[Senate Hearing 112-445]
[From the U.S. Government Printing Office]
S. Hrg. 112-445
IMPROVING FINANCIAL ACCOUNTABILITY AT THE DEPARTMENT OF DEFENSE
=======================================================================
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
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 15, 2011
__________
Available via the World Wide Web: http://www.fdsys.gov
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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 RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri ROB PORTMAN, Ohio
JON TESTER, Montana RAND PAUL, Kentucky
MARK BEGICH, Alaska JERRY MORAN, Kansas
Michael L. Alexander, Staff Director
Nicholas A. Rossi, Minority Staff Director
Trina Driessnack Tyrer, Chief Clerk
Joyce Ward, Publications Clerk and GPO Detailee
------
SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION,
FEDERAL SERVICES, AND INTERNATIONAL SECURITY
THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan SCOTT P. BROWN, Massachusetts
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
CLAIRE McCASKILL, Missouri RON JOHNSON, Wisconsin
MARK BEGICH, Alaska ROB PORTMAN, Ohio
John Kilvington, Staff Director
William Wright, Minority Staff Director
Deirdre G. Armstrong, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Carper............................................... 1
Senator Brown................................................ 4
Senator Coburn............................................... 5
Prepared statements:
Senator Carper............................................... 35
Senator Brown................................................ 38
WITNESSES
THURSDAY, SEPTEMBER 15, 2011
Hon. Robert F. Hale, Under Secretary of Defense (Comptroller) and
Chief Financial Officer, U.S. Department of Defense and the
Honorable Elizabeth A. McGrath, Deputy Chief Management
Officer, U.S. Department of Defense............................ 6
Hon. Gladys J. Commons, Assistant Secretary of the Navy,
Financial Management and Comptroller, U.S. Department of the
Navy, accompanied by Caral E. Spangler, Assistant Deputy
Commandant (Resources), U.S. Marine Corps...................... 10
Hon. Mary Sally Matiella, Assistant Secretary of the Army,
Financial Management and Comptroller, U.S. Department of the
Army........................................................... 12
Hon. Jamie M. Morin, Assistant Secretary of the Air Force,
Financial Management and Comptroller, U.S. Department of the
Air Force...................................................... 13
Asif Khan, Director, Financial Management and Assurance, U.S.
Government Accountability Office............................... 16
Alphabetical List of Witnesses
Commons, Hon. Gladys J.:
Testimony.................................................... 10
Prepared statement........................................... 49
Hale, Hon. Robert F.
Testimony.................................................... 6
Prepared statement........................................... 40
Khan, Asif:
Testimony.................................................... 16
Prepared statement........................................... 70
Matiella, Hon. Mary Sally:
Testimony.................................................... 12
Prepared statement........................................... 54
Morin, Hon. Jamie M.:
Testimony.................................................... 13
Prepared statement........................................... 62
APPENDIX
The chart referenced by Senator Carper........................... 93
Questions and responses for the Record from:
Mr. Hale..................................................... 94
Ms. McGrath.................................................. 112
Ms. Commons.................................................. 123
Ms. Spangler................................................. 127
Ms. Matiella................................................. 128
Mr. Morin.................................................... 135
Mr. Khan..................................................... 143
IMPROVING FINANCIAL ACCOUNTABILITY AT THE DEPARTMENT OF DEFENSE
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THURSDAY, SEPTEMBER 15, 2011
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 2:34 p.m., in
Room SD-342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper, Brown and Coburn.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. The Subcommittee will come to order.
Senator Brown, I welcome all of the witnesses and our
guests. Nice of you to come. It is an important hearing and we
are delighted that you could be with us. Thanks for your
preparation and for your willingness to respond to our
questions.
Normally, when we have a hearing of this nature, I
introduce each of our witnesses and provide some background on
each. We are going to start voting I think at 4 o'clock, and so
I will mention your names, your titles but we are not going to
tell where you went to high school and how many kids you have
and stuff like that. So, this will be the shorthand version.
But we are happy to be here. This is something we have been
looking forward to, and we have done this kind of hearing
before, and we are going to keep doing it until we get it
right.
Since the 1990s, Federal agencies have been required to
produce auditable financial statements. Currently, the
Department of Defense (DOD) is incapable of doing this. In
fact, it is one of two departments, the other being Homeland
Security, although Janet Napolitano, the Secretary there, told
us this week that they are making some progress, and I think
they are. But the books at the DOD I am told are so bad that
auditors cannot even attempt to perform a complete audit, and
that is clearly unacceptable.
A year ago we met in this same room and held a hearing,
maybe a hearing with the same title, I am not sure. But we
talked about how the Department of Defense was going to meet
its statutory deadline of achieving financial auditability by
2017. And we are here today to get an update. We know the
Marine Corps is currently attempting, its second try at
auditing a portion of its financial books and are learning from
these audits.
As our witnesses and my colleagues know, successful
financial statement audits are simply the outcome of strong
financial management. Keeping a Federal agency's books in
order, ensuring good financial controls, and getting a clean
audit helps to ensure that taxpayers are getting the services
they paid for at a price we can afford. Unfortunately, these
basic managerial tasks have proven challenging to the
Department of Defense.
Federal agencies should always strive to be good stewards
of our taxpayer funds; but as we struggle to address our
massive Federal debt and deficit, this effort has taken on an
even greater importance. We must improve the basic financial
management practices at the Department of Defense, the
Department of Homeland Security (DHS), and throughout the
Federal Government. After all, we cannot effectively identify
areas to reduce spending if we do not know how much and where
we are spending that money in the first place.
Unfortunately, most Americans question whether those of us
in government are capable of making the kind of tough decisions
that they and their families make with their own budgets and
with their checkbooks every month.
They wonder why a massive arm of the Federal Government
like the Department of Defense can be so incapable year after
year of doing the same kind of work. It is hard to blame those
citizens for their frustration and skepticism with us.
Now more than ever, we need to establish a different kind
of culture in Washington when it comes to spending. Clean,
auditable financial statements can provide the roadmap we need
to move from what I call a culture of spendthrift towards a
culture of thrift. Cleans statements would give an agency
leadership, and those of us here in the Congress, the
information we need to look at every nook and cranny of the
Federal spending and ask this question. Is it possible to get
better results for less money?
When it comes to the Department of Defense, it is clear to
me that we can get better results and save money, promote our
national defense, and provide better support for the war
fighters in the field and across the world.
The department's finances have been on the Government
Accountability Office's (GAO's) high risk list since 1995, in
part due to pervasive management deficiencies that would never
be tolerated in private sector businesses. In fact, these
deficiencies are not tolerated even at most Federal agencies.
These deficiencies make it difficult, if not impossible, to
know for certain how and when the Department of Defense spends
its money.
The Department of Defense has annual expenditures of nearly
$700 billion, spending approximately $2 billion every day.
Managing this level of spending requires transparent
information that is reliable and relevant. Without quality
financial data and the assurance of a clean audit opinion, the
department is unable to assure the Congress, and the American
people that the funds that we entrust them with are spent
prudently.
A series of recent reports detail a litany of the
Pentagon's oversight problems. This is not a complete list but
it is a list that I think is illustrative.
First, members of this panel recently wrote to the
Department of Defense about the Inspector General's (IGs)
report on the Department's inability to recoup about $200
million in delinquent debts due to poor but basic record
keeping.
Second, just last week we learned about a helicopter
contract through which the Army has overpaid millions of
dollars for spare parts. The size of some of these overpayments
is staggering. An $8 helicopter door part, for example, went
for $284 in DOD's accounting world. In another instance, the
Army paid five times too much for a $1,500 rotor part that
turned out to have already been in the military warehouse.
Third, in fact, we have seen from the Department of Defense
that at any given time there is roughly $1 billion of spare
parts on order that the Department simply does not need, but
the Pentagon inventory system does not allow for the order to
be changed.
This kind of thing drives me crazy. I am sure it drives
Senator Brown crazy, taxpayers crazy, and it must keep you up
at night as well.
Fourth, USA Today recently reported that the Department of
Defense racked up $720 million in late fees for shipping
container leases by not returning the containers on time. The
$720 million in late fees was on top of the cost of the actual
leases.
And finally, the Commission on Wartime Contracting found
earlier this month that there was an estimated $60 billion in
Department of Defense waste and fraud related to the Iraq war.
In these tough economic times, this level of waste is just
unacceptable.
Even worse are the fraud, waste, and abuse that we cannot
identify at the Department of Defense because the financial
management systems are so poor.
Fortunately, momentum is building to address this widely
recognized problem. The House of Representatives has formed a
panel to study financial management at the Department of
Defense, and as Mr. Hale can attest, he is often called to
testify in front of Congress on the Department's progress in
this area.
And most encouraging of all, Secretary Leon Panetta, who
was good enough to stop by my office about a month ago, has
expressed his intent to greatly improve financial management at
the Department of Defense.
We have a chart\1\ over here that has a quote from the
Secretary and reads, ``It is unacceptable to me that the
Department of Defense cannot produce a financial statement that
passes all financial audit standards. That will change. I have
directed that this requirement be put in place as soon as
possible. America deserves nothing less.''
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\1\ The chart referenced by Senator Carper appears in the appendix
on page 93.
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Was that his testimony at his confirmation hearing?
Mr. Hale. Very similar to his confirmation.
Senator Carper. No?
Mr. Hale. It was a statement. That part is from a statement
he made to the employees in the Department of Defense.
Senator Carper. Oh, good.
Mr. Hale. But he made similar statements at his
confirmation hearing.
Senator Carper. That is what I call being on message, and
it is a good message to have. All right.
We have an opportunity to make financial management at the
Department of Defense better so that every day decisions can be
made on quality information. This way we can support, better
support the men and women in uniform in a way that obtains the
best results for a fair and reasonable price.
Today we have been joined by several witnesses who are each
key players in helping the Department of Defense improve its
financial management processes and controls.
Your work, if successful, will allow the department to
produce reliable financial statements that regularly produce
critical information for decisionmakers.
More importantly, doing this job well will enable us to
support the war fighters, the men and women on the line
fighting every day to protect our freedoms. That is what this
is all about.
And as a guy who spent about 23 years active and reserve
duty as a Naval flight officer, someone who cares deeply about
these issues personally, whose family has spent a lot of time
in uniform, these issues are even more personal and important
to me.
