FY 2001 Performance and Accounting Report Homepage

The Inspector General's Top Management Challenges

As of December 1, 2000

As of January 28, 2002

TOP MANAGEMENT CHALLENGES
OFFICE OF PERSONNEL MANAGEMENT
JANUARY 28, 2002

1. HUMAN RESOURCES MANAGEMENT
   
   Strategic human resource management (HRM) has been and continues to be a demanding government-wide challenge as a large number of employees become eligible to retire, the job market becomes more competitive, the need for better skills in technological positions increases, and the awareness of performance management increases. For these reasons, GAO added strategic human capital management to its list of government-wide high-risk areas in January 2001. It is clear that OPM, the federal human resource management agency, has the lead role in directing, assisting, and reviewing human resource efforts, including fostering a more results-oriented approach to strategic human resource management across the government and promoting broader application of best practices in human capital management. OPM's leadership role includes assessing the status and plans for addressing human resources management in agencies, working with agencies to better prepare them to meet future challenges and deal with performance improvement efforts, and ensure more effective oversight of the government's key human resource concerns.
   
   OPM's leadership role will require significant attention and resources. Following are some of the steps already being taken by OPM to improve human capital management throughout the government, as well as some of the challenges that are still to be addressed:
   
   The President's Management Agenda, which was included in the FY 2002 budget, includes a comprehensive agenda of program accomplishment and management reform across the government, and specifically calls for the improvements in the strategic management of human capital. OPM is playing a key role to support this initiative government-wide.
• OPM worked directly with OMB to define the objectives and identify effective strategies for the workforce analyses and restructuring plans that each agency was required to submit as part of its FY 2003 budget submission and annual performance plan. OPM provided training sessions for top agency officials on how to carry out their analyses and provided direct technical assistance when requested.
  
  
• OPM partnered with OMB to develop the Standards for Success that are being used in the Executive Branch to assess the status of each agency's efforts to meet the President's objectives.
  
  
• In December, OPM issued the OPM Human Capital Scorecard to agency heads, which outlines specific human capital goals for all agencies to incorporate in their annual performance plans, and establishes government-wide measures to track and compare progress in meeting these goals.
  
  
• OPM is now working with OMB to go over each agency's proposed human capital action plans, assessing them for weaknesses, and suggesting new strategies to make them successful.
  
  
• In July 2001, OPM released, and made available on its website, a document that identifies the various existing personnel flexibilities available to agencies under current law to acquire, develop, and retain talent and leadership. Also, more recently, in December 2001, OPM released an evaluation on various demonstration projects and alternative personnel systems concerning human resources flexibilities and lessons learned.
  
  
• Executive Order 13197, dated January 18, 2001, gives OPM authority to require agencies to establish HRM accountability systems that (1) set standards for applying the merit system principles, (2) measure the agency's effectiveness in meeting these standards, and (3) correct any deficiencies in meeting these standards. To meet the requirements of the Executive Order, OPM has been working to establish a framework for agencies' use in measuring the efficiency, effectiveness, and strategic alignment of HRM. In January 2002 OPM issued HRM Accountability System standards that describe essential features required to establish and maintain internal HRM accountability systems. These standards complement the OPM Human Capital Scorecard and also provide OPM a framework for reviewing and evaluating these systems.
  
  
• The President's management reform agenda also includes an initiative to expand A-76 competitions. In carrying out this initiative, work now performed by federal employees could be shifted to the private sector, and will have a government-wide impact on federal human resources management operations. As a result, OPM will face the challenge of providing leadership in managing not only the civil service, but also a whole range of contractors who perform work for the federal government.
  
  In this very dynamic and far-reaching effort, OPM is investing significant resources to identify and implement effective policies, and provide clear technical guidance and support. They are also currently reorganizing their operating structure to improve their ability to provide this kind of human capital leadership on a government-wide basis. Leading this effort has and will continue to require executive management's full commitment and support to improve government performance, human resources management and accountability.

2. RETIREMENT SYSTEMS MODERNIZATION
   
   The development of large computer systems is a very risky undertaking, given the variety and amount of resources required. The ongoing modernization of the systems to be used to administer the Federal Retirement Program, along with the related reengineering of business processes, is an example of this, and there is no guarantee of complete success. The Federal Retirement Program includes the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS). The present computerized systems that support the processing of both CSRS and FERS retirement information are inadequate in their processing and programming techniques. In order for OPM to not only maintain, but also increase, service levels to keep pace with customer expectations and to manage the workload associated with significant increases in the FERS retirement annuitant population, the retirement systems must be modernized.
   
