At VA, and indeed at all federal agencies, strategic human capital management plays a critical role in maximizing the government’s performance and assuring its accountability to Congress and the nation as a whole. As we have long reported, there is a direct link between the effectiveness of an agency’s personnel management efforts and its ability to carry out its mission. Addressing challenges in areas such as disaster response, homeland security, economic stability, and numerous other complex and evolving issues requires a skilled federal workforce able to work seamlessly with other agencies, levels of government, and nongovernmental entities. In our March 2019 report, we identified key trends in agency operations and attitudes toward work that are affecting how federal work is done and, consequently the skills and competencies that workers will need to accomplish agency missions. Agencies will need to apply appropriate talent management strategies that are adapted to these trends to recruit, develop, and retain a high-performing workforce and better meet their missions (see fig. 1). Over the past two decades, we and others have expressed concern about certain human capital practices at VA and its components. For example, in November 2018, VA’s Office of Inspector General identified leadership and workforce investment as a major management challenge. The Inspector General noted that the root cause for many of the issues it identified at VA was poor and unstable leadership as well as staffing shortages. Similarly, in May 2019, we reported that leadership turnover impeded VA’s ability to address a number of management challenges we identified such as managing acquisitions, managing risk, and improving veterans’ health care. At VHA, we found that serious human capital shortfalls are undermining its ability to meet the health care needs of veterans. Key examples from our prior work include the following: In March 2019, we reported that VHA’s 172 medical centers have large staffing shortages, including physicians, registered nurses, physician assistants, psychologists, and physical therapists, as well as HR specialists and assistants. As of December 2018, VA reported an overall vacancy rate of 11 percent at VHA medical facilities, including vacancies of over 24,000 medical and dental positions and around 900 HR positions. In July 2016, we found that losses in VHA’s five clinical occupations with the largest staffing shortages, including physicians, registered nurses, and psychologists, increased from about 5,900 employees in fiscal year 2011 to about 7,700 in fiscal year 2015. Voluntary resignations and retirements were the primary drivers. VHA’s exit survey indicated that advancement issues or dissatisfaction with certain aspects of the work, such as concerns about management and obstacles to getting the work done, were commonly cited as the primary reasons people left. In December 2016, we found that several problems combined to impede VHA’s ability to improve delivery of health care services to veterans. These problems include high attrition (often involving transfers to other federal agencies), increased workload, and burnout among VHA’s HR staff. Another issue is a lack of effective internal control practices to support HR operations such as information systems that meet operational needs (see fig. 2). In our preliminary findings in a forthcoming report on the extent to which succession planning policies and procedures at VA and its components are consistent with key leading practices, we have identified several concerns. For example, according to VA officials, the agency has not produced a department-wide succession plan since 2009 due to leadership turnover. Department-wide, around 30 percent of VA employees on board as of September 30, 2017, will become eligible to retire in the next 5 years. Effective succession planning can help VA ensure it has a pipeline of talent to meet current and future mission requirements. In our prior work, we noted that effective succession planning is more than filling existing vacancies with people that have the same occupational skills and competencies. Rather, succession planning focuses on current and future needs and develops pools of high-potential staff to meet the organization’s mission over the long term. We have designated 40 of our prior recommendations to VA as priority recommendations because, upon implementation, they may have an especially significant impact on VA’s operations. Twelve of these priority recommendations are aimed at strengthening VA’s human capital management efforts and will help address VA’s challenges in such areas as recruiting and retaining doctors and nurses, performance management, and employee misconduct. To date, VA has implemented six of these priority recommendations, but needs to take additional action on the other six. While VA agreed or partially agreed with and is taking steps to implement five of these remaining priority recommendations, it disagreed with one related to developing a process to accurately count all physicians at each VA medical center because it does not believe this affects its ability to assess workload. Nevertheless, we continue to believe that VHA needs a systematic process to identify all physicians working at VA medical centers as part of the agency’s efforts to monitor and assess workload. The