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Testimony:

Before the Committee on Appropriations, House of Representatives:

United States Government Accountability Office:

GAO:

For Release on Delivery Expected at 2:00 p.m. EDT:

Monday, May 23, 2005:

Fiscal Year 2006 Budget Request:

U.S. Government Accountability Office:

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

GAO-05-447T:

Mr. Chairman and Members of the Committee:

I am pleased to appear before you today in support of the fiscal year 
2006 budget request for the U.S. Government Accountability Office 
(GAO). This request is necessary to help us continue to support the 
Congress in meeting its constitutional responsibilities and to help 
improve the performance and ensure the accountability of the federal 
government for the benefit of the American people.

We are grateful to the Congress for providing us with the support and 
resources that have helped us in our quest to be a world-class 
professional services organization. I am proud of the work we 
accomplish as we continue to provide our congressional clients with 
professional, objective, fact-based, non-partisan, non-ideological, 
fair, balanced, and reliable information in a timely manner regarding 
how well government programs and policies are working and, when needed, 
recommendations to make government work better. We believe that 
investing in GAO produces a sound return and results in substantial 
benefits to the Congress and the American people. In the years ahead, 
our support to the Congress will likely prove even more critical 
because of the pressures created by our nation's current and projected 
budget deficit and long-term fiscal imbalance. These fiscal pressures 
will require the Congress to make tough choices regarding what the 
government should do, how it will do its work, who will help carry out 
its work in the future, and how government will be financed in the 
future.

We summarized the larger challenges facing the federal government in 
our recently issued 21st Century Challenges report.[Footnote 1] In this 
report, we emphasize the critical need to bring the federal 
government's programs and policies into line with 21st century 
realities. Continuing on our current unsustainable fiscal path will 
gradually erode, if not suddenly damage, our economy, our standard of 
living, and ultimately our national security. We, therefore, must 
fundamentally reexamine major spending and tax policies and priorities 
in an effort to recapture our fiscal flexibility and ensure that our 
programs and priorities respond to emerging security, social, economic, 
and environmental changes and challenges in the years ahead. I believe 
that GAO can be of invaluable assistance in helping the Congress 
address these challenges.

My testimony today will focus on our (1) performance and results with 
the funding you provided us in fiscal year 2004, (2) streamlining and 
management improvement efforts under way, and (3) budget request for 
fiscal year 2006 to support the Congress and serve the American people.

Summary:

In summary:

* The funding we received in fiscal year 2004 allowed us to audit and 
evaluate a number of major topics of concern to the nation and, in some 
cases, the world. For example, we reported on the reconstruction 
efforts in Afghanistan and Iraq; important concerns about pay and other 
support for the National Guard and Reserve forces; numerous topics 
related to homeland and national security, including improving 
operations of the Departments of Homeland Security and Defense; curbing 
the use of counterfeit identity documents; and making the nation's 
transportation system safer from potential acts of terrorism. We also 
continued to raise concerns about the nation's long-term fiscal 
imbalance, summarized key health care statistics and published a 
proposed framework for related reforms, and provided staff support for 
the 9/11 Commission. In fiscal year 2004, we exceeded or equaled our 
all-time record for six of our seven key performance indicators while 
continuing to improve our client and employee feedback results. I am 
especially pleased to report that we documented $44 billion in 
financial benefits--a return of $95 for every dollar spent, or $13.7 
million per employee. In fiscal year 2004, we also recorded 1,197 other 
benefits that could not be measured in dollar terms including benefits 
that helped to change laws, to improve services to the public and to 
promote sound agency and governmentwide management. Also, experts from 
our staff testified at 217 congressional hearings covering a wide range 
of important public policy issues during fiscal year 2004.

* Shortly after I was appointed Comptroller General, I determined that 
our agency would undertake a transformation effort. This effort is 
consistent with the elements of House Report (H.Rpt.) 108-577 that 
focus on improving the efficiency and effectiveness of operations at 
legislative branch agencies. Our transformation effort has enabled us 
to eliminate a management layer, streamline our organization, reduce 
our overall footprint, and centralize many of our support functions. 
Currently, over 50 percent of our support staff are contractors, 
allowing us to devote more of our staff resources to our mission work. 
We recently surveyed managers of agency support operations and 
identified additional activities that potentially could be filled 
through alternative sourcing strategies. In fiscal years 2005 and 2006, 
we will further assess the feasibility of using alternative sourcing 
for these activities. I would be pleased to brief you at a later date 
on our preliminary analyses.

* In developing our fiscal year 2006 budget, we have taken into 
consideration the overall federal budget constraints and the 
committee's desire to lead by example. Accordingly, we are requesting 
$493.5 million which represents a modest increase of 4 percent over 
fiscal year 2005. This increase is primarily for mandatory pay costs 
and price level changes. This budget request will allow us to continue 
to maximize productivity, operate more effectively and efficiently, and 
maintain the progress we have made in technology and other areas, but 
it does not allow us sufficient funding to support a staffing level of 
3,269--the staffing level that we requested in previous years. Even as 
we are tempering our budget request, it needs to be acknowledged that 
there are increasing demands on GAO's resources. For example, the 
number of congressional mandates for GAO studies, such as GAO reviews 
of executive branch and legislative branch operations, has increased 
more than 15 percent since fiscal year 2000. While we have reduced our 
planned staffing level for fiscal years 2005 and 2006 in order to keep 
our request modest, we believe that the staffing level we requested in 
previous years is a more optimal staffing level for GAO and would allow 
us to better meet the needs of the Congress and provide the return on 
investment that both the Congress and the American people expect. We 
will be seeking your commitment and support to provide the funding 
needed to rebuild our staffing levels over the next few fiscal years, 
especially as we approach a point where we may be able to express an 
opinion on the federal government's consolidated financial statements.

