PRESIDENT'S PRIVATE SECTOR SURVEY ON COST CONTROL-TASK FORCE REPORT ON FEDERAL MANAGEMENT SYSTEMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85B01152R001201540001-6
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 213
• Document Creation Date: December 21, 2016
• Document Release Date: May 5, 2008
• Sequence Number: 1
• Publication Date: June 13, 1983
• Content Type: REPORT

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FRIERDIENT'S
A`flE SECTOR SURVEY
ON COST CONTROL
TASK FORCE REPORT ON
FEDERAL MANAGEMENT SYSTEMS
SUBMITTED TO THE SUBCOMMITTEE FOR
CONSIDERATION AT ITS MIEETIING ON RUNE 13,1903
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THE PRESIDENT'S PRIVATE SECTOR SURVEY ON COST CONTROL
SUBMITTED TO THE SUBCOMMITTEE FOR CONSIDERATION
AT ITS MEETING ON JUNE 13,-1983
Co-Chairs:
Joseph E. Connor, Jr.
Harry E. Figgie, Jr.
John E. Fisher
Daniel W. Lufkin
J. Paul Sticht
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THE PRESIDENT'S PRIVATE SECTOR SURVEY ON COST CONTROL
Mr. J. Peter Grace
Chairman, Executive Committee
President's Private Sector Survey on Cost Control
1850 K Street, N.W.
Washington, D.C. 20006
This is the Report of the Federal Management Systems
Task Force of the President's Private Sector Survey (PPSS)
on Cost Control.
Our Task Force's charge was to review the overall
administration, processes, systems and structure of
Executive Branch management, and to identify areas for
improvement in operations through the application of current
private sector techniques and practices. We identified the
following areas in which significant management structure
and procedural weaknesses exist:
organization and process,
management information systems,
budget, planning and evaluation,
management continuity, and
communication.
Significant opportunities for improvement exist in each
of these areas. The Executive Summary highlights our find-
ings and recommendations. In brief, our recommendations
will strengthen and streamline Executive Branch management,
resultinq in an effective process of centralized policy
formulation and coordination of activities, while preserv-
ing, where appropriate, decentralized department and agency
operations. A more thorough discussion of findings and
recommendations is presented in the Appendix accompanying
this report.
1850 K Street, N.W. ? Suite 1150 ? Washington, D.C. 20006
[phone]
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Mr. J. Peter Grace
Page 2
The work of our Task Force has represented an enormous
challenge and resulted in a tremendous feeling of accom-
plishment. We are convinced that the recommendations we
have made will contribute in a significant manner to the
improvement of the Federal management system. We thank you
for the opportunity of working with you on this important
project.
Very truly yours,
Joseph E. Connor, Jr. Harry E. Figgie, Jr.
Chairman Chairman and Chief
Price Waterhouse Executive Officer
Figgie International., Inc.
John E. Fisher Daniel W. Lufkin
Chairman Chairman of Finance
Nationwide Insurance Committee
Companies Columbia Pictures
Industries, Inc.
J. Paul Sticht
Chairman
R. J. Reynolds
Industries, Inc.
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THE PRESIDENT'S PRIVATE SECTOR SURVEY ON COST CONTROL
SUBMITTED TO THE SUBCOMMITTEE FOR CONSIDERATION
AT ITS MEETING ON JUNE 13, 1983
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PREFACE
On June 30, 1982, President Reagan signed Executive
Order 12369 formally establishing the President's Private
Sector Survey on Cost Control (PPSSCC) in the Executive
Branch of the Federal Government. An Executive Committee
under the chairmanship of J. Peter Grace was established,
consisting of 161 high-level private sector executives--
mostly chairmen and chief executive officers--from many of
the nation's leading corporations.
Briefly stated, the President directed the PPSSCC to:
o Identify opportunities for increased efficiency
and reduced costs achievable by executive action
or legislation.
o Determine areas where managerial accountability
can be enhanced and administrative controls
improved.
o Suggest short- and long-term managerial operating
improvements.
o Specify areas where further study can be justified
by potential savings.
o Provide information and data relating to govern-
mental expenditures, indebtedness, and personnel
management.
The Executive Order also provided that "the Committee
is to be funded, staffed and equipped . . . by the private
sector without cost to the Federal Government." To imple-
ment this objective, the Foundation for the President's
Private Sector Survey on Cost Control was established. It
formed a Management Office which organized thirty-six "task
forces," each co-chaired by two or more members of the
Executive Committee, to do the "preliminary reports." These
are listed below:
Agriculture
Air Force
Automated Data Processing/Office Automation
Boards/Commissions-Banking
Boards/Commissions-Business Related
Commerce
Defense-Office of Secretary
Education
Energy (including Federal Energy Regulatory
Commission and Nuclear Regulatory
Commission)
Environmental Protection Agency/Small
Business Administration/Federal
Emergency Management Agency
Federal Construction Management
Federal Feeding
Federal Hospital Management
Federal Management Systems
Financial Asset Management
Health i Human Services-Department Management/
Human Development Services/ACTION
Health i Human Services-Public Health
Service/Health Care Financing Admin.
Health & Human Services-Social Security
Aministratiori
Housing & Urban Development
Interior
Justice
Labor
Land, Facilities and Personal Property
Management
Low Income Standards and Benefits
Navy
Personnel Management
Privatization
Procurement/Contracts/Inventory
Management
Real Property Management
Research and-Development (National
Science Foundation/National
Aeronautics & Space Admin.)
.State/AID/USIA
Transportation
Treasury
User Charges
Veterans Administration
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Twenty-two of these task forces were assigned to study
specific departments and agencies, and the remaining fourteen
studied functions cutting across government such as personnel,
data processing and procurement. Apart from the co-chairpersons,
none of the task force members were members of the Executive
Committee, nor did the task forces have any authority to make
recommendations to departments and agencies or to the President.
Each of the 36 task forces prepared a draft report. This
is one such task force report. Each, with a few exceptions,
also prepared an appendix providing more detailed information
supporting the tentative recommendations contained in the task
force report. Those appendices are on file at the Department
of Commerce's Central Reference and Records Inspection Facility.
It should be noted that tentative recommendations relating to
any one federal agency may be included not only in the
appropriate agency task force report but also in the reports
of the functional cross-cutting task forces.
All of the task force draft reports will be considered
and acted upon in meetings open to the public by a Subcommittee
of the Executive Committee of PPSSCC, along with other statements
and recommendations. Accordingly, all tentative recommendations
contained in this task force report are subject to possible
changes resulting from the Subcommittee's deliberations. In
addition, in identifying the implementation authority for each
recommendation, the Task Force drew upon all available data at
its disposal. Because of the complexities of the appropriations
process, as well as historical precedents, further data could
result in a change in the PPSS-identified authority.
It is important to note that cost savings, revenue
generation, and cash acceleration opportunities in this draft
report may duplicate similar dollar opportunities reported in
other
task force reports. Thus, there may be instances of
double
counting of dollar opportunities between task force
re-
ports.
These duplications will be netted-out in the Final
Summary
Report
to the President. Additionally, dollar estimates in
this
draft
report are based on reasonable and defensible assumptions,
including standard three-year projections based on first, second,
and third year partial or full implementation will occur.
Accordingly, estimated savings or revenue opportunities are
understandably of a "planning" quality and not of a "budget"
quality. Therefore, the reader should guard against drawing
conclusions or making dollar projections based on the disclosures
contained only in this draft report.
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Following action upon all of the task force reports, the
Executive Committee will adopt a Final Summary Report to
the President, summarizing the scope of its individual task
force recommendations and offering general conclusions and
advice. This Summary Report is tentatively scheduled for
release on or about June 30, 1983.
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Page
i
I.
INTRODUCTION
1
II.
ISSUE AND RECOMMENDATION SUMMARIES
4
III.
SUMMARY LIST OF RECOMMENDATIONS AND SAVINGS
169
IV.
COST CONTROL OPPORTUNITIES FOR FURTHER STUDY
173
V.
TASK FORCE MEMBERSHIP
182
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TABLE OF EXHIBITS
Page
Number
II-1
11-2
Annual Savings from Development and
Installations of Common Payroll
Systems
Status of Accounting Systems at
September 30, 1980
70
1
11-3
Summary of Total Federal Investment-type
Outlays
97
11-4
Department Secretary Length of Service
11-5
FY 84 President's Proposed Budget
Authority (Selected Programs)
152
Exhibit
Title
Page
Number
II-1
Central Organizations
33
11-2
Description of a Model Government
Administration System
37
9
11-3
Key Studies, Reports and Laws Reviewed
11-4
Organizational Elements that Contribute to
Successful Capital Planning Processes
111
11-5
Number of Executive Level Appointees by
Department and Agency
140
11-6
Glossary of Key Terms
168
Figure
Title
Page
Number
II-1
Office of Management and Budget Current
Functional Organization
6
11-2
Office of Federal Management Recommended
Functional Organization
24
11-3
Long-term Planning Process -- Example for
Preparation of FY 1986 Plans
119
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EXECUTIVE SUMMARY
AND
PERSPECTIVE
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This report presents recommendations for significant
changes in the Federal management process. Task Force
recommendations address both short- and long-term concerns;
however, the emphasis is firmly on actions to enhance man-
agement of the Government over the long run. Current
Federal management activities have evolved over many years
with little recognition of the need to provide central
guidance and direction to achieve a well-coordinated overall
process.
Task Force conclusions are based on the identification,
of serious structural and procedural problems in Executive
Branch management processes, organization, information flow,
budgeting, planning and evaluation procedures, continuity of
management, and communication practices. In a fundamental
sense, the recommendations for cost reduction identified by
all of the President's Private Sector Survey task forces
address many of the symptoms of these problems. The core
problems themselves, however, must be eliminated so that the
symptoms do not recur in future years.
The need for effective management is dramatized by the
sheer size and complexity of Government. For example:
0 Fiscal year 1982 outlays of $728 billion are more
than double the combined sales of Exxon, Mobil,
General Motors, Texaco, and Standard C)il of
California (the top five U.S. companies in sales).
o Government outlays are equivalent to approximately
$3,200 per person in the United States or $12,800
per year for a family of four.
o One-third of all U.S. land mass is owned by the
Federal Government, the equivalent of all states
east of the Mississippi River plus Texas.
0 2.6 billion square feet of building space is owned
by the Federal Government, the equivalent of four
times the office space in the Nation's ten largest
city centers.
o Government outlays represent almost one-fourth of
the Gross National Product (GNP).
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Although there are differences in operating styles and
requirements between the public and private sectors of our
economy, it is imperative that a business-like approach be
taken in the management of the Executive Branch. We have
conducted our study and developed our recommendations on the
principle that private sector approaches can help improve
managing the Government's business.
Aggressively applying the key elements of a. business-
like approach, our recommendations will:
o create an organization and process capable of
effectively directing and coordinating Executive
Branch management activities;
o foster the development of management information
systems which can provide reliable, timely, and
compatible information to senior Government managers;
o redirect and expand the budgeting, planning and
evaluation processes;
0 overcome the weaknesses inherent in current sys-
tems resulting from a lack of management continu-
ity; and
o develop mechanisms for effective communication of
policies and objectives between the Executive
Office of the President and executive departments
and agencies.
To bring into focus the extensive presentations of the
five themes listed above, the significant findings and
recommendations of this Task Force are summarized in the
following sections of this summary. Complete descriptions
of our findings and recommendations are provided in the
context of ten "issue papers" that comprise Section II, the
major portion of this report.
In brief, we identified the following management weak-
nesses inherent in the current management process:
Organization and process -- within the Executive
Branch, responsibilities for developing and implementing
administrative policies are not clearly assigned. Duplica-
tions, conflicts and blurred lines of authority among the
various units within the Executive Branch abound. For
example, both the Office of Management and Budget (OMB) and
the General Services Administration (GSA) have procurement
policy responsibilities; OMB, GSA and the Department of
Commerce have Government-wide automated data processing
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(ADP) policymaking responsibilities; and GSA shares real
property disposition policymaking with the Property Review
Board.
Significantly, there is also an absence of direction
and coordination in key areas. For example, no agency is
clearly responsible for developing and coordinating finan-
cial management policies. The result is that the Government
has experienced significant difficulties in establishing
procedures for effective cash management, debt and receiv-
ables collection, inventory and other asset management, and
financial reporting to senior officials.
A measure of the impact of this fragmentation in admin-
istrative management policymaking is the lack of high-level
attention focused on significant opportunities for reducing
Government costs. This is best demonstrated by the followinq
selected PPSS Task Force reports,l/ which recommend:
o nearly $50 billion in potential savings over three
years from improved policies and practices in the
human resources area (see the Personnel Task Force
Report);
0 over $54 billion in cash acceleration opportuni-
ties and potential revenue enhancements, and cost
savings totaling $25 billion over three years from
improved management of cash flow, receivables and
other financial assets (see the Financial Asset
Management Task Force Report);
0 over $20 billion in potential savings over three
years from improved procurement, contracting and
inventory management policies and practices (see
the Procurement/Contracts/Inventory Management
Task Force Report); and
0 over $6 billion in potential savings over three
years from improved utilization of automated data
processing and office automation-equipment and
services (see the Automated Data Processing/Office
Automation Task Force Report).
1/
Estimated savings are compiled as of May 15, 1983;
however, those from reports of task forces which have
not yet been released may be subject to change prior to
release.
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Finally, the failure to provide for centralized policy
setting and coordination has created span-of-control prob-
lems, with multiple administrative departments and agencies
reporting to the President and the Executive Office of the
President.
The overall management function delegated to OMB was
originally intended to provide the needed direction and
coordination of Executive Branch management activities. Our
findings indicate, however, that this objective has not been
achieved. The simple truth is that the current OMB opera-
tions do not differ substantially from those of its prede-
cessor, the Bureau of the Budget. OMB continues to be pre-
occupied with the annual budgetary process, which claims
most of its resources and drives all of its other activi-
ties. (Issues FMS 1 and FMS 3 describe these problems in
more detail.)
Mana ement i.nf ormation systems -- in virtually all
administrative areas -- payroll, personnel, accounting, and
asset management, for example -- departments and agencies
have developed independent information systems and related
procedures, taking little advantage of the experience or
work of other. departments and agencies. Joint agency opera-
tion of systems or the use of private service bureaus to
process transactions are rarely considered. Current methods
of development and operation are inefficient, often counter-
productive, and very costly (see Issue FMS 2).
In addition to the cost involved, there is frequently
no commonality or compatibility of data across departments
and agencies, leaving the senior levels of Government with-
out a practical means of collecting summarized management
information. As a result, it has been exceedingly difficult
to extract from existing systems timely financial and
related data concerned with such items as collection of
amounts due the Government, location and utilization of real
and personal property, inventories of material and supplies,
and on an administrative level, an identification of the
data processing systems currently in use.
Further, ADP systems in use are frequently the result
of expedient and temporary modifications and therefore do
not incorporate technological advances in hardware and
software.
Budgeti.nc, Tannin and evaluation -- planning for
future years is largely ignored at both the agency and
central Government levels. Identifying, communicating and
monitoring the accomplishments of major Administration
objectives is often ineffective (see Issue FMS 15).
0
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Management of resources is primarily confined to cur-
rent year budgets, obligations and outlays. The management
of Government assets -- for example, capital planning and
cash management -- receives little attention, contributing
to such problems as the deterioration of the nation's facil-
ities (see Issue FMS 5) and the loss of Federal funds
through inadequate cash management practices (see issue
FMS 3).
The budget is not fully used as a "management" tool by
OMB or the departments and agencies. Accounting for actual
expenditures is usually a separate process from budget
preparation and analysis; and budget appropriation classifi-
cations are not related to the needs and practices of agency
management (see Issue FMS 3). Differing from the private
sector, the Government stresses budget preparation, while
putting less emphasis on budget execution and control.
Effective planning and management of resources is
virtually impossible because of the current "one-year"
budget requirement. The annual budgeting and appropriations
process focuses concern on only the subsequent fiscal year.
The current cycle requires over a year-and-a-half to produce
a one-year budget, diverts the time and attention of Execu-
tive Branch officials and places a burden on state, local
and private recipients of Federal funds (see Section IV,
Cost Control Opportunity for Further Study).
Evaluation of program results and collection of program
data for planning and management purposes are also not
carried out in a rigorous and systematic manner. Reliable
information is not available to enable the Administration to
choose among alternative program options (see Issue FMS 10).
Continuity of management -- because of the rapid turn-
over of key executives, a condition endemic to the political
process, Government functions lack continuity of management.
Key appointed positions turn over every 18 to 2.4 months. It
is not possible to implement and sustain meaningful manage-
ment improvement in an environment characterized by persist-
ent changes in management. Private sector profit incentives
for superior management performance are not present and the
Government has not developed its own motivational approaches
such as widespread senior level recognition of the success-
ful accomplishment of goals and objectives (see Issues FMS 1
and FMS 8).
Communications -- communication of Administration and
agency objectives, plans and accomplishments is lacking
within the Executive Branch. Career professionals and
employees are not provided with suitable insights into what
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the Administration expects their agencies to accomplish.
Because of the lack of communication, valuable human
resources are wasted on misdirected efforts (see Issues
FMS 7, FMS 8 and FMS 9).
Specifically, we recommend that the actions outlined on
the following pages be taken to improve the process of
Executive Branch management.
1. Organization and Process
An Office of Federal Management (OFM) should be estab-
lished in the Executive Office of the President (EOP) (See Issue
FMS 1). OFM will be responsible for policy development and
direction in the areas of financial management, budgeting
and planning, human resources, administration. (including
information resources management, procurement and property
management), and management improvement. This Office would
furnish the needed direction and coordination of Executive
Branch management processes by consolidating current frag-
mented and overlapping management responsibilities into an
organizational structure with clearly assigned lines of
authority and specific responsibilities. Currently, many of
these policymaking roles are assigned to GSA and the Office
of Personnel Management (OPM).
OFM will include the budget functions of OMB and other-
wise serve as the President's management staff for effecting
major improvements in processes and systems, communication
and information flow.
OFM should establish a unit which will be responsible
for developing a systematic program for identifying and
implementing management improvements on an ongoing basis.
This capability is essential to sustained improvement of
management systems and timely implementation of PPSS
recommendations.
GSA and OPM should report directly to OFM for policy
direction in carrying out their primary role of developing
and implementing procedures and regulations in their respec-
tive areas of responsibility. This recommended reporting
relationship is based on the general private sector model
that employs a corporate staff to ensure a coordinated
administrative structure. GSA and OPM should transfer to
departments and agencies the responsibilities for all opera-
ting functions (for example, maintenance of office build-
ings) as are cost justified.
0 vi
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The Task Force considered several alternatives to the
recommended structure of OFM, including: the establishment
of separate offices for budget and other management activi-
ties or the merger of GSA and OPM with OMB either within or
outside of the Executive Office of the President. Based on
analyses of both the Executive Branch and the private sec-
tor, the Task Force concluded that:
o Policies established in the budget, financial
management, human resources and administrative
areas are interrelated and lack of coordination in
these efforts would lead to fragmentation, incon-
sistent policies and waste of resources.
o The Executive Office of the President is the only
office in the Executive Branch with the authority
and perspective on overall operations to institute
long-term improvements.
o Both GSA and OPM should continue their recent
shifts of operating functions to the individual
departments and agencies. However, as identified
by the PPSS Task Forces on Personnel, Procure-
ment/Contracts/Inventory Management and Automated
Data Processing/Office Automation, there will
likely remain several key operating activities
that are more cost effective when performed by GSA
and OPM versus the departments and agencies (e.g.,
operation of the retirement system).
0 Including routine operating functions in the
Executive Office of the President (EOP) would
divert the staff's time and attention from their
important policymaking roles and place inappro-
priate operating functions in the EOP. According
to the Ash Council, "the effectiveness of the
Executive Office is determined as much by what is
excluded as by what is included.. .[the Office's
prestige] can be diluted by including permanently
with the Executive Office units which operate
programs... As the Brownlow Committee put it
thirty years ago, the Executive Office should
perform only those functions the responsibility
for which cannot be delegated by the President."2/
2/ Roy Ash, "Memorandum to the President" (Washington,
D.C., October 26, 1970).
0 vii
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The Task Force, therefore, recommends that OFM provide
central direction and policy oversight for budget and other
management issues while operating functions are delegated,
wherever possible, to the agencies.
A "comptrollership" or "financial management" function
should be established in OFM (see Issue FMS 3). Currently,
no central Government organization is responsible for
directing and coordinating the Federal Government's account-
ing and financial reporting activities. This "missing link"
in financial management has been responsible for inadequate
agency and Government-wide financial accounting and report-
ing; inconsistent application of accounting procedures among
agencies; an inability to extract from systems reliable and
useful financial data; duplication of system development
efforts; and a failure to provide for centralized reporting
of results. The financial management function of OFM should
include the accounting and reporting activities of the
Department of the Treasury, OMB, GSA (for Government-wide
property reporting) and the Joint Financial Management
improvement program (JFMIP).
2. Manaqement Information
OFM should develop common Government-wide ADP software
systems and related procedures for use in suchadministra-
tive areas as payroll, accounts receivable, retirement/pen-
Sion, general accounting and accounts _payable, nand fixed-
asset accounting (see Issue FMS 2Y.OFM would be responsi-
ble for overall direction of this program. Benefits would
result from reduced developmental and duplicative activities
by Federal agencies, and from the use of Government-wide
information to manage department and agency activities more
effectively. The Task Force recommends that implementation
of a common payroll system receive the highest priority.
Acquisition and testing of a common payroll system should be
-emnleted within three years. There are currently over 300
payroll systems in the Federal Government.
T!-:e Task Force also recommends increased -cint op-_ra-
tions of common systems by departments and agencies and the
use of private service bureaus to process transactions for
multiple agencies. The feasibility of these operational
approaches should be determined during the process of
designing each common system.
OFM should direct the development and imementation of
management information systems necessary to support EOP and
central agenc management needs (see Issues FMS 1, FMS 2,
FMS 3 and FMS 4) . Senior officials currently do not have
access to management information on a regular and timely
basis to ensure that policies and programs are implemented
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9
and progressing according to plans. OFM should direct the
development of the data systems required to measure overall
agency and program performance, establish accountability for
agency and program activities, identify problem areas, and
support the development of overall Government policies.
3. Budgeting, Planning and Evaluation
The Executive Branch should implement -a planning system
by which loterm _Administration og alsand activities would
be identified, communicated and implemented (see Issue
FMS 6). OFM should issue "mission objectives" to Federal
departments and agencies, outlining the specific objectives
of the Administration in relevant program and administrative
areas. Agencies should be responsible for preparing, on
both long- and short-term bases, action plans for implemen-
tation of Presidential mission objectives. Monitoring the
accomplishment of these plans would be fully integrated with
OFM's ongoing budget and management activities.
The Executive Branch should establish an audit support
division within OFM (see Issue FMS 4). This division should
coordinate Executive Branch audit activities to address the
many audit weaknesses identified by the various PPSS Task
Forces. Its activities should include the coordination of
audit resource allocation across Government, the development
of performance standards and audit programs and guidelines,
and provision of technical assistance to agencies and
departments in audit specialty areas including ADP auditing
and statistical sampling.
A Federal planning and bud~C eting process forcapital expenditures should be instituted (see Issue FMS 5). OFM
should implement improved capital asset analyses within the
current budget process, and adopt a new Government-wide
capital budgeting system to be integrated with overall
resource and planning allocation systems. This action would
result in better management and utilization of capital
assets and funds, long-term improvements in the use of the
Nation's physical assets, planned maintenance and repair
activities, and long-term cost reductions.
The budget process should be strengthened to enhance
its capabilitYto improve Government-wide management. Our
Report recommends greater use of the budget process as a
management tool for agency and central level officials.
This can be accomplished by revising appropriation classi-
fications to better match management needs and integrating
the financial management and budget processes (see Issue FMS
3). The Task Force has also concluded that the current
annual budget process hinders the agency managers' ability
to conduct comprehensive planning and analysis of programs
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beyond the current fiscal year. Our Report, therefore,
recommends further study of the feasibility of adopting a
biennial budget process to provide more consideration to
long-term management needs (see Section IV, Cost Control
Opportunities for Further Study).
More rigorous and systematic evaluations of Federal
programs should be conducted to provide "results-oriented"
data for effective program management (see Issue? FMS 10).
Departments and agencies should annually identify key pro-
grams to be evaluated, and develop plans to conduct those
evaluations and utilize their results. These evaluations
should be conducted in an objective and rigorous manner so
as to provide necessary information on program benefici-
aries, results, problems, and costs.
4. Continuity of Management
KY OFM officials should be appointed on a longterm
basis and have strong management_backgrounds (see Issue
FMS 1). Senior OFM officials for Financial Management,
Human Resources, Administration, Budget and Planning, and
Management Improvement should be selected for long-term
appointments to increase the potential for management con-
tinuity and achievement of objectives. The Task Force
recommends a new "contractual" approach for second-tier OFM
officials that would provide them with the needed security
and tenure to carry out long-term improvements, while pre-
serving the ability of the President to have a :loyal and
compatible team (Issue FMS 1 describes this approach in
further detail).
OFM should assist in the selection of key department
and agency administrative officials (e.g., Assistant
Secretaries for Management, Comptrollers, etc.) based on
technical and managerial qualifications. OFM should also
work closely with agency administrative staffs on an ongoing
basis to improve the quality of related activities.
The Task Force notes that appointees are currently
selected primarily on their toechnical and political qualifi-
cations. The missing aspect is often managerial experience.
Our recommendations call for increased emphasis on prior
demonstrated managerial experience for key administrative
management positions.
A_high priority program should be implemented to
im_Prove communications within the Executive Branch (see
Issues FMS 7, FMS 8 and FMS 9). A systematic communications
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(see Issue FMS
4).
Considerable progress has been made
in
recent years in
the
development of IG audit programs.
How-
ever, the Task
Force
found significant administrative and
program directed by OFM will ensure that human resources are
utilized more effectively to carry out government activi-
ties. Specifically, the Task Force recommends positive and
direct communication from senior Executive Office and agency
officials to Government employees, use of survey and feed-
back systems to increase upward communication, and an
expanded orientation program for appointed officials.
More specific technical and administrative_guidance
should be provided to the_agency Inspectors General (IGs)
through the President's Council on Integrity_and Efficient
technical inconsistencies in the manner in which these
functions are performed by individual agencies. Operational
weaknesses can only be effectively corrected by improved
central coordination of IG activities. Inspectors General
should also be required to increase the attention devoted to
the evaluation of internal control systems and their
enhancement of ADP audit capabilities.
The Task Force has concluded that Executive Branch
processes must be strengthened and streamlined to permit
more efficient, timely and cost-effective management.
Implementation of our recommendations often will require
short-term expenditures, with the expectation of significant
long-term payback opportunities. The Task Force is confi-
dent that in all cases our recommendations will result in
increased Government efficiency and effectiveness.
The Task Force urges that the Administration expedi-
tiously establish OFM with its recommended responsibilities
and organization. With this first step, a major program
should begin for implementing the many changes in the
Federal management process described in this report.,
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THE REPORT RECOMMENDATIONS - A PERSPECTIVE
It is important that the recommendations in this Task
Force report be placed in perspective. They are the product
of an unprecedented and wide-ranging survey that was per-
formed in a politically charged atmosphere by private sector
executives and specialists whose services were volunteered
-- often on a part-time basis. This staff had the formi-
dable task of bringing their expertise to bear on largely
unfamiliar and complex Federal operations in the short span
of a few months. Frequently, these efforts were expended
while holding down other full- or part-time employment.
Despite these difficult and perplexing challenges --
all of which were anticipated at the onset -- a great deal
of valuable work was performed. The recommendations con-
tained in this Report, if implemented, will result in real
and significant savings and other benefits to American
taxpayers whose hard work and personal sacrifices foot the
bill for these Federal programs and operations.
We have sought to be realistic about the recommenda-
tions reported. The great majority of them, we 'believe, are
fully substantiated. However, it would be misleading for us
to leave the impression that each and every recommendation
is rooted in a uniformly high level of research, analysis,
and substantiation. The press of time, other business
commitments, lack of adequate resources, and other con-
straints did not always permit the luxury of achieving this
desired uniformity.
As a result, and to promote a realistic expectation of
recommendations reported, we have evaluated the "support-
ability" of the recommendations on their management merits
and have grouped them into three categories.
o Category I -- Fully substantiated and
defensible. Recommendations
in this category are, in the
opinion of the Task Force,
convincing and deserving of
prompt implementation.
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o Category II -- Substantially documented and
supportable. Recommendations
in this category may not be
fully rationalized or docu-
mented in the Report, but all
indications point to the
desirability and defensibility
of proceeding with implementa-
tion.
o Category III -- Potentially justifiable and
supportable. Recommendations
in this category, while meri-
torious, are not regarded as
fully supported in the Report,
due to time, personnel
resources, and other con-
straints, but are deemed
worthy of further analysis to
determine the full extent of
their merit for implementa-
tion.
