<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:86570.wais]
THE FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996: ARE AGENCIES
MEETING THE CHALLENGE?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
FINANCIAL MANAGEMENT AND
INTERGOVERNMENTAL RELATIONS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
JUNE 6, 2002
__________
Serial No. 107-199
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
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WASHINGTON : 2003
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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 Government Efficiency, Financial Management and
Intergovernmental Relations
STEPHEN HORN, California, Chairman
RON LEWIS, Kentucky JANICE D. SCHAKOWSKY, Illinois
DAN MILLER, Florida MAJOR R. OWENS, New York
DOUG OSE, California PAUL E. KANJORSKI, Pennsylvania
ADAM H. PUTNAM, Florida CAROLYN B. MALONEY, New York
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
Henry Wray, Senior Counsel
Justin Paulhamus, Clerk
David McMillen, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on June 6, 2002..................................... 1
Statement of:
Alderman, Karen Cleary, executive director, Joint Financial
Management Improvement Program............................. 41
Blanchard, Lloyd A., Ph.D., Chief Operating Officer, Small
Business Administration.................................... 50
McLean, Donna, Assistant Secretary for Budget and Programs
and Chief Financial Officer, U.S. Department of
Transportation............................................. 58
Thompson, Sally E., Director, accompanied by Thomas R.
Broderick, Assistant Director, Financial Management and
Assurance, U.S. General Accounting Office.................. 10
Letters, statements, etc., submitted for the record by:
Alderman, Karen Cleary, executive director, Joint Financial
Management Improvement Program, prepared statement of...... 43
Blanchard, Lloyd A., Ph.D., Chief Operating Officer, Small
Business Administration, prepared statement of............. 52
Horn, Hon. Stephen, a Representative in Congress from the
State of California:
Federal Financial Management Act......................... 2
Prepared statement of.................................... 9
McLean, Donna, Assistant Secretary for Budget and Programs
and Chief Financial Officer, U.S. Department of
Transportation, prepared statement of...................... 60
Schakowsky, Hon. Janice D., a Representative in Congress from
the State of Illinois, prepared statement of............... 78
Sullivan, Hon. John, a Representative in Congress from the
State of Oklahoma, prepared statement of................... 77
Thompson, Sally E., Director, Financial Management and
Assurance, U.S. General Accounting Office, prepared
statement of............................................... 12
THE FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996: ARE AGENCIES
MEETING THE CHALLENGE?
----------
THURSDAY, JUNE 6, 2002
House of Representatives,
Subcommittee on Government Efficiency, Financial
Management and Intergovernmental Relations,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2247, Rayburn House Office Building, Hon. Stephen Horn
(chairman of the subcommittee) presiding.
Present: Representative Horn.
Staff present: J. Russell George, staff director and chief
counsel; Bonnie Heald, deputy staff director; Henry Wray,
senior counsel; Rosa Harris, GAO detailee; Justin Paulhamus,
clerk; Chris Barkley, new subcommittee staff; Michael Sazonov
and Sterling Bentley, interns; David McMillen, minority
professional staff member; and Jean Gosa, minority clerk.
Mr. Horn. A quorum being present, the Subcommittee on
Government Efficiency, Financial Management and
Intergovernmental Relations will come to order. I thank the
panel for appearing. And if you'll stand and raise your right
hand, and if you have any assistants behind you that will be
also talking, the clerk will take all of the names for the
record.
[Witnesses sworn.]
Mr. Horn. The clerk will note that the oath has been taken.
The Federal Financial Management Improvement Act requires
the 24 major departments and agencies in the executive branch
to have systems that can produce timely, reliable, and useful
information for managing their day-to-day operations.
[The information referred to follows:]
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Mr. Horn. The act requires the agencies to implement and
maintain financial systems that comply with: Federal financial
management system requirements; applicable Federal accounting
standards; and the U.S. Government Standard General Ledger.
It has been nearly 6 years since the act became law. Yet,
most agencies still do not comply with these three basic
accounting requirements. In fiscal year 2001, 20 of the 24
major departments and agencies failed to comply with the act,
compared to fiscal year 2000 in which 19 agencies failed to
comply.
During the July 9th subcommittee hearing, the Comptroller
General of the United States, Mr. David Walker, noted that
``Noncompliance with the Federal Financial Management
Improvement Act is indicative of the overall continuing poor
condition of many financial management systems across
government.''
We recognize that there are long-standing problems with
agency financial management systems. We also recognize that
correcting these deficiencies will take time. However, the
requirements of this act must be taken seriously, and I don't
think they have been.
Today, we will discuss the challenges that are preventing
many agencies from having financial management systems that
comply with the act. The basic accounting requirements found in
the Federal Financial Management Improvement Act can, and must,
be achieved. American taxpayers deserve no less from their
government.
[The prepared statement of Hon. Stephen Horn follows:]
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Mr. Horn. We welcome each of our witnesses today and look
forward to your testimony to see why things are not happening
the way they should be happening. We will begin with Sally
Thompson, the Director of Financial Management and Assurance,
U.S. General Accounting Office. She reports to the Comptroller
General of the United States.
Ms. Thompson.
STATEMENT OF SALLY E. THOMPSON, DIRECTOR, ACCOMPANIED BY THOMAS
R. BRODERICK, ASSISTANT DIRECTOR, FINANCIAL MANAGEMENT AND
ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE
Ms. Thompson. Thank you, Mr. Chairman. And I'm very pleased
to be here today to discuss with you and the other members of
the committee, if they come in, the challenges that most of the
Federal departments and agencies are still facing in meeting
the basic expectations outlined in the Federal Financial
Management Improvement Act of 1996. Many of those you just
mentioned.
The primary purpose of FFMIA is to ensure that agency
financial management systems routinely--and I stress
``routinely''--produce reliable, accurate, timely data for
management decisionmaking. Government leaders will be in a
better position to invest resources, reduce costs, oversee
programs and, importantly, hold agency managers accountable for
the way they manage programs.
I would like to emphasize this morning that FFMIA is not a
compliance issue; it's a management tool. And getting a clean
opinion does not mean that people have a management tool and
comply with FFMIA. We certainly have seen that to be the case
when, over the last 5 years, we still only have four Federal
agencies whose IGs say that they are compliant in FFMIA, and
yet we have 18 clean opinions and that has been increasing from
about 13, 5 years ago. So we're continuing to get clean
opinions, but we're not getting success in FFMIA.
This decrease also means that agencies have been able to
achieve these clean opinions, first of all, 5 months after
year-end, but with an enormous amount of resources, as we see
in the horrendous numbers of adjustments made. Whenever you
make adjustments to numbers at the year-end or 5 months after
year-end, that means that you didn't have information on a
daily basis on which to make management decisions.
