Management Discussion and Analysis

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Our vision is that the overall quality of Government services, programs and operations will meet or exceed the public’s expectations, so that Federal employees will be regarded as knowledgeable, helpful, ethical and committed to quality.

Our Mission and Strategic Goals

Four words -- Lead, Protect, Serve, and Safeguard -- describe how we carry out our responsibilities and provide the framework for our mission.

Our Mission

To support the Federal government’s ability to have the best workforce possible to do the best job possible --

We LEAD Federal agencies in shaping human resources management systems to effectively recruit, develop, manage and retain a high quality and diverse workforce;

We PROTECT national values embodied in law, including merit principles and veterans’ preference;

We SERVE employing agencies, Federal employees, retirees, their families, and the public through technical assistance, employment information, pay administration, and benefits delivery; and

We SAFEGUARD the assets we hold in trust for participants in earned benefit programs.

Our Strategic Goals

In our first strategic plan in September 1997, we described five strategic goals.

Goal I--Provide policy direction and leadership to recruit and retain the Federal workforce required for the 21st Century.

Goal II--Protect and promote the merit-based Civil Service and the employee earned benefit programs through an effective oversight and evaluation program.

Goal III--Provide advice and assistance to help Federal agencies improve their human resources management programs to effectively operate within the economy, demographics and environment of the 21st Century.

Goal IV--Deliver high-quality, cost-effective human resources services to Federal agencies, employees, annuitants and the public.

Goal V--Establish OPM as a leader in creating and maintaining a sound, diverse, and cooperative work environment.

How We Are Structured to Accomplish Our Mission

We are led by a Director, who is appointed by the President to serve a four-year term and is confirmed by the U.S. Senate. Our Deputy Director is also appointed by the President and confirmed by the Senate. We are organized into the following eight core functional units, each providing Governmentwide policy and services in a specific area of human resources management: the Employment Service; the Investigations Service; the Retirement and Insurance Service; the Workforce Compensation and Performance Service; the Office of Merit Systems Oversight and Effectiveness; the Office of Workforce Relations; the Office of Executive Resources Management; and the Office of Executive Management Development. [See organization chart below.]

We also have four “corporate management” offices -- such as our the Offices of the Chief Financial and Chief Information Officers -- and several staff offices.

Many of our approximately 3,700 employees are located in our headquarters in Washington, D.C. We also have a field presence in 16 major cities across the country, and two operating centers, in Macon, Georgia, and Boyers, Pennsylvania.

Information about Our Programs

We accomplish our mission and strategic goals through the administration of programs that address the full range of Federal human resources management issues including oversight of the merit system, design and delivery of employee benefits, classification, pay and leave systems, maintenance of personnel security, promoting executive development, and the support of workforce relations.

Retirement Program

The Retirement Program covers essentially all Federal civilian employees. It is comprised of two defined benefit programs: the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS). The basic benefits of both systems are paid by the Civil Service Retirement and Disability Fund (CSRDF). By law, CSRDF funds may be used to pay all disbursements and operating expenses of both programs.

The Civil Service Retirement System. The Civil Service Retirement System (CSRS) was created by the Civil Service Retirement Act in 1920 to provide retirement benefits for Federal employees. The CSRS is a stand-alone pension system -- its defined benefits are not intended to be a supplement to or be supplemented by other retirement benefits. The CSRS covers most Federal employees hired before 1984 and provides benefits to the survivors of deceased CSRS annuitants and employees. For all practical purposes, the system was closed to new entrants in 1984.

The Federal Employees Retirement System. The Federal Employees Retirement System (FERS) was established on June 6, 1986, by the Federal Employees’ Retirement System Act of 1986 (P.L. 99-335). FERS is a three-part pension program, using Social Security as a base and providing a defined benefit component and a thrift savings plan. OPM administers the defined benefit component of FERS. The Federal Retirement Thrift Investment Board, an independent agency, administers the thrift savings plan. The FERS covers most employees first hired after December 31, 1983, and provides benefits to the survivors of deceased FERS annuitants and employees.

