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[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:29762.wais]
S. Hrg. 109-971
FINANCIAL MANAGEMENT AT THE DEPARTMENT OF DEFENSE
=======================================================================
HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
AUGUST 3, 2006
__________
Available via http://www.access.gpo.gov/congress/senate
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
-------
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29-762 PDF WASHINGTON DC: 2007
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael L. Alexander, Minority Staff Director
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Coburn............................................... 1
Senator Carper............................................... 6
WITNESSES
Thursday, August 3, 2006
Hon. David M. Walker, Comptroller General, U.S. Government
Accountability Office.......................................... 7
J. David Patterson, Principal Deputy Under Secretary of Defense
(Comptroller), U.S. Department of Defense...................... 17
Teresa McKay, Deputy Chief Financial Officer, U.S. Department of
Defense........................................................ 19
Thomas F. Gimble, Acting Inspector General, Office of the
Inspector General, U.S. Department of Defense.................. 21
Alphabetical List of Witnesses
Gimble, Thomas F.:
Testimony.................................................... 21
Prepared statement with an attachment........................ 71
McKay, Teresa:
Testimony.................................................... 19
Patterson, J. David:
Testimony.................................................... 17
Prepared statement........................................... 59
Walker, Hon. David M.:
Testimony.................................................... 7
Prepared statement........................................... 33
APPENDIX
Questions and responses for the Record from:
Mr. Patterson................................................ 83
Mr. Gimble................................................... 115
FINANCIAL MANAGEMENT AT THE DEPARTMENT OF DEFENSE
----------
THURSDAY, AUGUST 3, 2006
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Tom Coburn,
Chairman of the Subcommittee, presiding.
Present: Senators Coburn and Carper.
OPENING STATEMENT OF CHAIRMAN COBURN
Chairman Coburn. Today's hearing of the Federal Financial
Management, Government Information, and International Security
Subcommittee of the Homeland Security and Governmental Affairs
Committee will come to order.
I want to thank all our witnesses for being here, the work
you have put into it plus the work that you are doing in every
area, whether it is at DOD or IG or with General Walker and his
staff and the wonderful work they do to help us get things
realigned.
On September 10, 2001, the day before the terrorist attacks
that shook our Nation, Secretary of Defense Donald Rumsfeld
stated the following: ``Financial management efforts at the
Pentagon are not just about money or waste. In the end, it is
really about a matter of life and death, ultimately, every
American's life and death. Our job is defending America, and if
we cannot change the way we do business, then we cannot do our
job well and we must.''
I don't think it could be said any better. The U.S.
Department of Defense fiscal year 2006 budget was more than the
combined defense spending of the rest of the world. We are
currently debating the proposed $441.2 billion budget for DOD
on the Senate floor right now, plus another $120 billion that
will have come through supplementals and add-ons to total $513
billion in this next fiscal year. The baseline amount reflects
a 7 percent increase over 2006, a 48 percent increase over
2001, without including war supplementals.
It is difficult for most of us to wrap our hands around a
budget that big. Our budget for defense will be higher than at
any time in our history in real dollars, even including World
War II. We must secure America--that is not negotiable--
whatever it costs. But do we really know what it costs? When we
don't know how we are spending that money and we don't know
whether it is being managed well, we don't know what areas of
the budget are really necessary for the Nation's defense and
what areas aren't.
We had Secretary Rumsfeld this morning before the Armed
Services Committee and he made a valid point, is the very
things that the Defense Department wants to do, the Congress
won't let them, and the very things they don't want to do in
terms of earmarks, some $20 billion, the Congress is making
them do.
There is quite a bit of evidence that the amounts that are
lost to payment errors, waste, fraud, abuse, and duplication
could be in excess of tens of billions of dollars each year.
When you consider that seven of nine advanced weapon programs
today are over budget and behind schedule, something is very
wrong.
The most glaring problem has been the Department's
inability to produce auditable financial statements. In other
words, they can't undergo an audit, much less pass one. If DOD
were a privately-owned company, it would have been bankrupt
long ago. There is good movement, I am proud to say, within the
DOD in trying to address that. In 2004, the Department set the
goal of undergoing a full audit by the year 2007.
Unfortunately, that deadline has not been met, and in fact, it
has been moved fairly far out, to 2016. That is 10 years from
today.
Americans are being asked to wait a full 10 years before
their dollars are tracked well enough for the Department to
hold an audit, and that seems to be the new objective of
financial managers, is to get to a place where we can actually
have an audit, and that is a laudable goal. Don't get me wrong.
Undergoing an audit is real and measurable progress. The
President inherited a Department in financial disarray and many
hard-working folks have been making slow but steady progress on
the goals of having audited financial statements.
I have had individual conversations with your Comptroller.
I think the ideas and the plans and the institutional plans of
change are ongoing. I am pleased that the Government
Accountability Office (GAO) and Office of Management and Budget
(OMB) believe that the goal is realistic and can be met. Just
being able to get a financial audit of all the components of
the Department will be a marked improvement over what we have
today.
Over the past 5 years, GAO has made a series of
recommendations to DOD, which they are in the process of
implementing, and I want to recognize them and thank them for
that process. They deserve to be commended for their work. The
financial audit and improvement readiness plan to incrementally
move the Department to an auditable state by 2015 and the
standard financial information structure to categorize DOD
financial information are two key elements driving this plan
for financial management improvement. They are both promising
steps. They will require, however, vigorous oversight to see
that these plans are on track and receiving the attention
necessary within DOD and that these efforts yield the results
that we want them to.
This Subcommittee is going to be watching closely and
asking for regular updates every 3 to 5 months. Quite frankly,
2016 is not good enough for the American taxpayer. When we call
on the Defense Department to do things that we think are
unimaginable and they do it in terms of defending this country,
they demonstrate the leadership qualities and characteristics
that make them as good as they are. We need to apply those same
characteristics, those same leadership traits, to getting the
Department's financial management under control.
This drive to improve the financial management controls in
DOD will not happen without sustained leadership--every day,
every week, every month. It is essential to obtaining the
outlined results, the benchmarks, and meeting the goals the
Department has set.
GAO has recommended the position of a Chief Management
Officer be established within the Department of Defense to keep
the business transformation intact as a new administration is
ushered in. I am interested to hear more about the role and
function of such a position within DOD to see how this
organizational change will help maintain continuity during
times of administrative transition.
GAO has also been reporting to Congress that DOD is at the
top of its high-risk list for years. Of the 26 high-risk areas,
14 are at DOD. While sustained leadership at the agency is
critical to achieving success with financial management
improvement, continued oversight by Congress is just as
important.
And as the Secretary's quote reminds us, none of this is
trivial and none of it is optional. The financial management of
the world's largest and most competent military force affects
not only the stewardship of taxpayer dollars, but the safety
and well-being of the real men and women on the battlefield,
the security of our civilian population at home and abroad, and
indeed, the freedom and peace of the world. Beyond these life
and death issues, there are fundamental issues of respect in
how we treat our sons and daughters in harm's way every day.
During this time of war, GAO reported that our battle-
wounded soldiers were hounded by debt collectors for debt they
incurred on no fault of their own. In fact, GAO found as many
as 73 percent of the reported debts were caused by overpayments
of pay allowances, pay calculation errors, or erroneous leave
payments.
Every dollar wasted or misspent is a dollar we won't spend
preparing and equipping our warfighters. Recently, Lt. Gen.
Steven Baum, the top National Guard General, said that two-
thirds of the active Army brigades are not rated ready for war.
Army officials, analysts, and some of my colleagues have
complained that there just isn't enough money to complete the
personnel training and equipment repairs and replacement that
must be done when units return home after deploying to Iraq and
Afghanistan. And we heard this morning that, in fact, part of
the problem with that is underfunding from the 302(b), earmarks
that take away, and not allowing the Defense Department to do
the things that they think will create efficiencies and economy
of scale.
If there is one agency in the government where corners can
be cut, it is not the DOD, and we are not suggesting that with
this hearing today. If there is one agency where we should
ensure an abundance of resources, it is DOD. My colleagues know
that, and perhaps that explains why so much money has rolled
out the door to DOD with so little oversight. That same desire
to give our armed forces whatever they need may be what has
hampered us from following what we do give them.
It is not enough just to write blank checks to DOD without
effective oversight, call ourselves patriots, and go home. It
is a perverse world when we can roll out the types of
appropriations, both through regular order and emergency war
supplementals, and still hear complaints of equipment and
training for warfighters that the Department can't afford. It
is time for Congress to match the level of its abundant
provision of resources of the American taxpayers' money with an
intensity and frequency of financial oversight. The safety and
protection of our country should be our top priority. I have a
hard time, however, justifying continued multiple emergency war
supplementals for the Department when we don't know exactly
what that money is buying, and neither does the Department of
Defense.
I would like to stress that this hearing is not a policy
debate about whether or not U.S. troops should be present in
Afghanistan or Iraq. We are there and we must win. We must be
prepared to win the next time, as well, and the time after
that. The Department of Defense has adopted a motto, and it is
a good one. ``Check it. What gets checked, gets done.''
Senator Carper and I are committed to Congressional
checking.
We thank each of our witnesses for appearing today before
this Subcommittee.
[The prepared statement of Chairman Coburn follows:]
PREPARED STATEMENT OF SENATOR COBURN
On September 10, 2001--the day before the terrorist attacks that
shook our Nation--Secretary of Defense Donald Rumsfeld stated that, ``.
. . financial management efforts at the Pentagon are not just about
money or waste . . . in the end, it is really a matter of life and
death--ultimately every American's . . .'' Secretary Rumsfeld
continued: ``Our job is defending America, and if we cannot change the
way we do business, then we cannot do our job well, and we must.''
The U.S. Department of Defense fiscal year 2006 budget was more
than the combined defense spending of the rest of the world. We are
currently debating a proposed $441.2 billion dollar budget for DOD on
the Senate floor right now. This, of course, does not include money the
Department receives through supplemental appropriations to pay for the
Iraq war. This amount reflects a 7 percent increase over 2006 and a 48
percent increase over 2001--again, and that doesn't even include war
expenses.
