Government Reorganization: Key Questions to Assess Agency Reform Efforts

On March 13, 2017, the President issued an executive order requiring a comprehensive reorganization of executive branch agencies. In April 2017, the Office of Management and Budget (OMB) provided guidance to federal agencies for developing their reform and workforce reduction proposals. Past proposals to reform and reorganize government have not always come to fruition and can take years to implement fully. GAO's prior work has shown that successful reforms or transformations depend upon following change management practices, such as agreement on reform goals, and the involvement of the Congress, federal employees, and other key stakeholders.

This report identifies the key questions that Congress, OMB, and agencies can use to assess the development and implementation of agency reforms. To meet this objective, GAO reviewed its prior work and leading practices on organizational transformations; collaboration; government streamlining and efficiency; fragmentation, overlap, and duplication; high-risk; and on other agency longstanding management challenges. GAO also identified subject matter specialists knowledgeable about issues related to government reform and strategic human capital management who reviewed and commented on GAO's draft questions.

GAO is not making recommendations to OMB in this report. OMB staff provided technical comments, which we incorporated as appropriate.

The nation is on a long-term, unsustainable fiscal path because it is  spending far more money than it is collecting and projected to do so going  forward. While addressing this issue will require changes to both federal  spending and revenue policies, Congress and federal agencies can act  now to strengthen the efficiency and effectiveness of federal agencies  and programs, as well as address federal activities that are high-risk or  fragmented, overlapping, or duplicative—and save billions of dollars in the  process. For more than a decade, we have highlighted the need to re- evaluate and reprioritize what the federal government does, how it does  business, and as appropriate, who conducts its business. Although these  actions alone cannot put the U.S. government on a sustainable fiscal  path, they would improve the fiscal situation and help ensure agencies  have the capacity to address ongoing and newly emerging challenges  within available resources.

The organizational transformation needed to improve the performance of  federal agencies is no easy task, however, and can take years to fully  implement. Reforming and reorganizing the federal government is a major  endeavor that can include refocusing, realigning, or enhancing agency  missions, as well as taking steps to improve services by identifying and  eliminating inefficiencies. Equally important is maintaining or improving  effectiveness and examining the impact of such proposed changes on  employees, stakeholders, and program customers. Our earlier work has  shown that effective government transformation initiatives: (1) require a  combination of people, processes, technologies, and other critical  success factors to achieve results; and (2) are dependent upon following  essential change management practices, such as the involvement of the  Congress, federal employees, and other key stakeholders.

In March 2017, the President issued an executive order requiring a  comprehensive reorganization of executive branch agencies. In April  2017, the Office of Management and Budget (OMB) provided guidance to  federal agencies for developing their reform and workforce reduction  plans, as required by the President’s executive order.

In this report, we identify key questions that Congress, OMB, and  agencies should consider for the development and implementation of  agency reforms, based on our prior work. In this report, we use the term  “reforms” to broadly include any organizational changes—such as major  transformations, mergers, consolidations, and other reorganizations—and  efforts to streamline and improve the efficiency and effectiveness of  government operations.

To identify the key questions, we reviewed our prior work, including  leading practices on organizational mergers and transformations,  collaboration, government streamlining and efficiency. We also reviewed  our prior work on fragmentation, overlap, and duplication; high-risk; and  other agency longstanding management challenges. We selected those  questions that were most relevant to the agency reform efforts outlined in  OMB’s guidance. A list of these related products are in appendix I.  Additionally, we met with OMB staff to discuss their role in working with  agencies on reform efforts.

Because we drew the material in this report from prior work, we contacted  a selection of nine subject matter specialists to review the major  categories that were covered by our questions to assess that there were  no major gaps in our categories or questions and that they were  presented in the appropriate context. To identify these specialists, we considered individuals who had previously assisted us in developing key  leading practices in our work that we used to draw our questions, as well  as those that are knowledgeable in government reform, management,  and strategic human capital management issues. We shared our draft  questions with these specialists for their technical comments and views,  and incorporated their comments as appropriate. A list of these  specialists is found in appendix II.

We conducted this performance audit from August 2017 to June 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Prior to the President’s March 2017 executive order for comprehensive  government reorganization, in January 2017, the President ordered a  federal hiring freeze—providing exemptions for federal employees with  national security or public safety responsibilities. The January 2017  presidential memo also directed OMB, in consultation with the Office of  Personnel Management (OPM), to recommend a long-term plan to  reduce the size of the federal workforce through attrition. OMB’s April  2017 guidance to agencies on their reform plans lifted the federal hiring  freeze. Below is a timeline for proposed reform development and  implementation as shown in figure 1.

According to OMB’s April 2017 guidance, the agency reform plans were  intended to accomplish several objectives, including creating a lean,  accountable, more efficient government, focusing on efficiency and  effectiveness and delivering programs of highest needs to citizens, and  aligning the federal workforce to meet the needs of today and the future,  among other things.

Each agency’s proposed reform plan was to include proposals to improve  efficiency, effectiveness, and accountability in four categories: (1)  eliminate activities; (2) restructure and merge activities; (3) improve  organizational efficiency and effectiveness; and (4) workforce  management. To support these proposed reforms, OMB asked agencies  to conduct an analysis, among other things, to consider if there was a  unique federal role or whether some or all services, activities, or functions  could be better performed by another entity, such as a state, local or tribal  government or the private sector. Additionally, according to OMB’s April  2017 guidance, the draft agency proposed reform plan should be aligned  with the agency strategic plan. Agency strategic plans were to be  released with the President’s fiscal year 2019 budget.

The final reforms included in the fiscal year 2019 budget also were to be  reflected in the agencies’ human capital operating plans and information  technology strategic plans, based on OMB guidance we reviewed. In  March 2018, OMB released the President’s Management Agenda (PMA),  which provided updated information on the status of government  reorganization efforts and is connected with these reform efforts. The  PMA also identified a set of cross-agency priority (CAP) goals, required  under the GPRA Modernization Act of 2010 (GPRAMA), to target those  areas where multiple agencies must collaborate to effect change and  report progress in a manner the public can easily track.

In addition to the agency reform proposals, OMB was also required by the  March 2017 executive order to develop a comprehensive government- wide reform plan, including both legislative proposals and administrative  actions based on agency reform plans, OMB-coordinated crosscutting  proposals, and public input. According to a document provided by OMB  staff, OMB solicited public comments beginning in April 2017 through  June 2017 to inform the development of the government-wide reform  plan. OMB staff told us they provided these comments to the appropriate  agencies.

The March 2018 PMA stated that, in the months ahead, the  administration plans to share additional reorganization proposals  designed to refocus programs around current and future needs.  According to OMB guidance, once the government-wide reform proposals  are finalized, it will, in coordination with the President’s Management  Council, establish a way to track the progress of the reforms. To track  progress of the reforms, OMB’s guidance stated that it will leverage the  federal performance planning and reporting framework originally put into  place by the Government Performance Results Act of 1993 (GPRA) and  significantly enhanced by GPRAMA, through the use of CAP goals,  agency priority goals, and Performance.gov.

Given the potential benefits and challenges developing and implementing  agency reform efforts, Congress and the executive branch need the tools  and information to help evaluate agencies’ reform proposals and ensure  they are effectively implemented. Congress’s role in reviewing agency  proposed reforms will be critical to the success of making significant  changes in how the government operates.

To assist Congress in its oversight role, we organized our prior work and  leading practices into the following four broad categories that can help the  Congress assess proposed reforms. Figure 2 describes the four broad  categories, relevant sub-categories of questions, and selected key  questions in more detail below.

Lessons learned from prior federal reform and reorganization efforts  suggest that reforming government is an immensely complex activity that  requires agreement on both the goals to be achieved and the means for  achieving them. Because many current federal programs and policies  were designed decades ago to respond to trends and challenges that  existed at the time of their creation, it makes sense to periodically conduct  fundamental reviews of major programs and policy areas to ensure they  continue to meet current goals and emerging trends. It is also important to  determine the appropriate level of government, or the roles of the non- profit or private sectors, in achieving these goals. Our prior work shows  that establishing a mission-driven strategy and identifying specific desired  outcomes to guide that strategy are critical to achieving intended  results. In other words, what is the agency trying to achieve with its  reforms?

