Transcripts For CSPAN2 Senate Hearing On Department Of Defense Audit 20240713

Norquist completed the first dod audit ever. Soon thereafter secretary northwest was nominated and confirmed as deputy secretary of defense with Overwhelming Senate support from both sides of the aisle. He is a wealth of knowledge on these issues and i think him for being here today. To a lot of people aside from my good friend, senator purdue, who im hopeful who will be here later the dod audit might not come across as most interesting topic in the world however, Ranking Member kane and i make our oversight responsibilities seriously and are happy to have this important and timely hearing. Other response bullies we take seriously has been one of providing the funding needed to rebuild our military with specific focus on restoring readiness. Conducting an audit of this magnitude is a massive undertaking, as i am sure we will hear. In fact, until secretary norquist arrived it had never happened. The pentagon had never completed an audit. Let me repeat that. In its history the department of defense had never completed an audit. Kind of remarkable. Fy 19 dod audit is one of the largest audits of any organization in history. Over the course of this year this audit has acquired more than 1400 auditors and hundreds of dod site inspections. These auditors and inspections evaluated thousands of sample and documented items to account for the roughly 2. 8 trillion in dod assets. Conducting an audit of this size is no easy task but is a critical function that dod must do and the results reveal issues that we all must learn from but there is still much more work to be done but i commend the secretary for undertaking this difficult but important task. As of last friday the department of defense completed its second agencywide audit and while it did not receive an overall clean opinion much knowledge was gained from actually doing the audit. I am sure we will hear more but over 24 individual audits from across the different agencies with seven coming back clean. Why do we take the time to do an audit . In part it is to encourage the morris possible use of resources within the department and from a readiness perspective the ability to promote real change within the department and while identifying cyber vulnerabilities in Dod Information Technology systems or locating unaccounted for equipment or improving the recordkeeping of personnel it is not a glamorous undertaking but it does produce process and provement and technological upgrades that are long over due. These improvements are critical to the dods response ability that quote, it is important to gain a full value from every taxpayer dollars spent on defense and thereby earning the trust of congress, unquote. That is from the 2019 National Defense strategy. In other words dod wants congress to continue to fund the military in order to counter Great Power Competition like that from russia and china as laid out in the 2019 and ds. We, in the congress, and the American People need to have the confidence that these dollars are being spent wisely. As chairman and off regularly states the nds has been comparing our military for a return to strategic competition and does her present a prime example of bipartisanship for the support of that strategy and our troops in the senate. The nds expressly states the audit as a priority for driving a better budget discipline for the department and achieving our overall National Defense goals. I hope this budget discipline starts with the audits and spreads throughout the department to all the financial processes within dod, including our procurement acquisition and contracting processes that this subcommittee has oversight of pre i look forward to hearing about the progress and some of the successes and failures and i know my Ranking Member, senator caine, is interested so i will turn the dais over to him for his opening remarks. Thank you, mr. Chairman. It is good to have you here. When i thought the amount of press streaming into capital i felt finally the pentagon audit will get the attention it deserves. Apparently there are other things going on on the hill but i do want to welcome you and thank you for your long record of Public Service but making sure that the audit ability and the dod is a top priority. The fact that all mineral agencies were audited in 1990 and that the dod has been the last to get in line is well known but so much so the nda and i believe 2015 the Committee Said okay you had enough time and you got to make this happen and i was gratified to be a part of the committee when we finally gave the ultimatum. Gratified that under your the dod is moving it had officially failed the 2019 audit but actually he wouldve found a great deal of skepticism on this committee and the report said when you start something as complex as this if you are not finding areas to improve feelings that need to be corrected then you lead policymakers to question the veracity or the sufficiency of the effort but what the report last week showed is that theyre so much more to be done to give war fighters and taxpayers what they deserve, a fully audited pentagon. With a witness testified before the full committee and im flagging on the witnesses name but she is the name efficiency [inaudible] and eddie at the audit should drive us to not spend on things we shouldnt and reduce spending on things we shouldnt as a way of then directing those resources to more lethality to more effective apartment of defense. I hope we can talk about a number of issues today. What benefits are the military forces already seen from the audit and its findings and benefits and efficiency but it was always my hope that as a mayor and governor we been looking at audits and learned things that might improve the effectiveness of operations. I dont think its just a number counting exercise and an exercise that should lead to saving dollar here or there but should also lead to greater efficiencies and effectiveness as well. I hope we can talk about benefits. How is the process of the audit helping the pentagon cleanup any data or practices that need to be improved and what resources are being applied to the audit and additional resources, if need to be applied as effective as possible moving forward. In your opinion, secretary norquist how long will it be realistically before the dod will be in a position where the audits will be clean audits across the numerous audits that are done. I look forward to working with the committee with under your leadership with the department to make good on this promise made of so unger go to the megan taxpayer that every aspect of the american federal government would be subject to an audit and that we would learn from the audit in a process of Continuous Improvement so we get better at what we do. Thank you. Thank you, senator kane. Thank you for being here. We look forward to your Opening Statement and if you want a longer written statement that will be submitted for the record. Chairman sullivan, Ranking Member kane, distinction number subcommittee i thank you for the opportunity to testify before you today on the department of defense statement audit. The three major questions about the audit that i would like to address peer at first, wiped we have an audit . Second, what are the results of this years audit . And third how does the audits and other reforms benefit american taxpayers . The short answer is that dod is extraordinarily large and complex organization. We employ nearly 3 million Service Members and civilians while a typical commercial airline manages between 300, 1600 aircraft the military services fly approximately 16000 aircraft and we managed to under 92 billion in inventory at more six times the size of walmart the lowest largest retail company. Audits are a proven commercial solution that uses independent auditors to effectively assess conflict operations. The Financial Statement audit is comprehensive and includes verifying the count, location and condition of our military equipment, property, material and supplies. It tests vulnerabilities and our Security System of our Business Systems and invalidates the accuracy of records in action such as promotions and separations. In short, it provides independent feedback that both dod leadership