Transcripts For CSPAN3 Politics Public Policy Today 20140701

Did that and use went way up and states that dont require it very few doctors look at the database. A doctor thinks they know what an addict looks like. They think they know what somebody with this disease looks like and they dont. Thank you very much, everybody. I think it was a very good hearing and we have got some very good notes and food for thought, so thank you very much. Its appreciated and the hearing is adjourned. Taking a look at the prime time lineup on cspan tonight, a special program on the use of consumer drones. From taking your picture, mapping construction sites to cleaning the outsides of highrise buildings. All things drones are being used for these days. On cspan2 tonight, book tv, well focus on some of 2014s nonfiction best sellers including Lynne Cheneys book on president James Madison and also starts at 8 00 p. M. Eastern. Cspan3, American History tv with u. S. Foreign policy. Well examine americas response to totalitarianism and the ra juan dan genocide. Now keep in touch with Current Events from the Nations Capital with any phone any time with cspan radio on audio now. Simply call 2026268888 to hear coverage, Public Affairs forums and Washington Journal Program and every weekday a recap of the events on washington today. You can also hear audio of the five Network Public sunday Affairs Programs starting noon at eastern. Cspan radio on audio now. Call 2026268888. Long distance or phone charges may apply. Defense Department Comptroller robert hale said recently the pentagon is on track to achieve audit readiness but that challenges remain. The imaginement of the Defense Department was the subject of a hearing by the Senate Homeland security and governmental afarrells committee. Top military officials testified on their finances and fugts. The dods Inspector General and the Financial Management director at the Government Accountable Office also gave remarks. This is two hours and 40 minutes. The hearing will come to order. Todays hearing will examine as we know the efforts under way at the department of defense to improve Financial Management and to obtain a clean, unqualified audit of the books at the department of defense. I want to begin todays hearing by asking why our Financial Management at the department of defense and any other agency is important in the first place, but especially the department of defense. Accurate and complete financial accounts give you are jetblue gave the Agency Leadership and congress the information that we need for effective management and planning. And i might add execution. Clean audible Financial Statements also give us the information we need to hold agencies accountable. To look in every nook and cranny and ask, is it possible to get better results for less money . I talk to people all the time who say to me, i dont mind paying extra taxes, i just dont want you to waste my money. We waste money probably at every agency to some extent. We especially waste it in the department of defense. And you know thats true. I know thats true. So do our taxpayers. We cannot, however, effectively identify areas to reduce spending if we dont know how much and where were spending that in the first place. Federal agencies have been required to produce audible books since the 1990s. Nearly two decades later, the department of defense, which spends nearly 2 billion every day, has yet to meet their obligations. Despite years of effort and one deadline after another, department of defense books are so flawed that auditors could not attempt to perform a complete audit. It is no surprise then that the department of defense expenses has been on theory risk list since 1995. 1995. In part, this is due to pervasive management deficiencies that would never be tolerated in private sector business. And that are actively being addressed in other federal agencies. Here are just two examples. Just last month, the Government Accountability Office Released a report showing the departments antiquated inventory systems, often containing incomplete and inAccurate Information, have led to millions of dollars in wasteful ammunition purchases. The department continues to buy spare parts that it doesnt need. In fact, last year, the Department Gave this committee figures showing that at one point in 2013, it had 754 million worth of items that were on order but not yet delivered for which the military Services Simply did not need. However, the Department Still paid for and accepted the unneeded items. This is an unacceptable situation. And these are just the problems we know about. Some of the problems we know about. In all likelihood, the poor state of the departments books mask even more instances of waste and fraud. These tough Economic Times when were going to be asked and we are being asked to make decisions about pay for our active personnel, compensation for active duty personnel, compensation for our veterans, making those decisions, well be asked to make decisions about base realignment and closures again before too long. Well be making those kinds of decisions. For us, as we face those kind of decisions, i just want to say we cant tolerate this continuing level of mismanagement and waste. In 2011, we met at this same room, in the same room, dr. Coburn and i, held a hearing, maybe even with the same title, and we discussed how the department was going to meet a statutory deadline of achieving financial auditability by 2017. Just after that hearing, thensecretary of defense leon panetta made an important announcement that greatly elevated the priority of Financial Management, higher than it had been elevated before. He also established an additional deadline for partial financial audit by the end of fiscal 2014 in order to quicken the pace of improvements. To his credit, his successor, secretary hagel, has stood by these goals. This means that in seven months, the entire department should have its statement of budgetary resources, a key financial component, ready for audit. We are here today to get an update on this quickly approaching deadline. Fortunately, the department can look to some recent successes to help find the right path to reach its goal. The marine corps has made some important progress in auditing its books, achieving a clean opinion on at least a portion of its fiscal year 2012 accounts last december. And thats good news. Also, the department of Homeland Security was until recently the only other department unable to audit its finances. Last year, Homeland Security, as we know, was able to achieve a clean audit. The department created barely ten years ago, broad, large, a lot of people, a lot of money, they were able to achieve a clean audit last year. If they can do that, the department of defense needs to keep its we need to keep your feet to the fire, and you all need to get the job done. And this idea of a goal for 2014 slipping and the goal for 2017 slipping, that dog doesnt hunt here. It doesnt hunt here. Were going to make that perfectly clear. The key question is whether the department of defense is learning enough and fast enough from these examples. Let me just say, we have some obligation in this, too. When we shut down the government, we allow the government to be shut down, we do stopandgo budgeting, fiscal cliffs, you know, were part of the problem and were part of the solution. I acknowledge that. Tom coburn and i have made a compact that were not going to let the government be shut down again. Were going to do a better job of our share, and maybe if we do, you guys will do a better part of doing your part, as well. We dont want to be the problem. We want to be a part of the solution. Key question again is whether the entire department of defense is learning enough and fast enough from these examples i just mentioned. Today, weve been joined by several witnesses who are each key to helping the department of defense improve its processes and controls. Their work, if successful, will allow the department to produce reliable Financial Statements that regularly produce critical information for decisionmakers. To our witnesses, we want to thank you for joining us. We look forward to your testimony. Let me now turn to dr. Coburn for any comments he wishes to make. Thank you, dr. Coburn. Thank you, mr. Chairman, for holding this hearing. Id welcome all of our panelists and say we applaud your effort. But as my dad used to say, effort sometimes isnt enough. You have to apply maybe a different approach and a different technique. I wanted to start to read an assessment im going to put up for you comparing 2001 to where we are today. And the assessment in 2001, inability to consistently provide reviable Financial Data for effective decisionmaking still there. No change. Lack of an overreaching approach to Financial Management. Disparate systems, accounting, still exists. The far plan provides the approach. Its unclear right now to me how well its being implemented as audit goals are descoped and deadlines are missed. Systems environment remains more or less unchanged. Convoluted business processes which fail to streamline excessive process steps, sometimes driven by accounting, operational and organizational structures, further complicated by aged and disparate systems. Erp results have been mixed. Air force Expeditionary Combat support system was cancelled after nearly ten years of work and 1 billion. We recommended in 2011 it be cancelled. It took two and a half years to get it cancelled. Then we paid the contractor a payment and didnt hold them accountable for what they were developing. Difficulty in obtaining financially based outcome oriented management metrics. This problem continues. Gao has reported that metrics are not adequately defined. Inability to produce chief Financial Officer act, compliant annual Financial Statements. No change. Disproportionate budget dollars appear to support nonvalue added activities. Since useful information is hard to extract, useful corrective action is difficult to implement. With the lack of widespread understanding of how Financial Information can help us. Hasnt changed. Cultural bias towards the status quo driven by disincentives for change and short timeframes of political appointees who otherwise might serve as agents of change. No change. Requirement of an infusion of personnel with technical and financial skill sets necessary to achieve integrated Financial Management systems. Dod is investing in training programs. Its still not fully implemented. And oftentimes, cfo nominees lack the requisite qualifications. Im most surprised when i hear some of my associates ask why auditability matters. I suspect this question is a result of many colleagues lack of real world experience. Theyve never run a business or an organization that has to make the most of its resources that it has available. To a business, and the pentagon is not a business, but to a Management Organization reliable Financial Data is what powers the strategic planning, the strategic budgeting and operational decisions and often means the difference between success and failure. But even to congress, auditability is a paramount importance. We cannot do our job without it. The fact that our largest federal department with nearly a 700 billion budget still cant comply with the law after several decades is a failure that rests squarely on us, the congress. Because by accepting the continued excuses and delays we have failed to do our job. No money shall be drawn from the treasury but in consequence of appropriations made by law and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time. We havent done that in 30 years in the pentagon. The intent of this clause is simple. Congress cannot possibly know that the executive branch is obeying the first part of the appropriation clause, spending, without confidence in the second, accountability. The decades long failure by the pentagon to comply with existing federal Financial Management laws is against the very spirit of the constitution. Our Founding Fathers demanded those spending taxpayer dollars are held accountable to the taxpayers, the people funding the bill. The Financial Management problems within the pentagon are intimately related to its problems of waste, mismanagement, its budget woes under sequestration, currently neither military leaders nor lawmakers can consistently and reliably identify what our defense programs cost. What they will cost in the future. Or what they have cost us in the past. When the pentagon itself does not know and cannot Tell Congress how its spending its money, good programs face cuts along with wasteful programs. That we will not need. Which is the same situation we find ourselves in today. Cutting meat instead of fat. Unreliable Financial Information makes it impossible to link the consequences of past decisions and, oh, by the way, Holding People accountable for those decisions, to the