<DOC> [107th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:86569.wais] TRANSFORMING THE DEPARTMENT OF DEFENSE FINANCIAL MANAGEMENT: A STRATEGY FOR CHANGE ======================================================================= HEARING before the SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS AFFAIRS AND INTERNATIONAL RELATIONS of the COMMITTEE ON GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS SECOND SESSION __________ JUNE 4, 2002 __________ Serial No. 107-198 __________ 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 U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 2003 86-569 PDF For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON GOVERNMENT REFORM DAN BURTON, Indiana, Chairman BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California CONSTANCE A. MORELLA, Maryland TOM LANTOS, California CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania STEPHEN HORN, California PATSY T. MINK, Hawaii JOHN L. MICA, Florida CAROLYN B. MALONEY, New York THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington, MARK E. SOUDER, Indiana DC STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland BOB BARR, Georgia DENNIS J. KUCINICH, Ohio DAN MILLER, Florida ROD R. BLAGOJEVICH, Illinois DOUG OSE, California DANNY K. DAVIS, Illinois RON LEWIS, Kentucky JOHN F. TIERNEY, Massachusetts JO ANN DAVIS, Virginia JIM TURNER, Texas TODD RUSSELL PLATTS, Pennsylvania THOMAS H. ALLEN, Maine DAVE WELDON, Florida JANICE D. SCHAKOWSKY, Illinois CHRIS CANNON, Utah WM. LACY CLAY, Missouri ADAM H. PUTNAM, Florida DIANE E. WATSON, California C.L. ``BUTCH'' OTTER, Idaho STEPHEN F. LYNCH, Massachusetts EDWARD L. SCHROCK, Virginia ------ JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont JOHN SULLIVAN, Oklahoma (Independent) Kevin Binger, Staff Director Daniel R. Moll, Deputy Staff Director James C. Wilson, Chief Counsel Robert A. Briggs, Chief Clerk Phil Schiliro, Minority Staff Director Subcommittee on National Security, Veterans Affairs and International Relations CHRISTOPHER SHAYS, Connecticut, Chairman ADAM H. PUTNAM, Florida DENNIS J. KUCINICH, Ohio BENJAMIN A. GILMAN, New York BERNARD SANDERS, Vermont ILEANA ROS-LEHTINEN, Florida THOMAS H. ALLEN, Maine JOHN M. McHUGH, New York TOM LANTOS, California STEVEN C. LaTOURETTE, Ohio JOHN F. TIERNEY, Massachusetts RON LEWIS, Kentucky JANICE D. SCHAKOWSKY, Illinois TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri DAVE WELDON, Florida DIANE E. WATSON, California C.L. ``BUTCH'' OTTER, Idaho STEPHEN F. LYNCH, Massachusetts EDWARD L. SCHROCK, Virginia Ex Officio DAN BURTON, Indiana HENRY A. WAXMAN, California Lawrence J. Halloran, Staff Director and Counsel J. Vincent Chase, Chief Investigator Jason Chung, Clerk David Rapallo, Minority Counsel C O N T E N T S ---------- Page Hearing held on June 4, 2002..................................... 1 Statement of: Friedman, Stephen, chairman, Department of Defense Financial Management Study Group, HE Marsh & McLennan Capital, Inc.; Lawrence J. Lanzillotta, Principal Deputy Under Secretary of Defense, Deputy Under Secretary Defense for Management Reform, Office of the Under Secretary of Defense, accompanied by Tina Jonas, Deputy Under Secretary of Defense for Financial Management, Office of the Under Secretary of Defense....................................... 7 Schmitz, Joseph E., Inspector General, accompanied by Robert Lieberman, Deputy Inspector General, Department of Defense; Gregory Kutz, Director, Financial Management and Assurance Team, accompanied by Randolph C. Hite, Director, Information Technology Systems Issues, U.S. General Accounting Office; and Franklin C. Spinney, Jr., Tactical Air Analyst, Department of Defense......................... 52 Letters, statements, etc., submitted for the record by: Friedman, Stephen, chairman, Department of Defense Financial Management Study Group, HE Marsh & McLennan Capital, Inc., prepared statement of...................................... 11 Kutz, Gregory, Director, Financial Management and Assurance Team, prepared statement of................................ 68 Lanzillotta, Lawrence J., Principal Deputy Under Secretary of Defense, Deputy Under Secretary Defense for Management Reform, Office of the Under Secretary of Defense, prepared statement of............................................... 26 Lieberman, Robert, Deputy Inspector General, Department of Defense, prepared statement of............................. 56 Shays, Hon. Christopher, a Representative in Congress from the State of Connecticut, prepared statement of............ 3 Spinney, Franklin C., Jr., Tactical Air Analyst, Department of Defense, prepared statement of.......................... 100 TRANSFORMING THE DEPARTMENT OF DEFENSE FINANCIAL MANAGEMENT: A STRATEGY FOR CHANGE ---------- TUESDAY, JUNE 4, 2002 House of Representatives, Subcommittee on National Security, Veterans Affairs and International Relations, Committee on Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2154, Rayburn House Office Building, Hon. Christopher Shays (chairman of the subcommittee) presiding. Present: Representatives Shays, Schrock, Kucinich, and Tierney. Staff present: Lawrence J. Halloran, staff director and counsel; J. Vincent Chase, chief investigator; Dr. R. Nicholas Palarino, senior policy advisor; Kristine McElroy and Thomas Costa, professional staff members; Sherrill Gardner, detailee, fellow; Jason M. Chung, clerk; David Rapallo, minority counsel; and Earley Green, minority assistant clerk. Mr. Shays. Good morning. I apologize for keeping you all waiting. I like to start on time, so I do apologize. Last Friday, the Office of Management and Budget, OMB, transmitted the 2002 financial management report to Congress. According to that report, the largest impediment to removing the disclaimer from the governmentwide financial statements remains the Department of Defense DOD's serious financial management problems. These problems are pervasive, complex, longstanding and deeply rooted in virtually all business operations throughout the Department. More than 1 year ago, David Walker, the Comptroller General and head of the General Accounting Office, GAO, sounded a similar alarm. He told our subcommittee DOD suffered pervasive weakness in its financial management systems, operations and controls, including an inability to compile financial statements that comply with generally accepted accounting government accounting principles. Today, at the urging of our ranking member, Mr. Kucinich, the subcommittee asks the Defense Department GAO, the DOD Inspector General, IG and others to describe current strategies and challenges in bringing a world class financial management system worthy of a global military enterprise. In the doing of great things, small things matter. Each one of the $373 billion to be spent this fiscal year by the Pentagon, seals a bond of trust between taxpayers and the citizen soldiers sworn to defend our way of life. Each must be accounted for. Twentieth century processes and systems built by accretion during the haze of the cold war will never give the President, the Congress or the public the clarity and perspective required to marshal scarce resources against 21st century threats. The urgency of the war on terrorism demands financial management systems as smart as our weaponry. We cannot afford a margin of error, militarily or fiscally. One year ago, the Department released a study setting out specific strategies to include financial management in the sweeping transformation of U.S. Defense institutions. In the long-term, the plan calls for broad structural changes in establishment of a standardized architecture for DOD business processes. At the same time, the plan calls for pilot projects to model cost savings ideas and chip away at institutional and cultural resistance among and between defense agencies in the military service branches. As we will hear from GAO and the Department of Defense IG, this is not the first ambitious reform plan launched by a new administration charting a course over the fiscal and political horizon. Previous plans floundered in the shallowest of changing priorities and management neglect. But the Secretary of Defense and the DOD comptroller have committed to a sustained far reaching effort to reform and transform Pentagon financial management into a precision tool of policy formulation, program execution and detailed accountability. Today, we ask our witnesses to measure progress to date to evaluate year and long-term measures of success and describe the daunting challenges that remain on the path toward modern auditable financial management systems at DOD. We appreciate their joining us this morning and we look forward to all their testimony. [The prepared statement of Hon. Christopher Shays follows:] [GRAPHIC] [TIFF OMITTED] T6569.001 [GRAPHIC] [TIFF OMITTED] T6569.002 Mr. Shays. At this time, I would like to call on Mr. Kucinich, the ranking member of this committee and the driving force behind this hearing. Mr. Kucinich. I want to thank the chairman for his indulgence and his cooperation in putting together this critical hearing, and I want to thank all the witnesses who are here today for appearing before this committee and also welcome my colleague, Mr. Tierney. Today marks the eighth hearing this subcommittee has held relating to the Department of Defense's financial management or mismanagement problems during the 107th Congress. The Subcommittee on Government Efficiency, Financial Management and International Relations, chaired by Representative Horn, has also held hearings on the subject. The House Armed Services Committee also has heard testimony about the Pentagon's accounting troubles. So has the Senate Armed Services Committee and other Senate panels, but we needn't stop there. Since the Chief Financial Officers Act of 1990 which established basic financial reporting requirements for Federal agencies took effect, this subcommittee has held dozens of hearings on the Defense Department's financial mismanagement difficulties. In all these sessions no matter who has testified, comptroller general, the Inspector General, the chairman of Independent Commissions such as Mr. Friedman, who is with us today, the message has been constant that the Defense Department's financial mismanagement situation or management situation is in shambles. That no major part of the Defense Department has ever passed the test of an independent audit, that the Pentagon cannot properly account for trillions of dollars in transactions. I want to run that by you one more time; that the Department of Defense cannot properly account for trillions of dollars in transactions. That's no less than six Pentagon functions, more than any other government agency are at high risk of waste, fraud and abuse, and show little prospect for improvement, that the Department of Defense writes off as loss, tens of billions of dollars worth of intransit inventory, and that it stores billions worth of spare parts it doesn't need, that it will take nothing less than a complete transformation and culture at the Defense Department and a full commitment at the highest levels of leadership at the Pentagon to fix the situation. Has the Defense Department culture been transformed? Is Pentagon leadership committed to rectifying this problem? In my estimation, no. In 1995, Department of Defense Comptroller John Hammery promised a Senate Armed Services subcommittee that he would take comprehensive action to sort out the accounting mess. Well, no real progress was made. Six years and $1 billion in wasted taxpayers' money later, we had a remarkably similar statement from Secretary Rumsfeld during his confirmation hearing. Mr. Rumsfeld told Senator Byrd that balancing the Pentagon's books would be among the top priorities of his tenure. Once more in hindsight, the statement appears to be lacking. The Pentagon's books, of course, are a disaster. The Office of Secretary, despite the chairman's request inexplicably refused to send DOD comptroller, Dov Zakheim, to testify before this subcommittee, which has direct oversight over the Pentagon's management policies. If cleaning up the books are so important to the Department, why isn't the Pentagon's top accounting official here to talk about it? More importantly, the Pentagon still insists a preposterous 8 to 10-year timeframe for obtaining a clean audit. Can anyone fathom the chairman of commercial enterprise insisting to his shareholders that he needs a decade before its books are auditable? After all this country has been through, through the shame and sham of the Enron debacle, together with its colleagues in the accounting industry, notably Arthur Andersen, you look at that context and it pales when up against this mess at the Pentagon. And there is also a question, Mr. Chairman, which is really beyond the scope of this meeting, but at some point would bear looking into, if the Department of Defense's accounting process is so jumbled and inexplicable, why wouldn't there be symmetry in so many of these defense contractors? Why wouldn't their books also be screwed up since so much of accounting is transactional analysis? Think about that. And we will talk about that later. Meanwhile the administration has requested, and Congress will likely authorize one of the largest single-year increases in defense budget authority in the history of the world. Given its legendary problems, how can the Defense Department shareholders, the American taxpayers, be sure that the Department will spend this extra money on a measure that will increase security? As Chuck Spinney will tell us today, they can't. The truth is without proper accounting practices in place and accurate planning, there simply cannot be any rhyme or reason to the administration's defense budget request and there can be no way of ensuring that extra taxpayers dollars allocated to the Department of Defense will be spent appropriately. In his written testimony, Mr. Spinney will put it starkly. At the Pentagon he tells us, quote, both links are broken. The historical books cannot pass the routine audits required by law and planning data systematically misrepresent the future consequences of current decisions. The double breakdown in these information links makes it impossible for decisionmakers to assemble the information needed to synthesize a coherent defense plan that is both accountable to the American people and responsive to the changing threats, opportunities and constraints of an uncertain world. Personally Mr. Chairman I do not believe the Department of Defense will fix this broken unsustainable system on its own. What motivation does it have? Despite its routinely dreadful performance, Congress almost never rejects a Pentagon request for more money. The time has come for Congress to treat the Department of Defense as the market treats any commercial enterprise. Just as investors withhold their supply of capital to a company that fails to meet its expectations, Congress must refuse to supply additional funds to the Pentagon until its books are in order. During recent consideration, the defense authorization bill for fiscal 2003, I drafted an amendment that would prevent 1 percent of the budget of any component of the Defense Department from being obligated if that component does not pass the test of an independent audit. This amount is small enough not to adversely affect the critical work conducted by our Armed Forces, especially given the impending defense budget increase. And though a modest proposal, this amount is large enough to send a firm message from Congress that the status quo is unacceptable. Though the House Committee on Rules blocked this amendment, the upcoming appropriations cycle offers another opportunity for Members of Congress to exercise our constitutional oversight responsibilities. I hope, Mr. Chairman, that our subcommittee and members of this subcommittee who, like me, have gained considerable firsthand knowledge of the Pentagon's failings, will join me in this effort. In the meantime, we have the opportunity to add to this body of knowledge, and in particular, hear from Mr. Spinney what at DOD's financial mismanagement means for the way we're able to defend our country. Whether the highest levels of Pentagon leadership which apparently deemed this hearing too inconsequential to send a representative absorb the message remains to be seen. I want to thank the Chair for his indulgence. Mr. Shays. I thank the gentleman, Mr. Tierney. Mr. Tierney. I am going to pass on a statement Mr. Chairman. I think the parameters of the meeting have been ably set out by you and Mr. Kucinich. Mr. Shays. Thank the gentleman. We have two panels, two excellent panels. We have Mr. Stephen Friedman, chairman, Department of Defense Financial Management study group. He is with Marsh & McLennan Capital, Inc. Mr. Lawrence J. Lanzillotta, principal Deputy Under Secretary of Defense, Deputy Under Secretary Defense for Management Reform, Office of the Under Secretary of Defense. Accompanying him is Ms. Tina Jonas, Deputy Under Secretary of Defense for Financial Management, Office of the Under Secretary of Defense. I would invite you to stand and we will swear you in. [Witnesses sworn.] Mr. Shays. Our witnesses have responded in the affirmative. Our practice is to do 5 minutes and then roll over another 5 minutes. So you will see the light go halfway through--you will see the light turn red at 5 minutes and then we'll turn it back on green again for another 5 minutes. And we will have two who will be providing testimony. And all three of you will be participating in the questions. And so we'll start with you, Mr. Friedman. STATEMENTS OF STEPHEN FRIEDMAN, CHAIRMAN, DEPARTMENT OF DEFENSE FINANCIAL MANAGEMENT STUDY GROUP, HE MARSH & McLENNAN CAPITAL, INC.; LAWRENCE J. LANZILLOTTA, PRINCIPAL DEPUTY UNDER SECRETARY OF DEFENSE, DEPUTY UNDER SECRETARY DEFENSE FOR MANAGEMENT REFORM, OFFICE OF THE UNDER SECRETARY OF DEFENSE, ACCOMPANIED BY TINA JONAS, DEPUTY UNDER SECRETARY OF DEFENSE FOR FINANCIAL MANAGEMENT, OFFICE OF THE UNDER SECRETARY OF DEFENSE Mr. Friedman. Thank you very much, sir. Thank you, sir. Early in 2001, the Secretary of Defense asked if I would lead a task force to study and make recommendations concerning financial management transformation at the Department of Defense. We very quickly put together a group, selected a very capable consultant and waded into the process. The process was neither an audit nor an exercise in fingerpointing. It was really designed to come up with hard recommendations. We worked under a substantial sense that we should move quickly because there was an urgent desire to start implementing recommendations. The event it was possible to move very quickly and make recommendations with the high degree of confidence, and this is why: There had been numerous prior studies done of the Pentagon's financial management. I think both the chairman and the ranking minority member have alluded to them. They were highly consistent in terms of their criticisms and their diagnoses and the other thing that was highly consistent was the lack of effective widespread followup. We also found an enormous degree of consistency in our interviews with then present and past DOD senior officials and high consistency when we spoke to various consultants that we interviewed in the process of selecting the one we ultimately chose. Additionally, many of the conditions that we saw there were to members of our panel were not unusual as things that would have occurred in the private sector many decades ago. Certainly totally unparallel as to what exists in the private sector today. In the end, we were very taken by a comment that David Packard, the legendary business man and former Deputy Secretary of Defense made back in the 1980's, that we all know what needs to be done. The only question is why aren't we doing it? So this is a very--this is a very target-rich environment for criticisms. What I would like to do is quickly tell you what we found, tell you why we believed it was that way and make some recommendations. Our full panoply of recommendations are spelled out in my report and the testimony I submitted, and there won't be time for that. I do want to say that my