Originally Broadcast October 17, 2007

Arlington, VA

Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business. The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about The Center by visiting us on the web at businessofgovernment.org.

And now, The Business of Government Hour.

Mr. Morales: Good morning. I'm Albert Morales, your host, and managing partner of The IBM Center for The Business of Government.

Good government, a government fiscally responsible to its people, must have as one of its core purposes the achievement of results for its citizens. In doing so, it must also act as an effective steward of the taxpayers' money. Every year, over $2.7 trillion of taxpayers' money flows through the accounts of the U.S. Federal Government. Managing these funds requires at a minimum keeping the books straight and ensuring that funds are not misspent, but it also means going beyond the fundamentals to improve financial management government-wide.

With us this morning to discuss his efforts in this area is our special guest, Danny Werfel, Acting Controller of the Office of Federal Financial Management within the U.S. Office of Management and Budget.

Good morning, Danny.

Mr. Werfel: Good morning.

Mr. Morales: And joining us in our conversation is Debra Cammer-Hines, vice president and practice leader for IBM's public sector financial management practice.

Good morning, Debra.

Ms. Cammer-Hines: Good morning, Al.

Mr. Morales: Danny, let's begin by talking about the Office of Management and Budget, or OMB. Could you tell us about OMB, what its mission is, how it's organized and give us a sense of scale such as its size, number of employees?

Mr. Werfel: Well, I like this question because OMB is a difficult organization to describe. Not a lot of people understand all the different facets that we get into. But essentially, the primary thing that we are involved with is producing the President's budget each year. That budget is produced in a time frame between essentially August and February, and it's submitted in the first week of February to Congress. And it involves about 200 to 300 examiners reviewing agency requests for funding for new programs or existing programs. The examiners evaluate the requests that come in from all the different agencies, whether it be the Department of Commerce, the Department of State; every agency submits a budget request to OMB.

And we review them and make recommendations to the director of OMB about what the President's budget should look like, and this process is a very deliberative one, a lot of analysis goes into it. There are a tremendous amount of challenging questions that must be answered, a lot of priorities to balance.

We also have roles beyond just producing the President's budget. Sticking with the budget examiners and the budget side of OMB, they are required to become subject matter experts on all these various programs, so they can not only make good recommendations about funding these programs or reforming these programs, how to fix these programs, but they also look at elements of how the programs are managed, suggestions or requirements we can provide to agencies to improve the management of the programs -- basically everything that goes into executing these programs once Congress enacts the law that creates them.

Beyond the budget side -- and I like to remind people that there are two letters in the Office of Management and Budget, "M" and "B." There is the "M" side, or the management side, and on the management side of the house, which is smaller than the budget side of the house, we have the responsibility -- and I say "we" because I primarily sit on the management side of the house -- we have the responsibility to establish different requirements and different initiatives that are targeted at improving management initiatives for the government.

This includes areas such as financial management and accounting, and I think we're going to talk mostly about that today. But there are other areas that we are -- again, establishing requirements that all federal agencies must follow, and in addition to that, establishing initiatives to improve management, and those areas include procurement and information technology, for example.

And one other area of OMB that I think is worth mentioning is the Office of Information and Regulatory Affairs, and that office reviews federal regulations that come in. No agency goes out and regulates to the public without getting an OMB approval first.

So there's 500 total people at OMB, and I think one of the great benefits of being at OMB is that you do get to see every part of the policy process.

Mr. Morales: Well, it's certainly a very broad overview. I believe you said that the management side was slightly smaller than the budget side. Can you just give us a sense for that? Is that a two-thirds/one-third or three-quarters/one-quarter?

Mr. Werfel: Yeah, it's about 300 to 200 or 350 to 150, around that in approximation. My office, the Office of Federal Financial Management, which deals with accounting and financial management issues, has approximately 18 people in it. The Homeland Security branch within OMB has about 12 people. So you see that the branches are pretty big comparatively to our office. We deal with a whole government-wide issue. They're just dealing with the homeland. So you do see more people on the budget side than on the management side.

Ms. Cammer-Hines: Now that you have given us a good overview of the organization, could you spend a little time talking more about your role within OMB, your specific responsibilities and duties as the Acting Controller, and how it supports OMB's mission?

Mr. Werfel: Certainly. The Office of Federal Financial Management is responsible for serving as the government's controller. A controller establishes requirements related to financial management, internal controls, accounting; establish those requirements and oversee the parts of our organization, the larger organization, the federal government, their efforts to implement and meet all these various requirements.

So what we sometimes refer to as a set of core activities that federal agencies are doing to improve stewardship, to mitigate the risk of fraud and error and waste, to make sure that they're accounting appropriately for federal taxpayer dollars. We have a whole series of requirements that we issue through bulletins, or sometimes they're called circulars, and they establish what the agencies must have in place from a people-process-technology standpoint to make sure that the accounting is strong and the controls are strong. And so those core activities, we are responsible for publishing them, developing them, maintaining them. We answer a lot of questions about them, and we look to see where they might need to be improved.

And that takes me to the next responsibility of the controller and the controller's office, is to look at initiatives to improve management to improve management beyond just those core activities, get better results from a financial management standpoint.

So beyond core activities, we've established what we sometimes refer to as a reform agenda. Now we are developing new tools, new requirements, new approaches -- in our reform agenda are areas like improper payments agencies are changing and improving the way they track payment errors. We are looking at our real estate that the government owns and trying to improve our inventory of that real estate so that we know where the properties are that are in need of repair or that are surplus. We're looking at grants management. So that basically, between those core activities and the reform agenda, that keeps us pretty busy.

Ms. Cammer-Hines: You have a broad set of responsibilities and duties and a lot of challenges in front of you. How would you describe your top three challenges that you face in your position, and how you've started to address those challenges?

Mr. Werfel: This is a tough question, because I think narrowing the challenges that we have in government financial management to three is very difficult. The government is so complex, I struggle to comprehend all the different complexities, but we have a myriad of different programs that each have unique requirements.

These unique requirements create complexity to the transactions that we are undertaking. We have programs that are designed to improve world peace and those that are designed to provide school lunches to children. And with each of these different diverse missions and diverse localities and diverse approaches, all of that results in financial transactions that need to be tracked very closely so that we have reliable and valid information on what's going on.

So that's an introduction into what I would say the first challenge that we have is in such a complex environment and a growingly complex environment, how can we do what we do better? How can we be more efficient? Do we have the right human resources to get the job done? And my sense from the financial community is that government is becoming more complex to look at from a financial management standpoint.

I would say the second area is related to the first, and it's how we help the chief financial officer and the government today move beyond the compliance exercises that take so much of their time to a place where they are acting more as financial managers rather than "compliance officers." So as I described, it's a very complex environment that the CFO community is operating in. They have a very short period of time to gather all the data and produce their financial statements.

But what's also important for the chief financial officer is to move beyond that and to be a strategic leader within their organization.

I often get asked what is the full vision of a CFO in the future beyond just clean audits and financial statements. It's an individual who works for the organization who can identify the critical risks, financial risks and the critical business goals that that agency has. And once those risks and business goals are identified, the chief financial officer can turn around and implement a data strategy to inform on those goals and risks. And that's going to involve tapping all the different data sources within the organization and working across an organization to figure out what are the relevant pieces of information to help agency leaders and managers at all levels to make smart decisions that help mitigate those risks and help meet those business goals.

And right now, what we don't have is a clear path forward for how to get the chief financial officer beyond the clean audits, which are fundamentally important. We have to be very focused on the controls, but we also have this objective, this larger objective to help the agency manage its risks more proactively and more strategically.

And so another challenge: how do we move beyond compliance when we still have a lot of work to get done?

And the third area I would describe is to dedicate resources to program integrity. Let me give you an example: in the area of real property, we can do $7 million in repairs now, or are we going to wait till that roof is about to fall down and invest $70 million? And the goal that we have in financial management and in my world is to help the agencies and help us build the case and build stronger analytics to show where our activities have these types of impacts from a cost avoidance or from a return on investment standpoint.

So I take it upon our office to help build a framework for getting these types of funds more -- a higher priority on Capitol Hill, and making sure that everyone understands that by not funding these activities, there are longer-term bigger impact costs that the government faces that directly impact the taxpayer.

Mr. Morales: Danny, I have only about a minute left, but I'm curious, you've had a sort of a very interesting career path. Could you describe your career path for our listeners, and how has this background prepared you for your current role and informed your leadership style?

Mr. Werfel: I never would have guessed that I would have ended up in financial management particularly. I started at OMB -- started my career over a decade ago in the Office of Information and Regulatory Affairs, where I was reviewing regulations, and got myself into a niche in civil rights. I was reviewing a lot of civil rights regulations, got pretty interested in it and moved over to the Justice Department. I'm a lawyer by background, and so I was able to have the unique experience of helping to develop and review civil rights regulations, and then a couple of months later, to enforce them in courtrooms by litigating defendants who had allegedly violated civil rights regulations and laws.

I tried the litigation thing for a couple of years, but realized that my home and my heart was at OMB, so I begged some of my prior colleagues to have me back, and I went back to OMB and was a budget examiner in the education branch.. That's when, after I did that for a few years, I got the call from Financial Management to see if I wanted to come over, and I really did like the management stuff. Every time I worked on a management issue, I like to say that I was throwing right-handed because it really seemed to come naturally to me and something I could get very passionate about. So I gladly moved over to the "M" side of OMB, and have been there ever since.

Mr. Morales: That's fantastic.

What about OMB's framework for improving government financial performance? We will ask OMB Acting Controller Danny Werfel to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Danny Werfel, Acting Controller of the Office of Federal Financial Management at OMB.

Also joining us in our conversation is Debra Cammer-Hines.

Danny, the President's Management Agenda, or PMA, focuses on five government-wide initiatives, including improving financial performance. Can you tell us about the PMA's objectives for improving financial management and the results they've achieved to date? And how does OMB define and measure financial management success among federal agencies?

Mr. Werfel: Albert, as we discussed earlier, there are billions of dollars moving in and out of federal agencies, sometimes on a daily basis. And what the President's Management Agenda recognizes is that you have to start with a strong foundation of good internal controls and good accounting. You have to ensure that you have the right people, the right process, the right technology to account for the tremendous volume of funds that are moving in and out of the government in a variety of different complex transactions.

So what the PMA or the President's Management Agenda does is it says in order to elevate from the red score, which is the worst score you can get, to a yellow score, which is the middle score, and obviously green score is the top, we hold agencies to demonstrate that they have that strong foundation. Well, how do you now that an agency has a strong foundation of good accounting, good internal controls, good people?

So what we do is we've established indicators, things that we can look at to give us an indication that the pieces are there, and those things are things like did the agency get a clean audit opinion on its financial statements; are they reporting their financial statements within the tight deadlines that we've provided; are they eliminating their material weaknesses, which are findings that the auditor provides that says these problems force us or cause us to call into question the reliability of some of what's being reported; are they being compliant with laws and regulations?

This is the objective criteria that we are going to use to say the foundation is there.

And then what we say in the President's Management Agenda for Financial Management is you get to green based on what you build on that foundation. So a green agency is the one that demonstrates that all of the compliance elements are met, that they understand where their key risks and business goals are in the organization, and that they are using data -- timely, reliable data to inform on those business risks and business goals.

And we've made tremendous progress in this area. We have hundreds of agencies, but 24 major ones make up the bulk of all federal expenditures, and these 24 agencies also happen to be the 24 agencies that are listed in the Chief Financial Officers Act which first established the requirement to do audited financial statement.

Of the 24 agencies, as we sit here today, we have 19 with clean audit opinions. Since 2001, we've seen a significant reduction in the number of material weaknesses that auditors identify. We had 62 government-wide material weaknesses in 2001, and we have 41 today. That's approximately a 35 percent decrease.

So in terms of this foundation piece, we see a lot of agencies getting to where they need to be. We have 15 of the 24 agencies are either yellow or green, which means that they've done what they need to do to meet all these various compliance requirements, 12 of those agencies are also demonstrating that they are using information to drive decision-making.

Mr. Morales: Danny, there are still several federal agencies that are receiving a red rating in financial management. From your perspective, the way you describe it, why is it so challenging for federal agencies to get beyond the red?

Mr. Werfel: Well, for the first point, we have very tough standards to get to yellow. We don't just require a clean audit opinion, which is in and of itself, as I described, very challenging for a federal agency. Many of our federal agencies -- you think about an agency like the Defense Department, the Department of Homeland Security, these agencies have thousands and thousands of employees, myriad of different programs, many different missions, many different information technology systems. Just a huge amount of data that needs to be accumulated and aggregated accurately and timely.

But our yellow standard says not only do you have to get clean audit opinion, you have to get down to only one material weakness, which is challenging also for the agencies, and all the compliance elements, too. So the first thing is that is a very high bar to move off red, especially for agencies that are of the size and magnitude -- now, not that they don't work very hard at the National Science Foundation; they do, they are a great team, but they are a $5-billion agency which sounds big, but in government terms it's a relatively small agency, with a relatively straightforward line of business of providing grants.

Agriculture Department, a $40-, $50-billion agency. So many different missions, so many different types of lines of businesses, and for them to get a clean audit opinion is very challenging, and to eliminate those material weaknesses again very challenging.

The other thing is that the financial leaders today are inheriting old systems and old processes and data that isn't always as clean and as pure as you would want it to be. It's a very difficult thing, we've learned time and time again that the status quo is hard to overcome in government.

You can look at it half-full, you can look at it half-empty. We started the PMA in 2001, and we had one green agency, the National Science Foundation. Now we have 12, and 3 additional ones that have met that foundation that I described of good internal controls and accounting.

So I like to look at the glass as half-full, and clearly we have a lot of work to do. But for those 11 remaining red agencies, some of them are getting very close.

Ms. Cammer-Hines: In addition to the improving financial performance initiative, the President has also established additional PMA initiatives such as eliminating improper payments, and right-sizing the federal government's real estate. Could you tell us more about the improper payments initiative? How are the federal agencies doing in this area, and what still needs to be done in order to achieve the fiscal year 2011 target of eliminating $20 billion in improper payments?

Mr. Werfel: The improper payments initiative I think is one of the more important things that we are doing, not just because it has a direct impact on the Treasury and how much money we have and -- but for me and for my office, we look at what we do as trying to build trust in government, that at the end of the day, everything that we're involved in -- improved accounting, improved controls, smarter decisionmaking, it's so that the taxpayer and the citizen can feel more comfortable and have more reliability that the government is acting as an effective steward of their dollars.

I would venture to guess that people outside the Beltway might not know about clean audit opinions, even though that's fundamentally important to us; it might not resonate with them. But what will certainly resonate with them is if John Smith got a $10,000 payment and should have only gotten a $3,000 payment. When we make mistakes like that when the process fails, and we issue checks that we shouldn't, pay for services twice that were only given once, that is something that compromises trust in government.

And so the improper payments initiative is designed to let the American people and let the public, let Congress know what the extent of the problem is, and describe the steps we're taking to improve on the problem. Now, the initiative works like this -- we basically take every outlay in government. We have $2.7 trillion leaves the government each year and goes to a nonfederal entity, whether it's an individual, a university, a company. And what we do is we ask the agencies to put those outlays or those payments into two buckets: a high-risk bucket and a low-risk bucket.

And we give them some guidance on what kind of factors to look into. Whether the program's very complex, the amount of outlays that go out. How many times the money hits a different party, so every time that money touches someone else, there is a risk of an error being made. So those are the types of things that we would ask an agency to look at, to put in high risk and low risk.

And we take that high-risk bucket and we do statistical sampling. We sample payments and we evaluate what the errors were in the sample that we took, and then we extrapolate that out to the universe. So we might take 200 samples, say we found 17 errors, and then at the end of the day we extrapolate that out and we say this is our improper payment amount. Then what we learn from that, we try to identify why were these mistakes made, so that when we go in and we sample that same program the following year, we hope to see an improvement.

Just to give you an extent, from the ones we measured, and we measured the hugest bulk of them in 2004, we identified $45 billion in improper payments total. Those same programs measured last year in 2006 measured $36.3 billion. So we had a precipitous drop of about $9 billion We're trending in the right direction, and a lot of agencies are hitting their targets to try to reduce improper payments. In the coming years, some of the programs out there that are big-ticket programs that we need a measurement on and don't have -- for example, Medicaid and School Lunch and Temporary Assistance for Needy Families, all of those programs are planned to have improper payment measurements made public in the next year or two.

Ms. Cammer-Hines: The federal government also owns hundreds of billions of dollars in real property assets, so improving the management of these assets is important to ensuring that taxpayer dollars are spent wisely and efficiently. Would you tell us more about the federal real property asset management initiative?

Mr. Werfel: I think real property is my favorite topic to talk about, because we've had such amazing success in this initiative. I think it's really a poster child of success for the President's Management Agenda, and for me and OMB, this interagency initiative worked very well, and we really need to look at what went right to see if we can mimic it in other interagency efforts.

But the way I think about the real estate initiative is we knew there was a problem. We had a lot of surplus and excess property that we didn't need, that we had property that we did need not in the right condition, that we we're operating properties at inappropriately high costs. So what we set out to do was to get for the first time a comprehensive inventory of every property the federal government owns, every building, every structure, every road. And we've done that. It was a lot of blood, sweat, and tears, but we did it.

But not only did we find out where all this property was and report it, we did a very smart thing, I think. We also required the agencies when they report their properties to give us some very significant facts about each property, and those facts are, is the property mission-critical or mission-dependent for your organization? What condition is the property in? Is the property fully utilized? And at what cost are you managing the property?

What that allows us to do today is to tier our properties, and we have a system now where we can run a query basically and say show me all the properties that are not mission-critical, that are underutilized, that are in poor condition and that are running at a high cost. It goes back to kind of that risk management concept. Now you have this set of assets that you can target to do something about. We know exactly what the universe of assets are that we have a problem with.

Since 2004, the federal government has eliminated $4-1/2 billion worth of surplus and excess property. And we've set very aggressive goals for ourselves. It's almost a billion a year. You know, my boss likes to say 9 by '09, 9 billion by 2009 in terms of getting rid of those assets.

Ms. Cammer-Hines: Can we move onto shared services and the Financial Management Line of Business initiative, which has been designed to improve cost, quality, and performance of financial management systems by leveraging shared service solutions? We're interested in hearing about your vision for the FMLoB, and how has it progressed to date, and changes you expect to see over the next five to ten years?

Mr. Werfel: We're in a complex environment. And I say that one of the biggest challenges we have is figuring out how to handle all this and do it more efficiently than we're doing today, because we're always in a tight resource environment.

The Financial Management Line of Business essentially is a strategy for how we can help make government financial management more efficient. And it involves leveraging the private sector or leveraging the public sector where necessary to look at a kind of "buy once use many" philosophy where, rather than have every agency operating their own financial management system and developing their own infrastructure to do all the transaction processing, is it possible that we can essentially pool these efforts and get some economies of scale, and this new term we have come up with, economies of skill, to help us get the job done more effectively?

We're trying to foster a limited number of stable and high-performing shared service providers that offer lower risk and lower cost options for agencies that are modernizing their financial system. Essentially, you have co-located financial systems. You have places that you can go, like if it's a public sector solution, for example, the Department of Treasury's Bureau of Public Debt, or the General Services Administration, where they're saying we're not only going to house our own financial system, we're going to also house your financial system. We'll help you get the work done. Or we have private sector shared service providers as well that are hosting and can host multiple agencies at the same time. And what that does is, it takes a key headache away from the CFO. It's just a lot of the grit work that goes on is being done by somebody else. And now you're more in an oversight role. You want to make sure that they are doing the work effectively, that they are meeting certain performance targets that you're setting for them, a very different role than you actually having to manage improvements, enhancements, changes to the system.

The thought here is that by co-locating some of these functions in places that that's their business, managing multiple financial systems, that's going to be a win-win.

Mr. Morales: Danny, this model sounds very intuitive, yet shared services has made fewer inroads into the federal government despite the benefits that you described. Do you have a sense why this is the case, and how can this paradigm shift?

Mr. Werfel: Well, it's a very good question, Al. The basic challenge that we have is, if you take an agency that has a very unique approach to financial management, they do accounts payable their own way, and have for years. The thought of moving to a new platform can be very daunting, because, again, it goes back to change management. The government doesn't change very easily. And even something that sounds as mundane as accounts payable takes a long time and lot of concerted effort and a lot of cultural change within the organization to get them to change their processes.

And that's the rub with shared services, is that you've got to transition. It's almost like a market barrier. The problem is the travel costs. It's getting there. They can see the great solution on the horizon, but they are not exactly sure how to get there. And so we came together and realized that what we needed to do was to standardize government financial management more than it is today.

And so what we've set out to do, and what we're in the middle of doing, is issuing standardization requirements for all of our core financial management activities. This starts with the basic fundamental accounting code or accounting string that all agencies capture information on. We have diversity in our accounting codes and now we're moving to a standard accounting code government-wide.

We're looking to standardize things like accounts payable and accounts receivable and other types of basic financial management fundamentals. What we're asking agencies to do is over time. as they look to re-engineer their processes, as they look to consolidate change and gain efficiencies in how they do financial management, here's the standard federal template, here is what you should move to, it's the default.

And these are being published right now. Some of them are out for public comments. So this is a long-term effort. I will say that we are seeing some success and interest in movement to shared service providers. We have seven agencies that are currently on shared service providers, four of them are shared service providers themselves. And we have four agencies that are actively in procurements to get to a shared service provider. There's a take-up rate here. I would envision that 10 years from now, you will see a dramatic shift in the number of agencies on shared service providers. And what we're doing today is making that shift more fluid by making the path very familiar to them.

Mr. Morales: What can the private sector do better to help improve the efficiency and effectiveness of our government's financial management?

We will ask OMB Acting Controller Danny Werfel to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Danny Werfel, Acting Controller of the Office of Federal Financial Management at OMB.

Also joining us in our conversation is Debra Cammer-Hines, vice president and practice leader of IBM's public sector financial management practice.

Danny, what is the Chief Financial Officers Council, and what is your role in this Council? And if I may, how does the Council inform and shape federal financial management policy and procedures?

Mr. Werfel: The Chief Financial Officers Council was created in the Chief Financial Officers Act, which really started this whole process of requiring audit and financial statements and requiring -- the Act itself actually created the position of chief financial officer at each agency. And what it also said, the Act, is that a council will be formed, and all the chief financial officers and the deputy chief financial officers from the major agencies will come together and provide a forum where they can discuss common challenges, share knowledge, work on initiatives together. It's really an important process to make sure that we are acting as one government. OMB's role is to chair the Council, and we help manage and lead the Council activities.

And the Council activities are as diverse as I just described. We do a lot of best practice, we share common challenges, we get together once a month and we will talk about what's going on in our agencies, what's going right, what's going wrong. We'll also break into teams and committees and tackle new challenges, new requirements. I like to say that at OMB in the Office of Federal Financial Management, we don't establish requirements in an office with no window. We make it an open process, so we leverage the Chief Financial Officers Council to help us.

We bring the Council together and we talk about, okay, what does the road map look like? What are our objectives, what does success look like; it's a big question we like to ask ourselves. And once we define success and define where we are going, what's the critical path, what are the steps we need to take. And the Council can help us answer our questions, like what's going to be challenging and expensive for the agencies that's going to force them to take on resources that they might not be prepared to, versus what are steps that are easier to do that can leverage existing technologies or solutions they have in their organization?

So I can't imagine a world without the Council. I think we would end up having requirements that are not appropriately right-sized to what we need to do, and would have difficulty getting buy-in from the community, and the Council plays a critical role in that type of coordination.

Ms. Cammer-Hines: Danny, you talked earlier about the need for revisions to the financial reporting model to better address the unique needs of the federal government. More specifically, you discussed the needed revisions with respect to public reporting, internal controls, and decision support. Can you discuss the existing challenges of financial reporting, and initiatives underway to address those challenges?

Mr. Werfel: Absolutely. November 15th, an important day. It's the day that all the financial reports are due. We have a very quick turnaround for our financial reports. This fiscal year closes September 30th, and our financial reports are due on November 15th, which is 45 days, but November 15th has other meaning. On November 15th, 1990, President George H.W. Bush signed the CFO Act into law, so we're coming up on the 17-year anniversary, and members of the community, both on the audit side and the preparer side, as we like to say, or the chief financial officer side, have begun to express interest in looking at what the next 17 years are going to look like.

There's a variety of different reasons for taking a close look at the Act itself, and thinking about what we might want to improve or change going forward. The first reason is that it's been 17 years, and so certainly, we are due to take a look at what's going right and what's going wrong. The other big reason to act now and to look at this question is the Defense Department. The Defense Department, which is basically half the government's balance sheet, is getting ready to launch into its major audit readiness and clean audit plan.

They're still on the cusp of a lot of activities that are going to take place and a lot of resources that will be expended. Shame on us if we don't look at the examples of the last 17 years. The examples of the other agencies who are out-of-head, sort of like the lead blocker for the Defense Department -- let's look at the last 17 years and see if we can fix it before DoD -- or address any improvements that are needed before DoD moves too far down the path.

There's a lot of chatter out there in both the public and private sectors about financial reporting. In the private sector, are we bogging down our companies with too many compliance requirements and reducing their competitiveness? And you see similar types of questions being asked with respect to government.

We've come together, a small group of thought leaders, to think about these questions, and we've come to the conclusion that we needed to start figuring out why do we come to work every day, what's financial management all about. And what we came up with was three basic things: transparency in the nature of the government's finances, in the sustainability of all the different operations and the cost of operations that are going on, and in the cost effectiveness of government programs.

So mission number one, transparency to the public on our finances. Mission number two is internal controls. We're putting in disciplines and rigors to make sure that we're accounting for taxpayer money in a low-risk environment. The process of going through audited financial statements is so challenging, but at the same time, it requires such discipline and rigor that you are dramatically reducing the risk of fraud and error and waste in government.

And finally, we've talked about it, decision support. We want financial information to be available to decisionmakers and leaders to make smarter decisions.

We figured out the three things that make us tick and why we come to work, and then we started asking ourselves how are we doing in each area? How are we doing in making our finances transparent to the public? How are we doing on internal controls? Are they aligned well to the financial risks that the government faces, and how are we doing in decision support? Are we identifying those critical business goals and critical financial risks that an agency faces, and are we getting the data that's necessary to manage those risks and achieve those goals? And what we found, which is not surprising, is we have a lot of work to do.

We can empower our CFOs better than we have today to develop these data strategies so that they are providing leaders with critical and timely information. We have to figure out what does success look like for more transparency, for a more rational internal control process and for better decision-making activities?

So when you are that stretched, and you're losing people to the private sector and to retirement and you've got these human resources challenges, and these resource challenges, to start thinking about the future and moving that CFO beyond compliance to results, and thinking about how we strategically can be more transparent in our reports, it's challenging to find the time and the resources for the federal agencies to get involved and chart that path forward, but it's so fundamentally important that we have to make the time. We are starting that process.

Ms. Cammer-Hines: You raised a good point about being a resource constraint on the federal government. I know that the private sector works closely with the federal government to assist in many of these things. You've talked about improving financial systems and processes, conducting financial statement audits, and even performing, in some cases, financial operations. What additional things do you think the private sector can do to better help improve the efficiency and effectiveness of our government's financial management as we go forward?

Mr. Werfel: I think the private sector and the government both have an education gap that we are constantly trying to close, and we need to do a better job in closing it. What I mean by that is from the private sector standpoint, there is an education gap in understanding the unique challenges that the government faces, the unique elements of government that mean that some private sector solutions and many private sector solutions can't be automatically applied in the government environment.

Very different animal, so to speak, and so it's informing the private sector better on those unique challenges so that they can help apply those technology in other private sector solutions in the government context, and then we have an education gap on the government side. We need to understand better what commercial solutions are out there and how they can help us meet our missions. I'm not meaning to imply that we don't leverage the private sector daily; we do. But in looking forward, I don't think we can get anything done that we get done today without the many, many different private sector solutions that we leverage.

I think the private sector can play an important role in helping us with these data strategies. We have a tremendous amount of data in the federal government, and we've done a lot to try to improve the quality and timeliness of that data, but it's using that data and finding our way through all those data bytes to figure out what trends are developing, what areas are developing.

I will give you an example in improper payments.

p> As we move forward on improper payments, one of things that the private sector does better than us is they have models for focusing due diligence in review of their customers to know where they need to take an extra look versus where they can just let something lapse. We don't want to be spending money on individuals or companies that we know are higher risk for either an error being made or fraud occurring, and I think the private sector can help us -- share with us how they do that, and also share with us the techniques they use with their data to build these types of programs that are more right-sized.

Ms. Cammer-Hines: Could you talk a little bit about what is Federal Accounting Standards Advisory Board, FASAB, or would you elaborate on your ongoing involvement with them and its efforts to identify and remedy critical accounting standards issues?

Mr. Werfel: Yes. FASAB is a very important part of government financial management accounting. For reasons which escape me, they're always referred to whenever you read about them in the press as the little-known board, or the board that nobody knows about. But they actually play a critically important role. They're an advisory board that was created by OMB, the Department of Treasury, and the Government Accountability Office, to help us establish accounting standards for the federal government. It's a board made up of 10 people. I'm one of the members. There are four government members: in addition to OMB, Treasury, GAO, and the Congressional Budget Office, CBO is also a member. And then we have six private members: individuals retired from accounting firms or statistics professors, or a former state auditor -- those are the type of individuals that we have on the board.

And the board works very hard and has done an incredible amount of work in a relatively short period of time to establish comprehensive accounting standards for the federal government, and those accounting standards importantly are recognized by the American Institute of Certified Public Accountants, or AICPA, as being generally accepted accounting principles. The analogy used is kind of like certified, it's like USDA choice beef.

David Walker, who's the Comptroller General, talked about the importance of this moniker from the AICPA, of this approval -- he said you used to hear before we had this, well, that's government accounting. And he says you don't hear that anymore, because government accounting is on the same level as all accounting, because the AICPA has provided this generally accepted accounting principles designation. And the FASAB process -- right now, we are at the point with the board where we do have a very comprehensive set of accounting standards, and now we are looking to hone them.

