[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

[H.A.S.C. No. 112-157]
DEPARTMENT OF DEFENSE AUDITABILITY CHALLENGES

__________

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ARMED SERVICES

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

HEARING HELD

SEPTEMBER 14, 2012

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SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

ROB WITTMAN, Virginia, Chairman
K. MICHAEL CONAWAY, Texas JIM COOPER, Tennessee
MO BROOKS, Alabama ROBERT ANDREWS, New Jersey
TODD YOUNG, Indiana MARK S. CRITZ, Pennsylvania
TOM ROONEY, Florida COLLEEN HANABUSA, Hawaii
MIKE COFFMAN, Colorado
Michele Pearce, Professional Staff Member
Paul Lewis, Counsel
Arthur Milikh, Staff Assistant

C O N T E N T S

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CHRONOLOGICAL LIST OF HEARINGS
2012

Page

Hearing:

Friday, September 14, 2012, Department of Defense Auditability
Challenges..................................................... 1

Appendix:

Friday, September 14, 2012....................................... 25
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FRIDAY, SEPTEMBER 14, 2012
DEPARTMENT OF DEFENSE AUDITABILITY CHALLENGES
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Critz, Hon. Mark S., a Representative from Pennsylvania,
Subcommittee on Oversight and Investigations................... 2
Wittman, Hon. Rob, a Representative from Virginia, Chairman,
Subcommittee on Oversight and Investigations................... 1

WITNESSES

Commons, Hon. Gladys J., Assistant Secretary of the Navy,
Financial Management and Comptroller, U.S. Department of the
Navy........................................................... 8
Hale, Hon. Robert F., Under Secretary of Defense (Comptroller),
U.S. Department of Defense; and Hon. Elizabeth A. McGrath,
Deputy Chief Management Officer, U.S. Department of Defense.... 3
Matiella, Dr. Mary Sally, Assistant Secretary of the Army,
Financial Management and Comptroller, U.S. Department of the
Army........................................................... 6
Thomas, Marilyn M., Principal Deputy Assistant Secretary for
Financial Management and Comptroller, U.S. Department of the
Air Force...................................................... 10

APPENDIX

Prepared Statements:

Commons, Hon. Gladys J....................................... 52
Hale, Hon. Robert F., joint with Hon. Elizabeth A. McGrath... 32
Matiella, Dr. Mary Sally..................................... 46
Thomas, Marilyn M............................................ 59
Wittman, Hon. Rob............................................ 29

Documents Submitted for the Record:

Deputy Chief Management Officer Response to DOD IG Audit
Report..................................................... 67

Witness Responses to Questions Asked During the Hearing:

Mr. Wittman.................................................. 75

Questions Submitted by Members Post Hearing:

[There were no Questions submitted post hearing.]
DEPARTMENT OF DEFENSE AUDITABILITY CHALLENGES

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House of Representatives,
Committee on Armed Services,
Subcommittee on Oversight and Investigations,
Washington, DC, Friday, September 14, 2012.
The subcommittee met, pursuant to call, at 9:00 a.m., in
room 2118, Rayburn House Office Building, Hon. Rob Wittman
(chairman of the subcommittee) presiding.

OPENING STATEMENT OF HON. ROB WITTMAN, A REPRESENTATIVE FROM
VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT AND
INVESTIGATIONS

Mr. Wittman. I will call the Oversight and Investigations
Subcommittee of the House Armed Services Committee to order on
today's hearing on Department of Defense Auditability
Challenges. I want to welcome everybody to today's hearing. I
appreciate our witnesses coming in to talk to us more about
those challenges facing the Department of Defense as it works
toward audit readiness in 2014 and 2017.
I would like to welcome our distinguished panelists this
morning. Mr. Robert Hale, Under Secretary of Defense,
Comptroller, U.S. Department of Defense; Ms. Elizabeth McGrath,
Deputy Chief Management Officer, U.S. Department of Defense;
the Honorable Gladys Commons, Assistant Secretary of the Navy,
Financial Management and Comptroller, U.S. Department of Navy;
Dr. Mary Sally Matiella, Assistant Secretary of the Army,
Financial Management and Comptroller, U.S. Department of the
Army; and Ms. Marilyn Thomas, Deputy Assistant Secretary for
Financial Management and Comptroller, U.S. Department of the
Air Force.
Thank you very much for being here with us today.
Collectively you share the responsibility for managing nearly
$700 billion of net operating costs and accounting for nearly
$2 trillion in assets. These are weighty responsibilities,
particularly when you consider the importance of your mission
to our Nation's national security and to our warfighters.
I want to thank you for your service and for the commitment
you have demonstrated on this issue. Achieving audit readiness,
when considered against this backdrop, is both complex and
challenging and it is clear to me that you are making tangible
progress forward. This hearing is meant as a follow-up to the
Defense Financial Management and Auditability Reform Panel,
which was appointed by Chairman ``Buck'' McKeon and Ranking
Member Adam Smith in July 2011 to carry out a comprehensive
review of the Department's financial management system. The
purpose of the review was to oversee DOD's financial management
system and its capacity for providing timely, reliable and
useful information needed for making accurate decisionmaking
and reporting.
I would like to thank Mr. Conaway, who served as chairman
of the panel, and Mr. Andrews, who served as ranking member.
Because of your diligent efforts and outstanding leadership, we
now have a much better understanding of the issues surrounding
audit readiness and the path that lies ahead.
Audit readiness is an important aspect for many reasons,
but for me it is most important because of what it means for
our national defense strategy. Put simply, every dollar we
corral for our national defense budget matters, especially
because of impending cuts and financial constraints. The budget
shapes not only our discussions on force size, structure and
capability, but ultimately determines whether our warfighters
have the tools and equipment they need to do their jobs. This
is the prism through which I view discussions about audit
readiness and why I am pleased to be having this discussion
today.
Before we get started with questions, I have a quick
administrative matter to address. I anticipate a number of
other members from other subcommittees will join us and I would
like to ask for unanimous consent that they be allowed to
participate.
Absent objection, it is so ordered. I will recognize these
members at the appropriate times for 5 minutes after all
Oversight and Investigations Subcommittee members have had an
opportunity to question the witnesses.
At this point, I will turn to our acting ranking member,
Mr. Critz, for any statement that he may have.
[The prepared statement of Mr. Wittman can be found in the
Appendix on page 29.]

STATEMENT OF HON. MARK S. CRITZ, A REPRESENTATIVE FROM
PENNSYLVANIA, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

Mr. Critz. Thank you, Mr. Chairman. I do not have an
opening statement other than to say thank you for being here,
and, as we all know, accurate information is critical to making
the best decisions. So I look forward to the hearing and your
testimony.
Mr. Wittman. Very good. Thank you, Mr. Critz.
At this point we turn to our panel members for your opening
statements.
Ms. Thomas, we will begin with you.
Ms. Thomas. Thank you, Chairman Wittman.
Mr. Wittman. Ms. Thomas, if you will, just go ahead and
pull your microphone up to you.
Secretary Hale. Mr. Chairman, if I may, if it is okay with
you, I think the order we prefer is that I would start out and
give an overview from the Department's standpoint and then go
to the services. Will that work for you?
Mr. Wittman. That will be fantastic.
Secretary Hale. Ms. McGrath and I will do that jointly.
Mr. Wittman. Very good.

STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY OF DEFENSE
(COMPTROLLER), U.S. DEPARTMENT OF DEFENSE; AND HON. ELIZABETH
A. MCGRATH, DEPUTY CHIEF MANAGEMENT OFFICER, U.S. DEPARTMENT OF
DEFENSE

Secretary Hale. Mr. Chairman, members of the committee,
thank you for the opportunity to discuss financial operations
at the Department of Defense and our progress in audit
readiness. Ms. McGrath and I submitted a statement for the
record. In the interest of time we will summarize it briefly.
Let me begin by saying that we remain fully committed to
meeting our audit goals and we are reasonably confident that we
will meet those goals in the timeframes that have been
established by us and in some cases in the law.
So why is it important to do this, to achieve auditability?
It is important first because it is the law. Auditability also
matters because, as you said, Mr. Chairman, it will help us
make better use of taxpayer resources. That is important
especially in these times of fiscal stress and declining
budgets.
But in my view the most important reason that we need to do
this, to achieve auditable financial statements, is public
confidence. I don't think we will ever convince the American
public, I don't think we will convince the Congress that we are
good stewards of their funds unless we can pass an audit test.
I should note that even though DOD's financial statements
are not auditable, we still know where we are spending taxpayer
dollars, and I think that is a very important point. With rare
exceptions, we pay our people and our vendors on time and
accurately and record the transactions properly. If that
weren't the case, you would see massive problems of missed
payments and mission failure, and I am pleased to report none
of that is happening.
Our financial statements fail audit tests not because we
don't know where the funds are being spent, but because we
can't document the transactions properly and quickly and
because in some cases our financial processes and internal
controls are not sufficiently strong and consistent. These are
problems we can and will fix.
I believe we will fix these problems and achieve auditable
statements for several reasons. First, we have a workable plan
that focuses on the information we most use to manage. I mean
everybody is pulling in the same direction. We have a
combination of short-term goals and long-term goals, a
supportive governance structure, dedicated funding at $300 to
$400 million a year throughout our planning period, and
accountability that begins with Secretary Panetta, who is
deeply committed to this effort.
As a result we are seeing meaningful progress: A Marine
Corps that is on the verge of an auditable budget statement for
current resources; a Navy that is showing auditability for a
key weapons system; an Army and an Air Force that are
demonstrating progress in key areas; and, for the first time,
defense agencies that are now all focusing on achieving
auditable financial statements. The service financial managers
who are with me today will describe their services' efforts in
more detail.
In all our auditability efforts across the Department and
in many the other ways, state-of-the-art financial systems are
critical, and for a few words on our progress in this area I
would like to turn to our Deputy Chief Management Officer, Beth
McGrath.
Ms. McGrath. Good morning. Like Mr. Hale, I appreciate your
interest in this topic and also your unwavering support to our
military members and their families.
Our efforts to improve financial management and achieve
audit readiness are part of a broader effort to improve
business operations across the Department. We continue to make
steps to mature our business environment. These steps include
better definition of our target environment utilizing our
business and in-place architecture. We continue to push hard on
business process reengineering that addresses not only at the
system level, but the appropriate end-to-end process that that
system resides within.
Strategic planning and performance measurements continue to
increase, and finally an investment management process that
addresses both IT [information technology] modernization and
sustainment funding across the business enterprise. We are
accomplishing this comprehensive investment management process
through the legislation Congress passed in section 901 of the
2012 National Defense Authorization Act [NDAA].
The Department's implementation of this change enables an
integrated governance for our entire portfolio of business
systems by a single investment review board. This has been
significant for us. This board reviews and certifies planning,
design, acquisition, development, modernization, all aspects of
a project, again how they fit into the broader business
conversation, and it is for all systems and initiatives that
are greater than $1 million across the FYDP [Future Years
Defense Program], which is virtually everything.
This helps us make not only better investment decisions,
but it reinforces the relationship of the business environment
to those specific system investments and the business outcomes
that we are trying to achieve like audit readiness. It also
accelerates the retirement of legacy systems. For example, in
2012 we retired 120 legacy systems--I am sorry, 2011. In 2012,
the number is approaching 200, and we are projecting at least
150 for 2013.
Our modernized systems environment includes each of the
departments' enterprise resource planning, ERPs [Enterprise
Resources Planning], which will improve financial management
and accounting operations and help with future audits. At
present, each one of these systems is at a different stage of
its life cycle. Many have experienced challenges, certainly
from design to implementation, leading certainly to cost and
schedule overruns, but we are proactively addressing each one
of these challenges like data conversion, business process
reengineering, stabilization of requirements, and certainly the
culture challenges associated with implementing a new IT
system.
We are committed to achieving and overcoming those
challenges. It is important to also state that while we are
experiencing challenges, we are also delivering capabilities;
shorter repair cycle times, better visibility of our assets,
reduced interest penalties and better scheduling of maintenance
activities.
Effective implementation of our new business systems will
not enable audit by itself. However it will establish a modern
business environment we need to meet and sustain our goal of
audit readiness. We recognize the amount of work that lies
ahead and are committed to its successful execution.
Secretary Hale. Systems are critical to this. Another one
is committed leadership, and we definitely have that, starting
with Secretary Panetta. He has issued a memo on this. He did a
videotape. I update him periodically at our morning staff
meetings. And despite all the other challenges he faces, he
always shows interest and usually asks questions about this
topic.
We have the full support of our Deputy Secretary who is, of
course, the Department's Chief Management Officer. We have the
support of our service Secretaries and Chiefs of Staff. They
have all met on this topic. I talk to them periodically, as, of
course, do the service reps you will talk to, and, I think,
relevant members of our civilian SES [Senior Executive Service]
leaders. In short, I think we have commitment in this
Department, military and civilian, to take action.
I would be less than candid if I didn't tell you there are
problems and challenges and not much time to solve them, but we
are, I think, addressing those challenges. We need to continue
to build the skills of our people. We have got a force-based
certification program we are putting in place to do that as
well as some specific audit training.
We have got to implement comprehensive and meaningful and
consistent financial controls, which we don't always have, and
we are taking a number of steps, including getting the service
audit agencies involved to try to do that. And we have got to
sustain the momentum during the upcoming changes in leadership
which tend to occur regardless of what the outcome of
presidential elections.
We are grateful for the support that we have gotten from
the Congress, including the recommendation of the committee's
Financial Improvement Panel, Mr. Conaway and Mr. Andrews and
other members. Congressional attention is one effective means
of ensuring that audit readiness remains a high priority.
There is another thing you can do to help. In recent years
we have encountered unprecedented budgetary uncertainty,
including no fewer than four shutdown drills for which we
planned and a long-term continuing resolution in fiscal 2011.
They have generated time-consuming and unproductive planning
efforts. Sometimes I think I spend most of my time planning for
things I hope don't happen. Now we face the prospect of
sequestration and yet another long-term continuing resolution.
Dealing with these extraordinary actions is sapping the
time we could be spending on other things, including audit
readiness. The single biggest thing you could do to help me
would be to return to a more orderly budget process.
We will close by reiterating our full commitment to
financial management goals of the Department of Defense,
including auditability. I take this seriously. I started in
1994 as the Air Force [inaudible] and I am still trying now as
the DOD Comptroller. We owe it to all of you to do that, we owe
it to the troops and we owe it to the American taxpayers.
Mr. Chairman, that concludes our joint opening statement
and I would suggest Army, Navy, Air Force if that fits, if that
is okay with you.
[The joint prepared statement of Secretary Hale and Ms.
McGrath can be found in the Appendix on page 32.]
Mr. Wittman. Yes.
Secretary Hale. Dr. Matiella.