Fiscal Year 2004 Performance and Results:

In fiscal year 2004, much of our work examined the effectiveness of the 
federal government's day-to-day operations, such as administering 
benefits to the elderly and other needy populations, providing grants 
and loans to college students, and collecting taxes from businesses and 
individuals. Yet, we remained alert to emerging problems that demanded 
the attention of lawmakers and the public. For example, we continued to 
closely monitor developments affecting the Iraq war, defense 
transformation, homeland security, social security, health care, the 
U.S. Postal Service, civil service reform, and the nation's private 
pension system. We also informed policymakers about long-term 
challenges facing the nation, such as the federal government's 
financial condition and fiscal outlook, new security threats in the 
post-cold war world, the aging of America and its impact on our health 
care and retirement systems, changing economic conditions, and the 
increasing demands on our infrastructure--from highways to water 
systems. We provided congressional committees, members, and staff with 
up-to-date information in the form of reports, recommendations, 
testimonies, briefings, and expert comments on bills, laws, and other 
legal matters affecting the federal government. We performed this work 
in accordance with the GAO Strategic Plan for serving the Congress, 
consistent with our professional standards, and guided by our core 
values. See appendix I for our Strategic Plan Framework for serving the 
Congress and the nation.

Outcomes of Our Work:

In fiscal year 2004, our work generated $44 billion in financial 
benefits, primarily from recommendations we made to agencies and the 
Congress (see fig. 1). Of this amount, about $27 billion resulted from 
changes to laws or regulations, $11 billion resulted from agency 
actions based on our recommendations to improve services to the public, 
and $6 billion resulted from improvements to core business processes, 
both governmentwide and at specific agencies, resulting from our work 
(see fig. 2). Our findings and recommendations produce measurable 
financial benefits for the federal government when the Congress or 
agencies act on them. The funds that are saved can then be made 
available to reduce government expenditures or be reallocated to other 
areas. The monetary effect realized can be the result of changes in:

* business operations and activities;

* the structure of federal programs; or:

* entitlements, taxes, or user fees.

For example, financial benefits could result if the Congress were able 
to reduce its annual cost of operating a federal program or lessen the 
cost of a multiyear program or entitlement. Financial benefits could 
also result from increases in federal revenues--due to changes in laws, 
user fees, or sales--that our work helped to produce. Financial 
benefits included in our performance measures are net benefits--that 
is, estimates of financial benefits that have been reduced by the costs 
associated with taking the action that we recommended. Figure 3 lists 
several of our major financial benefits for fiscal year 2004 and 
briefly describes some of our work contributing to financial benefits.

Figure 1: GAO's Financial Benefits:

[See PDF for image] - graphic text:

Bar graph with 7 items.

2000 Actual: $23.2 billion; 
2001 Actual: $26.4 billion; 
2002 Actual: $37.7 billion; 
2003 Actual: $35.4 billion; 
2004 Target: $35.0 billion; 
2004 Actual: $44.0 billion.

Source: GAO.

[End of figure]

Figure 2: Types of Financial Benefits Recorded in Fiscal Year 2004 from 
Our Work:

[See PDF for image] - graphic text:

Pie graph with 3 items.

Category: Agencies acted on GAO information to improve services to the 
public; 
Financial Benefits: $11.1 billion (25.2%).

Category: Information GAO provided to the Congress resulted in 
statutory or regulatory changes; 
Financial Benefits: $26.7 billion (60.7%). 

Category: Core business processes improved at agencies and 
governmentwide management reforms advanced by GAOs work; 
Financial Benefits: $6.2 billion (14.1%). 

Total Financial Benefits: $44 billion.

Source: GAO.

[End of figure]

Figure 3: GAO's Selected Major Financial Benefits Reported in Fiscal 
Year 2004:

Description: Eliminated Medicaid's upper payment limit loophole. We 
identified a weakness in Medicaid's upper payment limit methodology 
that allowed states to make excessive payments to local, government- 
owned nursing facilities and then have the facilities return the 
payments to the states, creating the illusion that they had made large 
Medicaid payments in order to generate federal matching payments. 
Closing the loophole prevented the federal government from making 
significant federal matching payments to states above those intended by 
Medicaid. The amount shown represents the net present value of 
estimated financial benefits for fiscal years 2005 and 2006--the final 
years for which benefits can be claimed; 
Amount: $10,073.

Description: Updated the Consumer Price Index (CPI). We recommended 
that the Bureau of Labor Statistics periodically update the expenditure 
weights of its market basket of goods and services used to calculate 
the CPI to make it more timely and representative of consumer 
expenditures. The bureau agreed to do this every 2 years, and the CPI 
for January 2002 reflected the new weights. For federal programs that 
use the CPI as an index for determining benefits, the adjustments have 
resulted in decreased federal expenditures (e.g., reduced Social 
Security cost-of-living adjustments) and increased federal revenues, 
such as reductions in the growth of personal exemptions for federal 
income taxes. The amount shown represents projected financial benefits 
for fiscal year 2007, the fifth and final year for which we will allow 
benefits to be claimed for this action; 
Amount: $5,074.

Description: Reduced costs associated with Medicare spending on home 
health care. We reported in 2002 that Medicare's payments for home 
health care episodes were, on average, about 35 percent higher than the 
estimated costs of home health care provided in the first 6 months of 
2001. Our report helped to ensure that the Congress did not delay or 
eliminate a scheduled reduction in Medicare home health payments that 
had risen rapidly from the late 1980s through the mid-1990s; 
Amount: $4,661.

Description: Reduced the cost of federal housing programs. We 
determined that the Department of Housing and Urban Development (HUD) 
did not have the information it needed to routinely calculate and track 
unexpended balances in its housing and community development programs. 
As a result of our work, the Congress required HUD to prepare quarterly 
reports on unexpended balances for each program, and HUD management 
committed to closely monitor these balances and identify amounts 
available for recapture; 
Amount: $3,638.

Description: Improved the use of the Iraqi Freedom Fund. We reported 
that the military services may not obligate all of the funds 
appropriated for the global war on terrorism in fiscal year 2003 as 
required. Thus, the Congress rescinded $3.49 billion from the September 
2003 balance remaining in the Iraqi Freedom Fund as part of the Fiscal 
Year 2004 Department of Defense Appropriations Act. These funds were 
made available for other purposes; 
Amount: $3,490.

Description: Reduced costs associated with preparing the Department of 
Defense's (DOD) financial statements. We determined that DOD's initial 
plans to obtain a favorable fiscal year 2004 audit opinion were not 
feasible or cost-effective. Therefore, instead of moving $2.2 billion 
to fund the DOD components' efforts focused on a fiscal year 2004 audit 
opinion, the DOD Comptroller shifted $184 million to begin auditability 
assessments and audits, as applicable, as part of a long-term strategy 
to improve DOD's fiscal accountability. The Comptroller's decision not 
to reprogram the funds allowed DOD to use over $2 billion for other 
purposes during the fiscal year; 
Amount: $2,057.