Mr. Morales: Danny, by most measures, federal entitlement programs such as Medicare and Social Security are on an unsustainable fiscal path. Now I only have a minute, but could you tell us how OMB is working with the Treasury Department, the Government Accountability Office and the Federal Accounting Standards Advisory Board to improve and expand on current social insurance reporting, and how are these efforts going to help alert lawmakers and the public to possible fiscal crises?

Mr. Werfel: The number one priority for FASAB or the Accounting Standards Advisory Board right now, and I am in complete agreement that this should be our number one priority, is to figure out better ways that we can report on the sustainability of Medicare, Social Security and the government as a whole. We need to shout it from the rooftops that we are on an unsustainable fiscal path that in the long term is going to create major, major financial crisis for the government and for our citizens and for states.

And we need to alert everyone that can be alerted: Congress, the public -- that this problem exists, and we need good public reporting to explain the nature of the problem, how it gets worse over time, and importantly, give insight into what are some of the triggers, what are some of the things that can be done to help alleviate the problem. And FASAB, working together with OMB, Treasury, GAO and the Congressional Budget Office, are looking to develop a sustainability report, a new financial statement that we would hope would be as relevant, and if not more relevant and important than the balance sheet, to say this is what it's all about.

The sustainability of government operations from a fiscal standpoint. And the picture that this will paint when we publish it is a very bleak one in the long term. The short term, you know, we have a declining budget deficit and a lot of our economic indicators look very good in the short term, but in the long term, due to Medicare, Social Security, and Medicaid, the problem is very significant. It gets worse each year. So I can't think of a more important thing for FASAB to be doing than to elevating this issue and ensuring that the government is reporting a very clear transparent view of the problem, so that more people will know about it and the right action can be taken.

Mr. Morales: Certainly a very critical issue.

What does the future hold for OMB's Office of Federal Financial Management?

We will ask OMB Acting Controller Danny Werfel to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Danny Werfel, Acting Controller of the Office of Federal Financial Management at OMB.

Also joining us in our conversation is Debra Cammer-Hines, vice president and practice leader for IBM's public sector financial management practice. Danny, we talk with many of our guests about collaboration. What types of partnerships are you developing now to improve operations or outcomes in the future, and how may these partnerships change over time?

Mr. Werfel: Al, one of the most important partnerships that we need to foster in financial management is the partnership between the federal government and the state and local governments. We have many, many of our programs that are managed and implemented at the state level. So we provide the funds, but the state government and the local governments do the day-to-day management of the program. And therefore, they shoulder tremendous responsibility on their program integrity efforts, on the internal controls, on the accounting, on the different measures that are needed to reduce improper payments or to reduce fraud.

What we need to have is a clear delineation -- I think clearer than we have today -- in terms of roles and responsibilities between the federal government and the state governments in terms of who is expected to do what, what are the various requirements, what are the various expectations.

So to improve this communication, and to look for solutions that the federal and the state government can share together and implement together to drive more program integrity, we're working closely -- the Office of Management and Budget is working closely with the Association of Government Accountants to facilitate a new forum on federal-state partnerships.

And we have a group of thought leaders that have been brought together from federal and state government that are starting to chart out a permanent committee, if you will, to make sure that we understand what are the various state-federal issues that need to be on the table with respect to financial management and program integrity, what's expected for a certain program, and what are the expectations of the federal government. I'm hoping that this partnership is both a knowledge-sharing, communications, and a solutions-driven group.

Mr. Morales: Continuing to look towards the future, can you give us a sense of some of the key issues that will affect CFOs and budget offices government-wide over the next few years?

Mr. Werfel: I think some of the hot issues coming up, the first one I would say internal controls in new areas beyond financial management but related to financial management. One of the things that's happening right now is, I like to say that Congress is stepping up their game, so to speak, and they are pointing out different areas of problems that we have in government that we need to do more on, whether it's an area of where we're spending too much money, or excessive spending, or sometimes it happens to do in the area of travel, government travel. There is a lot of problems that we're still working on to fix, to eliminate abuses in federal travel programs.

What we need to do is make sure that agencies are integrating these new areas of focus into their current work, and leveraging their current processes. So as new risk areas are identified by Congress, GAO, and OMB, whether it's the travel and purchase card, or different types of procurement activities, rather than having separate processes in place to say, okay, this is where we study internal controls for financial reporting, this is where we study internal controls for, let's say, information technology, or privacy, or data breaches, this is where we study internal controls for this new risk area, we're going to fall on our own weight if we don't have a more synthesized and strategic approach.

The other area is, in tight budget environments, you see a lot of ideas to improve our cash management and our savings, and one such area that's getting a lot of attention right now on the Hill, and we're seeing a lot of bills moving on this, is offsets and levies to vendors and grantees, but to implement that is very challenging. We got to get the right data to know which grantees and which vendors are delinquent. So this is another area that I've started to talk about with the CFO community, that we need to be prepared for the challenges that lay ahead.

And the last issue I'll mention is a bill that was introduced and enacted last year, which is the Transparency Act as we refer to it, or the Coburn-Obama Bill, which requires that all federal spending is reported and made publicly available on a website in a searchable and readable way. So this is every grant that we make over a certain threshold, but every grant, every loan, every contract payment, we have to put into a database now that's publicly searchable.

Again, the absolute right thing to do, it's going to provide great sunshine and great transparency into what we do. So for example, you will be able to type in on this website, which is going to be fedspending.gov by the way, www.fedspending.gov. You're going to be able to type in Yale University, for example, and then every federal award that Yale University has received will appear on your screen, the amount of the award, what it was for.

Again, it's the right thing to do. It's just a question of changing our reporting mechanisms, our systems infrastructure, to be able to report that information. All this information has to be up on the Web within 30 days of award.

Ms. Cammer-Hines: As we move towards an election cycle, how do you think PMA objectives and the approach to measuring success will extend beyond this administration?

Mr. Werfel: I think they will certainly transcend, because it's all about good government. Nothing that we've talked about today seems to me to cross party lines, so to speak. We're talking about making government more efficient, reducing improper payments, getting rid or surplus and excess real estate, making smarter investments in financial systems, making smarter business decisions, understanding our risks better.

Again, this is all about -- very patriotic -- this is all good for America. I think this administration through the PMA has hit on something very profound. We've learned a tremendous amount of lessons. It hasn't been perfect. But the PMA, the President's Management Agenda, is truly changing the way government does business.

There's a lot of positive lessons learned that I hope the new administration will leverage the accountability of those red, yellow, and green circles, driving agencies to try to do better, the simplicity of the scorecard, focusing on key areas like e-government and financial management and human capital, and not getting it too dispersed into every single area that's possible, having clear definitions of success and clear roadmaps. So I believe these things will sustain for many, many years to come.

Ms. Cammer-Hines: You've just touched on human capital as one of the things that we're being focused on. And the recent annual CFO survey identified human capital as one of the biggest barriers to overcome in order to meet top CFO priorities.

What steps are being taken to attract and maintain a high quality technical and professional workforce, especially at the Deputy CFO level?

Mr. Werfel: This is clearly a huge challenge for us. You know, earlier in the show when I said it was going to be difficult to narrow my challenges to three, this was probably a close fourth to figure out what to do. It's an ongoing and dynamic process where we're losing people that have institutional knowledge that have tremendous productivity. And when we lose those people, it's hard to fill them.

So recruitment and retention has to be the focus; focusing on how do we retain our good people and how do we recruit people behind them. And so we are looking at many different strategies.

Right now, the CFO Council has an initiative underway to expand and improve our training at all levels. We're looking at new and enhanced training programs on all three levels. We're looking at doing more outreach to local colleges and colleges throughout the country. We're looking to improve our intern programs beyond just master's degrees, but into undergraduate degrees, someone even mentioned high school, but I think that's maybe going too far -- I don't know -- and the use of the Web.

We're looking right now at USAJOBS, which is the number one central repository, and we are looking right now to create a separate website just for Financial Management so that if you're interested in financial management, you'll have one-stop shopping for where those jobs are.

So we're definitely being active on this. It is a huge challenge. The more resources you put in it, the better your outcome is, so we have to keep trying in this area.

Mr. Morales: Danny, the breadth and depth of OMB's mission, especially given its relatively small size, is just absolutely mind-boggling. And OMB has a reputation of being a very demanding and stressful place to work. Yet it also achieved the number one ranking in the Partnership for Public Service as a best place to work in the federal government.

What are some of the benefits of working in such an environment, and what advice would you give to a person who perhaps is out there considering a career in public service and possibly interested in joining OMB?

Mr. Werfel: I think I'm going to be a good salesman for OMB, because I love my job and I love the organization. I started my career there over a decade ago, and I feel a tremendous sense of pride and loyalty. I think one of the things is that it's small. I went to a very large college, and my wife went to a very small college. And I'm often jealous of her, because in the small college environment, everyone has this bond that they all went to this small school. And OMB has that feel to it. Because we're only 500 people, everybody over time really gets to know each other. And it's really a place where you can go and feel like you're part of a small dedicated team.

And you don't get lost in the bureaucracy at OMB. There is too much work to do. We have a very flat hierarchy. One of the unique things about OMB is that our entry-level policy analysts that are at the General Schedule 9, right out of policy school, once a year, they come into a meeting with the Director of OMB and present their findings and answer questions about the upcoming budget release. I don't know many agencies where GS-9 policy analysts have an opportunity to meet directly with the head of the organization.

And so that kind of flat hierarchy, that kind of experience, it's nerve-racking. I'll tell you, I was there as a GS-9 doing it, and the walk to that meeting is a very nerve-racking walk. But it's invaluable experience.

And probably the biggest reason is that we have just tremendous impact. When we issue a policy or show up to a meeting or are in the room, a lot of attention is paid to our position and our opinion because of where we sit in government, and it allows you, early in your career in the government, or even as you get older, to impact policy day-in and day-out -- long term, short term, not a day goes by where we don't touch things that change the way government does business.

And that is great. And you're working towards good government, so you go to sleep at night, you're tired -- certainly tired, but you can feel good about the work that you're doing.

Mr. Morales: That's great. Your passion clearly shows.

Danny, unfortunately we have reached the end of our time. I want to thank you for fitting us into your busy schedule today, but more importantly, Debra and I would like to thank you for your dedicated service to our country in helping to lead the President's Management Agenda.

Mr. Werfel: Thank you very much, Al and Debra. It was a pleasure.

Mr. Morales: This has been The Business of Government Hour, featuring a conversation with Danny Werfel, Acting Controller of the Office of Federal Financial Management at OMB.

My co-host for this morning's program has been Debra Cammer-Hines, vice president and practice leader for IBM's public sector financial management practice.

As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who can't hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support.

For The Business of Government Hour, I'm Albert Morales.

Thank you for listening.

Announcer: This has been The Business of Government Hour. Be sure to join us every Saturday at 9:00 a.m., and visit us on the Web at businessofgovernment.org.

There, you can learn more about our programs, and get a transcript of today's conversation.

Until next week, it's businessofgovernment.org.

Originally Broadcast October 13, 2007

Washington, D.C.

Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business.

The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about The Center by visiting us on the web at businessofgovernment.org.

And now, The Business of Government Hour.

Mr. Morales: Good morning. I'm Albert Morales, your host, and managing partner of The IBM Center for The Business of Government.

Throughout its history, the U.S. Department of Housing and Urban Development, commonly known as HUD, has sought to increase homeownership, support community development, and increase access to affordable housing. Today, more Americans have achieved the dream of homeownership than at any time in this nation's history.

It has also become evident that government best serves the taxpayer when it is performing well and producing sound results. Over the past several years, HUD has taken many notable steps to improve its management and performance in fulfilling its mission.

With us this morning to discuss HUD's efforts in this area is our special guest, John Cox, chief financial officer at the U.S. Department of Housing and Urban Development.

Good morning, John.

Mr. Cox: Good morning.

Mr. Morales: Also joining us in our conversation from IBM is Pete Boyer, director of federal civilian programs.

Good morning, Pete.

Mr. Boyer: Good morning.

Mr. Morales: John, perhaps you could share with us a sense of the history and mission of the U.S. Department of Housing and Urban Development, or HUD. Can you tell us when was it created, and what is its mission today?

Mr. Cox: Certainly. The origins of HUD actually go back to the 1930s, to a couple of key pieces of legislation. The Federal Housing Administration, commonly known as FHA, was created in 1934 as a result of the Great Depression. At that time, there were actually very few 30-year mortgages, which we're obviously very familiar with today. But at that time, that was a not a common concept. So FHA was created to help guarantee loans for low- and moderate-income people. The other key piece of legislation that originated HUD was the U.S. Housing Act of 1937, which again provided and recognized the need in the United States for decent, safe, and sanitary dwellings. The final piece of legislation that I think is key, and obviously, in a department our size, there are many, many pieces of legislation, but the final key piece was in 1965, HUD was actually recognized as a Cabinet-level agency.

The mission of the Department has not changed significantly over the years. Many of the programs have adjusted and been adapted to meet the current needs today. And it's really about increasing homeownership opportunities, providing affordable housing in the rental markets, strengthening communities through our primary program there, which is Community Development Block Grants, and increasing and improving equal opportunity in housing.

Mr. Morales: Now, certainly that mission touches every American out there. Could you give us a sense of the scale of operations within HUD? How is it organized, the size of the budget, number of employees, and your geographic footprint?

Mr. Cox: Certainly. Our annual budget for Fiscal Year 2007 was $36.9 billion. And HUD is organized in about 81 different field offices. We have approximately 9,500 employees, including all our major program areas and Inspector General and OFHEO, our regulatory arm.

We have major program offices -- I would break it down in two or three parts. There is FHA, which is an entity that guarantees mortgages for people in the United States. Then we have Ginnie Mae, which is the arm of HUD that provides securitization of those mortgages; in other words, packaging those mortgages that are guaranteed not only by FHA, but also VA and to a certain extent, Rural Home Loan Program, basically providing an income stream for investors. And the key importance of that is it helps lower mortgage rates by providing a more liquid market. In fact, in today's time, it's probably more important than it ever has been.

And then finally, there are the main programs of HUD. I'd mention three. There are many, but I'll mention three in particular. Public and Indian Housing, which provides rental housing primarily and Section 8 vouchers for many Americans around the country; the Community Development Block Grant Program, or CPD. CPD is the organization, the Community Development Block Grant is the biggest piece of that. The Community Development Block Grant got its start in the '70s in the Nixon Administration as part of revenue sharing, and that fundamental program still exists today. It's based on a formula and is given to states, counties, and municipalities based on a formula, and that's probably our most flexible program. So it can be used to provide affordable housing, but it can also be used to provide infrastructure, water, sewers, libraries, et cetera, anything that provides for economic development, as the name would imply. So those are the major programs within HUD.

We also have obviously offices of policy and research. One of our key goals is equal opportunity, so we have a program office there that helps monitor equal opportunity complaints, in housing particularly. And they've just started a new program to look at lender abuses in the marketplace.

Mr. Boyer: John, now that you've provided us with a sense of the larger organization, perhaps you could tell us more about your area and role within HUD. Specifically, what are your responsibilities and duties as the chief financial officer? And could you tell us about the areas under your purview, how you're organized, the size of your staff and budget?

Mr. Cox: Certainly. The staff that I manage is what I would call a full-service CFO staff. In other words, we have the budget function, which is a critical function for any federal government. We have a financial arm which does the financial statements, the financial accounting. We have a group that provides financial analysis and prepares our performance and accountability report. We have a Systems Division that works with our CIO to provide the systems support; in other words, the accounting general ledger, et cetera, all those feeder systems. And then we have under my purview a group of appropriations attorneys. So all told, that's about 215, 218 people, and they have those full-service roles and provide a variety of support.

In the budget area, we provide comments. We work with OMB constantly. We work with the Hill to provide analysis, data, input. We try to believe we're not just gathering the numbers, but we're hopefully building some value in terms of analysis on the numbers, helping the Hill and OMB understand when we're making budget requests, when we're making proposals for example, the recently passed FHA legislation -- we're trying to do that type of analysis.

Financial statements is what you would expect. It's putting the numbers together, closing the books, making the payments and disbursements, making obligations, working with the various program offices to make sure that all those meet the proper funds control. And then as I mentioned, the financial reporting arm takes those financial statements and turns them into the Performance and Accountability Report, which is really telling all of our constituency groups, the Hill, the various interest groups that we serve as well as the American taxpayer, here are our goals and how do we stack up against those goals.

Mr. Boyer: Now, regarding your responsibilities and duties, what are the top three challenges that you face in your position, and how have you addressed those challenges?

Mr. Cox: Clearly, continuing to be more efficient and effective with the resources that Congress gives us is a key priority. It is a tight budget environment; that's no secret to anyone. So trying to make sure that our resources are allocated appropriately among the program offices, or appropriately between programmatic functions and administrative functions, that's a key challenge for any department, and HUD is no exception.

The second would be in the succession planning area. Many people are aware obviously that there's a looming wave of retirements in the federal government. Many people, HUD in particular given its particular age as a department from the late '60s, there are people now obviously reaching 30 and 40 years' worth of work, and therefore, they're certainly entitled and are going to enjoy a nice retirement. The challenge we have then is to rebuild the staff, sort of build back, if you will, that institutional memory that has many, many years of programmatic knowledge. So we've adopted programs both as a department for succession planning, and we have a lot of good efforts underway there. And then specifically in my office, in addition to the Department-wide efforts, we're looking at bringing on new recruits, some from college, some from other sources. But again, just trying to build that pipeline back up as you would in any organization that's faced with -- I believe our figures are somewhere north of 50 percent of our employees in the next three years are eligible to retire. They won't all retire, but they're eligible to retire. So clearly, there's a need and an effort there to drive that.

Mr. Morales: John, you recently came to HUD from the private sector. Could you describe your career path for our listeners? How did you get started?

Mr. Cox: Sure. I have an accounting degree from Texas A&M University, so I guess you could say I'm a bean counter. I first began my career in public accounting with Ernst & Young, was there for several years, and then I worked for a publicly traded software company in Houston, Texas, before moving to Washington, D.C.

The publicly traded software company, I had a variety of roles. I began as a tax director helping with the tax function. BMC Software was a worldwide company, so we had operations not only across the U.S., but around the world. I took on a variety of roles over the years. I was there approximately 15 years, including chief accounting officer, and finally chief financial officer of that company. So that's a little bit of my background, how I got to D.C.

When I left BMC, I was determining what to do next, and visited with a good friend of mine who suggested public service. I'd always had an interest in that and the timing was right, both from a family standpoint and a career standpoint. And so I began that process and explored it, and ended up at HUD.

Mr. Morales: So how has your previous experience prepared you for your current leadership role, and how has it shaped your management approach and your leadership style?

Mr. Cox: The benefit of working for a large publicly traded software company is that you're used to working within a large organization: HUD obviously -- BMC was approximately 7,000 employees when I left -- HUD is 9,000+ as I mentioned. So from a size perspective and being able to get your hands around not only the organization and its financial information is a challenge, which that prepared me for, but also just being able to work and maneuver in a large organization. You have the added mix, in the federal government obviously, of the political side, which is different than in the private sector. But just being able to work among those different organizations and try to coordinate and have a good effort there to work to get a common purpose I think was very good.

Also, I think my own personal leadership style is one of giving people tasks and expecting them to do it and then holding them accountable. But yet I don't look over their shoulder. I don't call them every day and say have you done this? So I think having a style that's more cooperative and also very accessible, I think that is something that I've developed over time and I think has served me well and I think is appreciated by the staff, at least I hope it is. And I think that's the approach that I like to use to work collaboratively.

And also, particularly in the federal government, I think, it's different in the sense that there are career staff that are obviously there for a long, long time. Politicals come and go, as is the nature of the beast. But I want to recognize the efforts that they've made, respect the efforts and the knowledge that they have, and so I also want to foster an environment where I just don't know what's best or I don't make the decision. I want them to give me the information, and then collectively, we can make the decision.

Obviously, the ultimate responsibility lies with me and I accept that, but I want to make sure that they feel comfortable giving me the best inputs that they have.

Mr. Morales: Fantastic.

How is the Department integrating budget and performance information? We will ask John Cox, chief financial officer at the U.S. Department of Housing and Urban Development, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with John Cox, chief financial officer at the U.S. Department of Housing and Urban Development.

Also joining us in our conversation from IBM is Pete Boyer.

John, let's move for a moment over to the President's Management Agenda, or the PMA. In the last OMB scorecard, unlike HUD, about half of the federal agencies received a red rating in financial performance. What has your organization done to continue receiving a green rating in progress and status in this area? And second, can you tell us from your perspective why this is such a challenging area for many of the federal agencies?

Mr. Cox: Well, first of all, let me just say that when I came into federal government, I think the concept of a PMA is extremely helpful in terms of accountability. It's out there, it's public. And surprisingly enough, in the private sector, I used a very similar mechanism. I used a red, yellow, green scorecard and reported to the board every quarter. So I think that is -- I was very impressed with that from a federal government perspective, and OMB's management of it.

In terms of getting to green, first, let me give you a little bit of history with HUD. It took HUD a long time to get to green. And I congratulate the efforts of not only my staff in the CFO area, but the program staff as well, because it took a long time to get to that status. One of the final things, kind of final couple of things we had were two material weaknesses that we eliminated with last year, Fiscal 2006's, audit. And then we also got off the GAO high-risk list. And again, both of those items were parallel. And so I think there was a lot of work, and I think that should be recognized, to get to that point.

One of the challenges I think people have are getting the management support inside the organization to tackle these issues. Because many of these issues are either accounting-related or business process-related, not as high on the radar screen, quite frankly, as program delivery, getting the dollars out to the various groups that are impacted. So I think that's one of the challenges. Fortunately, we didn't have that at HUD. The Secretary and Deputy Secretary were very supportive of this effort. It was a multiyear effort to get to green on the President's Management Agenda and improve financial performance, but it would not have happened without their key top-level support. And so I think that's just -- it's a process. It has to involve strong funds control, so you have to work with the program offices to make sure that they're working to improve their funds control processes.

And then finally, it also has a lot to do I think with systems. As we work with the challenges of a tight budget, which all federal agencies are doing, one of the things you have to do is use technology to improve the business processes, which ultimately then improve the controls. And so I think that has proved to be a challenge for a lot of agencies, and again, HUD is no exception there, in getting enough dollars to make those improvements. Because many of our systems, while they have been modernized, many of them are still decades old. And so it takes a lot of money, a lot of time, a lot of planning, a lot of good project management, to be able to implement those, get those requirements, and make the business process changes. And so that I think also is a challenge in getting to green.

You have, for example, many agencies with multiple general ledgers with multiple feeder systems. All the feeder systems don't talk to each other necessarily. So all of those are understandable, but they provide challenges in terms of getting to proper financial management from a federal government perspective, or private sector for that matter.

Mr. Morales: Now, along a similar theme, John, your department has received an unqualified opinion on its principal financial statements for the seventh consecutive year, which clearly demonstrates a pattern of financial accountability within the organization. First, can you tell us what is the significance of a clean opinion? And what do you think are the keys to successfully achieving a timely and clean opinion?

Mr. Cox: First of all, the importance of it is to the oversight bodies: OMB, Congress, et cetera, it tells them and gives them a comfortable level that we are utilizing those funds in accordance with what they were designed to do. In other words, the appropriation law tells us what to do with these funds and that we have in fact done that; that we're using them in an effective and efficient manner for the taxpayer, or the ultimate beneficiary in our case.

Secondly, I think it helps to have -- and this may be somewhat blasphemous for me to say -- but it helps to have a good relationship with your auditors, and with your IG in particular. So what I have tried to do during my tenure is work with my team to provide more openness in working with the IG, because ultimately, in our case, two of the major components are audited by independent firms; the overall HUD audit is audited by our IG. And so you just have to have an open process there and a dialogue with them to you know, you can't just working on the audit in August. In the private sector obviously, you're working constantly because you have quarterly reporting. Here, you have annual reporting in the federal government. So I have initiated a process this year where the corrective action plans, the management letter items from the prior year, we started working on those in December and early January in anticipation of trying to clear those up for this year's audit.

You may be aware -- I don't know if your listeners are aware -- it's a little bit arcane accounting, but some of the rules for what are the definitions of material weaknesses and significant deficiencies have been raised, similar to what you saw in Sarbanes-Oxley in the private sector. So what it takes to get a material weakness, the bar has actually been lowered, meaning we have to do more work to make sure that things don't cross over that threshold. So again, getting that process started early, getting the corrective action plans in place, working with the program offices because obviously, my team doesn't do that alone.

And then finally, I would say again, my hat is off to all the men and women at HUD in both the CFO office as well as the program office, because it doesn't happen -- I just don't wave a wand and you get a clean audit opinion. It takes a lot of hard work, a lot of process improvements, technology improvements, to get this done. And it is a tremendous accomplishment to have seven years in row.

Mr. Boyer: John, again, on a similar vein, budget and performance integration lies at the heart of ensuring both strategic allocation and efficient use of funds. Could you tell us about your department's efforts in budgeting and performance integration? And how has your organization expanded the use of financial data to improve its management decision-making process?

Mr. Cox: Sure, Pete. I'll take the last one first. We have expanded what we call our "data mart," our financial data mart, to assist with areas of management decisions, budget planning, budget execution, spending, project management, contract management, all these different areas. We have increased the amount of data that the programs have to be able to analyze the information that they have and execute on their business. So I think that's an area where we have gradually been implementing improvements there to not only use technology, but also better data so they can get at it. We're not there yet. We have more work to do, including -- we're working on an executive dashboard for the assistant secretaries and general deputy assistant secretaries, to again provide them more information on a more-timely basis. And we're working to get that done literally even as we speak. We've improved the web-based interface to this data mart. So in the past, it was sort of a circuitous route to get to this data. We're trying to make it easy. We're trying to make it web-based.

And so I think fundamentally, you are a better financial person and you have better financial information if you understand the business better. And so we're trying to not only understand the business, in our case the programmatic side of HUD, and getting that information matched with that, so that hopefully we make better decisions and better judgments on how we budget.

The final thing I would say is from a purely budget standpoint and a budget-performance integration standpoint, tying into the President's Management Agenda, my organization has responsibility for working with the programs to set those goals and those targets. And then we're obviously responsible for ultimately reporting on those targets. So, for example, if we have percentages of minority homeownership that FHA needs to meet or that certain organizations need to meet, if we have caseloads in Fair Housing that we need to -- you know, we've set a goal for how many of those cases get resolved in a timely manner, dozens and dozens of metrics that we have in the Department; we're responsible for monitoring those, maybe nudging gently -- as the Secretary says, using our powers of persuasion to improve those metrics, and then obviously, working with the external sources, again OMB and the Hill, to improve the reporting. And hopefully, what that ends up with is not only a document that lets the taxpayer and the constituency groups understand how HUD has performed, but also helps push the organization to make improvements. And I think that's the ultimate goal.

And then the result of that is to, hopefully the next time we submit a budget, which we're shortly to begin the Fiscal Year '09 cycle, that will help us better prioritize where our needs are and where we're going to put our requests for funding.

Mr. Boyer: Agencies are required to annually review programs to identify those susceptible to significant improper payments. These improper payments include payments made in the wrong amount to an ineligible recipient, or improperly used by the recipient. Would you elaborate on initiatives and strategies that the Department has employed to successfully manage and reduce improper payments? And what progress has been made year over year, and how much of a challenge does this effort present for your department?

Mr. Cox: Well, I'm pleased to tell you, Pete, that HUD has a great story in improper payments. We were the first agency to get to green on the President's Management Agenda in reducing improper payments. And we have various areas where we measure improper payments, but the largest one is in our assisted rental housing areas.

Fundamentally, to qualify for rental housing, you are allowed to pay no more than 30 percent of your income. So obviously, a starting point of that is what is your income? And what we found in improper payments is clients and tenants in all cases weren't being forthright with what their income was. And so we developed a process -- and it's a great story of technology, it's a great story of hard work within the Department, and it's a great story of interagency cooperation. Using the HHS, Health and Human Services' current wage and employment data, we were able to set up a secure data point. So obviously privacy was a key issue for the Hill as well as for the Department. And working with that system, we're able now to match on a fairly current basis what the income that's being reported through the HHS system is.

So by doing that, we set a baseline in 2000. We estimated that we had $3.2 billion of gross improper payments. And by implementing that matching system, combined with additional education for those who are actually going through the process of working with the tenants to make sure that that -- so it was education and focus as well as a technology solution, we were able to reduce improper payments in about four or five years by over 70 percent.

And so again, you've heard stories obviously similar to the IRS, Internal Revenue Service, where if your neighbor gets audited, everybody suddenly gets religion. Well, I think a combination of improved education and improved computer matching really was a key to being able to do that. And also working with HHS. I don't underestimate the importance of that. You know, there were privacy concerns. In today's world, there are obviously security concerns. So we were able to develop a system that allows each of the public housing agencies, or the people who are working on their behalf, to match that income and do it in a secure, safe manner, and yet get the information we need to verify the tenant's income.

We have that in the public housing arena. In Fiscal Year 2008, we'll be expanding that to the multifamily project-based assistance program, another key rental program in the Department. And so the bottom line for us is not only to reduce improper payments, but it's to ensure that the right people get the right help, and I think that's what's key. That $2 billion reduction in improper payments means that we have more funds available to help those who really need it.

Mr. Boyer: That's really a great success story.

John, what steps has HUD taken to track and manage its costs? Specifically, could you tell us about your efforts implementing an activity-based costing management system in your department? And what were some of the challenges to pursuing this effort?

Mr. Cox: We are still in the process. I would say that effort is a work in process. We have two products internally: REAP and TEAM. The acronyms aren't important except to tell you that what they're doing is basically time-tracking, and allowing people within the Department to track their time and enter their time so that we can have an estimate of what it takes to do that particular job. And one of the challenges is obviously education, helping people understand that it's important, it's not just an exercise. These are professionals, they don't punch a clock necessarily, but we need this information to help the Department understand what it really takes to get a particular job done. And so we're using that effort in a way to do cost and management data.