The table below presents a general comparison of CSRS and FERS provisions:

Retirement Program Participation. FERS membership among active employees overtook CSRS membership in 1995 and by the end of fiscal year 2000 represents 60% of all covered employees. We expect the CSRS population to decline significantly over the next decade, as CSRS participants retire or leave Federal service for other reasons. The following chart shows CSRS and FERS participation among active employees:

Health Benefits Program

The Health Benefits Program was established by the Federal Employees Health Benefits Act of 1959 (P.L. 86-382). The law made basic hospital and major medical protection available to active Federal employees, annuitants, and their families. The law also allows OPM to contract with qualified carriers and establish program-wide eligibility requirements. The Program has several features that make it one of the Nation’s leading health benefits plans: participants have an unparalleled choice in the variety of available health plans; they are not required to pass a medical exam in order to enroll; there are no coverage exclusions for pre-existing conditions or waiting periods; and participants are given an opportunity to change their coverage every year during the annual Open Season.

During fiscal year 2000, we implemented an important new benefit: premium conversion. A form of cafeteria plan, it allows enrollees in the Program to elect to have deductions taken from their salaries on a pre-tax basis.

Types of Plans. In fiscal year 2000, 291 health benefits plans participated in the Program. These plans generally are of two types: Fee-for-Service (comprised of the Federal employees plan offered by the Blue Cross and Blue Shield Association and the employee organization-sponsored plans) and health maintenance organizations (HMOs). A Fee-for-Service (FFS) plan is a traditional type of insurance that allows the participant to use any doctor or hospital; they are called FFS because doctors and other providers are paid for each service. An HMO is a health plan that provides care through a network of physicians and hospitals located in particular geographic or service areas.

Health Benefit Program Enrollment. Enrollment in the Program is 4.1 million, or about 86% of the eligible population -- 2.2 million enrollees are active employees and 1.9 million are annuitants. Including dependents, the Program covers approximately 9 million individuals. Enrollment in the Health Benefits Program, by type of plan, is presented below. As can be seen below, enrollment in the Program as a whole and by type of plan has remained relatively constant since 1996.

Life Insurance Program

The Life Insurance Program was created in 1954 by the Federal Employees Group Life Insurance Act (P.L. 83-598) and covers over 4 million Federal employees and annuitants — about 90% of eligible employees and annuitants. Administered through a contract with the Metropolitan Life Insurance Company (MetLife), it is the largest group life insurance program in the world.

Types of Coverage. The Program provides group term life insurance. As such, it does not build up any cash value or paid-up value. It consists of Basic life insurance coverage and three options:

Basic life insurance is determined by the amount of an employee’s annual rate of basic pay, rounded to the next highest thousand, plus two thousand dollars. Most Federal employees are automatically covered by Basic insurance unless they decline.

Standard optional insurance is $10,000 of coverage an employee can elect in addition to Basic insurance.

Additional optional insurance is coverage an employee can elect based on multiples of his or her basic pay.

Family optional insurance is coverage an employee can elect in multiples of $5,000 up to a maximum of $25,000 for spousal coverage, and in multiples of $2,500 up to a maximum of $12,500 for each eligible child.

Program Enrollment. The following table shows enrollment in the Life Insurance Program for Basic life insurance and the three optional coverages (in thousands). As can be seen, although enrollment in the Program as a whole has remained generally constant since 1996, Additional and Family coverage has experienced an increase in popularity in the last year or two, while enrollment in Standard has been consistently falling.

Human Resources Management Programs

Merit Systems Oversight Programs

Merit Systems and Veterans’ Rights Oversight. The administration of a civil service merit system ensures compliance with Federal personnel laws and regulations. Merit principles ensure that Federal agencies invest taxpayers’ money only in employees who are most likely to do a good job, and that they base hiring, pay, promotions, and reductions-in-force on a process that is objective, job-related, and fair. Veterans’ rights are an integral part of the merit-based personnel system that we safeguard.

Agency adherence to the merit principles and veterans’ rights is assessed by conducting oversight reviews at the Governmentwide, agency, and installation levels. The information gathered from these reviews is used for policy development to ensure compliance with both the merit principles and personnel laws and regulations. Work is conducted with other agencies on demonstration projects to explore potential improvements in personnel systems and better and simpler ways to manage Federal personnel.

Workforce Information System. OPM sets the standards for the maintenance of personnel records at employing agencies and provides instructions for release of personnel data under the Freedom of Information and the Privacy Acts. Data pertaining to the Federal workforce is collected and maintained to support personnel management decision-making. In addition, statistical data on the diversity of the Federal workforce is gathered, analyzed, and maintained and evaluation reports prepared for the Congress.