Description: Modified the focus of funding for DOD's V-22 Osprey 
aircraft program. We highlighted for DOD officials--before full 
production of the aircraft was scheduled to begin--numerous risks and 
unknowns that existed in the V-22 Osprey program because of inadequate 
testing and evaluation. We reported these concerns to a blue-ribbon 
investigative panel established after a second fatal crash of the V-22. 
As a result of our work, the blue-ribbon panel recommended that DOD 
temporarily reduce the production of the V-22 to a minimum level to 
free up funds to better address the research and development issues we 
raised. The Congress reduced the procurement funding for purchasing V- 
22 aircraft from the planned 37 to 11 for each of fiscal years 2003 and 
2004. This action allowed some funds to be used for development testing 
of the V-22 aircraft, but the remaining funds were made available for 
other purposes; 
Amount: $1,618.

Description: Eliminated unnecessary military funding from the budget. 
We recommended that requested fiscal year 2004 funds be eliminated for 
three terminated military operations involving Iraq's compliance with 
various United Nations resolutions, Operations Northern and Southern 
Watch and Operation Desert Spring. These funds were made available for 
other purposes; 
Amount: $1,353.

Description: Improved DOD's contracting and acquisition practices. We 
developed a strategic framework--based on the best practices of leading 
private-sector companies--to guide DOD's services contracting reforms 
and recommended changes in DOD's organizational structure and approach 
to acquiring goods and services, such as using cross-functional teams 
and spend analyses to coordinate key purchases and leverage buying 
power for the agency. As a result of work done by us and others, the 
Congress cut DOD's budget in its fiscal year 2003 appropriation in 
anticipation of expected savings. This accomplishment amends a 
financial benefit we claimed in fiscal year 2002 and represents an 
additional benefit in fiscal year 2004--the final year for which a 
benefit can be claimed; 
Amount: $868.

Source: GAO.

[End of table]

Many of the benefits that result from our work cannot be measured in 
dollar terms. During fiscal year 2004, we recorded a total of 1,197 
other benefits (see fig. 4). We documented 74 instances where 
information we provided to the Congress resulted in statutory or 
regulatory changes, 570 instances where federal agencies improved 
services to the public, and 553 instances where agencies improved core 
business processes or governmentwide reforms were advanced (see fig. 
5). These actions spanned the full spectrum of national issues, from 
ensuring the safety of commercial airline passengers to identifying 
abusive tax shelters. See figure 6 for examples of other benefits we 
claimed as accomplishments in fiscal year 2004.

Figure 4: Other Benefits:

[See PDF for image] -- graphic text: 

Bar graph with six items.

2000 Actual: 788; 
2001 Actual: 799; 
2002 Actual: 906; 
2003 Actual: 1,043; 
2004 Target: 900; 
2004 Actual: 1,197;

Source: GAO. 

[End of figure]

Figure 5: Types of Other Benefits Recorded in Fiscal Year 2004 from Our 
Work:

[See PDF for image] - graphic text:

Pie graph with 3 items.

Category: Agencies acted on GAO information to improve services to the 
public; 
Other Benefits: 570 (47.6%). 

Category: Information GAO provided to the Congress resulted in 
statutory or regulatory changes; 
Other Benefits: 74 (6.2%). 

Category: Core business processes improved at agencies and 
governmentwide management reforms advanced by GAOs work; 
Other Benefits: 553 (46.2%).

Other Benefits: Total: 1,197.

Source: GAO. 

[End of figure]

Figure 6: GAO's Selected Other (Nonfinancial) Benefits Reported in 
Fiscal Year 2004:

Other Benefits That Helped to Change Laws: 

Vision 100-Century of Aviation Reauthorization Act, Pub. L. No. 108- 
176; 
We worked closely with the Congress to draft language that was included 
in this law related to curriculum and certification requirements for 
aviation mechanics. The language, which was based on recommendations we 
had made, included a requirement that the Federal Aviation 
Administration update and revise curriculum standards for aviation 
mechanics.

Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 
Pub. L. No. 108-173; 
Congress included six provisions in the law based on analyses and 
recommendations we made. For example, our work found that Medicare's 
method for establishing payment rates for drugs obtained under Medicare 
Part B--which covers doctors' services, outpatient hospital care, and 
some other nonhospital services--was flawed because it based payments 
on nonmarket-driven price estimates. The law addressed these issues by 
lowering payment rates in 2004 for drugs covered by Part B to more 
closely reflect acquisition costs and by changing the method for 
calculating these payment rates in 2005, basing these rates on a market-
driven estimate. Also, partly on the basis of our work, the Congress 
modified the eligibility criteria for small rural hospitals to qualify 
as critical access hospitals under the Medicare program. This change 
provides flexibility for some additional hospitals to consider 
conversion. Because of Medicare's payment methodology, converting to a 
critical access hospital may help bolster a hospital's financial 
condition, allowing it to continue to provide services to patients.

Consolidated Appropriations Act, 2004, Pub. L. No. 108-199; 
We found that HUD could make more accurate eligibility decisions for 
individuals seeking housing assistance if it had access to more timely 
income information available from the Department of Health and Human 
Service's Office of Child Support Enforcement's National Directory of 
New Hires. We recommended that HUD match applicants and current 
recipients of its rental housing assistance programs with the new hires 
database. This law gives HUD access to information from the database 
that will better ensure that only eligible individuals receive housing 
assistance.

National Defense Authorization Act for Fiscal Year 2004, Pub. L. No. 
108-136; 
We testified that most existing federal performance appraisal systems, 
including a vast majority of DOD's systems, are not designed to support 
a meaningful performance-based personnel system, and agencies should 
have to demonstrate that these systems are modern, effective, and valid 
in order to receive any additional performance- based flexibilities. We 
suggested that the Congress establish a governmentwide fund whereby 
agencies could apply for funds to modernize their performance 
management systems and ensure that those systems have adequate 
safeguards to prevent abuse. This law established the Human Capital 
Performance Fund to support all executive agencies as they plan for and 
carry out performance-based rewards for their civilian employees.