It's difficult for most of us to wrap our heads around a budget
that big. Let's put it in more tangible terms: U.S. defense spending
will exceed $513 billion next year, the highest amount at any time
since World War II. It also exceeds the rest of the world's military
spending--combined.
We must secure America--that's not negotiable--whatever it costs.
But do we really know what it costs? When we don't know how we're
spending that money, and if it's being managed well, we have no idea
what areas of the budget are really necessary for the Nation's defense
and what areas aren't. And there's quite a bit of evidence that the
amounts lost to payment errors, waste, fraud, and abuse each year could
be in the tens of billions.
The most glaring problem has been the Department's inability to
produce auditable financial statements--in other words, they can't
undergo an audit, much less pass one. If DOD were a privately-owned
company, it would have been bankrupt long ago. In 2004, the Department
set the goal of undergoing a full audit by 2007. That deadline has not
been met, and in fact, has been moved to the year 2016. That's 10 years
from today. Americans are being asked to wait a full 10 years before
their dollars are tracked well enough for the Department to fail an
audit. And that seems to be the new objective of financial managers at
DOD--to get to a place where DOD can actually fail an audit. Passing
the audit is a pipedream for some future date beyond 2016.
Don't get me wrong. I understand that merely undergoing an audit is
real and measurable progress. The President inherited a Department in
financial disarray, and many hardworking folks have been making slow
but steady progress. I am pleased that the Government Accountability
Office and the Office of Management and Budget believe that goal is
realistic and can be met. Just being able to get a financial audit of
all components of the Department will be a measurable improvement.
Over the past 5 years, GAO has made a series of recommendations to
DOD, which they are in the process of implementing. They deserve to be
commended for their work so far. The Financial Improvement and Audit
Readiness (FIAR) Plan to incrementally move the Department to an
auditable state by 2016 and the Standard Financial Information
Structure (SFIS) to categorize DOD financial information are two key
elements driving this plan for financial management improvement. These
are both promising steps. We still need, however, rigorous oversight to
see that these plans are on track and receiving the attention necessary
within DOD, and that these efforts yield the intended results. This
Subcommittee will be watching closely, and asking for regular updates
every few months.
DOD's plans to improve the financial management of our defense
system will not happen without sustained leadership. Leadership is
essential to obtaining outlined results, benchmarks, and meeting the
goals the Department has set. GAO has recommended the position of Chief
Management Officer be established within the Department of Defense to
keep the business transformation intact as a new Administration is
ushered in. I am interested to hear more about the role and function of
such a position within DOD to see how this organizational change could
help maintain continuity during times of transition.
GAO has been reporting to Congress that DOD is at the top of its
``High-risk'' list for years. Of the 26 ``high-risk'' areas, 14 are at
DOD. While sustained leadership at the agency is critical to achieving
success with financial management improvement at DOD, continued
oversight by Congress is just as important. And as the Secretary's
quote reminds us, none of this is trivial or optional. The financial
management of the world's largest and most competent military force
affects not only the stewardship of taxpayer dollars, but the safety
and well being of real men and women on the battlefield, the security
of our civilian population at home and abroad, and indeed the freedom
and peace of the world.
Beyond these life and death issues, there are fundamental issues of
respect and how we treat our sons and daughters in harm's way every
day. During this time of war, GAO reported that our battle-wounded
soldiers were hounded by debt collectors for debt they incurred by no
fault of their own. In fact, GAO found that as many as 73 percent of
the reported debts were caused by overpayments of pay allowances, pay
calculation errors, and erroneous leave payments.
Every dollar wasted or misspent is a dollar we don't spend
preparing and equipping our warfighters. Recently, Lt. Gen. H. Steven
Blum, the top National Guard General, said that two-thirds of the
active Army's brigades are not rated ``ready for war.'' Army officials,
analysts and some of my colleagues have complained that there just
isn't enough money to complete the personnel training and equipment
repairs and replacement that must be done when units return home after
deploying to Iraq or Afghanistan.
If there is one agency in the government where corners can be cut,
it is not DOD. If there is one agency where we should ensure an
abundance of resources--it is DOD. My colleagues know this, and that
perhaps explains why so much money has rolled out the door to DOD with
so little oversight. That same desire to give our armed forces whatever
they need may be what has hampered us from following what we do give
them. It is not enough just to write blank checks to DOD without
effective oversight, call ourselves patriots and go home. It is a
perverse world when we can roll out the types of appropriations--both
through regular order, and emergency war supplements--and still hear
complaints of equipment and training of warfighters that the Department
can't afford.
It is time for Congress to match the level of its abundant
provision of resources with an intensity and frequency of financial
oversight. The safety and protection of our country should be our top
priority; however, I have a hard time justifying continued multiple
emergency war supplementals for the Department when we don't know
exactly what that money is buying, and neither does the Department.
I would like to stress that this hearing is not a policy debate
about whether or not U.S. troops should be present in Afghanistan or
Iraq: We're there and we must win. We must be prepared to win next
time, and the time after that. The Department of Defense has an adopted
motto: ``Check it. What gets checked, get done.''
Senator Carper and I are committed to some Congressional
``checking.'' Thank you to each of our witnesses for appearing before
the Subcommittee today.
Chairman Coburn. Senator Carper.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Thanks, Mr. Chairman. Normally, I don't say
this about opening statements that other people give, but that
was a good statement.
Chairman Coburn. Thank you.
Senator Carper. I am delighted that we are here and I thank
you for scheduling this hearing and our witnesses for joining
us today at this time.
I read not long ago that we spend more money in the
Department of Defense on our military than all the other
countries combined. I sort of come at this as a guy who has
spent a lot of his life in the military, in the Navy as a Naval
flight officer on active duty and later in the Reserves for
many years, so having served in a war, hot war, cold war, and
now having some idea and some real special personal feeling as
to the importance of the Armed Forces. As governor, I got to be
Commander in Chief of the Delaware National Guard, so I bring
that experience to this table. This is a great affection for
those who wear the uniform and great respect.
I also know that we are spending a whole lot more money
than we have in the government, and General Walker is going to
probably share a little bit of that with us here today. We have
to find ways to reduce the deficit. We had a real good hearing
this week on the kind of abuses that are going on in terms of
tax shelters. It was another Subcommittee of our Committee that
held that hearing and hopefully can help us narrow that tax gap
that the Chairman and I talked a fair amount about. There is no
silver bullet here. Some of the money that we need to narrow
the deficit is going to be in the tax gap and others from a
wide variety of different kinds of programs, domestic and
defense.
But I want to talk a little bit today before we turn it
over to General Walker, acknowledging that the Department of
Defense is a very large organization, a very complex
organization with a critical mission. Its success or its lack
of success in carrying out that mission is a matter of life and
death to the men and women who serve in our military today, and
frankly, for all of us who are sitting here today.
Unfortunately, the Department's ability to effectively
carry out its mission is threatened by a number of
longstanding, ongoing management problems that the Chairman has
alluded to. Eight of the 26 problem areas highlighted on GAO's
high-risk list are within the Department of Defense. Six others
on the list are government-wide problems that also apply to the
Department of Defense.
There have been hearings held in the past on a number of
DOD problem areas. I am pleased that this Subcommittee will now
be spending some time examining those basic financial
management failures at the Department, failures that have kept
DOD's financial management on the high-risk list now for more
than a decade.
The Department of Defense and most of its components have
essentially been deemed unauditable. The thousands of business
systems scattered throughout the Department don't talk to one
another and simply can't produce timely, accurate financial
data. This has led to an unacceptable situation, a situation
where decisionmakers within the Department and also here within
Congress don't have a clear picture of what the Department has,
what it needs, and how it spends its money.
The murky nature of the Department's finances is, according
to GAO, the single largest obstacle to achieving overall
qualified audit opinions on the Federal Government's
consolidated financial statements. It also creates an
environment that invites waste, fraud, and abuse, and abuse of
the taxpayers' trust. No Secretary of Defense, no matter how
determined or how accomplished he or she might be, can be as
effective as they need to be facing these kinds of problems.
I understand that the Department of Defense has made some
progress in recent months laying out a road map for how to
address these problems and I hope we can continue to pay close
attention to the Department's efforts to ensure that the
milestones are met and the goals remain in sight. Like you, Mr.
Chairman, the idea of waiting until 2016 when we were hoping
2007, that is just not acceptable. I like to say, if it isn't
perfect, make it better. We also like to say in my office, we
can do better than that. With respect to the timeline, we can
do better than that. We need to do better than that.
Thank you, Mr. Chairman.
Chairman Coburn. Thank you, Senator Carper.
Before us now is the Hon. David Walker. He is well known to
this Subcommittee. I don't know if he has testified before more
Subcommittees than this one, but we are up in the running with
him. We appreciate him being here.
He became Comptroller General in 1998, a 15-year term. He
dare not leave before that term is up. I will get you if you
do. We will come back after you. We are very pleased you are
here. We are very proud of the dedicated work that you and all
the people who work with you give in assisting this
Subcommittee and the rest of Congress an honest look at
problems that we are facing. Please give us your statement.
General Walker. Do you want to swear me in?
Chairman Coburn. I don't think you need to be sworn in.
General Walker. Thank you very much. I would rather be
sworn in than sworn at.
Senator Carper. Can we vote on that?
Chairman Coburn. Do you want him sworn in?
Senator Carper. No. [Laughter.]
TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL, U.S.
GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Walker. Thank you very much. You can trust what I tell
you, whether I am sworn in or not. Thank you for your kind
comments about GAO and our staff. We have an outstanding staff.
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\1\ The prepared statement of Mr. Walker appears in the Appendix on
page 33.
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It is a pleasure to be back before this Subcommittee to
talk about the Defense transformation efforts on the business
side. I want to commend this Subcommittee, you, Mr. Chairman,
and Senator Carper, for your dedication and commitment to
oversight. Frankly, there are not enough committees and
Subcommittees in Congress that are doing oversight and this
Subcommittee is a clear exception.
As has been mentioned by the Chairman as well as Senator
Carper, 14 of GAO's 26 high-risk areas relate directly or
indirectly to the Department of Defense. We are No. 1 in the
world in fighting and winning in armed conflicts. We do not
deserve a passing grade on economy, efficiency, transparency,
and accountability, and that needs to change.
