Title: Streamlining Management Control Author: Vice President Al Gore's National Performance Review Date: September, 1993 ******************************* Streamlining Management Control ******************************* Accompanying Report of the National Performance Review Office of the Vice President Washington, DC September 1993 ******** Contents ******** Executive Summary 1 ^^^^^^^^^^^^^^^^^ Recommendations and Actions ^^^^^^^^^^^^^^^^^^^^^^^^^^^ SMC01: Implement a Systems Design Approach to Management Control 9 SMC02: Streamline the Internal Controls Program to Make it an Efficient and Effective Management Tool 15 SMC03: Change the Focus of the Inspectors General 21 SMC04: Increase the Effectiveness of Offices of General Counsel 27 SMC05: Improve the Effectiveness of the General Accounting Office Through Increased Customer Feedback 31 SMC06: Reduce the Burden of Congressionally Mandated Reports 33 SMC07: Reduce Internal Regulations By More Than 50 Percent 37 SMC08: Expand the Use of Waivers to Encourage Innovation 45 Appendices ^^^^^^^^^^ A. Summary of Actions by Implementation Category 53 B. Sample of "External" Staff Review Functions 55 C. Accompanying Reports of the National Performance Review 57 Implementation Categories ^^^^^^^^^^^^^^^^^^^^^^^^^ Each action is followed by a number in parentheses that indicates the necessary avenue for effective implementation. Appendix A organizes all actions according to these categories. (1) Agency heads can do themselves (2) President, Executive Office of the President, or Office of Management and Budget can do (3) Requires legislative action (4) Good idea, but will require additional work, or work may be better suited for the future Abbreviations ^^^^^^^^^^^^^ ACUS Administrative Conference of the United States CBO Congressional Budget Office CD-ROM Compact Disc-Read Only Memory CEG Council for Excellence in Government CFO Chief Financial Officer CIA Central Intelligence Agency DAR Defense Acquisition Regulation DFE Designated Federal Entities DLA Defense Logistics Agency DOD Department of Defense DOI Department of the Interior ECIE Executive Council on Integrity and Efficiency EEO Equal Employment Opportunity EEOC Equal Employment Opportunity Commission EO Executive Order EPA Environmental Protection Agency FAR Federal Acquisition Regulation FDA Food and Drug Administration FY Fiscal Year FMFIA Federal Managers' Financial Integrity Act FTE Full-Time Equivalent GAO General Accounting Office GPRA Government Performance and Results Act GSA General Services Administration HHS Department of Health and Human Services HUD Housing and Urban Development IG Inspector General IRM Information Resource Management IRS Internal Revenue Service MEPP Management Efficiency Pilot Program MSPB Merit Systems Protection Board NAPA National Academy of Public Administration NASA National Aeronautics and Space Administration NPR National Performance Review NRC Nuclear Regulatory Commission OGC Office of General Counsel OGE Office of Government Ethics OIG Office of Inspector General OMB Office of Personnel Management PCIE President's Council on Integrity and Efficiency PMC President's Management Council NRC Nuclear Regulatory Commission TQM Total Quality Management S&L Savings and Loan USC United States Code ***************** Executive Summary ***************** At times, the federal government's management control system resembles a theater of the absurd. Until 1985, for instance, Congress required the Secretary of Education to report biennially about the Office of Education Professional Development, even though that office closed in 1981. Such overkill, however, is not limited to the Education Department--not by a long shot. With a staff of about 300, the Merit Systems Protection Board must produce 70 congressionally mandated reports this year. It gave the job to 4.2 full-time employees, at an estimated cost of $257,121.(1) There is no control over the controls: --- One agency requires 23 signatures to purchase a single personal computer. --- Another agency routes routine responses to congressional inquiries through nearly two dozen offices for approval. --- Nearly 890 laws govern the Defense Department's efforts to purchase items. --- The Agriculture Department uses over 1,088 pounds of federal personnel laws, regulations, directives, case laws, and departmental guidance to make personnel decisions. --- In one Interior Department regional office, over 33,000 pages of internal regulations and handbooks are used to govern fewer than 200 employees. --- For one mid-size agency--the National Aeronautics and Space Administration--over 130 audits of the agency were performed this past year by outside groups such as the General Accounting Office and the Merit Systems Protection Board. Management Control System is Vast ********************************* In their totality, the federal government's management control methods are vast, complex, and very expensive. The primary responsibility of approximately one in three federal employees is to exert control over the other two-thirds and non-federal grantees and contractors. The system includes about 280,000 formally designated supervisors, managers, and executives, all of whom perform control functions, costing billions of dollars. Another nearly 267,000 people in internal staff positions--including legal, personnel, procurement, budget, and financial management staff--also spend a large portion of their time performing control functions. Moreover, these staffs have increased relative to the government's overall work force. Although executive branch personnel grew only 7 percent in the decade after 1980, the number of employees in the personnel function increased 11 percent, the number in financial management increased 27 percent, and the number in procurement increased an amazing 60 percent. Meanwhile, the federal government is awash in watchdog organizations- -the General Accounting Office, Office of Personnel Management, Office of Management and Budget, General Services Administration, Equal Employment Opportunity Commission, Office of Government Ethics, offices of general counsel, and Offices of Inspector General-- totalling about 36,000 employees.(2) The presence of these watchdogs results in each agency maintaining an internal staff dedicated to coordinating and tracking their reviews. Together they cost taxpayers billions to guard against the potential for waste, fraud, and abuse. Line managers and employees expend still more staff time providing data and information to these reviewers. In addition to these reviews, Congress conducts oversight by holding hundreds of hearings and requiring about 5,000 written reports a year. How much, in its entirety, does the federal government's management control system cost? Since government accounting systems do not track the costs of controls, no one can say precisely. However, the salaries and benefits of associated staff--one in three federal employees--is estimated to total about $35 billion a year. (3) A Prime Target for Reinvention ****************************** Given that management control is essentially overhead--i.e., it does not produce government services--it is a prime candidate for big improvements. The trick, of course, is not to eliminate all controls, especially during a period of change.(4) Organizations need controls to ensure that they are achieving missions and goals within the boundaries of laws, regulations, and officially agreed-upon behavior. Besides, potentially major problems remain. "Are there other HUDs today?" the Assistant Comptroller General for Accounting and Financial Management rhetorically asked Congress not long ago, referring to the Housing and Urban Development Department's recent management scandals. "Unfortunately, I believe there are."(5) The challenge, then, is to devise control systems that are useful, not overbearing. They must help the government achieve the results that it desires--not stand in the way, as they currently do. And they must help enhance the public's confidence that its tax dollars are being spent wisely. Interestingly, as the federal government's management control systems expanded, public confidence dropped. These controls, meanwhile, have not been sufficient to prevent some of our worst management scandals- -with savings and loan institutions, and at HUD and the Defense Department. In any organization, all members exercise some control over operations. Generally, "control" refers to monitoring work to ensure its quality.(6) Monitoring, in turn, requires feedback to assess progress and outcomes. While all employees have some control responsibilities, leaders, managers, and supervisors have the broadest responsibilities over their process and organizational units. Making Controls Customer-Focused ******************************** Currently, increasing numbers of successful private and public organizations recognize that a management control system must support their efforts to become more customer-focused. These organizations operate according to a management strategy of continual improvement, rather than meeting minimum specifications. They define "improvement" as innovation in a product or service, producing more than minimum requirements or specifications, and eliminating waste. The consumer product revolution of the 1970s and 1980s, initially driven by the Japanese, showed Americans that they, indeed, could have better products that cost less. Clearly, the federal government must also do more with less. Thus, it must redesign its approach to management control, consistent with a focus on customers and quality. Specifically, it must develop a new strategy that lets it anticipate, meet, and even exceed its customers' needs and expectations. This new strategy requires a careful assessment of how the government currently operates, so it can distinguish useful processes from those adding no value to products or services. Characteristics of the Existing System ************************************** Two requirements govern the role of "management control" in the executive branch: Specified outcomes must be achieved as effectively and efficiently as possible; and work must follow the dictates of laws, regulations, and agreed-upon behavior. Three types of people perform control functions: employees, line managers (supervisors, program managers, agency heads, the President), and staff (e.g., Offices of Inspectors General (OIG's), personnel offices, legal offices). This report focuses primarily on broad controls used by staff functions--largely those controls that affect the culture within the bureaucracy. Other accompanying reports of the National Performance Review address related aspects of management control, such as staff controls within specific functions (e.g., personnel) and controls used by line managers, such as front-line supervisors. Management control in the federal government has five general characteristics: --- It is primarily based on problem detection rather than problem prevention. --- It is increasingly performed by staff functions, such as OIG's, personnel staffs, budget staffs, and procurement staffs, in addition to or instead of line management. --- The methods used to inspect, review, audit, investigate, evaluate, monitor, and appraise federal programs and employees focus mainly on negative aspects of control--namely, detecting waste, fraud, and abuse. --- It emphasizes compliance monitoring--ensuring rules are followed- -more than it does ensuring outcomes are achieved or customer needs are met. --- Its methods were created at different times, and for different purposes--they were not developed as a whole--thus producing a piecemeal, confusing approach to management control in general. The government's over-reliance on compliance monitoring and negative feedback has stifled improvement and innovation--at the expense of program customers. Altogether, the federal government has created a managerial culture that is reactive and oriented toward maintaining the status quo. The present system needs more than an oil change. It must be streamlined and reengineered, not only in its methods but also its focus, values, and culture. Direction for Change ******************** People on the line--employees and their immediate supervisors--should perform most control and oversight. They should focus on continually cutting waste, preventing problems, making improvements, and innovating. External staff organizations--such as the General Accounting Office, the Merit Systems Protection Board, and the Equal Opportunity Employment Commission--should recast their roles to support line managers by providing information on "best practices" and assessing these managers' oversight activities, not performing the activities themselves. If the federal government has long had a disjointed approach to management control, why does it remain in such disarray? Primarily, because the executive branch's interest in sound leadership and strategic management has lacked consistency. In addition, the executive branch and Congress have tended to react hastily to the whims of the press and public opinion, imposing broad solutions to isolated problems. Over several administrations, the executive branch's abdication of the fundamental responsibility to manage effectively has encouraged incomprehensible, fragmented, incredibly costly management control. The worldwide quality movement clearly shows that control systems with minimal layers and clear roles and responsibilities are far superior to over-control.(7) A system with multiple layers of supervision, inspection, and other forms of "checking," existing simultaneously in both line management and staff support offices, ironically produces less control and very high costs. Those responsible for oversight assume that others with the same roles are performing their functions thoroughly. At the same time, those receiving multiple versions of guidance from multiple groups grow confused about what's expected and important. As a result, accountability for achieving results is lost. Recommendations *************** This report recommends how to both pare back the old and create the new. Its recommendations fall into three general categories: (1) taking a systematic approach; (2) improving internal control; and (3) improving external control. Become Systematic. The President's Management Council should develop a comprehensive vision of a streamlined management control system for the executive branch. This new system would strengthen the role of line management, emphasize rewarding improvements and reducing waste, use appropriate measures of performance and feedback loops, and make sure the methods complement one another rather than overlap or contradict one another. This reinvented system will improve control and, at the same time, save billions of dollars a year. Improve Internal Control. The federal government's Internal Controls program--established to implement the Federal Managers' Financial Integrity Act of 1982--must become a useful tool for line managers. Such an approach will be launched via a new version of OMB Circular A-123, "Internal Control Systems," which creates the framework for complying with the Act. In addition, the role of agencies' Offices of General Counsel (OGC) must be clarified so that they can better help their agencies achieve their missions. This requires defining who the OGC staffs' clients are, creating incentives and better performance measures to tie OGC staff performance more directly to mission achievement, and creating "feedback loops" from agency line managers to OGC's to help them better serve their customers. Also, internal regulations must be cut substantially. The amount of detailed rules and regulations on the books nourishes our compliance- oriented culture. By cutting internal rules and regulations by at least half within the next three years, the government would save much time and money directly and help create an atmosphere that encourages improvement and innovation. Finally, the expanded use of waivers would encourage innovation and more appropriate use of resources in accomplishing a program's goals. Waivers would allow federal, state, or local organizations to gain exceptions to how they execute laws, rules, or regulations, especially in cases when applying blanket rules makes no sense. Reinvent External Controls. Improving external controls must start with a new vision of the roles and activities of Offices of Inspectors General (OIG's), which have been a growing source of concern among line managers since their establishment, beginning just over 15 years ago. The laws give these offices great latitude, and the offices vary greatly in how they conduct their business. Such differences raise fundamental questions about what functions these offices should emphasize and how they should execute them. Generally, OIGs should emphasize overseeing line management's control systems more than their traditional role of compliance monitoring. In addition, they should collaborate more with line management, although not to the extent that this would destroy OIGs' independence and objectivity. The General Accounting Office (GAO) could add to the progress it has made through its formal quality management approach. Specifically, GAO could better document the best practices it finds during audits and create feedback loops with agencies to better assess and improve the effectiveness of GAO's oversight. Finally, Congress should set a goal of eliminating at least half of the 5,000 reports that it requires each year from the executive branch. This action would save the government millions of dollars each year and would help focus congressional oversight on the most important areas. Endnotes ******** 1. Interview with Paul Mahoney and Marsha Scialdo Boyd, Merit Systems Protection Board, July 1993. The 4.2 employees are responsible for completing reports to executive branch central oversight agencies as well as reports to Congress. 2. While offices of inspectors general are technically an internal audit organization, they are external to the line management function. 