<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:20174.wais] S. Hrg. 109-42 PROGRAMS IN PERIL: AN OVERVIEW OF THE GAO HIGH-RISK LIST ======================================================================= HEARING before the OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE of the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION __________ FEBRUARY 17, 2005 __________ Printed for the use of the Committee on Homeland Security and Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 20-174 WASHINGTON : 2005 _________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS SUSAN M. COLLINS, Maine, Chairman TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas JOHN W. WARNER, Virginia Michael D. Bopp, Staff Director and Chief Counsel Joyce A. Rechtschaffen, Minority Staff Director and Counsel Amy B. Newhouse, Chief Clerk OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE GEORGE V. VOINOVICH, Ohio, Chairman TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii NORM COLEMAN, Minnesota CARL LEVIN, Michigan TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas JOHN W. WARNER, Virginia Andrew Richardson, Staff Director Richard J. Kessler, Minority Staff Director Nanci E. Langley, Minority Deputy Staff Director Tara E. Baird, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Voinovich............................................ 1 Senator Akaka................................................ 3 Senator Lautenberg........................................... 5 Senator Stevens.............................................. 17 WITNESSES Thursday, February 17, 2005 Hon. David M. Walker, Comptroller General, U.S. Government Accountability Office.......................................... 7 Hon. Clay Johnson III, Deputy Director for Management, Office of Management and Budget.......................................... 10 Alphabetical List of Witnesses Johnson, Hon. Clay III: Testimony.................................................... 10 Prepared statement........................................... 61 Walker, Hon. David M.: Testimony.................................................... 7 Prepared statement........................................... 27 Appendix Charts submitted for the record from Mr. Walker.................. 57 Questions and responses for the record from Senator Akaka for: Mr. Walker................................................... 63 Mr. Johnson.................................................. 67 PROGRAMS IN PERIL: AN OVERVIEW OF THE GAO HIGH-RISK LIST ---------- THURSDAY, FEBRUARY 17, 2005 U.S. Senate, Oversight of Government Management, the Federal Workforce, and the District of Columbia Subcommittee, of the Committee on Homeland Security and Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 10:07 a.m., in room SD-342 Dirksen Senate Office Building, Hon. George V. Voinovich, Chairman of the Subcommittee, presiding. Present: Senators Voinovich, Stevens, Akaka, and Lautenberg. OPENING STATEMENT OF SENATOR VOINOVICH Senator Voinovich. The Committee will please come to order. I want to thank you all for coming. Today, the Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia meets to discuss the Government Accountability Office's 2005 high-risk series, and I am very pleased that Comptroller General David Walker and the Office of Management and Budget's Deputy Director for Management Clay Johnson are with us today. Thank you for being here. They are both leaders in improving the management and efficiency of Federal Government operations. Just yesterday, the Comptroller General testified before the Committee on Homeland Security and Governmental Affairs to discuss GAO's comprehensive examination of the Federal Government's structural base, including programs, policies and long-term financial outlook. This review dovetails well with GAO's work on the High-Risk List, and I commend Comptroller General Walker for initiating this report. Fifteen years ago, GAO first issued its High-Risk Series to examine Federal programs that are especially vulnerable to waste, fraud, abuse and mismanagement. Over time, GAO expanded their biannual High-Risk Series to include areas of broad transformation in the hopes of improving the effectiveness, accountability and sustainability of government programs and operations. Each of the 25 programs listed in this year's High-Risk Series impact the daily lives of citizens across the country. Many programs are dysfunctional and fail to deliver the intended services to the taxpayer; for example, last year, I chaired a field hearing in Cleveland to examine the Social Security disability process, which has been on the High-Risk List since 2003. I was impressed with Social Security Commissioner Joanne Barnhart's commitment to resolving this issue; however, based on the letters I receive from my constituents in Ohio, it appears that progress has been slow if not at all. In other instances, high-risk programs are wasting billions of dollars that could be better used for higher-priority programs or cutting the deficit. Needless to say, the High-Risk Series provides a road map for oversight and reform, and it should be taken seriously by Federal agencies, the Administration and Congress. For instance, in 2001, GAO designated strategic human capital management as high risk. Senator Akaka and I are very familiar with the Comptroller General's expertise on this issue, and together, we have dedicated time and energy in order to facilitate government- wide human capital improvements. In fact, during my tenure of this Subcommittee, we have held 16 hearings to examine the Federal Government's human capital challenges. Furthermore, over the past 2 years, seven human capital reform bills in whole or part have become law. This significant accomplishment does not include the human capital reforms enacted specifically for the Departments of Defense and Homeland Security. Clearly, the interest of the Congress and the GAO designation of human capital management coupled with the prominence of this issue in the President's management agenda, and I want to underscore this, the prominence of human capital in the President's management agenda, created a confluence of ideas and synergy which led to the most dramatic civil service reform since 1978. I believe strongly that this level of scrutiny should be focused on each of the high-risk areas. Unfortunately, this Subcommittee cannot do it alone. We would need the help of the authorization and appropriations committees in other areas. I would also suggest that human capital oversight on the legislative model could be replicated for other high-risk areas. Understanding that this Subcommittee cannot focus on each high-risk area, we are going to urge our colleagues on the authorizing and appropriations committees to examine ways to improve the performance of these programs and activities within their jurisdictions. Of course, the problem around this place is that we spend all our time on the budget and on appropriations, about 60 percent of it, and we do not have 2-year budgets, so there is very little Congressional oversight. Too often, people come in to talk with Members of Congress about a problem area. They make a pledge to fix it and walk out of the room knowing that little follow-up will be conducted. So there is no serious real oversight here, and it bothers me substantially. In addition, this Subcommittee will focus on a few additional high-risk areas during the next couple of years. Looking more closely at this year's report, we find that GAO designated four new high-risk areas. One, establishing appropriate and effective information sharing mechanisms to improve homeland security, and we know how important that is, because we saw after September 11 how that kind of information was not being shared; two, DOD's approach to business transformation; three, DOD's personnel security clearance program, and four, management of interagency contracting. While it is troubling when GAO adds new programs to the list, it does not mean that high-risk designation lasts indefinitely. Fortunately, this year, GAO found sufficient progress to remove the high-risk designation for three specific programs, including the Student Financial Aid program, FAA financial management, and the Forest Service Financial Management System. Mr. Johnson, I applaud the Administration's work on this effort, because if you had not done it, they would not have gone off the list. However, some programs simply cannot break free from their high-risk albatross. In fact, six high-risk areas in this report have been on the list for 15 years. Clearly, this is not an anniversary worth celebrating. These programs are DOD's supply chain management, DOD's weapons system acquisition, DOE's contract management, NASA's contract management, the Medicare program and collection of unpaid taxes. And fixing the ones at the Department of Defense could save billions and billions of dollars by instituting the change mechanisms that have been suggested by GAO. I am extremely interested in hearing from Mr. Walker why these programs have been on the list so long and even more importantly learning from Mr. Johnson what steps has the Administration taken in improving them? And one of the benefits of having the President reelected is you got started with a whole bunch of reforms in the first term, and now, you have an opportunity to spend the next 4 years really making necessary changes. And I know, Mr. Johnson, that you are as concerned about that as I am, maybe even more concerned, and the real issue here is to pick the ones that we can make the biggest impact and then just zero in on it and stay on it so that 4 years from now, you can say we really did make a big difference, and that would be one of the most significant contributions that this administration could make to the American people. Effective Congressional oversight and a commitment from the Administration are imperative to enhance the performance of and instill accountability in the areas designated. As Chairman of the Government Management Subcommittee, I want our witnesses to know that this is the first of a series of high-risk hearings that I will be chairing with the Congress. I