Determining the Appropriate Role of the Federal Government

It is important for agencies to reexamine the role of the federal  government in carrying out specific missions and programs, policies, and  activities by reviewing their continued relevance and determining whether  the federal government is best suited to provide that service or if it can be  provided by some other level of government or sector more efficiently or  effectively. Another key aspect of shifting federal activities to other levels  of government is how well the federal government fully considered the  potential effects reforms might have on state and local governments,  especially from a budgetary and fiscal standpoint. For example, how  should the federal government act directly, or in partnership with another  level of government or a non-profit organization, to achieve the identified  outcomes? Defining the appropriate federal role also involves examining  the federal government’s relationships with key state, local, non-profit,  and private sector partners. For example, agencies should assess  whether there are alternatives for managing their programs effectively  across intergovernmental and organizational boundaries, as well as which  level of government has the capacity to deliver on the nation’s needs and  priorities today and in the future.

How well have the proposed reforms indicated the likely result of the  elimination, merging, or restructuring of activities with other levels of  government or sectors?

To what extent have the proposed reforms included consideration for  other levels’ of government or sectors’ ability or likelihood to invest  their own resources to address the underlying challenges?

To what extent have the proposed reforms included goals to transfer a  particular responsibility to another level of government—such as state  or local government—or sector, and has the agency made the case  that such a transfer could improve the overall accomplishment of  public purpose?

To what extent have the proposed reforms considered if a new  mechanism is needed to integrate and coordinate programs between  levels of government? If so, what statutory or regulatory changes  would be needed to support such a transfer in responsibilities and to  address concerns such as cost-sharing or funding?

To what extent has the agency identified any risks of using  contractors to perform agency activities, and if so, has it developed  appropriate risk mitigating strategies?

When considering government reforms, our prior work has identified  useful principles, such as designing proposed reforms to achieve specific,  identifiable goals that encourage decision makers to reach a shared  understanding of the purpose of the reforms. Agreement on specific goals  can help decision makers determine what problems genuinely need to be  fixed, how to balance differing objectives, and what steps need to be  taken to create, not just short-term advantages but long-term gains. Part  of determining if agencies have successfully identified the goals of their  proposed reforms is to determine whether the agency has built a  business case analysis that presents facts and supporting details among  competing alternatives.

To what extent has the agency established clear outcome-oriented  goals and performance measures for the proposed reforms?

To what extent has the agency shown that the proposed reforms align  with the agency’s mission and strategic plan?

To what extent has the agency considered and resolved any agency  crosscutting or government-wide issues in developing their proposed  reforms? For example, what are the implications of proposed reforms  on other agencies?

To what extent has the agency considered the likely costs and  benefits of the proposed reforms? If so, what are they?

To what extent has the agency considered how the upfront costs of  the proposed reforms would be funded?

To what extent has the agency included both short-term and long- term efficiency initiatives in the proposed reforms?

Successful reforms require an integrated approach that involves  employees and key stakeholders and is built on the use of data and  evidence. Reforms should also address agency management challenges,  such as those we have identified as fragmented, duplicative, or  overlapping, or in our high-risk program, or by agency Inspectors  General.

Involving Employees and Key Stakeholders

Our prior work has shown that it is important for agencies to directly and  continuously involve their employees, the Congress, other key  stakeholders—such as other federal partners, state and local  governments, and members of the public—in the development of any  major reforms. Involving employees, customers, and other stakeholders  helps facilitate the development of reform goals and objectives, as well as  incorporating insights from a frontline perspective and increases customer  acceptance of any changes. We have also identified leading practices for  open innovation strategies, defined as the use of activities and  technologies to harness ideas, expertise, and resources of those outside  an organization to address an issue or achieve specific goals.

How and to what extent has the agency consulted with the Congress,  and other key stakeholders, to develop its proposed reforms?

How and to what extent has the agency engaged employees and  employee unions in developing the reforms (e.g., through surveys,  focus groups) to gain their ownership for the proposed changes?

How and to what extent has the agency involved other stakeholders,  as well as its customers and other agencies serving similar customers  or supporting similar goals, in the development of the proposed  reforms to ensure the reflection of their views?

How and to what extent has the agency considered the views of state  and local governments that would be affected by the proposed  reforms?

How and to what extent have agencies gathered the views of the  public and incorporate these views in the proposed reforms?

Is there a two-way continuing communications strategy that listens  and responds to concerns of employees regarding the effects of  potential reforms?

How will the agency publicize its reform goals and timeline, and report  on its related progress?

We have reported that agencies are better equipped to address  management and performance challenges when managers effectively  use data and evidence, such as from program evaluations and  performance data that provide information on how well a program or  agency is achieving its goals. When reforming a given program, the use  of data and evidence is critical from setting program priorities and  allocating resources to taking corrective action to solve performance  problems and ultimately improve results. We have also stated that full  and effective implementation of GPRAMA could facilitate efforts to reform  the federal government and make it more efficient, effective, and  accountable. GPRAMA also provides important tools that can help  decision makers address challenges facing the federal government.

What data and evidence has the agency used to develop and justify  its proposed reforms?

How has the agency determined that the evidence contained  sufficiently reliable data to support a business case or cost-benefit  analysis of the reforms?

How, if at all, were the results of the agency’s strategic review process  used to help guide the proposed reforms?

How, if at all, were the results of the agency’s enterprise risk  management process used to help guide the proposed reforms?

Addressing Fragmentation, Overlap, and Duplication

In our prior work, we have identified areas where agencies may be able to  achieve greater efficiency or effectiveness by reducing or better  managing programmatic fragmentation, overlap, and duplication. For  additional details on assessing areas of fragmentation, overlap, and  duplication, see our evaluation and management guide.

To what extent has the agency addressed areas of fragmentation,  overlap, and duplication—including the ones we identified—in  developing its reform proposals?

To what extent have the agency reform proposals helped to reduce or  better manage the identified areas of fragmentation, overlap, or  duplication?

To what extent has the agency identified cost savings or efficiencies  that could result from reducing or better managing areas of  fragmentation, overlap, and duplication?

Addressing High Risk Areas and Longstanding Management Challenges

Reforms improving the effectiveness and responsiveness of the federal  government often require addressing longstanding weaknesses in how  some federal programs and agencies operate. For example, agency  reforms provide an opportunity to address the high-risk areas and  government-wide challenges we have called attention to that are  vulnerable to fraud, waste, abuse, and mismanagement, or are in need of  transformation.

What management challenges and weaknesses are the reform efforts  designed to address?

How specifically has the agency considered high-risk issues, agency  Inspector General’s major management challenges, and other  external and internal reviews in developing its reform efforts?

Have the agency’s efforts to address those challenges been  consistent with the proven approach GAO has found to resolve high  risk issues? Agencies can show progress by addressing GAO’s five  criteria for removal from the High-Risk List: leadership commitment,  capacity, action plan, monitoring, and demonstrated progress. The  five criteria form a road map for efforts to improve and ultimately  address high-risk issues.

How has the agency identified and addressed critical management  challenges in areas such as information technology, cybersecurity,  acquisition management, and financial management that can assist in  the reform process?

How does the agency plan to monitor the effects proposed reforms  will have on high risk areas?

Has the agency addressed ways to decrease the risk of fraud, waste,  and abuse of programs as part of its proposed reforms?

In addition, agencies should also draw upon our past recommendations,  including GAO priority open recommendations and those from their own  Inspectors General, to address management challenges.

How have findings and open recommendations from GAO and the  agency Inspectors General been addressed in the proposed reforms?

How has the agency addressed GAO’s priority open  recommendations, which are those that warrant priority attention from  heads of key departments and agencies?

Our prior work on organizational transformations show that incorporating  change management practices improves the likelihood of successful  reforms. Moreover, it is also important to recognize agency cultural  factors that can either help or inhibit reform efforts and how change  management strategies may address these potential issues. We have  also reported that organizational transformations, such as reforms, should  be led by a dedicated team of high-performing leaders within the agency.  Finally, our prior work also shows that fully implementing major  transformations can span several years and must be carefully and closely  managed.

Has the agency designated a leader or leaders to be responsible for  the implementation of the proposed reforms?

Has agency leadership defined and articulated a succinct and  compelling reason for the reforms (i.e., a case for change)?

How will the agency hold the leader or leaders accountable for  successful implementation of the reforms?

Has the agency established a dedicated implementation team that  has the capacity, including staffing, resources, and change  management, to manage the reform process?

How has the agency ensured their continued delivery of services  during reform implementation?

What implementation goals and a timeline have been set to build  momentum and show progress for the reforms? In other words, has  the agency developed an implementation plan with key milestones  and deliverables to track implementation progress?

Has the agency ensured transparency over the progress of its reform  efforts through web-based reporting on key milestones?

Has the agency put processes in place to collect the needed data and  evidence that will effectively measure the reforms’ outcome-oriented  goals?