Defense Budget or measure whether or not the activities of the Defense Department are actually meeting military requirements. The problem is clear you cannot manage what you cannot measure. If the pentagon does not know how it spends its money, congress does not know how dod is spending its money. With the nations debt nearing 18 trillion and counting, and tighter budgets across the federal budget, dod needs now more than ever to better manage the scarce resources. The first charge of the congress is to defend the country. Today, dod leadership has told us that theyre on the right track, making progress. Ive heard that song before. Some of our nations best watchdogs, the gao and dod, i. G. , will testify that the core Financial Management weaknesses, the longstanding deficiencies, still exist and remain a significant risk to dod meeting its statutory, constitutional requirements. If you take away only one point today, it should be this. Poor Financial Management is the root cause of much of dods current problems. Be it the ability to control costs, as evidenced by weapons system and i. T. System overruns, anticipate its future costs, measure performance, or prevent waste, fraud and abuse. Congress best helps dod fulfill its obligations under the law and to the american taxpayers by holding dod accountable for its failure to comply with the law. Mr. Chairman, i have only one request of our first panel, as that you will stay and listen to the gao and ig. I know they seem to be a thorn, but theres some reality in what they say. And if we mix that reality with a good effort that everybody at this table right now is making im talking about our panelists well get closer. And i would just summarize, and well do it through the questioning, weve changed what the ndaa called for by going to the accounts instead of the resources. Understand you were allowed to do that. But if you really want Financial Data to be able to make good Financial Decisions and to control costs, youre not going to get it that way until maybe 2022, 2021. With that, i yield back. Let me just follow up on something that dr. Coburn just said. Hes urged you to stay if you can for the second panel. I would ask that you do that, as well. If for some reason you cant, please, for gods sake, make sure you have somebody senior whos going to be here dutifully taking notes. Jane, not so long ago, the deputy secretary of Homeland Security, as you may recall. And she would go meet with jean dadaro, the controller general not every week or every month, but just about and to talk with him face to face, the numbertwo person at hhs, to figure out how do they get how did the Homeland Security get off the high risk list for gao . And working it, working it, working it. Month in and month out. And finally, they did. They did. And as dr. Coburn said, some people think of the general accountability office, our watchdog, as a thorn in the side of agencies. They actually play constructive role, as you know. And they want you off the list. They want to have other things to focus on instead of the problems were going to be talking about here today. One of the items theyd like to get off the list, and so would i, is a major systems cost overruns which now exceeds i believe 400 billion. 400 billion. Plenty of work to do. Ill introduce briefly everybody. Mr. Hale, its not going to be a pleasant hearing, but having said that, we do appreciate your service. I know youll be stepping down later this year, and we appreciate your service and wish you only well as you go forward. But bob hale is the undersecretary and chief Financial Officer, the office of the department of defense. Mr. Hale was appointed to his current position in january 2009. As undersecretary of defense, mr. Hale is principal advisor to the secretary of defense on budgetary and fiscal matters including development and execution of the departments annual budget of 600 billion. As chief Financial Officer, mr. Hale receives the departments financial policy, Financial Management systems and business modernization efforts. Our next witness is mr. Robert speer, acting assistant secretary of the department of the army. Mr. Speer assumes responsibility for his position a couple of months ago, in february of this year. As acting assistant secretary, mr. Speer advises the secretary of the army and chief of staff on matters relating to Financial Management and oversees the development, formulation, and implementation of policies, procedures and programs for improving the efficiency and effectiveness of department resources. Our next witness is the honorable susan rabern. Is it dr. Rabern . Are you retired navy . What was your rank in the navy . Captain. Captain. All right. So well have several titles to use for you today. But the assistant secretary of the department of the navy for Financial Management and controller. Dr. Rabern was appointed to her current position august 2013, last year, as assistant and controller, dr. Rabern is responsible for directing financial matters including the budget for the United States navy and the u. S. Marine corps. Dr. Rabern again retired from the United States navy and we now know is retired navy captain. Our final witness is the honorable jamie how do you pronounce your last night . Morin. Morin. The assistant secretary of the air force. Dr. Morin was appointed to his current position in june 2009, as controller and chief Financial Officer, dr. Morin is the principal advisor to the secretary of the chief of staff on all financial matters. Hes responsible for providing Financial Management necessary for the effective and efficient use of air force resources. We thank you all for being here today. We thank you for your preparation, for your testimony, and for your willingness to respond to our questions. I have one other favor to ask all of you. I want you to take this to heart. I read through your statements. And it was replete with acronyms. I dont like acronyms. Gao is fine. Dod is fine. Fbi is fine. Epa is fine. Sba, which shows up repeatedly, Small Business administration. Ada shows up repeatedly, americans for disability act. And i dont want you to use acronyms. If its something thats common, we see it all the time, thats fine. Otherwise, ill stop you every time you do it. I dont want you to use acronyms. Use the words. All right . It will help me, help us, and ultimately help you. With that having been said, i think we have a vote starting. What time . 11 10. Tom, you and i may want to do what we did last week and take turns going back and forth. Mr. Hale, please, welcome again, please proceed. Thank you. Im here to report on Financial Management of the department of defense. When i became dods Financial Officer more than five years ago, i established a number of goals. I reported on progress in those goals in my prepared statement. In my oral remarks, i will focus on one of those goals, namely i think the key one for today, improving Financial Statement. Meeting this goal has been a challenge, frankly more of a challenge than i expected when i started. However, despite the budgetary turmoil of recent years, i believe we have made substantial progress, without question more progress in the last few years than weve made in any other period after passage of the 1994 act. Our Audit Strategy focuses first on the elements of our business that most often influence the decisionmaking, particularly budgetary information and accounts of our property, known as existence and completeness, not an acronym but not a helpful english phrase, either. Weve set interim goals for the audit efforts, and we have clearly in mind the legally mandated goals for readiness. We report on the goals regularly twice a year in an audit progress report. Well deliver the ninth installment later this week to the congress. We also have a plan to achieve audit readiness for all of dod Financial Statements. I believe we are on track to achieve audit readiness for all our Financial Statements by 2017. Meeting audit goals requires major changes in a department that is big and where change is difficult. We need a new Financial Systems. We need significant changes in our business practices. Theyre hard to implement in a big organization, and we face special challenges that you alluded to, mr. Chairman. Five Government Shutdown planning drills in the last few years. Two sixmonth continuing resolution. Last years sequestration and the furlough, followed by the shutdown and a furlough. And weve wasted time, time and again weve wasted time. Replanning budgets because of the seemingly constant changes in the outlook for revenues. This turmoil has definitely usurped time that could have been spent on audit and other activities. But despite that turmoil and other challenges, we have made substantial progress. And much of that has been documented by independent Public Accounting firms. I think thats a big difference compared to prior periods. We understand that after 20 years without auditable Financial Statements, congress is skeptical. You want an independent verification of our progress, and frankly, so do we. Let me highlight a few audit results for you. The marine corps last year received a clean audit opinion on the current year of its budget statement. Thats the statement for budgetary activity. But i like that current year better. For 2012. And we expect a similar result in 2013. This result was verified not by one, but by two independent auditors. One in the private sector, one in the public. The entire department of defense has been evaluated and deemed ready for audit of the funds distribution process. Its a critical accomplishment because it provides verification that we are distributing the funds the way that congress envisioned when you passed the laws. Again, the services were all verified by independent Public Accounting firms. We received a clean audit opinion from an independent auditor on the controls within our civilian Personnel Data system, as well as systems handling military pay, civilian pay and disbursement. Army is completed and an examination similar in scope to the audit theyll face this fall. Finally, dod is well along in deploying Financial Systems and they are stabilizing in terms of cost and schedule. So independent auditors have verified progress in many specific areas, but well soon face a broader goal that were all aware of, audit ready budget statements by september 2014. By audit ready, we mean that we have made significant a sufficient progress in processes and data so that we can withstand an independent audit and a review of management. Audit readiness provides most of the benefits of the audit process. The audit itself attests to our success. Its too early to know for sure the audit ready status for every budget statement by september 30th because were still in the process of remediation. Well use every moment we have to try to make fixes. However, we expect that most of dods budget statements will be ready for audit by september 30th, including statements in all of the military services, and i believe that is an enormous accomplishment for this department. We are finally getting to the real issue of the military services. We had not done that before, and we need to do it. Once our statements are audit ready, we will pursue the formal audit in a Cost Effective manner and congress requires that by law, actually. One lesson we learned from the marine corps, we simply dont we cannot acquire the documentation needed to verify prior year transactions quickly enough to meet audit needs. Some of those transactions go back ten years. Theyre in longterm storage and we just dont have quick access to them. We will, therefore, focus the formal audit on the current year budget activity which contains by far the most important information. And well build quickly toward the full sbr because well get one year done and that will give us that data correct. We can probably go back a couple of years, so i hope quickly that we will build toward the full sbr. And i dont think this process will significantly delay the time we get an audit opinion on the full sbr. Time does not permit me to cover other important goals that were pursuing. Youll see them documented in my statement. Ill end with the bottom line on auditability. Despite formidable obstacles, we have made demonstrable progress, progress that has verified by independent auditors. We still clearly have much work to do, and i accept that point. However, in most cases, we will substantially meet the first broad goal for audit readiness, budget statement since september 2014. And well then begin the formal audit in a Cost Effective manner. Meeting this goal is an important step for the department, and thats something secretary hagel believes in. Whenever i talk to him, he clearly is interested in this topic. Last year, he made a video for the entire department of defense on audit readiness, and ill quote from that video. And