a

GAO

United States General Accounting Office

Testimony

Before the Subcommittee on Government Efficiency and 

Financial Management, Committee on Government 

Reform, House of Representatives

For Release on Delivery

Expected at 10:30 a.m. EST

Wednesday, March 26, 2003

MANAGEMENT REFORM

Continuing Progress in 

Implementing Initiatives in 

the President’s 

Management Agenda

Statement of Patricia A. Dalton, Director

Strategic Issues

GAO-03-556T
There has been continuing progress in implementing the five crosscutting 

PMA initiatives to improve the management and performance of the federal 

government. However, progress has been uneven, and a continuing focus is 

needed to improve the management and performance of the federal 

government and ensure accountability. 

These five crosscutting PMA initiatives are interrelated and must be 

addressed in an integrated way. 

• Strategic human capital management: Considerable progress has 

been made in this area since we designated it as high risk in 2001. 

Serious human capital shortfalls, however, continue to erode the ability 

of many agencies, and threaten the ability of others, to economically, 

efficiently, and effectively perform their missions. 

• Budget and performance integration: The administration has set 

forth an ambitious agenda for performance budgeting but the federal 

government has a long way to go before it can meet its goals. More 

explicitly infusing performance information into resource allocation 

decisions is critical for further progress in government performance and 

management.

• Improved financial performance: This initiative is aimed at ensuring 

that federal financial systems produce accurate and timely information 

to support operating, budget, and policy decisions. Although a range of 

improvements is under way, much work remains to be done across 

government.

• Expanded electronic government: E-government offers many 

opportunities to better serve the public, make government more efficient 

and effective, and reduce costs. Although substantial progress has been 

made, the government has not yet fully reached its potential in this area.

• Competitive sourcing: The administration has committed to using 

competitions to determine whether public or private sources should 

provide commercial services. OMB has proposed changes to the 

procedures for conducting public-private competitions under its Circular 

A-76. However, some of the proposed changes are not consistent with 

sourcing principles or recommendations of the Commercial Activities 

Panel.

Congressional support has proven to be critical in sustaining interest in 

management initiatives over time. A focus on the quality of program 

performance and effective management is critical today, and now is the time 

to act. 

As part of its work to improve the 

management and the performance 

of the federal government, GAO 

monitors progress and continuing 

challenges related to the five 

crosscutting initiatives in the 

President’s Management Agenda 

(PMA). The President cited GAO’s 

high-risk areas and major 

management challenges in 

developing these initiatives. GAO 

remains committed to working 

with the Congress and the 

Administration to help address 

these complex issues. 

We are not making any 

recommendations in this 

testimony, but these steps can 

further progress: 

• OMB’s support will be needed 

as agencies identify targeted 

investment opportunities to 

address human capital 

shortfalls. Over time, 

comprehensive human capital 

reform is needed. 

• Congress and the executive 

branch need better 

information about the link 

between resources and results 

to prioritize competing claims 

on the federal budget. 

• Quality financial management 

systems are crucial for 

agencies to achieve PMA goals. 

• E-government initiatives 

require effective riskmanagement and 

comprehensive strategies to 

guide agencies efforts. 

• Continued emphasis on 

improving public-private 

competitions is needed. 

www.gao.gov/cgi-bin/getrpt?GAO-00-556T.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Patricia A. 

Dalton at (202) 512-6806 or 

daltonp@gao.gov. 

Highlights of GAO-03-556T, a report to 

Subcommittee on Government Efficiency 

and Financial Management, Committee on 

Government Reform, House of 

Representatives 

March 26, 2003

MANAGEMENT REFORM 

Continuing Progress in Implementing 

Initiatives in the President's Management 

Agenda 
Page 1 GAO-03-556T 

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss continuing progress in 

implementing the President’s Management Agenda (PMA) initiatives to 

improve the management and performance of the federal government. 

PMA points out important challenges for the federal government and is 

intended to focus agencies’ efforts on making needed improvements. It 

establishes priorities for five crosscutting challenges and nine program 

initiatives. There are clear links between the PMA initiatives and the highrisk areas and major management challenges covered in our 2003 and 2001 

Performance and Accountability and High-Risk Series. Many of these 

issues are complex and long-standing, and we are committed to working 

with Congress and the administration to help address them.

The President’s 2004 budget recognized that although progress has been 

made, it has been uneven and there needs to be a continuing focus on 

improving effectiveness and getting results from federal spending. As 

discussed in our 2003 Governmentwide Perspective, 1 several major trends, 

including diffuse security threats and national preparedness, globalization, 

a shift to knowledge-based economies, and advances in science and 

technology, are driving the need for federal agencies to transform their 

cultures and operations. Budgetary flexibility has been shrinking for some 

time and long-range fiscal and demographic pressures affect the long-term 

outlook of the federal government. The retirement of the baby boom 

generation and rising health care costs threaten to overwhelm our nation’s 

finances. Within this context, government leaders must be accountable for 

making needed changes to resolve high-risk areas, address major 

management challenges, and position the federal government to take 

advantage of emerging opportunities and meet future challenges. 

Today, as agreed with the subcommittee, my statement will focus on the 

progress made in the five crosscutting initiatives in PMA and the next steps 

our work shows will be key to effectively enhance the management and 

performance of the federal government. I will also highlight the importance 

of transparency and congressional oversight in continuing to provide the 

attention needed to improve management and performance across the 

federal government and ensure accountability. Overall, there has been 

continuing progress in implementing the governmentwide PMA initiatives. 