How is the agency planning to measure customer satisfaction with the  changes resulting from its reforms?

Strategically Managing the Federal Workforce

As part of its reform effort, OMB also required agencies to develop a long- term workforce reduction plan and a plan to maximize employee  performance as part of the April 2017 reform guidance. Specifically, OMB  required agencies to develop proposals intended to improve performance,  increase accountability, and reduce the size and costs of the federal  workforce. Our prior work has found that at the heart of any serious  change management initiative are the people—because people define the  organization’s culture, drive its performance, and embody its knowledge  base. Experience shows that failure to adequately address—or often  even consider—a wide variety of people and cultural issues can lead to  unsuccessful change.

Research on both private- and public-sector organizations has found that  increased levels of engagement—generally defined as the sense of  purpose and commitment employees feel toward their employer and its  mission—can lead to better organizational performance. Additionally, we  found that agencies can sustain or increase their levels of employee  engagement and morale, even as employees weather difficult external  circumstances. In a previous review of trends in federal employee  engagement, as seen in figure 2 below, we identified six key drivers of  engagement based on our analysis of selected questions in the Federal  Employee Viewpoint Survey (FEVS).

What do FEVS results show for the agency’s current employee  engagement status both overall and disaggregated to lower  organizational levels?

How does the agency plan to sustain and strengthen employee  engagement during and after the reforms?

How specifically is the agency planning to manage diversity and  ensure an inclusive work environment in its reforms, or as it considers  workforce reductions?

Strategic workforce planning should precede any staff realignments or  downsizing, so that changed staff levels do not inadvertently produce  skills gaps or other adverse effects that could result in increased use of  overtime and contracting.

To what extent has the agency conducted strategic workforce  planning to determine whether it will have the needed resources and  capacity, including the skills and competencies, in place for the  proposed reforms or reorganization?

How has the agency assessed the effects of the proposed agency  reforms on the current and future workforce and what does that  assessment show?

To what extent does the agency track the number and cost of  contractors supporting its agency mission and the functions those  contractors are performing?

How has the agency ensured that actions planned to maintain  productivity and service levels do not cost more than the savings  generated by reducing the workforce?

What succession planning has the agency developed and  implemented for leadership and other key positions in areas critical to  reforms and mission accomplishment?

To what extent have the reforms included important practices for  effective recruitment and hiring such as customized strategies to  recruit highly specialized and hard-to-fill positions?

What employment- and mission-related data has the agency identified  to monitor progress of reform efforts and to ensure no adverse impact  on agency mission, and how is it using that data?

Before implementing workforce reduction strategies, it is critical that  agencies carefully consider how to strategically downsize the workforce  and maintain the staff resources to carry out its mission. Agencies should  consider long-term staffing plans and associated personnel costs,  organizational design and position structures and the appropriateness of  backfilling positions as they become vacant.

To what extent has the agency considered skills gaps, mission  shortfalls, increased contracting and spending, and challenges in  aligning workforce with agency needs prior to implementing workforce  reduction strategies?

In situations when “early outs” and “buyouts” are proposed, to what  extent has the agency linked proposed early outs and buyouts to  specific organizational objectives, including the agency’s future  operational, restructuring, downsizing, or other reform goals?

Performance management systems are used to plan work and set  individual employee performance expectations, monitor performance,  develop capacities to perform, and rate and incentivize individual  performance. In addition, performance management systems can help  the organization manage employees on a daily basis and help to ensure  that individual employees understand the “line of sight” between their  performance and organizational results.  Effective performance  management systems provide supervisors and employees with the tools  they need to improve performance.

To what extent has the agency aligned its employee performance  management system with its planned reform goals?

How has the agency included accountability for proposed change  implementation in the performance expectations and assessments of  leadership and staff at all levels?

As part of the proposed reform development process, to what extent  has the agency assessed its performance management to ensure it  creates incentives for and rewards top performers, while ensuring it  deals with poor performers?

To what extent has the agency taken action to address employees  with unacceptable performance and increase the use of alternative  dispute resolution to address workplace disputes that involve  disciplinary or adverse actions?

We provided a draft of this report to the Director of the Office of  Management and Budget for review and comment. OMB staff provided  technical comments, which we incorporated as appropriate.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Director of the Office of Management and  Budget, and other interested parties. This report will also be available at  no charge on the GAO website at http://www.gao.gov. If you or your staff  have any questions about this report, please contact J. Christopher Mihm  at (202) 512-6806 or mihmj@gao.gov or Robert Goldenkoff at   (202) 512-2757 or goldenkoffr@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of our report. Key contributors to this report are listed in appendix III.

Organizational Transformation and Streamlining Government   GAO, Managing for Results: Key Considerations for Implementing  Interagency Collaborative Mechanisms, GAO-12-1022 (Washington,  D.C.: Sep. 27, 2012).

GAO, Streamlining Government: Questions to Consider When Evaluating  Proposals to Consolidate Physical Infrastructure and Management  Functions, GAO-12-542 (Washington, D.C.: May 23, 2012).

GAO, Government Efficiency and Effectiveness: Opportunities for  Improvement and Considerations for Restructuring, GAO-12-454T  (Washington, D.C.: Mar. 21, 2012).

GAO, Streamlining Government: Key Practices from Select Efficiency  Initiatives Should Be Shared Governmentwide, GAO-11-908  (Washington, D.C.: Sep 30, 2011).

GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers  and Organizational Transformations, GAO-03-669 (Washington, D.C.: Jul.  2, 2003).

GAO, A Call For Stewardship: Enhancing the Federal Government's  Ability to Address Key Fiscal and Other 21st Century Challenges,  GAO-08-93SP (Washington, D.C.:  Dec. 17, 2007).

GAO, 21st Century Challenges: Reexamining the Base of the Federal  Government, GAO-05-325SP (Washington, D.C.:  Feb. 1, 2005).

GAO, Regulatory Programs: Balancing Federal and State Responsibilities  for Standard Setting and Implementation, GAO-02-495 (Washington,  D.C.: Mar. 20, 2002).

Fragmentation, Duplication, and Overlap  GAO, 2018 Annual Report: Additional Opportunities to Reduce  Fragmentation, Overlap, and Duplication and Achieve Other Financial  Benefits, GAO-18-371SP (Washington, D.C.:  Apr. 26, 2018).

GAO, Fragmentation, Overlap, and Duplication: An Evaluation and  Management Guide, GAO-15-49SP (Washington, D.C.:  Apr. 14, 2015).

High-Risk and Major Management Challenges  GAO, High-Risk Series: Progress on Many High-Risk Areas, While  Substantial Efforts Needed on Others, GAO-17-317 (Washington, D.C.:  Feb. 15, 2017).

GAO, Managing for Results: Selected Agencies’ Experiences in  Implementing Strategic Reviews, GAO-17-740R (Washington, D.C.: Sep.  7, 2017).

GAO, Enterprise Risk Management: Selected Agencies' Experiences  Illustrate Good Practices in Managing Risk, GAO-17-63 (Washington,  D.C.: Dec. 1, 2016).

GAO, Managing for Results: Practices for Effective Agency Strategic  Reviews, GAO-15-602 (Washington, D.C.: Jul. 29, 2015).

Contracting and National Security Acquisitions   GAO, Federal Procurement: Smarter Buying Initiatives Can Achieve  Additional Savings, but Improved Oversight and Accountability Needed,  GAO-17-164 (Washington, D.C.:  Oct. 26, 2016).

GAO, Framework for Assessing the Acquisition Function At Federal  Agencies, GAO-05-218 (Washington, D.C.:  Sep. 1, 2005).

GAO, Improper Payments: Strategy and Additional Actions Needed to  Help Ensure Agencies Use the Do Not Pay Working System as Intended,  GAO-17-15 (Washington, D.C.:  Oct. 14, 2016).

GAO, Financial Management Systems: Experience with Prior Migration  and Modernization Efforts Provides Lessons Learned for New Approach,  GAO-10-808 (Washington, D.C.: Sep. 8, 2010)

GAO, Financial Management Systems: Additional Efforts Needed to  Address Key Causes of Modernization Failures, GAO-06-184  (Washington, D.C.:  Mar.15, 2006).

GAO, Executive Guide: Creating Value Through World-class Financial  Management (Supersedes AIMD-99-45), AIMD-00-134 (Washington,  D.C.:  Apr.1, 2000).

GAO, Information Technology: Further Implementation of FITARA  Related Recommendations Is Needed to Better Manage Acquisitions and  Operations, GAO-18-234T (Washington, D.C.: Nov. 15, 2017).

