[House Hearing, 113 Congress]
[From the U.S. Government Printing Office]
DHS FINANCIAL MANAGEMENT: INVESTIGATING DHS'S STEWARDSHIP OF TAXPAYER
DOLLARS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
AND MANAGEMENT EFFICIENCY
of the
COMMITTEE ON HOMELAND SECURITY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 15, 2013
__________
Serial No. 113-44
__________
Printed for the use of the Committee on Homeland Security
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Available via the World Wide Web: http://www.gpo.gov/fdsys/
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COMMITTEE ON HOMELAND SECURITY
Michael T. McCaul, Texas, Chairman
Lamar Smith, Texas Bennie G. Thompson, Mississippi
Peter T. King, New York Loretta Sanchez, California
Mike Rogers, Alabama Sheila Jackson Lee, Texas
Paul C. Broun, Georgia Yvette D. Clarke, New York
Candice S. Miller, Michigan, Vice Brian Higgins, New York
Chair Cedric L. Richmond, Louisiana
Patrick Meehan, Pennsylvania William R. Keating, Massachusetts
Jeff Duncan, South Carolina Ron Barber, Arizona
Tom Marino, Pennsylvania Dondald M. Payne, Jr., New Jersey
Jason Chaffetz, Utah Beto O'Rourke, Texas
Steven M. Palazzo, Mississippi Tulsi Gabbard, Hawaii
Lou Barletta, Pennsylvania Filemon Vela, Texas
Chris Stewart, Utah Steven A. Horsford, Nevada
Richard Hudson, North Carolina Eric Swalwell, California
Steve Daines, Montana
Susan W. Brooks, Indiana
Scott Perry, Pennsylvania
Mark Sanford, South Carolina
Greg Hill, Chief of Staff
Michael Geffroy, Deputy Chief of Staff/Chief Counsel
Michael S. Twinchek, Chief Clerk
I. Lanier Avant, Minority Staff Director
------
SUBCOMMITTEE ON OVERSIGHT AND MANAGEMENT EFFICIENCY
Jeff Duncan, South Carolina, Chairman
Paul C. Broun, Georgia Ron Barber, Arizona
Lou Barletta, Pennsylvania Donald M. Payne, Jr., New Jersey
Richard Hudson, North Carolina Beto O'Rourke, Texas
Steve Daines, Montana, Vice Chair Bennie G. Thompson, Mississippi
Michael T. McCaul, Texas (Ex (Ex Officio)
Officio)
Ryan Consaul, Subcommittee Staff Director
Deborah Jordan, Subcommittee Clerk
Tamla Scott, Minority Subcommittee Staff Director
C O N T E N T S
----------
Page
Statements
The Honorable Jeff Duncan, a Representative in Congress From the
State of South Carolina, and Chairman, Subcommittee on
Oversight and Management Efficiency:
Oral Statement................................................. 1
Prepared Statement............................................. 3
The Honorable Ron Barber, a Representative in Congress From the
State of Arizona, and Ranking Member, Subcommittee on Oversight
and Management Efficiency:
Oral Statement................................................. 4
Prepared Statement............................................. 6
The Honorable Bennie G. Thompson, a Representative in Congress
From the State of Mississippi, and Ranking Member, Committee on
Homeland Security:
Oral Statement................................................. 7
Prepared Statement............................................. 8
Witnesses
Mr. Charles Fulghum, Acting Chief Financial Officer, U.S.
Department of Homeland Security:
Oral Statement................................................. 10
Prepared Statement............................................. 11
Mr. Asif A. Khan, Director, Financial Management and Assurance,
U.S. Government Accountability Office:
Oral Statement................................................. 14
Prepared Statement............................................. 15
Ms. Anne L. Richards, Assistant Inspector General for Audits,
Office of Inspector General, U.S. Department of Homeland
Security:
Oral Statement................................................. 19
Joint Prepared Statement....................................... 20
Appendix
Questions From Chairman Jeff Duncan for Charles Fulghum.......... 37
DHS FINANCIAL MANAGEMENT: INVESTIGATING DHS'S STEWARDSHIP OF TAXPAYER
DOLLARS
----------
Friday, November 15, 2013
U.S. House of Representatives,
Subcommittee on Oversight and Management
Efficiency,
Committee on Homeland Security,
Washington, DC.
The subcommittee met, pursuant to call, at 9:32 a.m., in
Room 311, Cannon House Office Building, Hon. Jeff Duncan
[Chairman of the subcommittee] presiding.
Present: Representatives Duncan, Daines, Barber, Thompson,
and O'Rourke.
Also present: Representative Jackson Lee.
Mr. Duncan. The Committee on Homeland Security,
Subcommittee on Oversight and Management Efficiency will come
to order.
The purpose of this hearing is to examine the financial
management of the Department and identify the progress made and
the challenges that remain to financial management systems and
practices.
Before I recognize myself for an opening statement, I will
say that I am observing ``No Shave November,'' and I am raising
awareness of men's health issues, specifically November is
pancreatic and prostate cancer month. We all know folks like my
good friend, Representative David Umphlett, that died in June
2011 of pancreatic cancer, and I wear this in his memory.
I now recognize myself for an opening statement.
Since its inception 10 years ago, the Department of
Homeland Security has faced a multitude of challenges in
combining the 22 distinct legacy agencies into one Cabinet-
level department. This has been especially true with the
resolving financial management deficiencies at DHS. Integrating
components in their budgets is a complex process in the best of
situations, but doing it while protecting the Nation from
terrorist attacks, natural disasters, and other day-to-day
missions has proven particularly difficult.
These challenges were further compounded at the Department
by inherited financial management problems that existed at
several legacy components, including the Coast Guard, FEMA, and
the agencies that now make up the United States Immigration and
Customs Enforcement.
Congress has conducted vigorous oversight over DHS
financial management and has demanded the Department make
progress in better managing its finances. In October 2004, in
an effort to enhance the management and credibility of the
Department, Congress has passed various pieces of legislation
requiring that DHS undergo annual financial audits, keep better
financial information, and make sure financial statements are
ready in a timely manner in order to have them adhere to
applicable accounting principles, also known in financial-speak
as obtaining a clean opinion.
It is important to mention some of the progress that DHS
management has committed to and accomplished toward its
financial management goals in recent years. Notably, from 2005
to 2012, the Department corrected many problems with its
financial statements, increased component progress through more
direction and oversight, and strengthened internal controls to
increase the usefulness, reliability, and timeliness of
financial information.
While the Department has made progress in obtaining a clean
opinion on its financial statements, the Government
Accountability Office in its report released to Congress
yesterday explains that this has been the result of complex
manual workarounds that make up for a lack of effective
controls. GAO has concluded that, absent sound internal
controls over its financial reporting, ``The Department's
ability to efficiently manage its operations and resources on a
daily basis and routinely provide useful, reliable, and timely
financial information for decision making is seriously
hindered.''
A recent case study in this could be seen in an
investigation and report released a few weeks ago by the U.S.
Office of Special Counsel, which documented the blatant and
sustained abuse of administratively uncontrollable overtime, or
AUO, by six separate offices at DHS. Examples such as this make
it clear that without the proper financial management systems
and controls in place, how can DHS and its components know that
money is not being wasted?
If the American people can open their checking account on-
line and know to the penny how much they have, then surely the
third-largest Federal department should be able to produce
real-time financial data. Back in my home State of South
Carolina, families and businesses have had to take a hard look
at their budgets and make tough choices. DHS must do the same.
The better financial information DHS has, the greater the
chance it could cut costs and save taxpayer dollars without
sacrificing our homeland security.
Addressing internal-control weaknesses and obtaining a
clean audit opinion remain challenges for the Department. DHS's
inability to obtain a clean audit opinion on its financial
statements and improve the effectiveness of internal controls
were key factors for GAO keeping the Department on its high-
risk list.
According to GAO's most recent work, the DHS has made
limited progress in obtaining a clean opinion on its internal
controls over financial reporting and will continue to face
challenges in obtaining and, perhaps more importantly, in
sustaining a clean opinion over its books until it addresses
serious internal-control and financial management system
deficiencies. Using manual data calls to collect cost
information from various components in order to compile the
data is simply not a feasible way to manage the long-term
financial needs and responsibilities of the Department.
While DHS has turned away from the previous failed attempts
to modernize its financial management systems at a Department-
wide level, choosing instead to focus on upgrading those
components with the most critical need, GAO reports that DHS
has no real vision of the end-state for the future of its
financial management system. Sound and sustained financial
management practices in the long term should be a low-cost,
efficient way to support the Department's missions and goals.
I cannot lay out the case any clearer than the Department's
own Office of Inspector General did last year. ``The Federal
Government has a fundamental responsibility to be an effective
steward of taxpayer dollars. Sound financial practices and
related management operations are critical to achieving the
Department's mission and to providing reliable, timely
financial information to support management decision-making
throughout DHS. Congress and the public must be confident that
DHS is properly managing its finances to minimize inefficient
and wasteful spending, to make informed decisions to manage
government programs and implement its policies.''
I appreciate the panelists being here today.
[The statement of Mr. Duncan follows:]
Statement of Chairman Jeff Duncan
Since its inception 10 years ago, the Department of Homeland
Security has faced a multitude of challenges in combining 22 distinct
legacy agencies into one Cabinet-level department. This has been
especially true with resolving financial management deficiencies at
DHS. Integrating components and their budgets is a complex process in
the best of situations, but doing it while protecting the Nation from
terrorist attacks, natural disasters, and other day-to-day missions has
proven particularly difficult. These challenges were further compounded
at the Department by inherited financial management problems that
existed at several legacy components, including the Coast Guard, FEMA,
and the agencies that now make up U.S. Immigration and Customs
Enforcement.
Congress has conducted vigorous oversight over DHS financial
management and has demanded that the Department make progress in better
managing its finances. In October 2004, in an effort to enhance the
management and credibility of the Department, Congress has passed
various pieces of legislation requiring that DHS undergo annual
financial audits, keep better financial information, and make sure
financial statements are ready in a timely manner in order to have them
adhere to applicable accounting principles, also known in financial
speak as obtaining a ``clean opinion.''
It is important to mention some of the progress DHS management has
committed to and accomplished toward its financial management goals in
recent years. Notably, from 2005 to 2012, the Department corrected many
problems with its financial statements, increased component progress
through more direction and oversight, and strengthened internal
controls to increase the usefulness, reliability, and timeliness of
financial information.
While the Department has made progress in obtaining a clean opinion
on its financial statements, the Government Accountability Office, in
its report released to Congress yesterday, explains that this has been
the result of complex manual work-arounds that make up for a lack of
effective controls. GAO has concluded that absent sound internal
controls over its financial reporting, ``the Department's ability to
efficiently manage its operations and resources on a daily basis and
routinely provide useful, reliable, and timely financial information
for decision making, is seriously hindered.''
A recent case study in this could be seen in an investigation and
report released a few weeks ago by the U.S. Office of Special Counsel
which documented the blatant and sustained abuse of Administratively
Uncontrollable Overtime, or AUO, by six separate offices at DHS.
Examples such as this make it clear that without the proper financial
management systems and controls in place, how can DHS and its
components know that money is not being wasted?
If the American people can open up their checking account on-line
and know to the penny how much they have, then surely the third-largest
Federal department should be able to produce real-time financial data.
Back home in South Carolina, families and businesses have had to take a
hard look at their budgets and make tough choices. DHS must do the
same. The better the financial information DHS has, the greater the
chance it could cut costs and save taxpayer dollars without sacrificing
our homeland security.
Addressing internal control weaknesses and obtaining a clean audit
opinion remain challenges for the Department. DHS's inability to obtain
a clean audit opinion on its financial statements and improve the
effectiveness of internal controls were key factors for GAO keeping the
Department on its High-Risk List. According to GAO's most recent work,
DHS has made limited progress in obtaining a clean opinion on its
internal controls over financial reporting and will continue to face
challenges in obtaining, and perhaps most importantly, in sustaining a
clean opinion over its books until it addresses serious internal
control and financial management systems deficiencies.
Using manual data calls to collect cost information from various
components in order to compile data is simply not a feasible way to
manage the long-term financial needs and responsibilities of the
Department. While DHS turned away from the previous failed attempts to
modernize its financial management systems at a Department-wide level,
choosing instead to focus on upgrading those components with the most
critical need, GAO reports that DHS has no real vision of the end-state
for the future of its financial management system.
Sound and sustained financial management practices in the long-term
should be a low-cost, efficient way to support the Department's
missions and goals. I could not lay the case out any clearer than the
Department's own Office of Inspector General did last year: ``The
Federal Government has a fundamental responsibility to be an effective
steward of taxpayer dollars. Sound financial practices and related
management operations are critical to achieving the Department's
mission and to providing reliable, timely financial information to
support management decision-making throughout DHS. Congress and the
public must be confident that DHS is properly managing its finances to
minimize inefficient and wasteful spending, make informed decisions to
manage government programs, and implement its policies.''
Mr. Duncan. I will now recognize the Ranking Member, the
Member from Arizona, Mr. Barber, for any statement that he may
have.
Mr. Barber. Well, thank you, Mr. Chairman, and thank you
for convening this hearing. It is a very important part of our
job as an oversight subcommittee.
I want to thank the witnesses for being here this morning.
I look forward to your testimony.
Since its inception a little more than 10 years ago, the
Department of Homeland Security has faced multiple challenges
in building ``One DHS'' from a network of 22 legacy agencies.
When the Department was created, many of those legacy agencies
came to the new department with financial systems that were, to
say the least, not optimal.
In fact, four of the previous stand-alone and largest
components--U.S. Customs Service, the Transportation Security
Administration, Immigration and Naturalization Service, and the
Federal Emergency Management Agency, or FEMA--were not in
compliance with the requirements of the Federal Financial
Management Improvements Act of 1996 prior to their inclusion in
the Department of Homeland Security. So, clearly the Department
inherited some very poor, ineffective financial management
systems.
These financial management systems and those of other DHS
components have continued, unfortunately, to age, and the
Department has not yet successfully updated and modernized
them.