We have general ledger programs that help us track that data so we can allocate that among our major strategic goals. So improving fair housing, improving minority homeownership, providing safe, decent, affordable housing in the rental market, all of those goals, we allocate those based on that REAP/TEAM data.

So we've got more work to do. We'll be implementing a new general ledger, we hope, in the next 18 to 24 months on the HUD side. And when we do that, we're hoping to add some additional features that will help us automate that process.

Mr. Morales: Now, John, HUD has obviously made a tremendous amount of progress in the areas of finance and accountability. And to sort of demonstrate your success, this year, your department has received the prestigious Association of Government Accountants, or AGA, Certificate of Excellence in Accountability Reporting, the CEAR Award.

Could you tell us a little bit about this award, its process, and this significant milestone in your organization?

Mr. Cox: That was a significant milestone for the Department. We participate in a couple of those programs, and CEAR being one of those. What the process is is there are, my understanding is, approximately 80 reviewers, approximately 21 of the CFO Act submitted an application for the CEAR Award, and I understand about 11 of the 21 received the awards. And so it's just a process where they go through and they look and review your report to determine if it shows accountability, if it shows transparency, if it shows that you're continuing to look and change your business processes and your reporting and transparency to the taxpayer and to the constituency groups that we serve. And so we were very, very pleased to receive that. And I think it provided us some validation that in fact, we're trying to make improvements.

Now, I will also be honest with you and tell you they gave us several pages of suggested improvements for this year, which we are going through, and so our work is not complete by any stretch of the imagination. There's a lot more we can do to simplify it. The PAR document itself is a very lengthy document. One of the things I've challenged my team in the financial reporting area this year is to hopefully reduce its size and bulk, because I think ultimately, that will actually provide a better document to help taxpayers and constituency groups understand not only how we spend our money and where we spend our money, but are we effective at doing that.

Mr. Morales: So no resting on pass success.

Mr. Cox: Absolutely not.

Mr. Morales: Great.

Mr. Cox: Always what have you done for me lately?

Mr. Morales: How important is collaboration to HUD's current success?

We will ask John Cox, chief financial officer at the U.S. Department of Housing and Urban Development, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with John Cox, chief financial officer at the U.S. Department of Housing and Urban Development.

Also joining us in our conversation from IBM is Pete Boyer.

John, through the new OMB Credit Management Initiative, agencies are set to strengthen the way they award and service loans, manage portfolios, and collect debts. Could you tell us a little bit about your department's management and strategy for improving its credit management capability? And what has the Department done with respect to credit management?

Mr. Cox: The Department has one large piece of its business that is under credit management and credit reform. We actually don't make loans. As I mentioned earlier, we actually secure and guarantee loans, so FHA has that function. They have approximately $450 billion of mortgages that are outstanding, so it's a big portfolio.

One of the things we've done over the last several years is improve our modeling for loan loss reserves -- obviously a topic that's very timely in today's world. But we have improved -- for example, added FICO scores. This year, we actually added FICO scores down at the individual loan level. So again, that's a bit arcane perhaps, or something an economist would get excited about, but the bottom line is for HUD, it actually is giving us better ability to judge and estimate what our risk is.

We have a couple of other areas that help us manage our risk. We have Appraiser Watch. We have Credit Watch. Those are automated technologies that allow us to when someone is going out to do an appraisal or when someone is actually selling a property that has been foreclosed, and finally someone in the normal process of underwriting HUD/FHA business, we have programs that monitor their scoring, and there's a scoring system. For example, in the appraisal area, we have a system that allows us to track. And so if one appraiser, for example, consistently grades high, we go in and sort of flag that and we'll do a check; or if we have one appraiser who sort of grades it at a medium level and there's a couple of areas and property that he grades high and then it comes back down again, there are all kinds of algorithms there we can run to ensure that they have a good, healthy system, and more importantly, that those appraisals are accurate and appropriately done.

Similarly with Credit Watch, we actually watch the various banks and institutions who are engaging in these loans and underwriting these loans. And so we can look at their default rate, for example. That's an easy one. We can look at particular trends and patterns. And again, that's all designed to help us manage the government's risk.

This portfolio remains very strong. The President recently announced FHA Secure, which is a program to help some of the folks who have been involved in the subprime market, particularly those who have adjustable rate mortgages that have reset. It's interesting to watch where, in the past, as you observe the market in the last several years, FHA had in fact lost market share. Now it's sort of cool to be with FHA again, primarily because a lot of those other funding sources have dried up. And obviously, FHA's goal is not about market share, it's about helping low- and moderate-income people get the housing that they need. And so we're constantly working to improve the credit management of that program.

Mr. Morales: Certainly a very topical issue these days.

We spent some time talking about the challenges of improper payments, but there is another challenge, which is around the transferring of money between agencies. Now, GAO has repeatedly identified intragovernmental transactions as an issue when they perform their annual audits of the federal government finances. As the leader of the CFO Council's Central Reporting Transformation Team, could you tell us more about the government-wide effort to improve its ability to properly account, report, and reconcile these intragovernmental activities?

Mr. Cox: Certainly. I co-chair that Central Reporting Transformation Team with Ken Carfine of Treasury, and we are working in a variety of ways to make improvements to the intragovernmental activity. Fundamentally, I think that the improvements will come in a couple of areas.

Number one is visibility and accountability. We have provided a new watch list to the CFO Council to identify those who have chronic out-of-balance situations with intragovernmental dealing between each other. Secondly, OMB has started a process where they are actually bringing in those particular organizations to work on corrective action plans. How do you solve this? What are the fundamental issues? That's number two.

Number three, I'm leading a team specifically on buy-sell transactions. In other words, when one agency buys a good or a service from another, we're looking at ways to improve the reporting of that, how that happens. But again, as I mentioned, fundamentally it's a business process issue, and so we're looking at various technology solutions.

We're looking at the fundamental issues and why they arise. Some of those issues can be because of accounting differences. Some of those differences can be because one agency treats it a different way from an accounting standpoint. Some of it is just simply it's difficult in large organizations to know who the right person is.

So we have not put forth our proposed solutions, and we look to do that in the spring time frame. But again, I believe it's going to be a combination of improved business processes, improved technology around those business processes, and improved reporting so that people at my level actually realize it's going on. It's not a very sexy topic, to be totally honest with you. It's not something that's going to be at the top of people's radar screen. But as you mentioned, it is a material weakness in the government-wide financial statements, and I believe we can solve this problem.

I'm also sensitive from the technology standpoint that I don't think we need to write a multi-hundred-million-dollar program to fix this. There have been a couple of efforts in that vein in the past and they've not succeeded. I think the primary reason they haven't succeeded is we have to have a realization not only of the current budget realities, but also the fact that many of us are going to have legacy systems for a long, long time, either because they work and they're going to continue to work, or because you can't get enough funding, or because -- it could be a variety of reasons why. So I think we have to use today's modern technologies, web-based technologies and process-based technologies, to help us understand when a particular transaction --and let me give you one quick example.

Currently, when agencies are trading with each other, there's a system that Treasury has to do that called the IPAC. IPAC basically is how you access the bank account of the other agency. Today, the way that system works, nothing wrong with it, is the business is if I've bought a service from you and you're going to send me an invoice, you literally go in, pull the money out, and get paid. And certainly, I recognize that agencies need to get paid, but you literally don't have to notify me that you have done that. That's not a great business process. There's nothing wrong with the technology. The fundamental technology is fine. There just needs to be a recognition that I need to understand that when you're coming into my bank account, effectively at Treasury as a federal agency, you need to let me know and you need to let me know what it's for.

So I think that's one example of sort of a first step along that process where there's a notification to the agencies of the back-and-forth nature of these transactions. And obviously when you multiply that times hundreds and hundreds, if not thousands and hundreds of thousands of transactions, it becomes very difficult. And it's understandable why we have the issue we have. It's approximately a 90- or $100 billion out-of-balance problem as of last fiscal year, but we're working to solve it.

I give Ken Carfine at Treasury a lot of credit. They're working on the fiduciary side of this particular problem. "Fiduciary" means I'm holding some assets for someone else, which Treasury obviously does. And they've made some very good progress on this area, and they'll report on that later this year, to reduce that out-of-balance problem. And just simply by tackling it, looking at it, focusing on it, they're able to do that. And then of course, the next step, which we just chatted about recently in a CFO Council meeting, is that's great, reducing the balances, but then how do you make the business improvements and the process improvements so that those balances don't grow in the future?

Mr. Morales: So it's really more about the business rules than it is about technology?

Mr. Cox: That's correct. And obviously, we have published, the CFO Council under its guidance of OMB, have published business rules, intragovernmental business rules. We need to make sure we have the proper mechanisms to enforce that. We need to make sure from the business process that the right people get engaged at the right time to make sure that the programmatic issues that are being focused on, buying X and selling Y, are dealt with. But even the mundane issues of what account, how it's booked, when you're going to book it, how are you -- you know, if it's a service, how are you going to accrue the amount that you've done. Those kind of issues are sort of the blocking and tackling of how you get that done.

So I applaud the great efforts that have gone into developing those business and intragovernmental rules. Shortly, there'll be a dispute resolution committee to help resolve some of those issues. So those are all, I view, fundamental building blocks to ultimately helping us solve this problem.

Mr. Boyer: John, one of the administration's key initiatives is creating a federal government that is accountable, results-oriented, and appropriately aligned with strategic goals. Having worked in both public and private sectors, could you tell us how federal managers can effectively manage an ever-increasing blended workforce composed of contractors and federal workers? And what are the some of the key differences intrinsic to these core groups?

Mr. Cox: Well, I think fundamentally, all organizations, and it's true in the private sector as well as the public sector, there's been a shift towards more contracting. "Outsourcing" is a commonly used word, sometimes pejoratively, but it's a commonly used word. What I think you have to do fundamentally is you have to start, first of all, with a strong contract with clearly defined service level agreements. That's critical. You don't know if you've been successful and the contractor doesn't know if they've actually done what you're supposed to do if you don't have a clearly defined set of service level agreements.

Secondly, I think project management is key. That's a big shift when you're going from someone who's actually doing the work to now someone who's managing someone who's doing the work. And in many cases, that may require a different skill set, because project management is different than doing the work yourself. So I think that's a key that's got to be done.

I think the core staff have to understand -- or the agency staff, the Department staff have to understand the business functions. We talked earlier about succession planning. As people that have that years and years of experience roll off, you've got to develop that younger staff, not younger in age necessarily, younger in time with the agency, that understand what the program and programmatic pieces of the business are.

And then finally, obviously, a distinction you have to deal with is typically, you have unionized workforce and those rules that you have to work with on the agency side, and you may or may not have that on the contractor side. So that just provides a set of issues you have to deal with, not necessarily good or bad, it's just the reality of having to work in that environment.

Mr. Boyer: Now, on a somewhat related topic, can you address the coordination amongst the different C-suite leaders? How important is the coordination and collaboration among the organization's chiefs: the CFO, the CIO, the chief human capital officer? And could you elaborate on your successful collaboration within HUD?

Mr. Cox: Sure. I was fortunate when I joined HUD that the four service areas -- the CFO, the CIO, the chief human capital officer, and the chief acquisition officer -- were meeting on a Monday morning basis. We meet every morning at 8:30. We don't necessarily have a set agenda. And the purpose of those meetings is just to coordinate what's coming up in the week, give people a head's up, work to solve particular issues.

And I'll give you a specific one that we worked on was after the hurricanes in 2005, one of the recommendations that came out of that relief effort was that we really didn't have a nationwide database of apartments. There were many individual pieces, and some particular geographic areas had it, but in that situation where obviously we had a tremendous need for a lot of people to relocate quickly, we had to develop this national locator system. And so we worked together: the CFO to get the funding, the CIO to do the technology, working together with the chief acquisition officer to get that done. We wanted to make sure that we got that done in a quick, timely manner. So that's just one example of how we work together collaboratively. And, fortunately, I was able to walk into a great system that already existed when I came to HUD.

Mr. Morales: John, you mentioned Katrina. And many of our listeners may not recognize the importance of the role that HUD played in responding to natural disasters, especially Katrina. Could you elaborate on HUD's role in such disaster relief efforts, and more specifically, what HUD has done to ensure the proper use of funds during such events?

Mr. Cox: Certainly. We have a major part to play in the recovery of the Gulf. As I mentioned in the beginning, our annual budget is about $36.9 billion. HUD requested, and the states requested, and working at the President's request, Congress provided an additional $16.7 billion to provide one of the largest housing recovery programs in U.S. history. HUD manages those programs through our Community Development Block Grant Program. And as I mentioned earlier, in CPD, that can be for low-income housing, regular housing. It can be for infrastructure, all types of programs. And each of the states that were impacted with Katrina, Rita, and Wilma have presented plans to the Department. Those plans have been approved. We have tried to waive a lot of the regulatory requirements at the request of the President and Congress, to get the money down there and get it working as quickly as we can. So we are involved in a lot of different stages.

We have controls in place. The states have controls in place. The localities have controls in place. We continue to adapt to that and manage to that as time goes on. We created, as part of Katrina and Wilma and Rita, the Disaster Voucher Program to temporarily help house thousands of families who lived in public housing or HUD-assisted housing and were displaced. We recently extended that program, given the pace of recovery in the Gulf area.

And then beginning in November of 2008, HUD will assume responsibility for long-term rental assistance through the Disaster Assistance Housing Program, currently being run by FEMA. FEMA typically obviously is short-term in nature. Given the magnitude of this disaster, this has lasted longer than would be their typical time frame. And so we will again assume responsibility as a department for those long-term housing needs of those folks effective in November of next year.

Mr. Morales: Great.

What does the future hold for the U.S. Department of Housing and Urban Development? We will ask John Cox, chief financial officer at the U.S. Department of Housing and Urban Development, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with John Cox, chief financial officer at the U.S. Department of Housing and Urban Development.

Also joining us in our conversation from IBM is Pete Boyer.

John, I'd like to transition now to the future. Can you give us a sense of some of the key issues that will affect the CFO and budget offices government-wide over the next, say, three to four years?

Mr. Cox: I would point to two or three. One is continuing to improve and develop Centers of Excellence for budget and financial management line of business. That's a big initiative that OMB has had to develop common processes, common standards. We talked about intragovernmental. One of the ways to tackle that ultimately is to have common accounting codes, common ways that we all deal with each other. So that's going to be a big one, and a multiyear effort, clearly, that's going to happen.

Continuing to enhance -- number two, budget and performance integration. I talked about sort of gently nudging the program offices to do that, and to make sure that we keep raising the bar -- to the extent the bar's necessary to be raised. I think that's a role that we play. From a budget perspective, we sort of see the entire landscape, and so that's one I think that we need to continue to work to improve on. Improving cost accounting, we've talked about already. Succession planning, we've also chatted about briefly, but I think that's a critical one for all federal managers in the future as we face these retirements upcoming.

And then finally, I would say improved internal controls. The Department received a clean opinion on the first year A-123(a) effort. And for your listeners, that's effectively the government equivalent of Sarbanes-Oxley. Last year was the first year that federal agencies had to implement that, and we received reasonable assurance that our controls were good and adequate. We have a lot of work to do. Our IG would remind me of that. So there's still work to do, but there's continual improvement. So I view that, again, as a long-term process to improve the controls of the Department, not only the controls for financial reporting, but for programmatic reporting as well. So those would be the areas that I think any CFO and budget shop would be working on over the next several years.

Mr. Boyer: John, on a broader basis, what are some of the major opportunities and challenges your organization will encounter in the future? And how do you envision your office will evolve over the next five years?

Mr. Cox: I think the fundamental functions of my office will stay the same. You know, every year, we're going to need to do a budget. Every year, we're going to need to do processing the accounting, producing financial statements, producing a PAR. I think the tweaks will come in those areas where you look at how do you make the public documents more accessible, more readable? How do you make them more easy to assimilate internally? So the physical process of pulling them together. We're hopeful in the next 18 to 24 months to have a new general ledger.

The two other components of HUD department, Ginnie Mae and FHA, have already migrated to a commercial available off-the-shelf product. And so we will be sort of making the final stage of that. Both of those implementations were very successful.

And my view is when you make those changes in implementing a new system, that's the time when you're going to make the business improvements. Because you're in there, you're in the guts of the system, you're looking at all the processes, so that's the right time to do it, better integrated systems, not only from an accounting side, but again, also from a programmatic side. So how do we eliminate redundant systems, eliminate -- example, with our general ledger, we estimate in the first phase of it we'll eliminate 14 legacy systems as part of that process. So that's making improvements; hopefully it's ultimately reducing costs; and then, finally, improving our funds control.

Mr. Boyer: Now, what steps are being taken to attract and maintain a high quality technical and professional workforce?

Mr. Cox: We are aggressively recruiting as a department, and particularly my organization as well, in the Partnership for Public Service Recruitment Fairs. We're looking at presidential management fellows. We have a recently implemented internship program within the Department. We've always had interns and summer workers, but we want to formalize that process and have people come in and rotate amongst the various program shops, so not just within CFO, but moving from CFO to Housing to Public and Indian Housing to Community Planning and Development. And by doing that, hopefully get them a better perspective of the programmatic aspects. And whether they land back in my shop or someone else's program area, they'll have a broader perspective.

It's easy in a large organization to sort of get in and have a tunnel vision and you're only dealing with what you know. But if you can be exposed to a broader piece of the organization, hopefully you'll ultimately find a nice fit within the organization and you'll stay with the organization. Because obviously the goal is recruitment, it's succession planning, it's all part and parcel of the same thing. So we're looking at other programs, to tuition reimbursement, loan repayment programs, other incentives that can help us recruit the best and brightest to HUD.

Mr. Morales: Now, John, you've mentioned a couple times now the pending retirement wave. But specifically, how are you handling this pending retirement wave? And what is your organization doing to ensure it has the right staff mix to meet some of the future challenges that you talked about?

Mr. Cox: Well, I think we're doing several things. We have a five-year human capital management plan to address skills gaps in particular. We have made sure that the mission-critical functions are adequately staffed and they're performing. The REAP/TEAM data which I mentioned, which is sort of project-based data analysis, helps us with that process as well. We have recently implemented department-wide training where you have to have individual training plans. So part of identifying those skill gaps says John Cox needs the following skills. How do we go about getting him training to do that? So that's part of this process as well, to get the right skill sets matched up with the right jobs. And then finally, we're looking at attracting new blood into the Department via the internship program, and we're also looking to readjusting the skill sets.

You talked before about a blend of public and private workforce. One of the things you've got to do obviously, as I mentioned, was project management. That is a key skill that you've got to have. You've got to be able to manage not only your internal workforce, but the external contractors that you have working for you. So looking at the Department and looking at individuals, down to the individual level, and assessing their skills and needs for that, and doing that going forward, is a key part of our long-term succession planning and human capital plan.

Mr. Morales: John, you've had obviously a very recent transition from the private sector to the federal government. So I'm curious, what advice would you give to a person who's out there who may be sort of in a similar situation and considering a career in public service?

Mr. Cox: I would encourage them to do it. It's obviously something that was important to me personally to serve the President and to serve with the Secretary, but it's a fun challenge. You know, is every day fun? No, but in no job is every day fun. But I think that it's something that if you have an interest, I would encourage people to do it. But whether you're on the political side of the house, like I am, or whether you're just in the career public service side, it's a good career. You're helping people, particularly in HUD's case, but in all departments. Fundamentally, you have to realize that what you're doing is a good service for the American people and for the people you serve. In our case, low- and moderate-income households in communities, states. We have programs for people with AIDS. We have programs for the homeless. So there are a lot of good programs that HUD has that you can be a part of as a federal worker, and you really can make a difference.

We've made some significant improvements, for example, in the homeless area, by looking at different ways to deliver those services and providing more permanent housing, for example, as opposed to the typical shelter area. And the data has recently come back to show that long term, the recidivism, which means physically going back on the street, actually has been reduced. So that's just one example of how providing those funds can help touch someone's life.

And so I think if you have that particular interest, I would encourage people to do it. It's challenging, it's frustrating, but ultimately, it's been a net positive for me.

Mr. Morales: Good, good. So most of the days are at least fun, right?

Mr. Cox: Absolutely. Absolutely.

Mr. Morales: John, well, thank you very much. Unfortunately, we have reached the end of our time. I want to thank you for fitting us into your busy schedule. But more importantly, Pete and I would like to thank you for the transition that you've made and the dedication that you've had to serving our country.

Mr. Cox: Thank you, Al and Pete both. I appreciate the opportunity to be here today. And let me just close by saying I really want to thank the individuals in the CFO organization, my individual organization, for all their hard work and effort. The improvements that you talked about here of getting to green, getting off the GAO high-risk list wouldn't have happened without their efforts. Similarly, the program individuals as well. They made a big difference in making that happen and improving funds control and improving the plans.

If you need additional information on HUD, check out our website, hud.gov. There's a lot of great information, whether you're looking for employment or whether you're looking for a better understanding of what HUD does and what its mission is, I would encourage your listeners to go and look on that site.

Mr. Morales: Great, thank you.

This has been The Business of Government Hour, featuring a conversation with John Cox, chief financial officer at the U.S. Department of Housing and Urban Development.

My co-host has been Pete Boyer, director of federal civilian programs at IBM.

As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who can't hear this morning's show on how we're improving their government, but who deserve our unconditional support and respect.

For The Business of Government Hour, I'm Albert Morales. Thank you for listening.

This has been The Business of Government Hour.

Be sure to join us every Saturday at 9:00 a.m., and visit us on the web at businessofgovernment.org. There, you can learn more about our programs and get a transcript of today's conversation.

Until next week, it's businessofgovernment.org.

Originally Broadcast Saturday, August 26, 2006

Arlington, Virginia

Mr. Morales: Good morning, and welcome to The Business of Government Hour. I am Albert Morales, your host and managing partner of The IBM Center for The Business of Government. We created the center in 1998, to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the center by visiting us on the web at businessofgovernment.org.

The Business of Government Radio Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest this morning is Mr. Bradford R. Higgins, Assistant Secretary of State for Resource Management and Chief Financial Officer for the Department of State. Good morning, Brad.

Mr. Higgins: Good Morning, Al.

Mr. Morales: And joining us in our conversation is IBM Project Executive, Bonnie Glick. Good morning, Bonnie.

Ms. Glick: Good morning.

Mr. Morales: Brad, most of our listeners are familiar with the Department of State as the diplomatic arm of the U.S. Government, but listeners may not know that the chief financial officer at the State Department fits within the Bureau of Resource Management and manages a budget of approximately $33.6 billion, which certainly rivals many of the Fortune 500 companies out there. Can we start by talking more about the mission of the State Department's Bureau of Resource Management and its activities?

Mr. Higgins: I will be happy to. Resource Management was set up in 2002, out of Secretary Powell's initiative, and it really focused on his belief in having a real organization -- not just diplomacy -- but how do you support diplomacy. The intent was to integrate policy, planning, and budgeting, and then finally accounting. The mission statement is pretty straightforward: it is to integrate strategic planning, budgeting, and performance, and secure the resources necessary to accomplish the Department of State's mission.

To be perfectly honest though, that mission has expanded dramatically, since 9/11. The demands of what the State Department is doing overseas, and be it Iraq, or literally any other part of the world, has put tremendous demands on financial management and control. Really, I think the question for us is - [for] what we are getting from Congress and the American taxpayers: how are we spending the money they are giving us and for what effect? Now, we live in difficult times and the taxpayer wants to know: what type of results should we be expecting and what type of effects is this funding generating?

Mr. Morales: Can you describe specifically your role as chief financial officer? And what are some of your official responsibilities and how do you support the broader mission of the organization?

Mr. Higgins: Well, let me start off by saying something. I think I have the best financial job in America. Really quite simply: because I have input in almost all the decisions affecting the U.S. overseas. These are, you know, be it Iraq, what we are doing in Afghanistan, what we are doing in a lot of the other countries. These issues will define our generation, so I cannot tell you how much I've enjoyed my time, being able to ask the kind of questions, that just like anybody else, would want answered -- being an outsider. But the specific responsibility as chief financial officer, is again as I mentioned before, the development of the Department's internal planning, budgeting, and accounting functions.

It goes much further than simply putting together a budget. We have embassies in over 170 countries around the world. We develop business plans, or what we call mission performance plans, for every one of them. The individual missions develop [the plans]. We critique [the plans], we meet with at least 60 of the [missions] every year. It is a very interactive process, and for someone like [me], who is new to the government, it's been fascinating, because what you find is no mission is alike.

The challenges that we face overseas are just profound, and they're changing constantly. [The] ability to have men and women on the ground, working with these countries is absolutely critical. Our role is in terms of how do we support them and how do we give them the assets or the resources to help them do their job. This goes to my next area, which is, the Bureau of Resource Management has a number of different areas in addition to just putting together budgets.

As I mentioned before, we've got planning and we've got accounting, but we also are the financial services provider for the -- not simply the State Department, but all U.S. agencies overseas (outside of the Department of Defense). [For example, if the]Department of Commerce has some one, let's say, in Egypt, you know, it's the responsibility of the State Department to provide life support and service for them� through the chief mission. We also handle the salaries of all the foreign service nationals who happen to work for the U.S. Government overseas.

For example, we pay the salaries of about 90,000 Americans, locally engaged staff, and retirees annually. What makes us different, though, from any other organization in the U.S. Government is that, we just don't pay in U.S. dollars. We pay salaries in a 160 different currencies, and we have about 260 different pay plans around the world. So the accounting and the administration functions of this are enormous, and particularly when you realize the State Department staff, you know, a typical assignment and a mission at the State Department is anywhere from one to three years.

So in any given year, you probably have 30 to 40 percent turnover. So you know in every country the pay plans are a little different, because whether it's a hazard pay or just a type of things that, you know, family type of provisions, so that it gets incredibly complicated, just from getting the right pay out. Those are the type of issues that we deal with on a daily basis. The other thing, if I can finish, is outside of the normal accounting business in the financial operations, we also have the mandate for what we call mission assurance.

If something was to happen to the State Department, what are the plans? And we help organize all of the other bureaus in terms of their contingency planning, so it's a basically critical infrastructure planning. This is again, a follow-on to what happened after 9/11. What do you do if something happens? We also have responsibilities for dealing with GAO liaison. We deal with them on a daily basis in terms of their audits. So we have a pretty broad mandate, but again it comes back to financial services and making it as effective as possible for the Secretary.

Ms. Glick: Brad, you have a tremendous range of responsibility within the State Department itself. I'm wondering if you can tell us how your broad range of professional experience, including a successful career in the private sector, as well as your previous stint as the CFO of the Office of the Coalition Provisional Authority in Baghdad, prepared you for your current position? How has such a background influenced your personal management style?

Mr. Higgins: That's a very interesting question. It's hard to say anyone could be prepared for going over to Baghdad. I started my career as a lawyer, and I decided shortly after practicing for about two years to become an investment banker, but I've always had an interest in the public sector. I gravitated toward public finance and I did that for about 20 years on Wall Street at firms like Goldman Sachs and First Boston. I led a number of groups primarily focused in public power and infrastructure.

I specialized [in] large complicated problem projects. When we went into Iraq we used to joke, you know, "Iraq was the mother of all projects." It was something that caught my interest. I also think, for me to go there, was [that] a former colleague of mine was the Chief Financial Officer at the State Department --Chris Burnham. After 9/11, I had wanted to do something to help and get involved, just like thousands of other Americans. I volunteered to be an advisor in Washington for a year.

Well, that lasted about a day and they asked me if I'd be interested in going to Baghdad -- a week later I'm sitting in Baghdad. It was partially my background in terms of trying to analyze problems and ask questions. One of the things that I found incredibly helpful with [a] Wall Street background, and which is really not different from anyone out there in terms of managing their own finances, is that I want to know: why we are spending this or why is it costing so much -- the due diligence aspects of Wall Street, I think, have proven to be very helpful.

You know, I come from not so much a spending perspective, but an investing perspective. When we're looking at things, particularly on foreign assistance, why are we spending this, what's our return, what are we doing to help and quite honestly, what's our exit strategy, so those type of experiences have really proven to be very helpful. I think that if I was to say, "Where did I learn the most?" it was my 13 months in Baghdad.

I did two tours over there and working with, not only the Iraqis, but the Americans. We tend to forget there has been an awful lot of criticism of what's transpired there -- fraud, waste, and mismanagement that I kept on hearing about. Well, I have to tell you, I started off as a CFO for CPA and I worked very hard. I was largely brought over to fix a budget deficit. We were projecting about a $400 million shortfall on an $800 million budget. It took me about three or four weeks with a team of folks, but we ended up not only resolving the shortfall, but we ended up turning over a surplus. It was asking a lot of questions, and that was really my primary focus. I had a chance to see what was going on and I was concerned. When the State Department took over, I asked if I could extend, and they said fine and they made me the Chief of Planning for what was known as the Iraq Reconstruction Management Office better known as IRMO.

We did the first reprogramming and that was really reflecting on how we saw the situation evolving in Iraq. One of the real challenges that we, all of us, whether it's the Hill or the American taxpayer, are wrestling with right now is: how did we get there and what's transpired. When we first went in there, it was really a reconstruction program -- it was what is better known as postwar reconstruction -- and that was one of the real challenges, because it evolved very quickly to a wartime reconstruction.

What I found, as with most businessmen, or people, you are constantly evolving, you are constantly reassessing, so when people say mistakes, well, no, it's re-aiming -- particularly in a war zone, where there are attacks exchanged almost daily. We had to keep learning from our mistakes and lessons. When I came back I remember sitting down with the Secretary upon my arrival, toward my confirmation process, I tried to explain to her: "Look, if you can get something done in Baghdad, you should be able to get something done in Washington." I was welcomed. I was pleased to come back.

