This is the accessible text file for GAO report number GAO-04-263SP 
entitled 'GAO Performance and Accountability Report 2003' which was 
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Introduction: 

SERVING THE CONGRESS: 

GAO’S 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.

SCOPE OF WORK: 

GAO performs a range of oversight-, insight-, and foresight-related 
engagements, a vast majority of which are conducted in response to 
congressional mandates or requests. GAO’s engagements include 
evaluations of federal programs and performance, financial and 
management audits, policy analyses, legal opinions, bid protest 
adjudications, and investigations. 

CORE VALUES: 

We help the Congress oversee federal programs and operations to ensure 
accountability to the American people. GA’s analysts, auditors, 
lawyers, economists, information technology specialists, 
investigators, and other multidisciplinary professional seek to 
enhance the economy, efficiency, effectiveness, and credibility of the 
federal government both in fact and in the eyes of the American 
people.

INTEGRITY: 

We set high standards for ourselves in the conduct of GAO’s work. Our 
agency takes a professional, objective, fact-based, nonpartisan, 
nonideological, fair, and balanced approach to all activities. 
Integrity is the foundation of reputation, and GAO’s approach is 
designed to ensure both.

RELIABILITY: 

We at GAO want our work to be viewed by the Congress and the American 
public as reliable. We produce high quality reports, testimonies, 
briefings, legal opinions, and other products and services that are 
timely, accurate, useful, clear, and candid.

[End of introduction]

Letter From the Comptroller General:

[See PDF for image]

Photograph of David M. Walker, Comptroller General of the United 
States: 

Source: GAO.

[End of image]

November 14, 2003:

Having just ended my fifth year as Comptroller General of the United 
States and head of the U.S. General Accounting Office (GAO), it is a 
pleasure to present our fiscal 2003 performance and accountability 
report. With this report, we attempt to convey the outstanding 
achievements of all GAO employees as they work to serve the Congress 
and the American people. GAO is in the performance and accountability 
business; our work covers every area the federal government is involved 
in, or is thinking about getting involved in, anywhere in the world. 
Simply put, we try to help the federal government work better and for 
the benefit of all our nation's citizens. I believe that this report 
demonstrates our many contributions to that objective in fiscal 2003, 
and I am confident that the performance data and financial information 
in this report are complete and reliable, as noted in my statement of 
assurance that appears in this report. Importantly, we met 
or exceeded all but one of our seven key performance measures, and we 
received a clean opinion from independent auditors on our financial 
statements. While the value of many of our accomplishments this past 
year could not be measured in dollars, many could. In that regard, we 
helped the Congress and government leaders achieve a total of $35.4 
billion in financial benefits--a $78 return on every dollar that we 
spent.

Looking over the past year, our work addressed many of the difficult 
issues that confront the nation, including diverse and diffuse security 
threats, changing demographic trends, increasing interdependency, 
rapidly evolving science and technology changes, a variety of quality-
of-life issues, as well as government transformation challenges, and 
increasing federal budgetary constraints. Perhaps the foremost 
challenge government decisionmakers faced this year was to ensure the 
security of the American people. By providing professional, objective, 
nonpartisan information and analyses, we helped inform the Congress and 
executive branch agencies on key issues such as the challenges involved 
in creating the Department of Homeland Security, including its mission, 
make-up, structure, cost, and implementation; and the nature and scope 
of threats confronting the nation's nuclear weapons facilities, its 
information systems, and all areas of its transportation 
infrastructure--air, surface, and maritime. Among the programs that 
required additional focus due to changing demographic trends were the 
quality of care in the nation's nursing homes and the risks to the 
government's single-employer pension insurance program. We also were 
actively engaged in various efforts to transform selected government 
entities (e.g., the United States Postal Service and the Federal Bureau 
of Investigation) and functions (e.g., strategic human capital and real 
property management). Our work in these and other areas covered 
programs that touch millions of lives and involve billions of dollars.

Finally, the delayed budget deliberations for fiscal 2003 were symptoms 
of the difficult decisions facing the Congress as the nation confronts 
what appears to be a period of recurring budget deficits and long-term 
fiscal challenges. In January 2003, as the new Congress began its 
session, we issued our latest series of reports that identified 
management challenges and program risks at 23 federal agencies and 
highlighted actions needed to address these serious problems. Like the 
previous editions, the 2003 reports made clear how vital it is that 
federal agencies take a strategic approach to their missions and ways 
of doing business. At the same time, we updated our reports that 
identify areas at high risk due to their greater vulnerabilities to 
waste, fraud, abuse, and mismanagement; major challenges associated 
with their economy, efficiency, or effectiveness; or the need for 
broad-based transformations.

In these and other areas of our work--some of which are highlighted 
after my assurance statement--the American people benefited this year 
as federal agencies took a wide range of actions based on our analyses 
and recommendations and as our efforts heightened the visibility of 
issues needing attention. It is important for our nation and its 
citizens not only that these issues are made visible, but also that 
the nation's leaders attend to them. I feel fortunate and honored 
that, more often than not, our clients, executive branch officials, 
and others listen to what we have to say and act on our 
recommendations. Furthermore, our reports are typically published and 
available on our Web site [Hyperlink, http://www.gao.gov], which keeps 
us accountable to our clients, the American people, and the world at 
large.

In addition to having an impact on important national issues, we have 
taken major steps internally to be a model federal agency and world-
class professional services organization. Of our three management 
challenges--human capital, physical security, and information 
security--no area is more important to our ability to fulfill our 
mission than how we manage our human capital--our people. In recent 
years, we have taken a variety of steps to attract, retain, motivate, 
and reward a quality and high-performing workforce--steps that included 
revamping our recruiting and hiring programs and creating a state-of-
the-art, competency-based performance management system. As this is 
written, the Congress is poised to grant us further human capital 
flexibilities that will allow us, among other things, to move to an 
even more performance-based compensation system. Our people are truly 
our most valuable asset. How prudently we manage and invest in them 
will determine, to a large extent, how well-equipped we will be to 
serve the Congress and the American people in the years to come.

In summary, fiscal 2003 was another successful year for us. I believe 
that those who read this report will agree that the taxpayers received 
an excellent return on their investment from GAO.

David M. Walker:
Comptroller General of the United States:

Signed by David M. Walker: 

[End of letter]

The Comptroller General's Integrity Act Assurance Statement for Fiscal 
2003:

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 U.S. 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 (1) 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 (2) 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 31 U.S.C. 
3512 (commonly referred to as the Federal Managers' Financial Integrity 
Act). This is an accomplishment we set for ourselves even though, as 
part of the legislative branch of the federal government, we are not 
technically required to do so.

David M. Walker: 
Comptroller General of the United States:

Signed by David M. Walker: 

[End of assurance statement]

In fiscal 2003, GAO served the Congress and the American people by 
helping to: 

* Identify steps to reduce improper payments and credit card fraud in
government programs; 

* Make sound decisions on funding national defense; 

* Restructure government and improve its processes and systems to 
maximize homeland security; 

* Assess the risks of major weapon systems acquisitions; 

* Prepare the financial markets to continue operations if terrorism 
recurs; 

* Tighten security at nuclear weapons facilities; 

* Oversee the multibillion dollar restoration of the Everglades; 

* Update and strengthen government auditing standards; 

* Estimate the exposure of U.S. troops to chemical plume during the 
1991 Gulf War; 

* Enhance the quality of nursing home care; 

* Improve the administration of Medicare as it undergoes reform; 

* Strengthen the U.S. visa process as an antiterrorism tool; 

* Improve transportation security in the wake of September 11; 

* Encourage and help guide federal agency transformations; 

* Contribute to congressional oversight of the federal income tax 
system; 

* Identify human capital reforms needed at the Department of Defense, 
the Department of Homeland Security, and other federal agencies; 

* Raise the visibility of long-term financial commitments and 
imbalances in the federal budget; 

* Serve as a model for other federal agencies by modernizing our 
approaches to managing and compensating our people; 

* Reduce security risks to information systems supporting the nation’s 
critical infrastructures; 

* Improve the Department of Defense’s business operations, software
development, and information technology acquisition processes; 

* Ensure effective implementation of the No Child Left Behind Act; 

* Oversee programs to protect the health and safety of today’s workers; 

* Ensure the accountability of federal agencies through audits and
performance evaluations; 

[End of list]

Contents:

Introduction:

From the Comptroller General:

The Comptroller General's Integrity Act Assurance Statement for Fiscal 
2003:

GAO at a Glance:

How to Use This Report:

Part I: Management's Discussion and Analysis:

Supporting the Congress and Benefiting the American People:

Agencywide Results:

A Balanced Scorecard:

GAO's High-Risk Program:

Managing Our Resources:

Strategies and Challenges:

Part II: Performance Information:

How We Assess Our Performance:

Our Strategic Management Structure:

Our Annual Performance Measures:

Goal 1 Results:

Financial Benefits:

Other Benefits:

Additional Measures:

Two-year Performance Goals:

Goal 2 Results:

Financial Benefits:

Other Benefits:

Additional Measures:

Two-year Performance Goals:

Goal 3 Results:

Financial Benefits:

Other Benefits:

Additional Measures:

Two-year Performance Goals:

Goal 4 Results:

Data Quality and Program Evaluation:

Completeness and Reliability:

Procedures to Ensure Data Quality:

Program Evaluation:

Part III: Financial Information:

From the Chief Financial Officer:

Overview of Financial Statements:

Financial Systems and Internal Controls:

Limitations on Financial Statements:

Purpose of Each Financial Statement:

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. From the Inspector General:

3. GAO's Report on Personnel Flexibilities (Pub. L. No. 106-303):

4. GAO's Federal Information Security Management Act Efforts:

5. Acronyms:

Image Sources:

Obtaining Copies of GAO Documents:

[End of contents]

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, 
our "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, 
testify before the Congress over 200 times a year on average, 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, we contribute 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. These teams 
are backed by staff offices and mission support units. About three-
quarters of our more than 3,250 employees are based at our headquarters 
in Washington, D.C; the rest are deployed in 11 field offices.

Our 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.

Source: GAO.

[End of image]

Our 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, General 
Counsel Anthony Gamboa, and Chief Mission Support Officer/Chief 
Financial Officer Sallyanne Harper. Members of the Senior Executive 
Service lead the agency's research, audit, and evaluation teams and the 
various staff and mission support offices.

Our Structure:

[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 and Chief Financial Officer, and the General Counsel. Twenty-
three units reported directly to the Comptroller General and the Chief 
Operating Officer. The units included the following staff offices: 
Public Affairs, Strategic Planning and External Liaison, Congressional 
Relations, Opportunity and Inclusiveness, Inspector General, Quality 
and Continuous Improvement, the Office of Special Investigations, and 
GAO’s Field Offices. 

The units also included the following teams that conduct audits, 
evaluations, and research; these teams perform work primarily 
supporting one of three strategic goals (discussed below): 

Goal 1: 

* Education, Workforce, and Income Security (EWIS); 
* Financial Markets and Community Investment (FMCI); 
* Health care (HC); 
* Homeland Security and Justice (HSJ); 
* Natural Resources and Environment (NRE); 
* Physical Infrastructure (PI); 

Goal 2: 

* Acquisition and Sourcing Management (ASM); 
* Defense Capabilities and Management (DCM); 
* International Affairs and Trade (IAT); 

Goal 3: 

* Applied Research and Methods (ARM); 
* Financial Management and Assurance (FMA); 
* Information Technology (IT); 
* Strategic Issues (SI); 

The Office of General Counsel reports to the Comptroller General and 
Chief Operating Officer through the General Counsel, and performs work 
in support of strategic goals 1, 2, and 3. 

Units supporting strategic goal 4 report to the Comptroller General 
and Chief Operating Officer through the Chief Mission Support and 
Chief Financial Officer, and include Controller/Administrative 
Services Office (CASO); Human Capital Office (HCO); Information 
Systems and Technology Services (ISTS); Knowledge Services (KS); and 
Professional Development Program (PDP).

Note: Several teams perform work in support of multiple strategic 
goals. 

Source: GAO.

[End of image]

To ensure that we are well positioned to meet the Congress's future 
needs, we update our 6-year strategic plan every 2 years, consulting 
extensively during the update with our clients in the Congress and with 
other experts (see our strategic plan framework below). 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 a certain amount of flexibility into our plans and 
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 posted--like our strategic 
plan updates--on the Web for public inspection [Hyperlink, 
http://www.gao.gov/sp.html]. Each year, we hold ourselves accountable 
to the Congress and to the American people for our performance, 
primarily through our annual performance and accountability report 
that you are reading. Last year, the Association of Government 
Accountants (AGA) awarded us for the second consecutive year its 
Certificate of Excellence in Accountability Reporting for our 
performance and accountability report (see image immediately following 
GAO at a Glance). According to AGA, this certificate means that we 
produced an interesting and informative report that achieved the goal 
of complete and fair reporting.

[See PDF for image] - graphic text:

Serving the Congress: GAO’s Strategic Plan Framework (Fiscal 2003-
2007): 

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 image]

We conduct specific engagements as a result of requests from 
congressional committees and mandates written into legislation, 
resolutions, and committee reports. In fiscal 2003, 92 percent of our 
engagement work was requested or mandated by the Congress. We initiated 
the remaining 8 percent of the engagement work as authorized by our 
enabling legislation.[Footnote 1] Senior executives in charge of the 
teams that support our strategic goals manage this mix of engagements 
and ensure that the Congress's need for information on quickly emerging 
issues is met along with our longer-term work efforts that flow from 
our strategic plan. To effectively serve the Congress within our 
resources, senior managers, in consultation with our congressional 
clients, determine the timing and priority of engagements they are 
responsible for.

As a legislative branch agency, we differ in some ways from executive 
branch agencies. We are, for instance, exempt from many laws applicable 
to the executive branch. However, 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 (commonly referred to as the Federal Managers' 
Financial Integrity Act), the Government Performance and Results Act of 
1993, and the Federal Financial Management Improvement Act of 
1996.[Footnote 2] Accordingly, this performance and accountability 
report for fiscal 2003 supplies what we consider to be information that 
is the equivalent of that supplied by executive branch agencies in 
their annual performance and accountability reports.

On the pages that follow, we assess our performance for fiscal 2003 
against our established performance goals and past performance. We also 
present our financial statements, the independent auditor's opinion, 
and a statement from our Inspector General. We issued our performance 
plan for fiscal 2004 in July 2003 and plan to issue our fiscal 2005 
performance plan in early fiscal 2004. However, 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.

[See PDF for image] - graphic text:

AGA: 

Certificate of Excellence in Accountability Reporting

Presented to the General Accounting Office

In recognition of your outstanding efforts in preparing GAO’s 
Performance and Accountability Report for the fiscal year ended 
September 30, 2002.

A Certificate of Excellence in Accountability Reporting is presented 
by the Association of Government Accountants to federal government 
agencies whose annual Performance and Accountability Reports achieve 
the highest standards in presenting their programs and financial 
affairs.

John H. Hummel, CGFM: 
Chair, Certificate of Excellence in Accountability Reporting Board: 
Jullin Renthrope, CGFM: 
2003-2004 National President: 

Signed by John H. Hummel and Jullin Renthrope: 

Under this certificate are 2 images of GAO's fiscal year 2002 
Peformance and Accountability Report.

Source: GAO.

[End of image]

[End of GAO at a Glance]

How to Use This Report:

This report describes GAO's performance measures, results, and 
accountability processes for fiscal 2003. 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 
[Hyperlink, www.gao.gov/sp.html].

This report has four major parts:

* Management's Discussion and Analysis:

Look here for our agencywide performance and use of resources in fiscal 
2003. 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 by strategic goal in fiscal 
2003, the targets we are aiming for in fiscal 2004, and for 
explanations of how we assess our 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 2003, including a 
letter from our 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 most significant 
accomplishments and contributions recorded in fiscal 2003, for our 
Inspector General's assessment of our agency's management challenges, 
and for our reports on our implementation of Public Law 106-303 (an act 
giving us certain human capital management flexibilities) and on 
information security reform measures.

[End of How to Use This Report]

Part I: 

Management's Discussion and Analysis:

Supporting the Congress and Benefiting the American People:

In fiscal 2003, as in other years, the challenges that most urgently 
engaged the attention of the Congress helped to define our priorities. 
Our work on issues such as the nation's ongoing battle against 
terrorism, Social Security and Medicare reform, the implementation of 
major education legislation, human capital transformations at selected 
federal agencies, and the security of key government information 
systems all helped congressional members and their staffs to develop 
new federal policies and programs and oversee ongoing ones.

We performed our work in accordance with our core values and within our 
strategic plan. Our strategic plan sets forth four broad strategic 
goals that serve as the organizing principles for our work, which is as 
wide-ranging as the interests and concerns of the Congress. Teams 
supporting the first three goals completed congressional requests, 
mandates, and self-initiated work related to federal social programs, 
defense, and government efficiency and effectiveness. Staff in other 
teams and units implemented initiatives in support of the fourth goal-
-an internal one that challenges us to continuously improve our 
operations and resources (see table I.1).

Table I.1: GAO's Goals and Selected Issues:

Goal: Description: Work emphasis: 

Goal: 1; Description: 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; Work 
emphasis: Medicare, Medicaid, veterans' and military health care, 
public health, private health insurance, bioterrorism, education and 
training, child care, support for the needy, child support, child 
welfare, adoption, worker protection, pensions, Social Security, 
housing, community development, postal service, drug control, natural 
resources, environmental protection, transportation, the justice 
system, the Coast Guard, and customs.

Goal: 2; Description: Provide timely, quality service to the Congress 
and the federal government to respond to changing security threats and 
the challenges of global interdependence; Work emphasis: Military 
capability and readiness, homeland security, information security, 
weapons systems acquisition, military contracting, the National 
Aeronautics and Space Administration (NASA), energy and nuclear energy 
issues, banking, financial markets, international affairs, trade, and 
debt collection.

Goal: 3; Description: Help transform the federal government's role and 
how it does business to meet 21st century challenges; Work emphasis: 
Federal information management, architecture, and systems; tax 
administration; federal budget issues; governmentwide management; 
human capital; the Census; federal financial management; high-risk and 
performance accountability issues; and bid protests.

Goal: 4; Description: Maximize the value of GAO by being a model 
federal agency and a world-class professional services organization; 
Work emphasis: GAO-specific initiatives related to improving client 
and customer service, staff recruitment and retention, staff 
development, work processes, management of institutional knowledge, 
information systems, and workplace security and safety.

Source: GAO.

[End of table]

Agencywide Results:

To support the Congress in meeting its constitutional responsibilities, 
we provided congressional committees, members, and staff with 
information in the form of reports; recommendations; testimonies; 
briefings; and expert comments on bills, laws, and other legal matters 
affecting the federal government. We monitored our performance of these 
efforts using seven annual performance measures, and the results of our 
work are reflected in our outstanding performance this year--we 
exceeded our performance targets for six of our seven measures (see 
table I.2).[Footnote 3] Two of these measures--financial benefits and 
other benefits--illustrate the outcomes of our work and our value to 
the American people because they track federal dollars saved or better 
used and programmatic improvements implemented as a result of our work. 
Three additional measures track recommendations implemented, new 
products (i.e. issued in fiscal 2003) with recommendations, and 
recommendations made that help us to achieve financial and other 
benefits. Testimonies and timeliness measures indicate to a great 
extent how well we, as an information provider, serve our primary 
client, the Congress.

Table I.2: Agencywide Summary of Annual Measures and Targets:

Performance measure: Financial benefits (billions); 

1999 Actual: $20.1; 
2000 Actual: $23.2; 
2001 Actual: $26.4; 
2002 Actual: $37.7[A]; 
2003 Target: $32.5; 
2003 Actual: $35.4; 
Met? Yes; 
2004 Target: $35.0.

Performance measure: Other benefits; 

1999 Actual: 607; 
2000 Actual: 788; 
2001 Actual: 799; 
2002 Actual: 906; 
2003 Target: 800; 
2003 Actual: 1,043; 
Met? Yes; 
2004 Target: 900[B].

Performance measure: Past recommendations implemented; 

1999 Actual: 70%; 
2000 Actual: 78%; 
2001 Actual: 79%; 
2002 Actual: 79%; 
2003 Target: 77%; 
2003 Actual: 82%; 
Met? Yes; 
2004 Target: 79%[B].

Performance measure: New recommendations made; 
1999 Actual: 940; 
2000 Actual: 1,224; 
2001 Actual: 1,563; 
2002 Actual: 1,950; 
2003 Target: 1,250; 
2003 Actual: 2,175; 
Met? Yes; 
2004 Target: 1,500[B].

Performance measure: New products with recommendations[C]; 

1999 Actual: 33%; 
2000 Actual: 39%; 
2001 Actual: 44%; 
2002 Actual: 53%; 
2003 Target: 50%; 
2003 Actual: 55%; 
Met? Yes; 
2004 Target: 50%.

Performance measure: Testimonies; 

1999 Actual: 229; 
2000 Actual: 263; 
2001 Actual: 151; 
2002 Actual: 216; 
2003 Target: 180; 
2003 Actual: 189; 
Met? 2004 Target: Yes; 
2004 Target: 190[B].

Performance measure: Timeliness; 

1999 Actual: 96%; 
2000 Actual: 96%; 
2001 Actual: 95%; 
2002 Actual: 96%; 
2003 Target: 98%; 
2003 Actual: 97%; 
Met? No; 
2004 Target: 98%.

Source: GAO.

[A] Changes GAO made to its methodology for tabulating financial 
benefits in part caused our results to increase beginning with the 
fiscal 2002 results.

[B] On the bases of past performance and expected future work, we 
revised these targets after we issued our fiscal 2004 performance plan. 
The original targets were other benefits, 820; past recommendations 
implemented, 77%; new recommendations made, 1,250; and testimonies, 
200.

[C] Not all products that we issue during the fiscal year contain 
recommendations--some are purely informational. This target allows us 
to respond to a variety of requests that may not result in 
recommendations.

[End of table]

Table I.3: Four-Year Averages for Selected GAO Measures: 

Performance measure: Financial benefits (billions); 

1999: $19.5; 
2000: $21.0; 
2001: $22.4; 
2002: $26.9; 
2003: $30.7.

Performance measure: Other benefits; 

1999: 451; 
2000: 581; 
2001: 683; 
2002: 775; 
2003: 884.

Performance measure: New recommendations made; 

1999: 898; 
2000: 997; 
2001: 1,179; 
2002: 1,419; 
2003: 1,728.

Performance measure: New products with recommendations; 

1999: 33%; 
2000: 35%; 
2001: 37%; 
2002: 42%; 
2003: 48%.

Performance measure: Testimonies; 

1999: 212; 
2000: 233; 
2001: 225; 
2002: 215; 
2003: 205.

Performance measure: Timeliness; 

1999: 88%; 
2000: 94%; 
2001: 95%; 
2002: 96%; 
2003: 96%.

Source: GAO.

[End of table]

In fiscal 2003, we greatly exceeded two of our annual performance 
targets--other benefits and new recommendations made. We surpassed our 
target for other benefits by about 30 percent because we worked on 
issues that were of significant value to the Congress, the executive 
branch, and the public. Our work helped to shape legislation in a 
variety of areas and to improve government operations and functions. We 
exceeded our target for new recommendations made primarily because we 
issued several products that contained very specific, recommendations 
that helped the agencies being reviewed systematically implement 
changes needed. Our experience has shown that some agencies with which 
we have good working relationships are addressing problems we identify 
while our work is being conducted, which precludes the need for a 
recommendation. We anticipate that more agencies will take such 
proactive steps to improve their operations.

To help us examine trends over time, we also look at 4-year averages 
for all measures except past recommendations implemented because the 
number of recommendations made in each year is not constant and varies. 
Calculating 4-year averages minimizes the effect of an atypical result 
in any given year. Table I.3 shows that between fiscal 1999 and fiscal 
2003 financial benefits reported have increased along with the number 
of other benefits reported, new recommendations made, and new products 
with recommendations. Our 4-year averages for timeliness increased 
between 1999 and 2001 and remained steady in 2002 and 2003.

In addition to our seven annual performance measures, we monitored our 
progress on 2-year performance goals that describe the work we planned 
to do to achieve our strategic goals and objectives. At the beginning 
of the assessment cycle in fiscal 2002, our senior managers identified 
the key efforts needed to achieve each of our 98 performance goals. 
Throughout the 2-year period, staff tracked work completed that related 
to these key efforts and goals. At the close of the cycle in fiscal 
2003, senior managers determined that enough work had been completed to 
meet 95 percent of our 2-year performance goals. We did not meet five 
of our performance goals because resources were needed for other work 
requested by the Congress or, in the case of goal 4, for higher-
priority work within GAO. In Part II of this report, we present 
detailed information about the 2-year performance goals developed to 
measure our progress toward achieving each of our four strategic goals.

We also consider our actual performance to determine whether changes 
are needed to our targets for the next fiscal year. On the basis of our 
actual performance in fiscal 2003, we have adjusted many of the targets 
for our performance in fiscal 2004 since issuing our fiscal 2004 
performance plan. Targets for the two measures that we assess at the 
agencywide level--timeliness and the percentage of new products with 
recommendations--remain the same compared with the plan. For the other 
measures, we have made changes at the goal level and discuss these 
changes along with our results in Part II of this report. We have 
raised our targets for other benefits, new recommendations made, and 
testimonies in goals 2 and 3 and lowered the targets for goal 1 to 
reflect our past performance and expectations of future work. These 
changes result in a net increase to these numbers agencywide. Because 
our actual performance on percentage of past recommendations 
implemented has generally exceeded the target of 77 percent, we have 
raised the target to 79 percent across all goals, even though goal 1 
has not been successful in meeting the target. During fiscal 2004, we 
will update our performance goals for each of our strategic goals; we 
plan to continue efforts on each of the performance goals that were 
not met by the end of fiscal 2003.

Benefits Reported:

Many of the benefits produced by our work can be quantified as dollar 
savings for the federal government (financial benefits), while others 
cannot (other benefits). Both types of benefits resulted from our 
efforts to provide information to the Congress that helped to (1) 
improve services to the public, (2) change laws and regulations, and 
(3) promote sound agency and governmentwide management. (See 
figure I.1.):

Financial Benefits:

We produce financial benefits when our work contributes to actions 
taken by the Congress or the executive branch to:

* reduce annual operating costs of federal programs or activities;

* lessen the costs of multiyear projects or entitlements; or:

* increase revenues from debt collection, asset sales, changes in tax 
laws, or user fees.

In fiscal 2003, our work generated $35.4 billion in financial benefits 
(see figure I.2). The funds made available in response to our work may 
be used to reduce government expenditures or reallocated by the 
Congress to other priority areas. To ensure conservative estimates of 
net financial benefits, reductions in operating cost are typically 
limited to 2 years of accrued reductions. Multiyear reductions in long-
term projects, changes in tax laws, program terminations, or sales of 
government assets are limited to 5 years. In addition, all financial 
benefits are calculated in net present value terms. Our staff follow 
established policies and procedures in reporting of financial benefits. 
Estimates must be based on independent third-party sources and reduced 
by any identifiable offsetting costs. The third parties are typically 
the agency that acted on our work, a congressional committee, or the 
Congressional Budget Office.

Figure I.1: Types of Benefits Recorded in Fiscal 2003 from Our Work: 

[See PDF for image] - graphic text:

Two pie charts with 3 items each.

Chart 1: Financial Benefits: 

Total: $35.4 billion.

Item 1, Agencies acted on GAO information to improve services to the 
public; Financial Benefits: $19.7 billion (55.6%).

Item 2, Information GAO provided to the Congress resulted in statutory 
or regulatory changes; Financial Benefits: $13.9 billion (39.3%).

Item 3, Core business processes improved at agencies and 
governmentwide management reforms advanced by GAO’s work; Financial 
Benefits: $1.8 billion (5.1%).

Chart 2: Other Benefits: 

Total: 1,043.

Item 1, Agencies acted on GAO information to improve services to the 
public; Other Benefits: 456 (43.7%).

Item 2, Information GAO provided to the Congress resulted in statutory 
or regulatory changes; Other Benefits: 62 (6%).

Item 3, Core business processes improved at agencies and 
governmentwide management reforms advanced by GAO’s work; Other 
Benefits: 525 (50.3%).

Source: GAO.

[End of figure] 

Figure I.2: GAO's Fiscal 2003 Financial Benefits:

[See PDF for image] - graphic text:

Bar chart with 6 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 Actual: 37.7.
Item 5, 2003 Target: 32.5.
Item 6, 2003 Actual: 35.4.

Source: GAO.

[End of figure]

Table I.4: GAO's Selected Major Financial Benefits for Fiscal 2003 
(Dollars in millions):

Financial Benefits Exceeding $1 Billion: 

Description: Updated the Consumer Price Index (CPI): Recommended that 
the Bureau of Labor Statistics periodically update the expenditure 
weights of its market basket of goods and services used to calculate 
the CPI to make it more timely and representative of consumer 
expenditures. The Bureau agreed to do this every 2 years, and the CPI 
for January 2002 reflected the new weights. The adjustments have 
resulted in, among other things, lower federal expenditures on 
programs like Social Security that use the CPI to calculate benefits. 
(See app. 1, item 1.49.); Amount: $9,200.

Description: Eliminated Medicaid's Upper Payment Limit Loophole: 
Identified a weakness in Medicaid's upper payment limit methodology 
that allowed states to make excessive payments to local, government-
owned nursing facilities and then have the facilities return the 
payments to the states, creating the illusion that they made large 
Medicaid payments in order to generate federal matching payments.
Closing the loophole prevented the federal government from making 
significant federal matching payments to states above those intended 
by Medicaid. (See app. 1, item 1.2.); Amount: $5,900.

Description: Made Funds Available for Lighter-Weight Weapons Systems: 
Identified the Crusader artillery system as a duplicative weapons 
system that was inconsistent with the Department of the Army's plans 
to transform itself into a light-weight combat force. The Department 
of Defense (DOD) terminated the Crusader program, resulting in costs 
avoided. (See app. 1, item 2.15.); Amount: $3,900.

Description: Reduced the Cost of Federal Housing Programs: Improved 
management of the Department of Housing and Urban Development's 
unexpended balances resulting in the recapture of unobligated funds. 
(See app. 1, item 1:50.); Amount: $3,400.

Description: Reduced the Cost of the DOD's Services Acquisition 
Process: Examined the acquisition practices of leading commercial 
companies and recommended a more strategic approach for acquiring 
services at DOD. (See app. 1, item 3.4.); Amount: $1,700.

Description: Avoided Costs Associated with an Increase in the Skilled 
Nursing Facilities Rate: Determined that the Congress's increase in 
the nursing component of Medicare's daily rate for skilled nursing 
facilities had little effect on increasing the ratios of nursing staff 
to patients in these facilities. The nursing component increase 
expired on October 1, 2002, and despite arguments from the nursing 
facility industry, the nursing component increase has not been 
reinstated. (See app. 1, item 1.8.); Amount: $1,000.

Selected Financial Benefits between $500 Million and $1 Billion.

Description: Recovered Supplemental Security Income (SSI) 
Overpayments: Identified weaknesses in the Social Security 
Administration's (SSA) efforts to recover SSI overpayments that led to 
the development of SSA's automated reconciliation process. (See app. 
1, item 1.20.); Amount: $990.

Description: Reduced DOD's Implementation Risks and Purchase Costs for 
the Navy-Marine Corps Intranet: Highlighted the need for various 
management controls related to the acquisition and implementation of 
the Navy-Marine Corps intranet. As a result, DOD modified the Navy-
Marine Corps intranet contract and reduced contract amounts in fiscal 
2002 and fiscal 2003, reduced program risks, and increased the 
likelihood that the program will be acquired and implemented 
successfully. (See app. 1, item 3.10.); Amount: $780.

Description: Ensured Defense Emergency Response Funds are Better 
Targeted: Identified millions of dollars in unobligated DOD Emergency 
Response funding, a portion of which the Congress rescinded or 
directed DOD to reallocate for other fund purposes. (See app. 1, item 
2.48.); Amount: $517.

Source: GAO.

[End of table]

To document financial benefits, our staff complete accomplishment 
reports. All accomplishment reports for financial benefits are 
documented and are reviewed by (1) another GAO staff member not 
involved in the work and (2) a senior executive in charge of the work. 
Also, a separate independent unit (Quality and Continuous Improvement) 
reviews all financial benefits and must approve benefits of $100 
million or more, which amounted to 95 percent of the total dollar value 
of benefits recorded in fiscal 2003. Additionally, our Office of 
Inspector General reviews all benefits of $500 million or more.

Nine accomplishments accounted for nearly $27.4 billion, or 77 percent, 
of our total financial benefits in fiscal 2003. Six of these 
accomplishments totaled $25.1 billion. Table I.4 lists selected major 
financial benefits for fiscal 2003 and describes the work contributing 
to financial benefits over $500 million.

Other Benefits:

Many of the benefits that flow to the American people from our work 
cannot be measured in dollar terms. During fiscal 2003, we recorded a 
total of 1,043 other benefits (see figure I.3). We documented 456 
instances where federal agencies improved services to the public, 62 
instances where information we provided to the Congress resulted in 
statutory or regulatory changes (see table I.5), and 525 instances 
where agencies improved core business processes or governmentwide 
reforms were advanced. These actions spanned the full spectrum of 
national issues from securing information technology systems to 
improving the performance of state child welfare agencies.

Figure I.3: Other Benefits:

[See PDF for image] - graphic text:

Bar chart with 6 items.

Number of actions:

Item 1, 1999 Actual: 607.
Item 2, 2000 Actual: 788.
Item 3, 2001 Actual: 799.
Item 4, 2002 Actual: 906.
Item 5, 2003 Target: 800.
Item 6, 2003 Actual: 1,043.

Source: GAO:

[End of figure]

In addition to the financial and other benefits that accrued in fiscal 
2003 from our work, we also achieved the following results.

Table I.5: Examples of Public Laws to Which GAO Contributed during 
Fiscal 2003:

Legislation: Consolidated Appropriations Resolution, 2003, Pub. L. No. 
108-7; GAO's contribution: The law includes GAO's recommended language 
that the administration's competitive sourcing targets be based on 
considered research and sound analysis.

Legislation: Smallpox Emergency Personnel Protection Act of 2003, Pub. 
L. No. 108-20; GAO's contribution: GAO's report on the National 
Smallpox Vaccination program highlighted volunteers' concerns about 
losing income if they sustained injuries from an inoculation. This law 
provides benefits and other compensation to covered individuals 
injured in this way.

Legislation: Postal Civil Service Retirement System Funding Reform Act 
of 2003, Pub. L. No. 108-18; GAO's contribution: Analyses performed by 
GAO and the Office of Personnel Management culminated in the enactment 
of this law that reduces the U.S. Postal Service's pension costs by an 
average of $3 billion per year over the next 5 years. The Congress 
directed that the first 3 years of savings be used to reduce the 
Postal Service's debt and hold postage rates steady until fiscal 2006.

Legislation: Accountability of Tax Dollars Act of 2002, Pub. L. No. 
107-289; GAO's contribution: A GAO survey of selected agencies that 
are not subject to the Chief Financial Officers Act demonstrated the 
significance of audited financial statements in that community. GAO 
provided legislative language that requires 70 additional executive 
branch agencies to prepare and submit audited annual financial 
statements.

Legislation: Emergency Wartime Supplemental Appropriations Act, 2003, 
Pub. L. No. 108-11; GAO's contribution: GAO drafted legislation that 
provides up to $64 million to the Corporation for National and 
Community Service to liquidate previously incurred obligations, 
provided that the Corporation reports overobligations in accordance 
with the requirements of the Antideficiency Act.

Legislation: Intelligence Authorization Act for Fiscal Year 2003, Pub. 
L. No. 107-306; GAO's contribution: GAO recommended that the Director 
of Central Intelligence report annually on foreign entities that may 
be using U.S. capital markets to finance the proliferation of weapons, 
including weapons of mass destruction, and this statute instituted a 
requirement to produce this report.

Source: GAO.

Note: This table includes public laws enacted in fiscal 2003 that were 
not listed in our Fiscal 2002 Performance and Accountability Report.

[End of table]

Past Recommendations Implemented:

One way we measure our effect on 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 2003, 82 percent of the 
recommendations we made in fiscal 1999 had been implemented (see 
figure I.4), 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 I.4: Past Recommendations Implemented:

[See PDF for image] - graphic text:

Bar chart with 6 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 Actual: 79 percent.
Item 5, 2003 Target: 77 percent.
Item 6, 2003 Actual: 82 percent.

Source: GAO:

[End of figure]

The 82 percent implementation rate for fiscal 2003 exceeded our target 
for the year by 5 percentage points as well as our actual performance 
for fiscal 1999 through fiscal 2002. As figure I.5 indicates, agencies 
need time to act on recommendations. Therefore, we assess 
recommendations implemented after 4 years, the point at which past 
experiences have shown that if a recommendation has not been 
implemented it is not likely to be.

Figure I.5: Cumulative Implementation Rate for Recommendations Made in 
Fiscal 1999:

[See PDF for image] - graphic text:

Bar chart with 4 items.

Percentage: 

Item 1, Percentage after 1 year: 40%.
Item 2, Percentage after 2 years: 44%.
Item 3, Percentage after 3 years: 56%.
Item 4, Percentage after 4 years: 82%.

Source: GAO.

[End of figure]

New Recommendations Made:

As shown in figure I.6, we made 2,175 new recommendations in fiscal 
2003, which again exceeded our target for this year and actual 
performance the past 4 years. Though all of the products we issued did 
not include recommendations, developing implementable recommendations 
is an important part of our work for the Congress because it helps to 
improve how the government functions and often leads to financial and 
other benefits for the public. This year 415 of the 750 written 
products we issued (excluding testimonies) yielded the 2,175 
recommendations reported.[Footnote 4] These recommendations included, 
for example, those to the Secretary of State to develop clear policies 
on using the visa issuing process as a screen against potential 
terrorists and to the Secretary of Defense to better manage service 
procurement. For more information on new recommendations by strategic 
goal, see Part II of this report.

Figure I.6: New Recommendations Made:

[See PDF for image] - graphic text:

Bar chart with 6 items.

Number made:

Item 1, 1999 Actual: 940.
Item 2, 2000 Actual: 1,224.
Item 3, 2001 Actual: 1,563.
Item 4, 2002 Actual: 1,950.
Item 5, 2003 Target: 1,250.
Item 6, 2003 Actual: 2,175.

Source: GAO:

[End of figure]

New Products Containing Recommendations:

This year, 55 percent of the 750 written products we issued (excluding 
testimonies) included recommendations. (See figure I.7.) This measure 
recognizes that a report containing a single broad recommendation may 
have more impact than a report containing a dozen specific ones. GAO 
also often provides products that are purely informational and contain 
no recommendations. Hence, the target provides ample leeway for 
responding to requests for informational products.

Figure I.7: New Products with Recommendations:

[See PDF for image] - graphic text:

Bar chart with 6 items.

Percentage:

Item 1, 1999 Actual: 33%.
Item 2, 2000 Actual: 39%.
Item 3, 2001 Actual: 44%.
Item 4, 2002 Actual: 53%.
Item 5, 2003 Target: 50%.
Item 6, 2003 Actual: 55%.

Source: GAO:

[End of figure]

Testimonies:

During fiscal 2003, experts from our staff testified at 189 
congressional hearings covering a wide range of complex issues (see 
figure I.8). For example, our executives testified on the placement of 
children in state care solely to obtain mental health services, actions 
needed to better prepare financial markets for terrorist attacks, and 
long-term challenges to transportation security and management 
challenges facing NASA. 

Figure I.8: Testimonies:

[See PDF for image] - graphic text:

Bar chart with 6 items.

Hearings at which GAO testified: 

Item 1, 1999 Actual: 229.
Item 2, 2000 Actual: 263.
Item 3, 2001 Actual: 151.
Item 4, 2002 Actual: 216.
Item 5, 2003 Target: 180.
Item 6, 2003 Actual: 189.

Source: GAO:

[End of figure]

[See PDF for image]

SELECTED ISSUES ON WHICH GAO TESTIFIED DURING FISCAL 2003: 

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

* Nursing home quality; 
* VA health care challenges; 
* Medicare fiscal challenges; 
* SARS; 
* Bioterrorism preparedness; 
* Social Security pension loophole; 
* Risks facing PBGC's single-employer pension program; 
* Social Security reform; 
* Foster care management; 
* Teacher training; 
* Research on Head Start's effectiveness; 
* Changes to VA's Disability Criteria; 
* Unemployment insurance; 
* Workforce Investment Act; 
* FBI reorganization; 
* Transportation for the disadvantaged; 
* Coast Guard transformation; 
* Postal Service transformation; 
* Highway safety; 
* FAA reauthorization; 
* Restoring South Florida ecosystem; 
* Handling invasive species; 
* Postal Service anthrax testing; 
* Social Security disability reviews; 

Goal 2: Changing Security Threats and Challenges of Globalization: 

* Combating terrorism; 
* Chemical and biological terrorism; 
* DOD human capital reforms; 
* Major weapons systems; 
* Modernizing DOD's business systems; 
* Conditions of overseas diplomatic facilities; 
* Russia's nonproliferation program; 
* Customs radiation detection devices; 
* Nuclear security challenges; 
* Border security technology; 
* Agriculture's debt collection challenges; 
* Gulf War illnesses; 
* Preparing financial markets for terrorism; 
* Rightsizing U.S. overseas presence; 
* Mutual funds; 

Goal 3: Transforming the Federal Government’s Role:

* Federal government restructuring efforts; 
* Federal paperwork burden; 
* Federal performance management systems; 
* Implementing the President's Management Agenda; 
* Fragmented federal grant system; 
* Performance budgeting; 
* Effective use of federal funds; 
* Paid tax preparer services; 
* Federal sourcing and acquisition; 
* Strategies to address the federal government's improper payments; 
* Government credit card vulnerabilities; 
* Governmentwide financial management reforms; 
* OMB's E-government initiatives; 

Source: GAO.