With that, let me turn to Senator Brown for any comments he
would like to make. Senator Brown.
OPENING STATEMENT OF SENATOR BROWN
Senator Brown. Thank you, Mr. Chairman. You said a lot on
this issue. We have talked about this issue a lot since I have
been here; and as you know, DOD has suffered from significant
financial system weaknesses, problems of bookkeeping,
incomplete documentation, weak internal controls.
And efforts to fix these problems, such as modernizing key
business systems, have themselves been plagued by
mismanagement, going years over schedule and billions over
budget at a time when we obviously cannot afford it.
DOD faces a deadline of 2017. These challenges are numerous
and pervasive. However, there are some encouraging signs. The
persistence of this Subcommittee and other committees is paying
off; and senior leadership at DOD, including our witnesses
today, are finally giving this the priority it deserves.
Mr. Chairman, you noted Secretary Panetta's recent comments
on this issue. It is something that, as you have said many
times before and I agree, we need to do it better between the
three people that are up here, Senator Coburn, you and me and
others. We are just trying to find a way to maximize Federal
dollars, find out where the holes are, plug them up, and use
our resources better.
I had the honor recently to go to Afghanistan on your CODE
L which was great, and then to followup as a soldier. But to
see our men and women fighting and it also concerns me deeply
about the draw down and how, in fact, we are going to continue
on with the mission with the limited resources that are
potentially going to be made available is deeply troubling to
each and every one of them serving.
So, I want to make sure that we do it right and we need to
do it immediately. So, I am anxious to hear what is being said
and thank you for holding the hearing.
Senator Carper. You bet. Thanks for being here and being a
part of it. Senator Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Mr. Chairman, I very much appreciate you
continuing to focus on this issue. We have a distinct
obligation under the Constitution to defend the country and I
appreciate all of your service in that regard.
We also have a unique aspect of the Constitution which I
thought I would read because it is just as applicable as any
other area of the Constitution. It is Article 1, Section 9,
clause 7 which says, ``No money shall be drawn from the
Treasury but in a consequence of appropriations made by law and
a regular statement and account of the receipts and
expenditures of all public moneys shall be published from time
to time.''
Well, the Pentagon cannot do that. And in a very depressing
and little noticed report, the IG reported the following in
their summary on DOD office of audits of financial management
for 2010, and I think there is some significant things here.
``Financial management systems DOD has put in place to
control and monitor the money flow do not facilitate but
actually prevent DOD from collecting and reporting financial
information that is accurate, reliable, and timely. DOD
frequently enters unsupported amounts in its books and uses
those imaginary figures to make the books balance. DOD managers
do not know how much money is in their accounts at the Treasury
nor when they spent more than Congress appropriates to them nor
does DOD record, report, collect, and reconcile funds received
from other agencies or the public, and DOD tracks neither buyer
nor seller amounts when conducting transactions with other
agencies.''
And that is just the few. And I know you all are working on
that. But we are in a whole new set of realities in our
country; and many at that table I visited with before, they
know my intensity on the issue; and my hope is is that we can
help you do what I know you want to do, and we will not be a
hindrance to it but we will be a help to it.
So, there is no questioning of your motives that you want
to try to solve it. It is a big problem. We all know that. The
question is is how do we get it solved, and how do we get it
solved quickly, because we do not have the luxury anymore of
allowing it to continue, given our fiscal situation.
Senator Carper. Well said. We are going to just lead off
with Hon. Robert Hale, Under Secretary of Defense, Chief
Financial Office (CFO) of the U.S. Department of Defense.
Welcome back. The Hon. Elizabeth McGrath, Deputy Chief
Management Officer (DCMO), U.S. Department of Defense.
The Hon. Gladys J. Commons, Assistant Secretary of the
Navy, Financial Management and Comptroller, U.S. Department of
Defense. A pleasure. Ms. Caral Spangler, Assistant Deputy
Commandant, U.S. Marine Corps. I understand you are going to be
joining Ms. Commons. How are you all going to do this in terms
of presenting the testimony? How is this going to work?
Ms. Commons. I will make the opening statement, and then
Ms. Spangler will answer any questions that you might have.
Senator Carper. OK. Good.
The Hon. Mary Sally Matiella, Assistant Secretary of the
Army, Information Management and Comptroller, U.S. Department
of the Army. Ms. Matiella, welcome.
Jamie Morin, Assistant Secretary of the Air Force,
Financial Management and Comptroller, Department of the Air
Force.
And Asif Khan. Great to see you. Director of Financial
Management and Assurance. I like that ``and Assurance''. We can
always use some of that from GAO.
Your whole statement will be made part of the record. I ask
you to proceed. The last I heard, we are going to start voting
at 4 o'clock. So, we would like to be able to move through this
and be able to complete your statements, have our questions,
and be out the door shortly after 4 o'clock.
Please proceed, Mr. Hale.
TESTIMONY OF HON. ROBERT F. HALE,\1\ UNDER SECRETARY OF DEFENSE
(COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF
DEFENSE AND HON. ELIZABETH A. MCGRATH, DEPUTY CHIEF MANAGEMENT
OFFICER, U.S. DEPARTMENT OF DEFENSE
Mr. Hale. Well, thank you, Mr. Chairman, Ranking Member
Brown, Senator Coburn. Thank you for the chance to discuss our
efforts to improve financial management of the Department of
Defense.
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\1\ The prepared statement of Mr. Hale appears in the appendix on
page 40.
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I appreciate your interest and your support in helping us
keep a focus on improving defense financial management, and I
can assure you that this is an issue that is of personal
interest to me. It was of personal interest to me 10 years ago
when I was with the Air Force FM. It still is, and the same, I
think, is true of Ms. McGrath. I am joined by Beth McGrath, our
Deputy Chief Management Officer, and we will summarize our
joint statement together.
Let me start with the significant weaknesses and the
problems that the department faces. I think you know these. I
will go quickly. We have enterprise-wide weaknesses in defense
financial management.
There are two main ones. Our problems are our legacy
systems are old. Some of them are several decades old, and
those that are still there do not always provide adequate
financial controls, and they often do not accumulate data at a
level that the auditors require for auditability.
But systems are not our only problem. The other is
financial controls outside of the systems that are not always
adequate. They are either not strong enough to support audits
or they are too variable across commands to convince auditors
that we have a consistent set of controls.
These weaknesses manifest themselves, as you well know, in
our inability to obtain a clean audit opinion. The problems are
significant and are of great concern to me. We are working to
solve them, and in a moment Beth McGrath and I will tell you
more about what we are doing, as will the service FMs that
follow us.
But first, in an effort to provide balance, I want to do
one more thing, and that is to mention a strength of defense
financial management, and that is, that I believe we are
meeting our mission. We could do it better, but we are meeting
our mission by effectively providing resources and services to
our war fighters. There are problems and auditable financial
statements would help. But when I ask senior commanders, they
almost always tell me that they get the financial support that
they need, and I might add that we are doing this despite some
incredible obstacles--something I have not seen in more than 30
years of working in and around defense financial management.
The 6-month continuing resolution which just drained support
that we needed to do other things. Planning for a government
shutdown that consumed an enormous amount of attention.
Fortunately, we did not have to implement it. Planning to run
out of cash, which consumed less-but significant' attention,
especially in places like the Defense Finance and Accounting
Service (DFAS), and now innumerable what-if drills on
sequesters.
So, I think there are strengths to defense financial
management. I am not going to dwell on them after this but I
would like you to keep them in mind. I believe we are meeting
our basic mission.
Let me turn back, now, to the systematic weaknesses in
defense financial management, and what we are doing to address
them. When I took over as CFO in February 2009, one of my key
goals was to fix these problems and achieve auditable financial
statements, or at least get as far as I could.
I knew we needed a new approach. The one we had was not
working. Everybody was kind of going in their own direction. We
needed to establish some priorities. This is an enormous
problem and we cannot fix it all at once, and we have a new
approach, one that focuses on budgetary information and
accounts and locations of our assets; key information we use to
manage.
I knew we needed to make auditability a priority. It is now
on DOD's top-10 priorities list, and of course, as I might add,
my new boss, Secretary Panetta, as your quote shows, feels
strongly about the need for auditable financial statements, and
I am working actively with him in this area.
I knew we needed resources. When I walked into this
building, there were not resources available to all the
departments. There certainly was not anything 10 years ago when
I was Air Force FM.
Now every service in the Defense Finance and Accounting
Service has substantial resources for auditability programming
throughout the 5-year planning period.
And I knew we needed goals and not just long-term goals.
Part of our problem has been that we set these goals out to
2017. That is important, but nobody wakes up in the morning
thinking: I have to get to work today to meet a goal 5 or 6
years from now. We need short-term goals, and we have
established them and the plans to meet that.
I also knew that we needed to do more than plan. We had to
make tangible progress toward auditability, something that
could convince us we could do it and convince you; and one of
the most important accomplishments is improving our financial
systems.
And I would like to ask Beth McGrath to address those.
Ms. McGrath. Sir, thank you very much for also allowing us
the opportunity to come back and talk more about the progress
the Defense Department is making with regard to our financial
management operations.
Our approach toward overarching management reform efforts
emphasizes improving our ability to access execution through
performance, strengthening governance, and ensuring leadership
accountability, and also making necessary changes to the way we
procure our information technology.
In each of these areas, we rely heavily on tools that
Congress provided us through the last several National Defense
Authorization Acts (NDAA), and for that we are very
appreciative.
As Secretary Hale makes clear, improvements to our business
systems and the business environments in which those systems
operate are important to achieve the goals for auditability
that the Department and Congress share.
In pursuit of these goals, we are taking an enterprise
approach to meet the challenges of implementing information
technology systems on time, within budget, and with the needed
capabilities, as required.
We are also establishing effective governance over their
operations; not only the management of those programs, but also
how they are going to be used once they are fielded.
To improve our financial systems, we have oriented them
around end-to-end business processes that support audit goals,
including procure-to-pay and hire-to-retire. Each of these has
been identified and documented in our Business Enterprise
Architecture (BEA), whose success requires that we
appropriately implement and utilize our enterprise resource
planning systems; modernize legacy systems only when necessary
and supported by a business case; and aggressively sunset
legacy systems that are obsolete, redundant, or not aligned
with our business objectives.
As you saw in greater detail in our written statement, we
have placed significant emphasis and effort in several areas:
Managing the business processes from end-to-end across the
government, the way we actually execute our business; improving
business systems acquisition; implementing the architectures as
I mentioned; and improving process controls across functions
and organizations.
