Mr. Chairman and Members of the Subcommittee: We are pleased to be here today to discuss our observations on the Office of Management and Budget’s (OMB) efforts to carry out its responsibilities to set policy and oversee the management of the executive branch. As you know, last month we issued a major new series of reports, entitled Performance and Accountability Series: Major Management Challenges and Program Risks, and an update of our high risk series. Collectively, the reports show that long-standing performance and management challenges hinder the federal government’s efforts to achieve results. The report series also highlighted numerous improvements that agencies need to make in their performance, management, and accountability. Making these improvements will require the sustained efforts of the leadership and staff within agencies. At the same time, the report series also underscored the pivotal role that the federal government’s central management agencies— in particular, OMB—must play in guiding and overseeing agencies’ efforts to address the shortcomings that we identified and to implement the changes necessary to improve performance. Today, as requested by the Subcommittee, we will cover three major points. First, we will provide an outline of OMB’s wide-ranging management responsibilities and note that the question of whether to integrate or separate management and budget functions has been long debated. Second, we will discuss the effectiveness of OMB’s management leadership, which, in our view, has been uneven. Finally, we will discuss the factors that appear to contribute to progress in sustaining improvements in federal management. As agreed, our statement today is based on, and updates as appropriate, the testimony we provided on these three points when we appeared before this Subcommittee last May. Our observations are made on the basis of work we are currently doing and have done at federal agencies and at OMB. 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). The CFO Act mandated significant financial management reforms and established the Deputy Director for Management (DDM) position within 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. these groups, the Ash Council, the Bureau of the Budget was reorganized in 1970 and renamed OMB, thereby signaling the intent to heighten the management focus in the agency. However, the creation of OMB did not ensure that an institutionalized capacity for governmentwide management leadership would be sustained, nor did it establish how OMB should balance its budget and management responsibilities. As a result, observers have continued to debate how to best ensure that management issues can be effectively considered within the context of—yet without being 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. levels and transferred their responsibilities for overseeing agencies’ implementation of many governmentwide management initiatives to the RMOs. This increased OMB’s reliance on RMO managers and staff to focus on management issues and coordinate their activities with the statutory offices. In fiscal year 1997, OMB obligated $56 million and employed over 500 staff. In recent years, OMB has focused increased attention on management issues, but there is much more that needs to be done. In last year’s budget, the Administration took an important first step in what can be seen as an evolving results-based planning and budgeting process. The first Governmentwide Performance Plan, as required by the Results Act, was prepared as an integrated component of the President’s 1999 Budget; this year’s Plan, released on Monday with the President’s 2000 Budget, again describes three aspects of federal government performance: fiscal, management, and program. In OMB’s view, the performance of government programs is inextricably linked to the fiscal and economic environment and the management framework in which they operate. In our assessment of the Fiscal Year 1999 Governmentwide Performance Plan, we noted that the separate management performance section within the plan was a useful approach that added essential context and depth to the Plan. This year’s Plan follows a structure similar to that developed last year, including (1) a discussion of the Administration’s High Impact Agencies initiative, which focuses on defining service delivery commitments, developing customer and employee satisfaction measures, using interagency partnerships, and enhancing electronic access; and (2) 24 specific priority management objectives (PMO), many of which are also on GAO’s high risk list. These PMOs were selected by OMB as areas in need of real change and are intended to create a clear set of priorities for the Administration’s management improvement efforts. PMOs included in the Fiscal Year 2000 Governmentwide Performance Plan. However, in our assessment of the Fiscal Year 1999 Plan, we noted that there needed to be a clearer and stronger linkage between these PMOs and the underlying agency annual performance plans. Specifically, by improving the discussion of the program performance consequences of the PMOs, OMB could better ensure that agencies develop relevant goals and strategies in their performance plans and clarify agency accountability for specific results. We recommended that OMB ensure that agencies incorporate appropriate goals and strategies in their annual performance plans and describe their relevance to achieving the priority management objectives described in the governmentwide performance plan. Today, we will highlight some of the management issues that have been both of particular concern to this Subcommittee and the subject of our recent work. Like most organizations, federal agencies increasingly depend on information technology (IT) to improve their performance and meet mission goals. Federal agencies, however, face serious challenges in ensuring effective performance and management of the nearly $27 billion in planned obligations for computer technology and information systems each year. Agencies face the challenge of meeting recent legislative reform requirements to implement strong IT leadership and effective processes for improved management of information technology investments. Of primary concern are agencies’ abilities to identify and correct date coding problems with mission-critical systems to meet the Year 2000 deadline. Safeguarding critical government systems and sensitive information from unauthorized access is also crucial. As the policy and oversight arm of the executive branch, OMB is responsible for guiding and overseeing agency efforts to meet these challenges and enforcing accountability through the executive branch budget formulation and execution process. OMB, is charged with ensuring that no system critical to the federal government’s mission experiences disruption because of the Year 2000 problem. As the Council has concentrated its efforts on international, private-sector, and state and local government issues, OMB has played a key role in tightening requirements on agency reporting of Year 2000 progress. OMB now requires that, beyond the original 24 major departments and agencies, 9 additional agencies report quarterly on their progress, and that all agencies report on their status. Further, OMB places each of the 24 major agencies into one of three tiers after receiving quarterly progress reports, based on OMB’s judgment as to whether evidence of the agency’s reported progress is or is not sufficient. Additionally, OMB has clarified instructions on agencies preparing business continuity and contingency plans.