Major Management Challenges and Risks: An Executive Summary

Published by the Government Accountability Office on 1999-02-01.

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

                United States General Accounting Office

GAO             Performance and Accountability and
                High-Risk Series

February 1999
                Major Management
                Challenges and Risks
                An Executive Summary

GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States

      February 1999

      Members of the 106th Congress

      This report outlines actions needed to improve the performance and
      accountability of, and manage the risks relating to, our national
      government. It summarizes the findings of a new set of reports,
      entitled Performance and Accountability Series: Major Management
      Challenges and Program Risks, we issued last month. This document
      also incorporates a summary of our latest High-Risk Series update
      that was also issued last month. This latter series includes
      government operations that GAO has designated “high risk” because
      of their greater vulnerabilities to waste, fraud, abuse, and

      GAO has been working with the Congress and the executive branch to
      promote effective implementation of much needed governmentwide
      management reforms. They include strengthening financial
      management, improving information technology practices, and
      producing a more results-oriented government. Important activities
      have begun but more effort is needed to produce tangible, lasting
      improvements and instill a sharper focus on performance and
      accountability. Greater attention also is needed on human capital
      strategies to support meaningful and sustainable management
      reforms across government.

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

      Special recognition is due to the Members of Congress who
      requested the initial Performance and Accountibility Series. These
include the Majority Leader of the House of Representatives, Dick
Armey; the Chairman of the House Government Reform Committee,
Dan Burton; the Chairman of the House Budget Committee, John
Kasich; the Chairman of the Senate Committee on Governmental
Affairs, Fred Thompson; the Chairman of the Senate Budget
Committee, Pete Domenici; and Senator Larry Craig. The series was
subsequently cosponsored by the Ranking Minority Member of the
House Government Reform Committee, Henry A. Waxman; the
Ranking Minority Member, Subcommittee on Government
Management, Information and Technology, House Government
Reform Committee, Dennis Kucinich; Senator Joseph I. Lieberman;
and Senator Carl Levin.

Special recognition is also due to the Senate Governmental Affairs
and the House Government Reform Committees for their
long-standing commitment to and support of our High-Risk Series.
We remain committed to identifying and reporting on high-risk areas
to facilitate oversight by the Congress and to encourage needed
actions by applicable executive branch agencies.

The GAO officials listed at the end of this report can provide
additional information. This report is being sent to each Member of
Congress and heads of major departments and agencies.

David M. Walker
Comptroller General
of the United States

               Page 2            GAO/OCG-99-ES An Executive Summary
Page 3   GAO/OCG-99-ES An Executive Summary

Introduction                                                 6

Adopting an                                                  9
Effective Results
Improving the                                               16
Use of
Technology to
Achieve Results
Strengthening                                               21
Management for
Building,                                                   26
Maintaining, and
Marshaling the
Human Capital
Needed to
Achieve Results
1999 High-Risk                                              29
Key GAO Officials                                           30

                    Page 4   GAO/OCG-99-ES An Executive Summary
Page 5   GAO/OCG-99-ES An Executive Summary

                  As we approach the 21st century, American citizens
                  are increasingly demanding improved government
                  services and better stewardship of public resources.
                  Responding effectively to these demands will require
                  innovative management approaches and the use of
                  new types of information to guide decisions. The
                  federal government is adopting the principles of
                  performance-based management in an effort to
                  address these demands.

                   Performance-based management seeks to

                     • shift the focus of government performance and
                       accountability away from a preoccupation with
                       activities--such as grants or inspections.

                     • focus on the results or outcomes of those activities--
                       such as real gains in safety, health, and living

                     • systematically integrate thinking about the results
                       the government intends to achieve, giving
                       consideration to

                            •   organizational structures,
                            •   program and service delivery strategies,
                            •   the use of technology, and
                            •   human capital strategies and practices.

                  The Congress has constructed a legislative foundation
Performance-      to create more focus on performance-based
Based Statutory   management and decision-making. Under this
Framework         framework, new information will be generated to
                  provide deeper understanding of federal performance
                  and management challenges and to help target
                  program areas needing attention.

