[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 116-40]
THE DEPARTMENT OF DEFENSE'S
FINANCIAL IMPROVEMENT AND
AUDIT REMEDIATION PLAN:
THE PATH FORWARD
__________
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MAY 16, 2019
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
37-526 WASHINGTON : 2020
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COMMITTEE ON ARMED SERVICES
One Hundred Sixteenth Congress
ADAM SMITH, Washington, Chairman
SUSAN A. DAVIS, California WILLIAM M. ``MAC'' THORNBERRY,
JAMES R. LANGEVIN, Rhode Island Texas
RICK LARSEN, Washington JOE WILSON, South Carolina
JIM COOPER, Tennessee ROB BISHOP, Utah
JOE COURTNEY, Connecticut MICHAEL R. TURNER, Ohio
JOHN GARAMENDI, California MIKE ROGERS, Alabama
JACKIE SPEIER, California K. MICHAEL CONAWAY, Texas
TULSI GABBARD, Hawaii DOUG LAMBORN, Colorado
DONALD NORCROSS, New Jersey ROBERT J. WITTMAN, Virginia
RUBEN GALLEGO, Arizona VICKY HARTZLER, Missouri
SETH MOULTON, Massachusetts AUSTIN SCOTT, Georgia
SALUD O. CARBAJAL, California MO BROOKS, Alabama
ANTHONY G. BROWN, Maryland, Vice PAUL COOK, California
Chair BRADLEY BYRNE, Alabama
RO KHANNA, California SAM GRAVES, Missouri
WILLIAM R. KEATING, Massachusetts ELISE M. STEFANIK, New York
FILEMON VELA, Texas SCOTT DesJARLAIS, Tennessee
ANDY KIM, New Jersey RALPH LEE ABRAHAM, Louisiana
KENDRA S. HORN, Oklahoma TRENT KELLY, Mississippi
GILBERT RAY CISNEROS, Jr., MIKE GALLAGHER, Wisconsin
California MATT GAETZ, Florida
CHRISSY HOULAHAN, Pennsylvania DON BACON, Nebraska
JASON CROW, Colorado JIM BANKS, Indiana
XOCHITL TORRES SMALL, New Mexico LIZ CHENEY, Wyoming
ELISSA SLOTKIN, Michigan PAUL MITCHELL, Michigan
MIKIE SHERRILL, New Jersey JACK BERGMAN, Michigan
KATIE HILL, California MICHAEL WALTZ, Florida
VERONICA ESCOBAR, Texas
DEBRA A. HAALAND, New Mexico
JARED F. GOLDEN, Maine
LORI TRAHAN, Massachusetts
ELAINE G. LURIA, Virginia
Paul Arcangeli, Staff Director
Michael Hermann, Professional Staff Member
Stephanie Halcrow, Professional Staff Member
Rory Coleman, Clerk
C O N T E N T S
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Page
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Smith, Hon. Adam, a Representative from Washington, Chairman,
Committee on Armed Services.................................... 1
Thornberry, Hon. William M. ``Mac,'' a Representative from Texas,
Ranking Member, Committee on Armed Services.................... 2
WITNESSES
Norquist, Hon. David L., Under Secretary of Defense
(Comptroller), U.S. Department of Defense; accompanied by Hon.
Thomas Harker, Assistant Secretary of the Navy (Financial
Management and Comptroller), U.S. Navy; Hon. John Roth,
Assistant Secretary of the Air Force (Financial Management and
Comptroller), U.S. Air Force; and Hon. John Whitley, Assistant
Secretary of the Army (Financial Management and Comptroller),
U.S. Army...................................................... 3
APPENDIX
Prepared Statements:
Norquist, Hon. David L....................................... 33
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
Mr. Banks.................................................... 43
Mr. Brown.................................................... 43
Mr. Cisneros................................................. 44
Ms. Haaland.................................................. 44
Mr. Langevin................................................. 43
Questions Submitted by Members Post Hearing:
Mr. Cisneros................................................. 47
Mr. Conaway.................................................. 47
Mr. Waltz.................................................... 48
.
THE DEPARTMENT OF DEFENSE'S FINANCIAL
IMPROVEMENT AND AUDIT REMEDIATION PLAN:
THE PATH FORWARD
----------
House of Representatives,
Committee on Armed Services,
Washington, DC, Thursday, May 16, 2019.
The committee met, pursuant to call, at 10:01 a.m., in room
2118, Rayburn House Office Building, Hon. Adam Smith (chairman
of the committee) presiding.
OPENING STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM
WASHINGTON, CHAIRMAN, COMMITTEE ON ARMED SERVICES
The Chairman. I call the meeting to order. Good morning.
Welcome.
Today we are meeting to discuss the Pentagon's effort to
audit itself and basically better understand where they are
spending their money, which is an incredibly important
undertaking.
We are joined with four witnesses from the Department of
Defense: the Honorable David Norquist, who is the Under
Secretary of Defense, the Comptroller, welcome; Honorable
Thomas Harker, who is Assistant Secretary of the Navy for
Financial Management and Comptroller; the Honorable John Roth,
Assistant Secretary of the Air Force--you are sensing a theme
here--Financial Management and Comptroller; and the Honorable
John Whitley, Assistant Secretary of the Army, who has the same
position there.
Thank you all for being here.
And this is a subject I think every member of the committee
has been very focused on. And it is all about greater
efficiency and greater accountability within the Pentagon.
I don't know if it is the world's largest bureaucracy but
it is probably pretty close. And spending, you know, north of
$700 billion a year now, it is a large organization to
understand and control. But I think the one thing everyone in
this room agrees with is we can do better in terms of
understanding how the money is spent, where it goes, and make
sure that we are spending that money efficiently.
And this is an incredibly important issue, because
taxpayers want to know, whether it is the Pentagon or anyplace
else, that the money is being well spent. Whatever it is going
for, at least we understand what it is.
And the Pentagon has not really met that standard. Too
large, too bureaucratic. As a number of stories have
documented, can't even really keep track of all the inventory
within the Pentagon. And in many instances, can't adequately
explain how you spent the money you spent the previous year.
So then when we are exercising oversight in the Armed
Services Committee and trying to figure out how do we better
spend the money, what programs work, what programs don't work,
we don't have the metrics to really make as informed a decision
as we would like to be able to make.
Those decisions will always be difficult, no matter what.
But if we can see the money, understand it, where it is spent,
what the result was, it is better.
Now, I also understand part of the problem is there are
computer and IT [information technology] systems going back
decades that have not really been updated sufficiently to keep
track of what they need to keep track of.
But the biggest question that I have is, we all can
understand to some degree what a full audit would look like.
You know, if you have a business and you audit it, you know,
penny by penny and you understand exactly where it is going,
then I think we can all agree that it is going to be a while
before the Pentagon gets to that point.
But if we can learn how are we progressing, how is it
better this year than it was last, was 5 years ago, what are
you doing to give us that greater understanding of how the
money is being spent and what the results of that spending are.
And then what can we do going forward? What are the next
steps as we move toward that point where we have the full
understandable audit? What are the, sort of, steps along the
way that we can get to a better place on?
Those are the questions I am most interested in.
Thank you all for being here.
I do--I have an interview to do at 10:40, so I am going to
duck out briefly at that point, but I will be back, and Mr.
Brown will take over the chair in that timeframe.
And with that, I turn it over to the ranking member, Mr.
Thornberry.
STATEMENT OF HON. WILLIAM M. ``MAC'' THORNBERRY, A
REPRESENTATIVE FROM TEXAS, RANKING MEMBER, COMMITTEE ON ARMED
SERVICES
Mr. Thornberry. Thank you, Mr. Chairman.
And I want to start by congratulating you, Mr. Norquist, as
well as the team at the Pentagon and the people at the Pentagon
for the past several years who have worked incredibly hard to
get us to the point where the entire Department of Defense
could be subject to an audit.
It turns out that it was in 1990 that Congress passed the
law that required all government departments to be audited. And
from 2002 to the current day, there has been some provision in
the NDAA [National Defense Authorization Act] to drive us
closer to actually having the audit take place.
One of the notable provisions was, in the fiscal year 2014
NDAA, we required that the full-scope audit be performed
beginning in fiscal year 2018. A lot of people were skeptical
about whether it could occur, and it did occur. And so I think
the first thing to say is congratulations.
And I particularly want to point out the persistent,
knowledgeable engagement of our colleague, Mr. Conaway, who,
from the time that he joined this committee, has been on this
issue based on his expertise and his understanding of what it
can help achieve and has not let up.
But he also kept us from changing the goalposts. Because
there is always--I say, every year from 2002, there was some
provision about the audit, but there was also a temptation to
keep moving the goalpost and keep changing what we asked you
all to do. He kept us with some discipline focused on it and
now it has begun. And it is just the beginning, as I am sure
you all will talk about.
I find there is misunderstandings about what an audit can
and cannot do. As I understand it, you all can correct me if
you need to, but a clean audit does not guarantee that you
don't waste money. A clean audit does not guarantee that you
can defend the country with the technologies and the weapons
and the people that you need to.
But, as the chairman mentioned, a clean audit can help us
make better decisions by understanding better how much and on
what we are using our resources.
Finally, I would just note that for the fiscal year 2018
audit, about half of the issues that arose were related to
cyber and IT. Another 500 or so were related to financial
reporting.
So I do think we on this committee and in Congress need to
pay attention to make sure that we don't take actions that make
it more difficult to achieve someday a clean finding of the
audit. For example, slowing down movement to the cloud may be
one of those things that make it harder to have data that is
compatible, and that is where a lot of these issues have
arisen.
So, I think this a good start. It is something that we have
been pushing toward for a long time.
You all deserve congratulations, but obviously now you know
where the problems or the issues are, and together we need to
go fix those.
The Chairman. Thank you.
Mr. Norquist.
STATEMENT OF HON. DAVID L. NORQUIST, UNDER SECRETARY OF DEFENSE
(COMPTROLLER), U.S. DEPARTMENT OF DEFENSE; ACCOMPANIED BY HON.