1

U.S. General Accounting Office, Major Management Challenges and Program Risks: A 

Governmentwide Perspective, GAO-03-95 (Washington, D.C.: January 2003).
Page 2 GAO-03-556T 

This progress, however, has been uneven and a continuing focus is needed 

to improve the management and performance of the federal government 

and ensure accountability. This testimony draws upon our wide-ranging 

ongoing and completed work on federal management and transformation 

issues and analysis of PMA initiatives and the President’s 2004 Budget of 

the U.S Government. We conducted our work in accordance with generally 

accepted government auditing standards.

Effective Management 

Is Required to Create 

and Sustain Highperforming 

Organizations

The President cited our work on high-risk areas and major management 

challenges in developing his initiatives, and implementation of PMA has 

reinforced the need to focus agencies’ efforts on achieving key 

management and performance improvements. Our work shows that 

agencies have made progress in these areas—although more needs to be 

done. A focus on the quality of program performance and effective 

management is critical today, and now is the time to act. Building on 

lessons learned, major programs and operations need urgent attention and 

transformation to ensure that the government functions as economically, 

efficiently, and effectively as possible. Management reform will be vitally 

important for agencies to transform their cultures to respond to the 

transition that is taking place in the role of government in the 21st century. 

The Executive Branch Management Scorecards have highlighted agencies’ 

progress in achieving management and performance improvements. We 

have found that the value in the scorecards is not, in fact, in the scoring, but 

in the degree to which scores lead to a sustained focus and demonstrable 

improvements. The Office of Management and Budget (OMB) uses a 

grading system of red, yellow, and green, to indicate agencies’ status in 

achieving the standards of success. It also assesses and reports progress 

using a similar “stoplight” system. Although we collaborated in some cases 

with OMB and the lead agencies regarding the broad standards of success, 

we have not had the opportunity to review the more specific criteria that 

OMB uses to assess each agency’s progress on these initiatives nor have we 

examined the specific evidence that OMB used to assess the agency’s 

accomplishments. 

By calling attention to needed improvements, the focus that PMA and the 

scorecards bring is certainly a step in the right direction. PMA initiatives 

are consistent in key aspects with the statutory reforms related to financial 

management, information technology, and results-oriented management 

that Congress enacted during the 1990s. In crafting that framework, 
Page 3 GAO-03-556T 

Congress sought to provide a basis for improving the federal government’s 

effectiveness, financial condition, and operating performance.

Central to effectively addressing the government’s management problems 

and providing a solid base for successful transformation efforts is the 

recognition that fundamental management practices and principles cannot 

be addressed in an isolated or piecemeal fashion separate from the other 

major management challenges and high risks facing federal agencies. 

Rather, these efforts are mutually reinforcing and must be addressed in an 

integrated way to ensure that there is the needed management capacity to 

drive a broader transformation of the cultures of federal agencies. 

The President has identified five crosscutting management initiatives that 

are interrelated and support each other. A comprehensive planning process 

that establishes clear goals and objectives linked to decision-making and 

resource allocation processes will continue to be critical in achieving the 

desired results and the synergy that can advance and support 

governmentwide transformation efforts. These five initiatives are:

• strategic human capital management, 

• budget and performance integration, 

• improved financial performance, 

• expanded electronic government, and 

• competitive sourcing. 

Strategic Human Capital 

Management

People are an agency’s most important organizational asset, and strategic 

human capital management should be the centerpiece of any serious 

change management initiative or any effort to transform the cultures of 

government agencies. Considerable progress has been made in this area 

since we designated it as high risk in 2001.2

 Legislation has been enacted 

that, among other things, creates the Chief Human Capital Officer (CHCO) 

position within federal departments, and a CHCO Council, expanded 

2

U.S. General Accounting Office, High-Risk Series: Strategic Human Capital Management, 

GAO-03-120 (Washington, D.C.: January 2003); and High-Risk Series: An Update, GAO-03-

119 (Washington, D.C.: January 2003).
Page 4 GAO-03-556T 

voluntary early retirement and buyout authority, authorized the use of 

category rating in the hiring of applicants instead of the “rule of three,” and 

requires agencies to discuss human capital approaches in Government 

Performance and Results Act (GPRA) plans and reports.3

Serious human capital shortfalls, however, continue to erode the ability of 

many agencies, and threaten the ability of others, to economically, 

efficiently, and effectively perform their missions. Plainly, the major 

problem is not federal employees. Rather, it is the lack of a consistent 

strategic approach to marshaling, managing, and maintaining the human 

capital needed to maximize government performance and ensure its 

accountability. An organization’s people define its character, affect its 

capacity to perform, and represent the knowledge base of the organization. 

Although progress has been made, it remains clear that today’s federal 

human capital strategies are not appropriately constituted to meet current 

and emerging challenges or drive the needed transformation across the 

federal government. Specifically, agencies continue to face challenges in 

four key areas:

• Leadership: Top leadership in agencies must provide the committed and 

inspired attention needed to address human capital and related 

organizational transformation issues.

• Strategic human capital planning: Agencies’ human capital planning 

efforts need to be more fully and demonstrably integrated with mission 

and critical program goals.

• Acquiring, developing, and retaining talent: Additional efforts are 

needed to improve recruiting, hiring, professional development, and 

retention strategies to ensure that agencies have the needed talent.

• Results-oriented organizational cultures: Agencies continue to lack 

organizational cultures that promote high performance and 

accountability and that empower and include employees in setting and 

accomplishing programmatic goals.

3

Category rating allows a selecting official to select a candidate from all qualified candidates 

instead of limiting the selecting official to only the top three ranked candidates as set forth 

in 5 USC Section 3318(a).
Page 5 GAO-03-556T 

One step in meeting the government’s human capital challenges is for 

agency leaders to identify and make use of all the appropriate 

administrative authorities available to them to manage their people both 

effectively and equitably. Much of the authority agency leaders need to 

manage human capital strategically is already available under current laws 

and regulations, as recognized by PMA. We recently reported on a set of 

practices that are key to the effective use of flexibilities.4

 These practices 

are shown in figure 1.

