[Senate Hearing 111-1066]
[From the U.S. Government Printing Office]
S. Hrg. 111-1066
IMPROVING FINANCIAL ACCOUNTABILITY AT THE DEPARTMENT OF DEFENSE
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HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, FEDERAL SERVICES, AND
INTERNATIONAL SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 29, 2010
__________
Available via the World Wide Web: http://www.fdsys.gov
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
JON TESTER, Montana LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
Joyce Ward, Publications Clerk and GPO Detailee
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SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION,
FEDERAL SERVICES, AND INTERNATIONAL SECURITY
THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
ROLAND W. BURRIS, Illinois
John Kilvington, Staff Director
Bryan Parker, Staff Director and General Counsel to the Minority
Deirdre G. Armstrong, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Carper............................................... 1
Senator McCain............................................... 3
Senator Coburn............................................... 4
Prepared statements:
Senator McCain............................................... 39
Senator Carper............................................... 41
WITNESSES
WEDNESDAY, SEPTEMBER 29, 2010
Robert F. Hale, Under Secretary of Defense (Comptroller) and
Chief Financial Officer, U.S. Department of Defense............ 6
Elizabeth A. McGrath, Deputy Chief Management Officer, U.S.
Department of Defense.......................................... 9
Eric Fanning, Deputy Under Secretary of the Navy and Deputy Chief
Management Officer, U.S. Navy.................................. 10
David Tillotson, III, Deputy Chief Management Officer, U.S. Air
Force.......................................................... 11
Lieutenant General Robert E. Durbin, Acting Deputy Chief
Management Officer, U.S. Army.................................. 12
Asif A. Khan, Director Financial Management and Assurance, U.S.
Government Accountability Office............................... 13
Alphabetical List of Witnesses
Durbin, Lt. Gen. Robert E.:
Testimony.................................................... 12
Prepared statement........................................... 60
Fanning Eric:
Testimony.................................................... 10
Prepared statement........................................... 50
Hale, Robert F.
Testimony.................................................... 6
Prepared statement........................................... 43
Khan, Asif A.:
Testimony.................................................... 13
Prepared statement........................................... 66
McGrath, Elizabeth A.:
Testimony.................................................... 9
Prepared statement........................................... 43
Tillotson, David, III:
Testimony.................................................... 11
Prepared statement........................................... 54
APPENDIX
Questions and responses for the Record from:
Mr. Hale..................................................... 99
Ms. McGrath.................................................. 111
Mr. Fanning.................................................. 129
Mr. Tillotson................................................ 135
Mr. Durbin................................................... 142
Chart referenced by Senator Carper............................... 149
Chart referenced by Senator Carper............................... 150
IMPROVING FINANCIAL ACCOUNTABILITY AT THE DEPARTMENT OF DEFENSE
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WEDNESDAY, SEPTEMBER 29, 2010
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:37 p.m., in
room 342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper, McCain, and Coburn.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. This afternoon's hearing will come to
order. I want to start off by apologizing for being a few
minutes late. Our colleague from Delaware, Senator Ted Kaufman,
whose term expires, I think, on November 3, has just given his
farewell address after serving for almost 2 years as a
successor to Joe Biden. Ted used to be the Chief of Staff to
Senator Biden for about 20 years. I like to say, John, that he
made Joe Biden what he is today, or at least he helped, and----
Senator McCain. They were hoping I would be giving that
speech. [Laughter.]
Senator Carper. Do you want to say that on the record?
[Laughter.]
Well, I am glad to be here with Senator McCain and Dr.
Coburn.
Today, we are going to hear from our panel of witnesses
about financial accountability at the Department of Defense
(DOD). You have three Senators up here who are very much
interested in what you have to say and what we are going to be
doing here on this front. One specific question is whether the
Department of Defense is on track to pass a financial audit,
and overall, we are going to learn today about the importance
of improving the Department's financial management and
accountability.
The witnesses who have joined us today will tell an
important story. Keeping our Nation's military affordable and
effective demands that we track the millions of transactions
made each year and ensure that the hundreds of billions of
dollars in expenditures are properly accounted for. If modern
and effective accounting systems are not in place, then we have
a system that can foster waste and fraud, and unfortunately, we
see too many examples of waste and fraud within military
programs and operations every year, and we see those in non-
military operations and programs each year.
When we had a balanced budget 10 years ago, it was one
thing. But today, as we are seeing our Nation's debt literally
double between 2001 and 2008 and we are on track to double it
again in this decade, it is not something where we can simply
look the other way.
Also, with a robust and modern accounting system at the
Pentagon, the Administration and Congress can make informed
decisions about our Nation's security needs.
Secretary Robert Gates recently proposed a series of cost
saving moves at the Department of Defense. I believe the
Secretary recognizes that the way we buy and manage our weapons
systems, the way we train and feed our troops, the way that we
provide maintenance of hundreds of facilities, military
facilities across the world, need to become more modern and
business-like. However, the Department of Defense's financial
system is not where it needs to be.
Most notably, the Department of Defense is one of the last
Federal agencies still unable to pass a financial audit.
Private businesses in America and their shareholders and top
managers understand the importance of passing an audit. But the
Pentagon has failed to do so. The Pentagon's financial
management systems are simply not good enough, according to
most estimates, to even try. Congress has established a
requirement that the Department of Defense become audit-ready
by 2017. This is a critical goal, and considering the amount of
time and money that has gone into this effort, it is one that
should have been met years ago. Not only will an audit help the
Department of Defense ensure that billions of tax dollars are
spent properly, but it will help to make certain that our
troops have the equipment and the supplies that they need.
Unfortunately, according to the Government Accountability
Office (GAO), the Department of Defense cannot even say whether
the audit readiness goal of 2017 will be met. At the end of the
day, making sure that the Department of Defense's financial
books are in order is not just about being a good steward of
taxpayers' money, although that is a top priority for me and I
know for my colleagues. It is about ensuring that our brave men
and women serving in our Armed Forces have the equipment and
the supplies and the training that they need and that we are
paying for.
Further, the GAO will testify today that the audit
readiness goal faces a major and costly challenge. The
Department of Defense and the military services are modernizing
their financial systems, including its related computerized
business systems, to become audit ready. This is an appropriate
and important set of initiatives to ensure that the Department
of Defense has the same modern accounting tools now common in
almost every major business and in many government agencies.
These upgrades, such as buying and implementing new accounting
software, go by the arcane term--here it is--Enterprise
Resource Planning (ERP). We will hear that several times, I
think, in our testimony today.
The GAO will describe today that, overall, the financial
system upgrades are years behind schedule and at least $6.9
billion over budget. That is right. The programs to upgrade our
military financial system so that we can track our dollars and
ensure we spend money effectively are themselves behind
schedule and over budget.
I have a couple of charts. I do not know if our staff
person, would be willing to put them up here, but I have a
couple of charts we want to look at this time. The first
chart\1\ is based on the GAO study of the Department of
Defense's upgrades to its accounting and financial system. Now,
I am not going to go into all the details, but the chart shows,
for those of you who cannot read all of the words, the chart
shows that of the nine Department of Defense programs, six have
slipped anywhere from 2 to 12 years into the future and two
more do not even yet have clear schedules to keep.
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\1\ The chart referenced by Senator Carper appears in the appendix
on page 149.
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I have a second chart--can we take a look at the second
chart,\2\ please? I am not going to try to describe all the
details--shows that five of the programs are over budget, for a
total cost overrun of at least $6.9 billion. And one more does
not yet have a cost estimate, and two more just established
baselines of costs, so there is no way to calculate cost
overruns. The point of these new accounting and financial
management systems are to better manage programs and money, yet
they themselves are over budget.
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\2\ The chart referenced by Senator Carper appears in the appendix
on page 150.
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As a recovering Governor, I understand the unique
challenges that come with running a major institution like the
Department of Defense. However, I am also a former State
Treasurer and a former Naval Flight Officer (NFO) who served
over here with my hero, John McCain, so I know the importance
of keeping our financial house in order. As a U.S. Senator and
a taxpayer, I also understand the importance of ensuring that
our Federal dollars are well spent, especially during a time of
record budget deficits.
Of course, no program is perfect, at least none that I have
helped to design, but Congress needs to ensure that the more
than $700 billion that we spend through the Pentagon is spent
effectively and efficiently.
And with that having been said, let me turn to my wingman
here. Senator McCain, it is great to be with you. Thank you,
John.
OPENING STATEMENT OF SENATOR MCCAIN
Senator McCain. Thank you very much, Senator Carper. I
would just like my statement to be included in the record.
Senator Carper. Without objection.
Senator McCain. Dr. Coburn has been involved in this issue
and he may have an opening comment, if you would agree, but
look, I thank you for those charts. They describe the situation
far better than any statement that I have.
If this were a corporation in America, the shareholders
would have fired them long ago. What I think we have to start
demanding, and should have started a long time ago, is
accountability. If people cannot meet the milestones that they
lay down--we are not setting these milestones for them, they
are saying that they can complete these tasks by a certain
period of time, and you and I will probably be here for several
years--we ought to start demanding that people get fired. That
is what they do with corporations that have cost overruns and
cannot account to their stockholders. Well, we are supposed to
be representing the taxpayers. They are the stockholders. And
this clearly is an unacceptable level of progress, a total lack
of--well, certainly a significant lack of progress.
And I also wonder if our friends here in the Pentagon have
ever called in one of these high-tech private corporations and
say, ``Hey, help us set up this system,'' because again, none
of those companies and corporations in America that are
privately owned could--the management could survive this kind
of performance.
So I would like to say, Mr. Chairman, that starting today,
that if we do not start meeting these in the next couple of
years, these milestones, we ought to demand that people get
fired and we get people in the job that can do the job. For the
last 20-some years, you and I have been asking for an auditable
Department of Defense. Last year, it was $690-some billion of
taxpayers' money that was spent and we really have no real good
handle on how a significant portion of that money was spent.
I thank you, Mr. Chairman, and I thank the witnesses. I
appreciate their hard work. But it is about time that we start
demanding some results.
Senator Carper. Before I yield to Senator Coburn, let me
thank Senator McCain not just for his statement, but for his
leadership and his work as the Chair and now the Ranking Member
of the Armed Services Committee on many of these same issues.
We had a hearing, Dr. Coburn may remember, about 2 years
ago, and maybe not even that long. We invited in the Air Force.
We had invited them to send in some of their top procurement
people from the Department of Defense, some folks that worked
for Secretary Gates at the time on procurement. And one of the
fellows we invited to come and testify, he testified with us
once, but at a later hearing was not able to come back.
Instead, he sent, I think, his top lieutenant. In terms of
firing people, sometimes the problem is not just firing people,
it is actually hiring people.
As we said to the fellow who was here sitting in, and Tom
may remember this, but the fellow was sitting in for John
Young, we said to him, ``How long have you been in your job? ''
He had been in his job for about a year or so. And I said,
``What kind of turnover did you get from the person that you
succeeded? '' And he said, ``The person I succeeded had been
gone for 18 months.'' And I said, ``Well, talk to us about how
many direct reports you have.'' And he said, ``I have six, but
when I came on board, only two of them were filled.''
So I think part of the secret here to getting the results
is maybe firing some people. The other part of the success
might be hiring some people, especially hiring the right
people. So I just note that for the record. Dr. Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. I will be very brief. The threats our
Nation faces today are greater than any time in my lifetime.
With the budget situations that we have, the last place we want
to skimp is in defending this country, which means the job of
those leaders who have accepted the task of making sure we can
defend our country has to be scrutinized closely.
