Originally Broadcast Saturday, January 6, 2007

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.

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 Michael Ryan, vice president of the Administration and Finance with the Millennium Challenge Corporation.

Good morning, Michael.

Mr. Ryan: Good morning.

Mr. Morales: And joining us in our conversation is Pete Boyer, Director in IBM's federal consulting practice. Good morning, Pete.

Mr. Boyer: Good morning, Al.

Mr. Morales: Mike, perhaps you could start by giving us an overview of the Millennium Challenge Corporation. Tell us a little bit about the mission and give us an overview of the Millennium Challenge Act of 2003, and some of its key requirements.

Mr. Ryan: That would be my great pleasure.

The MCC mission is simply to reduce poverty by supporting sustainable economic growth in developing countries -- in those countries which create and maintain sound policy environments.

The Millennium Challenge Act established MCC to administer the Millennium Challenge account. This was established in January of 2004 as a result of President Bush's commitment at the Monterey summit. And that summit focused on financing for development, and the purpose, as stated, was to provide greater resources for developing countries, taking greater responsibility for their own development. It sometimes been referred to as assistance with accountability.

The act itself mandates that MCC provide assistance in a manner that promotes economic growth and the alleviation of extreme poverty and strengthens good governance, economic freedom, and of course, investments in people.

The MCC program, of course, is only one component of our overall foreign assistance strategy, but it is an important and an innovative one. It's something new, and our work draws on lessons learned from international development organizations over the past 50 years, and it focuses on the long-term mission of reducing poverty, as I mentioned, through economic growth.

In short, we work in partnership with some of the poorest countries to create country ownership instead of long-term dependence on assistance. We want to give assistance in order for countries to take over the job of their economic growth and alleviate poverty within their borders.

Mr. Morales: Mike, this is certainly a non-trivial challenge in mission. Could you tell us a little bit about how your organization is organized, the size of your budget, and how many people are employed in your organization?

Mr. Ryan: MCC was designed as a small and a federal corporation and is meant to ensure accountability for the aid we administer. As a federal corporation, it's managed by a chief executive officer, who's currently Ambassador John Danilovich, and he's appointed by the president and confirmed by the U.S. Senate.

What makes us a little bit different is we're overseen by a board of directors, who make the major decisions, what countries to give assistance to and the like. And that board of directors is chaired by the secretary of state. The vice chair is a secretary of the treasury. Other members include the -- the United States trade representative. The U.S. aid administrator. And it is has interestingly two public members currently, although, there may be more in the future.

Kenneth Hackett, who's the president of Catholic Relief Services, and Governor Christine Todd Whitman, who in addition to being the governor of New Jersey, was also a former EPA administrator and now is a president of the Whitman Strategy Group.

We have a number of departments. We have operations, we have a department of accountability, a department of policy and international relations. Of course, we have congressional public affairs and an office of the general counsel. And then we have the department that -- that I head up, administration and finance.

As far as our budget goes, the commitment had been to rise to $5 billion a year. The current request is for $3 billion. The House passed a bill, and now is at $2 billion. I don't know where that's going to end up. And clearly, one thing that gives us a good deal of flexibility is that all of our MCC funds are no-year funds, which means that we can obligate funds for a five-year compact at the beginning of the five years, and it's available until it's expended on that -- that compact. It saves us from year-to-year ups and downs and countries can rely on this -- this assistance.

As far as the -- the level of staff, as I said, we're small and we're -- we aim to be small. We want to arise to a staff of -- of 300 in Washington, D.C. Currently, we have 20 people stationed overseas that are above that 300 number, and that number overseas should rise as we established additional contacts in other countries. At the present time, we have approximately 280 people in Washington.

Mr. Morales: So, almost 300 people managing $3 billion in assets?

Mr. Ryan: That's right.

Mr. Boyer: Now, Mike, what are your specific responsibilities and duties as a vice president of administration and finance, and could you tell us about the areas under your purview?

Mr. Ryan: Sure, Pete. I -- I'm essentially a chief financial officer in the federal mold. I'm responsible for the same areas that many CFOs are responsible for, financial management and reporting, financial services, budget formulation execution, development of annual performance plans, oversight of financial systems, and producing the annual performance and accountability report and procurement.

I also have oversight of HR, Human Resources, recruiting in development. Facilities management, both in Washington and overseas. IT and personnel security. So, it's just a full range of administrative and financial duties that you'd expect to see in an organization with my title.

Mr. Boyer: Now, Mike, you clearly had a very interesting career. Could you describe your career path for our listeners? Specifically, how did you begin your career?

Mr. Ryan: Well, I should start off by saying that I -- I had been a civil servant until my current appointment with MCC for many, many years, but my first position actually was a mathematics teacher in Baltimore City schools. After I earned an undergraduate degree at St. John's College in Annapolis. But I left teaching math and went to -- to Harvard where I got a -- a PhD in near eastern languages and civilizations. I got that degree in 1981, after having joined the federal government in 1979.

During my studies on -- on that degree, I spent three years researching Egypt and traveling around the Middle East under a Fulbright at Smithsonian and the Center for Arabic Study Abroad fellowships.

I've had several positions in the Department of Defense and Department of State. And when I first joined in 1979, as I mentioned previously, I was a Middle East analyst for the Department of Defense. I've also had senior-level positions, including deputy director of a plans directorate under the Defense Security Assistance Agency. I've been the acting deputy assistant secretary for International Narcotics in Law Enforcement Affairs in the Department of State. I was also the executive director and comptroller of that same bureau in the Department of State.

I also worked at EPA, where I first met Governor Whitman, and I mentioned before, when she was the administrator. And I first started as a comptroller there in 1997, with responsibility for budget formulation and execution. As all -- as well as all aspects of financial management in operations.

I became the deputy CFO of EPA then in 2000, and I had that job until 2006. May, actually, when in joined MCC. At EPA, I also managed their strategic planning, budgeting, financial management, performance measurement analysis, and their accountability functions.

Mr. Boyer: Mike, that's a very broad set of experiences. I'm curious, how have these experiences prepared you for your current leadership role at MCC, and have formed your management approach and leadership style?

Mr. Ryan: I guess being deputy CFO at EPA and acting CFO during periods when EPA did not have a Senate-confirmed CFO in place was the best preparation for my technical duties at MCC. Having a practical experience in managing a CFO shop, including problem-solving in all areas normally reporting to a CFO, and also extremely useful contacts within the CFO counsel, helpful opportunities to share experiences across the federal CFO community.

Previously, I think overseas experiences in the Department of -- of State and Defense, where I was based in Washington, but did extensive travel, in addition to my -- my work, as I -- I -- on my degree that I -- I referred to previously, helped me understand other country's governments and -- and cultures, and how you deal with countries in their own terms and -- and not necessarily bring your own cultural assumptions to play.

So, it was a useful body of knowledge overseas and -- and in the CFO environment because I had to deal with a wide variety of people and -- and people who approached tasks from different angles, and it's tremendously useful in the federal workplace, which is, as you know, wonderfully diverse.

Another useful leadership lesson from defense was that you really have to build a team from the people that you inherit, and then you get to the task of recruiting others. And everybody brings skills to the task. It's a leader's responsibility really to find the best way to use each team member's skills to support the mission and target your recruiting to fill any areas where skills need reinforcement.

I think it's another example of why it's important to appreciate the diversity of abilities and backgrounds represented in the federal workforce based on all the talents that federal employees bring to work everyday, I think we're well equipped for problem-solving from a variety of perspectives, and we're especially well set up to deal with foreign governments, many of whose children, if you will, came to the United States either recently or in the distant past as immigrants and deal very well with those cultures.

Another lesson learned from my experience in defense, state, and EPA, and especially now at MCC, is the importance of public/private partnerships. The private sector has a depth of talent and knowledge that's always refreshed, and government can make good use of private sector expertise to augment its workforce to accomplish the civic tasks without institutionalizing that expertise when it might not be appropriate. To the next set of tasks that lie ahead. It helps to keep public sector organizations more nimble by allowing us to take on specialized talent as needed, while maintaining a basic core of skills in the career ranks.