Figure 1: Key Practices for Effective Use of Human Capital Flexibilities

Another step in meeting the government’s human capital challenges is for 

policymakers to continue to pursue incremental legislative reforms to give 

agencies additional tools and flexibilities to hire, manage, and retain the 

human capital they need, particularly in critical occupations. The National 

Aeronautics and Space Administration (NASA), for example, is facing 

4

U.S. General Accounting Office, Human Capital: Effective Use of Flexibilities Can Assist 

Agencies in Managing Their Workforces, GAO-03-2 (Washington, D.C.: Dec. 6, 2002).

• Obtain agency leadership commitment 

• Determine agency workforce needs using fact-based analysis 

• Develop strategies that employ appropriate flexibilities to meet workforce needs 

• Make appropriate funding available 

• Engage the human capital office 

• Engage agency managers and supervisors 

• Involve employees and unions 

• Use input to establish clear, documented, and transparent policies and procedures

• Train human capital staff 

• Educate agency managers and supervisors on existence and use of flexibilities 

• Inform employees of procedures and rights 

• Ascertain the source of existing requirements 

• Reevaluate administrative approval processes for greater efficiency 

• Replicate proven successes of others 

• Delegate authority to use flexibilities to appropriate levels within the agency 

• Hold managers and supervisors directly accountable 

• Apply policies and procedures consistently 

• Ensure involvement of senior human capital managers in key decision-making processes

• Encourage greater acceptance of prudent risk taking and organizational change 

• Recognize differences in individual job performance and competencies 

Source: GAO.

Plan strategically and make 

targeted investments

Ensure stakeholder input in 

developing policies and 

procedures

Educate managers and 

employees on the availability 

and use of flexibilities

Streamline and improve 

administrative processes

Build transparency and 

accountability into the system

Change the organizational 

culture
Page 6 GAO-03-556T 

shortages in its workforce which could likely worsen as the workforce 

continues to age and the pipeline of talent shrinks.5

 This dilemma is more 

pronounced among areas crucial to NASA’s ability to perform its mission, 

such as engineering, science, and information technology. NASA is 

addressing this challenge through strategic planning, a new workforce 

planning and analysis system, and requesting additional personnel 

flexibilities, among other initiatives. 

Over time, however, it will be important for all interested parties to work 

together to identify the kinds of comprehensive legislative reforms in the 

human capital area that should be enacted. These reforms should place 

greater emphasis on knowledge, skills, and performance in connection 

with federal employment, promotion, and compensation decisions. This 

summer the Comptroller General will be convening a forum to discuss the 

key actions needed for significant human capital reform.

Federal agencies need to continue to incorporate a crucial ingredient found 

in successful organizations: organizational cultures that promote high 

performance and accountability. Effective performance systems align 

organizational goals with daily operations and thereby create a “line of 

sight” between an individual’s efforts and results that the organization is 

trying to achieve. In doing so, performance management systems can be a 

strategic tool to drive internal change and achieve external results by 

creating a shared perspective and demonstrating how unit, team, and 

individual performance can contribute to overall organizational goals. 

Agencies can also foster a results-oriented culture by the way that they 

treat and manage their people, building commitment and accountability 

through involving and empowering employees. Effective changes can only 

be made and sustained through the cooperation of leaders, union 

representatives, and employees throughout an organization. We have work 

under way, at the request of Congress, to assess the extent to which 

employees are involved in the formation of the human resource system at 

the Department of Homeland Security.

We collaborated with the Office of Personnel Management (OPM) and OMB 

in developing language for the standards for success that OPM released. As 

OPM, OMB, and the agencies learn to evaluate themselves against the 

5

U.S. General Accounting Office, Major Management Challenges and Program Risks: 

National Aeronautics and Space Administration, GAO-03-114 (Washington, D.C.: Jan. 

2003).
Page 7 GAO-03-556T 

standards for success in implementing strategic human capital 

management approaches, OPM and OMB will need to ensure that the 

standards are consistently and appropriately applied while they assess 

agencies’ progress in managing their human capital. Importantly, OMB’s 

support will be needed as agencies identify targeted investment 

opportunities to address human capital shortfalls. In the final analysis, 

modern, effective, and credible human capital strategies will be essential in 

order to maximize the performance and ensure the accountability of the 

government for the benefit of the American people.

Budget and Performance 

Integration

PMA recognized that improvements in the management of human capital, 

financial performance, and expanding electronic government, and 

competitive sourcing matter little if they are not linked to program 

performance and resource allocation decisions. The administration has set 

forth an ambitious agenda for performance budgeting, calling for agencies 

to develop cost accounting systems and proposing to better align the 

federal budget structure with their performance goals. Such efforts to 

begin implementing a consistent and transparent framework for 

performance budgeting and financial information are key steps needed to 

provide a greater focus on performance and improve congressional 

decision making as envisioned in GPRA, but the federal government has a 

long way to go before it can meet these goals. 

Performance-based budgeting can help shift the focus of debate from 

inputs to outcomes and results, enhancing the government’s ability to 

gauge performance and assess competing claims for scarce resources.6

Building on the statutory framework that Congress enacted over the last 

decade, performance budgeting requires results-oriented performance 

information generated by federal agencies in response to GPRA, and cost 

accounting data generated in response to provisions of the Chief Financial 

Officers (CFO) Act. Sustained leadership attention, however, is needed to 

build on this foundation. 