   In 1997, the Retirement and Insurance Service's (RIS) Retirement System Modernization (RSM) project team documented both the CSRS and FERS retirement business requirements and selected a long-term concept of operations. Through 1998 and 1999, RIS reengineered its business processes using a dedicated OPM project team, subject matter experts, and a contractor with business process reengineering experience. The RSM project team identified six core business functions that the future system will utilize to accurately and efficiently process retirement information. These core processes were outlined and presented to senior OPM management, OPM system users, and stakeholders from several other government agencies. In 2000, the RSM project team completed process blueprints for four of the six core processes and started to translate them into the technical requirements necessary to design the new retirement system.
   
   During 2001, the RSM project team completed the process blueprints for the remaining two core processes. In addition, the RSM project team completed the technical requirements document, performed a staffing analysis, designed the transition strategy, and developed the architectural design of the new system. The RSM project team also began implementing and testing the system in phases. RSM project managers now believe that the project will be completed in 2008; however, it is important to note that in 2001 OPM management started to look at other options for retirement processing, including the possibility of outsourcing. The OIG agrees that reengineering the systems that support the Federal Retirement Program is the best way that OPM can ensure the accuracy, consistency, and timeliness of the services that are provided to all stakeholders.
   
   Managing the risk/reward for this project is very difficult given the uncertainty of success for reengineering OPM's business processes; the development and implementation of entirely new computerized systems to support these business processes; and the long-term nature of RSM. We are assisting in the risk mitigation effort by performing a systems development life cycle audit of RSM. This audit will attempt to validate the entire process and provide information and advice to the RSM project team, as appropriate, during the system development process.
   
   
   
3. EXPANDING E-GOVERNMENT
   
   The President's electronic government (e-government) initiative seeks to enhance access to and delivery of government information and services through expanded use of technology, particularly Web-based Internet applications. OPM is responsible for leading several e-government projects and is challenged to simplify business processes and unify government operations to improve the efficiency and effectiveness of government-wide operations.
   
   OPM has been working on two major government-wide projects, the Human Resources Data Network (HRDN) and Retirement Systems Modernization (RSM). The HRDN project should improve the efficiency of moving HR data electronically between agencies, and provide the basis for the envisioned move to an integrated HR system for the Federal government. The RSM project is related to HRDN in that it will use the electronic data gathered as part of the HRDN, and is OPM's central strategy to meet its long-term customer service, business, and financial management goals for the retirement program.
   
   In addition, in December 2001, OPM was designated by OMB to lead the effort to consolidate and modernize federal payroll systems and services. The challenge will be to modernize payroll systems, reduce the costs of routine operations, consolidate human resource and payroll data and standardize human resource and payroll policy and processes government-wide. This project will require coordination with the HRDN project.
   
   OPM is also leading three other projects: E-Training, E-Clearance, and Recruitment One-Stop. These projects will use Internet-related technologies to accelerate and streamline service delivery to citizens, reduce paperwork burdens on business, improve management and responsiveness of joint federal-state-local programs, and apply commercial best practices to improve government operating efficiency. As a result of simplifying business processes and unifying government operations around citizen needs, each e-government initiative will improve the efficiency and effectiveness of government operations.
   
   
4. OPM'S IMPLEMENTATION OF THE GOVERNMENT PERFORMANCE AND RESULTS ACT
   
   The Government Performance and Results Act (GPRA) requires a change from process management to performance management. Data systems and controls need to be in place to achieve performance management. Agencies are required to effectively plan, budget, execute, evaluate, and account for their programs and activities. Many of OPM's functions are government-wide policy-oriented, making it more difficult to define measurable goals and indicators or to define achievable outcomes. This is further complicated because OPM has decentralized many human resource management functions to agencies, and they have limited data collection controls in place to measure performance.
   
   When OPM prepared its first annual performance plan, it acknowledged, and external reviews stated, that a clear customer orientation needed to be presented. As a result, OPM created a new measurement framework presented in its FY 2000 - 2005 Strategic Plan, to provide a clearer picture of corporate achievement at the strategic goal level. In addition, in the FY 2001 and 2002 annual plans OPM began to align its program goals and measures to the strategic goal level for this new framework. However, it will take at least one more planning cycle before the new framework is fully integrated into the annual plans and report. As a consequence, it will be at least one year before it is apparent how annual program goals/measures work within the new framework and to obtain a complete picture of OPM's progress toward meeting strategic goals.
   
