statements, oversight of the accounting
                         profession, and accounting and financial reporting issues. To help inform
                         this work, we convened two forums on corporate governance,
                         transparency, and accountability to discuss and obtain a range of views on
                         these issues. 21

                         Also, with input from the Comptroller General’s Advisory Council on
                         Government Auditing Standards, we issued significant changes to the
                         independence requirements in the Government Auditing Standards to
                         provide that, in some circumstances, it is not appropriate for auditors to
                         perform both audit and consulting services for the same client.22 In this
                         way, we have helped to enhance the public’s respect for and confidence in
                         the independence of auditors of government financial statements,
                         programs, and operations.



Effectively Leveraging   Information technology (IT) is a key element of management reform efforts
Information Technology   that can help dramatically reshape government to improve performance
                         and reduce costs. Advances in the use of IT and the Internet are continuing
Capabilities             to change the way that federal agencies communicate, use and disseminate
                         information, deliver services, and conduct business. However, for federal
                         agencies to realize IT’s promise, significant challenges will need to be
                         overcome.




                         21
                          U.S. General Accounting Office, Highlights of GAO’s Corporate Governance,
                         Transparency and Accountability Forum, GAO-02-494SP (Washington, D.C.: Mar. 5, 2002);
                         and GAO Forum on Governance and Accountability: Challenges to Restore Public
                         Confidence in U.S. Corporate Governance and Accountability Systems, GAO-03-419SP
                         (Washington, D.C.: Jan. 24, 2003).
                         22
                           U.S. General Accounting Office, Government Auditing Standards: Amendment No. 3,
                         Independence, GAO-02-388G (Washington, D.C.: January 2002); and Government Auditing
                         Standards: Answers to Independence Standard Questions, GAO-02-870G (Washington,
                         D.C.: July 2002).




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Pursuing Opportunities for   Electronic government (e-government) offers many opportunities to better
Electronic Government        serve the public, make government more efficient and effective, and reduce
                             costs. Federal agencies have implemented a wide array of e-government
                             applications, including using the Internet to collect and disseminate
                             information and forms; buy and pay for goods and services; submit bids
                             and proposals; and apply for licenses, grants, and benefits. Although
                             substantial progress has been made, the government has not yet fully
                             reached its potential in this area.23 Recognizing the importance of e-
                             government, the President has designated expanded e-government as one
                             of the governmentwide priorities in the PMA.

                             To support this priority, OMB developed an implementation strategy for 24
                             strategic multiagency e-government initiatives. However, the documents
                             used to select these initiatives generally did not include information
                             addressing collaboration and customer focus. The related work and
                             funding plans agencies submitted to OMB in May 2002 provided insufficient
                             information for OMB to monitor the status of the 24 e-government
                             initiatives. In order to help ensure the success of the President’s objective
                             of expanding e-government to improve the potential value of government
                             to citizens, we recommended that the Director of OMB ensure that the
                             managing partners for all 24 e-government initiatives (1) focus on
                             customers by soliciting input from the public and conducting user needs
                             assessments; (2) work with partner agencies to develop and document
                             effective collaboration strategies; and (3) provide OMB with adequate
                             information to monitor the cost, schedule, and performance of the 24 e-
                             government initiatives.24




                             23
                                U.S. General Accounting Office, Electronic Government: Proposal Addressing Critical
                             Challenges, GAO-02-1083T (Washington, D.C.: Sept. 18, 2002).
                             24
                              U.S. General Accounting Office, Electronic Government: Selection and Implementation
                             of the Office of Management and Budget’s 24 Initiatives, GAO-03-229 (Washington, D.C.:
                             Nov. 22, 2002).