As the Ranking Member, I believe it is imperative--and I
think all of us would agree--to be good stewards of taxpayer
money. I also want DHS to be more transparent and accountable,
both to Congress and to the American people, and we cannot do
that without good information that is essential to meeting this
goal.
It is just not acceptable that the largest law enforcement
entity in the Federal Government, one that protects our borders
and ensures the efficient movement of goods and people, have
outdated and inefficient management and operation systems.
Inefficient financial management means DHS cannot accurately
account for its assets, assess equipment or personnel costs, or
provide quality data to oversight committees or other agencies
that seek to monitor how the agency does its job. These
inefficiencies can lead to holes in the homeland security
armor, and they must be fixed.
Just an example of a decision that was made in my State, in
a town not too far from Tucson called Ajo, where the Department
made a decision to build homes for Border Patrol personnel at
the cost of $600,000, on the average, for each home in a
community where the average cost of homes was $100,000. Seems
to me that a good financial system might have informed
management about those costs, and they might have made a
different decision.
We know that twice the Department has attempted to fix
financial management challenges by merging its disparate
systems into one. On both occasions, we know also that those
attempts have not worked. The Department's new effort, what it
calls the Financial Systems Modernization, is under way at
FEMA, and plans are in place to implement the system
Department-wide.
A plan to modernize DHS's financial management systems is
scheduled to be completed in the next several years. However,
that assumes that there are no glitches. I think we know a
whole lot about glitches in computer systems.
I am cautiously optimistic about the success of this latest
effort because I want to see DHS be a leader in financial
management and operations efficiency. However, I remain
concerned regarding the day-to-day effect of the third-largest
Federal agency operating with systems that on any given day may
not be usable because they are outdated. These problems bear
directly on the safety and security of our Nation.
An independent auditor recently determined that the U.S.
Customs and Border Protection did not detect that it actually
possessed assets that were incorrectly recorded, misclassified,
or not recorded at all in the general ledger. Additionally,
certain assets were recorded as being in possession in CBP's
general ledger that no longer existed. When these types of
mistakes occur, it causes an agency to purchase items it does
not need or, even worse, to fail to make purchases that are
needed to assist those working in the field. Given the present
budgetary constraints, we can neither tolerate nor afford
either scenario.
The American public does not always see the progress the
Department has made over the years and the hard work of our
Border Patrol agents, customs officers, and other DHS
employees. However, the American people do notice, as they
should, such inefficiencies. It is this type of inefficiency
that gives this Government and the Department a bad name, and
we can and must do better.
The Department must complete the implementation of the
initiatives to stabilize its internal controls and improve its
financial reporting. The modernization of the Department's
financial management systems is necessary in order to get to a
point where the Department's financial information is reliable,
up-to-date, and in compliance with the Office of Management and
Budget under the Federal mandates.
I appreciate that both the Government Accountability Office
and the Office of the Inspector General have served as a
partner with the Department in trying to improve its systems
and right this ship. I hope that the Department has taken both
the GAO and the OIG recommendations seriously and will
implement the necessary changes to makes its financial
management system efficient and effective, using taxpayer
dollars wisely.
I look forward to hearing from our witnesses on progress
that has been made, how the progress or lack thereof is
affecting the Department's mission, and what is needed to
further improve the Department's efforts.
Thank you, Mr. Chairman. I yield back.
[The statement of Mr. Barber follows:]
Statement of Ranking Member Ron Barber
November 15, 2013
Since its inception, the Department of Homeland Security has faced
multiple challenges in building ``One DHS'' from a network of 22 legacy
agencies.
When the Department was created many of the legacy agencies came
into the new Department with financial management systems that were not
operating at optimal levels.
In fact, four of the previously stand-alone and largest,
components--U.S. Customs Service, the Transportation Security
Administration, Immigration and Naturalization Service, and the Federal
Emergency Management Agency (FEMA)--were not in compliance with the
requirements of the Federal Financial Management Improvement Act of
1996 (FFMIA) prior to their inclusion in the Department of Homeland
Security.
These financial management systems and those of other DHS component
agencies have continued to age and, unfortunately, the Department has
not successfully updated and modernized them.
As Ranking Member, I believe it is imperative that DHS be good
stewards of taxpayer dollars.
It is simply unacceptable for the largest law enforcement entity
within the Federal Government, one that protects our borders and
ensures the efficient movement of goods and people, to have outdated
and inefficient management and operations systems.
Inefficient financial management means DHS cannot accurately
account for its assets, assess equipment or personnel costs, or provide
quality data to oversight committees or other agencies that seek to
monitor how the agency uses its funds.
These inefficiencies can lead to holes in our homeland security
armor and they must be fixed.
Twice the Department has attempted to fix its financial management
challenges by merging its disparate systems into one. On both occasions
those attempts have not worked.
The Department's new effort--what it calls the Financial Systems
Modernization--is already underway at FEMA and plans are in place to
implement the system Department-wide.
The plan to modernize DHS's financial management systems is
scheduled to be completed in the next several years. However, that
assumes that there are no glitches.
I am cautiously optimistic about the success of this latest effort
because I want to see DHS be a leader in management and operations
efficiency.
However, I remain concerned regarding the day-to-day effect of the
third-largest Federal agency operating with systems that on any given
day may not be usable because they are outdated.
These problems bear directly on the safety and security of our
Nation.
An independent auditor recently determined that U.S. Customs and
Border Protection did not detect that it actually possessed assets that
were incorrectly recorded, misclassified, or not recorded at all in the
general ledger.
Additionally, certain assets were recorded as being in possession
in CBP's general ledger that no longer existed.
When these types of mistakes occur, it causes an agency to purchase
items it does not need or, even worse, to fail to make purchases that
are needed to assist those working in the field.
Given present budgetary constraints, we can neither tolerate nor
afford either scenario.
The American public does not always see the progress the Department
has made over the years and the hard work of our Border Agents, Customs
Officers, and other DHS employees. However, the American public does
notice, as they should, such inefficiencies. It is this type
inefficiency that gives Government and the Department a bad name and we
can and must do better.
The Department must complete the implementation of initiatives to
stabilize its internal controls and improve its financial reporting.
The modernization of the Department's financial management systems
is necessary in order to get to a point where the Department's
financial information is reliable, up-to-date, and in compliance with
the Office of Management and Budget and other Federal mandates.
I am thankful that both the Government Accountability Office (GAO)
and the Office of Inspector General (OIG) have served as a partner with
the Department in trying to improve its systems and right this ship.
I hope that the Department has taken both GAO and OIG
recommendations seriously and will implement the necessary changes to
make its financial management system efficient and effective, using
taxpayer dollars wisely.
I look forward to hearing from our witnesses on progress that has
been made, how the progress or lack thereof is affecting the
Department's mission, and what is needed to further improve the
Department's efforts.
Mr. Duncan. I thank the Ranking Member.
The Chairman will now recognize and welcome the Ranking
Member of the full committee, the gentleman from Mississippi,
Mr. Thompson, for any statement he may have.
Mr. Thompson. Thank you very much, Chairman Duncan, for
holding today's hearing.
The Department of Homeland Security has one of the largest
budgets in the Federal Government. It is the third-largest
agency, and approximately $60 billion in taxpayer funds flows
in and out of the Department on an annual basis. Among other
things, these funds are used to provide salaries for the
Department's more that 240,000 employees, provide disaster aid
to State and local governments, and purchase equipment used by
those protecting our borders. We owe it to the taxpayers to
ensure that these funds are appropriately used, fully accounted
for, and auditable.
Unfortunately, this has not been the case at the Department
of Homeland Security. Last year, for the first time ever, the
Department was given a qualified audit opinion. While this
achievement is laudable, the Department's financial management
systems continue to hamper the everyday operations of the
Department, impacting management functions and ultimately our
security.
Ten years into several attempts at integrating its
financial management systems and millions of dollars later, the
Department is still using six different systems, all of which
are plagued with problems. Most of these systems are aging, and
some have reached the end of their life cycle.
Oftentimes, when Congress, the Government Accountability
Office, or the inspector general seeks financial information
from the Department regarding procurement of various programs,
employees have to retrieve this information manually because
the systems are not equipped to handle automated data calls.
This wastes time, puts strain on an already challenged
workforce, and reduces the reliability of the information
provided.
But even more troublesome is the effect these aging systems
have on homeland security. For example, inaccurate cost-benefit
analysis and the inability to determine whether what is being
purchased is the best value can lead to program failure.
Program failure leads to gaps in the mission, and gaps in the
mission undermine security.
For these reasons, I am pleased that the Department is yet
again attempting to improve its system through the current
Financial Systems Modernization efforts, which, as I
understand, is probably the third rodeo for the Department to
try to get it right. I do have concerns, however, about the
total cost, currently estimated at $225 million, and the
Department's ability to accurately receive an appropriation for
that amount in this current austere budget environment.
At any rate, improvements must be made, and I am pleased
that plans are under way and at least one component, the
Federal Emergency Management Agency, has already begun the
process. We will continue to exercise diligent oversight over
this process. I look forward to hearing from the witnesses
regarding the status of this effort, including whether the
Department is in compliance with both GAO and OIG
recommendations.
I yield back, Mr. Chairman.
[The statement of Mr. Thompson follows:]
Statement of Ranking Member Bennie G. Thompson
November 15, 2013
The Department of Homeland Security (Department) has one of the
largest budgets in the Federal Government. It is the third-largest
agency and approximately $60 billion in taxpayer funds flows in and out
of the Department on an annual basis. Among other things, these funds
are used to provide salaries for the Department's more than 240,000
employees, provide disaster aid to State and local governments, and
purchase the equipment used by those protecting our borders.
We owe it to taxpayers to ensure that these funds are appropriately
used, fully accounted for, and auditable. Unfortunately, this has not
been the case at the Department of Homeland Security. Last year, for
the first time ever, the Department was given a qualified audit
opinion. While this achievement is laudable, the Department's financial
management systems continue to hamper the everyday operations of the
Department impacting management functions and ultimately our security.
Ten years into several attempts at integrating its financial
management systems, and millions of dollars later, the Department is
still using six different systems, all of which are plagued with
problems. Most of these systems are aging and some have reached the end
of their life cycle.
Oftentimes, when Congress, the Government Accountability Office
(GAO), or the Office of the Inspector General (OIG) seeks financial
information from the Department regarding procurements or various
programs, employees have to retrieve this information manually because
the systems are not equipped to handle automated data calls.
This wastes time, puts strain on an already challenged workforce
and reduces the reliability of the information provided. But even more
troublesome, is the effect these aging systems have on homeland
security. For example, inaccurate cost/benefit analyses and an
inability to determine whether what is being purchased is the best
value can lead to program failure.
Program failure leads to gaps in the mission and gaps in the
mission undermines security. For these reasons, I am pleased that the
Department is yet again attempting to improve its systems through the
current Financial Systems Modernization effort.
I do have concerns; however, about the total cost--currently
estimated at $225 million--and the Department's ability to actually
receive an appropriation for that amount in this current austere budget
environment. At any rate, improvements must be made and I am pleased
that plans are underway, and at least one component--the Federal
Emergency Management Agency--has already begun the process.
We will continue to exercise diligent oversight over this process,
and I look forward to hearing from the witnesses regarding the status
of this effort including whether the Department is in compliance with
GAO and OIG recommendations.
Mr. Duncan. I thank the Ranking Member.
Other Members of the subcommittee are reminded that opening
statements may be submitted for the record.
Now, we are pleased to have a distinguished panel of
witnesses before us today on this topic.
Let me remind the witnesses that their entire written
statement will appear in the record. I will introduce each of
you first and then recognize you individually for your
testimony.
Our first panelist today is Mr. Chip Fulghum. He is the
acting chief financial officer for the Department of Homeland
Security as well as the agency's budget director.
The Office of the Chief Financial Officer is responsibility
for the fiscal management, integrity, and accountability of the
Department. Its mission is to provide guidance and oversight of
the Department's budget, financial management, financial
operations for all Departmental management operations, the DHS
Working Capital Fund, grants, and assist in awards and resource
management systems to ensure that funds necessary to carry out
the Department's mission are obtained, allocated, and extended
in accordance with the Department's priorities and relevant law
and policies.
Mr. Fulghum joined the DHS in October 2012 as its budget
director. Prior to joining the Department, Mr. Fulghum served
for 28 years in the United States Air Force, retiring with the
rank of colonel. He is also a graduate of The Citadel, the
military college from South Carolina.
It is an honor to have you here. Thanks for your service to
our great Nation. Go, Bulldogs. But I hope my Tigers beat you
next week. That is all I can say.
Mr. Fulghum. They may have a problem next week.
Mr. Duncan. Thank you for being here. Yes, sir.
The second panelist is Mr. Asif Khan. He is a director at
the U.S. Government Accountability Office for financial
management and assurance issues. Mr. Khan has extensive
experience in performing financial accounting, financial
statements, audits, restatements, internal-control reviews,
business process analysis. He has worked on large and complex
audits and investigations relating to waste, fraud, and abuse.
Prior to joining the GAO, Mr. Khan was a senior manager at
Deloitte accounting firm.
The third panelist is Ms. Anne Richards. She is the
assistant inspector general for the Office of Audits under
Office of Inspector General at the Department of Homeland
Security. The Office of Audits focuses on promoting
effectiveness, efficiency, and economy in DHS's programs and
operations, in addition to detecting fraud, abuse, and waste
and mismanagement. Prior to joining the Office of Inspector
General, Ms. Richards was assistant inspector general at the
U.S. Department of the Interior.
I appreciate all the panelists being here today.
I will now recognize Mr. Fulghum to testify.
STATEMENT OF CHARLES FULGHUM, ACTING CHIEF FINANCIAL OFFICER,
U.S. DEPARTMENT OF HOMELAND SECURITY
Mr. Fulghum. Thank you, Chairman Duncan, Ranking Member
Barber, and Members of the subcommittee, for the opportunity to
testify before you today on the Department of Homeland
Security's progress towards strengthening financial management
and ensuring strong stewardship of the taxpayers' dollars.
