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From the Comptroller General:



January 31, 2003:



It is indeed a pleasure to present GAO’s performance and accountability 

report for fiscal 2002. In the spirit of the Government Performance and 

Results Act, this annual report informs the Congress and the American 

people about what we have achieved on their behalf. Importantly, we 

received a clean opinion from independent auditors on our financial 

statements for the 16th consecutive year. I am confident that the 

financial information and the data measuring GAO’s performance 

contained in this report are complete and reliable.



The year 2002 was marked by certain new and unprecedented challenges 

for the federal government. In the aftermath of the September 11, 2001, 

terrorist attacks and the delivery of anthrax spores through the mail, 

securing the safety of Americans at home and abroad became the foremost 

national priority. It was also a year of economic challenges: not just 

falling stock prices, but diminished public confidence in certain 

corporate institutions and in the ability of government to effectively 

oversee financial markets. The troubles experienced at Enron and other 

corporations and the related conduct of auditors and various other 

parties had far reaching effects.



The threat of terrorism and the damage done to Americans’ economic 

well-being in 2002 were but two challenges among many--some of them 

long-standing challenges with which the Congress continues to grapple. 

The nation’s changing demographics, the educational needs of its 

children, the long-term viability of Social Security and Medicare, the 

rising cost of health care and the millions of Americans who are 

uninsured, the vulnerability of the government’s computer systems to 

sabotage, the requirements of the armed forces in the face of new 

threats to national security--these and other challenges continued to 

engage the attention of the Congress and therefore helped define the 

year’s priorities at GAO.



As a key source of objective information and analysis, GAO played a 

crucial role in supporting congressional decision making. For example, 

GAO’s work informed the debate over national preparedness strategy, 

helping the Congress answer questions about the associated costs and 

program trade-offs and providing perspectives on how best to organize 

and manage the new Transportation Security Administration and the new 

Department of Homeland Security. GAO’s input was a major factor in 

helping to shape the Sarbanes-Oxley Act, which created the Public 

Company Accounting Oversight Board as well as new rules to strengthen 

corporate governance and ensure auditor independence. Further, GAO’s 

work helped the Congress develop and enact election reform legislation 

in the form of the Help America Vote Act of 2002.



The Congress and the executive agencies took a wide range of actions 

based on GAO analyses and recommendations. These included reducing 

improper payments under the Medicare program, reducing the risks 

associated with agriculture loan programs, and improving the oversight 

of contingency appropriations for defense. In total, GAO’s efforts 

helped the Congress and government leaders achieve $37.7 billion in 

financial benefits--an $88 return on every dollar invested in GAO.



That return on the public’s investment in GAO extends beyond dollar 

savings to improvements in how the government serves its citizens. 

Whether by spurring efforts to coordinate emergency preparedness by 

federal, state, and local agencies; by informing the Congress and the 

public about the risks involved in private pension plans; or by helping 

federal agencies improve their oversight of the nation’s food safety 

system, GAO is contributing directly to bettering Americans’ daily 

lives. Another way we do this is by raising congressional and public 

awareness of emerging national problems. For example, we underscored 

for the Congress the prevalence of security weaknesses at American 

seaports, the nature and growing cost of identity theft, weaknesses in 

export controls over sophisticated weapons technologies, inadequacies 

in nursing home care, and shortages of children’s vaccines. The more 

the nation’s leaders in the public, nonprofit, and private sectors know 

about these growing challenges, the sooner they will be able to craft 

effective responses.



Access to the information the Congress wishes to have became a special 

issue for GAO during the year when, for the first time in our history, 

we used our statutory authority to file suit in order to obtain certain 

government records from an executive branch official. The action came 

about after we received congressional requests from four Senate 

Committee Chairs and Subcommittee Chairs and two House Members for 

information on meetings between private-sector individuals and a White 

House energy task force chaired by the Vice President on the 

development of the President’s proposed National Energy Policy. 

Starting in May 2001, we sought limited factual information from the 

Vice President in his capacity as chairman of the National Energy 

Policy Development Group. He refused to disclose a range of 

information, such as the dates, locations, subjects, and attendees 

involved in the group’s meetings with external parties. We repeatedly 

explained our explicit statutory audit and access authority, 

streamlined our requests, and offered the White House flexibility in 

how the information might be provided. Furthermore, the administration 

did not take advantage of the statutory provision that could have 

prevented a suit and did not claim executive privilege. We reluctantly 

filed suit in federal district court in February 2002 under the 

provisions of GAO’s statutory authorities, asking the court to direct 

that the requested records be produced.



In December 2002, the district court dismissed our suit for lack of 

standing. In doing so, the court did not address the merits of the 

case--including GAO’s fundamental audit or access rights--but instead 

ruled that as Comptroller General, I lacked standing to enforce this 

agency’s access rights in court. In his ruling, the judge stated that 

the issues involved and the nature of the congressional interest in the 

records were not sufficient to have the court decide the dispute. We 

strongly disagree with the court’s ruling, but as this report goes to 

press, we are reviewing the court’s decision and analyzing its basis 

and potential implications. Once this review is completed and we have 

consulted with the Congress’s leadership on a bipartisan basis, I will 

decide whether to appeal the decision to the circuit court.



The value of information in serving our clients is driven home to us 

every day at GAO. It is not just a matter of obtaining facts from the 

executive branch but also of observing best practices in and out of 

government and how they are or can be applied. For instance, how well 

the government delivers on its promises frequently depends on how well 

it applies fundamental modern management principles. Strategic 

planning, organizational alignment, performance management, financial 

management, information technology, human capital strategy, knowledge 

management, and change management are key elements in maximizing 

performance and ensuring accountability. We have significantly 

increased the amount of our work focused on these areas to enhance the 

implementation of these principles throughout the federal government.



We don’t just preach modern management principles at GAO. We practice 

what we preach, and we aim to lead by example. We continued this year 

to make significant progress in improving our human capital programs, 

our information technology capabilities, and our change management 

practices. All of these are key areas in which we seek to be a model 

for other federal agencies.



Visitors to GAO headquarters may have felt, as I do, that the building 

itself somehow conveys a sense of solidity and purpose. There is a new 

plaque in the lobby of GAO headquarters that commemorates another 

quality of the organization and its people: a readiness to contribute 

in whatever way may be needed to support our country, the Congress, and 

the continuity of representative government. On October 23, 2001, with 

only 3 days’ notice, we opened our doors to the 435 members of the 

House of Representatives and selected members of their staffs. As they 

set up quarters at GAO, their Capitol Hill offices were checked for 

traces of anthrax. It was the first time since the War of 1812, when 

the Capitol and the White House were burned, that the House of 

Representatives sought alternative housing.



Working with congressional and contractor staff, we were able to 

provide the telecommunications, computer, and other services needed to 

conduct the business of the House as 1,200 members of our staff shifted 

to alternative locations. Through it all, our work went on, and we 

continued to issue reports and to testify on issues important to the 

Congress and the public. I am very proud of how, in a time of 

uncertainty, the people of GAO responded with a positive attitude in 

doing whatever their country required and an unwavering resolve to 

continue their work. Knowing this organization as I do, I was not 

surprised.



In summary, fiscal 2002 was truly an exceptional year. I believe that 

those who read this report will agree with me that taxpayers receive an 

excellent return on their investment in GAO.



David M. Walker:



Comptroller General of the United States:



Signed by David M. Walker:



The Comptroller General’s Integrity Act Assurance Statement for Fiscal 

2002:



On the basis of GAO’s comprehensive management control program, I am 

pleased to certify the following with reasonable assurance:



* GAO’s financial reporting is reliable--Transactions are properly 

recorded, processed, and summarized to permit the preparation of 

financial statements in accordance with generally accepted accounting 

principles, and assets are safeguarded against loss from unauthorized 

acquisition, use, or disposition.



* GAO is in compliance with all applicable laws and regulations--

Transactions are executed in accordance with (a) laws governing the use 

of budget authority and other laws and regulations that could have a 

direct and material effect on the financial statements and (b) any 

other laws, regulations, and governmentwide policies applicable to GAO.



* GAO’s performance reporting is reliable--Transactions and other data 

that support reported performance measures are properly recorded, 

processed, and summarized to permit the preparation of performance 

information in accordance with the criteria stated by GAO’s management.



I also believe these same systems of accounting and internal controls 

provide reasonable assurance that GAO is in compliance with the spirit 

of 31 U.S.C. 3512, formerly the Federal Managers’ Financial Integrity 

Act (the Integrity Act).



David M. Walker:



Comptroller General of the United States:



Signed by David M. Walker:



In fiscal 2002, GAO served the Congress and the American people by 

helping to--



* Create a national preparedness strategy at the federal, state, and 

local levels that will make Americans safer from terrorism:



* Devise election reforms to restore voter confidence:



* Protect investors through better oversight of the securities industry 

and the accounting profession:



* Ensure a safer national food supply:



* Expose the inadequacy of nursing home care:



* Make income tax collection fair, effective, and less painful to 

taxpayers:



* Strengthen public schools’ accountability for educating children:



* Keep sensitive American technologies out of the wrong hands:



* Protect American armed forces confronting chemical or biological 

weapons:



* Identify the risks to employees in private pension programs:



* Identify factors causing the shortage of children’s vaccines:



* Assist the postal system in addressing anthrax and various management 

challenges:



* Identify security risks at ports, airports, and within transit 

systems:



* Save billions by bringing sound business practices to the Department 

of Defense:



* Foster human capital strategic management to create a capable, 

effective, well-managed federal workforce:



* Ensure that the armed forces are trained and equipped to meet the 

nation’s defense commitments:



* Enhance the safety of Americans and foreign nationals at U.S. 

installations worldwide:



* Assess ways of improving border security through biometric 

technologies and other means:



* Reduce the international debt problems faced by poor countries:



* Reform the way federal agencies manage their finances:



* Protect government computer systems from security threats:



* Enhance the transition to e-government--the new “electronic 

connection” between government and the public:



Contents:



From the Comptroller General:



GAO at a Glance:



Performance at a Glance:



How to Use this Report:



Part I: Management’s Discussion and Analysis:



Serving the Congress and the Nation:



Goal 1: Addressing Challenges to the Well-Being and Financial 

Security of the American People:



Goal 2: Responding to Changing Security Threats and the Challenges 

of Global Interdependence:



Goal 3: Transforming the Government’s Role to Meet 21st Century 

Challenges:



Goal 4: Maximizing the Value of GAO:



Managing Our Resources:



Strategies and Challenges:



Strategies for Achieving Our Goals and Coordinating with Others:



Addressing Management Challenges That Could Affect Our Performance:



Mitigating External Factors That Could Affect Our Performance:



Part II: Performance Information:



How We Assess Our Performance:



Agencywide Results:



Goal 1 Results:



Goal 2 Results:



Goal 3 Results:



Goal 4 Results:



Data Quality and Program Evaluation:



Part III: Financial Information:



From the Chief Financial Officer:



Overview of Financial Statements:



Balance Sheet: 



Statement of Net Cost:



Statement of Changes in Net Position: 



Statement of Budgetary Resources: 



Statement of Financing:



Notes to Financial Statements:



Audit Advisory Committee’s Report:



Independent Auditor’s Report:



Part IV: Appendixes:



1. Accomplishments and Other Contributions:



2. Inspector General’s Report:



3. Report on the Implementation of Public Law 106-303:



4. Government Information Security Reform:



5. Acronyms:



Image Sources:



This is a work of the U.S. government and is not subject to copyright 

protection in the United States. It may be reproduced and distributed 

in its entirety without further permission from GAO. It may contain 

copyrighted graphics, images, or other materials. Permission from the 

copyright holder may be necessary should you wish to reproduce 

copyrighted materials separately from GAO’s product.



GAO at a Glance:



The U.S. General Accounting Office is an independent, nonpartisan, 

professional services agency in the legislative branch that is commonly 

regarded as the audit, evaluation, and investigative arm of the 

Congress. Created in 1921 as a result of the Budget and Accounting Act, 

GAO’s “watchdog” role has evolved over the decades as the Congress 

expanded our statutory authority and called on us with increasing 

frequency for support in carrying out its legislative and oversight 

responsibilities.



Today, we examine the full breadth and scope of federal activities and 

programs, publish thousands of reports and other documents annually, 

and provide a number of related services intended to aid decision 

makers and the general public alike. We also study national and global 

trends to anticipate their implications for public policy. By making 

recommendations to improve the accountability, operations, and services 

of government agencies, GAO contributes not only to the increased 

effectiveness of federal spending, but also to the enhancement of the 

taxpayers’ trust and confidence in their government.



To accomplish our mission, we rely on a workforce of highly trained 

professionals who hold degrees in many academic disciplines, including 

accounting, law, engineering, public and business administration, 

economics, computer science, and the social and physical sciences. They 

are arrayed in 13 research, audit, and evaluation teams and one 

temporary or “virtual” team on national preparedness. These teams are 

backed by staff offices and mission support units. About three-quarters 

of our approximately 3,200 employees are based at our headquarters in 

Washington, D.C.; the rest are deployed in 11 field offices.



Figure: GAO’s Locations.



[See PDF for image] --graphic text:



A map of the United States showing GAO’s headquarters in Washington 

D.C., and its field offices in Atlanta, Boston, Chicago, Dallas, 

Dayton, Denver, Huntsville, Los Angeles, Norfolk, San Francisco, and 

Seattle.



[End of figure]



The agency’s chief executive officer is the Comptroller General of the 

United States, who is appointed to a 15-year term. The Comptroller 

General is nominated by the President from a list of candidates 

submitted by a bipartisan commission of Senate and House leaders and 

must be confirmed by the Senate. The current Comptroller General is 

David M. Walker, who began his term in November 1998. He is assisted by 

an executive committee consisting of Chief Operating Officer Gene L. 

Dodaro, Chief Financial Officer/Chief Mission Support Officer Sallyanne 

Harper, and General Counsel Anthony Gamboa. Members of the Senior 

Executive Service lead the agency’s research, audit, and evaluation 

teams and the staff and mission support offices.



Figure: GAO’s Structure for Fiscal 2002.



[See PDF for image] --graphic text:



An organization chart showing GAO’s basic structure.



The agency’s top level of organization was the Executive Committee, 

which includes the Comptroller General, the Chief Operating Officer, 

the Chief Mission Support Officer, and the General Counsel.



Twenty-two units reported directly to the Comptroller General and the 

Chief Operating Officer. The units included the following staff 
offices: 

Public Affairs, External Liaison, Congressional Relations, Opportunity 

and Inclusiveness, Inspector General, Field Operations, Quality and 
Risk 

Management, and Product and Process Improvement.  



The units also included the following teams that conduct audits, 

evaluations, and research: Acquisition and Sourcing Management; Applied 

Research and Methods; Defense Capabilities and Management; Education, 

Workforce, and Income Security; Financial Management and Assurance; 

Financial Markets and Community Investment; Health Care; Information 

Technology; International Affairs and Trade; National Preparedness; 

Natural Resources and Environment; Physical Infrastructure; Strategic 

Issues; and Tax Administration and Justice.



In addition, the following units reported to the Comptroller General 

and Chief Operating Officer through the chief mission support officer: 

Human Capital; Controller; Information Technology; and Knowledge 
Services. 

The Special Investigations unit reported to the ComptrollerGeneral and 

Chief Operating Officer through the General Counsel.



Note: National Preparedness is a temporary or “virtual” team.



Source: GAO:



[End of figure]



To ensure that GAO is well positioned to meet the Congress’s future 

needs, those executives and the staff they direct update the agency’s 

6-year strategic plan every 2 years, consulting extensively during the 

update with GAO’s clients on Capitol Hill and with other experts. Using 

the plan as a blueprint, we lay out the areas in which we expect to 

conduct research, audits, analyses, and evaluations to meet our 

clients’ needs, and we allocate the resources we receive from the 

Congress accordingly. Given the increasingly fast pace with which 

crucial issues emerge and evolve, we design flexibility into our plans 

and our staffing structure so that we can respond readily to the 

Congress’s changing priorities. When we revise our plans or our 

allocation of resources, we disclose those changes in annual 

performance plans and revised performance plans, all of which are--like 

our strategic plan updates--posted on the Web for public inspection 

(www.gao.gov/sp.html). Each year, we hold ourselves accountable to the 

Congress and to the American people for our performance, primarily 

through the report you are reading.



The Congress directs GAO to conduct specific engagements through 

requests from committee Chairmen, Ranking Minority Members, and other 

Members of Congress and through mandates written into legislation, 

resolutions, and committee reports. In fiscal 2002, 89 percent of GAO’s 

engagements were initiated by the Congress. The remaining 11 percent of 

the engagements were initiated independently by GAO as authorized by 

the agency’s enabling legislation.



As a legislative branch agency, GAO differs in some ways from executive 

branch agencies. We are, for instance, exempt from many laws designed 

to improve the performance and accountability of the executive branch. 

But because one of our strategic goals is to maximize our value by 

serving as a model agency for the federal government, we hold ourselves 

to the spirit of many of these laws, including 31 U.S.C. 3512 (formerly 

the Federal Managers’ Financial Integrity Act), the Federal Financial 

Management Improvement Act of 1996, the Government Performance and 

Results Act of 1993, and the Reports Consolidation Act of 2000. 

Accordingly, this consolidated performance and accountability report 

for fiscal 2002 supplies what we consider to be information that is the 

equivalent of that supplied by executive branch agencies in their 

performance and accountability reports.



On the pages that follow, we assess our performance for fiscal 2002 

against our performance goals and our past performance. We also present 

our financial statements and the independent auditor’s opinion. We will 

issue our performance plan for fiscal 2004 as soon as the budget 

process permits, but we have included some tentative information about 

future plans in this report to provide as cohesive a view as possible 

of what we have done, what we are doing, and what we expect to do to 

support the Congress and to serve the nation.



Performance at a Glance:



We use seven annual measures to help assess GAO’s performance in 

meeting our strategic goals and objectives for serving the Congress. 

They show the degree to which our work is benefiting the Congress and 

the American people and whether GAO is laying a foundation for future 

benefits by providing the Congress with the most imminent and high-

profile information it requests, developing ways to improve government, 

and tracking whether those improvements are made. In fiscal 2002, GAO 

exceeded the performance targets for six of these seven annual 

measures. We also use an eighth, biennial, indicator that tracks our 

progress on work we laid out under performance goals in our strategic 

plan. This indicator shows we are on track for meeting 95 percent of 

our performance goals by the end of fiscal 2003.



Figure: Financial Benefits: 



[See PDF for image] - graphic text: 



Bar chart with 5 items.



Dollars in Billions:



Item 1, 1999 Actual; 20.1.

Item 2, 2000 Actual; 23.2.

Item 3, 2001 Actual; 26.4.

Item 4, 2002 Target; 30.

Item 5, 2002 Actual; 37.7.



Source: GAO:



[End of figure]



Financial benefits: $37.7 billion:



The financial benefits GAO reports are generated when agencies act on 

GAO’s findings and recommendations to make government services more 

efficient, to improve budgeting and spending of tax dollars, or to 

strengthen the management of federal resources. GAO’s work to curb 

Medicare fraud and abuse, to improve budgeting practices for public 

housing programs, and to reduce losses from farm loans yielded more 

than $17.8 billion--or nearly half of the year’s total. About 11 

percent of the increase between fiscal 2001 and 2002 is attributable to 

a change in our methodology for calculating financial benefits.



Figure: Other Benefits:



[See PDF for image] - graphic text:



Bar chart with 5 items.



Number of actions:



Item 1, 1999 Actual; 607.

Item 2, 2000 Actual; 788.

Item 3, 2001 Actual; 799.

Item 4, 2002 Target; 770.

Item 5, 2002 Actual; 906.



Source: GAO:



[End of figure] 



Other benefits: 906 actions taken:



Many of the benefits that flow to the American people from GAO’s work 

cannot be measured in dollar terms. During fiscal 2002, GAO documented 

65 instances in which information we provided to the Congress resulted 

in statutory or regulatory changes, 391 instances in which federal 

agencies improved services to the public, and 450 instances in which 

core business processes were improved at agencies or governmentwide 

reforms were advanced. These actions spanned the full spectrum of 

national issues from combating terrorism to better targeting funds to 

high-poverty school districts.



Figure: Past Recommendations Implemented:



[See PDF for image] - graphic text:



Bar chart with 5 items.



4-year implementation rate:



Item 1, 1999 Actual; 70 percent.

Item 2, 2000 Actual; 78 percent.

Item 3, 2001 Actual; 79 percent.

Item 4, 2002 Target; 75 percent.

Item 5, 2002 Actual; 79 percent.



Source: GAO:



[End of figure] 



Past recommendations implemented: 79 percent:



One way we measure our impact in improving the government’s 

accountability, operations, and services is by tracking the percentage 

of recommendations that we made 4 years ago that have since been 

implemented. At the end of fiscal 2002, 79 percent of the 

recommendations we made in fiscal 1998 had been implemented, primarily 

by executive branch agencies. It is putting those recommendations into 

practice that will generate tangible benefits for the American people 

in the years ahead.



Figure: New Recommendations Made:



[See PDF for image] - graphic text:



Bar chart with 5 items.



Number made:



Item 1, 1999 Actual; 940.

Item 2, 2000 Actual; 1224.

Item 3, 2001 Actual; 1563.

Item 4, 2002 Target; 1200.

Item 5, 2002 Actual; 1950.



Source: GAO:



[End of figure] 



New recommendations made: 1,950:



Because developing implementable recommendations is an important part 

of GAO’s work for the Congress and helps to improve how the government 

functions, we track the number made each year. For example, the 1,950 

made in fiscal 2002 include recommendations to the Secretary of State 

calling for the development of a governmentwide plan to help other 

countries combat nuclear smuggling and those to the Chairman of the 

Federal Energy Regulatory Commission calling for the agency to develop 

an action plan for overseeing competitive energy markets.



Figure: New Products with Recommendations:



[See PDF for image] - graphic text:



Bar chart with 5 items.



Percentage:



Item 1, 1999 Actual; 33.

Item 2, 2000 Actual; 39.

Item 3, 2001 Actual; 44.

Item 4, 2002 Target; 45.

Item 5, 2002 Actual; 53.



Source: GAO:



[End of figure] 



New products containing recommendations: 53 percent:



This measure recognizes that a report containing a single broad 

recommendation may have more impact than a report containing a dozen 

specific ones. We also understand that GAO’s congressional clients 

often want products that are purely informational and contain no 

recommendations. Hence, the target provides ample leeway for responding 

to requests for informational products.



Figure: Testimonies:



[See PDF for image] - graphic text:



Bar chart with 5 items.



Hearings at which GAO Testified:



Item 1, 1999 Actual; 229.

Item 2, 2000 Actual; 263.

Item 3, 2001 Actual; 151.

Item 4, 2002 Target; 200.

Item 5, 2002 Actual; 216.



Source: GAO:



[End of figure] 



Testimonies: 216:



During fiscal 2002, experts from GAO’s staff testified at 216 

congressional hearings covering a wide range of complex issues. On 

national preparedness alone, we testified on border security, 

bioterrorism, nuclear smuggling, seaport and aviation security, and the 

formation of the Department of Homeland Security. Among the other 

topics addressed were protecting against foodborne illnesses, reducing 

the threat of wildfires, and safeguarding nursing home residents from 

abuse.



Figure: Timeliness:



[See PDF for image] - graphic text:



Bar chart with 5 items.



Products on time:



Item 1, 1999 Actual 96 percent.

Item 2, 2000 Actual 96 percent.

Item 3, 2001 Actual 95 percent.

Item 4, 2002 Target 98 percent.

Item 5, 2002 Actual 96 percent.



Source: GAO:



[End of figure]



Timeliness: 96 percent:



We chart the percentage of our products that are delivered on the day 

we agreed to with our congressional clients because for our work to be 

used it must be timely. While a vast majority of our products were on 

time in fiscal 2002, we missed our target of providing 98 percent of 

them on the promised day and are taking steps to improve our 

performance in the future.



Figure: Two-Year Performance Goals:



[See PDF for image] - graphic text:



Pie chart with 2 items.



98 two-year performance goals:



Item 1, Not on track; 5 percent.

Item 2, On track; 95 percent.



Source: GAO:



[End of figure] 



Two-year performance goals: 93 of 98 on track:



In addition to our seven annual measures, we track GAO’s progress on 2-

year performance goals that describe the work we planned to do to 

achieve our strategic goals and objectives. At the end of fiscal 2002-

-the halfway point in the assessment cycle--GAO’s senior managers 

reported that enough work had been completed or was under way for the 

agency to meet 95 percent of GAO’s performance goals by the end of 

fiscal 2003.



How to Use this Report:



This report consolidates GAO’s performance and accountability reports 

for fiscal 2002 as called for by the Reports Consolidation Act of 2000. 

In assessing our performance, we are comparing actual results against 

targets and goals set in our annual performance plan, which we 

developed to help us carry out our strategic plan. Our complete set of 

strategic planning and performance and accountability reports is 

available from our Web site at www.gao.gov/sp.html.



This report has four major parts:



* Management’s Discussion and Analysis:



Look here for high-level summaries of our performance and use of 

resources in fiscal 2002. Look here also for information on the 

strategies we use to achieve our goals and the management challenges 

and external factors that affect our performance.



* Performance Information:



Look here for details on our performance in fiscal 2002, the targets we 

are aiming for in fiscal 2003, and for explanations of how we assess 

GAO’s performance and how we ensure the completeness and reliability of 

the performance data used in this report.



* Financial Information:



Look here for details on our finances in fiscal 2002, including a 

letter from GAO’s Chief Financial Officer, our audited financial 

statements and notes, and the reports from our external auditor and our 

audit advisory committee. Look here also for information on our 

internal controls and for an explanation of what kind of information 

each of our financial statements conveys.



* Appendixes:



Look here for detailed write-ups about our accomplishments and 

contributions recorded in fiscal 2002, for our Inspector General’s 

assessment of our agency’s management challenges, for our reports on 

our implementation of P.L. 106-303 (an act giving GAO certain human 

capital management flexibilities) and on information security reform 

measures.



Part I: Management’s Discussion and Analysis:



Serving the Congress and the Nation:



Fiscal 2002 was a year of challenges, not just for GAO but also for the 

Congress and the nation GAO serves. The nation’s vulnerabilities were 

exposed in a series of crises--America’s vulnerability to sophisticated 

terrorist networks, America’s vulnerability to bioterrorism waged 

through mechanisms as mundane as the daily mail, and America’s 

vulnerability to corporate misconduct capable of wiping out jobs, 

pensions, and investments virtually overnight. As the Congress’s 

priorities evolved to meet these crises, GAO’s challenge was to respond 

quickly and effectively to our congressional clients’ changing needs. 

Under our original strategic plan, published in spring 2000, we had 

already streamlined and realigned GAO’s structure and resources to 

better serve the Congress in its legislative, oversight, and 

investigative roles. The new human capital initiatives we had begun, 

including recruiting, hiring, and professional development, equipped us 

to operate in a constantly changing knowledge environment. The steps 

that we took to enhance our information technology capabilities served 

to increase our productivity, consistency, and responsiveness. And with 

work already under way across a spectrum of critical policy and 

performance issues, we had a head start toward meeting the Congress’s 

needs in a year of unexpected and often tumultuous events.



We were, for instance, asked to assist with the deliberations over the 

Department of Homeland Security’s formation by looking into questions 

involving flexibilities for managing human capital, information 

sharing, management, acquisition, budget and program transfer 

authorities; and lessons available from other reorganizations in the 

public and private sectors. Teams with different specialties from 

across GAO collaborated on that effort and also pursued specific 

aspects of national preparedness. For example, building on an extensive 

body of completed work, we provided important information to the 

Congress as it drafted the Aviation and Transportation Security Act, 

while providing continuing assistance with information on aviation, 

port, and transit security. Building on our previous work on the 

outbreak of West Nile virus and our examination of state and local 

efforts to meet the challenges all epidemics pose--those of detection 

and treatment--we aided the Congress’s decision making about how to 

equip and organize the Department of Homeland Security to prepare for 

and respond to bioterrorism. We were also deeply involved in 

congressional efforts to address terrorism insurance issues--

presenting alternative strategies and suggesting guiding principles 

based on past efforts to assist industries and firms in times of 

crisis, such as the savings and loan industry and, more recently, the 

aviation industry.



As we gathered information and conducted analyses for the Congress, 

developed recommendations for improvements, and detailed the potential 

ramifications of homeland security issues, we continued work on the 

issues that the Congress had been addressing before homeland security 

gripped the nation’s attention. Among those continuing issues were many 

that directly affected the lives of Americans:



* We, for instance, helped policymakers probe the issues behind the 

shortages in the supplies of vaccines for childhood illnesses, such as 

measles, mumps, rubella, and tetanus, clarifying the variety of 

contributing factors and exploring the key questions, such as how more 

manufacturing and competition can be encouraged, how adequate oversight 

can be provided, and how stockpiles can be amassed.



* Our work also helped policymakers--and the public--understand private 

pension issues in the wake of the Enron bankruptcy and other corporate 

failures, including the questions they raised for workers nationwide. 

For instance, in early 2002, the Comptroller General convened a forum 

on corporate governance, transparency, and accountability that 

highlighted a number of systemic issues, including concerns related to 

employee pension and savings plans. And we alerted the Congress to 

weaknesses that may exist in the legal protections for employee 

pensions. We highlighted the ways in which employers’ stock investment 

decisions can increase the risks to which employees’ pension plans are 

exposed and recommended improvements to the information employees must 

receive. We also issued a guide for Members of Congress, their staffs, 

and the public called Answers to Key Questions about Private Pension 

Plans (www.gao.gov/cgi-bin/getrpt?rptno=GAO-02-745sp), which explains 

in easy-to-understand terms the concepts and rules that last year 

became sharply relevant to the future economic security of millions of 

Americans.



* Our work on the elections process contributed to reform legislation 

drafted in response to the voting problems that gained national 

prominence in the November 2000 presidential election. A series of our 

reports disclosed major challenges involving the people, processes, and 

technology used at each stage of the election process--registering 

voters, absentee and early voting, preparing for and conducting 

election day activities, and tabulating votes in the 10,000 local 

election jurisdictions nationwide. The legislation passed by the 

Congress addresses federal subsidies for voting machinery, standards 

for the equipment, improved voter registration rolls, and improved 

access for voters with disabilities.



By year’s end, we had testified 216 times before the Congress, 

sometimes on as little as 24 hours’ notice, on a range of issues, 

including those listed on the next page. We had filled hundreds of 

urgent requests for information. We had developed 1,950 recommendations 

for improving the government’s operations, including, for example, 

those we made to the Secretary of State calling for the development of 

a governmentwide plan to help other countries combat nuclear smuggling 

and those we made to the Chairman of the Federal Energy Regulatory 

Commission calling for his agency to develop an action plan for 

overseeing competitive energy markets. We also had continued to track 

the recommendations we had made in past years, checking to see that 

they had been implemented and, if not, deciding whether we needed to do 

follow-up work on problem areas. We found, in fact, that 79 percent of 

the recommendations we had made in fiscal 1998 had been implemented, a 

significant step when the work we have done for the Congress becomes a 

catalyst for creating tangible benefits for the American people.



In fiscal 2002, we recorded 906 instances in which our work led to 

improvements in government operations or programs. For example, by 

acting on GAO’s findings or recommendations, the federal government has 

taken important steps toward enhancing aviation safety, improving 

pediatric drug labeling based on research, better targeting of funds to 

high-poverty school districts, greater accountability in the federal 

acquisition process, and more effective delivery of disaster recovery 

assistance to other nations, among other achievements. In another 115 

instances, federal action on GAO’s findings or recommendations produced 

financial benefits for the American people: a total of $37.7 billion 

was achieved by making government services more efficient, improving 

the budgeting and spending of tax dollars, and strengthening the 

management of federal resources. Increased funding for improved 

safeguards against fraud and abuse helped the Medicare program to 

better control improper payments of $8.1 billion over 2 years, for 

instance, and better policies and controls reduced losses from farm 

loan programs by about $4.8 billion across 5 years. Altogether, GAO’s 

fiscal 2002 financial benefits translate into a financial return on 

investment of $88 for every dollar budgeted for GAO.



Of our seven agencywide annual performance targets (see the table), 

only one was not met: timeliness. While we provided 96 percent of our 

products to their congressional requesters by the date promised, we 

have yet to hit this measure’s target of 98 percent on-time delivery. 

The year’s turbulent events played a part in our missing the target, 

causing us to delay work in progress when higher-priority requests came 

in from the Congress. We know we will continue to face factors beyond 

our control as we strive to improve our performance in this area. But 

we believe the agency protocols we are piloting will help clarify 

aspects of our interactions with the agencies we evaluate and audit and 

ultimately expedite our work in ways that could improve the timeliness 

of our final products. We also believe that our continuing investments 

in human capital and information technology will improve our timeliness 

while allowing us to maintain our high level of productivity and 

performance overall. These initiatives are among those discussed later 

in this report.



Table: Selected Public Laws to Which GAO Contributed During Fiscal 2002

Included--



* Prescription Drug User Fee Amendments of 2002, P.L. 107-188:



* Best Pharmaceuticals for Children Act, P.L. 107-1092:



* No Child Left Behind Act of 2001, P.L. 107-110:



* Food Stamp Reauthorization Act of 2002, P.L. 107-171: 



* Help America Vote Act of 2002, P.L. 107-252:



* Homeland Security Act of 2002, P.L. 107-296:



* Public Health Security and Bioterrorism Preparedness and Response 

Act of 2002, P.L. 107-188:



* Aviation and Transportation Security Act, P.L. 107-71:



* Department of Defense Appropriation Act, 2003, P.L. 107-248:



* Department of Defense and Emergency Supplemental Appropriations 

for Recovery From and Response to Terrorist Attacks on the United 

States Act, 2002, P.L. 107-117:



* Bob Stump National Defense Authorization Act for Fiscal Year 2003, 

P.L. 107-314:



* Foreign Relations Authorization Act, Fiscal Year 2003, P.L. 107-228:



* Small Business Paperwork Relief Act of 2002, P.L. 107-198:



* Federal Information Security Management Act of 2002, P.L. 107-347:



* Sarbanes-Oxley Act of 2002, P.L. 107-204:



* National Defense Authorization Act for Fiscal Year 2002, P.L. 

107-107:



* Legislative Branch Appropriations, Fiscal Year 2002, P.L. 

107-68:



* Improper Payments Information Act of 2002, P.L. 107-300:



* Trade Act of 2002, P.L. 107-210:



* Terrorism Risk Insurance Act of 2002, P.L. 107-297:



* E-Government Act of 2002, P.L. 107-347:



[End of table]



Figure: Types of Benefits in Fiscal 2002 from GAO’s Work:



[See PDF for image] - graphic text:



Pie chart with 3 items.



Financial Benefits: Total 37.7 billion dollars:



Item 1, 3.6 billion dollars; 9.7 percent. Representing core business 

processes improved at agencies and governmentwide management reforms 

advanced by GAO’s work:

Item 2, 11.2 billion dollars; 29.7 percent. Representing agencies acted

on GAO information to improve services to the public: 

Item 3, 22.9 billion dollars; 60.6 percent. Representing information 

GAO provided to the Congress resulted in statutory or regulatory 
changes:



Note: Percentages may not total 100 because of rounding.



[End of figure]



Figure: Types of Benefits in Fiscal 2002 from GAO’s Work:



[See PDF for image] - graphic text:



Pie chart with 3 items.



Other Benefits: Total 906:



Item 1, 450; 49.7 percent. Representing core business 

processes improved at agencies and governmentwide management reforms 

advanced by GAO’s work:

Item 2, 391; 43.2 percent. Representing agencies acted

on GAO information to improve services to the public: 

Item 3, 65; 7.2 percent. Representing information 

GAO provided to the Congress resulted in statutory or regulatory 
changes:



Note: Percentages may not total 100 because of rounding.



[End of figure]



Table: Agencywide Summary.



Measure: Financial benefits; Actual: $37.7 billion; Target: $30 
billion; 

Met?: Yes.



Measure: Other benefits; Actual: 906; Target: 770; 

Met?: Yes.



Measure: Past recs implemented; Actual: 79%; Target: 

75%; Met?: Yes.



Measure: New recs made; Actual: 1,950; Target: 1,200; 

Met?: Yes.



Measure: New products with recs*; Actual: 53%; Target: 

45%; Met?: Yes.



Measure: Testimonies; Actual: 216; Target: 200; 

Met?: Yes.



Measure: Timeliness*; Actual: 96%; Target: 98%; 

Met?: No.



*Measure is used at the agencywide level but not at the goal level.



[End of table]



At the beginning of fiscal 2002, as we prepared an updated draft of our 

strategic plan for congressional comment--extending the plan to fiscal 

2007 and factoring in developments that had occurred since we first 

issued it in fiscal 2000--it was clear that the world had changed 

considerably. When the original plan was issued, the nation had been 

enjoying a period of peace and prosperity, with large budget surpluses 

projected into the future. When the updated plan went onto the Web in 

2002, the nation was at war against terrorism, both within and outside 

its borders. The economic outlook had become difficult to predict. And 

the federal government faced the return of serious, long-range budget 

deficits and the burden they impose on the nation’s future prosperity.



The updated plan carried forward the four strategic goals we had 

already established as the organizing principles for a body of work 

that is as wide-ranging as the interests and concerns of the Congress 

itself:



* Provide timely, quality service to the Congress and the federal 

government to address current and emerging challenges to the well-being 

and financial security of the American people.



* Provide timely, quality service to the Congress and the federal 

government to respond to changing security threats and the challenges 

of global interdependence.



* Help transform the federal government’s role and how it does business 

to meet 21st century challenges.



* Maximize the value of GAO by being a model federal agency and a 

world-class professional services organization.



While these strategic goals help us plan our work and assess our 

progress in fulfilling our mission to serve the Congress and the 

nation, they are not separate endeavors. We developed them with the 

intention of moving away from “siloed”--or compartmentalized--

approaches to doing business on a matrixed basis. As the challenges 

facing policymakers grow more complex and interdependent, the only way 

a knowledge-based, multidisciplinary professional services 

organization such as GAO can be effective is to be flexible and capable 

of responding quickly to change. As a result, we have sought more 

cooperative, partnerial approaches that maximize the skills and 

expertise of people working together toward the same ends.



Later sections of this report highlight our performance under each of 

our strategic goals, how we used our resources in fiscal 2002, the 

management challenges we face, and other matters. But first, we look 

briefly at how the high-risk program GAO established in 1990 has 

influenced the performance of federal agencies.



Figure: Issues On which GAO Testified During Fiscal 2002:



[See PDF for image] --graphic text:



Goal 1: Well-Being and Financial Security of the American People:



* Aviation security: 



* Bioterrorism: 



* Blood supplies: 



* Child welfare: 



* Childhood vaccines: 



* Coast Guard’s security missions: 



* Customs’ cargo inspections: 



* Disability programs: 



* EPA cabinet status: 



* FBI reorganization: 



* Federal property management reform: 



* Food safety: 



* Highway trust fund: 



* Housing: 



* HUD management reform: 



* Identity theft: 



* Immigration enforcement: 



* Indian tribal recognition: 



* Intercity passenger rail: 



* Long-term care: 



* Medicare payments: 



* Nuclear waste storage: 



* Nursing homes: 



* Postal Service challenges: 



* Public health aspects of homeland security: 



* Retiree health insurance: 



* SBA’s human capital challenges: 



* Social Security reform: 



* Transit safety and security: 



* VA health care: 



* Welfare reform: 



* Wildfire threats: 



* Workforce development: 



Goal 2: Changing Security Threats and Challenges of Globalization:



* A-76 competitive sourcing: 



* Anthrax vaccine: 



* Ballistic missile defense: 



* Chemical and biological preparedness: 



* Combating terrorism: 



* Compact with Micronesia: 



* Conflict diamonds: 



* Debt relief for poor countries: 



* Encroachment on training ranges: 



* Export controls: 



* Food aid: 



* Foreign language needs: 



* Gulf War illnesses: 



* Information security aspects of homeland security: 



* International trade: 



* Nuclear smuggling: 



* Organizational aspects of homeland security: 



* SEC’s human capital challenges: 



* Strategic seaport protection: 



* Terrorism insurance: 



* U.S. overseas presence: 



* Weapons of mass destruction: 



Goal 3: Transforming the Federal Government’s Role:



* Contract management: 



* Contracting for services: 



* Corporate governance and accountability: 



* Debt collection: 



* DOD financial management: 



* Electronic Government Act of 2002: 



* Electronic-government security: 



* Enterprise architecture: 



* Federal budget issues: 



* Federal building security: 



* Federal financial management reform: 



* Federal rulemaking requirements: 



* Freedom to Manage Act: 



* Human capital strategy: 



* Illegal tax schemes and scams: 



* Intergovernmental aspects of homeland security: 



* IRS modernization: 



* Medicaid financial management: 



* NASA’s management challenges: 



* President’s Management Agenda: 



* Purchase card controls: 



* Securing America’s borders: 



* U.S. government’s financial statements: 



Source: GAO:



[End of figure]



GAO’s High-Risk Program:



Helping to Improve the Performance and Accountability of the Federal 

Government:



Every 2 years, with the start of each new Congress, we issue an update 

of our high-risk series, identifying and reporting on federal programs 

and operations that have greater vulnerabilities to waste, fraud, 

abuse, and mismanagement or that have major challenges associated with 

their economy, efficiency, or effectiveness. Lasting solutions to high-

risk problems offer the potential to save billions of dollars, 

dramatically improve service to the American public, strengthen public 

confidence and trust in the performance and accountability of the 

national government, and ensure the ability of government to deliver on 

its promises.



Since 1990, the Congress’s and federal agencies’ commitment to 

resolving serious, long-standing high-risk problems has paid off--the 

root causes of half the 14 high-risk areas on our original list have 

been addressed. This sustained commitment continues to produce results. 

In 2001, GAO identified 23 high-risk areas. Since then, demonstrable 

progress has been made in virtually all of them. In two of those areas, 

the Supplemental Security Income program and the asset forfeiture 

programs managed by the Departments of the Treasury and Justice, GAO 

has determined that sufficient progress has been made to remove the 

high-risk designation.



GAO has increasingly used the high-risk designation to draw attention 

to the challenges faced by government programs and operations in need 

of broad-based transformation. For example, in 2001, GAO designated as 

high risk strategic human capital management across government and the 

U.S. Postal Service’s transformation and fiscal outlook. Since then, 

the President has made human capital a top initiative of his Management 

Agenda, while the Congress has enacted key governmentwide human capital 

reforms as it created the Department of Homeland Security. In addition, 

a promising Postal Service transformation plan has been produced and 

the President has formed a commission to focus on Postal Service 

transformation.



With these positive results in mind, for 2003, GAO has designated four 

additional high-risk areas. Three are based on challenges involving 

broad-based transformation or the need for legislative solutions. The 

first is implementing and transforming the Department of Homeland 

Security, which is a high-risk area because of the sheer size of the 

undertaking, the fact that the department’s proposed components already 

face a wide array of existing challenges, and the prospect of serious 

consequences for the nation should the department fail to adequately 

address its management challenges and program risks. A related homeland 

security challenge will be to protect information systems supporting 

the federal government and the nation’s critical infrastructures; 

information security has been a high-risk area since 1997 and has been 

expanded this year to include both of these concerns.



The second new high-risk area involves disability programs, primarily 

those at the Social Security Administration and the Department of 

Veterans Affairs. Already growing, disability programs are poised to 

surge as baby boomers age, yet the programs remain mired in outdated 

economic, workforce, and medical concepts and are poorly positioned to 

provide meaningful and timely support to disabled Americans.



The third new high-risk area involves federal real property, based on 

long-standing problems such as excess and underutilized property and 

deteriorating facilities, as well as increased security challenges from 

the threat of terrorism.



This year’s fourth new area is high risk under our more traditional 

criteria involving fraud, waste, abuse, or mismanagement. It involves 

the Medicaid program, in part because of growing concerns about 

inadequate fiscal oversight to prevent inappropriate state spending, 

which increases federal spending unnecessarily.



To learn more about these new high-risk areas or to download the update 

in full, go to www.gao.gov/pas/2003/.



Table; 2003 High-Risk List.



High-risk area; Addressing challenges in broad-based transformations.



High-risk area; Strategic human capital management*; Year designated 

high risk: 2001.



High-risk area; U.S. Postal Service transformation efforts and long-

term outlook *; Year designated high risk: 2001.



High-risk area; Protecting information systems supporting the 

federal government and the nation’s critical infrastructures; Year 

designated high risk: 1997.



High-risk area; Implementing and transforming the new Department of 

Homeland Security; Year designated high risk: 2003.



High-risk area; Modernizing federal disability programs *; Year 

designated high risk: 2003.



High-risk area; Federal real property *; Year designated high risk: 

2003.



High-risk area; Ensuring major technology investments improve services.



High-risk area; FAA air traffic control modernization; Year designated 

high risk: 1995.



High-risk area; IRS business systems modernization; Year designated 

high risk: 1995.



High-risk area; DOD systems modernization; Year designated high risk: 

1995.



High-risk area; Providing basic financial accountability.



High-risk area; DOD financial management; Year designated high risk: 

1995.



High-risk area; Forest Service financial management; Year designated 

high risk: 1999.



High-risk area; FAA financial management; Year designated high risk: 

1999.



High-risk area; IRS financial management; Year designated high risk: 

1995.



High-risk area; Reducing inordinate program management risks.



High-risk area; Medicare program *; Year designated high risk: 1990.



High-risk area; Medicaid program *; Year designated high risk: 2003.



High-risk area; Earned income credit noncompliance; Year designated 

high risk: 1995.



High-risk area; Collection of unpaid taxes; Year designated high risk: 

1990.



High-risk area; DOD support infrastructure management; Year designated 

high 

risk: 1997.



High-risk area; DOD inventory management; Year designated high risk: 

1990.



High-risk area; HUD single-family mortgage insurance and rental 

assistance programs; Year designated high risk: 1994.



High-risk area; Student financial aid programs; Year designated 

high risk: 1990.



High-risk area; Managing large procurement operations more efficiently.



High-risk area; DOD weapon systems acquisition; Year designated 

high risk: 1990.



High-risk area; DOD contract management; Year designated high risk: 

1992.



High-risk area; Department of Energy contract management; Year 

designated high risk: 1990.



High-risk area; NASA contract management; Year designated high 

risk: 1990.



* Additional authorizing legislation is likely to be required as 

one element of addressing this high-risk area..



[End of table]



Figure: Serving the Congress: GAO’s Strategic Plan Framework:



[See PDF for image] --graphic text:



MISSION:



GAO exists to support the Congress in meeting its constitutional 

responsibilities and to help improve the performance and ensure 

the accountability of the federal government for the benefit of 

the American people.



Themes:



* Security and Preparedness: 



* Globalization: 



* Changing Economy: 



* Demographics: 



* Science and Technology: 



* Quality of Life: 



* Governance: 



Goals and Objectives:



Provide Timely, Quality Service to the Congress and the Federal 

Government to...:



Address Current and Emerging Challenges to the Well-

Being and Financial Security of the American People related to...:



* Health care needs and financing: 



* Education and protection of children: 



* Work opportunities and worker protection: 



* Retirement income security: 



* Effective system of justice: 



* Viable communities: 



* Natural resources use and environmental protection: 



* Physical infrastructure: 



Respond to Changing Security Threats and the Challenges of 

Global Interdependence involving...:



* Diffuse security threats: 



* Military capabilities and readiness: 



* Advancement of U.S. interests: 



* Global market forces: 



Help Transform the Federal Government’s Role and How It Does 

Business to Meet 21st Century Challenges by assessing...:



* Roles in achieving federal objectives: 



* Human capital and other capacity for serving the public: 



* Progress toward results-oriented, accountable, and relevant 

government: 



* Fiscal position and financing of the government: 



Maximize the Value of GAO by Being a Model Federal Agency and a 

World-Class Professional Services Organization in the areas of...:



* Client and customer service: 



* Leadership and management focus: 



* Institutional knowledge and experience: 



* Process improvement: 



* Employer of choice: 



Core Values: 



*Accountability: 



*Integrity: 



*Reliability: 



Source: GAO:



[End of figure]



Goal 1:



Addressing Challenges to the Well-Being and Financial Security of the 

American People:



The Congress’s legislative and oversight responsibilities lead it to 

examine issues that weave through the lives of many American 

communities and virtually every American. Consequently, the 

congressional requests that drive most of GAO’s work take our people 

through the doors of every federal agency and many other organizations, 

seeking information and ways to improve how the government serves the 

public. Our work under our first strategic goal spans the cradle-to-

grave issues of American life from the health and education of the 

nation’s children, to their employability and working conditions as 

adults, to their financial security as retirees. Our work under this 

goal also looks at the viability of the communities Americans live in, 

their ability to move safely and efficiently around those communities 

and around the world, the natural resources that literally fuel their 

every endeavor, and the justice system that keeps wrongs from trampling 

their individual liberties.



It was under goal 1, for example, that we conducted a number of the 

engagements highlighted in the previous section, helping the Congress 

to make informed decisions on the shortages of vaccines for childhood 

illnesses, on the necessary safeguards against improper Medicare 

payments to health care providers, on preparing the nation to confront 

bioterrorism, on curbing losses from farm loan programs, on crafting 

election reforms to end the voting problems that have marred two 

national elections, and on understanding private pension issues. But 

our work during fiscal 2002 accomplished much more as well:



* Helping to make the food supply safer for the American people--

Although the U.S. food supply is regarded as one of the safest in the 

world, foodborne illnesses continue to be an extensive and costly 

problem that raises concerns about the federal government’s ability to 

ensure the safety of domestic and imported foods. Recently, the threat 

of deliberate contamination of the nation’s food supply by terrorists 

has elevated these concerns significantly. Our assessments of federal 

efforts to ensure the safety of the food supply have helped the 

Congress and agencies strengthen oversight and enforcement. For 

example, the Congress included several food safety provisions in the 

Public Health Security and Bioterrorism Preparedness and Response Act 

of 2002.



* Alerting the public to the inadequacy of care in certain nursing 

homes--Our groundbreaking work over the past 5 years has helped raise 

public awareness of the terrible conditions prevalent in some 15 

percent of America’s nursing homes, where serious and recurring 

problems have caused physical and emotional harm to patients. In 

response to our recommendations, the Centers for Medicare and Medicaid 

Services, which oversees nursing facilities, has increased the rigor of 

its inspections, its responsiveness to complaints, and its application 

of sanctions to offending facilities. Our work has spurred a growing 

understanding of the dimensions of the problem and increased the 

likelihood that effective federal actions will be taken.



* Helping ensure accountability for educating children in the public 

schools--In 1994, concerned that federal funding was not significantly 

improving the educational progress of at-risk students, the Congress 

began requiring states to ensure accountability in their public school 

systems. One key requirement was student testing. The No Child Left 

Behind Act, passed in 2001, built on those requirements, raising the 

stakes for schools that fail to make adequate progress. A year after 

the new act’s passage, GAO, collaborating with other accountability 

organizations, studied the states’ implementation of the 1994 

requirements and found widespread shortcomings, raising the question of 

how well the states can fulfill the additional requirements of the 2001 

law. The lesson learned from this work is that setting accountability 

requirements, such as student testing, is only part of the job. 

Effective implementation, including such basics as ensuring that tests 

are scored accurately, is no less important.



* Helping to enhance the oversight of restructured energy markets to 

better protect consumers--The electricity and natural gas industries 

are changing from being regulated monopolies to players in a 

competitive market environment. During the transition, GAO has made 

important contributions in clarifying key issues for the Congress, 

issues such as the implications for the energy markets of Enron’s 

collapse, how market power has been exercised in California, the 

reasons for price spikes in the natural gas markets, and the Federal 

Energy Regulatory Commission’s capacity to oversee energy markets. Our 

work has also influenced federal decisions affecting market 

concentration in the ethanol market.



* Providing a roadmap for management reform at the Department of 

Housing and Urban Development (HUD)--GAO has designated programs in the 

department as high risk since 1994, and today, two of its three major 

program areas (representing about 70 percent of its budget) remain high 

risk. Our recent reports and testimonies have focused on the 

department’s progress with management reform and with three major 

management challenges: human capital policies, programmatic and 

information management systems, and contracting practices. The 

department has been responsive to our findings and is taking action. 

During his confirmation hearings in early 2001, HUD’s new Secretary, 

citing GAO’s work, placed improving management atop the department’s 

highest priorities. This was followed by the Bush administration’s 

first performance plan for the department, which said that GAO’s 

reports would be a “roadmap” for making management improvements. The 

Deputy Secretary reiterated the department’s position before the Senate 

Banking Committee in July 2002, and, in particular, endorsed our 

characterization of the department’s three major management challenges.