   Other GPRA-related challenges facing OPM management include the following:
• Although OPM updated its strategic plan in September of 2000, it has not yet been revised to reflect the policy and initiative decisions of the new Administration. In order to improve its usefulness as a management tool for the agency and as an oversight tool for Congress, OPM should modify its strategic plan to reflect the priorities of the new administration.
  
  
• We determined the accuracy and reliability of performance results and tested internal controls in an audit of OPM's FY 2000 performance data. We reported that OPM needs to improve the reliability of its performance data and controls over that performance data. We believe that the cooperative relationship we have established with OPM's GPRA working group will continue to pay dividends in improving these aspects of data collection and controls.
  
  
• One of the major management initiatives of the current Administration is to fully integrate performance and budget information. In prior annual budget justifications to OMB and Congress, OPM aligned requested resources with the goals the agency committed to achieve that year. However, full integration of budget and performance requires that agencies are able to link and report not only their budget requests, but the resources actually expended to achieve outcomes. Consequently, in FY 2002, OPM is implementing a zero-based budgeting concept, requiring its organizational components to develop their FY 2002 operating budget plans from the ground up, specifying the minimum level of resources that will be needed to successfully accomplish each of its annual performance goals. This new way of preparing the budget will link the resources expended to accomplishments at the close of FY 2002 and prepare the baseline for OPM's FY 2003 goals.
  
  
OPM's strategic plans, annual performance plans, and reports have been subject to on-going and continuous refinement over the years to improve the measurement framework used. The OIG continues to work with the agency in this effort, providing review, commentary, and recommendations for improvement. Although the process is still evolving, we believe the improved focus on outcomes will better show the value OPM provides in managing the federal government's human capital, and will provide more reliable information for short- and long-term decision-making.

5. REVOLVING FUND AND SALARIES AND EXPENSES ACCOUNTS
   
   Developing and implementing internal controls that will correct material deficiencies in the Office of Personnel Management's financial management systems for the Revolving Fund (RF) and Salaries and Expenses (S&E) accounts has been a top agency challenge for several years. While the agency has made great progress in implementing controls and correcting both short-term and long-term problems, particularly during the last year, issues remain which continue to pose a challenge. The following are the key areas that the agency is faced with in financial management of the RF and S&E:
   
   
   1. Reconciliation of OPM's Fund Balance with Treasury and Disbursements in Transit Accounts
      
      The reconciliations of Fund Balance with Treasury for the RF and S&E accounts were reported as a material weakness from 1993 to 2000 in OPM's annual Federal Managers Financial Integrity Act (FMFIA) letter to the President. In the 2001 FMFIA letter, it was reported as corrected subject to validation. To achieve this improvement, the Office of the Chief Financial Officer (OCFO) implemented internal controls over the cash reconciliation process in fiscal year 2001. These controls included developing standard reconciliation procedures, maintaining documentation supporting all cash transactions, and supervisory review.
      
      The OCFO has also worked diligently to identify and reconcile prior year differences with Treasury. Unresolved differences between the RF and S&E and Treasury cash balances, which had been as high as $47 million in FY 1999, were reduced to approximately $6 million as of September 30, 2001. It should be noted that this difference is net of approximately $40 million of old disbursements in transit (DIT) transactions that have not been completely resolved or validated.
      
      The OCFO needs to maintain the controls and discipline developed in fiscal year 2001 to keep reconciliations current and differences with Treasury under control.
      
      
   2. Data Reconciliation and Control
      
      Controls over transactions entered into the RF and S&E general ledgers have historically been inadequate. Subledgers or other detailed records were often not reconciled to general ledger control accounts. Supervisory and analytical reviews of general ledger transactions and balances were also inadequate, and transaction codes used to record general ledger entries were defined incorrectly in some cases due to inadequate management review and approval over their development and implementation. This resulted in erroneous entries to the general ledger. The absence of these standard accounting procedures and controls was a primary cause of the financial statements of the RF and S&E being unauditable.
      
      A contributing factor to these problems was that the financial management system used to account for the RF and S&E activity did not meet Federal Financial Management Improvement Act of 1996 requirements, such as using the U.S. Standard General Ledger. In response to this, OPM purchased and implemented a new financial system for the RF and S&E. The system is being implemented in phases, with the first phase going live October 1, 2001, and the remaining modules expected to be implemented during the spring of 2002. As part of the implementation process, the OCFO has worked to clean up the balances in many of the general ledger accounts prior to loading beginning balances in the new system. These accounts or line items included Investigations Service transactions, Training Management Assistance transactions, Fund Balance with Treasury (noted above), Accounts Receivable, Accounts Payable, and others. The OCFO has developed detailed reports and procedures for reconciliation and analysis of account transactions and balances, and has begun to implement them.
      
