As is the case with each new Congress, we are beginning to have discussions with regard to many new requests for GAO’s professional, objective, fact-based, nonpartisan, and non-ideological information, analysis, and recommendations. On November 17, 2006, I was pleased to offer three sets of recommendations for your consideration as part of the agenda of the 110th Congress. The first recommendation suggests targets for near-term oversight; the second proposes policies and programs in need of fundamental reform and re-engineering; the third lists governing issues. The proposals represent an effort to synthesize GAO’s institutional knowledge and special expertise and suggest both the breadth and the depth of the issues facing the new Congress. We at GAO stand ready to assist the 110th Congress in meeting its constitutional responsibilities. To be effective, congressional hearings and other activities should offer opportunities to share best practices, facilitate governmentwide transformation, and promote accountability for delivering positive results. On January 9, 2007, we presented GAO’s assessment of the key oversight issues related to Iraq for consideration in developing the oversight agenda of the 110th Congress and in analyzing the President’s revised strategy for Iraq. This assessment was based on our ongoing work and the 67 Iraq- related reports and testimonies we have provided to the Congress since May 2003. Our work spans the security, political, economic, and reconstruction prongs of the U.S. national strategy in Iraq. The broad, crosscutting nature of this work helps minimize the possibility of overlap and duplication by any individual inspector general. Our work has focused on the U.S. strategy and costs of operating in Iraq, training and equipping the Iraqi security forces, governance and reconstruction issues, the readiness of U.S. military forces, and achieving desired acquisition outcomes. Our current work draws on our past work and regular site visits to Iraq and the surrounding region, such as Jordan and Kuwait. We plan to establish a presence in Iraq beginning later this fiscal year to provide additional oversight of issues deemed important to the Congress; subject to approval by the U.S. Department of State and adequate funding. We have requested supplemental fiscal year 2007 funds of $374,000 to support this effort. In January of this year, we also issued our High-Risk Series: An Update, which identifies federal areas and programs at risk of fraud, waste, abuse, and mismanagement and those in need of broad-based transformations. The issues affecting many of these areas and programs may take years to address, and the report will serve as a useful guide for the Congress’s future programmatic deliberations and oversight activities. Issued to coincide with the start of each new Congress, our high-risk update, first issued in 1993, has helped Members of the Congress who are responsible for oversight and executive branch officials who are accountable for performance. Our high-risk program focuses on major government programs and operations that need urgent attention or transformation to ensure that our government functions in the most economical, efficient, and effective manner possible. Overall, our high-risk program has served to identify and help resolve a range of serious weaknesses that involve substantial resources and provide critical services to the public. Table 1 details our 2007 high-risk list. In February of this year, we issued a new publication entitled Fiscal Stewardship: A Critical Challenge Facing Our Nation that is designed to provide the Congress and the American public, in a relatively brief and understandable form, selected budget and financial information regarding our nation’s current financial condition, long-term fiscal outlook, and possible ways forward. 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 growing long-term fiscal imbalance. Indeed, as the Congress considers those fiscal pressures, it will be grappling with tough choices about what government does, how it does business, and who will do the government’s business. GAO is an invaluable tool for helping the Congress review, reprioritize, and revise existing mandatory and discretionary spending programs and tax policies. In addition, I have participated in a series of town hall forums around the nation to discuss the federal government’s current financial condition and deteriorating long-term fiscal outlook, including the challenges posed by known long-term demographic trends and rising health care costs. These forums, popularly referred to as the “Fiscal Wake-up Tour,” are led by the Concord Coalition and also include the Heritage Foundation, the Brookings Institution, and a range of “good government” groups. The Fiscal Wake-up Tour states the facts regarding the nation’s current financial condition and long-term fiscal outlook in order to increase public awareness and accelerate actions by appropriate federal, state, and local officials. We anticipate that the funds requested for fiscal year 2008 will support efforts similar to those just completed in fiscal year 2006. The following discussions summarize that work. In fiscal year 2006, major events like the nation’s recovery from natural disasters, ongoing military conflicts abroad, terrorist