[End of image]

Timeliness:

While the vast majority of our products--97 percent--were completed on 
time for our congressional clients and customers in fiscal 2003, we 
slightly missed our target of providing 98 percent of them on the 
promised day. (See figure I.9.) We track the percentage of our products 
that are delivered on the day we agreed to with our clients because it 
is critical that our work be done on time for it to be used by 
policymakers. Though our 97-percent timeliness rate was a percentage 
point improvement over our fiscal 2002 result, we are taking steps to 
improve our performance in the future by encouraging matrix management 
practices among the teams supporting various strategic goals and 
identifying early those teams that need additional resources to ensure 
the timely delivery of their products to our clients.

Figure I.9: Timeliness:

[See PDF for image] - graphic text:

Bar chart with 6 items.

Percentage of products on time: 

Item 1, 1999 Actual: 96%.
Item 2, 2000 Actual: 96%.
Item 3, 2001 Actual: 95%.
Item 4, 2002 Actual: 96%.
Item 5, 2003 Target: 98%.
Item 6, 2003 Actual: 97%.

Source: GAO:

[End of figure]

Two-year Performance Goals:

In addition to our seven annual measures, we track our progress on 98, 
2-year performance goals. At the end of fiscal 2003, we had met 95 
percent of our performance goals (see figure I.10). These performance 
goals measure the extent to which we did the work we had planned to do 
to support the Congress during fiscal 2002 and fiscal 2003. Our senior 
managers developed these performance goals at the beginning of the 
assessment cycle (fiscal 2002) based on their knowledge of the specific 
subject area and in consultation with our customers and clients. 
However, because congressional or GAO priorities changed over the 2-
year period, we were not able to meet some of these performance goals 
because resources had to be shifted away from planned work to address 
new or more urgent priorities. In such circumstances, we do not view an 
unmet performance goal as a failure. Rather, we believe it shows that 
we are responsive in carrying out our mission of serving the Congress 
and the nation and devoting our resources to efforts of critical 
importance. We consider these performance goals qualitative rather than 
quantitative because our senior managers must judge whether enough work 
on the key efforts has been performed to achieve a performance goal. In 
Part II of this report, we list by strategic goal the 2-year 
performance goals supporting each strategic objective, indicate whether 
the performance goal was met, and list the criteria we use for 
determining whether the goal was met.

Figure I.10: Two-Year Performance Goals:

[See PDF for image] - graphic text:

Pie chart with 2 items.

98 two-year performance goals:

Item 1, Not met; 5%.
Item 2, Met; 95%.

Source: GAO:

[End of figure]

A Balanced Scorecard:

In addition to our annual and 2-year performance measures, we have been 
developing over the last 4 years an expanded approach for assessing our 
performance that incorporates features of Robert S. Kaplan and David P. 
Norton's "balanced scorecard" concept.[Footnote 5] We believe our 
balanced scorecard will allow us to better monitor, track, and report 
our achievement of results and better measure our efficiency.

The balanced scorecard is a tool that helps executives identify 
financial as well as nonfinancial indicators that provide a "balanced" 
picture or comprehensive assessment of an organization's performance. 
This approach addresses the limitations of financial performance 
reporting and recognizes that in a knowledge-based age, investments in 
an organization's intangible assets--employees, databases, and 
information technologies--are as critical to its success as its 
tangible assets--physical assets and access to capital. The balanced 
scorecard concept also recognizes that financial reporting alone cannot 
communicate the full story about an organization's performance. 
Financial indicators cannot measure an organization's activities, 
operating processes, innovations, or customer relationships that create 
value. Nor can they account for the political, regulatory, or societal 
constraints that impact on the organization. Thus, the balanced 
scorecard supplements measures of financial performance with other 
measures that indicate, for example, how well the organization is 
developing, nurturing, and mobilizing its employees to accomplish the 
mission of the organization. In accordance with the concept, the 
measures included in a balanced scorecard should be directly linked to 
the organization's vision and strategy.

The balanced scorecard that we are developing reflects our mission and 
strategic goals and will focus on three key areas: clients, results, 
and people.

* Clients. Our strategy in this area draws upon a variety of data 
sources to obtain information on the services we are providing to our 
congressional clients. To judge how well we are serving our clients, we 
will assess direct client feedback on individual products and 
testimonies via the Comptroller General's discussions with 
congressional leadership and members; continuous outreach to 
congressional committees by our senior executives and managers; and a 
new Web-based, client feedback survey of congressional staff. Last 
year, we tested the Web-based survey with a sample of 113 recipients of 
our written products in 2002. We will also continue to count the number 
of testimonies given and track how often we deliver products on time to 
our customers.

* Results. Focusing on results--and the efficiency of the processes 
needed to achieve them--is fundamental to accomplishing our mission. 
Our strategy in this area has been to revisit, modify, and restructure 
our current measures. To assess our results, we will continue to use 
most of the performance measures discussed previously in this report: 
financial benefits, other (nonfinancial) benefits, recommendations 
implemented, recommendations made, and new products with 
recommendations.

* People. As our most important asset, our people define our character 
and capacity to perform. Our strategy in this area draws upon a variety 
of data sources to create a comprehensive picture of our performance. 
To determine how well we are acquiring, maintaining, and maximizing our 
human resources, we plan to measure how well we are attracting and 
retaining high-quality staff; developing, supporting, and using staff; 
and leading, recognizing, and listening to staff. We are currently 
examining the use of various indicators that will help us to 
collectively measure our performance in each of these areas. Our annual 
confidential survey of employees will provide some of the information 
that we will use to gauge the agency's performance on how well staff 
believe their skills are being developed and used and whether we 
engender a positive, productive work environment and provide effective 
leadership. (See table I.6.):

We have identified benchmarks and are developing baselines for our 
balanced scorecard measures. For example, we will use our new hire 
acceptance rate and our attrition rate for the last two fiscal years--
81 percent and 8.8 percent, respectively, in fiscal 2002 and 72 percent 
and 7.7 percent, respectively, in fiscal 2003--to help us set 
challenging, yet reasonable targets to support our people measure for 
attracting and retaining staff. We plan to establish targets for our 
client and people measures--as we already have for our results measure-
-analyze any gaps between measures and metrics, and assess our 
performance by strategic goal using all three of the measures--clients, 
results, and people--in fiscal 2004 through 2005.

Table I.6: Preliminary Indicators of GAO's Performance in the People 
Area:

People measure: Attracting and retaining staff; 

Indicator: Success in attracting a quality workforce; 
Indicator: New hire acceptance rate; 
Indicator: Education levels of new hires; 
Indicator: New hires' major areas of study; 
Indicator: Attrition; 
Metric: Ratio of the number hired to the number we planned to hire 
(hiring goals); 
Metric: Ratio of the number of applicants accepting offers to the 
number of offers made; 
Metric: Percent of new hires with advanced degrees; 
Metric: Ratio of the number of staff leaving GAO during the fiscal 
year to the average number of employees on board during the year.

People measure: Developing, supporting, and using staff; 

Indicator: Staff development; 
Indicator: Staff utilization; 
Metric: Employee responses to annual, confidential survey; 
Metric: Number of continuing professional education units staff 
earned during a 2-year period.

People measure: Leading, recognizing, and listening to staff; 

Indicator: Organizational climate; 
Indicator: Leadership; 
Metric: Employee responses to annual, confidential survey.

Source: GAO.:

[End of table]

GAO's High-Risk Program:

Issued to coincide with the start of each new Congress, our high-risk 
update lists government programs and operations in need of special 
attention or transformation to ensure that the federal government 
operates in the most economical, efficient, and effective manner 
possible. Our latest report, released in January 2003, spotlights more 
than 20 troubled areas across government.[Footnote 6] Many of these 
areas involve essential government services, such as Medicare, housing 
programs, and postal service operations, that directly affect the well-
being of the American people.

Since our high-risk program began in 1990, we have issued periodic 
updates of our high-risk series, identifying and reporting on federal 
programs and operations that have greater vulnerabilities to waste, 
fraud, abuse, and mismanagement than other programs or have major 
challenges associated with their economy, efficiency, or effectiveness. 
Although some agencies have made strong efforts to address the 
deficiencies cited in the high-risk report--and some of the programs 
included on our high-risk list since 1990 have improved enough to be 
removed from the list--we continue to identify many other areas of high 
risk and have increasingly used the high-risk program to draw attention 
to the challenges faced by government programs and operations in need 
of broad-based transformations.

Our high-risk program includes five high-risk areas added in 2003:

* Implementing and transforming the new Department of Homeland 
Security;

* Modernizing federal disability programs;

* Federal real property;

* Medicaid program; and:

* Pension Benefit Guaranty Corporation's (PBGC) single-employer pension 
insurance program.[Footnote 7]

PBGC's single-employer insurance program, the most recent addition to 
our high-risk list, insures the pension benefits of over 34 million 
participants in more than 30,000 private defined benefit plans. We 
designated this program as high risk primarily because the program 
moved from a $9.7 billion accumulated surplus in 2000 to a $3.6 billion 
accumulated deficit in fiscal 2002, brought about by the termination of 
a number of large underfunded pension plans of bankrupt companies. Many 
of these companies were in troubled industries like steel or aviation. 
In addition, the program's risk pool has become concentrated in 
industries affected by global competition and the movement from an 
industrial-to a knowledge-based economy. For example, in 2001, almost 
half of all program-insured participants were in plans sponsored by 
firms in manufacturing industries. Given significant risk of 
termination of other large underfunded plans, we determined that this 
program warranted highlighting as one in need of congressional and 
agency action.

In fiscal 2003, we also removed the high-risk designation from two 
programs: SSA's SSI program and the Asset Forfeiture programs 
administered by the U.S. Departments of Justice and the Treasury.

* We designated SSI as a high-risk area in 1997 after several years of 
reporting on specific instances of abuse and mismanagement, increasing 
overpayments, and poor recovery of outstanding SSI overpayments. SSA's 
actions since then included developing a major SSI legislative proposal 
with numerous overpayment deterrence and recovery provisions that has 
been enacted. The legislation directly addresses many of our prior 
recommendations. In addition, SSA initiated a number of internal 
administrative actions to further strengthen SSI program integrity and 
increased the number of SSI financial re-determinations that it 
conducts and the level of resources in its Office of Inspector General 
devoted to investigating SSI fraud and abuse.

* We first designated the Asset Forfeiture programs as a high-risk area 
in 1990 because of shortcomings in the management of and accountability 
for seized and forfeited property and the potential for cost reduction 
through administrative improvements and consolidation of the programs' 
post-seizure management and disposition of noncash seized property, 
such as drugs and firearms. Since then the Departments of Justice and 
the Treasury have made substantial progress in improving the management 
of and accountability for seized and forfeited property and have 
demonstrated a commitment to communicate and coordinate where joint 
efforts could help reduce costs and eliminate duplicative activities. 
For example, Justice's Drug Enforcement Administration and Federal 
Bureau of Investigation have taken many actions to address our 
recommendations to improve physical safeguards over drugs and firearms 
evidence and strengthen accountability for such evidence. In addition, 
Treasury's Forfeiture Fund and Justice's Asset Forfeiture Fund and 
Seized Asset Deposit Fund have strengthened their financial management 
and accountability over seized and forfeited property, in part 
evidenced by the unqualified opinions on these entities' financial 
statements over the past several years.

In fiscal 2003, we issued 208 reports and delivered 112 testimonies 
related to high-risk areas, and our work has resulted in financial 
benefits totaling almost $21 billion. In the past, our focus on high-
risk issues has helped the Congress enact a series of governmentwide 
reforms to strengthen financial management, improve information 
technology, and create a more results-oriented government. More 
recently, the President's Management Agenda for reforming the federal 
government now mirrors many of the management challenges and program 
risks that we have reported in our Performance and Accountability 
Series and High-Risk Series, including a governmentwide initiative to 
focus on strategic management of human capital.

We have an ongoing dialog with the Office of Management and Budget 
(OMB) regarding the high-risk areas, and OMB is working with agency 
officials to address many of our high-risk areas. Also, top management 
challenges reported by Inspectors General at many executive branch 
agencies are similar to issues in our high-risk report.

To learn more about our work on the high-risk areas shown in table I.7 
or to download the update in full, go to [Hyperlink, 
http://www.gao.gov/pas/2003/].

Table I.7: GAO's 2003 High-Risk List:

Addressing Challenges In Broad-based Transformations: 

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Strategic Human Capital Management[A]; Year 
Designated High Risk: 2001.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: U.S. Postal Service Transformation Efforts and Long-
Term Outlook[A]; Year Designated High Risk: 2001.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Protecting Information Systems Supporting the Federal 
Government and the Nation's Critical Infrastructures; Year Designated 
High Risk: 1997.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Implementing and Transforming the new Department of 
Homeland Security; Year Designated High Risk: 2003.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Modernizing Federal Disability Programs[A]; Year 
Designated High Risk: 2003.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Federal Real Property[A]; Year Designated High Risk: 
2003.

Ensuring Major Technology Investments Improve Services:

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: FAA Air Traffic Control Modernization; Year 
Designated High Risk: 1995.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: IRS Business Systems Modernization; Year Designated 
High Risk: 1995.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: DOD Systems Modernization; Year Designated High Risk: 
1995.

Providing Basic Financial Accountability: 

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: DOD Financial Management; Year Designated High Risk: 
1995.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Forest Service Financial Management; Year Designated 
High Risk: 1999.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: FAA Financial Management; Year Designated High Risk: 
1999.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: IRS Financial Management; Year Designated High Risk: 
1995.

Reducing Inordinate Program Management Risks: 

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Medicare Program[A]; Year Designated High Risk: 1990.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Medicaid Program[A]; Year Designated High Risk: 2003.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Earned Income Credit Noncompliance; Year Designated 
High Risk: 1995.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Collection of Unpaid Taxes; Year Designated High 
Risk: 1990.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: DOD Support Infrastructure Management; Year 
Designated High Risk: 1997.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: DOD Inventory Management; Year Designated High Risk: 
1990.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: HUD Single-Family Mortgage Insurance and Rental 
Assistance Programs; Year Designated High Risk: 1994.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Student Financial Aid Programs; Year Designated High 
Risk: 1990.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: PBGC Single-Employer Insurance Program[A]; Year 
Designated High Risk: 2003.

Managing Large Procurement Operations More Efficiently: 

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: DOD Weapon Systems Acquisition; Year Designated High 
Risk: 1990.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: DOD Contract Management; Year Designated High Risk: 
1992.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: Department of Energy Contract Management; Year 
Designated High Risk: 1990.

2003 High-Risk Areas: Addressing Challenges In Broad-based 
Transformations: NASA Contract Management; Year Designated High Risk: 
1990.

Source: GAO.

[A] Additional authorizing legislation is likely to be required as one 
element of addressing this high-risk area.

[End of table]

Managing Our Resources:

Resources Used to Achieve Our Fiscal 2003 Performance Goals:

Our financial statements for fiscal 2003 received an unqualified 
opinion from an independent auditor. The auditor found our internal 
controls to be effective with no material weaknesses identified, and 
the auditor reported substantial compliance with the requirements in 
the Federal Financial Management Improvement Act of 1996 for financial 
systems. The auditor also found no instances of noncompliance with the 
laws or regulations in the areas tested. The financial statements and 
their accompanying notes, along with the auditor's report, appear in 
Part III of this report. Table I.8 summarizes key financial data.

Table I.8: GAO's Financial Highlights: Resource Information:

(Dollars in millions):

Total budgetary resources; Fiscal 2002: $442.6; Fiscal 2003: $474.3.

Total outlays; Fiscal 2002: $427.8; Fiscal 2003: $451.3.

Net cost of operations: 

Net cost of operations: Goal 1: Well-being and financial security of 
the American people; Fiscal 2002: $178.3; Fiscal 2003: $186.4.

Net cost of operations: Goal 2: Changing security threats and 
challenges of globalization; Fiscal 2002: $110.5; Fiscal 2003: $122.0.

Net cost of operations: Goal 3: Transforming the federal government's 
role; Fiscal 2002: $141.0; Fiscal 2003: $144.9.

Net cost of operations: Goal 4: Maximizing the value of GAO; Fiscal 
2002: $25.3; Fiscal 2003: $20.0.

Net cost of operations: Less reimbursable services not attributable to 
goals; Fiscal 2002: $(2.1); Fiscal 2003: $(2.2).

Total net cost of operations[A]; Fiscal 2002: $453.0; Fiscal 2003: 
$471.1.

Actual full-time equivalents; Fiscal 2002: 3,210; Fiscal 2003: 
3,269. 

Source: GAO.

[A] 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, our 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 with most of its resources devoted to the human capital needed 
for its mission of supporting the Congress with information and 
analysis.

Our budget consists of an annual appropriation covering salaries and 
expenses and revenue from reimbursable audit work and rental income. 
For fiscal 2003, our total budgetary resources of $474.3 million 
increased by $32 million from fiscal 2002. This increase consists 
primarily of funds needed to cover mandatory and uncontrollable costs 
and $4.8 million for nonrecurring enhancements for the safety and 
security of our staff.

Our total assets were $128.2 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 2003 because of differences from the prior year-end 
in the timing of payments. Total liabilities of $85.6 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 
decreases in both accounts payable and deferred lease revenue. The 
decrease in accounts payable is a result of the timing of payments made 
on several large contracts. In fiscal 2003, we amortized the remaining 
balance of deferred lease revenue liability as rental credits to the 
U.S. Army Corps of Engineers that rents space in the GAO headquarters 
building.

The net cost of operating GAO during fiscal 2003 was approximately $471 
million. As shown in figure I.11, expenses for salaries and related 
benefits accounted for 79 percent of our net cost of operations in 
fiscal 2003.

Figure I.11: Use of Funds by Category:

[See PDF for image] - graphic text:

Pie chart with 5 items.

Percentage of total net costs: 

Item 1, Salaries and benefits: 79.0%.
Item 2, Building and hardware maintenance services: 10.2%.
Item 3, Rent (space and hardware): 3.6%.
Item 4, Depreciation: 3.4%.
Item 5, Other: 3.8%.

Source: GAO.

[End of figure]

We report 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 our net cost of operations 
between fiscal 2002 and fiscal 2003. Goal 1 saw an increase due to 
expanded efforts in the area of education, workforce, and income 
security. In goal 2 additional resources were focused on issues in the 
area of military capabilities and readiness.

Figure I.12 and I.13 show our net costs by goal for fiscal 2000 through 
fiscal 2003. Figure I.12 shows the costs unadjusted for inflation, 
while figure I.13 shows the same costs in 2003 dollars, that is, 
adjusted for inflation.

As these figures indicate, 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. We 
expect this goal to continue to represent the largest share of our 
costs.

Figure I.12: Net Costs by Goal, Unadjusted:

[See PDF for image] - graphic text:

Bar chart with 16 items.

Dollars in millions: 

Item 1, Goal 1; 2000: 153.4.
Item 2, Goal 1; 2001: 161.1.
Item 3, Goal 1; 2002: 178.3.
Item 4, Goal 1; 2003: 186.4.
Item 5, Goal 2; 2000: 97.0.
Item 6, Goal 2; 2001: 93.4.
Item 7, Goal 2; 2002: 110.5.
Item 8, Goal 2; 2003: 122.0.
Item 9, Goal 3; 2000: 134.6.
Item 10, Goal 3; 2001: 139.5.
Item 11, Goal 3; 2002: 141.0.
Item 12, Goal 3; 2003: 144.9.
Item 13, Goal 4; 2000: 19.8.
Item 14, Goal 4; 2001: 20.7.
Item 15, Goal 4; 2002: 25.3.
Item 16, Goal 4; 2003: 20.0.

Source: GAO.

[End of figure]

Figure I.13: Net Costs by Goal, Adjusted for Inflation:

[See PDF for image] - graphic text:

Bar chart with 16 items.

Dollars in millions: 

Item 1, Goal 1; 2000: 169.6.
Item 2, Goal 1; 2001: 172.2.
Item 3, Goal 1; 2002: 184.4.
Item 4, Goal 1; 2003: 186.4.
Item 5, Goal 2; 2000: 107.2.
Item 6, Goal 2; 2001: 99.9.
Item 7, Goal 2; 2002: 114.3.
Item 8, Goal 2; 2003: 122.0.
Item 9, Goal 3; 2000: 148.8.
Item 10, Goal 3; 2001: 149.1.
Item 11, Goal 3; 2002: 145.8.
Item 12, Goal 3; 2003: 144.9.
Item 13, Goal 4; 2000: 21.9.
Item 14, Goal 4; 2001: 22.1.
Item 15, Goal 4; 2002: 26.2.
Item 16, Goal 4; 2003: 20.0.

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 2003 appears in Part III 
of this report after our financial statements and accompanying notes. 
Current members of the committee are:

* 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.

* Edward J. Mazur, CPA; Member of the Governmental Accounting Standards 
Board; Vice President for Administration and Finance of Virginia State 
University; former State Comptroller of Virginia; and a former 
Controller of the Office of Federal Financial Management in OMB.

* Charles O. Rossotti, a former Commissioner of the Internal Revenue 
Service and co-founder of American Management Systems, Inc., an 
international business and information technology consulting firm.

Planned Resources to Achieve Our Fiscal 2004 Performance Goals:

We have received budget authority of $466.3 million for fiscal 2004 to 
maintain current operations for serving the Congress as outlined in our 
strategic plan and to continue initiatives to enhance our human 
capital; support business processes; and ensure the safety and security 
of our staff, facilities, and information systems. This funding level 
will allow us to maintain our authorized level of 3,269 full-time 
equivalent (FTE) personnel. Our resources include $460.3 million in 
direct appropriations and estimated revenue of $6 million from 
reimbursable audit work and rental income. Our fiscal 2004 resources 
represent a modest 2 percent increase over fiscal 2003 resources--
primarily for mandatory pay and uncontrollable costs. Savings from 
nonrecurring fiscal 2003 investments will help offset needed funds for 
further investments in critical areas, such as security and human 
capital.

Table I.9 provides an overview of how our budgetary and human capital 
resources will be allocated among our four strategic goals.

Fiscal 2004 Budgetary Resources by Strategic Goal:

(Dollars in millions):

Strategic goal: 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; FTEs: 1,236; Amount: $177.1.

Strategic goal: Goal 2; Provide timely, quality service to the 
Congress and the federal government to respond to changing threats and 
the challenges of global interdependence; FTEs: 920; Amount: $131.8.

Strategic goal: Goal 3; Help transform the federal government's role 
and how it does business to meet 21st century challenges; FTEs: 967; 
Amount: $138.6.

Strategic goal: Goal 4; Maximize the value of GAO by being a model 
federal agency and a world-class professional services organization; 
FTEs: 146; Amount: $18.7.

Strategic goal: Total; FTEs: 3,269; Amount: $466.3.

Note: Numbers do not total due to rounding.

Source: GAO.

[End of table]

During fiscal 2004, we plan to sustain our investments in maximizing 
the productivity of our workforce by continuing to address key 
management challenges: human capital and information and physical 
security. We will continue to take steps to "lead by example" within 
the federal government in connection with these and other critical 
management areas. On the human capital front, to ensure our ability to 
attract, retain, motivate, and reward high-quality staff, we plan to 
devote additional resources to our employee training and development 
program. We will target resources to continue initiatives to address 
skill gaps, maximize staff productivity, and increase staff 
effectiveness by updating our training curriculum to address 
organizational and technical needs and training new staff. Also, to 
enhance our recruitment and retention of staff, we will continue to 
offer the student loan repayment program and transit subsidy benefit 
established in fiscal 2002. In addition, we will continue to focus our 
hiring efforts in fiscal 2004 on recruiting talented entry-level staff.

On the information security front, in fiscal 2004, we plan to implement 
tools that will ensure a secure environment, detect intruders in our 
systems, identify appropriate users, and recover in the event of a 
disaster. We plan to apply additional intrusion-detection software to 
our internal servers and complete our disaster recovery plan.

We are continuing to make the investments necessary to enhance the 
safety and security of our people, facilities, and other assets for the 
mutual benefit of GAO and the Congress. In fiscal 2004, we plan to 
complete the installation of our building access control and intrusion-
detection system and supporting infrastructure and provide life-safety 
devices.

In addition, we plan to continue initiatives designed to further 
increase employees' productivity, facilitate knowledge-sharing, 
maximize the use of technology, and enhance employee tools available at 
the desktop. We also will continue to devote resources to reengineer 
the information technology (IT) systems that support business 
processes, such as our engagement tracking system and our human capital 
operations.

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 in the following sections, our 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 other 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 our performance.

Strategies for Achieving Our Goals and Coordinating with Others:

As the audit, evaluation, and investigative arm of the Congress, we 
have a unique role to play. Within the legislative branch, we are the 
only agency with staff in the field, conducting performance analyses 
and financial audits 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 or multiagency in scope, and initiated by requests from 
the Congress.

Attaining our goals and objectives rests, for the most part, on 
providing professional, objective, fact-based, fair and balanced, 
nonpartisan, and nonideological information. We develop and present 
this information in a number of ways to support the Congress in 
carrying out its constitutional responsibilities, including:

* 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 planned to complete by the end of fiscal 2003 using the strategies 
above. In our annual performance plan for fiscal 2005, we will issue 
our performance goals covering the work we plan to do in fiscal 2004 
and fiscal 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 our strategic and 
annual work planning and:

* initiate and support collaborative national and international audit, 
technical assistance, and other knowledge-sharing efforts.

These 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 office of 
Strategic Planning and External Liaison takes the lead on and provides 
strategic focus for our work with crosscutting organizations, while our 
research, audit, and evaluation teams lead our work with most of the 
issue-specific organizations.

Strategic and Annual Work Planning:

Through a series of forums, advisory boards, and panels, and a newly 
established speakers' series, we gather information and perspectives 
for our strategic and annual performance planning efforts. In fiscal 
2003, the Comptroller General convened various experts from the public 
and private sectors in a series of forums and panels intended to 
enhance our understanding of emerging issues and to identify 
opportunities for action:

* In November 2002, we issued a report that summarized the findings of 
a forum entitled Mergers and Transformation: Lessons Learned for a 
Department of Homeland Security and Other Federal Agencies.

* In December 2002, we convened a corporate governance forum to discuss 
challenges facing regulators, the accounting profession, and boards of 
directors in improving public confidence in U.S. corporate governance 
and accountability systems.

* In February 2003, we and the National Academies hosted a forum with 
national leaders and experts on key national indicators. Among other 
things, forum participants (1) examined how the world's leading 
democracies measure national performance, (2) explored what the United 
States might do to improve its approach, (3) identified important areas 
to measure in assessing performance, and (4) discussed how the United 
States' approaches might be led and implemented.

* In August 2003, we launched the speakers' series "Conversations on 
21st Century Challenges" wherein prominent leaders discuss emerging 
themes and their implications for public policy.

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 our 
strategic direction and specific initiatives. Through the National 
Intergovernmental Audit Forum, chaired by the Comptroller General, and 
10 regional intergovernmental audit forums, we consult 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, provides us 
guidance on promulgating auditing standards. The council played a 
significant role in revising the June 2003 Government Auditing 
Standards [Hyperlink, http://www.gao.gov/govaud/ybk01.htm], 
commonly referred to as the "Yellow Book," which was updated to redefine the types of audits and services covered by the standards, provide consistency for certain requirements among all types of audits, and strengthen the standards in some areas. These standards articulate 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 
revised standards would be generally accepted and feasible.

* The Accountability Advisory Council, made up of experts in the 
financial management community, advises us on audits of the U.S. 
government's consolidated financial statements and emerging issues 
involving financial management and accountability reporting. In 2003, 
the council also provided insights that were valuable in carrying out 
various GAO corporate governance studies mandated by the Sarbanes-Oxley 
legislation.

* The Executive Council on Information Management and Technology, whose 
19 members are experts from the public and private sectors and 
representatives of related professional organizations, met in May 2003 
to discuss high-risk and emerging issues. The results of the 
discussions on high-risk areas--modernization, cyber security, the 
Department of Homeland Security's information technology, file sharing, 
and security and privacy issues-will be used to support ongoing and 
planned work. The results of the discussions on emerging issues will be 
used to support the development of an overarching issues framework for 
our future IT work.

* The Comptroller General's Educators' Advisory Panel, composed of 
deans, professors, and other academics from prominent universities 
across the United States, met with us in June 2003 to advise the agency 
on recruiting, retaining, and developing staff and strategic planning 
matters.

Internationally, we participate in the International Organization of 
Supreme Audit Institutions (INTOSAI)--the professional organization of 
the national audit offices of 184 countries. During fiscal 2003, we led 
a 10-nation task force to develop a 5-year strategic plan--the first in 
INTOSAI's 50-year history. The plan's framework was approved at the 
October 2002 Governing Board meeting and will be circulated to all 
INTOSAI members for comment and approval in 2004. The Comptroller 
General also leads the Auditor General Global Working Group, in which 
the heads of our counterparts from 15 countries meet annually to 
discuss mutual challenges, share experiences, and identify 
opportunities for collaboration with each other. The 2003 meeting 
featured a joint session with Office of Economic Cooperation and 
Development budget officials on long-range fiscal challenges and an 
initiative in which members will participate in peer reviews of each 
others' audit institutions.

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 
other technical committees. As a member of the public debt committee, 
we 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. 
We also publish INTOSAI's quarterly International Journal of Government 
Auditing [Hyperlink, http://www.intosai.org/2_IJGA_.html] in five 
languages to further the global understanding of standards, best 
practices, and technical issues. To help ensure that the public sector 
perspectives are reflected in the International Federation of 
Accountants standards development project, we collaborated 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 2003, 16 fellows from 
Africa, Asia, Latin America, the South Pacific, the Caribbean, 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. As part of our strategy to 
promote continuous learning and sustainability once the fellows return 
to their countries, we are working with major donors--such as the World 
Bank and the U.S. Agency for International Development--to identify or 
support relevant capacity building projects in fellows' institutions. 
Our partnerships with the Interamerican Development Bank, the INTOSAI 
Development Initiative, and the Organization of Latin American and 
Caribbean Audit Institutions resulted in the design and delivery of 
performance audit courses for our counterparts in Latin America. Plans 
are underway for additional training courses in environmental auditing 
and information technology.

Among the other collaborative activities undertaken by our staff during 
fiscal 2003 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 
Financial Audit Manual 
[Hyperlink, http://www.gao.gov/special.pubs/01765G/].

* 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 on a number of engagements. For example, the 
Council is assisting a GAO team that is examining "best practices" used 
by private sector companies to prepare for disastrous events while 
maintaining operations.

* As part of an effort led by the State Auditor of Louisiana (that 
included the Office of Inspector General of the U.S. Department of 
Transportation and the State Auditors of Arkansas, Connecticut, New 
York, and Rhode Island), we helped to develop a guide for evaluating 
security efforts within the nation's transportation system.

* In February 2003, we issued a report--developed with the 
participation of auditors from 11 states-that contained recommendations 
for improving the security of the food system.

* Our Office of Special Investigations conducted a joint investigation 
with the Department of Veterans' Affairs Office of Inspector General 
concerning alleged irregularities in contract administration. The 
investigation identified improper billing practices for open market 
items by the contractor and poor government oversight of the $20 
million in annual charges.

* In October 2002, we issued a report on invasive species that was 
based on a close working relationship with Canada's Auditor General.

Using Our Internal Experts:

We coordinated extensively within our own organization on our strategic 
and annual performance planning efforts, as well as on the preparation 
of our performance and accountability reports. Our efforts are 
completed under the overall direction of the Comptroller General and 
the Chief Operating Officer. We relied on our Chief Financial Officer/
Chief Mission Support Officer and her staff to provide key information, 
such as the financial information that is included in Part III of this 
report. Her staff also coordinated with others throughout the agency to 
provide the information on goal 4's results, which appears in Part II 
of this report, and provided input on other efforts dealing with issues 
that include financial management, budgetary resources, training, and 
security. We obtained input on all aspects of our strategic and annual 
performance planning and reporting efforts from each of our engagement 
teams and organizational units through their respective Managing 
Directors, as well as other staff responsible for planning or 
engagement activities in the teams. Our Quality and Continuous 
Improvement staff prepared the report, ensuring, among other things, 
that the report was responsive to comments and suggestions received 
from the Association of Government Accountants and George Mason 
University's Mercatus Center. In short, we involved virtually every 
part of GAO and used our internal expertise to assist our planning and 
reporting efforts.

Addressing Management Challenges That Could Affect Our Performance: 

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 our strategic goal 4, we establish 
performance goals focused on each of our management challenges, track 
our progress in completing the key efforts for those performance goals 
quarterly, and report whether the performance goals have been met or 
not met at 2-year intervals. We have also asked our Office of Inspector 
General to examine management's assessment of the challenges and the 
agency's progress in addressing them. Its assessment can be found in 
this report in appendix 2.

In fiscal 2003, we had three major management challenges. We have 
reported in the past on our efforts to address two of these challenges-
-human capital and physical security. Although we have made progress 
with both of these challenges, we still have work to do. The third 
challenge, information security, was added in fiscal 2003. This 
challenge replaced a previous IT challenge because we had completed our 
work on that original management challenge. However, independent 
reviews of our information security program indicated that we needed to 
further tighten IT security. Moreover, the potential for harm and 
threats to IT systems and information assets has never been greater, 
nor has there ever been a greater need for planning for disaster 
recovery and continuity of operations given continuing terrorist 
threats and events.

Addressing Management Challenges That Could Affect Our Performance: 
The Human Capital Challenge:

Given our 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 run the risk 
of being unable to meet the expectations of the Congress and the 
nation. However, we are continuing to make significant improvements in 
our human capital management. During fiscal 2003, we developed our 
first formal and comprehensive strategic plan for human capital. The 
purpose of the plan is to communicate both internally and externally 
GAO's strategy for becoming a model professional services organization, 
including how we plan to attract, retain, motivate, and reward a high-
performing and top-quality workforce. GAO expects to publish the plan 
early in fiscal 2004 and make it available on GAO's Web site. We also 
fully implemented our workforce planning process, addressing the size, 
deployment, and profile of our staff to ensure we have the appropriate 
resources strategically placed to pursue our goals and objectives now 
and in the future.

We also built on our fiscal 2002 accomplishments in attracting and 
retaining a diverse workforce with the knowledge, skills, and abilities 
to meet the new century's challenges. We expanded the scope of our 
college recruiting and hiring program to focus on gaps identified 
during our workforce planning effort. The Human Capital Office worked 
with teams to help identify and reach prospective graduates with the 
required skill sets. In addition, we focused the intern program on 
attracting student interns with the skill sets needed for our analyst 
positions since many of our interns are hired as entry-level employees 
upon successful completion of their internships. To promote the 
retention of staff with critical skills and 1 to 3 years of GAO 
experience, we continued to utilize recent legislation (5 U.S.C. 5379) 
authorizing federal agencies to offer student loan repayments in 
exchange for commitments to federal service. In accordance with Office 
of Personnel Management regulations, we disbursed repayments of between 
$4,000 and $6,000 directly to lending institutions during fiscal 2003 
for 247 employees, each of whom signed a 3-year agreement to continue 
working at GAO.

Finally, we have requested that the Congress enact additional human 
capital legislation for us that would (1) make permanent our 3-year 
authority to offer early outs and buyouts, (2) allow us to set our own 
annual pay adjustment system separate from the executive branch, (3) 
permit us to set the pay of an employee demoted as a result of 
workforce restructuring or reclassification to keep his or her basic 
pay but to set future increases consistent with the new position's pay 
parameters, (4) provide authority to reimburse employees for some 
relocation expenses when that transfer has some benefit to us but does 
not meet the legal requirements for reimbursement, (5) provide 
authority to place upper-level hires with fewer than 3 years of federal 
experience in the 6-hour leave category, (6) authorize an executive 
exchange program with the private sector, and (7) change our legal name 
from the "General Accounting Office" to the "Government Accountability 
Office.":

Addressing Management Challenges That Could Affect Our Performance: 
The Physical Security Challenge:

In the aftermath of the September 11 terrorists attacks, subsequent 
anthrax incidents, and the recent Operation Enduring Freedom and 
Afghanistan operations, our ability to provide a safe and secure 
workplace was challenged. Protecting our people and our assets is 
critical to our ability to carry out our mission. We have devoted 
additional resources to this area and have implemented measures, such 
as upgrading the headquarters fire alarm system and installing a 
parallel emergency notification system. We have also designed several 
security enhancements to be installed in fiscal 2004, such as vehicle 
restraints at the guard ramps; ballistic-rated security guard booths; 
vehicle surveillance equipment at the garage entrances; and state-of-
the-art electronic security comprised of intrusion detection, access 
control, and closed-circuit surveillance systems. We have made great 
progress in enhancing our communication with staff. We distributed a 
Shelter in Place plan, provided Emergency Preparedness briefings for 
staff, and conducted the third annual Security Fair to disseminate 
information on security at the workplace and at home. We drafted an 
Emergency Response Handbook for headquarters occupants. To further 
increase the security of the headquarters building, we have obtained 
access to the National Crime Information Center Database to conduct 
minimal investigations on visitors, vendors, couriers, and non-GAO 
employees entering the building. To ensure our continuity of operations 
should GAO have to vacate its headquarters due to an emergency, we made 
arrangements for an alternate facility to house our operations. 
Finally, we completed a study of personal protective equipment and 
based on the resulting decision paper, we have purchased escape hoods, 
bottled water, and glow sticks. Staff will be trained in the use of 
this equipment during fiscal 2004.

Addressing Management Challenges That Could Affect Our Performance: 
The Information Security Challenge:

Protecting our information assets and ensuring information systems 
security and disaster recovery that allow for continuity of operations 
is a critical requirement for us. 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 have a wide range of 
initiatives underway to strengthen and protect the security of our 
information systems and data. Our information security plan is in 
appendix 4. As part of our continuing disaster recovery efforts and 
emergency preparedness plan, we upgraded the level of 
telecommunications services between our disaster recovery site and 
headquarters, expanding our remote connectivity capability, and 
improving response time and transmission speed. To further protect our 
data and resources, we drafted an update to our Information Systems 
Security Policy, issued network user policy statements, implemented 
hardware and software upgrades to harden our internal network security, 
significantly expanded our efforts in intrusion detection, and 
addressed concerns raised during the most recent network vulnerability 
assessment. Further, we deployed computer software to our senior 
management that provides authoritative and timely assurance that 
critical e-mail has been received intact--without changes or 
modifications.

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.

* We perform self-initiated research on a limited number of selected 
topics.

Another external factor is the extent to which we can obtain access to 
certain types of information. With concerns about operational security 
being unusually high at home and abroad, we 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 national and 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 our access authority as necessary and appropriate.

[End of Part I]

Part II: 

Performance Information:

How We Assess Our Performance:

The hierarchy of elements in our strategic plan establishes the 
structure we use in discussing our performance. As shown in 
figure II.1, at the top of the hierarchy are our 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 as well as 7 annual performance measures. 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 II.1: 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 
Recommendations 
Implemented; New Recommendations Made; Products with Recommendations; 
Testimonies; Timeliness: 
Item 3, second level left; 2-Year Performance Goals (98):
Item 4, second level right; 1-Year Performance Measures (7): 
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 we are delivering almost all of our products when we 
promised to, that we are being invited to present testimony before the 
Congress and are responding to those requests, that we are making a 
sufficient effort to recommend improvements to the conditions we have 
uncovered during our fieldwork, that our recommendations are being 
implemented by the agencies to which they are directed, and, 
ultimately, that implementation has led to benefits for the American 
people.

Our Strategic Management Structure:

Our work is aligned under four strategic goals that are designed to 
fulfill our 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 we 
provide. We often refer to these as our external goals as opposed to 
the fourth strategic goal, which is our internal goal. This internal 
goal focuses on improving our own agency so that it 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. (The framework diagram that appears in the introduction
of this report provides an at-a-glance summary of all the strategic 
goals and objectives.) Under strategic goal 1, for instance, are eight 
strategic objectives that call for us to address issues that range 
from health care needs and financing to a secure and effective 
national physical infrastructure. All together, we have 21 strategic 
objectives. Our organizational units 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 us more 
flexibility in deploying the agency's resources to meet congressional 
requests on complex issues.

Every 2 years, as a new Congress convenes, we revisit our goals and 
objectives through an update of our strategic plan. The update includes 
an "environmental scan" involving staff at headquarters in Washington, 
D.C., 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 each of our organizational units about the 
Congress's likely needs, the federal government's most pressing 
challenges, and the strategies we can use to address these needs and 
challenges in the near and long terms. Key to the update process is 
active consultation with Members of the 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 our own staff; and the public can suggest improvements to 
the draft plan.

When the final plan is issued, it contains not only our strategic goals 
and objectives but also our strategies for achieving them--strategies 
that take the form of performance goals that support each strategic 
objective. (To view our current strategic plan, go to [Hyperlink, 
http://www.gao.gov/sp/html/splan02.html]) These performance goals are further defined by sets 
of key efforts, which currently number more than 400 for the agency as 
a whole. (To view our current key efforts, go to [Hyperlink, 
http://www.gao.gov/sp/spsupp.html]). For instance, seven performance goals support our 
strategic objective on health care needs of an aging and diverse 
population. One of these--to evaluate Medicare reform, financing, and 
operations--has six key efforts, among them analyzing the potential 
consequences of Medicare structural reforms and assessing the effects 
of expanding managed care in Medicare.