and congress needs. This year more than 1400 auditors conducted over 600 site visits with the following results. Consistent with last year they reported no evidence of fraud, no significant issues with the amount paid to civilian and military members and dod could account for the existence and completeness of Major Military equipment. In addition one more organization received a clean opinion, the defense commissary agency. Seven of the 24 will have an unmodified or clean opinion this year. Of the 200377 findings in fy 2018 the department was successful in closing more than 550 or 23 of the findings. The audit devastates progress but we have a lot more to do. How does the audit benefit the american taxpayer . The original and primary purpose in the audit is transparency but the dod weve seen how the audits saves money by improving Inventory Management and identifying vulnerabilities in cybersecurity and providing better data for decisionmaking. Let me give two examples. The navy and Fleet Logistics Center in jacksonville conducted a ten week assessment and identified 81 million worth of active material not tracked in inventory system. That was now available for immediate use, decrease maintenance time and filling 174 requisitions. They also illuminated unneeded equipment freeing up approximately 200,000 square feet and the equivalent of 4. 6 acres. We already are seen at the benefits of better data and the use of Data Analytics. For example, the apartment uses the advanta tool to recently automate the quarterly review process of its obligations. This workflow tool eliminated efficiencies and provided the analyst the time and insights they needed to identify 360 million in highrisk funds moving them from a low priority function to better use of those before they expired. The audit is a foundational element of a broader landscape of business reform in the National Defense strategy. We are moving forward on multiple fronts, improving our enterprise, dying and consolidating it and realigning and reforming healthcare consistent with direction and reforming how we do background and executions to make a more effective and less expensive and illuminating duplicate and inefficient Business Systems as well as the deathdefying efficiencies and what we like to call the force of state. I would be remiss if i did not mention the impacts of the ongoing continue resolution and i recognize im preaching to the choir paid the department in the white house expressed the urgent need for congress to pass the fy 2020 authorization and appropriations bills. The cr stopgap measures are wasteful to the taxpayer and the delay storm damage repairs the gains our military has made in readiness and modernization. Ultimately a cr was good for the enemy not for the men and women of the United States military. The Ad Administration and i urge congress to come to agreement as quickly as possible consistent with the budget deal we reached in the summer but in closing i like to thank President Trump for his leadership and the duty workforce from embracing this complex and important issue. Id also Like Congress and this committee and in particular the Committee Staff for your commitment to this massive undertaking and the role you played and making an annual Financial Statement audit a regular way of doing business. That apartment of defense is one of the most complex enterprises in the world and in partnership with congress we must continually improve our Business Practices in order to reduce cost and maintain our competitive edge. Each of us post to the american taxpayer to be as responsible and spending their money as they were in earning edge. They cue, mr. Chairman. Let me begin with a very basic question and im not sure you have the answer since youve only been in your position in the comptroller position for a couple of years but from your perspective why was the pentagon never audited to . You would think given what you just mentioned how important it is to the country and how large it is and how complex it is that is exactly the federal agency you do want to audits. Why was this the first time that somebody undertook this 20 desk and again i commend you for doing it . Thank you. Let me to clarify. The pentagon has multiple audit for gao, ig, and others but they do program audits, particular subjects but the difference with the Financial Statement is the sheer breadth and depth of it. Its an end to end audit on a dramatic scale. What you just did twice and that had never happened. That had never happened. White . A couple of reasons but its extremely hard task that would outlast anyone who started it. But the pentagon is used to hard tasks. They won world war ii. They did. They did. The challenge with the audit is there was an emphasis on trying to get ready for it and this is where i got a fundamentally different view from those who would come me and they said its too expensive to pay the auditors so lets get our selves ready enough that we could pass the audit and then bring the auditors in. My experience at homelands in crete where they were under audit was that would be a major mistake. Homeland security we do not have a choice but when i showed up the auditors were already there and i found the auditors and their feedback to be the central piece of getting us to that clean opinion paid my view is money we paid the auditors major all the other money we were spending was going towards valuable things and getting feedback on whether we were being successful so even though Defense Department was spending money on fixing problems they had no audit baseline by which to tell you where they better from one year to the next. We have fixed that in that approach and are carefully measuring those items precisely for that purpose and i think that is the biggest difference. I believe the auditors are the key step in getting us to the clean opinion not someone you bring in at the end when you think youre ready. Let me dig into that more because the audit did cost a lot of money. I think the fy 19 audit cost close to 1 billion. If we are doing this annually which is your goal, correct . Will this eventually pay for itself in terms of or is it already paid for itself . Lets take that in two pieces but before we started the audit the apartment was spending 70 million to fix problems. With the audit pieces 175, 200 million we paid the external auditors and we know from experience of the corps of engineers that when we go from no opinion to a clean opinion there cost of the audit dropped in half so over time that number will come down as we start to move from where we do detailed sampling to what we call tested controls. That is a level of funding thats necessary for transparency but 200 million is one 30th of 1 of our budget to be held accountable and that is fine. Then we spend a certain money on dod science to support that and those numbers will come down as well and the big number is half a billion dollars is in the remediation. The question there is can you show what you have fixed . In the absence of the audit its very hard for one of the things i learned in my prior jobs is Self Reporting or fixing problems isnt a very reliable indicator for it i was dependent upon our auditors confirming that people had, in fact, fixed it but one of blessings the auditors show it is one Organization Says they fixed ten problems and the auditor agrees with all attend. I have great confidence in that Organization Ability to go for it. In other organizations claim they fixed ten and the auditor agrees with them on a three fed i have a problem paid im training i need to do and people i need to talk to and that will not get them to his success. You cant wait to the end of the process the auditors doing that on a continual basis but we have already seen benefits and savings and turn on investment that i did not inspect to see this early bird long before we got to the point where we expected the cost to come down. We [inaudible] let me just ask another basic question. For those of us who are not auditors what exactly does this entail youre going to installations and people fanning out over bases and what exactly are they are doing and theyre not counting every rifle and you know, tank or are they . The sheer labor would be involved and but the commercial factor brings