Our focus on business operations to include financial
management at the department, is an area of great and immediate
interest to all of our senior leadership, as well as an area of
serious activity and concerted efforts. We are on the way to
creating better business processes that will create the kind of
lasting result our country deserves.
As always, I appreciate the opportunity to work with
Congress to optimize performance across the department. I look
forward to your questions.
Mr. Hale. We need to improve financial controls. I know we
are running a little late. Do I get to count this as two
witnesses?
Senator Carper. Go ahead.
Mr. Hale. I will go fast.
We need to improve the controls, financial controls outside
the system. So, we have set up teams in each service trying to
rely on the service of auditors to actually go out and help us
start making those controlled changes now even if we are not
going to be audited for a while.
We need to get key personnel outside the department or
outside the financial community involved in this process. This
is a DOD-wide issue, not just DOD FM. So, each service has put
audit goals into the performance plans of appropriate members
of the Senior Executive Service (SES) so their professional
success and bonuses are tied to audit success.
And we need to have independent checks on our progress. So,
we have hired independent public accountants, or sometimes we
are using the DOD IG, to audit or validate what we are doing.
The biggest one is the Marine Corps audit or the statement
of budgetary resources which I am cautiously optimistic that we
are going to get a positive opinion. We have recently received
a clean opinion on what is called ``appropriations received.''
That is our funds distribution process. That clean opinion
reassures me, and I think it should reassure you regarding a
key step in knowing where we are spending the public's money.
Defense Finance and Accounting System recently received a
clean opinion on a system that handles civilian pay. We have
independent auditors, as we speak, looking at the Army's
emerging business environment and their new system, the General
Fund Enterprise Business (GFEB) system; and the Air Force
currently has auditors looking at their ability to reconcile
their so-called Funds Balanced with Treasury, essentially their
checkbook with Treasury, if you will.
And I could go on. There are a number of others, but in the
interest of time I will not.
Now, I can already hear some of our critics saying, there
he goes again suggesting everything is fixed. So, in the
interest of balance, let me acknowledge our continued problems.
We could have better plans. GAO will tell you about that.
We need to look at them again, but I would rather focus the
resources I have, and they are limited, on having auditors
actually go out and check what we are doing. I think we will
learn a lot more and get there quicker.
We have missed some milestones which frustrates me, but in
many cases we are catching up. We were overly optimistic early
on.
And finally, and most importantly, I know we have a long
way to go. We are working to address the fundamentals of
defense financial management, but it is a journey that will
inevitably take a number of years.
So, just summing up, I believe there are some significant
strengths in defense financial management, but there are also
systemic problems and weaknesses. We need to focus on those. I
think we are making progress, but I understand we have a long
ways to go.
With that, I will stop and be glad to answer your
questions.
Senator Carper. Good. Thanks, Mr. Hale.
Ms. Commons, I think you are next. Please proceed.
TESTIMONY OF HON. GLADYS J. COMMONS,\1\ ASSISTANT SECRETARY OF
THE NAVY (FINANCIAL MANAGEMENT AND COMPTROLLER), ACCOMPANIED BY
CAROL E. SPANGLER, ASSISTANT DEPUTY COMMANDANT OF THE MARINE
CORPS PROGRAM AND RESOURCES
Ms. Commons. Chairman Carper, Senator Coburn, thank you for
the opportunity to discuss our efforts to improve financial
management and achieve audit readiness.
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\1\ The prepared statement of Ms. Commons appears in the appendix
on page 49.
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The Department is fully committed to improving our
financial data. Our senior leaders, Secretary Ray Mabus, Under
Secretary Work, the Chief of Naval Operations, and Commandant
of the Marine Corps are all engaged, and so are our major
commands and field activities.
We have met with every senior executive responsible for
executing our business processes, and as Secretary Hale noted,
we will include an audit readiness objective in their
performance plans.
We are also engaging our flag and general officers. We are
working with our business process owners and service providers
to ensure that we all understand what must be done and who is
responsible.
We support the priorities established by Secretary Hale and
have focused our plans and efforts on achieving an auditable
Statement of Budgetary Resources (SBR) and proving the
existence and completeness of our military equipment. We are
making steady progress.
The Marine Corps is currently undergoing the second year of
audit on its Statement of Budgetary Resources. It has been
challenging but both the Department of Defense Inspector
General staff and the private firm auditing the Statement of
Budgetary Resources have noted the significant progress made by
the Marine Corps this year.
They have already agreed that 11 of the remediation actions
taken by the Marine Corps are effective, and third quarter
testing will assess the effectiveness of the remaining
remediation actions. They have indicated they will provide
their assessment to me in October.
We have embraced the lessons learned from the Marine Corps
and have incorporated them in our departmentwide plan. We are
also sharing these lessons with the other Departments. We know
we must strengthen the internal controls surrounding our
business processes end to end and our systems. We are working
to do so.
It is also crucial that we prove the accuracy of our
beginning balances for our approximately 200 open
appropriations before we start the final audit of our Statement
of Budgetary Resources.
Because of the large volume of supporting documentation
required during an audit, we know we must have an audit
infrastructure that will allow the smooth and quick transfer of
immense volumes of data to the auditors.
The Department recently received an unqualified opinion on
our appropriations received process examination as noted by
Secretary Hale. So, we are comfortable in knowing that the
amounts appropriated by the Congress are well controlled and
that we meet the intent of the Congress in allocating those
resources.
The Department of Defense Inspector General is currently
examining the existence and completeness of our ship,
submarine, ballistic missile, and satellite inventories. We
believe this examination will be successful and prove that the
number of assets recorded in our systems of record represent
the actual assets available. It will demonstrate that we have
the necessary stewardship over assets important to our mission.
We are also ready for an examination of the existence and
completeness of our aircraft and ordnance inventories.
The auditors have noted that because of the number of
systems we use in the accounting and reporting, it is critical
that we perform reconciliations of the transactions between our
systems in order to support our Funds Balance with Treasury
(FBWT).
Our accounting partner, the Defense Finance and Accounting
Service, has identified an automated tool, the Business
Activity Monitoring tool, to accomplish these reconciliations.
We recently conducted a sample manual reconciliation down to
the penny to ensure that the Business Activity Monitoring tool
was performing effectively.
We did find that some adjustments were needed in the tool
and the Defense Finance and Accounting Service Cleveland is
working to make those adjustments and expect to complete these
actions by December.
Our intent is to use the tool to produce monthly
reconciliations of our Funds Balance with Treasury linked to
transaction level details as required by auditing standards.
Earlier this year we believed our Civilian Personnel Pay
process was ready for audit. But closer examination by the
Financial Improvement and Audit Readiness Team, the Department
of Defense Inspector General, and the Government Accountability
Office noted that our sampling and testing was insufficient.
Even though we were not ready for assertion, viewing our
process through the auditors lens has proven to be very
helpful. We are now completing the necessary remediation
actions and retesting and we believe we will be ready for
examination next summer.
In addition, the Defense Finance and Accounting Service,
through an independent public accounting firm, will conduct a
Statement on Standards for Attestation Engagement (SSAE 16), on
the civilian pay system. This will complete an end-to-end
review of our civilian personnel pay process.
Achieving auditability is challenging, and there is much
work to be done. We are committed to this effort and we are
making process.
Thank you for your interest and support of our efforts. I
will be pleased to answer any questions you might have. Thank
you.
Senator Carper. Thank you.
Ms. Spangler, do I understand that you are not going to be
giving a statement but you are here to answer questions?
Ms. Spangler. That is right, Senator.
Senator Carper. My first questions, I will just ask one
question of you and then go to Ms. Matiella. How did she do,
how did Ms. Commons do?
Ms. Spangler. Oh, she covers me very well.
Senator Carper. Fair enough. Thank you. Ms. Matiella.
TESTIMONY OF HON. MARY SALLY MATIELLA,\1\ ASSISTANT SECRETARY
OF THE ARMY, FINANCIAL MANAGEMENT AND COMPTROLLER, U.S.
DEPARTMENT OF THE ARMY
Ms. Matiella. Thank you. Chairman Carper, Ranking Member
Brown, Members of the Subcommittee, thank you for the
opportunity to testify today regarding financial management in
the U.S. Army and our commitment to achieving auditable
financial statements.
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\1\ The prepared statement of Ms. Matiella appears in the appendix
on page 54.
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Secretary John McHugh, Chief of Staff Odinero, Under
Secretary Westphal, and all of our senior leaders recognize the
value and importance of achieving the mandate of the 2010
National Defense Authorization Act, which requires the Army to
be audit ready by September 30, 2017.
Past audits have demonstrated the importance of leadership,
governance, accountability, competent workforce, effective ERP
systems, and improved internal controls. We have incorporated
these factors into our financial improvement plan.
The Army's leaders, soldiers, civilians are dedicated to
achieving audit readiness goals. These professionals are
transforming our financial and business systems to improve
financial management, provide timely, accurate, and relevant
information for decisionmakers, and to assure American
taxpayers and Congress that the Army is a trustworthy steward
of public funds.
I am confident that we will be audit ready by September
2017 because we have a sound and resource financial management
plan which conforms to the department's financial improvement
and audit readiness plan.
Army senior leaders are committed to providing governance
and oversight of our audit readiness efforts and will hold
personnel accountable for achieving specific milestones. For
example, audit readiness performance criteria will be included
in senior executive performance plans in fiscal year (FY) 2012.
Further, we have a solid enterprise resource and planning
strategy guiding our business systems development and
deployment. Our plan contains detailed corrective actions and
milestones, identifies accountable organizations, incorporates
lessons learned from the Army Corps of Engineers and Marine
Corps audits, and aligns with our business systems strategy.
Our plan calls for annual audit examinations by an
independent public accounting firm each year from fiscal year
2011 to 2014. These examinations focus on management and
information technology systems controls and business practices
in the ERP environments.
We are now examining three installations and by October of
next year, 2012, all of our installations, stations, and posts
will be under examinations.
The accounting firms conducting these examinations will
identify controlled deficiencies and issue corrective actions.
This will enable us to correct the deficiencies in time to have
assert the general fund Statement of Budgetary Resources in
fiscal year 2015 and all of our financial statements in fiscal
year 2017.