Integrating management and performance issues with budgeting is 

absolutely critical for progress in government performance and 

management. Such integration is obviously important to ensuring that 

management initiatives obtain the resource commitments and sustained 

6

U.S. General Accounting Office, Performance Budgeting: Opportunities and Challenges,

GAO-02-1106T (Washington, D.C.: Sept. 19, 2002).
Page 8 GAO-03-556T 

leadership commitment throughout government needed to be successful. 

Moreover, the budget process is one of the major processes in the federal 

government in which programs and activities come up for regular review 

and reexamination. Thus there is a compelling need to ensure that tradeoffs are informed by reliable information on results and costs.

Performance budgeting can help shift the focus of budgetary debates and 

oversight activities by changing the agenda of questions asked. 

Performance information can help policymakers address a number of 

questions such as whether programs are (1) contributing to their stated 

goals, (2) well-coordinated with related initiatives at the federal level or 

elsewhere, and (3) targeted to those most in need of services or benefits. 

Results-oriented information is also needed for better day-to-day 

management and agency decision-making. It can provide information on 

what outcomes are being achieved, whether resource investments have 

benefits that exceed their costs, and whether program managers have the 

requisite capacities to achieve promised results.

While budget reviews have always involved discussions of program 

performance, such discussions have not always been conducted in a 

common language or with transparency. Last year, OMB introduced a 

formal assessment tool into the deliberations. PART—the Program 

Assessment Rating Tool—is the central element in the performance 

budgeting piece of the PMA. Potentially, PART can complement GPRA’s 

focus on increasing the supply of credible performance information by 

promoting the demand for this information in the budget formulation 

process. PART’s greatest contribution may turn out to be its usefulness in 

focusing discussions between OMB and the agencies about progress 

towards planned performance; about what progress has been made toward 

achieving specific program goals and objectives; and about what tools and 

strategies may be used to bring about improvements. As with performance 

budgeting in general, no assessment tool can magically resolve debates or 

answer questions. Rather, it is likely to be a useful screen to help identify 

programs for further evaluation. 

Credible performance information can facilitate a fundamental 

reassessment of what the government does and how it does business by 

focusing on the outcomes achieved with budgetary resources. Therefore, 

the goals and measures that agencies establish must address program 

results. Our work has shown that agencies had at least some goals and 

measures that address program results, but improvement is needed to 

ensure that agencies measure performance toward a comprehensive set of 
Page 9 GAO-03-556T 

goals that focus on results.7 In addition, it is important for performance 

measures to provide complete information. For example, in measuring 

customer satisfaction, the Small Business Administration uses results of its 

survey of successful disaster loan applicants, but unsuccessful applicants 

are not surveyed, which is likely to produce positively skewed responses.8

Understanding performance issues requires an in-depth evaluation of the 

factors contributing to the program results. Targeted evaluation studies can 

be designed to detect important program side effects or to assess the 

comparative advantages of current programs to alternative strategies for 

achieving a program’s goals. Further, although the evaluation of programs 

in isolation may be revealing, it is often critical to understand how each 

program fits with a broader portfolio of tools and strategies to accomplish 

federal missions and performance goals. Such an analysis is necessary to 

capture whether a program complements and supports other related 

programs, whether it is duplicative and redundant, or whether it actually 

works at cross-purposes with other initiatives. 

Furthermore, while no data are perfect, agencies need to have sufficiently 

credible performance data to provide transparency of government 

operations so that Congress, program managers, and other decision makers 

can use the information. However, limited confidence in the credibility of 

performance data has been one of the major weaknesses in GPRA 

implementation. Based on our review of agencies fiscal year 2000 and 2001 

performance reports, agencies are not consistently assessing the 

completeness and reliability of their performance data as required by the 

Reports Consolidation Act of 2000.9

7

U.S. General Accounting Office, Performance Reporting: Few Agencies Reported on the 

Completeness and Reliability of Performance Data, GAO-02-372 (Washington, D.C.: Apr. 

26, 2002); and Managing for Results: Opportunities for Continued Improvements in 

Agencies’ Performance Plans, GAO/GGD/AIMD-99-215 (Washington, D.C.: July 20, 1999).

8

U.S. General Accounting Office, Major Management Challenges and Program Risks: Small 

Business Administration, GAO-03-116 (Washington, D.C.: January 2003).

9

U.S. General Accounting Office, Results-Oriented Management: Agency Crosscutting 

Actions and Plans in Drug Control, Family Poverty, Financial Institution Regulation, 

and Public Health Systems, GAO-03-320 (Washington, D.C.: Dec. 20, 2002); ResultsOriented Management: Agency Crosscutting Actions and Plans in Border Control, Flood 

Mitigation and Insurance, Wetlands, and Wildland Fire Management, GAO-03-321

(Washington, D.C.: Dec. 20, 2002); and GAO-02-372.
Page 10 GAO-03-556T 

In attempting to link resources to results, it also will be important to 

measure the full costs of the resources associated with performance goals 

using consistent definitions of costs between and among programs. In 

looking ahead, the integration of reliable cost accounting data into budget 

debates needs to become a key part of the performance budgeting agenda. 

Also, the current budget does not always help policymakers consider the 

long-term costs associated with some activities that commit the 

government to future spending. This may limit the attention given to the 

future sustainability and flexibility of the government’s fiscal position and 

the cost effectiveness of existing programs. 