THOMAS HARKER, ASSISTANT SECRETARY OF THE NAVY (FINANCIAL
MANAGEMENT AND COMPTROLLER), U.S. NAVY; HON. JOHN ROTH,
ASSISTANT SECRETARY OF THE AIR FORCE (FINANCIAL MANAGEMENT AND
COMPTROLLER), U.S. AIR FORCE; AND HON. JOHN WHITLEY, ASSISTANT
SECRETARY OF THE ARMY (FINANCIAL MANAGEMENT AND COMPTROLLER),
U.S. ARMY
Secretary Norquist. Chairman Smith, Ranking Member
Thornberry, distinguished members of the committee, I
appreciate the opportunity to testify before you today on the
financial statement audit, a key priority for the Department of
Defense [DOD]. I am joined by the service financial managers,
who are prepared to answer your questions on their respective
service audits.
I would like to start by thanking you for your unwavering
support for the Department of Defense, as well as your support
for and interest in the audit. Until last year, DOD was the
only large Federal agency not under full financial statement
audit. Together we have changed that.
Now, audits are not new to the Department of Defense.
Numerous audits covering program performance and contract costs
are completed each year by the Government Accountability
Office, the Defense Contract Audit Agency, the Department of
Defense Office of the Inspector General, and the service audit
agencies.
But financial statement audits are different--they are
comprehensive, they occur annually and they cover more than
financial management; for example, they include verifying the
count, location, and condition of our military equipment, real
property, and inventory. It tests security vulnerabilities in
our business systems, and validating accuracy of personnel
records and actions such as promotions and separations.
For example, the auditors looked at the Navy's database of
real property--to include buildings, underground water pipes,
fence lines--polled a statistical sample, and then went to the
relevant bases and checked to see if they could locate each
item and what condition it was in. They also looked around the
base for other property that ought to have been in the property
system and wasn't.
The audit was extensive. With $2.7 trillion in assets and
$2.6 trillion in liabilities, it involved approximately 1,200
auditors reviewing hundreds of thousands of items over the
course of 900 site visits to 600 different locations.
So, what was the result? Six organizations received
unmodified audit opinions, which is the highest rating. Two
received modified opinions, which means the data is right with
some modest exceptions. And the remaining organizations, the
majority, received a disclaimer, and many of them this was
their first year under audit. The disclaimer means that the
auditors did not have enough evidence to provide an opinion.
The short answer is they didn't pass.
No organization received an adverse opinion, which is the
lowest level. The auditors reported no evidence of fraud, and
provided favorable feedback that the Army, Navy, and the Air
Force had properly accounted for major military equipment and
military and civilian pay.
At a more detailed level, though, the auditors identified
over 2,300 findings, what they call notice of findings and
recommendations, or NFRs. And the Department has developed
corrective action plans to address 91 percent of them as of May
13, 2019.
To give you an example of the types of finding, and I will
stay with the real property example, the auditors polled a
sample of real property assets for the Navy and found that
about 6.5 percent of them, or about 2,000 items, no longer
existed--the building had been knocked down and removed, the
property or structure had been taken away, but it had never
come out of the property system.
In contrast, the Army had very few errors on the existence;
their buildings were there. But a number of things they had in
their facilities were listed as in usable condition, and from
the auditors' perspective they weren't and they ought to have
been knocked down.
Identifying these problems is not a step backwards but a
step forwards. The very purpose of the audit was to find as
many problems as we could so we could start to fix them. And
our database of findings has already proved tremendously
valuable.
It has allowed us to track our progress resolving these
issues. For the first time the Department has tools for
oversight and accountability and the opportunity to leverage
this information using modern data analytics.
I would like to close by thanking the President, Secretary
Shanahan, and the Inspector General for their unfailing support
and partnership. This audit is not about compliance. It is
about protecting taxpayer dollars. And we are fully committed
to making annual financial statement audits the new normal at
the Department of Defense.
Finally, to Congress and this committee, both members and
in particular your staff, thank you. Not only have you worked
with us closely throughout, but you have been a key part of the
force in getting us here. We appreciate the support and we will
need your sustained attention as we move forward with the
fiscal 2019 year audit and beyond.
Thank you, Mr. Chairman.
[The prepared statement of Secretary Norquist can be found
in the appendix on page 33.]
The Chairman. Thank you very much.
My understanding is that the other witnesses are here to
answer questions but do not have opening statements.
I agree with a couple things that the ranking member said.
You know, first of all, it is important to understand that
a full audit does not eliminate waste, does not, you know,
guarantee efficiency and make sure that whole problem gets
fixed. There are issues even if you know whether you are
spending your monies in the right place.
That is a separate and broader discussion. And once we get
into acquisition reform, which I know Mr. Thornberry has done a
ton of work on as well, that gets to those questions, as well.
And also there has been an effort made to get a better
understanding of it.
But within the audit world, if we had a full audit, if we
continue forward on the path that we are on and get to a better
place, what is the real advantage of that, can you tell us?
How potentially does it save you money? Does it give you
the ability to spend money better? How does having a greater
understanding of what your assets and liabilities are, where
the money goes and where it is coming from--what are the two or
three things you would say, this is going enable us to do this
better and more efficiently?
Secretary Norquist. Sure, Mr. Chairman.
I think there are three things that stand out.
The first one is the better data to inform better decision
making. And part of this is if you don't trust the accuracy of
your data, it is hard for people to rely on it and use it.
As we have gone through the audit, to comply with it, you
have to get transaction-level information. You can't just
bundle them as you run it through the system, which means you
can do much more sophisticated analysis.
You can look--and I will just use a budget example. Money
that was obligated in the last week of the fiscal year that was
then de-obligated 2 weeks later, well, that is not a real
transaction, right? That is somebody gaming the system. You can
find things like that.
But you can do the same thing for analysis of trends,
costs, or payments for items. And so the ability for us to make
sophisticated analysis, square footage of property, analysis of
the usage of them goes up dramatically.
The other part is it drives reform. Many of the errors in
the process comes from inefficiencies in the system, a place
where somebody is doing manual data entry of information that
had previously been entered in another system. So in order to
pass the audit you have got to remove that, you have got have
the clean data flow through.
Well, you have reduced the chance for error but you have
also reduced the cost. And as the Navy has reduced its bill to
DFAS [Defense Finance and Accounting Service], when it switched
from passing information that needed to be manually entered to
automated, that saved $65 million. Those type of things become
permanent savings because you are never going to go back and
remake that as a manual process.
And I think the final piece is transparency. This is the
ability to answer the questions of Congress and others at a
greater level of detail about where we stand on inventory,
where we have other things, and the confidence that comes with
making decisions when you have that extra transparency.
The Chairman. Well said.
And final question, as I said in my opening statement, what
is the next step? What is the next most important thing that
you need to do or we need to do in terms of discussing this
process?
Secretary Norquist. So, the next step in the process is, we
have already started the next audit. So as we complete
corrective action plans for things that the auditors have
found, a new audit team is going to come behind, and as those--
whatever has been completed by, say, June or so of this year,
they will retest, and so we will see if we have fixed them.
We are particularly prioritizing inventory, real property,
and IT. Those are some of the areas where the most direct
benefit to the warfighter is, seeing the most immediate benefit
to the Department. And it is the existence and completeness--we
will get to the property and evaluation, but the existence and
completeness is a near priority.
We will work through those and we will keep marching
through. Again, when the auditors complete their audit, they
will find another batch of things. Each of the services will
prioritize. But we are going to keep moving, solving those
problems that have the immediate benefit to the taxpayer and
the needs of the warfighter first. And we will be able to show
you for each of those findings who was responsible, when they
thought it was closed, whether the auditor validated it is
closed, and which of the areas that remain as problems.
And I think one of the challenges for Congress has been
during all the years of audit readiness, is you couldn't show
the Congress the progress. You couldn't show them where we were
stuck, and where we are going forward. And the database we have
now based on this and with the auditors' independent evaluation
will allow us to move forward in that area.
The Chairman. And I would think, overall, it would make our
systems more secure as well as we better understand what IT
systems we have, what is in there, we clean them up.
You know, we have a better idea what it is we are trying to
protect and are better able to protect it.
Secretary Norquist. Absolutely. There is a series of audit
standards for IT systems and security that the Congress has
passed, people know them under the acronyms FISCAM [Federal
Information System Controls Audit Manual] and FISMA [Federal
Information Security Management Act]. The auditors go through
that.
And so, as the ranking member pointed out, a significant
percentage of our findings were around vulnerabilities to the
security of those business systems. And that is going to be a
major area of focus, particularly in the CIO [chief information
officer] world, to close those findings.
The Chairman. All right. Thank you very much.
Mr. Thornberry.
Mr. Thornberry. As I understand it, Mr. Norquist, so, after
this year's audit, there may well be some new findings that
emerge. In other words, the finding from 2018 are not the total
universe that there will ever be of things that we need to
improve.
Have I got that right?
Secretary Norquist. Absolutely.
Mr. Thornberry. And so what you do with an audit--and I
have learned all this from Conaway, of course--what you do with
an audit is you go and take samples of various things, and then
when you have problems that becomes the finding and then you
can go fix it.
Secretary Norquist. Correct. And in some cases by fixing
the first level the auditors were able to go further, and that
uncovered new areas they couldn't see before. All of this is
useful and helpful. It just will take time to uncover them all.
Mr. Thornberry. Okay. Only other question I have got is, as
I recall, you helped get--and you were in the Comptroller
position when the Department of Homeland Security [DHS] got to
a clean audit.
Can you just reflect a little bit on that experience and
the challenges at DOD versus Homeland Security, what it takes
to get from here to there?
And I don't even know if ``there'' is possible with the
DOD. But can you just--based on your experience in getting a
clean audit at Homeland Security, reflect on it--on that for
the DOD?
Secretary Norquist. Sure. So the beginning of the audit at
Homeland Security looked much like the beginning at DOD. There
was a discussion of whether it was a good idea. There was a
discussion of whether you could ever possibly get to a clean
opinion.
The difference was Homeland Security didn't have a choice.
The audit was mandated the moment it was created, so it started
with an annual audit, whether it was ready for it or not.
The processes that we put in place there are the ones that
we have adopted here. The first is, you need the auditors to
provide you detailed level findings. You know, a normal
commercial auditor will simply tell you, you have not passed,
and stop.
We have worked with the IG [Inspector General] to make sure
that no matter--whether we are going to pass or not, the
auditor keeps going, find as many things as possible. We have
the auditor load those findings into the database so we don't
waste time with self-assessment.
I am really not interested in whether somebody thinks they
are in a good place. I am interested in them fixing the problem
and whether the auditor agrees.