These audit exams will also serve to condition the Army on
how to support financial statement audits and ensure our
readiness tragedy is sound and remains on schedule. At the same
time, we are also ensuring that we have a financial management
workforce that is knowledgeable in audit requirements and thus
allowing the Army to sustain these processes and system
improvements.
Each year we are repeating a cycle of assessing, testing,
and identifying deficiencies and corrective actions.
Additionally, each audit exam expands our assessment of
business processes and systems controls.
We recently completed an examination of our appropriations
which received an unqualified audit opinion from an independent
auditor. This confirms our ability to receive and account for
nearly $232 billion of appropriations.
Execution of our financial improvement plan and enterprise
resource planning strategy combined with focused senior-level
oversight and accountability will enable the Army to be audit
ready by September 30, 2017.
I am personally committed to accountability and
auditability. I look forward to continued collaboration with
the Members of this Subcommittee, your counterparts in the
House of Representatives, the GAO, Comptroller Hale, DCMO
McGrath to ensure the continued improvement of the Army's
business environment.
I look forward to your questions.
Senator Carper. Thank you very much for that testimony. Did
you say personally committed, I am personally committed?
Ms. Matiella. I am personally committed.
Senator Carper. We do not hear that every day. Good.
Thanks.
Dr. Morin, please proceed. Thanks.
TESTIMONY OF HON. JAMIE M. MORIN,\1\ ASSISTANT SECRETARY OF THE
AIR FORCE, FINANCIAL MANAGEMENT AND COMPTROLLER, U.S.
DEPARTMENT OF THE AIR FORCE
Dr. Morin. Thank you very much, Mr. Chairman. Dr. Coburn,
thank you also. I appreciate the Subcommittee's invitation to
testify today and the interest of really the entire Congress on
this issue. We have had a great deal of interest. If I may, I
would like to just summarize my written testimony and place it
in the record.
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\1\ The prepared statement of Dr. Morin appears in the appendix on
page 62.
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Senator Carper. Everyone's testimony will be made part of
the record. Please summarize. Thank you.
Dr. Morin. Thank you, sir. Let me just start by saying,
business as usual is the enemy of success in the financial
improvement and audit readiness (FIAR) effort at DOD. In the
Air Force, we are committed to getting to auditability and we
are committed to not letting business as usual be the enemy of
success.
This is a charge I too take very personally and intensely,
and we very much appreciate the intensified focus that
Secretary Panetta has placed on audit readiness and the
leadership that his team and Secretary Gates's team had
provided.
Personally, I am a strong advocate of the re-focusing on
the financial improvement and audit readiness effort that Under
Secretary Hale has laid in place. His emphasis on getting the
sort of information that managers use to manage and
prioritizing that at the head of our audit readiness efforts
has been very helpful in getting us on the sort of virtuous
circle where the leaders in the department see the value of the
audit readiness effort. It ties it more directly to business
outcomes and things they need to know in order to manage their
organizations.
In the Air Force, we have seen already the fruits of that
prioritization. I have seen additional resources approved by
the topmost leadership of the Air Force. I have seen additional
focus from the Secretary, from the Chief of Staff, the Under
Secretary, the Vice Chief, all of them are seeing the value of
this effort. It has been a good step in the right direction.
I think thanks to that focus we have made real progress
over the last year or so although, to be clear, there is a long
way to go.
Some of the key wins that we have achieved. First, a clean
opinion on our appropriations received from an independent
public accounting firm. That was a key step that should be able
to give the confidence to the Congress and the American people
that we understand how the Congress appropriates money and
where it ought to be allocated.
We have also had what looks like a successful assertion on
our Funds Balance with Treasury reconciliation process. You
heard Mr. Hale talk about that. That is balancing a check book
with 1.1 million entries a month. It is not a trivial matter.
Again, a key step on the way. It does not get us all the way
there but it is a key step, and that is looking like a good
assertion there.
We asserted audit readiness on the existence and
completeness of our military equipment and several categories
of our operating materials and supplies like cruise missiles
and aerial targets.
Again, I think this is directly attributable to the strong
commitment of our leadership. In May, our Chief Management
Officer, Under Secretary Erin Conaton, and our Vice Chief of
Staff, General Philip Breedlove, wrote to all the commanders of
the Air Force major commands talking specifically about the
need for personal accountability on this issue and moving
forward along our path of senior leader accountability, senior
executive accountability toward audit readiness goals,
extending that outside of just the financial community and
extending it outside of just the headquarters, two key steps.
We really led the way in building direct financial
incentives into senior executives performance plans in the Air
Force, and we have a number of senior executives that have it
in their plans already. But we are pressing that further now,
getting it out to the field where the rubber really hits the
road.
As we have worked through this substantial number of audit
readiness assertions over the past year or 2 years, we have
learned some very important lessons that are helping us as we
move further down the road.
For example, we have found that things like lack of timely
updating of our real estate, our real property accountability
system was not happening consistently in the field. We are not
consistently getting that timely updated, and that is the sort
of decision that actually affects allocation of resources.
If the system does not know that you own property, you will
not get the funds to maintain it. So, we have put in place the
corrections necessary and the training necessary to make sure
that the folks at a base level are making those transactions in
their system, recording them timely, saving resources, making
sure resources are adequately aligned.
Again, while we have made significant progress toward the
2017 deadline, I think we do still have a ways to go. The Air
Force is catching up but we are still behind the other
services.
That is in part because our audit readiness efforts for
quite some many years focused heavily on the balance sheet and
on valuation of assets which is the area we de-emphasize
because of the business case analysis on the value of that to
managers.
So, our ability to achieve audit readiness I think depends
pretty heavily on successfully fielding new financial systems,
modernized financial systems.
We have a variety of them. Defense Enterprise Accounting
and Management System (DEAMS) is our fundamental accounting
systems. We have personnel systems, logistics systems. We need
modernization because we are relying on 1970s era bookkeeping
systems that do not conform to the standard general ledger, do
not roll up transactions at an appropriate level in order to
produce financial statements that will withstand auditability.
Again, these systems are good at handling budgetary
resources as appropriated by Congress and providing controls on
them. That is what they were designed to do. They do not fit
the CFO Act and the need to produce financial statements.
We are trying to follow a deliberate and careful path.
Again, because we are a little bit behind the other services,
we have had an opportunity to learn some lessons from their
efforts.
For example, we are not pushing wide deployment of systems
perhaps as fast as sometimes has happened. The DEAMS accounting
system we have now had in the field at Scott Air Force Base
for, this will be the second year that we have closed out on
that system.
We are getting it stable. We are getting it to a degree
that it does not drive too much manual workload for the users
before we turned it on Air Force-wide, but, you know,
processing billions of dollars of transactions there.
I think because of the historical challenges DOD has faced
in major IT acquisition, I do see a moderate level of risk as
we march toward 2017, and that is, not because we do not have
plans that get us to audit readiness by 2017 but because those
plans are contingent on us achieving goals for fielding of
systems.
And looking at history, I know that across DOD those plans
do not always stand up 5 years down the road. So, I do see a
moderate level of risk. But as a result, we are focusing on a
sort of belt and suspenders approach here where we are looking
at our legacy systems, making remediation in those systems in
some cases where it would be otherwise subsumed by the follow-
on system but we can perhaps give ourselves a little less risk
toward the 2017 deadline by having both approaches available.
Again, we do need business systems modernization to get to a
clean audit.
So, let me just briefly come back to where I started. We
cannot rely on business as usual if we are going to get to a
clean audit by 2017.
If we are going to achieve the financial modernization,
better financial practices we need true accountability. We need
investment in real systems modernization, both our ERPs and our
enduring legacy systems. We need responsive and effective
acquisition of IT systems. We need to learn lessons from one
another, each of the services, and we need involvement to reach
from the headquarters to the field and from the financial
community to the broader world.
We have to be willing to change our processes, change our
practices; and we have to take this charge seriously. I think
the Air Force is on the right course and I know that my senior
leadership is backing me up in this effort.
Thank you again for the commitment.
Senator Carper. No, not at all. Thanks, Dr. Morin. Mr.
Khan.
TESTIMONY OF ASIF KHAN,\1\ DIRECTOR, FINANCIAL MANAGEMENT AND
ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Kahn. Thank you, Mr. Chairman, Ranking Member Brown,
and Dr. Coburn. Good afternoon. It is my pleasure to be here
today to discuss the status of Department of Defense financial
management improvement and business transformation.
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\1\ The prepared statement of Mr. Khan appears in the appendix on
page 70.
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As you said, Mr. Chairman, the Federal Government's fiscal
challenges highlight the need for accountability and effective
financial management, and this is particularly so at the most
important and the largest department in the government, the
DOD. I would like to thank the Subcommittee for holding this
important hearing.
In my testimony today, I will summarize three areas related
to DOD's continuing efforts to remediate its long-standing
financial management weaknesses and become auditable.
First, I will discuss the progress made by the DOD
Comptroller in issuing the Financial Improvement and Audit
Readiness guidance for DOD military services.
Next I will highlight the challenges experienced by these
services in implementing the FIAR guidance. And finally, I will
focus on improvements needed in DOD's oversight and monitoring
of its readiness process.
My testimony is based on recent and ongoing work at DOD,
including two reports we are issuing today and another two that
will be issued in the next few weeks.
First, regarding the progress made. The DOD Comptroller has
established a focused approach to achieve the FIAR Plan audit
readiness goals. The Army, Navy, Air Force, and other defense
agencies, including the Defense Logistics Agency, have key
roles in implementing this Plan.
After reviewing the FIAR guidance issued by the DOD
Comptroller in May 2010, we concluded it provides a reasonable
methodology for DOD components to follow in developing and
implementing their individual Financial Improvement Plans.
Nevertheless, DOD's ability to achieve audit readiness is
highly dependent on the military services' effective
implementation of this guidance and that leads me to my second
point, the challenges experienced by the military services and
their recent financial management improvement efforts.
In our recent work, we examined specific areas including
Navy civilian pay, Air Force military equipment, Fund Balance
with Treasury at the Marine Corps and Navy, the Statement of
Budgetary Resources audit efforts at the Marine Corps, and the
Army and Air Force's business systems. We did find significant
weaknesses in each of these areas.
As discussed in our report released today, the Navy and Air
Force did not follow the FIAR guidance in implementing the
Financial Improvement Plans that we reviewed--Navy civilian pay
and Air Force military equipment. As a result, they did not
conduct sufficient or appropriate work to support their
conclusions that these two areas were ready for audit.
