Office of Management and Budget

Mark W. Everson Statement to House Government Efficiency, Financial Management and Intergovernmental Relations Subcommittee, 02/15/2002

STATEMENT OF THE HONORABLE MARK W. EVERSON,
CONTROLLER, OFFICE OF FEDERAL FINANCIAL MANAGEMENT
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL
MANAGEMENT AND INTERGOVERNMENTAL RELATIONS

February 15, 2002

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to appear before the subcommittee to discuss the Administration’s efforts to improve the management and performance of the federal government. I would like to discuss two important components of this effort. One is the President’s Management Agenda and the Administration’s use of an Executive Branch Management Scorecard to track improvements in the five government-wide problem areas targeted by the President. The other is the manner in which the President’s Budget for 2003 seeks to foster accountability in government -- taking a first step toward performance-based budgeting. In addition, I would like to briefly discuss a specific initiative to improve financial transparency -- a modest but important step to more closely align the federal government’s budgeting process with its financial accounting and reporting.

 

The President’s Management Agenda and Scorecard

Since the beginning of his Administration, the President has called for better management of the federal government. Beginning with his Budget Blueprint in February 2001, continuing in the FY 2002 Budget and in his Management Reform Agenda released in August 2001, the President has repeatedly spelled out a clear agenda for government reform.

 

Rather than pursue an endless and disconnected array of initiatives, the Administration has elected to identify the government’s most glaring problems -- and solve them. The President has ordered the pursuit of five government-wide initiatives that together will help government achieve better results.

 

The first initiative, Strategic Management of Human Capital, aims to attract talented and imaginative people to the federal government in order to improve the service provided to our citizens. A second, Competitive Sourcing, exposes parts of government to competition so that they may better focus on what customers want while controlling costs. A third project, Improving Financial Performance, improves how government manages its money -- reducing, for instance, the billions in erroneous payments the government makes every year. A fourth project, Expanded E-Government, harnesses the power of the Internet to make government more productive. The fifth, Budget and Performance Integration, begins the process of linking resource decisions with results -- the underlying information needed to hold government accountable.

 

Good intentions and good beginnings are not the measure of success. What matters in the end is completion: performance and results. In order to ensure accountability for performance and results, the Administration is using an Executive Branch Management Scorecard. The scorecard tracks how well departments and agencies are executing the President’s management initiatives, and where they stand at a given point in time against overall standards for success.

 

The scorecard employs a simple "traffic light" grading system common today in well-run businesses: green for success, yellow for mixed results, and red for unsatisfactory. Scores are based on five standards for success defined by the President’s Management Council and discussed with experts in government and academe, including individual fellows from the National Academy of Public Administration.

 

The standards for financial management, for example, were reviewed by the Secretary of the Treasury, the Comptroller General, and the Director of the Office of Management and Budget (OMB). Under each of the five sets of standards, an agency is "green" if it meets all of the standards for success, "yellow" if it has achieved some but not all of the criteria, and "red" if it has even one of any number of serious flaws. For example, in financial management, an agency is "red" if its books are in such poor condition that auditors cannot express an opinion on the agency’s financial statements.

 

A 2001 baseline evaluation of departments and agencies against the standards for success shows a lot of poor scores with 85% red and only one green, in financial management at the National Science Foundation. This was to be expected since, as the President indicated when selecting the Management Agenda items, the areas are "targeted to address the most apparent deficiencies where the opportunity to improve performance is the greatest."

 

Performance-based Budgeting

The President’s Budget for 2003 takes the first step toward reporting to taxpayers on the relative effectiveness of the thousands of programs on which their money is spent. It commences the overdue process of seriously linking program performance to future spending levels. It asks not merely "How much?"; it endeavors to explain "How well?"

 

These changes have been called for by good government advocates for decades. A 1949 commission headed by the 31st President, Herbert Hoover, first introduced the term "performance-based budgeting." Subsequent Presidents launched efforts to get better results from government. During the 1990s, the Congress passed several statutes aimed at enhancing government’s attention to performance. As you know, the Government Performance and Results Act (GPRA) in 1993 directed the executive branch to undertake the measurement of effectiveness and to reflect the answers in budget choices. As Senator John Glenn said several years later, "The ultimate goal of GPRA is to use program performance information to guide resource allocation decisions."

 

In an initial and admittedly exploratory way, the FY 2003 Budget responds to these longstanding demands, proposing to reinforce provably strong programs, and to redirect funds in many cases from programs that demonstrably fail, or cannot offer evidence of success. Eager to make government work better, the Administration used all of the performance information it could gather in making decisions for this Budget. We seek to change the burden of proof, asking agencies and advocates to supply evidence of program effectiveness instead of assuming effectiveness in the absence of evidence to the contrary. OMB staff and agencies collected evaluations, studies and performance documentation of all sorts from a variety of sources to assess which programs were effectively improving desired outcomes.

 

Over time, the results of this performance-oriented process of policy development and budget allocation will include:

 

  • funding effective programs, which have demonstrated benefits greater than cost;
  • shifting resources toward more effective programs from less effective ones that have similar purposes;
  • setting program targets and strategies based on understanding performance and cost relationships;
  • adding incentives to enhance program effectiveness; and
  • improving efficiency in programs and support services.

The information on which program ratings are based is far from perfect, and some conclusions may ultimately prove erroneous. The Administration invites a spirited discussion and welcomes additional data, as well as suggestions about how to measure performance better throughout the federal government.

 

Financial transparency

In closing, I would like to highlight a specific step which will improve financial transparency. It is our belief that budget accounts should show the total resources required to achieve program results. Currently this is not always the case.

 

Our proposal would assign employee costs, including those relating to retirement, as direct charges to programs. For example, pensions for new employees and for military employees were reformed in the mid-1980s, with employers paying their share of the accruing costs. Yet, costs for employees hired earlier under the Civil Service Retirement System have been only partly charged to programs.

 

This accounting change would be an important step in closing the gap between current budgetary cost and uniform full operating cost so that cost and results can be compared to each other and across government. Importantly, this change will not affect the "bottom line" of the budget as a whole, or the basic budgetary concepts of budget authority, obligations, and outlays.

 

The need for financial transparency has been cited by both the American Institute of Certified Public Accountants (AICPA), and the Association of Government Accountants (AGA). In addition, the Joint Financial Management Improvement Program (JFMIP), whose principals include the Comptroller General, the Secretary of the Treasury, the Director of the Office of Personnel Management, and the Director of OMB, has said, including the full costs of employees "in data used for budgetary decision-making would enhance both the planning process and the evaluation of the costs of operations. It would also provide for enhanced consistency and transparency relating to presentation of this information and greater accountability for results."

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The steps the Administration is taking to improve government management including those in budget and performance integration and financial transparency are exciting and long overdue. I look forward to working with the committee and I’ll take any questions you may have on these matters.