DHS is committed to instituting sound financial management
practices, which is evidenced by our recent achievements in
auditability. Working together as ``One DHS'', the financial
management community launched a multi-year effort to drive the
Department toward a clean audit opinion and a full accounting
for how it spends taxpayer dollars. As a part of this effort,
DHS put in place strong internal controls, established
Department-wide policies and business processes, strategically
recruited staff, and developed essential skill sets through
workforce development.
DHS senior leadership is committed to identifying areas for
improvement and developing plans to address those areas. Using
corrective action plans as our roadmap, the Department
established policies, processes, and structures to ensure
consistent operations for accounting centers and financial
management offices within the components.
Because of these efforts, DHS has made substantial progress
towards maturing financial management and reporting. In fiscal
year 2012, approximately 90 percent of DHS's $87.2 billion in
assets and liabilities were auditable, which is an increase
from 63 percent in 2009. Last year, the Department was able to
provide a qualified assurance on internal control over
financial reporting and earned a qualified audit opinion on all
its 2012 financial statements--a first in its history.
These improvements have paved the way for the Department to
reach its ultimate goal of sustainable clean audit opinions on
all financial statements and on internal controls over
financial reporting. DHS is committed to achieving an
unqualified opinion on all its fiscal year 2013 financial
statements. We are executing a multi-year plan to provide full
assurance of the effectiveness of internal controls over
financial reporting by 2016.
It is critical that DHS continue to build on its successes,
increasing the efficiency and effectiveness of financial
management. Key to sustaining progress is the ability of
components to produce consistent, reliable data from their
financial systems.
Several component financial systems are outdated and in
need of modernization. To address this, DHS launched the
Financial Systems Modernization initiative, which seeks to
build increased business intelligence capabilities and
modernize component systems where needed.
The Department's decentralized approach to systems
modernization conforms to the guidance from OMB to split
modernization projects into smaller, simpler segments with
clear deliverables and to focus on the most critical business
needs first. It also conforms to OMB's objective to use shared
services wherever possible. By buying a service, the Department
can leverage proven processes and best practices, deliver
functionality faster, and reduce the risk associated with
building and maintaining a complex internal system.
Through the Financial Systems Modernization initiative, DHS
will be able to reduce costs by eliminating redundant or
nonconforming systems and promote good business practices
through the standardization of processes and data where
possible.
Under the target state for DHS Financial Systems
Modernization, the Department uses enhanced systems tools to
pull financial data from disparate systems and turn it into
timely, actionable information to support informed decision-
making. These tools increased transparency into how we spend
appropriated dollars and improve the quality of the Department-
wide financial reporting.
By improving overall data integrity and analytics, the DHS
financial management community can better equip Departmental
leadership to take those tough trade-off decisions and maintain
the Department's focus on its priority missions.
Despite resource constraints, the DHS financial management
community continues to identify and implement best practices to
make operations as efficient and as effective as possible. This
is only possible with the expertise and tireless efforts of our
highly-skilled workforce. Together, we have built a sturdy
foundation of sustainable financial management practices that
will support Departmental operations for years to come. We will
continue to work on improving financial management access
across the Department, ensuring we make the most of every
taxpayer dollar.
Thank you for your continued support of this Department,
and I am happy to answer any questions that you may have.
[The prepared statement of Mr. Fulghum follows:]
Prepared Statement of Charles Fulghum
November 15, 2013
Thank you Chairman Duncan, Ranking Member Barber, and Members of
the subcommittee for the opportunity to testify before you on the
Department of Homeland Security's (DHS) progress in strengthening
financial management and ensuring strong stewardship of the resources
entrusted to it.
The DHS financial management community has a shared, related, and
interdependent responsibility to deliver efficient financial
management, and to ensure funds are obtained, allocated, and expended
effectively and in accordance with Department priorities and applicable
law and policies. DHS is committed to instituting sound financial
management practices to safeguard taxpayer dollars, as is evidenced by
recent achievements in auditability.
During its first 5 years, the Department's headquarters was small,
and it was faced with the task of having to unify the incongruent
financial management policies, processes, and infrastructure that
components brought with them to DHS. When the Department was stood up
in 2003, there were an estimated 100 financial management systems
operating in 22 components. In addition, components were operating
under legacy policies and disparate business processes. Further, DHS
inherited 30 significant financial reporting deficiencies, 18 of which
were considered material weaknesses. These conditions hampered the
Department's ability to produce timely, reliable financial data.
Since 2003, the Department has worked with Congress, the Government
Accountability Office, the Office of Management and Budget, the DHS
Office of Inspector General, and our independent auditor to strengthen
financial management to support the DHS mission. The passage of the DHS
Financial Accountability Act in 2004 reinforced our efforts to mature
Department operations, providing an essential framework to successfully
structure and improve financial management and corrective action
planning for DHS through audit opinions, internal controls over
financial reporting, and accountability reports.
Working together as One DHS, the financial management community
launched a multi-year effort to drive the Department toward a clean
audit opinion and a full accounting for how it spends taxpayer dollars.
DHS put in place strong internal controls, strategically recruited
staff, developed essential skill sets through workforce training, and
established Department-wide policies and business processes--the
fundamental building blocks for effective financial management. To
improve the auditability of its financial statements, DHS has worked to
standardize business practices and to execute systematic plans to
correct recognized weaknesses.
DHS senior management has a continued commitment toward identifying
areas for improvement, developing and monitoring corrective actions,
and establishing and maintaining effective financial management
internal controls. Each year, my office works closely with DHS
components to perform targeted risk assessments to identify weaknesses
in accounting and financial reporting where problems could occur due to
changing operations and programs, and to develop and implement mission
action plans for those high-risk areas. Component heads certify that
the annual plans address critical deficiencies identified by management
and/or the auditor, and commit to devoting adequate resources to
remediate the deficiencies and to strengthen and improve the overall
internal control environment. Using mission action plans as a roadmap,
the Department has established policies, processes, and structures to
help ensure consistent operations for accounting centers and financial
management offices within the components. For example, DHS developed
the Financial Management Policy Manual, which provides the Department
with current and comprehensive financial management policies and
procedures to ensure that DHS maintains efficient and transparent
operations and that our resources are not vulnerable to waste, fraud,
and mismanagement.
These efforts have built a foundation of strong financial
management policies and practices, the impact of which is visible in
our substantial progress maturing DHS financial management and
reporting. In fiscal year 2012, approximately 90 percent of DHS's $87.2
billion in assets and liabilities were auditable, an increase from 63
percent in fiscal year 2009. The Department has continued to improve
internal control deficiencies through corrective actions and best
practices. DHS has reduced its material weaknesses from 18 to 5, and
has further reduced the scope of several remaining weaknesses due to
significant progress achieved in remediating concerns in those areas.
DHS continues to demonstrate measurable progress every year,
developing and implementing corrective actions and decreasing material
weakness and significant deficiency conditions, confirming DHS's on-
going commitment to sound financial management practices. In 2012, the
Department earned a qualified audit opinion on all its fiscal year 2012
financial statements, a first in its history. This means that the
Department has systems in place to responsibly account for its
resources. The Department was also able to provide a qualified
assurance on internal control over financial reporting, our first major
milestone toward obtaining an opinion on internal control. This means
that with the exception of a few areas, DHS has good business processes
in place to ensure our financial statements are accurate. These
achievements highlight the success of management integration efforts at
DHS and represent important steps toward increasing transparency and
accountability for the taxpayer resources entrusted to the Department.
DHS remains committed to further strengthening its financial
management practices to better safeguard taxpayer dollars. The
Department will continue to apply its audit readiness strategy of
targeted risk assessment and strong oversight of corrective actions,
working closely with components to mitigate the risk of any new
material weaknesses or audit qualifications as a means to sustain
continuing success. This will lead the Department to its ultimate goal
of sustainable clean audit opinions on all financial statements and on
internal controls over financial reporting. DHS is committed to
achieving an unqualified opinion on all its fiscal year 2013 financial
statements and is executing its multi-year plan to provide full
assurance of the effectiveness of its internal control over financial
reporting by fiscal year 2016.
It is critical that DHS continue to build on its successes,
increasing the efficiency and effectiveness of financial management.
Key to sustaining progress implementing sound financial management
practices and internal controls is the ability of components to produce
consistent, reliable financial data. By improving overall data
integrity and analytics, DHS can produce accurate and auditable
financial statements and can support leadership in making trade-off
decisions and maintaining the Department's focus on its priority
missions.
Some component DHS financial systems are outdated and in need of
modernization. To address this, DHS launched the Financial Systems
Modernization initiative to expand business intelligence capabilities
and modernize financial systems where needed. The Department's
decentralized approach conforms to guidance from Office of Management
and Budget (OMB) to split modernization projects into smaller, simpler
segments with clear deliverables and to focus on the most-critical
business needs first. It also conforms to OMB's objective to leverage
shared services where possible, rather than continuing to make costly
capital investments in duplicative accounting systems. Through the
Financial Systems Modernization initiative, DHS will be able to better
manage its resources, provide enterprise-level information quicker to
support critical decision making, reduce costs by eliminating redundant
or nonconforming systems, and promote good business practices through
standardization of processes and data where possible.
Each DHS component, supported by the strong governance and
oversight of the Financial Systems Modernization Executive Steering
Committee, is analyzing solutions with varying degrees of integration,
including integration with acquisition and asset management systems.
The Department is approaching each modernization using procurement best
practices to obtain the best possible value. DHS provides oversight and
guidance to ensure component modernization projects align with
Department objectives and best practices. Components are required to
conform to Department-wide standards to ensure consistent enterprise-
level information and reporting to internal and external stakeholders.
Each component is also required to develop and maintain an updated
Integrated Master Schedule. After each component determines its path
forward, each will develop and implement a specific individual
transition plan for moving from its current financial management
environment to the future financial management environment on the basis
of its finalized path forward.
DHS and its components collaborate to ensure financial system
modernization projects are planned and executed to meet reporting
requirements, minimize costs for financial operations, and make certain
that financial management systems provide for the systematic
measurement of performance and have management controls in place to
support the DHS mission. My office performed an extensive review of
lessons learned and best practices from other Federal financial system
projects, and is working with DHS Centers of Excellence to ensure best
practices in program management, systems engineering, and security are
incorporated into component projects. In addition, DHS is incorporating
lessons learned from previous modernization efforts, as well as
recommendations from the Government Accountability Office and a
recently completed independent assessment validating its approach. DHS
will continue to collaborate with Treasury and OMB to execute our
aligned strategy and will update relevant supporting documentation as
each component completes its Alternatives Analysis and finalizes its
path forward.
Under the target state for DHS financial systems modernization, the
Department will use enhanced business intelligence tools to pull
financial data from disparate systems and turn it into timely,
actionable information to support informed decision making by
Department leadership. DHS is standardizing data elements and business
processes to support internal controls and improve and sustain audit
success, and is providing governance and oversight of current and
future financial management system enhancements. The business
intelligence tools increase transparency into how we spend appropriated
dollars and improve the quality of Department-wide financial reporting
through automated data controls. These tools have improved Departmental
compliance with the CFO Act and DHS Financial Accountability Act,
regulations and OMB guidance, and Government accounting standards.
These tools have also increased efficiencies by reducing the
Department's reliance on manual data calls, which are labor-intensive
and have a greater risk of inaccurate, outdated, or incomplete
contents.
The DHS financial management community continues to identify and
implement best practices to make operations as efficient and effective
as possible. This is only possible with the expertise and tireless
efforts of our highly-skilled employees. Together, we have built a
sturdy foundation of sustainable financial management practices that
will support Department operations for years to come. We will continue
the work of improving financial management across the Department,
ensuring we make the most of every taxpayer dollar.
Thank you for your continued support of the Department of Homeland
Security. I am happy to answer any questions you may have.
Mr. Duncan. Thank you, Colonel.
The Chairman will now recognize Mr. Khan.
STATEMENT OF ASIF A. KHAN, DIRECTOR, FINANCIAL MANAGEMENT AND
ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Khan. Good morning, Chairman Duncan, Ranking Member
Barber, and Members of the subcommittee. I am here to discuss
our recent work on the Department of Homeland Security's
efforts to improve its financial management and reporting. I
would like to thank the subcommittee for holding this hearing
and focusing attention on actions needed to meet difficult
challenges.
Effective financial management and reporting is important
for DHS decision makers and their stewardship of Federal funds.
It is also integral to DHS business operations, such as
acquisition, payroll, asset management, that provides crucial
support to DHS's mission.
Today, I will discuss the results of our recent work on
DHS's efforts to improve its financial management and
reporting. I will focus on progress towards obtaining a clean
opinion on both its financial statements and internal controls
over reporting as well as modernizing its financial management
systems.
Since DHS was established in 2003, its internal controls
and financial management system weaknesses have impeded its
ability to provide reliable, timely, and useful financial data
to support daily operations and decision making. These
deficiencies contributed to our designation of DHS management
functions, including financial management, as high-risk.
Sound financial management at DHS is a top priority for
Congress, which enacted legislation in 2004 requiring DHS to
undergo annual financial statement audits. DHS is also required
to obtain an audit opinion on its internal controls over
financial reporting, making it the only CFO Act agency
explicitly required to do so.
A key factor in improving accountability and achieving an
entity's mission is to implement an effective internal-control
system. In 2012, additional legislation was passed required DHS
to take the necessary steps to ensure that its fiscal year 2013
financial statements are ready to obtain a clean opinion.
In recent years, DHS has made considerable progress towards
obtaining a clean opinion on its financial statements. However,
DHS has made limited progress towards obtaining a clean opinion
on its internal controls and modernizing its financial
management systems. DHS's top leaders have shown commitment to
making the needed improvements, and its components are taking
the actions necessary to identify weaknesses, yet much remains
to be done.
