<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:21942.wais]
FINANCIAL MANAGEMENT CHALLENGES AT THE DEPARTMENT OF JUSTICE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
FINANCE, AND ACCOUNTABILITY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
MAY 4, 2005
__________
Serial No. 109-33
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada BRIAN HIGGINS, New York
KENNY MARCHANT, Texas ELEANOR HOLMES NORTON, District of
LYNN A. WESTMORELAND, Georgia Columbia
PATRICK T. McHENRY, North Carolina ------
CHARLES W. DENT, Pennsylvania BERNARD SANDERS, Vermont
VIRGINIA FOXX, North Carolina (Independent)
------ ------
Melissa Wojciak, Staff Director
David Marin, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Government Management, Finance, and Accountability
TODD RUSSELL PLATTS, Pennsylvania, Chairman
VIRGINIA FOXX, North Carolina EDOLPHUS TOWNS, New York
TOM DAVIS, Virginia MAJOR R. OWENS, New York
GIL GUTKNECHT, Minnesota PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
JOHN J. DUNCAN, Jr., Tennessee
Ex Officio
HENRY A. WAXMAN, California
Mike Hettinger, Staff Director
Tabetha Mueller, Professional Staff Member
Nathaniel Berry, Clerk
Adam Bordes, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on May 4, 2005...................................... 1
Statement of:
Corts, Paul R., Assistant Attorney General for Administration
and Chief Financial Officer, U.S. Department of Justice;
and Glenn A. Fine, Inspector General, U.S. Department of
Justice, accompanied by Marilyn Kessinger, Director,
Financial Statement Audit Office, Office of Inspector
General.................................................... 13
Corts, Paul R............................................ 13
Fine, Glenn A............................................ 28
Letters, statements, etc., submitted for the record by:
Corts, Paul R., Assistant Attorney General for Administration
and Chief Financial Officer, U.S. Department of Justice,
prepared statement of...................................... 16
Fine, Glenn A., Inspector General, U.S. Department of
Justice, prepared statement of............................. 31
Platts, Hon. Todd, a Representative in Congress from the
State of Pennsylvania, prepared statement of............... 3
Towns, Hon. Edolphus E., a Representative in Congress from
the State of New York, prepared statement of............... 10
FINANCIAL MANAGEMENT CHALLENGES AT THE DEPARTMENT OF JUSTICE
----------
WEDNESDAY, MAY 4, 2005
House of Representatives,
Subcommittee on Government Management, Finance, and
Accountability,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:15 p.m., in
room 2247, Rayburn House Office Building, Hon. Todd Russell
Platts (chairman of the subcommittee) presiding.
Present: Representatives Platts, Gutknecht and Duncan.
Staff present: Mike Hettinger, staff director; Dan Daly,
counsel; Tabetha Mueller, professional staff member; Jessica
Friedman, legislative assistant; Nathaniel Berry, clerk; Adam
Bordes, minority professional staff member; and Jean Gosa,
minority assistant clerk.
Mr. Platts. A quorum being present, this hearing of the
Government Reform Subcommittee on Government Management,
Finance, and Accountability will come to order.
The programs of the Department of Justice impact the lives
of millions of Americans on a daily basis. From overseeing the
Federal prison system and enforcing the Nation's laws and
providing grants to State and local governments, management at
DOJ affects law enforcement at every level of society. Since
the terrorist attacks of September 11, 2001, Federal law
enforcement continues to divert resources away from traditional
crime fighting to strengthen counterterrorism capabilities,
leaving a void that only State and local law enforcement are
positioned to fill. To help meet this need, DOJ administers
nearly $5 billion in grants annually.
In times of tightening budgets, accountability and
efficiency are imperative. It becomes increasingly important to
account for every dollar in the most effective manner possible,
whether an agency is managing grants or investing in
information technology. Without accurate financial information
and appropriate controls, it becomes nearly impossible to
manage programs effectively and responsibly.
The latest financial audit revealed serious accounting
problems that have impacted the Department of Justice's ability
to achieve its mission. The most serious problems occurred in
areas of grants management.
Proper accounting and management controls could prevent
these problems. Recognizing the importance of sound financial
management, Congress passed the Chief Financial Officers Act of
1990 to require Federal agencies to submit audited financial
statements. For fiscal year 2004, DOJ's auditors were unable to
express an opinion as to the reliability of the financial
statements and rescinded the unqualified opinion rendered on
the 2003 statements. It is important to recognize the
seriousness of this audit: In the private sector, anything
other than an unqualified or ``clean'' audit opinion is
unacceptable, and any restatement of a prior year's audit is
front-page news.
The subcommittee is meeting today to hear about efforts to
address the challenges identified in the audit and how best to
support these efforts by ensuring that the Department has the
appropriate resources to correct them. We are pleased to have
the Honorable Paul Corts, the Chief Financial Officer at the
Department of Justice, and the Honorable Glenn Fine, Inspector
General for the Department. We thank both of you for being here
today.
We appreciate the written testimonies you have provided,
and we also appreciate your efforts day in and day out. We know
you have a challenge before you, but we appreciate you throwing
yourselves and your colleagues into the challenge and
addressing the financial issues before the Department. We know,
working together, you will fulfill those challenges; and we are
glad to have you here today to see how we can better understand
the challenges as well as to assist you as you go forward.
[The prepared statement of Hon. Todd Russell Platts
follows:]
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Mr. Platts. I now yield to Congressman Duncan from
Tennessee for purposes of an opening statement.
Mr. Duncan. Thank you very much, Mr. Chairman; and I thank
you for calling this hearing. This is a very important topic,
and it is a continuation of other hearings you have held.
I want to, first of all, commend you, because you are
trying to do as much as you possibly can to see that the
Federal Government operates in a fiscally conservative manner.
I can tell you that if we don't have all of us on both sides of
the aisle working on that, helping this government to watch its
money more closely and become much more fiscally conservative,
we are not going to be able to pay the military pensions, Civil
Service pensions, Social Security, Medicare, Medicaid along
with the guaranteed 44 million private pensions under the
Pension Benefit Guaranty Corporation. And I can tell you, from
talking to members on both sides, nobody on either side up here
will seriously tell you we are going to be able to meet all
those obligations in the very near future. So this is good.
I remember a few years ago when people all over the Nation
got upset about the Federal Government spending $500,000 on the
Lawrence Welk home in South Dakota. And I remember a few years
ago when they got upset--and they should have--over the
National Park Service spending I think it was $260,000--it was
well over $200,000 to build a fancy outhouse in your State.
Mr. Platts. Not in my district.
Mr. Duncan. People got upset about those things, because
they can comprehend figures like that. But when we hear these
billion dollar figures today--we are dealing with $277 million
misspent, and nobody really is upset about that, but they
should be. They should be shocked. And people in charge of this
should be ashamed, embarrassed; and we should be bending over
backward to do everything possible to make sure that this type
of misspending or misappropriation of funds or this scandalous
waste doesn't happen again. But because it's not coming out of
anybody's pocket except the poor taxpayers, nobody is really
going to get upset about it.
But I commend you for holding this hearing, and I hope we
can hear something about how we can keep this from happening in
the future.
Thank you very much, Mr. Chairman.
Mr. Platts. Thank you, Mr. Duncan.
Your emphasis on the challenges for us fiscally, we hear
most often about the challenges of how we address the mandatory
spending and how it impacts discretionary. And one of the
things that is important for us to emphasize when we use the
term discretionary, that includes the Department of Justice law
enforcement spending. So it is described as discretionary, but
it's obviously critically important to the well-being of our
citizens' quality of life.
Mr. Duncan. A few years down the road, that mandatory
spending is going to become discretionary spending, because
we're not going to be able to have enough money to cover all
the mandatory spending, and then we are going to have to make--
our future Congresses are going to have to make some very
painful choices at that
time.
Mr. Platts. I know our ranking member, Mr. Towns, is on his
way; and we'll come back to him for an opening statement.