Employment Services Programs

Employment Policy and Delegated Examining Unit Certification. The authority for most employment examining was delegated to employing agencies in 1994, while responsibility to ensure that they adhere to corporate policies for staffing was retained at OPM. These policies include merit principles, veterans’ preference, and a commitment to equal opportunity. To make delegated examining effective, training and reference materials are provided to employing agencies and their examining operations are certified through the Delegated Examining Unit Certification Program.

Workforce Planning Programs. OPM establishes policy, provides guidance and tools, and administers programs for workforce planning, reductions-in-force, separation incentives, and early retirement, as well as provides advice on internal reorganization and career transition initiatives. These activities ensure that agencies can effectively address their strategic human capital needs and maintain diversity in the workforce. Many of these workforce planning services are provided on a reimbursable basis.

Administrative Law Judge Program. The Governmentwide Administrative Law Judges (ALJ) program allows employing agencies to fill those positions in a way that protects public confidence. The program reviews and approves competitive employment actions, classifies positions, and administers the ALJ loan and senior ALJ employment programs.

Employment Information. The employment information program administers a Governmentwide listing of all job vacancies in the competitive service currently open to outside applicants, plus many vacancies outside of the competitive service. This allows employers to quickly reach a wide range of potential employees and provides for open competition from all segments of society. Job seekers find it easy to learn about openings 24 hours a day, seven days a week, through USAJOBS. USAJOBS uses the Internet, telephones, and touch-screen kiosks, to provide the public more information than ever before about job vacancies throughout the Federal government.

Federal Personnel Security Program

The Federal Personnel Security Program ensures the fitness and suitability of applicants for and appointees to positions in the Federal service. To carry out this responsibility, OPM sets Governmentwide investigations policy for the Federal personnel security program and carries out on-site inspections to help ensure that employing agencies are following established policies. Personnel investigations relating to personnel suitability and security also are provided, on a reimbursable basis, through a contractor.

Workforce Compensation and Performance Programs

Classification, Pay and Leave Programs. The standards for classifying Federal jobs, establishing pay scales, and enhancing the Federal government’s leave package are governed by several laws, regulations, and executive orders. Through the classification, pay, and leave programs these compensation factors are adjusted for labor markets and to address recruitment and retention issues.

Performance Management and Awards Programs. Performance management and awards programs promote effective performance management and ensure that individual accountability is established and maintained throughout the Federal workforce. The programs set guidelines for evaluating, developing, and rewarding employee performance and also provide agencies with guidance and assistance about how to identify and correct performance problems.

Workforce Relations Programs

Advice and consultation is provided to employing agency officials through a broad range of workforce relations programs to support the development of effective labor-management relations, employee relations practices, life long learning programs, and work/life and wellness programs. These programs help agencies accomplish their missions and develop effective agency policies in these areas. The programs act as a clearinghouse for Governmentwide information on best practices, innovations, data trends and other information on Federal labor-management and employee relations.

Executive Resources Programs

The development, selection, and management of Federal executives are fostered by the executive resources programs. This is accomplished by allocating senior executive position and appointment authorities; establishing critical competencies used to select and develop new executives; administering qualifications review boards and the Presidential Rank Award program; and overseeing the Senior Executive Service (SES) Candidate Development Programs and the SES Performance Management System. In addition, we provide world-class executive and management development programs at three strategically-located OPM training centers.

Our Performance in 2000

We had a strong record of achievement during fiscal year 2000 in terms of our five strategic goals. We increased attention across Government to strategic human resources management and continued to successfully oversee the merit system and administer the employee benefit trust funds. We improved our ability to provide advice and assistance to employing agencies and deliver services to our customers and improved how we manage our own operations, systems, and infrastructure. However, we did not complete all of our ambitious policy leadership agenda and found that we need to improve certain aspects of our customer services.

Our Performance Plan included 117 annual performance goals that described the specific actions and initiatives we planned to accomplish in fiscal year 2000. We met the performance level for 103 of these, which demonstrated significant progress toward fully achieving our Strategic Goals. We dropped four goals before the beginning of the year, since they were not critical to our agenda, or relevant to actual program results. More importantly, our analysis of the goals we did not meet revealed areas where we need to improve and we have developed plans to address these. Also, our analysis led us to improving our goals and measures in 2001 and 2002.