remarks and the facts that I allude to are, as of April 2001, when our task force submitted its report and my understanding is that there is widespread agreement within defense on the conclusions and recommendations. But that, you will have to hear from the DOD officials. What we found, DOD was unable on a regular basis to produce timely, reliable and relevant financial reports. Clearly unable to meet the requirements of the CFO Act of 1990. Timely is self-defining. Reliable, to us, meant accurate numbers that could be confirmed by an audit, clearly crucial for the credibility and stewardship of an organization, but not enough. Managers don't run a major complex enterprise off the audited numbers. They really need management information systems, and that was where relevant came in. Numbers that would be useful to managers, numbers that would be useful to tracking costs, enabling benchmarks, it is an axiom in management that if you can't measure it you can't manage it. You have to be able to answer the question ``how am I doing?'' in a specific way, simplistic level. If you don't know how much it costs to maintain and cut the grass at a military base, it's very hard to know if your efficiency is improving or someone else could do it more effectively. Going along with this, we found clearly a lack of widespread recognition of the benefits that good financial information could provide in managing the enterprise more efficiently and we're providing in the private sector. Lack of an authoritative plan enterprise architecture was notable. Here you have the most complex enterprise in the world, the most stovepiped, and there was really a lack of an overarching and authoritative plan, and I want to emphasize ``authoritative,'' the ability to insist that certain things be done right. We found that the way business was being conducted, there was no real time line or cost estimates for reaching CFO Act compliance. It was over the horizon. It was just as someone said, not really in my lifetime. There was just no--there were no hard estimates. In addition to the credibility, numerous studies whether by the businessmen for national security [BNS], the Defense Science Board, others had pointed out the vast amounts of money that would be saved if modern financial management techniques were employed. BNS made a conservative estimate in a recent study of $15 to $30 billion annually. The conservative was the chairman's judgment. He felt it could be more. And there are--our task force thought of the weapons systems, the service readiness, the benefits to servicemen that would cover and clearly that was crucial. Now, why? First of all, this is not an excuse but a fact, the Pentagon systems were set up to deal with budget and appropriations accounting, which is a form of checkbook accounting. It is, in many ways, more complex, at least to visitors from the private sector like me it is, and it's very different from GAAP, which they're being required to have in place. Under the budgetary accounting as they had set it up, there was a lack of central data repository and just takes months to calculate things, like the total cost of ownership of a military track vehicle, for instance. Very, very important, the systems that grew up over the decades, hundreds and hundreds of feeder systems typically were at the service or lower levels were old, roughly 80 percent of the systems were not in the control of the DOD's central financial management. These feeder systems funneled information to DOD's central financial and accounting systems. Over the years, standardization and compatibility had not been mandated. These really couldn't speak to each other. On a very simplistic level, which is frankly the only level which I really get my arms around it, if you had a service person, let's say her name was Corporal Mary Jane Smith. If Corporal Smith was Smith, M.J. or Smith, Mary Jane, that makes a difference. If you add her birthdate, January 1, 1970, is that January 1, 1970, is it 1/1/70? Obviously these are highly simplistic examples but those vocabulary differences which seep into the business practices of the units meant that what you had was essentially something like a U.N. where many different languages were being spoken and you really have two choices in that situation. You can either standardize the language, insist that certain things be expressed in certain common ways or you could translate and translation was, for the most part, the approach that they were taking. And that was an unfortunate approach, a bad compromise because it meant a huge sink of human resources at work and a constantly new workload because as new practices came in, the workarounds had to increase. So year after year, in the absence of an authoritative plan, the central financial management worked toward what was, at the time, most publicized problems. Some additional issues: DOD has some exceedingly convoluted business practices. If you look at pictograms of some of the processes, whether in travel service or service travel or procurement, they just have many more steps than would be the norm in the private sector, and by ``private sector,'' I do not mean just corporations, I mean other entities that have not been shielded from competition and have to be effective at cost controls, such as hospitals or universities. Overly complex reporting requirements that have led to many, many reports that probably could have been streamlined and simplified. Now the pertinence of all this is when you have many excess steps---- Mr. Shays. If you could finish in 1 minute. Thank you. Mr. Friedman. When you have a lack of steps of interface like that, you essentially have a giant whisper down the valley. So in closing, I would say our recommendations came down to the importance of having a blueprint, continuity of Secretary of Defense, urgency for this process, a focused sunset effort, and then working with DOD on its human capital strategy for developing the internal skill sets to meet with these challenges. Thank you. Mr. Shays. Thank you. [The prepared statement of Mr. Friedman follows:] [GRAPHIC] [TIFF OMITTED] T6569.003 [GRAPHIC] [TIFF OMITTED] T6569.004 [GRAPHIC] [TIFF OMITTED] T6569.005 [GRAPHIC] [TIFF OMITTED] T6569.006 [GRAPHIC] [TIFF OMITTED] T6569.007 [GRAPHIC] [TIFF OMITTED] T6569.008 [GRAPHIC] [TIFF OMITTED] T6569.009 [GRAPHIC] [TIFF OMITTED] T6569.010 [GRAPHIC] [TIFF OMITTED] T6569.011 [GRAPHIC] [TIFF OMITTED] T6569.012 [GRAPHIC] [TIFF OMITTED] T6569.013 [GRAPHIC] [TIFF OMITTED] T6569.014 [GRAPHIC] [TIFF OMITTED] T6569.015 Mr. Shays. Mr. Lanzillotta--do I say your name correctly? Mr. Lanzillotta. Thank you, Mr. Chairman, and members of the committee. I am pleased to be here today to update you on the financial management reform within the Department of Defense. I have a short summary of my written statement that I have already submitted to the committee. Financial management reform and overall management reform in the Department of Defense are key in the need for transformation of America's defense posture. Mostly transformation is about changing the way we think about military capabilities to ensure that we are able to counter more decisively 21st century threats, most notably, terrorism. However, in streamlining the overall Defense Department's support structure, its management and infrastructure and organization, it is critical to free up resources necessary to carry out this transformation. The support structure must be responsive to our fighting forces and leadership and be as efficient as possible. What makes transformation different and historic is that Secretary Rumsfeld and the entire leadership team are moving to change the fundamental culture of the Department. The Department is focusing on the big picture to get to the root of the problem and carry out reform that will endure and engender other improvements. The culture change is being advanced by Secretary Rumsfeld and is evident in his actions to reform business practices and the supporting financial management systems. Our approach has been an important distinguishing feature from past endeavors. Most significantly our financial management reform is leadership driven. This is a top down effort. Past reforms were bottom up that was a piecemeal approach, which only yielded marginal change and were unable to achieve the needed cultural changes in the comprehensive solution. Dividing the problem into smaller pieces seemed like a reasonable solution, but it just became just as inexecutable as the past solutions. General reform cannot simply be left to functional staffs. Reflecting this, Secretary Rumsfeld and the three service secretaries and the Department's entire senior staff are deeply involved in overhauling financial management. Leading Secretary Rumsfeld's financial management reform is my boss, Under Secretary of Defense, Dov Zakheim. Directing and overseeing this reform is Ms. Tina Jonas, who sits off to my left, who is the first-ever Deputy Under Secretary of Defense for Financial Reform. She is with me today. The Comptroller's Office is already being reorganized and realigned to better address this problem. It was new and it's new to this administration to put assets totally devoted toward doing this problem. We added a Deputy Under Secretary and we realigned the Comptroller's Office to have not only a directorate that dealt with this, but a program management office that deals directly with this problem. Besides being leadership driven, would also distinguish our reform as its comprehensive centerpiece, seamlessly linking our reengineering business practices and our financial information systems. DOD's financial management can only be put right by reengineering our business practices and developing an overarching architecture to provide the information needed to guide and account for management decisions. Development of an enterprise-wide architecture will be driven by the needs of the Department's decisionmakers for timely and reliable information and reengineering the Department's business practices. Additionally, a well-designed business management system will enable us to produce not only relevant management information, but also auditable compliant financial statements and to fulfill other financial information management requirements. Our reform efforts are drawing on private sector enterprise. This includes not only the expertise brought into the office by Secretary Rumsfeld and the service secretaries and many of his leadership team, but also the establishment of direct links to private industry. Shortly after he took office, Secretary Rumsfeld called upon some of our most capable minds in private and public financial worlds to describe processes for fixing DOD financial management. The committee has already heard from Mr. Friedman, who led some of our initial efforts. Mr. Friedman's qualifications are well known to this committee. Last year he produced a study that became a guidepost for the Department's efforts in improving financial management information. Following his recommendations proposed by Mr. Friedman and his team, the Secretary focused his reform on overhauling the current disjointed complex DOD financial and nonfinancial business systems. Beyond this initial input, private sector expertise remains key to our reform. For example, the Defense Business Practice Implementation Board is giving us insight and independent recommendations. We believe the design of our defense-wide architecture will benefit from substantial private sector input. Supporting the Department's financial management overhaul are several reforms that likewise will seek a cultural change in how the Department does business. The Department's efforts will focus on performance-based budgeting and other features outlined in the President's management agenda. DOD leaders need to be given greater freedom to manage. Reporting requirements and other administrative burdens must be reduced. These and other reforms, like financial management change, will require strong support from the Congress. In closing, Mr. Chairman, I want to reiterate Secretary Rumsfeld's support and determination for transforming business processes within the Department. We are advancing a cultural change in how we do business in a comprehensive overhaul of our management and financial business systems. I thank the committee for its continued interest in our management reform. We will need strong support from Congress to achieve historical transformation we seek. We also need ongoing strong partnership with the General Accounting Office, Office of Management and Budget, the Department's Inspector General. Together we can create the world class business infrastructure that is needed to revitalize and transform America's defense posture. Mr. Shays. Thank you very much. [The prepared statement of Mr. Lanzillotta follows:] [GRAPHIC] [TIFF OMITTED] T6569.016 [GRAPHIC] [TIFF OMITTED] T6569.017 [GRAPHIC] [TIFF OMITTED] T6569.018 [GRAPHIC] [TIFF OMITTED] T6569.019 [GRAPHIC] [TIFF OMITTED] T6569.020 [GRAPHIC] [TIFF OMITTED] T6569.021 [GRAPHIC] [TIFF OMITTED] T6569.022 Mr. Shays. Ms. Jonas, I think before we start, I would like you to explain that chart so we don't think it's wallpaper. Ms. Jonas. Mr. Chairman, when we came in, I got to the Department in April of last year. And when we came in, of course we had Mr. Friedman's study available to us and a plethora of GAO and IG reports to tell us generally that there was a concern about our systems and our financial accounting infrastructure, but we did not know the full extent of the problem. The only documentation that existed was a report that was provided to Congress called an improvement plan. That document suggested that there were 167 critical financial systems. So we decided to make sure that we had the facts straight and in July, the Secretary mandated the development of a program management office and began the Financial Management Modernization Program. Over the several months after that memo was issued, we discovered the full scope and breadth of the problem. There are 1,127 different financial and nonfinancial feeder systems on this board. It represents a specific data base of information. It's not just a picture. But this is--what they call this is the development of what they call an ``as-is'' inventory. This is what our current business environment, our accounting environment looks like, and as you can see, it is quite complex. So on that board, you'll see some of the colors represent the different systems I think we may have provided the committee. For example, we've got property management systems, inventory systems, budget formulation systems, acquisition systems, personnel and payroll systems represented on that board. We do have a key to that. Mr. Shays. We do have a copy of that. I want Mr. Kucinich to start the questioning process. I want to set this up to understand, is there an axis--is there anything--is there a sense of order to these squares or could you have arranged them any way you wanted? Ms. Jonas. It does represent a particular data. Mr. Shays. Is there a flow-through? Ms. Jonas. Well, what you see, those black lines represent financial transactions or interfaces between the various systems. So we have approximately 3,500 interfaces. What this illustrates, Mr. Chairman, is that it is impossible to be accurate or timely with this type of business environment. People wonder why we can't get a clean audit statement. You know, the further you get out from one of the core accounting systems, the more likely it is that an error will have been made. Mr. Shays. Well, I have questions specifically about this. Let me just understand, when did both of you join the Department of Defense? Have you been there a long time? Mr. Lanzillotta. Tina and I actually came on the same day, and it's been a year and a month. Mr. Shays. Let me get some housekeeping out of the way and then we will go with Mr. Kucinich for 10 minutes. We'll do 10- minute rounds and come back. Ask unanimous consent that all members of the subcommittee be permitted to place an opening statement in the record and the record remain open for 3 days for that purpose. Without objection so ordered. And ask further unanimous consent ask all witnesses be permitted to include their written statements in the record. Without objection so ordered. And so, Mr. Kucinich, you have 10 minutes, and Mr. Tierney will go with 10 minutes and then I'll do 10 and then we'll keep going around. Mr. Kucinich. I thank the Chair and the witnesses to Mr. Lanzillotta. Secretary Rumsfeld has indicated that implementing financial reform could take as long as 8 more years. Wouldn't you agree this is an extremely long period of time in which violations of the Constitution itself comes into question, to remain out of compliance with Federal accounting statutes, and most importantly, to operate without the ability to make rational planning decisions? I am sure you are familiar with Article 1, Section 9, Clause 7 of the Constitution, a regular statement and account of the receipts and expenditures of all public money shall be published from time to time. Mr. Lanzillotta. Secretary Rumsfeld is not pleased he has to wait any period of time. He would like this financial management and get this thing done as soon as possible. The problem, I think, as Tina brought forth, is the complexity of the systems that we got in and dealt with. You know, we have right now on financial transactions and systems that we're dealing with, 1,127 systems that we're trying to make them compliant. The best way to do that is the approach that I think the Department, and I think it's been recommended by Mr. Friedman and GAO and IG and everybody else that we have sought guidance from, is to develop this enterprise, this architecture. That way we can develop an overall plan to become compliant and provide not just clean auditable statements but also the management information that the Department needs. Mr. Kucinich. How do you justify 8 years? How do I go back and tell my constituents that this $400 billion a year enterprise it's going to take them 8 years to straighten out? Mr. Lanzillotta. I am not pleased with the timeframe. I think we can probably do it faster. And I think there will be successes along the way. We have some successes now and we hope to have more successes. I think when you talk about 8 years, that you talk about total 100 percent. If you look at Gillette and some of the major corporations of the United States that did similar activities, and, of course, I don't know where we stack up on the Standard & Poor's 500, but I suspect the first 200 of them at least, the UK took 4 years, Gillette took 4 years, Hershey took almost 3 years and these are individual efforts that took 3 years. We're not happy that we found the complexity of the problem that we found. We're trying to deal with it in an orderly way and we have sought input from everybody we could to try to do this. Will it take 7 years? It may. That's a reasonable estimate, and I think the GAO thinks it's a reasonable estimate. Do we hope to do it faster? Yes. Some of the criticism that we have taken is that our plan is too aggressive. Mr. Kucinich. Wouldn't it be a lot easier for your task if the--if Pentagon spending was just frozen so you could get the books in order instead of bringing in more cash that is going to be a lot harder to follow? Mr. Lanzillotta. Sir, it would be easier for me. It certainly would be. Mr. Kucinich. I want to ask you about the repercussions of taking this long. I'm sorry to cut you off. I got a lot of questions here. Mr. Friedman, I have heard it indicated by Secretary Rumsfeld and by yourself that these reforms that you are recommending could take $15 billion to $30 billion annually--could save that much once it's finally implemented. Let's invert that rational for a moment. Isn't the Pentagon losing at least that much every year that you don't have those reforms in place. Mr. Friedman. The numbers that I cited were from the Businessmen for National Security, and it was 15 to 30. I believe the Secretary at one point mentioned a target of 5 percent; is that right? There are large amounts of money and no one can be precise that would be saved if modern