We need to take FFMIA information from the back room and
into the board room where management decisions are being made.
What I mean by this is getting a management tool with
management information is not just a CFO issue, it is more than
an accounting issue. It's not a CIO issue, which would be
hardware/software, but it is a combination of the CIO, the CFO,
and the program managers working together.
It also includes integrating budget information with
program information with performance results and accounting,
and coming up with what we call cost management information for
decisionmaking.
This would provide the information that we need, that
program managers need to make allocation of resources and need
to be able to determine the outcomes of their programs.
I look at systems as being much broader than just hardware/
software. I look at it including the business processes and
procedures and controls and the type of information that's
needed to be able to assess whether programs are meeting these
intended results and outcomes.
It will take a committed involvement from the Secretary's
level all the way down to achieve success in FFMIA. It's a
multidisciplinary process of tackling systems modernization in
order to reach the success. And again I would say that it would
include the chief operating officer that could spearhead this,
but it would include the CFO, the CIO, the budget officer and,
most importantly, program managers. These officials are best
positioned to determine what kind of information needs to be
captured in order to be able to measure the outcomes and ensure
the results by again combining accounting, budget and program
systems integrated together.
Probably one of the key elements of success in FFMIA is
capturing what we're calling the cost management information.
It is critical to transforming how government manages the
business of government.
We have several ongoing assignments in agencies that we
hope will result in executive guidance. What we found was a
real lack of guidance out there on how do you get to good cost
management information. Again, we have seen, and you've
probably heard a lot about, activity-based costing and now a
new term, activity-based budgeting. I would say, combining that
with activity-based performance, all three of those together,
will get you cost management information.
The President's Management Agenda has five areas that
they're looking at, which includes human capital, competitive
resources, e-government, and budget and performance integration
and also improved financial management. I would say to you that
the implementation of FFMIA is the solid foundation to be able
to get that kind of information together. In other words, you
cannot achieve any of the five of the President's Management
Agenda items without a solid financial system. FFMIA success in
systems and standards, and the policy area depend on this. If
we look at the problems, they've been long and they haven't
really changed over the last 5 years. And I'd be glad to answer
any questions.
[The prepared statement of Ms. Thompson follows:]
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Mr. Horn. Well, thank you very much.
We have on the floor a motion, and we have to go over and
answer to it. So we're going into recess now. Relax.
[Recess.]
Mr. Horn. We were in recess and out of it. And I'm sure
we've saved the Nation much from taking that amendment that
would close us down. So we're going to close them up.
But anyhow--so, we'll go on with Karen Alderman, Executive
Director, Joint Financial Management Improvement Program. We
look forward to your testimony.
STATEMENT OF KAREN CLEARY ALDERMAN, EXECUTIVE DIRECTOR, JOINT
FINANCIAL MANAGEMENT IMPROVEMENT PROGRAM
Ms. Alderman. Thank you, Mr. Chairman. I'd like to submit
my statement for the record and provide brief remarks.
Mr. Horn. Your statements are automatically put in the
record when I call your name.
Ms. Alderman. OK.
The President's management goal to improve financial
management requires quality systems, data and processes.
Currently, most Federal agencies use custom development--
custom-developed financial systems that are antiquated and
unable to support current requirements of FFMIA.
Also, the Federal Government is moving to commercial off-
the-shelf software to meet their needs. In 1998, 40 percent of
financial applications under development that are being phased
in were commercial off-the-shelf software. In 2001, 60 percent
were.
JFMIP has focused its recent activities on functional
requirements for financial systems, software qualification
testing, the intergovernmental transactions and elimination
study, financial management and human capital and information
sharing and outreach.
Regarding financial system requirements, JFMIP's role is to
identify and clearly describe those requirements in a series of
documents so that they're readily available to agencies,
auditors, vendors and other stakeholders. The JFMIP Framework
for Federal Financial Management Systems, issued in 1995,
identified 15 components of the Federal financial management
system including core managerial cost accounting and 13
subsidiary systems. At the time the FFMIA was passed in 1996,
the Core Financial System and six of the subsidiary requirement
documents had been issued one time and many of those were out
of date.
Starting in 1998, JFMIP began an intensive effort to update
these documents, 10 have been issued between 1998 and 2001, and
we're currently working in partnership with the Procurement
Executive Council to issue acquisition and financial system
interface requirements. We have also worked to develop non-
income tax revenue system requirements, and we have recently
partnered with the CIO Council to update the framework document
for the incorporation of the Clinger-Cohen Act and produce the
financial segment of the Federal Enterprise Architecture.
In addition to the requirements, we have worked to test and
qualify Core Financial Systems. This process was initiated in
1999. The components are up-to-date Core Financial System
Requirements, an open and comprehensive testing and
qualification process, establishment of an open knowledge base
for all to see what those test requirements and outcomes are,
and a change in OMB policy that mandated that Federal agencies
use qualified software when acquiring new COTS systems for Core
Financial Systems. This process transition occurred October 1,
1999. Ten software products offered by eight vendors and one
government software cross-service provider were qualified under
the 1999 test and the 2000 incremental test. In 2002, about
half the existing certificates will expire, and the balance
will expire in 2003.
JFMIP designed the test process to ensure that Federal
requirements and vendor offerings remained aligned. We have a
feedback mechanism to update requirements, and in 2002 we will
update that test based on the requirements issued in November
2001. We updated those requirements based on feedback from the
agencies about what was working, and what did not work as well
and needed clarification. Areas like upward and downward
adjustments and better closing processes were identified, and
also new requirements were added to capture more information on
full cost and revenue to unique cost objectives, as well as
daily internal reports.
In general, revisions will help ensure that core software
has functionality to support the financial aspects of
performance reporting required under the President's Management
Agenda.
Our second round of testing, which will be finalized at the
end of this summer, will basically double the amount of test
steps to more thoroughly test existing requirements and new
requirements.
In addition to these two agendas, I'd like to briefly
mention intergovernmental elimination and financial management
human capital. The intergovernmental elimination study
undertaken in 2001 was to address problems identified that make
it difficult for the government to properly identify
intergovernmental transactions and balances and allow the U.S.
Government a consolidated financial statement to achieve a
clean opinion.
The study found that the quality of the financial data
throughout the Federal Government is poor. Agencies cannot
identify their true business partners and, consequently,
reconcile the differences that may exist. Common standards and
business practices to support consistent recording of events
are missing and technology needs to be applied. OMB is
undertaking efforts today to address these issues.