that is, we need audit readiness and audits to demonstrate that dod manages the publics money with the same competence and accountability that we bring to our military operations. Mr. Chairman, that concludes my brief opening remarks. After my colleagues are finished, ill be glad to join in answering questions. Pleased to hear about the audio. Heard about it, that secretary hagel gave, underlying the importance of making progress on this front to the employees of the department. The video, im really looking forward to, the one he gives later this year and says we really did not just most of our agency, but most but we nailed it by the end of this fiscal year. The one im looking forward to is 2017. He may not still be the secretary, but somebody will be, and thats the one im looking forward to. Thanks very much. All right. Mr. Speer, please proceed. Chairman carper, Ranking Member coburn, distinguished members of the committee, thank you for the opportunity to appear before you today. To discuss the armys approach to implementing financial improvement. My assessment of armys progress towards achieving auditable Financial Statements and implements of the enterprise Resource Planning systems. In addition, i want to convey to you the secretary of the army mccoo, chief of staff, the undersecretary of the army, chief management officer carsons, and i remain committed to improving army Financial Management and the requirement to be auditable by september 2017. Despite the serious challenges the army faces from ongoing resource uncertainty, the Army Soldiers and civilians remain dedicated to improving our business processes. The armys Financial Management Improvement Plan documents the armys approach to achieving our audit readiness. Milestones and includes reliance, exams, audits from independent Public Accounting firm to inform the armys audit readiness status and provide objective feedback on areas requiring additional focus. And corrective action. The army is making progress. An independent Public Accounting firm recently examined and delivered a report on the general Fund Statement of budgetary resources focusing on 2013 transactions within the armys enterprise Resource Planning environment. Although not a clean opinion, the independent Public Accounting firm was able to complete the examination, was able to provide us and confirm confirmation of improvements, and throughout the examination, identify areas we need corrective action. In response, the army has been implementing a plan to action to remediate those findings prior to the 2015 audit of schedule of budgetary activities. In addition during fiscal year 2014, the army received a clean opinion from a Public Accounting firm on the examination of Real Property. Those assets of 23 Different Army installations which accounted for over 50 of the book value of the armys Real Property assets. This audit supports the second dod audit readiness priority, verifying the existence and completeness of our assets. Additionally, the Army Continues to achieve success in implementing new systems. The general Fund Enterprise Business System is our core Business System used by over 53,000 users at over 200 locations worldwide. It enables the armys readiness progress, while improving the armys processes. The global combat support system, gccs army, and the logistics modernization program, our Retail Supply and wholesale Logistics Systems will effectively complement the system. We recognize it requires engagement throughout the organization, so we hold Senior Executives accountable for achieving the audit readiness success. Since fiscal year 2012, financial improvement metrics have been a component of all Senior Executives annual performance assessments. The chief of staff of the army regularly monitors progress, progress both of internal assessments as well as external audits and holds formal reviews to hold leaders accountable. The armywide engagement has facilitated progress to date. And is critical to our overall success. The current fiscal environment involving defense requirements, both at home and abroad, present unique challenges for our organization to achieve audit readiness. However, this environment also affords us an opportunity to evaluate and optimize our technology, our organizations, our workforce, and our training. To improve the overall business processes. We are looking to evaluate these Financial Management optimization concepts in the coming year and gain benefits and improve performance from accurate and timely auditable data. We continue to demonstrate improvement across the whole business process area. Our annual exams have continued to expand on scope and size and mirroring the growth and evolving and evolving in our audit readiness program, while providing us valuable insights for remediation and correction towards the overall goal of achieving audit readiness. I sincerely look forward to continue our work with members of this subcommittee, the general accounting office, and the dod comptroller to ensure our continued improvement and Army Business process in achieving audit readiness. Thank you, and i look forward to the engagement. A quick correction. This is not a subcommittee. Its a committee. Okay. When dr. Coburn led the federal Financial Management subcommittee, we cared a lot about these issues, as well. Hes going away at the end of the year, but well stay on this issue for as long as it takes. Hes worked on it for years. When we were on the subcommittee and now, as well. So thank you. Okay, captain . Doctor . Yes, sir, thank you. Chairman carper, senator coburn, members of the committee, im pleased to have this opportunity to discuss with you the progress the department of the navy is making towards a congressional mandates for financial audit readiness. I will share with you some of our significant achievements to date, but i will has tell you that much more hard work needs to be done by our Navy Marine Corps team before we reach our goal of full financial auditability. Implementing effective internal controls over the departments business operations, verified by successful financial audits in coming years will send a reassuring message to congress and american taxpayers. The message will be clear. In supporting our nations modern powerful Navy Marine Corps war fighting team, the department of navy is minimizing the risk of misusing taxpayer dollars and maximizing accountability. The underlying fundamentals for our task are relatively simple. Strong, prescribed, internal controls must be in place, regularly performed and periodically tested for effectiveness. Documentation proving the controls performance must be readily available. Implementation of these objectives is known to be extremely complex when applied to a very Large Organization such as our military department, but all the more critical in an environment of uncertainty. Were making steady progress towards our goals. Our most immediate objective is complying with a mandate to achieve audit readiness on our departments schedule of budgetary activity by the end of the present fiscal year. The marine corps portion has been under audit for four cycles, and the defense Inspector General issued an unqualified opinion for the 2012 schedule. In addition to the marine corps effort, our department has asserted audit readiness on nine sba Business Segments receiving favorable examination opinions on four of the nine assertions. Exams on three more of the nine assertions are currently under way. The tenth, the remaining sba segment, Financial Statement compilation and reporting, is undergoing remediation which will support an eventual sba audit. Today, im cautiously optimistic we will achieve readiness by the end of 2014. In the area of asset management, we have received favorable audit opinions on the departments accountability for ships, aircraft, satellites and fleet missiles and shorebased ordnance. In addition to the successes, the department of navy is executing a detailed plan to achieve departmentwide compliance with financial standards for all asset classes. In addition to the benefit of enhanced stewardship over public assets, our auditability efforts will assist in moving needed items to the war fighters more quickly and avoid excess buying. We will face formidable challenges as we pursue full financial auditability by the end of 2017. Complying with standards for asset accountability, including accurate valuations, will be a complex endeavor, and as we move to strengthen the capabilities of our present suite of Business Systems, the future Business Systems are still evolving. Also, we must continue developing additional capacity to sustain the business improvements weve made Department Wide in every organization recognizing that reaching audit readiness is not a onetime exercise. Today, i believe we have a solid approach to known remaining impediments to full financial auditability. As with my previous assessment of the fy2014 sba goal, im cautiously optimistic that the department of navy will achieve full financial audit readiness by fiscal by the end of fiscal year 2017. As we progress, weve begun cataloging tangible efficiencies resulting from our auditability efforts. One example is the significant savings on our departmental bill for paying vendors by expanding automatic feeds of electronic contracting data. As manual controls are replaced by automatic controls, bill paying is at the same time less costly and more accurate. In fiscal year 2013, we estimate that the department saved approximately 4 million because of these specific improvements in electronic commerce. In a second example, one of our Major Commands tightened internal controls over its requisitioning process, for outstanding goods and services. By doing so, over several years, this organization cancelled requisitions totaling 3. 5 million for orders no longer needed. Recouping this buying power and allowing them to purchase other needed items. Other instances of savings will be replicated through the department as internal controls are strengthened and lessons learned. In closing, i would tell you that our departmentwide effort has the active support of our executive leadership, and we are driving this accountability all the way down the chain of command. As we make the changes which move us closer to audit readiness, thousands of managers throughout the department of navy are embracing these positive improvements to our business environment. I pledge to you that you have our departments full commitment to achieve these challenging mandates through the collaborative hard work and persistence of our determined workforce. I would be pleased to address any of your questions at the appropriate time. Thank you very much. Thanks for that. Thanks very much. I meant retired navy captain, as well. And sometimes when we talk about difficult things to do, we talk about trying to change the course of an aircraft carrier. We know that if we stick with it, all hands on deck, everybody pulling together, we can change the course of aircraft carriers. This is a really big aircraft carrier. Roger that, sir. This is really tough course change to make. Yes, sir. And its all hands on deck. We appreciate some good things going on with the marine corps and the encouragement that youve given to us, and we just want to keep pushing. Yes, sir. Will do. Thank you. All right. Dr. Morin . Thank you, mr. Chairman. Thanks for the opportunity once again to share air force progress towards audit readiness and our strong commitment to the goals set out in the legislation. Sir, in 2011, i testified to your subcommittee at the time that we saw moderate risk in the air forces plan to achieve overall audit readiness by 2017 and that that was mainly due to i. T. Challenges. Since then, as you know, secretary panetta gave us the challenging deadline for the for the statement of budgetary resources by 2014. Im glad you caught yourself. That was good. Let me ust say, my admonition at the beginning, i dont like akro anymores, in fact, i think many of my colleagues feel as strongly about it as i do, youre doing fine on that score. Well try to keep it up. In terms of the nearterm aggressive challenge, the air force dramatically increased the resources were investing in the effort, including both management attention and funds. So as a result, i can testify to you today that i believe we have increased the likelihood that well meet the 2017 audit deadline. And while theres a great deal of work still to be done, ive observed fundamental and positive changes in the departments approach to the audit agenda over the last few years. I think these improvements have continued under the leadership of secretary hagel, as well. Mr. Chairman, you have been a very strong proponent of the military services sharing audit readiness lessons with one another. And im pleased to report were doing a great deal of that, including learning from the