OMB was established under presidential reorganization authority in 1970, in large part to increase the attention given to management issues in the federal government. OMB is the lead agency for overseeing a framework of recently enacted financial, information resources, and performance planning and measurement reforms designed to improve the effectiveness and responsiveness of federal agencies. This framework contains as its core elements financial management improvement legislation, including the Chief Financial Officers (CFO) Act of 1990, the Government Management Reform Act of 1994, and the Federal Financial Management Improvement Act of 1996; information technology reforms, including the Paperwork Reduction Act (PRA) of 1995 and the Clinger-Cohen Act of 1996; and the Government Performance and Results Act of 1993 (the Results Act). OMB. In addition to serving as the government’s key official for financial management, the DDM is to coordinate and supervise a wide range of general management functions of OMB. These functions include those relating to managerial systems, such as the systematic measurement of performance; procurement policy; regulatory affairs; and other management functions, such as organizational studies, long-range planning, program evaluation, and productivity improvement. OMB is responsible for providing guidance and oversight for various other laws and executive orders as well. For example, the Federal Acquisition Streamlining Act (FASA) requires that executive agency heads set cost, performance, and schedule goals for major acquisition programs and that OMB report to Congress on agencies’ progress in meeting these goals. Executive Order 12866 directs OMB to coordinate the review of agencies’ rules and regulations to ensure that they impose the least burden, are consistent between agencies, focus on results over process, and are based on sound cost/benefit analysis. OMB also has been responsible since 1967, through its Circular A-76, for carrying out executive branch policy to rely on competition between the federal workforce and the private sector for providing commercial goods and services. OMB’s perennial challenge is to carry out its central management leadership responsibilities in such a way that leverages opportunities of the budget process, while at the same time ensuring that management concerns receive appropriate attention in an environment driven by budget and policy decisions. Concern that OMB and its predecessor agency, the Bureau of the Budget, lacked the support and institutional capacity necessary to sustain management improvement efforts throughout the executive branch has prompted numerous calls for changes in the past. overwhelmed by—the budget process. Some observers have advocated integrating the two functions, while others have proposed the creation of dedicated offices or a separate agency to provide governmentwide management leadership. Prior OMB reorganizations, reflecting these different points of view, have alternated between seeking to more directly integrate management into the budget review process and creating separate management offices. Previous congressional and OMB attempts to elevate the status of management by creating separate management units within OMB sought to ensure that an adequate level of effort was focused on management issues. Underscoring its concern that management issues receive appropriate attention, Congress established the DDM position to provide top-level leadership to improve the management of the federal government. In 1994, OMB reorganized to integrate its budget analysis, management review, and policy development roles, in an initiative called “OMB 2000.” This reorganization was the most recent of a series of attempts to bolster OMB’s management capacity and influence. To carry out its responsibilities, OMB’s Resource Management Offices (RMO) are responsible for examining agency budget, management, and policy issues. Linking management reforms to the budget has, at a minimum, provided the opportunity to include management issues as part of the president’s yearly budget reviews—a regularly established framework for making decisions. coordinate their activities with the statutory offices. In fiscal year 1997, OMB obligated $56 million and employed over 500 staff. During the past 3 years, OMB has focused increased attention on management issues, but there is much more that needs to be done. Today, we will highlight some of those issues that have been both of particular concern to this Committee and the subject of our recent work. OMB’s DDM and the OFFM, in concert with the CFO Council, have led governmentwide efforts to focus greater attention on financial management issues. OMB has played a pivotal role in fostering ongoing financial management reforms ranging from improved financial systems and reporting to new accounting standards. We are seeing positive results from OMB’s efforts. For example, eight agencies obtained unqualified opinions on their fiscal year 1997 audited financial statements, and OMB set a performance goal for it to assist 21 of the 24 CFO Act agencies to obtain unqualified and timely audit opinions on their annual financial statements for fiscal year 1999. In the 1997 Federal Financial Management Status Report and Five-Year Plan, OMB and the CFO Council discussed accomplishments and future plans in eight priority areas, such as improving financial management systems and implementing the Results Act. OMB also worked with the Department of the Treasury and GAO as part of the Federal Accounting Standards Advisory Board to