This is not a ``hit you over the head'' hearing. This is to
ask the real questions of why. We have $64 billion worth of
information technology (IT) purchases going on in the Federal
Government. Over half of them are in the Pentagon. Yet, 50
percent of them are on the danger list of not meeting what
their goals were, being over budget, being behind. It is not
just the Pentagon that has this problem, however, the Pentagon
is the most important agency because it is the agency that we
are depending on to defend this country.
I think the importance of today's hearing is not just to
have a hearing, but how do we get out of this mess when we
cannot even purchase what we want effectively and we cannot
implement what we have effectively? I think those are the real
questions. Nobody is happy with a $6.9 billion overrun, but
there are lot of reasons. It is called requirement creep, and
that is a lack of management.
My hope is that we learn some things to help you help us
defend this country with this hearing. Thank you.
Senator Carper. Thank you, Dr. Coburn, and thanks very much
for the good work that you and your staff continue to do.
We are not going to go away on these issues. I think we are
going to be around for a while. I know Senator McCain is going
to be around for at least 6 years, and maybe if Tom and I are
lucky, we can join him for most of those. But we are not going
to go away on these issues and we are very hopeful that you
will not, either.
I want to take a moment just to introduce our witnesses. I
will start with Mr. Hale. Our first witness today will be the
Under Secretary Robert F. Hale. He is both the Under Secretary
of Defense, Comptroller, and he is the Chief Financial Office
(CFO) at the Pentagon. He has the responsibility to advise the
Secretary of Defense, Robert Gates, on all budgetary and fiscal
matters. He is charged with the development and execution of
the Department's annual budget of more than $700 billion. Under
Secretary Hale has a long history of Federal service, including
as the U.S. Air Force's Assistant Secretary for Financial
Management, head of the Congressional Budget Office's (CBO's)
National Security Division, and served on active duty as a
Naval officer. Anchors away. I thank you for being here with us
today.
Our second witness is from the Office of the Secretary of
Defense, Ms. Elizabeth McGrath, the Deputy Chief Management
Officer (CMO) for the Department of Defense. Ms. McGrath is
Advisor to the Secretary of Defense for matters relating to
management and the improvement of business operations. Prior to
becoming the Deputy Chief Management Officer, Ms. McGrath was
the Department's Principal Deputy Under Secretary for Defense
Business Transformation and also served at the Defense Finance
and Accounting Service. We also thank her for being with us
today.
I think Mr. Hale, if I am not mistaken, will deliver maybe
joint testimony for himself and for Ms. McGrath, is that
correct?
Mr. Hale. Mr. Chairman, I think she is going to follow up
with some brief statements after I finish.
Senator Carper. That is great. OK. We will look forward to
that.
I am going to slip over here to Lieutenant General Robert
E. Durbin, who I understand, Senator Coburn, may be a distant
relative to a Durbin that we know from Illinois. We will see.
Senator Coburn. Well, we will give him an extra hard time,
then. [Laughter.]
Senator Carper. General Durbin, whether he is related or
not to our colleague, is the Special Assistant to the Chief of
Staff for Army Enterprise Management and holds the position of
Deputy Chief Management Officer of the Army. General Durbin has
a long military record of service spanning some 35 years. We
thank him for his service and thank him for participating in
today's hearing.
Next, let me introduce Eric Fanning, Deputy Under Secretary
of the Navy for Business Operations and Transformation. He is
also the Deputy Chief Management Officer for the Navy. Mr.
Fanning was previously the Deputy Director of the Commission on
the Prevention of Weapons of Mass Destruction. Thank you for
your service and for joining us today.
Next, let me introduce David Tillotson, Deputy Chief
Management Officer in the Office of the Under Secretary of the
Air Force. Along with a long service in the Federal
Government--you do not look that old to have that long a
record--Mr. Tillotson has also served as an officer in the U.S.
Air Force. We thank you for that and for being with us today.
And finally, we have Asif Khan of the Government
Accountability Office. Mr. Khan is a Director on the Financial
Management and Assurance Team and is focused on financial
management and audit readiness in the Department of Defense.
How long have you been doing that?
Mr. Khan. About 2 years.
Senator Carper. OK. Thank you for that, and we thank you
for appearing here today and we look forward to your testimony.
I think, unless my staff suggests otherwise, I think we
will just start with Mr. Hale and just go from left to right,
or should we go in the order that I introduced them? Alright.
Mr. Hale, you are our lead-off hitter. Thanks again for
your testimony. Your entire testimony will be made part of the
record, and if you would like to summarize, that would be fine.
Try to stick to about 5 minutes. If you go way beyond that, I
will have to rein you in. Thank you.
TESTIMONY OF ROBERT F. HALE,\1\ UNDER SECRETARY OF DEFENSE
(COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF
DEFENSE
Mr. Hale. I will do it. Chairman Carper, Senator Coburn,
thank you for your interest in financial management improvement
of the Department of Defense, and thanks also for your
consistent support of America's military.
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\1\ The prepared statement of Mr. Hale appears in the appendix on
page 43.
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I am pleased to be here with representatives from the
Deputy Chief Management Officer (DCMO) at Office of Secretary
Defense (OSD) and the services. I think our joint presence
underscores the importance of partnering on this issue.
I believe defense financial management does have some
significant strengths. Most importantly, commanders tell me
that we are providing the resources and financial services they
need to meet our national security objectives in Afghanistan.
Iraq and elsewhere. However, I also fully understand there are
enterprise-wide weaknesses in DOD financial management that
demand enterprise-wide business response. The lack of auditable
financial statements is an indicator of those weaknesses and it
is one of the business management weaknesses that must be
resolved.
Now, I know you have heard that statement before. We
celebrate the 20th anniversary of the Chief Financial Officers
Act this year, and the 16th anniversary of the government
Management and Reform Act, which actually requires auditable
statements. You might reasonably ask, what has changed? Why do
we now think we will finally improve financial information in
DOD and move toward audit readiness?
In my mind, there are a couple of reasons, but one that
stands out to me is that we have established a new and focused
approach to improving financial information and achieving audit
readiness. The approach concentrates on improving the quality
and accuracy of financial and asset information and moving
toward audit readiness for the information that we use to
manage the Department every day, and that is budgetary data. We
manage the Department based on budget data, and also the number
and counts and location of our weapons, which accountants call
existence and completeness, because that is so important to
warfighters.
This new approach, has established a demanding but
meaningful goal. It will lead, for example, to the auditability
of the statement of budgetary resources for all of the
services. The new approach has won the support of senior
military and civilian personnel. It has been generally endorsed
by Congress in the fiscal 2010 National Defense Authorization
Act (NDAA), and has been called a reasonable approach by the
Government Accountability Office. Most importantly, we have all
the services and agencies working toward a common goal, and
that was not the case when I took office 18 months ago.
But those of us who have spent many years in government
service know that establishing a meaningful goal, while
necessary for success, is not enough to ensure success. You
have to implement that goal, and that is a challenge in a
Department that is rightly focused on winning the war in
Afghanistan and completing the mission in Iraq. So, what have
we done to implement this goal, and what are we doing?
First, we have established long-term goals, including the
one you mentioned, to achieve auditability, at least for the
information we most use to manage, by 2017, and we have plans
to support that target. However, one of the problems we have
had in the Department is that we set goals that are way out
there, like 2017. Frankly, 2017 sounds like somebody else's
problem, and I think it may been seen that way by many people
in the Department. So we have established some near-term goals.
What can we do in the next 2 years to show progress to
ourselves as well as to you? You will see examples of those
goals in my formal statement.
Second, we now have leadership committed to financial
improvement and auditability. Both Beth and I have briefed the
Deputy Secretary and the Chief Management Officer of the
Department, twice in detail on this, and a third time, early in
my tenure, to tell him where I was headed. He has the overall
oversight responsibility. Beth and I jointly chair a senior
governance board that meets quarterly and includes
representatives from the Service financial management offices
as well as the DCMOs. Many of the people you see sitting next
to me today are on that board. And we have some subsidiary
groups and we have a governance structure.
Third, we are moving to install new systems with that
arcane name, Mr. Chairman, of Enterprise Resource Planning
Systems. These are particularly important both for getting to
auditability and for sustaining auditability. Three military
services and several Defense Agencies are currently
implementing ERPs. Ms. McGrath has oversight responsibility for
these ERPs and other business systems and she will address the
financial ERPs when I finish.
Finally, we have programmed resources in each service and
in my office to carry out these tasks. You cannot make progress
without resources. We are putting our money where our mouth is.
I believe that by implementing this plan we can meet the
goal of auditability for the information we most use to manage
by 2017. But we also recognize and understand that the NDA
directed us to have fully auditable statements by 2017. Under
the current audit rules, meeting that date would likely require
the expenditure of large sums to acquire and improve
information, especially the historical costs of exiting assets
that, frankly, are just not used to manage in the Department.
We have been directed by the Senate Armed Services
Committee to assess the cost effectiveness of approaches to
reach full auditability and we will do so. The Committee
directed that the results of the assessments be included in the
May 2011 financial improvement and audit readiness status
report. We will make that goal. We are also working with the
Office of Management and Budget (OMB) and GAO to try to come up
with approaches that would match the benefits that we are going
to get out of that other data, which are few, frankly, when
compared to the costs, and I expect to complete at least DOD's
portion of that effort by next May and I hope that we will have
overall agreement.
In summary, Mr. Chairman, our message to you this afternoon
is meant to be a positive one. I know you have heard similar
statements before and you have every right to be skeptical.
However, I think our new focused approach and our
implementation plan justifies our optimism. We are all
committed to moving forward. I am personally committed to
moving forward. I have worked on this for a long time in
various capacities. I would like to make some progress during
my tenure.
Mr. Chairman, that concludes my opening statement, and
after the other witnesses have completed theirs, I would
welcome your questions.
Senator Carper. Thank you, Mr. Hale. You are right, we have
been promised things before on this front and not often seen
those promises fulfilled.
We have a colleague here--she is not here right at this
moment--Senator McCaskill. She is from Missouri. And you know
what one of their slogans is in Missouri, the ``Show Me
State.'' And I think when it comes to this stuff, we are all
from the Show Me State. So we are anxious to see you show us
what you can do. Thank you. Ms. McGrath.
TESTIMONY OF ELIZABETH A. MCGRATH,\1\ DEPUTY CHIEF MANAGEMENT
OFFICER, U.S. DEPARTMENT OF DEFENSE
Ms. McGrath. Chairman Carper, Senator Coburn, thank you for
the opportunity to discuss our combined efforts to improve
DOD's financial operations. Thank you, too, for your support to
our military members and their families.
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\1\ The prepared statement of Ms. McGrath appears in the appendix
on page 43.
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As Secretary Hale mentioned, we do have a joint statement
that we submitted, so I am just adding a few short comments as
we move down the witness line here.
While the Department has always worked to improve the
efficiency and effectiveness of its financial and other
business operations, the imperative to achieve lasting results
and the engagement of our senior Department leadership has
never been greater. Our approach to overarching management
reform efforts emphasizes improving our ability to assess
execution through performance, strengthening governance to
ensure leadership accountability, and making needed changes to
the way we procure information technology. In each of these
areas, we rely heavily on tools Congress provided us through
the last several National Defense Authorization Acts, and for
that, we thank you.
As Secretary Hale mentioned, together, we lead the
Financial Improvement, Audit and Readiness (FIAR) Governance
Board to ensure our business areas move forward in a
coordinated manner to achieve our overarching business
priorities and financial management goals, thereby integrating
our financial management improvement activities with our
overall business efforts.