The lessons we learned from that DHS experience, breaking
the audit into pieces, so at DHS it wasn't simply whether the
department passed. Customs and Border Protection, ICE
[Immigration and Customs Enforcement], FEMA [Federal Emergency
Management Agency], Coast Guard, each were evaluated in a
standalone way, much as each of the services are evaluated, so
the department could see the progress and could explain it to
the Congress. Now, the truth is, it took 10 years. I mean, I
wasn't even at DHS when they completed but the individuals who
were there when I was there and carried on saw it.
And so one of the things that is very important to me is,
you have a process that is not personality-dependent, that will
keep going. This one crossed administrations as a very
bipartisan process. Tom Harker was there at the Coast Guard
helping them get across the finish line.
But the lessons from there are directly relevant to DOD,
and I think they have been very valuable in making sure we get
the best start on our efforts.
Mr. Thornberry. Thank you. I yield back.
The Chairman. Mr. Gallego.
Mr. Gallego. Thank you, Mr. Chair. I yield my time to Ms.
Slotkin from Michigan.
Ms. Slotkin. Thanks. Thanks for being here, everyone.
Mr. Norquist, in 2018--first of all, I should just say, I
think most of us here really want to be able to go home to our
districts and say with a straight face that Department of
Defense needs the resources that it needs and its accounting is
in place and therefore, when they say they need something,
there is not waste going on.
So, I think we are all in the same place that we want the
same thing. And it is hard for some of us to go home and
justify increases in spending when, every business in my
district, you have to pass an audit. Right? Every home budget
has to account for itself. So, I think we are all coming from a
positive place on this.
Mr. Norquist, in 2018 you said it might take DOD 10 years
to successfully pass an audit. I know we have had the six
organizations that have passed.
Based on us being kind of a year ahead now, what is your
anticipated timeline, for the record, in completing a true,
complete audit?
Secretary Norquist. So, for the Department as a whole--and
the 10-year experience really came out of the DHS case. The
Department as a whole doesn't get a clean opinion until each of
the 24 elements does.
Ms. Slotkin. Right.
Secretary Norquist. So, let me first turn to each of the
services and let them tell you where they believe they are and
their timeline, because the Department is going to be when they
are done.
Ms. Slotkin. And just for the sake of time, if it could be
pretty brief?
Secretary Norquist. Yes.
Ms. Slotkin. Thanks, guys.
Secretary Whitley. We, the Army, we have put forward dates.
Secretary Esper testified here that our goal is fiscal year
2021 for a modified opinion on the Army Working Capital Fund
and fiscal year 2022 for a modified opinion on the General
Fund.
It is a very uncertain science, so we caveat those dates--
--
Ms. Slotkin. Of course.
Secretary Whitley. With the fact that these are goals.
Ms. Slotkin. Great.
Secretary Harker. Good morning. For the Navy, we are
looking at a 5- to 7-year window for getting to a clean opinion
across all of our financial statements. A lot of that is
dependent on system improvements we are making, and then also
changes and standardization of business processes so that we
can have everybody doing things the same way and decrease a lot
of the manual transactions that are occurring.
Secretary Roth. The Air Force is actually in a very similar
place as the Navy. And we have some experience, for example,
through our intelligence programs.
The National Reconnaissance Office actually has a clean
opinion. It took them 9 years to get to their clean opinion, as
well. So we would say also, we would give a range of 4 to 5, 6
years at the optimistic side to get there, as well.
Ms. Slotkin. Okay.
And can you give me a sense, Mr. Norquist, of the sense of
savings that was borne out just by the sort of first round of
audit? Give me a couple of highlights that I can explain to
people back home.
Secretary Norquist. Sure. So the first one I would
highlight is when you looked at inventory. And I will use a
Navy example--and if anyone wants that deeper, Tom can talk to
it.
They looked at inventory and they found places where there
was inventory that had been purchased but not put in their
property system, which means those trying to fill orders
couldn't see it. And they found $73 million worth of inventory
that was reusable put back into their system, became available
to the warfighter.
Another example, Hill Air Force Base. The auditors don't
just look at the existence, but there were missile motors
that--I think it is about 71 missile motors worth $53 million.
In the database, they said they were unserviceable, couldn't
use the motors. Auditors went out, checked the motors, they
actually were in working condition.
So, you can get those back in the system. That is another
$53 million that we didn't have to order.
And so this is why the accuracy and the integrity of the
inventory system is so important. The completeness of it and
the accuracy of it. It saves you money in making sure you have
access. It also supports the warfighter, that he is not waiting
for a part that he actually could have access to.
Ms. Slotkin. And I know we are all focused oftentimes on
the needs of the warfighter in terms of hardware, but clearly
it seems to me business management systems is a place where we
could do some improving.
Could you tell me your strategy for acquiring better
business management tools, the way everyone at home has to do?
Secretary Norquist. So, the area we are looking for with
business management systems is, we need to make sure that the
data in it meets the standards. We have, for example,
accounting has SFIS [Standard Financial Information Structure],
a standard as to how the coding should be structured. So when
it passes from one system to the other, it stays all the way
through. Some systems don't use all the data and they are set
up to truncate it, well, then you have lost the data as it
flows through.
So, buying those systems in a way--and I think one of the
provisions in the NDAA from last year requires us to have CPAs
[certified public accountants] and others look at those
systems, confirm that they will meet the standards.
The nice thing about the audit is those systems get tested
at--along the way so we can see whether or not they are meeting
the standards, not simply waiting till the end and going Oh, it
doesn't meet our requirements.
Ms. Slotkin. Great.
And then last question, I think obviously the training of
personnel dealing with this kind of skill set--what are you
going to do differently to make sure we are properly training
people at the Department to do this kind of financial
oversight?
The Chairman. So, you will have to answer that one fairly
quickly. I am sorry, I should have pointed this out, we try to
wrap up in 5----
Secretary Norquist. Yes, I got it. We have a pretty robust
program and certification process for our financial management
community and OPM [Office of Personnel Management] has often
recognized it as one of the best practices.
So we are very serious about the quality and the
seriousness of the training. And there is a lot of professional
certifications that go with this.
Ms. Slotkin. Thank you.
The Chairman. Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman. Secretary Norquist,
when the committee undertook the efforts to request audits, we
understood that instituting these new practices were going to
look bleak when the reports first came back and that also it
would be a great roadmap of what we need to do and how we need
to implement better controls.
Secretary Norquist. Yes.
Mr. Turner. But absent those controls, one of the concerns
I think that anybody who is an advocate for national security
and defense spending hears, from those who are concerned that
DOD has problems in satisfying audit requirements, is concerns
that the money is being wasted or stolen, misdirected, that it
is not being applied toward the issues of national security.
How can you assure us that--we are getting ready to mark up
the NDAA again, with another large increase for the purposes of
trying to address the issues of readiness, address the issues
of modernization and look to our near-peer adversaries of
modernization.
How can you assure us, absent the findings from the
auditors, that everything is in place to be able to adequately
report spending? That these dollars that we approve are
actually going to our national security, are not being
misspent, are not being redirected, and are not being
misappropriated?
Secretary Norquist. So this is a great question. I think it
highlights the difference between the budgeting and the
accounting.
We have a very strong budget process. So when there is
money put into a program for F-15 [fighter aircraft] or some
other project, the Congress puts in a particular line.
All of our rules are designed around tracking those from a
budgetary perspective, and so we know that those funds were
spent on that program absent a reprogramming or some other
notification with Congress.
The audit just goes beyond that. And so you take a building
under construction, the audit is--it is fine that you spent the
money on the building. The audit wants to know where is it in
construction in progress, how complete it is.
Once it is up, it wants to make sure do you know--can you
depreciate it, do you know it is still in usable condition. So
the audit takes us to a greater level and the benefit of that
shows up mostly in inventory.
But if you look at pay, it is one of our single largest
items. The auditors didn't have findings related to those
areas. And so when we get money in those we have confidence
that we are executing a consistent--with the budget
description. The audit just has a much higher standard in terms
of how much further along we go.
Mr. Turner. Thank you, Mr. Secretary.
I yield back.
The Chairman. Thank you.
Mr. Carbajal.
Mr. Carbajal. Thank you, Mr. Chair.
I find it mind-boggling that we haven't achieved a clean
audit. It is one of the issues that comes up when I have
discussions with my constituents. And whether I go to the
Chamber of Commerce, the Rotary, everybody just is aghast that
we haven't been able to do this for the Department of Defense.
Having come up in the ranks of the enlisted in the Marine
Corps, it is mind-boggling that there has not been an
accountability and a reprimand at the higher echelon of our DOD
and all our branches of the military, quite frankly.
The examples you gave of failing to update our databases
with inventory, millions of dollars that possibly would go--be
at waste, is very unsettling.
Secretary Norquist. Yes.
Mr. Carbajal. And I know you wouldn't answer the questions
of reprimand and accountability.
But certainly I hope that in the audit that there is within
the DOD some kind of section where the higher-ups understand
what reprimand and accountability will look like if they
continue to not implement the best accounting measures
possible.
Under Secretary Norquist, the DOD IG has indicated that
longstanding material weaknesses will continue to affect DOD's
ability to improve its financial management and ultimately
accomplishing a clean audit opinion.
What steps has the Department taken to address some of
these material weaknesses such as accounting for its property
and equipment?
From the list of longstanding material weaknesses, are
there specific ones the Department feels are more urgent in
terms of addressing?
Secretary Norquist. I would be happy to do that.
So I think in terms of what is the most urgent, the answer
is inventory, is the IT security, and the property. Those are
the three that are the particular focus.
We will move across all of them, but those are the first
three.
I think if the--I mean, if one of the services--if Tom, do
you want to give an example of the steps you are taking on
inventory?
Secretary Harker. Yes, sir. Thank you for the question.
We have made a lot of progress around inventory where we
have gone base to base, trying to do a full complete inventory
this last year. We did an inventory of the vast majority of our
bases.
We have identified areas where there is material that is
not recorded in the accountable property system of record and
we are taking steps to get that inventory into our record.
In Jacksonville we found $280 million worth of items that
had been bought, purchased, were not in our system of record,
and they now are. We found $81 million of those have gone back
into the system of record and they are now being used to
fulfill requisitions. To date, we have filled over $3 million
worth of requisitions from that.
Mr. Carbajal. Thank you.