3. See NPR Accompanying Report Transforming Organizational Structures, Appendix B. 4. Office of the Canadian Auditor General, Annual Report, 1992, Chapter 4, "Change and Control in the Federal Government" (Ontario, Canada, 1993), pp. 125-138. 5. U.S. General Accounting Office, Federal Internal Control and Financial Management Systems: Major Reform Efforts Are Needed, GAO/T- AFMD-90-14 (Washington, D.C.: U.S. General Accounting Office, April 18, 1990), p. 15. 6. Juran, Joseph, Juran on Leadership for Quality, (New York: The Free Press, 1989), p. 146. 7. See Deming, W. Edwards, The New Economics (Cambridge, MA: Massachusetts Institute of Technology, 1993). *************************** Recommendations and Actions *************************** ***************************************************************** SMC01: Implement a Systems Design Approach to Management Control ***************************************************************** Background ********** A striking characteristic of the federal government is its constant struggle to control a conglomerate of agencies several times larger than any existing holding corporation. It uses a labyrinth of disjointed mechanisms--put in place by both the executive branch and Congress--in an attempt to achieve control. The existing control mechanisms were developed at different points in time, primarily as individual reactions to specific problems. In aggregate, they were patterned after corporate control structures of the Industrial Era in the 1930s--large, centralized, top-down. These premises are no longer appropriate in an Information Age environment of rapid change and technology that makes information readily accessible to managers and employees at many different levels in an organization. The existing system provides the illusion of control. But in fact, these mechanisms overlap, duplicate, confuse, and sometimes contradict each other. Even a cursory look at the federal approach to management reveals an overly layered and poorly coordinated set of controls characterized by ambiguity and often focused on unimportant things. And its cost is enormous--one estimate places it conservatively at $35 billion a year. As a result, the existing system steals precious resources from the real job of government: serving the customer. Line Versus Staff Controls. Control in the federal government is exerted by two groups--line management and staff offices. Line management, or "line control," is exercised by each agency's program offices, such as the managers in a local Social Security office. Typically, line managers monitor performance and appraise their employees, and they write procedures and ensure they are complied with. They also conduct formal program evaluations, and they develop internal controls. Oversight of line managers is performed by management levels above the program office within the agency, such as a regional Social Security office. The sum total of line management control and oversight is very large and, many believe, overdone. There are over 278,000 supervisors and managers in the federal government--about 1 in 7 federal employees. This has contributed to horror stories of over-management; for example, the lengthy "chop chains" for sending an official letter, entailing as many as 10 or 15 formal check points, any one of which can change the contents. The result: A simple letter may take months to get sent. Staff offices, on the other hand, can be both internal or external to an organization. "Internal" staff offices exert control in at least two ways--granting permission to act or second-guessing decisions. The first, granting permission to act, would include actions such as the general counsel staff saying that a proposed action is legal; a procurement office awarding a contract; or a personnel office classifying a job at a certain grade level. Staff control can also be exerted through second-guessing, or "oversight," which usually is a formal assessment of compliance with rules. Most internal staff oversight is conducted by program evaluation offices, the procurement office, the personnel office, and financial managers. Oversight methods include investigations, audits, reviews, evaluations, and inspections. A variety of "external" organizations also have a direct or indirect role in staff oversight. These include Congress, the General Accounting Office (GAO), the Office of Personnel Management (OPM), the Office of Management and Budget (OMB), the General Services Administration (GSA), the Equal Employment Opportunity Commission (EEOC), the Environmental Protection Agency (EPA), the Merit Systems Protection Board (MSPB), the Office of Government Ethics (OGE), and the Offices of Inspectors General (OIG's). Currently, over 36,000 federal employees--not including Congress--conduct "external" oversight (see Appendix B for an illustrative listing of most of these staff organizations). Control functions grew faster than other functions. Over the past decade, control functions grew faster than the executive branch as a whole. While executive branch personnel grew seven percent between 1980 and 1990-91, employment in the personnel function increased 11 percent. In financial management, the increase was 27 percent and, in procurement, it jumped 60 percent. (See figure 1.) Need for Change *************** Despite the fact that billions are spent on control, the public still considers waste, fraud, and abuse to run rampant in the federal government. The average American believes the government wastes 48 percent of every tax dollar.(1) Ironically, a contributing factor is the existing system of fragmented controls. A lack of accountability and the inappropriate focus of existing controls contribute to, rather than erase, this perception. There are models of effective control systems. The worldwide quality movement clearly has proven that control systems with minimal layers and clear roles and responsibilities are far superior to the federal government's system of over-control.(2) In contrast, a control system with multiple layers of supervision, inspection, and other forms of "checking," existing simultaneously in both line management and staff support offices, results in less control and very high costs. Over- control results in less control because those responsible for oversight assume that others also responsible for oversight are performing their functions thoroughly. However, in reality, multiple versions of guidance from multiple groups diffuses accountability and confuses line staffs about what is expected and important. Fragmented Controls Contribute to an Ambiguity of Responsibility. With so many roles to be played and so many individuals and organizations involved, overlap and confusion of responsibilities has grown. Many strongly differing points of view exist about what roles these groups do play and should play. Clear roles and focus are needed. One premise is that, because line management's own oversight has been allowed to atrophy, staff groups have had to assume these functions. For example, a few Inspectors General now have inspection offices in addition to their standard audit and investigation offices. These inspection offices vary widely in purpose, staffing, and operations, but they do have some common features. They concentrate on shorter-term studies, producing more timely results. These reviews range from quick responses to congressional inquiries, to on-site management reviews, to in-depth evaluations of program practices. These latter evaluations concentrate on program effectiveness and efficiency (how well and at what cost programs are achieving their objectives) and program integrity (how well programs are protected from wrongdoing). GAO on occasion has conducted the same kinds of evaluations, sometimes for the same reasons. Lamentably, this activity by some parts of the audit community reflects the type of program evaluations some managers believe line management should be conducting internally. It is better in the long term to insist that line managers properly execute their control and oversight functions. To foster this, external overseers should reorient their focus to evaluating the effectiveness of the control and oversight systems put in place by management. Inappropriate Focus. Most staff controls are focused on "before the fact" control mechanisms on inputs, such as controls over outlay budgets and staffing levels, and compliance with rules. Most high-performing organizations have shifted their focus to "after the fact" controls on outcomes, such as results-oriented budgets and performance measures. Studies of organizations that have made the shift show decreases in the costs of delivering services, largely because of the ability to reduce the cost of the control systems. While there are some organizations where "before the fact" controls may be appropriate, there are many where a change in approach can improve services and cut costs.(3) Costs of This Approach to Control are Too High. The existing management controls system swallows untold millions of staff hours and requires an estimated 660,000 "control" employees at a cost of approximately $35 billion dollars. This estimate includes all line and staff managers and employees performing appraisals, audits, reviews, investigations, evaluations, inspections, and monitoring.(4) It does not include the costs imposed on those that are being appraised, audited, reviewed, investigated, evaluated, inspected, or monitored. There is no upper limit imposed on how much "management control" is imposed on a given organizational unit or program. Formal audits, reviews, investigations, and inspections in a single governmental organization can easily total hundreds per year and can be initiated at any hierarchical level in the system, from Congress, the central management agencies, or a department headquarters on down. And there are no accounting systems to adequately document these costs. Notably, no one is assigned responsibility for controlling these costs or ensuring these resources are being spent wisely. There is no control over the controls. There is an alternative that seems to have proven successful in the private sector. The quality management approach--which focuses on preventive actions and results-oriented measures (e.g., customer satisfaction) --can provide a systematic framework for gaining control over the controls. It can help sort out the proper functions of doing vs. monitoring work, of line vs. staff, of internal vs. external control, and of the use of inspection vs. prevention methods. Action ****** Redesign the existing set of control mechanisms for the executive branch, using a systems design approach. (2) The President's Management Council (PMC) should create a streamlined and cost-effective management control system for the federal government. It should begin by documenting the existing system of requirements for control (laws, regulations, rules), classifying the types of methods used (audit, reviews, evaluation), and identifying who does them. It should then assess alternative approaches to use as benchmarks and design a new vision of management control. The PMC should then use this information to design a new, more cost-effective system on behalf of the American taxpayers. The new management control system should reflect four characteristics: 1. It should be based on systems thinking. Subsystems, such as audits, inspections, investigations, reviews, appraisals, and evaluations, are part of the overall management system. These subsystems must be better defined and their interrelationships better understood in order to eliminate costly redundancy and confusion over accountability. 2. Line managers must be accountable for, and have authority over, management processes and systems. While this is an axiom in high- performing organizations, it is uncharacteristic of today's federal government. The new management control system would: --- Have line management primarily responsible for management control and be given the necessary resources to accomplish this (e.g., program evaluation staff). --- Have staff organizations performing a secondary support role for management control. Staff oversight would be minimized, though sufficient to ensure that line managers perform their control functions (i.e., by reviewing their control and improvement systems). Staff should not normally perform control functions for line managers (unless fraudulent activity is suspected). --- Shift the emphasis from compliance audits, performed by external staff organizations, to ongoing reviews and monitoring performed by line management. Oversight activities must be integral to line management's overall management control system. 3. It should be based on trust, not mistrust. The current approach to management control and staff oversight emphasizes the negative, causing employees to resist management controls rather than use them as guides for improving. Management in high-performing organizations assumes that most people, under most circumstances, are honest, well-intentioned, and eager to contribute to the organization's goals. The small minority who are not well-intentioned should be dealt with accordingly. The government's current approach implies that all employees are suspect; this does not create an atmosphere for constructive improvement. 4. It should be based on measurement and feedback. According to private sector quality management experts, "The right measures are critical to the effective management of work process. If you cannot measure your results, then you cannot control your process and improve your performance."(5) A key principle of measurement and feedback is that people respond to what is measured. Redirecting government from an emphasis on input measurement toward measurement of outcomes, results, and customer satisfaction will be a major step toward this objective. A second private sector measurement principle is based on the fact that there is variation in all processes. As a result, managers must properly analyze and interpret the meaning of their production data.(6) The final measurement principle recognizes that waste is present in all processes to varying degrees, but management and employees must continually reduce waste.(7) Some Baldrige Quality Award winners have succeeded in greatly reducing waste. For example, thanks to its "Six Sigma Program," Motorola now has some manufacturing processes that produce less than 3.2 defects per million potential defects. Cross References to Other NPR Accompanying Reports ************************************************** Creating Quality Leadership and Management, QUAL02: Improve Government Performance Through Strategic and Quality Management. Endnotes ******** 1. Senator William Roth, Congressional Record, Vol. 138, No. 51 (April 7, 1992). 2. Deming, W. Edwards, The New Economics (Cambridge, MA: Massachusetts Institute of Technology, 1993). 3. Thompson, Fred, "Matching Responsibility with Tactics: Administrative Controls and Modern Government," Public Administration Review, Vol. 53, No. 4 (July/August 1993), p. 303. 4. See NPR Accompanying Report Transforming Organizational Structures for additional information. 5. AT&T Quality Steering Committee, "Process Quality Management & Improvement Guidelines," AT&T Bell Laboratories, 1987, p. 33. 6. Shewhart, Walter A., Economic Control of Quality Manufactured Product (New York: D. Van Nostrand Company, Inc., 1931). 7. Scherkenbach, William W., The Deming Route to Quality and Productivity (Rockville, MD: Mercury Press/Fairchild Publications, 1986), pp. 40-46. ************************************************************** SMC02: Streamline the Internal Controls Program to Make it an Efficient and Effective Management Tool ************************************************************** Background ********** "Internal controls" are an integral part of any organization's basic management processes. Internal controls ensure that organizational missions are being met through effective and efficient means. They are intended to protect an organization's resources and assets from fraud, waste, abuse, and mismanagement. The formal internal controls program of the federal government consists of two parts: (1) the design and implementation of internal controls, and (2) the review of the adequacy of those internal controls. The traditional view of internal controls is rooted in financial management and accounting. This view is being integrated into the broader context of "management controls." This broader view has been growing in acceptance in government circles since the late 1980s. Internal management control techniques include policies, procedures, and organizational plans, and physical arrangements.(1) These include time clocks or sign-in sheets, computer password protections, and required signatures to approve travel documents. Controls also include the separation of duties--a form of checks and balances. Effective internal management controls keep dishonest employees from paying secretarial staff the amount due an executive; and they keep Head Start grant money from being awarded to drug dealers. Financial Integrity Act. Concern over inadequate management controls led Congress to enact the Federal Managers' Financial Integrity Act (FMFIA) in 1982. The act establishes a review process of internal accounting, administrative controls, and accounting systems. Each agency must report annually to the President and Congress on the condition of its management controls and accounting systems, self-report "material control weaknesses," and describe the actions that will be taken to correct the material weaknesses.(2) FMFIA requires the Office of Management and Budget (OMB) to issue guidelines and the General Accounting Office (GAO) to issue internal control standards.