For the first time, DHS was able to receive a qualified
opinion on all its fiscal year 2012 financial statements, in
part based on management's commitment to improving its
financial management processes. DHS is working to resolve the
deficiencies that resulted in the qualified opinion and has a
goal of achieving a clean opinion on its financial statements
for fiscal year 2013. However, the auditors' report indicated
that DHS continues to rely on compensating controls and complex
manual workarounds to support its financial reporting.
Over the years, DHS's auditors have reported a reduction in
the number of material weaknesses in internal controls. For the
most recent completed audit, DHS's auditors reported five
material weaknesses at eight components, including the Coast
Guard. According to DHS's auditors, these material weaknesses
limit DHS's ability to process, store, and report financial
data in a manner that ensures accuracy, confidentiality,
integrity, and availability of data without substantial manual
intervention.
DHS has plans to resolve these remaining weaknesses, with a
goal of achieving a clean opinion on its internal controls for
fiscal year 2016. DHS components are in the early stages of
planning for their financial management systems, and DHS
expects these efforts to be completed by 2018.
This decentralized approach is consistent with OMB
guidance. However, DHS has not fully incorporated certain
information technology best practices, including developing a
detailed target state that describes how the component systems
will operate in the future. DHS also lacks a transition plan
that describes how components will move to a new Department-
wide financial management environment. Without a target state
and transition plan, DHS risks using resources ineffectively by
investing and implementing systems that do not provide the
needed capabilities.
In closing, we are encouraged by the sustained commitment
of DHS leadership. They have developed plans and begun the
implementation of specific action items in all financial
management areas. Their follow-through to effectively remediate
the auditors' finding and implement IT best practices will be
needed to sustain progress over the long term. To support this
subcommittee's oversight, GAO will continue monitoring and
reporting on the Department's financial management
improvements.
Mr. Chairman, this concludes my prepared statement. I would
be happy to answer any questions you or the other Members of
the subcommittee may have. Thank you.
[The prepared statement of Mr. Khan follows:]
Prepared Statement of Asif A. Khan
November 15, 2013
dhs financial management.--continued effort needed to address internal
control and system challenges
gao-14-106t
Chairman Duncan, Ranking Member Barber, and Members of the
subcommittee: I am pleased to be here today to discuss our recent work
on the Department of Homeland Security's (DHS) efforts to improve its
financial management and reporting. Since DHS's inception in March
2003,\1\ internal control and financial management system weaknesses
have impeded its ability to provide reliable, timely, and useful
financial data to support daily operational decision making.\2\ Those
internal control and financial management system deficiencies
contributed to our decision to designate DHS's management functions--
including financial management--as high-risk in 2003.\3\ As noted in
our 2013 high-risk report, continued improvement is needed to mitigate
the risks identified and to help ensure that management weaknesses do
not hinder the Department's ability to efficiently and effectively use
its resources and accomplish its mission.\4\
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\1\ In March 2003, DHS was created by merging 22 disparate agencies
and organizations, many of which had known financial management
weaknesses and vulnerabilities. Only 5 of the agencies that transferred
to DHS had been subject to financial statement audits--U.S. Customs
Service, Transportation Security Administration, Immigration and
Naturalization Service, Federal Emergency Management Agency, and
Federal Law Enforcement Training Center. DHS currently comprises 16
component entities.
\2\ Internal control is a major part of managing an organization
and comprises the plans, methods, and procedures used to meet missions,
goals, and objectives and, in doing so, supports performance-based
management. GAO, Standards for Internal Control in the Federal
Government, GAO/AIMD-00-21.3.1 (Washington, DC: November 1999) provides
an overall framework for establishing and maintaining internal control
and for identifying and addressing major performance and management
challenges and areas at greatest risk of fraud, waste and abuse, and
mismanagement.
\3\ GAO, High-Risk Series: An Update, GAO-03-119 (Washington, DC:
January 2003).
\4\ GAO, High-Risk Series: An Update, GAO-13-283 (Washington, DC:
February 2013).
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The DHS Audit Requirement Target Act of 2012 requires DHS to take
the necessary steps to ensure that its fiscal year 2013 financial
statements are ready in a timely manner in order to obtain a clean
opinion.\5\ A clean opinion means that the financial statements are
presented fairly, in all material respects, in accordance with the
applicable accounting principles. DHS's financial statements consist of
the consolidated balance sheets; statements of net cost, changes in net
position, budgetary resources, and custodial activity; and related
notes. Further, DHS is required by the DHS Financial Accountability Act
of 2004 \6\ to obtain an audit opinion on its internal control over
financial reporting.\7\ A clean opinion states that, in the auditors'
opinion, the entity maintained effective internal control over
financial reporting.
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\5\ Pub. L. No. 112-217, 2(b), 126 Stat. 1591 (Dec. 20, 2012).
\6\ Pub. L. No. 108-330, 4(a), 118 Stat. 1277 (Oct. 16, 2004).
\7\ The objectives of internal control over financial reporting are
to provide reasonable assurance that: (1) Transactions are properly
recorded, processed, and summarized to permit the preparation of the
financial statements in conformity with U.S. generally accepted
accounting principles, and assets are safeguarded against loss from
unauthorized acquisition, use, or disposition, and (2) transactions are
executed in accordance with laws governing the use of budget authority
and with other laws and regulations that could have a direct and
material effect on the financial statements.
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We have long held that accountability is part of the organizational
culture that goes well beyond receiving a clean audit opinion on the
financial statements; the underlying premise is that agencies must
become more results-oriented, cost-conscious, and focused on internal
control. A disciplined and structured approach to assessing internal
control is critical to successfully implement and maintain adequate
financial management oversight in the Federal Government.
My remarks today are primarily based on our September 2013 report
on DHS financial management issues.\8\ Accordingly, this testimony
addresses DHS's progress toward: (1) Obtaining a clean opinion on its
financial statements; (2) obtaining a clean opinion on its internal
control over financial reporting; and (3) modernizing its financial
systems, including the extent to which DHS's approach for modernizing
its current financial systems was consistent with Office of Management
and Budget (OMB) requirements. We also discuss whether DHS followed
certain information technology (IT) best practices while implementing
its approach. For our report, we reviewed relevant DHS guidance and
documents, determined whether DHS followed OMB requirements and certain
industry best practices, and interviewed key DHS officials. We updated
this statement for new information obtained from DHS since the issuance
of our report related to DHS's schedule for completing its financial
system modernization efforts. This work was performed in accordance
with generally accepted Government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. Our report provides further
details on our scope and methodology.
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\8\ GAO, DHS Financial Management: Additional Efforts Needed to
Resolve Deficiencies in Internal Controls and Financial Management
Systems, GAO-13-561 (Washington, DC: Sept. 30, 2013).
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In summary, we found DHS:
has made considerable progress toward generating reliable
financial data to obtain a clean opinion on its financial
statements;
has made limited progress in establishing effective controls
to obtain a clean opinion on its internal control over
financial reporting; and:
is in the early planning stages of implementing its
decentralized approach with each component determining the
specific solution for its financial systems modernization.
opinion on financial statements
DHS's progress on obtaining a clean opinion on its financial
statements includes reducing the number of audit qualifications from 11
in 2005 to 1 in 2010;\9\ receiving a qualified audit opinion on two of
its five fiscal year 2011 financial statements--the consolidated
balance sheet and statement of custodial activity;\10\ expanding the
financial audit in fiscal year 2012 to all financial statements; and
obtaining a qualified opinion on the fiscal year 2012 financial
statements.\11\ DHS was able to achieve this progress based in part on
management's commitment to improving its financial management process.
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\9\ An audit qualification is a matter identified by auditors that
contributes to their inability to render a clean opinion on the
financial statements.
\10\ Auditors reported that: (1) The other three financial
statements, including the statements of net cost, changes in net
position, and budgetary resources, were not auditable, and (2) DHS must
be able to represent that its balance sheet is fairly stated, and
obtain at least a qualified opinion before it is practical to extend
the audit to other financial statements.
\11\ A qualified opinion, in relation to the financial statements,
states that certain reported balances are unauditable, or the financial
statements contain a material departure from generally accepted
accounting principles, or both.
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DHS is working to resolve the deficiencies in the U.S. Coast
Guard's (USCG)--one of DHS's major component entities--ability to
complete certain reconciliations and provide evidence supporting
certain components of general property, plant, and equipment (PP&E), as
well as heritage and stewardship assets that caused its auditors to
issue a qualified opinion on its fiscal year 2012 financial statements.
DHS has a goal of achieving a clean opinion for fiscal year 2013.
However, the auditors' report indicates that DHS continues to rely on
compensating controls and complex manual work-arounds to support its
financial reporting, rather than sound internal control over financial
reporting and effective financial management systems.
opinion on internal control
In regard to DHS's progress on obtaining a clean opinion on
internal control over financial reporting, from fiscal years 2005
through 2011, DHS's auditors reported a reduction in the number of
material weaknesses in internal control over financial reporting from
10 to 5 and a decrease in the number of control deficiencies
contributing to the material weaknesses from 30 to 15.\12\ Although the
number of auditor-reported material weaknesses in DHS's internal
control over financial reporting has decreased since fiscal year 2005,
the largest reduction--for fiscal year 2007--was due to a consolidation
of weaknesses into fewer, broader categories for reporting
purposes.\13\ For fiscal year 2012, the most recently completed audit,
DHS's auditors reported material weaknesses in five areas related to
deficiencies at eight components, including USCG.
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\12\ A material weakness is a significant deficiency, or a
combination of significant deficiencies, in internal control such that
there is a reasonable possibility that a material misstatement of the
entity's financial statements will not be prevented, or detected and
corrected, on a timely basis. A significant deficiency is a control
deficiency, or combination of deficiencies, in internal control
important enough to merit attention by those charged with governance. A
control deficiency exists when the design or operation of a control
does not allow management or employees, in the normal course of
performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis.
\13\ For fiscal year 2007, auditors consolidated certain material
weaknesses by combining: (1) Intragovernmental balances into the
financial reporting material weakness; (2) PP&E with the operating
materials and supplies material weakness and reporting the combination
as capital assets and supplies; and (3) actuarial liabilities with the
legal and other liabilities and reported the combination as actuarial
and other liabilities. The auditors noted that DHS had made progress
during fiscal year 2007 in remediating the deficiency related to
intragovernmental balances. USCG was the only DHS component that
contributed to the fiscal year 2006 material weaknesses in operating
materials and supplies and actuarial liabilities, but the auditors did
not report that USCG had made progress during fiscal year 2007 in
remediating the deficiencies within operating materials and supplies
and actuarial liabilities.
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The material weaknesses reported in fiscal year 2012 include: (1)
Financial reporting, (2) IT controls and financial system
functionality, (3) property, plant, and equipment, (4) environmental
and other liabilities, and (5) budgetary accounting.\14\ According to
DHS's auditors, the existence of these material weaknesses limits DHS's
ability to process, store, and report financial data in a manner that
ensures accuracy, confidentiality, integrity, and availability of data
without substantial manual intervention. DHS has plans to resolve the
remaining five material internal control weaknesses, with a goal of
achieving a clean opinion on internal control over financial reporting
for fiscal year 2016. DHS will continue to face challenges in obtaining
and sustaining a clean opinion on its financial statements and
attaining a clean opinion on its internal control over financial
reporting until serious internal control and financial management
systems deficiencies are resolved.
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\14\ For detailed information on the five material weaknesses, see
GAO-13-561, appendix IV.
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financial management systems
For nearly a decade, DHS tried to modernize its financial
management systems by attempting to implement a Department-wide
integrated financial management system. DHS's efforts included two
projects--one that ended in December 2005 when DHS acknowledged that
its pilot project had not been successful, and another in June 2011
when requirements had changed and DHS canceled the program. Now, under
its decentralized approach, DHS plans to modernize the financial
systems of components with the most critical need first and integrate
the financial systems with asset management and acquisition systems,
resulting in component-level integrated financial management systems.
DHS determined that components with a critical business need to
modernize their financial management systems include Immigration and
Customs Enforcement and USCG, and their customer components, as well as
the Federal Emergency Management Agency. Components are in the early
planning stages of implementing the approach, and as of September 2013,
DHS estimated that its financial system modernization efforts will not
be completed until fiscal year 2018.
In our September 2013 report, we found that DHS's decentralized
approach for modernizing its components' financial systems is
consistent with relevant OMB requirements, such as implementing
projects in smaller, simpler segments, but not all relevant IT best
practices have been fully implemented. DHS has implemented certain IT
recommended best practices that reflect key areas of effective program
management, such as conducting an analysis of alternatives,
establishing a governance structure, developing financial management
systems baseline business process requirements, and developing a
description of its current financial management environment. However,
DHS had not fully incorporated other IT best practices, including
developing a description of how its components' financial management
systems will operate in the future--called a detailed target state--or
a description of how components will transition to a new financial
management environment--called a Department-level transition plan.\15\
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\15\ We also had two other findings and recommendations in our
report related to IT best practices and the need for DHS, at the time
of our review, to update its standard operating procedures and include
specific procedures for revising milestone dates and providing written
confirmation of completed activities reflected in its integrated master
schedule and for performing key elements of a lessons learned process.
After DHS received our draft report for comment, DHS finalized its
procedures to resolve these issues, and we agreed that DHS had
completed actions to address these two recommendations.
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To help DHS deploy component-level integrated financial management
systems, we made two recommendations to DHS regarding the need to
follow best practices related to its target state and transition plan.
After reviewing the draft report, DHS generally agreed with our
recommendations and described actions already taken to address them.
However, we believe that further action is needed to address these
recommendations. Specifically, DHS has not developed other important
details for its target state, such as Department-level operational
needs and characteristics, including the systems' availability, data
flow, expandability, and interoperability. In addition, its transition
strategy is missing needed elements of a transition plan such as
milestones and time frames for implementing new systems as well as the
optimal sequencing of activities. Without a detailed target state and
Department-level transition plan, DHS has an increased risk of, among
other things, investing in and implementing systems that do not provide
the desired capabilities and inefficiently using resources during its
financial management system modernization efforts.
