For Immediate Release
January 29, 2009

  

           WASHINGTON – Senator Chuck Grassley today asked for a full accounting of the standard accounting practices of President Barack Obama’s nominee to be the Deputy Secretary of Defense, William Lynn, while he was the Chief Financial Officer at the Department in the late 1990s. 

 

           Grassley had conducted oversight of financial management issues at the Defense Department during Lynn’s tenure as the chief financial officer. Grassley questioned Lynn and held a hearing in the Judiciary Subcommittee on Oversight in 1998.

 

Grassley’s questions specifically relate to the Defense Department accounting procedures known as “Straight Pay;” and “Pay and Chase.” These payment policies were either attributed to or adopted by Lynn while he was the department’s chief financial officer and in charge of such matters. 

 

           At a hearing before the Senate Judiciary Subcommittee on Oversight and the Courts on September 28, 1998, Grassley looked extensively at a case where the Chief of Vendor Pay at a Defense Finance and Accounting Center had allegedly pursued his own version of “Straight Pay” to send $1 million to his mother and girlfriend. Grassley also gave speeches on the Senate floor regarding these matters.

 

Grassley began conducting oversight of the Defense Department in the early 1980s when he uncovered the Department spending exorbitant amounts of money for ordinary items like $435 for a hammer, $750 for a toilet seat in an Air Force plane, and $6000 for aircraft arm rests.

 

           Here is a copy of the text of Grassley’s letter to Lynn.

 

January 29, 2009

 

 

Mr. William J. Lynn

Senior Vice President

Raytheon Company

1100 Wilson Blvd.

Arlington, VA 22209

 

Dear Mr. Lynn:

 

           I am writing to follow-up on six questions I submitted for the record at your nomination hearing before the Senate Armed Services Committee earlier this month.

 

           Two of my questions pertain to a potential conflict of interest flowing from your status as a registered lobbyist with the Raytheon Company. Four of the questions pertain to your efforts as the Department of Defense (DOD) Chief Financial Officer (CFO) to bring the department into compliance with the CFO Act. I am eagerly waiting for your answers to my six questions.

 

           Since submitting those questions for the record, I have had an opportunity to retrieve and examine certain archived files on DOD financial management issues that I investigated in the late 1990's while you were the DOD CFO and Comptroller. I came across two files of particular interest as follows: 1) “Straight Pay;” and 2) “Pay and Chase.” These are DOD payment policies that were either attributed to you and/or adopted while you were the department’s Chief Financial Officer in charge of such matters. My follow-up questions pertain to these matters.

 

           In 1998, when you were CFO, “Pay and Chase” was a term used to describe DOD vendor payment policy. With “Pay and Chase,” the Pentagon paid bills first and worried about tracking down the receipts later. Sometimes receipts were found; sometimes not; And sometimes no effort was made to look. This is how DOD ended up with billions of dollars in unmatched disbursements. As I understand it, this was SOP when you were CFO. It was unofficial policy. It was practiced but not authorized in government regulations or law.

           

Secretary of Defense Cohen attempted to legalize “Pay and Chase.” He wanted to make it the law of the land. He forwarded his proposal to the Senate on February 2, 1998 as part of a larger package of so-called defense reforms. At that point in time, you were CFO, and this matter fell directly under your area of responsibility. “Pay and Chase” was just one small piece of the Defense Reform Act of 1988 - also known as the Defense Reform Initiative (DRI). “Pay and Chase” was embodied in Section 401 of that bill. It was touted as a measure to “streamline” DOD payment practices.

 

           Section 401 would have authorized DOD to pay bills without receipts with no dollar limit. It would have required only random after-the-fact verification of some receipts. And it would have relieved disbursing officers of all responsibility for fraudulent payments that might have resulted from the policy.

 

           There is nothing in my files to indicate Section 401 of Secretary Cohen’s DRI became law. I believe “Pay and Chase” continued as an unofficial policy and evolved into another troublesome one known as “Straight Pay.” This policy was initially approved by you in a signed memorandum on December 17, 1988.

 

           On January 19, 1999, I wrote to you, expressing grave concern about “Straight Pay.”

 

           Prior to the implementation of “Straight Pay,” the Defense Finance and Accounting Center (DFAS), Columbus, Ohio had a pre-validation policy that required all disbursements

 over $2,500.00 be matched with obligations prior to payment. When a bill was submitted to the center for payment, a technician searched the database for the supporting obligation or contract. If one could not be found, a red warning flag was allegedly run up the pole. Was it a duplicate or fraudulent payment? Your “Straight Pay” policy raised the pre-validation threshold to $500,000.00. “Straight Pay” allowed the technician to ignore the warning signals and make payments up to $500,000.00 without checking documentation. Then the accountants at the center were directed to create bogus accounts for negative unliquidated obligations or “NULO” to cover the payment. The bill was then paid from the bogus account with a negative balance. The center had six months to locate valid supporting obligation. If a valid, matching obligation could not be found within that time frame, then the center would cover the payment with other available funds with no further investigation.

 

           In my letter to you, I drew some comparisons between “Straight Pay” and the scenario in the case of Air Force Staff Sergeant (SSGT) Robert L. Miller, Jr. You may remember the Miller case. I examined that case - and others like it - in great detail at a hearing before my Judiciary Oversight Subcommittee on September 28, 1998. As Chief of Vendor Pay at another DFAS Center, SSGT Miller had pursued his own version of “Straight Pay.” With full access to the Integrated Accounts Payable System, SSGT Miller was able to create obligations, where none existed, and to generate nearly a $1,000,000.00 in allegedly fraudulent payments to his mother and girlfriend. He was not caught until a co-worker blew the whistle.

 

           Mr. Lynn, on the surface at least, your “Straight Pay” policy appeared to authorize DFAS technicians to do essentially what SSGT Miller allegedly did - create false bookkeeping entries to cover large payments in the absence of supporting documentation. Your policy left the barn door wide open to fraud and mismanagement. At the time, the General Accounting Office agreed with that assessment.                       

 

           Also, at the time, I told you and other senior officials - and spoke extensively about this problem on the floor - that “Straight Pay” was a dangerous, misguided, irresponsible, and unbusinesslike policy. Furthermore, it was totally inconsistent with various provisions of Title 31 of the U.S. Code, Money and Finance.

 

           American taxpayers deserved to know that their hard earned money was being protected and properly accounted for under your leadership at DOD. So please help me understand your position on “Straight Pay.” It seemed to be completely inconsistent with your responsibilities under the CFO Act. As CFO, how could you endorse such a policy?

 

           Your prompt response to my questions would be appreciated,

 

 

           Sincerely,

 

 

 

           Charles E. Grassley

           Ranking Member