* Aiding congressional deliberations on surface transportation 

legislation--As the Congress began drafting the reauthorization of the 

Transportation Equity Act for the 21st Century, we assisted by 

identifying the major challenges that face all modes of surface 

transportation, including the Interstate Highway System and new transit 

systems. We also reviewed the continued purchasing power of the Highway 

Trust Fund over the next authorization period, identified alternative 

approaches to funding investments in surface transportation, and 

pointed out opportunities to improve federal research programs on 

surface transportation.



* Alerting the Congress to the prevalence and cost of identity theft--

Identity theft is the fastest growing type of crime in the United 

States. It involves using another person’s personal identifying 

information--such as Social Security number, date of birth, and 

mother’s maiden name--for fraudulent purposes. GAO’s reporting helped 

the Congress devise the Identity Theft and Assumption Deterrence Act of 

1998; since then, most states have enacted laws that make identity 

theft a crime. Still, the growth of identity theft and the frequently 

multi-or cross-jurisdictional nature of this type of crime underscore 

the importance of cooperation among federal, state, and local law 

enforcement authorities. This year, GAO reported further on the 

prevalence and cost of identity theft and worked to promote awareness 

and the use of intergovernmental mechanisms for improving cooperation 

and enforcement.



We exceeded four of the goal’s five targets for the year, recording 

$24.1 billion in financial benefits and 226 other benefits, making 524 

new recommendations for improvements to government programs and 

operations, and presenting 111 congressional testimonies. Although the 

implementation rate for recommendations we made 4 years ago rose 1 

point over last year’s figure for this goal, to 72 percent, we did not 

meet our target of implementing 75 percent of the recommendations made 

in fiscal 1998 by the end of fiscal 2002. For details please see the 

second part of this report, Performance Information.



Table: Strategic Goal 1 Summary.



Measure; Financial benefits; Actual; $24.1 billion; Target; $17.0 

billion; Met?: Yes.

Measure; Other benefits; Actual; 226; Target; 218; Met?: Yes.



Measure; Recs implemented; Actual; 72%; Target; 75%; Met?: No.



Measure; Recs made; Actual; 524; Target; 359; Met?: Yes.



Measure; Testimonies; Actual; 111; Target; 93; Met?: Yes.



[End of table]



At the close of fiscal 2002, GAO was halfway through the 2-year 

assessment cycle for the performance goals that provide the strategies 

we will use to achieve our broader strategic goals and objectives. 

Under strategic goal 1, we have 37 performance goals, which call for 

GAO to undertake work ranging from assessing the effectiveness of 

federal initiatives assisting small and minority-owned businesses to 

assessing the nation’s ability to ensure reliable and environmentally 

sound energy for current and future generations. At the midpoint mark, 

GAO’s managers reported that enough work was under way or completed to 

allow the agency to meet all 37 performance goals by the end of fiscal 

2003.



Work now in progress includes assessing the implications of various 

Social Security reform proposals; evaluating Medicare reform, 

financing, and operations; assessing states’ experiences in providing 

health insurance coverage for low-income populations; and evaluating 

federal and state program strategies for financing and overseeing 

chronic and long-term health care. Our long-term budget simulations and 

our work under goal 1 on the retirement and health programs show that 

absent substantive reform of these programs, they will overwhelm the 

federal budget. Three factors that will shape life in the 21st century 

are converging: First, as the baby-boom generation retires, labor force 

growth is projected to continue to fall and, by 2025, is expected to be 

less than a third of what it is today. Absent a growth in productivity, 

this decline in labor force growth will lead to slower growth in the 

economy--and in federal revenues. Second, these retirees are destined 

to live longer than the generations that preceded them, collecting 

Social Security and Medicare benefits for longer periods. And, third, 

rising health care costs will make providing Medicare and Medicaid 

benefits much more expensive. Our budget simulations indicate that, 

absent major reforms in underlying entitlements or taxes, deficits will 

grow to unsustainable levels as spending for Social Security and health 

care absorb all available revenues in the budget.



Early action to reform federal retirement and health care programs is 

essential. In our efforts under our third strategic goal, we have work 

under way that will clarify the various long-term claims that will 

encumber the nation’s resources in the future. This work can contribute 

to a reassessment of the various tools and approaches used to achieve 

broad national purposes and outcomes--a reassessment that needs to test 

existing claims and operations for their relevance and fit. Such a 

process needs to be national, not just federal in scope, involving the 

participation of key state, local, private, and nonprofit stakeholders. 

Ultimately, the Congress and the executive branch will need to work 

together to reposition government so that it can better address the 

challenges facing the nation in the 21st century.



Goal 2:



Responding to Changing Security Threats and the Challenges of Global 

Interdependence:



The September 11 terrorist attacks on the United States have led to a 

fundamental shift in the focus of national security planning and 

spending priorities. To help the Congress respond to these changes, GAO 

has undertaken a broad body of work that has shown the need for new 

approaches and sustained leadership to enhance the nation’s security. 

Our crosscutting work on homeland security issues enabled us to play a 

critical role in the national debate on how to transform the federal 

government’s organizational structure to better serve the nation.



This work, which has been carried out under GAO’s second strategic goal 

since its adoption in fiscal 2000, prompted GAO to recommend--prior to 

the attacks in 2001--that the United States establish a single focal 

point and a national strategy for homeland security issues and complete 

a comprehensive threat and risk assessment. In fiscal 2002, through 

fieldwork and analyses that yielded reports, testimonies, and 

discussions on Capitol Hill and with agencies, multidisciplinary teams 

from across GAO continued to pursue solutions to the fragmented U.S. 

approach to countering security threats. We were, for instance, 

intensively involved in supporting congressional deliberations on 

proposals for a Department of Homeland Security. In testimony, we 

framed the key factors to be considered when weighing the options for 

creating an agency that would merge parts of 22 agencies and programs 

and pull together some 170,000 federal employees--one of the largest 

federal government reorganizations ever undertaken. GAO’s work showed 

that the Congress and the administration will need to work together to 

articulate a clear, overarching mission for the new department; 

establish a short list of initial critical priorities; ensure effective 

communication and information systems; balance human capital and 

budgeting flexibilities with adequate transparency and accountability 

safeguards; and develop a comprehensive transition plan. We underscored 

the need to also clearly identify the significant start-up costs the 

creation of a new department will entail.



GAO also assisted the Congress and federal agencies in assessing 

vulnerabilities to terrorism and in identifying actions to mitigate 

risks. Among other things, GAO’s analyses identified the need for a 

national critical infrastructure protection strategy, improved 

analytical and warning capabilities, improved information sharing, and 

continued actions to resolve pervasive weaknesses in federal 

information security. GAO contributed to U.S. efforts to combat the 

smuggling of nuclear materials by providing reports and testimony 

showing the need for more effective planning among the six federal 

agencies that play a role in controlling the spread of nuclear 

materials. As a result, the administration is drafting a governmentwide 

strategic plan to coordinate these agencies’ efforts, and the agencies 

are upgrading radiation detection equipment in many countries. GAO’s 

reviews of U.S. export control laws helped the Congress better 

understand how proposed changes to the Export Administration Act will 

affect the delicate balance between protecting our national security 

and promoting U.S. export markets. In addition, GAO identified specific 

actions needed to improve the Defense Department’s protection of U.S. 

forces and facilities and its preparations for chemical and biological 

defense.



In attempting to adjust its plans, programs, and processes to better 

focus on the most important threats to national security, while also 

improving its economy and efficiency, the Defense Department is facing 

many challenges. GAO provided the Congress and the department with many 

analyses and recommendations on how to better manage defense programs 

and achieve efficiencies. For example, our work uncovered the planned 

disposal of military property that could readily be reused. That work 

ultimately led to over $500 million in financial benefits being 

recorded in fiscal 2002.



Moreover, in response to our body of work on the best commercial 

practices for acquiring new systems, the department is changing its 

weapons acquisition practices to elevate the importance of critical 

design reviews and to make sure that technologies have demonstrated a 

high level of maturity before being moved forward. Implementing such 

changes should help the department avoid costly mistakes and delays in 

designing and procuring new systems. In addition, GAO has helped the 

department and other agencies to better manage programs for determining 

whether commercial activities should be performed by the government or 

the private sector and to assess options for changing the sourcing 

process. In anticipation of another round of military base closures, 

GAO provided the Congress and the Defense Department with lessons 

learned from earlier base closures to help ensure that future processes 

lead to sound decisions. We also made numerous recommendations to help 

the department enhance the readiness of existing U.S. forces, correct 

weaknesses in its logistics support, improve its human capital 

management, privatize military housing, and better manage the 

transition to a military force that is lighter, more agile, and better 

integrated across the services. Our analysis of U.S. air operations in 

Kosovo, for example, identified many issues that can help to improve 

future operations.



Recognizing that national security and economic prosperity rest 

increasingly on global interdependence, GAO also played a significant 

role in providing the Congress with fact-based analyses to guide 

decision making on trade negotiations and debt relief. Growing public 

and congressional interest in the effects of globalization has 

increased the demand for GAO analyses of ongoing trade negotiations and 

the impact of existing agreements, such as China’s participation in the 

World Trade Organization. We also played a key role in the debate on 

approaches for providing debt relief to impoverished nations. Our 

recent findings on World Bank and International Monetary Fund debt 

relief to poor countries became the basis for U.S. negotiations with 

the World Bank and European countries and resulted in a ground-breaking 

shift in World Bank policies.



Also in fiscal 2002, our work was instrumental in helping the executive 

branch make progress with the right-sizing of its overseas presence at 

U.S. embassies and consulates--one of nine program initiatives in the 

President’s Management Agenda. GAO developed an analytical framework 

for considering security, mission, and cost factors in assessing staff 

levels at U.S. embassies and consulates and demonstrated how embassy 

security could be improved by adopting alternative staffing approaches, 

crucial given the increased risks U.S. personnel now face overseas. The 

Office of Management and Budget and the State Department’s Office of 

the Inspector General adopted the framework as a means of assessing 

staff levels worldwide and considering changes. They are also 

encouraging regional approaches in Europe, as suggested by GAO’s work, 

as a means of reducing the number of U.S. personnel stationed at 

embassies with security limitations and are developing cost data, as we 

suggested, to permit cost-based decision making on the overseas 

presence. In addition, our work has highlighted the State Department’s 

weak performance in staffing embassies in hardship locations and has 

led the department to commit itself to ensuring that foreign service 

officers are assigned where they are most needed.



We exceeded four of the goal’s five targets for the year, recording 

$8.4 billion in financial benefits and 218 other benefits, achieving an 

83 percent implementation rate for the recommendations we made 4 years 

ago, and making 618 new recommendations for improvements to government 

programs and operations. Although GAO witnesses testified at 38 

congressional hearings related to this strategic goal, that number fell 

short of our target of 49 testimonies during the year. For details 

please see the second part of this report, Performance Information.



Table: Strategic Goal 2 Summary.



Measure; Financial benefits; Actual; $8.4 billion; Target; $7.8 
billion; 

Met: Yes.



Other benefits; Actual; 218; Target; Met: Yes.



Measure; Recs implemented; Actual; 83%; Target; 75%; Met: Yes.



Measure; Recs made; Actual; 618; Target; 460; Met: Yes.



Measure; Testimonies; Actual; 38; Target; 49; Met: No.



[End of table]



Under strategic goal 2 we have 21 performance goals, which call for GAO 

to undertake work ranging from assessing the effectiveness of efforts 

to prevent the proliferation of nuclear, biological, and chemical 

weapons to analyzing how trade agreements and programs serve U.S. 

interests. Halfway through our 2-year assessment cycle, GAO’s managers 

reported that enough work was under way or completed to allow the 

agency to meet all 21 of the performance goals by the end of fiscal 

2003. The work now in progress includes an examination of the 

organizational changes intended to enhance the ability of federal 

agencies to deter and respond to terrorism in conjunction with state 

and local governments and other nations. GAO is, for example, examining 

the roles and responsibilities of the Defense Department in ensuring 

homeland security.



Goal 3:



Transforming the Government’s Role to Meet 21ST Century Challenges:



Last year, the financial collapse of major corporations like Enron and 

the serious lapses in ethical behavior associated with those failures 

sparked wide public interest and calls to strengthen accountability, 

ensure the adequacy of financial reporting and auditing, and 

comprehensively reassess the government’s role and how it does 

business. The huge losses suffered by shareholders and employees led to 

severe criticism of virtually all areas of the nation’s financial 

reporting and auditing systems, which are fundamental to maintaining 

investor confidence in America’s capital markets.



Through GAO’s reports, testimonies, and work with congressional staff 

under our third strategic goal, we aided the Congress in reforming the 

government’s role in financial oversight by helping to define the 

issues and explore various options. The Comptroller General, for 

example, testified before the Congress that the Enron situation raised 

a number of systemic issues for congressional consideration, focusing 

on four overarching areas--corporate governance, the independent audit 

of financial statements, oversight of the accounting profession, and 

various accounting and financial reporting issues. These areas are the 

keystones to protecting the public interest--a breakdown in one or more 

of the components can have serious consequences and usher in reforms 

such as those to protect deposit insurance that followed the savings 

and loan crisis in the 1980s. In considering changes to the system that 

gave rise to the Enron collapse and other areas of concern, GAO 

advocated reform based on the fundamental principles of having:



* the right incentives for the key parties to do the right thing,



* adequate transparency to provide reasonable assurance that the right 

thing will be done, and:



* full accountability if the right thing is not done.



As part of our efforts, GAO convened a forum on various governance, 

transparency, and accountability issues that was attended by high-level 

experts in each of these areas.



The Congress adopted a number of GAO’s reform proposals in formulating 

the Sarbanes-Oxley Act of 2002, which established the Public Accounting 

Oversight Board and dealt with critical auditor independence, corporate 

responsibility, and financial disclosure matters. As we go forward, GAO 

will continue to stress accountancy and accountability through major 

studies, which the act requires, of the relative pros and cons of 

mandatory audit firm rotation, the impact of the consolidation of 

public accounting firms, and the role of investment banks in recent 

public company failures.



So that auditors of federal programs and funds could lead by example, 

GAO issued significant changes to the independence requirements in the 

Government Auditing Standards to prohibit these auditors from (1) 

performing management functions or making management decisions and (2) 

auditing their own work. Working in consultation with the Comptroller 

General’s Advisory Council on Government Auditing Standards (which 

comprises 20 experts in financial and performance auditing and 

reporting), GAO developed a new independence standard that makes it 

clear that in some circumstances it is not appropriate for auditors to 

perform both audit and certain nonaudit services for the same client. 

For example, an auditor should not conduct a recruiting program or make 

hiring or firing decisions for the client. To do so would be to 

sacrifice the independence the auditor needs to assess the client’s 

operations objectively. If providing both audit and nonaudit services 

could impair the auditor’s independence, the auditor or the client must 

choose which type of service will be provided. GAO believes that the 

new standard will reinforce the public’s confidence in the independence 

of auditors of government financial statements, programs, and 

operations. To further strengthen the way these auditors conduct their 

work, we will issue a major update next year of the Government Auditing 

Standards, commonly referred to as the Yellow Book.



GAO also took steps to strengthen the government’s own accountancy and 

accountability by revitalizing the federal financial management reforms 

called for by the statutory foundation the Congress laid down in the 

1990s. One step is particularly notable: over the past year, the 

Comptroller General, the Secretary of the Treasury, the Director of the 

Office of Management and Budget, and the Director of the Office of 

Personnel Management--who comprise the principals of the Joint 

Financial Management Improvement Program--have joined together to 

advance financial management reforms governmentwide. The principals 

have:



* redefined the success measures for financial management,



* required accelerated financial reporting,



* enhanced the capability and independence of the Federal Accounting 

Standards Advisory Board,



* established an audit committee for the federal government as a whole 

and required its major agencies to do so as well, and:



* addressed difficult accounting policy issues.



Their continuing leadership is necessary to improve the government’s 

financial performance--a long-standing GAO objective and also a key 

objective of the President’s Management Agenda--and to ensure current, 

reliable, and useful financial information is routinely available for 

making decisions about government programs and operations.



We exceeded four of the goal’s five targets for the year, recording 462 

nonfinancial benefits, achieving an 82 percent implementation rate for 

the recommendations we made 4 years ago, making 808 new recommendations 

for improvements to government programs and operations, and presenting 

65 congressional testimonies. We also recorded $5.2 billion in 

financial benefits for work done under this goal, narrowly missing the 

target of $5.3 billion. For details please see the second part of this 

report, Performance Information.



Table: Strategic Goal 3 Summary.



Measure; Financial benefits; Actual; $5.2 billion; Target; $5.3 
billion; 

Met?: No.



Measure; Other benefits; Actual; 462; Target; 374; Met?: Yes.



Measure; Recs implemented; Actual; 82%; Target; 75%; Met?: Yes.



Measure; Recs made; Actual; 808; Target; 381; Met?: Yes.



Measure; Testimonies; Actual; 65; Target; 58; Met?: Yes.



[End of table]



Under strategic goal 3, we have 21 performance goals, which call for 

GAO to undertake work ranging from analyzing the long-term fiscal 

position of the federal government to identifying and facilitating the 

implementation of human capital practices that will improve federal 

economy, efficiency, and effectiveness. At the halfway mark in our 2-

year assessment cycle, GAO’s managers reported that enough work was 

under way or completed to allow the agency to meet all 21 of the 

performance goals by the end of fiscal 2003. Work in progress includes 

an effort--as part of our strategic planning dialogue with the 

Congress--to explore whether and how to establish a portfolio of 

national performance indicators for the United States. America’s duly 

elected leaders make the choices to frame issues and balance 

priorities. GAO has always played an important role in bringing vital 

facts and information to bear in support of those decisions. In that 

role, we are observing substantial and growing activity, throughout the 

United States and around the world, on measuring national performance. 

Understanding these efforts is vital to the process of setting 

direction and measuring progress as a context for our work with the 

Congress.



Defining key national indicators goes beyond any one sector, beyond 

corporate governance, beyond nonprofit outcomes, and beyond government 

performance. Only with this level of information can leaders and the 

public decide the respective roles of the private, nonprofit, and 

public sectors in solving the challenges of the 21st century. This 

includes the looming long-range fiscal challenge of how a shrinking 

workforce can sustain a rapidly growing population of benefit 

recipients and also meet the other demands for federal funds. In 

February 2003, the Comptroller General--in cooperation with the 

National Academies--will convene a forum of national leaders and 

experts on key national performance indicators for the United States. A 

summary of the issues discussed and ideas raised will be published to 

further the public dialogue.



Goal 4:



Maximizing the Value of GAO:



At GAO, our people are our most valuable asset. It is only through 

their combined efforts that we can effectively serve the Congress and 

our country. After nearly a decade of downsizing, curtailed investments 

in human capital, and a significantly increased potential for 

retirements among our senior staff, GAO recognized a need for new human 

capital strategies. We are striving to be in the vanguard of the 

federal government’s efforts to modernize its human capital strategies. 

We have begun to use the flexibilities given to us in Public Law 106-

303 (sometimes referred to as the GAO Personnel Flexibility Act of 

2000) and other actions to realign our workforce; correct skill 

imbalances; recruit and retain talented employees; and modernize our 

human capital policies, procedures, and practices. Our commitment to 

“lead by example” in transforming the way that government does business 

is leading to many improvements at GAO, as detailed in the goal 4 

section of appendix 1.



Our work in improving GAO’s human capital strategies has been a major 

focus of goal 4 since the goal’s adoption in the strategic plan issued 

in fiscal 2000. To help us achieve the goal, we sought legislation that 

gave us additional tools to realign our workforce with mission needs 

and overall budgetary constraints; correct skill imbalances; and reduce 

high-grade, managerial, or supervisory positions without reducing the 

overall number of GAO employees. Public Law 106-303 gave us the 

authority to (1) make targeted voluntary early retirement and buyout 

offers to certain groups of employees; (2) create senior-level 

positions at compensation levels and benefits consistent with Senior 

Executive Service positions so that we can address our ongoing need for 

scientific, technical, and professional career expertise; and (3) give 

much greater consideration to employees’ performance, skills, and 

knowledge in any reduction-in-force actions. In fiscal 2002, we 

initiated actions to use the tools provided in the flexibility 

legislation. We conducted our first voluntary early retirement offer, 

through which we granted early retirement to 52 employees. The 

voluntary early retirements helped us to realign rather than downsize 

GAO and to strengthen our efforts to have the right staff with the 

right skills in the right locations to better meet the needs of the 

Congress. We also established and filled seven new senior-level 

positions and drafted our reduction-in-force regulations, which were 

posted for comment and are now being revised and readied for issuance, 

although no such reduction is planned at this time. We have not begun 

drafting regulations to authorize voluntary buyouts because of the high 

cost of the required retirement fund contributions, and, at this time, 

we do not plan to use this authority. Together, the tools provided by 

P.L. 106-303 have given us much-needed flexibility to deliver on our 

mission in an efficient, effective, and economical manner, while 

incorporating adequate safeguards for our employees.



In addition to implementing the special legislative authorities, we 

have taken a number of other actions to align our workforce to meet our 

overall mission needs. During fiscal 2002, we improved the linkage 

between our strategic plan and our budget by implementing a workforce 

planning process that establishes a more participatory and systematic 

approach for managers to identify the resources needed to meet our 

goals and objectives. The process addresses not only the appropriate 

size and deployment of our workforce, but also its profile--focusing on 

ensuring that the workforce has the knowledge, skills, and abilities 

needed to pursue our strategic goals, both now and in the future. To 

ensure that that workforce is also diverse, we took several actions to 

expand and support our recruiting efforts. Overall, in fiscal 2002, we 

hired more new staff than in any recent year--nearly 430 permanent 

staff and 140 interns. Most of those hired were entry-level 

professionals with advanced degrees who will help to support our 

strategic initiatives and meet our succession-planning needs as more 

senior staff members retire. In addition, we recruited and hired 

individuals with expertise in the specialties needed to achieve our 

strategic goals. We also increased our emphasis on diversity in college 

recruiting and developed and implemented a strategy for recruiting a 

broad spectrum of candidates for professional positions. This strategy 

is designed to ensure that we (1) recruit candidates at schools that 

matriculate significant numbers of racial minorities, (2) train our 

recruiters in best practices for recruiting a broad spectrum of 

candidates, (3) reflect GAO’s existing diversity through our recruiters 

and recruiting materials, and (4) collect and analyze data on the 

effectiveness of our recruiting efforts, including the extent to which 

best practices are used. This year, we enlisted key minority executives 

as recruiters and added outreach efforts at 23 target schools. As a 

result, we attracted and hired a talented and diverse pool of 

applicants.



We also took steps to modernize our human capital policies, procedures, 

and practices during fiscal 2002. We redesigned and implemented a new 

performance appraisal system for our analysts, specialists, and 

attorneys to create stronger links with our strategic plan, core 

values, and desired outcomes. This new system is also linked to a 

revised pay, promotion, and rewards system that is “state of the art” 

for a professional services organization. We are working on 

implementing a broad-banded pay-for-performance system for GAO’s 

Administrative Professional and Support Staff (APSS) similar to the 

system we have in place for analysts, specialists, and attorneys. A 

primary goal of our broad-banded pay-for-performance system is to 

reward staff on the basis of knowledge, skills, and performance as 

opposed to longevity. It also provides managers with additional 

flexibility to assign and use staff in a manner that is more suitable 

to multitasking and the full utilization of available staff. During the 

year, we also increased our focus on training by expanding training 

opportunities for our senior executives and managers, developing a plan 

to revitalize training for all staff in GAO’s core competencies, and 

providing access to more than 100 commercially developed classes that 

support GAO’s mission. We also have implemented several employee 

empowerment and benefit programs, including employee surveys, 

transportation subsidies, career transition services, and a student 

loan repayment program.



At the halfway point in our 2-year assessment cycle for our performance 

goals, we were on track to meet 14 of the 19 performance goals under 

strategic goal 4 by the end of fiscal 2003. As the Performance 

Information section explains, work on the other five goals is behind 

schedule, raising the possibility that they may not be met by the 

deadline, typically because resources were diverted to efforts focused 

on better serving our congressional clients.



The transformation of GAO’s human capital management is a work in 

progress. Implementing these changes has been and will continue to be 

challenging for us. To assist our Human Capital Office, which is at the 

forefront of the transformation efforts, we established a team composed 

of staff from across GAO to review the office’s role and 

responsibilities, develop a vision for the future, design initiatives 

for the office to achieve this vision, and identify the key priorities 

for change or improvement. In fiscal 2003 and 2004, we plan to continue 

the evolution of agencywide human capital strategies, implement the new 

broad-banded pay-for-performance system and competency-based 

performance appraisal system for the APSS segment of our workforce, and 

develop and implement a core training curriculum focusing on the 

competencies critical to performing GAO’s work. In addition, to help 

attract new recruits and better describe the modern audit and 

evaluation entity GAO has become, we will work with the Congress to 

explore the possibility of changing the agency’s name while retaining 

our well-known acronym of GAO.



Managing Our Resources:



Resources Used to Achieve Our Fiscal 2002 Performance Goals:



GAO’s financial statements for fiscal 2002 received an unqualified 

opinion from an independent auditor. No material weaknesses in internal 

control were identified, and the auditor reported substantial 

compliance with the requirements in the Federal Financial Management 

Improvement Act of 1996 (the Improvement Act) for financial systems. 

The auditor found no instances of noncompliance with the laws or 

regulations in the areas tested. The statements and their accompanying 

notes, along with the auditor’s report, appear later in this report. 

The table below summarizes key data.



Table: GAO’s Financial Highlights: Resource Information; 



Dollars in millions.



Total budgetary resources; Fiscal 2001; $392.9; Fiscal 2002: $442.6.



Total outlays; Fiscal 2001; $387.2; Fiscal 2002: $427.8.



Net cost of operations; 



Goal 1: Well-being and financial security of the American people; 
Fiscal 

2001; $161.1; Fiscal 2002: $178.3.



Goal 2: Changing security threats and challenges of globalization; 

Fiscal 2001; 93.4; Fiscal 2002: 110.5.



Goal 3: Transforming the federal government’s role; Fiscal 2001; 139.5;

Fiscal 2002: 141.0.



Goal 4: Maximizing the value of GAO; Fiscal 2001; 20.7; Fiscal 2002: 

25.3.



Less reimbursable services not attributable to goals; Fiscal 2001; 

(1.6); Fiscal 2002: (2.1).



Total net cost of operations; Fiscal 2001; $413.1; Fiscal 2002: 

$453.0.



Actual full-time equivalents; Fiscal 2001; 3,110; Fiscal 2002: 3,210.



Note: The net cost of operations figures include nonbudgetary items, 

such as imputed pension and depreciation costs, which are not included 

in the figures for total budgetary resources or total outlays.



[End of table]



Compared with the statements of large and complex agencies in the 

executive branch, GAO’s statements present a relatively simple picture 

of a small agency in the legislative branch that focuses most of its 

financial activity on the execution of its congressionally approved 

budget and most of its resources devoted to the human capital needed 

for its mission of supporting the Congress with information and 

analysis.



GAO’s budget consists of an annual appropriation covering salaries and 

expenses and revenue from reimbursable audit work and rental income. 

For fiscal 2002, GAO’s total budgetary resources increased by $49.7 

million from fiscal 2001. This increase consists primarily of 

additional current year appropriations to meet continuing program 

requirements and $7.6 million in transfers of budget authority to 

conduct safety and security efforts to respond to the events of 

September 11. These transfers included about $4.4 million for one-time 

security upgrades and $3.2 million for recurring safety programs. GAO’s 

total assets were $126.8 million, consisting mostly of property and 

equipment (including the headquarters building, land, and improvements 

and computer equipment and software) and funds with the Treasury. The 

major change in our assets was in funds with the Treasury, which 

increased in fiscal 2002 because of differences from the prior year-end 

in the timing of payments. The total liabilities of $91.7 million were 

composed largely of employees’ accrued annual leave, amounts owed to 

other government agencies, accounts payable, and workers’ compensation 

liability. The greatest changes in the liabilities were made up of 

salaries and benefits payable and workers’ compensation. The decrease 

in salaries and benefits payable occurred because standard pay periods 

caused a salary payment to be made closer to the end of fiscal 2002 

than in fiscal 2001; consequently, the liability incurred was smaller 

in fiscal 2002. Workers’ compensation liability increased because of a 

change in the actuarial assumptions used for the liability calculation.



GAO reports net costs by strategic goal to align our net costs with our 

strategic plan. As the figure indicates, our first goal, under which we 

organize our work on challenges to the well-being and financial 

security of the American people, accounted for the largest share of the 

costs. As the next section on our budget request for fiscal 2003 will 

show, we expect this goal to continue to represent the largest share of 

our costs.



Figure: Net Cost of Operations: 



[See PDF for image] - graphic text:



Pie chart with 4 items.



FY 2002 total; 453 million dollars:



Item 1, Goal 4; 6 percent:

Item 2, Goal 2; 24 percent: 

Item 3, Goal 3; 31 percent. 

Item 4, Goal 1; 39 percent. 



Source: GAO:



[End of figure] 



Audit Advisory Committee:



Assisting the Comptroller General in overseeing the effectiveness of 

GAO’s financial operations is a three-member external Audit Advisory 

Committee. The committee’s report for fiscal 2002 appears after our 

financial statements and accompanying notes. During fiscal 2002, the 

members were:



* Sheldon S. Cohen (Chairman), a certified public accountant and 

practicing attorney in Washington, D.C., a former Commissioner and 

Chief Counsel of the Internal Revenue Service, and a Senior Fellow of 

the National Academy of Public Administration;



* Alan B. Levenson, a practicing attorney in Washington, D.C., and a 

former senior official at the Securities and Exchange Commission; and:



* Katherine D. Ortega, a certified public accountant, former Treasurer 

of the United States, former Commissioner of the Copyright Royalty 

Tribunal, and a former member of the President’s Advisory Committee on 

Small and Minority Business.



At the start of fiscal 2003, two members informed us they were no 

longer able to serve on the board. New members will be appointed to the 

committee early in the year.



Limitation on Financial Statements:



Responsibility for the integrity and objectivity of the financial 

information presented in the financial statements in this report rests 

with GAO’s managers. The statements were prepared to report GAO’s 

financial position and results of operations, consistent with the 

requirements of the Chief Financial Officers Act as amended (31 U.S.C. 

3515). The statements were prepared from GAO’s financial records in 

accordance with the formats prescribed in the Office of Management and 

Budget’s Bulletin 01-09, Form and Content of Agency Financial 

Statements. These financial statements differ from the financial 

reports used to monitor and control GAO’s budgetary resources; however, 

both were prepared from the same financial records.



GAO’s financial statements should be read with the understanding that, 

as an agency of a sovereign entity, the U.S. government, GAO cannot 

liquidate its liabilities (that is, pay its bills) without legislation 

that provides resources to do so. Although future appropriations to 

fund these liabilities are likely and anticipated, they are not 

certain.



Resources Needed to Achieve Our Fiscal 2003 Performance Goals:



GAO has requested a budget of $457.8 million for fiscal 2003 to 

maintain current operations to support the Congress as outlined in our 

strategic plan. This funding level--which is 6 percent above our 2002 

funding level--would allow us to support our authorized level of 3,269 

full-time-equivalent personnel and includes $4 million to meet 

nonrecurring requirements to enhance the safety and security of GAO’s 

staff.



The following table provides an overview of how our budgetary and human 

capital resources will be allocated among GAO’s four strategic goals.



Table: GAO’s Revised Fiscal 2003 Budget.



Strategic goal; Goal 1: Well-being and financial security of the 
American 

people; Dollars in millions; $177.6; Full-time equivalent staff: 

1,275.



Strategic goal; Goal 2: Changing security threats and the challenges of 

globalization; Dollars in millions; 119.5; Full-time equivalent staff: 
854.



Strategic goal; Goal 3: Transforming the federal government’s role; 
Dollars 

in millions; 141.0; Full-time equivalent staff: 985.



Strategic Goal 4: Maximizing the value of GAO; Dollars in millions; 

19.7; Full-time equivalent staff: 155.



Strategic goal; Total; Dollars in millions; $457.8; Full-time 
equivalent 

staff: 3,269.



[End of table]



Almost 80 percent of GAO’s fiscal 2003 budget will provide for employee 

compensation and benefits. The next largest portion of our budget--

about $55 million--is for contract services supporting both GAO’s 

mission work and administrative operations, including information 

technology, training, security, and building maintenance and operations 

services. About $13 million will be spent on travel and transportation, 

critical components to accomplishing GAO’s mission and ensuring the 

quality of our work. The remaining funds will be used for office 

equipment and space rentals; telephone, videoconference, and data 

communications services; and other operating expenses, including 

supplies and materials, printing and reproduction, and furniture and 

equipment.



During fiscal 2003, we plan to increase our investments in maximizing 

the productivity of our workforce by continuing to address two of the 

management challenges we discussed in our performance and 

accountability report for fiscal 2001: human capital and information 

technology. On the human capital front, to ensure our ability to 

attract, retain, and reward high-quality staff, we plan to devote 

additional resources to our employee benefits and training programs. 

For example, we will target increased resources to continue initiatives 

begun in fiscal 2000 to address skill gaps, maximize staff 

productivity, and increase staff effectiveness; to update our training 

curriculum to address organizational and technical needs; and to train 

new staff. In fiscal 2003, we will continue to focus our hiring efforts 

primarily on recruiting talented entry-level staff.



On the information technology front, we plan to continue initiatives 

designed to increase our employees’ productivity, facilitate knowledge-

sharing, maximize the use of technology, and enhance the tools 

available at the desktop. We will also devote resources to 

reengineering the information technology systems that support job 

management processes, such as our engagement tracking system, and 

continue implementing tools that will ensure a secure network operating 

environment. Through these initiatives, we expect to complete the 

establishment of a stable and reliable computer network with standard, 

routine updates of operating systems and equipment. With the completion 

of that work, the focus of our management challenge will evolve from 

information technology to maintaining information security, as will be 

discussed in the section on management challenges later in this report.



Finally, we will also make the investments necessary to address our 

third management challenge--enhancing the safety and security of GAO’s 

people, facilities, and other assets.



Strategies and Challenges:



The Government Performance and Results Act directs agencies to 

articulate not just goals, but also strategies for achieving those 

goals. As detailed below, GAO’s strategies primarily emphasize 

conducting audits, evaluations, analyses, research, and investigations 

and providing the information from that work to the Congress and the 

public in a variety of forms. Our strategies also emphasize the 

importance of two overarching approaches: (1) working with 

organizations on crosscutting issues and (2) effectively addressing the 

challenges to achieving our agency’s goals--that is, those internal and 

external factors that could impair GAO’s performance.



Strategies for Achieving Our Goals and Coordinating with Others:



As the audit, evaluation, and investigative arm of the Congress, GAO 

has a unique role to play. Within the legislative branch, we are the 

only agency with staff in the field, conducting performance analyses 

and financial accounting among other congressionally requested 

activities, and reporting our findings not only to our congressional 

clients but also to the American public. While we work with the 

Inspectors General at every federal agency, our engagements differ from 

theirs in that ours are often more strategic and longer-range in 

nature, governmentwide in scope, and initiated by requests from the 

Congress.



Achieving our goals and objectives rests, for the most part, on 

providing professional, fact-based, balanced, nonpartisan information. 

We develop and present this information in a number of ways to support 

the Congress in carrying out its constitutional responsibilities, 

including the following:



* evaluating federal policies and the performance of agencies;



* overseeing government operations through financial and other 

management audits to determine whether public funds are spent 

efficiently, effectively, and in accordance with applicable laws;



* investigating whether illegal or improper activities are occurring;



* analyzing the financing for government activities;



* conducting constructive engagements in which we work proactively with 

agencies, when appropriate, to provide advice that may assist their 

efforts toward positive results;



* providing legal opinions that determine whether agencies are in 

compliance with applicable laws and regulations;



* conducting policy analyses to assess needed actions and the 

implications of proposed actions; and:



* providing additional assistance to the Congress in support of its 

oversight and decision-making responsibilities.



The performance goals listed in Part II of this report lay out the work 

we plan to complete by the end of fiscal 2003 using the strategies 

above. In our annual performance plan for fiscal 2004, we will issue 

our performance goals covering the work we plan to do in fiscal 2004 

and 2005.



Because achieving our strategic goals and objectives also requires 

strategies for coordinating with other organizations with similar or 

complementary missions, we:



* use advisory panels and other bodies to inform GAO’s strategic and 

annual work planning, and:



* initiate and support collaborative national and international audit, 

technical assistance, and other knowledge-sharing efforts.



Those two types of strategic working relationships allow us to extend 

our institutional knowledge and experience, and, in turn, to improve 

our service to the Congress and the American people. Our External 

Liaison office takes the lead and provides strategic focus for the work 

with crosscutting organizations, while our research, audit, and 

evaluation teams lead the work with most of the issue-specific 

organizations.



Strategic and Annual Work Planning:



Through newly established forums and a number of ongoing advisory 

boards and panels, we gather information and perspectives for GAO’s 

strategic and annual performance planning efforts. In early 2002, the 

Comptroller General began to convene various experts from the public 

and private sectors in a series of forums intended to enhance GAO’s 

understanding of emerging issues and to identify opportunities for 

action. The first of the forums, held in February, focused on corporate 

governance, transparency, and accountability issues. The results of 

this forum, along with other analyses, testimonies, and reports GAO 

developed, helped inform the Congress as it drafted legislation to 

strengthen government oversight of the nation’s financial markets and 

protect the public interest by reducing the possibility of future 

Enron-like situations.



Ongoing advisory boards and panels also support our strategic and 

annual work planning by alerting us to issues, trends, and lessons 

learned across the national and international audit community that we 

should factor into our own work. These groups include the Comptroller 

General’s Advisory Board, whose 40 members from the public and private 

sectors have broad expertise in areas related to our strategic 

objectives. The board meets with our leadership annually to share its 

views on GAO’s strategic direction and specific initiatives. Through 

the National Intergovernmental Audit Forum, chaired by the Comptroller 

General, and 10 regional intergovernmental audit forums, GAO consults 

regularly with federal Inspectors General and state and local auditors. 

In addition, through the Domestic Working Group, the Comptroller 

General and the heads of 18 federal, state, and local audit 

organizations exchange information and seek opportunities to 

collaborate.



We also work with a number of issue-specific and technical panels to 

improve our strategic and work planning, including the following:



* The Advisory Council on Government Auditing Standards, which provides 

guidance to GAO on promulgating auditing standards. The council played 

a significant role in the deliberations over a new independence 

standard for auditors that GAO issued in January 2002 as an amendment 

to the Government Auditing Standards (www.gao.gov/govaud/ybk01.htm), 

commonly referred to as the Yellow Book, which articulates auditors’ 

responsibilities when examining government organizations, programs, 

activities, or functions and government assistance received by 

contractors, nonprofits, and other nongovernment organizations. The 

council’s work ensured that the new standard would be generally 

accepted and feasible.



* The Accountability Advisory Council, made up of experts in the 

financial management community, which provides advice on GAO’s audit of 

the U.S. government’s consolidated financial statements and emerging 

issues involving financial management and accountability reporting. The 

council also provided insights that were valuable in framing parts of a 

question-and-answer guide on the new independence standard mentioned 

above.



* The Executive Council on Information Management and Technology, whose 

21 members are experts from the public and private sectors and 

representatives of related professional organizations, met in March 

2002 to discuss information management issues in the context of 

homeland security. As a result of these discussions and subsequent 

discussions with individual members, GAO improved its planning and 

audit methodologies for several engagements in that area.



* The Comptroller General’s Educators’ Advisory Panel, composed of 

deans, professors, and other academics from prominent universities 

across the United States, advises GAO on recruiting, retaining, and 

developing staff.



Internationally, GAO participates in the International Organization of 

Supreme Audit Institutions (INTOSAI)--the professional organization of 

the national audit offices of 184 countries. During fiscal 2002, GAO 

led a 10-nation task force in developing a strategic planning framework 

for INTOSAI, which the Governing Board approved in October 2002. In 

fiscal year 2003, the task force will expand the framework into a 

comprehensive strategic plan to guide INTOSAI in the future. The 

Comptroller General also leads the Global Working Group, in which the 

heads of GAO’s counterparts from 15 countries meet annually to discuss 

mutual challenges, share experiences, and identify opportunities for 

collaboration with each other.



Collaborating with Others:



By collaborating with numerous organizations and individuals, we have 

strengthened professional standards, provided technical assistance, 

leveraged resources, and developed best practices. In our work with 

INTOSAI, GAO chairs the accounting standards committee and is an active 

member of INTOSAI’s auditing standards, internal control standards, and 

public debt committees. As a member of that latter committee, GAO 

identified and developed partnerships with the World Bank and the 

United Nations Conference on Trade and Development to design and 

deliver regionally based training programs for auditors and managers of 

public debt. We also publish INTOSAI’s quarterly International Journal 

of Government Auditing (www.intosai.org/2_IJGA_.html) in five 

languages to further the global understanding of standards, best 

practices, and technical issues. GAO also chairs the public sector 

committee of the International Federation of Accountants to help ensure 

that public sector perspectives are reflected in that committee’s 

accounting standards. Toward the same end, we are collaborating closely 

with the International Auditing and Assurance Standards Board and the 

World Bank to develop international auditing standards through an 

effort led by the National Audit Office of Sweden.



To build capacity in national audit offices around the world, we 

conduct an international fellows training program each year for mid-to 

senior-level staff from other countries. In 2002, 14 fellows from 

Africa, Asia, Latin America, and Eastern Europe spent about 4 months at 

GAO learning how we are organized to do our work, how we plan work, and 

what methodologies we use, particularly for performance audits. In 

addition, GAO provided technical training on designing, planning, and 

conducting performance audits to over 150 auditors from 10 European 

countries. We have also begun to implement a memorandum of 

understanding signed jointly by the Inter-American Development Bank, 

the INTOSAI Development Initiative, the Organization of Latin American 

and Caribbean Supreme Audit Institutions, and GAO to help strengthen 

the capacity of audit institutions in this region.



Domestically, GAO helped the executive branch formulate principles to 

guide decisions about whether federal employees or the private sector 

should perform activities for the government that can be purchased as 

commercially available services. The Comptroller General, responding to 

a statutory mandate, convened a commercial activities panel that 

included senior officials from government agencies, federal labor 

unions, contractor groups, and academia. The panel reviewed government 

policies and procedures, unanimously adopted a set of principles to 

guide government sourcing policies, and used those principles to craft 

a package of specific recommendations designed to improve the way 

federal agencies make sourcing decisions (www.gao.gov/a76panel/

index.html). The Office of Management and Budget is revising its 

guidance on competitive sourcing to address the panel’s 

recommendations.



Among the other collaborative activities undertaken by GAO’s people 

during fiscal 2002 were the following:



* We collaborated with the Joint Financial Management Improvement 

Program principals in fostering financial management reform 

governmentwide, with the Federal Accounting Standards Advisory Board in 

establishing generally accepted accounting principles for the federal 

government, and with the President’s Council on Integrity and 

Efficiency (PCIE, a group primarily composed of presidentially 

appointed Inspectors General) in publishing and updating a joint GAO/

PCIE Financial Audit Manual (www.gao.gov/special.pubs/FAM/

index.html).



* We worked with the Inspector General of the U.S. Department of 

Education, the State Auditors of Pennsylvania and Texas, and the Office 

of the Comptroller in Philadelphia to develop a series of 

recommendations on improving the quality of data used to measure 

student achievement, a critical element of accountability under a new 

federal law, the No Child Left Behind Act. The joint effort earned an 

award for excellence from PCIE as an achievement “so unusual as to be 

at the forefront of the [audit] community.”:



* Several GAO teams are conferring with the Private Sector Council, a 

nonprofit, nonpartisan, public service organization committed to 

helping the federal government improve its efficiency, management, and 

productivity through the cooperative sharing of knowledge. Council 

members have assisted us in developing best practices in information 

technology training. They have also assisted us in the development of a 

guide for government agencies on innovative practices for planning, 

delivering, and evaluating training.



* We worked on multiple projects to help assess and enhance security in 

different aspects of American life. As part of a team led by the State 

Auditor of Louisiana, for instance, we assisted in developing a guide 

for evaluating security efforts within the nation’s transportation 

system. Other team members included the Inspector General of the U.S. 

Department of Transportation and the State Auditors of Arkansas, 

Connecticut, New York, and Rhode Island. We also collaborated with 

auditors in 11 states on a report that examines federal and state 

efforts to enhance the security of the food supply and worked with 32 

federal, state, and local audit organizations on joint information 

security initiatives, which resulted in, among other things, a 

Management Planning Guide for Information Security Auditing and a 

model-training curriculum. Finally, a new relationship we established 

with the National Academy of Sciences to bring the technical expertise 

of Academy members to bear on a range of GAO work was vital in our 

assessment of the maturity of biometric technologies for use in U.S. 

border control and the policy implications of using such technologies.



* GAO’s Office of Special Investigations completed a joint 

investigation with the Social Security Inspector General on potential 

fraudulent use of deceased individuals’ Social Security numbers in 

selected entitlement benefit and health care programs. We are 

continuing to work together on other investigations of the possible 

misuse of Social Security numbers.



Addressing Management Challenges That Could Affect Our Performance:



GAO has three management challenges that may affect our performance. 

Two of these challenges--human capital and physical security--were 

identified in our previous performance and accountability report. We 

have made progress in addressing each of these challenges, but we still 

have work to do. The third challenge, information security, will 

replace our previous challenge of information technology. With the 

establishment of a stable and reliable computer network and 

institutionalized standard routine updates of network and desktop 

operating systems and equipment, we will have completed our work on the 

original management challenge. However, independent reviews of our 

information security program indicate a need for further improvement.



Given GAO’s role as a key provider of information and analyses to the 

Congress, maintaining the right mix of technical knowledge and 

expertise as well as general analytical skills is vital to achieving 

our mission. We spend about 80 percent of our resources on our people, 

but without excellent human capital management, we could still run the 

risk of being unable to meet the expectations of the Congress and the 

nation. In 1999, after an extended hiring freeze, GAO’s workforce was 

sparse at the entry level, and we faced succession planning issues as a 

large number of our senior managers and analysts became eligible to 

retire. The development and training of our senior executives had been 

curtailed for funding reasons. And at the same time, more of our staff 

needed enhanced technical skills if they were to assist the Congress 

effectively. In all those respects, GAO was little different from the 

government as a whole. Since 1999, we have addressed these issues in a 

variety of ways and are continuing to do so. For example, we:



* developed a recruitment program that allowed us to hire 430 permanent 

staff during fiscal 2002,



* doubled the proportion of our workforce at the entry level,



* revamped and modernized the performance appraisal system for analysts 

and attorneys,



* implemented a succession-planning program,



* conducted an agencywide assessment and inventory of our workforce’s 

knowledge and skills, and:



* completed an organizational realignment and resource reallocation.



Over the next several years, we need to continue to address skill gaps, 

maximize staff productivity and effectiveness, and reengineer our human 

capital processes to make them more user-friendly. We plan to address 

skill gaps by further refining our recruitment and hiring strategies to 

target gaps identified through our workforce planning efforts, while 

taking into account the significant percentage of our workforce 

eligible for retirement. We will reengineer our human capital systems 

and practices to increase their efficiency and to take full advantage 

of technology. We will also ensure that our staff have the needed 

skills and training to function in this reengineered environment. In 

addition, we are developing a competency-based performance system for 

our mission support employees. During the 108th Congress, we will work 

with our appropriations and oversight committees to achieve enactment 

of legislation to support our continuing efforts to be a leader in 

federal human capital management and a world-class organization. To 

build on the human capital flexibilities provided by the Congress in 

2000, we will identify opportunities for additional flexibilities that 

would, among other things, facilitate GAO’s continuing efforts to 

develop a more performance-based compensation system, realign our 

workforce, and provide greater opportunities for staff to phase into 

retirement.



In the aftermath of the September 11 terrorist attacks and subsequent 

anthrax incidents, our ability to provide a safe and secure workplace 

emerged as a challenge for our agency. Protecting our people and our 

assets is critical to our ability to carry out our mission. We devoted 

additional resources to this area and implemented measures such as 

reinforcing vehicle and pedestrian entry points, installing an 

additional x-ray machine, adding more security guards, reinforcing 

windows, and relocating air sources. We are in the process of 

researching and designing other projects to better control building 

access and security around the building. We plan to implement these 

projects over the next several years.



Ensuring information systems security and disaster recovery systems 

that allow for continuity of operations is a critical requirement for 

the agency, particularly in light of the events of September 11 and the 

anthrax incidents. The risk is that in an emergency our information 

could be compromised and we would be unable to respond to the needs of 

the Congress. In light of this risk, and in keeping with our goal of 

being a model federal agency, we are implementing an information 

security program consistent with the requirements in the Government 

Information Security Reform provisions (commonly referred to as 

“GISRA”) enacted in the Floyd D. Spence National Defense Authorization 

Act for Fiscal Year 2001. As discussed in appendix 4, we have made 

progress through our efforts to:



* implement a risk-based, agencywide security program;



* develop essential policies and reporting mechanisms for implementing 

and maintaining security requirements;



* provide security training and awareness;



* enhance the agency’s ability to respond to computer security 

incidents;



* integrate security into our capital investment control process;



* identify critical assets within our computer architecture;



* ensure the security of services provided by others; and:



* develop and implement an enterprise disaster recovery solution.



However, we need to complete certain key actions to be better able to 

detect intruders in our systems, identify our users, and recover in the 

event of a disaster. Our current efforts and plans for these areas are 

as follows:



* We installed software to help us detect intruders on our external 

servers, but need to complete applying this software to our internal 

servers. We also plan to add more tools to facilitate the early 

detection and response to any suspicious activity.



* We began to implement a two-factor secure user authentication to 

eliminate the threat of penetration of our network resulting from 

passwords that are easily guessed by intruders. Secure user 

authentication provides a high degree of certainty that each user who 

accesses GAO’s system is legitimate. We need to complete the 

implementation of this project and extend it to our remote access and 

internal wireless links.



* We are refining the disaster recovery plan we developed last year and 

have begun limited testing exercises to ensure the continued operation 

of GAO’s essential computer systems, should a disaster occur.



At GAO, management challenges are identified by the Comptroller General 

and the agency’s senior executives through the agency’s strategic 

planning, management, and budgeting processes. Our progress in 

addressing the challenges is monitored through our annual performance 

and accountability process. Under strategic goal 4, we establish 

performance goals focused on each of our management challenges and 

track our progress in completing the key efforts for those performance 

goals quarterly. The performance goals are assessed and updated each 

year.



GAO’s Inspector General reviews management’s assessment of the 

challenges and the agency’s progress in addressing them. The memorandum 

on the Inspector General’s findings is reprinted in appendix 2.



Mitigating External Factors That Could Affect Our Performance:



Several external factors could affect the achievement of our 

performance goals, including national and international developments 

and the resources we receive. Limitations imposed on our work by other 

organizations or limitations on the ability of other federal agencies 

to make the improvements we recommend are additional factors that could 

affect the achievement of our goals.



As the Congress focuses on unpredictable events--such as the global 

threat posed by sophisticated terrorist networks, international 

financial crises, or natural disasters--the mix of work we are asked to 

undertake may change, diverting our resources from some of our 

strategic objectives and performance goals. We can and do mitigate the 

impact of these events on the achievement of our goals in various ways:



* We are alert to possibilities that could shift the Congress’s and, 

therefore, our priorities.



* We continue to identify in our products and meetings with the 

Congress conditions that could trigger new priorities.



* We quickly redirect our resources, when appropriate, so that we can 

deal with major changes that do occur.



* We maintain broad-based staff expertise so that we can readily 

address emerging needs.



As this report goes to press, the uncertainty about our fiscal 2003 

funding levels was affecting when we will complete--and, in some cases, 

begin--initiatives to address our management challenges and other 

issues. Meeting the fiscal 2003 performance targets in this report and 

completing the work under way to meet our 2-year performance goals are 

contingent on receiving the resources we are requesting from the 

Congress. Once actual funding is known, we may adjust our targets and 

performance goals to ensure that key congressional priorities are met.