[The prepared statement of Hon. Edolphus E. Towns follows:]
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Mr. Platts. We will proceed to our witnesses and opening
statements. So if I could ask the two of you to be sworn in;
and any staff who will be advising you in your testimony here
today, if they would join you in taking the oath.
[Witnesses sworn.]
Mr. Platts. The clerk would note that all witnesses
affirmed the oath.
Again, we appreciate your written testimony. If we can, we
will try to keep your opening statements to roughly 5 minutes
so we can get to a good give and take, but we're not going to
be real strict on that if you need a few extra minutes as you
begin. And then we will go to questions from the Members here.
Dr. Corts, we are going to begin with you.
STATEMENTS OF PAUL R. CORTS, ASSISTANT ATTORNEY GENERAL FOR
ADMINISTRATION AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF
JUSTICE; AND GLENN A. FINE, INSPECTOR GENERAL, U.S. DEPARTMENT
OF JUSTICE, ACCOMPANIED BY MARILYN KESSINGER, DIRECTOR,
FINANCIAL STATEMENT AUDIT OFFICE, OFFICE OF INSPECTOR GENERAL
STATEMENT OF PAUL R. CORTS
Mr. Corts. Thank you, Mr. Chairman and Congressman Duncan.
I am very pleased to appear before you today to discuss the
2004 financial statement and audit results of the Department of
Justice. As the Department's Chief Financial Officer, I am
fully committed to ensuring our financial information and
controls are of the highest reliability and that they meet or
exceed the Federal accounting standards. The Attorney General
and I are committed to restoring the Department's unqualified
audit opinion, eliminating our control weaknesses and ensuring
that our program managers have timely, accurate and meaningful
information for decisionmaking.
The Department has made significant strides in improving
its financial operations in the past 4 years, but, as last
year's results demonstrate, we still face major challenges.
Certain operations still lack the internal controls and
fundamental reliability that enable us to routinely produce
accurate financial reports. We are still at risk where our
operations remain dependent on manual practices and outdated,
overtaxed systems. We have gained valuable insights from the
Inspector General and the independent auditors, and we are
committed to providing a full and accurate accounting for all
of the funds we receive.
This afternoon, I am pleased to discuss our efforts in
three areas: the weaknesses from last year's audits, our
corrective actions to restore the Department's unqualified
financial opinion, and our efforts to improve our critical
financial systems infrastructure.
When fiscal year 2004 began, the Department, like other
executive branch agencies, was faced with the challenge of
preparing its financial statements and completing the audit by
November 15. This accelerated date cut nearly 10 weeks from the
previous audit time. While we met the accelerated date, we were
unable to obtain an unqualified audit opinion as we had done in
the past. Last year, because of problems accurately reporting
certain grant balances and weaknesses in grant systems, the
Office of Justice Programs [OJP], received a disclaimed audit
opinion. The balances at OJP are so large--so ``material'' to
use the accountants' and auditors' terms--that the DOJ
statements were disclaimed once the OJP statements were
disclaimed. The problems were extensive enough that the
auditors from fiscal year 2003 ultimately rescinded the
qualified opinions they had previously issued to OJP and to the
Department for fiscal year 2003.
I think it's important to mention that despite the
disclaimed DOJ-wide opinion, 8 of our 10 components received
unqualified opinions from the auditors. I was pleased to see
that the Bureau of Prisons, Drug Enforcement Administration,
Federal Prison Industries, the Offices, Boards, and Divisions,
the Working Capital Fund and Assets Forfeiture all earned
unqualified opinions and had no material weaknesses reported in
their internal controls.
Nonetheless, fiscal year 2004 fell far short of our goals.
I have already discussed the grant and accounting systems
issues at OJP. While we do not see evidence that OJP's overall
grant programs were compromised, DOJ and OJP management are
dedicated to correcting those OJP weaknesses. We also have
material weaknesses at the FBI, the U.S. Marshals Service, and
the Bureau of Alcohol, Tobacco, Firearms and Explosives, and
ATF's weaknesses in determining accurate amounts owed on vendor
obligations caused it to receive a qualified opinion.
Now, our corrective actions efforts in fiscal year 2005
started actually last summer as soon as we realized the
severity of the difficulties in OJP. While corrective action at
OJP is clearly the key to restoration of the Department's
unqualified opinion, I want to assure the committee that we
have plans in action at every component to address the
weaknesses from last year's audit report. DOJ and OJP teams are
working closely to correct the OJP accounting and system
weaknesses and are making good progress.
The final area I would like to discuss is the precarious
state of our financial systems. On a personal note, Mr.
Chairman, I want to thank you for your request that my
testimony address ways that you could be helpful and supportive
for our efforts to provide high-quality financial management
support. We currently have to assemble our financial data from
seven different core accounting systems in order to manage our
budget and our finances. Additionally, the independent auditors
have noted that the FBI's legacy financial system is over 25
years old and was not designed for today's accounting
standards. The FBI has transformed--has really transformed
itself to meet its critical counterterrorism mission, yet we
support the FBI financial backbone with an outdated system that
began use before personal computers became popular household
items. We devote extensive resources to provide Department-wide
reporting, and we have no Department-wide diagnostic reports
which would have given us the kind of early warning needed of
the type of problems that occurred in OJP last year.
We are seeking resources to implement a unified financial
management system, a core single system that will give us
coordinated Department-wide information for managing our
programs. Our foundation work on this is near completion, but
we do not have funding to launch the implementation efforts at
our components. We have requested next year's unified system
funds as a part of the President's 2006 budget, and we urge
Congress to support that request.
In closing, I would like to assure the committee that
improved financial management and reliable financial reporting
are two of the Attorney General's and my highest priorities.
The Department has proven in the past it can produce reliable
financial statements, and we are determined to regain that
status this year.
Mr. Chairman, I will be happy to answer any questions from
you or members of the committee.
Mr. Platts. Thank you, Mr. Corts.
[The prepared statement of Mr. Corts follows:]
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Mr. Platts. Mr. Fine.
STATEMENT OF GLENN A. FINE
Mr. Fine. Mr. Chairman, Congressman Duncan, I appreciate
the opportunity to testify today about the Department of
Justice's financial statement audits and the State of the
Department's financial management systems.
I would like to introduce Marilyn Kessinger who is with me
today. She is the head of the OIG's financial statement audit
office, which is responsible for overseeing the work of the
independent auditors who perform the financial statement audits
of the Department's 10 reporting components. Marilyn is right
here with me.
2004 was a difficult year for the Department. It received a
disclaimer of opinion on its consolidated financial statements
and also had its 2003 unqualified opinion withdrawn and
reissued as a disclaimer. Prior to that withdrawal, the
Department had earned 3 years of unqualified opinions on its
consolidated statements.
These disclaimers were caused by problems in one component
of the Department, the Office of Justice Programs. A second
component, the ATF, received a qualified opinion for 2004, but
it had no effect on the Department's overall consolidated
opinion.
On a positive note, the other eight Department components,
including the FBI, the BOP, Marshals Service and DEA, continued
to earn unqualified opinions for fiscal year 2004. However, the
total number of material weaknesses and reportable conditions
increased from 19 in 2003 to 23 in 2004.
The OIG believes the Department's financial controls are
and will continue to be a top management challenge for the
foreseeable future. In our opinion, for long-term success, the
Department must concentrate on standardizing financial
processes and systems and it must implement a unified financial
management system to replace the multiple accounting systems
currently used throughout the Department. Now none of the
Department's accounting systems are integrated with each other.
The OIG strongly supports the Department's implementation of a
unified system, which we believe would be a wise investment.
My written testimony addresses in more detail three main
issues. It discusses how the Department ended up with the
disclaimers of opinion on its 2004 and 2003 financial
statements. Second, it discusses the progress made by the
Department and the challenges it faces on its financial
statement in 2005. Third, it offers observations on the long-
term challenges faced by the Department and on the steps we
believe are necessary for the Department to improve its
financial systems, financial reporting and, ultimately, its
financial management.
I will not repeat my written statement here, but instead
will highlight for the committee a few key points and
observations.