As you mentioned, the Enterprise Resource Planning, those
are a key a part of our auditability strategy, fielding those
successfully, that is, looking for an interoperable structure
that supports sound business practices. In my role as the
Deputy Chief Management Officer, I have broad responsibility to
ensure these systems are part of an overarching enterprise-wide
business strategy that includes not only systems, but policy
alignment and process perspective tied to investment strategy.
That investment strategy must leverage data standards, business
rules, and performance measures contained in our business
enterprise architecture.
Focusing on business operations to include financial
management at the Department of Defense is an area of great and
immediate interest for our senior leadership as well as an area
of serious activity and concerted effort. We are on the way to
creating better business processes that will create the kind of
lasting results our country deserves. I look forward to
continued opportunities to work with the Congress to optimize
our performance across the Department.
I look forward to your questions.
Senator Carper. Thanks for that testimony.
Mr. Fanning, you are recognized. Your entire statement will
be made part of the record. Please proceed.
TESTIMONY OF ERIC FANNING,\1\ DEPUTY UNDER SECRETARY OF THE
NAVY AND DEPUTY CHIEF MANAGEMENT OFFICER, U.S. NAVY
Mr. Fanning. Thank you, Chairman Carper. Thank you for the
opportunity to discuss the Department of the Navy's efforts to
improve its financial management processes and related business
systems.
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\1\ The prepared statement of Mr. Fanning appears in the appendix
on page 50.
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The Department of the Navy's Financial Improvement Program,
our blueprint for achieving an audit-ready State, has made
steady progress in establishing internal controls over business
processes impacting financial reporting. But attaining an
audit-ready state is not merely about obtaining a clean
opinion. These efforts will optimize the resources available to
the warfighter, increase readiness, build more confidence in
Congress and the public with how we use taxpayer resources, and
increase the timeliness, reliability, and accuracy of business
and financial information for decision making.
As a first step towards auditable financial statements in
the Department of the Navy, the Marine Corps has achieved audit
readiness on its Statement of Budgetary Resources (SBR). An
audit is currently underway conducted by a private firm. From
the audit, our Department and the entire Department of Defense
have accrued a number of instructive lessons. As a result, the
Department of the Navy has refined the content of its overall
Statement of Budgetary Resource audit readiness plan, which is
scheduled for completion in December 2012.
A key enabler in achieving this goal is the continued
implementation of Navy Enterprise Resource Planning (Navy ERP).
Measurable results from improved financial controls, such as
lower interest payments and fewer unmatched disbursements,
increase the funding available for operational requirements. In
addition, Navy ERP will bring other benefits, including
standardization of business procedures across the universe of
users, reduced cost from legacy systems retirement,
efficiencies from streamlining and increased electronic
workflow, and the enterprise financial and asset viability
necessary to optimize Navy resources.
Implementations continue on time and on schedule. By
October 2012, Navy ERP will have over 70,000 users and will
manage 50 percent of our obligational authority, or about $71
billion.
We will also achieve audit readiness with those parts of
the organization that still operate legacy systems and
processes. Key internal control objectives are the same
regardless of the business and financial environment. And while
internal controls may be more robust in Navy ERP, commands
which have not yet implemented it are also pursuing improved
controls over their processes and systems.
Two major overarching challenges to success are common to
both our Financial Improvement Programs (FIP) progress and the
continued successful implementation of Navy ERP. The twin
hurdles are gaining top-to-bottom organizational acceptance of
and accountability for the changes these programs bring and
continuing the Department's commitment to adequately fund both
initiatives. To date, the Department of Navy's leadership has
fully supported both programs and we are moving forward with
our strategy and objectives.
Thank you again for taking the time and interest in our
efforts at audit readiness and business systems modernization.
Your oversight and support will help greatly as we continue our
work.
Senator Carper. Mr. Fanning, thank you.
Mr. Tillotson, you are recognized. Please proceed.
TESTIMONY OF DAVID TILLOTSON,\1\ III, DEPUTY CHIEF MANAGEMENT
OFFICER, U.S. AIR FORCE
Mr. Tillotson. Thank you, Mr. Chairman. Thank you, Senator
McCain, Senator Coburn, and Members of the Subcommittee. Thank
you for all the work you do in supporting our members and
families. I look forward to the opportunity to answer your
questions at the conclusion of our statements.
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\1\ The prepared statement of Mr. Tillotson appears in the appendix
on page 54.
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Air Force efforts to improve audit readiness is a total
effort across the entire Air Force. Both our Chief and our
Secretary are committed to this effort, and our Under Secretary
and Vice have day-in and day-out responsibilities for making
sure that we follow through on the implementation of this
activity, and it ranges not just from our financial community,
but also includes our personnel community, our logisticians,
and all of the other assorted business practice entities that
are required in order to make a full auditable business process
possible.
So this is not just about the finance folks, at least in
the Air Force. It is also not just about financial
auditability. Our ability to track existence and completeness
of materiel to the points that were made earlier is an
essential part of our warfighting capability as much as
anything else. So by preparing for audit readiness, we are
anticipating genuine benefits in our mission effectiveness, and
that focus brought by Mr. Hale to refocus the Department on
both the financial balance statement but also the existence and
completeness has allowed us to energize a great deal more
support because we can talk in terms that folks outside the
financial community understand, relate to, and get behind. So
this has been very important.
Our efforts in implementing these processes embody not only
the goals of audit readiness, but we are also looking for the
detailed processes and procedures, and not just tied to the
implementation of IT, our information technology systems.
Having said that, I will get back to the same position my other
colleagues have been in. The Enterprise Resource Planning
Systems and their associated audit controls are a key part at
some phase of achieving final auditability posture. But to Mr.
Hale's point, we are not waiting for those implementations to
begin to show progress in auditability.
We have deployed initial instances or initial efforts on
both of our main ERPs, the Enterprise Combat Support System and
the Defense Enterprise Asset Management System, already, and we
are on track to continue those deployments, and those are
funded and supported by the Department.
Finally, on the issue of accountability, the Under
Secretary has asked me to work across the rest of the
Department of the Air Force to identify key leaders in the Air
Force whose performance plan should explicitly include
accountability outcomes, and again, not just limited to
financial specialists but also to include that responsibility
within our logisticians, our personnel specialists, and others
who provide the essential elements of accountability to our
Comptroller.
The Air Force has set itself on a planned and deliberate
path to improve our financial accountability and achieve audit
readiness. This path imposes on Air Force leadership the
responsibility to provide the sustained and committed effort
behind this work.
Thank you very much, and again, I look forward to your
questions.
Senator Carper. Mr. Tillotson, thank you.
General Durbin, welcome. Please proceed.
TESTIMONY OF LIEUTENANT GENERAL ROBERT E. DURBIN,\1\ ACTING
DEPUTY CHIEF MANAGEMENT OFFICER, U.S. ARMY
General Durbin. Chairman Carper, Senator McCain, Senator
Coburn, other distinguished Members of the Subcommittee, I am
honored to be here today with Hon. Mr. Hale and Ms. McGrath and
also my partners from the sister services. This Committee's
focus on the importance of stewardship and accountability
measures will improve our ability to accomplish the mission of
defending our Nation both at home and abroad and I look forward
to addressing your questions on how we lead and manage the Army
enterprise to generate readiness at best value for the American
people.
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\1\ The prepared statement of Mr. Durbin appears in the appendix on
page 60.
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Today, the Army's financial and business systems
successfully provide our commanders with information about the
resources they need to accomplish their missions. I say this
based upon my personal experience as a commanding general in
Afghanistan for 19 months. However, while these systems do
provide meaningful information to commanders, they were not
designed to meet today's audit standards nor were they designed
to support a single integrated enterprise.
That said, I can report significant progress toward
strengthening the Army's financial management, starting with a
notable change in our leadership culture. Under the guidance of
Dr. Westphal in his position as the Chief Management Officer
for the Army, we have energized our partnership within the
Army, with our sister services, and within the Defense
Department. The Assistant Secretary of the Army for Financial
Management and Comptroller and the Army Office of Business
Transformation and other Army stakeholders have all identified
strengthening financial management as a high priority and are
actively working to achieve measurable results.
But accountable, engaged leadership and improved governance
are only part of the solution. The foundation of audit
readiness is compliant, reliable systems and we recognize that
to achieve and sustain auditable financial statements, the Army
must modernize our financial systems and our business
processes. We believe Enterprise Resource Planning Systems are
an important enabler to leverage business process improvement,
strengthening financial controls and managing business
operations in a more efficient, integrated manner. To that end,
the Army has initiated a focused effort to explore options to
refine our current ERP strategy with the goal of achieving the
best possible end state within available resources.
In conclusion, we have a plan to meet our auditable
requirements by their respective deadlines and what we are
doing today to improve financial information, management, and
auditability is critical to development of the Army's
Integrated Management System, which will greatly improve the
Army's ability to manage itself. Moreover, I am personally and
professionally confident that Army leaders fully understand
this is the right choice for the Army and our Nation in the
long run.
Again, I thank you for the invitation to speak here today
and for your unwavering support for the great soldiers,
sailors, airmen, marines, and civilians and their families
around the world.
Senator Carper. Thanks for that statement, especially the
last part.
Mr. Khan, we recognize you. We want to thank you and all of
your colleagues at GAO for your stewardship and for helping us
to better become the kind of stewards that our constituents
expect us to be. Thank you. Please proceed.
TESTIMONY OF ASIF A. KHAN,\1\ DIRECTOR, FINANCIAL MANAGEMENT
AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Khan. Thank you, Mr. Chairman. Senator McCain and Dr.
Coburn good afternoon. It is a pleasure to be here to discuss
the status of the Department of Defense financial management
and audit readiness efforts. Your Subcommittee has been at the
forefront in addressing DOD business related high-risk areas.
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\1\ The prepared statement of Mr. Khan appears in the appendix on
page 66.
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In my testimony today, I will summarize DOD's current
strategy for addressing its persistent weaknesses in financial
management for achieving audit readiness and in modernizing its
business systems. I will also provide GAO's perspectives on
DOD'S efforts on progress towards these goals. My testimony
today is based on our prior work at DOD.
Over the years, DOD has initiated several broad-based
efforts for improving financial management and developing the
capability for preparing auditable financial statements.
However, financial management weaknesses continue to affect the
timeliness and reliability of information available to
managers, and to date, none of the military services has
achieved auditability. GAO's review of DOD's financial
management improvement efforts have seen a need for active
leadership and a clear strategy to put DOD on a sustained path
toward transforming its financial management operations.
In May 2009, GAO reviewed DOD's Financial Improvement and
Audit Readiness Plan (FIAR Plan), and made recommendations that
were incorporated into the defense authorizing legislation for
fiscal year 2010. In August 2009, DOD revised its strategy as
reflected in the May 2010 FIAR status report. While GAO has not
formally examined this report, it and the accompanying guidance
appear to reflect progress on our recommendations. The issuance
of the guidance is in itself an accomplishment.
The report also charts a course for achieving financial
audit readiness by 2017. The revised strategy continues efforts
to achieve full audit readiness, but it focuses on two
priorities, achieving reliable budget data and improving the
accuracy and management of information related to mission
critical assets. Budget information and information on the
existence and completeness of assets, such as military
equipment and real property, have been identified by the
Comptroller as particularly useful for DOD management. This
approach has advantage for the near term, including the
potential for building commitment and support throughout the
Department. In the longer term, additional work will be needed
to achieve full financial statement auditability.
A key element of modern financial management and business
operations is the use of integrated information systems with
the capability of supporting DOD's vast and complex operations.
