[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
RESULTS OF THE DEPARTMENT OF DEFENSE'S FISCAL YEAR 1999 FINANCIAL
STATEMENTS AUDIT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
MAY 9, 2000
__________
Serial No. 106-200
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
70-660 DTP WASHINGTON : 2001
_______________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
HELEN CHENOWETH-HAGE, Idaho (Independent)
DAVID VITTER, Louisiana
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Lisa Smith Arafune, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Government Management, Information, and Technology
STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois JIM TURNER, Texas
THOMAS M. DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon MAJOR R. OWENS, New York
DOUG OSE, California PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin CAROLYN B. MALONEY, New York
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
Louise DiBenedetto, Professional Staff Member
Bryan Sisk, Clerk
Trey Henderson, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on May 9, 2000...................................... 1
Statement of:
Coburn, General John G., Commanding General, U.S. Army
Materiel Command; General Lester L. Lyles, Commander, Air
Force Materiel Command; and Vice Admiral James F. Amerault,
Deputy Chief of Naval Operations........................... 117
Lieberman, Robert J., Assistant Inspector General for
Auditing, Department of Defense............................ 3
Lynn, William J., Under Secretary of Defense (Comptroller),
Chief Financial Officer, Department of Defense, accompanied
by Nelson E. Toye, Deputy Chief Financial Officer.......... 83
Steinhoff, Jeffrey C., Acting Assistant Comptroller General,
Accounting and Information Management Division, U.S.
General Accounting Office, accompanied by Lisa G. Jacobson,
Director, Defense Audits; and David R. Warren, Director,
Defense Management Issues.................................. 26
Letters, statements, etc., submitted for the record by:
Amerault, Vice Admiral James F., Deputy Chief of Naval
Operations, prepared statement of.......................... 134
Coburn, General John G., Commanding General, U.S. Army
Materiel Command, prepared statement of.................... 118
Lieberman, Robert J., Assistant Inspector General for
Auditing, Department of Defense, prepared statement of..... 5
Lyles, General Lester L., Commander, Air Force Materiel
Command, prepared statement of............................. 127
Lynn, William J., Under Secretary of Defense (Comptroller),
Chief Financial Officer, Department of Defense, prepared
statement of............................................... 86
Steinhoff, Jeffrey C., Acting Assistant Comptroller General,
Accounting and Information Management Division, U.S.
General Accounting Office, prepared statement of........... 29
Turner, Hon. Jim, a Representative in Congress from the State
of Texas, prepared statement of............................ 143
RESULTS OF THE DEPARTMENT OF DEFENSE'S FISCAL YEAR 1999 FINANCIAL
STATEMENTS AUDIT
----------
TUESDAY, MAY 9, 2000
House of Representatives,
Subcommittee on Government Management, Information,
and Technology,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2154, Rayburn House Office Building, Hon. Stephen Horn
(chairman of the subcommittee) presiding.
Present: Representatives Horn, Walden, and Turner.
Staff present: J. Russell George, staff director and chief
counsel; Louise DiBenedetto, professional staff member; Bonnie
Heald, director of communications; Bryan Sisk, clerk; Trey
Henderson, minority counsel; and Jean Gosa, minority assistant
clerk.
Mr. Horn. The Subcommittee on Government Management,
Information, and Technology will come to order.
The subcommittee recessed after this morning's hearing, and
we will proceed today with the results really of the Department
of Defense's fiscal year 1999 financial statements audit.
In February, the subcommittee began its third series of
hearings to examine the results of financial audits of selected
Federal agencies. Since then, we have learned that agencies
have made some progress, especially in the area of receiving
unqualified audit opinions. However, the important goal of
maintaining financial systems that produce accurate, reliable
financial information on a day-to-day basis continues to be a
significant challenge to nearly all Federal departments and
agencies, including the Department of Defense.
Fiscal year 1999 is the 4th year the Department of Defense
has prepared agencywide financial statements and the fourth
time that the Department's Inspector General could not express
an opinion on these statements. The Defense Department's
financial information is simply not reliable.
The financial management deficiencies at the Department of
Defense continue to represent the single largest obstacle in
preventing the U.S. Government from achieving an unqualified
opinion on its governmentwide financial statements. As a
result, the assets, the liabilities, and net costs of the
entire Federal Government continue to be questionable.
Again this year, the Inspector General reported that the
Department of Defense cannot accurately report on its finances,
including an estimated $196 billion in military retirement
health benefits, $80 billion in environmental cleanup
liabilities, and $119 billion in general property, plant, and
equipment.
