Accompanying Report of the National Performance Review
Office of the Vice President
Executive Summary 1 ^^^^^^^^^^^^^^^^^
Recommendations and Actions
SMC01: Implement a Systems Design Approach to Management Control 9
SMC02: Streamline the Internal Controls Program to Make it an Efficient and Effective Management Tool 15
SMC03: Change the Focus of the Inspectors General 21
SMC04: Increase the Effectiveness of Offices of General Counsel 27
SMC05: Improve the Effectiveness of the General Accounting Office Through Increased Customer Feedback 31
SMC06: Reduce the Burden of Congressionally Mandated Reports 33
SMC07: Reduce Internal Regulations By More Than 50 Percent 37
SMC08: Expand the Use of Waivers to
Encourage Innovation 45
Each action is followed by a number in parentheses that indicates the necessary avenue for effective implementation. Appendix A organizes all actions according to these categories.
(1) Agency heads can do themselves
(2) President, Executive Office of the President, or Office of Management and Budget can do
(3) Requires legislative action
(4) Good idea, but will require additional work, or work may be better suited for the future
ACUS Administrative Conference of the United States
CBO Congressional Budget Office
CD-ROM Compact Disc-Read Only Memory
CEG Council for Excellence in Government
CFO Chief Financial Officer
CIA Central Intelligence Agency
DAR Defense Acquisition Regulation
DFE Designated Federal Entities
DLA Defense Logistics Agency
DOD Department of Defense
DOI Department of the Interior
ECIE Executive Council on Integrity and Efficiency
EEO Equal Employment Opportunity
EEOC Equal Employment Opportunity Commission
EO Executive Order
EPA Environmental Protection Agency
FAR Federal Acquisition Regulation
FDA Food and Drug Administration
FY Fiscal Year
FMFIA Federal Managers' Financial Integrity Act
FTE Full-Time Equivalent
GAO General Accounting Office
GPRA Government Performance and Results Act
GSA General Services Administration
HHS Department of Health and Human Services
HUD Housing and Urban Development
IG Inspector General
IRM Information Resource Management
IRS Internal Revenue Service
MEPP Management Efficiency Pilot Program
MSPB Merit Systems Protection Board
NAPA National Academy of Public Administration
NASA National Aeronautics and Space Administration
NPR National Performance Review
NRC Nuclear Regulatory Commission
OGC Office of General Counsel
OGE Office of Government Ethics
OIG Office of Inspector General
OMB Office of Personnel Management
PCIE President's Council on Integrity and Efficiency
PMC President's Management Council
NRC Nuclear Regulatory Commission
TQM Total Quality Management
S&L Savings and Loan
USC United States Code
At times, the federal government's management control system resembles a theater of the absurd. Until 1985, for instance, Congress required the Secretary of Education to report biennially about the Office of Education Professional Development, even though that office closed in 1981. Such overkill, however, is not limited to the Education Department--not by a long shot. With a staff of about 300, the Merit Systems Protection Board must produce 70 congressionally mandated reports this year. It gave the job to 4.2 full-time employees, at an estimated cost of $257,121.(1)
There is no control over the controls:
In their totality, the federal government's management control methods are vast, complex, and very expensive. The primary responsibility of approximately one in three federal employees is to exert control over the other two-thirds and non-federal grantees and contractors. The system includes about 280,000 formally designated supervisors, managers, and executives, all of whom perform control functions, costing billions of dollars. Another nearly 267,000 people in internal staff positions--including legal, personnel, procurement, budget, and financial management staff--also spend a large portion of their time performing control functions.
Moreover, these staffs have increased relative to the government's overall work force. Although executive branch personnel grew only 7 percent in the decade after 1980, the number of employees in the personnel function increased 11 percent, the number in financial management increased 27 percent, and the number in procurement increased an amazing 60 percent.
Meanwhile, the federal government is awash in watchdog organizations- -the General Accounting Office, Office of Personnel Management, Office of Management and Budget, General Services Administration, Equal Employment Opportunity Commission, Office of Government Ethics, offices of general counsel, and Offices of Inspector General-- totalling about 36,000 employees.(2) The presence of these watchdogs results in each agency maintaining an internal staff dedicated to coordinating and tracking their reviews. Together they cost taxpayers billions to guard against the potential for waste, fraud, and abuse. Line managers and employees expend still more staff time providing data and information to these reviewers. In addition to these reviews, Congress conducts oversight by holding hundreds of hearings and requiring about 5,000 written reports a year.
How much, in its entirety, does the federal government's management control system cost? Since government accounting systems do not track the costs of controls, no one can say precisely. However, the salaries and benefits of associated staff--one in three federal employees--is estimated to total about $35 billion a year. (3)
Given that management control is essentially overhead--i.e., it does not produce government services--it is a prime candidate for big improvements. The trick, of course, is not to eliminate all controls, especially during a period of change.(4) Organizations need controls to ensure that they are achieving missions and goals within the boundaries of laws, regulations, and officially agreed-upon behavior. Besides, potentially major problems remain. "Are there other HUDs today?" the Assistant Comptroller General for Accounting and Financial Management rhetorically asked Congress not long ago, referring to the Housing and Urban Development Department's recent management scandals. "Unfortunately, I believe there are."(5)
The challenge, then, is to devise control systems that are useful, not overbearing. They must help the government achieve the results that it desires--not stand in the way, as they currently do. And they must help enhance the public's confidence that its tax dollars are being spent wisely.
Interestingly, as the federal government's management control systems expanded, public confidence dropped. These controls, meanwhile, have not been sufficient to prevent some of our worst management scandals- -with savings and loan institutions, and at HUD and the Defense Department.