Other Benefits That Helped to Improve Services to the Public: 

Helped to Ensure the Safety of Shellfish; 
In July 2001, we reported that the Food and Drug Administration's (FDA) 
oversight of states' shellfish safety programs was not risk-based and 
thus FDA was not using its limited resources wisely. To better ensure 
shellfish safety, we recommended that FDA identify risk factors for 
each of its program elements (growing area classification, processing 
and shipping, and control of harvest). FDA developed a scoring system 
for these factors. FDA shellfish specialists compute a total risk score 
of high, medium, or low that determines the frequency of the evaluation 
of that program element. High-risk elements were to be evaluated every 
year beginning in fiscal year 2003, medium-risk elements every second 
year beginning in fiscal year 2004, and low-risk elements every third 
year beginning in fiscal year 2005.

Identified the Need for Better Criteria to Determine Highly Qualified 
Teachers; 
Our report found that states did not have the information needed to 
determine whether teachers had met criteria to be considered highly 
qualified, as required by the No Child Left Behind Act. Specifically, 
states did not have the information they needed to develop methods to 
evaluate the subject area knowledge of teachers. To help states 
determine the number of highly qualified teachers they have and the 
actions they need to take to meet the requirements for highly qualified 
teachers by the end of the 2005-2006 school year, we recommended that 
the Secretary of Education provide more information to states about 
methods to evaluate subject area knowledge of current teachers. In 
January 2004, Education issued a revised version of the guidance 
"Improving Teacher Quality," which contains more information on how to 
evaluate subject area knowledge to meet the federal definition of a 
highly qualified teacher. Specifically, the guidance includes a new 
section that, among other things, defines evaluation standards and 
factors to consider when developing them.

Encouraged VA to Clarify the Array of Home Health Care Services 
Available to Veterans; 
We recommended that the Department of Veterans Affairs (VA) specify in 
policy whether three home health services-- home-based primary care, 
homemaker/home health aide, and skilled home health care--are to be 
available to all enrolled veterans. In response, VA published an 
information letter on October 1, 2003, clarifying that, according to VA 
policy, the three home health services are to be available for all 
enrolled, eligible veterans in need of such services. The information 
letter was distributed to all facilities through e-mail and is 
available on the VA Web site.

Other Benefits That Helped to Promote Sound Agency and Governmentwide 
Management: 

Identified the Need for More Specific Criteria to Select for Audit Tax 
Returns from Large Corporations; 
We found that the Internal Revenue Service (IRS) is investing more in 
audits of large corporations and getting less in return. To improve the 
audits of tax returns filed by large corporations, we recommended that 
IRS provide more specific objective criteria and procedures to guide 
the selection of large corporate tax returns and classification of tax 
issues with high audit potential across the districts. In March 2002, 
IRS implemented a process for scoring returns in order to fully 
implement a plan to place these returns in the field for audit. IRS has 
begun to identify high- risk returns from corporate and partnership tax 
returns using the Discriminant Analysis System.

Helped to Centralize the Oversight of Major DOD Contracts; 
We examined various DOD initiatives under way that are intended to 
better manage acquisition of services, including drafting policy to 
provide better oversight on purchases of high-dollar value services. In 
response to our work, the Under Secretary of Defense for Acquisition, 
Technology, and Logistics and each of the military departments now have 
a management structure in place and a process for reviewing major 
(i.e., large-dollar or program-critical) service acquisitions for 
adherence to performance and other contracting requirements. The new 
policy establishes a threshold of $500 million or more for selecting 
service purchases for review and approval by the military department 
and possibly DOD headquarters, allowing DOD to adequately plan major 
purchases before committing the government to major expenditures.

Helped to Reduce Fraud, Waste, and Abuse of Agencies' Purchase Cards; 
In a series of reports and testimonies beginning in 2001, we 
highlighted pervasive weaknesses in the government's $16 billion 
purchase card program. Our work identified numerous cases of fraud, 
waste, and abuse at DOD, HUD, and the Federal Aviation Administration. 
These agencies have taken significant steps to implement the hundreds 
of recommendations we made to upgrade their controls. Major improvement 
areas include enhanced controls over card issuance and cancellation, 
reduced span of control for approving officials, increased human 
capital resources and training, new performance measures and goals, 
required advance approval of purchases, and independent receiving and 
acceptance of goods and services. These efforts will substantially 
reduce the government's vulnerability to fraud, waste, and abuse in 
agencies' purchase card programs.

Source: GAO.

[End of table]

Recommendation Acceptance Rate:

At the end of fiscal year 2004, 83 percent of the recommendations we 
made in fiscal year 2000 had been implemented (see fig. 7), primarily 
by executive branch agencies. Putting these recommendations into 
practice is generating tangible benefits for the American people. As 
figure 8 indicates, agencies need time to act on our recommendations. 
Therefore, we assess recommendations implemented after 4 years, the 
point at which experience has shown that, if a recommendation has not 
been implemented, it is not likely to be.

Figure 7: Past Recommendations Implemented:

[See PDF for image] - graphic text:

Bar graph with 6 items.

2000 Actual: 78%;
2001 Actual: 79%;
2002 Actual: 79%;
2003 Actual: 82%;
2004 Target: 79%;
2004 Actual: 83%.

Source: GAO.

[End of figure]

Figure 8: Cumulative Implementation Rate for Recommendations Made in 
Fiscal Year 2000:

[See PDF for image] - graphic text:

Bar graph with 4 items.

After 1 year: 30%; 
After 2 years: 38%; 
After 3 years: 44%; 
After 4 years: 83%. 

Source: GAO. 

[End of figure]

Testimonies That Serve the Congress:

During fiscal year 2004, experts from our staff testified at 217 
congressional hearings (see fig. 9) covering a wide range of complex 
issues. For example, our senior executives testified on the financial 
condition of the Pension Benefit Guaranty Corporation's single-employer 
program, the effects of various proposals to reform Social Security's 
benefit distributions, and enhancing federal accountability through 
inspectors general. Nearly half of our testimonies were related to high-
risk areas and programs. See figure 10 for a summary of issues we 
testified on, by strategic goal, in fiscal year 2004.

Figure 9: Testimonies:

[See PDF for image] - graphic text:

Bar graph with 6 items. 

Hearings at which GAO testified: 

2000 Actual: 263;
2001 Actual: 151;
2002 Actual: 216;
2003 Actual: 189;
2004 Target: 190;
2004 Actual: 217.

Source: GAO.

