These changes are designed to ensure that the system aligns  individual performance and pay with the department’s critical mission  requirements and to protect the civil service rights of its employees. However, it is important to note at the outset that the proposed  regulations do not apply to nearly half of all DHS civilian employees,  including nearly 50,000 screeners in the Transportation Security  Administration (TSA). We have found that having one  performance management system framework facilitates unifying an  organizational culture and is a key practice to a successful merger and  transformation. Based on the department’s progress in implementing the  system and any appropriate modifications made based on their  experience, DHS should consider moving all of its employees under the  new human capital system. To this  end, the DHS proposal takes another valuable step towards results- oriented pay reform and modern performance management. While aligning individual performance expectations with  DHS’s mission and strategic goals will be key to DHS’s effective  performance management, it is important to note that DHS has not yet  released its strategic plan which may hamper creating the formal linkage  to the performance management system and make it difficult to ensure  that the proposed regulations support and facilitate the accomplishment of  the department’s strategic goals and objectives. Providing Adequate Safeguards to Ensure Fairness and Guard Against Abuse

According to the proposed regulations, the DHS performance management  system must comply with the merit system principles and avoid prohibited  personnel practices; provide a means for employee involvement in the  design and implementation of the system; and overall, be fair, credible,  and transparent. Adverse Actions and Appeals

The DHS proposal is intended to streamline the employee adverse action  process, while maintaining an independent third-party review of most  adverse actions. Providing an avenue for an independent appeal can enhance employee  trust of the entire human capital system. The proposal authorizes the Secretary of DHS to identify specific offenses  for which removal is mandatory. When  developing these proposed regulations, DHS should learn from the  experience of the Internal Revenue Service’s (IRS) implementation of its  mandatory removal provisions. Labor Management Relations

The DHS proposed regulations recognize the right for employees to  organize and bargain collectively. However, the proposal reduces the  scope of bargaining by removing the requirement to bargain on matters  traditionally referred to as “impact and implementation,” which include  the processes used to deploy personnel, assign work, and use new  technology, for example, and redefining what are traditionally referred to  as the “conditions of employment.” A DHS Labor Relations Board is  proposed that would be responsible for determining appropriate  bargaining units, resolving disagreements on the scope of bargaining and  the obligation to bargain, and resolving impasses, and would be separate  and independent from the Federal Labor Relations Authority (FLRA). Regardless of whether it is as a part of collective bargaining, involving  employees in such important decisions as how they are deployed and how  work is assigned is critical to the successful operations of the department. DHS Faces Multiple Implementation Challenges

Once DHS issues final regulations for the human capital system, the  department will be faced with multiple implementation challenges. Implementing the system using a phased approach. We strongly  support a phased approach to implementing major management reforms. Providing adequate resources for additional planning,  implementation, and evaluation. At the same time, DHS is  requesting a substantial amount of funding that warrants close scrutiny by  Congress. The strategic workforce plan can be used, among  other things, as a tool for identifying core competencies for staff for  attracting, developing, and rewarding contributions to mission  accomplishment. DHS should also continue to build  safeguards into its revised human capital system. DHS’s overall effort to design a strategic human capital management  system can be particularly instructive for future human capital  management and reorganization efforts within specific units of DHS. Its  effort can also prove instructive as other agencies design and implement  new authorities for human capital management. Appendix I: Methodology

In presenting our preliminary observations on the Department of  Homeland Security’s (DHS) regulations, we reviewed the proposed human  capital regulations issued jointly by DHS and the Office of Personnel  Management (OPM) on February 20, 2004, in the Federal Register.
Why GAO Did This Study

The creation of the Department of Homeland Security (DHS) almost one year ago represents an historic moment for the federal government to fundamentally transform how the nation will protect itself from terrorism. DHS is continuing to transform and integrate a disparate group of agencies with multiple missions, values, and cultures into a strong and effective cabinet department. Together with this unique opportunity, however, also comes significant risk to the nation that could occur if this transformation is not implemented successfully. In fact, GAO designated this implementation and transformation as high risk in January 2003. Congress provided DHS with significant flexibility to design a modern human capital management system. GAO reported in September 2003 that the design effort to develop the system was collaborative and consistent with positive elements of transformation. Last Friday, the Secretary of DHS and the Director of the Office of Personnel Management (OPM) released for public comment draft regulations for DHS's new human capital system. This testimony provides preliminary observations on selected major provisions of the proposed system.

What GAO Found

The proposed human capital system is designed to be aligned with the department's mission requirements and is intended to protect the civil service rights of DHS employees. Many of the basic principles underlying the DHS regulations are consistent with proven approaches to strategic human capital management, including several approaches pioneered by GAO, and deserve serious consideration. However, some parts of the system raise questions that DHS, OPM, and Congress should consider. Pay and performance management: The proposal takes another valuable step towards results-oriented pay reform and modern performance management. For effective performance management, DHS should use validated core competencies as a key part of evaluating individual contributions to departmental results and transformation efforts. Adverse actions and appeals: The proposal would retain an avenue for employees to appeal adverse actions to an independent third party. However, the process to identify mandatory removal offenses must be collaborative and transparent. DHS needs to be cautious about defining specific actions requiring employee removal and learn from the Internal Revenue Service's implementation of its mandatory removal provisions. Labor relations: The regulations recognize employees' right to organize and bargain collectively, but reduce areas subject to bargaining. Continuing to involve employees in a meaningful manner is critical to the successful operations of the department. Once DHS issues final regulations for the human capital system, it will be faced with multiple implementation challenges. DHS plans to implement the system using a phased approach, however; nearly half of DHS civilian employees are not covered by these regulations, including more than 50,000 Transportation Security Administration screeners. To help build a unified culture, DHS should consider moving all of its employees under a single performance management system framework. DHS noted that it estimates that about $110 million will be needed to implement the new system in its first year. While adequate resources for program implementation are critical to program success, DHS is requesting a substantial amount of funding that warrants close scrutiny by Congress. The proposed regulations call for comprehensive, ongoing evaluations. Continued evaluation and adjustments will help to ensure an effective and credible human capital system. DHS has begun to develop a strategic workforce plan. Such a plan can be used as a tool for identifying core competencies for staff for attracting, developing, evaluating, and rewarding contributions to mission accomplishment. The analysis of DHS's effort to develop a strategic human capital management system can be instructive as other agencies request and implement new strategic human capital management authorities.