With regard to the status of DHS's efforts to complete actions
necessary to achieve removal from our high-risk list, in a September
2010 letter to DHS, we identified, and DHS subsequently agreed to
achieve, 31 actions and outcomes, including 9 related to financial
management, that are critical to addressing the high-risk issues and
challenges within the Department's management areas.\16\ Based on our
recent review, we determined that DHS has made progress improving its
financial management and fully addressing 2 of the 9 high-risk
financial management actions and outcomes--obtaining top management
commitment and developing corrective action plans.\17\ However, a
significant amount of work remains to be completed on the remaining 7
financial management actions and outcomes, which include obtaining and
sustaining a clean opinion on its financial statements, addressing
weaknesses in internal controls and systems to obtain an opinion on the
effectiveness of internal control over financial reporting, ensuring
that its financial systems substantially comply with the Federal
Financial Management Improvement Act of 1996,\18\ and deploying modern
financial systems at certain components. Achieving these outcomes will
greatly enhance DHS's ability to produce reliable, timely, and useful
financial information to support operational decision making, and thus
assist it in efficiently and effectively using its resources to
accomplish its mission.
---------------------------------------------------------------------------
\16\ For a list and discussion of the 31 actions and outcomes, see
GAO, Department of Homeland Security: Continued Progress Made Improving
and Integrating Management Areas, but More Work Remains, GAO-12-1041T
(Washington, DC: Sept. 20, 2012); and High-Risk Series: Government-wide
2013 Update and Progress Made by the Department of Homeland Security,
GAO-13-444T (Washington, DC: Mar. 21, 2013).
\17\ For detailed information on the 9 financial management actions
and outcomes, see GAO-13-561, appendix II.
\18\ Pub. L. No. 104-208, div. A, title VIII, 110 Stat. 3009, 3009-
389 (Sept. 30, 1996).
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Chairman Duncan, Ranking Member Barber, and Members of the
subcommittee, this concludes my prepared remarks. I would be happy to
answer any questions that you may have.
Mr. Duncan. Thank you, Mr. Khan.
Ms. Richards, welcome back. You are recognized.
STATEMENT OF ANNE L. RICHARDS, ASSISTANT INSPECTOR GENERAL FOR
AUDITS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF
HOMELAND SECURITY
Ms. Richards. Good morning, Chairman Duncan, Ranking Member
Barber, and Members of the subcommittee. Thank you for inviting
me to testify about financial management at the Department of
Homeland Security.
Today, I will focus my remarks on information provided in
two reports: The fiscal year 2012 Independent Auditors' Report
on Financial Statements and Internal Control Over Financial
Reporting, which was prepared by the independent auditing firm
KPMG, and the financial management section of our Major
Management Challenges report. Both of these reports were issued
in November 2012. We expect to issue the fiscal year 2013
reports in mid-December of this year.
Overall, the Department continued to improve its financial
management in fiscal year 2012, and it achieved a significant
milestone: The completion of a full-scope audit on all
financial statements. The independent auditors issued a
qualified opinion on DHS's financial statements but were unable
to opine on the internal controls over financial reporting
because of the material weaknesses identified during the audit
of those controls.
In the fiscal year 2012 financial statement audit, KPMG
identified the same five material weaknesses as in the fiscal
year 2011 audit. Those were in financial reporting; IT controls
and financial system functionality; property, plant, and
equipment; environmental and other liabilities; and budgetary
accountings. The auditors also identified other significant
deficiencies in general Department-level controls, grants
management, revenue collected on behalf of the U.S. Treasury,
and drawbacks.
After the fiscal year 2011 report, the Department and its
components worked diligently to take steps to address the
identified deficiencies. In the fiscal year 2012 report, the
auditors made additional recommendations for corrective
actions.
Of the material weaknesses, IT controls and financial
system functionality is of particular concern. General IT
controls and IT application controls are essential to effective
and reliable financial and performance data. DHS is making
progress in the area of IT controls. In fiscal year 2012, DHS
remediated or corrected 46 percent of the prior-year IT control
weaknesses, with CBP, FEMA, and TSA making the most progress.
Financial system functionality, which is literally how the
financial systems take the data input, such as journal entries,
and compile the financial statements, as well as how DHS's
myriad of systems align or can be coordinated to exchange
information, remains troubling. In expanding our audit to
include all the financial statements rather than just the
balance sheet and statement of custodial activity, we have
discovered additional weaknesses for deficiencies in financial
system functionality.
The ability to provide fairly presented financial
statements and obtain an unqualified audit opinion is an
important step in DHS's journey to sound financial management,
and the Department continues to work diligently towards this
goal. However, a clean financial statement audit does not
ensure that there is sound financial information about all
Department operations.
As we noted in our fiscal year 2012 report on DHS's major
management challenges, the Department's financial management
systems cannot yet provide timely accumulated cost information
by major program or areas of responsibility aligned with each
entity's major goals and outputs. As of fiscal year 2012, the
Department was still using manual data calls to collect cost
information from the various components and to compile
consolidated data. According to DHS, it is working to improve
its access to such information as well as the quality of the
information Department-wide.
The Department has clearly demonstrated its commitment to
improving its financial practices and operations. We believe
that a clean audit opinion is a reachable goal, and we remain
committed to conducting financial statement and other
performance audits and making recommendations that will help
ensure DHS ensures the proper stewardship of taxpayer dollars.
Mr. Chairman, this concludes my prepared statement. I
welcome any questions you or the other Members of the
subcommittee may have.
[The prepared statement of Ms. Richards follows:]
Prepared Statement of Anne L. Richards
November 15, 2013
Good morning Chairman Duncan, Ranking Member Barber, and Members of
the subcommittee: Thank you for inviting me here today to testify about
financial management at the Department of Homeland Security (DHS).
Today, I will address financial management within the Department by
focusing on the Independent Auditors' Report on DHS' FY 2012 Financial
Statements and Internal Control over Financial Reporting and on our
fiscal year 2012 Major Management Challenges report, both of which were
issued in November 2012. KPMG, LLP prepared the independent auditors'
report. Both fiscal year 2013 reports will be issued in mid-December of
this year.
The Federal Government has a fundamental responsibility to be an
effective steward of taxpayer dollars. Sound financial practices and
related management operations are critical for DHS to achieve its
mission and to provide reliable, timely financial information to
support management decision making throughout DHS. Congress and the
public must be confident that the Department is properly managing its
finances to minimize inefficient and wasteful spending, and to make
informed decisions to manage its programs and implement its policies.
Although DHS produced an auditable balance sheet and statement of
custodial activity in fiscal year 2011 and obtained a qualified opinion
on those statements, challenges remained for the Department's financial
management. Achieving a qualified opinion in fiscal year 2011 resulted
from considerable effort by DHS employees, rather than through complete
implementation of a reliable system of control over financial
reporting. As a result of DHS obtaining a qualified opinion on its
balance sheet and statement of custodial activity in fiscal year 2011,
the scope of the fiscal year 2012 audit was increased to include
statements of net cost, changes in net position, and combined statement
of budgetary resources.
The Department continued to improve financial management in fiscal
year 2012 and achieved a significant milestone. Fiscal year 2012 was
the first year the Department completed a full scope audit on all
financial statements. The independent auditors issued a qualified
opinion on the financial statements. Nevertheless, the Department still
had work to do in fiscal year 2013. In fiscal year 2012, KPMG was
unable to perform the necessary procedures to form an opinion on DHS'
internal control over financial reporting of that fiscal year's
financial statements. In addition, the Department had material
weaknesses in internal control over financial reporting. To sustain or
improve upon the fiscal year 2012 qualified opinion, DHS needed to
continue remediating the remaining control deficiencies.
managerial cost accounting
As we noted in our fiscal year 2012 report on DHS' major management
challenges, the Department does not have the ability to provide timely
cost information by major program, and by strategic and performance
goals. Its financial management systems do not allow for the
accumulation of costs at the consolidated level by major program, nor
do they allow for the accumulation of costs by responsibility segments
that directly align with the major goals and outputs described in each
entity's strategic and performance plan. The Department also needs to
develop a plan to implement managerial cost accounting, including
necessary information systems functionality. As of fiscal year 2012,
the Department was using manual data calls to collect cost information
from the various components and compile consolidated data. During
audits that we issued in fiscal year 2013, we identified a number of
components that did not have the ability to provide various cost data
when requested. For example:
During the audit of the Transportation Security
Administration's (TSA) Aviation Channeling Service Provider
project (Transportation Security Administration's Aviation
Channeling Services Provider Project, OIG-13-42, February
2013), we learned that TSA did not track and report all project
costs. According to TSA officials, it was impossible to provide
exact costs because the expenditures were not tracked in
detail.
During the audit examining U.S. Customs and Border
Protection's (CBP) acquisition and conversion of H-60
helicopters (DHS' H-60 Helicopter Programs, OIG 13-89 Revised,
May 2013), CBP officials received high-level cost information
from the U.S. Army, but it did not include the detail necessary
for adequate oversight of the component's H-60 programs. For
example, the Army conducted approximately 15,000 tests on CBP
H-60 components, but CBP could not identify which tests were
completed or the specific costs. In addition, for each CBP H-60
helicopter, financial data from three sources listed a
different total cost.
During the audit of CBP's use of radiation portal monitors
at seaports (United States Customs and Border Protection's
Radiation Portal Monitors at Seaports, OIG-13-26, January
2013), we identified instances in which the acquisition values
for the monitors were incorrect and could not be supported.
anti-deficiency act violations
As of September 30, 2012, the Department and its components
reported five potential Anti-Deficiency Act (ADA) violations in various
stages of review, including one potential ADA violation identified in
fiscal year 2012, which the Department was investigating. The four
other ADA violations involved: (1) Expenses incurred before funds were
committed or obligated, (2) pooled appropriations to fund shared
services, (3) a contract awarded before funds had been re-apportioned,
and (4) improper execution of the obligation and disbursement of funds
to lease passenger vehicles. No new ADA violations were identified in
fiscal year 2013.
fiscal year 2012 financial statement audit
The Independent Auditors' Report on DHS' FY 2012 Financial
Statements and Internal Control over Financial Reporting contained five
items that showed the status of DHS' efforts to address internal
control weaknesses in financial reporting. These were identified as
material weaknesses in the fiscal year 2011 independent audit of DHS'
consolidated balance sheet and statement of custodial activity. All
five material weaknesses remained in fiscal year 2012. Table 1, which
appeared in independent auditors' report, summarizes the auditors'
fiscal year 2012 findings. The auditors identified significant
deficiencies considered to be material weaknesses in financial
reporting; information technology (IT) controls and financial system
functionality; property, plant, and equipment (PP&E); environmental and
other liabilities; and budgetary accounting. DHS made progress in
remediating two material weaknesses. Specifically, the United States
Coast Guard (USCG) properly stated environmental liability balances,
which resulted in the auditors retroactively removing the fiscal year
2011 qualification in this area. The USCG was also able to remediate a
number of internal control weaknesses related to IT scripting, and it
continued to make progress in PP&E, with the goal of being able to
assert to the entire PP&E balance by January 2013. They did not,
however, meet that goal. Other significant deficiencies were identified
in entity-level controls, grants management, and custodial revenue and
drawback.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In fiscal year 2012, the Department provided qualified assurance
that internal control over financial reporting was operating
effectively at September 30, 2012, and it acknowledged that material
weaknesses continued to exist in key financial processes. Consequently,
the independent auditors were unable to render an opinion on DHS'
internal controls over financial reporting in fiscal year 2012.
financial reporting
Financial reporting presents financial data on an agency's
financial position, its operating performance, and its flow of funds
for an accounting period. In fiscal year 2011, the USCG, U.S.
Citizenship and Immigration Services (USCIS), and TSA contributed to
the material weakness in this area. Although some findings reported in
fiscal year 2011 were corrected, other findings at the USCG and TSA
remained in fiscal year 2012. Also, in fiscal year 2012, new financial
reporting findings were identified at U.S. Immigration and Customs
Enforcement (ICE).
As in the previous year, the auditors reported in fiscal year 2012
that the USCG did not have properly designed, implemented, and
effective policies, procedures, processes, and controls related to its
financial reporting process. The USCG used three general ledgers,
developed more than a decade ago. This legacy system had severe
functional limitations that affected its ability to address systemic
internal control weaknesses in financial reporting, strengthen the
control environment, and comply with relevant Federal financial system
requirements and guidelines.
The auditors also identified deficiencies that remained in some
financial reporting processes at TSA. For example, there were weak or
ineffective controls in some key financial reporting processes, in
management's quarterly review of the financial statements, and in
supervisory reviews over journal vouchers. In addition, TSA was not
fully compliant with the United States Government Standard General
Ledger requirements at the transaction level. In recent years, TSA
implemented several new procedures and internal controls to correct
known deficiencies, but some procedures still required modest
improvements to fully consider all circumstances or potential errors.
The control deficiencies contributed to substantive and classification
errors reported in the financial statements and discovered during the
audit.
During fiscal year 2012, the auditors noted financial reporting
control weaknesses at ICE, primarily resulting from expanded audit
procedures for the full-scope financial statement audit. ICE had not
fully developed sufficient policies, procedures, and internal controls
for financial reporting. It also needed adequate resources to respond
to audit inquiries promptly and accurately, and to be able to identify
potential technical accounting issues. ICE faced challenges in
developing and maintaining adequate lines of communication within its
Office of Financial Management and among its program offices.
Communication between financial managers and personnel responsible for
contributing to financial reports was not sufficient to consistently
generate clear and usable information. In addition, ICE did not have
sufficient coordination with IT personnel, including contractors who
were generating certain financial reports.
The independent auditors made several recommendations to the USCG,
TSA, and ICE to address these challenges.
information technology controls and financial systems functionality
IT general and application controls are essential to effective and
reliable reports of financial and performance data.