For example, when EPA was assigned to a government center of excellence to host financial systems, my staff and I argued successfully for a public-private partnership along private sector centers of excellence to compete for technical services in the IT area and in accounting.

This competition, I understand, here at the beginning of December is still going on at EPA. OPM is -- is now, I understand, going to do something similar, and I think that's a good model for a small lien organization like MCC. That is reaching out to the private sector for help in those areas that the private sector does especially well, and can tailor its support for the needs of the day without institutionalizing that support and fixing it in place.

Mr. Morales: That's fantastic. I can -- I can see now why you are focusing on solving some of the world's greatest challenges. Thank you.

What kinds of innovations are being pursued by the Millennium Challenge Corporation? We will ask Michael Ryan, vice president of Administration and Finance with the Millennium Challenge Corporation 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 Mike Ryan, vice president of Administration and Finance with the Millennium Challenge Corporation. Also joining us in our conversation is Pete Boyer, director in IBM's federal consulting practice.

Mike, in pursuit of its mission to reduce poverty by supporting economic growth as you described in the first segment, the MCC has identified and defined three key principles to guide the efforts.

Can you elaborate on those guiding principles and what is new about the MCC approach to international development?

Mr. Ryan: Well, thank you. The three principles are first of all, to reward good policy. Countries are selected based on their performance, as shown on objective indicators. Not indicators that -- that MCC develops, but that NGOs of the private sector, someone outside, an objective measurement is done on governing justly, which means investing in their citizens and encouraging economic freedom.

The second thing, in addition to rewarding good policy, is that we operate as partners. Countries are responsible for identify the greatest barriers to their own development, ensuring civil society participation in planning and developing a Millennium Challenge account, or MCA program.

Then, to participate in -- in a MCA program requires a high level commitment from the host government. Now, when I say "MCA," of course, I mean the Millennium Challenge account, which is the appropriate that MCC uses.

Each country enters into a public compact with MCC. That includes a multi-year plan for achieving development objectives and identifies the responsibilities of each partner in achieving those objectives.

The third principle, the first being rewarding good policy, and the second, to operate as partners, is to focus on results. MCA assistance goes to countries that have well-designed programs with clear objectives, benchmarks to measure progress, procedures to ensure a fiscal accountability per the use of the Millennium Challenge account assistance, and a plan for effective monitoring and objective evaluation of results.

Because we focus on rewarding good policy, we are seeing something new, and this is where the innovation comes in. Something new in international development, which our CEO calls the MCC effect.

We are seeing examples of countries making important policy changes on their own in order to qualify for funding for the Millennium Challenge account. This is extremely encouraging because we are seeing positive change even before MCC investment begins. I could give one example of this that happened fairly recently in the last couple of months.

We had one country that had a policy. Actually, it was written into their constitution, that married women couldn't inherit property in their own name. And we determined early on that this would mean that only 50 percent of the population would get any benefit out of the --economic benefit out of -- out of our policies, and we told the government, no, this is just not acceptable. You know, we can't continue our conversations if this stays in place. Although it was a longstanding policy and it was rooted in -- in culture and -- and in -- in prior law, they went ahead and changed that law, and they did that without receiving a nickel from us. And one got the feeling at the end of the day that there was something in just getting the stamp of approval that they had passed the test.

That's one anecdotal account, but a very real one. Two Harvard economists studied the MCC effect in a report released earlier this year, and they concluded that countries are responding to MCC's clear and actionable incentives. This is -- was -- was done in the Kennedy School of Government; it was called "Can Foreign Aid create an Incentive for Good Governance: Evidence of the Millennium Challenge Corporation."

Then there was another one from the manager of the World's Bank's "Doing Business Project," And the quote there I think is a good one, in which they stated that we have seen a number of reforms around the world in both rich and poor countries, but in many of the developing countries, the reform has actually been primarily as a result of the inclusion in the Millennium Challenge account.

Now, I would note that we often see reforms, as I -- as I mentioned before, in anticipation of the funding of the Millennium Challenge account, and not just as a result of projects in those countries.

Mr. Morales: That's a powerful story. Now, you used the word "compact." Can you describe the MCC compact development and implementation process, and what are the criteria methodology for determining eligible countries and establishing these compacts? And can you tell us a little bit about the composition of the projects that make up the portfolio?

Mr. Ryan: Surely. I think around the compact development, you get a lot of the innovation that -- that you asked me about before. I mean, what is different? Well, for example, for the fiscal year 2007, the candidative countries, you know, were identified on the basis of a per-capita income, and they must be in the low-income, preferably, for a lower/middle-income categories established by the World Bank. By law, only 25 percent of our funding may be used for lower/middle-income countries, assuring that most of our support goes to the poorest nations in the world. And I might add that we make every effort that if a lower/middle-income country makes a -- a proposal for a compact, and it is for some of the poorest people in their country, we find that to be a very compelling argument for going to that lower/middle-income country.

We report to Congress on our selection methodology, and our board of directors that I mentioned before, base a selection on specific performance indicators developed by independent, third-party institutions. We also seek public comment on selection methodology.

Right now, we're using 16 indicators in three broad categories, and countries must score above the median to be eligible. These indicators come from organizations including the World Bank, the World Health Organization, Freedom House, and UNESCO. And again, the indicators are -- are in the three areas that I mentioned before, ruling justly, investing in people, and -- and I think I mentioned economic freedom.

And by "economic freedom," we -- we mean things like the costs of starting a business or the days to start a business, trade policy, those things that might be either barriers or spurs to economic development we want to see.

Investing in people, you could have public expenditure on immunization, public expenditure on primary education, and -- and interestingly, girls education completion rate, which we see -- think to be extremely important.

Ruling justly, I think we're more familiar with. I mean, civil liberties, political rites, voice and accountability, rule of law, and significantly control of corruption.

The MCC board selects eligible countries using the above methodology and submits a report to Congress, and the selective countries are then eligible to begin developing a compact proposal for MCC consideration. At this time, we have 11 signed compacts in place, representing a total of nearly $3 billion, supporting programs in agriculture, infrastructure, land tenure, healthcare, and other sectors. Most compacts extend over a five-year period.

Mr. Boyer: Mike, does the MCC dedicate any funds for those countries that do not specifically meet the compact criteria, but are moving in the right direction? And if so, how?

Mr. Ryan: We do, Pete. We offer a threshold program that provides financial assistance to help improve a score on one of our -- of the 16 indicators that I mentioned.

The board of directors selects the countries for the threshold program based on their overall performance on all 16 indicators and their demonstrated commitment to improving the scores and their ability to undertake reform. Countries selected for threshold consideration must create a plan that identifies miserable ways to improve a specific indicator score and they must submit that plan for MCC review and approval. We make threshold program agreements with countries whose plans demonstrate meaningful commitment to reform and a high likelihood of successful implementation. And, of course, the measurement of that success is, again, done outside of MCC. I'll just give you two examples.

In the first case is the government of the Philippines, which actually passed the corruption indicator, but both the government of the Philippines and MCC felt that we would like to work more on this. And so, we made $21 million in threshold funds available to the Philippines in 2006 for anticorruption efforts. And what was really exciting about this was that the government made a decision to match those funds fairly closely so that it doubled the amount that was available, and we view this as a real commitment to reform on behalf of the people of the Philippines.

Another example that's not corruption was in 2005, Burkina Faso in Africa became the first threshold country to be approved for a compact funding. Burkina Faso was awarded $12.9 million for its threshold country plan, which was designed specifically to improve girl's primary education completion rates.

Mr. Boyer: Those are powerful examples. What does it mean for compacts to enter into force, and how does it relate to the actual disbursement of committed MCC funds to recipient countries?

Mr. Ryan: Well, this is another term of art. A compact is a contract is between MCC and a foreign government. It sets out the terms of the programs to be funded along with the funding to be dedicate in each year -- in each compact year for specific project components.