us breast practices which is they will go up to the highest level of the organization and look into their databases and say show me everything you thank you own so they start there and then they pull samples from that and follow it all away down to the installation but they went to Fort Wainwright and they come in with a list and say i need to see not just a tank but this tank with this serial number that is supposed to be here but when they show up is it in working condition because thats one of the things they test for is you test working condition to do you have proof of ownership or is it where its supposed to be and they walk through each of those and they find a series of items and go the other direction which is the 25 things we found on the base and show us that you at the varmint level have them in your system. It goes one direction and then the other end they are looking for examples of a breakdown where the summary is not equal to the parts but that is a sampling process across inventory and they do the same thing with hay you pay a certain amount to the records to back up that soldier was promoted and did they impact file for hazardous duty pay and do have the paperwork to support that and can you produce it in a timely manner . That is the process they go through and its extensive but those are the standards we are held to. Thank you. Im glad youre here to testify and hopefully we will all learn from this and most importantly the pentagon as well. Senator king. Thank you. I will start with a question that is based not on the audit but on your role as deputy secretary of defense number to an official within the pentagon i was proud to support your nomination and in the last day there then and about of articles come out and ill just read two headlines as examples but Business Insider quote the army is prepared to move Lieutenant Colonel alexander and his family to a safe location if necessary. Reuters army assessing impeachment Witness Security u. S. Official these articles were based on initial reporting done by the wall street journal and Lieutenant Colonel is a virginia resident like you are an Lieutenant Colonel is a patriotic american like you are and i will not ask you whether you think is appropriate to attack his loyalty and his patriotism and his judgment or character because i know how you would think about such an attack, not ask you whether you think its okay to use the White House Social Media account or other assets to amplify such an attack because i know what you would think about that but i do want to ask you this, in your role as a deputy secretary of defense will you make sure that members of the military are not punished or face reprisals for cooperating with congress . We take very seriously our response ability to accurately and responsibly respond to congress and to the early part of the sentence as well as to any issues relate to personal security so i will not comment on any measures we take with individuals but we do take it seriously and we expect people to be responsive entry full in their dealings with congress. Thank you for that. I would urge you at this particular time to be diligent in protecting members of our military if they are cooperating with congress. I think your words delivered here should hopefully give assurance and confidence to some who are very worried and i know they are worried because of families are calling my office but they are my constituents and they are nervous you are giving them that assurance publicly. Let me ask you this about the audit. A lot of the dod programs that have the auditor classified as so when we do the nda we are often grappling with issues in this room even in a closed session and then theres a separate classified annex that we have to spend in a more classified setting figuring out her own response abilities with those. Talk about how the audit approaches classified programs and how you can do a real audit in a meaningful one while respecting the classified nature of the information. Thank you. The challenge we had at the beginning with how to deal with because fight information. In the budget its either redacted or in documents is often rejected or otherwise protected so we talked with gao wants to be able to summarize that apartment a federal government wide audit and the concern was if you do that here and if we have classified annexes you will not be able to do a government wide audit. We do this in a way so we can keep it classified and i like to tip i hat to the Accounting Standards Group for the federal government. We had to go to them and say we need you to get security clearance because we have two conversations with you that are classified and you have to give us the accounting standards on how to treat classified information. They did and that was one of the processes we went through and we got secreted clearance and they issued classified guidance that allows for example, when nash and nassau wanted a clean opinion that a question about pellets we do expense or appreciate and we will have those type of things that are classified and we will go to them and they and their clearance will be able to say heres how you should handle it in a classified answer that allows us to present the data in an unclassified report. Our auditors have secreted clearance right up to the highest level and theres nothing that is classified as excluded from the audit. Even if it is a serious most sensitive items the id will test it. Theres nothing that will because fight but is excluded from the scope of the audit. Excellent. In a public hearing like this i think we would like to get success stories. It is less about the findings or agencies that pass what do you have examples of things that you have learned in the audit process that you have already been able lethality construct that the dod witnessed when they are hearing. We have. Let me walk through a couple of examples. Let me pick the issue of inventory and ill use on navy as an example. I mention how the auditors went down and pulled samples and test them backwards. But the navy started to discover it was warehouses and Storage Facilities had items that had never been loaded into their inventory system. You open up and you would find spare parts and the spare parts are not where somebody who tried to order them can get to them so when the navy i will give credit to vice admiral dixon smith who was particularly aggressive in this and would travel to the bases and say open that up. Open that up. They started to any found enough concerns and said we will take one 100 and even at the bases theyve already visited they which was five, six they found 167 Million Dollars worth of supplies paid when they put them into the system addressed unneeded or unmet demands that were on back order and other items that now can be put back into the system and again you have you cant know if they are in the person who wrote ordered it rotated it and the new one does not know where its toward soap more important from the apartment, the department does not know it so the neighboring base doesnt see it, you are out for each one of those is an immediate and direct savings to the tax payer could. My time has expired but others may want to hear i have a list and im happy to keep going. Thank you, sir. Thank you, mr. Chairman paid mr. Secretary, thank you for being here and thank you for the letter of november 15 regarding the [inaudible] audit test with one 100 . Let me briefly if you would how important are those audit tests . [inaudible] these are the core of what the auditor does but they pull samples from above and come down to a base they are not testing everything on the base but they have a list of what they are looking for bid if 60 of the places they showed up and there was one 100 accuracy. Everything they looked for that base had. I sent you a letter because you had some in your state. That is incredibly valuable and one thing ive heard when i talk to the auditors is the importance of the local dealership. When they show up and the commander of the base needs them and walks them around they can quickly see likely have a good result because that leadership has control and oversight of the process. We have other places where the samples are not there so we have to get there on everyone but this will