These category descriptors do not take into account
political, social or economic conditions which may alter the
supportability for implementing these recommendations.
Accordingly, by grouping the recommendations along the above
categories, it is possible to assess more effectively the
cost savings that can be expected. This analysis permits
summary estimates of : (1) firm, (2) probable, and (3)
potential savings opportunities, while recognizing that the
proposed savings dollars themselves are of a "planning
estimate" quality (i.e., generally statistically derived)
and not yet of a "budget quality."
The Report Recommendations - An Assessment
Based on the above perspective and categorization, an
assessment of the reported recommendations is contained in
the matrix on the following page.
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Three year
Savinnc s Opportunities
( millions)
Issue and Recommendation
Category Category Category
I II III
FMS 1
FMS 2
FMS 3
Executive Branch
Management and
Administration
Government-wide
Management
Information Systems
Financial Management
* (S)
** (S)
* (S)
FMS 4
Audit
* (S)
FMS 5
Capital Budgeting
* (S)
FMS 6
Planning
* (S)
FMS 7
FMS 8
Internal Communications
Systems
Orientation of Appointees
* (S)
* (S)
FMS 9
Survey/Feedback Systems
* (S)
FMS 10
Improvement of Federal
Evaluation
* (S)
* Savings not quantifiable.
Total Savings
Costs for the acquisition and testing of a common
payroll system are estimated to be $11 million over the
first three years. Cumulative net savings over 13
years (years 1-3 of acquisition and testing, and years
4-13 of installing at the various agencies) will total
$734.9 million.
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0
I. INTRODUCTION
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Background
The Federal Management Systems Task Force examined
management issues that cut across all divisions of the
Executive Branch including administration and management,
information systems, financial management and auditing,
planning and budgeting, internal communication, and the
evaluation of program results. These issues affect all
Federal departments and agencies and impact on both the
efficiency and effectiveness with which an administration
can implement its policies.
Briefly stated, the 10 specific issues are::
FMS
1
Administration and Management,
FMS
2
Management Information Systems,
FMS
3
Financial Management,
FMS
4
Auditing,
FMS
5
Capital Budgeting,
FMS
6
Planning,
FMS
7
Communications
Systems,
FMS
8
Orientation,
FMS
9
Survey/Feedback
Systems,
FMS
10
Evaluation Improvement,
The Task Force's findings, conclusions and recommenda-
tions for each of these issues are presented in Section II
of this report. In addition, in Section IV: Cost Control
Opportunities for Further Study, the Task Force presents a
discussion of Biennial Budgeting. Further support for our
work can be found in the separately bound Appendices. When
viewed in their entirety, these issues represent the Task
Force's views on the overall Federal management system.
Methodology
The Task Force's reviews and analyses are based on
information provided by literally thousands of interviews
conducted by all President's Private Sector Survey Task
Forces. Interviews were held with the Executive Office of
the President, Federal departments and agencies, state
governments, academic institutions and private sector organ-
izations. The Task Force also reviewed Government publica-
tions, Congressional testimony, public statements by members
of Congress, publications from private sector organizations,
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and professional literature. A complete list of those
interviewed and a bibliography of material reviewed are
included in the Appendices.
Task Force Membership
o Joseph E. Connor, Jr., Price Waterhouse
o Harry E. Figgie, Jr., Figgie International Inc.
o John E. Fisher, Nationwide Insurance Companies
o Daniel W. Lufkin, Columbia Pictures Industries
o J. Paul Sticht, R.J. Reynolds Industries, Inc.
The day-to-day operations of the Task Force were
directed by Lewis J. Krulwich of Price Waterhouse.
Francesco A. Calabrese of Ensco, Inc., served as Desk
Officer.
Members of the Task Force and external advisors are
listed in Section V of this report.
Acknowledgements
The Task Force is grateful to the many representatives
of both the public and private sectors who were so generous
with their time during interviews and who assembled the
large amounts of information often requested of them.
Without their assistance, our work would not have been as
thorough nor would it have been completed as expeditiously
as it was.
Organization of Task Force Report
This report is organized into the following sections:
o Section II, Issue and Recommendation Summaries --
10 subsections, each discussing one of the issues
listed on the previous page.
o Section III, Summary List of Recommendations -- a
list of all Task Force recommendations ordered by
the organization responsible for implementation.
o Section IV, Cost Control Opportunities for Further
Study -- a discussion of whether the Federal
Government should adopt a biennial budget cycle.
Because of the complexity of this issue, the Task
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Force presents its conclusions and recommenda-
tions, but feels that further study by the Govern-
ment is necessary before implementation of those
recommendations.
o Section V, Task Force Membership -- a roster of
those who served as members of the Task Force and
those who served as advisors.
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?
it. ISSUE AND RECOMMENDATION
SUMMARIES
0
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II. ISSUE AND RECOMMENDATION SUMMARIES
FEDERAL MANAGEMENT SYSTEMS
FMS 1: ADMINISTRATION AND MANAGEMENT -- FUNCTIONS,
METHODS AND ORGANIZATION
How can the overall management of Government-wide
administrative functions be strengthened?
In the context of this issue, the term "administrative
functions" includes procurement, information resources
management, financial management, human resources manage-
ment, property management, budgeting and planning.
In this issue, the Task Force addresses the following
questions:
o How are each of these functions currently being
performed?
o What methods should be used to manage the func-
tions?
o How should administrative management responsi-
bilities be assigned?
Background
Executive Branch management of administrative functions
can be divided into three categories:
o development, direction and monitoring of overall
Executive Branch policies;
o issuance of regulations _ and procedures to support
policy and direction; and
o conduct of day-to-day operations in accordance
with regulations and procedures.
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In each of these three areas, the authorities and
responsibilities of Executive Branch management are assigned
to a range of departments and agencies.
The "central" agencies of the Executive Branch have
primary responsibility for the development of policies and
regulations/procedures. These agencies include the Office
of Management and Budget (OMB) in the Executive Office of
the President (EOP), the General Services Administration
(GSA), the Office of Personnel Management (OPM) and the
Department of the Treasury. This issue also includes dis-
cussion of several activities of the General Accounting
Office (GAO) which is part of the Legislative Branch.
OMB has responsibility for establishing overall poli-
cies in the areas of budget, procurement and information
resources management. It also has a strong role in other
administrative areas that it accomplishes chiefly through
the budget process and through the issuance of directives to
the departments and agencies. GSA is assigned responsibil-
ity for policies in the areas of automated data processing
(ADP), procurement, property, records, and telecommunica-
tions. OPM provides policy oversight for Federal civilian
personnel management. Treasury has a major role in develop-
ing economic, financial, tax, fiscal, and currency policies.
The role of GAO includes promulgating accounting standards
and reviewing and approving agency accounting systems.
The "central" agencies issue circulars, bulletins,
directives and regulations to describe Executive Branch
policies and transmit them to the departments and agencies
to implement.
Ongoing operations are shared by the central agencies
and Executive Branch departments and agencies. For example,
OPM administers selected civil service exams, while GSA
provides centralized services to agencies in procurement,
building operations and telecommunications. Departments and
agencies have their own staffs to develop budgets, operate
financial management and other systems, hire staff and
provide services to other agencies and the public.
Figure II-1 summarizes the functional organization of
OMB and its relationship to other Executive Branch agencies.
Exhibit II-1 at the end of this issue summarizes the respon-
sibilities and budgets for EOP, OMB, GSA, OPM, Treasury, and
GAO.
[Figure II-1 on following page]
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Figure II-1
OFFICE OF MANAGEMENT AND BUDGET
CURRENT FUNCTIONAL ORGANIZATION
? White Mouse Office
? Office of Policy Development
? Office of Administration
? Council on Environmental Quality
? Regulatory Information Servi e
? Council of Economic Advisors
? National Security Council
? Office of the U.S. Trade
Representative
? Office of Science and Tact- *"y
? Legislative Riwiew/
Reference
? Public Af airn
? Other
r r
FEDERAL
PROCUREMENT
POLICY
MANAGEMENT
REFORM
TASK FORCE
INFORMATION
AND
REGULATORY
AFFAIRS
? Procurement ? PCIE
? Intergovern.
mental Affairs
? Coordination
of Selected
Financial
Functions
? Other
Management
Improvements
1
? Reform as ? Regulatory ? Budget
Review Preparation
? Implementation still Analysis
of Paperwork ? Other Budget
Reduction Act Responsloiiites
Cabinet Level Departments
Independent Establishments, Corporations,
Boards and Commissions
Department of Agriculture
Department of Mousing and
CI,II Aeronautics Board
Department of Commerce
Urban Development
Environmental Protection Agency
Department of Defense
Department of the Mterier
Federal Emergency Management Agency
Department of Education
Department of JUN"
General Services Administration (GSA)
Department of Energy
Department
of Labor
Office of Personnel Ma nagelnent (OPM)
Department of Health and
Department Of State
Etc
Human services
Department of Transportation
Department of the Treasury
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Methodology
The Task Force reviewed information from the following
sources:
o interviews with division heads and senior govern-
ment officials in OMB, GSA, OPM, Treasury, GAO,
and EOP. Those interviewed are listed in the
Additional Materials section of the Appendix;
o interviews with representatives from the corporate
staffs of the General Electric Company, R.J.
Reynolds Industries, Inc., W.R. Grace & Co., ITT
Corporation, IBM Corporation, 3M, and Figgie
International Inc. These corporations were
selected for their size and diversity of services
and procedures, geographic dispersion, and organi-
zational complexity. The corporations also gen-
erally have significant "service" industry compo-
nents, increasing their comparability to the
Government;
o interviews with Director and Assistant Secretary
level officials in Executive Branch agencies,
including the Departments of Defense (DOD),
Interior, Housing and Urban Development (HUD), and
Health and Human Services (HHS);
o a telephone and mail survey of human resources
representatives in five corporations;
o prior studies of the Executive Branch (including
the Brownlow Committee, first and second Hoover
Commissions, the Ash Council and the President's
Reorganization Project of 1978). The Task Force
also reviewed studies by GAO, the National Academy
of Public Administration (NAPA) and others; and
0 other President's Private Sector Survey (PPSS)
tusk force reports.
The Task Force used the material gathered and inter-
views conducted to develop:
o an understanding of Federal administrative func-
tions, management of those functions and assign-
ment of functions to organizations;
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o an understanding of several private sector
approaches to managing administrative functions;
and
o an approach for improving Federal management
systems based on analogies between the corporate
headquarters staff functions for human resources,
finance, and administrative operations and those
of the "central" government agencies.
Throughout the analysis, the Task Force focused on pro-
blems in the areas of human resources, finance, administra-
tion, and management that exist in the Executive Branch, but
that have been successfully addressed by private sector
organizations. Although corporations differ from the
Government by several dimensions, including size, purpose,
and unity of direction, many of the management problems
faced by the two sectors are similar.
Findings
No single dartment or agency is reMonsibie for over_
all Executive Branch administrative direction and policy
setting. Responsibilities for property, financial manage-
ment, human resources, and ADP management are distributed
among many agencies. This condition results from a long
history of uncoordinated and often conflicting legislation
and administrative actions:
o Property management. The Federal Property and
Administrative Services Act of 1949 created GSA
and assigned the Administrator authority to "pre-
scribe policies and methods of procurement." In
1974, however, the Office of Federal Procurement
Policy was established within OMB (P.L. 93-400) to
provide "overall direction of procurement
policy... and prescribe policies, regulations,
procedures, and forms." In real property disposi-
tion, the Federal Property and Administrative
Services Act requires the GSA Administrator to
"prescribe policies and methods to promote the
maximum utilization of excess property." Execu-
tive Order 12348 established a Property Review
Board to "develop and review Federal real property
acquisition, utilization and disposal policies
with respect to their relationship to other
Federal policies."
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o Financial management. Responsibilities are shared
by OMB, Treasury and GSA in the Executive Branch,
and GAO and the Joint Financial Management
Improvement Program (JFMIP) in the Legislative
Branch. No single organization is responsible for
establishing Federal financial management policy
or coordinating activities (see Issue FMS 3 for a
discussion of financial management concerns).
o Human resources management. Responsibilities are
shared by OPM, departments and agencies, and OMB.
OPM provides primary policy oversight for
Government-wide civilian personnel activities.
Agencies establish positions based on OMB position
controls, and hire and train personnel for those
positions. OMB focuses on position control and
not on other elements of human resources manage-
ment. In this area, the Federal Personnel Manage-
ment Project found that one of the key structural
weaknesses in Federal personnel practices is the
"failure to provide the President with an appro-
priate staff organization for directing the posi-
tive personnel management responsibilities in his
position as Chief Executive." 1/
o ADP management. The Brooks Bill of 1965 assigned
to GSA the responsibility of managing ADP acquisi-
tions and promoting sharing among agencies; to
OMB, the responsibility to provide "policy guid-
ance to promote effective and economic application
and utilization of ADP equipment and to evaluate
ADP management performance;" 2/ and to the
National Bureau of Standards in the Department of
Commerce, the development of uniform Federal ADP
standards. The Paperwork Reduction Act of 1980
assigned OMB the responsibility for "developing
and implementing policies, principles, standards,
and guidelines for automatic data processing and
telecommunications ... and overseeing the
establishment of standards." 3/
1/ Federal Personnel Management Project, Roles, Functions
and Organizations for Federal Personnel Management and
Related Special Issues, Option Paper #2 Washington,
D.C., September 1977).
2/ P.L. 89-306, October 30, 1965.
3/ P.L. 96-511, December 11, 1980.
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The impact of this fragmentation is a lack of attention
focused on significant opportunities for cost reduction and
management improvements. This is best illustrated by the
recommendations of several PPSS task force reports-. For
example:
o The PPSS task forces recommend approximately $10
billion in potential savings and revenue enhance-
ments in FY 1983 from improved debt management
policies and procedures in the Executive Branch.
For example, the Housing and Urban Development
(HUD) Task Force recommends the installation and
implementation of an automated accounting system,
and the implementation of procedural and
organizational changes to increase HUD's cash
collections by at least 30 percent resulting in
annual Cash Flow improvements of over .$86 million.
o The PPSS task forces recommend over $2 billion in
potential savings from improved cash management
practices. For example,, the Department of Interior
Task Force estimates interest cost savings of $23
to $59 million over a three year period by acceler-
ating the collection of key receipts and reducing
excess cash balances held by recipients.
o The Personnel Task Force recommends about $50 bil-
lion in potential savings in the human resources
area. That Task Force found:
Retirement benefits for Federal employees are
substantially higher than in the private
sector. Federal benefits are 29 percent of
the total Government payroll compared to 14
percent of the payroll in the private sector.
Executive positions with substantially
different responsibilities receive the same
salary, discouraging key executives from
accepting positions with greater responsi-
bility. For example, an Assistant Secretary
with responsibility for supervising a major
segment of a Cabinet Department is, in some
cases, paid the same salary as the Personnel
Director of a subordinate bureau.
While the executive pay ceiling has increased
by only 5.5 percent from 1977 to 1981,
retired Federal employees received cost-of-
living adjustments of 55 percent. The Task
Force concluded that the Government is losing
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its most valuable experienced career per-
sonnel -- 65 percent of eligible employees
retired in 1980 compared to 20 percent in
1978.
Mana ement practices varied amon the seven' corpora-
tions reed, althouhauthorityfor administrative poli-
cies in all cases was centralized in the corporate office.
This authority was clearly defined and highly visible.
Corporate staffs focus on establishing broad guidelines and
participating in important corporate-wide activities. Thus
they avoid committing limited corporate resources to de-
tailed administrative and operational matters. Corporate
staff direct their efforts to solving major problems and
exploring opportunities for cost reduction in the operating
divisions, rather than monitoring compliance with detailed
operating rules and procedures.
Reporting relationships between central azcy staffs
(OMB,OPM, GSA, Treasury) and their agency_ounternarts for
administrative functions are generally ill-defined. Rela-
tionships are informal and depend heavily on the ability and
willingness of individuals to work together as opposed to
establishing clearly defined reporting lines. Department
and agency staff responsible for such areas as procurement,
personnel and accounting report directly to the agency heads
with no defined reporting responsibilities to the central
agencies. Accordingly, the central agencies have limited
ability to improve the quality of administrative management
across the Executive Branch. The ability to influence the
departments and agencies usually depends on the prestige and
power associated with the budget process and other resource
allocation processes.
In the seven corporations studied, reporting relation-
ships between the corporate staff and operating division
staff for administrative functions varied, but were gener-
ally well defined. For example:
o In some corporations, operating division staff
report directly to their functional counterparts
in the corporate office (particularly in the
financial area).
o In some corporations, corporate staff review the
operating plans of administrative staffs in the
operating divisions, provide input into the selec-
tion of key operating personnel and monitor divi-
sion performance. Operating division staff,
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however, continue to report directly to their
division supervisors with an indirect reporting
relationship to the corporate staff.
Management information provided to the central agencies
of the Executive-Branch Ts ni complete. While some sources
of department agency and Government-wide data are available
(e.g., OPM's Central Personnel Data System and GSA's Central
Procurement Data System), the Executive Branch has not
emphasized developing aggregate management information
across departments and agencies. For example, OMB recently
noted that it has insufficient information to monitor:
o personnel resources and skill availability; or
o total Federal funds committed to individual states
or localities. 4/
GAO has repeatedly cited inadequate planning, budget-
ing, and financial controls and insufficient user involve-
ment as Government-wide management information problems. 5/
In addition to the lack of aggregate data on Executive
Branch activities, the central agencies often do not have
the ability to retrieve rapidly and use effectively infor-
mation on the activities of individual agencies. In many
cases, the individual agencies do not routinely collect the
information necessary for the central agencies to monitor
program performance. For example, although over 125 manage-
ment reports are produced on the Farmers Home Administration
loan (FmHA)programs, information is not generated on the
"aging" of the loan portfolio and the number of borrowers
eligible for graduation (see the PPSS Department of Agri-
culture Task Force Report). This makes:
o analysis of agency activities difficult.; and
4/ Joseph Wright, Deputy Director of OMB, to the Cabinet,
August 1982, Washington, D.C.
Comptroller General of the United States, Government-
wide Guidelines and Management Assistance Center Needed
to Improve _ADP Systems Development Washington, D.C.,
General Accounting office, 1981).
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o collection of Government-wide data cumbersome and
time consuming.
The private sector has long recognized the importance
of corporate-wide management information systems. In
reviewing seven corporations, the Task Force found that all
seven had management information systems that provide infor-
mation to top-level corporate leadership. For example:
o summary financial information on corporate operat-
ing units -- the corporate staff develop standard
report formats, and divisions submit reports in
these formats on a regular basis to the corporate
office;
o strategic planning, production and marketing
information; and
o financial statements, submitted quarterly and
annually to the board of directors.
Corporate staff closely monitor the financial and oper-
ating divisions' performance on a regular basis to identify
key problem areas. Staff focus on operating divisions with
specific problems.
Congressional impact on the routine administrative
activities of the Executive Branch is substantial. Over-
sight of Executive Branch administrative activities is
exercised by a decentralized Congressional system in which
numerous committees, subcommittees and staff affect the
day-to-day operations of agencies.
The Congressional Research Service (CRS) noted in a
report to the Senate Committee on Governmental Affairs that:
"The combined practices of writing detailed specifications,
including titles and functions for agency sub-units, into
legislation, extending the confirmation requirement to
additional and lower offices, expanding the use of the
legislative veto over administrative decisions, and the
increased use of annual authorizations for programs have
resulted in the development of a new relationship between
Congress on the one hand and the President and the executive
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agencies on the other.... Congress is now a much more
active competitor in exerting influence over executive
agency organization and policy than it was even a decade
ago." 6/
Among the examples of Congressional involvement are:
o Delegation of-procurement authority. The House
Government Operations Committee reviews requests
for delegation of procurement authority over
$250,000 for non-competitive bids and over
$500,000 for competitive bids for ADP equipment.
According to a report prepared by the Committee
for Economic Development, Congressional staff can
stop a procurement by requesting a "hold" on
agency processing. 7/ The President's Reorganiza-
tion Project of 1978 found that "in the absence of
leadership from OMB, GSA and Commerce, the House
Government Operations Committee is becoming the de
facto manager of the Federal Government's informa-
tion technology resources." 8/
o Property disposal. GSA must submit to Congress a
request to dispose'of negotiated sales of real or
personal property with a fair market value over
$1,000. This procedure has caused substantial
delays in the disposal of property. 9/
6/ Congressional. Research Service, The Federal Executive
Establishment: Evolution and Trends, prepared for the
Committee on Governmental Affairs, U.S. Senate (Wash-
ington, D.C., May 1980).
7/ Kenneth Duberstein (Vice President, Committee for
Economic Development), "The Role of Congress," Wash-
ington, D.C.
8/
President's Reorganization Report, Federal Data Pro-
cessing Reorganization Study, Central Agencies Team
Report (Washington, D.C., December 1978).
9/ Duberstein, op. cit.
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o Creation of administrative offices. Congress
created two offices in OMB (Office of Federal
Procurement Policy and Office of Information and
Regulatory Affairs), specifically identifying
their responsibilities and their reporting rela-
tionships to the Director of OMB.
The effect that this Congressional oversight has on the
workload and efficiency of agencies was best identified by
GAO which found that agencies produce approximately 4,000
reports required by Congress, and that these reports cost at
least $80 million annually to prepare. 10/
GSA and OPM focus heavily on providi oer;3tinal
services in addition to coordinating administrative manage-
ment across agencies. In reviewing GSA's 33-year history,
the Task Force discovered confusion between GSA's central
coordination responsibilities and its role of providing
operational support for other agencies.
The Hoover Commission (prior to the creation of GSA)
recommended establishing a General Services Office to serve
as a policymaking agency. In enacting the Federal Property
and Administrative Services Act of 1949, Congress gave GSA
wide discretion in determining whether to centralize or
decentralize the operation of general services functions.
For those operating functions that were given to individual
agencies, GSA was required to provide Executive Branch
policy and regulations.
From the beginning, operations dominated GSA. When
operational responsibilities were added in real property
management, Federal records centers and interagency motor
pools, GSA's emphasis on operations was increased.
As a result, according to a study by the National
Academy of Public Administration (NAPA), "while the opera-
tional functions of GSA were proliferating, attention to the
regulatory responsibilities often was neglected ... [conse-
quently], few if any agencies have suffered as much [as GSA]
from ,a confusion of expectations about the essential mission
to be achieved, much less the manner in which the mission
should be conducted." 11/
10/ Comptroller General of the United States, A .-Systematic
Management Approach is Needed for Congressional -Report _
inn Requirements (Washington, D.C., General Accounting
Office, November 1981).
11/ National Academy of Public Administration, Evaluation
of the General Services Administration (Washington,
D.C., December 31, 1980).
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Task Force interviews revealed that the current GSA
Administrator is moving toward delegating selected operating
functions to agencies. For example, GSA has initiated a
pilot project to delegate the operation and maintenance of
Government-owned buildings to four participating agencies.
In the area of human resources management, many operat-
ing functions have been delegated to the agencies since
1978. The Civil Service Reform Act of 1978 provided OPM
with authority to delegate personnel functions (with certain
exceptions) to the departments and agencies. As a result,
OPM has delegated 31 specific personnel authorities to all
agencies and 24 additional authorities on an individual
agreement basis. A list of these delegated authorities is
included in the Appendix.
Even with the delegations, however, OPM has a major
involvement in the day-to-day administration of the depart-
ments and agencies in such areas as benefit programs, com-
petitive examinations and classifications. For example, OPM
develops position qualification and classification stan-
dards, allocates Senior Executive Service (SES) slots to
agencies, and conducts training programs for agency staff.
OPM also investigates potential appointees for Federal
employment and monitors local election polls for the Depart-
ment of Justice.
In the private corporations studied, the role of the
corporate headquarters office'in operating centralized
services was clearly defined. The corporate office provides
centralized services to the operating divisions only where
it can be demonstrated to be cost effective. While many
factors typically influence a decision to centralize or
decentralize, cost-effectiveness is usually the key consid-
eration. For example, companies may negotiate corporate-
wide contracts for common-use items to achieve significant
purchase price discounts. Such a centralized purchasing
agreement, however, is normally used when the total costs of
the purchase (including central overhead) are less than
those incurred under a decentralized purchasing operation.
The operating divisions generally have the flexibility to
purchase items from outside vendors when the price for those
items is lower than the corporate-wide price for the same
item. Follow-up audits determine whether the operating
divisions adhered to corporate policy.
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Tenure in key management positions is short, resulting
in a lack of continuit in management. The average tenure
for political appointees in agencies and departments is 18
months. In GSA, there have been nine Administrators, ten
Deputy Administrators, and 14 Commissioners for procurement
activities in the past ten years. 12/
According to a study conducted by NAPA, the constant
turnover in top management "is seen as the principal reason
for the failure to develop a strong and effective staff both
in GSA and in the associated administrative services areas
of the other Federal agencies." In addition, the "differing
management concepts, policies and operational procedures"
brought in by new administrators have "substantially altered
the direction and principles of the organization. Thus, it
is easy to see why GSA has been subjected to criticism for
its management inconsistencies." 13/
One problem in retaining top administrators is the pay
differential between executives in the Executive Branch and
the private sector. GAO has noted that changes are required
in the pay scale for Federal executives if "pay distinctions
are to accurately reflect differences between levels of
responsibility and performance and agencies are to avoid
serious recruitment and retention problems." 14/ Other
factors influencing the retention of executives are dis-
cussed in Issue FMS 8 the PPSS Personnel Task Force Report
and various other task force reports (i.e. Department of
Health and Human Services -- Health Finance Administration
and Public Health Service; Hospital Management; and
Department of Education).
Previous recommendations to strengthen management prac_
tices in the Government have not been _successfully imple-
mented. Studies conducted by the Brownlow Committee, the
two Hoover Commissions, the Ash Council and others have
recommended strengthening Executive Branch management capa-
bility. In fact, according to CRS, "most of the studies of
the executive branch in the past have recommended that
changes be made to centralize the policy, management and
staff functions of the Executive Branch, while decentraliz-
ing or regionalizing the conduct of operations and delivery
of services." 15/
12/ General Services Administration, "Background Informa-
tion for the GSA Advisory Board Meeting" (Washington,
D.C., January 1982).
13/ NAPA, op. cit.
14/ Comptroller General of the United States, Federal
Executive Pay Compression Worsens (Washington, D.C.,
Pay
July 1980).
15/ Congressional Research Service, op. cit.
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Many of the study recommendations have been partially
implemented. For example, the Ash Council recommended that
the management capabilities of the Bureau of the Budget
(BOB) be strengthened through a reorganization of its
responsibilities. As a result, an Executive Order was
issued renaming BOB the Office of Management and Budget and
charging it with the responsibility to improve "government
organization, information and management systems,... review
organizational structures and management processes of the
Executive Branch and recommend needed changes ... 1-develop]
new information systems to provide the President with the
performance and other data he needs but does not now get ...
[and] take the lead in devising programs for the development
of career executive talent throughout the Government." 16/
Expectations for OMB were high. In 1970, the first OMB
director, George Shultz, described the agency as follows:
"The Office of Management and Budget will be in a position
to implement the President's desire for strong, (effective
and responsive management... The new emphasis on management
and the newly created management divisions will provide the
basis for more effective program coordination and evalua-
tion." 17/
However, the management function in OMB today can be
characterized as:
o A low priority -- according to NAPA and others,
"during recent years, especially in the decade of
the 70s, the management function in OMB has been
persistently downgraded to the point where the
present staff capability is inadequate in relation
to need... the overriding domination of the budget
function as the driving mechanism in presidential
decisionmaking has tended to displace the manage-
ment function... The potential for mutual rein-
forcement between the two functions [budget and
management] remains largely unrealized.." 18/
It should be noted, however, that the OMB's that
the OMB's current initiative (Reform 88) is perhaps
the most comprehensive and significant management
program emanating from OMB since its formation
in 1970.
16/ Reorganization Plan No. 2 of 1970, President's Message.
17/ Press Release, Friday, August 7, 1970. Records of the
Bureau of the Budget B2-1 (1970).
18/ National Academy of Public Administration, "Strength-
ening OMB's Role in Improving the Management of the
Federal Government" (Washington, D.C., February 1981).