In another example, auditors for the Marine Corps fiscal
year 2010 Statement of Budgetary Resources issued a disclaimer
of opinion, meaning that they were not able to audit those
financial statements even though the Marine Corps had concluded
that the statements and underlying financial transactions were
ready for an audit. The processes identified 139 internal
control weaknesses that need to be addressed and remediated.
The Marine Corps has begun making progress. But our report
issued points out that the remediation efforts were focused on
short-term heroic efforts that may not result in sustained
improvements over the long-term.
Our preliminary work has identified significant weaknesses
in the Navy and Marine Corps's ability to reconcile their Fund
Balances with Treasury. This reconciliation, as Ms. Commons
mentioned, is a procedure similar to reconciling a checkbook to
a monthly bank statement.
It is a key step in achieving accurate financial
information, tracking available budgetary authority and
preparing a reliable Statement of Budgetary Resources.
Preliminary results of another audit identify significant
weaknesses in the implementation of two major IT systems. The
effectiveness and timely implementation of such systems is
crucial to DOD-wide audit readiness and meeting the fiscal year
2017 goal.
My third point deals with the need for effective DOD
oversight and monitoring of the FIAR implementation effort. DOD
and the military services have designated offices and
established committees responsible for overseeing audit
readiness efforts.
However, these responsibilities were not carried out
effectively. As a result, the Navy and Air Force incorrectly
asserted audit readiness in two key audit areas.
Oversight and monitoring are important for keeping
improvement efforts on track, making steady progress and
ultimately achieving auditability goals and within the
timeframe designated.
Effective oversight can also help to ensure that lessons
learned are disseminated throughout the services so others can
avoid similar problems.
In closing, I am encouraged by the recent efforts and
commitment by DOD leaders. However, the challenges that I am
highlighting are significant and include putting into place
some very basic building blocks of sound financial management
with effective oversight and monitoring of the process.
Mr. Chairman, this concludes my statement. I would be happy
to answer any questions that you or other members may have.
Senator Carper. Good. Mr. Khan, thanks. And thanks to all
of you for your statements.
Let me start with you, Mr. Khan, if I could. I have a
friend whenever he is asked, how are you doing, he says
compared to what. I want to ask really a variation of that same
question.
How are we doing compared to the last time we met here?
Some of you testified, I think you were present. How are we
doing compared to roughly a year ago? How are we doing? Are we
doing better and where are the areas we should be most
concerned about?
The last thing I want to say is what do we need to do. What
do we need to do on our end? Those are like about three
questions. How are we doing compared to what, a year ago? What
should we be encouraged about? And you said some of this
already. What should we be concerned about? What do we need to
do to help make sure we stay on the right path?
Mr. Kahn. Senator Carper, the positive is that there is a
good plan. The key is in implementation of the plan. Last year
we had mentioned that the plan has some phases which need to be
filled out. That is an important element.
So, in one way DOD does have a plan. However, the path is
not clear to reaching auditability by 2017. The Comptroller
office, I understand, is working on defining the remaining
steps of the FIAR Plan.
However, the picture changes when we begin to look at the
components. Admittedly, the plan has to be executed and it has
to be executed properly. Based on what I have mentioned and the
reports that we have issued today, the results are very mixed,
and that is of concern.
One key point. The systems have to be implemented and be in
place well before 2017, and just looking at the time line it is
a bit worrying because their completion time line is very close
to 2017 to be able to affect a successful audit. Thank you.
Senator Carper. My last question. How do we help? What can
we do at our end? And I asked this question a lot as my
colleagues know. What can the Legislative Branch do here?
Sometimes the answer is more resources. Sometimes it is get
somebody confirmed for a position of leadership. A lot of times
I hear the answer to that question is do more oversight, keep
doing what you are doing, keep putting a spotlight on whatever
the issue of the day is, and keep holding us accountable. What
advice would you have for us?
Mr. Kahn. I am going to reiterate what you have just said,
Senator Carper. One of the issues that I have mentioned is
stronger oversight and monitoring of the implementation of the
plan itself that would be critical to understanding where the
shortfalls are, and not allowing some of these areas to go
forward when they would not be likely to succeed.
Similarly, I would like to reflect the same point for you
is oversight hearings are important because they really help to
focus on what the issues are and to be able to focus resources
to resolve those issues.
Senator Carper. I would note to our witnesses and to our
audience and to my colleagues, when the President spoke last
Thursday evening and addressed the Nation in the joint session
of Congress, he had a lot of great applause lines but none of
them dealt with the clean financial audits statements or
audited statements.
We had the Republican, and I think it was the second of a
series of Republican debates, Presidential candidate debates,
and not one of them ever touched on this issue to either draw
applause or just to make a point.
However, our colleague Scott Brown just led a cadre over to
Afghanistan. One of the things I want to make sure that we do
with Afghanistan when we pretty much pull out by the end of
2014 is that we leave behind a country that can feed itself, a
country that can govern itself, and a country that can defend
itself.
And more than most people would realize are doing these
jobs well, our ability to do these jobs well, to better ensure
that we have that kind of success 3 or 4 years down the line is
to improve financial management.
Somebody talk to me about the selection of independent
auditors. We have heard a lot of discussion of independent
auditors for this or that or the other. How do we select those?
How do you all select those? And we will start with the
comptroller, Mr. Hale, do you want to take a shot at that?
Mr. Hale. Sure. We have a blanket purchasing agreement, it
is called. We did that competitively. All audit firms that were
interested and could meet our requirements could bid, and we
selected a number of them. I want to say six, about six audit
firms, teams.
Then when we have a particular task, they go out to the
teams, they give us a price estimate, but they have been pre-
qualified. So, it is a lot quicker at that point.
So, it is a competitive process, and we have several audit
firms working right now. If I may say so I think this is a good
way to go. I believe in plans. We can probably do better with
the plans.
But we are learning so much because when you finally get
somebody looking out there that actually does this for a
living; they are really auditors; they know financial audits.
We do not at the Department of Defense, frankly.
They have helped us immensely, because they can often say,
``you are not going to make it here but if you did this . . .
.'' They cannot do it for us, but they can say, ``if you did A,
B, and C, you would be OK.''
I think it has been enormously helpful in the case of the
Marine Corps. We got some advice on appropriations received
although we got a clean opinion there. I think it will be true
in many of the Independent Public Accountant (IPA) engagements,
Independent public accountant engagements that we have in mind
for the future.
Senator Carper. Does anybody else want to add or take away
from that response? Anyone else? OK. Who are the firms? Can you
give us some idea of the firms, who the firms are?
Mr. Hale. May I give you that for the record. May I do
that? I can name a couple of them but I do not want to not name
all of them. Is that OK?
Senator Carper. Oh, sure.
information for the record
The Department has established a Multiple Award Purchase
Agreement (BPA) for Financial Management System Auditability
Assessments, Audit Readiness Validation, Examinations and Audit
to acquire the services to perform validations for Service
interim goals. Six firms are awardees for the BPA--they are as
follows:
LErnest & Young LLP
LKearney & Company, PC
LKPMG LLP
LPricewaterhouseCoopers LLP/Grant Thornton LLP
LWilliams, Adley & Company DC, LLP
LLani Eko & Company, CPAs, PLLC
Mr. Hale. You would recognize them. I mean, I can tell you
one for sure. Grant Thornton is working on the Marine Corps
audit. KPMG and Price Waterhouse Coopers are two that we have
used so far.
Senator Carper. Thanks. To change gears just a little bit.
My colleagues often hear me say everything I do I know I can do
better. One thing they do not hear me say as much is I learn
more from my mistakes probably than what I do well. And the
Marines are the first on the beach trying to lead the way into
this promised land. We are delighted with that.
What have you learned from your mistakes and missteps along
this path, in particular? And what have you learned that you
think might be informative to our other services, our other
departments that are here today?
Ms. Commons. First off, I will let Caral, since she is much
closer to this than I am. But certainly, we have learned that
we must validate our beginning balances before we go to audit.
We know that we must tie out our transaction level detail to
the general ledger accounts. If we cannot do that, it will be
very difficult to get an audit opinion.
We also learned from the Marine Corps that we need an audit
infrastructure. We need to have a methodology for passing
information to the auditors, and it is a large volume of
information.
We have also learned from the Marine Corps that we need to
get everybody involved. Leadership, business process owners,
our service providers. This is not just a financial management
problem. We need to look at our business processes end to end
and make sure that those processes are compliant as well.
So, we have learned a tremendous lesson from the Marine
Corps stepping out and starting this audit. Certainly, we have
incorporated those lessons in our plans. Caral.
Senator Carper. Ms. Spangler, my time has expired. I am
going to yield to Senator Brown.
Senator Brown. Why don't you just go ahead.
Senator Carper. Why don't you just respond if you would and
then I will yield to Senator Brown. Thanks.
Ms. Spangler. I would actually say that some of our lessons
learned are summarized in the GAO report, and we would agree
with a lot of those lessons learned, and we can see the other
services picking them up and running with them.
As Ms. Commons talked about, some of just the very physical
things, logistics challenges of dealing with the audit and the
volumes of data, we had to establish a Web site to be able to
take in all the data as opposed to what the Army Corps of
Engineers did which was have boxes and boxes of information.
To the more esoteric type issues, we have also learned
things like ensuring the documentation is there. In some of our
older accounts, that has been a problem for us. We also have
put in place reconciliation actions. We have been working with
DFAS, the accounting service, to make sure----
Senator Carper. What is DFAS? I am sorry.
Ms. Spangler. The accounting service. I am sorry. To make
sure that they have all the reconciliations in their repeatable
processes, and that lesson has been translated to the other
services and is being reflected in their plans.
We also learned about establishing relationships with the
people that do business for us, that work with us, the service
providers in making sure that they understand what their role
is.
Also just preparing for the logistics challenges and then
rehearsing our response to it, we found that it was very
difficult sometimes to pull the data accurately the first time
and get it posted and sent to the auditors. So that is
critical. And if the other services would do things like
rehearse that, that would be very beneficial.
Senator Carper. Good. I am going to telegraph a pitch and
the pitch I am going to telegraph is the next question when it
comes back and I get to ask a question. What I am going to ask
is how do we go about sharing what is working and what is not
working? For example, how do we share what we learned with the
Marines, with other departments, with the Navy as such? Do not
answer now, but also with the Air Force, and the Army. That is
my next question.