business practices were in place. I don't think anyone who has looked at the Department of Defense has disputed that. Mr. Kucinich. What I would like to say, though, since you put it that way, I think it's equally valid to put it another way, and that is when you don't have those reforms in place, that it could be costing the American taxpayers anywhere from $15 to $30 billion annually not having the reforms in place, and that could be anywhere from $120 billion to $240 billion over the next 8 years. Isn't the inverse true? Mr. Friedman. I think that's right. That money could be used for other taxpayer purposes or used for defense purposes, weapon systems, advancing readiness, service peoples' benefits. Mr. Kucinich. I want to ask Ms. Jonas, you indicated in a meeting with one of my staffers that one of the problems, at least in terms of incentives is with us, if Congress keeps appropriating more and more money despite these horrendous practices, what's the incentive for the Pentagon to reform? Ms. Jonas. Well, I think the Secretary is trying to create the incentive. I think Steve just referred to the general thought. You know, just as an example, the Department spends-- has spent about $2 million a month on interest penalties that we pay because we don't pay on time. So I am--currently we have measurements that we are tracking this to reduce that. Mr. Kucinich. Run that by us again. Ms. Jonas. The Department pays approximately $2 million a month on interest because we don't pay on time. This is under the Prompt Payment Act. So we have since January of this year, we have had metrics and measures that Steve referred to where we track and are---- Mr. Kucinich. Who do you pay the interest to? Ms. Jonas. Contractors. I mean we are paying about $11 billion. It's a small percentage and a lot better than the other government agencies, but it illustrates the point. And I make it to people in the building all the time because clearly when they're looking for money for reprogrammings or other programs, this is an area where if we improve our process and our performance, we can save money and become more efficient. So those are the types of things we're using and I've got about 125 different measures that we're now using to improve our performance. Mr. Kucinich. If a contractor knows they're going to get interest on the amount of money that's not being paid, there's an incentive for them not to press for payment, isn't there? Mr. Lanzillotta. I don't think that would be the case, sir. Every contractor that's come to me, both in this job and my previous job, they want to be paid on time. If they're not on time, they want to be paid earlier. The incentive is just the opposite. They don't want to have to finance their receivables and they don't want us to be late in paying them. I find that to be opposite from my experience. I would like, sir, if I could, clarify my last statement, making it easier for us in the Department to fix the financial systems would fix the financial systems, but it would neglect our primary mission of national security. Our requirements aren't driven by budgetary increases. Pay raises is a very definite number that comes to mind, and we know exactly what that requirement is. We don't want to stop on flying hours. We know exactly what that requirement is, steaming days, OPTEMPO. Stopping the systems and no funding for these requirements, although it would be easy to fix the financial management, but it would be like throwing the baby out with the bath water because our problem is complicated in the fact that when we prepare our statements, only 20 percent of those systems actually would go to fixing financial statements. The other 80 percent are what's called feeder systems. So when we look at this problem, we have to look across the entire Department to get this fixed. Mr. Kucinich. One of the things I am wondering as we go through this thing, Mr. Chairman, and the importance of this hearing is that so we don't get drawn into this maze without asking some obvious questions, how can the American people be assured that our national security is solid when the accounting system which is the basis of it because you're talking about how the money's spent, is totally fouled up? I mean, there always has to be some symmetry about these things. You cannot have an accounting system that's broken down like this, and at the same time, tell the American people that this country's national security can be assured. I mean, that's what I don't get, Mr. Chairman. I mean, we're here and have these hearings all the time. I mean, the real question here is the relationship between the breakdown in accounting and the relationship between this country's ability to defend itself, because, you know, we're selling the American people a phony bill of goods here is what it amounts to. Nobody in the private sector could ever get away with this for too long. Enron proved that. So I'm wondering, to go back to Mr. Friedman, you know, the next panel--is that 10 minutes, Mr. Chairman? Mr. Kucinich. I will ask one question here of Mr. Friedman and I thank the Chair. In the next panel, Mr. Franklin Spinney will testify. He's described the Pentagon's financial management crisis involving two fundamental problems. First, the historical books cannot pass routine audits required by law; and second, planning decisions systematically misrepresent the consequences of future decisions. Mr. Friedman, do you agree that these are two problems the Pentagon currently suffers from? And finally, I would like to read just one section of his testimony and see if you can respond. He says low ball cost estimates breed like metastasizing cancer cells throughout the entire defense program. By its numbers hide the future consequences of current policy decisions permitting too many programs to get stuffed into the outyears of long-range budget planning. This sets the stage for an affordable budget bow waves repeating costs and cycles of cost growth and procurement stretch-outs decreasing weights of modernization in older weapons, shrinking forces and continuing pressure to bail out the self destructing modernization program by robbing the readiness accounts. Mr. Friedman. As far as the historical books, I think that's self evident because they have not gotten--they have not been able to get a clean audit opinion and a clean audit opinion is not readily on the horizon. I am not sure--the last comment he made is beyond the purview of our group. Mr. Kucinich. I thank the Chair for this extra time period. Thank you. Mr. Shays. I am just trying to count the matrix. Mr. Tierney. Excuse me, if you would just be able to tell me, I have two different charts here. Why would I have more than one chart? Ms. Jonas. One of them may be more updated, and I think probably the one with the additional systems on it---- Mr. Shays. Can I tell you, I tell my staff to do this, but I would always put dates on it. There's no date. Ms. Jonas. Certainly. Mr. Shays. OK. Mr. Tierney. Mr. Tierney. Thank you, Mr. Chairman. The--you know, this is more than a little bit disturbing, but it's not the first time we've been around this block, so I suppose we shouldn't be surprised. Let me just--first of all, there was an insinuation that one of the things that works in industry is competition. So, Mr. Friedman, let me ask you, what is going to replace competition as the driving motivational factor in the Department of Defense in moving toward this reform? Mr. Friedman. Well, for one thing, as numbers improve and as the Secretary and his senior people are given good metrics, they're going to be able to measure--they will be able to measure things and determine, this is how well you've done this particular function today; now let's see you do it better down the road. Another thing--and this is something our committee felt-- the incentives to managers in the Defense Department were really very different than the private sector. If you looked at a manager's incentives, he hasn't gotten any material bonus for doing a better work. It's hard to measure whether he's, in fact, done better work. It's very hard for him to discharge an employee that he considers to be incompetent; and at the end, when he looks at it, there aren't the incentives to really stick his neck out and do anything other than manage the budget. So we think that should be changed. I think that the--I think that there are various processes for comparing to the private sector and making clear comparisons of cost effectiveness there, and those should be utilized. So there are plenty of ways to stimulate this, but the overarching one that people constantly came back to is, there must be continuity in this effort. If people there in the Defense Department believe this is the flavor of the month and that their bosses are going to be leaving in whatever the actuarially measurable time is, a year and a half for senior people and then this will not be a continuing priority, you will not have the sustained effort. On the contrary, if you enforce the continuity, hopefully you won't be asking the same questions of someone in my seat 6 or 8 years from now. Mr. Tierney. Well, hopefully. I mean, I just looked at Secretary Rumsfeld and Deputy Secretary Wolfowitz. They've been around this game before. They are some of the people coming back into the cycle. So they've had one bite of the apple years ago; and here we are coming back a second time, and we're still dealing with the same issues here. Tell me, you know, to the extent that you talk about pay scales or incentives like that to attract, in the military, I mean, you have promotion or no promotion. You don't think that's adequate enough, the pay scale increases or changes that go with that? Isn't that the structure militarily, you reward it that way? Mr. Friedman. We consistently heard, as a criticism of the ability to perform and get where we all want to get, the fact that pay scales have fallen sharply behind the private sector, that the Department does not have the skill sets that it needs to accommodate to what is modern in the 21st century, that people were trained in many systems that we're trying to move away from, and that we need more advanced-degree professionals, more people who are trained in business practices; and so I--we came to believe that change was needed there. We did not have time to study the IRS. My understanding is that some real ability to break pay scales was afforded to Commissioner Rossotti, and I think one thing that ought to be explored is bringing in midcareer professional experts to work, people who don't plan to work for retirement, but as a matter of patriotism and other things, would like to try to work on this problem. Mr. Tierney. Mr. Lanzillotta, what is the Department doing in that respect? Mr. Lanzillotta. Civilian reform, civilian pay table reform and military pay table reform has been under way for a long time. Dr. Chu last year, or 2 years ago, started on the military pay table reform and tried to target these--on the military these midtermers to try to get them to stay so the Department doesn't lose their expertise. I will agree that on the civilian side we have to do more. As the latest example, yesterday crossed my desk a lieutenant colonel that was getting out, and we wanted to have him stay on board and hire him. He had an offer that he delivered to us from another corporation to sit down there, and they are willing to pay to him more than I'm being paid, you know. So to give him an adequate compensation or a comparable package, we'd have had to bring him on at the SES-3 level. Mr. Tierney. It's sort of ironic, isn't it, that this individual is involved with a system that looks like this, and yet private industry, which we think is part of the solution, is going to hire him. I don't get it. Mr. Lanzillotta. There are--you know, there isn't one person individually that's responsible for---- Mr. Tierney. Oh, no. I think it takes a whole peck of people to---- Mr. Lanzillotta. We are trying now to come over there and put in overarching architecture and put some order to this. This isn't really a statement or a solution, but this is really a statement of the problem--of the complexity of the problem that we're dealing with. You know, what we hope to do with the architecture that we're putting into place is, next time we come over here, we can show you a mapping of the systems that are much more orderly and do provide that management information. The Department is trying to get there as soon as they can. Mr. Tierney. Let me ask you, when is the next time we should invite you over to get that then, because I'm looking here, and I notice that back in 1998, the Inspector General told us that this would all be set and ready to go in 2003, and here we are and we're not ready yet. So could you give me just a rough idea of when you think it is that you'd be able to come back to us with a more understandable chart and some ideas of where we ought to go with this thing? Mr. Lanzillotta. Well, we're at the will of the committee. I mean, when the committee wants to have us come over for any type of---- Mr. Tierney. I don't want to bring you back for no reason. They told us back in 1998, the Department of Defense remains unable to comply with the various laws requiring auditable financial statements; the Department hopes to complete the fielding of systems capable of complying with Federal accounting standards by fiscal year 2003. So I guess my question to you is, it's 2003, and obviously we're not there yet. When can we expect to have systems capable of complying with Federal law? Mr. Lanzillotta. In April 2003 we're going to produce the blueprint. In 2003, we'll begin prototyping and testing of the solution. In 2005, we'll deploy--or start to deploy the Department-wide solution from the architecture. Any of those dates that the committee would want us to come back, we'd certainly be willing to do. Mr. Tierney. The other question--I still have some more time. The other question I had was, Mr. Friedman indicated that one of the issues was a readier ability to discharge weak performers. Do you have any report to us as to what is being done about that issue or what you need in order to be able to address that issue? Mr. Lanzillotta. I'm probably not the right person to ask that question to. I really haven't studied what options are available. We recently went out with the task force and informed the commanders of the various options that are available, both military and civilian, to address weak performers, and they include a wide variety of tools. I just don't really feel qualified to---- Mr. Tierney. Who would be able to tell us that, because I'm curious if these people aren't performing, why--particularly in a military environment--they haven't been shuffled someplace else to do something they aren't qualified to do? Mr. Lanzillotta. I don't want to leave you with the misperception that we have willing nonperformers out there that we know about that---- Mr. Tierney. I'm not saying it's willful or anything. It's just that in private industry that I'll familiar with in over 20 years, if somebody can't do the job, you find another place for them, and I'd like to know who would tell me in this organization, Department of Defense, whether that is being done or to what extent it is being done; and why it's not being done, if it's not being done, and what's going to be done about that fact? Mr. Lanzillotta. Well, that falls within Personnel and Readiness. I can't give you any facts. I have no facts today that I could give you as to where we stand on that. I could provide something for the record if---- Mr. Tierney. No, no. You've given me the people that we need talk to. That's all. Mr. Friedman, what is the extent of that problem as it impacts this situation that you outlined? Mr. Friedman. Well, I will just--I'll just pass on something anecdotal. Talking to someone in the personnel area that asked the question, let's assume you have an individual who's in the bottom 5 percent of your performance group and who is just believed to be incompetent at doing this. How long would it take--to use your phrase, ``segue that person'' into doing something--something else outside of the Department? I was told that in perhaps the best circumstance, it might take a year; when in other circumstances it might take, I was told, 18 months. I was given a very--when I asked how much time it would take of the supervisor's time to effect that departure, I honestly forget the amount of time, but it was at least a month spread out over that year or 18 months with panels, reviews, et cetera; and what I was told was that for practical purposes, therefore, it's just not a useful expenditure of a supervisor's time, because that supervisor would just be spending an unacceptable amount of their time working with that individual. So they will try to do what they can to transfer them and---- Mr. Tierney. How much--as a percentage of the work force that is involved in this process that we're talking about, how many--or how much of a percentage of those people do you think fall in the category of not meeting the mark, not being up to the job? Mr. Friedman. I think that's an exceedingly pertinent question, because enterprises are about people and culture. I don't believe that anyone can give you an answer to that question, because my impression is that you do not have the personnel review processes in place to make those tough judgments on people and then to mentor them. It's not just about firing people. It's about trying to develop a personal development plan, which is part of what I meant by a human capital strategy. Mr. Tierney. So it sounds to me, Mr. Chairman, that if we want to followup on this, some of the people we want to talk to might be the personnel people, because they seem to be a part-- a significant part of this issue. But I know my time is up. Thank you for that. Mr. Shays. We'll have a second round here. Starting my first round of questions, the--this is the most up-to-date chart here? Ms. Jonas. That's correct. Mr. Shays. But that chart is different from this chart and different than this chart. So, you know, it's just not, frankly--I mean, it does illustrate some, but it just--it just would have been nice to have an up-to-date chart if this is the chart you want to show us and not show us these; and it just strikes me that this chart won't be up to date next week. And I don't criticize you for that, but it won't be. There will be something within one of those blocks that you'll realize there is another element of something. Ms. Jonas. Mr. Chairman, this is a living data base, and it is astounding, because I think at the beginning of this year, we started--our notion was about 600-some-odd systems. So I apologize for the lack of dates on the documentation, but it is a weekly---- Mr. Shays. Well, I know--and because of that, that's why you need the dates, that's all, because it's just going to constantly change. And in one of them, you see a tremendous amount of interaction in a core right around here, and in another one, you see just a tremendous amount of activity along a band. This, to me, is probably the best explanation of why we haven't succeeded in the past, but it--I'm just trying to-- we've had eight hearings on this. Mr. Horn has had countless hearings on this issue, another subcommittee dealing with financial management, on all different government agencies. The fact that we know that the failure to be able to audit any account--any part of it, you have a tremendous amount of inefficiencies. You have a misuse of resources. You are buying things that you don't need and destroying things you may need and storing things you don't need, even within an inventory. We learned in other parts of the hearing, we had a contaminated mask--they weren't contaminated; they just didn't function--and they stuck the masks in with their other inventory, and then couldn't track which ones were the bad masks. So in a sense, then, all the masks came into question. So we--I'm going to add something else. This would put people's lives in danger. I mean, every element of this is--just cries out for a solution, and the--I made a point, under the Clinton administration, of