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Transformation Challenges:

The Honorable David M. Walker:
Comptroller General of the United States:

National Legislative Program Evaluation Society:
Tallahassee, Florida:
October 28, 2004:

Transformation:

Webster's definition: An act, process, or instance of change in 
structure appearance, or character.

A conversion, revolution, makeover, alteration, or renovation.

The Case for Change:

* Government is on a "burning platform," and the status quo way of 
doing business is unacceptable for a variety of reasons, including:

* Past fiscal trends and significant long-range challenges; 
* Rising public expectations for demonstrable results and enhanced 
responsiveness; 
* Selected trends and challenges having no boundaries; 
* Additional resource demands due to recent terrorism events in the 
United States; 
* Government performance/accountability and high risk challenges, 
including the lack of effective human capital strategies.

Composition of Federal Spending:

[See PDF for image] - graphic text:

3 pie charts with 5 items each.

1964:
Defense: 46.0%.
Social Security: 14.0%.
Medicare & Medicaid: 0%.
Net interest: 7.0%.
All other spending: 33.0%.

1984:
Defense: 27.0%.
Social Security: 21.0%.
Medicare & Medicaid: 9.0%.
Net interest: 13.0%.
All other spending: 30.0%.

2004*:
Defense: 20.0%.
Social Security: 21.0%.
Medicare & Medicaid: 20.0%.
Net interest: 7.0%.
All other spending: 33.0%.

*Current services estimate.

Note: Numbers may not add to 100 percent due to rounding.

Source: Budget of the United States Government, Fiscal Year 2005 
(February 2004) and Budget of the United States Government, Fiscal Year 
2005, Mid-session Review (July 2004), Office of Management and Budget.

[End of figure]

Federal Spending for Mandatory and Discretionary Programs:

[See PDF for image] - graphic text:

3 pie charts with 3 items each.

1964:
Discretionary: 67%; 
Mandatory: 26%; 
Net Interest: 7%.

1984:
Discretionary: 45%; 
Mandatory: 42%; 
Net Interest: 13%.

2004*:
Discretionary: 54%; 
Mandatory: 39%; 
Net Interest: 7%.

*Current services estimate.

Note: Numbers may not add to 100 percent due to rounding.

Source: Budget of the United States Government, Fiscal Year 2005 
(February 2004) and Budget of the United States Government, Fiscal Year 
2005, Mid-session Review (July 2004), Office of Management and Budget.

[End of figure]

Fiscal Year 2004 Deficit Numbers:

On-Budget Deficit; 
$ Billion: (568); 
% of GDP: (4.9).

Social Security Surplus:
$ Billion: 151; 
% of GDP: 1.3.

Unified Deficit:
$ Billion: (413); 
% of GDP: (3.6).

[End of table]

Surplus or Deficit as a Share of GDP: Fiscal Years 1962-2004:

[See PDF for image] - graphic text:

Line/Stacked Bar combo chart with 1 line (Unified) and 43 bars.

Fiscal year: 1962; 
On-budget: -1%; 
Off-budget: -0.2%; 
Unified: -1.3%.

Fiscal year: 1963; 
On-budget: -0.7%; 
Off-budget: -0.1%; 
Unified: -0.8%.

Fiscal year: 1964; 
On-budget: -1%; 
Off-budget: 0.1%; 
Unified: -0.9%.

Fiscal year: 1965; 
On-budget: -0.2%; 
Off-budget: No data; 
Unified: -0.2%.

Fiscal year: 1966; 
On-budget: -0.4%; 
Off-budget: -0.1%; 
Unified: -0.5%.

Fiscal year: 1967; 
On-budget: -1.6%; 
Off-budget: 0.5%; 
Unified: -1.1%.

Fiscal year: 1968; 
On-budget: -3.2%; 
Off-budget: 0.3%; 
Unified: -2.9%.

Fiscal year: 1969; 
On-budget: -0.1%; 
Off-budget: 0.4%; 
Unified: 0.3%.

Fiscal year: 1970; 
On-budget: -0.9%; 
Off-budget: 0.6%; 
Unified: -0.3%.

Fiscal year: 1971; 
On-budget: -2.4%; 
Off-budget: 0.3%; 
Unified: -2.1%.

Fiscal year: 1972; 
On-budget: -2.2%; 
Off-budget: 0.3%; 
Unified: -2%.

Fiscal year: 1973; 
On-budget: -1.2%; 
Off-budget: No data; 
Unified: -1.1%.

Fiscal year: 1974; 
On-budget: -0.6%; 
Off-budget: 0.1%; 
Unified: -0.4%.

Fiscal year: 1975; 
On-budget: -3.5%; 
Off-budget: 0.1%; 
Unified: -3.4%.