In any organization, all members exercise some control over operations. Generally, "control" refers to monitoring work to ensure its quality.(6) Monitoring, in turn, requires feedback to assess progress and outcomes. While all employees have some control responsibilities, leaders, managers, and supervisors have the broadest responsibilities over their process and organizational units.
Currently, increasing numbers of successful private and public organizations recognize that a management control system must support their efforts to become more customer-focused. These organizations operate according to a management strategy of continual improvement, rather than meeting minimum specifications. They define "improvement" as innovation in a product or service, producing more than minimum requirements or specifications, and eliminating waste. The consumer product revolution of the 1970s and 1980s, initially driven by the Japanese, showed Americans that they, indeed, could have better products that cost less.
Clearly, the federal government must also do more with less. Thus, it must redesign its approach to management control, consistent with a focus on customers and quality. Specifically, it must develop a new strategy that lets it anticipate, meet, and even exceed its customers' needs and expectations. This new strategy requires a careful assessment of how the government currently operates, so it can distinguish useful processes from those adding no value to products or services.
Two requirements govern the role of "management control" in the executive branch: Specified outcomes must be achieved as effectively and efficiently as possible; and work must follow the dictates of laws, regulations, and agreed-upon behavior. Three types of people perform control functions: employees, line managers (supervisors, program managers, agency heads, the President), and staff (e.g., Offices of Inspectors General (OIG's), personnel offices, legal offices).
This report focuses primarily on broad controls used by staff functions--largely those controls that affect the culture within the bureaucracy. Other accompanying reports of the National Performance Review address related aspects of management control, such as staff controls within specific functions (e.g., personnel) and controls used by line managers, such as front-line supervisors.
Management control in the federal government has five general characteristics:
The government's over-reliance on compliance monitoring and negative feedback has stifled improvement and innovation--at the expense of program customers. Altogether, the federal government has created a managerial culture that is reactive and oriented toward maintaining the status quo. The present system needs more than an oil change. It must be streamlined and reengineered, not only in its methods but also its focus, values, and culture.
People on the line--employees and their immediate supervisors--should perform most control and oversight. They should focus on continually cutting waste, preventing problems, making improvements, and innovating. External staff organizations--such as the General Accounting Office, the Merit Systems Protection Board, and the Equal Opportunity Employment Commission--should recast their roles to support line managers by providing information on "best practices" and assessing these managers' oversight activities, not performing the activities themselves.
If the federal government has long had a disjointed approach to management control, why does it remain in such disarray? Primarily, because the executive branch's interest in sound leadership and strategic management has lacked consistency. In addition, the executive branch and Congress have tended to react hastily to the whims of the press and public opinion, imposing broad solutions to isolated problems. Over several administrations, the executive branch's abdication of the fundamental responsibility to manage effectively has encouraged incomprehensible, fragmented, incredibly costly management control.
The worldwide quality movement clearly shows that control systems with minimal layers and clear roles and responsibilities are far superior to over-control.(7) A system with multiple layers of supervision, inspection, and other forms of "checking," existing simultaneously in both line management and staff support offices, ironically produces less control and very high costs. Those responsible for oversight assume that others with the same roles are performing their functions thoroughly. At the same time, those receiving multiple versions of guidance from multiple groups grow confused about what's expected and important. As a result, accountability for achieving results is lost.
This report recommends how to both pare back the old and create the new. Its recommendations fall into three general categories: (1) taking a systematic approach; (2) improving internal control; and (3) improving external control.
The President's Management Council should develop a comprehensive vision of a streamlined management control system for the executive branch. This new system would strengthen the role of line management, emphasize rewarding improvements and reducing waste, use appropriate measures of performance and feedback loops, and make sure the methods complement one another rather than overlap or contradict one another. This reinvented system will improve control and, at the same time, save billions of dollars a year.
Improve Internal Control.
The federal government's Internal Controls program--established to implement the Federal Managers' Financial Integrity Act of 1982--must become a useful tool for line managers. Such an approach will be launched via a new version of OMB Circular A-123, "Internal Control Systems," which creates the framework for complying with the Act.
In addition, the role of agencies' Offices of General Counsel (OGC) must be clarified so that they can better help their agencies achieve their missions. This requires defining who the OGC staffs' clients are, creating incentives and better performance measures to tie OGC staff performance more directly to mission achievement, and creating "feedback loops" from agency line managers to OGC's to help them better serve their customers.
Also, internal regulations must be cut substantially. The amount of detailed rules and regulations on the books nourishes our complianceoriented culture. By cutting internal rules and regulations by at least half within the next three years, the government would save much time and money directly and help create an atmosphere that encourages improvement and innovation.
Finally, the expanded use of waivers would encourage innovation and more appropriate use of resources in accomplishing a program's goals. Waivers would allow federal, state, or local organizations to gain exceptions to how they execute laws, rules, or regulations, especially in cases when applying blanket rules makes no sense.
Reinvent External Controls.
Improving external controls must start with a new vision of the roles and activities of Offices of Inspectors General (OIG's), which have been a growing source of concern among line managers since their establishment, beginning just over 15 years ago. The laws give these offices great latitude, and the offices vary greatly in how they conduct their business. Such differences raise fundamental questions about what functions these offices should emphasize and how they should execute them. Generally, OIGs should emphasize overseeing line management's control systems more than their traditional role of compliance monitoring. In addition, they should collaborate more with line management, although not to the extent that this would destroy OIGs' independence and objectivity.
The General Accounting Office (GAO) could add to the progress it has made through its formal quality management approach. Specifically, GAO could better document the best practices it finds during audits and create feedback loops with agencies to better assess and improve the effectiveness of GAO's oversight.
Finally, Congress should set a goal of eliminating at least half of the 5,000 reports that it requires each year from the executive branch. This action would save the government millions of dollars each year and would help focus congressional oversight on the most important areas.