STATEMENT OF DR. MARY SALLY MATIELLA, ASSISTANT SECRETARY OF
THE ARMY, FINANCIAL MANAGEMENT AND COMPTROLLER, U.S. DEPARTMENT
OF THE ARMY

Dr. Matiella. Good morning. Congress Wittman, members of
the subcommittee, thank you for the opportunity to testify
today regarding the Army's work to achieve financial statement
audit readiness. I want to convey to you that Secretary McHugh,
General Odierno, Under Secretary Westphal and I commit to
improving financial management and becoming auditable.
The Army will assert audit readiness for its financial
statements by September 2017, as required by NDAA for fiscal
year 2010. The effort to increase financial accountability and
achieve audit readiness go hand-in-hand with Secretary McHugh's
call for a leaner, faster and more adaptable Army. A more agile
Army is only possible if we have timely, accurate and reliable
financial information to inform our resourcing decisions.
We recently achieved a significant milestone that
simultaneously supports our audit readiness and our business
transformation objectives. On July 1 of this year, the Army
completed the scheduled deployment of the General Fund
Enterprise Business System, GFEBS. This system is designed to
comply with audit requirements. Each day more than 25,000 users
are using GFEBS across 28 Army commands, component commands and
direct reporting units. Of course, in an organization as large
and complex as the Army, a transformation that requires a
change in our day-to-day business and a fundamental shift in
our culture faces significant challenges.
Both Houses of Congress and the GAO have been valuable
partners in our transformation endeavors. The Army's audit
readiness strategy addresses each of these six concerns:
leadership engagement; accountability; internal controls;
competent workforce; business architecture; and compliance.
Audit readiness is part of the Army's campaign plan and in
alliance with the Secretary's top 10 priorities. Top leadership
has communicated through memorandum and other means the
critical nature of audit readiness across the enterprise and
our intent to hold personnel accountable, military and
civilian.
For example, in April, the Chief of Staff sent a message to
all general officers informing them of the importance of audit
readiness. Also, we have greatly increased accountability and
oversight by embedding audit readiness criteria in the annual
performance plans of all Army Senior Executive Service
civilians. In addition, we are engaging commanders and holding
them accountable for implementing effective internal controls.
Building a competent workforce requires comprehensive
communications and training efforts. In 2012 alone we have
trained more than 8,000 personnel across all business functions
in audit readiness principles and implementing the internal
controls within the Army business processes. We are using the
Army learning management system, an online system, to broaden
our reach in a cost-effective manner and enabling users to
assess the training content within 24 hours a day.
Finally, I established the Army Financial Management
Workforce Transformation Working Group to identify the required
workforce skills and staffing levels that will support our
financial management transformation. We are strengthening
internal controls through installation-level process and
control assessments, corrective action implementation, and
business process and control training.
At the end of June we reached two major milestones that
demonstrate how far we have come in implementing internal
controls. First, we asserted audit readiness for 9 processes at
10 different installations for the Statement of Budgetary
Resources [SBR]. An independent auditor will validate the
assertion through the second of three SBR exams leading up to
the Secretary of Defense's 2014 SBR mandate.
The first SBR exam in 2011 resulted in a qualified audit
opinion, that was at three installations, that highlighted that
the standardization of business processes across locations is
in place, which is a major achievement for the Army. The second
SBR exam evaluates our internal control environment.
Second, in June, the Army asserted audit readiness for
three missile programs, Javelin, Hellfire and TOW [Tube-
launched, Optically tracked, Wire command-link guided], which
represents approximately 16 percent of the operating materials
and supplies. The DOD IG [Department of Defense Inspector
General] will conduct exams to validate this assertion.
For the remaining two challenges we developed a well-
defined business architecture which enables our ERP [Enterprise
Resource Planning] system to better support Army audit
readiness objectives. We are conducting internal assessments of
our ERPs and material feeder systems using the GAO [Government
Accountability Office] Financial Information Systems Control
Audit Manual, FISCAM, which provides the guidelines an auditor
will follow when conducting a financial statement audit of a
Federal agency. I am confident that the Army's ERPs will fully
support the Army's audit readiness schools as independent
auditors have already confirmed GFEBS to be substantially
compliant with FFMIA [Federal Financial Management Improvement
Act] and DOD's standard financial information structure. With
SFEBS, GFEBS is about 93 percent compliant.
We have achieved some significant accomplishments in the
last 12 months. We received a clean opinion on appropriations
received. For exam one we received a qualified opinion, and we
have fully deployed GFEBS, our new accounting system. I
recognize the challenges we face, but I am confident that we
are executing a sound plan that will achieve the NDAA 2010
mandates. Our plan is sufficiently resourced and has the full
support of the Army's top leadership and has resulted in
successfully achieving several milestones to date.
I am personally committed to this effort and I look forward
to working with the members of the subcommittee, GAO and the
Comptroller to ensure the continued improvement of the Army's
business environment.
Thank you.
Mr. Wittman. Thank you.
[The prepared statement of Dr. Matiella can be found in the
Appendix on page 46.]
Mr. Wittman. Ms. Commons.

STATEMENT OF HON. GLADYS J. COMMONS, ASSISTANT SECRETARY OF THE
NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER, U.S. DEPARTMENT OF
THE NAVY

Mrs. Commons. Good morning. Mr. Chairman, members of the
committee, thank you for the opportunity to provide you an
update on the work we are doing to achieve audit readiness. We
appreciate your engagement and focus in this area.
The Department of the Navy remains fully committed to
achieving audit readiness within the timeframes established by
the Secretary of Defense and the Congress. We have a detailed
plan and believe we are on track to accomplish the goals
necessary to achieve audit readiness.
Our financial management community, business process
owners, and service providers are working hand-in-hand to
accomplish the tasks necessary to improve our business
processes. In some cases, such as transportation of people, the
business process owners at the senior executive level have
taken the lead to examine the process and to ensure that the
internal controls surrounding the business process are
effective. They have demonstrated the functional ownership that
we need by taking the initiative to implement the changes
required for audit readiness, train the staff and monitor
sustainment efforts.
The Marine Corps continues under audit and we are
leveraging the lessons learned from their audit experience over
the past 2 years. Where they have implemented processes and
procedures that meet audit standards, we have incorporated them
in our detailed plan for the entire Department and share them
with other departments and defense agencies. This year we are
focused on current year activities and I am hopeful that we
will receive a positive report in the December-January
timeframe.
Over the past year the Department asserted that a major
defense acquisition program, the E-2D Advanced Hawkeye Program,
was audit ready. In July a review by an independent public
accounting firm validated that the financial transactions
associated with this program were accurate and that reasonable
internal controls were in place. They issued an unqualified
opinion.
We have also received unqualified audit opinions on the
existence and completeness of the majority of our military
equipment. We have assessed our civilian personnel pay and
travel processes, identified deficiencies in both the processes
and the internal controls. We have remediated those
deficiencies across the business enterprise, documented the
process and tested to ensure that changes have been made and
that they are working effectively. We are now awaiting review
by an independent public accounting firm which should begin
within the next several weeks.
We have examined all of our business processes and
completed at least one round of testing to identify any
deficiencies which would preclude audit readiness. We are in
the process of making the necessary changes to remediate those
deficiencies.
We are also examining the general application controls in
our business systems to determine the systems changes required
to meet audit standards. We will complete this fall a thorough
assessment of the Navy ERP, the internal controls, using the
GAO established audit standards, the Federal Information
Systems Controlled Audit Manual.
I am pleased with the significant progress we have made. We
have embraced audit readiness as an opportunity to improve our
business processes and to correct longstanding issues that were
not priorities in the past.
However, achieving audit readiness is not without
challenges. First, because our systems and processes were not
designed to achieve the standards demanded by a financial
audit, changes are required to sustain our efforts. It will
take time to implement all the necessary changes, but we are
identifying and prioritizing those changes, particularly the
systems changes, in an effort to eliminate intensive manual
workarounds.
Second, we know that our business process internal controls
need to be strengthened and enforced. We have identified the
key controls required in each business process. The challenge
is to make sure the controls are implemented across the
Department, verify their effectiveness and ensure through
testing that they remain in place.
Third, we execute our resources across many organizations
and activities generating millions of transactions. We rely on
thousands of people inside the Department of the Navy and
outside the Department to perform segments of our business
processes. These dependencies require constant nurturing,
collaboration, consultation, close coordination and monitoring
to make sure we all remain in sync with the requirements for
audit readiness.
Fourth, we operate in a decentralized manner. Gathering the
evidentiary documentation required to support the millions of
financial transactions we execute and having that documentation
readily available for audit review is a substantial effort.
While these challenges are significant, we will have included
in our detailed plan actions to address each of these
challenges.
In closing, I am encouraged by our forward momentum, the
progress we have made, the relationships we have forged with
our business process owners and service providers, the support
they are providing, and the experience and knowledge we have
gained to date. Thus, I am cautiously optimistic we will meet
our goal.
I will be pleased to answer any questions you might have at
the appropriate time.
Mr. Wittman. Very good. Thanks, Ms. Commons.
[The prepared statement of Mrs. Commons can be found in the
Appendix on page 52.]
Mr. Wittman. We will go now to Ms. Thomas.