Thank you very much.
Mr. Horn. Thank you.
[The prepared statement of Ms. Alderman follows:]
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Mr. Horn. And we now move to your colleague, Lloyd A.
Blanchard, Ph.D., Chief Operating Officer, Small Business
Administration.
Glad to have you here, Mr. Blanchard.
STATEMENT OF LLOYD A. BLANCHARD, Ph.D., CHIEF OPERATING
OFFICER, SMALL BUSINESS ADMINISTRATION
Mr. Blanchard. Thank you, Mr. Chairman, and good morning.
Thank you for inviting the Small Business Administration to
offer testimony today on the agency's financial management
program, and specifically its efforts to comply with Federal
Financial Management Improvement Act of 1996.
Let me start by saying that improving financial management
is one of the goals of the President's Management Agenda and
therefore is a top priority of SBA. With the active involvement
of SBA's Administrator, Hector Baretto, the Agency has recently
put into place a top-flight management team to accomplish this
goal. As one of the 24 principal agents, he's named in the
Chief Financial Officers Act of 1990. SBA has a career CFO, Tom
Dumaresq, who is here with me today and reports directly to the
Administrator to oversee SBA's financial management program.
As Chief of Operations, I work closely with the CFO to
ensure coordination and integration of all strategic management
decisions and general operations with SBA's financial
management program.
The Federal Financial Management Improvement Act requires
enhanced compliance in three specific areas: financial
management system requirements, Federal accounting standards,
and the general ledger and the standard general ledger. These
requirements and the other budget and performance initiatives
SBA has undertaken are part of the Agency's comprehensive
financial management program to provide the taxpayer and
Congress full assurance that SBA is acting as good stewards of
its appropriated resources.
SBA has an aggressive internal control program, one that
mitigates risk by ensuring a positive control environment. The
best written procedures in the world would not be effective
without the active involvement of senior management conveying
the message that integrity cannot be compromised. Moreover, SBA
produces annual financial statements that are audited by an
independent public accounting firm under contract with SBA's
Office of the Inspector General.
I am proud to report that SBA has been recognized as a
leader in its development of a cost information management
system which is based on an activity-based costing model
allowing for full cost allocation on all SBA activities. SBA
continues to fine tune this model.
As required by the President's Management Agenda, SBA is
integrating this cost information into its planning and
decision processes for the fiscal year 2003 and 2004 budget
cycles. While President Bush has recognized the need for
improvement in this area, Federal financial management
guidelines are extremely complex, and SBA faces a difficult
task to make the changes necessary for improvement. Thus, in an
effort to stay ahead of the curve on new statement reporting
requirements, SBA implemented OMB bulletin 01-09 for its fiscal
year 2001 reporting 1 year earlier than required.
In the attempt to understand and implement these
substantial changes, production of the fiscal year 2001
financial statements was delayed in getting to the auditors and
included some mathematical and classification errors. While
these errors were corrected in the final statements and the
audit was completed on time, the delay in the internal review
process produced material weakness on the timeliness and
quality of information provided in SBA's reporting process.
Mr. Chairman, although this was very disappointing, SBA
believes it made the right decision at the time and will be in
a better position for the future because of it. More challenges
still lie ahead for us, and to be successful, SBA will need to
place more attention on improving its financial management,
especially in replacing ineffective and outdated financial
systems and processes.
In fiscal year 2000, SBA decided to purchase a financial
management system using Oracle software and implement this
system beginning in fiscal year 2002. As planned, SBA did bring
the new system online at the beginning of the fiscal year.
While the later versions--while the later versions have been
implemented throughout the government, their earlier Oracle
system has not been widely implemented in the Federal
Government, and consequently, the true results and cost of the
system to SBA are still relatively unknown. To date, the system
has had much less functionality and produced much higher cost
than we expected. SBA is still in the process of working out
these implementation bugs, Mr. Chairman.
Closing fiscal year 2002 under this system can still prove
to be a challenge to SBA at the end of the year as the end of
the fiscal year rapidly approaches. These difficulties have led
SBA to review contingency options, including moving to the
latest release much earlier than we had originally expected.
Mr. Chairman, let me conclude my statement by reiterating
that SBA is fully committed to continuing the improvements of
its financial management processes and systems. While the
Federal guidelines and the President's Management Agenda drive
SBA toward accomplishing this end, it is simply the right thing
to do. It is only with modern systems, transparent reporting,
sound and accurate financial information and accountability
that the performance of SBA's programs will be able to be
accurately evaluated. This will give SBA the opportunity to
improve efficiency and effectiveness in services and programs.
This is what the President and Congress expect, the taxpayer
demands, and SBA intends to deliver.
Thank you, Mr. Chairman. I'm happy to answer any questions
that you or other members of the subcommittee may have.
Mr. Horn. Thank you.
[The prepared statement of Mr. Blanchard follows:]
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Mr. Horn. Our last presenter is Donna R. McLean, Assistant
Secretary for Budget and Programs and Chief Financial Officer
of the Department of Transportation.
Give my regards to your Secretary. It doesn't matter
whether he's a Democrat or a Republican; he's a great public
servant.
STATEMENT OF DONNA McLEAN, ASSISTANT SECRETARY FOR BUDGET AND
PROGRAMS AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF
TRANSPORTATION
Ms. McLean. Thank you, sir.
Mr. Chairman, I appreciate the opportunity to discuss DOT's
progress in achieving its goals for the Federal Financial
Management Improvement Act of 1996. And today I will answer
your questions regarding why DOT is not yet compliant with
FFMIA, what we are doing about it, and the challenges we are
still facing in trying to become compliant with the FFMIA.
Within DOT, we take financial management very seriously and
put a significant amount of energy and effort into taking care
of the public's money. Part of our stewardship role is to
clearly show DOT's performance and what benefits have been
provided by the funds received.
Our performance report was selected as the ``Best in
Government'' this year by the Mercatus Institute. We want our
financial management to reach this same level. The standards
for success for financial management, as outlined in the
President's Management Agenda, lay a roadmap showing us the
way, and clearly achieving full compliance with the
requirements of FFMIA is critical to our success.
In our quest for success, DOT has faced a number of
challenges in reaching full compliance with FFMIA. First, we've
been hampered by an old accounting system that does not use the
Standard General Ledger; second, our financial statements are
not produced directly by our core accounting system; third, our
old accounting system does not have the capability to provide
cost accounting information in a timely manner; finally, our
inspector general has reported that DOT has two material
weaknesses, one in FAA's property and another in DOT's
information security program.