GAO, Information Technology: Opportunities for Improving Acquisitions  and Operations, Highlights of a Forum Convened by the Comptroller  General of the United States, GAO-17-251SP (Washington, D.C.: Apr. 11,  2017).

GAO, Cybersecurity: Federal Efforts Are Under Way That May Address  Workforce Challenges, GAO-17-533T (Washington, D.C.: Apr. 4, 2017).

GAO, IT Workforce: Key Practices Help Ensure Strong Integrated  Program Teams; Selected Departments Need to Assess Skill Gaps,  GAO-17-8 (Washington, D.C.: Nov. 30, 2016).

GAO, Federal Chief Information Security Officers: Opportunities Exist to  Improve Roles and Address Challenges to Authority, GAO-16-686  (Washington, D.C.: Aug. 26, 2016).

GAO, Digital Service Programs: Assessing Results and Coordinating with  Chief Information Officers Can Improve Delivery of Federal Projects,  GAO-16-602 (Washington, D.C.: Aug. 15, 2016).

GAO, Information Technology Reform: Billions of Dollars in Savings Have  Been Realized, but Agencies Need to Complete Reinvestment Plans,  GAO-15-617 (Washington, D.C.: Sept. 15, 2015).

Strategically Managing the Federal Workforce  GAO, Federal Workforce: Additional Analysis and Sharing of Promising  Practices Could Improve Employee Engagement and Performance,  GAO-15-585 (Washington, D.C.: Jul. 14, 2015).

GAO, Federal Workforce: OPM and Agencies Need to Strengthen Efforts  to Identify and Close Mission-Critical Skills Gaps, GAO-15-223  (Washington, D.C.: Jan. 30, 2015).

GAO, Federal Workforce: Improved Supervision and Better Use of  Probationary Periods Are Needed to Address Substandard Employee  Performance, GAO-15-191 (Washington, D.C.: Feb. 6, 2015).

GAO, Results-Oriented Management: OPM Needs to Do More to Ensure  Meaningful Distinctions Are Made in SES Ratings and Performance  Awards, GAO-15-189 (Washington, D.C.:  Jan. 22, 2015)

GAO, Human Capital: Strategies to Help Agencies Meet Their Missions in  an Era of Highly Constrained Resources, GAO-14-168  (Washington, D.C.:   May 7, 2014).

GAO, Human Capital: Agencies Are Using Buyouts and Early Outs with  Increasing Frequency to Help Reshape Their Workforces, GAO-06-324  (Washington, D.C.: Mar. 31, 2006).

GAO, Issues Related to Poor Performers in the Federal Workplace,  GAO-05-812R (Washington, D.C.: June 29, 2005).

GAO, Human Capital: A Guide for Assessing Strategic Training and  Development Efforts in the Federal Government (Supersedes  GAO-03-893G), GAO-04-546G (Washington, D.C.: Mar. 1, 2004).

GAO, Human Capital: Key Principles for Effective Strategic Workforce  Planning, GAO-04-39 (Washington, D.C.: Dec. 11, 2003).

GAO, Results-Oriented Culture: Creating a Clear Linkage between  Individual Performance and Organizational Success, GAO-03-488  (Washington, D.C.: Mar. 14, 2003).

GAO, Federal Downsizing: Effective Buyout Practices and Their Use in  FY 1997, GGD-97-124 (Washington, D.C.: Jun. 30, 1997).

GAO, Performance Management: How Well Is the Government Dealing  With Poor Performers?, GGD-91-7(Washington, D.C.: Oct. 2, 1990).

GAO, Recent Government-Wide Hiring Freezes Prove Ineffective in  Managing Federal Employment, FPCD-82-21 (Washington, D.C: Mar. 10,  1982).

GAO, Key Issues: Ensuring the Security of Federal Information Systems  and Cyber Critical Infrastructure and Protecting the Privacy of Personally  Identifiable Information - High Risk Issue, accessed April 24, 2018,  https://www.gao.gov/key_issues/ensuring_security_federal_information_s ystems/issue_summay  GAO, Key Issues, Duplication and Cost Savings, Action Tracker,  https://www.gao.gov/duplication/overview#t=1, accessed April 24,  2018,an online tool for monitoring the progress federal agencies and  Congress have made in addressing the actions identified in GAO's annual  Duplication and Cost Savings reports.

Appendix III: GAO Contacts and Staff Acknowledgments

In addition to the above contact, Sarah E. Veale, Assistant Director,  Thomas Gilbert, Assistant Director, and Carole J. Cimitile, Analyst-in- Charge, supervised the development of this report. Layla Y. Moughari,  Steven Putansu, and Robert Robinson made significant contributions to  this report. Kayla Robinson provided legal counsel.

A March 2017 executive order requiring executive branch agency reorganization is intended to improve efficiency and effectiveness. If it works, it could save billions of dollars—but similar reform efforts in the past have not always come to fruition.

Our prior work on government reform indicates that agencies can change if they

allocate sufficient implementation resources

consider workforce needs during and after the reform

In this report, we provide questions that Congress can ask in its critical oversight role to determine whether agencies are on track for effective change.


Overseas Contingency Operations: Alternatives Identified to the Approach to Fund War- Related Activities

Since 2001, DOD has received more than $1.8 trillion in OCO funds. DOD defines “contingency operations” as small, medium, or large-scale military operations, while “base” activities include operating support for installations, civilian pay, and other costs that would be incurred, regardless of contingency operations. Congress separately appropriates amounts for base and OCO activities into the same appropriation accounts and directs how funds are to be spent by designating amounts in conference reports or explanatory statements accompanying the annual appropriations acts.

The National Defense Authorization Act for Fiscal Year 2018 included a provision for GAO to report on the feasibility of separating OCO expenditures from other DOD expenditures. This report (1) describes internal controls that selected DOD components use to separately account for OCO and base amounts during budget execution and (2) identifies and examines alternatives that Congress or DOD could use to separate funding for OCO and base activities.

GAO reviewed documentation of DOD internal controls for separating OCO and base amounts in the O&M account, interviewed financial management officials, and, among other things, conducted a literature review to identify alternatives that Congress or DOD could use to separate funding for OCO and base activities. Also, GAO administered a questionnaire to DOD and non-DOD officials to identify positive and negative aspects of these alternatives.

Selected Department of Defense (DOD) components use coding and other internal control activities to separately account for overseas contingency operations (OCO) and base amounts in their operation and maintenance (O&M) accounts during budget execution. To record and track OCO and base amounts separately, the military services, U.S. Special Operations Command, and the Defense Security Cooperation Agency use coding in their financial systems. These DOD components also have instituted some internal control activities to help ensure separation of OCO amounts. For example, Army and Defense Security Cooperation Agency officials stated that the financial systems they use incorporate system controls that automatically maintain the categories of funding, such as OCO, designated during allotment through subsequent actions to ensure the OCO coding remains throughout budget execution.

GAO identified at least four alternatives to the processes used to separate funding for DOD's OCO and base activities:

Move enduring costs to the base budget . DOD could request funding for enduring costs—costs that would continue in the absence of contingency operations—through its base budget rather than its OCO budget.

Use specific purpose language . Congress could use legally binding language in the annual DOD appropriations acts to specify the purposes—programs, projects and activities—for which OCO amounts may be obligated.

Create separate appropriation accounts . Congress could create separate appropriation accounts for OCO and base funding.

Use a transfer account . Congress could appropriate funds for OCO into a non-expiring transfer account. DOD would fund OCO with its base budget and later reimburse its base accounts using funds from a transfer account.

Implementing these alternatives would require Congress and DOD to take action in different phases of the budget process (see figure).

Each alternative includes tradeoffs that Congress and DOD would have to consider to strike the desired balance between agency flexibility and congressional control. The alternatives, and GAO's summary of their positive and negative aspects identified by questionnaire respondents, could be a reference for Congress and DOD as they consider potential changes to processes for separating the funding of amounts for OCO and base activities.

