ACF, a major program office within HHS, is responsible for programs that promote the economic and social well-being of low-income and disadvantaged children, families, and their communities. Headed by the Assistant Secretary for Children and Families, ACF’s seven program offices and various staff offices offer policy direction, information services, and funding through a variety of grants to third-party service providers such as state and local governments and nongovernmental organizations. Of the more than $45 billion provided for in fiscal year 2002, over 85 percent went to just five program areas administered by third parties: Temporary Assistance for Needy Families ($16.7 billion), Head Start ($6.5 billion), Foster Care and Adoption Assistance ($6.6 billion), Child Care ($4.8 billion), and Child Support Enforcement and Family Support ($4 billion). ACF’s work is driven by the four GPRA goals indicated in its annual performance plan: (1) increase economic independence and productivity for families, (2) improve healthy development, safety, and well being of children and youth, (3) increase the health and prosperity of communities and tribes, and (4) build a results-oriented organization. As we have previously reported, ACF linked these goals to its funding request by aggregating and consolidating program activities from multiple budget accounts and linking the associated funding requests to sets of performance goals, which it referred to as “objectives” of these four main goals. In fiscal year 2002, ACF’s leadership also established nine key priorities to provide targeted opportunities for collaboration on mission- critical crosscutting activities. As figure 1 shows, ACF is headquartered in Washington, D.C., and has 10 regional offices within five broad geographic areas of the country known as hubs. Regional offices contain about 50 percent of all ACF employees and are responsible for administering most of ACF’s programs and ensuring that program and administrative funds are spent in accordance with ACF goals and initiatives. Headquarters is responsible for setting policy, budget formulation, strategic planning, and legislative affairs. Table 1 describes in further detail the responsibilities of key offices and positions as they pertain to strategic planning and budgeting as well as regional- headquarters operations and relations. As a subordinate unit in HHS, ACF is not an independent entity; its processes, activities, and goals must be seen in the context of the general strategic direction in which HHS is moving. For example, HHS’ requirement that its agencies provide performance information with agency funding requests for fiscal year 2003 is an outgrowth of the GPRA planning process and recent attention to the need for timely and reliable performance information with which to evaluate programs. In keeping with its One Department initiative, HHS’ desire to present a more standardized performance plan for fiscal year 2004 requires its constituent agencies to reduce their total number of performance measures by at least 5 percent while simultaneously increasing their outcome measures by at least 5 percent. The need to respond effectively to these and other priorities and initiatives has led to changes in ACF’s work planning processes and/or how performance is evaluated in the regional offices we visited. Many factors affect the nature of ACF’s budget and planning process. For example, much of ACF funding, including to some extent, how “discretionary” funds may be spent, is directed by statute. For example, because of the prescriptive nature of the funding requirements in the Head Start authorizing legislation, nearly 20 percent of the $338.5 million increase Head Start received in fiscal year 2002 was designated for teacher salary increases. This limits the extent to which ACF controls how Head Start funds are spent. Further, over 70 percent of ACF’s budget funds mandatory programs in which funding levels are determined by formula for disbursement or eligibility rules regardless of program performance. However, ACF officials told us that, as required by HHS, ACF has taken steps to connect resources and performance by linking the incremental request to key ACF priorities and goals. While this does not explicitly lead to performance-based budget decisions, linking funding requests to expected performance is, as we have previously reported, the first step in defining the performance consequences of budget decisions. As discussed later in this report, it is during budget execution, for mandatory and discretionary programs alike, that ACF’s use of training and technical assistance (T/TA) and travel funds and use of staff resources currently show the strongest link between resources and results. To address the objectives in this report, we selected two regional offices (Region VI, Dallas, and Region IX, San Francisco) and three diverse programs (Head Start, Child Support Enforcement, and the Community Services Block Grant) that represent ACF’s self-described best examples of how managers used performance information to inform the resource allocation process. We also obtained staff and management views on the challenges to further budget and performance integration. More detailed information on our