Effective implementation of these integrated business systems,
or ERPs, is essential to improving and sustaining DOD financial
management and related business operations. DOD is in the
process of implementing a number of ERPs as part of its efforts
to modernize its business systems. However, the Department's
efforts to implement these systems on schedule and within cost
have been hindered, in part by inadequate requirements
management, systems testing, and ineffective oversight of these
investments. Effective business system modernization across the
Department will be the key to achieving billions of dollars of
annual saving.
To strengthen DOD's leadership for financial management
transformation, Congress in 2008 established the position of
Chief Management Officer for DOD and for each of the military
departments. The CMOs are now in place. For these new leaders
to be effective, DOD needs to specify the roles and
responsibilities, including their involvement in problem
resolution and ensuring commitment to financial management
improvement activities across components and functional areas.
Based on what we have seen to date, DOD's strategy and
methodology for improving its financial management, addressing
weaknesses, and achieving audit readiness reflects a reasonable
approach. Sustained effort and commitment at the Department and
component level will be needed to achieve auditability and
produce financial management information that is timely,
reliable, and useful for DOD managers.
To support this Subcommittee oversight, GAO will continue
monitoring and reporting on the Department's financial
management improvement efforts.
Mr. Chairman, this concludes my prepared statement. I will
be happy to answer your questions.
Senator Carper. OK. Well, we have some, and Mr. Khan,
thanks very much.
I am going to slip out and take a phone call. Senator
McCain is good enough to lead off, and I will be right back.
John, thanks.
Senator McCain. [Presiding.] Well, thank you, Mr. Chairman.
Mr. Hale, you have a long resume of experience in this area
and we appreciate all the hard work you have done for many
years. As you recall, once upon a time, one of your
predecessors, Dov Zakheim, set a deadline of 2007, and now as a
result of last year's legislation, that deadline is 2017. I
guess I would ask you, will DOD make that 2017 deadline?
Mr. Hale. Well, Senator McCain, I am confident that we can
make the deadline for the information we most use to manage.
That is the budgetary information and keeping track of where
our weapons and other assets are located. We have a plan. We
have commitment. I am reasonably confident we can make that
date.
For the rest of the data, which is principally the
historical cost data, we have to come up with a plan, and in my
mind, and at the direction of the Senate Armed Services
Committee it needs to be a cost-effective plan. We do not use
historical data to manage, or at least do so rarely. Therefore,
we need to audit it, or improve it and audit it in a way that
matches the benefits.
That plan, we do not yet have. We are committed to provide
that by next May. I expect to meet that deadline, and at that
point I certainly intend to find some way to do it, or try, so
that we can meet the 2017 deadline for full auditability. I do
not know if I answered your question. I mean for the data that
matters, I think we can do it.
Senator McCain. I guess I would ask the rest of the
witnesses if they share Secretary Hale's view. Do you, Ms.
McGrath?
Ms. McGrath. Sir, I certainly support the Department's
current strategy to achieve the auditability and----
Senator McCain. My question is, do you think they can meet
the 2017 deadline?
Ms. McGrath. So I would echo Secretary Hale's position on
the achievability in 2017 of the management information.
Certainly, we will put great pressure on the systems in terms
of ensuring that they do not have requirements creep and they
maintain the focus and scope such they contribute to the
auditability goals that have been identified.
Senator McCain. Mr. Fanning.
Mr. Fanning. Senator, I do agree, also, that we can--I am
optimistic we can make it by 2017. The Navy is on board to be
ready by that date. As Secretary Hale said, I would echo the
evaluation aspect is probably the mist difficult part of that.
Mr. Tillotson. The Air Force supports Secretary Hale's
view. The critical data, we expect to be available by 2017.
General Durbin. The Army also supports that, and we have a
solid plan to take us there.
Mr. Khan. Senator McCain, I think the implementation of the
ERPs will be the key in reaching auditability, whether it is
for the statement of budgetary resources or all the financial
statements.
In addition, I would just like to add that the top level
management commitment like we are seeing now needs to continue.
The Comptroller's Office has been engaged in this process,
along with the DCMO, and now that we have the military CMOs in
place, their involvement is going to be critical. A lot of this
activity is going to occur in other functions, such as
logistics and acquisition. That is where the transactions
originate. The role and responsibilities have to be defined so
that they can reach across their specific functions to the
other functions to be able to get their buy-in to have the
processes in place to provide the management information which
they can use on a useful basis.
Senator McCain. So you estimate that the actual life cycle
costs for the 10 major ERP systems will be well over $6 billion
over their original estimates, right?
Mr. Khan. Correct.
Senator McCain. And $5.8 billion has already been invested
to develop and implement these systems, only one of which is
currently fully deployed. Have any of these investments ever
been in jeopardy of being terminated for cost overruns or
schedule delays? Ms. McGrath.
Ms. McGrath. So each one of these programs is in a
different life cycle in terms of the acquisition process. We
constantly look at the performance of these programs. A couple
of them, I will highlight.
The Army's General Fund Enterprise Business System back in
the, I will say, late summer had initial operational test and
evaluation and the results did not find them effective or
suitable. So instead of pursuing with the next wave of
deployment, the Army put together a mitigation strategy,
thought it was sound both from the Army's Test and Evaluation
Command (ATEC) and from a performance management perspective,
allowed them to test their mitigation strategy to the next
deployment site, put those measures in place, was tested by our
Operational Test and Evaluation Command (OPTEC), and found to
be suitable and effective.
I use that as an example because if your question was, do
we ever think about terminating or slowing the funds down, we
absolutely are putting more structure and rigor in the
management of these programs such that they----
Senator McCain. So the answer is no?
Ms. McGrath. Well, sir, I believe the answer is yes. We
absolutely wanted to ensure that they had the mitigation plans
in place to ensure that the----
Senator McCain. You have terminated----
Ms. McGrath [continuing]. Next stage of the program----
Senator McCain. You have terminated programs?
Ms. McGrath. Of the programs that are on this particular
list, and I do not know if the Defense Integrated Team and
Resource Systems is on----
Mr. Hale [continuing]. The successor is on----
Ms. McGrath [continuing]. Is on that list. Certainly, we
did terminate the Defense Integrated Military Human Resources
Systems (DIMHRS)--thank you--terminate the DIMHRS program.
Senator McCain. As we mentioned earlier, the $6.9 billion
cost overrun and several question marks that we are not sure
of, has anyone above the program manager level ever been fired
or demoted?
Ms. McGrath. Sir--well, specifically, I would have to take
that question for the record and determine whether or not
someone has been fired. Again, the----
Senator McCain. I think maybe it would not have escaped
your notice if someone had been fired. Do you know of anyone
who has been fired?
Ms. McGrath. Sir----
Senator McCain. Or demoted?
Ms. McGrath. I know we have made changes in the program
management structure, specific programs when program managers
were not performing. Whether or not they were fired from the
government, I would have to check.
Senator McCain. Well, I know it is a large organization,
but I think you would know if someone was fired, or I would
hope that you would have enough attention to your own
organization to know if anyone was fired or demoted or not.
Apparently not, from your answer.
Mr. Khan, you have been involved in this for a long time
and scrutinizing this. What do you think Congress ought to do
in the exercise of its responsibilities, given light of the
fact that back many years ago, Dov Zakheim said it was going to
be completed by 2007. Now it is 2017. And frankly, by the
testimony that we have received here today, we do not think we
have seen the last of the cost overruns, nor do we really have
any solid evidence that 2017 will be the year this can be
completed, except that it is a long time from now.
Mr. Khan. Senator McCain, I think hearings such as this one
are going to be critical in giving you the visibility and
accountability that is needed in the Department of Defense. I
think it is going to be very important not just to have the
Comptroller's Office here, but also the departmental level
CMOs. Most of the heavy lifting, whether it is on audit
readiness or implementing the ERPs, is going to happen at the
military services. I think that oversight is going to go a long
way to provide you a real-time status.
Senator McCain. I thank you Mr. Chairman. I thank the
witnesses.
Senator Carper. [Presiding.] Yes, sir.
I am going to ask Dr. Coburn to go next, if you would,
please.
Senator Coburn. Mr. Khan, would you go back through the
last part of your testimony for me where you said ineffective
oversight, I believe were some of your words, cost overruns.
Would you give that to us again, that paragraph where you had
ineffective oversight?
Mr. Khan. I will find that place. I am sorry, Dr. Coburn.
That was relating to the ERPs.
Senator Coburn. Yes. I want you to reread that, if you
would, please.
Mr. Khan. Effective implementation of these integrated
business systems (IBS), or ERPs, is essential to improving and
sustaining DOD financial management and related business
operations. However, the Department's efforts to implement
these systems on schedule and within cost have been hindered,
in part by inadequate requirements management, systems testing,
and ineffective oversight of these investments.
Senator Coburn. All right. So what you are saying is your
criticism is there has not been effective oversight. There has
not been effective management of requirement creep. And there
has not been significant systems testing, right?
Mr. Khan. That is correct.
Senator Coburn. All three of those?
Mr. Khan. Yes.
Senator Coburn. That leads me to think that the management
has not been effective in implementing these systems. Would you
agree with that?
Mr. Khan. We did not specifically look at the project
management.
Senator Coburn. Well, let me go back, then. I will not put
words in your mouth. I will make them my words. If somebody is
not doing effective oversight, they are not managing the
requirement list, and they are not managing the system testing,
is that effective management?
Mr. Khan. No, sir, that is not.
Senator Coburn. OK. So that is the problem. Now, what I
want to ask each of the separate branches, from your chiefs,
whether it be the Secretary of the Army, Navy, Air Force, or
from General Schwartz, Admiral Roughead, or General Casey, is
it a part of the command structure that we are going to get
this done and are you hearing that regularly? Unless the
leadership buys into getting this done, I know how the military
works. It will be third place, fourth place, fifth place in
terms of the priority. Are you hearing that?
General Durbin. Sir, I will start since I am hearing it
loud and clear. I hear it both from our Secretary and from the
Chief, for the Chief for the last 2 years, since he pulled me
out early from division command to focus on this effort, and
specifically now since the beginning of this year when
officially I started working for the Under Secretary of the
Army in his role as the Chief Management Officer. And I will
just give you two specific examples.
In June, we stood up a new governance body that is chaired
by the Chief Management Officer, Dr. Westphal, specifically
focused on business systems, information technology. It is the
Executive Steering Group (ESG). The Under Secretary of the Army
in his role as CMO chairs it. It is a Committee that includes
all of our Assistant Secretaries of the Army and each of our
Army primary staff. We are relooking everything associated with
our current ERP strategy and we will make the hard decision--
the Secretary of the Army will make the hard decision that new
governance body recommends we do to hold ourselves accountable
and achieve the results that our plan says we have to do with
our ERPs.
Mr. Tillotson. General Schwartz personally put a direction
out and has assumed quarterly oversight review of our
Enterprise Combat Support System. When that program required
restructure, he put it on notice that if it did not meet the
restructured time tables and keep on schedule and cost, he
would take the action to terminate the program. That program
continues to be reviewed by him every quarter.
The remaining Enterprise Resource Planning Systems, the Air
Force made a corporate decision to go ahead and put resources
against them, with the provision that they go back and report
to our governance body, which is called the Air Force Council,
which is chaired by the Vice Chief of Staff and the Air Force
Under Secretary, on a routine basis to ensure that they also
meet progress on cost and schedule or, again, we will take
action to address those program content.