have talked this over with the Chairman of the Committee, Senator Collins, and we are going to have the opportunity to add a couple more staff people, and we are going to stay on top of this and try to work harder and smarter, to make a difference on these issues. I thank our witnesses, David Walker and Clay Johnson. I look forward to an in-depth discussion about this year's High- Risk List. I now yield to the Ranking Member of the Subcommittee, my good friend, Senator Akaka. OPENING STATEMENT OF SENATOR AKAKA Senator Akaka. Thank you very much, Mr. Chairman. As you mentioned, today's hearing will review the GAO's High-Risk List with our friend Comptroller General Walker and the OMB Deputy Director for Management, Mr. Johnson. Mr. Chairman, I cannot think of two more fitting witnesses than the ones we have before us today to discuss how we can strengthen critical Federal programs. The oversight of government programs is the legacy of this Subcommittee, and as such, we have tremendous latitude to investigate a wide range of issues relating to government efficiency and accountability of taxpayers' dollars. Since 1990, the Government Accountability Office has identified high-risk programs in need of urgent attention either through transformation, as with the Postal Service, or significant modernization, such as the business systems at the Department of Defense. Transparency and accountability are the underpinnings of good government. Too often, the focus is on funding levels and policy decisions without considering the internal structure of an agency. The attention by GAO on high-risk areas sharpens the debate by highlighting fundamental management weaknesses such as inadequate financial and contract management. Unfortunately, it has become routine for agencies to make decisions without having sound business cases for change or without taking into account agency mission. I believe the high-risk list provides all agencies with an opportunity to undertake a critical review of their operations and implement best practices. I am disappointed that so many areas within the Department of Defense remain on the updated High-Risk List. As the Ranking Member and former Chairman of the Armed Services Readiness Subcommittee, I have worked hard to improve the efficiency of DOD programs and operations. We built on our past efforts to require improved management of the $50 billion DOD spends annually on services by establishing specific goals for the use of competitive contracts and performance-based contracting. We also have required DOD to develop a comprehensive financial management enterprise architecture because DOD has been unable to produce reliable financial information or clean financial statements. However, as the GAO update shows, there continues to be fundamental deficiencies within DOD despite our longstanding efforts. Take, for example, human capital management within the Department of Defense. It is hard to think of any one function that cuts across all of DOD more than human capital management. Despite the issuance of proposed regulations for its new personnel system, DOD does not have in place a strategic human capital plan. No document identifies DOD recruitment and retention strategy or goes for its future workforce. For some time, the Comptroller General has recommended that DOD have a chief management officer who would be accountable for agency-wide management just as the Deputy Director for Management at OMB is responsible for government-wide management. I plan to use my position as Ranking Member on the Readiness Subcommittee to work towards this objective. Chairman Voinovich, your willingness to take on some of the very issues that we confront on the Armed Services Committee is welcomed, and I look forward to working with you on this effort. The bottom line is we need sound management practices in place so that Federal agencies can spend taxpayer money wisely. We need sound financial systems in place so that taxpayer dollars can be tracked, and we need the right people and the right skills in place so that agencies can carry out their missions successfully. I look forward to the testimony of our distinguished panelists today, Comptroller General Walker and OMB Deputy Director Johnson. Mr. Chairman, I look forward, as I always do, to working with you and tackling the inefficiencies spotlighted by GAO. I look forward to the months ahead as we continue hearings like this issue. Thank you very much, Mr. Chairman. Senator Voinovich. Thank you very much, Senator Akaka. Senator Lautenberg. OPENING STATEMENT OF SENATOR LAUTENBERG Senator Lautenberg. Yes, thank you very much Mr. Chairman. It looks like Comptroller General Walker is a regular visitor to our hearing room, and we welcome him, and we will keep on giving him challenges to respond to, and we do look forward to hearing from him today. And we are going to be looking at 25 specific programs identified by GAO at high-risk waste, fraud, abuse, or mismanagement. And I noted with interest that you had relieved--if I can call it that--a bit of a stigma from several areas--three of them specifically, and I will make reference to them when we have a chance after we hear your statement to talk about them. I want to focus on a couple of things. One of them is DOD and their contract management--I have had a continuing interest in the area--and the modernization of FAA and its air traffic control operation. Now, I see that they were commended somewhat for their financial management side of things, and for $11.7 billion in property accounting. These are mindblowing numbers, and the fact that they got better at it is really encouraging, and I hope that will enable us to examine the possibility of privatization of air traffic controllers more clearly, more deeply. DOD is the largest government purchaser, with $200 billion spent on goods and services each year, but GAO is critical of DOD's contracting procedures, especially with regard to contracts being awarded in Iraq, and we continue to stumble across information that is discouraging, Mr. Chairman, about funds that were appropriated, delivered, but not appropriately used. And I quote GAO's report here: ``DOD's extensive use of military logistical support contracts in Iraq and elsewhere require strengthened oversight.'' That is terrible news to hear, because when we see the effort of our service people--beyond description in many cases--if we do not make sure that everything they need is properly delivered, it is a worrisome thing. And I think DOD has been negligent in several instances. The personnel waive competition requirements for nearly half of the task orders reviewed in your report, Mr. Walker. DOD lacks safeguards to ensure that waivers were granted only under appropriate circumstances. Each one of these things, nowhere were they encouraging, Mr. Chairman, to see as we try to finance this; we want to provide whatever support we can for our troops and our mission, but any waste or abuse, and I hesitate to call it fraud, because it is still under examination, is unacceptable. Over the past couple of years, on four separate occasions, I have made written requests to the full Committee to hold hearings on DOD contracting abuses. Now, we are not able to hold such hearings, and now that GAO bolsters the case, it seems to me that we are seriously abdicating our oversight responsibility and putting our men and women in uniform in some greater danger. Another thing, Mr. Chairman, that I want to focus on is the air traffic control system. Since 1995, GAO has designated FAA's air traffic control modernization project at high risk. Now, I come out of the computer business, and I sat in my years in the Senate looking at failed plans that were initiated and dropped, paid for, by the way, to some of the best companies in America. I know one thing from my personal experience, and that is when you have an assignment of the magnitude like this one that you cannot do the whole thing in one exercise, that it has to be segmented; it has to be brought down to bite-sized pieces, to use the expression, and we have seen it with plans for Medicare and other things as well. You have to work on those things where you can see the change taking place. Another thing, and I will not get into much of a discussion about this, but, Mr. Chairman, you have got a very respectable record in public service, and I commend you for it, and you continue the service that you brought to Ohio into the Senate, and it is excellent. But we know that when you have turnover at the highest level of a department or an organization, that it is always tough to recapture the starting place where you left off, and I am convinced that the FAA Chairman ought to not be simply a political appointment, but it ought to be a term of office and given a chance to be there to see programs through instead of turned over as the political mainstream changes as well. And this is Republican or Democrat; I do not care. I think it is the kind of assignment that needs a chairperson to do this and to be able to follow through on the details, but we will save that lecture for another day. FAA's failures are largely technical. They bring into question the agency's ability to simultaneously undertake a risky plan to privatize certain ATC functions. Because of their poor record on overseeing contract work on ATC modernization, I think it is clear that privatizing other ATC operations poses an unacceptable safety risk to all travelers. And I use as the classic example what happened with the screeners at the airports. When they were in private hands, they did a terrible job. When they were in government hands, work improved immeasurably, and now, we want to go back there to the old way of doing it. As usual, Mr. Walker, GAO has done an outstanding job identifying problems that we should address, and we look forward to your testimony once again and yours, Mr. Johnson, as well. Thank you, Mr. Chairman. Senator Voinovich. Thank you, Senator Lautenberg. As is the custom here in this Subcommittee, if you would both rise so we can swear you in. [Witnesses sworn.] Senator Voinovich. Let the record show that the witnesses answered in the affirmative. Mr. Walker. TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Mr. Walker. Thank you, Mr. Chairman, Senator Akaka, and Senator Lautenberg. I appreciate the opportunity to be back before this very important Subcommittee of the Senate to address our 2005 High-Risk List. I also appreciate the opportunity to be here with my friend Clay Johnson from the Office of Management and Budget who I can say at the outset takes this subject very seriously. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Walker appears in the Appendix on page 27. --------------------------------------------------------------------------- I would respectfully request that my entire statement be included in the record, Mr. Chairman, so I can just summarize the highlights for you. Senator Voinovich. It will be taken into the record along with yours, Mr. Johnson. Mr. Walker. Thank you very much. With regard to the highlights, first, as you know, GAO started the High-Risk List under the tenure of my predecessor, Chuck Bowser, in 1990. Every 2 years commencing in 1993, we have published a new High-Risk List at the beginning of each Congress. In our view, these are not policy issues as much as they are just sound management issues that need to have continuous focus over time. In doing that, there has been progress made over the years. It is possible to come off the High-Risk List, and it is important to note that we have clearly defined criteria that were circulated for comment by the various agencies early in my tenure as Comptroller General as to what it takes to get on the High-Risk List and what it takes to get off the High-Risk List, and that is very important. In fact, one of the things that Deputy Director Clay Johnson did early in his tenure was to assign particular individuals within the Executive Branch responsibility for every high-risk area as we did at GAO with the idea that you want to make sure there is effective communication about what is it going to take to get off the high-risk list in order to make progress and ultimately achieve that objective. He has recently recommitted to me that he intends to do the same thing based on this new High-Risk List to try to make as much progress over the next 4 years as possible, and I am absolutely confident that he is serious about that. As you know, the purpose of the High-Risk List is to bring light to areas, because with light comes heat, and with heat normally comes action. And while the High-Risk List started out primarily as a list dealing with areas susceptible to higher degrees of fraud, waste, abuse and mismanagement, and yes, there are a number of those items still on the list. During my tenure, we have modified the High-Risk List to not just focus on areas of higher risk of fraud, waste, abuse and mismanagement but also to recognize areas that are in need of fundamental transformation. The human capital issue was the first in January 2001. At that time, we also began to note issues that might require concerted effort not only by the Executive Branch but also by the Congress, such as authorizing legislation. I would like to commend this Subcommittee and full Committee for the tremendous work that has been done in the area of human capital, because I agree that more has been done in the last 3 years than the last 30 years, and yet, I am confident that more will be accomplished in the next 3 years than has been accomplished in the last 3 years. If I can, let me summarize what the results of the latest High-Risk List are. As you noted, there are three areas that have been removed from the High-Risk List as a result of the latest update. Senator Voinovich. Could you take those charts and bring them around just a little bit so I can see them better? \1\ --------------------------------------------------------------------------- \1\ The charts referred to appears in the Appendix on page 57. --------------------------------------------------------------------------- Mr. Walker. Face the Senators? Senator Voinovich. Thank you. Mr. Walker. Student Financial Aid programs, FAA financial management, and Forest Service financial management made sufficient progress according to our criteria to be removed from the High-Risk List, and I would like to commend the departments and agencies and personnel involved in achieving that objective. That does not mean that these areas are perfect. Nobody is ever perfect, nor will anybody ever be, but they have made significant progress and enough to be able to come off the list, and we commend them for that. There are four new areas that have been added to the High- Risk List as a result of our January 2005 update: Establishing appropriate and effective information sharing mechanisms to improve homeland security, the Department of Defense's approach to business transformation, the Department of Defense's personnel security clearance program; and the management of interagency contracting. If I can, let me touch briefly on DOD's business transformation item, and I would imagine that we will get into that in a little more detail in the Q and A session. Unfortunately, the Department of Defense now has 14 of 25 high- risk areas, when you count the fact that they have 8 on their own, and they also share 6 government-wide. That is up 2 from 2 years ago. The numbers are moving in the wrong direction. Our military is unparalleled in its capabilities, but the Department of Defense is a D, poor graded on a curve, on economy, efficiency, transparency and accountability. We have become convinced at GAO that DOD will not be successful in their business transformation effort unless they have a person with a proven track record at the right level focused full-time and over a sustained period of time for making business transformation happen. If you go to the Defense Department right now, there is no one person that you could point to to say who is responsible and accountable for making the business transformation effort happen. Now, some would say Secretary Rumsfeld. With all due respect, while he is ultimately responsible and accountable because he is Secretary, he does not have enough time to work on this. Some would say Deputy Secretary Wolfowitz. Quite frankly, he has got his hands full as well. And there are a lot of players below that level that are very involved and very dedicated and are trying to do their best, but there is not a comprehensive plan and there is not a point person. We do not have the appropriate milestones and accountability mechanisms in place. And this is nothing to do with politics, partisanship or policy. This is basic good government, basic management that is necessary irrespective of who the President of the United States is, who the Secretary of Defense is, or otherwise. So it is absolutely critical, because I can assure you: Billions and billions are wasted every year, and it is getting worse, not better. I will be happy to answer questions on that. We revised four high-risk areas by consolidating four into two dealing with the Internal Revenue Service. The two new areas are enforcement of tax laws. It is much broader than Earned Income Tax Credit and overdue taxes. There is also a need to focus more time, attention and resources on enforcement, and I note within the President's budget, he is proposing additional resources for enforcement. We also consolidated the financial management with the business systems modernization, because significant progress has been made on the financial management area at the IRS. The biggest remaining challenge has to do with the business systems modernization, including the financial elements of that. And last, as noted in the report, while this area did not rise to the level of being deemed to be high risk yet, it is noteworthy. Specifically, there is a need, not only in the Department of Defense but also in the Department of Homeland Security as well as other departments to take a more strategic, a more comprehensive threat and risk-based approach in determining how best to allocate their resources to generate maximum results with whatever level of resources might be available, which level of resources are going to come under increasing constraints based upon our long range fiscal imbalances. Next chart, please. As you can see, since the beginning in 1990, our original list had 14. Senator Lautenberg. Mr. Chairman, if you could give me a moment, is there a distribution of these charts? Mr. Walker. I believe it is in my testimony, Senator, and we will get you copies of these boards as well. Fourteen was the original list in 1990. During the past 15 years, we have added 29. We have removed 18 and consolidated some such that the balance is 25. And last, on my left, is the current list, the entire list, which is in the testimony. The last thing I would like to share with you, Senators, is something that came up yesterday in the hearing in which we released the new 21st Century Challenges report. As you know, the high-risk report looks like this, which came out at the end of January; I believe all of you have a copy of it. I would really commend this report to you, because this is a very strategic document. It is a document that among other things has three basic bottom line points: First, we face large and growing structural deficits in the future due primarily to known demographic trends, rising health care costs. Second, we are not going to grow our way out of this problem. It is going to require tough choices. Third, a significant majority of the Federal Government's policies, programs, functions, and activities are based upon conditions that existed in the 1950's and 1960's. Furthermore, they have not been subject to fundamental review or reexamination since then, whether it is discretionary spending, mandatory spending on entitlement programs, or tax policies. As a result, we are going to need to engage in such a fundamental review, reassessment, reprioritization, in some cases, reengineering of the base of the Federal Government that will take the balance of my tenure as Comptroller General, 8-plus years and beyond. There are over 200 questions raised in this report that illustrate areas that need to be reviewed and reconsidered, and we stand ready