This is the accessible text file for GAO report number GAO-07-740CG 
entitled '21st Century Transformation Challenges' which was released on 
April 10, 2007. 

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States Government Accountability Office: 

21st Century Transformation Challenges: 

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

Excellence in Government Conference: 

April 5, 2007: 

Three Key Change Concepts: 

Candor: To state the facts and speak the truth about the need for 
change and possible ways forward: 

Courage: To act and do the right thing even though it my be unpopular 
and counter-cultural: 

Commitment: To persist with the needed change effort until you prevail: 

The Case for Change: 

The federal government is on a "burning platform," and the status quo 
way of doing business is unacceptable for a variety of reasons, 
including: 

Numerous government performance/accountability and high risk 
challenges: 

Past fiscal trends and significant long-range challenges: 

Selected trends and challenges having no boundaries:

Rising public expectations for demonstrable results and enhanced 
responsiveness: 

Additional resource demands due to Iraq, Afghanistan, incremental 
homeland security needs, and recent natural disasters in the United 
States: 

Outdated federal organizational structures, policies, and practices: 

Major Reported Long-Term Fiscal Exposures ($ trillions): 

Explicit liabilities (Publicly held debt, military & civilian pensions 
& retiree, health, other); 	
2000: $6.9; 
2006: $10.4; 
Percent Increase: 52%. 
	
Commitments & Contingencies: e.g., PBGC, undelivered orders; 
2000: $0.5; 
2006: $1.3; 
Percent Increase: 140%. 

Implicit exposures; 
2000: $13.0; 
2006: $38.8; 
Percent Increase: 197%.

Implicit exposures: Future Social Security benefits; 
2000: $3.8; 
2006: $6.4; 
Percent Increase: [Empty]. 

Implicit exposures: Future Medicare Part A benefits; 
2000: $2.7; 
2006: $11.3; 
Percent Increase: [Empty]. 

Implicit exposures: Medicare Part B benefits; 
2000: $6.5; 
2006: $13.1; 
Percent Increase: [Empty]. 

Implicit exposures: Medicare Part D benefits; 
2006: $8.0; 
Percent Increase: [Empty]. 

Total; 
2000: $20.4; 
2006: $50.5; 
Percent Increase: 147%. 

Sources: 2000 and 2006 Financial Reports of the United States 
Government. 

Note: Estimates for Social Security and Medicare are at present value 
as of January 1 of each year, and all other data are as of September 
30. Totals may not add due to rounding. Percentage increases are based 
on actual data and may differ from increases calculated from rounded 
data shown in table. 

[End of table] 

Potential Fiscal Outcomes Alternative Simulation-Discretionary Spending 
Grows with GDP and Expiring Tax Provisions Extended (January 2007) 
Revenues and Composition of Spending as a Share of GDP: 

[See PDF for image] - graphic text: 
		
Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 	

2006; 
Net interest: 1.7%; 
Social Security: 4.2%; 
Medicare & Medicaid: 3.9%; 
All other spending: 10.5%; 
Revenue: 18.4%. 

2015; 
Net interest: 2.1%; 
Social Security: 4.6%; 
Medicare & Medicaid: 4.9%; 
All other spending: 9.6%; 
Revenue: 17.6%. 

2030; 
Net interest: 5.9%; 
Social Security: 6.8%; 
Medicare & Medicaid: 8.3%; 
All other spending: 9.5%; 
Revenue: 17.8%. 

2040; 
Net interest: 12.1%; 
Social Security: 7.6%; 
Medicare & Medicaid: 10.3%; 
All other spending: 9.5%; 
Revenue: 17.8%.

Source: GAO's January 2007 analysis. 

Notes: AMT exemption amount is retained at the 2006 level through 2017 
and expiring tax provisions are extended. After 2017, revenue as a 
share of GDP is held constant-implicitly assuming that action is taken 
to offset increased revenue from real bracket creep, the AMT, and tax- 
deferred retirement accounts. 