For example, a compact might set out dollar amounts anticipated to be spanned in each five years on a component such as improvement of a particular set of rural roads to get products to market, for example. The compact also outlines the general terms of the road improvement work to be undertaken. The signing of the compact commits the full funding for the specified project in a given country. After the signing, we continue to work with the country, we do due diligence, and we make sure that all conditions are in place to support a proper disbursement of funds.

When those conditions are met, then we declare the compact ready to enter into force, we obligate the funding and technical terms and the disbursements begin thereafter.

Mr. Boyer: Mike, to supplement its organizational structure in assisting caring out its mission, MCC has several formalized interagency agreements, or IAAs, with other federal government agencies. Could you elaborate on these collaborative relationships?

Mr. Ryan: Well, I think that -- that with a small organization, it must be clear to everyone that we can't do everything that is necessary for us to succeed. So, we have a number of these kinds of agreements.

For example, the National Business Center of the Department of Interior pays the MCC employees and provides financial systems and some accounting support. We also work closely with USAID, and to some extent, with the Department of Justice for the threshold programs that we discussed earlier. Treasury also provides technical assistance, especially in the banking sector, and from time to time, no doubt will sign other IAAs with other federal entities as the need arises.

Mr. Morales: Excellent. How is the MCC managing its program development efforts? We will ask Michael Ryan, Vice President, Administration and Finance for the Millennium Challenge Corporation 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 Michael Ryan, Vice President, Administration and Finance with the Millennium Challenge Corporation. Also joining us in our conversation is Pete Boyer, director in IBM's federal consulting practice.

Mike, how does the MCC make sure that compacts with partnered countries are going to produce the results that will satisfy the U.S. taxpayers and meet the goals of the MCC?

Mr. Ryan: Well, I think that the U.S. taxpayer has shown the willingness to fund humanitarian assistance and assistance to poor people, as long as the overhead is not too high, and as long as the goals are worthy, and the people that really need the assistance receive it.

To ensure that we meet some of these expectations, MCC forms a transaction team whose members work closely with representatives from the country developing a compact proposal. Our teams include people with a range of a pertinent expertise in economics, law, and the appropriate technical areas, such as engineering or agriculture. We may also have someone who's an expert on gender issues, for example, or other social issues, or even the environment.

Partner country representatives are expected to engage in wide consultation with members of the public in a civil society in their own countries to ensure their compact proposals reflect needs identified by their own people and the poorest among them, and that the solutions are likely to work best for them.

MCC transaction team members evaluate all parts of a proposal and work with partner country representatives to develop practical, well-designed programs that incorporate steps to measure and evaluate results. MCC's investment committee, on which I have a vote, also plays an important role. It's chaired by the deputy CEO and is composed of MCC's senior officials.

The MCC committee considers all aspects of compact development and votes up or down any aspect along the way. MCC's board of directors, of course, has the final vote on a compact. The best designed compact programs are in the support of the investment committee first, and then the board of directors by incorporating meaningful evaluation of results and showing the promise of reducing measurably the number of people living in poverty. And, I might add, all of our discussions of the size of our staff and the amount of money that we put into overhead I think is an important one because we try to keep the overhead fairly low.

Mr. Morales: Now, Mike, as the -- as the CFO, many of our listeners may find it interesting that the MCC has identified that Chief Financial Officers Act of 1990 and the Federal Financial Management Improvement Act of 1996, and various other financial laws and regulations did not cover your operations.

What is MCC's basis for this position and does the MCC plan to follow at least the spirit, if not the letter, of those laws because they make good business sense?

Mr. Ryan: Actually, Al, we do manage our business according to the mandates of these laws and regulations. As we've said several times, we're small and organized as a federal corporation, rather than as a typical independent agency. And we were established after many of these laws were enacted. But we comply with them, however, and because we're part of the executive branch, and because they make good business sense.

For example, we issued our financial statements on November 15th with the rest of the federal government, and I might add, we got a clean opinion on that, and we intend to do similar things in the future.

There have been a number of government management reforms enacted in legislation in recent years. Most of them aimed at focusing agencies on managing for results and enhancing accountability for program outcomes. I'd like to think that MCC was designed to accomplish both of these ends, so it is not a stretch for us to follow the course outlined in legislation.

Mr. Boyer: Mike, on a similar topic, a key element of all compact development and execution is fiscal accountability. You know, the mechanisms and processes that assure that funds are managed properly and procurements are undertaken in a fair, open, and transparent manner. However, some of the compact countries do not perform accounting on a accrual basis by recording commitments and obligations.

Would you elaborate on the guidance provided to compact countries and requirements placed on those countries, and how has MCC handled this situation?

Mr. Ryan: Well, Pete, that's a question that's going to warm accountants' hearts all over the city this morning. MCC has a department of accountability which is responsible for these matters, and my department, of course, supports their work. Consistent with our model of country ownership of MCC-funded projects, compact countries must have internationally recognized system of accounting in place. It does not have to be identical to the U.S. model, but has to be recognized. We're constantly refining our approaches to this and expect to see continued improvements in the future.

For example, we require compact countries to have a fiscal agent and a procurement agent that we consider to be technically qualified. But while some countries might not use accrual accounting, the accountable entity, which is the organization set up in the country to carry out the compact by the government of that country, the accountable entity, often referred to as an MCA, set up by the government of a compact country must provide us with regular estimates of their cash needs. And these actually can serve as a surrogate for accruals, and indeed, we did an accrual in our financial statements just like every other federal entity on November 15th, as I mentioned before.

Mr. Boyer: Well, Mike we're -- we're glad we can get the -- the hearts of the accountants warmed up this morning.

Mr. Ryan: Let's not warm them too much.

Mr. Boyer: The USAID Office of Inspector General identified vulnerabilities affecting the MCC program in several criteria areas, including procurement, cash management, and disbursement that may adversely impact its financial operations. For example, the IG identified that the MCC Cape Verde compact had problems in the areas of cash management and procurement.

Could you elaborate on the MCC strategy for mitigating such risks and vulnerabilities? Specifically, has the MCC established policies and procedures for evaluating disbursement requests submitted by recipient countries to ensure that the amounts disbursed are only for immediate cash needs?

Mr. Ryan: Sure. First of all, I -- I have to point out that we have a very collaborative relationship with our IG. And I personally engage in conversation with IG staff on many issues, including the one you're -- you're asking me about. And while we do not always agree, we receive many useful recommendations that have caused us to improve our procedures. And we've been working on some exciting -- at least exciting to me, possibilities to enhance mechanism for getting funding out to compact countries.

Our current approach requires quarterly disbursement requests from a country. It comes into MCC, we consider it, and we say yes to the -- to the funding, its justified under the compact or -- or we ask questions. But we disburse on a monthly basis, asking the country to project their cash needs for the coming month, as I mentioned before.

However, we are in consultation with the Department of Treasury right now to see if we might use their Web-based online system for making payments worldwide. They call this system ITS. This would enable us to require that fiscal agents I mentioned previously overseas to request payments based on specific invoices and to justify disbursements in a systematic way in -- in real time. In addition, we're investigating to see if there might not be a private sector that would provide a -- a global payment solution, as well.

Treasury is interested in working with us on a solution in either case, and if we can't do this, I believe it would address the IG's concerns that you've -- that you've mentioned before. I'd also like to be able to try a pilot as early as January of 2007, so quite soon with -- with one or two countries to see how this actually might work in -- in reality.

Mr. Morales: Michael, we talked earlier about some of the interagency collaboration, and we know that the MCC has outsourced much of its administrative functions, including human resource and payroll management.

But does the MCC recognize the value of implementing an integrated human resource and payroll system, and can you elaborate on the status of this effort and the overall strategy to forge an integrated system that reduces the reliance on manual processes and enhances your interface with the NBC systems?

Mr. Ryan: Well, that's a great question. I mentioned before our -- our interest in keeping overhead down and of course manual processes are done by people, and people are overhead. So, we want to cut down on these things. They also introduce errors, as everyone knows, and -- and we'd like to do as much as possible automatically and with an -- with an integrated system.

We get great service from Interior's National Business Center, but it does not have an integrated system at this time. I understand they have long-term plans to make it integrate in the future, but at the current time, it's simply not.