At the conclusion of each 2-year cycle, we assess whether we have met 
these performance goals. If we have met most of our performance goals, 
we have made progress in achieving our strategic objectives and the 
broader strategic goals. To assess the performance goals, we examine 
the work completed under the performance goal's key efforts. For a 
performance goal to be met, the responsible senior executive considers 
the amount of work conducted and/or recommendations made for each key 
effort as well as any other assistance provided to the client or 
customer that is related to these efforts. These senior executives then 
judge whether the work completed collectively for all key efforts 
actually achieved the performance goal.

Results of the 2-year cycle that ended with the close of fiscal 2003 on 
September 30 are detailed in this report. At the start of fiscal 2004, 
we will initiate a new 2-year cycle. To determine the performance goals 
for the next cycle, we will draw from our strategic planning effort 
that is underway. We generally carry forward any unmet performance 
goals unless they are no longer relevant to the Congress's and the 
nation's needs. We also carry forward performance goals that reflect a 
continued focus of our work and we include new performance goals based 
on anticipated future needs of the Congress and our internal customers. 
We will evaluate our progress on the new performance goals at the 
conclusion of fiscal 2005.

Our Annual Performance Measures:

We measure the progress of the agency as a whole by using seven annual 
measures (see table II.1) to assess our staff's efforts to provide the 
kind of information and recommendations that will lead to benefits to 
the American people. We also use all of these measures except for two-
-new products with recommendations and timeliness--to track progress on 
each of our external strategic goals (goals 1, 2, and 3). Together, 
this array of annual indicators helps our 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 first 
three measures shown in table II.1 provide data on results that were 
achieved over a period of time, and the remaining measures provide data 
on work completed in fiscal 2003.

Table II.1: GAO's Annual Performance Measures:

Measure: Financial benefits; Indicates… Has our work provided 
financial benefits for the American people in the form of reduced or 
avoided costs, higher revenues, or better application of resources?

Measure: Other benefits; Indicates… Has our work produced tangible 
benefits for the American people in the form of better government 
operations or services?

Measure: Past recommendations implemented; Indicates… Are most of our 
recommendations being implemented?

Measure: New recommendations made; Indicates… Do we develop ways of 
improving the conditions we uncover in our work?

Measure: New products with recommendations; Indicates… Do about half 
of our written products provide recommendations for improvements while 
we continue to meet our congressional clients' requests for purely 
informational products?

Measure: Testimonies; Indicates… 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; Indicates… Do we deliver most of our products 
to our requesters when agreed?

Source: GAO.

[End of table]

The financial and other benefits for the nation that we report may take 
several forms. They may reflect, for instance, federal dollars freed up 
for other purposes because the Congress or federal agencies used our 
findings or recommendations to make government operations more 
efficient, less wasteful, or less subject to potential abuse. Or they 
may reflect instances in which our 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 our findings and recommendations have 
helped to make them more accountable, responsive, and efficient--a type 
of benefit that cannot be measured in monetary terms.

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 our 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 the percentage of recommendations that 
were made 4 years ago and have 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 [Hyperlink, http://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 
our staff to discuss implementation with the federal agencies 
involved, alerts our 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 recommendations that can be implemented is an 
important part of our 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. We, therefore, count the number of 
recommendations made each year and, at the agencywide level, calculate 
the percentage of products that contain recommendations.

One essential way we fulfill our 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 our executives present testimony. This measure serves as an 
indicator of how responsive we are to testimony requests, which require 
fast preparation of brief but information-rich presentations. Of 
course, the Congress itself determines the number of hearings it will 
conduct in a year and thus controls the number of possible 
opportunities we have to earn places at the witness tables.

Our final annual measure--timeliness--is, like the testimonies measure, 
an indicator of the quality of service we provide to our congressional 
clients. However good our 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 specific product is 
actually delivered with the date our managers agreed with their 
congressional clients to deliver the product.

In the following sections, we discuss what our fiscal 2003 results for 
these measures say about our performance.

Goal 1: 

[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 $186.4 million or 39% of GAO’s total.

Results: 

$23.6 billion in financial benefits: 

* Recommended that expenditure weights for the Consumer Price Index be 
updated biannually, $9.2 billion; 

* Identified a Medicaid loophole that was subsequently closed, $5.9 
billion; 

* Improved the Department of Housing and Urban Development's (HUD) 
management of unexpended balances, $3.4 billion; 

* Recommended that the nursing component of Medicaid not be 
reinstated, $1 billion; 

* Recovered overpayments in the Supplemental Security Income (SSI) 
program, $990 million; 

* Contained federal disability insurance costs, $600 million; 

* Additional financial benefits, $2.5 billion; 

217 other benefits: 

* Recommended steps that financial regulators could take to fully 
recover from the September 11 attacks; 

* Helped ensure the effectiveness of the smallpox vaccination 
program; 

* Advised transportation officials in many transportation modes on 
developing safety and security plans and strategies; 

* 214 additional benefits; 

557 new recommendations made; 

* Ensure effective implementation of the No Child Left Behind Act; 

* Improve financial accountability at the Small Business 
Administration; 

* Increase training for food inspection personnel; 

* 554 additional improvements recommended; 

80 testimonies

* Child welfare: 

* Severe Acute Respiratory Syndrome (SARS); 

* Transportation security; 

* FBI reorganization; 

* Nuclear waste cleanup; 

* 75 additional hearings on topics of national importance; 

Source: GAO.

[End of image]

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:

Our first strategic goal upholds our mission to support the Congress in 
carrying out its constitutional responsibilities by focusing on work 
that helps address the current and emerging challenges affecting the 
well-being and financial security of the American people and American 
communities. Our eight objectives for this goal are to support 
congressional and federal efforts on:

* the health care 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 accomplish our work under these strategic objectives, we conducted 
audits, analyses, and evaluations at every major federal agency and 
developed reports and testimonies on the efficacy and soundness of 
those programs in response to congressional requests and mandates. For 
example, work under this goal:

* helped focus attention on improving the quality of care in the 
nation's nursing homes, which provide care for about 1.7 million 
elderly and disabled residents in about 17,000 facilities (see app. 1, 
item 1.1);

* led to better implementation of the No Child Left Behind Act of 2001, 
by which the Congress sought to increase accountability for states and 
school districts to improve the academic achievement of millions of 
students (see app. 1, items 1.9 and 1.10);

* raised awareness of the risks associated with the single-employer 
pension insurance program that is operated by the Pension Benefit 
Guaranty Corporation (PBGC)--a step designed to spur congressional and 
agency actions to strengthen a program that insures the pension 
benefits of over 34 millions Americans in more than 30,000 private-
defined benefit plans (see app. 1, item 1.19);

* reported on our observations of the transformation of the FBI, which 
in the wake of September 11 has been reorganizing to focus more 
effectively on counterterrorism and counterintelligence (see app. 1, 
item 1.27);

* identified critical security challenges in all realms of 
transportation--air, surface, and maritime--and offered 
recommendations to help mitigate the risks and enhance the government's 
effectiveness in ensuring transportation safety (see app. 1, items 
1.43, 1.44, and 1.47); and:

* highlighted federal entities whose missions and ways of doing 
business require modernized approaches--among them the Postal Service, 
the General Services Administration, and the Coast Guard--and helping 
the Congress encourage and oversee these entities' transformation 
efforts (see app. 1, item 1.48).

As shown in table II.2, we exceeded our fiscal 2003 targets for three 
of the five performance targets for this strategic goal and did not 
meet two of the targets. Later parts of this section analyze each of 
our quantitative performance measures, discuss the reason for the unmet 
targets, and describe the targets for fiscal 2004. This analysis is 
followed by a discussion of our 2-year qualitative performance 
measures, all but one of which were met for fiscal 2003.

Table II.2: Annual Measures and Targets for Strategic Goal 1:


Performance measure: Financial benefits (dollars in billions); 
1999 Actual: $13.8; 
2000 Actual: $14.1; 
2001 Actual: $8.9; 
2002 Actual: $24.1[B]; 
2003 Target: $21.2; 
2003 Actual: $23.6; 
Met? Yes; 
2004 Target: $23.3.

Performance measure: Other benefits; 
1999 Actual: 140; 
2000 Actual: 182; 
2001 Actual: 210; 
2002 Actual: 226; 
2003 Target: 208; 
2003 Actual: 217; 
Met? Yes; 
2004 Target: 215.

Performance measure: Past recommendations implemented; 
1999 Actual: 72%; 
2000 Actual: 72%; 
2001 Actual: 71%; 
2002 Actual: 72%; 
2003 Target: 77%; 
2003 Actual: 71%; 
Met? No; 
2004 Target: 79%.

Performance measure: New recommendations made; 
1999 Actual: 350; 
2000 Actual: 435; 
2001 Actual: 396; 
2002 Actual: 524; 
2003 Target: 363; 
2003 Actual: 557; 
Met? Yes; 
2004 Target: 328.

Performance measure: Testimonies; 
1999 Actual: 123; 
2000 Actual: 131; 
2001 Actual: 73; 
2002 Actual: 111; 
2003 Target: 85; 
2003 Actual: 80; 
Met? No; 
2004 Target: 77.

Source: GAO.

[A] On the basis of past performance and expected future work, we 
revised these targets after we issued our fiscal 2004 performance plan. 
The original targets were financial benefits, $21.3 billion; other 
benefits, 216; past recommendations implemented, 77 percent; 
recommendations made, 363; and testimonies, 90.

[B] Between fiscal 2001 and fiscal 2002, we changed our methodology for 
tabulating financial benefits. This change accounted for part of the 
increase in the fiscal 2002 results. See table II.12 for details.

[End of table]

To help us examine trends over time, we look at 4-year averages for all 
but one of these measures.[Footnote 8] These 4-year averages, which are 
shown in table II.3, minimize the effect of an atypical result in any 
given year. This table indicates that the number of testimonies for 
goal 1 has declined since fiscal 2000 while performance on other 
indicators has generally risen over time.

Table II.3: Four-Year Averages for Strategic Goal 1:

Performance measure: Financial benefits (dollars in billions); 

1999: $9.8; 
2000: $11.8; 
2001: $11.9; 
2002: $15.2; 
2003: $17.7.

Performance measure: Other benefits; 

1999: 129; 
2000: 154; 
2001: 177; 
2002: 190; 
2003: 209.

Performance measure: New recommendations made; 

1999: 278; 
2000: 336; 
2001: 367; 
2002: 426; 
2003: 478.

Performance measure: Testimonies; 

1999: 110; 
2000: 121; 
2001: 114; 
2002: 110; 
2003: 99.

Source: GAO.

[End of table]

Financial Benefits:

The financial benefits reported for this goal in fiscal 2003 totaled 
$23.6 billion, exceeding the target of $21.2 billion by 11 percent. Six 
of our 10 accomplishments valued at over $500 million were achieved by 
this goal. Those 6 big-dollar accomplishments, reported in detail in 
the goal 1 section of appendix 1, accounted for 89 percent of the 
goal's total. The largest of them, valued at $9.2 billion, arose from 
our recommendation that updates to the Consumer Price Index be made 
more frequently than once every 10 years. Subsequent actions by the 
Bureau of Labor Statistics ultimately resulted in lower estimates of 
federal expenditures for some programs and higher estimates of federal 
revenues from other programs. The other financial benefits for this 
goal stemmed from efforts such as our work on the Medicaid and Medicare 
programs, HUD's budget request for fiscal 2001 and SSI's debt 
collection efforts.

Because financial benefits often result from work completed in prior 
years, we set our fiscal 2004 target based on our assessment of the 
progress agencies are making in implementing our past recommendations. 
We anticipate that the financial benefits attributable to goal 1 will 
continue at the same level in the near future. We, therefore, have set 
a target of $23.3 billion for fiscal 2004, a figure that is still high 
and will be challenging 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 2003 included 
199 actions taken by federal agencies to improve their services and 
operations in response to our work and another 18 in which information 
we provided to the Congress resulted in statutory or regulatory 
changes. This total of 217 other benefits exceeded our target of 208 
for the year.

Among the key accomplishments in this category were enhancing air 
transportation safety, improving federal agencies' management of real 
property that is worth hundreds of billions of dollars, helping the 
Postal Service prevent cash and checks from getting lost, encouraging 
better radio frequency spectrum management planning related to wireless 
technologies, improving protections for veterans participating in 
research, assisting the Congress in Medicaid formula enhancements, 
improving access to voting and polling places, and increasing training 
for workers involved in food inspection. These and other 
accomplishments are reported in detail in the goal 1 section of 
appendix 1.

For fiscal 2004, we set our target at 215 other benefits, which is 
slightly above our fiscal 2003 target and about the same as our fiscal 
2003 actual performance.

Additional Measures:

In addition to the benefits that accrued in fiscal 2003 from past work 
done under this goal, we recorded the following results:

* Past recommendations implemented--We documented that the percent of 
recommendations implemented for fiscal 2003 was 71 percent, results 
that fell short of the 77 percent target for fiscal 2003. The shortfall 
was due mainly to recommendations made in the homeland security and 
health care areas. Many of the recommendations related to homeland 
security were made to several of the 22 legacy agencies that were 
transferred to the Department of Homeland Security (DHS) during its 
creation in fiscal 2003. The newly formed department has had difficulty 
determining and validating whether many recommendations have been 
implemented. Also, recommendations were often made to multiple agencies 
whose functions have now been placed together to form new directorates 
and bureaus. For example, in 1999, we made several recommendations to 
both the Immigration and Naturalization Service in the Department of 
Justice and the Customs Service in the Department of Treasury. These 
functions now fall under the newly formed Bureau of Customs and Border 
Protection within DHS. We will continue to work with the new department 
on ascertaining the status of our recommendations. Furthermore, many of 
the recommendations in our health care area were directed at the 
Centers for Medicare & Medicaid Services. Changes in leadership within 
the centers and the broader debate on major program reforms delayed the 
agency's implementation of our recommendations. We have asked the teams 
whose work contributes to the goal 1 results to continue their 
monitoring efforts to help meet the target for fiscal 2004 in order to 
attain a 79-percent rate of implementation--a target that is constant 
across all of our goals.

* New recommendations made--During fiscal 2003, we issued 557 new 
recommendations under goal 1 for additional improvements to government 
accountability, operations, and services, exceeding the target of 363 
by 53 percent. We exceeded our target partly because of our increased 
emphasis on including in our products constructive recommendations 
related to our work. In some areas, such as physical infrastructure, 
our work identified the need for more recommendations than we have made 
in the past. Among the recommendations made were those to the 
Securities and Exchange Commission to better prepare the U.S. financial 
markets for any future terrorist attacks, those to the Department of 
Education to effectively ensure the implementation of the No Child Left 
Behind Act, and those to both the Department of the Interior and the 
Department of Agriculture's Forest Service to provide better 
information in rehabilitation treatments and emergency stabilization of 
wildland fires. While we have some evidence that our performance in 
this area may continue to be high for fiscal 2004, we set a lower 
target of 328 new recommendations partly because we find that agencies 
with which we have constructive relationships are making changes while 
our work is ongoing, preempting the need for us to include a 
recommendation in our product. In addition, we anticipate that most of 
our recommendations during fiscal 2004 will relate to work performed 
under other goals. We will continue to examine our performance in this 
area to determine how to set future targets.

* Testimonies--Our witnesses testified at 80 congressional hearings 
related to this strategic goal, missing the fiscal 2003 target of 85 
testimonies by 6 percent. As mentioned last year, we did not believe 
the pace of hearings would be the same in fiscal 2003 and had estimated 
the target of 85 testimonies. Although we missed the target, which was 
set at an approximate level, we believe it was a realistic estimate for 
fiscal 2003 that was missed primarily due to external factors, such as 
the Congress's need to focus on budget deliberations, which ran into 
the second quarter of fiscal 2003 and delayed focusing on other issues 
that would have called for hearings. Also, we believe that missing this 
target had no effect on our overall performance. For example, among the 
testimonies given were those on transportation security, the 
organization of the FBI, and the SARS. On the basis of our assessment 
of the potential need to testify on issues under this goal, we have set 
a target of presenting testimony at 77 hearings during fiscal 2004.

Two-year Performance Goals:

As shown in table II.4, at the close of fiscal 2003, we had met 36 of 
the 37 performance goals for this strategic goal. We did not meet the 
performance goal of assessing federal economic development assistance 
and its impact on communities because we did not receive requests to 
perform work in this area and could not undertake self-initiated work 
due to resources being needed for work requested by the Congress in 
other areas. We have ongoing work on federal empowerment zones and 
renewal communities that will help us address this goal by the end of 
fiscal 2005. In our fiscal 2004 performance plan, we indicated that we 
plan to use the same performance goals for fiscal 2004 until the 
completion of the update of our strategic plan in fiscal 2004. We 
anticipate revising and publishing the 2-year performance goals for 
fiscal 2004 and fiscal 2005 as part of our fiscal 2005 performance 
budget.

Table II.4: Strategic Goal 1's Two-Year Performance Goals, Fiscal 2002 
and Fiscal 2003:

The health care needs of an aging and diverse population: 

Strategic objective/performance goal: Evaluate Medicare reform, 
financing, and operations; Objective/goal met.

Strategic objective/performance goal: Assess trends and issues in 
private health insurance coverage; Objective/goal met.

Strategic objective/performance goal: Assess actions and options for 
improving the Department of Veterans Affairs' and the Department of 
Defense's health care services; Objective/goal met.

Strategic objective/performance goal: Evaluate the effectiveness of 
federal programs to promote and protect the public health; Objective/
goal met.

Strategic objective/performance goal: Evaluate the effectiveness of 
federal programs to improve the nation's preparedness for the public 
health and medical consequences of bioterrorism; Objective/goal met.

Strategic objective/performance goal: Evaluate federal and state 
program strategies for financing and overseeing chronic and long-term 
health care; Objective/goal met.

Strategic objective/performance goal: Assess states' experiences in 
providing health insurance coverage for low-income populations; 
Objective/goal met.

The education and protection of the nation's children: 

Strategic objective/performance goal: Analyze the effectiveness and 
efficiency of early childhood education and care programs in serving 
their target populations; Objective/goal met.

Strategic objective/performance goal: Assess options for federal 
programs to effectively address the educational and nutritional needs 
of elementary and secondary students and their schools; Objective/goal 
met.

Strategic objective/performance goal: Determine the effectiveness and 
efficiency of child support enforcement and child welfare programs in 
serving their target populations; Objective/goal met.

Strategic objective/performance goal: Identify opportunities to better 
manage postsecondary, vocational, and adult education programs and 
deliver more effective services; Objective/goal met.

The promotion of work opportunities and the protection of workers: 

Strategic objective/performance goal: Assess the effectiveness of 
federal efforts to help adults enter the workforce and to assist low-
income workers; Objective/goal met.

Strategic objective/performance goal: Analyze the impact of programs 
designed to maintain a skilled workforce and ensure employers have the 
workers they need; Objective/goal met.

Strategic objective/performance goal: Assess the success of various 
enforcement strategies to protect workers while minimizing employers' 
burden in the changing environment of work; Objective/goal met.

Strategic objective/performance goal: Identify ways to improve federal 
support for people with disabilities; Objective/goal met.

A secure retirement for older Americans: 

Strategic objective/performance goal: Assess the implications of 
various Social Security reform proposals; Objective/goal met.

Strategic objective/performance goal: Identify opportunities to foster 
greater pension coverage, increase personal saving, and ensure 
adequate and secure retirement income; Objective/goal met.

Strategic objective/performance goal: Identify opportunities to 
improve the ability of federal agencies to administer and protect 
workers' retirement benefits; Objective/goal met.

An effective system of justice: 

Strategic objective/performance goal: Identify ways to improve federal 
agencies' ability to prevent and respond to terrorist acts and other 
major crimes; Objective/goal met.

Strategic objective/performance goal: Assess the effectiveness of 
federal programs to control illegal drug use; Objective/goal met.

Strategic objective/performance goal: Identify ways to administer the 
nation's immigration laws to better secure the nation's borders and 
promote appropriate treatment of legal residents; Objective/goal met.

Strategic objective/performance goal: Assess the administrative 
efficiency and effectiveness of the federal court and prison systems; 
Objective/goal met.

The promotion of viable communities: 

Strategic objective/performance goal: Assess federal economic 
development assistance and its impact on communities; Objective/goal 
not met.

Strategic objective/performance goal: Assess how the federal 
government can balance the promotion of home ownership with financial 
risk; Objective/goal met.

Strategic objective/performance goal: Assess the effectiveness of 
federal initiatives to assist small and minority-owned businesses; 
Objective/goal met.

Strategic objective/performance goal: Assess federal efforts to 
enhance national preparedness and capacity to respond to and recover 
from natural and man-made disasters; Objective/goal met.

Strategic objective/performance goal: Assess how well federally 
supported housing programs meet their objectives and affect the well-
being of recipient households and communities; Objective/goal met.

Responsible stewardship of natural resources and the environment: 

Strategic objective/performance goal: Assess the nation's ability to 
ensure reliable and environmentally sound energy for current and 
future generations; Objective/goal met.

Strategic objective/performance goal: Assess federal strategies for 
managing land and water resources in a sustainable fashion for 
multiple uses; Objective/goal met.

Strategic objective/performance goal: Assess federal programs' ability 
to ensure a plentiful and safe food supply, provide economic security 
for farmers, and minimize agricultural environmental damage; 
Objective/goal met.

Strategic objective/performance goal: Assess federal pollution 
prevention and control strategies; Objective/goal met.

Strategic objective/performance goal: Assess efforts to reduce the 
threats posed by hazardous and nuclear wastes; Objective/goal met.

A secure and effective national physical infrastructure: 

Strategic objective/performance goal: Assess strategies for 
identifying, evaluating, prioritizing, financing, and implementing 
integrated solutions to the nation's infrastructure needs; Objective/
goal met.

Strategic objective/performance goal: Assess the impact of 
transportation and telecommunications policies and practices on 
competition and consumers; Objective/goal met.

Strategic objective/performance goal: Assess efforts to improve safety 
and security in all transportation modes; Objective/goal met.

Strategic objective/performance goal: Assess the Postal Service's 
transformation efforts to ensure its viability and accomplish its 
mission; Objective/goal met.

Strategic objective/performance goal: Assess federal efforts to plan 
for, acquire, manage, maintain, secure, and dispose of the 
government's real property assets; Objective/goal met.

Source: GAO.

Note: For a performance goal to be met, the responsible senior 
executive considers the amount of work conducted and/or recommendations 
made for each key effort as well as any other assistance provided to 
the client or customer that is related to these efforts. These senior 
executives then judge whether the work completed collectively for all 
key efforts actually achieved the performance goal. To view the 160 key 
efforts for the 37 performance goals above, go to 
[Hyperlink, http://www.gao.gov/sp/spsupp.html] 

[End of table]

[End of Goal 1]

Goal 2: 

[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 challenges of globalization.

Goal 2’s cost was $122.0 million or 26% of GAO’s total.

Results: 

$7.1 billion in financial benefits: 

* Identified duplicative efforts that resulted in terminating the Army 
Crusader program, $3.9 billion; 

* Improved targeting of the Department of Defense's (DOD) emergency 
funds, $517 million; 

* Additional financial benefits, $2.68 billion; 

273 other benefits: 

* Improved military recruitment; 

* Increased knowledge of AIDS in Africa and other parts of the world; 

* Strengthened U.S. efforts to help other countries combat nuclear 
smuggling; 

* Improved security of nuclear weapons and radioactive sealed sources; 

* 268 additional benefits; 

846 new recommendations: 

* Improve contract management in the space program; 

* Better align military forces to ensure that missions are effectively 
carried out while maintaining military readiness of participating 
forces; 

* Strengthen the U.S. visa process as an antiterrorism tool; 

* Improve collaboration among states to increase security of sealed 
radioactive sources; 

* 842 additional improvements recommended; 

48 testimonies: 

* Condition of overseas diplomatic facilities; 

* Chemical and biological defense; 

* Combating terrorism; 

* 44 additional hearings on matters of national importance; 

Source: GAO.

[End of image]

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 international 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 an objective look at the wide range of highly 
complex issues involved, our second strategic goal focuses on helping 
the Congress and the federal government respond to changing security 
threats and the challenges of global interdependence. Our four 
strategic objectives under this goal 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 accomplish our work under these strategic objectives during fiscal 
2003, we conducted field work across five continents--Europe, Africa, 
Asia, South America, and 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. For example, 
under this goal we:

* built on previous efforts to identify the federal government's 
vulnerability to cyber attacks and intrusions (see app. 1, item 2.2);

* provided snapshots of program performance and risk for DOD's major 
weapons systems to help the Congress gauge progress on individual 
programs (see app. 1, item 2.16);

* focused attention on security measures at the nation's nuclear 
weapons laboratories that led the Secretary of Energy to order a broad 
security overhaul at these facilities (see app. 1, item 2.18);

* reported on the costs and difficulties that had been encountered in 
rebuilding efforts in other countries and underscored the critical 
importance of effective congressional oversight of U.S. efforts to 
provide security in Iraq, reconstruct basic infrastructure, create 
accountable government institutions, foster conditions for democracy, 
and build a free-market economy (see app. 1, item 2.28);

* created an electronic, searchable database of China's trade 
commitments for use as a tool to identify trade opportunities and 
monitor China's implementation of its agreements (see app. 1, item 
2.40);

* identified issues related to the consolidation of public accounting 
firms that warrant ongoing attention (see app. 1, item 2.41); and:

* provided a comprehensive overview of efforts to control illegal 
Internet gambling transactions (see app. 1, item 2.42).

As shown in table II.5, we met or exceeded our fiscal 2003 target for 
all five of the strategic goal's performance targets. Later parts of 
this section analyze each of our performance measures and describe the 
targets for fiscal 2004. This analysis is followed by a discussion of 
our 2-year qualitative performance measures, all of which were met for 
fiscal 2003.

Table II.5: Annual Measures and Targets for Strategic Goal 2:

Performance measure: Financial benefits (dollars in billions); 

1999 Actual: $3.0; 
2000 Actual: $5.5; 
2001 Actual: $10.5; 
2002 Actual: $8.4[B]; 
2003 Target: $6.8; 
2003 Actual: $7.1; 
Met? Yes; 
2004 Target[A]: $7.0.

Performance measure: Other benefits; 

1999 Actual: 80; 
2000 Actual: 129; 
2001 Actual: 188; 
2002 Actual: 218; 
2003 Target: 200; 
2003 Actual: 273; 
Met? Yes; 
2004 Target[A]: 244.

Past recommendations implemented; 

1999 Actual: 65%; 
2000 Actual: 84%; 
2001 Actual: 81%; 
2002 Actual: 83%; 
2003 Target: 77%; 
2003 Actual: 79%; 
Met? Yes; 
2004 Target[A]: 79%.

Performance measure: New recommendations made; 

1999 Actual: 255; 
2000 Actual: 376; 
2001 Actual: 618; 
2002 Actual: 618; 
2003 Target: 521; 
2003 Actual: 846; 
Met? Yes; 
2004 Target[A]: 602.

Performance measure: Testimonies; 

1999 Actual: 37; 
2000 Actual: 56; 
2001 Actual: 34; 
2002 Actual: 38; 
2003 Target: 36; 
2003 Actual: 48; 
Met? Yes; 
2004 Target[A]: 56.

Source: GAO.

[A] On the basis of past performance and expected future work, we 
revised these targets after we issued our fiscal 2004 performance plan. 
The original targets were financial benefits, $5.6 billion; other 
benefits, 200; past recommendations implemented, 77 percent; 
recommendations made, 521; and testimonies, 43.

[B] Between fiscal 2001 and fiscal 2002, we changed our methodology for 
tabulating financial benefits. See table II.12 for details.

[End of table]

To help us examine trends over time, we look at 4-year averages for all 
but one of our measures.[Footnote 9]These 4-year averages, which are 
shown in table II.6, minimize the effect of an atypical result in any 
given year. Table II.6 indicates that financial benefits and number of 
testimonies for goal 2 have remained fairly stable while documentation 
of other benefits derived from our work and new recommendations made 
related to this goal have risen.

Table II.6: Four-Year Averages for Strategic Goal 2:

Performance measure: Financial benefits (dollars in billions); 

1999: $6.3; 
2000: $6.0; 
2001: $6.2; 
2002: $6.9; 
2003: $7.9.

Performance measure: Other benefits; 

1999: 65; 
2000: 90; 
2001: 118; 
2002: 154; 
2003: 202.

Performance measure: New recommendations made; 

1999: 266; 
2000: 279; 
2001: 373; 
2002: 467; 
2003: 615.

Performance measure: Testimonies; 

1999: 40; 
2000: 46; 
2001: 43; 
2002: 41; 
2003: 44.

Source: GAO.

[End of table]

Financial Benefits:

The financial benefits reported for this goal in fiscal 2003 totaled 
$7.1 billion, exceeding the target of $6.8 billion by roughly 4 
percent. Most of the financial benefits (62 percent of the total) were 
attributable to two accomplishments valued at $500 million or more 
each. These accomplishments, which are described in detail in the goal 
2 section of appendix 1, stemmed from engagements that helped DOD free 
billions of dollars for defense priorities by eliminating waste or 
inefficiency. The largest of them, valued at $3.9 billion, arose from 
terminating the Army's Crusader artillery system, a step defense 
officials took in response to our recommendation--one that did not 
affect readiness but freed funds to meet other needs.

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. However, because financial 
benefits often result from work completed in prior years, we set our 
fiscal 2004 target at $7 billion--about the same as fiscal 2003--based 
on our assessment of the progress agencies are making in implementing 
our past recommendations that might yield financial benefits.

Other Benefits:

The other tangible benefits reported for goal 2 in fiscal 2003 included 
257 actions taken by federal agencies to improve their services and 
operations in response to our work and another 16 in which information 
we provided to the Congress resulted in statutory or regulatory 
changes. This total of 273 other benefits exceeded our target of 200 
for the year by over 36 percent. Our success in this area arose from 
our increased emphasis on follow-up efforts and increased monitoring of 
our progress toward the targets throughout the year. It is also the 
result of making recommendations that the agencies agree with and 
implement. Among the most important accomplishments under this goal 
were improving security measures at the nation's nuclear weapons 
laboratories and helping combat AIDS around the world. 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 our recommendations made under this goal led us to 
raise our target to 244. While this target is lower than our fiscal 
2003 actual performance, it is well above the 4-year average for this 
measure.

Additional Measures:

In addition to the benefits that accrued for the American people in 
fiscal 2003 from past work done under this goal, we recorded the 
following results:

* Past recommendations implemented--We documented that the percent of 
recommendations implemented for fiscal 2003 was 79 percent, results 
that slightly exceeded the target of 77 percent. Because we expect that 
the implementation rate will be about the same across all goals, we are 
setting the target for fiscal 2004 at a 79-percent implementation rate.

* New recommendations made--We issued 846 new recommendations for 
additional improvements to government accountability, operations, and 
services during fiscal 2003, exceeding the target of 521 by about 62 
percent. We made more recommendations than expected for a number of 
reasons, including our recommendations related to IT issues more 
specific and making recommendations related to DOD efforts that were 
not known when we set our targets for this measure. Among the 
recommendations made were those to the Secretary of Energy and the 
Administrator of the National Nuclear Security Administration to focus 
more on certain key management and oversight issues, those to DOD to 
assess domestic military mission requirements and determine what steps 
should be taken to structure U.S. forces to better accomplish domestic 
military missions while maintaining proficiency for overseas combat. We 
are raising the target for fiscal 2004 to 602 new recommendations, 
which is lower than we achieved this year, but is in line with our 4-
year averages.

* Testimonies--Our witnesses testified at 48 congressional hearings 
related to this strategic goal, exceeding by 33 percent our target of 
presenting testimony at 36 hearings. This happened, in part, because of 
the increase in testimonies related to DOD's proposal to lease rather 
than purchase tanker aircraft--a proposal that was not known until 
after we set our target--and increased interest in size and condition 
of U.S. embassies and protecting our borders. Among other things, we 
testified on the conditions of overseas diplomatic facilities, chemical 
and biological defense systems, and sourcing and acquisition topics. 
Due to continued interest in the efforts related to homeland security 
and the impact of the war in Iraq, we have increased our target for 
presenting testimony at hearings to 56 for fiscal 2004.

Two-year Performance Goals:

As shown in table II.7, at the close of fiscal 2003, we met all 21 
performance goals for this strategic goal. In our fiscal 2004 
performance plan, we indicated that we plan to use the same performance 
goals for fiscal 2004 until the completion of the update of our 
strategic plan in fiscal 2004. We anticipate revising and publishing 
the 2-year performance goals for fiscal 2004 and fiscal 2005 as part of 
our fiscal 2005 performance budget.

Table II.7: Strategic Goal 2’s Two-Year Performance Goals, Fiscal 2002 
and Fiscal 2003: 

Responding to diffuse threats to national and global security: 

Strategic objective/performance goal: Analyze the effectiveness of the 
federal government's approach to providing for homeland security; 
Objective/goal met. 

Strategic objective/performance goal: Assess U.S. efforts to protect 
computer and telecommunications systems supporting critical 
infrastructures in business and government; Objective/goal met. 

Strategic objective/performance goal: Assess the effectiveness of U.S. 
programs and international agreements to prevent the proliferation of 
nuclear, biological, chemical, and conventional weapons and sensitive 
technologies; Objective/goal met. 

Ensuring military capabilities and readiness: 

Strategic objective/performance goal: Assess the ability of DOD to 
maintain adequate readiness levels while addressing the force 
structure changes needed in the 21st century; Objective/goal met. 

Strategic objective/performance goal: Assess overall human capital 
management practices to ensure a high-quality total force; Objective/
goal met. 

Strategic objective/performance goal: Identify ways to improve the 
economy, efficiency, and effectiveness of DOD's support infrastructure 
and business systems and processes; Objective/goal met. 

Strategic objective/performance goal: Assess the National Nuclear 
Security Administration's efforts to maintain a safe and reliable 
nuclear weapons stockpile; Objective/goal met. 

Strategic objective/performance goal: Analyze and support DOD's 
efforts to improve budget analyses and performance management; 
Objective/goal met. 

Strategic objective/performance goal: Assess whether DOD and the 
services have developed integrated procedures and systems to operate 
effectively together on the battlefield; Objective/goal met. 

Strategic objective/performance goal: Assess the ability of weapon 
system acquisition programs and processes to achieve desired outcomes; 
Objective/goal met. 

Advancing and protecting U.S. international interests: 

Strategic objective/performance goal: Analyze the plans, strategies, 
costs, and results of the U.S. role in conflict interventions; 
Objective/goal met. 

Strategic objective/performance goal: Analyze the effectiveness and 
management of foreign aid programs and the tools used to carry them 
out; Objective/goal met. 

Strategic objective/performance goal: Analyze the costs and 
implications of changing U.S. strategic interests; Objective/goal met. 

Strategic objective/performance goal: Evaluate the efficiency and 
accountability of multilateral organizations and the extent to which 
they are serving U.S. interests; Objective/goal met. 

Strategic objective/performance goal: Assess the strategies and 
management practices for U.S. foreign affairs functions and 
activities; Objective/goal met. 

Responding to the impact of global market forces on U.S. economic and 
security interests: 

Strategic objective/performance goal: Analyze how trade agreements and 
programs serve U.S. interests; Objective/goal met. 

Strategic objective/performance goal: Improve understanding of the 
effects of defense industry globalization; Objective/goal met. 

Strategic objective/performance goal: Assess how the United States can 
influence improvements in the world financial system; Objective/goal 
met. 

Strategic objective/performance goal: Assess the ability of the 
financial services industry and its regulators to maintain a stable 
and efficient global financial system; Objective/goal met. 

Strategic objective/performance goal: Evaluate how prepared financial 
regulators are to respond to change and innovation; Objective/goal 
met. 

Strategic objective/performance goal: Assess the effectiveness of 
regulatory programs and policies in ensuring access to financial 
services and deterring fraud and abuse in financial markets; 
Objective/goal met. 

Source: GAO.

Note: For a performance goal to be met, the responsible senior 
executive considers the amount of work conducted and/or recommendations 
made for each key effort as well as any other assistance provided to 
the client or customer that is related to these efforts. These senior 
executives then judge whether the work completed collectively for all 
key efforts actually achieved the performance goal. To view the 95 key 
efforts for the 21 performance goals above, go to 
[Hyperlink: http://www.gao.gov/sp/spsupp.html]. 

[End of table]

[End of Goal 2]

[See PDF for image] - graphic text:

Goal 3: 

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 $144.9 million or 31% of GAO’s total.

Results: 

$4.7 billion in financial benefits: 

* Identified best practices in acquiring defense services, $1.7 
billion; 

* Modified funding of the Navy Marine Corps Intranet to allow 
implementation of management controls, $779.9 million; 

* Additional financial benefits, $2.2 billion; 

553 other benefits: 

* Assessed the risks of major weapons system acquisitions; 

* Strengthened government auditing standards; 

* Improved border security information sharing and U.S. border 
protection; 

* Reduced national security risks related to sales of excess DOD 
property; 

* 548 additional benefits; 

772 new recommendations made: 

* Contribute to congressional oversight of the administration of the 
income tax system; 

* Improve agency operations through human capital reforms at DOD, DHS, 
and across government; 

* 770 additional improvements recommended; 

56 testimonies: 

* Human capital; 

* Performance budgeting; 

* Government purchase cards; 

* Financial management weaknesses; 

* 52 additional hearings on topics of national importance; 

Source: GAO.

[End of image]

Goal 3 Results:

Help Transform the Federal Government's Role and How It Does Business 
to Meet 21ST Century Challenges:

Our third strategic goal focuses on the collaborative and integrated 
elements needed for the federal government to achieve results. 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 and needs. Moreover, addressing today's priorities 
must be balanced against the long-term fiscal pressures of financing 
existing programs and operations. In summary, the work under this goal 
highlights the intergovernmental relationships that are necessary to 
achieve national goals.

To ensure that we help transform the role of the government and how it 
does business to meet 21ST century challenges, we have established the 
following four strategic objectives:

* 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 accomplish our work under these four objectives, we conducted 
audits, evaluations, and analyses in response to congressional requests 
and through work initiated under the Comptroller General's authority. 
For example, work under this goal included:

* focusing congressional and executive branch management attention on 
the most significant challenges by issuing our performance and 
accountability series reports on the government as a whole as well as 
the largest departments and agencies (see app. 1, item 3.27);

* updating the Government Auditing Standards (the "Yellow Book"), the 
guide for audits of financial and program management not only in 
federal agencies, but also state and local governments and more than 
30,000 nonprofit organizations that receive federal funds (see app. 1, 
item 3.38);

* issuing an exposure draft of an audit guide to help auditors and 
fraud investigators review government purchase card programs (see app. 
1, item 3.24); and:

* developing and refining innovative information technology (IT) 
guidance and tools for federal agencies, including the IT Investment 
Management Framework, which lays out a five-stage model for agencies to 
follow as they design and implement IT investments (see app. 1, item 
3.12).

As shown in table II.8, we exceeded all of the performance targets for 
this strategic goal. Later parts of this section analyze those results 
and describe our targets for fiscal 2004. This analysis is followed by 
a discussion of our 2-year qualitative performance measures, all but 
one of which were met for fiscal 2003.

Table II.8: Annual Measures and Targets for Strategic Goal 3:

Performance measure: Financial benefits (dollars in billions); 

1999 Actual: $4.5; 
2000 Actual: $5.1; 
2001 Actual: $7.0; 
2002 Actual: $5.2[B]; 
2003 Target: $4.6; 
2003 Actual: $4.7; 
Met? Yes; 
2004 Target[A]: $4.7.

Performance measure: Other benefits; 

1999 Actual: 414; 
2000 Actual: 503; 
2001 Actual: 401; 
2002 Actual: 462; 
2003 Target: 392; 
2003 Actual: 553; 
Met? Yes; 
2004 Target[A]: 441.

Past recommendations implemented; 

1999 Actual: 78%; 
2000 Actual: 77%; 
2001 Actual: 85%; 
2002 Actual: 82%; 
2003 Target: 77%; 
2003 Actual: 91%; 
Met? Yes; 
2004 Target[A]: 79%.

Performance measure: New recommendations made; 

1999 Actual: 335; 
2000 Actual: 413; 
2001 Actual: 549; 
2002 Actual: 808; 
2003 Target: 366; 
2003 Actual: 772; 
Met? Yes; 
2004 Target[A]: 570.

Performance measure: Testimonies; 

1999 Actual: 100; 
2000 Actual: 105; 
2001 Actual: 42; 
2002 Actual: 65; 
2003 Target: 52; 
2003 Actual: 56; 
Met? Yes; 
2004 Target[A]: 57.

Source: GAO.

[A] On the basis of past performance and expected future work, we 
revised these targets after we issued our fiscal 2004 performance plan. 
The original targets were financial benefits, $8.1 billion; other 
benefits, 404; past recommendations implemented, 77 percent; 
recommendations made, 366; and testimonies, 60.

[B] Between fiscal 2001 and fiscal 2002, we changed our methodology 
for tabulating financial benefits. This change accounted for part of 
the increase in the fiscal 2002 results. See table II.12 for details.

[End of table]

To help us examine trends over time, we look at 4-year averages for all 
but one of our measures.[Footnote 10] These 4-year averages, which are 
shown in table II.9, minimize the effect of an atypical result in any 
given year. Table II.8 indicates that financial benefits and number of 
testimonies for goal 3 have remained fairly stable while documentation 
of other benefits derived from our work and new recommendations made 
related to this goal have risen.