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Improving The Collection, Use,   As agencies increasingly move to an operational environment in which
and Dissemination of             electronic—rather than paper—records provide comprehensive
Government Information           documentation of their activities and business processes, a variety of
                                 issues have emerged. For example, in the records management arena, a
                                 2001 National Archives and Records Administration (NARA) study found
                                 that although agencies were creating and maintaining records
                                 appropriately, the value of most electronic records had not been assessed
                                 nor their disposition determined, as required by statute. Further, records of
                                 historical value were not being identified and provided to NARA for
                                 preservation, and may be at risk of loss. Our review at four agencies
                                 confirmed the results of this study.25

                                 The growth in electronic information—as well as the new security threats
                                 facing our nation—are also highlighting new privacy issues. For example,
                                 on-line privacy has emerged as one of the key—and most contentious—
                                 issues surrounding the continued evolution of the Internet. The
                                 government cannot realize the full potential of the Internet until people are
                                 confident that the government will protect their privacy when they visit its
                                 Web sites. We have made recommendations to strengthen governmentwide
                                 privacy guidance and oversight of agency practices that OMB has not yet
                                 implemented. For example, we recommended that the Director of OMB
                                 determine whether current oversight strategies are adequate to ensure
                                 agencies’ adherence to Web site privacy policies and whether the policies
                                 will need further revision as Web practices continue to evolve.26




                                 25
                                  U.S. General Accounting Office, Information Management: Challenges in Managing and
                                 Preserving Electronic Records, GAO-02-586 (Washington, D.C.: June 17, 2002).
                                 26
                                  U.S. General Accounting Office, Internet Privacy: Agencies’ Efforts to Implement OMB’s
                                 Privacy Policy, GAO/GGD-00-191 (Washington, D.C.: Sept. 5, 2000).




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                       Another important issue involves the use of the Internet and other IT to
                       facilitate public access to government information. In our open society,
                       public access to information about the government and its operations is a
                       strongly held value. In 2001 and 2002, we reported on agencies’ progress in
                       developing on-line access to materials required by the 1996 Electronic
                       Freedom of Information Act.27 Our latest study found that the Department
                       of Justice had implemented our prior recommendation to issue guidance
                       encouraging agencies to make all required materials available on-line and,
                       as a result, agencies continue to make progress in this area. Justice
                       recognizes the need for additional agency attention to this issue and is
                       continuing to encourage agencies to improve on-line availability. Our
                       recent work at the Government Printing Office and the National Technical
                       Information Service—which also make government information available
                       to the public—has raised questions about the adequacy of the current
                       policies and structures in place to ensure public access to information.28

Strengthening Agency   Since September 1996, we have reported that poor information security is a
Information Security   high-risk area across the federal government with potentially devastating
                       consequences.29 Although agencies have taken steps to redesign and
                       strengthen their information system security programs, our analyses of
                       information security at major federal agencies have shown that federal
                       systems were not being adequately protected from computer-based threats.
                       Our most recent analyses of audit reports for 24 major departments and
                       agencies identified significant information security weaknesses in each
                       that put critical federal operations and assets at risk.30


                       27
                        U.S. General Accounting Office, Information Management: Update on Implementation
                       of the 1996 Electronic Freedom of Information Act Amendments, GAO-02-493
                       (Washington, D.C.: Aug. 30, 2002); and Information Management: Progress in
                       Implementing the 1996 Electronic Freedom of Information Act Amendments, GAO-01-378
                       (Washington, D.C.: Mar. 16, 2001).
                       28
                        U.S. General Accounting Office, Information Management: Electronic Dissemination of
                       Government Publications, GAO-01-428 (Washington, D.C.: Mar. 30, 2001); and Information
                       Management: Dissemination of Technical Reports, GAO-01-490 (Washington, D.C.: May
                       18, 2001).
                       29
                        U.S. General Accounting Office, Information Security: Opportunities for Improved OMB
                       Oversight of Agency Practices, GAO/AIMD-96-110 (Washington, D.C.: Sept. 24, 1996).
                       30
                        U.S. General Accounting Office, Computer Security: Improvements Needed to Reduce
                       Risk to Critical Federal Operations and Assets, GAO-02-231T (Washington, D.C.: Nov. 9,
                       2001); and Computer Security: Progress Made, but Critical Federal Operations and Assets
                       Remain at Risk, GAO-03-303T (Washington, D.C.: Nov. 19, 2002).