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o A coordination role in which interagency commit-
tees and task forces are often used _ -- examples
include the President's Council on Integrity and
Efficiency (PCIE), where OMB representatives and
agency IGs undertake specific projects (e.g., on
cash management, internal controls); and Reform
88, where a Steering Committee composed of OMB
representatives and 12 Assistant Secretaries for
Administration/Management and IGs oversee task
force operations. The OMB staff work through con-
sensus building among the departments and informal
relationships with agency staff, rather than
through clearly defined reporting lines. Unlike
the budget side of OMB, the management side has
little power (i.e., approval authority or "teeth")
over the actions of agency staff.
o Lacking clearly defined responsibilities and
es accountability -- while certain OMB management
functions are defined by statute (e.g., those for
the Office of Federal Procurement Policy and the
Office of Information and Regulatory Affairs),
many of the functions are not well defined. For
example, OMB issues selected accounting circulars
(e.g., A-50 on "Audit Follow-up" and A--102 on
"Uniform Guidelines for Grants to State and Local
Governments"), but does not exert a leadership
role in defining agency financial management
policies, procedures or systems. While OMB may
react to selected financial management issues, the
specific roles and responsibilities of OMB for
Government-wide financial management practices are
unclear. Given the lack of well-defined responsi-
bilities, it is difficult to measure the "success"
of the management side of OMB.
o Lacking a continuous loncterm focus --- priorities
of the management staff shift with each incoming
administration. For example, OMB focused pri-
marily on organization and reorganization studies
during the Nixon Administration, management-by-
objectives initiatives during the Ford Administra-
tion, organization studies and personnel reform
during the Carter Administration, and regulatory
reform and selected projects (e.g., debt collec-
tion), during the first half of the Reagan Admin-
istration. Long-term needs for management atten-
tion often suffer while staff focus on specific
high priority concerns of the current administra-
tion. This limits OMB's ability to implement a
comprehensive, strategy for management improvement.
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Clearly, the Ash Council vision of OMB as a "fundamen-
tal departure [from BOB] and innovation" which would "embody
a concept of management that goes well beyond the present
emphasis on budget" 19/ has not been achieved.
Conclusions
The assignment of responsibility for management of the
administrative, information resources, financial, property,
and human resources functions among many agencies has
resulted in unclear and, in some cases, overlapping respon-
sibilities among agencies; major gaps in administrative
areas; unclear relationships between central and other
agencies; and an inability to implement major management
improvements in the Executive Branch.
The lack of Government-wide management information
inhibits the ability of central agencies to improve Execu-
tive Branch administrative functions. Without key indi-
cators of agency performance, central agencies tend to
"control" agency operations by standardizing procedures and
promulgating regulations. The agencies with problems or
those with well managed administrative functions are
obscured because the information that would identify them is
not available. Standard management-by-exception practices
employed by the private sector are, therefore, not suffi-
ciently used in the Government.
Recommendations
Improving the management of administrative activities
should be based on the principles of: (a) a clear definition
and division of responsibilities; (b) effective management
information systems; and (c) the appointment of senior
officials with extensive managerial experience for long-term
service.
Exhibit 11-2 at the end of this issue describes a model
Federal management system, developed by the Task Force for
the
purpose of testing the study findings.
It also portrays
the
findings on which it is based and our
recommendations
for
improvement. The key elements of this
model are common
to
both the private and public sectors and
include policy
and
direction, procedures and lines of communication to link
the
two.
19/ Roy Ash, "Memorandum to the President", (Washington,
D.C., October 17, 1969).
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FMS 1-1: An Office of Federal Management (OFM) should
be established within EOP to provide centralized leadership
and policy direction. OFM, with OMB as its core, will be
responsible for the budget process and assume strong manage-
ment roles in finance, human resources, administrative
services, and management improvement. The intent of the
Task Force in recommending the name Office of Federal Man-
agement is to demonstrate clearly the focus of the agency --
direction and leadership of management activities.
EOP should be the focal point to direct and improve
Federal management processes. It is the only office that
has the needed authority and stature to institute long-term
improvements. Other agencies, such as GSA, have neither the
perspective on overall operations, nor the authority to
ensure long-term government commitment to change..
The Task Force recognizes that OMB was originally
intended to perform some of the recommended "management"
activities; however, OMB has not differed substantially from
its predecessor, BOB. OMB emphasizes budgeting and provides
limited leadership to the Government in other management
areas. Upgrading management responsibilities to the level
of the current budgeting role of OMB conforms to the ori-
ginal intent of the Executive Branch in 1970 to establish a
strong management role in OMB. Implementation of the Task
Force recommendation will require a substantial change in
the activities and style of the current OMB. An aggressive
and visible role is proposed, based on clear authority and
responsibility.
OFM should differ significantly from the current opera-
tion of OMB:
o Specific, well-defined management responsibilities
should be assumed by OFM. The definition and
division of responsibilities for administrative
functions should be clear to OFM and the agencies.
o Key OFM officials should have strong management
backgrounds and be appointed on a long-term basis
(see FMS 1, FMS 2 and FMS 3).
o OFM should oversee a coordinated administrative
structure in which GSA and OPM report directly to
OFM and clear-working relationships are estab-
lished between OFM and its functional counterparts
in the agencies. OFM staff should provide techni-
cal input into the selection and evaluation of key
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agency officials (e.g., Assistant Secretaries for
Administration/Management) and input into agency
plans and performance.
o Effective management information systems should be
developed to measure agency performance, identify
and respond to problems in the Executive Branch
and measure the impact of policy changes.
o OFM responsibilities for financial management,
human resources, administrative services and
management improvement should be emphasized as
well as its responsibilities for budgeting. The
budget should not dominate OFM's other management
responsibilities. The Task Force expects that
OFM's expanded management direction and oversight
roles will reduce the need for similar detailed
Congressional Committee involvement with "routine"
agency activities. A change in Congressional
"monitoring" of the Executive Branch can evolve as
greater confidence is gained in OFM activities.
The Task Force considered several alternatives to the
recommended structure of OFM, including establishing sepa-
rate budget and management offices or combining GSA and OPM
with OMB either within or outside of EOP. Based on analyses
of both the Executive Branch and the private sector, the
Task Force concluded that:
o Policies established in the budget, financial
management, human resources and administrative
areas are interrelated. Lack of coordination in
these efforts leads to inconsistent application of
policies and misuse of resources.
o EOP is the only office in the Executive Branch
with the authority and perspective on overall
operations to institute long-term improvements.
o There is a long history of Government agencies
such as GSA having both operating and policy func-
tions, but concentrating on their operating roles
to the detriment of their policy functions.
o Including routine operating functions in EOP would
divert the staff's time and attention from impor-
tant policymaking roles and place inappropriate
operating functions in EOP. According to the Ash
Council, "the effectiveness of the Executive
Office is determined as much by what is excluded
as by what is included... [the Office's prestige]
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can be diluted by including permanently with the
Executive Office units which operate programs...
As the Brownlow Committee put it thirty years ago,
the Executive Office should perform only those
functions the responsibility for which cannot be
delegated by the President." 20/
o OFM should provide central direction and policy
oversight for budget and other management issues
while operating functions should be delegated,
wherever possible, to the agencies.
Overall responsibilities of OFM should include:
o establishment of a strong management capability in
EOP;
o establishment of a senior financial officer for
the Executive Branch (see Issue FMS 3);
o improvement of management practices across the
Executive Branch;
o central policy direction and leadership in human
resources, information resources management,
procurement, and property management functions;
0 existing OMB functions in budgeting, legislative
review/clearance, intergovernmental relations and
public affairs; and
o development of common administrative procedures
and systems (see Issue FMS 2).
The Task Force recognizes that the five functional
areas in OFM have interrelated responsibilities and that
effective communication must be established among them.
This includes joint meetings of functional staff in OFM with
the agencies and joint input into agency plans, budgets and
performance.
Figure 11-2 summarizes the recommended functional
organization of OFM and its relationship to GSA and OPM.
Refer to Figure II-1, shown earlier in this issue, for the
current functional organization of OMB.
[Figure 11-2 on following page]
20/ Roy Ash, "Memorandum to the President" (Washington,
D.C., October 26, 1970).
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Figure 11-2
OFFICE OF FEDERAL M' zGEMENT
RECOINLMENDED F UNCTI0NAL ORGANIZATION
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FMS 1-2: OFM should undertake an agenda of hicj_h prior-
ity issues to improve management practices and address an
agenda of high priority management initiatives with signi-
ficant long-term cost savings and benefits. The agenda
should include the following:
o Financial management -- OFM should develop an
appropriate form of annual external financial
reporting that should be prepared by the Federal
Government; review the feasibility of modifying
present budget classifications; identify central
Government financial management objectives and
related accounting systems information require-
ments; develop accounting policies and procedures;
and enhance overall financial management activi-
ties (see Issue FMS 3).
o Human resource management -- OFM should provide
direction to OPM and the agencies for productivity
improvement programs and resource planning and
allocation; establish policies in the areas of
pay, benefits and labor management relations;
improve communications within the Executive Branch;
and improve the availability and quality level of
data regarding human resources activities (see
Issues FMS 7, FMS 8, FMS 9 and FMS 10).
o Administration -- OFM should provide direction for
the development of a single procurement system;
develop and maintain an inventory of Federal
property; develop data systems for management; and
expand the current responsibilities of the Office
of Information and Regulatory Affairs in OMB to
include central direction for the development of
common ADP software systems (see Issue FMS 2) and
the identification of the management information
requirements of OFM.
o Budget i, planning-and evaluation -- OFM should
implement improvements in capital budgeting and
planning (see Issues FMS 5 and FMS 6); make
greater use of the budget process as a management
tool for agency and central level leadership
through revising appropriation classifications to
better meet management needs and integrating
financial management and budget processes (see
Issue FMS 3); and provide direction to the
agencies for developing evaluation plans and
improving the availability and quality of data
regarding budgeting and program performance (see
Issue FMS 10). The Task Force also recommends
that the desirability of budgeting on a biennial
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basis be studied to provide more consideration to
long-term management needs (see Section IV, Cost
Control Opportunities for Further Study).
o Management improvements -- OFM should be responsi-
ble for implementing PPSS Task Force recommenda-
tions and other management improvements.
FMS 1-3: OFM officials for financial management, human
r_eso_uces, administration, management imorovement, and
budget and planning should have strong management back-
grounds and be appointed on a long-term basis. The selec-
tion of key officials for financial management, 'human
resources, administration, budget and planning, and manage-
ment improvement is a critical factor to the success of OFM.
OFM officials should have strong management backgrounds with
both public and private sector experience in their particu-
lar functional areas. These officials should be encouraged
to serve on a long-term basis to the greatest extent
possible.
In the past, there have been many recommendations made
to reduce the turnover of key Government positions. Most of
the changes made have involved conversion of the positions
from a political appointment to the career civil service.
The Task Force considered this approach and concluded that a
new method was required to attract the best talent for each
position. The Task Force recommends a new "contractual"
approach for the second tier of OFM officials (heads of each
functional area) which would provide them with the needed
security and tenure to carry out long-term improvements and
preserve the ability of the President to have a loyal and
compatible team. OFM officals would be appointed under con-
tract for specific terms of office (described below). The
President would be able to replace these officials, subject
to their contractual agreements, which would assure compen-
sation for the life of the contract. This approach combines
the needed characteristics of longer-term Government service
with private sector flexibility and employee incentives.
The Task Force recommends the following methods of
appointment for OFM officials:
o The Director of OFM should be appointed by and
serve at the pleasure of the President (with
Senate confirmation); he/she should be a member of
the Cabinet.
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o The senior financial officer should be appointed
on the basis of a model similar to that of the
Comptroller General of the United States, empha-
sizing long-term service. The President should
select a candidate from a list of qualified candi-
dates recommended by Congress and other recognized
and knowledgeable authorities. The candidate would
be subject to Senate confirmation and serve under
contract for a 15-year term to assure continuity
in the development of financial management systems.
o The heads of the management improvement, admini-
stration, human'resources, and budget and planning
areas should be selected for at least a five-year
period to provide continuity across administra-
tions. These officials should be appointed under
five-year contracts.
In considering term appointments for OFM officials, the
Task Force notes that precedents exist for the President to
select officials using this approach:
o the five Commissioners of the Securities and
Exchange Commission are appointed for five-year
terms with staggered expiration dates;
o Federal judges are appointed for life;
o the Comptroller General of the United States is
appointed by the President for a 15-year term;
o the three Presidentially appointed members of the
Federal Home Loan Bank Board serve four-year terms
with staggered expiration dates;
o the members of the Board of Governors of the
Federal Reserve Board are appointed for 14-year
terms while the Chairman is appointed for a four-
year term;
o the five Commissioners of the Federal Trade Com-
mission are appointed for seven-year terms; and
o the six members of the International Trade Com-
mission are appointed for nine-year terms.
While the ability of the President to remove these
officials is usually limited, under the new contractual
arrangement described above, the President will have the
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 Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
needed flexibility to remove the OFM officials while the
officials will have the needed security (for the contract
period) to carry out long-term improvements.
FMS 1-4: GSA and OPM should report directly to OFM; a
clear working relationship should be established between OFM
andits fun is onal counterparts in all departments and
agencies. GSA and OPM should report directly to OFM for
policy direction in developing and implementing procedures
in their respective areas of responsibility. This recom-
mended reporting relationship is based on the general pri-
vate sector model which employs a corporate staff to ensure
a coordinated administrative structure.
OFM should provide technical input into the selection
and evaluation of key department and agency officials such
as the Assistant Secretaries for Management/Administration
and Comptrollers. These positions should be filled with
experienced, highly qualified individuals with expertise in
their particular functional area. OFM's role should be one
of guidance; the agency Secretaries should continue to have
the ultimate responsibility for the selection and evaluation
of their agency officials.
OFM should establish clear working relationships with
its functional counterparts in the agencies. This should
include regular meetings and review and input into agency
plans, budgets and performance.
FMS 1-5: Effective management information systems to
support central leadershi2should _be developed. OFM and
other central agency staff must have access to summary
management information from the agencies to ensure that
policies and programs are implemented and are progressing
properly. This information would be used to:
o measure overall performance to assure that the
Government's missions are being accomplished,
o establish accountability among personnel respon-
sible for administration of the programs;
o identify and respond in a timely manner to prob-
lems of concern throughout the Executive Branch;
o measure the impact of policy changes; and
o track trends in performance that require policy
change.
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 Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
OFM staff should lead an Executive Branch effort to
achieve discipline in reporting financial and operating
results. A comprehensive, long-term information strategy is
needed to:
o identify the information needed to effectively
manage Government operations;
o assess current status;
o develop an implementation plan; and
o coordinate the implementation effort.
The Appendix to this report describes an overall infor-
mation system concept for providing the necessary management
data to OFM and senior department and agency officials.
FMS 1-6: GSA and OPM should, continue efforts todele-
gate responsibil_ity_for operations and onlyrov:~de ce_ntral-
ized services to agencies, where cost-effective. The Task
Force recommends that GSA and OPM be responsible for devel-
oping Executive Branch operational procedures and regula-
tions and for coordinating Government-wide activities
related to their functional areas.
When it is cost-effective to provide services cen-
trally, GSA and OPM should provide such services with proper
documentation of their cost-effectiveness. For example, the
GSA Office of Federal Supply and Services should recover its
costs completely by being reimbursed by users who pay a
share of the inventory carrying charges and overhead as well
as the cost of their procurement. Accounting procedures
should be developed to determine appropriate unit charges.
This approach will:
o make the cost-effectiveness of centralized pro-
curement visible, since cost comparisons with
alternate sources of supply could be made; and
o provide an increased incentive for efficient
management.
Agencies should be encouraged-to use GSA's centralized
procurement unless they can obtain the same goods or ser-
vices (which meet the procurement requirements) from an
outside vendor at a lower price than that offered by GSA.
Post audits should be conducted by the agency IGs to assess
the correctness of these decisions and, if applicable, appro-
priate corrective measures taken.
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 Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
GSA should continue to delegate operating functions to
the agencies such as the operation and maintenance of build-
ings and review of agency procurement requests for ADP
equipment and services (see the PPSS Automated Data Pro-
cessing/Office Automation Task Force Report). GSA should
assume an active leadership role only where it is more
cost-effective or efficient to operate functions centrally.
This includes, for example, the design and construction of
Federal buildings (which require specialized expertise in
architecture and engineering).
OPM should continue to delegate detailed operating
functions where appropriate to the agencies. This includes
training programs for Government employees, competitive
examinations (e.g., administration of tests for Army volun-
teers) and local election poll monitoring. OPM :should
administer only those programs which are not appropriate to
transfer to OFM or the departments/agencies. This includes,
for example, administration of the retirement program (e.g.,
claims processing, fund management), administration of
health benefits and life insurance programs (e.g., rate
negotiation), development of qualification standards and
evaluation of agency compliance with personnel regulations.
Savings and Impact Analysis
The management practices recommended herein are com-
monly used in the private sector, where corporations must
operate efficiently in order to survive in the market place.
Corporations typically formulate policy and direction at the
corporate level and rely upon feedback from management
information systems to ensure that policy is being followed
and that divisions are operating profitably. The Federal
Government should use this approach to its benefit.
The benefits from the implementation of the Task Force
recommendations would be:
o a coordinated administrative process and structure
capable of effectively directing and coordinating
Executive Branch management activities;
o clear assignment of responsibility for administra-
tive functions, eliminating existing duplications,
conflicts and unclear authority among the various
units within the Executive Branch;
o development of management information systems to
provide reliable, timely and compatible data to
EOP and senior department/agency officials;
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 Approved For Release 2008/05/05: CIA-RDP85BO1152R001201540001-6
o continuity in key management positions to imple-
ment needed management improvements across the
Executive Branch;
o ongoing identification and implementation of
needed management improvements across the Execu-
tive Branch; and
o an effective, clearly identified staff capable of
directing the implementation of the Administra-
tion's program.
Costs to implement OFM will be based on the following:
more specific responsibility for current OMB staffs (e.g.,
information resources management); transfers of personnel
and other costs from departments/agencies to OFM (e.g.,
financial management staff in Treasury, see Issue FMS 3);
and addition of new staff to OFM (e.g., human resources;
information resources management -- FMS 2; financial manage-
ment -- FMS 3; and planning -- FMS 6). In addition, the
Task Force recommends that OFM focus on policy, direction
and coordination to minimize the need for significantly
increasing the size of the Executive Branch.
The most significant short-term costs will be incurred
in the implementation of management information :systems for
OFM. OFM should perform functional analyses of the manage-
ment information required and devise a plan for the imple-
mentation of these systems. The Appendix includes the Task
Force recommendations for an information system concept,
with implementation approaches. The Task Force concludes
that the short-term costs can not be estimated without first
specifying OFM's precise organization and reporting
structure.
Implementation
OFM can be created by Executive Order of the President,
as was OMB. However, selected recommended responsibilities
of OFM will require legislative action.
The Task Force, therefore, recommends a three-step plan
to implement the recommendations. The President should:
o Issue an Executive Order to establish OFM and the
units responsible for budget and planning, finan-
cial management, human resources, administration,
and other management improvement areas.
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 Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
o Initiate efforts within the new OFM to determine
how management information flow might be improved
and to draft new legislation, additional Executive
Orders, and Presidential statements to Federal
employees. Development of effective management
information systems to support central leadership
will require a long-term commitment by OFM. Pri-
ority should be given to establishing a process to
assess current capabilities, determine information
requirements and develop a plan to implement the
systems.
o Submit legislation to Congress to implement
aspects of the recommendations that require statu-
tory change. The transfer of selected Treasury
reporting requirements to OFM, the implementation
of the recommended terms, and selection of the
senior financial officer (see Issue FMS-3) and
other second tier OFM officials will require
statutory change.
Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
 Approved For Release 2008/05/05: CIA-RDP85BO1152R001201540001-6
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II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)
FEDERAL MANAGEMENT. SYSTEMS (CONT'D)
FMS 2: EXECUTIVE BRANCH INFORMATION SYSTEMS
Issue and Savings
Would the implementation of common automated admini-
strative systems by Federal agencies reduce system develop-
ment, maintenance, and operation costs and increase the
availability and usefulness of Executive Branch management
information?
In this context, a "common system" is defined as a set
of software, procedures, and documentation for a. specific
administrative function or element of a function that could
be used by many Federal agencies. The term "administrative
functions" includes procurement, information management,
human resource management, budgeting, and planning.
In investigating this issue the Task Force addressed
the following questions:
o To what extent should automated administrative
systems be common among agencies?
o How should the Executive Branch acquire and
install common automated systems?
o What are the other benefits and impacts of common
automated systems?
The Task Force found that the acquisition and implemen-
tation of common systems would save substantial resources
and would improve overall management information. According
to the Automated Data Processing/Office Automation (ADP/OA)
Task Force, annual savings achieved from the acquisition and
operation of common systems in Federal agencies could reach
$1.2 billion per year by full implementation. The Federal
Management Systems Task Force recommends that first priority
be given to developing and installing a common payroll
system. As such, this report estimates and projects savings
for the payroll portion of the overall systems program.
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While the acquisition of a common payroll system
requires an investment in the first three years, it will
achieve significant savings by the time the system is
installed Government-wide. Specifically, the acquisition of
a common payroll system would cost $3.3 million in the first
year, $3.6 million in the second and $4.1 million in the
third. By Year 13 (after full implementation), the Govern-
ment would have achieved a cumulative net savings of $734.9
million with a decrease of approximately 2,000 staff-years
of payroll clerical effort.(See Table II-1 on page 56).
Additional benefits would be achieved through the
increased availability of management information. If common
systems were designed, developed, and implemented, basic
information would be more readily available to Executive
Branch managers on a compatible basis from the many depart-
ments and agencies.
Background
Current automated administrative systems in the Execu-
tive Branch are generally based on computer program designs
of the 1950s, updated and modified many times over the suc-
ceeding years. The major efforts of the Executive Branch to
design administrative systems began in the 1950s. Over the
next 30 years, these early systems were expanded and modi-
fied to accommodate new program activities and enlarged
operations. At the same time, hardware and software tech-
nology as used in the private sector was advancing rapidly.
However, the Executive Branch rarely took advantage of the
technology through redesign of software, but most often
modified and converted outdated systems.
The Executive Branch is currently faced with a dilemma.
Agencies are rapidly acquiring the tools of modern tech-
nology: minicomputers, word processing and other office
automation equipment, personal computers, etc. However,
Executive Branch plans to redesign administrative functions
to take advantage of technological advances and to provide
common management information data banks are not. in place.
Briefly, the agencies formally responsible for managing
automated administrative system development and operation
activities are:
o Office of Management and Budget (OMB) -- responsi-
ble for formulating Executive Branch-wide
automated data processing (ADP) policy, reviewing
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agency information policies, and reviewing agency
ADP budgets [responsibilities are largely based on
the Brooks Bill (P.L. 89-306) and the Paperwork
Reduction Act of 1980 (P.L. 96-511)].
o General Services Administration (GSA) -- respon-
sible for exercising policy control over Federal
ADP resources, coordinating joint use of ADP
equipment and systems, providing ADP conversion
assistance to agencies, and managing the ADP fund
that is used for the procurement of Federal agency
ADP services [responsibilities largely are based
on Brooks Bill (P.L. 89-306)].
o Department of Commerce, National Bureau of Stand-
ards(NBS) -- responsible for providing agencies
with technological services and establishing
Federal data processing standards on software,
design, and documentation. Includes publications
of the Federal Information Processing Standards
(FIPS) and technical articles on ADP [based on
Brooks Bill (P.L. 89-306)].
o Individual Agencies -- responsible for managing
administrative functions and automated systems to
support those functions based on the mission of
that agency. Required to establish an "Informa-
tion Resource Manager" (IRM). IRM is responsible
for "the conduct of and accountability for any
[data processing or information system]
acquisitions."1/
Methodology
The Task Force reviewed documents (Exhibit 11-3 at the
end of this issue) and conducted in-depth interviews with
both Government and private sector officials. Interviews
were conducted with Government division heads and
senior officials of OMB, General Accounting Office (GAO),
1/ Paperwork Reduction Act, P.L. 96-511, 1980.
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GSA, NBS, Departments of Navy and Transportation (DOT), and
other agencies. A list of interviewees is included in the
Appendix. The Task Force used the material gathered and
interviews conducted to develop an:
o understanding of Federal administrative systems
and Federal data processing capabilities;
o understanding of the private sector's approach to
development of automated administrative systems;
and
o approach for achieving commonality among Federal
administrative systems.
The Executive Branch does not have detailed information
adequate for estimating cost savings on either its cost to
acquire, maintain, or operate computer-based administrative
systems, or accurate inventories of these systems. The Task
Force developed estimates of cost savings based on OMB
summary data processing cost data and projections of future
cost trends from GAO and other reports.
Findings
Similar administrative functions among agencies are
supported by different automated systems. The research
conducted by the Task Force indicates that there are common
information and processing requirements for most administra-
tive functions. For example, the GAO is required by law (31
USC 66a) to establish accounting principles and standards
for agency accounting systems (GAO Title 2). The Joint
Financial Management Improvement Program (JFMIP) identified
a set of common features of Federal payroll systems.2/
Finally, the President's Reorganization Project (197$) found
that "...the rules governing... major administrative systems
are identical..."3/
2/ Do It Yourself - Compare and Improve Your Payroll
System, JFMIP, 1981.
3/ Federal Data Processing Reorganization Study,
President's Reorganization Study, 1978.
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On the other hand, research revealed equally clear
evidence of fragmented development, maintenance, and oper-
ation of automated administrative systems. GAO, in its
annual review of agency accounting systems (1980),4/ iden-
tified over 300 separate systems, almost 100 of which were
used for payroll. As further evidence, a current list of
automated agency administrative systems does not exist.
GAO, agencies and the Reform 88 Project of OMB could not
provide us with comprehensive lists of automated adminis-
trative systems. Moreover, the Executive Branch does not
have data on the costs to develop, maintain, and operate
automated administrative systems that are implemented at
agencies throughout the Executive Branch. For example, GAO
is currently studying the potential for compatible agency
payroll systems, yet it is unable to obtain accurate costs
to develop, maintain, and operate payroll systems. GAO
estimates that a year of effort by the study team would be
required to develop these Executive Branch costs.
The effect of duplicate automated systems in the Execu-
tive Branch is best stated.in a recent GAO report on the use
of computer software technology: "We feel that much soft-
ware effort is wasted...in developing redundant software."5/
The use of different and incompatible systems by
departments and agencies has contributed to a lack of
timely, compatible, and accurate management information for
use by_agency heads and central agencies [OMB, Office of
Personnel Management (OPM), Department of the Treasury,
GSA 3.
The Task Force found many instances in which informa-
tion potentially useful for Executive Branch management was
lacking. The following examples were identified through our
interviews and investigations:
o budget versus actual obligations or outlays at
more detailed levels than appropriations (for
example, program, subprogram, project, activity,
location, etc.);
4/ Status, Progress, and Problems in Federal Accounting
5/
During Fiscal Year 1980, GAO, AFMD-81-58, 1981.
Wider Use of Better ComRuter Software Technology Can
Improve Management Control and Reduce Costs, GAO,
FGMSD-80-38, 1980.
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o individuals receiving benefits from income mainte-
nance, and other programs through more than one
agency;
o inventory management information systems;
o location and utilization of real and personal
property; and
0 overall receivables due Federal agencies from
various loan programs.
These examples provide an indication of the extent to
which Executive Branch management information is unavailable
to top level managers in departments and agencies, central
agencies (OMB, Treasury, OPM, GSA), and the White House.
A substantial portion of the Executive Branch data
processing technology is out-of-date. The Task Force found
that two elements of data processing technology are out-of-
date: the software and the computers (hardware). A report
from the firm of A.D. Little states that: "Most of the ADP
development personnel are occupied with monitoring old
systems instead of developing or resystematizing new appli-
cations... [and] 24 percent of the government's general'
management computers are... roughly two generations out of
date."6/
Additionally, the President's Private Sector Survey
(PPSS) task forces for the Air Force, Army, Office of the
Secretary of Defense, Treasury, Navy, Health and Human
Services -- Social Security Administration, and ADP/OA
noted that Executive Branch software and hardware are out
of date. For example, the Department of the Treasury Task
Force stated that the Integrated Data Retrieval System
used by Internal Revenue Service (IRS) Service Centers runs
on equipment that is 20 years old (CDC 3500s). This system
is critical to IRS operations since it is used to process
all individual tax forms. IRS expects to replace this
system by 1985. The Appendix provides further details as
to age of Government software and hardware.
6/ The Effects of Future Information Processing Technology
in The Federal Government ADP Situation, A.D. Little,
1981.
47
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Private industry has significantlreduced processing
costs by using modern data processing_technol2 to support
2ayroll as well as other administrative functions. Federal
data processing capabilities contrast sharply with the
current technology routinely used in the private sector.
For example, one software service company surveyed by the
Task Force has developed a payroll system and installed it
in over 1,800 different sites. This system can be installed
on the hardware equipment of four different manufacturers.
This company supports the software package at all 1,800
sites, and routinely sends changes in software, documenta-
tion, and procedures (i.e., a "common system") to these
sites. For instance, last year this company provided 85
different system modifications.
Another company surveyed by the Task Force offers
payroll services to private industry. At one site, this
company processed over 700,000 payroll checks, over 100,000
personnel actions, and over 10,000 new hires in one week.
Companies using this service range from three to four
employee operations to a major division of a top Fortune 500
corporation. The system supports many different types of
payrolls ranging from simple payrolls for monthly salaried
employees to complex payrolls for piece-work employees. The
company charges between 75 cents and $2.00 per check to
process payrolls. In contrast, the Department of the Army
spends approximately $4.00 per check to process payrolls
using an outdated payroll system and the Department of the
Interior's Bureau of Reclamation charges $100 per year
($3.75 per check) for each employee it payrolls for other
agencies.7/ It should be noted that in an interview with
our Task Force, GAO cited the Bureau's payroll system as one
of the best.
