STATEMENT OF
JOHN A. KOSKINEN
DEPUTY DIRECTOR FOR MANAGEMENT
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE
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
.Financial 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.
Procurement Reform
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.
- Buying commercial is now the norm. We have eliminated barriers
to entry -- special standards,
unnecessary certifications, and government-unique terms and
conditions, record-keeping and
reporting requirements -- that previously discouraged successful
commercial companies from
offering their products to the government. Now we, like the most
successful commercial
companies, can limit the risk entailed in development work and rely
largely on proven, low-risk
commercial technologies to satisfy our needs. The savings of relying
upon the commercial
marketplace are impressive. The Deputy Secretary of Defense recently
testified that the use of
off-the-shelf technology is helping the government to save nearly $3
billion on one defense
program alone.
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.
- We are doing business with better-performing contractors that
are committed to excellence and
to meeting cost, schedule, and performance goals. This achievement is
the result of a
concerted effort by contracting activities to increase their focus on
the past performance of
contractors when conducting competitions for work.
- We are making greater use of
contracting methods that will help improve the likelihood of
successful contract performance. Preferences for the use of broad
requirements descriptions
that speak in terms of functions to be performed or the performance
required are facilitating
competitions where a wider variety of innovative solutions can be
considered. For the
acquisition of services, we are using performance-based service
contracts that include objective
performance standards and tie payment to meeting those standards (but
give contractors
latitude to be innovative and adopt the latest, most cost effective
management practices). An
ongoing Government-wide pilot project already has generated savings of
15 to 20 percent, and
the agencies involved have expressed more satisfaction with contractor
performance.
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.
- Agencies are taking steps to improve their management systems
for major acquisitions. They
are working to develop realistic cost, schedule, and performance goals
that establish clear
accountability for project progress and support budget priorities. In
this regard, we have been
stressing to agencies the importance of creating systems that will
provide agency managers
good visibility as to the progress of their projects in achieving
stated goals.
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 system must support core mission that needs to be done by
the government;
- no alternative private sector or
government party can do the work;
- work processes involved have been
simplified to increase chances of using off the shelf
software;
- portfolio management and analysis
demonstrate that the return on this investment is equal to or
better than other agency it investments;
- the system is consistent with agency
and government IT architectures;
- risk is minimized with fully tested
pilots before production, minimized custom design, clear
measures of progress, and buy in from program officials -- we need to
be sure we're buying
what they want;
- modular procurement assists agencies
procuring the smallest possible segments with no
deliverables out more than 18 months; and
- risk is appropriately allocated
between vendor and agency through the increased use of
performance based contracts rather than level of effort or cost plus.
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
manner.