get solved at the local level and fixing the systems that lie between what is accurate at the local level and what we record at the department level. One of those reasons i sent those letters out is we dont just want to use sticks. That will help drive this process. As the process goes forward the leaders of the various locations will get the word that they need to participate and cooperate and that will help everybody. Is also in the evaluation forms. Senior officers and Civil Servants they have the audit as part of their performance evaluation. Service, the ses have the audit as part of their performance evaluation. I want to move now to an area that senator cain kind of touch. John are you familiar with the anti deficiency act . I. And im having im struggling here with a couple of things. On the one thing, i hear your testimony, and you and i applaud your effort and you emphasize the responsibility in taking seriously your responsibility to report to congress. On the other hand, im also seeing this administration continually thwarting Congress Oversight capabilities. They are not producing witnesses or documents. Just because they dont take like the subject matter of the particular hearing that particularly going on in the house. Recently i read a report where omb council has stated that as a legislative branch of government the gao when they report deficiencies or violations of antideficiency act, that the Administration Come executive Branch Agencies have no obligation to report that back to congress. And it just seems to me that there is a concerted effort with the administration to basically take those things that they dont want to report and just ignore the Article One Branch of the constitution. Im really concerned about that. Have you seen omb councils opinion . And if so, or i would like to your thoughts about that and whether or not that squares with what you said earlier about your ability and your earnest, honest efforts to report to congress. I have seen that opinion added on the whether its a matter of law. I know its a matter of practice whenever i decide that what of those in which everybody, it went to the president , it went to the leader of the house and the city, it went to i believeto gao. In practice i know when we have an antideficiency act violation the notification is broad spread. I i appreciate that. I think this is new and so i may follow up with you because i think this is changing a practice that is been, a practice across administrations including this administration but now we have, apparently with counsel who expressed a new version of that. I may follow up to give you a chance to look at that guidance to see how it might affect the department of defense, and obligationsa to report to congress. If i have time and im not sure, my time is not going, you mentioned the navy we found about 81 million of material, i think at the jackson hole Naval Air Station where it just read of inventory, you were able to do some things. How important is that . What are the lessons you can learn and take away from that particular episode where there was like 280 million that was just really kind of unaccounted for, 81 million and found immediately got put to use. Concerning to congress that 289 bucks at one place cannot be accounted for. Tell me a little bit about what youre trying to implement and how the Lessons Learned from that. The issue is about of the inventory but our concern is over time people if they buy inventory, if the story without putting it into the system, they may know its there but the success or may not. The department doesnt know its there. Its inefficient. Its an inefficient way to use taxpayer resources. The value of, the audit is thats a problem and auditors will come up every dear and poke them for the problem and expose because the audit requires if we have it, the tenor system and is properly recorded. Thats why can you account for what you have and can you count for everything you have. This is valuable for readiness, for making sure we make the best use of taxpayers money. We think theres a connection between this and some of the w challenges of crs which is a law this tends to be the type as a bludgeon my order at yearend and so the more we can limit that, the more we can have the discipline over when you bite, you log into the system. You make sure it is properly recorded. D at the discipline and this is why did the value of the audit, they come every you. Its not enough to clean out your office once. They are coming next year, that hereafter. You you have to make this habit. Are you satisfied the systems in place are adequate . That question a plug it in as opposed to we need to upgrade the system . No, weq need to upgrade the system certain i met with each of the auditors and what is instead as youpg feel your new system which is more complex and more effective, you need to make better use of technology. People are doing this manually filling out paper forms and others. If that tablets with ato could just do it more directly they could barcode scan all of those, reduces the labor and that increases compliance. What were looking for is places where people stop doing it because they didnt have the labor and it was too hard but the automation solution speeds that up but highlights the value of that and thats important. Thank you, mr. Secretary. I will followup with with a written questions regarding the omb guidance. Thank you, mr. Chairman. Senator hirono. Thank you, mr. Chairman. Considering how long it took for the dod to undergo an audit, thank you very much for expressing the firm belief that audits are very important. As you noted, your auditors contacted a number of site visits, 600 site visits, and two of these visits were performed at Joint Base Pearl Harbor Hickam and the Marine Corps Base hawaii, both of these came back 100 . Thank you for noting how important it is that the local leadership buys in and cooperates with the audit, so i do want to give a shout out to the folks at joint probe is pearl harbor and speed is excellent. Thank you for doing that. One of the areas that were pointed out in the most recent audit were and any identified h risk areas involving Privatized Housing programs and f35 program. I wont go into my questions about this but i assume you will bend undergoing the things you need to do to bring those programs to snuff. Theres a lot of concern about military housing. Absolutely. Senator kaine touched on this other matter recently regarding the threats to Alexander Vindman and also your deputy secretary, assistant secretary of defense laura cooper who i dont know ie shes only testified that she certainly will be testifying and not to mention the constant efforts to out the whistleblower and basically the whistleblower feeling very threatened by everything thats going on. I note you are doing everything you can to make sure that colonel vindman and ms. Cooper remain safe. What steps have you already taken to send a clear message to dod staff that their identity, their jobs and take it would be protected if they come forward tove report abuse or misconduct . So this is something we have as a matter of fact, its on all sorts of things. We have ig reports, gao reports. This is part of the culture of how come when people come for respect and be honest and truthful in their dealings and we expect to be taken care been doing so. We look for and i just looks if theres an issue of reprisal to make sure those are held accountable for it and we look for the security. As i mentioned i will not measure but if we think theres a a security issue we do with local authorities. These are the types of things that occur in different forms and we provide the same standard and approach across the fifth i think its in a fourth signal that we seenen in the way we del with organizations. Its very important for the dod from the top to say that the whistleblowers who come out of the dod or anyone who participates in appropriate proceedings, that they will be safe and i think its important for that message to be quite obvious and put out there. And hope thats what you will do. And put out there and i hope thats what you will do. On october 22nd, the day before mr. Cooper was scheduled to testify before the house deposition, you signed a letter to miss cooper