      Completing the implementation of the new system, along with the implementation of controls, such as timely reconciliations, over transactions processed using the new system will require extensive management efforts. As with the improvement of controls over cash transactions described above, it will be critical for the OCFO to maintain these improvements over time, and not let unresolved differences between general ledger account balances and supporting detail linger and grow.
      
      
      
6. OPM'S FINANCIAL MANAGEMENT OVERSIGHT OF THE FEHBP
   
   In a decentralized payroll processing environment , maintaining adequate control over the financial operations of the FEHBP will always be a management challenge. Over the last several years, OPM's financial management of the FEHBP has been enhanced to provide more effective oversight of its operations. OPM is responsible for oversight of carrier operations, negotiating and administering contracts with insurance carriers, and developing health insurance legislative initiatives. To improve its financial management oversight activities, OPM has issued an Audit Guide requiring experienced- rated carriers to obtain an annual audit of FEHBP activities and to report on their internal control structures. In addition, OPM collaborated with the IG and OMB to require the CFO Act agencies to engage an auditor to perform certain agreed-upon procedures designed to test the accuracy of employee withholdings and agency contributions for the Retirement, Health and Life Insurance Programs. Transactions, such as an employees health insurance decisions, are tested from the process of electing a health plan to confirming that the right amount of monies were remitted to the Earned Benefit Funds. These procedures are performed annually.
   
   However, OPM's oversight and monitoring of enrollment and premium reconciliations with community-rated carriers (CRCs) still need to be improved. OPM remits premiums to CRCs based on amounts it receives from federal agencies on a bi-weekly basis. OPM's existing systems were not designed to centrally reconcile the monies paid as premiums to participating carriers with the enrollees for whom they are being paid. Consequently, the potential exists for carriers to provide benefits to employees who are not covered by their plan at the time the services are rendered. Several lawsuits were filed by carriers alleging underpayment as a result of enrollment differences. These lawsuits resulted in OPM paying a 1 percent (approximately $50 million per annum) premium surcharge to the carriers in lieu of the carriers filing lawsuits to recoup losses incurred as a result of this control weakness.
   
   To address this weakness, OPM has engaged a contractor to develop and implement the Centralized Enrollment Clearinghouse System that is expected to greatly facilitate the carrier/agency reconciliation process. This system is scheduled to be operational in the fourth quarter of FY 2002. Once operational, OPM will need to demonstrate the accuracy of the enrollment figures being used to pay the carriers, so that the 1 percent premium surcharge being paid can be eliminated. The number of parties that will be involved (contractor, payroll offices, OPM) and the lack of an integrated data system make this a substantial challenge for OPM management.
   
   
7. Improving the Performance of the Federal Employees Health Benefits Program
   
   OPM's administration of the FEHBP includes responsibility for negotiating contracts with insurance carriers, including the benefits provided and premium rates charged for approximately 9 million individuals. Optimizing the programs' performance (i.e., return on investment) will require a continuous program improvement process and ongoing investments in technology. There are several key strategies that will have to be more fully considered in how best to maximize the performance of the FEHBP. In addition, there are several key factors that affect the programs performance, such as an aging FEHBP population, increases in the use of prescription drugs and medical services, advances in medical technology and decreases in the number of health plans participating in the FEHBP each year.
   
   These factors have contributed to ever increasing premium rates - the average increase in premiums over the last 2 years has been approximately 12% . Controlling these costs is an area of great concern to the government, which is responsible for 72% of the total premium, government employees enrolled in the FEHBP, who are responsible for the remainder of the premium, and OPM management. OPM is often limited in how much it can control cost increases without also cutting desired benefits.
   
   OPM needs to determine and implement the program changes that allow for maximizing resources, and obtain the flexibilities that produce the most cost beneficial benefits package to a population of enrollees that is aging overall. One flexibility that has potential for program improvement, but is not available under current law, is to have OPM directly contract for selective benefits, such as dental and prescription drugs. This and other changes in regulations and the FEHBP law must be considered in the interest of improving the programs' performance. In addition, OPM should also consider what strategic alliances need to be established to provide for maximum cost savings to the government, such as considering how best to partner with the Centers for Medicare & Medicaid Services to provide cost efficient benefits to the aging FEHBP population. Expanding OPM's contracting authority to include delivery systems prevalent in the private sector, possibly including Medical Savings Accounts, is another potential enhancement to the Program's structure that may help control costs.