The benefits of integration are especially important for a small organization like MCC. We do not have the personnel to make the multiple entries required by a non-integrated system, especially as we take on more compacts and more countries. We will be engaging consults soon to perform an analysis of how MCC might best achieve full integration of its financial management. And also, I hope a reasonable timeframe for achieving it.

You know, I am intrigued by efforts to engage private sector organization as -- as a center of excellence to supplement governmental centers of excellence. I am very familiar with the competition that's been going on at EPA, and I'm -- I'm looking forward to see the results of that competition for running their financial system. It's something that I saw at the beginning of when I was -- when I was at EPA. And now, I read recently that OPM is -- is also looking for a private public competition in this, and I think that's really healthy and something that might work very well for MCC.

Mr. Morales: What does the future hold for the Millennium Challenge Corporation? We will ask Michael Ryan, vice president, Administration and Finance with the Millennium Challenge Corporation 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 Michael Ryan, vice president, Administration and Finance with the Millennium Challenge Corporation. Also joining us in our conversation is Pete Boyer, Director in IBM's federal consulting practice

Mike, in its rather brief existence, the MCC has had some significant achievements, and we've certainly talked about many of those today.

What do you envision for the MCC over the next 5 to 10 years, and what are some of the key challenges and major opportunities facing the organization?

Mr. Ryan: Well, our overwhelming challenge is going to be compact implementation. We've been talking about performing the compacts, and that's what the corporation (off mike) spending its first two and a half, three years of existence doing. But making sure that results that we envision are achieved is our next challenge. Most of the work will be undertaken by partner countries, as they own the projects. So, it's really more of a challenge to them. And the real beneficiaries -- if -- if both us, that is to say MCC and the host governments are successful, the real beneficiaries are the poor people of our partner countries.

Mr. Morales: Mike, with such a small organization, I can only imagine that every single individual has a critical role and -- and is critical to the organization.

To that end, what steps are being taken to attract and maintain a high -- high-quality technical force, and can you elaborate on initiatives to ensure that you have the right skill and the right staff mix?

Mr. Ryan: First of all, let me say that I don't think any organization in my federal career can claim a higher quality workforce than MCC. And we owe that in part to the attractiveness, I think, of our mission, but also we've talked a lot today about public/private partnerships.

We have a partnership with Korn/Ferry International, in particular their Futurestep Division, which ahs been supporting our recruiting and hiring efforts. We've also been energizing our recruiting efforts through partnerships with targeted non-profit organizations who subscribe to our belief that, and this is a term we think has some power, that a diverse workforce can make a world of difference. And as far as training goes, I've been tasked by our CEO to create an overarching training plan for MCC. Everything from language skills to management skills. And we're beginning with training for all our transaction teams in partnership with the Federal Executive Institute.

Mr. Boyer: Mike, you mentioned MCC's focus on low overhead, and we've talked about it on a number of questions today, but how do you respond to people in a developing community that have expressed that MCC's proposed staffing level of 300 is very lean for an organization planning to disburse $2 billion or more per year?

Mr. Ryan: Well, you know, when the road is -- is twisting and turning and you're in a race, you'd rather have a sports car. So, we're -- we're -- MCC is based on a new organizational model. And we think our -- our leanness is an asset rather than a liability.

The key to our ultimate success has got to be related to our ability to identify the right countries with the right governance and respect their responsibility for their own development. We believe this approach is more likely to give arise to sustainable efforts and lasting reduction in poverty.

If we were to increase our own numbers, we might be -- just might be more tempted to give ourselves a larger role in other countries' efforts, and we really don't want to do this. Having said that, we are concerned with the growing workload, and we're constantly looking for ways to streamline our work and procedures.

In fact, it's interesting as far as this question goes that as I left MCC to come to this program this morning, we'd had a little meeting in which we talked about our model and whether we should change it, what aspects we should change to meet the challenge of the growing workload that's -- that's certainly coming. But I'm confident that this is a problem that we can meet square on, and we aren't going to go above 300 people in Washington.

Mr. Boyer: I like the race car analogy, Mike. MCC's compact pipeline seems to be robust and growing. Could you give us a sense of the current and future pipeline, and is there a point at which expansion becomes too much for a fairly new organization like the MCC?

Mr. Ryan: Well, obviously, I can't predict how much the pipeline will develop, and because so much of our future activities will depend on congressional funding, and that again will depend on what we do in our measurements of success. But we've been signing. This past year, we've signed six compacts, and I would think that this year, I would hope we'd sign three or four. But beyond that, it would be difficult to speculate.

We've learned a great deal about what works and doesn't work based on our experience with the 11 compact countries so far and recognizing that individual circumstances make each nation unique in its capabilities and the development issues that it seeks to address, we know that we found some approaches that are replicable, and we may identify some efficiencies as a result.

Finally, I really think being a new organization is a benefit because we can implement new ideas without being burdened by our past. Perhaps a real challenge is to remain, as the song goes, "every young," and avoid the bureaucratic impulse.

Mr. Morales: Michael, you've had a highly distinguished career in public service spanning some 25 years, as you indicate.

Is there any advice that you would give to an individual who is perhaps considering a career in public sector, or who may have a specific interest in the efforts at the MCC?

Mr. Ryan: I think the most important question might be why should someone want to work for the United States government? Because, after all, MCC, even though we're different and new, is part of the -- is a part of the federal community. The answer, I think, has to be, because it's the largest, most ambitious, and most diverse enterprise in history. Working for the federal government means upholding the principles on which the country was founded in the form of the Constitution, which is still the model for many countries, and many of the countries we deal with. The federal mission is also large enough to accommodate just about any interest or skill.

What's the best preparation for a federal job? I think everybody has their own concept, but I always recommend that people get the best general education available to them, especially in the liberal arts. But, to me, that means science, math, history, and language, before they specialize.

USA Jobs is a central Web site for all federal jobs openings, and it really does contain something for everything. Our MCC.gov Web site also provides the ability for individuals to go on and do online applications for our jobs, and actually anybody who comes to talk to us, no matter who they are or where they come from or what their background, ultimately, we ask them go back to our Web site, MCC.gov, and fill out an online application.

With respect to jobs at MCC, we find a variety of technical skills useful, much like the other federal agencies in the development community. But I would encourage people to focus on foreign language skills, with French, Spanish, and Portuguese, the most useful to MCC at this time.

To work with representative other countries, there is an obvious benefit to being able to speak and understand their languages. Of course, it's not just language; we can never have too many employees with skills that include communicating across cultural lines, regardless of what their technical expertise may be.

Mr. Morales: That's fantastic. Mike, we have reached the end of our time, and that'll have to be our last question.

I do want to thank you for fitting us into your busy schedule this morning, but more importantly, Pete and I would like to thank you for your dedicated service to our country.

Mr. Ryan: Well, thank you. It's a great honor for me to be here. It's a great pleasure.

I'd like to invite everybody who would like to learn more about MCC, certainly more than -- than I was able to give this morning, to go to our Web site, MCC.gov, and there you can see information about countries, about our programs, and also apply for a job if you want, as I mentioned before.

Thanks a lot; I appreciate being here this morning.

Mr. Morales: Fantastic. Thank you.

This has been the Business of Government Hour featuring a conversation with Michael Ryan, vice president, Administration and Finance with the Millennium Challenge Corporation.

Be sure to visit us on the Web at businessofgovt.org. There you can learn more about our programs and you get a transcript of today's conversation. Once again, that's businessofgovt.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 Radio Hour, I'm Albert Morales. Thank you for listening.

Arlington, Virginia

Friday, August 23, 2002

Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and the co-chair of The Endowment for The Business of Government. We created The Endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness. Find out more about the Endowment and our programs by visiting us on the Web at endowment.pwcglobal.com.

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our conversation this morning is with Donna McLean, Assistant Secretary for Budget and Programs and Chief Financial Officer of the U.S. Department of Transportation.

Good morning, Donna.

Ms. McLean: Good morning.

Mr. Lawrence: And joining us in our conversation is Dave Abel, another PwC partner.