During the fiscal year 2011 financial statement audit, the
independent auditors noted that the Department remediated 31 percent of
the prior year IT findings. The most significant fiscal year 2011
weaknesses included: (1) Excessive unauthorized access to key DHS
financial applications, resources, and facilities; (2) configuration
management controls that were not fully defined, followed, or
effective; (3) security management deficiencies in the certification
and accreditation process and an ineffective program to enforce role-
based security training and compliance; (4) contingency planning that
lacked current, tested contingency plans developed to protect DHS
resources and financial applications; and (5) improperly segregated
duties for roles and responsibilities in financial systems. These
deficiencies negatively affected internal control over DHS' financial
reporting and its operation and contributed to the fiscal year 2011
financial management and reporting material weakness.
In fiscal year 2012, DHS made some progress in correcting the IT
general and application control weaknesses identified in fiscal year
2011. DHS and its components remediated 46 percent of the prior year IT
control weaknesses, with CBP, the Federal Emergency Management Agency
(FEMA), and TSA making the most progress in remediation. Although CBP
and FEMA made progress in correcting their prior year issues, in fiscal
year 2012, the most new issues were noted at these two components. New
findings resulted primarily from new IT systems and business processes
that were within the scope of the broadened fiscal year 2012 financial
statement audit and were noted at all DHS components.
The auditors noted many cases in which financial system
functionality limitations inhibited DHS' ability to implement and
maintain internal controls, notably IT application controls supporting
financial data processing and reporting. As a result, on-going
financial system functionality limitations contributed to the
Department's challenge to address systemic internal control weaknesses
and strengthen the overall control environment. In fiscal year 2012, 5
IT control weaknesses remained and presented risks to the
confidentiality, integrity, and availability of DHS' financial data:
(1) Access controls; (2) configuration management; (3) security
management; (4) contingency planning; and (5) segregation of duties.
Several findings were related to the USCG's financial system
functionality, including limitations that were preventing the USCG from
establishing automated processes and application controls that would
improve accuracy, reliability, as well as facilitate efficient
processing of certain financial data. Financial system functionality
limitations also contributed to other reported control deficiencies.
The independent auditors recommended that the DHS Office of the
Chief Information Officer, in coordination with the Office of the Chief
Financial Officer, continue the Financial Systems Modernization
initiative, and make necessary improvements to the Department's
financial management systems and supporting IT security controls.
property, plant, and equipment
DHS capital assets and supplies consist of items such as PP&E
operating materials, as well as supplies, including boats and vessels
at the USCG, passenger and baggage screening equipment at TSA, and
stockpiles of inventory to be used for disaster relief at FEMA. The
USCG maintains approximately 50 percent of all DHS PP&E.
During fiscal year 2011, TSA, the USCG, CBP, and the Management
Directorate (MGMT) contributed to a Departmental material weakness in
PP&E. During fiscal year 2012, TSA and MGMT substantially completed
corrective actions in PP&E accounting processes.
In fiscal year 2012, the USCG continued to remediate PP&E process
and control deficiencies, specifically those associated with land,
buildings and other structures, vessels, small boats, aircraft, and
construction in process. However, remediation efforts were not fully
completed in fiscal year 2012. The USCG had difficulty establishing its
opening PP&E balances and accounting for leases, primarily because of
poorly-designed policies, procedures, and processes implemented more
than a decade ago, combined with ineffective internal controls and IT
system functionality difficulties.
As in prior years, CBP had either not fully implemented policies
and procedures, or it did not have sufficient oversight of its
adherence to policies and procedures, to ensure that all PP&E
transactions were recorded promptly and accurately, or to ensure that
all assets were recorded and properly valued in the general ledger.
In fiscal year 2012, ICE did not have adequate processes and
controls in place to identify internal-use software projects that
should be considered for capitalization. It also did not have adequate
policies and procedures to ensure that assets acquired were recorded in
the general ledger in a timely manner.
The independent auditors made several recommendations to the USCG,
CBP, and ICE to address these challenges.
environmental and other liabilities
Liabilities are the probable and measurable future outflow or other
sacrifice of resources resulting from past transactions or events.
Internal control weaknesses reported in this area relate to various
liabilities, including environmental, accounts payable, legal, and
accrued payroll and benefits.
In fiscal year 2012, the USCG's environmental liabilities
represented approximately $500 million or 75 percent of total DHS
environmental liabilities. Later in fiscal year 2012, the USCG
completed the final phases of a multi-year remediation plan to address
process and control deficiencies related to environmental liabilities.
However, the USCG did not implement effective controls to ensure the
completeness and accuracy of all underlying data components used to
calculate environmental liability balances. The USCG also did not have
documented policies and procedures to update, maintain, and review
schedules to track environmental liabilities (e.g., Formerly Used
Defense Sites) for which it was not primarily responsible at the
Headquarters level. Additionally, the USCG did not effectively
implement existing policies and procedures to validate the prior year
accounts payable estimate.
The independent auditors made recommendations related to
environmental and other liabilities to the USCG.
budgetary accounting
Budgetary accounts are general ledger accounts for recording
transactions related to the receipt, obligation, and disbursement of
appropriations and other authorities to obligate and spend agency
resources. DHS has numerous sources and types of budget authority,
including annual, multi-year, no-year, and permanent and indefinite
appropriations, as well as several revolving, special, and trust funds.
Timely and accurate accounting for budgetary transactions is essential
to managing Department funds and preventing overspending.
In fiscal year 2012, the USCG implemented corrective actions plans
over various budgetary accounting processes; however, some control
deficiencies reported in fiscal year 2011 remained, and new
deficiencies were identified. The USCG had not fully implemented
existing policies, procedures, and internal controls to ensure that
obligations were reviewed and that approved and undelivered order
balances were monitored to ensure their timely deobligation when
appropriate. It also did not have fully implemented policies,
procedures, and internal controls over the monitoring of reimbursable
agreements, and related budgetary unfilled customer orders, to ensure
activity, including closeout and deobligation, as appropriate, was
recorded timely and accurately. The component did not have sufficient
policies and procedures for recording the appropriate budgetary entries
upon receipt of goods, and prior to payment.
Although FEMA also continued to improve its processes and internal
controls over the obligation and monitoring process, some control
deficiencies remained. The component did not effectively certify the
status of its obligations to ensure validity prior to fiscal year end.
It could not readily provide all supporting documentation for
obligations and deobligations made during the year and for undelivered
orders audited at June 30, 2012 and September 30, 2012. FEMA also did
not properly review budgetary funding transactions recorded in the
general ledger. It did not timely and effectively complete management
reviews over the monthly reconciliations of the SF-132, Apportionment
and Reapportionment Schedule, to the SF-133, Report on Budget Execution
and Budgetary Resources.
As the financial service provider, ICE is responsible for recording
budgetary transactions, and it administers budgetary processes across
different types of funds at the National Protection and Programs
Directorate, the Science and Technology Directorate, MGMT, and the
Office of Health Affairs. In fiscal year 2011, ICE identified and began
remediating deficiencies in the financial management system that
impacted accounting transactions, such as posting logic related to
adjustments of prior year unpaid, undelivered orders. In fiscal year
2012, ICE continued to address these issues with certain types of
obligations.
MGMT is responsible for the operations and financial oversight of
several programs including the DHS Working Capital Fund, which provides
shared services to DHS agencies. In fiscal year 2012, MGMT recorded
several corrective adjustments that were indicative of deficiencies in
internal controls over financial reporting at the process level. MGMT
lacked effective controls to monitor undelivered order balances to
deobligate or adjust undelivered order balances on a timely basis.
Internal controls were not properly designed to adequately monitor
unfilled customer order balances, related to both the Working Capital
Fund and non-Working Capital Fund activity.
The Federal Law Enforcement Training Center budgetary reporting
process was within the scope of the fiscal year 2012 audit, and, as a
result, new control deficiencies were identified. Management did not
have controls in place to perform a thorough review of the fiscal year
2012 unfilled customer order beginning balances related to reimbursable
construction, to ensure that beginning balances were properly recorded.
The auditors made recommendations to address deficiencies at the
three DHS components, as well as at MGMT and the training center.
conclusion
In fiscal year 2012, DHS received a qualified opinion on its
financial statements. Improvements were seen at various components. For
example, USCIS corrected control deficiencies in financial reporting
that contributed to the overall material weakness. Likewise, TSA made
significant progress in addressing PP&E, removing its contribution to
the Department's material weakness. The USCG also continued to make
financial reporting improvements in fiscal year 2012, by completing its
planned corrective actions over selected internal control deficiencies.
These remediation efforts allowed management to make new assertions in
fiscal year 2012 related to the auditability of its financial statement
balances. In addition, management was able to provide a qualified
assurance of internal control over financial reporting in fiscal year
2012.
According to DHS' Office of Financial Management, in fiscal year
2012, there was improved access to and better quality of financial
management information. The Department implemented business
intelligence tools to help organize, store, and analyze data more
efficiently. According to the Office of Financial Management, the
Department was able to take information from individual budgets and
display it for the enterprise, allowing views of DHS' budget allocation
by mission area. Additionally, the Department reported it was
developing the Decision Support Tool to help compile Department-wide
program cost information and to provide a central dashboard with key
indicators, such as cost, funding, and schedule, to assess and track
the health of acquisitions.
Sound financial practices and related management operations are
critical to achieving the Department's mission and to providing
reliable, timely financial information to support management decision
making throughout DHS. The Department has demonstrated its commitment
to improving its practices and operations. It continued to make
progress in fiscal year 2012, but needed to address some concerns to
avoid losing momentum and to achieve the reachable goal of a clean
opinion in fiscal year 2013. OIG, in turn, will continue to conduct
financial statement audits and make recommendations to help DHS meet
its challenges and ensure proper stewardship of taxpayer dollars.
Mr. Chairman, this concludes my prepared statement. I welcome any
questions you or other Members of the subcommittee may have.
Mr. Duncan. Thank you so much.
Members are reminded that first votes are expected on the
floor about 10:30, so we are going to try to get through as
many questions. I am going to adhere to the 5-minute rule as
strictly as possible.
Mr. Barber. Mr. Chairman, before you begin the questions,
could I just ask unanimous consent that our colleague,
Representative Jackson Lee, be allowed to sit in on the panel?
She is a Member of the full committee, and she is here, or was
here a moment ago, and she will be back.
Mr. Duncan. Without objection, so ordered.
So I now recognize myself for 5 minutes.
First off, I ran a business for 16 years, and I can say
that financial management and bookkeeping and accounting was
not my favorite thing, but I had to do it. I had to do it to
comply with the bank's requirements for audited financial
statements. I had to comply with the IRS rules and tax filings.
There were a lot of great tools out there for small businesses.
So this is an interesting topic to me, but I also
understand the frustration of bringing these 22 legacy agencies
together and trying to mirror up and match up the accounting
principles and assets that might be on the books, depreciation,
replacement, all while trying to secure our Nation.
So let me just delve right into the questioning. In its
report on DHS financial management released yesterday, the GAO
cited that DHS still lacks sound internal controls over
financial reporting. This could inhibit DHS's ability to
efficiently manage its operations and provide timely financial
information for senior decision-makers.
Mr. Fulghum, can you detail for the subcommittee what
efforts you have undertaken to correct the internal controls
that DHS has addressed in the GAO report and what further
efforts the Department intends to make?
Mr. Fulghum. Thanks, sir. Absolutely. The 5 material
weaknesses that Mr. Khan referenced are in the report. I would
remind everyone that back in 2005 we had 18 material
weaknesses. We have brought that down to 5.
What we are doing about it is, first of all, we have
sound--we have developed sound practices and policies in place.
So the first thing you have do is have sound policies and
practices. Then you need aggressive engagement, so we have
established process review teams across components to address
these issues, as well as senior engagement. We have an internal
progress review chaired by the under secretary for management
that meets quarterly, reviews these issues, reviews the action
plans that we have in place.
Because that is the key. You do root-cause analysis of
these issues, you develop action plans, you hold people
accountable, and you measure progress. That is exactly what we
are doing.
We expect when the audit is complete in 2013 to have less
than 5 material weaknesses. We believe our multi-year effort is
on track to eliminate those material weaknesses by 2016.
Mr. Duncan. Okay.
Ms. Richards, do you believe the Department is doing enough
to address the previous IG GAO recommendations?
Ms. Richards. In my opinion, the Department is working very
hard to address those issues and certainly is putting forth
every effort. It is too early to say what this year's audit
results will be.
Mr. Duncan. Okay.
Mr. Khan.
Mr. Khan. I mean, we certainly recognize the progress that
DHS has made.
I want to refer to something that Ms. Richards mentioned in
her testimony, was the qualified assurance that was made by DHS
management. Before they made a qualified assurance in 2012,
there was a lack of assurance over internal controls. As a
result, new areas are going to be uncovered by future audits,
and there may be additional internal-control weaknesses which
would need to be addressed. That is one issue.
The other issue that Ms. Richards mentioned was the issue
of business systems modernization. That is also essential to
addressing the internal-control problems at DHS.
Mr. Duncan. Mr. Fulghum, do you think the IT issues that
DHS has experienced have played a part in integrating some of
the accounting practices and financial management practices?
Mr. Fulghum. Absolutely. We have some basic IT challenges
because we have outdated systems, so you have access issues,
you have configuration management issues, day-to-day things,
what I call basic blocking and tackling, when it comes to IT.
As Mr. Khan said, the key to that is modernizing our systems. I
believe--firmly believe we have a sound plan in place to do
that.
Mr. Duncan. The reason I ask that is, as I understand from
briefing before this hearing about some of the data calls that
managers are having to make just to get--it seems very time-
intensive and labor-intensive to do this stuff manually, when I
believe the systems are out there for real-time data management
with regard to that.
So do you care to further elaborate on what you are doing
to address that?
Mr. Fulghum. Yes, sir. We have eliminated a lot of manual
data calls. We have made a lot of progress with our business
intelligence tool that reaches in and grabs information, and we
are able to do that. We are able to produce a monthly execution
report now in an automated fashion.
We are not as happy as we would like to be about the
timeliness of that report, and we are working to drive the
timeliness of that down, as you noted. But we are making good
progress, and we are doing it through the use of business
intelligence and our CFO horizon tool.
Mr. Duncan. Okay.
