Archive

Streamlining Management Control

Recommendations and Actions

Executive Summary

At times, the federal government's management control system resembles a theater of the absurd. Until 1985, for instance, Congress required the Secretary of Education to report biennially about the Office of Education Professional Development, even though that office closed in 1981. Such overkill, however, is not limited to the Education Department--not by a long shot. With a staff of about 300, the Merit Systems Protection Board must produce 70 congressionally mandated reports this year. It gave the job to 4.2 full-time employees, at an estimated cost of $257,121.(1)

There is no control over the controls:

--- One agency requires 23 signatures to purchase a single personal computer.

--- Another agency routes routine responses to congressional inquiries through nearly two dozen offices for approval.

--- Nearly 890 laws govern the Defense Department's efforts to purchase items.

--- The Agriculture Department uses over 1,088 pounds of federal personnel laws, regulations, directives, case laws, and departmental guidance to make personnel decisions.

--- In one Interior Department regional office, over 33,000 pages of internal regulations and handbooks are used to govern fewer than 200 employees.

--- For one mid-size agency--the National Aeronautics and Space Administration--over 130 audits of the agency were performed this past year by outside groups such as the General Accounting Office and the Merit Systems Protection Board.

Management Control System is Vast

In their totality, the federal government's management control methods are vast, complex, and very expensive. The primary responsibility of approximately one in three federal employees is to exert control over the other two-thirds and non-federal grantees and contractors. The system includes about 280,000 formally designated supervisors, managers, and executives, all of whom perform control functions, costing billions of dollars. Another nearly 267,000 people in internal staff positions--including legal, personnel, procurement, budget, and financial management staff--also spend a large portion of their time performing control functions.

Moreover, these staffs have increased relative to the government's overall work force. Although executive branch personnel grew only 7 percent in the decade after 1980, the number of employees in the personnel function increased 11 percent, the number in financial management increased 27 percent, and the number in procurement increased an amazing 60 percent.

Meanwhile, the federal government is awash in watchdog organizations- -the General Accounting Office, Office of Personnel Management, Office of Management and Budget, General Services Administration, Equal Employment Opportunity Commission, Office of Government Ethics, offices of general counsel, and Offices of Inspector General-- totalling about 36,000 employees.(2) The presence of these watchdogs results in each agency maintaining an internal staff dedicated to coordinating and tracking their reviews. Together they cost taxpayers billions to guard against the potential for waste, fraud, and abuse. Line managers and employees expend still more staff time providing data and information to these reviewers. In addition to these reviews, Congress conducts oversight by holding hundreds of hearings and requiring about 5,000 written reports a year.

How much, in its entirety, does the federal government's management control system cost? Since government accounting systems do not track the costs of controls, no one can say precisely. However, the salaries and benefits of associated staff--one in three federal employees--is estimated to total about $35 billion a year. (3)

A Prime Target for Reinvention

Given that management control is essentially overhead--i.e., it does not produce government services--it is a prime candidate for big improvements. The trick, of course, is not to eliminate all controls, especially during a period of change.(4) Organizations need controls to ensure that they are achieving missions and goals within the boundaries of laws, regulations, and officially agreed-upon behavior. Besides, potentially major problems remain. "Are there other HUDs today?" the Assistant Comptroller General for Accounting and Financial Management rhetorically asked Congress not long ago, referring to the Housing and Urban Development Department's recent management scandals. "Unfortunately, I believe there are."(5)

The challenge, then, is to devise control systems that are useful, not overbearing. They must help the government achieve the results that it desires--not stand in the way, as they currently do. And they must help enhance the public's confidence that its tax dollars are being spent wisely.

Interestingly, as the federal government's management control systems expanded, public confidence dropped. These controls, meanwhile, have not been sufficient to prevent some of our worst management scandals- -with savings and loan institutions, and at HUD and the Defense Department.

In any organization, all members exercise some control over operations. Generally, "control" refers to monitoring work to ensure its quality.(6) Monitoring, in turn, requires feedback to assess progress and outcomes. While all employees have some control responsibilities, leaders, managers, and supervisors have the broadest responsibilities over their process and organizational units.

Making Controls Customer-Focused

Currently, increasing numbers of successful private and public organizations recognize that a management control system must support their efforts to become more customer-focused. These organizations operate according to a management strategy of continual improvement, rather than meeting minimum specifications. They define "improvement" as innovation in a product or service, producing more than minimum requirements or specifications, and eliminating waste. The consumer product revolution of the 1970s and 1980s, initially driven by the Japanese, showed Americans that they, indeed, could have better products that cost less.

Clearly, the federal government must also do more with less. Thus, it must redesign its approach to management control, consistent with a focus on customers and quality. Specifically, it must develop a new strategy that lets it anticipate, meet, and even exceed its customers' needs and expectations. This new strategy requires a careful assessment of how the government currently operates, so it can distinguish useful processes from those adding no value to products or services.

Characteristics of the Existing System

Two requirements govern the role of "management control" in the executive branch: Specified outcomes must be achieved as effectively and efficiently as possible; and work must follow the dictates of laws, regulations, and agreed-upon behavior. Three types of people perform control functions: employees, line managers (supervisors, program managers, agency heads, the President), and staff (e.g., Offices of Inspectors General (OIG's), personnel offices, legal offices).

This report focuses primarily on broad controls used by staff functions--largely those controls that affect the culture within the bureaucracy. Other accompanying reports of the National Performance Review address related aspects of management control, such as staff controls within specific functions (e.g., personnel) and controls used by line managers, such as front-line supervisors.

Management control in the federal government has five general characteristics:

--- It is primarily based on problem detection rather than problem prevention.

--- It is increasingly performed by staff functions, such as OIG's, personnel staffs, budget staffs, and procurement staffs, in addition to or instead of line management.