                  Page 6                GAO/OCG-99-ES An Executive Summary

Figure 1: Performance-Based Framework

        Area                     Statute                         New information
  Results           • Government Performance and             • Agencies' missions and
   orientation         Results Act of 1993                     strategic priorities
                       (Results Act)                         • Results-oriented goals
                                                             • Performance data

  Financial         • Chief Financial Officers Act           • Audited annual financial
   management          of 1990                                  statements
                                                             • Timely and reliable
                    • Government Management                     information on
                       Reform Act of 1994                       results of operations
                                                             • Costs of achieving results
                    • Federal Financial Management
                       Improvement Act of 1996

  Information       • Paperwork Reduction Act                • Relationship of investments
    technology         of 1995                                 to the achievement of
                    • Clinger-Cohen Act of 1996

                          Page 7                     GAO/OCG-99-ES An Executive Summary

                  The government faces a number of major challenges
Improving         to improving performance and strengthening
Performance and   accountability.

                                    The Major Challenges

                     • Adopting an effective results orientation
                     • Improving the use of information technology
                        to achieve results
                     • Strengthening financial management to better
                        support decision-making and accountability
                     • Building, maintaining, and marshaling
                        the human capital needed to achieve results


                  Part of this challenge is giving adequate attention to
                  resolving high-risk problems. Since 1990, we have
                  identified government operations that are “high risk”
                  because of their greater vulnerabilities to waste,
                  fraud, abuse, and mismanagement. This effort brought
                  a much needed focus on problems that are costing the
                  government billions of dollars. To help, we have made
                  hundreds of recommendations to improve these
                  high-risk operations (GAO/HR-99-1). Overall, agencies
                  are making progress in trying to correct these
                  problems and the Congress has acted through
                  hearings and legislation. Sustained attention is needed
                  to make further headway. High-risk problems are
                  highlighted throughout this report and listed on page

                  Page 8               GAO/OCG-99-ES An Executive Summary
Adopting an Effective Results

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

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

                 Page 9           GAO/OCG-99-ES An Executive Summary
                             Adopting an Effective Results

The Social Security Administration (SSA)
 • SSA has emphasized improving processes for quickly determining applicants'
    eligibility for the Supplemental Security Income (SSI) program and moving the
    eligible claimants onto the disability rolls. However, SSA has not put emphasis on
    the equally important result of helping individuals return to work and move off
    the disability rolls.

    Also, long-standing problems such as increasing overpayments and the inability to
    recover outstanding debt, contribute to SSI's status as a high-risk area. During
    fiscal year 1998, for example, current and former recipients owed SSA more than
    $3.3 billion, including $1.2 billion in newly detected overpayments for the year.
    SSA plans to improve SSI's overall payment accuracy. (GAO/OCG-99-20)

The Internal Revenue Service (IRS)
 • IRS' traditional performance goals and measures, such as amounts collected from
    taxpayers, had created incentives to maximize enforcement results, but provided
    insufficient incentives to ensure that taxpayers received fair treatment. IRS plans
    to emphasize identifying, as promptly as possible, taxpayers who may have
    compliance problems and then addressing the particular problems of those
    taxpayers. This customer-oriented approach is intended to help taxpayers and IRS
    by minimizing the need for subsequent enforcement actions. (GAO/OCG-99-14)

                             Page 10              GAO/OCG-99-ES An Executive Summary
                               Adopting an Effective Results

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

  The Department of Energy (DOE)
  • DOE's organizational structure has neither clear lines of authority nor clear
      definitions of roles and responsibilities. Contractors receive policy guidance from
      program offices, but are managed by field offices that are not accountable to the
      program offices. While DOE had nearly $16.2 billion in obligations to contracts in
      fiscal year 1997, its contract management practices--including noncompetitive
      awards and lax oversight of costs and activities--continue to be high risk. DOE
      has a framework in place for contract reform but implementation problems
      remain. (GAO/OCG-99-6)

  The Department of Defense (DOD)
   • The end of the cold war provided DOD with the opportunity to reduce the size and
      cost of its infrastructure and thereby make resources available for other priorities,
      such as force modernization and military readiness. We have identified areas in
      which DOD's infrastructure can be eliminated, streamlined, or reengineered.
      Improved infrastructure planning could help DOD components and programs to
      develop results-oriented goals and performance measures that link to and support
      DOD-wide goals. DOD is seeking ways to address mission support inefficiencies
      such as through consolidations and public-private partnerships. (GAO/OCG-99-4)

                               Virtually all of the results that the government strives
Rationalizing                  to achieve require the concerted and coordinated
Crosscutting                   efforts of two or more agencies. However, mission
Efforts                        fragmentation and program overlap are widespread
                               and programs are not always well-coordinated. This
                               wastes scarce funds, frustrates taxpayers, and limits