Because of the accelerated timeframes imposed by OMB,
agencies no longer have time at fiscal year end to conduct
extensive manual cleanup or updating of financial data.
Similarly, no time is available to validate financial data if
audit testing reveals problems during the latter stages of an
audit. Rather, the auditors must be able to rely on the
agency's financial and information technology controls
throughout the year.
As the Department's primary grantmaking agency, OJP is
particularly dependent on IT controls because its grant
activities are processed electronically, from applications to
cash disbursement to reporting of results. Unfortunately, in
the 2004 audit, the auditors determined that they were unable
to rely on OJP's financial and IT controls. For example, the
auditors cited the lack of effective internal controls over the
computerized information systems used to process grant
transactions and the lack of sufficient documentation and
adequate responses from OJP to support its financial
statements. To its credit, after receiving the disclaimer, the
Department decided that it wanted to go back to ensure the
financial statements for 2003 and 2004 were accurate.
The OIG has worked closely with the Department's CFO, Dr.
Corts, and his staff as they seek to accomplish this objective.
He and the Department's senior financial managers also are
regularly conducting meetings with components on corrective
action plans and stressing the importance of improved financial
management.
It is also fair to say that the Department has made some
progress in its financial management, but it must confront a
variety of challenges and longstanding issues in order to
obtain clean opinions on its financial statements. These
include improving data quality and improving the ability to
timely provide adequate support for transactions during
testing. Over time, we have seen some improvement in data
quality and timeliness, but more improvement is needed.
Department components also have started conducting more
frequent internal quality control reviews of financial data. We
strongly encourage the use of these internal review functions,
but we continue to have concerns about staffing problems at
some Department components, including that they have
sufficient, qualified financial management staff. This can also
be a particular problem overseeing the many contractors that
are used to supplement the Department's own staff. Where
contractors are used, component staff must provide adequate
oversight of them to ensure the work is performed properly.
In sum, with less than 5 months remaining in fiscal year
2005, I believe it is fair to say that the Department has made
strides in addressing some of the significant issues identified
during the 2004 audits that resulted in the disclaimer of
opinion. While it is too early to predict the outcome of the
Department's 2005 audit, we believe the Department has taken an
aggressive approach to resolving the significant challenges it
faces. It will take a sustained effort to move from a
disclaimer to an unqualified opinion in 1 year. Most
importantly, the Department needs to improve, on a long-term
basis, its ability to provide timely, accurate and useful
financial data throughout the year. Implementation of a unified
financial management system is critical to meet this part of
the challenge.
That concludes my prepared statement, and I will be glad to
answer any questions.
Mr. Platts. Thank you, Mr. Fine.
I appreciate Dr. Corts and your written statements. You
touched on it briefly here today, the issue of internal
controls and how critical having strong internal controls is
going to play into long-term success at the Department and
getting your hands around some of the financial challenges that
you have.
[The prepared statement of Mr. Fine follows:]
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Mr. Platts. We are going to proceed to questions; and I
understand, Mr. Fine, that Marilyn Kessinger is going to join
you at the witness table now. Ms. Kessinger is Director of the
Financial Statement Audit Office. We appreciate her joining us
here as well and being available for questions.
I would like to start--we are going to have, in essence,
the 5-minute rule for questions. We will not be real strict on
that with the number of members here but maybe just get some
foundation for our discussion today from a structural
standpoint.
Dr. Corts, starting with the CFO office, what is your
interaction with or authority regarding the individual CFOs at
each of the 10 entities within the Department? Do they answer
directly to you? Do you have say in who is in those positions?
And what type of interaction occurs there?
Mr. Corts. The CFOs of the individual components are
essentially employees of the individual components. They have a
reporting relationship to the heads of those components. They
coordinate with my office in the sense it is more of a
coordinative role. We have a CFO Council where all of the CFOs
get together on a regular basis where we talk about financial
issues. There is a great deal of interplay between my staff and
their staff certainly as we work on the audit but throughout
the year in terms of the financial management issues. We,
generally speaking, do broad policy guidelines that give an
outline of how we want the processes and procedures to flow in
the various components, but there is a great deal of autonomy
and authority that they have and they exercise out in their
individual components.
Mr. Platts. Is that problematic in the sense that--if you
are setting Department-wide policy and what you are looking
for? Because, ultimately, you are responsible for that
consolidated financial report for the Department, and having a
uniform gathering and collection is certainly critical to that
mission. Is the structure that exists, the fact that they don't
answer directly to you perhaps as well as a superior within the
individual entity, is that problematic, in your opinion?
Mr. Corts. Well, I think the bigger problem for us is the
unified financial management system. My staff doesn't have the
ability in many of the cases of the components to use their
system, to go into their system and do any checks within their
system. We can't get reports out of their system without asking
them for the report. We have to go through them and ask for the
report, and they put the report together and give the report
back to us. We are not able on our own to go do additional
digging or penetration into--we have to go back to them and ask
them to go a little deeper into it.
Now we do have--several of our components are on one
system. We do have several of them on our one system. But we
have seven different systems, and only one of those can my
staff actually work with in terms of generating reports and
doing analysis and that sort of thing.
So the big weakness for us is the inability to get the
information we need and to do it on our own. We can still get
it on our own, but we have to send a team out and do a quick
audit. And we do do that, send teams out for internal control
reviews and things of that sort, but it is not like we can
actually go into their system and manipulate it, because we
can't do that.
Mr. Platts. So if we get that ultimate goal, that unified
financial management system, within the autonomy that exists in
those individual components, you will have a better ability to
go out and verify the accuracy of what you are getting on a
regular basis because of having a unified system?
Mr. Corts. Correct.
Mr. Platts. You are, in essence, relying on what is handed
to you in compiling that consolidated financial report?
Mr. Corts. The Department's report is simply a roll-up of
10 individual audits, and that's why it's very important--I
think it is important for us to not lose track of the fact
that, though we had a problem in one component, one was
completely clean and one that was qualified with a particular
issue and only one that really was unqualified.
Mr. Platts. I think that is an important point, and we want
to focus and look at how we can bring that other one,
especially the one in particular, up to speed, but we do
acknowledge the good work in the other components.
A similar question, Mr. Fine, with the audits themselves.
Does your office, from a funding standpoint, pay for the costs
out of your central office or do each of the individual
components cover the costs of their audits for their individual
components?
Mr. Fine. We don't pay through our appropriation. The
appropriation comes through the Department, and the
Department's components have to pay. We have a staff to
supervise and oversee the independent auditors who do the
actual audits themselves, and we get funding for that as well.
But the funding for the audits themselves comes through the
Department's appropriation, not directly through our
appropriation.
Mr. Platts. And the fact that we had--8 of the 10
components have clean opinions and that is, in essence, a roll-
up to this consolidated--from an efficiency standpoint, is
there a reason to have the consolidated versus doing what we
are doing today, which is really looking at the individual ones
and see where we have the problems and not going through that
extra step?
Mr. Corts. One of the great opportunities that we have with
a unified system will be the potential to reduce the number of
audits that we do. We have to do these number of audits because
independent auditing firms don't want to be getting one audit
over multiple systems. One of the things we are looking forward
to very much is to be able to reduce the expense. Audits are
expensive and very time consuming. Just the hiring of these
independent audit firms is very expensive.
Mr. Platts. If we get the dollars you need to get to a
consolidated unified system, then we can potentially have
savings in that. We can have one audit of all 10 as a truly
united or consolidated audit as opposed 10 individual efforts
that are just wrapped into one?
Mr. Corts. That would be our hope, to be able to reduce the
number of audits.
Mr. Platts. Is that a possibility?
Mr. Fine. I think we can possibly move toward that
direction. I think the unified financial management system
would help in that regard, but there has to be standardized
processes and has to be a standardized system. And if
throughout the Department they are operating in a unified way,
then you have the potential for moving toward less individual
component testing and auditing but testing on a Department-wide
basis. But, currently, you have a decentralized system with a
complex series of legacy systems that are operated in many
different ways by many different people; and you can't have one
overall audit and expect to get an understanding of how the
individual components operate. Moving toward the future down
the road can have some cost savings in that regard. But, for
many other reasons as well, I think it is very important to
have a unified system.