In some respects, I think the experience in Baghdad has put me in a very good position, not so much because of all the lessons. The fact of the matter is the men and women, the Americans in the coalition and the Iraqis, what they're going through, having very much of [an on the] ground feeling. It is one thing to sit in Washington and talk about what we have to do and how it's going. It is another thing to be out there, trying to make it happen. When we talk about programs, or budgets, or money, well, I've got a pretty good idea how difficult it is�to ask the kind of question�how exactly are we going to do this?

Mr. Morales: We certainly want to hear more of the stories from Baghdad, because we think there is a lot of learning here. But I want to transition here a little bit and ask you, we understand that the Bureau has received numerous awards from organizations such as the Association of Government Accountants and the League of American Communication Professionals, just to name a few. Can you tell us about some of these awards and accomplishments?

Mr. Higgins: Oh, I'd love to. I only wish I could take credit for them. All these awards were worked on last year. I'd like to say, I hope we can continue doing them, and if we fail, please let it not be on my watch. But I will say, the team that I inherited at the State Department is really second to none. I think I can talk with a certain level of experience, spending almost 30 years in the private sector and in the public sector, and being in management positions for probably 20 of those, so it really is a credit to the team that we have at RM.

Probably the best one to start off with, is the double green score on OMB scorecard for the President's Management Initiative, and I'm sure we will get into that later on, but I think it's something that the listeners should be more aware of that the PMA is one of the real achievements of this administration. That they're, you know, trying to make the government work better and work harder and to justify the taxpayer's dollars. In our area the two that we were responsible for, planning, budget integration, and financial management.

We are proud to say we are double green, for progress and for status. OMB is a demanding boss and they're constantly asking questions. The other areas that I think we are particularly proud of, the last five years we have received the AGA's prestigious Certificate of Excellence in Accounting, on accountability reporting, I should say. And this all goes back to our performance and accountability report. This is something Americans don't really look at enough.

The federal agencies by law are required to do annual reports and they are called PARs, Performance and Accountability Reports. This is really a good area, if you want to find out what is going on in an agency, particularly, the State Department, go to their website, open it up. Or contact us and we will send you a disk. They are long, so we are going to have to send you a disk, rather than a printed copy. But it goes into all our different programs and what our record is. There is a lot of accountability and there is more so today than ever before, because of a lot of the work OMB has done.

Another one, and this goes back to our annual report, the PAR, is the Mercado Center of George Mason University started ranking them, probably seven or eight years ago. We started off in 20th out of 27 agencies. Well, you know, for the last two years we've been ranked second. What's interesting, I think, from the State Department, is that most of the other agencies have effectively one mission and it's whether it be labor, or social security, or commerce, but you know, the State Department handles the foreign relations for the U.S. Government, which is everything.

So the number of programs and the number of initiatives we're involved in is not in the dozens. It's literally in the hundreds. And we have to report on those. So I think it's a real credit to the team at the State Department to have been able to put that into an effective and cohesive manner, so that people can have a better understanding of what we're trying to do.

Mr. Morales: Certainly, a phenomenal accomplishment. What are the goals and priorities for the State Department's Bureau of Resource Management? We will ask Assistant Secretary and Chief Financial Officer, Brad Higgins, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Assistant Secretary and Chief Financial Officer, Brad Higgins. Also joining us on our conversation is IBM Project Executive, Bonnie Glick.

Brad, could you highlight some of the Bureau's goals for this current year as well as the goals that look forward into FY 2007?

Mr. Higgins: I'll be happy to. I think the key goal for us is what I call operationalizing Secretary Rice's initiative on transformational diplomacy, which is really a fundamental change in the way we operate at the State Department. Historically, the State Department would be more of a reporting function keeping Washington updated on what was going on. Her vision of the future, which I think is exciting, is much more proactive, actively influencing improvements around the world, be it diplomacy or a democracy, I should say, or economic development and it's really built around self-help. And so part of our job is to sit there, and okay, what kind of resources, what type of changes from a funding perspective or on a program perspective, we're going to need to put into place to effectuate her initiative.

I think that the next priority for me, which really is a driver here, and that's really kind of my background, is the evolution of resource management to more of a financial advisor to the Secretary. One of the things I noticed, the difference between the public sector and the private sector, the private sector is much more focused on results. The public sector, because it does budgets, it is more focused on the process of getting the money, not so much on how we spend it. And that's really one of the things that I am, you know, I may be a little obsessive about the spending, all these years on Wall Street, perhaps even more so, having spent so much time in Iraq, is that I'm very focused on results. What are we trying to do with this? And I think that's something that's very much in line with what the Secretary is pushing for.

And I guess the third thing that's key for RM, resource management, our assistance in increasing the interagency coordination. One of the things I think we've all found on the government side is that we can't do it alone. The State Department can't, the DoD can't. The challenges around the world are immense. We need to act in a cooperative and a coordinated fashion, and it doesn't just stop at the U.S. Government. It goes on to the private sector and really the international side.

I think, again, Iraq is one of those classic places, where as we go through a transition to the Iraqi government, how do we work with the international side. So a lot of this goes back to using some of the resources that we have within resource management to help effectuate these interagency efforts.

Mr. Morales: The theme of collaboration is certainly a very important part of the government's lexicons these days, but I want to get back to something that you said in the first segment around linking budget to performance. How does the Bureau plan to expand the use of financial data to inform its management decision process?

Mr. Higgins: That's a good question. I think you start out with financial management. At the State Department it means knowing where every dollar comes from and where every dollar goes in a timely and accurate manner, and that's really kind of the traditional definition. But I think what we need to do is to move beyond the sort of, the fundamental or, you know, sort of traditional compliance focus to one of more of a results focus. What exactly are we doing? What are the deliverables?

You first need to have a core data and that's really what we spent the last four years doing, building the data systems. Congress has been very supportive. You know, they have given a good amount of funding to upgrade our systems at the State Department, so we can be smarter and we can be more effective, but what do you do with that data, and how do you put it into place? We have a number of mechanisms for identifying metrics. One of them obviously was an audited financial statement, but also our PAR, our performance and accountability report. That's a key area.

We also turn out a quarterly ambassador's report, which summarizes our performance on a number of different areas and it's something we work very closely with OMB. We have a quarterly report to OMB that goes through not only our PMA initiatives, but just about everything else we do at the State Department and they grade us, and they are pretty tough graders. You know, there is a lot of oversight, but there is also I think -- well, my goal is to have even increased internal oversight.

There are a number of things like A-123, but I think it comes back to management and the expectations of the leadership of the State Department, the Undersecretary for Management, Henrietta Fore, puts out about four taskers a day to me about this and that, and if there is someone out there who is dedicated in trying to extract more value about what we do, it's been her.

Ms. Glick: What advice would you share with other government leaders about getting to green in certain presidential management agenda-related initiatives and staying there?

Mr. Higgins: Well, that's actually a good segue. The first advice, it's very important to have high-level executive buy-in. And since Henrietta is a, you know -- I don't think she carries a gun, but she might use it if we went and we stopped being green -- so needless to say, it's a high-level executive support at the State Department. And the other piece of advice, it's very important to have an open and regular dialogue with OMB.

OMB is there to help. It's not quite like the IRS, but they certainly have been very supportive, because again, they work on our budgets. They give us the money needed to make these changes, so if you have an open dialogue, they've been very supportive. I would also think that, you know, as we move toward green and the goal of green, it's not just the goal of green, it's building the basics to justify the green.

And that's again going back to focusing on the blocking and tackling of running a budget and being able to have accounting statements. This is a situation as we see, and particularly at the State Department, nothing is static, everything is constantly changing. And even though we may have a clean audit last year, well, there are probably a half a dozen things will happen in the next 12 months that could take us to a material weakness, so it's the constant tracking and the discipline of maintaining standards.

Ms. Glick: It's my understanding that the Department's Management Control Steering Committee established a subcommittee comprised of the Bureau of Resource Management to report on efforts to comply with the auditor's findings on the Federal Financial Management Improvement Act deficiencies and how to categorize the issues. What are some of the innovative efforts in place to remedy these identified deficiencies?

Mr. Higgins: We actually started something called the Management Control Steering Committee almost 20 years ago, so this is something that's been around the State Department for a while. But it also, you know, helps for us to comply with the -- I have the same problem saying this -- Federal Managers Financial Integrity Act. But at the end of the day it's "How are you running your business?" It really looks at, you know, our financial management systems and so many things, like how we manage our property as well.

It really is the basics of our balance sheet. I'd share that and we meet every quarter and the goal there is -- and this is really an internal audit function or a management function -- is to identify what we think our weakness is. You know, we would probably come up with a longer list than the auditor will, because the job is not to, sort of, gloss it over, it's to identify the problems early on. And if there is any doubt, we put it on the list, and then we try to address it. So that really has been very helpful.

We've also in the last two or three years really started pushing more on managerial cost accounting. This is a little different than what you normally see at the State Department, where it's really budgets. We started off at the mission level, then we go to the bureau, then we go the department levels. How we spend our money. Very specifically, how do we account for it? Now, that's one of the challenges I think in the government today, is for the financial managers to be able to say to the senior leadership, to the Secretary, "Madame Secretary, this is going to cost you X. You've got two or three different options, but we've got to be able to price them out."

This is something we do every day in the private sector. I would say it's long overdue. It's something that's been on everyone's screen in the government, but it's something that the people like myself really have to push on, and to be able to have specific numbers. I'm always amazed by the amount of the dollar figures that get thrown around in the government. You know, it's almost like popcorn at times. And I think, having run a couple of businesses, and not having an annual appropriation, but having to make the bottom-line, you know, this is something I joined the government because I think the, you know, the American taxpayers should expect that.

Mr. Morales: Brad, we only a minute left, but I do want to ask you about the Joint Performance Plan that the State Department and USAID submit jointly. Could you share a bit about this plan and what does this report reveal about your joint performance, and how, if at all, does it relate to the allocation of funding across strategic goals and performance measures?

Mr. Higgins: To me it's one of the real positives in the government. This is not an annual report. It looks back, but it really looks forward, you know, basically saying this is what we intend to do. We need to have Congress look at it closer. Obviously, OMB follows it, but it's something that none of us likes to, you know, draw a line in the sand -- "I'm going to do this and that." Well, this does that and it also reflects on the fact that foreign assistance, USAID, and the State Department are really joined at the hip, that we need to work together. We need to have the kind of integrated approach.

Diplomacy isn't very good if you don't follow it up with foreign assistance and vice versa. So I think this has been a very important opportunity for us to pull that together. A couple of months ago, as some of the listeners may have heard, we created something called the Director of Foreign Assistance, and that was led by Randall Tobias, Ambassador Tobias. He is also the new USAID Administrator, so that jointness is becoming even more pronounced every day, so I think going forward, it's the integration that we talked about earlier that's key to greater effectiveness.

Mr. Morales: Great. How is the State Department integrating budget and performance information? We will ask Assistant Secretary and CFO, Brad Higgins, to share the details with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I am your host, Albert Morales, and this morning's conversation is with Assistant Secretary and Chief Financial Officer, Brad Higgins. Also joining us in our conversation is Bonnie Glick, Project Executive for IBM.

Brad, many agencies are working to implement the budget and performance integration aspects of the PMA. What is the status of the Bureau's plan for this effort?

Mr. Higgins: As I've mentioned earlier, we are at double green for progress and status for a budget and performance integration. This is something that we continue to work very closely with OMB, trying to make it, you know, to take it to the next step. I think one of the challenges that we have is being a double green. What does that do for us? Is it integrated into the other initiatives? So we start looking at the potential of basically a balanced scorecard, looking at the other initiatives and integrating that and, at the end of the day, the budgeting and performance integration really is supposed to describe all the aspects of the State Department because everything's got a funding aspect to it.

So whether it's e-governance or real estate and things like that, how does it all fit together? And that comes back to performance, and so I think that's really the challenge of how do we pull these things together so that it becomes effectively a return on equity, if you would use a Wall Street parlance.

Ms. Glick: Where is the Bureau of Resource Management in terms of implementing Sarbanes-Oxley or A-123 requirements? Do you have any lessons learned that you could share with other government leaders?

Mr. Higgins: Well, leaving Wall Street, I was looking forward to getting away from Sarbanes-Oxley and I discovered something called A-123, which is the same thing, but it's for us. We have worked very hard on that at the State Department. We've always maintained robust systems of management controls, as I mentioned before, going back almost 20 years. And, you know, the OMB issued its revised Circular A-123 in December of '04. The deadline was for the end of FY '06.

We intend to have full implementation at the end of [the] FY. So this has been a big issue in our operation, trying to meet that and some of the lessons -- we have already learned quite a few lessons trying to meet that, and I am confident we will meet that standard by the end of September. But it really is important, because you have so many different things going on in a large agency like the State Department and I think the key thing is to identify and then integrate these efforts into a cohesive pattern. And then you have someone managing that process, which is someone who we have in RM following up on that collaboration.

You have to be able to work closely with the OIG, the Inspector General and with the auditor. Again, you know, they aren't going to get too cozy with you, but the practical matter is you've got to work together to be able to meet these criteria. And for those who aren't familiar with A-123, in previous practices the standard was nothing was coming to our attention. Well, now we actually have to prove it. We have to test it and look at these rather than -- the other standard was significantly easier. No one is taking our word for it anymore.

Now, we have to demonstrate proficiency and the first year is expensive and it's time consuming. But hopefully, once we get the standards in place, it will allow us to be that much more effective. But I think the challenge is, first you are doing, you know, a lot of work, but also you have to start early. One of the things I have found, particularly in the public sector, if given enough time, you can, you know, you can fix almost anything. Time is our biggest challenge.

If you identify something in August with a year-end at the end of September, you got yourself a real problem. Most people know we used to have six months to turn in financials. Now we have to do it in 45 days. November 15th is a very hard date for us, so if we are not in place by then, that has pretty dire circumstances to the way we do our operations. So A-123 is a challenge and the demands of OMB on the timing of it, this also makes it doubly difficult.

Ms. Glick: Those are important lessons. We understand your focus on cost accounting and performance measurement. Can you tell us a little bit about your activities beyond in this area? Is there a balance scorecard that's in place in the Department to monitor your progress in this area?

Mr. Higgins: It's something we obviously are working on, and we've had some good discussions with OMB, because this is the core. You know, just doing one thing right isn't enough. You've got to integrate it so you have an effective operation, and I think for me a balanced scorecard is very important. What we have done though, going back to, sort of, the managerial cost accounting, is we've put a team together and we have been out there for, well, about two years now, developing this. And we started off by identifying other agencies' best practices and there is a lot of lessons to be learned from the other agencies. Some of them have done a terrific job.

We have 30 different bureaus at the State Department and we sat down with all of them and we interviewed them to find out what their particular needs are, the type of cost information they need to develop budgets, their current cost accounting practices and reporting. Oddly enough, it's not always uniform, and the bureaus are different, and part of our job is to develop a single standard so that we can have some comparability, and then coming back to looking at outputs and outcomes.

We very much need to have an outcome focus and not how many things we produce, but what type of effects they are having. And that's sort of the next step of managerial cost accounting. And when you start looking at what's the cost benefit of something, we have a lot of challenges in the U.S. Government about, you know, we have choices. Some things generate a lot more benefit than others. Some things are incredibly expensive. Some things are relatively inexpensive that have huge upside. Some of the lessons we have learned at the State Department are really the effect of cultural exchanges.

Relatively low cost, but unbelievably effective because they tend to be the leaders of tomorrow in these other countries, and you know, my job is really on an annual basis, but the State Department is going to be there into perpetuity, and certainly that's what I hope. So we have to be thinking at 10, 15, 20 years who are the future leaders of the other countries and what type of relationships we develop with them, and the earlier the better.

Mr. Morales: Brad, one of the larger business model changes in the federal government these days is the lines of business. Does the Bureau have plans to implement lines of business for the foreign service nationals and third country nationals serving us overseas?

Mr. Higgins: Yes, Al, we do. Again, OMB has made this a top priority, trying to identify who does it best in the federal government. Clearly, our role, and under the constitution, and the practicality of being responsible for foreign relations, it really puts us in a position to handle the overseas. OPM has designated us as the provider of payroll for, you know, the foreign service nationals. And it's something we intend to continue to expand upon.

We will be making a submittal for this line of, actually a line of business for all foreign service support, but it's something that we currently handle, all of the other agencies as I mentioned. And I think, you know, as a practical matter we are doing it anyway, and making it more formalized, I think, only helps.

Mr. Morales: What does the future hold for the State Department and its Bureau of Resource Management? We will ask Assistant Secretary and Chief Financial Officer, Brad Higgins, to discuss this with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I am your host, Albert Morales, and this morning's conversation is with Assistant Secretary of State and Chief Financial Officer, Brad Higgins. Also joining us on our conversation is IBM Project Executive, Bonnie Glick.

Brad, recommendations have been made that State, with the Department of Defense and USAID, establish a means to track and account for security costs to develop more accurate budget estimates. Are there any specific efforts in place to implement such recommendations?

Mr. Higgins: Yes, there are, Al. The U.S. Government Accountability Office, better known as GAO, is in the process of reviewing that issue, and they've asked, and this is particularly in Iraq, to look at the private security providers there, and to account for their costs. And people don't appreciate one of the real challenges, and I think earlier I mentioned some of the cost overruns in the, you know, what people call fraud, waste, and abuse.

Well, that's about five to ten percent of the cost. I'd say about 30 to 40 percent of our costs now have been in security, and I think GAO wants to know about it, but it is becoming part and parcel of operating in this world. And in a hostile environment one of our top priorities is to protect the American citizen. To protect the people we asked to go out there, and it's taking a little adjusting in our budgeting to reflect this really high cost of operating, but that is the cost of being in a place like Iraq. It's a necessary cost. You know, we need to be able to have people out there and we can't do it by phone. So it is something that we're tracking closely, and it also means the importance of us working very closely with the military and the type of protection they provide us.

I spent a lot of time in Humvees, protected by marines and soldiers, and you know, my hat's off to them, and to what they've done, but as we all know, the costs are high, but again they are unfortunately necessary to winning this global war on terror.

Ms. Glick: Given the management changes that are already underway in the Department of State, in the areas of transformational diplomacy, where do you see the Bureau of Resource Management in the next five to ten years?

Mr. Higgins: Well, to be honest, you know, maybe it's just because where I come from, but what I see and my goal is to turn the resource management into a true financial advisor to the Secretary and to the senior management. They should know what things are going to cost. They should say, "What options do I have, and if I've got X amount of money, what can I do? Are there better programs?" And that kind of goes back to what I was just saying before, about our priorities, of working the interagency side and the international side, so that we're able to, you know, if we provide the seed capital, will the private sector come in? Can we get another country to match what we are doing?

Pushing that, trying to maximize the use of the taxpayer dollars, and I think I mentioned before the philosophy that I've taken is one not of spending, but of investing. We need to be looking at, you know, what is the best use of this money? And that to me is, the real goal of RM is to provide that analytical capability. Not just the budgeting, but to be able to monitor it and work with the various bureaus to say, "You know, if you did it this way, you might be able to get that. If you did it another way --" And I really do believe the challenge for us, particularly with Congress, is not one of funding, it is one of execution.

We get the execution right, I have a pretty strong feeling Congress will give whatever funding we need. They've been very supportive, but I also think they have a right to demand results. And I think part of my job is to be able to provide that accounting, and provide that responsibility. You know, you should know there is something called the CFO Act of 1990. That requires me to be responsible for all financial activities at the State Department. I'm not a glutton for punishment, but if I'm going to take this job, it's important for me to live up to it.

You know, I had that great opportunity of being in Iraq. I know the sacrifices our men and women are experiencing over there, and I think that makes my job very, very clear. Are we getting the results we need? And if we're not, they should replace me, and in fact, I will go recruit someone who would do a better job -- but to me that is really the job number one for the CFO at the State Department.

Mr. Morales: Brad, I'm hard-pressed to believe that you can actually find somebody who's done a better job than you have, but you obviously bring a wealth of experience from your tenure in the private sector. So I would like to ask you a two-part question here. One is, you know, what other best practices and learnings can you share with your fellow public sector CFOs? And what advice would you give to a person who is out there in the private sector, perhaps thinking about a career in public service?

Mr. Higgins: It's a good question. I guess the best advice I would give, and sort of following on what I've said, is for the CFOs is to focus on execution. Let the funding follow the execution. It becomes a lot easier when people have confidence that you are spending the money wisely. You know, I always say, well, that's the way you would run your own home and run your own company, and I think that's the standard we should apply to our own government.

You know, to me, talking about job satisfaction and the type of the job I have, the pay sometimes isn't as good as Wall Street, but there is one thing, I guess, you get to my age, job satisfaction becomes very important. You know, it's not something I thought about when I got out of college, and oddly enough, the only regret I think I had coming out of Iraq was, I didn't go into the marines after college. Because I think the experiences these young men and women have is just life-altering and life-changing in terms of being part of something bigger than themselves, and it's not all about how much money I'm making.

But I also think that there are a lot of us who are, you know, of my generation, when you are born in the '50s, that you're getting to that point of retirement or where you want to have a second career, and I can't think of a better area than going back into the government. And one of the things I'm pushing hard for is to develop fellowships with either the private sector or universities, and we always have constraints on how much staff, and being able to bring people in who can bring the intellectual rigor.

The lesson I learned in Iraq is that most people don't realize this, but people over there work seven days a week, upwards of 14 to 16 hours a day. You actually lose track of what day of the week it is, and the strain of that is that you're constantly putting out fires and you don't have the time to really do that rigorous research and thinking through that you would like to do. And I think one of the things I would like to see is to bring the private sector more actively involved into the public sector, be it on a volunteer basis or sponsored by institutions, but we really benefit from the experiences of the private sector and that's something that, you know, whether it's someone coming out of college, looking to have a career or someone who has already had a career and has got nothing to prove, and I kind of fall into that.

You know, there are days it's been the most frustrating job I've ever had, but there are far more days that this has been the best job I've ever had. So I can't say enough about the State Department. At times it is very critical about some of the things we did in Iraq, and I think the lesson that I've tried to follow was, if I want to criticize, I better have a solution, and I also better be willing to roll up my sleeves and go do it.

I put together courses of action or plans of action, and there wasn't enough staff out in Baghdad last summer, and I said, "Well, I guess I will go out and help." Well, I thought I was going to be there for three weeks. I ended up being there five months. But these people are working very hard and I think that's the message I want us to share, is that this has been a great career for the people of the State Department. We are always looking for talent at all levels.

You know, whether it's entry level or later on, or senior levels, and I would encourage people to go to our website, state.gov, and explore what's going on, whether it's working in Iraq or working in Afghanistan, or just working at the State Department, what opportunities we have. It's an exciting place. Perhaps, more than any other time, and certainly in our history -- at least you know, our immediate history -- there are some real challenges. You just have to pick up the newspaper to realize what's going on and it's a scary time.

And I find it's a lot easier to get involved than to read about it in the newspaper. And one thing I will finish with is that what you read in the newspaper and what goes on out there, sometimes it's very different, and that the challenge is to be out there and to see it firsthand, and to put your experience to work there, and have that sense of satisfaction. Obviously, I'm not going to do it alone, or I'm just a small player, but certainly it's been exciting to be around people like Ambassador Khalilzad or Secretary Rice and see what they have been doing.

Mr. Morales: Brad, thank you. That's great advice and certainly your passion and enthusiasm rings crystal clear through the studio here. Unfortunately, we have reached the end of our time and although I have a million questions, and I'm sure Bonnie has another million, we will have to end our questioning. I do want to thank you for fitting us into your busy schedule today, but more importantly, Bonnie and I would like to thank you for your dedicated service to the public and our country in the various roles you've held at State and in the financial management field.

Mr. Higgins: Well, thanks Al and Bonnie. I welcome this and it's one of those things where, you know, we get so focused on what we're doing, and we sometimes forget the message has got to get out there. I would encourage all the listeners to look at our site. I mentioned before about jobs, but to go to the State Department website, and open up our performance and accountability report, and read it. Send us an e-mail if you want more information because I think there is an awful lot going on and it's a much better story than one might first perceive. This is all about learning, you know, from what's working and what's not, and I think that's the one thing I'm convinced with the State Department is that we're trying to do a better job everyday but it's a dynamic situation and we do need the support of everyone involved.

Mr. Morales: Great. Thank you. This has been The Business of Government Hour, featuring a conversation with Assistant Secretary, Bureau of Resource Management and Chief Financial Officer of the Department of State, Mr. Bradford Higgins. Be sure to visit us on the web at businessofgovernment.org. There you can learn more about our programs, and get a transcript of today's conversation. Once again, that's businessofgovernment.org.

As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad, who can't hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support. For The Business of Government Hour, I am Albert Morales. Thank you for listening.

Tuesday, February 7, 2006

Arlington, Virginia

Mr. Morales: Good morning and welcome to The Business of Government Hour. I'm Albert Morales, your host, and managing partner of The IBM Center for the Business of Government. We created this center in 1998, to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the Center by visiting us on the web at www.businessofgovernment.org.

Ms. Fiely: Hi, Al.

Mr. Morales: And joining us in our conversation, also from IBM, is Lori Feller. Good morning, Lori.

Ms. Fiely: Sure, USAID actually came about as a result of the Marshall Reconstruction Plan for the economic recovery in Europe after World War II. Actually, the beginnings of this plan came about as a result of a speech that George Marshall, who was the Secretary of State under Truman, gave at Harvard back in 1947. It is the government's arm to lend foreign assistance from this country, and it was actually named USAID and put into existence officially by the Foreign Assistance Act, which was passed in 1961.

There are four pillar bureaus; we have an Economic Growth, Agriculture and Trade; Global Health Bureau; a Democracy, Conflict and Humanitarian Assistance Bureau; and we have the Management Bureau, which is where the Chief Financial Office is housed. There are also four regional bureaus, which is the Sub-Saharan Africa Bureau, Asia and the Near East, Latin America and Caribbean, and Europe and Eurasia.

We administer our programs through 90 missions located overseas. We have 29 in Africa, 20 in Asia and Near East, 24 in Europe and Eurasia, and 17 in Latin America.

Mr. Morales: Lisa, that's fascinating. That's a very broad set of missions. Can you give us some examples of USAID's work?

Ms. Fiely: Sure, it's sort of broken up into different aspects. We do development work. We also do assistance work, emergency type assistance, which would be a situation like, for example, the Pakistan earthquake, the tsunami, or other direct emergency type relief. Some of our development work includes alternative crop development. There was an interesting project that I visited when I was over in South America where we're actually teaching farmers how to grow different crops, trying to keep them from growing the coca crop, which is the crop used to manufacture cocaine and trying to get them into other crops, rice and corn and things like that to help stop the drug trafficking.

And we also have some democracy programs. One of our biggest programs of course right now is the President's emergency plan for AIDS relief. We have a huge program basically focused towards Africa which also spans the other bureaus as well.

Mr. Morales: Great. I think some of our listeners might be interested in a higher octane version of coffee, so if you can have some folks working on that that would be great.

Ms. Fiely: Well, you know, you can actually go to Starbucks on occasion and get coffee that we have actually had some play in helping.

Mr. Morales: Oh, that's very interesting. Can you tell us a little bit more about your office, specifically the Office of the Chief Financial Officer? How many staff members are in your office, and what kinds of skills do they have?

Ms. Fiely: Sure, actually we have a myriad of skills. We have CPAs in the office, audit types in the office, financial management systems, project management, and budget-type folks in our office. We have 97 people in Washington, who directly report to me. Overseas we have about 200 folks who are in our controller offices, in our missions. We have about 50 controller offices.

They don't directly report to me, they would report to the mission director where they are housed, but they look to our office for policy. We have to approve performance-type things and programs that are administered from the central agency aspect. Like right now, we are implementing a new system. They would look to us for that.

As a result of a recent reorganization, the Office of Finance was combined with the Office of Management Planning and Innovation, so we grew a little bit there, but we're your basic government financial management office.

Ms. Feller: Lisa, I understand that you came to USAID after working with the Internal Revenue Service, including a role in business modernization. Have you translated your IRS experience into your work at USAID?

Ms. Fiely: Actually, the IRS experience translated extremely well, maybe too well, to my work at USAID. I think one of the reasons, probably the main reason, why they were looking for somebody like myself when they went on a search at USAID was because I came from IRS with both disciplines, systems implementation, because I had worked for the chief information officer for a time, as well as finance, because I was the deputy CFO at IRS. That was exactly what USAID was looking for at the time, having had some problems with previous systems implementation and having had several CFOs in as many years. They had pretty much a CFO per year, so they were looking for some stability and for someone with a background in both disciplines, and as luck would have it, I fit that bill.

Ms. Feller: I would imagine that's pretty unique, actually, in the CFO field. And kind of building on that, I understand you worked in a variety of positions across agencies, including Social Security and the Environmental Protection Agency. How would you compare USAID to the other agencies you have supported both culturally and in terms of financial management outcomes?

Ms. Fiely: Culturally, I would say that USAID probably mirrors EPA most. It was sort of a mission-centric organization. People joined AID and I found when I was at EPA they joined EPA because of the admirable nature of the mission. You also had a lot more optimism than pessimism. You have sort of a young, if not in years in thought process, a younger thinking crowd, and they are both smaller agencies with lots of vision.

For IRS I would say it's probably 360 degrees. It's a whole different atmosphere at IRS. Not a bad thing, I think you need both types of agencies. I mean, what IRS was there to do was collect taxes and they do it well. If not for IRS collecting the taxes we wouldn't have the money to fund agencies like USAID and EPA.

And as far as the other agencies in between, I worked at Interior for a time, I worked, as you said, Lori, for the Social Security Administration for a time. Probably they would fall in the middle.

Mr. Morales: In terms of the financial management outcomes, you talked a little bit about the different missions, can you describe a little about the financial processes in these various organizations and how they differ in terms of their vision and in terms of their operations?

Ms. Fiely: Well, you know, as far as the financial processes, they don't differ that much. You have a certain financial management mandates that we operate under, and, you could go from IRS to EPA to Interior, and we all have to adhere to the same governing mandates, if you will.

So I wouldn't say that those were that different. There could possibly be a difference in the way they are administered. Obviously, USAID is administered very differently just because of the mapping, you know, we're all over the world. So you're dealing with different folks, a lot of our people that are working for finance and for the Agency at large are foreign service nationals, so it's a whole different culture out there.