Financial Benefits:

The financial benefits reported for this goal in fiscal 2003 totaled 
$4.7 billion, meeting our target of $4.6 billion. Under goal 3, we 
typically work on core government business processes and governmentwide 
management reforms. While this work makes important contributions to 
other benefits, it less often yields measurable financial benefits. 
Nonetheless, during fiscal 2003, two accomplishments under this goal 
were valued at $500 million or more each, accounting for just over half 
of the goal's financial benefits. One resulted in about $1.7 billion in 
estimated financial benefits related to acquisition management reforms 
and the other resulted in about $780 million in financial benefits 
related to reduced contract amounts for the Navy-Marine Corps intranet. 
These and other accomplishments are reported in detail in the goal 3 
section of appendix 1.

Table II.9: Four-Year Averages for Strategic Goal 3:

Performance measure: Financial benefits (dollars in billions); 

1999: $5.7; 
2000: $5.7; 
2001: $5.3; 
2002: $5.5; 
2003: $5.5.

Performance measure: Other benefits; 

1999: 274; 
2000: 361; 
2001: 407; 
2002: 445; 
2003: 480.

Performance measure: New recommendations made; 

1999: 355; 
2000: 383; 
2001: 439; 
2002: 526; 
2003: 636.

Performance measure: Testimonies; 

1999: 79; 
2000: 90; 
2001: 86; 
2002: 78; 
2003: 67.

Source: GAO.

[End of table]

Our assessments of the executive branch's current efforts to implement 
the recommendations we made in our work under this goal indicate that 
financial benefits related to this goal are likely to remain the same 
for fiscal 2004. Consequently, we kept the target for financial 
benefits at $4.7 billion for fiscal 2004.

Other Benefits:

The other tangible benefits reported for goal 3 in fiscal 2003 included 
525 instances in which agencies' core business processes were improved 
or governmentwide management reforms were advanced as a result of our 
work. In addition, there were 28 instances in which information we 
provided to the Congress resulted in statutory or regulatory changes. 
This total of 553 other benefits exceeded our target of 392 for the 
year by 41 percent. The larger number of other benefits occurred mainly 
in our financial management and information technology areas where we 
tend to make multiple, specific recommendations for change to more than 
one entity. Among the key accomplishments were increasing the 
information available to the Congress to assist its oversight of 
federal information security efforts and improving financial management 
at DHS. 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 our recommendations made under this goal led us to 
set a fiscal 2004 target of 441 other benefits for goal 3. While this 
target is lower than our fiscal 2003 actual performance, it is higher 
than our fiscal 2003 target and consistent with our 4-year average for 
this measure.

This goal is lower than our actual results in recent years because many 
of our recommendations were interrelated and we will document their 
implementation as a smaller number of broad-based benefits.

Additional Measures:

In addition to the benefits that accrued in fiscal 2003 from past work 
done under this goal, we recorded the following results:

* Past recommendations implemented--We documented that the percent of 
recommendations implemented for fiscal 2003 was 91 percent, results 
that exceeded the target of 77. The target for fiscal 2004 is the same 
for all goals--a 79-percent implementation rate.

* New recommendations made--We issued 772 new recommendations for 
additional improvements to government operations and services during 
fiscal 2003, exceeding the target of 366 by nearly 111 percent. Our 
success in this area was partly due to our making recommendations on 
multiple financial and information management topics that were more 
specific than in the past. Among the recommendations were those to the 
Commissioner of Internal Revenue to enforce the Internal Revenue 
Service's (IRS) policy of a 180-day expiration period for fingerprint 
check results when an individual enters on duty, those to the Secretary 
of DHS and Director of Office Personnel Management to ensure that the 
human capital management system is designed to accomplish the mission, 
objectives, and goals of the department and to ensure that the 
communication strategy used to support the human capital system 
maximizes opportunities for employee involvement. We raised the target 
for fiscal 2004 to 570 new recommendations. This is 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 2003, our witnesses testified at 56 
congressional hearings related to this strategic goal, slightly 
exceeding the target of 52. Among the testimonies presented were human 
capital improvements at DOD, and performance budgeting, and financial 
management among federal agencies. For fiscal 2004, we have set an 
approximate target of presenting testimony at 57 hearings because we 
expect the level of hearings to stay about the same as it was in fiscal 
2003.

Two-year Performance Goals:

As shown in table II.10, at the close of fiscal 2003, we had met 20 of 
the 21 performance goals for this strategic goal. We did not meet the 
performance goal of assessing the effectiveness of the Federal 
Statistical System in providing relevant, reliable, and timely 
information that meets federal program needs because of the need to 
devote resources to other important work. However, we made progress on 
this performance goal with our report on retirement income gaps and a 
series of reports on Census 2000. We plan to continue working in this 
area during fiscal 2004 and fiscal 2005. We anticipate revising and 
publishing the 2-year performance goals for fiscal 2004 and fiscal 2005 
as part of our fiscal 2005 performance budget.

Table II.10: Strategic Goal 3's Two-Year Performance Goals, Fiscal 
2002 and Fiscal 2003

The implications of the increased role of public and private parties 
in achieving federal objectives: 

Strategic objective/performance goal: Analyze the modern service-
delivery system environment and the complexity and interaction of 
service-delivery mechanisms; Objective/goal met. 

Strategic objective/performance goal: Assess how intergovernmental 
relationships and the participation of nongovernmental organizations 
affect the implementation of federal programs and the achievement of 
national goals; Objective/goal met. 

Strategic objective/performance goal: Assess the effectiveness of 
regulatory administration and reforms in achieving government 
objectives; Objective/goal met. 

Assess the government's human capital and other capacity for serving 
the public: 

Strategic objective/performance goal: Identify and facilitate the 
implementation of human capital practices that will improve federal 
economy, efficiency, and effectiveness; Objective/goal met. 

Strategic objective/performance goal: Identify ways to improve the 
financial management infrastructure capacity to provide useful 
information to manage for results and costs day to day; Objective/goal 
met. 

Strategic objective/performance goal: Assess the government's capacity 
to manage information technology to improve performance; Objective/
goal met. 

Strategic objective/performance goal: Assess efforts to manage the 
collection, use, and dissemination of government information in an era 
of rapidly changing technology; Objective/goal met. 

Strategic objective/performance goal: Assess the effectiveness of the 
Federal Statistical System in providing relevant, reliable, and timely 
information that meets federal program needs; Objective/goal not met. 

Strategic objective/performance goal: Identify more business-like 
approaches that can be used by federal agencies in acquiring goods and 
services; Objective/goal met. 

Support congressional oversight of the federal government's progress 
toward being more results-oriented, accountable, and relevant to 
society's needs: 

Strategic objective/performance goal: Analyze and support efforts to 
instill results-oriented management across the government; Objective/
goal met. 

Strategic objective/performance goal: Highlight the federal programs 
and operations at highest risk and the major performance and 
management challenges confronting agencies; Objective/goal met. 

Strategic objective/performance goal: Identify ways to strengthen 
accountability for the federal government's assets and operations; 
Objective/goal met. 

Strategic objective/performance goal: Promote accountability in the 
federal acquisition process; Objective/goal met. 

Strategic objective/performance goal: Assess the management and 
results of the federal investment in science and technology and the 
effectiveness of efforts to protect intellectual property; Objective/
goal met. 

Strategic objective/performance goal: Identify ways to improve the 
quality of evaluative information: Objective/goal met. 

Strategic objective/performance goal: Develop new resources and 
approaches that can be used in measuring performance and progress on 
the nation's 21st century challenges; Objective/goal met. 

The government's fiscal position and approaches for financing the 
government: 

Strategic objective/performance goal: Analyze the long-term fiscal 
position of the federal government; Objective/goal met. 

Strategic objective/performance goal: Analyze the structure and 
information for budgetary choices and explore alternatives for 
improvement; Objective/goal met. 

Strategic objective/performance goal: Contribute to congressional 
deliberations on tax policy; Objective/goal met. 

Strategic objective/performance goal: Support congressional oversight 
of IRS's modernization and reform efforts; Objective/goal met. 

Strategic objective/performance goal: Assess the reliability of 
financial information on the government's fiscal position and 
financing sources; Objective/goal met. 

Source: GAO.

Note: For a performance goal to be met, the responsible senior 
executive considers the amount of work conducted and/or recommendations 
made for each key effort as well as any other assistance provided to 
the client or customer that is related to these efforts. These senior 
executives then judge whether the work completed collectively for all 
key efforts actually achieved the performance goal. To view the 84 key 
efforts for the 21 performance goals above, go to 
[Hyperlink, http://www.gao.gov/sp/spsupp.html].

[End of table]

[End of Goal 3]
 
[See PDF for image] - graphic text:

Goal 4: 

An image of a dollar bill divided proportionally shows how large a 
slice of GAO’s cost were attributable to goal 4, which deals with 
maximizing the value of GAO.

Goal 4’s cost was $20.0 million or 4% of GAO’s total.

Results: 

Sharpened focus on clients' and customers' requirements: 

* Developed agency and international protocols; 

* Developed external Web site for background material on key issues 
and concerns; 

Enhanced leadership and promote management excellence:  

* Increased the security of our facilities and information systems; 

* Maintained integrity in financial management; 

* Continued to provide leadership in human capital strategy and 
management; 

* Increased search functions on external Web site; 

Leveraged institutional knowledge and experience: 

* Improved management of agency records; 

* Continued knowledge-sharing among our organizational units; 

* Increased capacity through knowledge-sharing and collaboration; 

Continuously improved business and management processes: 

* Improved guidance and tracking for our engagements; 

* Expanded use of "highlights" page to encapsulate information from 
our products on a single page; 

* Donated excess computer equipment to schools; 

Enhanced our position as an employer of choice: 

* Developed new training curriculum for analysts; 

* Implemented training and learning programs to employees' desktop 
computers through new software; 

* Launched new external employment opportunities Web site

Source: GAO.

[End of image]

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. For us, this means that our work is driven by our 
external clients and internal customers, our managers exhibit the 
characteristics of leadership and management excellence, our employees 
are devoted to ensuring quality in our work process and products 
through continuous improvement, and our agency is regarded by current 
and potential employees as an excellent place to work. Our five 
strategic 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 2003, we undertook a wide array of efforts in pursuing those 
objectives. For example, under this goal we:

* expanded our Web-based client feedback survey to all committees of 
the House and the Senate (see app.1, item 4.1);

* effectively managed our IT resources to obtain the most value from 
every IT dollar--resulting in our Chief Information Officer (CIO) being 
placed on the "CIO 100" list by CIO magazine, which cited us for 
excellence in areas such as asset management, staffing and sourcing, 
and building partnerships (see app. 1, item 4.6);

* enhanced and refined our recruitment strategy to attract the highest-
quality workforce (see app.1, item 4.11);

* enhanced the competency-based performance management system for our 
staff (see app.1, item 4.21);

* hired a Chief Learning Officer to refocus and improve our training 
and development efforts (see app. 1, item 4.22), and:

* continued to enhance our technology, tools, and systems to support a 
mobile flexible work environment (see app. 1, item 4.24).

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. As shown in table II.11, at the 
close of fiscal 2003, we had met 16 of the 19 performance goals for 
this strategic goal.

We did not meet our performance goal of developing a framework to 
manage the collection, use, distribution, and retention of 
organizational knowledge because organizational resources had to be 
reallocated to performing higher-priority work. For example, we 
improved our report production and graphics processes and assessed our 
internal print plant operations. We also delayed development of short-
and long-term communications standards in order to consider adopting 
new standards for electronic products. In addition, completion of the 
integration of our document management system with electronic record 
keeping capabilities has been delayed until several pilot projects can 
be completed. We made substantial progress under this performance goal 
by conducting the first ever agencywide electronic files clean up 
effort as part of our efforts to improve our records management 
program. We also increased our knowledge sharing and collaboration 
efforts by implementing two new training courses on Web-based knowledge 
services, piloting communities of practice such as the Web Technology 
Advisory Group, and implementing portal technology such as the National 
Preparedness Web Portal. We anticipate continuing to provide resources 
to complete these efforts in fiscal 2004.

We did not meet our performance goal to improve our product and service 
lines due to a reallocation of resources to higher-priority work. In 
addition, identifying appropriate media for use in communicating our 
work results requires that we obtain client input. As we are already 
asking for client input in many other areas, this effort was delayed to 
avoid putting an additional burden on our clients. We made progress 
under this performance goal in the areas of assessing and improving our 
report production process, and establishing a systematic process to 
make improvements to our products, services, and processes based on 
client feedback. We anticipate continuing to provide resources to this 
performance goal in fiscal 2004 so that we may complete these efforts.

Due to delays in the area of process improvements, we did not meet our 
performance goal to improve our job management processes. Specifically, 
staff resources intended for that key effort had to be diverted to the 
higher-priority revision of our policy manual to make it reflect 
changes in government auditing standards. We did, however, complete our 
work in evaluating the effectiveness of our risk management approach to 
designing engagements and developing quality products. Our post-
issuance reviews, second partner quality reviews of draft reports, 
client feedback surveys, and other internal reviews demonstrated that 
our risk-based approach to designing and developing products is 
achieving its intended objective of producing high-quality products. 
The various assessments showed adherence to established policies in 
designing, executing, and reporting engagement results and greater 
involvement of specialists and other stakeholders, leading to high-
quality, contextually sophisticated products and greater client 
satisfaction. We anticipate providing resources in fiscal 2004 for 
identifying and prioritizing process improvements.

We anticipate revising and publishing the 2-year performance goals for 
fiscal 2004 and fiscal 2005 as part of our fiscal 2005 performance 
budget.

Table II.11: Strategic Goal 4’s Two-Year Performance Goals, Fiscal 
2002 and Fiscal 2003: 

Sharpen GAO's focus on clients' and customers' requirements: 

Strategic objective/performance goal: Continuously update client 
requirements; Objective/goal met. 

Strategic objective/performance goal: Develop and implement 
stakeholder protocols and refine client protocols; Objective/goal met. 

Strategic objective/performance goal: Identify and refine customer 
requirements and measures; Objective/goal met. 

Enhance leadership and promote management excellence: 

Strategic objective/performance goal: Foster an attitude of 
stewardship to ensure a commitment to GAO's mission and core values; 
Objective/goal met. 

Strategic objective/performance goal: Implement an integrated approach 
to strategic management; Objective/goal met. 

Strategic objective/performance goal: Continue to provide leadership 
in strategic human capital management planning and execution; 
Objective/goal met. 

Strategic objective/performance goal: Maintain integrity in financial 
management; Objective/goal met. 

Strategic objective/performance goal: Use enabling technology to 
improve GAO's crosscutting business processes; Objective/goal met. 

Strategic objective/performance goal: Provide a safe and secure 
workplace; Objective/goal met. 

Leverage GAO's institutional knowledge and experience: 

Strategic objective/performance goal: Expand GAO's use of the World 
Wide Web as a knowledge tool; Objective/goal met. 

Strategic objective/performance goal: Develop a framework to manage 
the collection, use, distribution, and retention of organizational 
knowledge; Objective/goal not met. 

Strategic objective/performance goal: Strengthen relationships with 
other national and international accountability and professional 
organizations; Objective/goal met. 

Continuously improve GAO's business and management processes: 

Strategic objective/performance goal: Reengineer internal business and 
administrative processes; Objective/goal met. 

Strategic objective/performance goal: Reengineer GAO's product and 
service lines; Objective/goal not met. 

Strategic objective/performance goal: Improve GAO's job management 
processes; Objective/goal not met. 

Become the professional services employer of choice: 

Strategic objective/performance goal: Maintain an environment that is 
fair, unbiased, family friendly, and promotes and values opportunity 
and inclusiveness; Objective/goal met. 

Strategic objective/performance goal: Improve compensation and 
performance management systems; Objective/goal met. 

Strategic objective/performance goal: Develop and implement a training 
and professional development strategy targeted toward competencies; 
Objective/goal met. 

Strategic objective/performance goal: Provide our people with tools, 
technology, and a working environment that is world-class; Objective/
goal met.

Source: GAO.

Note: For a performance goal to be met, the responsible senior 
executive considers the amount of work conducted and/or recommendations 
made for each key effort as well as any other assistance provided to 
the client or customer that is related to these efforts. These senior 
executives then judge whether the work completed collectively for all 
key efforts actually achieved the performance goal. To view the 84 key 
efforts for the 21 performance goals above, go to 
[Hyperlink, http://www.gao.gov/sp/spsupp.html].

[End of table]

[End of Goal 4] 
 
Data Quality and Program Evaluation:

This section describes how we ensure the completeness and reliability 
of the performance data in this report and the program evaluations 
conducted during fiscal 2003 on our agency'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 our 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.

This year, as an additional check on the quality of our performance 
indicators, GAO's Office of Inspector General (IG) independently tested 
the support for annual performance measures and our 2-year performance 
goals. As part of this effort, the IG tested the teams' compliance with 
our established policies and procedures and found no material 
weaknesses involving any of the listed performance indicators. The 
specific sources of our performance data and other procedures for 
independently verifying and validating the data for each of our 
performance measures are shown in table II.12. We continue to explore 
ways to strengthen our procedures to ensure data integrity.

Table II.12: How We Ensure Data Quality for the Performance Measures:

Financial benefits: 

Background and context; Our work--including our 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, reduce the costs of multiyear projects and 
entitlements, or 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; 

Financial benefits are linked to specific recommendations or other 
work. To claim that financial benefits have been achieved, our staff 
must document the cause-and-effect relationship between the benefits 
reported and work performed. This documentation must take place within 
2 years after the benefit has been identified in order for it to be 
included in our performance results and must be based on estimates 
obtained from independent third parties on the benefits' monetary 
value. Prior to fiscal 2002, we limited the period over which the 
benefits from an accomplishment could be accrued to no more than 2 
years. Beginning in fiscal 2002, we extended 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 
financial benefits. We retained the 2-year maximum for all other 
accomplishments. Also, in fiscal 2002, we began requiring all 
financial 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 our work. As a result, the amount of 
financial benefits is a conservative estimate.

Data sources; Our Accomplishment Reporting System provides the data 
for this measure. Teams use this automated system to prepare, review, 
and approve accomplishments and forward them to the Quality and 
Continuous Improvement (QCI) office for its review; 

Once accomplishment reports are approved, they are compiled by QCI, 
which annually tabulates total benefits by goal and agencywide. All 
financial benefits are calculated in net present value.

Verification and validation; Policies and procedures guide the 
estimation of financial benefits and their attribution to our work; 

The teams identify when a financial benefit has occurred as a result 
of our work. Teams develop estimates based on independent sources such 
as the agency that acted on our work, a congressional committee, or 
the Congressional Budget Office and file accomplishment reports based 
on those estimates. The estimates are reduced by any identifiable 
offsetting costs. Teams develop workpapers to support accomplishments 
with evidence that meets our evidence standard; supervisors review the 
workpapers; an independent person within GAO reviews the 
accomplishment report; and the team's Managing Director or Director 
approves the accomplishment report. The team forwards the report to 
QCI; 

QCI 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. QCI reviews all accomplishment reports and approves 
accomplishment reports claiming benefits of $100 million or more. In 
fiscal 2003, QCI approved accomplishment reports covering 95 percent 
of the dollar value of financial benefits we reported; 

GAO's IG also reviews accomplishment reports claiming benefits of $500 
million or more. In fiscal 2003, the IG reviewed accomplishment 
reports covering 79 percent of the dollar value of financial benefits 
we claimed; 

Additionally, during fiscal 2003, the IG independently tested 
compliance with our process for claiming financial benefits amounting 
to less than $100 million and determined that we have a reasonable 
basis for claiming these benefits.

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.

Other benefits: 

Background and context; The other benefits that we report reflect 
instances in which (1) information we provided to the Congress 
resulted in statutory or regulatory changes, (2) agencies took actions 
in response to our findings and recommendations to improve government 
services and operations, or (3) our 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, the teams must file accomplishment 
reports that document the actions that have been taken and the cause-
and-effect relationship between the actions and our work.

Data sources; Our Accomplishment Reporting System provides the data 
for this measure. Teams use this automated system to prepare, review, 
and approve accomplishments and forward them to QCI for its review; 

Once accomplishment reports are approved, they are compiled by QCI, 
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; 

Staff in the teams file accomplishment reports to claim that benefits 
have resulted from their work. Teams develop workpapers to support 
accomplishments with evidence that meets our evidence standard; 
supervisors review the workpapers; an independent person within GAO 
reviews the accomplishment report; and the team's Managing Director or 
Director approves the accomplishment report to ensure the 
appropriateness of the claimed accomplishment, including attribution 
to our work; 

The team forwards the report to QCI where it is reviewed for 
appropriateness. QCI 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; 

Additionally, during fiscal 2003, the IG independently tested 
compliance with our process for claiming other benefits and found them 
to be reasonable. The IG suggested actions to strengthen documentation 
of other benefits and we will implement these changes in fiscal 2004.

Data limitations; We cannot always document a direct cause-and-effect 
relationship between our work and benefits it produced. As a result, 
the number of other benefits is underreported and is a conservative 
measure of our overall contribution toward improving government.

Past recommendations implemented: 

Background and context; We make recommendations designed to improve 
the operations of the federal government. For our 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 2003 implementation rate is the 
percentage of recommendations made in fiscal 1999 products that were 
implemented by the end of fiscal 2003). 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 
our activities during the fiscal year in which the data are reported. 
For example, the cumulative percentage of recommendations made in 
fiscal 1999 that were implemented in the ensuing years is as follows: 
40 percent by the end of the first year (fiscal 2000); 44 percent by 
the end of the second year; 56 percent by the end of the third year; 
and 82 percent by end of the fourth year.

Data sources; Our document database records recommendations as they 
are issued. The database is updated daily. As our staff monitor 
implementation of recommendations, they submit updated information to 
the database.

Verification and validation; Through a formal process, an external 
contractor (currently Lockheed Martin Corporation) maintains the 
database of our recommendations by reviewing all of our written 
products as they are distributed, identifying the recommendations 
made, entering them into the database, and verifying the information 
through our recommendation follow-up system; 

Policies and procedures specify that our staff must verify, with 
sufficient supporting documentation, that an agency's reported actions 
are adequately being implemented. Staff update the status of the 
recommendations on a periodic basis. To accomplish this, our staff may 
interview agency officials, obtain agency documents, access agency 
databases, or obtain information from an agency's IG. Recommendations 
that are reported as implemented are reviewed by the senior executive 
in charge of the unit and by QCI; 

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. We also report annually to the Congress on the status of 
recommendations that have not been implemented and we maintain a 
publicly available database of open recommendations that is updated 
daily; 

Additionally, during fiscal 2003, the IG independently tested our 
process for calculating the percentage of recommendations made in 
fiscal 1999 products that had been implemented and determined that it 
was reasonable.

Data limitations; We sometimes differ with the affected agencies 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.

Recommendations made and percentage of products with recommendations: 

Background and context; We make 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. 
Some products we issue contain no recommendations and are strictly 
informational in nature; 

We track the number of recommendations made in products that are 
issued during the fiscal year. We also track the percentage of our 
written products that are issued during the fiscal year and contain 
recommendations. The latter indicator recognizes that the number of 
recommendations alone is not necessarily a predictor of effect and 
allows us to respond to requests for informational products. For 
example, a product with a single recommendation can help bring about 
significant financial or other benefits. 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; Our document database records recommendations as they 
are issued. The database is updated daily. As our staff monitor 
implementation of recommendations, they submit updated information to 
the database.

Verification and validation; Through a formal process, an external 
contractor maintains the database of our recommendations by reviewing 
all of our products distributed, identifying the recommendations made, 
entering them into the database, and verifying the information through 
our recommendation follow-up system; 

Our 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; 

Additionally, during fiscal 2003, the IG independently tested the 
teams' compliance with our policies and procedures and determined that 
the number of recommendations and the percentage of written products 
with recommendations are reasonable.

Data limitations; These measures are a conservative estimate of the 
extent to which we assist 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.

Testimonies: 

Background and context; The Congress may ask us to 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. In cases where 
multiple GAO witnesses with separate testimonies appear at a single 
hearing, we count the case as a single testimony. Also, agencies 
sometimes implement corrective actions during the course of our work.

Data sources; The data on hearings at which we testify are compiled in 
our congressional hearing system.

Verification and validation; The units responding to requests for 
testimony are responsible for entering data in the congressional 
hearing system; 

After a GAO witness has testified at a hearing, our 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; 

Additionally, during fiscal 2003, the IG independently examined the 
process for recording the number of hearings where we testified and 
determined that it is reasonable.

Data limitations; The measure may be influenced by factors other than 
the quality of our performance in any specific year. The number of 
hearings held each year depends on the Congress's agenda, and the 
number of times we are asked to testify may reflect congressional 
interest in work completed that year, the previous year, or work in 
progress.

Timeliness: 

Background and context; The likelihood that our products will be used 
is enhanced if they are delivered when needed to support congressional 
and agency decision making. To determine whether our products are 
timely, we measure the proportion of our products that are issued by 
the dates agreed to with our clients or, for our research and 
development work, by the dates agreed to internally.

Data sources; The data supporting this measure are from our Mission 
and Assignment Tracking System, which is used to monitor our progress 
on assignments.

Verification and validation; Our staff enter the data supporting this 
measure into our Mission and Assignment Tracking System. QCI monitors 
the data in this system, and aggregate and assignment-specific 
timeliness data are given to units monthly, allowing them to raise and 
seek resolution 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; 

Additionally, during fiscal 2003, the IG independently examined our 
process for calculating product timeliness and found it to be 
reasonable.

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.

2-year qualitative performance goals: 

Background and context; Assessing the extent to which we achieve 
2-year performance 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. In this case, they cover fiscal 2002 to fiscal 2003; 

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 senior executives for strategic goals 1 
through 3--our external goals--considers the number of reports issued 
and recommendations made for each key effort as well as any other 
assistance provided the Congress related to these efforts. Senior 
executives then judge whether the work completed collectively for all 
key efforts actually achieved the performance goal. For strategic goal 
4--our internal goal--senior executives also judge whether the 
performance goals have been met based on the work done on the goal's 
key efforts.

Data sources; The data supporting this measure are from our senior 
executives' assessments, which are supported by documentation, of work 
completed under performance goals' key efforts. The supporting 
documentation comes from our automated Mission and Assignment Tracking 
System and document database for strategic goals 1 through 3 and from 
reports produced by the managers responsible for each key effort for 
strategic goal 4.

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. The assessment of the performance goals under 
strategic goal 4 is supported by documentation showing the work 
completed under each key effort and signed by a Managing Director; 

QCI provides this information to our managers several times a year so 
that they can check its accuracy. QCI also reviews the assessments and 
supporting documentation for all performance goals to ensure that 
criteria are consistently applied and that requirements are met; 

Additionally, during fiscal 2003, the IG independently tested our 
process for determining whether performance goals are met and found it 
to be reasonable. The IG suggested actions to strengthen documentation 
of these qualitative performance goals and we have implemented these 
actions.

Data limitations; Professional judgment must be applied when assessing 
the work done under each performance goal and when reviewing those 
assessments.

Source: GAO.

[End of table]

Program Evaluation:

To assess our progress toward our first three strategic goals and their 
objectives and to update them for our strategic plan, 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 as financial benefits and other 
benefits that reflect the value of our work.

In addition, we actively monitor the status of our open 
recommendations--those that remain valid but have not yet been 
implemented--and report our findings annually to the Congress and the 
public [Hyperlink, http://www.gao.gov/openrecs.html]. We use the 
results of that analysis to determine the need for further work in 
particular areas. For example, if an agency has not implemented a 
recommended action that we consider to be 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.

We also use our biennial performance and accountability series reports 
[Hyperlink, http://www.gao.gov/pas/2003/] to help assess the extent to 
which we are achieving our strategic objectives under goals 1, 2, and 
3. 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, discussed in 
Part I of this report, 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 because it helps us to 
identify those areas where our continued efforts are needed to maintain 
the focus on important policy and management issues that the nation 
faces.

To help us assess our progress toward the strategic objectives under 
goal 4, which focuses on improving our internal operations, we 
completed a number of studies and evaluations. Most of these 
evaluations are related to goal 4's strategic objectives and result in 
internal products or briefings that are not available publicly.

* The status of our financial management. As part of our effort to be a 
model agency, in fiscal 2003 we retained the independent audit firm, 
Cotton & Co., LLP, to audit our financial statements. The auditors 
issued an unqualified opinion. We also conducted internal reviews of 
our compliance with requirements set forth in 31 U.S.C. 3512 (commonly 
referred to as the Federal Managers' Financial Integrity Act) and the 
Office of Management and Budget's Circular A-127, Financial Management 
Systems. We reviewed aspects of our Financial Management System, 
including security controls, and assessed its consistency with the 
Standard General Ledger. These reviews uncovered no problems and showed 
that we have the proper controls in place and that they are being 
followed.

* The accessibility of our products. We completed an assessment of our 
external Web site's usability in fiscal 2003. The assessment and a Web 
site customer satisfaction survey developed by the American Customer 
Satisfaction Index indicated high levels of satisfaction as well as 
opportunities for improvement. As a result, we are redesigning our Web 
site to increase access and enhance the usability of the information.

* The status of our information security program. To assess the status 
of our 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 IT controls for our general support system by our 
IT auditors, who are independent of our IT support function and conduct 
these audits on other agencies. These reviews and evaluations 
identified no material weaknesses in our financial applications or 
general support system. They also showed that we are making substantial 
progress in implementing information security requirements consistent 
with the Federal Information Security Management Act.[Footnote 11] This 
assessment is discussed in appendix 4.

* The effectiveness of our recruiting initiatives and human capital 
practices. To determine whether our recruitment efforts are effective, 
we collected data on how well we met our hiring goals and on other 
people measures. An analysis of the summary data showed that we met all 
of our goals for the number of staff hired in each Band and at the 
Senior Executive Service level, had a 72 percent acceptance rate of our 
hiring offers, and had a 7.7 percent attrition rate. We provided this 
summary data in a year-end report to our Office of Opportunity and 
Inclusiveness and other GAO managers. The Comptroller General 's 
Educators' Advisory Panel also advised the agency on recruiting, 
retaining, and developing staff and discussed strategies, best 
practices, operations, and emerging issues and trends related to our 
human capital efforts to develop a results-oriented workforce.

* Status of our IT support services. This fiscal year, The Gartner 
Group performed an independent review of our IT application support and 
development services and determined that we are delivering excellent 
and cost-efficient support and services to the agency. Gartner reviewed 
various aspects of our fiscal 2002 IT operations, such as our 
applications development performance as well as managerial and 
technical processes. Gartner scored us "above average" in several 
categories, including productivity, effectiveness, and user 
satisfaction, and "better than average" in cost-efficiency.

* Our asset management activities. The Gartner Group completed an 
assessment of our asset management systems and processes. Their report 
included process improvement recommendations, information on asset 
management best practices, and guidance in developing requirements for 
a new automated inventory system. One of our fiscal 2004 key efforts 
will be directed at implementing these recommendations.

* Assessment of our compensation and performance management system for 
analysts. Our Human Capital Office oversaw the evaluation of the 
performance-based compensation system for analysts and specialists 
which was implemented in fiscal 2002. The Human Capital Office 
conducted individual interviews with each Managing Director, a focus 
group consisting of representatives from our Employee Advisory Council 
(EAC), and compiled data that the EAC collected from surveying its 
constituents for feedback on system improvements. Using these data, we 
identified short-and long-term improvements to the system. The short-
term improvements focused on areas such as (1) better understanding and 
application of the performance standards, including additional 
mandatory but targeted training; (2) adjusting the pay categories; (3) 
reviewing the timing of the notification of pay panel results; and (4) 
using the achievement statement as a tool to break pay panel ties. We 
implemented all of the short-term improvements and are working on 
implementing the long-term improvements, which focused on (1) studying 
and resolving obstacles to restructuring the bands; (2) sharpening 
distinctions in standards within competencies and across bands to 
promote more accurate and consistent application of the standards; (3) 
exploring combining, eliminating, and/or weighting some competencies; 
and (4) rewriting and revalidating performance standards to reflect 
changes in banding or competencies.

Finally, our IG evaluates the administration of the agency. These 
evaluations are useful in ensuring that our operations are efficient 
and economical. As mentioned previously in this report, the IG examined 
our process for assessing our performance measures this year and found 
them to be reasonable. The IG also reviewed management's assessment of 
the agency's management challenges and concurred with management's 
assessment.

[End of Part II]

Part III: 

Financial Information:

Letter From the Chief Financial Officer:

[See PDF for image]

Photograph of Sallyanne Harper, Chief Financial Officer:

Source: GAO.

[End of image]

November 14, 2003:

I am pleased to report that, for the 17th consecutive year, GAO's 
financial statements have received an unqualified opinion from our 
independent auditors. I am particularly proud of this achievement 
because the financial statements for fiscal 2003 were prepared, and the 
audit completed, a month earlier than last year and a year ahead of the 
accelerated schedule mandated by the Office of Management and Budget. 
For a second year in a row, the Association of Government Accountants 
awarded us a certificate of excellence; this year, the award was for 
the fiscal 2002 annual performance and accountability report.

Our agency continued to make an impact in 2003. Our reports drew 
attention to problem areas across government and led to hundreds of 
actions by the Congress and agency heads to help government work 
better. In addition to providing accurate, timely, and useful 
information on day-to-day government operations, we alerted 
policymakers and the public to emerging and long-term issues with 
significant national implications. We informed the congressional debate 
on such diverse subjects as the federal government's financial 
condition and fiscal outlook, homeland security, food safety, the 
postal service, the nation's private pension system, prescription 
drugs, and investor protections.

Although the agency is significantly smaller than it was a decade ago-
-with just over 3,250 employees on its payroll now--we have continued 
to provide the taxpayer with an excellent return on investment and a 
long list of improvements to federal programs and policies. In fact, we 
remain one of the best values in government today. In fiscal 2003, our 
work produced $35.4 billion in measurable financial benefits--a $78 
return on every dollar invested in us.

We made significant progress last year toward our goal of becoming a 
model federal agency and a world-class professional services 
organization. We launched a host of operational improvements in such 
key areas as strategic management, congressional outreach, human 
capital, safety and security, and information technology. To help us 
improve our performance and better meet the needs of our customers, we 
introduced an in-house customer satisfaction survey and a balanced 
scorecard methodology for our mission support side. We also procured a 
new asset management system, rolled out our new e-travel system, and 
upgraded our online time and attendance record keeping system. 
Initiatives such as these have kept us in the vanguard of change both 
in government and private industry.

To be an effective advocate for "good government," our internal 
operations must be efficient, transparent, and accountable. In the 
coming year, we will continue to explore innovative ways to do our work 
and to hold ourselves accountable for getting results.

Sallyanne Harper:

Chief Financial Officer:

Signed by Sallyanne Harper:

[End of letter]

Overview of Financial Statements:

Our financial statements and accompanying notes are presented in this 
section. Our financial statements for the fiscal years ended September 
30, 2003 and 2002, were audited by an independent auditor, Cotton & 
Co., LLP.

Cotton & Co., LLP, rendered an unqualified opinion on our financial 
statements and an unqualified opinion on the effectiveness of our 
internal controls over financial reporting and compliance with laws and 
regulations. The auditor also reported that we have substantially 
complied with the applicable requirements of the Federal Financial 
Management Improvement Act (Improvement Act) of 1996 and found no 
reportable instances of noncompliance with certain provisions of laws 
and regulations tested. In the opinion of the independent auditor, the 
financial statements are presented fairly in all material respects and 
are in conformity with U.S. generally accepted accounting principles.

Financial Systems and Internal Controls:

We recognize 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.

We are committed to fulfilling the internal control objectives of 31 
U.S.C. 3512, commonly referred to as the Federal Managers' Financial 
Integrity Act (Integrity Act). Although we are 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 use or 
disposition; and revenues and expenditures applicable to our operations 
are properly recorded and accounted for to enable us to prepare 
reliable financial reports and maintain accountability over our assets.

Our 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 (OMB) guidance for implementing 
the Integrity Act. The results of these reviews are discussed with our 
Audit Advisory Committee, and action is taken to correct deficiencies 
as they are identified.

We assessed our internal controls as of September 30, 2003, 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, 2003, we have effective internal controls in place and 
no outstanding material weaknesses. Additionally, our independent 
auditor found that we maintained effective internal controls over 
financial reporting and compliance with laws and regulations. 
Consistent with our evaluation, the auditor found no material internal 
control weaknesses.

In addition, we are committed to fulfilling the objectives of the 
Improvement Act, which is also covered within 31 U.S.C. 3512. Although 
not subject to the act, we voluntarily comply 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, 2003. We made this assessment based on criteria 
established under the Improvement Act and guidance issued by OMB. Also, 
our auditor reported that we had substantially complied with the 
applicable requirements of the Improvement Act as of September 30, 
2003.

Our Office of Inspector General (IG) also conducts audits and 
investigations and functions as an independent fact-gathering adviser 
to the Comptroller General. This year, our IG tested compliance with 
procedures and methodologies used to calculate the following 
performance measures: financial benefits less than $100 million, number 
of other benefits, percentage of past recommendations implemented, new 
recommendations made, percentage of new products with recommendations, 
number of testimonies, timeliness, and the 2-year performance goals. 
These performance measures fairly represent our performance. There are 
nine open recommendations and management is in agreement with these 
recommendations and plans to take action on them. There are no 
unresolved issues.

Our 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 our 
financial operations. As of September 30, 2003, the committee consisted 
of Sheldon S. Cohen (Chairman), Edward J. Mazur, and Charles O. 
Rossotti, whose relevant experience was described earlier in this 
report. The committee's report follows our financial statements and 
accompanying notes.

Limitations on Financial Statements:

Responsibility for the integrity and objectivity of the financial 
information presented in the financial statements in this report rests 
with our managers. The statements were prepared to report our 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 our financial records in accordance with 
the formats prescribed in OMB's Bulletin 01-09, Form and Content of 
Agency Financial Statements. These financial statements differ from the 
financial reports used to monitor and control our budgetary resources; 
however, both were prepared from the same financial records.

Our financial statements should be read with the understanding that, as 
an agency of a sovereign entity, the U.S. government, we cannot 
liquidate our liabilities (i.e., pay our bills) without legislation 
that provides resources to do so. Although future appropriations to 
fund these liabilities are likely and anticipated, they are not 
certain.

Purpose of Each Financial Statement:

The financial statements that follow present the following 
information:

* The balance sheet presents the combined amounts we had available to 
use (assets) versus the amounts we owed (liabilities) and the residual 
amounts after liabilities were subtracted from assets (net position).

* The statement of net cost presents the annual cost of our operations. 
The gross cost less any offsetting revenue earned from our activities 
is used to arrive at the net cost of work performed under our 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 us 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 us 
with the net cost of operating the agency.

Financial Statements: 
 
U.S. General Accounting Office: 

Balance Sheet: 

As of September 30, 2003 and 2002: 

(Dollars in thousands): 

Assets: 

Assets: Intragovernmental: Funds with the U.S. Treasury and cash 
(Note 2): 2003: $69,382; 2002: $62,055. 

Assets: Intragovernmental: Accounts receivable (Note 1): 

2003: 506; 
2002: 387. 

Assets: Total Intragovernmental; 

2003: 69,888; 
2002: 62,442. 

Assets: Property and equipment, net (Note 3); 

2003: 57,928; 
2002: 63,888. 

Assets: Other (Note 1); 

2003: 414; 
2002: 486. 

Total Assets; 

2003: $128,230; 
2002: $126,816. 

Liabilities: 

Liabilities: Intragovernmental; 

Liabilities: Intragovernmental: Accounts payable (Note 1): 

2003: $7,789; 
2002: $11,044. 

Liabilities: Intragovernmental: Employee benefits (Note 5): 

2003: 1,416; 
2002: 1,185. 

Liabilities: Intragovernmental: Workers' compensation (Note 4 and 6): 

2003: 1,922; 
2002: 2,102. 

Liabilities: Intragovernmental: Deferred lease revenue (Note 4 and 7): 

2003: [Empty]; 
2002: 2,514. 

Liabilities: Total Intragovernmental; 

2003: 11,127; 
2002: 16,845. 

Liabilities: Accounts payable (Note 1); 

2003: 11,936; 
2002: 13,023. 

Liabilities: Salaries and benefits (Note 4 and 5); 

2003: 11,347; 
2002: 10,204. 

Liabilities: Accrued annual leave and other (Note 4); 

2003: 30,415; 
2002: 29,357. 

Liabilities: Workers' compensation (Note 4 and 6); 

2003: 11,093; 
2002: 12,331. 

Liabilities: Capital leases (Note 4 and 8); 

2003: 9,647; 
2002: 9,968. 

Total Liabilities; 

2003: 85,565; 
2002: 91,728. 

Net Position: 

Net Position: Unexpended appropriations; 

2003: 40,327; 
2002: 29,925. 

Net Position: Cumulative results of operations; 

2003: 2,338; 
2002: 5,163. 

Total Net Position; 

2003: 42,665; 
2002: 35,088. 

Total Liabilities and Net Position; 

2003: $128,230; 
2002: $126,816. 

The accompanying notes are an integral part of these statements.

[End of table]

Financial Statements: 

U.S. General Accounting Office: 

Statement of Net Cost: 

For Fiscal Years Ended September 30, 2003 and 2002: 

(Dollars in thousands): 

Net Costs by Goal: 

Goal 1: Well-Being/Financial Security of American People; 

2003: $186,443; 
2002: $178,455.

Less: reimbursable services; 

2003: [Empty]; 
2002: (74).

Net goal costs; 

2003: 186,443; 
2002: 178,381.

Goal 2: Changing Security Threats/ Challenges of Global 
Interdependence; 

2003: 122,031; 
2002: 110,692.

Less: reimbursable services; 

2003: (56); 
2002: (155).

Net goal costs; 

2003: 121,975; 
2002: 110,537.

Goal 3: Transforming the Federal Government's Role; 

2003: 146,509; 
2002: 142,204.

Less: reimbursable services; 

2003: (1,648); 
2002: (1,237).