Mr. Platts. I certainly have other questions, and we will
get into the specifics of internal controls.
We have been joined by Congressman Gutknecht from
Minnesota, and I now turn to Mr. Duncan for questions.
Mr. Duncan. Thank you, Mr. Chairman.
As critical as my opening statement was about the $277
million being misspent, the situation is actually worse than
what I said in my statement because I did not mention the fact
that the $277 million comes from an audit of only 3 percent of
the programs, is that correct, Mr. Fine?
Mr. Fine. We did audits of--what you are referring to are
the COPS grants. We have done a series of audits of COPS
grants. There are thousands of them. In total, that is probably
correct. We have done a small percentage of them and questioned
costs of a significant nature in that 3 percent.
Mr. Duncan. We are also told in the papers we received, on
top of the $277 million there are 82 departments that haven't
given you adequate information about $111 million?
Mr. Fine. I haven't added up the exact amounts in that
regard, but clearly there are a significant amount with
questionable costs and lack of adequate documentation from many
of the COPS grantees. That is exactly right.
Mr. Duncan. I have to leave here because I have to speak to
a group of Japanese parliament members before 3.
It's amazing to me how many times in recent years that any
time a Federal agency fouls up they blame it on one of two
things or sometimes both. They always say they are underfunded
and/or they always say it's the fault of the computers. They
have an outdated computer system. I mean, we hear that all the
time.
I remember after September 11th and the fact that 15 of the
19 hijackers were here illegally and the INS said they were
underfunded and our colleague, Congressman Gallegly was on 60
minutes saying we had given them a 250 percent increase in the
previous 8 years, an average of 30 percent increase in funding
every year. But we always hear that.
I remember in the mid-1990's I read a cover article in
Forbes magazine, which is a conservative, pro-business, very
respected magazine. They had an article saying that we had
quadrupled the funding for the Justice Department since 1980
and that there were prosecutors out there all over the country
falling over themselves trying to find cases to prosecute. They
didn't have enough work to do. We increased the funding so
fast. And now the staff tells me we have roughly doubled the
funding for the Justice Department.
Since that time--we are so good to the Justice Department.
Then we come in here--and I was a criminal court judge for 7\1/
2\ years. I believe in law enforcement, and I believe in being
tough on criminals, but I don't believe in throwing away money.
I get sick and tired of agencies when they foul up saying they
are underfunded when they are not. We are giving them barrels
full of money; and it gets sickening after awhile to hear these
excuses, excuses, excuses when money is just being wasted,
wasted, wasted or misspent. And it is frustrating. People
should be embarrassed about this and should be ashamed, but
they are not, and I understand that. And I know when they go
back to the Justice Department, they will laugh about what I
said here today, but I think it's shameful.
Thank you, Mr. Chairman.
Mr. Platts. Mr. Gutknecht, did you have questions?
Mr. Gutknecht. Thank you, Mr. Chairman.
I was only going to ask some questions, but I certainly
share some of the feelings that my colleague from Tennessee
had.
Mr. Corts, did the accelerated deadline affect your ability
to get a clean opinion?
Mr. Corts. As I mentioned in my opening testimony, before
we had several months or 3 to 4 months really to do clean-up
work after you are closing your books. That is the way it had
been for the years previous where we had received unqualified
opinions.
I think it is safe to say that our ability to get
unqualified opinions in those preceding years was helped by the
fact that we had a period of a number of weak spots after the
close of the fiscal year in which to gather the information and
to go through the process to get the information that the
auditors need in order to get an unqualified opinion.
So the short answer is, yes, it affected us because we
didn't have that time to do the work that, frankly, our staff
at central Justice in previous years--remember, we're basically
rolling up individual independent component audits. So when the
auditors would begin their work with the individual components
and they found a problem, we would have a team of folks from
main Justice who would go in and work to correct that problem
as quickly as possible, try to get that fixed in time to get
the audit a clean opinion. We didn't have that kind of time to
do that repair work this year; and, clearly, that greatly
affected us.
Now whether we would have been able to do it this year,
given the circumstances that OJP was in, I can't tell you for
sure, but I can tell you not having the extended period of time
definitely made an impact on us. Basically, we couldn't even
make a try at it because you just didn't have any time.
Mr. Gutknecht. When you said ``get the problem fixed,''
give us an example of what you mean.
Mr. Corts. Part of the issue, for example, with the OJP
issue this year was it was getting specific information out of
the system, working up the number of samples that they would
take, getting the information on the samples that they would
take to do tests against the system. And as they would run one
test and then require additional information, you just--they
eventually just kept finding additional problems, and they ran
out of time to do more testing. In the former system when we
had more time, you could have continued to extend it, do the
testing and go out and retrieve more files and run more tests
against them. We just didn't have that time this year.
Mr. Gutknecht. I'm still really not really clear, though. I
mean, as you do your investigation and you find more problems,
that doesn't necessarily make it easier to solve those. That
sounds to me like the deeper you got into this, the more
problems you found.
Mr. Corts. That is often the case, and you have to work
through that in order to get to the solution. And, again, you
need time to do that, and we didn't have the time this year.
Mr. Gutknecht. Mr. Fine, do you believe if we would have
extended the deadline some of these issues would have been
resolved with more clarity?
Mr. Fine. I think some of the issues would have been
resolved, but I don't believe that the time, if it had been
extended, that the problems of OJP would have been rectified. I
think we would have the same problems even if it was a longer
period of time. Those issues were too massive and too
longstanding to be quickly resolved. They involved cross-
cutting issues. They involved internal controls. They involved
grant accrual issues. They involved difficult problems that, as
we looked further and further and deeper and deeper, we found
more and more. And OJP needed to do a thorough review.
It's not going to take weeks. It's not going to take
months. It's going to take a significant period of time for
review of its financial policy and procedures, of its financial
control systems, of its reconciliations, of its grant accrual
methodology. I don't believe that could have been resolved in a
quick time period. And it has taken a long time even now to go
through and deal with those issues.
Having said that, the compressed timeframe did not allow a
possibility of doing that, but I don't think that is a cause of
the problems. I think the cause of the problems are more deep
seated and longstanding.
Mr. Gutknecht. We in Congress and the American people have
been critical of corporate accounting problems and some of the
scandals we have seen, and I don't know if this would rise to a
level of scandal. I think that's a term that gets overused. But
it is fair to say that the American people expect that we be
able to defend the money that we take from them to spend on
this, and it sounds to me there is a systemic problem inside
the Department of Justice.
Mr. Fine. I don't believe there's a problem--we have to be
clear about this--in the spending of the money. It has to do
with the financial statements, the accounting and the balances.
Mr. Gutknecht. Most government agencies don't have any
trouble spending the money. That is never a problem around
here.
Mr. Fine. I think that's right. And it is important to
recognize that there is a longstanding problem, and the
Department is committed I think to rectifying those problems.
It wanted to go back and to present accurate financial
statements for 2003 and 2004 after they received the disclaimer
of opinion. That's to its credit.
It's going to take a significant amount of time. It's going
to take significant effort. And I'm not 100 percent confident
that it will be eventually resolved for 2005. The Department is
doing its best to do so. We are attempting to aid the
Department in that regard, but we'll see what happens. I think
that's fair to say. But I think it's a critical issue that
needs to be addressed, and this committee is right to focus on
this issue, as is the Department, to try and get it right.
Mr. Gutknecht. I want to thank you for having this hearing.
It sounds to me like we may need to have a followup hearing in
some months after we get a chance to get our arms around what
the problem is.
Mr. Platts. Thank you, Mr. Gutknecht. And we do plan on
continuing to work with the Department and continue the
subcommittee's oversight and appreciate your participation here
today.
I have a couple of followups to Mr. Gutknecht's questions
on the timeframe and accelerated deadline for the consolidated
report.