work of outside auditors like the gao and, of course, from our Inspector General. For example, a couple of years ago, the gao briefed this committee on deficiencies it found during an audit reviewing another services military pay records. You held a hearing on the topic, and we saw that report and had the opportunity then i had the opportunity to request that the air force audit agency conduct a similar look at our own pay records. We found that the overwhelming majority of airmen are properly paid, timely paid, correctly. And we found that our processes were generally good. However, we found that in one specific area, our process for reviewing and retaining documentation about the Housing Allowances paid to our airmen was not sufficient. And we werent retaining enough records to support an audit once the auditors came in. We were validating the pay was correct but not documenting that validation in a way that would withstand audit. As a result of that internal audit, my office put in place a new set of procedures for document retention and for validation, and we are currently in the midst of an air forcewide 100 recertification of every airmans entitlement to the Housing Allowance for those with dependents. This is one example. Another example was a best practice we adopted from the navy. They used their audit agency to conduct monthly field testing of critical financial processes. We took that on a couple of years ago, and last year we tested over 10,000 transactions air force wide, assessing each one for compliance with a long list of audit requirements. Weve seen compliance increase from roughly 40 to roughly 90 . Over those two years of testing. Again, these are just a couple of the many collaboration examples i could have cited, and thats been a consistent message from you, mr. Chairman, and from this committee, so we appreciate the attention to that and your continued engagement. To move to the broader question. In order to make an assertion of audit readiness on the schedule of budgetary activities at the end of this year, air force leadership will need to review our progress, and the remaining challenges were working to fix. Let me provide you with a few specifics about where were at. Over the last several years, the air force has asserted audit readiness on a variety of processes. Youve seen those, including civilian pay, budget authority, distribution, military equipment, spare engines, other components of our operating materials and supplies. In some cases, weve received clean bills of health from independent auditors. In other cases, as with the other services, weve received a list of things we need to fix. Specific control weaknesses, and now we have welded plans to resolve those. The air force is strongly committed to this effort. Its the law. We believe it enhances our readiness. And we believe its an important sign of good financial stewardship. Secretary james, our secretary of the air force, included the audit and making every dollar count as one of her top three priorities for the air force, and she wrote recently to key leaders across the air force on this and giving them very specific directions about things they needed to do to help. Our chief of staff, general welsh, has also been a strong supporter and is engaged in many of the major command commanders, the fourstar leadership, have integrated audit readiness in their personal management control structures in that way that simply wasnt the case years ago. The support of management is all the more important when were asking airmen to do difficult things, like the revalidation of Housing Allowance that i mentioned or like our count of 1. 9 million individual items in our general equipment inventory, which weve been doing. Leadership support has also allowed us to increase Financial Resources about eightfold, and partner with a big for Accounting Firm thats helping assess readiness and decide corrective actions. So there is still, of course, challenges remaining despite all this progress and support. Our i. T. Systems remain our biggest single challenge. Weve made great strides, particularly in the last year, in fielding the Defense Enterprise Accounting management system, which we call deams, to replace our 1968 accounting system. We received a positive assessment from the air force Operational Test and Evaluation Center on deams as currently deployed and weve deployed it to six more bases since october 1st. Well complete deployment to all deployment command in the weeks. Were on track to complete deployment air force wide before the full Financial Statement audits begin. I do, mr. Chairman, want to single out the folks at Dover Air Force base, who are one of our early adopters, and their comptroller, major davoni, doing a great job leading there. Theyre pathfinders for us. So while the systems issues continue to be our single im happy to extend your time now for a couple of more minutes. You mentioned dover. Much appreciated. Actually, ill just take a moment. When we go through the air force, the commander in chief, the commander in chief go through a process where they evaluate all the air force bases across the world, and they go through a commander chief evaluation, and theres usually an air force base on the other side and a base thats on the Fighter Aircraft side. And they sort of compete for the top prize. I think for three out of the last five years, Dover Air Force base has been a finalist for three of the five years, and were enormously proud, and thank you for mentioning that. Absolutely, sir. The work theyre doing supporting the Mobility Mission and, of course, supporting the dignified return of those that we have lost in conflicts overseas is absolutely central to what your air force does every day. So the systems issues that i mentioned are single greatest risk factor, as others have testified budget uncertainty has harmed our readiness efforts, as well. Restrictions on travel. Restrictions coming with civilian furloughs have all had significant impacts. Were working to recover from those. We also, unfortunately, lost about seven months due to a unt seven months due to a contract protest that took our independent Public Accounting firm support offline. We resolved that last year. As with so many areas in d. O. D. , the singlemost important thing i think the congress could do to help an support our troops in this vital area would be to provide the level of budgetary clarity and complete legislative work on time, as you acknowledged. Balesed on our assessments its likely that affair leadership will be able to assert audit readiness at the end of this fiscal year. Thats a decision to be made later this year, but thats my current assessment. An audit of the scheduled budgetary activity beginning in 2015 will be challenging for the air force, but i think it will help us accelerate on all of our statements. I think getting auditors eyes in on our processes has paid dividends so far, and will continue do do so. The journey is every bit as importance as the outcome. It is through the process of building that we are identifying weaknesses in department Financial Management that we can focus on and correct, and it is the correcting of those that enables us to carry out our mission as financial managers and d. O. D. , to produce the maximum amount of combat capability with each taxpayer dollar thats entrusted. Thats the job. This journey is well worth of effort. Well said. Thank you each of you, for your testimony this morning. We have a vote under way and about five minutes. Have you already voted john . Good, thanks. Im going to ask some questions and then dr. Coburn will come back, between him and john, theyll tag team and make sure we dont lose any time. Every now and then we do some smart things, to. About huge cargo aircraft, not very reliable in terms of providing the airlift we need from time to time, so to do with them . Not all, but some of the older air krafl and take the modernize them. Weve now modernized not all, but most of the i think c 5 bs, and a squadron at the Dover Air Force base. About a year and a half ago, one of them i think set 40 World Records for the ability to carry cargo nonstop, which they fly routinely over the top of the world from Dover Air Force base. They have used less gas, theyre quieter, and much more reliability. I think rather the the capability operational capabilities approaches 80 , which is where it so were pleased with that. As i mentioned in my oechg statement, secretary hagel has been vocal in their support for improved Financial Leadership is a key. We dont have leadership on this stuff, well never get it done. Their support, both of them, is incredibly important. I applaud their strong commitment to improving financial manage. Some people think its green eye shades and its not that interesting, and people get lost in the acronyms, but it means the ability to be ready, for us to be ready, to take on a fight whether its whatever part of the world its in. To make sure our folks are paid and we have travel systems at work, that the weapons they need, the Weapons Systems they need are reliability, we have the spare parts we need when we need them. We have the ability to have interoperable to go from active duty to the all of that is necessary for us to be ready for the fight. Fighters are counting on us, the taxpayers deserve the best efforts on this front. Again, mr. Hale, ive already pointed out i think your last appearance before this committee, kind of a mixed blessing, isnt it . But we are glad nonetheless to see you. And wish you wish i well. I understand, if you do retire, theres a fellow that the administration thinks would be a worthy success, michael mcchord. Have you actually been nominated . Yes, hes been nominated and through committee. Fair enough. Thank you for the update. In your statement you said that we expect most of the d. O. D. Budget statements will be ready by september 30, 2014. That would imply that some parts of d. O. D. Will not be auditready. Also your testimony states that for the department i think eventually a fully auditable statement of resources will emerge. I would just say the article is for the entire department to have a fully auditable statement of budgetary resources by the end of fiscal 2014, and thats not that many months away. Mr. Hale, will the department of defense meet 2014 deadline for achieving fully auditable resources or will some of the requirements of that deadline be met . Well, mr. Chairman, i think that we will meet the great majority of them, but im not going to put in audit statements and waste the taxpayers money if they arent, and there may be a few that arent. Principally problem in the defense agencies. We started later with them, and they are particularly complex, though smaller. I hope we can make it with all of them, but i i said to be candid. We will move immediately to fix those as quickly as we can. I want to get to the top of the hill badly, but and thats audit readiness for all the statement of the budgetary resources, but i dont want to waste money by putting in an audit a statement that we know is not ready. I think well get there for most, but there may be a few that arent ready by september 30th and well move as quickly as we can to fix those. Most can be 51 . I think it will be more than that. Ive expect youve heard my colleagues say we expect, a good chance all four of the military services will declare audit readiness. Thats probably more than 80 of our budget if that happens. We have all of our trust funds, like the military Retirement Trust funds, theyre auditable or under audit. A number of our agencies are ready, but all few may not be. It will be substantial more than 51 . All right. Mr. Hale, the difference between a statement, a budgetary resources audit, and a schedule of budgetary assessment is understandably confusing to a lot of my colleagues, and even our staff, as smart as they are, but to my understanding is that the schedule of budgetary assessment is just a portion of the full statement of budgetary assessment. I also understand the department will need several years of conducting the statement of budgetary the schedule of budgetary assessment in order to meet the requirements of the schedule of budgetary the statement of budgetary lets use english, the current year versus the prior. Okay. Thank you. That was clear, wasnt it . Yes. No wonder this is hard to do. Its hard to even say. Weft some go back as much as ten years. That was our goal. When we got into the marine audit, we realized that we couldnt produce the documentation quickly enough do you need to leave, mr. Chairman . In a moment. We got into the marine audit. We realize we couldnt produce the prior year, the documentation quickly enough. Some of it is probably in longterm storage, and were basically wasting our time and audit money looking for data that we couldnt get, so we said, look, lets go after the current