One of the areas GAO [Government Accountability Office]
continues to see as areas of improvement is DOD's focus on
centralizing its monitoring and reporting process by utilizing
the database to include financial management-related findings
and recommendations and corrective action plans to essentially
track progress.
Secretary Norquist, is the Department facing any specific
challenges in terms of utilizing and populating the database
more?
Secretary Norquist. So this was a tremendous help. One of
the lessons we took from DHS, which is we set up an NFR
tracking database. We worked with the IG. The IG was very
helpful. They modified the contracts to require the auditors
themselves to enter the findings. So when we show you a report
of the findings, it is not our view, it is the auditor's view.
The system that was set up was sufficiently well done, that
although it was not mandated, each of the services came along
and said, it is easier for me to use your system to track
progress. And they started loading all of their corrective
action plans.
So now you have got a single system that says, here is the
auditor-identified problem. Here is the service's corrective
action plan with who is accountable. Here is when it is
supposed to be complete.
And so I think what the GAO and others were highlighting is
they are very fond of that process. They think that works well.
And they have encouraged us to use that.
Mr. Carbajal. Thank you.
Mr. Chair, I yield back.
The Chairman. Mr. Rogers.
Mr. Rogers. Thank you, Mr. Chairman.
I yield my time to Mr. Conaway.
Mr. Conaway. Well, thank you, Mr. Rogers.
And I also appreciate the kind comments of the ranking
member to start. I know it was painful for him to do that, but
I certainly appreciate the comments.
On the property, plant, and equipment focus, what benefit
would be if--at some point in time in the future, we will need
to evaluate whether or not we have got excess capacity at all
the bases around--we typically call it a BRAC [base realignment
and closure], those kind of things.
Secretary Norquist. Yes.
Mr. Conaway. To start that, the base document would be
those records that you are going through right now, so that if
the decision-makers had--were looking at records that had
buildings that didn't exist or had buildings that were--did
exist but weren't on there. The decision would be less--it
wouldn't be as good as if those records were there.
So the importance of having these records is really
important as you go about making your decisions.
Mr. Norquist, this time next year we will have--hopefully
the chairman will have another hearing like this where we will
ask you to perhaps bring in the report card----
Secretary Norquist. Yes.
Mr. Conaway [continuing]. For the NFR work that is moving
from 2018 to 2019 and forward. And we will be able to see that
progress and help us understand that.
In the meantime, though, it would be helpful for the team
to know--markers of success. You have talked a couple of
anecdotal pieces where one-off money has been found to help--
assist in those kind of things.
One would be the reduction in audit effort from year to
year as you got better, as your systems got better, as the
accountants were able to rely on the systems to shrink the size
of their databases.
Could any of the three of you who have maybe experienced
something like that share with us where, all right, one year it
took us this many audit hours and man-hours. The next year, our
systems were better and the auditors were able to shrink their
sample size.
Can you give us any kind of an anecdote like that, that
shows real progress on sustaining an audit year to year for----
Secretary Norquist. I think the--Congressman, the best
example is the Army Corps of Engineers.
I will let John Whitley talk to it, but the Corps of
Engineers has a clean opinion. But they have gone through this
process from beginning to end.
So, John?
Secretary Whitley. Yes, sir.
The Corps of Engineers did see significant changes as they
got into the modified and then the clean opinion. So they have
got a clean opinion for about 11 years.
Over that period of time they went from about 150 auditors
down to 35. Sample sizes, we have talked already about going in
and taking samples. Those sample sizes declined from about
14,000 down to about 2,000. And the cost of the audit, the cost
for the auditors fell, cut in half from about $10 million to $5
million during that period.
Mr. Conaway. So, hopefully this time next year you will see
additional progress. You can help the committee understand--
that is real progress.
Secretary Norquist. Yes.
Mr. Conaway. Because while a clean audit for the whole
thing is a part of a longer journey, year in year out, you are
going to have to provide us with audited financial statements
and those kind of things.
Part of the problems early on were the variety of legacy
systems that you were trying to cope with where you were
converting from manual to electronic and everything else.
Any sense on how many legacy systems are still being
maintained and that you still rely on? I know you were trying
to get away from them, but could you give a sense on the
reduction in those legacy systems?
Secretary Norquist. So, we have about 294 significant
business systems, which is the largest set, not all of them
under DOD's control.
I will use one example and the services can probably just
talk to their accounting systems. Defense agencies, we used to
have 7 different systems supporting 22 different defense
agencies. Those have all come down to one system called DAI
[Defense Agencies Initiative], and that is a huge improvement
for us.
And I don't know if maybe the Air Force wants to talk about
their efforts on system consolidation?
Secretary Roth. Very similar, I will use as an example.
Okay.
As we are actually pretty pleased with where we are with
munitions inventory. We are at actually 100 percent in all. We
were able to sunset 10 systems in going to a new modernized,
more up-to-date system. So that is just an example of the kind
of trend that we are looking for in terms of trying to sunset
as many systems as possible.
Ultimately, for example, we have an accounting system which
we call DEAMS, which is Defense Enterprise and Accounting
Management System. Ultimately we hope to sunset a number of
older systems as we move to DEAMS and it becomes----
Mr. Conaway. So, Mr. Roth, tell us why getting rid of those
systems is important going forward, because someone has to
remember how those systems were coded----
Secretary Roth. Yes.
Mr. Conaway [continuing]. And maintain them and all those
kinds of things. That all goes away, help us understand that.
Secretary Roth. Well, as has been noted before, part of our
problem are the aging systems and the nature of the aging
systems and they take a lot of care and feeding. But the other
problem is as data moves from one of these systems to the
other, is an opportunity for error at each one of those stages.
Okay, and so that is one of our fundamental weaknesses
right now, one of our Achilles' heels, is that a lot of our
data moves from one kind of--like an HR [human resources]
system to the financial system, from the logistics system to
the acquisition system, those kinds of things.
The fewer interfaces you have, the fewer opportunities for
error and, therefore, fewer opportunities for audit findings.
Mr. Conaway. I appreciate that.
I would like to tell the committee that even in companies
that have clean opinions, from time to time the auditors will
find things they would posit to management that could be
improved going forward.
So even if we had a clean opinion across the entire system,
it would not be unexpected going forward that we would have new
improvements to be made in this regard.
This is hard work. You have got a lot of folks who put a
lot of time and effort into it. I appreciate that effort.
We are all frustrated. You are frustrated that we are not
already there. But just to share with my colleagues, as Mac
said, I have been shepherding this for a while. It is not for
lack of effort, it is not lack of management from the top--
coming from the top that this is not getting done, so it is
hard.
So, I yield back.
Mr. Brown [presiding]. Thank you very much. And as the
chairman said, he will be returning in a few minutes.
And I will go ahead and yield to myself for 5 minutes more
or less.
So, according to the summary from the Department of Defense
Inspector General, auditors found significant control
deficiencies regarding IT systems and you have mentioned that,
you have discussed some of that here today.
There are some specific findings relating to IT systems.
The IG also characterized financial management systems and
information technology as the most significant weakness.
As these deficiencies prevented the auditors from assessing
the financial data completely due to the inability to assess
the integrity of the data, should we expect another wave of
adverse findings, once the financial data itself is better
assessed?
Secretary Norquist. So, there are--there is ways for the
auditors to test it, but there are limits. I would always
expect as the auditors are able to go further, for them to find
additional challenges. But they are concerned that if you enter
the data into the system in one location, does it properly
manage the transaction to the other side?
They can do that the hard way, by recreating the process
themselves. But the more they can rely on the system, the
stronger and the better the process gets.
Mr. Brown. And when will the integrity of the IT systems be
sufficient for a full assessment of the financial data that it
contains?
Secretary Norquist. So they will do that system by system.
They will have certain systems where they have reviewed--and I
think the Army has at least one that they have gone all the way
through all the corrective action plans. Which one is that,
LMP?
Secretary Whitley. LMP, the Logistics Management Program.
Mr. Brown. Well, can you give me maybe an example of one
that is not where it needs to be but will be in a short period
of time?
And then perhaps what area or what activity, what component
is experiencing the greatest difficulties in this area?
Secretary Norquist. Sure. Do one of the services want to
take--which systems you have that you have to replace? Go
ahead.
Secretary Whitley. So I would just say, just tangential to
your question, the LMP system, it took about 4 years. We have--
that started with 29 findings. It went to 22. It went to 12. It
went to 3. And then this year, we have zero findings. It is
covered by one corporate crosscutting finding on end user
controls.
So that is an example.
We have our other systems, our financial management ERP
[Enterprise Resource Planning] and our tactical logistics ERP.
They are kind of at the beginning stage, maybe a year or two
into that process. So I would predict another couple of years
on those.
Mr. Brown. Anyone--any examples of some--you know, a couple
of decades?
Secretary Roth. Well, I will jump in. I think it has been
pretty well documented over the years.
The interface between our pay and personnel systems has
always been a challenge. And we tried some enterprise-wide,
DOD-wide systems that failed, and these kind of things.
So we in the Air Force--and the reason it is a problem in
part because it takes a lot of manual effort to get it right. I
mean there is no two airmen, for example, that are paid
precisely the same thing. And so, you have to make sure you get
all the data, in terms of seniority and grade and all those
kinds of things, correct.
So the Air Force is moving to a new system, AFIPPS [Air
Force Integrated Personnel and Pay System] by acronym, where we
will integrate the pay and personnel system in the--and it is
going to reduce the error rate well over 90 percent.
Mr. Brown. Are some of the challenges associated with the
fact that many forms, while the data is entered on a computer
terminal, the data is not computable? It can't be transferred
digitally?
Secretary Norquist. So what happens is, in some cases, it
is--right, it is entered in a format that is not easily
transmitted, or that system only uses five pieces of
information and the systems on either side of it need all
eight. And so, you have got to restructure that system so it
holds the full set of the string of data and allows it to be
used by both sides of the process.
Mr. Brown. Would the DD 214 be an example of a form?
Secretary Norquist. Do you know if that is one of the
issues? Let me take that one for the record. I will take that
one.
[The information referred to can be found in the Appendix
on page 43.]
Mr. Brown. Okay. Thank you. And I will yield to Mr. Wittman
for 5 minutes.
Mr. Wittman. Thank you, Mr. Chairman.
Gentlemen, thanks so much for joining us today. Thank you
for your continual effort in the realm of auditing. It is not
headline grabbing, but I think it is fundamental to how we
manage the massive amount of resources that we send to the
Pentagon.