Key to being able to have that consolidated report at the
Department level is access to, in essence, real-time data, and
I think is what you mentioned earlier, getting the unified
financial management system that would allow you at the
Department CFO level to have that data so you can, throughout
the year, verify what you are being told and then quickly at
the end of the year consolidate all the information. But what
is the challenge at the component level where they do have
financial management systems--understandably, some of them are
pretty outdated. But even the outdated ones should be able to
give more timely information on a daily basis, at least within
the component, maybe not to the Department-wide level. Is that
an incorrect assumption because of the nature of the systems,
are so outdated that they are not going to be able to give us
what we are looking for today, which is day-to-day good
financial information? And that is to both of you.
Mr. Corts. At the component level, they have a great deal
of capability to do that for themselves. The problem when you
get back from trying to look at it from a departmental
perspective is each of them, because they have different
systems, approach it in different ways. Even when you try to
request a report that is as standardized as you can get at
across the various components, because they come at it in
different ways, they have to, because of the way--the nature of
the way their systems are and definition of terms and things
like that, you don't necessarily get exactly apples to apples.
So it's still problematic for us at the departmental level. It
takes time and doesn't give you the real-time ability to
investigate situations that you would like to have and that we
really need.
Mr. Fine. I think I would respond that the systems within
the components, many of them are old systems, legacy systems.
That kind of a system doesn't give you accurate, timely,
reliable data on a daily basis that you can use to manage the
operation, and that is what the goal is. Components are clearly
not there. They're not at their goal because of these difficult
systems.
And, quite honestly, I think that is one of the benefits of
a unified financial management system. It's one system. You can
operate it on a Department-wide basis and know how it's working
and working appropriately; and, hopefully, the managers will be
able to use that system and extract information on a daily
basis so they can manage their operations.
Too much of it now is going on after the close of the
quarter or after the close of the month or at the end of the
year, and they are reconciling the systems and seeing if it's
accurate data, finding it's not accurate data and not being
able to rely on that data. That's not what a financial
management system should do, and it's not doing what it needs
to do in the Department.
Mr. Platts. It gets to the issue that I want to come back
to in a few minutes which is the COPS program, the Community
Oriented Policing Program, and some of the problems there. That
day-to-day data is so important because in the past when we had
several months to reconcile the audits and especially the
individual components there were heroic efforts that brought
the information together, but what real benefit was it
throughout the year? They told us, yeah, there were problems,
but day to day we didn't have the benefit of what we should
have from a good financial system.
Let me go to a couple of questions before we go into some
internal control specifics. And that relates to--Dr. Corts, you
reference the A-123 requirements that OMB has put forth; and we
are very pleased with OMB. When we passed legislation last year
regarding the Department of Homeland Security that I sponsored
requiring an internal control audit for that Department because
it inherited, I want to say, 18 material weaknesses, if I
remember correctly, of 22 different agencies--there was a clear
need for it to go to the bedrock of financial information and
get a good understanding of the internal controls and buildup.
We did it for DHS and did not require that level of--at all
levels.
But OMB has come forward with the new regulations. Where
does Justice stand? Where are you as far as being able to go
forward and prepare with the 123 control audit at the end of
the year?
Mr. Corts. Well, I must say that I was surprised when I
came into government service in 2002 to find that there wasn't
a good deal more of internal control going on; and it has been
an issue of concern to me. I think 123 is certainly the right
way to be going.
We have already taken some internal steps to raise our
activity in that area; and I'm pleased to say that some of the
components, because they operate the way they do, they are
beginning to do this within the components. We are looking
forward to actually probably doing a preprogramming to try to
bring a more full-fledged operation to bear to do this within
our organizational structure out of the departmental CFO
office.
Mr. Platts. And you envision being able to comply with the
new requirements?
Mr. Corts. We are trying to get a head start on it, yes,
sir, because it is something we need to do.
We got into this, as I said earlier, quickly as a part of
reaction to the OJP issue last summer. For example, in the OJP
area, we actually--basically, I took back the delegated
authority to the Office of Justice Programs and brought that
back to main Justice so that the CFO at OJP now reports
directly to my deputy CFO.
Many of the problems over there were IT related. IT is so
crucial to the financial systems these days that the two of
those have to be really married very well. We looked about
pulling back the authorities on the IT, but because they
installed a new CIO over at OJP who had a good understanding of
the issues and wanted to work very well with us, our CIO at
main Justice felt like we could leave the CIO over at OJP but
just have a real close working relationship.
We sent a team of folks over there as soon as we found the
major problem. They have remained there and remain today. We
have an audit manager from main Justice over at OJP that is
running the audit. We have taken a number of actions to try to
get more independent eyes looking on that system and doing more
checking of the things along the way so--we have a little bit
of an effort under way to make sure that these corrective
actions that we are trying to take are accomplishing their
intended purpose.
One of the challenges that you have when you are trying to
do corrective actions, a lot of times you don't find out
whether your corrective actions are totally successful until
the next audit is done. If they weren't successful, you might
get nailed again. But you do testing along the way to try to
ensure that the corrective actions are in fact accomplishing
their purpose.
Mr. Platts. Mr. Fine, I imagine your office is involved in
monitoring the progress in the A-123 compliance. What is your
assessment of where the Department is and your ability to
comply with the new requirements?
Mr. Fine. Our Department is making strides. I'm not sure at
this stage we would be able to fully comply with the new
requirements.
I think what Dr. Corts says is very important, though. The
Department needs to and has taken steps to do internal quality
testing prior to the data being turned over to the auditors to
determine whether it's a fair and accurate representation. And
I think it is important what Dr. Corts and his staff are doing,
that is, setting up within the Justice Department an ability to
test the controls and test the operations and test the data of
the components, so it is not simply hopeful when it's given to
us that it is fair and accurate. I think that is the kind of
initiative that can help the Department in meeting its
challenges.
Mr. Platts. Is there any plans or consideration by any of
the individual components of actually doing an audit of their
internal controls? I know there is extensive cost. I know that
DHS is required to do it, and I think it was Department of
State. They were looking at doing it voluntarily as far as
internal control. Is there any consideration of that by any of
the 10 components and specifically regarding the OJP
expenditures?
Mr. Fine. I believe the answer is no. I could ask my
assistant.
Ms. Kessinger. No one has asked for an opinion. There is a
lot of work going on in internal controls. We do more work in
internal controls now than we ever did in the audits before,
and I guess there is maybe a perception what we are doing now
is sufficient without having to get an opinion.
Mr. Platts. I think that type of assessment, I think that's
what OMB is after, and what we're after is that we may not need
that and those internal changes you are making.
Dr. Corts, you mentioned when you came on in 2002 the fact
there wasn't more emphasis on internal controls, that you are
placing that emphasis. And something I guess Mr. Gutknecht
referenced as following up of what we will be looking for as we
get to that compliance time period with the OMB regs, that--
what you did find. Are we getting to a point where perhaps in
one of the components or collectively an internal control audit
would be necessary?
Let me get into some specifics on ICs because referenced
earlier was the problems of the COPS program and $277 million
that was misspent. My understanding of the money that was
misspent, it was spent on law enforcement needs. But it was on
equipment, training or other things, but not actually on
employment of the new officers, which is what it was supposed
to be spent on. Is that an accurate understanding?
Mr. Fine. There is a whole series that go into that $277
million, and it's not as if it was fraudulently used. We found
many of the grantees did include some unallowable costs in
their claims for reimbursements, but more of it had to do with
that they could not show that, for example, they had redeployed
officers as a result of technology grants. They could not show
that they did not supplant their own funding with the funding
that the Federal Government provided. They could not show that
they had a good-faith plan to retain the officers after the
funding ran out. So those were some of the findings that we had
that went into the total of $277 million.
We did a series of individual audits and found various
dollar amounts in each of the individual audits. One of the key
findings in our audits was that the COPS program needed to do a
better job of monitoring those grants. And when they did have
those findings that the funds were not--there was not adequate
support for the funding, that they take corrective action in a
timely and effective way, we found in many cases that didn't
happen and still hasn't happened.