year, its the most important one. It would build up over a couple years, a body of data where we do have the documentation. That will lead us to a statement of budgetary resources. I want to get to the top of the hill, but i want to do it in a manner thats reasonable and efficient. If we have to vary the path, we will, but theres no change in the goal. We want to do the full statement of budgetary resources, including both of current year and the prior year information. All right. Sometime later this year youll be gone, maybe mr. Mcchord will be in your seat n. Your shoes. I said earlier, and if were going to stay on this, and dr. Culver will be here to the end of the year. I wish he was staying longer. Were going to make sure every day hes here and this committee is around well stay on top of this. If its 80 or 90 , thats better than certainly 50 or 60 . Better than zero a lot better than zero, but its not 100 . We want to get as close to 100 as we can, and we want to be helpful and not a problem in getting to that goal. Senator tester, and when dr. Coburn comes back, hell be chairing. Thank you, mr. Chairman. I want to thank all the witnesses for being here. You know, on the Banks Committee we talk about banks that are too big to fail. I dont know how we got to this point, but maybe the d. O. D. Has gotten too big to audit. I certainly hope not, because i dont think Anyone Around here disagrees that a full audit of the pentagons books is critical for moving forward. It will not only identify ways to increase operational efficiencies, it will bring a more appropriate level of oversight to the department of defense, and in a budget environment in which we continue to see requests for program eliminations, base closures, reduced personnel benefits, the d. O. D. s failure to meet audit readiness is frustrating. I appreciate the fact that mr. Hale talked about being 80 potential 90 , but the chairman is right, we need to get to 100 , especially when we continue to hear about wasteful contracts, or the failure of the d. O. D. To develop an Electronic Health record. We can do better, we must do better, i look forward to working with all of you to get it done. As i said, when i opened, i dont know how we got here, but weve got to get this fixed, because quite frankly its unfair to the country, and really unfair to the taxpayers. Mr. Hale, in your testimony, you highlighted one of your three goals is to execute resources and legal effective and efficient manner, a few months bag we had a few conversations, i appreciate that, about a provision in last years omnibus appropriations bill thats related to silos. I appreciate those conversations. As you remember, i felt strongly that the language in the bill clearly prohibited the d. O. D. From taking certain actions. Meanwhile, there were some in the pentagon, in high places that seemed intent on moving forward, regardless of what congress had to say on the matter. This was incredibly troubling to me. And there is no doubt in my mind that the d. O. D. Would have completely disregarded this particular provision if we wouldnt have put pressure, myself and some other senators, on the d. O. D. I just want to ask you a few basic questions. Would you agree that disregards the voice of congress is dangerous and counterproductive . Yes, its also illegal. Thats good. When there are questions about the d. O. D. s authority to execute funds, how are they resolved . Generally its clear, from what you say in the law. When its not we consult our lawyers, and sometimes they consult the administration lawyers. That happened in this case, and lawyers can disagree or there can be vagueness, so at that point there has to be an adjudication at the highest level. That occurred here, not always it doesnt always come out the way you want, but that is the process, and i can tell you we took it seriously. I appreciate that, and i think you did. You talked to your lawyers, you talked to the administrations lawyers, do you ever engage in congress when there are conflict like that . Yes, i think so. Probably would be better to have our general counsel here, but i believe there are discussions with congressional lawyers when its appropriate. In the end, i mean, well be guided by the administrations lawyers, but we do talk. Okay. I just think its critically i think congressional intent is very, very important. I will tell you it was more than disconcerting when we had the conversation with the icbm caucus senators, and basically one of the people in that meeting basically said, we dont care, were doing what we want to do. Thats i wouldnt agree with that. Well, were you in the meeting . No. I mean, i wouldnt agree with the statement. Perfect. I want to talk about the inability to coordinate development and deployment of electronics records. The chairman talked about it a bit. It allows for a sealess transition. It is the right thing to do. Its been talked about since january 07 and maybe before when i walked into this body. To what extent are you able to answer what the specific challenges are here . It seems pretty basket stuff to me. D. O. D. Gets together with the v. A. And moves forward with a Communications Electronic so whats the problem . Well, i am not the expert here, though i am definitely aware of the issue. I think d. O. D. And the v. A. Are committed to do that. We have differing views at times about which system to use, but if we choose a different system. It will have to be able to talk to vista. However, i would like you to consult with others rather than me on the details. Okay. Anybody specifically . Ill get you or p r, or our lawyer. This brings me to another issue. If it happens with v. A. And d. O. D. , the question becomes when it comes to major acquisitions, that the military is going to make, to what extent does your office engage with other agencieses . For instance, dhs, theres some parallel work thats being done. They may have already something tricked out that works from a technological standpoint. Do you consult with other agencies . Or does it start yes, we have cooperated with other agencies, satellite programs, with noaa, for example, and thats just one example. Many of our weapons are somewhat unique, and therefore the department or but where thats appropriate. I believe we do do it. Do you have something specific in mind . I think its am i walking into a trap . No. I can give you specifics, but generally speaking, i think its critically important to look around and see if somebodys already built it, then you can utilize it, it saves a whole bunch of money and it eliminates the problem. I know there are turf issues. We see it in the senate between committees. Its silly, and i think its silly between agencies. If you can utilize that, i think it makes you more effective overall. Thats all. Susan, i appreciate you all being here, but the leapt the one service on the panel that has received audit readiness. Congratulations. Thank you, sir. I appreciate how this accomplishments translates into realwort and those who do business with the d. O. D. Do you have an estimate of the savings that you have achieved from the marines audit . Across the board i do not, but i would be happy to provide it for you. That would be great. If you could utilize the information that youve gained with your audit process, i think that it makes it all that much more important to get a d. O. D. Wide audit done. I want to close by something something similar to the what the chairman said before he left. Theres no reason the d. O. D. Cant have an audit. If its because youre too big, we needs to address that and you need to be honest. I do not think thats a reason. I think its been something theres not been a focus on. I get the impression that mr. Hale has put a focus on it, and i appreciate that. The proof will be in the pudding. The charts the Ranking Member put on are spot on, and if we are here next year or the year after and we still have the same kind of charts up, theres going to be some ramifications to that, because more and more people in the senate are aware of this, and they want it fixed. Thank you all. Let me make a few comments. Audit readiness is a misnomer. What you want is whether you have the financial controls in place with which to make management decisions. You dont do an audit to do an audit. You do an audit so it enhances and hones your ability to make financial judgments based on the data, to know that year data is accurate. I put up this little chart. Its the audit deadlines, i understand senator carper asked you about sba verse sbr, but the fact is an sba is meaningless to me as an account ability, because it gives you one little scope of period. The pentagon has multitude of programs that are run in years. So all it says is for this one short period of time we have some financial controls. If you pass it. If you pass it. Not on the statement of resources, but on the statement of activity. So its a whole idea of an audit is to have an audit, to know what your holes are and your financial weaknesses, and your management weaknesses, so you can change things. Now, let me give you an example of something whos done it right in the air force. General wolfens burger, responsible for 16 billion at the supply depots. Three years ago she instituted Continuous Process Improvement. Most people in the pentagon dont even have any idea what that is. But its how every other modern business combines their audit information with their management, so that they achieve savings. The general and her team have saved year to date in the last year about 680 million. And they did it because they actually know what theyre doing, because they got good numbers. The question i asked after she made her presentation, could you pass an audit . Of course, we couldnt do Continuous Process Improvement unless we could pass an audit. So i want to take us away from audit readiness, which is the buzzword were hearing at this hearing, to having an organization that has the financial controls with which to make the proper decisions, because thats the whole basis. Thats the audit is simply a check to see if youve got the information systems, youve got the Financial Data. I also have one other aneck dote, a commanding general cut 100 million out of his budget in one year. Its a small air force base, and he did it through good management. Good management. You know, he doesnt have a general say youll cut 100 million. He did it on his own. Of course, the flashback came, is you didnt spend all your money, which is another problem. Use it or lose it. So mr. Hale, really what has happened is based on the ndaa, weve descoped on the basis of the outlet clause that was in that, that if its too hard or too expensive, you can go to oneyear audit readiness, right . We descoped what the ndaa said, is that not correct . Yes, but only as a way to get to the top of the hill. We knew we couldnt get there any other way. We want the full statement and we will get the full statement. Thats the whole point, but i didnt want to waste taxpayers money doing audits, when we knew from the experience in the marines, that we didnt have 10yearold data quickly enough to satisfy needs, so well build toward it more slowly. So when you meet the statutory deadline, if its met, youll have only five years of data. Well, we i think we can do better than that. As you get back to the far distant data, its small as a percentage. If we can get the first few years correct, i think the percentage will be small enough that we may have to engage in some special efforts, but i believe that we wont have to wait ten years. Thats certainly not our plan. So is two years data good . I dont know if two will do it, but i would hope that two or three will do it. Right now do we not have last years data . Wed have last years data, yes. Some of our accounts are open for obligation for five years, military construction, for example, and then the law allows up to five years to spend the money. So some of it goes back as much as ten years, you go back five, seven, eight years, we dont have it readily available. Its there, and we need it quickly during an audit. An auditor cant way for weeks while looking for the data. We found with the marines we werent getting there. So i want to get to the top of the hill, but i want to do it in a way thats as quick as possible, butened mindful i dont want to spend audit money when im not get anything for it. On longterm construction accounts, for example, whoever is managing that doesnt need that longterm data to manage that effectively right now . Yes, they need the data right now. I wish i had it. I dont. The point is because we dont have the data and we havent developed the systems, you cant manage it effectively right now, because you have information thats missing. I think our management is impaired. I mean, we do have information on obligations. I know thats correct. We have 150 million accounting