Good morning, Dave.

Mr. Abel: Good morning.

Mr. Lawrence: Donna, perhaps you could start by giving us an overview of the activities of the Department of Transportation and its different agencies.

Ms. McLean: Well, the Department of Transportation is just as it sounds, the Department that oversees our modes of transportation. We have 14 individual modes in the Department, some that you might recognize, some you might not. The Federal Highway Administration. So basically, we're responsible for pulling in the taxes off the gasoline that you buy, and putting it towards concrete, and distributing that money to the states. And that's quite a big bit of our budget.

FAA, the Federal Aviation Administration. Obviously, most people think of FAA as the Air Traffic Controllers, who make sure that we fly safely, and that they in fact control those planes, and we pretty much have the safest aviation industry in the world. And that's something that we're very proud of.

But there are some other modes that you might not realize that we oversee. Coast Guard right now is part of the Department of Transportation. And they're responsible obviously for the safety in the seas, but also for saving folks if they are at sea and have trouble. And we also have the MARAD Administration, and we have the Federal Transit Administration. And, you know, several other modes. But that gives you a flavor of what we see.

Mr. Lawrence: You have a very interesting title. You're the Assistant Secretary for Budget and Programs and the Chief Financial Officer. That's a mouthful. What are your roles and responsibilities?

Ms. McLean: Well, let me just say, I didn't give myself my own title. It was there before I came to the Department. And lately, I must say, with the issues on the chief financial officers of WorldCom and some of these other organizations, I tend to use right now the Assistant Secretary for Budget and Programs, and not happen to mention the CFO part.

But at any rate, under my office is both the formulation of the Department's budget, and also the actual execution of the finances of the Department. So we have the accountants under our department as well. That sounds very boring to most people, but the advantage of the Department, or being in the Department and in the budget area, obviously is that if anybody needs money, they need to come to us, either to propose for additional money, or see if we have any additional money. And so, as a result, the budget office gets involved in a lot of issues.

Mr. Lawrence: How large is your office? And is it just all accountants, or are there other skill sets?

Ms. McLean: I've got about 50 folks working for me at the actual department. But then we have a CFO in each of the modes. So there's a CFO at FAA and Highways. And where we set at the Department the policy, so the accounting policies, maybe travel policies, how we use credit cards, what you can use credit cards for traveling, and that type of thing; that type of policy is set in my office, as well as the formulation of the budget that DOT sends both to the President and then finalizes it and it goes to the Hill.

So we have a mix of folks who are more policy accountants, I'd say, and more larger, bigger budget picture folks, where the more detailed folks reside in the modes.

Mr. Lawrence: You've had an interesting career leading up to your current role. Can you tell us a little bit about your career progression?

Ms. McLean: Actually, right out of graduate school, I graduated from Indiana University. I got my undergraduate in political science there, and then I went on to get a graduate degree in public policy at the School of Public and Environmental Affairs, also called SPEA, at Indiana University.

After graduating there, I actually came and worked for the Department of Transportation for the Assistant Secretary for Budget and Programs. So I worked in the office I'm now heading up. And the woman who was heading it up at the time was Kate Moore. And it was a wonderful beginning into government, because like I said earlier, the budget office often has so much exposure to a lot of the policies. It's just not crunching numbers.

And I only did aviation. And then I went from there to the Office of Management and Budget. And these were all career positions. I went to the Office of Management and Budget, and was the budget examiner for FAA at the time, so I was looking at policy more from the Executive Office of the President.

And then from there I went to the Hill, and actually started a political position, working for the House Transportation and Infrastructure Committee, again on aviation policy, and was there for about 6 years. And that was a great, wonderful opportunity to work for Congress.

And then I actually went back to a career position, which is a little bit unusual. And I started -- I was the CFO at the Federal Aviation Administration. And then from there went back to a political position, which is where I am now, the CFO of the Department. So actually, this job that I'm in right now is the first time I've had transportation experience beyond aviation. So this last year and a half has been fantastic, because it's just really opened my world, and my knowledge of transportation, so it's been great.

Mr. Abel: Let's talk a little bit about that transition from FAA to being CFO of the Department of Transportation. What are some of the differences in working at the agency level versus the department level?

Ms. McLean: Well, the agency level, obviously, you're a little more concerned as a CFO on budget execution. So, you know, are we paying our bills on time? Are we making sure that at the end of the year, we haven't inappropriately spent something? Obviously, there's policy involved as well.

When I went to the Department as the CFO, it's much more policy-oriented, and probably more politically influenced. And part of that is because, like I said, I went from a career job to a political job. And so I'm a little more involved in policy I think at the Department than I was at FAA. But at the same time, FAA has a very strong group of career experts, with some phenomenal skills.

So when I went to FAA, sort of I was competing, I guess I'd say, for the administrator's time with just some excellent career folks that just had such strong backgrounds. It was a little bit harder for me to push into policy. And that I think maybe has less to do with an agency versus a department level, and more to do with just the personalities of FAA, you know, at the time that I was working there. There's just some phenomenally dedicated and very smart career folks there.

Mr. Lawrence: How about the differences from being a career versus being a political appointee?

Ms. McLean: I guess, you know, since I, like I said, flip back and forth, it's all public policy to me. And everything I have been involved in, I've been fortunate enough to feel like the decisions are made on their merits. Whether I'm in a career position or a political position, I am unbelievably honored to work for this President, George Bush. I have so much faith in him, and I'm just thrilled that at this point in my career, I am able to work for this President. So in that sense, that's just fantastic for me personally.

But for my day-to-day decisions, like I said, I think Transportation is, unlike some of the other departments, is less political. I mean, we are, at the Department of Transportation, promoting safety. It doesn't matter if you're a Republican or a Democrat. You're promoting safety. And as a CFO, I'm very interested in making sure the money we spend is spent wisely and most effectively. And again, I don't think that has a difference between whether or not you're a career person or a political person, or if you're a Republican or a Democrat.

Mr. Lawrence: And you've worked on the Hill. How would you contrast your experiences as being in the Executive Branch and being in the Legislative Branch?

Ms. McLean: I think in the Legislative Branch, you set policies, obviously, when you pass a bill. And sometimes, a committee may not pass a bill for, you know, a matter of a year or so. Or you might be working on a very large bill, and it passes -- you know, reauthorization for the Federal Aviation Administration, for instance, may only come along every 4 to 5 years.

So you're making policy, and you're setting large policy, and you're helping the members of Congress, you know, put into law their ideas. But it tends to be on a little bigger picture, and on a little longer time horizon. Once you get in the Department, I think you're taking those larger picture decisions from the Congress, and putting them in place in, obviously, more detail.

So you're setting policy, but it's on a smaller scale and more detailed scale, and so you're diving into really how does the aviation industry work? Really how does the trucking industry work? And when I make this decision, how does that really affect the industry?

And so I think it's a level, a degree of granularity, I guess I'd say.

Mr. Lawrence: Do you find that your management skills are the same in both settings, or were there different tools used based on that?

Ms. McLean: I think in the Department -- well, on the Hill, you know, the staffing size is so small on the Hill, that even those folks who do have management positions are managing a handful of people. Maybe on the committee level, you're managing, you know, 60 people. But in the Department, you can have -- you know, you're managing hundreds of people at a time.

So I think in any case, communication skills are important. And obviously, in the Department, while I'm saying I'm doing a lot of policy decisions, it's also a very fast pace. And so one of the things that is incredibly important is making sure that your staff is up to date on the decisions that are being made, so that they can understand why these decisions are made and not feel like this decision came out of the blue.

So I think as much as I can, and as much as I can slow down and talk to folks and make sure they feel like they understand what's been happening and why the decisions are made, I think communication is probably key in both places.

Mr. Lawrence: That's interesting, but we've got to stop for a break. Come back with us in a few minutes as we continue our conversation with Donna McLean of the Department of Transportation.

How does one get a clean opinion? The Department of Transportation just got one, so we'll ask Donna when The Business of Government Hour returns. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Donna McLean, Assistant Secretary for Budget and Programs and Chief Financial Officer of the U.S. Department of Transportation.