Although clearly much more remains to be done, together GPRA and the 

CFO Act have laid the foundation for performance budgeting by 

establishing infrastructures in the agencies to improve the supply of 

information on performance and costs. Merely the number of programs 

“killed” or a measurement of funding changes against performance 

“grades” cannot measure the success of performance budgeting. Rather, 

success must be measured in terms of the quality of the discussion, the 

transparency of the information, the meaningfulness of that information to 

key stakeholders, and how it is used in the decision-making process. The 

determination of priorities is a function of competing values and interests 

that may be informed by performance information but also reflects such 

factors as equity, unmet needs, and the perceived appropriate role of the 

federal government in addressing these needs. If members of Congress and 

the executive branch have better information about the link between 

resources and results, they can make the trade-offs and choices cognizant 

of the many and often competing claims on the federal budget.

Improved Financial 

Performance

The PMA initiative to improve financial performance is aimed at ensuring 

that federal financial systems produce accurate and timely information to 

support operating, budget, and policy decisions. It focuses on key issues 

such as data reliability, clean financial statement audit opinions, and 

effective financial management systems and internal control. Our work 

also demonstrates the importance of improvement efforts that are under 

way. In the area of financial performance, however, we have pointed out 

that the federal government is a long way from successfully implementing 

the statutory reforms that Congress enacted during the 1990s. 

Reliable cost data are critical for effective performance measurement to 

support program management decisions in areas ranging from program 

efficiency and effectiveness to sourcing and contract management. For 
Page 11 GAO-03-556T 

effective management, this information must not only be timely and 

reliable, but also both useful and used. Under this PMA initiative, agencies 

are expected to implement integrated financial and performance 

management systems that routinely produce information that is (1) 

timely—to measure and affect performance immediately, (2) useful—to 

make more informed operational and investing decisions, and 

(3) reliable—to ensure consistent and comparable trend analysis over time 

and to facilitate better performance measurement and decision making. 

This result is a key to successfully achieving the goals that Congress 

established in the CFO Act and other federal financial management reform 

legislation. 

The executive branch management scorecard for the financial performance 

area not only recognizes the importance of achieving an unqualified or 

“clean” opinion from auditors on financial statements, but also focuses on 

the fundamental and systemic issues that must be addressed in order to 

routinely generate timely, accurate, and useful financial information and 

provide sound internal control and effective compliance systems. 

PMA stated that a clean financial audit is a basic prescription for any wellmanaged organization, and recognized that “most federal agencies that 

obtain clean audits only do so after making extraordinary, labor-intensive 

assaults on financial records.” Receiving a clean opinion on annual 

financial statements is an important milestone, which 21 of the 24 agencies 

designated under the CFO Act achieved for fiscal year 2002. 

Even more critical, however, is the capability and quality of the supporting 

financial management systems in ensuring that agencies can meet the 

scorecard measures for timely, accurate, and useful financial, program 

cost, and other important management information needed for decision 

making and monitoring government performance every day. The scorecard 

also measures whether agencies have any material internal control 

weaknesses or material noncompliance with laws and regulations, and 

whether agencies meet Federal Financial Management Improvement Act 

(FFMIA)10 requirements. As stated in PMA, without sound internal controls 

and accurate and timely financial information, it will not be possible to 

10FFMIA requires auditors to report whether agencies’ financial management systems 

comply with federal financial management systems requirements, applicable federal 

accounting standards (U.S. generally accepted accounting principles), and the U.S. 

Government’s Standard General Ledger at the transaction level.
Page 12 GAO-03-556T 

accomplish the President’s agenda to secure the best performance and 

highest measure of accountability for the American people. 

Much work remains to be done across government to improve financial 

performance, as shown by the December 2002 scorecards. Of the 22 CFO 

Act agencies that OMB scored,11 15 were in the red category for financial 

performance.12 This is not surprising, considering the well-recognized need 

to transform financial management and other business processes at 

agencies such as the Department of Defense, the results of our analyses 

under FFMIA, and the various financial management operations we have 

designated as high risk. Four agencies improved their scores from the 

initial baseline evaluation for financial performance as of September 30, 

2001; 13 however, two agencies’ scores declined, reflecting increased 

challenges. 14 Overhauling financial management represents a challenge 

that goes far beyond financial accounting to the very fiber of a department’s 

business operations and management culture, particularly at agencies with 

longstanding problems, such as DOD.15 Further, establishing sound 

financial management will be a critical success factor for the 

implementation of the Department of Homeland Security.16

In the area of financial performance we have continued to point out that 

the federal government is a long way from successfully implementing 

needed financial management reforms. Widespread financial management

11The Federal Emergency Management Agency, which was consolidated into the 

Department of Homeland Security, and the Nuclear Regulatory Commission were not 

scored. The Department of Homeland Security also received a red in financial performance.

12These include the Departments of Agriculture, Commerce, Defense, Education, Health and 

Human Services, Housing and Urban Development, the Interior, Justice, State, 

Transportation, the Treasury, and Veterans Affairs; the Agency for International 

Development; and the National Aeronautics and Space Administration. 

13The Departments of Energy and Labor, and the Environmental Protection Agency and 

Office of Personnel Management.

14The National Aeronautics and Space Administration and the Small Business 

Administration declined.

15U.S. General Accounting Office, Major Management Challenges and Program Risks: 

Department of Defense, GAO-03-98 (Washington, D.C.: January 2003); and GAO-03-119.

16U.S. General Accounting Office, Homeland Security: Management Challenges Facing 

Federal Leadership, GAO-03-260 (Washington, D.C.: Dec. 20, 2002).
Page 13 GAO-03-556T 

system weaknesses, poor recordkeeping and documentation, weak internal 

controls, and the lack of information have prevented the government from 

having the cost information needed to effectively and efficiently manage 

operations through measuring the full cost and financial performance of 

programs and accurately reporting a large portion of its assets, liabilities, 

and costs. The government’s ability to adequately safeguard significant 

assets has been impaired by these conditions.