Software costs account for most dataprocessinq costs.
In the past decade, a large share of data processing costs
has shifted from hardware to software. The Automated Data
Processing/Office Automation Task Force estimated that
software currently accounts for 48 percent of the data
processing costs. This percentage translates into $3.3
billion in software expenditures annually.8/
7/
Based on findings of the PPSS Army Task Force and
interviews with Department of Interior's Bureau of
Reclamation.
8/ ADP/OA Task Force estimate.
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GAO has attributed the limited success of agencies in
develo~in2 common automated systems to eliminate duplication
to ck of strong central' leadership Attempts to develop
common systems have included:
o Studies of the feasibility of using common sys-
tems: for example, JFMIP Study on Payroll in
1971; the President's Reorganization Project in
1978; and the President's Council on Integrity and
Efficiency with special focus on payroll.
o Executive Branch programs to foster sharing__2f
systems: for example, OMB's and Reform 88 Pro-
ject; GSA's Federal Software Program.
The Task Force findings indicate, however, that little
actual progress has been made in developing common systems.
GAO and others have noted in interviews that the limited
progress has been caused by the lack of a central point for
responsibility, lack of Government-wide commitment and
focus, and the need for the investment of resources (funds
and personnel) in the short-term to develop common systems.
Conclusions
Common automated administrative systems are technical
feasible. Examination of Federal administrative systems and
review of private industry practices, led the Task Force to
conclude that common administrative systems are feasible for
the Executive Branch. The requirements for many administra-
tive systems are similar across agencies; and in, the private
sector, companies routinely acquire common automated admin-
istrative systems or services from vendors.
A new a2roach for the development and maintenance of
common automated administrative systems is necessary. The
many attempts by the Executive Branch to achieve commonality
among administrative systems led the Task Force to conclude
that a new approach for achieving commonality will be neces-
sary. Previous efforts have not been effective primarily
because strong central leadership and credibility were missing.
Common automated systems should assist in providing
more timely, compatible, and accurate management information
to agency heads and central administrative agencies (OMB,
OPM, Treasury, GSA). Task Force findings revealed that
substantial Executive Branch management information is
currently unavailable. The establishment of common systems
would provide, an opportunity for improved agency and overall
management. Management information requirements for agency
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heads and central agencies must be identified before a
common system is acquired or developed. OMB and other
central agencies should identify information flows that
should occur between agency and OMB systems. Agencies, on
the other hand, should identify information that should flow
to high-ranking officials within the agency.
Software development and maintenance costs could be
saved by acquiring_common automated systems. The Executive
Branch spends over $3 billion annually for software. If the
Executive Branch were to acquire common administrative sys-
tems, significant savings could be achieved in developing,
maintaining, and modifying these systems. Common systems
would be acquired once and each maintenance and modification
change would be made to a system only once. For example,
instead of having to develop many modifications for a merit
pay plan for almost 100 payroll systems (one for each exist-
ing payroll system), the modification could be developed
once -- for the common payroll system.
Development of common automated systems is a long-term
effort. It would be impractical to replace all existing
administrative systems immediately with new common systems.
The Government is too large (over 300 accounting systems
alone), and agencies are actively replacing existing anti-
quated systems. Instead, old systems, as they become obso-
lete, should be replaced by a new common system.
Agencies will always have some unique ADP requirements.
While administrative functions are generallybase on the
same laws and regulations, agencies have often implemented
these functions differently. Some of these variations are
unnecessary. However, agencies correctly view administra-
tive functions in the context of their agencies, and common
systems should support this view. The common systems that
are developed for use by the agencies will therefore have to
be capable of modification and "tailoring" to the individual
characteristics of each agency.
Recommendations
FMS 2-1: Establish a program for replacing agency-
unique automated systems with common systems. The Executive
Branch should establis a centralized program to acquire,
maintain, and modify Federal common systems. Under this
program, common systems would be acquired centrally and
provided to agencies for day-to-day operations.
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The key elements of the program would be to:
o ensure that responsibility for common systems is
centralized. Provide for central development,
maintenance, and modification of common systems.
Recognize that a single system would be used by
most agencies and that the system must: be main-
tained centrally.
o establish standard procedures and requirements
across agencies to permit the acquisition and use
of common systems. Recognize that standardization
offers the opportunity to simplify current proce-
dures and requirements and to move toward consoli-
dation of administrative functions within an
agency and across agencies.
o ensure flexible common systems so that. agency-
unique procedures and requirements could be
supported. Recognize that agencies should be able
to use parts of a common system (e.g., subsystem,
module, or submodules), and should be able to
integrate these parts into their own agency-unique
procedures.
The Task Force also recommends increased joint opera-
tion of common systems by departments and agencies and the
use of private service bureaus to process transactions for
multiple agencies. The feasibility of these approaches
should be determined during the process of designing each
common system. The determinations, which will vary by
function and agency, should be based primarily on the extent
of agency-unique features and complexities, and nature of
the particular administrative function.
FMS 2-2: Designate the Office of Federal Management
(OFM) as responsible for policy uidance, system design,
acquisition, and maintenance.9/ The program for system
commonality should be -established in a manner that would
ensure both high-level support and attention and Executive
9/
Issue FMS 1 of this report recommends establishment of
an Office of Federal Management to assume responsi-
bility for the direction of Federal management
activities.
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Branch-wide participation. The Task Force recommends that
OFM provide overall guidance and direction to the program
and that actual design, acquisition and maintenance of
common systems be conducted by a newly created office in
GSA.
A project office in GSA should be established to con-
duct the program and should be managed as follows:
o OFM: provides overall guidance and policy to the
project office and agencies, including the identi-
fication of systems for standardization, decisions
regarding required Government-wide management
information, time schedules, and funds, to be used;
o GSA: responsible for day-to-day administration of
the project office. Would contract for services
to support the program (as required), recruit
staff, and manage the project office;
o Agencies: responsible for supporting OFM and GSA
project office through a coordinating policy
committee, individual working groups, and special-
ists on specific common systems. In most cases,
one agency would be designated as a "pilot" for
initial installation of a common system. This
agency would be provided with required funds and
be expected to provide additional expertise.
The Appendix further discusses the role and respon-
sibilities of each agency in implementing a common system.
FMS 2-3: Identify the management information needed by
agency heads and by central administrative agencies (OMB,
OPM, Treasury, GSA). Key management information needs would
be built into the common systems as each is designed. Thus,
the Executive Branch would ensure that the information in a
common payroll system had the same meaning across all
agencies using the common system. Equally important, as
multiple common systems are acquired, the Executive Branch
will ensure consistency of information across systems and
agencies.
With key management information defined similarly and
available in common systems, roll-ups or summarizations
would be quick, consistent, and accurate. For example,
information available to agency heads could be summarized
across agencies and submitted to central agencies.
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A significant part of the effort in providing common
management information within and across agencies would be
to consolidate administrative functions whenever appropri-
ate. Unnecessary department and agency-unique administra-
tive requirements, including using different definitions of
information, could be eliminated. Potentially, consolida-
tion could save significant costs in supporting administra-
tive functions.
Candidate functions for consolidated operations are the
same as those candidates for common systems. These are
payroll, general accounting, accounts receivable and pay-
able, and retirement/pension systems. According to other
PPSS Task Forces, significant savings could be achieved
through consolidated operations. For example:
o Department of the Treasury Task Force: recommends
consolidating existing service centers that pro-
cess individual tax returns by reducing the number
of service centers from ten to eight and modern-
izing existing computer systems. These actions
would result in three year savings of $38.6
million and additional revenues of $15.0 million.
o Department of Energy Task Force: Recommends con-
solidating financial management functions (e.g.,
general ledger, budget, property, contracts, pay-
ables, receivables, etc.) in a central site. The
Task Force estimates that annual savings could
reach $3.0 million annually.
FMS 2-4: Designate payroll as the first common system
to be fol1owed_ accounts receivable, retirement/pension,
general accounting, accounts payable, fixed-asset systems,
and budgeting. The Task Force recommends that payroll be
the first common system for the following reasons:
o payroll requirements across agencies are generally
similar;
o requirements for payroll systems tend to change
frequently, and these changes must now be made to
all payroll systems instead of once to a common
payroll system;
o private companies provide examples of the effec-
tive use of common payroll systems. Companies
either purchase a general payroll system and
install it themselves, or they purchase payroll
services from service bureaus; and
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o payroll is a highly visible system and Federal
agency personnel widely agree that it should be
the first common system developed.
After payroll, common systems in other administrative
areas should be implemented according to the following
priorities:
o High priority systems: accounts receivable,
retirement/pension, general accounting, accounts
payable, fixed assets, and budgeting.
o Medium priories systems: position control, per-
sonnel, cash management, disbursement, procure-
ment, and inventory control.
o Low priority systems: recruitment, labor use,
training education, grants management, cost
accounting, security, construction, and manufac-
turing.
The criteria used for assigning these priorities are
described in the Appendix. They include the degree of simi-
larity of requirements, degree of independence of an auto-
mated system from other systems, and potential for savings
from maintenance of a common software.
The Appendix to this Report contains a workplan for the
development and implementation of a common payroll system.
The Task Force recommends that a project for a common pay-
roll system receive highest priority. Through such a pro-
gram, the acquisition and testing of a payroll system should
be completed within three years.
Savings and Impact Analysis
The Executive Branch does not have accounting informa-
tion on the cost to develop, maintain, modify, and operate
its administrative systems. However, through reviews of GAO
studies and OMB budget documents, the PPSS Automated Data
Processing/Office Automation Task Force projected overall
ADP costs for administrative systems. Executive Branch
annual data processing costs for software development,
maintenance and modification of administrative systems are
estimated to be $3.3 billion annually.10/ In addition, the
10/ ADP/OA Task Force.
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Automated Data Processing/Office Automation Task Force
estimates that of the $3.3 billion, approximately 20 percent
could be saved through the use of common systems. There-
fore, according to the ADP/OA Task Force, $660.0 million
could be saved annually in constant 1982 dollars, or $1.2
billion could be saved yearly assuming a 10 percent infla-
tion factor after full implementation.ll/
Our Task Force estimates that potential savings from
the use of a common payroll system across agencies would be
$90.0 million annually in constant potential dollars.
Since there may be practical difficulties in converting some
systems, the Task Force conservatively estimates that 80
percent of the systems could be converted for an actual
savings of $72.0 million annually in constant dollars.
These savings include only those costs for acquisition,
implementation and operation of the systems. They do not
include overall benefits from the use of improved management
information.
The potential savings from common payroll systems is
derived from prior studies, Task Force interviews with
private software service bureaus, and from GAO studies of
agency software costs. Also the Task Force separately esti-
mated these annual savings.
Specifically, the Task Force estimates that, the Execu-
tive Branch could realize potential constant dollar savings
of $90.0 million from a common payroll system as follows:
$10 million per year in unneeded development activities; $30
million per year in software maintenance and modification
costs- and $50 million per year in payroll operations
(reduction of approximately 2,000 staff-years of payroll
clerical effort). These estimates are based on current
agency payroll systems and activities. See the Appendix for
a discussion of the derivation of these estimates.
Table II-1 summarizes the savings calculations.
Further details related to the calculations are included in
the Appendix.
[Table II-1 on the following page]
11/ Ibid.
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The Appendix contains the development of a cost esti-
mate for the resources needed to develop a common payroll
system. Assuming constant dollars, the Task Force estimates
that $110.0 million over a 13-year period (three years for
acquisition of the common system and ten years of agency
implementation or adoption) would be required to design/
develop, maintain/modify, and implement a common payroll
system in 80 different organizations. We have purposely
taken a conservative approach in estimating costs to acquire
and implement a common payroll system. It may be possible
to acquire and install a Government-wide common payroll
system within five years through a more ambitious imple-
mentation strategy.
We project that the net savings in constant dollars
from acquiring a common payroll system would be $286.0
million for the first 13 years. Assuming an inflation
factor of 10 percent per year, the net savings would be
$734.9 over the 13-year period. For the first year the net
cost would be $3.3 million, for the second $3.6 million, and
for the third $4.1 million.
Implementation
A program for systems commonality should be implemented
under the existing executive authority of the President and
through revision to the Brooks Bill (P.L. 89-306). The Task
Force recommends that the President issue an Executive Order
that:
o provides the charter for a program for systems
commonality;
o directs OFM to provide overall direction and
leadership to the program;
o directs GSA to establish an organization to
support the program; and
o directs agency heads to participate in the
program.
The President should also submit legislation to
Congress modifying the Brooks Bill by deleting or modifying
a sentence in Sec. 111(g) that reads: "The [GSA] Adminis-
trator shall not interfere with, or attempt to control in
any way, the use made of automatic data processing equipment
or components thereof by any agency."
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Exhibit 11-3
KEY STUDIES REPORTS AND LAWS REVIEWED
? Joint Financial Management Improvement Program
Payroll Study Team Report, "On Recommendation For
a Single Computerized Payroll System for Federal
Government Civilian Personnel,' October, 1981.
lines and Management Assistance Center needed to
Improve ADP Systems Development,' February 20,
? President's Reorganization Project, Federal Data Proc-
essing Reorganization Study. Operational Management
Team Report. September, 1978.
? President's Council on Integrity and Efficiency Report,
"ADP Government-Wide System Project;' February 12.
1982.
? Joint Financial Management Improvement Program
Report. "Do It Yourself - Compare and Improve Your
Payroll System. April, 1981.
? Arthur D. Little Report, 'The Effects of Future Informa-
tion Processing Technology in the Federal Government
ADP Situation,' September, 1981.
? CAO Report. FCMS?90.38, "Wider Use of Better Com-
puter Software Technology Can Improve Management
Control and Reduce Costs," April 29.1980.
managed," February 26,1981.
Lion and Regulatory Affairs Report. "Resources for Fed-
eral Data Processing Activities in the FY 1982 Budget,"
58
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II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)
FEDERAL MANAGEMENT SYSTEMS (CONT'D)
FMS 3: FINANCIAL MANA-GEMENT AND AUDIT
FINANCIAL M_ANAGEMENT
Is there presently an appropriate level of guidance and
coordination of Government-wide financial management activi-
ties to assure development of accounting systems that pro-
vide adequate management information at central Government,
department and agency levels?
Federal Government financial management has evolved
from the early 1900s when the Department of the Treasury
performed all financial activities, to the present decen-
tralized structure in which most financial management activ-
ities are carried out by individual departments and agencies
with little central Government guidance, direction or super-
vision. The term "central Government financial management"
includes the finance-related activities conducted by
Treasury, the Office of Management and Budget (OMB), the
General Accounting Office (GAO).
The issue being examined arises from the observations
of Congressional, GAO 1/ and other department and agency
critics that: (a) many accounting systems do not. comply
with GAO accounting standards; 2/ (b) there is no enforce-
ment of compliance with GAO accounting standards; 3/ (c)
existing systems do not provide compatible, consistent and
1/
Address by Charles A. Bowsher, Comptroller General of
The United States, before Association of Government
Accountants, June 14, 1982.
2/ Status, Progress and Problems in Federal Agency
3/
Accounting During Fiscal 1980, GAO, June 25, 1981.
Budget and Accounting Act of 1950 establishes require-
ment for GAO system approval but provides no time limit
for achievement, or noncompliance penalty.
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reliable information with which to manage operations effec-
tively, (e.g., the recovery of amounts due the Government);
4/ (d) budget and accounting systems are not properly
integrated 5/; (e) insufficient attention is devoted to the
development of internal control systems; 6/ and, (f) finan-
cial management policy establishment is both inadequate and
inconsistent.
The purpose of this investigation was to determine the
appropriateness of these observations, assess their probable
cause and make recommendations that will assist in correct-
ing system weaknesses.
Background
Federal Accounting and Financial Mana ement Process --
Central financial management responsibilities ar.e di fused
among several departments including Treasury, OMB, GAO, the
Joint Financial Management Improvement Program (JFMIP), and
the General Services Administration (GSA).
Treasury maintains the central government's official
accounting records and prepares combined financial reports
based primarily on cash and obligation data received from
Executive Branch departments and agencies.
In recent years, OMB has increased its attention to the
financial management process. Examples include the estab-
lishment, under President Carter, of a Financial Priorities
Program to direct department and agency attention to such
areas as internal control systems and debt collection, and,
under President Reagan, organizing the President's Council
on Integrity and Efficiency, an organization responsible for
coordinating the activities of the individual Inspectors
General (IGs). Most recently, OMB has announced the estab-
lishment of a new initiative referred to as the President's
Task Force on Management Reform (Reform 88), to implement
4/ Report on Strengthening Federal Credit Management, OMB,
January 1981.
5/ Op. cit., Address by Charles A. Bowsher, June 14, 1982.
6/ Continuing and Widespread Weaknesses in Internal Con-
trols Result in Losses Through Fraud, Waste and Abuse,
GAO August 28, 1980.
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major improvements in Government-wide administrative and
management systems. The purpose of Reform 88 is to achieve
short-term improvements in such areas as debt collection,
cash management, elimination of excess Federal property, and
internal controls; and long-term improvements in developing
compatible agency administrative systems to provide key
resource data to the White House, OMB and department heads.
However, neither OMB nor Treasury have demonstrated the
willingness to provide the leadership necessary to coordi-
nate effectively overall government-wide financial manage-
ment activities. 7/ In some circumstances in which initia-
tive has been taken, such as in the area of cash management
as noted in the President's Private Sector Survey Department
of the Treasury Task Force Report, "Treasury does not have
the power to require other agencies to improve their cash
management. In addition, programs to monitor compliance
with regulations are inadequate".
GAO's financial management responsibilities include
accounting, standard setting and review, and approval of
department and agency accounting systems based upon its
prescribed standards. Since GAO is in the Legislative
Branch, it does not have line authority over the accounting
functions within the departments and agencies. Nor does it
appear appropriate that GAO be granted such authority since
it would undoubtedly compromise its audit role. Accord-
ingly, GAO's only means of achieving accounting system
improvements is through its system approval function and the
issuance of audit reports. Unfortunately, the system
approval process does not achieve its intended objective
since departments and agencies are under no time constraint
to comply with this requirement.
The financial management responsibilities of GSA
require less than ten employees who compile the Government's
annual property report. 8/ The JFMIP staff of less than
five, perform principally a coordination function, assisting
GAO, Treasury, and OMB by performing financially related
studies.
7/
Early History of the Joint Financial Management
Improvement Program, Walter Frese, Ellsworth Morse,
and Donald Kull, Page 268.
Jr.
8/
In accordance with the Federal Property and Administra-
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The lack of a single organization responsible for the
direction of financial management has contributed to the
development of a large number of unique department and
agency accounting systems with varying levels of sophisti-
cation. 9/ For example, the PPSS Treasury Task Force
observed that the systems and procedures used by departments
and agencies range from non-existent to extremely sophis-
ticated.
State and local overnment comparison -- Historically,
state and local governments have also experienced difficulty
in developing and maintaining effective financial management
systems. However, significant improvements have occurred
since 1975 partially as a result of fiscal crises arising in
cities such as New York and Cleveland, and partially as a
result of increasing pressure and influence from the Federal
Government. Only recently has the need for similar improve-
ments at the Federal level been recognized.
Private Sector Correlary -- Private sector organiza-
tions comparable to the Federal Government in diversity and
complexity of operations establish corporate level control-
lership (the term, comptrollership, is used in the Federal
Government) functions to coordinate financial management
activities. These coordination responsibilities include
identifying financial management objectives and related
information requirements necessary to monitor operations
effectively, establishing accounting policies and proce-
dures, maintaining corporate accounting records, and pre-
paring external and corporate management reports.
In addition, corporate controllerships also establish
procedures to monitor and enforce compliance with prescribed
accounting and reporting policies. These central financial
management functions provide the necessary guidance to sub-
sidiaries and divisions to ensure a basic level of account-
ablity and consistency in financial reporting.
Results of Prior Studies -- The First and Second Hoover
Commission studies were conducted approximately .30 years
ago. Many of their recommendations were designed to improve
the financial management process by increasing the level of
central coordination and direction. Most of these recommen-
dations have not been implemented. Rather, activities which
took place in subsequent years have demonstrated an apparent
9/ Status Progress and Problems in Federal Agency Accoun-
ting During Fiscal 1980, GAO, June 25, 1981?
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lack of agreement with the Commissions' conclusions (by the
failure to adopt many recommendations) and continued empha-
sis on the development of essentially autonomous depart-
mental and agency systems. 10/
Methodology
The Task Force interviewed key financial personnel from
the Departments of Interior, Defense (DOD), Army and Health
and Human Services (HHS), as well as other central govern-
ment executives from GAO, OMB and Treasury. We also held
discussions with select members of the current and prior
administrations and other governmental experts to obtain
further insights into factors which influenced the current
organizational structure, an assessment of the acceptability
of alternative organizational structures, and a better
understanding of the likely future demands on the Federal
financial management process.
Pertinent books, periodicals, and other historical
analyses were studied and members of other PPSS Task Forces,
principally Treasury, Housing and Urban Development, Trans-
portation, Air Force, Navy, Financial Asset Management, and
Real Property Management, were interviewed to ensure a
complete understanding of the system.
The thrust of the review was directed toward determin-
ing how effectively the current financial management process
was functioning. The Task Force was also concerned about the
present structure being suitable to provide effective future
financial management ar.d to meet demands for increased
Federal Government accountability.
Findings
The Task Force's findings and recommendations relate to
the two broad areas of organization and procedures and are
presented and discussed under those headings.
1. Organizational Findings
Lack of leadership in directing Government-wide finan-
cial management has resulted in widely different-practices in the departments and agencies.
10/ The GAO: The Quest for Accountability in American
Government, Frederick C. Mosher, Page 117.
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Departments and agencies currently provide inconsistent
levels of authority and responsibility to the managers of
accounting and financial management functions.
Government-wide job descriptions and qualifications and
other personnel standards to ensure that individuals in key
financ-iar l management positions are qualified to perform
their responsibilities have not been developed.
As previously described, the central financial manage-
ment responsibilities of the Federal Government are shared
primarily by OMB, Treasury, GSA 11/ and GAO. As further
described in the Appendix, the resources devoted to this
function by these organizations generally represent a rela-
tively minor part of their overall activities. Conse-'
quently, the process of instituting sound financial manage-
ment does not have a committed sponsor willing to directly
influence and guide the departments and agencies in the
enhancement of their financial management systems.
As a result of this diffusion of responsibility, no indi-
vidual central government organization has sufficient aware-
ness of the reporting and accounting needs and capabilities
of the departments and agencies to monitor and coordinate
their activities effectively. (GAO has probably developed
the most knowledge of department financial management
requirements through its systems approval function.)
Until OMB's recent establishment of the Financial
Priorities Program and Reform 88, none of the participants
had demonstrated an inclination to accept responsibility
for, or undertaken a leadership role in, coordinating the
development of Federal financial management. However, many
of the initiatives identified in those programs appear to
have been largely reactive to concerns expressed by GAO and
Congress rather than the result of studied evaluation of
financial management shortcomings.
For example, while considerable attention has been
devoted to debt collection, there appears to be :Little
attention devoted to property and inventory management and
accountability. Further, while OMB reports that aggressive
11/ See Appendix. Less than 200 individuals in OMB (10 of
600), Treasury (150 of 112,000) and GSA (10 of 28,000)
are involved in central financial management
activities.
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debt collection practices increased the amount of debt
collected in 1982 by $2.1 billion over previous collection
results, current efforts continue to be hampered by account-
ing and information system inadequacies and inconsistencies,
a lack of sufficient policy direction and procedural stan-
dardization, and untimely and incomplete collection data.
Numerous other PPSS Task Forces, including Housing and Urban
Development (HUD), Treasury, Financial Asset Management, and
Education attest to the pervasiveness and persistence of
these problems. In the final analysis, the keys to imple-
menting improvements in each area are increased central
direction, guidance and monitoring.
Equally troublesome, department and agency comptrollers
are assigned varying levels of responsibility for the ade-
quacy of financial reporting within their organizational
constituent divisions and bureaus. Consequently, they are
often limited in their ability to influence component
accounting systems. As a result, the effectiveness of
subsidiary accounting and reporting systems varies within
departments based on the quality of their comptrollership
personnel, and the stature accorded financial management
functions within each division or bureau. Examples include
the Departments of Energy, Commerce, Interior and Defense
where there are no line reporting relationships between the
department comptrollers and their constituent division or
bureau comptrollers.
The PPSS Department of Energy Task Force reported that
the Comptroller of that Department, although responsible for
the establishment of financial policy, does not have the
authority to assure that policies are implemented in the
Department's various component organizations. For example,
the Comptroller is unable to enforce a uniform closing date
for the Department's monthly financial statements.
As a result, rather than maintain department-wide
systems, departments and agencies often permit the develop-
ment of a wide spectrum of unique bureau and division
systems which are in many cases incapable of being monitored
even at the department level. Of equal significance, the
systems are frequently incompatible within departments, thus
prohibiting accumulation of meaningful department-level
management information, let alone Government-wide informa-
tion.
These circumstances occur in part because departments
and agencies attribute varying levels of importance to
financial management, which results in varying levels of
responsibility being assigned to their comptrollership
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functions. This ranges from HUD, with no established
department comptrollership function and accounting systems
judged inadequate by the PPSS HUD Task Force 12/, to the
Department of the Air Force, where senior organizational
status is afforded the activity, and,this Task Force's
discussions and inquiries indicated a high level of systems
sophistication. Accordingly, there is an obvious and not
suprising parallel: departments and agencies which do not
ascribe senior status to the comptrollership function, or
worse, provide no such function, contribute significantly to
the inadequacies of the current financial management
systems.
The lack of consistent personnel policies in the finan-
cial area also has a significant effect on the ability to
maintain high financial management staff quality and per-
formance level throughout the Government. It is also
believed to negatively affect the stature attributed to key
positions in the financial mangement function in some
departments and agencies.
In addition, the Task Force's interviews at the Depart-
ments of the Army and Interior suggested that the absence of
appropriate and consistent job descriptions and qualifica-
tion statements, and related pay scales, have adversely
affected their ability to attract and retain qualified
financial personnel.
Unless the current imbalances in the development of
department and agency financial systems can be corrected,
and a level of consistency achieved in system capabilities,
it will never be possible to implement a meaningful level of
central financial management direction, at either the
department or Government-wide level.
2. Procedural Findings
There has been a failure to identify financial m anacge-
ment objectives and related financial information require-
ments at the central government and department and agency
levels.
Neither Treasury nor OMB has been delegated or accepted
the responsibility of ensuring that departments and agencies
12/ Determined through discussion with HUD Task Force, and
reported in the HUD Task Force report.
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comply in a timely fashion with existing legislated account-
ing requirements. Further, departments and agencies are
under no time constraint to comply with legislated account-
ing standards and procedures.
Accounting standards promulgated to date by GAO require
reexamination to determine their a_propriateness and
sufficiency.
No comprehensive accounting policies and procedures
manual is maintained to effectively communicate guidelines
for the implementation of GAO account n_standards to
department and agency financial managers.
Congressional measurement of the results of department
and agency activities, in terms of the existing budget
classifications, discourages managers from utilizingalter-
native bases for reporting and managing operations.
No concise and comprehensive financial statements are
presently __rprepared to summarize the results of operations
and the financial position of the entire Federal Government,
for use by both the Legislative and Executive Branch.
Unlike the requirements imposed upon other segments of
the economy, both public and private, no external reporting
or audit discipline is imposed on the Federal Government.
Many key management decision-makers at the central
government, department and agency levels lack an understand-
ing of how to use financial information to monitor and
direct their operations.
In the development of a responsive and coordinated
financial management system, it is essential that management
first reach agreement as to its management objectives.
The accounting and financial reporting system of an
organization must serve the needs and requirements of its
management. To do so, it is essential that each level of
management define its financial management objectives, or
stated otherwise, identify how the accounting system is
expected to serve their needs.
At the operating unit level, this involves identifying
how the accumulation and reporting of financial transactions
can assist management in the performance of program activi-
ties and provide basic safeguards for the organization's
resources.
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Each senior management level of the organization must
similarly identify its financial management objectives or
system requirements. Usually objectives or requirements
stated by higher organizational levels (e.g., department and
government-wide levels) relate to the providing of financial
information necessary to monitor the achievement of organi-
zational goals or the maintenance of reasonable management
standards and safeguards. The latter relate to such areas
as monitoring timely collection of receivables, maintaining
reasonable levels of inventories, and timely payment of
liabilities. These examples, of course, only relate to the
general financial administration of activities; similar
programmatic objectives would also be expected to be identi-
fied along with financial data requirements that would
assist in their monitoring. The combined specifications of
financial management objectives of the various management
levels become the accounting system development guidelines
or requirements.