That's one of the nice things about Washington. If you are in a certain field you can go from one agency to the next because you carry that expertise. You're going to encounter the same types of things, the same situations.

Mr. Morales: It's really portable.

Ms. Fiely: Uh-huh.

Mr. Morales: Lisa, given the vast experience you described, the many agencies you worked for and the various roles in systems, in finance, in audit. Our listeners may be curious about how your personnel management style has changed over time. Can you describe that for us, please?

Ms. Fiely: It's kind of an interesting question. I guess I don't look at it so much as changing over time as maybe evolving over time. I don't really look at it as managing per se. I've always sort of looked at my role as head of a group or an organization as a leadership role. When I really think of management I sort of think of managing a checkbook or managing a job.

When I was an auditor you had distinct audit jobs that you managed. Obviously, you managed the people working on the job too, but maybe it's because personally I think of managing and I think of manipulating to some extent, and I don't like to think that I do that. I like to think that I lead my folks, and they want to follow as opposed to forcing a situation. And it's worked very well. I mean, over the years as I've changed jobs and changed agencies. Often I have gone with somebody who has moved to a different agency, and my folks have come with me. So hopefully I'm doing something right if they want to come and not escape me.

Mr. Morales: Well, we'll certainly know after your employees hear this show. How does USAID prepare its PAR report? We will ask USAID CFO Lisa Fiely to share with us when the conversation about management continues on The Business of Government Hour.

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with USAID Chief Financial Officer Lisa Fiely. Also joining us in our conversation is Lori Feller.

Ms. Fiely: Sure. We have a separate report from Department Of State. Our information is not in their PAR report, but we try to very closely mirror it cosmetically. We try to mirror very closely. Also we are looking off of the same strategic plan; there is a joint USAID-State Strategic Plan right now, which we are using in developing the performance matrices that are reported in our PAR.

Primarily, the CFO is giving a lot of input and all of the financial input to the Performance and Accountability Report, which I'm very proud of ours. In fact, it was just this week that we have run out of them. They are hot item and so they took mine, because they had to give it to someone, but it has a lot of information. I mean, anybody who doesn't know anything about the Agency could read it as a textbook and get a real flavor for the types of programs that we have, our financial results, and the performance matrix that are in there.

I'm very proud of it. I think it's an excellent report, and we've gotten very, very high grades on it from the groups that look at it, the CEAR program that ranks Performance and Accountability Reports and the Mercatus folks that look at Performance and Accountability Reports. So we put it together. It's a difficult process, it's very tedious. There's a lot, a lot of data in there, but there is also a lot of very easy to read information just to give you a thought for what our agency does.

And our theme in 2005 was sort of the silent tsunami. I mean, we deal all the time in the forefront of situations like the earthquake in Pakistan, or we were right there leading the efforts when the tsunami hit. But, you know, when I say silent tsunami, I mean, there is constantly poverty and instability and illiteracy, sort of the silent programs that were there for all the time that doesn't get that publicity that you get when you have a disaster type of situation. And that's really the backbone of our agency. It's not just reacting. It's constantly trying to change the environment where people are living in and improve it.

Mr. Morales: Lisa, we understand that USAID has installed a new financial system called Phoenix, and that this installation has occurred in many of your overseas locations last year. Certainly, installing a financial system in one location is challenging enough, but to do that across many locations, especially some in developing countries, must be a real challenge. Can you describe that to us?

Ms. Fiely: Well, you have to always be ready for the unknown. Lori knows that, having worked with us on this particular project, but you just don't know what you are going to encounter when you go overseas. One of the main warnings that we have gotten and one of our things that we are watching out for is the bandwidth and the communications issues that we have been warned about overseas. We have thus far -- you know, we obviously started with the easier ones, so that we could have a learning process, I mean, we started with Washington back in 2000, and then we moved to Latin America, we moved to Europe and Eurasia, Asia and Near East, and our final roll out will be in Africa.

This year we'll be rolling out in March and May, and that's where we fear that we may have some issues with the connectivity. Thus far we have been very fortunate that that has worked out fine, but that's sort of the technological issue that we have encountered. There are also a lot of people issues, cultural issues and customs that we encounter. I mean we go to rollout in a certain country or continent, if you will, and we find out that we're smack in the middle of Ramadan, or some other religious holiday, certain customs that we've had to bump up against where we have folks that we want to travel to be trained. In certain nationalities you cannot have the wives travel without the husbands, so we've had to deal with that.

Just a myriad of things that you could say can go wrong. We have learned every time we have rolled out in a particular location. We have our lessons learned after we complete that rollout, we look at what went right, what went wrong, what can we do to fix what may have gone wrong, and it has worked out extremely well. I mean, I sort of try to tout this as one of the more successful systems implementation in the federal government because we've had a myriad of things that we've had to deal with, and we've dealt with them and moved on.

Mr. Morales: There must be some great stories that come out of this implementation. Is there one in particular that you care to share with us, something sort of completely unexpected, completely unknown?

Ms. Fiely: Well, you know they're not really unknown because once you get there you sort of realize, you know, you should have known about this and where you are at, but I mean we've gone into locations. We had someone in Bolivia when there was a revolt in Bolivia, and this person was one of our contractors, actually, was stuck at the airport, and couldn't get into the office, couldn't get out of Bolivia. You know, we've had situations where we've arrived to do an implementation and found out it was a holiday. That wasn't the worst thing, I mean, I had a nice day of touring but, you know, things like that that after the first couple of rollouts we learned fast, and we don't find that situation occurring. Obviously, the revolt, you can't do anything about that.

Mr. Morales: Right.

Ms. Fiely: That's not something you can anticipate, but most of the cultural things that can be anticipated, now, the folks are very good about doing that.

Ms. Feller: Lisa, I want to build on the lessons learned aspect that you've mentioned a couple of times. What are some of the things that we've learned that you'd like to share with other leaders who maybe designing or implementing a new financial system?

Ms. Fiely: Well, you know, I guess the lessons learned is always be ready to react to things, and I guess I would say also, never give up. I mean, we were given some alternatives that we might want to employ, if you will, rather than go out and try to do an online real time situation in countries where the connectivity was low. But, you know, testing and doing things prior to going out there and going live, you cannot do enough testing and simulations, and I guess that's what I would recommend for somebody to know. And pick a system that you're capable of implementing. I mean I've seen situations where agencies have taken on a system that with the resources they have there was no way they were ever going to be able to implement such a complicated system. At least not without scaling back some of the utilities of that system, and you just don't want to go there.

Senior leadership, senior buy-in and support is key; you've got to have someone out there giving you the rah-rahs and getting the folks from the very top committed to the project, because that's the only way you're going to get people to work on the project. I mean, let's face it, everybody has a real job. I mean, when you implement a system, usually it's an extra, additional thing that people are being asked to do.

Mr. Morales: It's a collateral duty.

Ms. Fiely: Yeah, and if you don't have someone championing that system from the very top, you're just not going to have the buy-in. Now, we were fortunate that, you know, Administrator Natsios was very, very supportive of this project. I mean, he was very supportive of all of the management projects, but even in his farewell speech, I mean, this was what he touted as one of his big successes, to be able to get this agency in a position where we are recognized as in the forefront of financial management.

And that made all of us feel very good, and it was a lot of his commitment that made all of that possible.

Ms. Feller: Lisa, you also touched on being ready for the unknown and changing things. In the middle of the rollout, I understand that the hardware for the software was recently co-located with the financial system for the Department of State. Has this co-location impacted operation? Has it changed your rollout schedule? Has it really impacted what's going on?

Ms. Fiely: Actually, the co-location by and large has not impacted our operation. I mean, obviously we have a change in our systems architecture. We're located now down in Charleston, South Carolina along with the State Department and our COOP site now with the State COOP site. This was something that was brought to the attention of the Agency by OMB to try to get some economies within the federal government, and that's a good thing. We have already seen some savings based on this merging, if you will, of the systems infrastructure.

And, you know, I think the fact that it hasn't impacted operations and folks aren't noticing it is a good thing. I mean, a switch like that should be noticed by people. It happened one weekend and people signed on Monday, and people were none the wiser that it was located in a different place. All of our equipment is down in Charleston. We have a couple of folks in Charleston ourselves, but for the most part it's run on the State platform and it's working out very well.

Mr. Morales: Lisa, I would imagine that a system like this has changed financial reporting at USAID. Could you share some of the highlights of this improved reporting with our listeners, and how these changes have affected decision-making at the program level?

Ms. Fiely: I've got to be honest with you, reporting has been our biggest disappointment from this systems implementation. We're not unique in the federal government. I was implementing a system over at IRS before I left there, and it went live shortly after I left. You know, we're now being mandated to go with commercial off-the-shelf products. They do not want government agencies developing their own systems, and that's a good thing, but it also sort of takes the menu of selection process and makes it much smaller.

So you have a few of the major systems that you select from, there are five or seven, something like that, and I don't believe that the software packages have really stepped up to the plate as far as delivery in the reports line. I mean, most of these off-the-shelf products come with a reporting vehicle that is satisfactory for central agency reporting. It has the bare minimum of what an agency needs to function in the federal government, but it doesn't have those extra reports for it to manage.

We had a couple of different ways we went about this. We had the reports that came out of our system. Then we went to Crystal Reports and then we went to Crystal Ad Hocs so people could have more say in what they were putting on to their reports. That failed miserable; that just did not work for us at all. And then we were down at State in Charleston, you know, at one of our preliminary meetings to moving our platform down there, and they gave us a demo of what they called R-Viewer, and that essentially was sort of a reporting system that they had developed that would actually allow them to take the data, upload it every night to the Web so that their offices, their embassies could then download the information the following day.

And they could slice it and dice it the way they wanted, which is pretty much exactly what our folks wanted, a sort of data warehouse type of situation, a mini data warehouse with their own information. Once they downloaded it, they can slice it and dice it, and we borrowed that. We're now calling our version of it Aid-viewer, and it has some of its own reports that we have blessed and we have developed from a central perspective. But the missions are also, when they have ad hoc increase for information at a mission level, they have their data there, they are able to work their data themselves and put this in one column, that in another column, and other what-if scenarios they can do, and they are very pleased with it.

But that reporting was probably what we get the most complaints about, and it was our biggest headache. So you asked me earlier what I would recommend to someone implementing a system. Don't go into it thinking that the system is going to have everything you need, you know, prepare from the get-go that you're going to have to do something about the reporting aspects of it, because I've talked to my counterparts in other government agencies, and our problem with reporting is not unique.

Mr. Morales: That's good advice. How is the Agency handling accelerated financial reporting this year? We will ask USAID CFO Lisa Fiely to share with us when the conversation about management continues on The Business of Government Hour.

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales and this morning's conversation is with USAID CFO Lisa Fiely. Also joining us in our conversation is Lori Feller.

Ms. Fiely: Well, we've actually steadily improved each year, since they instituted the new, much earlier reporting deadlines. I mean, it used to be in the spring following the year, you could get some statements out and that was sufficient. Now, we are looking at a 45-day time period, which is hard to meet. It's very difficult to meet, but in 2001 our IG expressed qualified opinions on three of our five statements. And in 2002, we had a qualified opinion on four of our five statements. So we are steadily improving

In 2003, we managed to get our first clean opinion on all of our statements, and at the same time we hit the 45 days, and that was one year before it was going to become a requirement. We were actually the second agency in the entire federal government. I have a group that works solely on publishing our performance and accountability report and they were just thrilled. And so was I, you know, quite frankly. We've sustained our clean opinions. We've had them for three years in a row now, which is just really something to be proud of.

In the Agency, for many, many years, just getting a statement together was big, but to get it together in that time period and to be able get an unqualified audit opinion, that's a big deal. And so we are really proud. We actually went about this by having an agreement, a memorandum of understanding with our administrator signing it, myself signing it and our inspector general signing it, which detailed each of the audit steps and each of the due dates that things would be done.

I mean, if they were going to give us a legal rep letter, they were going to give it to us on this date. We had such and such an amount of time to review it. So everybody could anticipate what was going to be asked for and when, and you sort of planned your agenda around that because, you know, getting these statements out and getting the opinion on them was first and foremost. I mean, we had a lot of catching up on routine functions when this was over, because it was a real task for everyone.

Mr. Morales: So it sounds like clarity of processing and clarity of role are real key to successes here?

Ms. Fiely: Exactly, exactly, it's like every night I kind of have a list of things to do tomorrow. And I am adding on to them until I fall asleep. You know, and that's what this was like. I mean, anytime the auditors had to change something for any reason or if we were asking for a couple more days for something, that got changed, that got agreed to and then it was sort of etched in stone after that. And it worked out very well for us.

Mr. Morales: Great. How is USAID implementing the Sarbanes Oxley regulations or the OMB Circular A-123, and what steps have you taken to date?

Ms. Fiely: Well, we're implementing it with difficulty, like every other federal agency. I mean, this was sort of thrown at us. Some of the agencies have money to contract out and get contractor assistance. We have very little, so we're doing a lot of the mechanics of implementing the changes ourselves, with in-house staff, which is tough. The original Circular A-123 was a bear to implement, to do your risk assessments and your reviews and to document, I mean, it was a horrendous paper work exercise.

Actually, if you had done that when the Act was originally passed, and you had continued that process, you wouldn't be in bad shape. But most agencies didn't continue it with the vigor that was intended. And that's why this is sort of a new thing, the Appendix A requirements under A-123. But we actually have our plan in place. We have our senior team in place, the senior assessment team, which is required.

And OMB has already started ranking agencies according to their color code ranking, and we got a yellow on this. And we got the yellow because everything over, I think, about 10 things that they look at. Everything was green, with the exception of our dedication of adequate resources. And we just don't have the adequate resources which brought us down to yellow, because we are rated red there. But we are working with other Government agencies, trying to share as much information as we can, and you know, looking into just how much of it we can get done in-house.

Actually, part of our assessment team that we have, looking at this, we have an overseas group that are implementing it. And we have a real strong cadre of folks overseas. Our Foreign Service nationals are just great, and it's actually one of our Foreign Service nationals from Egypt who is leading the effort. I mean, when I go out I am always, and maybe I shouldn't be anymore, but I am always so surprised at the dedication and the expertise these people have, it's just amazing.

They are leading an effort to document our procedures, to conduct some of the reviews. We are also trying to take advantage of as many internal reviews that are done for other reasons. And trying to get credit for those reviews, which is something that you can do. And we're working closely with our auditors. So we're just doing well as far as implementing this, I mean, obviously this is a good thing. It's a lot of work. But I think everybody will agree when all is said and done, and we have this implemented and the structure in place, it shouldn't be a lot of work, but it's just getting the infrastructure in place.

Ms. Feller: Lisa, improper payments is another hot topic in financial management. What steps have you taken to ensure that USAID has significantly reduced your improper payments in accordance with the federal guidelines? What advice do you have for your federal colleagues?

Ms. Fiely: Well, luckily Lori, improper payments really aren't a hot topic for us, because we don't have a big problem with improper payments. We actually fell under the threshold and don't have to do a lot of the reporting that some of the larger agencies or some of the domestic assistance agencies that have had some problems do. We had $13 billion in grants and contracts and of that, we only had about $6 billion, where we had questioned costs, and then we recovered $4.5 billion of that.

So we're actually sitting very, very well. And have not had to dedicate a lot to get our improper payments back, if you will. So, as I could have it, that's not really high on our radar screen because we've got a good payments unit and a good process in place for reviewing contracts and grants and then recouping question costs.

Mr. Morales: Lisa, let's talk for a moment about the President's Management Agenda. In the last OMB scorecard, USAID received a green rating in Financial Performance Progress. To what activities do you attribute the success and what steps are planned to bring USAID to green in financial management overall?

Ms. Fiely: Actually, we plan on going directly from where we are to green, with no stops on yellow. And we are hoping that once we complete our systems implementation, our Phoenix Systems implementation, we'll be there. One of the issues, and our major issue for not being there now, is the fact that the current system that we operate under, which we're really only operating in one of our bureaus now, was not compliant with laws and regs, specifically FFMIA. We weren't recording transactions according to the standard general ledger.

So this being an approved package that we're implementing, we will have that done once we complete our roll out to Africa, in our Phase 1 and in our Phase 2. That brings you really to yellow, if you really read the requirements. What you really need to show to get to green is that not only are you reporting good, accurate financial information but there's somebody using it. And that's where in, we have our angst about our reporting situation, and that's why we have dedicated so many resources to getting these reports right, and getting these reports to contain the data that people want and need to manage the organization.

We believe that we're getting there now, and once we roll out in Africa, if we continue on the same successful path that we're having now with the reports, we are hoping to jump from red to green.

Mr. Morales: Lisa, you mentioned a few times, the immigration points with the Department of State, you talked a little bit about the center down in Charleston. Can you talk about the steps being taken by your office to coordinate with the Department of State?

Ms. Fiely: Actually, we have what we call the JFMS, it's the Joint Financial Management Systems committee. We have that at a working level and we also have an executive body that oversees it, of which I am a member of the executive body, and folks on my staff are at the working level. But that group actually worked very tediously in getting us moved down to Charleston. But it continues as a governing body, to make sure that we are in sync as far as upgrades, because from this point on, we will have to deal with coordinating with the State, if we want to do an upgrade. We just recently did an upgrade of our software.

Working by committee like that, both at the Washington level and in Charleston, having our folks down housed permanently in Charleston in their offices there. It's working out very well, but I think this will be a body that continues for the unforeseeable future. I mean, we have our Joint Management Committee which has stayed in USAID. And the JFMS actually reports up to one of the Joint Management Committee working groups which I co-chair, the financial processes, the Management Processes Work Group that overlooks that.

There are a lot of people watching. I mean, we want to take advantage as much as we can, of the economies of having both platforms together, you know, both systems together on one platform. But at the same time, there is a lot to be looked at. I mean, you have two different financial systems, two different sets of financial statements that have to be prepared, so you have to continue to have a body looking at that from all angles.

Mr. Morales: What does the future hold for USAID, we will ask Chief Financial Officer, Lisa Fiely, to discuss this with us when the conversation about management continues on The Business of Government Hour.

Mr. Morales: Welcome back to The Business of Government Hour. I am your host, Albert Morales, and this morning's conversation is with Lisa Fiely, Chief Financial Officer at USAID. Also joining us in our conversation is Lori Feller.

Ms. Fiely: Well, it's not actually just the USAID. I believe all agencies are facing some critical junctures, as far as having their budgets reduced. We at USAID have a separate budget for our operating expenses. So it's particularly problematic because although we have our programs increasing in size and often times that's not an anticipated thing. I mean, we have a situation in Iraq, we have situations in Afghanistan, the Pakistan earthquake, things that you can't anticipate but obviously your program funds start going through the roof, and you don't have the commensurate operating monies to support this program.

So, it's very, very problematic. I mean, we are doing a lot of things to try to cope with it. We are continually in the process of trying to improve our program operations to reduce cost, to look for new ways to leverage technology. And over a five-year period we hope to at some point to start graduating countries so that, once countries are in a situation where they are graduated, then you don't have to continue the programs without the commensurate operating monies to support it. But, a lot of what we're looking towards now, is sort of a transformational development process, where we're trying to get countries to move on to help themselves.

Mr. Morales: Aside from the funding, what are some of the other global changes that will impact the strategy of USAID in the coming years?

Ms. Fiely: Well, sort of an unanticipated impacts, our humanitarian and health care needs, the avian flu for instance. I mean, we are gearing up for that and there are a lot of unknowns around that. The HIV/AIDS is a big program. Some of the, as I said, unknowns, I mean, you don't know what kind of natural disaster can occur, but you always have to be ready to jump in there. The transformational development that we are moving more towards and the Millennium Challenge, is actually focused towards that as well are taking countries that have proven themselves against various criteria. And we are trying to put our funding towards those countries, to actually see the effects of change and to be able to have countries take it on themselves, help themselves, if you will.

Worldwide security is another thing that's impacting our delivery systems. The terrorism and wars, I mean, there are lot of stuff that cannot be anticipated but in the coming years will obviously affect our strategy. And our strategy has to be flexible. We have to be able to accommodate unknowns and unanticipated events.

Ms. Feller: Lisa, we talked with many of our guests about the impact of the pending wave of government retirement. Is this an issue for USAID and how is USAID planning to address this concern?

Ms. Fiely: Well, Lori, this is a huge issue for the federal government. You are hitting it in every agency and we have actually dealt with it, by employing a lot of personal service contractors, which we send out to our missions. We employ our Foreign Service officers who have retired. I don't necessarily think this is the answer, because eventually people will retire forever and you can't always count on that. I think where the federal government has maybe made a mistake is, there is a void in there.

I mean, there was a time when you had a lot of young people coming into the federal government, where you had a very secure retirement system. That changed from the civil service to a different type of system that relied on social security. And I think there was a void that was actually occurred during that time, and there was a point in time where you didn't get the younger folks coming into the federal government. And that is actually coming to pass right now.

I mean you're having a lot of folks that are going to be retiring in the next three to five years and you don't have a commensurate numbers of folks that came in, that can take these places. I mean, obviously we are outsourcing a lot of the functions, functions that can be outsourced. But there are a lot of key functions that the federal government can't outsource and shouldn't outsource. And in that situation, you have to have people on-board to run the programs.

We bring in new employees every year, we have classes. But with the budget as it is, we may have to actually cut one of our classes this year. So as much as we are trying to deal with this, I think it's a broader issue that needs to be dealt with on the federal government level, not as an agency-by-agency issue.

Mr. Morales: Lisa, it dawned on me that we spent a fair amount of time talking about the systems within USAID and the Phoenix project. How do you collaborate with the CIO shop within USAID? How will this collaboration work in the future?

Ms. Fiely: Actually, we have a very good working relationship between the CFO's office and the CIO office. And it's actually a very close relationship and that could be as a result of the fact that we're implementing a financial system now. And it's a different paradigm than you may see at some other agencies. Often times you may have a CIO shop implementing any type of IT system. There are sort of two schools of thought on that. Some would say that the customer, the CFO, if it's a financial system, should be the lead. Some would say that the CIO with the technical expertise should be the lead and the CFO should be a customer.

The paradigm that we selected at USAID of having the Chief Financial Officer run the project with the support of the CIO has worked immensely. Well, you know, we have very good co-operation, we have folks from the IT Organization working on the project. We have contractors; we have our own CFO folks, so I see partnering. I mean, there are other systems that are being implemented at USAID right now. We have new procurement systems, we have data warehouse that we are -- we are actually implementing. But what we are trying to do in our case is, take the support of the CIO's office and work as a team. And the paradigm has worked very well for us. It's not to say that every project should be implemented in a fashion of having the customer do it, but it's worked very well for us.

Mr. Morales: Excellent. Lisa, you've had a long successful career spanning several organizations and roles. What advise could you give a person that's interested in a career in public service?

Ms. Fiely: Well, you know, I would say, "Come on." I mean, it has been a wonderful career for me. I mean, I sort of fell into it. My intention was never to necessarily work for the federal government, but as one thing happened, I ended up here. I ended up staying here, and I don't regret it for a minute. It's a very rewarding career, and I think you'll find that you're able to control things and be responsible for areas that possibly, in private industry at certain levels, you would never believe that you could do. It's challenging, it's tough now. I mean, we're facing lots of shortfalls and budget crunch and folks not coming to backfill, but the challenge makes it all the more fun.

Mr. Morales: That's great. We reached the end of our time, that will have to be your last question. First, I want you to thank you for fitting us into your busy schedule today. Second one, I would like to thank you for your dedicated service to the public at USAID, IRS, EPA and all the other organizations that you worked at.

Ms. Fiely: Well, you know, thank you for having me. I've really enjoyed this, and you know, thank you. I mean, it's the support of many, many different contractors that help us deliver what we're delivering to the American people and we appreciate that and we rely on that. So we don't just do it alone. And anyone who is even remotely interested in coming on for a career in the federal government, I would recommend USAID. It's been a great place to work; we have a website, www.usaid.gov. You can learn a lot about what we do and where we're located. Take a look.

Mr. Morales: Great. Thank you.

Wednesday, January 18, 2006

Arlington, Virginia  

Mr. Morales: Good Morning, and welcome to The Business of Government Hour. I am Albert Morales, your host and managing partner of The IBM Center for The Business of Government. We created the center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the center by visiting us on the web at www.businessofgovernment.org. The Business of Government Radio Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest this morning is David Combs, Chief Information Officer at the Department of Agriculture. Good Morning, Dave.

Mr. Combs: Good Morning, Al.

Mr. Morales: And joining us in our conversation, also from IBM, is Mike Wasson. Good Morning, Mike.

Mr. Combs: Good Morning, Mike.

Mr. Morales: Dave, can you begin by telling us about the history and mission of the Department of Agriculture?

Mr. Combs: Sure. In 1862 President Abraham Lincoln founded the U.S. Department of Agriculture. He called it "The People's Department." In Lincoln's days 58 per cent of the people were farmers. They needed good seeds and helpful information to grow their crops. Well, today, USDA continues Abraham Lincoln's legacy by helping America's farmers and ranchers. But today we also do much more. We lead the federal anti-hunger effort with programs like food stamps, school lunch, school breakfast and the Women, Infants, and Children's, or WIC, program. We are the steward of our nation's 192 million acres of national forests and range lands. We are the country's largest conservation agency. We encourage voluntary efforts to protect soil, water, and wildlife on the 70 percent of America's lands that are in private hands. We bring housing, modern telecommunications, and safe drinking water to rural America. We are responsible for the safety of meat, poultry, and egg products. We lead research in everything from human nutrition to new crop technologies that allow us to grow more food and fiber per acre using less water and pesticides. We help ensure open markets for U.S. agricultural products. We provide food aid to needy people overseas. The U.S. Department of Agriculture touches virtually every aspect of rural life in America.

Mr. Morales: Dave, that's a very, very broad mission. Can you tell us about your office specifically, the Office of the Chief Information Officer? How many people work there and what kind of skill sets do you have?

Mr. Combs: The USDA is a very diverse organization as you just saw from our mission. It's comprised of 29 agency and staff offices. And my office, the Office of the Chief Information Officer, is responsible for managing the IT assets and the direction of IT investments needed to improve the quality, timeliness, and cost effectiveness of service delivery by the many agencies of the department. My organization has more than 1100 information technology professionals. And as CIO, I am responsible for nearly $2 billion a year that is spent on information technology to support the entire Department of Agriculture. Our information professionals come from very diverse backgrounds: project management, finance, programming and analysis, policy, telecommunications, and security. But most importantly, we need folks that know how to leverage technology to deliver services. Several of my senior managers do not have technical backgrounds. But they do possess the leadership and customer skills that will get us where we want to go and need to be.

Mr. Morales: I understand that you've been in the Office of the CIO at USDA for some time but you've recently been appointed to the CIO position. Congratulations. Can you tell us a little more specifically about the responsibilities as CIO, and to the extent that you have a typical day, what your typical day looks like?

Mr. Combs: Well, thank you very much. This has been a wonderful opportunity for me. But I want you and the audience to understand upfront that this is not about me. It's about getting results and establishing the people processes and tools that will support the mission of USDA long after my tour of service is over. And under my watch the OCIO has taken an integrated approach to ensure that all technology disciplines are woven together. These disciplines include capital planning, cyber security, e-government, telecommunications, and enterprise architecture. This integrated approach is intended to create a strategy that provides customers with access to the information that they need, protects the safety of USDA information resources, and strengthens the management and use of USDA information technology resources.

This past fall, I took my executive team on a retreat, to take a fresh look at what we do and where we're going. We took a look at the foundational legislation that established this office. And we found that according to the Clinger-Cohen Act, we needed to do several things. We needed to insert ourselves into the USDA agency, CIO selection and evaluation process which we now have done. We've developed performance standards to be used as a critical element in the evaluation of every agency's CIO's performance. We have also established performance standards for agency project managers. And speaking of project management, USDA is leading the federal government with its project management training program. So far we have graduated over 500 students. 200 of these students have received their Project Management Professional or PMP certification. This professional training is critical for USDA as the demand for skilled project managers increases. The President's management agenda is without question my top priority. As the CIO, I am considered the owner of the expanding electronic government initiative. And in this initiative we're evaluated in seven major areas: Enterprise architecture, acceptable business cases, earned value management, IT system certification and accreditation, implementing electronic government lines of business and smart buy initiatives, privacy impact assessments, and systems of records.

And USDA continues to make tremendous progress in moving this initiative forward. The scoring method is simple: Green, yellow, red. The President made it clear to me in a recent meeting that he does not like red or yellow. And neither do I. We're scored in two categories: Status and progress. And I am proud to report that USDA continues to be green for progress. Right now we're yellow in status but we're closer than ever to green. We're doing well and our goal is to be green by the end of June this year. This is truly a team effort involving a very talented and dedicated team of USDA agency CIOs and IT professionals that I'm proud to work with every day. We're also fortunate to have at USDA the full support of Secretary Johanns and Deputy Secretary Chuck Connor.

Mr. Morales: Dave, you have held several high level positions in federal agencies in the past. Which has best prepared you for your current role?

Mr. Combs: Well, we're all products of our past experiences, and my 30 plus years of experience in the private sector, in IT and telecommunications, and as an entrepreneur, were a great foundation. Serving for a year as acting deputy CIO here at USDA, and working with my good friend and colleague Scott Charbo was also great preparation.

Mr. Morales: Dave, you referenced a little bit of your past. You spent 23 years at AT&T prior to your service in government. And then you also spent some time in your own music business. This is sort of a fascinating background. I'm curious what led you to government and how has your leadership style changed over the years.

Mr. Combs: Well, I came to government primarily to -- first of all, to be in the same town with my wife. She, as you know, works in the federal government as well, as controller at OMB. And, rather than me living in Winston-Salem and her up here I decided to rearrange things in North Carolina and come up here and see what I could do productively as well. So that's how I ended up here. But, in asking about my leadership style, obviously, you know, years of experience certainly have been helpful in my leadership style, and I've come to appreciate the importance of selecting and depending upon an executive management team that will carry out the mission of my organization without being micromanaged. I've learned to delegate more, and always though with the motto of President Reagan: Trust but verify. I have surrounded myself with seasoned professionals and they know what is expected of them. I have a great team.