STATEMENT OF MARILYN M. THOMAS, PRINCIPAL DEPUTY ASSISTANT
SECRETARY FOR FINANCIAL MANAGEMENT AND COMPTROLLER, U.S.
DEPARTMENT OF THE AIR FORCE

Ms. Thomas. Thank you, Chairman Wittman and the members of
the panel, for the opportunity to testify today.
First, let me start by confirming the Air Force's continued
support of Secretary Panetta's accelerated goal of achieving
audit readiness of the Statement of Budgetary Resources by 2014
and for all financial statements by September 30, 2017. The Air
Force is faithfully committed to maintaining the public's trust
in our stewardship of taxpayer dollars and developing a culture
that values efficiency and resource stewardship.
Air Force leaders have consistently emphasized the
importance of an all-encompassing Air Force-wide effort which
is, as Secretary Panetta puts it, an all-hands effort, to
successfully reach audit readiness by established deadlines.
Due to the commitment of leadership and to the dedicated
professionals across the Air Force, we have made significant
progress to date. However, due to the enormity and complexity
of the task before us, we view reaching the 2014 and 2017 goals
as having moderate risk.
Before going into the challenges of reaching the goals,
however, I want to share with this panel the progress the Air
Force has made toward audit readiness goals. Over the last year
we have received two independent opinions on previous
assertions.
In October an independent public accounting firm issued an
unqualified opinion on our fund balance with treasury
reconciliation process, a process reconciling over 1.1 million
transactions with an accuracy rate of 99.96 percent, exceeding
the 98 percent recommended. In June, the DOD IG issued an
unqualified opinion on our aerial target drones and cruise
missiles valued at approximately $86 billion, representing 41
and 14 percent of Air Force and DOD mission critical assets,
respectively.
We have also completed two assertions of audit readiness
for uninstalled missile motors and spare engines which together
represent 6,395 end items valued at approximately $11.5
billion. A DOD IG examination is under way for this effort and
we anticipate a final report in November.
Additionally, we have submitted our $4 billion space-based
infrared radar system selected acquisition report assertion 2
months ahead of schedule and will contract with an auditing
firm this month to perform an independent examination and issue
an opinion.
In the process going forward we have made significant
progress on end-to-end business processes and are hiring
additional contractor and organic resources with financial
reporting and auditing expertise to allow us to continue making
headway on more assertions and reduce overall schedule risk.
Last August, for example, we earned an independent public
accounting firm unqualified opinion on budget authority
distribution to our major commands and are completing
corrective actions on funds distribution to base, so that we
can assert audit readiness on that early next fall.
We have also completed initial testing and corrective
actions on reimbursable budget authority and civilian pay
processes which will allow us to assert those two areas as
audit ready in 2013. Later this fall we will kick off initial
assertion testing for military pay and contracts. Our
preliminary assessments in both areas are very encouraging.
Despite the progress we have made to date, we face many
challenges, most significant of which is the need to improve
our legacy information systems in order to support the 2014 SBR
assertion. With over 160 different systems recording, tracking
and reporting information for financial statements, the
challenge is to identify, prioritize and implement cost-
effective improvements to support the statement of budgetary
resource assertion goal.
Our enterprise resource system, the Defense Enterprise
Account Management System, otherwise known as DEAMS, which is
our next generation accounting system, and is critical to full
audit readiness by 2017, has had some development and
deployment challenges.
Recently the Air Force Operational Test and Evaluation
Center completed an operational assessment of DEAMS and
highlighted some concerns with accounting accuracy and
consistency, software development and testing and change
management of our workforce. We have corrective actions in
place to address these issues and we are doing some preliminary
testing, and I can tell you that what we are hearing is very
encouraging on that.
In closing, the Air Force appreciates this panel's
commitment and support to the Air Force audit readiness efforts
and we look forward to continuing to work with you and
achieving auditable financial statements.
Again, thank you for holding this hearing and allowing me
to testify today. I look forward to your questions.
Mr. Wittman. Thank you.
[The prepared statement of Ms. Thomas can be found in the
Appendix on page 59.]
Mr. Wittman. Thank you, panel members. We appreciate your
efforts here.
I want to welcome Mr. Cooper and ask if he might have any
opening comments?
Mr. Cooper. I have no opening comments.
Mr. Wittman. Okay. With that, we will begin with our
questions. Secretary Hale, I will begin with you and then ask
the other panelists to give me their perspective.
The Senate recently passed a bill which includes a number
of sanctions if a full-scale clean audit isn't achieved by
September 2017, and one sanction requires essentially the
moving of jurisdiction from DFAS, the Defense Finance and
Accounting Service, to the Treasury.
I wanted to get your perspective on that, if you believe
that you avoid that, or if you did get to that point, what your
perspective would be on the transfer of that from DFAS to
Treasury?
Secretary Hale. Well, I think that transfer would be a bad
idea. I think the goal Senator Coburn has and his cosponsors is
to I guess try to reduce the oversight role for me, because I
do provide oversight over DFAS. It is going to have the
opposite effect. It will increase the workload, I believe,
because I mean they are day-to-day accounting firms. We need
them working in the Department of Defense.
But let me step back and comment on the Audit the Pentagon
Act just briefly and more broadly. We support the goals of that
act which are to get to audit readiness, you have heard us all
say that, and we think we have a system of accountability. We
are concerned about a number of the sanctions that are in
there. You mentioned one. There are several others I can go
into that are of concern to us.
It is because there is some uncertainty here whether we
will make this. You know, we have over-promised and under-
delivered for years, I want to be honest with you. I am
reasonably confident, but I can't be absolutely sure, for two
broad reasons. One, as we finish our discovery efforts, there
may be problems that come up that we didn't anticipate that
will take longer than we think; and, two, frankly, because of
all the uncertainty in the budgetary world that you have heard
me mention. I mean, if we go through sequestration it will both
affect the resources and drain away an enormous amount of time.
Mr. Wittman. Secretary Hale, excuse me for just a moment.
If you would, if you could pull the mike up a little bit
closer.
Secretary Hale. Is that better?
Mr. Wittman. Very good. Thank you.
Secretary Hale. So bottom line, we support the goals of the
Audit the Pentagon Act. We are concerned about some of the
means.
Mr. Wittman. Thank you. I wanted also to get your
perspective, the DOD IG recently published a report to talk
about some of the problems with enterprise planning systems,
schedule delays, cost overruns. I wanted to get your
perspective on what the root causes of those might be, what the
plans are to overcome those, to get things back on track.
Obviously that is a critical element of long-term success in
meeting the 2014 and 2017 milestones.
Secretary Hale. If I may, I would like Ms. McGrath to
answer that. She has got the oversight there.
Ms. McGrath. Thank you. I think that the IG report
highlights many different areas that are the root causes, if
you will, with regard to scheduling delays. You have heard in
our opening statements today some of the challenges. I
mentioned in mine data conversion, the change in management
challenge, the training aspects, all of which we absolutely are
taking actions to ensure that, one, we understand very acutely
what the root cause was and then the steps we need to take to
correct those. So I think that for each program there is a
slightly different scenario which is driving the schedule
change, although those are consistent, in particular the data
conversion and the change management aspects.
What we have really learned with the implementation of
these ERP solutions is that it can't just be the accounting
team with the financial management solution, it must be the
entire operation understanding the role that this capability
plays within their overall execution. And that, to be honest
with you, has been one of the most challenging. You heard Ms.
Matiella mention that in her opening, how do we use these
systems and capabilities to really execute our business? And it
does require a change in what we do every day. We must move
away from, frankly, the years of practices that we have had
into the new environment. And there are a lot more controls in
the new systems.
So although a nice new modern system sounds a lot easier
than sort of a legacy system, really there are a lot more
internal controls and complexities such that you have got
referential data integrity and all those other things that are
so very important to achieving auditability and full accounting
of the money.
Mr. Wittman. Ms. Commons, let me ask, I know I have
received some feedback from some contractors that are working
with the Navy about the new accounting systems and some of the
elements of timeliness in payment. Apparently there have been
some delays. I think those delays have been addressed but have
not been totally, I think, reduced to a satisfactory level.
Can you give me some perspective on the Navy's efforts
there? I know we are putting in place obviously a new
electronic system. In the transition there are always
challenges there. But I think there is some concern out there
from what I am hearing about the timeliness. I know previously
there was a great amount of attention paid to making sure that
payments got out in a timely way, but apparently with the new
system there are some problems with that. So I just want to get
your reflection on what you see as the challenge and what the
solutions are in the future.
Mrs. Commons. I am not really aware of any delay in
payments within the Department of the Navy. We will deploy our
ERP system fully on 1 October. We will go live on 1 October. I
am not aware of any delay in payments. We are making our
payments on time, and we are in fact moving more toward
electronic payments so that we take the hands-on out and that
it becomes a more automated process.
Mr. Wittman. If you will take that question for the record.
Mrs. Commons. I will be happy to look into it for you, sir.
[The information referred to can be found in the Appendix