Net goal costs; 

2003: 144,861; 
2002: 140,967.

Goal 4: Maximize the Value of GAO: 2003: 19,982; 
2002: 25,278.

Less: reimbursable services; 

2003: [Empty]; 
2002: [Empty].

Net goal costs; 

2003: 19,982; 
2002: 25,278.

Less: reimbursable services not attributable to goals; 

2003: (2,153); 
2002: (2,128).

Net Cost of Operations (Note 9): 

2003: $471,108; 
2002: $453,035.

The accompanying notes are an integral part of these statements: 

[End of table]

Financial Statements: 

U.S. General Accounting Office: 

Statement of Changes in Net Position: 

For Fiscal Years Ended September 30, 2003 and 2002: 

(Dollars in thousands): 

Balances, Beginning of Fiscal Year; 
2003 Cumulative Results of Operations: $5,163; 
2003 Unexpended Appropriations: $29,925; 
2002 Cumulative Results of Operations: $15,349; 
2002 Unexpended Appropriations: $21,258.

Budgetary Financing Sources: 

Budgetary Financing Sources: Current year appropriations: 
2003 Cumulative Results of Operations: [Empty]; 
2003 Unexpended Appropriations: 453,051; 
2002 Cumulative Results of Operations: [Empty]; 
2002 Unexpended Appropriations: 421,844.

Budgetary Financing Sources: Transfers of budget authority (Note 10); 

2003 Cumulative Results of Operations: [Empty]; 
2003 Unexpended Appropriations: [Empty]; 
2002 Cumulative Results of Operations: [Empty]; 
2002 Unexpended Appropriations: 7,600.

Budgetary Financing Sources: Lapsed budget authority: 
2003 Cumulative Results of Operations: [Empty]; 
2003 Unexpended Appropriations: (1,552); 
2002 Cumulative Results of Operations: [Empty]; 
2002 Unexpended Appropriations: (1,731).

Budgetary Financing Sources: Appropriations used: 

2003 Cumulative Results of Operations: 441,097; 
2003 Unexpended Appropriations: (441,097); 
2002 Cumulative Results of Operations: 419,046; 
2002 Unexpended Appropriations: (419,046).

Other Financing Sources: 

Other Financing Sources: Intragovernmental transfer of property and 
equipment; 
2003 Cumulative Results of Operations: (85): 
2003 Unexpended Appropriations: [Empty]; 
2002 Cumulative Results of Operations: (222); 
2002 Unexpended Appropriations: [Empty].

Other Financing Sources: Federal employee retirement benefit costs 
paid by OPM and imputed to GAO (Note 5); 
2003 Cumulative Results of Operations: 24,757; 
2003 Unexpended Appropriations: [Empty]; 
2002 Cumulative Results of Operations: 21,007; 
2002 Unexpended Appropriations: [Empty].

Other Financing Sources: Amortization of deferred lease revenue 
(Note 7); 
2003 Cumulative Results of Operations: 2,514; 
2003 Unexpended Appropriations: [Empty]; 
2002 Cumulative Results of Operations: 3,018; 
2002 Unexpended Appropriations: [Empty].

Total Financing Sources; 
2003 Cumulative Results of Operations: 468,283; 
2003 Unexpended Appropriations: 10,402; 
2002 Cumulative Results of Operations: 442,849; 
2002 Unexpended Appropriations: 8,667.

Net Cost of Operations; 
2003 Cumulative Results of Operations: (471,108); 
2003 Unexpended Appropriations: [Empty]; 
2002 Cumulative Results of Operations: (453,035); 
2002 Unexpended Appropriations: [Empty].

Balances, End of Fiscal Year; 
2003 Cumulative Results of Operations: $2,338; 
2003 Unexpended Appropriations: $40,327; 
2002 Cumulative Results of Operations: $5,163; 
2002 Unexpended Appropriations: $29,925.

The accompanying notes are an integral part of these statements.

[End of table]

Financial Statements: 

U.S. General Accounting Office: 

Statement of Budgetary Resources: 

For Fiscal Years Ended September 30, 2003 and 2002: 

 (Dollars in thousands): 

Budgetary Resources (Note 10): 

Budgetary Resources (Note 10): Current year appropriations: 

2003: $453,051; 
2002: $421,844.

Budgetary Resources (Note 10): Transfers of budget authority; 

2003: [Empty]; 
2002: 7,600.

Budgetary Resources (Note 10): Unobligated appropriations, beginning of fiscal year; 
2003: 14,198; 
2002: 7,512.

Budgetary Resources (Note 10): Reimbursable services (Note 9): 

2003: 3,857; 
2002: 3,594.

Budgetary Resources (Note 10): Cost sharing and pass-through CPA contract reimbursements; 

2003: 3,243; 
2002: 2,093.

Budgetary Resources (Note 10): Total Budgetary Resources; 

2003: $474,349; 
2002: $442,643.

Status of Budgetary Resources: 

Status of Budgetary Resources: Obligations incurred; 

2003: $453,902; 
2002: $426,714.

Status of Budgetary Resources: Unobligated appropriations, end of fiscal year; 

2003: 18,895; 
2002: 14,198.

Status of Budgetary Resources: Lapsed budget authority; 

2003: 1,552: 
2002: 1,731.

Status of Budgetary Resources: Total Status of Budgetary Resources; 

2003: $474,349; 
2002: $442,643.

Relationship of Obligations to Outlays: 

Relationship of Obligations to Outlays: Obligations incurred; 

2003: $453,902; 
2002: $426,714.

Relationship of Obligations to Outlays: Obligated balance, net - beginning of fiscal year; 

2003: 47,856; 
2002: 48,970.

Relationship of Obligations to Outlays: Less: Obligated balance, net - end of fiscal year; 

2003: (50,487); 
2002: (47,856).

Total Outlays; 

2003: 451,271; 
2002: 427,828.

Total Outlays: Less: Reimbursable services; 

2003: (3,857); 
2002: (3,594).

Cost sharing and pass-through CPA contract reimbursements (Note 10): 

2003: (3,243); 
2002: (2,093).

Net Outlays; 

2003: $444,171; 
2002: $422,141.

Outlays: 

Outlays: Disbursements; 

2003: $451,271: 
2002: $427,828.

Outlays: Collections; 

2003: (7,100); 
2002: (5,687).

Net Outlays; 

2003: $444,171; 
2002: $422,141.

The accompanying notes are an integral part of these statements. 

[End of table]

Financial Statements: 

U.S. General Accounting Office: 

Statement of Financing: 

For Fiscal Years Ended September 30, 2003 and 2002: 

(Dollars in thousands): 

Resources Used to Finance Activities: 

Budgetary Resources Obligated: 

Budgetary Resources Obligated: Obligations incurred; 

2003: $453,902; 
2002: $426,714.

Budgetary Resources Obligated: Less: Reimbursable services (Note 9); 

2003: (3,857); 
2002: (3,594).

Budgetary Resources Obligated: Less: Cost sharing and pass-through CPA 
contract reimbursements (Note 10); 

2003: (3,243); 
2002: (2,093).

Budgetary Resources Obligated: Net obligations; 

2003: 446,802; 
2002: 421,027.

Other Resources: 

Other Resources: Intragovernmental transfer of property and equipment; 

2003: (85); 
2002: (222).

Other Resources: Federal employee retirement benefit costs paid by OPM 
and imputed to GAO (Note 5); 

2003: 24,757; 
2002: 21,007.

Other Resources: Amortization of deferred lease revenue (Note 7); 

2003: 2,514; 
2002: 3,018.

Other Resources: Net other resources used to finance activities; 

2003: 27,186; 
2002: 23,803.

Total resources used to finance activities; 

2003: 473,988; 
2002: 444,830.

Resources Used to Finance Items Not Part of the Net Cost of 
Operations: 

Net increase in unliquidated obligations: 

2003: (5,705); 
2002: (1,980).

Costs capitalized on the balance sheet: 

2003: (14,304); 
2002: (13,180).

Total resources used to finance items not part of the net cost of 
operations; 

2003: (20,009); 
2002: (15,160).

Total resources used to finance the net cost of operations; 

2003: 453,979; 
2002: 429,670.

Components That Generate/Require Resources in Future Periods: 

(Increase)/Decrease in Workers' Compensation, Accrued Annual Leave, 
and Other Liabilities (Note 11): 

2003: (341); 
2002: 6,213.

Costs That Do Not Require Resources: 

Depreciation; 

2003: 17,470; 
2002: 17,152.

Net Cost of Operations; 

2003: $471,108; 
2002: $453,035.

The accompanying notes are an integral part of these statements. 

[End of table]

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 U.S. 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 OMB Bulletin 
01-09, Form and Content of Agency 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 qualifies as a multi-use heritage asset and is GAO's 
only heritage asset. The designation of multi-use heritage asset is a 
result of both being listed in the National Register of Historic Places 
and being used in general government operations. Maintenance of the 
building has been kept on a current basis. The building is depreciated 
on a straight-line basis over 25 years.

For fiscal 2003, GAO increased the dollar thresholds used to capitalize 
property and equipment. Property and equipment costing more than 
$15,000 are capitalized at cost. Building improvements and leasehold 
improvements are capitalized when the cost is $25,000 or greater. Bulk 
purchases of lesser-value items that aggregate more than $150,000 are 
also capitalized at cost. During fiscal 2002, the thresholds used were 
$5,000 for both building/leasehold improvements and property and 
equipment, and $100,000 for bulk purchases. 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, 2003 and 2002, is 
as follows:

Dollars in thousands:

Operating supplies to be consumed in normal operations (valued at 
cost); 

2003: $363; 
2002: $404.

Other receivables; 

2003: 51; 
2002: 82.

Total Other Assets; 

2003: $414; 
2002: $486.

[End of table]

Liabilities:

Liabilities represent amounts that are likely to be paid by GAO as a 
result of transactions that have already occurred.

Intragovernmental liabilities arise from transactions with other 
federal entities. Detail of GAO's intragovernmental liabilities by 
agency as of September 30, 2003 and 2002 is as follows:

Dollars in thousands:

Agency: General Services Administration; 

2003: $6,992; 
2002: $8,793.

Agency: U.S. Army Corps of Engineers; 

2003: 10; 
2002: 3,716.

Agency: Office of Personnel Management; 

2003: 1,106; 
2002: 903.

Agency: Department of Labor; 

2003: 2,059; 
2002: 2,332.

Agency: All others; 

2003: 960; 
2002: 1,101.

Total Intragovernmental Liabilities; 

2003: $11,127; 
2002: $16,845.

[End of table]

Accounts Payable:

Accounts Payable consists 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 
services to GAO. 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. OPM, 
the administrator of the plan, supplies GAO with factors to apply in 
the calculation of the service cost. These factors are derived through 
actuarial cost methods and assumptions. 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 (see Note 5).

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 as resources 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, 2003 and 2002, is as follows:

Dollars in thousands:

Unobligated balance: Available; 

2003: $10,214; 
2002: $7,898.

Unobligated balance: Unavailable; 

2003: 8,664; 
2002: 6,300.

Obligated balances not yet disbursed; 

2003: 50,487; 
2002: 47,821.

Total Funds with U.S. Treasury; 

2003: 69,365; 
2002: 62,019.

Cash; 

2003: 17; 
2002: 36.

Total Funds with U.S. Treasury and Cash; 

2003: $69,382; 
2002: $62,055.

[End of table]

Note 3. Property and Equipment, Net:

The composition of property and equipment as of September 30, 2003, is 
as follows:

Dollars in thousands:

Classes of property and equipment: Building; 

Acquisition value: $15,664; 
Accumulated depreciation: $9,398; 
Book value: $6,266.

Classes of property and equipment: Land; 

Acquisition value: 1,191; 
Accumulated depreciation: [Empty]; 
Book value: 1,191.

Classes of property and equipment: Building improvements; 

Acquisition value: 106,427; 
Accumulated depreciation: 80,306; 
Book value: 26,121.

Classes of property and equipment: Computer and other equipment, and 
software; 

Acquisition value: 32,872; 
Accumulated depreciation: 18,517; 
Book value: 14,355.

Classes of property and equipment: Leasehold improvements; 

Acquisition value: 5,036; 
Accumulated depreciation: 4,793; 
Book value: 243.

Classes of property and equipment: Assets under capital lease; 

Acquisition value: 28,728; 
Accumulated depreciation: 18,976; 
Book value: 9,752.

Total property and equipment; 

Acquisition value: $189,918; 
Accumulated depreciation: $131,990; 
Book value: $57,928.

[End of table]

The composition of property and equipment as of September 30, 2002, is 
as follows:

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: [Empty]; 
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.

Total property and equipment; 

Acquisition value: $182,262; 
Accumulated depreciation: $118,374; 
Book value: $63,888.

[End of table]

In fiscal 2002 a full inventory 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, 2003 and 
2002, 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, 2003 and 2002, is as follows:

Dollars in thousands:

Intragovernmental liabilities: 

Workers' compensation; 

2003: $1,922; 
2002: $2,102.

Deferred lease revenue; 

2003: [Empty]; 
2002: 2,514.

Total intragovernmental liabilities; 

2003: 1,922; 
2002: 4,616.

Salaries and benefits--Comptrollers General retirement plan; 

2003: 2,875; 
2002: 2,856.

Accrued annual leave and other; 

2003: 30,415; 
2002: 29,357.

Workers' compensation; 

2003: 11,093; 
2002: 12,331.

Capital leases; 

2003: 9,647; 
2002: 9,968.

Total liabilities not covered by budgetary resources; 

2003: $55,952; 
2002: $59,128.

[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). 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 certain employee 
contributions to the thrift savings component of FERS. The pension 
expense recognized in GAO's financial statements for fiscal 2003 and 
fiscal 2002 amounted to approximately $39,672,000 and $36,979,000, 
respectively. These amounts include pension costs financed by OPM and 
imputed to GAO of $13,876,000 and $11,145,000, respectively. To the 
extent that 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 2003 
and fiscal 2002, these payments amounted to approximately $13,556,000 
and $12,164,000, 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 2003 and fiscal 2002 
amounted to approximately $7,097,000 and $6,090,000, 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 2003 and fiscal 
2002, amounted to approximately $13,191,000 and $11,704,000, 
respectively. 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 $10,881,000 and 
$9,862,000 during fiscal 2003 and fiscal 2002, respectively, and are 
financed by OPM and imputed to GAO.

Amounts owed to OPM and Treasury as of September 30, 2003 and 2002 are 
$1,416,000 and $1,185,000, respectively for FEHBP, FEGLIP, FICA, FERS, 
and CSRS contributions and are shown on the Balance Sheet as an 
employee benefits liability.

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 $272,000 and $267,000 
during fiscal 2003 and fiscal 2002, respectively. Because GAO is 
responsible for future payments under this plan, the estimated present 
value of accumulated plan benefits of $2,875,000 as of September 30, 
2003, and $2,856,000 as of September 30, 2002, is included as a 
component of salary and benefit liabilities on GAO's Balance Sheet.

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, and again in 2003, GAO used estimates provided by DOL to 
report the FECA liability. This practice is consistent with the 
practices of other federal agencies.

GAO recorded an estimated liability for claims incurred but not 
reported as of September 30, 2003 and 2002, which is expected to be 
paid in future periods. This estimated liability of $11,093,000 and 
$12,331,000 as of September 30, 2003 and 2002, respectively, is 
reported on GAO's Balance Sheet. GAO also recorded a liability for 
amounts paid to claimants by DOL as of September 30, 2003 and 2002, of 
$1,922,000 and $2,102,000, 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 has repaid COE 
for the entire cost of the renovations in the form of rental credits 
during the first 3 lease years. Rental credits were recorded as 
deferred lease revenue and were amortized over the original 3-year 
lease term ending in fiscal 2003. The current year amortization of 
deferred lease revenue is reported on the Statement of Changes in Net 
Position as an other 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 
2003 and fiscal 2002 rents received by GAO, net of the deferred lease 
revenue amortization, amounted to $1,619,000 and $1,489,000, 
respectively. This amount is included in reimbursable services on the 
Statements of Budgetary Resources and Financing. Total rental revenue 
for the remaining period of the 10-year lease is as follows:

Dollars in thousands:

Fiscal year ending September 30: 2004; 
Total rental revenue: $4,799.

Fiscal year ending September 30: 2005; 
Total rental revenue: 4,856.

Fiscal year ending September 30: 2006; 
Total rental revenue: 4,916.

Fiscal year ending September 30: 2007; 
Total rental revenue: 4,978.

Fiscal year ending September 30: 2008; 
Total rental revenue: 5,045.

Fiscal year ending September 30: 2009 and thereafter; 
Total rental revenue: 10,290.

Total; 
Total rental revenue: $34,884.

[A] 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, 2003 and 2002, 
the capital lease liability was $9,647,000 and $9,968,000, 
respectively.

These lease agreements are written as contracts with a base year and 
option years. The option years are subject to the availability of 
funds. Early termination of the leases for reasons other than default 
are subject to a negotiation between the parties. These leases are 
lease to ownership agreements. 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:

Dollars in thousands:

Fiscal year ending September 30: 2004; 
Total: $5,682.

Fiscal year ending September 30: 2005; 
Total: 2,664.

Fiscal year ending September 30: 2006; 
Total: 1,470.

Fiscal year ending September 30: 2007; 
Total: 551.

Total Estimated Future Lease Payments; 
Total: 10,367.

Less: Imputed Interest; 
Total: (720).

Net Capital Lease Liability; 
Total: $9,647.

[End of table]

Operating Leases:

GAO leases office space, predominately 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 2003 and fiscal 2002 amounted to approximately 
$7,096,000 and $6,880,000, respectively. GAO's estimated future minimum 
lease payments under the terms of the leases are as follows:

Dollars in thousands:

Fiscal year ending September 30: 2004; 
Total: $7,779.

Fiscal year ending September 30: 2005; 
Total: 5,730.

Fiscal year ending September 30: 2006; 
Total: 4,007.

Fiscal year ending September 30: 2007; 
Total: 2,795.

Fiscal year ending September 30: 2008; 
Total: 1,417.

Fiscal year ending September 30: 2009 and thereafter; 
Total: 5,163.

Total Estimated Future Lease Payments; 
Total: $26,891.

[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 2003 and fiscal 
2002 amounted to $372,060,000 and $351,088,000, respectively, which 
were about 79 percent and 78 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 $24,757,000 in 
fiscal 2003 and $21,007,000 in fiscal 2002.

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 2003 and fiscal 2002 
amounted to $3,857,000 and $3,594,000, respectively. Of the revenues 
from reimbursable services received in fiscal 2003, $3,746,000 were 
intragovernmental--substantially from COE, $1,621,000, and Federal 
Deposit Insurance Corporation (FDIC), $1,505,000. Likewise, in fiscal 
2002 the amount of revenues from reimbursable services from other 
governmental entities was $3,399,000, of which $1,503,000 was from COE 
and $1,160,000 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, unobligated 
appropriations, 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.

For fiscal 2002, differences exist between the appropriations on the 
Statement of Budgetary Resources (SBR) and the appropriations amount in 
the President's Budget. These differences are due to: 1) unobligated 
funds available in expired accounts not included in the President's 
Budget submission, and 2) reimbursements from cost-sharing and pass-
through contract arrangements that could not have been anticipated at 
the time the President's Budget was developed. In addition, as the 
actual fiscal 2003 President's Budget is not yet available, comparison 
between the SBR and the President's Budget cannot be performed.

Fiscal 2003 has no budget transfers. 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. 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 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. Components that Generate/Require Resources in Future Periods:

Increases/decreases in workers' compensation, accrued annual leave and 
other liabilities are reported in the Statement of Financing. These 
changes represent the increases/decreases in liabilities not covered by 
budgetary resources, as reported in Note 4.

Dollars in thousands:

Liabilities not covered by budgetary resources, as disclosed in Note 4; 

Fiscal year ending September 30, 2003: $55,952; 
Fiscal year ending September 30, 2002: $59,128.

Liabilities that are not components of net cost: Deferred lease 
revenue; 

Fiscal year ending September 30, 2003: [Empty]; 
Fiscal year ending September 30, 2002: (2,514).

Liabilities that are not components of net cost: Capital leases; 

Fiscal year ending September 30, 2003: (9,647); 
Fiscal year ending September 30, 2002: (9,968).

Current year liabilities not covered by budgetary resources that are 
components of net cost; 

Fiscal year ending September 30, 2003: 46,305; 
Fiscal year ending September 30, 2002: 46,646.

Prior year liabilities that are not components of current year net 
costs; 

Fiscal year ending September 30, 2003: (46,646); 
Fiscal year ending September 30, 2002: (40,433).

(Increase)/Decrease in Workers' Compensation, Accrued Annual Leave, 
and Other Liabilities, as reported on the Statement of Financing; 

Fiscal year ending September 30, 2003: $(341); 
Fiscal year ending September 30, 2002: $6,213.

[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 $4,524,000 as of September 30, 2003. These assets 
are neither the assets of GAO nor the federal government and are held 
for distribution to appropriate claimants. During fiscal 2003, receipts 
and disbursements in the trust amounted to $994,000 and $1,162,000, 
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 (the 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 the 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 the 
draft performance and accountability report, including its financial 
statements, and provides comments to management who has primary 
responsibility for the performance and accountability report. The 
Committee met three times with respect to its responsibilities as 
described above. 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 are required to 
be discussed by Statement on Auditing Standards No. 61, (Communications 
with Audit Committees). Based on procedures performed as outlined 
above, we recommend that GAO's audited statements and footnotes be 
included in the 2003 Performance and Accountability Report.

Sheldon S. Cohen: 
Chairman: 
Audit Advisory Committee:

Signed by Sheldon S. Cohen: 

Independent Auditor's Report:

COTTON & COMPANY LLP:

Auditors; Advisors:

MATTHEW H. JOHNSON, CPA, CGFM, SAM HADLEY, CPA, CGFM, COLETTE Y. 
WILSON, CPA ALAN ROSENTHAL, CPA, LOREN SCHWARTZ, CPA, CISA, DAVID L. 
COTTON, CPA, CFE, CGFM, CHARLES HAYWARD, CPA, CFE, CISA, MICHAEL W. 
GILLESPIE, CPA, CFE, CATHERINE L. NOCERA, CPA, CISA.

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, 2003 and 2002, 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, 2003 and 2002, 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, 
2003, 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, 2003.

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 2003 and 2002 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 Federal Accounting Standards Advisory Board's 
Statement of Federal Financial Accounting Standards No. 15, 
Management's Discussion and Analysis. There are two types of material 
within GAO's Performance and Accountability Report that are 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 and 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 and examinations 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 misstatement. 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, 2003, 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 OMB Bulletin 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, 2003, 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, 2003. 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:

November 3, 2003:

[End of Part III]

Part IV: Appendixes:

1. Accomplishments and Other Contributions:

In pursuing the General Accounting Office's (GAO) strategic goals 
during fiscal 2003, we recorded hundreds of accomplishments and made 
numerous other contributions. This appendix provides details on the 
most significant of these. In reporting accomplishments and other 
contributions, we are holding ourselves accountable for the resources 
we received to implement our strategic plan.

The accomplishments document financial or other benefits achieved 
through action on our findings or recommendations. Typically, the 
accomplishments describe work that we completed in prior fiscal years 
because it takes time to implement recommendations, realize benefits, 
and record them. We did not include some contributions that were 
achieved in early fiscal 2003 but that were included in our fiscal 2002 
performance and accountability report because the bulk of the work was 
performed in that year.

The other contributions, which typically refer to work completed in 
fiscal 2003, describe instances in which we provided information or 
recommendations that aided congressional decision making or informed 
the public debate to a significant degree.

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:

1.1. Enhancing Quality of Care in Nursing Homes:

In a series of reports and testimonies since 1998, we found that, too 
often, residents of nursing homes were being harmed and that programs 
to oversee nursing home quality of care at the Centers for Medicare & 
Medicaid Services (CMS) were not fully effective in identifying and 
reducing such problems. We assessed CMS's progress in addressing these 
weaknesses and, in a July 2003 report and associated testimony for the 
Senate Finance Committee, noted that, despite a decline in the 
proportion of nursing homes that harmed residents, the number of such 
homes remains unacceptably high. We made numerous recommendations to 
CMS's Administrator focusing on further improving the mechanisms 
available to CMS to oversee nursing home care.

1.2. Eliminating Medicaid's Upper Payment Limit Loophole:

In a series of products, we reported on a financing scheme that was 
used by some states to generate additional federal monies under the 
joint federal and state funded Medicaid program. Under this scheme, 
states took advantage of a loophole in Medicaid's upper payment limit 
requirement and created the illusion that they made large Medicaid 
payments in order to generate federal matching payments. In reality, 
states made these large payments to certain providers, such as local 
government-owned nursing homes, only to require the return of these 
payments to the states. Citing our work as key evidence, the Department 
of Health and Human Services developed and published a regulation in 
2001 that phases out this loophole with resulting financial benefits to 
the federal government estimated at $5.9 billion over the first 3 years 
of its implementation.

1.3. Increasing Oversight of Federal Employees' Pharmacy Benefits:

Our review of the use of pharmacy benefit managers in the Federal 
Employees' Health Benefits Program (FEHBP) highlighted cost savings 
that pharmacy benefit managers achieve for FEHBP plans while providing 
generally broad access to prescription drugs and pharmacies. We also 
identified rising prescription drug costs as one of the key factors in 
FEHBP's recent premium increases. The report generated increased 
attention to the potential for pharmacy benefit managers to achieve 
savings for FEHBP plans, and the Office of Personnel Management (OPM) 
directed participating plans to ensure that they were obtaining maximum 
savings from the use of pharmacy benefit managers and announced that it 
would increase its oversight of FEHBP plans' use of these managers.

1.4. Assisting the Congress in Medicaid Formula Enhancements:

Budget pressures have required many states to reduce or freeze Medicaid 
payments, services, or eligibility and additional reductions have been 
proposed in numerous states. In response to these budgetary concerns, 
the Congress enacted the Jobs and Growth Tax Relief Reconciliation Act 
of 2003, which provides a total of $10 billion in enhanced Medicaid 
funding over 5 calendar quarters beginning April 1, 2003. We provided 
technical assistance to staff of the Senate Budget Committee and the 
House Energy and Commerce Committee as they deliberated temporary 
enhancements to the Medicaid formula used to provide the federal share 
of program costs. We then assisted in computing the effects of 
different enhancements to the Medicaid matching rate, culminating in 
the passage of the aforementioned act.

1.5. Reducing Costs to Medicare of Providing Covered Outpatient 
Prescription Drugs:

We reported that Medicare payment for covered outpatient prescription 
drugs, which is based on the average wholesale price reported by drug 
manufacturers, is substantially higher than providers' acquisition 
costs. A 2001 report examined payment for 31 drugs that were either 
most frequently billed to Medicare or that resulted in the highest 
expenditures, and a 2003 report examined payment for blood clotting 
factor, a biological used to treat hemophilia that has unique delivery 
needs. CMS agreed with the findings of both reports, and legislation 
passed in both the House and Senate includes provisions that would 
reduce Medicare's payments to more closely reflect provider cost, which 
could result in hundreds of millions of dollars in federal cost 
reductions.

1.6. Promoting Effectiveness of the Smallpox Vaccination Program:

In April 2003, we reported that the Centers for Disease Control and 
Prevention (CDC) faced major challenges in implementing the national 
smallpox vaccination program--a program developed as a result of the 
growing concern that terrorists might use the smallpox virus as an 
agent of bioterrorism. We recommended that CDC provide guidance to 
state and local jurisdictions on estimating response capacity needs and 
work with the jurisdictions to revise targets for the initial number of 
individuals to be vaccinated and the time to complete this effort. CDC 
subsequently issued guidance to help jurisdictions in their efforts to 
identify, train, and vaccinate those who would respond to a smallpox 
attack.

1.7. Improving Protections for the Department of Veterans' Affairs (VA) 
Human Research Subjects:

In response to recent concerns about the safety of some VA research 
programs, the Congress asked us to assess VA's progress in implementing 
recommendations we made in 2000 for improving protections of the rights 
and welfare of veterans who participate in VA's biomedical and 
behavioral research programs. We also examined changes in VA's 
organizational structure for monitoring and overseeing research. We 
provided the Congress with information relevant to proposed legislation 
that would establish an independent office within VA to oversee 
compliance with federal regulations for the protection of human 
subjects by testifying in June 2003 that VA had not taken sufficient 
actions to strengthen its human subject protection systems and noting 
the additional steps VA needed to take to better protect veterans who 
participate in research.

1.8. Avoiding Costs Associated with an Increase in the Skilled Nursing 
Facilities Rate:

In 2000, the Congress--through the Medicare, Medicaid, and State 
Children's Health Assurance Program Benefits Improvement and Protection 
Act of 2000--increased the nursing component of Medicare's daily rate 
for skilled nursing facilities by 16.66 percent, effective April 1, 
2001. The nursing component increase expired on October 1, 2002, and 
the Congress considered whether to reinstate it. The act directed us to 
assess the impact of the increase in the nursing component on nurse 
staffing ratios and to recommend whether the increased payments should 
continue. Our analysis indicated that, in the aggregate, skilled 
nursing facilities' nurse staffing ratios changed little after the 
increase in the nursing component of the Medicare payment rate took 
effect. We recommended that the Congress consider the increase in the 
Medicare payment rate as ineffective in raising nurse staffing ratios 
when determining whether to reinstate the nursing component increase. 
During the fall 2002 through the spring 2003, the nursing facility 
industry sharply criticized our report and strongly urged the Congress 
to restore the expired nursing component payment increase. To date, the 
nursing component increase has not been reinstated. This financial 
benefit--estimated at $1 billion--represents the cost avoidance 
associated with not reinstating the program for fiscal 2003.

The Education and Protection of the Nation's Children:

1.9. Improving Implementation of the New Education Law:

The No Child Left Behind Act of 2001 increased accountability for 
states and school districts to improve student achievement, while also 
providing states and school districts with additional flexibility to 
use federal funds to meet education needs. In two recent reports, we 
highlighted early implementation issues related to provisions in the 
act--the cost of testing and the design of the flexibility 
demonstration programs. In both areas, we highlighted the Department of 
Education's role and recommended that Education take actions to improve 
implementation by sharing information on states' experiences in 
reducing testing expenses and by targeting information to states and 
districts in the best position to apply for additional flexibility. 
Education indicated that it agreed with our recommendations and will 
continue to pursue opportunities to improve the law's implementation. 
Our work also highlighted weaknesses in Education's efforts to improve 
the performance of disadvantaged students, specifically those efforts 
focused on improving the accountability of states and districts for 
student performance. As a result, the act included provisions that 
strengthened the accountability of states and districts for student 
performance. For example, the law required states and districts to 
assess and report on the proficiency level of all students, as well as 
specific subgroups of students (e.g., students with limited English 
proficiency or economically disadvantaged students) and delineates 
actions that will be taken for schools and districts not meeting 
proficiency levels.

1.10. Increasing Accountability in Teacher Training Programs and 
Ensuring Highly Qualified Teachers:

We found that Department of Education information on teacher quality 
programs was not accurate. The recommendations in our report and 
testimony on improving the quality of teacher training programs were 
used to draft legislation that could strengthen training program 
reporting requirements by increasing the accuracy of information and 
enhancing the accountability for the quality of teacher training 
programs and the qualifications of teachers. We also reported that 
states did not have sufficient information to help them determine which 
teachers are highly qualified. We developed base line data on states' 
efforts to help implement the highly qualified teacher provision in the 
No Child Left Behind Act. Education officials agreed to take steps to 
provide better information to states.

1.11. Improving States' Child Welfare Agency Performance:

In a series of reports beginning in 2002, we have increased 
congressional and public awareness of improvements key to enhancing 
states' child welfare agency performance and the oversight provided by 
the Department of Health and Human Services. Two reports focused on 
states' implementation of significant child welfare legislation and the 
data that states collect to document children's experiences after they 
come into contact with the system. We found that some data were not 
reliable and that key data were not being collected. A third report 
highlighted critical issues in recruiting and retaining highly 
qualified child welfare social workers. All three reports recommended 
changes in the department's oversight to ensure that states receive 
appropriate assistance in overseeing and documenting the children's 
experiences and that additional assistance is targeted to research on 
effective practices. The department agreed with most of our 
recommendations, stating that it has established a team to review data-
related issues and begun exploring the effectiveness of child welfare 
training programs.

1.12. Ensuring Adequate Lender Participation in the Student Loan 
Market:

In September 2000, we reported that the Department of Education 
inconsistently applied a provision of the Higher Education Act, known 
as the 50 percent rule, to lenders entering trustee arrangements in the 
Federal Family Education Loan Program and that lenders were unclear as 
to how the provision should be applied. As a result of our 
recommendations, Education changed the definition of "eligible lender" 
in this program to clarify the application of the 50 percent rule to 
trustees. This change can facilitate participation by additional 
ineligible lenders, leading to a greater competition in the student 
loan market and potentially improved service and lower costs for 
student borrowers.

The Promotion of Work Opportunities and the Protection of Workers:

1.13. Helping Ensure a Federal Job Training System That Meets National 
and Local Needs:

Our work on the new Workforce Investment Act (WIA), and its mandated 
one-stop system, has examined issues such as how well the system is 
serving the needs of special populations--including at-risk youth, 
older workers, and dislocated workers--and how well it achieves 
accountability. Members of the Congress have acknowledged our work for 
its timely and thorough approach and for positioning them for 
reauthorization discussions. Our efforts are also having an impact on 
the ability of state and local officials to serve eligible WIA clients. 
States are subject to financial penalties if they do not meet 
negotiated performance levels for WIA-funded programs, and we found 
that the Department of Labor and the states lacked the historical data 
needed to establish these performance levels. State officials believed 
they were set too high and that they did not take into account the 
proportion of the population that were hard to serve. We concluded that 
these levels could act as a disincentive for the programs to serve some 
eligible job seekers who needed assistance but who might keep the state 
from meeting their performance levels. Our recommendations that Labor 
expedite the release of guidance for renegotiating performance levels 
and that it take steps to reduce the disincentives for serving certain 
populations may help mitigate this concern. As a result, job seekers 
who are eligible for and may benefit from these services may be more 
likely to receive them. We also found that states did not have a ready 
mechanism to share the unemployment insurance data with other states--
data needed to determine if their WIA-funded programs met their 
performance levels. Our recommendation that Labor fully fund a data 
clearinghouse system to facilitate unemployment insurance data-sharing 
among states may serve to facilitate data sharing and help to produce 
more accurate and complete performance data.

1.14. Highlighting the Role of Charitable Contributions in Aiding 
Victims of September 11:

We found that charitable aid made a major contribution to the nation's 
response to the September 11 attacks, despite very difficult 
circumstances. Through the work of charities, millions of people 
contributed to the recovery effort, raising an estimated $2.7 billion. 
At the same time, we identified lessons learned that could improve 
future charitable responses in disasters, focusing needed attention on 
the importance of coordination among the key public and private 
organizations involved in aiding victims.

1.15. Protecting Today's Workers:

We identified activities that could enhance the Department of Labor's 
enforcement of protections for today's workers, including many that are 
the nations most vulnerable. In our reviews of Labor's Occupational 
Safety and Health Administration and the Wage and Hour Division, we 
found that improved data could help better target federal inspection 
resources and measure program outcomes. Focusing on workers under 18 
years old and individuals working as day laborers (individuals who work 
for different employers every day and are paid in cash), we found that 
Labor could get better information about the dangers these workers 
face, enhance their education and outreach efforts, and ensure that 
these workers receive the protections they are afforded under federal 
law.

1.16. Strengthening Labor's Management of the Special Minimum Wage 
Program:

Our review of this program, which, under certain circumstances, permits 
employers to pay workers with disabilities less than the minimum wage, 
resulted in substantial improvements in its management. Specifically, 
our recommendations resulted in Labor taking a number of actions to 
more accurately measure program participation and noncompliance by 
employers, better track and allocate staff resources, and more 
effectively prevent inappropriate payment of below minimum wages to 
workers with disabilities.

1.17. Aiding Efforts to Build a Work-Based Welfare System:

Since the landmark 1996 welfare reform legislation, we have monitored 
implementation and outcomes at the state, local, and national levels, 
highlighting the progress made and challenges involved. In fiscal 2003, 
we recommended ways to strengthen federal oversight of state and local 
welfare contracting and improve the coordination of welfare and 
workforce development programs. We also identified how welfare 
recipients with disabilities fared in the new welfare environment. The 
Senate and House authorizing committees have used our work in drafting 
reauthorization legislation for welfare reform.

1.18. Containing Federal Disability Insurance Costs:

In addition to meeting medical eligibility criteria, to establish and 
maintain eligibility for disability insurance benefits, blind 
disability insurance beneficiaries must demonstrate that they are not 
earning above a certain amount--known as the Substantial Gainful 
Activity (SGA) level. Though the House and Senate had introduced 
legislation that would effectively eliminate the SGA level for the 
blind, we testified in March 2000 that, while eliminating the SGA would 
allow working beneficiaries to keep more of their benefits, it would 
increase disability insurance costs and fundamentally alter the purpose 
of the disability insurance program by removing the connection between 
benefit eligibility and the inability to work. Since the hearing, the 
Congress has retained the SGA level for the blind. Last year, we 
estimated a financial benefit for this work for fiscal years 2001 and 
2002. For fiscal 2003, we estimate a $600 million financial benefit, 
which is a cost avoidance based on estimates from the Social Security 
Administration's (SSA) Office of the Chief Actuary.

A Secure Retirement for Older Americans:

1.19. Protecting the Retirement Security of Workers:

We alerted the Congress to potential dangers to the pensions of 
millions of American workers and retirees when we placed the Pension 
Benefit Guaranty Corporation's (PBGC) single-employer program on our 
high-risk list. Although not plagued by internal operational 
deficiencies, the pension insurance program's ability to insure 
workers' benefits is increasingly threatened by long term, structural 
weaknesses in the private-defined benefit system itself. These 
weaknesses could ultimately lead to losses exceeding PBGC's financial 
resources, resulting in the loss of billions of pension dollars by 
workers and an expensive taxpayer bailout. We also noted the importance 
of a comprehensive approach to these risks to PBGC's insurance 
programs. In response to our findings, congressional leaders have said 
they will work closely with us to develop legislation that will address 
this serious pension crisis.

1.20. Recovering Supplemental Security Income Overpayments:

In 1998, we identified weaknesses in the Social Security 
Administration's (SSA) ability to recover Supplemental Security Income 
(SSI) overpayments--the gap between what is collected and what is owed 
to the program--and found that this gap is growing. We recommended that 
SSA continue efforts to use additional debt collection tools to 
identify and collect the overpayments. SSA subsequently implemented an 
automated process to track overpayments. As a result, overpayments 
identified grew from $13 million to $42 million. We estimate that this 
automated process will ultimately generate about $990 million in 
additional overpayment collections between 2000 and 2004. In addition, 
our testimony and briefings influenced the passage of legislation that 
gave SSA authority to recover SSI overpayments from any Title II social 
security benefits owed to former SSI recipients, even without their 
prior consent. Since this effort began in 2002, SSA reports it has 
collected $9 million in overpayments. On the basis of these recoveries, 
we estimate that SSA will collect $234 million in SSI overpayments for 
fiscal 2002 through fiscal 2006.

1.21. Helping the Congress Reform the Government Pension Offset 
Loophole:

Individuals whose last day of state or local employment is covered by 
both Social Security and the state or local pension system can qualify 
for an exemption from the government pension offset. This offset 
prevents workers from receiving full spousal benefits in addition to a 
pension earned from government employment not covered by Social 
Security. We found that in two states, thousands of workers had 
transferred to positions covered by Social Security for short time 
periods--as little as 1 day--to qualify for the exemption. We estimated 
that these cases could increase long-term benefit payments from the 
Social Security Trust Fund by about $450 million and urged the Congress 
to increase the time period required to qualify for the exemption. 
Consistent with our findings, the Social Security Protection Act of 
2003 increased the time period required to qualify for the government 
pension offset exemption to 60 months.

1.22. Improving Access to Voting and Polling Places:

In October 2001, we reported that 84 percent of all polling places had 
one or more potential impediments to access, primarily affecting 
individuals with mobility impairments. We also found that the types and 
arrangement of voting equipment used may also pose challenges for 
people with mobility, vision, or dexterity impairments. Subsequently, 
the Congress enacted the Help America Vote Act in October 2002, 
requiring that, by January 2006, polling places used in federal 
elections have a voting system that is accessible for individuals with 
a disability. Moreover, any voting system purchased on or after January 
1, 2007, with funds from the act must be fully accessible. In addition, 
states and local governments may use a large portion of the $3.9 
billion authorized under the act. The General Services Administration 
(GSA) is authorized to make payments to eligible states for activities 
to improve the administration of elections, including improving the 
accessibility and quantity of polling places and modifying a polling 
site's path of travel, entrances, exits, or voting area.

1.23. Improving Claims Processing for Veterans:

VA regional offices' inaccurate processing of veterans' compensation 
and disability claims has been the subject of longstanding concern. Our 
findings influenced VA's decision to pilot the use of specialized 
claims processing teams to improve the process and increase accuracy. 
These and other efforts can help ensure that the correct decision can 
be made the first time a claim is processed so that veterans can avoid 
unnecessary appeals or delays in receiving benefits.

An Effective System of Justice:

1.24. Building a Knowledge Base for Gathering Law Enforcement 
Information through Alien Interviews:

In response to the September 11 terrorist attacks, the Department of 
Justice (DOJ) began interviewing aliens whose characteristics were 
similar to those responsible for the attacks. We found that although 
aliens were not coerced to participate in the interviews, they were 
concerned that failure to comply with the interviews would result in 
negative repercussions, such as a future denial for permanent 
residency. We reported that DOJ completed less than half the intended 
interviews and lacked complete information on the status of the 
interview project, in part because there were data problems with the 
interview list. We also reported that it was difficult to measure 
whether the project was successful in gathering intelligence and 
disrupting terrorism. Our recommendation for DOJ to conduct a formal 
review of the project and report on lessons learned is expected to 
contribute to a knowledge base that can inform future similar efforts.