to help this Subcommittee, the full Committee, as well as others in trying to engage in this fundamental review and examination in the coming years. One of the compelling reasons we need to do so is illustrated on the next chart. Based on GAO's latest budget simulation, if you take CBO's baseline assumptions, if you assume that discretionary spending grows by the rate of the economy beyond the 10-year horizon, which includes national security, homeland security, the judicial system, transportation, education, etc., if you assume that the Social Security and Medicare trustees are correct in their good faith estimate of what the cost of those programs are going to be over the next 35 years and if you assume that all tax cuts are made permanent, this is our fiscal future. Under the scenario we will not be able to do much more than pay interest on the debt in 2040. Now, there are other simulations that we have run that obviously are not as bad as this, but even the ones that have optimistic assumptions show that we face large and growing structural deficits that are going to require tough choices. The High-Risk List is the place to start. There is no question about it. But I think we are also going to have to get into the questions raised in our 21st Century Challenges report, as well. Hopefully, we will have an opportunity to do that at some point. Thank you. Senator Voinovich. Thank you, Mr. Walker. Mr. Johnson. TESTIMONY OF HON. CLAY JOHNSON III,\1\ DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET Mr. Johnson. Mr. Chairman, Senators, thank you for inviting me up here today to speak with David Walker. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Johnson appears in the Appendix on page 61. --------------------------------------------------------------------------- The GAO High-Risk List, like the President's Management Agenda, brings very clear attention to the areas in the Federal Government that are not working like we want them to, where there is great opportunity for the taxpayers' money being spent unwisely. Three areas this past year came off the High-Risk List: Federal Student Aid, Financial Management at the Federal Aviation Administration (FAA), and the Forest Service. They came off because top management was committed to solving those management deficiencies. They had a very detailed action plan. They had a clear definition of success, and they had clear accountability for who is supposed to do which one of those individual actions by when, with, or to whom. And they set their mind to it, and they did it. This is the key to any item coming off this high-risk list. It is the key to any change being realized in management in the Federal Government, and it is also the key to making sure that there is a continued focus on these high-risk areas and other areas of management opportunity as administration changes and as agency and department leadership changes. If there is a detailed action plan, a detailed definition of success, detailed dates, detailed accountability that you and the Executive Branch agree on, we should be held accountable for implementing that plan, no matter who the President is, no matter who the Secretary is, no matter who the relevant assistant secretary is. The big opportunity here is for the thing that we need to do better as a government and the things that OMB needs to do even better than it has been doing is that we need to make sure for each one of these 20-some-odd high-risk items, there is a very clear definition of success. We have a clearer definition of success with some of them than with others. We need to make sure that all of those definitions of success are equally acceptable to you. We need to make sure there are detailed action plans that are all equally acceptable to you. We need to make sure there is clear accountability for accomplishing those different milestones. My recommendation is that you charge us to come back to you and suggest a timetable, within months not years or weeks, to engage the agencies, develop those detailed action plans, detailed definitions of success and come back to you and tell you here is how we anticipate, how the agencies anticipate tackling the risks that GAO and others have identified as being unacceptable. This is a role that OMB can play. We can make sure that proper attention over and above what the High-Risk List itself brings to these matters, that the agencies understand that this is important. In addition to the items that they are focusing on through the President's Management Agenda, they are focused on these high-risk areas, and they are giving it appropriate attention, and they are working to define with the proper level of clarity what we are trying to do, how we are trying to do it, and who is responsible for getting it done. Thank you. Senator Voinovich. Thank you, Mr. Johnson. I appreciate the testimony of the witnesses here today. The President has submitted his budget to the Congress, and I applaud the fact that he is looking at entitlement spending and is looking at the discretionary part of the budget. But when you look at the fact of that discretionary budget, half of it is going to defense, and the other half of it is going to domestic spending, and when you look at the flat funding in many programs that are so important to the American people, and then to be at this hearing and to hear Mr. Walker say there is no plan, no person, no milestone, no transparency, it is getting worse and not getting better in the Defense Department is outrageous. It is outrageous, and I want you to know that this Subcommittee is going to get on that, because that is where we can get the biggest bang for our effort, just as I did on human capital reform, we are going to keep monitoring that to make sure it gets done, but we are going to take this issue on. It is outrageous: Billions of dollars being wasted, and you are cutting the CDBG program, billions of dollars being wasted, and cutting other programs. And I am a hawk, but I want to know, Mr. Johnson, what in the world is going on over there? What kind of plans have you received from Secretary Rumsfeld? Have they given you a written plan of what they are doing and who the people are who are going to implement it and what progress is being made on it? I would like you to answer that. Mr. Johnson. As I said a minute ago, sir, we will come back to you with detailed plans. Tina Jonas, the chief financial officer there, understands the problem, understands the opportunity. There is not the clear assignment of accountability that Mr. Walker talked about. I think they would be hard pressed to present these plans to address these high- risk areas at DOD to you now, but I will offer to you that we will come back to you in months with their recommended plans for how those will be attacked. Mr. Walker. Senator, can I come back on that, please? Senator Voinovich. Yes, I would, because even though we have a separation of powers between the Legislative and Executive Branches of government. I would get Mr. Walker in and sit down with your people over in Defense, look at the plans, get the best information that you can out of what he has to say and then start to implement it. Now, look: I know we are at war. I understand that we have challenges. But somebody has to be at home working on management. Now, when I was governor, I had a chief of staff, and he had all kinds of issues to deal with. He was always putting out fires, but I put a team together where I had somebody who got up every morning and went to bed late at night and who worked on the management programs, and they ground away at it and ground away at it and held people responsible, and we got results. And it does not seem like that is happening in the Defense Department. Mr. Walker. Senator, can I put this in context? I think it is important. First, there is no doubt in my mind that Secretary Rumsfeld and a lot of other top officials at the Defense Department are committed to business transformation. However, you have to have a plan. You have to have a point person. You have to have effective accountability mechanisms. The difficulty is, as you know, that on September 10, 2001, Rumsfeld gave a speech declaring war on the bureaucracy at DOD and announcing that he wanted to make great progress on business transformation. We all know what happened on September 11th. I come back to one of the things that I included in my testimony in the High-Risk Report: We need a pro at the top, a Deputy Secretary for Management with a proven track record of success, with some government experience and private sector experience, to get in there who is responsible and accountable for developing a plan, for making sure that we are taking an integrated approach, because many of these areas are interrelated, and you have to deal with business transformation in a comprehensive, strategic and integrated fashion over a sustained period of time. Ideally, that person should have a term appointment. Coming back to what Senator Lautenberg said, ideally, that person should not be a political person, although they may be a political appointee. They should be a professional person with a 7-year term appointment, because it is going to take longer than that to deal with these problems. But we need somebody who is going to be there long enough to achieve some sustainable progress. Senator Voinovich. I have run out of my time, but why do you not just follow up on that? Mr. Johnson. Just one comment on that: Dave and I have talked before about whether there should be a termed person at every agency, particularly at DOD, who focuses on management, and there are pros and cons with that. Personally, I do not believe that a termed person focused on management solves the problem. If the Secretary of Defense and the Deputy Secretary of Defense are not themselves committed in thought, word and deed to the management of the Department, no term, no level of competency in this management person is going to get the job done. So there is no way you can wall off the focus on management from the leadership of the Department. It is ultimately their responsibility to see that it has happened. Whether the person is termed or