(3) OMB Circular A-123, "Internal Control Systems," implements FMFIA. It requires agencies to segment their organizations and functions into assessable units or components. Reviews of these components' management controls are carried out through Risk Assessments, Management Control Reviews, and Alternative Management Control Reviews as prescribed by OMB. OMB's guidelines are intended to place the responsibility with the line manager to assess the adequacy of the management controls of his or her organizational component. Typically, however, small staffs in each agency have been dedicated to monitoring the requirements of FMFIA and OMB Circular A-123. In addition, GAO and Inspector General (IG) staffs selectively review agencies' management controls. Therefore, the annual reports are a combination of material control weaknesses that have been uncovered by managers, management control staffs, GAO, and/or the IG. Action on Weaknesses. According to OMB, since 1982, agencies have reported approximately 4,500 material weaknesses and corrected 3,855 of them. Currently, 645 material control weaknesses are pending.(4) Overall, the reports indicated that the majority of the weaknesses had been disclosed by IG or GAO staffs. Some agencies, such as the Department of Veteran's Affairs, rely on IG staffs to disclose problems with management controls. Others, such as the Department of Health and Human Services (HHS), rely more heavily on management staff to disclose the weaknesses. In 1992, the majority of HHS' material weaknesses had been disclosed by line managers.(5) Some agencies have high-level management councils that assist the agency head in determining which identified weaknesses should be included in the annual report and in tracking the progress of corrective actions. In addition, the interagency Management Control Coordinating Council exists to share information across agencies regarding the implementation of FMFIA. Need for Change *************** The Management Control Coordinating Council believes FMFIA has the potential for being an early warning tool.(6) "Are there other HUDs today?" the Assistant Comptroller General for Accounting and Financial Management asked rhetorically in his 1990 testimony to Congress. "Unfortunately, I believe there are," he continued.(7) For this reason, the government needs a tool such as FMFIA to provide an early warning of problems. However, FMFIA and OMB Circular A-123 have not ensured that effective management controls were in place. As a result, scandals occurred, wasting the taxpayers' dollars and eroding their confidence. If proper management controls had been in place, or if their ineffectiveness had been brought to the attention of high- level executives sooner, these debacles might not have occurred.(8) Agency heads must ensure internal management controls are in place and must be sure that they are appropriate and effective. Too few or inadequate management controls may exist in some instances. Conversely, there can be too many management controls that are counterproductive and not cost-effective because they are process- oriented, not results-oriented.(9) For example, to ensure that employees are working the appropriate number of hours, management sometimes asks employees to punch a time clock each day or sign in and out on a time sheet. Would it not be more significant to show that they have completed the required work at the required level of quality? Current Approach is Hollow. While management controls must be cost-effective, so should the review of these controls. FMFIA and A-123 have been criticized because they are seen as hollow, inflexible procedures. One agency refers to FMFIA as "flim-flam." While many people interviewed consider management controls as important tools to safeguard the government's assets and resources, FMFIA generally is perceived as a labor-intensive, paperwork-focused reporting requirement with little positive results. It treats management controls as a separate, staff- run program, not an integral part of line management. Many agencies have developed their own techniques for fulfilling the FMFIA requirement. Therefore, it is critical that OMB, through its circular and guidelines, give agencies sufficient flexibility to tailor their programs to their missions. However, the Internal Control Guidelines, issued by OMB in 1982, have not been revised to reflect the fact that many agencies' needs for management control differ. They prefer to have the flexibility to develop their own FMFIA programs, guided only by general policy, not detailed prescriptive guidelines. Current Approach Does Not Make Line Managers Responsible. A key to establishing a practice of reporting problems early is to have those that sight the problems first--usually front-line employees or line managers--reporting them. However, in general, there is a lack of incentives for managers to report problems. Some managers are concerned that sanctions will result from reporting weaknesses.(10) In addition, some managers find that high-level management is sometimes uninterested in correcting management control problems(11) and that adequate resources are not available for corrective actions. And yet, management controls are an integral function of effective management. Accountability for and the review of management controls should be in the hands of the line managers.(12) They need to explicitly be held responsible for reporting these problems and resolving them promptly. Actions ******* 1. Rewrite OMB Circular A-123, "Internal Control Systems," to be a succinct document that defines the policy for establishing and reviewing management controls. (2) OMB should rewrite--not revise--its Circular A-123 and should incorporate the following concepts: --- Emphasize that management controls are more than financially based. --- Emphasize reliance on line managers to incorporate management controls into their regular operating practices and strategic plans. --- Emphasize managers' accountability for results. Are the management controls appropriate and adequate? Do they help attain the desired results of programs? Are customer needs being met? Are resources and assets being used most efficiently? --- Encourage the use of a cross-functional (program and staff) management council at all executive branch agencies. Include in its responsibilities the review of management controls in terms of operating practices as a whole and in the context of strategic and quality management. These management councils should have a membership that represents both line and staff management and should include access to an information technology specialist(s).(13) --- Promote a role for auditors (IGs, GAO, FMFIA staffs) that is secondary to but supportive of the line managers. Auditors should review the agencies' processes for reviewing and implementing management controls. --- Promote FMFIA as primarily a management tool to be used within agencies--for identifying management control concerns and initiating corrective actions--and not solely as an external reporting process. --- Encourage agencies to include management information systems experts in the development of management control systems. --- Promote the use of the FMFIA review process as an early warning tool(14) to identify problems or "management control improvement areas" long before they create wasteful practices. This new A-123 will set the direction for management controls and their review and allow agencies to develop the flexibility to develop their own system for management controls. Given the existence of GAO's "Standards for Internal Controls in the Federal Government," the OMB circular should be policy oriented. FMFIA--recast as a tool for line managers to ensure that adequate and reasonable management controls are in place--should deemphasize the role of outside auditors. OMB should convey to agencies that the FMFIA annual report is not an end in itself--it is a tool to identify management concerns and bring them to the attention of high-level management. 2. Replace OMB's existing Internal Control Guidelines with a handbook on management controls. (2) OMB, the President's Council on Management Improvement, and the interagency Management Control Coordinating Council should jointly develop a handbook on management controls to replace the Internal Control Guidelines last issued by OMB in 1982. The new handbook would focus on the implementation of effective management controls and not on cumbersome reporting requirements. It should include: --- definitions of key items (e.g. material weaknesses, high risk, management controls) as defined by those agencies identified as having "best practices;" --- identification of effective agency management control councils, based on "best practices"; --- examples of how to redirect resources to correct potential weaknesses before they become real problems; --- examples of effective early warning systems; --- examples of combined review and reporting requirements; and --- names of individuals who are willing to provide training and technical assistance. The handbook should be updated periodically through supplements or complete revisions. 3. Revise government-sponsored management training to teach management control as an integral function of management, not as a reporting requirement. (1,2) Much of the training on management controls--by OPM and the agencies- -has been geared toward the reporting and review requirements of FMFIA, not the significance of management controls as a management tool. The role of management controls, and the techniques by which managers ensure that resources are being properly used, must be a normal part of all federal managers' training. Cross References to Other NPR Accompanying Reports ************************************************** Executive Office of the President, EOP05: Reinvent OMB's Management Mission. Improving Financial Management, FM08: Reduce Financial Regulations and Requirements. Reengineering Through Information Technology, IT01: Provide Clear, Strong Leadership to Integrate Information Technology into the Business of Government. Creating Quality Leadership and Management, QUAL02: Improve Government Performance Through Strategic and Quality Management. Endnotes ******** 1. U.S. General Accounting Office, Standards For Internal Controls In The Federal Government (Washington, D.C., U.S. General Accounting Office, 1983), p. 7. 2. According to A-123 and OMB guidance, a "material control weakness " is one that: significantly impairs the mission of an agency or component; deprives the public of needed services; violates statutory or regulatory requirements; significantly weakens safeguards against waste, loss, unauthorized use, or misappropriation of funds, property, or other assets; or results in a conflict of interest. A material control weakness should also: merit the attention of the agency head/senior management, the Executive Office of the President, and Congress; and/or exist in a majority of agency components or in a major agency program or activity; and/or risk or result in the actual loss of either $10 million or 5 percent of the resources of a budget line item; and/or reflect adversely on the credibility of the agency when reported to the public. 3. The implementation of FMFIA is guided by OMB Circular A-123 "Internal Control Systems" (revised in 1986), OMB's "Internal Control Guidelines" (issued in 1982), OMB's annual guidance, and GAO's "Standards For Internal Controls In The Federal Government" (issued in 1983). Many agencies have also developed handbooks. 4. Data provided by the Management Integrity Branch, Office of Management and Budget. 5. Interview with Edwin Sullivan, Director, Division of Integrity and Organizational Review, Department of Health and Human Services, August 1993. 6. President's Council on Management Improvement, Internal Control Interagency Coordination Council, "Improving the Management Control Process," July 1989, p. 7. The Internal Control Interagency Coordination Council is now called the Management Control Coordinating Council. 7. U.S. General Accounting Office, Federal Internal Control and Financial Management Systems: Major Reform Efforts Are Needed, GAO/T- AFMD-90-14, (Washington, D.C.: GAO, April 18, 1990), p.15. 8. Grosshans, Werner, "Internal Control Assessments--Are They Needed on Performance Audits?" Government Accountants Journal (Winter 1992), p. 44. 9. Camillus, John C., Strategic Planning and Management Control (Canada: D.C. Heath, 1986), p. 13. 10. Ibid., p. 19. 11. President's Council on Management Improvement, Internal Control Interagency Coordination Council, p. 9. 12. Kendig, William L., and Wayne D. Howard, "The Maturing of the Management Control Process," Government Accountants Journal (Spring 1992), p. 48. 13. This is the same council described in Creating Quality Leadership and Management, QUAL02: Improve Government Performance Through Strategic and Quality Management, action item 3. OMB's May 1990 memo on FMFIA encouraged agencies to form a similar council. This council, as proposed, would have broader responsibilities. 14. President's Council on Management Improvement, Internal Control Interagency Coordination Council, p. 7. ************************************************** SMC03: Change the Focus of the Inspectors General ************************************************** Background ********** Congress established the Offices of Inspectors General (OIG's) in response to growing public concern over fraud, waste, and abuse in the federal government. Inspector General (IG) offices were organized to perform external oversight of federal programs and operations. The Inspector General Act of 1978 (IG Act) and subsequent amendments require IG's to promote the efficiency, economy, and integrity of federal programs. Audits and investigations attempt to identify fraud, waste, and abuse, in part, by focusing on compliance with requirements--i.e., by focusing on whether program offices, federal employees, grantees, contractors, and others connected to the government conform to laws and regulations. The FY 1994 President's budget provided budget authority of $1.3 billion and staffing of over 15,000 staff years for IG's.(1) The IG community is diverse but closely knit. In 1981, the President's Council on Integrity and Efficiency (PCIE) was established to encourage cross-communication among the 26 presidentially-appointed IG's. The Council is composed of the 26 IG's and the Deputy Director for Management from the Office of Management and Budget. The Executive Council on Integrity and Efficiency was established later for the 34 non-presidentially-appointed IG's for the same purpose. An Evolving Role. Many IG's place a major emphasis on monitoring agency compliance with laws and regulatory requirements; however, no common vision exists across all sixty OIG's.(2) While all perform compliance audits and investigations, many also review annual financial statements of agencies, and some have branched off into new areas, such as program evaluation and collaborative program assessments. The IG Act requires that compliance audits meet the financial and performance auditing standards established by the Comptroller General of the United States. A financial audit determines whether financial reports and related items are accurately presented according to established and specific financial compliance requirements.(3) Performance audits include both "economy and efficiency" and "program" audits. Economy and efficiency audits determine whether the entity is acquiring, protecting, and using its resources economically and efficiently. In addition, economy and efficiency audits pinpoint the causes of inefficiencies or uneconomical practices and whether the entity complied with laws and regulations controlling economy and efficiency. Program audits are intended to assess program accomplishments and compare them to intended results or benefits; the effectiveness of organizations, programs, activities, or functions; and the compliance of an entity with applicable laws and regulations.(4) The IG's submit their findings in audit reports to their agency heads, investigative reports to U.S. Attorneys, and semi-annual reports to Congress summarizing both audit and investigative findings.(5) Many of NPR's agency recommendations were initially found in these IG reports. IG work is initiated through statute, legislative direction, agency head requests, input from line managers, agency employees, and the IG offices themselves.(6) A few IG's have moved beyond compliance monitoring to develop more collaborative, results-oriented relationships with management. For example, the OIG at the Department of Health and Human Services (HHS) established an office of evaluation and inspections that has developed award-winning program evaluation expertise.(7) The HHS OIG conducts "program inspections" using methods drawn from several disciplines, including traditional program evaluations, policy analyses, fiscal audits, program monitoring, compliance reviews, investigations, and management analysis. Need for Change *************** The majority of IG program audits focus on areas of non-compliance with rules and regulations. As required by the IG Act, the IG's report dollars recovered or better used based on these audits, and the number of convictions obtained as a result of IG criminal investigations, in semiannual reports to Congress. These reporting requirements, along with previous administrations' requests for this type of information, have encouraged the OIG's to allocate more resources to audits that resulted in reports of non-compliance with process requirements.(8) These compliance audits seek to foster program integrity by identifying areas of non-compliance with statutes and policy, and by using negative sanctions, sometimes targeted at individuals.(9) However, audits that solely focus on compliance do not always foster better government. They may, instead, spawn additional compliance reviews and recommendations for more regulatory guidance, followed by still more process regulations with which to be in non-compliance. Adversarial Relationships. Federal employees at several town meetings with the Vice President voiced their beliefs that existing IG operations often create an institutional culture that discourages entrepreneurship and innovation due to excessive emphasis on compliance. Because the IG's' audit work generally focuses on what is wrong, rather than creating a balanced assessment of program results, agency personnel are often reluctant to fully cooperate with IG staff for fear of being implicated in wrongdoing.