A striking characteristic of the federal government is its constant struggle to control a conglomerate of agencies several times larger than any existing holding corporation. It uses a labyrinth of disjointed mechanisms--put in place by both the executive branch and Congress--in an attempt to achieve control. The existing control mechanisms were developed at different points in time, primarily as individual reactions to specific problems. In aggregate, they were patterned after corporate control structures of the Industrial Era in the 1930s--large, centralized, top-down. These premises are no longer appropriate in an Information Age environment of rapid change and technology that makes information readily accessible to managers and employees at many different levels in an organization. The existing system provides the illusion of control. But in fact, these mechanisms overlap, duplicate, confuse, and sometimes contradict each other. Even a cursory look at the federal approach to management reveals an overly layered and poorly coordinated set of controls characterized by ambiguity and often focused on unimportant things. And its cost is enormous--one estimate places it conservatively at $35 billion a year. As a result, the existing system steals precious resources from the real job of government: serving the customer.
Line Versus Staff Controls.
Control in the federal government is exerted by two groups--line management and staff offices. Line management, or "line control," is exercised by each agency's program offices, such as the managers in a local Social Security office. Typically, line managers monitor performance and appraise their employees, and they write procedures and ensure they are complied with. They also conduct formal program evaluations, and they develop internal controls. Oversight of line managers is performed by management levels above the program office within the agency, such as a regional Social Security office.
The sum total of line management control and oversight is very large and, many believe, overdone. There are over 278,000 supervisors and managers in the federal government--about 1 in 7 federal employees. This has contributed to horror stories of over-management; for example, the lengthy "chop chains" for sending an official letter, entailing as many as 10 or 15 formal check points, any one of which can change the contents. The result: A simple letter may take months to get sent.
Staff offices, on the other hand, can be both internal or external to an organization. "Internal" staff offices exert control in at least two ways--granting permission to act or second-guessing decisions. The first, granting permission to act, would include actions such as the general counsel staff saying that a proposed action is legal; a procurement office awarding a contract; or a personnel office classifying a job at a certain grade level. Staff control can also be exerted through second-guessing, or "oversight," which usually is a formal assessment of compliance with rules. Most internal staff oversight is conducted by program evaluation offices, the procurement office, the personnel office, and financial managers. Oversight methods include investigations, audits, reviews, evaluations, and inspections.
A variety of "external" organizations also have a direct or indirect role in staff oversight. These include Congress, the General Accounting Office (GAO), the Office of Personnel Management (OPM), the Office of Management and Budget (OMB), the General Services Administration (GSA), the Equal Employment Opportunity Commission (EEOC), the Environmental Protection Agency (EPA), the Merit Systems Protection Board (MSPB), the Office of Government Ethics (OGE), and the Offices of Inspectors General (OIG's). Currently, over 36,000 federal employees--not including Congress--conduct "external" oversight (see Appendix B for an illustrative listing of most of these staff organizations).
Control functions grew faster than other functions. Over the past decade, control functions grew faster than the executive branch as a whole. While executive branch personnel grew seven percent between 1980 and 1990-91, employment in the personnel function increased 11 percent. In financial management, the increase was 27 percent and, in procurement, it jumped 60 percent. (See figure 1.)
Despite the fact that billions are spent on control, the public still considers waste, fraud, and abuse to run rampant in the federal government. The average American believes the government wastes 48 percent of every tax dollar.(1) Ironically, a contributing factor is the existing system of fragmented controls. A lack of accountability and the inappropriate focus of existing controls contribute to, rather than erase, this perception.
There are models of effective control systems. The worldwide quality movement clearly has proven that control systems with minimal layers and clear roles and responsibilities are far superior to the federal government's system of over-control.(2) In contrast, a control system with multiple layers of supervision, inspection, and other forms of "checking," existing simultaneously in both line management and staff support offices, results in less control and very high costs. Overcontrol results in less control because those responsible for oversight assume that others also responsible for oversight are performing their functions thoroughly. However, in reality, multiple versions of guidance from multiple groups diffuses accountability and confuses line staffs about what is expected and important.
Fragmented Controls Contribute to an Ambiguity of Responsibility. With so many roles to be played and so many individuals and organizations involved, overlap and confusion of responsibilities has grown. Many strongly differing points of view exist about what roles these groups do play and should play. Clear roles and focus are needed. One premise is that, because line management's own oversight has been allowed to atrophy, staff groups have had to assume these functions. For example, a few Inspectors General now have inspection offices in addition to their standard audit and investigation offices. These inspection offices vary widely in purpose, staffing, and operations, but they do have some common features. They concentrate on shorter-term studies, producing more timely results. These reviews range from quick responses to congressional inquiries, to on-site management reviews, to in-depth evaluations of program practices. These latter evaluations concentrate on program effectiveness and efficiency (how well and at what cost programs are achieving their objectives) and program integrity (how well programs are protected from wrongdoing). GAO on occasion has conducted the same kinds of evaluations, sometimes for the same reasons.
Lamentably, this activity by some parts of the audit community reflects the type of program evaluations some managers believe line management should be conducting internally. It is better in the long term to insist that line managers properly execute their control and oversight functions. To foster this, external overseers should reorient their focus to evaluating the effectiveness of the control and oversight systems put in place by management.
Most staff controls are focused on "before the fact" control mechanisms on inputs, such as controls over outlay budgets and staffing levels, and compliance with rules. Most high-performing organizations have shifted their focus to "after the fact" controls on outcomes, such as results-oriented budgets and performance measures. Studies of organizations that have made the shift show decreases in the costs of delivering services, largely because of the ability to reduce the cost of the control systems. While there are some organizations where "before the fact" controls may be appropriate, there are many where a change in approach can improve services and cut costs.(3)
Costs of This Approach to Control are Too High. The existing management controls system swallows untold millions of staff hours and requires an estimated 660,000 "control" employees at a cost of approximately $35 billion dollars. This estimate includes all line and staff managers and employees performing appraisals, audits, reviews, investigations, evaluations, inspections, and monitoring.(4) It does not include the costs imposed on those that are being appraised, audited, reviewed, investigated, evaluated, inspected, or monitored.