The first question one might ask is, how did we get into
this position? The legacy accounting system in DOT was
developed in the 1980's as a single agency accounting system.
Over several years in the mid-80's we expanded the system to
cover all of DOT. In 1997 we determined that this unique old
system could not meet FFMIA and was not cost effective, and we
needed to find a new accounting system to meet FFMIA
requirements.
In 1998, we selected Oracle Financial--Federal Financials,
a commercial off-the-shelf package that has been identified by
JFMIP as meeting the Federal accounting requirements. Oracle
Financials meet the requirements of FFMIA by providing the
ability to use the Standard General Ledger, producing the
financial statements as part of the core system, providing the
capability to give us cost accounting system information in a
timely manner, and having the capability to account for
property, plant, and equipment.
We are now about halfway through implementing Oracle
department-wide. Within the DOT, we have called this system
Delphi. We have about eight agencies up on Delphi right now,
and the rest will be completed over the next 11 months. Getting
all agencies onto this new financial system will provide a
major step toward full compliance with FFMIA. Oracle will
largely solve the problems associated with the Standard General
Ledger and financial statements. We still face the challenge of
providing cost accounting data to our managers.
Three DOT agencies are making good progress in the area of
cost accounting. FAA is leading the way in providing accounting
data to program officials. They have completed the installation
of a cost accounting system covering approximately 75 percent
of its cost and expect to have 100 percent of its cost covered
by November 2002.
The Coast Guard is also making progress on moving toward
cost accounting. At this point, they're able to identify the
cost by activity on an annual basis. The newly created TSA, or
the Transportation Security Administration, has the advantage
of being set up in Oracle with cost accounting from scratch.
TSA's cost accounting structure has already been established
and a pilot project is under way to capture labor costs at the
activity level. Our goal is, for all of DOT agencies, to meet
the cost accounting requirements within the next 2 years, and I
believe we are on track to accomplish that goal.
We are also addressing the IG's concerns from our 2001
audit. FAA continues to have material weaknesses in its plant,
property and equipment. This weakness relates to the proper
calculation of the net book value of property held by FAA. The
final solution requires that FAA's property accounting system
be integrated with the core accounting system. This will occur
when FAA moves to Oracle in November 2002.
The IG also noted material weaknesses in our information
security program. Regarding our need to certify our financial
feeder systems, we have instituted a policy that requires the
agencies to have their feeder systems accredited and certified
before they can interface with the Oracle system.
Regarding the IG's concerns on our network security and the
completion of a background check, this falls under the purview
of our Chief Information Officer, and we are actively working
with this office and the affected agencies to resolve these
items within the next year.
Achieving compliance has been and continues to be a
challenge for the Department. We have a plan and we are on
track. Upgrading our accounting system addresses many of the
system-related issues that have caused us problems in the past.
Implementing changes in the accounting processes that will
allow us to take advantage of the cost accounting capabilities
in the new system is still a work in progress. I am committed
to staying on the path to reach compliance with FFMIA and
improving the financial management at the Department of
Transportation.
Again, Mr. Chairman I thank you for the opportunity to
testify before you, and I would be happy to answer any
questions you might have.
Mr. Horn. Thank you very much.
[The prepared statement of Ms. McLean follows:]
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Mr. Horn. And we'll start on the various questions with
Sally Thompson of the General Accounting Office, and let's
start with the simple ones.
In your opinion, what it will take for agencies to become
compliant with the Federal Financial Management Improvement
Act?
Ms. Thompson. I think it starts at the top, Mr. Chairman.
The Secretary must be committed to reaching success and
compliance of FFMIA. They also need to then hold people
accountable.
We had thought that one way to do that would be to delegate
to their COO the responsibility for reaching success in
financial management information. The COO could then pull
together a team made up of the CFO, the CIO, program managers,
budget people, and the IGs. They could put a master plan
together, a roadmap, a blueprint. If you don't have a plan and
don't know where you're going, you don't know how to get there.
And then that plan could have milestones, good project
planning, holding people accountable; then they could report
back up to the Secretary, and then it goes up to OMB and to the
President.
And we do also feel there needs to be public reporting on
this.
Mr. Horn. When you say ``public reporting,'' what do you
mean?
Ms. Thompson. Well, I think that, again, to continue with
the type of oversight hearings that you're having; you know,
it's one thing to issue a report, it's another thing to also
have a hearing on it and to raise the visibility of the
importance.
I think here, over the years, we've been able to determine
not only the issues we have over there on the board that have
continued, but what you heard today is the importance of cost
management information. It's not all about just systems; it's
about getting the information--using the information to make
decisions.
Mr. Horn. In your study of all this, do you think the
person on the level, let's say, below the GS-12, if we're still
in that group, do they really take it seriously? Or is this
simply for the Assistant Secretaries and the Under Secretaries?
Ms. Thompson. It has to be permeated through the agencies,
I think. And you know, my background, coming out of the
agencies when I was previously a CFO, is that it was a CFO
problem. And it was the CFO and maybe the deputy and maybe the
person that was head of systems under the CFO. It was never
considered a program manager's issue. And that is what I feel
needs to--we didn't actively engage the program managers. They
are the ones to tell us what information needs to be captured,
and then have the CFO and the CIO get the hardware/software
together to be able to capture that. I think we need to focus
on performance management outcomes and results, how are we
going to measure it, where is the data going to come from, how
are we going to capture it, and then how do you get it in the
system and report it out.
Mr. Horn. In the General Accounting Office document, it's
expressed concern that auditors are not doing enough to
determine whether agencies really are complying with the
Federal Financial Management Improvement Act.
What's the problem and what should be done to correct it?
Ms. Thompson. Well, we believe that the act says that both
the agency head, as well as the auditor, should report whether
an agency is in compliance; and we believe that reporting will
require a yes or a no.
What is happening is that for agencies that are compliant,
the auditors are saying that nothing came to our attention,
which in the auditing standards is ``negative assurance,'' and
that means that they didn't necessarily specifically test for
all of the compliance of FFMIA.
To do ``positive assurance'' quite often requires
significantly more testing. And we believe that the act says
reporting whether that is a yes or a no is positive assurance.
We are getting negative assurance.
Mr. Horn. What about OMB, do you--do you ensure any
compliance with the FFMIA in your work? How helpful has OMB
been?
Ms. Thompson. I think that they have put some guidance out
there. We do not feel that the processes are rigorous enough
for it. And we believe that the agencies and the auditors are
interpreting that to say that negative assurance is just fine,
that nothing came to our attention; and we believe that if
there were positive--if it were interpreted by positive
insurance--there would be more rigorous testing on that.