Joining us in our conversation is Dave Abel, another PwC partner.

Well, Donna, the Department of Transportation just received its first clean audit opinion on the financial statements for 2001. What steps did the Department take to achieve this?

Ms. McLean: Well, I have to be honest about this. We actually received a clean opinion in 1999, and lost it in 2000, and got it back in '01. And it I think just simply proves that a clean opinion is, once you get it, you don't rest on your laurels, because it's hard to maintain it, particularly with -- we are just now modernizing our accounting system. And we are trying to keep our clean opinion with a rather antiquated system. And it results in a lot of good people working phenomenal hours at the end of the calendar year to basically make sure all of our documentation is in order.

If I can talk for a minute about why we lost our clean opinion, because I think it's sort of interesting. At least for a budget geek like me, I think it's sort of interesting. Anyway.

In 1999, we got our clean opinion, sort of, like I said, by the skin of our teeth, working very, very, very hard. In 2000, we lost it, because in 1999, we got our clean opinion. And the way the accountants look at this is obviously, when you finish your clean opinion, then they don't look back again. They're just looking at your clean opinion then for that current year.

And what happened in FAA, some good people just made some wrong decisions. Some folks who managed property for FAA and were trying to make the documentation even better and clearer changed some documentation that actually affected some of the calculations on property values from 1999 and prior.

So what basically was happening was, let's say that you had a radar. And there was -- we were making sure that our documentation was clear and clean. And we had some kind of a new feature added to the radar. So there was an upgrade. So the value of that property in fact increased.

Well, if somebody logged in and actually changed the value of that property that affected prior to 2000, that basically took a database that was clean, according to our 1999 audit, and degraded it. Again, these are people thinking they're doing the right things, but we just didn't realize this was happening until late in the year and we couldn't correct it. And so the accountants, or the auditors, looked back and said, hey, this has now been violated, this clean property information.

So we actually lost it because people thought they were doing the right thing. Well, we've got that a bit under control now, and we were able to pull our property back into shape at FAA. And we did gain our clean opinion in 2001. I think we're working very closely with our inspector general, who's helping us do the audit, or who is doing our audit. And I think we're going to have some real risks in 2001, in part because the Department of Transportation has had some big changes to it, which you've probably noticed.

And in part, that's the establishment of the Transportation Security Administration. And this is basically the screeners at the airports. And that right now is part of the Department of Transportation. So we have had to set up, and we are hiring, depending on whose opinion of how many staff there are, we right now have the authority to hire up to 45,000 people. But it could be larger than that.

You know, we've got new equipment and property we have to keep track of. So that's going to be a big risk for us for 2002.

Mr. Lawrence: Well, how about the OMB scorecard for financial management? How are you doing getting to green?

Ms. McLean: Well, I'm a fortunate CFO, because, you know, obviously I started with the Bush administration just a year and a half ago or so. And our predecessors had worked very, very hard to put in, or to start putting in a new financial system. It's an Oracle-based financial system we call Delphi. But we are progressing pretty well on that. We now have 10 of our operating administrations out of the 15 on our Oracle financials. And so as a result, we're doing pretty well on the getting to green financial. You know, we had a status grade of yellow for the Department of Transportation on financial management.

Mr. Abel: Let's talk for just a second about Delphi. Delphi, as we understand, is an integrated financial management system. Can you explain to us a bit about what that means? What does it mean to you to be rolling out this integrated system?

Ms. McLean: Well, in short, it means that we can have our consolidated financial system really at a push of the button. So previously, we had several accounting systems that were online, and we had to then have these interfaces that pulled numbers and data together, and then had a financial system that pulled all those numbers, and in fact created our financial statement.

Now it's all in, or will be, once we finish, will be all in one system. And so it obviously reduces the possibility for errors. But it also increases the reliability from the standpoint of managers logging in and getting information up-to-date, accurate.

Mr. Lawrence: How is your progress in rolling it out through the Department?

Ms. McLean: Well, a couple of years ago, the prognosis was not good. We were pushing ahead, probably more aggressively than many other departments. And we had an IG report that came out saying that in fact, I mean, that we were moving too fast. And I mean, how often does the IG or GAO come out and tell a department they're moving too fast? Not very often. They're usually saying you're behind schedule.

So, we were pushing very, very hard and very fast to get this system up and running. Oracle has upgraded its financial system. We had 11.03, and now we're at 11i, which basically means that Oracle had some problems with the older version, and they fixed some of those problems.

And we've got three big pieces left. That's our Federal Aviation Administration, Federal Highway Administration, and Coast Guard are all pending to be turned over to our Oracle financial. So in the next 5 months, we'll see how we do with these large organizations. We're doing well. Up to this point, we're doing really, really, really well. I'm just always concerned about the next milestone.

Mr. Abel: The progress is good. For those that are out there listening that may be thinking, I want to do this, I need to do this in my organization, what lessons learned or what recommendations would you give them as far as this transition and rollout is concerned?

Ms. McLean: Well, I think it is really, really hard to do this. But you have to do it. If you have an old accounting system that isn't FFMIA-compliant, or JFMIP-compliant, then you obviously have to upgrade. If you have a system that is homemade and made for your own department, you obviously have to get an off-the-shelf-type system.

And I think the biggest recommendation I would make would be that the person that heads up this transition does not necessarily have to be a financial manager. This is a big data change. It is like installing new air traffic controller computers or new high-tech equipment in a Coast Guard vessel. So you need a project manager that has some financial experience, but really has that project management, because it is driving this project to the finish line that's so important that, you know, financial managers on a day-to-day basis don't necessarily have that skill set.

So I would say that you really need to make sure that you get a project manager that has pushed a big project through to the end.

Mr. Lawrence: That's great advice. Let's go in a little bit different direction for a minute, and move from systems into some accounting methods. Some organizations have been implementing activity-based costing and other cost-accounting methods. Is this something that the DOT is currently using, considering?

Ms. McLean: Actually, whether we wanted to consider it or not, it was in legislation that FAA establish a cost accounting system a couple of years ago. And in fact, I was working on the Hill at the time. So I think I somehow was involved in that, writing that legislation. But anyway, now I'm living it.

FAA actually has put into place a cost accounting system that is quite impressive. It's not completely finished, but about 75 percent of its costs right now are -- FAA is able to produce in a cost accounting monthly data. FAA has taken that information, and has been able to provide some great incentives for its employees.

For instance, they've been able to make sure that the en-route facility in one location, which is, you know, basically a facility that controls the airplanes when they're in the high altitudes, and they sometimes will have, you know, 300 people in these facilities, or 500 people, that they understand what the cost of providing per operation is. And then that's compared to another facility that has similar responsibility.

And you sort of set up a competition, really, between these organizations, or these locations. And you sort of question, you know, why does Joe at his facility have a lower cost per aircraft operation than Bill does? And let's start looking at what are the operational changes that we can make to be basically most cost effective in all of our facilities? So it's set up some really good dynamics. And we're just scratching the surface on being able to use that.

For the rest of the Department, we are beginning to use, and we will be using the Oracle financials for our cost accounting. But we are just beginning that. Obviously, FAA is one of our more businesslike models, because they provide air traffic control on a daily, 24/7 situation. So they were the right place to start for cost accounting.

Mr. Lawrence: That's a good stopping point. It's time for a break. Rejoin us in a few minutes as we continue talking about management with Donna McLean of the Department of Transportation.

What does the CFO Council do? We'll ask Donna, who serves on the Council, when The Business of Government Hour returns. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Donna McLean, Assistant Secretary for Budget and Programs, and Chief Financial Officer at the U.S. Department of Transportation.

Joining us in our conversation is another PwC partner, Dave Abel.

Mr. Abel: Donna, you mentioned earlier in one of our earlier segments the tremendous challenge that the DOT has faced this year in bringing up the Transportation Security Administration. What have been some of the challenges that you faced in overseeing the Department's budget in bringing up the TSA?