1.25. Ensuring Accurate Counts of Terrorist Convictions:

Our review of terrorism-related conviction statistics for fiscal 2002 
found that at least 132 of 288 cases were misclassified as such, and 
that the Executive Office for U.S. Attorneys lacked sufficient 
management oversight and internal controls to ensure accuracy. Both DOJ 
and the Congress use these data to assess terrorism-related performance 
outcomes. In response to our report, DOJ has taken steps to better 
ensure the accuracy of these data.

1.26. Improving the Integrity and Efficiency of Port Inspections:

Immigration inspectors at 166 land border ports of entry must 
facilitate the movement of almost 363 million people crossing the 
border, while intercepting those attempting to enter unlawfully. We 
identified several vulnerabilities in the integrity of the inspections 
process at 15 land border ports of entry. For example, inspectors did 
not always receive the training they needed and inspections were 
hampered by technology and equipment problems. Furthermore, there was 
no structure in place to support the analysis and use of intelligence 
information in the field, despite the importance of intelligence in the 
war against terrorism. We made recommendations aimed at improving 
inspector training and equipment and developing a program to facilitate 
the analysis and use of intelligence information in the field.

1.27. Enhancing the Transformation of the Federal Bureau of 
Investigation (FBI):

Since September 11, 2001, the FBI has been reorganizing to better focus 
on counterterrorism and counterintelligence. In June 2003, we provided 
comprehensive testimony to the Congress on the progress the FBI has 
made and noted areas of concern that should be addressed to achieve 
successful transformation. These areas include completing a strategic 
plan, developing a comprehensive human capital plan and a new 
performance management system, and ensuring that safeguards are in 
place for the protection of civil liberties as broadened investigative 
authorities are implemented. The Congress will periodically monitor 
these areas of concern as the FBI transformation proceeds.

1.28. Enhancing the District of Columbia's (D.C.) Criminal Justice 
System Coordination:

On March 30, 2001, we issued a report assessing the structure of D.C.'s 
criminal justice system. We concluded that the overall success of the 
system depends on effective coordination among the participating 
agencies. We also concluded that the Criminal Justice Coordinating 
Council (CJCC) had served as a useful mechanism for addressing 
systemwide coordination issues, although its success was hampered by 
several factors. On the basis of our recommendations addressing these 
factors, both the federal government and D.C. provided funding for the 
CJCC in fiscal 2003, and the CJCC submitted its first annual report to 
the Congress, the D.C. mayor, and the D.C. City Council. Also, 
according to the Executive Director, CJCC is currently working to 
become a clearinghouse for initiatives designed to improve any aspect 
of the D.C. criminal justice system.

The Promotion of Viable Communities:

1.29. Improving Financial Accountability:

In reviewing the Small Business Administration's (SBA) loan asset sales 
program, we found errors that could have significantly affected the 
reported results in the budget and financial statements for fiscal 2000 
and fiscal 2001. SBA incorrectly calculated the accounting losses on 
the loan sales and lacked reliable financial data to determine the 
overall financial impact of the sales. Because SBA did not analyze the 
effect of loan sales on its remaining portfolio, its reestimates of 
loan program costs for the budget and financial statements were 
unreliable. As a result of these errors, SBA's auditor withdrew its 
clean audit opinions for those years and issued disclaimers of opinion. 
The auditor also disclaimed an opinion on SBA's financial statements 
for 2002. These errors and the lack of key analyses mean that 
congressional decision makers are not receiving accurate financial data 
to make informed decisions about SBA's budget and appropriations. SBA 
generally agreed with our findings and has been working to resolve the 
errors and improve its analyses.

1.30. Improving SBA's Operations and Organizational Structure:

Though SBA employs just over 4,000 people, it has over 100 field 
locations in every state and the U.S. territories. We found 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. In 2002, 
SBA presented to the Congress a 5-year transformation plan citing our 
findings as reasons why the transformation is important. In early 2003, 
SBA began implementing its transformation plan through field office 
pilots that intend to focus the district office mission on marketing 
and outreach to small businesses and centralize operations for loan 
processing and other loan-related activities.

1.31. Strengthening Foreclosure Monitoring Efforts:

In 2002, we found that the Department of Agriculture's (USDA) Rural 
Housing Service and the Federal Housing Administration (FHA) did not 
collect basic data on the overall time that it takes mortgage servicers 
and/or management and marketing contractors to sell foreclosed 
properties. Without such data, these agencies could not determine the 
performance of their servicers and/or contractors in managing the 
foreclosure process, which could result in higher costs and property 
deterioration. As we recommended, the Rural Housing Service implemented 
a computer system in June 2003 that allows the agency to determine the 
time that it takes servicers to sell foreclosed properties. We also 
recommended that FHA collect additional data on the time necessary to 
sell foreclosed properties, and FHA plans to collect this information 
early in 2004.

1.32. Cutting FHA and VA Title Insurance Costs: In a 2002 report, we 
questioned the cost-effectiveness of FHA's and VA's approximately $31.5 
million in annual expenditures on new title insurance policies during 
the foreclosure process. We found that other organizations that 
foreclose on and sell properties, such as Fannie Mae and Freddie Mac, 
generally obtain title to such properties without incurring the costs 
associated with purchasing new title policies. Consistent with our 
recommendation, FHA and VA have initiated reviews, which should be 
completed during fiscal 2004, to determine whether more cost-effective 
approaches can be implemented to establish title to foreclosed 
properties.

1.33. Improving FHA Foreclosed Property Sale Processes:

In a 2002 report, we identified weaknesses in the FHA foreclosed 
property sale processes, which delayed critical property maintenance 
and potentially left FHA properties in disrepair and on the market for 
significant periods. We recommended that FHA streamline its property 
sale procedures, and FHA officials expect to determine the best means 
of implementing revised procedures by October 2004. By revising 
existing procedures, FHA could minimize its losses on foreclosed 
property sales and enhance the appearance of neighborhoods in which 
such properties are located.

1.34. Enhancing SBA's Oversight of Lenders:

In reports and testimony over several years, we noted the lack of 
clarity in SBA's authority to take enforcement action against lenders 
should the need arise. In 2003, SBA submitted to its oversight 
committees proposed statutory changes that would give it authority to 
issue cease and desist orders, levy civil money penalties, and take 
other enforcement actions. We also provided technical comments on the 
proposed legislation.

Responsible Stewardship of Natural Resources and the Environment:

1.35. Contributing to the Debate on Healthy Forest Initiative:

The National Fire Plan is a long-term, multibillion-dollar initiative 
involving federal land management agencies, states, and local 
governments. Much of the plan is devoted to improving the health of 
national forests by reducing the buildup of forest fuels (e.g., brush, 
small trees, and other vegetation) that have accumulated over the past 
several decades. Controversy arose about whether the public's ability 
to appeal and litigate Forest Service fuels reduction decisions unduly 
delayed the agency's ability to carry out reduction activities in the 
national forests. The administration tried to address this situation by 
proposing the enactment of the Healthy Forest Restoration Act of 2003. 
Among other things, the proposed legislation attempts to revise the 
appeals and litigation process or exempt certain fuels reduction 
activities from it. We provided timely, comprehensive data to assist 
the Congress in its debate on the act.

1.36. Assisting the Congress on the Multibillion Dollar Everglades 
Restoration:

Restoring the Everglades will take billions of dollars, last over 50 
years, and require many federal and nonfederal agencies to work 
together to achieve a healthy, restored ecosystem. In response to our 
reports, the Congress required the task force that administers the 
initiative to develop and periodically update a strategic plan and 
develop a conflict resolution process and land acquisition plan. The 
task force has since developed and updated the strategic plan and is 
finalizing the conflict resolution process and the land acquisition 
plan. In 2003, we made recommendations to the task force on how it can 
more effectively coordinate and prioritize scientific activities to 
support the restoration, made contributions to a congressional 
appropriation hearing on the subject, and deliberated with the task 
force on the science issues confronting the Everglades restoration.

1.37. Influencing Legislation to Improve Security of Chemical 
Facilities:

Our 2003 report on the security of chemical facilities demonstrated the 
need for a comprehensive national chemical security strategy to ensure 
that the chemical industry has taken appropriate security measures. 
Across the nation, thousands of industrial facilities manufacture, use, 
or store hazardous chemicals in quantities that could potentially put 
large numbers of Americans at risk of injury or death in the event of a 
chemical release. Yet, despite all efforts since the events of 
September 11, 2001, to protect the nation from terrorism, our report 
concluded that the extent of security preparedness at U.S. chemical 
facilities is unknown. While some other critical infrastructures are 
required to assess their security vulnerabilities, no federal 
requirements are in place to require chemical facilities to assess 
their vulnerabilities and take steps to reduce them. Our work led to 
several Senate bills calling for increased security measures and 
assessments of vulnerabilities at chemical facilities nationwide.

1.38. Security Training for USDA Food Inspection Personnel:

In 2003, we reported on USDA's efforts to secure the nation's food 
supply from deliberate contamination. We found that although USDA had 
issued security guidelines for food processors and placed its 
inspection personnel on heightened alert, the department had only 
provided security training to its field supervisory personnel. Because 
all of USDA's field inspection personnel are tasked with, among other 
things, advising food processors on security matters, we recommended 
that USDA provide training to all of its field personnel to enhance 
their awareness of and ability to discuss security measures with plant 
personnel. In response, USDA (1) issued a directive instructing field 
inspectors on security measures to be taken relative to elevated 
national security threat levels and (2) developed and provided a 
multiday antiterrorism training program for facilitators. USDA hopes to 
deliver and complete training for all its field personnel by the end of 
fiscal 2004.

1.39. Helping Achieve Savings on the Oregon Inlet Project:

As a result of our recent work on the proposed Oregon Inlet, North 
Carolina, navigation project, the White House's Council on 
Environmental Quality announced an agreement among the Army Corps of 
Engineers and the Departments of the Interior and Commerce not to 
proceed with the project. The council cited our finding that the Corps' 
economic analysis was not reliable, in particular that the Corps had 
significantly overstated the benefits of the project, as a key factor 
in the agreement not to pursue the 30-year proposed project. The 
financial benefit from this decision is estimated to total $93.7 
million.

1.40. Superfund Cleanup Cost Recovery:

Under the liability provisions of the Superfund hazardous waste cleanup 
program, parties responsible for contaminating a site must pay for its 
cleanup, or the Environmental Protection Agency (EPA) can conduct the 
cleanup and subsequently recover its costs from the parties. We found 
that EPA was not recovering billions of dollars in indirect costs, 
which are costs EPA prorates across all sites because they cannot be 
attributed to a particular site. In response to our recommendations, 
EPA adopted a new method to calculate its indirect costs. EPA estimated 
in 2003 that it would recover at least about $100 million in additional 
indirect costs as a result of using the new rate from those cleanups 
that have been completed, but whose cost recovery settlements have not 
been negotiated. In addition, EPA estimated that it will also recover 
about $30 million more each year until the end of the program because 
of the new rate. This will result in a total of about $210 million in 
recovered cost.

1.41. Better Compliance with Seafood Safety Regulations:

We reported in 2001 that when Food and Drug Administration (FDA) 
inspectors identify serious violations at seafood processing firms, the 
agency does not issue warning letters in a timely manner. We reported 
that although FDA's regulatory procedures call for approval of warning 
letters within 15 days, on average 73 days elapsed between the receipt 
of the district offices' recommendations to issue a warning letter and 
issuance of the warning letters by headquarters. As a result, three-
quarters of the warning letters in fiscal 1999 exceeded FDA's own 
prescribed time frames by 30 days or more. Consequently, we recommended 
that FDA issue warning letters within the required timeframes. FDA 
agreed with the recommendation and in 2003, said that, on average, it 
had reduced its review time for warning letters to about 20 days. 
Although this is 5 days short of the agency's 15-day approval policy, 
FDA's actions represent a step forward in ensuring better compliance 
with seafood safety regulations.

A Secure and Effective National Physical Infrastructure:

1.42. Improving Emergency Response and Disaster Assistance:

We reviewed both the emergency response efforts that followed the 
September 11 terrorist attacks and the subsequent disaster assistance 
provided. We also continue to assist the September 11th Commission and 
other entities seeking to improve the nation's ability to respond to 
disasters. Our review of the disaster response efforts by the Federal 
Emergency Management Agency (FEMA) and others following the terrorist 
attacks recommended that FEMA establish an approach to deliver critical 
components of its public assistance program to avoid future delays and 
concerns about funding approaches. For example, we found that most of 
the $15 billion in direct federal assistance provided to New York as a 
result of the terrorist attacks has been designated and over half had 
been disbursed by June 2003; however, the total amount of federal 
assistance will never be known because the Internal Revenue Service 
cannot accurately track allowable tax benefits. In response to our 
recommendations, the Congress and cognizant agencies have undertaken 
specific steps to better coordinate response to disasters.

1.43. Making Key Contributions to Infrastructure Safety:

Drawing on an extensive body of issued and ongoing work on the safety 
of our nation's infrastructure, we made numerous recommendations to 
improve safety in aviation, highway, rail, and pipelines. For example, 
in response to our 1999 recommendation aimed at making airline 
inspections more systematic and structured, the Federal Aviation 
Administration (FAA) took steps to improve its inspection guidance, the 
quality of inspection data, and the use of these data in the 
identification of potential aviation safety risks. Our work also 
provided the backdrop for a congressional hearing on highway safety and 
was prominently cited by numerous Senators and other witnesses as 
relevant to key elements of the administration's proposal to 
reauthorize the surface transportation law. Specifically, our work will 
help determine how much flexibility states should have in spending 
federal safety funds, whether it is better to use penalties or 
incentives to get states to adopt key highway safety legislation, and 
how the Department of Transportation (DOT) and the Congress should 
oversee and hold states accountable for highway safety. In response to 
our recommendations concerning the setting of highway research agendas 
and evaluating outcomes, DOT revamped its entire highway research 
program to incorporate comments from stakeholders in deciding the 
direction of its research and to evaluate the outcomes of its research 
in a systematic matter. Finally, as a result of our past work on 
pipeline safety, DOT's Office of Budget and Program Performance agreed 
to more closely link its performance goals for pipeline safety to 
deaths and injuries associated with pipeline accidents.

1.44. Evaluating the Efficiency and Financial Condition of the Nation's 
Airports and Airlines:

We reported on a number of initiatives to address air traffic delays 
and congestion and relieve financial instability in the nation's 
airlines. As a result of airline financial problems--some of which 
culminated in bankruptcies and major restructuring--from flight delays 
and congestion, the Congress determined that the nation must find ways 
to build runways faster to increase capacity in the national aviation 
system. The House used our 2003 study of runway development as a basis 
for addressing the challenges associated with runway construction, by 
including a provision increasing the efficiency of key processes in 
runway development in legislation reauthorizing FAA. Our analysis of 
aviation financial data--presented in a series of reports and 
testimonies in fiscal 2003--was a critical component of congressional 
deliberations on the nature and scope of development needs and how 
those needs could be financed. Both the House and Senate used our 
information and analysis of aviation financial data to help them 
develop FAA reauthorization legislation that authorizes $15 billion for 
airport development over the next 4 years. FAA has also sought to help 
meet the anticipated growth in air travel by implementing a new, more 
flexible approach for air traffic management, known as free flight, to 
increase the capacity and efficiency of our nation's air space while 
helping to minimize delays. Responding to one of our recommendations 
from 2001, FAA has developed a national plan to improve free flight 
training outcomes and delivery methods, evaluate its potential for use 
with other air traffic control systems, and identify requirements and 
costs for its next phase. At the request of the Congress, we also 
evaluated the impact of new regulations governing the performance of 
airline computer reservation systems on the travel industry.

1.45. Reforming the Postal Service:

The Congress took both interim and comprehensive actions to address key 
postal reform issues identified in our past work. First, the Congress 
passed legislation in April 2003 to reform the funding of benefits 
under the Civil Service Retirement System for employees of the Postal 
Service, reducing its pension liability from $32 billion to about $5.8 
billion and providing some short-term financial relief. Second, the 
Postal Service has improved the content of its quarterly financial 
reports by providing greater detail related to changes in its current 
and projected financial condition. In addition, in response to our 
recommendations, the Postal Service took actions to improve the 
prevention of losses of postal assets, such as the $6.3 million in cash 
and checks it lost in fiscal 2001, by improving its procedures and 
training for the security of cash and checks. Finally, the House 
Government Reform Committee established a special panel on postal 
reform and oversight to work closely with the President's Commission on 
the Postal Service, which issued its report with recommendations for 
comprehensive postal reform in July 2003. The congressional oversight 
committees plan to use the Commission's report to develop comprehensive 
postal reform legislation and hold hearings in the fall of 2003.

1.46. Contributing to the Debate on Spectrum Management and 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 2003, we 
recommended that certain federal agencies, in conjunction with other 
parties, develop a plan for establishing a commission with wide 
representation to determine whether overarching spectrum management 
reform is needed. In June 2003, President Bush signed an executive 
memorandum that created the Spectrum Policy Initiative, which includes 
the creation of a Federal Government Spectrum Task Force with 
widespread membership that will produce recommendations for improving 
spectrum management. We also helped the National Telecommunications and 
Information Administration consider alternative spectrum management 
approaches by providing the agency with information on the United 
Kingdom's incentive pricing system for the radio frequency spectrum. We 
also identified factors affecting the transition to digital television 
and the implications of this transition for spectrum management. In 
releasing this report, one Representative said that he would craft 
legislative proposals that contain the policy suggestions that we 
advanced to help government jump-start the digital television 
transition to drive economic growth, innovation, and job creation.

1.47. Making Key Contributions to Security:

We assisted and advised transportation officials and authorities as 
they continued to develop security strategies to address 
vulnerabilities in the wake of September 11. Drawing upon an extensive 
body of completed and ongoing work, we identified specific 
vulnerabilities and areas for improvement to protect aviation and 
surface transportation. For example, we informed the Congress of 
improvements needed in the Federal Air Marshal Service and other 
programs and of implementation issues associated with security 
enhancements, such as a registered traveler program. Our work also 
alerted the Congress to ongoing security vulnerabilities in such areas 
as the transport of dangerous goods and air cargo and the certification 
of pilots. In association with the National Academy of Sciences, we 
also convened a panel of experts to provide input to our work on the 
shipment of hazardous materials by rail. Our efforts highlighted a need 
for better coordination of federal research into security 
vulnerabilities. In response to our finding that it had not fully 
coordinated its security vulnerabilities research with its key 
transportation security stakeholder, DOT's Research and Special 
Programs Administration agreed to hold bimonthly updates on the 
progress of each vulnerability assessment and to discuss program task 
methodologies and strategies. We also issued a comprehensive report on 
transit security that educated the Congress and others on the 
challenges facing federal, state, and local officials charged with the 
responsibility of securing the nation's mass transit systems. Our 
outreach work with state audit organizations identified federal actions 
needed to assist states and contributed to a guide to assist state 
officials and others charged with reviewing transportation security 
risks. In response to our recommendations, the Congress and cognizant 
agencies have undertaken specific steps to improve infrastructure 
security and improve the assessment of vulnerabilities.

1.48. Encouraging and Helping Guide Agency Transformations:

We highlighted federal entities whose missions and ways of doing 
business require modernized approaches, among them the Postal Service, 
GSA, and the Coast Guard. In May 2003, we followed up earlier reporting 
with testimony on the key postal transformation issues that resulted in 
their high-risk designation in 2001; among congressional actions to 
deal with these, the House Committee on Government Reform established a 
special panel on postal reform and oversight to work with the 
President's Commission on the Postal Service on recommendations for 
comprehensive postal reform. In 2003, GSA real property received the 
high-risk designation; our reporting helped spur GSA's portfolio 
restructuring initiative, intended to realign its real property 
management with its mission of providing quality space and services to 
agencies at a cost competitive with the private sector. GSA planned to 
accomplish this by improving its real-time data on the financial and 
physical condition of federal properties and either enhancing the use 
of its buildings or disposing of them, potentially avoiding substantial 
costs. We also reported this year on the Coast Guard's ability to 
effectively carry out critical elements of its mission, including its 
homeland security responsibilities. We recommended that the Coast Guard 
develop a blueprint for targeting its resources to its various mission 
responsibilities and a better reporting mechanism for informing the 
Congress on its effectiveness. Our recommendations led to legislation 
requiring better reporting by the Coast Guard and laid the foundation 
for key revisions the agency intended to make to its strategic plan.

1.49. Updating the Consumer Price Index (CPI):

In October 1997, we recommended that the Commissioner, Bureau of Labor 
Statistics, update the expenditure weights of its market basket of 
goods and services more frequently to make it timely and more 
representative of consumer expenditures. In December 1998, the Bureau 
announced that it would update expenditure weights every 2 years 
beginning in 2002, and the CPI for January 2002 reflected the new 
weights. The Bureau's adjustments have resulted in (1) lower federal 
expenditures on programs like Social Security that use the CPI to 
calculate benefits and (2) increased federal revenues associated with 
lower growth in personal exemptions on federal income taxes. The amount 
of this financial benefit is based on the Congressional Budget Office's 
projections of the impact of the CPI update for fiscal 2003 through 
fiscal 2006 converted to its net present value.

1.50. Reducing the Cost of Federal Housing Programs:

In a September 1999 report on the Department of Housing and Urban 
Development's (HUD) fiscal 2000 budget request, we determined that the 
potential existed for HUD to better manage unexpended balances and for 
some unobligated funding to be used to meet other needs. We recommended 
that HUD review its unexpended balances to ensure the expeditious 
obligation and expenditure of these funds. In response to our 
recommendation, HUD instituted a review of unexpended balances in all 
of its programs and recaptured billions of dollars from its fiscal 2001 
unexpended balances.

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:

2.1. Improving the Reliability of the Government's Information on Alien 
Addresses:

Following the September 11 terrorist attacks, the government was able 
to locate less than half of the aliens it sought to interview about 
their knowledge of terrorist activities. The government's efforts were 
hampered by unreliable address information on aliens. The fact that the 
Immigration and Naturalization Service had not publicized or enforced 
the requirement for aliens to submit change of address notifications 
and had not consistently updated information in its automated databases 
contributed to the unreliability of the information. Because it is 
vitally important for law enforcement to be able to find aliens who 
pose a national security threat or who can help with antiterrorism 
efforts, we made recommendations for improving the nation's alien 
address information system. Implementing these recommendations should 
produce better and more complete data on alien addresses and assist the 
government in combating terrorism.

2.2. Increasing Government and Private Sector Critical Infrastructure 
Protection Efforts:

In numerous reports and testimonies beginning in April 2001, we 
assessed the progress of federal agencies and private infrastructure 
sectors in implementing the activities required and suggested by 
federal critical infrastructure protection policy. In early 2003, we 
reported limited progress by key agencies, including EPA, the 
Department of Commerce, the Department of Energy (DOE), and the 
Department of Health and Human Services, in identifying their national 
critical cyber and other assets and determining the operational 
dependencies of these assets on other public-and private-sector assets. 
We also reported challenges that hinder the sharing of intelligence and 
incident information among infrastructure sectors and the federal 
government, as identified by key industry sectors, including 
information technology, telecommunications, energy, electricity, water 
supply, and financial services. These issues are important 
considerations for the Department of Homeland Security (DHS), which now 
incorporates key federal critical infrastructure protection 
organizations and responsibilities, including the development of a 
comprehensive national plan.

2.3. Improving Congressional Oversight of Federal Information Security:

Since 1996, we have reported that poor information security in the 
federal government is a widespread problem with potentially devastating 
consequences. In May 2002, we reported that the Congress was not 
receiving the information it needed to oversee agencies' efforts to 
correct their identified information security weaknesses and that an 
agency's Office of Inspector General (IG) should assess its agency's 
corrective action plans as part of its statutory annual independent 
evaluation of its agency's information security programs. In response, 
the Office of Management and Budget (OMB) authorized agencies to 
release information from their corrective action plans to the Congress 
beginning in October 2002 and requested that IGs verify that such plans 
identify all known security weaknesses. Our analyses of these plans and 
the related IG reports now assist the Congress in assessing both agency 
progress and the completeness of their efforts to correct their 
information security weaknesses.

2.4. Upgrading U.S. Export Controls on Sensitive Technologies:

Our many reviews of U.S. export control laws and programs have 
contributed to the congressional debate about enhancing the current 
system and preventing the proliferation of sensitive technologies to 
terrorists or states supporting them. Our latest report examined the 
contribution of four key multilateral export control regimes to the 
goal of nonproliferation of weapons of mass destruction. We reported 
that export control regimes have had some noteworthy successes, but the 
regimes' information-sharing practices could be improved to make the 
regimes more relevant in today's global economy. This report, as well 
as our other reports and testimonies on this issue, has informed the 
Congress about the weaknesses of the process used to control sensitive 
technology exports and the effect of proposed changes to the Export 
Administration Act on the delicate balance between protecting national 
security and promoting U.S. economic interests.

2.5. Strengthening Nuclear Nonproliferation:

Our 2002 report on U.S. efforts to help other countries combat nuclear 
smuggling identified several needed improvements in the program, 
including a full accounting of the radiation detection equipment in 
each country receiving U.S. assistance; assurances from countries 
receiving U.S. assistance that information about nuclear materials 
detected by U.S.-supplied equipment would be shared with U.S. agencies 
on a timely basis; and consolidation of all Department of State border 
security and nuclear smuggling efforts under one program office. 
Subsequently, in 2003, officials at DOE and State said that a 
comprehensive list of equipment had been completed and shared among all 
appropriate U.S. agencies; DOE said that all agreements with foreign 
countries receiving U.S. nonproliferation assistance now include a 
provision requiring that data on interdictions and detections be 
provided directly to DOE; and the program manager of State's Office of 
Export Control, Cooperation, and Sanctions said that the major 
activities related to border detection equipment within the department 
had been consolidated within his office as we had recommended.

2.6. Helping Improve Security over Radioactive Sealed Sources:

There is a potential, serious security risk in devices known as 
"radioactive sealed sources." These devices, which contain plutonium-
239, are used for research by universities scattered throughout the 
United States and in some cases are poorly secured. If the devices were 
to fall into the hands of terrorists, they could be used to make 
potentially dangerous radiological weapons, commonly called "dirty 
bombs," or even crude nuclear bombs. As a result of our 2003 report on 
these domestic sources, DOE is taking action to recover and securely 
store the devices. Our separate report on foreign sources also was 
helpful. At the request of DOE officials, we shared information with 
DOE on the information we collected from over 30 countries in every 
region of the world regarding the security and control of radioactive 
sealed sources in those countries. According to DOE, our survey results 
are being used in two ways. First, DOE is comparing each country's 
sealed source inventory data, as reported in the survey, to data that 
it has collected through other means to verify accuracy and identify 
differences. Second, DOE is using the survey results to help establish 
funding priorities for certain countries.

2.7. Highlighting Fraud Vulnerabilities as Threats to Homeland 
Security:

In a series of security tests performed over the last 3 years that 
revealed security weaknesses at federal buildings and other facilities, 
airports, and the nation's borders, we created fictitious and 
counterfeit identification documents, such as driver's licenses, birth 
certificates, and Social Security cards using inexpensive software and 
hardware readily available to any purchaser. We demonstrated that (1) 
government officials generally did not recognize the documents as 
counterfeits, (2) some government officials failed to follow security 
procedures and were not alert to the possibility of identity fraud, and 
(3) identity verification procedures are inadequate. Our investigations 
revealed that homeland security is vulnerable to identity fraud and 
that individuals who intend to cause harm could easily exploit these 
vulnerabilities, as well as perpetrate fraud in voting, obtaining 
credit and federal benefits, and in many other areas.

2.8. Identified Weaknesses in Screening Entrants into the United 
States:

The Senate Finance Committee asked us to test whether U.S. officials 
would detect counterfeit documents used by U.S. citizens to enter the 
United States from Canada, Mexico, and a Caribbean country. We used 
off-the-shelf computer graphic software to create counterfeit driver's 
licenses and birth certificates to support fictitious identities. Using 
the fictitious names and counterfeit documentation, we entered the 
United States from Canada, Mexico, and Jamaica through ports of entry 
in Washington, California, and Florida. U.S. immigration and customs 
officials never questioned the authenticity of the counterfeit 
documents, and the agents encountered no difficulty in entering the 
country using them. After completing our work, we briefed officials of 
the U.S. Customs Service and DOJ--including DOJ's Immigration and 
Naturalization Service.

2.9. Helping the Congress Create DHS:

With the testimonies we gave, we were able to identify major issues 
that the Congress reviewed in its deliberations in consideration of 
creating a new cabinet department. The result helped the passage of the 
Homeland Security Act of 2002. For example, we identified (1) the need 
for reorganization and the principles and criteria to help evaluate 
what agencies should be included in or left out of the new department 
and (2) the transition, cost, and implementation challenges of the new 
department.

Ensure Military Capabilities and Readiness:

2.10. Key Assistance to the Congress Regarding the Defense 
Transformation Act:

In April 2003, the Department of Defense (DOD) submitted to the 
Congress a proposed Defense Transformation for the 21ST Century Act. 
DOD's proposal envisioned far reaching changes in its authority to 
manage civilian and military personnel and major systems acquisitions 
and DOD's organizational structure, and additional changes in 
installations and funds transfers. We provided key assistance by 
testifying and briefing several congressional committees on issues 
related to DOD's proposal, which enabled them to conduct better 
informed deliberations on this complex proposal in time for 
consideration during the defense authorization process.

2.11. Improving Department of Defense Force Protection Efforts at 
Domestic and Overseas Ports:

In 2003, we reported on the need to improve force protection for DOD 
deployments through domestic seaports and the service's antiterrorism 
efforts at installations. We recommended strengthening domestic seaport 
security, improving DOD's oversight and execution of force protection 
measures at domestic ports, and establishing a results-oriented 
management framework. We also provided the Congress and DOD with 
preliminary observations on force protection measures being applied by 
the U.S. European Command and Southern Command at commercial seaports 
overseas, laying the foundation for recommendations aimed at improving 
oversight of force protection measures for in-transit forces worldwide, 
host nation support to U.S. forces, and the reduction of specific 
vulnerabilities. On the basis of our prior analysis, the 2003 Defense 
Authorization Act required that DOD develop a comprehensive plan to 
improve the preparedness of military installations for terrorist 
attacks involving the use of weapons of mass destruction and that we 
assess that plan.

2.12. Sharpened Congressional Focus on Risks Associated with F/A-22 
Fighter Program:

In a March 2003 congressionally mandated report, we recommended 
limiting aircraft production on the Air Force's F/A-22 aircraft program 
until operational testing is completed to minimize the risks of 
producing large quantities of aircraft that may require costly 
modifications. We reported that development testing had been delayed 
primarily due to software integration, which resulted in software 
instability problems. Our analysis helped the House Authorization 
Committee include language in the Fiscal Year 2004 Defense 
Authorization Act that fences $136 million in procurement funding for 
F/A-22 aircraft until DOD certifies that the latest software version 
installed in the F/A-22 performs for at least 20 hours without 
incurring an instability event. The Senate Authorization Committee, 
citing similar rationale, recommended reducing the F/A-22 program's 
fiscal 2004 procurement request by $217 million and further recommended 
reducing the number of aircraft procured in fiscal 2004 from 22 to 20 
aircraft.

2.13. Reducing Total Ownership Costs of DOD's Weapons Programs:

In February 2003, we reported that DOD asked for about $185 billion to 
develop, procure, operate, and maintain its weapon systems (total 
ownership costs)--an increase of 18 percent since 2001. The high cost 
of maintaining systems has limited DOD's ability to modernize and 
invest in new weapons. We found that even though DOD has implemented 
several initiatives to reduce total ownership costs, these steps do not 
incorporate many of the practices used by commercial companies during 
requirements determination, product development, and fielding. As a 
result of our recommendations, DOD revised its acquisition policy in 
May 2003 to include a requirement to establish an estimate of system 
reliability based on demonstrated reliability rates in order to proceed 
with development beyond the design readiness review. Consequently, DOD 
should be better able to control the continuous growth in total 
ownership costs.

2.14. Improving the Army's Management of Future Combat Systems 
Development:

In 2003, we reviewed the Army's Future Combat Systems (FCS) program, 
which is a major Army transformational effort, comprised of 18 
networked, warfighting systems that are intended to be more lethal, 
survivable, deployable, and sustainable than existing heavy combat 
systems. The Army has allocated about $22 billion for the FCS program 
during fiscal 2004 through fiscal 2009 and several billions more for 
non-FCS programs that the FCS will need to become fully capable. We 
briefed congressional and high-level Army staff on our observations and 
concerns that system of systems like FCS poses challenges for the 
acquisition process in terms of analyzing alternatives, estimating and 
tracking costs, and conducting oversight. We also identified several 
ways to facilitate the realization of FCS capabilities without taking 
undue risks. Subsequently, the Army took a number of actions that 
address these and other risks that, if successfully implemented, should 
improve management of and potentially reduce costs in the multibillion 
dollar FCS program.

2.15. Making Funds Available for Lighter-Weight Weapons Systems:

In May 2001, we reported that the Army's efforts to transform itself 
into a light-weight combat force faced funding challenges partly 
because of funds required to develop and field test the Crusader 
artillery system. The following year we reported that (1) the Army's 
efforts to reduce the Crusader's size and weight to make it more 
deployable would likely result in only marginal improvements and (2) 
its plans to field test during the same year the Future Combat Systems-
-a lighter-weight weapons component intended to replace the Crusader--
would result in large expenditures for duplicative systems designed to 
fulfill the same missions. In May 2002, the Secretary of Defense 
announced the termination of the Army's Crusader program. During the 
period from fiscal 2003 to fiscal 2007, the termination of the Crusader 
program will make available funds for other programs, resulting in 
about $4 billion in costs avoided.

2.16. Assessing the Risk of Major Weapon System Acquisitions:

In May 2003, we issued a unique report that provides a snapshot of 
program performance and risk for 26 major DOD weapon systems. Each 
individual assessment is summarized in an easy to read, visually 
descriptive 2-page format that provides a fact-based analysis of each 
program's cost, schedule, and development progress in relation to best 
practices. These assessments provide decision makers with a means to 
quickly gauge the progress of individual programs and offer the 
opportunity for action when a program's projected attainment of 
knowledge diverges from the best practice. This report is being used 
extensively by the Congress, DOD, and the defense industry. In 
addition, several countries are planning to replicate our approach into 
their own defense reviews.

2.17. Improving Outcomes of DOD Weapon System Programs:

Our work on major weapons systems under development helped focus the 
attention of the Congress on the importance of following an effective 
knowledge-based acquisition approach. We found, for example, that 
weapons system developers have often failed to address spectrum 
supportability needs during the early stages of acquisition and, as a 
result, some programs experience significant delays and reduced 
operational capabilities. Similarly, we found that the Joint Tactical 
Radio System and FCS programs had not acquired sufficient knowledge 
during the early stages of acquisition on several key aspects of 
product development, such as technology maturity and requirements 
determination, which could affect a successful outcome. As a result of 
our work, Senate and House versions of the Fiscal Year 2004 Defense 
Authorization Act contain provisions to strengthen both the enforcement 
of spectrum supportability in weapon system acquisitions and the 
implementation of the Joint Tactical Radio System and FCS Programs.

2.18. Improved Safeguards and Security in Nuclear Weapons Program:

Over the past decade, others and we have raised concerns about the 
adequacy of security at nuclear weapons facilities within DOE's 
National Nuclear Security Administration (NNSA). We addressed many of 
these matters in its 2003 report on the subject, leading to several 
NNSA improvements. In response to our recommendation aimed at 
overcoming ill-defined roles and some attendant confusion in NNSA site 
offices concerning safeguards and security matters, NNSA officials 
agreed to formally establish safeguards and security responsibilities, 
and did so by issuing its Safeguards and Security Functions, 
Responsibilities, and Authorities manual. Responding to our concerns 
about the adequacy of contractors' analyses underlying their action 
plans to address identified safeguards and security weaknesses, NNSA 
issued guidance to contractors designed to strengthen those analyses. 
And finally, to address shortfalls that we identified in staffing 
numbers and expertise in offices overseeing contractor safeguards and 
security, NNSA announced that it would assign additional federal and 
contractor security experts to expedite action on security issues at 
its national laboratories. It also announced the establishment of a 
panel to develop recommendations for recruiting and retaining 
sufficient security experts to effectively oversee safeguards and 
security in the NNSA complex.

2.19. Improving Maintenance of DOD's Deteriorated Facilities:

Contributing to the debate on how to improve the condition of DOD 
facilities, we issued two reports during fiscal 2003 on the funding and 
condition of the active services' and reserve components' facilities. 
We found that funding for facility maintenance and recapitalization has 
been inadequate, resulting in deteriorated facilities that negatively 
affect the quality of life for military and civilian personnel and, in 
some cases, hindered the performance of their mission. We recommended 
that the services and reserve components periodically review and 
reevaluate the priorities to sustain and improve the condition of 
facilities. DOD agreed with our recommendations and the House Committee 
on Armed Services directed the Secretary of Defense to report on how 
the department intends to address these issues by December 2003.

2.20. Assisting Congressional Decisions on Funding for Military Needs:

In fiscal 2003, the Congress provided DOD with $365 billion for its 
annual appropriation and an additional $76 billion for the war on 
terrorism, including military operations in Iraq. To support the 
Congress in determining DOD's funding needs, we reviewed the 
reasonableness of DOD's fiscal 2003 budget request, its use of budgeted 
funds in prior years, and the status of its war on terrorism 
expenditures. We also reviewed DOD's ability to manage and track the 
use of obligated funds. We identified millions of dollars in potential 
costs avoided and opportunities for DOD to improve its internal 
oversight of fund use and tracking. The information we provided 
contributed to congressional decisions to adjust DOD's fiscal 2003 
budget request by almost $1.5 billion. Our work also prompted DOD to 
reevaluate certain funding requirements, adjust financial records, and 
take other actions that are expected to result in $119 million in cost 
reductions.

2.21. Evaluating Federal Preparedness for Homeland Security Missions:

We found that the threat of terrorism has altered some military 
missions and that DOD has established new organizational structures, 
including U.S. Northern Command, and developed a new campaign plan for 
domestic missions. At the same time, DOD has not reevaluated the 
structure of U.S. forces to ensure they are well structured for these 
missions, has relied on forces that were not well matched to their 
domestic missions, and has risked erosion of military skills because 
the missions offer limited opportunities to practice the varied skills 
needed for combat. Consequently, we recommended that DOD evaluate the 
need to restructure forces to better match them to their domestic 
missions to ensure that the missions could be effectively carried out 
while maintaining military readiness of participating forces.

2.22. Contributing to the Debate Over DOD's Proposal to Revamp the 
Civilian Personnel System:

We issued a report and testified four times before House and Senate 
committees on DOD's need to improve its human capital strategic 
planning. For example, we recommended that DOD align its strategic 
human capital plan with its overarching mission and that the plan 
should include results-oriented performance measures and focus on 
future workforce requirements. Citing our report's conclusions and 
recommendations, some members of the Congress, during hearings on DOD's 
proposal to revamp its civilian personnel system, expressed concern 
about DOD's readiness to move forward on its proposal. On the basis of 
our report and testimonies, the Senate Committee on Governmental 
Affairs drafted legislation that scaled back DOD's proposal and added 
numerous safeguards and protections for DOD's civilian federal 
employees.

2.23. Estimating the Exposure of U.S. Troops to Chemical Plume During 
the Gulf War:

Congressional questions about extending benefits to U.S. troops who 
were not directly exposed to chemical warfare agents led to our 
examining the basis of DOD conclusions regarding the extent of exposure 
to chemical plume during the Gulf War. We found that DOD and the 
Central Intelligence Agency used flawed methodology and unreliable and 
inaccurate information to determine that U.S. troops' exposure was 
minimal. Given the uncertainties in the modeling data and who was 
exposed, we recommended that the Secretary of Veterans Affairs presume 
exposure, since many more veterans could have been exposed than first 
estimated. As a result of our testimony, a Veterans Affairs Research 
Advisory Committee on Gulf War Veterans Illnesses agreed that the 
Secretary of Veterans Affairs should implement our recommendation to 
give presumptive benefits to all Gulf War veterans.

2.24. Controlling Personnel Costs and Minimizing Ownership Costs of 
Navy Ships:

We identified several actions the Navy should take to optimize ship 
crew sizes. We concluded that the Navy could significantly lower 
personnel costs by using a human systems integration approach at the 
earliest stages of a ship's design and recommended that the Navy (1) 
require that ship programs use human systems integration to establish 
crew size goals and help achieve them, (2) clearly define the human 
systems integration certification standards for new ships, and (3) 
formally establish a policy evaluation function to examine and 
facilitate the adoption of cost-saving technologies and best practices 
across Navy systems. DOD agreed and indicated that actions were under 
way or that they planned to implement them. These steps should result 
in better ship designs and reduce the total ownership costs of the 
fleet by billions of dollars.

