JOHN A. KOSKINEN
DEPUTY DIRECTOR FOR MANAGEMENT
OFFICE OF MANAGEMENT AND BUDGET
SENATE GOVERNMENTAL AFFAIRS COMMITTEE
MARCH 5, 1997
Mr. Chairman, I am pleased to appear before the Committee this morning to discuss the General Accounting Office's (GAO's) high risk list, and the Office of Management and Budget's (OMB's) ongoing efforts to develop and implement management reforms and to provide agencies with the tools to manage more effectively and efficiently. The Vice President's National Performance Review has spent substantial time focusing on creating a government that works better as well as one that costs less. In the President's FY 1998 Budget submitted to the Congress last month, we included an in-depth discussion of what we are calling a "toolkit" for improving performance in a balanced budget world -- strategies and techniques to increase effectiveness, reduce costs, and minimize the risks associated with program and administrative management.
Many of the techniques and re- engineered work processes that are included in the toolkit are only possible because of landmark bipartisan legislation enacted by the Congress over the past seven years. The Administration and this Committee, together with the House Government Reform and Oversight Committee, have worked together to consider, develop and enact legislation that has far-reaching effects on most of the items included on the GAO high risk list, as well as on the basic, core systems that agencies use to achieve control over their programs and administrative operations.
Before I discuss these legislative reforms and their impact, let me first address GAO's high risk list and OMB's similar endeavor. The GAO high risk list identifies critically important program and management issues divided into six broad categories affecting a major portion of government operations. OMB and the agencies focus considerable resources on addressing weaknesses in these areas, working to correct abuses or mismanagement, and reforming, overall, agency operations and practices.
GAO's high risk list is a useful tool that encourages the Congress and the agencies to maintain continuous oversight and monitoring of agency actions. As a result of this focus, we have had some success in dealing with difficult challenges. GAO reports in its Overview of the 1997 High Risk Series that: "Overall, agencies are taking high-risk problems seriously, trying to correct them, and making progress in many areas." However, as GAO, the Congress and the Administration recognize, there is much that remains to be done.
The Beginning of GAO's and OMB's High Risk Programs
Both GAO and OMB have recognized the importance of calling attention to serious management weaknesses. GAO and OMB started similar "high risk" programs in 1989-1990 as a result of a growing concern about continuing, serious management problems in the agencies. OMB's high risk program began in 1989 when the then OMB Director asked agency Deputy Secretaries to conduct personal assessments of their programs and operations, and identify the highest risk programs and functions. Agency responses, and OMB analysis, were the basis for initial OMB-agency agreement on what were then (OMB's) 106 high risk areas. Agencies cooperated with this initiative since it served to generate not only high level attention to these areas but also helped marshal resources for their correction.
Over the next several years, a number of areas were sufficiently corrected to warrant removal from OMB's list; but new areas were also added; and in some areas, OMB found that agencies were not making adequate progress in correcting problems.
By the very nature of being placed on either the GAO or OMB high risk list, GAO and the Administration acknowledged not only the very serious nature of some of these problems, but the fact that they would not easily or quickly be resolved. This is a partial answer, Mr. Chairman, to your question about why high risk items sometimes remain on the high risk list for several years. However, one of the problems historically with a high risk list approach to problems was that we attacked them one at a time. Had we continued to do this, we would have guaranteed that we would be in the high risk business forever.
Certain High Risk Areas Identify the Need for a New Approach
In analyzing the types of problems that continued to be reported on high risk lists, it became apparent that there were certain underlying or systemic weaknesses that needed to be addressed. The high risk approach identified particular problems in an agency; however, while a problem was being corrected in one agency, it would crop up again in another. This "retail" approach directed at specific agency issues did not adequately address the need for broader systemic reforms that would prevent or minimize the risk of fraud, waste or mismanagement occurring in the first place, and lead to more efficient and effective management systems. GAO, in the Overview of its 1995 High Risk Series, also recognized this: "While specific actions have been identified to fix individual high risk areas, broader, more fundamental problems in government also need to be addressed. At the same time, we found that the possibility of designating a problem as a "high risk" began to discourage some agencies from acknowledging, and therefore attacking, their problems. As a result, with the passage of a range of broader management statutes, we determined that we would make more progress by focusing agencies on system changes, as well as specific "management challenges," the new terminology we used beginning in 1995.
Government Management Reform
With enactment of the Chief Financial Officers (CFOs) Act in 1990, Congress and the Administration embarked on a series of legislative actions that would effect wholesale reforms in government programs and administrative management. 1993 marked the passage of the Government Performance and Results Act which increases our focus on the results from government programs and activities. In 1994, the Government Management Reform Act and the Federal Acquisition Streamlining Act were signed, and in 1996, the Debt Collection Improvement Act, the Clinger-Cohen Act (formerly referred to as the Federal Acquisition Reform Act and the Information Technology Management Reform Act), and the Federal Financial Management Improvement Act were made law.