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                                 One of the most serious problems currently facing the government is cyber
                                 critical infrastructure protection, which is protecting the information
                                 systems that support the nation’s critical infrastructures, such as national
                                 defense and power distribution. Since the September 11 attacks, warnings
                                 of the potential for terrorist cyber attacks against our critical
                                 infrastructures have increased. In addition, as greater amounts of money
                                 are transferred through computer systems, as more sensitive economic and
                                 commercial information is exchanged electronically, and as the nation’s
                                 defense and intelligence communities increasingly rely on commercially
                                 available information technology, the likelihood increases that information
                                 attacks will threaten vital national interests. Among the critical
                                 infrastructure protection challenges the government faces are
                                 (1) developing a national critical infrastructure protection strategy,
                                 (2) improving analysis and warning capabilities, and (3) improving
                                 information sharing on threats and vulnerabilities. For each of these
                                 challenges, improvements have been made and continuing efforts are in
                                 progress, but much more is needed to address them. In particular, we have
                                 identified and made numerous recommendations over the last several
                                 years concerning critical infrastructure challenges that still need to be
                                 addressed. As a result of our concerns in this area, we have expanded our
                                 information security high-risk area to include cyber critical infrastructure
                                 protection.31

Constructing and Enforcing       Our experience with federal agencies has shown that attempts to
Sound Enterprise Architectures   modernize IT environments without blueprints—models simplifyin the
                                 complexities of how agencies operate today, how they want to operate in
                                 the future, and how they will get there—often result in unconstrained
                                 investment and systems that are duplicative and ineffective. Enterprise
                                 architectures offer such blueprints. Our February 2002 report on the
                                 federal government’s use of enterprise architectures found that agencies’
                                 use of enterprise architectures was a work in progress, with much to be
                                 accomplished.32 Nevertheless, opportunities exist to significantly improve
                                 this outlook by having OMB adopt a governmentwide, structured, and
                                 systematic approach to promoting enterprise architecture use, measuring


                                 31
                                    U.S. General Accounting Office, High-Risk Series: Protecting Information Systems
                                 Supporting the Federal Government and the Nation’s Critical Infrastructures, GAO-03-
                                 121 (Washington, D.C.: January 2003).
                                 32
                                  U.S. General Accounting Office, Information Technology: Enterprise Architecture Use
                                 across the Federal Government Can Be Improved, GAO-02-6 (Washington, D.C.: Feb. 19,
                                 2002).




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                                agency progress, and identifying the need for governmentwide enterprise
                                architecture management challenges. Accordingly, we made
                                recommendations to OMB to address these areas.

Employing Effective IT System   Our work and other best practice research have shown that the application
And Service Management          of rigorous practices to the acquisition or development of IT systems or the
Practices                       acquisition of IT services improves the likelihood of success. In other
                                words, the quality of IT systems and services is governed largely by the
                                quality of the processes involved in developing or acquiring each. For
                                example, using models and methods that define and determine
                                organizations' software-intensive systems process maturity that were
                                developed by Carnegie Mellon University's Software Engineering Institute,
                                which is recognized for its expertise in software processes, we evaluated
                                several agencies' software development or acquisition processes. We found
                                that agencies are not consistently employing rigorous or disciplined system
                                management practices. We have made numerous recommendations to
                                agencies to improve their management processes, and they have, or plan
                                to, take actions to improve their processes.33 With respect to IT services
                                acquisition, we identified leading commercial practices for outsourcing IT
                                services, which government entities may be able to use to enhance their
                                acquisition of IT services.34




                                33
                                 For example, see, U.S. General Accounting Office, Information Technology: Inconsistent
                                Software Acquisition Processes at the Defense Logistics Agency Increase Project Risks,
                                GAO-02-9 (Washington D.C.: Jan. 10, 2002); HUD Information Systems: Immature
                                Software Acquisition Capability Increases Project Risks, GAO-01-962 (Washington D.C.:
                                Sept. 14, 2001); and Customs Service Modernization: Serious Management and Technical
                                Weaknesses Must Be Corrected, GAO/AIMD-99-41 (Washington D.C.: Feb. 26, 1999).
                                34
                                  U.S. General Accounting Office, Information Technology: Leading Commercial Practices
                                for Outsourcing of Services, GAO-02-214 (Washington, D.C.: Nov. 30, 2001).