(10) As a consequence, IG's sometimes reinforce rules at the expense of innovation and program effectiveness. Shift in Focus Needed. The IG's need to shift their focus in three aspects. First, IG's should shift their strategic focus from conducting compliance reviews to conducting evaluations of the effectiveness of the internal control systems used by managers. For program management to be more effective and accountable, managers must learn to self-monitor. According to Dwight Ink, the president of the Institute of Public Administration, . . . a serious problem occurs where agency management no longer has auditors under its control because they have been all shifted to the IG. In such cases, agency heads and program managers have lost much of their capability to utilize auditors effectively in managing their organizations. Consider for a moment the frustration and the vulnerability of an agency head who wishes to look quickly at an emerging financial problem, but has to wait until it has grown into a scandal because the auditors are under someone else's control and cannot help since they are too busy responding to a constituent concern of a member of Congress.(11) Therefore, managers need to create their own capacity to audit internal operations and ensure compliance--and not rely on the IG's to do it for them. Second, IG's should see their mission as not only to identify problems, but to get them solved. Too often IG recommendations are based solely on IG staff judgments. In a number of a cases, these are viewed as unreasonable by program staff and no action is taken. Therefore, IG's need to build a collaborative, not adversarial, relationship with the staffs being audited. And third, to maintain objectivity, IG recommendations must be viewed by program management as being free from outside influence. One impediment to objectivity is the appearance of a conflict-of-interest when IG's accept bonuses from the heads of the agencies they oversee. Of the 26 presidentially-appointed IG's, those from prior positions in the Senior Executive Service are entitled to bonuses under the Civil Service Reform Act of 1978. At least nine IG's accepted bonuses between 1987 and 1989, which could call into question their objectivity if called upon to investigate the agency heads who approve the bonuses. Actions ******* 1. Change the emphasis of IG's from compliance auditing to evaluating management control systems. (1) IG's should shift their audit emphasis from ensuring compliance with procedures to evaluating the effectiveness of line managers' own systems of management control. By changing their emphasis, the IG's will oversee the effectiveness of agency line management control systems to ensure compliance with program requirements and efficient and economical service delivery. The evaluations should: --- assess potential management, system, and service delivery problems; --- analyze internal management evaluations for strengths and weaknesses; --- identify alternative means of achieving results; --- test management controls to reduce unnecessary spending, improve government purchasing, recover misspent funds, and detect areas vulnerable to fraud and abuse; and --- identify unnecessary spending and ways to detect and prevent fraud and abuse. Findings and recommendations should be limited to specific items significant in terms of a review's objectives. Oversight reviews must aim at one objective: timely, relevant, and accurate reports serving as valuable management tools. Inspector General evaluations should not substitute for line managers' own internal management program evaluations. Likewise, IG's should not duplicate line management reviews. In agencies without line management program evaluation capabilities, IG's could develop this capability, possibly by shifting resources currently dedicated to procedural compliance audits.(12) 2. Change the IG's method of operation to be more collaborative and less adversarial. (1) OIG's should conduct their reviews in a more collaborative manner with line management. Together, they need to develop a relationship built on trust. Government auditing standards strongly encourage a collaborative approach between auditors and auditees. However, many OIG's are burdened with a negative image because of their current adversarial relationships with line management. Such a negative image clearly indicates that some OIG staff either misinterpret the audit standards or simply ignore them. Too often, some OIG staff fail to give credit when credit is due, become obsessed with every infraction, blind-side the auditees, or fail to distinguish between the relevant and the insignificant. Together these practices lead auditees to conclude that auditors simply mean to justify their own existence rather than improve an auditee's program performance. This image could change if each audit begins with discussions between the OIG and management staffs on objectives and audit methodology. While the OIG must retain its independence in order to remain objective, obtaining input from line management will ensure that auditee concerns about the objectives and methodologies are addressed. If concerns are resolved before the audit, mutual trust may be easier to develop. Early discussion does not compromise an IG's objectivity and prevents potentially damaging misunderstandings at the audit's conclusion. More importantly, it also builds the basis for action on implementing audit recommendations. 3. Establish performance criteria for IG's. (1) The President's Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency--along with input from the Office of Management and Budget--should establish criteria for judging IG performance. While the National Performance Review recommends the use of performance agreements for senior-level political appointees,(13) IG's should be exempted from performance agreements because these agreements may create the appearance of interfering with the independence of IG offices. By having the IG's develop their own performance measures through the PCIE and ECIE, the appearance of interference with IG independence is mitigated. The performance criteria should include an easily understood and usable performance measurement system, one consistent with the Government Performance and Results Act of 1993. The performance measurement system should include the IG's' routine use of a feedback loop, consisting of questionnaires to determine to what degree the OIG service to the agency and Congress has been timely, relevant, accurate, and useful. In addition, the performance measurements should show what steps should be taken to improve IG performance. The feedback should be shared with the agency head and OMB, and in IG semiannual reports to Congress. 4. Do not offer bonuses to IG's. (1) Agency heads should no longer offer bonuses to IG's, even if the IG's are eligible for them under the Civil Service Reform Act of 1978. There must be no question in the public's mind about an IG's objectivity. Although presidential appointees generally are not eligible for bonuses, some of the 26 presidentially-appointed IG positions are filled by career civil servants who are still entitled to receive bonuses as members of the Senior Executive Service. Furthermore, many of the 34 non-presidentially appointed IG positions are filled by career civil servants who also are eligible to receive bonuses. Prohibiting bonuses will help avoid even the appearance of impropriety among IG's. Cross References to Other NPR Accompanying Reports ************************************************** Improving Financial Management, FM04: Increase the Use of Technology to Streamline Financial Services; and FM05: Use the Chief Financial Officers (CFO) Act to Improve Financial Services. Executive Office of the President, EOP05: Reinvent OMB's Management Mission. Endnotes ******** 1. This number includes 4,500 postal inspectors with IG and other postal inspector responsibilities outside the purview of the IG Act. While an IG office for the Arms Control and Disarmament Agency was created in 1987, it is not staffed or funded. The IG for the Department of State fulfills the OIG function of the Arms Control and Disarmament Agency OIG. 2. By 1989, Congress had created 60 statutory OIG's. The IG Act and its amendments established 26 presidentially-appointed IG's for larger Executive Branch agencies, 33 non-presidentially-appointed IG's for Designated Federal Entities (DFE), and one non- presidentially-appointed IG for the Government Printing Office. 3. U.S. Comptroller General, Government Auditing Standards (Washington, D.C.: U.S. General Accounting Office, 1988), p. G-4. 4. Ibid., p. G-9. 5. The CIA IG reports directly to the Director of Central Intelligence who reports to the two congressional intelligence committees. 6. Many audits conducted by IG's are not discretionary. For example, currently about 60 percent of the IG workload at the Department of Veterans Affairs is pursuant to requests from congressmen, the Secretary, veterans, and employees regarding suspected criminal activity. 7. In November 1991, the HHS OIG Office of Evaluations and Inspections received the prestigious Myrdal Award from the American Evaluation Association for excellence in government service. In 1987, HHS received the Elmer B. Staats Award for Program Evaluation from the American Society for Public Administration, a commendation for leadership in federal program evaluation. 8. Light, Paul C., Monitoring Government: Inspectors General and the Search for Accountability (Washington, D.C.: The Brookings Institute, 1993), pp. 21-22. 9. Ibid., p. 15. 10. Ink, Dwight, Are Federal Oversight and Agency Management Out of Sync? (New York: Institute of Public Administration, 1993), p. 2. 11. Ibid, p. 3. 12. This shift in focus should not be construed as limiting an IG's authority or independence under the IG Act. There may be some value to conducting compliance audits sporadically. Each IG should consciously assess the potential benefit to be realized by the agency when a compliance audit is contemplated. 13. See Mission-Driven, Results-Oriented Budgeting, BGT01: Develop Performance Agreements with Senior Political Leadership that Reflect Organizational and Policy Goals. **************************************************************** SMC04: Increase the Effectiveness of Offices of General Counsel **************************************************************** Background ********** In 1825, Charles Caleb Colton wrote, "The science of legislation is like that of medicine in one respect: that it is far more easy to point out what will do harm than what will do good." This statement is also too often true today in the legal culture of the federal government. The primary function of the Offices of General Counsel (OGC) in federal agencies is to provide management with advice on legal matters. Their role and their involvement in the decisionmaking process is traditionally determined by the head of the agency and, in some instances, subordinate officials. Offices of General Counsel are pivotal players in the clearance, or "vetting," process inside departments and agencies. Their advice is crucial in the increasingly litigious environment in which the federal government finds itself. An Office of Personnel Management (OPM) guide for a new general counsel identifies a dual role for federal lawyers: interpreting the law and representing their clients' interest.(1) The guide states there may be an actual or perceived conflict between these dual roles. The result, the guide continues, is that some program offices view the OGC as nay-sayers ("if you want to be told you can't do something, go to the General Counsel's office").(2) Cold vs. Hot. As government managers in the 1990s struggle to improve their operations, provide improved customer service, and cut costs, they continually face an enormous web of legislation and regulations that bind them to the past. However, in the quest to serve the greater public good with diminishing resources, more than ever federal managers will need to be more innovative. In order to accomplish their agency's mission, top managers rely on their OGC to determine the legal implications of management initiatives. In this regard, general counsels are what veteran civil servant Arthur Flemming terms "cold lawyers" or "hot lawyers." He attributes the terms to Oscar Cox, who was President Franklin Roosevelt's solicitor general. Cold lawyers are those who are satisfied with advising management that a proposal is unacceptable because, based on their reading of the law, there is no specific provision that allows management to do what they want to do. They offer no options. They also fail to specify the relative legal risks of the proposal. Hot lawyers are those who ask management what they are trying to achieve and work with them to devise proposals that will achieve it.(3) They offer options and they specify the legal risks associated with them. Today, federal managers need more hot lawyers. Some OGC staff believe the reason there are not more hot lawyers is the restrained climate in which both managers and general counsels have been asked to operate. Margaret Jane Porter, Chief Counsel of the Food and Drug Administration (FDA), shares this view. She believes OGC staffs will respond in kind if a different environment is established in the executive branch.(4) Managers and their OGC's have been operating in a culture laden with red tape, which the National Performance Review intends to change. Just as managers have been disempowered, so have OGC staffs. Identifying the Customer. George Schlossberg, an attorney in private practice who formerly served on the OGC staff in the Defense Department, believes the central issue facing federal attorneys is identifying the client or customer. "Who is the client of a federal attorney in an OGC?" he asks. "Is it the President, the department, the secretary of the department, the mid-level government official posing the issue, or the public at large?"(5) Schlossberg contends that the best premise is one in which federal attorneys consider their clients to be the bureau chiefs and section heads whom they regularly advise, subject to their being overruled by the General Counsel. In the opinion of another OGC staff member, the client is the Secretary.(6) In the view of yet another OGC staff official, the client is the agency.(7) Other OGC staff identify the public good or the taxpayer. Some suggest the client varies depending on the issue at hand. According to the National Aeronautics and Space Administration's OGC, management is not a monolith, however, and when conflicts within line management occur, mechanisms should be in place to identify and resolve them early. Thus, while the general counsels to the secretaries agree their personal client is the secretary, OGC staffs do not share a common view as to who their client is. Previous Attempts to Create a Focus. President Carter established the Federal Legal Council in 1979 by Executive Order 12146 to promote coordination and communication among federal legal offices and to become a forum for exchange of information and ideas on matters of common interest. This council was chaired by the Attorney General and included representatives from 15 other federal agencies on a rotating basis before it became inactive in the mid-1980's. Thus, it has not played a significant role for almost a decade. In addition, the Administrative Conference of the United States (ACUS) has convened General Counsels for specific purposes in the past. ACUS was established by Congress in 1964 as a permanent, policy-neutral, independent government agency to study the efficiency and fairness of the federal administrative process. The Conference develops non-partisan recommendations to the President, the federal departments and agencies, and the Congress on methods to improve the procedures by which agencies administer regulatory, benefits, and other government programs. Need for Change *************** There is a need to identify clearly who are the general counsel's client(s). As in the case of almost all government employees, OGC staff have multiple customers, internal and external to the government. The challenge is to balance the various and sometimes competing demands of the many customers. This is fundamental because there are specific obligations that a lawyer has to fulfill when representing a client. For example, the District of Columbia's Bar has rules of professional conduct that state: "A lawyer shall represent a client zealously and diligently within the bounds of the law."(8) Further, they state: "A lawyer shall not intentionally (1) fail to seek the lawful objectives of a client through reasonably available means permitted by law and the disciplinary rules; or (2) prejudice or damage a client during the course of the professional relationship."(9) Other bar associations have similar codes of conduct. Without a clear definition of who the client is, there is incongruence between managers' expectations and OGCs' performance. The confusion among OGC staffs results in dissatisfaction among many managers because they believe they are the client and, therefore, they expect the concomitant zealous representation that should accrue in an attorney/client relationship. One way of clarifying who is the client would be to subject OGC's to quasi-market forces. Redefine the roles of OGC's to separate their service function--providing advice to managers--from their control functions--serving as a vetter for policy proposals. Subject the service function to market forces by allowing line managers to select who they want to receive their advice from. This could be done through the franchising route, or other related approaches. The General Accounting Office, for example, has created a "client- oriented" approach in its general counsel's office by assigning legal staff to serve specific line managers and soliciting these line managers' input into attorneys' performance evaluations. A practice that has limited OGCs' effectiveness in some agencies is management's failure to involve them in their early deliberations. Some federal lawyers feel their advice appears ineffective or even obstructive because they are consulted after decisions have already been made. W.C. Parler, General Counsel at the Nuclear Regulatory Commission (NRC), observed that when lawyers are included on strategic planning and decisionmaking teams at the outset, substantial resources can be saved.