Each of these laws address major aspects of Federal management and have a significant impact on the way that the Government operates its programs and conducts its business. Let me provide some examples of the ways in which this legislative foundation permits OMB and the agencies to address GAO's high risk areas, other management challenges that exist in the agencies, and to reform more broadly agency program and administrative management
The CFOs Act, as amended in 1994 by the Government Management Reform Act (GMRA), establishes CFOs and Deputy CFOs in 24 agencies, and requires the development of systems that provide complete, accurate and timely reporting of financial information. The Act also establishes OMB's Deputy Director for Management and describes the financial management functions assigned to that position. The Act describes the functions that are to be performed by agency CFOs, requires that CFOs report directly to the head of the agency, and that they and the Deputy CFOs possess certain skills and qualifications. The Act, as amended, requires that these 24 agencies prepare and have audited organization-wide financial statements starting with FY 1996, and that a government-wide financial statement be issued and audited (by GAO) starting with FY 1997. These statements provide critical information that managers need to manage, and require financial system improvements to produce that information.
In concert with the CFOs Act, Congress passed the Federal Financial Management Improvement Act (FFMIA) in 1996. FFMIA builds upon the financial system requirements found in the CFOs Act and requires that agencies implement and maintain financial management systems that substantially comply with Federal financial management system requirements, applicable Federal accounting standards, and the United States Standard General Ledger at the transaction level. The FFMIA requires that audits of the agency financial statements include the auditor's report on compliance with this Act, and also establishes a process for identifying and correcting agency system deficiencies within a three-year time frame. The auditor reporting requirements are effective with the FY 1997 financial statements and will serve as another tool to assist agencies in providing improved financial systems and accurate financial information.
Financial management improvements are being accomplished government-wide because of the CFOs Act and the underlying financial systems that are designed, maintained and operated to accomplish the Act's goals. In addition to helping DOD and Treasury (two of GAO's high risk areas) address their financial management weaknesses, the Act assists other agencies in their efforts to improve financial management and report accurate and timely financial information. Over the past 6 ½ years, considerable improvements have been made in financial management, but much remains still to be done. Some agencies face considerable difficulties in achieving unqualified audit opinions; other agencies are able to obtain unqualified opinions and issue their audited financial statements in advance of statutory deadlines. For example, SSA issued its audited statement in November 1996 and GSA issued its statement in December, 1996. Both obtained an unqualified opinion.
Considerable work is underway to achieve the goals of the CFOs Act, especially in large agencies such as DOD and Treasury. Addressing long-standing financial management weaknesses in such large and complex organizations as these requires sustained management attention. I look forward to working with DOD's new Secretary, former Senator Cohen, who brings a considerable understanding of the issues facing that agency, as well as the tools that are now available to correct these weaknesses.
FASA and the Clinger-Cohen Act are helping to dramatically change our buying behavior in ways that significantly reduce risk on the taxpayer. For years, the government has been criticized for demanding that contractors provide specially-designed products instead of trying to find suitable commercial items. Many have also complained that the government gives too little consideration to a contractor's track record when awarding work. These types of practices have added risk to the acquisition process. In comparison to commercial items, government-developed products typically have a greater potential to experience cost and schedule overruns, as well as performance shortfalls. And agencies face a risk of poor performance when they do business with marginal performers.
Thanks both to the leadership of the National Performance Review and Congress' strong bipartisan support, these costly practices have been replaced with approaches that focus on effective risk management and improving the likelihood of successful contract performance.
We are also working to remove the barriers to entry to commercial firms that arise from our traditional bureaucratized source selection process. For this reason, we have made the rewrite of our regulations addressing competitive negotiations (found in Part 15 of the Federal Acquisition Regulation) a top priority. We have already begun a three-year test, authorized by Congress, involving the use of more simplified source selection procedures for the acquisition of commercial items up to $5 million. When the rewrite of Part 15 is implemented, agencies will be better positioned to reap the benefits of competition in a more efficient manner -- as called for by the Clinger-Cohen Act -- by bargaining more aggressively and avoiding processes that increase cost both for the government and private industry with little to no added value to the taxpayer. We urge your support of this very important initiative.
In addition, agencies are breaking their large procurements into
smaller more manageable modules
so they can better accommodate changing technology and agency
priorities. A "modular
contracting" approach allows agencies to attack risk incrementally,
thereby making it easier to
manage. Equally important, modular contracting strengthens and
maintains end user enthusiasm
for, and involvement in, the program by providing benefits early in
the process. It also permits
periodic evaluation to ensure projects continue to merit funding under
current budget priorities.
Clinger-Cohen Act of 1996 (Information Technology Management Reform Act (ITMRA))
The Clinger-Cohen Act fundamentally changes the way the government plans for and acquires large information technology (IT) projects. By repealing the Brooks Act, we placed clear responsibility on agency heads for the success of their IT systems. ITMRA also streamlines and improves the process that the government uses to manage its vast portfolio of information technology investments in several ways: (i) it establishes criteria for agencies to evaluate IT investment programs, modeled on the best practices of successful companies; (ii) it builds on successful corporate models by designing a high level Chief Information Officer in all Cabinet and major independent agencies, reporting to the office of the agency head, with primary responsibility for IT management and carrying out agency functions under the Paperwork Reduction Act; (iii) it encourages the Administration to use interagency groups to share expertise and technology; and (iv) it encourages agencies to procure information technology in smaller, incremental purchases -- rather than massive mega-contracts -- to better target the technology to meet agency needs.