There is no upper limit imposed on how much "management control" is imposed on a given organizational unit or program. Formal audits, reviews, investigations, and inspections in a single governmental organization can easily total hundreds per year and can be initiated at any hierarchical level in the system, from Congress, the central management agencies, or a department headquarters on down. And there are no accounting systems to adequately document these costs. Notably, no one is assigned responsibility for controlling these costs or ensuring these resources are being spent wisely. There is no control over the controls.
There is an alternative that seems to have proven successful in the private sector. The quality management approach--which focuses on preventive actions and results-oriented measures (e.g., customer satisfaction) --can provide a systematic framework for gaining control over the controls. It can help sort out the proper functions of doing vs. monitoring work, of line vs. staff, of internal vs. external control, and of the use of inspection vs. prevention methods.
Redesign the existing set of control mechanisms for the executive branch, using a systems design approach. (2)
The President's Management Council (PMC) should create a streamlined and cost-effective management control system for the federal government. It should begin by documenting the existing system of requirements for control (laws, regulations, rules), classifying the types of methods used (audit, reviews, evaluation), and identifying who does them. It should then assess alternative approaches to use as benchmarks and design a new vision of management control. The PMC should then use this information to design a new, more cost-effective system on behalf of the American taxpayers.
The new management control system should reflect four characteristics:
A second private sector measurement principle is based on the fact that there is variation in all processes. As a result, managers must properly analyze and interpret the meaning of their production data.(6)
The final measurement principle recognizes that waste is present in all processes to varying degrees, but management and employees must continually reduce waste.(7) Some Baldrige Quality Award winners have succeeded in greatly reducing waste. For example, thanks to its "Six Sigma Program," Motorola now has some manufacturing processes that produce less than 3.2 defects per million potential defects.
Creating Quality Leadership and Management, QUAL02: Improve Government Performance Through Strategic and Quality Management.
"Internal controls" are an integral part of any organization's basic management processes. Internal controls ensure that organizational missions are being met through effective and efficient means. They are intended to protect an organization's resources and assets from fraud, waste, abuse, and mismanagement. The formal internal controls program of the federal government consists of two parts: (1) the design and implementation of internal controls, and (2) the review of the adequacy of those internal controls.
The traditional view of internal controls is rooted in financial management and accounting. This view is being integrated into the broader context of "management controls." This broader view has been growing in acceptance in government circles since the late 1980s. Internal management control techniques include policies, procedures, and organizational plans, and physical arrangements.(1) These include time clocks or sign-in sheets, computer password protections, and required signatures to approve travel documents. Controls also include the separation of duties--a form of checks and balances. Effective internal management controls keep dishonest employees from paying secretarial staff the amount due an executive; and they keep Head Start grant money from being awarded to drug dealers.
Financial Integrity Act.
Concern over inadequate management controls led Congress to enact the Federal Managers' Financial Integrity Act (FMFIA) in 1982. The act establishes a review process of internal accounting, administrative controls, and accounting systems. Each agency must report annually to the President and Congress on the condition of its management controls and accounting systems, self-report "material control weaknesses," and describe the actions that will be taken to correct the material weaknesses.(2) FMFIA requires the Office of Management and Budget (OMB) to issue guidelines and the General Accounting Office (GAO) to issue internal control standards.(3)
OMB Circular A-123, "Internal Control Systems," implements FMFIA. It requires agencies to segment their organizations and functions into assessable units or components. Reviews of these components' management controls are carried out through Risk Assessments, Management Control Reviews, and Alternative Management Control Reviews as prescribed by OMB. OMB's guidelines are intended to place the responsibility with the line manager to assess the adequacy of the management controls of his or her organizational component.
Typically, however, small staffs in each agency have been dedicated to monitoring the requirements of FMFIA and OMB Circular A-123. In addition, GAO and Inspector General (IG) staffs selectively review agencies' management controls. Therefore, the annual reports are a combination of material control weaknesses that have been uncovered by managers, management control staffs, GAO, and/or the IG.
Action on Weaknesses.
According to OMB, since 1982, agencies have reported approximately 4,500 material weaknesses and corrected 3,855 of them. Currently, 645 material control weaknesses are pending.(4) Overall, the reports indicated that the majority of the weaknesses had been disclosed by IG or GAO staffs. Some agencies, such as the Department of Veteran's Affairs, rely on IG staffs to disclose problems with management controls. Others, such as the Department of Health and Human Services (HHS), rely more heavily on management staff to disclose the weaknesses. In 1992, the majority of HHS' material weaknesses had been disclosed by line managers.(5)
Some agencies have high-level management councils that assist the agency head in determining which identified weaknesses should be included in the annual report and in tracking the progress of corrective actions. In addition, the interagency Management Control Coordinating Council exists to share information across agencies regarding the implementation of FMFIA.
The Management Control Coordinating Council believes FMFIA has the potential for being an early warning tool.(6) "Are there other HUDs today?" the Assistant Comptroller General for Accounting and Financial Management asked rhetorically in his 1990 testimony to Congress. "Unfortunately, I believe there are," he continued.(7) For this reason, the government needs a tool such as FMFIA to provide an early warning of problems. However, FMFIA and OMB Circular A-123 have not ensured that effective management controls were in place. As a result, scandals occurred, wasting the taxpayers' dollars and eroding their confidence. If proper management controls had been in place, or if their ineffectiveness had been brought to the attention of highlevel executives sooner, these debacles might not have occurred.(8)
Agency heads must ensure internal management controls are in place and must be sure that they are appropriate and effective. Too few or inadequate management controls may exist in some instances. Conversely, there can be too many management controls that are counterproductive and not cost-effective because they are processoriented, not results-oriented.(9) For example, to ensure that employees are working the appropriate number of hours, management sometimes asks employees to punch a time clock each day or sign in and out on a time sheet. Would it not be more significant to show that they have completed the required work at the required level of quality?