not blaming them for this, because there was a Bush administration before there was a Clinton administration, et cetera, et cetera. And I'm just eager to know from you, Mr. Friedman--I'm not clear, as I want to be, as to why we didn't have really any success. I mean, we have had no success. Is that accurate? Mr. Friedman. I can't measure precisely how things stood in 2001 as versus 3 years earlier or 6 years earlier. I think that there probably were some successes along the way. When you-- when we spend time talking to numerous people, there were definitely areas in which people had made progress. This was not a situation in which we felt people didn't care about good financial management. This wasn't people being slothful. It was essentially the lack of--the lack of the tools and the lack of the skill sets and the lack of the high priority; and I think some of the--some of the successes were then dwarfed by the complexities of new issues that came up. This was what I meant earlier when I said that absent an authoritative plan, i.e., one that had teeth and that was enforced with the power of the SecDef behind it, new issues of nonstandardization were constantly arising. So, to me, it's almost like the legend of the fellow pushing the huge boulder up the hill. He'll make progress and then he'll hit something and then it will come down a ways. Mr. Shays. Well, let me ask you, when you say there's successes, do I take one of those blocks and say someone was empowered to fix their system and they fixed it, but it didn't interface with the rest of the system? Is that basically kind of--Ms. Jonas--Ms. Jonas, let me ask you, is this your responsibility primarily? Ms. Jonas. The development of this program, the financial management modernization program and the enterprise architecture which will be delivered in 2003, the six prototype sites that we'll do in 2004 and our implementation is my day- to-day responsibility. Mr. Shays. Mr. Lanzillotta, do you have the authority to go to any unit within any of the branches and basically say this has got to change? Mr. Lanzillotta. Dr. Zakheim does have that authority, under the CFO act. Mr. Shays. Who does? Mr. Lanzillotta. Dr. Zakheim, my boss, does have that authority to go through, and he has issued out a lot of policy guidance, and we can provide that for the record to the services about the steps we've taken. Just to clarify a point, sir, on your last question to Mr. Friedman, I think the problem--there was two approaches that were taken to try to improve financial management in the Department. The last approach, that it's such a huge and dynamic problem as we've outlined here, that the previous administrations, both Republican and Democrat, decided to try to take it in small pieces, they decided to look at environmental liability to see if they couldn't advance the ball in one area--what became, you know, apparent through Mr. Friedman's study. And as we looked at this problem, the small pieces, trying to bring the small pieces together wasn't going to work. There had to be an overarching architecture or plan that people were marching to, although it is much easier to take a bite of the apple one at a time. Mr. Shays. I mean, I don't know why they're mutually exclusive. I mean, it would seem to me he would be doing this, he would be breaking it up into little parts, he would be doing all of the above. Mr. Lanzillotta. They are not mutually exclusive, you're right, sir, but what was missing was the overall plan, the overall architecture, of where they were trying to get to; that wasn't there. And so, when an individual program manager was trying to develop the standards and get his system fielded, you know, he didn't have the standards, the overarching plan, of what he was trying to do. Mr. Shays. Let me ask you, though, if I had someone from the previous administration or the one before that administration--I mean, this committee has--I've been here 16 years, or 15 years, and I'm trying to--I'm trying to think of what, you know, they told us. What they told us seemed to make sense, and you know, I felt they had an overall plan. I mean, they wouldn't--I don't think they would agree that they didn't have an overall plan. Mr. Lanzillotta. What I meant in overall plan, you know, previous administrations had a financial management improvement plan where they laid out--tried to lay out a concept of operation of how they were going to do it; but the enterprise architecture, there was never a blueprint for what the systems were to look like. There was never a blueprint for, you know, what it is we were trying to accomplish departmental-wide. When you look at the payment of contracts, you know, how many systems were involved in the payment of contracts, and where we lose the auditability is not that we can't account for the money, but as these systems don't interface properly and it takes manual input, then that's when you have to go back and verify every entry all over again; and it's a problem of interfacing in the systems. And so that's the part that was missing. Mr. Shays. OK. You know, I've been--I looked at one of the questions that staff has prepared, and they gave me an opening statement about it. It said DOD's fiscal year 2003 technology IT budget request is over $26 billion, and I leaned over to Vinny, and I said, Vinny, you don't need $26 billion. You know, you don't need $26 billion. And the reason--I just came back from Russia. They're spending $7 billion for their entire budget. Now, admittedly, their whole defense structure now is nuclear. I mean, it's--I say ``whole.'' I mean, their ships don't go out to sea. Their armies don't use live ammunition. Their planes don't fly. And-- but we're talking just--is that accurate, $26 billion? Ms. Jonas. I can certainly provide that for the record, but that sounds about right to me. I know it was---- Mr. Shays. It just astounds me. I mean--and, you know, we're being asked--I've voted for the defense budget over a number of years. I voted against them in part because I didn't think I should support a defense budget that you couldn't audit. Now, I just felt like it was too hard for me to--I didn't think I could support a defense budget where we don't ask the Europeans to pay more and that we haven't used it to have a more rapid deployed military. I mean, we can't use our--our Special Forces are being overworked right now and so on. So, I mean, there were a lot of reasons. And now I voted for it because we're at war, and I'm saying I'm not going to look a military person in the eye and say I voted against their budget. But I guess just saying to you that--I'm going to have a second round of questions--we've spent billions of dollars on information systems. Are you telling me that those information systems weren't able to interact with each other? Ms. Jonas. Certainly this schematic shows that there are big problems. Mr. Shays. No, no. That doesn't show whether--all of these could interact. That doesn't show that they can't interact. Ms. Jonas. Not in an efficient fashion, Mr. Chairman. Mr. Shays. One of the other things that this doesn't do, among other things, it doesn't show me weights. One of those blocks could be huge compared to the others. So, I mean, I think you're going to have some fun really figuring out how you're going to make this even be, you know, more helpful to you. You're not looking at the right chart, if you're going to ask--that's even a different one than I have. Mr. Kucinich. Actually, Mr. Chairman---- Mr. Shays. That's mine? Mr. Kucinich. No. This is not yours. This is a different one than you have. Do you have the---- Mr. Shays. Yeah. I have two others. Let me just see if that's--yeah, that's the same. Mr. Kucinich. Actually, is it my turn? Mr. Shays. Yeah, you've got it. Mr. Kucinich. Thank you, Mr. Chairman. You know, I've actually been studying this very carefully, and what I've found out, Mr. Chairman, that this, while it appears to be a study of the various financial transaction systems of the Department of Defense, if you'll look at this closely, you'll really study it--I think you've seen it before--it's actually a test for color blindness, and if you study it even closer and you're not color-blind, you'll see that the pattern of these boxes that are green spell out the word ``sucker.'' Look at it closely. You'll see it. I'm absolutely positive that if you're not color-blind, you'll see that word show up very clearly. The Inspector General found that in fiscal year 2000 alone, $1.2 trillion in department-level accounting entries were unsupported because of documentation problems, or improper because the entries were illogical or did not follow generally accepted accounting principles. Does anyone here on the panel have any background in law enforcement at all? Well, I'm going to ask Mr. Zakheim's direct representative, isn't such an environment wide open for possibilities of theft and fraud and embezzlement and things like that? Mr. Lanzillotta. There's a difference. Of course, fraud is never tolerated. You know, the threshold for fraud is zero, and when we find that out, I mean, we take the steps necessary to address that. Unsupported transactions in themselves, you know, that's a different story. That's not necessarily fraud. You know, I can't go over here and testify to $1.3 billion worth of unsupported adjustments. Unsupported adjustments in themselves are not---- Mr. Kucinich. Could I ask you this question? How would you know--if you can't audit your books, how would you even know if it was fraud? Well, I'll ask another question. I don't want to trouble you with that one. The Department of Defense, according to this GAO report, the latest update in January 2001--is that the latest? Yeah. In 2001, they list 22 areas of high-risk operations, and one of things they say, the Department of Defense cannot properly account for and report on its weapons--weapons systems and support equipment. They also say, the Army did not know the extent to which shipped inventory had been lost or stolen because of weaknesses in its inventory control procedures and financial management practices. They also say, the Navy was unable to account for more than $3 billion worth of inventory being shipped, including some classified and sensitive items. What's the possibility that materiel, paid for by the American taxpayers, is ending up in the hands of groups that may not be particularly friendly to the United States of America? Do you know what the possibility is? And in this kind of accounting system, isn't it quite possible that you could have all kinds of military equipment ending up in the hands of people who are not authorized to have such equipment? Mr. Lanzillotta. In the--sir, in the realm of the possibility, you know, I can never give a certification to this for sure. I know of no incident where that's ever occurred or it's ever been brought to my attention---- Mr. Kucinich. But if you can't audit it and you can't account for it, you don't know where it's going. Isn't that fact? Mr. Lanzillotta. We are caught in a situation of--we understand the problem. What we're charged with is trying to fix it. Mr. Kucinich. But wait a minute. I just want to make this point, that the administration has declared that fighting terrorism is the most important thing in this country right now. An additional $50 billion has been appropriated. There's a total of $400 billion for the Department of Defense. By the year 2007, that's going to exceed 50 percent of all of our discretionary spending, and if what we're concerned about is terrorism, wouldn't it be the highest priority to get this accounting system straightened out so that--you don't know-- here it says, ``can't account for and report on weapons systems, do not know the extent to which shipped inventory has been lost or stolen, unable to account,'' with the Navy, ``for more than $3 billion worth of inventory being shipped.'' You don't know. I mean, admit it, you do not know, and in that environment it becomes critical as a matter of national security to get a handle on this accounting system. You don't know where the weapons are going. You don't know if the United States has them in their hands or if somebody else has it. We've got this huge military machine, and we have no control over it whatsoever. It has a life of its own, and it's losing all kinds of materiel, and you don't know where it is; and you want to hope that it's not in the wrong hands, but you cannot guarantee the American people it's not in the wrong hands. And yet our whole budget is aimed at making sure that we defend this country. What a crazy, screwed-up system. Mr. Shays. Mr. Tierney. Mr. Tierney. Let me just talk for a second. I notice that, a while back, the corporate information management program in the late 1980's was attempted, and after about 8 years and $20 billion, that whole effort was abandoned. And one of the reasons that the GAO, General Accounting Office, said it was abandoned was that there was resistance between the Department of Defense components and a lack of sustained commitment to the program. It said some military departments did not want to participate in this corporate information management, believing their financial management systems were superior to those that were being proposed by the CIM. Do you still, Mr. Lanzillotta, see--or Mr. Friedman, or both of you, do you still see that kind of intransigence or misbehavior, I guess I would call it, on the part of people in the different branches? Mr. Lanzillotta. I believe now that the moons are all aligned. We have the highest support for fixing financial management than I think the Department has ever had. I think that there's no daylight between the Secretary of Defense's position and each of the service secretaries. I understand that there were--before that, there weren't-- that couldn't necessarily be said. Improvement of the financial management systems, the management information systems, is one of the Secretary's highest priorities. The priority is there. I think that this fell for different reasons, but I'll take the GAO's comments. Mr. Tierney. Well, just stepping away from the Secretary for a second, because I don't think we're here to beat up on any particular Secretary over the last 30 years or whatever, but I'm really talking about the idea of, is there one force or one branch--let me ask Mr. Friedman. In your study, did you see the one branch or one force or one group of officers, without naming names or anything, that was more intransigent on these issues than others? Is there one section of the service that we have to be more concerned about? Mr. Friedman. We didn't have a sense of that, sir. The notion that people would think their own way of doing things is better is not unique to DOD. It exists in every stovepipe bureaucracy I've seen, and it certainly exists in business enterprises. The answer to it, the cure to it is, there has to be an empowered individual, whether it's the CIO, the CFO, whoever, the chief executive officer says he is going to ensure standardization; and the phrase they use in the Pentagon is, it has to have finger-in-the-chest urgency. It's got to be one of the high priorities. I think a very interesting point is that the Defense Department actually did get the job done in Y2K. There was--our interviews indicated there was a clear understanding that this was a crisis that had to be faced. It had a high priority. People were brought together, and there was centralized decisionmaking that there couldn't be leniency of figure out your way of doing it. So it can get done. Mr. Tierney. I guess it's a good point. I would expect then, in that case, people who got promoted and people who got demoted and people who went up and down based on how well they were responding to that Y2K problem--and it brings me back to my earlier issue which we can't solve here--is why that doesn't happen to people that don't do their job now. I think that's probably the whole of the hearing. Mr. Friedman, you did mention that you need more commercial-like practices for the private sector, partnering of activities which are not inherently governmental. Can you expand on that concept a little for us, give us some examples? Mr. Friedman. Sure. If you look at the private sector, you will see that very imminent enterprises--General Motors outsources billions and billions of dollars of its annual processing for accounts payable, accounts receivable, payroll; Microsoft outsources much of it financial and accounting; PriceWaterhouse, Travel Systems, BP Amoco, on and on and on, there is a--my understanding is, there is a government target to do more of this. The processes for doing this, if you read the report that was prepared by a panel led by the Comptroller General of the United States, the processes for doing this are--``convoluted'' would be an understatement, and this, we were told by individual after individual, acts as a deterrent to effectively getting private sector partnering done; and it means that when it is done, it is a long and laborious time period. I know that is an issue of some controversy. It was an issue of some controversy on the Comptroller General of the United States panel. But that is what the private sector is doing, and it's got to be determined at a pay grade above mine as to whether that's something that should be made more efficient. Mr. Tierney. You've certainly got all the jargon down, pay grade above yours---- Mr. Friedman. Oh, yeah. Mr. Tierney. You've learned something going the other way. Are those statutory impediments to your knowledge, or are they regulatory or just---- Mr. Friedman. My understanding is that it is--it is an OMB circular, A-76, that governs this, and I think the Department has recommended various changes. The Comptroller General has panel-recommended certain changes. It was beyond our purview to look into this in detail, but we looked at it enough to recognize that this was--this was an issue. Mr. Tierney. Thank you. Mr. Shays. Thank you. I would just--just a few questions here. The--going with the $26 billion request for IT, whether it's 26 or 24--how do we feel assured that it's going to be spent in a wise way, given the mess you've got to deal with? Mr. Lanzillotta. Mr. Chairman, requirements are out there, and they're determined without--you know, without the use--we know what the requirements are, and when we determine the budget, we know what the requirements are. Like when we built the architecture in the contract, we went out and received outside input, and we got requirements that were developed, and we knew how much this architecture to develop was going to cost us---- Mr. Shays. I'm not understanding a bit of what you're saying to me right now. I don't know how that's an answer to my question. You're saying--you have built this incredible case that makes me understand that the task is unbelievably difficult and challenging, and that we've got an 8-year plan. And you don't have the plan in place, correct? Because this is really the way it is, not the way it should be. Is that right, Ms. Jonas? Ms. Jonas. Mr. Chairman, we do have a plan---- Mr. Shays. No. That's not the question I asked. Is this the--is this the example of what exists today or what you want---- Ms. Jonas. That is correct. This is the current state of our environment. Mr. Shays. OK. Now, do you have another graph of a chart that shows me what you want the world to be like? Ms. Jonas. A month ago an award was given to IBM to come in to develop what we've been talking about---- Mr. Shays. The answer would be no, correct? Ms. Jonas. That is something that is part of---- Mr. Shays. I don't--this is the--you answer my question, and then I'm happy to let you expand or put these--this isn't a trick. This is--we want the committee to know what we need to know, and you have the information to share with us. But I want the answer first: Do you have a plan in place, as we speak, that would--you could put side--you know, alongside this and say, this is the way we want the world to look? Ms. Jonas. We do not know what we want the world to look like. We do not have that, sir. Mr. Shays. OK. But what else did you want me to know? Ms. Jonas. The point of the development