                               Page 11               GAO/OCG-99-ES An Executive Summary
                              Adopting an Effective Results

                              overall program effectiveness. Table 1 illustrates this
                              problem, found in over 30 programs across
                              government and covering nearly a dozen federal

Table 1: Areas of Fragmentation and Overlap
Mission areas                             Programs
Agriculture                                  • Food safety

Commerce and housing credit                  • Financial institution regulation

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

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

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

General government                           • Federal statistical agencies

Health                                       • Long-term care
                                             • Substance abuse
                                             • Nuclear health and safety
                                             • Telemedicine
Income security                              • Child care
                                             • Welfare and related programs
                                             • Youth programs

International affairs                        • Educational programs
                                             • Policy formulation and implementation

                              Page 12             GAO/OCG-99-ES An Executive Summary
                                Adopting an Effective Results

Mission areas                                    Programs
Law enforcement                                  • Border inspections
                                                 • Drug control
                                                 • Investigative authority
                                                 • Drug trafficking
                                                 • Combating terrorism

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

   Improving Food Safety and Quality
     • The fragmented federal approach to ensure the safety and quality of the nation's
       food--at a cost of over $1 billion a year--is inefficient and hinders the government's
       efforts to effectively protect consumers. Estimates of foodborne illness range
       widely, from 6.5 million to 81 million cases annually, and it is estimated that these
       illnesses cause between 500 and 9,100 related deaths each year. The current
       system to ensure food safety suffers from inconsistent oversight, poor coordination,
       and inefficient allocation of resources. As many as 12 different federal agencies
       administer over 35 different laws overseeing food safety. (GAO/OCG-99-2)

   Combating Terrorism
    • Better coordination is needed to improve the effectiveness of efforts to safeguard
      the nation from terrorist attacks. Over 40 agencies, bureaus, and offices--at a cost
      of nearly $7 billion for unclassified programs during fiscal year 1997--implement
      numerous programs designed to prevent and deter terrorism, respond to terrorist
      threats and incidents, and manage the consequences of terrorist acts.
      Coordinating these programs will entail a substantial effort. (GAO/OCG-99-1)

                                Page 13               GAO/OCG-99-ES An Executive Summary
                             Adopting an Effective Results

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

 The Health Care Financing Administration (HCFA)
  • HCFA, as required by statute, has delegated to states the responsibility to inspect
     nursing homes and certify that they meet federal standards. We have identified
     problems in the enforcement of these standards. In analyzing recent inspection
     and complaint information in California, we found that nearly one in three
     nursing homes was cited by state inspectors for providing care that created serious
     or potentially life-threatening problems. Although state inspectors identified
     serious deficiencies, HCFA's policies did not ensure that these deficiencies were
     corrected. HCFA is developing plans to improve state inspection practices, revise
     oversight of state inspections, and strengthen actions against poorly performing
     homes. (GAO/OCG-99-7)

                             Page 14               GAO/OCG-99-ES An Executive Summary
                               Adopting an Effective Results

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

  The Environmental Protection Agency (EPA)
   • EPA has found that the wealth of environmental data EPA and states collect are
      often difficult to compile in a meaningful way. For example, inconsistencies in
      water quality assessments, due to states using methodologies that differ, make it
      difficult for EPA to aggregate the data. Using information from these various
      sources presents a challenge when attempting to conclusively determine whether
      the quality of rivers, lakes, and streams is getting better or worse over time.
      Absent this information, it has been difficult for EPA to set priorities, evaluate the
      success of its programs and activities, and report on its accomplishments in a
      credible and informed way. (GAO/OCG-99-17)

  The Health Care Financing Administration
   • HCFA had not developed its own process for estimating the national error rate for
      its over $181 billion Medicare fee-for-service payment program. For fiscal year
      1997, the Department of Health and Human Service's Inspector General, in its
      CFO financial audit, estimated that about 11 percent of all such payments for
      claims, about $20 billion, did not comply with Medicare laws and regulations.
      HCFA has now adopted the reduction of the error rate as a performance goal
      under the Results Act. (GAO/OCG-99-7)

                               Page 15               GAO/OCG-99-ES An Executive Summary
Improving the Use of Information
Technology to Achieve Results

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

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

                   Page 16           GAO/OCG-99-ES An Executive Summary
                               Improving the Use of Information
                               Technology to Achieve Results

Figure 2: Year 2000 Progress

   Tier 1: Agencies Demonstrating Insufficient Evidence of Progress

            • Defense         • HHS             • Transportation
            • Energy          • State           • AID

   Tier 2: Agencies Showing Evidence of Progress But About Which
            OMB Had Concerns

            • Agriculture     • Education       • Labor           • OPM
            • Commerce        • Justice         • Treasury

   Tier 3: Agencies Making Satisfactory Progress

            • HUD             • EPA             • NASA            • SBA
            • Interior        • FEMA            • NSF             • SSA
            • VA              • GSA             • NRC

   Source: November 1998 OMB report.

