The committee will come to order. The Committee Welcomes mr. David norquist comptroller as our witness today. The topic is the audit of the department of defense, which by law begins this fiscal year. And i would just say its not by accident that the committee will start our year on this topic. Requiring that the Department Conduct an audit has been a bipartisan priority of this committee for some time. The chief Financial Office of 1990 required all federal departments conducted annual financial audit and partly out of frustration with a lack of progress toward that end that the department of defense. The 2010 required the Financial Statements of the department be ready for audit by september 30, 2017. This committees panel on defense Financial Management and reform put close scrutiny on the departments efforts and issued a number of recommendations that have been enabled us to arrive at this point. The 2014 required a full audit be conducted of the departments fy 18 Financial Statements. The results of which are to be delivered next year. You want to commend the chairman for his expertise and persistence on this issue, as well as mr. Courtney, who is also a member of the audit panel several years ago. They will be both glad to know we have had additional members join this e committee in recent years who can also contribute their background and experience to this issue as it moves ahead. This issue is important. Members of this committee hear evidence every week that we are not providing our military with the funding they need to carry out the missions they have been assigned. E we must spend more. At the same time, we have a responsibility the American People to see that each of their tax dollars being spent to protect them is being spent in a transparent way with appropriate accountability. We should never assume that an audit will solve all the problems of waste and inefficiency, but it seems to me spending money smarter is knowing with certainty how it is being spent. It is likely that the result of the first audit will not be pretty. But those results will help direct us all, congress and the. Department, on where we need to apply our efforts to improve. This issue is important. This committee will continue to pursue it. The Ranking Member is recogni recognized. Thank you, mr. Chairman. I would simply repeat word for word the Opening Statement of the chairman. So in the interest of time, i wont do that. And will simplify it by saying this is enormously important. There are a lot of concerns at the pentagon, and theres really two big issue heres. One, as the chairman mentioned, we are in a time of tight resources and very great needs. And that means we have to get everything we can out of every dollar we spend. There are many, many issues that this committee has covered that make that clear. And second, if we cant explain where we spend the money in the pentagon, we are failing in that first mission. I know its a lot of money. I know its big bureaucracy, theres a lot going on, but we ought to be able to do an audit that tells us where were spending the money. Its the pentagons mission. I want to thank mr. Conway for his great leadership in this issue. Who knew having an accountant on the committee would be critical. Actually, most people should have known that. But hes done a great job on this issue. Everybody on this committee would just feel great if at some point we can say the pentagon has been audited. It has happened some 20 years after we started trying to make it. Happen. I think were close. I think we can get there. I look forward to hearing your testimony about how were progressing in that. I thank the chairman for his leadership on this very important issue. I thank the gentleman. Welcome. Without objection your full written statement will be made part of the record. You are recognized to make any oral comments you wish to make. Thank you, mr. Chairman. Chairman thornberry, rank iing member and members of the committee, thank you for the opportunity to provide an joefr view of the departments Financial Statement progress and plans. I appreciate your committees long and unwavering support for this effort. I also want to thank congressman conway tr his leadership over the years related to the audit. His direction of the committees 2011 panel on Financial Management helped the department maintain its focus on audit. To rebuild the armed forces he also made a commitment to start the audit. Inside the department of defense, secretary mattis and shanahan have set a tone from the top that embraces the audit as part of their vision to bring business reform to the department of defense. I know you have had many hearings where witnesses told you they support the start of an audit. This hearing is different. We have started the audit. But we are only able to have todays hearing with the department of defense under its first full Financial Statement audit because of this committees continued support. I should note that audits themselves are not new to the department of defense. Numerous audits covering Program Performance and contract kos are completed each year by the accountability office, Defense Contract Audit Agency, the department of Defense Office of the Inspector General and the Service Audit u agencies. Dcaa employs over 4,000 auditors to perform contract audits for contractors to the government. This is the first time that the department is undergoing a full Financial Statement audit. A Financial Statement audit is comprehensive. It occurs annually and covers more than Financial Management. For example, Financial