Ms. McLean: Can I first say that even though it's been really very, very challenging to set up TSA, or the Transportation Security Administration, it has always also been extremely rewarding. I think that a lot of us felt, after September 11th, it was so devastating. And we all had a life-changing experience, and, you know, how can I help this country heal?

And at the Department, you know, we have been working phenomenal hours. But we have been doing something, I think, to help us all heal. And part of that is, you know, if it's not sounding too -- I mean, too -- I don't know, self-important or something. But I just mean I think we all feel very strongly that setting up TSA has been both a huge challenge. And we have all sacrificed time with our families because of the hours we're working. But it's also been very, very rewarding, and something that we all feel very strongly about.

But what our requirement from the law is to set up a federalized screening workforce by November 19, 2002. And that is in a year, basically, hire enough screeners at airports, train them, change the equipment so it's improved to cover 429 airports that are just scattered around the country.

We didn't even know what that meant. We still don't know completely how many people we're talking about to complete this effort. So usually, when you establish a budget, you say okay, this is our mission. This is how we're going to achieve it, which is usually pretty well laid out. And then this is how many people we need to achieve it. And, you know, maybe there's some gray area.

But the whole thing in setting up the TSA was a gray area. You know, yes, we knew that we had to have federal workers in place screening passengers by November 19th. But we immediately went out and tried to survey how many screeners were in place at the time the bill was passed. And we couldn't get a handle on how many people there were in fact physically screening people in airports. And so the estimates have gone from you know 20,000 people to 70,000 people.

And of course, it's not just screening the passengers. Because there, at least we could go out and get a feel for what's happening today. The law also requires that all baggage be screened by explosive detection systems by the end of this calendar year. We are building that as we speak.

So we had to take existing technology or any technology that's perhaps on the edge of becoming certifiable, and effective, and try to put that in place and to deal with screened baggage. So setting up a budget of how much that all costs has been a huge challenge, just because you have to have the information, obviously, to set up the budget.

And I'll just say I've had several people, several of my bosses say, you know, Donna, we need to get this budget number nailed down. But it's not the budget number. It's all the policy that goes into creating those budget numbers. And it's just been a huge effort to - because everybody has a different opinion on how to get the job done. And I mean by everybody people in the Department of Transportation, people in the White House, and people on the Hill, the Congress. Everybody has a different opinion on how to get the job done.

So it's been a great challenge. But, you know, an experience I will look back on and say, wow, how lucky I was to be in the middle of such a huge challenge.

Mr. Lawrence: How are you balancing it? You gave an interesting description. How are you balancing what I imagine is a need to go quickly, but a need to be, I guess, as the CFO, to be precise and then prudent with money? I mean, what skills do you use to sort of make those two mix?

Ms. McLean: We're not the only department that's facing this. I mean, this has been just an unfortunate, crazy year for budget cycles. I mean, we had the first supplemental before the end of the fiscal year, and then we had the December supplemental, and then we just passed another supplemental.

And then the President made a choice on whether or not he was going to initiate and use the $5 billion in the second supplemental. So in fact, we didn't actually know what our '02 budget final numbers were until about 6 weeks before the end of the fiscal year. I can't imagine that we have many situations where you're going through to the end of your fiscal year, and you don't even know what your budget is until 6 weeks before it ends.

So it has been a year of -- you know, we have numbers, and we're telling you these are the best estimates we have today, but we're collecting information as we speak. And you've got to help and understand that these numbers could change. And that's been hard for everybody, including me. Budget is a sort of world where you think of it as being precise and something that doesn't change. But it's been a little bit fluid this year.

Mr. Lawrence: Let me change subjects a little bit. You're a member of the federal CFO Council. Can you give us an overview of what the Council does?

Ms. McLean: I think the purpose of the CFO Council is to oversee, obviously, deal with sort of the issues that all the CFOs are facing. But the CFO Council was fortunate enough, again under the Bush administration, to have a very significant role, because of the Presidential Management Agenda that was laid out by President Bush very early on in his administration.

And two of the five Presidential Management Agendas had to do with issues that usually affect the chief financial officer: one on the financial management, improving financial management; and the second one on linking budget and performance integration.

So the CFO Council has taken those PMAs and broken them up, and there's been different councils basically trying to help the government as a whole achieve the goals of the President in those five Presidential Management areas. So that's certainly one of the main efforts and benefits of the CFO Council.

Mr. Lawrence: You're chair of the Budget and Performance Committee within the Council. Can you tell us a little bit about the objectives of the committee and perhaps some of the best practices that you've identified?

Ms. McLean: Yes. Well, let me also tell you how I became the chair. Mark Everson, who is at the Office of Management and Budget, he's sort of the CFO of the entire government. I talked to him about this Presidential Management Agenda, which was to link budget and performance. And basically, the concept was, you know, if you're going to spend a dollar, tell me what I'm going to get for it. That's a totally reasonable, wonderful philosophy.

But I said to Mark, listen, this is great, but how do people get there? I understand the concept, and I've been trying to do this for several years. And I don't get how you get from the theory into the practical world. And he said, well, Donna, I think you're right. And I think you should chair this group and figure it out.

So I guess unfortunately, I complained, and then was asked to head up the group. So it wasn't out of a skill set, necessarily. It was probably more out of complaining.

Anyway. So I was fortunate enough to have worked with a lot of great departments. And we worked with the Department of Energy, and EPA, and some folks from SBA and Interior. I'll probably forget some of them. But we all got together and basically said, you know, we really need a path to get from the theoretical to the practical.

And so we put together an approach that perhaps isn't pretty. But we have some more specific guidelines for the departments on how to get from the theoretical to the practical. And that can be a whole hour radio show in and of itself.

So, I'll just say that Office of Management and Budget decided to put it in their A-11 Guidelines, which are the guidelines on how you develop your budget. So there is some more information that you can find on the website.

Mr. Lawrence: Were there any best practices or particular tools and techniques that were being done that are worth mentioning?

Ms. McLean: To be able to link budget and performance, you have to have a new financial system, or you have to have a new budget system, or you have to have a system to help you do this. And I strongly believe that's a way to procrastinate. And it is really something that I think we just should not have as an excuse for not linking budget and performance.

Now, don't get me wrong. Linking budget and performance is extremely difficult. But I don't think we necessarily need new systems to be able to do it. At least maybe in its perfect end state, yes. But in getting there, we don't necessarily have to do that. So, best practices. I think, you know, again, I don't want to go into so much depth that we get off all the other topics.

But the general practice that we're trying to push people towards is first, they have to have a performance report that is strong, and is something that both is acceptable to OMB and to the White House and the administration, but also to folks on the Hill. Again, I'm fortunate that I am CFO of a department that has a very good performance report. And these are the performance reports that were required by GPRA.

For the last 2 years, DOT has had the second rating from the Mercatus Institute for their performance report in government. And this year, we were fortunate enough to have the number one rating. So we start with a very strong base. If you don't have a strong performance report, then I think you need to just, first off, make sure you've got a solid -- go back and look at your strategic plan, and re-evaluate whether or not you have the right performance report. Because I think that's where it all starts.

Then, I think you need to make some hard decisions on looking at your budget items. You can start from the bottom up, which is sort of the way I like to look at it. And look at each of your requests, and ask yourself two questions: what is this request going to do to improve one of your GPRA goals? Now, you might say, well, how can you answer that question for research? How can I answer that question for a long-term capital procurement project that I'm not going to see finished for 5 years? That's a very good question. But then you ask yourself the second question, which is what is the milestones that I am going to see from this additional $100 million, $5 million, take your pick.

So, you kind of have to force yourself to say yes, I know that, in the terminology of performance, we have outcome goals, and you have output goals. I think you have to ask yourself both. What is the output, meaning what is the milestone in the short term, and what's the outcome? So is this investment in fact going to reduce the number of fatalities on highways? And then build up from there.

Mr. Lawrence: That's a very good answer, and a good stopping point. Rejoin us in a few minutes as we continue talking about management with Donna McLean of the Department of Transportation.