Mr. Platts. Is it fair to say from an internal control
perspective--and this may be for all of you to feel free to
answer on--that it is not just a better job monitoring? But
from an upfront internal control that when the funds are
provided there is a clear message of what the requirements are
in receiving it. Meaning that you do need to be able to show it
is a good-faith plan to keep the officer on board, that you did
not supplant, so that we are certain that when they get the
money they are also saying--getting the requirements that are
going to be expected when that audit comes to be, that they
know what they're going to have to show so they are ready and
first accept the money under those terms willingly and are
ready to provide the information--that would be an upfront
internal control, as I would see it. What assessment of that
type of IC has been done?
I ask that because this program is so important and I'm a
strong supporter. There has been efforts to reduce this
program. I don't support the reductions. I see the benefit of
law enforcement receiving these funds but also know some of the
recipients are smaller departments and they are just glad to
put officers on the street. And when the red tape goes with it,
maybe they are not focusing on as much as they need to be, but
I am not sure how much they were told up front they were going
to have to focus on it. That is why I ask that. What are we
telling them when they get the money?
Mr. Corts. Could I back up just a minute on the COPS issue
that has been raised here and clarify the issues about that
does not relate to the Department's financial audit, nor does
it relate to COPS' financial audit. COPS had a clean opinion
this year as part of the OBD.
Mr. Platts. So in the big picture we can technically say we
have a clean opinion, but if the Government Accountability
Office said but we identified this expenditure, it is clean
from a financial audit standpoint but from an appropriate use
of taxpayer funds maybe not.
Mr. Corts. Absolutely, not saying that this is wonderful
and not anything to worry about, but I'm trying to separate
these. And then we are talking about other audits. And many,
many other audits, the Inspector General audits, just
constantly is auditing items around. And this is a programmatic
audit and so that is--I want to make that distinction.
Mr. Platts. The IC issue, internal control, that is part of
the big picture of the financial audits.
Mr. Corts. The second thing I wanted to be sure that people
are clear about here is that the COPS office, as a part of its
internal control actually brought--probably in the one case
that was reported in USA Today actually brought to the
Inspector General a large number of those issues as items that
they had found. So just that you have some sense of assurance
that internal controls are at work and are finding things.
And kind of a third general thing to keep in mind when you
are dealing with these grants is that these grants are made to
people all over America. They are everywhere, as you say, and
they have been very good for a lot of local areas. We make
grants to entities that have very sophisticated financial
systems, very good reporting systems; and they are very
accustomed to handling grants and know what to do and know how
to respond to inquiries and know how to account for the money.
And we make grants to small entities, and maybe this is the
first time they have gotten a grant, and it requires a lot more
on the part of the COPS staff to work with them.
That being said, the responsibility for ensuring that the
moneys are accurately spent rests with us in the Federal
Government because we are making the grants. We have to do a
better job of having the internal controls to find these issues
when they develop and to resolve them and, of course, to try to
keep them from happening. And you do that through having
agreements with people over what they will do with the money
that they are given, how they draw the money down and whether
they draw the money down and then report or whether they have
to do it first and then get a reimbursement. These are issues
that are part of the grantmaking process and a lot of the
control issues, and it is done different ways.
Mr. Fine. I would like to address briefly your statement
that there should be awareness and knowledge given the
grantees. I think that's right. I mean, I think it's there in
the documents but sometimes people don't read those documents.
And you do need to make sure that people understand the
requirements of the program. The COPS program is not free
money, and there are requirements that people have to go
through. And some localities decided that they couldn't comply
with it, and they didn't accept the money.
Others looked at it as free money, we are going to do it,
and made no real effort to ensure there was a good-faith plan
to retain these officers, to make sure there was not a
supplanting of their own funds.
We have seen some small grants, as Dr. Corts said, some
places where they had 2 police officers before and they had 13
afterwards. And it wasn't clear whether they needed all that or
whether they could retain all of that and comply with the
conditions of the grant.
So there is a need to make sure that everyone understands
the needs of the requirements of the program.
There is also a need to make sure that once the grant is
given, that it is adequately monitored, followed up on, the
forms are sent in. And when they aren't sent in, when they
aren't complying with the program, corrective action is taken
in a timely and effective way. We have not seen that in many,
many instances when there have been problems with those COPS
grants.
Mr. Platts. And the word I have for the benefits, when the
dollars have been well used, I think, are very important that
we maintain and that we risk a good program because of some
poor management at the Federal level and, in some instances,
knowingly or unknowingly, bad management or bad faith at the
local level--but that we don't, in the end, kill a good program
or an important program for safety in our communities because
of how we are managing the program, as opposed to the mission
of the program. That is why I raise that under that broad issue
of internal controls.
Then a second specific example would be regarding the
Federal Bureau of Investigation, the IT project. And it is
similar to what we saw DOD--with DOD, I think we had $130
million spent on a new project, got to a certain point,
realized it couldn't do what needed to be done, and we were
starting over.
My understanding, we have a similar issue here where $170
million has been spent on an information technology program by
the FBI. And, that largely is going to be unusable or, again,
starting over, because of the way it was set up.
I would be interested, it's a specific example, and again
to me, in an internal control breakdown, that we got so far
along in a process where we spent that sum of money--and I give
a disclaimer, and I regularly do that. I am a guy who balances
my checkbook to the penny every month. So when I hear that we
somehow spent $170 million and then realized it's not going to
do what we needed to do, what broke down internally that we
didn't realize that sooner, and, take corrective action?
Because we certainly have learned from the error. But for the
taxpayers' benefit, we need to learn the error sooner. And I
would be interested if you can enlighten me on that issue.
Mr. Corts. There are a number of things that the FBI has
done to take very specific steps to try to approach these kinds
of programs in a different manner here in the future.
This program was a part of a three-part program, and two
parts of it came off pretty effectively. It was the final part
that didn't make it and is the part to which you are referring,
the DCF part.
The program for that was really determined pre-September
11th. It was a--basically a cost-plus kind of a program. It
didn't have a lot of carefully identified benchmarks and
timelines and checkpoints and so forth. So certainly one of the
things that the FBI has learned is to do programs that have
very specific checkpoints, very specific deliverables, and to
do things in phases.
And so the phasing of these kinds of massive programs, to
give you an opportunity to ensure that you are getting
something of value before you keep on going down the road. I
think one of the things that happened here was that as things
began to go bad, you try all the harder to make them go well,
and you keep going. And then things don't go well and you try
harder again to make it go well.
But when you have a specific ``oh, stop place'' when you
say stop, we either got this product, it got delivered, it's
successful, it does what it is supposed to do or not. Before
you go forward, it gives you a real checkpoint. And that is one
of the big changes that the FBI has made.
Mr. Platts. Is that type of a--you say expensive lesson,
$170 million--is that shared within Justice, with the other
components. Let's not just have the FBI learn from the error of
this, the lack of metrics and things along the way; but, we all
learn from that.
Because, unfortunately, DOD already had done that and had a
similar breakdown, and they may get it right the next time, and
hopefully will, but obviously that lesson at DOD wasn't learned
across the Department, and we repeated it here. So internally
there's a good sharing of that error in how to guard against
it.
Mr. Corts. One of the things, we had a new CIO come into
the Department in late 2002, again, well after this program was
underway and had been started. And he began--as he got into the
program and became familiar with the FBI's program, began to
raise major concerns almost immediately. The FBI got a new CIO
in 2003 and, likewise, very concerned about how that program
had been started, how it was coming along.
I think that the leadership of the CIO and the FBI, the
leadership of the CIO within the Department of Justice now, the
number of programs that we have in place to check this kind of
thing, just tremendous compared to what it would have been when
this program was initiated.
So we feel like we have learned a lot, and we have good
leadership now that understands this. We have greatly
strengthened our program management capabilities, run a number
of classes throughout the whole Department, throughout the FBI.