Like the Committee, this is a substantial investment for
the Department of the Air Force to make at a time when we are
involved in combat operations. We believe it is worth it in
that we are going to get payoff in terms of accountability of
assets and in terms of better support to the warfighter. But
having said that, we are as mindful as the Committee is and
appreciate your concern that we are actually spending the money
and getting a payoff from it.
So, yes, I hear it directly from my uniformed leadership.
Senator Coburn. Mr. Fanning.
Mr. Fanning. I would agree. I hear regularly from my
leadership, both in the Navy and the Marine Corps and on the
civilian side, of the importance of these programs and of
getting them right. I think a big part of the change, which you
have already heard today, the creation of the CMO, the Chief
Management Officer position. The Under Secretary takes that
role very seriously. We have also created a senior governing
body for these types of programs, the Business Transformation
Council. He chairs it with the Assistant Commandant of the
Marine Corps and the Vice Chief of Naval Operations. The
Assistant Secretaries are also at the table, as are the
relevant three-stars.
We have put this into our Department of the Navy strategic
objectives as one of the high-order objectives. It gets
monitored on a quarterly basis by those leaders.
Senator Coburn. That is good enough. I am going to run out
of time.
Mr. Khan, are these cost-plus contracts?
Mr. Khan. I am not aware of that, sir.
Senator Coburn. Are they cost-plus contracts? They are
fixed-price contracts?
Mr. Tillotson. Fixed price.
Senator Coburn. How come they are over cost, if they are
fixed-price contracts?
Mr. Tillotson. Unfortunately, with a fixed-price contract,
if we make an adjustment to the requirement, then there is a
basis for readjusting the cost.
Senator Coburn. So that is called requirement creep.
Mr. Tillotson. In some cases, the requirements were changed
deliberately to actually address some of the concerns that Mr.
Khan has raised about whether we have a risky schedule, whether
we need to parse the deployment up into more controllable
chunks. Again, in the Enterprise Combat Support System
deployment, we deliberately moved the program into a series of
measured decisions and that did generate some of the cost
increases. So yes, it was a requirement to change. It was a
deliberate requirement change to accommodate some of the
management deficiencies that were identified, in fact, with the
GAO audit, and these are actions we have taken since their
audit time in April.
Senator Coburn. Let me see if I have this right. We have
spent $5 billion so far, is that correct, Mr. Khan, and we are
anticipating $6.9 billion in overruns so far?
Mr. Khan. That is correct.
Senator Coburn. And with no guarantee that we are going to
have what we need in the end?
Mr. Khan. Right.
Senator Coburn. Who are the prime contractors for the Army,
Navy, and Air Force on these programs?
General Durbin. Sir, we have Northrop Grumman for two,
Computer Science Corporation for one, and Accenture for one.
Senator Coburn. OK.
Mr. Tillotson. We have Accenture for one, Computer Science
Corporation for one, and we have not let the contract on the
third one. That is the Integrated Personnel Pay system (IPPS).
We are still in the development of analysis of alternatives and
pending a solicitation.
Senator Coburn. Mr. Fanning.
Mr. Fanning. We have IBM, Deloitte, and GD IT.
Senator Coburn. I want to ask one final question of each of
the branches. What is your thought about the fact that GAO says
there is ineffective oversight, there is ineffective
requirement management, and there is ineffective systems
testing? What is your response to GAO's findings?
General Durbin. Sir, just for the record, for the Army, I
just highlight that we are not over cost, although we do have
one system that is over the time.
Senator Coburn. You get the ``atta boy'' for today's
hearing.
General Durbin. OK, so----
Senator Coburn. Even if your last name is Durbin.
[Laughter.]
General Durbin. Thank you. So I would say that we agree
with the GAO findings and the recommendations. That is part of
the purpose for enhancing our governance, and we have the
correct leadership at the right level that is focused on this
and putting this on the front burner. So I think we will
address each of those concerns and they are part of our plan as
we move forward.
Senator Coburn. Mr. Tillotson.
Mr. Tillotson. We also agree with the GAO's findings. We
have, in fact replaced program management on both of our major
ERP programs and actually elevated that attention, separated
them out from layers where they were kind of hidden down in the
acquisition structure. We have already implemented, again,
within the Expeditionary Combat Support System (ECSS), many of
the schedule control requirements that were identified back in
the April 2009 period, and for our Defense Enterprise
Accounting Management System (DEAMS), we are in the process of
doing the same again. Our Integrated Personnel and Pay System,
which is the replacement for Defense Integrated Military Human
Resources System (DIMHRS), will lay that in from the beginning
because we are taking those lessons learned from that. So the
answer is we are taking the review very seriously. We actually
appreciate the review. We have had similar additional reviews
from the OSD level, so our partners at the DOD DCMO have also
been paying attention to this, and quite frankly, we take the
feedback seriously.
Senator Coburn. Mr. Fanning.
Mr. Fanning. We also have new program managers, or have
replaced the program managers in both the programs, definitely
instituted increased oversight. I think the program managers
would agree strongly with that. Testing is another area where I
think we have made substantial improvements, as we have with
requirement mission creep, although that would be of your three
the one that I think we still need the most effort on, but that
is tied into the new very senior-level oversight that is paying
attention to these programs.
Senator Coburn. Would you indulge me a couple of minutes?
Thank you.
Correct me. My understanding was most of these purchases
were supposed to be essentially off-the-shelf programs. Is that
not correct?
General Durbin. Yes, sir.
Senator Coburn. Is that correct?
Mr. Tillotson. Yes, sir. That is correct.
Senator Coburn. And the changes were supposed to be minimal
when we started this, correct? The idea was to take a proven
system and interject there.
Mr. Tillotson. That is correct, and we are, at least within
the Air Force, are maintaining true to that direction.
Senator Coburn. OK. And so the only other question that I
would have is going back and looking at our problems with
procurement, because what I am seeing at this hearing is really
the same problems we are seeing throughout the Pentagon with
difficulties with procurement. Is any of that a problem with
our procurement officers directly? Is it a problem that we have
lost experienced staff? Where is our problem? I mean, it is not
just in our auditing attempts and in our IT attempts that we
are having difficulty, you all would agree with that, across
the services. We are having difficulty with procurement. So
where do you see the problem?
Mr. Tillotson. Again, I will speak only for the Air Force
and I will defer to my colleagues for their inputs. The
problems we are seeing within the Enterprise Resource Planning
System deployments right now tend to be stemming not so much
from the software itself, which to your point is purchased
commercial software, but these systems require the enterprise
as a whole, the Air Force as a whole, to actually make some
fairly substantial business practice changes, some fairly
substantial data changes in other systems, and then to actually
deploy that across a fairly large target audience. That is
actually where most of the time and money is being spent.
Senator Coburn. So the cost overruns are not really with
the package you are buying. It is adjusting the rest of the
systems to feed into those?
Mr. Tillotson. Yes, sir, and also doing training to make
the workforce capable of using the new system, as well as then
deploying that system into the communications layers that exist
within the Department, so----
Senator Coburn. One final follow-up question. You are
contracting for your other systems to be able to feed in?
Mr. Tillotson. Yes. sir.
Senator Coburn. Are they cost-plus contracts, service
contracts?
Mr. Tillotson. I cannot give you a universal answer. Some
may be cost-plus. Some are actually in sustainment, so they are
probably on a sustainment contract of some kind.
Senator Coburn. All right. Any other comments from the
other two?
Ms. McGrath. I would actually just like to add, put a finer
point on what Mr. Tillotson said in terms of the business
process reengineering, which is another way of talking about
what are the data requirements, understanding exactly how are
you going to use this IT capability to execute the business.
With the 2010 NDAA, specifically Section 1072, the requirement
to conduct a business process reengineering prior to the
investment is critical, and I think what the Department lacked
previously was that focus on understanding exactly how they
were going to use and execute the business process within their
enterprise prior to implementing, and what we are learning over
the last few years is that really has been an area that we have
not paid attention to. So you are talking about requirements
creep. It is requirements creep plus an understanding of how
you are going to execute the business.
So you have heard all the military departments talk about
the governance. That absolutely is part of the conversation the
equation, taking these systems forward. So I would like to
think that we are actually better managing with stronger
governance all these programs going forward by requiring each
of the organizations to articulate how they are going to use
the business prior to the implementation so we do not go
forward until they demonstrate their ability to actually
articulate that, and that is extremely key.
All of these ERPs are cross-functional in nature. They go
across their entire organization. So it is not just the
financial community. It is logistics. It is personnel. The
whole enterprise needs to understand, how are you going to
execute what you are going to execute prior to this systems
piece, and I cannot overstate that.
Mr. Hale. I would just add one thing. You asked, Senator
Coburn, whether we had an adequate procurement staff. It is not
my primary area of expertise, but the answer is clearly no. We
made cuts in the 1990s which were too large, and in the early
part of the 2000s, and we have committed to adding 20,000
people to our acquisition workforce over the next 5 years. Ten
thousand of those will replace contractors, because we think
there are too many contractors and some of them are doing
inherently Governmental work, and 10,000 will be a net add to
the size of the acquisition workforce. We also have a number of
training initiatives.
Congress has been helpful with things like the Defense
Acquisition Workforce Development Fund (DAWDF) in terms of
paying for this, but we have ways to go, and it is a high
priority with Secretary Gates. He has exempted it from the
limits that he has placed on staffs in the Department of
Defense in connection with his efficiency initiative.
Therefore, we are working this issue with Ash Carter, the Under
Secretary of Defense for Acquisition, Technology, and
Logistics. We know it is a problem.
Senator Coburn. Thank you Mr. Chairman.
Senator Carper. Those were some pretty good questions.
Mr. Hale. How were the answers? [Laughter.]
Senator Carper. Some were pretty good, but some, I will be
real honest with you, some were pretty hard to follow.
Let me just back up a little bit. I want to put this
hearing maybe in a little bit of context. We all know that we
live in a dangerous world. We know that there are threats, the
likes of which, 20, 30 years ago, I never imagined we would
face, at least not when I was on active duty or in the
Reserves. We are, as I think Mr. Hale noted, involved very much
in a hot war in Afghanistan and beginning to withdraw our
troops as the Iraqis transition to take over their own security
in Iraq.
We are a country trying to get out of a recession. I think
we are starting to, but it is slower than any of us would like,
and revenues are recovering slower than any of us would like.
We have been spending a lot of money to try to stimulate the
economy. It is kind of like one foot on the accelerator, and
now with the deficits high, starting to tap down on the brake,
among other things, a three-year freeze on domestic
discretionary spending is about to begin, the kind of work that
the Department of Defense is doing under Secretary Gates's
leadership to really carve about $100 billion out of spending
over the next 5 years.
I think Dr. Coburn serves, if I am not mistaken, I think he
serves on this Deficit Reduction Commission (DRC). Some people
do not have much hope for anything comprehensive. But with the
bipartisan agreement coming out of that Commission, I am more
hopeful, and I know you are working hard and we need for them
to be successful so that we can have a chance for success.
But all told, we are just spending a lot of money. We say
we are spending taxpayers' money, and that is true to some
extent. But really, a lot of the money we are spending is not
taxpayers' money. A lot of the money we are spending is money
that we go around the world borrowing. It is almost like we
have a tin cup and we are out there borrowing money from just
about anybody that would lend us money, including the Chinese,
and we are trying to get them to do something on their
currency, try to let their currency float, and they can push
back against us and say, we will stop buying your Treasuries if
you want to push too hard. We look to places like South Korea
and Japan, folks in Europe, Asia, the Middle East, really to
borrow the money.
As much as anything, when we think about these issues, I
want us to focus more on the need to stop doing that, to stop
doing that. And as we figure out, is this something we can do
by 2017 or not, we have to do it. We need the clear setting of
goals. We need a strategy in place. We need strong leadership.