It's not been a big issue right now because, as you know,
we only have four agencies that the auditors say that they are
complying. But we're hopeful, as the new systems come into
place and get implemented, and more data is getting captured,
we believe that the auditors need to have a specific audit plan
just to look for compliance with FFMIA.
Mr. Horn. The views of the Office of Management and Budget
on this issue are very important. Accordingly, the record will
remain open for the purposes of including OMB's testimony.
I note that Mark Everson, Comptroller at OMB, will testify
before us on the Single Audit Act, and we will question him on
this issue as well. He was a breath of fresh air, as far as I
was concerned. I hate to see him not have the chance to give us
some perspective from a control agency such as OMB.
The few agencies that bother estimating their erroneous
payments reported that they improperly spent about $20 billion
last year.
How does compliance with the Federal Financial Management
Improvement Act relate to improper payments? And is that an
accurate figure of $20 billion?
Ms. Thompson. Let's start, is that an accurate number.
I do not believe that we know that for sure. The work that
the General Accounting Office has done--and I have our
Assistant Director, Tom Broderick, here today, who's been in
charge of a lot of that work--would tell you that we suspect
that it's a lot larger than that. And the reason we don't know,
again is because there hasn't been a rigorous process in place
for the agencies to really determine what their improper
payment total really is.
And we could certainly answer that: Is it a part of FFMIA?
I believe it is. We talk about good management information in
which to make management decisions. Part of that decision
should be to minimize improper payments. So therefore I would
consider it a part of FFMIA, even though I think it needs a
very specific focus on it.
Mr. Horn. Now, to what degree are the improper payments
relevant to the Federal Financial Management Improvement Act?
Ms. Thompson. Well, certainly $20 billion that we know,
that has been identified, could be very relevant to the Federal
Government's management of its resources. I think right there
that makes it incredibly important to FFMIA.
I think it goes back to then having the right kind of
information to manage from, to make resource allocation
decisions. How are we going to know whether a program is
achieving results if we don't know that it's going to the right
people?
Mr. Horn. We'll get into some of that later--but what
should agencies do to reduce these massive overpayments?
Ms. Thompson. Can I let our Assistant Director, Mr.
Broderick, answer that for you?
Mr. Horn. Certainly.
Mr. Broderick. I think there are several things that need
to be done to really address the improper payments problem. We
issued a report back in October that kind of provided a
structure for that.
Essentially what we're looking at is improving internal
controls over programs. There's really five areas within that
control structure that have to be addressed. We need to make
sure that there is a strong control environment over the whole
area of improper payments. When we're talking about a control
environment, we're talking about establishing a culture of
accountability.
We have to make sure that the program managers and the
assistant directors or the assistant secretaries and the
secretaries and even the people over at OMB understand that
this is an important area, understand that we expect results,
understand that we expect improvements.
The agencies also have to go through a process which we
refer to as risk assessments. Essentially, it's critically
important for the agencies to understand if they have problems
in their programs, what those problems are, and the extent of
those problems. By knowing that information, you can determine
where you should focus your efforts, what your high-risk areas
are, and you could have a much more logical approach to just
focusing on those areas where the problems are, as opposed to a
shotgun approach and trying to look at everything in the world,
when in fact a whole lot of those efforts might then be
useless.
Once you've identified where your problems are, then you
have to determine what is the most cost-beneficial or cost-
effective way to address those problems. You have to determine
the actual actions that you're going to take. And there's a
whole laundry list, basically, of the kinds of things that
agencies have used. As part of the work that we did, we went to
several foreign countries to see what they were doing in some
areas where they seemed to have some success. That laundry list
includes not only computer kinds of applications and data
sharing and different things along that line, but it also gets
down to educational activitie--making sure that their people,
the agency people, understand the programs, so that when
somebody comes in as a beneficiary and says, what do I qualify
for, that the agency people ask the right questions and make
the right determinations and collect the right information.
We have a lot of problems in some of those areas.
Once the different activities are implemented, then it's
also critical that information be fed back to the program
managers, the agency management, OMB and the Congress so that
they can evaluate and judge what is going on, the progress that
is being made in those different areas, so they can establish
performance measures and set targets for what the expectations
would be for future efforts and for improvement in the future.
In a capsule, those are the general areas where we think
the agencies need to focus attention if they are going to
address their improper payments problems.
Mr. Horn. I think the General Accounting Office has done a
wonderful job on risk assessments. They put out their pamphlets
to everybody in the Congress of the new Congress. I'd be
curious as to whether the IG, the Inspector General, or the
Chief Financial Officer or the Chief Information Officer,
should they be the ones to be the oversight within an agency;
or how do you look at that?
Or is it--it obviously ought to be the budget--budget
people within an agency. Where is the best place to----
Mr. Broderick. I think something that Ms. Thompson said a
few minutes ago is appropriate here, just as appropriate as it
was for FFMIA.
Basically, what we have in the different agencies is, we
have program managers, we have CIOs, we have CFOs, we have our
IGs, we have a lot of individuals with institutional knowledge,
based on the work they do about programs and different kinds of
activities and systems. Things that work and don't work.
I think we need a coordinated effort within each of the
agencies to pull those people together to try to address the
problem areas and come up with solutions, so that you don't
just have one group over there trying to figure out what has to
be done and what fixes are needed when, in fact, there might be
other people who could provide a lot of best-practice kinds of
information that might be useful in helping come up with best
ways of addressing these problems.
Mr. Horn. Should agencies be required by law to estimate
their improper payments?
Mr. Broderick. How far do you want me to go on this, Sally?
I think that it's critically important because of the
magnitude of improper payments that we're looking at now--and
that's just what we know about--that improper payments be
reported in a public manner. Certainly legislation is much more
binding than any kind of administrative activity or a circular
or whatever from the Office of Management and Budget. It would
certainly raise the level of interest, I think, at the
different agencies that this kind of thing has to be done and
that there is interest here.
I think it could certainly be a benefit to have it in
legislation, as opposed to possibly some of the other
mechanisms that might be put in place to require reporting.
Mr. Horn. Ms. Thompson, it looks like she wants to get her
seat.
Mr. Broderick. I have no doubt.
Mr. Horn. You're happy--or you can have two or three chairs
over there.
Ms. Thompson. I would definitely agree with everything Mr.
Broderick said, Chairman Horn.
First of all, if you don't measure it, you can't fix it. If
it doesn't get reported there, it doesn't have the visibility
that it needs to get the problem solved.
Mr. Horn. And you would agree with his answer, I take it,
in terms of improper payments and this kind of thing?
Ms. Thompson. Absolutely.