The Inspector General also reported that the Department had
to process $7.6 trillion in accounting entries to correct
errors, add new data and force its financial data to agree with
other data sources. At least $2.3 trillion of that money was
not supported by documentation.
Last month, the General Accounting Office, Congress's own
auditor program fiscal and part of the legislative branch,
found that controls over ready-to-fire, hand-held rockets, and
missiles at one Army depot in Kentucky were inadequate, leaving
these weapons vulnerable to undetected loss, theft, or
unauthorized use. The General Accounting Office noted that
although these problems were specific to one depot, it could
represent a possible systemic weakness throughout the Army.
In addition, auditors found that again in 1999, the
Department of Defense was still unable to account for and
control more than $1 trillion in physical assets, including
ammunition and multimillion dollar weapons systems.
These are just a few of the significant problems identified
in the 1999 financial audit. Such lack of accountability,
frankly, cannot continue.
The Inspector General, the General Accounting Office, and
Defense Department officials acknowledge that the Department's
financial management systems are plagued with serious problems,
in fact, so serious Department officials feel about this, they
do not anticipate having adequate financial systems that can
produce reliable information until the year 2003.
Because of the significance of these problems, Department
leaders must be committed to addressing both long-term and
short-term issues. Today, we want to learn about the Defense
Department's incremental improvements to its financial
management systems and operations. We also want to explore what
is being done to fix its serious, long-term financial problems.
We welcome each of our witnesses and look forward to your
testimony. I'd like to especially thank our distinguished
guests on panel II for accommodating our invitation on such
short notice: Commanding General John G. Coburn, Commander
Lester Lyles, and Vice Admiral James F. Amerault. We thank you
all.
Just to give you the way we approach this, we do swear in
all witnesses, and we don't want you to read your text. We'd
just like you to summarize it, because we want to get you out
of here on time. I believe General Coburn has to leave, and I
think Mr. Lynn has to leave, and we want to get the most out of
you while you're here.
Those texts automatically that are written go into the
hearing record the minute I welcome you as one of the
presenters; and what we prefer, of course, is that summary that
you can make. And then we can get into a dialog between those
at the table, GAO, and Defense Department as well as those up
here in terms of asking various questions for the majority and
the minority. Although this is a very bipartisan committee, the
questions are probably the same whether it's minority or
majority.
So let us start in then with the first presenter, and that
is Robert J. Lieberman, the Assistant Inspector General for
Auditing of the Department of Defense. Mr. Lieberman.
I should swear you all in. If you've got some staff behind
you that will whisper in your ear, get them up, too.
[Witnesses sworn.]
Mr. Horn. The clerk will note that they affirm the oath.
Mr. Lieberman.
STATEMENT OF ROBERT J. LIEBERMAN, ASSISTANT INSPECTOR GENERAL
FOR AUDITING, DEPARTMENT OF DEFENSE
Mr. Lieberman. Thank you.
Chairman Horn, Mr. Turner, I appreciate the opportunity to
be here today to talk about DOD financial management. The DOD
efforts to compile an audit of the fiscal year 1999 financial
statements were massive. Nevertheless, the Department could not
overcome the impediments caused by poor systems and inadequate
documentation of transactions and assets.
In terms of audit opinions, therefore, the results differed
little from previous years. A clean opinion was issued by us
for the Military Retirement Fund, but the other funds of the
Department, including the consolidated statements, were not in
condition to merit a favorable audit opinion. So we had to
disclaim.
The GAO written testimony elaborates on results of our
audits in considerable detail, so I won't repeat the rather
lengthy list of deficiencies that precluded favorable audit
opinions. Suffice it to say my office issued 36 reports over
the last 12 months. I believe one of them was good news. The
extent to which DOD must rely on unusual accounting entries to
compile financial statements, which has been reported by
auditors annually for 10 years but not fully measured until
this year, perhaps would be instructive in terms of laying out
how far the Department has to go to fix its financial systems.
So I'm going to focus on that a bit in this summary.
When the financial reporting system of a public or private
sector organization can't produce fully reliable financial
statements, accountants sometimes make accounting entries,
often as recommended by auditors, to complete or correct the
statements. Making major entries or adjustments is not the
preferred way of doing business, and there is considerable
attention paid to any significant change made to official
accounting records.