Fiscal year: 1976; 
On-budget: -4.1%; 
Off-budget: -0.2%; 
Unified: -4.2%.

Fiscal year: 1977; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%.

Fiscal year: 1978; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%.

Fiscal year: 1979; 
On-budget: -1.5%; 
Off-budget: -0.1%; 
Unified: -1.6%.

Fiscal year: 1980; 
On-budget: -2.7%; 
Off-budget: No data; 
Unified: -2.7%.

Fiscal year: 1981; 
On-budget: -2.4%; 
Off-budget: -0.2%; 
Unified: -2.6%.

Fiscal year: 1982; 
On-budget: -3.7%; 
Off-budget: -0.2%; 
Unified: -4%.

Fiscal year: 1983; 
On-budget: -6%; 
Off-budget: No data; 
Unified: -6%.

Fiscal year: 1984; 
On-budget: -4.8%; 
Off-budget: No data; 
Unified: -4.8%.

Fiscal year: 1985; 
On-budget: -5.3%; 
Off-budget: 0.2%; 
Unified: -5.1%.

Fiscal year: 1986; 
On-budget: -5.4%; 
Off-budget: 0.4%; 
Unified: -5%.

Fiscal year: 1987; 
On-budget: -3.6%; 
Off-budget: 0.4%; 
Unified: -3.2%.

Fiscal year: 1988; 
On-budget: -3.9%; 
Off-budget: 0.8%; 
Unified: -3.1%.

Fiscal year: 1989; 
On-budget: -3.8%; 
Off-budget: 1%; 
Unified: -2.8%.

Fiscal year: 1990; 
On-budget: -4.8%; 
Off-budget: 1%; 
Unified: -3.9%.

Fiscal year: 1991; 
On-budget: -5.4%; 
Off-budget: 0.9%; 
Unified: -4.5%.

Fiscal year: 1992; 
On-budget: -5.5%; 
Off-budget: 0.8%; 
Unified: -4.7%.

Fiscal year: 1993; 
On-budget: -4.6%; 
Off-budget: 0.7%; 
Unified: -3.9%.

Fiscal year: 1994; 
On-budget: -3.7%; 
Off-budget: 0.8%; 
Unified: -2.9%.

Fiscal year: 1995; 
On-budget: -3.1%; 
Off-budget: 0.9%; 
Unified: -2.2%.

Fiscal year: 1996; 
On-budget: -2.3%; 
Off-budget: 0.9%; 
Unified: -1.4%.

Fiscal year: 1997; 
On-budget: -1.3%; 
Off-budget: 1%; 
Unified: -0.3%.

Fiscal year: 1998; 
On-budget: -0.3%; 
Off-budget: 1.1%; 
Unified: 0.8%.

Fiscal year: 1999; 
On-budget: No data; 
Off-budget: 1.4%; 
Unified: 1.4%.

Fiscal year: 2000; 
On-budget: 0.9%; 
Off-budget: 1.5%; 
Unified: 2.4%.

Fiscal year: 2001; 
On-budget: -0.3%; 
Off-budget: 1.6%; 
Unified: 1.3%.

Fiscal year: 2002; 
On-budget: -3.1%; 
Off-budget: 1.5%; 
Unified: -1.5%.

Fiscal year: 2003; 
On-budget: -4.9%; 
Off-budget: 1.5%; 
Unified: -3.5%.

Fiscal year: 2004; 
On-budget: -4.9%; 
Off-budget: 1.3%; 
Unified: -3.6%.

Source: Office of Management and Budget and Congressional Budget 
Office.

[End of figure]

Selected Fiscal Exposures: Sources and Examples (End of 2003)[A]:

[See PDF for image] - graphic text:

Type: Explicit liabilities; 
Example (dollars in billions): Publicly held debt: ($3,913).

Type: Explicit liabilities; 
Example (dollars in billions): Military and civilian pension and post-
retirement health: ($2,857).

Type: Explicit liabilities; 
Example (dollars in billions): Veterans benefits payable: ($955).

Type: Explicit liabilities; 
Example (dollars in billions): Environmental and disposal liabilities: 
($250).

Type: Explicit liabilities; 
Example (dollars in billions): Loan guarantees: ($35).

Type: Explicit financial commitments; 
Example (dollars in billions): Undelivered orders: ($596).

Type: Explicit financial commitments; 
Example (dollars in billions): Long-term leases: ($47).

Type: Explicit financial contingencies; 
Example (dollars in billions): Unadjudicated claims: ($9).

Type: Explicit financial contingencies; 
Example (dollars in billions): Pension Benefit Guaranty Corporation: 
($86).

Type: Explicit financial contingencies; 
Example (dollars in billions): Other national insurance programs: ($7).