Mr. Norquist, I wanted to get you to elaborate a little bit
more. You have talked about some of the challenges within the
current DOD system.
Secretary Norquist. Yes.
Mr. Wittman. And we understand that there are a lot of
different ways in which the service branches either transact
business, account for expenditures.
It seems like, to me, there ought to be, as--not only as
part of getting the picture clearer in the audit, that we ought
to look at these systems and determine, are there simpler and
easier ways to do this?
You just heard the Air Force talk about developing their
system on the side of paying personnel. Is there a way that we
can look at unifying these systems?
Shouldn't there be a single system that cuts across
services branches in how we transact, how we acquire, how we
pay personnel, to make it easier to go to a single place in
doing the audit?
It seems like, to me, that would make your job a little bit
easier, is to have some commonality across systems, either in
how we account for things or just the nuts and bolts about how
transactions take place.
Secretary Norquist. Absolutely.
And so, when we look at a process, the first question we
ask is, can we have a single system for the entire Department?
If you can, that makes everything easier, and there are places
where we do.
You then drop down and say, in some cases, the process is
sufficiently complicated. And we have seen the challenges when
you try and get all three services onto a system where they
each have slightly different processes; it makes it very hard
for the program manager to ever deliver a working system.
In some of those cases, your answer--your question is can I
get them all to agree on receiving and transmitting data in the
same format?
Mr. Wittman. Yes.
Secretary Norquist. In which case, then I may not mind that
they are different systems, as long as they will talk to
everything else the way they are supposed to. And so, you work
your way through that.
Some of them, the question is do I replace it, do I retire
it?
In a few cases, it may be simple enough just to modify the
system, and it will be sufficient.
Mr. Wittman. To what extent can you push the different
service branches with, sometimes the inertia that exists there
to say, this is the way we do it, we can't do it another way
because of particular reasons?
Do you look at that critically and say, well, these are
legitimate reasons why you have a unique way of doing it? Or
these are not legitimate reasons; there should be a way that
you can do it in common with the other service branches.
Because I think, in some instances, being able to push the
envelope, push the service branches essentially past their
point of comfort to say, this is the way we have always done it
and we can't do it another way.
Do you think about that? Do you push the issue to really
make them critically think about how they are doing and the
process by which they are doing it?
Secretary Norquist. We do. And that is usually one of the
core of the conversations, which is, is it really an unusual
process that you have to do? And the answer is, if it is, why;
is it your policy? Maybe we just change the process.
I mean, one of the things you always have to be careful
about is automating your existing process, not revising your
process to take advantage of automation.
And so, in some cases, we go back and we work with the
service and say, that is not the best way to do it. One of the
other services has a better way. You need to come over to this
direction.
And those are the types of challenges. They are often very
difficult. You are really down into the technical aspects.
Mr. Wittman. Yes.
Secretary Norquist. But it is an essential change if you
can get it right.
Mr. Wittman. Sure.
Let me ask you of your expectations about where we are
today and the path that has been charted by DOD, and where DOD
will be in 5 years, in 10 years, related to the audit.
How much clearer will the audit be? How will systems
change? And what can we expect in that 5-year and then 10-year
window as far as transparency and clarity and the result of
each subsequent audit through that period of time?
Secretary Norquist. So I think as you look out, say, 5
years, you will either have organizations with modified or
clean opinions, or they will have a particular challenge
remaining. And we saw this at DHS.
They would get down to the--they had fixed everything,
except----
Mr. Wittman. Yes.
Secretary Norquist. And then all of a sudden, instead of
having a discussion about financial management of the audit in
general, having a very detailed, specific discussion of a
particular challenge in that organization. That is a very
strong place to be.
But between 5 and 10, not only do we want to see folks
getting to a clean opinion----
Mr. Wittman. Yes.
Secretary Norquist. We want to be able to take advantage of
the data.
So part of what we are trying to do, in parallel with this,
is, now that we are having ever more accurate data and we have
the universe of transactions and other things, how do we use
that to drive decision making?
The Congressman mentioned earlier the BRAC and real
property. Well, if you don't believe your square footage, you
are going to have a real hard time having a conversation about
whether you need more buildings or less. So you want them to
have more accurate data, so you can be clear about that.
And making use of that data is the real transformative
effect that we are looking for.
Mr. Wittman. Very good. Thank you, Mr. Norquist.
Mr. Chairman, I yield back.
Mr. Brown. Thank you.
Mr. Langevin.
Mr. Langevin. Thank you, Mr. Chairman.
I want to welcome our witnesses here today, and thank you
for your testimony.
Let me begin with this question. As the chair of the
Intelligence and Emerging Threats and Capabilities
Subcommittee, I am increasingly concerned with the lack of
clarity on the cost expenditures associated with the cyber
operations.
Secretary Norquist. Yes.
Mr. Langevin. For example, this committee needs to have a
sense of how CYBERCOM [United States Cyber Command] has used
its appropriated money to date, and how it is not duplicative
of what the military services are funding for organic
capabilities and for CYBERCOM.
So can you tell me how can the audit create greater
transparency on operational and other costs for DOD cyber
operations?
Secretary Norquist. So the value of the audit is the
ability to break down the transactions to the lowest level, the
transaction level.
The issue with cyber is going to be making clear to people
the boundaries of the definition.
So some people by cyber refer to almost anything that uses
IT, which becomes very broad. But being able to be particular
about what we mean and then either through the budgeting
process set up categories so that Congress sees those numbers
in its report.
Right now for a lot of those there is sort of ad hoc data
calls. We can use the audit findings to produce more accuracy
in those, but you are still working off what is the definition
and how do we capture it.
But the level of accuracy in the data and the ability to
sort on certain key information will help be able to give you a
better answer.
Mr. Langevin. And so where are we in establishing those
definitions and giving that clarity?
Secretary Norquist. So I know there is a set we used this
year in terms of reporting the dollar amount for cyber. I would
have to sit down with you and go over that definition and see
if it is meeting your requirements, but that was something that
I know we did as part of the program build this year and was
part of our reporting to Congress.
Mr. Langevin. Okay. I welcome that, if we can work on that
together, then thank you.
Next question, there has been a push for innovation of the
audit to increase audit readiness.
Secretary Norquist. Yes.
Mr. Langevin. How is the Department leveraging AI
[artificial intelligence], machine learning, and process
robotics to enhance accountability?
Secretary Norquist. So there is some very helpful tools in
keeping the cost of the audit down, and improving the accuracy
using bots.
I think the Army is the most forward on that, so maybe,
John, you can talk to the use of bots?
Secretary Whitley. Yes. We have rolled out robotic process
automation to look at some of the things we talked about when
the systems don't talk to each other well.
The long-run solution is to merge those systems into a
single system; that takes time. In the meantime we are using
robotic process automation to clean up those unmatched
transactions and those other discrepancies.
We are at the very early stages of exploring the other
things you mentioned, AI and everything else. So I think there
are going to be a lot of applications. We are not using any of
those at the current moment specifically for audit, but we are
in the middle right now of figuring out how to and where to do
that.
Mr. Langevin. Okay. And this is for all of our witnesses.
So those of us on the committee surely understand that the
warfighter is and should be focused on the mission. However, we
also understand that the more effectively the Department's
resources are managed, the more effective our military
operations will be. And we are going to get more bang for the
buck, obviously.
So the financial management [FM] community cannot achieve a
clean audit alone. Our warfighters who are responsible for
equipment and inventory on a day-to-day basis must be engaged,
as well.
So how is the Department driving buy-in beyond the FM
community out of the services and down to the operational
level?
Secretary Norquist. That is a good question. Let me just
give an overview, and then each of them give their examples.
One of the things I had been uncomfortable and was
expecting was as the auditors started to pull their samples, we
might get pushback on the field from the level of effort
involved.
But when it came to the types of findings with inventory,
things that were easily understood by the commanders in the
field as to their value, instead what we noticed was an
enthusiasm for this. And what the auditors found is the number
of places where there was strong leadership, there is very high
accountability rate.
So at Kadena and Osan Air Base, 14,000 munitions, $2.2
billion, auditors came back and said 100 percent, perfect.
Let me let each service talk in terms of how they are
engaging the military in the field.
Mr. Langevin. Okay. And if you could also include how you
are using metrics for accountability----
Secretary Norquist. Absolutely, metrics. Good.
Secretary Whitley. Yes. Well, we measure the accuracy of
the samples that are taken, so we know--so for example if an
auditor goes into a location--to an arsenal or a depot, does a
real property or a general equipment sample, we count--they
might have a sample size of 150, if they find 5 exceptions we
know exactly what that percentage is and we are tracking that
over time.
And we are--we have made it very clear to our commands and
our organizations that we expect those percentages to be
marching up and then to get into the 99 percent, the 100
percent range within a couple of years which is where we need
to be for the audit opinion.
Mr. Brown. And perhaps we can take the other examples for
the record.
Secretary Norquist. For the record? Okay.
[The information referred to can be found in the Appendix
on page 43.]
Mr. Brown. Yes, thank you.
Mr. Banks.
Mr. Banks. Thank you, Mr. Chairman.
The audit found a number of outdated IT systems. Some of
them were decades old that cost the Department millions of
dollars to maintain.
Cyber and IT are two critical aspects of the National
Defense Strategy as all of you know. I am concerned that these
two aspects of the audit have the most notice of finding and
recommendations, or NFRs, representing 1,084 out of the 2,348
total.
Secretary Norquist. Yes.
Mr. Banks. I have had many service members tell me about
the poor quality of personnel related systems. Service members
often need to use several interfaces or repeat actions on
different platforms. This problem is especially prevalent in
the Reserves, as I experienced firsthand.
Mr. Norquist, can you summarize the audit findings
regarding the functionality of Department IT systems?
Secretary Norquist. So, Congressman, I think you started
with the right thing. It is the single largest source of
findings in the audit. There is a very large number of old
systems that we have to either retire and replace, or modify.
The personnel ones, things like travel--those are ones that
are very labor intensive. They do not have the automated
controls that make it easier for people to avoid making
mistakes. All of those generate frustration. So we are looking
to systematically go through and replace those.
In our process, the CIO is a key lead in this effort. And
so when we talk about meetings it is not really the FM who is
chairing them, they are one of the key players.
But we have one that is acquisition--with the head of
acquisition who co-chairs it. We have one where the CIO co-
chairs it.