We need buy-in up and down the ranks, including uniformed armed
services and civilian. We need to monitor progress, and we have
GAO over here trying to help us monitor progress on an ongoing
basis, and our responsibility is to provide ongoing oversight
to try to back up GAO and really to complement the work that
they are doing.
Senator McCain said there have to be consequences. There
have to be consequences, positive for good performance and
negative for not good or not acceptable performance.
I am going to ask, Mr. Khan, you are sitting on that side
of the witness table. Let us say you are sitting over here. Let
us say you are sitting over here with Dr. Coburn and Senator
McCain and myself. You are a Member of this Subcommittee
addressing this problem. This is one we have been trying to
solve for years. I think Senator McCain said we were supposed
to try to address this several years ago, and without success.
I do not want us to be here in 2017 and you be sitting out here
and the rest of you be here and say, ``Well, we still have not
made it.'' I want us to address this problem and do it in a
satisfactory way.
We have asked, what can we do to be helpful. You have
indicated that in some cases--I think Mr. Hale said with
respect to acquisition forces, more people. Replace some of the
contractors and hire other folks to come on board and help us
with the acquisition. We have done that. We have been trying to
help on the training side. I think we have provided fairly
generous monies for some of these systems to enable us to stand
up accounting systems and to do this job.
What more do we need to do? If you were sitting over here,
what would you be doing beyond what we have already done?
Mr. Khan. Mr. Chairman, I think you should continue doing
what you are doing. Oversight hearings like these will go a
long way. Like I had mentioned before, I think it will be
important to consider where all the heavy lifting is going to
be done, and I think we all recognize that most of the work,
whether it is in the ERP implementations or audit readiness, is
going to be at the military departments. So it is going to be
critical to have the DOD Comptroller's Office, as well as the
senior-level representatives from the military services to
provide you with an ongoing status so you can have a real-time
picture of what is going on and what needs to be done. I think
that would be non-burdensome.
We, for our part, are working with them, providing
oversight, and we have an open communication, with the
Comptroller's Office. We have started dialogue with the DCMO's
Office and CMOs in the military services as part of the ERP
report that will be issued shortly.
Senator Carper. Let me just interrupt. My question of you
was, what more--if you were sitting on this side of the dais,
what more would you be doing than what we are now doing?
Mr. Khan. Continuing to have non-burdensome oversight
hearings will go a long way.
Senator Carper. Dr. Coburn, when are you up for reelection?
Senator Coburn. This year.
Senator Carper. This year? How is it going?
Senator Coburn. Well.
Senator Carper. He may----
Senator Coburn. Do you want me to make a political
statement? [Laughter.]
Senator Carper. I am going to be around for at least a
couple more years, maybe even beyond that. Senator McCain is
going to be around for, it looks like at least another 6 years,
and Dr. Coburn for another 6 years. So what you are going to
have, or what we are going to have here are three guys who are
on this Subcommittee who care about these issues and are really
committed to creating what I call a culture of thrift--a
culture of thrift--not just in Defense, but throughout our
Federal Government. And we are going to have hearings. We are
not going to have them every day or every week or every month
on this subject, but we will have them at least every year if I
get to be the Chairman of this Committee or Subcommittee for a
little bit longer. And if Dr. Coburn or others want to hold
them, I will certainly be here. I just want to put that out
there very clearly.
I want to follow up on something that Senator McCain said
earlier. We appreciate your being here. We appreciate your
responses and all. I do not think we wish to imply that no
progress has been made, obviously, there are some pockets of
encouraging progress and that is welcomed and hopefully we will
see a good deal more.
I was talking with my staff about this hearing several days
ago and said, we do not expect the whole Department of Defense
to sort of stand up and all at once accounting systems,
accountability systems that basically are from soup to nuts,
from A to Z, that is not going to happen. It is going to be
maybe the Air Force, maybe the Army, maybe the Navy, Marine
Corps who will be pockets of excellence and basically help show
the way for the rest of the Department of Defense.
But I also agree with the importance of properly
prioritizing goals and knowing that there is a lot of work
still to be done to get ourselves to a clean audit.
Let me just ask Mr. Khan, do you believe that we have yet
to see a complete plan to achieve audit readiness and to
achieve the key goals for better financial management for the
Department of Defense? Let me say that again. Do you believe
that we have yet to see a complete plan to achieve audit
readiness and to achieve the key goals for better financial
management for the Department of Defense? And also, let me just
add a P.S. to that. What must the Department of Defense and the
military services do to ensure a more complete plan which will
get us to the point where we will actually see the Department
ready to conduct successfully a financial audit?
Mr. Khan. The current plan is primarily focused on the
short-term, that is, to get the statement of budgetary
resources auditable. That is the budgetary information used by
the managers on a day-to-day basis. And the second one is the
existence and completeness of mission critical assets. The plan
itself does not go into the remaining piece of the financial
statement auditability, if you are looking to achieve full
financial statement auditability. So the remaining pieces have
yet to be filled in. In the status report that was issued in
May, it was mentioned that additional information is going to
be forthcoming in the November issue. So to answer your
questions, there are several steps which need to be completed
so we can have a complete picture of how 2017 is going to be
attained.
Similarly, at the military departments, they need to also
have a plan, which they are working on, which needs to align
with the departmental plan. That was a key recommendation in
our May 2009 report, and in our discussions with the
Comptroller's Office, we believe that the military services are
working on it, though we have not yet evaluated the plan.
So those are the two steps which will be critical for us to
have a plan that can be evaluated, that can be followed
through.
Mr. Hale. May I add to that?
Senator Carper. Yes, please. But before you do, let me just
kind of stay with you for just a moment, Mr. Khan. You heard
our witnesses testify. We have heard folks from each of the
branches of our Armed Services. What do you find most
encouraging in what you have heard today? What should we find
encouraging in what we have been told?
Mr. Khan. Very much the commitment. To have all the DCMOs
here from the services and getting down to the granular level
of detail, which is really needed to be able to manage this
process, is very encouraging. Similarly, GAO is very encouraged
by the plan and the beginning process of the implementation to
bring the plan in unison. Before the FIAR plan or before the
prioritization, each of the military services had their own
plan. The FIAR aligns it into one direction by defining the
priority that Mr. Hale did last year. That helped to make sure
that the entire Department was going in one direction, which is
of great benefit.
Senator Carper. OK, thanks.
Mr. Hale, go ahead, please.
Mr. Hale. Mr. Chairman, if we try for everything, I am
afraid we will again get nothing. I believe firmly we have to
pick some priorities and go after them, and we have done that.
And the only way in my mind to set those priorities is to focus
on the information we use to manage in the Department of
Defense. I mean, it seems to be common sense. I believe we have
done that. I am encouraged to hear that my colleagues in the
services seem to agree so that we do not have to order them to
do things. They feel that we are approaching, or trying to
improve audit readiness and achieve audit readiness for data we
actually need.
Then there is the issue of what to do about the rest of the
information, which, frankly, we do not use to manage. It is
mainly the historical costs of assets. Under current audit
rules, I would have to spend the taxpayers' money to go out and
gather data on what we spent on the F-22, including every
modification that we have done to it. I would have to allocate
the Program Office costs to it. I would have to support
historical cost with invoices for it to be auditable. We do not
use that information for managing the Department. We use the
Selected Acquisition Reports (SARs), to manage costs. We do not
use historical cost information.
Therefore, I am looking for ways to either change the
rules--I would like to do that--but if I am not allowed----
Senator Carper. Who makes the rules? Are we talking about
laws----
Mr. Hale. Well, it is the----
Senator Carper [continuing]. Or are we talking about
regulations, or are we----
Mr. Hale. Yes, to some extent OMB, and ultimately the
Financial Accounting Standards Advisory Board (FASAB), would
pass on this. I am not trying to point fingers. We owe them a
proposal that makes sense for the rest of the data. I want to
spend 80 percent of our time trying to do something. I want to
get something done, and I know you do, too. I am frustrated by
this, also. But I understand we have to address the rest of the
issue, and we are thinking about it. We need to do it in some
way that is high level and relatively inexpensive, in my view,
so we do not spend a lot of money improving information that
will never use.
Senator Carper. When I was a kid growing up, my father used
to say to my sister and me--she is about 15 months older--he
would say to us from time to time when we were kids doing stuff
around the house or the yard, he would always say to us, ``Just
use some common sense.'' We must not have used it very often,
because he said that a lot, and he did not say that quite
nicely.
But he would be pleased to know--he is now deceased, but he
would be pleased to know that as I take up my responsibilities
here, I think a lot about using common sense, and there are
instances when you are going to see when we do not, and the
instances where we are not using common sense may be things
that are internal within one of the various Armed Services,
they may be internal to the Department of Defense, may flow out
of something out of OMB, may flow out of some kind of law that
we have passed.
One of the things I would like to encourage through the
course of these hearings is when the Congress is doing things
that, frankly, do not make common sense, that do not really add
up, you need to tell us. When there are resources that are
needed, whether there are 20,000 people who work in
acquisition, whether it is voting to confirm somebody that is
nominated for one of these confirmable positions, you have to
have the kind of relationship, particularly with our staff
members, to let us know that, and we need to be advised by
them, by the people on my left and right behind me, of those
points.
Let me come back, if I could, to Mr. Fanning, please. Mr.
Fanning, I understand that the Marine Corps--by the way, we
just saw the department of one of the great Members of our
Subcommittee staff, Eric Hopkins, who has been to a lot of
these hearings over the last 3 or so years. He is off to become
a Marine Officer. He reports, I think, the first of October
down at Quantico and we miss him and wish him well.
But I understand the Marine Corps will be the first of the
military services to have a major financial piece under audit.
Is that correct?
Mr. Fanning. It is correct. It is under audit right now.
Senator Carper. Good. I think the U.S. Marine Corps was the
first military service to assert audit readiness of a financial
statement since the Department first articulated its financial
improvement strategy, I want to say maybe 5 years ago, December
2005 is what I am told. In fact, I understand the Marines put
out a report showing the benefits of improving their financial
systems, including a net savings of money, some, I guess, $15,
$16, $17 million.
So, if you will, just give us the status, please, of the
Marine Corp's Statement of Budgetary Resources audit. What type
of opinion do you expect that they will be receiving on this
first-year audit, please?
Mr. Fanning. I think Mr. Hale has more insight into this.
It is underway right now. I am optimistic about the opinion,
but we will know soon. We do not yet know. We have learned a
number of lessons. It is much harder than we thought it was, so
it is taking longer, so I think that the major issue at stake
here is just the timing and how much longer we have. But I am
optimistic about the progress we have made.
Mr. Hale. We have asked the Marines to take a lot of
beachheads in our history----
Senator Carper. Yes, we have----
Mr. Hale [continuing]. And we are asking them to take a
financial beachhead, and I appreciate their efforts. As Eric
said, we have learned a lot from the audit of their Statement
of Budgetary Resources. It is budget data. That is one of our
high priority areas. The deadline for an audit opinion is
November 15. We are not going to make that. We will get a
disclaimer, that is the Marines will.
We will then decide whether to continue the audit. We have
struggled, to be honest with you. Frankly, the problems with
our business processes have been greater than we expected and
we are not going to complete the audit by November 15. We will
have to decide whether to continue that audit and seek an out-
of-cycle opinion, or stop it and go on to fiscal year 2011.