Mr. Horn. Later today I will introduce a bill that will
require all departments and independent agencies in the
executive branch to estimate their erroneous payments. Congress
and the administration must understand the scope of this
problem before we can find the appropriate means to correct it.
We welcome your thoughts on that.
Ms. Thompson. Thank you.
I believe that Mr. Broderick has been working with the
staff on some issues. I think he identified, first of all, it
has to start at the top. It has to create the environment that
there is an awareness there, that there is a process for
measuring it and, more importantly, a commitment to correct it
and to hold accountable people that are going to be working on
reducing what we know is the $20 billion and which may be
significantly more.
Mr. Horn. Is it right to use ``erroneous'' or should we use
``improper''?
Ms. Thompson. We consider the two terms synonymous. OMB, in
the President's Management Agenda, has used ``erroneous
payments.'' We have used ``improper payments'' for a long time,
so we've continued to do that. But in any public reporting
since the President's Management Agenda has come out, we have
made it clear that we consider those two terms synonymous. So
if you're comfortable with using ``erroneous payments,'' which
then ties into the President's Management Agenda, we're fine
with that.
Mr. Horn. What I'm thinking about is, if it's really
improper, maybe it should be turned over to the U.S. attorney.
That's never happened, to my knowledge, when somebody went
beyond their budget, I don't think for 100 years anything's
been done about it. But there might be such a tremendous amount
for one area or one agency or one department, and the question
is, if we write into law that's going to be looked at very
carefully, what do you mean by that?
Ms. Thompson. I think when there's been fraud identified in
improper payments, from my background at the Ag Department,
those were turned over to the Justice Department. And so I
think in that respect, they----
Mr. Horn. Did they ever do anything, the Justice
Department?
Ms. Thompson. I can't answer that. I didn't followup on it.
Mr. Horn. Did you send it over there to the Department of
Justice?
Ms. Thompson. There was the starting of investigations when
I left.
Mr. Horn. So it's still in, or what?
Ms. Thompson. I don't know for sure. I've been gone for a
while.
Mr. Horn. Well, they have a lot of big dark corridors and
maybe it's passed away in one of those corridors. So, you know,
that's fascinating, and we'll try to followup on that.
Ms. Thompson. OK.
Mr. Horn. What's the name of the improper activity on that.
Ms. Thompson. It would be----
Mr. Horn. Is it a particular case of people or something
that happened erroneously?
Ms. Thompson. It's been a while, so for the record, I
couldn't really state; but we'd be glad to followup on that and
see where things are.
Mr. Horn. Well, to quote Connie Chung, maybe ``just whisper
in my ear.''
OK, Karen Alderman, Joint Financial Management Improvement
Program. In your testimony, you stated that most financial
management systems used by Federal agencies are internally
developed products, but that the agencies are rapidly moving to
commercial off-the-shelf software. What's been the agency's
experience in implementing commercial off-the-shelf software?
Ms. Alderman. I would say there's been a history of change
within the software market. Basically, in the 1980's, Core
Financial Systems started to be COTS, but they're highly
customized commercial off-the-shelf product. What has occurred
in more recent history is that the Federal Government has tried
to organize the market for COTS more systematically. The JFMIP
testing and qualification process is an example of that. The
goal is to create a set of capabilities in the commercial off-
the-shelf marketplace that meets Federal requirements without
customization.
The reason for that is to manage cost and risk. A fully
custom designed commercial Core Financial System would cost
about $120 million and take 5 years to implement before the
first transactions ever pass through the system. A comparable
noncustomized COTS product or Core Financial System would take
$28 million and 3 years to implement if you can successfully
implement it without customization.
We say we're on a continuum.
Success is more than just the software. It's senior
leadership commitment to the new system, it is trained staff
and capabilities, it is changed management, and it is training
of the work force for new systems. So it's more than just
software. So there's been improved success, but it's certainly
not an easy process today.
Mr. Horn. Does the company that has the off-the-shelf
software also have training plans? They've put it all together.
Do they provide you with that training or is there something
unique here?
Ms. Alderman. I don't think it's a unique process. I think
that there are different requirements, system to system; you
know, each company presents their products, some are easier to
use than others.
But basically, aside from providing some training--the
trainer type of service, it is up to the agency to retrain its
work force and to implement the business process changes
inherent in that product that are necessary to support that
product. So it's really an agency responsibility to retrain the
work force to support a new system.
Mr. Horn. In my background and reincarnation as a
university president, I decided after numerous problems with
software/hardware, everything else, that they would--I would
always be at the top to get something done, and that's the
alpha program. But, frankly, I would never again, and it would
be the zebra program, because somebody else can easily try to
deal with this problem. And if we can copy what's done in
industry in some of this, we ought to take advantage of it, see
how it works.
Ms. Alderman. I agree, sir.
But I would also comment that industry has had similar
challenges for implementing new systems. Surveys of private
industry implementations of enterprise resource programs or
large IT projects, only 9 percent come in on time and budget on
function. So the government shares the challenge that industry
shares with new systems.
Mr. Horn. How many and which agencies currently use systems
that have been certified by the Joint Financial Management
Improvement Program?
Ms. Alderman. The Core Financial System, which is the only
area where we do qualification tests, between 1999 when we
started this process and 2006, 20 of the 24 CFO agencies have
indicated plans to replace their Core Financial Systems, and
virtually all these replacements will be COTS and the COTS will
be qualified by the JFMIP functional testing process.
Mr. Horn. Could you elaborate on the system's software
qualification process and the impact this process could have on
an agency's ability to become compliant with the Joint
Financial Management Improvement Program?
Ms. Alderman. Our process includes requirements definition
and testing; and what it does is provided assurance at the
point of acquisition of software that the software will meet
the functional requirements--many of which are critical to
FFMIA: That includes general ledger management, funds
management, payables management, receivables management, cost
management, and reporting.
At the time we started this process, we were a follow-on
process to an earlier process which was called a ``mandatory
FFMS schedule.'' About 25 percent of Core Financial System
Requirements were tested as part of that procurement process.
This didn't provide a lot of assurance to the agencies; plus
the testing process was--as part of the procurement process,
and it wasn't visible to agencies how products were tested.
In 1999 and 2000 incremental tests, we tested about 95
percent of requirements in part or in whole. We have
subsequently reviewed all our tests and agency implementations
for issues. We've clarified requirements further, added cost
requirements, enhanced some areas where we found that the
agencies were having difficulties. The follow-on test in 2002
will be even more robust.
So we have raised the bar over time, and all software
vendors in this market have had to improve their software. So
it provides a step-up, it provides a better tool. But there are
still these other issues in implementation that have to be
done. Feeder system information, conversion success, training,
leadership, all these types of things to be successful in an
agency.