[End of figure]

Figure 10: Topics on Which GAO Testified:

[See PDF for image] --graphic text: 

Selected Issues on Which GAO Testified During Fiscal Year 2004: 

Goal 1: Well-Being and Financial Security of the American People: 

* Student loan programs; 
* Child welfare; 
* Pension plan insurance programs; 
* Energy Employees Occupational Illness Compensation Program; 
* Social Security reforms effect on benefits and taxes; 
* Medicare spending; 
* Intergovernmental Medicaid transfers; 
* Private health insurance; 
* Defense and veterans health care; 
* U.S. gasoline markets; 
* Farm program payments; 
* Security challenges at chemical facilities; 
* Oil and gas activities on federal lands; 
* Postal Service transformation; 
* Rail security; 
* Federal real property; 
* Federal aviation management and modernization; 
* Pipeline safety; 
* Telecommunications. 

Goal 2: Changing Security Threats and Challenges of Globalization: 

* Gulf War illnesses; 
* International broadcasting; 
* Border security; 
* Terrorist financing; 
* United Nations Oil-for-Food program; 
* Oversight of government- sponsored enterprises; 
* Securities and Exchange Commission operations; 
* Mutual funds; 
* Use of Reserve forces; 
* Destruction of chemical weapons; 
* Mail delivery to deployed troops; 
* Defense personnel clearances; 
* Unmanned aerial vehicles; 
* Military base closures; 
* Operations in Iraq; 
* Challenges in inspecting oceangoing cargo containers; 
* Homeland security advisory system; 
* Security at nuclear facilities; 
* Counterfeit identities; 
* Information security; 
* Critical infrastructure protection; 
* International defense sales; 
* U.S. Army combat systems; 
* Military aircraft; 
* Defenses space systems; 
* National strategy for homeland security. 

Goal 3: Transforming the Federal Governments Role: 

* Army Reserve and Army National Guard pay; 
* Defense contractor tax system abuses; 
* Fraudulent diplomas; 
* Illicit Internet pharmacies; 
* Information technology management; 
* Information technology continuity of operations; 
* Electronic government; 
* Border and transportation security; 
* Electronic voting; 
* Abusive tax shelters; 
* Diversity among senior federal executives; 
* Transformation of the federal government; 
* Long-term federal budget issues; 
* Office of Management and Budget's Program Assessment Rating Tool; 
* The impact of the Government Performance and Results Act; 
* District of Columbia government; 
* Federal financial management and fiscal challenges; 
* Federal purchase and travel cards; 
* Excess Defense property; 
* Space shuttle program; 
* Defense contract management. 

Source: GAO.

[End of figure]

GAO's High-Risk Program:

Issued to coincide with the start of each new Congress, our high-risk 
update lists government programs and functions in need of special 
attention or transformation to ensure that the federal government 
functions in the most economical, efficient, and effective manner 
possible. Our latest report, released in January 2005, presents the 
status of high-risk areas identified in 2003 and lists new high-risk 
areas warranting attention by the Congress and the 
administration.[Footnote 2]

In January 2003, we identified 25 high-risk areas; in July 2003, a 
twenty-sixth high-risk area was added to the list (see table 1). Since 
then, progress has been made in all areas, although the nature and 
significance of progress varies by area. Federal departments and 
agencies, as well as the Congress, have shown a continuing commitment 
to addressing these high-risk challenges and have taken various steps 
to help correct several of their root causes. GAO has determined that 
sufficient progress has been made to remove the high-risk designation 
from the following three areas:

* student financial aid programs,

* FAA financial management, and:

* Forest Service financial management.

Also, four areas related to IRS have been consolidated into two areas.

This year, we designated four new high-risk areas. The first new area 
is establishing appropriate and effective information-sharing 
mechanisms to improve homeland security. Federal policy creates 
specific requirements for information-sharing efforts, including the 
development of processes and procedures for collaboration between 
federal, state, and local governments and the private sector. This area 
has received increased attention, but the federal government still 
faces formidable challenges sharing information among stakeholders in 
an appropriate and timely manner to minimize risk.

The second and third new high-risk areas are, respectively, DOD's 
approach to business transformation and its personnel security 
clearance program. GAO has reported on inefficiencies and inadequate 
transparency and accountability across DOD's major business areas, 
resulting in billions of dollars of wasted resources. Senior leaders 
have shown commitment to business transformation through individual 
initiatives in acquisition reform, business modernization, and 
financial management, among others, but little tangible evidence of 
actual improvement has been seen to date in DOD's business operations. 
DOD needs to take stronger steps to achieve and sustain business reform 
on a departmentwide basis. Further, delays by DOD in completing 
background investigations and adjudications can affect the entire 
government because DOD performs this function for hundreds of thousands 
of industry personnel from 22 federal agencies, as well as its own 
service members, federal civilian employees, and industry personnel. 
The Office of Personnel Management (OPM) is to assume DOD's personnel 
security investigative function, but this change alone will not reduce 
the shortages of investigative personnel.

The fourth high-risk area is management of interagency contracting. 
Interagency contracts can leverage the government's buying power and 
provide a simplified and expedited method of procurement. But several 
factors can pose risks, including the rapid growth of dollars involved 
combined with the limited expertise of some agencies in using these 
contracts as well as recent problems related to their management. 
Various improvement efforts have been initiated to address interagency 
contracting, but improved policies and processes, and their effective 
implementation, are needed to ensure that interagency contracting 
achieves its full potential in the most effective and efficient manner.

Lasting solutions to high-risk problems offer the potential to save 
billions of dollars, dramatically improve service to the American 
public, strengthen public confidence and trust in the performance and 
accountability of our national government, and ensure the ability of 
government to deliver on its promises.

Table 1: The Year that Areas on GAO's 2005 High-Risk List were 
Designated as High Risk:

Area: Medicare Program; 
Year designated high risk: 1990.

Area: DOD Supply Chain Management; 
Year designated high risk: 1990[A].

Area: DOD Weapon Systems Acquisition; 
Year designated high risk: 1990.

Area: DOE Contract Management; 
Year designated high risk: 1990.

Area: NASA Contract Management; 
Year designated high risk: 1990.

Area: Enforcement of Tax Laws; 
Year designated high risk: 1990[B].

Area: DOD Contract Management; 
Year designated high risk: 1992.