lawyer permitting her from participating in the impeachment inquiry. On her deposition she was asked whether she was concerned about the repercussions of the d. O. D. For testifying under subpoena after receiving your letter and she said that this was a challenging environment and a servant that was just tried to put fill my obligation in this set of challenges in both respects. This is quoting chris cooper. In light of hows resolution six 60 which is a procedure per public hearings will you reef a refrain from hearing any other official from cooperating Going Forward . I did not prohibit what i told her the information and spoke to a lawyer and the information we received in interviews about the impeachment process at the challenge we would be able to send a lawyer and have that available information but we understand the individuals are making their own decisions. Even if youre just forwarding a letter from your department and i forget where it emanated from but for you to send it it does create a chilling effect. Are you intending to continue to forward these kinds of letters or from any other . I dont know any other individuals but it felt inappropriate do not have their lawyer be aware of this information so thats why we shared it. You can understand why . Its just if you dont send it what do you do so we strive is that the right tone in the letter. In the letter did you said were just forwarding this . I will send it to you but i think we tried to be clear about the nature and a very professional and factually to handle this. Can i ask one more question. I have no idea what my time is but during the hearing i asked secretary whether he would give it to reinstating the role for undocumented family members of active duty Service Members. Secretary esper said that he would look into it for sure. We are still waiting for a response on this issue that we received a response from acting secretary of defense or personnel and readiness mr. James stewart who referred to comment on the program to the department of Homeland Security and working closely with dhs on future policy. We can understand why activity Service Members are very concerned if the administration of Homeland Security is going ahead and boarding undocumented members. Even as they are serving our country. So, id like to know what steps the d. O. T. As taken with the dhs as referred to that is from James Stewart on this issue and whether d. O. D. Has looked to reinstate this program and not to deport the documents of active duty personnel. Ill take that one for the record i dont know the answer to the question. Well, i hope you got the message that we certainly dont want active duty Service Members families being deported. That program should be reinstated. Thank you mister chair. This is a really important hearing for all of us and secretary norquist thank you for hearing today and testify on this. On this topic senator sullivan and i were talking about this to have some results being put in front of us. You have done really what your predecessors havent been able to do or did not do which is making the oped a priority. We have had past controllers and chief Financial Officers at the pentagon and both Political Parties who have wind and complained and dragged their feet on this issue and found that every last excuse under the sun not to get it done. Wave hand pentagon hearings going on and on here on the hill for decades. So thanks for doing the hard job and getting this done and not delaying it for longer. Despite the disclaimer from the last two years, we are much further along in this progress towards a clean opinion and i just want to make that statement and thank you very much for your leadership on this topic. The National Defense strategy makes it clear that the United States is a very distinct challenge and maintaining the supremacy and the global arena. This has implications on our Homeland Defense and overseas operations and the vibrancy of a open society. Before we dive into the strategic roles, its good to see a step back and do a little bit of housekeeping. What id like you to explain mister secretary is in addition to the physical responsibility, how do you think they have the audits findings and do the nds and how does it benefit our operational and capabilities . Why do we need to do this . Absolutely. The nds has three lines of effort with mythology and working with our allies and the third one is reform in the way we defend for more efficiency. The reason for that is that we can see the same deficit that everyone else can and understand the fiscal limits of this department in the way it meets operate. We have a responsibility will guard a somewhat level we see to make sure that were using the maximum benefit so that includes both driving and efficiencies out of our business process as well as cutting low priority items and some of the things that are not bad things but just not as essential as others. What the audit is helping us to its not only identify those inefficiencies where individual systems are not talking to each other. If you get to the point where they only enter the data once and it flows through the system. Theres a lot of labor savings and costa come out of the way you operate versus manual and to these where they create data errors. The other problem of the National Defense strategy is that youre trying to improve readiness. Thats the issue of the spare parts and the peoples hands and can i get the maintenance faster. The last part is the Data Analytics. One of the things on what the private sector is able to do is use terms were you can use a big data but theyre able to manipulate incredibly large subs of data and theres tens of billions of transactions where we get audited and it goes back to eight or nine years ago because those funds are Still Available for a payment and disbursement. The ability to organize those to search them, to track them to be able to find errors. That allows us to adjust to some of the best practices in the private sector and another thing what you can do is trust your data. Those reforms we can adopt private sector practices unless we get to the quality of the data that we have. Thank you. Along that quality versus quantity issue, the d. O. D. Has close to 22 of the notice of findings from the fiscal year 18 audit. But the number has actually increased. So, should we enter with that as the system is working . Or should we be worried that were not making enough progress . The first answer is the system is working and are sumo hundred more auditors. One of the things that we took as a Lesson Learned from my time at homeland was we set up these contracts and an auditor when i think youre not going to pass they stop working. You have a disclaimer and youre done. Our ig has been a tremendous help in this process and the contract is going on even if you keep going keep on and we want to find as many problems as you can find. The auditors find but 1300 Additional Findings but the more clearly they identify assume or we can make sure we have correct natural plans to address this. The first couple years will find will keep closing them and be more efficient and a certain point will be able to fully see those numbers come down but i see this as exactly what we are paying them for. My time is expiring so i just want to say again, thank you for your leadership on this issue and it is such a bureaucratic beast and trying to sort through and boil it down. Youve been able to take this on and we really do appreciate your effort so thank you very much mister secretary and thank you mister chair. I would add my appreciation to what weve heard from my colleagues about the work that youre doing. You talk about the list of examples of successful space that youve already uncovered. At some point it would be helpful for us to get more of that list so we can share that with others. But whats been successful today about the audit is that you can go back to your early comment about the sea are and preaching to the choir about to see because we do agree preaching to the choir but there doesnt seem to be a universal appreciation in congress and the administration for what we had in continuing resolution for this year. At one point, are you concerned that the budget caps is sea frustration and what the impacts