Mr. Fulghum. But I share your concern. As the Budget
Director, I don't like manual calls, data calls, any more than
anyone else.
Mr. Duncan. Right. Well, going forward, I would just ask
that you keep us up-to-date on the progress being made there. I
think that is very, very important.
My time has expired. I will recognize the gentlemen from
Arizona, Mr. Barber, the Ranking Member.
Mr. Barber. Thank you, Mr. Chairman.
My first question is for Mr. Fulghum.
First of all, I want to, I think, congratulate or maybe
commiserate with you for taking this daunting task on. It is
important that we get it done and get it done properly.
As was stated earlier, we know that at least two major
attempts to fix the financial systems failed, and a lot of
money was wasted, quite frankly, on those efforts. So I want to
focus on this effort and to see what is different about it.
You formulated within the Department a time line for each
component to get the financial system in order. So my questions
are--I will throw them all out to you at once and see if you
can help me with the answers.
First of all: How and who developed these time lines? How
were the components prioritized for first, second, and third,
and so on, in terms of the priority for getting the job done?
Is the current schedule on time--modernization effort on
time?
Really importantly, because this goes to the issue of what
happened twice before, who is overseeing the modernization
process? Who will be held accountable within those components
if it is not done timely? We cannot have another failure, and I
think you would agree.
So could you respond to those questions?
Mr. Fulghum. Yes, sir. If I don't get them all, you will
help me.
Mr. Barber. Yeah.
Mr. Fulghum. So, how did we go about doing it? How did we
prioritize? We did mission needs. We looked at the capabilities
of each of our financial management systems; we looked at the
gaps. Based on some criteria that was established, we said,
this is the worst, this is the next-worst, so on and so forth.
So that is how we established a priority as to who went first,
who goes second, who goes third, et cetera.
As far as the schedule goes, the schedule is tight. I will
be the first to admit that the schedule is aggressive. We
believe it is achievable.
The biggest concern I have about the schedule is the
resourcing of it. I say that because in the 2014 budget we have
asked for nearly $30 million. Both the House and the Senate
have supported that, but yet it is unclear whether we will get
an appropriations bill or not. So, given that, we have to
develop some alternative means should that not materialize. So
what concerns me most about the schedule is the resourcing of
it.
What else?
Mr. Barber. The question about accountability. Obviously,
in your position, you are overseeing the whole project. Where
does accountability rest in each of the component parts to make
sure we don't have another failure?
Mr. Fulghum. So, what I would start with is to tell you
that this project has the support of the leadership in DHS as
well as the components. We have an excellent partnership with
both OMB and the Treasury Department.
We have an engaged oversight process. The Office of the
Under Secretary for Management established an executive
steering committee that I am the chairman of, where we have
representation from both the CIO community as well as the
procurement community, because we need those partners, as well
as every CFO within DHS.
It is just one of the most engaged executive steering
committees I have ever been a part of. I would say, No. 1, we
are holding each other accountable, but, obviously, as the
chairman of that group, I am the one that is ultimately
accountable in the financial management community. I am
extremely confident that we are on the right path and that we
are going to get there with this initiative.
Mr. Barber. Thank you for that response.
I would like to ask Mr. Khan to comment on an issue that
you raised that I think is pretty crucial to success not only
in this area but across the Department. I think we all know
that about 40 percent of the senior management positions in DHS
are currently vacant, held by an acting or interim director or
assistant secretary.
Mr. Khan, as you look at that from the outside, from GAO's
perspective, what impact does that level of management vacancy
have on the ability to get this job done?
My concern is this: We have already had two failures, and
now we have a whole bunch of folks who may not be there 6
months to a year from now. We are still waiting for a
Secretary. How does that impact on the ability to get a job
done in this circumstance and to hold people accountable?
Mr. Khan. I can respond to that question in general. What
we have seen at other agencies, there is always a concern when
there is turnover at senior management, so it is crucial to
have these practices institutionalized. So there is a concern
that, given this turnover in vacancies, that they will be
followed through in terms of many of the action steps which are
necessary for financial management.
As far as systems modernization is concerned, we have
reflected in our report that they follow best practices. There
were a couple of areas where we feel they need to be
strengthened. One was a transition plan, and the other one was
the target state. These two steps were defined and make it much
more transparent as to what the goal is for the agency and the
specific steps how to get there. Once those have been clearly
laid out, then there will be more accountability and follow-
through.
Mr. Barber. Thank you, Mr. Khan.
My time is up. I yield back.
Mr. Duncan. The Chairman will now recognize the Ranking
Member, the gentleman from Mississippi, Mr. Thompson, for 5
minutes.
Mr. Thompson. Thank you very much, Mr. Chairman.
Mr. Khan, on at least four different occasions, the
Department had been in violation of the Antideficiency Act,
that I am aware of. Can you provide any direction as to how you
think the Department can come into compliance with this?
Mr. Khan. In our work, we did not review the Antideficiency
Act violations for the Department, but, in general, this is
part of funds control and accountability. Having stronger
internal controls that we have talked about earlier on will go
a long way to making sure that management has reliable and
timely information.
Antideficiency violation occurs when there is time,
purpose, and amount violations of the appropriations. Having
strong funds control and internal controls will go a long way
to prevent these violations from occurring.
Mr. Thompson. Mr. Fulghum, were you aware of these
violations?
Mr. Fulghum. Yes, sir.
Mr. Thompson. Can you just kind of tell us what are you
trying to do to come into compliance?
Mr. Fulghum. Well, in addition to what Mr. Khan said--
internal controls are extremely important and vital--the best
prevention is education and training.
So what have we done about it? We are about to roll out an
on-line training course and make that available to all resource
managers. We have partnered with the procurement community
because they are an integral part of this, as far as our
training efforts. We have brought our general counsel to
symposiums and conferences where we have had this topic
discussed. We have even had folks who were a part of the
Antideficiency Act violation come in and talk about the lessons
that they learned, what they did wrong, what could have helped
them to avoid this.
So, to me, one of the keys is an aggressive education and
training program, and we are doing that at DHS.
Mr. Thompson. Well, and that is good. Are these training
offerings required for employment in the respective positions?
Mr. Fulghum. Basic fiscal law and things of that nature are
a requirement in terms of refresher-type training, yes, sir.
Mr. Thompson. You indicated to us that you are preparing
courses to be on-line----
Mr. Fulghum. Yes, sir.
Mr. Thompson [continuing]. For people. Are those on-line
courses required training for employees?
Mr. Fulghum. They should be, but let me check and confirm
that. But they should be a part of their certification process,
yes, sir. Basic fiscal law, those things should be a part of--
--
Mr. Thompson. Can you provide the committee with whatever
the certification requirements are for those employees----
Mr. Fulghum. Yes, sir.
Mr. Thompson [continuing]. You are talking about?
Mr. Fulghum. Yes, sir.
Mr. Thompson. What period of time they are required to
complete that certification?
Mr. Fulghum. Yes, sir.
Mr. Thompson. As well as how many have completed it and how
many are still left to complete it.
Mr. Fulghum. We will get that information for you.
Mr. Thompson. Thank you.
Ms. Richards, one of the things we are concerned about and
we hear about, the failing financial management systems. What
impact do you see that those failing systems could have on the
security of our Nation?
Ms. Richards. Well, I think that it has already been
described very well that when the financial systems are not
providing good information it is difficult to make decisions on
how to spend the money and where to put your resources.
We recently did an audit on radio equipment. Some of the
components had equipment that other components needed, but
because the financial--because the systems weren't compatible
and recording information the same way, that information
couldn't be exchanged. So----
Mr. Thompson. In other words, they didn't know.
Ms. Richards. That is right. The left hand didn't know what
the right hand had even though they needed it. So officers
might have had to go without a radio or they might be borrowing
radios between shifts.
So when the systems, including the financial systems, don't
speak to one another, don't exchange information, don't provide
accurate data that can be translated into information by
managers, decisions are being made with less than optimal
information, which can lead to wrong decisions, wrong
investments, and increased risk.
Mr. Thompson. So, Mr. Fulghum, is your testimony that this
new systems modernization will resolve the issue we just shared
with from Ms. Richards?
Mr. Fulghum. What the system will do is--one of the
requirements of the system is to have a common account
structure, which is what she is talking about. Today, if you
look at how the Department gathers and reports information, we
do it basically by appropriation, project and activity and
object class. What she is referring to is the next couple
levels of detail down. So one of the requirements that we have
within our Financial Systems Modernization initiative is a
common account structure, where we are building more
granularity into the financial data so that we can do exactly
what she is talking about.
Mr. Thompson. Thank you.
I yield back, Mr. Chairman.
Mr. Duncan. I thank the Ranking Member.
I will now go to the gentleman from big sky country,
Montana, Mr. Daines, for 5 minutes.
Mr. Daines. Thank you, Mr. Chairman.
Like the Chairman mentioned when he had his opening
remarks, I spent 28 years in the private sector, 13 years with
a Fortune 20 company, 12 years launching a start-up, took it
public and so forth, and have had a deep appreciation for the
good financial metrics and general accounting practices.
But I also recognize the fact that--and maybe to use the
football analogy that was going back and forth between the
Tigers and the Bulldogs here, is that having a great scoreboard
and having a great staff department, while necessary, is not
sufficient to make sure you have a winning program. Ultimately,
it comes down to execution with the coaches and the teams. It
is not just about tracking the numbers. It is also about
delivering wins versus losses, and particularly to think about
the title of this hearing, which is ``Stewardship of Taxpayer
Dollars.''
So I am going to pivot over, perhaps, to a little different
area, and that is getting into performance. Maybe for Mr.
Fulghum--again, thank you for being Acting CFO there at DHS.
But do you have a performance review annually at DHS?
Mr. Fulghum. We do quarterly mission performance reviews
with the Deputy Secretary.
Mr. Daines. But you, personally, do you have a quarterly
performance review then?
Mr. Fulghum. So, as a part of that process, as we go up the
line, yeah. I think, if I understand your question right.
Mr. Daines. Sure. What are the top two or three metrics
that you are evaluated on for your own performance?
Mr. Fulghum. So, as far as execution of dollars, obligation
rates from a chief financial officer, and where I was before, a
budget director, obligation rates, things of that nature are
things which you are referring to?
Mr. Daines. Sure. Just, I mean, if you think about what
your boss will be evaluating your performance on, what would be
the top three metrics in terms of you being successful or not
in your job?
Mr. Fulghum. Our spend rates, things of that nature,
measuring our spend rates against our projections in terms of
what we, as a department, expected to spend and deviations.
Mr. Daines. Are you incentivized to spend under your
budget?
Mr. Fulghum. We are incentivized to make the most of every
taxpayer dollar.
Mr. Daines. But let me ask a question. Is there incentive
for you to spend less than your budget?
Mr. Fulghum. What I would say again is there is an
incentive for me to make the most out of every taxpayer dollar.
Mr. Daines. But the question is, if you had a budget of X
and you came in several million dollars below that for your
results, are you incentivized to come in well below your budget
or are you incentivized to spend your budget?
Mr. Fulghum. Well, I guess what I would say is, in the
appropriations provisions, there is the ability in some
accounts to not spend all the dollars in the first year. So
there is that ability.
Mr. Daines. So what incentives exist for you, as you wake
up every morning here, as I look at this, to be a steward of
the taxpayer dollars, to try to spend less than what has been
budgeted?
Mr. Fulghum. Well, as a public servant, I have dedicated
myself to looking to find and get the most out of every
taxpayer dollar and to drive efficiencies across the
Department, which the Department has done.
Mr. Daines. Right. But, again, are there any--and I
appreciate the laudable goal, but I am getting back to, as we
think about the culture in the organization, when it is a $60
billion organization, 240,000 employees, and maybe pivoting
over to the line managers who are accountable for budgets, are
there incentives for them to think about how they can spend
under their budget?
I am asking, are there incentives so that those who do
spend less that their budgets are promoted and progress faster
than others?
Mr. Fulghum. I am not aware of incentives. There may be
incentives out there that you are describing, but I am not
aware of them.
Mr. Daines. Maybe specifically, do you see any kind of
additional spending that occurs in the agency the last week or
2 of the fiscal year?
Mr. Fulghum. What I see is folks who are working and are
dedicated to spending dollars that they have for needed
requirements. When they get dollars late in the fiscal year,
they have to spend those dollars to keep programs on track. A
lot of times that occurs later in the fiscal year.
Mr. Daines. Let me ask you another question. Is there a
culture of you need to spend your budget or potentially lose it
if you don't?
Because as somebody who has watched the Federal Government
operate in the private sector and selling to it, anybody out
there who does that knows the best week to sell to the Federal
Government is the last week of the fiscal year, because we know
they are incentivized to spend their budgets or to lose them.
Is that part of the culture in DHS?
Mr. Fulghum. No, sir.
Mr. Daines. So you don't see any accelerated spending in
the last week or 2 because of that?
Mr. Fulghum. I see additional spending, but, again, it is
for a variety of factors, to include the fact that there is
typically a pretty uncertain budget environment going year to
year, and so when you finally do get the resources, you have to
expedite the spending of those resources to keep things on
track.
Mr. Daines. Okay.
Last--I know we are running out of time here, though--are
those managers and public servants in the organization that
find ways to spend less money, are they rewarded?
Mr. Fulghum. Absolutely. They are rewarded and recognized.
Mr. Daines. Are those the folks who are progressing, who
are spending less than their budgets?
Mr. Fulghum. I can't give you specific examples of that,
but I know that that is a part of the culture of the
Department, looking to find the most and make the most out of
every resource.
Mr. Daines. Okay. Thank you.
Mr. Duncan. The gentleman is recognized, from Texas, Mr.
O'Rourke, for 5 minutes.
Mr. O'Rourke. Thank you, Mr. Chairman.
I am hoping the panel can address a concern I have about I
guess what I would describe as inertia in spending practices
and in projects that, by a measure of common sense and
certainly a measure of return on investment, just don't seem to
make sense. I will give you a specific example to El Paso, the
community I represent, and then a much larger example.