(10) He further believes that OGC lawyers on these teams find that they have a responsibility to be constructive, timely contributors and not to be obstacles who do not provide creative options. One incentive to increase the chances that program managers would consult with legal staff earlier in management deliberations is to allow those managers who consult early to be permitted to use a more streamlined final approval process. Actions ******* 1. Define clearly the clients of the Offices of General Counsel. (1) Administrative Conference of the United States (ACUS) should initiate a high-priority project to convene a group of general counsels or their equivalents, OGC staff members, and a representative of the Department of Justice to define clearly who is the client of the Offices of General Counsels within agencies. ACUS should serve as facilitator to the group. This initiative should be completed on an expedited basis. The definition statements should be completed within one year. The resulting guidance should include a policy statement that OGC's should help identify alternative approaches whenever a proposed management initiative is deemed to be not legally acceptable. The legal risks associated with management proposals should also be specified and options suggested. In addition, ACUS should evaluate and recommend whether it would be desirable to reconstitute and energize the Federal Legal Council to address common legal issues related to the implementation of other NPR recommendations, and the training needed. 2. Use franchising and other market mechanisms to encourage OGC staffs to respond appropriately to their clients. (1) Agency heads should encourage their general counsel staffs to be responsive to their clients. For example, they should clearly distinguish between OGC's service delivery and regulatory clearance functions. They should allow line managers choice in selecting legal assistance from the "service delivery" side. This choice could be via a franchising operation or other mechanism. In addition, agency heads should encourage better collaboration between legal staff and program offices in OGC clearance functions. 3. Develop performance measures and feedback loops for general counsels to encourage close cooperation with clients. (1) Agency heads should develop performance appraisal plans for general counsels that would measure the results of OGC efforts to assist managers in their own efforts to be creative and entrepreneurial, within the constraints of law. General counsel offices must develop appropriate measures of performance with a special emphasis on quality of service to the client(s). These measures should be developed in collaboration with the agency line management structure. Feedback loops between the clients and the OGC staff members should be institutionalized. Cross References to Other NPR Accompanying Reports ************************************************** Improving Financial Management, FM06: "Franchise" Internal Services. Department of Justice, DOJ09: Make the Department of Justice Operate More Effectively as the U.S. Government's Law Firm. Endnotes ******** 1. Waxman, Margary, "The Complete General Counsel," Office of Personnel Management, 1981, p. 23. 2. Ibid. 3. Interview with Arthur S. Flemming, former Secretary of Health, Education and Welfare, July 8, 1993. 4. Interview with Margaret Porter, Chief Counsel, Food and Drug Administration, August 5, 1993. 5. Letter from George Schlossburg, attorney with Cotten and Selfon, August 6, 1993. 6. Interview with Lorie Schmidt, staff attorney, Environmental Protection Agency, August 7, 1993. 7. Interview with Howard Lem, District Counsel for Washington Regional Office, Department of Veterans Affairs, July 13, 1993. 8. District of Columbia Bar, "D.C. Rules of Professional Conduct," March 1, 1990, p. I-5. 9. Ibid. 10. Letter from W. C. Parler, Nuclear Regulatory Commission, dated August 4, 1993. ****************************************************************** SMC05: Improve the Effectiveness of the General Accounting Office Through Increased Customer Feedback ****************************************************************** Background ********** One important duty of Congress is to oversee the operations of the executive branch. Congress has several formal mechanisms to conduct its oversight. These include hearings, agency reports, and audits and evaluations by agency Inspectors General and its own General Accounting Office (GAO). According to the Comptroller General, "The GAO assists the Congress in its legislative oversight of the executive branch. We see our mission as seeking to achieve honest, efficient management and full accountability throughout government. We serve the public interest by providing Members of the Congress and other policymakers with accurate information, unbiased analysis, and objective recommendations on how to best use public resources."(1) By implementing this mission, GAO plays an important role in assuring and improving the leadership and management practices of the executive branch. GAO, under the leadership of Comptroller General Charles Bowsher, began a formal Total Quality Management (TQM) initiative almost three years ago.(2) "The agency's commitment to quality is the single most important principle governing its work. We define high-quality work as (1) objective and independently derived; (2) accurate, timely and meaningful; and (3) presented in a way most useful to responsible officials."(3) This initiative, with its strong focus on customers and continual improvement, has already pointed the organization in a direction to achieve these goals.(4) For example, GAO recognizes the importance of crediting and publicizing best practices during an audit as well as documenting problems. Another example is that it intends to develop and institutionalize feedback loops from the executive branch. This feedback would give it information that it needs to improve its value-added contribution to better government. Need for Change *************** GAO is perceived by many managers in the executive branch agencies as being less effective than it could be in providing useful oversight that leads to constructive changes. For example, GAO audits have often documented only negative findings. These audits often did not report best practices when they were uncovered, in part because staff believed they were not encouraged to report success. A root cause of the perceived effectiveness gap is that GAO currently lacks an institutionalized feedback loop from the executive branch agencies, either individually or collectively. A feedback loop--such as a questionnaire or interviews on the effectiveness of a GAO review--would provide GAO management with information on how useful its reports and reviews have been in pinpointing and solving problems. Currently, GAO does not collect the information it needs to continually improve the value and impact of its services. GAO's "Yellow Book," which sets federal auditing procedures and standards, clearly recommends describing "noteworthy accomplishments," as part of audits, but it only partially addresses the need for feedback loops.(5) Action ****** Improve GAO documentation of best practices and use of feedback loops. (1) The President should work with the congressional leadership to encourage GAO to document best practices when found. GAO should also encourage agency management to spread best practices and institutionalize them. As part of GAO's ongoing TQM initiative, it should accelerate the process of developing feedback loops to GAO from executive branch agencies. In addition, it should revise the "Yellow Book" to further develop the concept of feedback loops. Endnotes ******** 1. U.S. General Accounting Office, The Role of the General Accounting Office, GAO/T-OPP-93-1 (Washington, D.C.: U.S. General Accounting Office [GAO], June 10, 1993). 2. Ibid, pp. 16-17. 3. Ibid, p. 2. 4. U.S. General Accounting Office, Quality Improvement Plan: An Update, "Continuous Improvement: The Quality Challenge," March 1993. 5. U.S. General Accounting Office, Government Auditing Standards (Washington, D.C.: GAO, 1988 Revisions), pp. 7-10 and 7-11. ************************************************************* SMC06: Reduce the Burden of Congressionally Mandated Reports ************************************************************* Background ********** The number of congressionally mandated reports required of federal executive branch agencies continues to grow rapidly, following a growth trend that has lasted a quarter century. In fiscal year 1980, agencies produced approximately 4,000 reports in response to congressional oversight requirements. Congress, this year, will require executive branch agencies to prepare approximately 5,000 reports.(1) The preparation costs of these reports is believed to exceed $100 million. One reporting requirement can spawn multiple reports. For example, the Omnibus Budget Reconciliation Act of 1990 required more than 38 reports from a single agency. Reporting requirements can be either recurring (annual or semi-annual) or one-time. The Agency for International Development (AID), for example, must submit approximately 60 reports to Congress during fiscal year 1993; approximately half are one-time requirements, but the remainder are recurring reports.(2) But even one-time reports can impose substantial burdens. The Department of Defense produced 654 one-time reports in fiscal year 1993.(3) Reporting requirements affect small as well as large agencies. For example, the Merit Systems Protection Board (MSPB), an agency with a staff of about 300, must produce 70 congressionally mandated reports this year. These duties are assigned to 4.2 full-time employees at an estimated cost of $257,121.(4) Various cost estimates of report production have been made over the last 12 years. In 1980, the General Accounting Office estimated the federal government spent $80 million producing 4,000 reports.(5) In 1983, $86 million was spent to produce 4,300 reports.(6) In addition to reports by agencies directly to Congress, central oversight and management agencies such as the Office of Management and Budget (OMB), the General Services Administration (GSA), and the Office of Personnel Management (OPM) also collect information from federal agencies for submission to Congress. Table 1 summarizes the number of reports required by Congress from selected agencies.(7) Table 1:Reports Required of Selected Agencies by Congress, July 1993 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Agency No. of Reports Due ^^^^^^ ^^^^^^^^^^^^^^^^^^ President of the United States 773 Department of Defense 443 Department of the Interior 235 Department of Health and Human Services 203 Department of Energy 199 Department of State 197 Federally Chartered Corporations 176 Department of Transportation 170 Department of Agriculture 106 Department of Commerce 106 Department of Education 99 Department of Housing and Urban Development 99 Department of Justice 98 Department of the Treasury 97 Office of Management and Budget 78 Environmental Protection Agency 70 Department of Labor 52 General Services Administration 46 National Aeronautics and Space Administration 38 Agency for International Development 32 Office of Personnel Management 31 Federal Emergency Management Agency 26 Resolution Trust Corporation 25 Department of Veterans Affairs 23 National Science Foundation 21 Small Business Administration 17 The Intelligence Community (CIA, NSA) 14 All others, including Independent Agencies and Commissions 1,524 ^^^^^ TOTAL 4,998 Source: House Information Systems, July 1993 Need for Change *************** Congress ensures adequate oversight of the executive branch by requiring agencies to regularly report on their activities. Some reports, however, seem to have little intrinsic value. For example, annual reports include the financial statements of Micronesia and the Marshall Islands, and a report on the cost effectiveness of furnishing therapeutic shoes to sample groups of Medicare beneficiaries. Eliminating unnecessary reports will improve the way government functions and streamline the bureaucracy. In addition, some Inspectors General recommend that the Chief Financial Officers Act be amended to allow discretion as to reporting on the financial condition of government funds rather than requiring annual reports on all funds. In addition, a special task force of the President's Council on Integrity and Efficiency recommends eliminating annual compliance reports such as management controls over advisory and assistance awards and implementation of anti- influencing requirements.(8) The cost of these reports is believed to greatly exceed their benefits. Many reports, while initially valuable, may no longer be necessary for several reasons: --- They may address concerns that are no longer high priority, such as the annual report on helium production, required since 1925. --- They may repeat information previously addressed in another report. For example, the Annual Report from the National Advisory Council on Continuing Education duplicates material in a separately required report.(9) --- They may document only minor, procedural changes. For example, Clearance Form for Data Reporting Burden is required annually of the Department of Education by the Paperwork Reduction Act. --- They may concentrate on programs no longer in existence. For example, the Secretary of Education was required as recently as 1985 "to report biennially to Congress on the findings and recommendations of the Office of Education Professional Development, an office abolished in 1981."(10) --- They may no longer provide useful information. For example, an annual report on coal reserves disclosure from the Department of Energy was found to be not useful "because U.S. coal reserves are estimated to last in excess of 300 years."(11) Alternatives exist that could provide needed information at a much lower cost. For example, an electronic information system shared by congressional committees and executive branch agencies could allow data to be exchanged quicker and at a lower cost. Actions ******* 1. Eliminate at least half of all congressionally mandated reports. (3) Congress should set a goal of eliminating at least half of all congressionally mandated reports. Agency heads should identify candidate reports that can be combined with others or eliminated altogether and supply adequate justification to Congress for that action. In the past, an essential factor in the elimination of reports has been the provision of convincing reasons. In 1988, the General Accounting Office concluded that inadequate justification of reports proposed for elimination significantly contributed to the failure of a 1986 congressional effort to reduce congressionally mandated reporting requirements. In that effort, Congress eliminated 71 percent of the reports whose elimination agencies had adequately justified. Elimination dropped to 10 percent when agencies did not provide adequate justification. As a result, only 23 reports were eliminated, out of a total of 240 recommended.(12) The Senate Committee on Governmental Affairs, Subcommittee on Oversight of Government Management, has recently revisited this issue and is drafting legislation with bipartisan support to eliminate or modify unnecessary or outdated reporting requirements. 2. Review new reporting requirements for management impact, and include a sunset provision. (3) The growth of new reporting requirements also must be controlled. Congress should assess the management implications, particularly the cost, of each newly proposed reporting requirement. The cost of requiring new information from the agencies should be compared with the ensuing benefit. Congress and OMB should jointly develop standards for Congress to apply when performing cost/benefit analyses on newly proposed reporting requirements. Congress should report in committee the cost/benefit comparison for each proposed reporting requirement before its enactment. In addition, Congress should include a sunset provision requiring congressional reassessment of each newly adopted reporting requirement at least every two to four years. The sunset provision would ensure that the information requested still merits the cost of preparing and analyzing the report. Sunset provisions ensure that the burdens of congressionally mandated reports are controlled. NPR's Improving Financial Management report proposes related measures with respect to federal financial reporting requirements. Specifically, that report proposes that the appropriate congressional committees subject future financial reporting requirements to a cost/benefit analysis. Cross References to Other NPR Accompanying Reports ************************************************** Improving Financial Management, FM09: Simplify the Financial Reporting Process. Endnotes ******** 1. U.S. Congress, House, House Information Systems (HIS) Database, Reports Due to Congress (Washington, D.C., July 1993). 2. NPR Accompanying Report Agency for International Development, AID02: Reduce Funding, Spending, and Reporting Micromanagement. 3. U.S. Department of Defense, Office of the Comptroller, "Memorandum on Assignment of Responsibility for Reports Required by Congress," January 21, 1993, attached graph. These figures do not correspond to the data in the House Information Systems. 4. Interview with Paul Mahoney and Marsha Scialdo Boyd, Merit Systems Protection Board, July 1993. The 4.2 employees are responsible for completing reports to executive branch central oversight agencies as well as reports to Congress. 5. U.S. General Accounting Office, A Systematic Management Approach Is Needed For Congressional Reporting Requirements, PAD-82-12 (Washington, D.C.: U.S. General Accounting Office [GAO], November 25, 1981). 