transactions a year. If 1 was wrong we have a million and a half wrong transactions. None of thats occurring, but we need the audit both to verify it and especially for the outlay data, so i agree we need this information as quickly as we can get it, but i dont want to waste money in the process of getting it, and i know you dont want me to do that, either. In your written testimony, you say d. O. D. Does have Accurate Information about where we obligate public funds. If thats true, you know where the money is going. Yes, we know where the obligations are going. If we didnt, we would have massive antidistinguishes. Even if a tenth of a percent were wrong, we would have 150,000 wrong transactions, paying the wrong people, overrunning none of that is happening. So my question is this, if you know where the money is going, then you should have a statement of budgetary resource. Thats a good question. I cant document it in a manner that satisfies auditor. I know its there, because otherwise i would have the problems i just described to you, but i cant document it in a way that will satisfy an audit. Moreover, the outlays are more of an issue. So you know that, but you cant document it, so my question to you is, how do you know that . If you cant document if somebody comes in, you cant prove it to an auditor, but you can sit here and testify that you notice it, but you cant give us the backup information to say thats true, how can we rely on that . Senator, if all if there were any significant percentage that were wrong, as i said, we would have massive mispayments. I tell you what, we hear about them real quickly if we werent paying or vendors, if we werent paying or people. We have something, but they are tiny as a percentage. It doesnt take away in my mind for the need to do the audit at all. We need to verify it through an independent audit and need to correct other than the obligations, and we need to improve our business practices. The antidistinguishes act you mentioned, is key to congresss constitutional power to assure the public funds are spend as appropriated. The, they found hundreds of nearmiss ada violations, ill try to not use the sued nim youll get in trouble, too, senator. Because of inadequate funds control and that several of these near misses turned out to be actual antidistinguishes act violations. In your testimony, you note that one way to reduce the antidistinguishes act violations is to process potential violations quickly. But gao has reported several examples where investigations of potential antidistinguishes act violations to months or even years to complete. Would you provide us the number and dollar amount of the investigations that have been initiated, completed and reported for the last two years . Yes. I dont have those in my head. What i can tell you is when i took over this job, we had about 25 ongoing investigations that were late. Now were down to one, and i felt and i worked with pie colleagues here and they this attest to that, we needed to speed up the process, oftentimes by the time we finally get done people are retired, and we need to hold them accountable by doing this more quickly. The sore thing id like to answer, and you dont have to answer it today, the average time to complete one of those, how many people are involved. Okay. You said in year recent testimony, theyre a small portion of your budget. Yes. My question, is it okay to have those, even though the numbers are small . No, zero is the only right goal. I dont know that ill ever get there, but its the only right goal. Are you aware that the dodig has reported of the antidistinguish act violations reported by federal agencies, 82 were reported by the department of defense . I dont recognize that number. Whativity calculated is earning percentage you have on you budget. So its the biggest budget. Zero is the only right goal. Okay. I guess well come back for another round . Okay. Thank you. I want to continue to explore this term audit ready. I dont think it should be a goal, but a requirement. In biggs i would go are you ready for the audit . Because the audit was going to happen. I just think the purpose and the goals here are just being misused, and i think thats part of the problem. The goal of the audit isnt to prove youre doing everything right. It should be uses a a management tool to be conducted to tell you where you are distinguishes. I think the reason we dont have an audit is weve been purr sighing readiness when weve been pursuing having the audit, because its going to be a qualified audit. You wont get a cleaned audit, but the goal would be to utilize the information from the audit to drive your management. So tell me where im wrong there. Tell me why we are pursuing what i think is the wrong goal, and why dont we just start conducting audits. A couple years ago we knew we werent ready and simply have wasted time. The auditor would probably have said youre not even close first of all, i totally disagree with that assessment i dont see it as a waste of money. What i would ask if they agree that two or three years ago we should have immediately begun an audit, but now we are to the point where youre exactly right. We will learn so much more by getting into audit, because well have a private sector audit firm that really knows this stuff, telling us whats right and whats wrong. Have we effort conducted an audit or any component part f m form. Weve audited or examined by independent public accountants, a large number of parts. Well a full up audit of the current year of the marine corps. They got a clean opinion december, and i hope and i think would you just stop right there, your last statement about full yearend. Could say that again about the marine corps . The marine corps had an audit completed last december of the current year of its statement of budgetary resources and got a clean opinion in december of last year, and we expect theyll that was on the 2012 statement on the 2013 one. Does that answer your question . Im confused. I was thinking that progress had been made on 2012, not on the current year. No, i meant current year mean 2012 data, just that year, not the prior year data, where we couldnt find the documentation quickly enough. Okay. So thats the year of 2012. Okay. That wont be counted against your time. I want to go to a statement that senator tester talked about, is the department of defense too big. I want to point out that walmart, their revenue exceeds 450 billion, 2. 2 million employees, 1. 3 just here in the u. S. They have to go through an add illustrate. They do it successfully because of sarbanesoxley, risking prosecution and fines if they dont have a successful audit. What is different about the Defense Department than walmart, in terms of why you just dont do an audit and why you cant successfully complete one . Tell me the difference between frist sector and public sector, why this is such a different task. First off, were not too big, and well divide it up into sections, and were not too big on to do it. Size makes it harder, but were not too big. If you asked me why were not done now, i would really like to have the first 15 years after the government management reform act which required auditable statements, i would like them back. We made progress then, but there was never a coherent plan and did not have systematic leader attention. I think we now have a plan, we have resources set aside, which wasnt the case in those first 15 years and we clearly have Senior Leaders attention. As you heard my colleagues say it goes down to their leadership. So the assumption, the point im trying to make is in back in 1984 you would have just started cudding audits, start seeing the deficiencies, and start correcting based on the information. Why didnt we do that . Wouldnt that have made sense to do that . Does why delay three or four or five years . I think it does now, and we intend to for the budget stateme statement. Anybody else want to chime in as to why dont we just start auditing . Does that not make sense for some reason . To me it does not make sense if you know youre not ready, an independence Public Accounting firm would come in, and after testing right away would disclaim. It depends on where you are in your current environment, your controls, and the benefits you can get out of the doing the audit. The cost of that was deemed to be, and rightfully so, that you would not get to anywhere where would you get the information information. You know what you get out of it . A lot of management pressure to correct the deficiencies, which im not seeing right now. Thats what you get out of it. I agree with where we are right now. Certainly in public companies, theyve got the pressure, if they dont do it, theyre going to go to jail and have massive fines you implemented against them. What kind of pressure do we need to institute against the department of defense to actually get it done . Senator, i believe we have it right now, and i believe you have heard it hire already. To get audit, you will hear the gao talks about the six challenges you have to meet. Weve got leadership involvement. You had to have a reality of understanding of the benefits that the ranks senator talked about. Its not just the journey. Its a journey and improve the controls, but using the Financial Information to the benefit of the entity. Were about making leadership understand it. The vice cheef of staff for the army sees it as readiness, readiness to the units hiss overseas. He has an understanding, so now that youve got the controls put in place, putting controls in play that allows the auld i dont know how we got to where we are let me get back to the point. How much of the Defense Department has undergone an audit, what percentage . For the budget statement its probably 10 at this point. For the budget statement, after september, i hope, it will be in the high 80s or more. How have you broken down this task book component . Is it strictly by Service Branch . More than that its service, and then also each Defense Agency and some trust funds on the side, but then we have broken it down, as my statement indicates the various activities that we conduct financially. We have auld to improve those processes to the point where you can get an christmas, were not grading our own home work and have them say, yes, its either right or no is the problem there because those systems are systemwide, and they become massive and it becomes different to get your arms around that. In a public you knock it down to small enough Component Parts, bakley its cleaning out a graduation. Have we again, have we made this so massive, such a problems that were just not getting it completed . I dont think so. I think its been a lack of a coherent plans, and i think weve got them now, and youre seeing the results. We will be under audit, i believe, in starting in october or november for the fiscal 15 statement on moth of the departments budget. Okay. Well, thank you, im out of time. Senator ayotte, youre on. Welcome. Thank you. This is obviously a very important topic. I appreciate all of you being here and appreciate the chairman and Ranking Member having this hearing. One thing im trying to get ahold of, and i know secretary hale, we had a hearing on this acquisition topic as well. The department is littered with filled acquisition programs throughout the services. I mean, billions and billions of dollars theres lots of examples. 2. 8 billion wasted on orbiting 2. 5 wasted on the Transformational Satellite communication system, from, you know, 2007 to 2013, the air force wasted 6. 