Since September 2001, the Department of Defense (DOD) has received  more than $1.8 trillion in funds designated for Overseas Contingency  Operations (OCO), primarily in Iraq and Afghanistan. DOD defines  “contingency operations” as small, medium, or large-scale campaign-level  military operations, including but not limited to support for peacekeeping  operations, foreign disaster relief efforts, and noncombatant evacuation  operations, and international disaster relief efforts. In contrast, regular or  “base” activities include, for example, operating support for installations,  training and education, and civilian personnel pay, which are costs that  would be incurred, regardless of contingency operations. Since fiscal year  2010, DOD has submitted separate requests for both base and OCO  funding as part of its annual budget request to Congress. Congress  separately appropriates amounts for base and OCO activities into the  same appropriation accounts and directs how funds are to be spent by  designating specific amounts at the activity level in conference reports or  explanatory statements accompanying annual appropriations acts.  However, congressionally designated amounts are not binding unless  they are also incorporated by reference into an appropriations act or other  statute. In addition, DOD’s OCO budget request now includes some  funding for enduring activities—activities that would continue in the  absence of contingency operations that could be transitioned to DOD’s  base budget. According to the Congressional Budget Office, for each year  since 2006, about $53 billion of the total funding designated for OCO has  been used to pay for enduring costs. It further estimates that about 70  percent of all OCO funding in DOD’s Fiscal Year 2019 OCO budget is  expected to be used for enduring costs.

We have reported on multiple issues associated with OCO funds since  2007, including efforts to transition enduring costs to DOD’s base budget.  In June 2014, we reported that DOD recognized that the U.S. Central  Command and its service components have enduring headquarters costs,  but the majority of the costs to operate and support U.S. Central  Command, two of its service component commands, and its theater  special operations command headquarters were funded with OCO  appropriations. We recommended that DOD develop guidance to  transition enduring costs funded with OCO appropriations to DOD’s base  budget. DOD partially concurred with this recommendation, stating that  the transition’s time frame depends on the evolution of threats in U.S.  Central Command’s area of responsibility and the impact of the caps  enacted in the Budget Control Act of 2011, as amended, on the  department’s ability to migrate additional requirements to the base  budget. In January 2017, we reported that DOD had developed an initial  estimate of costs being funded with OCO appropriations that are likely to  endure beyond current operations, but had not finalized or reported its  estimate outside of the department. We recommended that DOD  develop a complete and reliable estimate of enduring costs to report in  future budget requests. DOD also partially concurred with this  recommendation, stating that until there is relief from the budgetary caps  established by the Budget Control Act of 2011, as amended, DOD would  need OCO to finance counterterrorism operations.

In May 2018, DOD officials indicated that the department was taking  steps to implement our January 2017 recommendation. According to  these officials, they received direction from the Office of Management and  Budget (OMB) to develop a plan for the fiscal year 2020 President’s  Budget to shift the enduring costs in the OCO budget to the base budget,  reducing the size of the OCO budget. According to DOD, the  department’s guidance for the fiscal year 2020 budget directs the  movement of enduring costs to the base budget, and the remaining OCO  budget funds only those costs directly associated with combat operations.  DOD officials told us that this plan is still under consideration. The step  DOD has taken also addresses our 2014 recommendation for DOD to  develop guidance to transition enduring costs funded with OCO  appropriations to DOD’s base budget. Further, based in part on our work,  Congress, in the John S. McCain National Defense Authorization Act for  Fiscal Year 2019, required the Under Secretary of Defense (Comptroller)  to submit an annual report for fiscal years 2020 through 2024 that  includes, among other elements, an estimate of the costs of operations  that are likely to continue beyond such operations and that are currently  supported in part or in whole by requested funding for OCO.

Another issue we have previously highlighted relates to criteria for  determining which activities belong in DOD’s annual base and OCO  funding requests to Congress. We reported in January 2017 that OMB  collaborated with DOD in 2010 to issue these criteria. However, we  found that the criteria were outdated and did not address the full scope of  activities included in DOD’s fiscal year 2017 OCO budget request. We  recommended that DOD collaborate with OMB to revise the criteria, and  DOD concurred. In October 2017, a DOD official stated that the  department had discussed modifications to the criteria with the military  departments and combatant commands, but that it had not made  recommendations to OMB to revise the criteria. The National Defense  Authorization Act for Fiscal Year 2018 included a provision requiring DOD  and OMB to update their OCO criteria by September 2018. However, in  January 2019, a DOD official confirmed that neither OMB nor DOD had  released updated criteria.

Section 1523 of the National Defense Authorization Act for Fiscal Year  2018 included a provision for us to report on the feasibility of separating  DOD’s OCO expenditures from its other expenditures. In this report we  (1) describe internal controls that selected DOD components use to  separately account for OCO and base amounts during budget execution,  and (2) identify and examine alternatives that Congress or DOD could  use to separate funding for DOD’s OCO and base activities.

For our first objective, we reviewed documentation of the internal control  activities that DOD organizations in our review have designed to account  for OCO amounts separately from base amounts in their operation and  maintenance (O&M) appropriation accounts during budget execution. We  focused our review on O&M accounts because Congress appropriates  the majority of OCO amounts to DOD’s multiple O&M accounts. In  addition, we focused our review on the military services and two non- service DOD components (U.S. Special Operations Command and the  Defense Security Cooperation Agency) that are allotted the most OCO  funding to the O&M Defense-wide account. We collected information for  this objective through interviews and written requests for information from  financial management officials in the Office of the Secretary of Defense  (Comptroller), the offices of the military services, U. S. Special Operations  Command, the Defense Security Cooperation Agency, and the Defense  Finance and Accounting Service. Our review focused on the design of the  internal control systems and did not assess the effectiveness of these  internal controls.

For our second objective, we searched for relevant literature from 2001  through July 2018. Specifically, we searched for alternative processes  that (1) DOD could use to separately account for OCO funding or (2)  Congress could use to provide separate OCO funding to DOD because  both DOD and Congress could be involved in implementing alternatives  to separate funding for OCO and base activities. We did not identify any  alternatives for DOD to separately account for OCO funding; therefore we  do not address this in our report. We did identify alternatives related to  how Congress provides OCO funding to DOD and how DOD requests  OCO funding from Congress. We identified and summarized four  alternatives related to this in our report based on the literature search and  review by our internal subject matter experts.

We developed and administered a questionnaire to solicit opinions from  knowledgeable individuals (“respondents”) regarding Congress’ and  DOD’s current processes and the four alternatives. We included the  summaries of all processes in the questionnaire. We asked respondents  to identify positive and negative aspects of Congress’ and DOD’s current  processes and of the alternatives, as well as the costs and requirements  associated with each. We also asked respondents to describe any  additional alternatives. We identified questionnaire respondents within  and outside DOD, and we included questions in our questionnaire to help  us determine whether the respondents were sufficiently knowledgeable  about Congress’ and DOD’s current processes. The respondents were  predominantly current officials in DOD financial management offices,  former DOD officials, and defense budget analysts from think tanks. We  received 17 usable questionnaires, which is a response rate of 81  percent. Fifteen of the 17 respondents to our questionnaire were current  or former DOD officials. Results of this questionnaire are not  generalizable beyond our respondents. We conducted a content analysis  of the responses received to identify similarities, defined for our purposes  as when two or more respondents gave the same or very similar answers  to a particular question. More detailed information on our scope and  methodology can be found in appendix I of this report.

We conducted this performance audit from March 2018 to January 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The appropriation and execution of DOD’s base and OCO amounts is  part of the broader federal budget process. In this process, Congress, the  President, and federal agencies take a number of steps to formulate a  budget, enact appropriation acts, and execute the federal budget for each  fiscal year. A summary of the budget process is depicted in figure 1  below.

In DOD’s budget process, the military services and defense agencies  submit a budget request—known as the Budget Estimate Submission— that addresses their estimated annual funding requirements for both base  and OCO activities. In building their OCO budget requests, the military  services and defense agencies use criteria that OMB developed in  collaboration with DOD, for deciding whether items belong in the base  budget or in OCO funding requests. The services also use guidance  issued within their own organizations, as well as utilize OCO-specific  budget guidance included in DOD’s Financial Management Regulation.

Congress then takes action on the budget request and appropriates  funding for both base and OCO activities into the same appropriation  accounts, such as service-specific O&M accounts. Explanatory  statements or conference committee reports accompanying annual  appropriations acts provide congressional direction on how OCO and  base funding amounts should be obligated. However, the congressional  direction for funding is generally not legally binding. Congress also has  the discretion to make available amounts for base activities or enduring  costs through OCO appropriations, even if DOD considers such costs to  be part of the base budget. The Budget Control Act of 2011, amending  the Balanced Budget and Emergency Deficit Control Act of 1985,  imposes government-wide discretionary spending limits for fiscal years  2012 through 2021 to reduce projected spending by about $1 trillion. All  amounts appropriated to DOD are subject to limitations on discretionary  spending. Appropriated amounts designated by Congress for OCO that  would otherwise exceed the annual limits established for discretionary  spending will instead result in an adjustment to the overall spending limit  established for a particular fiscal year, and will not trigger a sequestration,  which is an automatic cancellation of budgetary resources provided by  discretionary appropriations or direct spending laws.