The notion of accounting records being made on a mass scale
to compensate for incomplete and inaccurate financial reporting
input is completely foreign to corporate America, as is the
prospect of such adjustments being unsupported by clear audit
trails. Unfortunately, the audits of the DOD financial
statements indicated that at least $7.6 trillion worth of
accounting entries were made to compile them. This startling
number is perhaps the most graphic imaginable indicator of just
how poor the existing automated systems are.
The magnitude of the problem is further demonstrated by the
fact that out of $5.8 trillion of these adjustments that we
audited this year, $2.3 trillion were unsupported by reliable
explanatory information and audit trails. Although there are
procedural control issues involved, fundamentally, DOD needs
across-the-board automated systems solutions so that it can
compile financial statements like any other large business
entity would and does.
Unfortunately, developing automated systems on time and
with adequate performance has never been the Department's
strong suit, and it is still in the process of implementing the
Clinger-Cohen Act. We have suggested that, in order to provide
additional assurance that the systems development efforts
necessary to achieve CFO compliance are successful, the
Department adopt the same management approaches that were used
for the successful year 2000 conversion.
That's still an ongoing process. Implementation, frankly,
has been slower than we would have liked. We intend to continue
working closely with the Department to try to put that full
process into place. The advantage of that process is, among
other things, that it generates measurement information that
can be used by the Congress, by senior DOD managers and other
interested parties to understand how much progress has actually
been made toward the goal.
Right now, we're relying strictly on audit opinions for
such information; and using audited opinions as the sole metric
is really not satisfactory because a lot of progress can go on
and not affect the overall opinion. I give at least one example
of that in my statement.
I also stress environmental liabilities in my written
statement. There are a couple dozen major categories of
deficiencies that we could have selected. I picked that one
because it is, first of all, fairly easily understandable; and
it also shows you the kinds of issues involved as we try to
create Federal accounting standards that make sense for the
Federal Government, generate information for financial
statements that would be useful to the Congress and the
executive branch and, finally, get all the different DOD
components who have a share of those liabilities to compute
them and report them so that they can be compiled. Each one of
these several dozen categories of information that has to be
collected is monumental in its own right.
As you mentioned, the Department reported almost $80
billion in environmental liabilities. We feel that's
considerably understated. We know that it is understated. These
are large numbers. In every case they have to be compiled with
the input of hundreds of different program offices and in some
cases many dozen automated systems. Meeting that formidable
challenge has been a high priority for the Department for 10
years.
As you said, the Department has candidly said that its
systems problems will not be solved before 2003; and even that
probably is an optimistic estimate, given the fact that most
system projects schedules slip both in the public and private
sectors.
With that, I'll close and welcome any questions.
Mr. Horn. Thank you very much.
[The prepared statement of Mr. Lieberman follows:]
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Mr. Horn. We now have the next presenter from the General
Accounting Office, Jeffrey C. Steinhoff, who is Acting
Assistant Comptroller General for the Accounting and
Information Management Division.
STATEMENT OF JEFFREY C. STEINHOFF, ACTING ASSISTANT COMPTROLLER
GENERAL, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S.
GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY LISA G. JACOBSON,
DIRECTOR, DEFENSE AUDITS; AND DAVID R. WARREN, DIRECTOR,
DEFENSE MANAGEMENT ISSUES
Mr. Steinhoff. Mr. Chairman, it's a pleasure to be here
today to discuss the state of financial management at DOD. The
bottom line, DOD continues to make important progress in
addressing its serious financial management weaknesses; and, at
the same time, it has a long way to go.
DOD's problems are pervasive, long-standing, deeply rooted,
widespread, and complex in nature. What has been markedly
different over the past 2 years is that DOD has, for the first
time, clearly demonstrated a strong commitment to addressing
its serious weaknesses. A number of important initiatives, both
short-term and long-term, are under way and planned; and we're
seeing positive results, as the IG just mentioned. I applaud
Bill Lynn and his team for their efforts.
This commitment, though, must be sustained over a number of
years to turn plans into reality. A big challenge remains, and
the finish line is not yet in sight. For that matter, it's not
even close.
For the short term, continuing efforts to standardize,
streamline, and simplify processes--reengineering will be
critical to success, as DOD's current processes are extremely
convoluted and complex; to strengthen and enforce existing
controls; to ensure basic transaction processing which today is
a major impediment as the IG pointed out, to enhance human
capital; and to oversee performance will be essential.
At the heart of the long-term challenge, and this is a
major challenge, is a financial system that is far from
compliant with requirements of the Federal Financial Management
Improvement Act and needs to be overhauled. The system is not
integrated or tied together and really represents a patchwork
of systems that individually have weaknesses, some very
serious, and collectively just do not get the job done.