of an enterprise architecture which will be delivered over the course of the next year does have specific milestones and delivery points. For example, what we're asking our contractor to develop for us is--after this as-is development is made, what is a transition plan, and what should we look like in the future. That--that entire process will be completed within 1 year. Mr. Shays. Yeah. It just strikes me, though, that $26 billion is so much money. I mean, obviously I guess some of it is just a machine that gets your paychecks out. So some of this is--but it's still $26 billion, and Russia's budget is $7 billion, and so I'm just concerned. Have you developed metrics that Congress can use to assess your progress, and do you have the ability to assess your own progress here? Ms. Jonas. Yes--the answer to that is yes. We do have internal metrics. We have deliverables at specific timeframes within this year. The first--we're on schedule and had a first deliverable Sunday of last week. We will have another deliverable in 90 days. We would be very happy to share that with the committee. Mr. Shays. And describe to me what you mean by a ``deliverable.'' Ms. Jonas. The contractor is expected--as part of this 30- day--or task delivery, they're supposed to tell us exactly how they will manage their work over the next year. So, for example, because we were able to get so much work on an as-is environment done during the time we were waiting for our appropriation, much of the work that the contractor will be embarking on is business process reengineering. In other words, it is apparent to the committee that this is completely inefficient. It is way too complex. We do spend too much money. So how do we refocus, reengineer our processes that will create some efficiency and will be able to allow us to---- Mr. Shays. The question of how you do that, and it's the question of what you're doing right now that I have a question about. Describe to me one of those icons, and tell me--pick a simple one, and pick a really difficult one in there. Just--you know, in other words, if you just went up to the board and you said, this one here represents, you know, this mammoth undertaking in which three branches are connecting here, to one that's very simple. In other words---- Ms. Jonas. Well, for example, the brown icons represent inventory systems. So we are working with the Acquisition and Technology folks, headed by Secretary Aldridge, to integrate those systems into an enterprise architecture. Mr. Shays. So you're basically--you're going to be able to say, DOD-wide, that you want an information system that can interface with each other and tell you the same information? Ms. Jonas. That's correct. Mr. Shays. OK. Now, that, I would think, you would have done before you came. I mean, that isn't--I'm making the assumption that was being set up. That was not a goal of the---- Ms. Jonas. Not to my knowledge, Mr. Chairman. Mr. Shays. You know, the sad thing is, we're losing Mr. Horn; and Mr. Horn, when we talked about 2002--excuse me, the year 2000--he would meet with each department. He would grade each department, and he was a--we found that he was a real stimulus for some action among the--I just--you know, this committee spends a lot of its time now on terrorist issues, and I hope we have a committee that's going to be really pushing you all. Before we close, just so--because you're going to come back sometime again soon--I want you to pick one of these--was the inventory one a simple one? That seems to me to be fairly simple. Ms. Jonas. That's simple or, for example, the personnel and payroll systems. Mr. Shays. OK. Ms. Jonas. Let's see here. Do I have this on here? Mr. Shays. Yeah. On the top left. Ms. Jonas. Yeah. That's an area where we think we can get some real efficiency. There are--excuse me. We understand that there are over 102 personnel in payroll systems here. Clearly, this is inefficient; and so we're working with Dr. Chu's organization, which is the---- The Chairman. So I would see 102 up in that board if I wanted to count to green? Ms. Jonas. Yes. Mr. Shays. What I'm still asking though is to show me one of those icons that really represents your most challenging effort. Ms. Jonas. Well, of course--I mean, I think they're equally challenging. Our---- Mr. Shays. Not every one of these has the same weight. They don't. Even within the colors, they don't have the same weight. Ms. Jonas. Well, the bulk of the ones in the center are---- Mr. Shays. For instance, is the payroll in the Army going to be more difficult than the payroll in the Department of--in the Navy? Is there one that you just look at and you say, ``Good grief?'' Ms. Jonas. We say ``good grief'' a lot, Mr. Chairman. I can't today say specifically which one I would say---- Mr. Shays. OK. I just will reiterate. It seems to me you're still trying to understand the problem, and so anything you're doing right now is a hope and a prayer, maybe a little bit more, that it will fit into this overall plan, which isn't yet developed, and yet we're still spending a tidy sum of money each year with IT, for instance. So, any comment you want to make? Mr. Lanzillotta. Mr. Chairman, I just want to clear one misperception. The $26 billion also includes Command and Control IT systems that are devoted toward weapons systems and aren't necessarily even a part of this problem. It could be the digitization between an F-15 or an F-16 and a tank. Mr. Shays. Well, that's a very important point. So what is that $26 billion? Mr. Lanzillotta. That represents the total---- Mr. Shays. I understand. So what should--what should the number be as it relates to this issue? Ms. Jonas. Mr. Chairman, our current estimate for what we're spending over the 5-year plan is between $4 and $5 billion. Mr. Shays. No. And that's for--does that include someone getting out the payroll? Ms. Jonas. Yes. Mr. Shays. OK. It's $4 and $5 billion. Well, we could go a long time. We have another panel. Shall we get to the next panel? Yeah. Are there any closing comments that any of you want to make? Ms. Jonas. Thank you, Mr. Chairman. We appreciate the opportunity to be here. Mr. Shays. Well, we like--I'm sorry. Thank you for saying that. We would like to play a positive role in this. I think my colleague's frustration is that we're spending so much money now for--our budget is gigantic. It's crowding out other important issues, and it just seems like we've really run out of time. And so it's kind of on your watch, and I think my frustration--and I don't use that word often--is that I had the sense Secretary Rumsfeld was--this was going to be his highest priority. And it's not his highest priority now, it's the war on terrorism; and I'm just hopeful that you all still feel empowered to take decisive action. I'm going to make an assumption, unless you tell me differently, that you have all the power--your office has all the power necessary to make any change you need to make. Is that accurate? Mr. Lanzillotta. The CFO has that power. Mr. Shays. OK. So that won't be an excuse. OK, thank you very much. Appreciate it a great deal. Can you all just stay a second more, because my staff is just--just please sit down a second. I'm sorry. When you say you have all the power, I would just like my staff to ask this question. Mr. Chase. When you said that the Comptroller has all the authority to implement this system, does the Comptroller control--or does he control the purse strings that would allow, as an example, the Department of the Air Force, to go forward and purchase or develop a new system? Mr. Lanzillotta. I'll have Kenny expand on that. The Comptroller has issued several memorandums and guidance that deal expressly with that issue. The Secretary has delegated the authority necessary for Dr. Zakheim to carry out this mission. All ultimate authority rests with the Secretary, and maybe that could explain it. She has more detail on the memorandums that have been issued. Ms. Jonas. One important policy memorandum that Dr. Zakheim has issued over the last year is the ability to stop the development of systems. We are doing reviews on many of the systems on this board, including meaning many Navy systems, defense logistic systems, and that is quite a bit of a change. He is frequently using his ability to hold up reprogrammings, if necessary, to do what it takes, using the budget as a little bit of a hammer to get the right incentives to the system. Mr. Tierney. Just one followup on that. What would Congress do if it wanted to incentivize prompt action and capable action on this that wouldn't interfere with our defense mechanisms, but would give somebody a real sting to know they'd better get this done? Ms. Jonas. We've actually received, Mr. Tierney, a lot of support from Congress. The Senate acted last year to help us on the arresting of many of these systems. We've gotten support from the House in this regard. If we may reserve some--that opportunity, I might get back to you, but I think right now we've gotten substantial support from the Congress. Mr. Tierney. But it seems to me that we just keep feeding the beast, and cross your fingers. I think that's, you know, not something I'd feel comfortable doing. At what point do we stop giving billions and billions and billions of dollars every year to this group without saying, hey, we're taking some chunk of that away from you until we see that you deserve it? And what is it that we'd take away that wouldn't hurt our defense posture, but would certainly give people a good kick in the can? Ms. Jonas. Well, certainly with respect to what we're doing in the financial management modernization program, we are stopping spending on certain systems. Mr. Tierney. Can you followup and put that information into the record as to which system you're stopping and---- Ms. Jonas. Absolutely. Yes, indeed. For example, I mean, some of the Navy pilot programs and enterprise resource planning programs are--we've arrested the development on those. I'd be happy to provide that for the record. Mr. Tierney. Any weapons and acquisition programs that you're doing that with? Ms. Jonas. That's not my purview, but maybe Mr. Lanzillotta can---- Mr. Tierney. Mr. Lanzillotta, how about any weapons systems? Mr. Lanzillotta. I'm not sure I understand your question, sir. Are you talking about Crusader? Mr. Tierney. Well, we just said this--they take away the name tag and I forget your name; I'm sorry. But they were just saying that they are stopping payment on some systems or some plans in order to get the incentive to move forward, accounting plans or whatever. Are we doing anything with respect to weapons systems that are over budget and behind schedule and otherwise having problems with their accountability to give them the incentive to straighten out? Mr. Lanzillotta. We have several of those systems that just certified to Congress on the Nunn-McCurdy breaches. There were six of them. The DPG calls for further studies that will be going on this summer on five or six other intensively managed programs that we're looking at. I'm really outside my realm here to talk about weapons systems. That would be better addressed to the Under Secretary for AT&L. But the short answer to the question is, yes, we are looking at weapons systems too. Mr. Tierney. Would you followup on the record then with regard to those six and then the five programs that you just spoke about. Mr. Lanzillotta. On the Nunn-McCurdy breaches? Mr. Tierney. Right. And what they are and what's happening with them. Mr. Shays. Thanks to all. Thank you, Mr. Lieberman. Oh, sorry. We already have our new list out. We have Joseph Schmitz, Inspector General, Department of Defense, accompanied by Mr. Robert Lieberman, Department of Defense; Mr. Gregory Kutz, Director of Financial Management and Assurance Team, U.S. General Accounting Office, accompanied by Mr. Randolph Hite, Director of Information Technology Systems Issues, General Accounting Office; and Mr. Franklin C. Spinney, Jr., Tactical Air Analyst, Office of Program Analysis and Evaluation, Department of Defense. If you'd stay standing, I'll swear you in. [Witnesses sworn.] Mr. Shays. Note for the record, our witnesses have responded in the affirmative. We're going to get started right away. Mr. Schmitz, you're on. STATEMENTS OF JOSEPH E. SCHMITZ, INSPECTOR GENERAL, ACCOMPANIED BY ROBERT LIEBERMAN, DEPUTY INSPECTOR GENERAL, DEPARTMENT OF DEFENSE; GREGORY KUTZ, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE TEAM, ACCOMPANIED BY RANDOLPH C. HITE, DIRECTOR, INFORMATION TECHNOLOGY SYSTEMS ISSUES, U.S. GENERAL ACCOUNTING OFFICE; AND FRANKLIN C. SPINNEY, JR., TACTICAL AIR ANALYST, DEPARTMENT OF DEFENSE Mr. Schmitz. Thank you, Chairman Shays and Ranking---- Mr. Shays. Your mic is not on. Mr. Schmitz. How about now? Thank you, Chairman Shays and Ranking Member Kucinich. This is my first appearance before our congressional committee since my Senate confirmation as the Inspector General of the Department of Defense. I'm not an accounting expert, but I am a constitutional expert, and I am a taxpayer; and tax dollar accountability is fundamentally a constitutional issue. I was very pleased that Ranking Member Kucinich referred to Article I, Section 9, of the Constitution which requires that, ``No money shall be drawn from the Treasury, but in consequence of appropriations made by law; and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time.'' In layman's terms, to paraphrase a former Congressman from Illinois and now the Secretary of Defense, every dollar the DOD spends was earned by a hard-working American taxpayer. I would only add that every taxpayer is entitled by the Constitution to a full accounting of each dollar spent. The financial management audits prepared by my office help to fulfill that important constitutional function. Those audits help to inform the Department, the Congress and the American taxpayers. In that regard, I look forward to working with this subcommittee and the other committees of Congress to ensure that the preparation of financial management audits and all Inspector General work products conform to the highest standards of transparency, accuracy and integrity. I'd be glad to answer any questions about how I plan generally to carry out this commitment. This morning, however, I'm accompanied by Robert Lieberman, my deputy. Bob has testified many times before this committee, and as the former Assistant Inspector General for Auditing, has a much deeper understanding of the many challenges facing the Department in the area of financial management. Accordingly, I've asked Bob to present his statement and to be available to answer any questions you might have. And with your indulgence, Mr. Chairman, I'd like to now invite Mr. Lieberman to present his testimony. Mr. Shays. Well, let me just say it would be your testimony on his behalf. OK? He's speaking for you, correct? Mr. Schmitz. He's my deputy. That's correct. Mr. Shays. Well, first, let me welcome you. I understand why you wouldn't have a statement, given that you've been here such a short period of time. It's good that you're here. Mr. Lieberman, if you have a statement, we'd be happy to hear it. Mr. Lieberman. Good morning, Mr. Chairman, Mr. Kucinich. Perhaps it appears ironic today, but at one time, the Department of Defense was the leader in adapting new financial management concepts for government agencies. Its planning, programming and budgeting system was widely emulated; and it led the way in computerizing large payroll contractor payment and accounting operations. Unfortunately, the uncontrolled proliferation of nonstandard systems and processes for performing both finance, and nonfinancial functions eventually created a host of problems now plague managers. Those include an inability to consistently produce either useful day-to-day financial information or commercial-type financial statements on a quarterly, semiannual or even annual basis. The limited capabilities of current systems create and perpetuate inefficiencies across the spectrum of DOD business activities. The Chief Financial Officers Act of 1990 and related legislation brought the financial reporting problems of most Federal agencies, including DOD, to light. For over a decade, we have reported that the lack of adequate financial reporting systems and a variety of internal control problems preclude favorable audit opinions on most DOD year-end financial statements. Strictly in terms of audit opinions on the reliability of DOD's most recent financial statements, unfortunately, I am unable to report progress for the DOD-wide or major component funds since your last hearing on this subject. As in previous years, we recently issued an unqualified clean opinion for the military retirement fund statements. Disclaimers of opinion were necessary for all other major funds, however, because of serious deficiencies in the reporting systems and other internal control problems. It will be several years until the management initiatives described by your first panel are likely to result in the drastically improved financial reporting that will earn clean audit opinions. My written statement highlights a sampling of audit reports for the last 12 months. They illustrate the breadth of the DOD financial management challenge which includes needed improvements in day-to-day operations like paying contractors or collecting debts. Is the Department focused on the challenge? Certainly the senior leadership is. Also, for the first time in the 12 years since the Chief Financial Officers Act was enacted, I believe the executive and legislative branches are on the same page in terms of what needs to be done to transform DOD financial management. We have long advocated focusing primary attention on the system weaknesses that are at the core of the DOD financial reporting problems. Section 1008 of the Defense Authorization Act for fiscal year 2002 did just that. Also, by rejecting the notion that any financial statements compiled by special efforts which bypass or override our official accounting systems are worth their high costs or constitute progress, Congress has appropriately insisted on fundamental, not superficial, reform. The initiatives announced by the Department over the past year appear to be highly compatible with the course mandated by section 1008 and clear indicators to transform DOD financial management, not just tinker with it. In IG reports and testimony in the past several years, we had expressed concern that the cost of the Chief Financial Officers Act compliant effort was unknown, performance measures were lacking. There was no sense of consistently strong leadership, and there was no assurance that managers would get more useful financial information even if year end financial statements received favorable auditable opinions. The Department is now trying to be responsive to those concerns. We believe that the new effort to establish a comprehensive financial system architecture is a necessary and long overdue step. There are undeniable risks. Development of the architecture could take much longer than anticipated. The end product might leave numerous unresolved issues, especially about process changes. The cost to implement the architecture might be prohibitively expensive or the DOD might lack the discipline to stick to its blueprint. The DOD does not have a good track record for deploying large information systems that fully meet user expectations, conform with applicable standards, stay within budget estimates and meet planned schedules. Nevertheless, we are cautiously optimistic. The Department has taken a major step forward by finally accepting the premise that the financial improvement effort needs to be treated as a program with all the management controls that a very large program should have. Those include a master plan, well-defined management accountability, full visibility in the budget, regular performance report financing and resources permitting robust audit coverage. Mr. Shays. Let me just interrupt you. You mean we haven't been doing that in the past? I mean, with the other plans, when we had hearings, I thought all of those things were there. Mr. Lieberman. No, sir, I think the plans were consistently