Statement audits include very fine count, location and condition of military equipment, Real Property and inventory. It tests the security vulnerabilities of our Business Systems and validates the accuracy of personal records and actions such as promotions and separations. The department of defense anticipates that this spring and early summer well have approximately 1,200 Financial Statement auditors assessing whether our books and records present a true and accurate picture of our Financial Condition and results of our operations in accordance with accounting standards. These Financial Statement audits compliment but are distinct from Program Performance or contract audits. Based on my experience, it will take time to implement all the processes and system changes necessary to pass the audit. It took the department of Homeland Security a relatively new and smaller enterprise of ten years to get its first opinion. But we dont have to wait for a clean opinion to see the benefits of the audit. The Financial Statement audit helps drive improvements to standardize it business processes and improve the quality of our data. Just like private Sector Companies and other federal agencies, the department of defense prepares Financial Statements every year to report assets, liabilities, revenues and expenses. Though not a corporation, dod owes accountability to the American People. The taxpayers deserve level of confidence that the Financial Statements present a true and accurate position, a picture of the Financial Condition and operations. Tra transparency, accountability and business process reform are some of the benefits of a Financial Statement audit. Regarding transparency, it improves the quality of our Financial Statements and the underlying data we make available to the public. And dods progress will also directly contribute to an audit opinion on the entire federal governments. With regard to accounting, the audit will highlight areas we need to improve accountability. The army found 39 black hawk helicopters that had not been properly recorded in this property system. The air force of 478 buildings and structures that were not in its Real Property system. By fix iing the property record we can help demonstrate the accountability of our assets. In other cases as it informs in new systems, well be able to obtain independent feedback on that systems compliance so we can better hold those venders accountable for their solutions. Third, the combination of better data, business process reengineering and the use of modern Data Analytics supports congresss vision of the chief management officer position and the departments effort to bring business reforms to its operations. These reforms will lead to buzz operations savings that can be reinvested in legality. It will perform the amount covered the audit fees to the Accounting Firms and the infrastructure including the cost of the government salaries of the people supporting the audit of 186 million. The 181 million in audit contract costs is one 30th of 1 of the dod budget. And as a percentage of revenue is equal to or less than a fortune 500 company pays tr their auditors. In addition, we anticipate spending about 551 million in 2018 fixing problems identified by the auditors. The dod consolidated audit will be one of the largest audits ever undertaken and comprises 24 stand alone audits and overarching consolidated aud ut. Dod is sustaining clean opinions for nine stand alone audits. They are conducted by ipa firms with the ig performing the consolidated audit and all the contract audits have been awarded and auditors have begun to arrive. In order to track progress, the department has established a tool and a process to capture, prioritize, assign responsibility for and develop corrective actions for findings. Each year they will assess and report on whether the department has address ed the findings. Going forward, we measure progress and report on it towards achieving a positive opinion by using the number of findings resolved. In closing, i want to thank this committee for its continued focus ob a dod audit. Your oversight has been a cat skplis we appreciate the partnership with you and the Committee Staff on this important process. With your leadership we will now and continue to be a department not only under audit but improving year after year. We improve budget stability and technology and funding to findings remains critical in moving towards achieving a positive opinion. I thank you and look forward to your questions. I appreciate a full financial audit with contract audits. I might just highlight that we had a number of provisions to reform the contract process in the last years Defense Authorization bill and hopefully that will improve as well. I just want to ask you one question. I want interested to read where a retired general says basically this audit is not worth doing. Youve got to check and e see whether the weapons and equipment are accounted for the various records and so forth. Its going to be expensive. And as his point basically is its not worth the cost. Youre doing it because the law requires you to, but what would be your response to the argument that the cost is more than the benefit of doing a full financial audit of the department. I would first respond. He noted its costing over 900 million. The amount were paying the ipa is 181 million is one 30th percent of the budget. But on the scale of the enterprise, that type of money for accountability is is money well spent. The additional money we have talked about is to fix problems that we find. Now this is always