Current Approach is Hollow.
While management controls must be cost-effective, so should the review of these controls. FMFIA and A-123 have been criticized because they are seen as hollow, inflexible procedures. One agency refers to FMFIA as "flim-flam." While many people interviewed consider management controls as important tools to safeguard the government's assets and resources, FMFIA generally is perceived as a labor-intensive, paperwork-focused reporting requirement with little positive results. It treats management controls as a separate, staffrun program, not an integral part of line management.
Many agencies have developed their own techniques for fulfilling the FMFIA requirement. Therefore, it is critical that OMB, through its circular and guidelines, give agencies sufficient flexibility to tailor their programs to their missions. However, the Internal Control Guidelines, issued by OMB in 1982, have not been revised to reflect the fact that many agencies' needs for management control differ. They prefer to have the flexibility to develop their own FMFIA programs, guided only by general policy, not detailed prescriptive guidelines.
Current Approach Does Not Make Line Managers Responsible. A key to establishing a practice of reporting problems early is to have those that sight the problems first--usually front-line employees or line managers--reporting them. However, in general, there is a lack of incentives for managers to report problems. Some managers are concerned that sanctions will result from reporting weaknesses.(10) In addition, some managers find that high-level management is sometimes uninterested in correcting management control problems(11) and that adequate resources are not available for corrective actions. And yet, management controls are an integral function of effective management. Accountability for and the review of management controls should be in the hands of the line managers.(12) They need to explicitly be held responsible for reporting these problems and resolving them promptly.
OMB should rewrite--not revise--its Circular A-123 and should incorporate the following concepts:
This new A-123 will set the direction for management controls and their review and allow agencies to develop the flexibility to develop their own system for management controls. Given the existence of GAO's "Standards for Internal Controls in the Federal Government," the OMB circular should be policy oriented.
FMFIA--recast as a tool for line managers to ensure that adequate and reasonable management controls are in place--should deemphasize the role of outside auditors. OMB should convey to agencies that the FMFIA annual report is not an end in itself--it is a tool to identify management concerns and bring them to the attention of high-level management.
2. Replace OMB's existing Internal Control Guidelines with a handbook on management controls. (2)
OMB, the President's Council on Management Improvement, and the interagency Management Control Coordinating Council should jointly develop a handbook on management controls to replace the Internal Control Guidelines last issued by OMB in 1982.
The new handbook would focus on the implementation of effective management controls and not on cumbersome reporting requirements. It should include:
The handbook should be updated periodically through supplements or complete revisions.
3. Revise government-sponsored management training to teach management control as an integral function of management, not as a reporting requirement. (1,2)
Much of the training on management controls--by OPM and the agencies- -has been geared toward the reporting and review requirements of FMFIA, not the significance of management controls as a management tool. The role of management controls, and the techniques by which managers ensure that resources are being properly used, must be a normal part of all federal managers' training.
Executive Office of the President, EOP05: Reinvent OMB's Management Mission.
Improving Financial Management, FM08: Reduce Financial Regulations and Requirements.
Reengineering Through Information Technology, IT01: Provide Clear, Strong Leadership to Integrate Information Technology into the Business of Government.
Creating Quality Leadership and Management, QUAL02: Improve Government Performance Through Strategic and Quality Management.
Congress established the Offices of Inspectors General (OIG's) in response to growing public concern over fraud, waste, and abuse in the federal government. Inspector General (IG) offices were organized to perform external oversight of federal programs and operations. The Inspector General Act of 1978 (IG Act) and subsequent amendments require IG's to promote the efficiency, economy, and integrity of federal programs. Audits and investigations attempt to identify fraud, waste, and abuse, in part, by focusing on compliance with requirements--i.e., by focusing on whether program offices, federal employees, grantees, contractors, and others connected to the government conform to laws and regulations. The FY 1994 President's budget provided budget authority of $1.3 billion and staffing of over 15,000 staff years for IG's.(1)
The IG community is diverse but closely knit. In 1981, the President's Council on Integrity and Efficiency (PCIE) was established to encourage cross-communication among the 26 presidentially-appointed IG's. The Council is composed of the 26 IG's and the Deputy Director for Management from the Office of Management and Budget. The Executive Council on Integrity and Efficiency was established later for the 34 non-presidentially-appointed IG's for the same purpose.
An Evolving Role.
Many IG's place a major emphasis on monitoring agency compliance with laws and regulatory requirements; however, no common vision exists across all sixty OIG's.(2) While all perform compliance audits and investigations, many also review annual financial statements of agencies, and some have branched off into new areas, such as program evaluation and collaborative program assessments.
The IG Act requires that compliance audits meet the financial and performance auditing standards established by the Comptroller General of the United States. A financial audit determines whether financial reports and related items are accurately presented according to established and specific financial compliance requirements.(3) Performance audits include both "economy and efficiency" and "program" audits. Economy and efficiency audits determine whether the entity is acquiring, protecting, and using its resources economically and efficiently. In addition, economy and efficiency audits pinpoint the causes of inefficiencies or uneconomical practices and whether the entity complied with laws and regulations controlling economy and efficiency. Program audits are intended to assess program accomplishments and compare them to intended results or benefits; the effectiveness of organizations, programs, activities, or functions; and the compliance of an entity with applicable laws and regulations.(4) The IG's submit their findings in audit reports to their agency heads, investigative reports to U.S. Attorneys, and semi-annual reports to Congress summarizing both audit and investigative findings.(5) Many of NPR's agency recommendations were initially found in these IG reports. IG work is initiated through statute, legislative direction, agency head requests, input from line managers, agency employees, and the IG offices themselves.(6)
A few IG's have moved beyond compliance monitoring to develop more collaborative, results-oriented relationships with management. For example, the OIG at the Department of Health and Human Services (HHS) established an office of evaluation and inspections that has developed award-winning program evaluation expertise.(7) The HHS OIG conducts "program inspections" using methods drawn from several disciplines, including traditional program evaluations, policy analyses, fiscal audits, program monitoring, compliance reviews, investigations, and management analysis.