Area: HUD Single-Family Mortgage Insurance and Rental Housing 
Assistance Programs; 
Year designated high risk: 1994.

Area: DOD Financial Management; 
Year designated high risk: 1995.

Area: DOD Business Systems Modernization; 
Year designated high risk: 1995.

Area: IRS Business Systems Modernization; 
Year designated high risk: 1995[C].

Area: FAA Air Traffic Control Modernization; 
Year designated high risk: 1995.

Area: Protecting the Federal Government's Information Systems and the 
Nation's Critical Infrastructures; 
Year designated high risk: 1997.

Area: DOD Support Infrastructure Management; 
Year designated high risk: 1997.

Area: Strategic Human Capital Management; 
Year designated high risk: 2001.

Area: U.S. Postal Service Transformation Efforts and Long-Term Outlook; 
Year designated high risk: 2001.

Area: Medicaid Program; 
Year designated high risk: 2003.

Area: Managing Federal Real Property; 
Year designated high risk: 2003.

Area: Modernizing Federal Disability Programs; 
Year designated high risk: 2003.

Area: Implementing and Transforming the Department of Homeland 
Security; 
Year designated high risk: 2003.

Area: Pension Benefit Guaranty Corporation Single-Employer Insurance 
Program; 
Year designated high risk: 2003.

Area: Establishing Appropriate and Effective Information-Sharing 
Mechanisms to Improve Homeland Security; 
Year designated high risk: 2005.

Area: DOD Approach to Business Transformation; 
Year designated high risk: 2005.

Area: DOD Personnel Security Clearance Program; 
Year designated high risk: 2005.

Area: Management of Interagency Contracting; 
Year designated high risk: 2005.

Source: GAO.

[A] This area was formerly entitled DOD Inventory Management.

[B] One of the two high-risk areas that were consolidated to make this 
area--Collection of Unpaid Taxes--was designated high risk in 1990. The 
other area--Earned Income Credit Noncompliance--was designated high 
risk in 1995.

[C] IRS Financial Management has been incorporated into the IRS 
Business Systems Modernization high-risk area. Both areas were 
initially designated as high risk in 1995.

[End of table]

In fiscal year 2004, we issued 218 reports and delivered 96 testimonies 
related to our high-risk areas and programs, and our work involving 
these areas resulted in financial benefits totaling over $20 billion. 
This work, for example, included 13 reports and 10 testimonies 
examining problems with DOD's financial management practices, such as 
weak internal controls over travel cards, inadequate management of 
payments to the Navy's telecommunications vendors, and abuses of the 
federal tax system by DOD contractors, resulting in $2.7 billion in 
financial benefits. In addition, we documented $700 million in 
financial benefits based on previous work and produced 7 reports and 4 
testimonies focusing on, for example, improving Social Security 
Administration and Department of Energy processes that result in 
inconsistent disability decisions and inconsistent benefit outcomes.

Streamlining and Management Improvement Efforts:

Shortly after I was appointed in November 1998, I determined that GAO 
should undertake a major transformation effort to better enable it to 
"lead by example" and better support the Congress in the 21st century. 
This effort is consistent with the House Report 108-577 on the fiscal 
year 2005 legislative branch appropriation that focuses on improving 
the efficiency and effectiveness of operations at legislative branch 
agencies.

The Mandate:
 
H.Rpt. 108-577 directed GAO to work closely with the head of each 
legislative branch agency to identify opportunities for streamlining, 
cross-servicing and outsourcing, leveraging existing technology, and 
applying management principles identified as "best practices" in 
comparable public and private sector enterprises. H.R. 108-577 also 
directed the legislative branch agencies to be prepared to discuss 
recommended changes during the fiscal year 2006 appropriations hearing 
cycle.

Our agency transformation effort has enabled GAO to become more results-
oriented, partnerial, client-focused, and externally aware, and less 
hierarchical, process-oriented, "siloed," and internally focused. The 
transformation resulted in reduced organizational layers, fewer field 
offices, the elimination of duplication in several areas, and improved 
our overall resource allocation. We began our transformation effort by 
using the GAO Strategic Plan as a framework to align our organization 
and its resources. On the basis of the strategic plan, we streamlined 
and realigned the agency to eliminate a management layer, consolidated 
35 issue areas into 13 teams, and reduced our field offices from 16 to 
11. We also eliminated the position of Regional Manager--a Senior 
Executive Service level position--in the individual field offices and 
consolidated the remaining field offices into three regions--the 
eastern region, the central region, and the western region, each headed 
by a single senior executive. Following the realignment of our mission 
organization and field offices, GAO's support organizations were 
restructured and centralized to eliminate duplication and to provide 
human capital, report production and processing, information systems 
desk-side support, budget and financial management, and other services 
more efficiently to agency staff. This has resulted in a 14 percent 
reduction in our support staff since 1998. As shown in figure 11, these 
and subsequent measures improved the "shape" of the agency by 
decreasing the number of mid-level managers and by increasing the 
number of entry level and other staff with the skills and abilities to 
accomplish our work.

Figure 11: GAO's Human Capital Profile:

[See PDF for image]

Note: Profiles represent staffing at the end of each fiscal year. 
Fiscal years 2005 and 2006 are projected.

[End of figure]

During my tenure, GAO has outsourced and cross-serviced many 
administrative support activities, which has allowed GAO to devote more 
of its resources to mission work. In fiscal year 2004, about two-thirds 
of our nonhuman capital costs were spent to obtain critical mission 
support services for about 165 activities from the private and public 
sectors through outsourcing. Outsourcing contracts include a wide range 
of mission support activities, including information technology systems 
development, maintenance, and support; printing and dissemination of 
GAO products; operation and maintenance of the GAO Headquarters 
building; information, personnel, and industrial security activities; 
records management; operational support; and audit service support. GAO 
also meets many of its requirements through cross-servicing 
arrangements with other federal agencies. For example, GAO uses the 
Department of Agriculture's National Finance Center to process its 
personnel/payroll transactions. Also, GAO uses the legislative branch's 
long-distance telephone contract, which has resulted in continual 
reductions in long-distance rates. GAO also uses a wide range of 
contracting arrangements available in the executive branch for 
procuring major information technology (IT) services. GAO also uses the 
Library of Congress' Federal Library and Information Network to procure 
all of its commercial online databases.