So a lot of improvement in our ability to manage these kinds of
very, very complex programs. And we shouldn't underestimate the
complexity of this program.
But I think that there are a number of things that have
been done. The FBI has, for example, a life-cycle management
directive now that requires the spelling out of these stop
places and these points where you show your successes or you
don't move forward. The FBI has recently established an
Enterprise Information Technology Governance Board. They have
an earned value management system.
As I said, the CIOs of FBI and DOJ are working very, very
carefully together. I know we meet--I meet with the CIOs of
both of these entities, the CFO of the FBI, people from OMB. We
meet every month and talk about these issues as they relate to
the FBI. So there is a lot of attention being given to be sure
we get this thing right when we go forward with this
investigative case management system.
Mr. Platts. Mr. Fine, did you want to add anything?
Mr. Fine. Briefly, I generally agree with what Dr. Corts
said. What you are referring to is the Trilogy FBI IT upgrade.
We have done a number of audits on this program. We have
followed it closely. It evolved from a 3-year $380 million
project to a $581 million project, which is still not complete.
The big problem is the third phase of it, not the first two
phases; which the first two phases were hardware and software,
and communications.
The third phase is the virtual case file to replace their
antiquated case management system. It is absolutely right that
the FBI had problems in designing the requirements for the
system, setting milestones for the system, setting critical
review points and holding people accountable if they didn't
meet those milestones.
As a result the system went forward. They were so intent on
moving forward that they never got a defined set of
requirements, and it never came to fruition. I think that's the
main problem here. I think there were contracting weaknesses
with a cost-plus contract that allowed the contractor to go
without sufficient oversight.
And finally, I think there was a lack of management
continuity. The FBI had significant changes in their IT
management throughout the course of the project. They must have
had 15 different people responsible for phases of the project
over a 3-year period, five different CIOs. Without continuity,
there is no way that the system is going to be adequately
managed.
I am hopeful that they have learned from their lessons.
They have a new CIO at the FBI who seems competent and
professional. And hopefully there will be continuity. They will
move forward in phases, as Dr. Corts says, and they will bring
forward a system that is urgently needed to help their case
agents manage all the information that they have in their case
files.
Mr. Platts. If Mr. Duncan were still here, I know probably
two followups he would ask and I am going to ask for him; and
that's consequences.
Are you aware of any, first, internal personnel
consequences, meaning someone who kept pushing the project
forward without making sure it was actually going to do what we
were paying for it to do? In other words, was anyone let go,
anyone reprimanded, demoted, internal consequences?
And then, second, the actual contractors. Was there any
effort to recoup funds for moneys paid for not providing
apparently what was necessarily what should have been provided
to fulfill the terms.
Mr. Fine. I am not aware of any internal consequences. Part
of the reason is most of the people left already. I mean, I
talked about how 15 of them left, so the main people involved
were moving on quickly.
Mr. Platts. Left by choice?
Mr. Fine. Left by choice, exactly. In terms of recouping
money, Director Mueller has talked about attempting to recoup
money from the contractor, SAIC. I don't know the exact status
of that and where that is. I know Dr. Corts does, but I do
believe the Department is looking into that to see whether that
is feasible.
Mr. Platts. Dr. Corts, are you aware of any efforts
currently to go forward to try to recoup?
Mr. Corts. I do know that it has been investigated by legal
staff at the Department and at FBI.
Mr. Platts. Because, I think that's one of the issues that,
in previous hearings--and Mr. Duncan and I--that we are all
human, errors get made, but we also have to be accountable for
errors. But we also want to learn what consequences occur. And
I think taxpayers, when they say we spent how much, and we
didn't get anything in return--and so some contractors got paid
even though we didn't get a product. Those are I think
legitimate concerns, taxpayers paid.
My understanding is we have 10 or 15 minutes before the
next series of floor votes. I have a couple of issues I am
trying to wrap up before those votes because I think there will
be a series, and we don't want to have you sitting here 30-45
minutes, waiting. So we will try to get through a number of
issues.
We talked about the unified financial management system.
And I hope--the way I took both of your statements when I asked
about that, is if done right, we will get to a system when we
can get more real-time data, day to day; data that we can
throughout the year to verify the accuracy, so that it's not at
the end of the year just playing catch up, or, after the fact.
Is that a fair assessment of what you both said?
Mr. Corts. Certainly our intent, yes.
Mr. Fine. Yes.
Mr. Platts. And as you go forward I know the funding, as
far as a hurdle, the funding is one of the, I guess, major
hurdles you have, is to be able to have the funds. I am
comfortable with indicating support for the funding, because I
think we need to be smart and invest wisely up front, because
we know we are going to save long term by doing so. We will
make that known to the Appropriations Committee. I,
unfortunately, am not an appropriator, so I cannot directly
help. But I can voice support for your needs.
I think I already know the answer to this question, it may
be rhetorical. But given what happened with the FBI, and as you
select and now purchase, that we have those benchmarks and
those kinds of verifications in place, that if the funding is
provided, that we are going to get a unified financial
management system that really does what your intent is, that we
are doing due diligence to make sure we are on the right track.
Mr. Corts. Well, Mr. Chairman, that's certainly our intent.
We have been working on this for a couple of years now. Most
all of this work that we have been doing has been the low-level
kind of grunt work that isn't glamorous but it's so absolutely
essential. Because when you are dealing with unifying these
various systems, you have to bring together people to agree on
common processes and procedures, common policies, common ways
of defining things, common sets of terms and ways of doing
things; for people to figure out how to do that within what
they need to keep going on within their component for all their
other purposes, so that you don't tweak something over here
that helps the financial side but does something that is a
problem for the law enforcement component over here in terms of
fulfilling their mission and all.
So working through that sort of thing, we have studied
products very diligently. There are commercial off-the-shelf
COPS products available. We studied all of those, and did very,
very rigorous testing of that and selected a product. So we
have our product identified.
We think we have done a lot of the good basic work to roll
this out. We plan to roll it out in phases. So that, again, if
there is something that isn't working right, we have a chance
to catch it as we do it in phases. We do have some of our
components that have already worked with this particular
software in earlier versions, so they have some familiarity
with it.
We were concerned about being sure that the software had
the capabilities to handle the size of the Department, with the
tremendous diversity that the Department of Justice has. So we
tried to work hard on checking that out.
We have the FBI as one of our entities that we have to deal
with. And they have very special needs, given their
intelligence portion of their mission, the interaction of SDU,
along with Secret and Top Secret classified data bases and so
forth. So we have a lot of issues with other law enforcement
entities that are kind of special.
We are going to have to work through a lot of those. But we
have done a lot of that good work already. I am sure there will
be more of it as we begin to roll this out. We think we have
done the testing, and we are ready to go.
Mr. Platts. As you move forward, your checks and balances
you have in place there I assume are event-driven as far as
what happens in the deployment versus a schedule-driven?
Mr. Corts. Well, we do have a schedule. But the schedule is
to bring it--bring this out in phases so that if we have a
problem, we can call a stop till we get the problem corrected
before we move forward with the next phase.
Mr. Platts. So we don't repeat the errors, as with Trilogy,
and get too far down the path?
Mr. Corts. That's right.
Mr. Platts. Turning to the specific 2004 audit and then the
rescission of the 2003, there were two specifics I wanted to
touch on: the block grants under the juvenile accountability
incentive block grants and the crime victim funds, and some
specific errors that just happened in the case with the
juvenile accountability incentive block grants--I guess 170
that were incorrectly coded as discretionary block grants for
several years, I guess, since 2002.
Is that just human error or, again, was it something
internal that we just--in the technology, the way the
technology program was set up? How did that come to be?
Mr. Corts. That essentially was a data entry error, and it
occurred in some transition that went on in personnel. And it
points to a weakness in the internal control issue. A point
that the Inspector General has repeatedly referred to is that
the internal control issues in OJP really just were inadequate.
Mr. Platts. Did that happen in 2002 and 2003? And I think
in 2004 is when it was found, right; and then went back and
realized it was multiple years?
Mr. Corts. Go ahead.