Mr. Morales: Dave, we talked a little bit prior to the show about your music business. I was hoping you just share a little bit about that business with us.

Mr. Combs: Well, it was basically one of those things, it was a hobby that turned into a career and now back into a hobby for the time being anyway. I come from a musical family and happened to be fortunate to have written a song called "Rachel's song" which kind of took off. Everyone that heard it on the radio and wherever they heard it just fell in love with it, and it's now been played millions of times around the world. And that one song launched me into a career of writing music and I have written over 150 songs and now have 15 albums of music. But that was, it's basically a hobby that kind of took on a life of its own and I had to catch up with it and enjoyed 10 years of doing nothing but my music as a support for my wife and myself.

Mr. Morales: That's fantastic. What is the information technology service? We will ask USDA CIO Dave Combs to share with us when the conversation about management continues on The Business of Government Hour.

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales and this morning's conversation is with Department of Agriculture Chief Information Officer David Combs. Also joining us in our conversation is Mike Wasson. Dave, what is the Information Technology Service, otherwise known as ITS? Who are its main customers and how do you ensure that your customers are satisfied with the services provided by ITS?

Mr. Combs: Well, the information technology services, or ITS as we call it for short, was born into OCIO on November 28, 2004. On that date it became the in-house provider of information technology service and support for over 40,000 USDA service center agency employees. ITS supports all their networked computers, IT equipment, and the shared infrastructure that their agency networks and applications run on. The shared infrastructure is also known as the common computing environment or CCE for short. Our customers are the three service center agencies and their partner organizations. They are the Farm Service Agency, or FSA; the Natural Resources Conservation Service, or NRCS; and Rural Development, or RD. The Farm Service Agency, FSA, administers farm commodity, crop insurance, credit, environmental, conservation, and emergency assistance programs for farmers and ranchers. The Natural Resource Conservation Service, NRCS, is the primary federal agency that works with private landowners to help them conserve, maintain, and improve their natural resources. And Rural Development, RD, creates partnerships with rural communities to fund projects that bring housing, community facilities, utilities, and other services to increase rural Americans' economic opportunities and improve their quality of life. The service center agencies use many sophisticated applications to provide over $55 billion in vital programs to over 6 million farmers and thousands of rural communities across the country. These programs include loans, grants, technical assistance, and basic information.

The goal of ITS is to keep the computing environment operating flawlessly so customers at the service center agencies, offices throughout the country, almost don't even know that it's there. Our goal is for their computers, applications, networks, and communications technologies to do what they're supposed to do and let the agency spend their time supporting the efforts of farmers, property owners, and rural communities.

ITS was formed by combining the service center agency's highly skilled IT specialists and support teams with a core team from OCIO into one organization of about 800 people. These folks are distributed in agency offices all across the country. I believe that this convergent plan is unique in the U.S. government. ITS is adapting best industry practices to organize IT resources and personnel efficiently and deploying them where and when they are needed. The point of creating ITS was to have one unified organization dedicated to supporting both the shared and the diverse IT requirements of the service center agencies and their partner organizations. On the one hand the agencies were already sharing and investing in a common computing environment with its infrastructure and network systems and associated hardware, software, and training. But on the other hand, each agency had to manage its own distinct computer system, software, and IT support teams. By converging both the technology resources and the skilled IT staff into one organization, ITS efficiently focuses on a broad range of technology, investment, and diverse support planning and management services spread equitably back to the agencies replacing what might be considered triplicate efforts. ITS has formed a customer-service support system based upon a central help desk that can flexibly and efficiently dispatch technical support specialists who are co-located in teams at many agency offices.

Mr. Morales: What kind of telecommunications services are provided by your office? And how does centralization impact the costs of services, and what other impacts does centralization drive?

Mr. Combs: During the fourth quarter of fiscal year 2005, we completed the launch of our new wide area network telecommunications infrastructure known as the "Universal Telecommunications Network" or UTN. It's a new corporate data network backbone for providing our customers with more secure, robust, and flexible telecommunications capabilities, and enhanced network support services. The UTN project team worked collaborative with USDA agencies and offices to transform the old USDA telecommunications environment into one that is state-of-the-art and well better to meet the delivery challenges of today and tomorrow.

Telecommunications voice and data services are increasingly critical to successful delivery of USDA programs and services. Since 1998, USDA's Internet access capability has increased 20-fold. The ability to interconnect systems and entire local area networks via the web has created increased demand for telecommunications capacity to carry information in multimedia formats to increasingly sophisticated USDA customers. And greater reliance on the Internet to conduct business and deliver services is also generating requirements for improved access, speed, reliability, robustness, security, and related standards.

In recent trends towards globalization, advances in secure communications, and growing customer expectations that electronic access will be made more widely available by the federal government within a five-year time span, have prompted the department to assess its current state of infrastructure support and explore options for accommodating these future trends as we move further into this century. The Universal Telecommunications Network Project is meeting those challenges.

Mr. Morales: It certainly sounds like a lot of bandwidth that's going to be required.

Mr. Combs: Yes, and very flexible.

Mr. Morales: We understand that your office is taking steps to innovate in the area of asset management. What are the goals of this effort, and what's its current status? And how does an organization called the IT Management Advisory Committee support this effort?

Mr. Combs: USDA has a vast number of IT assets, as you can imagine, and they are currently managed de-centrally, through disparate approaches. These dissimilar approaches present a challenge for managing USDA's IT infrastructure. USDA can gain significant efficiencies and productivity increases by establishing a uniform IT asset-management program that provides the information necessary to manage these IT assets from an enterprise perspective. We are in the early stages of this effort. Our goal is to implement an IT asset-management program that supports the establishment of standards-based technology architecture for USDA.

The IT Asset-Management Program will implement an automated system for managing USDA's IT assets from both an agency and enterprise perspective. Having a good inventory of USDA's IT assets will better enable enterprise approaches for procuring commonly used products. The Information Technology Management Advisory Council, or ITMAC as we call it, is a group of professionals representing many agencies throughout USDA. The ITMAC advises OCIO on best practices and approaches to enterprise issues. And one of the key roles of the ITMAC in this effort is to identify key issues and concerns and management decision points to ensure successful completion of the IT asset management initiative.

Mr. Morales: Dave, we understand that many of the forms at the government have now gone electronic. What role does your office play in supporting the forms? What are the benefits of the electronic processes, and what lessons could you share with other government leaders about your experience?

Mr. Combs: Well, that's correct. Over 500 of the department's most commonly used forms are available in an electronic format to provide citizens and businesses with an alternative to traditional paper-based processes. My office plays the lead role in coordinating this effort in several ways. First, we manage the paperwork and reporting burden that USDA imposes on citizens and businesses. To participate in our programs under the Paperwork Reduction Act, using online forms may reduce burden by permitting customers to compile information when it's most convenient for them, and to reuse information from prior submissions of the same or similar information. Electronic forms may also reduce travel time associated with completing the forms at a USDA office.

Further, USDA's participation in the President's interdepartmental E-Government initiatives has provided integrated access to forms required by multiple agencies within specific business areas. For example, businesses may locate forms required to apply for permits, and report compliance in a single location at http://business.usa.gov, regardless of which government agency requires them. Grant applications will find both the common and unique forms required to apply for grants at www.grants.gov. And USDA's export-related assistance and market information has been consolidated with similar information from our partners in the federal and private sector in one location at www.export.gov. There are many other examples.

The demand for electronic interaction in government is continuing to grow at a steady pace. But it isn't for everyone served by USDA. Government is striving to consolidate the presentation of its information and services in a seamless online manner similar to what many state governments have already accomplished. Forms will ultimately be replaced in this venue by fully electronic transaction tools that further simplify interaction with government by reusing information from prior transactions. However, many of the department's program beneficiaries prefer to visit a USDA office, or they do not have easy access to computers or sufficient bandwidth to make using electronic forms a viable alternative.

USDA will continue to offer the more traditional interaction methods for this group of customers. And many of our forms, though, are now electronic. Not all are electronic, but the amount of information we generate has increased exponentially over the past few years. The expectation is that over the coming few years we will generate even more information. There will be commensurate expansion of records, and much of this will be electronic. And my office plays a lead role in coordinating this effort across the department.

Mr. Morales: How do you ensure that customers are involved in technical decision-making, and what role does the Capital Planning Investment and Control play in this effort?

Mr. Combs: In the past, agencies and IT personnel across the department were not used to collaborating on IT. Although the Clinger-Cohen Act required greater coordination of USDA's IT budget at the department level, agencies still planned many investments and activities independently. They often did not collaborate even when other agencies were planning similar investments, usually for the simple reason they did not communicate with other agency IT staffs, and did not know that collaboration opportunities even existed.

Through activities such as what we call CPIC, USDA has been working to increase coordination across agency and department IT activities. This included developing a shared vision and purpose for IT collaboration, as well as developing the enterprise-wide governance structures to integrate coordination into all aspects of the USDA's IT activities. At USDA we have a very active internal CIO council that we call IT Leadership. This council is made up of all of the agencies' CIOs and IT leaders. We meet twice a month with the purpose of communicating on all IT issues, both technical and non-technical.

The foundation for IT portfolio management at USDA is the Capital Planning Investment Control or CPIC process. CPIC is a structured integrated approach to managing IT investments. It ensures that all IT investments align with the USDA mission, and support business needs while minimizing risks and maximizing returns throughout the investment's life cycle. CPIC relies on a systematic pre-selection, selection, control, and ongoing evaluation process to ensure each investment's objectives support the business and mission needs of the department.

Mr. Morales: Dave, how do you ensure your customers' data is secure? And perhaps you can share with us a little bit of the experiences during the recent hurricane disasters.

Mr. Combs: Well, securing USDA's IT assets is of paramount importance to the department and an integral part of USDA's enterprise architecture and IT transformation activities. Cyber security considerations are included at every stage of USDA's CPIC process. All proposed investments are required to develop robust and detailed security plans before they are even funded. Systems in the development require creation of adequate security infrastructure and the obtainment of a certification and accreditation, or what we call CNA, for continued funding. Annual security reviews are also required for major investments to receive continued funding.

And the recent experience with the hurricanes and the Katrina certainly emphasize the need to secure the data that we have. For example, at our National Finance Center in New Orleans, to make sure that that was securely transported to our backup site in Philadelphia, brought up, and which was done within a two-week period. And they actually just didn't miss a beat and actually brought on two new customers at the same time. So security and protection of our customers' data is of paramount importance to us.

Mr. Morales: It's a great story. How is the department ensuring data quality? We will ask USDA CIO David Combs to explain this to us when the conversation about management continues on The Business of Government Hour.

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Department of Agriculture CIO David Combs. Also joining us in our conversation is Mike Wasson.

Mr. Combs: Sure. The quality guidelines apply to all types of information disseminated by USDA agencies and offices. Now, I won't read them to you, but the basic premise is that USDA will strive to ensure the maximum quality, objectivity, utility, and integrity of the information that its agencies and offices disseminate to the public.

Well, what do I mean by "objectivity"? USDA offices and agencies will strive to ensure that the information they disseminate is substantively accurate, reliable, and unbiased, and presented in an accurate, clear, complete, and unbiased manner, and to the extent possible, consistent with confidentiality protections, USDA agencies and offices will identify the source of the information so that the public can assess for themselves whether the information is objective.

And what do I mean by "utility"? USDA offices and agencies will assess the usefulness of the information they disseminate to its intended users, including the public. When transparency of information is relevant for assessing the information's usefulness from the public's perspective, the USDA agencies and offices will ensure that transparency is addressed in their review of the information prior to its dissemination. USDA agencies and offices will ensure that disseminated information is accessible to all persons pursuant to the requirements of Section 508 of the Rehabilitation Act.

And what do I mean by "integrity"? USDA agencies and offices will protect information they maintain from unauthorized access or revision to ensure that disseminated information is not compromised through corruption or falsification. USDA agencies and offices will ensure their information resources by implementing the programs and policies required by the Government Information Securities Reform Act. And USDA agencies and offices will maintain the integrity of confidential information and comply with the statutory requirements to protect the information it gathers and disseminates. And these include the Privacy Act of 1974 as amended, the Paperwork Reduction Act of 1995, the Computer Security Act of 1987, the Freedom of Information Act, and OMB Circulars A-123, A-127, and A-130.

Mr. Morales: Dave, we understand that your office has a role in records management for the department. Are all your records stored electronically? And how does your office manage risk and redundancy in storing these records?

Mr. Combs: Yes, as I mentioned earlier, my office leads this effort at the department, and no, not all records are electronic. But the amount of information we generate has increased exponentially over the past few years. The expectation is that over the coming few years we'll generate even more information and much of this will be electronic. We manage the risk and redundancy in storing these records in various ways. We do it through continuity of operations planning, periodic exercises for the deployment of operations. We do it through vital records exercises, where records are positioned at primary and an alternate site. And through ongoing training of our records officers and project managers.

USDA is in the process of evaluating an electronics records management application. And after evaluating this application, we will be conducting a proof of concept pilot. By approaching electronic records management from a department perspective, USDA will benefit from reduced development and maintenance cost as well from the standardization of processes that will support e-records management.

USDA understands the need to manage a project of this magnitude at the department level to ensure conformity of standards across all USDA agencies to manage risk and redundancy.

Mr. Morales: Dave, how is the enterprise architecture that is already in place at USDA impacting operations, and where are you in the process of implementing the target architecture?

Mr. Combs: USDA's IT transformation framework, has better enabled USDA to manage its IT investment portfolio and select the best combinations of IT systems to effectively and efficiently support USDA's mission. Using the department's blueprint for the vision provided by the USDA enterprise architecture, USDA has conducted an extensive review of IT investments during the fiscal year 2005 budget process.

All USDA investments, major and non-major, were evaluated to determine whether they aligned with the enterprise architecture and provided a necessary and efficient service. The process particularly focused on consolidation with systems providing similar functionality identified using the tools and structure provided by the USDA and the Federal Enterprise Architecture. This careful review allowed USDA to eliminate nearly 150 of its 500 IT investments through consolidation and realignment, saving around $160 million annually. USDA's IT transformation activities have resulted in additional IT portfolio improvements as well. This was accomplished by having the department focus on developing enterprise-wide systems and services to serve business needs and replace the duplicative agency-specific approaches previously used. This activity has increased from 24 major investments to 66 over five years, nearly a 200 percent increase. And at the same time the number of small and generally agency-specific investments has declined significantly from 605 down to 330.

Mr. Morales: What is the directives system, how did the system evolve, and what can you share with us about the results that this office has seen in making directives centrally available and electronic?

Mr. Combs: The USDA directives system is basically an online repository of all USDA departmental regulations and notices, manuals, and secretarial memoranda. The old process was paper intensive, and a great deal of time and effort was put into copying and storing those paper forms. Well, that process was transformed basically into a print-on-demand function, online, and our customers now have access to the information they need without having to go through any other organization, pretty simple.

Mr. Morales: David, earlier you mentioned the programs you have to support the development of project management skills among your technical staff. I think you mentioned you had somewhere on the order of about 500 folks going through these programs. How have your efforts improved technical outcomes?

Mr. Combs: The USDA IT investment project management training program provides participants with the tools and techniques needed to manage IT projects effectively with an emphasis on the issues encountered in managing within the capital planning investment control process and other federal guidance.

This training program was initiated in response to the results of a survey of USDA IT executives which indicated the need for more training in project management. And the Federal CIO council as well as industry leaders considers project management to be a critical competency for IT managers. As I mentioned before, USDA has graduated over 500 students from this five-week course, and over 200 now have their project management professional certification. And our multimillion dollar IT development projects demand professional, experienced, and effective project managers.

Mr. Morales: What does the future hold for the Department of Agriculture? We will ask Chief Information Officer David Combs to discuss this with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I am your host Albert Morales, and this morning's conversation is with David Combs, chief information officer at the Department of Agriculture. Also joining us in our conversation is Mike Wasson.

Mr. Combs: In an effort to address an increasing shortage of skilled information technology workers at USDA, OCIO and our Office of Human Resources Management work closely together to provide USDA managers with recommendations and solutions on how to continually improve their IT work force.

The increased focus on the strategic management of human capital dates back to the Clinger-Cohen Act of 1996. And one of the requirements of this act is the mandate for all federal agencies to perform an IT workforce assessment. The act requires the federal chief information officers to implement a professional development strategy to ensure that IT staff possess the knowledge, competencies, and skills necessary to meet agency requirements as they relate to information resource management.

In partnership with our Office of Human Resources Management, we've established a USDA IT HR working group. This working group closely works with every other team within the OCIO to achieve the goal of recruiting, retaining, and training the most qualified team of IT professionals. In addition, this group meets monthly with representatives from numerous agencies, IT, and HR specialists within the department. The working group is focused on developing, implementing, and promoting recruitment and retention strategies to ensure that USDA maintains a quality IT job force capable of leading the department to meet its mission objectives.

Working group members are briefed regularly on all activities occurring at the federal level in the area of IT workforce improvement. They're responsible for achieving USDA's IT and HR leadership, in planning for and implementing effective recruitment, retention, and training strategies. The USDA IT HR working group is the department's only forum for active IT HR collaboration in the area of IT workforce planning.

Mr. Morales: Dave, you touched on this a little bit, but is your office also working on recruitment and retention activities, and how does this fit into the overall HR strategy for OCIO?

Mr. Combs: Yes, this ties directly to the overall HR strategy I just mentioned. We clearly recognize the issue of recruitment and retention. And we've been working very hard over the last year to recruit strong talent to fill these critical vacancies at all levels.

Mr. Morales: Dave, how do you envision the operations of the OCIO in five to ten years? Is the OCIO considering expanding its customer base through shared services or other methods?

Mr. Combs: Well, absolutely. We've already begun to move in that direction. Just last December USDA's executive board granted my office permission to move forward with three major initiatives, a single electronic mail system, a consolidated network with centralized support, and a consolidated data center and disaster recovery infrastructure.

Mr. Morales: Earlier, Dave, we talked a little about enterprise architecture, but can you discuss what impacts will the enterprise architecture planning have on the long term capabilities of the department?

Mr. Combs: The USDA-wide enterprise architecture supports and reinforces the goals of the President's management agenda. The USDA-wide EA repository and EA program is a catalyst for creating easy to find, single points of access to government services. It encourages automating internal processes to reduce the costs. It enables reducing cost by disseminating best practices and coordinating approaches across USDA agencies and staff offices, and it results in reducing duplication of efforts to build similar software systems. The USDA EA program supports the coordination of USDA's participation in the E-Government presidential initiatives.

This year, in its first year of use, the USDA EA repository and program will support initiatives such as FirstGov portal, Recreation One-Stop, e-authentication, e-loans, and e-grants initiatives. This support is in the form of the development of standards, the development of common data sets and structures, identification of common processes, and identification of common technologies. The EA repository also supports the federal architectures being developed for finance, human resources grants, and federal health.

And finally, the EA repository and EA program closely align the E-Government initiatives defined in USDA's E-Government strategic plan leveraging e-authentication, enterprise shared services, web-based supply chain management, and other initiatives. This alignment advances USDA's EA goal of using common enterprise-wide and intergovernmental systems when possible.

The EA repository directly supports the achievement of USDA's EA vision. The information it provides will help the Office of the Chief Information Officer and the executive board to make informed IT investment decisions based on a clear understanding of the department's existing and planned architectures at both the agency level and the federal level. Further, it will help agency and staff office personnel to identify opportunities to leverage existing systems or contracts already in use elsewhere in the department, helping to avoid redundant IT investments.

Mr. Morales: Dave, you've had a highly successful career starting in the private sector. You've turned a passion into a business, and now you're in public service. What advice can you give to a person who is interested in a career in public service, especially in information technology?

Mr. Combs: Well, if you're looking for a rewarding and challenging opportunity, you need to look no further. It's truly an honor and a privilege to be in public service, and the demand for information and the technology to create it, organize it intelligently, and communicate it efficiently and effectively is growing exponentially. The future for informational professionals is bright. Unlike my generation, children today are exposed to information technologies before they can even walk.

IT has become engrained in their everyday routine. From the time they enter kindergarten, sometimes sooner, children are exposed to computers and electronic knowledge. These experiences translate into capabilities that can be applied to future careers in information technology. But you don't have to major in computer science to have a career in IT. The federal IT organizations are always looking for smart, energetic people who are good thinkers and good leaders and not afraid to tackle large and difficult problems. If that description fits you, then there are several people in the federal CIO community that want to talk to you.

Mr. Morales: That's great advice. We've reached the end of our time, and that will have to be our last question. First, I want to thank you for fitting us into your busy schedule. Second, Mike and I would like to thank you for your dedicated service to the public and our country in the various roles you've held at the Department of Agriculture.

Mr. Combs: Thank you Al and Mike; it's been a pleasure and an honor for me to be here this morning, and I welcome the opportunity to discuss our many missions and areas of -- that we are working on at USDA and it's a big department with a wonderful service mission to the rural parts of United States of America, and actually to all of it, when you consider the food safety protection and everything. So there's hardly an area of American life that we aren't intimately involved with, and it's a real honor and a privilege to work in that department.

Mr. Morales: This has been The Business of Government Hour featuring a conversation with David Combs, chief information officer at the Department of Agriculture. Be sure to visit us on the web at www.businessofgovernment.org. There you can learn more about our programs and get a transcript of today's fascinating conversation. Once again, that's www.businessofgovernment.org.

Wednesday, August 3, 2005

Arlington, Virginia

Mr. Morales: Good morning and welcome to The Business of Government Hour. I'm Albert Morales, managing partner of The IBM Center for The Business of Government. We created the center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the center by visiting us on the web at www.businessofgovernment.org.

Mr. Cooley: Good morning, Al.

Mr. Morales: And joining us in our conversation, also from IBM, is Steve Watson. Good morning Steve.

Mr. Cooley: Thank you Steve.

Mr. Morales: Tom, can you begin by telling us the history and the mission of the National Science Foundation, and more specifically, the Office of Budget Finance and Award Management.

Mr. Cooley: Sure, but I don't want to take a whole lot of time. I could spend an hour just talking about that. The National Science Foundation is a branch and arm of the federal government. It was created in 1950 after World War II, after they found out how important science was -- research and development was to the mission of carrying out that war effort. Our fundamental mission is to support basic science and engineering research and education, primarily through colleges and universities, but we also have activities that are engaging the profits and non-profits as well. We currently have a budget of about $5.8 billion each year. We are waiting to get our fiscal year 2006 budget through Congress right now. What that translates to is roughly thirty-five thousand active awards every year. We get about forty-four thousand proposals from principal investigators at universities and colleges throughout the country. We put them through a rigorous external merit review process. Each year we make about eleven or twelve thousand awards. The typical duration of an award is about three years. Hence we have an active award portfolio in the neighborhood of thirty-four to thirty-six thousand awards each year.

Mr. Morales: Can you tell us about some of NSF's research priority areas?

Mr. Cooley: Well, fundamentally you have to understand that research covers everything from anthropology through zoology, and fundamentally, that is our role, that is our mission, and we do do that. So we have a directorate for biological sciences, we have a director for math and physical science, there's a director for engineering sciences, for example. But there are priorities in any era, and right now some of those priorities are in areas such as nanoscale science and engineering. The public tends to think of that as nanotechnology, and how that may help manufacturing processes in the future, how it may help the healthcare industry in the future, for example. We also have a very interesting research priority in social and dynamic behavior of people and organizations. How do we get things done? How do we get them done more effectively? How do people interact with technology, and what impact is technology having on our lives? There's also a very -- there are some broad national kinds of things going on right now, we call them administration priorities. One is in the National Information Technology Research and Development Program called NITRD. One is in the Nanoscale Science Initiative, that's called NNI. There is also a very broad research program across the federal government in global climate change supported by the administration. It's important for policy to be set by the best science that we can get, and so in order to understand what is really happening with global climate change, it's important to get the research done. These are integrated government-wide programs where the National Science Foundation, NOAA, NASA, Department of Energy, the United States Department of Agriculture, they all collaborate and coordinate and carve out a unique piece that fits their mission and then put an integrated program together.

Mr. Morales: Tom you mentioned some of these other organizations, how does the research in science supported by NSF complement the research supported by organizations such as NASA or NOAA and the National Institutes of Health, and how does NSF work together with these science organizations?

Mr. Cooley: I think the answer is actually a fairly simple one. When one thinks of NASA or NOAA, one thinks of the mission that they have. NASA, space, to put it very distinctly, NOAA is oceans and atmospheres. So in carrying out their missions, they have specific things that they're interested in looking in to. Our mission is about basic research, so we don't have a mission that's directed to a particular component of the environment, the world, the population. What we try to do, and a very fundamental part of our mantra, so to speak, is the training of the future generation of scientists and engineers, so that we're not only helping to fulfill other agency's missions by training people that are going to be the scientists or engineers that work for those agencies, but we also do the kind of basic research that those mission agencies draw upon in order to carry out their own missions. So, for example, one of our partnerships is at the National Center for Atmospheric Research in Boulder, Colorado. We collaborate with them. We are interested in generally, you know, what is causing climates to change, how do you map weather, how can you use super computers to model weather changes and predict and forecast weather at a microscale, which is going to be very difficult, but that's ultimately where people want to go. And so, when storms are coming up, I'm not interested in what's happening in the general D.C. area, I want to know exactly what's going on in Columbia, Maryland where I live, and I think a lot of people feel like that. So many of the National Weather Service activities that are carried out and for which NCAR in part participates -- NCAR, as I said, is the National Center for Atmospheric Research is through a collaborative set of activities that we have working with this center out in Boulder, and with the National Weather Service, with NOAA, whatever.

Mr. Morales: Tom, thank you. That's a fascinating and certainly a broad set of issues, and I would certainly be interested in understanding the weather patterns just around my block. You talked about the budget of $5.8 billion dollars, can you describe a little bit just the overall size of NSF and the skill set of the employees there?

Mr. Cooley: Sure. I think the audience would be surprised to find out how small we actually are. We're about twelve hundred federal employees with about three hundred fifty contractors who help us. Those contractors assist us in classification for our position descriptions. The bulk of our contractors actually assist us in the development of our hardware, software, and maintain those electronics systems for us, and then they do other things, such as the mailroom, delivery into buildings, support services of various kinds. So, within the building over there at 4201 Wilson Boulevard in Arlington, we've got roughly fifteen hundred people, about 75 to 80 percent are full-time federal government employees. The mix of that staff, you know, you've got it all the way down from a GS-4, 5, 6, 7 kind of secretary, program assistant. Usually, traditionally, there are people who are born raised right in this area here. And then at the top end of the system, you have got PhDs, scientists, and engineers working in NSF from Harvard, Yale, MIT, Cornell, the University of Maryland of College Park, Wisconsin, Madison, Charlottesville, University of Virginia, we draw them in from all over. We have a mix right now of about 50 percent full-time program managers and about 50 percent rotaters, and that ensures that about every two to three years those rotaters turn over. These are people who are actually bench scientists. They are out there at the universities, they're on the cutting edge, and they really know what's going on. So that when we get proposals in from the principal investigators, the people who are looking at those proposals, evaluating them and trying to find people to review them, other scientists and engineers in the community. Our staff is really plugged into that community, they know what the hot topics are, and they who are the best and most highly qualified reviewers are. From my perspective as the chief financial officer, that means I can tell the American public the proposals that we fund have undergone the most rigorous external merit review process that we can envision. Many people on the hill refer to it as the gold standard. So that when we make an award with American taxpayer's dollars, my confidence that this is going for something that's really cutting edge, that could really impact our lives, ten, twenty, thirty years from now is really great. I mean, when we look at the fact that research on transistors was done fifty years before transistors were ever used. Sometimes the concept doesn't lead to a product for a very long period of time. And some concepts don't lead to any products at all. They're dead ends. I mean there's value in finding out that there's a dead end out there. It saves other people time and effort from pursuing what ultimately would be a dead end, and then go in a different direction.

Mr. Watson: Tom, you're the chief financial officer, and also the Director of the Office of Budget Finance and Award Management. Can you tell us a little bit about the roles and responsibilities of that position?

Mr. Cooley: Sure, Steve. First of all, I think it's important to understand what it means to be the Director of the Office of Budget Finance and Award Management. I have five divisions that report to me. One is the budget division, so we work with the administration and the Congress to propose a budget and then implement a budget once the Congress has passed it. We have the Division of Financial Management that oversees the internal controls and the financial practices that we use to ensure that every dollar that goes out the door goes to the right person for the right reason. The third division is the Division of Grants and Agreements. They're the division that does the bulk of the business at NSF because we are predominantly a grant making entity. The fourth division is our Acquisition Procurement Division, the division of contracts, and they have the very complex agreements, things where we have a much more hands on relationship with the entity that we've made the award to. And then, the fifth and the newest division is the Division of Institution in Awards Support, and its focus primarily is on audit resolution where we have issues that have been raised through the audit process and we have to find out how much money does the government get back because you didn't spend it all appropriately, or maybe even misused it. And then our largest and newest activity, which is post-award monitoring and oversight. The focus of that is to ensure that if you get an award to do X, that you've actually done X, and that the money that you spent on X was relevant to X. It's important for the accountability of the taxpayer's dollars. I think it's also important to the accountability of the Merit Review System.

Mr. Watson: Tom, that's a lot in one position. What was your experience and what path did you take to prepare yourself for that?