Senator Brown. Thank you. Of course, Mr. Chairman, I always
like to give you leeway.
Senator Carper. I wish that my other colleagues were as
considerate.
Senator Brown. I will remember that.
So, the Marine Corps should be commended for being first
up. I mean, they are always the first into battle usually. So
that does not surprise me.
They started the audit in 2010 and it was ultimately
unsuccessful and now we are told it will be 2012, 2013 before
they can reasonably achieve a clean opinion, and it is just one
part of the overall audit, the smallest part at that. I know
there is a learning curve.
However, Mr. Hale, how does this time line, 5 years to see
an assertion and a clean opinion affect your confidence about
being audit ready to the degree that you had planned by 2017?
Mr. Hale. Well, as you know, the law requires audit
readiness, so, I am cautiously optimistic we will make that by
2017 DOD-wide.
I am more optimistic that we will make it for the high
value information that we actually use every day, the budgetary
information, and accounts, and locations of our assets.
But I hear your point. We need to pick up the pace. I am
counting on a learning curve. Once we get to audit-ready, it
will take a couple of years to go through this process. We have
seen this with the Army Corps of Engineers. It actually took
them about 6 years. They were doing all of their statements.
We are seeing it with the Marine Corps. I am sure we will
see it with the other services, because once you jump into the
pool, we discover there are things that we did not expect that
we have to fix.
Senator Brown. Do you think you will see similar types of
up and downs--learning curve issues?
Mr. Hale. I do. We will learn some from it. I will answer
the Chairman's question in a moment. But you cannot learn to
swim on the beach. I mean, until they are actually under
audits. That is why I am so anxious to do these validations,
take pieces of this and get started and let us learn from the
independent public accountants who do this for a living, and
then we can fix those problems and we will be that much further
along.
Moreover, we will begin to establish some knowledge on the
part of the auditors of our business processes. That is another
thing is that when the auditor comes in, they do not know us
either, and so it takes them a while to get up to speed so they
can function effectively.
Senator Brown. Sure. I guess if we assume that all of DOD
is audit ready by 2017, we could reasonably assume that the
entire department will be able to receive a clean audit by
2020. That is a full 30 years since the passage of the CFO Act
in 1990.
But considering 2017 is looking optimistic, would 2025 be a
more accurate estimate for the clean opinion for DOD?
Mr. Hale. I am sticking with 2017 for audit-ready.
Senator Brown. OK.
Mr. Hale. But I hear your concern about the fact that it
has been so long. To be candid, in the early years--it was
actually 1994 that they passed the Government Management Reform
Act that required auditable statements.
Senator Brown. Thank you.
Mr. Hale. In the early years, there was just not a
commitment by senior leadership on the part of the Department
of Defense, and it has been variable, frankly, since then.
But I believe in this Administration there has been a
commitment from day one. The comment has never been as strong
as it is right now. I have never briefed Secretary Panetta in
the first month that he was in office on audits. That is a
first. So, he clearly has a commitment, I think stronger than
anything we have seen before, and that is going to help a lot.
Senator Brown. Just as a side note. As I said, I did go to
Afghanistan and speaking with a lot of the leaders on the
ground, General McHale, for example. He indicated to me that he
has 50 independent audits going on right now. Fifty, and a lot
of the questions are from different entities, different groups,
and they are saying the same thing.
I would like to maybe speak to you and Mr. Khan and whoever
else, obviously the IG too, as to whether our soldiers there to
do audits or to do the mission? And is it affecting readiness
and safety and security? So, that is just a side note. Maybe we
can talk off-line.
Mr. Khan, does all of what you just heard from Mr. Hale
seem reasonable in light of the challenges you have described
in your reports?
Mr. Kahn. I have concerns about some of the challenges that
we have highlighted in our report and that really is the
implementation of the plan by the components. In a few areas
that we have looked at over the last 12 months, the results
have been very mixed. I wish there was something more positive
to add.
Senator Brown. I just want the facts. You do not need to
sugarcoat it. I appreciate your honesty.
Dr. Morin, I think you are the newest one here, the newest
and freshest face in the DOD having been appointed in 2009, 6
years on the staff of obviously Senate Budget.
As a relative outsider, what is your perspective on
addressing the challenge from your own recent experiences?
Dr. Morin. Senator Brown, I think that the perspective I
have developed on the Air Force's audit readiness efforts is
really threefold.
First of all, the intense importance of senior leadership
commitment. The fact that the Secretary of the Air Force is a
former Air Force comptroller, the fact that Secretary Hale is a
former Air Force comptroller provides me with a lot of top
cover, a lot of engagement, a lot of focused interest that
helps motivate the entire organization.
The second point is that breaking this effort out of a
purely financial lens into an operational lens, into a lens
that crosses all of the various stovepipes that make up a big
institution like the Department of Defense or the Air Force is
absolutely key.
We will not get to audit readiness without aggressive
involvement from the personnel community, the acquisition and
contracting community, without aggressive involvement from the
logistics community, and many others.
If it does not play in the field and if it does not play in
those silos of functional expertise that hold much of the data
and conduct much of the business activities of the department,
we will not get there.
A third piece is that there really is not at present a
culture in the department of managing from financial
statements, and it is probably the case that there will not be.
The government agencies that have clean audit are not generally
managing from their financial statements, and that is why Mr.
Hale's focus on the Statement of Budgetary Resources
specifically is a useful bridge.
It is the entry point into the relevance of the financial
statements, because the managers in the department do
understand how to do their budgetary accounting and how to
understand what appropriations they have available and how they
expend them. So that helps us down the way of using these to
actually run our business type operations and squeeze the
maximum amount of combat capability out of each dollar we have
entrusted to us.
Senator Brown. I will save for the next round, if that is
all right.
Senator Carper. Let me come back to, if I could, to
Comptroller Hale on Secretary Panetta's statement. As I
mentioned in my opening statement, the words of the Secretary
over here are not the kind of thing we always hear from
Secretaries of Defense. I have known a bunch of them. I do not
recall everybody being quite this direct on this subject.
He said much of the same thing in my office about a month
and a half ago. He said that in any number of forums and people
start to believe them. I think it is just usually helpful to
have the person at the top saying this is what one of our key
goals and to hold people accountable.
But I applaud his commitment to the goal and I am going to
work during my time as Chairman on this Subcommittee to partner
with the department toward this goal of better accountability.
As I said earlier, war fighters are counting on us.
Frankly, so are the taxpayers, because we spend money we do not
have and we have to do our best efforts for our war fighters.
By the same token, we have to face these huge deficits as you
know, and we have to be all over them.
I will not repeat the Secretary's words. They are here for
us to see. But, Comptroller Hale, could you just tell us what
changes are forthcoming and how you plan to continue to respond
to Secretary Panetta's commitment to not only meet the 2017
goal of auditability but to meet the Secretary's challenge of
becoming auditable before 2017?
Mr. Hale. Well, I am working actively with Secretary
Panetta and his senior staff. I do not want to get ahead of him
on this. So, I am not going to make a pronouncement. I am going
to let him do that. I think it will be soon. He has a lot on
his plate as he addresses issues from Afghanistan and the
budget and everything in between. But he is very interested.
I think my jobs are two. The main one is to serve him and
make sure I do what he wants. But also, frankly, to figure out
how I can exploit his interest in order to make this process
move faster and place more emphasis on the effort of the
Department.
Senator Carper. It is enormously helpful to be able to say
to folks up and down the line in the different branches of our
armed forces, the Secretary says we are going to get this done.
Mr. Hale. It is enormously helpful. I have used that phrase
already. I think all of us at this table and all of the DOD
employees are well aware of it.
Part of my job is to make sure everybody in DOD is aware of
it, and we have some thoughts on how to do it. So, I know I am
being vague but I do not want to get ahead of him on this. I
have given him some suggestions, but I need to let him decide
how and when and what he wants to do and how and when he
announces it.
Senator Carper. All right. Let me just ask our other branch
witnesses, and Ms. Spangler, you might get your shot here.
But if you all could take a moment and tell us in as much
detail as possible what your branch is doing to help meet
Secretary Panetta's new goal. And do you want to just lead it
off and then we will turn to the folks from the other branches?
Ms. Spangler. I think by leading the charge on the
Statement of Budgetary Resources and sharing those lessons
learned with people, I mean, we were in progress on doing that.
I think we will have some notable successes this fall.
We do not know yet what the result will be. But as Ms.
Commons said, she is waiting for them to come back to her in
October to give us an assessment of whether we can keep going
with the effort. The lessons learned I think do translate to
the other services, and I think that is part of what we are
doing to lead the charge.
Senator Carper. Ms. Commons, do you want to add or take
away anything away from that?
Ms. Commons. We have a very aggressive schedule. We
anticipate that by 2013 we will be ready for audit on our
Statement of Budgetary Resources. So, we are very aggressive.
We are focused. We are putting our energy and our resources
behind this effort, and I am cautiously optimistic that we will
get there and that we will meet our deadline which is well
ahead of the 2017 deadline.
Even if we do not make 2013, I believe we have enough time
built into our schedule to self-correct and that we will get
there.
Senator Carper. Is it true that as Governor of Mississippi,
Governor Mabus could have cared less about clean audited
financials? Now he is starting to get religion. Is that true?
Ms. Commons. I cannot speak for what kind of religion he
had as Governor. I can tell you that he is fully committed to
this effort. He is supporting us and we are working very hard.
Senator Carper. I am just kidding. We were Governors, not
at the same time, but I thought he was a great Governor.
Staying in the religions vein though, every now and then I say
people need ``a come to Jesus message'' from one of their
leaders and I think the Secretary of Defense has provided that.
How about the Army?
Ms. Matiella. It is very important to Secretary McHugh and
the senior leadership to make a resource-informed decisions.
Given our budget situation, it is important, like you said, to
stretch a dollar as far as we can and to use it as effectively
as possible, and the way to make those resource-informed
decisions, the way to implement a cost culture that will be
effective is to have accurate and timely data.
And for that reason, it is important to our senior leaders
to change that, to change the systems, to change the practices,
to change the controls, to change our workforce so that they
are able to create this accurate data, capture accurate data,
and present the information to our leadership and our leaders
that will help them make these resource-informed decisions, to
make the best possible decision that in terms of what to buy,
when to buy it, how much it costs, and so, I believe that
auditability will help us in our endeavor to develop a cost
culture.