not, individual people with clear accountability need to be defined. Whether they are termed or not is a minor part of the opportunity to do it better, in my opinion. Senator Voinovich. OK; but we have a Secretary of Defense who has said that he is declaring war on inefficiency. The fact of the matter is that he does not have anybody there that has the clout and stature to get the job done. And what happens so often, it takes 7 or 8 years. I know this. I was a mayor for 10 years. I was a governor for 8 years. When I was mayor, I did not see some of the efficiencies take place until the sixth or seventh year. As governor, it was some of it in my last year, and some of it happened after I left office. And you must have some continuity there, especially if you have a situation that is as bad as it is in the Defense Department, and it is eating up billions of dollars that could either be directed toward reducing the deficit or putting the money in some other areas where we have great needs for the American people. Given all that is going on at the Defense Department, I don't think the rigors of the Secretary's position allow that individual to focus the needed attention on managing the Department. Somebody has to be back homeworking on managing the Department. Mr. Johnson. What needs to be brought forward to you and OMB and others are the plans of DOD and the other agencies on the High-Risk List to reduce the list to acceptable levels. What is the definition of success? What are the milestones, the actions test to be taken, and who is responsible for taking them and on what date? That is what is owed to you. Senator Voinovich. Well, I am glad that you believe that you owe it to us because we expect it, and we are going to start off with those hearings, and I am going to ask Mr. Walker to look at it so that the plan that we have in place is one everybody agrees on that really is going to make a difference, and the next issue is how do we get the people in there to get the job done? And it is tough. I understand from the grapevine this morning from my colleagues in the Senate that Ambassador Negroponte is rumored to be the head of the new national intelligence director. We need to get some more people in government, because if he gets the job, who is going to go over there to Iraq and be our ambassador? He seems to be doing a pretty good job in Iraq. So the American people have to understand that we are going to have some really good private sector employees who are going to have to step forward and come into government to help improve the Federal Government. We have to identify some brighter people in the mid level to move them up and take over managing agencies. Mr. Walker. One quick point, Mr. Chairman, if I can: First, I agree with Deputy Director Johnson that if the Secretary is not committed, no matter who that person is, you are not going to be successful. So I agree with that. Second, I do not believe that term appointments are appropriate for every agency in government. I do believe you have to have somebody responsible and accountable for the basic management issues, and I believe the current Deputy Secretary can get that done in certain departments and agencies, and in many cases, they are focused on that. But I can tell you this: I would not bet a plug nickel on DOD solving its business transformation challenges unless you have somebody at the right level focused on this full-time for a sustained period of time. You don't need it everywhere, but you absolutely, positively need it within DOD. Senator Lautenberg. Absolutely right. Senator Voinovich. Senator Akaka. Senator Akaka. Thank you, Mr. Chairman. I do not think I can be as forceful as you are in the volume of your voice, but this is very serious. I just want to take the time to tell you what I tried to do when I was Chairman of the Readiness Committee to deal with this and to be specific, I will use names. We brought on Mr. Zakheim as the Comptroller, primarily to do what you are talking about in DOD. And before we confirmed him, I had a good chat with him about what needs to be done, which is what we are talking about now. And he said he would do it. After 2 years, Mr. Zakheim resigned. When he came in to say farewell to me, we talked again. And I asked him what happened? And he said, and I must tell you, he made some difference there, and he improved some. But the message he left with me was that there are so many systems in DOD and to try to work with these systems is impossible. And so, he was trying to bring this whole thing together. And so, as a result, Tina Jonas came in and was confirmed in his position. But that is an example of how difficult this job is. But I agree with you that this position must be on a higher level than it is. It should be on a Secretary level for it to make any difference. But we must do it, because as you pointed out, we are wasting billions of dollars. It is slipping by because people just do not know what is happening. And it is because there are so many systems in DOD, and it is very difficult to bring them together to get information that is needed. Mr. Johnson, as Senator Voinovich said, DOD spends almost $20 billion annually on its business systems. However, these investments have failed to resolve the serious problems that exist at DOD. The Readiness Subcommittee, as I said, did find problems there and tried to work on some of these systems. We found things stovepiped, and DOD has not made agency-wide improvements. Mr. Johnson, and this is a comment to you, I urge you to get back to us as soon as possible on this because we must make a dent in this problem. Mr. Walker, some programs have been on the High-Risk List since its inception, as you noted. A good example is contract management at DOE, the Department of Energy. DOE is the largest nondefense contracting agency in the Federal Government and approximately 90 percent of its annual budget is spent on contracts. In your opinion, General Walker, why has DOE been unable to establish more effective oversight in this area? Mr. Walker. Well, DOE has a problem, Senator, as does DOD has and many other departments and agencies in the Federal Government to differing extents. While they do a lot of contracting, they do not necessarily have enough people within the respective departments with the requisite skills and knowledge in order to be able to effectively manage cost, quality and performance and to engage in effective oversight on an ongoing basis. There are a lot of things that you can, and in many cases should, contract out, because it might be more cost-effective or market forces may dictate that result. However, you should not contract out the ultimate responsibility and accountability for managing cost, quality and performance. We need to do more in that area. And if I can quickly come back to your comment, on DOD, there are good people there who are trying to do the right thing, and who are committed. But quite frankly, there are too many layers, too many players, too many systems, and too many hardened silos within DOD. In order to get this job done, you have to have somebody who rises above that, who reports directly to the Secretary, who can deal with the Under Secretaries and the Service Secretaries. No matter who the Comptroller is, they are not at the right level. Plus, as you properly pointed out, they are not there long enough. And by the way, that is a problem in the acquisitions area at DOD, too. They typically turn people over every 2 to 3 years on weapons systems that cost tens or hundreds of billions of dollars, and that is a major accountability problem, as well. Senator Akaka. Well, I thank you for your statement and your comments. As I said earlier, we are here to discuss how we can strengthen critical Federal programs, and thanks for your message. I really appreciate it, Mr. Chairman. Senator Voinovich. Senator Lautenberg. Senator Lautenberg. Yes, Mr. Chairman, unfortunately, I have got another meeting to go to, but there are a couple of things that I would like to put out on the table; first of all, I thank Mr. Walker for your forthright statement of what you see, because I think in your commentary, you have hit the nail on the head as I see it. It is one thing to manage a military operation. It is another thing to manage and administer the business side of things. And I think that one day this whole thing is going to be looked at and divided in such a way that it is not simply another part of the military management. It is business management, pure and simple, and you can, in the military, tell someone to jump and not come down until you say so, but you cannot do that on the other side of things. And I look at, for instance, the question with Halliburton and the KBR subsidy, they were given full payment for cost-plus logcap task orders in Iraq, even though the Defense Department orders ruled that Halliburton had not provided the proper accounting. Are you aware of that? Mr. Walker. I am aware of some of the problems with contracting in Iraq, Senator. Senator Lautenberg. We had an opportunity to talk to someone who was willing to speak out, a person named Bunny Greenhouse, and she was a top contracting officer for the Army Corps of Engineers. She came forward, because her conscience bothered her so much on abuses surrounding the no-bid contract awarded to Halliburton that cost the taxpayers $2.5 billion. And not to pay attention to that and say, listen, something was terribly wrong here, we tried to get hearings in the Committee to review that and were never able to do so, but I think that is an area that is just rife with mistakes and waste, and I think that we are not going to have that happen again. No big contracts should be awarded by the military. As a matter of fact, much of the contracting ought to be done outside of the periphery or the perimeter of the military operation. The military is a wonderful group. We have terrific people who are serving on the line. When I hear people who are severely wounded say they would want to go back and help further, it is a remarkable human endeavor. Last, Mr. Walker, the FAA performance on the modernization program, what kind of faith can we put