Type: Explicit financial contingencies; 
Example (dollars in billions): Government corporations e.g., Ginnie 
Mae.

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government; 
Example (dollars in billions): Debt held by government accounts: 
($2,859)[B].

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government; 
Example (dollars in billions): Future Social Security benefit payments:
($3,699) [C].

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Future Medicare Part A benefit payments:
($8,236) [C].

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Future Medicare Part B benefit payments:
($11,416) [C].

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Future Medicare Part D benefit payments:
($8,119) [C].

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Life cycle cost including deferred and:
future maintenance and operating costs (amount unknown).

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Government Sponsored Enterprises e.g.,

Fannie Mae and Freddie Mac.

[A] All figures are for end of fiscal year 2003, except Social Security 
and Medicare estimates, which are end of calendar year 2003.

[B] This amount includes $774 billion held by military and civilian 
pension funds that would offset the explicit liabilities reported by 
those funds.

[C] Figures for Social Security and Medicare are net of debt held by 
the trust funds: ($1,531 billion for Social Security, $256 billion for 
Medicare Part A, and $24 billion for Medicare Part B) and represent net 
present value estimates over a 75-year period. Over an infinite 
horizon, the estimate for Social Security would be $10.4 trillion, 
$21.8 trillion for Medicare Part A, $23.2 trillion for Medicare Part B, 
and $16.5 trillion for Medicare Part D.

Source: GAO analysis of data from the Department of the Treasury, the 
Office of the Chief Actuary, Social Security Administration, and the 
Office of the Actuary, Centers for Medicare and Medicaid Services.

Updated 3/30/04.

[End of table]

Another Way to Think About These Numbers:

As of the End of FY 03:

* Debt held by the public--$3.9T:

* Trust fund debt--$2.9T:

* Gross debt--$6.8T:

* Gross debt per person--about $24,000:

* If we add everything on the previous slide that is not included in 
gross debt, the burden per person rises to over $140,000. 
Alternatively, it amounts to a total unfunded burden of more than $40 
trillion in current dollars, which is about 18 times the current annual 
federal budget or more than 3 ˝ times the current annual GDP.

Composition of Spending as a Share of GDP Under Baseline Extended:

[See PDF for image] -graphic text:

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group.

2003; 
All other spending; Percent of GDP: 10.3%; 
Medicare & Medicaid; Percent of GDP: 3.8%; 
Social Security; Percent of GDP: 4.4%; 
Net interest; Percent of GDP: 1.4%; 
Revenue; Percent of GDP: 16.4%.

2015; 
All other spending; Percent of GDP: 8.5%; 
Medicare & Medicaid; Percent of GDP: 5.4%; 
Social Security; Percent of GDP: 4.8%; 
Net interest; Percent of GDP: 1.8%; 
Revenue; Percent of GDP: 19.8%.

2030; 
All other spending; Percent of GDP: 8.5%; 
Medicare & Medicaid; Percent of GDP: 8.1%; 
Social Security; Percent of GDP: 6.7%; 
Net interest; Percent of GDP: 3.3%; 
Revenue; Percent of GDP: 19.8%.

2040; 
All other spending; Percent of GDP: 8.5%; 
Medicare & Medicaid; Percent of GDP: 9.9%; 
Social Security; Percent of GDP: 7.4%; 
Net interest; Percent of GDP: 6.8%; 
Revenue; Percent of GDP: 19.8%.

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2014 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the AMT, and (3) increased revenue from 
tax-deferred retirement accounts. After 2014, revenue as a share of GDP 
is held constant. Budgetary effects due to passage of the Working 
Families Tax Relief Act of 2004 are not reflected in this simulation.

Source: GAO's September 2004 analysis.

[End of figure]

Composition of Spending as a Share of GDP Assuming Discretionary 
Spending Grows with GDP After 2004 and All Expiring Tax Provisions Are 
Extended:

[See PDF for image] -graphic text:

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group.

2003; 
All other spending; Percent of GDP: 10.3%; 
Medicare & Medicaid; Percent of GDP: 3.8%; 
Social Security; Percent of GDP: 4.4%; 
Net interest; Percent of GDP: 1.4%; 
Revenue; Percent of GDP: 16.4%.

2015; 
All other spending; Percent of GDP: 9.8%; 
Medicare & Medicaid; Percent of GDP: 5.4%; 
Social Security; Percent of GDP: 4.9%; 
Net interest; Percent of GDP: 3%; 
Revenue; Percent of GDP: 17.4%.

2030; 
All other spending; Percent of GDP: 9.8%; 
Medicare & Medicaid; Percent of GDP: 8.1%; 
Social Security; Percent of GDP: 7.1%; 
Net interest; Percent of GDP: 8.5%; 
Revenue; Percent of GDP: 17.4%.