Upon enactment of an appropriation, the Secretary of the Treasury issues  a warrant to federal agencies, which is an official document that  establishes the amount of moneys authorized to be withdrawn from the  central accounts that the Department of Treasury maintains. The  Treasury does not employ a process to separate OCO funding from base  funding in its role in warranting funds to federal agencies, including DOD.  After receiving budget authority, agencies make allotments, delegating  budget authority to various agency officials allowing them to incur  obligations. Agencies then disburse amounts by cash or cash equivalents  to liquidate obligations.

DOD Components We Reviewed Use Coding and Other Control Activities to Separately Account for OCO and Base Amounts during Budget Execution

The DOD components in our review use coding and other internal control  activities to separately account for OCO and base amounts in their O&M  accounts during budget execution. To record and track OCO and base  amounts separately, the DOD components use coding in their financial  systems during the allotment, obligation, and disbursement of funds. For  example, during the allotment phase, the Army and the Defense Security  Cooperation Agency use codes in their financial systems to divide,  distribute, and track their appropriated funds into separate categories— including one for OCO and one for base. Army and Defense Security  Cooperation Agency officials stated that the separate categories are  maintained through the obligation phase. The Air Force, the Marine  Corps, and the Navy use specific codes to track OCO transactions within  multiple systems they use to allot and obligate OCO and base amounts.  For example, the Air Force uses an Emergency and Special Program  code to track and record allotments and obligations of OCO amounts within its budgeting and accounting systems. The Marine Corps uses  three-digit, alphanumeric codes called Special Interest Codes to track and  record costs associated with high-interest activities, such as OCO, during  obligation. Figure 2 describes the steps that DOD takes to separate OCO  and base amounts.

We identified some internal control activities that the DOD components in  our review have put into place to ensure separate accounting of OCO and  base amounts, such as controls over information processing. A variety  of control activities can be used in information processing, including  controls incorporated directly into computer applications to ensure  accuracy, as well as policies and procedures that apply to information  systems. For example, Army and Defense Security Cooperation Agency  officials stated that the financial systems they use incorporate system  controls that automatically maintain the categories of funding designated  during allotment through subsequent actions, including obligation, which  ensures an amount in the OCO category maintains its OCO-specific  coding throughout the budget execution process. Also, the Army restricts  the number of personnel who are able to reassign the coding of funding  from one category to another. Navy officials explained that two of three  financial accounting systems used by the Navy receive OCO allotments  automatically from the Navy’s budgeting information system, which  eliminates the need for manual entry of allotment amounts. Also, Marine  Corps guidance requires entry of an identifying OCO code in the Marine  Corps’ financial system when recording an OCO-related transaction,  which can prevent data reporting errors.

In addition to controls over information processing, each DOD component  in our review incorporates reviews of their OCO execution as one of their  internal control activities. Internal control activities also include reviews,  such as reviews of data or expected results, by management throughout  an organization. The financial management offices of these components  periodically review the OCO-related allotments they make within their  components to confirm the amounts are properly recorded. For example,  the Air Force, the Army, the Marine Corps, the Navy, the Defense  Security Cooperation Agency, and U.S. Special Operations Command  review OCO-related execution amounts at least monthly to determine if  amounts are within their established spending plans and that OCO coding  is recorded correctly, among other things. In addition, officials from each  service and the Defense Security Cooperation Agency stated that officials  review OCO-related obligations and verify they are legitimate OCO  expenses.

The DOD Inspector General and the services’ audit agencies have found  weaknesses in the services’ processes of accounting for OCO costs or in  other related internal control activities. For example, in March 2018, the  US Army Audit Agency found that while the Army had a strategy and  processes to capture and report its financial data for Operation Inherent  Resolve for fiscal year 2016, processes to account for some obligation  data needed improvement. Moreover, an official from the Office of the  Secretary of Defense (Comptroller) stated that, while the DOD  components included in our review have processes to separate OCO and  base amounts, other DOD components may not have similar processes,  and not all components have auditable financial systems.

Four Alternatives to the Current Processes That Congress and DOD Use to Separate Funding for OCO and Base Activities Would Entail Tradeoffs

We identified at least four alternatives to the processes Congress and  DOD use to separate funding for DOD’s OCO and base activities. Each  alternative would require action at different phases of DOD’s budget  process and entail tradeoffs. Appendix II provides additional information  on requirements and costs to implement the alternatives reported by  respondents that we summarize, as well as other alternatives to provide  funding to DOD that respondents independently identified. In addition,  appendix II provides summary information on the positive and negative  aspects of Congress’ current process for providing funding for OCO and  base activities, as described by respondents.

Alternative #1: DOD Could Request Funding for Enduring Costs through Its Base Budget Rather Than Its OCO Budget

The first alternative to the current process would be for DOD to request all  funding for enduring costs through its base budget rather than its OCO  budget. DOD is considering a plan to move enduring costs associated  with OCO activities from its OCO budget request into its base budget  request for fiscal year 2020. In its budget justification materials for fiscal  year 2019, DOD estimated that it would shift between $45.8 billion and  $53.0 billion from its OCO request to its base budget request from fiscal  years 2020 through 2023. However, moving DOD’s enduring costs to its  base budget request may require increased base O&M appropriations  provided in annual DOD appropriations acts. Appropriations that are not  designated as OCO, such as base O&M amounts, and that exceed  annual discretionary spending limits established by the Budget Control  Act of 2011, as amended, would trigger a sequestration. Respondents  to our questionnaire identified several positive and negative aspects of  this alternative, which we summarize in table 1.

Alternative #2: Congress Could Add Specific Purpose Language to Annual DOD Appropriations Acts Concerning OCO Amounts

The second alternative would be for Congress to specify in annual DOD  appropriations acts the purposes—programs, projects and activities—for  which OCO amounts may be obligated. As we noted above, DOD  currently determines what constitutes OCO activities based on criteria  developed in 2010 in coordination with OMB and DOD 7000.14-R,  Financial Management Regulation. Explanatory statements and  conference committee reports accompanying annual appropriations acts  include direction on how OCO amounts should be allocated for specific  activities; however, explanatory statements and committee reports are not  legally binding unless incorporated by reference into the appropriations  act. Either specific purpose language or language incorporating  explanatory statement or committee report language could be included in  DOD’s annual appropriations. Respondents to our questionnaire identified  several positive and negative aspects of this alternative, which we  summarize in table 2.

Alternative #3: Congress Could Create Separate Appropriation Accounts for OCO and Base Funding

The third alternative entails Congress creating separate appropriation  accounts for OCO and base funding. Under the current approach, both  OCO and base amounts are appropriated into and executed out of the  same appropriation accounts. By contrast, under this alternative,  Congress would create separate Treasury-level appropriation accounts  for funding for OCO and base activities. For example, there could be an  O&M appropriation account for the Army’s base activities and an O&M  appropriation account for the Army’s OCO activities. Funding for OCO  and base activities would no longer be comingled, but could be  transferred between accounts with statutory authority. Respondents to  our questionnaire identified several positive and negative aspects of this  alternative, which we summarize in table 3.

Alternative #4: Congress and DOD Could Use a Transfer Account to Fund Contingency Operations

Under the fourth alternative, Congress would appropriate funds into a  non-expiring transfer account for contingency operations. These funds  would be available for DOD’s use during multiple fiscal years. DOD would  use its base appropriations to initially fund OCO activities and later use  funds from the transfer account, as needed, to reimburse its base  appropriation accounts. One example is the Overseas Contingency  Operations Transfer Fund, which was originally established by Congress  in fiscal year 1997 to meet small-scale, recurring operational demands of  the department by transferring amounts to the military services and  agencies based on execution needs as the year progresses.  Respondents to our questionnaire identified several positive and negative  aspects of this alternative, which we summarize in table 4.

Each Alternative Would Require Action at Different Phases in the Budget Process and Entail Tradeoffs

The four alternatives we identified would require Congress and DOD to  take action at different phases within DOD’s budget process. In the first  alternative, DOD would move enduring costs to the base budget request  during the budget formulation phase. In the second alternative, Congress  would specify the activities to be funded by OCO amounts in the annual  appropriations acts during the congressional appropriation phase.  Similarly, in the third alternative, Congress would create separate  appropriation accounts for OCO and base activities during the  congressional appropriation phase. In the fourth alternative, using transfer  accounts would require actions during two phases—the congressional  appropriations phase and the budget execution phase. Congress would  appropriate funds into a transfer account during the congressional  appropriation phase, and DOD would later use funds from the transfer  account, as needed, to reimburse its base appropriation accounts during  budget execution. In figure 3, we depict the phase of the budget process  in which these alternatives would take place.