We developed new workforce planning tools, the Career Intern Program, flexibilities for addressing Y2K staffing needs, regulations to implement student loan repayment, new guidance to support effective diversity recruitment, and revised SES performance management regulations.

We enhanced Federal employee benefits with the passage of the Long-Term Care Security Act, the Expanded Sick Leave program, health benefits premium conversion, and mental health and substance abuse parity in the Health Benefits Program.

As shown in the table on the following page, these data indicate that public satisfaction with Federal government services is comparable to the private sector, and job satisfaction among Federal employees is improving.

Strategic Goal II. We continued to maintain active and effective oversight of the merit system and the Federal employee benefit trust funds. In our oversight of the merit system, we completed our scheduled reviews of seven large and eight small agencies and conducted 78 delegated examining audits. The effectiveness of our oversight of the Retirement, Health Benefits, and Life Insurance Programs is evidenced by the unqualified audit opinion we received on these financial statements.

These activities resulted in our achieving all of the 14 goals described in our fiscal year 2000 Performance Plan and in a fairly positive perception by Federal employees about the practice of human resources management in accordance with the nine merit principles in 5 U.S.C. 2301(b), as shown below.

Strategic Goal IV. We provide human resource services to employing agencies, employees, retirees, and their families that are high quality, cost effective, and meet their needs. We established 17 annual goals in our fiscal year 2000 Performance Plan that pertained to the delivery of these services and met 12 of them. We did not meet the targets we set for ourselves for four of these goals, and we dropped one from our agenda during the year.

The results of our service delivery activities during fiscal year 2000, shown in the table on the following page, indicate that customer satisfaction with most of our services remained at or near their historically high levels. The use of our USAJOBS Website continues to grow and is an example of how technology can be used to provide services to an increasing number of customers. However, we did not meet the timeliness and accuracy targets we had set for processing retirement claims and handling customer service requests. Thus, we need to improve the delivery of these services and have made this a priority for 2001 and 2002.

Strategic Goal V. We recognize that we cannot accomplish our goals without the support of a well-trained, diverse, and motivated workforce at OPM. Thus, we plan to create and maintain a sound, diverse, and cooperative work environment. During fiscal year 2000, we met 22 of the 23 performance goals in this regard. Perhaps, our most significant accomplishments during the year were our successful Y2K rollover and the greater diversity of our own workforce.

Analysis of Our 2000 Financial Performance

These are the first agency-wide consolidated financial statements we have prepared. We are pleased to report that we have received an unqualified (“clean”) opinion from our auditors, KPMG LLP. An unqualified opinion means that our financial statements were fairly stated in all material respects. Moreover, our auditors did not report any material weaknesses in our internal controls over our financial reporting. Since 1997, we have received unqualified opinions on the “stand-alone” financial statements of the Retirement and Life Insurance Programs; and since 1998, on the “stand-alone” financial statements of the Health Benefits Program.

Analysis of Balance Sheet

The Balance Sheet presents the total amounts we have available for our use [Assets] against the total amounts we owe [Liabilities] and the amount that comprises the difference [Net Position].

Assets. We had over $552 billion in total assets at the end of fiscal year 2000, compared with $520 billion at the end of fiscal year 1999. The balance sheet separately identifies intragovernmental assets from all other assets. Almost all -- about $551 billion -- of our assets are intragovernmental, representing our claims against other Federal agencies.

Our largest asset, Investments [$540.3 billion], represents almost 98 percent of our total assets at the end of fiscal year 2000. As we routinely collect more money than we disburse, our investment portfolio continued to grow in fiscal year 2000. We invest all Retirement, Health Benefits, and Life Insurance Program balances that we do not immediately need for payment, but only in special securities issued by the U.S. Treasury.

Our next largest asset is Interest Receivable on Investments at $8.9 billion. This is the amount of interest owed to us on our investment portfolio by the U.S. Treasury at the end of the year.

Liabilities. We have three very large, long-term liabilities that we categorize on the Balance Sheet as “Actuarial Liabilities.” They are estimated at the end of each year by our actuaries. We report Actuarial Liabilities for each of the earned benefit Programs that we administer: Retirement, Health Benefits, and Life Insurance. In computing the Actuarial Liabilities, our actuaries apply assumptions to historical cost information in order to estimate the future cost of benefits for current and future retirees.