While certain financial management objectives can be
viewed as "typical," "routine" or "accepted" practices, such
as the maintenance of timely, accurate and consistent finan-
cial records and reports, these basic objectives provide
only the general framework around which an effectively
tailored financial management system can be built in all
organizations. However, in each case objectives must be
tailored to organizational goals and characteristics, as
well as unique management styles. To achieve financial
management goals it is necessary that the team understand
the style and strategy of its coaches. In this case OMB and
Treasury, the Government's coaching staff, have not prepared
an appropriate game plan -- expressed in terms of financial
management objectives -- of what should be achieved and how
to do it.
If managements fail to clearly identify and communicate
financial management objectives, it is likely that account-
ing and financial management systems will produce a pot-
pourri of seldom used information which will be costly to
accumulate and serve no defined purpose or end result.
The areas identified in the Financial Priorities Pro-
gram and Reform 88 represent a start at finanica:L management
objective identification. However, much more effort and
direction are required at all management levels of the
Federal Government, particularly at the central government
level.
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History indicates that since the early 1940s, the
pattern of development of the current generation of Federal
Government financial management systems has focused on
meeting department and agency needs, with little or no
emphasis on central government financial management. 13/
Had timely and accurate information relative to loans
and other receivables been routinely supplied to the central
government, the recently detected debt collection problems
would have been revealed at a much earlier date. The same
is undoubtedly true for many other areas which may not be
material on an individual department basis but are signif-
icant to the Federal Government as a whole. The inability
to aggregate and analyze reliable data seriously impairs
financial management. The Task Force cannot accept the
premise that Federal Government operations are so unique
that providing cross-cutting agency and department financial
data in areas of common activity, be they cash, receivables,
inventories, liabilities, revenue or expenditure, would not
point the way to achieving greater economy of operation and
more efficient use of the Government's limited resources.
The outcome of the past bottoms-up approach has been,
not surprisingly, duplicate systems development, inadequate
systems development, incompatible systems development and
systems that do not comply with legislated accounting stand-
ards. 14/ Even more alarming, the systems are not capable
of supporting the initiation of up-to-date financial manage-
ment objectives such as cash management.
As previously noted, these circumstances have been
compounded by a lack of Executive Branch leadership. No
central government organization has been responsible for
motivating departments and agencies to comply with the
intent of legislated accounting requirements. In addition,
while the 1950 accounting and auditing act requires compli-
ance with GAO standards, it places no time limit on achiev-
ing compliance. Accordingly, more than 30 years after its
passage, this provision has not been complied with by a
significant number of departments and agencies. According
to a 1981 GAO report, 108 of the Government's accounting
systems had not been approved by the Comptroller General.
Sixty-six of these systems were operating even though they
had not been approved. Table 11-2 on the following page
summarizes the status of 301 accounting systems as of
September 30, 1980.
[Table 11-2 on following page]
13/ The GAO: The Quest for Accountability in American
Government, Frederick C. Mosher, page 112.
14/ Status, Progress and Problems in Federal Agency
Accounting during Fiscal Year 1980, GAO, June 25, 1981.
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STATUS OF ACCOUNTING SYSTEMS AT SEPTEMBER 30, 1980
Principles Subject System designs
and standards to Unapproved Under
Approv Unapproved approved Approved but operating development
Civilian departments
and agencies:
Commerce
8 -
8
7
1
Education
2 1
3
2
1
Energy
7 -
4
3
-
Health and Human
Services
29 -
29
6
23
Housing and Urban
Development
2 -
2
1
1
Interior
15 -
15
11
-
4
Justice
11 -
11
10
1
1
Labor
2 -
2
2
-
-
State
8 -
8
4
2
2
Transportation
9 -
9
7
1
1
Treasury
20 -
20
18
1
1
General Services
Administration
9 -
9
3
3
3
Veterans Admini-
stration
8 -
8
7
1
-
Other agencies
55 3
58
35
13
10
Total Civil
191 4
195
120
51
24
Percent
98 2
100
62
26
12
Department of Defense:
Air Force
29 -
29
25
3
1
Army
14 -
14
9
-3
2
Navy (including
Marine Corps)
45 -
45
30
6
9
Defense agencies
17 -
17
9
3
5
District of Columbia
government
1
1
1
Source: General Accounting Office, Status, Progress, and Problems in Federal Agency Accounting During Fiscal
1980, June 25, 1981.
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A recent evaluation of the status of the systems as of
September 30, 1982 indicates no significant change from
these numbers.
As in the private sector, it is the responsibility of
central government, essentially the Government's corporate
headquarters, to see that more is achieved from the combined
efforts of the departments than they are able to achieve
independently. That cannot be achieved simply with larger
computers. It requires better information. Better infor-
mation, in this case, is highly dependent on correcting the
organizational and procedural weaknesses this Task Force has
identified.
A further examination of the system reveals that the
GAO accounting standards, which should provide the framework
for achieving financial management objectives and system
approvals, are in need of review. Originally drafted in
compliance with the Accounting and Budgeting Act of 1950,
they require revision if they are to serve as effective
guidelines for future accounting system development and
reflect technological changes which have occured since they
were originally drafted. 15/ Such a revision is currently
in process.
The absence of a comprehensive accounting policies and
procedures manual has also seriously impaired the compara-
bility, consistency, and reliability of data from department
to department. Accounting standards are usually drafted in
broad terms and require further policy and procedural guid-
ance to assure their consistent implementation in the numer-
ous departments and agencies. For example, while the stan-
dards specify that accounts receivable are to be recorded as
assets 16/, policies and procedures should further define
criteria for distinguishing among types of receivables and
define the related receivable data elements (e.g., terms,
due dates, past due status, collateral data, etc.) which
should be collected, recorded and reported if information
submitted by departments is expected to provide the basis
for effective central Government monitoring of collection
effectiveness.
15/ Address by Charles A. Bowsher, Comptroller General of
the United States before the Association of Government
Accountants, June 14, 1982.
16/ GAO Title 2.
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As another example, the PPSS Treasury Task Force's
review of Government payment procedures pointed out that
even rudimentary policies and procedures for invoice pro-
cessing, including payment and discount procedures, are not
currently provided to departments and agencies. This
absence of central procedures establishment has prompted
Congress to legislate procedures the private sector recog-
nizes as common business practices. 17/
A significant factor complicating the development of
systems with a broad spectrum of financial management capa-
bilities, is the form in which the current. Federal budget is
approved. Budget classifications are frequently not in
harmony with the manner in which department and agency
responsibilities are assigned and projects managed. 18/
In the private sector, the budget and accounting pro-
cesses are "linked" as complementary management tools.
Budgets are usually prepared on an organizational, respon-
sibility-center basis, in a fashion that permits individuals
to be held accountable for achievement of budget goals and
expected financial performance. Accounting systems are
designed and operated to report on whether or not budgets
are achieved.
In the Federal Government, budgets are prepared princi-
pally to facilitate Executive and Legislative Branch
approval of broad programmatic objectives and spending
limitations, rather than as a guide and measure of opera-
tional performance. Budgets consist of a series of depart-
mental appropriations. However, unlike the private sector,
budgetary appropriations often. bear little relationship to
the assignment of management operational responsibility.
For example, the appropriations for the Department of the
Army include one appropriation for all military pay irre-
spective of where the individuals are stationed, or under
which command they are located. Accordingly, the cost
associated with military personnel stationed at Fort
Benning, Georgia, are not readily discernible in the budget,
nor is the base commander held directly accountable for such
costs in the budgetary process. Similar examples could be
cited in all other departments and agencies.
17/ Prompt Payment Act of 1982
18/ Testimony of Charles A. Bowsher, Comptroller. General of
the United States, before the Committee on Governmental
Affairs, U.S. Senate, August 19, 1982.
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Since it is widely recognized that the accounting
systems currently in use are largely oriented toward assur-
ing that appropriated funds are not exceeded, the accounting
systems have little accounting orientation responsibility.
Many Federal financial managers recognize this serious
deficiency in the current accounting and budget processes,
and the inability to use either as an effective measure of a
goal or responsibility achievement. While some departments
and agencies have developed ancillary responsibility-center
oriented systems, they are in the minority. Also, the
frequent competition which persists between the legislative
oversight -- "appropriation" -- and the internal management
-- "responsibility" -- bases of measurement, serve only to
cloud and confuse the communication of management objec-
tives.
There is little doubt that the solution lies with a
reallignment of the current budget appropriation process
a more responsibility-center orientation.
An additional budget issue involves the overall defini-
tions of outlays and receipts. Task Force investigations
suggest that these should be reexamined to assure that items
currently excluded are properly classified. For example,
U.S. deposits with the International Monetary Fund are not
treated as outlays, but are considered to be cash assets.
Thus, the recently discussed payment of $7.5 billion to the
IMF would not be included in outlay or deficit figures.
This is only one example of a major classification of
expenditures issue.
Finally, the Federal Government presently does not
issue concise and comprehensive annual financial statements
to the public. Its current financial reports are not sub-
jected to a comprehensive internal or external financial
audit. While some of our Executive Office of the President
(EOP) and senior agency interviewees contend that there is
no demand for such reporting, others note that the absence
of these requirements permits Federal systems to operate
with many of the inaccuracies and inconsistencies that the
discipline of annual audited financial statements is
intended to eliminate.
Conclusions
The functions of accounting and financial reporting are
currently condu_cted within the Federal Government on a
highly decentralized basis with minimum central government
direction or guidance. Presently, financial reporting is
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heavily focused on the reporting of expenditures and obliga-
tions against budgetary appropriations. However, many of
the individuals interviewed concurred that the accumulation
and reporting of financial data by the departments and
agencies on a budget basis do not provide useful financial
information for purposes of measuring or monitoring either
program costs or the effectiveness of management responsi-
bility centers.
It should be recognized, however, that the current
diffusion of financial management responsibilities among
departments and agencies has been intentionally designed to
encourage the development of decentralized, highly tailored,
department and agency systems. 19/ Accordingly, organizat-
ional uniqueness, rather than central coordination and
consistency, has characterized the development and evolution
of financial management systems in the Federal Government.
The question raised is, of course, is this the proper direc-
tion for the future? The Task Force does not believe it is.
While departments and agencies have been encouraged to
develop advanced accounting and financial management sys-
tems, no effective coordination has been provided by either
OMB or Treasury to discourage the wide disparities in
quality and sophistication that currently characterize the
systems. Another result of this department-by-department
approach to systems development, is that little effort has
been expended to assure that individual systems possess the
ability to provide comparable, reliable and timely data in
areas that would appear to suggest the need for central
government focus of attention. Therefore, it is not sur-
prising that existing systems are frequently not capable of
providing an adequate or appropriate basis for the central
government's oversight of the management of assets and
liabilities. These would include such areas as loans and
other receivables, inventories, properties and liabilities
other than contractual obligations.
In short, the systems have been cash and appropriation
oriented, have deemphasized asset and liability management
and have focused the majority of attention on department and
agency rather than central management issues.
Early History of the Joint Financial Management Im-
provement Program, Walter Frese, Ellsworth Morse, Jr.
and Donald Kull, page 268.
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With this type of focus, it is not hard to understand
why the remains of last year's programs and expenditures,
represented by uncollected loans, underutilized equipment,
excess facilities and unused supply inventories or surpluses
receives little management attention, particularly if the
systems used to provide data are incapable of aggregating
totals by department. In order to manage, it is necessary
to identify the activity that requires management and the
information needed to manage it, and assess its performance.
Although the current level of department and agency
system development and the lack of central coordination of
accounting and reporting activities inhibits the Govern-
ment's ability to prepare meaningful combined financial
statements that conform to existing GAO accrual accounting
standards, no concensus has emerged as to an appropriate
alternative basis of government-wide reporting.
To correct these shortcomings, a restructuring of the
accounting, financial reporting and central Government
financial management functions will be required to provide
for strong, well defined creative leadership of the finan-
cial management process. In addition, steps should be taken
to improve the communication of accounting requirements,
improve the definition of management objectives and raise
the stature and personnel capabilities associated with
Federal financial management.
The following recommendations are intended to assist in
the development of such a redefined central government
financial management structure.
As noted earlier in the Findings section the Task
Force's observations and recommendations focus on two broad
categories: organization and procedures. The following
discussion will address the recommendations in that context.
1. Organizational Recommendations
FMS 3-1: An office responsible for financial manage-
ment should be created in the Office of Federal Management
(OFM) to improve the direction, coordination and administra-
tion of the financial management function throughout Govern-
ment.
FMS 3-2: The financial management office should initi-
ate efforts to assure that appropriately staffed comptrol-
lership functions are incorporated into all departments and
agencies. This should entail assisting in establishing
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common position qualification and description statements and
instit ting reporting relationships which will assure that
areas of comptrollership responsibility and authority are
properly interrelated.
To provide the strong central direction and coordina-
tion of the Federal Government's financial management struc-
ture, which the Task Force believes is essential to correct-
ing current deficiency, the Task Force recommends the estab-
lishment of a newly created central government office to be
responsible for financial management. The office should
have equivalent organizational status with the current bud-
get organization in OMB. 20/
Initially, the financial management office should
combine the accounting and reporting activities, and rela'_ed
staffing levels presently contained within the operations of
other central government organizations, including the
Treasury Department's accounting and reporting activities
(150 staff members); the financial management activities of
OMB (ten staff members); the Government-wide property
reporting functions of GSA (less than ten staff members);
and the staff of JFMIP (staff of less than five)., One of
the first tasks of the new office should be to evaluate
staff needs based upon operating objectives, responsibili-
ties and timetables.
The office should be responsible for, among other
duties: advising the President and department heads on
financial matters; assisting department heads to institute
sound internal controls and comply with GAO accounting and
reporting standards; coordinating the accounting activities
of department comptrollers; and performing central govern-
ment accounting and reporting functions. The Task Force
considered whether these functions should be performed by
Treasury. However, it is recommended that the activities be
organizationally aligned with the budget, rather than
Treasury functions, as is frequently done in the private
sector (separate controller and treasury functions).
As a means of improving communication within the comp-
trollership function, the Task Force also recommends the
formation of an interagency President's Council on Financial
Management. The members would include the comptrollers of
the principal Executive Branch departments and agencies.
20/ Under the recommendations of issue FMS-1, Federal
management responsibilities would be assumed by a new
Office of Federal Management (OFM).
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Chaired by the head of the financial management office, its
purpose would be to improve the communication link between
the departments and agencies, and the central government on
financial matters.
The selection of the head of the office, essentially
the Government's senior financial officer, must be addressed
carefully. Not only should the individual possess out-
standing technical and personal qualifications, but in
addition, the term of office provided should be sufficiently
long to assure continuity for the future development of
financial management. As a model, the Task Force suggests
that the selection process and the 15-year term of office
prescribed for the Comptroller General of the United States
have merit in these circumstances and accordingly recommend
their adoption. Under that process, the President selects
the Comptroller General, subject to Senate confirmation,
from among a number of candidates recommended by a congress-
ional panel.
It is also important to assure that by title, as well
as delegated responsibilities, the individual heading the
financial management office is characterized as the Govern-
ment's senior financial officer. Ideally, the individual
filling this position should be known as the Comptroller
General. Since that title is currently ascribed to the
person filling the role of Auditor General, the head of GAO,
a title change between these two offices is recommended. If
this is not considered practical or feasible, an equally
distinctive title should be selected such as Senior
Financial officer or Director of Financial Management to
describe the director of OFM.
It is also essential that the financial management
office undertake a strong leadership role in establishing
and significantly upgrading the comptrollership function in
each department and agency. This will require working with
OFM's new office of Human Resources and the Office of Per-
sonnel Management (OP11) in redefining areas of reporting
responsibility, and developing consistent and appropriate
job descriptions, qualifications and salary scales to attract
and retain qualified personnel in these positions.
2. Procedural Recommendations
FMS 3-3: Develop the appropriate form of annual
external financial reoortina that should be performed by the
Federal Government. Once agreed upon, consideration should
be given, over the long-term, to subjecting the annual
report to audit.
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FMS 3-4: The Legislative and Executive Branches should
modify the present budgetary classifications. The intent
should be to achieve greater correlation between congres-
sional measurement of department and agency performance and
program and department functional areas of responsibility.
FMS 3-5: The financial management office should rede-
fine central government financial management objectives and
related accounting system information requirements. These
requirements should be used as a_ basis for modifying, as
required, the Federal financial reportin c systems at the
central government and department and agency levels.
FMS 3-6: GAO should reexamine the sufficiency and
appropriateness of pre iv ously issued accounting standards
Title 2 In conjunction, the financial management office
should undertake the development of comprehensive accounting
po i ies and proce u ideli.nes. In addition a specific
timetable for compliance with GAO standards should be man-
dated by law or the ineffective GAO systems approvalprovi-
sion of the Accounting and Auditing Act of 1950, repealed.
FMS 3-7: The financial management office should
develop and implement abroadly-based program of financial
management education.
Financial management systems should be designed to
respond to requirements for financial information. -In the
private sector, one of the most significant information
requirements relates to the preparation of the organiza-
tions' annual audited financial statements. 21/
While at present no requirement is imposed upon the
Federal Government for the issuance of comprehensive annual
financial statements, and in fact none are issued, several
reasons for a change in this policy are evident. First, the
Federal Government should not continue to pursue a course of
holding itself to a lesser standard of accountability than
is currently imposed on the private and many other segments
of the public sector. Secondly, the requirement to issue an
annual comprehensive report instills in the financial man-
agement system a sense of discipline which is difficult to
21/ The desirability of an annual financial audit was
suggested by Comptroller General of the United States
Charles A. Bowsher in an address to the Annual Meeting
of the American Institute of Certified Public Accoun-
tants (AICPA), October 4, 1982.
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duplicate by any other means. Accordingly, the issue should
not be whether or not an annual report is issued, but rather
in what form.
Because of the controversy that has surrounded this
issue in the past, OFM should designate a study group com-
posed of public and private sector people to advise the
Government on the specific form of annual report it should
prepare.
Internal management uses of financial data also dictate
the form of their financial management systems. The system
must be designed to respond to management's need to measure
its own effectiveness. The findings identified conflicting
management effectiveness measures arising from perceived
inadequacies in the current budget organization. According-
ly, it
is
recommended that the current budget classifica-
tions
and
organization be changed to incorporate a func-
tional
or
responsibility-center approach to budgeting that
would
be'a
more appropriate basis for measuring operational
effectiveness and expenditure requirements.
At another level, it has become apparent that Govern-
ment has grown to such proportions and complexity that there
is a need to consider more closely those areas of department
and agency activity which, because of their commonality,
could be more effectively monitored or administered on a
government-wide basis. Initial efforts have been made to
monitor receivables and properties. While the monitoring of
receivables seems to be proceeding effectively, the proper-
ties area appears to require substantial improvement. Fur-
ther, the areas of implementing user charges for appropriate
government services and furthering the efforts toward shift-
ing services from the public to the private sector need
additional emphasis. It is time to review the current
nature of all government operations to identify other oppor-
tunities for improving financial management through central
coordination or administration of other accounting activi-
ties.
In defining the specifications of an integrated finan-
cial management system, it is also necessary to consider the
requirements of accounting standards, policies and proce-
dures. By integrated, the Task Force means systems con-
structed to operate under the same basic rules even though
they may have differing hardware, software and configuration
characteristics. The current department and agency systems
do not permit a satisfactory level of integration, partially
because of a failure to articulate clearly and completely
accounting standards, policies and procedures. While GAO
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has formulated the existing standards, which require exam-
ination to determine their current adequacy, to date a
comprehensive statement of accounting policies and proce-
dures has not been assembled.
The Task Force is also of the opinion that the current
requirement for GAO approval of accounting systems, accord-
ing to their standards, has proven to be an ineffective
means of achieving timely upgrading of accounting and finan-
cial management systems. Unless the process can be streng-
thened through the establishment of unalterable time limits
for compliance, it should be terminated and alternatives
sought that present a more realistic opportunity to achieve
timely and broad-scope improvements in current systems.
Chief executives of departments and agencies must be further
encouraged to devote sufficient resources to the improvement
of accounting and financial management systems.
Lastly, while many aspects of a financial management
system are dictated by external reporting requirements,
senior organizational unit demands for financial data, and
mandated accounting standards, policies and procedures, the
systems should fundamentally serve the informational needs
of internal managers, in this case department and agency
managers. In some cases, department and agency managers
have neglected to use the systems for other than appropria-
tiation reporting because that is the basis on which Cong-
ress is holding them accountable. Others fail to realize
system potentials because they lack the knowledge and train-
ing to perceive ways of using financial data to manage their
operations. For this reason, the Task Force has recommended
the initiation of a long-term education program to make
managers and their evaluators, the legislature, more famil-
iar with financial management technology.
The intended purpose of implementing these recommenda-
tions should be to achieve a level of developmental parity
among accounting and financial management systems that will
increase the quality and reliability of financial data
available to department, agency and central government
managers, and permit an expansion of the use of financial
data to manage the business of Government.
Savings and Impact Analysis
Our recommendations relate to two principal areas of
improvement and their benefits:
o Enhancement of thefinancial management o_rr aniza-
tional structure at both the central government
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and program department levels. The establishment
of a financial management office and the estab-
lishment of a strengthened departmental comptrol-
lership function would provide the following bene-
fits:
correction of the deficiencies and weaknesses
in the current financial management process
from the establishment of improved communi-
cation of requirements;
clarification of reporting responsibilities
and strengthened comptrollership capabilities
throughout Government departments and agen-
cies;
delegation to the financial management office
the Executive Branch responsibility for ach-
ieving compliance with legislated accounting
standards; and
an Executive Branch focal point for initi-
ating improvements in central government
financial management and response to public
expectations for enhanced accountability of
Government.
o Procedural changes that will provide a clearer
focus on Federal Government financial manment
objectives. These changes involve the reevalua-
tion of external and internal reporting require-
ments and the clarification of accounting stan-
dards, policies and procedures that would have the
following lasting benefits:
improved overall quality of financial man-
agement and reporting in Government, and
through annual external reporting, its public
accountability;
a basis for reducing costs by eliminating
redundant and excessive reporting and ensure
the timeliness of desirable reporting
requirements;
the opportunity to further enhance the level
of internal controls surrounding government
financial operations;
increased accuracy and reliability of finan-
cial data available for decision making;
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a basis for a more project- and function-
ally oriented approach toward performance
evaluation; and
a level of understanding of financial manage-
ment concepts and accordingly, their future
use.
One of the principal factors that have retarded the
growth of financial management in the Federal Government has
been the controversy which has surrounded the selection of
an appropriate basis on which to measure the Government's
performance. Should it be the cash, obligation or accrual
basis? While time did not permit a study and resolution of
this issue, it is our belief that all three serve a valid
purpose in the financial management of Government and that
adoption of one basis to the total exclusion of all others
would be to deny management the opportunity to view issues
from alternative perspectives.
It was the goal of our recommendations to improve the
organizational structure and procedures to permit. justified,
but perhaps opposing, measurement focuses to coexist in a
timely, accurate, consistent and therefore reliable
environment.
Implementation
The creation of a financial management office could be
achieved by Executive Order. However, the intent. of our
recommendation -- to incorporate into one central. agency the
responsibility for the financial management of the Federal
Government -- could not be achieved without legislative
action. The Secretary of the Treasury is currently required
under the Accounting and Auditing Act of 1950 to prepare
such reports for the President, Congress and the public, and
to report financial operations of Government. The recommen-
dations in this issue envision that this role will be sub-
sequently performed by the financial management office.
Legislative action would also be required to implement
the suggested selection and tenure requirements for the
appointment of the head of the financial management office,
which we recommended be patterned after the Comptroller's
General selection procedures.
Even if difficulties are experienced in achieving
legislative change to accommodate the transfer of these
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limited Treasury responsibilities, steps should be under-
taken to formalize the organization of the financial manage-
ment office as soon as possible. Neither the Treasury issue
nor the selection and tenure issue should be viewed as
serious impediments to achieving the majority of the bene-
fits ascribed to this recommendation.
The first undertaking should be the recommended steps
to strengthen department and agency comptrollership func-
tions. This will involve working with OPM qualification,
responsibility and salary matters. It may be possible to
realign comptrollership reporting responsibilities through
the issuance of an OFM directive.
The education program is expected to provide early
dividends by improving managers' focus in their reexami-
nation of departmental financial management objectives and
related system requirements. The breadth, nature and qual-
ity of the education program recommended envisions reaching
all senior management disciplines in the Executive and
Legislative Branches. The program will require a consider-
able expenditure of effort and resources. Accordingly,
steps to achieve this recommendation should be initiated
early in the process.
The next step should involve a simultaneous effort to
achieve three independent, but interrelated recommendations.
They deal with obtaining an improved perspective on accoun-
ting system requirements through the reexamination of cen-
tral government financial management objectives, an investi-
gation to determine the feasibility of changing the current
budget classification system, and the study of external
reporting responsibilities. The outcome of these recom-
mendations could have a significant effect on future depart-
mental systems requirements.
While a reexamination of GAO accounting standards and
the development of a comprehensive accounting policies and
procedures manual can be initiated at an early date, they
should not be finalized until the issues involved in the
preceding recommendation implementation have been fully
explored.
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II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)
FEDERAL MANAGEMENT SYSTEMS (CONT'D)
FMS 4: FINANCIAL MANAGEMENT AND AUDIT
Does the Federal Government's internal audit organi-
zation function effectively on a decentralized, department
and agency basis in the application of audit resources?
Background
Since 1978, Inspectors General (IGs) have been created
by legislation in 19 Federal departments and agencies. 1/
They are responsible for previously separate departmental
audit and investigative functions.
Each IG is appointed by the President with the advice
and consent of the Senate. Each reports to and is super-
vised by the department head, but each also has reporting
responsibilities to the Congressional committees responsible
for departmental programs. The IGs' staffs include approxi-
mately 7,400 auditors and investigators, and their annual
audit budgets total about $400 million. 2/ They represent
most of the internal audit activities of the Executive
Branch.
The Task Force's review focused on whether the decen-
tralized audit functions in these 19 departments and
agencies are organized to perform appropriate internal audit
1/ E.g., P.L. 95-452, Inspector General Act of 1978.
2/ Total number of staff and budget costs for the 19
Inspectors General for fiscal year 1984 used by OMB in
the preparation of the budget. While no precise
division of these amounts between audit and investi-
gative activities is readily available, it is estimated
that approximately 70 percent of these amounts appear
to be applied to the audit function. Details by
department and agency are included in the Appendix.
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procedures effectively and efficiently. The Task Force
considered whether or not there is a need for the audit
activities of the 19 IGs to be under central direction,
since some form of central direction exists in most large,
multi-location internal audit departments of private sector
organizations.
Methodology
The Task Force interviewed the audit staffs of ten IGs,
including two regional audit staffs in Philadelphia, and
representatives of the General Accounting Office (GAO),
Office of Management and Budget (OMB) and the President's
Council on Integrity and Efficiency (PCIE). Questions were
asked about the IG organizational structure, the nature of
their work and how they perform administrative functions.
Pertinent legislation and legislative histories were
studied, and the latest IGs' reports and audit plans were
examined. A group of audit directors from nationally recog-
nized organizations 3/ and a prominent member of auditing
academia provided counsel during the course of the Task
Force's work.
The Task Force observed that most private sector audit
organizations provide central direction to (a) assure
auditor independence from operating personnel; (b) provide
for more efficient and consistent approaches to administra-
tive functions such as training, development of sophisti-
cated audit techniques and personnel practices; and (c)
assure that the scope and nature of audit work performed is
established with appropriate consideration for the overall
organization as well as component unit requirements. The
Task Force, therefore, focused on these three areas in its
attempt to evaluate the appropriateness of the current
decentralized organization of the Federal Government audit
function.
3/
Organizations were selected from among those suggested
by the Institute of Internal Auditors, and included
Gulf Oil Corporation, General Electric Co., and AmSouth
Bancorporation.
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Findings
By changing the IGs' report, g re possibilities,
Congress intended, and the current IGs believe they have
achieved, greater independence in executing audit respon-
sibilities. The legislative history of the Inspector
General Act of 1978 indicates that prior to the legislation,
Congress believed that auditors were often not independent
because they reported to Assistant Secretaries of depart-
ments who were in charge of the programs being audited. The
history further indicates that Congress intended to correct
this weakness and provide an appropriate balance between
independence and the needs of management by elevating audi-
tors to the department head level and creating an additional
reporting requirement to Congress. Based on discussions
with IGs and a review of their reports, the Task Force found
no evidence that Congressional intent to provide greater
auditor independence has been achieved.
Many inconsistencies exist in the manner in which audit
administrative functions are beinq performed by the 19 IGs.
Such inconsistencies make evaluations of auditor performance
and-`th r allocation of audit resource mis pra_c_tical at this
time. The Task Force's reviews and discussions with IGs in-
dicate a high degree of inconsistency in the execution of
many of their administrative activities. For example, the
19 IGs varied greatly in several ways: the specificity and
sophistication of their audit plans and reports; 4/ the
development of training strategy and courses; the terms and
definitions used in audit documents; and the manner in which
IG budgets are prepared and approved.