The majority of IG program audits focus on areas of non-compliance with rules and regulations. As required by the IG Act, the IG's report dollars recovered or better used based on these audits, and the number of convictions obtained as a result of IG criminal investigations, in semiannual reports to Congress. These reporting requirements, along with previous administrations' requests for this type of information, have encouraged the OIG's to allocate more resources to audits that resulted in reports of non-compliance with process requirements.(8)
These compliance audits seek to foster program integrity by identifying areas of non-compliance with statutes and policy, and by using negative sanctions, sometimes targeted at individuals.(9) However, audits that solely focus on compliance do not always foster better government. They may, instead, spawn additional compliance reviews and recommendations for more regulatory guidance, followed by still more process regulations with which to be in non-compliance.
Federal employees at several town meetings with the Vice President voiced their beliefs that existing IG operations often create an institutional culture that discourages entrepreneurship and innovation due to excessive emphasis on compliance. Because the IG's' audit work generally focuses on what is wrong, rather than creating a balanced assessment of program results, agency personnel are often reluctant to fully cooperate with IG staff for fear of being implicated in wrongdoing.(10) As a consequence, IG's sometimes reinforce rules at the expense of innovation and program effectiveness.
Shift in Focus Needed.
The IG's need to shift their focus in three aspects. First, IG's should shift their strategic focus from conducting compliance reviews to conducting evaluations of the effectiveness of the internal control systems used by managers. For program management to be more effective and accountable, managers must learn to self-monitor. According to Dwight Ink, the president of the Institute of Public Administration,
. . . a serious problem occurs where agency management no longer has auditors under its control because they have been all shifted to the IG. In such cases, agency heads and program managers have lost much of their capability to utilize auditors effectively in managing their organizations. Consider for a moment the frustration and the vulnerability of an agency head who wishes to look quickly at an emerging financial problem, but has to wait until it has grown into a scandal because the auditors are under someone else's control and cannot help since they are too busy responding to a constituent concern of a member of Congress.(11)
Therefore, managers need to create their own capacity to audit internal operations and ensure compliance--and not rely on the IG's to do it for them.
Second, IG's should see their mission as not only to identify problems, but to get them solved. Too often IG recommendations are based solely on IG staff judgments. In a number of a cases, these are viewed as unreasonable by program staff and no action is taken. Therefore, IG's need to build a collaborative, not adversarial, relationship with the staffs being audited.
And third, to maintain objectivity, IG recommendations must be viewed by program management as being free from outside influence. One impediment to objectivity is the appearance of a conflict-of-interest when IG's accept bonuses from the heads of the agencies they oversee. Of the 26 presidentially-appointed IG's, those from prior positions in the Senior Executive Service are entitled to bonuses under the Civil Service Reform Act of 1978. At least nine IG's accepted bonuses between 1987 and 1989, which could call into question their objectivity if called upon to investigate the agency heads who approve the bonuses.
IG's should shift their audit emphasis from ensuring compliance with procedures to evaluating the effectiveness of line managers' own systems of management control. By changing their emphasis, the IG's will oversee the effectiveness of agency line management control systems to ensure compliance with program requirements and efficient and economical service delivery. The evaluations should:
Findings and recommendations should be limited to specific items significant in terms of a review's objectives. Oversight reviews must aim at one objective: timely, relevant, and accurate reports serving as valuable management tools.
Inspector General evaluations should not substitute for line managers' own internal management program evaluations. Likewise, IG's should not duplicate line management reviews. In agencies without line management program evaluation capabilities, IG's could develop this capability, possibly by shifting resources currently dedicated to procedural compliance audits.(12)
2. Change the IG's method of operation to be more collaborative and less adversarial. (1)
OIG's should conduct their reviews in a more collaborative manner with line management. Together, they need to develop a relationship built on trust. Government auditing standards strongly encourage a collaborative approach between auditors and auditees. However, many OIG's are burdened with a negative image because of their current adversarial relationships with line management. Such a negative image clearly indicates that some OIG staff either misinterpret the audit standards or simply ignore them. Too often, some OIG staff fail to give credit when credit is due, become obsessed with every infraction, blind-side the auditees, or fail to distinguish between the relevant and the insignificant. Together these practices lead auditees to conclude that auditors simply mean to justify their own existence rather than improve an auditee's program performance.
This image could change if each audit begins with discussions between the OIG and management staffs on objectives and audit methodology. While the OIG must retain its independence in order to remain objective, obtaining input from line management will ensure that auditee concerns about the objectives and methodologies are addressed. If concerns are resolved before the audit, mutual trust may be easier to develop. Early discussion does not compromise an IG's objectivity and prevents potentially damaging misunderstandings at the audit's conclusion. More importantly, it also builds the basis for action on implementing audit recommendations.