The Pension Liability, the actuarial liability for the Retirement Program, is $1,031.1 billion at the end of fiscal year 2000. This is the first time that we have reported the Pension Liability at over one trillion dollars! The Pension Liability increased $43 billion (4.3 percent) from the $988 billion reported at the end of last year [see discussion of Pension Expense below].

The actuarial liability for the Health Benefits Program, the Postretirement Health Benefits Liability, is $192.2 billion at the end of fiscal year 2000, an increase of almost $17 billion (9 percent) over that at fiscal year-end 1999. The increase in the Postretirement Health Benefits Liability resulted from a large increase in our estimate of future health benefits claims that was not entirely offset by the increase in our estimate of future contributions by and for participants.

The Actuarial Life Insurance Liability is different from the Pension and Postretirement Health Benefits Liabilities. Whereas the other two are liabilities for “post-retirement” benefits only, the Actuarial Life Insurance Liability is an obligation for both pre-retirement and post-retirement life insurance benefits. The Actuarial Life Insurance Liability increased by $1.1 billion in fiscal year 2000 to $24.7 billion at the year-end, due principally to the coverage changes elected by participants during the open enrollment period last April.

Net Position. Net Position is the difference between our total assets and total liabilities. At the end of fiscal year 2000, our Net Position is a negative $703.4 billion dollars, which means that our liabilities exceed our assets by this amount. At the end of fiscal year 1999, our Net Position was a negative $674.6 billion. As can be seen on the Statement of Changes in Net Position, our Net Position decreased as a result of our net cost of operations, which was partially offset by a “transfer-in” of $21.6 billion to the Retirement Program from the U.S. Treasury.

The reason for our negative Net Position is the large Actuarial Liabilities that we report on our Balance Sheet. In fact, our total assets exceed our “non-actuarial” liabilities by $544.6 billion at the end of fiscal year 2000. The Retirement, Health Benefits, and Life Insurance Programs are funded in a manner that ensures that there will be sufficient assets available to pay claims for benefits well into the future.

Analysis of the Statement of Net Cost

The Statement of Net Cost presents our net cost of operations by our “responsibility segments.” We have defined responsibility segments by the four major types of services we provide and have assigned costs to them. These are the Cost to Provide CSRS, FERS, Health and Life Insurance Benefits.

Net Cost to Provide CSRS Benefits. The Net Cost to Provide CSRS Benefits in fiscal year 2000 is $32.9 billion, an increase of $14.7 billion over fiscal year 1999. The increase in the Net Cost to Provide CSRS Benefits can be attributed in large part to a smaller “actuarial gain” component of Pension Expense related to the CSRS in fiscal year 2000; $3.2 billion versus $17.1 billion in fiscal year 1999. To the extent that actual experience differs from the assumptions made by our actuary in computing Pension Expense, actual gains or losses will occur. Since actuarial gains reduce Pension Expense, the smaller actuarial gain in fiscal year 2000 resulted in a larger Pension Expense than in fiscal year 1999.

Analysis of the Statement of Budgetary Resources

We may incur obligations and make payments to the extent that we have budgetary resources to cover them. The Statement of Budgetary Resources depicts the budgetary resources that we had available in fiscal year 2000 to cover our obligations and the status of our budgetary resources at year-end.

As can be seen, we had $93.3 billion available to us in budgetary resources in fiscal year 2000. Our budgetary resources derive from the budgetary resources carried over from last year ($24.5 billion) as well as the three major sources of new budgetary resources:

1. Appropriations ($5.2 billion)

2. Available appropriated receipts ($45.5 billion)

3. Spending authority from offsetting collections ($18.1 billion).

Appropriations are legislative actions that authorize Federal agencies to incur obligations and to make payments for specified purposes. Our appropriations of $5.2 billion were principally to fund contributions for retirees and survivors who participate in the Health Benefits Program.

Both Available Appropriated Receipts and Spending Authority from Offsetting Collections generally derive from collections. Collections by the Retirement Program, such as earnings on investments and contributions made by and for those participating, are classified as “Appropriated Receipts,” whereas collections by the Health Benefits and Life Insurance Programs are classified as “Spending Authority from Offsetting Collections.”

From the $93.3 billion in budgetary resources we had available to us in fiscal year 2000, we incurred obligations of $67.3 billion mainly for benefits for participants in the Retirement, Health Benefits and Life Insurance Programs. The excess of the budgetary resources we had available in fiscal year 2000 over the obligations we incurred against them is classified as being “unavailable” (for obligation) at year-end.