A final external factor is the extent to which GAO can obtain access to 

certain types of information. Most notably, recent developments have 

raised concerns about whether records access challenges are likely to 

increase in the future. First, in December 2002, a district court 

dismissed a lawsuit GAO filed to obtain information about meetings held 

with private-sector individuals by the Vice President, in his capacity 

as chairman of the National Energy Policy Development Group, and the 

group’s members and staff. The court did not address the merits of the 

case, but rather stated that the Comptroller General lacked standing in 

the matter. Second, the current administration has shown a tendency to 

not readily share certain information with GAO and the Congress that 

both have received in the past. In addition, with concerns about 

operational security being unusually high at home and abroad, GAO may 

have more difficulty obtaining information and reporting on sensitive 

issues. Historically, our auditing and information gathering has been 

limited whenever the intelligence community is involved. Nor have we 

had the authority to access or inspect records or other materials held 

by other countries or, generally, by the multinational institutions 

that the United States works with to protect its interests. 

Consequently, our ability to fully assess the progress being made in 

addressing homeland security issues may be hampered, and because some 

of our reports may be subjected to greater classification reviews than 

in the past, their public dissemination may be limited. We will work 

with the Congress to identify both legislative and nonlegislative 

opportunities for strengthening GAO’s access authority as necessary and 

appropriate.



Part II: 



Performance Information:



How We Assess Our Performance:



The hierarchy of elements in GAO’s strategic plan establishes the 

structure we use in discussing our performance. At the top of the 

hierarchy are GAO’s four broad strategic goals. Below them are 21 

strategic objectives that are more specific and that are in turn, 

supported by 98 performance goals, which articulate the strategies we 

will use for achieving the higher-level objectives and goals. At the 

lowest level of the hierarchy are more than 400 key efforts that 

describe the work we must do to implement the strategies laid out in 

the performance goals. This section explains how we assess our agency’s 

performance using this structure and how our annual measures help us 

gauge whether we are making progress toward our strategic goals.



Figure: GAO’s Strategic Planning Elements and Performance Measures:



[See PDF for image] - graphic text:



Pyramid with four levels and six items; (from the bottom up)



Item 1, bottom left; Key Efforts (400+):

Item 2, bottom right; Financial and Other Benefits; Past Recs 

Implemented; New Recs Made; Products with Recs; Testimonies;

Timeliness: 

Item 3, second level left; 2-Year Performance Goals (98):

Item 4, second level right; 1-Year Performance Measures (7 GAO-wide): 

Item 5, third level; Strategic Objectives (21):

Item 6, top level; Strategic Goals (4):



Source: GAO:



[End of figure] 



If, for instance, we are providing timely, quality service to the 

Congress and the federal government to address current and emerging 

challenges to the well-being and financial security of the American 

people as our first strategic goal calls for us to do, the indicators 

should show that our people are delivering almost all of their products 

when they have promised to, that they are being invited to present 

testimony before the Congress and are responding to those requests, 

that they are making a sufficient effort to recommend improvements to 

the conditions they have uncovered during their fieldwork, that their 

recommendations are being implemented by the agencies to which they are 

directed, and, ultimately, that implementation has led to benefits for 

the American people.



GAO’s Strategic Management Structure:



GAO’s work is aligned under four strategic goals that are designed to 

fulfill GAO’s mission to support the Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

ensure the accountability of the federal government for the benefit of 

the American people. The first three of the strategic goals focus 

outwardly on the nature of the information and recommendations GAO must 

provide--at GAO, these are often referred to as the external goals. The 

fourth strategic goal is GAO’s internal goal. It focuses inwardly on 

improving GAO itself so that the agency can perform better under the 

external goals and also serve as a model for others. The four strategic 

goals are as follows:



* Provide timely, quality service to the Congress and the federal 

government to address current and emerging challenges to the well-being 

and financial security of the American people.



* Provide timely, quality service to the Congress and the federal 

government to respond to changing security threats and the challenges 

of global interdependence.



* Help transform the federal government’s role and how it does business 

to meet 21st century challenges.



* Maximize the value of GAO by being a model federal agency and a 

world-class professional services organization.



Each of the four strategic goals is supported by a set of strategic 

objectives. Under strategic goal 1, for instance, are eight strategic 

objectives that call for GAO to address issues that range from health 

care needs and financing to a secure and effective national physical 

infrastructure. (The framework diagram on page 18 provides an at-a-

glance summary of all the strategic goals and objectives.) All 

together, GAO has 21 strategic objectives. Units within GAO typically 

contribute to the achievement of more than one strategic objective, 

with some working in more than one strategic goal as well. This 

matrixing allows GAO more flexibility in deploying the agency’s 

resources to meet congressional requests on complex issues.



Every 2 years, as a new Congress convenes on Capitol Hill, we revisit 

GAO’s goals and objectives through an update of the agency’s strategic 

plan. The update includes an “environmental scan” involving staff at 

headquarters in Washington and in 11 field offices. During the scan, we 

gather and distill information about trends and issues likely to have a 

critical effect on the lives of Americans. The information from the 

scan is combined with information developed in every unit of GAO about 

the Congress’s likely needs, the federal government’s most pressing 

challenges, and the strategies GAO can use to address both in the near 

and long terms. Key to the update process is active consultation with 

Members of Congress and their staffs and an open comment period during 

which the Congress; members of the accountability community at the 

federal, state, and local levels; members of GAO’s own staff; and the 

public can suggest improvements to the draft plan.



When the final plan is issued, it contains not only GAO’s strategic 

goals and objectives but also GAO’s strategies for achieving them, 

strategies that take the form of sets of performance goals that support 

each strategic objective. For instance, the seven performance goals 

supporting GAO’s objective on health care needs and financing call for 

GAO to, among other things, evaluate Medicare reform, financing, and 

operations and to assess trends and issues in private health insurance 

coverage. (To view GAO’s current strategic plan, go to www.gao.gov/sp/

html/splan02.html.):



At the conclusion of each 2-year cycle, GAO assesses whether it has met 

those performance goals and thereby advanced toward the strategic 

objectives and the broader strategic goals. To make the assessment, GAO 

looks at whether the key efforts under each performance goal have been 

accomplished. The performance goal calling for GAO to evaluate Medicare 

reform, financing, and operations, for instance, has six key efforts, 

among them analyzing the potential consequences of Medicare structural 

reforms and assessing the effects of expanding managed care in 

Medicare. The key efforts, which currently number more than 400 for the 

agency as a whole, are published as supplements to the strategic plan 

(to view them, go to www.gao.gov/sp/spsupp.html). For a performance 

goal to have been met, 75 percent of its key efforts must have been 

accomplished during the 2-year assessment cycle. Unmet goals, unless 

they are found to be no longer relevant to the Congress’s and the 

nation’s needs, are carried forward into the next 2-year cycle so that 

the work under them will be completed. The next 2-year assessment will 

occur at the end of fiscal 2003.



GAO’s Annual Performance Measures:



To provide annual indicators of whether the work GAO is doing under the 

2-year performance goals is having a measurable effect toward the 

achievement of our external strategic goals, GAO attempts to measure 

the benefits the agency’s work creates for the American people. We also 

track our staff’s efforts to provide the kind of information and 

recommendations that will lead to those benefits. In total, we use 

seven annual measures to track the progress of the agency as a whole. 

We also use five of the seven measures to track specific progress on 

each of our external strategic goals (that is, goals 1, 2, and 3). 

Together, this array of annual indicators helps GAO’s senior executives 

and managers determine where we are succeeding in our mission and where 

we need to do more.



In discussing our performance, we usually present the longer-term 

outcomes first by looking at financial and other benefits and then 

looking at the indicators that show the flow of newer work as it moves 

toward the stage at which it may provide benefits. Hence, the measures 

toward the bottom of the table below provide data on work completed in 

this fiscal year (the newly planted seeds, as it were), while the 

measures at the top provide data on the results yielded by work 

completed in past years (the harvest).



The financial and other benefits for the nation that GAO reports may 

take several forms. They may reflect, for instance, federal dollars 

freed up for other purposes because the Congress or federal agencies 

used GAO’s findings or recommendations to make government operations 

more efficient, less wasteful, or less subject to potential abuse. Or 

they may reflect instances in which GAO’s findings or recommendations 

led to higher revenues for the government through asset sales or 

changes in tax laws or user fees. But they may also reflect federal 

programs that serve Americans better because GAO’s findings and 

recommendations have helped to make them more accountable, responsive, 

and efficient, a type of benefit that cannot be measured in monetary 

terms.



Table: GAO’s Annual Performance Measures: 



Measure: Financial Benefits; An indicator of...: Has our work provided 

financial benefits for the American people in the form of reduced costs 

or higher revenues?



Measure: Other benefits; An indicator of...: Has our work produced 

tangible benefits for the American people in the form of better 

government operations or services?



Measure: Past recommendations implemented; An indicator of...: Are most

of our recommendations being implemented?



Measure: New recommendations made; An indicator of...: Do we develop 
ways

of improving the conditions we uncover in our work?



Measure: New products with recommendations; An indicator of...: Do 
about 

half of our products provide recommendations for improvements while we 

continue to meet our congressional clients’ requests for purely 

informational products?



Measure: Testimonies; An indicator of...: Are we in touch with our 

congressional clients’ information needs and can we fill requests 

for what typically is high-profile, fast-turnaround, expertly 

distilled information?



Measure: Timeliness; An indicator of...: Do we deliver most of our 

products to our requesters when agreed?



[End of table]



Both of the benefits measures may come into play years after our people 

have completed work and reported our findings and recommendations for 

improvements to government accountability, operations, or services. For 

benefits to accrue from our work, federal agencies or the Congress must 

act on our findings and recommendations, which often takes time. We 

then must be able to observe and document the results of those actions, 

which takes additional time. Tabulating the benefits of GAO’s work 

helps demonstrate the value we provide in return for the appropriations 

we receive and it also helps focus our people on the need to design 

engagements in ways that have the potential to produce benefits in the 

future.



Measuring the rate at which past recommendations have been implemented 

is an interim measure that shows GAO what percentage of recommendations 

made 4 years ago has been acted on by the agency to which they were 

directed. Assessing the status of “open” recommendations goes on 

throughout the year and is the responsibility of the unit that 

developed the recommendations (to see what recommendations are 

currently open, go to www.gao.gov/openrecs.html). The staff close 

recommendations once implementation is documented or, if implementation 

is not likely, close them as unimplemented. This assessment process not 

only paves the way for a later examination of any benefits that 

implementation may have produced, it also prompts GAO’s staff to 

discuss implementation with the federal agencies involved, alerts GAO’s 

staff to areas where they may need to do more work to get intended 

results, and reinforces the need to make recommendations that are 

likely to be implemented because they are clearly stated, feasible, and 

cost-effective. We measure the implementation rate for recommendations 

made 4 years ago because prior experience has shown that 

recommendations often take several years to be put in place. At the 

same time, if a recommendation has not been implemented within 4 years, 

it is not likely to be implemented.



Because providing implementable recommendations is an important part of 

GAO’s work for the Congress and helps to improve how the government 

functions, we encourage staff to design engagements that will allow 

them not only to describe the conditions they find but also to 

recommend improvements. GAO therefore counts the number of 

recommendations made each year and, at the agencywide level, calculates 

the percentage of products that contain recommendations.



One essential way we fulfill GAO’s mission of supporting the Congress 

is to present information directly to the congressional committees that 

are conducting oversight or deliberating legislation. We assess our 

ability to meet that challenge by tracking the number of hearings at 

which GAO’s experts present testimony. This measure serves as an 

indicator of how responsive GAO’s people are to testimony requests, 

which require fast preparation of brief but information-rich 

presentations. The measure is also an indicator of how in touch our 

people are with our congressional clients and how well they have 

foreseen our clients’ information needs. In that requests to testify 

are often received on short notice, responding to them requires GAO to 

have a body of relevant work completed or well on the way to completion 

before hearings are even scheduled. Of course, the Congress itself 

determines the number of hearings it will conduct in a year and thus 

controls the number of possible opportunities GAO’s people can have to 

earn places at the witness tables.



GAO’s final annual measure--timeliness--is, like the testimonies 

measure, an indicator of the quality of service GAO provides to its 

congressional clients. However good GAO’s information and 

recommendations may be, if what we provide reaches those who need it 

too late to be useful, we have failed in our mission to support the 

Congress. We assess timeliness by comparing the date on which a GAO 

product is actually delivered with the delivery date GAO’s managers 

agreed to with their congressional clients.



In the following sections, we discuss what GAO’s fiscal 2002 results 

for these measures say about our performance.



Agencywide Results:



In our 81st year as the Congress’s “watchdog,” GAO recorded $37.7 

billion in financial benefits for the American people, along with more 

than 900 actions taken to improve government agencies’ management or 

performance. Those numbers reflect not only the achievements of GAO’s 

people but also those of the Congress and of the many federal agencies 

that acted on our findings and recommendations to improve the 

government’s accountability, operations, and services. In this section, 

we present detailed performance information for GAO as a whole. 

Subsequent sections present detailed performance information on our 

progress toward each of GAO’s strategic goals.



As discussed in the previous section, we use a set of performance 

measures to assess the results of our work each year. These results are 

compared with performance targets set 2 years in advance. We set 

performance targets after assessing what we have been able to achieve, 

on average, in the past and what congressional and executive branch 

actions are likely to occur in the future. Once we have tentative 

agencywide targets, we begin to look at targets for our strategic 

goals. In a series of meetings, the views of executives in charge of 

the work to be done and the views of the agency’s top leadership are 

compared and discussed to refine the tentative targets at all levels. 

Once approved by the Comptroller General, the targets become final and 

are published in our performance plan.



Actual performance during fiscal 2002 has not affected our planned 

performance in fiscal 2003 in appreciable ways. In some instances, we 

have adjusted performance targets for fiscal 2003, but we made those 

adjustments in response to changing assessments of the external factors 

that influence our work. The measures and targets tables in this 

section show where targets have changed since the publication of our 

fiscal 2003 performance plan. We have also updated our 2-year 

performance goals in two instances, again based on what we want to 

achieve in the future: We added a new performance goal on the use of 

national performance indicators to gauge progress in meeting societal 

needs and refocused work under another performance goal on improving 

the quality of evaluative information (see the goal 3 results section).



After congressional action is complete on our budget request for fiscal 

2003, we may revise our annual targets for that year and our 2-year 

performance goals.



Financial Benefits:



For fiscal 2002, we reported $37.7 billion in financial benefits 

stemming from the implementation of GAO’s findings and recommendations. 

That total exceeds the target for the year of $30 billion by nearly 26 

percent. Six of GAO’s 115 financial accomplishments for the year 

represented nearly $21.9 billion (or about 58 percent) of the total:



* safeguarding Medicare from fraud and abuse, $8.1 billion;



* improving the Department of Housing and Urban Development’s budget 

practices, $4.9 billion;



* reducing losses from farm loans, $4.8 billion;



* improving the Defense Department’s budgeting for contingencies, $1.5 

billion;



* reducing the cost of cleaning up hazardous waste at the Energy 

Department’s Hanford facility, $1.5 billion; and:



* preserving an inability-to-work test as a qualification for 

Disability Insurance payments, $1.1 billion.



Table: Agencywide Results Annual Measures and Targets.



Performance measure; Financial benefits (billions); 1999 Actual: $20.1; 

2000 Actual: $23.2; 2001 Actual: $26.4; 2002 Target: $30.0; 2002 

Actual: $37.7[A]; 4-year avg. Actual: $26.9; 2003 Target: $32.5[B].



Performance measure; Other benefits; 1999 Actual: 607; 2000 

Actual: 788; 2001 Actual: 799; 2002 Target: 770; 2002 Actual: 906; 

4-year avg. Actual: 775; 2003 Target: 800[B].



Performance measure; Past recommendations implemented; 1999 Actual: 

70%; 2000 Actual: 78%; 2001 Actual: 79%; 2002 Target: 75%; 2002 Actual: 

79%; 4-year avg. Actual: N/A; 2003 Target: 77%.



Performance measure; New recommendations made; 1999 Actual: 940; 

2000 Actual: 1,224; 2001 Actual: 1,563; 2002 Target: 1,200; 2002 

Actual: 1,950; 4-year avg. Actual: 1,419; 2003 Target: 1,250[B].



Performance measure; New products with recommendations; 1999 Actual: 

33%; 2000 Actual: 39%; 2001 Actual: 44%; 2002 Target: 45%; 2002 

Actual: 53%; 4-year avg. Actual: 42%; 2003 Target: 50%.



Performance measure; Testimonies; 1999 Actual: 229; 2000 Actual: 

263; 2001 Actual: 151; 2002 Target: 200; 2002 Actual: 216; 4-year 

avg. Actual: 215; 2003 Target: 180[B].



Performance measure; Timeliness; 1999 Actual: 96%; 2000 Actual: 96%; 

2001 Actual: 95%; 2002 Target: 98%; 2002 Actual: 96%; 4-year avg. 

Actual: 96%; 2003 Target: 98%.



Note: Agencywide totals may differ from the sum of the amounts on 

the tables for strategic goals 1, 2, and 3 because when multiple 

units participate in an engagement, credit may be reflected under 

more than one of the goals. Also, the fiscal 2003 target for 

testimonies includes seven testimonies not assigned to goals.; 



[A] Changes GAO made to its 

methodology for tabulating financial benefits caused the fiscal 

2002 results to increase about 11 percent. See text under Financial 

Benefits on page 47 for details.; 



[B] Four targets published in GAO’s 

performance plan for fiscal 2003 were subsequently revised based on 

more current information. Two were raised; two were lowered. The 

original targets were financial benefits, $35 billion; other benefits, 

785; recommendations made, 1,200; and testimonies, 210.; 

N/A = not applicable.



[End of table]



Table: 4-Year Averages.



Performance measure; Financial benefits (billions); 1999; $19.5; 

2000; $21.0; 2001; $22.4; 2002: $26.9.



Performance measure; Other benefits; 1999; 451; 2000; 581; 2001; 

683; 2002: 775.



Performance measure; New recommendations made; 1999; 898; 2000; 

997; 2001; 1,179; 2002: 1,419.



Performance measure; New products with recommendations; 1999; 33%; 

2000; 35%; 2001; 37%; 2002: 42%.



Performance measure; Testimonies; 1999; 212; 2000; 233; 2001; 

225; 2002: 215.



Performance measure; Timeliness; 1999; 88%; 2000; 94%; 2001; 95%; 

2002: 96%.



Note: 4-year averages can be useful when examining trends over time 

because they minimize the effect of an atypical result in any given 

year.



[End of table]



When comparing the fiscal 2002 results to previous years’ results, it 

is important to note that we changed our methodology for tabulating 

financial benefits between fiscal 2001 and 2002 to ensure that criteria 

were uniformly applied and to use net present value in calculating 

benefits. We had expected the changes in methodology to increase 

financial benefits by about 25 percent and raised our fiscal 2002 and 

2003 targets to offset that increase. When we analyzed the actual 

results for fiscal 2002, we found that the changes in methodology had 

instead caused about an 11 percent increase. If the financial benefits 

reported in fiscal 2002 had been tabulated using GAO’s old methodology, 

they would have totaled about $33.9 billion (or $3.8 billion less than 

under the new methodology), up more than 28 percent over the $26.4 

billion in benefits reported in fiscal 2001.



To claim that financial benefits have been achieved, GAO’s people must 

document the connection between the benefits reported and work GAO did. 

They must also obtain estimates of the benefits’ value from independent 

third parties. In the past, GAO’s staff were limited to claiming no 

more than 2 years’ worth of an accomplishment’s benefits. They could, 

however, request waivers of the 2-year limit if they could demonstrate 

that a particular accomplishment had an effect over a much longer 

period. The number of waivers granted was small: 16 over the course of 

4 years during which more than 380 accomplishments were documented as 

having produced financial benefits. But the issues raised by the 

waivers prompted GAO’s executives to study whether the 2-year period 

was too short to show the real impact of certain types of 

accomplishments.



The study group found that the accomplishments in question were those 

that led to reductions in the costs of projects and entitlements over a 

multiyear period or that increased revenues from asset sales or changes 

in tax laws or user fees. They recommended that beginning in fiscal 

2002, teams be permitted to claim 5 years of benefits accruing from 

those types of accomplishments and that the use of waivers be 

eliminated, thus making the application of the criteria uniform. Their 

recommendations were adopted and in fiscal 2002, 30 of GAO’s 115 

financial accomplishments (or roughly 26 percent) met the criteria for 

claiming financial benefits for more than 2 years.



For certain types of accomplishments, however, GAO’s executives 

believed the 5-year period was too long because experience has shown 

that the impact of some kinds of changes is less sustained than that of 

those placed under the 5-year limit. Consequently, staff can continue 

to claim no more than 2 years of benefits from accomplishments 

generated by changes made to federal agencies’ operations. In fiscal 

2002, 85 of GAO’s financial accomplishments (or nearly 74 percent) fell 

in this category.



In addition to the elimination of waivers and the establishment of a 5-

year accrual period for some kinds of benefits, GAO began in fiscal 

2002 to calculate financial benefits in net present value terms. 

Because $1 next year is worth less than $1 today, we utilize present 

value accounting to convert future and past values into current values 

for accurate comparison. All of the other requirements for claiming 

financial benefits have remained the same (see page 74 for more 

information).



After taking the effects of the changes in methodology into account, it 

is clear that fiscal 2002 was still an unusual year for GAO. The $7.5 

billion increase in financial benefits between fiscal 2002 and 2001 was 

more than twice that of prior years. The trend in the 4-year averages 

data--which are less influenced by unusual highs or lows--shows growth 

over the longer term to have been more typically in the range of $2 

billion a year. Most of fiscal 2002’s increase occurred under goal 1, 

as will be discussed later. Given the trends in the financial benefits 

data, the smaller impact of the methodological changes, and the status 

of new changes federal agencies have begun to make in response to GAO’s 

findings and recommendations, we have lowered our fiscal 2003 target 

from $35 billion to $32.5 billion.



Other Benefits:



Many of the benefits that flow to the American people from GAO’s work 

cannot be measured in dollars. These benefits stem from instances in 

which GAO’s findings or recommendations prompted actions that improved 

government operations and services. In fiscal 2002, GAO recorded 65 

instances in which information GAO provided to the Congress resulted in 

statutory or regulatory changes, 391 instances in which federal 

agencies improved services to the American public, and 450 instances in 

which core business processes were improved at agencies or in which 

governmentwide reforms were advanced. This total of 906 other benefits 

exceeded our target of 770 for the year by about 18 percent and was 

also up about 16 percent over the fiscal 2001 total of 779.



Among the key accomplishments were the first important steps toward 

unifying the homeland security efforts of all levels of government and 

the private sector, greater accountability in the federal acquisition 

process, and protecting the taxpayers from faulty analyses of major 

public works programs. These and other accomplishments are reported in 

detail in appendix 1.



Looking ahead, our assessments of the executive branch’s current 

efforts to implement GAO’s recommendations led us to set a target of 

800 other benefits for fiscal 2003.



Additional Measures:



In addition to the benefits that accrued in fiscal 2002 from GAO’s past 

work, the following results were also achieved:



* Past recommendations implemented--We documented that federal agencies 

had implemented 79 percent of the recommendations we made in fiscal 

1998, results that exceeded the target of 75 percent and were the same 

as the fiscal 2001 results. As the figure shows, agencies need time to 

act on recommendations; hence, we assess implementation after 4 years, 

the point at which past experience has shown that if a recommendation 

has not been implemented it is not likely to be. The implementation of 

GAO’s recommendations paves the way toward more benefits for the 

American people in future years. Our target for fiscal 2003 is a 77 

percent implementation rate.



Figure: Implementation Rate for Recommendations Made in Fiscal 1998:



[See PDF for image] - graphic text:



Bar chart with 4 items.



Percentage: 



Item 1, Year; 1 44.

Item 2, Year; 2 62.

Item 3, Year; 3 69.

Item 4, Year; 4 79.



Source: GAO:



[End of figure]



* New recommendations made--We issued 1,950 new recommendations for 

additional improvements to government accountability, operations, and 

services during fiscal 2002, exceeding the target of 1,200 by 63 

percent and also exceeding the previous year’s total of 1,563 by 25 

percent. Among the recommendations were those to the Administrator of 

the Centers for Medicare and Medicaid Services to help safeguard the 

well-being of nursing home residents, those to the Secretary of State 

calling for the development of a governmentwide plan to help other 

countries combat nuclear smuggling, and those to the Director of the 

Office of Management and Budget calling for agency auditors to pay 

special attention to agencies’ ability to meet cost accounting 

standards and to report on agencies’ compliance with them. Looking 

ahead, we expect the recent increase in the number of new 

recommendations to begin tailing off as our staff completes a series of 

compliance audits on agencies’ information security systems and 

practices--work that has required specific, and therefore numerous, 

recommendations to each agency. We therefore set a fiscal 2003 target 

of 1,250 new recommendations.



* New products with recommendations--In fiscal 2002, 53 percent of 

GAO’s products contained recommendations for improved government 

accountability, operations, or services, exceeding the target of 45 

percent by 8 points and our fiscal 2001 results of 44 percent by 9 

points. Because we know that our congressional clients often want 

purely informational products from us, we have leveled off the target 

for this measure at 50 percent, letting our staff know they have the 

leeway to accommodate informational requests while still focusing on 

the need to provide recommendations for improvements in about half of 

GAO’s products.



* Testimonies--Our witnesses testified at 216 congressional hearings 

during fiscal 2002, exceeding our target of presenting testimony at 200 

hearings by 8 percent and surpassing the fiscal 2001 total of 151 

hearings by 43 percent. Meeting the target was challenging given the 

disruptions anthrax attacks caused on Capitol Hill and the reordering 

of congressional priorities in the wake of the September 11 attacks. 

The opportunities to hold hearings were reduced by the former and the 

topics that needed to be addressed were altered by the latter. 

Especially quick responses were also necessary. GAO received about 24 

hours’ notice of a hearing before the panel drafting the House 

legislation to create the new Department of Homeland Security, for 

instance. The body of work GAO had already completed and the internal 

coordination of ongoing engagements provided by GAO’s “virtual” 

National Preparedness Team allowed us to meet that request and a number 

of others. Looking ahead, we anticipate the Congress will be holding 

fewer hearings during fiscal 2003 than last year for three reasons. 

Historical data show that fewer hearings are conducted (1) in the first 

year of a congressional session as the new Congress organizes, (2) when 

the majority shifts in the House or the Senate and committee staffs 

reorganize and reprioritize, and (3) when the House, Senate, and the 

White House are all controlled by one political party. All three of 

these factors will be present during fiscal 2003. We have therefore 

lowered the year’s target for the number of hearings at which we expect 

our staff to testify to 180.



* Timeliness--Although we were able to deliver almost all of our 

products--96 percent---on time in fiscal 2002 and nudged GAO’s 

performance up a point over fiscal 2001’s, we missed the target of 98 

percent. A number of factors contributed to the 2-point gap in GAO’s 

performance on this measure, most notably the need to delay work in 

progress to free up resources to meet new and imperative congressional 

requests for information. GAO is keeping the target for this measure at 

98 percent for fiscal 2003, and we expect it to continue to be a 

difficult target to hit. While external factors beyond GAO’s control 

may again defeat our attempts to hit the 98 percent level, we believe 

we can still improve the timeliness of our work in other ways. For 

instance, we are piloting a set of agency protocols (www.gao.gov/cgi-

bin/getrpt?rptno=GAO-03-232sp) that define transparent policies and 

practices governing GAO’s interactions with agencies when we audit or 

evaluate their operations or programs. We believe that the protocols 

will help us expedite some of the work with agencies by, for instance, 

helping them understand and meet deadlines for commenting on drafts of 

GAO products before they are issued. Greater compliance with the 

comment period deadlines should allow us to issue more of our products 

on time. The pilot phase for the agency protocols concludes on June 30, 

2003. The protocols will then be modified as appropriate and formally 

adopted. We may see some improvement in our timeliness statistics in 

fiscal 2003 as a result of the pilot, but the real effect of the 

protocols may not be seen until the end of fiscal 2004. We also believe 

that our continuing investments in human capital and information 

technology will improve our timeliness.



Goal 1 Results:



Provide Timely, Quality Service to the Congress and the Federal 

Government to Address Current and Emerging Challenges to the Well-Being 

and Financial Security of the American People:



In furthering GAO’s mission to support the Congress in carrying out its 

constitutional responsibilities, GAO’s first strategic goal focuses on 

several aspirations of the American people that were defined by the 

Founding Fathers: to “establish justice, insure domestic tranquility,… 

promote the general welfare, and secure the blessings of liberty to 

ourselves and our posterity ….” The nation’s aging and more diverse 

population, rapid technological change, and the desire of Americans to 

improve the quality of their lives have major policy and budgetary 

implications for the federal government. In particular, growing 

commitments to the elderly will soon exhaust the capacity of a smaller 

generation of workers to finance the competing needs and wants brought 

to the federal doorstep.



GAO’s first strategic goal, therefore, is to help address the current 

and emerging challenges that affect the well-being and financial 

security of the American people by supporting congressional and federal 

efforts on:



* the health needs of an aging and diverse population,



* the education and protection of the nation’s children,



* the promotion of work opportunities and the protection of workers,



* a secure retirement for older Americans,



* an effective system of justice,



* the promotion of viable communities,



* responsible stewardship of natural resources and the environment, 

and:



* a secure and effective national physical infrastructure.



To do our work under these eight objectives during fiscal 2002, we 

conducted audits, analyses, and evaluations at every major federal 

agency and developed hundreds of reports and testimonies on the 

efficacy and soundness of those programs in response to congressional 

requests and mandates. As the table below shows, the results for the 

year exceeded four of this strategic goal’s five performance targets. 

This section analyzes those results, discusses the reason for the unmet 

target, and lays out our targets for fiscal 2003.



Financial Benefits:



The financial benefits reported for this goal in fiscal 2002 totaled 

$24.1 billion, exceeding the target of $17 billion by nearly 42 percent 

and topping fiscal 2001’s total of $8.9 billion by 171 percent. The 

target was exceeded by such a wide margin primarily because the 

agencies that implemented particular recommendations from GAO were able 

to achieve far greater financial benefits than we expected.



Five of GAO’s six accomplishments valued at over $1 billion were 

achieved by this goal. Those five big-dollar accomplishments, in fact, 

accounted for 85 percent of the goal’s total. Their unanticipated size 

is responsible for the goal’s greatly exceeding its target for 

financial benefits. These accomplishments, listed on page 46 and 

reported in detail in the goal 1 section of appendix 1, stemmed from 

GAO engagements that helped safeguard and best use tax dollars. The 

largest of them, valued at $8.1 billion, arose from our work on 

curtailing improper Medicare payments to providers. The others stemmed 

from our work on farm loans, public housing, hazardous waste cleanup, 

and Social Security Disability Insurance.



Table: Strategic Goal 1 Performance Data; Annual Measures and Targets.



Performance measure: Financial benefits (billions); 1999 Actual: 

$13.8; 2000 Actual: $14.1; 2001 Actual: $8.9; 2002 Target: $17.0; 

2002 Actual: $24.1[A]; 4-year avg. Actual: $15.2; 2003 Target: 
$21.2[B].



Performance measure: Other benefits; 1999 Actual: 140; 2000 Actual: 
182; 

2001 Actual: 210; 2002 Target: 218; 2002 Actual: 226; 4-year avg. 
Actual: 

190;2003 Target: 208[B].



Performance measure: Past recommendations implemented; 1999 Actual: 

72%; 2000 Actual: 72%; 2001 Actual: 71%; 2002 Target: 75%; 2002 Actual: 

72%; 4-year avg. Actual: N/A; 2003 Target: 77%.



Performance measure: New recommendations made; 1999 Actual: 350; 2000 

Actual: 435; 2001 Actual: 396; 2002 Target: 359; 2002 Actual: 524; 4-
year 

avg. Actual: 426; 2003 Target: 363[B].



Performance measure: Testimonies; 1999 Actual: 123; 2000 Actual: 131; 

2001 Actual: 73; 2002 Target: 93; 2002 Actual: 111; 4-year avg. Actual: 

110; 2003 Target: 85[B].



[A] Changes GAO made to its methodology for tabulating financial 

benefits caused the fiscal 2002 results to increase about 11 percent. 

See page 47 for details.; 



[B] This target was revised after GAO issued 

its performance plan for fiscal 2003. The original targets were 

financial benefits, $22.8 billion; other benefits, 218; recommendations 

made, 359; and testimonies, 93.; 



N/A = not applicable.



[End of table]



Table: 4-Year Averages.



Performance measure; Financial benefits (billions); 1999; $9.8; 2000; 

$11.8; 2001; $11.9; 2002: $15.2.



Performance measure; Other benefits; 1999; 129; 2000; 154; 2001; 177; 

2002: 190.



Performance measure; New recommendations made; 1999; 278; 2000; 336; 

2001; 367; 2002: 426.



Performance measure; Testimonies; 1999; 110; 2000; 121; 2001; 114; 

2002: 110.



Note: Four-year averages can be useful when examining trends over time 

because they minimize the effect of an atypical result in any given 

year.



[End of table]



Looking ahead, our assessments of the progress agencies are achieving 

with the implementation of recommendations we made in the past have led 

us to believe the financial benefits attributable to goal 1 will not be 

nearly as high in the near future. We have therefore set a target of 

$21.2 billion for fiscal 2003, a figure that is still quite high when 

compared with goal 1’s past annual results or with the 4-year average 

results.



Other Benefits:



The other tangible benefits reported for goal 1 in fiscal 2002 included 

187 actions taken by federal agencies to improve their services and 

operations in response to GAO’s work and another 39 in which 

information GAO provided to the Congress resulted in statutory or 

regulatory changes. This total of 226 other benefits exceeded our 

target of 218 for the year and was an increase of roughly 8 percent 

over fiscal 2001’s results of 210 other benefits.



Among the key accomplishments in this category were better targeting 

education funds to high-poverty school districts, making the Job Corps 

Program more effective, improving the management of nuclear waste 

cleanup projects, and protecting the taxpayers from faulty analyses of 

major public works programs. These and other accomplishments are 

reported in detail in the goal 1 section of appendix 1.



Looking ahead, our assessments of the executive branch’s current 

efforts to implement GAO’s recommendations made under this goal led us 

to set a target of 208 other benefits for fiscal 2003.



Additional Measures:



In addition to the benefits that accrued in fiscal 2002 from past work 

done under this goal, GAO also recorded the following results:



* Past recommendations implemented--We documented that federal agencies 

had implemented 72 percent of the recommendations we made in fiscal 

1998, results that were up 1 point from fiscal 2001’s but falling short 

of the 75 percent target for fiscal 2002. After GAO missed goal 1’s 

target for this measure in fiscal 2001, we examined the reasons and 

found that recommendations developed by staff who subsequently retired 

or moved to another GAO unit were less likely to be monitored for 

implementation than recommendations developed by staff still available 

to monitor implementation themselves. Hence, it was possible that the 

implementation rate was higher than the information in GAO’s tracking 

system indicated. We held a session to allow staff from teams with 

higher implementation rates to discuss practices and solutions with 

staff from teams with lower implementation rates and stressed the need 

to conduct thorough follow-up on past recommendations. In revisiting 

the issue after the target again went unmet in fiscal 2002, we found 

more specific problems relating to recommendations made to particular 

agencies. One agency’s reorganization had delayed implementation of 

some of GAO’s recommendations, and in a few other instances, agencies 

had decided not to implement recommendations they considered costly or 

insignificant. In these latter instances, the senior executive now in 

charge of our work in those areas has directed staff to ensure that 

recommendations issued in the future are clearer and doable and to 

develop a dialogue with the agencies in question to foster 

implementation of our recommendations. GAO has asked the staff whose 

work contributes to the goal 1 results to renew their monitoring 

efforts to help meet a higher target for fiscal 2003: a 77 percent rate 

of implementation.



* New recommendations made--During fiscal 2002, we issued 524 new 

recommendations under goal 1 for additional improvements to government 

accountability, operations, and services, exceeding the target of 359 

by 46 percent and the fiscal 2001 total of 396 by 32 percent. Among the 

recommendations were those to the Secretary of Health and Human 

Services calling for the development of a sound strategy for expanding 

stockpiles of childhood vaccines and those to the Chairman of the 

Federal Energy Regulatory Commission calling for his agency to develop 

an action plan for overseeing competitive energy markets. Our target 

for fiscal 2003 is 363 new recommendations.



* Testimonies--Our witnesses testified at 111 congressional hearings 

related to this strategic goal, an increase of about 52 percent over 

fiscal 2001 and exceeding the fiscal 2002 target of 93 testimonies by 

19 percent. Much of the increase represents testimonies on homeland 

security issues. In the months immediately after the September 11 

terrorist attacks, we anticipated a surge in requests for testimonies 

on topics related to our work under goal 2. As the year unfolded, 

however, we observed that congressional interest was highest on goal 1 

issues such as safeguarding transportation and other vital 

infrastructure and assessing the capabilities of first responders to 

handle bioterrorism and other threats. We do not believe the pace of 

hearings will be the same in fiscal 2003 for the three reasons 

discussed previously. We have therefore set a target of presenting 

testimony at 85 hearings during fiscal 2003.



* Two-year performance goals--At the close of fiscal 2002, GAO was 

halfway through the 2-year assessment cycle for the performance goals 

that provide the strategies we use to achieve our broader strategic 

goals and objectives. Strategic goal 1 has 37 performance goals, which 

call for GAO to undertake work that includes evaluating the 

effectiveness of federal programs to promote and protect the public 

health and assessing efforts to improve safety and security in all 

transportation modes. As the table at the start of this section shows, 

at the halfway mark, GAO’s managers reported that enough work was under 

way or completed to allow us to meet all 37 of the performance goals by 

the end of fiscal 2003. The key efforts to be undertaken to meet each 

of the goals are online in the supplements to GAO’s strategic plan at 

www.gao.gov/sp/html/goal_1.html. The performance goals GAO will begin 

work on in fiscal 2004 will be published in our annual performance plan 

after our appropriations for the year are known.



Table: 2-Year Performance Goals, Fiscal 2002-2003: 



The health care needs of an aging and divers population: 



On track to meet: 



* Evaluate Medicare reform, financing, and operations:



* Assess trends and issues in private health insurance coverage:



* Assess actions and options for improving the Department of Veterans

Affairs’ and the Department of Defense’s health care services: 



* Evaluate the effectiveness of federal programs to promote and protect

the public health: 



* Evaluate the effectiveness of federal programs to improve the 

nation’s preparedness for the public health and medical consequences of 

bioterrorism:



* Evaluate federal and state program strategies for financing and 

overseeing chronic and long-term health care:



* Assess states’ experiences in providing health insurance coverage for 

low-income populations:



The education and protection of the nation’s children:



On track to meet:



* Analyze the effectiveness and efficiency of early childhood education 

and care programs in serving their target populations:



* Assess options for federal programs to effectively address the 

educational and nutritional needs of elementary and secondary students 

and their schools: This performance goal has been revised to reflect 
the 

scope of the work we are doing; it now includes assessing the 

nutritional needs of students. 



* Determine the effectiveness and efficiency of child support 

enforcement and child welfare programs in serving their target 

populations:



* Identify opportunities to better manage postsecondary, vocational, 

and adult education programs and deliver more effective services: 



The promotion of work opportunities and the protection of workers:



On track to meet: 



* Assess the effectiveness of federal efforts to help adults enter 

the workforceand to assist low-income workers:



* Analyze the impact of programs designed to maintain a skilled 

workforce and ensure employers hav the workers they need:



* Assess the success of various enforcement strategies to protect 

workers while minimizing employers’ burden in the changing 

environment of work:



* Identify ways to improve federal support for people with 

disabilities:



A Secure Retirement for older Americans:



On track to meet:



* Assess the implications of various Social Security reform 

proposals: 



* Identify opportunities to foster greater pension coverage, 

increase personal saving, and ensure adequate and secure 

retirement income: 



* Identify opportunities to improve the ability of federal 

agencies to administer and protect workers’ retirement benefits:



An effective system of justic: 



On track to meet: 



* Identify ways to improve federal agencies’ ability to prevent 

and respond to terrorist acts and other major crimes:



* Assess the effectiveness of federal programs to control illegal 

drug use:



* Identify ways to administer the nation’s immigration laws to 

better secure the nation’s borders and promote appropriate treatment 

of legal residents:



* Assess the administrative efficiency and effectiveness of the 

federal court and prison systems:



The promotion of viable communities:



On track to meet: 



* Assess federal economic development assistance and its imact on 

communities:



* Assess how the federal government can balance the promotion of 

home ownership with financial risk:



* Assess the effectiveness of federal initiatives to assist small 

and minority-owned businesses:



* Assess federal efforts to enhance national preparedness and 

capacity to respond to and recover from natural and man-made 

disasters: The wording of this goal has been revised to reflect 

that the scope of the work we are doing underthe goal is broader than 

assessing just disaster assistance: 



* Assess how well federally supported housing programs meet their 

objectives and affect the well-being of the recipient households and 

communities:



Responsible stewardship of natural resources and the environment: 



On track to meet: 



* Assess the nation’s ability to ensure reliable and environmentally 

sound energy for current and future generations: 



* Assess federal strategies for managing land and water resources in 

a sustainable fashion for multiple uses:



* Assess federal programs’ ability to ensure a plentiful and safe food 

supply, provide economic security for farmers, and minimize 
agricultural 

environmental damage:



* Assess federal pollution prevention and control strategies:



* Assess efforts to reduce the threats posed by hazardous and nuclear 

wastes:



A secure and effective national physical infrastructure:



On track to meet:



* Assess strategies for identifying, evaluating, prioritizing, 

financing, and implementing integrated solutions to the nation’s 

infrastructure needs: 



* Assess the impact of transportation and telecommunications policies 

and practices on competition and consumers:



* Assess efforts to improve safety and security in all transportation 

modes:



* Assess the Postal Service’s transformation efforts to ensure its 

viability and accomplish its mission:



* Assess federal efforts to plan for, acquire, manage, maintain, 

secure, and dispose of the government’s real property assets:



Note: This is a rough approximation of a goal summary graphic we 

are developing to tie costs to a basket of results: 



Note: Each performance goal is supported by a set of key efforts. 

For a performance goal to be considered “met” after 2 years, at least 

75 percent of its key efforts for any of the performance goals above, 

go to www.gao.gov/sp/spsupp.html.



[End of table]



Figure: Goal 1: Well-Being and Financial Security of American People:



[See PDF for image] --graphic text:



An image of a dollar bill divided proportionally shows how large a 

slice of GAO’s costs were attributable to goal 1, which deals with the 

well-being and financial security of the American people.



Goal 1’s cost was $178.3 million or 39% of GAO’s total.



Results:



$24.1 billion in financial benefits:



* Safeguarding Medicare from fraud and abuse, $8.1 billion: 



* Improving HUD’s budget practices, $4.9 billion: 



* Reducing losses from farm loans, $4.8 billion: 



* Reducing costs of hazardous waste cleanup at Hanford, $1.5 billion: 



* Additional financial benefits, $4.8 billion: 

 

226 other benefits:



* Improving pediatric drug research and labeling: 



* Simplifying requirements for food stamp eligibility and benefits: 



* Better targeting education funds to high-poverty school districts: 



* Protecting taxpayers from faulty analyses of major public works 

programs: 



* 222 additional benefits: 

 

524 new recommendations made:



* Develop strategy for expanding stockpiles of childhood vaccines: 



* Develop an action plan for overseeing competitive energy markets: 



* 522 additional improvements recommended: 



111 testimonies:



* Aviation security: 



* Bioterrorism: 



* Food safety: 



* Nursing homes: 



* 107 additional hearings on topics of national importance: 



Source: GAO



[End of figure]



Goal 2 Results:



Provide Timely, Quality Service to the Congress and the Federal 

Government to Respond to Changing Security Threats and the Challenges 

of Global Interdependence:



As the world grows increasingly interconnected through more open 

markets and rapidly developing technology, globalization is creating 

new opportunities for the United States as a whole and for U.S. 

producers and consumers. At the same time, the United States is facing 

threats to its security and economy from sources that span terrorism, 

regional conflicts, and instability sparked by economic conditions, 

corruption, ethnic hatreds, and nationalism. Consequently, the federal 

government is working to promote foreign policy goals, sound trade 

policies, and other strategies to advance the interests of the United 

States and its allies while also seeking to anticipate and address the 

increasingly diffuse threats to the nation’s security and economy.



Given the importance of those efforts to the nation and the Congress’s 

expressed needs for objective information, analyses, and 

recommendations on the wide range of highly complex issues involved, 

the second goal in GAO’s strategic plan is focused on helping the 

Congress and the federal government respond to changing security 

threats and the challenges of global interdependence. GAO’s specific 

objectives are to support congressional and federal efforts to:



* respond to diffuse threats to national and global security,



* ensure military capabilities and readiness,



* advance and protect U.S. international interests, and:



* respond to the impact of global market forces on U.S. economic and 

security interests.



To do our work under these four objectives during fiscal 2002, we 

conducted field work in Europe, Africa, Asia, Central America, South 

America, and, of course, North America, to collect the most relevant, 

direct evidence in response to congressional requests. We then analyzed 

and distilled the information we collected into hundreds of reports, 

testimonies, and other types of information services. As the table 

below shows, the results for the year exceeded four of the strategic 

goal’s five performance targets. This section analyzes those results, 

discusses the reason for the unmet target, and lays out our targets for 

fiscal 2003.



Table: Strategic Goal 2 Performance Data; Annual Measures and Targets; 



Performance measure: Financial benefits (billions); 1999 Actual: 

$3.0; 2000 Actual: $5.5; 2001 Actual: $10.5; 2002 Target: $7.8; 

2002 Actual: $8.4[A]; 4-year avg. Actual: $6.9; 2003 Target: $6.8[B].



Performance measure: Other benefits; 1999 Actual: 80; 2000 Actual: 

129; 2001 Actual: 188; 2002 Target: 178; 2002 Actual: 218; 4-year avg. 

Actual: 154; 2003 Target: 200[B].



Performance measure: Past recommendations implemented; 1999 Actual: 

65; 2000 Actual: 84%; 2001 Actual: 81%; 2002 Target: 75%; 2002 Actual: 

83%; 4-year avg. Actual: N/A; 2003 Target: 77%.



Performance measure: New recommendations made; 1999 Actual: 255; 2000 

Actual: 376; 2001 Actual: 618; 2002 Target: 460; 2002 Actual: 618; 4-
year 

avg. Actual: 467; 2003 Target: 521[B].



Performance measure: Testimonies; 1999 Actual: 37; 2000 Actual: 56; 

2001 Actual: 34; 2002 Target: 49; 2002 Actual: 38; 4-year avg. Actual: 

41; 2003 Target: 36[B].



[A] Changes GAO made to its methodology for tabulating financial 

benefits caused the fiscal 2002 results to increase about 11 percent. 

See page 47 for details.; 



[B] This target was revised after we issued 

GAO’s performance plan for fiscal 2003. The original targets were 

financial benefits, $7.6 billion; other benefits, 192; recommendations 

made, 485; and testimonies, 55.; 



N/A = not applicable.



[End of table]



Table: 4-Year Averages.



Performance measure; Financial benefits (billions); 1999; $6.3; 2000; 

$6.0; 2001; $6.2; 2002: $6.9.



Performance measure; Other benefits; 1999; 65; 2000; 90; 2001; 118; 
2002: 

154.



Performance measure; New recommendations made; 1999; 266; 2000; 279; 

2001; 373; 2002: 467.



Performance measure; Testimonies; 1999; 40; 2000; 46; 2001; 

43; 2002: 41.



Note: Four-year averages can be useful when examining trends over time 

because they minimize the effect of an atypical result in any given 

year.



[End of table]



Table: 2-Year Performance Goals, Fiscal 2002-2003.



Responding to diffuse threats to national and global security.



On track to meet: 



* Analyze the effectiveness of the federal government’s approach to 

providing for homeland security.



* Assess U.S. efforts to protect computer and telecommunications 
systems 

supporting critical infrastructures in business and government.



* Assess the effectiveness of U.S. programs and international 
agreements 

to prevent the proliferation of nuclear, biological, chemical, and 

conventional weapons and sensitive technologies.



Ensuring military capabilities and readiness.



On track to meet:



* Assess the ability of DOD to maintain adequate readiness levels while 

addressing the force structure changes needed in the 21[ST] century.



* Assess overall human capital management practices to ensure a high-

quality total force.



* Identify ways to improve the economy, efficiency, and effectiveness 

of DOD’s support infrastructure and business systems and processes.



* Assess the National Nuclear Security Administration’s efforts to 

maintain a safe and reliable nuclear weapons stockpile.



* Analyze and support DOD’s efforts to improve budget analyses and 

performance management.



* Assess whether DOD and the services have developed integrated 

procedures and systems to operate effectively together on the 

battlefield.



* Assess the ability of weapon system acquisition programs and 

processes to achieve desired outcomes.



Advancing and protecting U.S. international interests.



On track to meet:



* Analyze the plans, strategies, costs, and results of the U.S. role 

in conflict interventions.



* Analyze the effectiveness and management of foreign aid programs 

and the tools used to carry them out.



* Analyze the costs and implications of changing U.S. strategic 

interests.



* Evaluate the efficiency and accountability of multilateral 

organizations and the extent to which they are serving U.S. interests.



* Assess the strategies and management practices for U.S. foreign 

affairs functions and activities.



Responding to the impact of global market forces on U.S. economic and 

security interests.



On track to meet:



* Analyze how trade agreements and programs serve U.S. interests.



* Improve understanding of the effects of defense industry 
globalization.



* Assess how the United States can influence improvements in the world 

financial system.



* Assess the ability of the financial services industry and its 

regulators to maintain a stable and efficient global financial system.



* Evaluate how prepared financial regulators are to respond to change 

and innovation.



* Assess the effectiveness of regulatory programs and policies in 

ensuring access to financial services and deterring fraud and abuse in 

financial markets.



Note: Each performance goal is supported by a set of key efforts. For a 

performance goal to be considered “met” after 2 years, at least 75 

percent of its key efforts must have been accomplished. To view the key 

efforts for any of the performance goals above, go to www.gao.gov/sp/

spsupp.html.



[End of table]



Financial Benefits:



The financial benefits reported for this goal in fiscal 2002 totaled 

$8.4 billion, exceeding the target of $7.8 billion by roughly 8 

percent.



Most of the financial benefits were attributable to seven 

accomplishments valued at $500 million or more each. These 

accomplishments, reported in detail in the goal 2 section of appendix 

1, typically stemmed from GAO engagements that helped the Department of 

Defense free billions of dollars for defense priorities by eliminating 

waste or inefficiency. The largest of them, valued at $1.5 billion, 

arose from the reduction of the department’s foreign currency exchange 

funding during a time when the dollar has been strong, a step Defense 

officials took in response to a GAO recommendation that did not affect 

readiness but did free funds to meet other needs.



Although we met the fiscal 2002 target, the year’s total was down about 

20 percent from fiscal 2001’s figure. The 2001 total was, in fact, 

unusually large--$10.5 billion compared with the 4-year average of $6.2 

billion--because of the benefits documented from one particular 

accomplishment: GAO’s support work for the Base Realignment and Closure 

Commission, which sought to reconfigure U.S. military facilities to 

meet 21st century needs. We estimated the value of our work at about $6 

billion, based on the Department of Defense’s documentation.



Given the large portion of the U.S. budget that defense spending 

consumes, we expect our work under this goal to continue to produce 

economies and efficiencies that yield billions of dollars in financial 

benefits for the American people each year. Our assessments of the 

executive branch’s current efforts to implement GAO’s recommendations, 

however, have led us to target financial benefits of about $6.8 billion 

for fiscal 2003, an amount that is more in line with the trends 

reflected in the 4-year averages for this goal than with the unusually 

high 2001 figure.



Other Benefits:



The other tangible benefits reported for goal 2 in fiscal 2002 included 

204 actions taken by federal agencies to improve their services and 

operations in response to GAO’s work and another 14 in which 

information GAO provided to the Congress resulted in statutory or 

regulatory changes. This total of 218 other benefits exceeded our 

target of 178 for the year and was an increase of 16 percent over 

fiscal 2001’s total of 188.



Among the key accomplishments in this category were the first important 

steps toward unifying the homeland security efforts of all levels of 

government and the private sector, stronger measures to prevent the 

unapproved export of missile parts, and the more effective delivery of 

disaster recovery assistance to other nations. These and other 

accomplishments are reported in detail in the goal 2 section of 

appendix 1.



Looking ahead, our assessments of the executive branch’s current 

efforts to implement GAO’s recommendations made under this goal led us 

to set a target of 200 other benefits for fiscal 2003.