threats, and potential pandemics repeatedly focused the public eye on the federal government’s ability to operate effectively and efficiently and provide services to Americans when needed. Our work during the year helped the Congress and the public judge how well the federal government performed its functions and consider alternative approaches for improving operations and laws when performance was less than adequate. For example, teams supporting all three of our external strategic goals performed work related to every facet of the Hurricane Katrina and Rita disasters—preparedness, response, recovery, long-term recovery, and mitigation. We developed a coordinated and integrated approach to ensure that the Congress’s need for factual information about disaster preparedness, response, recovery, and reconstruction activities along the Gulf Coast was met. We examined how federal funds were used during and after the disaster and identified the disaster rescue, relief, and rebuilding processes that worked well and not so well throughout the effort. To do this, staff drawn from across the agency spent time in the hardest hit areas of Louisiana, Mississippi, Alabama, and Texas, collecting information from government officials at the federal, state, and local levels as well as from private organizations assisting with this emergency management effort. We briefed congressional staff on our preliminary observations early in fiscal year 2006 and subsequently issued over 30 reports and testimonies on Hurricanes Katrina and Rita by fiscal year end, focusing on, among other issues, minimizing fraud, waste, and abuse in disaster assistance and rebuilding the New Orleans hospital care system. The following tables provide summary information on GAO’s fiscal year 2006 performance and the results achieved in support of the Congress and the American people. Additional information on our performance results can be found in Performance and Accountability Highlights Fiscal Year 2006 at www.gao.gov. Table 2 provides examples of how GAO assisted the nation in fiscal year 2006. During fiscal year 2006, we used 16 annual performance measures that capture the results of our work; the assistance we provided to the Congress; our ability to attract, retain, develop, and lead a highly professional workforce; and how well our internal administrative services help employees get their jobs done and improve their work life (see table 3). We generally exceeded the targets we set for all of our performance measures, which indicate our ability to produce results for the nation and serve the Congress. In fiscal year 2006, our work generated $51 billion in financial benefits, primarily from actions agencies and the Congress took in response to our recommendations. Of this amount, about $27 billion resulted from changes to laws or regulations, $10 billion resulted from agency actions based on our recommendations to improve services to the public, and $14 billion resulted from improvements to core business processes. See figure 2 for examples of our fiscal year 2006 financial benefits. (Dollars in billions) (Dollars in billions) Ensured continued monetary benefits from federal spectrum auctions. Encouraged DOD to identify and reduce unobligated funds in the military services’ operations and maintenance budget Recommended payment methods that cut Medicare costs for durable medical equipment, orthotics, and prosthetics. Helped to ensure that certain U.S. Postal Service retirement-related benefits would be funded. Identified recoverable costs for the Tennessee Valley Authority. Helped to increase collections of civil debt. Encouraged the Department of Housing and Urban Development to take actions to reduce improper payments. Supported the Department of Energy’s efforts to reduce its carryover funds. Many of the benefits that result from our work cannot be measured in dollar terms. During fiscal year 2006, we recorded a total of 1,342 nonfinancial benefits. For example, we documented 61 instances where information we provided to the Congress resulted in statutory or regulatory changes, 667 instances where federal agencies improved services to the public, and 614 instances where agencies improved core business processes or governmentwide reforms were advanced. These actions spanned the full spectrum of national issues, from identifying the adverse tax impact of combat pay and certain tax credits on low-income military families to improving the Department of State’s process for developing staffing projections for new embassies. See figure 3 for additional examples of GAO’s nonfinancial benefits in fiscal year 2006. During fiscal year 2006, experts from our staff testified at 240 congressional hearings covering a wide range of complex issues (seetable 4). For example, our senior executives testified on a variety of issues, including freight rail rates, AIDS assistance programs, and federal contracting. Over 100 of the hearings at which we testified were related to areas and programs we designated as high risk. Our fiscal year 2008 budget request seeks the resources necessary to allow GAO to rebuild and enhance its workforce, knowledge capacity, employee programs, and infrastructure. These items are critical to ensure that GAO can continue to provide congressional clients with timely, objective, and reliable information on how well government programs and policies are working and, when needed, recommendations for improvement. 