One of the challenges that many agencies face is the difficulty of ensuring 

that underlying financial management processes, procedures, and 

information systems are in place for effective program management. 

Agencies need to take steps to continuously improve internal controls and 

underlying financial and management information systems to ensure that 

managers and other decision makers have reliable, timely, and useful 

financial information to ensure accountability; measure, control, and 

manage costs; manage for results; and make timely and fully informed 

decisions about allocating limited resources. In October 2002, we reported 

that meeting FFMIA requirements presents long-standing, significant 

challenges that will only be met through time, investment, and sustained 

emphasis on correcting deficiencies in federal financial management 

systems.17 The widespread systems problems facing the federal 

government need sustained management commitment at the highest levels 

of government to ensure that these needed modernizations come to 

fruition. PMA provides the visibility needed for sustaining these efforts. 

This PMA initiative also focuses special attention on addressing erroneous 

payments, credit card abuse in the federal government, and asset 

management. These areas, on which we have reported problems and 

challenges, have undermined government financial performance.18 Our 

work has shown, for example, that the Centers for Medicare & Medicaid 

Services (CMS) has made improvements in assessing the level of improper 

payments, collecting overpayments from providers, and building the 

foundation for modernizing its information technology. Nevertheless, much 

17U.S. General Accounting Office, Financial Management: FFMIA Implementation 

Necessary to Achieve Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002).

18U.S. General Accounting Office, Financial Management: Coordinated Approach Needed 

to Address the Government’s Improper Payments Problems, GAO-02-749 (Washington, 

D.C.: Aug. 9, 2002); Government Purchase Cards: Control Weaknesses Expose Agencies to 

Fraud and Abuse, GAO-02-676T (Washington, D.C.: May 1, 2002); and High-Risk Series: 

Federal Real Property, GAO-03-122 (Washington, D.C.: January 2003).
Page 14 GAO-03-556T 

work remains to be done, given the magnitude of its challenges to 

safeguard program payments. This includes more effectively overseeing 

Medicare’s claims administration contractors, managing the agency’s 

information technology initiatives, and strengthening financial 

management processes across multiple contractors and agency units. In 

light of these challenges and the program’s size and fiscal significance, 

Medicare remains on our list of high-risk programs.19

Across government, there is a range of financial management improvement 

initiatives under way that, if effectively implemented, will improve the 

quality of the government’s financial management and reporting. Federal 

agencies have started to make progress in their efforts to modernize their 

financial management systems and improve financial management 

performance as called for in PMA. 

In August 2001, the Principals of the Joint Financial Management 

Improvement Program (JFMIP) began a series of periodic meetings and 

have agreed on key financial management reform issues such as better 

defining measures for financial management success.20 The Executive 

Branch Management Scorecard embraces these new measures. The JFMIP 

Principals also agreed that agency financial statement reporting should be 

significantly accelerated to improve the timeliness of the government’s 

financial statements and to discourage costly efforts designed to obtain 

unqualified opinions on financial statements without addressing underlying 

systems challenges. For fiscal year 2004, audited agency financial 

statements are to be issued no later than November 15, with the U.S. 

government’s audited consolidated financial statements becoming due by 

December 15. Two agencies, the Department of the Treasury and the Social 

Security Administration, met the accelerated date for fiscal year 2002. 

Although many actions have been taken, the continued leadership and 

personal commitment of the Principals is necessary to continue the 

momentum for improving the government’s financial management and 

performance. 

19U.S. General Accounting Office, Major Management Challenges and Program Risks: 

Department of Health and Human Services, GAO-03-101 (Washington, D.C.: January 2003); 

and GAO-03-119.

20The JFMIP principals are the Secretary of the Treasury, the Director of OMB, the Director 

of OPM, and the Comptroller General of the United States.
Page 15 GAO-03-556T 

Expanded Electronic 

Government 

Electronic government (e-government) offers many opportunities to better 

serve the public, make government more efficient and effective, and reduce 

costs. Federal agencies have implemented a wide array of e-government 

applications, including using the Internet to collect and disseminate 

information and forms; buy and pay for goods and services; submit bids 

and proposals; and apply for licenses, grants, and benefits. Although 

substantial progress has been made, the government has not yet fully 

reached its potential in this area.21

Recognizing the magnitude of challenges facing the federal government, 

Congress has enacted important legislation to guide the development of egovernment. In 1998, Congress enacted the Government Paperwork 

Elimination Act, which requires federal agencies to provide the public, 

when practicable, the option of submitting, maintaining, and disclosing 

required information electronically. More recently the E-Government Act of 

2002 includes provisions to promote the use of the Internet and other 

information technologies to provide government services electronically; 

strengthen agency information security; and define how to manage the 

federal government’s growing information technology human capital 

needs. In addition, this act established an Office of Electronic Government 

within OMB to provide strong central leadership and full-time commitment 

to promoting and implementing e-government.

To implement this PMA initiative, OMB has selected 25 e-government 

efforts that focus on a wide variety of services, aiming to simplify and unify 

agency work processes and information flows, provide one-stop services to 

citizens, and enable information to be collected on line once and reused, 

rather than being collected many times. For example, Recreation One-Stop 

is a Web portal for a single point of access to information about parks and 

other recreation areas. There are other e-government efforts that do not 

necessarily rely on the Internet, such as the e-payroll initiative to 

consolidate federal payroll systems. The results from these e-government 

initiatives, according to OMB, could produce several billions of dollars in 

savings from improved operational efficiency. To obtain such savings—and 

significantly improve service to citizens—it will be critically important that 

these efforts are well managed as the government undertakes the 

challenging task of turning good ideas into real-world results.