Each alternative includes tradeoffs that Congress and DOD would have to  consider to strike the desired balance between agency flexibility and  congressional control. For example, adding specific purpose language  would better align obligation of OCO amounts with congressional intent;  however, doing so could also reduce DOD’s financial flexibility and  responsiveness to changes in operations. Understanding the implications  of each alternative is important to avoid unintended consequences. Our  summary of the positive and negative aspects of the alternatives reported  by respondents could be a reference for Congress and DOD as they  consider potential changes to processes for separating the funding of  amounts for OCO and base activities.

We requested comments from DOD, the Department of the Treasury, and  provided an informational copy of the draft report to OMB. DOD provided  technical comments on the draft report, which we incorporated as  appropriate.

We are sending copies of this report to the appropriate congressional  committees; the Secretary of Defense; the Secretary of the Treasury, the  Director of OMB; the Under Secretary of Defense for the Comptroller; the  Secretaries of the Air Force, the Army, and the Navy; the Commandant of  the Marine Corps; the Commanding General of U.S. Special Operations  Command, and the Director of the Defense Security Cooperation Agency.  In addition, the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-2775 or fielde1@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff members who made key contributions to  this report are listed in appendix IV.

To describe selected Department of Defense (DOD) components’ use of  internal controls to separately account for overseas contingency  operations (OCO) and base amounts, we reviewed documentation of the  internal controls that DOD organizations in our review have designed to  separate these amounts in their operation and maintenance (O&M)  account. We focused on the O&M account because Congress provides  most of the OCO amounts for DOD in O&M. In addition, we focused on  the military services that receive service-specific OCO appropriations,  and the two non-service DOD components (U.S. Special Operations  Command and the Defense Security Cooperation Agency) that are  allotted the most OCO funding appropriated to the O&M Defense-wide  account. We collected information for this objective through interviews  and written requests for information from financial management officials in  the Office of the Secretary of Defense (Comptroller), the offices of the  military services, U.S. Special Operations Command, the Defense  Security Cooperation Agency, and the Defense Finance and Accounting  Service. Our review focused on the design of the internal control systems  and did not assess the effectiveness of these internal controls.

To identify alternatives to separate funding for DOD’s OCO and base  activities, we searched for relevant literature from 2001 through July  2018. Specifically, we searched for alternative processes that (1) DOD  could use to separately account for OCO funding or (2) Congress could  use to provide separate OCO funding to DOD because both DOD and  Congress could be involved in implementing alternatives to separate  funding for OCO and base activities. We started with 2001, because this  was the first year that funds were appropriated for the Global War on  Terror (GWOT), now known as OCO. We conducted searches of various  databases and websites, such as ProQuest and the National Academy of  Sciences website. Our literature search identified 235 sources, which  primarily consisted of journal articles, reports, and news articles. Two  analysts independently reviewed the full text of the literature sources to  determine which were relevant. When they disagreed, a third analyst  independently reviewed the full text of a source to make the final  determination. We determined that 22 sources were relevant. We did not  identify any sources that described alternative processes for DOD to  separately account for OCO funding; therefore, we do not address this in  our report. We did identify three alternatives related to how Congress  provides OCO funding to DOD and how DOD requests OCO funding from  Congress. We summarized these alternatives and obtained feedback  from our internal subject matter experts familiar with Congress’ process  for providing funding for OCO and DOD’s process for separating OCO  and base funds. We revised the wording of the alternatives based on their  feedback to ensure that we described them accurately. Our internal  subject matter experts suggested a fourth congressional alternative. We  summarized all four alternatives in our report.

In collaboration with a survey specialist, we developed a questionnaire to  solicit opinions from knowledgeable individuals (“respondents”) regarding  Congress’ and DOD’s current processes and the four alternatives. Our  internal subject matter experts also provided feedback on the draft  questionnaire. We included the summaries of all processes and asked  respondents to identify the positive and negative aspects, as well as the  costs and requirements, associated with each. We also asked  respondents to describe any additional alternatives apart from the four we  described in the questionnaire.

We identified questionnaire respondents within and outside DOD who  were sufficiently knowledgeable about Congress’ and DOD’s current  processes in several ways. We identified respondents within DOD by  emailing the engagement points of contact, who were budget and  financial management officials in the headquarters for the military  services and other DOD components included in our review. To identify  respondents outside of DOD, we contacted individuals identified by an  internal subject matter expert and contacted additional individuals  identified in our literature review. We provided respondents with a brief  summary of the questionnaire and asked them if they would be able and  willing to respond to questions on these topics. We also asked  respondents to recommend additional knowledgeable individuals at the  end of the questionnaire. Respondents identified were current officials in  DOD financial management offices, former DOD officials, and defense  budget analysts from think tanks. In addition, we contacted officials from  the Congressional Research Service and the Congressional Budget  Office, whom we identified as assigned to analyze defense budget issues  related to OCO. We included questions at the start of the questionnaire to  determine if respondents were sufficiently knowledgeable about either the  current congressional process, the current DOD process—or both—to  offer perspectives on the alternatives presented.

We sent the questionnaire as a Microsoft Word form via email to 23  respondents, including 10 within DOD and 13 outside DOD. We began  sending the questionnaires on August 1, 2018, and continued as we  identified more respondents. We sent up to two reminder emails with a  copy of the questionnaire to anyone who had not yet responded. We  received the last questionnaire on September 10, 2018. We received a  total of 19 questionnaires back from respondents. We excluded two  completed questionnaires from our analysis based on our screening  criteria for determining if respondents were sufficiently knowledgeable  about Congress’ and DOD’s current processes. Therefore, we included  17 questionnaires in our analysis—10 from DOD officials and 7 from  respondents outside DOD—for a response rate of 81 percent. We  calculated the response rate using a total possible number of 21  questionnaires instead of 23 to account for the two questionnaires we  excluded from the analysis. Fifteen of the 17 respondents to our  questionnaire were current or former DOD officials. Results of this  questionnaire are not generalizable beyond our respondents.

To enable us to provide the information to Congress within the time  frames required by the mandate, we did not pretest the questionnaire.  However, we believe that the questionnaire was a sufficiently valid data  collection tool for reporting positive and negative aspects identified by  respondents. We developed the questionnaire with assistance from a  survey specialist, and we revised the questionnaire content based on  feedback from our internal subject matter experts. Most respondents  provided answers that indicated they correctly interpreted the questions  as stated in the questionnaire. In addition, we took steps to provide  clarification to the few respondents who misunderstood questions and  excluded responses we could not reasonably assure were understood.  Four of the 23 original recipients of the questionnaire requested  clarification or misunderstood two questions in our questionnaire. We  provided clarification to those respondents via email and requested that  they update their questionnaire responses based on this new information.  Two did so. The other two respondents did not reply to our clarification  email, and we excluded their responses to the misunderstood questions.  Not all respondents provided answers to all questions in our  questionnaire. We extracted the data from the Word questionnaires and  imported them into Excel for qualitative analyses. We inspected the Excel  files to ensure that data were not missing or were not imported incorrectly  and made iterative corrections to the process to ensure accurate data  were analyzed. Because we did not pretest the questionnaire, we do not  report the number of respondents who provided any answers but rather  we present qualitative positive and negative aspects based on the  responses.

We conducted a content analysis in which two analysts independently  categorized each response from each questionnaire to identify  similarities. For our purposes, similarities existed when two or more  respondents gave the same or very similar answers to a particular  question. The summaries of the responses we developed were based on  comments from two to nine respondents. The analysts discussed any  discrepancies in their categorizations until they reached agreement.  Subsequently, an internal subject matter expert provided feedback on the  summary. Using that feedback, the analysts consolidated summaries that  were related and clarified the wording of all the summarized responses.  We identified positive and negative aspects for questions regarding the  current processes and the four alternatives presented in the  questionnaire. We did not summarize positive and negative aspects for  questions regarding the additional alternatives described by respondents.  We did not include this information because although two respondents  described similar alternatives, they did not identify similar positive and  negative aspects about this alternative. In addition, none of the remaining  questionnaires included similar responses. We list any additional  alternatives identified by respondents in appendix II. The verbatim  wording from key sections of the questionnaire we administered is  presented in appendix III.