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 growing long-term fiscal imbalance. GAO is an invaluable tool for helping the Congress review, reprioritize, and revise existing mandatory and discretionary spending programs and tax policies. Consistent with our strategic goal to be a model agency, we continuously assess our operations to ensure that GAO remains an effective, high- performing organization, providing timely, critical support to the Congress while being fiscally responsive. Our objective is to be an employer of choice; maintain skills/knowledge, performance-based, and market- oriented compensation systems; adopt best practices; benchmark service levels and costs against comparable entities; streamline our operations to achieve efficiencies; assess opportunities for cross-servicing, outsourcing, or business process re-engineering; and leverage technology to increase efficiency, productivity, and results. We also continue to partner within and across the legislative branch through the legislative branch Chief Administrative Officers, financial management, and procurement councils. Transformational change and innovation is essential for progress. Our fiscal year 2008 budget request includes funds to regain the momentum needed to achieve these goals. Our fiscal year 2008 budget request will allow GAO to address supply and demand imbalances in responding to congressional requests for studies in areas such as health care, disaster assistance, homeland security, the global “war on terrorism,” energy and natural resources, and forensic auditing; address our increasing bid protest workload; be more competitive in the labor markets where GAO competes for talent; address critical human capital components, such as knowledge capacity building, succession planning, and staff skills and competencies; enhance employee recruitment, retention, and development programs; restore program funding levels and regain our purchasing power; undertake critical initiatives necessary to continuously re-engineer processes geared to increasing our productivity and effectiveness and addressing identified management challenges; and pursue critical structural and infrastructure maintenance and improvements. Our fiscal year 2008 budget request represents an increase of $41.7 million (or 8.5 percent) over our fiscal year 2007 funding level and includes about $523 million in direct appropriations and authority to use about $7.5 million in offsetting collections as illustrated in table 5. This request reflects a reduction of nearly $5.4 million in nonrecurring fiscal year 2007 costs used to offset the fiscal year 2008 increase. Mandatory pay and uncontrollable cost increases. We are requesting $24.9 million to cover anticipated mandatory performance-based pay and uncontrollable inflationary increases resulting primarily from annual across-the-board and performance-based increases, annualization of prior fiscal year costs, and an increase in the number of compensable days in fiscal year 2008. These costs also include uncontrollable inflationary increases imposed by vendors as the cost of doing business. Rebuilding our capacity. Our fiscal year 2007 budget request sought funds to support an increase of 50 FTEs from 3,217 to 3,267. However, in order to manage within expected funding levels in fiscal year 2007, we will significantly curtail hiring by about 50 percent below the previous year, resulting in a projected FTE utilization of 3,159—well below our planned level. In fiscal years 2007 and 2008, we anticipate attrition of over 600 staff that will result in a significant drain on GAO’s knowledge capacity or institutional memory. Further, almost 20 percent of all GAO staff will be eligible for retirement by the end of fiscal year 2008, including almost 45 percent of our senior executive service. Thus, in fiscal year 2008, we are seeking funds to rebuild our staff and knowledge capacity. In fiscal year 2008, we plan to hire about 490 staff— the maximum that we could reasonably absorb—increasing our FTE utilization to 3,217. While we are tempering our immediate FTE request, increasingly higher demands are being placed on GAO. We are experiencing supply and demand imbalances in several areas of critical importance to the Congress (e.g., health care, homeland security, and energy and natural resources). We have also seen an increase in the number of bid protest filings. Also, to remain competitive in the labor markets, we need to increase employee benefits in areas such as student loan repayments and transit subsidies where funding constraints in fiscal year 2007 limit our flexibility. For example, effective in January 2007, the IRS increased the monthly benefit for transit subsidies for eligible employees who commute using public transportation. GAO, however, is unable to extend this increased benefit to staff. In addition, we need to ensure that staff have the appropriate tools and resources to perform effectively, including training and development, travel funds, and technology. And when our staff perform well, they should be appropriately rewarded. Undertake critical investments. We are requesting funds to undertake critical investments that would