3. Establish performance criteria for IG's. (1)
The President's Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency--along with input from the Office of Management and Budget--should establish criteria for judging IG performance. While the National Performance Review recommends the use of performance agreements for senior-level political appointees,(13) IG's should be exempted from performance agreements because these agreements may create the appearance of interfering with the independence of IG offices. By having the IG's develop their own performance measures through the PCIE and ECIE, the appearance of interference with IG independence is mitigated. The performance criteria should include an easily understood and usable performance measurement system, one consistent with the Government Performance and Results Act of 1993. The performance measurement system should include the IG's' routine use of a feedback loop, consisting of questionnaires to determine to what degree the OIG service to the agency and Congress has been timely, relevant, accurate, and useful. In addition, the performance measurements should show what steps should be taken to improve IG performance. The feedback should be shared with the agency head and OMB, and in IG semiannual reports to Congress.
4. Do not offer bonuses to IG's. (1)
Agency heads should no longer offer bonuses to IG's, even if the IG's are eligible for them under the Civil Service Reform Act of 1978. There must be no question in the public's mind about an IG's objectivity. Although presidential appointees generally are not eligible for bonuses, some of the 26 presidentially-appointed IG positions are filled by career civil servants who are still entitled to receive bonuses as members of the Senior Executive Service. Furthermore, many of the 34 non-presidentially appointed IG positions are filled by career civil servants who also are eligible to receive bonuses. Prohibiting bonuses will help avoid even the appearance of impropriety among IG's.
Improving Financial Management, FM04: Increase the Use of Technology to Streamline Financial Services; and FM05: Use the Chief Financial Officers (CFO) Act to Improve Financial Services.
Executive Office of the President, EOP05: Reinvent OMB's Management Mission.
In 1825, Charles Caleb Colton wrote, "The science of legislation is like that of medicine in one respect: that it is far more easy to point out what will do harm than what will do good." This statement is also too often true today in the legal culture of the federal government.
The primary function of the Offices of General Counsel (OGC) in federal agencies is to provide management with advice on legal matters. Their role and their involvement in the decisionmaking process is traditionally determined by the head of the agency and, in some instances, subordinate officials.
Offices of General Counsel are pivotal players in the clearance, or "vetting," process inside departments and agencies. Their advice is crucial in the increasingly litigious environment in which the federal government finds itself. An Office of Personnel Management (OPM) guide for a new general counsel identifies a dual role for federal lawyers: interpreting the law and representing their clients' interest.(1) The guide states there may be an actual or perceived conflict between these dual roles. The result, the guide continues, is that some program offices view the OGC as nay-sayers ("if you want to be told you can't do something, go to the General Counsel's office").(2)
Cold vs. Hot.
As government managers in the 1990s struggle to improve their operations, provide improved customer service, and cut costs, they continually face an enormous web of legislation and regulations that bind them to the past. However, in the quest to serve the greater public good with diminishing resources, more than ever federal managers will need to be more innovative. In order to accomplish their agency's mission, top managers rely on their OGC to determine the legal implications of management initiatives. In this regard, general counsels are what veteran civil servant Arthur Flemming terms "cold lawyers" or "hot lawyers." He attributes the terms to Oscar Cox, who was President Franklin Roosevelt's solicitor general. Cold lawyers are those who are satisfied with advising management that a proposal is unacceptable because, based on their reading of the law, there is no specific provision that allows management to do what they want to do. They offer no options. They also fail to specify the relative legal risks of the proposal. Hot lawyers are those who ask management what they are trying to achieve and work with them to devise proposals that will achieve it.(3) They offer options and they specify the legal risks associated with them. Today, federal managers need more hot lawyers.
Some OGC staff believe the reason there are not more hot lawyers is the restrained climate in which both managers and general counsels have been asked to operate. Margaret Jane Porter, Chief Counsel of the Food and Drug Administration (FDA), shares this view. She believes OGC staffs will respond in kind if a different environment is established in the executive branch.(4) Managers and their OGC's have been operating in a culture laden with red tape, which the National Performance Review intends to change. Just as managers have been disempowered, so have OGC staffs.
Identifying the Customer.
George Schlossberg, an attorney in private practice who formerly served on the OGC staff in the Defense Department, believes the central issue facing federal attorneys is identifying the client or customer. "Who is the client of a federal attorney in an OGC?" he asks. "Is it the President, the department, the secretary of the department, the mid-level government official posing the issue, or the public at large?"(5) Schlossberg contends that the best premise is one in which federal attorneys consider their clients to be the bureau chiefs and section heads whom they regularly advise, subject to their being overruled by the General Counsel. In the opinion of another OGC staff member, the client is the Secretary.(6) In the view of yet another OGC staff official, the client is the agency.(7) Other OGC staff identify the public good or the taxpayer. Some suggest the client varies depending on the issue at hand. According to the National Aeronautics and Space Administration's OGC, management is not a monolith, however, and when conflicts within line management occur, mechanisms should be in place to identify and resolve them early. Thus, while the general counsels to the secretaries agree their personal client is the secretary, OGC staffs do not share a common view as to who their client is.
Previous Attempts to Create a Focus.
President Carter established the Federal Legal Council in 1979 by Executive Order 12146 to promote coordination and communication among federal legal offices and to become a forum for exchange of information and ideas on matters of common interest. This council was chaired by the Attorney General and included representatives from 15 other federal agencies on a rotating basis before it became inactive in the mid-1980's. Thus, it has not played a significant role for almost a decade.
In addition, the Administrative Conference of the United States (ACUS) has convened General Counsels for specific purposes in the past. ACUS was established by Congress in 1964 as a permanent, policy-neutral, independent government agency to study the efficiency and fairness of the federal administrative process. The Conference develops non-partisan recommendations to the President, the federal departments and agencies, and the Congress on methods to improve the procedures by which agencies administer regulatory, benefits, and other government programs.