Systems, Controls and Legal Compliance

Federal Managers’ Financial Integrity Act Compliance

The objective of our management control program is to ensure that we have effective stewardship over the Federal resources that have been entrusted to us. Our stewardship responsibilities include the safeguarding of those resources from fraud, waste, and mismanagement and managing our programs with integrity and in compliance with all applicable laws.

We have evaluated the management controls we have in place, as required by the Federal Managers’ Financial Integrity Act (FMFIA). In so doing, we relied on the assessments by our senior executives of their programmatic and administrative functions and on the findings and results of the audit conducted on the 1999 financial statements by our Office of the Inspector General and the independent public accounting firm, KPMG LLP. We can report that, when considered collectively, and with the exception of the items presented below, our management controls are achieving their intended objectives and that our financial management systems conform to Federal requirements. We have established a goal to resolve all material weaknesses and nonconformances cited by our auditors and identified through the FMFIA process in as timely a manner as is technically practicable and economically feasible. We have corrective action plans in place to address each material weakness and nonconformance.

We believe we have made significant progress in resolving our material weaknesses in management controls and nonconformances with Federal financial systems requirements. Five material weaknesses and nonconformances were resolved in fiscal year 2000 and we have made particularly noteworthy progress toward the resolution of two others.

Federal Financial Management Improvement Act Compliance

Our auditors, KPMG LLP, are required to report on whether our financial management systems comply with the Federal Financial Management Improvement Act of 1996 (FFMIA). The purpose of the FFMIA is to ensure that our systems generate reliable, timely and consistent financial information, using professionally-accepted accounting standards. To comply substantially with FFMIA, our systems must support the preparation of financial statements and other financial and budget reports; provide reliable and timely financial information for managing our operations; account for assets reliably, so that they are properly protected from loss, misappropriation, or destruction; and meet these requirements in a way that is consistent with Federal accounting standards and the Standard General Ledger.

To gauge our compliance with FFMIA, KPMG LLP performed the tests contained in Office of Management and Budget (OMB) Bulletin No. 01-02. In considering the compliance of our financial management systems with the FFMIA, KPMG LLP assessed individually the systems we use to (1) manage the Retirement, Heath Benefits, and Life Insurance Programs and (2) manage the Revolving Fund Programs and Salaries and Expenses.

In its report on the audit of our fiscal year 2000 financial statements, KPMG LLP cited the financial management systems supporting the Revolving Fund Programs and Salaries and Expenses as being substantially noncompliant with the FFMIA. More specifically, they reported the following:

• The financial management systems we use to manage the Revolving Fund Programs and Salaries and Expenses lack a formal budgetary accounting structure, which compromises our ability to comply with budget preparation, execution and reporting requirements.
• The financial management systems used to manage the Revolving Fund Programs and Salaries and Expenses do not provide for the recording of financial events in a manner that is consistent with the Standard General Ledger.
• On an agency-wide level, we do not provide adequate system security in that we do not have coordinated security procedures: lack effective incidence response and monitoring capabilities, do not conduct periodic risk assessments, and have not developed adequate security-related processes to protect our assets from unauthorized access or improper use.

We understand the concerns that KPMG LLP cites and agree with most of them. Nonetheless, we have determined that our financial management systems as a whole substantially comply with the FFMIA. We base our determination on our own internal assessment and the fact that the vast majority of our financial management operations are executed by systems that KPMG LLP did not assess as being noncompliant.

KPMG LLP’s findings vis-a-vis the financial management systems we use to manage the Revolving Fund Programs and Salaries and Expenses are serious and we are addressing them as such. In fact, we have reported to the President and Congress [see FMFIA above] that they do not materially conform to the requirements of OMB Circular A-127. We reported as well that various processes and procedures supporting the financial management of the Revolving Fund Programs and Salaries and Expenses are material weaknesses in management controls.

We have developed a remediation plan to resolve our noncompliances with the FFMIA. Our major initiative is the complete replacement of the financial management system supporting the Revolving Fund Program and Salaries and Expenses. We anticipate that our new financial management system will be fully operational by fiscal year 2003.