[End of figure] 

GAO's High Risk List: 

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

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
Managing Federal real Property[A]; 
Designated High Risk: 2003. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
Protecting the federal government's Information Systems and the 
Nation's Critical Infrastructures; 
Designated High Risk: 1997. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
Implementing an transforming the Department of Homeland Security; 
Designated High Risk: 2003. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
Establishing appropriate and effective information-sharing mechanisms 
to improve Homeland Security; 
Designated High Risk: 2005. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
DOD approach to business transformation[A];  
Designated High Risk: 2005. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
DOD approach to business transformation[A]: DOD Business Systems 
Modernization;  
Designated High Risk: 1995. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
DOD approach to business transformation[A]: DOD Personnel Security 
Clearance Program; 
Designated High Risk: 2005. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
DOD approach to business transformation[A]: DOD Support Infrastructure 
Management; 
Designated High Risk: 1997. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
DOD approach to business transformation[A]: DOD Financial Management; 
Designated High Risk: 1995. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
DOD approach to business transformation[A]: DOD Supply Chain 
Management(formerly Inventory Management); 
Designated High Risk: 1990. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
DOD approach to business transformation[A]: DOD Weapon Systems 
Acquisition; 
Designated High Risk: 1990. 

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

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
Financing the Nation's Transportation System[A] New; 
Designated High Risk: 2007. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
Ensuring the Effective Protection of Technologies Critical to U.S. 
National Security Interests[A] New; 
Designated High Risk: 2007. 

High Risk Areas: Addressing Challenges in Broad-based Transformations: 
Transforming Federal Oversight of Food Safety[A] New; 
Designated High Risk: 2007. 

High Risk Areas: Managing Federal Contracting More effectively:  DOD 
Contract Management; 
Designated High Risk: 1992. 

High Risk Areas: Managing Federal Contracting More effectively:  DOE 
Contract Management; 
Designated High Risk: 1990. 

High Risk Areas: Managing Federal Contracting More effectively:  NASA 
Contract Management; 
Designated High Risk: 1990. 

High Risk Areas: Managing Federal Contracting More effectively:  
Management of Interagency Contracting; 
Designated High Risk: 2005. 

High Risk Areas: Assessing the Efficiency and Effectiveness of Tax Law 
Administration: Enforcement of Tax Laws[A]; 
Designated High Risk: 1990. 

High Risk Areas: Assessing the Efficiency and Effectiveness of Tax Law 
Administration: IRS Business Systems Modernization; 
Designated High Risk: 1995. 

High Risk Areas: Modernizing and Safeguarding Insurance and Benefit 
Programs: Modernizing Federal Disability Program[A]; 
Designated High Risk: 2003.  

High Risk Areas: Modernizing and Safeguarding Insurance and Benefit 
Programs: Pension Benefit Guaranty Corporation Single-Employer 
Insurance Program; 
Designated High Risk: 2003. 

High Risk Areas: Modernizing and Safeguarding Insurance and Benefit 
Programs: Medicare program[A]; 
Designated High Risk: 1990. 

High Risk Areas: Modernizing and Safeguarding Insurance and Benefit 
Programs: Medicaid program[A]; 
Designated High Risk:  2003. 

High Risk Areas: Modernizing and Safeguarding Insurance and Benefit 
Programs: National Flood Insurance Program[A]; 
Designated High Risk: 2006. 

Source: GAO. 

[A] Legislation is likely to be necessary, as a supplement to actions 
by the executive branch, in order to effectively address this high-risk 
area. 

[End of table] 

Serving The Congress And The Nation GAO'S Strategic Plan Framework: 

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: 

* Changing Security Threats; 

* Sustainability Concerns; 

* Economic Growth and competitiveness; 

* Global interdependency; 

* Societal Change; 

* Quality of Life; 

* Science and Technology; 

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; 

Provide Timely, Quality Service to the Congress and the Federal 
Government to. 

Respond to Changing Security Threats and the Challenges of Global 
Interdependence involving. 

* Emerging threats; 

* Military capabilities and readiness; 

* Advancement of U.S. interests; 

* Global market forces; 

Help Transform the Federal Government Government's Role and How It Does 
Business to Meet 21st Century Challenges by assessing. 