are that what we see is that were not able to get appropriation bills. Ill go to sea quest ration they are designed to be disruptive is set to not want to get you to do it so if we get ammunition to buy more against republicans and democrats and we get to october and say lets not start running and lets wait to place that order. We have reached an Artificial Intelligence and republicans and democrats all agree that lets give the chinese up three month head start to keep up on that technology. Not letting this drag out but the last part is we have families in training that are constantly disrupted because we believe that theres a deal but they dont know that means insulation. In the fiscal sense they withhold the money and delay training and sometime in december and march we had all that over and say we do it in six months. We kept to get back the october Training Exercise with the time lost and with inventory and others it is a misuse of taxpayer money to manage the frustration thats even worse and its catastrophic cut that undermines that they dont know if youre going so we have to be very cautious about how they spend money. You have problems making payroll and wicked wave it and take an even deeper cut and you completely lost anyone who has maintenance in their district and they know the importance of ships coming in on time and you cant recover and the facility cant take twice as many if they dont come in on time if youve lost it. We need to avoid and minimize the length of it. I certainly agree 100 . I want to ask about the issue thats outside of the audit that goes to your current role. That is as you are aware, there are a number of virtually all military facilities with p fast chemicals and secretary esper to his credit appointed attacks for us to address that. Military installation but my understanding is that the navy is close to a breakthrough on finding a replacement for the firefighting form that would be equally effective. Can you give us any update and could you take that for the record. I know this is very important and we spent 22 Million Dollars and continue, we need to prove protect some Service Members but we also stated that one has to be environmentally safe. As you pointed out this was a high priority who has the task force indifferent actions with this is something or getting to lead solution and is ultimately displaced and up. Finally, in june the Department Release new standards for dispense contracts and model certification. In this program, and we appreciate the need for this program and there is cybersecurity in place for our contractors but can you talk about the extent to which the defense is working with the contractors because one of the things we heard from the business that we work with is that theyre very concerned about the time frame in which you have to comply and with the assistance and the big folks thats not an issue as much as the smaller people that subcontracted and work with the fence who dont have the capacity and the assistance that they need to comply. Can you talk about whats happening on that . One of the issues we have is a vulnerabilities when our supply chain that we deal with. Other countries tend to attack their neck of the woods and extract port and data. Cnn see is much expected and much like a Financial Statement dot it we will be able to a verify part of the intent is to recognize that the larger firms are needing to work with the Small Businesses and when we have requirements if they are able to hire whos they have access to so that they can work with the network that means as compliance and we dont try to build your network you describe the one that certified and you know you can count on it and that from provides it to you as part of their i. T. Service. This is something that i know that the secretary for and as we work very closely and we need them most of all i dont want this to be a barrier to entry. We dont want to lose all the innovations coming out of this. Thats where its coming from an youre absolutely right senator. Thank you. Thank you mister chair and mister secretary along similar lines but a little bit different question. Focusing on the purchase of unsecured items and back in august i sent a letter to you highlighting the threat that was posed by commercial self computers. Another type of electronic equipment and especially those that have been made in communist china as well which present those cybersecurity risks. I appreciate the letter that you sent which was discussed in which the department is addressing those vulnerabilities, but maybe just give us a quick update on the progress that the department has made in that area. One of the challenges you have in the particular economics is when you have a chinese product where you start buying other ones and they have those components that were made with the company that provides a two is a u. S. Based company and a component where this is where the department has to have analysis of whats buying. They have their supply chain and we test the product which is Security Standards and penetration testing. We need to understand the supply chains and places where we can afford to help them raining in because it creates a vulnerability and working with those firms directly and if you include the middleman but another classes you have to understand that they are assembling parts and some of those pieces are at the risk and thats what you have to work very carefully. Thats the process that were getting cooperation with our ceo and our secretary for acquisition. Is it possible eagle commitment that could have been affected in areas of concern . Ill take it for the record so i know how far along it is. Wonderful. Thank you very much mister chair. Thank you. Mister secretary as i said in my opening comments i want to get your opinion on when it would be reasonable to expect as we work through the process of these annual audits and engage in corrected activity that we might be reasonable to expect that the department would have a completely clean set of audits . Heres the trajectory you should use. We have 24 organizations i would expect every year to see bloom and fort and another opinion to working to modify. Within the five or so years i expect to see the majority of them within the department. They will come in until the last one falls so it took them ten years but five of those were waiting on the card. Everyone got their opinion in those five years it was just the coast Stark Property so you start to see the number come down which would be very helpful by the way because the coast guard took that as an opening question of one left out as to why youre opening it up. But, you will see that over time i knew get to the number of problems going down and theyre holding them up and that is very helpful for focusing it. I dont know how it takes to the last one because it takes the longest but that will be the final pin to drop. Mister chair i would like to be introduced to the record around these questions. Secretary norah quest talked about under hiss secretary to daniel levant for laura cooper as you referenced in that letter and its about a page and a half along and its the penultimate one which reads the relevant part with you and miss cooper and the administration in one direction. The executive personnel cannot participate and the impeachment inquiry under the circumstances. I would like to introduce this for the record and id have some following without this. Without objection. Miss secretary let me ask to other questions. You mentioned that certain base commanders were willing to work and did you run into some resistance from other commanders and other correlation between that and not scoring soar well or whats the word out from leadership to make sure there was good cooperation . I think its gotten better every year to year and they said that they were engaged and the more likely to see the results and focusing in on the items and what they need to be accountable for. But heres the big surprise, one of the concerns i had for those of you advocating for those pushing is that its a paperwork drill and all of youre doing is checking a bunch of paper where the bills match my envoys and the issue of inventory and the military that we dont and this is about having their mission. And the push back