Mr. Fine. I think one of the issues that it points up is
the need for adequate oversight over contractors. Much of these
financial statements are done by, coded by, handled by
contractors. Contractors change. The contractors changed here;
there was an error but there wasn't sufficient oversight over
that. The most important thing is to make sure there is
adequate, savvy, financial staff in the components that can
adequately supervise the contractors and tell them both what
needs to be done and catch the mistakes before they become big
issues. I think that didn't happen in the JAIBG grants and it
was eventually caught, but too late.
Mr. Platts. But is your finding at the component level a
staffing shortage or just how we are prioritizing the staff at
the component level? In other words, not dedicating staff to
that appropriate oversight?
Mr. Fine. I think to some extent it's a staffing shortage.
It's stretching staff thin. It's an absence of financially
savvy staff in many cases that we find there in the component.
They are very thin; but one person here, one person there, you
lose that person and the institutional knowledge leaves as
well. So you need to have both adequate staff and continuity of
staff and adequate oversight over contractors. And I think
that's a continuing challenge, both in the Department and
elsewhere.
Mr. Platts. Dr. Corts, in your testimony you talked about
the OJP findings had a psychological effect on the audits for
the 2003, the prior audits and the rescission.
Can you explain what you meant by that? And is it that you
saw the problems in the 2004 and 2003 audit; the auditor kind
of overreacted to the 2004 results and went back to rescind the
2003 opinion? Or I would be interested in kind of exactly what
you meant by that psychological effect.
Mr. Corts. I don't recall using the word ``psychological.''
Mr. Platts. In your written----
Mr. Corts. I'm sorry, if I--did I use ``psychological?''
Mr. Platts. I think in your written testimony, you did.
Mr. Corts. OK.
Mr. Platts. I even forget the term. Do you think that there
was an overreaction by the 2003 auditor, based on the findings
of 2004, and that they really were technicalities versus
serious problems that were really existing in 2003?
Mr. Corts. No. I don't think I would have implied that or
meant that. I mean, you have to accept the facts as what they
were. And it wasn't there.
Mr. Platts. Just so--the way you had it written was the
problems had a ``perverse psychological effect on statements
issued in prior years.'' I took that as meaning that you
thought that maybe they were overreacting, as opposed to really
finding some substantive errors.
Mr. Corts. It was an interesting set of circumstances that
led to going back to 2003. And you can have--as I think we have
stated--our intent, and I explained this to the Attorney
General. He very quickly wanted to have--be sure that we made a
commitment that we were going to go back and get these
statements right, so that they will be reliable financial
statements that the American people can rely upon, and we are
committed to that.
We have run into the possibility that we could go back in
2003 and have 10 component audits that essentially are all
clean audits, but be unable to get a restatement of the 2003
DOJ consolidated audit to be a clean audit. So we could end
up--it could end up that in 2003, we will be able to get a
correction and a restatement of the OJP 2003 audit, but not be
able to get the departmental rollup restated. That's a
possibility.
Obviously, to have that kind of circumstance occur is going
to be a very kind of demoralizing event for those who work with
us and take this very seriously and want to be able to clear up
our proud record that we had established of having clean
audits. So we hope we will be able to go back and get those
corrected and be able to move forward with clean audits this
year and in the future.
Mr. Platts. And that really goes to maybe that broad issue,
the fact that all these individual component audits versus the
Department-wide consolidated audit being kind of disjointed,
versus if we had a more uniform comprehensive review that we
are all on the same page. Is that fair to say?
Mr. Corts. I think.
Mr. Platts. What about the--if we accept that the 2003
audit was inaccurate and that the opinion shouldn't have been
issued, as it was--and it was rescinded--is there any concern--
I mean, my understanding is that auditor is now hired for the
2005 OJP audit as well as the consolidated financial statements
audit.
Is there any concern there, or, given that we just had that
same auditor rescind their 2003 audit?
Mr. Corts. Perhaps that's a better one for the IG to speak
to.
Mr. Platts. Sure.
Mr. Fine. I would be happy to address that. It is an
important question. It is the same audit firm. When we went to
the 2005 audit for OJP, we put out a request for proposal. And
of the four major audit firms, only one was interested in
bidding on it and doing that work. That was the audit firm for
2003.
We recognized that might be an issue, so we took certain
steps, including ensuring that there was a different audit team
and a very aggressive--and we demanded one of their top teams
and one of their top auditors, because we wanted it to be an
aggressive, far-reaching audit, and they agreed to that.
The audit firm also is putting that audit under the
spotlight. Their Department of Professional Practice is making
clear that they are going to be watching everything that
happens, as are we. We are going to be watching it. We are
going to be involved in the decisions. We are going to be
involved in the timeframe. We are going to be involved in the
working papers, because we want to make sure that it is
thorough and aggressive and appropriate and objective. And so
with those steps in mind, we went forward with that audit firm.
Mr. Platts. Right. I appreciate the insights to your
being--you are conscious of that, and how you sought to kind of
address the problems of the past and how you are going forward.
I think that's commendable.
Again that's part of that we all learn from the past and
hopefully do better as we go forward.
I am going to need to wrap up, because we do have bells
going off as votes are going on the floor. A couple maybe
closing comments.
One is, in a broad sense, both of your inputs here today is
much appreciated as an oversight committee. We take our
responsibilities very seriously. And, as I said to you up
front, when we--before we started the hearing, as I see the
work of this subcommittee and my chairmanship is to work with
each of you, as we do with IGs and CFOs across the Federal
Government, as partners; and that we can help advance what our
shared and ultimate goal is, which is good financial management
across the Federal Government, so that the taxpayer funds are
spent in an efficient and responsible way and ultimately a good
outcome is achieved.
And I know that's what you are both doing, and I thank you
and your staffs who--I know day in and day out are trying to
fulfill that effort and mission at the Department of Justice.
And especially, maybe because of the importance of the work of
DOJ, reference FBI and the lead agency here at home on
counterterrorism, and given the events of 2001 and the ongoing
global war on terror--there's no more important mission out
there than protecting our citizens here at home--extend that to
the local level, and the COPS program, which you know GAO has
identified some challenges there.
But the bottom line is homeland security in many developing
communities is that officer walking the beat or in the cruiser
or in the neighborhood. It's that local law enforcement, and
that's DOJ. You are helping facilitate that law enforcement at
the local level as well.
So, my thought is that the more we fulfill our
responsibilities, you on the front lines and in this committee
as an oversight committee, the more effective COPS and FBI can
be, because they are dollars; that $170 million that we lost on
the Trilogy could better be going into more agents in the field
for FBI or officers on the beat for local police, because we
are being more effective and efficient with the management.
While we are not the frontline law enforcement, our role is
playing a critical role in allowing law enforcement to do their
job.
So we look forward to working with you. Then in a broader
sense our subcommittee has undertaken the charge here of trying
to collectively rewrite our financial management legislation
from the last 20 years. We have CFO, we have every acronym--my
staff knows them a lot better than I do, I just know what the
laws do--but all those acronyms out there.
But you know we are looking over the next year and a half
of trying to bring together all of these pieces of legislation
so that we have the ability to kind of, as I said, the
recipients of a COPS grant, they know what is expected. But
rather than having it spread over 20 years in a disjointed
fashion, we bring it together in a consolidated form. So if you
are a new financial manager anywhere in the Federal Government,
you know what is required of you in a very concise format. And
we get rid of requirements that are saying put a report on the
shelf and no one looks at it. That's not an efficient use of
tax funds either.
Your respective positions throughout the Federal
Government, CFOs and IGs, your input will be very helpful to us
as we move forward. And we will welcome that in the months and
year to come as we try to have some success in that
consolidation effort.
Again, I appreciate your being here today and look forward
to continuing to work with you and your staff.
We will keep the record open for 2 weeks. If there's any
additional information to be submitted--but, we will conclude
the hearing, and thank you for your participation. This hearing
stands adjourned.
[Whereupon, at 3:43 p.m., the subcommittee was adjourned.]
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