You are right, Mr. Chairman, that Secretary Rumsfeld
basically noted the importance of business transformation on
September 10, 2001. We all know the tragic events of September
11, 2001, and as a result, not as much progress has been made
in this area as everybody would like. But, we are seeing signs
that things are starting to change.
It is important to keep in mind that this is not about
audited financial statements. I mean, clearly, in the end, DOD
has a responsibility to achieve a clean opinion on its audited
financial statements. That is an indicator, but it is not an
end in and of itself. What is important that we have sound
internal controls coupled with timely, accurate and useful
financial and management information in order to make informed
decisions on a day-to-day basis, and to make sure that we are
maximizing economy, efficiency, and effectiveness and we are
providing for appropriate transparency and accountability to
the American people.
The simple fact of the matter is, because of decades-old
problems with internal controls, with financial management
information systems, and selected other issues, the Defense
Department wastes billions of dollars every year. That is money
that we cannot afford to waste at any time, especially at a
time when we are running large and imprudent budget deficits.
These deficits are only going to get worse when the baby
boomers start to retire in the next few years unless we end up
changing our path.
I will note that DOD has shown increased commitment to
trying to take on some of these challenges within the last year
and there are a number of steps that it has taken that are
encouraging and they represent improvements over their past
efforts.
I would note for the record, however, that I have not heard
that 2016 date before. I can tell you that while I thought that
the 2007 date to achieve an audited financial statement for the
DOD was ridiculously optimistic and not credible on its face,
the 2016 date is likewise not credible on its face. I would
suggest 2012 at the absolute latest. I would like to see their
plan showing how they are going to try to get there. We ought
to be able to get there.
Quite frankly, in all fairness, one of the reasons I
mentioned that date is that it is the last fiscal year in which
I will be Comptroller General and have an opportunity to
express an opinion on the consolidated financial statements of
the U.S. Government. You can take it to the bank, there will
not be an opinion on the consolidated financial statements of
the U.S. Government until there is one at DOD. There won't be,
because DOD is just too big from the standpoint of the balance
sheet and the statement of net cost of operations of the
Federal Government.
Some examples of some positive things that have happened of
late are the issuance of the FIAR Plan, or the Financial
Improvement and Audit Readiness Plan. The plan is clearly a
much more logical and pragmatic approach to trying to look at
different line items in different entities, which is what we
have been suggesting for a while. Namely, that DOD try to hit
some singles and doubles before they go for the fence, and I
think the new plan is clearly an improvement in approach.
In addition, the Standard Financial Information Structure,
the SFIS, represents a more pragmatic approach with regard to
financial management information, and the enterprise
architecture is clearly superior to the prior approach that
they were taking.
The creation of the DBSMC, the Defense Business System
Management Committee--there are more acronyms than you can
count over at the Defense Department--as a means to oversee the
overall business transformation effort was also a positive
step. The creation of the Business Transformation Agency,
otherwise known as BTA, in order to support that effort
obviously is a positive step.
There are a number of things that we think will be
essential in order for the Department to achieve sustainable
success in business transformation. I will mention two. One,
they need a strategic and integrated business transformation
plan. They don't have it right now.
Two, it is not a panacea, but it is essential. They will
need a Chief Management Officer at the right level, for the
right period of time, and doing the right things to provide
continuity within administrations and between administrations
to deal with these many challenges that are years in the making
and will take years to successfully address.
I am pleased to note that the Defense Business Board has
recommended the creation of a Chief Management Official. I am
also pleased to note that McKinsey, one of the world's most
respected global consulting firms, has also recommended it. I
am hopeful that the FFRDC entity that is going to conduct an
additional study that is going to come out later this year will
also recommend it. As you know, GAO has recommended it for at
least 2 years.
Last thing, given the fact that we are in a real but
undeclared global war on terrorism, it is time for us to
declare war on waste. It is long overdue and the time to do it
is now.
Thank you, Mr. Chairman.
Chairman Coburn. Thank you, General Walker.
I think Senator Carper and I feel like we have declared the
war on waste. That is what we have been doing the last 18
months up here, and we are on our 44th or 45th hearing. Most of
it has to do with waste, fraud, abuse, and inefficiencies.
You are uncomfortable with this 2016 because you think it
can be achieved sooner, and----
Mr. Walker. I haven't seen the 2016 date. That was news to
me. But I do think it can be achieved sooner.
Chairman Coburn. Would you talk for a minute about the
information systems problems that the Defense Department has in
terms of even if they wanted to do it sooner, because they
have, what, 70 or 80 different management information systems
and all these different programs and different computers that
don't talk to one another, describe for us and also for the
American public the size and extent of this problem. It would
just seem to most people, if you just look at this, well, just
put in new systems everywhere and make them all talk to each
other and you can do this. Can you comment on that for me, if
you would?
Mr. Walker. The Department of Defense, as you properly
pointed out, is one of the largest, most complex, and arguably
most important entities on the face of the earth. It has over
3,000 legacy and non-integrated financial and other management
information systems that have accumulated over decades.
In many cases, for a single transaction for a purchase or
acquisition or other type of activity, there are multiple
entries that have to be made into different systems in order to
record that transaction rather than a single entry into an
integrated information system. In some cases, there is a 16-
digit code that has to go for each transaction, irrespective of
the size of the transaction.
We have a situation where you have thousands of outdated
systems that don't talk with each other that have accumulated
over the years and trying to reconcile those numbers is a
nightmare. We need to kill, discontinue, all non-essential, all
non-stay-in-business information systems. We need to kill them.
We need to free up that money and redeploy that money to create
a more positive future, creating more modern and integrated
information systems. It will take time. It will take money. But
it clearly can be done before, in my view, 2016.
Mr. Chairman, last week another event that occurred that is
important was the kick-off of the Check It Campaign, which
deals with internal controls. The Department recognizes the
importance of sound controls as well as appropriate systems. I
was there at that event, at the request of Deputy Secretary
Gordon England, in order to show the importance and commitment
to that. It is going to take years, but we can do it a lot
quicker than 2016.
Chairman Coburn. Let us talk for a minute about the CMO
position. We had testimony yesterday in front of us in terms of
Iraq and Special Investigative--SIGIR, I think it was----
Mr. Walker. Stuart Bowen.
Chairman Coburn. Yes, Stuart Bowen, who has done a
wonderful job over there looking at things. The problem is he
is looking at it after it happened. We have made several
recommendations on Hurricane Katrina, Senator Carper and myself
and Senator Obama, about having a Chief Financial Officer watch
the store, and we have seen billions wasted because we didn't
have anybody watching the store.
In your mind, is there progress being made at the Defense
Department to look at this realistically, to put somebody in
such a position and give them the authority as well as the
position to make management decisions in terms of the
organization?
Mr. Walker. Senator, as you probably know, the Congress
required as a matter of law that the Department of Defense
conduct two studies on the concept of a Chief Management
Official and to report the results of those two independent
studies by the end of this calendar year.
Chairman Coburn. I would just note for the record that by
law, they are supposed to be reporting improper payments
throughout the Pentagon, as well, and they don't.
Mr. Walker. The good news here, Senator, is that the first
study has already been completed by the Defense Business Board
and they did recommend the creation of a Chief Management
Official at level two that would be a principal Under Secretary
of Management to focus on the business transformation process,
that would have statutory qualification requirements, a 5-year
term appointment, and presumably a performance-based contract.
So basically, their recommendation is very consistent with what
GAO has recommended, minor differences, but intellectually very
consistent.
McKinsey within the last 2 weeks came out with a study
noting the need for chief management officials or chief
operating officers in a number of Federal departments and
agencies around the government.
It is my understanding that IDA is doing a study now. I met
with representatives from IDA for about an hour and a half
about 10 days ago. They are doing their independent study. It
is my understanding they are going to make some
recommendations. They are also going to talk about a short-term
versus long-term approach and they expect to meet their
statutory deadline.
Chairman Coburn. Why do we need another study? I mean, that
sounds like what the government does usually. We study things
to death, but we don't get any action. Why do we need another
study on whether or not we need a chief----
Mr. Walker. I don't think we need a study. I will tell you
why I think we got a study. We were very clear that this was
needed. The Department did not embrace that recommendation.
Therefore, the Congress decided, well, let us get a couple more
views, because the Department didn't want to do it, we were
recommending that it be done, and it was a way to try to get
additional information. It shouldn't have been necessary, but
nonetheless, it is going to happen. I am cautiously optimistic
that both will end up recommending this position. I continue to
believe today, more than ever, that it is an essential element
to sustainable progress in business transformation within DOD.
Chairman Coburn. Thank you. Senator Carper.
Senator Carper. Thanks, Mr. Chairman.
Mr. Walker, again, it is great to have you before our
Subcommittee today. When you were testifying, during your
statement, General Walker, I wrote down that 2007 is not
achievable, and if 2016 is not soon enough, what time line
makes sense? You, reading my mind, responded no later than
2012. I think you said 2012 at the latest.
Mr. Walker. In fairness, I haven't ended up independently
going down and taking the building block approach to get there,
but if this country can send a man to the moon and return them
in less than 9 years, we ought to be able to get our act
together in this area in at least 6 years.
Senator Carper. How do we make 2012 or 2011 or some other
year a reality rather than just a target? How do we go about
making it reality? And if you would, talk about what you can
do, if you will, through GAO----
Mr. Walker. Absolutely.
Senator Carper [continuing]. And what we can do through our
oversight role. Later on, I am going to come back and say, what
can the Administration do? What can the Executive Branch do?
Mr. Walker. Well, first, if you want to achieve a
challenging and complex objective, you must have a plan. If you
don't have a plan, you will have no prayer. Or stated
differently, that may be the only thing you have, is a prayer.
There is an approach now to develop a plan, which I
mentioned, which is good. The conceptual approach to it is much
better. It is taking specific line items, specific entities,
taking a building block approach, providing for accountability
to specific parties as to what they need to be doing by when in
order to achieve that objective.
