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recruitment and college relations programs, redesigning its performance appraisal system, enhancing its performance rewards program to help ensure its ability to attract and retain high quality staff with specialized skills, and reshaping our succession planning program.

Key Components of Requested Legislation

To facilitate implementing its human capital initiatives and effectuate the needed realignment of the agency, GAO is seeking legislative authority that would provide it additional flexibility in managing its human capital. This legislation would authorize GAO to offer targeted early-outs. Specifically, it would include the authority to offer early-outs to particular individuals, even though significant numbers of employees would not be released in a downsizing or major reorganization. This authority contrasts with that provided under the Office of Personnel Management which requires that such offers can be made only to groups of similarly situated employees and only when there is a downsizing or major reorganization. The legislation also would provide relief from applying certain reduction-in-force provisions that could result in an even more unbalanced workforce than exists today and a consequent, detrimental impact on GAO's ability to serve the Congress. Also, to provide it greater ability to attract and retain technical talent, GAO is seeking authority comparable to that of the executive branch to compensate its scientific and technical staff at senior executive pay levels. Such authority, if granted, would be used by GAO sparingly to address specific targeted needs, such as information technology specialists and actuaries. GAO will be sending to the appropriate congressional committees a letter requesting and containing drafts of such legislative authority discussed above.

FISCAL YEAR 2001 BUDGET REQUEST

GAO is requesting budget authority of $402,918,000 for fiscal year 2001 to permit us to maintain current operations, while we continue to restructure the organization to better serve the Congress as outlined in our draft strategic plan. As in prior years, GAO is requesting authority to use anticipated revenue from audit work at the Federal Deposit Insurance Corporation (FDIC) and rental income from our future building tenant, the Army Corps of Engineers (COE), to offset building renovations and maintenance costs. Also, due to diminished value over the last 10 years, GAO is seeking a nominal increase in the amount authorized for representation expenses to adjust for inflation and to accommodate a higher volume of strategic planning and engagement execution meetings with heads of audit agencies from other countries.

The following table summarizes GAO's requested increase for:

Uncontrollable mandatory costs,

Program changes, and

Authority to use anticipated revenue.

Table 1: Composition of GAO's Fiscal Year 2001 Budget Request

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$16,264,000 to cover mandatory pay and benefits costs resulting primarily from federal cost-of-living and locality pay adjustments (based on OMB's guidance), increased participation in the FERS retirement system, and an increase in the estimated number of retirees.

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$1,082,000 to cover uncontrollable price-level increases in transportation, lodging, printing, supplies, contracts, and other essential mission support services, based on OMB's 2-percent inflation index.

1

Represents the rescission required by the FY 2000 Consolidated Appropriations Act, P. L. 106-113.

Represents anticipated revenue from reimbursable audit work at the FDIC.

3 Represents $125,000 to be transferred by the Office of National Drug Control Policy (ONDCP) for a contract to conduct a management review of ONDCP pursuant to P.L. 106-58.

Program Changes:

GAO proposes to continue initiatives begun in fiscal year 2000 necessary to restructure the agency to support the goals and themes identified in its draft strategic plan. These initiatives include realigning organizations to support crosscutting issues and objectives, reengineering work processes, and making further technological advances to maximize its responsiveness to congressional needs.

The requested increase for program changes includes:

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$776,000 to increase funding for its performance rewards and recognition program to pre-downsizing per capita level and to achieve comparability between GAO and the executive branch compensation systems and to help ensure its ability to retain, attract and reward high quality staff based on new skills and performance.

· $1,500,000 for training, to continue maximizing staff productivity and effectiveness in organizational, behavioral, and technological skills; require or develop new skills and performance areas identified in its draft strategic plan to serve the Congress; and to address skills gaps identified in the planned skills inventory.

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$250,000 to reengineer its non-evaluator performance appraisal system to incorporate best practices. Performance appraisal systems are a key component in assessing employee strengths and weaknesses, training needs, and rewards and recognition. The performance appraisal system for its evaluator staff is presently being revised; we expect to implement this new system in fiscal year 2001.