2040; 
All other spending; Percent of GDP: 9.8%; 
Medicare & Medicaid; Percent of GDP: 9.9%; 
Social Security; Percent of GDP: 8.6%; 
Net interest; Percent of GDP: 17.8%; 
Revenue; Percent of GDP: 17.4%.

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2014 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2014, revenue as a share 
of GDP is held constant.

Source: GAO's September 2004 analysis.

[End of figure]

Current Fiscal Policy Is Unsustainable:

The "Status Quo" is Not an Option:

* We face large and growing structural deficits largely due to known 
demographic trends and rising health care costs.

* GAO's simulations show that balancing the budget in 2040 could 
require actions as large as:

--Cutting total federal spending by about 60 percent or:

--Raising taxes to about 2.5 times today's level.

Faster Economic Growth Can Help, but It Cannot Solve the Problem:

* Closing the current long-term fiscal gap based on responsible 
assumptions would require real average annual economic growth in the 
double digit range every year for the next 75 years.

* During the 1990s, the economy grew at an average 3.2 percent per 
year.

* As a result, we cannot simply grow our way out of this problem. Tough 
choices will be required.

The Sooner We Get Started, the Better:

* Less change would be needed, and there would be more time to make 
adjustments.

* The miracle of compounding would work with us rather than against us.

* Our demographic changes will serve to make reform more difficult over 
time.

The Way Forward:

* Implement new accounting and reporting approaches and new budget 
control mechanisms for considering the impact of spending and tax 
policies and decisions over the long term.

* Develop new metrics for measuring the impact of policies and 
decisions over the long term (e.g., key national indicators to measure 
our Nation's position and progress over time and in relation to other 
countries).

* Reexamine the base--question existing programs, policies and 
activities.

Long-term Fiscal Challenges Demand New Metrics, Mechanisms, and 
Processes:

* Accounting and reporting policies for trust funds, Social Security, 
Medicare, Veterans benefits, among other things, need to be reviewed 
and revised (e.g., possible fiscal burden statement with per capita and 
intergenerational figures).

* The current budget time horizon [2-year, 5-year, 10-year] does not 
capture many long-term costs--e.g. Social Security, Medicare, pension 
insurance--and other major tax and spending provisions.

* Cash and obligations-based budgeting is misleading for insurance and 
some benefit programs.

* Budget controls have expired--and we need to go beyond "holding the 
line" to "changing the base" in spending and tax policies.

Improved Metrics, Measures and Processes: Some Ideas:

* Provide information on long-term costs of major spending and tax 
proposals before they are voted on, including showing long-term costs 
even for proposals that sunset.

* Establish an OMB annual report on fiscal exposures, including 
appropriate measures and how to address them.

* Consider fiscal targets, triggers, sunset provisions and points of 
order with focus on limiting growth of long-term commitments.

* Move to accrual budgeting for employee pension, retiree health; 
disclose "risk assumed" [missing premium] for insurance.

* Reinstitute budget controls (caps & PAYGO).

We Need a Multifaceted Approach to Close the Long-Term Fiscal Gap:

Policy:

* Restructure existing entitlement programs.
* Reexamine the base of discretionary and other spending.
* Review and revise our tax policy and enforcement programs.

Operations:

* Reassess and revise how the government does business (e.g., 
management, planning and operational issues).
* Consider who should provide government services (e.g., sourcing 
strategy).

Illustrative Generic Re-examination Questions:

* Is the program, policy, function or activity a direct result of 
specific legislation?

* Is the current mission fully consistent with the initial or updated 
statutory mission (e.g., no significant mission creep or morphing)?

* Does it relate to an issue of nationwide interest? If so, is a 
federal role warranted based on the likely failure of private markets 
or state and local governments to address the underlying problem or 
concern? Does it encourage or discourage these other sectors from 
investing their own resources to address the problem?

* Have there been significant changes in the country or the world that 
relate to the reason for initiating it?

* If the answer to the last question is yes, should the activity be 
changed or terminated, and if so, how? If the answer is unclear as to 
whether changes make it no longer necessary, then ask, when, if ever, 
will there no longer be a need for a federal role? In addition, ask, 
would we enact it the same way if we were starting over today? Has it 
been subject to a comprehensive review, reassessment and re-
prioritization by a qualified and independent entity? If so, when? Have 
there been significant changes since then? If so, is another review 
called for?

* How does it measure success? Are the measures reasonable and 
consistent with the applicable statutory purpose? Are the measures 
outcome-based, and are all applicable costs and benefits being 
considered? If not, what is being done to do so?