                               To help agencies mitigate Year 2000 risks, we
                               produced guides on enterprise readiness, business
                               continuity and contingency planning, and testing. We
                               also issued over 70 reports and made over 100
                               recommendations to improve the readiness of the
                               government as a whole and of a wide range of
                               individual agencies. The scope of this problem
                               extends beyond federal operations—it spans all
                               spectrums of our national economy as well as
                               globally. Accordingly, we recommended that the
                               President’s Council on Year 2000 Conversion develop
                               a comprehensive picture of the nation’s readiness by

                               Page 17            GAO/OCG-99-ES An Executive Summary
                    Improving the Use of Information
                    Technology to Achieve Results

                    key economic sector—including risks posed by
                    international links. The Council has adopted a
                    sector-based focus to increase awareness and has
                    begun developing a national assessment.

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

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

                    Agencies are making some strides in improving
Ensuring That       information technology investment strategies, but
Investments         current practices fall short of statutory expectations.
Improve Services

                    Page 18            GAO/OCG-99-ES An Executive Summary
                            Improving the Use of Information
                            Technology to Achieve Results

Figure 3: Key Information
Technology Challenges
                                      Information Technology Challenges

                                • Better justify how costly investments will improve

                                • Design architectures before proceeding with
                                  massive system modernization efforts.

                                • Fix inadequate software development and
                                  acquisition practices.

                                • Build effective chief information officer leadership
                                  and organizations.

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

                            Page 19             GAO/OCG-99-ES An Executive Summary
                            Improving the Use of Information
                            Technology to Achieve Results

Air Traffic Control Modernization
  • FAA's $42 billion air traffic control modernization program has experienced cost
    overruns, schedule delays, and performance shortfalls. In response to our
    recommendations, FAA has initiated efforts to improve software acquisition
    practices, complete an architecture, and place a Chief Information Officer with
    sufficient authority. However, FAA's reforms are not yet complete and several
    major projects continue to face challenges and risks. (GAO/OCG-99-13)

Tax Systems Modernization
 • The IRS has spent over $3 billion attempting to modernize its outdated, paper-
    intensive approach to tax return processing. We identified serious weaknesses,
    including the need for IRS to institute better practices for making investment
    decisions and using sound system development methods. IRS is working to
    implement our recommendations to build the necessary capability before it begins
    modernizing tax processing systems. (GAO/OCG-99-14)

National Weather Service (NWS) Modernization
 • To improve forecasts and provide better prediction of severe weather and flooding,
    NWS has been working on an over $4 billion program to upgrade weather
    observing systems. It is nearing completion, but we are concerned about NWS'
    ability to deliver on the final and most critical modernization piece, which has
    been delayed and become more expensive due to design and management problems
    such as the lack of a complete architecture. (GAO/OCG-99-3)

Department of Defense Systems Modernization Efforts
 • DOD has an $18 billion investment to replace almost 2,000 inefficient, duplicative
   systems with more cost-effective systems. This effort--while necessary--is plagued
   with poor management controls and too little assurance that investments will
   achieve the department's technology objectives. (GAO/OCG-99-4)

                            Page 20              GAO/OCG-99-ES An Executive Summary
Strengthening Financial Management
for Decision-Making and Accountability

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

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

             Page 21           GAO/OCG-99-ES An Executive Summary
                                Strengthening Financial Management
                                for Decision-Making and Accountability

Figure 4: FY 1997 Financial Statement Audit Opinions

   Unqualified audit opinions were received by:

       • Education               • Labor               • GSA               • SBA
       • Energy                  • State               • NASA              • SSA
       • Interior                • EPA                 • NRC

   Qualified audit opinions were received by:

       • HHS                     • HUD                 • VA                 • NSF

   Disclaimers of audit opinion were received by:

       • Agriculture             • Defense             • Transportation
       • Commerce                • Justice             • AID

   Other CFO agencies:

      • Treasury received an unqualified opinion on its administrative financial statements and
        a qualified opinion on its custodial schedules.