deficient in all of these aspects over the years. We always had a reasonable top-level vision of where we wanted to go, but the details of the implementation were always lacking. Mr. Shays. OK. Mr. Lieberman. We believe that now DOD is making a good- faith effort to create a stronger management structure for the improvement effort. We look forward to assisting with timely and useful auditable advice as we did during the year 2000 conversion, another huge system challenge that was successfully addressed, as was discussed earlier this morning. In closing, since I plan to retire from Federal service this summer, I would like to thank you for the courtesies accorded to me over the many years of hearings and other dialog on defense issues. Hearings such as this one today are absolutely essential if all stakeholders in DOD financial management improvement are to remain, as I suggested before, on the same page. Mr. Tierney, I think your question to the first panel about what can be done to incentivize the Department can be answered in part by saying that congressional hearings like this on a regular basis are enormously helpful in that regard. That concludes my summary, sir. Mr. Shays. Well, that's a shocker, that you're planning to retire. You didn't get our permission first? You just did it on your own? You have been before this committee on countless occasions, and you have always been a superb witness, and your service to your country has been pretty extraordinary. So I have to process what you just told me and see if we give you permission to carry it out. We have a lot more power than you realize. [The prepared statement of Mr. Lieberman follows:] [GRAPHIC] [TIFF OMITTED] T6569.023 [GRAPHIC] [TIFF OMITTED] T6569.024 [GRAPHIC] [TIFF OMITTED] T6569.025 [GRAPHIC] [TIFF OMITTED] T6569.026 [GRAPHIC] [TIFF OMITTED] T6569.027 [GRAPHIC] [TIFF OMITTED] T6569.028 [GRAPHIC] [TIFF OMITTED] T6569.029 [GRAPHIC] [TIFF OMITTED] T6569.030 [GRAPHIC] [TIFF OMITTED] T6569.031 [GRAPHIC] [TIFF OMITTED] T6569.032 Mr. Shays. Mr. Kutz. Mr. Kutz. Mr. Chairman and members of the subcommittee, unlike Mr. Lieberman this is my first time before your subcommittee, so it's a real pleasure for me to be here to discuss DOD financial management which we believe is a very important topic. The recent success of our forces in Afghanistan has shown once again that, as demonstrated, our military forces are second to none. However, that same level of excellence is not evident in many of DOD's business processes, including the topic of today's hearing, financial management. DOD's financial management problems date back decades, and previous attempts at reform have largely proven unsuccessful. Problems with financial management at DOD go far beyond its finance and accounting systems, as you saw earlier. This network of business systems was not designed but rather evolved over time into an overly complex and error-prone operation, as you saw on the previous poster board, with little standardization across the Department, multiple systems performing the same tasks, data stored in multiple systems and substantial manual data entry. Many of the systems in operation today date all the way back to 1950's and 1960's technology. Past reform efforts have not succeeded despite good intentions, and the intentions that led to those reform initiatives remain largely unchanged. As a result, today you have a fundamentally flawed financial management systems environment and a weak overall internal control environment. Our testimony today has two parts: first, the root causes of the inability to effectively reform business operations; and, second, what we believe are the key elements to reform. First, we believe the underlying causes of the chronic financial and business system problems at DOD include lack of sustained top-level leadership and accountability, cultural resistance to change and service parochialism, lack of results- oriented goals and performance measures and inadequate incentives for seeking change. Let me briefly touch on two of these, leadership and culture. In our executive guide to world-class financial management, the leading organizations that we've studied, including General Electric, Pfizer and Boeing, all had identified leadership as the most important factor in making cultural change in establishing effective financial management. DOD's past experience has suggested that top management has not had a proactive, consistent and continuing role in leading financial management reform. Sustaining top management commitment to performance goals is a particular challenge for DOD. In the past, the average 1.7 year tenure of the Department's top political appointees has served to hinder long-term planning and follow-through. Cultural resistance to change and military service parochialism have also played a significant role in impeding past reform efforts. One reason for the proliferation of systems you saw earlier is the stovepiped approach that has allowed the services and DOD agencies to develop redundant solutions to business needs. For reform to succeed, all of the parts of DOD will need to put aside their parochial interests and focus on Department-wide solutions to financial management reform. The second point we have is related to key elements necessary for reform. Our written statement discusses what we believe are seven of these elements, and I will briefly touch on two now. First, the financial management challenges must be addressed as part of a comprehensive, integrated, DOD-wide business process. Reform effort and improvement strategy cannot be developed in a vacuum. Financial management is a cross- cutting issue that affects all of the organization's business processes. Currently, as has been mentioned earlier, DOD has six of our 22 high-risk, agency-specific areas in the government, including system modernization and inventory management. In addition, our two governmentwide high-risk areas, human capital strategy and computer security, are also relevant to DOD. These interrelated management challenges must be addressed using an integrated, enterprise-wide approach. Second, establishing and implementing an enterprise-wide financial management architecture will be essential for the Department to effectively manage its modernization efforts. The Clinger-Cohen Act requires agencies to develop, implement and maintain an integrated system of architecture. Such an architecture can help ensure that the Department invests only in integrated, enterprise-wide business solutions. Building systems without an architecture is like building a house without a blueprint. And the stakes are high. As you mentioned, Mr. Chairman, for fiscal year 2003, DOD's total IT investment budget, which includes business process reform, is $26 billion. Without an architecture, DOD risks spending billions of dollars to perpetuate the existing complex, stovepiped, high-maintenance environment that exists today. In summary, the key elements necessary for financial management reform outlined in our testimony are consistent with the findings of the DOD Financial Management Transformation Report as discussed by Mr. Friedman. As we have testified many times over the past few years, we agree with the study group's vision for financial management, which is delivering relevant, reliable and timely financial information on a routine basis to support management decisions. Today, the momentum exists for reform and DOD has taken some actions that are consistent with a number of the key elements that I outlined earlier, but the real question remains will this momentum continue to exist tomorrow, next year and throughout the years that will be necessary to deal with these cultural systems and human capital challenges. For our part, we will continue to work constructively with DOD and the Congress on these very important matters. Mr. Chairman, this ends my statement. With me is Randy Hite, Dave Warren and Paul Francis; and we would all be happy to answer questions. Mr. Shays. Were they all sworn in? Just the people who were sworn in. 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Mr. Spinney. Mr. Spinney. Thank you, Mr. Chairman. Can you hear me now? Before beginning, I would like to state for the record that I am presenting my own views. I am not representing any of the views of the Defense Department. Mr. Shays. You're on this panel because of this reason. You're on this panel, as opposed to being a representative. Mr. Spinney. I just wanted that in the record. Mr. Shays. It is in the record, and we're delighted to have you. Mr. Spinney. Mr. Lieberman's comment about the PPBS is particularly germane, in my view. The PPBS is the Planning, Programming and Budgeting System and is the major financial management system for the entire Department of Defense. Basically, all your systems should feed into that data base, because that's the data base we use to try to provide a coherent plan for the future, and I don't think you can separate the financial management problems from the plan for the future and the budget now before Congress. Could I have slide A, please? Slide A shows the current situation before Congress. The vertical line is the link between the past and the future. The rising bar shows you how much money we're going to ask for; and, as you can see, most of that money was put into place during the summer program review last year before the war on terrorism started. The red ribbon on the top is the difference that occurred after September 11th. Today's budget should accurately reflect the future consequences of those decisions. In other words, when you prove this year's budget, you're buying into that plan; and that plan should accurately reflect what you bought into. It should also reflect the consequences of past decisions. In other words, today's decisions should be linkable to the past. Could I have the next slide, B? This is the basic problem as I see it. We can't divorce the financial management problem from these links between the future and the past. The left-hand box has been accurately summarized. I basically agree with everything that's been said. The right-hand box is what I want to talk about today. Our planning system--and I have studied this for years. I did my first analysis of this as an Air Force officer in 1973. What happens is we have a structural bias to understate the future consequences of decisions. The easiest way to understand that is by looking at cost estimates for new procurement. It goes far beyond that, and I want to use that as an example. The end result is, as the program unfolds, production rates get cut back, we have continuing pressure to reduce readiness, our forces get older over time, infrastructure gets mismatched from a shrinking force structure and eventually pressure builds to increase the defense budget and we have sort of a boom-and-bust cycle. I want to use the F-18 as an example of how this process works to illustrate it. Slide C, please. This slide shows you the comparison between our plans for F-18 procurement and our actual production of F-18 procurement, most of which took place during the large budget increases in the 1980's. The lines represent the plans. The bars represent what actually happened. What you can see is we progressively overestimated future production quantities, and that bias to overestimate continued year after year after year. This is a product of the Planning, Programming and Budgeting System. It's like a moving picture of it. Next slide. The next slide is an analogous slide for the procurement budgets that were associated with that production program. Now what is interesting here again, the lines represent the plans and the bars represent what was actually appropriated in terms of money to buy the planes in the previous slide. What this shows you is that we actually appropriated more money in the early part of the program than was initially planned. So the program stretch-outs on the previous slide can't be associated with budget cuts. We have program projection stretch-outs. That raises budgets. Well, that didn't happen here. This is a very typical example, although it's clearer than most. That's why I'm using it. We can use the production data and the budget data to calculate costs, which is shown on the next slide. I won't go into the construction. It's been validated by GAO audit. Basically suffice to say that the heavy line with the balls represents the actual average cost over time as a function of the total production produced. The lines are the analogous depiction for the plan. In other words, the lines are what we said would happen. And, as you'll see, I have a box that highlights preproduction cost estimates. They are way low. Costs on the F-18 went down. They just didn't go down as far as we said they would. In fact, the actual costs were twice as much as predicted. Now if you multiply these kinds of pressures by hundreds of programs, what you have is what--when Mr. Kucinich read that phrase in my report, metastasizing cancer inside the system. The next slide shows how the overall FYDP changes over time. This is the boom-and-bust cycle that I talk about in more detail. The lines are all the FYDPs since it was introduced in 1961. By the way, this chart is in current dollars. No way to remove inflation. What you see is, after Vietnam, we saw a gradual ratcheting up as programs grew in cost over time. And I'm sure you've all sat in hearings about weapons cost growth. This is what happens in the budget. You also have growing readiness costs in here as well, and eventually you buildup a head of steam and it leaps off into deep space. Then we saw a retrenchment very similar to the 1970's, and now we see the beginnings of an expansion, which brings me to the crux of the point. If, in fact, we're on the cusp of repeating another episode like we did in the early 1980's and we can't account for what's about ready to happen, this is going to unfold over the next decade. At the end of this next decade you all know that's when the baby boomer is starting to retire and there's going to be all sorts of other pressures impinging on us. That's why I don't think we can take 8 years to solve this problem. We have to move out right now and try to anticipate these problems and put together a decisionmaking process that can essentially sense these things ahead of time and avoid them. The final part of my statement, which I won't go into here, basically describes a way I thought about doing this. There is no magic bullet, but it's a way that gets at these issues. That concludes my statement. 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Thank you all very much, and we'll start with Mr. Kucinich. Mr. Kucinich. I want to thank the panel, and I want to thank in particular Mr. Spinney for his very thorough and incisive testimony that you had laid out in its presentation to this committee in its totality. Mr. Spinney, there was one point in your written testimony I think that was particularly important. You point out that, because of misestimations of the unit cost of weaponry by the Pentagon planners, production rates end up being lower than anticipated. This in turn leads to a lower replacement rate, which, if I understand correctly, means that not enough equipment is purchased in a timely manner to replace all the older equipment targeted for retirement. The result of all this is an increase in the average age of equipment, meaning that the equipment costs more to operate ultimately. Then you're left with a shrinking force structure. Have I described this sequence correctly? Mr. Spinney. Yes, sir. I would add one thing to that. One reason why the production slips is, as the costs of the weapons go up, they get progressively more complex. So we have a complexity induced factor in the cost growth as well, and over time what we have is an aging force that's getting more complex at the same time. So the interaction between growing complexity and growing age has a multiplier effect and drives up the costs much faster than either one would alone. I have a lot of data to back that up, by the way. Mr. Kucinich. Why does it drive up that cost? Mr. Spinney. Well, more complex pieces of equipment are obviously more expensive to operate, but they also age in a less gracious way, so to speak. Their costs grow faster than simple planes. I have data, for example, showing an A-10, which is a relatively simple, plane and if you compare that with an F-18, which is a relatively complex plane, and if you look at the cost growth over time as a function of age, you will see that the F-18 grows at a much more rapid rate than the A-10. That's a perfectly reasonable expectation. The key point here is as our equipment gets more and more expensive over time, even though we are not replacing it at the sustainable rate, the force is getting more complex. Mr. Kucinich. So you have less planes in this example. Mr. Spinney. Absolutely. We have a shrinking force, a more complex force and an older force; and the operating budgets go through the roof. Mr. Kucinich. Where does this end up, where we have one plane? Mr. Spinney. That's what Norm Augustine used to like to say tongue in cheek. Basically, I call it the death spiral. Our forces go down over time. And this has been going on since 1957 or so. There have been blips in between. A key point to understand here that I should have made in my chart showing the budget is that budget that's growing in the future is supporting a force today that is between 50 and 60 percent as large as it was in the 1980's and it's probably 25 percent of what it was in the 1970's and the 1960's. Mr. Kucinich. So the American people are paying more and getting less defense, is that what you're saying? Mr. Spinney. Yes, sir. It's a much more complicated thing. Mr. Kucinich. Now in your testimony you demonstrate that a major factor in all of this is the planners' gaming strategy, you call it front loading, where the planners and the contractors lowball their estimates of how much a weapon will cost in the outyears of production. Your contention is that, once these outyears are reached and the true costs of production become evident, there's no longer the political will to cancel the program and so production rates are stretched out. Is that a right interpretation of what you're saying? Mr. Spinney. That's correct, and that is because the political engineering process that follows the front-loading process and the political engineering process basically is aimed at spreading the production base around the country to build as much constituent pressure to support the program as possible. Mr. Kucinich. What we're talking about, you know, rather than upgrading equipment, what we're buying with our defense dollars is an older, smaller force that's more expensive to maintain? Mr. Spinney. Yes, sir. And our plans will actually show you that age will continue increasing in the future. Secretary Rumsfeld acknowledged this fact obliquely in his testimony before the Senate Armed Services Committee this year. Mr. Kucinich. So we're talking about a readiness crisis that Pentagon officials keep pointing to and keep citing as a justification for increased defense spending. Mr. Spinney. Yes, sir. I would say it is of our own making. The problems start at the Pentagon. We get a lot of help from Congress. But it's not--a lot of this happens because people are coming through the system so rapidly and getting at the point that the other Congressman was making, Congress Tierney, that we don't have the kind of corporate memory. So a lot of people come in and they go along with this stuff in the short term and they don't really get the big picture until they leave. Mr. Kucinich. I am listening to your explication here and what it suggests to me is, despite what the administration claims--or any administration for that matter--in this case they have an extra 45 to $50 billion Congress is going to be providing to the Department of Defense next year to provide that money. But based on what you say there's no--what's the possibility of American people getting extra security out of this? What does this do? Mr. Spinney. There's no way you can answer the question. Mr. Kucinich. So you can't answer it. Mr. Spinney. Nobody