The Administration has recognized the need to provide
centralized coordination of audit administrative functions
through the recently established PCIE. PCIE is a formal
organization of IGs created by an Executive Order on March
26, 1981. It conducts coordinating projects designed to
enhance audit administrative activities. PCIE activities
include:
o establishment of standing committees to assist IG
operations in developing improved techniques in
such areas as training, performance evaluation and
reporting audit results;
4/ Current year's audit plans and most recent periodic
reports obtained from 19 IGs.
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0 organizing or coordinating several interagency
audits (i.e., audits conducted in several depart-
ments) in selected common audit areas such as
Federal employee disability compensation, unliqui-
dated obligations, and payrolls; and
o conducting projects such as a study currently
underway to improve Executive Branch computer
audit capabilities.
PCIE has no authority to direct the activities of the
individual IGs. The Task Force has been informed that the
advisory posture taken by PCIE is in recognition of the
unique statutory reporting relationships of the IGs provided
for in the legislation discussed earlier. All of the IGs
serve as members of PCIE and the Task Force's interviews
indicate that they all currently support PCIE efforts. At
present, PCIE staff, located in OMB, consists of four part-
time employees.
PCIE responsibilities do not currently include monitor-
ing of the technical audit activities of the IGs or provid-
ing adyLCeand counsel on technical aucTm iatters.- Based
on a review of their present activities, PCIE's :role has
been limited to providing a focal point for addressing
common, largely administrative issues such as training,
planning and reporting.
The Task Force's experience, and discussions with audit
directors in the private sector, indicate that large, decen-
tralized audit organizations usually establish quality
assurance programs to monitor the technical performance of
their constituent audit units. These programs, which typi-
cally include field reviews of audit performance, are con-
ducted to assure that: the scope of audit work is appro-
priate on an organization-wide basis; the manner in which
the work is performed meets professional standards; and
requirements for additional technical support of audit
activities are identified.
The development of quality assurance programs recently
received added impetus as aresult of the Metcalf Committee 5/
inquiries into the quality of audit performance in the
Subcommittee on Reports, Accounting and Management of
the Committee on Government Operations, U.S. Senate,
December, 1976.
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private sector. The Committee investigated the necessity
for greater regulation of the public accounting profession.
Its findings led to the establishment of voluntary programs
of "peer review" which involve the evaluation of an account-
ing firm's auditing practices and procedures by profes-
sionals from other firms.
IGs have beenpreoccupied with grant contract auditing
with resulting inappropriate attention being directed to
internal =anizational auditing Internal auditing con-
trols, with a view towards reventin fraud, waste, abuse
and mismanaoement, have not been emphasized before. Grant
auditing entails evaluating the compliance of the recipients
of Federal funds with the terms and conditions of grant
agreements. IG literature, reports and planning documents
currently give primary emphasis to reporting cost recover-
ies, questioned costs, and other immediate dollar savings
attributable to grant auditing.
The Task Force's reviews indicate that internal audi-
tors in the private sector often perform limited contract
auditing but certainly not to the extent currently exper-
ienced by the IGs. Most contract auditing in the private
sector is performed by personnel assigned to operating
departments and, accordingly, contract audit efforts are
clearly distinguishable from internal organizational audit
activities.
Based on the Task Force's discussions and reviews, IGs
have been preoccupied with grant auditing because the resul-
tant identification of questioned costs and recoveries has
attained a high degree of popularity with, and the attention
of, Congress and some Administration officials.
IGs suggested that developing recommendations for
improvements in internal controls has not been emphasized
because auditors believe that the benefits of improved
preventative internal controls are not readily discernable
by management. Improving preventative controls cannot be as
readily related to dollar savings as is detective auditing,
which identifies the specific dollar impact of actual wrong-
doing.
The recent Federal Manager's Financial Integrity Act and
an 0MB directive have created a requirement for the staffs
of the IGs to devote more attention to internal controls. The
Act requires the heads of Federal departments to report
publicly on the adequacy of internal controls within their
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departments. The OMB directive 6/ requires department heads
to perform continuing evaluations of internal controls.
Although the IGs' role in this process has not been totally
defined, the Task Force was advised that many of them will
assist their department and agency heads in complying with
the Act and OMB directive.
The current audit procedures used by many of the IGs'
audit staffs do not include state-of-the-art audit tech-
niques. Our discussions and reviews indicated that pro-
cedures such as flow-charting and statistical sampling are
often not used by the audit staffs. There is also a need
for the audit staffs to increase their automated data pro-
cessing (ADP) audit capability. Interviewees stated that
most IG personnel do not have adequate training and experi-
ence to evaluate and test ADP controls.
The IGs have difficulty attracting individuals to their
staffs with essential specialized audit skills. IGs stated
that under current Office of Personnel Management (OPM)
procedures, promotional opportunities are only available to
those employees on their audit staffs who have been assigned
accounting and auditing personnel classifications. Although
IGs can hire personnel with special talents outside of these
classifications in such areas as ADP and statistics, they
are unable to identify a career path for those individuals.
There is a need for the development of special job classifi-
cations for IGs that will permit promotion in specialty
areas.
The findings, conclusions, and recommendations of other
PPSS Task Forces concerning internal auditing are compat-
ible with those in this issue. For example, the
Department of Defense (DOD) Task Force recommended that
audit personnel use more ADP audit techniques and increase
their auditing of internal controls. The Department of
Education Task Force also recommended placing more emphasis
on ADP auditing. The Department of Energy (DOE) Task Force
recommended establishment of a quality assurance program to
monitor the maintenance of audit technical performance, and
the Department of Justice Task Force, in their review of
Government-wide IG operations, also recommended improving
the administrative and technical coordination activities of
PCIE.
6/ OMB Circular A-123.
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Conclusions
There is a need to provide additional support and coor-
dination of the auditors' mangy administrative needs and con-
tinuous monitoring of their technicalrformance. Such a
need has already been recognized in the establishment of
PCIE. However, PCIE activities should be broadened to
include monitoring of the scope and quality of audit work
currently performed, with a view toward providing counsel to
the individual IGs on matters dealing with the depth and
breadth of audit coverage (scope) and the application of
technical audit procedures. To achieve these added respon-
sibilities, the PCIE staff will require expansion.
The PCIE staff should be expanded even if its duties
are not increased. While PCIE initiatives are to be
applauded, Task Force review of the workload indicates that
four part-time staff are insufficient to provide an appro-
priate level of timely support to the administrative func-
tions conducted by IGs.
Recommendations
FMS 4-1: Establish within the financial management
office of OFM a full-time audit support division headed by a
director of audit coordination, re lacin the_1art-time
staff sup ort now provided to the PCIE. 77 The functions of
this new group would be to assist PCIE' in addressing common
problem areas and deficiencies in audit administrative
functions and technical performance areas. Its functions in
achieving improvements in the administrative area would
include:
o developing guidelines for planning and reporting;
o developing performance standards for IG audit
activities;
o preparing programs and developing audit techniques
in common areas such as payrolls, unliquidated
obligations, etc.;
o developing training capabilities;
Issues FMS-l and FMS-3 recommended replacing OMB with
OFM, which includes, among other units, an office
responsible for financial management.
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o maintaining a core staff of specialists in com-
puter auditing and statistical sampling to advise
and assist IGs; and
o working with OPM to develop appropriate job
classifications and personnel policies.
From a technical standpoint, the role of the audit
support division should include maintaining a continuing
awareness of the technical performance aspects of Govern-
ment-wide audit activities, and providing advice and recom-
mendations for improvements. To enhance its ability to
monitor the quality of audit work being performed on a
Government-wide basis, the audit support division should
also develop and oversee a quality assurance program. The
departmental reviews inherent in such programs can be per-
formed by the IGs on a peer review basis or under contract
with other professional organizations. 8/
The role of the division is important from several
perspectives, including: (a) providing the IGs and their
respective department heads with independent counsel and
advice on the formulation of audit plans and factors affect-
ing the quality of performance of field work and reporting;
(b) encouraging the establishment of audit plans which are
balanced between Government-wide and departmental concerns;
and (c) providing the President and Congress with insights
into the consistency with which audit activities are being
conducted and the level of professionalism associated with
audit operations.
It is recommended that the division prepare an annual
summary of its activities and observations as to the effec-
tiveness of the conduct of Government-wide audit activities
for issuance through PCIE to the President and Congress.
Although further study of staffing requirements is
needed, the experience of the Task Force members indicate
that the audit support division should initially consist of
a permanent core staff of approximately ten professionals,
8/
In other Government and business sectors quality
assurance reviews are usually conducted by teams of
professionals (peers) assembled from several unrelated
organizations. The larger public accounting firms,
however, usually engage another accounting firm to
conduct the review.
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including'several individuals with computer auditing and
statistical sampling training and experience. The core
staff should be augmented, as needed, by temporarily assign-
ed senior personnel from the various IG audit staffs who
would serve on a tour-of-duty basis. Consideration should
also be given to utilization of personnel from the private
sector on a Presidential exchange program. The director of
audit coordination should possess demonstrated skills in
accounting, auditing, financial analysis, and public admin-
istration.
PCIE, as currently constituted, should continue to
function. It should monitor the activities of the audit
support division. The substance of the Task Force's recom-
mendation is to strengthen PCIE activities through increased
staff support in the form of the audit support division.
FMS 4-2: IGs should segregate their grant audit func-
tions in order to prevent the encroachment of that audit
acts i'ivvsty on the resources needed for internal control and
other internal auditing responsibilities. The segregation
of grant auditing functions would involve identification of
specific individuals to work exclusively on grant audit
matters. This function should be established in a separate
and distinct division within the offices of the Assistant
Inspectors General-Audit.
Consideration was given to recommending the consolida-
tion of all existing grant audit functions into a central
Government-wide civilian grant and contract audit agency.
Such an organization would operate on behalf of all Federal
departments and agencies in a manner similar to the cur-
rently existing Defense Contract Audit Agency (DCAA) 9/.
DCAA is an independent agency under the direction,
authority, and control of the Assistant Secretary of
Defense (Comptroller). DCAA performs all necessary
contract audit functions for the Department of Defense
and provides accounting and financial advisory services
to all Defense components responsible for procurement
and contract administration. These services are
provided in connection with the negotiation,
administration, and settlement of contracts and
subcontracts. They include evaluating the accept-
ability of costs claimed or proposed by contractors and
reviewing the efficiency and economy of contractor
operations. Other Government agencies may request
DCAA's services under appropriate arrangements.
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o the "single audit" program described earlier is in
its infacy and should eventually diminish the
resources required for grant auditing; and
o the emphasis on block grant legislation will
probably diminish the need for grant audits in the
future.
If the recommendation to segregate the grant auditing
activities within the respective IGs' offices is not accept-
able, or another alternative is not implemented to assure a
more balanced emphasis among grant and other auditing
responsibilities, then the establishment of a central civil-
ian grant and contract audit agency should be examined.
This organization would operate on behalf of all Federal
departments and agencies in a manner similar to the cur-
rently existing DCAA.
FMS 4-3: IG Audit staffs should increase their level
of attention to internal control evaluations and coordinate
such efforts with independent control evaluations performed
by management. A primary responsibility of internal audit-
ing involves the independent evaluation and testing of
internal control systems. Additionally, audit staffs should
be encouraged to assist management by monitoring depart-
mental and agency internal control evaluations required by
OMB Circular A-123 and the Federal Managers' Financial Inte-
grity Act of 1982. This dual role should include the
following procedures:
o assist management in the design of internal con-
trol and risk vulnerability evaluation programs;
o assess the adequacy of management internal control
and risk vulunerability evaluation procedures; and
o independently decide on the department's or
agency's system of internal controls through
review and testing.
FMS 4-4: IGs should upgrade their personnel capabili-
ties related to internal control and ADP auditing IGs,
with the assistance of the audit support division, should
create an ADP capability within their departments. The
departmental ADP personnel should be capable of:
o evaluating general ADP controls;
o performing application and program systems
reviews; and
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o collaborating with the general audit staff on the
performance of ADP audit tests.
As previously discussed, the audit support division
should work with OPM to develop job classifications that
will enable the IGs to attract qualified ADP personnel to
their staffs.
Savings and Impact Analysis
The creation of an audit support division, with suffi-
cient resources at its disposal, will provide the President,
Congress and PCIE with an effective means to monitor and
support the total Government-wide IG audit activities. At
the same time, IGs should retain their relationships with
their respective department and agency heads and Congress
that are essential for effective auditing.
More specifically, the operations of the audit support
division which will initially require about six additional
people,. will provide the following benefits:
o a reduction in cost and improvement in the effi-
ciency with which administrative functions are
performed;
o the development of reporting procedures which will
permit independent evaluation of IG audit plans
and associated resource requirements; and
o improvements in technical audit as well as admin-
istrative performance through the initiation of a
quality assurance program.
Recommendations specifically addressing improvements in
the current IG operations will provide the following
benefits:
o significant enhancement of the IGs' roles in
internal management through increased attention to
their internal control evaluation responsibili-
ties; and
o development within audit departments of the cap-
ability to fulfill their professional auditor
responsibility for the audit of ADP systems and
use of state-of-the-art audit techniques.
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Implementation
The principal step in implementing the recommendations
is for the President, through the Executive Order process, to
establish the audit support division within a financial manage-
ment office in OFM. The staffing requirements and ongoing
responsibilities of the division are discussed above.
The initial activities of the division should address
the specific issues identified in the recommendations.
Division personnel should initiate discussions with IGs to
provide assurances that their programs are altered to pro-
vide as recommended:
o the segregation of grant audit functions from
other audit functions;
o an increase in their level of attention to
internal control auditing; and
o the upgrading of their capabilities regarding
internal control and ADP auditing.
Implementing procedures in the manner and to the
extent described in the recommendations will result in the
achievement of essentially all of the benefits usually
associated with a centrally directed corporate internal
audit function, while preserving the continued autonomy of
the individual IGs.
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II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)
FEDERAL MANAGEMENT SYSTEMS (CONT'D)
FMS 5: CAPITAL BUDGETING
Issue
How can the planning and budgeting for capital expen-
ditures and assets be improved?
For the purposes of this issue, capital expenditures
are defined as long-term financial investments in assets
representing large commitments of resources that commonly
include land, buildings, facilities, equipment, and
vehicles.
The Task Force has concluded that implementation of a
Government-wide capital budgeting process would :result in
better management and utilization of capital assets and
funds, long-term improvements in the nation's physical
assets, planned maintenance and repair activities and long-
term cost reductions.
Background
Concerns about the manner in which the Federal Govern-
ment plans, budgets, and manages capital investments and
assets have been evident since at least the Hoover Commis-
sion of 1949. The major issues resulting from these con-
cerns are lack of planning for the replacement or moderniza-
tion of the nation's physical infrastructure; dependency of
state and local governments on Federal funds to meet capital
needs; need for useful inventories and knowledge of capital
items and projects; lack of analysis of alternative capital
projects; and lack of a standard definition of "capital."
Special Analysis D of the President's FY 1984 budget
defines "capital" (or "investment") outlays as "those that
yield benefits in future years through the acquisition of
physical or financial assets, or through expenditures for
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less tangible long-term benefits such as education."
Reported capital outlays are significant. FY 1984 levels
are estimated at $186.2 billion (21 percent of the total
budget appropriation). Table 11-3 summarizes Federal
investmenttype outlays by type of investment.
SUMMARY OF TOTAL FEDERAL INVESTMENT-TYPE OUTLAYS
($ billions)
1983
1984
1981
1982
Estimate
Budget
o
Physical Assets
70.0
77.0
90.3
107.3
o
Loans & Financial
cial investments
26.7
26.3
22.3
8.1
o
Education &
71.1
67.6
69.5
70.8
training,
R&D other
167.8
170.9
182.1
186_2
Table D-1 Summary of Total Federal Investment-Type
outlays, 1981-1984, Special Analysis D, dated
January 31, 1983.
Methods of improving capital budgeting have been ad-
dressed in numerous studies in the past. Both the Hoover
Commission in 1949 and the Committee for Economic Develop-
ment in 1959 recommended the adoption of a capital budget by
the Federal Government. Recent studies by the General
Accounting Office (GAO) have emphasized the need for
improved capital investment planning at both Government-wide
and agency levels.
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GAO in a recent study recognizes the need for
Federal capital planning: "This study points out the
need for a cross-cutting analysis of and a policy direc-
tion for capital investment type outlays by category of
investment and the creation of more broadly based and
informed policy advisory units." 1/ In this study, the GAO
noted several problems with Special Analysis D. For
example, loans made by the Department of Agriculture (USDA)
and other departments are included as the net amount of
loans and repayments. The Analysis also does not include
important investment outlays for entities that are not
included in overall budget outlay figures ("off-budget"),
such as the U.S. Postal Service (USPS).
GAO in the same study identified a set of organiza-
tional elements that contribute to successful capital
planning processes. This set is provided in Exhibit 11-4 at
the end of this issue. The common theme of these elements
is a commitment to the long-term effectiveness and
efficiency of an organization, and a set of processes and
systems to support that commitment.
H.R. 1244, The Federal Capital Investment Budget Act of
1983 introduced in February 1983, would require the Presi-
dent's budget to identify and summarize separately the
capital investment expenditures of the United States and
would provide for an inventory and assessment of the na-
tion's public facilities. The Comptroller General, Charles
A. Bowsher, has testified in support of this legislation.
In the private sector, capital budgeting and planning
processes vary widely by industry and company. However, in
companies with substantial expenditures for capital assets,
planning usually involves separate consideration and budget-
ing of capital items from normal operating expenditures, use
of quantitative analytical techniques comparing alternative
investments (return on investment, discounted cash flow,
etc.), and high visibility of major capital expenditures
within the company. As the Task Force findings indicate,
such features are virtually non-existent in the Government.
Comptroller General of the United States, Federal
Capital Budgeting: A Collection of Haphazard Prac-
tices, (Washington, D.C.: General Accounting Office,
PAD-81-19, February 26, 1981).
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Methodology
The methodology employed by the Task Force included:
o examiningprior studies related to Federal capital
assets ncluding: Hoover Commission, Ash Council,
GA5 and CBO reports.
o conductinq_interviews (more than 40 upper level
management interviews) inc_ludinq: Office of
Management and Budget (OMB), White House staff,
GAO, Council of Economic Advisors, CBO, government
and private sector consultants, Department of
Energy (DOE), Department of Transportation (DOT),
Department of Labor (DOL), Federal Energy Regula-
tory Commission, Department of Justice (DOJ), and
Department of Housing and Urban Development (HUD).
The Task Force used the material gathered and inter-
views conducted to develop:
o an understanding of budgeting for Federal capital
expenditures;
o an understanding of the private sector's approach
to capital budgeting; and
o an approach to improving the current methods of
capital budgeting in the Federal Government.
Findings
Analyses of capital investment alternatives are not
consistently performed in Federal agencies. The rigor and
quality of analysis varies, as does the degree of capital
investment planning. The findings of numerous GAO studies
and the Task Force interviews indicate that Federal agencies
take varied approaches to capital planning. For example:
o USPS prepares a five-year capital investment plan
that becomes the basis for the financial plan for
the budget year. The capital investment plan is
directly included in the budget review of opera-
ting budgets. This "quasi-government" organiza-
tion appears to have one of the most developed
processes. 2/
2/ Ibid.
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o The Corps of Engineers (COE) prepares a five-year
investment program listing projects which will be
available for initiation during that period based
on estimated funding constraints. The investment
program is defined as the construction of new
water projects -- new construction. Alternatives
and major repairs are not included in the invest-
ment program. Also, the investment program is
reviewed separately from operating budgets. 3/
o GAO develops and submits to Congress a prospectus
for capital projects describing each project and
its costs. Investment is defined by the General
Services Administration (GSA) as all new construc-
tion alternatives and major repairs except for
one-for-one implements and equipment. Congress
reviews and approves these projects separately. 4/
o The Veterans Administration (VA) prepares a five-
year medical facility construction plan. This
plan is considered in conjunction with operating
budgets and overall program needs. Also, the VA
manages and budgets maintenance, operations, and
capital investment separately. 5/
As the above examples indicate, agencies are currently
engaging in capital investment analysis to varying degrees.
However, the Task Force found that most agencies lack a
rigorous or consistent method of analyzing, evaluating and
presenting capital projects. In addition, no standard or
prescribed methods of analysis are applied to all. capital
projects. Without standard analytical techniques, setting
priorities for capital projects both within and among agen-
cies is difficult.
3/
Ibid.
4/
Comptroller General of the United
States,
Foresighted
Planning and Budgeting Needed for
Public
Buildings
Program, (Washington, D.C.: General Accounting Office,
PAD-80-95, September 9, 1980).
Op. cit., Comptroller General of the United States,
Federal Capital Budqetina: A Collection of Haphazard
Practices.
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The PPSS Task Force for the Department of the Army
noted that the Army has classified 69 of its installations
as excess and 30 others as potentially excess. However,
without effective capital planning in the Executive Branch,
facilities continue to be maintained.
OMB Circular No. A-104 provides an aid in preparing
comparative cost analysis for real property lease or pur-
chase decisions. This analysis provides guidelines for the
acquisition of property such as office buildings, ware-
houses, and associated land for which estimated land and
construction costs or market value is $500,000 or more.
According to Task Force interviews, agencies find this to be
of limited use as a planning tool since it applies only to a
limited portion of capital investments and does not analyze
real property investments relative to other capital invest-
ments. Also, each agency independently interprets the
Circular, making uniform application difficult.
The current uncoordinated preparation by agencies of
their coital investment plan revents an overall assess-
ment of Federal ca-ital investment policies and practices.
Currently, the only document that summarizes capital invest-
ments at the Federal level is Special Analysis D, a supple-
ment to the President's Budget.
Special Analysis D distinguishes investment-type out-
lays from operating outlays. However, a GAO study 6/ noted
several limitations of Special Analysis D:
o Capital investments are understated since capital
outlays are netted against related receipts. For
example, as previously noted, USDA loans are
included as the net amount of new loans and repay-
ments (and defaults) for each year.
o Federal capital investment outlays are not com-
pletely portrayed since they do not include off-
budget agencies (for example, USPS).
o Definitions of physical capital differ resulting
in incomparability among agencies.
o The analysis displays capital outlays for three
years only; hence it does not represent total
capital stock or plans for expenditures.
6/ Ibid.
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From a Government-wide viewpoint, major capital plans,
assets and expenditures are not presented and identified
clearly to the public in Special Analysis D or in any other
available source. In addition, there is no overall analysis
of capital expenditures or alternatives at the OMB level.
Capital spending plans are assessed in the context of indi-
vidual programs or agencies.
For example, Special Analysis D defines a capital in-
vestment, but agencies do not necessarily use this defini-
tion. According to Special Analysis D, investment outlays
are defined as:
"Those that yield benefits in future
years through the acquisition of physi-
cal or financial assets, or through
expenditures for less tangible long term
benefits such as education."
Included in this category are:
o the construction, rehabilitation and acquisition of
physical assets;
o education, training and vocational rehabilitation;
o research and development;
o international development; and
o financial investments such as loans.
This definition is broad and goes beyond what the pri-
vate sector defines as a capital outlay. The private sector
typically defines investments in new physical assets (e.g.,
buildings, land, and equipment) as capital items? A full
capital budget in the private sector includes cost reduction
programs; capital costs incurred by new government, legal or
company welfare requirements; and possibly research and
development. 7/
OMB has recognized some
of the weaknesses in Special
Analysis D and expanded it in
the FY
1984
Presidential
Budget that was submitted to
Congress
on
January 31, 1983.
7/ Higgins, J.C., Strategic and Operational Planning
System, Prentice Hall International, London,, 1980.
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Special Analysis D now contains historical tables on outlays
for capital investment from FY 1945 to FY 1984. These
tables display outlays for defense, non-defense, and invest-
ment grants to State and local governments for capital in-
vestment. The tables are subdivided into major categories
(e.g., defense procurement, highways, pollution control
facilities, etc.). It should be noted, however, that the
limitations noted above still apply.
Failure to im2lement comJrehensive capital planning-at
the Federal level contributes to the deterioration of the
nation's physical infrastructure (roads, bridges, dams,
public build -s, eBased on the analyses of many
specialists, the lack of Federal capital planning has con-
tributed to the deterioration of the nation's physical
infrastructure. Planning for repairs, replacement, and
maintenance is required to ensure that public services are
maintained at an adequate level. Without such planning
there is currently no ability to allocate funds rationally
to projects of the highest priority.
The Task Force is not recommending that additional
funds be spent on capital items. We have not analyzed
specific funding levels and we do not suggest that current
amounts are necessarily inappropriate. However, it is not
possible for any large organization to assure that funds are
spent on the needs of greatest priority without consistent,
coordinated, and comprehensive planning processes.
In order to identify which public facilities most need
Federal funds, an overall assessment of capital assets is
required. An inventory of Federal capital assets would
facilitate planning, while making the problem areas more
visible to Federal managers and the public.
The rebuilding of the infrastructure has been termed a
difficult and expensive Government responsibility of the
1980s and 1990s. Pat Choate, Senior Policy Analyst for
Economics, TRW, Inc., estimates that local, state, and
Federal governments would have to spend an estimated $2.5 to
$3 trillion dollars in this decade alone just to maintain
today's level of service on public facilities. Less than
one-third of the necessary renovation can be achieved at
current spending levels. 8/ Choate's findings are discussed
in more depth in the Appendix.
8/ Pat Choate, "America in Ruins."
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Inadequacies in the Federal capital budget process
have negative impacts_ on the ability o_f the states to
develop long-term capital budget plans. Methods of capital
planning and levels of Federal expenditures have major
impacts on planning efforts at other levels of government.
Many states, including California, New York, and Pennsyl-
vania, plan capital budgets on a five-year basis, yet
Federal program dollars are provided only on an annual
basis. In addition, states and cities frequently issue
bonds to fund specific projects. Consequently, the uncer-
tainty of the availability of future Federal funds hampers
long-range planning efforts at the state level. Increased
coordination among the various levels of government could
contribute to maintaining the asset base. 9/
The Federal Government currently conducts no comprehen-
sive inventory of its capital assets. The Federal Govern-
ment maintains no overall inventory of its capital assets
and their current condition. Without such an inventory,
identifying maintenance needs and new item requirements as
well as developing capital plans and budgets is not poss-
ible.
GSA maintains an inventory of public buildings and
their associated assets, but it is not used as part of
Government-wide planning. Other agencies maintain inven-
tories of various components of total capital assets. DOT,
for example, prepares an inventory and assessment of the
condition of highways. However, no complete aggregate data
on Federal capital investments are maintained. 10/
Currentlj"capital investment" is not uniformly defined
by all Federal agencies. Each Federal agency uses its own
definition of a "capital investment" in lieu of a uniform,
universally accepted definition. This procedure makes a
comparison of total capital investments among agencies
meaningless.
9/ Op. cit., Comptroller General of the United States,
Federal Capital Budgeting: A_-Collection of Haphazard
Practices.
10/ Op. cit., Comptroller General of the United States,
Foresighted Planning and Budgeting Needed for Public
Buildings Program.
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Conclusions
'The Task Force has concluded that there is a need for
improved budgeting and planning for capital assets and
expenditures. Policymakers need a tool to analyze and set
priorities for capital investment programs. In addition,
the public deserves to view the projects which are under-
taken. Current procedures emphasize the "pork-barrel"
nature of expenditures rather than a clear, rational capital
budgeting procedure.
The lack of standardized definitions and analytical
techniques makes it difficult to evaluate capital invest-
ments across Federal agencies or set priorities for capital
programs.
Furthermore, a standard definition of "capital invest-
ment" would facilitate evaluation of capital projects across
agencies. Without a uniform definition, a summary of
capital projects at the Federal level would be meaningless.
In addition, standard methods of capital analysis are
needed to set priorities for projects within and among
agencies. This would allow comparison of projects across
agencies and facilitate the development of a broader capital
plan at the Federal level.
Since all agencies are competing for limited Federal
funds, increased coordination among agencies is needed to
ensure that budgets for capital items are developed effec-
tively. A system to set priorities for capital projects
across agencies is required to ensure that only high
priority projects are funded.
By instituting capital planning at the Federal level,
state and local governments can coordinate their long-range
capital plans with expected availability of future Federal
funds. The current method of appropriating funds annually
does not permit Federal, state and local agencies to plan
adequately for future capital investments.
The Task Force recognizes that the first priority of
budget analysis is to view agencies and programs in their
totality (operating and capital items together) and to set
priorities by program or activity. However, we have con-
cluded that an additional, separate view and comparison of
capital items would also be highly desirable.
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Recommendations
FMS 5-1: Prepare a comprehensive _special capital
analysiswithin theSpecial_Analyses section of _the annual
budget. The Task Force recommends that a comprehensive
special capital analysis be developed and included in the
Budget of the U.S. Government. In testimony, Choate des-
cribes the information a special analysis could provide: 11/
o an estimate of aggregate capital investments
(construction and rehabilitation) required to
provide specific levels of public works services
over one, five and ten years;
o an estimate of aggregate operation and maintenance
investment requirements;
o the identification of sources of funding;
0 the identification of Federal public works invest-
ment priorities; and
o description of how the proposed annual capital
expenditures combined in the proposed budget would
relate to the nation's long-term needs and the
Federal Government's long-term public works
investment strategies.