Additional Measures:



In addition to the benefits that accrued for the American people in 

fiscal 2002 from past work done under this goal, GAO also recorded the 

following results:



* Past recommendations implemented--We documented that federal agencies 

had implemented 83 percent of the recommendations we made in fiscal 

1998, results that exceeded the target of 75 percent and were up 2 

points over the previous year. The target for fiscal 2003 is a 77 

percent implementation rate.



* New recommendations made--We issued 618 new recommendations for 

additional improvements to government accountability, operations, and 

services during fiscal 2002, exceeding the target of 460 and matching 

the previous year’s results. Among the recommendations made were those 

to the Secretary of State calling for the development of a 

governmentwide plan to help other countries combat nuclear smuggling 

and those to the Secretary of Defense calling for the maturity of 

critical technologies required for the Joint Strike Fighter to be 

proven before the Pentagon makes engineering and manufacturing 

investments in the program. The target for fiscal 2003 is 521 new 

recommendations.



* Testimonies--Our witnesses testified at 38 congressional hearings 

related to this strategic goal, an increase of about 12 percent over 

fiscal 2001 but falling short of our target of presenting testimony at 

49 hearings. We believe this happened, in part, because at the time we 

set our targets, we did not foresee precisely how the ramifications of 

the September 11 terrorist attacks would affect the extent and type of 

our contributions to the Congress under this goal. We anticipated more 

testimonies on the national security issues embodied in goal 2, but in 

fact, far more testimonies were requested on homeland security 

functions such as aviation security and bioterrorism, subjects handled 

under goal 1, where the number of testimonies rose 52 percent over 

2001’s figure. Under the circumstances, we do not regard the missed 

goal 2 target as problematic because it does not represent a lack of 

success in serving the Congress. In the past, under less extraordinary 

circumstances, we have been able to make reasonably accurate forecasts 

of congressional demand for testimonies goal by goal and, thus, to hold 

ourselves accountable for having resources in place to meet the demand 

and for satisfying our clients’ requests with timely, objective 

information. We expect to be reasonably accurate in setting achievable 

targets in the future but will continue to encourage our managers to 

shift resources and reprioritize work whenever necessary to meet 

unforeseen congressional requests rather than to focus exclusively on 

meeting targets. For fiscal 2003, we have set a target of presenting 

testimony at 36 hearings related to this goal.



* Two-year performance goals--At the close of fiscal 2002, GAO was 

halfway through the 2-year assessment cycle for the performance goals 

that provide the strategies we use to achieve our broader strategic 

goals and objectives. Strategic goal 2 has 21 performance goals, which 

call for GAO to undertake work ranging from assessing the effectiveness 

of efforts to prevent the proliferation of nuclear, biological, and 

chemical weapons to analyzing how trade agreements and programs serve 

U.S. interests. As the table at the start of this section shows, at the 

halfway mark, GAO’s managers reported that enough work was under way or 

completed to allow us to meet all 21 of the performance goals by the 

end of fiscal 2003; the key efforts to be undertaken to meet each of 

the goals are online in the supplements to GAO’s strategic plan at 

www.gao.gov/sp/html/goal_2.html. The performance goals GAO will begin 

work on in fiscal 2004 will be published in our annual performance plan 

after our appropriations for the year are known.



Figure: Goal 2: Changing security threats and challenges of 

globalization:



[See PDF for image] --graphic text: 



An image of a dollar bill divided proportionally shows how large a 

slice of GAO’s costs were attributable to goal 2, which deals with 

changing security threats and the challenges of globalization.



Goal 2’s cost was $110.5 million or 24% of GAO’s total.



Results:



$8.4 billion in financial benefits:



* Reducing DOD’s foreign currency exchange funding, $1.5 billion: 



* Consolidating and modernizing DOD’s computer center activities, 

$859 million: 



* Reducing funding for the V-22 development program, $763.8 million: 



* Better management of DOD’s satellite capacity, $702 million: 

 

* Additional financial benefits, $4.6 billion: 



218 other benefits:



* First steps toward unifying homeland security efforts: 



* Stronger measures to prevent unapproved export of missile parts: 



* More effective delivery of disaster recovery assistance to other 

nations: 



* Improving Peace Corps’ safety and security practices: 



* 214 additional benefits: 



618 new recommendations made:



* Develop governmentwide plan to help other countries combat nuclear 

smuggling: 



* Make engineering and manufacturing investments in technologies proven 

to be mature: 



* Develop overall investment plan for the National Security Space 

Strategy: 



* 615 additional improvements recommended: 



38 testimonies:



* Combating terrorism: 



* Chemical and biological preparedness: 



* Conflict diamonds: 



* Foreign language needs: 



* 34 additional hearings on topics of national importance: 



Source: GAO



[End of figure]



Goal 3 Results:



Help Transform the Federal Government’s Role and How It Does Business 

to Meet 21ST Century Challenges:



The federal government faces an array of challenges, including the 

national response to terrorism, transition to a knowledge-based 

economy, rapid technological advances, and changing demographics. These 

challenges require a fundamental reexamination of the government’s 

priorities, processes, policies, and programs to effectively address 

shifting public expectations, needs, and fiscal pressures. What has 

become obvious since September 11 is that the federal government will 

need to work more effectively with other governments, nongovernmental 

organizations, and the private sector--both domestically and 

internationally--to achieve results. Because the public expects 

demonstrable results from the federal government, government leaders 

need to increase strategic planning, address management challenges and 

high-risk issues, use integrated approaches, enhance their agencies’ 

results orientation, and ensure accountability. Examining existing 

programs and operations for potential cost savings can create much 

needed fiscal flexibility to address emerging needs. Moreover, 

addressing today’s priorities must be balanced against the long-term 

fiscal pressures of financing existing programs and operations.



In light of the comprehensive reassessment called for in the current 

environment, GAO’s third strategic goal focuses on the collaborative 

and integrated elements needed to achieve results, and it highlights 

the intergovernmental relationships that are necessary to achieve 

national goals. To ensure that GAO helps transform the role of the 

government and how it does business to meet 21st century challenges, we 

have established strategic objectives to:



* analyze the implications of the increased role of public and private 

parties in achieving federal objectives;



* assess the government’s human capital and other capacity for serving 

the public;



* support congressional oversight of the federal government’s progress 

toward being more results-oriented, accountable, and relevant to 

society’s needs; and:



* analyze the government’s fiscal position and approaches for financing 

the government.



To do our work under these four objectives during fiscal 2002, we 

conducted extensive audits, evaluations, and analyses in response to 

congressional requests and through our own independent “R&D” work. As 

the table below shows, the results for the year exceeded four of the 

strategic goal’s five performance targets. This section analyzes those 

results, discusses the reason for the unmet target, and lays out our 

targets for fiscal 2003.



Table: Strategic Goal 3 Performance Data; Annual Measures and Targets.



Performance measure; Financial benefits (billions); 1999 Actual; $4.5; 

2000 Actual; $5.1; 2001 Actual; $7.0; 2002 Target: $5.3; 2002 Actual: 

$5.2[A]; 4-year avg. Actual; $5.5; 2003 Target: $4.6.



Performance measure; Other benefits; 1999 Actual; 414; 2000 Actual; 
503; 

2001 Actual; 401; 2002 Target: 374; 2002 Actual: 462; 4-year avg. 
Actual; 

445; 2003 Target: 392[B].



Performance measure; Past recommendations implemented; 1999 Actual; 

78%; 2000 Actual; 77%; 2001 Actual; 85%; 2002 Target: 75%; 

2002 Actual: 82%; 4-year avg. Actual; N/A; 2003 Target: 77%.



Performance measure; New recommendations made; 1999 Actual; 335; 

2000 Actual; 413; 2001 Actual; 549; 2002 Target: 381; 2002 Actual: 808; 

4-year avg. Actual; 526; 2003 Target: 366[B].



Performance measure; Testimonies; 1999 Actual; 100; 2000 Actual; 105; 

2001 Actual; 42; 2002 Target: 58; 2002 Actual: 65; 4-year avg. Actual; 
78; 

2003 Target: 52[B].



[A] Changes GAO made to its methodology for tabulating financial 

benefits caused the fiscal 2002 results to increase about 11 percent. 

See page 47 for details.; 



[B] This target was revised after we issued 

GAO’s performance plan for fiscal 2003. The original targets were other 

benefits, 375; recommendations made, 356; and testimonies, 62.; 



N/A = not applicable.



[End of table]



Table: 4-Year Averages.



Performance measure; Financial benefits (billions); 1999; $5.7; 2000; 

$5.7; 2001; $5.3; 2002: $5.5.



Performance measure; Other benefits; 1999; 274; 2000: 361; 2001; 407; 

2002: 445.



Performance measure; New recommendations made; 1999; 355; 2000; 383; 

2001; 439; 2002: 526.



Performance measure; Testimonies; 1999; 79; 2000; 90; 2001; 

86; 2002: 78.



Note: Four-year averages can be useful when examining trends over time 

because they minimize the effect of an atypical result in any given 

year.



[End of table]



Table: 2-Year Performance Goals, Fiscal 2002-2003.



The implications of the increased role of public and private parties in 

achieving federal objectives.



On track to meet:



* Analyze the modern service-delivery system environment and the 

complexity and interaction of service-delivery mechanisms.



* Assess how intergovernmental relationships and the participation of 

nongovernmental organizations affect the implementation of federal 

programs and the achievement of national goals.



* Assess the effectiveness of regulatory administration and reforms 

in achieving government objectives.



The government’s capacity to better deliver public services.



On track to meet:



* Identify and facilitate the implementation of human capital practices 

that will improve federal economy, efficiency, and effectiveness.



* Identify ways to improve the financial management infrastructure 

capacity to provide useful information to manage for results and costs 

day to day.



* Assess the government’s capacity to manage information technology to 

improve performance.



* Assess efforts to manage the collection, use, and dissemination of 

government information in an era of rapidly changing technology.



* Assess the effectiveness of the Federal Statistical System in 
providing 

relevant, reliable, and timely information that meets federal program 

needs.



* Identify more business-like approaches that can be used by federal 

agencies in acquiring goods and services.



The federal government’s progress toward being more results-oriented, 

accountable, and relevant to society’s needs.



On track to meet:



* Analyze and support efforts to instill results-oriented management 

across the government.



* Highlight the federal programs and operations at highest risk and 

the major performance and management challenges confronting agencies.



* Identify ways to strengthen accountability for the federal 

government’s assets and operations.



* Promote accountability in the federal acquisition process.



* Assess the management and results of the federal investment in 

science and technology and the effectiveness of efforts to protect 

intellectual property.



* Identify ways to improve the quality of evaluative information; 

This goal has been revised to reflect that our work on governmentwide 

performance indicators has been moved to the new performance goal 
below.



* Develop new resources and approaches that can be used in measuring 

performance and progress on the nation’s 21[ST] century challenges; 

This performance goal has been added to guide our efforts to help to 

support public debate and inform decisions on an emerging issue: the 

use of national performance indicators to gauge progress in meeting 

societal needs.



The government’s fiscal position and approaches for financing the 

government.



On track to meet:



* Analyze the long-term fiscal position of the federal government.



* Analyze the structure and information for budgetary choices and 

explore alternatives for improvement.



*  Contribute to congressional deliberations on tax policy.



* Support congressional oversight of the Internal Revenue Service’s 

modernization and reform efforts.



* Assess the reliability of financial information on the government’s 

fiscal position and financing sources.



Note: Each performance goal is supported by a set of key efforts. For a 

performance goal to be considered “met” after 2 years, at least 75 

percent of its key efforts must have been accomplished. To view the key 

efforts for any of the performance goals above, go to www.gao.gov/sp/

spsupp.html.



[End of table]



Financial Benefits:



The financial benefits reported for this goal in fiscal 2002 totaled 

$5.2 billion, down 26 percent from fiscal 2001’s total of $7 billion. 

Fiscal 2001’s results were atypical; as the 4-year averages show, 

financial benefits for this goal trend under $6 billion. Fiscal 2002’s 

annual results were less than 2 percent below fiscal 2002’s target. 

Because the performance target was set at an approximate level and the 

deviation from that level was slight, missing this target had no effect 

on GAO’s overall performance.



Documenting financial benefits for the American people through the work 

done under this goal is particularly challenging for GAO’s staff. Under 

goal 1, our people work on issues involving the big entitlement 

programs like Medicare and Social Security. Under goal 2, our people 

work on issues involving large-dollar defense programs. But under goal 

3, our people typically work on core government business processes and 

governmentwide management reforms that can yield important nonfinancial 

benefits but often have little or no potential for measurable financial 

benefits. Unlike the other two goals, goal 3 had no accomplishments 

over the $1 billion mark in fiscal 2002. The goal’s top-dollar 

accomplishment stemmed from our work helping the Department of Defense 

improve the management of its initiatives to consolidate and modernize 

its computer centers and to outsource some of the centers’ activities 

and processes, an effort that yielded $859 million in savings and costs 

avoided over a 4-year period. This and other accomplishments are 

reported in detail in the goal 3 section of appendix 1.



Our assessments of the executive branch’s current efforts to implement 

the recommendations we made in our work under this goal led us to 

target financial benefits of about $4.6 billion for fiscal 2003.



Other Benefits:



The other tangible benefits reported for goal 3 in fiscal 2002 included 

450 instances in which agencies’ core business processes were improved 

or governmentwide management reforms were advanced as a result of GAO’s 

work. In addition, there were 12 instances in which information GAO 

provided to the Congress resulted in statutory or regulatory changes. 

This total of 462 other benefits exceeded our target of 374 for the 

year by almost 24 percent and was an increase of 15 percent over fiscal 

2001’s total of 401 other benefits.



Among the key accomplishments in this category were greater 

accountability in the federal acquisition process, improved 

implementation of the Paperwork Reduction Act, and our development of 

“data stewardship” strategies to protect the privacy of individuals 

when researchers use federal databases. These and other accomplishments 

are reported in detail in the goal 3 section of appendix 1.



Looking ahead, our assessments of the executive branch’s current 

efforts to implement GAO’s recommendations made under this goal led us 

to set a fiscal 2003 target of 392 other benefits from goal 3.



Additional Measures:



In addition to the benefits that accrued in fiscal 2002 from past work 

done under this goal, GAO also recorded the following results:



* Recommendations implemented--We documented that federal agencies had 

implemented 82 percent of the recommendations we made in fiscal 1998, 

results that exceeded the target of 75 percent but were down 3 points 

from the previous year. The target for fiscal 2003 is a 77 percent 

implementation rate.



* Recommendations made--We issued 808 new recommendations for 

additional improvements to government operations and services during 

fiscal 2002, exceeding the target of 381 by 112 percent and the fiscal 

2001 total of 549 by 47 percent. Among the recommendations were those 

to the Secretary of the Army calling for stronger measures to protect 

government credit cards from improper use and those to the Director of 

the Office of Management and Budget calling for agency auditors to pay 

special attention to agencies’ ability to meet cost accounting 

standards and to report on agencies’ compliance with them. The target 

for fiscal 2003 is 366 new recommendations, significantly lower than 

the actual results in recent years because a body of work partly 

responsible for the high number of recommendations made under goal 3 

since fiscal 2000 is coming to a close, namely the compliance work on 

agencies’ computer security measures.



* Testimonies--During fiscal 2002, our witnesses testified at 65 

congressional hearings related to this strategic goal, exceeding the 

target of 58 by about 12 percent and the fiscal 2001 total of 42 by 

almost 55 percent. Among the testimonies presented were those given at 

a series of field hearings held by the House Subcommittee on 

Efficiency, Financial Management, and Intergovernmental Relations on 

the intergovernmental coordination aspects of homeland security. For 

fiscal 2003, we have set a target of presenting testimony at 52 

hearings.



* Two-year performance goals--At the close of fiscal 2002, GAO was 

halfway through the 2-year assessment cycle for the performance goals 

that provide the strategies we use to achieve our broader strategic 

goals and objectives. Strategic goal 3 has 21 performance goals, which 

call for GAO to undertake work ranging from analyzing the delivery of 

federal services to assessing the reliability of information on the 

government’s fiscal position and financing sources. As the table at the 

start of this section shows, at the halfway mark, GAO’s managers 

reported that enough work was under way or completed to allow us to 

meet all 21 of the performance goals by the end of fiscal 2003; the key 

efforts to be undertaken to meet each of the goals are online in the 

supplements to GAO’s strategic plan at www.gao.gov/sp/html/

goal_3.html. The performance goals GAO will begin work on in fiscal 

2004 will be published in our annual performance plan after our 

appropriations for the year are known.



Figure: Goal 3: Transforming the federal government’s role: 



[See PDF for image] --graphic text: 



An image of a dollar bill divided proportionally shows how large a 

slice of GAO’s costs were attributable to goal 3, which deals with 

transforming the federal government’s role.



Goal 3’s cost was $141 million or 31% of GAO’s total.



Results:



$5.2 billion in financial benefits:



* Improving Defense Department’s computer centers’ operations, 

$859 million: 



* Improving collection of nontax debts owed to the U.S. government, 

$300 million: 



* Additional financial benefits, $4 billion: 

 

462 other benefits:



* Greater accountability in the federal acquisition process: 



* Improved implementation of Paperwork Reduction Act: 



* Data stewardship strategies to protect individuals’ privacy: 



* Audit testing approach for forensic audits to identify fraud, waste, 

and abuse: 



* Improved government debt management: 



* 457 additional benefits: 

 

808 new recommendations made:



* Better protect government credit cards from misuse: 



* Audit agencies’ compliance with cost accounting standards: 



* Reassess the requirements for recertifying eligibility for the 

Earned Income Tax Credit: 



* 805 additional improvements recommended: 

 

65 testimonies:



* Intergovernmental aspects of homeland security: 



* Contract management: 



* Corporate governance and accountability: 



* Human capital: 



* Illegal tax schemes and scams: 



* U.S. government’s financial statements: 



* 59 additional hearings on topics of national importance: 



Source: GAO



[End of figure]



Goal 4 Results:



Maximize the Value of GAO by Being a Model Federal Agency and a World-

Class Professional Services Organization:



The focus of our fourth strategic goal is to make GAO a model 

organization--one that is driven by our external clients and internal 

customers, one that exhibits the characteristics of leadership and 

management excellence, one that is devoted to ensuring quality in its 

work process and products through continuous improvement, and one that 

employees and potential employees regard as an excellent place to work. 

GAO’s specific objectives are to:



* sharpen GAO’s focus on clients’ and customers’ requirements,



* enhance leadership and promote management excellence,



* leverage GAO’s institutional knowledge and experience,



* continuously improve GAO’s business and management processes, and:



* become the professional services employer of choice.



In fiscal 2002, we undertook a wide array of efforts in pursuing those 

objectives. To sharpen our focus on our congressional clients’ 

requirements, for example, we completed a 7-month pilot of a Web-based 

feedback system that allows recipients of our reports and testimonies 

on the Hill to provide candid reactions through a short e-mail 

questionnaire. We will expand our use of the feedback system in 2003. 

We also provided emergency relocation assistance to the House of 

Representatives when three House office buildings were closed down to 

be checked for anthrax and decontaminated. In 48 hours, we moved 1,200 

of our headquarters staff to temporary locations and modified our phone 

and computer networks to give Members of Congress and their staffs, a 

total of 1,800 people, a safe and efficient base from which to conduct 

the nation’s business.



Fiscal 2002 was also the greatest hiring year in GAO’s recent history. 

As large numbers of our staff reached retirement age, we hired nearly 

430 permanent staff (and 140 interns), mostly as entry-level 

professionals. To support this effort, we expanded our college 

recruitment efforts, contracted to use a Web-based application-handling 

system, and enhanced diversity recruiting to ensure an outstanding, 

diverse pool of new talent for the agency. We continued revamping and 

expanding our training programs for both staff and executives and 

drafted a human capital strategic plan that will be completed and 

implemented in fiscal 2003. We also began implementing a competency-

based performance system to improve the way we assess how our people 

perform, help them to improve and develop professionally, and reward 

good performance. The system is in place for our analysts, specialists, 

and attorneys and will be extended to the professionals and support 

staff on the administrative side of the agency in the near future.



Also during the year, we replaced our staff’s aging desktop 

workstations with fast, lightweight notebook computers to allow them to 

work more efficiently in the field; increased the security of our 

computer network and of our facilities; and introduced an information 

technology measurement program. We routinely contract for an 

independent review of our computer operations. The results of earlier 

reviews allowed us to improve performance in such areas as quality, 

value, and customer satisfaction. GAO is now well above the average 

agency in these categories. We plan to expand our measurement program 

to include application and asset measurements. For details on these and 

other accomplishments under this goal, see appendix 1.



The annual measures used to assess our performance under our external 

strategic goals are not applicable to this internal strategic goal, but 

2-year performance goals do apply. At the close of fiscal 2002, GAO was 

halfway through the 2-year assessment cycle for these goals, which 

provide the strategies we use to achieve the broader strategic goal and 

its objectives. Strategic goal 4 has 19 performance goals, which call 

for GAO to complete initiatives that range from implementing an 

integrated strategic management approach to providing our people with 

tools, technology, and a working environment that is world-class. As 

the table below shows, at the halfway mark, GAO’s managers reported 

that enough work was under way or completed to allow us to meet 14 of 

the performance goals by the end of fiscal 2003. Work on the key 

efforts supporting 5 other goals is behind schedule, however, raising 

the possibility that these goals will not be met by the end of the 

assessment period, typically because resources were diverted to higher 

priorities. The key efforts to be undertaken to meet each of the goals 

are online in the supplements to GAO’s strategic plan at www.gao.gov/

sp/html/goal_4.html. The performance goals GAO will begin work on in 

fiscal 2004 will be published in our annual performance plan after our 

appropriations for the year are known.



Table: Strategic Goal 4 Performance Data; 2-Year Performance Goals, 

Fiscal 2002-2003.



Sharpen GAO’s focus on clients’ and customers’ requirements.



On track to meet: 



* Continuously update client requirements: 



Not on track to meet: 



* Develop and implement stakeholder protocols and refine client 

protocols; 

The key efforts for this goal call for us to implement three types of 

protocols to guide our work with other organizations: congressional, 

agency, and international. We have refined our congressional protocols 

and are piloting our agency protocols. But we may not meet this 

performance goal by the end of fiscal 2003 because work on the 

international protocols was delayed until all stakeholder comments on 

the agency protocols were resolved. We expect to pilot the 

international protocols before the end of fiscal 2003 and to implement 

them in fiscal 2004.



On track to meet: 



* Identify and refine customer requirements and measures.



Enhance leadership and promote management excellence.



On track to meet: 



* Foster an attitude of stewardship to ensure a commitment to GAO’s 

mission and core values.



* Implement an integrated approach to strategic management.



* Continue to provide leadership in strategic human capital management 

planning and execution.



* Maintain integrity in financial management.



* Use enabling technology to improve GAO’s crosscutting business 

processes.



* Provide a safe and secure workplace.



Leverage institutional knowledge and experience.



On track to meet: 



* Expand GAO’s use of the World Wide Web as a knowledge tool.



Not on track to meet: 



* Develop a framework to manage the collection, use, distribution, 

and retention of organizational knowledge; We have made substantial 

progress under this performance goal by improving our records 
management 

program and have begun work on increasing our knowledge sharing and 

collaboration efforts. However, we may not meet this performance goal 

by the end of fiscal 2003 because resources had to be reallocated to 

finding alternatives to safeguard our mail following the 2001 anthrax 

incident and to higher-priority work to improve GAO’s report production 

and graphics processes. We anticipate providing additional resources to 

this performance goal in fiscal 2004.



* Strengthen relationships with other national and international 

accountability and professional organizations.



Continuously improve our business and management processes.



Not on track to meet: 



* Reengineer internal business and administrative processes; We have 

made progress under this performance goal by assessing our 
administrative 

processes to identify more efficient alternatives and by developing 
ways 

to assess internal customers’ satisfaction. But we may not meet this 

performance goal by the end of fiscal 2003 because developing a 

framework for identifying priorities for process improvement is 

behind schedule because resources were reallocated to higher-priority 

efforts on workforce planning. In addition, the mapping of our business 

processes has progressed more slowly than expected. We plan to devote 

more resources to this performance goal in fiscal 2004.



* Reengineer GAO’s product and service lines; We have made progress 

toward this performance goal by benchmarking our products and 

services against those of high-performing organizations. But we may 

not meet this performance goal by the end of fiscal 2003 because our 

efforts to work with our congressional clients to identify 

appropriate media for communicating results and to establish a 

systematic process to act on their feedback are more extensive than 

previously estimated. We plan to work with the new Congress on these 

matters and hope to accelerate our efforts in fiscal 2003 as we 

attempt to meet this goal.



Not on track to meet:



* Improve GAO’s job management processes.



Become the professional services employer of choice.



On track to meet:



* Maintain an environment that is fair, unbiased, family-friendly, 

and promotes and values opportunity and inclusiveness.



Not on track to meet: 



* Improve compensation and performance management systems; We have 

made substantial progress toward this performance goal by implementing 

a new competency-based performance system for major portions of our 

staff--analysts, specialists, and attorneys--and revising their 

compensation systems to make them more performance-based. But 

developing the new performance and compensation systems for the 

Administrative Professional and Support Staff has been more difficult 

than anticipated because of the large number and wide variety of 

positions to be covered. We plan to implement those systems in 

fiscal 2004.



On track to meet:



* Develop and implement a training and professional development 

strategy targeted toward competencies.



* Provide our people with tools, technology, and a working environment 

that is world-class.



Note: Each performance goal is supported by a set of key efforts. For a 

performance goal to be considered “met” after 2 years, at least 75 

percent of its key efforts must have been accomplished. To view the key 

efforts for any of the performance goals above, go to www.gao.gov/sp/

spsupp.html.



[End of table]



Figure: Goal 4: Maximize the value of GAO:



[See PDF for image] --graphic text: 



An image of a dollar bill divided proportionally shows how large a 

slice of GAO’s costs were attributable to goal 4, which deals with 

maximizing the value of GAO.



Goal 4’s cost was $25.3 million or 6% of GAO’s total.



Results:



Sharpen focus on clients’ and customers’ requirements:



* Piloted Web-based feedback system for congressional clients: 



* Provided emergency relocation support: 



* Developing agency and international protocols: 

 

Enhance leadership and promote management excellence:



* Increased security of GAO’s facilities and information systems: 



* Maintained integrity in financial management: 



* Continued to provide leadership in human capital strategy and 

management: 

 

Leverage institutional knowledge and experience:



* Improved management of agency records: 



* Piloted knowledge-sharing among GAO units: 



* Increased capacity through knowledge-sharing and collaboration: 

 

Continuously improve business and management processes:



* Improved guidance and tracking for GAO engagements: 



* Developed “highlights” page to encapsulate information from a GAO 

report on a single page: 



* Donated excess computer equipment to schools: 

 

Become professional services employer of choice:



* Implemented competency-based performance system for analysts, 

specialists, and attorneys: 



* Developed new training process and expanded executive training 

opportunities: 



* Continued recruitment focus on diversity: 



Source: GAO



[End of figure]



Data Quality and Program Evaluation:



This section describes how GAO ensures the completeness and 

reliability of the performance data in this report and the program 

evaluations conducted during fiscal 2002 on GAO’s operations.



Completeness and Reliability:



Our performance data are complete because actual data are 

reported for every performance measure, and the data are actual 

results for full fiscal years rather than projections from partial 

years. Our data are reliable because we followed the 

verification and validation procedures described in the next 

section to ensure their quality. Most of the data limitations 

explained below result in conservative estimates of our actual 

performance.



Procedures to Ensure Data Quality:



In verifying and validating our own performance data, we benefit 

from lessons learned from our assessments of other agencies’ 

performance information. We adhere to the same professional 

standards and internal policies and procedures applied to GAO’s 

audit, evaluation, and research work. And management’s routine 

use of our performance information further helps to ensure its 

quality and validity. The data are provided to managers for use 

in decision making, and their feedback on these data helps to 

ensure that the data are properly recorded. The specific sources 

of our performance data and procedures for independently 

verifying and validating the data for each of our performance 

measures are shown in the table on the next page. We continue to 

explore ways to strengthen our procedures to ensure data 

integrity.



Table: 



Performance measure: Financial benefits; Background and context: 

GAO’s findings and recommendations may produce measurable financial 

benefits for the federal government when the Congress or agencies 

act on them to reduce annual operating costs or the costs of 

multiyear projects and entitlements or to increase revenues from 

asset sales and changes in tax laws or user fees. The funds made 

available in response to our work may be used to reduce government 

expenditures or may be reallocated to other areas.; To claim that 

financial benefits have been achieved, GAO’s staff must document the 

cause-and-effect relationship between the benefits reported and work 

GAO did, and they must obtain estimates of the benefits’ monetary 

value from independent third parties. Prior to fiscal 2002, GAO limited 

the period over which the benefits from an accomplishment could be 

accrued to no more than 2 years. Beginning in fiscal 2002, GAO is 

extending the period to 5 years for types of accomplishments known to 

have multiyear effects: those associated with longer-term changes 

embodied in law, program terminations, or sales of government assets 

yielding multiyear savings. GAO is retaining the 2-year maximum for all 

other accomplishments. Also in fiscal 2002, GAO began requiring 

benefits to be calculated in net present value terms.; Not every 

financial benefit from our work can be readily estimated or documented 

as attributable to GAO’s work. As a result, the amount of financial 

benefits is a conservative estimate.; Data sources: GAO staff wishing 

to claim that their work has created financial benefits must file an 

accomplishment report backed by documentation linking their work to 

the benefits and providing an independent third party’s estimate of 

the benefits’ monetary value. The third party is typically the agency 

that acted on GAO’s work, a congressional committee, or the 

Congressional Budget Office.; Once accomplishment reports are approved, 

they are compiled by \the Quality and Risk Management (QRM) office, 

which annually tabulates total benefits by goal and agencywide; 

Verification and validation; Policies and procedures guide the 

estimation of financial benefits and their attribution to GAO. 

Estimates must be based on independent sources and reduced by any 

identifiable offsetting costs.; All accomplishment reports filed by 

staff wishing to claim that benefits have resulted from their work are 

reviewed by a member of staff not involved in the work, by the senior 

executive in charge of the unit, and by QRM.; Accomplishment reports 

claiming benefits of $100 million or more must also be approved by QRM. 

In fiscal 2002, 93 percent of the dollar value of financial benefits 

claimed by GAO were approved by QRM.; Accomplishment reports claiming 

benefits of $1 billion or more are also reviewed by GAO’s Inspector 

General. Thus, in fiscal 2002, 58 percent of the dollar value of 

financial benefits claimed by GAO were reviewed by both QRM and the 
IG.; 

QRM provides summary data on approved financial benefits to unit 

managers, who check the data on a regular basis to make sure that 

approved accomplishments from their staff have been accurately 
recorded.; 

Data limitations: Estimates are from independent third parties but are 

based on both objective and subjective data, and as a result, 

professional judgment is required in reviewing accomplishment reports.



Performance measure: Other benefits; Background and context: The other 

benefits that GAO reports reflect instances in which (1) information 
GAO 

provided to the Congress resulted in statutory or regulatory changes, 

(2) agencies took actions in response to GAO’s findings and 

recommendations to improve government services and operations, or 

(3) GAO’s work led to improvements in agencies’ core business processes 

or to the advancement of governmentwide management reforms.; These 

benefits cannot be expressed in monetary terms, but to claim that these 

benefits have occurred, GAO’s staff must file accomplishment reports 
that 

document the actions that have been taken and the cause-and-effect 

relationship between the actions and GAO’s work.; Data sources: GAO 
staff 

wishing to claim that their work has created other benefits must file 

an accomplishment report backed by documentation linking their work to 

the benefits.; Once accomplishment reports are approved, they are 

compiled by QRM, which annually tabulates total benefits by goal and 

agencywide; Verification and validation; Policies and procedures 
require 

accomplishment reports to record the other benefits of our findings and 

recommendations.; All accomplishment reports filed by staff wishing to 

claim that benefits have resulted from their work are reviewed by a 

member of staff not involved in the work, by the senior executive in 

charge of the unit, and by QRM to ensure the appropriateness of the 

claimed accomplishment, including attribution to GAO’s work.; QRM 

provides summary data on other benefits to unit managers, who check 

the data on a regular basis to make sure that approved accomplishments 

from their staffs have been accurately recorded.; A direct cause-and-

effect relationship between GAO’s work and benefits it produced cannot 

always be documented. As a result, the number of other benefits is a 

conservative measure of our overall contribution toward improving 

government.



Performance measure; Recommendations implemented; BAckground and 

context: 

GAO makes recommendations designed to improve the operations of the 

federal government. For GAO’s work to produce financial or other 

benefits, the Congress or other federal agencies must implement these 

recommendations.; As part of our audit responsibilities under generally 

accepted government auditing standards, we follow up on recommendations 

we have made and report to the Congress on their status.; Past 

experience has shown that it takes time for some recommendations to 

be implemented. For this reason, this measure is the percentage rate of 

implementation of recommendations made 4 years prior to a given fiscal 

year (e.g., the fiscal 2002 implementation rate is the percentage of 

recommendations made in fiscal 1998 products that were implemented by 

the end of fiscal 2002). Prior experience has shown that if a 

recommendation has not been implemented within 4 years, it is not 

likely to be implemented.; This measure assesses action on 

recommendations made 4 years previously, rather than the results 

of GAO’s activities during the fiscal year in which the data are 

reported. For example, the percentage of recommendations made in 

fiscal 1998 that were implemented in the ensuing years is as follows: 

44 percent by the end of the first year (fiscal 1999); 62 percent by 

the end of the second year; 69 percent by the end of the third year; 

and 79 percent by end of the fourth year.; Data sources: GAO’s 

document database records recommendations as they are issued.; As 

GAO’s staff monitors implementation, they submit updated information 

to the database.; GAO reports annually to the Congress on 

recommendations that have not been implemented and maintains a 

publicly available database of open recommendations, which is 

updated daily; Verification and validation; The database of GAO’s 

recommendations is maintained by the staff of an external contractor, 

who review all GAO products distributed through a formal process to 

identify all recommendations made and then enter them into a database.; 

Policies and procedures specify that staff must verify, with sufficient 

supporting documentation, that an agency’s reported actions are 

adequately being implemented. Our staff may interview agency officials, 

obtain agency documents, access agency databases, or obtain information 

from the agency’s Office of the Inspector General.; GAO staff update 

the status of the recommendations on a periodic basis. Recommendations 

that are reported as implemented are reviewed by the senior executive 

in charge of the unit and by QRM.; Summary data are provided to the 

units that issued the recommendations. The units check the data 

regularly to make sure the recommendations they have reported as 

implemented have been accurately recorded.; Data limitations: Affected 

agencies and GAO sometimes differ on a recommendation’s status. For 

example, agencies may report actions in response to our 
recommendations, 

but we may determine that these actions are insufficient or do not 

adequately implement our recommendations. In these cases, 

recommendations are recorded as not implemented even though the agency 

has proposed or taken some actions.



Performance measure; Recommendations made and percentage of products 

containing recommendations; Background and context: GAO makes 

recommendations that specify actions that can be taken to improve 

federal operations or programs. We strive for recommendations that 

are directed at resolving the cause of identified problems; that are 

addressed to parties who have the authority to act; and that are 

specific, feasible, and cost-effective.; We track the number of 

recommendations made and the percentage of our written products that 

contain recommendations. The latter indicator recognizes that the 

number of recommendations alone is not necessarily a predictor of 

effect. For example, a product with a single recommendation can help 

bring about significant financial or otherbenefits. Together, these 

two measures provide a picture of the extent to which we are providing 

decision makers with information that will help improve government.; 

Data sources: GAO’s document database records recommendations as they 

are issued; Verification and validation; Through a formal process, an 

external contractor reviews all GAO products distributed, prepares 

summaries that identify products containing recommendations, and 

verifies this information through our recommendation follow-up 

system.; GAO managers are provided with reports on the recommendations 

being tracked to help ensure that all recommendations have been 

captured and that each recommendation has been completely and 
accurately 

stated.; Data limitations: These measures are a conservative estimate 

of the extent to which GAO assists the Congress and federal agencies 

because not all products and services we provide lead to 
recommendations. 

For example, the Congress may request information on federal programs 

that is purely descriptive or analytical and does not lend itself to 

recommendations.



Performance measure: Testimonies; Background and context: The Congress 

may request that GAO testify at hearings on various issues. Testimony 

is one of our most important forms of communication with the Congress, 

and the number of hearings at which we testify reflects the importance 

and value of our institutional knowledge in assisting congressional 

decision making.; Data sources: The data on hearings at which GAO 

testified are complied in our congressional hearing system; 

Verification and validation; The units responding to requests for 

testimony are responsible for entering data in GAO’s congressional 

hearing system.; After a GAO witness has testified at a hearing, GAO’s 

Congressional Relations office verifies that the data in the system are 

correct and records the hearing as one at which we testified.; 

Congressional Relations provides weekly status reports to unit 
managers, 

who check to make sure the data are complete and accurate.; Data 

limitations: The measure may be influenced by factors other than the 

quality of GAO’s performance in any specific year. The number of 

hearings held each year depends on the Congress’s agenda, and the 

number of times GAO is asked to testify may reflect congressional 

interest in work completed that year, the previous year, or work 

in progress.; The number of testimonies actually provided by GAO 

witnesses may be understated because we count statements from multiple 

GAO witnesses at a hearing as a single testimony.



Performance measure; Timeliness; Background and context: The 

likelihood that GAO’s products will be used is enhanced if they 

are delivered when needed to support congressional and agency 

decision making. To determine whether GAO’s products are timely, we 

measure the proportion of our products that are issued by the dates 

agreed to with our clients or, for our R&D work, by the dates agreed to 

internally.; We have made several improvements to clarify our guidance 

and controls covering our timeliness measure. We clarified the criteria 

for changing target dates. Initial target dates may be changed because 

the scope of an assignment is changed by its congressional requesters 

or, in the case of R&D work, by GAO’s senior leadership. Target dates 

may also change because of external factors beyond GAO’s control. In 

addition, senior executives are responsible for approving any changes 

and ensuring that the changes are clearly documented.; Data sources: 

The data supporting this measure are from GAO’s Mission and Assignment 

Tracking System, which is used to monitor our progress on assignments; 

Verification and validation; GAO staff enter the data supporting this 

measure into our Mission and Assignment Tracking System. Aggregate 

and assignment-specific timeliness data are given to units monthly. 

Their staff advise of any anomalies.; When an assignment is completed, 

data on its target and completion dates are reported to the project 

manager, who reviews and signs the report to confirm its accuracy.; 

Data limitations: We measure the timeliness of most external products. 

A small percentage of our products--staff studies and guidance, for 

example--that are not part of our main product lines are excluded.



Performance measure; 2-year (qualitative); Background and context: 

Assessing the extent to which we achieve 2-year performance goals 

(referred to in past reports as qualitative goals) helps focus our 

efforts on issues of critical importance and provides a tool for 

holding ourselves accountable for the resources the Congress provides. 

They measure the extent to which we did the work we had planned to 

do to support the Congress during a 2-year period.; For each 

performance goal, we identify the key efforts needed to achieve it. To 

determine whether a performance goal has been met, we assess the work 

completed under the goal’s key efforts. In making this assessment, the 

responsible GAO manager considers the number of reports issued and 

recommendations made for each key effort.; For strategic goals 1 

through 3--which focus on supporting the Congress and improving the 

federal government--a performance goal is met when we provide 

information or make recommendations on 75 percent of its key efforts. 

For strategic goal 4--which focuses on improving GAO--a performance 

goal is met when we complete 75 percent of its key efforts.; 

Data sources: The data supporting this measure are from GAO managers’ 

assessments, which are supported by documentation, of work completed 

under performance goals’ key efforts.; For performance goals under 

strategic goals 1 through 3, the supporting documentation comes from 

our automated Mission and Assignment Tracking System and document 

database. For performance goals under strategic goal 4, the supporting 

documentation comes from reports produced by the managers responsible 

for each key effort; Verification and validation: We consult with our 

congressional clients and other outside experts in setting our 2-year 

performance goals.; The assessment of each 2-year performance goal 

under strategic goals 1 through 3 is supported by documentation 
showing, 

by key effort, the number of reports issued and recommendations made 

during the assessment period. QRM provides this information to GAO’s 

managers several times a year so that they can check its accuracy.; 

The assessment of the performance goals under strategic goal 4 is 

supported by documentation showing the work completed under each 

key effort.; QRM reviews the assessments and supporting documentation 

for all performance goals to ensure that criteria are consistently 

applied and that requirements are met.; Data limitations: Professional 

judgment must be applied when assessing the work done under each 

performance goal and when reviewing those assessments.



[End of table]



Program Evaluation:



We use several periodic evaluations to help us assess progress toward 

our strategic goals and objectives and to update them for our strategic 

plan, which we revise every 2 years. Much of the value of GAO’s work--

as reflected in our measures of financial and other benefits--results 

from agencies’ acting on our findings and recommendations. Thus, under 

strategic goals 1, 2, and 3 (which focus on serving the Congress and 

improving the federal government), we evaluate actions taken by federal 

agencies and the Congress in response to our recommendations. The 

results of these evaluations are conveyed in this performance and 

accountability report. In addition, we actively monitor the status of 

open recommendations and report our findings annually to the Congress 

and the public (www.gao.gov/openrecs.html). We use the results of that 

analysis to determine the need for further work in particular areas. 

If, for example, an agency has not implemented a recommended action 

that we consider to be still valid and worthwhile, we may decide to 

pursue further action with agency officials or congressional 

committees, or we may decide to undertake additional work on the 

matter.



Another major evaluation we use to assess the extent to which we are 

achieving our strategic objectives under goals 1, 2, and 3 is our 

biennial Performance and Accountability Series: Major Management 

Challenges and Program Risks (www.gao.gov/pas/2003/). This series 

addresses a range of challenges and opportunities to enhance 

performance and accountability governmentwide and at federal agencies. 

The series also includes a companion volume that provides a status 

report on those major government operations considered “high risk” 

because of their greater vulnerabilities to waste, fraud, abuse, and 

mismanagement. The series is a valuable evaluation and planning tool 

for our own agency because it helps us to identify those areas where 

continued GAO efforts are needed to maintain the focus on important 

policy and management issues that the nation faces.



A third major evaluation completed in fiscal 2002 was an independent 

peer review of GAO’s quality control system for financial audits. The 

report of the independent peer reviewer, KPMG LLP (www.gao.gov/

special.pubs/kpmgqc.pdf), contains an unqualified opinion, meaning 

that KPMG found that the system is designed to meet applicable quality 

control standards and that we complied with our system in performing 

financial audits of other organizations during calendar year 2001.



To help us assess our progress toward the strategic objectives under 

goal 4 (which focuses on improving GAO), we completed a number of 

studies and evaluations:



* The effectiveness of GAO’s risk management approach to designing 

engagements and developing quality products that meet GAO’s core values 

and professional standards--The assessment showed there has been an 

increase in the number of draft reports meeting all quality standards 

the first time they are submitted for official review outside the 

originating team. This assessment is discussed in appendix 1.



* The status of GAO’s information security program--The assessment 

identified no material weaknesses in our financial applications or 

general support system. It also showed that while we are making 

progress in implementing the information security requirements of the 

Government Information Security Reform provisions, we do have several 

areas that need improvement. The results of this assessment are 

discussed in the management challenges section and appendix 4.



* The vulnerability of our building and grounds to security risks--We 

identified a number of actions to improve the safety and security of 

our workplace. We implemented several measures, such as reinforcing 

vehicle and pedestrian entry points, and are researching and designing 

other projects to improve safety and security. The results of this 

assessment are discussed in the management challenges section and in 

appendix 1.



* The efficiency and effectiveness of a number of our core and support 

businesses processes--We found opportunities to improve, and 

implemented changes in, several areas, including enhancing GAO’s 

guidance and tools to make it easier for staff to find and follow our 

policies and procedures; centralizing our process for coordinating work 

with other agencies, which reduced delays in meeting with agency 

officials; and reducing costs for electrical services. These actions 

and several others are discussed in the goal 4 section of appendix 1.



Finally, GAO’s Inspector General evaluates the administration of the 

agency. The Inspector General’s evaluations are useful in ensuring that 

our operations are efficient and economical. The evaluations are listed 

in our discussion of financial systems and controls. While most of the 

evaluations done on the strategic objectives under goal 4 are not 

available publicly, they are discussed in other sections of this report 

as noted above.



Part III: 



Financial Information:



From the Chief Financial Officer:



January 31, 2003:



I am pleased to present the U.S. General Accounting Office’s financial 

statements for fiscal 2002. Our financial statements, which are 

integral to our performance and accountability report, have received an 

unqualified opinion from our independent auditors for the 16th 

consecutive year. This clean bill of financial health is particularly 

important to GAO because of our agency’s strong commitment to 

accounting for the taxpayer dollars we have been provided.



GAO’s financial condition is sound. As of September 30, 2002, GAO had 

enough funds to carry out our mission and had appropriate controls in 

place to ensure that the agency did not exceed our budget authority.



We continue to look for ways to better serve the Congress, make the 

best use of our available resources, and strengthen our financial 

position. GAO’s work in fiscal year 2002 led to hundreds of actions to 

improve the economy, efficiency, and effectiveness of government 

programs and policies. GAO also provided a superb return on investment. 

Financial benefits from the agency’s work totaled a record $37.7 

billion last year--an $88 return on every dollar invested in GAO.



We made significant progress in linking our strategic goals with 

relevant costs. For the second year, our performance and accountability 

report provides the costs of our operations by strategic goal and 

clearly explains the results we have achieved. The Association of 

Government Accountants awarded the Certificate of Excellence in 

Accountability Reporting to GAO for our performance and accountability 

report for fiscal 2001, citing its comprehensiveness and readability.



We have introduced an information technology measurement program, and 

we routinely contract for an independent review of our computer 

operations. The results of earlier reviews allowed GAO to improve 

performance in such areas as quality, value, and customer satisfaction. 

GAO is now well above the average agency in these categories.



In fiscal 2003, guided by our core values of accountability, integrity, 

and reliability, GAO will continue to strive to become a model federal 

agency and a world-class professional services organization. Our focus, 

as it has been since 1921, will be to help the Congress improve 

government operations for the benefit of the American people.



Sallyanne Harper:



Chief Financial Officer:



Signed by Sallyanne Harper: 



Overview of Financial Statements:



GAO’s financial statements and accompanying notes begin on page 88. Our 

financial statements for the fiscal years ended September 30, 2002 and 

2001, were audited by an independent auditor, Cotton & Co., LLP.



Cotton & Co., LLP, rendered an unqualified opinion on GAO’s financial 

statements and an unqualified opinion on the effectiveness of GAO’s 

internal controls over financial reporting and compliance with laws and 

regulations. The auditor also reported that GAO had substantially 

complied with the applicable requirements of the Federal Financial 

Management Improvement Act (the Improvement Act) of 1996 and found no 

reportable instances of noncompliance with selected provisions of laws 

and regulations. In the opinion of the independent auditor, the 

financial statements are presented fairly in all material respects and 

are in conformity with generally accepted accounting principles.



The net cost of operating GAO during fiscal 2002 and 2001 was 

approximately $453 million and $413.1 million, respectively. Expenses 

for salaries and related benefits accounted for 78 and 80 percent of 

GAO’s net cost of operations in fiscal 2002 and 2001, respectively. The 

pie chart illustrates how GAO’s costs break down by category.



Figure: Uses of Funds by Category: 



[See PDF for image] - graphic text:



FY 2002--percentage of total net costs:



Pie chart with five items.



Item 1, Depreciation; 3.8 percent:

Item 2, Rent (space and hardware); 3.8 percent:

Item 3, Other; 4.1 percent:

Item 4, Building and hardware maint. services; 10.5 percent:

Item 5, Salaries and benefits; 77.8 percent:



Source: GAO:



[End of figure] 



GAO reports net cost of operations according to our four strategic 

goals, consistent with our strategic plan. Activities in goals 1 and 2 

were responsible for most of the increase in GAO’s net cost of 

operations between fiscal 2002 and 2001. In goal 1, work on education, 

workforce, and income security issues represented most of the goal’s 

increase. In goal 2, work on defense capabilities and management and on 

international affairs and trade issues constituted most of the goal’s 

increase in costs.



Figure: GAO’s Net Costs by Goal: 



[See PDF for image] -graphic text:



Bar chart with 12 items.



Dollars in millions:



Goal 1: 



Item 1, 2000; 153.4:

Item 2, 2001; 161.1: 

Item 3, 2002; 178.3: 



Goal 2: 



Item 4, 2000; 97.0:

Item 5, 2001; 93.4:

Item 6, 2002; 110.5:



Goal 3: 



Item 7, 2000; 134.6:

Item 8, 2001; 139.5:

Item 9, 2002; 141.0:



Goal 4: 



Item 10, 2000; 19.8:

Item 11, 2001; 20.7:

Item 12, 2002; 25.3:



Source: GAO:



Note: The net costs are in actual dollars and have not been adjusted 

for inflation..



[End of figure]



Financial Systems and Internal Controls:



GAO recognizes the importance of strong financial systems and internal 

controls to ensure our accountability, integrity, and reliability. To 

achieve a high level of quality, management maintains a quality control 

program and seeks advice and evaluation from both internal and external 

sources.



GAO is committed to fulfilling the internal control objectives of 31 

U.S.C. 3512, formerly the Federal Managers’ Financial Integrity Act 

(the Integrity Act). Although GAO is not subject to the act, we comply 

voluntarily with its requirements. Our internal controls are designed 

to provide reasonable assurance that obligations and costs are in 

compliance with applicable laws and regulations; funds, property, and 

other assets are safeguarded against loss from unauthorized 

acquisition, use, or disposition; and revenues and expenditures 

applicable to GAO’s operations are properly recorded and accounted for 

to enable our agency to prepare reliable financial reports and maintain 

accountability over our assets.



GAO’s management assesses compliance with these controls through a 

series of comprehensive internal reviews, applying the evaluation 

criteria in the Office of Management and Budget’s guidance for 

implementing the Integrity Act. The results of these reviews are 

discussed with GAO’s Audit Advisory Committee, and action is taken to 

correct deficiencies as they are identified.



GAO assessed our internal controls as of September 30, 2002, based on 

the criteria mentioned above for effective internal controls in the 

federal government. On the basis of this assessment, we believe that as 

of September 30, 2002, we have effective internal controls in place. 

Additionally, an independent auditor found that GAO maintained 

effective internal controls over financial reporting and compliance 

with laws and regulations. Consistent with GAO’s evaluation, the 

auditor found no material internal control weaknesses.



In addition, GAO is committed to fulfilling the objectives of the 

Federal Financial Management Improvement Act of 1996 (the Improvement 

Act). Although not subject to the act, GAO voluntarily complies with 

its requirements. We believe that we have implemented and maintained 

financial systems that comply substantially with federal financial 

management systems requirements, applicable federal accounting 

standards, and the United States Government Standard General Ledger at 

the transaction level as of September 30, 2002. GAO made this 

assessment based on criteria established under the Improvement Act and 

guidance issued by the Office of Management and Budget. Also, an 

auditor reported that GAO had substantially complied with the 

applicable requirements of the Improvement Act as of September 30, 

2002.



GAO’s Inspector General conducts audits and investigations and 

functions as an independent fact-gathering and technical adviser to the 

Comptroller General. This year, as a result of the Inspector General’s 

efforts, we have improved our policies or internal controls regarding 

(1) processing of invoices to preclude duplicate payments and for 

meeting the prompt-payment standards, (2) protection of sensitive 

personal information, (3) cellular telephone usage, and (4) pay-setting 

procedures for certain employees. Management agrees with all of the 

Inspector General’s eight open recommendations and plans to take 

actions that are appropriate to address the underlying issues. There 

are no unresolved issues.



GAO’s Audit Advisory Committee assists the Comptroller General in 

overseeing the effectiveness of our financial reporting and audit 

processes, internal controls over financial operations, and processes 

to ensure compliance with laws and regulations relevant to GAO’s 

financial operations. As of September 30, 2002, the committee consisted 

of Sheldon S. Cohen (Chairman), Alan B. Levenson, and Katherine D. 

Ortega, whose relevant experience was described earlier in this report. 

The committee’s report follows our financial statements and 

accompanying notes.



Purpose of Each Financial Statement:



The financial statements on the next five pages present the following 

information:



* The balance sheet presents the combined amounts GAO had available to 

use (assets) versus the amounts GAO owed (liabilities) and the residual 

amounts after liabilities were subtracted from assets (net position).



* The statement of net cost presents the annual cost of GAO’s 

operations. The gross cost less any offsetting revenue earned from 

GAO’s activities is used to arrive at the net cost of work performed 

under GAO’s four strategic goals.