      • FEMA received an unqualified opinion on a financial statement for a part of the
        agency. Financial statements were not prepared for the whole agency.

      • OPM's Retirement Fund and Life Insurance Fund received unqualified opinions;
        revolving funds, health benefits, and salaries and expenses received disclaimers.

                                Page 22                GAO/OCG-99-ES An Executive Summary
Strengthening Financial Management
for Decision-Making and Accountability

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

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

Page 23            GAO/OCG-99-ES An Executive Summary
                             Strengthening Financial Management
                             for Decision-Making and Accountability

The Department of Defense
 • DOD, with an annual budget exceeding $250 billion and hundreds of billions of
    dollars in equipment and inventory, represents a large percentage of the
    government's assets, liabilities, and net costs. Yet, none of the military services or
    the department as a whole has yet been able to produce auditable financial
    statements. Billions of dollars in property, equipment, and disbursements have
    not been properly accounted for and liabilities have not been adequately estimated
    for activities such as environmental cleanup and disposal of weapon systems.
    Serious problems remain, although we have noticed increased attention to rectify
    this situation. (GAO/OCG-99-4)

The Forest Service
 • Audits of the Forest Service have found serious weaknesses, including pervasive
    errors in data supporting land, buildings, and equipment. While the Forest
    Service has progressed in addressing these deficiencies, much work remains.

The Federal Aviation Administration
 • Since 1994, the Department of Transportation Inspector General has been unable
    to determine whether FAA's financial statements are reliable. For example, in
    fiscal year 1997, the IG could not verify property, plant, and equipment reported
    at about $12 billion. FAA has improvements planned and underway but not yet
    completed. (GAO/OCG-99-13)

The Internal Revenue Service
 • IRS, which collects most of the government's revenue (over $1.7 trillion in 1998),
    for the first time obtained an unqualified opinion on its financial statements for
    fiscal year 1997--after five previous attempts did not yield auditable statements.
    This outcome was achieved, however, through material audit adjustments, and
    serious internal control weaknesses over refunds, receipts, and unpaid tax
    assessments remain. (GAO/OCG-99-14)

                             Page 24               GAO/OCG-99-ES An Executive Summary
Strengthening Financial Management
for Decision-Making and Accountability

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

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

Page 25            GAO/OCG-99-ES An Executive Summary
Building, Maintaining, and Marshaling
the Human Capital Needed to Achieve

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

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

  The Department of Housing and Urban Development (HUD)
   • HUD's continuing difficulties in planning for and effectively using its human
      capital are among the most pressing challenges the agency faces. These
      weaknesses are particularly troubling because, in the past, not having enough
      staff with the necessary skills has limited HUD's ability to perform essential
      functions, such as monitoring multibillion dollar federal programs.

      In 1994, we designated HUD's programs as high risk because an insufficient mix
      of staff with the proper skills was one of the four serious, long-standing
      deficiencies that placed HUD's programs at risk. Although HUD continues to
      make credible progress in overhauling its operations to correct its management
      deficiencies, we continue to believe that these deficiencies, taken together, place
      the integrity and accountability of HUD's programs at high risk. (GAO/OCG-99-8)

                              Page 26              GAO/OCG-99-ES An Executive Summary
                               Building, Maintaining, and Marshaling
                               the Human Capital Needed to Achieve

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

  The Department of Energy
   • The lack of staff with the requisite technical skills has limited the effectiveness of
      DOE's self-regulation and contributed to the environmental problems at many of
      DOE's facilities. The Defense Nuclear Facilities Safety Board has repeatedly
      stated in its annual reports to the Congress that the lack of appropriate technical
      expertise in DOE is a significant problem. (GAO/OCG-99-6)

  The Department of Defense
   • DOD is another department that has experienced difficulties in finding and
      retaining staff with technical training. To achieve the wide-ranging reforms
      necessary to address its serious, long-standing financial management deficiencies,
      DOD must upgrade the skills of its financial personnel. (GAO/OCG-99-4)

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

                               Page 27               GAO/OCG-99-ES An Executive Summary
                            Building, Maintaining, and Marshaling
                            the Human Capital Needed to Achieve

                            running the risk that the changes will be more
                            difficult and protracted than necessary.