I will need to take a look at it to see how they got to
2016. As I said, that is a new date to me. It seems too far
out. In my view, I would like to see how they got to it.
You also need, to have accountability. Who is going to be
responsible for what? You need to make sure that they are held
accountable, that they are rewarded for meeting dates and that
they are held accountable if they don't end up meeting dates.
The Congress needs to continue to provide for appropriate
oversight. It needs to provide enough resources to get the job
done, reasonable flexibility with appropriate transparency and
accountability to make sure that people are doing what needs to
be done within the time frame.
With regard to us, we can continue to work with them on a
constructive basis to give them our views as to what we think
are the most important issues and what possibly might be the
best way forward, but ultimately DOD management needs to make
that judgment, if you will.
I think OMB needs to hold DOD more accountable than they
have in the past in these areas, and hopefully that will
happen. I also think that it may be necessary, although I have
not made a decision on this and I would want to coordinate this
with the Department of Defense, with the Inspector General for
the Department of Defense, and other appropriate parties, for
us to have to assume more responsibility for the audit of the
Department of Defense.
Senator Carper. So you are going to maybe----
Mr. Walker. It may be possible that we, GAO, may have to
directly assume more responsibility for the financial statement
audit of the Department of Defense, and let me tell you what I
mean by that. We have not made a decision, and I would need to
consult with a variety of parties. It is too early to make that
decision. Under law, we have the authority to audit any entity
that we say we think it is appropriate that we audit because of
either confidentiality, because of complexity, because of
materiality or whatever.
In the case of the Department of Defense, it is the last
linchpin in order to achieve an opinion on the consolidated
financial statements. We have to make sure that gets done and
we have to make sure that it gets done the right way in order
for us to be comfortable to express an opinion on the
consolidated financial statements.
Furthermore, whether the Inspector General does it or
whether we do it, it is going to require a tremendous amount of
resources across several organizations and it is going to
require contractor resources, too, from independent public
accounting firms. Unfortunately, it appears that most of the
major independent public accounting firms are doing so much
work in the Department of Defense that they themselves couldn't
assume responsibility for the audit and be deemed to be
independent.
Therefore, I think, we need to work out an approach, a
coordinated approach as to who is going to be on the point. All
three of us are going to have to be involved. By that, I mean
the IG, us, and outside auditors. But, who is going to be on
the point, who is going to do what, over what relative time
frame, in order to achieve the end objective? That is something
that we are going to need to begin conversations on, and that
is obviously also relevant with regard to whatever a realistic
date may or may not be for achieving an opinion on DOD's
financials.
Senator Carper. I was wondering, listening to you testify
and the back-and-forth between you and our Chairman, if there
are any models in this country, business models, government
models in this country or around the world that we could look
to to provide some road map, if you will, to getting our arms
around the financial, really our business situation in the
Department of Defense?
Mr. Walker. It is interesting that you ask that question,
Senator Carper. I mean, you didn't know I was going to say what
I said and I didn't know you were going to ask this question.
Senator Carper. This shows that he has been before the
Subcommittee a whole lot of times.
Mr. Walker. Yes, that is right. We are familiar with each
other, I guess. But one of the things we are doing with
increasing frequency at GAO is recognizing the reality, that
while the United States may be No. 1 in many things, we are not
No. 1 in everything. We have things to teach others, but we
also have things to learn from others.
One of the things that I have been doing is working with my
counterparts around the world. As you know, we are on the Board
of Directors for auditor generals around the world and head of
strategic planning. One of the things I have recently done is
look at this financial management area and find out what other
countries have done to try to address some similar challenges.
Interestingly, the country of Brazil has a modern and
integrated financial management system for their entire Federal
Government. We are not talking about that. We are just talking
about the Department of Defense, which is probably bigger than
the entire Brazilian government if we looked at the numbers. If
Brazil can do it, we can do it.
Senator Carper. You are not the first person who has said
that in the last week or two. I have said, if Brazil can do it,
we can do it, and that was with respect to declaring energy
dependence and achieving the goal within 15 years.
Mr. Walker. If they can do it, we can do it.
And second, with regard to the United Kingdom, I was
recently in London meeting with officials of the Ministry of
Defence, and within the last 5 years or so, they have gotten
their financial management act together. I think for 3 years in
a row, they have achieved a clean opinion on their financial
statement audit. Furthermore, they have also made progress on
reconciling program planning with budgeting, not just in the
current year, but for the out years, which is something that we
need to do, as well.
Now, we are a lot larger. We are a lot more complex. We
have a lot more important role in the world, arguably, but
there are lessons to be learned from others and I think it is
important that we learn them.
Senator Carper. Mr. Chairman, will there be another round
of questions?
Chairman Coburn. No, go on and I will wrap up.
Senator Carper. Go ahead. I want to just figure out one of
these question that I want to ask.
Chairman Coburn. In December of this last year, the
Department of Defense issued the BEA and an ETP for modernizing
their business processes and supporting information technology
processes and assets. What it really is is a blueprint for
modernizing the business operations, one, and their business
information systems and their management information systems
while ETP provides a road map and management tool that
sequences the business systems, investments in the areas of
personnel, logistics, real property, acquisition, purchasing,
and financial management. Do you think the ETP goes far enough
in achieving what they need to do to get a hold on this?
Mr. Walker. First, let me say that I think the approach
they are taking now is vastly superior to the approach that
they were taking before. I would like to provide some more
detailed information for the record. But I clearly think it is
vastly superior to what they were doing before. I would like to
consult with some of my information technology specialists to
provide you more detail for the record, if I can, Mr. Chairman.
INFORMATION PROVIDED FOR THE RECORD BY MR. WALKER
As we reported in May of this year, the department has taken steps
over the last one year to further comply with the requirements
specified in the Fiscal Year 2006 National Defense Authorization Act
and related guidance. The Act's requirements were consistent with our
recommendations for developing a business enterprise architecture and
associated enterprise transition plan, and establishing and
implementing effective information technology (IT) business system
investment management structures and processes. As part of DOD's
incremental strategy for developing and implementing its architecture,
transition plan, and tiered accountability framework for managing
business systems, DOD has improved its overall approach to business
systems modernization. On March 15, 2006, DOD released a minor update
to its business enterprise architecture, developed an updated
enterprise transition plan, and issued its annual report to Congress
describing steps taken to address the Act's requirements, among other
things.
The updated architecture and transition plan, as well as the report
and related documentation, reflect steps taken to address a number of
the areas that we previously reported as falling short of the Act's
requirements and related guidance. While this progress better positions
the department to address the business systems modernization high-risk
area, many challenges remain relative to improving the architecture,
implementing its tiered accountability investment approach, and
actually acquiring and implementing modernized business systems on time
and within budget that provide promised capabilities and benefits.
The enterprise transition plan now includes an initiative aimed at
identifying capability gaps between the current and target
architectural environments, and DOD continues to validate the inventory
of ongoing IT investments that formed the basis for the prior version
of the transition plan. Further, the plan provides information on
progress on major investments--including key accomplishments and
milestones attained, and more information about the termination of
legacy systems. However, it still does not identify, among other
things, all legacy systems that will not be part of the target
architecture, and it does not include system investment information for
all the department's agencies and combatant commands. Once missing
content is added and all planned investments are validated by
capability gap analyses, the department will be better positioned to
sequentially manage the migration and disposition of existing business
processes and systems--and the introduction of new ones.
Chairman Coburn. Thank you. Senator Carper.
Senator Carper. Thanks. I think in your testimony, your
written testimony, you criticized the Department of Defense for
lacking a comprehensive department-wide plan for transforming
itself. Let me just ask, what is lacking in the Department's
current strategy that you would like to see taken up in this
plan?
Mr. Walker. First, as you noted, Senator Carper, they have,
directly or indirectly, 14 of 26 high-risk agencies--high-risk
areas government-wide and you need to start with that. Those
aren't the only things that need to be addressed with regard to
business transformation, but they are arguably the most
important things that need to be addressed with regard to
business transformation.
You need to have a strategic and integrated plan for how
you are going to end up addressing all these different areas.
Quite frankly, many, if not most of them, are interrelated. A
decision you make in one area can have a ripple effect with
regard to decisions in others.
Furthermore, you have too many layers, too many players,
too many hardened silos within the Department of Defense. There
is so much hierarchy and so much process orientation there, all
the more reason why you need to have somebody on the point, who
has got a plan, who is responsible and accountable, whose is
matrixing both with the different under secretaries as well as
the service secretaries, uniformed and non-uniformed key
players to make progress on all these different fronts in a
strategic and integrated fashion. That doesn't exist to the
extent that it needs to exist.
Now, they have made progress. They have individual plans.
The approaches that they are taking on those individual plans
in most cases are much better than the approaches they were
taking before. There is also more accountability being provided
for.
But the two big points that I said they need to do, they
need this strategic and integrated business transformation plan
that deals with all these areas, and they need a Chief
Management Official, because these problems aren't going to
come close to getting solved by the end of this Administration
and it is going to take years of sustained attention to get us
to where we need to be and we need to recognize that reality.
Senator Carper. Give us just some idea of the profile of
the Chief Management Official----
Mr. Walker. Sure.
Senator Carper [continuing]. You mentioned and where might
we be looking for him or her.
Mr. Walker. First, let me say we are not talking about
something that is novel. Let me go back to the other question
you asked about can we learn something from other countries.
The answer is yes.
Now, we don't have a parliamentary system, but in many
parliamentary systems of government, they have something called
either a permanent secretary, or a general secretary. They are
the chief operating officers for the departments and agencies
in government and they have a lot fewer political appointees in
the executive branch than we do. I would argue that is all the
more reason why you need a Chief Management Official or Chief
Operating Officer because it means you are going to get a lot
more turnover at the top because we have a lot more political
appointees.
We are talking about a proven professional, who will be a
political appointee, subject to Senate confirmation. Hopefully,
there will be statutory qualification requirements. The person
should have a proven track record of success, ideally both in
the private sector as well as the public sector. They would
commit, hopefully, if everything goes well, to a 7-year term.
They would have performance standards, and performance-based
compensation. They would be responsible for assuring that this
strategic and integrated plan was developed and properly
implemented.
