With public confidence flagging and Government waste still not under control, we must do better in making Federal programs more effective and more efficient. Federal agencies spend too much time on the process, frequently forgetting the condition of the product or the customer.

Good performance measurement can help. With it, we can do more to specify program objectives, to assess progress toward those objectives, and last but not least, to hold managers accountable for their performance.

Members of this Committee will remember that we have already started down this road. The Chief Financial Officers Act of 1990, on which this Committee worked long and hard for 6 years to enact, requires Federal agencies to develop and maintain financial management systems that provide for the systematic measurement of performance. And OMB is now working hard, as Frank Hodsoll will tell us today, to flesh out this requirement, and to make performance measurement a meaningful and useful tool for management and program improvement.

Senator Roth, who has been a staunch supporter of the CFO Act, is to be commended for moving the debate on performance measurement forward with his introduction of S. 20, the "Federal Program Performance Standards and Goals Act of 1991."

As we heard at our May 1991 hearing, performance measurement can work. It has worked in State and local government, and it ought to work in the Federal Government. I think few people would disagree that a better sense of program objectives and measures could make the Federal Government more effective.

At the same time, we must understand that the Federal Government is not a State or local government. What may work successfully for municipalities may not be readily transferred to our very unique national system. Likewise, the performance measurement models of other countries, however advantageous for those nations, may be of limited value in helping Uncle Sam determine how best to implement performance measures. It seems to me that our biggest folly at this stage would be to unilaterally and inflexibly dictate a single set of standards that may not be appropriate in a national setting.

For starters, we must recognize that Federal programs are bigger, their objectives are broader, and they involve substantial indirect services and financial transfer functions generally not faced by local government. In fact, that is one reason I am so eager for OMB to move forward with its pilot projects in performance measurement. I hope to learn this morning from Frank how some Federal agencies are incorporating performance measures into their programs. It is through their efforts that we will gain the necessary experience for managing meaningful, responsive programs.

There is no organization I can think of that matches the scale and complexity of our Federal Government. So if we are to create an effective program for measuring agency performance we must make sure that there exists the data collection and evaluation mechanisms to produce reliable performance information.

Not only that, we also must take care that any performance in

OMB Director Darman told this Committee just 3 months ago, and I quote: "It is easy to set goals. It is a lot harder to come up with responsible evaluative information about the causes of performance or failure to perform. We have been through a related experience in the late 1960's and early 1970's where we over-promised in terms of the degree and rate of improvement the public should expect to see."

Director Darman went on to say also, and I quote: "Sorting out causality as to what really accounts for succeeding is very, very tricky, and it lends itself to its own kind of gaming and abuse."

I think all of us would be very discouraged if we managed only to establish another system that bureaucrats learn to game. I am sure that is not what Senator Roth wants, and it is certainly not what I want.

We look forward to our witnesses this morning, starting with the Comptroller General, Charles Bowsher, who can tell us more about performance measurement, about how to take advantage of its promise, and avoid its pitfalls.

Mr. Comptroller General, we welcome you again to our Committee. I believe you are accompanied this morning by Mr. Richard Fogel, Assistant Comptroller General, General Government Division; Mr. John M. Kamensky, Assistant Director, General Government Division, and John Hill, Director, Audit Support and Analysis, Accounting and Financial Management Division.

We look forward to your statement, Mr. Bowsher.

TESTIMONY OF HON. CHARLES A. BOWSHER,1 COMPTROLLER GENERAL, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY RICHARD L. FOGEL, ASSISTANT COMPTROLLER GENERAL, GENERAL GOVERNMENT DIVISION; JOHN M. KAMENSKY, ASSISTANT DIRECTOR, GENERAL GOVERNMENT DIVISION, AND JOHN W. HILL, DIRECTOR, AUDIT SUPPORT AND ANALYSIS, ACCOUNTING AND FINANCIAL MANAGEMENT DIVISION

Mr. BowSHER. Thank you very much, Mr. Chairman.

We are pleased to be here to discuss this very important issue. I think it goes without saying that Government must be able to deliver quality programs and services and to have proper accountability.

I have a statement which I would appreciate very much if it could be incorporated in the record, and I will just summarize it here.

Chairman GLENN. It will be included in its entirety.

Mr. BOWSHER. We believe that the CFO Act is a real beginning. In other words, I think when this act was passed under the leadership of this Committee, we got off moving in the right direction, which is to find out where do we stand financially speaking, but also to find out where we stand on how well the programs are working.

I think there are four key things that we should be struggling very hard to achieve with the CFO Act, and those are: financial reporting that shows the actual expenditures versus the budgeted ap

propriations that the Congress has approved; second, I think we need to have financial reporting that shows that we have control over our assets. I think our recent Air Force audit indicated problems in this area when agencies do not have control over assets. These are multi-billion-dollar figures, and it is equally important to know how we are managing those assets, like inventories, in the military as well as the annual appropriation.

The third thing, of course, is unfunded liabilities. I think Dick Darman has been very eloquent on this in some of his testimony before the Congress. We want to know if we are getting into financial trouble in some of these areas, even though maybe the current cash accounting system doesn't indicate it. The Medicare trust fund is a good example. Right now, that looks like it is in balance, but if you look down the road, what we should be telling everybody with our financial reporting and our budgeting is that that is going to be in trouble in the future.

I have often used military pensions as an example. When I was serving at the Pentagon, we would have briefings on how large the military pensions were going to get, but the people who were approving the annual budgeting were not getting that same information. That has been corrected, and I think those are the kinds of corrections that we ought to build into all of our CFO reporting and budgeting.