Senator Carper. Mr. Morin, would you respond to the same
question on behalf of the Air Force?
Mr. Morin. Absolutely. Well, I can begin with the personal
level where the Under Secretary Chief Management Officer of the
Air Force, Ms. Erin Conaton, was, in a previous job, the staff
director of the House Armed Services Committee at the time that
that Committee initiated the legislation that gave us the 2017
audit deadline.
So, to say she feels a personal commitment to that effort
and that she is driving----
Senator Carper. That is encouraging.
Mr. Morin. Yes. It really goes without saying but I said it
anyway.
On the few substantive issues where I think the Air Force
is leading the way, even though across-the-board we are behind
the other services, is the Funds Balance with Treasury
reconciliation effort that we have done working very closely
with the Defense Financing and Accounting Service. I think that
is going to be helpful for the other services.
We use different systems so they just cannot take our tools
wholesale. But working through that process and getting to
99.997 percent reconciliation each month, which is where we are
right now, is a useful example.
I think our effort to lead on the personal accountability
issue and the tying audit readiness outcomes to senior
executives performance goals is helpful. Working with Mr. Hale
on that has been rewarding.
And though we are still working through some discrepancies
and some corrective actions associated with our existence and
completeness of military equipment assertion, we were further
along on that in many respects and I know that the other
services are learning from the work we have done there and the
input that has come from the GAO and the office of the
Secretary of Defense on that assertion.
Senator Carper. Good. Thanks. I said earlier at the end of
my last questioning I was going to ask you how you cross
pollinate from lessons learned. When I have another shot, I
really am going to ask that question. Senator Brown.
Senator Brown. Thank you. This will be my last round
because I have to get ready for our votes. I just have a few
questions. I need to make sure I understand one of the issues
that we are working on.
But, Ms. McGrath, you look lonely so I figured I would ask
you a question.
In considering the importance to the overall FIAR efforts,
this is also a concern as the pressure builds to fully deploy
the ERPs. There has already been criticism of some of the ERPs
regarding the number of interfaces and manual workarounds that
are required to fully integrate these systems into the current
financial accounting environment. These systems were intended
to solve a lot of these issues, not create more.
How are you ensuring that the components are fixing the
major weaknesses with long-term solutions and not just creating
more kind of bureaucracy and overlap and similar problems?
Ms. McGrath. Thank you very much for the question. You have
heard a lot today in terms of themes, business process re-
engineering; taking an end-to-end perspective; the engagement
from across functional perspectives so it is not just the
financial community. It is all across the department.
And in my opening statement, in our written testimony, it
articulates, really, the different approach the department is
taking not only to audit, but our entire business environment.
We really are looking from an end-to-end perspective.
You tend to see the disconnects in the system
implementations. What we are doing is ensuring that we are
identifying what those lessons are and baking those into our
overarching business process re-engineering.
The National Defense Authorization Act, Section 1072
actually was very helpful in illuminating our collective
responsibility to identify appropriate Business Process re-
engineering (BPR) so that before these systems go into
implementation, there is a documentation path that is
articulated, that says, ``I understand how I am going to
execute my business and how this system plays in doing that.''
And part of that documentation is the identification of the
interfaces that are needed.
Historically, what we would do is deploy a logistics
system. It would define its own interfaces; and now, we are
saying, ``well, really, are those the right ones? How would you
best optimize the entire business environment? ''
So, we are identifying interfaces that do not need to
happen anymore, trying to maximize the investment that we have
made than not only in the ERPs but those capabilities that
surround it. So, it is a much broader, wider aperture regarding
systems implementations.
Some of what you have heard today in terms of the learning
experience to turn on these systems once you have identified
you have a stable platform, you have gone through the initial
operational test and evaluation, then you ought to turn it on
because that is the best way to learn and that is the best way
to also identify the change management in both challenges and
opportunities that come with systems implementations.
So, it is a long answer.
Senator Brown. No. Fine.
Ms. McGrath. I would also say that it is more than just the
system itself. It is all the surrounding conversation that
happens with the implementations.
Senator Brown. Well, thank you. I appreciate that.
Ms. Matiella, as a long-term DFAS veteran, how has this
informed your experience with a working relationship between
DFAS and the Army in regard to the audit readiness?
And then take it a step further. What are your concerns
regarding the interaction that is required and the impact that
the potential problems at DFAS have on the Army not being at a
State of readiness?
Ms. Matiella. Having worked in DFAS, I saw people work
extremely hard with a very high customer service ethic. They
are doing the best they can with what they have, and they too,
just like us, they have systems that are not creating
transaction level information that updates general ledgers.
They have obligations that come in bulk instead of at
transaction level.
So, whatever challenges we say that we have with our
financial data and the way it is being created by our feeder
systems or within our accounting system they have those same
challenges.
And so, there has been a lot of manual workarounds both on
their part and our part, and that is why they are equally, I
think, supportive of us changing to systems that are more
compliant because it will help them as well as us do our work.
They are, I think, equally mindful of the fact that we have
to change, that we have to improve what we are doing, and they
are our No. 1 cheerleader in terms of getting a clean audit,
and I am 100 percent confident that DFAS will help us get
there.
But again they too have to change like we have to change.
So, it will be a challenge for them as well as for us.
Senator Brown. Thank you. And, Ms. Commons, with a career
spent in Navy financial services, I would like to get your
perspective on the challenges that you faced with this issue
over the years and how you are addressing it in your leadership
role now.
Ms. Commons. I was the principal deputy in 1994 when the
Act was passed, and I can tell you that we tried at that point
in time to get interest in auditable financial statements.
At that time, it was really viewed as a financial
management issue and certainly the leadership pushed it right
over onto my plate. I kept saying it is not just a financial
management issue.
And so, we have come a long way in establishing this as a
department-wide issue across all of our business processes and
with all of our stakeholders.
Also, back in 1994, we tried to do everything. We tried to
do every statement, and it was just too much of a bite of the
apple. So, I was very gratified that Secretary Hale brought
focus to this initiative and that we could focus on two things
as opposed to trying to do everything within the statement.
That has been very helpful for us. We are working lockstep
with DFAS Cleveland. They are very supportive of us. In fact,
we have what we call a monthly drumbeat with them to talk about
progress and the things that we need to accomplish.
So, it is a very different environment and culture from the
time I was there in 1994.
Senator Brown. Very well. Thank you for that thorough
answer.
Thank you, Mr. Chairman, for holding the hearing.
Senator Carper. Not at all. I said to the fellow sitting
behind you, our staff, one of the principal authors, maybe the
principal author of the Chief Financial Officer Act was Senator
Roth, our senior Senator, and I worked in the House as a
Congressman but after that period of time. But he is deceased
now.
But in terms of legacies for him, if we are able to
continue on his path and actually achieve the auditability and
get some clean audits by 2017 or thereabouts that would be a
great legacy for him, and a very good thing I think for our
country.
I want to come back, and somebody mentioned and I am not
sure who maybe it was Ms. Matiella mentioned I think
workarounds. I want to come back with a different question on
workarounds and direct to Ms. McGrath, if I could.
I think in his testimony Asif Khan explained that following
the implementation of the Army's general fund, the enterprise
business system, approximately I think he said two-thirds of
the invoice and receipt data must be manually entered, and
eventually this type of increasing amounts of repetitive data
entry become infeasible due to the amount of data that would
need to be entered in the Air Force system.
The Defense Enterprise Accounting and Management System.
Workarounds are needed to process data such as travel debts
data I believe. This seems to be maybe an odd situation. And
when we see a huge increase in data entry costs by implementing
a modern billion-dollar financial system, it just seems counter
intuitive to me, and maybe to others as well.
But I would just ask Ms. McGrath, can you explain how you
are working with the different branches as they implement these
very expensive systems to make them as efficient as possible,
make sure that these types of workarounds and manual entries
are not ultimately necessary?
Obviously, these problems are not sustainable and they
cannot be allowed to continue to occur. Would you tackle that
for us?
Ms. McGrath. Sure. I would also ask that Dr. Morin and Ms.
Matiella augment as necessary.
Senator Carper. Would you all be willing to do that? They
said yes.
Ms. McGrath. Yes. I think, too, with the DEAMS, the Air
Force's financial system is still in what we call a ``tech
demo'' status----
Senator Carper. Tech demo, I wanted to use that word today.
Ms. McGrath. It is a technical demonstration. I tried not
to use an acronym.
Senator Carper. Thank you.
Ms. McGrath. It has, for 2 years, been deployed at Scott
Air Force Base to learn, and then to educate the workforce. You
have heard a lot today about business process re-engineering
and change management challenges.
A lot of the change management comes to folks who have been
doing their jobs for a very long time the way they have been
doing it. We have now introduced a new, modern capability that
has a lot more controls and rigor, that they are not
necessarily accustomed to.
They would like flexibility but flexibility equates to non-
standard data which then does not enable a clean financial
opinion, nor does it necessarily equate to a smooth
transaction.
With the implementation of the systems, it is really a
significant change management challenge, and referential
integrity that comes with the implementation of these systems
is really what we are after from an audit perspective, so that
you can rely upon and trust the data that comes out the other
end.
At the end of the day, what we are all after it is the
clean data with which to make decisions.
As we implement these systems, again the DEAMS Air Force
solution is in a tech demo status. So, before we deploy it to
other Air Force bases, we want to ensure that we have
identified and eliminated as many manual workarounds as
possible before it goes to the next. We are looking for DEAMS
to deploy to five additional bases once it has completed its
operational test and evaluation, which is scheduled for March
or April of next year.
As I mentioned earlier, I think turning on these solutions
is a significant way to learn what else you need to fix and
what changes you need to make not only from a systems
perspective, but also from a people perspective. And I would
give the same but shorter answer from a GFEBS perspective.
Senator Carper. What is GFEBS?
Ms. McGrath. I am sorry. The Army's accounting solution,
General Funds Enterprise Business System. It deployed to many
different additional sites, and so the number of users
significantly increased in a short amount of time.
So again, we went to a different population. We are
learning a lot more about both of the types of users. We talked
a little bit about the DFAS involvement and also the Army
involvement, and again I think we are ensuring that we document
all of the feedback from implementation so that we can make the
appropriate course corrections; again, system changes, people
changes, business process.