Mr. Horn. Can an agency upgrade its certified software
without additional approval by the program?
Ms. Alderman. What we do is, we qualify software by
version. OMB sets policies that the agency use qualified
software. It's our process to just keep versions and agency
requirements aligned, and OMB sets the policy.
Mr. Horn. Does GSA have a role in this? They're out there
buying products for agencies all over town.
Ms. Alderman. GSA is required to make sure if a vendor
that's qualified requests to be on one of their schedules, they
will place it on their schedule for the normal process of
procurement of schedules.
Mr. Horn. What impact does the poor condition of the
financial systems have on the goals of financial management
reform legislation?
Ms. Alderman. Which legislation?
Mr. Horn. What impact does the poor condition of financial
systems, which seem to be--have on the goals of financial
management reform legislation? Is there--is there an impact in
that area?
Ms. Alderman. Yes, there is. Basically, agencies have used
manual processes to connect all the dots, and that's where they
are today; and they will not be able to do that in the
accelerated timeframe for financial reporting unless they
change their business processes, have more automated systems
and less data reentry.
Modern tools are available. It's just the challenge of
getting them implemented and supported in the agencies. So it's
a critical tool. It's not the whole answer; they're a critical
tool.
Mr. Horn. OK, we'll move to one of the key agency members,
and that will be Dr. Blanchard, Chief Operating Officer for the
Small Business Administration. In your testimony you stated
that the Small Business Administration's noncompliance with the
Joint Financial Management Improvement Program in fiscal year
2001 caused a slippage on the President's Management Agenda
score card from a ``yellow'' to a ``red.'' What caused the
noncompliance?
Mr. Blanchard. Yes, sir, we did slip in spite of the
improvements in all of the other areas in the financial
management arena.
We tried to implement new reporting requirements as per OMB
bulletin 01-09. What we wanted to do was try to implement that
1 year early so that we can get a handle on these new
requirements. In that process, in trying to wrestle with some
of those new requirements. We fell short in terms of timely
reporting.
The auditors caught a couple of errors, and they were
ultimately corrected. It was that lack of timeliness that
created the material weakness and, therefore, automatically
downgraded our score in the President's Management Score Card.
Mr. Horn. Well, we all make those mistakes. In your
testimony, you stated the SBA has received a clean or
unqualified opinion for the past 6 years, yet the SBA did not
comply with the Federal Financial Management Improvement Act
until fiscal year 2000.
Mr. Blanchard. That is correct, sir. I guess the standards
for FFMIA compliance are quite a bit different from standards
used by the auditing community, and I would say that FFMIA
probably has more stringent standards, which are welcomed by
this agency, but still present a challenge for us in meeting.
Mr. Horn. The General Accounting Office stated that most
agencies do not have timely, accurate, and useful information,
including cost data. How useful has the implementation of
activity-based costing been for your agency?
Mr. Blanchard. Well, it has been very useful. Activity-
based costing allows us to determine the full cost of a
particular activity. As you know, organizations--public
agencies are organized with overhead in support departments and
then provide different programs through different program
offices, and to determine what the cost of one program is is
quite a daunting task, because you have to determine what
proportion of the HR function was dedicated to that program and
what proportion of the accounting function was dedicated to
that program.
So the implementation of that model has helped us very
clearly identify the unit costs, so that we can make program
cost comparisons and, therefore, measure our performance with
that cost component included, and make judgments about
budgetary allocations based on those various cost differences
and performance differences.
Mr. Horn. Do you believe that other agencies would benefit
from using this method of costing?
Mr. Blanchard. I do indeed, sir. We have been contacted by
other agencies, in fact, asking about how we have implemented
and how we have--you know, what type of model we use with
regard to the activity-based costing. So it does seem that
other agencies are interested.
Mr. Horn. What is the greatest challenge for SBA in
becoming compliant with the Federal Financial Management
Improvement Act?
Mr. Blanchard. I think the greatest challenge for us is
really making sure that the automated system, the COTS
software, operates properly.
As I mentioned in my testimony, Mr. Chairman, we started
early, trying to move in this direction, and procured a
software package that predates the software package that is now
used by other agencies in the government. Our use of that
earlier system has caused us some problems, and we are working
to change that.
I have learned, even just today, that some of my colleagues
in other agencies have found success with the later release
from the same company. So we are--we obviously have pause in
going with that related release because of our lack of success
in the earlier release, but we are considering options, and
they include moving to that more recent package.
Apparently, our problems have been--it is the recent
package that is being supported; the earlier package, the
support has dropped off. So we are a little disturbed by that
and are working with that company to----
Mr. Horn. Join the club.
Mr. Blanchard. Well, thank you, sir.
Mr. Horn. It is a long club, starting with me.
Mr. Blanchard. But I think for us, the keys of compliance
that were mentioned by Ms. Thompson earlier, including senior
management leadership with regard to delegating budgetary and
financial responsibility to the chief operating officer are
something we have already achieved at SBA. I am the lead person
on financial matters at the agency, and of course we do engage
in cost information management and the public reporting that
Ms. Thompson also referred to. So we feel like it is just the
implementation of the COTS package that prevents us from being
compliant.
Mr. Horn. Well, Ms. McLean, I have a couple of questions
for you, and then I think we will move on.
What are the greatest challenges for the Department of
Transportation in being compliant with the Federal Financial
Management Improvement Act?
Ms. McLean. Well, as Dr. Blanchard mentioned, just the
transition to a new financial system has been a big challenge,
and it will be a 5-year effort, once we are finished. Again,
even though we are using the Oracle off-the-shelf package,
these systems often were designed really for the private sector
and then sort of forced into a Federal package. And so when we
are the first ones out of the box trying to put it in place,
you end up sort of spilling blood for the folks who are going
to come behind you. But that would have been the case in any of
the packages we would have taken.
So, luckily, I think with the new module we have, 11, which
is the Oracle package we are using, it is dealing with a lot of
the issues we had previously with Oracle.
I think the second challenge we are going to have is the
cost accounting piece, and, in fact, not just creating and
collecting the cost accounting data, but training our managers
so they actually use it and make decisions on those--based on
that information.
Mr. Horn. In your testimony, you stated the Department of
Transportation is expected to be in compliance with the
Federal--whatever that thing is, you know, I hate these
initials; they drive me nuts--Federal Financial Management
Improvement Act, in the next 2 years.
Ms. McLean. Yes, sir.
Mr. Horn. How realistic is this 2-year timeframe?