Importantly, they would not be another layer that people
would have to deal with on a recurring basis. In other words,
they would be focused solely on achieving business
transformation, not trying to manage day-to-day operations, not
trying to deal with the normal things that the under secretary
and comptroller or under secretary for AT&L, or others have to
deal with, just the business transformation part.
This has worked in other countries. It can work here, and I
would argue we need it worse here than they did because we have
a lot more turnover and a lot more political appointees in
leadership positions, and a lot more money and risk at stake
than they do.
Chairman Coburn. So it is your opinion that DOD today does
not have that comprehensive, integrated business management
information system? They don't have that plan?
Mr. Walker. Let me clarify. The plan that I am talking
about is beyond business information systems. In other words,
you have business information systems, you have financial
management, you have acquisition reforms, and you have human
capital reforms. There are a number of different areas on our
high-risk list.
Chairman Coburn. So it is total transformation.
Mr. Walker. Correct. A total business transformation plan.
Chairman Coburn. But you would agree that they are on their
way to putting some of these other systems----
Mr. Walker. Absolutely. They are making progress and they
have plans for many, if not most, of the sub-elements. We are
working constructively with the Office of Management and Budget
and trying to make sure that every department and agency in
government has an action plan for getting off of GAO's high-
risk list eventually. Some are going to take longer than
others, obviously.
Senator Carper. Mr. Chairman, you and I have talked with
General Walker about our oversight role. This Subcommittee
under your leadership has done, I think, a remarkable job in
terms of performing or attempting to perform an oversight role.
We have a lot of other committees in the House and Senate that
don't take those responsibilities as seriously, and one of the
ideas we have kicked around to better enable committees to meet
their oversight responsibilities, to enable the Congress to
meet its oversight responsibility, would be to look at a 2-year
budget process or a biennial budget, where 1 year you are
basically doing the budget and the second year you focus a bit
more on oversight, not one exclusively over the other. Would
you just give us your thought on our idea?
Mr. Walker. First, I think there is conceptual merit to
biennial budgeting. As you know, there are States that have
biennial budgets. At this same point in time, I don't think
they are a panacea. The assumption is that if you only have to
do the budget every 2 years, that you would use the time that
was made available from not having to do the budget 1 year out
of two to do more oversight. I don't know whether or not that
would occur, but clearly to the extent that time is a problem,
that would free up some time.
Furthermore, lately, we have been running at least one
supplemental a year. So one of the questions you have to ask
yourself is, what do you do if something happens and you have
an unanticipated event, maybe a really true emergency rather
than an ``emergency''? Well, then that is what the supplemental
process is supposed to be for. Unfortunately, as the Chairman
mentioned before, we have got too many things running through
the supplemental process right now that, frankly, we need to
move into the base. In terms of forcing more trade-offs, you
are getting more transparency and accountability than
historically has been the case.
Senator Carper. Thank you very much. Thanks for your
service and for the great resources you provide in your team
that you bring.
Mr. Walker. My pleasure.
Chairman Coburn. General Walker, thank you so much.
Mr. Walker. Thank you.
Chairman Coburn. Our next panel, first is Jack Patterson,
Principal Deputy Under Secretary at the Department of Defense.
He is directly responsible for advising and assisting the
Comptroller with oversight of the DOD financial management
policy, financial management systems, and business
modernization programs.
Accompanying Mr. Patterson is Teresa McKay, Deputy Chief
Financial Officer at the U.S. Department of Defense. She is the
principal advisor to the Comptroller for accounting and
financial matters.
Thomas Gimble is the Acting Inspector General for the
Department of Defense. As the Acting Inspector General, Mr.
Gimble is charged by law to report directly to the Secretary of
Defense on matters relating to the prevention of fraud, waste,
and abuse in programs and operations of the Department.
Let me welcome each of you. We will recognize Mr. Patterson
first and we will go in the order in which we introduced you.
Mr. Patterson.
TESTIMONY OF J. DAVID PATTERSON,\1\ PRINCIPAL DEPUTY UNDER
SECRETARY OF DEFENSE (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE
Mr. Patterson. Mr. Chairman, Senator Carper, thank you for
the opportunity to update you on the progress the Department
has made in business transformation and financial management.
And by way of the opportunity to meet with you, we also
recognize that we have an opportunity to inform the American
people.
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\1\ The prepared statement of Mr. Patterson appears in the Appendix
on page 59.
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As stewards of the resources entrusted to us for the
defense of the Nation, we take our responsibility to the
American taxpayer very seriously. We also strive to never lose
sight of the fact that everything we do, every dollar we
manage, every contract we fund, affects the men and women in
uniform who put their lives on the line every single day.
This has been the case since the Administration first took
office, the words of Secretary Rumsfeld said on September 10,
and we appreciate very much that you put them up because, in
fact, they are the vision that all of us must look to in our
daily business in the Department. Since that time the Secretary
made that statement, Mr. Chairman, we have been working to make
this vision a reality.
The challenges the Department faces are not insignificant.
Beginning with the sheer size of the enterprise, which you have
alluded to this afternoon, with more than 600,000 buildings and
structures in over 146 countries around the globe, the
Department's assets and liabilities alone exceed those of Wal-
Mart, Exxon, Ford, and IBM combined. Add to that an employment
roster that includes 1.4 million active-duty men and women,
740,000 civilians, 860,000 Guard and Reserve members, two
million retirees and their families, and an operating budget in
excess of $400 billion.
Add that together and you have some idea of the sheer
volume of the financial information and data that the
Department manages daily, not to mention the difficulty in
consistently capturing that information and preparing that data
so that it can be analyzed and communicated to Congress as well
as the decisionmakers in the Department. That data, to be
usable, depends on common business system solutions. Indeed,
for decades, there were no such common solutions, only a wide
variety of different systems and processes unable to talk to
one another, and consequently, unable to produce consistent,
complete, timely information.
In 2001, the Department embarked on an ambitious plan to
bring the Department of Defense into the 21st Century. After 4
years of work and preparation, in 2005, two comprehensive and
integrated plans for financial improvement and business systems
modernization were launched. As you have heard, they are the
Enterprise Transition Plan and the Financial Improvement and
Audit Readiness Plan.
The Enterprise Transition Plan is a step-by-step plan that
consolidates DOD's many different business systems and focuses
resources to minimize redundancy and reduce overhead. It also
details the schedules, milestones, and costs for 98 key
transformational programs and initiatives across the
Department.
The Financial Improvement and Audit Readiness Plan, or
something we refer to as the FIAR Plan, focuses the
Department's efforts on improving business processes and
internal management controls. The FIAR Plan unites DOD's
functional and financial operations and comprehensively guides
the effort to incrementally eliminate material weaknesses to
achieve an independently verified and clean audit opinion.
I have asked Deputy Chief Financial Officer Terri McKay to
join me this afternoon, and following my brief remarks, she
will speak to you about the Department's progress in improving
financial management and audit readiness.
The second part of our plan, improving business systems and
processes, is equally important and the key to future and
continuing success. Like good financial management, effective
business systems and processes also support the clean audit
opinions and the internal management controls that help
eliminate material weaknesses. In this respect, the Department
has made clear and measurable progress in modernizing and
consolidating DOD business systems and operations as well as
improving accuracy, reliability, and timeliness.
There are numerous examples of where we have made progress,
and if you would allow me, I would just like to enumerate a
few. Unsupported accounting entries have been reduced by 86
percent, or $1.98 trillion, from fiscal year 1999 to 2005.
Delinquent debts receivable have been reduced by 42 percent, or
$1.1 billion, from fiscal year 2004 to 2005. Fully 95 percent
of all vendor payments are now done electronically, as compared
with 86 percent in 2001, realizing a savings of $6 million. And
since 2001, process efficiencies at the Defense Finance and
Accounting Service have resulted in a cost savings of
approximately $238 million, all while improving productivity
and service to the warfighter.
Mr. Chairman, the challenges we face in accomplishing our
goals are many and the task is still far from complete by any
measure, but I believe the Department of Defense has made a
clear and measurable progress in improving business systems and
financial management of the Nation's largest and most complex
Department, and that progress will continue.
I thank you again for the opportunity to share these
accomplishments with you, and on behalf of the Department, I
thank the Subcommittee for its very strong support for these
important efforts, and most importantly, for your continued
strong support of the men and women who are out there doing the
Nation's business in the global war against terror.
Chairman Coburn. Thank you. Ms. McKay.
TESTIMONY OF TERESA McKAY, DEPUTY CHIEF FINANCIAL OFFICER, U.S.
DEPARTMENT OF DEFENSE
Ms. McKay. Mr. Chairman, Senator Carper, thank you for this
opportunity to discuss the Department's financial management
improvement effort. As the Deputy Chief Financial Officer for
the last 2 years, it has been my privilege to oversee this
undertaking with the help of a dedicated staff of financial
management professionals. Indeed, well over half of my
immediate staff have professional certifications.
As the Deputy Chief Financial Officer, I have three primary
responsibilities in this area: To establish policy for
accounting, finance, and internal control functions throughout
the Department; to oversee periodic financial reporting,
including quarterly financial statements; and to develop and
execute a systematic plan for financial management improvement
and audit readiness, and we are doing this.
The Financial Improvement and Audit Readiness, or FIAR
Plan, released in December 2005, charts a course to sound
financial management by improving internal controls, resolving
material weaknesses, and advancing the Department's fiscal
stewardship. The plan also details a path for integrating the
Financial Management Improvement Plans of the military services
and components and confirming those improvements with favorable
audits.
Employing an incremental methodology to achieving audit
readiness, we focused our initial efforts on four high-impact
areas that represent a significant portion of the Department's
assets and liabilities, military equipment, real property,
health care liabilities, and environmental liabilities. Fund
balance with Treasury is also a priority. Each focus area
includes specific milestones for achieving a successful audit,
and during the last 6 months, 64 percent of those milestones
have been met.
To give you a couple of quick examples of the progress that
has been made, in the area of military equipment, which
represents 27 percent of the value of all DOD assets, an
initial baseline valuation for all military equipment programs,
everything from combat vehicles to ships to aircraft, has now
been established. This value was reported in the Department's
third quarter fiscal year 2006 financial statements. This
achievement is especially significant because the Department
has never before had an accurate valuation of its military
equipment.