The Nuclear Regulatory Commission (NRC)
  • In 1997, the NRC's Office of Inspector General (IG) surveyed NRC staff to obtain
    their views on the agency's safety culture. In its June 1998 report, the IG noted
    that the staff had a strong commitment to protecting public health and safety but
    expressed high levels of uncertainty and confusion about the new directions in
    regulatory practices and challenges facing the agency. Employees who are
    confused about the direction their agency is taking will not be able to effectively
    focus on results or make as full a contribution as they might otherwise. As the IG
    concluded, improved management leadership and communication are needed to
    effectively involve employees in achieving results. (GAO/OCG-99-19)

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

                            Page 28               GAO/OCG-99-ES An Executive Summary
1999 High-Risk List

               1999 High-Risk Areas and The Year
                They Were Designated High Risk

   Addressing Urgent Year 2000 Computing Challenge             1997

   Resolving Serious Information Security Weaknesses           1997

   Ensuring Major Technology Investments Improve Services
      • Air Traffic Control Modernization                      1995
      • Tax Systems Modernization                              1995
      • National Weather Service Modernization                 1995
      • DOD Systems Development and Modernization Efforts      1995

   Providing Basic Financial Accountability
      • DOD Financial Management                               1995
      • Forest Service Financial Management                    1999
      • FAA Financial Management                               1999
      • IRS Financial Management                               1995
      • IRS Receivables                                        1990

   Reducing Inordinate Program Management Risks
      • Medicare                                               1990
      • Supplemental Security Income                           1997
      • IRS Tax Filing Fraud                                   1995
      • DOD Infrastructure Management                          1997
      • HUD Programs                                           1994
      • Student Financial Aid Programs                         1990
      • Farm Loan Programs                                     1990
      • Asset Forfeiture Programs                              1990
      • The 2000 Census                                        1997

   Managing Large Procurement Operations More Efficiently
      • DOD Inventory Management                               1990
      • DOD Weapon Systems Acquisition                         1990
      • DOD Contract Management                                1992
      • Department of Energy Contract Management               1990
      • Superfund Contract Management                          1990
      • NASA Contract Management                               1990

                        Page 29           GAO/OCG-99-ES An Executive Summary
Key GAO Officials

Gene L. Dodaro                        • An Executive Summary (GAO/OCG-99-ES)
Assistant Comptroller General         • A Governmentwide Perspective (GAO/OCG-99-1)
Accounting and Information            • High-Risk Series: An Update (GAO/HR-99-1)
  Management Division
(202) 512-2600

Keith O. Fultz                        • Department of Agriculture (GAO/OCG-99-2)
Assistant Comptroller General         • Department of Energy (GAO/OCG-99-6)
Resources, Community and              • Department of Housing and Urban Development
  Economic Development Division           (GAO/OCG-99-8)
(202) 512-3200                        • Department of the Interior (GAO/OCG-99-9)
fultzk.rced@gao.gov                   • Department of Transportation (GAO/OCG-99-13)
                                      • Environmental Protection Agency
                                      • Nuclear Regulatory Commission (GAO/OCG-99-19)

Richard L. Hembra                     • Department of Education (GAO/OCG-99-5)
Assistant Comptroller General         • Department of Health and Human Services
Health, Education and Human                (GAO/OCG-99-7)
  Services Division                   • Department of Labor (GAO/OCG-99-11)
(202) 512-6806                        • Department of Veterans Affairs (GAO/OCG-99-15)
hembrar.hehs@gao.gov                  • Social Security Administration (GAO/OCG-99-20)

Henry L. Hinton, Jr.                  • Department of Defense (GAO/OCG-99-4)
Assistant Comptroller General         • Department of State (GAO/OCG-99-12)
National Security and                 • Agency for International Development
  International Affairs Division          (GAO/OCG-99-16)
(202) 512-4300                        • National Aeronautics and Space Administration
hintonh.nsiad@gao.gov                     (GAO/OCG-99-18)

Nancy R. Kingsbury                    •   An Executive Summary (GAO/OCG-99-ES)
Acting Assistant Comptroller          •   A Governmentwide Perspective (GAO/OCG-99-1)
  General                             •   Department of Commerce (GAO/OCG-99-3)
General Government Division           •   Department of Justice (GAO/OCG-99-10)
(202) 512-2700                        •   Department of the Treasury (GAO/OCG-99-14)
kingsburyn.ggd@gao.gov                •   U.S. Postal Service (GAO/OCG-99-21)

                                Page 30             GAO/OCG-99-ES An Executive Summary
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