* The statement of changes in net position presents the accounting 

items that caused the net position section of the balance sheet to 

change from the beginning to the end of the fiscal year.



* The statement of budgetary resources presents how budgetary resources 

were made available to GAO during the fiscal year and the status of 

those resources at the end of the fiscal year.



* The statement of financing reconciles the resources available to GAO 

with the net cost of operating the agency.



Table: Financial Statements; U.S. General Accounting Office:



Balance Sheet; 



As of September 30, 2002 and 2001:



(Dollars in thousands); 



Assets.

Intragovernmental:

2002; Funds with the U.S. Treasury and cash (Note two); $62,055.

2001; Funds with the U.S. Treasury and cash (Note two); $56,482.



2002; Accounts receivable (Note one); 387.

2001; Accounts receivable (Note one); 254.



2002; Total Intragovernmental; 62,442.

2001; Total Intragovernmental; 56,736.



2002; Property and equipment, net (Note three); 63,888.

2001; Property and equipment, net (Note three); 66,318.



2002; Other (Note one); 486.

2001; Other (Note one); 401.



2002; Total Assets; $126,816.

2001; Total Assets; $123,455.



Liabilities.

Intragovernmental:

2002; Accounts payable (Note one); $11,044.

2001; Accounts payable (Note one); $6,711.



2002; Employee benefits (Note five); 1,185.

2001; Employee benefits (Note five); 2,683.



2002; Workers’ compensation (Note four and six); 2,102.

2001; Workers’ compensation (Note four and six); 2,136.



2002; Deferred lease revenue (Note four and seven); 2,514.

2001; Deferred lease revenue (Note four and seven); 5,532.



2002; Total Intragovernmental; 16,845.

2001; Total Intragovernmental; 17,062.



2002; Accounts payable (Note one);13,023.

2001; Accounts payable (Note one); 10,258.



2002; Salaries and benefits (Note four and five); 10,204.

2001; Salaries and benefits (Note four and five); 18,378.



2002; Accrued annual leave and other (Note four); 29,357.

2001; Accrued annual leave and other (Note four); 27,836.



2002; Workers’ compensation (Note four and six); 12,331.

2001; Workers’ compensation (Note four and six); 7,954.



2002; Capital leases (Note four and eight); 9,968.

2001; Capital leases (Note four and eight); 5,360.



2002; Total Liabilities; 91,728.

2001; Total Liabilities; 86,848.



Net Position:

2002; Unexpended appropriations; 29,925.

2001; Unexpended appropriations; 21,258.



2002; Cumulative results of operations; 5,163.

2001; Cumulative results of operations; 15,349.



2002; Total net position; 35,088.

2001; Total net position; 36,607.



2002; Total Liabilities and Net Position; $126,816.

2001; Total Liabilities and Net Position; $123,455.

The accompanying notes are an integral part of these statements.

End of financial statement one.





Statement of Net Cost:

For Fiscal Years Ended September 30, 2002 and 2001 (dollars in 

thousands).



Net Costs by Goal:

2002; Goal 1: Well being/financial security of American people; 

$178,455.

2001; Goal 1: Well being/financial security of American people; 

$161,142.



2002; Less: reimbursable services; (74).

2001; Less: reimbursable services; (30).



2002; Net goal costs; 178,381.

2001; Net goal costs; 161,112.



2002; Goal 2: Changing security threats/challenges of global 

interdependence; 110,692.

2001; Goal 2: Changing security threats/challenges of global 

interdependence; 93,456.



2002; Less: reimbursable services; (155).

2001; Less: reimbursable services; (16).



2002; Net goal costs; 110,537.

2001; Net goal costs; 93,440.



2002; Goal 3: Transforming the federal government’s role; 

142,204.

2001; Goal 3: Transforming the federal government’s role; 

140,215.



2002; Less: reimbursable services; (1,237).

2001; Less: reimbursable services; (756).



2002; Net goal costs; 140,967.

2001; Net goal costs; 139,459.



2002; Goal 4: Maximize the value of GAO; 25,278.

2001; Goal 4: Maximize the value of GAO; 20,695.



2002; Less: reimbursable services; 0.

2001; Less: reimbursable services; 0.



2002; Net goal costs; 25,278.

2001; Net goal costs; 20,695.



2002; Less: reimbursable services not attributable to goals; 

(2,128).

2001; Less: reimbursable services not attributable to goals; 

(1,652).



2002; Net Cost of Operations (Note nine); $453,035.

2001; Net Cost of Operations (Note nine); $413,054.

The accompanying notes are an integral part of these statements.

End of financial statement two.



Statement of Changes in Net Position.



For Fiscal Years Ended September 30, 2002 and 2001 (dollars in 

thousands).



2002; Balances, Beginning of Fiscal Year; Cumulative Results of 

Operations; $15,349.

2001; Balances, Beginning of Fiscal Year; Cumulative Results of 

Operations; $18,761.

2002; Balances, Beginning of Fiscal Year; Unexpended 

Appropriations; $21,258.

2001; Balances, Beginning of Fiscal Year; Unexpended 

Appropriations; $23,515.



Budgetary Financing Sources:

2002; Current year appropriations; Cumulative Results of 

Operations; 0.

2001; Current year appropriations; Cumulative Results of 

Operations; 0.

2002; Current year appropriations; Unexpended Appropriations; 

421,844.

2001; Current year appropriations; Unexpended Appropriations; 

384,020.



2002; Transfers of budget authority (Note ten); Cumulative 

Results of Operations; 0.

2001; Transfers of budget authority (Note ten); Cumulative 

Results of Operations; 0.

2002; Transfers of budget authority (Note ten); Unexpended 

Appropriations; 7,600.

2001; Transfers of budget authority (Note ten); Unexpended 

Appropriations; 983.



2002; Lapsed budget authority; Cumulative Results of Operations; 0.

2001; Lapsed budget authority; Cumulative Results of Operations; 0.

2002; Lapsed budget authority; Unexpended Appropriations; (1,731).

2001; Lapsed budget authority; Unexpended Appropriations; (112).



2002; Appropriations used; Cumulative Results of Operations; 

419,046.

2001; Appropriations used; Cumulative Results of Operations; 

387,148.

2002; Appropriations used; Unexpended Appropriations; (419,046).

2001; Appropriations used; Unexpended Appropriations; (387,148).



Other Financing Sources:

2002; Intragovernmental transfer of property and equipment; 

Cumulative Results of Operations; (222).

2001; Intragovernmental transfer of property and equipment; 

Cumulative Results of Operations; (205).

2002; Intragovernmental transfer of property and equipment; 

Unexpended Appropriations; 0.

2001; Intragovernmental transfer of property and equipment; 

Unexpended Appropriations; 0.



2002; Federal employee retirement benefit costs paid by OPM and 

imputed to GAO (Note five); Cumulative Results of Operations; 21,007.

2001; Federal employee retirement benefit costs paid by OPM and 

imputed to GAO (Note five); Cumulative Results of Operations; 19,681.

2002; Federal employee retirement benefit costs paid by OPM and 

imputed to GAO (Note five); Unexpended Appropriations; 0.

2001; Federal employee retirement benefit costs paid by OPM and 

imputed to GAO (Note five); Unexpended Appropriations; 0.



2002; Amortization of deferred lease revenue (Note seven); Cumulative 

Results of Operations; 3,018.

2001; Amortization of deferred lease revenue (Note seven); Cumulative 

Results of Operations; 3,018.

2002; Amortization of deferred lease revenue (Note seven); Unexpended 

Appropriations; 0.

2001; Amortization of deferred lease revenue (Note seven); Unexpended 

Appropriations; 0.



2002; Total Financing Sources; Cumulative Results of Operations; 

442,849.

2001; Total Financing Sources; Cumulative Results of Operations; 

409,642.

2002; Total Financing Sources; Unexpended Appropriations; 8,667.

2001; Total Financing Sources; Unexpended Appropriations; (2,257).



2002; Net Cost of Operations; Cumulative Results of Operations; 

(453,035).

2001; Net Cost of Operations; Cumulative Results of Operations; 

(413,054).

2002; Net Cost of Operations; Unexpended Appropriations; 0.

2001; Net Cost of Operations; Unexpended Appropriations; 0.



2002; Balances, End of Fiscal Year; Cumulative Results of 

Operations; $5,163.

2001; Balances, End of Fiscal Year; Cumulative Results of 

Operations; $15,349.

2002; Balances, End of Fiscal Year; Unexpended Appropriations; 

$29,925.

2001; Balances, End of Fiscal Year; Unexpended Appropriations; 

$21,258.

The accompanying notes are an integral part of these statements.

End of financial statement three.



Statement of Budgetary Resources.

For Fiscal Years Ended September 30, 2002 and 2001 (dollars in 

thousands).



Budgetary Resources (Note ten):

2002; Current year appropriations; $421,844.

2001; Current year appropriations; $384,020.



2002; Transfers of budget authority; 7,600.

2001; Transfers of budget authority; 983.



2002; Unobligated appropriations, beginning of fiscal year; 7,512.

2001; Unobligated appropriations, beginning of fiscal year; 4,264.



2002; Reimbursable services (Note nine); 3,594.

2001; Reimbursable services (Note nine); 2,454.



2002; Cost sharing and pass through CPA contract reimbursements; 

2,093.

2001; Cost sharing and pass through CPA contract reimbursements; 

1,222.



2002; Total Budgetary Resources; $442,643.

2001; Total Budgetary Resources; $392,943.



Status of Budgetary Resources:

2002; Obligations incurred; $426,714.

2001; Obligations incurred; $385,319.



2002; Unobligated appropriations, end of fiscal year; 14,198.

2001; Unobligated appropriations, end of fiscal year; 7,512.



2002; Lapsed budget authority; 1,731.

2001; Lapsed budget authority; 112.



2002; Total Status of Budgetary Resources; $442,643.

2001; Total Status of Budgetary Resources; $392,943.



Relationship of Obligations to Outlays:

2002; Obligations incurred; $426,714.

2001; Obligations incurred; $385,319.



2002; Obligated balance, net, beginning of fiscal year; 48,970.

2001; Obligated balance, net, beginning of fiscal year; 50,851.



2002; Less: Obligated balance, net, end of fiscal year; (47,856).

2001; Less: Obligated balance, net, end of fiscal year; (48,970).



2002; Total Outlays; 427,828.

2001; Total Outlays; 387,200.



2002; Less: Reimbursable services; (3,594).

2001; Less: Reimbursable services; (2,454).



2002; Cost sharing and pass through CPA contract reimbursements; 

(2,093).

2001; Cost sharing and pass through CPA contract reimbursements; 

(1,222).



2002; Net Outlays; $422,141.

2001; Net Outlays; $383,524.



Outlays:

2002; Disbursements; $427,828.

2001; Disbursements; $387,200.



2002; Collections; (5,687).

2001; Collections; (3,676).



2002; Net Outlays; $422,141.

2001; Net Outlays; $383,524.

The accompanying notes are an integral part of these statements.

End of financial statement four.





Statement of Financing.

For Fiscal Years Ended September 30, 2002 and 2001 (dollars in 

thousands).



Resources Used to Finance Activities:

Budgetary Resources Obligated:

2002; Obligations incurred; $426,714.

2001; Obligations incurred; $385,319.



2002; Less: Reimbursable services (Note nine); (3,594).

2001; Less: Reimbursable services (Note nine); (2,454).



2002; Less: Cost sharing and pass through CPA contract reimbursements 

(Note 10); (2,093).

2001; Less: Cost sharing and pass through CPA contract reimbursements 

(Note 10); (1,222).



2002; Net obligations; 421,027.

2001; Net obligations; 381,643.



Other Resources:

2002; Intragovernmental transfer of property and equipment; (222).

2001; Intragovernmental transfer of property and equipment; (205).



2002; Federal employee retirement benefit costs paid by OPM and 

imputed to GAO (Note five); 21,007.

2001; Federal employee retirement benefit costs paid by OPM and 

imputed to GAO (Note five); 19,681.



2002; Amortization of deferred lease revenue (Note seven); 3,018.

2001; Amortization of deferred lease revenue (Note seven); 3,018.



2002; Net other resources used to finance activities; 23,803.

2001; Net other resources used to finance activities; 22,494.



2002; Total resources used to finance activities; 444,830.

2001; Total resources used to finance activities; 404,137.



Resources Used to Finance Items Not Part of the Net Cost of Operations:

2002; Net (increase) decrease in unliquidated obligations;(1,980).

2001; Net (increase) decrease in unliquidated obligations; 5,505.



2002; Costs capitalized on the balance sheet; (13,180).

2001; Costs capitalized on the balance sheet; (13,983).



2002; Total resources used to finance items not part of the net cost 

of operations; (15,160).

2001; Total resources used to finance items not part of the net cost 

of operations; (8,478). 



2002; Total resources used to finance the net cost of operations; 

429,670.

2001; Total resources used to finance the net cost of operations; 

395,659.



Costs That Require Resources in Future Periods:

2002; Expenses to be funded by future appropriations (Note eleven); 

6,213.

2001; Expenses to be funded by future appropriations (Note eleven); 

298.



Costs That Do Not Require Resources:

2002; Depreciation; 17,152.

2001; Depreciation; 17,097.



2002; Net Cost of Operations; $453,035.

2001; Net Cost of Operations; $413,054.

The accompanying notes are an integral part of these statements.

End of financial statement five.



Notes to Financial Statements:



Note 1. Summary of Significant Accounting Policies:



Reporting Entity:



The accompanying financial statements present the financial position, 

net cost of operations, changes in net position, budgetary resources, 

and financing of the United States General Accounting Office (GAO). 

GAO, an agency in the legislative branch of the federal government, 

supports the Congress in carrying out its constitutional 

responsibilities. GAO carries out its mission primarily by conducting 

audits, evaluations, analyses, research, and investigations and 

providing the information from that work to the Congress and the public 

in a variety of forms. The financial activity presented relates 

primarily to the execution of GAO’s congressionally approved budget. 

GAO’s budget consists of an annual appropriation covering salaries and 

expenses and revenue from reimbursable audit work and rental income. 

This revenue is included on the Statement of Budgetary Resources as 

“reimbursable services.” The financial statements, except for federal 

employee benefit costs paid by the Office of Personnel Management (OPM) 

and imputed to GAO, do not include the effects of centrally 

administered assets and liabilities related to the federal government 

as a whole, such as interest on the federal debt, which may in part be 

attributable to GAO; they also do not include activity related to GAO’s 

trust function described in Note 12.



Basis of Accounting:



GAO’s financial statements conform to Generally Accepted Accounting 

Principles (GAAP) as promulgated by the Federal Accounting Standards 

Advisory Board (FASAB). The American Institute of Certified Public 

Accountants (AICPA) recognizes FASAB Standards as GAAP for federal 

reporting entities. These principles differ from budgetary reporting 

principles. The differences relate primarily to the capitalization and 

depreciation of property and equipment, as well as the recognition of 

other long-term assets and liabilities.



Basis of Presentation:



GAO’s financial statements have been prepared on the accrual basis of 

accounting in conformity with GAAP for the federal government. 

Accordingly, revenues are recognized when earned and expenses are 

recognized when incurred, without regard to the receipt or payment of 

cash.



The statements were also prepared in conformity with Office of 

Management and Budget (OMB) Bulletin 01-09, Form and Content of Agency 

Financial Statements. The provisions of this bulletin are effective in 

their entirety for the preparation of financial statements for the 

fiscal year ending September 30, 2002, and thereafter. GAO chose to 

implement the provisions of this bulletin with the preparation of its 

fiscal 2001 financial statements.



Assets:



Intragovernmental assets are those assets that arise from transactions 

with other federal entities. Funds with the U.S. Treasury composed the 

majority of intragovernmental assets on GAO’s balance sheet.



Funds with the U.S. Treasury:



The U.S. Treasury processes GAO’s receipts and disbursements. Funds 

with Treasury represent appropriated funds Treasury will provide to pay 

liabilities and to finance authorized purchase commitments.



Accounts Receivable:



GAO’s accounts receivable are due principally from federal agencies for 

reimbursable services; therefore, GAO has not established an allowance 

for doubtful accounts.



Property and Equipment:



The GAO building is listed in the National Register of Historic Places 

and has been designated as and is GAO’s only heritage asset. 

Maintenance of the building has been kept on a current basis. The 

building is depreciated on a straight-line basis over 25 years.



Property and equipment costing more than $5,000 are capitalized at 

cost. Bulk purchases of lesser-value items that aggregate more than 

$100,000 are also capitalized at cost. These assets are depreciated on 

a straight-line basis over the estimated useful life of the property as 

follows: building improvements, 10 years; computer equipment, software, 

and capital lease assets, ranging from 3 to 6 years; leasehold 

improvements, 5 years; and other equipment, ranging from 5 to 20 years. 

GAO’s property and equipment have no restrictions as to use or 

convertibility except for the restrictions related to the GAO 

building’s classification as a multi-use heritage asset.



Other Assets:



The composition of Other Assets as of September 30, 2002 and 2001, is 

as follows:



Table: Dollars in thousands; 



Operating supplies to be consumed in normal operations (valued at 

cost); 2002: $404; 2001: $357.



Other receivables; 2002: 82; 2001: 44.



Total Other Assets; 2002: $486; 2001: $401.



[End of table]



Liabilities:



Liabilities represent amounts that are likely to be paid by GAO as a 

result of transactions that have already occurred; however, no 

liability is paid by GAO absent an appropriation.



Intragovernmental liabilities arise from transactions with other 

federal entities. Detail of GAO’s intragovernmental liabilities by 

agency as of September 30, 2002 and 2001 is as follows:



Table: Dollars in thousands; 



Agency; General Services Administration; 2002; $8,793; 2001: $5,553.



Agency; U.S. Army Corps of Engineers; 2002; 3,716; 2001: 5,774.



Agency; Department of Labor; 2002; 2,332; 2001: 2,279.



Agency; All others; 2002; 2,004; 2001: 3,456.



Agency; Total Intragovernmental Liabilities; 2002; $16,845; 2001: 

$17,062.



[End of table]



Accounts Payable:



Accounts Payable consist of amounts owed to federal agencies and 

commercial vendors for goods, services, and other expenses received but 

not yet paid.



Federal Employee Benefits:



GAO recognizes its share of the cost of providing future pension 

benefits to eligible employees over the period of time that they render 

such services. The pension expense recognized in the financial 

statements equals the current service cost for GAO’s employees for the 

accounting period less the amount contributed by the employees. The 

measurement of the service cost requires the use of an actuarial cost 

method and assumptions, with the factors applied by GAO provided by 

OPM, the agency that administers the plan. The excess of the recognized 

pension expense over the amount contributed by GAO and employees 

represents the amount being financed directly through the Civil Service 

Retirement and Disability Fund administered by OPM. This amount is 

considered imputed financing to GAO.



GAO recognizes a current-period expense for the future cost of post 

retirement health benefits and life insurance for its employees while 

they are still working. GAO accounts for and reports this expense in 

its financial statements in a manner similar to that used for pensions, 

with the exception that employees and GAO do not make current 

contributions to fund these future benefits.



Federal employee benefit costs paid by OPM and imputed to GAO are 

reported on the Statements of Changes in Net Position and Financing and 

are also included as a component of net cost by goal on the Statement 

of Net Cost.



Annual, Sick, and Other Leave:



Annual leave is recognized as an expense and a liability as it is 

earned; the liability is reduced as leave is taken. The accrued leave 

liability is principally long-term in nature. Sick leave and other 

types of leave are expensed as leave is taken.



Contingencies:



GAO has certain claims and lawsuits pending against it. Provision has 

been made in GAO’s financial statements for losses considered probable 

and estimable. These amounts are considered by management to be 

immaterial. Management believes that losses, if any, from other claims 

and lawsuits would not be material to the fair presentation of GAO’s 

financial statements.



Note 2. Funds with the U.S. Treasury and Cash:



GAO’s funds with the U.S. Treasury consist of only appropriated funds. 

GAO also maintains cash imprest funds for use in daily operations. The 

status of these funds as of September 30, 2002 and 2001, is as follows:



Table: Dollars in thousands; 



Unobligated balance; 



Available; 2002; $7,898; 2001: $2,855.



Unavailable; 2002; 6,300; 2001: 4,657.



Obligated balances not yet disbursed; 2002; 47,821; 2001: 48,928.



Total Funds with U.S. Treasury; 2002; 62,019; 2001: 56,440.



Cash; 2002; 36; 2001: 42.



Total Funds with U.S. Treasury and Cash; 2002; $62,055; 2001: $56,482.



[End of table]



Note 3. Property and Equipment, Net:



The composition of property and equipment as of September 30, 2002, is 

as follows:



Table: Dollars in thousands.



Classes of property and equipment; Building; Acquisition value; 

$15,664; Accumulated depreciation; $8,772; Book value: $6,892.



Classes of property and equipment; Land; Acquisition value; 1,191; 

Accumulated depreciation; -; Book value: 1,191.



Classes of property and equipment; Building improvements; Acquisition 

value; 102,459; Accumulated depreciation;  72,164; Book value: 30,295.



Classes of property and equipment; Computer and other equipment, and 

software; Acquisition value; 33,441; Accumulated depreciation; 18,132; 

Book value: 15,309.



Classes of property and equipment; Leasehold improvements; Acquisition 

value; 4,847; Accumulated depreciation; 4,614; Book value: 233.



Classes of property and equipment; Assets under capital lease; 

Acquisition value; 24,660; Accumulated depreciation; 14,692; Book 
value: 

9,968.



Classes of property and equipment; Total property and equipment; 

Acquisition value; $182,262; Accumulated depreciation: $118,374; Book 

value: $63,888.



[End of table]



The composition of property and equipment as of September 30, 2001, is 

as follows:



Table: Dollars in thousands.



Classes of property and equipment; Building; Acquisition value; 

$15,664; Accumulated depreciation; $8,145; Book value: $7,519.



Classes of property and equipment; Land; Acquisition value; 1,191; 

Accumulated depreciation; -; Book value: 1,191.



Classes of property and equipment; Building improvements; Acquisition 

value; 98,924; Accumulated depreciation; 64,114; Book value: 34,810.



Classes of property and equipment; Computer and other equipment, and 

software; Acquisition value; 48,476; Accumulated depreciation; 31,411; 

Book value: 17,065.



Classes of property and equipment; Leasehold improvements; Acquisition 

value; 4,843; Accumulated depreciation; 4,470; Book value: 373.



Classes of property and equipment; Assets under capital lease; 

Acquisition value; 15,330; Accumulated depreciation; 9,970; Book 

value: 5,360.



Classes of property and equipment; Total property and equipment; 

Acquisition value; $184,428; Accumulated depreciation; $118,110; Book 

value: $66,318.



[End of table]



In fiscal 2002, a full inventory and reconciliation was completed, 

resulting in an additional $8,200,000 in retirements of fully 

depreciated assets.



Note 4. Liabilities Not Covered by Budgetary Resources:



The liabilities on GAO’s Balance Sheet as of September 30, 2002 and 

2001, include liabilities not covered by budgetary resources, which are 

liabilities for which congressional action is needed before budgetary 

resources can be provided. Although future appropriations to fund these 

liabilities are likely and anticipated, it is not certain that 

appropriations will be enacted to fund these liabilities. The 

composition of liabilities not covered by budgetary resources as of 

September 30, 2002 and 2001, is as follows:



Table: Dollars in thousands.



Intragovernmental liabilities:



Workers’ compensation; 2002; $2,102; 2001: $2,136.



Deferred lease revenue; 2002; 2,514; 2001: 5,532.



Total intragovernmental liabilities; 2002; 4,616; 2001: 7,668.



Salaries and benefits--Comptrollers General retirement plan; 2002; 

2,856; 2001: 2,507.



Accrued annual leave and other; 2002; 29,357; 2001: 27,836.



Workers’ compensation; 2002; 12,331; 2001: 7,954.



Capital leases; 2002; 9,968; 2001: 5,360.



Total liabilities not covered by budgetary resources; 2002; $59,128; 

2001: $51,325.



[End of table]



Note 5. Federal Employee Benefits:



All permanent employees participate in the contributory Civil Service 

Retirement System (CSRS) or the Federal Employees Retirement System 

(FERS) that became effective January 1, 1987. Temporary employees and 

employees participating in FERS are covered under the Federal Insurance 

Contributions Act (FICA). GAO makes contributions to CSRS, FERS, and 

FICA and matches employee contributions to the thrift savings component 

of FERS up to 5 percent of basic pay. The pension expense recognized in 

GAO’s financial statements for fiscal 2002 and 2001 amounted to 

approximately $36,979,000 and $35,544,000, respectively. These amounts 

include pension costs financed by OPM and imputed to GAO of $11,145,000 

and $11,417,000, respectively. To the extent which employees are 

covered by FICA, the taxes they pay to the program and the benefits 

they will eventually receive are not recognized in GAO’s financial 

statements. However, the payments to FICA that GAO makes are recognized 

as operating expenses. During fiscal 2002 and 2001, these payments 

amounted to approximately $12,164,000 and $10,616,000, respectively. To 

the extent that GAO employees are covered by the thrift savings 

component of FERS, GAO payments to the plan are recognized as operating 

expenses. GAO’s costs associated with the thrift savings component of 

FERS during fiscal 2002 and 2001 amounted to approximately $6,090,000 

and $5,239,000, respectively.



In addition, all permanent employees are eligible to participate in the 

contributory Federal Employees Health Benefit Program (FEHBP) and 

Federal Employees Group Life Insurance Program (FEGLIP) and may 

continue to participate after retirement. GAO makes contributions 

through OPM to FEHBP and FEGLIP for active employees to pay for their 

current benefits. GAO’s contributions for active employees are 

recognized as operating expenses and, during fiscal 2002 and 2001, 

amounted to approximately $11,704,000 and $10,351,000, respectively.



Amounts owed to OPM and Treasury as of September 30, 2002 and 2001 are 

$1,185,000 and $2,683,000, respectively for FEHBP, FERS, and CSRS 

contributions and are shown on the Balance Sheet as an employee 

benefits liability. Using the cost factors supplied by OPM, GAO has 

also recognized an expense in its financial statements for the 

estimated future cost of post retirement health benefits and life 

insurance for its employees. These costs amounted to approximately 

$9,862,000 and $8,264,000 during fiscal 2002 and 2001, respectively, 

and are financed by OPM and imputed to GAO.



Comptrollers General and their surviving beneficiaries who qualify and 

so elect to participate are paid retirement benefits by GAO under a 

separate retirement plan. These benefits are paid from current year 

appropriations and amounted to approximately $267,000 and $260,000 

during fiscal 2002 and 2001, respectively. Because GAO is responsible 

for future payments under this plan, the estimated present value of 

accumulated plan benefits of $2,856,000 as of September 30, 2002, and 

$2,507,000 as of September 30, 2001, is included as a component of 

salary and benefit liabilities on GAO’s Balance Sheet. The increase in 

this liability from prior year is due to revised actuarial assumptions 

related to the interest rate and the mortality table.



Note 6. Workers’ Compensation:



The Federal Employees’ Compensation Act (FECA) provides income and 

medical cost protection to covered federal civilian employees injured 

on the job, employees who have incurred a work-related occupational 

disease, and beneficiaries of employees whose death is attributable to 

a job-related injury or occupational disease. Claims incurred for 

benefits for GAO employees under FECA are administered by the 

Department of Labor (DOL) and are paid, ultimately, by GAO.



For 2002, GAO is using estimates provided by DOL to report the FECA 

liability. This practice is consistent with the practices of other 

federal agencies, but was not available to GAO in past years. This 

change has resulted in an increase of the FECA liability of $4,377,000 

and is the result of DOL using different actuarial assumptions than 

those used by GAO in the past. The actuarial assumptions increase the 

projected benefits liability due to the inclusion of claims incurred 

but not reported and the extension of the duration covered by the 

model. This fiscal 2002 charge of $4,377,000 is reflected as a current 

year expense distributed to the four goals on the fiscal 2002 Statement 

of Net Cost.



GAO recorded an estimated liability for claims incurred as of September 

30, 2002 and 2001, and expected to be paid in future periods. This 

estimated liability of $12,331,000 and $7,954,000 as of September 30, 

2002 and 2001, respectively, is reported on GAO’s Balance Sheet. GAO 

also recorded a liability for amounts paid to claimants by DOL as of 

September 30, 2002 and 2001, of $2,102,000 and $2,136,000, 

respectively, but not yet reimbursed to DOL by GAO. The amount owed to 

DOL is reported on GAO’s Balance Sheet as an intragovernmental 

liability.



Note 7. Deferred Lease Revenue:



The U.S. Army Corps of Engineers (COE) entered into an agreement with 

GAO to lease the entire third floor of the GAO building. COE provided 

all funding for the third floor renovation. Occupancy began August 3, 

2000, for an initial period of 3 years, with options to renew on an 

annual basis for 7 additional years. Total rental revenue to GAO 

includes a base rent, which remains constant for the entire 10-year 

period, plus operating expense reimbursements at a fixed amount for the 

first 3 years, with escalation clauses from year 4 through year 10 if 

the option years are exercised. Beginning in fiscal 2002, COE leased 

additional space on the sixth floor with occupancy lasting through the 

original lease term.



In addition, COE paid for the design, construction, and renovation of 

one-half of the sixth floor to be occupied by GAO. In 2000, GAO 

capitalized the renovations at a cost of $9,053,000. GAO will repay COE 

for the entire cost of the renovations in the form of rental credits 

during the first 3 lease years. Rental credits have been recorded as 

deferred lease revenue and are being amortized over the original 3-year 

lease term. The current year amortization of deferred lease revenue is 

reported on the Statement of Changes in Net Position as a financing 

source and on the Statement of Financing as an other resource.



The net amount of rental revenue due to GAO each year is the total 

revenue less the amortization of the deferred lease revenue. Fiscal 

2002 and 2001 rents received by GAO, net of the deferred lease revenue 

amortization, amounted to $1,489,000 and $1,171,000, respectively. This 

amount is included in reimbursable services on the Statements of 

Budgetary Resources and Financing. Net rental revenue for the remaining 

period of the 10-year lease is as follows:



Table: Dollars in thousands.



Fiscal year ending September 30; 2003; Total rental revenue*; 

$4,663; Amortization of deferred lease revenue; $2,514; Rental 

revenue received or due: $2,149.



Fiscal year ending September 30; 2004; Total rental revenue*; 

4,808; Amortization of deferred lease revenue; -; Rental revenue 

received or due: 4,808.



Fiscal year ending September 30; 2005; Total rental revenue*; 

4,866; Amortization of deferred lease revenue; -; Rental revenue 

received or due: 4,866.



Fiscal year ending September 30; 2006; Total rental revenue*; 

4,927; Amortization of deferred lease revenue; -; Rental revenue 

received or due: 4,927.



Fiscal year ending September 30; 2007; Total rental revenue*; 

4,989; Amortization of deferred lease revenue; -; Rental revenue 

received or due: 4,989.



Fiscal year ending September 30; 2008-2010; Total rental 

revenue*; 14,495; Amortization of deferred lease revenue; [Empty]; 

Rental revenue received or due: 14,495.



Fiscal year ending September 30; Total; Total rental revenue*; 

$38,748; Amortization of deferred lease revenue; $2,514; 

Rental revenue received or due: $36,234.



*If option years are exercised.



[End of table]



Note 8. Leases:



Capital Leases:



GAO has entered into capital leases for office and computer equipment 

under which the ownership of the equipment covered under the leases 

transfers to GAO when the leases expire. When GAO enters into these 

leases, the present value of the future lease payments is capitalized, 

net of imputed interest, and recorded as a liability. The acquisition 

value and accumulated depreciation of GAO’s capital leases are shown in 

Note 3, Property and Equipment, Net. As of September 30, 2002 and 2001, 

the capital lease liability was $9,968,000 and $5,360,000, 

respectively.



These lease agreements are written as annual fiscal-year contracts that 

are subject to the availability of funding. The agreements contain a 

lease-to-purchase provision and there is no penalty for canceling the 

lease and returning the equipment before the end of the lease term. 

GAO’s leases are short term in nature and no liability exists beyond 

the years shown in the table below. GAO’s estimated future minimum 

lease payments under the terms of the leases are as follows:



Table: Dollars in thousands:



Fiscal year ending September 30; 2003; Total: $5,520.



Fiscal year ending September 30; 2004; Total: 4,105.



Fiscal year ending September 30; 2005; Total: 1,087.



Fiscal year ending September 30; 2006; Total: 1.



Fiscal year ending September 30; Total Estimated Future Lease Payments; 

Total: 10,713.



Fiscal year ending September 30; Less: Imputed Interest; Total: (745).



Fiscal year ending September 30; Net Capital Lease Liability; Total: 

$9,968.



[End of table]



Operating Leases:



GAO leases office space, predominantly for field offices, from GSA and 

has entered into various other operating leases for office 

communication and computer equipment. Lease costs for office space and 

equipment for fiscal 2002 and 2001 amounted to approximately $6,880,000 

and $7,053,000, respectively. GAO’s leases are short term in nature and 

no liability exists beyond the years shown in the table below. GAO’s 

estimated future minimum lease payments under the terms of the leases 

are as follows:



Table: Dollars in thousands:



Fiscal year ending September 30; 2003; Total: $7,180.



Fiscal year ending September 30; 2004; Total: 2,801.



Fiscal year ending September 30; 2005; Total: 2,541.



Fiscal year ending September 30; 2006; Total: 986.



Fiscal year ending September 30; 2007; Total: 397.



Fiscal year ending September 30; Total Estimated Future Lease 

Payments; Total: $13,905.



[End of table]



Leased property and equipment must be capitalized if certain criteria 

are met (see Capital Leases description). Because property and 

equipment covered under GAO’s operating leases do not satisfy these 

criteria, GAO’s operating leases are not reflected on the Balance 

Sheet. However, annual lease costs under the operating leases are 

included as components of net cost by goal in the Statement of Net 

Cost.



Note 9. Net Cost of Operations:



Expenses for salaries and related benefits for fiscal 2002 and 2001 

amounted to $351,088,000 and $326,772,000, respectively, which were 

about 78 percent and 80 percent, respectively, of GAO’s annual net cost 

of operations. Included in the net cost of operations are federal 

employee benefit costs paid by OPM and imputed to GAO of $21,007,000 in 

fiscal 2002 and $19,681,000 in fiscal 2001. Also included in the net 

cost of operations for fiscal 2002 is a $4,377,000 charge resulting 

from an increase in the workers’ compensation liability. See further 

discussion in Note 6.



Revenues from reimbursable services are shown as an offset against the 

full cost of the goal to arrive at its net cost. These revenues consist 

primarily of billings to federal government corporations for financial 

statement audits performed by GAO. GAO’s pricing policy is to seek 

reimbursement for actual costs incurred, including overhead costs where 

allowed by law. Earned revenues that are insignificant or cannot be 

associated with a major goal are shown in total, the largest component 

of which is rental revenue from the lease of space in the GAO building. 

Revenues from reimbursable services for fiscal 2002 and 2001 amounted 

to $3,594,000 and $2,454,000, respectively. Of the revenues from 

reimbursable services received in fiscal 2002, $3,399,000 were 

intragovernmental--substantially from COE, $1,503,000, and Federal 

Deposit Insurance Corporation (FDIC), $1,160,000. Likewise, in fiscal 

2001 the amount of revenues from reimbursable services from other 

governmental entities was $2,237,000, of which $1,172,000 was from COE 

and $731,000 was from FDIC.



The net cost of operations represents GAO’s operating costs that must 

be funded by financing sources other than revenues earned from 

reimbursable services. These financing sources are presented in the 

Statement of Changes in Net Position.



Note 10. Budgetary Resources:



Budgetary resources made available to GAO include current 

appropriations, spending authority from budget transfers and 

reimbursements arising from both revenues earned by GAO from providing 

goods and services to other federal entities for a price (reimbursable 

services), and cost-sharing and pass-through contract arrangements with 

other federal entities. The major differences between fiscal 2001 

appropriations on the Statement of Budgetary Resources (SBR) and the 

appropriation amount in the President’s Budget for 2001 are the imputed 

pension and the future postretirement health benefits and life 

insurance costs (see Note 5). OMB directed agencies to include their 

share of pension costs currently funded by OPM in the total budget 

authority in the President’s Budget, whereas these amounts are properly 

not included in our SBR. In addition, as the actual fiscal 2002 

President’s Budget is not yet available, comparison between the SBR and 

the President’s Budget cannot be performed.



Fiscal 2002 budget transfers consisted of budget authority transferred 

to cover emergency response and preparedness activities, including 

activities related to the temporary relocation of Members of the House 

Representatives and their staffs to the GAO building. Fiscal 2001 

budget transfers consisted of budget authority transferred in from 

funds allocated for legislative branch agencies’ Year 2000 (Y2K) needs 

to replace non-Y2K compliant computers remaining in GAO’s inventory. 

Reimbursements from cost-sharing and pass-through contract 

arrangements consisted primarily of collections from other federal 

entities for the support of FASAB and collections from other federal 

entities that utilize standing GAO contracts for obtaining accounting 

and auditing services from CPA firms. The costs and reimbursements for 

these activities are not included in the Statement of Net Cost.



Note 11. Expenses to Be Funded by Future Appropriations:



Expenses to be funded by future appropriations are reported in the 

Statement of Financing. These expenses represent the increase in 

liabilities not covered by budgetary resources, as reported in Note 4.



Table: Dollars in thousands: 



Fiscal year ending September 30; Liabilities not covered by budgetary 

resources, as disclosed in Note 4; 2002; $59,128; 2001: $51,325.



Fiscal year ending September 30; Liabilities that are not components 

of net cost:



Fiscal year ending September 30; Deferred lease revenue; 2002; (2,514); 

2001: (5,532).



Fiscal year ending September 30; Capital leases; 2002; (9,968); 2001: 

(5,360).



Fiscal year ending September 30; Current year liabilities not covered 
by 

budgetary resources that are components of net cost; 2002; 46,646; 
2001: 

40,433.



Fiscal year ending September 30; Prior year liabilities that are not 

components of current year net costs; 2002; (40,433); 2001: (40,135).



Fiscal year ending September 30; Expenses to be funded by future 

appropriations, as reported on the Statement of Financing; 2002; 

$6,213; 2001: $298.



[End of table]



Note 12. Davis-Bacon Act Trust Function:



GAO is responsible for administering for the federal government the 

trust function of the Davis-Bacon Act receipts and payments and 

publishes separate, audited financial statements for this fund. GAO 

maintains this fund to pay claims relating to violations of the Davis-

Bacon Act and Contract Work Hours and Safety Standards Act. Under these 

acts, DOL investigates violation allegations to determine if federal 

contractors owe additional wages to covered employees. If DOL concludes 

that a violation has occurred, GAO collects the amount owed from the 

contracting federal agency, deposits the funds into an account with the 

U.S. Treasury, and remits payment to the employee. GAO is accountable 

to the Congress and to the public for the proper administration of the 

assets held in the trust. Trust assets under GAO’s administration 

totaled approximately $4,692,000 as of September 30, 2002. These assets 

are not the assets of GAO nor the federal government and are held for 

distribution to appropriate claimants. During fiscal 2002, receipts and 

disbursements in the trust amounted to $664,000 and $572,000, 

respectively. Because the trust assets and related liabilities are not 

assets and liabilities of GAO, they are not included in the 

accompanying financial statements.



Audit Advisory Committee’s Report:



The Audit Advisory Committee assists the Comptroller General in 

overseeing the U.S. General Accounting Office’s (GAO) financial 

operations. As part of that responsibility, the committee meets with 

agency management and its internal and external auditors to review and 

discuss GAO’s external financial audit coverage, the effectiveness of 

GAO’s internal controls over its financial operations, and its 

compliance with certain laws and regulations that could materially 

impact GAO’s financial statements. GAO’s external auditors are 

responsible for expressing an opinion on the conformity of GAO’s 

audited financial statements with U.S. generally accepted accounting 

principles. The committee reviews the findings of the internal and 

external auditors, and GAO’s responses to those findings, to ensure 

that GAO’s plan for corrective action includes appropriate and timely 

follow-up measures. In addition, the committee reviews GAO’s draft 

performance and accountability report, including its financial 

statements, and provides comments to management, which has primary 

responsibility for the report. The committee met three times during 

fiscal 2002. During these sessions, the committee met with the internal 

and external auditors without GAO management being present and 

discussed with the external auditors the matters that the Statement on 

Auditing Standards No. 61, Communications with Audit Committees, 

requires to be discussed. On the basis of the procedures performed as 

outlined above, we recommend that GAO’s audited statements and notes be 

included in the fiscal 2002 performance and accountability report.



Sheldon S. Cohen:



Chairman:



Audit Advisory Committee:



Signed by Sheldon S. Cohen:



Independent Auditor’s Report:



Cotton and Company LLP: 



333 North Fairfax Street Suite 401 Alexandria, Virginia 22314:



703/836/6701 FAX 703/836/0941 WWW.COTTONCPA.COM DCOTTON@COTTONCPA.COM



auditors * advisors:



DAVID L. COTTON, CPA, CFE, CGFM * CHARLES HAYWARD, CPA, CFE, CISA * 

MICHAEL W. GILLESPIE, CPA, CFE * CATHERINE L. NOCERA, CPA, CISA 

* MATTHEW H. JOHNSON, CPA, CGFM * SAM HADLEY, CPA, CGFM * COLETTE Y. 

WILSON, CPA * ALAN ROSENTHAL, CPA:



INDEPENDENT AUDITOR’S REPORT:



Comptroller General of the United States:



Cotton & Company LLP audited the General Accounting Office’s (GAO) 

Balance Sheets as of September 30, 2002, and 2001, and the related 

Statements of Net Cost, Changes in Net Position, Budgetary Resources, 

and Financing for the years then ended. We found:



* The financial statements referred to above are fairly presented, 

in all material respects, in conformity with U.S. generally accepted 

accounting principles,



* GAO maintained effective internal control over financial reporting 

(including safeguarding of assets) and compliance with laws and 

regulations,



* GAO’s financial management systems substantially complied with the 

applicable requirements of the Federal Financial Management Improvement 

Act of 1996 (FFMIA),

and;



* No reportable noncompliance with laws and regulations we tested.



The following four sections discuss the above conclusions in more 
detail. 

Our conclusions on Management’s Discussion and Analysis (MD&A) and 
other 

accompanying information appear below, under the caption Consistency of 

Other Information.



Opinion on Financial Statements:



In our opinion, the accompanying financial statements present fairly, 

in all material respects, the financial position of GAO as of September 

30, 2002 and 2001, and its net costs, changes in net position, 
budgetary 

resources, and financing for the years then ended in conformity with 

U.S. generally accepted accounting principles.



Opinion on Internal Control:



In our opinion, GAO maintained, in all material respects, effective 

internal control over financial reporting (including safeguarding of 

assets) and compliance with laws and regulations as of September 30, 

2002, based on criteria established under the Federal Managers’ 

Financial Integrity Act (FMFIA).



Opinion on FFMIA Compliance:



In our opinion, GAO’s financial management systems substantially 

complied with the three FFMIA requirements: (1) Federal financial 

management system requirements, (2) Federal accounting standards, 

and (3) the U.S. Government Standard General Ledger (SGL) at the 

transaction level; as of September 30, 2002.



Compliance with Laws and Regulations:



The objective of our audits was not to provide an opinion on overall 

compliance with laws and regulations. Accordingly, we do not express 

such an opinion. However, our tests for compliance with certain 

provisions of laws and regulations disclosed no instances of 

noncompliance that would be reportable under Government Auditing 

Standards or Office of Management and Budget (OMB) Bulletin No. 

01-02, Audit Requirements for Federal Financial Statements.



This conclusion is intended solely for the information and use of the 

management of GAO, OMB, and Congress and is not intended to be, and 

should not be, used by anyone other than these specified parties. 
However, 

this report is a matter of public record and its distribution is not 

limited. 



Consistency of Other Information:



We conducted our audits for the purpose of forming an opinion on the 

fiscal year 2002 and 2001 financial statements taken as a whole. 
Certain 

portions of the Performance and Accountability Report are not a 
required 

part of the basic financial statements, but are required by OMB 
Bulletin 

No. 01-09, Form and Content of Agency Financial Statements, and the 

Financial Accounting Standards Advisory Board’s Statement of Federal 

Financial Accounting Standards No. 15, Management’s Discussions and 

Analysis.



There are two types of material within GAO’s Performance and 

Accountability Report that is not a part of GAO’s basic financial 

statements: MD&A and other accompanying information. MD&A describes 

GAO and its missions, activities, program and financial results, and 

financial condition. MD&A is required supplementary information. 

With respect to GAO’s MD&A, we made certain inquiries of management, 

compared the information for consistency with GAO’s audited financial 

statements and against other knowledge we obtained during our audits. 

Other accompanying information consists of the full Performance and 

Accountability report except for the MD&A, the basic financial

statements and notes to the financial statements, and this auditor’s 

report. With respect to other accompanying information, we compared 

the information for consistency with the audited financial statements. 

Based on these limited procedures, we found no material 

inconsistencies between either the MD&A or the other accompanying 

information and the financial statements or notes. However, we did

not audit the MD&A or the other accompanying information and express 

no opinion on them.



Management’s Responsibility:



Management is responsible for:



* Preparing the financial statements in conformity with U.S. generally 

accepted accounting principles;



* Establishing, maintaining, and assessing internal control to 

provide reasonable assurance that the broad control objectives of 

FMFIA are met;



* Implementing, maintaining, and assessing financial management systems 

to provide reasonable assurance of substantial compliance with the 

requirements of FFMIA; and;



* Complying with applicable laws and regulations.



Auditor’s Responsibility and Methodology: 



Cotton & Company LLP performed its audits and examinations in 

accordance with Government Auditing Standards, U.S. generally accepted 

auditing standards, the American Institute of Certified Public 

Accountants’ (AICPA) attestation standards, and OMB Bulletin No. 

01-02. We believe our audits andexaminations provide a reasonable basis 

for our opinions.



We are responsible for planning and performing our audits to obtain 

reasonable assurance about whether the financial statements are free 

of material misstatements. An audit includes examining, on a

test basis, evidence supporting the amounts and disclosures in the 

financial statements. An audit also includes assessing the accounting 

principles used and significant estimates made by management, as well

as evaluating overall financial statement presentation.



We have examined management’s assertion that GAO maintained effective 

control over financial reporting (including safeguarding of assets) and 

compliance with applicable laws and regulations as of September 30, 
2002, 

based on internal GAO evaluations using criteria established in FMFIA. 

Our responsibility is to express an opinion on the effectiveness of 

internal control based on our examination. We conducted our examination 

in accordance with attestation standards established by the AICPA and

Government Auditing Standards and, accordingly, obtained an 
understanding 

of internal control over financial reporting (including safeguarding 

of assets) and compliance with laws and regulations; tested and 

evaluated the design and operating effectiveness of internal control; 

and performed other procedures considered necessary in the 

circumstances. We believe that our examination provides a reasonable 

basis for our opinion.



With respect to internal control related to significant performance 

measures included in the MD&A, we obtained an understanding of the 

design of internal control relating to the existence and completeness 

assertions and determined whether they had been placed in operation, 

as required by OMBBulletin No. 01-02. Our procedures were not 

designed to provide assurance on internal control over reported 

performance measures and, accordingly, we do not express an 

opinion on such control. Because of inherent limitations in 

internal control, misstatements, losses, or noncompliance may

nevertheless occur and not be detected. Also, projections of any 

evaluation of internal control to future periods are subject to the 

risk that internal control may become inadequate as the result of 

changes in conditions, or that the degree of compliance with the 

policies or procedures may deteriorate.



We have examined management’s assertion that, as of September 30, 

2002, GAO’s financial management systems substantially complied 

with the three FFMIA requirements: (1) Federal financial management 

system requirements, (2) Federal accounting standards, and (3) the 

SGL at the transaction level. Management’s assertion was based on 

internal GAO evaluations using compliance indicators set forth in 

OMB guidance, dated January 4, 2001, Revised Implementation 

Guidance for FFMIA, and criteria in OMB Circulars A-127, Financial 

Management Systems, and A-130, Management of Federal Information 

Resources. Our responsibility is to express an opinion on 

whether GAO’s financial management systems substantially complied 

with the above-mentioned requirements, based on our examination. 

We conducted our examination in accordance with attestation 

standards established by the AICPA and Government Auditing 

Standards and, accordingly, we examined, on a test basis, 

evidence about GAO’s substantial compliance with those requirements, 

and performed such other procedures as we considered necessary 

in the circumstances. We believe our examination provides a 

reasonable basis for our opinion. Our examination does not provide 

a legal determination of GAO’s financial management systems 

compliance with specified requirements.



We are responsible for testing compliance with selected provisions 

of laws and regulations that have a direct and material effect on 

the financial statements. We did not test compliance with all laws 

and regulations applicable to GAO. We limited our tests of compliance 

to those laws and regulations required by OMB audit guidance that 

we deemed applicable to the financial statements for the fiscal year 

ended September 30, 2002. We caution that noncompliance may occur 

and not be detected by these tests and that such testing may not 

be sufficient for other purposes.



We noted other nonreportable matters involving internal control 

and its operation that we will communicate in a separate 

management letter.



COTTON & COMPANY LLP:



Charles Hayward, CPA:



Signed by Charles Hayward:



Alexandria, Virginia: 



December 11, 2002:



Part IV: :



Appendixes:



1. Accomplishments and Other Contributions:



In pursuing its strategic goals during fiscal 2002, GAO recorded 

hundreds of accomplishments and made numerous other contributions. This 

appendix provides details on the most significant.



The accomplishments document financial or other benefits achieved 

through action on GAO’s findings or recommendations. Typically, the 

accomplishments describe GAO work that was done in prior fiscal years 

because it takes time to implement recommendations, realize benefits, 

and record them.



The other contributions describe instances in which GAO provided 

information or recommendations that aided congressional decision making 

or informed the public debate to a significant degree. Typically, the 

other contributions refer to GAO work completed in fiscal 2002.



In reporting these accomplishments and other contributions, GAO is 

holding itself accountable for the resources it received to implement 

its strategic plan for serving the Congress.



Strategic Goal 1:



Provide Timely, Quality Service to the Congress and the Federal 

Government to Address Current and Emerging Challenges to the Well-Being 

and Financial Security of the American People:



The Health Care Needs of an Aging and Diverse Population:



Strengthening FDA’s Prescription Drug Oversight Activities: The 1992 

Prescription Drug User Fee Act, which was reauthorized in 1997, has 

given the Food and Drug Administration (FDA) the funding to approve new 

drugs and biologics more quickly. GAO’s work showed that (1) drugs have 

been withdrawn from the market for safety reasons at a greater rate 

since the law’s enactment in 1992 and (2) FDA has reduced its funding 

and staffing for other activities, such as the regulation of food and 

medical devices, so that it could fund its drug reviews adequately. 

Partly on the basis of our work, the Congress reauthorized the act in 

2002 and allowed FDA to use user fees to fund a new risk management 

system for newly approved drugs that could lead to earlier detection of 

unanticipated drug side effects.



Improving the Nation’s Supply of Childhood Vaccines: Over the past 2 

years, supplies of vaccines for childhood illnesses, such as measles, 

mumps, rubella, and tetanus, have proved inadequate to meet public 

needs, causing some states to postpone vaccination requirements for 

schoolchildren and prompting federal authorities to recommend deferring 

some immunizations. GAO identified factors that contribute to the 

shortage of childhood vaccines and helped policymakers frame the 

problems, such as how to expedite the licensing of vaccine products and 

how to manage vaccine stockpiles, so that shortages do not become 

commonplace.



Improving Nursing Home Care: GAO’s work over the past 5 years has 

helped raise public awareness of the unacceptable conditions prevalent 

in some 15 percent of America’s nursing homes, where serious and 

recurring problems have harmed patients. As we recommended, the Centers 

for Medicare and Medicaid Services, which oversees nursing facilities, 

has increased the rigor of inspections conducted by state survey 

agencies, required states to be more responsive to complaints alleging 

patient harm, and mandated the application of sanctions to offending 

facilities. Our work has spurred a growing understanding of the 

dimensions of the problem and increased the likelihood that effective 

federal actions will be taken.



Maintaining an Adequate Blood Supply: Maintaining a safe and adequate 

blood supply is key to meeting the nation’s emergency needs. In a 2002 

report and associated testimony, GAO documented deficiencies in the 

collection and distribution of blood, as evidenced by experiences after 

September 11, 2001. Blood donations increased significantly then, 

leading to a nationwide surplus that stressed the collection system and 

resulted in six times the usual proportion of blood becoming outdated 

and discarded in the months following the attacks. Blood suppliers and 

the federal government now are reevaluating how blood is collected 

during and after disasters to avoid a repeat of this experience and to 

ensure that the inventory of blood on hand in the nation’s blood banks 

is always sufficient to meet the medical needs of disaster victims.