2.25. Improving Military Readiness by Overcoming Spare Parts Shortages:

While DOD has made some progress in applying business practices to 
improve its logistics support, long-standing problems continue with 
regard to the acquisition, management, and distribution of spare parts-
-an area that we have designated as high risk since 1990. We made 
recommendations aimed at ensuring there is a clear focus on overcoming 
shortages of critical spare parts in DOD's strategic plans, 
initiatives, and funding priorities. As part of its recent logistics 
transformation effort, the Office of the Secretary of Defense 
promulgated strategic plans to guide the Defense Logistics Agency's and 
the services' efforts for improving logistical support to the war 
fighter. In turn, the Defense Logistics Agency and the services have 
started adopting a variety of best business practices, such as setting 
performance goals and using performance based contracts, to provide 
needed supply support to their customers. According to the Deputy Under 
Secretary for Logistics and Materiel Readiness, DOD is transforming 
logistics by measuring performance and balancing requirements, 
investments, and risk using a balanced scorecard.

Advance and Protect U.S. International Interests:

2.26. Strengthening the U.S. Visa Process as an Antiterrorism Tool:

Our analysis of the U.S. visa-issuing process showed that the 
Department of State's visa operations prior to September 11, were 
focused on screening applicants to determine whether they intended to 
work or reside illegally in the United States, rather than on screening 
for potential terrorists. We recommended that State should develop 
clear and comprehensive policies for agencies on how consular officers 
should use the visa process as a screen against potential terrorists 
and that State should reassess its consular staffing requirements and 
revamp its training program. State indicated that it would use our 
recommendations as a roadmap for improvement in consular sections 
around the world. State reports that it has already taken steps to 
adjust its policies and regulations concerning the screening of visa 
applicants and its staffing and training for consular officers.

2.27. Assessing the Conditions of Overseas Diplomatic Facilities:

We evaluated the condition of nearly 250 overseas diplomatic facilities 
with respect to physical security, maintenance, and office space. Our 
analysis demonstrated that most primary office buildings were in poor 
condition and suffered serious security vulnerabilities. For example, 
only 12 posts had a primary office building that met all five of the 
Department of State's security standards, and 232 posts did not meet 
one or more of State's key security standards. Consequently, these 
posts may be more vulnerable to terrorist attacks. We concluded that 
State had taken positive steps to improve facility conditions by 
replacing existing buildings with new and secure embassy compounds and 
recommended in congressional testimony that such a large-scale building 
program receive extensive oversight due to the cost and importance of 
the program. The Senate Committee on Foreign Relations noted that our 
analysis on embassy security was an indispensable resource in the 
effort to ensure the safety of U.S. government personnel overseas.

2.28. Overseeing the Rebuilding of Iraq:

In May 2003, we reported that our many prior reviews showed that 
rebuilding countries is both difficult and costly and that 
congressional oversight is extremely important. According to our work, 
the rebuilding of Iraq should include oversight of U.S. efforts to 
provide security, reconstruct basic infrastructure, create accountable 
government institutions, foster conditions for democracy, and build a 
free market economy. Based in part on our report, congressional 
committees said that their oversight of Iraq's reconstruction is a 
priority and requested our help in this effort.

2.29. Recovering the Former Iraqi Regime's Illicit Assets:

In May 2002, we reported that the former Iraqi regime had illegally 
obtained $6.6 billion by smuggling oil and arranging kickbacks on oil 
and commodity contracts related to the United Nations's Oil for Food 
program. Our work has been cited more than 700 times by the press, 
other studies, and reports, particularly in considering the potential 
amount that could be recovered from Saddam Hussein's illicit 
activities. In March 2003, the Department of the Treasury announced a 
worldwide effort to recover the former regime's assets and cited our 
report as part of the basis for this action.

2.30. Improving the Delivery of Disaster Recovery Assistance:

We are concurrently monitoring and evaluating $159 million in disaster 
recovery funding to assist El Salvador in recovering from two severe 
earthquakes that struck in early 2001. Our monitoring effort has led to 
improvements in key aspects of the U.S. Agency for International 
Development's (USAID) program. In response to our recommendations, 
USAID improved its methodology for sampling and inspecting completed 
houses and took action to help low-income housing beneficiaries obtain 
water and electricity. The May 2003 report further recommended that 
USAID establish benchmarks and milestones to accelerate the pace of 
housing construction and consider reducing the number of houses to be 
built by the Salvadoran government housing authority if it is unable to 
meet its construction schedule. USAID agreed with these recommendations 
and is currently working to address them.

2.31. Assessing United Nations's Renovation Plans and the Potential 
U.S. Financial Impact:

We reported on the United Nations's efforts to renovate its 
headquarters and calculated the potential financial impact on the 
United States should it provide a $1.2 billion interest-free loan to 
fund this project. We found that the United Nations followed a 
reasonable process consistent with leading practices in developing the 
headquarters renovation plan--the first of a five-phase process. The 
United Nations agreed with our recommendation that its oversight bodies 
be given the resources necessary to conduct effective oversight of the 
project. We are the only entity that has provided an estimate to the 
federal government of the financial impact of the United Nations's 
renovation, which includes providing the $1.2 billion interest-free 
loan and repaying a share of the loan--estimated at over $700 million-
-as a member of the United Nations.

2.32. Assessing the United Nations Educational, Scientific, and 
Cultural Organization's (UNESCO) Reform Efforts Since U.S. Departure:

We reported on UNESCO's efforts to reform its management practices to 
help shape U.S.-planned reentry into the organization in 2003. The 
United States left the organization in 1984, contending that it was 
poorly managed. Because the executive branch is interested in having 
the United States rejoin the organization, we reviewed the costs of 
doing so as well as UNESCO's reform actions. We found that while UNESCO 
has tried several times to restructure its management practices, these 
reforms are in their early phases, are not yet complete, and will 
succeed only with the sustained efforts of management and member 
states.

2.33. Filling Major Gaps in the Visa Revocation Process:

We assessed the effectiveness of the visa revocation process, 
specifically for individuals whose visas were revoked for terrorism 
concerns. We concluded that the U.S. government lacked comprehensive 
policies to guide the process and that there were major gaps in the 
policies' implementation. We also concluded that neither the 
Immigration and Naturalization Service nor the FBI were routinely 
investigating or attempting to locate individuals whose visas were 
revoked for terrorism concerns. DHS agreed with our recommendation that 
the visa revocation process should be strengthened as an antiterrorism 
tool. And, in testimony following the issuance of our report, the 
Department of State said that it had already improved its coordination 
with DHS and its information-sharing on visa revocations.

2.34. Assessing the U.S. Government's Staffing Needs at Embassies and 
Consulates:

Our work on rightsizing the U.S. government's overseas staffing has 
helped push forward the rightsizing initiative included in the 
President's Management Agenda. We developed a framework that calls for 
consideration of security, mission, and costs when determining the 
appropriate size of the overseas workforce. OMB supported the framework 
and established an interagency working group to help structure and 
guide the rightsizing process. State agreed that our framework provided 
a good foundation for improving the overseas staffing process. In April 
2003, we recommended that State develop formal, standard, and 
comprehensive guidance on developing staffing projections for new 
embassy construction projects, so that it constructs buildings that are 
the right size. In June 2003, State issued such a guide, which 
specifically requires that posts use our rightsizing framework 
questionnaire when establishing projections. We also found that greater 
staffing of a renovated, $80 million facility in Frankfurt, Germany--
which will be the largest U.S. overseas diplomatic post--would optimize 
its use and improve security for personnel relocated from other 
embassies in Europe and other regions that have serious security 
vulnerabilities. In response to our analyses, State has restarted a 
process to identify staff from posts outside Germany who could be 
relocated to the Frankfurt facility.

2.35. Maximizing the Impact of U.S. International Broadcasting:

Our July 2003 report on U.S. international broadcasting led the 
Broadcasting Board of Governors to fundamentally revise its 5-year 
strategic plan to focus on areas of strategic importance in the war on 
terrorism. In addition, the board is revising its plan to incorporate 
more meaningful performance indicators as suggested in our report. For 
example, audience size measures will now be included in the plan as a 
key performance measure. In line with another report recommendation, 
the Board is conducting an in-depth review of the need for and utility 
of integrating overlapping language services (a 55-percent overlap 
currently exists between Voice of America and other broadcast language 
services) and expects to include the results of this review in its 
fiscal 2005 budget submission. Such changes will allow the board and 
external groups such as OMB and the Congress to allocate resources more 
effectively.

2.36. Using Private Sector Techniques to Improve U.S. Public Diplomacy:

Nearly 2 years after the terrorist attacks of September 11, 2001, the 
Department of State still lacked an overall strategy to integrate its 
diverse public diplomacy activities toward improving the image of the 
United States overseas. In August 2003, State began implementing our 
recommendation that it develop such a strategy and that it consider the 
techniques of private sector public relations firms in integrating all 
of State's public diplomacy efforts and directing them toward achieving 
common and measurable objectives. To assist State, we gave officials a 
list of high-level private sector contacts that we consulted in the 
course of our work. State plans to collaborate with these and other 
private sector leaders in developing its strategy and improving its 
methods of measuring the effectiveness of its programs. State also 
established a new office of strategic planning for public diplomacy 
activities to support this effort.

2.37. Improved Accountability Over U.S. Funds Provided to Two 
Micronesian Nations:

We found that the United States, the Federated States of Micronesia, 
and the Republic of the Marshall Islands had taken little action to 
ensure accountability over and the effectiveness of U.S. funds--about 
$1.6 billion for fiscal 1987 through fiscal 1998--provided to the two 
Pacific island nations via a Compact of Free Association. The 
Department of State Compact Negotiator incorporated several of our 
recommendations into the amended compacts during negotiations with the 
two Pacific island nations that were completed in the spring of 2003. 
For example, U.S. funds will be provided through specific grants that 
are subject to grant terms and conditions, capital (public 
infrastructure) projects will be defined in detail and funds made 
available for maintaining these projects, and annual reporting and 
consulting requirements will be expanded.

2.38. Increasing Knowledge of Acquired Immune Deficiency Syndrome 
(AIDS) in Africa and Other Parts of the World:

In a series of reports since 2001, we reported on the impact and 
challenges of measuring efforts to control the spread of AIDS. As a 
result, we recommended (1) that behavior surveys be developed and 
administered to the United Nations peacekeeping contingents to improve 
available data related to transmitting or contracting sexually 
transmitted infections, including AIDS; (2) that efforts be made to 
integrate AIDS into the work of the United Nations and to hold country 
level staff accountable for participation in efforts to help host 
countries combat AIDS; and (3) that all missions and regional offices 
in USAID, which conducts AIDS prevention activities, select standard 
indicators to measure the progress of AIDS programs and gather 
indicators that are based on performance data. In response, both the 
United Nations and USAID took the necessary steps to address our 
recommendations.

Respond to the Impact of Global Market Forces on U.S. Economic and 
Security Interests:

2.39. Reassessing the Advisory Committee System:

As a result of our assessment of how the private sector advisory 
committee system on U.S. trade policy could make its consultation 
process with the government more meaningful and reliable, the United 
States Trade Representative and other managing agencies have changed 
their approach to this process. The United States Trade Representative 
has taken a series of steps to improve the timeliness of consultations, 
such as instituting monthly conference calls with committee chairs and 
developing a secure Web site to disseminate materials before meetings. 
In addition, USDA and the Department of Commerce have made efforts to 
improve the quality of the committee meetings and fill gaps in 
committee representation. Moreover, the Department of Commerce has 
proposed a reorganization of its 21 committees into 15 committees that 
more closely align the system's structure and composition with the 
current U.S. economy and negotiating demands. Streamlining the system 
should also better match agency resources to the management tasks 
involved.

2.40. Making Trade Agreements More Accessible:

As part of our ongoing work for the Congress on China trade issues, we 
created an electronic database to analyze China's World Trade 
Organization accession agreement. We issued the searchable database to 
provide a tool for policymakers, analysts, lawyers, and businessmen 
interested in examining the numerous commitments China undertook to 
join the World Trade Organization. Given the complexity and length of 
the agreement, the database can help them both identify the 
opportunities that the agreement creates and monitor China's 
implementation.

2.41. Future Implications of Public Accounting Firm Consolidation Are 
Unknown:

The audit market is in the midst of unprecedented change, including 
increased concentration among the largest firms. We identified a number 
of issues that warrant ongoing attention, including (1) monitoring 
whether firms will begin to exercise significant market power in the 
future through, for example, higher fees; (2) studying whether anything 
should be done to prevent further consolidation among firms, such as 
some form of government intervention; (3) continuing to target 
sanctions by balancing the individuals' and firms' responsibilities 
while managing the potential moral hazard created by firms' believing 
they are "too few to fail;" (4) monitoring the effect of concentration 
on auditor choice in particularly concentrated industries; and (5) 
evaluating whether addressing existing barriers to entry into the large 
public company audit market, such as capital formation, could prevent 
further consolidation among the existing four large public accounting 
firms.

2.42. Blocking Internet Gambling:

We provided a comprehensive overview of the efforts under way by credit 
card companies and banks to block the use of credit cards to pay for 
illegal Internet gambling transactions. Our work was used in the debate 
over legislation to ban the use of credit cards and other payment 
mechanisms to pay for illegal Internet gambling transactions. The House 
passed the bill in June 2003.

2.43. Full Financial Markets Recovery from Terrorist Attacks:

In reports issued in 2003, we described how financial market 
participants and regulators responded to the September 11 terrorist 
attacks. We found many factors that caused the longest closure of the 
U.S. stock markets since the 1930s, including the need for many market 
participants to reestablish operations and communications capabilities 
at new locations outside the affected area. We reported that regulators 
had begun efforts to ensure that market participants involved in the 
transfer of funds and securities take steps to ensure that they can 
recover their operations after a disaster. However, our reports 
recommended that regulators also develop recovery strategies and sound 
business continuity practices to better ensure that vital trading 
activities will also be able to resume when appropriate.

2.44. Improving Mutual Fund Disclosures:

In 2000, we reported the fees charged by mutual funds had generally 
declined during the 1990s for the average large fund. However, not all 
funds whose assets had grown and thus had the opportunity to reduce 
their fees had done so. We also reported mutual funds do not generally 
compete on the basis of the fees they charge investors. To improve 
investor awareness of these fees and increase price competitions among 
funds, we identified alternatives for regulators to increase the 
usefulness of fee information disclosed to investors. In late 2002, the 
Securities and Exchange Commission (SEC) issued proposed rules to 
enhance mutual fund fee disclosures using one of our recommended 
alternatives.

2.45. Improving the SEC's Public Company Accounting Oversight Board 
Selection Process:

The Sarbanes-Oxley Act of 2002 required that SEC appoint members to the 
newly created Public Company Accounting Oversight Board, which is 
responsible for the oversight of the audits of public companies in the 
wake of numerous corporate and accounting scandals. Given 90 days to 
appoint the five members to this board, SEC failed to establish a 
nomination and vetting process to ensure that the Commission had the 
information necessary to make informed selection decisions. SEC 
conducted the vetting process after the appointment. As a result, SEC 
appointed an oversight board Chairman that resigned within weeks amid 
controversy involving his role as chairman of an audit committee of a 
small technology company. In response to our work, SEC developed a new 
nomination and vetting process that clearly articulates the process and 
requires that all nominees be vetted prior to appointment to the board. 
The new process also articulates selection criteria and additional 
criteria that may be considered in the selection process.

2.46. Reducing the Risks in International Weapon Development Programs:

Our June 1998 report addressing DOD's international agreement with 
Germany and Italy to acquire the Medium Extended Air Defense System 
found that DOD did not fully assess technology transfer issues before 
initiating the program and allies became unhappy with DOD's reluctance 
to share valuable technology. We recommended that DOD, prior to 
initiating future international efforts, complete an in-depth 
assessment of technology transfer issues. DOD concurred with the 
recommendation and, beginning with the third-quarter of fiscal 2004, 
will implement a modified technology transfer approach. This action 
should help DOD enter into more successful joint cooperative efforts 
with U.S. allies.

2.47. Efficiency Improvements in the Department of State's Export 
Licensing Process:

In December 2001, we reported that license applications for the sale of 
defense articles and services take a significant amount of time to 
review because of the complexity of the application and the need to 
consider different points of view. Our report also highlighted several 
conditions that reduce the efficiency of the application review process 
and resulted in hundreds of applications that were lost and thousands 
that were delayed while no substantive review occurred. In response to 
our recommendations, the Department of State developed detailed 
guidelines to assist licensing officers in deciding if license 
applications should be referred to other offices and agencies; 
established a system of highlighting license applications that may be 
stalled in the licensing process; and established a mechanism that 
tracks license applications as they move through the process.

2.48. Ensuring Defense Emergency Response Funds are Better Targeted:

We briefed the Senate and House Appropriations Defense Subcommittees in 
June and July 2002 on DOD's use of the Defense Emergency Response Fund. 
We reported that DOD managed about $15 billion in emergency funds that 
it received from the Emergency Response Supplementals for fiscal 2001 
and fiscal 2002, but had not obligated about $3.7 billion of the funds. 
We also reported that of the unobligated amount, over $535 million had 
not been allocated to the Fund's 10 categories and consequently were 
not connected with specific requirements. The Congress subsequently 
rescinded $224 million from the Fund because funds were not used 
quickly enough and were for relatively lower-priority activities. The 
Congress also directed DOD to realign $276 million in the Fund to 
address other funding requirements.

Strategic Goal 3:

Help Transform the Federal Government's Role and How It Does Business 
to Meet 21ST Century Challenges:

The Implications of the Increased Role of Public and Private Parties in 
Achieving Federal Objectives:

3.1. Adjustment of Civil Penalties for Inflation:

In a series of reports, we determined that a number of federal agencies 
had not adjusted their civil penalties for inflation in a manner 
consistent with the Federal Civil Penalties Inflation Adjustment Act, 
as amended, and we recommended that the agencies make those 
adjustments. Subsequently, consistent with our recommendation, seven 
agencies have published Federal Register notices adjusting their 
penalties for inflation or otherwise taking action to comply with the 
statute.

3.2. Affecting the Legislative Debate on Federal Involvement with the 
District of Columbia:

Our report has already informed the debate over the fiscal relationship 
between the District of Columbia and the federal government and will 
likely set the tone for any future legislation or appropriations 
decisions regarding the District of Columbia. The report led to a 
House/Senate joint press conference and briefings with key Members and 
committees involved in District of Columbia issues, thereby bringing 
renewed attention and focus to these issues. Congressional staff, 
District of Columbia officials, and other experts said that the report 
would serve as a significant document shaping the future fiscal 
relationship between the District of Columbia and its congressional 
appropriations and oversight committees. District of Columbia officials 
also agreed to focus more attention on addressing the management 
problems outlined in our report.

The Government's Human Capital and Other Capacity for Serving the 
Public:

3.3. Injecting Factual Information into the Public Debate on Small 
Business Contracting:

In several reports and testimonies, we highlighted concerns about 
federal contracting opportunities for small businesses and presented 
recommendations for improvement. Our contribution to the public debate 
on small business procurement has been to cut through the rhetoric and 
opinions, presenting factual evidence to show that information on small 
business contracting is often missing or misleading. We have also 
demonstrated that agencies have sometimes paid insufficient attention 
to ensuring that small businesses are getting their fair share of 
government contracting dollars. For example, in May 2003, we disclosed 
that large companies had received billions of dollars of federal 
contracts that were reported as going to small businesses. Our 
disclosure spurred congressional hearings and a series of actions by 
GSA and SBA to correct the problem and ensure that national small 
business goals are achieved. As a result of this body of work, the 
Congress and several executive branch agencies have taken steps to 
improve information and accountability for small business contracting.

3.4. Reforming DOD's Services Contracting:

DOD is historically the government's largest purchaser of services--
nearly $100 billion in contract actions in fiscal 2003--but the highly 
decentralized DOD contracting environment has resulted in widespread 
problems complying with basic contract requirements, such as pursuing 
adequate competition and overseeing contractors' performance. In 
response to our work, the Congress enacted 2002 Defense authorization 
and appropriations legislation directing DOD to institute reforms of 
its services contracting and cutting DOD's 2002 appropriations by $1.65 
billion based on the expected costs avoided. DOD's reforms are to be 
guided on private sector best practices we describe as an overall 
strategic framework for purchasing. A number of changes are expected to 
DOD's current organizational structure, processes, and roles to support 
a more strategic approach, such as cross-functional buying teams to 
coordinate and manage contracting of key services.

3.5. Improving Governmentwide Decisions to Compete Commercial 
Activities:

Our work on competitive sourcing improved governmentwide policy 
governing decisions in two areas. First, on the basis of our 
recommendation, OMB's new guidance incorporates a provision encouraging 
agencies to explore innovative alternatives to competitive sourcing 
such as High Performing Organizations and partnerships. This action 
makes the government's sourcing policy more strategic in that it 
broadens the choices agencies have for achieving efficiencies in their 
commercial activities. Second, on the basis of our work emphasizing the 
use of competitive sourcing goals that are based on considered sound 
analysis and research, the Congress passed legislation that prohibits 
agencies from using funds to establish, apply, or enforce any numerical 
goal, target, or quota for their competitive sourcing activities 
"…unless it is based on considered research and analysis of past 
activities and is consistent with the stated mission of the agency.":

3.6. Helping DOD Recognize and Address Business Modernization 
Challenges:

Since 1995, we reported and testified on the challenges DOD faces in 
trying to successfully modernize about 2,300 business systems, and we 
made a series of recommendations aimed at establishing the 
modernization management capabilities needed to be successful in 
transforming the department. For example, we recommended that DOD 
implement key modernization management controls--such as investing in 
new and existing systems within the context of a corporate blueprint, 
commonly called an enterprise architecture--using an incremental or 
modular investment management approach, to ensure that value 
commensurate with costs is being realized and that investment selection 
decision-making follows a portfolio-based approach that considers the 
relative merits and risks of competing investment options along with 
resource constraints. Additionally, we recommended that DOD establish 
and implement rigorous and disciplined acquisition management processes 
for its business system investments. DOD said that it is committed to 
addressing these recommendations. Toward that end, DOD has, for 
example, implemented some key architecture management capabilities, 
such as assigning a chief architect and creating a program office, as 
well as issuing the first version of its business enterprise 
architecture in May 2003. In addition, DOD has revised its system 
acquisition guidance. By implementing our recommendations, DOD can 
increase the likelihood that its systems investments will support 
effective and efficient business operations and provide for timely and 
reliable information for decision making.

3.7. Helping to Advance Major Information Technology Modernizations:

Our ongoing work has helped to strengthen the management of the 
complex, multibillion-dollar information technology modernization 
program at the Internal Revenue Service (IRS) to improve operations, 
promote better service, and reduce costs. For example, IRS implemented 
several of our recommendations to improve software acquisition, 
enterprise architecture definition and implementation, and risk 
management and to better balance the pace and scope of the program with 
its capacity to effectively manage it.

3.8. Identifying Savings through Developing VA's Enterprise 
Architecture:

Responding to our recommendation that VA effectively develop, 
implement, and manage its enterprise architecture, VA identified 
duplicative business functions, and an inefficient, ineffective, and 
unsecured "as-is" infrastructure in actions taken to develop its 
architecture. For example, they identified more than 30 independently 
designed and operated data networks, over 200 independent external 
network connections and over 1,000 remote access system modem 
connections, and 57 implementations of Veterans Benefits Administration 
claims processing software. To address the "as is" network 
infrastructure, VA's Telecommunications Modernization Project is 
expected to eliminate many of the networks and external network 
connections, thereby generating almost $8 million in estimated costs 
avoided for fiscal 2002 through fiscal 2005.

3.9. Managing Investment in Overseas Agencies' Information Technology 
(IT) Capabilities:

In November 2001, we recommended that the Department of State limit 
investment in a common overseas knowledge management system used to 
facilitate unclassified information/knowledge sharing among foreign 
affairs agencies until it had, at a minimum, secured stakeholder 
involvement and buy-in. Otherwise, State risked investing in a system 
that would not be used by the other agencies and/or that failed to meet 
these agencies' needs. State spent $18 million on prototyping and pilot 
testing efforts in an unsuccessful attempt to achieve stakeholder buy 
in and subsequently canceled the program in 2003. By following our 
recommendation, State did not spend the remainder of the $235 million 
estimated to acquire and deploy a system that may not have been used by 
all foreign affairs agencies.

3.10. Reducing DOD's Implementation Risks and Purchase Costs for the 
Navy-Marine Corp Intranet:

As part of our fiscal 2001 and fiscal 2002 DOD information technology 
budget analyses work for congressional defense committees, we 
identified risks to the effective and efficient acquisition and 
implementation of the Navy-Marine Corps intranet. We noted the need for 
various management controls. DOD officials took actions to address 
issues we raised, and as a result, modified the Navy-Marine Corps 
intranet contract and reduced contract amounts by $400 million in 
fiscal 2002 and $366.3 million in fiscal 2003. By modifying the 
contract, DOD reduced program risks and increased the likelihood that 
the program will be acquired and implemented successfully.

3.11. Helping Customs and Border Protection Improve its Information 
Technology Modernization Program:

Our prior and ongoing work has resulted in DHS's Bureau of Customs and 
Border Protection (formerly the U.S. Customs Service) strengthening its 
ability to manage its multibillion-dollar information technology 
modernization program. Our recommendations have focused on the need for 
the Bureau to develop and implement key system acquisition practices, 
address human capital management weaknesses, and establish an 
independent review function to oversee the modernization contractor. 
The Bureau's adoption of these and earlier recommendations related to 
enterprise architecture, cost estimating, and the elimination of 
duplication between two planned systems has improved its acquisition 
management capability, resulted in reduced exposure to risk, and saved 
tens of millions of taxpayer dollars.

3.12. Improving Agency IT Investment Management Capability:

In May 2002, we issued our IT Investment Management (ITIM) Framework, 
which lays out a five-stage model for agencies to follow as they 
implement investment management process improvements. The ITIM provides 
a widely accepted standard for organizations to reference as they 
develop their own approach to investment management. Since its release, 
the ITIM has been adopted by many agencies as either the basis for 
process redesign or a framework for evaluating progress in process 
improvement to guide change. In addition, IGs from several agencies 
have used the ITIM for the independent assessment of investment 
management practices. Internationally, the ITIM has been adopted and 
adapted by several national audit organizations for their use. The 
National Association of State Chief Information Offices has also 
referenced the ITIM.

3.13. Improving Federal Management and Sharing of Terrorist Watch 
Lists:

Watch lists are important tools used by federal agencies to help secure 
our nation's borders. In reviewing the federal government's approach to 
developing, using, and sharing watch lists in performing the border 
security mission, we found that the federal approach was decentralized, 
fragmented, and nonstandard. We also found that the number and 
variability of watch lists, combined with their commonality of purpose, 
pointed to opportunities for improvement. As a result of our 
recommendations, the Secretary of DHS, in collaboration with the heads 
of other departments and agencies, initiated a watch list consolidation 
initiative as part of an effort to develop a border and transportation 
security blueprint to strengthen border protection and information 
sharing in the wake of September 11. After our report was issued, DHS's 
Chief Information Officer said in testimony before the Congress that 
the responsibility for watch list consolidation had been transferred to 
the newly established Terrorist Threat Integration Center.

3.14. Promoting the Effective Use of Enterprise Architectures:

An enterprise architecture is an essential tool for effectively and 
efficiently engineering business processes and for implementing and 
evolving supporting information technology systems, thus optimizing 
mission performance. Over the past decade, our work has shown that the 
lack of such architectures has resulted in inefficiencies and 
duplication associated with the lack of integrated business operations 
and supporting information technology. To help guide agencies in their 
enterprise architecture management efforts, we developed and published 
a maturity framework, which provides federal agencies, including OMB, 
with a common benchmarking tool for planning and measuring their 
efforts to improve enterprise architecture management. The maturity 
model has been widely accepted across the federal government, with some 
agencies adopting the framework as a de facto standard for measuring 
enterprise architecture management maturity.

3.15. Improving Defense Software Development and Acquisition 
Capabilities:

Since 1997, we have reported on weaknesses in DOD's ability to manage 
software-intensive system development and acquisition programs and made 
recommendations to correct weaknesses on specific programs. In 2001, we 
reported that while some DOD component organizations were 
systematically and proactively addressing software process 
improvement, DOD did not have a corporate approach to accomplishing 
this. Accordingly, we made a series of recommendations aimed at 
leveraging software process improvement efforts across DOD. In the 
fiscal 2003 Defense Authorization Act, the Congress used our 
recommendations in directing DOD to establish and implement a program 
for improving its software management process controls.

3.16. Governmentwide Actions to Identify and Report Improper Payments:

Over the past several years, we recommended that federal agencies 
review their programs and activities for improper payments, develop and 
implement actions to reduce those payments, and report the status and 
impact of the corrective actions taken to the administration and the 
Congress in a publicly available report. As a result of the Improper 
Payments Information Act of 2002, OMB has issued guidance on how 
federal agencies should implement the act. It expects that, when 
implemented, the guidance should improve the integrity of the 
government's payments and the efficiency of its programs and 
activities. OMB recently estimated annual improper payments at about 
$35 billion. Federal agencies are in the process of developing and 
taking actions to implement the guidance.

3.17. Improving Internal Controls and Accountability over Agency 
Purchases:

Our work examining purchasing and property management practices at FAA 
identified several weaknesses in the specific controls and overall 
control environment that allowed millions of dollars of improper and 
wasteful purchases to occur. Such weaknesses also contributed to many 
instances of property items not being recorded in FAA's property 
management system, which allowed hundreds of lost or missing property 
items to go undetected. Acting on our findings, FAA established key 
positions to improve management oversight of certain purchasing and 
monitoring functions, revised its guidance to strengthen areas of 
weakness and to limit the allowability of certain expenditures, and 
recorded assets into its property management system that we identified 
as unrecorded. FAA has additional actions in progress to further 
tighten controls and improve operations.

3.18. Contributing to Auditing and Ethics Standards:

Serving as a catalyst for prudent reform in the auditing profession, we 
contributed comments on draft professional auditing and ethics 
standards of the American Institute of Certified Public Accountants 
(AICPA) and the Institute of Internal Auditors (IIA). We analyzed and 
commented on four AICPA exposure drafts, covering (1) audit risk 
assessment and the audit model, (2) reporting on internal control over 
financial reporting, (3) ethics rulings and interpretations, and (4) 
peer review within the profession. We also commented on IIA's exposure 
draft of amended standards for the professional practice of internal 
auditing. Our comments to both the AICPA and IIA also provided guidance 
for clarifying the role of internal auditors as a critical component of 
the corporate governance system. Through our continuing contributions 
to other professional audit organizations, we are leading by example 
and hope to lead the way in reestablishing transparency and trust in 
auditing.

3.19. Improving the Cost-Effectiveness of the Decennial Census:

Our continuing series of congressionally requested reviews of the 
decennial census has made the Census Bureau more accountable and 
results oriented and identified significant cost reductions. For 
example, our report on the lessons learned in planning a more cost-
effective census, among others, recommended actions to help control the 
cost of the 2010 enumeration (now estimated at around $11 billion) and 
promote better financial management at the Census Bureau. Similarly, as 
a result of our reports on the Bureau's efforts to count the homeless 
and Hispanics, the Bureau took steps to improve its procedures for 
counting and reporting data on these two population groups. Another 
review found that the Census Bureau overstated its estimate of the 
life-cycle cost of the 2010 Census by $300 million. Consequently, when 
the Bureau reissues its estimate of the cost of the 2010 Census, it 
plans to reduce the life-cycle cost by this amount.

Support Congressional Oversight of the Federal Government's Progress 
Toward Being More Results-Oriented, Accountable, and Relevant to 
Society's Needs:

3.20. Improving DOD's Environmental Liabilities Estimate:

In April 2001, we reported that DOD did not have complete and accurate 
data needed to reliably estimate and report to the Congress the 
environmental cleanup costs associated with its training ranges, which 
were reported at $14 billion for fiscal 2000 even though other DOD 
estimates showed that the amount could exceed $100 billion. In response 
to our recommendations, DOD has now taken numerous actions to improve 
the cleanup estimate, including designating a focal point to oversee 
and manage the reporting of training range liabilities, validating the 
cost model used to estimate the cleanup costs, implementing inventory 
guidance to include key information and all types of training ranges, 
and developing and implementing a standard cost methodology. With these 
improvements, DOD's reported liability should provide the Congress with 
a reasonable estimate of the long-term budget implications of cleaning 
up DOD's training ranges.

3.21. Reducing National Security Risks Related to Sales of Excess DOD 
Property:

In testimony before the Subcommittee on National Security, Veterans 
Affairs, and International Relations, House Committee on Government 
Reform, we reported that DOD did not have systems and processes in 
place to maintain visibility and control over 1.2 million chemical and 
biological protective suits. The lack of visibility over these 
sensitive items resulted in unused chem-bio suits being declared excess 
and sold to the public over the Internet for pennies on the dollar. As 
a result of our work, DOD has taken action to restrict the chem-bio 
suits to DOD use only and has discontinued their sale to the public--
steps that should eliminate the national security risk associated with 
sales of these sensitive military items.

3.22. Improving Accountability over Sensitive DOD Munitions:

In a series of reports and testimonies beginning in 2000, we reported 
on problems in tracking in-transit ammunition shipments, including 
highly sensitive items. In response to our findings and 
recommendations, DOD now has procedures in place to maintain "cradle to 
grave" accountability of its most sensitive munitions. Further, the 
Congress acted on the conditions we reported and required the Secretary 
of Defense to report to congressional defense committees on six key 
areas in relation to the transportation of munitions using commercial 
trucking companies. Accountability over these items was also 
strengthened when, in light of our findings and recommendations 
regarding commercial motor carriers, DOD took action to improve 
security for munitions shipments by rail, sea, and air.

3.23. Informing the Congress about Data Mining Technology:

In March 2003, we were asked to testify at an oversight hearing on data 
mining technology. Our expertise gained in data mining work as part of 
audits and investigations of federal credit card and other programs 
provided the basis for our testimony. We testified that while data 
mining alone is generally not sufficient to identify systemic 
breakdowns in controls and provide specific recommendations, it serves 
to "put a face" on the control breakdowns and provides managers with 
examples of the real and costly consequences of failing to properly 
control these large programs. Our analysis helped the Congress 
understand that data mining--with the right mix of technology, human 
capital expertise, and data security measures--can be an important 
oversight tool.

3.24. Helping Agencies Improve Audits of Purchase Card Programs:

In response to a congressional request, we issued an exposure draft of 
an audit guide intended to help auditors and fraud investigators as 
they review government purchase card programs. With governmentwide 
purchase card spending at about $15 billion annually, federal agencies 
are accountable for how purchase cards are used and how the funds are 
spent. The guide--based primarily on our experiences in auditing and 
investigating purchase card programs at various agencies--focuses on 
audits of internal control activities designed to prevent or detect 
significant instances of fraud, waste, or abuse. The guide provides a 
sound basis for program management oversight as well as detailed audit 
and investigative techniques for purchase card programs throughout 
government.

3.25. Improving Financial Accountability for SBA's Credit Programs:

In a report issued in early 2003, we cited numerous accounting and 
budgeting deficiencies at SBA that affected the reliability of 
information it reported on the results of its loan sales and the cost 
of its disaster loan program. Specifically, we found that SBA 
incorrectly calculated losses it reported on its loan sales, did not 
properly consider the effect of loan sales on the estimated cost of its 
remaining loans, and significantly overstated the reported value of its 
remaining loans. Our analysis alerted the Congress to a lack of 
financial accountability at SBA and, as a result of this work, SBA's 
auditors withdrew their previously issued "clean" audit opinions on 
SBA's fiscal 2000 and fiscal 2001 financial statements and found SBA's 
fiscal 2002 financial statements to be unreliable. SBA agreed with our 
findings and recommendations and immediately took steps to correct the 
deficiencies, including hiring an independent consultant to thoroughly 
assess its accounting and budgeting procedures for its credit programs. 
In addition, SBA suspended its loan sales activity until corrective 
measures could be taken. SBA's corrective actions underway include the 
development of a new process to evaluate the cost of its disaster loan 
program, which will improve the reliability of information it provides 
to decision makers in future budget requests and financial statements.

3.26. Improving Controls Over DOD's Credit Cards:

In a series of reports and testimonies beginning in 2001, we 
highlighted pervasive weaknesses in the overall control environment, 
including the proliferation of cards, and specific controls over DOD's 
multibillion-dollar purchase and travel card programs. We used data 
mining to identify suspicious transactions and followed up using 
forensic auditing techniques to identify numerous cases of fraud, 
waste, and abuse, including the purchase of a wide variety of goods and 
services that were unrelated to official business. Since we began this 
work, DOD has substantially lowered its vulnerability by reducing the 
number of purchase and travel cards by over 900,000. Our continued 
focus in this area has generated nearly $200 million in avoided costs 
and 174 recommendations to improve DOD's program operations.

3.27. Increasing Focus on Addressing High-Risk Areas and Management 
Challenges:

We updated our high-risk list in 2003, which now consists of 26 areas. 
Our audits and evaluations continue to identify federal programs and 
operations that are high risk, in some cases, because of their greater 
vulnerabilities to fraud, waste, abuse, and mismanagement. We also 
identified high-risk areas to focus on major economy, efficiency, or 
effectiveness challenges, and have increasingly used the high-risk 
designation to draw attention to the challenges faced by government 
programs and operations in need of broad-based transformation. OMB has 
begun working with agencies to develop specific goals and target dates 
to address the areas that we have designated as high risk. The 
companion performance and accountability series contains separate 
reports covering management challenges at each cabinet department, most 
major independent agencies, and the U.S. Postal Service, as well as a 
summary report that gives a governmentwide perspective. These efforts 
contribute to a continuing focus and sustained attention on 
implementing our recommendations and bringing about lasting solutions 
in these areas.

3.28. Improving Agency Capacity to Evaluate Federal Programs:

We noted that agencies have had difficulty explaining in their 
performance reports how their program activities help achieve agency 
goals, in part, because of agencies' limited use of the rigorous 
program evaluation methods needed to establish a causal connection 
between program activities and outcomes. In 2002, we described how five 
diverse agencies relied on existing research to design their program 
strategies and link them to agency goals, and some developed program 
logic models to identify their expected knowledge, attitude, and 
behavioral outcomes. One particular challenge is for information 
dissemination programs that do not act directly but inform and persuade 
others to act to achieve their social or environmental goals. In 2003, 
we encouraged several agencies with information campaigns to adopt 
logic models to articulate their program strategy and identify 
appropriate outcome measures. We also described how diverse agencies 
successfully produced credible program evaluations through 
establishing an evaluation culture, acquiring or developing quality 
data and analytic expertise, and leveraging resources through 
collaborative partnerships. Our work provides concrete examples of 
strategies that, with leadership commitment, other agencies could adopt 
to build their evaluation capacity and produce credible information on 
their programs' effectiveness.

3.29. Exploring the Need for a System of Key National Indicators:

To help decisionmakers address critical challenges facing the nation, 
more and better information than now exists may be needed. A 
comprehensive national indicator system could provide the information 
to help assess the nation's position and progress in such key areas as 
business and markets, education, health, and natural resources. In 
cooperation with the National Academies, we hosted, in February 2003, a 
forum on the topic with national leaders and experts. The participants 
agreed on the need for such an enterprise and this event catalyzed 
several important follow-on initiatives: (1) strong interest from the 
Congress; (2) formation of a national coordinating committee to pursue 
the goal of creating a key national indicator system; and (3) a global 
indicators forum to be led by the Organisation for Economic Co-
operation and Development.

3.30. Improving the District of Columbia's Performance Report:

Over the past 4 years, in mandated reviews of the District of 
Columbia's annual performance report, we made recommendations for 
expanding the report coverage to include goals and measures for all 
major activities as well as related expenditure. In response, the 
District of Columbia's fiscal 2002 report provided a more comprehensive 
review of the city's performance than prior reports, included 
performance results for significant activities that had not previously 
been included, and established criteria for reporting on court orders. 
The District has also undertaken initiatives, such as implementing 
performance based budgeting, creating a performance management council, 
and developing data collection standards, that could assist in 
improving overall management. In addition, the District of Columbia 
agreed with the recommendations in our May 2003 report to move beyond 
the requirements of the mandate to improve the usefulness of the 
performance reports as a management tool by addressing issues of data 
quality, including additional analysis in future years.

3.31. Forestalling Increase in Postage Rates until 2006:

In May 2002, concerned that the Postal Service may be over funding its 
pension fund, we requested that OPM determine the extent to which the 
U.S. Postal Service had funded and was projected to have funded the 
pension benefits of its employees who participate in the Civil Service 
Retirement System. OPM reported that the Service was projected to over 
fund its obligations by almost $78 billion for the period over which 
pension benefits are expected to be paid. Our request and subsequent 
review of OPM's analysis culminated in the enactment of the Postal 
Civil Service Retirement System Funding Reform Act of 2003, which 
reduced the Service's pension costs by an average of $3 billion per 
year over the next 5 fiscal years. The Congress directed that the cost 
reduction attributable to the first 3 fiscal years be used to reduce 
the Postal Service's debt and hold postage rates unchanged until at 
least fiscal 2006, 2 years beyond its planned fiscal 2004 rate 
increase.

3.32. Revising DOD's Working Capital Fund Workload Estimates:

Our recent series of reports on excessive amounts of unfinished work at 
fiscal year end--referred to as carryover--for DOD's working capital 
funds resulted in the Congress reducing DOD's appropriations in these 
areas by $514.1 million. In addition, DOD has acted to implement our 
recommendation that it revise the formula used to calculate the value 
of work on-hand at year-end. If implemented appropriately, the new 
formula should eliminate the misleading and inconsistent carryover data 
previously reported to the Congress.