8 billion on 12 major acquisition programs that never went to field. Help me understand, with this i believe this audit issue is incredibly important, and the fact that were now diminished from a statement of budgetary resources, which was what was in the, to a statement of budget activity, which really only shows us the year window, how is this tool going to help us with the acquisition programs . Secretary hale . First off, let me repeat the statement of budget 2i69, the current year is just a means to get to the full statement, because we didnt have we could product the documentation quickly enough. So we are not backing off of the goal of auditing the full statement at all, but getting there in a way i think is costeffective. Im not going to sit here and tell you that Financial Statement audits are a panacea for every department in the department of defense, including all the acquisition issues. Requirements are a key issue in terms of determining whether we succeed in acquisition, as are the skills of the workforce, and i think Frank Kendall is works those issues hard, but i believe we can help by tightening our controls, and we will have to do that in the process of getting Financial Statements in terms of giving all of us, including frank contend add and those who work for him did can i ask about a particular one can i interrupt for a second . Sure. Heres the difference, bob. In a Large Business with big acquisitions, the ceos getting a report every week, whether its on time or on budget. We dont have that. Secretary hagel does not know the major acquisition programs, whether its an enterprise Resources Program or weapons system or anything else. Hes not getting a weekly report, because we dont have the information to give it to him. Thats the key point. Thats why the audit is important, so youll get the Financial Information, so you can flow the information up to the Decision Makers so when you have a red flag, they know it. Not two years after the red flag came up, but the day can came up. Not after we spent billions of dollars. It sounds reasonable to me. Thank you, senator coburn. I agree fully with the comments of senator coburn and how important this is. So this morning there was a description of reports that the pentagon is going to field an 11 billion contract to overhaul its electronics record system. This would be by far the biggest i. T. Contract since healthcare. Gov failed rollout. And with all due respect, we dont really have i think theres a lot of issues with i. T. Acquisition. There has been an issue that this committee has focused on across the government. As i hear that, it raises red flags for me, in terms of what controls are going to be put in place, given that you arent in a position, as you would like to be, secretary hale, to have this type of data that we just talked about. What are the controls that are going to be in place for taxpayers on this huge contract . Important, i understand the purpose of the contract, you know, its gooding to, as i understand it, impact all of the Health Records for our men and women in uniform, but we have a history of not obviously were not in the place where we want to be on the audit. We had notable examples of failed i. T. Projects, and this is an 11 billion project. So what controls can you assure us will be put in place. I guess a good question is, will secretary hagel get those reports weekly to know whether the 11 gill onis being spent properly and were on time. He is deeply and personally involved in that program. Frank kendall meets with him weekly. Though im not in those meetings typically, i i think that this issue will come up. We will give him the best data we have. On the obligations side, weve had this conversation before, i believe our data is fundamentally accurate. We still need to do the audit, but im not seeing the problems that would occur if it werent accurate. That key on the i. T. , one is the requirements, a lot of time devoted to trying to make sure the requirements are right in this contract. Though im not the best guy to talk about it, i know theres been a great deal of attention. I think Frank Kendall, if he were here, would say we need to develop better training for acquisition officials, and theyre working to expand the curriculum, to try to improve the training. This is a contract i think we need to keep an eye on, 11 billion, a huge i. T. Acquisition. It makes me concerned. Im glad that the secretary himself is going to focus on this. Theres too many examples where weve invested in i. T. Projects that havent gotten the results, and 11 billion is a significant project. Why not convert the v. A. System to the military . I know that we always have a reason why, just like on you are efp programs, we always buy programs and modify them to fit the military rather than have the military modify their programs to fit a proven system. Great idea. Id like to get you with Frank Kendall to answer ive heard the answer, but i think he has the depth thats appropriate. If we do with a separate system, the requirement to be intraoperable and talk to vista will be a key requirement. But i would rather have him address that. Just to note the federal government speds 80 billion on i. T. , 40 billion is wasted every year. I look forward to seeing that answer as well. Thank you. I wanted to ask you about improper payments, and youve i think testified again today about the fact that the d. O. D. s rate of improper payments is only 0. 17 , if you compare that to governmentwide, thats 3. 53 , but gao in its 2011 report really targeted, and i know that some of the data used in that report was going backwards, so ill give it that, but gao basically found that dods improper estimates were neither reliable nor statistically valid because of the longstanding and pervasive Financial Management weaknesses. Of course, this is all about what this hearing is about, but how do we know that what weve given you today is accurate, and can you give me more details on how dods improper Payments Program has evolved to get to this point, where apparently your statistics are quite good . Well, i think the main thing bev done is try to close the barn door before the cows leave rather than looking at improper payments after they occur and trying to fix them. For example, we put in place commercial payments something called the Business Activity monitoring system, which looks to see, its pretty simple. Its got rules, hey, if two invoices come in within two days and have the name number, spit it out to a human to see if its a duplicate payment. Thats a trivial one, but there are many others. We are trying to do something similar in travel, which is an area where we still need to make further improvements. In terms of the accuracy we have done because of or to comply with it, pretty extensive statistical testing, gao doesnt like all our test, you but you get two statisticians, you get two different opinions. Weve actually changed it to try to satisfy gao. Pretty extensive sampling after the fact to see if indeed the cows are still in the barn, and the data youre seeing reflects that they are, with some exceptions. Again, zero is the orchl right goal, but they are pretty small, and im not sure well get that much better. I think it is a success area for this department. Thank you. May i ask one more question, mr. Chairman . Yes. I just want to ask the air force, when were talking about when secretary hale talked about the 80 goal in terms of this fall, obviously were not where we want to be with the sbr. Always 100, but we may not where is the air force on this . Because you have been the Service Branch that i think has had the most difficulties and challenges iflgts yes, maam, we certainly started behind in this effort, our Financial Systems modernization is was and remains several years behind the other departments, so were in early stages, still relees on the 1968 accounting system, whereas the other service are further along. However, while the ultimate while the judgment of audit readiness for the scheduled budget activity will be made later this year by the secretary of the air force, right now it looks like we will be ready to assert on that schedule. So thats our view at this point. Again, we have significant milestones to get through. The issues were working in conjunction with the defense financial and accounting service, corrective action plans that were playing in place based on past engagements, but our assessment right now is we are on track for that. On all of this audit issue, is this being driven i know not just beyond secretary hagel, but at the secretary level of each of your each Service Branch . Senator, when our new secretary of the air force took office just a few months ago, she laid out three Top Priorities for her tenure and for the air force under her authority, direction and control, one of those three was making every dollar count and audit readiness was a key part of that for her. So very much so. Yes, maam. The secretary of the navy is a former state auditor for the state of mississippi. He made it clear to me on day one, this was his highest priority, and he talks to me about it every week. Secretary of the air force or the navy . Navy, sir. Thank you. Yes, maam, secretary mccould you is heavily involved, and i was in the chief of staffs office talking about the auditability and trying to get better information for cost informing readiness, and heavily involved with the vice chief of staff. Thank you. Im a recovering governor. My last job, when we tried to solve issues in our little state of delaware, i would oftentimes say to my cabinet, some other governor in some other state has confronted this problem and figured out a way to solve it, and we need to find them and see if their solution was supportable to our state. Occasionally we would have governor from other states that would say how did you do this or that . And we try to help them. In the navy, captain raburn, did you ever heard the term refusal speed, but when you have an airplane heading down the runway to take off, the airplane gathers up speed until you finally reach a speed we call refusal speed. Thats the speed at which the pilot decides to keep the airplane on the ground or decides were going to fly this baby. The department of Homeland Security a couple years ago decided they had if you will, the aircraft going down the runway moving toward, heading forward, or being auditable, and actually having a clean audit. Somewhere around the way, they reached refusal speed and said were going to fly, were going to get this done. And they did. It wasnt just jane, who we have enormous respect for, the deputy secretary. It was all the way down through their organization. But think about my experience as governor finding out from other states how they solved about particular problems. What lessons have we learned . Taken to heart for the department of Homeland Security . For them to chief, and have a clean audit with the time frame they have is pretty amazing. Theyre a huge department, hundreds of thousands of employees. They do all kinds of things. And theyre spread out all over the world. If they can do it in a short time frame. What have we learned from them . Sir, weve learned a lot not only from the marine corps, but from our sister services. I was the chief Financial Officer of the fbi, u. S. Customs service and the agency for Enter National development, so i bring those lessons learned. Well, you have quite a res e resume. Ive been blessed, yes, sir, thank you. The thing that i find most important absolutely across the board, is if the boss doesnt get it, it wont work. The tone from the top leadership is the key in everything, and that includes this. Absolutely. Its also about me being actively involved and spending time with those who are responsible for the subsections of our budget. We have 19 budget submitting offices. I meet with them regularly. I bring them to me, i go to them, i go into the deck plates. I talk with the people who are actually making the transactions. You and i both know that you can tell by doing that Walking Around management whether youre ready or not, whether the tone and tenor is right. Absolutely, from my past experience, i can tell you that the department of navy is there. The momentum the refusal speed, i think you called it, we are there, were excited, were ready to go. Were ready to take the lead as senator johnson described. Its time. Its time for us to do it. Also, having a staff that is trained, this is one of the things that i spend time thinking about, and that is making sure that the Government Employees understand their particular individual role with audits, so their daytoday duties are well understood about what their personal role is in audit successes. Were working on that, working on a fundamental training framework, so that every person involved in Financial Management in the department of navy understands what their role is. The other thing that ive learned across the board is its not only about training the culture of the organization thats being audited. Its about also understanding you have to train the auditors, so they understand the mission of the organization, and thats something you have to do up front and early. They have to understand who you are, what your language is and what your business is. And you should never dance in the end zone. You should never discount the difficulty of this works, nor should you discount the importance of getting on with it. Thank you, sir. Before we can dance in the end zone, weve got to get into the veld red zone. I think were not even in the red zone. So maybe we can get there. If we keep this you have. Weve got to. Football is not that far away. Late september we want to be in that red zone. Dr. Morin, air force really has the most ground to make up, you want that a couple times. What have you learned from dhs in the way they made up ground quickly and got into the end zone . I invited them to come here and do a dance in the end zone. They declined. So, senator carper, dr. Rabur has an exceptional resume. I have a very good staff to compensate for my lack of resume. And ill note that the acting cfo of the department of Homeland Security is a retired air force officer who used to work