on page 75.]
Mr. Wittman. Thank you. Mr. Cooper.
Mr. Cooper. I will pass to Mr. Andrews.
Mr. Andrews. I thank my friend for yielding and I apologize
for being slightly late this morning but I am happy to be with
you.
The chairman asked a question about the legislation, the
Audit the Pentagon Act. And I appreciate the difference in
approach that Chairman Conaway and the chairman of the
subcommittee have taken on this issue because we believe that
rather than pass the act, the Audit the Pentagon Act, we should
act to audit the Pentagon. Introduce all the bills you want,
the hard work of this is the work that you ladies and gentlemen
have done and are doing, and we appreciate it. And frankly, on
this committee, Mr. Conaway's laser beam-like focus on this for
a number of years is really the proximate cause of this. So I
wanted to get into the progress that we are making and the
problems that we have found on the act of auditing the
Pentagon.
The first has to do with the problem of a beginning
balance. Obviously to get a clean audit letter, you need to
have an accurate beginning balance. And this is a problem that
you all inherited, did not create. But obviously if we have had
a history of no audits for centuries, at least decades, getting
a good beginning balance is not an easy thing.
So, Mr. Hale, what steps are being taken to try to deal
with this inherited problem of the beginning balance?
Secretary Hale. The problem--I am going to answer and then
ask of my colleagues, perhaps Ms. Commons in particular will
want to add to it. The problem is lack of our ability to
document the transactions. The way we do financial management
in the Department of Defense, some of these transactions in the
beginning balance can go back 10 years or more. So we have, for
example, 5 years to obligate money for shipbuilding and then
another 5 years to actually expend the dollars, and we just
don't have the records or we can't get them quickly enough.
That is another problem. The auditors expect a reasonable
timeliness so that they can produce their opinion in a timely
manner.
And that caused problems. It caused us to decide that for
this year in the Marine Corps Statement of Budgetary Resources
we will focus on current resources. The plan here, frankly,
would be to build up better documentation gradually as we move
toward an audit effort. That will cause us to retain the
documentation so that a few years from now we will have much
more ready access to it and better documentation. But it will
take a while before that is complete.
Mr. Andrews. And let me say, I think you have leaned in the
right direction on this. It is very important to know where the
money has been, but it is also important to know where it is.
And I think by focusing on the ``where it is'' question before
the ``where it has been'' question, I think you have made the
right judgment. We want to get the right answers to both, but
really, you know, this is not an historic review. It's meant to
be a useful tool for the present and the future.
The second question I want to ask was about the problem of
software that would give us access to usable data, and that is
really the whole ERP issue that the Inspector General looked at
as recently as 2 months ago.
Dr. Matiella, did I pronounce your name correctly? I am
sorry. I want to know what lessons we have learned about GFEBS
thus far. It has only been since 1 July, right?
Dr. Matiella. It was fully deployed on 1 July.
Mr. Andrews. But what did we learn in that period of time
of full deployment, what is working, what isn't, what lessons
should we take from that to try to make GFEBS a success?
Dr. Matiella. Well, it is all about change management. It
is all about folks changing their practices from what isn't
auditable to what is auditable. And one of the ways that you
approach change management is you train and train and train. So
training becomes very important.
I think one of the lessons that we learned in the very
beginning of the GFEBS deployment was that we didn't train
enough, and this is what you may have heard in some comments
from DFAS, they need to do more training in the MILPAY
[military pay] report. So certainly that was a big lesson for
us, was to be very mindful of training, help desk, online
tools, providing just-in-time training, all those different
things.
Mr. Andrews. To what extent do you think that the training
provided by the vendors of the product is better or worse than
the training provided in-house? I am sure there is a mix of the
two. What is the quality of the training provided by the
vendors of the products?
Dr. Matiella. It is very good. The training provided by the
vendors is very good. We just need to continually reinforce it
and reinforce it. And so that is where our internal staff comes
in, is that when we have these super users, those are the folks
who are reinforcing that good training that was given. It is
just one of those--it just has to be continuous.
Mr. Andrews. Thank you. Mr. Chairman, I just also want to
say that I have seen personally and up close that Secretary
Panetta and Mr. Hale and this team have worked diligently and
tirelessly on this project. I know that they are committed to
overcome these obstacles and I am proud of them and commend
them for it.
Mr. Wittman. Thank you, Mr. Andrews. We will now go to Mr.
Conaway.
Mr. Conaway. Thank you, Mr. Chairman. I walked in the room
and a couple of movies occurred to me. One is the Blues
Brothers where the guy said let's get the band back together,
and then the one that you guys probably think about is
Groundhog Day, which is over and over and over. I appreciate
you being here.
Mr. Andrews. Let's just hope it is not the Titanic.
Mr. Conaway. Exactly. I stay away from some of those. I,
too, want to echo Mr. Andrews' compliments to you guys. You
have been very forward leaning throughout this process,
particularly when Leon Panetta a year and a half ago, a year
ago, I guess, said let's get this done. Unprecedented
leadership from the top. And I have personally seen that
percolate down through many levels of the organization. And I
do hope, Mr. Hale, that we do have the momentum going such that
whatever leadership changes occur, and there will be some, no
matter what, as you said, that one of the things I hope we can
get the Senate to focus on as well as House Members and that is
that new leadership, making sure they are as committed to
making this work as you and your team have demonstrated over
and over and over. There is a verse in Galatians, I think, that
says don't grow weary of doing good, and this could get
wearisome because it is such a daunting task and has taken so
long.
Ms. Commons, I watched a video yesterday, the Navy's, kind
of a publicity pitch to get audit readiness done. Impressive. I
hope we get more people to watch it, just go viral, but good
job on that.
Ms. Thomas, one of the things that I perked up on when you
were giving your testimony was you have a challenge, you and
the Air Force have a challenge, and it is how do you walk that
fine line between continuing to maintain legacy systems in
order to get audit ready by 2014 but at the same time a longer
pitch to pivot to the permanent systems that will be in place
year after year after year to be able to audit it.
Can you give us some sense as to how you are going balance
between being able to get ready by 2014 and your reliance on
legacy systems and not continuing to resource those things in
ways where we in effect don't need long term, they are not
going to be there for the long term.
Ms. Thomas. Certainly. Thank you. Yes, up until April of
this year, as you are well aware I am sure, the Air Force
strategy was to be audit ready in 2017 with the full Air Force-
wide implementation or deployment of DEAMS. And when we
received the challenge from Secretary Panetta to accelerate the
Statement of Budgetary Resources, we knew we weren't going to
have DEAMS deployed Air Force-wide in order to meet that
timeline. So we have gone back and we have looked at our legacy
systems to determine which of those we need to do some
remediation on in order to achieve the Secretary's goal of
audit readiness in 2014.
We have found the systems themselves for the most part,
with some small modifications, will support SBR readiness in
2014. Where we have really had to do a lot of work and we are
continuing to work is on the people and the processes because
the controls really in order to remediate the use of the legacy
systems, the controls in many cases lie outside the systems
themselves. In addition to that, there is a lot of interfaces
that we have had to closely monitor, document and implement
tighter process controls on.
So through a combination of those efforts and training of
people, that is another, as we have learned as we have done
funds distribution to base, sometimes it is an issue of just
understanding what it is we are trying to do and obtain. And we
have done a number of things where we have pulled funds
managers in and conducted training courses, showed them this is
a good audit product, this is a deficient one, and they are
carrying that information back to their bases and installations
and training the trainer.
So through a combination of training, process controls,
some system remediation on the legacy, in addition we are
continuing our forward progress on DEAMS because we really need
DEAMS to achieve full audit readiness in 2017 in a way that is
sustainable.
Mr. Conaway. Ms. McGrath or Bob, you put in place about
this time last year the senior executive staff requirements
that they meet certain criteria for the personnel evaluations
as well as some commanders. When will those evaluations begin
to happen and when will you be able to report to us, not on a
person-by-person basis, but certainly where folks have exceeded
expectations and/or not made progress that was set up for them
and the impact of that success or failure has on their
advancement and/or compensation?
Secretary Hale. Why don't I start and then I will ask if
any of my other colleagues want to add.
We have performance goals in the SES plans we believe now
across the Department for those members of the Senior Executive
Service that are relevant, that have audit involvement. I will
say it is not the primary goal. If you are a logistician then
the primary goal is still logistics, but it is a part of the
subsidiary goals. And the performance evaluation process is
starting right now and within a few months we will have that.
How much we are going to be able to say with all the privacy
rules, I am not sure.
Mr. Conaway. I understand that.
Secretary Hale. I understand you know that. But we are
watching it too and would like to tie this as closely as we can
to assessments and bonuses so that there is some tangible
rewards for success and some stigma, if that is the right word,
or some change in behavior if we are not making success.
I think we have got people's attention. I am a little less
confident but beginning to believe that they know what they
have got to do around the Department. So I think it is a major
step forward. But I am humble about all the changes that we
have got to pull off over the next couple years; hence the