Regardless of what decision we make about the audit, we
have learned a lot, and I am still cautiously optimistic. I am
optimistic that we are going to get there. The Marines are
committed, as only Marines can be, and I think they will get to
a clean audit opinion and will be a major accomplishment for
the Department and we will have learned much that we can apply
to the other services.
Did that answer your question?
Senator Carper. Yes. That is good. I know when the Naval
Academy plays the Air Force Academy or Army-West Point that
there is a pretty good competition in the athletic area. Maybe
could we look for a little competitive spirit here, as well?
Mr. Hale. Absolutely. I served as the Air Force Financial
Manager, and saw benefits from interservice competition, but we
must use correctly. You do not want to use it incorrectly. Used
correctly it is a powerful tool.
I will say for the record, the Department of the Navy is
the leader here. The Army and the Air Force are working hard,
but the Navy is in the lead, and the Marine Corps in
particular, and I appreciate it.
Again, what we have to do is learn from the Marine Corps'
audit. We do these quarterly meetings of this governance board.
Every one that I have attended has included a briefing from the
Marines about the problems they are having with this audit
lessons learned that must be passed, on to the Air Force and
the Army. So again, I appreciate what they are doing.
We will get there. It is just--it is difficult. Our
business systems and processes are not conducive to audits.
They are pretty good at getting the resources out to the
warfighters. I think we do well there. The commanders are happy
with the service they get. They are not, as I said, conducive
to audits, and we are struggling, but we are going to get
there.
Senator Carper. Does that say something about the kind of
training that we provide for some of our officers? Not every
officer needs to be trained to do this kind of thing. Some do,
some do not. Many do not.
Mr. Hale. Eighty percent of the Defense Financial Managers
are civilians. About 20 percent are officers. Both the civilian
and officers are trained to handle our money in the ways that
are legal and effective while getting it out to the
warfighters, to obey the laws, and we do pretty well at that,
unfortunately, not always, but generally we do. We have not
focused on standard business processes, and we have too many
systems and that just drives auditors nuts because you cannot
reconcile the data and it is very difficult for them.
We have to move toward more standard processes, but I do
not want to lose the effectiveness of the overall-- of the
ability to support the warfighters. That has to stay there. We
have to find a way to do both, and that is the challenge.
Senator Carper. Yes, that is.
I am not picking on the Army or the Air Force, but let me
just take this opportunity to ask either Mr. Fanning, Ms.
McGrath, or Mr. Hale, what do you think, in terms of lessons
learned from the work that is going on in the Navy and the
Marine Corps in particular, but what are some of the lessons
learned from the Marine Corp's Statement of Budgetary Resources
audit?
Ms. McGrath. If I can start----
Senator Carper. Would you?
Ms. McGrath. Mr. Hale identified a few of the challenges in
terms of our business processes and the fact that our systems
are not interoperable. When the auditors sort of taste the
paper in terms of the audit trail, it really highlights, I will
say, how broken the business processes are or how much more we
need to document what they are. And I mentioned a few minutes
ago the importance of this thing called business process
reengineering, understanding how you do what you do. It really
highlights how well we are not documented when we are going
through audit.
And so we use that as a big lesson learned in terms of our
future investments, so sort of the systems on the board, they
are taking the lessons learned from the Statement of Budgetary
Resources audit from the Marine Corps and saying, what did we
find and how do we influence our systems and our processes
going forward, because if we do not capitalize those lessons,
then shame on us for not then applying those to the future
investment.
So that is a critical area that we have learned, and I also
mentioned earlier, I used a term cross-functional, meaning all
different types of businesses in organization. They almost
participate, and in the audit, they almost participate in order
to achieve the auditability in the records, and again, that is
a big lesson learned as we are implementing these new systems
such that it is not just the financial folks with their
implementation. It takes the entire organization, Army, Navy,
Air Force, or department to successfully implement these, and
those are significant lessons that we are learning from the
Marine Corps audit that will drive both behavior going forward
and also systems implementation.
Senator Carper. Mr. Fanning.
Mr. Fanning. I would really just echo what Ms. McGrath
said. I think as big as the Marine Corps is, we are dependent
on agencies and organizations outside to reach a clean opinion,
which is why we need to work on this together, which is why Mr.
Hale has pulled us all together.
Mr. Hale. I could bore you to death with what we have
learned from the Marine Corps audit, however, I will only give
two examples to give you a sense of what we learned.
We have struggled to balance our checkbook with Treasury--
it is formally known as Funds Balance with Treasury but because
we do not have the data and the systems that track it in the
detail that auditors expect, I do not know whether we have
finally gotten the beginning balance right.
The other example I will give you is contract close-out. We
have a habit in the Department that when we complete the
contract and get what we ordered, there is a little money left.
The contract has to be formally closed. There has to be
reconciliation. Sometimes there has to be an audit to determine
the final payment amounts and if everything is correct. Many of
those things do not get done because people are busy. That is
part of the job for those 20,000 folks that we need to add to
the acquisition workforce. Therefore, we have many open
contracts that have caused us problems in this audit.
There are two pages in my notes of things we have learned.
I cannot remember them all, but I hope it gives you a flavor.
It is not sexy stuff. It is blocking and tackling. We have just
got to get better at it.
Senator Carper. OK. I am tempted to just ask--we have a
little bit of time here--I am just tempted to ask each of the
witnesses, let us kind of go back to--you have heard some of
the questions my colleagues and I have asked. You have heard
the responses that you have given, that your fellow witnesses
have given. You all had a chance to give an opening statement,
an abbreviated or truncated statement because you just could
not talk forever. Otherwise, we would never get out of here.
Just any thoughts that kind of occur to you as we are going
through this hearing that you would like to put on the table,
as well?
And while you are thinking about that, let me ask a
question that kind of goes back to a comment I made at the end
of Senator McCain's questioning. He was asking, has anybody
been fired for their inability to move the ball down the field
in terms of these goals that we are talking about? A question I
said, ``Maybe it is not just a firing issue, but maybe a hiring
issue, as well.'' And we talked about the 20,000 people who
work in acquisition.
And I always go back--Mr. Hale, did you know John Young?
Mr. Hale. Yes.
Senator Carper. Does Ash Carter have his position now? Is
that the way----
Mr. Hale. Yes.
Senator Carper. OK. Among the things, and we have a lot of
hearings that we sit through, I will never forget that day the
fellow who was then John Young's deputy who came in and
testified, he said, basically--I mentioned this earlier--he
said--we asked him what kind of turnover he got from his
predecessor and he said, ``Well, the guy left 18 months before
I got here.'' And how many direct reports do you have, and he
said, ``I am supposed to have six, but we only had two when I
came on board.''
That suggests to me that the Department of Defense was not
doing a very good job, in some cases, of filling key positions.
And maybe it partly is our problem, not doing a good enough job
confirming, or the administration, whether it was President
Bush or President Obama, doing a good enough job of nominating
people, good people, to serve in these positions. Probably no
one is devoid of blame.
But on the hiring side, on the confirmation side, on the
nominating and vetting side, what more can be done? That is not
sexy stuff, but it is blocking and tackling, and let me just
ask, how are we doing there?
Mr. Hale. I have been through confirmation twice. My wife
made me swear I would never do it again.
Senator Carper. Did you take the oath? You said you would
never do it again, or----
Mr. Hale. She made me promise I would never do it again. I
did not agree. [Laughter.]
It is an onerous process. I understand why the President
and the Congress or the Senate would expect to have a thorough
vetting of candidates. It does take a long time, and frankly,
it often gets tied up in other issues--I did not get put on
hold this time, but when I was the Air Force FM nominee, I was
on hold for about 4 months because a member wanted some more C-
130s at a base. It had nothing to do with me. It is just the
process. Can we do better? Yes, we need to find a way to speed
it up and I make that statement in a bipartisan fashion. I
think it applies to both parties.
Most of the FMs--it is a little less true in acquisition. I
only have one----
Senator Carper. Let me just follow up on this a little bit.
Do you, in your experience--and anybody else who wants to
respond to this, feel free--but in terms of the positions that
we have in the Department of Defense that you are aware of that
are confirmable and those which do not require confirmation, do
we have too many that require confirmation?
Mr. Hale. Oh my goodness. Well, probably. I mean, now you
are going to ask me which ones----
Senator Carper. No, I am not going to ask you----
Mr. Hale. There are about 50 confirmable positions in the
Department of Defense, about 30 in the Office of the Secretary
of Defense, 20 in the services. So you can draw the conclusions
you want. I think there probably are enough and maybe too many.
Senator Carper. Right.
Mr. Hale. One of the things that I always look for is the
continuity of civilian senior leaders--of career civilian
senior leadership, because there will be a hiatus when we go
through changes of administration. It is inevitable. Therefore,
you need to have a back-up plan in terms of who will run the
show in the absence of the confirmed appointees.
I must say, I spent a long time--I have never been in the
civil service, but I worked for the Congressional Budget Office
and was more or less career person for a number of years before
taking political appointments. Being a political appointee
changes your point of view. It changes your time horizon. I
know I only have a couple of years, both because of my wife and
probably because of the politics. Meanwhile, I want to get
something done, and that is why you hear me talk about interim
goals with regard to this and other aspects.
I think there is a proper place for confirmed appointees.
We may have a few too many but there is a place for them.
Senator Carper. Speaking of getting something, I go back
and forth to Delaware at night and come back on the train in
the morning, and usually I drive from my home to the train
station, which is not that far away. Sometimes I will listen to
National Public Radio (NPR) coming in and catch the morning
news. A couple of weeks ago, they had a report on a study that
was done where they asked--it was not NPR that did the study,
it was someone else that did the study, and they asked what
were the factors that gave people satisfaction in the work that
they did. What gives you joy or satisfaction in the work? And
they asked a whole lot of people around the country what gave
them--and they asked, is it salary? Is it benefits? Is it your
working conditions, the people you work with, your office space
or whatever work space you have? What is it?
And the winner was, getting something done. People really
want to feel like they are getting something done that is
worthwhile, and as a recovering Governor, one of my
frustrations here is, especially in a little State like
Delaware where Democrats and Republicans kind of like each
other----
Mr. Hale. Mm-hmm. [Laughter.]
Senator Carper [continuing]. And we have a tendency to
actually work together more often than not, it is a real
frustration, just getting something done.
Mr. Hale. I call that driving home satisfaction. It does
not happen every day, but there are times when you are driving
home and I can think, I really was able to do something to help
the people in the Department of Defense.
Senator Carper. Let me go on. I said I was going to ask
each of you to see if there are some thoughts that occurred to
you during the course of this hearing that you would like to
put on the table. General Durbin, let me just start with you,
if I could. Please, General Durbin.
General Durbin. Thank you, sir. Three quick comments. Back
to Secretary Hale's comment about the audit standards, I have
learned more in the last 2 years and specifically the last 4
months associated with what audit readiness means in the audit
standards, and I will tell you that at a certain point, you get
to where your father would say, perhaps we have gone beyond the
common sense, specifically with valuation, historical valuation
and so forth. So I would ask that you favorably consider the
request that Secretary Hale gave, because I think it has a lot
of merit.
Senator Carper. OK.
General Durbin. We would still move the needle in the right
direction and we would do what is right for the Department and
we would manage it much better and we would support our
soldiers, sailors, airmen, marines.
The second is that perhaps the same request might come for
some potential changes, I do not know what they might be and I
do not know if they will be, but from the IT, the Information
Technology Acquisition Reform Task Force that we are focused on
inside the Department. I might also lay out some appropriate
changes for how we handle the acquisition of IT much different
than how we do for major weapons systems. I will tell you,
there are significant differences.