The specific example is CBP is about to proceed with
building a half-mile extension of the border wall in our
community in a place where we don't want that built. It is the
most historic crossing along the U.S.-Mexico border. The first
European road was built there. The first Thanksgiving was
celebrated on the shores of the Rio Grande there. Our community
is the safest city in the United States today, and we enjoy an
operational control rating of 93 percent, when the goal is 90
percent. But when I talk to the folks at CBP, this has been in
the works for 3 or 4 years. The ball has been rolling for too
long; it is too hard to stop now.
That is a small example compared to my other one, which is
SBInet. You know, initiated in 2006; I think the plug was
pulled in 2010. Hundreds of millions of dollars committed and
ultimately wasted on a failed program to militarize and secure
the border using unproven technologies, with too much
discretion given to the contractor.
I want to know from the panel--and I would like to start
with Ms. Richards and then go to Mr. Khan and then Mr.
Fulghum--what controls are in place now to prevent that kind of
inertia in spending, to provide the backstop and the check in a
more immediate fashion so that we don't spend or proceed or
build things that we don't need, don't want, and are a waste of
taxpayer dollars?
Ms. Richards. Thank you, sir. That is a very good question.
I have to say that it is entirely reliant on management
controls and management discretion. The information to
calculate a return on investment in real time is dependent on
the different programs. Some programs have better information
than others. We do still see that problem in programs that we
are auditing, and it is a very big concern for us.
Mr. Khan. Part of this problem is a policy issue. I really
cannot address that. But, again, from an accounting, financial
management, internal controls, a strong internal control
process, governance process is going to go a long way, at least
to give visibility to these issues.
With that respect, the new guidance that OMB has, and that
really pertains to financial system modernization, that may be
an example which could be considered, which says to implement
systems in smaller increments and not move forward till they
are proved. In such an environment, it is critical to have
strong project management as well as management oversight.
Strong management oversight may prevent some of the symptoms
that you have just described.
Mr. O'Rourke. I guess for Mr. Fulghum, are there checks now
that would prevent something like SBInet from happening, in
terms of the contracting, in terms of some kind of periodic
check on progress and value versus dollars spent, quarterly,
annually, biannually, so that it is not 4 years down the line,
hundreds of millions of dollars wasted?
Mr. Fulghum. Absolutely. What you are describing is our
acquisition review process, our acquisition review board that
the Under Secretary for Management chairs. It brings programs
in periodically as milestones are coming and reviews progress
and provides the management oversight that Mr. Khan is talking
about.
Mr. O'Rourke. Thank you.
I yield back.
Mr. Duncan. All right.
Members are advised votes have just been called, but 13:14
is left on the clock, so we have time.
The Chairman will recognize the gentlelady from Texas, Ms.
Jackson Lee, 5 minutes.
Ms. Jackson Lee. Mr. Chairman, thank for your courtesies.
To the Ranking Member, thank you very much for your courtesies.
This is a very important hearing and certainly one that I hope
we will continue to address.
Let me just make one statement, Mr. Chairman and Ranking
Member, because I know that we have been doing this, and I
think it is important. I am not sure whether any of these
individuals can--I won't put it in the context of a question,
but I will put it in the context of getting a report back.
There was a news report this morning that the fallen TSA
officer had to wait 33 minutes for emergency services. I
believe we, the American people, are due a report, whether that
was a local issue or what issue it might have been, whether it
is factual, but it certainly is outrageous and appalling.
I would appreciate just on the record to maybe seek from
the Department of Homeland Security a report of TSA on the
accuracy of that and the determination as to why that occurred
and that that would never, ever happen again. We hope we don't
see a fallen officer of any kind, but I am just stunned and
shocked and trying to determine whether that is accurate. I
just wanted to----
Mr. Duncan. The Chairman will ask the report to be sent to
the committee. We will disseminate it to the Members.
Ms. Jackson Lee. I thank the Chairman very much.
Let me move to Mr. Khan. The financial management within
the Department is divided between the Department's chief
financial officer and the component chief financial officers.
Does this structure inherently create blurred lines of
responsibility and accountability between the Department and
its component agency financial offices?
I have a follow-up question.
Mr. Khan. It can. It can create a blur like you are
mentioning, Madam. But from what I understand at DHS, they have
a pretty clear line of responsibilities. The Departmental or
the component CFOs report to the Department CFOs. So there is a
clear line of reporting and accountability.
Ms. Jackson Lee. Well, does that mean that--and do you
contract--well, let me--Mr. Fulghum, does DHS contract out its
auditing and accounting responsibilities? Do you have
contractors that are handling it? So if it is TSA, is that
chief financial officer getting a contractor to do the work?
Mr. Fulghum. I am not familiar with the specifics of TSA. I
know for the IG, they have a contract audit firm that audits
us.
Ms. Jackson Lee. I am sorry, pardon me?
Mr. Fulghum. Right?
Ms. Richards. Yes, ma'am, the actual financial statement
audit is conducted by the accounting firm KPMG, and we contract
with them to do that work.
Ms. Jackson Lee. Well, so that is what I--let me do this.
Can I ask for you to give this committee a list of all of the
auditing and/or accounting contracts that DHS has at this time?
Does anybody have a list now or know?
Mr. Fulghum. I don't have a list, but we will get one for
you.
Ms. Jackson Lee. Because you don't know whether or not
Customs has one or ICE has a different one?
Ms. Richards. Ma'am, all of the components, to my
knowledge, have their own in-house accounting personnel. Most
also have contracts with some of the leading accounting firms
for support, particularly in the area of internal controls.
Ms. Jackson Lee. I think it would be very important,
because different accounting firms have different practices.
What I am hearing, just in general, is the need for order,
consistency, systems that work together, which is what I
perceive from GAO's report.
Let me ask again about something that we have expressed an
interest, on minority/woman-owned businesses. Is that a
separate entity in terms of seeking to make sure that there is
that kind of balance? Do you audit how many MWBs you have? Do
you, in the course of auditing or accounting services, such as
the entity that you have, KPMG, do you assure that there is
diversity there? Do you have a smaller firm working with you?
Are smaller firms maybe more effective when they are doing
finite work or minute work?
Ms. Richards.
Ms. Richards. Ma'am, our office has done a number of
audits, a small number, but some audits on the Department's
achieving and trying to achieve their small-business and
minority-business goals.
The contract that we have with KPMG is competitively-
awarded. We do not look specifically at their minority
representation when we evaluate the people that are getting put
on the contract. We are looking at their qualifications first.
We can get you some additional information on the audits
that have been conducted on those goals and how the Department
is addressing them.
Ms. Jackson Lee. Mr. Chairman, the only thing is if we have
1 second for the gentleman, Mr. Fulghum, to answer.
Do you have an answer, sir? I will be finished.
I thank the Chairman for his indulgence, and I thank the
committee for their indulgence.
Mr. Fulghum. As it relates to small business, we have an
office within DHS that tracks those goals and can provide you
with additional information.
Ms. Jackson Lee. All right. Well, I thank you, and I hope
that this committee will continue its very fine work. I think
we have some real questions about the utilization--not the
utilization, but the recording or the assessing of the
expenditures. I hope that we can continue to work with DHS to
help you use these resources and to be better in the accounting
for such. I know there are fine public servants there, but I
think this is great work that the committee is doing.
I yield back to the gentleman.
Mr. Duncan. I thank the gentlelady from Texas and thank the
witnesses. This is a valuable hearing for us. We need to keep
in mind, this isn't DHS's money, it is not the United States
Government's money, it is the taxpayers' money before it is
taken in taxes and allocated out based on the acts of Congress.
So, if we keep that in the forefront of our minds, that we are
expending the money of hardworking American families, I think
we will be better off.
But I thank you for your valuable testimony, the Members
for their great questions today.
The Members of the subcommittee may have additional
questions for the witnesses, and we ask that you respond to
those in writing.
Due to votes, without objection, the subcommittee stands
adjourned.
[Whereupon, at 10:39 a.m., the subcommittee was adjourned.]
A P P E N D I X
----------
Questions From Chairman Jeff Duncan for Charles Fulghum
Question 1. OMB memo 13-08 states that ``agencies must consider, as
part of their alternatives analysis, the use of a Federal Shared
Services Provider (FSSP) with respect to all new agency proposals for
core accounting and mixed system upgrades. Analysis should not be
limited only to an evaluation of commercial SSPs. Instead, the
preferred approach is for an agency to evaluate solutions offered by
both FSSPs and commercial SSPs as part of a robust market research
process. In order to determine the best value source, each agency is
expected to develop an appropriately detailed alternatives analysis of
SSP solutions based on their needs, risk performance and cost.''
Mr. Fulghum, can you describe the process used to obtain approval
from OMB for DHS or the components to use a Commercial Shared Services
Provider and if the Department interpreted this memo as a requirement
to use a Federal Shared Services Provider?
Answer. In accordance with OMB memo 13-08, all DHS components
pursuing financial systems modernization initiatives are developing an
alternatives analysis that includes both Federal and commercial Shared
Service Providers (SSPs). After Departmental review, DHS will provide
analysis to the Department of the Treasury's Office of Financial
Innovation and Transformation (FIT) for their and OMB's concurrence on
the approach. Per the FIT Agency Modernization Evaluation (FAME)
process, the components will next enter into a discovery phase with a
Federal Shared Service Provider. DHS will continue to follow the FAME
process if a Federal SSP is not deemed to be the best option and
perform additional exploration of commercial SSPs.
For the U.S. Coast Guard (USCG), Transportation Security
Administration (TSA), and Domestic Nuclear Detection Office (DNDO), and
the Federal Law Enforcement Training Centers (FLETC) DHS provided their
alternatives analysis to FIT and additional information as requested by
Treasury. FIT then provided a recommendation to OMB pertaining to USCG,
TSA, and DNDO to proceed with a discovery phase. FIT provided a
recommendation to OMB for FLETC to proceed with a technical refresh of
its financial system.
Before the issuance of OMB memo 13-08, for the Office of Health
Affairs (OHA) and the Federal Emergency Management Agency (FEMA), DHS
provided their alternatives analysis and additional information as
requested by OMB and Treasury. FEMA obtained concurrence from OMB and
Treasury on a technical refresh of their financial system. OHA obtained
concurrence to proceed with their migration to a DHS internal shared
service provider, Customs and Border Protection (CBP).
Question 2. Is it true that DHS is planning to move to the
Department of Interior FSSP? If so, what makes the Interior FSSP a good
alternative for DHS?
Answer. At this time, none of DHS's components have made the final
decision to move to the Department of Interior (DOI) Federal shared
service provider (FSSP). In accordance with the Department of the
Treasury's guidance, DHS will first complete a discovery phase with a
FSSP before signing a final agreement.
DHS has executed an Interagency Agreement with DOI to complete a
discovery phase for the U.S. Coast Guard, Transportation Security
Administration, and Domestic Nuclear Detection Office. The discovery
phase began in September 2013 and will conclude in April 2014. DHS will
use the results of the discovery phase to determine whether DOI is
suitable to provide financial management services to those three DHS
components.
Question 3. What ``appropriately detailed alternatives analysis''
are DHS and the components using as part of this decision-making
process?
Answer. Each DHS component pursuing financial systems modernization
is developing an alternatives analysis that uses a systematic analytic
and decision-making process to identify and document the optimal
alternative to satisfy an identified mission capability gap. Each
alternatives analysis involves extensive market research of both
Federal and commercial shared service providers, including cost, risk,
feasibility, effectiveness, suitability, and life-cycle cost for each
viable alternative.
DHS components are developing alternative analyses for financial
systems modernization that adhere to the policies, standards,
guidelines, and directives prescribed by the DHS Management Directive
102 and support compliance with the Federal Acquisition Regulations
(FAR).
Question 4. What is DHS doing to leverage proven Shared Service
Provider (SSP) Financial Management solutions currently in place at
other Federal agencies? How will DHS assess systems used by other
Federal agencies (such as through pilot programs or other means)?
Answer. DHS has been assessing Shared Service Providers (SSPs) and
financial management systems through extensive market research from
surveys and system demonstrations over the past 3 years. Market
research was performed on Federal SSPs, commercial SSPs, and other
Government agency financial management solutions.
DHS compiled and assessed data from the OMB-designated Federal
SSPs, commercial SSPs, and over 15 Government agencies including
Department of Justice, Department of Energy, General Services
Administration, Nuclear Regulatory Commission, Bureau of Engraving and
Printing, Department of the Treasury, Social Security Administration,
Department of Housing and Urban Development, Department of Health and
Human Services, National Aeronautics and Space Administration,
Department of Agriculture, Department of Transportation, Department of
the Interior (DOI), Department of Labor, Bureau of Public Debt, among
others. This data has helped to inform and guide DHS leadership while
planning the way forward for financial system modernization.
DHS also worked closely with Treasury's Office of Financial
Innovation and Transformation (FIT) to identify any additional SSPs.
DHS will utilize the discovery phase with a Federal SSP to assess the
viability of a Federal SSP's solution for DHS components.
Question 5. To what extent do FSSPs have the capability and
capacity to handle the financial management requirements of the unique
DHS component agencies?
Answer. OMB Memo 13-08 states, ``OMB and Treasury will help ensure
each agency's future financial system needs are met by supporting the
expansion of FSSP offerings and capabilities. We recognize that, to be
able to meet agency needs, the FSSPs will need to enhance service
offerings, expand technology and transaction processing capabilities,
and have a strong governance structure. Furthermore, in order to fully
realize the benefits of using a FSSP, it will be necessary for agencies
to adjust and adopt standardized processes.''
As DHS completes a discovery phase with a Federal Shared Services
Provider (FSSP), per the Department of the Treasury's guidance, they
will assess the capability and capacity of the FSSP to meet components'
requirements. For example, DHS has recently entered into a discovery
phase with the Department of the Interior (DOI) to determine whether
DOI is suitable to provide financial management services to the U.S.
Coast Guard, Transportation Security Administration, and Domestic
Nuclear Detection Office.
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