reasonably confident, moderate risk, you have heard various
words up here. And like I said, Mr. Chairman, we have over-
promised and under-delivered for a long time. I don't want to
be part of that. I want to tell it as best we can and try to
meet these goals.
Ms. McGrath. I would just add that the performance period,
the rating period ends at the end of this month for the year
for the Senior Executive Service and then the evaluation
process starts. So as Mr. Hale indicated, it is probably a
month and a half or so before that is all finalized.
Secretary Hale. If time permits, Mr. Chairman.
Mrs. Commons. If I may, 250 of our 303 senior executive
leaders have an audit readiness objective in their performance
plan. With the cooperation that I am getting, I believe that
they are performing and that they will continue to perform. I
think we all see the benefit of audit readiness, not just to
produce a financial statement, but to improve our business
processes across the board. So I am getting very good
cooperation within the Department of the Navy and I think those
senior executives, the fact that we have that audit readiness
objective in their plan, that they are taking it seriously.
Mr. Conaway. Thank you.
Mr. Wittman. Thank you, Mr. Conaway.
Mr. Critz.
Mr. Critz. Thank you, Mr. Chairman.
Ms. McGrath, I think I misheard and I just want to clarify,
you talked about the retirement of legacy systems. Did you say
200 or 2,000 in 2011?
Ms. McGrath. I said 120 for 2011 and approaching 200 for
2012 and about 150 in 2013.
Mr. Critz. I must have zoned out at that point. So these
legacy systems, and I would like to ask this to the service
representatives as well, part of the move to auditability was
the implementation of the Enterprise Resource Plan, ERP, and I
know there is delays in that, although Secretary Hale mentioned
that you feel very confident that you are going to meet goals
in the timeframe allotted. So I am trying to figure out, are we
going to have a mix of systems and how does that play out going
forward?
Ms. McGrath. I will certainly start and then ask the
service representatives to add additional details. I think that
is exactly right. There is a mix of IT solutions and
capabilities that will enable the audit readiness to happen I
believe in both 2014 and 2017. Some of the strategies include
ERPs as the centerpiece. Of the Army, for example, it is very
much an ERP-based strategy for their entire business
environment. So they are using that as their lead. It is not
the same in the Department of the Navy or Marine Corps, and
then I think with the Air Force we have heard with their
schedule delays to date they are assessing both how they get to
2014 and then what 2017 looks like.
But at the end of the day it is a combination of the entire
business capabilities, be it the new or the--I will call it the
legacy, but some of the legacy is still pretty good IT
capability. And the importance that you have heard is not just
the system piece, it is understanding how you do what you do
and the execution of your business process and how does the IT
enable that to happen. So ITS [information technology services]
is extremely important, but if you don't know how you do what
you do, the process piece, the IT, is not nearly as important
nor is it relevant. So really getting at that process piece and
the data flow is extremely important and all of the military
departments are focused on that as they implement whatever
their IT solutions are.
Mr. Critz. Would your analysis be that most of the legacy
systems were populated through the different branches or was it
more focused at the Pentagon and in sort of the overall
management of it?
Ms. McGrath. Definitely the former. And it wasn't even
necessarily at the military department head of the department
level, it was very much a bottoms-up, met a local need, I had a
function I needed to perform at my base/installation and I did
what I needed to do to execute my piece.
I think the difference today and I have seen in the last
few years is that we really are taking an enterprise
perspective and sort of lifting up, if you will, and looking
across the organization, not only at the military department
level but also at the DOD enterprise to say, well, what do I
have and how is it helping or not? And it really achieves again
the business outcomes that we want today. We are talking about
audit readiness.
Mr. Critz. Secretary Hale, moving on, I had a question
earlier and I understand that obviously we need to drive to
this auditability so that it will help us plan and help us work
with you in future planning. But I also have a concern of as we
drive to these reports, the separation of items that have to
remain at the secret and top secret level and how these reports
will impact sort of the cross-pollination, I guess you could
say, or will we have to be that much more cautious when it
comes to making sure that the data can't be mined to determine
some of that secret information.
Secretary Hale. This is a man bites dog problem. We are
finally getting better systems, we are getting visibility of
our data, but that is a problem, and we are actively looking at
it, and I want to be careful what I say here. But we are very
conscious of this problem and are actively looking for ways to
solve it. It may mean that we have to have separate systems
that are classified, although that will proliferate systems to
some extent. There may be other approaches. I am being a little
vague.
Mr. Critz. No, it is just a concern because obviously the
more data available----
Secretary Hale. I don't want to tell people I don't want to
help. But it is an issue and one we are addressing.
Mr. Critz. Thank you, Mr. Chairman.
Mr. Wittman. Thank you, Mr. Critz.
Mr. Coffman.
Mr. Coffman. Thank you, Mr. Chairman, and thank you all for
being here today and thank you for your service to our country.
Maybe I will start with Mr. Hale.
It would seem to me that every branch of service is allowed
to do its own contracting in terms of computer systems and it
seems to me that we have all these disparate systems. Now, I
understand that you are trying to consolidate now. But are we
moving to a single system when it comes to financial
management?
Secretary Hale. Well, if you mean a single system
throughout the Department of Defense, the answer is no. The
departments have different business practices and I believe it
would be a bridge too far to try to get them on one single
system, and it would frighten me a bit because it would be so
large and size is itself sometimes a problem in terms of
implementation. We are trying to move to many fewer systems.
There probably won't be just one per department, there won't
be, throughout financial management. But as Ms. McGrath said,
we are trying to retire a lot of these legacy systems and
greatly reduce the numbers.
Beth, do you want to add to that?
Ms. McGrath. I would add to what Mr. Hale said, we are
taking a standards-based approach, so you have heard I believe
mentioned the standard financial information structure, so
instead of mandating a single solution, IT solution, we are
mandating the implementation of standards in each one of those
solutions so that at the end of the day you can aggregate the
data. And so it is sort of both a standards process base and
then the implementation of standards.
Mr. Coffman. Where are we in that process again?
Ms. McGrath. With regard to the standard financial
information structure, which is the main financial standard,
all of the ERPs, the ones the military departments--actually
all of them--have implemented what we call the SFIS, the
Standard Financial Information Structure, and we did validation
for each of the ERPs on their implementation. I believe Ms.
Matiella mentioned 90-some percent in terms of compliance. Each
one of these is I am going to say compliant with the standards.
And it is not only the financial system, because the logistics
and other systems feed the financial systems. So we really are
doing a full audit of all of the ERP solutions in their
implementation of the standard. We completed that I think in
the last couple of months.
Mr. Coffman. Are we aware of in terms of looking at major
commands, it was mentioned that some of them are auditable and
obviously the majority of them probably right now are not. Is
there a list in DOD of those major commands or programs that
are auditable?
Secretary Hale. Yes. It is not commands. We have a couple
of agencies that are auditable; Defense Finance and Accounting
Service, Defense Contract Audit Agency, Defense Commissary
Agency all have auditable statements. The Defense Information
Services Agencies, DISA, has achieved partially auditable
statements. Within the services, it is pieces so far that are
auditable. The one that is furthest along is the Marine Corps,
not auditable yet, but we hope close.
But as you have heard all of my colleagues say, the
strategy we have taken is to try to bite off pieces of this and
get independent public accountants, auditors involved, because
we learn so much from them. They know how to do it. We don't.
So as we bring them in, we often learn a great deal. We have
certainly learned a lot from the Marine Corps and I think we
have in the other audits that have been done. So pieces of each
service have been done.
Do you want to add to that?
Dr. Matiella. I would like to add that the Corps of
Engineers has been auditable for a few years now and we are
using their audit approach and their audit lessons learned to
guide us. So they are a huge success.
Mr. Coffman. Thank you, Mr. Chairman. I yield back.
Mr. Wittman. Thank you, Mr. Coffman.
Mr. Andrews.
Mr. Andrews. Thank you, Mr. Chairman, for giving us a
little further opportunity to explore this. I also want to ask
about the personnel training in a bit more detail. One thing
that our work together has really taught us is that we can have
really well thought out software systems and we can clean up
some of the other problems, but if the people are not properly
trained to use the systems, it doesn't work.
What would each of you identify as our principal problem
right now in the personnel training area, what is our biggest
deficiency or flaw, and what do you think we need to do to fix
it. What would be the number one problem you would point to?
Secretary Hale. Well, I will start, and then again this is
an organize, train and equip issue, so I would ask my
colleagues, those that want to, to comment.
We don't right now have a framework in the defense
financial community that allows us to require training across
the board. We have a lot of courses and I think our training is
generally pretty good, but it is not--as I say, there is not a
framework. And one of the things we can't do easily is ensure
that everybody gets appropriate training, say, an audit
appropriate to their needs. Everybody doesn't need to be a CPA.
They can't and never will be and shouldn't be. But everybody
probably should have some familiarity with the importance of
this and their general role.
Mr. Andrews. Is that a collective bargaining issue, or why
can't we have it?
Secretary Hale. Well, it is influenced by it. We started