scope and methodology, including fuller descriptions of the programs we studied, is in appendix III. A glossary follows that appendix. We conducted our work from January through May 2002 in accordance with generally accepted government auditing standards. Formulation of ACF’s budget and its performance plan are closely related but they are not fully integrated. ACF’s budget and performance plan are based on joint budget and planning guidance issued by HHS in the spring, and the funding request is linked to ACF’s GPRA goals. However, formulation does not begin with evaluating past program performance to inform the upcoming year’s budget request and performance plan. Budget and planning become more closely aligned when the budget request and annual performance plan are sent to the HHS budget and planning staff for review. Finally, allocating resources based on performance is most integrated into day-to-day management during budget execution, which is largely decentralized to the regional offices. (OLAB and OPRE, ACF’s budget and planning offices, respectively, play small roles in this part of the process.) Figure 2 depicts a timeline for a typical ACF budget and planning cycle as well as the roles and responsibilities of the various key players at each stage of the process. ACF’s GPRA planning process follows the budget process and must be completed according to the budget timeline, but formulation does not begin with a formal look-back at program performance to help shape the upcoming year’s budget request and performance plan; thus, the processes are not yet completely integrated. However, ACF does link its funding requests for program activities to GPRA goals. OLAB and OPRE work together to review and clarify the HHS budget and planning guidance, and, as appropriate, distribute supplemental guidance throughout ACF. Also, officials describe frequent communication throughout the formulation process. This is in keeping with practices we have previously reported as those an agency can use to link performance information to the budget process. OLAB is responsible for developing headquarters’ salaries and expense (S&E) budgets with input from program offices. Meanwhile, program offices and regions develop program budgets and regional S&E budgets, respectively, with OLAB ensuring that these budgets align with assumptions outlined in HHS guidance. OLAB also ensures that ACF’s budget package as a whole supports ACF’s priorities and the department’s and OMB’s external monitoring and reporting requirements. OPRE oversees the preparation of ACF’s annual performance plan and provides guidance, analysis, and T/TA to the program units as they develop the plan’s substance. For example, in addition to HHS’ guidance—which includes a standardized format for the performance plan and a description of the types of information to be included in each section—OPRE provides a template that combines an example of an ACF program performance plan with a section-by-section explanation of HHS guidance, as well as tips on content. Figure 3 shows an excerpt from OPRE’s template, with shaded areas representing OPRE’s explanations and guidance. The alignment between budget and planning increases during the second phase of ACF budget formulation when HHS planning staff works with ACF to help ensure that the proposed plan and budget are consistent. As an example, senior HHS planning staff described an instance last year in which the ACF draft performance plan showed a particular discretionary program improving its performance by 5 percent a year, but HHS questioned the feasibility of the performance goal since ACF did not request additional funds for that program. ACF agreed to revisit this goal but, because it was set collaboratively with states, did not change it. HHS also requires its operating divisions to present their budgets to the Secretary’s Budget Council (SBC). The Council is chaired by the Assistant Secretary for Budget, Technology, and Finance, and made up of HHS assistant secretaries and other members of HHS senior leadership. The presentations provide an opportunity for each HHS operating division to present its budget and discuss its proposals for addressing the Secretary’s initiatives such as fatherhood and healthy marriages. Based on these presentations, the Council makes recommendations on HHS’ budget package. HHS budget staff refines these recommendations and presents a final budget package to the Secretary for his decision. HHS also uses the SBC presentations in the push to more closely relate budget formulation and program performance. Last year, for the first time, HHS required its agencies to present to the Council performance information on their programs. In this first effort, capturing the quality of program results without overwhelming the Secretary with information proved difficult. As a result, the presentation did not afford information robust enough to use at the program level—the level at which the Secretary makes decisions. In hopes of better informing the fiscal year 2004 budget process, and in light of OMB’s decision to publish PART ratings for selected federal programs in the 2004 budget, HHS officials told us that they required the operating divisions to score their 31 selected programs using PART.