In addition, section 1523 of the National Defense Authorization Act for  Fiscal Year 2018 contained additional provisions for us to review other  processes related to the execution of OCO funds. In particular, section  1523 contained a provision for us to review the processes the Department  of the Treasury employs to separate expenditures of amounts  appropriated for OCO from expenditures of all other amounts  appropriated for DOD. We assessed the steps that the Department of the  Treasury takes in the execution of the federal budget after funds have  been appropriated and determined that the Department of the Treasury  does not employ a process to separate OCO funding from base funding in  its role in making appropriations available to DOD. In addition, section  1523 of the act included another provision for us to compare the  processes DOD and the Department of Treasury use to separate  expenditures of OCO amounts to the generally accepted accounting  principles. The Federal Accounting Standards Advisory Board issues  federal financial accounting standards and provides guidance on federal  generally accepted accounting principles. The Federal Accounting  Standards Advisory Board’s Handbook of Federal Accounting Standards  and Other Pronouncements, as Amended (Current Handbook) is the most  up-to-date, authoritative source of generally accepted accounting  principles developed for federal entities. However, the Current Handbook  does not address the separation of OCO from non-OCO appropriations,  obligations, and disbursements. Therefore, it is not possible to compare  the processes DOD and the Department of the Treasury use to the  generally accepted accounting principles based on existing standards and  guidance.

Appendix II: Additional Information on the Current Process and Alternatives to Provide OCO Funding

Additional information from our questionnaire is provided below, including  information about (1) the positive and negative aspects of Congress’  current process for providing funding for the Department of Defense’s  (DOD) overseas contingency operation (OCO) and base activities, (2) the  requirements and costs to implement the four alternatives we discussed  earlier, and (3) other alternatives for providing funding to DOD.

Positive and Negative Aspects of Congress’ Current Process to Provide Funding for OCO and Base Activities

We asked respondents to report on the positive and negative aspects of  Congress’ current process for providing funding for DOD’s OCO and base  activities. We summarize those aspects in table 5.

Requirements and Costs to Implement the Four Alternatives

Respondents reported on the requirements and costs to implement the  four alternatives in our questionnaire. The requirements respondents  identified to implement the four alternatives are summarized in table 6.

Regarding the costs, respondents reported that two alternatives would  require minimal or no additional costs, while the other two alternatives  would involve higher costs to DOD. The costs respondents identified to  implement the four alternatives are summarized in table 7.

Alternatives for Providing Funding to DOD that Respondents Independently Identified

We also asked respondents to describe any other alternatives for  separating funding for DOD’s OCO and base activities, apart from the  four alternatives described above. Respondents identified several  alternatives for providing funding to DOD, including alternatives that  would not provide separation of OCO and base funding. The other  alternatives that respondents described are shown in table 8.

Appendix III: Key Questions from GAO’s Questionnaire on Separation of OCO and Base Amounts

Below we show the verbatim wording of the descriptions of the  alternatives to separate amounts for DOD’s OCO and base activities as  summarized in the questionnaire. Each description was presented  separately in the questionnaire followed by a standard set of questions  that are all presented below these descriptions. We also show the  verbatim wording of any clarification text sent via email to respondents  who misunderstood the description of the alternative.

DOD could move requests for funding of enduring activities from its  OCO budget to its base budget request. Enduring activities are those  that began in response to contingency operations but have continued  after these operations ended. An example of an enduring cost would be  maintaining residual headquarters staff at U.S. Central Command in  Qatar to train, advise, and assist as missions have evolved from  contingency to ongoing activities. We understand that in the in FY 2020,  the Department plans to move funding for enduring activities from its  OCO budget to its base budget request. DOD’s OCO funding request  would then reflect only the incremental costs of existing contingency  operations.

The Congress could specify activities for which DOD should use  OCO amounts within the annual appropriations acts. Currently, DOD  determines what activities constitute OCO activities based on criteria  developed in 2010 in coordination with OMB. Under this alternative,  explicit purpose language designating specific funds for specific activities  would be added directly into the appropriations acts or the explanatory  statement, then incorporated into the appropriations act by reference. “Under the current approach, funds are designated for specific sub-activities in the  explanatory statement. However, these designations are generally not legally binding  unless incorporated by reference into the appropriations act itself. Under this alternative  approach , specific purpose language or language of incorporation would  be included in the appropriations act. The distinction between the current approach and  the alternative presented here is that legally binding language concerning specific  amounts for specific OCO activities would appear in the appropriation act.”

The Congress could create separate appropriation accounts for  amounts designated for OCO and amounts designated for base  activities. “In the current approach, amounts are designated for OCO and base activities within a  single appropriation account. In the alternative proposed in Question 5, the Congress  would create two separate appropriation accounts for OCO and base activities amounts.  For example, there would be one appropriation account for OCO amounts for O&M, and  another appropriation account for base activity amounts for O&M.”

DOD could use a transfer account (such as the Overseas  Contingency Operations Transfer Fund, or OCOTF) through which  the Department could meet operational demands by transferring  funds to the military services and agencies based on execution  needs as the year progresses. The Congress would appropriate funds  into a transfer account. These funds would not expire and be available for  DOD’s use during multiple fiscal years. DOD would use its base activities  appropriations to fund OCO activities and later draw from the transfer  account as needed to reimburse its base appropriation accounts.

Below we show the verbatim wording from key sections of the  questionnaire we administered. We used Questions 2 and 3 as screening  questions to help determine if respondents were sufficiently  knowledgeable about the current congressional or DOD processes.  Question 4 and its sub-questions below were repeated for each  alternative presented above (i.e., as Questions 4 through 7 in the  questionnaire). We also asked sub-questions “b” through “e” in Question  4 for the current approaches Congress and DOD use (presented in  Questions 2 and 3). Finally, we asked respondents to identify up to five  additional alternatives in Questions 8 through 12.  2.  Are you familiar with any of the current approaches that the  military services or DOD organizations use to separate operation  and maintenance (O&M) amounts designated for Overseas  Contingency Operations (OCO) from amounts designated for  base activities during the allotment, obligation, and/or  disbursement phases? Please check one box.   Please continue to “a” through “e”   Please skip to Question 3   Please skip to Question 3  3.  Are you familiar with the current approach that Congress uses to  designate amounts for OCO in the appropriations process for  DOD? Please check one box.   Please continue to “a” through “e”   Please skip to Question 4   Please skip to Question 4  4.  GAO has identified the following as a possible alternative to the  current approach for separating amounts designated for OCO  from amounts designated for base activities in the  appropriations process:  a.   Were you aware of this alternative before completing this   questionnaire? Please check one box.

Please continue to “b” through “e”  b.  What are the positive aspects associated with this alternative,  if any? Please consider factors impacting both taxpayers and  the DOD. The box will expand as you type.   c.  What are the negative aspects associated with this  alternative, if  any? Please consider factors impacting both  taxpayers and the DOD. The box will expand as you type.   d.  What are the costs associated with this alternative, if any? Please  consider costs impacting both taxpayers and the DOD. The box  will expand as you type.   e.  What are the requirements associated with implementing this  alternative? Consider factors such as: changes to existing  systems, policies, or processes; new systems, policies, or  processes; new budget estimations; required training; etc.  These could be requirements for DOD or the Congress. The  box will expand as you type.   8.  Are you aware of any alternative approaches for separating  amounts designated for OCO from amounts designated for base  activities other than the ones listed above? Please consider both  approaches DOD could implement on its own (such as  approaches to separating OCO from base in the O&M account or  changes that make that unnecessary) and legislative approaches  the Congress could take. We are aware of the Enterprise Resource  Planning (ERP) systems listed above. For this question, we are  interested in the implementation of new potential alternatives other  than the ERP system. Please check one box.    Please continue to “a” through “e” to tell us about  one alternative. If you are aware of more than one,  you will be able to tell us about others in Questions   9-12.     Please skip to Question 13   Please skip to Question 13  a.   If yes, please briefly describe the first alternative approach.

Appendix IV: GAO Contact and Staff Acknowledgments

Elizabeth Field, (202) 512-2775 or fielde1@gao.gov.

In addition to the contact named above, Richard K. Geiger, Assistant  Director; Arkelga Braxton, Assistant Director; Rebekah Boone; Amie  Lesser; Felicia Lopez; James P. Klein (Analyst-in-Charge); Shylene Mata;  Sheila Miller; Richard Powelson; and Michael Silver made key  contributions to this report.

The Department of Defense has received more than $1.8 trillion for war-related activities since 2001. Currently, Congress provides funds for both war-related activities and regular activities. DOD tracks the funds separately by using codes in its financial system.

We identified more ways to separate these funds:

Move costs that will endure beyond current war operations to the regular budget

Use language in the appropriations acts to specify the purpose of funds for war-related activities

Fund everything from the regular budget and reimburse for war-related activities from a transfer account