In the area of environmental liabilities, the initial
inventory and estimate for 97 percent of all environmental
liabilities have now been completed. Calculating the value of
this important category of liabilities will enable the
Department to precisely identify the amount and the timing of
funding requirements necessary to resolve environmental issues.
The military components are also making good progress
toward independent audit opinions. For example, the U.S. Army
Corps of Engineers is currently undergoing an audit of its
fiscal year 2006 financial statements and the Marine Corps
expects to be ready for a full audit of their financial
statements in fiscal year 2007.
Clean audits for the military components confirm the
reliability of the financial information and demonstrate the
Department's commitment to accurate and timely reporting using
a publicly recognized standard, and that commitment is
producing results.
Four years ago, it took the Department 5 months to produce
a single set of financial statements, and we did it once a
year. Today, we are able to produce statements every quarter
and publish end-of-year financial statements in 45 days. This
is not, however, reporting for reporting's sake alone. Rather,
we are using the information to better manage business
operations.
For example, through the analysis performed on the
quarterly financial statements, we are able to identify monies
owed to the various components of the Department and emphasize
collection efforts. Efforts thus far have reduced the amount
owed to the various components by over $1 billion in the last
year.
This information is also used to reduce the cycle time of
collections owed to the Department. This effort is especially
critical to our working capital funds' cash management efforts.
So while the FIAR Plan is designed to produce steady,
incremental progress toward a clean audit opinion that will
take years to accomplish, the effort itself is yielding
valuable benefits in other important areas, so I believe we are
making real progress.
Mr. Chairman, as Mr. Patterson has said, we take our
responsibilities seriously, our responsibility to be good
stewards of the resources entrusted to us by the American
people, and especially our responsibility to do all we can to
support the brave men and women of America's armed forces who
are fighting to defend our freedom and our future. Thank you,
Mr. Chairman, and I am happy to answer any questions that you
may have.
Senator Coburn. Thanks you. Inspector General Gimble.
TESTIMONY OF THOMAS F. GIMBLE,\1\ ACTING INSPECTOR GENERAL,
OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF DEFENSE
Mr. Gimble. Mr. Chairman, Senator Carper, thank you for the
opportunity to discuss the financial management challenges that
the Department of Defense continues to face and the progress
that the Department has made in addressing the challenges and
achieving business process modernization goals established by
the 2001 Quadrennial Defense Review.
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\1\ The prepared statement of Mr. Gimble appears in the Appendix on
page 71.
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The Department's financial statements are the most
extensive, complex, and diverse financial statements in the
government. As we have reported in prior testimony, the
Department faces financial management problems that are
longstanding, pervasive, and deeply rooted in virtually all
operations. Those financial problems continue to impede the
Department's ability to provide reliable, timely, and useful
financial and managerial data to support operating, budgeting,
and policy decisions. The problems have also prevented the
Department from receiving an unqualified opinion on its
financial statements.
We are encouraged, however, by the framework the Department
has established to address those problems. The framework
consists of the Enterprise Transition Plan, which addresses the
business process modernization goals established in the 2001
QDR and the Financial Improvement and Audit Readiness Plan.
This framework provides the direction for the Department's
financial improvement efforts and can be a mechanism for
holding the Department's managers accountable for correcting
specific weaknesses and for meeting milestones. More
importantly, it provides a mechanism for measuring success.
The challenge to the Department managers is to continue to
fortify and refine the framework. Further, within the
framework, there must be a sustained effort to identify,
monitor, and correct internal control and system weaknesses.
The Department must continue to recognize that financial
improvement is an ongoing effort that needs sustained
management attention and accountability at all levels.
In order for the Department to achieve results in the
financial management area, the Department must exercise rigor
and continued management focus in executing the Enterprise
Transition Plan, the FIAR, and the assessments of internal
controls over financial reporting under OMB Circular A-123.
Not only does the Department need to focus on financial
management improvement efforts on known deficiencies, it also
needs to continue developing corrective action plans for the
financial management challenges identified during the course of
business and while implementing the programs mentioned above.
Known balance sheet line item deficiencies include fund balance
with Treasury; inventory; operating materials and supplies;
property, plant, and equipment. Government-furnished material;
contractor-required materials, environmental liabilities;
accounts payable and accounts receivable. Other known
deficiencies that are not specifically associated with balance
sheet line items include financial management systems,
intragovernmental eliminations, unsupported accounting entries,
the statement of net cost, and the statement of financing.
In addition, we believe the quality of existing financial
data in the systems is still a major challenge that the
Department faces. Although the Department has had some
successes in establishing the framework to execute financial
improvement and audit readiness initiatives, continued focus
and commitment by management are needed to successfully execute
all the improvement initiatives. Management must continue to
identify and correct pervasive weaknesses that have impaired
the Department's ability to achieve auditable financial
statements, and more importantly, to provide reliable,
accurate, and timely data for decisionmaking.
Our Inspector General financial auditors are active in the
financial management improvement process and auditors serve as
advisors on the Financial Improvement and Readiness Committee
and all the DOD audit component committees. Auditors also
perform financial-related audits focusing on internal control
and compliance with laws and regulations. We make
recommendations to improve the efficiencies in those areas. We
have made over 500 separate recommendations in the last 2
years.
The auditors also review assertion packages prepared by the
financial managers and serve as contracting officer
representatives on contracts to audit financial statements,
line items, or financial management systems.
Mr. Chairman and Senator Carper, that concludes my
statement. I would be happy to address any questions you might
have.
Chairman Coburn. I thank each of you.
Mr. Patterson, I got the difference between what General
Walker was talking about and the components that you all have
put in place. You put the accounting and financial controls,
are starting to put those into place. But he is talking about
an integrated and transformational management plan that will
use the tools that you are putting into place now. And so
basically what he is saying is you are doing the right thing,
but you are not doing the overall thing.
I just would like your comments. Before I went to medical
school, I was a manufacturing manager and we used management
information systems to tell us how to make decisions about how
we ran plants and what to invest in and what not to. I just
wonder, if we had this integrated, strategic and integrated
business transformational plan, would seven of the nine major
weapons systems now be behind and over-budget, and not small
amounts of over-budget, 40 and 50 percent over budget for the
American taxpayer. I am just wondering what your comments are.
And I am not trying to lay blame on anybody.
General Walker made a significant difference in terms of
what the overall picture has to be, and you all are
implementing a significant component of that. I just wonder
what your comments are on his thought that you have got to move
to the next level, the bigger level, to where you are really
managing it at every aspect, using the financial tools that you
all are developing, you and Ms. McKay, but how do you take
those tools and then turn them into management tools? And where
is the overall plan at the Department of Defense to get to what
he was talking about?
Mr. Patterson. I think that General Walker does have a good
point, and we obviously consult with the GAO on a regular
basis. I think that where we believe we are making progress is,
in fact, to build one brick on top of the other, and I take
your point that you do need to have a vision of where you want
to go. I think the Department is, in fact, doing that. With the
Enterprise Transition Plan, with the FIAR Plan, and with the
Business Transformation Agency as an implementor, if you will,
as well as the Defense Business Management Systems Committee,
which I sit on on occasion, we are, in fact, bringing together
all of the disparate, different ideas, all of the different
systems and attempting to do precisely what General Walker is
talking about.
But these kinds of things, when you start out to do them,
it is easy to say it is hard to do, and what we are finding is
that it is very complex to take the systems that have
previously been very unique, very tailored to specific needs
and now start to build systems that talk to one another, not
necessarily totally integrated, but at least turn out reports
that are usable for decisionmakers so that those people who
have to make decisions, those people who use the analysis, like
the Congress, are able to have a common set of business
solutions that can be used for decisionmaking. And that is
really the goal here, is to have a common set of business
solutions that people can use, particularly in leadership
positions, to make the decisions so important to the business
of the government.
Chairman Coburn. Would you agree that the American people
should be suspect about the management when seven of nine--I am
talking billions, hundreds of billions of dollars in weapons
systems--are over budget and behind schedule? There has got to
be something. It can't be just poor planning. There has got to
be something about the management of that. Some of it is
culture in terms of the defense industry, I understand that.
They think they can milk the thing along. But it has to be
management and the techniques of management and the business
plan that has allowed us to get to that level. Would you agree
with that?
Mr. Patterson. I would. I would say that what we have found
in a study that I was a part of during the summer is that there
are a number of components that all come together to cause the
kind of circumstances, and I agree, programs are over cost,
they are behind schedule, and they are not performing, and that
is not where we want the Department of Defense to be.
There are things that the current Secretary and Deputy
Secretary are doing that have great promise. Using the studies
and the conclusions to recent studies--the CSIS study,
Goldwater II, the study that I mentioned that I was on--and
taking from these studies the good recommendations, we are now
starting to put these recommendations into a plan and implement
them.
Chairman Coburn. Do you think it is a good idea to have a
Chief Management Official in place? You don't have to answer
that if you don't want to, if you think that causes you
problems at the Pentagon.
Mr. Patterson. No, it doesn't. I mean, what we have done,
and I think it is to Secretary England's great credit that he
has asked the Defense Business Board to look at this very
seriously. They have. They have concluded that a CMO would
benefit the Department and now it is a matter of how do you,
understanding the culture, as you have pointed out so clearly,
how do you start to put those kinds of disciplines into this
behemoth we call the Department of Defense of the United
States.
Chairman Coburn. It is kind of like having a mentor with
authority in your life. You voluntarily give authority to your
mentors and they exercise that authority to improve you. That
is what we are really talking about, is having this overall
plan where we get a hold of everything.
Talk to me about 2016 and why you all have moved--I
understand 2007 wasn't realistic, but I have to give some
credence to what----
Mr. Patterson. Well, I am going to give you the broad-brush
view and then I am going to turn that question over to my
expert. But effectively, when we put together the FIAR Plan, we
established boundaries, time boundaries. But truthfully, what
we propose is an event-driven process, not a time-driven
process. So as we find that we can do things much more quickly,
we will accomplish them and get them behind us and move on to
the next thing.