* Roles in achieving federal objectives; 

* Government transformation; 

* Key management challenges and program risks; 

* 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 satisfaction; 

* Strategic leadership; 

* Institutional knowledge and experience; 

* Process improvement; 

* Employer of choice: 

Core Values: 

* Accountability; 

* Integrity; 

* Reliability; 

Source: GAO. GAO Strategic Plan 2007-2012: 

[End of figure] 

Selected Sustainability Challenges: 

Fiscal: 

Foreign Policy: 

Education: 

Energy: 

Environment: 

Health Care: 

Immigration: 

Iraq: 

The Way Forward: A Three-Pronged Approach: 

1. Improve Financial Reporting, Public Education, and Performance 
Metrics: 

2. Strengthen Budget and Legislative Processes and Controls: 

3. Fundamentally Reexamine & Transform for the 21St Century (i.e., 
entitlement programs, other spending, and tax policy): 

Solutions Require Active Involvement from both the Executive and 
Legislative Branches: 

Transformation: 

Webster's definition: An act, process, or instance of change in 
structure appearance, or character. 

A conversion, revolution, makeover, alteration, or renovation.  

The Objective of Transformation: 

To create a more positive future by maximizing value and mitigating 
risk within current and expected resource levels: 

Transformation: A New Model for Government Organizations: 

Government organizations will need to: 

Become less hierarchical, process-oriented, stovepiped, and inwardly 
focused: 

Become more partnership-based, results-oriented, integrated, an 
externally focused: 

Achieve a better balance between results, customer, and employee focus: 

Work better with other governmental organizations, non-governmental 
organizations, and the private sector, both domestically and 
internationally fly, to achieve results: 

Focus on maximizing value, managing risk and enhancing responsiveness 
within current and expected resource levels: 

Key Performance Measures: 

Dimensions: 

Results: 

Clients/customers:

People: 

Partnerships: 

Context: 

Absolute:

Trend: 

Compared to Peers: 

The Need For Key National Indicators in the U.S. 

Federal spending exceeds $2.7 trillion annually: 

Federal revenues reduced by more than $800 billion in tax preferences: 

Agencies produce reams of regulations: 

Most federal government policies and programs were created years ago: 

The Need For Key National Indicators in the U.S. 

What: A portfolio of economic, social, and environmental outcome-based 
measures that could be used to help assess the nation's and other 
governmental jurisdictions' position and progress: 

Who: Many countries and several states, regions, and localities have 
already undertaken related initiatives (e.g., Australia; New Zealand; 
Canada; United Kingdom; Oregon; Silicon Valley (California); 
Jacksonville (Florida); Boston (Massachusetts): 

Why: Development of such a portfolio of indicators could have a number 
of possible benefits, including: 

* Serving as a framework for related strategic planning efforts: 
* Enhancing performance and accountability reporting: 
* Informing public policy decisions, including much needed baseline 
reviews of existing government policies, programs, functions, and 
activities: 
* Facilitating public education and debate as well as an informed 
electorate: 

Way Forward: Key players working through a consortium within a 
nonprofit organization receiving technical assistance from the National 
Academies domestically and OECD and others providing assistance 
internationally on related efforts: 

Key National Indicators: Where the United States Ranks: 

The United States may be the only superpower, but compared to most 
other OECD countries on selected key economic, social, and 
environmental indicators, on average, the U.S. ranks: 

16 0ut Of 28: 

OECD Categories for Key Indicators (2006 OECD Factbook): 

* Population/Migration; 
* Energy; 
* Environment; 
* Quality of Life; 
* Macroeconomic Trends; 
* Labor Market; 
* Education; 
* Economic Globalization;  
* Prices; 
* Science & Tech; 
* Public Finance. 

Source: 2006 OECD Factbook. 

[End of table] 

21St Century Challenges Report: 

Provides background, framework, and questions to assist in reexamining 
the base: 

Covers entitlements and other mandatory spending, discretionary 
spending, and tax policies and programs: 

Based on GAO's work for the Congress: 

Source: GAO. 