And the point to them is we--as the FM community, we are
happy to be involved. But this is really an IT security issue,
an IT issue. And the audit is identifying it but it is not FM
in nature, it is quality of service to the field with the
accuracy of the data.
Mr. Banks. Got it.
Of the IT-related NFRs specifically, how many findings or
recommendations could you say that would require an entirely
new system to address the problems?
Secretary Norquist. Let me take that for the record, and we
will be able to see if we can sort that.
[The information referred to can be found in the Appendix
on page 43.]
Mr. Banks. Okay, thank you.
And Mr. Norquist, how long would you expect the remediation
process for those NFRs to take?
Secretary Norquist. I think those will be one of the
longest poles in the tent. I think even after we get a clean
opinion, there will still be findings and audit systems will
have just figured ways around them. But getting those down is
part of the single largest effort.
Mr. Banks. Okay, thank you.
Last year in the Navy Times, it was reported that the audit
found that, quote, five sites that managed ballistic missile
defense elements and technical information were failing to take
basic cybersecurity steps to ensure that information on
America's ballistic missile defense system won't fall into
nefarious hands, end quote.
Mr. Norquist, to your knowledge have there been any steps
taken to correct those vulnerabilities to our missile defense
systems?
Secretary Norquist. So there are steps being taken to
correct on--and those would be on the warfighting side. But
just like we have folks worried about IT security on the
business systems through the audit, we have forums that look at
the cybersecurity of weapon systems in those programs. And
those steps are underway.
Mr. Banks. Okay. Some of the system flaws had been
originally identified in 1990 and in 2013.
Secretary Norquist. Yes.
Mr. Banks. I can't find any evidence that those at that
point were ever addressed or fixed after those findings many
years ago.
What is the DOD Inspector General's timeline to
reinvestigate?
Secretary Norquist. I don't know about the Inspector
General's timeline. There is congressional language that
directs us for a series of weapon systems, particularly the
ballistic missile defense ones, to look at cybersecurity, have
the services develop assessments of the risk and the corrective
action plans.
That needs to go faster. The risk there is very serious. I
believe the ballistic missiles is one of the first to start
going through it. But we need to do better in that area because
of the sheer risk and vulnerability that cyber creates.
Mr. Banks. Got it. Thanks.
In your summary of audit findings, 464 findings from the
fiscal year 2018 audit related to IT security. Are you aware if
any of these are critical weaknesses in systems necessary to
maintain the safety of our service members and the security of
our nation?
Secretary Norquist. So most of the ones in the audit are
business systems. But even then, there is a consequence of
business systems. They are either privacy data, people's
personnel records--an individual potentially being able--that
could be accessed if you are not secure.
Spare parts, making sure the integrity of the spare parts
information to support the warfighter. So even though they are
business systems, it is the business of supporting the
military, and therefore there are consequences.
Mr. Banks. Appreciate it very much. Thank you.
I yield back.
Mr. Brown. Thank you.
Mr. Cisneros.
Mr. Cisneros. Thank you Mr. Chairman. Thank you, gentlemen,
for being here.
Mr. Norquist, I am concerned with self audits and sharing
best practices. So rather than waiting for the next audit to
come about, how are we encouraging the services and the various
commands about implementing processes to find those repair
parts, they may be sitting on a shelf that nobody knows about.
How are they implementing these processes so we can find
them before the next audit comes?
Secretary Norquist. So we have, for each of the areas--
whether it is inventory or IT security or financial--we have
forums where all the services are there and give updates and
share best practices.
Did you want to mention one quickly, John?
Secretary Whitley. I can just give you a couple of concrete
examples, sir.
I mean we--we were just at one of our arsenals, depots,
that one of the things that we care about is equipment and the
inventory of the equipment and the condition of the equipment.
One of the things that typically happens is a piece of
equipment is purchased and used for a particular job. That job
gets finished. That piece of equipment gets set aside and we
lose track of it.
That becomes an audit problem because we lose track of its
condition. But that also becomes an operational problem because
now I have an expensive piece of equipment that might be needed
somewhere else in that plant.
So what that organization did was they created a system
that now ties to the inventory of the general equipment that
reports when it is idle at every day. And that allows everybody
else in the organization to recognize that and then to go in
and if they have a need for that equipment to use that
equipment.
It is helping our audit records keep the condition of the
equipment and the status of the equipment up to date, but it is
also helping the plant.
So we took that and we have now broadcast that across all
of our arsenals and depots. And that is going to be a practice
that they will all start adopting.
Mr. Cisneros. Are we performing--are the various commands,
are they performing self audits? Are they going and doing spot
checks of repair parts and making sure that these parts are
there and that they are actually working and that we can use
these repair parts?
Secretary Norquist. Right. So each of the services does an
audit of their inventory.
You know part of this is the auditors come through and in
the long term what they will switch to is checking your
controls. They will check the way you did your own audit, if
they have confidence. At the beginning of an audit, they don't
even assume confidence. They go and they replicate the test
themselves.
But each of these organizations does a process of
inventory. Some do site by site. Some do 10 percent a month.
Others do a whole sweep at a particular time. But yes, they do.
Mr. Cisneros. And what are we doing to share best practices
across the services. So if the Army has a good idea, like you
just said, how are we sharing that with the Navy and the Air
Force to make sure this is something they can implement?
Secretary Norquist. So we have a number of forums where we
do that. We have the regular meetings where we do this. We also
have training events where we have people who have had success
whether it is from another service, from another agency, come
and speak.
Did you want to give an example, Tom?
Secretary Harker. Thank you, sir.
One of the areas where the Navy has made a lot of progress
this year is dealing with real property accountability. So we
took findings we got from the auditor and we implemented a plan
to do a full and complete inventory of our real property over a
6-month period.
We finished that in March of this year. And the auditors
have gone out in April and started doing their testing. And so
far they have identified less than one-half of 1 percent error
rate, which is well within the audit standards.
We have shared what we have done with the Army and the Air
Force so that they can look at incorporating that into their
real property testing.
Secretary Whitley. Can I just answer?
Mr. Cisneros. Go ahead.
Secretary Whitley. The three of us meet weekly and then our
audit leads, underneath us, they meet weekly as well. I mean,
it is--there is a lot of communication across the service.
Mr. Cisneros. All right.
And what steps are being taken to insure that military
services, particularly senior uniformed personnel, are
considering the findings of the audit and integrating them into
corrective steps?
Secretary Norquist. It is actually in their performance
evaluations. I will let--Tom, do you want to dive in?
Secretary Harker. Sure. For the Navy, the Deputy CNO [Chief
of Naval Operations] for Logistics, Vice Admiral Smith, has
gone out and personally visited every region and met with the
various commanders on the ground and talked to them about the
importance of inventory.
He has put out a directive that mandates them to conduct an
inventory last year, which they did. And he has worked with the
chief of the Supply Corps and the commander of NAVSUP [Naval
Supply Systems Command] to develop an inventory operations
center where they go in and they test and track the inventory
results by warehouse.
Mr. Cisneros. Is that being done like on the command level?
And I will give you--just say in the Navy, our commanding
officers of a ship, is he being held accountable for the
inventory that he has there on that ship?
Secretary Norquist. Go ahead.
Secretary Whitley. Navy--commanders in the Navy.
Mr. Cisneros. Are they accountable for what is on the ship?
Secretary Harker. Yes, sir. Down at the ship level, we are
tracking the inventories as well. So at the ship level, at the
warehouse, at the BSO [Budget Submitting Office] level, it is
being tracked at all levels.
Each of our inventory points in our ERP system, they are
tracked, the different number of warehouses and locations--to
hold each commander accountable.
Mr. Cisneros. I am sorry. Running out of time.
But can I just get for the record that the other services
are doing that same process and holding the local commander
accountable for their inventories, as well?
Secretary Norquist. We will take that for the record, yes,
sir.
[The information referred to can be found in the Appendix
on page 43.]
Mr. Cisneros. Thank you. I am out of time.
Mr. Brown. Thank you.
Next, Ms. Haaland.
Ms. Haaland. Thank you, Chairman. And thank you, gentlemen,
for being here this morning. I appreciate your time.
The 2019 DOD IG report on the audit results listed 20
agency-wide material weaknesses. One of these was related to
environmental and disposals liabilities where auditors found
that the DOD was unable to develop accurate estimates and
account for environmental liabilities in accordance with GAAPA
[Generally Accepted Accounting Principals] 2014 DOD
environmental liabilities best practices guide.
It identified challenges the Department faces, which
include incomplete fixed asset listings, lack of comprehensive
defensive-wide processes and controls for identifying and
measuring environmental liabilities, and the inability to
adequately support assumptions or factors used in calculating
environmental liability estimates.
How does the DOD--and this is for you, Mr. Norquist--how
does the DOD's inability to develop accurate estimates for
environmental and disposals liabilities impact the accuracy of
the fiscal year 2020 environmental remediation budget request?
And specifically, that the DASD [Deputy Assistant Secretary
of Defense] for Environment, Maureen Sullivan, testified at a
House Oversight hearing that DOD PFAS [per- and polyfluoroalkyl
substances], for example, the cleanup, back-of-the-envelope
estimate was $2 billion but the fiscal year 2020 environmental
remediation budget request is only $1.1 billion.
Secretary Norquist. So, this is one of the very useful--we
talk about the tools that we are going to be able to take
advantage from some of the audits. So, the budget for
environmental remediation tends to run about $1 billion a year
and goes about the rate of inflation.
So, the question is, are we making progress? What is the
real size of the challenge? There are standards to use, both
the auditors and environmental community, to assess the
liability. What is the chemical, what is the space it is in,
and how do you do the measurements?
Part of the value for the audit for our community and your
use and mine is the accuracy of those environmental
assessments. Are they in compliance?
The auditors are checking, do you know each of the
locations where you have an environmental liability and are you
confident? Have you properly mapped out the size and scale?
That will make sure that when we are budgeting for it, we have
an appreciation of the size as well as, is that liability going
down year after year or even with the investment we are making,
is that liability going up and we need to take a different
look?
So, this is one of those areas where the value of the audit
plays in a place that would not necessarily be immediate
obvious to someone of its use.
Ms. Haaland. Okay. Thank you for that. And so, I have just
a few follow-up questions.
How does it impact the quality of DOD environmental
remediation efforts generally?