Helping the Nation Prepare for Bioterrorism: Analyzing the results of 

its earlier work on the outbreak of West Nile virus, GAO identified a 

need for state and local governments to have the capacity to deal with 

conventional basic public health needs, because all epidemics, whether 

natural or terror-related, pose detection and treatment challenges. The 

Department of Homeland Security is expected to play a critical role in 

preparing for and responding to bioterrorism; therefore, we are working 

with the Congress and with federal public health agencies to better 

understand how to prepare for bioterrorism without compromising the 

government’s ability to respond to basic public health needs. In 

addition, we are advising the Congress on ways the federal government 

can more effectively coordinate efforts to detect bioterrorism and 

treat its consequences.



Preventing Inappropriate Medicare Payments: Responding, in part, to a 

body of GAO work and recommendations, the Congress passed legislation 

in 1996 that increased funding from fiscal 1998 through fiscal 2003 for 

activities to help safeguard the Medicare program from improper 

payments. With this increased funding, the Department of Health and 

Human Services created a fraud and abuse control program and a Medicare 

integrity program for a variety of abuse-constraining activities. The 

increased funding for these two programs helped the Medicare program 

control improper payments by an additional $8.1 billion for fiscal 2001 

and 2002.



Management Initiatives Reduce TRICARE’s Open Change Orders: The 

Department of Defense (DOD) supplements its health care program, 

TRICARE, with contracts for civilian services. These contracts are 

modified through the use of change orders when new benefits are 

provided or when administrative changes occur. DOD’s lack of focus on 

the change order process resulted in a backlog of over 500 outstanding 

change orders, with a potential liability in the hundreds of millions 

of dollars. As a result of our work, DOD implemented a new process that 

provides a structured approach to approve, prioritize, and track 

prospective changes. Changes are now negotiated and settled before they 

are implemented. With DOD’s increased emphasis, the number of 

outstanding changes orders declined from more than 560 in July 2000 to 

about 50 in August 2002.



Improving VA’s Health Care Resource Allocation: In one report and two 

testimonies in 2002, we identified changes that the Department of 

Veterans Affairs (VA) needed to make in its system for allocating 

financial resources to its 21 health care networks, called the Veterans 

Equitable Resource Allocation (VERA) system. We reported that VA could 

most improve VERA by better adjusting for differences in networks’ 

patient health care needs. In response to our report, VA acknowledged 

the limitations of its current adjustment process and said it is 

working internally and with an outside contractor on how best to 

correct these limitations. VA is also examining other improvements to 

VERA that we recommended. These include determining why some of VA’s 

health care networks experience budget shortfalls after receiving their 

VERA allocations and establishing a financial mechanism to partially 

offset the risk that some networks may have an unusually large number 

of high-cost, chronic care patients, whose costs are not well predicted 

by current cost predictors.



Ensuring Accountability in Medicaid and State Children’s Health 

Insurance Programs: GAO informed policy deliberations on the 

appropriateness of recent Department of Health and Human Services (HHS) 

waivers of federal requirements granted to states for managing their 

Medicaid and State Children’s Health Insurance Programs. We found that 

HHS had approved waivers for purposes not authorized by statute and had 

not ensured that the waivers received adequate public input before 

being approved. We suggested that the Congress and HHS take several 

actions to correct these problems. HHS has since revised its guidance 

to states on obtaining public input and has made waiver applications 

and decisions more readily available to the public. The leadership of 

the Senate Finance Committee, after highlighting the concerns with the 

waiver approvals and approval process in publicly released letters to 

HHS, proposed legislation to address the unauthorized uses of funds and 

inadequate public input process.



Understanding Increasing Long-Term Care Demand and Expenditures: In a 

series of testimonies and a report, GAO showed that spending for long-

term care could nearly quadruple by 2050 as the baby boom generation 

ages and demand for services increases. This burgeoning spending will 

especially impose burdens on federal and state budgets because public 

programs--particularly Medicaid--finance most long-term care 

expenditures. We also demonstrated that services offered to elderly 

individuals needing long-term care could vary widely, depending on the 

coverage available through states’ Medicaid programs and case managers’ 

assessments of individuals’ needs. The U.S. Senate Special Committee on 

Aging drew extensively on our work in developing its findings and in 

its ongoing consideration of long-term care financing reform.



Improving Veterans’ Access to Medicines for Treating Psychosis: GAO 

reported that because of cost considerations procedures at some VA 

facilities have limited or could restrict access to an atypical 

antipsychotic drug on VA’s national list of drugs for treating 

schizophrenia and bipolar disorders. Such procedures are contrary to 

VA’s prescribing guideline for atypical antipsychotic drugs. In 

response to our work, VA has reiterated to all its employees that they 

should follow the prescribing guideline that allows veterans access to 

the most appropriate medication for treatment. Furthermore, VA has 

enhanced the capability of its pharmacy database so that VA management 

can now monitor physicians’ prescribing practices for these medications 

at each facility.



Improving Communication between Medicare and Physicians: GAO identified 

problems in the way that Medicare program requirements are communicated 

to physicians. We reported that Medicare instructions and guidance, 

which enable physicians to bill properly, were often difficult to use, 

out of date, inaccurate, and incomplete. Our work helped the Centers 

for Medicare and Medicaid Services (CMS), the agency that administers 

the Medicare program, focus on the need to provide physicians with 

better information in its written communications and through its 

telephone call centers and Web sites. CMS has taken several steps to 

improve communication with physicians, including publishing a national 

bulletin that describes physicians’ responsibilities and requirements 

under Medicare law, establishing new performance standards for its call 

centers so that questions are answered promptly and correctly, and 

reexamining its procedures for monitoring regional Web sites to ensure 

that the sites provide consistent and accurate information.



Including Women in Health Research: GAO has issued a series of reports 

on the inclusion of women as study subjects in clinical research funded 

by the National Institutes of Health (NIH) and clinical drug trials 

reviewed by the Food and Drug Administration. In response to our work, 

both agencies have taken steps to increase the participation of women 

in study populations. Most recently, NIH took action in response to our 

recommendation that, to better monitor inclusion, NIH staff who 

transmit data on study populations to the agency’s tracking system 

should receive ongoing training on the system’s purpose and 

requirements. After deploying a new tracking system to monitor the 

inclusion of women and minorities in clinical research, NIH provided 

extensive training, including demonstrations and hands-on training. In 

addition, all training materials will remain available to NIH staff on-

line.



Improving Pediatric Drug Research and Labeling: Partly on the basis of 

GAO’s testimony, the Congress passed the Best Pharmaceuticals for 

Children Act of 2001, which reauthorizes what is known as the pediatric 

exclusivity provision of the Food and Drug Administration Modernization 

Act of 1997--a provision that extends manufacturers’ exclusive 

marketing rights by 6 months for drugs that are studied in pediatric 

patients. We testified that this provision had been successful in 

generating clinical studies for drugs tested by manufacturers for 

pediatric use. The 2001 act also addresses another key issue we 

identified. Specifically, it requires that safety information from 

pediatric studies be added to drug labels in a timely manner and 

provides a process by which the Food and Drug Administration can seek 

labeling changes to drugs granted pediatric exclusivity.



The Education and Protection of the Nation’s Children:



Understanding What It Takes to Ensure Accountability for Public 

Education: In 2001, the Congress passed the No Child Left Behind Act, 

building on earlier efforts to make the states more accountable for 

public education and signaling the continuing importance of improving 

student achievement. In 1994, concerned that federal funding was not 

significantly improving the educational progress of at-risk students, 

the Congress changed title I of the Elementary and Secondary Education 

Act to require that the states ensure accountability in their public 

school systems. A key requirement was student testing. The No Child 

Left Behind Act raised the stakes for schools that fail to achieve 

adequate test scores. But this year, collaborating with other audit 

organizations, GAO studied the states’ implementation of the 1994 

requirements and found widespread shortcomings, raising the question of 

the states’ capacity to fulfill the additional requirements of the 2001 

legislation. For Americans concerned about improving public education, 

the lesson of our work is that setting accountability requirements, 

such as student testing standards, is only part of the job. Effective 

implementation, including such basics as ensuring that tests are scored 

accurately, is also important.



Obtaining Information on the Effectiveness of Federal Student Aid: The 

federal government uses a range of policy tools to help students 

finance postsecondary education, including primarily grants, loans, and 

tax credits. In 2002, GAO issued a report, prepared by a team of staff 

from across the agency, that addressed the relative effectiveness of 

these tools in promoting postsecondary attendance, choice, and 

completion, as well as the tools’ impact on college costs. We found 

that little information was available for the Congress to weigh the 

relative effectiveness of the tools and recommended that the 

Secretaries of Education and the Treasury take steps to address this 

lack of information. Both agencies agreed with our recommendations and 

plan to do research on the relative effectiveness of various policy 

tools in providing access to higher education.



Establishing Criteria for Educational Progress for Disadvantaged 

Children: In 2000, GAO reported that states’ criteria for assessing the 

performance of school children did not allow for specifically 

identifying the performance of disadvantaged children. As a result, the 

states could not gauge the impact of title I funds on these children. 

We recommended that the Congress consider requiring that the states 

establish criteria for progress specifically for disadvantaged 

children, as well as for all students. Responding to our 

recommendation, the No Child Left Behind Act of 2001 required that the 

states, in defining adequate yearly progress, set separate objectives 

for improvement in the achievement of economically disadvantaged 

students, students of major racial and ethnic groups, students with 

disabilities, and students with limited English proficiency.



Evaluating Outcomes of the Head Start Program: In 1998, GAO found that 

the Department of Health and Human Services (HHS) had little 

information on whether Head Start Programs were achieving their 

objectives. Without this information, it was not possible to determine 

the programs’ impact on children’s development. In 1998, the Congress 

passed the Community Opportunities, Accountability, and Training and 

Educational Services Act of 1998, which required HHS to study the 

impact of the Head Start Programs, as we had recommended. We had also 

recommended that HHS develop and implement a plan for assessing 

individual Head Start grantees’ performance to ensure that the grantees 

are held accountable for achieving the programs’ purposes. In response 

to our recommendation and the 1998 legislation, HHS put a process in 

place to assess grantees’ outcomes.



Improving Measures of Educational Progress: In 2000, GAO found that 

states chose different criteria for measuring the yearly progress of 

public school students and that all but two states defined progress 

solely in terms of assessment results, without including other 

educational outcome measures such as graduation, attendance, or dropout 

rates. Reacting to these findings, the Congress, in enacting the No 

Child Left Behind Act of 2001, required that states apply the same 

standards of academic performance to all public school students in the 

state, measure the progress of public schools and local educational 

agencies primarily on the basis of yearly student academic assessments, 

and include a time line for achieving specific academic performance 

goals. In addition, the legislation required the states to include 

graduation rates for high schools and an additional outcome measure for 

middle and elementary schools, such as attendance rates, when defining 

adequate yearly progress.



Ensuring the Timely Transfer of Information on Migrant Children: 

Children in migrant agricultural worker families often face significant 

developmental and educational obstacles that are compounded as families 

move from site to site in search of work. Recognizing the needs of 

these children, the Congress created the Department of Education’s 

Migrant Education Program in 1965 and the Department of Health and 

Human Services’ Migrant Head Start program in 1969. In reviewing these 

programs, GAO found that neither Education nor HHS has a system to 

transfer information on participants between locations, despite the 

need to transfer key information in a timely way as students move 

around the country. As a result, students may experience inappropriate 

classroom placements or delays in receiving services, may be given 

repeat immunizations, or may fail to complete high school graduation 

requirements. In enacting the No Child Left Behind Act of 2001, the 

Congress required, as we had recommended, that Education and HHS 

develop a nationwide system to transmit essential information about 

migrant children from school district to school district.



Better Targeting of Education Funds to High-Poverty School Districts: 

In 2001, GAO briefed congressional staff on the extent to which title I 

funds were targeted to low-income children. We pointed out (1) that the 

“hold harmless” provisions in the appropriations laws limited the 

extent to which funds were targeted because the provisions guaranteed 

school districts 100 percent of their previous year’s allotment of 

title I funds, rather than reflecting changes in their numbers of poor 

children; (2) the potential negative effects of the Title I Finance 

Incentive Grants, which had not been funded at the time of our 

briefing, on directing funds to higher-poverty school districts; and 

(3) the benefits of funding a Targeted Grant Formula in allocating 

proportionally more funding per poor child to districts with higher 

numbers and percentages of poor children. In enacting the No Child Left 

Behind Act of 2001, the Congress took action to remedy the problems we 

had identified and to ensure that funds are better targeted to high-

poverty school districts.



Improving the District of Columbia’s Child Welfare System: In 2000, GAO 

studied efforts by the District of Columbia to reform its child welfare 

system. We found that a lack of integration in the District’s child 

welfare system worked against preventing children from entering the 

system and reducing the length of their stays. Compounding these 

challenges, we found, the child welfare system continued to operate 

without a fully developed collaborative structure and the effective 

working relationship needed to provide integrated services to children 

and their families. In response to these problems, the District issued 

a Child Welfare System Emergency Reform Plan. Our work helped to guide 

the development of the plan, which contains several major elements 

intended to address the challenges confronting the child welfare 

system.



Avoiding Duplicative Funding for Social Service Initiatives: In 

reviewing the Department of Health and Human Services’ fiscal 2002 

budget request, GAO found that funds for existing programs could be 

used to accomplish the goals of three newly proposed programs. We 

pointed out that these new programs, which were designed to strengthen 

fatherhood and to provide group homes to teenage mothers and their 

children and mentoring services to the children of prisoners, could be 

funded through the Social Services and Temporary Assistance for Needy 

Families block grants. Our work resulted in financial benefits of $164 

million.



Improving Child Care Quality and Availability: During fiscal 2002, we 

conducted work in preparation for the reauthorization of the Child Care 

and Development Block Grant and briefed congressional staff on 

developing and marking up the reauthorization legislation. We reported 

the levels of state spending on child care quality initiatives, the 

factors that states weigh in determining these spending levels, and the 

ways states set reimbursement levels for child care providers. Our work 

was reflected in provisions of the reauthorization legislation that 

addressed the quality set-aside (the percentage of their grant funding 

that states must set aside to improve the quality and availability of 

child care) and state reporting on child care fees.



The Promotion of Work Opportunities and the Protection of Workers:



Computerized Interfaces Identify Undisclosed Earnings: In 1998, GAO 

reported that an Office of Child Support Enforcement database, known as 

the National Directory of New Hires, could be used to help prevent or 

reduce overpayments of supplemental security income that occur when 

recipients fail to fully disclose their earnings. We recommended that 

the Social Security Administration (SSA) develop computerized 

interfaces to access this database and detect undisclosed earnings 

during initial and subsequent determinations of eligibility. SSA 

developed these interfaces, gave all field offices direct access to the 

database, and instructed field staff to use the database for cases 

meeting specified criteria. These actions have resulted in financial 

benefits of about $797 million.



Improving Verification of Continued Eligibility for Supplemental 

Security Income: In 1998, GAO described SSA’s heavy reliance on 

recipients to self-report information on their financial status and 

recommended that SSA enhance its ability to verify this information by 

accelerating efforts to identify more timely and complete sources of 

financial eligibility information. In 2001, SSA distributed software to 

help its staff examine a variety of databases quickly to detect 

possible changes in factors that can affect recipients’ continued 

eligibility for benefits. After scanning the available databases, the 

new software creates an integrated review sheet for each recipient. 

With this information, SSA staff can more easily query recipients about 

factors that can affect their eligibility for benefit payments. Thus, 

the software improves the efficiency of SSA’s continuing eligibility 

reviews.



Increasing Reliance on Electronic Data Sharing: Under certain 

circumstances, SSA reduces disability benefits if a person receives 

benefits from both the Disability Insurance (DI) and the Workers’ 

Compensation programs. SSA relies heavily on beneficiaries to report 

their Workers’ Compensation benefits. GAO found that a lack of reliable 

information on the Workers’ Compensation benefits they received caused 

some DI beneficiaries to be overpaid and others to be underpaid. Our 

report gave new impetus to SSA’s efforts to obtain better information 

through data sharing on the Workers’ Compensation benefits received by 

DI beneficiaries. SSA awarded a grant to an industry association to 

gather more information about the capacity of states to provide 

computerized Workers’ Compensation benefit information for individual 

claimants and to educate state Workers’ Compensation agencies on the 

advantages and ease of sharing electronic records with SSA.



Preventing Overpayments of Unemployment Insurance: This year, GAO 

examined the Department of Labor’s Unemployment Insurance program, a 

key component in ensuring the financial security of America’s 

workforce. In calendar year 2001, this federal-state partnership 

program paid out some $30 billion in benefits to workers who lost their 

jobs. But of this $30 billion, Labor estimated that some $2.4 billion 

consisted of overpayments attributable to weaknesses in the program’s 

management, oversight, and internal controls. Labor also estimated that 

nearly $600 million of the overpayments involved fraud. Citing our 

findings, the Chairman of the Subcommittee on Human Resources, House 

Committee on Ways and Means, called on the nation’s governors to combat 

unemployment insurance fraud and abuse and to use part of the $8 

billion in additional federal unemployment funding recently distributed 

to the states to strengthen the program’s integrity.



Eliminating Maintenance-of-Effort Funding for a Food Stamp Program: In 

1996, welfare reform tightened work requirements for some food stamp 

participants, potentially making it difficult for them to obtain 

benefits if they were unable to find jobs. To avoid cutting off 

benefits for participants who were willing to work but unemployed, the 

Congress authorized increased funding for the food stamp employment and 

training programs. These funds were called maintenance-of-effort funds 

because the states were required to maintain their state-funded 

expenditures for employment and training at a level no lower than in 

fiscal 1996. GAO found that the states had spent $98 million, or 30 

percent of the funds available, for the food stamp employment and 

training program in fiscal 2000. Because unobligated balances are 

carried over from prior years, $426 million was available for 

employment and training in fiscal 2001. Our findings led the Congress 

to eliminate the maintenance-of-effort funding and thereby reduce 

funding for the overall program by $343 million in fiscal 2002.



Simplifying Requirements for Determining Food Stamp Eligibility and 

Benefits: In 2001, GAO reported and testified on the complexity of the 

regulations for determining eligibility and benefits for food stamps. 

Because of this complexity, the program was costly to administer and 

decisions were inherently error-prone. Accordingly, we recommended that 

the Department of Agriculture work with the Congress to identify ways 

to simplify certain program requirements. When the Congress 

reauthorized the Food Stamp program in 2002, it made a number of 

revisions to simplify the requirements for determining program 

eligibility and benefits.



Improving the Job Corps Program: Between 1996 and 1999, GAO did a 

substantial body of work that provided information and recommendations 

to improve the operations of the Department of Labor’s Job Corps 

program. As a result of our work, the program has (1) revised its 

definition of what constitutes completion of vocational training, (2) 

modified its performance measures for placement contractors to make 

them more meaningful, (3) revised its policy guidance on eligibility 

determination and screening factors to make the guidance clear and 

consistent, (4) implemented new performance measures and monitoring 

procedures to hold national training contractors more accountable, and 

(5) improved the accuracy of reports of jobs obtained by participants. 

In addition, the Congress passed legislation in 1998 requiring Job 

Corps to institute a policy of assigning Jobs Corps students to centers 

in their home states. Previously, students could be sent to centers 

outside their home states and traveled an average of four times as far 

as they would have if they had been assigned to the closest center in 

their state of residence.



Improving Data Collection for Agricultural Guestworker Program: Under 

the H-2A guestworker program, employers may bring workers into the 

country temporarily, as nonimmigrants, to perform seasonal agricultural 

work when domestic workers are unavailable. In 1997, the Congress was 

concerned that this program would not be able to provide enough workers 

in the event of a farm labor shortage. GAO found that the Department of 

Labor collected limited data for overseeing the program’s daily 

operations and could not determine the extent to which regional offices 

complied with statutory and regulatory deadlines for processing 

applications. In response to our recommendation, Labor awarded a 

contract to a private firm to develop and implement an automated 

reporting and application-processing system. The system, to be 

implemented in March 2003, will allow Labor to use data to monitor and 

improve the performance of the H-2A program.



Retaining the Substantial Gainful Activity Level for the Blind: To 

establish and maintain eligibility for disability insurance benefits, 

beneficiaries must not only meet medical eligibility criteria but also 

demonstrate that they are not earning above a certain amount--known as 

the Substantial Gainful Activity (SGA) level. In March 2000, 

congressional hearings focused on the role of earnings in determining 

initial and continuing eligibility for disability benefits for 

individuals who are blind or have other disabilities. Prior to these 

hearings, bills introduced in the House and Senate had proposed 

eliminating the SGA level for the blind. While an advocate organization 

for the blind testified that it wanted the Congress to eliminate the 

SGA level for the blind, GAO responded that doing so would increase the 

costs of disability insurance and fundamentally alter the purpose of 

the disability insurance program by removing the connection between 

eligibility for benefits and the inability to work. As a result of our 

testimony, the Congress retained the SGA for the blind, resulting in a 

financial benefit of $1.124 billion in fiscal 2001 and 2002.



A Secure Retirement for Older Americans:



Informing the Public about Employee Pension Issues: The bankruptcy of 

Enron came as a particularly painful shock to its employees, whose 

pensions were tied to the fate of the company. In the wake of the 

bankruptcy and the questions it raised for workers nationwide, GAO took 

steps to help the Congress and the public better understand private 

pension issues. For example, we alerted the Congress to potential 

weaknesses in the legal protections for employee pensions. In addition, 

we showed how employers’ stock investment decisions can increase the 

risks to which their employees’ pension plans are exposed and 

recommended improvements in the information employees must receive. 

Moreover, we provided technical assistance to Senators and their staffs 

in drafting pension reform legislation. Finally, our “pension primer,” 

called Answers to Key Questions about Private Pension Plans, offered 

Members of Congress, their staffs, and the public information about 

concepts and rules that have become increasingly relevant for Americans 

concerned about their future economic security.



Improving the Management of the Pension and Welfare Benefits 

Administration’s (PWBA) Enforcement Program: In 2002, GAO reported that 

PWBA had not realized the expected level of participation in the 

Voluntary Fiduciary Correction program, which encourages employee 

benefit plan officials to identify and correct violations of the 

Employee Retirement Income Security Act of 1974 (ERISA) on their own. 

PWBA had anticipated that 700 plans would apply for and use the 

program; however, only 37 plans had applied at the time we did our 

study. We found that certain requirements, such as those for notifying 

plan participants of potential violations and for levying excise taxes 

on prohibited transactions, may hinder participation in the program. We 

recommended that PWBA analyze barriers to the program and explore ways 

to reduce them. In response to our recommendation, PWBA modified key 

features of the program. For example, it eliminated the requirement for 

plans to notify participants of potential violations and established a 

limited excise tax exemption for plans that participate in the 

Voluntary Fiduciary Correction program.



Limiting Potential Abuse of the Government Pension Offset Exemption: In 

August 2002, GAO completed a time-sensitive and high-profile review of 

potential abuse by state and local government employees of an exemption 

to the Government Pension Offset--a provision designed to equalize the 

treatment of workers covered by Social Security and those with 

noncovered government pensions. This review resulted in a congressional 

briefing and final GAO report documenting a practice that could cost 

the Social Security Trust Fund hundreds of millions of dollars. The 

Congress is currently considering legislation drafted in response to 

our report that would address the potential abuse.



Safeguarding Personal Information: In 2002, GAO reported and testified 

on the ways in which governments at all levels use the Social Security 

number and the extent to which they protect it. Our work pointed 

particularly to the challenge of safeguarding personal information, 

including Social Security numbers, that appears on public records, 

which are sometimes available to the public and in some instances 

available over the Internet. Our contacts with a variety of local 

record-keeping officials and national organizations representing such 

officials has helped bring these issues to public attention, and 

actions to secure such information, or remove it from public records 

entirely, are under consideration by such groups.



Improving Distribution of the Social Security Administration’s Death 

Master File Information: In light of concerns about identity theft and 

the potential for misuse of a deceased person’s Social Security number, 

it is important for the Social Security Administration (SSA) to gather 

death information and distribute it expeditiously to financial 

institutions. GAO found that death information collected by SSA 

generally reached financial institutions and other entities within 1 to 

2 months of a person’s death; however, delays in processing and 

distributing the information sometimes occur. In testimony, we 

concluded that SSA and the National Technical Information Service could 

make death information available to financial institutions more 

quickly. Partly in response to our testimony, SSA began furnishing its 

death file information to the Service on a weekly basis, and the 

Service began making it available to its customers weekly. SSA also now 

updates the Death Master File electronically.



Evaluating the Department of Labor’s Retirement Saving Activities: In 

2001, GAO reported that Labor’s Pension and Welfare Benefits 

Administration (PWBA) had not assessed the effectiveness of its 

activities to promote saving for retirement. In particular, PWBA had 

little specific information about the effectiveness of individual 

publications and other outreach activities. We recommended that PWBA 

measure the effectiveness of its outreach program so that it could best 

target its limited resources. In response to our recommendation, PWBA 

contracted for focus group evaluations of its retirement savings 

materials to determine their usefulness. In addition, PWBA received 

recommendations from a contractor on ways to better target its outreach 

program.



Informing the Public about the Implications of the Aging of the U.S. 

Workforce: In November 2001, GAO issued a report describing and 

analyzing the challenges posed to the nation by the aging of the U.S 

labor force. This report alerted the public and the Congress to 

potential adverse effects, not only on Social Security and the federal 

budget, but also on employers’ ability to retain skilled workers and 

ultimately on long-term economic growth. We recommended that executive 

agencies develop comprehensive policy responses to these challenges. 

The Department of the Treasury and the Internal Revenue Service are 

already taking some action. For example, they have issued a notice 

requesting comments on issues relating to phased retirement 

arrangements under qualified defined benefit plans.



Reforming Social Security: This year, the Comptroller General testified 

before the House Budget Committee on issues related to reforming the 

Social Security program. GAO has also provided numerous informal 

briefings on this topic. These contributions have strengthened our 

reputation as an honest broker of objective information on this 

contentious and controversial issue. Using a complex simulation model, 

we have supplemented the agency’s analytical work in this area and 

enhanced our ability to analyze the effects of different reform 

proposals on the level and distribution of Social Security benefits.



An Effective System of Justice:



Contributing to Election Reform: Voting problems during the September 

2002 primaries demonstrated the continuing relevance of GAO’s work 

arising from the November 2000 election. In a series of reports, we 

disclosed major challenges relating to the people, processes, and 

technology involved at each stage of the election process--

registration, absentee and early voting, preparing for and conducting 

election day activities, and vote tabulations. We shared our 

observations and criteria for evaluating reform proposals not only with 

the Congress but also with state and local election commissioners. 

Nationwide, there are more than 10,000 local election jurisdictions, 

and our work has relevance for all of them. Our work also contributed 

to the elections reform legislation passed by the Congress, which 

addresses such matters as federal subsidies for voting machinery, 

standards for the equipment, improvements in voter registration rolls, 

and better access for voters with disabilities.



Alerting the Congress to the Prevalence and Cost of Identity Theft: 

Identity theft is the fastest-growing type of crime in the United 

States. It involves “stealing” another person’s personal identifying 

information--such as the Social Security number, date of birth, and 

mother’s maiden name--and then using the information for fraudulent 

purposes. GAO’s reporting helped the Congress devise the Identity Theft 

and Assumption Deterrence Act of 1998. Since then, most states have 

enacted laws that make identity theft a crime. Still, the growth of 

identity theft and the frequently multi-or cross-jurisdictional nature 

of this type of crime underscore the importance of cooperation among 

federal, state, and local law enforcement authorities. This year, we 

reported further on the prevalence and cost of identity theft and 

worked to promote awareness and use of intergovernmental mechanisms for 

enhancing data sharing and enforcement.



Improving Efforts to Combat Immigration Benefit Fraud: Immigration 

benefit fraud involves attempts by aliens to obtain benefits such as 

naturalization, work authorization, or adjustment of status (e.g., from 

student to permanent resident) through illegal means--for example, 

using fraudulent documents. Immigration and Naturalization Service 

officials believe that the problem is serious; they also believe that 

some aliens are applying for benefits so that they will be able to 

carry out illegal activities, such as crimes of violence, narcotics 

trafficking, and terrorism. GAO reviewed the Service’s efforts to 

combat benefit fraud and identified shortcomings in the agency’s 

enforcement strategy, working level guidance, case tracking and 

management, information sharing, and performance measurement. The 

Service agreed with our findings and has begun implementing the 

corrective actions we recommended.



Improving the Monitoring and Evaluation of Department of Justice 

Grants: In a series of reports, GAO cited poor documentation of grant 

monitoring and weak impact evaluations as problematic in ensuring the 

efficiency and effectiveness of the Department of Justice’s grants. The 

Department’s Office of Juvenile Justice and Delinquency Prevention and 

Office of Justice Programs have taken steps to address the shortcomings 

we identified, both in the monitoring of grants to ensure that funds 

are spent as intended and in the design of impact evaluations to ensure 

that they are more likely to yield valid results or have been scaled 

back and redirected to achieving other research purposes. In addition, 

proposed legislation responsive to our recommendations for improvements 

in evaluations of the Department’s Drug Court program would mandate 

more rigorous data collection and affect evaluation.



The Promotion of Viable Communities:



Improving Human Capital Management at the Small Business Administration 

(SBA): GAO examined SBA’s organizational alignment and the effect this 

alignment has on SBA’s ability to fulfill its mission. GAO found that 

SBA’s current structure contributes to the challenges it faces in 

delivering services to the small business community. In particular, 

ineffective lines of communication; confusion over the mission of 

district offices; complicated, overlapping organizational 

relationships; and a field structure not consistently matched with 

mission requirements combine to impede the efforts of SBA staff to 

deliver services effectively. To guide the organizational changes 

needed to improve its delivery of services and to respond to issues and 

challenges raised by GAO, the Office of Management and Budget, and the 

SBA Inspector General, SBA has drafted a plan for a 5-year workforce 

transformation. The draft plan recognizes SBA’s need to restructure its 

workforce and streamline its headquarters operation.



Reducing the Cost of Federal Housing Programs: In response to GAO 

reports and recommendations over the past several years, the Congress, 

the Department of Housing and Urban Development (HUD), and the U.S. 

Department of Agriculture’s Rural Housing Service took actions that 

produced financial benefits totaling $6.1 billion. Over $4.8 billion 

resulted from GAO’s recommendation that HUD review unexpended balances 

in all of its programs to ensure timely expenditure of appropriated 

program funds. The remaining benefits resulted from a series of actions 

in response to our work. For example, the Congress (1) funded fewer new 

programs or set-asides than HUD had requested, (2) terminated Operation 

Safe Home, and (3) enacted legislation that replaced HUD’s home 

mortgage assignment program with less costly alternatives. 

Additionally, the Rural Housing Service centralized its servicing for 

rural single family housing loans.



Providing a “Roadmap” for Management Reform at HUD: GAO has designated 

programs in the Department of Housing and Urban Development as high 

risk since 1994. Although we removed the high-risk designation from one 

of HUD’s programs (community planning and development) after the 

department strengthened its management controls, programs in two other 

areas (single-family mortgage insurance and rental housing assistance), 

which account for about two-thirds of HUD’s budget, remain high risk. 

In response to requests from the Senate Committee on Banking, Housing 

and Urban Affairs, we reported and testified in 2002 on HUD’s progress 

in achieving management reform as well as in addressing three major 

management challenges--improving its human capital policies, 

programmatic and information management systems, and contracting 

practices. HUD management is taking action in response to our work. 

During his confirmation hearings in early 2001, HUD Secretary Mel 

Martinez, citing our work, made improving HUD’s management the 

department’s highest priority. The administration then introduced HUD’s 

first Performance Plan, noting that HUD was using our reports as a 

“roadmap” for making management improvements. In July 2002, the Deputy 

Secretary reiterated the department’s position before the Senate 

Committee on Banking, Housing and Urban Affairs and endorsed our 

characterization of HUD’s three major management challenges.



Contributing to the Debate on Homeland Security: In a series of 

testimonies delivered in Washington, D.C., and throughout the country, 

GAO discussed the need for coordination and cooperation among all 

levels of government to develop a strategy to improve national 

preparedness and an effective response in the event of future terrorist 

attacks. Drawing on our body of work on terrorism, emergency 

preparedness, and policy options for the design of federal assistance, 

the testimonies noted the need for a national homeland security 

strategy to help redefine the roles of local, state, and federal 

government entities in light of new and emerging threats. The 

testimonies also discussed the need for developing performance goals 

and measures to assess the preparedness of all levels of government and 

for carefully choosing assistance tools, such as grants, regulations, 

and tax incentives, to facilitate the targeting of resources to the 

areas of highest risk and greatest need.



Responsible Stewardship of Natural Resources and the Environment:



Improving the Process for Recognizing Indian Tribes: GAO assisted the 

Congress in its deliberations over how to reform the Bureau of Indian 

Affairs’ regulatory process for federally recognizing Indian tribes. In 

fiscal 2002, GAO issued a report and testified twice on the need for 

the Bureau to provide clear, timely recognition decisions. As of July 

2002, there were 562 federally recognized Indian tribes, and hundreds 

more had petitioned the Bureau for federal recognition. We reported 

that because of weaknesses in the recognition process, the basis for 

the Bureau’s tribal recognition decisions is not always clear and the 

time required to reach a decision can be substantial. Without 

improvements to address these problems, confidence in the regulatory 

process will continue to erode. In response to our recommendations, the 

Bureau has developed a strategic plan to improve the objectivity and 

efficiency of the tribal recognition process.



Formulating a Plan for the Multi-Billion-Dollar Everglades Restoration: 

Restoring the Everglades will take billions of dollars over 50 years 

and require many federal and nonfederal agencies to work together to 

achieve the goals of a healthy, restored ecosystem. Since 1999, we have 

identified several components missing from the initiative’s basic 

planning and organizational structure and have made recommendations to 

improve the prospects for restoration. In response, the Congress 

required the task force that administers the initiative to develop a 

strategic plan and a conflict resolution process and to prepare a land 

acquisition plan. The task force developed its first strategic plan in 

2000 and updated the plan, in part to address our comments, in 2002. It 

is currently finalizing the land acquisition plan and a conflict 

resolution process. Our ongoing work on the initiative includes a study 

on the coordination of scientific activities to support restoration and 

contributions to congressional oversight hearings on the progress made 

in developing scientific information.



Improving the Management of Nuclear Waste Cleanup Projects: In 2000 and 

2001, GAO reported on the Department of Energy’s (DOE) cleanup of 

nuclear waste contamination at two nuclear processing sites, in 

Paducah, Kentucky, and West Valley, New York. At Paducah, we found that 

significant quantities of hazardous materials had not been included in 

the site cleanup plan. At West Valley, we found that differing cleanup 

standards and disagreements between DOE and the state were hindering 

progress. In response to our recommendations, (1) DOE incorporated the 

excluded hazardous materials into the Paducah site’s cleanup plan and 

agreed to specify the plan’s priorities, costs, and schedules, and (2) 

federal regulators agreed on cleanup standards for the West Valley site 

and the Congress, as we had suggested, directed DOE and the state to 

resolve their differences.



Increasing the Capacity of the International Audit Community to Assess 

Environmental and Agricultural Programs: GAO staff helped strengthen 

auditing practices in foreign countries by taking leadership roles in 

the activities of the International Organization of Supreme Audit 

Institutions (INTOSAI). In 2002, GAO staff on INTOSAI’s Environmental 

Working Group were instrumental in developing guidance for conducting 

environmental audits, and GAO staff at a joint United Nations/INTOSAI 

meeting took the lead in developing guidance for auditing agricultural 

programs. Both guidance documents are being translated and published in 

five languages.



Improving Grant Management and Oversight: GAO recommended in 2001 that 

the Environmental Protection Agency (EPA) improve its oversight of 

grantees and revise its outdated grant regulations to conform with 

current practices. EPA provides over half of its budget of about $8 

billion to grantees to accomplish its environmental programs, and 

effective oversight of these grantees is critical to achieving the 

agency’s environmental goals. We found that EPA was not effectively 

scrutinizing grantees for unallowable costs or using single audit 

information as effectively as it could. We also found that existing 

grant regulations did not reflect actual practices. In response to our 

recommendations, EPA revised its grant regulations in 2002 to require 

testing for unallowable costs and to accurately reflect its grant 

fellowship practices. EPA also improved its training for grant 

personnel so that they could make better use of single audit 

information.



Reducing Nuclear Waste Treatment Costs: In 1996, GAO reviewed DOE’s 

Hanford tank waste privatization project and found many unresolved 

technical and financial uncertainties. In 1998, GAO compared DOE’s 

Hanford approach with several alternative contracting and financing 

strategies and suggested that DOE reassess its approach in light of 

significant cost growth. In June 2000, GAO testified that DOE should 

reevaluate its Hanford approach and consider other contracting and 

financing options. DOE subsequently terminated the Hanford tank waste 

project, and, after evaluating alternative contracting and financing 

options, awarded a new contract that is expected to achieve significant 

cost reductions--about $4 billion--over the life of the construction 

phase. The financial benefit for fiscal 2003, 2004, and 2005 is about 

$1.5 billion.



Helping Enhance Federal Oversight of Restructured Energy Markets: With 

the restructuring of the electricity and natural gas industries, from 

regulated monopolies to competitors in the marketplace, GAO has 

contributed to the Congress’s understanding of key issues in ongoing 

energy policy debates. These issues include the implications of the 

Enron collapse for the markets, the exercise of market power in 

California, reasons for price spikes in the natural gas markets, and 

the Federal Energy Regulatory Commission’s capacity to oversee energy 

markets. Our work has also influenced federal agencies’ decisions 

affecting concentration in the ethanol market and the petroleum 

industry.



Protecting the Taxpayer against Faulty Analyses in Public Works 

Programs: GAO found that the Corps of Engineers’ economic justification 

for the proposed deepening of the Delaware River ship channel was 

seriously flawed. The Corps’ justification contained numerous material 

errors, including miscalculations, invalid assumptions, and the use of 

significantly outdated information. Furthermore, the Corps’ quality 

control process failed to identify these major flaws. Acting on GAO’s 

findings, the Corps’ Director of Civil Works suspended this $311 

million project pending a comprehensive reanalysis. Moreover, in light 

of the many problems identified for this individual project, the 

Director ordered a review of 164 other projects.



Making the Food Supply Safer for the American People: Although the U.S. 

food supply is considered one of the safest in the world, foodborne 

illness remains an extensive and expensive problem, raising concerns 

about the federal government’s ability to ensure the safety of domestic 

and imported foods. Recently, the threat of deliberate contamination of 

our food by terrorists has significantly elevated those concerns. After 

we issued a series of reports and testimonies on the federal 

government’s ability to ensure the safety of the food supply, the 

Congress and federal agencies took action to strengthen oversight and 

enforcement of the federal food safety system. For example, the 

Congress included several food safety provisions in the Public Health 

Security and Bioterrorism Preparedness and Response Act of 2002, 

including those that (1) strengthen the Food and Drug Administration’s 

(FDA) authority to prevent the reimportation of potentially unsafe food 

that has been refused entry into the United States and (2) require 

domestic food-processing firms to register with FDA to ensure that they 

are known to the agency and subject to its processing regulations. In 

addition, the U.S. Department of Agriculture developed a training and 

certification program and required statistical process controls for a 

pilot program testing a new inspection approach for slaughter 

facilities.



Strengthening Federal Efforts to Prevent and Fight Wildfires: In 1998, 

GAO first reported on the potential for large catastrophic wildfires to 

cause extensive damage to forests and nearby communities. Since then, 

we have facilitated the involvement of federal agencies in (1) 

coordinating their actions and providing overall leadership, (2) 

identifying the major causes of these types of fires and setting 

priorities for reducing their effect, and (3) identifying ways for the 

agencies to enhance their preparedness for fighting these fires. As a 

result of our efforts over the years, the Department of Agriculture and 

the Department of the Interior have developed a cohesive strategy to 

help restore and maintain the health of ecosystems damaged or 

threatened by catastrophic wildfires. This strategy includes setting 

priorities to deal with the problem, establishing a Wildlands Fire 

Leadership Council to provide coordination and leadership to address 

catastrophic wildfire threats, and beginning to hire additional 

firefighters and purchase additional fire-fighting equipment to enhance 

the agencies’ fire-fighting capability.



Improving Farm Loan Programs: In 1990, GAO designated the Department of 

Agriculture’s Farm Loan Programs as a high-risk area because of 

billions of dollars of losses attributable to significant problems 

primarily with the department’s direct loan portfolio. Since then, the 

department has implemented many of our recommendations to improve the 

program, and the 1996 Farm Bill incorporated our key legislative 

recommendations. These changes eliminated the revolving-door credit for 

which the department had become known and gave farmers strong 

incentives to repay their loans rather than to seek loan forgiveness or 

loan refinancing that included write-offs of delinquent debt. We 

estimated that, during the 5 years following enactment of the 1996 Farm 

Bill, improvements in the program reduced losses on direct loans by 

about $4.8 billion, compared with the losses for the 5 preceding years.



Enhancing the Credibility of Environmental Regulations: In developing 

regulations to protect the environment and public health, the 

Environmental Protection Agency (EPA) relies extensively on its Science 

Advisory Board for independent peer reviews of key scientific studies 

and methodologies. GAO found that the board’s peer review results could 

be undermined by allegations of conflict of interest and bias because 

its policies and procedures were not sufficient to (1) ensure the 

independence of peer review panel members, (2) ensure a balance of 

viewpoints on each panel, or (3) inform the public about the points of 

view represented. In 2002, EPA responded fully to our recommendations, 

implementing new policies and procedures that significantly enhance the 

board’s ability to identify and address potential conflicts of 

interest, develop balanced panels, and better inform the public about 

the panels.



A Secure and Effective National Physical Infrastructure:



Proceeds from States’ Sale of Real Property Remain Federal Funds: In a 

legal opinion, GAO disagreed with a Federal Highway Administration’s 

interpretation of a statute that allowed states to use the proceeds 

from sales of real property purchased with federal funds for other 

eligible projects. The Federal Highway Administration interpreted the 

statute to mean that proceeds from real property sales purchased with 

federal funds lose their federal character and become state funds. We 

concluded that the federal government retains its interest in the sale 

proceeds and, consequently, states may not convert federal money to 

state money by buying and selling real property.



Contributing to the Debate on Spectrum Reform: With the dramatic growth 

in wireless technologies during the past decade, government users and 

the commercial sector are competing more intensely for access to the 

radio frequency spectrum to meet needs for national defense, public 

safety, and the general public. In 2002, GAO testified before the 

Senate Committee on Commerce, Science and Transportation and 

subsequently reported on problems with the federal government’s 

management of the spectrum. We recommended the development of a clearly 

defined national spectrum strategy to guide domestic and international 

spectrum management decision making, actions to address human capital 

needs in federal spectrum management, and enhanced accountability for 

federal agencies’ use of this limited resource.



Enhancing Aviation Safety: In response to a request from the 

Subcommittee on Aviation, House Committee on Transportation and 

Infrastructure, GAO reviewed the Federal Aviation Administration’s 

(FAA) implementation of the Pilot Records Improvement Act of 1996. This 

act responded to seven fatal commercial airline accidents that were 

attributed, in part, to errors by pilots who had been hired without 

background checks. Our 2002 report found compliance problems at some 

airlines. In addition, we pointed out that FAA did not incorporate 

guidance on the act in its training or handbooks for inspectors. We 

made recommendations designed to assist FAA in overseeing the act’s 

implementation and in determining whether carriers have conducted the 

required background checks before making final pilot hiring decisions.



Reducing the Federal Aviation Administration’s Budget: GAO assisted the 

Senate Appropriations Committee, Subcommittee on Transportation, with 

markups of the Federal Aviation Administration’s budget. In briefings, 

we identified several facilities and equipment projects as candidates 

for budget reductions. On the basis of our analysis, the House and 

Senate Appropriations Committees reduced the agency’s fiscal 2002 

budget by $99 million.



Serving as a Catalyst to the Postal Service’s Transformation Efforts: 

Since we placed the Postal Service’s transformation efforts and outlook 

on our High-Risk List and recommended in April 2001 that the Service 

develop a transformation plan, much of the public debate in the 

Congress and among postal stakeholders has focused on such a plan. In 

April 2002, the Postal Service issued a transformation plan. In 

response to requests from the Senate Committee on Governmental Affairs, 

we reported and testified in 2002 on the Service’s deteriorating 

financial situation and highlighted why the Service’s primary mission 

of providing universal postal service is at risk and transformation is 

needed. We noted that the Service’s current business model, which 

assumes that growing mail volumes and revenues will cover the costs of 

an expanding infrastructure, is at odds with the decline in mail 

volumes attributable to several factors, including increased 

competition and electronic communication alternatives. We identified 

key transformation issues that need to be addressed, such as the 

Service’s mission and role for the 21st century and possible approaches 

to addressing these issues.



Making Key Contributions to Transportation Security: Drawing on an 

extensive body of completed work, GAO provided significant background 

information to a number of committees as the Congress drafted the 

Aviation and Transportation Security Act. We have also continued to 

provide the Congress with information on aviation, port, and transit 

security. For example, in response to requests from House and Senate 

authorizing committees, we provided timely information on U.S. and 

foreign-owned screening companies and the capabilities of explosives 

detection systems and trace devices. We also provided information on 

the pros and cons of moving the Transportation Security Administration 

to the Department of Homeland Security and of arming commercial pilots. 

Additionally, we testified before the House Subcommittee on National 

Security that ports present security risks, not only because of the 

possibility that ships could carry weapons of mass destruction or other 

hazardous cargoes, but also because of the potential for terrorists to 

attack cruise ships or petrochemical facilities at or near ports. 

Finally, we testified before the Senate Committee on Banking, Housing 

and Urban Affairs on the challenges that transit agencies face in 

making their systems secure. These challenges include the systems’ 

accessibility and high ridership, the high cost of security 

improvements, and the need to coordinate security concerns among 

federal, state, and local government agencies and private sector 

companies.



Aiding in Deliberations on New Surface Transportation Legislation: 

Responding to requests from authorizing committees, GAO provided 

information in testimonies and reports to the Congress as it prepared 

to reauthorize surface transportation programs. In 2002, GAO identified 

major challenges in surface and maritime transportation systems, 

reviewed the Departments of Treasury’s and Transportation’s procedures 

for projecting receipts for the highway account of the Highway Trust 

Fund over the next authorization period and beyond, and identified 

alternative approaches to funding investments in surface 

transportation. In addition, our work on highway research provided 

assistance to a Senate authorizing committee in drafting new 

legislation.



Improving Federal Real Property Management: In a number of reports and 

testimonies for the House Committees on Transportation and 

Infrastructure and Government Reform and the Senate Committee on 

Governmental Affairs, GAO identified problems with and made 

recommendations to improve the management, acquisition, maintenance, 

protection, usage, and disposal of federal real property. The Congress 

considered legislation related to this work that would have given 

federal agencies more management tools, such as the ability to enter 

into public/private partnerships to better use and maintain their 

facilities. The General Services Administration made significant 

progress in 2002 toward pursuing all available alternatives to deal 

more expeditiously with deteriorated and underused buildings and to 

improve the quality of the data it uses in its reports. Finally, we 

made recommendations to strengthen building security and informed the 

Congress of issues to be considered in deliberations on establishing a 

Department of Homeland Security.



Strategic Goal 2:



Provide Timely, Quality Service to the Congress and the Federal 

Government to Respond to Changing Security Threats and the Challenges 

of Global Interdependence:



Respond to Diffuse Threats to National and Global Security:



Progress Made in Unifying Homeland Security Efforts: The federal 

government has taken important first steps to unify the efforts of all 

levels of government and the private sector with regard to homeland 

security. As GAO recommended in reports from 1997 to 2002, the federal 

government has established a focal point for combating terrorism (the 

Office of Homeland Security), developed a plan for countering 

terrorism, implemented risk management to enhance security at certain 

federal departments, and defined key terms such as “homeland security” 

and included the definitions in the National Strategy for Homeland 

Security. These actions will promote leadership among the many entities 

involved in homeland security and help to ensure that their efforts are 

mutually reinforcing and that they are using resources efficiently.



Evaluating DOD’s Chemical and Biological Defense Program: In response 

to congressional concern, GAO has been increasing its review efforts on 

the status and progress of the Department of Defense’s (DOD) Chemical 

and Biological Defense Program and military service readiness in this 

area. GAO’s reports have identified problems and recommended a number 

of corrective actions, particularly in areas such as chemical and 

biological defense equipment and training, unit readiness reporting, 

program organization, and command emphasis and leadership. DOD has 

concurred with the vast majority of GAO’s recommendations and is 

presently working on several major initiatives to resolve identified 

problems and make program improvements. These initiatives have resulted 

in savings of approximately $2 million during fiscal 2002.



Improving Department of Defense Force Protection Efforts: At the 

request of two congressional committees, GAO is continuing to evaluate 

the approach taken by each military service to protect military 

personnel, equipment, and capabilities from terrorist attacks and is 

examining the protection measures taken at domestic and overseas ports 

used for military deployments. In a collaborative effort, GAO worked 

with the Department of Defense to identify and implement changes needed 

to improve the effectiveness of the department’s force protection 

approach. This year, as a result of GAO recommendations, the department 

took steps to (1) improve its threat assessment methodology, (2) 

develop a departmentwide antiterrorism/force protection strategy, and 

(3) consistently apply risk management principles to prioritize 

requirements.



Upgrading U.S. Export Controls on Sensitive Technologies: GAO’s many 

reviews of U.S. export control laws and programs have contributed to 

the congressional debate over how to revamp the current system and 

prevent sensitive technologies from falling into the hands of 

terrorists or states that support them. Among the improvements needed, 

GAO noted better justification for loosening controls over high-

performance computers, better monitoring of the recipients of sensitive 

technologies, and greater information-sharing among supplier countries 

that export sensitive technologies. GAO’s reports and testimonies have 

helped the Congress understand the weaknesses in the current process of 

controlling sensitive technology exports and how proposed changes to 

the Export Administration Act will affect the delicate balance between 

protecting our national security and promoting U.S. economic interests.



Helping Reduce Risks Involving Information Security: GAO has identified 

information security as a governmentwide high-risk area, and its 

ongoing work identifying information security vulnerabilities has 

helped mitigate risks to critical federal operations/assets and improve 

the government’s ability to respond to cyber attacks and intrusions. 

Improvements stemming from recommendations in prior years’ audits and 

recent follow-up work included actions by the Departments of Commerce, 

Defense, Interior, Education, and Veterans Affairs. Further, GAO’s 

recommendations during fiscal 2002 prompted new actions at the 

Departments of Defense and Treasury and at the Federal Deposit 

Insurance Corporation to strengthen information security for protecting 

sensitive data from unauthorized disclosure, modification, and loss.



Focusing on Information Security As a Critical Element of National 

Preparedness: In the aftermath of the September 11, 2001, attacks, GAO 

assessed governmentwide progress in implementing critical 

infrastructure protection efforts, including (1) a discussion of 

related challenges facing the proposed Department of Homeland Security, 

(2) an analysis of the numerous organizations involved in protecting 

the nation’s computer-based infrastructure, and (3) an identification 

of information-sharing practices that can benefit critical 

infrastructure protection. GAO’s reports and testimonies detailed the 

growing array of threats, including cyber-terrorism, and related risks 

to our increasingly computer-dependent infrastructures, such as 

electric power, telecommunications, and key government services. In 

addition, GAO’s products identified shortfalls and recommended 

solutions pertaining to the ability of the government to analyze 

threats effectively, respond to potentially damaging incidents, and 

work with the private sector to implement comprehensive risk-reduction 

measures.



Protecting the Public from Nuclear Terrorism: The United States has 

spent over $5 billion to prevent the transfer of nuclear material and 

scientific expertise that could be used to develop a nuclear bomb or a 

radiological weapon from Russia and other states of the former Soviet 

Union to terrorists or countries of concern. Because of our work, the 

federal agencies involved have (1) begun to develop an overall plan to 

coordinate their international efforts, (2) consolidated programs to 

better target limited resources, (3) focused on ensuring that security 

improvements are sustained by the host countries, (4) decided to 

upgrade radiation detection equipment already installed and establish 

minimum standards for new installations, and (5) begun to develop a 

strategic plan for installing nuclear detection equipment on U.S. 

borders.