this course-based certification program. We are really copying
essentially what the acquisition community did a number of
years ago. You gave us legal authority to do it a couple of
years back. We are actually just beginning pilot programs now.
What it will do is establish a framework. We will set levels
for each position, and depending on the level they will need to
complete certain courses and other requirements in order to be
certified at that level. And one of the things we will do is
create an FM-101 course that we hope essentially everybody
coming into our community will be required to take, and part of
that will have an audit module. So that will move toward
everybody understanding why this is important and the general
requirements of audit, which for many people will be all they
need to know, and then there will be more advanced requirements
for varying groups.
So we have done some special training for the financial
improvement and audit readiness. We have hired a contractor, so
we call it FIAR-101 training that is focused on audit.
Let me ask Marilyn, would you like to start?
Ms. Thomas. Sure. Thank you.
Well, one specific example I can provide in an area that we
have learned a considerable amount here recently is with the
implementation of DEAMS. One of the things that the operational
assessment pointed out was that we had some issues with change
management, particularly in the area of training. And as we
peeled the onion back to find out what the core issue was, we
talked to the workforce that was using the system. And the key
thing they provided us feedback on was you taught us how to use
the software, you taught us about the software; you didn't
teach us how to do our job with the new system.
So in response what we have done is we have developed
training manuals for each of the respective jobs, each of the
desks, and they have that training manual on their desk.
Additionally, our plan going forward is we are actually going
to forward deploy people who have implemented the system before
on location to help the people when they receive the new
software learn how to use it along with those training manuals.
So I think sometimes our challenge is we are introducing
something new and we think because we have been in the
development process of that and the oversight process, that the
people who receive it are going to understand it the way we do.
Mr. Andrews. This is the cultural change that many of you
mentioned in your testimony, part of it, right?
Ms. Thomas. Yes, sir, exactly.
Mr. Andrews. Any other takers?
Mrs. Commons. I would like to comment. We have done several
things to make sure that our workforce, that they are trained
in audit readiness. And certainly I would like to thank the
FIAR team who came over and actually did several training
sessions for our nonfinancial managers to train them on what it
meant to be audit ready.
Mr. Andrews. It does strike me that one hurdle we have got
to get over, it is not just the financial and accounting people
have to be audit ready, it is all operational people. If they
don't understand why they are collecting these documents, it
doesn't work. It is not a financial practice.
Mrs. Commons. Absolutely. And we have what we call regular
office hours where we have people who can call in and we can
have discussions about the things that we need to do in audit
readiness. And I would like to say we have some very
enterprising, energetic people who are working for us. What we
have found is that they like to establish ways that they can
get the job done quicker. However, they do not realize the
impact that it is having on the overall organization when they
invent their own methodology and practices.
So what we have done is we have a major effort to
standardize our processes and to publish those standards so
that everyone knows what they need to do in their part of the
process. It has been very beneficial. We have had lots and lots
of discussions. So it is not something that is new to them. It
is not something that we are pushing to them. They have been
engaged in the process throughout, so they themselves had a
part in determining what that standard process would be.
Mr. Andrews. Thank you very much. Thank you, Mr. Chairman.
Mr. Wittman. Thank you, Mr. Andrews.
Mr. Conaway.
Mr. Conaway. Just one follow-up thing that is going to be
patently unfair, but that is what Members of Congress get to
do.
We have got to convey to our constituents and others a
sense of how far you have come versus how far you have to go.
And I don't know if you want to put it on a percentage basis or
what, Bob, and each of the folks, with respect to the SBR. We
could go global and say 2017, but that is meaningless at this
point. But with respect to the auditing the Statement of
Budgetary Resources, being audit ready for that, can you give
the committee and our constituents a sense, and maybe
percentages that--anyway, but we got to have something to take
away from this morning that says we are halfway there, we are
two-thirds there, something that we can in a short 30 seconds
talk to folks who just want the answer. They don't want how to
build a watch, they just want to know what time it is, and that
clock doesn't work up there.
Secretary Hale. Can I get away with a football analogy?
Mr. Conaway. Sure.
Secretary Hale. So, look, I will regret this, but I think
we are in midfield, but I also think we just got Robert Griffin
III and he is looking good and that we have some momentum on
our side. I would invite my colleagues--we didn't practice this
answer--I would invite my colleagues to question this. I think
we are kind of crudely halfway there, but we have the ball and
we are on the offense would be the analogy I would offer you.
Mr. Conaway. Can I get just each of you just down the line?
Ms. Commons, what do you think down the line? What do you think
for the Navy?
Mrs. Commons. Well, in terms of dollar value, and I will
use that as the metric, I think we are probably about 30
percent there relative to the dollar value. Our big areas of
contract vendor pay and military personnel pay, we are still
working. Those are big areas for us. So I think we are about 30
percent there. But I am encouraged by the momentum that I am
seeing in the Department of the Navy. We are working those
issues constantly to make sure. I am reasonably optimistic by
the end of 2013 that the Navy will be audit ready for its
Statement of Budgetary Resources.
Mr. Conaway. Ms. Matiella.
Dr. Matiella. To get audit ready, we chunked it. We are
going through three exams. The first exam, we have already
finished it and that we got a qualified opinion on the first
exam. The second exam is underway. And then the third exam
starts next year. So I believe that, again, the same thing, we
are about midfield in terms of getting us ready to be
auditable.
I did want to say though as far as implementing our ERP, we
are 80 percent there. Eighty percent of our current funds are
in our new system. The only part that is not in the new system
to a large extent is sensitive activities, and that is why we
are waiting for that authorization to be able to start working
on sensitive activities versions.
But we are almost there in terms of fully deployed. Only
sensitive activities is not done. But we are making a lot of
progress in terms of looking at ourselves.
Mr. Conaway. Ms. Thomas.
Ms. Thomas. The Air Force Statement of Budgetary Resources
in our approach is divided into about, well, 15 units,
accessible units. Of that we have completed audit assertion on
five. But we have several others that are in progress, one
which is very close, we expect to assert this fall. So I think
midfield is probably a pretty fair assessment of where we are.
Mr. Conaway. All right. Anything else on that?
Secretary Hale. No.
Mr. Conaway. Again----
Secretary Hale. One more thing. The defense agencies, they
are almost 20 percent of our budget, and, frankly, we hadn't
paid as much attention to them as we should have. A few of them
have auditable statements already. But under the guidance of my
Deputy Chief Financial Officer back here, Mark Easton, who I
might add has done many helpful things, a great deal of
attention to this, we are now kind of acting as their belly
button, if you will, to try to get all of them to move toward
audit readiness. Many of them are a lot smaller, they are all
smaller than the services for sure, and so have easier
problems, but there are a lot of them. And so I think we are
making progress there. We may not quite be to midfield with
them, but we are getting there.
Mr. Conaway. Offline you will have to explain to me what
being their belly button means. I am not sure I got that one.
But please convey to the hundreds and hundreds of people
sitting behind you and throughout this whole system that is
having to do the heavy lift every single day to make this
happen, our heartfelt thanks for not only what they have done
to this point, but all that hard work yet to get ahead to get
to that red zone and then score by getting this thing done.
I for one know how hard it is, how difficult it is, what
the scope is. It is stunning once you begin to look at it. So
at least for me, thank you so very much for what you have done
already and I am looking forward to the success of getting this
thing done. Thank you very much.
Mr. Andrews. Mr. Chairman, if I might, I would like to
associate myself with Mr. Conaway's remarks and say the same
thing. I do want to raise one objection on the record. The
Washington Redskins reference I found offensive.
Secretary Hale. I stand by my remarks.
Mr. Andrews. As a devoted Philadelphia Eagles fan, I just
want to let the record show my objection to that reference.
Mr. Wittman. Well, I was expecting the gentleman from Texas
to maybe object to that, too.
Mr. Conaway. I don't have a dog in that fight.
Mr. Wittman. Are there any other questions for the panel
members before we conclude?
Hearing none, I do have two specific questions, Secretary
Hale, I would like for you to address for us, and you don't
have to do it here, if you could do it for the record. One is
that, and you can let me know this and provide this to the
committee if this is where things are going.
The IG evaluation or the challenges pointed out there, is
there a plan to have a formal response to the IG findings to go
back, and, if so, it would be nice for the committee to have
that so we can get that to our members.
Secondly, as you go through this process, and we all have
heard from each of the branches here and yourself of the many
challenges that are out there, and what we would like from each
of you are any suggestions that might be appropriate in
authorization language next year that would help you in
achieving the path that you are on to meet your 2014 and 2017
milestones. So we would like to have specifics there, and then
again with the response to the IG report for us to get a copy
of that.
Secretary Hale. We will do it.
[The information referred to can be found in the Appendix
on page 75.]
Mr. Wittman. Thank you, Mr. Hale. If there is nothing else
to come before the committee for this hearing, we will adjourn.
[Whereupon, at 10:15 a.m., the subcommittee was adjourned.]
?