create a comprehensive set of accounting and cost accounting standards that establish a framework for financial reporting and accountability. In addition, as we reported on March 31, 1998, the federal government prepared consolidated financial statements that have been subjected to an independent audit for the first time in the nation’s history. government’s ability to adequately safeguard assets, ensure proper recording of transactions, and ensure compliance with laws and regulations. With a concerted effort, the federal government as a whole can continue to make progress toward generating reliable financial information on a regular basis. Annual financial statement audits are essential to ensuring the effectiveness of the improvements now under way. OMB’s OFPP has worked to implement FASA and the Clinger-Cohen Act. OFPP has also been working to streamline the procurement process, promote efficiency, and encourage a more results-oriented approach to planning and monitoring contracts. OFPP is spearheading a multi-agency effort to revise parts of the Federal Acquisition Regulation. For example, a major revision to Part 15 completed last year will contribute greatly to a more flexible, simplified, and efficient process for selecting contractors in competitively negotiated acquisitions. OFPP also developed best practices guides to help agencies draft statements of work, solicitations, and quality assurance plans, as well as to aid in awarding and administering performance-based service contracts. OFPP issued a best practices guide for multiple award task and delivery order contracting to encourage agencies to take advantage of new authorities under FASA. In addition, OMB has encouraged agencies to buy commercial products, conduct electronic commerce, and to consolidate their ordering to take advantage of the buying power of the federal government. OMB’s efforts to improve capital decision-making are a third example of where OMB’s leadership efforts are yielding some results. For example, OMB has required agencies to submit 5-year capital spending plans and justifications—thus encouraging the use of flexible funding mechanisms—and also held the first OMB Director’s review on this issue.OMB added a new section to its fiscal year 1998 budget preparation instructions that outlined several broad principles for planning and monitoring acquisition and required agencies to develop baseline cost schedules and performance measurement goals. OMB has also implemented other policy and guidance changes to support new management decision-making requirements and the Chief Information Officers (CIO) Council has adopted the establishment of sound capital planning and investment management practices as one of its strategic goals. The development of the “Raines’ Rules”—requiring agencies to satisfy a set of investment management criteria before funding major systems investments—can potentially serve to further underscore the link between information technology management and spending decisions. These investment management practices are also required under the PRA and the Clinger-Cohen Act. The extent to which the Raines Rules make a difference will depend on how well and how consistently they are applied. To address widespread weaknesses in federal information security, the CIO Council, under OMB’s leadership, has taken some significant actions, which include designating information security as one of six priority areas and establishing a Security Committee. The Committee, in turn, has developed a preliminary plan for addressing various aspects of the problem and taken steps to increase security awareness and improve federal incident-response capabilities. However, much more needs to be done to monitor agency performance in this area and to ensure that the various management, policy, technical, and legal aspects of information security are effectively addressed. Continuing reports of information security problems are disturbing because federal agencies rely on automated systems and related security controls to support virtually all of their critical operations and assets and to ensure the confidentiality of enormous amounts of sensitive data. Our recent audit of the government’s fiscal year 1997 financial statements identified serious information security weaknesses at all 24 CFO agencies. Moreover, we are finding that most agencies have not addressed enhancing information security in their fiscal year 1999 performance plans. processes and supporting systems. More recently, OMB provided additional guidance stating that these contingency plans can be carried out in accordance with GAO’s contingency planning guide. The establishment of the President’s Council on Year 2000 Conversion provides an opportunity for the executive branch to take further key implementation steps to avert disruptions to critical services, as we outlined in our recent report. To date, however, progress has been slow, and agencies’ schedules often leave no room for delay. Many major departments have already missed earlier deadlines. At the current pace, it is clear that not all mission critical systems will be fixed in time, and additional attention therefore needs to be given to those systems that serve the highest priorities. We also have found that improvements are needed in the process used to review and clear regulations. We have testified on the inadequacies of OMB’s efforts to meet congressional paperwork reduction goals. Also, OIRA does not attempt to set priorities for agencies’ regulations on the basis of risk (e.g., the number of lives saved or injuries avoided).