Testing the Security of Federal Buildings: In a test of the adequacy of 

security measures in federal offices around the country, GAO 

investigators breached the security of four federal office buildings in 

the Atlanta area. Using fictitious law enforcement credentials and a 

pretext for their presence, agents were able to enter the buildings 

without proper authority, carrying a briefcase or package and bypassing 

magnetometers and x-ray machines. They moved freely throughout the 

facilities during day and evening hours. As a result of this test, GSA 

strengthened its process for verifying credentials and identification 

and issued guidance and recommendations for security operations at GSA-

managed facilities throughout the country.



Ensure Military Capabilities and Readiness:



Promoting a Clearer Understanding of Gulf War Illness: Since the mid-

1990s, GAO has given visibility to ongoing privately funded research 

into the nature and causes of Gulf War Illness and the methodological 

obstacles faced by researchers. Early research sponsored by the 

Department of Defense emphasized stress as a potential causal factor in 

Gulf War veterans’ illnesses; however, privately funded research 

augmented this with the investigation of a range of physical exposures, 

including chemical agents. One result of our attention to this issue 

has been DOD’s growing acceptance of alternative views on the nature 

and causes of Gulf War Illness.



More Efficient Use of In-orbit Satellite Capabilities: In 1998, GAO 

reviewed DOD’s development of the Space-Based Infrared System (SBIRS), 

under which the launch of the first SBIRS satellite was planned for 

fiscal 2002. We reported that implementing this plan would put eight 

excess satellites in orbit without providing sufficient ground 

processing capabilities for the data the satellites generated. We 

recommended that the Secretary of Defense review and assess launch 

alternatives. As a result, DOD delayed the launch of the first SBIRS 

satellite from fiscal 2002 to fiscal 2004 and subsequently delayed 

other such launches. These delays, which allow DOD to use existing 

satellites until the end of their expected lives and avoid 8 years of 

excess satellite capability, saved about $702 million in satellite 

costs.



Reducing Risks in F/A-22 Aircraft Program: In a March 2002 mandated 

report, GAO recommended limiting production in the Air Force’s F/A-22 

aircraft program until operational testing is complete to minimize the 

risks of producing large quantities of aircraft that may require costly 

modifications. We reported the extent of the delay to development 

testing and predicted how this delay would likely further affect 

subsequent operational testing and thus increase program risks. Our 

analysis helped the House Appropriations Committee include language in 

the Fiscal Year 2003 Defense Appropriation Act to delay funding for 

seven F/A-22 production aircraft until DOD completes a formal risk 

assessment. This assessment will identify the potential cost, 

technical, schedule, or other risks resulting from increased F/A-22 

production quantities prior to the conclusion of operational testing.



Delaying Full-Rate Production of the V-22: In January 2001, GAO briefed 

the Secretary of Defense’s V-22 Blue Ribbon Panel about our findings on 

the aircraft. The Blue Ribbon Panel was formed to investigate the V-22 

after a fatal crash in December 2000, just prior to the aircraft’s 

planned full-rate production. The panel received information from GAO 

about reductions in development testing, test waivers, deficiencies 

identified during operational tests, and results of an earlier April 

2000 crash investigation that also involved fatalities. Much of the 

information in our briefing about the V-22 had not been previously 

disclosed. The panel used the information to support its position that 

the V-22 was not ready for full-rate production and that only a minimum 

production rate should be continued during additional testing and 

evaluation of the aircraft. The Congress subsequently rescinded $446.5 

million from the fiscal 2001 supplement request and reduced the fiscal 

2002 request by $296.3 million. The net present value of the two 

actions is $763.8 million.



Reducing the Risk of Major Weapon System Acquisitions: Since 1998, 

GAO’s work on best commercial practices has shown that maturing key 

technologies before they were included in new product development was a 

key factor in successful programs. We also reported on a technique--

technology readiness levels--that accurately gauges the maturity of 

technology. The Department of Defense agreed, making technology 

maturity a key factor in determining whether new programs should be 

started and endorsing use of technology readiness levels. We have since 

applied technology readiness levels in our assessments of several major 

weapon system programs, leading to recommendations on how changes in 

the programs could avert costly and time-consuming problems. Citing 

GAO’s work on best practices, the Senate added its support for 

technology maturity through a provision to the Defense Authorization 

Act for Fiscal Year 2002 requiring that critical technologies be 

successfully demonstrated before they are incorporated into a major 

defense acquisition program.



Improving DOD’s Major Weapon System Acquisition Process: GAO issued a 

report in fiscal 2002 that identified best practices for capturing 

knowledge about a product’s design and manufacturing at critical points 

during its development, thereby reducing cost and schedule risk. On the 

basis of our analysis, we concluded that DOD could achieve better 

outcomes from its acquisition programs by ensuring that knowledge is 

captured at key decision points. We recommended that DOD require 

specific information as exit criteria at these key points during 

product development and require the program manager to document that 

information. We also recommended that DOD structure its contracts for 

major weapon system acquisitions to provide incentives to the 

contractor to capture knowledge by making such information the basis 

for continuing the program. DOD accepted our recommendations, endorsed 

the use of these best practices, and wrote several of them into its 

newly revised acquisition policy. If DOD successfully applies this 

policy to individual weapon system programs, it will enable better 

design and production decisions and will lessen the likelihood of 

unanticipated cost and schedule increases.



Senate Defers Procurement of Second Special Operations Mini Submarine: 

GAO’s 2002 mandated review of the Special Operations Command’s Advanced 

Sea, Air, and Land Delivery System identified significant problems with 

the first mini submarine’s performance, cost, and schedule. Our 

analysis showed that if the problems were not resolved, they could lead 

to additional cost, schedule delays, and an inability to meet program 

objectives. In May 2002, citing GAO’s analysis, the Senate reduced the 

Special Operation Command’s fiscal 2003 budget request, canceling funds 

for a second mini submarine until the problems with the first submarine 

are resolved. In August 2002, the Department of Defense agreed, and the 

program is being restructured to ensure that the first mini submarine 

is fully operational and meets the user’s requirements before procuring 

additional vehicles.



Ensuring Contingency Funds Are Spent Properly: Since 1991, the 

Department of Defense has spent more than $25 billion in support of 

military operations in the Balkans and the Persian Gulf. In assessing 

DOD’s use of contingency operations funds in fiscal 2000 and 2001, we 

identified millions of dollars in questionable expenditures resulting 

from limited guidance and oversight combined with a lack of cost 

consciousness. In responding to our findings, the Congress reduced DOD 

funding for those operations by $650 million in fiscal 2002. In 

commenting on our report, DOD also stated its intention to improve its 

guidance for and oversight over the use of contingency funds.



Assisting in Decisions on Funding for Military Operations: The Congress 

appropriated more than $10 billion in support of ongoing military 

operations in fiscal 2002, including those to combat terrorism and to 

support peacekeeping in the Balkans and the Persian Gulf. In a series 

of briefings for the Senate Appropriations Committee, GAO provided 

information on costs incurred to date for these operations, likely 

future costs, the adequacy of funds appropriated to support the 

operations, and the actual expenditures made with these funds. GAO also 

issued reports in May 2002 and September 2002 on the expenditure of 

such appropriated funds and funding needs in the Balkans, respectively. 

The committee used GAO’s information in deciding on appropriations 

levels for these operations.



Improving the Management of DOD’s Privatization of Military Family 

Housing: During fiscal 2002, we issued a report and briefed 

congressional staff several times on areas where DOD could improve the 

management of its privatization of military family housing. We reported 

that privatization projects were not supported by reliable needs 

assessments and that the overall requirement for military housing was 

not well defined. We concluded that the military might be entering into 

unnecessary, long-term privatization contracts to construct, replace, 

or renovate housing. Accordingly, we recommended that DOD use a broader 

range of factors in defining military housing requirements, modify its 

guidance for performing life-cycle cost analyses, and implement several 

changes to enhance government protections in the privatization program. 

DOD generally agreed with the recommendations and has outlined ongoing 

management actions to address our suggestions. As a result of our 

report, congressional staff also opened up a dialogue with DOD 

officials on issues related to privatizing military family housing.



Contributing to the Military Base Closure and Realignment Process: 

Since 1979, GAO has issued a number of reports documenting excess 

infrastructure within the Department of Defense and supporting the need 

for a base closure and realignment process. The Congress authorized 

such a process and enacted legislation requiring us to provide it with 

a series of reports and testimonies validating DOD’s implementation. We 

monitored and assessed all phases of the decision-making process, 

including executive-level sessions, for compliance with congressional 

requirements. In addition, GAO staff assisted commissions that 

recommended base closures and realignments in 1991, 1993, and 1995. The 

staff helped shape the commissions’ decisions through analyses of 

issues associated with closing or realigning specific installations. 

Last year, we reported cost reductions of about $6 billion associated 

with our work. Updated DOD data indicate further cost reductions of 

$545 million.



Increasing Use of Excess Property: GAO reported that $2.7 billion worth 

of military property recorded as shipped to disposal offices was never 

recorded as received, resulting in losses and write-offs of the 

property from the military services’ books and inventory records. GAO 

recommended changes that avoided the write-offs and kept the items as 

part of the services’ inventory records until the property was actually 

disposed of. As a result, the inventory was available for use by DOD 

customers during the period prior to disposal. For the first 2 years 

that the changes were in effect, they resulted in savings of $526 

million.



Improving Military Benefits: In response to a congressional request, 

GAO assessed the military benefits package provided to active duty 

members and their dependents. We noted in both our testimony and report 

that the military offered all the core benefits extended by most 

private sector firms, including health care, paid time off, life 

insurance, and retirement pay. Furthermore, military benefits, such as 

free housing, free health care for members, and discount shopping at 

commissaries and exchanges, may exceed private sector benefits. We also 

reported that although military benefits have generally kept pace with 

the demographic changes in the active duty force, there are 

opportunities for improvement. We recommended that DOD (1) develop 

measures for tracking and assessing the effectiveness of the employment 

assistance services offered to military spouses at military 

installations and (2) assess the feasibility, costs, and benefits of 

offering extended time off to new parents as a way to increase 

retention of trained, experienced personnel.



Relations between Reservists and Their Employers: GAO reported in June 

2002 that despite increases in military operations since 1992, the 

average operational tempo (the total days reservists spend 

participating in normal drills, training, exercises, and domestic and 

operational missions) DOD-wide increased only slightly between 1992 and 

2001--from 43 days to 46 days a year. However, reservists in certain 

units or occupations, such as those in aviation, special forces, 

security, and civil affairs, experienced operational tempos two to 

seven times higher than those of other reservists. Among our findings 

on the department’s outreach efforts to reservists’ employers, we found 

that DOD lacks information on who reservists’ employers are, and it 

views the Privacy Act as a constraint that prevents it from requiring 

reservists to provide this information. We also found that although 

approximately one-third of reservists are students, DOD does not have 

an active program in place to address problems that may arise between 

student reservists and their educational institutions. We made, and DOD 

agreed with, several recommendations designed to address these and 

other problems we identified during the course of our study.



Managing Encroachment on Military Training Ranges: During fiscal 2002, 

we issued two reports and testified on the constraints that 

encroachment (the cumulative effect of outside influences that inhibit 

military training and testing) places on training in the continental 

United States and overseas. We recommended executive action that 

requires the Department of Defense to finalize a comprehensive plan for 

managing encroachment issues, develop the ability to report critical 

encroachment-related training problems, and develop and maintain 

inventories of its training infrastructure and quantify its training 

requirements. DOD agreed with and has initiated actions to implement 

our recommendations. Our work also supported the House Committee on 

Government Reform’s hearings on the effects of encroachment on military 

training and readiness and the congressional deliberations on DOD’s 

appropriations for fiscal 2003.



Adjusting Department of Defense Funding: GAO reviewed the 

reasonableness of DOD’s budget requests for fiscal 2002 to assist 

subcommittees in their appropriation and authorization deliberations. 

On the basis of GAO’s findings, the Congress adjusted DOD’s budget 

request by about $2.1 billion. Specifically, the Congress adjusted (1) 

the military personnel request by almost $600 million; (2) the 

operations and maintenance request by about $1 billion; and (3) the 

procurement and research, development, test, and evaluation request by 

$539 million. Also, the Congress rescinded about $562 million from 

DOD’s fiscal 2001 funds for DOD’s supplemental appropriation. In 

addition, during internal DOD budget deliberations, DOD officials 

reduced the agency’s foreign currency exchange estimates by $1.5 

billion for fiscal 2002 and 2003. These adjustments did not affect 

readiness, and the Congress used the adjusted funds for other needs.



Assessing the Army’s Transformation Efforts: GAO issued two reports 

assessing the Army’s transformation efforts. Our report on the Army’s 

Transformation Campaign Plan identified six challenges the Army faces 

as it manages transformation over the next 30 years: technology, 

schedule, acquisitions, operations, human capital, and funding. DOD 

concurred with the findings and stated that it will continue to address 

these challenges as it attempts to maintain timeliness. Our second 

report evaluated the Army’s formation of the first two of the six 

planned Interim Brigade Combat Teams. The report outlined challenges to 

logistical support planning and shortfalls in combat capability that 

the Army is facing as it forms the teams. We made recommendations 

designed to assist the Army in overcoming these challenges. DOD 

generally concurred with the findings, and the Army began to take 

action to implement the recommendations.



Improving Equipment Maintenance Practices: GAO’s reviews of maintenance 

programs in each of the military services supported congressional 

oversight of these issues and led to management actions by DOD to 

improve its depot maintenance operations. As we had recommended, the 

Air Force developed and provided to the Congress a depot maintenance 

strategic plan that, among other things, addressed human capital and 

facilities recapitalization needs. Using a strategic approach is key to 

ensuring that necessary repair capabilities are available to meet the 

Air Force’s needs. Our review of the Army workload and performance 

system resulted in improvements that have increased the quality of the 

maintenance information available to Army depot managers, providing 

them with the means to improve the efficiency and effectiveness of 

depot maintenance operations. Further, as a result of our 

recommendation, DOD implemented policy guidance to improve the 

management of public-private depot maintenance partnerships.



Improving Accountability Over Defense Inventory: In response to various 

congressional requests, GAO issued several reports on DOD’s inventory 

management practices, which resulted in management improvements and 

enhanced congressional oversight. As a result of our recommendations, 

the Army has significantly enhanced inventory management and integrated 

the wholesale and retail supply systems to create a single system, 

which the Army calls the single stock fund. The creation of a single 

stock fund has allowed the Army to consolidate redundant inventory and 

reduce customer wait time, and it is expected to result in savings of 

over $1 billion. GAO also found that the Navy’s Product Quality 

Deficiency Reporting Program was largely ineffective in gathering data 

needed for analyses. Without these data, managers lost opportunities to 

initiate important corrective and preventive actions with suppliers. To 

correct these weaknesses, GAO recommended that the Navy take steps to 

increase the level of training, incentives, management emphasis, and 

results reporting as necessary to improve program effectiveness. 

Subsequently, the Navy took actions to report premature parts failures 

as quality deficiencies.



Improving Operations at the National Nuclear Security Administration: 

Through a series of reports and testimonies, the first of which were 

issued in 2001, GAO has monitored the start-up of the National Nuclear 

Security Administration (NNSA), a separately organized entity within 

the Department of Energy (DOE). The Congress created NNSA to correct 

long-standing management and security problems at DOE. At the time of 

NNSA’s creation, the House Armed Services Committee established a 

special panel to oversee NNSA. We have provided the panel with 

briefings, testimonies, and reports on the problems NNSA has 

experienced in developing, as its implementing legislation requires, 

effective planning, budgeting, and organizational approaches. Our work 

has contributed to language in NNSA’s appropriations and authorization 

acts requiring improved operations and has led NNSA to implement some 

of our recommendations for improving its organization.



Advance and Protect U.S. International Interests:



Adopting Standard State Department Embassy Construction Project 

Designs: For several years, GAO has encouraged the State Department, 

through improved planning, to exercise better control over the cost of 

new embassies it constructs overseas. To reduce costs and construction 

time, GAO strongly encouraged State to use standard designs for its new 

embassy construction projects. In 2001, State took several actions to 

improve planning and hold down construction costs, including the use of 

standard size and design criteria. Using this approach, State adopted 

three size and cost categories for its construction projects and was 

able to reduce the cost of six construction projects in late 2001. As a 

result, the expected costs for these projects were reduced by more than 

$90 million.



Enhancing the Disposal and Sale of Overseas Property: GAO’s work 

concerning the State Department’s responsibility for managing overseas 

property showed that (1) State’s property inventory contained 

inaccuracies that could prevent it from identifying and selling some 

unneeded properties and (2) the 2001 Agriculture Appropriations Act 

restricted State’s authority to sell some valuable properties. 

Regarding State’s overseas property inventory, we recommended that the 

department improve its accuracy, and State agreed. Regarding the 2001 

Agriculture Appropriations Act, we suggested that the Congress consider 

repealing the requirement that State obtain approval from the Foreign 

Agricultural Service before selling agricultural attaché residences and 

use the sales proceeds to purchase new attaché residences. The Congress 

repealed these restrictions in September 2002, clearing the way for 

State to proceed with the sale of several valuable unneeded properties. 

Increased sales of unneeded overseas property reduces the cost of U.S. 

diplomatic and consular operations in foreign countries and provides 

funds for acquiring new property and capital construction projects, 

such as building secure embassies.



Supporting Embassy Rightsizing Initiatives: GAO prepared a rightsizing 

framework, which the Office of Management and Budget is now using to 

assess staffing levels at U.S. embassies in Europe and Eurasia. We 

reported that such a systematic framework could aid executive branch 

efforts to have the right number of staff in overseas posts and 

recommended that the Office of Management and Budget use this framework 

to assess overseas posts’ staffing levels. As a result of our report, 

the Office of Management and Budget sent a questionnaire to U.S. 

diplomatic posts in Europe and Eurasia to assess staffing levels. This 

effort should help achieve a more efficient allocation of limited 

overseas staffing resources and reduce operating costs.



Improving Human Capital Management: GAO examined the State Department’s 

process for and performance in assigning staff to hardship posts where 

employees experience a variety of adverse living conditions. State’s 

assignment system is not effectively meeting the staffing needs at 

these posts. As a result, diplomatic readiness could be at risk at 

posts that are of significant importance to the United States, such as 

those in China, Saudi Arabia, and Ukraine. We recommended that State 

improve its human resources data, determine staffing priorities, 

consider a target hiring strategy, and develop incentives and implement 

actions to steer Foreign Service employees toward serving in hardship 

posts. In response, State has indicated that the department is 

expanding its information management system to improve its personnel 

and assignment data, filling positions in hardship posts first, and 

examining the legal basis and potential financial impact of possible 

incentives and initiatives. Since we issued our report, the Director-

General of the Foreign Service has made the staffing of hardship posts 

a top priority.



Improving Language Skills in Key Federal Agencies: GAO’s reports and 

testimony on problems with foreign language skills in federal agencies 

have focused congressional attention on a critical gap in the nation’s 

fight against international terrorism, drug trafficking, and gang 

violence. Federal agencies have critical shortfalls in the numbers of 

Arabic, Chinese, Korean, and Russian interpreters and linguists on 

their staffs. The Federal Bureau of Investigation has thousands of 

hours of audiotape and thousands of pages of written material that have 

not been translated. Our reports analyzed the nature and extent of 

foreign language shortages, the strategies four federal agencies used 

to address shortages, and the agencies’ efforts to implement an overall 

strategic workforce plan to address current and projected shortages. 

Numerous congressional committees have cited our work frequently as 

they considered strategies to prepare the federal workforce for the 

complex intelligence and foreign affairs challenges the nation faces.



Redirecting Development Assistance Program Funds: During 2001, GAO 

examined the U.S. Agency for International Development’s (USAID) 

efforts in Colombia to provide growers of illicit crops a legal means 

to earn a living--generally called “alternative development.” Colombia 

accounts for 90 percent of the cocaine entering the United States and 

approximately two-thirds of the heroin available on the East Coast. We 

found that the alternative development program in Colombia was not 

likely to achieve success until, at a minimum, the Colombian government 

could provide security in the illicit crop-growing areas, provide safe 

access to project sites, and attract the private investment needed for 

long-term development. We recommended that USAID modify its plans and 

spending proposals to better reflect the extreme difficulty in gaining 

access to the illicit crop-growing regions. In December 2001, on the 

basis of our findings and recommendation, USAID suspended its $31.7 

million alternative development program in Colombia and began revising 

its approach. As a result, USAID halted its largely agricultural 

program and reoriented its efforts to emphasize social infrastructure 

and other projects that are not as dependent on security. USAID also 

initiated alternative development projects in areas where the security 

situation was more favorable. By making these adjustments, USAID 

redirected over $30 million to activities and areas of Colombia that 

offered a greater likelihood of success.



Improving the Delivery of Disaster Recovery Assistance: GAO evaluated 

$621 million in emergency supplemental funding appropriated in May 1999 

for countries affected by Hurricanes Mitch and Georges. As a result of 

our observations, among other things, the quality of rural road 

projects improved, an abandoned rural health clinic was staffed and 

made operational, new latrines were built for a school, and an 

agricultural project received an irrigation component. Also, two other 

U.S. government agencies supporting the recovery effort modified their 

programs to meet reconstruction needs, and one agency returned unused 

funds to the Treasury. In July 2002, GAO recommended several actions 

for USAID that will help ensure that it has the flexibility needed to 

better respond to similar disaster recovery needs, such as in 

Afghanistan. USAID has begun several reforms in the areas of strategic 

planning, funding alternatives, and staffing.



Improving Peace Corps Safety and Security Practices: GAO found that the 

Peace Corps’ efforts to implement effective safety and security 

practices have produced mixed results and that a number of factors 

hamper the agency’s efforts to ensure overall high-quality performance, 

including unclear guidance, staff training that is sometimes 

inadequate, uneven application of supervision and oversight mechanisms, 

and staff turnover (due largely to the “5-year rule”--a statutory 

restriction on tenure for U.S. direct-hire employees). As we completed 

our review, the Peace Corps announced a series of initiatives that, if 

effectively implemented, could improve its practices and thus reduce 

the potential risks facing volunteers. The Peace Corps has (1) 

developed a protocol for reporting on and reviewing implementation of 

agency policies, (2) expanded its Government Performance and Results 

Act reports to include 10 quantifiable performance indicators of safety 

and security performance, (3) stated that it will continue to update 

and strengthen these indicators as it gains experience in implementing 

its safety and security initiatives, and (4) launched a comprehensive 

review of the effect of the 5-year rule on agency operations.



Controlling the Illicit Diamond Trade: Rebel movements in a number of 

African countries, including those attempting to overthrow legitimate 

governments, have used diamonds to finance their military activities. 

GAO’s work demonstrated that the ease of transporting and selling 

diamonds creates opportunities for illicit trade. Specifically, we 

focused on assessing an effort to develop and implement an 

international diamond certification scheme to deter diamonds coming 

from countries subject to United Nations and U.S. sanctions from 

entering legitimate markets. We recommended that the diamond 

certification scheme incorporate better internal controls and other 

accountability activities into its deterrence efforts. Our testimony 

and report on this issue have contributed to the debate over U.S. 

legislation and to congressional oversight concerning the U.S. role in 

the negotiations over the diamond certification scheme.



Respond to the Impact of Global Market Forces on U.S. Economic and 

Security Interests:



Improving the Management of the Foreign Military Sales Program: In 

1999, GAO reviewed several aspects of the Foreign Military Sales 

program. We reported that program decisions were not being made on the 

basis of adequate information and that items controlled by an 

international missile nonproliferation agreement were not properly 

reviewed and approved before being transferred to foreign governments. 

As a result, in fiscal 2002, the Defense Security Cooperation Agency 

implemented a performance-based budgeting process to obtain sufficient 

information to enhance program decision making and to add transparency. 

A process to screen the program’s cases for controlled missile items 

was established, which will prevent unapproved export of controlled 

missile items.



Improving U.S. Customs Enforcement of Defense Exports: In March 2002, 

GAO reported that U.S. Customs inspectors did not have updated guidance 

to effectively conduct inspections of defense items subject to U.S. 

export control restrictions. As a result, in July 2002, U.S. Customs 

updated its guidance on defense export inspection requirements and is 

disseminating this guidance to inspectors at the ports. Inspectors now 

have the necessary guidance to help ensure that military weapons are 

exported in compliance with U.S. laws.



Identifying National Security-Related Foreign Acquisitions: In a June 

2000 report, GAO found that the Departments of Defense, State, and 

Treasury knew about national security-related foreign acquisitions but 

did not inform the Committee on Foreign Investment. We recommended that 

U.S. government agencies improve the process of identifying and 

reporting acquisitions that may adversely affect national security. To 

implement our recommendations, the Department of the Treasury initiated 

procedures to formalize the way the Committee on Foreign Investment 

shares information among member agencies about national security-

related foreign acquisitions. Further, the Departments of Treasury, 

Commerce, Defense, and State developed procedures to ensure that when 

they identify national security-related foreign acquisitions, they also 

provide relevant information to the committee for distribution among 

all member agencies.



Reducing Government Contingent Liabilities by Billions: As part of its 

plan for the Year 2000 transition, the National Credit Union Central 

Liquidity Facility (CLF) was allowed to increase the limit on loans to 

credit unions from about $2.7 billion to $20.7 billion. The National 

Credit Union Administration requested that this higher lending limit be 

maintained after the Y2K transition. GAO found that, although CLF 

lending to credit unions did increase during the 3 months before 2000, 

most credit unions’ funding needs were met through corporate credit 

unions and CLF’s own resources, not through the money CLF had borrowed 

for that period. GAO concluded that there would be no need to increase 

the lending limit. As a result, the Congress decided to increase CLF’s 

lending limit by only a minimal amount, thereby reducing the 

government’s potential liability.



Contributing to the Debate on Terrorism Insurance: In the aftermath of 

the September 11, 2001, attacks, GAO assessed the changes taking place 

in the insurance industry, the potential implications of these changes 

on the economy, and alternative approaches for government assistance to 

the industry. In October 2001, during testimonies before House and 

Senate Committees, GAO described alternative government-sponsored 

insurance programs used in other countries to cover losses from 

terrorist or catastrophic events. In February 2002, GAO again testified 

before the Congress to report that the insurance industry intended to 

largely exclude coverage for losses resulting from any future terrorist 

attacks, creating further uncertainty and economic vulnerability in the 

marketplace. GAO also outlined the desirable features of any 

government-sponsored program established to help ensure the 

availability of terrorism insurance coverage in the financial 

marketplace. The House and Senate used this information in structuring 

reform proposals.



Strengthening Oversight of Activities to Detect Money Laundering: In 

July 2002, GAO reported that the extent of money laundering through 

credit card transactions was unknown. The Department of the Treasury 

used this report in drafting new requirements for credit card system 

operators under the Provide Appropriate Tools Required to Intercept and 

Obstruct Terrorism Act. Treasury similarly used GAO’s October 2001 

report on money laundering in the securities industry to draft and 

implement regulations requiring securities dealers to file Suspicious 

Activity Reports. These reports are the principal tool used to detect 

money laundering. GAO’s September 2002 interim report on Internet 

gambling also contributed to congressional debate on methods of 

preventing payments to illegal Internet gambling operations.



Enhancing the Effectiveness of the Securities and Exchange Commission 

(SEC): GAO found that SEC’s resources had not kept pace with the 

tremendous growth in securities markets and the increased complexity 

and international scope of these markets. Since approximately 1996, 

SEC’s workload increased at a much higher rate than its staff years. 

High staff turnover exacerbated this problem, with staff inexperience 

contributing to delays in SEC’s regulatory process. GAO made numerous 

short-term and long-term recommendations to shore up weaknesses in SEC 

operations. Our work contributed to SEC obtaining authorization for 

additional resources and prompted SEC to review its operations and its 

resource needs.



Promoting Use of Electronic Transfers: In September 2002, at the 

request of the House Committee on Financial Services, Subcommittee on 

Oversight and Investigation, GAO reported on Treasury’s efforts to 

promote the use of electronic fund transfers by federal beneficiaries. 

On the basis of an analysis of Census Bureau survey data, we determined 

that the main obstacle in promoting these transfers was the high number 

of beneficiaries without bank accounts and that Treasury’s current 

efforts were unlikely to overcome this obstacle. We identified 

alternative approaches to promote the use of electronic fund transfers, 

especially among those without bank accounts. For example, some banks 

were allowed to distribute information about bank products or enroll 

beneficiaries at the local Social Security Administration office. We 

recommended that Treasury use these approaches to develop a strategy 

for increasing the use of electronic fund transfers. As a result of 

GAO’s analysis, Treasury is taking positive actions to further use of 

electronic fund transfers, which could save the government millions.



Helping Poor Countries Overcome Debt Problems: GAO’s work demonstrated 

that existing debt relief efforts by the World Bank and the 

International Monetary Fund were insufficient to solve 42 impoverished 

countries’ (mostly African) debt problems (amounting to more than $200 

billion). In contrast, we determined that the Bush administration’s 

proposal to shift 50 percent of future debt relief from loans to grants 

would provide significant debt relief to these countries and would be 

affordable. GAO’s findings contradicted the World Bank’s, which 

projected a much higher cost over 40 years--$100 billion for 

implementing the President’s proposal compared to the $15.6 billion 

that we projected. U.S. Treasury officials used our analysis and 

findings in negotiations with the World Bank and European countries; 

this resulted in a major shift in World Bank policies that now provide 

about 20 percent of debt relief in the form of grants.



Improving U.S. Export Promotion: GAO’s work demonstrated that the 

effectiveness of coordinating U.S. agencies’ activities designed to 

promote U.S. exports abroad, through efforts such as providing 

financing and identifying export opportunities, has varied from year to 

year. GAO recommended that the interagency Trade Promotion Coordinating 

Committee utilize the U.S. national export strategy more consistently 

to make the best use of federal export promotion resources. In 

addition, we provided the Congress with information on the U.S. Export-

Import Bank that improved the transparency of the bank’s decision-

making process so that the Congress could better perform its oversight 

function.



Improving Services to Workers, Firms, and Communities Affected by 

International Trade: In response to congressional concern about how job 

losses associated with international trade affect workers, firms, and 

communities, GAO prepared four reports and a testimony that examined 

programs at the Departments of Labor, Commerce, and Treasury. The 

reports provided comprehensive analyses of benefit use, discussed 

problems with performance and outcome data, and discussed 

administrative changes needed to ensure improved program management. In 

response to our recommendations, these agencies have taken multiple 

actions to improve program performance and accountability. Members of 

Congress also frequently cited this body of work as they debated 

reauthorization of these programs and the granting of trade promotion 

authority to the President.



Assessing Progress in Multilateral Trade Negotiations: In evaluating 

progress in multilateral trade negotiations, GAO issued two reports and 

a testimony on efforts to create a Free Trade Area of the Americas 

(FTAA) and a report on ongoing negotiations in the World Trade 

Organization. Our work on the FTAA highlighted the challenges that 

negotiators face, the status of technical negotiations in 12 key areas, 

and the potential economic effect of a completed FTAA on the United 

States. Our work on the World Trade Organization negotiations analyzed 

the factors that led to the launch of the negotiations, identified the 

most critical milestones that need to be met, and evaluated the most 

significant obstacles negotiators face. This body of work has provided 

the Congress with the first comprehensive, objective analyses of the 

prospects for successful conclusion of both sets of negotiations, which 

they have been unable to obtain from U.S. trade agencies.



Strategic Goal 3:



Help Transform the Federal Government’s Role and How It Does Business 

to Meet 21ST Century Challenges:



Assess the Implications of the Increased Role of Public and Private 

Parties in Achieving Federal Objectives:



Assessing the Challenges in Maintaining the Federal-State Fiscal 

Balance under Welfare Reform: In a report issued last year, GAO 

assessed changes to the way states financed programs supporting low-

income families after the passage of welfare reform legislation. In 

that report, we found that California had improperly drawn down about 

$1.1 billion from the U.S. Treasury and passed these funds along to its 

counties. The counties, in turn, deposited the funds into interest-

bearing accounts. By distributing these funds to the counties before 

they were needed, the state was in violation of the Cash Management 

Improvement Act, which seeks to minimize the time between the transfer 

of federal funds and disbursement by the grantee or subgrantee. After 

we reported on this situation, California and the Department of Health 

and Human Services agreed that the interest earned by the counties 

would be returned; and as of July 31, 2002, the counties had returned 

$90 million in interest payments.



Improving Implementation of the Paperwork Reduction Act: The Paperwork 

Reduction Act prohibits an agency from conducting or sponsoring the 

collection of information unless the Office of Management and Budget 

(OMB) approves such a collection. OMB is also required to keep the 

Congress fully and currently informed about major activities falling 

under the act. We have reported several times in recent years on the 

implementation of the act, noting that there are hundreds of violations 

each year under the act--some of which have continued for years--and 

that a few agencies account for a disproportionate share of those 

violations. We said OMB could do more to address these violations and 

also noted that OMB’s report to the Congress for fiscal 2002 did not 

contain burden-hour or violations data on 12 agencies that had appeared 

in previous reports. OMB subsequently required federal agencies to 

provide strategies for eliminating violations and targeted five 

agencies for special attention. OMB also said that its fiscal 2003 

report would include information on the 12 agencies that had been 

omitted from the previous year’s report.



Improving Civil Penalty Enforcement: Civil monetary penalties are one 

way federal agencies enforce federal health, safety, and environmental 

statutes. In 1996, the Congress amended the Federal Civil Penalties 

Inflation Adjustment Act and required agencies to adjust their 

penalties for inflation. GAO examined the implementation of the statute 

and concluded that certain agencies had not made the required penalty 

adjustments or had made adjustments that were inconsistent with the 

requirements of the act. Subsequently, two agencies published new 

penalty adjustment regulations, and six others indicated that they 

would do so shortly. Also in 1996, Congress enacted the Small Business 

Regulatory Enforcement Fairness Act, part of which required agencies to 

establish a policy or program of penalty relief for small entities 

(e.g., small businesses and small governments). In February 2001, GAO 

examined the implementation of that section of the act and concluded 

that the Congress should require agencies to maintain certain data on 

enforcement actions and penalty relief to facilitate oversight of the 

act. In June 2002, the Congress enacted legislation that required 

agencies to report information on their small entity enforcement 

programs to certain congressional committees.



Helping Improve Emergency Preparedness among the Federal, State, and 

Local Governments: By participating in field hearings in 11 cities 

across the United States this year, GAO provided the Congress with 

information on the need to effectively partner with state and local 

governments (the “first responders”) to improve emergency preparedness 

and strengthen homeland security. At these hearings, GAO reported on 

the need to clarify the appropriate roles and responsibilities within 

and between the levels of government; the lack of national performance 

goals and measures for preparedness; and the importance of using the 

right policy tools--grants, regulations, or tax incentives--to target 

areas of highest need and greatest risk.



Assess the Government’s Human Capital and Other Capacity for Serving 

the Public:



Assessing the Implications of Applying Biometric Technologies to Border 

Security: In fiscal 2002, Congress asked GAO to conduct a technology 

assessment pilot and examine the implications of using biometric 

technologies for border security. This assessment became immediately 

significant because recent legislation, such as the Provide Appropriate 

Tools Required to Intercept and Obstruct Terrorism Act and the Enhanced 

Border Security and Visa Entry Reform Act, requires the use of 

biometric identifiers along America’s borders by 2004. Passports, 

visas, and other tools used to track and control the flow of people 

during “border crossing events” will incorporate biometric 

technologies, such as fingerprint recognition, facial recognition, or 

iris recognition. Our research points out that the existing biometric 

technologies have not yet been used at a scale comparable to the U.S. 

border control system and that the price tag for a biometrics-based 

system could be significant. We identified the need for high-level 

policy decisions, such as defining the specific uses of biometrics 

technologies and performing a cost benefit analysis that weighs the 

effectiveness and security benefits of biometrics versus the resource 

costs and probable consequences of implementation, including the 

effects on the economy, privacy, travel, and international relations.



DOD Expands Efforts to Control Contract Overpayments: GAO issued a 

number of reports highlighting the hundreds of millions of dollars that 

DOD overpaid its contractors each year. In response, DOD added a 

provision to the Federal Acquisition Regulation requiring contractors 

to notify the government when the contractor sees an overpayment, the 

Defense Contract Audit Agency launched special audits of contractor 

billing systems, and the Defense Contract Management Agency alerted its 

staff of high-risk situations so overpayments could be avoided. 

Collectively, these actions will help DOD address its longstanding and 

chronic payment problems.



Improving DOD’s Acquisition of Services: DOD is the largest purchaser 

of services--including professional, administrative, and management 

support services; engineering services; and information technology 

services--in the federal government, but GAO found that the 

department’s spending on these purchases was not managed effectively. 

In January 2002, we recommended that DOD evaluate how a strategic 

reengineering approach--similar to that employed by leading companies-

-could be used as a framework to guide the department’s reengineering 

efforts. In response, in May 2002, DOD issued new policy that called 

for taking a more strategic approach to services acquisition and 

elevated the importance of major purchases of services to the same 

level as purchases of major defense systems. This action should help 

improve acquisition and result in significant financial savings.



Contributing to Improved Contracting Practices: GAO’s July 2002 report 

addressing governmentwide acquisition contracts was the first across-

the-board look at these relatively new contracting mechanisms, in which 

agencies use contracts and acquisition services offered by other 

agencies and pay a fee for these services. As a result of our analysis, 

two agencies have already taken actions to improve their financial 

reporting, and OMB has changed its guidance governing the use of such 

contracts. In addition, we found that the GSA schedule program’s fee 

structure generated excess revenues amounting to $151 million for 

fiscal 1999-2001. As a result, GSA agreed that it needs to revise its 

fee structure.



D.C. Public Schools Modernization Program: In two reports and a 

testimony in 2001 and 2002, GAO reported on numerous contracting 

problems in the District of Columbia Public Schools and the lack of 

realistic cost, schedule, and budget assumptions in the District’s plan 

to modernize all public schools over the next 10 to 15 years. Our 

warning that the school system must deal with a modernization program 

that will cost significantly more and take longer to accomplish than 

originally planned contributed to a public debate that has led the 

school system to reassess its modernization plans in light of the 

District’s budget constraints.



Improving the Sourcing Decisions of the Federal Government: In response 

to a statutory mandate, the Comptroller General convened the Commercial 

Activities Panel to review the government’s policies and procedures for 

deciding whether commercially available services should be performed by 

federal employees or by the private sector. The panel, which included 

senior officials from government agencies, federal labor unions, 

contractor groups, and academia, issued its report to the Congress in 

April 2002, unanimously adopting a set of principles to guide the 

government’s sourcing policies. The panel used these principles to 

craft a package of specific recommendations designed to improve the way 

federal agencies make sourcing decisions. The Office of Management and 

Budget is revising the government’s sourcing procedures based largely 

on the panel’s recommendations.



GAO Issues Standard to Increase Auditor Independence: This year, GAO 

significantly modified the Government Auditing Standards related to 

auditor independence to help protect the public interest and ensure 

public confidence in the independence of auditors of government 

financial statements, programs, and operations, and of organizations 

receiving federal financial assistance. This new standard, which the 

Comptroller General has characterized as “tough, but fair…to protect 

the public and insure the credibility of the auditing profession,” 

specifies that it is inappropriate for the entity performing the 

financial statement audit to also perform certain consulting or other 

nonaudit services that could be considered to be managerial in nature 

or perceived as the auditor auditing his or her own work. The 

Comptroller General and GAO staff have launched an intensive outreach 

effort to the audit community to enhance understanding and acceptance 

of the new standard. In July 2002, we issued detailed questions and 

answers that offers concrete illustrations of what does and does not 

meet the standard and makes clear that auditors are to be independent 

in both fact and appearance.



Helping Congress Improve Corporate Governance and Accountability: 

Building on prior work in corporate governance, GAO was well positioned 

to respond when the Congress asked for help protecting the interests of 

American investors and workers in light of recent disclosures of 

financial irregularities at companies such as Enron and WorldCom. In 

quick order, GAO’s testimonies and reports framed the issues for 

strengthening oversight of the accounting profession; auditor 

independence; financial reporting; and corporate governance functions, 

including fundamental principles for reform. These testimonies and 

reports provided the foundation for the July 2002 passage of the 

Sarbanes-Oxley Act. The act, the most far-reaching overhaul of the 

nation’s business practices since the Great Depression, is aimed at 

tightening oversight of accountants, revamping securities laws, and 

imposing tougher penalties for corporate fraud after disclosures of 

irregularities.



Accelerating Financial Management Reform: During the past year, the 

Comptroller General, as chair of the Joint Financial Management 

Improvement Program (JFMIP), initiated a series of sessions at which 

the JFMIP principals (the Comptroller General, along with the heads of 

Treasury, OMB, and OPM) agreed on financial management approaches for 

transforming the way government does business. They focused on 

restructuring the Federal Accounting Standards Advisory Board to allow 

more public input, establishing audit committees, defining what 

constitutes successful financial management, addressing impediments to 

an audit opinion on the U.S. government’s financial statements, and 

accelerating agency financial statement reporting.



Improving Veterans Affairs’ Information Technology (IT) Management: 

GAO’s oversight at the Department of Veterans Affairs (VA) has helped 

to strengthen management and accountability for the more than $1 

billion spent annually on the department’s IT program. In response to 

our recommendations, the department established the position and 

selected a permanent chief information officer to oversee its IT 

program and developed an initial version of its enterprise architecture 

for guiding the department’s IT investments. Further, our work 

highlighting the need for VA to restructure information technology 

functions, programs, and funding under the department-level chief 

information officer has helped to strengthen accountability over IT 

investments.



Leveraging Technology to Make Government Information More Accessible: 

GAO reviewed the current status and implementation challenges 

associated with the Extensible Markup Language, an Internet-based 

technology that promises to make it much easier for government agencies 

to organize and exchange information that may initially be dispersed 

among different systems and organizations. GAO’s report was widely 

publicized in the information technology community and sparked debate 

among federal officials about the next steps in advancing adoption of 

the technology. Efforts are under way to implement a key GAO 

recommendation regarding establishment of an electronic registry of 

government Extensible Markup Language data definitions and structures.



Informing Congress about a Major Satellite Program: In July 2002, GAO 

testified on various aspects of a major polar-orbiting satellite 

acquisition program--the National Polar-orbiting Operational 

Environmental Satellite System--a tri-agency program that is jointly 

managed by the National Oceanic and Atmospheric Administration, the 

Department of Defense, and the National Aeronautics and Space 

Administration. We reported on the nation’s current polar-orbiting 

weather satellite program, plans for the future satellite acquisition, 

and key challenges in managing future satellite data volumes. Our 

analysis helped the Congress understand the scope and challenges of 

this planned $6.5 billion program and led to increased coordination 

among the key agencies to address data management challenges.



Facilitating the Transition to E-Government: GAO helped the Congress 

reach a balanced view of the complex management and technical 

challenges involved in the transition to e-government and development 

of key tools. For example, as the government’s FirstGov Web portal was 

being introduced, GAO identified steps needed to enhance and maintain 

the government’s new “electronic connection” with citizens and threw 

the spotlight on important challenges to overcome in protecting 

FirstGov’s sensitive Web-linked data. Similarly, GAO’s detailed look 

into emerging technologies, such as public key infrastructure, 

identified potential opportunities for the government’s use of this 

powerful new technology for digitally signing and securely transmitting 

electronic messages and data.



Helping to Advance Major Information Technology Modernizations: GAO’s 

ongoing work has helped to strengthen the management of complex, 

multibillion-dollar information technology modernization programs at 

the Internal Revenue Service (IRS) and the Customs Service to improve 

operations, promote better service, and reduce costs. For example, our 

constructive engagement with IRS on its $2.5 billion systems 

modernization program contributed to the development of enterprise 

architecture to guide and constrain the acquisition and deployment of 

information technology systems, ensuring that they operate together 

properly, thus avoiding expensive rework. Similarly, Customs is 

following our recommendations to better align its ongoing modernization 

program with its enterprise architecture, as well as to improve cost 

estimating, human capital capacity, and software process maturity.



Effectively Managing and Archiving Electronic Records: Agencies are 

increasingly moving to an operational environment in which electronic 

records provide comprehensive documentation of their activities and 

business processes--a transformation that has created a new challenge 

to manage and preserve a vast and rapidly growing volume of electronic 

records. Working with the National Archives and Records Administration 

and with selected agencies, GAO identified key weaknesses in federal 

records management policies; evaluated the Archives’ electronic records 

management and archival practices; and assessed its capability to 

design, acquire, and manage an advanced electronic record archive 

system. Our work in the electronic records management area has helped 

to set the stage for a reassessment of federal electronic record 

keeping and provided safeguards for the multimillion-dollar acquisition 

of the proposed electronic record archive system.



Consolidation Initiatives at Department of Defense Computer Centers 

Result in Substantial Savings: GAO recommended that DOD deploy cost 

savings measures such as consolidation, modernization, and outsourcing 

of computer center activities and processes to make computer center 

operations more economical and efficient. As a result, the Defense 

Information Systems Agency--the agency responsible for managing Defense 

Enterprise Computing Centers--undertook a major DOD project that led to 

savings or cost avoidance over a 4-year period covering fiscal 1998 

through 2001. More specifically, DOD estimated savings or cost 

avoidances of $700 million from consolidation initiatives at computer 

centers, $39 million from consolidating software licenses, and $19 

million from optimization of storage capabilities. The net present 

value of the estimated financial benefit is $859 million.



Facilitating Financial Management Improvements at DOD: GAO helped craft 

legislation allocating resources to correct deficiencies in DOD’s 

financial management systems. These resources would otherwise have been 

used to produce financial statements that were not auditable. DOD was 

incurring significant costs in producing annual financial statements 

that were unreliable because of deficiencies in its financial 

management systems. Legislation drafted by GAO--Section 1008(b) of the 

National Defense Authorization Act for Fiscal Year 2002--frees DOD of 

the responsibility of preparing financial statements and directs DOD to 

use resources saved from not preparing the statements to correct the 

deficiencies in its financial management systems.



Facilitating Financial Management Improvements: GAO drafted 

legislation for both House and Senate Subcommittees on Legislative 

Appropriations that strengthened and improved the financial management 

infrastructures of the Architect of the Capitol and the U.S. Capitol 

Police. Language in the Legislative Branch Appropriations Act of 2002 

requires the Architect of the Capitol to develop and maintain an 

accounting and financial management system that complies with federal 

accounting standards, including financial reporting and internal 

controls. Additionally, both House and Senate bills for the fiscal 2003 

Legislative Appropriations Act improve the Capitol Police financial 

management by naming the Chief of the Capitol Police as the single 

disbursing officer for that agency and by eliminating its current 

inefficient dual pay system.



Addressing Human Capital Issues in the Nation’s Air Traffic Control 

System: Responding to a request from the Subcommittee on Aviation, 

House Committee on Transportation and Infrastructure, GAO reported in 

2002 on a looming human capital crisis at the Federal Aviation 

Administration. Thousands of air traffic controllers, who were hired in 

the early 1980s to replace striking controllers who had been fired, 

will soon become eligible to retire. The agency adjusted its hiring 

plans and has begun improving equipment at its training academy.



Ensuring a Cost-Effective Census: Beginning in 2001, GAO initiated a 

series of congressionally requested reviews of the lessons learned from 

the 2000 Census to help improve the cost-effectiveness of the next 

national headcount, for which planning is already under way. This past 

year, GAO’s recommendations led to operational improvements that could 

produce more accurate data and help control costs. For example, GAO’s 

review of the Census Bureau’s field data collection activities prompted 

the bureau to develop more rigorous quality assurance procedures, while 

GAO’s analysis of the Census Bureau’s budget identified savings of $93 

million and helped make the bureau more financially accountable.



Making Strategic Human Capital a Management Priority: In March 2002, 

GAO issued a special publication identifying critical success factors 

that help high-performing organizations align their human capital 

management with mission accomplishment. The model highlights the 

importance of a sustained commitment by agency leaders to maximize the 

value of their human capital and manage related risks. Since releasing 

the model, GAO has been working with the Office of Personnel Management 

and the Office of Management and Budget to revise the human capital 

Standards for Success as part of the President’s Management Agenda and 

to explore other opportunities for developing more consistent guidance 

and tools for agencies to use to address their human capital 

challenges.



Support Congressional Oversight of the Federal Government’s Progress 

Toward Being More Results-Oriented, Accountable, and Relevant to 

Society’s Needs:



Helping Protect the Privacy of Individuals When Researchers Use Federal 

Data Bases: Academic and agency researchers and statisticians have 

access to a broad array of federal data bases, such as major public 

health survey results and Social Security records. Agencies share this 

information with the understanding that the identities of individuals 

will be protected. However, the risk exists that the “linkages” among 

various data sets can violate--whether purposely or inadvertently--the 

privacy of individuals. In response, GAO has developed strategies for 

“data stewardship”--specific steps that agencies can take to lessen 

privacy risks even as they put federal and other databases to their 

most productive uses. We have applied our understanding of technical 

and research concerns, as well as political sensitivities, to alert 

researchers and agencies to both the risks to privacy and the practical 

means of mitigating those risks.



Improving NASA’s Lesson-Learned Processes: The loss of the Mars Polar 

Lander and Climate Orbiter spacecraft in the late 1990s raised concerns 

that the National Aeronautics and Space Administration (NASA) was not 

applying lessons learned from past mistakes to future missions. GAO 

found that mistakes were not routinely identified, collected, or shared 

by NASA’s program and project managers. As a result, managers were 

unfamiliar with knowledge generated by other NASA programs and centers. 

NASA agreed with GAO’s findings and recommendations and has begun 

implementing measures to strengthen its lessons-learned processes and 

systems. By establishing more effective lessons-learned processes and 

systems, NASA could more successfully carry out its basic mission of 

exploring space faster, better, and more cheaply.



Quantifying Improper Payments in Federal Programs and Activities: Over 

the past several years, reviews of federal agency financial statements 

have identified about $20 billion in improper payments annually. 

However, GAO reports have demonstrated that most federal agencies are 

not identifying and reporting the extent of their improper payments, 

the actions they are taking to reduce these payments, and the effect of 

these actions on reducing the payments. Consistent with our 

recommendations, the administration, through the President’s 

Management Agenda and revisions to Office of Management and Budget 

documents, has required selected agencies to report improper payment 

rates and the causes of those payments. Also, the Improper Payments 

Information Act of 2002 calls for federal agencies to review all 

programs and activities, estimate the annual improper payments, and 

submit those estimates to the Congress.



Improving Collection of Nontax Debt: GAO continues to promote the 

various tools prescribed by the Debt Collection Improvement Act of 1996 

to recoup delinquent debt balances, which continue to be in the $60 

billion range. Acting on our recommendations, Treasury and other 

agencies have increased collection by using more efficient processes to 

identify and transfer eligible amounts to Treasury for centralized debt 

collection action and by increasing the types of federal payments that 

can be intercepted to recover delinquent debt. Although debt collection 

continues to be a major challenge, the amounts collected from these 

efforts have added over $300 million to a steadily growing stream of 

recoveries.



Conducting Forensic Audits to Identify Waste, Fraud, and Abuse: GAO 

developed a forensic audit approach that includes data mining, data 

matching, and various other analyses that can be used to identify 

waste, fraud, and abuse of federal funds. This approach, which we have 

been sharing with other agencies, has vast potential for assisting 

agencies in identifying questionable transactions and serving as a 

basis to improve controls, recover losses, discipline abusers, and 

deter future losses. Using the approach, we identified improper 

payments at HUD, Education, DOD, and other agencies. Improper payments 

included contract fraud, illegal or abusive uses of purchase and travel 

cards, fraudulent Pell Grants, and purchases of computer equipment that 

cannot be located.



Improving Financial Accountability for the Medicare Program: In a 

report issued in spring 2000, GAO cited the Centers for Medicare and 

Medicaid Services (CMS) for ineffective oversight of Medicare 

contractors’ multibillion-dollar financial activities, lax policy 

guidance to contractors on financial accounting matters, and 

ineffective follow-up on findings from financial audits. We also cited 

CMS’s lack of a financial management strategy to identify goals, 

improvement initiatives, and human capital planning. Our 2002 follow-up 

review showed that CMS had implemented more in-depth reviews of 

Medicare contractors’ internal controls; provided these contractors 

with financial management guidance; developed written procedures for 

its staff in handling audit findings; developed a comprehensive 

financial management plan that defines financial management goals, 

objectives, and specific corrective actions to address weaknesses; and 

started to assess staff skills and competencies needed to manage 

Medicare’s finances. These actions significantly improved CMS’s ability 

to provide financial accountability for the more than $200 billion 

spent annually to finance Medicare.