Debt Collection Improvement Act Compliance

The Debt Collection Improvement Act of 1996 (Public Law 104-134) has had a major impact on the way a Federal entity makes payments and collects monies owed it. The Act enhances debt collection Governmentwide and encourages the use of electronic funds transfer. We comply with the Act in the following ways:

Treasury Offset Program. One important provision of the Act is the requirement that non-tax debts owed that have been delinquent for a period of 180 days be turned over to the Treasury for collection or termination. To date, we have collected over 3,166 payments ($1.1 million) owed us via the Treasury Offset Program.

Computer Matching. We believe that it is equally important to prevent overpayments in the first place as it is to collect them once they become debts. Thus, we maintain an aggressive and active program integrity function to prevent waste, fraud, and abuse of Retirement Program benefit payments. One of the primary tools supporting this function is the use of computer matching agreements. As such, we exchange payment information with other Federal agencies to identify individuals who have died or are no longer eligible for benefits for other reasons. As can be seen below, in fiscal year 2000, our computer matching activities identified more than $29 million in overpayments and prevented an additional $86 million from being overpaid (in $ millions).

Promoting Direct Deposit. The 93 percent of our Retirement Program annuitants participating in direct deposit represent the highest percentage among benefit-paying Federal programs. We believe it may be difficult to convince a great many of the remaining annuitants to enroll, since they are older individuals who may be uncomfortable with the concept of electronic payments and banking. Most of the future growth in the direct deposit participation will come from new annuitants, since the vast majority are already paid their salaries by electronic funds transfer, and by annuitants who live overseas.

Inspector General Act of 1978 Compliance

Our Office of the Inspector General (OIG) conducts periodic audits of the records of carriers participating in the Health Benefits Program to determine whether the amounts they have charged to the Program contacts comply with their contracts and Federal procurement regulations. During fiscal year 2000, the OIG issued 50 final reports, which contain recommendations for monetary adjustment in the aggregate amount of $150.7 million due the Program. There were three reports for which no management decision had been made within six months of issuance; however, resolution of these items has been postponed at the request of the OIG.

Management Challenges

The following is a brief outline of what we see as the most important currently-known demands, risks, uncertainties, and conditions affecting our agency.

• We must enhance our computer security environment by developing an integrated enterprise-wide program encompassing data security, general support systems, application systems, network operations continuity of operations and data recovery.
• We must implement our Health Benefits Program enrollment and premium reconciliation system, so that we can enhance our control over the payments we make to community rated carriers. This is an area cited by our Inspector General as one of the most serious challenges we face.
• We must continue our Retirement Systems Modernization (RSM) effort. RSM is our strategy to meet our long-term customer service, financial management and business goals for the Retirement Program. It is only through modernization that we can ensure the future delivery of high quality services to our stakeholders. We fully concur with the Inspector General’s identification of RSM as one of our most significant, high-risk challenges. We also agree that there exists a degree of uncertainty in any effort of such size and scope and we are taking all feasible mitigating actions. Our ability to implement RSM functionality on a timely basis is dependent upon the continued availability of necessary funding.
• We must continue to enhance our Government Performance and Results Act process, using performance data to more effectively plan, budget, execute, and evaluate our programs and activities.
• As it continues to be a nation-wide problem, we must obtain the statutory authority to investigate and prosecute health care fraud in the Health Benefits Program. This is an area cited by our Inspector General as one of the most serious challenges we face.
• We must continue to generate consolidated financial statements, as well as stand-alone financial statements for the Retirement, Health Benefit and Life Insurance Programs, that receive unqualified audit opinions. This is not assured, but will depend upon our ability to attract and retain competent accounting personnel at all levels.
• Although we received an unqualified audit opinion on our first consolidated financial statements, we know that much work must yet be done. For instance, our auditors cited five reportable conditions, which represent significant deficiencies in our internal control structure. We must resolve all of our weaknesses in internal controls and noncompliances with FFMIA.
• We must establish fundamental systemic and procedural control over our Revolving Fund and Salaries and Expense account activities. The implementation of our new financial management system would be an enormous step in this direction, as long as funding is available. This is an area cited by our Inspector General as one of the most serious challenges we face.
• We fully recognize the importance of human resource accountability across Government and that we must play a critical role in addressing it. We have already deployed tools and started initiatives that assist employing agencies in developing human resources management and accountability systems. We will tailor our future initiatives to the priorities of the new Administration, as we proceed in this area. This is an area cited by our Inspector General as one of the most serious challenges we face.