and i would want to see and until you started everyone assumed there would be the natural outcome. I think weve seen a change and a level of and francis but we will continue to see it grow. Let me ask something related to that topic for the immediate that im glad we covered but not surprisingly the headlines were a little alarming. There was a reuters piece a couple of days ago and its failing grade on his second audit and a bloomberg peace was yesterday i think which had the headline airforce inventory listed on the sites of 79 nuclear missiles. So, misidentification of 79 active Nuclear Armed missiles almost the fifth of the fleet. Thats pretty alarming. Can you talk to some of these headlines and particularly the one in regard to 79 missing nuclear missiles. Were they really missing . That would be concerning if that was a case. The proper title wouldve been 79 and muscled voters cause theyre not icbms because if theyre pulled out and put into maintenance there was an issue in the accuracy because of its manual tracking and it was still in the base. But i dont think unsolved missile boaters at the same drama as the title that you read. This comes up in the audit and youll have some story that represses trillions of dollars and there are some kinds of understandings and they are written with something that makes sense but to hear these stories come out to get part of my job which is explaining, our missiles are in the ground and they dont tend to move for the icbms. 79 would not have been relocated. But the answer is that is still a problem but its not the irregular supply issue. On that headline, its useful and in track of the missile but it wasnt as if there was a loss . Which we knew where the icbms were. They gave it 100 percent thumbs up and i met with them on issues they knew but they just talked about supply issues in general. A failing grade is accurate . We didnt pass. To be fair, seven organizations did and they get credit because in some of them started those audits before anyone else in the department. Some of the funds were for five or ten years and thats by the leadership of the organization and is not full sail from the department levels on any of those. Regardless of that we still have another way to go . From my perspectives you had for dwayne right and what were the findings there . Positive . Negative . Good examples of what can be improved . Its a great example of wayne right and we had 180 items where was everything from the aircraft that came here. They looked around and they had 25 items they found and went back to the database and said can you show me these 25. 25 pass rate and six things was a serial number that didnt match and we cant be certain this is the same item. But this item seal would match but it wasnt recorded in the system for a missing piece. Six is somewhat small but its a samples of the question becomes, what do you do if you extrapolate that . That is a good example of the visits they did it passed around the country as a type of thing where that feedback is helpful to find out why. Why do they have these six errors and they can determine these other areas as well and theyre thinking about the difference sample or what i still have the same errors. And a five six to nine months to work on it it would be great. First of all, i want to thank you for your perseverance for the Ranking Member and having been warriors on this for years. I want to thank you secretary for giving yourselves our first audit and i know its a labourious process but i just have a couple of quick questions. When you look at the cost of this first force why is pretty substantial and is a Third Largest expense and second only to medicare. But its only a little bit larger than operations and is finished routinely and my question is, over time, to see a possibility that we could get to the answers youre quicker than now that we have to start at it . Or to clean report which then what is the quantity . We talked about some of the subjective differences but theyre obvious but how do we quantify that . It seems to me that you already paid for this in many regards but can you just tell the committee . They talk about the car of the cost so the amount we pay is 195 and compared to our size they are not dramatically different than the large firms. The corps of engineers and their experience or audits move from the sampling but those costs will come down. We expect to see the amount we pay the auditors and we have a similar amount where we spend in labor or federal employees where only used to support the audit. Some of that will come down and thats just the cost of doing business correctly. When you look at what they spend to process in a very good data on how much they spend but their costs will go down by a least 40 million when they start getting cleaned data which will cover the cost of the audit and the cost. Its a byproduct of an audit process. When you think about the labor we spend is we have to figure out what the codes are which that flies through and youre all set. The second half of that is the money we spend and or doing this to comply our standards so were spending that money but miss difference is we dont have an audit to tell us who was right. You are feeling the new Accounting System and in the past he would start discover you do what you want to and the auditors are going to show up every here and test that system. Youre not going to be done until the auditors give you a list of programs thinking am i paying to make this system work. That level of discipline that fits the taxpayer to get it to the right level. What i was surprised by when you look at the money that the navy has saved with 167 million and you look at the 316 million that is department was able to use Data Analytics to recover, that is the cost of what were spending on the audit so in terms of paying the auditors we are now just living off the benefit of our findings where what we spend is better and improving discipline to the system. I originally expected this would be a savings but we have the patience but what we are seeing is the benefit now and the benefit to the taxpayer. I know you talked about continuing resolutions and we now know because secretary has actually talked to us about that and the Service Heads have also done that across the border. We now have a cost of a couple hundred Million Dollars in terms of the sea are practice that weve been under the 45 years. Only four times in the last 45 years have we actually funded the government on time and no need for a continuing resolution. In the last decade, the First Quarter has been under a continuing resolution. This current debate that we have tomorrow and a continued resolution can you describe to us how the audit interacts with the growing awareness of how insidious thing called a twoyear resolution devin states the military. Youre going to spend more than last year. Because at times it tends to tie the hands on the military and its a tremendous cost there which would cause are lack of doing our job here in congress. How would the audit help us identify and expose those wasteful afterwards. We are spending against four billion dollars that we absolutely dont want to spend those and continue the resolution law. You think of the contract where youre buying some supply. You place the order at the beginning of the year for the entire year. Instead, he will take that in somebodys got to make an order that covers the first six weeks. We have to do a contracting reaction and you have to work in the system and they do another contract for another four to six weeks. We keep breaking this contract and increasing the amount of manual labor and increasing the chance for data era and for a vendor to have the quantity at the right cost. We have the volume of transactions which are generated and the additional work and the consequences with this inventory where we held back money for at least six months and we pushed forward and expect people to move out and be able to execute it with a three to six months left. With this inventory and expect it expectation for three months. I order the inventory and its a rush because i dont get to normal sequence like i did and loaded into the system later. Life gets busy, the part of the people doing the audit are the most affected because