Improving Government Charge Card Programs: In a series of recent 

reports and testimonies, GAO highlighted pervasive weaknesses in the 

specific controls and overall control environment surrounding the 

government’s multibillion-dollar purchase and travel card programs. 

These weaknesses increased the government’s vulnerability to theft and 

misuse of property and funds and resulted in high DOD travel card 

delinquency rates. GAO highlighted numerous instances of potentially 

fraudulent, improper, and abusive activity related to the government’s 

charge cards, including the purchase of a wide variety of goods and 

services that were unrelated to official business. GAO recommended many 

specific corrective actions, particularly preventive actions, that, if 

implemented, should help reduce the government’s financial risk 

substantially. Agencies have started to lower the government’s 

vulnerability by decreasing the number of purchase cards by about 

70,000 (15 percent), lowering excessive card spending limits, and 

improving specific controls and the overall control environment.



Improving Medicare Debt Collection: In September 2000, GAO identified a 

multibillion-dollar backlog of uncollected, delinquent Medicare debt 

owed by providers. Medicare’s administering agency, the Centers for 

Medicare and Medicaid Services, had made little progress in referring 

such debt for collection to the Department of the Treasury or its 

designee, as required by the Debt Collection Improvement Act of 1996. 

We also found in 2000 that Treasury had not worked with agencies, 

including the Department of Health and Human Services, to develop 

adequate debt referral plans and to oversee debt referral. In fiscal 

2001, CMS began implementing our recommendations and accelerated the 

referral of its aged, delinquent debt. Under the revised debt referral 

process, in fiscal 2001 and the first three quarters of fiscal 2002, 

collections of delinquent debt amounted to almost $55 million.



Supporting the Congress with Legal Research and Analyses: GAO provided 

the Congress with legal research and analyses that aided lawmakers in 

their deliberations. For example, our legal team prepared a detailed 

chronology of legal developments in statutes and regulations, ranging 

from the enactment of the Communications Act of 1934 to the present, 

which was the centerpiece of a hearing concerning radio spectrum 

management. In work related to Department of Energy waste cleanup 

compliance agreements, we provided important new insights into DOE’s 

environmental cleanup program, including the first ever documentation 

of the number and scope of these agreements.



Tracking Funds for United Nations Population Fund: GAO investigated 

whether the Department of State failed to report an impoundment of $34 

million of a lump sum appropriation for International Organizations and 

Programs. State was authorized to make these funds available for the 

United Nations Population Fund after it ensured that the Fund’s 

practices satisfied several statutory conditions. The State Department 

determined that the Fund’s practices did not meet the conditions and 

that the funds would not be released. We concluded that to avoid an 

impoundment of the funds, the State Department must make the funds 

available for obligation to other programs financed by the 

International Organizations and Programs lump sum appropriation.



Antideficiency Act Violation Results in Procedural Improvements: In 

July 2002, GAO reported to the Chairman of the House Appropriations 

Committee that OMB and the Air Transportation Stabilization Board 

violated the Antideficiency Act when OMB apportioned $172 million in 

subsidy budget authority to the Board for airline loan guarantees. The 

violation occurred because OMB’s apportionment and the Board’s 

obligation were made before the President requested and designated the 

budget authority as an emergency requirement as defined in the Balanced 

Budget and Emergency Deficit Control Act of 1985. After GAO’s inquiry 

into the apportionment, the Board submitted an Antideficiency Act 

report to the President and to the Congress. In the future, to prevent 

violations of this type, any Board request for apportionment related to 

a future loan guarantee will include a copy of its corresponding 

Presidential emergency designation letter. OMB is modifying Circular A-

34 instructions to include a notice that “Agencies may obligate 

contingent funds only after the President formally designates the funds 

as an emergency requirement.”:



Accountability in the Federal Acquisition Process: GAO is statutorily 

vested with authority to resolve disputes concerning the awarding of 

government contracts. In this role, GAO issues decisions on bid 

protests, resolving complaints that solicitations for contracts unduly 

restrict competition or that contracts have been awarded improperly. 

When a bid protest is found to have merit, we recommend actions 

appropriate to correct the violation of law involved in the procurement 

at issue. Our decisions on several of these protests are widely viewed 

as contributing significantly to ensuring a fair process and protecting 

the integrity of public/private competitions. For example, bidders 

challenged the Department of the Air Force’s award of an A-76 contract 

on the basis of cost comparisons. GAO found that the Air Force failed 

to ensure that the in-house cost estimate and the protester’s offer 

were based upon the same scope of work and performance standards. As a 

result of GAO’s decision and recommendation, the agency awarded the 

contract to the protesting bidder.



District of Columbia Authorized to Purchase Commercial Insurance 

against Catastrophic Risks: The District of Columbia Corporation 

Counsel asked GAO for an advance decision concerning whether the 

District of Columbia may properly use appropriated funds to purchase 

insurance to cover catastrophic exposures to risk (e.g., loss or damage 

to government property and tort liability). GAO concluded that the 

federal government’s policy of insuring itself does not apply to the 

District government because the District does not have the U.S. 

government’s resources or its wide dispersion of risk. Thus, we held 

that the District may use nonearmarked appropriated funds generated by 

District revenues to purchase insurance, allowing the District to 

protect itself against losses it could not cover from its own revenues 

and ensuring the proper use of appropriated funds.



Identifying Program Abuse: GAO identified program abuse and 

mismanagement by developing and analyzing information reported through 

FraudNET. FraudNET is GAO’s system of collecting, evaluating, and 

acting on allegations of fraudulent activity received from government 

employees, whistleblowers, and the public at large. In fiscal 2002, 

FraudNET analysts researched 1,023 reports of fraud and abuse and 

referred 213 of these to executive branch agencies for further 

investigation. These analysts also obtained records, located potential 

witnesses, and assembled background information for GAO teams on a 

variety of subjects. In a cooperative effort, staff briefed state 

officials on GAO’s FraudNET operation and the elements of effective 

hotline operations.



Fostering International Knowledge-Sharing: Continuing to build working 

relationships with other international government organizations, GAO 

participated in a 3-day symposium in Kunming, China, sponsored by the 

Asian Development Bank. The meeting focused on construction of a legal 

framework for government procurement in the People’s Republic of China. 

GAO’s presentation on bid protests introduced the mechanism for 

administrative bid challenges and generated many questions. Through 

this opportunity, GAO shared the benefits of transparency in the bid 

protest process.



Identifying Compromised Navy Purchase Card Accounts: In reviewing a DOD 

investigation into the fraudulent use of 30 Navy purchase cards, GAO 

investigators identified as many as 866 purchase card account numbers 

that had been compromised. Our findings enabled the Naval Criminal 

Investigative Service to identity the source and point of compromise on 

the accounts. The numbers were subsequently canceled or reissued, 

eliminating a significant potential for fraud.



Ensuring Full and Open Competition for Contracts at Washington-Area 

Airports: As mandated in the Metropolitan Washington Airports Act of 

1986, GAO reviewed contracting practices at the Metropolitan Washington 

Airports Authority. Our 2002 report made a number of recommendations 

designed to ensure that the Authority provides full and open 

competition when contracting for supplies and services. We recommended, 

among other things, that the Authority (1) reevaluate its use of preset 

thresholds, which could exclude some contractors from consideration for 

awards and (2) publish its contracting procedures for review and 

comment by the public. We also recommended that the Department of 

Transportation follow up on the Authority’s actions to address our 

recommendations. In response, the Authority published a draft of its 

contracting procedures, which prohibits the use of preset thresholds. 

Furthermore, the Department of Transportation has stated its 

willingness to comment on the Authority’s contracting procedures and 

provide advice on significant procurement issues when requested.



Helping Address the Broad Challenges of National Preparedness: Through 

numerous testimonies and reports, GAO has provided information and 

assistance to the Congress as it addresses the challenges of 

transforming the federal government to reduce risks from terrorist 

attacks. GAO’s work has emphasized strengthening the risk management 

framework; developing and refining the national strategy, policy, and 

guidance structures; and bolstering the fundamental management 

foundation integral to effective public sector performance and 

accountability. In particular, the reorganization of homeland security 

activities to create the Department of Homeland Security will be a very 

difficult undertaking, but also a unique opportunity to create an 

effective, performance-based organization. Strategic planning, 

building partnerships, human capital strategies, communication and 

information systems and other factors will be critical to successful 

transformation. Strong and visionary leadership will be vital to 

creating a unified, focused organization from its many parts. In the 

near term, GAO reported, it will be important to articulate a clear 

overarching mission and core values, establish initial priorities, and 

develop an overall implementation plan for the new national strategy 

and related reorganization.



Analyze the Government’s Fiscal Position and Approaches for Financing 

the Government:



Auditing the U.S. Government’s Financial Statements: As in the 4 

previous fiscal years, GAO has been unable to express an opinion on the 

U.S. government’s consolidated financial statements for fiscal 2001 

because of continuing material weaknesses in internal control and 

accounting and reporting issues. However, GAO’s efforts are paying 

dividends in the form of significant improvements in estimating the 

cost of the government’s lending programs and the net loan amounts 

expected to be collected, identifying errors or inaccuracies in 

reported amounts, and suggesting clarifications to financial statement 

disclosures. For example, our review of social insurance program 

information found numerous inaccuracies in the amounts presented and 

descriptive information that, if not corrected, could have misled 

readers.



Second Edition of the Principles of Federal Appropriations Law 

Completed: GAO recently completed the second edition of its popular 

2,500-page handbook on federal appropriations law, which governs the 

availability and use of federal public funds. This handbook, known as 

the Red Book, gathers, organizes, and explains statutes, regulations, 

and cases from all relevant authorities in this complex area. It 

enables those responsible for federal funds to understand and comply 

with the purpose, time, and amount limitations imposed by the laws and 

Constitution of the United States. The Red Book is often cited in 

executive branch agency memoranda, in congressional reports and 

debates, and in the decisions of the Supreme Court and other courts of 

the United States.



Improving Government Debt Management: In reviewing other nations’ 

experiences in managing sovereign debt, GAO found that the selected 

nations used a number of the same debt management tools as the 

Department of the Treasury. We identified additional debt management 

tools used in other countries that may hold promise for the United 

States. Our work also helped inform international efforts to improve 

government debt management. In an authoritative resource guide used by 

government debt managers worldwide, the Organization for Economic 

Cooperation and Development republished segments of GAO’s analysis of 

benchmark securities; terms to maturity; and use of 15 debt management 

tools across the United States, Australia, New Zealand, Norway, Sweden, 

and United Kingdom.



Extending Budget Controls: Over several years, in reports and testimony 

for the House Budget Committee, GAO has emphasized the need to extend 

the budget controls embodied in the expired Budget Enforcement Act and 

provided suggestions for improving these controls. Our continued focus 

on the critical need for congressional action helped keep the issue in 

the forefront. Congressional leaders have acknowledged the need for 

action. On September 30, 2002, the Congress introduced legislation to 

extend some controls and stated that other controls should be 

established through 2007.



Ensuring That Qualified Persons Claim the Earned Income Credit: 

Administering the earned income credit--a refundable tax credit 

available to low-income, working taxpayers--is not easy. While it is 

important for the Internal Revenue Service (IRS) to help ensure that 

all qualified persons claim the credit, it is equally important that 

the agency guard against fraud and other forms of erroneous claims. GAO 

estimated that of 17.2 million households that were eligible for the 

credit in 1999, about 12.9 million claimed it, for an overall 

participation rate of about 75 percent. In addition, we found that 

IRS’s process for recertifying the eligibility of taxpayers whose 

claims had been disallowed by an audit could be unnecessarily 

burdensome for those taxpayers. Specifically, the taxpayers were asked 

to submit certain information that could be difficult for them to 

obtain or was inconsistent with what many IRS examiners considered 

acceptable for making recertification decisions. On the basis of our 

recommendations, IRS revised its earned income credit forms and 

clarified its guidance on the documentation needed to support a claim 

to help ensure that qualified persons receive the credit.



Targeting Tax Credits: Several GAO studies in the early and mid-1990s 

evaluated aspects of the design of the possessions tax credit and the 

earned income tax credit. As a result of these studies, the Congress 

modified the tax code, replacing the possessions tax credit with a less 

generous credit that will be eliminated in 2006 and tightening the 

eligibility requirements for the earned income tax credit. More current 

information on the 5-year impact of these changes points to $564 

million in revenue savings that GAO has not claimed previously.



Supporting Congressional Oversight of IRS: GAO continued to support 

congressional oversight of IRS’s operations, including IRS’s 

implementation of the IRS Restructuring and Reform Act of 1998, budget 

requests, and administration of various tax functions. For example, our 

work on the scope of abusive tax schemes and on IRS’s efforts to combat 

them, despite declines in its compliance, enforcement, and collection 

activities, assisted the Congress in overseeing the adequacy of IRS’s 

efforts to achieve appropriate levels of taxpayer compliance. In 

addition, our reviews of IRS’s performance during the 2001 tax filing 

season led IRS to (1) improve the quality of its telephone service to 

taxpayers by better correlating the demand for service and hours of 

service and (2) develop information to increase electronic filing by 

surveying taxpayers who had prepared their tax returns electronically 

but submitted them to IRS on paper.



Improving IRS’s Taxpayer Compliance Programs: Responding to 

congressional concerns, GAO evaluated IRS’s tax compliance and 

collection programs to determine the effect on taxpayers of recent 

declines in these programs’ activities and outcomes. We reported large 

and pervasive declines for fiscal 1996 through 2001 in such areas as 

audit coverage and delinquent tax collections. Our analysis provided 

IRS with a basis for reexamining the extent to which some quantitative 

information on the impact of proposed program changes should be 

included in strategic assessments. In addition, IRS plans to take 

actions that we recommended to improve its Offer in Compromise program-

-an effort designed to settle the obligations of taxpayers who cannot 

afford to pay their full tax liability. For example, IRS plans to 

evaluate the effectiveness of initiatives designed to reduce the 

program’s inventory of unresolved offers and to reexamine its basis for 

setting goals for case-processing times.



Collecting Delinquent Taxes Owed by Federal Vendors: Federal agencies 

pay billions of dollars each year to thousands of vendors that owe 

delinquent federal taxes. The Department of the Treasury’s Financial 

Management Service (FMS) makes payments on behalf of most of these 

agencies, but a few agencies disburse their own payments. FMS’s 

payments are subject to a tax levy through the Continuous Federal Tax 

Levy program, which the IRS operates in conjunction with FMS. This levy 

enables IRS to recover delinquent federal taxes owed by federal 

vendors. However, the payments made by the other agencies are not 

subject to the levy. To increase the potential for collecting 

delinquent federal taxes, GAO recommended that IRS and FMS work with 

the other agencies to develop plans for including their vendor payments 

in the continuous levy program. We estimated that IRS could recover at 

least $270 million annually in delinquent federal taxes if the other 

agencies’ payments were included in this program. IRS and FMS agreed to 

discuss ways to include the other agencies’ vendor payments in the levy 

program.



Strategic Goal 4:



Maximize the Value of GAO by Being a Model Federal Agency and a World-

Class Professional Services Organization:



Sharpen GAO’s Focus on Clients’ and Customers’ Requirements:



Providing Emergency Relocation Support: Following last October’s 

anthrax incident, when three House of Representatives office buildings 

were closed, GAO provided office space and critical support services 

for Members and committees until the office buildings reopened. GAO’s 

leadership and members of GAO’s staff offices were instrumental in 

providing emergency planning and support for the House move. Efforts 

included identifying adequate space; readying the space for occupation; 

providing equipment, supplies, and information technology 

connectivity; determining and providing additional security 

requirements; and providing logistical support to House staff while 

they were in residence, all within a very short time. Within 48 hours, 

we moved 1,200 GAO staff to alternative work sites and provided them 

with notebook computers and remote access so that they could continue 

to perform their jobs, completely reconnected two floors of the GAO 

headquarters building to new telephone and computer networks, and 

enabled House Members and staff, a total of 1,800 people, to move into 

their temporary quarters. We later reversed that process, bought our 

staff back in, and resumed normal operations in fewer than 5 days. 

Through it all, we continued to issue reports and testify on issues 

important to the Congress and the American people.



Increasing Outreach and Service to GAO’s Congressional Clients: To 

enhance our understanding of our congressional clients’ needs, we 

pursued two feedback initiatives this year. First, senior executives 

continued their outreach to congressional clients to determine their 

views of GAO’s work. These efforts indicated that client satisfaction 

has increased over the past year. Second, we completed a 7-month pilot 

test of a system for obtaining clients’ views on our performance during 

an engagement, including the timeliness of the product, the frequency 

of communications during the engagement, and the professionalism of GAO 

staff during the engagement review. We plan to expand this system 

across the Congress in fiscal 2003. We also launched the Congressional 

Hearing System, a database that facilitates our preparation of a 

consolidated hearing list, hearing notices, and testimony statistics. 

Finally, we updated a brochure for the Congress describing our services 

and how to obtain them. We plan to distribute this brochure, called 

Serving the Congress, to the new Congress.



Developing Agency and International Protocols: Paralleling our purpose 

and approach in implementing the Congressional Protocols, we developed 

draft Agency Protocols to provide clearly defined, consistently 

applied, well-documented, and transparent polices for our work with 

federal agencies. We solicited and incorporated comments on the draft 

from 28 departments, agencies, and entities, as well as the President’s 

Council on Integrity and Efficiency, and prepared a revised version of 

the protocols, which we began to pilot test in December 2002. To 

facilitate this pilot, we developed an e-learning (electronic Web-

based) tool accessible to GAO staff through their desktops. The tool’s 

questions and answers, organized by engagement management gate, provide 

analysts with quick, just-in-time information on what is expected of 

them and what is expected of the agency during each segment of an 

engagement. We also developed an exposure draft of protocols for our 

work with international audit agencies and sent this draft to the Hill 

for comment.



Making GAO’s Work Accessible to the American People: GAO continued its 

policy of proactive outreach to the press, our congressional clients, 

and the public to enhance the visibility of GAO products. In two 

nationwide mailings to the press, including 620 reporters and editors, 

we distributed A Reporter’s Guide to GAO and highlighted our work on 

homeland security, human capital, and corporate governance. We also 

wrote and produced an award-winning video on GAO, “Impact 2000,” and 

created a link for the press on GAO’s external Web site, which receives 

almost 1,500 hits monthly. To inform news editors and editorial page 

writers of the value of GAO as a news source, we met with the editorial 

boards of major media outlets, including The Wall Street Journal, The 

New York Times, The Washington Post, and USA Today, and visited three 

mid-Atlantic media outlets, The Baltimore Sun, The Philadelphia 

Inquirer, and the Bergen Country Record. We also continued our outreach 

efforts on the Hill, regularly attending congressional hearings and 

meeting with reporters and press secretaries.



Enhance Leadership and Promote Management Excellence:



Improving Strategic Management: GAO issued its strategic plan for 

serving the Congress from fiscal 2002 through fiscal 2007. The new plan 

reflects the changes in the national agenda brought about by the war 

against terrorism, the uncertain economic outlook, and the return of 

budget deficits. We also issued our 2001 performance and accountability 

report, which combines information on our past year’s accomplishments 

and progress in meeting our strategic goals with our plans for 

achieving our fiscal 2003 performance goals. In addition, the report 

includes our fiscal 2001 financial statements and the unqualified audit 

opinion rendered by an independent auditor. The report earned a 

Certificate of Excellence in Accountability Reporting from the 

Association of Government Accountants.



Better Aligning Our Organization and Its Resources: GAO made 

significant progress in linking its strategic plan, performance and 

accountability efforts, and budget process. During fiscal 2002, we 

improved the linkage between our strategic plan and our budget by 

implementing a workforce planning process that establishes a more 

participatory and systematic approach for managers to identify the 

resources needed to meet our goals and objectives. The process 

addresses not only the appropriate size and deployment of our 

workforce, but also its profile--focusing on ensuring that the 

workforce has the knowledge, skills, and abilities needed to pursue our 

strategic goals, both now and in the future. The strategic plan and 

workforce planning results serve as the foundation for our fiscal 2003 

operating plan and fiscal 2004 budget request.



Maintaining Integrity in Financial Management: As part of our effort to 

be a model agency, in fiscal 2002 we retained the independent audit 

firm, Cotton & Co., LLP, to audit our financial statements. The 

auditors issued an unqualified opinion. Moreover, we conducted internal 

reviews of our compliance with requirements set forth in the Financial 

Integrity Act and Office of Management and Budget Circular A-127. The 

first review covered our Financial Management System, including its 

internal controls and training and reporting requirements, the adequacy 

of its integration with other GAO systems, and the maintenance of its 

general ledger and the consistency of the general ledger with the 

Standard General Ledger. The second review covered several of our 

internal operations--disbursements, travel reimbursements, and credit 

card charges; payroll and personnel operations; time and attendance; 

external training costs; blanket purchase agreements with vendors; and 

service agreements with other agencies. These reviews uncovered no 

problems and showed that we have the proper controls in place and that 

they are being followed.



Continuing to Provide Leadership in Strategic Human Capital Management 

Planning and Execution: During fiscal 2002, GAO strengthened its 

efforts to become a model in human capital operations. GAO’s Human 

Capital Office led a multi-unit effort to review its roles and 

responsibilities, develop a vision for the future, and design 

initiatives to achieve this vision. These initiatives will be 

implemented in fiscal 2003. In addition, we developed a draft 

agencywide human capital strategic plan to be finalized and implemented 

in fiscal 2003.



Improved Human Capital Manager Network: Following GAO’s mission support 

realignment, our Human Capital Office established a Human Capital 

Managers network to support managing directors and teams. To improve 

this network and its service to clients, human capital managers 

documented and streamlined procedures, identified users’ and unit 

heads’ needs, and clarified their roles. As a result, the human capital 

manager team improved support to customers, developed a smooth hiring 

process, and participated in the development and implementation of 

numerous human capital policies and programs.



Aligning GAO’s Workforce and Mission Needs: To build a diverse 

workforce with the knowledge, skills, and abilities to meet the new 

century’s challenges, GAO took several actions in fiscal 2002 to expand 

and support its recruiting efforts. Overall, in fiscal 2002, we hired 

more new staff than in any recent year--nearly 430 permanent staff and 

140 interns. Most of those hired were entry-level professionals with 

advanced degrees needed to support our strategic initiatives and meet 

our succession-planning needs as more senior staff retire. In addition, 

we recruited students in specific degree programs to acquire expertise 

in certain specialties that GAO needs to carry out its strategic goals.



Recognizing the need to place more emphasis on diversity in college 

recruiting, we developed and implemented a strategy for recruiting a 

broad spectrum of candidates for professional positions at GAO. This 

strategy is designed to ensure that GAO recruits candidates at schools 

that matriculate significant numbers of women and racial minorities, 

trains its recruiters in best practices for recruiting a broad spectrum 

of candidates, ensures that its own diversity is reflected in its 

recruiters and recruiting materials, and collects and analyzes data on 

the effectiveness of its recruiting efforts, including the extent to 

which best practices are used. This year, we enlisted key minority 

executives as recruiters and added outreach efforts at 23 schools. As a 

result, we attracted a talented and diverse pool of applicants.



The Comptroller General’s Educators’ Advisory Panel held its second 

annual meeting. The Panel’s purpose is to establish long-term, 

multidimensional, and mutually beneficial working relationships 

between GAO and leading deans, professors, and others in academia. The 

Panel also advises the Comptroller General on human capital practices 

that can support GAO’s efforts to become a model for the federal 

government, including strategies, best practices, operations, and 

emerging issues and trends related to the recruitment, hiring, 

development, and retention of a diverse, talented, dedicated, and 

results-oriented workforce.



To promote the retention of staff with critical skills and 1 to 3 years 

of GAO experience, we implemented recent legislation (5 U.S.C. 5379) 

authorizing federal agencies to offer student loan repayments in 

exchange for commitments to federal service. Following the Office of 

Personnel Management’s 2001 implementing regulations, we disbursed 

repayments of between $3,400 and $6,000 directly to lending 

institutions for 169 employees, each of whom signed a 3-year agreement 

to continue working at GAO.



To address budgetary constraints or mission needs, correct skill 

imbalances, or reduce expenditures for high-grade managerial or 

supervisory positions while meeting the desires of selected GAO 

personnel, we exercised our new Voluntary Early Retirement Authority. 

This authority, established in our October 2000 human capital 

legislation, allowed us to grant early retirement to 52 employees in 

fiscal 2002.



Acquiring and Applying Information Technology to Support GAO’s 

Strategic Objectives and Business Plans: As the Clinger-Cohen Act 

requires, GAO is developing an enterprise architecture program to guide 

its information technology (IT) planning and decision making. In 

designing and developing systems, as well as in acquiring technology 

tools and services, we have applied enterprise architecture principles 

and concepts to ensure sound IT investments and the interoperability of 

systems.



During the past year, we acquired new hardware and software and 

developed user-friendly systems that enhance our ability to be 

productive and responsive to the Congress. For example, we replaced 

aging desktop workstations with lightweight notebook computers that 

provide greater computing power, speed, and mobility. In addition, we 

upgraded key desktop applications, the Windows desktop operating 

system, and our telecommunications systems to ensure that GAO staff 

have modern technology tools to assist them in carrying out their work. 

We also developed new, integrated, user-friendly Web-based systems that 

eliminate duplicate data entry while ensuring the reusability of 

existing data. These new systems improve our ability to obtain feedback 

from our congressional clients, facilitate access to GAO information 

for the external customer, and enhance productivity for the internal 

customer. Among the new Web-based systems are:



* a system for obtaining clients’ views on our performance during an 

engagement,



* desktop IPTV (streaming video) for live and prerecorded programs 

(e.g., CG chats, C-SPAN, CNN),



* an applicant-handling system to support recruiting and hiring 

efforts,



* a docket database for the Office of General Counsel,



* an e-learning tool on the new Agency Protocols for analysts,



* a system for reporting the accomplishments--that is, the financial 

and other benefits--attributable to our engagements,



* a competency-based performance management system,



* an employee locator system,



* a videoconferencing reservation system,



* a system that allows employees to register themselves for internal 

training and obtain information on courses and classes, and:



* a system that tracks employees’ training requirements and training 

records.



In addition, we developed and implemented various Web sites to enhance 

knowledge-sharing, including a site for the Financial Accounting 

Standards Advisory Board, a site for employees with information on 

travel and subsequent reimbursement, and a site with guidance for 

nominating employees for external awards sponsored by federal and 

nonfederal organizations and schedules on the categories, criteria, and 

deadlines for awards to support timely nominations.



Increasing Information Security: GAO has recognized the increased 

threat to its shared information technology (IT) assets and is working 

to heighten awareness of this threat, maintain vigilance, and develop 

practices that protect its IT infrastructures. Fiscal 2002 

accomplishments in this area include:



* installing software that monitors network users’ compliance with 

GAO’s security standards and indicates corrective actions when 

necessary;



* installing software that monitors unauthorized access to GAO’s 

servers and alerts operations staff when immediate action may be needed 

to protect information assets;



* implementing a tool--the two-factor user authentication (SecurID)--

that increases network security by requiring a PIN and a constantly 

changing number generated on a token to gain access to the GAO network, 

thereby eliminating the network’s vulnerability to penetration because 

of weak passwords;



* developing a baseline disaster recovery strategy and plan that 

provide for the temporary operation of our essential computer systems; 

and:



* completing security control reviews and risk assessments for two 

critical information systems--the Mission Assignment and Tracking 

System and the Financial Management System--that identified 

improvements necessary to maintain full compliance with federal IT 

security guidelines.



Providing a Safe and Secure Workplace: In fiscal 2002, GAO assessed the 

vulnerability of its building and grounds to security risks and 

identified measures that it could take to reduce the risk of potential 

incidents; enhance security processes, procedures, and equipment; and 

provide for the continuity of operations. This year, we put several 

low-cost or relatively simple measures in place. For example, we 

installed an x-ray machine at a primary loading dock, upgraded the air 

filter system, and upgraded the fire alarm and public address systems. 

We also recommended procedures and identified sites for continuing 

GAO’s work in alternative locations. Finally, we began conducting 

background investigations on all contractors who work in the 

headquarters building. The investigations are comparable to those 

conducted for GAO employees and help ensure the safety of staff and 

property by holding contractors to the same standards as GAO employees.



Leverage GAO’s Institutional Knowledge and Experience:



Increasing Capacity through Knowledge-Sharing and Collaboration: GAO’s 

application and use of tools for exchanging information strengthened 

the capacity of GAO audit teams and other state and national audit 

entities to help improve the performance and accountability of 

governments worldwide. For example, through an ongoing relationship 

with the Private Sector Council, we obtained information on best 

practices in the design and manufacture of products that we used to 

develop recommendations for improving the Department of Defense’s 

acquisition of major weapon systems. We also used a Web-based tool, 

AGNet, to glean applicable knowledge and experience from 11 other 

countries to support our review of efforts to prevent the spread of mad 

cow disease in the United States. In addition, we managed a 4-month 

international fellowship program for 14 fellows, provided technical 

training on performance audits to more than 150 auditors from 10 

European countries, and entered into an agreement with the Inter-

American Development Bank, the International Organization of Supreme 

Audit Institutions International Development Initiative, and the 

Organization of Latin American and Caribbean Supreme Audit Institutions 

to provide technical assistance to strengthen training for auditors in 

21 countries. Moreover, we participated in a joint audit of student 

assessment systems with the Department of Education’s Office of 

Inspector General, the Texas and Pennsylvania state auditors, and the 

Philadelphia Office of the Comptroller that resulted in seven reports 

recommending improvements to management controls and data quality. 

Finally, to enhance staff’s ability to utilize Web-based knowledge 

services, GAO offered training in Lexis-Nexis, CourtLink, Leadership 

Directory, and Internet Explorer during fiscal 2002.



Improving the Management of Agency Records: In fiscal 2002, GAO 

introduced several initiatives to enhance records management. To reduce 

the time required to obtain GAO records stored at the Washington 

National Records Center, we negotiated a contract with the center’s 

courier service. The courier service guarantees a 4-hour turnaround for 

emergency requests, and the couriers have a clearance to deliver files 

directly to the requesting office and back to the records center. We 

also started a cleanup of files across GAO, providing direction and 

guidance for retiring files and preparing documents for secure 

destruction. As a result, 800 feet of files were retired and 

approximately 1,178 feet of records were identified for destruction, 

freeing storage space and equipment. Finally, to support GAO’s 

leadership in the area of creating and managing key documentary source 

material, our Knowledge Services and Quality and Risk Management 

offices cosponsored a Workpaper Task Force to reassess GAO’s policies 

for workpaper management and identify opportunities to improve the 

effectiveness and efficiency of GAO’s workpaper practices using new 

information technologies.



Piloting Knowledge-Sharing among GAO Teams: Formed in the fall of 

fiscal 2002, the National Preparedness Web Support Group fosters 

information-sharing to support collaboration on national preparedness 

issues across GAO. The Web Support Group created and implemented a 

National Preparedness Web portal in July 2002, which served as a 

critical tool in coordinating activities of the National Preparedness 

virtual team (staff throughout GAO who work on national preparedness 

issues and rely on the Web to obtain current information about these 

issues).



Continuously Improve GAO’s Business and Management Processes:



Enhancing GAO’s Guidance and Tools: To improve the engagement process, 

GAO clarified and enhanced its guidance for project plans and message 

agreements--efforts that should lead to providing better products for 

our clients. A GAO team also developed an electronic workpaper set to 

help analysts determine the documentation requirements for engagements 

of various lengths. Additionally, we enhanced our desktop policy 

guidance tool, known as the EAGLE (Electronic Assistance Guide for 

Leading Assignments), by adding individual teams’ guidance, thereby 

making it easier for staff to find and follow GAO and team policies and 

procedures.



Improving GAO’s Products and Business Processes: In fiscal 2002, GAO 

streamlined the graphics and report production processes for 

Highlights, a one-page summary that presents the key findings and 

recommendations of a GAO report or testimony, and implemented this new 

reporting format first piloted in fiscal 2001. Feedback from 

congressional clients, federal agencies, the media, accountability 

organizations, and universities has been overwhelmingly positive. In 

addition, Highlights was showcased at the annual conference of the 

Federal Audit Executive Council and has been adopted as a new product 

by the Postal Service Inspector General.



GAO’s successful implementation of the risk management approach 

introduced in fiscal 2000 improved the engagement management process. 

An assessment of critical aspects of this approach showed there has 

been an increase in the number of draft reports meeting all quality 

standards the first time they are submitted for official review outside 

the originating team.



In fiscal 2002, we centralized our process for notifying other federal 

agencies and private parties of visits by GAO staff. As a result, we 

are able to send clearance information more quickly and accurately, and 

GAO employees are more aware of the pre-visit requirements and the 

information needed to arrange their visits.



To increase the efficiency of the report production process and improve 

communication between audit teams and the product assistance groups, we 

implemented a tracking system to obtain real-or nearly real-time 

information on the status of GAO publications during the production 

process, including editing, graphics preparation, composition, 

printing, and distribution. The system tracks the report package 

throughout the process, simultaneously generating metrics on the 

process and providing users with easier and faster access to 

information on the report’s status, the estimated completion date, and 

the date of release for distribution.



Realizing Efficiencies and Savings: GAO continues to negotiate 

innovative contracts and obtain competitive lease rates for its IT 

equipment, end-user products such as workstations, and infrastructure 

such as servers and software. By taking advantage of multiyear funding 

flexibility and by treating the IT leases as services, we are able to 

amortize the costs of acquisitions over multiple years. As a result, we 

were able to acquire new notebook computers and flat panel monitors for 

most GAO staff. Furthermore, after replacing our computer hardware, we 

donated over 2,300 computers and other computer-related equipment to 

schools in the Washington, D.C., metropolitan area and in the 

metropolitan areas of the field offices, as allowed under Executive 

Order 12999, Computers for Education. This effort not only enabled us 

to dispose of our surplus equipment but also ensured that taxpayer 

dollars would continue to be put to good use in local communities.



Our contract for electrical services and programs has also enabled us 

to cut costs. We negotiated a 4 percent discount on our electrical 

rates under a new contract with PEPCO Energy Services, which enabled us 

to save over $52,000 in fiscal 2002. We also participated in PEPCO’s 

electrical load curtailment program by reducing our demand for 

electricity in the GAO building during periods of high regional 

electrical consumption. Our efforts helped the electrical utilities 

avoid brownouts or blackouts and gave us a credit on our monthly 

utility bill.



GAO continued the digital conversion of prior GAO products, resulting 

in a decline in the number of hard copy requests and a corresponding 

decrease in paper costs. In fiscal 2002, we added 10,200 files of GAO 

products from 1978-1985 to the database. The number of hard copy 

requests has decreased from over 800,000 to 137,000 per year since the 

project began in fiscal 1997, for a total annual average paper cost 

avoidance of $24,400, or $48,800 total for the past 2 fiscal years.



In fiscal 2001, a Web-based Meeting Room Booking System was developed 

to provide information on the location, capacity, and availability of 

audio-visual or video-conferencing equipment of meeting rooms in the 

headquarters building. The system also allows anyone in GAO to schedule 

the rooms, a feature that has decreased the time necessary to reserve a 

meeting room from an average of 10 to 15 minutes to an average of 1 to 

2 minutes. This translates to an average monthly savings of $8,552. Net 

savings for fiscal 2001 after development and implementation costs were 

approximately $64,000. Net savings for fiscal 2002 and beyond are over 

$100,000 annually.



Finally, instead of making each team responsible for obtaining, 

maintaining, storing, and distributing office supplies and equipment, 

we streamlined the process for requesting and delivering supplies by 

establishing Shared Service Centers on each floor. Now, fewer staff are 

required to manage supplies and equipment, and customers receive the 

materials and services they need more quickly.



Become the Professional Services Employer of Choice:



Leading the Way in Performance Management: In fiscal 2002, GAO 

implemented a new performance appraisal system for analysts and 

specialists, adapted the system for attorneys, and began modifying the 

system for Administrative Professional and Support Staff. This system 

is part of a broader competency-based performance management system 

that is designed to align employees’ performance with the agency’s core 

values and strategic plan. Performance management includes performance 

planning, coaching, and feedback activities, as well as appraisal, 

recognition, reward, and pay and promotion processes. GAO views the 

system as a framework for all of its human capital programs, including 

recruitment, training and development, and recognition and rewards.



Linking Compensation and Awards to Performance: Under its new 

performance management system, GAO is restructuring its compensation 

and award programs to better link pay and recognition to efforts that 

support its core values and strategic goals. We revised our 

performance-based compensation system for analysts and specialists to 

reward significant contributions that generate returns for taxpayers, 

serve clients, further institutional values, and support various GAO-

wide efforts. Finally, we took a first step toward tying our 

compensation system for Administrative Professional and Support Staff 

to performance by reinstituting quality step increases, which allow us 

to raise General Schedule salary levels for high-quality contributions. 

The costs of this change were minimal, but the impact on staff morale 

was great.



Training Staff to Meet the New Competencies: To support GAO’s 

transition to the new competency-based performance management system 

and help staff meet the new competencies, GAO and its contractors 

completed training and learning needs assessments, “promising 

practices” research, and a draft curriculum for analysts that focuses 

on the competencies and the work that analysts perform at each band 

level.



To provide some training while we are completing our curriculum 

development, GAO’s Center for Performance and Learning contracted for 

the delivery of more than 100 commercially available training classes 

to GAO staff in topics related to the new competencies. The center’s 

staff monitored and evaluated the extent to which courses addressed the 

new competencies and provided immediate feedback to the contractors on 

ways to make the course materials more relevant to GAO staff. To 

increase the availability of courses, particularly in the field 

offices, we began a project to create a virtual classroom. An 

application implemented in December 2001 provides Web-based distance 

learning for GAO staff and employs both individual and collaborative 

activities. Students can communicate with the instructor and other 

course participants both directly and through chat sessions and e-mail. 

It is anticipated that as this type of program expands and becomes more 

universally available, the timing and quality of training will improve, 

while the amount of downtime and expense associated with other types of 

traditional training will be reduced.



To enhance the competencies of selected managers and executives, the 

center reinstituted a centrally funded external training program during 

fiscal 2002. Under the program, approximately 60 managers and 

executives received specialized training in leadership and management.



Providing Career Transition Services: To assist employees seeking 

career alternatives, GAO established an on-site Career Transition 

Center, staffed with a full-time career counselor, to provide 

confidential career-transition services. The center assists employees 

with career assessments and planning, job searches, resume and cover-

letter writing, and interviewing techniques. It also includes a 

resource center with related books, periodicals, and videos. During 

fiscal 2002, the Career Transition Center provided services to more 

than 100 GAO employees.



Modernizing the GAO Headquarters Building: At the GAO headquarters 

building, several modernization projects completed or initiated during 

the year provided more office space and new facilities to support GAO’s 

mission. For example, the construction of a new printing facility in 

the basement freed valuable first floor space for conversion into 

usable office space and, in turn, allowed sixth floor office space to 

be cleared for modernization. In addition, the construction of new, 

permanent storage space in the basement created a home for the GAO 

Historical Archives, and the use of existing air-handling equipment 

provided proper environmental conditions for preserving irreplaceable 

GAO documents. The space formerly occupied by the archives was 

converted to offices. Furthermore, an old design for modernizing the 

sixth floor was thoroughly updated to reflect lessons learned, the 

changing demographics of GAO’s workforce, and an emerging need for a 

new e-security computer lab. While the updating took some time, GAO’s 

overall modernization project remained on schedule, new ideas were 

incorporated, and a disruptive retrofit of the existing computer lab 

was avoided.



Transit Benefit Program Implementation: GAO’s Financial Management 

Policy staff matrixed with staff in the Controller and Administrative 

Services Office, the Human Capital Office, and the Office of the 

General Counsel to develop and document transit benefit policy and 

coordinate legal clearances, coordinate administration and 

distribution of benefits with the Department of Transportation, and 

develop internal marketing strategies to announce the program rollout. 

As an indicator of the program’s success, almost one-half of all GAO 

employees receive transit benefits.



2. Inspector General’s Report:



GAO: Accountability, Integrity, Reliability:



Memorandum:



Date: November 27, 2002:



To: Comptroller General:



From: Inspector General – Frances Garcia:



Subject: Management Challenges:



We have reviewed management’s assessment of the

management challenges. Based on our work and

institutional knowledge, we agree that human capital,

physical security, and information security are the

management challenges that may affect our performance.

We are in agreement with management’s assessment of

progress made in addressing these challenges.



In addition, we reviewed all fiscal 2002 accomplishment

reports claiming financial benefits of $1 billion or more

and found that GAO has a reasonable basis for claiming

these benefits. We plan to review the internal controls for

several key performance measures in fiscal 2003.



[End of Memorandum]



3. Report on the Implementation of Public Law 106-303:



As required by section 6 of Public Law 106-303 (sometimes referred to 

as the GAO Personnel Flexibility Act of 2000) enacted on October 13, 

2000, we are providing a review of the actions taken by GAO under 

sections 1 through 3 of the act.



Section 1. Voluntary Early Retirement:



The Comptroller General is authorized by the act to offer voluntary 

early retirement to agency employees when necessary and appropriate to 

realign GAO’s workforce to meet budgetary constraints or mission needs; 

correct skill imbalances; or reduce high-grade, managerial, or 

supervisory positions. After providing an opportunity for all employees 

to comment, we issued final agency regulations for the use of this 

authority on April 27, 2001.



In fiscal 2002, 52 individual separated from the agency under the 

voluntary early retirement authority. In fiscal 2003, we again 

exercised our voluntary early retirement authority for individuals 

wishing to retire by March 14, 2003.



Section 2. Voluntary Separation Incentive Payments:



Section 2 of the act authorizes the Comptroller General to offer 

voluntary separation incentive payments. The agency contribution to the 

retirement fund required by the act is too high to permit the use of 

this authority. Therefore, we have no immediate plans to exercise this 

authority, which is in effect only until December 31, 2003, and have no 

plans to issue agency regulations.



Section 3. Reduction in Force:



Section 3 authorizes the Comptroller General to issue revised 

regulations for the separation of employees during a reduction or other 

adjustment in force. The Comptroller General may conduct a reduction or 

adjustment in force because of budgetary constraints or when necessary 

to realign GAO’s workforce; to correct skill imbalances; and to reduce 

high-grade, supervisory, and managerial positions. Retention during a 

reduction or other adjustment in force will be based on the following 

factors in descending order of priority: tenure, veterans’ and military 

preference, performance, length of service, and other objective 

factors, such as skill and knowledge.



GAO has developed draft regulations to implement this provision and 

made them available to all of the agency’s employees for comment on 

September 26, 2002. As required by the act, GAO’s regulations must be 

consistent with the reduction in force regulations issued by the Office 

of Personnel Management (OPM). Because of differences in GAO’s 

organizational structure and personnel system, however, the Congress 

recognized that GAO’s procedures might vary from OPM’s approach in 

certain areas. Moreover, the act itself mandates some differences. GAO 

must consider performance before length of service when ranking 

employees for release during a workforce restructuring. GAO’s draft 

regulations provide that after employees’ tenure and eligibility for 

preferences are considered, they be ranked on the basis of their 

“retention scores.” This score is determined by an employee’s 

performance appraisal average for the prior 3 years and the number of 

years of federal service. The comment period closed on October 28, 

2002, and we are in the process of reviewing and analyzing the comments 

submitted by employees. We anticipate issuing final regulations early 

in calendar year 2003.



GAO is required to report actions taken under the reduction in force 

procedures and to assess the impact on veterans eligible for 

preferences. No such actions were taken in fiscal 2002. Consequently, 

there was no impact on the agency’s veterans.



Overall Assessment:



The three flexibilities discussed in this report have the potential to 

help address the human capital challenges facing GAO. The vacancies 

created by the separation of employees taking voluntary early 

retirement will assist us in realigning staff to meet more critical 

needs. As noted in section 2 above, the utility of the voluntary 

separation incentive provision in realigning the agency’s workforce is 

questionable because of the high cost of the retirement contribution. 

Lastly, we are in the process of finalizing revised reduction in force 

regulations. While GAO does not have any current plans to conduct a 

reduction in force, it is both prudent and appropriate to finalize 

these regulations so that we may deal with any future budget or 

restructuring issues. In our view, the draft regulations, based on the 

provisions of the act, are a significant improvement over current rules 

for selecting employees for separation in the event of a downsizing or 

realignment.



During the 108th Congress, we will work with our appropriations and 

oversight committees to achieve enactment of legislation to support our 

continuing efforts to be a leader in federal human capital management 

and a world-class organization. To build on the human capital 

flexibilities provided by the Congress in 2000, we will identify 

opportunities for additional flexibilities that would, among other 

things, facilitate GAO’s continuing efforts to develop a more 

performance-based compensation system, realign our workforce, and 

provide greater opportunities for staff to phase into retirement.



4. Government Information Security Reform:



GAO is implementing an information security program that is consistent 

with requirements in the Government Information Security Reform 

provisions (commonly referred to as “GISRA”) enacted in the Floyd D. 

Spence National Defense Authorization Act for Fiscal Year 2001. 

Although GAO is not obligated by law to comply with GISRA, we have 

sought to implement its requirements to help ensure that GAO 

establishes an effective information security program and to help 

fulfill our goal of being a model federal agency.



To assess the status of GAO’s information security program, we 

considered the results of internal reviews by program offices and 

security staff, independent evaluations of our major financial 

applications by a public accounting firm, and testing of information 

technology (IT) controls for our general support system by GAO’s IT 

auditors, who are independent of GAO’s IT support function. These 

reviews and evaluations identified no material weaknesses in GAO’s 

financial applications or general support system. They also showed that 

GAO is making substantial progress in implementing information security 

requirements consistent with GISRA through its efforts to:



* implement a risk-based, agencywide security program;



* develop essential policies and reporting mechanisms to ensure that 

GAO’s program managers, the Chief Information Officer, and the 

Comptroller General implement and maintain security requirements;



* provide security training and awareness;



* enhance the agency’s capability to respond to computer security 

incidents;



* integrate security into GAO’s capital investment control process;



* identify GAO’s critical assets within our enterprise architecture;



* ensure the security of services provided by a contractor or another 

agency; and:



* develop and implement an enterprise disaster recovery solution.



In addition, GAO continues to provide separate funding for IT security 

initiatives and training to upgrade the skills of our IT security 

staff. GAO augments its security staff through contractor support, as 

necessary.



Along with indicating our progress, the reviews and evaluations also 

identified areas needing improvement. GAO is taking corrective action 

for these areas and, in particular, has undertaken several projects 

that will significantly improve our information security program during 

fiscal 2003. Among these projects are the following:



* Host-based intrusion detection--Having completed the process of 

applying host-based intrusion detection software to GAO’s external 

servers, we have begun to apply this software to our internal servers 

and plan to expand this effort during fiscal 2003 to add complementary 

tools. These tools will facilitate the early detection of and response 

to any suspicious activity and identify trends that can help us to 

enhance our security architecture.



* Strong user authentication--We have delivered a strong (two-factor) 

authentication system to most of our staff. The system requires staff 

accessing GAO’s general support system to combine a personal 

identification number they select with a six-digit pass code generated 

randomly every 60 seconds by each person’s unique authentication 

device. This process provides a high degree of certainty that each user 

accessing GAO’s general support system is legitimate. During fiscal 

2003, we will complete the project’s implementation, including 

extending the authentication system to all of GAO’s remote access and 

internal wireless links. We are also studying the feasibility of using 

a password management device to more securely store and transmit users’ 

credentials on mission-critical systems and applications under the 

control of GAO’s administrative staff.



* IT disaster recovery--We are refining the disaster recovery plan we 

developed last year and have begun to conduct limited testing exercises 

to ensure the viability of the plan. We are working with the vendor of 

GAO’s disaster recovery site to strategically position critical backup 

computing assets and set up essential telecommunications links for 

GAO’s client-server-based systems. In addition, we are implementing a 

new network storage technology that we expect to integrate into our 

disaster recovery infrastructure during fiscal 2003.



5. Acronyms:



AICPA: American Institute of Certified Public Accountants:



APSS: Administrative Professional and Support Staff:



COE: Corps of Engineers (U.S. Army):



CLF: Central Liquidity Facility:



CMS: Centers for Medicare and Medicaid Services:



CPA: certified public accountant:



CSRS: Civil Service Retirement System:



DI: Disability Insurance:



DOD: Department of Defense:



DOE: Department of Energy:



DOL: Department of Labor:



EAGLE: Electronic Assistance Guide for Leading Engagements:



FAA: Federal Aviation Administration:



FASAB: Federal Accounting Standards Advisory Board:



FBI: Federal Bureau of Investigation:



FDA: Food and Drug Administration:



FECA: Federal Employees’ Compensation Act:



FEGLIP: Federal Employees Group Life Insurance:



FEHPB: Federal Employees Health Benefit Program:



FEMA: Federal Emergency Management Agency:



FERS: Federal Employees Retirement System:



FFMIA: Federal Financial Management Improvement Act (Improvement Act):



FHA: Federal Housing Administration:



FICA: Federal Insurance Contributions Act:



FMFIA: Federal Managers’ Financial Integrity Act (Integrity Act; now 31 

U.S.C. 3512):



FMS: Financial Management Service:



FTAA: Free Trade Area of the Americas:



GAAP: generally accepted accounting principles:



GAO: General Accounting Office:



GISRA: Government Information Security Reform Act:



GSA: General Services Administration:



HHS: Department of Health and Human Services:



HUD: Department of Housing and Urban Development:



IG: Inspector General:



INTOSAI: International Organization of Supreme Audit Institutions:



IRS: Internal Revenue Service:



IT: information technology:



JFMIP: Joint Financial Management Improvement Program:



NASA: National Aeronautics and Space Administration:



NATO: North Atlantic Treaty Organization:



NED: New Engagement Database:



NIH: National Institutes of Health:



OMB: Office of Management and Budget:



OPM: Office of Personnel Management:



PCIE: President’s Council on Integrity and Efficiency:



PWBA: Pension and Welfare Benefits Administration:



QRM: Quality and Risk Management:



R&D: research and development:



SBA: Small Business Administration:



SEC: Securities and Exchange Commission:



SFFAS: Statement of Federal Financial Accounting Standards:



SGA: substantial gainful activity:



SSA: Social Security Administration:



USAID: United States Agency for International Development:



U.S.C.: United States Code:



USEC: U.S. Enrichment Corporation:



VA: Department of Veterans Affairs:



VERA: Veterans Equitable Resource Allocation:



Y2K: Year 2000:



Image Sources:



This section contains credit and copyright information for images and 

graphics in this product, as appropriate, when that information was not 

listed adjacent to the image or graphic where presented.



Front cover: GAO (flag), Digital Stock (Capitol), Library of Congress’s 

Historic American Engineering Record by Jet Lowe (Statue of Liberty).



Inside front cover: U.S. National Archives and Records Administration 

(Bill of Rights, Constitution, and Declaration of Independence 

documents), GAO (Capitol, flag).



Pages vi & vii (left to right): © 1996 Stock Photography Online 

(classroom); GAO (password screen); © 1999 Getty Images, Inc. 

(vaccination); GAO (security scan); Amtrak (Acela train); GAO (security 

gate, nest egg); © 1999 Getty Images, Inc. (voters); © 1999 PhotoDisc, 

Inc. (powerlines); Dept. of Defense (missile, soldier).



Pages vi & vii (background images): GAO (flag, Capitol); © 1999 Corel 

Corp. All rights reserved. (Statue of Liberty).



Page 1: GAO.



Pages 19, 51, & 109: DOD (border patrol); HUD (housing development); 

Amtrak (Acela train); USDA (food inspection); SSA (senior citizens); 

SSA (man in wheelchair); © 1999 Getty Images, Inc. (vaccination); GAO 

(collage layout).



Pages 22, 57, & 123: DOD (computer operator, gasmask, fighter plane); 

Nova Development Corp. (globe); DOD (firing range); Nova Development 

Corp. (biometrics); DOD (satellite, missile); GAO (collage layout).



Pages 25, 63 & 133: Library of Congress (Statue of Liberty); GAO 

(currency, columns, Capitol).



Pages 28, 69 & 143: GAO (GAO headquarters, flag, Capitol, eagle).



Pages 10, 16, 30, 33, 42, 46, 73, 85, 86, 86, & 93: Library of Congress 

(Statue of Liberty); GAO (flag, Capitol).



Inside back cover: GAO (Capitol; flag).



GAO’s Mission:



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