in the FAA ability to effectively move some of the ATC operation, the private contractors, and still maintain safety standards? There is not a lot of encouragement there that that can happen. Mr. Walker. Well, as you know, the FAA air traffic control modernization is on our High-Risk List. It is also illustrative of problems that many major systems efforts have in the Federal Government. Namely, if you do not adequately determine the system requirements up front and nail them down and make sure that you have an appropriate project plan with key milestones and accountability mechanisms, along with effective oversight, you will get into trouble over time. And so, the item that is on the High-Risk List, Senator Lautenberg, is really more the issue of the systems modernization rather than the safety issues that you are raising. I would be happy to get back with you and your staff on some of those issues, if you would like. Senator Lautenberg. Well, you have been assigned kind of the task of Paul Revere here of sounding the alarm, and you have done it appropriately. And for us to have been discussing the same problems for over so many years and knowing that the cost for these problems is so enormous; the Chairman described it as outrageous; it is outrageous. I mean, here, we sit, and we drum up the verbiage to go along with our indignation, but there we are: next year or 2 years from now, we will be discussing the same problem unless we make fundamental changes to the system. Senator Voinovich. Thank you, Senator Lautenberg. We are joined by Senator Stevens. OPENING STATEMENT OF SENATOR STEVENS Senator Stevens. Thank you, Mr. Chairman. I am sorry to be late. I have been in another committee. I am glad to see you here, Mr. Walker and Mr. Johnson. I want to ask questions probably beyond the scope of the hearing. You two have comparable jobs, but OMB has come up with a list now that the President has approved of 150 programs that ought to be terminated. You have come up with a list of programs that are at high risk. What is the difference? Mr. Walker. Well, one, I can tell you, Senator, is with regard to our High-Risk List, we have certain criteria that have to be met in order to determine whether or not something is high risk, and one of those is it has to be something of national significance, and it has to involve large amounts of money. So there are many programs that the President may end up having on his proposed termination list that may not meet the criteria of being high risk, because they may not be national in scope, or they may not involve enough money. Senator Stevens. But do you determine that they should be saved before you work on what the risks are? Are you sure the programs should continue when you make your study of what the risks are and how to save them? Mr. Walker. Oh, absolutely not, Senator. In fact, one of the important points is since I have been Comptroller General, in addition to focusing on fraud, waste, abuse, and mismanagement and trying to fight that and minimize that, we have also noted on the High-Risk List that there are a number of items that are in fundamental need of transformation. You need to reexamine whether or not they should continue. Senator Stevens. But you made a determination that they should be saved, if they should be transformed. Have you made any determination they should be terminated? Mr. Walker. With regard to the High-Risk List itself, no. I would, however, respectfully suggest---- Senator Stevens. No, I mean with regard to the programs you review. You must review a whole series of programs to determine which ones are high risk. Mr. Walker. Senator, you should have a copy; I sent one to your office, we released this report, which is called 21st Century Challenges. It raises over 200 questions about existing Federal Government policies, programs and functions and activities that I think it is appropriate to review and determine whether or not they ought to be continued, and if so, in what size and in what manner. Senator Stevens. Have you reviewed that, Mr. Johnson? Mr. Johnson. This report? No, I just got it this morning. Senator Stevens. Do you do a similar function? How do you make a determination and recommend to the President what 150 programs should be terminated? Mr. Johnson. OMB is 3 years into a 5-year process of evaluating all the 1,200 programs in the Federal Government, and our going in approach is we want programs to work. But you cannot figure out what you need to do to make them work the best unless you have assessed whether they are working or not, unless you have a very specific, measurable outcome; you have an efficiency goal, and you have an assessment of management and an assessment of what is keeping you from having the best- performing program possible. So our going in approach to your question is we want the program to work. The 150 programs that have been recommended for elimination or for significant reductions are programs that we assess are not high priority, have accomplished their stated purpose, or do not work. We have made attempts to fix them. There are other programs that deal with the same issue, and continued spending in these areas are not warranted. The return on that investment is less than the investment itself. Senator Stevens. That was going to be my next question to Mr. Walker. As you go through these high risks, what we see in the private sector entities that both are going to fail, and they find a way to come together and merge, and they survive. Now, do you make such a suggestion to us as to how some of these high-risk things could be merged? Mr. Walker. Senator, I am happy to take a look at that and get back to you on it. I do think that there are opportunities, to take a look, for example, at the budget categories and determine how many departments and agencies have similar programs and activities that they are engaging in in a particular area. For example, there are 44 programs dealing with job training that cross over 20 agencies. There are 22 agencies that are involved in financial literacy. And the question is why? The simple fact of understanding that and whether there is duplication of effort or redundancy or inefficiency is something that I think it is prudent to go forward on. Senator Stevens. Well, they estimate that you have to have 79 applications to various Federal agencies to drill a well for oil in Alaska. Have you ever looked into the redundancy of the programs that demand these studies and studies and studies and applications and applications? When I was in China this last summer, we literally saw a building go up in a week. And then, I said, well, how in the world can you do that? It would take 2 years to get one started in Alaska or anywhere else in the United States. And they said we only need one permit, one permit. We have never looked at trying to consolidate all these permit applications--at a tremendous cost, by the way, because all of these things have to be done. And I am serious. It is 79 different things you have to have before you drill wells in Alaska. I would think that rather than look at it high risk from the point of view of government function we would look at the question of what are they doing for the society? Do we need all those applications? Have you ever looked at that? Is that a function of the GAO? Mr. Walker. That is something we could look at. To my knowledge, Senator, we have not looked at that specific example, but I think there are plenty of opportunities to do so. Senator Stevens. I do not mean to be abrupt, but you are the one, your predecessor or you decided that you have the right to make these studies. They are not mandated by Congress. Mr. Walker. You mean the high-risk list? Senator Stevens. Yes. Mr. Walker. That is correct; we have done it since 1990. Senator Stevens. But you have never looked at the question of should they survive, nor should they merge, nor are they required in the beginning. Mr. Walker. Well, Senator, I will tell you: I think this document, which I would really commend to you---- Senator Stevens. I will take it with me on the trip that I am going on tomorrow. Mr. Walker. It gets to some of those issues, because let me give you an example, Senator: Based upon our work, our high risk work and other work that we do for the Congress, which, as you know, 90 percent of the work that we do is requested or mandated by Congress, so we are very focused on serving the Congress. But based upon that work---- Senator Stevens. You are an arm of Congress. You are not independent of Congress. Mr. Walker. I understand that we are in the Legislative Branch. I understand that, Senator. But my point to you is that I think this makes a pretty clear and compelling case that there is a need to look at the base of government. There is a need to look at potential redundancies, and there is also a need to be able to ask questions like: Why did we create this program? What were the conditions that existed then? Do they still exist today? Is this program successful? If so, on what basis? I think we need to do that, and we look forward to working with this Subcommittee and others in doing that, because we find a serious situation. Senator Stevens. Well, I commend the Administration, because I think they are finally looking at the question of whether Federal lands should be used to try and find ways to really ameliorate the shortage of energy in this country, but I was just told the other day that even with the new policy of saying let us look at these Federal lands, those lands will not be available for really exploration for 4 years, maybe 5 years, because of all the things a person has to do to get a permit to go into those lands and to explore for and drill for, if necessary, for oil or gas. I do think, Clay, you ought to take a look at that, too. These two agencies together ought to find some way to cut through the red tape is what I am really saying. Mr. Johnson. There are different ways to think about the Federal Government. One of them is as a huge service organization. Let us define all the different areas where we serve. We serve drillers; we serve retirees; we serve many others; and take the most important ones