But with that as kind of an umbrella statement, I would
like to turn it over to Ms. McKay, who actually----
Chairman Coburn. Fine. It is kind of like me asking my dad
when I was a teenager for $100 when I only wanted $10, because
I knew he wouldn't give me $100, but by the time I got down to
$10, I could pretty sure bet I was going to get the $10. I
think there is merit to an event-driven system, but the fact
is--you are talking 9 years from now--before we can have
systems which you all say you can present adequate financial
data that you would say could get blessed by an auditor.
Quite frankly, I have looked at a lot of areas in the
Defense Department, and to me, my advice is don't give us a
date if you are not going to go date-driven. Give us an event-
driven. But the point is, then let us hold you accountable for
achieving the events and asking questions, why haven't you
gotten to the next stage on time, rather than give us something
that is truly unrealistic, because you just said, we are not
going to do it based on dates. We are going to do it based on
events.
That is part of the problem. It is gaming it. What this
Subcommittee wants to do is we want to find out real facts,
what the real problems are, what the situation behind them is,
and what can we do, both Senator Carper and myself, to
implement things in the Senate that makes this easier for you,
that gives you the tools.
How do you replace all these computer systems that are
running on RPG or Cobol? I mean, how do you do that and how do
you do that in a system where you get the information you want?
What do you need and how do we do that?
It is fine for Ms. McKay to answer that, but the point is,
if the date is meaningless, the date should be said that the
date is meaningless. You don't mean the date.
Mr. Patterson. When I say event-driven, I mean that we are
going to beat that date by some significant number of years,
and----
Chairman Coburn. All the more reason not to give us that
date, then.
Ms. McKay. We didn't explicitly give anybody that date.
Where I believe that date is coming from is as we develop the
FIAR Plan and put the building blocks in place, some of those
tracks are more detailed than other tracks.
Chairman Coburn. Right.
Ms. McKay. The 2016 is the long pole in the tent in an area
that, quite frankly, we don't know a lot of details about yet.
What we do know is a notional system implementation date and we
know that we are dependent on that system implementation to
resolve that particular issue.
So, in fact, the intent of the FIAR Plan is to do just what
you suggested, to give you the events and ask us to be
accountable for achieving those events, and that is the intent.
But we have to put some targets there as we build these action
plans, and so that is where those dates come from. The area in
question here is the valuation of the Department's inventory
and operating materials and supplies. That is an area that has
not been a focus area of the FIAR Plan to date. We have just
recently added that and would include a more detailed action
plan on how to resolve that issue in the version that would be
published in September.
So again, the 2016 date isn't something that was explicitly
stated by any of us, but rather I think maybe an assumption
made based on some GANT charts that are displayed in the plan.
Chairman Coburn. Let me talk about one other area real
quick, and Mr. Gimble, if you would comment on this. Senator
Ensign held a hearing a couple months ago on contract bonus
performance payments. And my question is not to make a big deal
of that. It is something we certainly don't want to happen if
people aren't performing, and the fact is a lot of bonus
payments over the last 4 years have been paid for non-
performance.
Where is the management system in what you are setting up
that is going to keep that from happening in the future so that
we are not paying performance bonuses for people who haven't
achieved the performance ratings under their contract? Mr.
Gimble, if you would comment on how that happens, and what you
see needing to happen in terms of management information
systems so we are not doing it.
And this is $6 billion. This isn't small change. One of the
things that was heard at that hearing is if we didn't spend the
money, we were going to lose it, and that is exactly the wrong
answer to tell the Congress of the United States and the people
of this country, simply because we have this budget cycle
problem and we are afraid we are not going to fund things. This
honesty, we have got to get back. What do you really need? We
want to give you what you really need, but we don't want to
play the game of just spending money that you don't need to
spend because you will feel like you are going to get penalized
next year if you haven't spent it. We ought to be rewarding
people for not spending money rather than rewarding them for
spending it.
So, Mr. Gimble, if you would answer that first, and then I
will give both of you an opportunity to answer. It is not to
beat up on anyone. It has happened. What we want to do is keep
it from happening in the future.
Mr. Gimble. Mr. Chairman, the idea of having a central
management information system that makes that not happen, I am
not sure that is the right answer. I think, in my view, the
answer would be that we need to hold the program offices
accountable. When they write contracts and put in the
provisions and the metrics that have to be met, they need to
hold the contractors accountable to meeting those or not pay
that bonus, and I think that is really the issue.
Chairman Coburn. So you are saying this is pure management.
This isn't management information system, this is just pure
management.
Mr. Gimble. I think, largely, it is, because obviously, you
need to have some management information systems within the
contract management arena, but the real issue of those bonuses,
of a performance bonus being paid without being deserved, I
think that is a management issue more so than a system issue.
Chairman Coburn. OK. Thank you. Mr. Patterson.
Mr. Patterson. Well, we found exactly the same thing, and
when we did our study of the large major defense acquisition
programs, what we couldn't find is a thread that linked the
Contractor Performance Assessment Reports to the award fees. I
mean, you would have a company that is red and they got 92
percent award fees. How did that happen?
What we also believe is that chronologically, they are not
linked. And sometimes you can fix things mechanically, just
simply having a CPAR come out followed by the assessment of the
award fee immediately afterwards so that the two are linked, if
for no other reason, they are linked chronologically.
But the point is that this is a management issue, not a
systems issue. This is purely a management issue and these
kinds of things can be fixed.
Chairman Coburn. OK, and that goes back to what Mr. Walker
was talking about, is having an overall long-term plan for
setting in a management structure using the information systems
that you all are so--you have done a great job. I have no
criticism. It has moved a long ways. There is no question about
it. But utilizing those tools with a vision of how we want to
manage the Defense Department.
How about giving me the next two events that you all are
looking for to accomplish so that we can follow that? What are
the next two events, Ms. McKay, in terms of event-driven things
that we should be looking for as milestones for you all to
accomplish?
Ms. McKay. I would say to you that the goals that we are
working toward that are described in detail in the FIAR Plan
today get us to a level of auditability in 2009, where we would
have 79 percent of our liabilities auditable and, don't quote
me on this, but it is in the vicinity of 64 percent of our
assets.
And then the other shorter-term thing that I would say is
as we continue to execute and monitor those specific milestones
in the four focus areas that we have described in detail today,
we are continuing the planning process in the additional
significant areas of additional asset and liability categories
so that we will have a better understanding of what it takes to
resolve those deficiencies and pull in the system solutions,
take a look at can we accelerate some of those system solutions
once we have a better understanding of that.
Chairman Coburn. If the Defense Department doesn't have a
strategic and integrated business transformation plan that has
the vision for that, will that change what you decide without
that vision and that transformation plan in there that you are
looking to? In other words, you are going to use these marks of
where you need to go, but you are going to be doing it without
an overall transformation plan and business plan, how you run
it.
In other words, the key is really not the--I was
interviewed once when I graduated from college. I had a degree
in accounting and production management. And I was interviewed
by the now-defunct Arthur Andersen who said, why do you want to
do this? And I said, because you can do anything you want with
numbers. It is exactly the opposite of what everybody believes.
You can do whatever you want with numbers. You can use them as
a tool. You can do lots of things with numbers.
Without an overall transformational plan as you all go
along, let us say if we get the plan 3 years from now, that is
going to impact some of the things you all do. So would you not
agree with that, that is going to have an impact on what
decisions you make in terms of trying to run this? Are you
going to be running two parallel tracks again, which is what we
are trying to get away from?
Mr. Patterson. I think what I would say to that is we
believe that the Enterprise Transition Plan, in combination
with the Business Transformation Agency, the Defense Business
Management Systems Committee, as well as the FIAR Plan, that
most of us sit on all of those committees----
Chairman Coburn. So you are involved in creating those
transitional plans----
Mr. Patterson [continuing]. So we are involved in----
Chairman Coburn. OK.
Mr. Patterson. And, if you will, it is a human integration,
and we all work very closely together to see that these
initiatives are successful.
But your challenge is well taken. If we find that, as we go
back and we review these things, that we haven't done what I
have just said that we were going to do, we will report back
and tell you how we are going to fix that.
Chairman Coburn. One last little note. We are going to have
another one of these hearings in 3 to 5 months on this same
issue. What are the things that we should be expecting from
you? What are the milestones that you hope to achieve in the
next 3 to 5 months? Do you want to go on record with that so we
can hold you accountable for it?
Ms. McKay. Well, again, we are going to have a good view of
what it takes to resolve some additional significant categories
of assets and liabilities, so we would be able to give you some
projections on when we would be able to be auditable there. And
I would say that the current milestones that are described in
the plan, we would be able to report to you on our completion
of--our success in completing those.
Chairman Coburn. Thank you. Senator Carper.
Senator Carper. We have talked a fair amount today about
information systems, about inventory systems, and financial
management systems. We have not talked a lot about the people
that we hire to really develop and to run those systems. I
would like for us to focus on that for a bit if we could.
In the military, when you have folks in uniform that are
assigned to different jobs--at least in my experience in Naval
aviation was, and we have a big Air Force base in Dover,
Delaware--and folks, a lot of times will cycle out there, and
sometimes the very senior will go into a job in the Pentagon
for a while, I don't remember a lot of men or women who look
forward to tours at the Pentagon. We wanted to be running
squadrons or running ships, not sitting at a desk. We had a lot
of good people and a lot of able people, but that is not what
they wanted to do.
How do we go about making sure that we get the right people
with the right set of talents and skill sets in some of these
key positions, get them to stay there long enough so that they
can learn the job, and not just learn the job, but be able to
make a real difference? How do we go about doing that?
Mr. Patterson. I think you have hit upon a really important
point, and actually, I did cycle out of Dover Air Force Base as
the Deputy Ops Group Commander into the IG at the Pentagon.
Senator Carper. When were you at Dover?
Mr. Patterson. I was there from 1990 until 1992.
Senator Carper. Good for you.
Mr. Patterson. I was there during Desert Storm, Desert
Shield, and----
Senator Carper. Do you recall who the Wing Commander was
there? Was it Bill Welzer?
Mr. Patterson. Yes, Mike Moffatt and Bill Welzer followed
him.