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Ensuring Effective Agency IT   Investments in IT can have a dramatic impact on an organization’s
Investment Practices           performance. If managed effectively, these investments can vastly improve
                               government performance and accountability. 35 If not, however, they can
                               result in wasteful spending and lost opportunities for improving delivery of
                               services to the public. Using our Information Technology Investment
                               Management maturity framework, our evaluations of selected agencies
                               found that while some processes have been put in place to help them
                               effectively manage their planned and ongoing IT investments, more work
                               remains.36

IT Management Challenges Are   IT management challenges are interdependent and also affect the
Interdependent                 government’s performance of other management functions. For example, a
                               critical aspect of implementing effective e-government solutions and
                               developing and deploying major systems development projects is ensuring
                               that robust information security is built into these endeavors early and is
                               periodically revisited. Increasingly, the challenges that the government
                               faces are multidimensional problems that cut across numerous programs,
                               agencies, and governmental tools. As a result, strong and effective central
                               management leadership for information resources and technology is
                               needed in the federal government to address the wide range of IT
                               challenges.

                               Both the Congress and the administration have taken recent action to
                               address IT management challenges. For example, late last year the
                               Congress passed and the President signed into law the E-Government Act
                               of 2002, which seeks to address many of the government’s IT management
                               challenges, including e-government, information dissemination, privacy,
                               and security. On the administration’s part, in February 2002, OMB began an
                               initiative to develop a federal government enterprise architecture, whose
                               purpose is to identify opportunities to simplify processes and unify work
                               across the agencies and within the lines of business of the government.
                               Although the outcome of these initiatives cannot yet be predicted with

                               35
                                U.S. General Accounting Office, Information Technology Investment Management: A
                               Framework for Assessing and Improving Process Maturity, Exposure Draft, GAO/AIMD-
                               10.1.23 (Washington, D.C.: May 2000).
                               36
                                For example, see U.S. General Accounting Office, United States Postal Service:
                               Opportunities to Strengthen IT Investment Management Capabilities, GAO-03-3
                               (Washington, D.C.: Oct. 15, 2002); Information Technology: DLA Needs to Strengthen Its
                               Investment Management Capability, GAO-02-314 (Washington, D.C.: Mar. 15, 2002); and
                               Information Technology: INS Needs to Strengthen Its Investment Management
                               Capability, GAO-01-146 (Washington, D.C.: Dec. 29, 2000).




                               Page 41                                        GAO-03-95 A Governmentwide Perspective
                           A Governmentwide Perspective




                           certainty, we strongly support their goal of enhancing the management of
                           information technology in the federal government.



Acquisition and Contract   Effective acquisition management plays a key role in creating and
Management                 sustaining high-performing organizations. However, the challenges the
                           federal government faces in improving acquisition outcomes and reducing
                           contract risk are significant. Over the past decade, acquisition workforce
                           reductions, increased reliance on services provided by the private sector,
                           changes to acquisition processes, and the introduction or expansion of
                           alternative contracting approaches, have collectively altered the
                           acquisition environment. Adjusting to these environmental changes, while
                           striving to improve acquisition outcomes, has proved daunting for many
                           agencies. For example, DOD and the Department of Energy, the two
                           largest contracting agencies in the federal government, continue to
                           experience cost increases, schedule delays, and performance shortfalls
                           that expose the government to billions of dollars in financial risks.37
                           Sustained executive leadership; the use of strategic, integrated, and
                           enterprise-wide approaches; and attention to strong systems of control for
                           acquisition and related business processes can promote more consistent,
                           positive acquisition outcomes while maintaining integrity and
                           accountability.




                           37
                              U.S. General Accounting Office, Major Management Challenges and Program Risks:
                           Department of Energy, GAO-03-100 (Washington, D.C.: January 2003); and GAO-03-98.