In order to prepare the recommended special capital
analysis, the departments and agencies should perform
standard or consistent capital investment analysis, and
develop aggregate capital investment data in a standard
format to be used as input in the analysis. The Office of
Federal Management (OFM) 12/ would be responsible for
summarizing the agency data and preparing the capital analy-
sis.
11/ Pat Choate, Testimony before Subcommittee on Economic
Development of the Committee on Public Works and Trans-
portation, (Washington, D.C.: September 14, 1982).
12/ Issue FMS-l of this report recommends that a new Office
of Federal Management (OFM) should assume direction of
Federal management activities.
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The Task Force recognizes the difficulty of directly
comparing capital items of different programs or agencies
(for example, an office building versus a dam). However,
spending alternatives can be consistently arrayed as to
purpose, benefits clearly described, and explicit choices
identified.
The current portion of the budget analysis devoted to
capital, Special Analysis D, should be reformatted to pre-
sent improved information, thereby making it more useful.
Improving Special Analysis D is the minimum that should be
done to improve capital planning, although the Task Force
considers it only a short-term solution.
FMS 5-2: Institute a Federal capital budgetinq and
planning process, separately constituted but-interrated with
overall resource _planning_and allocation _sstems . The Task
Force recommends that OFM develop a capital budgeting pro-
cess for implementation by Federal agencies on a Government-
wide basis. The highest priority areas for improvement are:
o inventories of capital assets and procedures for
maintaining the inventory;
o common agency analytical procedures;
o clear identification of capital expenditures in
the annual unified budget;
o multiyear funding (see Section IV, Cost Control
Opportunities for Further Study); and
o cross-agency expenditure analyses and budget
presentations.
Many of these high priority areas are identified in
H.R. 1244, Federal Capital Investment Budget Act of 1983.
For example, the bill requires an inventory and assessment
of public facilities and a clear identification of capital
expenditures in the unified budget.
The Task Force recommends that estimated obligations,
outlays, deficits/surpluses for operating and capital items
continue to be included together as part of the unified
budget. However, the Task Force further recommends that
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capital expenditures be displayed separately within the
President's budget for each department/agency and summarized
in a special analysis for the total Government.
Some interviewees suggested that separate operating and
capital budgets could be used as a method of portraying a
lower operating deficit. The Task Force does not recommend
such an approach, which would be publicly viewed as budget
manipulation.
The FY 1984 President's Budget discusses the applica-
bility of capital budgeting and planning processes to a
unified Federal budget and concludes that capital budgeting
is inapplicable to the Federal Government and that capital
planning is already an integral part of an agency's budget
planning process. This conclusion is based on the assump-
tion that the Government would wholly adopt a private sector
or a state/local government model for capital budgeting.
These models include separating the operating and capital
budgets, and recording depreciation of capital items (busi-
ness model), or amortizating bonds sold to fund capital
items (state and local government model).
The Task Force recommends that the Federal Government
implement only those elements of capital budgeting that
would improve the management and use of capital assets.
These elements are outlined above as the highest priority
areas for improvement.
The Task Force recognizes that certain agencies have a
well-established capital planning process as indicated in
the FY 1984 President's Budget submission. However, these
processes are not consistently applied across all Federal
agencies (see Findings section above). Instituting common
analytical procedures would substantially improve capital
planning in all agencies.
The steps recommended for OFt4 to develop the process
o conduct a detailed examination of capital planning
within Federal agencies;
o examine the elements of private sector and state/
local government capital budgeting practices to
determine those elements that would be applicable
to the Federal Government;
o examine the impact of a capital budget process on
congressional budget activities;
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o review inventories of capital items currently
maintained by agencies to assess their usefulness
as planning tools;
o determine the relationships of a capital budgeting
process to the overall annual budgeting process;
and
o design the detailed procedures and implement them
at the agency level and throughout Government.
Savings and Impact Analysis
The specific cost savings realized by improving capital
planning cannot be determined since inventories and current
cost data are not available. The benefits that would be
derived from implementation of the recommendations pre-
sented, however, would include:
o improved management of Federal capital assets;
o improved utilization of capital funds;
o long-term improvements in the nation's physical
infrastructure; and
o reduction of costs through implementation of a
"regular" repair and preventive maintenance sche-
dule.
Implementation costs of capital budgeting throughout
the Executive Branch will be significant, although not
subject to measurement prior to a more detailed design of
the process. However, the Task Force concludes that, in the
long run, the costs of not implementing the recommendations
will far exceed these costs. This conclusion is based on
our understanding of the impacts of past practices in which
capital budgeting has not been systematized throughout the
Federal Government.
Implementation
The actions required by the Executive Branch are:
Executive Office of the President (EOP) -- OFt4:
prepare a Federal capital investment policy;
develop a standard definition of capital invest-
ment; develop standard analytic techniques and
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service standards to be applied to capital invest-
ments; compile agency capital investment data; and
develop a Federal capital budgeting process.
o Federal departments _and asencies: identify and
maintain capital assessment inventories; develop
capital investment data; apply standard analytical
techniques and capital investment analysis; and
implement an agency capital budgeting ;process.
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Exhibit 11-4
ORGANIZATIONAL ELEMENTS THAT CONTRIBUTE TO
SUCCESSFUL CAPITAL PLANNING PROCESSES
o Critical elements
- links from capital planning to budgeting are extensive
- concern about long term effects of planning/budgeting
- incorporates up-to-date information on physical capital
into decision-making process
o Important elements
recognizes the effect of deferred maintenance and
minimizes it to the extent practical
protects capital investment funds when making capital
budgeting decisions
considers related operations and maintenance costs when
making capital budgeting decisions
considers alternative methods of meeting the objectives
of capital investment projects
monitors capital investments and the consideration of
physical capital
does not have internal conflicts that disrupt capital
budgeting activities
sees individual projects as modernization, revitaliza-
tion, and investment
uses funding mechanisms to protect investments
uses incentives to meet work and financial targets
o Helpful
-- uses categories for decision-making that are important to
the organization
assesses physical capital and adherence to a maintenance
schedule routinely
Source: Table 5 in op. cit. PAD-81-19, February 26, 1981.
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II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)
FEDERAL MANAGEMENT SYSTEMS (CONT'D)
FMS 6: PLANNING AND BUDGETING
How can long-term planning processes within the Execu-
tive Branch be improved?
The Task Force has concluded that the Executive Branch
should implement a system to identify, monitor, and assess
progress toward accomplishment of major Administration goals
and activities. Such a process, which would emphasize sig-
nificant objectives to be met over five-year periods, would
be integrated with ongoing agency and central budget activi-
ties.
Background
The Task Force considered this issue in response to the
following types of Executive Branch problems which have been
cited over many years by the General Accounting Office
(GAO), Congressional Budget Office (CBO), Executive Branch
agencies, and private study groups:
o difficulties in continuously monitoring the degree
of accomplishment of major Administration goals by
senior officials;
o emphasis on a one-year budget process without an
accompanying effective multiyear analysis of pro-
grams and resource levels by the various agencies
and the Executive Office of the President (EOP);
o difficulties in communicating and implementing
changes in policies and practices by new admin-
istrations; and
o difficulties in anticipating and communicating
major governmental trends and needs, such as those
related to handling the energy crises of the
1970s.
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Agency Planning -- Attempts to improve the long-term
planning process within Federal agencies date back to the
1920s when program budgeting was introduced into the Army
Corps of Engineers (COE).
An expanded version of program planning was introduced
in the Department of Defense (DOD) by Secretary McNamara in
1961 as the planning, programming, and budgeting (PPBS) pro-
cess. This system tied together the definition and exam-
ination of alternative strategies for the next five years
(planning), the requirements of needed support systems
(programming), and control of program execution (budgeting).
Four years later, President Johnson extended the use of
McNamara's PPB process to the remaining Government agencies.
Most aspects of the formal PPBS process have been
dropped by agencies and departments, except for DOD. The
Secretary of Defense issues a memorandum to the Departments
of the Army, Navy, and Air Force containing statements of
general objectives and fiscal guidance. The Departments
analyze their ability to meet this guidance and submit a
report to the Secretary of Defense who reviews it and incor-
porates any changes in Department programs. The first year
of this five-year plan is then translated into the next
annual budget.
In the early 1970s another attempt, management-by-
objectives (MBO), was introduced by the Nixon Administra-
tion. Each agency was asked to submit to the Office of Man-
agement and Budget (OMB) agency objectives, plans of action,
and milestones to achieve the objectives. Separate planning
groups (management associates) were established within each
major OMB program. These groups worked with OMB budget
examiners to analyze the agency plans and then integrate
agency objectives into summary, governmentwide objectives.
Monthly status meetings were held by the heads of the
agency, the OMB Director, and the respective planning groups
to discuss progress toward achieving these objectives. The
MBO system is no longer operated by the Executive Branch.
A more recent attempt to increase long-term planning
within the Federal Government was undertaken in 1974 through
the Congressional Budget Control and Impoundment Act. This
Act changed the fiscal year, established the current budget
process, and required Federal agencies to submit a five-year
plan to Congress. The five-year projection requirement of
this law stimulated planning interest within OMB and
agencies so that by 1979, OMB had revised its Circular A-11
to include detailed five-year projection guidance.
i 113
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Executive Office Planning -- An Executive Office
planning review takes place in OMB as part of the Spring
Preview in March-April when OMB staff develop five-year
projections of revenues and expenditures, for the remaining
fiscal year, the forthcoming fiscal year, and the next three
fiscal years.
Cabinet Councils, formed by the Administration of
President Reagan, also conduct planning activities assessing
program alternatives and presenting recommendations to the
President on short and long-term issues. These Councils
represent major government areas (i.e., economic affairs,
human resources, natural resources and environment, legal
policy, food and agriculture, commerce and trade, and
management and administration), and assist in planning
Administration programs and activities.
The Office of Policy Development (OPD) directs a mid-
term planning exercise to assess progress made over the
first two years of the Administration. OPD reviews objectives
initially set by the President, assesses progress in achiev-
ing these objectives, and identifies new issues that have
emerged over the previous two years. Based on this analy-
sis, OPD recommends modifications of Presidential objectives
to reflect progress and new ideas.
Private Industry Planning -- In the private sector,
long-term planning processes vary by industry and company,
although many companies use common elements. These elements
are: communication of primary objectives from top management
to other levels of management; identification of alternative
means of accomplishing objectives; formation of detailed
plans to implement the best alternative; and monitoring and
feedback of progress-l/
Methodology
In conducting its analysis, the Task Force reviewed the
following material and interviewed the following officials:
o Research material: Government manuals, recent GAO
reports, relevant textbooks and articles. Key
reports are footnoted in this issue.
1/ George A. Steiner, Top Management Planning, 1969.
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o Government officials: more than 40 officials at
the director level or above from the White House;
OMB; Departments of Energy (DOE), Transportation
(DOT), Labor (DOL), Housing and Urban Development
(HUD), and Justice; and the Federal Energy Regu-
latory Commission. These officials are included
in the list of interviewees in the Appendix.
o Private-Sector officials: officials from seven
major industrial and service companies (Figgie
International Inc.; General Electric Company; IBM
Corporation; ITT Corporation; Nationwide Insurance
Companies; Price Waterhouse; and R. J. Reynolds
Industries, Inc.).
The Task Force used this material to develop a concept
for an improved Federal planning process by:
o reviewing governmental activities;
o reviewing private sector practices;
o developing analogies between public and private
sectors; and
o developing an approach for an improved Federal
planning process.
Findings
The current emphasis of the Federal Government is on
the short-term annual budgeting process, not longterm
planning. Task Force investigations revealed heavy emphasis
on the present one-year budget process with few effective
methods for considering long-term objectives and options.
Interviews with individuals in the White House, OMB, and the
Federal agencies provided clear evidence that,the Federal
Government does not have adequate long-term planning pro-
cesses.
Representative comments are as follows:
o Officials within OMB stated that annual agency
submissions of five-year budget projections
required by the Congressional Budget Control and
Impoundment Act are reviewed, but only used to
limited degrees to analyze alternative actions.
They have not developed into the long-term
planning tool originally envisioned.
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How Can They be Improved?" 1982.
o Officials within the White House Office of Policy
Development stressed the difficulties of address-
ing longer-term and major Administration initia-
tives, given the overwhelming concentration on the
annual budget process.
o The Special Assistant to the President and Direc-
tor of the office of Planning and Evaluation
stated in a recent speech that administrations
focus primarily on short-term problems, and thus
drive the Federal bureaucracy toward short-term
solutions.2/
o Congressman Norman Y. Mineta states "Budgeting has
become a frenetic exercise with little, if any,
time left in the annual process for comprehensive
planning and oversight or for dealing with sub-
stantive non-budgeting issues."3/
Lack of l o n g - t e r m Government planninq hinders effective
allocation of resources. The former Comptroller General of
the United States, Elmer B. Staats, has noted that, "Serious
attention should be given to finding ways to reduce unneces-
sary workload so that better budget planning, policy analy-
sis, monitoring and evaluation may take place -- and in a
more coordinated and intensive way."4/
Richard Snelling, Governor of Vermont and former Chair-
man of the National Governors Association, expressed the
thought that, "State and local officials have long advocated
forward funding of state and local grants to facilitate
planning and minimize waste at the state and local level."5/
2/
3/
4/
Dr. Richard S. Beal, Ke note Speech at Decision Support
System -- 1982 Conference, San Francisco, CA, 1982.
Norman Y. Mineta, "The Congressional Budget Act and
Process: How Can They Be Improved?" The Budget Pro-
cess Does Work, 1982.
Elmer B. Staats, "The Congressional Act and Process:
How Can They Be Improved?" Committee for a Responsible
Federal Government, 1982.
5/ S. Melly, "The Congressional Budget Act and Process:
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In addition, several PPSS Task Forces provided examples
of improvements in planning processes that would result in
significant savings. The Procurement/Contracts/;Inventory
Management Task Force, for example, identified improvements
in the current weapon systems acquisition planning pro-
cesses. These improvements would focus on more timely and
comprehensive program management plans. The Task Force
estimates that $6.7 billion could be saved annually through
the adoption of these recommendations.
Past attempts to introduce long-term Executive Branch
plann. inq stems have generally been unsuccessful. Although
DOD still uses elements of ppBS, most other agencies dropped
or never implemented the process. Interviews indicate that
agencies failed to adopt PPBS because the plan demanded
excessively detailed program budgeting that was not appro-
priate for all agencies, and the attempt to implement PPB
simultaneously Government-wide was too ambitious.
MBO was not continued for different reasons. According
to interviews, the MBO process did not tie closely to the
ongoing annual budget review; it therefore became isolated
from ongoing processes and eventually was considered irrele-
vant to budget decisions. Research in many agencies indi-
cates that a lack of understanding of the value of MBO and
the attempt to implement MBO simultaneously in all agencies
also hindered success.
The Task Force identified selected agencies, other than
DOD, that are using variations of planning systems. Two
examples are DOT and DOE. DOT managers identify major
issues that must be addressed. Action plans are developed
and individuals assigned to each issue. Department manage-
ment reviews progress on achieving the objectives stated in
the issue.
DOE uses a process similar to that of DOD. Each pro-
gram office submits five-year resource plans based on fiscal
guidance from the DOE Office of Planning and Analysis.
After review by the DOE Office of Planning and Analysis, the
Secretary decides on specific issues. This review results
in budget levels by program.
Conclusions
Implementation of an Executive Branch planning system
would increase the Administration's ability to accomplish
its major objectives and allocate overall resources effec-
tively. Executive Branch planning has been attempted i:i the
past to assist Federal officials in looking beyond the
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annual budget process. The Task Force has concluded that
the failure of these previous efforts was caused by flawed
designs and implementation approaches, and not by a conclu-
sion that long-term planning for the Federal Government was
inappropriate or impractical.
Recommendations
FMS 6-1: Implement a process within the Executive
Branch that links long-term Presidential objectives, budget-
ing, and agen cy plans to improve resource allocation. This
recommendation attempts to build on the bes taspects of the
MBO and PPBS processes and avoid their flaws. Unlike IMO,
the Task Force recommends a clear, continual linkage to
Office of Federal Management (OFM)6/ budget activities and
the budget examiners. Unlike PPBS, we recommend developing
plans only for major issues -- not for all Executive Branch
activities and programs. The planning process recommended
is similar to a MBO system as practiced in both the private
and public sectors. However, it is tailored to meet the
specific needs of the Executive Branch.
The key steps in the Task Force recommendation are
depicted in Figure 11-3. As this figure shows, the Task
Force recommends that the new planning process be in place
by January 1984, in time for the FY 1986 planning cycle when
the Executive Branch completes the FY 1985 Presidential
budget submission in late December of 1983 or early January
1984, and is now ready for the new planning process.
[Figure 11-3 on following page]
6/
Under the recommendations of Issue FMS-1, Federal man-
agement responsibilities will be assumed by a new
Office of Federal Management (OF24).
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Figure 11-3
LONG-TERM PLANNING PROCESS
EXAMPLE FOR PREPARATION OF FY 1986 PLANS
OFM (OFFICE OF
CALENDAR FEDERAL MANAGEMENT) DEPARTMENTS/AGENCIES
JANUARY 1984
PREPARE/REVISE AGENCY MISSION
OBJECTIVES - MAJOR
ADMINISTRATION ISSUES
FEBRUARY-MARCH 1984
APRIL-MAY 1984
JUNE 1984
JULY-DECEMBER 1984
PREPARE/REVISE PLANNING
GUIDANCE PACKAGE
REVIEW AND CONSOLIDATE
AGENCY PLANS
I
PROVIDE FEEDBACK ON
PROGRESS TOWARDS
ACHIEVING OBJECTIVES
PREPAREREVISE AGENCY PLANS-
FY 1986 & 4 YEARS TO MEET
MISSION OBJECTIVES
REVISE PLANS AS
REQUIRED
USE AGENCY PLANS AS BASIS
FOR BUDGET GUIDANCE
USE PLANS AS BASIS FOR
I BUDGET PROCESS
USE PLANS AS BASIS FOR
BUDGET PROCESS
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The planning steps are:
o Provide feedback on progress toward achieving
oS ectives (agencies): after the planning process
is in effect, the agencies would submit reports in
early January to OFM that discuss progress toward
meeting the mission objectives established in the
previous planning cycle (this step would not exist
until January 1985).
o Prepare/revise agency mission objectives (OFM):
OFM should review the budget just submitted and
identify Executive Branch mission objectives by
agency. These objectives should be developed
jointly by a new OFM planning staff and the budget
examiners. Mission objectives should include
major Administration programs and activities to
serve as the basis for the forthcoming planning
and budgeting processes at the agencies.
o Prepare/revise planning guidance ackage_(OFM):
OFM planning staff would identify the issues to be
addressed; instruct agencies on how to prepare
plans; and provide submission schedules for the
plan.
o Prepare/revise agency plans (agency): agencies,
using FM instructions, would develop a plan
(including alternatives) in line with OFM-approved
budget levels. The plan must, at a minimum,
address the mission objectives, but could include
a set of issues that were only of interest to the
agencies. We envision each Plan to be a short
document (no more than five pages) with alter-
natives considered to meet the objective, major
tasks to be carried out, schedules, and costs.
o Review and consolidate agency plans (OFM): the
planning staff and OFM budget examiner would
review the plans. The planning staff should focus
on the agencies' approaches toward achieving mis-
sion objectives and the budget examiner would
review the budget impact of achieving these objec-
tives.
o Revise plans as required (agency): as the plans
are being reviewed by OFM, agency planning and
budget staff would work with their OFM counter-
parts to explain and defend the plans.
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o Use agency plans as a basis for budget guidance
(OFM): the OFM budget examiner would use the
final plans to support the distribution of fiscal
targets to agencies.
o Use plans as a basis for budget _2rocess (OFM and
agenciesY: OFM and the agencies would use the
plans as an integral part of the budget process.
Agency budget staffs would direct component organ-
izations to develop budgets that would include
resources to support approved management objec-
tives; and identify how budgeted resources would
help achieve those objectives. OFM budget exam-
iners would review the plans as part of the fall
budget review cycle. The OFM planning staff would
ensure that budget guidelines addressed major
Administration issues.
FMS 6-2: Focus the responsibility for overseeing the
planning process within OFM. The Task Force recommends that
a small group beestablished within OFM to:
o serve as a strong focal point for performance and
assessment of long-term impact analyses for the
Executive Office;
o assist agencies in implementing plans; and
o oversee the development, revision, and monitoring
of a long-term planning system within the agen-
cies.
The key to successful implementation of this planning
system is its use by agency officials and the OFM budget
staff. The plans must serve as significant input to the
ongoing budget process of the Executive Branch. The Task
Force recommends that budget examiners be responsible for
reviewing and monitoring the substance of agency plans.
Savings and Impact Analysis
An Executive Branch planning system would assist agen-
cies and OFM in ensuring that long-term issues are consid-
ered, major Administration initatives highlighted, resources
are allocated properly to meet key programs, and progress
assessed toward accomplishing Presidential goals. For
example:
o plans would communicate objectives, strategies,
and detailed plans to Federal managers; and
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o measurement of progress toward achieving objec-
tives would be an integral part of keeping manage-
ment aware of linkages between long-term and
current budgets.
Implementation
The recommendations can be implemented by Presidential
authority. The Task Force recommends that the planning
process be implemented in two or three agencies. After
testing the planning process within those agencies, revi-
sions could be made. The revised process would then be
implemented in other agencies.
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II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)
FEDERAL MANAGEMENT SYSTEMS (CONT'D)
FMS 7: INTERNAL COMMUNICATIONS SYSTEM
Can an integrated internal communications system that
would contribute to employee understanding, of Administration
goals and their implementation be established within the
Executive Branch?
Potential benefits of such a system include:
o improving the Administration's ability to
measure progress toward the accomplishment of
goals and objectives;
o improving productivity by communicating
Administration priorities in a timely manner;
and
o creating incentives for better job perfor-
mance through top level recognition of the
contributions and achievements of Federal
employees.
Background
Communications within the Executive Branch can be
characterized as follows:
o heavy emphasis on formal bulletins, regula-
tions, and manuals as the means of transmit-
ting direction to individual employees;
o minimal direct communication between senior
Executive Office or agency leadership and
individual employees;
o little use of modern technology (videotapes,
teleconferences, etc.) for communication with
employees;
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o major gaps in communication between the
political appointees and career civil ser-
vants;
o heavy emphasis on informal "networks" of
long-term career civil servants;
o virtually no methods of feedback from agency
employees to senior management; and
o communication problems exacerbated by :Ere-
quent turnover at senior levels and lack of
adequate orientation for appointed officials.
Current emphasis is placed on relaying information
downward to agencies with less concern for feedback or
upward communications. There are few if any provisions for
upward communication by individual employees. Formal,
downward communications from central agencies include:
o General Services Administration (GSA) :issues:
Federal Procurement regulations (over 1,000
pages) and Federal property management
Regulations (over 2,000 pages);
o Office of Personnel Management (OPM) issues:
Federal Personnel Manual FPMjT5,200 pages),
FPM Supplements (3,000 pages), Qualification
Standards (2,000 pages), Job Classifications
(4,600 pages), and Uniform Guidelines on
Employee Selection (20 pages);
o Off ice of Management_ and Budget (OMB) :issues:
Circulars, bulletins and memoranda. Current-
ly 50 circulars are in use varying from one
page to 100 pages.
In contrast to the Federal Government, the internal
communication function in private organizations has steadily
gained significance for top management. Effectively planned
and managed employee communications are considered important
means of promoting the firm's mission and identity, and for
increasing productivity, enhancing ability to accomplish
business objectives, and improving morale.
Methodology
Communication practices of the private sector were
identified and compared to those of the Executive Branch.
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The Task Force reviewed policy and procedures manuals
and interviewed officials of private sector organizations
including Kaiser Aluminum, Hewlett-Packard, General Electric
Company, Nationwide Insurance, Honeywell, IBM Corporation,
and American Telephone & Telegraph. Interviewees are listed
in the Appendix.
Public sector interviews were conducted in the Depart-
ments of Agriculture (USDA), Labor, Treasury and Commerce;
the GSA and OPM; and in the Executive office of the Presi-
dent (EOP), including OMB.
The Task Force also reviewed earlier studies of the
Federal Government, literature on the topic of corporate
communications (with particular contributions from the
International Association of Business Communicators and the
Public Relations Society of America), the findings of other
PPSS Task Forces and information from the National Academy
of Public Administration (NAPA).
Findings
The Executive Branch does not currently have systems or
procedures to exchange mans eg ment information in an e _i
cient manner. As documented in this Report's discussion of
Federal management and administration (see Issue FMS-1),
management information systems (see Issue FMS-2), financial
management and audit (see Issue FMS-3 and FMS-4),, and pro-
gram evaluation (see Issue FMS-10), current systems do not
ensure that information will be provided to those who need,
or could use, that information to improve Federal manage-
ment.
The PPSS Department of Transportation Task Force dis-
covered, for example, that the Urban Mass Transportation
Administration's (UMTA) Management Information System (MIS)
is "extremely limited and unreliable." For example, when
UMTA tried to use MIS to compile a quarterly report for the
final quarter of 1979, half a billion dollars in obligations
were ommitted. Because of inadequate financial :information
systems, "UMTA has not been able to close its books for FY
1979, 1980, and 1981, nor will it be able to close for
1982."
The Executive Branch has not established and promoted,
at the central management level., a}policy and system for
internal communication. The Executive Branch has issued no
formal statement of internal communications policy and
objectives at the central management level. No :individual
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is responsible for the internal communications function.
While the Press Secretary, Chief Speech Writer, and other
top-level staff counsel the President and execute planned
external communications, the Task Force has been unable to
locate similar individuals at the White House level with
responsibility for internal communications.
A planned strategy for internal communications or4-
inating from top mangement is common in private sector
organizations, as is the support for, and highly visible
involvement of, the Chief Executive Officer (CEO) and other
members of top management. Over the past 20 years, the
internal communications function in private corporations has
steadily gained greater significance in the eyes of top
management. As organizations have grown rapidly in size and
complexity from one or two-city locations to multinational
operations, planned communications with the work force have
become essential management tools. With employees distri-
buted throughout the United States and abroad, the under-
standing of common mission, pride in a unique corporate
identity, and productivity can be enhanced through a commun-
ications network. Therefore, many successful large corpor-
ations have established internal communications systems.
The communication programs studied by Task Force mem-
bers all include:
o a statement of top management's communica-
tions objectives in support of overall cor-
porate objectives;
o a comprehensive plan to meet those objec-
tives;
o identification of appropriate communication
vehicles for program implementation: and a
mechanism to gather feedback and measure
program effectiveness.
Agencies need and desire greater levels of-planned
internal communications. Almost without exception, agency
managers interviewed expressed a desire for improvement in
the communication of an Administration's goals and objec-
tives, particularly when a new Administration wants to make
major changes in programs and philosophy.
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Common concerns identified by interviewed managers were
that:
o political appointees do not clearly articu-
late what changes they want to achieve;
o middle and senior-level career managers want
to help top management achieve its goals, but
those managers believe that the Administra-
tion's appointees need to increase efforts to
seek their help, communicate objectives, and
build an atmosphere of mutual trust; and
o Administrations do not adequately emphasize
the positive contributions of many Federal
workers. At times they seem to focus
on the supposed poor performance of civil
servants, which some managers feel is a
common public perception.
Private sector organizational communications stems
emphasize building effective networks:
o the systems stress dialogue among groups
within an organization to bridge differences
across functions, skills, and ranks, and
thereby to move together toward achieving
mutual goals;
o central management establishes strong links
with communicators located in geographically
and organizationally dispersed operating
units;
o the importance of each employee as a member
of the team is communicated in many different
ways;
o through internal communications, top manage-
ment emphasizes to its employees the common
history, culture, philosophy, mission, stand-
ards, and objectives that all share;
o high priority is placed on face-to-face
formal and informal communications; and
o emphasis is placed on training company com-
municators to improve their skills and pro-
fessional competence.
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The Executive Branch has access to communication
specialists, as well as to a variety of forums and groups
that could be tapped in a communication network. Within
individual agencies, internal communications are implemented
in a variety of ways. For example, Labor, as with many
agencies, maintains regular communications with its ten
regional offices through face-to-face meetings, teleconfer-
encing, field visits and individual phone contact.
However, location of the internal communications func-
tion varies from agency to agency, from the offices of the
Assistant Secretaries for Administration to those of Govern-
mental and Public Affairs and of Personnel.
An internal communications network has neither been
developed fully nor implemented, largely because attention
has not been given by top executives to an internal communi-
cations plan. The efforts of individual agencies and
departments that have integrated internal communications
could be more effective with support from EOP.
Interviewees in EOP suggested that an internal
Executive Branch communications director could serve as a
staff secretary to the President, in a role paralleling that
of the Press Secretary, with responsiblity for internal
rather than external communications.