Currently, as shown in figure 12, over 50 percent of our staff 
resources in the support area are contractors, allowing us to devote 
more of our staff resources to our mission work. We recently surveyed 
managers of agency mission support operations and identified additional 
activities that potentially could be filled through alternative 
sourcing strategies. In fiscal years 2005 and 2006, we will assess the 
feasibility of alternative sourcing for these activities using an 
acquisition sourcing maturity model and cost-benefit analyses.

Figure 12: Composition of GAO's Support Staff:

[See PDF for image] --graphic text: 

Pie chart with 2 items.

Contract workforce: 53%.
GAO support staff: 47%.

Source: GAO.

[End of figure]

Utilizing IT effectively is critical to our productivity, success, and 
viability. We have applied IT best management practices to take 
advantage of a wide range of available technologies such as Web-based 
applications and Web-enabled information access, as well as modern, 
mobile computing devices such as notebook computers to facilitate our 
ability to carry out our work for the Congress more effectively. We 
make wide use of third-party reviews of our practices and have scored 
well in measurement efforts such as total cost of ownership, customer 
service, and application development. In fiscal year 2002, an 
independent study of GAO's IT processes and related costs revealed 
that, "GAO is delivering superb IT application support and development 
services to the business units at 29 percent less than the cost it 
would take the Government peer group to deliver." In confirmation of 
these findings, in fiscal year 2003, GAO was one of only three federal 
agencies to receive the CIO Magazine 100 Award for excellence in 
effectively managing IT resources to obtain the most value for every IT 
dollar. We were named to the CIO Magazine's "CIO 100" for our 
excellence in managing IT resources in both 2003 and 2004.

Because one of our strategic goals is to maximize our value by serving 
as a model agency for the federal government, we adopt best practices 
that we have suggested for other agencies, and we hold ourselves to the 
spirit of many laws that are applicable only to the executive branch. 
For example, we adhere to the best practices for results-oriented 
management outlined in the Government Performance and Results Act 
(GPRA). We have strengthened our financial management by centralizing 
authority in a Chief Financial Officer with functional responsibilities 
for financial management, long-range planning, accountability 
reporting, and the preparation of audited financial statements, as 
directed in the Chief Financial Officers Act (CFO Act). Also, for the 
eighteenth consecutive year, independent auditors gave GAO's financial 
statements an unqualified opinion with no material weaknesses and no 
major compliance problems.

In the human capital area, we are clearly leading by example in 
modernizing our policies and procedures. For example, we have adopted a 
range of strategic workforce policies and practices as a result of a 
comprehensive workforce planning effort. Among other things, this 
effort has resulted in greatly upgrading our workforce capacity in both 
IT and health care policy. We also have updated our performance 
management and compensation systems and our training to maximize staff 
effectiveness and to fully develop the potential of our staff within 
both current and expected resource levels.

GAO's Fiscal Year 2006 Request to Support the Congress:

We are requesting budget authority of $493.5 million for fiscal year 
2006. This budget request will allow us to continue to maximize 
productivity, operate more effectively and efficiently, and maintain 
the progress we have made in technology and other areas. However, it 
does not allow us sufficient funding to support a staffing level of 
3,269--the staffing level that we requested in previous years. In 
preparing this request, we conducted a baseline review of our operating 
requirements and reduced them as much as we felt would be prudent. 
However, with about 80 percent of our budget composed of human capital 
costs, we needed to constrain hiring to keep our fiscal year 2006 
budget request modest. We plan to use recently enacted human capital 
flexibility from the GAO Human Capital Reform Act of 2004 as a 
framework to consider such cost savings options as conducting one or 
more voluntary early retirement programs and we also plan to review our 
total compensation policies and approaches.

There are increasingly greater demands on GAO's resources. Since fiscal 
year 2000, we have experienced a 30 percent increase in the number of 
bid protest filings. We expect this workload to increase over the 
coming months because of a recent change in the law that expands the 
number of parties who are eligible to file protests. In addition, the 
number of congressional mandates for GAO studies, such as our reviews 
of executive branch and legislative branch operations, has increased 
more than 15 percent since fiscal year 2000. While we have reduced our 
planned staffing level for fiscal years 2005 and 2006, we believe that 
the staffing level we requested in previous years is a more optimal 
staffing level for GAO and would allow us to successfully meet the 
future needs of the Congress and provide the return on investment that 
the Congress and the American people expect. We will be seeking your 
commitment and support to provide the funding needed to rebuild our 
staffing levels over the next few fiscal years, especially as we 
approach a point where we may be able to express an opinion on the 
federal government's consolidated financial statements. Given current 
and projected deficits and the demands associated with managing a 
growing national debt, as well as challenges facing the Congress to 
restructure federal programs, reevaluate the role of government, and 
ensure accountability of federal agencies, a strong GAO will result in 
substantially greater benefits to the Congress and the American people.

Table 2 summarizes the changes we are requesting in our fiscal year 
2006 budget.

Table 2: Fiscal Year 2006 Budget Request, Summary of Requested Changes:

Dollars in thousands.

Budget category: FY 2005 budget authority to support GAO operations; 
FTEs: 3,215; 
Amount: $474,565.

Budget category: FY 2006 requested changes: Nonrecurring fiscal year 
2005 costs; 
Amount: $(4,122); 
Cumulative percentage change: (0.9%).

Budget category: FY 2006 requested changes: Mandatory pay costs; 
Amount: $20,778; 
Cumulative percentage change: 3.5%.

Budget category: FY 2006 requested changes: Price level changes; 
Amount: $1,428; 
Cumulative percentage change: 3.8%.

Budget category: FY 2006 requested changes: Relatively controllable 
costs; 
Amount: $899.

Subtotal - requested changes; 
Amount: $18,983; 
Cumulative percentage change: 4.0%.

Total FY 2006 budget authority required to support GAO operations; 
FTEs: 3,215; 
Amount: $493,548; 
Cumulative percentage change: 4.0%.

Source: GAO.

[End of table]

Our budget request supports three broad program areas: Human Capital, 
Mission Operations, and Mission Support.