can. Mr. Kucinich. You can't back it up when you say you're going to have more security. Mr. Spinney. No, sir. Well, I think a better way to say it is, if you look at the details of that plan, can you have a reasonable expectation that the building blocks of that plan-- which, by the way, are output oriented in the PPBS, at least in theory--there is absolutely no guarantee that those things will, in fact, unfold over time. Mr. Kucinich. How will fixing the Pentagon's books overcome this--change the outcome? Mr. Spinney. Fixing the books is a necessary condition. It isn't a sufficient condition. And that's really the way I view this problem, which is very different; and I'm coming from a different perspective than the earlier witnesses, particularly on the first panel. The way I view this problem is that we have to provide better information; and, in this case, the best is the enemy of the good. We can take action today to really improve our information in the short term if we did a crash program, in my opinion. That wouldn't fix all the accounting problems that were discussed earlier. But the key thing is to put together a budget that more realistically reflects the future consequences of today's decision, which is the decision to appropriate that budget. We can do that I think probably in 12 to 18 months if we put our minds to it. The real thing we have to do is we have to set up a decisionmaking process that basically forces these uncertainties out on the table so the decisionmakers, when they're trying to decide and evolve what their priorities are, can basically make a selection based on these uncertainties. I am not explaining this very well. I tried to lay that out in the second half of my testimony, but the crucial thing here is to provide enough reliable insight into the consequences of a decision so you can account for them before the fact; and I submit that the way to do that is through some sort of contingency planning. Mr. Kucinich. In the few minutes I have remaining in this round I just want to go through some questions that occurred as a result of reading your testimony. You have mentioned defense power games and front loading and political engineering. Looking at that, do you really mean to suggest that defense planners and contractors misrepresent the costs of your weapons programs and seek to spread subcontracts around the Nation to ensure the survival of those weapons programs? Mr. Spinney. Oh, I think it is very deliberate. Yes, sir. I have talked to many contractors about this; and, of course, they won't come up and testify that they do that, but they have told me they do it. Mr. Kucinich. And that means Congress is part of it. Mr. Spinney. Yes, sir. Congress is going along with it. I had a conversation with one corporate vice president. He was an executive vice president of a major aerospace company, and I took him through the whole front loading argument. It was part of a 5-hour lecture that I had that we give to the entire staff, the company. Basically, his bottom line is, he says, look, we have to do this. Because if we come clean, we won't get the contract because everybody else is doing it; and that's the dilemma. And the same thing exists inside the Pentagon. Because there's a constant competition for resources, you have different factions fighting with each other to try to do what they think is best. I am not talking about malevolent behavior here, but they naturally try to win the competition, so they tend to be overly optimistic. And the basic argument that you make when you do that is, if I don't do this, I'm going to lose the battle. When I was in the Air Force on the air staff in the early 1970's as an internal Air Force thing to force the senior officials to try to consider what lower budgets would do, how they would come up with a list of the kind of programs they want to cut, you couldn't get them to do it. Mr. Kucinich. You know, this testimony and this hearing kind of reflects on President Eisenhower's warning about the dangers of the military industrial complexes. Because what's happened here is that this just isn't about an administration. This is about the Congress. This is about a system which has now run amuck, and we're starting to see how it can have a material effect on the eroding of the quality of our democracy because we don't have sufficient funds to take care of health care in America. We don't have sufficient funds for education. We don't have sufficient funds for housing. We're told that we're challenged with our retirement funds. So when you look at all of those issues which relate to a democratic society and its maintenance and support, this problem that you're describing, Mr. Spinney, has profound implications for this country. Thank you. Mr. Shays. Thank you. Mr. Tierney. Mr. Tierney. Thank you, and I thank all of you for your testimony. Let me just ask, Mr. Kutz, sir, the policy that was just discussed of trying to spread around the contractors' work throughout the country on the notion that it would build political support for a particular weapons system or program, have your reviews evidenced any sign of that, that it was decisions made on anything other than a contractual basis or sound business judgment? Mr. Kutz. That's a little outside my area of expertise, but certainly as one of our high-risk areas in acquisition management we have seen some of the things that Mr. Spinney talked about from the standpoint of effect and results at the end of the day. I'm not sure we have gotten to the bottom line of some of the causes of some of those things, but certainly our high-risk talks about more program than budget and certainly a history of programs coming in with lower estimates than reality and you get less weapons at the end of the day-- and we have our expert here on acquisition, if you want more from a GAO perspective. Mr. Tierney. I guess either he or you can talk a little about how the contracts are spread out around the country and whether there's a pattern that develops or whether it just seems that every competition for a contract ends up that way, that somebody in each part of the country makes that some part of the system. Mr. Kutz. Certainly, factually, a lot of the major weapons systems have contractors, whether they be major contractors or subcontractors, all over the country. That is certainly factual from what we've seen. Mr. Tierney. Generally you try to have your supply sources closer to your manufacturing sources or whatever, and that seems to cut across the grain. It would be, as a business guess on my part, at least, that it's not sound business judgment that's driving that but something along the line of political support. But you never did an analysis of that or anything? Mr. Kutz. Our other witness wasn't sworn in, and I don't know if you want to have him sworn in to have him comment on that. Mr. Shays. I'd be happy to do that. Anyone else you may be asking? [Witness sworn.] Mr. Tierney. Please identify yourself, also, as you speak. Mr. Francis. Good morning. My name is Paul Francis, and my main area of expertise is in the acquisition area. I think, Mr. Tierney, in response to your question, we don't look at that specifically when we're looking at a weapons system, but we have on occasion in the past in response to requests looked at individual weapons and where the contracts are spread; and I'd say our information tracks pretty well with Mr. Spinney's that the subcontracts get spread over quite a number of States. Mr. Tierney. Have you ever analyzed that from the perspective of whether that raises the cost of the overall weapons system or not? Seems to me that, by spreading them out that way, transportation, delivery, other costs all seem to go up. Must have an impact on the overall cost of the program. Mr. Francis. I think that's probably true that the cost of transportation will go up. I think, arguing on the other side, is the prime contractor would say they want to go to the supplier that has the most expertise. So, in the long run, there's probably a tradeoff there. Mr. Tierney. Thank you. Mr. Spinney. May I make a comment on that? I did an in-depth study of the C-130, which is a very simple airplane built in a huge factory in Georgia; and they contracted out aft fuselage sections. Now all this was stringers and sheet metal that could easily have been made in the factory, and they had them produced in various factories in different locations and then would bring them together and assemble there. There was all this extra space. The quality of the work was exactly the same. I was in the factory, and I saw them sort of messing around with their production line, twisting them around. I asked the blue collar worker--I said, why are you doing this? This is a dumb way to run a production line. He said, well, it just came in from the shipping dock; and we have to move it around to do it. I said, you mean to tell me that they shipped this in here? He said, yes, sir. So I said, it's cheaper to build aft fuselage sections in State X and then ship them to the State of Georgia and assemble them. He said, no, no way at all. We did this for political reasons. It's understood on the production line. That's my point. And I might add that the cost of the C-130 H--it went into production in 1969, if my memory recalls correctly--in today's dollars, taking out the effects of inflation, I believe its cost was about $11 million a copy. By 1993, when we produced our last C-130 H, virtually identical to the first one in today's dollars, taking out the effects of inflation, we are paying $41, $42 million for a C-130. Mr. Tierney. Is there something--a study--along the line of trying to determine whether or not it makes good business judgment versus good political judgment to spread these contracts around? Is there something in the purview or abilities of GAO to do a report on? Mr. Francis. I think that would be kind of a touchy subject, especially on the political side. I think we could probably take a look at whether it makes business sense and what the business case is for doing that. I don't think we would take on the political side. Mr. Tierney. Maybe perhaps something on the idea of what percentage of contracts do get their work spread out over multiple States and then what the business case is for that versus what a sound business case is or not. Mr. Francis. Certainly, I believe we can get the data on that. Mr. Tierney. If I could just ask anybody on the panel, maybe starting from my left all the way over, who wants to respond to this, earlier, we talked about incentives. What can Congress do to provide an incentive? Which is kind enough of you to say that having regular hearings or meetings would be one incentive, but beyond regular committee meetings of oversight, what financial incentive might we have that would hit the pocketbook of the Department of Defense where it would not hurt our defense posture or abilities but would stimulate action on getting better acquisition programs as well as better financial accountability in reform of that program? Mr. Schmitz, I'll exempt you if you are too recent on the scene to have an opinion on that, but, Mr. Lieberman. Mr. Lieberman. Well, I think, sir, that the Congress should insist on very explicit milestones. Gets back to this idea of what is the road map and does everybody understand whether progress is being made or not. And the release of money can be tied to these milestones. That's the way the Department runs its investment projects. There's no reason why the authorizing and appropriating committees, for example, cannot expect the Department on a periodic basis, certainly annually with the President's budget, to lay out exactly whether progress has been made or not. And then you have the power of the purse--you can make the decision of whether you want to keep funding those projects that are slipping. Right now, the problem has been this myriad--the chart is gone, but the myriad of systems, many of which have money being spent on them right now to modernize them or change them or replace them. There's inadequate visibility to the Congress in terms of which of these are making progress and which aren't; and even though some of these projects are reviewed in-depth by various congressional committees, it's not in the context of this overall financial management improvement plan. So my suggestion would be hold the Department's feet to the fire in terms of revealing to the Congress exactly what this blueprint is that they're now formulating. And over time there has to be sustained interest. If interest drops off after 1 or 2 years, the probability of the Department's interest dropping off is astronomically decreased. Mr. Tierney. Thank you. Mr. Kutz. I would say two things. The oversight is definitely one. Consistent congressional oversight such as this gets the Department's attention, but the other thing that gets their attention is money. And certainly with respect to the $26 billion we talked about, a large chunk of that--and I don't think anyone knows exactly which piece of that goes to the business systems. Mr. Shays. I just want to verify that 26 was all information systems. So that's in all the weapons systems. So that number of $4 billion was probably closer to being the accurate number. Mr. Kutz. There's a document that supports the $26 billion that's about six inches deep that we haven't quite gotten into the details of it, but it is a large portion of the 26. I don't know what, though, is related to business systems. But what happened--and, again, I think what Mr. Lieberman says is right on target with respect to they are spending money as we speak on systems that are going to perpetuate that stovepipe environment that you saw there and they do not have control yet of all the projects going around. There are buckets of money all over the Department that are being spent on IT improvements or upgrades that are not being controlled properly at this point, and that is one of the reasons to get the architecture in place and to put those controls in place. Now we are talking about external incentives, obviously, internal incentives. But one of the things Mr. Hite can elaborate on that the Internal Revenue Service had, the Appropriations Committee I think got quite frustrated with some of the disasters they had back in the early to mid 1990's with tax system modernization; and they actually developed an investment technology account that all the money went into that had significant scrutiny before it was spent on systems modernization. Now with DOD whether that will be practical or not I don't know. But certainly at IRS it provided more visibility. With that money, you could see actually what was being spent on maintaining systems at IRS versus developing new systems at IRS. So that is one idea to consider. Mr. Tierney. Let me make sure I am getting this right. So what we might do is take the IT money and set it in an account and then say that, before any of it is spent in this next fiscal year, some appropriate person or entity would have to make a determination that money was being spent either in moving toward the reformed final product or obtaining something that is necessary to that end. Mr. Kutz. Incremental business cases would have to be developed to support the spending of that money with oversight from Treasury and OMB, GAO and the Congress. Mr. Hite can maybe elaborate a little bit on that, too, because he's involved with IRS. Mr. Hite. The scenario that's in place not only at IRS but also in place in Customs and there is legislation being proposed to put in place at INS with regard to their entry-exit system recognizes that trying to build large, monolithic systems over many years is very complex and difficult to predict and you end up waiting years and years and years before you realize you didn't get what you expected. It cost a lot more, and we're not near where we need to be. So what you do is you take that large, monolithic goal and you break it into incremental pieces. Then, through the legislation, the agencies are required to put together expenditure plans that says incrementally what they intend to do and what they intend to get for their money. They have to submit this to the Congress through the Department, in the case of IRS through the Department of Treasury, and OMB and reviewed by GAO; and we offer advice and counsel to the Congress in its decision on the release of the funds that have been appropriated. It's through these incremental expenditure plans that you measure and you have awareness as to whether or not you are progressing toward the desired end and don't have to wait many years to realize that you're not making the progress that you desire. Mr. Tierney. Doesn't that also address the fact of money being spent on systems that are going nowhere toward that other plan? That is sort of like money being spent to maintain a system, but it has nothing to do with the other plans, and nobody reports it as being moving toward that goal or not. Mr. Hite. Well, absolutely, because the conditions that have been written into law--and we work with the committees in doing this--make explicit, for example, that the expenditures have to be in alignment with the enterprise architecture. Because if they're not, then you don't have a justifiable basis for what you're doing. Mr. Tierney. Thank you. Mr. Spinney? We were doing a left to right, as to what might be a good way to incentivize some positive action in terms of this financial accountability reform or, in the case of things you testified to, stimulate action without hurting our defense in terms of having a good procurement system and a good expenditure system. Mr. Spinney. I am not a financial manager. I have to answer your question from the perspective of a program planner; and, basically, I think you have to hit the system over the head with a club. The--it's going to take a long time to fix these financial systems under anybody's estimate with the best of intentions. At the same time, we have to provide the Congress with a budget each year; and we are talking big, big money; and we are making decisions that have implications reaching far, far into the future. A decision to buy a new aircraft carrier is basically a commitment for spending money over 40 to 50 years, maybe longer. So what we need to do is we need to do something in the near term to provide better management level information that can be used in the PPBS to support the Secretary when he's putting together a program plan. These plans that we're producing now are just not connected to the real world, and we have to figure out a way of connecting them. My view is the best way to do that is to force the OSD and service bureaucracy in the Pentagon to put together some contingency plans at lower budget levels so we can smoke out the costs of the real programs. The data won't be the best in the world. But if we basically made it a top-priority effort, we could assemble the information. I have seen how the bureaucracy can work; and if you crack the whip, it can happen. Mr. Shays. Mr. Spinney, you have a perspective, being inside. Unfortunately, when you told your anecdote you lost some credibility with me, because you and I know that if you went into any plant and asked any blue collar worker at that plant whether it would be more efficient to make it in this plant or make it somewhere else he would say it's more efficient to make it in this plant. So, you know, it is--that person has no sense of the cost of the product. Mr. Spinney. That was confirmed by management. Mr. Shays. I am just going to say to you, Mr. Spinney, when you told that story, that's not relevant. If you have another story to tell, then that is relevant. The problem you're dealing with--right now, we are looking at two issues. One is, you're looking at a political issue of whether Congress, the White House, the administration choose to disguise the cost of programs by taking a 5-year budget and spreading it out over 8 years and keep pushing off the product; and we all know that's happening. We make every product and every program more expensive because we don't face up to its true costs in the period of time we're going to budget it. We then stretch it out, and