There is a need to identify clearly who are the general counsel's client(s). As in the case of almost all government employees, OGC staff have multiple customers, internal and external to the government. The challenge is to balance the various and sometimes competing demands of the many customers. This is fundamental because there are specific obligations that a lawyer has to fulfill when representing a client. For example, the District of Columbia's Bar has rules of professional conduct that state: "A lawyer shall represent a client zealously and diligently within the bounds of the law."(8) Further, they state: "A lawyer shall not intentionally (1) fail to seek the lawful objectives of a client through reasonably available means permitted by law and the disciplinary rules; or (2) prejudice or damage a client during the course of the professional relationship."(9) Other bar associations have similar codes of conduct.
Without a clear definition of who the client is, there is incongruence between managers' expectations and OGCs' performance. The confusion among OGC staffs results in dissatisfaction among many managers because they believe they are the client and, therefore, they expect the concomitant zealous representation that should accrue in an attorney/client relationship.
One way of clarifying who is the client would be to subject OGC's to quasi-market forces. Redefine the roles of OGC's to separate their service function--providing advice to managers--from their control functions--serving as a vetter for policy proposals. Subject the service function to market forces by allowing line managers to select who they want to receive their advice from. This could be done through the franchising route, or other related approaches. The General Accounting Office, for example, has created a "clientoriented" approach in its general counsel's office by assigning legal staff to serve specific line managers and soliciting these line managers' input into attorneys' performance evaluations.
A practice that has limited OGCs' effectiveness in some agencies is management's failure to involve them in their early deliberations. Some federal lawyers feel their advice appears ineffective or even obstructive because they are consulted after decisions have already been made. W.C. Parler, General Counsel at the Nuclear Regulatory Commission (NRC), observed that when lawyers are included on strategic planning and decisionmaking teams at the outset, substantial resources can be saved.(10) He further believes that OGC lawyers on these teams find that they have a responsibility to be constructive, timely contributors and not to be obstacles who do not provide creative options. One incentive to increase the chances that program managers would consult with legal staff earlier in management deliberations is to allow those managers who consult early to be permitted to use a more streamlined final approval process.
Administrative Conference of the United States (ACUS) should initiate a high-priority project to convene a group of general counsels or their equivalents, OGC staff members, and a representative of the Department of Justice to define clearly who is the client of the Offices of General Counsels within agencies. ACUS should serve as facilitator to the group. This initiative should be completed on an expedited basis. The definition statements should be completed within one year. The resulting guidance should include a policy statement that OGC's should help identify alternative approaches whenever a proposed management initiative is deemed to be not legally acceptable. The legal risks associated with management proposals should also be specified and options suggested.
In addition, ACUS should evaluate and recommend whether it would be desirable to reconstitute and energize the Federal Legal Council to address common legal issues related to the implementation of other NPR recommendations, and the training needed.
2. Use franchising and other market mechanisms to encourage OGC staffs to respond appropriately to their clients. (1)
Agency heads should encourage their general counsel staffs to be responsive to their clients. For example, they should clearly distinguish between OGC's service delivery and regulatory clearance functions. They should allow line managers choice in selecting legal assistance from the "service delivery" side. This choice could be via a franchising operation or other mechanism. In addition, agency heads should encourage better collaboration between legal staff and program offices in OGC clearance functions.
3. Develop performance measures and feedback loops for general counsels to encourage close cooperation with clients. (1)
Agency heads should develop performance appraisal plans for general counsels that would measure the results of OGC efforts to assist managers in their own efforts to be creative and entrepreneurial, within the constraints of law. General counsel offices must develop appropriate measures of performance with a special emphasis on quality of service to the client(s). These measures should be developed in collaboration with the agency line management structure. Feedback loops between the clients and the OGC staff members should be institutionalized.
Improving Financial Management, FM06: "Franchise" Internal Services.
Department of Justice, DOJ09: Make the Department of Justice Operate More Effectively as the U.S. Government's Law Firm.
One important duty of Congress is to oversee the operations of the executive branch. Congress has several formal mechanisms to conduct its oversight. These include hearings, agency reports, and audits and evaluations by agency Inspectors General and its own General Accounting Office (GAO).
According to the Comptroller General, "The GAO assists the Congress in its legislative oversight of the executive branch. We see our mission as seeking to achieve honest, efficient management and full accountability throughout government. We serve the public interest by providing Members of the Congress and other policymakers with accurate information, unbiased analysis, and objective recommendations on how to best use public resources."(1) By implementing this mission, GAO plays an important role in assuring and improving the leadership and management practices of the executive branch.
GAO, under the leadership of Comptroller General Charles Bowsher, began a formal Total Quality Management (TQM) initiative almost three years ago.(2) "The agency's commitment to quality is the single most important principle governing its work. We define high-quality work as (1) objective and independently derived; (2) accurate, timely and meaningful; and (3) presented in a way most useful to responsible officials."(3) This initiative, with its strong focus on customers and continual improvement, has already pointed the organization in a direction to achieve these goals.(4) For example, GAO recognizes the importance of crediting and publicizing best practices during an audit as well as documenting problems. Another example is that it intends to develop and institutionalize feedback loops from the executive branch. This feedback would give it information that it needs to improve its value-added contribution to better government.
GAO is perceived by many managers in the executive branch agencies as being less effective than it could be in providing useful oversight that leads to constructive changes. For example, GAO audits have often documented only negative findings. These audits often did not report best practices when they were uncovered, in part because staff believed they were not encouraged to report success.
A root cause of the perceived effectiveness gap is that GAO currently lacks an institutionalized feedback loop from the executive branch agencies, either individually or collectively. A feedback loop--such as a questionnaire or interviews on the effectiveness of a GAO review--would provide GAO management with information on how useful its reports and reviews have been in pinpointing and solving problems. Currently, GAO does not collect the information it needs to continually improve the value and impact of its services. GAO's "Yellow Book," which sets federal auditing procedures and standards, clearly recommends describing "noteworthy accomplishments," as part of audits, but it only partially addresses the need for feedback loops.(5)