Mr. Cooley: Well, there is a long story. When I was a young man, many years ago, I read a couple of books by some fairly famous authors who were doctors and physicians at the time. It got me very interested in a field called microbiology. And I was more interested at that time on potential for microbiology to help me understand how I might help humankind. As I got older, I discovered that microbiology touched all fields, plants, animals, human beings, soils, et cetera, so I majored in microbiology at the University of Maryland, College Park, came out, went into a job and told myself, oh my goodness, what have I done to myself. I didn't enjoy the work experience. I really did not. I was very fortunate, as I have been at three or four critical times in my career, to have a mentor at that time. He was not my immediate boss, but he was a partner with my boss. And my mentor came to me and said, you know, there's something that's not gelling here for you, I can tell. And he encouraged me to go back to graduate school, which I did. I pursued the field of botany. I got married. Things change when you get married. We had a little girl. And I had an opportunity presented to me, it was a career choice. I had one path or another. I could go to a post-doc at the University of Montana, or work part-time for the summer at a place called the National Science Foundation in 1979 to write an environmental impact statement for what at that time was envisioned as the Ocean Margin Drilling Program. My family is here, my wife's family is here, and our daughter was six months old, and the pay here was twice as much as the pay in Bozeman, Montana. So I thought, well let me go with this and see where it goes. They extended it two more times for a year and a half, after which they hired me full time as a GS-11. I worked for some great people. I worked for Sandra Toy, Al Shin, Joe Cull, all of whom had great influences on my career development, basically gave me some advice, pointed me in a direction, and then left me alone to see if I could really do it or not. And a couple of years ago, the Director of the National Science Foundation, at that time Dr. Rita Colwell, turned to me and said, how would you like to be the CFO, and I said, only if I can dot, dot, dot. And she said, fine. So I've been there for five years in this role. There are days when it's a lot of fun, and there are days when I'm glad to get home. But I think all of our jobs are like that.

Mr. Morales: Tom, that's just a fascinating start to just a wonderful career. How is NSF working on the President's management agenda's five government-wide initiatives? We'll ask NSF CFO Tom Cooley to explain this to us when the conversation about management continues on The Business of Government Hour.

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Tom Cooley, Chief Financial Officer of the National Science Foundation. Also joining us in our conversation is Steve Watson. Tom, can you give us a brief overview as to how NSF is working on the President's management agenda's five government-wide initiatives?

Mr. Cooley: This is not an easy question, and may actually end up being probably one of the most difficult questions you will ask me. First of all, I have answer with a very honest and straightforward one that my staff will recognize, and that is a lot of very hard work. This is not easy. It's one thing when you set your own agenda, it's one thing when someone else sets it for me, and then continually raises the bar so that you do better and better and better. I buy into that philosophy, it's basically a philosophy of continuous feedback, you do something, you do it well, you get feedback for improvement, and then you go off and make improvements based on that feedback. And then I think it's fundamentally the tenant that underlies the President's management agenda. We were very fortunate in that the President's management agenda had two key areas where we had already invested a lot of time and effort -- financial management and e-gov. And it was actually division of my predecessors and now I have to go back to the 1980s to talk about this. My predecessors had thought that it would be good if as many of our paper systems were electronic as is possible. And there were two key vision statements back in the '80s. One by Al Muellbower, who was the Division Director for Financial Management, and he wanted a financial management system that was totally electronic, where on a day to day basis, he knew exactly how much money was left in the bank. On the other hand, Connie -- oh, and I can't think of her name, she was the head of the Division of Information Systems, and her vision was one of how to enable our PIs, or principal investigators, to submit proposals to the foundation electronically rather than in paper copies. When you used to send a paper copy proposal, each proposal was about a half inch thick, and you were required to send twenty of them. So we had stacks of paper in the mailroom. The vision was, if you do this electronically, you can flip them out to your reviewers electronically, you can handle the paperwork electronically, and make your awards electronically. Those visions were put in place in the 1980s, and we were totally electronic by the end of the 1990s. So when the President's management agenda came along, in these two particular areas, it was very natural for us to go over and talk with the President's people in the White House and say we think we're green in financial management because, and we think we're green in e-government because. So when the very first scorecard came out, we in fact were green in financial management. They gave us a yellow in e-gov, because they had some questions for us that we needed to resolve and finish answering. So the next quarter, I believe it was, we did go to green in e-gov. The very interesting thing about the process though, is that they're -- those two do tend to be integrated, and the key integrating function is the other third PMA initiative, the integration of budget and performance. If you're going to integrate your financial system's data with your budget request, your justifications, what we call the budget execution plan, and you want to be able to tell the American public exactly what we are doing with that money and how you're doing, i.e., performance, then these three initiatives are all integrated. What we had not had a vision for was the integration of budget and performance. This agenda item caused us to really think in terms of a vision, we got working on that. My Division Director, Marty Rubenstein, really pulled a great vision together and pulled it off and we've got green and BPI, I believe, three cycles ago, something like that. The other two though were the more difficult ones. We at the National Science Foundation, frankly did not have a vision for human capital. We bought into the system that existed. It seemed to work very well for us. When you look at human capital as the fourth item and competitive sourcing as the fifth item, we were able to take advantage of a concern that we had had about four years ago that we really didn't have a vision for human capital, and we didn't have a vision for how all of the processes of the foundation needed to be integrated to get the most bank for the buck. And we had hired a contractor at that time to do an in depth, integrated assessment of absolutely everything that we do, and everything that we touch at the National Science Foundation, including this very critical piece. The staging of that meant that we needed to understand our human capital needs before we went down the road of trying to figure out what we needed to competitively source. Now part of the background here is that things that the other agencies are competitively sourcing today, we outsourced in the 1980s. I was around, we outsourced mailroom functions, we outsourced all of our IT support functions, we outsourced many, many different things. So where agencies today are looking to outsource those things, we've done other things. So we're on the cutting edge of what do you do after you've done that. Having just gotten to green -- yay, on human capital this last quarter, it allowed us to also integrate our vision for getting to green in human capital with the first steps of competitive sourcing. So we have our first competitive sourcing out on the street. Now we've moved from red to yellow in progress, not in status, so that we now have four greens and a yellow on the progress report card. We're very pleased with that, and I think that in general, while the PMA does take a lot of hard work, if you don't integrate your team across your agency, and you can't be successful if you buy in and set your own vision for yourself, because doing that means that you've got that community integrated within your agency. They see it as part of their vision, and therefore, it's the right thing to do.

Mr. Morales: In the fiscal year 2002, the National Science Foundation established the advisory committee or GPRA performance assessment that is structured internally to report PMA activities to the director of NSF. Who is part of this committee, and how does the committee evaluate NSF's progress on the PMA initiatives?

Mr. Cooley: Well, let me go to ground zero on this question. I think the audience that may by listening in could not necessarily know that the Government Performance and Results Act requires every agency to do its own self-assessment. There's a bit of a conflict of interest in my view with that self-assessment. It means, you know, if I think I'm doing a good job and my staff who work for me tell me that, because they're afraid to tell me otherwise, you know, for whatever reasons, you don't have some independent benchmark. So, a couple of years ago, the foundation agreed, you know, reporting performance was important to the community at large, whether it's a taxpayer, whether it's our principal investigators, whether it's the reviewers that are out there, whether it's the scientific community at large. In order for us to satisfy ourselves, because we have this independent review process that we rely upon to tell us how good a proposal is. The vision that I had was we need an independent group to come in and tell us how good we really think we are. We'll give them all the data, all the information, we won't preload it, we won't prejudge it, or prejudice it. And when they look at that, they have to give us feedback. If they think that we've prejudiced something, or have been lacking and providing them with information in a particular area, then the next time around we'll do better there. So, we came up with this advisory committee for GPRA performance assessment. They do want you here because they review our programs on an annual basis. What we do is we bring in experts in all the fields that we support, they all sit on this, they look at the portfolio of awards that we make, they look at annual reports, they look at collections of reports, they look at our Committee of Visitors reports, they look at National Academy of Science's reports, workshop reports, they look at everything, and they write a report to us and say this is good, or they say this is not so good. We've been very fortunate the last -- at least the last three years that I can remember, they have said that everything that they have seen indicates that the investments that we make to support our mission have been very good and satisfactory, we're making satisfactory progress, they support the mission of the agency, they support the strategic vision and the strategic plan and more importantly, in each annual plan, they support each annual plan in trying to get from point A to point B.

Mr. Watson: Tom, you mentioned you're green already in four of the five key PMA areas. What is your plan for staying there? Is it as difficult to stay there as it is to get there, or do you have processes in place that carry it to this point forward?

Mr. Cooley: The answer is yes, it's as difficult to stay there, and as I had mentioned earlier, it is as difficult to stay there because once you pass a bar, what the government is saying to itself is we need to move that bar higher. If we really want to be an effective and efficient organization, and I think most organizations buy into this concept, you need to do everything that you can through some process of continuous feedback loops, to figure out where you can still improve. It does take a lot of hard work, it does take a lot of effort, and people do pull their hair out, I'll be the first to admit that. But fundamentally, the only way that I, as the CFO of the agency can do it, is to set up a system of trust and integrity, and I think most of us in the government have tried to do that, let your people who are in charge with these activities run with them, get reports periodically on how they're doing, hold them accountable, but fundamentally trust them to do their jobs. Once in a while I find that I have to set a due date to make sure something continues to move along and it doesn't languish. But I think that if you trust your staff, and realizing that they trust you, whatever job you're asking them to do, they'll do their darndest to accomplish for you. And I have seen that time and time again. I've got a -- oh, I guess it's about one hundred twenty-eight or one hundred thirty people that work for me right now, small by most departmental standards, but nonetheless, I know most all of them by their first name. I know something about their history, their family, what their interests are. When I pass them in the hall, I always say hello to them. They always say hello to me. There's a sense of camaraderie, but I think fundamentally underlying that, we each share core values. For the Office of Budget Finance and Award Management, and that's posted on our BFA website. We talk about it at all of retreats to make sure that it's still the appropriate kind of core value and vision for us. And the last phrase in there is have fun. And as long as we don't lose our sense of humor, and we try to find ways to have fun in doing our job, then I think everybody has that little blowout patch available to them on a daily basis.

Mr. Morales: I think I'd certainly like to see that as one of the new initiatives on the PMA having fun. How has NSF successfully linked financial data and performance data? We will ask NSF CFO, Tom Cooley to explain this to us when the conversation about management continues on The Business of Government Hour.

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Tom Cooley, Chief Financial Officer of the National Science Foundation. Also joining us in our conversation is Steve Watson. Tom, I understand that NSF is one of the agencies that excel in the performance assessment report, which links financial data to program performance. What are some of the factors that have lead NSF to successfully articulate and link financial data to performance data.

Mr. Cooley: Well, I think that one of the most fundamental successful factors is the integrity of the science process itself. It starts with the person, man or woman, who has an idea, wants to put it forward, and hopes to get it funded by the federal government. What they want is an excelling research project that is going to make into the scientific literature because after all, these people are -- have the ability to become a tenured faculty member at a university or college, and I think that's part of their own career path. In establishing their research record, while at the same time they're establishing the fact that they teach well at a university or college. That helps them move up the ranks from an assistant to an associate professor, ultimately to a fully tenured faculty member. They have a vested interest themselves in making sure that the results of their research, their education project -- we fund things in informal science education at museums, for example, is known nationally. It's name recognition. You know, they want to become a recognized name in the field. So they want to publish their results. That's an effective way of measuring their performance out there with the taxpayer's funds. If they've got a successful project and it's been successfully published, then taxpayer funded information is now in the public domain for other scientists, engineers, and educators to use around the country to influence not only their own teaching and what information they impart to their undergraduate and graduate students, but their own personal venues of research. Then there's the internal piece of performance, how are we, as members of the federal government, performing with the taxpayer's funds. And in that regard, I think we do a very, very good job. We have one of those systems that, at the beginning of the fiscal year on October 1, you fundamentally load up whatever your appropriation is, and then we start ticking it down. Our system enables every program manager who has a slice of that pie, they can start ticking down from whatever their amount is throughout the fiscal year. Every morning you can log on, you see how much you've got at the beginning of the day, and at the end of day, if you've made some award recommendations, those funds get committed, and you see how much money you have left at the end of the day. The other thing that we have, are online progress reports. PIs are required to submit an annual progress report so you can review it and see how it's doing. They tell us how many graduates students they've got, how many they've trained, did any of them get their Master's, did any of them get their PHD, have they submitted any publications, what's going on in your lab, have you had any kids in, did you talk to them, all of that kind of information is embedded in these so that you get a real picture on an annual basis of what's actually happening out there in the lab. That helps you as the program manager assess whether this project is performing well, and the person who writes it up, generally speaking, the principal investigator at the other end, goes through this thought process once a year. Yeah, I'm doing this and this and this and this and this and stop some things, but I'm not doing so good over here. I need to reach out more to let people know what I'm doing, and you know, some of the area high schools maybe reach out to them, offer field trips for people to come in where you can talk to them about your research and a lot of these PIs do that kind of thing, they tend to get really plugged in to the community around the university.

Mr. Morales: Tom, to dabble a little bit more into the secret sauce over at NSF, how is NSF moving to adopt new technologies in business processes and maintain financial integrity in internal controls?

Mr. Cooley: Well, I would like to think of it as driving business processes rather than moving business processes. We are a homegrown e-system, so what we have are legacy systems that are our contractors built and maintained for us. That comes with a heavy cost in terms of maintenance and operations and upgrades. And I think in the area of financial management there are commercially off the shelf software technologies that are getting better to address the federal needs, but they were built to address private sector needs, and they need some refinement, quite frankly, but I can see those refinements coming. So, where the federal agencies are beginning to go into cuts packages and work with those providers, the providers are learning how to improve the cuts packages. That's fine from my perspective. But in the grant making world, there are no such cuts packages. In order for us to do electronic grants administration, we had to build our own legacy system, that's what we've got. In terms of driving the future, what I would like to see is the government through this new grants management line of business, send a signal to the private sector that if we're really going to do this, we're going to need cuts packages. The grants business alone is something like $560 billion a year that go out in grants. So if the private sector starts building some of those cuts packages and offering them up to the government agencies, then there should become a point in time when we don't have to worry about legacy systems, where we can have integrated systems for grants management across the federal government, some of which may be a legacy system at a huge agency, such as HHS, might be. Or they may have cuts packages that are shared by multiple agencies. So I would like to see the government act a little bit more like the private sector in terms of trying to drive improvement by laying it out there to the private sector, you know, $560 billion a year is a big chunk of change, and if we really want to see if we can do some cost savings government wide by using cuts packages, you guys need to start building those and offering them to us.

Mr. Watson: Tom, you touched on the line of business concept, which is a current push in government and a number of areas. How is that impacting the National Science Foundation?

Mr. Cooley: It's really impacting all government agencies, not just NSF. But if I use NSF as the example, it's forcing us to make key decisions about, do we provide a service or do we go find a service provider? I think it's a key fundamental issue for the government. In the old days, one used to think -- and I'm talking fifty, eighty years ago, the Office of Personnel Management provided all of the personnel functions for the federal government, and everything you did went through OPM. That was disbursed -- probably for very good reasons at that point in time. What they're looking at now is rather than every single agency, and within major departments, every separate bureau having its own system, you name it, classification system for personnel, financial management system, procurement, contracts. Rather than having everybody have to duplicate that everywhere, you can get economy of scale and efficiency of operations by offering that service at a key few touch points. So that ultimately, like we did with the payroll, NSF had its own separate payroll system. The government went from something like twenty-six major providers for payroll to four. And the intent eventually is to get down to two. That created some streamlining, and there were good benefits that came out of that. Were there bumps along the way? Of course, there were bumps along the way. You don't bring any system up without bumps along the way, nothing goes absolutely smoothly. But in terms of trying to turn the government into a much more efficient and streamlined operation, there are shared operations across federal government, grants is one of them, where we need to start thinking strategically about how to do the front end, which we're already out in the front on with the grants.gov find and mechanisms, and how to do the back end, which is, you know, grants management within the federal government, and how to streamline that, make it more effective, make it more useful. One of the criticisms that we hear from -- well, let's say the governor's office. There is a lot of federal money funneling into the states, but there isn't any single portal where anybody in that state can figure out, well, how much is coming in on an annual basis and where is it going. How much is going to our Department of Transportation, how much is going to our public universities and colleges that we support in the state, and for what reasons? So, what's lacking and what is the value added here is the possibility that in the future that information allows you as the governor or as the state legislator, or as a single PI in the university to start to begin to integrate those efforts to get even greater value added our of the integration of those efforts. I've got an award over here and this guy over in the Department of Transportation has an award over here, I got to talk to him about what he's doing and let him know what I'm doing because maybe we have great information to share that may be of value to both of us.

Mr. Watson: Tom, you have mentioned using some of these lines of business, payroll for example. Any areas where you envision the National Science Foundation becoming a center of excellence providing a line of business?

Mr. Cooley: I would like to see us be able to do it for the grants management line of business, but we have a legacy system. It was not built with the intention of having a lot of capacity to it. We're not stretched right now in receiving forty-five thousand proposals a year, but on the other hand, we certainly couldn't handle the volume of proposals that comes in to the National Institutes of Health. If we did want to pursue becoming a center of excellence for the grants management line of business, we would have to bite off a discreet chunk that we felt that we could handle appropriately. Small bureaus, small departments, people in the federal government that already operate similarly to us, so if a portion of USDA, maybe EPA, maybe the National Endowment of the Humanities -- if I were to just take three random organizations, my guess is those three just about fill up our capacity. So then our concern would be what do we do if all of a sudden state funding dries up, and even more proposals -- say our proposal load goes from forty-five thousand per year to sixty thousand per year, that would saturate our capacity, we wouldn't be able to provide the service that we're supposed to be providing to the other agencies and the whole system could come crashing down. So, you know, we still got some homework to do, but I think that there would be value in pursuing that. The government is right now asking agencies to consider if they want to be a service provider, do a business case for yourself, and at the end of the business case, make a decision. So what I'd like to do is do the business case and see what it tells me.

Mr. Morales: Certainly a challenge, but an opportunity. What does the future hold for NSF? We will ask NSF CFO, Tom Cooley to explain this to us when the conversation about management continues on The Business of Government Hour.

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Tom Cooley, Chief Financial Officer of the National Science Foundation. Also joining us in our conversation is Steve Watson. Tom, how is NSF promoting partnership with academia, government industry, and international stakeholders?

Mr. Cooley: That's an easy one. Person to person contact. Without that personal contact, things just aren't going to get done. This is one area that I would say NSF has excelled in the past fifty-five years of our existence. The very nature of research is global in scope. That caused the agency when it was first forming itself to worry about how do you touch all the bases, how do we touch the Office of Naval Research, how do we touch the United States Department of Agriculture and their research programs? So many of our program managers that reside at the National Science Foundation know the other program managers that work at the Office of Naval Research, or the Defense Advance Research Agency, DARPA, or the USDA. So there's that inside the government natural connection that already exists, and we frequently invite them to be reviewers on our panels and they invite us to be reviewers on their panels. In terms of working with academia, that is the fundamental tenant of the Principle of Operation at the National Science Foundation. The relationship between the foundation as an arm of the federal government and academia is one of partnership. We expect them to put something in, you know, they turn on the lights everyday for the PIs, and they make sure the water is running. The PIs give something back to the institution, sure they're being paid a salary, but they're expected to teach and do research, find time to mentor students, graduate students, post-docs, find time to talk with undergraduates, bring undergraduate students into the laboratory and have an undergraduate research experience those students who are thinking about a science or engineering career, reach out to the community, visit high schools, that is just a nature of our business. Even our own program managers in NSF do science fairs, participate in research at nearby universities, keep their ongoing research programs going. Industry has been a bit more of a sticky wicket, and I think that our real outreach to industry started about in the 1970s, but really solidified under our director for six years from -- I think it was about '84 to '90, Dr. Erich Bloch promoted a lot more partnerships. He envisioned a couple of very key programs that required industrial participation. That has. We have some centers -- I remember one that's up in Rochester, New York, where for a long time, I believe it's still in existence, Kodak was a partner because it was research on -- in the whole field of photography. And then international, well, we have several ways to do that. First of all, government-wide, you've got the State Department. So you'll always need to be concerned with working through the State Department, particularly in some sensitive countries, but we have our own Office of International Science and Engineering, and they have their own connections to their counterparts in -- out in the other countries. So, for example, my boss at the time who was the Chief Operating Officer, Joe Bordogna and I were invited to go to Beijing about a year and a half ago because the National Science Foundation's counterpart in the Chinese government located in Beijing was undergoing a strategic planning and envisioning exercise, and they wanted to know how NSF did it, and how NSF implemented it, and sold it to their own administration. Well, we found out about that because there was a very natural relationship between the people in those -- in that office in Beijing, and our people, here at NSF and the Office of International Science and Engineering who are always going back and forth and touching base and finding out what's going on in each other's countries, so we do that with virtually every country on every continent, and of course with cell phones now, it's instantaneous, call up, dial up, email, whatever. Then there are some research communities which by their very nature are international in scope. The astronomy community comes to mind, the ocean sciences community comes to mind. But you see more and more of this internationalization of research, biosciences is probably the hottest topic right now, and that's the sharing of information across borders about what's going on with the human genome and plant genomes, and how to worry about getting better crops that are drought resistant, or other kinds of things, that's very important on a world-wide basis.

Mr. Watson: Tom, looking into the future, what are the major challenges you see for the National Science Foundation, generally, and then more specifically, for your office?

Mr. Cooley: Making sure that people can actually go home at the end of a very busy, hard day. We all work more than eight hours, we know that now. Email has made it -- you work virtually twenty-four/seven. I get home, I take off my tie, and in the summer time put on shorts and go around in flip-flips because of the heat, but after dinner I logon. Do I have any important messages, did somebody need to give me a heads up about things the next day, is there something I didn't get to today because I had meetings all day long and I didn't have time to actually sit back and think? I think that in my own opinion right now, the biggest problem that we, as a nation are facing is that there is so little time left to be proactive or reacting to everything because it's information coming at you twenty-four/seven, whether it's TV, radio, email, people in the halls, and having that quiet time to stop and think strategically about where you should go right now is lacking. So, I guess the answer to the question is, the biggest significant challenge is carving out a piece of time to yourself, and letting your employees carve out a similar piece of time to themselves. One of the ways I do that, I refuse to have an iPod or a Blackberry or a cell phone. If you want to reach me, I log on to email, you can leave me a message. If it's really that important, you have that venue, but I don't want you calling me on my cell phone at 11 p.m. at night, nothing's that urgent, I'll deal with it in the morning when I get in. And I think that as long as people wherever they work feel like they still have that little safe spot they can go to, you know, you can keep pushing yourself along, you can bring home the paycheck, you can do what you need to do for the family, but we all need that little safe spot.

Mr. Watson: Tom, earlier in the program you told us a wonderful story about how you got started. What advice can you give a person who is interested in a career in public service?

Mr. Cooley: Understand what you're getting into. I think that was the real wakeup call for me when I got into my first real job. Like many of us, we had part-time jobs in high school and college. I worked my way through college. But, you know, you see multiple career paths, and sometimes you have to actually get on that path and find out for yourself whether you're going to be happy or not. In terms of the basics, I think most people who are worried about any kind of future career need to be thinking about to what extent am I going to be happy, and to what extent is my earning power going to support my family if I'm the kind of person that wants to have a family, big or small. So, good high school education, certainly go to college, because I think having a college degree opens up your earning potential as you get older. If you really love college, stay in college, get a Master's, get an MBA, go on for a PhD if you're interested in pursuing education, if you're interested in pursuing science or engineering. I'll tell you one thing about having a well-rounded, educated background, whether it's just a Bachelor's or a Master's, is I do think it prepares you to take advantage of the opportunities. As we all know in life, doors close and it's up to you to find out where that window is open, and trust me, based on my own personal experience, when a door closes somewhere, there's always a window open somewhere, but you've got to find it. And then when you find it, you have to have confidence in yourself that your background, your education, your experience, your training allows you to leap through that window. And frankly, if you're not sure, leap anyway, take the chance. You can always go to the supervisor and say, you know, I thought I really understood this, I need some more training in this area. And if you've got a good supervisor, they're going to say, absolutely, go do it. I'll pay for it.

Mr. Morales: Tom, that is just great advice. Unfortunately, that will have to be our last question. Steve and I want to thank you for fitting us into your busy schedule and joining us this morning. And we also want to especially thank you for your service to our country, both first at the Department of Agriculture, and now at the National Science Foundation.

Mr. Cooley: Well, that's great. I really do appreciate that. I'm third generation in service to this country, so over the past one hundred years, I've loved living in Washington, D.C., all of my life. If anybody wants to find anything else about the National Science Foundation, a very simple website, www.nsf.gov. Thank you.

Mr. Morales: This has been The Business of Government Hour featuring a conversation with Tom Cooley, Chief Financial Officer of the National Science Foundation. Be sure to visit us on the web at www.businessofgovernment.org. There you can learn more about our programs and get a transcript of today's fascinating conversation. Once again, that's www.businessofgovernment.org.

Thursday, June 9, 2005

Arlington, Virginia

Mr. Kamensky: Good morning and welcome to The Business of Government Hour. I'm John Kamensky, a senior fellow with The IBM Center for The Business of Government. We created the Center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the Center by visiting us on the web at www.businessofgovernment.org. The Business of Government Radio Hour features a conversation about management with a government executive who is changing the way government does business.

Mr. DuMars: Good morning.

Mr. Kamensky: And joining us in our conversation also from IBM is Jeff Smith. Good morning, Jeff.

Mr. DuMars: Our overall mission and vision are really focused around people, processes, and technologies and how we actually administer the tax code as handed to us by Congress. So what we're trying to do is make sure it's as fair as possible and administer it in that way and then also driving from a paper process, it's been a traditional paper process, to an electronic process, which we think actually benefits the taxpayers both going from individuals all the way up to major corporations. So those are the types of things we're trying to work on in that area.

Mr. Kamensky: Can you tell us a little bit about the Electronic Tax Administration and its e-file programs?

Mr. DuMars: It's interesting. Electronic Tax Administration is broken up into three parts. One part is our strategy, policy, and marketing group, another part is our development services area, and our development services area focuses on things like our next generation of e-file or what we call modernized e-file and also our electronic services, and then our third group is our Internet development services group, which focuses on our portals, portal strategies, and then also irs.gov and where we're going to go with that.

And then, going back to our strategy, policy, and marketing group, it's really interesting that no matter what you do if you change a policy you end up having to change technology to support the policy. If you change technology you have to do the other thing. You have to make sure the policies support the technology change. So it's things that we think of that are fairly simple or easy to do in a technology world when it gets to the policy side become very complex and sometimes things that we think on the policy side are very simple when we get to the technology side become very complex. So there's this balancing act that we always have to play and that's why that third part of ETA or Electronic Tax Administration is so important in our group. So that's how we break up the focus areas that we have.

Mr. Kamensky: In the case of the e-filing what are the benefits of doing that for both the taxpayers as well as for the IRS?

Mr. DuMars: A couple things. For the taxpayers, especially the individual taxpayers, if you have a refund it is the fastest way to get your refund and the majority of all individual taxpayers actually do get a refund. It's well over three- quarters of them. So they will do it and they'll get their refund quicker, in as little as eight days, but more than likely between about a week to three weeks and that's if there's no problems.

The other thing that they get is they actually get an acknowledgement, which is really critical. I can't tell you how many times I've run across people who've said I mailed it in and I never hear back from you in the first place but then all of a sudden I get a notice and it never showed up. And they don't know why and the Postal Service doesn't know why, just something happened.

And then a lot of people also will do certified mail thinking well, that'll guarantee it, right. All certified mail does for us is it really guarantees the envelope showed up. So we'll get stacks of envelopes show up. They got ripped somehow, just something happened along the way. So those are some of the benefits you get. The refunds are faster and then you get the acknowledgement.

And the acknowledgement also becomes critical for the people who actually owe and that are actually our fastest growing segment. That's growing faster than e-file. E-file overall is growing at about 10.7 percent a year. The people who actually owe are growing at 38-plus percent per year. And what they like is they like getting an acknowledgement because then they can come back to us and say yeah, I got it to you, I paid what I owed, so I shouldn't have to owe any penalties and I shouldn't have to pay any additional interest. So it's really important to that group, too.

Mr. Kamensky: Well, what are your roles and responsibilities as the director of the Electronic Tax Administration?

Mr. DuMars: One of my key roles is actually being the spokesperson for the IRS regarding electronic filing so that's a key role. Actually I meet with the press. I work with industry partners, software industry. I also work with the tax professionals. So it's this outbound role. And then on the inward side, facing into the IRS, it's really to help promote and push processes that we can automate, so one of the things that we've been looking at is how does it all work. How does it all work? What's the life cycle from end to end? And one of the key things we keep finding is sure, we could add another form, make another form available, electronically and sure, we could add another electronic service on irs.gov. But oftentimes what really causes most problems of all is some policy that says you have all these electronic policies and there's some policy sitting there right in the middle that says but you have to sign a document and keep that piece of paper. And that will slow down electronic file growth faster than anything else.

Another thing we're looking at is we're looking at the back end. Where does the whole process start for most taxpayers, when they get their W-2 or their 1099 or their 1098? Today those come mostly in paper. And they wait for those to show up and that's when they start their tax return process.

So what is that hurdle of I'm collecting paper and either I'm going to buy a software package and do my return or I'm going to go to my tax preparer, CPA, and do my return or I'm going to go online and do it and I'm starting with paper. Now I'm going from paper to electronic and it's like there's this hurdle that they have to cross over. Now, a lot of people have successfully done that but a lot of other people go if I'm starting with paper I'll just do it on paper, just finish it up. And so I think those are some of the challenges we have going forward and some things I'm trying to work on and fix and that's a big part of my role.

Mr. Kamensky: Well, that raises the question of what's your prior experience before you took this job in April 2004?

Mr. DuMars: I have a rather eclectic background and the reason I say that is because I was a history major undergrad who went to work at a nuclear power plant, actually the Southern California Edison San Onofre Nuclear Generating Station. I started my first year in the management training program in contracts administration and purchasing and then got hooked on computers. Now, that probably should have been natural. As my mom would tell me, she said when you were in college you used to tell us how much you hated computers. But actually all my roommates ended up getting their masters in computer science. That's like, three of my best friends. But I didn't. I was a history major.