* If there are outcome-based measures, how successful is it based on 
these measures?

* Is it well targeted to those with the greatest needs and the least 
capacity to meet those needs?

* Is it affordable and financially sustainable over the longer term, 
given known cost trends and future fiscal imbalances?

* Is it using the most cost effective or net beneficial approaches when 
compared to other tools and program designs?

* If it fares well after considering all of these questions, is the 
responsible entity employing prevailing best practices to discharging 
its responsibilities and achieving its mission (e.g., strategic 
planning, organizational alignment, human capital strategy, financial 
management, technology management, acquisitions/sourcing strategy, 
change management, knowledge management, client/customer service)?

* What would be the likely consequences of eliminating the program, 
policy, function or activity? What would be the likely implications if 
its total funding was cut by 25%?

Selected 21ST Century Questions:

* Do we need all three elements of the current triad nuclear deterrent 
strategy and if so, do we need to reconsider the size and nature of 
each component?

* What opportunities exist to dispose of excess federal facilities or 
better leverage surplus in private sector capacity to make the federal 
portfolio more relevant to current mission and less costly?

* How should Social Security be reformed to make it both solvent and 
sustainable while better aligning it with 21ST century economic, 
demographic and fiscal realities?

* Do tax incentives and preferences need to be reconsidered? For 
example, can adequate health care coverage be achieved at less cost and 
greater equity through fundamental redesign of the current health tax 
preferences?

Selected GAO-Related Activities:

* Speeches and Outreach Efforts; 
* Financial Literacy Efforts; 
* CG Forums; 
* High Risk Update Report; 
* 21ST Century Challenges Report; 
* Various Congressional Consultation and Assistance Efforts; 
* Public Education Assistance; 
* Constructive engagement efforts (e.g., best practices guides, self 
assessment tools, benchmarking statistics); 
* Leading by example.

Transformation is about CREATING the future rather than PERFECTING the 
past. Effective HUMAN CAPITAL strategy is key to any SUCCESSFUL 
transformation effort.

Transformation: A New Model for Government Organizations:

Government organizations will need to:

* Become less hierarchical, process-oriented, stovepiped, and inwardly 
focused.

* Become more partnership-based, results-oriented, integrated, and 
externally focused.

* Achieve a better balance between results, customer, and employee 
focus.

* Work better with other governmental organizations, non-governmental 
organizations, and the private sector, both domestically and 
internationally, to achieve results.

Keys to Making Change Happen:

* Commitment and sustained leadership; 
* Demonstrated need for change (i.e., burning platform); 
* Start at the top and with the new people (transformation takes 7+ 
years); 
* Process matters (e.g., employee involvement) - Don't fight a two-
front war; 
* 15-percent rule; 
* Identifiable and measurable progress over time; 
* Communication, communication, communication; 
* Figure out what's right versus what's popular; 
* Patience, persistence, perseverance to pain before you prevail.

Transformation Has Different Dimensions:

[See PDF for image] – graphic text

DOD; 
DHS; 
U. S. Postal Service; 
IRS; 
DOE; 
NASA.

Human Capital Strategy; 
Financial Management; 
Information Technology; 
Sourcing Strategy; 
Disability Programs; 
Real Property Management.

Note: All of the above are on GAO's High Risk List to one extent or the 
other.

[End of figure]

GAO's High Risk List:

Addressing Challenges in Broad-based Transformations:

High Risk Area: Protecting Information Systems Supporting the Federal 
Government and The Nation's Critical Infrastructures; 
Designated High Risk: 1997.

High Risk Area: Strategic Human Capital Management*; 
Designated High Risk: 2001.

High Risk Area: U.S. Postal Service Transformation Efforts and Long-
Term Outlook*; 
Designated High Risk: 2001.

High Risk Area: Implementing and Transforming the New Department of
Homeland Security; 
Designated High Risk: 2003.

High Risk Area: Modernizing Federal Disability Programs*; 
Designated High Risk: 2003.

High Risk Area: Federal Real Property*; 
Designated High Risk: 2003.

Ensuring Major Technology Investments Improve Services:

High Risk Area: FAA Air Traffic Control Modernization; 
Designated High Risk: 1995.

High Risk Area: IRS Business Systems Modernization; 
Designated High Risk: 1995.

High Risk Area: DOD Systems Modernization; 
Designated High Risk: 1995.

Providing Basic Financial Accountability:

High Risk Area: DOD Financial Management; 
Designated High Risk: 1995.

High Risk Area: IRS Financial Management; 
Designated High Risk: 1995.

High Risk Area: Forest Service Financial Management; 
Designated High Risk: 1999.

High Risk Area: FAA Financial Management; 
Designated High Risk: 1999.