then we make it more expensive to build, and each year they have to readjust their--the producer has to remanufacture, reproduce his budget or their budget to reflect different costs. But that's a political thing. We do it--right up here we do it, and it's wrong. But that's one issue. The other issue is the issue of whether we have a system in place, irrespective of politics and political decisions, that will tell us honest information; and the primary interest that I have in this hearing is do we--even if we want to be straightforward about it, do we have a system in place? And we don't. I want to ask you, Mr. Lieberman, what are the underlying causes for the failure of the previous management decisions? I mean, I interrupted you, which is not my general practice in the middle of a statement, but I mean I have been at other hearings where you've testified and others have testified and we're told what they're going to do. So what's different about this one as opposed to all the other hearings in terms of what the administration says? Mr. Lieberman. Well, I think there are a number of differences. First of all, this Secretary of Defense is the first Secretary that I can remember--and I can remember quite a few of them--who actually has come out repeatedly saying that the financial management system is badly broken, needs to be fixed, and he expects it to be fixed, and he is willing to spend money to fix it. Even though a lot of money has been spent in the past, there has been denial about how much this is costing. To this day, nobody can tell you exactly how much money is being spent to improve financial systems. This is one of our criticisms of DOD's plans over the last several years. Mr. Shays. Let me ask you then, so that when the $26 billion, which is the first number we were using and then brought down to $4 billion, you think it's somewhere in between that $4 to $26 billion? Mr. Lieberman. Some fraction of that. It's probably some part of the $4 billion is being spent specifically to upgrade systems so that they will do a better job in terms of complying with accounting standards, for example. DOD, because of congressional requirements, finally started about 4 years ago providing a plan, a financial management improvement plan, to the Congress which was voluminous. It was this thick. But nowhere in there could you find a flat statement about how much it was going to cost to achieve CFO act compliance, nor could you find how much was in the budget in any given year and whether there was any difference in terms of are they fully funding this improvement plan or not. Still, to this day, the Department can't tell you how much this is going to cost, because we're now at the point of stepping back and creating an entirely new blueprint. Once the blueprint is created, it has to be costed out in terms of how much money is going to be necessary. But I digress slightly. Secretary Rumsfeld was willing to put up almost $100 million in the 2003 budget and Congress appropriated that amount to do this enterprise architecture exercise; and that's the first time any large, visible chunk of money has gone into a DOD budget for financial management improvement ever. So we are at least facing reality. Mr. Shays. I am just concerned that when you leave the Inspector General's office are you looking to get a job with Rumsfeld? Mr. Lieberman. Well, thank you very much. I do think that Dr. Zakheim certainly has very clear marching orders that, unlike previous comptrollers, he's not supposed to just be worrying about the budget. He's supposed to be worried about this financial management improvement effort. He's doing things that sound mundane, but they are the things that were not done in the past. That is, there will be an explicit, detailed plan. At least we're spending an awful lot of money to have such a plan created; and, hopefully, we're going to get our money's worth. There will be explicit performance measures. There will be the kind of milestones I was referring to earlier. They will be able to show you a chart that says, this is where we're trying to get to. Matter of fact, they ought to be able to show you a series of charts showing you every 6 months where they're supposed to be in order to get to that end state. Mr. Shays. Which strikes me as really what we should do. Depending on what Mr. Horn does and his committee, we should just schedule a meeting every 4 months or hearing every 4 months where they come in and give us an update. That would probably be the biggest incentive. Other comment? I interrupted you. Are you all done? Mr. Lieberman. I would sum up just by saying there is now a management structure to run this whole thing like a program with someone in charge with a clear idea of exactly what needs to be done, much better chance of accountability being possible. If the milestones are not being met 6 months from now, a year from now, 2 years from now, you can terminate contracts. You can replace DOD officials. You can have the wherewithal to grab hold of the situation and control it. And all of that, I think, is new. Then, finally, the departments--the military departments seem to be more on board than they were 2 years ago. They must be kept on board. They must not be allowed to not play in the game. Mr. Shays. Do you believe that the comptroller has all the authority necessary to accomplish these reforms? Mr. Lieberman. He's going to need reinforcement from the Secretary of Defense from time to time. He can have all the authority in the world on paper and there will be times there will be centrifugal forces here and you will have very important people in the military departments resisting his priorities. So he's going to need to be able to go down the E- Ring to the Secretary and get continued very strong support. He's also going to need help from the chief financial officer, who we have not mentioned throughout this hearing, even though we are talking about what's fundamentally a systems problem. If you look at the charter of the CIO on--based on the Chief Informations Officers Act--you would say, well, gee, there's somebody who is the czar of information systems and that person should be controlling this whole project. We have overlapping charters for these officials, and that's not necessarily bad because it means that they ought to be able to join forces and get things done. But I think the CIO community must play big time in this whole effort. Mr. Shays. The kind of issue Mr. Spinney was raising with regards to not properly accounting for the cost of a weapons system, which is legion in this government and has been for a number of years, at least for the last 20, is whatever we do with an accounting system and our financial management won't necessarily change that fact, will it? Mr. Lieberman. Well, there are things that can be done that will help. We issued a report earlier this year talking about the lack of a standard cost accounting system to track costs throughout the life-cycle of weapons systems. The department has a variety of systems attempting to do that right now. I'm not sure if some of them are probably some of the icons on that chart. But we do not have one that is standard that top management can rely on. So one of the ways you get smarter about estimating future costs is to understand current and past costs better, and that's one of those many IT improvements that still needs to be done. Hopefully, there's some money in that $26 billion to move forward with that particular system. But I would commend that particular IG audit report to the committee's attention. It showed a circumstance in which the Department had declared victory without having won the battle in terms of that system. Mr. Shays. What I would like to do is have Mr. Schrock take the Chair. Mr. Lieberman, I hope this committee will be invited to any celebration of your service to our country because you have been an extraordinary--you have been a wonderful man to work with. We have trusted you implicitly. We get straight answers. We think you have been extraordinarily competent, and you've made a difference in government. We all salute you for that, and I am going to think of another hearing that I can get you to come to before you retire. Mr. Lieberman. I deeply appreciate that. Mr. Shays. I am going to have Mr. Schrock take the chair, and you may have some questions. I thank Mr. Kucinich for suggesting we have another hearing; and what I would like to do is, I would like to, you know, put the administration on record that we will have another hearing before the end of the year, just to see how we're doing, because I do think that the incentives that Mr. Tierney is really wrestling with--I mean, one of them is just, you know, the cost and accountability, how you're doing. I thank all of our witnesses for being here, and we'll continue with Mr. Schrock. Thank you. Mr. Schrock [presiding]. Before I turn to my colleagues on the right, I'm sorry I'm late. Believe it or not, I was watching this in snippets as I was on my way up from Virginia Beach. Don't ask me how, but I was. This is not a new problem. I worked in the five-sided building across the river for several years when I was in active duty as a Naval officer, and these are the same discussions we had then. I think the thing that makes me happy is that this Secretary of Defense and this administration realizes--I can't believe that Ms. Jonas is the first-ever Deputy Under Secretary of Defense for Financial Management. You would think that was something that we would have had in place a long time ago in the Pentagon. And Mr. Spinney said it best when he said, everything is done for political reasons. Man, you hit the nail straight on the head on that one, and it all rests right up here. And that mentality has got to change as well, and I think that's why we have the situation we have over there. And Mr. Lieberman said, we have got to hold the Department's feet to the fire. That's not a bad idea either. But we've all got to work together on this thing, because it's not going to get better if we just have these hearings and nothing substantive comes out of it. So I appreciate your sitting here putting up--taking the barbs that we hand you all, but we've got to be partners in this thing as well. Mr. Kucinich. Mr. Kucinich. I thank the Chair. In Mr. Lieberman's comments earlier, he was theorizing that our present Secretary of Defense is going to be taking us on some new--in some new directions that would help resolve these long-standing problems. And, you know, we can all hope for that. If you read the GAO report on Department of Defense financial management, in the category, Mr. Kutz, where you speak of long-standing financial management problems and items of reform, you state, over the last 12 years the Department has had several broad-based initiatives. You speak of the defense reform initiative, which in your reports did not meet the expected timeframes and goals: the Defense Business Operations Fund which, according to your report, inherited their predecessor's operational and financial reporting problems with respect to the working capital funds, and the Corporate Information Management program, which was expected to save billions of dollars by streamlining operations. And you cite that by 1997--you said that the benefits of this were not widely achieved after 8 years of effort, spending $20 billion, and that eventually this initiative was abandoned. Now, I might ask you, sir, do you see any cultural problems with the Department of Defense here that might work against this administration? Mr. Kutz. Absolutely, I believe that's probably the No. 1 nut to crack here with respect to resolving these issues. I don't know if Ms. Jonas or Mr. Lanzillotta would have testified to that here, but I think there's a lot of battles that go on inside the Pentagon about issues such as funding for technology investment or putting in place basic internal controls over various programs. Just something as simple as--and I testified before Chairman Horn several times. Their credit card programs over there, which there's nothing wrong with the actual systems there. That's a matter of people and internal controls; people simply aren't following good controls in many cases that are in place. We're paying monthly credit card bills with nobody actually reviewing the bill, so we find ourselves paying for things that the government shouldn't be paying for. So, yeah, culture would seem to be the hardest issue to deal with here. I think there's a lot of people that probably are trying to wait this out and hope that this too will pass, and that's true in many departments in the Federal Government, and it's just going to take a lot of effort by the leadership to---- Mr. Kucinich. How do you change an institutional culture that spends money, that has a blank check basically, that is getting less and less for its dollar, and that is spread out all around the United States by virtue of a contracting program that is quite political; and my guess is, through campaign fund-raising, probably has an element that helps to ground it in the institution as well? What's your idea on that? I mean, you've obviously thought about it. What would you do if you were king? Of course, we don't have those things, but if you were, what would you do? Mr. Kutz. I would suggest one of the things earlier that you should do is have periodic hearings on this subcommittee and make it clear to the Department that you mean business with respect to this and that you're not going to go away. That certainly is one thing. What Mr. Hite and I talked about earlier with respect to the business systems here, the Congress having better control and better transparency with respect to how that money is being spent is another action. Again, it's the oversight in some cases; you know, hearings like the ones we've had on the credit cards that have gotten a lot of attention. That gets the Department's attention. Money, oversight and certainly negative publicity get their attention. Mr. Kucinich. Well, you know, Mr. Spinney, you made some of the same points you're making today when you testified in front of Congress in 1983; is that correct? Mr. Spinney. Yes, sir. Mr. Kucinich. And what was the response of the Defense Department officials at your insistence that the Pentagon work immediately to clean up its books? Mr. Spinney. Basically my criticism was dismissed because it was historical, like the F-18 analysis that I showed; and the argument was made that we have reforms in place that will change this thing. And at that time they were referring to what were known as the Carlucci initiatives, which I'm sure Bob Lieberman remembers, which have--you know, are in the dust bin of history now. And the specific quote made by David Chu at the time, who was my boss's boss's boss, was that ``I urge patience.'' Mr. Kucinich. Well, you know, to quote that great philosopher Yogi Berra, ``It's deja vu all over again.'' You know, we've got, 20 years ago, the Pentagon urging patience, the Comptroller's office urging the same thing today. Final question, has the Pentagon, in your estimation--I just want to put this on the record--has the Pentagon's financial management practice worsened or improved in the past, patient 20 years? Mr. Spinney. I can't speak to the question of the disbursements which have been adequately covered by the other witnesses--in both panels, for that matter. I can speak from the perspective of the PPBS, which is something I've examined in detail since the 1970's. And, again, I want to emphasize, this is the top-level financial management information system in the Pentagon, and I can say without reservation that it is far worse today than it's ever been. Mr. Kucinich. Well, we can end on that, but also if it's a new beginning, as we hope for, according to some of the testimony here---- Mr. Spinney. May I make one elaboration on that, though? Mr. Kucinich. Sure. Mr. Spinney. It's important to understand this administration has inherited this problem. I think it's really important to understand that we basically squandered a decade in the 1990's. The end of the cold war gave us an opportunity to put our house in order, and we had 20 years to do it, because the baby boomers start hitting the old folk's homes around 2010. We blew the first 10. We're out of time; we've got to move out now. Mr. Kucinich. Yeah. And I would say that any of the discussion that this committee has had today, that I've noticed was not trying to say, well, you know, this is in the lap of this administration; except that, you know, we have an administration which is in charge, and they're challenged to do something about it. The failure of the previous administration to do something about it is no excuse, and the failure of the administration and administrations previous to that, no excuse. There's a point at which the American taxpayers have to ask, what kind of national defense am I getting for the money which I'm paying in my taxes? You know, it's interesting--Mr. Chairman, you know, all of us on occasion will hear from one of our constituents who gets audited by the IRS, and, I mean, think about this now. One single taxpayer gets audited by the IRS; and the IRS has a lot of good auditors, and they will sharpen that pencil and they will take a look at the return and they will go over it line by line, and you know what? If there's an extra penny to get out of it, they will find it. I have no question about it. And the cartoons of years ago of a Joe Taxpayer walking around in a barrel--you know, there are people who feel some sympathy with that condition, and yet on one hand, while the taxpayers of this country will get reamed if they misstate their taxes by even a fraction, look at this, $2.3 trillion. They can't even keep track of it. Why is it that the Department of Defense is not subject to the same type of scrutiny, thank you, that the average taxpayer would be subject to by our own government? I mean, it's clear here that we have a system which is in need of both quantitative and qualitative transformation, and we're looking at perhaps a new structure at some point, you know, promoting the--or to provide for the common defense is a foundation of this country, and the people of this country have a right to expect that the country will be defended, but our accounting is indefensible. Mr. Schrock. Let me--and Mr. Kucinich, let me make a comment on that. You know, at the Pentagon, when I worked there, it was--if a Colonel Spinney said something, well, if you don't like it, wait long enough, he'll get transferred and he's out of there. And that's been the mentality: They're going to go away eventually, and then the hierarchy that's there all the time will just continue to do business as usual. That is the problem, and I really believe that Donald Rumsfeld came there to transform that. He got sidetracked on September 11th, but I think he's going to get back on that track again. And if there's ever a Secretary of Defense in history who has the ability to do it and do it successfully, it's Donald Rumsfeld; and I think he will. And we need to support him as much as we possibly can, because that mentality was there when I was there as a lieutenant, and it's there when I'm a Congressman. I never could have guessed that would be the case, but it is. Do you have anything else? Mr. Kucinich. I want to thank the Chair for the opportunity to ask these questions, and I want to thank all of the witnesses for lending their experience with this system to this committee. Thank you. Mr. Schrock. Thank you. And I guess if there are no more questions, let me thank you all for coming too. We do need to invite you back more often. We need to hear these stories over and over and over again, until these things get resolved; and I, for one--I wish they'd have this on a Wednesday. Members travel back here on Tuesday, so it's kind of hard to get everybody here, but I think every Member needs to be here to hear what you all have said, and maybe next time we can do it on a Wednesday when they're here again. Thank you very much for being here and sharing with us, and that's it. The committee will rise. [Whereupon, at 1:09 p.m., the subcommittee was adjourned.] -