In our Human Capital program, to ensure our ability to attract, retain, 
and reward high-quality staff and compete with other employers, we 
provide competitive salaries and benefits, student loan repayments, and 
transit subsidy benefits. We have undertaken reviews of our 
classification and compensation systems to consider ways to make them 
more market-based and performance-oriented and to take into 
consideration market data for comparable positions in organizations 
with which we compete for talent. Our rewards and recognition program 
recognizes significant contributions by GAO staff to the agency's 
accomplishments. As a knowledge-based, world-class, professional 
services organization in an environment of increasingly complex work 
and accelerating change, we maintain a strong commitment to staff 
training and development. We promote a workforce that continually 
improves its skills and knowledge.

We plan to allocate funds to our Mission Operations program to conduct 
travel and contract for expert advice and assistance.

Travel is critical to accomplishing our mission. Our work covers a wide 
range of subjects of congressional interest, plays a key role in 
congressional decision making, and can have profound implications and 
ramifications for national policy decisions. Our analyses and 
recommendations are based on original research, rather than reliance on 
third-party source materials. In addition, GAO is subject to 
professional standards and core values that uniquely position the 
agency to support the Congress in discharging its oversight and other 
responsibilities under the Constitution.

We use contracts to obtain expert advice and or assistance not readily 
available within GAO, or when expertise is needed within compressed 
time frames for a particular project, audit, or engagement. Examples of 
contract services include obtaining consultant services, conducting 
broad-based studies in support of audit efforts, gathering key data on 
specific areas of audit interest, and obtaining technical assistance 
and expertise in highly specialized areas.

Mission Support programs provide the critical infrastructure we need to 
conduct our work. Mission support activities include the following 
programs:

* Information Technology: Our IT plan provides a road map for ensuring 
that IT activities are fully aligned with and enable achievement of our 
strategic and business goals. The plan focuses on improved client 
service, IT reliability, and security; it promotes effectiveness, 
efficiency and cost benefit concepts. In fiscal years 2005 and 2006, we 
plan to continue to modernize outdated management information systems 
to eliminate redundant tasks, automate repetitive tasks, and increase 
staff productivity. We also will continue to modernize or develop 
systems focusing on how analysts do their work. For example, we 
enhanced the Weapons Systems Database that we created to provide the 
Congress information to support budget deliberations.

* Building Management: The Building Management program provides 
operating funds for the GAO Headquarters building and field office 
locations, safety and security programs, and asset management. We 
periodically assess building management components to ensure program 
economy, efficiency and effectiveness. We are currently 8 percent below 
the General Services Administration's (GSA) median costs for facilities 
management. We continue to look for cost-reducing efficiencies in our 
utility usage. Our electrical costs are currently 25 percent below 
GSA's median cost. With the pending completion of our perimeter 
security enhancements and an automated agency wide access control 
system, all major security enhancements will have been completed.

* Knowledge Services: As a knowledge-based organization, it is 
essential for GAO to gather, analyze, disseminate, and archive 
information. Our Knowledge Services program provides the information 
assets and services needed to support these efforts. In recent years, 
we have expanded our use of electronic media for publications and 
dissemination; enhanced our external Web site, resulting in increased 
public access to GAO products; and closed our internal print plant and 
increased the use of external contractors to print GAO products, 
increasing the efficiency and cost-effectiveness of our printing 
operation. Due to recent budget constraints, we have curtailed some 
efforts related to archiving paper records. We currently are 
implementing an electronic records management system that will 
facilitate knowledge transfer, as well as document retrieval and 
archival requirements.

* Human Capital Operations: In addition, funds will be allocated to 
Human Capital Operations and support services to cover outplacement 
assistance, employee health and counseling, position management and 
classification, administrative support, and transcription and 
translation services.

Concluding Remarks:

We appreciate your consideration of our budget request for fiscal year 
2006 to support the Congress. GAO is uniquely positioned to help 
provide the Congress the timely, objective information it needs to 
discharge its constitutional responsibilities, especially in connection 
with oversight matters. GAO's work covers virtually every area in which 
the federal government is or may become involved anywhere in the world. 
In the years ahead, GAO's support will prove even more critical because 
of the pressures created by our nation's large and growing long-term 
fiscal imbalance.

This concludes my statement. I would be pleased to answer any questions 
the Members of the Committee may have.

[End of section]

Appendix I: Serving the Congress--GAO's Strategic Plan Framework:

Serving the Congress and the Nation: GAO's Strategic Plan Framework:

Mission:

GAO exists to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people.

Themes:

* Long-Term Fiscal Imbalance;

* National Security;

* Global Interdependence;

* Changing Economy;

* Demographics;

* Science and Technology;

* Quality of Life;

* Governance;

Goals and Objectives:

Provide Timely, Quality Service to the Congress and the Federal 
Government to...

Address Current and Emerging Challenges to the Well-Being and Financial 
Security of the American People related to...

* Health care needs and financing;

* Education and protection of children;

* Work opportunities and worker protection;

* Retirement income security;

* Effective system of justice;

* Viable communities;

* Natural resources use and environmental protection;

* Physical infrastructure;

Provide Timely, Quality Service to the Congress and the Federal 
Government to...

Respond to Changing Security Threats and the Challenges of Global 
Interdependence involving...

* Emerging threats;

* Military capabilities and readiness;

* Advancement of U.S. interests;

* Global market forces;

Help Transform the Federal Government Government's Role and How It 
Does Business to Meet 21st Century Challenges by assessing...

* Roles in achieving federal objectives;

* Government transformation;

* Key management challenges and program risks;

* Fiscal position and financing of the government:

Maximize the Value of GAO by Being a Model Federal Agency and a World-
Class Professional Services Organization in the areas of...

* Client and customer satisfaction;

* Strategic leadership;

* Institutional knowledge and experience;

* Process improvement;

* Employer of choice:

Core Values:

* Accountability;

* Integrity;

* Reliability;

Fiscal Years 2004-2009. 

[End of GAO's Strategic Plan Framework]

[End of section]

Image Sources:

This section contains credit and copyright information for images and 
graphics in this product, as appropriate, when that information was not 
listed adjacent to the image or graphic.

Page 6: PhotoDisc (money); Eyewire (monitor and medical symbol).

Page 9: BrandXPictures (flag); PhotoDisc (calculator and Social 
Security card).

Page 11: BrandXPictures (flag); Digital Vision (teacher); Dynamic 
Graphics (health care).

Page 12: BrandXPictures (flag); Dynamic Graphics (1040 Form); DOD 
(soldiers).

FOOTNOTES

[1] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005).

[2] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005).