Reducing Inordinate Program Risks:

High Risk Area: Medicare Program*; 
Designated High Risk: 1990.

High Risk Area: Collection of Unpaid Taxes; 
Designated High Risk: 1990.

High Risk Area: DOD Inventory Management; 
Designated High Risk: 1990.

High Risk Area: Student Financial Aid Programs; 
Designated High Risk: 1990.

High Risk Area: HUD Single-Family Mortgage Insurance and Rental
Assistance Programs; 
Designated High Risk: 1994.

High Risk Area: Earned Income Credit Noncompliance; 
Designated High Risk: 1995.

High Risk Area: DOD Support Infrastructure Management; 
Designated High Risk: 1997.

High Risk Area: Medicaid Program*; 
Designated High Risk: 2003.

High Risk Area: Pension Benefit Guaranty Corporation Single-Employer
Insurance Program*; 
Designated High Risk: 2003.

Managing Large Procurement Operations More Efficiently:

High Risk Area: DOD Weapon Systems Acquisition; 
Designated High Risk: 1990.

High Risk Area: Department of Energy Contract Management; 
Designated High Risk: 1990.

High Risk Area: NASA Contract Management; 
Designated High Risk: 1990.

High Risk Area: DOD Contract Management; 
Designated High Risk: 1992.

*Additional authorizing legislation is likely to be required as one 
element of addressing this High Risk area.

[End of GAO's High Risk List]

Key Transformation Elements:

* People:

* Process:

* Partnerships:

* Technology:

* Environment:

The most important of the five is PEOPLE -an agency's human capital.

Keys to Making Change Happen":

Several other actions needed:

* Strategic Plan; 
* Core values; 
* Organizational alignment; 
* Recruiting, development, and succession planning strategies; 
* Modernizing and integrating institutional, unit and individualized 
performance measurement and reward systems.

GAO's Strategic Plan:

[See PDF for image] - graphic text:

Serving the Congress and the Nation: GAO's Strategic Plan Framework:

Mission:

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.

Themes:

* Long-term Fiscal Imbalance; 
* National Security; 
* Global interdependence; 
* Changing Economy; 
* Demographics; 
* Science and Technology; 
* Quality of Life; 
* Governance; 

Goals and Objectives:

Provide Timely, Quality Service to the Congress and the Federal 
Government to Address Current and Emerging Challenges to the 
Well-Being and Financial Security of the American People related
to:

* Health care needs and financing; 
* Education and protection of children; 
* Work opportunities and worker protection; 
* Retirement income security; 
* Effective system of justice; 
* Viable communities; 
* Natural resources use and environmental protection; 
* Physical infrastructure; 

Respond to Changing Security Threats and the Challenges of Global 
Interdependence involving:

* Emerging threats; 
* Military capabilities and readiness; 
* Advancement of U.S. interests; 
* Global market forces; 

Help Transform the Federal Government's Role and How It Does 
Business to Meet 21st Century Challenges by assessing:

* Roles in achieving federal objectives; 
* Government transformation; 
* 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 a 
World-Class Professional Services Organization in the areas of:

* Client and customer service; 
* Strategic leadership; 
* Institutional knowledge and experience; 
* Process improvement; 
* Employer of choice; 
Core Values:

* Accountability; 
* Integrity; 
* Reliability; 

Source: GAO.

GAO Strategic Plan 2004-2009.

March 2004.

[End of strategic plan framework]

What Kind of Work Does GAO Do?

Oversight--designed to determine that government entities are doing 
what they are supposed to, that funds are being spent for the intended 
purpose, and that applicable laws and regulations are being complied 
with.

Insight--designed to determine what programs and policies work and 
those that don't. This involves sharing various best practices and 
benchmarking information and looking horizontally across the silos of 
government and vertically between the levels of government.

Foresight--designed to identify key trends and emerging challenges 
before they reach crisis proportions, e.g., challenges of an aging 
population and the demands of the information age, to changing security 
threats and fiscal challenges.

Selected Success Measures:

* Results:

* Clients/customers:

* People:

* Partnerships:

Annual Performance Measures (1998 and 2004):

Performance measure: Financial benefits (billions); 
FY 1998: Actual: $19.70; 
FY 2004: Actual: $44.

Performance measure: Other benefits; 
FY 1998: Actual: 537; 
FY 2004: Actual: 1197.

Performance measure: Past recommendations implemented; 
FY 1998: Actual: 69%; 
FY 2004: Actual: 83%.

Performance measure: Return on investment (ROI); 
FY 1998: Actual: 58:1; 
FY 2004: Actual: 95:1.

Performance measure: Financial benefits per employee (millions); 
FY 1998: Actual: $6.10; 
FY 2004: Actual: $13.70.