21U.S. General Accounting Office, Electronic Government: Proposal Addresses Critical 

Challenges, GAO-02-1083T (Washington, D.C.: Sept. 18, 2002).
Page 16 GAO-03-556T 

While many of the e-government initiatives are showing tangible results, 

progress has been uneven. Our review of the planning documents for the egovernment initiatives highlight the critical importance of management and 

oversight to their success.22 Important aspects—such as collaboration 

among agencies and other governmental entities and a focus on identifying 

and addressing customers’ needs—had not been incorporated into early 

program plans for many of the projects, and major uncertainties in funding 

and milestones were not uncommon. In particular, fewer than half 

addressed collaboration and customer focus, despite the importance of 

these topics to e-government strategy and goals. Similarly, the accuracy of 

estimated costs in the funding plans was questionable and some of the 

estimates changed significantly between May and September 2002. 

Accurate cost, schedule, and performance information is essential to 

ensure that projects are on schedule and achieve their goals. 

In order to help ensure the success of the President’s objective of 

expanding e-government to improve the potential value of government to 

citizens, we have recommended that the Director of OMB ensure that the 

managing partners for all e-government initiatives (1) focus on customers 

by soliciting input from the public and conducting user needs assessments, 

(2) work with partner agencies to develop and document effective 

collaboration strategies, and (3) provide OMB with adequate information to 

monitor the cost, schedule, and performance.23

Increasingly, the challenges that the government faces are 

multidimensional problems that cut across numerous programs, agencies, 

and governmental tools. For example, a critical aspect of implementing 

effective e-government solutions and developing and deploying major 

systems development projects is ensuring that robust information security 

is built into these endeavors early and is periodically revisited. 

Since we designated computer security in the federal government as high 

risk in 1997, there is evidence that pervasive weaknesses continue. For 

example, although the Internal Revenue Service (IRS) had corrected or 

22U.S. General Accounting Office, Electronic Government: Success of the Office of 

Management and Budget’s 25 Initiatives Depends on Effective Management and 

Oversight, GAO-03-495T (Washington, D.C.: Mar. 13, 2003).

23U.S. General Accounting Office, Electronic Government: Selection and Implementation of 

the Office of Management and Budget’s 24 Initiatives, GAO-03-229 (Washington, D.C.: Nov. 

22, 2002).
Page 17 GAO-03-556T 

mitigated many of the computer security weaknesses identified in our 

previous reports, much more needs to be done to resolve the significant 

control weaknesses that continue within IRS’ computing environment and 

to be able to promptly address new security threats and risks as they 

emerge.24 Related risks have escalated, in part because of the rapid 

increase in computer interconnectivity and increasing dependence on 

computers to support critical operations and infrastructures, such as 

power distribution, water supply, national defense, and emergency 

services. This year, we expanded this high-risk area to include protecting 

information systems that support our nation’s critical infrastructures. 

Among the actions essential to sustaining federal information security 

improvements are the agencies’ development of effective risk management 

programs and the development of a comprehensive strategy to guide 

agencies’ efforts.

The growth in electronic information—as well as the new security threats 

facing our nation—highlight privacy issues. On-line privacy has emerged as 

one of the key—and most contentious—issues surrounding the continued 

evolution of the Internet. The government cannot realize the full potential 

of the Internet until people are confident that the government will protect 

their privacy when they visit its web sites. We have made recommendations 

to strengthen governmentwide privacy guidance and oversight of agency 

practices that OMB has not yet implemented. For example, we 

recommended that the Director of OMB determine whether current 

oversight strategies are adequate to ensure agencies’ adherence to web site 

privacy policies and whether the policies will need further revision as web 

practices continue to evolve.25

Competitive Sourcing As part of the PMA initiative to achieve efficient and effective competition 

between public and private sources, the administration has committed to 

simplifying and improving the procedures for evaluating public and private 

sources. Among the factors that agencies must consider as they determine 

how best to meet their missions is whether the public or private sector 

24U.S. General Accounting Office, High-Risk Series: Protecting Information Systems 

Supporting the Federal Government and the Nation’s Critical Infrastructures, GAO-03-121

(Washington, D.C.: January 2003); and Financial Audit: IRS’ Fiscal Year 2001 and 2000 

Financial Statements, GAO-02-414 (Washington, D.C.: Feb. 27, 2002).

25U.S. General Accounting Office, Internet Privacy: Agencies’ Efforts to Implement OMB’s 

Privacy Policy, GAO/GGD-00-191 (Washington, D.C.: Sept. 5, 2000).
Page 18 GAO-03-556T 

would be the most appropriate provider of the services the government 

needs. Aspects of the current process for making such decisions have been 

criticized as cumbersome, complicated, and slow. Against this backdrop, 

and in response to a requirement in the National Defense Authorization Act 

for fiscal year 2001, the Comptroller General convened a panel of experts 

to study the current process used by the government to make sourcing 

decisions. The Commercial Activities Panel, consisting of representatives 

from agencies, federal labor unions, private industry, and other individuals 

with expertise in this area, conducted a yearlong study. The panel members 

heard repeatedly about the importance of competition and its central role 

in fostering economy, efficiency, and continuous performance 

improvement. The panel strongly supported continued emphasis on 

competition and concluded that whenever the government is considering 

converting work from one sector to another, public-private competitions 

should be the norm, consistent with the principles adopted unanimously by 

the panel.26

As part of the administration’s efforts to advance this PMA initiative and 

implement the recommendations of the Commercial Activities Panel, OMB 

published proposed changes to Circular A-76 for public comment. This 

circular sets forth federal policy for determining whether federal 

employees or private contractors will perform commercial activities 

associated with conducting the government’s business. In January, the 

Comptroller General commented on OMB’s proposed revision, and noted 

that in many ways it was consistent with the sourcing principals and 

recommendations adopted by the Commercial Activities Panel.27 In 

particular, the proposal stresses the use of competition in making sourcing 

decisions and, through reliance on procedures contained in the Federal 

Acquisition Regulation, should result in a more transparent, expeditious, 

fair, and consistently applied competitive process. The proposal should 

promote sourcing decisions that reflect the best overall value to the 

agencies, rather than just the lowest cost. Importantly, the proposed 

revision also should result in greater accountability for performance, 

regardless of the service provider selected.

