to waste, fraud, abuse, and mismanagement." GAO tries to identify the fundamental causes of the problems and to recommend solutions to Congress and executive leaders. While GAO did not prepare its high-risk series in response to a congressional request, several committees and agency managers noted that they have found the reports useful background to understanding weaknesses and patterns of problems that the agencies and Congress should address. GAO's financial auditors and experts on financial matters are located primarily in AIMD -- the division that GAO formed in 1993 by merging the Accounting and Financial Management Division (AFMD) and the Information Management and Technology (IMTEC) Division. (AIMD now includes information management, information technology, operations analysis, financial auditing and financial management, and federal budget and budget process issues.) The year before the two divisions merged, AFMD accounted for 11 percent of GAO's staffing resources and IMTEC for 6 percent. The CFO Act has created new demands and new importance for GAO's financial-related work. GAO helped develop and support the legislation in the five years before its enactment, participating with the Senate Committee on Governmental Affairs and the House Committee on Government Operations, OMB, and the Treasury Department in discussions of potential approaches. The goals of the law extend beyond accurate agency financial reports to full federal financial management systems that permit an integrated approach to budgeting and accounting. In the pilot projects under the act, executive agencies are working to create accounting, reporting, and financial management systems that can produce viable financial statements and will relate financial accounting and information systems to budgeting and performance results. CFOs have operating responsibility for financial management in each cabinet department or major executive branch agency. The office of the inspector general is the internal audit unit in an agency and is responsible for doing mandated financial statement audits or contracting with a private audit firm to conduct the audits. In addition, the act authorizes the comptroller general to review any financial statement audit and report to Congress on it. While GAO continues to monitor and audit federal programs that seem at high risk for inadequate financial controls, its primary role under the CFO Act is to help agencies and the federal government to develop needed systems financial reporting, auditing, and financial management systems. GAO has a five-part strategy for responding to the act: Working proactively and cooperatively with OMB to develop clear, uniform standards and guidelines for agencies on carrying out the act; Carrying out initial audits of selected agencies' financial statements during the law's pilot phase (including the Department of the Army, IRS, Customs Service, the Department of State, and the Department of Education) and advising and assisting federal financial managers who conduct financial statement audits; 67In the 1980's, the Office of Management and Budget (OMB) began to prepare a longer "high-risk list" and to include it in the President's budget. The list in the fiscal year 1995 budget, issued in January 1994, shows 84 programs or systems on OMB's list, compared to 104 at the start of 1993. • Developing a financial auditing manual tailored for use in the federal government; Providing training and technical assistance on financial statement audits, other financial-related audits, and internal controls to members of agency inspector general offices (including about 1,500 participants over a three-year period in customized courses at the GAO Training Institute); and Participating in the Federal Accounting Standards Advisory Board (FASAB) with OMB and GAO took major steps to prepare for its role in implementing the act, such as adding 115 people with accounting and financial systems background (including 51 experienced Certified Public Accountants) to its staff in fiscal years 1990-91, after at least a decade of falling numbers of auditors and accounting personnel. GAO also established cooperative relationships with the staff in agencies with which it was working. Based on interviews for this study, those relationships appear constructive, generating both positive comments from agencies and a greater capacity on their part to produce solid financial systems responsive to the act's requirements (although few agencies have received an unqualified audit of their financial statements). In his February 1994 testimony, the comptroller general expressed support for proposed legislation, H.R. 3400, that would extend the requirements for audited financial statements to all funds and all 23 executive departments and major agencies, moving the CFO Act mandates from pilot to permanent status. RECOMMENDATION: In allocating its resources, GAO should give higher priority to activities in financial RECOMMENDATION: GAO should make a strong effort to maintain and enhance its reputation as an RECOMMENDATION: GAO should continue to develop its skills and capacity to evaluate financial management and information systems, to work with agencies to review and improve their own systems, and to build financial management perspectives and skills into all issue area teams conducting major organizational and general management studies. RECOMMENDATION: GAO should build new skills in the methods and applications of cost accounting, cost analysis, and cost information systems, oriented to producing results that will be relevant to management. GAO should also focus increased attention on ways to move federal agencies to integrating the results and perspectives of cost accounting and auditing into financial and general management and planning. Paralleling GAO's financial auditing and financial management activities, AIMD staff is developing a consultative relationship with federal agencies in the areas of information technology and information management. GAO is advising and assisting information managers and information technology specialists to develop information systems that will support effective accomplishment of agency mission. Interviews indicate that agency information management experts have found GAO's recent Executive Guide: Improving Mission Performance Through Strategic Information Management and Technology a very constructive guide, with great potential to help agencies in this difficult, important area -- readable, understandable, well researched, substantive, practical, and easy to use. This contrasts sharply with comments about some previous GAO work on information technology and management as highly critical of agency systems without providing concrete, practical recommendations for overcoming deficiencies and management obstacles to improvement. AIMD is building its expertise in "process reengineering," a management process that