And so, turning on the system, although there are going to
be-we expect, I will say, some bumpiness when we turn it on,
but we want to learn from what is happening so that we can, at
the end of the day, make it the solution that works from a
business process perspective, a change management perspective,
and a data conversion.
Senator Carper. All right. I think you said you were going
to yield to our friends from the Army and the Air Force.
Do you all agree with anything she just said?
Ms. Matiella. The Army is deploying our GFEBS or accounting
system very aggressively. We are going to be done with full
deployment of the General Funds Enterprise Business System by
next year at this time.
There is a lot of change management. One of the things
about change management is that people have to learn new
business practices. It is not business as usual as Dr. Morin
said. They have to learn new business practices.
The old system would allow for weak internal controls, bad
practices. GFEBS does not. GFEBS has a lot of edits. So as
people are learning how to deal with these edits, there is
going to be anxiety. There will be more data input problems.
It is not that the system is bad. It is just because it
requires a lot more discipline. And so, at this point as we go
back to the installations that have been on it the longest,
those are the installations that can use it the best. The ones
that have been on it the least are the ones that are still
probably having higher anxiety levels.
In the end, the system works. There are no data integrity
problems and we are improving it. For example, that 40 percent
acceptance rate is now up to 70 percent acceptance rate for
invoices. So, it has changed the management.
I am confident that as we train our folks to use it, as
they learn over time how to use it and become accustomed to
this added discipline and additional edits that we will get to
where we need to go in terms of accurate and complete data.
Senator Carper. Mr. Morin, just very briefly, anything you
want to add?
Dr. Morin. I think the others have said most of the key
points but I would just point out one thing which is the fact
that these systems, these enterprise research planning systems
have interfaces that do not always work is most often a feature
not a bug in that it reflects feeder systems and data from
feeder systems which is not reliable.
So, our procurement feeder system to Deems, the interface
is not working well because the data in the procurement system
is not good and it is not formatted consistently as Ms.
Matiella said.
So, what that does, the implementation of these more
rigorous systems brings to light the process problems and the
systems problems that are around the rest of the enterprise.
So, I think it is helpful and it is yet another reason why we
have to turn these things on and try them rather than maybe
build the perfect plan and only then confront it with the real
world.
Senator Carper. OK. Our voting has begun on the Senate
floor so we are going to have to wrap up here in a few minutes.
What I would like to do is come back to the question I said I
was going to ask and now I am going to ask it.
In the National Governors Association (NGA), during my old
job as Governor, we used something called the Center for Best
Practices which is really a clearinghouse for good ideas.
We could learn from other States what they are doing well
or what they did not do well. We learn from their mistakes. A
good idea. It is still used in terms of some of the good work
in different venues here as we approach better financial
auditing and accountability.
But how do we impart to other departments, whether it is
Army, Navy, Air Force, Marines, how do we impart to other
departments lessons learned? How do we do that in a consistent
way and a helpful way?
Mr. Hale. Let me start.
Senator Carper. And I am going to ask you to be very brief.
Mr. Hale. OK. We have set up a structure for governance by
the Chief Management Officer but a quarterly meeting of a group
that Beth McGrath and I chair also has service FMs on it, a
number of others, and the Defense Chief Management Officer
(DCMOs) from the services; and we have had a number of
presentations at these sessions about lessons learned,
especially from the Marine Corps audit because we are learning
so much, and frankly we have had a number of problems.
I think that is one forum in which we can exchange
information. My Deputy Chief Financial Officer, Mark Easton,
who is sitting behind me, also chairs a monthly meeting of
financial operations folks in the department, each of the
military departments. They share information there.
If we have a center for excellence, I think it would be the
Defense Finance and Accounting Service. They are going to be
involved in every one of these audits because they serve all of
the departments as service providers, and they have set up a
team focused on audit, and part of what I have asked of Terroy
McKay, as the Director, is to make sure we are exchanging
information.
So, we are trying, but there is no substitute for jumping
in the pool. We are not going to learn to swim unless we do
that. So, I am anxious to see us actually try these
validations, and as soon as we can actual audits.
Senator Carper. Another comment. Mr. Morin.
Dr. Morin. I think Mr. Hale has left out an important
point.
Senator Carper. What is it?
Dr. Morin. His staff is a center of excellence for the
department as a whole and his FIAR team holds us to standards,
helps transmit data back and forth between these services. We
talk directly, of course, but they bring things to light. That
is really a big part of the reason that they exist. They do a
good and increasingly better job of it.
Senator Carper. You would expect that, Mr. Hale?
Mr. Hale. Absolutely, thanks to Mark Easton and Joe Quinn,
who are here, for the work they are doing.
Senator Carper. Would they raise their hands please? All
right.
Anybody else on this particular issue, cross pollination,
sharing ideas? Ms. Commons, just very briefly please.
Ms. Commons. We also have what we call a quarterly audit
committee meeting where we share with all of the stakeholders
involved and with the other services. They actually attend our
meeting. We tell them the things that we have learned during
that quarter and actively pass that information to them.
Senator Carper. Ms. Matiella.
Ms. Matiella. Communicate both formally and informally. We
do it all the time. It is working well.
Senator Carper. All right, good. We come down to my
favorite part of the hearing where I go back down the list from
Mr. Asif Khan to Mr. Hale and just ask each of you to take
maybe 15 or 20 seconds and just give a quick closing comment
you would like to leave as like a take-away for us. This is
like a benediction. You all help give it.
Mr. Kahn. Thank you, Senator Carper. One of the important
elements in transformation is tone at the top and we are really
encouraged to see that the current leaders within the DOD and
the components have the right tone and they are going through
the right actions to be able to get to auditability eventually.
Senator Carper. All right. Good. Mr. Morin.
Mr. Morin. My final thought would be we have to keep in
mind our ultimate goal here. Our ultimate goal here is not a
clean financial statement audit. That is a symptom. Our
ultimate goal is financial improvements across the departments
so that we are better stewards of the taxpayers resources and
we get that maximum amount of combat capability out of each
dollar that they entrust to us.
Senator Carper. Better results for less money or at least
better results for the same amount of money. Ms. Matiella.
Ms. Matiella. Our focus is to provide the information that
the war fighter needs to make decisions. These decisions will
help the war fighter become more effective and get the
resources they need to do the job, and that is our focus.
Senator Carper. Good. Ms. Spangler, you did not get to give
an opening statement but we will give you twice as much time
for a closing statement.
Ms. Spangler. Thank you. I do not know if I need twice as
much time. But I would just say that our efforts have really
been a benefit to the other services, and we have come a lot
further this year than we were able to come last year.
We responded to 2,500 different sample requests from the
auditors. We provided 65 million transactions to them as we
establish the beginning balances. We are going to go into areas
in the next few months that we were not able to go into last
year, things like civilian payroll and the Fund Balance with
Treasury and actually doing some testing on that as well as
military pay which is vitally important for all of us since we
all have military pay that we have to go forward with.
Senator Carper. Thank you. Ms. Commons.
Ms. Commons. We are fully committed to this effort. We are
working very hard to achieve auditability, and thank you for
your support and interest.
Senator Carper. You are welcome. Ms. McGrath.
Ms. McGrath. I guess I would like to say I have heard a lot
of conversation today about the additional focus on the
financial audit. But with the passing of the Chief Management
Officer legislation, I think that has put a greater focus on
the entire business space and the business outcomes of which
financial auditability is one of them.
So, I do appreciate the attention that Congress has put on
the entire business space.
Senator Carper. Thank you. Mr. Hale.
Mr. Hale. I would like to associate myself with the remarks
of my colleagues and add that I think we will get there more
quickly if we focus on doing audits----
Senator Carper. Focus on what?
Mr. Hale. If we focus on actually doing audits and
validations. I am so anxious that we try out various pieces,
get independent public accountants to give us their own
opinion, and tell us where we need to do better. I would also
like to thank you for your support and continued assistance.
Senator Carper. You are most welcome.
Senator Brown has joined us more recently, and I am
grateful to him for his focus and interest in these issues and
his staff.
Senator Coburn has been at it even longer and he has been
working the vineyards with me for, 6 or 7 years. For those of
you who do not know him, he is tenacious, and I am pretty
persistent myself, and we are not going away on this.
What we have here is like a situation where you have the
Secretary saying this is important and you have to do this, and
the Executive Branch providing leadership and with the relevant
Subcommittee here in the Senate saying this is important as
well.
That is what we described in the business as an echo, an
echo effect. Sometimes it is helpful to have that. I am not
sure who said this. Maybe it was Peter Tyler. Maybe it was
Heather who said this, but what we measure we manage, and with
the cost of the Federal Government we need to do a better job
of measuring so that we can actually manage, and that is for us
to help do our jobs as well as for you and your colleagues.
But I turned around to our colleagues during the back and
forth and I said, I do not know if this is my imagination but I
sense sort of different spirit here at this hearing this year
compared to the last time that we gathered and discussed these
issues, and I am encouraged by that, and that is not to mean
that we should take our foot off the accelerator.
We need to keep it right there but I think we are heading
in the right direction. I think we are heading there a little
bit faster, and God knows we need to.
The last question. Who is here from the Air Force? Dr.
Morin. My recollection is that in the Air Force, every year
they hold a competition. I think it is like Commander-in-Chief
competition to pick the best Air Force Base in the country, and
they usually end up with two finalists. Any idea? Have you
heard who the two finalists are this year?
Dr. Morin. I have a sneaking suspicion Dover might be one
of them. [Laughter.]
Senator Carper. One of them is Arkansas, Little Rock. But
for the third time in 4 years the other finalist is Dover Air
Force Base, and we are so proud of the work they do. They do a
lot of work in airlift and they handle the receipt of the
remains of our fallen heroes. They just do some extraordinary
work.
We are very proud of them, and what I would like to see is
us doing this across-the-board in every part of our armed
services and Department of Defense.
We should be doing as good a job with respect to managing
our finances as well as we are in Dover in handling the airlift
and other important duties. That is a good standard for us to
shoot for.
Some of my colleagues will be asking questions, following
up in writing. Senator Coburn I know is going to do that. How
long do they have? They have 2 weeks to submit those questions
in writing in followup. I would just ask that you try to
respond to those promptly.
And we will look forward to the next time we are gathered
together and have even better news to share with all of us.
Thank you all.
With that, this hearing is adjourned.
[Whereupon, at 4:14 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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