Ms. McLean. Well, I think it is quite realistic, because
again, we are in the last stretches of implementing Oracle for
our financial--our accounting system, and we should have that
done in the next 11 months. And then the cost accounting
systems, our biggest agencies within the Department--FAA, Coast
Guard, and the Transportation Security Administration--are
either finished or well on their way to finishing their cost
accounting system. So what we have to finish in 2 years is
actually our smaller agencies to come-up on cost accounting.
Mr. Horn. Now, has that program--has that been across the
whole department? Because I remember in the last 10 years with
the FAA, and it was chaos.
Ms. McLean. For cost accounting?
Mr. Horn. I do not know if it was for cost accounting, but
it was just--I knew when I walked in the room, these people do
not know what they are doing, and I was right. It turns out
that, first, it was $4 billion, then it was $12 billion, then
it was $40 billion, and finally, somebody had the guts to pull
the plug.
So where are we with the FAA in relation to the Department
of Transportation?
Ms. McLean. Well, regarding the FAA's accounting systems,
in their cost accounting system, FAA had a--there was an
aviation law passed, I believe--in 1996, I think--that required
FAA to have a cost accounting system, and that was running
ahead of when the Department was planning to implement an
accounting system, the new accounting system. So FAA actually
has Peoplesoft for their cost accounting system. They had to
develop that at the same time they were transitioning to a new
accounting system.
So it has been a huge challenge for FAA, but I really think
we are coming to the end of that, because we do have FAA, right
now, using cost accounting information to make decisions.
I know you don't have a lot of time, but I can give you
some examples if you have some time.
Mr. Horn. That is fine. If you want to add some more, we
will put it at this point in the record.
Ms. McLean. Certainly.
Mr. Horn. What is the Department of Transportation doing to
address computer security weaknesses, and do you have a lot of
hackers trying to get into your systems?
Ms. McLean. Regarding our accounting systems, I know we
have not had--we are fortunate enough not to have had many
attempts to get into the system. But Oracle is an Internet-
based system, so we are taking a lot of precautions to make
sure that the security is in place and; as I mentioned, all of
the feeder systems, we have 25 financial feeder systems that
have to go into Oracle. They must all be certified before we
turn on the Oracle financials.
I think it is something we are going to have to just
continually watch.
Mr. Horn. It has been 6 years since the passage of the
Federal Financial Management Improvement Act. Is there any
legislative action--is there any legislative action that
Congress should consider to refine or modify the requirements
of the act? What do you think?
Ms. McLean. I think one of the things that--and this is a
big one, so I do not think necessarily this will be adopted.
But one of, I think, the problems with the time it takes the
Department to, in fact, implement a cost accounting system is
because the appropriations that are passed for the agencies
tend to be in buckets of people, capital, grants. You know, you
have different accounts; that money cannot be blended or moved
between those accounts. So our Appropriations Committee
basically identifies money in these pots.
Of course, the philosophy----
Mr. Horn. Do you have reprogramming authority?
Ms. McLean. We do not, not within those specific accounts.
We do within the accounts, but not between them.
So then you have the philosophy of cost accounting, which
of course is absolutely the opposite of this accounting
approach, which is, let's see the fully loaded cost. So in the
case of DOT, what is the cost of providing search and rescue
for the Coast Guard? We have to pull the money out of the
people account--I mean the appropriations account; you have to
pull the capital money out from the appropriations account, you
have to pull the benefits out of that account, and you have to
have basically two systems, one system to manage it because the
law requires you to have your appropriations by these specific
accounts, and then another system over top that pulls the
information for cost accounting purposes. So this is a big one.
But if we had accounting--or if our Appropriations
Committee had more service-based appropriations, I think we
would have a quicker leap from accounting system to cost
accounting, and it would cause, I think, managers to think more
holistically of what is my budget, not just my pieces.
Mr. Horn. Yes. Forty years ago, all they thought in House
Appropriations, how many people do you have, etc. And we got
through that, and we have programmatic approaches. That was
helped by GAO, where until Mr. Rayburn died and Mr. Cannon,
Clarence Cannon, head of Appropriations, died; at last, they
could have what we had put on the books in 1946 to look at
things in a programmatic way. GAO has done a wonderful job of
looking at that.
Obviously, if there are problems here, we ought to--we
would welcome the--which we should deal with. You are the
people that have to do that every day, and you probably say,
what idiot put this in?
Ms. McLean. No, sir, we do not say that.
Mr. Horn. I will not tell you that if I find the idiot, I
will say that you led me there. But just to give us some,
either on plain paper or anything else, but we will put it in
the right place. We ought to do that.
Do not be scared. In Congress, we are trying to get things
done.
So I would like to know, do others have a feeling here that
we ought to modify the requirements of the act? Any thoughts on
that?
Ms. Alderman. I think that there is a big challenge just to
get to the current level. I think that the appropriations full
cost visibility is a big challenge. It might be possible with
technology, but there is a mindSet that would have to be
overcome. It is not just technology, it is a mind set, and I
think Congress does set that mindset in the appropriations
process.
Ms. Thompson. Culture.
Ms. Alderman. Culture.
Mr. Horn. Dr. Blanchard.
Mr. Blanchard. I would agree with Ms. McLean and others.
The appropriations mechanism does create a challenge for the
kinds of accounting that are required of us today. There are
ways to overcome that, but they are difficult, and many have
yet to figure that out.
We have been successful through developing crosswalks which
simply communicate between the two systems, in effect, building
a patch between the two systems. But it is an evolutionary
process as everything changes. So I would think that the
requirements that we face today would benefit from some change
in the appropriations structure.
Mr. Horn. I think you are right. And when I testified 25
years ago, I think we were moving ahead, and a lot of things
have happened since those days.
I would like to thank each one of you, and I want to thank
the staff of both the majority and the minority behind me: Mr.
Russell George, the staff director and chief counsel; Bonnie
Heald is the deputy staff director; Henry Wray is here, who is
the senior counsel; Rosa Harris to my left and your right is a
General Accounting Office detailee and is on loan to us, and
she has done a tremendous job, and we thank her profusely;
Justin Paulhamus is our majority clerk; Chris Barkley, a new
subcommittee staff member; Michael Sazonov, subcommittee
intern, Sterling Bentley, also a new subcommittee intern.
And the minority staff: David McMillen, a professional
staff member; and Jean Gosa, minority clerk. We thank you. And
the court reporters are Julie Thomas and Julie Bryan, and we
thank both of you.
With that, we are adjourned, and thank you.
[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]
[The prepared statements of Hon. John Sullivan and Hon.
Janice D. Schakowsky follow:]
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