6. U.S. President's Private Sector Survey on Cost Control, Management Office Selected Issues, Volume VIII: "The Cost of Congressional Encroachment" (Winter 1983), p. 83. 7. Because some agency reports are reported twice, separately and also in the All Others category, the total number of reports listed in the HIS Database, Reports Due to Congress is approximately 4,998, and not 5,348, as originally reported. 8. Special Task Force of the President's Council on Integrity and Efficiency (PCIE), July 1993. 9. Congressional Reports Elimination Act of 1985, Senate Report 99- 211, p. 2. 10. Ibid., p. 2. 11. Ibid., p. 3. 12. U.S. General Accounting Office, Congressional Reports: Efforts to Eliminate or Modify Reporting Requirements Need to be Improved, GAO/AFMD-88-4 (Washington, D.C.: GAO, April 19, 1988), p. 5. *********************************************************** SMC07: Reduce Internal Regulations by More Than 50 Percent *********************************************************** Background ********** The cost of internal agency directives is tremendous. The cost of researching, writing, printing, storing, and maintaining internal directives, guidance, and procedures are themselves huge. However, the additional expenses of training, supervising, implementing, waiting for clearances, collecting and analyzing data, monitoring performance, and enforcing and auditing regulations, plus preparing the countless reports, generate further costs not always easy to measure but which are equally draining on limited agency resources. A full accounting must also include the cost of delay, confusion, loss of initiative, and paralysis resulting from the inevitable impression on so many workers that nothing is permitted, least of all creativity or initiative. The demands of internal directives and regulations are growing faster than the executive branch itself over the past 10 years. Although executive branch personnel grew only 7 percent between 1980 and 1990/1991, in the personnel function the number of employees increased 11 percent, in financial management staff grew 27 percent, and in procurement it jumped 60 percent.(1) In the case of procurement, much of this growth is attributed to the increase in the number of internal directives.(2) A Case Study. Figure 2 is a tally of internal regulations and the number of pages of directives and regulations affecting one field office in the Department of the Interior--a relatively unregulated state office of the Bureau of Land Management in Idaho. In other words, the total is a minimum rather than an average or a worst case. Using the most conservative estimates, there are nearly 33,000 pages of internal regulations and handbook requirements that apply to this office of less than 200 people.(3) The numerous additional agencies with at least partial jurisdiction, plus the case law and interpretations, and various other commentaries, would increase the total pages several fold, as would applicable state and local regulations. This tally of directives, guidance, and regulations does not directly measure their burden. A single regulation may impose a huge burden, while in some cases there were several regulations per page. But the tally does indicate how obsessive the regulatory process has become. It is hard to believe that this number of regulations can be internally consistent and always the best approach for local circumstances. Sources of Overregulation. It is easy to blame the proliferation of regulations on Congress, but the issue is more complex. Problems may be seen as falling into one of three categories: general system failures, individual failures (due to problems in training, judgement, or integrity), and acceptable error levels. The private sector approach, which admittedly may be very difficult in the public sector, is to treat system failures aggressively, provided the solution is cost-effective. It also rectifies individual failures by providing training or other remedies to the individual (like firing people who steal). General error rates are monitored to be sure they do not become uncontrollable. The current government approach, by contrast, is zero tolerance for error and treatment of every failure as a general system failure, remedied solely by law or regulation even if the occurrence was isolated. There are perverse incentives that contribute to the proliferation of internal directives and regulations. For example, successful vendors have a self-interest in complex procurement regulations--they have adapted to them, they bar entry of competitors and, in certain cost- type contracts, vendors get paid for the time required to comply with the regulations while outsiders do not. Federal employees rationalize requests for larger staffs and position upgrades on the ever more complex regulations their agencies must enforce.(4) Figure 2 Tally of Internal Directives and Regulations Affecting The Idaho State Office of the Department of the Interior's Bureau of Land Management, 1993 *************************************************************** Manual Biann. Fed Dir/ Circ/ Instr. Source Regs---Supplmnts---Bltns---Stmnts---Memos---ndbks ****** **** ********* ***** ****** ***** ***** #/Pgs. #/Pgs. #/Pgs. #/Pgs. #/Pgs. #/Pgs OPM */* 59/* GSA 6,160/2,687 OPM 2,260/1,131 2,040/1,721 OSHA. 587/1,456 EEOC. 45/30 */* DOT 136/61 */* DOE 63/258 DOI 1,628/3,081 830/1,890 BLM 19,052/9,546 750/* 7,366/8,093 State of Idaho BLM 109/917 227/2,047 Total 9,251/5,623 20,789/13,544 59/* 2,040/1,721 977/2,047 8,196/9,983 ******************************* ******************************* GRAND TOTAL OF PAGES 32,918 The tally of pages was conducted by actual count of pages. The tally of regulations was conducted by actual count using the tables of contents when available. Both tallies were conducted with assistance and guidance from the responsible offices. In some cases, there is more than one regulation to a page. Guidance in the handbooks is required, equivalent to a regulation. Totals for OMB Circulars and Bulletins and for BLM Instructional Memoranda are for Fiscal Year 1993--large quantities of additional ones are still in effect from previous years. The tallies from handbooks and interpretive statements are based on the number of directives within the handbooks and interpretive statements respectively. The asterisk (*) notes offices that were unable to provide tallies, usually because the totals were larger than they were willing to count. Narrow definitions were used for regulations and handbooks. As a result, their tallies are vastly lower than other published figures, which include case law, interpretations, and other secondary sources. These secondary sources frequently exceed 5,000 pages per agency. The tally is limited to the chain of command (the Department, the Bureau, and the state office itself) and the primary federal agencies with jurisdiction over the operations in the state office (Office of Management and Budget, General Services Administration, Office of Personnel Management, and the relevant portions from the Occupational Safety and Health Administration, the Equal Employment Opportunity Commission, the Department of the Treasury, and the Department of Energy). The tally excludes the regulations of numerous additional federal agencies with jurisdiction over aspects of the state office (e.g., Environmental Protection Agency, Historic Preservation, Small Business Administration, etc.). The tally also excludes the regulations and case law covering various aspects of government legal process that also have jurisdiction over the state office. These include the Administrative Dispute Resolution Act, the Agency Practice Act, the Claims and Debt Collection Acts, the Contract Disputes Act, the Equal Access to Justice Act, the Federal Advisory Committee Act, the Federal Tort Claims Act, the Freedom of Information Act, the Government in the Sunshine Act, and so forth. In short, the total of pages is a very conservative figure. Need for Change *************** According to a 1992 study by the Merit Systems Protection Board, procurement regulations have become so complex that it is no longer reasonable to expect qualified procurement officers to use them effectively.(5)This impasse is due to a combination of the large number of complex regulations and the speed with which they must be applied. Overregulation is not limited to procurement, but is a governmentwide problem, according to a still-relevant 1983 study by the National Academy of Public Administration: Federal management systems are now over-regulated in the sense that, by accretion, each has acquired an overburden of controls, limitations and constraints, reviews and approvals, data requirements, and other mandates, which, in total, significantly reduce their value and effectiveness.(6) Most regulations start with a law, usually designed to solve a specific problem. The central management agencies (Office of Management and Budget, Office of Personnel Management, General Services Administration) then develop a regulatory process to implement the law. The departments then interpret how the regulations should be applied in their agencies through additional regulations.(7) The agencies and bureaus then customize that process, frequently with regulations at both the national and regional level and occasionally at the local level. This chain produces an inevitable torrent of internal regulations. There is currently much variation in compliance and enforcement of these regulations within any given agency. Goal of Internal Deregulation. The goal of internal deregulation is to weed out needless regulations so that: (1) the outcomes to be achieved are clearly articulated; (2) responsibilities for decisionmaking and action are clearly assigned; (3) direct and objective measures of accomplishment exist; (4) oversight shifts from process to outcome; (5) there is a clear understanding of the fiscal and ethical propriety required in public administration; and (6) the remaining regulations and requirements for uniformity are given highest priority. Regulatory reform will greatly increase accountability, creativity, and motivation, while decreasing the administrative costs of completing work. The goal is certainly not to give federal workers carte blanche to do as they choose, but allow them to get the job done by the most sensible means possible within the bounds of fiscal and ethical propriety. For years the burden of internal regulation has been something like Mark Twain's observation about the weather: Everyone talks about it, but no one does anything about it. But in the last few years there have been enough experiments that a best practices model has emerged. A pivotal point was discovered at the Department of Commerce. According to Alan Balutis, the Department's Director for Budget, Planning and Organization, about two-thirds of the requests for waivers from internal regulations submitted as part of Commerce's reinvention effort seek relief from regulations not even required in the first place. Balutis concludes that much of the internal regulatory burden is self-inflicted, either from informal withdrawal of authority by non-required reviews, from a desire for "security blanket" documentation to avoid individual responsibility, or from a control mentality that confuses 100 percent review with an appropriate level of oversight. What is needed, Balutis said, is not an edit of the regulations but meaningful reform. A Success Story: Forest Service. Dale Robertson, then Associate Chief of the Forest Service, undertook a bold reform in 1985. He saw his agency's budget declining while overhead was increasing, and feared the Forest Service would strangle in red tape.(8) The original 20-page handbook written by Gifford Pinchot, the agency's founding director, had grown to a bloated tome 17 feet thick. Robertson selected four test units (three forests and a research station) and completely deregulated them. He gave them authority to reach their planning targets in the most efficient way they could devise, discarding needless regulations on the condition that the participants remained within the bounds of the law, basic policy, budget integrity, and congressional direction. Robertson also implemented "end-results budgeting." The test units were responsible for only one to eight line items, consolidating from nine to 15 programs in a single line item. Budget performance would be evaluated through output targets, such as number of acres reforested, rather than solely through strict, detailed spending targets. Appropriations would be biennial, and the four test units would be free to shift dollars among any of the programs in a consolidated line item. The General Accounting Office found that "end results budgeting is conceptually sound."(9) Internal evaluations showed that the test units also saved money. In the Eastern Region, for example, 11 separate hierarchies were merged into five team groups with interlocking expertise and responsibilities. The regional office cut its budget by $2 million, reduced its staff by 40 positions, and reduced its overhead to the agency's lowest. The region provided 12,000 proposals that eliminated outdated rules, streamlined work procedures, and improved the quality of work life.(10) It was only when the needless rules were stripped away and management was empowered to use the budget wisely that the managers themselves truly became accountable for goal accomplishment while maintaining fiscal and ethical propriety, according to Bill Delaney, the analyst responsible for evaluating the pilot program. In 1989, the Forest Service chief acknowledged the success of the pilot study and signed a new management philosophy establishing the pilot approach nation- wide.(11) Unfortunately, Congress rejected the proposal to permit service-wide end-results budgeting, and the service's deregulation effort lost a good deal of momentum. The 17 feet of regulations were reduced by about two-thirds. But objective measures were not established, and the revision of the hand-books was not included. Program managers quietly shifted many of the requirements to handbooks or directives, with the result that much of the deregulation progress was illusory. The emphasis on management controls and documentation is still so strong that the pilot efforts are "caught between two cultures," according to Delaney. He sees the current rate of progress as slow. A Success Story: Department of Veterans Affairs. The Department of Veterans Affairs reported success in its Management Efficiency Pilot Program (MEPP). The MEPP, conceived as a three-year pilot program starting in 1987, was supported departmentwide and by the House Veterans Affairs Committee. The program's goals were to provide flexibility to managers in the field, cut red tape, and ease restrictions and reporting requirements. The results were positive. MEPP approved over 1,000 waivers. This resulted in improved veterans service and millions in savings.(12) The MEPP experiment went so well that it is currently being expanded on an incremental basis beginning with 38 new MEPP sites. Waiver requests continue being processed on an ongoing basis. A Success Story: Air Force. In 1992, General Merrill A. McPeak, Air Force Chief of Staff, established the Policy Review Initiative, headed by Brigadier General M.L. Haines. The Initiative is replacing 1,510 regulations with 165 policy directives and 750 instructions. Each new policy averages about five pages, of which no more than one page is the policy itself, about three pages are the performance measurements, and the remainder are definitions and applicability standards. The Initiative will cut the 55,000 pages of intermingled policy and procedures to approximately 18,000 pages, which will clearly separate policy from procedure. The deregulation effort is managed by a staff of about 10 plus the policy writers and various consulting editors. Full reform will require about 30 calendar months and will be completed in fiscal year 1994. Hand-books, manuals, and other non-directive publications will be produced over a five-year cycle.(13) To develop the basic performance measures, the team first identified the decisions and the information bases for the decisions, and then selected the most important outcome.(14) For example, the basic performance measure for the motor pool is the percent of requests filled with a suitable vehicle. The basic performance measure for the lawyers was the number of case settlements favorable to the Air Force, counting both cases won and settlements more favorable than the expected trial outcome. The basic performance measure for long- range planning was the percent of plans incorporated into the budget. The basic performance measures for pollution prevention were reduction in pollutants purchased and pollutants discharged. There were initially many skeptics to General McPeak's initiative. Developing the measures was difficult, requiring several versions to eliminate perverse incentives. It was also difficult for individuals to accept being held accountable to these standards. Most groups initially believed their areas could not be measured. However, the only areas where appropriate measures could not be developed were those where high-level policy regulations were inappropriate. At the end of the initiative, the headquarters will be free to focus on policy, using real measures of outcomes. And the field will have clear guidance, clear delegations, clear accountability, and useful handbooks. Now that all the policies, instructions, and handbooks are in digital form, the Air Force is converting the entire set of documents to CD- ROM disks because of the dramatic cost savings.(15) The process will be completed by mid-1994, at which point the Air Force will stop printing paper copies. The entire Defense Department is now converting all its directives: First, to clarify--from top to bottom--its policy guidance, and to ingrain forever the principle of clear, concise policy unmistakably separated from essential procedures. Second, once the policy is clarified and separated, policy accomplishment must be measured to assess how well it is carried out. Third, procedures must be pushed to the lowest possible level. People should be given the necessary latitude to carry out policy in a way that best fits local conditions.