six unimplemented priority recommendations are for VA to 1. develop a process to accurately count all physicians providing care at each VA medical center (recommended in 2017), 2. develop a modern and effective performance management system in which VA managers make meaningful distinctions in employees’ performance ratings (recommended in 2016), 3. ensure that ratings-based performance awards are administered in a manner that is consistent with leading practices (recommended in 2016), 4. develop a plan to implement a modern information technology system to support employee performance management processes (recommended in 2016), 5. collect complete and reliable misconduct and associated disciplinary action data (recommended in 2018), and 6. ensure that employees who report wrongdoing are treated fairly and protected against retaliation (recommended in 2018). We will continue to monitor VA’s progress in implementing these and our other open recommendations. Beyond these specific recommendations, VA and other agencies can use talent management strategies to better compete for critical positions in a tight labor market and to help meet agency missions. In our prior work we noted that while these strategies are not an exhaustive list, collectively they suggest basic steps that agencies can take within existing authorities to address the demographic and technological trends affecting work that are discussed earlier in this statement. These strategies include: Align human capital strategy with current and future mission requirements. With shifting attitudes toward work, technological advances, and increased reliance on nonfederal partners, agencies need to identify the knowledge and skills necessary to respond to current and future demands. Key practices include identifying and assessing existing skills, competencies, and skills gaps. Acquire and assign talent. To ensure agencies have the talent capacity to address evolving mission requirements and negative perceptions of federal work (e.g., that it is too bureaucratic), agencies can cultivate a diverse talent pipeline, highlight their respective missions, recruit early in the school year, support rotations, and assign talent where needed. Incentivize and compensate employees. While federal agencies may struggle to offer competitive pay in certain labor markets, they can leverage existing incentives that appeal to workers’ desire for schedules and locations that provide work-life balance. Engage employees. Engaged employees are more productive and less likely to leave. Agencies can better ensure their workforces are engaged by managing employee performance, involving employees in decisions, and developing employees. A number of the staffing challenges facing VA are actually part of a broader set of human capital issues affecting government as a whole. As we noted in our March 2019 update of government high-risk areas, the federal government faces long-standing challenges in strategically managing its workforce. We first added strategic human capital management to our list of high-risk government programs and operations in 2001. Although Congress, OPM, and individual agencies have made improvements since then, strategic human capital management remains a high-risk area because mission-critical skills gaps within the federal workforce pose a high risk to the nation. Of the 34 other high-risk areas on our 2019 High-Risk List, skills gaps played a significant role in 16 of the areas, including information technology management and acquisitions, strengthening management functions at the Department of Homeland Security, and, as noted above, veterans’ health care at VA. While causes for these skills gaps related to high-risk areas vary, they often occur because of a shortfall in talent management activities such as robust workforce planning or training. Additionally, the changing nature of federal work and the high percentage of employees eligible for retirement have the potential to produce gaps in leadership and institutional knowledge and could threaten to aggravate the problems created from existing skills gaps. For example, 31.6 percent of permanent federal employees who were on board as of September 30, 2017 will be eligible to retire in the next 5 years, with some agencies having particularly high levels of employees eligible to retire. High-performing organizations have found that the full life cycle of human capital management activities needs to be fully aligned and focused on the cost-effective achievement of an organization’s mission. These activities include workforce planning, recruitment, on-boarding, compensation, engagement, succession planning, and retirement programs. Further, adding to agencies’ staffing challenges is the fact that much has changed since the Civil Service Reform Act of 1978 and the Classification Act of 1949 laid the foundation of much of today’s federal personnel system. Agencies’ missions have evolved and employees’ expectations of work and the workplace are changing. As a result, the extent to which the current and future workforce finds the government’s employment policies and practices relevant is an open question. We and others have identified several structural challenges within the federal human capital system that impede the ability of agencies to recruit, retain, and develop workers, both today and