$2,485,000 to upgrade network software and information technology systems that support the assignment tracking process and disaster recovery facility. The network currently operates Windows 95 and MS Office as the primary operating and applications software. In order to maintain vendor support and upgrades, GAO needs to upgrade to the current versions, Windows 2000 and Office 2000. GAO's assignment tracking system was developed in-house over 2 decades ago and is obsolete and incapable of interfacing with its network environment. Also, as the next stage in its disaster recovery planning process, we need to implement a solution that ensures GAO network data can be archived and retrieved at alternate sites to ensure timely accessibility in the event of disaster.

Offsetting Collections:

GAO is requesting $1,900,000 from estimated rent receipts from the Army Corps of Engineers to continue asbestos removal and renovation of the GAO building.

HIGHLIGHTS OF GAO's ACCOMPLISHMENTS

Financial benefits from GAO work are realized through actions taken by the Congress and federal departments and agencies that led to budget reductions, avoided costs, deferred appropriations, or additional revenue collections. Additionally, GAO recommendations and audit findings result in, or contribute to, many improvements in the effectiveness and efficiency of government operations and services. While these contributions cannot be measured in dollars, they improve practices or operations and have considerable potential to increase the taxpayers' trust in their government. Most of these financial and non-financial benefits were the result of GAO work requested by the Congress; others resulted from GAO research and development efforts to identify and help the Congress address emerging issues facing the nation and its citizens.

GAO records accomplishments after the agency has completed corrective action. Usually a time lag exists between the GAO product being issued, the action being completed, and GAO recording an accomplishment. For this reason, fiscal year 1999 accomplishments include corrective actions completed in fiscal year 1999 as well as some completed in previous fiscal years.

Financial Benefits

In fiscal year 1999, GAO recommendations to improve government operations and reduce costs contributed to legislative and executive actions that yielded over $20.1 billion in measurable financial benefits. The dollar amount of these financial benefits is consistent with the average level of $20.2 billion achieved over the last 3 years, which is equivalent to about $59 for every $1 that was appropriated to GAO during the period.

Examples of the financial benefits resulting from GAO recommendations include greater returns on the sale of federal assets, savings from implementing more efficient services, increased net tax revenues from tax code and law changes, and decreased federal spending from reductions in future budget authority.

Greater Financial Return on the Sale of Federal Assets

Elk Hills Petroleum Reserve: In 1995, GAO testified that the U.S. Treasury would receive a greater return if the government sold, rather than continued to operate, the U.S. Naval Petroleum Reserve in Elk Hills, California. Subsequently, at the Congress' request, GAO provided assistance in drafting legislation, as well as in monitoring the sale, to ensure that the government received a maximum return. The reserve was sold in 1998 for $3.6 billion, or about $1.5 billion above the minimum asking price of $2.1 billion, which was the present value of future net revenues that the government would expect to earn from oil sales had it chosen not to sell the reserve. The $1.5 billion in additional revenue was attributed to GAO's efforts.

· Uranium Enrichment Corporation: The 1992 Energy Policy Act created the U.S. Enrichment Corporation (USEC) a wholly-owned government corporation—to take over the Department of Energy's uranium enrichment program and then to develop a plan, which was to be reviewed by GAO, to privatize the corporation. In its review, GAO recommended, among other things, that the Congress require the Secretary of the Treasury—not USEC-to take the lead in the privatization process and to consider such things as the value of USEC's excess uranium inventory and the amount of cash USEC actually needed to retain after it was privatized. GAO's recommendations were adopted into law in 1996 and followed in the government's sale in July 1998, resulting in sales proceeds of $1.9 billion, or $810 million more than had been estimated in USEC's privatization plan. The difference of $810 million between USEC's estimate and the actual proceeds from the sale is attributed to GAO's work.