Performance measure: Timeliness; 
FY 1998: Actual: 93%; 
FY 2004: Actual: 97%.

Client Feedback FY02-04 (through June 2004):

[See PDF for image] - graphic text:

Bar graph with 3 bars.

Fiscal Year: 2002; 
Percent Favorable: 92%.

Fiscal Year: 2003; 
Percent Favorable: 96%.

Fiscal Year: 2004; 
Percent Favorable: 97%.

Response rates were 46% in FY02, 31% in FY03, and 34% in FY04 to date.

[End of figure]

GAO Benchmarking Results for 2004:

GAO exceeded the government-wide average in 9 of 11 OPM benchmark 
questions, and it exceeded the private sector benchmark in all 4 
questions, as shown below.

Personal Experiences: I am given a real opportunity to improve my 
skills in my organization; 
Private Industry 1999-2000: 59%; 
OPM 2002: 57%; 
GAO 2004: 70%.

Personal Experiences: My job makes good use of my skills and abilities; 
Private Industry 1999-2000: 70%; 
OPM 2002: 64%; 
GAO 2004: 71%.

Personal Experiences: My work gives me a feeling of personal 
accomplishment; 
Private Industry 1999-2000: 68%; 
OPM 2002: 70%; 
GAO 2004: 79%.

Personal Experiences: Considering everything, how satisfied are you 
with your job?

Private Industry 1999-2000: 67%; 
OPM 2002: 68%; 
GAO 2004: 76%.

Source: Federal Human Capital Survey 2003 analysis, excluding GAO 
column.

[End of table]

Key GAO Partnerships:

GAO:

* GAO Advisory Groups; 
* Professional Associations; 
* Good Government Organizations; 
* National Audit Forum; 
* INTOSAI.

GAO: Leading by Example (Change, Performance, and Human Capital 
Management):

* Mission and vision clarification; 
* Core values: accountability, integrity, reliability; 
* Strategic planning; 
* Organizational realignment; 
* Definitions of success; 
* Multi-tasking and matrix management; 
* Procurement, contracting, and acquisition; 
* Human capital; 
* Information technology; 
* Knowledge management; 
* Financial management; 
* Client service/external agency relations and protocols; 
* Enhanced products and services; 
* Constructive engagement with agencies; 
* Partnering with other accountability and "good government" 
organizations.

How GAO Has Addressed Its Human Capital Challenges:

Administrative:

* HQ realignment & field office restructuring; 
* Self-assessment checklist; 
* Human capital profile; 
* Workforce & succession planning; 
* Employee feedback survey & suggestion program; 
* Employee Advisory Council; 
* Enhanced employee communications & participation; 
* Skills & knowledge inventory; 
* Employee preference survey; 
* Frequent flyer miles; 
* Student loan repayment; 
* Recruitment & college relations; 
* Phased retirement initiative; 
* Training/development; 
* Recognition & rewards; 
* Business casual dress & business cards; 
* Enabling technologies; 
* Opportunity/inclusiveness; 
* Mentor/buddy programs; 
* Commuting subsidy; 
* Competency-based employee appraisal system; 
* Human Capital Officer; 
* Office of Opportunity & Inclusiveness; 
* Flexitime and telework; 
* Total compensation communications; 
* Classification and compensation review; 
* Human Capital Strategic Plan.

Legislation Addressing GAO's Human Capital Challenges:

Past:

* Broad-banding system for mission staff; 
* Expedited hiring authority (e.g., internship program); 
* Special pay rates; 
* Senior level for technical staff; 
* Targeted early out and buyout authority (3 years); 
* Revised RIF rules:

Recent:

* Targeted early out and buyout authority (permanent); 
* Annual pay adjustment rates; 
* Pay retention provisions; 
* Relocation benefits; 
* Increased annual leave for upper level employees; 
* Executive exchange program; 
* Re-designation of "General Accounting Office" to "Government 
Accountability Office"; 

GAO will continue to LEAD by example and pursue benchmark opportunities 
with entities in both the Public and Private Sectors.

GAO's Work to Modernize the Accountability Profession:

GAO is actively working to modernize and transform the accountability 
profession in government and the private sector--and to lead by example 
in this area.

* independence standards issued in 2002; 
* assistance to the Congress in evaluating accountability profession 
issues and needed reforms prior to the Sarbanes-Oxley Act; 
* monitoring implementation of the Sarbanes-Oxley Act; 
* 2003 revision of Government Auditing Standards; 
* continually modernizing Yellow Book standards; 
* enhancing federal financial management, reporting, and 
accountability; 
* expanding the definition of success in financial management: clean 
opinion, no major weaknesses in controls or compliance, and financial 
systems that produce timely, accurate, and useful information for 
management; 
* coordination with accountability organizations around the world 
(e.g., INTOSAI, IFAC, IAASB); 
* promoting modernization of accounting/reporting and attest/assurance 
practices both domestically and globally; 
* creation of the U.S. Auditing Standards Coordinating Forum.