in the future. For example: Classification system. The General Schedule classification system—which defines and organizes federal positions primarily to assign rates of pay—has not kept pace with the government’s evolving requirements. Recruiting and hiring. Federal agencies need a hiring process that is applicant friendly and flexible while also meeting policy requirements. Pay system. Employees are compensated through an outmoded system that (1) rewards length of service rather than individual performance and contributions, and (2) automatically provides across- the-board annual pay increases, even for poor performance. Performance management. Federal agencies have faced long- standing challenges developing modern, credible, and effective employee performance management systems and dealing with poor performers. Going forward, to help agencies effectively carry out their missions, OPM and federal agencies must take some important steps to address ongoing human capital problems. These actions include continuing to develop the capacity to measure and address existing mission-critical skills gaps and using workforce analytics to predict and mitigate future gaps. Chairman Takano, Ranking Member Roe, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions you may have at this time. If you or your staff have any questions about this testimony, please contact Robert Goldenkoff, Director, Strategic Issues, at (202) 512-2757 or GoldenkoffR@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Shirley Hwang (Assistant Director), Alexander Ray (Analyst-In-Charge), Sarah Green, Allison Gunn, and Shelby Kain. This is a work of the U.S. government and is not subject to copyright protection in the United States. 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VA operates one of the largest health care delivery systems in the nation and provides billions of dollars in benefits and services to veterans and their families. However, VA faces serious and long-standing problems with management challenges and veterans' access to health care and disability benefits. These issues contributed to GAO's decision to list several areas involving VA on GAO's High-Risk List, including managing acquisitions, managing risk and improving veterans' health care, and improving and modernizing VA's disability programs. This testimony discusses (1) human capital challenges facing VA and its components, (2) GAO recommendations addressing some of those challenges, and (3) how those challenges are related to a broader set of government-wide human capital problems. This testimony is based on GAO's work on VA issued since 2017, as well as GAO's work on government-wide strategic human capital management issued since July 2014. To conduct these studies, GAO reviewed key agency documents and government-wide employment data and interviewed knowledgeable agency officials and managers, as well as subject matter specialists. Serious human capital shortfalls are undermining the Department of Veterans Affairs' (VA) ability to provide veterans with quality and timely services. Over the past two decades, GAO has identified major challenges with VA human capital practices. For example, in March 2019, GAO found large staffing shortages, including physicians and registered nurses, at the Veterans Health Administration's (VHA) 172 medical centers. In December 2016, GAO found that high attrition, increased workload, and burnout among VHA's human resources (HR) staff, along with ineffective internal controls to support its HR operations, have impeded VHA's ability to serve the nation's veterans (see figure). Continued leadership attention to addressing GAO's recommendations could help VA better execute its mission. GAO has made numerous recommendations to VA, 40 of which were designated as priorities because they could significantly improve VA's operations. Twelve of the 40 were aimed at strengthening VA's human capital management efforts. Of these, six have been addressed. However, VA still needs to take additional actions on the other six, such as developing a modern and effective performance management system. Beyond these priority recommendations, VA can use key talent management strategies that GAO has identified for acquiring, incentivizing, and engaging employees and thus be more competitive for a high-performing workforce in a tight labor market. Some of the challenges facing VA are part of a larger set of human capital issues affecting government as a whole. Although Congress, the Office of Personnel Management, and individual agencies have made improvements in recent years, human capital management in general remains a high-risk area because of mission-critical skills gaps within the federal workforce. Structural issues impede the ability of agencies to recruit, retain, and develop workers, including outmoded position classification and pay systems, ineffective recruiting and hiring processes, and challenges in dealing with poor performers. GAO has designated 40 of its prior recommendations to VA as priorities for implementation. Twelve of these priority recommendations are aimed at strengthening VA's human capital management efforts. To date, VA has implemented six of these priority recommendations, but needs to take additional action on the other six. GAO will continue to monitor VA's progress in implementing these recommendations.