3.33. Measures to Improve Security at the Los Alamos National 
Laboratory:

Since DOE began its contract reform efforts in 1994, we have reported 
on numerous occasions that the department should consider competing all 
of its major site contracts, especially when there are performance 
problems with the incumbent contractor. In 2001, we reported that 
despite glaring performance problems at certain DOE laboratories, the 
department excluded its largest laboratories--those operated by the 
University of California--from full and open competition. In 2002, we 
again reported that DOE continued to extend the contract with the 
university to operate the Los Alamos National Laboratory, a contract 
that has never been competed since its inception in 1943. The decision 
to extend this contract was not without controversy given the history 
of safety and security problems at the laboratory. DOE decided that 
these problems could be addressed using contract provisions instead of 
competitive bidding. In our report, we stated that it remained to be 
seen whether DOE would be successful in improving contractor 
performance using contract mechanisms, adding that if the university 
did not make significant improvements in performance, DOE may need to 
reconsider its decision not to compete this contract. In 2003, DOE 
released a report on management problems at the Los Alamos National 
Laboratory, and the report identified ineffective supervision by the 
university, inadequate federal oversight, and cultural factors as 
causes of the problems. The Secretary of Energy, citing "systemic 
management failures" subsequently announced that DOE has changed its 
position and would open the Los Alamos contract for competition when 
the current contract term expires in 2005.

3.34. Contributing to Improved Understanding of Space Shuttle Safety:

Days prior to the tragic loss of Shuttle Columbia and its crew on 
February 1, 2003, we identified management challenges facing the 
National Aeronautics and Space Administration (NASA) in our performance 
and accountability series report. One of those challenges--Human 
Capital Management--focused on reductions in NASA's shuttle workforce, 
the loss of critical skills in that workforce, and the agency's efforts 
to address them. We were asked to appear before a public hearing of the 
Columbia Accident Investigation Board to discuss these challenges. The 
board's final report cited our work, including our review of NASA's 
implementation of lessons learned. The maintenance of both good and bad 
experiences in corporate memory was identified by the Board as a best 
practice in safety organizations.

3.35. Interpreting Federal Procurement Laws and Regulations:

The Procurement Law Division of the Office of General Counsel resolved 
1,244 bid protests in fiscal 2003, 290 of which were decided by written 
decisions. These decisions provided guidance to the procurement 
community by interpreting the federal procurement laws and regulations. 
A number of these decisions (50) resulted in specific recommendations 
to the agency to correct irregularities in the agency's conduct of its 
procurement.

3.36. Bogus School and Fictitious Students Lead to Strengthened 
Controls:

The Senate Permanent Subcommittee on Investigations asked us to 
investigate control weaknesses in the administration of student loans 
for postsecondary education under the Federal Family Education Loan 
Program. In an undercover investigation to expose vulnerabilities, 
investigators set up a fictitious school and obtained approval for 
student loans totaling $55,500 on behalf of three fictitious students 
purportedly attending the school. On the basis of our work, the 
Department of Education retrained its staff on institutional 
eligibility requirements and certification procedures, revised its 
internal certification checklist (the document used to document that 
certification information was validated), ordered 100 percent 
validation of country approvals for all participating schools in 41 
foreign countries, and disallowed use of a post office box address as 
the official location of a school or a third-party servicer of a 
school. These measures were in addition to others taken by Education to 
strengthen controls over the program's administration.

3.37. Contract Fraud in delivery of VA Health Benefits:

On the basis of information received through our FraudNET, we 
investigated alleged irregularities in administration of a contract 
between the VA Medical Center and an optical services provider in 
Louisville, Kentucky. Our investigation identified improper billing 
practices for open market items by the contractor and poor oversight by 
the government of the $20 million in annual charges against the 
contract. This was a joint investigation with VA's IG, who will present 
the matter to the U.S. Attorney's Office for prosecution.

The Government's Fiscal Position and Approaches for Financing the 
Government:

3.38. Strengthening Government Auditing Standards:

Our publication of the Government Auditing Standards in June 2003 
provides a framework for audits of federal programs and monies. This 
comes at a time of urgent need for integrity in the auditing profession 
and for transparency and accountability in the management of scarce 
resources in the government sector. This fourth major revision since 
the standards were first published in 1972 will guide audits of 
financial and program management not only in federal agencies, but also 
more than 30,000 state and local governments and nonprofit 
organizations that spent federal funds. After an extensive process of 
consultation with auditors and stakeholders, we have modernized the 
1994 edition and incorporated previous, significant amendments on 
auditor independence, computer-based information systems, and auditor 
communication. The new revision of the standards strengthens audit 
requirements for identifying fraud, illegal acts, and noncompliance; 
redefines the types of audits and services covered; provides 
consistency of requirements across types of audits; and gives clear 
guidance to auditors as they contribute to government that is 
efficient, effective, and accountable to the people.

3.39. Auditing the U.S. Government's Financial Statements:

As in the 5 previous fiscal years, we have been unable to express an 
opinion on the U.S. government's consolidated financial statements for 
fiscal 2002 because of ongoing material weaknesses in internal control 
and accounting and reporting issues. However, our efforts are paying 
dividends in the form of significant improvements in (1) financial 
reporting to facilitate the public's understanding of the financial 
statements and accompanying financial information, (2) the financial 
statement audits performed by the agencies' IGs, and (3) addressing one 
of the major impediments to an opinion on the consolidated financial 
statements related to accounting for billions of dollars of 
transactions between federal government entities (intragovernmental 
activities and balances). For example, to address one of our 
suggestions, Treasury developed a system to help agencies better 
perform reconciliations of intragovernmental activity and balances. In 
addition, OMB has established a set of standard business rules for 
governmentwide transactions among agencies and is now requiring 
quarterly reconciliations of intragovernmental activity and balances.

3.40. Ensuring DOD Justifies Its Investment in Accounting Systems:

In a 2003 report, we determined that DOD had not effectively managed 
its planned investment of over $1 billion in four accounting system 
modernization efforts. Although the Secretary of Defense has identified 
the modernization of DOD's financial management and business operations 
as one of the agency's top 10 priorities, we found that long-standing 
problems persist. During our review, DOD terminated one of the four 
systems after spending over $126 million, citing poor program 
performance and increasing costs. Cost reductions in the current fiscal 
year related to the canceled system totaled $40 million. In concurring 
with our recommendations, DOD agreed to review the remaining three 
systems and to evaluate all accounting system investments to ensure 
that they are being implemented at acceptable cost and within 
reasonable time frames. DOD's inability to efficiently and effectively 
implement systems is a longstanding congressional concern. In 
deliberations on the fiscal year 2003 budget, the Congress expressed 
the need to control cost growth in DOD's IT development efforts and 
reduced its appropriations by $400 million.

3.41. Contributing to Congressional Oversight of IRS:

In the Internal Revenue Service Reform and Restructuring Act, the 
Congress set an ambitious agenda to transform IRS and oversee this 
transformation. We supported the Congress's increased oversight of IRS 
to help ensure that IRS provides quality service to taxpayers while 
continuing to enforce the tax laws. In our fiscal 2003 testimonies, we 
concluded that consistent, sustained focus on management fundamentals 
is beginning to achieve results as evidenced by IRS's increased 
capabilities to manage and its improved service to taxpayers.

3.42. Raising the Visibility of Long-Term Commitments in the Federal 
Budget:

The United States faces large and growing long-term fiscal challenges. 
For a number of years, we have used our long-term budget simulations to 
call attention to the need for structural change in the Social Security 
and Medicare programs. But, these are not the only areas in which 
federal programs or activities obligate the government to or create an 
expectation for future spending. We developed the concept of "fiscal 
exposures" to describe these activities and have called for new metrics 
and mechanisms to help consider their long-term implications. Through 
our outreach and reporting, we have helped draw attention to the 
federal government's multitrillion-dollar fiscal exposures and 
increase congressional and public awareness of the potential long-term 
fiscal consequences of the nation's policy choices.

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:

4.1. Increasing Outreach and Service to GAO's Congressional Clients:

To enhance understanding of our congressional clients' needs, teams met 
with key committee leaders and staff directors to develop a 
comprehensive governmentwide audit, evaluation, and investigation 
agenda. We also expanded our Web-based client feedback survey to 
include all committees of the House and Senate. The feedback, which has 
been overwhelmingly positive thus far, is used to analyze how well our 
published products meet our clients' needs and identify opportunities 
for improvements. To clarify how we accept work from congressional 
leaders and committees, we have drafted revisions to our congressional 
protocols, which provide guidance on interacting with the Congress, and 
are in the process of briefing bipartisan, bicameral congressional 
leadership and committees on those protocols. We plan to implement 
these revisions in early calendar year 2004.

4.2. Providing Emergency Relocation Support:

We have worked to identify and implement relocation support provisions 
for the House in case of future emergencies that would require an 
evacuation of House facilities. In fiscal 2003, we completed 
preparations of the GAO building as a backup site for the House and 
updated our network and telephone systems to provide the House with 
emergency access to their own systems within 48 hours.

4.3. Automating a Weapons Systems Review Process:

We developed and released a system to automate an existing data 
collection and analysis process, greatly expanding our annual capacity 
to review DOD weapons systems programs. As a result, we were able to 
increase staff productivity and efficiency and enhance the information 
and services provided to the Congress. We expect the number of weapons 
systems reviewed to increase to 80 per year (from a baseline of 8 
systems reviewed per year), making multiyear reporting on individual 
systems readily available for the first time.

4.4. Developing Agency and International Protocols:

In pursuit of our goal to provide clearly defined, consistently 
applied, well-documented, and transparent policies for our work with 
federal agencies, we drafted agency protocols and piloted them in 
fiscal 2003. We expect to finalize the agency protocols after revisions 
to the congressional protocols are completed in early calendar year 
2004. The draft of our international protocols was provided to the 
cognizant agencies and organizations for review and comment in fiscal 
2003. We expect to finalize the international protocols in 2004.

4.5. Making GAO's Work Accessible to the American People:

We continued our policy of proactive outreach to our congressional 
clients, the press, and the public to enhance the visibility of our 
products. On a daily basis we compile and publish a list of our current 
reports, "Today's Reports," on our external Web site. This feature has 
more than 18,000 subscribers, up 3,000 from this time last year. We 
also produced an update of our video on GAO, "Impact 2003." Our 
external Web site continues to grow in popularity, having increased the 
number of hits in fiscal 2003 to an average 3.4 million per month, 1 
million more per month than in fiscal 2002. In addition, visitors to 
the site are downloading an average of 1.1 million files per month. We 
completed an assessment of our external Web site's usability in fiscal 
2003. On the basis of the results of this assessment and a Web site 
customer satisfaction survey developed by the American Customer 
Satisfaction Index, we are redesigning our Web site to increase access 
and enhance the usability of the information. Finally, to inform news 
editors and editorial page writers of our value as a news source, we 
continued our outreach to the Washington and national press corps, 
arranging more than two dozen editorial board meetings featuring the 
Comptroller General with major newspapers, magazines, and news services 
in the United States.

Enhance Leadership and Promote Management Excellence:

4.6. Recognizing Resourceful Management:

We were named a "CIO (Chief Information Officer) 100" by CIO Magazine, 
recognizing excellence in managing our IT resource through "creativity 
combined with a commitment to wring the most value from every IT 
dollar." We were one of 3 federal agencies named, selected from over 
400 applicants, largely representing private sector firms. In 
particular, we were cited for excellence in asset management, staffing 
and sourcing, and building partnerships, and for implementing a "best 
practice"--staffing new projects through internal "help wanted" ads.

4.7. Improving Strategic Management:

A number of efforts completed in fiscal 2003 contributed to improving 
our strategic management efforts. In January 2003, we issued our fiscal 
2002 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 and includes our fiscal 2002 financial statements and 
the unqualified audit opinion rendered by an independent auditor. This 
report earned a Certificate of Excellence in Accountability Reporting 
from the Association of Government Accountants. To provide a more 
balanced performance measurement system in the future, we completed in 
fiscal 2003 an effort to produce baseline information for measures 
related to our relationship with our primary client--the Congress--and 
our most important asset--our people. To inform our strategic and 
annual performance planning efforts, we gather information and 
perspectives through several vehicles to enhance our understanding of 
emerging issues that might influence future work. For example, we held 
forums on corporate governance, key national indicators, and national 
and regional intergovernmental audit issues; established a new 
speakers' series called "Conversations on 21ST Century Challenges;" 
held our annual meeting of the Comptroller General's Advisory Board; 
and worked with a number of issue-specific and technical panels to 
improve our strategic and work planning.

4.8. Improving Our Planning Process:

In fiscal 2003, we continued to better align our strategic plan, 
performance and accountability efforts, and the budget process. A task 
force was formed to implement an accelerated schedule for the 
performance and accountability report to enable us to meet the 
accelerated deadline in fiscal 2003, a year earlier than the date that 
OMB has set for executive branch agencies. The task force implemented a 
detailed timeline, modified internal processes, and coordinated with 
our outside auditor. During fiscal 2003, we fully implemented our 
workforce planning process, addressing size, deployment, and profile of 
our staff to ensure we have the appropriate resources strategically 
placed to pursue our goals and objectives now and in the future. The 
strategic plan and workforce planning results serve as the foundation 
for our fiscal 2004 operating plan and fiscal 2005 budget request.

4.9. Maintaining Integrity in Financial Management:

As part of our effort to be a model agency, in fiscal 2003 we retained 
the independent audit firm, Cotton & Co., LLP, to audit our financial 
statements. The auditors issued an unqualified opinion. We also 
conducted internal reviews of our compliance with requirements set 
forth in the Financial Integrity Act and OMB Circular A-127, Federal 
Managers' Financial Management Systems. We reviewed aspects of our 
Financial Management System, including security controls, and assessed 
its consistency with the Standard General Ledger. No material 
weaknesses were identified as a result of these reviews which support 
management's assertion that our internal controls are proper and 
functioning well. In conformance with the e-government initiative, we 
are bringing electronic travel to GAO, beginning with the completion of 
the fiscal 2003 agencywide rollout of Travel Manager. Travel Manager 
allows our travelers to create and submit travel authorizations and 
vouchers electronically for approval and reimbursement, streamlining 
the administrative travel processes.

4.10. Continuing to Provide Leadership in Strategic Human Capital 
Management Planning and Execution:

The Human Capital Office (HCO) drafted our first comprehensive 
strategic plan for human capital, working with representatives from the 
Strategic Issues team. The purpose of the plan is to communicate both 
internally and externally our strategy for enhancing our standing as a 
model professional services organization, including how we plan to 
attract, retain, motivate, and reward a high-performing and top-quality 
workforce. We expect to publish the plan in early fiscal 2004 and make 
it available on our Web site. The Human Capital Office established the 
HCO Partnership Board to gather opinions of a cross section of our 
employees about upcoming HCO initiatives and ongoing programs. The 15-
member Board will assist HCO in hearing and understanding perspectives 
of customers.

4.11. Aligning GAO's Workforce and Mission Needs:

In fiscal 2003, we expanded the scope of our college recruiting and 
hiring program to focus on gaps identified during our workforce 
planning effort. The HCO worked with teams to help identify and reach 
prospective graduates with the required skill sets and focused the 
intern program on attracting student interns with the skill sets needed 
for our analyst positions. We continued to emphasize the need for 
diversity in college recruiting, expanding our list of target 
universities to include a number of campuses that matriculate a diverse 
student body, and establishing on-going college relations activities 
with these schools. We ensured that our diversity was reflected in the 
recruiters who visited campuses and conducted interviews and in our 
recruiting materials, and we worked with internal employee groups 
representing different minorities to benefit from their knowledge and 
experience. We also institutionalized an annual recruiter training 
program designed to provide our recruiters with the knowledge and 
information needed to recruit and attain a high-quality workforce. To 
determine whether our recruitment efforts are effective, we collected 
and analyzed data that we reported to our Office of Opportunity and 
Inclusiveness and other managers. The Comptroller General's Educators' 
Advisory Panel met in June 2003 to provide advice on recruiting, 
retaining, and developing staff as well as on strategic planning 
matters. Continuing our efforts to promote the retention of staff with 
critical skills, we offered student loan repayments of between $4,000 
and $6,000--which are made directly to lending institutions--to 247 
employees with 1 to 3 years of GAO experience in exchange for their 
signed agreement to continue working at GAO for at least 3 years.

4.12. Acquiring and Applying Information Technology to Support GAO's 
Strategic Objectives and Business Plans:

We have expanded and enhanced the IT Enterprise Architecture program we 
began in fiscal 2002. Specifically, we formally established an 
Enterprise Architecture oversight group and steering committee to 
prioritize our IT business needs, provide strategic direction, and 
ensure linkage between our IT Enterprise Architecture and our capital 
investment process. In addition, we have adopted an Enterprise 
Architecture Shared Business Model to ensure that the agency's business 
needs are driving our IT plan and to identify IT gaps. We implemented a 
number of user friendly, Web-based systems to improve our ability to 
obtain feedback from our congressional clients, facilitate access to 
our information for the external customer, and enhance productivity for 
the internal customer. Among the new and enhanced Web-based systems 
were (1) an application to track and access General Counsel work by 
goal, team, and attorney; provide links to information in the 
Engagement Reporting System; enhance system security and functionality; 
provide a wide variety of summary and detailed reports; and 
significantly improve the staffs' ability to search and share 
information; (2) a Regional Environmental Scan Web site to provide 
context for our teams and offices as they consult with the Congress, 
update our strategic plan, track issues, and identify emerging trends; 
(3) an automated tracking application for our staff to monitor the 
status of products to be published; and (4) a system to generate 
records of meetings between teams and Members of the Congress or their 
staffs, allow for virtual storage and for staff to search these contact 
records and perform various content analyses to help better support our 
clients.

4.13. Increasing Information Security:

We recognize the ongoing, ever present threat to our shared IT systems 
and information assets and continue to promote awareness of this 
threat, maintain vigilance, and develop practices that protect 
information assets, systems, and services. As part of our continuing 
emergency preparedness plan, we upgraded the level of 
telecommunications services between our Disaster Recovery Site and 
headquarters, expanding our remote connectivity capability and 
improving response time and transmission speed. To further protect our 
data and resources, we drafted an update to our Information Systems 
Security Policy, issued network user policy statements, hardened our 
internal network security, expanded our intrusion detection capability, 
and addressed concerns raised during the most recent network 
vulnerability assessment. Further, we deployed computer software to 
senior managers that provides authoritative and timely assurance that 
critical email has been received intact - without changes or 
modifications.

4.14. Providing a Safe and Secure Workplace:

On the basis of recommendations resulting from our physical security 
evaluation and threat assessment, we continue to implement initiatives 
in fiscal 2003 to improve the security and safety of our building and 
personnel. In terms of physical plant improvements, we upgraded the 
headquarters fire alarm system and installed a parallel emergency 
notification system. We are making great progress in enhancing our 
communication with staff, completing the Shelter in Place plan and the 
Emergency Response Handbook for headquarters occupants, providing 
Emergency Preparedness briefings for staff, and conducting the third 
annual Security Fair to disseminate information on security at the 
workplace and at home. To further increase the security of the 
headquarters building, we have obtained access to the National Crime 
Information Center Database to conduct minimal investigations on 
visitors, vendors, couriers, and non-GAO employees entering the 
building. To ensure our continuity of operations should we have to 
vacate our headquarters due to an emergency, we made arrangements for 
an alternate facility to house a core capability. Finally, we completed 
a study of personal protective equipment and, on the basis of the 
resulting decision paper, have purchased escape hoods, bottled water, 
and glow sticks for our staff.

Leverage GAO's Institutional Knowledge and Experience:

4.15. Increasing Capacity through Knowledge-Sharing and Collaboration:

By collaborating with numerous organizations and individuals, we have 
strengthened professional standards, provided technical assistance, 
leveraged resources, and developed best practices. In fiscal 2003, we 
conducted our international fellows training program to build audit 
capacity in national audit offices around the world. We also 
collaborated with the Joint Financial Management Improvement Program, 
the Federal Accounting Standards Advisory Board, and the President's 
Council on Integrity and Efficiency to foster reforms in federal 
financial management and establish or strengthen audit and accounting 
standards and principles. We also collaborated with the Private Sector 
Council to examine private sector companies' best practices in 
preparing for disastrous events, while maintaining operations; the 
office of the State Auditor of Louisiana to develop a guide for 
evaluating the nation's transportation security efforts; auditors from 
11 states to develop a report containing recommendations for improving 
the security of the food system; and VA's IG to conduct a joint 
investigation of billing practices and oversight efforts. To leverage 
our internal knowledge resources, we more fully integrated our internal 
technical specialists' knowledge into engagements. Our specialists 
contributed to more than 60 percent of our published products and were 
named as key contributors in over 40 percent of these products.

4.16. Enhancing Information Sharing:

We greatly expanded our Web site capability to enhance knowledge-
sharing, search capability, and usability for our customers. We 
enhanced our external Web site in fiscal 2003, organizing our products 
by agency to provide fast, user friendly, and flexible search defaults 
and options such as the capability to search on subcollections. To 
reduce the response time for client information needs and promote 
interagency knowledge-sharing, we deployed several Web sites, including 
those for National Performance Indicators, the Performance and 
Accountability Series, and USAuditNet. We also deployed new and 
enhanced internal Web sites, such as those for Knowledge Services, 
General Counsel, the Applied Research and Methods team, the Office of 
Opportunity and Inclusiveness, and the Personnel Appeals Board, for 
staff to share and disseminate information in a more timely manner. To 
increase user friendliness and improve search efficiency, we created 
the GAO Publications Search Engine, used by our staff to search for our 
reports, testimony, decisions, and other products. We completed a study 
of portal technology as an avenue to deliver information to analysts 
and specialists and, on the basis of the study's findings, adopted the 
concept of "targeted portals" to collect, use, distribute, and retain 
organizational knowledge. In addition, we have established communities 
of practice, including a Web Technology Advisory Group and "results 
areas" in contracting, industrial base, NASA, and systems acquisition. 
Finally, to increase staff awareness and use of Web-based services, we 
developed and offered courses on Basic Internet Explorer and Evaluating 
Information on the Internet.

Continuously Improve GAO's Business and Management Processes:

4.17. Measuring the Value of Our Applications Development Process:

An independent review determined that we are delivering superb and 
cost-efficient IT application support and development services to its 
business units. Compared with our peers, we scored "above average" in 
productivity, effectiveness, technology and organizational management, 
process maturity, and user satisfaction, and "better than average" in 
cost-efficiency.

4.18. Improving GAO's Products and Business Processes:

To provide more efficient and effective means for staff to do their 
work, we automated a number of processes in fiscal 2003 such as 
implementing a new complaint tracking and reporting system for our 
Office of Opportunity and Inclusiveness, an automated database payment 
system, and an automated Web-based recruitment and application process. 
We also implemented WebTA, an off-the-shelf Web-based system designed 
to maintain effective internal controls over employees' time and 
attendance reporting and eliminate the current error-prone, redundant 
data entry process. A team consisting of employees from a number of 
organizational units collaborated in developing a computer program to 
create summary information in tables (known as an "e-supplement") for 
Web surveys. From May to September 2003, we deployed approximately 10 
such Web surveys using this program in support of our engagements, 
resulting in substantial savings in staff days. Finally, the Gartner 
Group completed its assessment of our asset management practices, 
reported on asset management best practices, and provided 
recommendations to improve the process and guidance in developing 
requirements for a new automated inventory system.

4.19. Realizing Efficiencies and Savings:

We continued our outstanding on-time delivery performance during the 
fourth quarter of fiscal 2003, delivering 100 percent of the orders 
from the Congress and the press and 99 percent of the orders from our 
staff within 8 hrs and delivering nearly 100 percent of the orders from 
the public within 3 days. Also, we selected an aggregate electrical 
contract to provide electrical power for the GAO building--a move that 
we estimate will reduce our costs by over $11,000 each quarter.

Become the Professional Services Employer of Choice:

4.20. Maintaining a Fair, Unbiased, Family Friendly Environment:

We drafted updates to our orders to formalize agency policy on family 
friendly leave policies and procedures relating to the Family and 
Medical Leave Act and on alternative workplace arrangements.

4.21. Leading the Way in Performance Management:

In fiscal 2003, we evaluated the compensation and performance 
management system for analysts that was rolled out in fiscal 2002. As a 
result, we identified and implemented several improvements, including 
conducting mandatory targeted training for over 1900 staff and managers 
on how to better understand and apply the performance standards, 
adjusting pay categories and percentage guidelines, reviewing the 
timing of notifying staff of pay panel results, and using achievements 
to break panel ties. In addition, sessions on documenting achievements 
and how to apply for promotions were available through our video 
broadcasts that are accessible through each employee's desktop 
computer. We also implemented the competency-based performance system 
for attorneys. To keep our staff apprised of the latest developments in 
compensation and performance management, we redesigned the Performance 
Management Systems Web site, streamlining existing information and 
adding information about the proposals for the Administrative, 
Professional, and Support Staff (APSS) system. To prepare for the APSS 
banding and pay for performance system, scheduled for implementation in 
fiscal 2004, we completed 338 position reviews of our APSS employees. 
We also identified eight job families and competency models in support 
of the new competency-based performance system for APSS staff. In 
addition, we analyzed our Office of Special Investigations investigator 
positions and identified a strategy to begin an appraisal and pay for 
performance system for those positions.

4.22. Training Staff to Meet the New Competencies:

The outline for a new competency-based and role-and task-driven 
learning and development curriculum was completed and approved by our 
Executive Committee. The curriculum structure identifies needed core 
and elective courses and other learning resources and provides course 
descriptions with specific learning objectives. To address the need for 
managerial and leadership training, we funded 66 external training 
opportunities. Requests were approved on the basis of how well the 
opportunities served the organization as a whole, enhanced current 
skills of staff to prepare for future leadership roles, and reflected 
agency diversity. Appropriate opportunities include development of 
managerial, leadership, and executive skills, human capital training, 
and personal growth. In order to better align learning with the 
strategic goal for workforce development, we completed several key 
steps to improve the structure of our learning organization. In May 
2003, we created the position of Chief Learning Officer and appointed 
an experienced training executive to that position. In July 2003, we 
established the GAO Learning Board to guide our learning policy, to set 
specific learning priorities, and to oversee the implementation of a 
new training and development curriculum. The board held its first 
meeting in August 2003 and meets monthly to set policy, identify 
priorities, and integrate curricula into broader organizational 
efforts.

4.23. Modernizing the GAO Headquarters Building:

As our workforce composition and organization evolves over time, the 
space we occupy must evolve as well. We completed several projects that 
increased the efficient and effective utilization of available space in 
the GAO building. We converted space on the first and second floors to 
consolidate staff and make use of formerly unused or little used space. 
We also began similar projects on the fourth and fifth floors. The 
sixth floor modernization project was completed, including construction 
of a new electronic security laboratory.

4.24. IT Hardware and Software Enhancements:

We are continually enhancing our IT hardware, software, and tools to 
help attract and retain staff and enable staff to do their jobs. For 
example, in fiscal 2003, we completed the distribution of flat panel 
monitors to all staff to improve visibility for users and decrease 
desktop space required; provided an international wireless telephone 
pool to allow our out of country travelers a means of communication; 
and deployed a Web-based video conferencing reservation system to allow 
headquarters and field staff to schedule a videoconference within or 
outside of the GAO building.

2. From the Inspector General:

GAO: 

Memorandum:

Date: October 21, 2003:

To: Comptroller General:

From: Inspector General - Frances Garcia:

Signed by Frances Garcia: 

Subject: Management Challenges:

We have examined 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 2003 accomplishment reports 
claiming financial benefits of $500 million or more and found that GAO 
has a reasonable basis for claiming these benefits. We also tested the 
procedures and methodologies used to calculate the performance measures 
and found them to be reasonable.

3. GAO's Report on Personnel Flexibilities (Pub. L. No. 106-303):

As required by Section 6a of Public Law 106-303, the GAO Personnel 
Flexibilities Act of 2000, we are providing a review of the actions 
taken by the agency in fiscal 2003 pursuant to 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 opportunities to agency employees when such action 
would serve to realign our workforce to meet budgetary constraints or 
mission needs, correct skill imbalances, or reduce high-graded 
positions.

In fiscal 2003, we offered two voluntary early retirement 
opportunities. The first opportunity was open for applications from 
November 4, 2002, to December 20, 2002. Approved applicants were 
required to retire between February 1, 2003, and March 14, 2003. Of the 
39 individuals who applied, 37 were approved and 2 were disapproved. In 
total, 25 employees separated as 12 approved applicants withdrew their 
requests after approval. An additional voluntary early retirement 
opportunity was opened on June 26, 2003, with applications being 
accepted until August 12, 2003. Approved applicants were required to 
retire between September 1, 2003, and October 31, 2003. Of the 16 
applications that were received, 15 were approved, 1 was disapproved, 
and 4 were later withdrawn after approval. As of September 30, 2003, 2 
applicants had separated.

In summary, a total of 28 employees, including one special approval 
that was not part of either of the cycles, took voluntary early 
retirement from the agency in fiscal 2003. Since we first received this 
authority in October 2000, a total of 82 employees have retired, 82 
percent of who were high-graded, supervisory, or managerial employees.

Use of our early out authority supports our efforts to address 
workforce imbalances. Vacancies created by voluntary early retirees 
have enabled us to target resources to reducing skill gaps and 
addressing succession concerns, including the hiring of additional 
entry-level staff. This has contributed to reshaping our human capital 
profile and acquiring critical skills needed to carry out our mission 
now and in the future.

Section 2. Voluntary Separation Incentive Payments:

In addition to authorizing voluntary early retirement for our 
employees, Public Law 106-303 permits the Comptroller General to offer 
voluntary separation incentive payments - buyouts - to realign the 
workforce to meet budgetary constraints or mission needs; correct skill 
imbalances; or reduce high-graded positions. Under the act, up to 5 
percent of the agency's employees could be offered such an incentive in 
any given year.

Given the many demands on limited agency resources, the high costs 
associated with offering buyouts present a strong financial 
disincentive to the use of this provision. Therefore, we anticipate 
little, if any, exercise of this authority. For this reason, as well as 
to avoid creating unrealistic employee expectations, we have not 
developed or issued agency regulations to implement this section of the 
act.

Section 3. Reduction in Force:

Section 3 authorizes the issuance of revised regulations regarding 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 needed to realign our 
workforce; to correct skill imbalances; or to reduce high-grade, 
supervisory, or managerial positions. Retention during a reduction or 
other adjustment in force in GAO 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.

We developed draft regulations to implement this provision that were 
made available to all employees for comment on September 26, 2002. The 
comments received were reviewed, analyzed for applicability, and 
incorporated where appropriate. Final regulations, Workforce 
Restructuring Procedures for the General Accounting Office, Order 
2351.1, were issued on January 21, 2003.

We are required to report any reduction or adjustment in force action 
and to assess the resulting impact of such actions on employees 
eligible for veterans' preference. We did not conduct any reduction or 
adjustment in force in fiscal 2003. Consequently, there was no impact 
on the agency's veterans.

Overall Assessment:

In addition to describing the specific actions taken during the fiscal 
year under Sections 1 through 3 of Public Law 106-303, Section 6a 
requires us to annually assess the effectiveness and usefulness of the 
authorized personnel flexibilities in contributing to the agency's 
ability to carry out its mission, meet its performance goals, and 
fulfill its strategic plan and to recommend any legislation which the 
Comptroller General considers appropriate. Overall, we have used these 
authorities responsibly and found them to be effective in achieving 
their stated goals. In our 3-year assessment of the act's effectiveness 
required by Section 6b: Assessment of Public Law 106-303--The Role of 
Personnel Flexibilities in Strengthening GAO's Human Capital (GAO-03-
954SP), June 2003--we described our use of the flexibilities, their 
effectiveness, and our recommendation to make them permanent.

While the overall number of employees electing voluntary early 
retirement has been relatively small in comparison to the agency's 
overall size, we believe that careful use of this authority has been an 
important tool in incrementally improving its overall human capital 
profile. Each separation has freed resources for alternate uses, 
enabling us to open and fill new entry-level positions, as well as 
positions that have reduced skill gaps or addressed other succession 
concerns. For this reason, the agency is currently seeking legislation 
as a subsection of the "GAO Human Capital Reform Act of 2003" to make 
this voluntary early retirement provision a permanent authority.

The Comptroller General is also seeking legislation to make Section 2 
of Public Law 106-303--authorization for the payment of voluntary 
separation incentives--a permanent flexibility. Although we have not 
yet utilized this buyout authority and have no immediate plans to do 
so, the agency is seeking to retain this flexibility. The continuation 
of this provision is prudent as it maximizes the options available to 
the agency to deal with unanticipated future workforce planning 
challenges.

Beyond the institutionalization of these two authorities, the GAO Human 
Capital Reform Act of 2003 requests additional human capital 
flexibilities in order to support the agency's strategic plan, while 
maintaining the resources necessary to deliver quality service to the 
Congress; continue leading by example in both government transformation 
and human capital reform; and attract, retain, motivate, and reward a 
quality and high-performing workforce. The provisions of such 
legislation will allow the agency to continue to invest in both people 
and institutional capacity, as well as modernize and update human 
capital policies and systems to respond to the changing environment and 
challenges that lie ahead.

Specifically, we are requesting that the Congress (1) make permanent 
our 3-year authority to offer early outs and buyouts, (2) allow us to 
set our own annual pay adjustment system separate from the executive 
branch, (3) permit us to retain the basic pay of an employee demoted as 
a result of workforce restructuring or reclassification but to set 
future increases consistent with the new position's pay parameters, (4) 
provide authority to reimburse employees for some relocation expenses 
when that transfer benefits GAO but does not meet the legal 
requirements for the reimbursement, (5) provide authority to place 
upper-level hires with fewer than 3 years of federal service in the 6-
hour leave category, (6) authorize an executive exchange program with 
the private sector, and (7) change GAO's legal name from the General 
Accounting Office to the Government Accountability Office. It is 
vitally important to our future that we continue modernizing and 
updating our human capital policies and system in light of the changing 
environment and anticipated challenges ahead.

4. GAO's Federal Information Security Management Act Efforts:

We are implementing an information security program, consistent with 
requirements delineated in the Federal Information Security Management 
Act (FISMA) provisions enacted under the E Government Act of 2002, 
Public Law 107-347. While we are not obligated by law to comply with 
FISMA, we are adopting the requirements to help ensure that we 
establish an effective information security program and to fulfill our 
goal of being a model federal agency.

To assess the status of our 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 IT controls for our general support 
system by our IT auditors, who are independent of our IT support 
function. These reviews and evaluations identified no material 
weaknesses in our financial applications or general support system. 
They also showed that we are making substantial progress in 
implementing information security requirements consistent with FISMA 
through its efforts to:

* implement an agencywide information security program that will impact 
over 3,600 users;

* develop and implement a risk-based approach for all investment plans;

* develop essential policies and reporting mechanisms to ensure that 
our 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;

* identify our 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.

We continue to provide funding for IT security initiatives and training 
to upgrade the skills of our IT security staff and augment our security 
staff through contractor support, as necessary.

Reviews and evaluations of our IT security program have also identified 
areas where improvements could be made. We are currently taking 
corrective action in these areas and have undertaken several projects 
that will significantly improve our information security program during 
fiscal 2004. Among these projects are the following:

* Intrusion detection--Having completed the process of applying host-
based intrusion detection software to our external servers, we have 
begun to apply this software to our internal servers and plan to expand 
this effort during fiscal 2004 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. We have installed network intrusion detection systems 
throughout our network.

* Strong user authentication--We have delivered a strong (two-factor) 
authentication system to all staff. The system requires staff accessing 
our 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 our 
general support system is legitimate. We have completed the 
implementation plan for securing internal wireless links and Virtual 
Private Networks with two-factor authentication. During fiscal 2004, we 
expect to extend the authentication system to all of our remote access 
options. We have implemented a password management device to securely 
store and transmit users' credentials on mission-critical systems and 
applications under the control of our administrative staff.

* IT disaster recovery--We are refining the disaster recovery plan we 
developed last year and have conducted limited testing exercises to 
ensure the viability of the plan. We have worked directly with the 
vendor of our disaster recovery site to strategically position critical 
backup computing assets and established essential telecommunications 
links for our client-server-based systems. We are implementing a new 
network storage technology that we expect to integrate into our 
disaster recovery infrastructure during fiscal 2004. In addition, we 
are exploring the feasibility of implementing secure Web-based 
technology for user access via the network.

* Vulnerability assessment--We have instituted a process consistent 
with the requirements cited in the FISMA to scan the General Support 
System for vulnerabilities and potential exploits. We utilized the 
patch authentication and distribution process through the Federal 
Computer Incident Response Center to maintain up-to-date patches to 
stabilize our network.

* Security test and evaluation--We plan to acquire contract support in 
conducting independent security test and evaluations of all major 
applications and the general support system during the next fiscal 
budget. The test and evaluation is a critical component of the 
certification and accreditation process that will require us to perform 
periodic testing and evaluation of the effectiveness of information 
security policies, procedures, and material weaknesses, including 
testing operational and technical controls.

5. Acronyms:

AGA: Association of Government Accountants:

AICPA: American Institute of Certified Public Accountants:

AIDS: Acquired Immune Deficiency Syndrome:

ARM: Applied Research and Methods:

APSS: Administrative, Professional, and Support Staff:

CASO: Controller/Administrative Services Office:

CDC: Centers for Disease Control and Prevention:

CFO: Chief Financial Officer:

CIO: Chief Information Officer:

CJCC: Criminal Justice Coordinating Council:

CMS: Centers for Medicare & Medicaid Services:

CPI: Consumer Price Index:

DCM: Defense Capabilities and Management:

DHS: Department of Homeland Security:

DOD: Department of Defense:

DOE: Department of Energy:

DOJ: Department of Justice:

DOT: Department of Transportation:

EAC: Employee Advisory Council:

EPA: Environmental Protection Agency:

EWIS: Education, Workforce, and Income Security:

FAA: Federal Aviation Administration:

FASAB: Federal Accounting Standards Advisory Board:

FBI: Federal Bureau of Investigation:

FCS: Future Combat System (Army):

FDA: Food and Drug Administration:

FEDCIR: Federal Computer Incident Response Center:

FEHBP: Federal Employees Health Benefit Program:

FEGLIP: Federal Employees Group Life Insurance Program:

FEMA: Federal Emergency Management Agency:

FHA: Federal Housing Administration:

FISMA: Federal Information Security Management Act:

FMA: Financial Management and Assurance:

FMCI: Financial Markets and Community Investment:

FTE: Full-Time Equivalent:

GAAP: Generally Accepted Accounting Principles:

GAO: General Accounting Office:

GSA: General Service Administration:

HCO: Human Capital Office:

HC: Health Care:

HSJ: Homeland Security and Justice:

HUD: Department of Housing and Urban Development:

IAT: International Affairs and Trade:

IG: Office of Inspector General:

IIA: Institute of Internal Auditors:

INTOSAI: International Organization of Supreme Audit Institutions:

ISTS: Information Systems and Technology Services:

IT: information technology:

ITIM: IT Investment Management:

IRS: Internal Revenue Service:

KS: Knowledge Services:

NASA: National Aeronautics and Space Administration:

NNSA: National Nuclear Security Administration:

NRE: Natural Resources and Environment:

OMB: Office of Management and Budget:

OPM: Office of Personnel Management:

PBGC: Pension Benefit Guaranty Corporation:

PCIE: President's Council on Integrity and Efficiency:

PDP: Professional Development Program:

PI: Physical Infrastructure:

QCI: Quality and Continuous Improvement:

SARS: Severe Acute Respiratory Syndrome:

SBA: Small Business Administration:

SEC: Securities and Exchange Commission:

SGA: substantial gainful activity:

SI: Strategic Issues:

SSA: Social Security Administration:

SSI: Supplemental Security Income:

UNESCO: United Nations Educational, Scientific, and Cultural 
Organization:

USAID: United States Agency for International Development:

USDA: United States Department of Agriculture:

VA: Department of Veterans' Affairs:

WIA: Workforce Investment Act:

[End of Part IV]

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[Hyperlink, http://www.gao.gov/cgi-bin/getprt?rptno=GAO-04-263sp]

FOOTNOTES

[1] We have not set a target for work that we initiate ourselves, known 
as research and development. In fiscal 2002 and fiscal 2001, our 
research and development work represented 11 and 13 percent, 
respectively, of our engagement efforts.

[2] The Federal Manager's Financial Integrity Act requires ongoing 
evaluations and reports on the adequacy of the systems of internal 
accounting and administrative control of each agency. The Government 
Performance and Results Act seeks to improve public confidence in 
federal agency performance by requiring that measurement, including 
setting goals and objectives and measuring progress toward achieving 
them. The Federal Financial Management Improvement Act intends to 
improve federal financial management by requiring that federal agencies 
implement and maintain financial management systems that comply with 
federal financial management systems requirements, federal accounting 
standards, and the United States Government Standard General Ledger at 
the transaction level.

[3] For more information on our annual performance measures and how we 
ensure the completeness and reliability of our performance data, see 
the Data Quality and Program Evaluation section in Part II of this 
report.

[4] We have an extensive product line including oral briefings, 
testimonies, and various types of other written products. The 415 
written products cited here include chapter reports, letter reports, 
and numbered correspondence, some of which contain classified or 
sensitive material.

[5] The Balanced Scorecard, Robert S. Kaplan and David P. Norton, 1996.

[6] U.S. General Accounting Office, High Risk Series: An Update, GAO-
03-119 (Washington, D.C.: January 2003).

[7] We added this issue in July 2003 after we published the January 
2003 update.

[8] We do not look at averages for the percent of past recommendations 
implemented because the number of recommendations made in each year is 
not constant.

[9] We do not look at averages for the percent of past recommendations 
implemented because the number of recommendations made in each year is 
not constant.

[10] We do not look at averages for the percent of past recommendations 
implemented because the number of recommendations made in each year is 
not constant.

[11] While we are not obligated by law to comply with this act, we are 
adopting its requirements to help ensure that we establish an effective 
information security program and to fulfill our goal of being a model 
federal agency.

[End of report]