Savings From a More Efficient Government

Admission Procedures at Veterans Administration's (VA's) Hospitals: In 1996, GAO testified that VA hospitals-unlike private sector hospitals-did not screen patients to ensure that only those who needed hospital treatment were admitted. Once admitted, VA did not ensure that patients were discharged as soon as medically possible. In response to GAO's testimony, VA established procedures for screening all admissions and reviewing lengths of hospitalization. These changes contributed to a 25-percent decline in the number of hospital patients between fiscal year 1996 and 1998, as well as a 14-percent decline in lengths of hospital stays. Estimated benefits of $566 million for fiscal years 1998 and 1999 occurred as a result of VA implementing GAO's recommendation.

Administration of Low-Income Housing: In 1998, the Congress terminated the Department of Housing and Urban Development's (HUD's) Low Income Housing Preservation Program. GAO had reported that the administration of this program limited HUD's ability to ensure that funds were being used wisely Continuing the program would have cost some $2 billion over a period of several years. Benefits attributable to GAO's work were $936 million in fiscal years 1998 and 1999.

Additional examples are included in the summaries for each division in later sections of the budget.

Increased Net Tax Revenue

· Earned Income Tax Credit Changes: In 1996, the Congress changed the tax law pertaining to the earned income tax credit. The Congress established an investment income wealth test and set a threshold at $2,350; then, subsequently, lowered the threshold to $2,200 and included both capital gains and passive income in the wealth test. GAO had presented these options to the congressional committees during their deliberations. As a result of these suggestions, the federal government avoided paying about $1.3 billion in benefits for fiscal years 1996 through 2000.

Elimination of Section 936 Tax Credit: In 1996, the Congress, as part of the Small Business Job Protection Act, phased out the section 936 tax credit. This section provided tax credits to corporations for certain income earned in Puerto Rico and other United States' possessions. GAO had worked closely with the committees sponsoring the act, and its analyses were used during the deliberations. About $1.3 billion in additional tax revenues were collected from fiscal years 1996 through 2000 as a result.

Decreased Federal Spending from Reductions in Future Budget Authority

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Section 8 Housing Assistance: GAO reported that HUD's method for estimating the funding for its Section 8 housing assistance exceeded its needs. The appropriations committee directed HUD to submit revised estimates. Using HUD's revised estimates, the Congress reduced HUD's fiscal year 1998 budget by about $1.4 billion and HUD avoided additional costs of about $1.1 billion in fiscal year 1999. Other previous actions taken by the Congress as a result of this work include rescinding $550 million in October 1997 and another $2.4 billion in Section 8 tenant based reserves as part of the 1998 Supplemental Appropriations Act. Total benefits resulting from this work have been $5.3 billion.

Department of Defense (DOD) - Military Personnel: As part of its assistance to the Congress in reviewing the fiscal year 1999 budget request for military personnel, GAO identified several areas in which the military personnel budget could be reduced. These included excess manpower costs due to overestimated military personnel strength, unneeded advance pay, and funds not needed because of gains resulting from foreign currency exchanges. As a result of GAO's work, the Congress reduced the active and reserve components by about $609 million.

Other Improvements in Government

In addition to the financial benefits resulting from GAO's work, there were over 600 non-financial accomplishments during fiscal year 1999 that resulted in or contributed to improvements in the effectiveness and efficiency of government operations and services. This number represents a 13-percent increase in such accomplishments compared to fiscal year 1998. Examples of the various types of non-financial benefits resulting from GAO's recommendations include better public safety and consumer protection, more efficient and effective government operations and services, better assessments of program results, ensuring Y2K readiness, and enhanced computer security. Examples follow.

Improved Public Safety and Consumer Protection

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Nursing Home Care: Since July 1998, GAO has issued a series of Medicaid-related reports highlighting the disturbing frequent extent of poor quality care that results in harm to nursing home residents. GAO has made a series of recommendations to assist HCFA in improving its nursing home survey process and strengthen enforcement for homes that are repeatedly found to have serious deficiencies.

HCFA has responded promptly to GAO's recommendations by announcing a set of nursing home initiatives. For example, it has required states to investigate serious complaints alleging harm to residents within 10 days. In addition, HCFA proposed an expansion of the number of homes with repeated serious

Additional examples are included in the summaries for each division in later sections of the budget.

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