Secretary Norquist. So, in general----
Ms. Haaland. You kind of answered that already, probably,
but----
Secretary Norquist. Well, what they are doing is they are
taking on the highest priorities areas first and the ones for
which the technology is the most effective. But this will allow
them to be certain that they are not missing something, right,
that you have more confidence in the completeness of your
assessment, identify other areas where you might need to be
focusing that you hadn't seen before.
Ms. Haaland. Okay. Thank you. Because there are real
human--I guess, human tragedies involved with this
contamination of this kind and that--I mean, that has to be
taken into consideration, not just economic but physical issues
that have been raised because of this contamination.
So, next, what does the DOD need to do in order to address
these shortfalls? And last, what is the DOD's timeline for
addressing the shortfalls?
Secretary Norquist. So, let me take the timeline for the
record. I will get that to the environmental folks on that.
[The information referred to can be found in the Appendix
on page 44.]
Secretary Norquist. But each one of them, they need to
develop a corrective action plan on either, one, how to ensure
they have captured the full range or how to improve the
accuracy of their liability estimates for the ones that they
have.
But I think the point you made earlier in your comment was
very clear. This financial statement looks like a sheet of
numbers but there is a person whose payment is either accurate
or inaccurate at the end of the week.
There is an environmental cost that we either have captured
and are properly treating or not. There is a spare part that
arrived at the warfighter when they needed it or not.
So, all of these numbers, while they look like it is just a
sheet of paper, they all translate to real, meaningful things
for the people out there trying to get the mission done.
Ms. Haaland. Thank you. I appreciate that because when--
when these--when things like this happen, these contamination
issues, it takes a tremendous toll on not just the person who
is being affected by it but the entire community. And I feel
like we need to--we need to, you know, think about the
humanitarian effects that these things have had on people.
And I yield my time. Thank you, Chairman.
The Chairman [presiding]. Thank you.
Mr. Khanna.
Mr. Khanna. Thank you, Mr. Chairman. Thank you all for your
service.
Yesterday, the Oversight Committee had a hearing about
TransDigm and how they basically were ripping off American
taxpayers by having excessive prices and the Inspector General
went through part after part where they were charging 4,000,
3,000 percent profits.
And there was bipartisan concern on the committee.
Congressman Mark Meadows spoke about his outrage, as did the
Ranking Member Jordan and Democrats did.
TransDigm obviously is a bad actor. And one of the things
that the Assistant Secretary of Defense there brought up was,
it is unfortunate that you often have to have complex
bureaucracy to deal with bad actors like TransDigm that then
slows down the process.
But one suggestion that came up, and I am curious what you
think of that, is to allow contractors at the Department of
Defense the discretion to ask for cost information even if it
is below a threshold if they feel that a defense contractor is
a bad actor or isn't being honest.
And so this wouldn't require it in every case but would
give them the discretion to do so. And I would be curious about
your--everyone, Mr. Norquist, maybe starting with you, your
thoughts about that or other solutions.
Secretary Norquist. Sure. I think that is an important step
forward. So, the model that this company did, and it is
really--it is not a partner firm, it is a predatory approach--
is they went and they bought licenses for things where there
was no other competitor, attached to large assets like aircraft
where the Department couldn't function without it, and if they
were under $2 million, the rules don't require them to disclose
cost.
Now, that was originally set up because you weren't trying
to hit the same reporting burden on every firm. And for most of
the firms, that is not an issue.
But as you point out, the bad actor creates a burden for
everyone else. By being below that threshold, they didn't have
to disclose cost data, they had no other competitors, they
could drive markup. So, that predatory practice by functioning
in that rule gap is a real problem. So, I think one of the
things you want to do is you need to get the accuracy of the
data.
The question is, you also need to figure out how to not be
trapped in a monopoly supplier position like that, whether it
is looking at the licensing rules or some of the others.
But there is a real problem with that and the need to try
and break that monopoly. And--we have a lot of good firms, they
are partners, they are aimed at the national security. And then
we have got these predators that make life difficult for
everyone.
I don't know if the--any of you have comments on that, or--
no. Okay.
Mr. Khanna. Well, I appreciate that.
The other [off mic] that we are dealing with [off mic]. The
community may actually get something in that progressives have
called--and I won't [off mic]. We would really welcome the [off
mic]. It is something we need to fix without putting a burden
on most of the good actors [off mic].
Secretary Norquist. Absolutely. Happy to work with the
committee.
Mr. Khanna. Thank you.
The Chairman. Thank you, I just want to echo that point.
I mean, that is hopefully one of the things, once we--you
understand better what the inventory is, what you have, what is
coming in, we can do a better job of policing this sort of
thing. Because the amount of money that the Pentagon spends is
just an open invitation to people to try to gouge, particularly
if they don't think you are keeping track--very careful track
of what they are charging, what they are doing.
So, the better system we have, the better we are going to
be able to address this and I want to work with Mr. Khanna as
we try to figure out what we could do to change law and help
address this issue.
Mac, do you have anything?
Well, thank you very much, it is very helpful and this is
going to be an ongoing process, obviously, but I think we are
making progress and look forward to working with you to
continue to do so.
With that, we are adjourned.
[Whereupon, at 11:11 a.m., the committee was adjourned.]
=======================================================================
A P P E N D I X
May 16, 2019
=======================================================================
PREPARED STATEMENTS SUBMITTED FOR THE RECORD
May 16, 2019
=======================================================================
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
=======================================================================
WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
May 16, 2019
=======================================================================
RESPONSE TO QUESTION SUBMITTED BY MR. BROWN
Secretary Norquist. The DD Form 214-Certificate of Release or
Discharge from Active Duty is not an example of a data set that
currently presents difficulties in digital transfers between IT systems
for the Army, Navy or Air Force. An example of a challenge associated
with transferring data between systems is the transfer of data from our
legacy accounting systems to our modern enterprise resource planning
(ERP) financial systems. Many of our legacy accounting systems used 6-
digit general ledger account codes (GLACs), whereas our ERP systems
utilize 8-digit GLACs in accordance with federal financial system
requirements. This disconnect can make the transfer of data from a
legacy system to a modern accounting system cumbersome or problematic.
[See page 16.]
______
RESPONSES TO QUESTIONS SUBMITTED BY MR. LANGEVIN
Secretary Norquist. Our Department-wide Notice of Findings and
Recommendations (NFR) database provides leadership with dashboards that
display real-time metrics on our progress developing and implementing
corrective actions and auditor validation of NFR closures. Examples of
metrics contained in these dashboards include total number of NFRs by
Component, number of NFRs covered by corrective actions plans (CAPs),
number of NFRs projected to be closed in the current fiscal year and
number of CAPs that have missed projected validation dates. These are
just a few of the metrics that are evaluated and discussed in monthly
progress review meetings that I hold with the Military Service
Secretaries. [See page 21.]
Secretary Whitley. In addition to tracking sample exceptions, the
Army tracks the submission status of supporting documentation for each
installation and activity independent auditor's visit. This ensures the
required documentation is submitted on time and to standard, as well as
helping us determine whether historical documentation is complete for
capital assets and determine the way ahead for any identified gaps. We
are currently tracking the status of Army Working Capital Fund and
munitions inventories as well as variances monthly with a goal of 100%
completion by the end of the fiscal year. We will have a baseline for
variance as we move forward to future fiscal years with the goal of
continually improving. The Army is using metrics to drive
accountability across both Working Capital Fund and General Fund. The
Army measures the accuracy of responses to auditor testing. For
example, when the auditors conduct site visits at the arsenals or
depots they check a sample population of real property or general
equipment by physically viewing the asset against the information
within the property system to determine accuracy. For instance, a
sample size of 100 buildings that has 5 exceptions has a pass rate of
95%. We look to leaders to improve this pass rate every year. For FY19,
we have a goal of getting as many asset categories (e.g. real property,
general equipment, inventory and munitions) above 95% pass rate as
possible. The metrics are also utilized to pinpoint areas of
improvement at the local level. Using sample pass rate data for a
specific Army installation, we are able to provide feedback to
Commanders and installation personnel of issues identified or areas in
which they excel. This information is shared across the enterprise and
assists with the development and implementation of corrective actions.
[See page 21.]
______
RESPONSE TO QUESTION SUBMITTED BY MR. BANKS
Secretary Norquist. The Department has planned modifications to
existing systems that will help address audit findings, however none of
the Department's IT-related NFRs will require development or
acquisition of an entirely new system. [See page 21.]
______
RESPONSES TO QUESTIONS SUBMITTED BY MR. CISNEROS
Secretary Norquist. Commanders at all levels are accountable for
their inventories. Also, each of the military services has a designated
leader at headquarters who is responsible for driving accountability
throughout their organization. Please refer to the responses from Hon
Whitley, Hon Harker and Hon Roth for additional details specific to the
Department of the Army, the Department of the Navy and the Department
of the Air Force. [See page 25.]
[The information referred to was not available at the time of
printing.]
______
RESPONSE TO QUESTIONS SUBMITTED BY MS. HAALAND
Secretary Norquist. The DOD does not believe there are any budget
shortfalls related to environmental cleanup and funding in the FY 2020
President's Budget request is sufficient for the year. Environmental
and Disposal Liabilities (E&DL) represent expected future costs over
the life of cleanup efforts. Cleanup processes cannot be completed in a
single year with some operating for decades. [See page 26.]
=======================================================================
QUESTIONS SUBMITTED BY MEMBERS POST HEARING
May 16, 2019
=======================================================================
QUESTIONS SUBMITTED BY MR. CONAWAY
Mr. Conaway. As you know, the requirement in Section 1006 of the FY
2019 NDAA requires accounting firms that provide certain services to
the Department to inform the Department about disciplinary proceedings.
The FY19 Conference Report made clear that the statements provided by
the accounting firms should concern ``relevant'' disciplinary
proceedings. Does the Department have an interest in receiving or
reviewing reports of disciplinary proceedings that are irrelevant to
the services being provided to the Department? Would it be fair to say
that a ``relevant'' disciplinary proceeding would be a proceeding
against a person(s) who is actually providing audit or audit
remediation services to the Department? Furthermore, there are concerns
that these reporting requirements under section 1006 as currently
written only apply to ``accounting firms.'' However, there times when
non-accounting firms may compete against accounting firms for these
contracts. How does the Department intend to manage this potentially
unfair advantage?