critically examines, rethinks, and redesigns organizational processes around desired mission outcomes. Process reengineering often involves applying information technology as an enabling tool, if not a basic part, of the processes that are reviewed and redesigned. RECOMMENDATION: GAO should continue to develop and refine its expertise and capacity in information systems and management and the application of information technology to support program and agency missions. RECOMMENDATION: GAO should include information management experts in its issue area teams conducting broader audits and evaluations, and it should integrate knowledge of information technology and perspectives on using information management and "process reengineering" into its general management work. 68GAO/AIMD-94-115, May 1994. Economy and Efficiency Audits Economy and efficiency audits of programs and activities are a major category of audit work set out in both GAO's Policies/Procedure Manual and the "yellow book. "69 This category of work has been an important component of GAO work, particularly since GAO's shift in the 1950s from voucher auditing to more comprehensive auditing. GAO defines these audits as: Reviews having economy and efficiency objectives determine how waste and inefficient The category of economy and efficiency audits also includes GAO's audits of operational or program compliance with legislative or administrative requirements. GAO's "yellow book" notes that economy and efficiency audits may consider whether an organization or program is following sound procurement practices, using the minimum amount of resources in producing the appropriate quantity of goods and services, avoiding duplication of effort, avoiding idleness and overstaffing, using efficient operating procedures, complying with requirements of laws and regulations, and maintaining an adequate system for measuring and reporting performance on economy and efficiency." GAO economy and efficiency audits have covered a broad range of government programs through various types of studies. Most of these audits are performed by issue area staffs assigned to work on the particular government programs and issues. While many reports reflect relatively narrowly focused examinations of processes and efficiencies, some of GAO's reports in this category move into more subjective issues beyond the scope of "yellow book" auditing standards. Often, Congress requests studies of this kind; GAO also initiates studies to keep up with the range of programs and perform periodic spot checks of agencies and programs, particularly to detect problems with economy and efficiency in high-risk programs and any need for improvements in other programs. Due to the volume and diversity of work that is partly or wholly in this category, the panel cannot offer definitive judgments on the quality and usefulness of this entire category. The quality, depth, and approach of the reports reviewed by the panel vary enormously. Based on the reading and interviews conducted for this study, the panel offers the following observations: GAO's relations with the organizations it reviews in its economy and efficiency audits range from positive and cooperative to adversarial. While a healthy tension exists in most armslength auditing between the auditor and the organization being audited, constructive relations "Policies/Procedures Manual, p. 2.0-2, and the "yellow book," pp. 14-15. Chapters 6 and 7 of the "yellow book" present in considerable detail standards for conducting and reporting this type of audit. Economy and efficiency audits are covered in the "yellow book" as one component of "performance audits," the other component being what it calls "program audits" which review program effectiveness ("yellow book," pp. 14 and 16). 70 Policies/Procedures Manual, p. 2.0-2. 71" Yellow book," p. 15. produce recommendations that are more realistic, better grounded in an understanding of the program and organization, and more likely to be implemented. Some of the congressional and agency staff interviewed for this research expressed skepticism as to whether GAO evaluators maintain an "independent attitude and appearance" in their audits. Some interviewees in both the legislative and executive branches stated that they regard a negative report (sometimes referred to as a "gotcha" report) as the predetermined outcome of such audits. GAO's statements of its objectives in this category seem to support this suspicion, and the titles of the reports contribute to that impression. Many titles include such words as "mismanagement," or highlight waste, abuse and fraud, which may create negative hearings and headlines and contribute to agency perceptions that GAO is only featuring criticism and may be "out to get" the agency or program. Congressional and agency staff generally do not appear to respect GAO's expertise in judging economy and efficiency as highly as its skill in financial management and accounting. In interviews, many staff members said that GAO auditors and evaluators often begin with little knowledge of agency or program operations in the area audited, and sometimes end with findings that seem relatively superficial, unremarkable, or already widely recognized by the people working in or involved with the subject area. GAO's economy and efficiency audits tend to focus on findings and recommendations related to process, controls, and oversight. Two themes appear frequently in this type of GAO work: "better management needed" or "adequate oversight lacking." The panel reviewed a number of reports with these phrases in titles or summary recommendations. Of course, there is always room for improvement in efficiency and economy of management, and oversight is never perfect. GAO, however, appears to assume that more oversight will result in better performance. Yet, generally, it provides no evidence of the changes in performance to expect from implementation of its recommendations. For example: U.S. Army Corps of Engineers: Better Management Needed for Mobilization Support (GAO/NSIAD-93-116) asserts that headquarters oversight is inadequate, but its 10 pages never address the costs of implementing the recommendations or the expected performance improvements. The recommendations are procedural and the report acknowledges that the agency is making changes in the recommended direction (for example, shifting plans from global to regional conflict scenarios). Eastern Europe: AID's Indefinite Contracts Assist Privatization Efforts But Lack Oversight (GAO/NSIAD-94-61) concludes that, in general, host governments were satisfied with AIDfunded efforts and compared AID contracts favorably to other donor programs; nevertheless, the GAO report calls for increased AID oversight. The report does not specify what program benefits might ensue from creating more oversight. 72"Independent attitude and appearance" is a standard provided in the "yellow book," p. 22. |