where the most money is involved or the most number of people involved and make sure we have a clear definition of success of high level service. And so, in the case of drillers, the definition of success would include whether they get their rigs out on the field in a reasonable period of time and start looking for oil. Whether they can build a building in a reasonable period of time. Let us define that and then hold those people accountable for achieving those levels of success. We tend to focus on the outcome we are producing, but looking at it from a service standpoint is probably something we should do at the same time. Senator Stevens. Perhaps I am too impatient, because we obtained approval of Congress proceeding with the Alaska Gas Pipeline in the last Congress. I was told yesterday that the earliest we can expect the beginning of that construction is 2009. And it is because of the procedures that are in existing law, redundant procedures that have to be pursued between now and then and at the same time came the study that said by 2014, we will be importing 40 percent of our natural gas. Why? Because we have this gap now in supply and demand, and the cost is going to go up and up and up. By the time that the price gets high enough, people are going to start to bring in LNG. But we have enough natural gas in this country in areas that are known to be valuable for oil and gas, and if we just had the right to drill, we could bring it in before 2014, but again, it would take 4 or 5 years to start any one of those developments. And I think, in this process that you are in, I would encourage you to see if we could not set off on a task how to reduce the delay. We are not against environmental review. We are not against economic review. We are not against project analysis. But there ought to be a way to do them and to do them in a compatible way and move them forward so that--well, in engineering, I learned about a critical path? There is no critical path available to deal with the Federal Government in terms of development of energy in this country today. Mr. Johnson. Well, there is a general view, when you say the Federal Government, one image that comes to mind is a long line, a line to get into the country, a line to get a visa, a line to get a document, or a line to get a permit or whatever, and we need to get out of the long line business. Senator Stevens. Potential litigation all the way. Mr. Johnson. Right. Senator Stevens. Potential litigation all the way, and that is part of the delay. Well, I appreciate your time, Mr. Chairman. Glad to see you two here, and I am going to read that book on our trip coming up tomorrow. Thank you very much. Mr. Walker. Thank you, Senator. Senator Voinovich. You ought to maybe get Senator Dominici involved in this right away. Senator Stevens. Yes. [Laughter.] Senator Voinovich. There are several areas, Mr. Johnson, that I am concerned about in addition to the Defense Department. One of them is---- Mr. Johnson. I welcome your change of subject, sir. [Laughter.] Senator Voinovich. We are looking for revenue, and the Internal Revenue, in terms of collecting unpaid taxes, has been on the list since 1990. And I know that many States have incorporated programs and have enhanced their collections measurably. And it is frustrating that since 1990, it has been on the High-Risk List, and I wonder have you looked into that at all? Mr. Johnson. I have not personally, but again, Mark Iverson, my predecessor is over there and is a very talented fellow and has all the ability in the world to focus on things, and we need to get back to you with how we are going to tackle that. Senator Voinovich. You know, I would go back and talk to Mr. Bolton and say: We need more revenue, and here is an area that if we really get at it, we can bring some more money into the Treasury. Mr. Johnson. The specific areas that I know that are being looked at that have revenue implications are, related to improper payments. We think there is a net, our improper payments are net $35 billion higher than they need to be. If we are going to eliminate improper payments, we create $35 billion that does not exist now. Competitive sourcing addresses the incurred to commit to perform commercial activities; we think those are $6 billion to $7 billion higher than they need to be. Overall, it does not increase revenue, but reduces costs, with an overall focus on efficiency. A one percent improvement in efficiency across the Federal Government is tens of billions of dollars a year. Those are basic mindset changes, procedural changes that we are effectively implementing today to create tens of billions of dollars in additional available revenue to be spent in the form of reduced costs. So there are a lot of things being looked at, and there are many more things still to be examined. Senator Voinovich. Well, I think the question is why has it not happened, and what are you going to do to fix the problems at the Internal Revenue Service. Last year, in April, I had CMS in here, and the title of the hearing was ``Does CMS Have the Right Prescription in Implementing the Prescription Drug Program?'' And we are going to have another hearing. I told Mark McClellan, who spent a lot of time in Ohio last year, that we are going to do it. But the Medicare program has been identified by the High-Risk Series since 1990. GAO identifies the recently-enacted Medicare Prescription Drug Improvement and Modernization Act as creating, ``new challenges for administering the Medicare program.'' The question is do we need legislative changes that will help deal with challenges faced by the Medicare Modernization Act, and the High-Risk Series identifies that only in some cases has GAO--or CMS is taking steps to do something. And the bottom line is this: We are going to implement this new prescription drug program next year. And I have to tell you as one who went to almost 40 meetings last year on this issue of this program that the card issuance was a disaster. You can talk to anybody about it. I mean, the Department worked, they had the numbers, but the system that was in place did not work. And if we have the same problem with implementing the prescription drug program that we had with the card that was the transition to the new program, I think that this wonderful program that the President wanted and we wanted will be discredited and will cast a large shadow over anything that we intend to do in terms of Social Security, because people will say if they failed, they will fail this too. And so, I think somebody in the Administration ought to really get involved, look at what is going on over there, does he have enough people to get the job done, what is the system that we are going to use to cascade this out to the American people, are we going to let them make a choice, are we going to empower them to put them in a program and let them opt out? But unless that is looked at, this could be a disaster next year, and so, I bring that to your attention. The other issue that is on the high risk, an emerging high- risk area, and this is another one that is really important in terms of spending money: The need for a comprehensive national risk and threat assessment, OK? If I were Osama bin Laden, I would be the happiest person in the world. That one individual has wreaked more havoc on the United States than any person, in over 200-year history in terms of changing the way we do things to respond to terrorism. And one of the things that is of concern to me and I know of my colleagues, and you know, we are part of the Homeland Security Committee, is that everybody and his brother wants something done. If we do everything that everyone identifies that we must do, we will bankrupt the country. And somehow, we need to have in place, and Mr. Walker, I would like you to comment; maybe I am off on the wrong track on this, but we must have some system to do a threat assessment and say these are the priorities and where are we to make a difference. The No. 1 thing is if we had--that is why we have the new Director of National Intelligence is that we do a great job with that, and we keep these people out; we are in good shape. But last night, I watched on C-SPAN where they had a hearing--I think it was before one of the committees, and George Tenet--not Tenet, but who runs the FBI, Mueller? Mr. Walker. Mueller. Senator Voinovich. Yes, Director Mueller was talking about all of the terrorist organizations that we have right now in the United States. Hamas is still in the United States and some other groups too. So we do have that problem, but in terms of how do we respond to that, is anybody over there putting a chart in place and saying this is where we should allocate our monies to make the difference in terms of securing the homeland? Mr. Johnson. You are asking me? Senator Voinovich. Yes, I am. Mr. Johnson. I do not know what form it takes, but I know they pay a lot of attention to where they think the vulnerabilities are where the bad guys think our vulnerabilities are; and therefore, where we should be most attentive to keep them from getting in the country or minimizing those vulnerabilities. But the exact form it takes, I do not know. Senator Voinovich. Mr. Walker, would you comment on that, and then, I will wrap it up, because Senator Akaka has a speech to give on the floor. Mr. Walker. Sure, they need to develop a more comprehensive and integrated threat and risk assessment both within the Department of Homeland Security as well as other agencies, including the Department of Defense. I think it is important, as you pointed out, that there will never be such a thing as zero risk in today's world, but we need to end up allocating our resources to try to mitigate as much risk as possible. Now, on that, Mr. Chairman, I would respectfully suggest that Congress is going to have a role to play, too, because one of the issues that is going to be there is after you end up conducting that comprehensive threat and risk assessment, and after the Congress ends up allocating resources, how much of those resources should be allocated on a per capita basis versus how much of those resources should be allocated in accordance