its the finances and all of these folks who are spending their time over here who are over on the other side or in the process. Its very disruptive and when the audit highlights that with the families or deployments is a pretty serious problem. Thank you mister chair. Thank you mister chairman and mister secretary, thank you for being with us today. I will have to tell you, going back to my freshman here in the house in 2003, we started working on the Management Initiative or the d. O. T. Audit processes trying to simplify this and get everybody into a system where data would be inter operable with people to put a lot of this online at that point and in the cloud. But what is frustrated me and i think what continues to frustrate some of our men and women in uniform is that you take two steps forwards, you take a couple of steps back and you end up not making as much progress as you would like to see made. So, with our interest in tennessee with milling ton air naval station arnold air or our National Guard presence and the fulltime intel. Unit as i talk with these men and women. One of the things that continues to come up is having a standardize process and having the best practices. And being able to look, not just at what is immediately in front of you but looking out. Further out and the senator of purdue just talked about the necessarily for having the budget on the cr and thats a big part of that and we realize that. But one comes back to being an issue with d. O. D. Is the fact that they just cant seem to get ahead of this process. You have to get those best practices in place. What i would like to hear from you is that if you have a system in place to really incentivize identification of cost savings by d. O. D. Employees. If that would help and also what about a best practices database . Its not something that as you go through this and you poll this data where you go in and research this. Are you willing the with this database that is going to be available with a system wide. With the third thing i would say is leveraging layers from the private sector. Who can really come in based on their experience and help you streamline that process. You have to optimize operation for the department. Because right now, this is one of the problems i think our unit have further deployed. Which is the number of hoops they have to jump through to get authority for something in a timely manner. As you look holistically at this and what you tend to glean from it if you will answer those it would be helpful. Sure. One of the most important things is how they put a spotlight on some of those problems. One of the things that we have said at the department is that we have three forms that include the army, navy and special forces which is on the idea aspect of the logistics which you talk about the financial management. We are all gonna find the same problem so we have the right fix and a solution so for example, the army is experimenting with what it does is that when you depart, it runs through the accounts and every place you have a log in accounting turns it off. Instead of waiting for six different organizations that the paperwork and turn off your access. That works and everybody can adopt and how do i make sure somebody doesnt log in with one user and one account and use this as another and used to control to prevent something from doing both those functions. All those best practices as a form that share the private sector and secretary spencer at the navy brought in the private sector and has been looking through adopting some of the best practices on the Navy Aircraft in order to fix these supplies that they have been facing. When they have those with the services, what each of these answers theres, a lot of analogy to what we do even though were in the private sector and the more we used to call it best practices when i was in college, we staked their ideas and we use them and we use it to drive a fish and see in the process. Thank you for accommodating. We can do this all day secretary any other time to do it. laughs this is so impactful and we talk about dollars but where do we go from here . Where do you think were going to identify . If youre not where the to quantify that i understand that but one of the purposes of audits as to look at operational goodness and best practices. But im looking at the top line. This is our first deep dive of the d. O. D. When you look at the impact of cr and other things. Given the idea what do you think the potential is going to be for some rationalization and will highlight this quickly. We spent about 14 of the total money on overhead and thats about 2 of out the vietnam era id like to know, where that increase is in that process as well. Then we allocate the balance which is the system with nds. We are getting more advocacy about where the money is spent at will give us some flexibility to address that. My question, what is the next step this year and what do you hope to improve our the first audit . Secondarily, what do you think the rationalization potential could be in d. O. D. . If you already quantified it i would totally understand it but i want to know what youre thinking. The next big step and the small steps will keep identifying but the next big step is to take advantage of the data that we have. 13 transactions and blocks and as a single entry you cant do that. We have individual transactions where you can search on them where the budget would see it had 100 Million Dollars and it can now click on that and give every single transaction. But now if you want to get after it, or get after these expenses you can do those transactions and sort out is this overnight as an export maintenance or is this overhead as an hired an it consultant. That level of transparency data within what i want to push for is that we should be able to have a meeting where it looks like youd have a Business Company and the business to despair and you have to report to your cfo. That would have a summary of the financial activities where we will have a discussion on what it means. If you dont trust the data you can but if you start having this transaction level we use in defense called p be planted doesnt have a back loop. And here is how it comes back and wait change that to accountability which is what did you get for it before in the program for the next five years and how we take that information back into the system and this is moving accounting from a note that we sent a support to somebody and a report is the data that really produces the leadership and the usual format and the private Sector Companies because they trust their data and we want to have that as an entity piece. Of all the people i come to the hill to testify you have consistently been a straight shooter and i appreciate that and thank you for all what youve done and thank you mister chair. I want to thank the secretary as well and the colleagues on the senate and on this audit and budget issue for senator blackburn thank you to them and the secretary did raise the issue of the cr which is important. You described it but there is a way to deal with it which is the defense appropriations bill which my colleagues on the that would certainly help. Thats a weird kind of deal. So for the bipartisan concern theres a simple answer, lets get on the bill and vote on the defense bill that came out of the Appropriations Committee with strong bipartisan support. We will continue to press that. I certainly will. I want to thank you again, and members are requested to submitn any additional questions for the record by friday at noon. Mr. Secretary, appreciate and respect and ask you promptly respond to any additional questions from any other members of this committee. With that, we are adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] cspan campaign 2020 is with President Trump live today at 7 p. M. Eastern as he holds a Campaign Rally in sunrise, florida, his first there since changing his residency from new york to florida in late october. Live coverage on cspan. Watch online at cspan. Org or listen on the go with the free cspan radio app. Last week from House Speaker john boehner was honored at the u. S. Capitol during a portrait unveiling ceremony. The Ohio Republican served in congress in 19912015 and was elected speaker