(16) The agencies noted above have cut their own regulations, but have no power to reduce the thousands of regulations from the central management agencies with jurisdiction over them. Deregulation is often more difficult in the central management agencies, because so many of the requirements are statutory. But the results are worth the effort because of the appreciable cumulative effect on the remaining agencies. The following example shows that the central management agencies can also reduce the number of regulations. A Success Story in Progress: General Services Administration. The Federal Acquisition Regulation (FAR) Improvement Project was designed by GSA and the Civilian Agency Acquisition Council to determine how the FAR could more effectively serve its customers: government contracting personnel and the contractors. GSA sent questionnaires for dissemination to 12 federal agencies, the Small Agency Council, and the National Contract Management Association. About 95 percent of the respondents suggested one or more ways to improve the FAR.(17) The most common suggestions were to provide greater flexibility in the FAR for exercising good business judgment, to consult users in the formulation of necessary regulations, to ensure that regulations are consistent and clear, to provide more guidance but less regulation wherever possible, and to notify users of regulatory revisions prior to their effective date. These are essentially the same issues as for internal deregulation. The FAR Council formed an Executive Committee, which reviewed the recommendations and established 19 implementation projects broken into four sub-groups: philosophy, policy, automation, and training.(18) Most of the projects are scheduled for completion by the end of 1995. The GSA approach may serve as a model for other central management agencies to deregulate. In the future, such reform should include objective performance measures. The Bottom Line Outcome Measures developed by the OPM in conjunction with federal personnel directors illustrate that meaningful performance measurement is possible even in difficult-to-measure administrative areas.(19) A strong deregulation effort in the central management agencies would inspire other agencies by showing that deregulation is possible even in areas highly constrained by laws. While it would be possible to deregulate central management agencies first and then the remaining agencies later, such sequencing would delay total deregulation many years. Two Basic Approaches. There are two basic approaches to deregulation. The top-down method (Air Force and GSA) is faster, more systematic, and emphasizes clear headquarters policy. The bottom-up method is slower, but allows testing and emphasizes field priorities. The bottom-up method can be driven by either waivers (Veterans Affairs) or pilot sites (Forest Service). Because waivers identify the specific decisions being decentralized, they allow the changes to be more rapidly extended to all offices. The experiences of these agencies show it is not only possible to cut back on internal regulation, but also, with top management support, it is relatively straightforward to dramatically cut back, leading to better work at lower cost without endangering fiscal and ethical propriety. Lessons Learned. Identifying the need for deregulation is not enough. The solution has to be successfully carried through to completion. A GAO study of 12 governmentwide management initiatives undertaken between 1970 and 1980 concluded that these initiatives failed to achieve their objectives for a number of reasons: rapid turnover in executive branch leadership, a lack of real consensus on what constitutes good management, lack of careful implementation planning and execution, and lack of adequate staffing and management attention to management concerns.(20) The agency examples described above give some dimension to the levels of leadership, consensus building, planning, resources, administrative support, and sustained effort required to achieve deregulation objectives. The number of people required and the length of time will of course depend on the size and complexity of the agency, but the total is smaller than first assumed. The range in the agencies described above is 5-15 concentrated work years for the headquarters policy task force, and probably a similar but more dispersed number to write the field handbooks. Most agencies should be able to conduct an effort this size within current employment levels and budget. In addition, the headquarters task force and field writers will need training. At the present time no such training exists, but the Department of Defense Policy Directive Team has prepared a very helpful work plan.(21) If there is a governmentwide push to reform internal regulations, it would be appropriate to assign training to federal training centers, which in turn could seek guidance in training design from the agencies that have already undertaken such efforts. There is no alternative to sustained sponsorship from agency top management. Only senior staff can initiate radical deregulation and overcome the inevitable resistance and conflicts. Action ****** Reduce internal regulations by at least 50 percent over the next three years. (2) The President should issue an executive order to all departments and agencies--including central management agencies such as OMB, OPM, and GSA--to cut the number and the pages of their internal directives and regulations in half. An exception can be made for agencies that have already recently met the goal, such as certain parts of GSA and the Air Force. The Office of Management and Budget should be tasked with ensuring sustained support of this deregulation effort, including exchanging information, coordinating efforts, sharing solutions, and identifying training needs and methods. To implement this executive order, departments and agencies should develop plans for deregulation that include these four steps: 1. Purge agency internal regulations. Excise everything but the highest level policy guidance plus the requirements of laws or other immutable outside guidance, requirements of health and safety, and requirements where national uniformity is absolutely required. 2. Establish an objective output measure for each policy. Agree on terms.(22) Define the measure and show a sample bar chart as part of the policy, so that it is evident what will be tracked and how. Incorporate user satisfaction and economic measures as appropriate. These measures may change with experience--plan for flexibility and periodic review. Update measures in other systems (e.g., Chief Financial Officer Act) as measures are proven to be successful. 3. Provide useful handbooks of best practices, technical assistance, and other optional help. Get field practitioners to write the handbooks rather than headquarters policy staff. This tends to provide appropriate language and real help, and ensures that writers do not have vested interests in inserting requirements into these publications. If economical, publish the handbooks along with the policies electronically or on CD-ROM. 4. Allow field staff to identify authorities and systems for decentralization by requesting waivers from regulations. The presumption is that most waiver requests will be granted, and the requests will identify areas needing permanent decentralization. Both the top-down deregulation and the bottom-up waiver requests are needed so there is a "push-pull" effect, with deregulation driven both by the headquarters and the field (also see SMC08: Expand the Use of Waivers to Encourage Innovation). Agency heads should establish a speedy timetable and provide the continuing resources, emphases, and conflict resolution needed to complete successful regulatory reform. Agency heads must also ensure that no "shadow" systems develop to retain decisionmaking at higher levels. Agency heads must also guarantee that once a high-level policy is established, there is rigorous, uniform enforcement and that performance assessment is pursuant to the new standards. Endnotes ******** 1. See Figure 1: Staff Growth in Selected Staff Functions, 1980 - 1990/91, p. 10 of this report. 2. See NPR Accompanying Report Reinventing Federal Procurement, PROC2: Build an Innovative Procurement Workforce. 3. According to the BLM Idaho personnel office, there are 195 permanent and 30 temporary employees in that office. There are approximately 350 additional permanent employees in the Idaho District and Resource areas, but these offices also have additional regulations. 4. Interview with the Assistant Director for General Management, Office of Management and Budget. 5. Merit Systems Protection Board, Workforce Quality and Federal Procurement: An Assessment (Washington, D.C., July 1992). 6. National Academy of Public Administration, Revitalizing Federal Management: Managers and Their Overburdened Systems (Washington, D.C., November 1983), p. 2. 7. The nomenclature of government entities can be confusing. Technically, the heads of both departments and agencies report to the president, while the heads of bureaus report to department heads. In this paper, the term agency is used generically to refer to agencies, bureaus, departments, commissions, and other entities. 8. Robertson, Dale, "How to Overcome a Sluggish Bureaucracy and Tap Into the Strengths of Your People," Vital Speeches (1987). 9. U.S. General Accounting Office, Forest Service: Evaluation of "End-Results" Budgeting Test (Washington, D.C. : U.S. General Accounting Office, March 1988). 10. United States Forest Service, Shaping a New Culture (1992). 11. United States Forest Service, Chartering a Management Philosophy for the Forest Service (December 19, 1989). 12. Department of Veterans Affairs, Management Efficiency Pilot Program: Innovative Test is Meeting Overall Expectations (March 1990). 13. Department of the Air Force, Policy Development and Management Information System Storyboard (September 1992). 14. Ibid. 15. Department of Defense, Defense Performance Review, Policy Directives Team, DOD Policy Directive Team Report (July 14, 1993). The Defense Logistics Agency (DLA) made a one-time capital investment of $900,000, which allowed annual cost savings of $600,000 by eliminating conventional printing of publications and reducing distribution and storage costs, plus annual cost avoidance of $1,370,000 through the elimination of inserting page changes in DLA publications. The CD-ROM disks are replaced every three months with updated versions. In other words, the savings more than paid for the conversion in the first year. The issues in comparing CD-ROM to traditional printing are clearly identified and easy to understand: See U.S. Department of Transportation, Federal Aviation Administration, If, When, Why and How to Publish with CD-ROM, A Guide to the Planning Process (1992). 16. Ibid. 17. General Services Administration, The FAR Improvement Project: An Assessment of User Views (June 1991). 18. General Services Administration, FAR Improvement Project Executive Committee Report (October 1992). 19. Office of Personnel Management, Strategic Plan for Federal Human Resource Management, Appendix (1989). This report is currently being updated. 20. National Academy of Public Administration, p. 7. 21. See DOD, Defense Performance Review. 22. Duquette, Dennis, "Enter the Era of Performance Measurement Reporting," Government Accountants Journal (Summer 1992). ********************************************************* SMC08: Expand the Use of Waivers to Encourage Innovation ********************************************************* Background ********** While law and regulation are essential to good government, their uniform application can stifle innovation, waste resources, and stymie rather than fulfill program objectives. State and local governments are often frustrated by federal requirements that offer little or no benefit to communities that do not "fit the mold" for which the requirement was created.(1) Categorical grants from the federal government may require activities or levels of expenditure for specific purposes (e.g., special education, drug rehabilitation) in every state regardless of need or community priorities. The enabling legislation usually prohibits federal agencies or state or local governments from reprogramming scarce funds to meet the goals of the program. Or overly detailed legislation may undermine implementation. For example, agencies administering any of the federal government's programs for the poor must verify many details about people's lives. They must verify that a family receiving funds under the Aid to Families with Dependent Children program does not own a car worth more than $1,500 in equity value. To give the same family food stamps, it must verify that the family doesn't own a car worth more than $4,500 in market value. Medicaid specifies a range that it allows for the value of a recipient's car. There are exceptions for each program."Why can't we talk about the same car in all three programs?" queried Vice President Gore.(2) With a system of waivers, it could be done. Federal agencies encounter similar frustrations with the dictates of central management agencies, such as the Office of Management and Budget (OMB), the Office of Personnel Management (OPM), and the General Services Administration (GSA). These agencies are responsible for implementing governmentwide policies. Like state and local governments, federal line managers often find these rules and regulations inapplicable to their needs. A frequent example expressed in the Vice President's Town Hall meetings is the use of staffing ceilings that restrict civil service hiring and therefore force agencies to contract for services that would be more economically performed in-house. A few agencies (Department of Health and Human Services, Department of Defense (DOD), Internal Revenue Service) have been granted some latitude under research and demonstration authorities to waive non- statutory requirements--largely with positive results. One success is the Management Efficiency Pilot Program (MEPP) at the Department of Veterans Affairs. Established in 1987, MEPP approved over 1,000 waivers resulting in improved veterans service, better resource utilization, millions in cost savings, and improved employee morale.(3) Unfortunately this increased discretion has not spread widely throughout government. Each of the numerous laws, regulations, rules, and policies was motivated by rational, well-intended, and fair-minded desires to serve a specific public purpose or to solve a particular problem. Taken together, however, they can create more problems than they solve. Solutions to isolated problems often have unintended consequences, often making a situation worse than the original problem. One Size Fits All. Our system of laws and regulations can never be perfect. First, it is exceedingly difficult to create laws and regulations that fit the wide range of conditions found across America. Those requirements that fit "on average" may be dysfunctional in situations that are not typical. Second, laws and regulations from different parts of the government can and do result in conflicting or incompatible requirements. For example, food industries may have difficulty meeting both the Food and Drug Administration's requirement for equipment that is easily cleaned and the Occupational Safety and Health Administration's requirement for equipment with noise suppression. Third, as conditions, circumstances, and public needs change, laws and regulations become less effective and appropriate, even if they were initially well-drafted. As societal change accelerates, this becomes an increasing problem. Exceptions? Change the Law. The formal legal mechanisms to resolve these problems are changes in the laws and regulations or the pursuit of judicial relief. These processes, however, are time consuming, expensive, and uncertain. Major statutory or regulatory changes can take years, and will not be undertaken unless and until the authorities are truly convinced of the need for change. Successful challenges to existing laws and regulations require resources, expertise, and stamina to endure lengthy and often frustrating appeals. Many potential petitioners are intimidated by the high costs and slim chances of a successful challenge. Instead, a state or local government may choose not to apply for a federal program, or a federal manager may give only minimal compliance or lip service to irrational restrictions. In the end, the results sought by the Congress are only achieved at the cost of decreased efficiency and effectiveness, or are not achieved at all. The solution is waiver authority, which has the potential to alert authors of laws or regulations to the need for change. Experience with DOD's Model Installation Program, the reinvention labs of the Department of Veterans Affairs, and the Forest Service indicates that the returns from more liberal waiver approval are substantial and the risks of abuse and evasion are low. Need for Change *************** There is an overwhelming need for appreciable relief from ineffective and unnecessary requirements, whether too general, ill-considered-- counterproductive in some instances--or obsolete. Cases in which strict adherence to law or regulation would result in unintended and undesirable consequences should be of immediate interest to lawmakers and regulators. Such circumstances provide opportunities for fruitful reforms. A proposed waiver in furtherance of the statutory intent, limited in scope and duration, and with measurable results is an excellent means for testing an alternative regulatory scheme. It is in the interest of lawmakers and regulators, as well as affected parties, to encourage carefully crafted waivers and an expeditious review process. In the best sense, such waivers are experiments for government's reinvention, not its wholesale abdication. Improve Ways to Meet Program Goals. In the recently enacted Government Performance and Results Act (GPRA), Congress recognized this need and instituted a process for "granting of managerial accountability and flexibility waivers; that is, the opportunity to be exempt from specific types of non-statutory administrative procedural requirements, in return for achieving greater program results than would otherwise occur."