for me, so weve had a lot of opportunities to Exchange Thoughts and ideas on efficient fiscal management. What are some things youve learned from that person or others in dhs . For us the biggest piece is the value of getting the auditors eyes in. To senator johnsons pointy earlier, i think we really are taking exact the strategy you have laid out, which is starting the audit. I think weve got very recently a big 4 Accounting Firm in looking at air forcewide civilian pay, billions and billions of the activity. They found our noninformation technology controls were generally functioning well. I think it was 25 out of the 28 that they examined, they found were well designed and functioning well. A punchlist of things to improve, just like you brought up. In some of our i. T. Areas, we had issues where, for example, we werent doing a good job of purging user rosters, so people would move on from the job and retail their systems access. Theyre issues, but punch list items. You can fix those. I think thats exactly whats going on. Thats a key lesson. Youve got to build that list of concrete definitive actions. For many, many years, the department would have auditors come in and issue a sameday disclaimer, we cant get to the answers, the systems arent reliable, were done. Were now to the point that, by focusing on these individual segments, we call these assessable units, and breaking them down, were getting to finite achievable lists. Were getting most of them right, and were cleaning them up as we go. So that is just absolutely key. Thank you. Real quick, 30 seconds, mr. Speer, same question. I agree with that. My background isnt audit and accounting. I was a Program Manager in the corps of engineers audit, probably the largest audit in the department of defense. We learned a lot, and i agree with senator johnson, get in the game and start playing. You start to learn the value of the audit, you start to learn the culture of an audit and understand that leadership involvement and commitment to it is what accomplishes it. You cant win if you dont play. Were at that stage where i think the value of playing the game, and i think weve got leadership involved, and were seeing now the benefit. We see people using the data now out of the systems that makes the difference. Thats part of the value. 30 seconds, same question. What did you learn from them . How have they helped with you this challenge or helping you . We actually hired of person who is that person in the room. She is to leave us. Is margo here . Shes not here. She has some serious personal problems and is going to have to leave us, but i think tone at the top was clear. They had the biggest problem valuing their assets, which is an issue we havent confronted yet, but i think we got a fair amount out of margo while she was with us, and will continue to benefits. All right. We wish her well. Dr. Coburn . Mr. Hale, lets assume that gao is right on improper payments, and the statistical validation. You disagree with them, and you said youve made some changes in how youre doing that. So lets assume theyre right and youre wrong. So we dont know, if we make that assumption, we dont know how all the money is spent, right . We dont know the accuracy of the improper payments. And 1 of 700 billion is 7 billion in oklahoma. I dont know what it is up here, but thats what it is. 7 billion is a lot of money. And i can tell you, im skeptical at ever hearing on the improper payments for the dod, simply because of the massive side of it. Lets talk for a minute about plugs. Tell me what tell me what plugs are, in your mind. In terms of the pentagons Financial Statements. The jargon we use, which i think is more explicit is journal vouchers. There are circumstances that we need to fix when ill use the analogy, got 1,000 people on your phone on your bank account. By the end of the month, 990 of them report, 10 dont. We have to return, we have to tell the treasury what we jour estimates the amount for those ten who havent reported and are supposed to go back and reconcile it. We havent always done that and thats one of the things we have to fix and are fixing. Theyre pretty small as a percentage and theyre getting down to levels that may not be material in the financial audit. They are an issue and they got to get fixed. Mr. Speer, youve received questions from the Senate Armed Services Committee Hearings about the decision to process some of their disbursements through your erp system. And in the process of by passing the need for these transactions that be processed by d fast. He turned it around. He wont care that im eyesing that, can you explain why you used that decision . How it improves the armys Financial Management capabilities . Yes, sir. It was part of a review we did as part of a cure to pay and analyze not the system. We looked at the way we were currently disbursing and we looked at some of the connectivity between some of the systems that causes some of the errors. When we looked at treasury direct disbursing from the system, we try to engineer the process to see whether or not the direct treasury disbursement to eliminate them and the reconciliation needs, some of the plugging in the numbers and fixing that and were phasing in the program as we find success and were still measuring the results of such provided to reduce costs. Were going through that currently now. The costbenefit analysis. We believe from the disbursement we make now is about 15,000 a month. And were having zero out of bounds condition with treasury so it provides a directed, easy reconciliation by not going through some of the other processes. The defense or dfast, it turns out to be very much still involved in the process. Still coming back through the accounting and sees that it has oversight in participation in that process. So we believe that this entitlement within the system provides oversight of what we are paying. Then creates that disbursement file out of the same system, provides a more easily reconciled direct and less costly way of doing business. I do want to clarify. We havent made any decision to change the rules and admissions between the army and dfast. Its Cost Effective well do it. If its not we wont. Its only Cost Effective if you have real savings. Or you can have real accuracy which you dont have now. And i dont know how you put a dollar on that other than youre going to markedly improve Financial Management if you have real accuracy. During that testimony, you mentioned that the disbursing is straight from the treasury is the best practice. Whos determined that and what other agencies use this . Most other agencies use treasury direct disbursing. Were testing it out. The systems with capable of doing it. Its the changing of ten environment of the systems so thats why we went the secure to pay pilot as such. Every other agency uses treasury. I had one other question for you, mr. Speer. Given the air forces success on their supply, wouldnt it be nice if the Defense Logistic agency went and learned from general wolfens berger what she did. I dont know what the size of the Defense Logistic agency is, i know its bigger than 16 billion. I would seem to me that you wouldnt have to reinvent the wheel if you went and had a little with the head of the dla and the head of the depot system and the air force and transferred both management techniques and motivational techniques and processes, could really significantly increase the savings and, also, increase the accuracy and decrease the inventory because thats money thats tied up and we all know thats a problem. I woet that one down to follow through with the air force and that one, very interested in it. I think we are going through some of our own assess visibility and trying to improve and the general has significant efforts ongoing for improving the accuracy of the data and see, for ins, if one of the ones reporting directly to the chief is very involved right now on the cost of training and cost of readiness and were looking at those kinds of activities. The key thing i want to say, doctor when i say general, pardon me. Thats my former training. The general did, she got her commanders at each one of these to buy into this as well. Which you all mentioned. Leadership is the key. And the whole goal is to better financially manage so that you dont waste money that you buy better and you get a more fus efficient utilization of the american taxpayer dollar. Have a meeting and see what you think. Its just me saying that. When i see almost 600 million last year in savings that wouldnt have occurred if they had not done that thats real change. Thats 10 of oklahomas budget. Thank you. Thank you. Senator . Thank you, mr. Hair. I want to go back to the discussion and the goal of what we should be looking at in terms, from my standpoint, the goal of an audit is to provide Management Information and what im hearing, maybe im making an incorrect assumption here, is the goal is in terms of the department of defense is, get the audit ready so when you conduct an audit it will be a clean audit. Am i misreading that . Its a step on the road, senator johnson. We got to get close enough so were not wasting the publics money with an audit. The goal is to have Accurate Information and to have the audit attest to that. Okay. Im glad a couple of members of the panel have agreed with my approach to conduct the audit and use it with management results. I want to talk about the Component Parts and how you break it down so its manageable. I think you called it accessible units. Id like to call it accountable units. I think leadership is key but the way you really are going to get results if you hold people accountable. I want to go back to how we have broken down this. Which is obviously an enormous task and i go back to my private sector experience and you have a Large Corporation youll have individual with divisions of Different Companies you also have individual departments. Each one of those departments, every one of those decisions, every one of those individual Companies Accountable for their own successful audit. Sometimes those audits are done by totally different firms. Wouldnt that be part of the process to break it down into smaller Component Parts and hold those individuals accountable and, again, putting pressure on individual units. You got the navy and the marine corp and weve got a clean audit. Whats wrong with the rest of your branches . Setting up that type of pressure i would agree. Both in 2er78s 06 the fire and station and but budgetary resources. And i think someone slightly different, each approach in terms of the service is one of the things we did and we fall aupon in the core of engineers and we looked at it and we filled in the new system. Our first exam. We decided to exam across five different business processes. And did it at the first three installations that adammed the general Fund Enterprise system. And the next year, we brought it out to ten installations and an audit eight of the business processes and this year we audited the whole army across all business processes the statement budgetary resources. So we have broken it off into smaller pieces and get larger and larger to show success and identify where we can remediate and make successful audit overall. Coming from the private sector, youre never going to get an unqualified opinion if you dont have Prior Experience because were not doing audits. Is that any is that a bit of a problem. Would speak to certainly, say, lets start auditing so you have that Prior Experience. I believe so. Senator and i think the earlier statements, if youre not ready and you know youre not ready you wont get the benefit. Were getting closer and closer. Our colleagues talked about us. Making sure that people understand how to though that their e accountable. Thats the lacking we had for many years in the department of the army. People that are not held accountable to ensure that they were auditable. Its part of their business. Its part of their process and part of their control that theyre responsible for and they understand that now. They build that kind of accountability so one of the things weve seen is weve seen competition between commands now. I want to show that im better than the other command and im getting the results better. Go to forcecoms website. ll have by installation the results of their individual audits of their documents whether they turn them in or not and whether their u right or wrong. Not to beat a dead horse, once you start doing it, theyll be accountable. Secretary hill, youre talking about as an example, ten units that havent reported their cash or their budget tear outlays, whatever. How can that be . Tell me about that . Coming from the private sector, every division is report what their cash position is. How does that how are those units not accountable for that information . Well, they are accountable but if it doesnt happen on time