DATE: April 24, 2000

FROM: Barry McVay, CPCM

SUBJECT: General Accounting Office; Limited Understandability of FAIR Act Inventories

SOURCE: General Accounting Office (GAO) Report No. GGD-00-68, April 14, 2000

SYNOPSIS: To assess the initial implementation of the Federal Agencies Inventory Reform (FAIR) Act (Public Law 105-270), which requires agencies to submit to the Office of Management and Budget (OMB) inventories of activities that are not inherently governmental functions, the GAO analyzed the inventories of five agencies, and concluded that "the clarity and understandability of the five FAIR Act inventories...was limited."

EDITOR'S NOTE: GAO Report No. GGD-00-68 is available on the Internet at http://www.gao.gov, by calling 202-512-6000, or by faxing to 202-512-6061.

FOR FURTHER INFORMATION CONTACT: J. Christopher Mihm or Susan Ragland, 202-512-8676.

SUPPLEMENTAL INFORMATION: The purpose of the FAIR Act is to "provide a process for identifying the functions of the federal government that are not inherently governmental functions." This "process" is the preparation and submittal of inventories listing "non-inherently governmental functions" performed by each agency (an "inherently governmental function" is defined by the FAIR Act as "a function that is so intimately related to the public interest as to require performance by federal government employees"). Such activities are commonly referred to as "commercial activities," and OMB Circular A-76, Performance of Commercial Activities, addresses such activities. Ninety-eight agencies developed and published inventories of their commercial activities under the FAIR Act's first year of implementation, and they identified about 904,000 full-time equivalent (FTE) employees performing commercial activities.

These inventories are supposed to identify whether the activities are actually inherently governmental, commercial (and subject to competition), or exempt from competition, and the inventories must be understandable to interested parties, who have 30 days to file a challenge against an agency list based on "an omission of a particular activity from, or an inclusion of a particular activity on, a list."

OMB revised Circular A-76 and its supplemental handbook on June 24, 1999, to implement the FAIR Act. The revised guidance contains function codes to characterize the various types of commercial activities performed by agency employees and reason codes for agencies to categorize whether the commercial activities they listed are exempt from, or could be considered for, competition.

GAO selected the inventories submitted by the Department of Commerce, the Department of Transportation (DOT), the General Services Administration (GSA), the Environmental Protection Agency (EPA), and the Federal Emergency Management Agency (FEMA) for review. GAO found that OMB's June 24, 1999, list of function codes was incomplete; function codes were not adequate to clearly categorize the commercial activities that their employees perform; because OMB allowed agencies to use an expanded list of function codes for their FAIR Act inventories that was not contained in OMB's June 1999 guidance, it was difficult for interested parties who did not have the expanded list to identify the activities agencies are performing; and function codes on both the official and expanded lists were vague. In addition, OMB reviewed the inventories before they were made available to the public, and the purpose of the reviews was to "ensure consistency within and across the inventories". However, the formats differed, and some agencies used unique function codes to categorize some of their activities. This limited the ability of interested parties to identify potentially similar activities, such as automatic data processing or administrative activities that are conducted across the government.

Regarding OMB's June 1999 guidance, it contains 12 major categories with 163 function codes listed in the supplemental handbook. An example of the problems cited by GAO was with the category for "health services", which consists of function codes such as "dental care" and "pharmacy services." A prior draft of this list included 21 major categories with 385 function codes, but it was never completed "because of the lack of time to revise the function codes and have them cleared for use in developing the FAIR Act inventories." However, many of the agencies used the additional nine major categories and 222 specific function codes. Over half of the function codes used in DOT's inventory were not included in OMB's official list of function codes, and interested parties needed to contact DOT or OMB to obtain the expanded list of function codes. But even some of the additional major categories and function codes were vague, such as the major category "other selected functions." But this problem cannot be easily remedied because, according to an unnamed OMB official "creating definitions for all the function codes would require a major commitment of time and resources, which OMB does not have."

A GSA official said that OMB's function codes are antiquated, so GSA created several new function codes to describe the policymaking activities involving compliance reviews, the collection and analysis of data, and the disposition of real property assets for the federal government. FEMA created an entirely new set of function codes for all of its commercial activities because it determined that all of its functions are "unique." Furthermore, the agencies used different formats for their lists, making it more difficult for interested parties to compare potentially similar commercial activities across agencies within the 30-day time period specified by the act to challenge the inventories.

Regarding "reason codes", OMB Circular A-76 requires the status of each commercial activity to be indicated by a "reason code." There are nine reason codes, such as "A -- Indicates that the function is performed by federal employees and is specifically exempt by the agency from the cost comparison requirements of the Circular and the Supplemental Handbook" and "B -- Indicates that the activity is performed by Federal employees and is subject to the cost comparison or direct conversion requirements of the Circular and the Supplemental Handbook." GAO found that four of the five agencies used code A to indicate that between 37% (DOT) to 99% (FEMA) of the FTE positions performing commercial activities were exempted by the agency (Commerce did not clearly designate its FTEs in its inventory). But there was little correlation between the agencies' use of the reason codes because the supplemental handbook permits agencies to modify existing reason codes "as deemed necessary." For example, Commerce created six different modifications for reason code B, and GSA created its own reason codes.

GAO recommends that OMB reexamine the function codes in the A-76 supplemental handbook and:

In addition, GAO recommends that OMB reinforce the principles established in OMB's budget procedures to enhance the consistency of the inventories within and across executive agencies.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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