And then the third point would be I really appreciate you
raising my competitive spirit in your comments about our sister
service. Those who are my direct reports are probably really
excited about you raising my competitive spirit.
Senator Carper. Good. Thank you. Mr. Tillotson.
Mr. Tillotson. Thank you, Mr. Chairman. I will start with
the reiteration, I think, of a message we all gave you. We are
collectively committed and reasonably confident that 2017, for
at least those priorities that Secretary Hale has set, are
achievable. That goal is not without its challenges. You heard
from Mr. Khan that the ERP systems, the Enterprise Resource
Planning Systems, remain both a key contributor, but also a key
challenge, and the breadth of that challenge is one of the
things that keeps us at least us in the Air Force and me
personally focused.
So the good news and bad news is, we do have people paying
attention, and I think that is a major message to give back to
you, is the senior leadership within the Air Force, and I think
you have heard from my colleagues, is very focused on achieving
this outcome because of the second point, which is that
Secretary Hale has focused the effort on some things that carry
with it value to the Department, and more importantly, value
not just to the financial side of the Department, but value to
the mission side of the Department, as well.
It is hard to argue with a value proposition that says it
would be nice to know where your cash is and it would be nice
to know where your equipment is. That is a hard thing for
anybody to argue with, and there is huge benefit to the
warfighters to finding both of those things because it means we
will provide not just the information about those and enhance
the decisions, but quite frankly, we will make sure that the
warfighter in the field gets the things they need at the time
they need it. So there is huge benefit to focusing on that and
I applaud Secretary Hale for having focused that effort.
The third thing----
Senator Carper. Let me just interrupt you. That was a
wonderful riff you just gave us there. It is good to know where
your cash is. It is good to know where your equipment is. I am
glad we got that one for the record.
Mr. Tillotson. Yes, sir. I am the class dummy in the group,
so I have to bring it down to my level, so there you go.
The third thing I would note is that while I appreciate
your challenge on--or the challenge of competition, joint
warfighting is about, the way I phrase it from an old college
phrase, cooperate and graduate. And so the truth of the matter
is, we are watching with great interest what the Navy,
Department of the Navy, and the Marine Corps are doing, because
to Secretary Hale's point, they are, in fact, kind of leading
the way on this, which is very helpful to the rest of us.
What is perhaps even more helpful is that there is a very
open and transparent spirit amongst the people you see here. We
talk to each other routinely. We share information. We share
bad news stories along with good news stories because we learn
from them, and I think that is a major foundation of success
because it is the Department as a whole that has to succeed, to
the point that Mr. Fanning made. The Marine Corps can do a lot
of things internally, but a lot of the information they get
come from other services, other departments, other defense
agencies, and so learning those lessons jointly is kind of a
key and essential part.
So while I love the competitive spirit component of this, I
am also very much in the joint, let us cooperate and graduate,
and quite frankly, I am gratified that all my colleagues share
that view, and I think that is something that should be an
encouragement to this Committee.
Senator Carper. All right. Thank you. Mr. Fanning.
Mr. Fanning. Thank you, Mr. Chairman. A couple of things.
First, business process reengineering. I think we still have
not placed enough emphasis on that as a department. Ms. McGrath
is leading the charge on that and I wholeheartedly applaud. I
think part of why we have some problems with these systems that
extend so far back is we made them acquisition programs too
soon. I look at technology as an enabler and a tool, not as the
solution. And until we get our governance structure and our
business processes in place in very large scales, we should not
be applying technology on top of them. What we are learning is
that it is as easy to automate bad processes as it is to
automate good processes, so we have to get the processes right
first.
The second thing in the category of be careful what you
wish for, you asked what more you could do, and I think that
the oversight from Congress, including the GAO, is very
important in supporting what we do. These charts, these numbers
definitely get the attention of the leadership, and without
that level, at the four-star level, we really cannot get these
things done, because in the Navy Department, for example, the
commands are run by three-stars and it takes a four-star over
the top to remind them that there is a larger enterprise than
their command.
And something that Mr. Tillotson said and others have said,
the best way to get the attention of the leadership is to tie
it to the warfighter, and these numbers do that because they
see now how these numbers are competing against other things.
But also, when they see the benefit of these programs, that it
is not just the business side but it actually does lead to
benefit for the warfighter, it gets their attention very fast,
and I think they see that now in a way that they did not
before. There is tremendous cost to all the departments and DOD
as a whole, a whole level of oversight that I had not seen
before.
And finally, I just echo Mr. Hale and say for those of us
who are political appointees, we are very sensitive to how
little time we really have to impact things, and so we look at
these 2017 goals and say, ``What can we really get done? ''
Where can we advance the ball for the next team, or what can we
do to give escape velocity to something we are working on.
Senator Carper. Thanks very much. Those are good points.
Ms. McGrath.
Ms. McGrath. So I only have two that I would like to
mention in closing, and one was mentioned by General Durbin,
which is the information technology acquisition reform efforts.
He mentioned a task force. Secretary Lynn has asked that I lead
a task force within the Department focused on how do we deliver
information technology capabilities faster than we currently
do. And a lot of it goes to the requirements, conversations we
have in terms of scoping the systems or capabilities to the
right level, setting delivery timelines that are shorter, they
are months not years, so months mean more like 18 months as
opposed to 5 years so that we are actually delivering
capability in a much more incremental fashion, closer to what
the industry does today. So we will be providing our
recommendations, some of which may require legislative changes,
we are not sure just yet, but look forward to working with the
Congress on enabling that capability.
And the second is, frankly, thanks for the Chief Management
Officer legislation. I think what you have heard today is not
just today, it is what we do every day, and I think both--I
think everyone has mentioned both the collaborative nature and
the--through the interoperability that we have achieved within
the Department. I think that structure is key, bringing the
enterprise focus at the component level but also at the
departmental level with the Deputy Secretary, the Under
Secretaries of the military departments, and their deputies. So
it has been critical, and for that I thank you.
Senator Carper. You are welcome. Mr. Hale.
Mr. Hale. Mr. Chairman, we have talked about some of the
technical things we need. Perhaps the most important other
ingredient is, continuity of commitment. This has to survive at
least one administration, maybe a couple, and it is a real
challenge because the people in my job and others change and
their knowledge and commitment to these kinds of issues is
different. I would offer two thoughts about what we are trying
to do, and one that you can do that would help.
The one, we are trying--we just finished a round of
briefings with the Under Secretaries and the Vice Chiefs and
the DCMOs. My Deputy Chief Financial Officer is right behind
me, Mark Easton, who has done a lot of the work----
Senator Carper. Mark Easton, would you raise your hand?
Mr. Hale. Say again?
Senator Carper. Mark--OK. I asked him to raise his hand.
Mr. Hale. Right here. I really appreciate what he has done.
Senator Carper. I notice that as you speak, his lips move.
I do not know---- [Laughter.]
Mr. Hale. He is probably saying, what are you saying?
Senator Carper. You guys are pretty good at this.
Mr. Hale. We try. We have asked the services to put some
commitment to the interim goals that we have specified into the
SES performance evaluations, or for the right people so that I
hope we will begin to institutionalize some of this process in
a way that will survive an administration or two, the amount of
time that I think it will take to complete it.
We are trying to do that and take other steps. It is not my
habit to ask for hearings, but I would agree with Asif Khan
that periodic hearings by the Congress are action-forcing
events for the Department. They focus our attention and they
are a good idea. I think it is something that--it is part of
Congress's job is an important way to establish that continuity
of commitment.
Senator Carper. Thank you. Dr. Coburn said during the
beginning of his comments, he said, this is not a ``beat them
up'' sort of hearing. We do not do hearings of that nature. We
want to put people on the spot sometimes. We want to commend
people and folks that are doing an above-average job. We want
to find out what we can do better to enable good things to
happen, in this case, in the Department of Defense. We believe
we have an oversight responsibility. That is part of our job
and we are trying to meet that part of it.
Mr. Khan, do you want to offer a comment or two as we
close?
Mr. Khan. Yes. Thank you, Mr. Chairman. I just want to
comment that the plan for the most part, the how and the why
has been defined. Now the ``doing it'' is very important. That
is the implementation part.
The other point I wanted to emphasis is that key to DOD's
financial management improvement effort is its ability to
develop a sustainable processes, and not just for compliance to
get the number for the financial statement. It is to have the
information which is provided to management on a continuous
basis, which is useful, reliable, and timely. It is critical.
In that respect, if I may just respond very quickly to Mr.
Hale's comments about historical cost evaluation, we agree with
his position that it is something which may not be cost
effective. The standard does allow for estimation. However, we
feel that on a go-forward basis, capturing cost information is
very important for DOD because that is going to provide the
granular level of information to determine their cost drivers
so you can compare programs amongst each other to see which one
is more costly and where efficiencies could be derived.
Third, the current leadership team is showing great
commitment. We have said in the past that there should be a
provision in the strategic plan implementation efforts for
personnel turnover so there is continuity and sustainment
turnover across administrations.
Senator Carper. All right.
Mr. Khan. Thank you.
Senator Carper. Good. Thank you.
Well, let me close it out by again thanking each of you for
joining us today. Thank you for your preparation. Thank you for
especially the good work that is going on, not only by you, by
the people that you lead, part of your team, and those that are
part of that team.
The other thing I want to say is there is kind of this
recurring theme. This Subcommittee, and I think this Committee,
maybe as much as any in this Senate, feel that we have an
obligation to try to create this culture of thrift that I have
talked about and to try to do a good job of providing in a
constructive way oversight. And it is not something that we
just started doing yesterday. It is stuff we have been doing
for a while and are going to continue it as long as the three
of us who were here today happen to serve.
This hearing has focused, on a major challenge for the
Department of Defense, and that is creating a modern and
effective financial management system. Without doubt, there is
good work that is taking place. You all have talked about some
of it, and there are a lot of dedicated people who handle the
work in the trenches and other places around the world doing
very dangerous stuff. Even as we meet here today, there are
people who are a lot closer to home who handle the finances and
the economy within the Department of Defense. And I think there
is a growing commitment to improving. Everything I do, I know I
can do better, everything, and we have to--I think we all
realize that, we understand that, and we just have to be
committed to that every day.
Having said all that, this hearing has demonstrated there
is a good deal more that can be done and that needs to be done,
and all of us here in Congress share a responsibility to do as
much as we can, as you do, to curb what we call waste and fraud
and abuse. It is really this notion that we are spending all
this money we do not have. We are spending all this money we do
not have. It is just not sustainable. Otherwise, we will end up
like Greece, and it is not what I want. I know it is not what
you want. So this is just extremely important, really, I think,
for our country and for the confidence that the people invest
in us who send us here to work for them.
Not only will achieving the goal of becoming ready to pass
an audit help the Department of Defense ensure that billions of
tax dollars are spent properly, but as some of you have pointed
out, it will also have the benefit of making certain that our
troops have the equipment that they need and have it where they
need it. So again, we thank you for being with us today and for
your preparation and your responses.
We have some people on our Subcommittee who were not able
to join us. I know they have an interest in these issues. And I
think we have a little bit of time, do you know, Peter--2 weeks
that we give our Subcommittee Members to send follow-up
questions to you. If you receive those, we just ask that you
respond to them promptly.
We look forward to continuing this dialogue, this
conversation, and we look forward to even more progress the
next time we sit in this room at these tables and have that
conversation.
With that in mind, I think this--and let me say to our
staffs, Democrat and Republican, thank you for the work in
helping us prepare for today and for everyone on the other side
of this dais, as well. Thank you.
And with that, this hearing is adjourned.
[Whereupon, at 4:28 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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