The last item is performance measurement, or program evaluation-in other words, what are we getting for all this money that we are spending on behalf of the taxpayer. The country needs to know that, the legislators need to know that, and the management of our executive branch agencies need to know that.

I think the IRS is a good example. They have finally decided not to just keep trying to figure out how to improve their computer systems, but they have gone to a much broader look. They have recently restructured their whole strategic plan to focus on what they consider to be the most important objectives, which include reducing taxpayer burden, enhancing voluntary compliance, and improving quality and productivity. Now that they have defined what they think their mission is all about, they are developing their performance measurements within the framework of that overall mission and vision of what they want to achieve with their agency. I think that's what we need more and more.

Also, I think you've got to ask the agencies to develop implementation plans for their goals and their objectives and the measurements of progress as to how they are going to achieve those plans. Third, the agencies must be able to report on how well they have done, and that includes reporting to the Congress. I think that is awfully important.

If you look down the road, I think we are beginning to see some progress here as well as some areas of opportunity. The Defense Department has moved to consolidate some of their business operations into the Defense Business Operation Fund (DBOF). In addition, to try to get better financial control, they are trying to also put together what they want to achieve as far as improved quality and improved reduction of inventories and improved service. I

I would hope in areas like Social Security, and some other large areas, especially where they are providing services and running a large operation, that that's the kind of thing they could do, too.

We have performed a study, the GAO report that we are issuing today at this Committee's request, that surveyed the current use of performance measurements in various Federal agencies. When we sent out a questionnaire to the various Federal agencies, two-thirds of them said they had a strategic plan, and three-fourths said they were collecting performance data.

But when GAO actually went out and looked at some of these operations, it is a good deal less than the results indicated on the questionnaire. In other words, it is mostly program data, and it is not brought up into what we would call a strategic plan, or what is the agency trying to achieve.

I am very pleased that OMB, as you said, Mr. Chairman, in your opening statement, has developed a useful strategy for implementing the CFO Act provisions that requires performance management data in addition to just financial management. As we say in our statement on page 9, their strategy calls for a discussion and an overview section of (1) how well the mission of the reporting entity is being accomplished, and (2) what if anything needs to be done to improve either program or financial performance. OMB believes, and we agree, that including this type of information will help increase the usefulness of financial statements to Congress and to the agency management.

In addition, OMB plans to expand the development of program performance measures beyond financial statements and will shortly pilot the development of strategic-level measures in several agencies. I think that's awfully important, and we have been working very closely with OMB on some of this.

When it comes to congressional oversight and congressional interest, I think that this is awfully important in these performance measurements and program evaluations because I think it is awfully important for the Congress to be involved.

I have said for some time that I thought that Congress ought to be doing a better job on oversight by having an early and more defined committee arrangement as to who is responsible for doing oversight on our larger agencies. If you look at our 25 largest agencies, if they had an annual hearing before Congress and had to come up here and give their financial results and also their performance indicator results, I think then the Congress would be much better informed as to what is happening in the executive branch and in our large Government.

I think it is probably preferable to focus in on year-end results; in other words, what has happened at the end of the fiscal year rather than just what is being proposed at the beginning of the fiscal year when you tie it into the budget. I think that sometimes, if we just tie performance measurements to the budget process, people do start gaming the system at that time, and they get worried about what these numbers are going to mean for their budgets.

Needless to say, any information that the performance measurements and the management reporting would have would indicate

propriations that the Congress has approved; second, I think we need to have financial reporting that shows that we have control over our assets. I think our recent Air Force audit indicated problems in this area when agencies do not have control over assets. These are multi-billion-dollar figures, and it is equally important to know how we are managing those assets, like inventories, in the military as well as the annual appropriation.

The third thing, of course, is unfunded liabilities. I think Dick Darman has been very eloquent on this in some of his testimony before the Congress. We want to know if we are getting into financial trouble in some of these areas, even though maybe the current cash accounting system doesn't indicate it. The Medicare trust fund is a good example. Right now, that looks like it is in balance, but if you look down the road, what we should be telling everybody with our financial reporting and our budgeting is that that is going to be in trouble in the future.

I have often used military pensions as an example. When I was serving at the Pentagon, we would have briefings on how large the military pensions were going to get, but the people who were approving the annual budgeting were not getting that same information. That has been corrected, and I think those are the kinds of corrections that we ought to build into all of our CFO reporting and budgeting.

The last item is performance measurement, or program evaluation-in other words, what are we getting for all this money that we are spending on behalf of the taxpayer. The country needs to know that, the legislators need to know that, and the management of our executive branch agencies need to know that.

I think the IRS is a good example. They have finally decided not to just keep trying to figure out how to improve their computer systems, but they have gone to a much broader look. They have recently restructured their whole strategic plan to focus on what they consider to be the most important objectives, which include reducing taxpayer burden, enhancing voluntary compliance, and improving quality and productivity. Now that they have defined what they think their mission is all about, they are developing their performance measurements within the framework of that overall mission and vision of what they want to achieve with their agency. I think that's what we need more and more.

Also, I think you've got to ask the agencies to develop implementation plans for their goals and their objectives and the measurements of progress as to how they are going to achieve those plans. Third, the agencies must be able to report on how well they have done, and that includes reporting to the Congress. I think that is awfully important.

If you look down the road, I think we are beginning to see some progress here as well as some areas of opportunity. The Defense Department has moved to consolidate some of their business operations into the Defense Business Operation Fund (DBOF). In addition, to try to get better financial control, they are trying to also put together what they want to achieve as far as improved quality and improved reduction of inventories and improved service. I