As with the CFOs Act and acquisition reform, agencies have primary responsibility for implementation. To assist them, OMB has asked agencies to follow the practices set out in OMB memorandum 97-02 -- more popularly known as the "Raines rules". These are:
The President's FY 1998 budget includes a listing of information systems that summarizes the program performance benefits of major information systems. This list includes most of the systems that are included on GAO's list and many others that the Congress, OMB, and the agencies need to monitor. We are confident that they system improvements that the Clinger-Cohen Act requires will not only help us move existing systems off GAO's list but, equally important, will decrease the number of troubled major systems in the future.
Strategic Planning and Managing for Results
Finally, let me discuss the Government Performance and Results Act (GPRA), perhaps the most important legislation to help us reform Government. As I stated in my testimony on February 12, 1997 before the House Government Reform and oversight Committee, GPRA increases our focus on the results from government programs and activities. At its simplest, GPRA can be reduced to a single question: What are we getting for the money we are spending? To make GPRA more directly relevant for the thousands of Federal officials who manage programs and activities across the government, GPRA expands this one question into three: What is your program or organization trying to achieve? How will its effectiveness be determined? How is it actually doing? Management systems and projects will now be required to identify their contribution to improved achievement of an agency's mission, goals and objectives. Too often in the past, we looked at work processes as an end in themselves, rather than as part of an agency's effective performance.
OMB has been working with the agencies for the past 3 ½ years to prepare for GPRA's government-wide implementation this coming September, 1997. Agencies have operated pilot programs, and in consultation with agency staff, OMB has issued numerous policy documents and guidance to assist the agencies in the development of strategic plans, performance plans, performance measures, and reporting. Much of this is covered in my February 12th testimony.
Integration of Management Initiatives
Valuable help for government-wide implementation of these far reaching reform efforts comes from several interagency councils chaired by OMB. These are the President's Management Council, whose members are the agency Chief Operating Officers (generally the Deputy Secretary); the Chief Financial Officer's Council; the Chief Information Officers Council; and the President's Council on Integrity and Efficiency, comprised of the agency Inspectors General. Each of these councils has a leadership role and also helps us to develop a unifying framework for bringing together the various laws and initiatives that we have discussed today. There is consensus that this integration must be done, and, to the extent practicable, must be meshed into the processes supporting budget preparation, decisions, and execution.
To do this will be a formidable task. But we have no real choice. If managed separately, these various endeavors will lose the synergy and economy of effort that would result from their being fitted together. Failure to coordinate and integrate these laws and initiatives can undercut their effectiveness, create confusion, and introduce frustration and ultimately disinterest among all parties. Put starkly and simply, there are not enough resources within the Executive branch to even try carrying out these activities in a non-integrated way.
In the next few months, OMB will be conducting a strategic assessment of the Cabinet departments and major agencies. This assessment will include a review of their strategic planning activities, and their commitment to measurable improvements in specific management objectives identified by the budget review process this past fall, GAO's high risk list, NPR initiatives, and agency strategic planning activities.
This recognition of the need for integration extends even into OMB's own organization. OMB 2000, a reorganization of OMB implemented in 1994, places the responsibility for agency management and budget issues squarely in the hands of OMB's examining staff in our Resource Management Offices (RMOs). In addition to questions of resource allocation, the RMOs are responsible for monitoring agency performance, identifying potential management challenges, and assisting agencies to manage better. The so-called statutory offices in OMB provide policy advice and technical assistance to the RMOs as well as the agencies. This single focus on agency program, management, and budget helps us to concentrate our efforts not only on those areas included on GAO's high risk list, but also on other, equally critical issues which must be addressed if the government is to work better and spend the taxpayer's money wisely.
I understand that the Committee plans a series of hearings over the next several weeks on specific GAO high risk areas and the progress agencies are making. While the agencies are best informed to describe the progress being made, it is important to note that progress is being made. For example, in Medicare, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) provided increased funding for program safeguard activities at HHS and Justice, and enhanced the stability of program safeguard funding by moving this funding to the mandatory side of the budget. This new funding and enhanced authority will improve our ability to identify and stop fraud and abuse in the Medicare program.
GAO also highlights the success of the multi-state fraud and abuse effort called "Operation Restore Trust" that the Administration launched in 1995. That effort has now been operating for nearly two years, and HHS estimates that through February 1997 it has identified more than $132 million in recoveries of payments that Medicare should not have made, and from obtaining numerous fraud convictions, impositions of civil monetary penalties, and the exclusion of providers from further participation in Medicare.
Let me conclude by saying that all of
us need to remain focused on the importance of good
management. As you said in the Senate three weeks ago, we ignore
management issues at our
peril. GAO's high risk list is one approach, but we need to keep
implementing systemic reforms
of underlying systems that will ultimately correct the GAO high risk
areas, other agency
weaknesses, and permit us to operate Government programs in a more
effective and efficient