--- The methods used to inspect, review, audit, investigate, evaluate, monitor, and appraise federal programs and employees focus mainly on negative aspects of control--namely, detecting waste, fraud, and abuse.

--- It emphasizes compliance monitoring--ensuring rules are followed- -more than it does ensuring outcomes are achieved or customer needs are met.

--- Its methods were created at different times, and for different purposes--they were not developed as a whole--thus producing a piecemeal, confusing approach to management control in general.

The government's over-reliance on compliance monitoring and negative feedback has stifled improvement and innovation--at the expense of program customers. Altogether, the federal government has created a managerial culture that is reactive and oriented toward maintaining the status quo. The present system needs more than an oil change. It must be streamlined and reengineered, not only in its methods but also its focus, values, and culture.

Direction for Change

People on the line--employees and their immediate supervisors--should perform most control and oversight. They should focus on continually cutting waste, preventing problems, making improvements, and innovating. External staff organizations--such as the General Accounting Office, the Merit Systems Protection Board, and the Equal Opportunity Employment Commission--should recast their roles to support line managers by providing information on "best practices" and assessing these managers' oversight activities, not performing the activities themselves.

If the federal government has long had a disjointed approach to management control, why does it remain in such disarray? Primarily, because the executive branch's interest in sound leadership and strategic management has lacked consistency. In addition, the executive branch and Congress have tended to react hastily to the whims of the press and public opinion, imposing broad solutions to isolated problems. Over several administrations, the executive branch's abdication of the fundamental responsibility to manage effectively has encouraged incomprehensible, fragmented, incredibly costly management control.

The worldwide quality movement clearly shows that control systems with minimal layers and clear roles and responsibilities are far superior to over-control.(7) A system with multiple layers of supervision, inspection, and other forms of "checking," existing simultaneously in both line management and staff support offices, ironically produces less control and very high costs. Those responsible for oversight assume that others with the same roles are performing their functions thoroughly. At the same time, those receiving multiple versions of guidance from multiple groups grow confused about what's expected and important. As a result, accountability for achieving results is lost.

Recommendations

This report recommends how to both pare back the old and create the new. Its recommendations fall into three general categories: (1) taking a systematic approach; (2) improving internal control; and (3) improving external control.

Become Systematic.

The President's Management Council should develop a comprehensive vision of a streamlined management control system for the executive branch. This new system would strengthen the role of line management, emphasize rewarding improvements and reducing waste, use appropriate measures of performance and feedback loops, and make sure the methods complement one another rather than overlap or contradict one another. This reinvented system will improve control and, at the same time, save billions of dollars a year.

Improve Internal Control.

The federal government's Internal Controls program--established to implement the Federal Managers' Financial Integrity Act of 1982--must become a useful tool for line managers. Such an approach will be launched via a new version of OMB Circular A-123, "Internal Control Systems," which creates the framework for complying with the Act.

In addition, the role of agencies' Offices of General Counsel (OGC) must be clarified so that they can better help their agencies achieve their missions. This requires defining who the OGC staffs' clients are, creating incentives and better performance measures to tie OGC staff performance more directly to mission achievement, and creating "feedback loops" from agency line managers to OGC's to help them better serve their customers.

Also, internal regulations must be cut substantially. The amount of detailed rules and regulations on the books nourishes our compliance- oriented culture. By cutting internal rules and regulations by at least half within the next three years, the government would save much time and money directly and help create an atmosphere that encourages improvement and innovation.

Finally, the expanded use of waivers would encourage innovation and more appropriate use of resources in accomplishing a program's goals. Waivers would allow federal, state, or local organizations to gain exceptions to how they execute laws, rules, or regulations, especially in cases when applying blanket rules makes no sense.

Reinvent External Controls.

Improving external controls must start with a new vision of the roles and activities of Offices of Inspectors General (OIG's), which have been a growing source of concern among line managers since their establishment, beginning just over 15 years ago. The laws give these offices great latitude, and the offices vary greatly in how they conduct their business. Such differences raise fundamental questions about what functions these offices should emphasize and how they should execute them. Generally, OIGs should emphasize overseeing line management's control systems more than their traditional role of compliance monitoring. In addition, they should collaborate more with line management, although not to the extent that this would destroy OIGs' independence and objectivity.

The General Accounting Office (GAO) could add to the progress it has made through its formal quality management approach. Specifically, GAO could better document the best practices it finds during audits and create feedback loops with agencies to better assess and improve the effectiveness of GAO's oversight.

Finally, Congress should set a goal of eliminating at least half of the 5,000 reports that it requires each year from the executive branch. This action would save the government millions of dollars each year and would help focus congressional oversight on the most important areas.

Endnotes

1. Interview with Paul Mahoney and Marsha Scialdo Boyd, Merit Systems Protection Board, July 1993. The 4.2 employees are responsible for completing reports to executive branch central oversight agencies as well as reports to Congress.

2. While offices of inspectors general are technically an internal audit organization, they are external to the line management function.

3. See NPR Accompanying Report Transforming Organizational Structures, Appendix B.

4. Office of the Canadian Auditor General, Annual Report, 1992, Chapter 4, "Change and Control in the Federal Government" (Ontario, Canada, 1993), pp. 125-138.

5. U.S. General Accounting Office, Federal Internal Control and Financial Management Systems: Major Reform Efforts Are Needed, GAO/T- AFMD-90-14 (Washington, D.C.: U.S. General Accounting Office, April 18, 1990), p. 15.

6. Juran, Joseph, Juran on Leadership for Quality, (New York: The Free Press, 1989), p. 146.

7. See Deming, W. Edwards, The New Economics (Cambridge, MA: Massachusetts Institute of Technology, 1993).

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