                           Page 42                                       GAO-03-95 A Governmentwide Perspective
A Governmentwide Perspective




Among the factors that agencies must consider as they determine how best
to meet their missions is whether the public or private sector would be the
most appropriate provider of the services the government needs. Aspects
of the current process for making such decisions, however, have been
criticized as being cumbersome, complicated, and slow. Against this
backdrop, and in response to a requirement in the National Defense
Authorization Act for Fiscal Year 2001, the Comptroller General of the
United States convened a panel of experts to study the current process
used by the government to make sourcing decisions. The Commercial
Activities Panel conducted a yearlong study, and heard repeatedly about
the importance of competition and its central role in fostering economy,
efficiency, and continuous performance improvement. The panel strongly
supported continued emphasis on competition, and concluded that
whenever the government is considering converting work from one sector
to another, public-private competitions should be the norm, consistent with
the 10 principles adopted unanimously by the panel.38

One of the sourcing principles adopted by the panel was that the federal
government’s sourcing policy should avoid arbitrary numerical or full-time
equivalent (FTE) goals. The principle is based on the concept that the
success of government programs should be measured by the results
achieved in terms of providing value to the taxpayer, not the size of the in-
house or contractor workforce. The federal government needs to
continue—and even augment—efforts to shift the focus of management,
resource allocation, and decision making from inputs and processes to a
greater focus on results and outcomes. In this regard, holding managers
accountable for results based on a specific dollar allocation, rather than on
FTE caps, would be a major step in the right direction.

As part of the PMA governmentwide initiative to achieve efficient and
effective competition between public and private sources, the
administration has committed to simplifying and improving the procedures
for evaluating public and private sources, to better publicizing the activities
subject to competition, and to ensuring senior level agency attention to the
promotion of competition. As part of the administration’s efforts to
implement the recommendations of the Commercial Activities Panel, OMB
has published proposed changes to Circular A-76 for public comment. This
circular sets forth federal policy for determining whether federal


38
 Improving the Sourcing Decisions of the Government. Final report of the Commercial
Activities Panel (Washington, D. C.: April 2002).




Page 43                                       GAO-03-95 A Governmentwide Perspective
                       A Governmentwide Perspective




                       employees or private contractors will perform commercial activities
                       associated with conducting the government’s business.



Summary Observations   In view of the overarching trends and the long-term fiscal challenges facing
                       our nation, there is a need to consider the proper role of the federal
                       government, how the government should do business in the future, and in
                       some instances, who should do the government’s business in the 21st
                       century. Evaluating the role of government and the programs it delivers
                       within the context of the major trends and long-term fiscal challenges it
                       faces is key in determining how best to address the nation's most pressing
                       priorities. It is increasingly important that federal programs use tools to
                       manage effectively across boundaries and work in conjunction with the
                       priorities and needs of American citizens; international, federal, state, and
                       local governments; and the private and nonprofit sectors. This is an
                       opportune time for the Congress to carefully consider how to make needed
                       changes in the short term to help agencies effectively manage their
                       resources and link resource decisions to results, as well as to work toward
                       a comprehensive and fundamental reassessment of what the government
                       does, how it does business, and who does the government’s business.

                       There is no more important management reform than for agencies to
                       transform their cultures to respond to the transition that is taking place in
                       the role of government in the 21st century. Our high-risk program is
                       increasingly focused on those major programs and operations that need
                       urgent attention and broad-based transformation in order to ensure that
                       our national government functions in the most economical, efficient, and
                       effective manner possible. As transformation efforts move forward, it will
                       be important to build on the lessons learned by large private- and public-
                       sector organizations. Some agencies have transformation efforts under
                       way, and the enormous undertaking of establishing the new Department of
                       Homeland Security provides a unique opportunity to develop a high-
                       performing organization and a network of partners who can work
                       effectively together in meeting the nation’s homeland security missions.