allow us to implement technology improvements and streamline and re-engineer work processes to enhance the productivity and effectiveness of our staff, conduct essential investments that have been deferred as the result of funding constraints and cannot continue to be deferred, and implement responses to changing federal conditions, such as smart card technology. Also, during recent years, we reduced, deferred, and slowed the pace of critical upgrades (e.g., engagement and administrative process upgrades) and deferred nonessential administrative activities. In fiscal year 2008, we would like to have sufficient funding to take action to protect our current investments and continue to be a model agency and lead by example. Legislative authority. We are requesting legislation to establish a Board of Contract Appeals at GAO to adjudicate contract claims involving contracts awarded by legislative branch agencies. GAO has performed this function on an ad hoc basis over the years for appeals of claims from decisions of the Architect of the Capitol on contracts that it awards. Recently we have agreed to handle claims arising under Government Printing Office contracts. The legislative proposal would promote efficiency and predictability in the resolution of contractor and agency claims by consolidating such work in an established and experienced adjudicative component of GAO and would permit GAO to recover its costs of providing such adjudicative services from legislative branch users of such services. We also plan to request legislation that will assist GAO in performing its mission work and enhance our human capital policies, including addressing certain compensation and benefits issues of interest to our employees. While there are a number of important provisions, today I will only discuss several of the significant ones. Regarding provisions concerned with mission work, we have identified a number of legislative mandates that are either no longer meeting the purpose intended or should be performed by an entity other than GAO. We are working with the cognizant entities and the appropriate authorization and oversight committees to discuss the potential impact of legislative relief for these issues. Another provision would modernize the authority of the Comptroller General to administer oaths in performance of the work of the office. To keep the Congress apprized of difficulties we have interviewing agency personnel and obtaining agency views on matters related to ongoing mission work, we will suggest new reporting requirements. When agencies or other entities ignore a request by the Comptroller General to have personnel provide information under oath, make personnel available for interviews, or provide written answers to questions, the Comptroller General would report to the Congress as soon as practicable and also include such information in the annual report to the Congress. In regard to GAO’s human capital flexibilities, among other provisions, we are proposing a flexibility that allows us to better approximate market rates for professional positions by increasing our maximum pay for other than the Senior Executive Service and Senior Level from GS-15, step 10, to Executive Level III. Additionally, under our revised and contemporary merit pay system, certain portions of an employee’s merit increase, below applicable market-based pay caps, are not permanent. Since this may impact an employee’s high three for retirement purposes, another key provision of the bill would enable these nonpermanent payments to be included in the retirement calculation for all GAO employees, except senior executives and senior level personnel. In summary, I believe that you will find our budget request reasonable, responsible, and well-justified given the important role that GAO plays and the unparalleled return on investment that GAO generates. We are grateful for the Congress’s continued support of our mutual effort to improve government and for providing the resources that allow us to be a world- class professional services organization. We are proud of our record performance and the positive impact we have been able to effect in government over the past year and believe an investment in GAO will continue to yield substantial returns for the Congress and the American people. Our nation will continue to face significant challenges in the years ahead. GAO’s expertise and involvement in virtually every facet of government positions us to provide the Congress with the timely, objective, and reliable information it needs to discharge its constitutional responsibilities. Mrs. Chairwoman and Members of the Subcommittee, this concludes my prepared statement. At this time, I would be pleased to answer any questions that you or other Members of the Subcommittee may have. 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. Provide Timely, Quality Service to the Congress and the Provide Timely, Quality Service to the Congress and the Federal Government to . . . Federal Government to . . . . . .. . . Address Current and Emerging Challenges to the Well-Being Address Current and Emerging Challenges to the Well-Being and Financial Security of the American People related to . . . and Financial Security of the American Peoplerelated to . . . Natural resources use and environmental protection . . .. . . Respond to Changing Security Threats and the Challenges of Respond to Changing Security Threats and the Challenges of Global Interdependence involving . . . Global Interdependence involving . . . 