Secretary Norquist. Potential Unfair Advantage: The Department is
acting in compliance with Section 1006 of the FY 2019 NDAA as written
stating that any accounting firm providing financial statement auditing
or audit remediation services to the Department must disclose all
relevant disciplinary proceedings. Relevant Proceeding: The Department
defines a relevant disciplinary proceeding as those against a person(s)
who is actually providing audit or audit remediation services to the
Department. Disciplinary Proceedings: The Department does not have an
interest in reviewing irrelevant disciplinary proceedings against an
accounting firm. Currently, Section 1006 of the FY 2019 NDAA only
requires accounting firms to disclose disciplinary proceedings and does
not include non-accounting firms. Non-accounting firms account for 28
percent of audit support services and 39 percent of audit remediation
services. For audit services, only accounting firms are eligible to bid
on and perform this work so unfair advantage is not of concern. For
audit remediation services, both accounting and non-accounting firms
are able to bid on and perform this work. We will be working with all
firms during the rule-making process to minimize the potential for any
unfair advantage.
______
QUESTIONS SUBMITTED BY MR. CISNEROS
Mr. Cisneros. What is the Army doing to ensure local commanders are
being held accountable for their inventories?
Secretary Whitley. Army policy mandates local commanders complete
annual 100% inventories of all property, which may be performed in a
single inventory or distributed throughout the year in cyclic
inventories. Cyclic inventory intervals and proportions of items are
directed in writing by the Accountable Officer. 100% joint inventories
are also mandated prior to a change of command, before the incoming
commander assumes responsibility for the organization. At the local
level, commands track the completion of cyclic inventories through a
variety of methods, including unit level Command and Staff updates and
Logistics Readiness Reviews. Army policy directs commanders to report
the results of the inventory to the Accountable Officer, with a signed
statement identifying discrepancies or certifying adjustment actions
have been taken for discrepancies. Army Regulation 735-5 Property
Accountability Procedures provides options to adjust for property. A
financial liability investigation is conducted when negligence or
misconduct is suspected; the loss exceeds an individual's base pay; or
the loss involves a sensitive item. Losses of sensitive items or final
losses over $100,000 also require a stricter investigation and General
Officer approval of the findings. Army Commanders and functional leads
meet monthly with the Vice Chief of Staff of the Army and Under
Secretary of the Army to report on their progress. These same leaders
meet quarterly with the Chief of Staff of the Army and the Secretary of
the Army to report on their progress. The Secretary of the Army and I
report Army's progress to the Secretary of Defense and the Deputy
Secretary of Defense, respectively, on a regular basis. In addition,
the Army has internal programs and organizations charged with holding
Commanders accountable for inventory through ensuring compliance with
inventory policies and procedures. These programs include the Command
Inspection Programs run by the Office of the Army Inspector General,
Internal Review Programs, and the Manager's Internal Control Program.
As a routine function of asset management, Commanders conduct monthly,
quarterly, and annual inventories to manage property assigned to their
command.
Mr. Cisneros. What is the Air Force doing to ensure local
commanders are being held accountable for their inventories?
Secretary Roth. [No answer was available at the time of printing.]
______
QUESTIONS SUBMITTED BY MR. WALTZ
Mr. Waltz. A significant amount of the General Funds appropriated
by Congress are used by the Department of the Navy and other DOD
Customers to issue reimbursable orders to Navy Working Capital Fund
Support Organizations operating under Working Capital Fund business
rules.
While Working Capital Fund operations are not the focus of this
hearing; critical operations such as depot maintenance, base support,
supply management, transportation and research and development are
funded with Working Capital Funds. The Department of the Navy (DON)
Fiscal Year 2017 Annual Financial Report on the Working Capital Fund
shows material weaknesses in financial management and the use of
inadequate financial management systems. This mismanagement of funds is
reflected in reports of discouraging trends in maintenance and
readiness of our Naval forces.
How is DON rectifying the financial management material weaknesses
for the Working Capital Funds? Does the DON have certified (or proven)
financial management systems in place capable of managing business type
financial management of Working Capital Funds? This would include
adhering to working capital fund principles of cost and performance,
effective cash management, revenue recognition, supply management, near
real-time reporting and stabilized rate structures while maintaining a
breakeven position?
Secretary Norquist. The DOD has prioritized findings and material
weaknesses in Real Property, Inventory and Operating Materials and
Supplies, Government Property in the Possession of Contractors, and
Information Technology for all Components with a focus on audit
findings that directly impact our operations and support of the
warfighter. These priorities also apply to the Navy's Working Capital
Fund as well as the Army Working Capital Fund and the Air Force Working
Capital Fund. Leveraging our Notice of Findings and Recommendations
(NFR) database, we have been aggressively monitoring and following up
with Reporting Entities implementing corrective actions to ensure rapid
resolution of NFRs and accountability. The Department of the Navy (DON)
has prioritized the streamlining of its system environment in its DON
Business Operations Plan. Some of Navy's legacy systems were designed
for material management purposes, but not to capture financial data in
a format conducive to producing financial statements in accordance with
generally accepted accounting principles. While this business
environment may represent a material weakness relative to financial
reporting, it does not necessarily mean funds are being mismanaged. The
DON is targeting a reduction from nine general ledger accounting
systems to two by October 2020, with the ultimate goal of one by 2021.
These migration efforts will result in a simplified systems environment
with one modernized ERP system and standardized business processes.
Please refer to the Hon. Harker's response for additional details.
Mr. Waltz. A significant amount of the General Funds appropriated
by Congress are used by the Department of the Navy and other DOD
Customers to issue reimbursable orders to Navy Working Capital Fund
Support Organizations operating under Working Capital Fund business
rules.
While Working Capital Fund operations are not the focus of this
hearing; critical operations such as depot maintenance, base support,
supply management, transportation and research and development are
funded with Working Capital Funds. The Department of the Navy (DON)
Fiscal Year 2017 Annual Financial Report on the Working Capital Fund
shows material weaknesses in financial management and the use of
inadequate financial management systems. This mismanagement of funds is
reflected in reports of discouraging trends in maintenance and
readiness of our Naval forces.
How is DON rectifying the financial management material weaknesses
for the Working Capital Funds? Does the DON have certified (or proven)
financial management systems in place capable of managing business type
financial management of Working Capital Funds? This would include
adhering to working capital fund principles of cost and performance,
effective cash management, revenue recognition, supply management, near
real-time reporting and stabilized rate structures while maintaining a
breakeven position?
Secretary Whitley. In FY18, the auditor issued 111 findings
specific to the Working Capital Fund plus an additional 50 findings
related to the Working Capital Fund and General Fund. These findings
were summarized into 12 material weaknesses for the Army Working
Capital Fund. To address these findings, the Army has developed and is
implementing 180 corrective action plans (CAPs) to remediate all of
these findings and close the material weaknesses. Army's goal is a
modified opinion on the Working Capital Fund financial statements in
FY21. The Army does have dedicated financial management systems in
place capable of managing business type financial management details
for Working Capital Fund. The core system is the Logistics
Modernization Program (LMP). The LMP Product Office worked from FY15 to
FY18 to implement CAPs for 29 NFRs related to IT general controls. The
number of NFRs decreased from 29 (FY15) to 22 (FY16) to 12 (FY17) to 3
(FY18). Currently, LMP has no specific outstanding findings, but is
covered by one entity-level finding on end-user access controls.
Mr. Waltz. A significant amount of the General Funds appropriated
by Congress are used by the Department of the Navy and other DOD
Customers to issue reimbursable orders to Navy Working Capital Fund
Support Organizations operating under Working Capital Fund business
rules.
While Working Capital Fund operations are not the focus of this
hearing; critical operations such as depot maintenance, base support,
supply management, transportation and research and development are
funded with Working Capital Funds. The Department of the Navy (DON)
Fiscal Year 2017 Annual Financial Report on the Working Capital Fund
shows material weaknesses in financial management and the use of
inadequate financial management systems. This mismanagement of funds is
reflected in reports of discouraging trends in maintenance and
readiness of our Naval forces.
How is DON rectifying the financial management material weaknesses
for the Working Capital Funds? Does the DON have certified (or proven)
financial management systems in place capable of managing business type
financial management of Working Capital Funds? This would include
adhering to working capital fund principles of cost and performance,
effective cash management, revenue recognition, supply management, near
real-time reporting and stabilized rate structures while maintaining a
breakeven position?
Secretary Harker. The Department of the Navy is undergoing a
financial management transformation that addresses both the General
Fund and Working Capital Fund material weaknesses identified in the FY
2017 and 2018 financial audits and improves management of Working
Capital Fund activities. There are four key aspects focused at directly
addressing the identified underlying root causes:
1) Decommissioning legacy financial systems and consolidating on a
single, modern ERP. Migration work is underway and all Working Capital
Fund activities are scheduled to migrate to ERP by FY 2021.
2) Executing a business process re-engineering effort to
consolidate systems and implement modern, standardized, and streamlined
business processes. Work is underway on inventory and supply chain
management, including the implementation of a modern logistics system,
further consolidation of supply chain systems, and improved inventory
management processes.
3) Develop and deploy a more robust OMB A-123 internal control
environment, including system, process, and management oversight
controls.
4) Where possible, realign funding to the point of execution to
reduce the reliance on the General Fund to General Fund reimbursable
agreements and improve transparency and oversight.
Mr. Waltz. A significant amount of the General Funds appropriated
by Congress are used by the Department of the Navy and other DOD
Customers to issue reimbursable orders to Navy Working Capital Fund
Support Organizations operating under Working Capital Fund business
rules.
While Working Capital Fund operations are not the focus of this
hearing; critical operations such as depot maintenance, base support,
supply management, transportation and research and development are
funded with Working Capital Funds. The Department of the Navy (DON)
Fiscal Year 2017 Annual Financial Report on the Working Capital Fund
shows material weaknesses in financial management and the use of
inadequate financial management systems. This mismanagement of funds is
reflected in reports of discouraging trends in maintenance and
readiness of our Naval forces.
How is DON rectifying the financial management material weaknesses
for the Working Capital Funds? Does the DON have certified (or proven)
financial management systems in place capable of managing business type
financial management of Working Capital Funds? This would include
adhering to working capital fund principles of cost and performance,
effective cash management, revenue recognition, supply management, near
real-time reporting and stabilized rate structures while maintaining a
breakeven position?
Secretary Roth. [No answer was available at the time of printing.]
[all]