Senator Carper. Good.
Mr. Patterson. But, as I was going to say, it is very
difficult. I mean, it is a difficult thing. It is a high-rent
area to come to. It is a culture shock when you walk through
the building, and if you are a Wing Commander, you leave your
white-topped car out in North Parking and they truck you in. It
is an unusual place where the people who have the most
information and who have the actual money are at the lowest
rung in the hierarchy, so if you think you are going to make a
big difference and you are going to change how Western
civilization views our Defense Department, you are probably
going to be shocked.
But at the same time, I think that the Department offers
such incredible opportunities. I mean, honestly, where can a
major come to a corporation and write a paper that, in fact,
changes the way we think about defense?
So it is a difficult prospect that you offer, but
nonetheless, we must be doing something right, because as I go
through the Pentagon, we have absolutely marvelous people doing
superb work under extraordinarily difficult circumstances, and
so I would offer to you that it is hard to fill individual
places, but as you look at the folks that we have working for
us, you can be proud of them.
Senator Carper. Ms. McKay.
Ms. McKay. Well, I would echo that and maybe talk more
specifically about the financial management career field. It is
a tight market today and the Washington area itself is very
competitive. We have been very fortunate in the Pentagon in
filling positions with people who have professional
credentials. It is something that we emphasize. The majority,
almost all of my staff, my immediate staff have either a
professional certification and/or an advanced degree. We do
have some special hiring authority that we have been able to
capitalize on that has brought some well-qualified people to
us. We have some special pay authority that we have been able
to leverage from time to time. So we have a tool kit and we try
to use every tool that we can find in it to find the right
people, but I will tell you, as we exist today, we have a group
of the finest professionals that I have ever worked with.
Senator Carper. Our colleague, Senator Voinovich, who
serves on this Subcommittee with us, is a fellow who focuses a
lot on human resources and having to make the right investments
in human capital so you have the right person in the right job,
the kind of tools that they need to do their jobs better. Give
us some advice on what the Legislative Branch needs to do to
better ensure that we do have the right people and the right
skill sets?
Mr. Patterson. Well, since you asked that question, I think
that one of the things that you can review or assess is what
would be by any stretch a byzantine, difficult, arduous
approach to getting a political appointee into a job of
importance. It is unbelievable----
Senator Carper. Should some of those political appointees,
should they not be political jobs, if you will, or----
Mr. Patterson. No, I think that there are more constructive
and, in fact, more valid ways of bringing people on into these
jobs of very high responsibility. I mean, CEOs of Fortune 500
companies do not go through anything like an under secretary
goes through to be confirmed in that job. Not that you
shouldn't be very, very careful about who is chosen, but the
way in which--the methodology, the road to that success is far
more difficult than it needs to be.
Senator Carper. OK, thanks. Ms. McKay, I am going to ask
you if you have any thoughts on this, as well.
Ms. McKay. I believe we have the authority that we need to
operate within the environment that we are in. We are in the
process of implementing some legislation that was provided a
couple of years ago that allows the Secretary to designate
specific positions as requiring professional certifications.
That was helpful. And we expect to have implementing guidance
on that published within the next couple of months. I think we
have what we need.
Senator Carper. Mr. Gimble, any thoughts?
Mr. Gimble. I think we have what we need in terms of the
ability to do it. It is a kind of a funding issue. Also, it
goes back to the, if you are talking about the auditing and
accounting world, it is very competitive, and let me just give
you--I am certified in the State of Texas, and this is kind of
dated information, but I think that it demonstrates something.
My State Board said that in 1990, they had 8,000 candidates
sit for the CPA exam. In 2000, 10 years later, they had 3,000
to sit for the exam. So then we open up a whole big area in the
auditing world of government financial statements, which is in
addition, too. So the competition for the talent out there is
extremely tight and tough and we have a hard time, frankly,
competing with that to some extent. But we also serve as a
training ground for the private sector when we are contracting
those out. So it is a challenge and a balancing act.
Do we have the ability to hire the people? We get really
good people, we do. Sometimes we retain them, sometimes we are
not able to because they get better offers in the private
sector. But I think that it is a challenge.
And I think the other challenge that we have, particularly
on the career side of the house, is the baby boomers really are
beginning to retire. Thankfully, we have gotten a little option
where we can do the rehired annuitant and attract some of that
talent back in on a case-by-case basis, and that is really
important for us. So I would say we probably have the tools. Is
it challenging? Always, it is.
Senator Carper. OK. I want to talk about an intersection
and the intersection is the responsibilities of Inspector
Generals, OMB, GAO, the Congress through its oversight
responsibilities. My sense is we try to focus and encourage
better financial management, better control. I am not so sure
that we work in a synergistic type of way.
How might we better harness our shared goals to get a
better result, realizing that the IG is sort of an independent
free agent out there, the folks within the Department are
Executive Branch? You have OMB sort of saying grace over all of
you, and then there are a whole bunch of us in the House and
the Senate, Democrats and Republicans, and some have different
priorities other than oversight, as I said earlier. How do we
get better on sort of pulling together rather than maybe
pushing us apart?
Ms. McKay. I think some of the things that we are already
doing are bringing us to that end. Certainly, we have the IG as
advisors on many of our boards. As Mr. Gimble mentioned,
someone from the IG Office sits on all of the audit committees
of the components and on the various committees that we have to
provide oversight to the operations that we have underway. We
meet regularly with OMB to describe our progress to them, make
sure that they understand the approach that we are taking.
Similarly, we meet regularly with the Government Accountability
Office for the same reason. We seek their advice. We accept
their advice and try to move forward with that.
With regard to the Congress, I think hearings like this and
meetings with the staff can further the communication channels
so that we both understand what each other's objectives are and
where they converge.
Senator Carper. Thank you. Are you all aware of any
resistance within the Department of Defense to some of the
initiatives that are underway? All of us have been in parts of
organizations where we have been faced with change, and change
is not always easy, but it is necessary and certainly necessary
in this case to change the culture and to institutionalize some
of the improved management processes that are currently being
developed.
Mr. Patterson. Change is always hard, and in cultures that
are entrenched, it is even harder. But it is a manager's
responsibility to adopt leadership to go within their
particular organization and bring the people along, make them
part of your solution. It is not easy. It is easy to sit down
and write books and say it. It is not easy to do it.
But what I have found in my experience is that you start
from the bottom and socialize the idea, and quite frankly, the
people who know the most about the organization and how it
should work generally are at the lower ranks, and you had
better start listening to them because they have the ideas at
how it works, where the tires reach pavement. If you start
there and start to move it up the chain and get everybody as a
part of your solution, as opposed to being part of the problem,
I think that although it sounds Pollyanna-ish, it does work,
and I think that is how a good manager goes about that. If you
have difficult things to move within the oversight world, you
had better get to the staff early and get the idea starting to
bubble up, because that is where I think you are going to be
most successful.
Senator Carper. Ms. McKay.
Ms. McKay. I absolutely agree, and I would like to give you
a couple of examples. A couple of the areas that we have had
the most success in executing against this FIAR Plan,
environmental liabilities and the military equipment valuation,
that would not have happened had we not partnered with the
functional communities. We have been hand-in-hand working on
these areas for several years now. It actually predates the
actual formal plan.
And so if you look at that model of the functional
community and the financial community understanding each
other's objectives and where those come together and how we can
move forward in tandem rather than separately, we have taken
that success and we have applied it to the other areas. We are
in the process--we have partnered with both the folks over in
the real property area and the health care liability area and
are starting to see movement in those areas, as well, for the
same reason.
Senator Carper. Mr. Gimble.
Mr. Gimble. I think that we have historically worked very
well with GAO from the IG standpoint. Also, what has not been
mentioned very much is the services each have very capable
audit components and we have all partnered--we realize it is a
big job, a big task, and I think we have been very good at
working collectively together to achieve the progress that we
are making.
Another thing, I think this is just a personal observation,
having been in the area for a lot of years, is that I recall
when we first started back in the 1990s looking at this, I
would go up to some of the meetings and it would be the
auditors' statement, and my position was, the statement belongs
to you, the manager, and we have the opinion. That is the clear
break in responsibilities. And for a number of years, it wasn't
that clear.
Currently, now, it is very clear that management owns the
statements. We can advise on ways to improve the statements and
so forth and we do that. Ms. McKay and I had a discussion
yesterday that went kind of like this, ``well, I don't think
that we agree on these all the time.'' And I said, ``well,
really, I think it is a healthy thing to have a little bit of
contention between the oversight community and the management,
but at the end of the day, you need to work together to move it
forward.''
So I think we really do that, since the turn of the
century, I think there has really been a lot of progress made
in that area.
Senator Carper. Let me just say again, thank you all for
being here. This is important stuff, as you know, not just for
the dollars and cents that are involved, but really for the
folks that are out on the point carrying the battle for all of
us. Thank you.
Chairman Coburn. First of all, I want to congratulate you
on the good work that you have done thus far. I want to
encourage you to keep doing it. We are going to have several
questions for the record that we would like responses within 2
weeks, if we could.
Mr. Patterson, my understanding is under the FIAR Plan, you
are at 64 percent, and I think I heard 2009 to be at 100
percent. I guess my question is, is 2009 a hard date or can we
expect 2007 or 2008? You don't have to answer that, but we are
going to submit that question to you because that is the kind
of milestones we want to see you get to.
The other thing I would say is I had a meeting with
Secretary Rumsfeld before I came to this meeting, a personal
one-on-one meeting, and I am committed to help the Pentagon do
what it wants to do to get things right and to be good stewards
of the country's money. I think he has got fine people working
for him and the cooperation--we are going to have better
cooperation and it is going to grow and we are going to do more
things to give you the tools.
So one of the questions we are going to be asking you is
what do you need that you don't have now to accomplish what you
need in terms of management to get the information systems up
and develop this overall strategic and integrated management
plan so that we can be there sooner and we can be there at less
cost?
So I want to thank each of you for being here.
Mr. Patterson. Thank you, Mr. Chairman.
Chairman Coburn. The hearing is adjourned. Thank you all.
[Whereupon, at 4:09 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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