(4) This provision of the GPRA applies to agencies in the executive branch with specific limitations. "The requirements eligible for waiver are exclusively those regarding the internal allocation and use of resources. They do not include any requirements that directly affect persons or activities outside the agency."(5) While the Congress "believes that the Act provides an important first step in a direction that may pay significant dividends,"(6) realizing the full potential of waivers requires a greater effort by both the executive and legislative branches to extend the waiver process beyond the administrative activities of Federal agencies. In addition to the GPRA, other examples of current legislation providing waivers include the Economic Enterprise Zone bill with broad, general waiver authority and the Goals 2000: Educate America bill with tighter limits on the granting of waivers.(7) A controlled waiver process must be based on the legal authority being waived. Except when the courts intervene, only Congress can legislate the conditions under which a statutory requirement can be waived. Consideration of legislative requirements should include the conditions under which waivers and exemptions would be appropriate; such provisions should be incorporated into the statute. Generally, it should encourage variations that improve chances for achieving intended program results. Similar consideration should go into the design of regulatory programs. A process that encourages waivers in furtherance of the statutory intent, limited in scope and duration, and with measurable results, can only foster the potential effectiveness and efficiency of regulation. The controlling process for the waiver, however, should not in itself become a bureaucratic nightmare. For example, the two-year waiver process for certain state Medicaid grants requires 18 months of work. So state officials have to reapply after only six months. As a result, timeliness and the volume of paperwork required need to also be factors in designing such a process. Action ****** Establish a process for obtaining waivers from federal regulations and identify the regulations for which this process applies. (1) The President should direct each agency to establish and publicize an open process for obtaining waivers from that agency's regulations. The process should address the following considerations: --- Waiver petitions, so as not to be frivolous, must be submitted by heads of local or state governments (who may seek the counsel of their senators or representatives) or heads of federal departments/agencies. Waiver petitions from private entities or individuals would be prohibited. --- Initial waiver decisions should be made in 60 days, but if no decision is made, the waiver will be deemed to have been granted unless the petitioned agency formally notifies the petitioner that it has extended the period of consideration for a maximum of another 30 days. If no explicit decision is made in that time, the waiver would be automatically approved. --- Input must be sought from the office with line responsibility for issuing or implementing the regulation for which a waiver is sought, perhaps by having that office make the initial decision on the waiver. Where state or local agencies are affected, the appropriate senators or representatives should be consulted by the petitioned federal agency. --- A right must be included for the petitioner to appeal a denial to an agency or department office not having line responsibility for the issuance or implementation of the regulation at issue. (This might be a waiver appeals board, the general counsel's office, an office of program design, etc.) This is necessary to ensure that staff heavily invested in the existing regulatory structure do not inappropriately block innovative programs. The duration of the appeal should also be limited to 60 days with no provisions for extension of the consideration period. --- Decisions by the independent waiver appeals board can be appealed to the head of the agency by either the petitioner or the responsible office. This period should be strictly limited to 30 days. --- An office designated by the President could serve as ombudsman from whom petitioners may seek help when a waiver decision is appealed to the Secretary or agency head. A petitioner should be able to present its position to this waiver office; this office would advise the Secretary/agency head as to whether it thinks the waiver should be granted or denied. --- All documents submitted by the petitioners to either the agency or the waiver office must be made available to the public. Final decisions must be announced promptly in the Federal Register. --- Initial waiver decisions need only signature approval to be granted, while denials would have to be supported by written explanations. All government officials who are formally a party to the ultimate decision should be clearly identified for the record. Waiver authority should not be sought or instituted for all programs. Waivers should further the statutory intent, be limited in duration and scope, and have measurable results. Waiver authority is appropriate when the petitioner needs a waiver to innovate, such as a state developing a new welfare program. It is also appropriate when changes in circumstances outpace changes in rules. It is inappropriate when agencies are requiring public or private entities to act for health, safety, or environmental reasons. For example, states should not have any additional authority to seek waivers of Clean Air Act requirements, either for themselves or for private entities. Such waivers would not further the purposes of the legislation. Agencies must designate those existing regulations or programs for which the waiver authority will apply. The waiver process should be instituted immediately for those regulations for which the agency has the authority to do so. Where agencies need a statutory change to institute the waiver process, the Administration should seek such legislation. As new legislative requirements are proposed, explicit provisions for waiver authority should be considered. The current presumption that legislative requirements cannot be waived should be reversed so that agency heads have authority to waive requirements unless legislation explicitly prohibits waivers. The Administration should seek legislation to accomplish such reversals. Each agency should be responsible for maintaining a data base tracking waivers requested and granted by that agency, including the expected duration and results of each waiver. When a waiver demonstrates its value, or when significant patterns and trends detected by the agencies suggest that regulations or laws create pervasive problems, the agency should revise or abolish the requirement. For example, 48 state agencies have waivers from the Medicaid program allowing them to provide community-based services as an alternative to nursing home care, which is the service routinely covered by Medicaid.(8) With such a preponderance of states seeking waivers, the basic policy clearly demands attention. Cross References to Other NPR Accompanying Reports ************************************************** Strengthening the Partnership in Intergovernmental Service Delivery, FSL02: Reduce Red Tape Through Regulatory and Mandate Relief. Mission-Driven, Results-Oriented Budgeting, BGT05: Provide Line Managers With Greater Flexibility to Achieve Results. Rethinking Program Design, DES: Preamble. Executive Office of the President, EOP02: Modify the OMB Circular System. Department of Health and Human Services, HHS02: Reengineer The HHS Process for Issuing Regulations. Department of Veterans Affairs, DVA08: Decentralize Decisionmaking Authority to Promote Management Effectiveness. Endnotes ******** 1. See the discussion on federal mandates and regulatory relief in the NPR Accompanying Report Strengthening the Partnership in Intergovernmental Service Delivery. 2. Vice President Al Gore, From Red Tape to Results: Creating a Government That Works Better and Costs Less (Washington, D.C.: U.S. Government Printing Office, September 1993), p. 38. 3. See recommendation on decentralized decisionmaking in the NPR Accompanying Report Department of Veterans Affairs. See also U. S. Department of Veterans Affairs, Management Efficiency Pilot Program Final Report (Washington, D.C., 1991). 4. U.S. Congress, Senate, Government Performance and Results Act of 1993, Report of the Committee on Governmental Affairs, Report No. 103-58 (Washington, D.C., undated), p. 17. 5. Ibid. 6. Ibid. 7. Economic Enterprise Zone Act of 1993 (H. R. 850) and the Goals 2000: Educate America Act (S. 846). 8. See the NPR Accompanying Report Department of Health and Human Services, HHS02: Reengineer the HHS Process for Issuing Regulations. ********** Appendices ********** Appendix A: ********** Summary of Actions by Implementation Category Each action item has been categorized by focus of implementation, as follows: (1) Agency heads can do themselves: SMC02.3 Revise government-sponsored management training to teach management control as an integral function of management, not as a reporting requirement. SMC03.1 Change the emphasis of IG's from compliance auditing to evaluating management control systems. SMC03.2 Change the IG's' method of operation to be more collaborative and less adversarial. SMC03.3 Establish performance criteria for IG's. SMC03.4 Do not offer bonuses to IG's. SMC04.1 Define clearly the clients of the Offices of General Counsel. SMC04.2 Use franchising and other market mechanisms to encourage OGC staffs to respond appropriately to their clients. SMC04.3 Develop performance measures and feedback loops for general counsels to encourage close cooperation with clients. SMC05.1 Improve GAO documentation of best practices and use of feedback loops. SMC08.1 Establish a process for obtaining waivers from federal regulations and identify the regulations for which this process applies. (2) President, Executive Office of the President, or Office of Management and Budget can do: SMC01.1 Redesign the existing set of control mechanisms for the executive branch, using a systems design approach. SMC02.1 Rewrite OMB Circular A-123, "Internal Control Systems," to be a succinct document that defines the policy for establishing and reviewing management controls. SMC02.2 Replace OMB's existing Internal Control Guidelines with a handbook on management controls. SMC02.3 Revise government-sponsored management training to teach management control as an integral function of management, not as a reporting requirement. SMC07.1 Reduce internal regulations by at least 50 percent over the next three years. (3) Requires legislative action: SMC06.1 Eliminate at least half of all congressionally mandated reports. SMC06.2 Review new reporting requirements for management impact, and include a sunset provision. Appendix B: *********** Sample of "External" Staff Review Functions Office of Inspectors General **************************** Authority: Inspector General Act 1978, As Amended, 5 USC, App (1982); OMB Circular A-73 & A-110 Function: Performs audit, evaluation, inspection, investigation, & review activities; reviews legislation; promotes economy, prevents fraud, waste, & abuse. Staff Years: 15,158* Estimated Budget FY 1994 $1.3B Overlap: Broad investigative & audit authority. Can overlap all other offices. Schedule: As needed. General Accounting Office ************************* Authority: 31 USC 712 Function: Performs audits & evaluations as directed by Congress. Staff Years: 4,900 Estimated Budget FY 1994: $437M Overlap: Broad audit authority. Can overlap all other offices. Schedule: As requested Office of Management and Budget ******************************* Authority: Presidential Directives and EO 11541, EO 12151 Function: Preemptive activities. Intervention in management through the use of SWAT Teams when there is breakdown or when there are budgetary shortcomings . Staff Years: 534 Estimated Budget FY 1994: $53M Overlap: Agency management and budget offices. Schedule: As needed. Environmental Protection Agency ******************************* Authority: Clean Water Act, Clean Air Act, Superfund, etc. Function: Controls environmental degradation, set standards, monitor compliance and enforcement through audits, investigations, & reviews. Staff Years: 3,500 Estimated Budget FY 1994: $350M Overlap: State programs. Schedule: As needed. Merit Systems Protection Board ****************************** Authority: Civil Service Reform Act 1978, Reorganization Act 1204 (a) (3) and 1206 Function: Conducts special studies & reviews of OPM. Staff Years: 280 Estimated Budget FY 1994: $26.4M Overlap: Coordinates with GAO on some studies. Schedule: Annual studies on selected topics. Office of Personnel Management, Agency Compliance & Evaluation ************************************************************** Authority: Civil Service Reform Act, Title 5 USC 1103 & 1104 Function: Audits federal agencies, compliance with government personnel laws & regulations. Staff Years: 40 Estimated Budget FY 1994: $8.0M Overlap: Some overlap with OSC in area of prohibited personnel practices. Schedule: Every 5 years. Office of Government Ethics *************************** Authority: Ethics in Government Act 1978, Title 4 Function: Reviews agency ethics programs, audits financial disclosure reports. Staff Years: 39 Estimated Budget FY 1994: $3.2M Overlap: Can overlap agency responsibilities. Schedule: Every 3 years. Office of Special Counsel ************************* Authority: Civil Service Reform Act 1978, Reorganization Act, 5 USC, Section 1214 (a) (1) (A) Function: Investigates allegations of prohibitive personnel practices & Hatch Act violations. Staff Years: 100 Estimated Budget FY 1994: $8M Overlap: Overlap agency responsibilities. Schedule: As needed. Equal Employment Opportunity Commission *************************************** Authority: Title 7 of Civil Right Acts of 1964. Expanded Authority under the Civil Service Reform Act 1978 Function: Limited investigations & some audits to ensure compliance with federal EEO requirements. Staff Years: 2,850 Estimated Budget FY 1994: $230M Overlap: Overlap agency responsibilities. Schedule: As needed or requested. Occupational Safety & Health Administration ******************************************* Authority: Occupational Safety & Health Administration Act Function: Sets safety & health standards & inspection of employees & federal workers. Staff Years: 70 Estimated Budget FY 1994: $8.7M Overlap: Some overlap in the private sector (migrant labor camps). Schedule: By priorities (inspects 6 million employers with 90 million employees). General Services Administration, In-formation Resource Management Policy *************************************** Authority: Paperwork Reduction Act, Brooks Act Function: Audits agencies to determine level of procurement authority to approve. Provides outside assessment of IRM program. Staff Years: 15 Estimated Budget FY 1994: Not reported Overlap: None. Schedule: Every 3 years. Office of Management and Budget, Office of Federal Procurement Policy ************************************ Authority: Public Law 98-191 1974 Public Law 93-4000 Amended at least 4 times Function: Provides procurement policy leadership. Brings consistency to federal procurement policies & practices; advises the President on procurement issues. Oversees federal agencies to ensure compliance. Staff Years: 31 Estimated Budget FY 1994: $3M Overlap: None. Schedule: As needed. Defense Contract Management Command *********************************** Authority: Defense Management Review Decision 916. DAR FAR Supplement Part 42 Function: Performs contract administration on most DOD contracts. Also performs audit, evaluation, inspection, investigation and review activities. Staff Years: 3,900 Estimated Budget FY 1994: $250M Overlap: None. Schedule: As needed. Defense Contract Audit Agency ***************************** Authority: DOD Directive 5105.36. OMB Circular 73 Function: Audits 95% of federal government contractors. Staff Years: 5,524 Estimated Budget FY 1994: $355M Overlap: None. Schedule: Annual. Appendix C: *********** Accompanying Reports of the National Performance Review Governmental Systems Abbr. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Changing Internal Culture Creating Quality Leadership and Management QUAL Streamlining Management Control SMC Transforming Organizational Structures ORG Improving Customer Service ICS Reinventing Processes and Systems Mission-Driven, Results-Oriented Budgeting BGT Improving Financial Management FM Reinventing Human Resource Management HRM Reinventing Federal Procurement PROC Reinventing Support Services SUP Reengineering Through Information Technology IT Rethinking Program Design DES Restructuring the Federal Role Strengthening the Partnership in Intergovernmental Service Delivery FSL Reinventing Environmental Management ENV Improving Regulatory Systems REG Agency for International Development AID Department of Agriculture USDA Department of Commerce DOC Department of Defense DOD Department of Education ED Department of Energy DOE Environmental Protection Agency EPA Executive Office of the President EOP Federal Emergency Management Agency FEMA General Services Administration GSA Department of Health and Human Services HHS Department of Housing and Urban Development HUD Intelligence Community INTEL Department of the Interior DOI Department of Justice DOJ Department of Labor DOL National Aeronautics and Space Administration NASA National Science Foundation/Office of Science and Technology Policy NSF Office of Personnel Management OPM Small Business Administration SBA Department of State/ U.S. Information Agency DOS Department of Transportation DOT Department of the Treasury/ Resolution Trust Corporation TRE Department of Veterans Affairs DVA