And then all of a sudden I become the computer guy at the nuclear power plant and learned it really well just by reading lots of books and on the job training. And then I applied for a position in network engineering with the nuclear power plant and joined a group of people that ended up being leaders in Novell NetWare networking. In fact the guy I ended up working for wrote seven books on it. His name is Bill Lawrence and he wrote multiple books during the eighties and early nineties.

So I worked there for 10 years, gained a lot of experience. I got so good at computer networking I actually ended up teaching for Learning Tree International for a couple years part-time. And then I decided you know what, I've done what I needed to do here and I've had a great career. I want to get my master's degree. I always had this dream of getting my master's degree and my MBA.

And so I applied to several schools and got into the University of Michigan and went there for a couple of years and then I was a customer so I knew a lot of people at Intel and I went to Intel Corporation after my graduate degree and moved into product management marketing. And it was that network engineering piece that fit with what Intel was trying to do in the systems management space.

And then from there I had an opportunity to go to Dell and take it up from systems management for individual products and move to systems management marketing across the entire corporation. And then, of course, this was the late nineties and the dot-com boom and well, I got hooked, too. So I went and did a startup and yes, I succeeded and yes, I failed so I did both.

And then I went back to Intel and went into a division. They were trying to do a big startup called Intel Alliance Services and that was managed web hosting services and was part of that effort. I think Intel invested almost a billion dollars, had data centers all around the world. I was doing the operating support systems and then also services marketing. And then the person I worked for who I'd worked for before at Intel moved to become the chief marketing officer at a company called Trend Micro and was anti-virus and content security and I went there with him and was the global director for the e-business group.

We got to the websites and we implemented new content management systems and so on and was doing online marketing, e-commerce, e-business. It was funny. Things there just started not working out after a while for a variety of reasons and this job at IRS came at the exact same time. And what ended up happening was I read this position. I read all the points. I kept going that's me, that's me, that's me. They were looking for all these different skills that I had and other jobs I had looked at and applied for were always looking for one part of what I was able to bring. And this job allowed me to bring a lot so it was fun. It was interesting.

Mr. Smith: Certainly an eclectic background, like you said.

Mr. DuMars: Yes, my background is very eclectic. But in this role you need that because in the ETA role you go from policy strategy marketing to development services where you're looking at XML technologies and how you would actually change an industry to Internet development technologies where you're looking at well, how would you run websites better and so on and so forth. So it spans all the things I've worked on in my career.

Mr. Smith: Well, I know when you came on board to the IRS the IRS Commissioner Mark Everson said that you bring a variety of talents from the private sector to help lead us through the next stage of our e-file strategy so, hearing that background, how do you apply those experiences to what the commissioner just said there?

Mr. DuMars: Well, it's interesting. I mean, I can take some simple things. Like when I came in, for instance, irs.gov, we know that irs.gov is heavily used. Already this year we've had over a billion page views, just this year. That is more than we had all of last year. So, I mean, it's just grown dramatically. I think we're up over almost 70 percent in growth, which is incredible for websites in this day and age. They usually don't grow this fast any more. I mean, we've been around for a long time. But I have people come up to me and they go your website is great. I am really good at using your website. And that's exactly the wrong thing I want to hear them say. I want them to say your website is so easy to use it makes my life easier, I can find the information I need, and I can do what I need to do.

And so what we're trying to do now is change it from where it's very popular and there's lots and lots of information to it's very popular and it's easy to find the information you need. At one point on April 15th this year we had 80 searches a second. And some people might say well, 80 searches a second, wow, you can really handle the capacity. But on the other side you might say why are people doing that many searches? I mean, is it because our navigation is weak? Are they having a hard time finding things? So those are the types of questions and I bring that background to look at that and help that out.

The other thing, too, is just trying to really understand the customer life cycle and in essence IRS has a channel to the taxpayer because we have the tax professional community. So really understanding how they work, what they need from us, how the software industry works, what they need, and then the taxpayer, what they need, what services, how we can help make this all a much smoother process.

Mr. Kamensky: That's really fascinating. It's a terrific background that you've got that you bring to this to make the IRS e-filing popular and easy to use. What are the factors contributing to the high rate of e-file usage? We'll ask Electronic Tax Administration Director Bert DuMars to explain this to us when the conversation about management continues on The Business of Government Hour.

Mr. Kamensky: Welcome back to The Business of Government Hour. I'm John Kamensky and this morning's conversation is with Bert DuMars, Director of the Electronic Tax Administration at the IRS. Joining us in our conversation is Jeff Smith.

Mr. DuMars: Well, that's a really interesting question because I always get asked that, what was the one thing, and I can tell you there was no one thing. There were lots of things that contributed to why this is growing. There are lots of people, too, that I should probably mention along the way. I mean, one person that really made this go for years was Terry Lutes and is actually the person I work for today, and he's the associate CIO in the IRS information technology services group.

And another thing is all the other IT people surrounding this and make it actually flow and then work on the processes. That's what helped make it smooth. Ad actually I've heard this from several of the software vendors as well that this was the smoothest filing season they've experienced in a long time. So a lot of credit needs to go to that side.

Another thing that we looked at is there's been a lot of marketing efforts over the years. We've had TV advertising, we've had online advertising. That has helped contribute to the knowledge and building up the education. The brand e-file is a well-known brand. It's been going on for several years now it's been available.

Another thing that helped contribute was our Free File program and our Free File alliance members. There are 20 software companies involved with that. They contributed more than 5 million returns this year to the federal program. They also helped promote it and helped us promote that program so that helped e-file grow as well.

And then overall the tax professional community, I mean, the tax professional community actually handles at least 60 percent of the tax returns and they have a big part in contributing to the overall growth of e-file. And finally the one thing that we don't talk about as much but it actually has a big impact are the mandates that the states have put in place on the tax professional community. So we had several mandates this past year. They've built up over a couple years. We have at least one or two more that are going to come on next year and that's also helping the growth of e-file. So it's a whole bunch of different things that actually make it come together and grow fast.

Mr. Smith: That's great. I understand that the IRS has a goal of 80 percent of electronic filing for taxpayers by 2007. So what are your additional plans to reach that 80 percent goal now that you've just crossed 50? Are there any incentives that you're providing taxpayers in that regard or the practitioner community?

Mr. DuMars: With regard to the 80 percent goal we've got two years left and we've just crossed 50 percent. And we can tell you it's very difficult. But we're using the model that Tim Allen used in one of his movies never give up, never surrender. We're going to keep trying until the bitter end.

From an incentives point of view there really isn't a lot the IRS can do to incentivize this. It's been discussed in the past to give them an additional credit or to extend the filing date. These things Congress would have to pass a law to do that so we can't do that unless they decide to do that.

But the one thing that is happening, and I go back to what we talked about in the first segment, is getting those refunds faster, getting their acknowledgements on time, getting those acknowledgements, know they have them, and people who owe needing those acknowledgements all come together are driving it.

And the other thing that's really increasing e-file, another piece that we haven't talked about as much, is just the word of mouth. If your neighbor's e-filing it's like oh, well, this is what my neighbor does, this is what a friend of mine does, it becomes just the common thing to do. So that's helping us as well. For us to grow beyond the 10-11 percent that we've been growing in the last couple years is going to be difficult but we're going to do everything we can.

Mr. Smith: Switching gears a little bit, let me ask how are you addressing some of the taxpayers' fears that credit card or bank account information would be used for data collection or for some other purpose by the IRS? I mean, I know that may have a part in some of that goal that you're trying to achieve.

Mr. DuMars: This year's been a tough year and not necessarily that we've had a tough time this year but it's been a tough year in the overall data collection or financial services industry. There have been a lot of disclosure issues this year. Surprisingly enough, most of those disclosure issues were not around someone hacking into someone's database. They were around really more social engineering where someone said they were someone else and then got the information or information was lost in transit from one place to the other.

What we're trying to do is we're focusing on working with the industry to make sure that disclosures don't happen. We actually have a Regulation 7216 that if a disclosure does happen we actually have teeth behind that. But we think working in a partnership is really going to work better. So we actually had what we called a protecting and securing taxpayer electronic data summit last fall. We met with industry partners, we met with the states and other government agencies, and we talked about what things could happen, what issues could occur, and how we'd work together to solve those problems.

The one fear that we have most of all is that a perceived problem happens and the press takes it and there's a headline. And all of a sudden whether it was real or not or whether the impact was large or small we've got fear and mistrust in the taxpaying community. So we're working on what types of communication strategies we need to put together to help maintain that trust because that's the one thing with e-file we can't lose is the trust of the taxpayer.

And this is another thing that we do looking back at our own systems internally. How do we make sure that our systems are safe and secure? We have to be vigilant about it. The person who comes out in the security area and says I win hasn't won anything. The battle is never-ending, the battle never stops. The people who want to break in are constantly evolving and we have to be vigilant about protecting data no matter where it is either within our systems or in transit to our systems. We have to keep looking at that and make sure that we protect it and work with the industries so they protect it too. So those are the things we're working on together.

Mr. Smith: You mentioned a second ago the role of tax practitioners and they clearly play an important role in making sure that returns are filed electronically. How are you partnering with this community to increase this rate of e-filing?

Mr. DuMars: One of the things we do there is we actually run tax fora through the summer and we invite them in and it's a way for them to get continuing education credits but it's also a way for us to talk to them and hear about their issues. So we want to make sure we're listening to them as well and then coming back with solutions to their problems.

We also meet with them on a regular basis. We have our different groups within IRS. Our national public liaison group actually brings them together into different fora and groups to meet and talk with us and give us feedback. And then for the Electronic Tax Administration we have the Electronic Tax Administration Advisory Council, which consists of tax professional associations, it consists of reporting agents or payroll companies as well, and the software industry with us and states. And we all talk together about what types of issues are going on, what types of things do we need to work on together to make this much easier to do.

The biggest thing that we've had to overcome is showing them that it actually is good for their business. Telling someone e-file is not the same as saying hey, if you e-file and make your total office electronic you actually are going to win in this business space. And what we do, we actually give out awards during the tax fora to those who have actually gone to all-electronic and have done it very successfully with high quality and good customer service. And they actually end up being examples to all the other tax professionals.

People have told us once they cross and they get over and they do all e-file they make money and it actually helps their business and they grow their business. So we know there are a lot of positives for them. It's really educating them and helping them get there.

Mr. Smith: Well, we've talking a lot about the e-filing as it relates to individual filers. Switching to the business community, I know in January the IRS requires now that certain large corporations and tax-exempt corporations have to file either their annual income tax or annual information returns beginning in 2006. So what is the IRS doing to address the other community in the business which is the small businesses? What are you doing to target that population to increase their filings since they're not mandatory at this point?

Mr. DuMars: It's actually pretty amazing what comes from the small business space. There's pent-up demand there. So until the last year when we actually brought out our next generation of e-file or what we've been calling our modernized electronic filing they couldn't e-file. There wasn't really a solution there for them. And now it's available and the biggest problem we have now is actually making sure all the software companies make sure it's available. Now that we have it available and about half the software companies that sell into the space have it available we're already exceeding all expectations for e-filing from the small business community.

What we're expecting next year as all of the software companies come across the finish line is that we're going to see it probably triple in growth again and we saw triple what we thought we'd see out of the small business community. But it's still in the thousands and we have a long way to go because the number of small businesses is actually in the millions. So we'll have a long way to go but I think because they were waiting for it whereas in the individual space it's actually been going since the mid- to late eighties electronic filing has been available. So I think this is a good opportunity for us to really grow in that space and educate. And the other interesting thing there is we have to focus on the tax professional community again because in the individual space it's 60 percent of them use a tax professional. In the business space it's 87 percent. So it's a much higher percentage and really we have to, again, win.

The interesting thing about it is that many tax professionals will do an individual return, they'll do a nonprofit, they'll do a small business, and they may even be doing some medium-sized businesses. So a lot of times you'll run into a professional who's doing an across the board and if we get him in one it's a lot easier to convert them in the others.

Mr. Kamensky: Well, that's interesting because earlier you were mentioning that you are really trying to move forward in reaching the 80 percent goal. What are some of the strategies or approaches that you've got in place over the next couple years to try to get there to increase the usage of e-filing?

Mr. DuMars: One of the things that really became clear to us this past year was that we'd probably run through the cycle of what television and radio ads were going to help us to in the space. We have high awareness; that's not the issue any more. The issue is really more around educating them when they're interested in learning about it.

And the other thing we found and as I was saying with irs.gov, as its growth has dramatically gone up, I mean, it's going faster than it did for the past two prior years, is we've got them coming to us. So that's why this year we're looking at redesigning irs.gov and actually focusing in on its opportunity. The opportunity's there to touch them when they want to be touched.

So that's always your best thing when it comes to marketing. If you can touch them when they want to be touched that's a great way to get them to come across. If we're trying just to reach them when they're not ready to be reached or they're not sure that they want to be reached that's a little more difficult. But we're now getting millions of people coming to our website and we're going to take full advantage of that and really help to guide them to why this is the best solution. So that's one thing, really focusing in the online space. And we're going to continue working with the tax professional communities and we're going to continue working actually more with the tax software communities because if you think about it what is the user interface that a taxpayer or tax professional sees? They go to irs.gov to get information but the user interface that they're doing the preparation is their software package, the one they chose, and they chose it for whatever reasons it makes sense to them, it works for them, it's the usability model that they've chosen.

That's what we want to focus in on is working with them because that's where they're going to either be able to touch the professional or the taxpayer directly. So we're keeping our partnerships and our agreements with them going and working hard to whenever they talk get them to say e-file too just like when we talk with them or we talk by ourselves. So those are some of the tactics we're trying to use.

Mr. Kamensky: That's interesting because it sounds like you're beginning to take the things that you developed when you were in the private sector and bringing those strategies into the public sector space for my guess is the first time.

Mr. DuMars: And the one interesting thing is that everyone thinks you're in the private sector, you have all this money to market. In reality you may have less or you may have none. And in the government because we do have budget deficits and we're trying to be more frugal in the way we spend money we don't have as much money to spend on advertising as we've had in the past. So what do you do? You just take what's worked in the private sector when you don't have a lot of money and you use the same thing in the government and it does work. I mean, there are certain rules that we have in the government that we have to make sure we stay within but besides that sometimes this guerilla marketing effort actually works better than even full-blown advertising.

Mr. Kamensky: For encouraging a greater use of e-filing. How is IRS improving the performance of its programs? We'll ask Bert DuMars, Director of the Electronic Tax Administration at the IRS, to explain this to us when our conversation about management continues on The Business of Government Hour.

Mr. Kamensky: Welcome back to The Business of Government Hour. I'm John Kamensky and this morning's conversation is with Bert DuMars, Director of the Electronic Tax Administration at the IRS. Joining us in our conversation is Jeff Smith. So, Bert, what role do you see electronic filing and e-solutions playing in helping taxpayers?

Mr. DuMars: I think the next steps that we're going to start seeing you actually started seeing in our electronic services which just launched last year. And what this allowed was is really electronic transactions to occur directly between the tax professional or the person representing a taxpayer and the IRS and it speeds the process.

So, for instance, we have electronic account resolution, we have transcript delivery systems, we have the way to check Social Security numbers to validate the Social Security number's accurate. And what it does is instead of them having to send us a letter and we send a letter back and forth and there's paper going back and forth which can take days, weeks, months they can do a process that takes minutes, hours, maybe a day to do. And we see that actually expanding. So as we add more services in the future the tax professional and then the taxpayer will get full benefits of that where they can come directly to us get quick access to services.

A very simple example is our service called "Where's My Refund?" We launched that a couple years ago and everyone thought well, maybe a million people would use it and just check on their refund and we ended up getting 20-plus million. And then this past year we even got more. Tens of millions of people use it and want to see where their refund is, want to see when it's going to show up. I mean, there's a lot of interest there.

And so there was this huge pent-up demand that we hardly even knew about. We just knew people were calling in for the information. We put it on the web and all of a sudden they're using it all the time. So there's obviously a place there for more of these electronic services and this is something we're really going to focus on in the future.

Mr. Smith: So the success of the e-filing is certainly helping the IRS meet its goals and measures. Can you describe how electronic filing has helped the federal government in its overall E-Gov program?

Mr. DuMars: Well, I think when you look at E-Gov with regard to the IRS one of the things with electronic filing, the big benefit, is the cost savings. There's a big cost savings between what a paper return costs to process and what an electronic-filed return costs to process and we've actually over the years have closed down service centers where we process paper and consolidated those down to a couple majors. And that's a good thing because if you think about it from a taxpayer's perspective you don't want us wasting dollars on the least efficient processing method. You want us spending our money most efficiently because that's your tax dollars at work. And that's where electronic filing really pays off in a big benefit.

And also again with the paper process your refunds are going to take much longer to get back to you. If you owe you won't get an acknowledgement. So there's a lot of downsides to the paper process versus the electronic process. So there are really benefits on both sides.

Mr. Smith: Switching a little bit to performance metrics, IRS must track a number of performance metrics for e-filing. Which do you track to see if your goals are being met and then what role do third parties or other stakeholders whether it's agencies with the government help in defining what those metrics are?

Mr. DuMars: What I look at are a couple different things and I focus in on a few. One area is I look at the total, how many electronic returns, and so far this year, we've gotten 66.7 million returns. It's a huge number and that's out of about 133 million returns that we expect. So we're already above 50 percent and growing. And we still have two extensions to go through which will probably give us at least another million, million and a half returns, maybe even more.

A couple other metrics we look at are how are the tax professionals doing, how is their growth, and this past year they grew at 10.7 percent. And then also the online, the self-prepared, the people who are coming across and doing it on their own, that grew at 17 percent. So we're seeing a lot of growth in that space. And then, of course, we keep a close eye on Free File because Free File is a program that it's aimed at a variety of different groups including the poor and underprivileged but also other people that need access and are underserved. And it grew dramatically this year, almost 46 percent. So there are some key metrics in there that we keep an eye on.

The other thing that we've been focusing on quite a bit is our modernized e-file and its growth and that's because we had really underestimated what was going to happen there and it far exceeded our expectations. And so we have several thousand returns that we've gotten in through that process and we're expecting a lot more next year as all the software companies come on. So those are several of the different metrics that we look at. I mean, as you guys can see, I've got tons more but we don't have all day.

Mr. Smith: Well, we've talked today a lot about the strategic relationships IRS has with tax practitioners, with software developers, I know electronic returns organizations, agencies, state governments as well as, of course, the taxpayer and I've heard you refer to this as somewhat of an ecosystem. What are the challenges that you face dealing with this ecosystem or partnership with these?

Mr. DuMars: Let me describe what this ecosystem looks like. When I came into the IRS, and this is the one thing coming from the private sector and most people don't realize this, when you come into the Service it's like getting the fire hose effect. There is so much going on, there's so much new information, and having to deal with Treasury, Congress, the commissioner's needs, your own executives, and the public it's just a lot coming at you all at once. What I was trying to figure out is how does this whole thing work?

I mean, we've got all these different players. We've got software developers, we've got other government agencies, we've got states, and so on and so forth and, as my staff would say, I just started drawing pictures because I'm a visual guy so I'm trying to see how it works instead of just trying to read about how it works. So I was drawing pictures about how the pieces all fit together and that's when I started coming to the realization that there are so many different pieces and parts and so many different pieces work together or work in tandem or work in parallel or cross each other's paths that I thought well, this is some sort of an ecosystem where one group lives off another group and so on and so forth.

So payroll is a big key player and tax software is a big key player. On our end we have vendors that actually help build all the applications behind the scenes like IBM helps us with the modernized e-file and we have a whole bunch of other prime contractors that help us. We have vendors that help us with irs.gov and so on. So all these things come together and make it so the process works.

And the ecosystem has been there for a long time. It was there when the paper process was the primary and it'll be there when it's all electronic some day in the future. And so by understanding that, understanding the ecosystem and that life cycle of how the information flows through, we can start pinpointing what are the problems. Is it a policy issue that's preventing e-file from growing? Is it we're missing a form? Is it we're missing something else? Is it we're missing the fact that 1.4 billion information returns all come in paper to the taxpayers mostly and half of them come in paper to us which is a huge problem. We call it the final frontier because it's the next place we need to fix.

So looking at that we're trying to think about what kind of ideas could we put in place that would help grow e-file more? One of those we keep looking at is a clearinghouse concept for information returns and we're trying to figure out what would that be and how would that work so we're looking at other examples that are out there today. There are examples in the health medical records space, there are examples in student data and transcript space, and there are also examples in transportation and licensing space. So we're trying to understand how they work today and a lot of those have been going for many years and see what we could possibly do in our space.

Is something we want to do a clearinghouse, a nonprofit? Is it something we want to build in the IRS? Is it something the industry would want to build? Don't know what the answer is but we're trying to understand this and by understanding it it will set the direction for where we go in the future.

Mr. Smith: We talked earlier this morning about security as it relates to the data and some of the issues that are surrounding that. But as we bring it back to the ecosystem what is the IRS doing to work with this tax industry community around protecting their critical infrastructure, things that are outside of the IRS's direct control, and what measures are you taking to help them with that?

Mr. DuMars: That was one of the key things when we came to the summit and we all came together. And we sat there on day one and we looked at each other and we said IRS, we're doing a lot of work in security and disaster recovery. Then you talk to another big player like H&R Block and they go we're doing a lot of work in disaster recovery, and Intuit would say the same thing. And we had some smaller vendors there and they say yep, I'm doing a lot of work in protecting myself.

And then we all came to the realization but no one's working to protect the whole thing. We're all looking at each other and we're saying we're all going to protect ourselves but there's a lot of pieces in the middle. And then there's also the taxpayer and the small business owner who's at the end of this line of the ecosystem and how are they protecting themselves and do they fully realize what's going on? And there's been lots of statistics and studies done and 40 to 50 percent of small businesses don't keep their anti-virus software up to date. They don't have personal firewalls on their computers. And if a tax professional is a small business, which a lot of them are, they probably fit in that category. They just forget out it. Oh, I forgot to pay my $19 a year or whatever their cost is for their software.

So how do we educate and outreach in that space? And what things do we do in the event something happens? Four hurricanes in Florida… who would have thought? It happened. It was a statistical anomaly but it occurred. And there are data centers that line up under where those hurricanes were. They could have been impacted. There could have been tax returns floating through there. What would we have to have done as a group, as an industry, to protect ourselves? Because the thing we also came to realize, if one of us has a problem, all of us are having a problem. It's not just one of us has a problem and the rest of the industry gets to skate away from it. We don't get to any more. We don't get a free ride.

Mr. Smith: You're very connected, right.

Mr. DuMars: We're all extremely connected and we all need to work together. So we're actually working right now on different plans for how we would do an industry-wide business recovery plan and what types of communication efforts we work on, how would we keep in touch with each other. Take away the fact that there are terrorist attacks or other types of disasters or cyber attacks it may not be anything associated with it. It could be something completely that we don't expect and it's something we'd work have together on to resolve and fix and, as I say, the thing we can't lose is trust.

Mr. Kamensky: That's really fascinating. It's really interesting to hear your description of a tax ecosystem. What are some of the lessons learned on customer service? We'll ask Bert DuMars, Director of Electronic Tax Administration at the IRS, to explain this to us when our conversation about management continues on The Business of Government Hour.

Mr. Kamensky: Welcome back to The Business of Government Hour. I'm John Kamensky and this morning's conversation is with Bert DuMars, Director of the Electronic Tax Administration at the IRS. Joining us in our conversation is Jeff Smith. Well, what are some of the lessons learned from your experience as Director of Electronic Tax Administration and what advice would you share to government leaders and executives who work on customer service issues?

Mr. DuMars: Well, I think some of the lessons learned in this space have been making sure you've got everyone at the table you need to have at the table if you're going to talk about something, if you're going to talk about, for instance, security in the industry, if you're going to talk about a policy change. Some of the things that we're working on, we're working on some major regulations this summer that we're hoping to go public in the fall so they can comment on it.

We've needed to get feedback and the feedback's been coming in actually even before I got in but it's bringing everyone together and making sure that you can get some consensus. Another thing when I came up with this ecosystem concept a lot of it was based on a reporting agent summit we had when I first arrived at the IRS. And we actually had, again, states and payroll and credit unions and banks and financial services firms all in the room.

And the way I came up with this clearinghouse concept wasn't because I was brilliant and had this great idea. It was because we sent them off in four groups and they all came back and said boy, wouldn't it be cool if we had something like this, a data warehouse somewhere that we could use that would be available to the taxpayer, would be available to us to give data to you, and then they could give data to the government and do that in a safe and secure manner protecting privacy and everything else. So it's really working with them and listening to the industry. And the same thing would go with customer service, listening to their issue, listening to the problems they're having. Sometimes, as I told you earlier, they say boy, I'm really good at using your website. Well, okay, that person's really good at using my website. Well, the other person who maybe just started in the tax industry or has been there for a while is having difficulty using my website. So that says hey, sure, we're meeting the needs of a good group of people but we also need to meet the needs of other people and how do we improve our service that way.

So it's really how do we all work together in bringing the right people together at the table to talk about these things. And that's the interesting thing with the Electronic Tax Administration Advisory Council. We get that opportunity. And they don't always agree. In fact it's hard to get consensus but we get to drive in a very similar direction.

Mr. Smith: Well, technology has certainly also played a part in how the IRS is progressing and how you've dealt with customer service. How do you see information technology as we move forward helping the IRS and helping your office, the Electronic Tax Administration?

Mr. DuMars: I think the real key thing with all the technology direction is, number one, providing more services through the Internet to taxpayers, tax professionals, and businesses that are actually doing their own, they're going to manage their own tax preparation process, and then also providing more automation internally to the IRS itself. How do we make sure our employees are more efficient? At both ends of that scale you see where the taxpayer dollars are being used more efficiently both for internal and external processes. And anywhere where we can do process innovation in those two spaces will make our overall operational excellence improve dramatically.

So how do we make sure that even our customer service agents are much faster, they can answer the phones quicker, they can get the information to the taxpayer quicker? And then how can we make it so the taxpayer can just get it themselves? I think we're going to always have to have multiple channels but the more we can put more automation in and more technology in its place to make those channels faster and more efficient the better off the public is going to be in the long run.

Mr. Smith: So aside from managing this challenge you have with serving varied customers because you have a variety of customers you deal with can you describe other challenges that the IRS faces now that you're dealing with a lot of electronic interaction with taxpayers?

Mr. DuMars: I really think because of all the issues that we had this past year in Chief Security Officer magazine they called it March Madness with all the disclosure issues in the different financial services firms that happened. That is going to be our big issue going forward, how do we maintain that trust? The one key thing about e-file which I haven't mentioned yet is that e-file is a voluntary process. There's nothing that says a taxpayer, a tax professional, a small business, has to e-file their return and if we lose that trust we can't afford for them to go back to paper. So that's a real key point. So we have to make sure we keep that trust and we keep those benefits that they're getting out of the program now and keep those going into the future. And one thing that we're hopeful to have in a few years down the road is the ability for the taxpayer or the tax professional to really go in and have more of an account with the IRS where they can look at their information and they know what they've done in the past and what they need to do for the next filing season. So that's really one of the goals we're trying to strive for as well.

Mr. Smith: So looking forward 5 to 10 years from now, where do you see your office, Electronic Tax Administration, in the IRS overall?

Mr. DuMars: Well, it's funny. Electronic Tax Administration has a role of really pushing the IRS, pushing it along, looking for new opportunities to move our processes in the electronic space. A good example is this information return area. There's a good opportunity there to do more in that space. There's a good opportunity to advance in more of our electronic services.

I'm hopeful that someday instead of having 50, 60, 70, even 80 percent of e-file returns hopefully we're banging closer into the mid-90s and maybe even higher. Who knows? We'll see where things are in 5 to 10 years from now. But if we have an all-electronic process from end to end starting with think about you're getting your paycheck and money's being distributed to the state and federal governments, Social Security, and then when you get at the end it's an all- electronic, you get all your information in an account format and you start your preparation process either yourself or with a tax professional and then it's all done electronically. You get your refund or you make your payment electronically. It's this total electronic process and you know it's done, it's all secure, it's all safe, and that's really where we want to be. We want to see that whole process end to end all electronic, all secure, and all safe.

And I think that by doing that and making it easier and safer and securer that it'll actually allow the taxpayer to pay their fair amount and know that they've done that and know that their neighbor's doing that as well so that they won't feel like hey, someone's getting away with something. It'll all just work. It'll be seamless.

Mr. Kamensky: One last question we always ask our interviewees, what advice can you give to a person who's interested in a career in public service given that you've come here for the first time from the private sector?

Mr. DuMars: Well, I'll tell you coming from the private sector the one thing you have to be is patient. The process is a long process. If you want to go into the IRS or any of the agencies you have to go through a lot of background investigation. You have to give them time to go through the interview process and go through the approval process to hire you. So one piece of advice is if you want to go for a federal government position give yourself six months to make it happen because it's going to take at least that long. That's one thing.

And don't get frustrated. The people that are trying to get you in, they're working hard but there are processes in place and they're in place for a good reason, to make sure that they're getting the right employees. The other thing to consider is when you're in there you will never get more exposure than inside the federal government because if you're working on a high profile or a low profile there's a lot of oversight. There's more oversight than there is in the private sector. So you need to understand that going in.

And it's not that people are going to be beating you up or they're looking to take down your program or anything. It's just part of the process of the checks and balances. It's the oversight from one agency to the other. It's the oversight from Congress over the agencies or even within the Treasury over the IRS and OMB over IRS. So those are the things you just have to be aware of when you come in. Not get too frustrated, understand the processes, and understand how to communicate within those boundaries.

Mr. Kamensky: That's really fascinating. Jeff and I want to thank you for fitting us in your busy schedule and joining us this morning.

Mr. DuMars: Oh, well, thank you and thanks for having me. And if anyone wants to get more information about our programs in the IRS please do go to www.irs.gov.

Mr. Kamensky: This has been The Business of Government Hour featuring a conversation with Bert DuMars, Director of the Electronic Tax Administration at the IRS. Be sure to visit us on the web at www.businessofgovernment.org.