a choice Going Forward if we can live with the problem and fix it but i dont think the problem is is the right way u forward. I support the direction to conduct the audit, do the findings. The article said that its expensive because it covers so much. The answer is, yes. Thats it the point. One of the things that the law requires is that we do Information Security of our Business Systems. This is the standards. The audits are done to those. Well be able to understand the weaknesses and do people more to hold people accountable for closing vulnerabilities in our systems. You would want that anyhow. Youd want that done under any circumstance. When we find those, youll. The department to be closing them. You talked about contract aud the its. The Financial Statement is large. We have 4,000 who look at contractors. So on the scale of what we spend looking at contractors, the size of the team that we look at the government is appropriate and proportiona proportionate. The biggest concern is a statement that the department is not a corporation and does not need to undergo a financial audit. First of all, the law requires a financial audit and more importantly, i think the taxpayers deserve at least the same level of confidence as a shareholder in the use of the money. To say its not worth doing that we have screwed it up so bad for so long that the cost of fixing it has just become overwhelming. Let us keep screwing it up. And i get that the up front cost is going to be e enormous. But longterm, the benefits are are exactly as you describe. If we got to suck it up for a couple years and absorb some cost to get back on track, its going to make significant improvements. All of the work on acquisition reform that i know the chairman and many others have done can be so much better informed if we have this information. We can say, gosh, heres an area that instead of so when e we pass legislation aimed at making the acquisition process better, if we have this full audit, that legislation has a much better chance of actually accomplishing that task. So yeah, its pretty bad. I applaud your commitment to doing this and staying ready to have the Committee Help in any u way we can. Ill yield back my time. But i have nothing further. My only comment is who we enforce your point about the better data to support information. The primary thing an audit promises is better data accuracy and accountability. When many of the reforms depend on the accuracy of the da tarks not having that complicates those efforts. Mr. Jones. Chairman, thank you. I have been here 22 years. This is the best news of hoping for something good to come from this effort. I commend my friends on my side and the other side who werent with the chairman. Ranking member that put this effort together. I never will forget donald rumsfeld, the former secretary of defense, sitting where you are telling this committee that he will account for every dollar of the taxpayer and how its going to be spent at the department of defense. He might have meant well, but it never happened obviously. And even in a small way make it r better. I got one question. It does deal not directly with you, but because of your position and your oversight, of all the articles i have seen about waste in the 22 that i have been here, probably this is in the top four or five. Two years ago, accounts by trillions of dollars. The Defense DepartmentInspector General in a report two years ago. They made a wrongful adjustments to account iing and one quarter alone in 2015 and 6. 5 trillion for the year. It would be under your departments jurisdiction if it happened within the system. Theres got to be fellow accountants to give me some assurance that when stories like this go public, and the taxpayer thats why they are so frustrated on congress. Give me hope this would be dealt with and somebody instead of saying that this happened and that happened, but we keep funding it. I just dont know how you catch up when you keep fund iing the problem. Let me address that. Thats a very important one. One of the issues youre talking about relates to general vouchers which occurs after the money is spent is. When you see in the article that says trillions of dollars and you realize we only receive about 600 billion in a year, theres a mismatch in the story. And what this reforms to is we have systems that do not automatically pass data from one to the other. The oerm goes in and at the end of their Financial Statements, finds the number of the property book and writes it into the general ledger. Thats a journal voucher entry. Depending on the property, that could be hundreds of billions of dollars. The whole entry is considered unsupported. From a management point of view, this is bad. Its not the same thing as being able to account for the Money Congress is giving you to spend, but its a problem that needs to be fixed. We are addressing that challenge. One of my concerns is i only by eliminating the types of ones that are just an entry issue can you find underlying issues that are hidden among inaccurate data. With a loss of something that wouldnt be accurate. But its an accounting problem that does need to be solved because it can help hide other underlying issues. Thank you very much. I will tell you that i might not be here when you resolve the problem, but ill still be reading the paper. I wish you and your staff the very best. Thank you, mr. Chairman. This is my first year in congress. I serve the local government for over 24 years. And the most shocking thing about being in congress is that theres never been a comprehensive audit