Twelve Reexamination Areas: 

Mission Areas: 

* Defense; 
* International Affairs: 
* Education & Employment; 
* Natural Resources, Energy & Environment: 
* Financial Regulation & Housing; 
* Retirement & Disability: 
* Health Care; 
* Science & Technology: 
* Homeland Security; 
* Transportation: 

Crosscutting Areas: 

* Improving Governance; 
* Reexamining the Tax System: 

Generic Reexamination Criteria and Sample Questions: 

Relevance of purpose and the federal role: 

Why did the federal government initiate this program and what was the 
government trying to accomplish? 

Have there been significant changes in the country or the world that 
relate to the reason for initiating it? 

Measuring success: 

Are there outcome-based measures? If not, why? 

If there are outcome-based measures, how successful is it based on 
these measures? 

Targeting benefits: 

Is it well targeted to those with the greatest needs and the least 
capacity to meet those needs? 

Affordability and cost effectiveness: 

Is it using the most cost-effective or net beneficial approaches when 
compared to other tools and program designs? 

Best practices: 

Is the responsible entity employing prevailing best practices to 
discharge its responsibilities and achieve its mission? 

Classification and Compensation System: Key Guiding Principles: 

Enables GAO to attract and retain top talent: 

Is reflective of the roles and responsibilities that we expect GAO 
staff to perform: 

Is market-based, as well as skills, knowledge, and performance- 
oriented: 

Conforms with applicable statutory limits: 

Considers absolute and relative performance: 

Tries to assure reasonable consistency in both ratings and related 
compensation results within and between teams: 

Results in equal pay for work of equal value over time: 

Helps to better target a finite amount of resources: 

Is affordable today and sustainable in the future: 

GAO's Classification and Compensation Changes 1989 vs. 2006: 

Strategy: Guaranteed that no one would lose; 
1989: Yes; 
2006: No. 

Strategy: Automatically promoted some staff (e.g., from GS-13 to GS-
14); 
1989: Yes; 
2006: No. 

Strategy: Guaranteed across the board raises, even for unacceptable 
performers; 
1989: Yes; 
2006: No. 

Strategy: Gave some people the opportunity to earn more than the prior 
system; 
1989: No; 
2006: Yes. 

Strategy: Considered relative performance to a much greater extent; 
1989: No; 
2006: Yes. 

Strategy: Used "roles and responsibilities" studies for comparison; 
1989: No; 
2006: Yes. 

Strategy: Used market-based pay compensation studies to ensure 
competitiveness in markets where GAO has personnel; 
1989: No; 
2006: Yes. 

Strategy: Positively correlates pay with performance-within applicable 
pay caps; 
1989: No; 
2006: Yes. 

Strategy: Results in equal pay for work of equal value over time; 
1989: No; 
2006: Yes. 

Strategy: Is affordable and sustainable based on current and expected 
resource levels; 
1989: No; 
2006: Yes. 

[End of table] 

GAO's Band II Restructuring Effort: Lessons To Be Shared: 

Study the relative roles and responsibilities of the employees affected 
before determining the number of bands: 

Conduct an independent market-based compensation study instead of 
relying on GS-pay ranges: 

Design and implement a modern, effective, and credible performance 
management system that makes meaningful distinctions in performance: 

Keys to Making Change Happen: 

Commitment and sustained leadership: 

Demonstrated need for change (i.e., burning platform): 

Start at the top and with the new people (transformation takes 7+ 
years): 

Process matters (e.g., employee involvement) Don't fight a two-front 
war: 

15-percent rule: 

Identifiable and measurable progress over time: 

Communication, communication, communication: 

Figure out what's right versus what's popular: 

Patience, persistence, perseverance to pain before you prevail: 

Key Leadership Attributes Needed for These Challenging and Changing 
Times: 

Courage: 
Integrity: 
Creativity: 
Partnership: 
Stewardship: 

On the Web: 

Web site: [Hyperlink, http://www.gao.gov/cghome.htm]: 

Contact: 

Paul Anderson, Managing Director, Public Affairs AndersonP1@gao.gov 
(202) 512-4800: 

U.S. Government Accountability Office 441 G Street NW, Room 7149 
Washington, D.C. 20548: 

Copyright: 

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protection in the United States. The published product may be 
reproduced and distributed in its entirety without further permission 
from GAO. However, because this work may contain copyrighted images or 
other material, permission from the copyright holder may be necessary 
if you wish to reproduce this material separately.