Conclusions
Communication systems throughout t_he Executive Branch
need to be improved so that managers and_ executives have
access to information for more informed decisions. The
Federal Government employs many technically experienced
managers. Often Presidential appointees have extensive
experience directing major corporations. No matter how
qualified, however, no manager or executive can be truly
effective without accurate, timely and complete information
on which to base decisions. The Executive Branch, through
current systems and procedures, does not provide administra-
tors with the quality of information necessary for effective
management in the areas of finance, operations or program
performance.
Furthermore, insufficiency of communications between
the Executive Office and agency and department heads can
lead to appointees lacking the clear knowledge of Admin-
istration goals. This situation can lead to agencies drift-
ing in different directions as they seek to satisfy con-
gressional oversight and budget committees, and makes it
difficult for the President to implement policy objectives.
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Strong leadership from the White House, administered through
a communications program which focuses on first-line
appointees, could help the President build a stronger admin-
istration team. Department and agency heads would more
clearly focus their efforts on the President's program.
An internal communicati_on system in the Executive
Branch would be an effective tool for improving productivity
and accomplishing Administration objectives. One character-
istic of corporations that are more successful at accom-
plishing their missions, relaying goals and objectives,
maintaining management continuity, achieving the dedication
of employees and building productivity is a planned program
for internal communications. Opportunities provided by
these programs have not been exploited by the Executive
Branch.
Recommendations
FMS 7-1: Design and implement an internal communica-
tions ~ra~Lram for the Executive Branch, coordinated through
EOP. The purpose of the communications program would be to:
o relay the Administration's mission, goals,
and objectives;
o identify and measure progress toward those
goals and objectives;
o create incentives for improved job perform-
ance by formally and publicly recognizing the
worth, competence, and contributions of
Federal employees; and
o inform the work force in a timely manner of
issues affecting it.
FMS 7-2: The stem should give prominence to the
President and other top officials and should include:
o a periodic (at least annual) Presidential
address to Federal employees, which could be
presented over closed circuit television and
videotaped for regional offices;
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o personal visits at least annually by the
President or senior-level staff to selected
agencies to address management groups (ap-
pointees and career) regarding the agencies'
progress toward Administration goals;
o a timely, one-page bulletin from the White
House distributed regularly to agencies for
internal dissemination highlighting actions
that will affect the agencies' work forces;
o identification of resources within the Execu-
tive Branch that can be used more effectively
as vehicles to relay and build understanding
of Administration goals;
o greater top-level attention to the field and
regional representatives of Government., A
selected group of regional managers should
meet on a more regular basis with senior
Executive office officials and agency heads.
The agenda would include the opportunity for
this group to discuss reactions to programs
and problems or concerns at the grass roots
level. It would allow the Administration to
commend regional efforts, restate goals and
priorities and alert participants to antici-
pated program modifications. The existing
Federal Regional Councils and Federal Execu-
tive Boards are potentially useful communi-
cation vehicles;
o within an agency, an internal communications
director in conjunction with the appropriate
division chiefs should select a cross-section
of agency employees to meet periodically with
the Secretary or Director for roundtable
discussions; and
o solicitation of employee questions by agen-
cies, including those at regional and over-
seas posts, to be directed to the Admin-
istration. Senior Administration officials
should respond to a sample of specific
questions, and the responses should be video-
taped and distributed for viewing by all
Federal employees.
FMS 7-3: Emphasize the development and implementation
of information systems and channels which will provide
managers with information in an accurate and timely manner.
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Recommendations regarding the improvement of information
flow in specific areas are presented in other Issues within
this Report. In addition to improvements in these areas,
however, the Executive Branch should adopt, as a general
principle, the improvement of internal communications.
Within the private sector, the ability to rapidly relay
accurate management information is a prerequisite for organ-
izationally complex and geographically-dispersed operations
similar to those of the Federal Government.
FMS 7-4: Institute an orientationproc ram for senior
level appointees and a surveyTfeedback method to monitor
work force developments. These two specialized types of
internal communication systems offer unique opportunities
for the Executive Branch. The reasons for their use and
their Federal applications are discussed in the following
two issues, FMS 8 and FMS 9.
FMS 7-5: Designate a single individual, as a Presi-
dential appointee, to be responsible for control of the
planning, implementation, and evaluation of internal com-
munications. Job responsibilities would includedeveloping
an appropriate plan of action, counseling top officials on
the potential internal impact of messages proposed for
dissemination to the work force, and overseeing the orienta-
tion and survey/feedback programs. The Task Force recom-
mends locating the function in EOP because:
o such a placement gives the function increased
importance and credibility among the work
force and corresponds to the private sector's
placement of a Vice President for Corporate
Communications as a top level counselor to
the corporation's President;
o communications to members of the work force
should receive the same priority attention as
external communications, which are handled in
the Offices of the Assistant to the President
for Communications, the Press Secretary,
Media Relations and Planning, and Public
Affairs. All are located in EOP; and
o location of the function at the White House
level will facilitate the daily exchange that
is necessary between internal and external
communications, which include the staff
offices listed above, as well as the Office
of Cabinet Affairs.
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Savings and Impact Analysis
Savings cannot be accurately estimated. As a mangement
tool, the internal communications function would produce the
following benefits:
o increasing the Administration's ability to
articulate, communicate and achieve its goals
and objectives;
o providing a mechanism to gather feedback and
identify potential problem areas before they
become severe and threaten program success;
and
o improving work climate with increases in
productivity.
Implementation
Identify an individual at the White House level
who will have formal responsibility for internal com-
munications (for example, Staff Secretary for Internal
Communications) .
Prepare a formal statement of the appointee's
title, function, top-level placement and responsibili-
ties for internal and external dissemination.
The director of internal communications should
prepare an annual communications plan detailing how the
Administration will achieve the goals preiously identi-
fied. The plan should include:
o statement of goals and objectives,
o plan for implementation,
o communication vehicles to be utilized,
o scheduling necessary for involvement of the
President and other top level officials,
o points of contact in agencies,
o budget,
o milestones, and
o methods to measure success of the program.
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Implement the system on a pilot basis with two or
three agencies. Other agencies can serve as a com-
parison group against which changes and reactions to
implementation of the program in the selected agencies
can be measured. The Departments of Agriculture and
Commerce, or the Internal Revenue Service might serve
as useful test sites since they are generally consider-
ed to have management and communications strengths.
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II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)
FEDERAL MANAGEMENT SYSTEMS (CONT'D)
FMS 8: COMMUNICATION WITHIN THE EXECUTIVE BRANCH
ORIENTATION OF APPOINTEES
Issue
Can the effectiveness of Executive Branch agencies and
departments be increased by a more comprehensive orientation
program for executive level appointees?
Executive level appointees are the non-career execu-
tives appointed by the President to direct the operations of
departments, agencies and their major subunits. Orientation
programs could be expected to generate major long-term cost
savings through increased productivity and efficiency of
administrative activities and program operations.
Background
Traditionally, the top executives of the Executive
Branch are replaced after each change of Administration.
The average tenure of appointees is 18 to 24 months, result-
ing in two or three cycles of appointees in each Presiden-
tial term. The majority of these appointees are recruited
from outside Government. The chart on the following page is
based upon information provided to the Task Force by the
departments and displays the average length of service in
months of department secretaries for the period January
1969, through the present. (Current office holders are
excluded from the averages since they have not yet completed
service.)
[Table 11-4 is on the following pager
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Table 11-4
DEPARTMENT SECRETARY LENGTH OF SERVICE
January 1, 1969 to resent
n months)
Length of
Department Service
Agriculture 45.4
Commerce 18.5
Defense 28.4
Education (since 1979) 13.0
Energy (since 1977) 21.0
Health and Human Services
(prior to 1979 was Health,
Education and Welfare) 25.0
Interior 20.6
Justice 18.0
Labor 23.8
State 29.8
Transportation 25.4
Treasury 24.2
Overall 24.4
0
Exhibit 11-5, located at the end of this issue, gives
an overall view of the number of executive level appointees
by department and agency.
In contrast to Federal practice, companies in the
private sector provide greater management succession from
within. Although mergers and acquisitions can produce a
one-time replacement of top management, they usually are not
followed by the continuing high turnover experienced by
Government. Orientation programs for executives who are
brought into companies from outside are usually specifically
tailored for those individuals.
Some public sector organizations that experience high
turnover have instituted orientation programs. The Depart-
ment of the Army, for example, provides orientation services
through a transition model which provides guidelines to deal
with changes in command. Its training and orientation
procedures can serve as useful models for Executive Branch
civilian transition.
Another example of an orientation program that deals
with consistent turnover is that of the U.S. House of Repre-
sentatives. Harvard University faculty members conduct
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seminars 14 hours a day for six days to prepare new members
for their responsibilities. Follow-up sessions throughout
the term are provided by political parties for their
members.
Methodology
The Task Force interviewed 30 career and appointed
managers in the Departments of Commerce, Labor, Treasury,
Agriculture, and Housing and Urban Development; the Office
of Management and Budget (OMB); the Office of Personnel
Management(OPM); and the General Services Administration
(GSA). It also interviewed representatives of the White
House Staff and the National Academy of Public Administra-
tion (NAPA). Interviewees are listed in the Appendix.
Findings
The Federal Government experiences rapid turnover in
key management positions. There are currently almost 500
executive level appointments among 77 agencies and depart-
ments. Average tenure is between 18 and 24 months. In a
four-year term the President, therefore, appoints over 1,000
individuals to these positions.
The failure of career -and appointed executives to work
well together from an early date can result in indecision,
poor decisions, _poor morale and delays nilementing the
Adminlstrat=on'spolicies. Under the Civil Service Reform
Act, a career member of the Senior Executive Service (SES)
may not be involuntarily reassigned within 120 days after
the appointment of a new agency head or appointed. supervi-
sor. As a result, career and appointed employees must work
together or risk losing four months productivity.
Civil Service impediments to replacing career employees
provide additional incentives for appointees and career
executives to establish good working relationships.
No organized and sustained program exists to prepare
appointees orthe-complexities fcincthemin heir jobs.
Newly appointed executives are faced with a number of pro-
blems:
o a move to a metropolitan area (typically
Washington) with high cost of living factors,
particularly housing;
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o conflict of interest determinations and disclosure
statements that can cause financial and career
setbacks and may expose an appointee to public
criticism;
o complex work environments with the additional
pressures of media exposure, congressional
inquiry, special interest groups and political
dynamics;
o dependency on career personnel to accomplish pro-
gram goals; and
o a complex organizational structure of a size with
which the appointee may not be familiar.
The appointee is often unfamiliar with the legislative
and regulatory contraints that affect an agenc . Limited
agency-specific knowledge and managerial experience of the
appointee may interfere with efficient administrative
action:
o new appointees sometimes fail to solicit help from
career managers;
o new appointees often do not have extensive manage-
ment experience and may be unable to use, or be
unaware of, available resources; and
o career managers familiar with current operations
may resist changes in policy direction.
There are some orientation andtraining
roc~rams cur-
rently being conducted by the White House for appointed
officials. These activities include a White House orienta-
tion and an introduction to policy issues presented by the
faculty of Harvard University.
Conclusions
Conflict of interest requirements, media pressure,
frustration with the bureaucracy and lack of financial
incentives make it difficult to acquire and retain qualified
appointees.
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In the absence of Administration action, the tenure of
non-career appointed executives will probably continue to
average 18 to 24 months.
Transition and continued turnover adversely affect
management performance and require attention.
The group of 500 appointees is large enough to be
significant yet small enough to be of manageable size if the
Executive Branch were to institute_an organized orientation
program.
Current Administration orientation activitie_ represent
a foundation upon which a comprehensive orientation program
could be established.
Recommendations
FMS 8-1: Establish a comprehensive orientation program
for executive level appointees. Major elements of the
program should be:
o an orientation coordinator should be designated in
the Executive Office of the President (EOP); this
person would be responsible for establishing and
maintaining an Executive Branch orientation
program;
o the Office of Federal Management (OFM)1/ should be
responsible for developing the programs and
0 each agency should designate a liaison function in
the Assistant Secretary for Management's office to
coordinate agency activities with the EOP orienta-
tion coordinator.
The program should provide logistical services and
guidance including:
o assistance in relocation effort;
1/ Under the recommendations of Issue FMS-1, a new Office
of Federal Management (OFM) would assume many Federal
management responsibilities.
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o instruction regarding media relations, Congres-
sional hearings and committee structure, nature of
Government, legislation, regulations, and Admini-
stration policy; and
o guidance on establishing a working partnership
with career employees and managers.
The orientation program should have follow-up sessions
for mid-term appointees.
Savings and Impact Analysis
Savings cannot be accurately estimated. However, man-
agement benefits expected to result in cost savings include:
o the accelerated implementation of Administration
policies and programs;
more effective use of existing management re-
sources;
o decreased likelihood and duration of confusion,
error, inertia, and delay that can accompany
changes in top management; and
o better relationships between the Administration
and the media, Congress, the public, and Federal
employees.
Implementation
Assign a representative in the EOP to coordinate orien-
tation programs. Assign the duties of a coordinator of
orientation in an Assistant Secretary's office in each
department and agency. Assign OFM the function of assisting
in program development.
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-M. COST CONTROL OPPORTUNITIES
FOR FURTHER STUDY
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IV. COST CONTROL OPPORTUNITIES FOR FURTHER STUDY
1. BIENNIAL BUDGETING
Can Federal budgeting be improved through use of a
biennial or multiyear process?
The Task Force has concluded that significant benefits
will result from shifting the Federal budget process from
its current one-year focus to a biennial focus with greater
use of advance funding for specific activities. These
benefits include increased attention to long-term planning
and reductions in operating costs associated with the budget
process. In view of the complexity and scope of this issue,
it is recommended as a subject for further study.
Background
Historically, the activities of the Federal budget
process are focused on the development of an annual Govern-
ment-wide unified budget submitted to Congress in January.
Congress reviews the budget and passes appropriate legisla-
tion in time for the start of the fiscal year on October 1.
Because of legislative delays, required legislation may not
be in place by October 1 and, therefore, Congress frequently
enacts continuing resolutions which permit agencies to
continue obligating funds at the same rate as in the pre-
vious fiscal year, subject to changes that may be enacted.
The legislation required to fund a program consists of
two elements: authorizations and appropriations,. Author-
izations permit or authorize an agency to carry out a parti-
cular program. This legislation may authorize a program for
a specific period (one, two or more years) or indefinitely.
Additionally, authorizations may contain limits on the
amount of funds that can be appropriated for that program.
The permission to expend funds (i.e., obligate Federal
dollars) is derived from budget authority enacted in appro-
priation statutes. Each appropriation states the terms of
the authority to spend (i.e., budget authority) and gener-
ally the amount of the appropriations. For example, the
Environmental Protection Agency (EPA) FY 1984 proposed
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appropriations for Research and Development (R&D) states:
"For research and development activities $111,669,000, to
remain available until September 30, 1984." In this ex-
ample, the purpose (R&D), amount ($111,669,000), and terms
(through September 30, 1985) are clearly cited. The term of
the appropriation may be for more than one year, or until
the funds appropriated are expended. Additionally, because
of funding requirements, the appropriation may be for the
subsequent fiscal year (e.g., FY 1985 appropriations passed
as part of the FY 1984 budget). For example, the FY 1984
budget submission contains appropriations for FY 1985 for
the Corporation for Public Broadcasting.
Authorization and appropriation statutes enacted by
former Congresses automatically provide spending authority
to the Federal Government for 50 percent of the FY 1984
budget request. These include open-ended programs such as
Social Security ($187.7 billion), Federal employee retire-
ment and insurance ($50.5 billion), unemployment assistance
($28.8 billion), medical care ($87.6 billion), and others.
In addition to the annual budget request, the President
submits projections to Congress for four years beyond the
budget year. The FY 1984 submission to Congress on January
31, 1983 contains tables displaying outlay and budget
authority estimates for FY 1983 through FY 1988. These
tables are arrayed by function and by agency.
Methodology
The
ing this
follows:
methodology employed by the Task Force in conduct-
study consisted of interviews and research as
o interviews with over 40 senior management level
persons -- Council of Economic Ad sors, Off cie of
Management and Budget (OMB), General Accounting
Office (GAO), Congressional Budget Office (CBO),
Federal agencies, private consultants, public
interest groups, and private-sector personnel
knowledgeable in budgeting and planning; and
o review of literature -- published studies relating
to the Federal budget process; recent and pending
legislation; published articles; textbooks;
speeches; and Congressional testimony including
statements of Charles A. Bowsher, Comptroller
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General of the United States, before the Committee
on Governmental Affairs, U.S. Senate, August 19,
1982; and Alice M. Rivlin, Director, CBO, before
the Committee on the Budget, U.S. Senate,
September 21, 1982.
Findings
Funding uncertainties inherent in the current process
place_a burden on recipients. Vermont Governor Richard
Snelling, former Chairman of the National Governors Associa-
tion, described the problem facing states as follows:
"...the trend toward biennial budgeting is being undermined
more by Federal uncertainty than anything else."
While Federal agencies begin planning and budgeting for
programs over 18 months before the start of the fiscal year,
Congress does not necessarily act on the budget by the end
of the fiscal year. Since 1972, 34 stop-gap funding pro-
visions have been necessary for continuation of government
operations .1/
Twenty-one states currently use a biennial budget
cycle. Additionally, state governments depend on Federal
funds for one-quarter or more of their budgets and local
governments receive both Federal and state funds. Making
budget decisions months in advance without having infor-
mation on Federal funding forces states to plan and budget
based on uncertain information.2/
For businesses involved in financial transactions with
the Federal Government, funding uncertainties present ques-
tions about payments and scheduling of government contracts.
These uncertainties frequently result in cash flow problems
for the provider and increased contracting costs for the
Government.3/
1/
Dan Quayle, "The Federal Budget Cycle Should Be Re-
placed By a Two-Year Budget Process," Annual Exec.
Comptroller, Summer 1982.
2/ The Congressional Budget Act and Process: How Can They
Be Improved? 1/1982.
3/ Ibid.
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The current cycle requires over a year and a half to
produce a one-year budget and diverts the time and attention
of Executive Branch officials from other management activi-
ties. Preparation of the Government budget currently
requires at least 18 months, involving both the Executive
and Legislative Branches of Government. In addition, in the
past several years there has been no budget in place on
October 1 and continuing resolutions have been required.
This preparation process consumes the management re-
sources of each department and agency. From approximately
April until the budget is submitted to the Congress in
January, agencies devote their management talent to develop-
ing the budget, preparing budget schedules, responding to
OMB changes, and preparing the final budget documentation
and testimony for Congress. After the President's budget is
submitted to Congress in January, agency officials spend
large amounts of their time testifying before congressional
committees and negotiating budget details. These activi-
ties, while coordinated by an agency's budget office, are
based on information submitted by other offices within the
agency and require the time of virtually all senior
officials.
While the overall costs associated with the current
budget process are not available, the levels of effort by
OMB and agency staffs provide an indication of the costs.
The entire OMB budget examiner staff and agency budget
staffs routinely work full-time, with overtime, from August-
September through the end of December. This effort is
augmented by significant time spent by senior agency and OMB
officials.
Within agencies, planning is hindered the one-year
budget focus. While pockets of multiyear planning exist
within the agencies, Task Force interviews and those of
other PPSS Task Forces emphasized the disincentives to
multiyear planning inherent in the current annual budget
process.
o Congressional budget and appropriations activities
have a one-year focus, therefore multiyear plan-
ning is difficult to carry out; and
o current-year budgeting, not multiyear planning, is
the current management priority.
The Task Force found that certain programs such as
R&D could be budgeted for the life of the program, or at
least for a significant phase of the program. This approach
would increase the program's stability and decrease the
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costs of annual budgeting. Should changes to the budget be
required in the interim, budget amendments could be enacted.
For example, the National Institutes of Health (NIH) conduct
long-term programs for health research that require long-
term funding stability to achieve results. Currently, these
programs are subject to the same annual budget review
process as that of salaries and expenses for all operating
agencies.
Each agency, large and small, follows a similar budget
process. The numerous small Federal organizations, such as
National Battlefield Monuments and National Labor Relations
Board that employ small staffs, follow similar budget pro-
cesses as the Department of Commerce or Department of De-
fense.
By dominating congressional activities, the current
budget cycle does not provide adequate opportunity for
comprehensive multiyear planning, program review or analy-
sis. In public statements, members of Congress4/ have
expressed concern that within a single year, Congress cannot
effectively set fiscal policy, determine appropriate spend-
ing levels for existing Federal programs, consider the
thousands of new legislative proposals, and review the
operation of previous policies and programs.
An opportunity currently exists to implement new pro-
cedures in the Federal budget process. A recent: CBO
study,5/ identified factors that would support changes in
the budget process. These factors are:
o budget reforms that have gained momentum during
periods of consistent deficits and sharp expendi-
ture increases; and
o the fact that the public is unhappy with the
Federal Government's record of management of the
economy.
4/ e.g., Rep. Norman Y. Mineta.
5/ Balancing the Federal Budget and Limiting Federal
Spendiinng:Con ttitutional and Statutory Approaches,
CBO, 1982.
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Conclusions
Modifying the current Federal budget process from a
single to a biennial focus would increase the Federal
Government's budgeting effectiveness. Changes to current
budgeting processes would involve the Executive and Legis-
lative Branches of the Federal Government and affect state
and local governments and the private sector. Nonetheless,
the Task Force is convinced of the need for an increased
multiyear focus.
Recommendations
IV 1-1: The Task Force recommends that the Federal
Government move to a biennial budget development: process and
more advance funding for Federal programs. This will reduce
the current budget-related workload on the Government,
provide more opportunity for in-depth analyses of Federal
programs and increase longer-term program plann ig
In analyzing this issue, the Task Force identified a
number of concepts aimed at reducing the workload and uncer-
tainty surrounding the current budgeting process. Among the
approaches considered were increasing the use of multiyear
appropriations, adopting a rotating agenda for detailed
program and budget analysis, and adopting a biennial budget-
ing process. The Task Force concluded that these concepts
were related and could be included in a single recommenda-
tion to move toward biennial budgeting.
The Task Force recognizes that the implementation of
this recommendation will fundamentally alter the current
Federal budget process. Budget procedures that have been
developed over the past 40 years will change at all organi-
zational levels. The potential impact of this recommenda-
tion on the day-to-day operations of the Federal Government
likely means that the change will need to be carefully
phased in over several years.
The Task Force recommendation is aimed at solving
several critical problems affecting the current budget
process. The effort required to build an annual budget
limits the Government's ability to examine Federal programs
in an in-depth manner. In addition, the uncertainty sur-
rounding the level of annual appropriations needed to
support on-going, long-term programs is often counter-
productive to the efficiency and effectiveness of those
programs. These are two examples of critical problems.
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The Task Force recommends that Federal agencies be
required to develop justification for their programs every
other year. This would replace the current process of
annually developing budgets and should significantly reduce
the mechanical workload required to develop estimates,
develop budget justification documentation and revise
Federal laws.
In the off year, the Executive and Legislative Branches
could focus on reviewing selected programs or agencies. The
Office of Federal Management (0FM)6/ would identify those
agencies or programs for detailed review and the President
would submit the list with the biennial budget submissions
to Congress. Congress could modify the list. OFM would
then establish review schedules for those programs or
agencies to be analyzed.
Although OFM would submit the budget biennially to
Congress, it would review the economic assumptions underly-
ing the budget annually. OFM would estimate revenues and
outlays each fall based on inflation, unemployment, interest
and other major economic indices. Where the assumptions
significantly altered outlay or revenue estimates, OPM could
submit revised estimates for affected programs to Congress.
A significant argument against biennial budgeting is
that each Administration should review budgets annually in
order to maintain control over departments and programs and
should maintain an up-to-date budget as a tool for economic
policy. The Task Force recommendation supports the objec-
tives of providing control and supporting economic policy
while avoiding the laborious paperwork associated with
current annual budget preparation processes. Each Admin-
istration, during the off.year, would review estimates in
the budget for the upcoming year, fine tune economic assump-
tions, and submit budget supplementals or revisions to
reflect changes in policy. But, the Administration would
not need to develop detailed estimates for over 1,500 line
items.
As a parallel effort, the Administration should pursue
multiyear appropriations to support on-going, long-term
programs or activities. While each program will differ in
6/
Issue FMS 1 of this report recommends that a new Office
of Federal Management (OFM) should assume direction of
Federal management activities.
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its need for a multiyear appropriation, the Task Force
recommends that as a general policy OFM should use multiyear
appropriations to the maximum extent possible.
The Task Force identified three general criteria that
could be used to identify other candidates for multiyear
appropriations. First, small program activities that have
constant resource requirements would be candidates, e.g.,
the National Cemetery, U.S. Tax Court, and the Bureau of the
Mint. Second, programs that are linked to state and local
government funding, such as Federal grants, would be candi-
dates. Third, programs that are complex and require a
predictable and constant flow of funds to ensure efficiency
and effectiveness, such as large construction projects,
would be candidates.
Other PPSS Task Forces identified candidate programs
for multiyear budgeting that fit these three criteria:
o Department of Energy (DOE) Nuclear Regulatory
Commission Task Force recommends that legislation
be introduced for budgeting DOE R&D for national
laboratories on a rolling three-year term. The
Task Force estimates that this approach would save
$125 million annually.
o Department of State/AID/USIA Task Force recom-
mends that AID move to a two-year budget submis-
sion cycle. The Task Force found that all pro-
grams are subject to annual budget review, even
though most projects receive multiyear appropria-
tions. The State/AID/USIA Task Force estimates
that $1.8 million annually could be saved.
Savings and Impact Analysis
Quantitative cost savings realized by changes in the
annual budget cycle cannot be determined at this time.
However, the Task Force concluded that qualitative benefits
would be derived from implementation of the alternatives
presented.
Specifically, the benefits to be derived from an alter-
native budget process include:
o agency management improvements realized through
the opportunity for additional attention to long-
term issues and multiyear budgeting;
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 Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
o financial stability for recipients of Federal
funds; and
o possible reduction of the agency and congressional
work force involved with the budget process.
Implementation
A group should be formed within OFM to develop the
details required to shift the Federal Government budget to a
biennial focus. The major steps are:
o formation of the OFM-directed team,
o development of overall policy recommendations, and
o preparation and submission of legislation.
?
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 Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
V. TASK FORCE MEMBERSHIP
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 Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
V. FEDERAL MANAGEMENT PROCESS TASK FORCE MEMBERSHIP
0
0
0
Co-Chairs
Joseph E. Connor, Jr.
Harry E. Figgie, Jr.
John E. Fisher
Project Manager
Lewis J. Krulwich
Office Manager
Thomas J. Carrier
Price Waterhouse
Figgie International Inc.
Nationwide Insurance
Companies
Columbia Pictures
Industries, Inc.
R.J. Reynolds Industries,
Inc.
President's Private Sector
Survey
Administration and Management
R. Thomas Blanchard
Mark K. Galloway
Charlotte A. Haberaecker
Daniel J. Lammon
Douglas M. Piper
Arthur Andersen and
Company
Figgie International Inc.
Figgie International Inc.
Price Waterhouse
Corning Glass Works
Figgie International Inc.
Management Information Systems
Robert A. Freeman
Jeffrey W. Galginaitis
Ronald J. Lynch
Price Waterhouse
Price Waterhouse
Arthur Andersen and
Company
Nationwide Insurance
Companies
Financial Management
Gregory L. Freehauf
Edward J. Haller
Mary E. Keegan
John S. Sobczyk
Price Waterhouse
Price Waterhouse
Price Waterhouse
Figgie International Inc.
Auditing
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 Approved For Release 2008/05/05: CIA-RDP85B01152R001201540001-6
?
0
Bruce W. McCuaig
David S. Shapland
Gulf Oil Corporation
General Electric Co.
0
0
0
Planning and_Budgeting
Katherine H. Cardulla
Dennis Durden
Sandra L. LaFevre
I. Theresa Poletto
W. James Wintzer
Communications
Edward P. Arter
Nancy A. Gravatt
Ralph W. Jordan
J.T. Michaelson
Evaluation Improvement
F. James Seaman
Alyse W. Unterburger
Advisors
Ross Conner
Emmet E. Delay
William M. Hall
John W. Heilshorn
Henry Jaenicke
Nancy Kingsbury
Jack McGill
Robert H. Ourant
Robert A. Rennie
Leonard Rutman
Gilbert Simonetti, Jr.
William E. Thompson
Nationwide Insurance
Companies
R.J. Reynolds Industries,
Inc.
Nationwide Insurance
Companies
Price Waterhouse
Figgie International Inc.
Nationwide Insurance
Companies
Nationwide Insurance
Companies
Nationwide Insurance
Companies
Independent
Price Waterhouse
Price Waterhouse
University of California
(Irvine)
General Electric Co.
Arthur Andersen and
Company
Citibank, N.A.
Drexel University
Evaluation Research
Society
Gulf Oil Corporation
Nationwide Insurance
Companies
Nationwide Insurance
Companies
School of Social Work,
Carleton University
Price Waterhouse
AmSouth Bancorporation/
Birmingham
183
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