                       Large and complex federal agencies must effectively use a mixture of
                       critical resources—such as human capital, information technology, and
                       financial systems—to fulfill their roles and achieve intended results.
                       Successful transformations build on an integrated approach based upon
                       fundamental management principles. Attention to strategic human capital
                       management, integrating budget and performance information, improving
                       financial management, leveraging information technology, and effectively



                       Page 44                                  GAO-03-95 A Governmentwide Perspective
A Governmentwide Perspective




managing acquisition and contract management, are all key in achieving
success. The PMA has also focused on these important challenges for the
federal government. We have discussed the status of agencies’ current
efforts to improve their performance and provided suggestions about ways
to continue to make progress.

The 2003 performance and accountability and high-risk series reports
describe over 100 continuing and new major management challenges and
high-risk areas facing federal agencies. These challenges and risks reflect
the need for agencies to manage their resources wisely and enhance the
services that they provide. Some of these challenges and risks reflect
recent events, such as the need to better prepare for biological and
chemical acts of terrorism, and others reflect long-range trends that are
affecting the federal government as a whole, such as the need to use
integrated transportation approaches to enhance our nation’s mobility and
economic growth.

Continued persistence and perseverance in addressing the high-risk areas
and major management challenges that we have identified in this 2003
series will ultimately yield significant benefits. Although we recognize that
effectively addressing some of these issues will require a long time, finding
lasting solutions offers the potential to save billions of dollars, dramatically
improve service to the American public, strengthen public trust in our
national government, and ensure the ability of government to deliver on its
promises.

Strong, visionary, and persistent leadership will be needed to address
today’s challenges and prepare our nation for the future. Both the
executive branch and congressional leadership will play a vital role in
achieving a broad transformation of the federal government. The Congress
has historically acted as an institutional champion for initiatives, such as
GPRA and the CFO Act, that are intended to improve the performance and
accountability of the federal government. In addition, effective oversight
can continue to help improve federal performance by examining the
program structure agencies use to deliver products and services. As part of
this oversight, the Congress can consider the associated policy and
management implications of crosscutting programs, and help ensure that
the best, most cost-effective mix of strategies is in place to meet agency
and national goals.

Although efforts to transform agencies by improving their management and
performance are under way, more remains to be done to ensure that the



Page 45                                    GAO-03-95 A Governmentwide Perspective
A Governmentwide Perspective




government has the capacity to deliver on its promises and meet current
and emerging needs. Decisive action and sustained attention will be
necessary to transform the federal government, maximize its performance,
and ensure accountability.




Page 46                                GAO-03-95 A Governmentwide Perspective
Performance and Accountability and High-
Risk Series

              Major Management Challenges and Program Risks: A Governmentwide
              Perspective. GAO-03-95.

              Major Management Challenges and Program Risks: Department of
              Agriculture. GAO-03-96.

              Major Management Challenges and Program Risks: Department of
              Commerce. GAO-03-97.

              Major Management Challenges and Program Risks: Department of
              Defense. GAO-03-98.

              Major Management Challenges and Program Risks: Department of
              Education. GAO-03-99.

              Major Management Challenges and Program Risks: Department of
              Energy. GAO-03-100.

              Major Management Challenges and Program Risks: Department of
              Health and Human Services. GAO-03-101.

              Major Management Challenges and Program Risks: Department of
              Homeland Security. GAO-03-102.

              Major Management Challenges and Program Risks: Department of
              Housing and Urban Development. GAO-03-103.

              Major Management Challenges and Program Risks: Department of the
              Interior. GAO-03-104.

              Major Management Challenges and Program Risks: Department of
              Justice. GAO-03-105.

              Major Management Challenges and Program Risks: Department of
              Labor. GAO-03-106.

              Major Management Challenges and Program Risks: Department of State.
              GAO-03-107.

              Major Management Challenges and Program Risks: Department of
              Transportation. GAO-03-108.




              Page 47                             GAO-03-95 A Governmentwide Perspective
Performance and Accountability and High-
Risk Series




Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of
Veterans Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental
Protection Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National
Aeronautics and Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.

High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the
Federal Government and the Nation’s Critical Infrastructures.
GAO-03-121.

High-Risk Series: Federal Real Property. GAO-03-122.




Page 48                                    GAO-03-95 A Governmentwide Perspective
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