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A P P E N D I X

September 14, 2012

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WITNESS RESPONSES TO QUESTIONS ASKED DURING

THE HEARING

September 14, 2012

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RESPONSES TO QUESTIONS SUBMITTED BY MR. WITTMAN

Mrs. Commons. I have reviewed the timeliness of payments on
contracts accounted for in the Navy Enterprise Resource Planning (ERP)
system. For Fiscal Year 2012 (FY12), payments on these contracts met
the prompt payment standards set by the Office of the Secretary of
Defense. However, this overall on-time performance does not mean that
there are not challenges in meeting these standards. For example,
during FY12 Navy ERP implementations, some Working Capital Fund
organizations including Naval Surface Warfare Center Dahlgren
experienced abnormally long lead times for issuing contracts and a
delay in payments during the start-up period. This problem was remedied
through additional training, was procedural, and not caused by a
shortcoming in the Navy ERP system. I continue to monitor timeliness of
contract payments, and I would be pleased to look into any specific
instances which have come to your attention.
We continue to move forward, aggressively executing our detailed
plan to improve the Department of Navy's, end-to-end contracting
business process, making it more efficient, better controlled, and in
compliance with financial audit standards. Our strategy applies both to
our legacy business environment, as well as to our target Navy ERP
system. We continue our efforts to strengthen internal controls over
business processes and systems, enforcing more discipline, consistency
and adherence to established standard procedures. We are also improving
the flow of data passing end-to-end in an electronic commerce format
resulting in reduced errors, processing times and costs. [See page 13.]
Secretary Hale. DoDIG Report on ERP Implementation--The final
Department of Defense Inspector General (DoD IG) report on Department
Enterprise Resource Planning (ERP) system implementations (http://
www.dodig.mil/audit/reports/fy12/DoDIG-2012-111.pdf) includes the
formal responses of the Office of the Under Secretary of Defense
(Comptroller) and each Military Department. The response from Ms.
McGrath, the Deputy Chief Management Officer, was provided to the IG
separately and is attached.
[The information referred to can be found in the Appendix on page
67.]
In general, we do not agree that the DoD IG has accurately depicted
significant facts and has mischaracterized ongoing actions to improve
business operations and ERP system implementations. The Department does
acknowledge challenges implementing ERP systems but the report does not
acknowledge the significant capability delivered by many of the ERP
systems nor does it sufficiently discuss the improvements the
Department has already made to our ERP acquisition processes and
controls.
While schedule delays and cost growth are almost never acceptable,
the Department didn't buy these ERPs for just the audit readiness
capability. These modern systems, when properly implemented, provide
more operational support capability as well as better financial
fidelity leading to audit success. In the past, many were convinced
that the ERPs were a ``silver bullet'' required to achieve audit
readiness. Now, we understand this is not the case.
We can no longer afford the schedule delays and cost growth, but we
can only influence the future . . . not the past. We have audit goals
(2014 and 2017) to achieve and we must apply the lessons of the past to
make appropriate adjustments as we move forward. This applies to both
FIAR planning and implementing ERP Acquisition Program Baselines.
NDAA Language to Support Audit Readiness--The Department of Defense
(DoD) is fully committed to meeting the audit deadlines established in
law and by the Secretary of Defense. The prioritization on improving
information used to manage the department, and the clear message from
Secretary Panetta that audit readiness is an important goal, have the
Department making more progress than ever before. The Department feels
the necessary resources, authorities, and incentives are in place to
have success in this effort. No further legislation is needed.
There is one way that Congress can help. In recent years we have
encountered unprecedented budgetary uncertainty, including no fewer
than four threats of government shutdown, which generated time-
consuming and unproductive planning efforts. Now the shadow of possible
sequestration is falling across our path. Dealing with these
uncertainties drains valuable time and leadership attention from
important initiatives, including our commitment to audit readiness.
Congress could help a great deal by returning to a more orderly budget
process. [See page 24.]