What are the biggest management challenges ahead for the Department? We'll ask Donna for her thoughts when The Business of Government Hour continues. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Donna McLean, Assistant Secretary for Budget and Programs and the Chief Financial Officer of the U.S. Department of Transportation.

Joining us in our conversation is Dave Abel, another PwC partner.

Well, Donna, in the last segment, you talked about the importance of financial management. And I'm curious. In the future, will program managers assume more responsibility for financial management?

Ms. McLean: I think they have to. I think there are many program managers who definitely have their eye on their budget and their eye on making sure that each dollar they spend is as effective as possible. But I think when you're talking about, again, one of President Bush's big initiatives, which is his Presidential Management Agenda, it's trying to force government into a more businesslike fashion. So that's not -- I've got $20 million to obligate during this fiscal year, because I've got one-year money.

That may be the sort of mindset that we have in government. It needs to be I've got $20 million, how efficiently and effectively can I spend that money to get to my output goal, which would be, you know, again, improving safety, or whatever your -- I always talk about safety in transportation. There's a lot of other areas in Transportation and in other departments.

But so I think that as financial managers, and as the CFO office, we have to encourage program managers to have as much financial information as possible. But we also have to hold people accountable. And that's part of budget and performance integration as well. It's sort of, you know, what did you promise you were going to do with this money? And did you in fact do this? And if you didn't, that needs to be reflected in your performance evaluation.

So if the theory on performance and budget integration really works, it should go all the way down to the program manager and his or her employees, and their, you know, specific program evaluations on an annual and bi-annual basis.

Mr. Abel: So what does the pipeline look like for future financial managers in your office, recruiting them, and how hard do you think it will be to be able to continue to bring in people into this role?

Ms. McLean: Well, I think, again, the Department is going to be at an advantage, simply because we're going to have the Oracle financial system up and running. And I think that's going to be appealing to a lot of folks, that we have, you know, right now state of the art. And because we took the Oracle financials, and we didn't alter it significantly for our needs, we'll be able to upgrade it easily. Because of course, if you customize these computer systems, forget it. As far as upgrades, they're going to be costly and time-consuming, and you'll probably, with budget crunches, end up not in fact doing those upgrades.

So I think the Department is going to be an attractive place to come. But I also think that we have to look at, with the new financial system, we're going to need two kinds of people. We're going to need the important folks who sit there every day, they come into work, they log on, they spend their time in Oracle financials, making sure that the books are right, making sure that we don't over-obligate, making sure that, you know, whatever you have put on the books, you and your program office, whatever you've put on the books is accurate. You know, our hardcore accountants.

But we're also going to need another level. The philosophy of the Oracle financials is that you can pull data out, and you can pull data out easily, and you can pull out data in useful, helpful reports. But the CFO's office has to be the liaison between the accounting information and the program office. And we have to be teachers, and help program managers understand their financial information better, and use it to improve, again, how we manage programs, and how we get progress and best performance out of the money that we spend.

So I see a future sort of workforce in any CFO office is going to have these two layers. And it's the sort of financial management area that I think DOT, in the next couple of years, that's going to be key.

Mr. Lawrence: What big challenges lie ahead for the Department?

Ms. McLean: I think one of the biggest challenges is, of course, we just talked about setting up the Transportation Security Administration. But that now is going to move, or the President is proposing that it move to the Department of Homeland Security along with the Coast Guard, which is part of the Department of Transportation. And so if that proposal is accepted, which it certainly looks as if it will be by Congress -- but I don't want to be presumptuous -- but assuming that in fact occurs, we have to make sure, from a financial management standpoint, that we send both Coast Guard and TSA with the most solid financial system possible.

We've got TSA on Oracle financials, because they just started. So we put them on Oracle financials. But Coast Guard is still on our old customized DAFUS (?) program, which is -- you know, only the experts in the Department that have been working on it for years know about.

So it's unfortunate the timing is such that we're going to be sending two of the biggest chunks, single chunks of the Department of Homeland Security on two different accounting systems. So it's unfortunate, but it's a situation of timing. And then of course, we don't know what's going to happen at the Department of Homeland Security, and what the needs are of that department, and what kind of financial system they'll be putting in place.

Obviously, the other thing that we're going to be making sure, we've got to deliver success to Homeland Security here. And property management in TSA is going to be a big issue. So again, you know, I said that was going to be an issue for our clean audit. But it's also going to be an issue for Homeland Security, too, when we transfer.

So, you know, those are in the short-term, 12-month sort of time frame. In the longer term, I think, again, making performance and budget in fact a reality, and not theory is going to be a big challenge for the long term.

Mr. Lawrence: You mentioned property management, which we covered a little bit when we talked about the clean audit opinion in the FAA. Do the lessons that you learned in recovering your clean audit opinion around property management apply to the TSA? How does that solution relate to what you need to do in TSA?

Ms. McLean: Focus, focus, focus. We have to make sure that absolutely, that we keep track, have a good solid system for tracking that property. And let me just explain what some of the property that TSA will be having to keep track of.

You know, you've got the magnetometers, which is what you walk through at an airport. They're probably not going to move. But you've got all those wands that, you know, we don't -- they're very movable. And if you don't like property, that's very movable, because it's harder to keep track of.

We've got air marshals that are armed. So suddenly, the Department of Transportation, it's new for us to have to keep track of a lot of guns. We've got them in Coast Guard, but that's about it. And we've got, also, explosive detection systems, some of them that are huge, and we will know where they are, because they are the size of SUVs. But we've also got some smaller explosive detection systems that are called trace detectors. And they are more like the size of the top of a table, and can be moved, and will probably, part of the purpose will be to be on rollers, and be able to move them.

So we've got a big challenge on making sure that we keep track of all of that, and of course, any upgrades and valuation to that. So we have set up a property system that should be able to handle that. But it's obviously something that's on my mind and I'm worried about.

Mr. Lawrence: What advice would you give to a young person considering a career in public service in, say, perhaps the Department of Transportation, or even Homeland Security?

Ms. McLean: Well, I think you have to ask yourself, obviously, what makes you happy? And if you decide -- what made me happy before, when I was, you know, in school, in high school, thinking about what do I want to do for the rest of my life? I was a volunteer. And I won't go into all the places.

But it was incredibly rewarding to me. But by definition, you don't get any money out of being a volunteer. So public service I think is probably the best substitution for that. It's incredibly rewarding. And if you have decided that public service is something that you want to do, I would highly recommend getting as much education as you can before you begin your career path.

So if you can get a graduate degree, particularly if you're interested in going to Washington, I think it gives you a huge step up. And then, I'd say take as many -- don't be frightened. Challenge yourself as much as possible. Don't be fearful. I think government actually rewards you for taking challenges, and in fact changing jobs.

You could say, if you look at my career and how many years I've stayed in one career versus another, that I can't keep a job, because I think my longest job was 6 years in one place.

But I think the government is very good to folks who are willing to take challenges, and women and minorities. I think I've been very blessed, looking back on my career. But I think I've had opportunities I might not otherwise have had in the private sector, because government is conscientious about making sure the workforce is diverse.

Mr. Lawrence: Donna, I'm afraid that will have to be our last question, because we're out of time. Dave and I want to thank you for being with us this morning.

Ms. McLean: Thank you. I really enjoyed it. I'm not a radio person, so it's been surprisingly enjoyable.

Mr. Lawrence: And if anybody's interested in some of the things you said, is there a website or anything they could go to to find out more?

Ms. McLean: Yes. Again, you can go to the Office of Management and Budget website. It will have the A-11 guidelines, which will show our approach to getting you to green on our budget and performance integration. Also, the DOT website has some information specifically about our financial office as well.

Mr. Lawrence: Great. This has been The Business of Government Hour featuring a conversation with Donna McLean, Assistant Secretary for Budget and Programs, and the Chief Financial Officer of the U.S. Department of Transportation.

Be sure and visit us on the web at endowment.pwcglobal.com. There, you can learn more about our programs and researches into new approaches to improving government effectiveness. You can also get a transcript of today's very interesting conversation.

Again, that's endowment.pwcglobal.com.

This is Paul Lawrence. See you next week.