The Future Financial Reporting Model:

In modernizing financial reporting, we need to:

* review and revise the existing accounting and financial reporting 
model to reflect several dimensions:

-meaningful financial reporting that is useful, timely, and relevant; 
-generic provisions; 
-industry information; 
-entity-specific information (i.e., value and risk).

* recognize the difference between certain types of financial and other 
information:

-historical cost; 
-readily marketable assets; 
-non-readily marketable assets; 
-Projection information (e.g., burden, fiscal, and intergenerational); 
-performance information (e.g., key national indicators).

The Future Audit Model:

In modernizing audit reporting we need to:

* determine whether "generally accepted" is the appropriate framework 
versus "authoritative accounting principles" that could be used when 
the "generally accepted" framework may not provide a full and fair 
representation in the view of the auditor; 
* review and revise the existing audit reporting model to accomplish at 
least two objectives:

* recognize that the opinion should address whether the financial 
statements are fairly presented in all material respects and prepared 
in accordance with authoritative accounting principles promulgated by 
FASB, FASAB, IFAC, and others, applied on a consistent basis; 
* update the audit reporting model to link it with the new financial 
reporting model, and provide appropriate degrees of assurance for each 
type of information; 
* ultimately go global in connection with all major accounting and 
audit matters; 
* coordinate U.S. and domestic efforts in the interim.

U.S. Auditing Standards Coordinating Forum:

* Composed of PCAOB, GAO, ASB (AICPA); 
* Seeks to:

* maximize complementary standards-setting agendas; 
* minimize duplicative or competing efforts; 
* identify any significant gaps not being addressed by the standards 
setters; 
* assure consistency, where appropriate, in core auditing standards in 
the U.S.; 
* develop strategies for overcoming challenges and avoid unintended 
barriers to movement between the sectors; 
* modernize the accounting profession in the U.S.; 
* explore opportunities for international harmonization.

How Do We Move Forward?

Good governance and accountability are critical:

* in the private sector to promote efficiency and effectiveness in the 
capital and credit markets, and overall economic growth, both 
domestically and internationally; 
* in the public sector for the effective and credible functioning of a 
healthy democracy, and in fulfilling the government's responsibility to 
citizens and taxpayers; 
* in both sectors to support a healthy economy that provides economic 
opportunities and benefits to citizens; 
Sorting out the needs and effective and appropriate governance and 
accountability mechanisms for different sectors and types of 
organizations and on an international scale will be critical.

Rebuilding Public Trust:

For any system to work, it must address three fundamental issues.

* First, provide incentives for people to do the right thing.

* Second, provide transparency to help assure that people do the right 
thing.

* Finally, have effective accountability mechanisms if people don't do 
the right thing.

Restoring public trust will require that every participant in the 
corporate reporting supply chain embrace and live by the following core 
concepts*:

1. A spirit of transparency--stop playing games with financial and 
performance data. Use full disclosure.

2. A culture of accountability--management, staff, boards, auditors, 
and stakeholders. High quality, unbiased information to support 
decision-making.

3. People of integrity--commitment to individual integrity.

*Excerpts from Building Public Trust: The Future of Corporate 
Reporting, Samuel DiPiazza, Jr. and Robert G. Eccles, 2002.

Key Concepts in the Accountability Profession:

* Public trust vs. personal interests; 
* Recognizing the difference between the floor (e.g., rules, 
regulations, laws, accounting standards) and the ceiling (e.g., 
principles, values); 
* Doing what is right vs. what is acceptable; 
* Economic substance vs. legal form; 
* Being concerned with both fact and appearance (e.g., independence); 
* Using judgment vs. completing checklists; 
* Recognizing that continuing improvement in today's rapidly changing 
world is essential; 
* Remember that trust is hard to earn, but easy to lose.

IN TODAY'S WORLD…

* Individuals,
* Organizations,
* and Professions that do not change may find themselves headed for 
EXTINCTION.

At the same…
Each should have a set of CORE VALUES that can stand the…TEST OF TIME.

Three Key Ingredients Needed for These Challenging and Changing Times:

* Leadership:

* Integrity:

* Innovation.

[End of slide presentation]

GAO's Mission:

The Government Accountability Office, the investigative arm of 
Congress, exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony:

The fastest and easiest way to obtain copies of GAO documents at no 
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Each day, GAO issues a list of newly released reports, testimony, and 
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