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 Maximize the Value of GAO by Being a Model Federal Agency and a World-Class Professional Services Organization in the areas of . . . a World-Class Professional Services Organization in the areas of . . . This is a work of the U.S. government and is not subject to copyright protection in the United States. 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Summary: We would like to thank Congress for its past support of GAO. We are especially appreciative of Congressional efforts to help us avoid a furlough of our staff during fiscal year 2007. Had we not received additional funds this year and not taken other cost minimization actions, GAO would have likely been forced to furlough most staff for up to 5 days without pay. At the same time, due to funding shortfalls, we were not able to make pay adjustments retroactive to January 7, 2007. It is through the efforts of our dedicated and capable staff that we were able to provide the Congress with the professional, objective, fact-based, nonpartisan, non-ideological, fair, and balanced information it needs to meet the full range of its constitutional responsibilities. We are extremely pleased and proud to say that we helped the federal government achieve a total of $51 billion in financial benefits in fiscal year 2006--a record high that represents a return on investment of $105 for every dollar the Congress invested in us. As a result of our work, we also documented 1,342 nonfinancial benefits that helped to improve service to the public, change laws, and transform government operations. The funding we received in fiscal year 2006 allowed us to conduct work that addressed many difficult issues confronting the nation, including U.S. border security, Iraq and Hurricane Katrina activities, the tax gap and tax reform, and issues affecting the health and pay of military service members. Our client-focused performance measures indicate that the Congress valued and was very pleased with our work overall. There is a need for fundamental and dramatic reform to address what the government does, how it does business, and who will do the government's business. 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 growing long-term fiscal imbalance. Also, as we face current and projected supply and demand imbalance issues and a growing workload over the coming years across a wide spectrum of issues, GAO will be unable to respond to congressional demands without a significant investment in our future. We have exhausted the results that we can achieve based on prior investments. Our ability to continue to produce record results and assist the Congress in discharging its Constitutional responsibilities relating to authorization, appropriations, oversight, and other matters will be adversely impacted unless we take action now. Therefore, our fiscal year 2008 budget request is designed to restore GAO's funding to more reasonable operating levels. Specifically, we are requesting fiscal year 2008 budget authority of $530 million, an 8.5 percent increase over our fiscal year 2007 funding level. The additional funds provided in fiscal year 2007 have helped reduce our requested increase for fiscal year 2008 from 9.4 percent to 8.5 percent. This funding level also represents a reduction below the request we submitted to the Office of Management and Budget (OMB) in January as a result of targeted adjustments to our planned fiscal year 2008 hiring plan. Our fiscal year 2008 budget request will allow us to achieve our performance goals to support the Congress as outlined in our strategic plan1 and rebuild our workforce capacity to allow us to better respond to supply and demand imbalances in responding to congressional requests. This funding will also help us address our caseload for bid protest filings, which have increased by more than 10 percent from fiscal years 2002 through 2006. Our workload for the first quarter of fiscal year 2007 suggests a continuation of this upward trend in bid protest fillings. We will be seeking Congressional commitment and support to provide the funding needed to increase GAO's staffing level to 3,750 over the next 6 years in order to address critical needs including supply and demand imbalances, high-risk areas, 21st Century Challenges questions, technology assessments, and other areas in need of fundamental reform. In addition, as we get closer to when GAO may be able to render our opinion on the consolidated financial statements of the U. S. government and the Department of Defense's financial and related systems, we will need to increase our workforce capacity. We will be providing the Congress additional information on the basis for and nature of this target later this year. Importantly, as noted last year, we also plan to request legislation that will assist GAO in performing its mission work, and enhance our human capital policies, including addressing certain compensation and benefits issues of interest to our employees. We plan to submit our proposal to our Senate and House authorization and oversight committees in the near future.