with the comprehensive risk and threat assessment. Senator Voinovich. Senator Akaka. Senator Akaka. Thank you very much, Mr. Chairman. Mr. Johnson, you recently announced the Administration's goal of expanding the personnel flexibilities granted to the Department of Homeland Security and the Department of Defense to the rest of the Federal Government. My question to you is why do you believe it is appropriate to expand these flexibilities across government without Congress and the Administration having an opportunity to gauge the success or failure of these new personnel systems? Mr. Johnson. Well, I think most everybody would agree that expanded flexibilities will be adopted government-wide. I do not think anybody disagrees about whether they will be adopted; the only question is ``when?'' David had a conference a year ago or so that he co-chaired with Paul Volcker, and there was representatives from all the different interested parties and a lot of discussion about this. I think the group was unanimous in their belief that we would change the flexibilities that management has to manage its people, and there was a question of should we do it piecemeal, or should we do it all at once with the rest of the Federal Government. And the feeling was we should not do it piecemeal. The feeling was we should do it all at once, and so, the question was do we do it this next year or the year after that? We do not want to do anything that represents high risk, since that is the subject of today's hearing. We do not want to jump into a swimming pool full of sharks. We do not want to go where there are a lot of unknowns, and we do not know how to deal with those unknowns. I contend that almost all the risk associated with spreading new human resource flexibilities government-wide are in implementation. The risks are not in what the regulations should be. The risks are on how are they implemented. How good are we at training managers? How good are we communicating and alleviating anxieties and fears with employees? For instance, the Department of Homeland Security has a 4-year plan for implementing their new system. The last group at Homeland Security that will adopt their new system in 2009. President Bush will not be President; I will not be here; a lot of us will not be here. So it is a very long system for the very purpose of managing risk to acceptable levels. DOD has a long plan also to implement theirs. I do not know what the time frame is, but it is all about managing risk. So I believe that, one, we will not do this without Congress. I believe you all are still involved in this unless someone changed the Constitution. What I propose is that we commit to extend these government-wide and to deal with the most important ones, initially, which are the ones that do not involve labor relations, which are the most controversial, but with the least amount of value added to the improvement of the system. Let us focus on the ones that are the least controversial, that have the greatest value added capability. Let us agree that we are going to do that, and let us agree on a reasonably long period of time for implementation that will allow us to manage the risks of implementation to you all's satisfaction and to ours and to the unions' and to the employees' satisfaction. Senator Akaka. Yes, well thank you for that statement. I know that the Chairman and I, and the Subcommittee have been very concerned about expanding these regulations immediately to the whole government. Mr. Johnson. This is not a rush out there. No, we have to be prudent, because this is going to be and must be with great certainty very successful. Senator Akaka. And of course we have been concerned about the flexibilities. Mr. Johnson. Yes. Senator Akaka. And we do not know what they are at this time. Mr. Johnson. Excuse me; one of the things I talked to Senator Voinovich about was coming back to him and to Susan Collins and you, sir, and Congressman Davis about talking through where we think, and let us make sure we understand where the risks are, where the opportunities are. We hope to do this with you all, obviously, and seek your input on this. I think the opportunity is to commit now, so we can all get in the business of doing it and making these benefits available to the entire Federal Government. Mr. Walker. Senator, may I comment on this? I think it is important that certain concepts ultimately be applied government-wide. For example, right now, you have a circumstance where individuals who are not performing at an acceptable level, or, stated differently, unacceptable performers are guaranteed the across-the-board pay increase that Congress passes every year, and for many Executive Branch agencies, 85 percent of the pay increases that occur every year are directly tied to that and to length of service, neither of which have anything to do with performance. Our current system for determining market-based compensation is fundamentally flawed. So I think over time, we need to move to a market-based and performance-oriented compensation system. At the same point in time, it is critically important to have adequate safeguards in place to prevent abuse of employees, and those safeguards need to be in place before you operationalize the authorities. So I think there is an opportunity to expand this, but you have to have certain principles that go across government, certain safeguards that should be in place before you operationalize the authority to maximize the chance of success and to minimize the possibility of problems. Senator Akaka. Thank you, Mr. Walker. My time has expired. I just want to say I certainly appreciate your statements, and for me they have been helpful. Senator Voinovich. Yes, thank you, Senator Akaka. On that issue, we are concerned that we must start to see some examples of how this is going to happen, and I think that there is a reluctance to make government-wide personnel reforms until we see how it works in several areas. Now, you have it working in the GAO, but we would like to see just how is this going to be cascaded throughout the government, and I think how that is done initially will have a lot to do with whether or not we are going to agree to do it on a government-wide basis. What is your plan, the plan of the agencies, what training will be provided to managers for filling out performance evaluations which is much easier said than done. I have done it, and I suspect you have. It is tough stuff. It takes time. And I think also that we need to look at the concerns of the unions regarding collective bargaining. I think they are raising some legitimate issues. I think we need to look at them in terms of responding to some of their concerns, because their cooperation in all of this is very important. If they decide that they are just going to throw up roadblocks and discourage people from doing this, they can really bring this thing almost to a halt. Now I have made it very clear that they cannot afford to do that, because this is too important, particularly in the Department of Homeland Security, to the security of the United States of America, so the unions have to put aside some of those things. On the other hand, I think that they have some legitimate complaints. One of the witnesses discussed the job losses in the agriculture inspection function. We are looking into his concerns, but he said about a third of the people who were serving as agriculture inspectors have left, and I am pulling together anecdotal stories from very professional employees. Some feel like they have been demeaned, and are thus leaving the government, and so, we have to look at that also. We forget that this is, particularly in Homeland,--180,000 people that we are trying to bring together--is a very formidable management task. Sometimes, the public hears the government is going to do something, and you snap your fingers, and it is going to happen. Unfortunately, it does not work like that. It takes years to complete some of our tasks. So we need to work together on it, and we are open to it. In terms of the high-risk area, we are going to share with you, Mr. Johnson, where we are going to put our effort, and I want to publicly say to you we are going to get into the DOD thing. I am one of those guys who I set out early on, and I talked to Mr. Walker, and he was very helpful. We are going to do something about human capital, and we are like a bulldog, and we hung onto it, and we made some success there. Now, we must explore whether agencies are using the flexibilities that they have been given. But I will say this for both of you: It is working, because I have talked to one agency; I talked to Sean O'Keefe from NASA. He told me that NASA is already reaping the rewards of the personnel flexibilities granted by Congress. But the thing is, we need to open this up government-wide and make sure agencies are using the flexibilities. Some of the agencies still have not utilized the new hiring program and not moved away from the rule of three. So we are going to stay on top of that and kind of monitor that and do some oversight. But this Subcommittee is going to shift into oversight of the high-risk areas. I really believe that we can put our minds to it and spend the time, stay on top of this, we can help remove some DOD programs off the High-Risk List. It is important for efficient operation of the Department of Defense, and it is so very important now with the growing deficits, and we are trying to find money, and we have to do something to make a difference. As I mentioned to you, Mr. Johnson, I find it difficult to tell certain programs, like health care, education, or childcare, that they are receiving funding cuts when the DOD wastes $22 billion because of poor management practices. This simply is not fair. So I thank you for being here, and I really appreciate the work both of you are doing for our Nation. You have been wonderful. You are friends, and I look forward to working with both of you. Mr. Johnson. Thank you, sir. Senator Voinovich. The Committee is adjourned. [Whereupon, at 11:38 a.m., the Subcommittee adjourned.] A P P E N D I X ---------- <GRAPHICS NOT AVAILABLE IN TIFF FORMAT> <all>