26Improving the Sourcing Decisions of the Government. Final report of the Commercial 

Activities Panel (Washington, D. C.: April 2002).

27U.S. General Accounting Office, Proposed Revisions to OMB Circular A-76, GAO-03-391R

(Washington, D.C.: Jan. 16, 2003).
Page 19 GAO-03-556T 

There are several areas, however, where the proposed revisions to the 

circular were not consistent with the principles or recommendations of the 

panel. Specifically, these include the absence of a link between sourcing 

policy and agency missions, unnecessarily complicated source selection 

procedures, certain unrealistic time frames, and insufficient guidance on 

calculating savings. Federal sourcing policy should support agency 

missions, goals, and objectives. In other words, sourcing policy is not just 

about choosing among potential service providers. Rather, an agency’s 

sourcing policy should be viewed as part of an overall strategy for how best 

to accomplish the mission of the agency, including how it conducts human 

capital planning. The circular requires that agencies report the savings that 

accrue from A-76 competitions but does not provide any guidance on how 

savings are to be calculated. Our work examining the use of Circular A-76 

in the Department of Defense has shown a lack of consistency among and 

even within the military services in how they calculate savings. Additional 

OMB guidance, additional training, technical resources, or other support 

for agency officials would be helpful for agency officials in preparing for 

and participating in public-private competitions.

The critical issue for all affected parties is how the government’s sourcing 

policies are implemented. In this regard, one of the panel’s sourcing 

principles was that the government should avoid arbitrary numerical or 

full-time equivalent goals.28 This principle is based on the concept that the 

success of government programs should be measured by the results 

achieved in terms of providing value to the taxpayer, not the size of the inhouse or contractor workforce. Although the proposed revised circular 

contains no numerical targets or goals for competitive sourcing, this has 

been a controversial area in the past. In our view, the administration needs 

to avoid arbitrary targets or quotas, or any goal that is not based on 

considered research and analysis.

28Full time equivalent is a measure of staff hours equal to those of a full-time employee 

working 40 hours per week over the course of a year.
Page 20 GAO-03-556T 

Continuing Attention Is 

Needed to Improve 

Management and 

Performance Across 

the Federal 

Government

As my testimony today has highlighted, serious and disciplined efforts are 

needed to improve the management and performance of federal agencies 

and to ensure accountability. Along with OMB’s leadership in implementing 

PMA, it will only be through the attention of Congress, the administration, 

and federal agencies, that progress can be sustained and, more importantly, 

accelerated. To be successful, management improvement initiatives must 

become a part of agencies’ programs and day-to-day actions. 

Congressional support has proven to be critical in sustaining interest in 

management initiatives over time. Congress has served as an institutional 

champion for many of the management reform initiatives over the years, 

such as the CFO Act and GPRA. Congress has also provided a consistent 

focus for oversight and has reinforced important policies. Making pertinent 

and reliable information available will be necessary for Congress to 

adequately assess agencies’ progress toward PMA initiatives and to ensure 

accountability for results. 

To facilitate congressional oversight and support executive branch 

performance and decision making, the administration could develop and 

use a governmentwide performance plan. This plan, required under the 

GPRA, could become a valuable tool to help Congress and the executive 

branch address critical federal performance and management issues by 

building on the knowledge about the range of programs and tools, 

including baseline and trend information, that are directed toward 

achieving similar results. The first governmentwide performance plan was 

issued in February 1998, and it reflected the challenges of preparing a plan 

for an entity as large and diverse as the federal government. We noted that, 

among other things, attention was needed to emphasize an integrated, 

governmentwide perspective throughout the plan.29

Preparing a governmentwide plan could build on the administration’s 

efforts to assess progress across the government as well as contribute to 

efforts to compare the performance results across similar programs that 

address common outcomes. Although there has been limited progress, 

efforts to date have not provided the Congress and others with an 

integrated perspective on the extent to which programs and tools 

29U.S. General Accounting Office, The Results Act: Assessment of the Governmentwide 

Performance Plan for Fiscal Year 1999, GAO/AIMD/GGD-98-159 (Washington, D.C.: Sept. 8, 

1998).
Page 21 GAO-03-556T 

contribute to national goals and position the government to successfully 

meet 21st century demands. 

Mr. Chairman, we are pleased to be able to participate in this hearing today 

and look forward to participating in future oversight hearings you have 

planned on specific PMA initiatives. We have issued a large body of reports, 

guides, and tools on issues directly relevant to PMA, and we plan to 

continue to actively support congressional and agency actions to address 

today’s challenges and prepare for the future. As I have discussed in my 

statement today, although efforts to transform agencies by improving their 

management and performance are under way, more remains to be done to 

ensure that the government has the capacity to deliver on its promises and 

meet current and emerging needs. Decisive action and sustained attention 

will be necessary to transform the federal government, maximize its 

performance, and ensure accountability.

This concludes my prepared statement. I would be pleased to respond to 

any questions that you or other members of the subcommittee may have. 

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