Information does not automatically flow from system to system,
and it really manifests itself as the IG stated, in the $7.6
trillion of adjustments to prepare DOD's fiscal year 1999
financial reports.
And to give you some sense as to the difficulty of the
challenge that DOD faces, this is DOD's own depiction over at
your right on the poster board, of the current systems
environment for its payment system, which as you can readily
see, is overly complex. Around the outer edge are 22 payment
systems that are fed by numerous other systems, systems that
are generally not compatible or properly integrated and often
do not use common data codes.
For example, I have an example in my detailed testimony of
a 65 character code. It's my understanding that some codes can
exceed 100 digits. You make an error on one digit, the
transaction gets rejected, it goes into suspense. You have to
find it. They are very complex systems. In a nutshell, this
tells the story as to what they are trying to fix and this is
just one environment. Compounding the challenge is that most of
the information needed to prepare annual financial reports and
more importantly, I stress more importantly, to manage DOD's
resources on a day-to-day basis comes from program or feeder
systems--logistics, acquisition personnel--that are not under
the direct control of the DOD Comptroller.
He owns about 20 percent of the information. The other
managers own the rest. So to achieve the endgame of the CFO
Act--and the endgame is beyond financial reporting, it's not a
clean audit opinion. It is systems that routinely generate good
information for decisionmaking on a day-to-day basis so the
gentlemen you'll be hearing on the next package have the data
they need to do their jobs well. That's the endgame here. To
achieve that endgame, DOD faces a system challenge that far
transcends the operation of the Comptroller. I agree fully with
the IG and support the efforts by DOD to use the Y2K process as
a mechanism for addressing this.
There are great lessons learned by DOD. They had had a
success.
I want to just focus on a couple of elements that I think
are particularly important though. One, DOD recognized in Y2K
that this was not just a CIO issue. This was a chief executive
officer issue and the Deputy Secretary took direct control.
Once that occurred, you saw a major change. You saw them moving
there from the back of the pack up through till they had
ultimate success.
The issue with financial management as well as Y2K
transcends the operations of DOD and the same type of high-
level focus is needed. Several weeks ago, we issued this
Executive Guide: Creating Value Through World-class Financial
Management. And there are a lot of lessons learned here. This
is what successful organizations do. This is how they have
success. Organizations like Boeing, Chase Manhattan, GE,
Hewlett-Packard, Owens Corning, and Pfizer. They determined
that financial management is an entity-wide priority for which
the chief executive provides clear, strong leadership including
involvement in systems.
Second, Y2K had a date certain. It also had interim
milestone dates which were tracked and reported on. The same
can be applied here. A clear plan with an end date and enforced
interim milestones will be essential.
Third, as the IG representative, Bob Lieberman stated, DOD
must follow a standard discipline approach. It will be
imperative that there be no shortcuts taken, that Clinger-Cohen
be followed.
Systems development has been a high risk area in DOD on
GAO's list since 1995. Their last big effort, the corporate
information management initiative, went on for about a decade
and did not succeed; so it is very important that this project
be very closely monitored.
And finally, for Y2K there was extensive validation and
verification by the IG as well as end-to-end testing. It just
can't be in the environment of preparing financial reports.
This all has to be addressed in the environment of having
management information for DOD.
In closing, a sustained high level commitment that
transcends this administration will be key to the ultimate
success of DOD's reform efforts. Likewise, sustained
congressional attention such as this hearing and the light
you've placed on this issue over the past 5 years will be
critical to really instilling the expected accountability in
DOD.
Mr. Chairman, this concludes my remarks. I'd be pleased to
answer any questions that you or Mr. Turner may have.
Mr. Horn. Thank you very much.
[The prepared statement of Mr. Steinhoff follows:]
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Mr. Horn. As usual, we have had some excellent
presentations so far, and we now move to the honorable William
J. Lynn, Under Secretary of Defense Comptroller and Chief
Financial Officer of the Department of Defense. He's
accompanied by Nelson Toye, Deputy Chief Financial Officer. So
Mr. Lynn.
STATEMENT OF WILLIAM J. LYNN, UNDER SECRETARY OF DEFENSE
(COMPTROLLER), CHIEF FINANCIAL OFFICER, DEPARTMENT OF DEFENSE,
ACCOMPANIED BY NELSON E. TOYE, DEPUTY CHIEF FINANCIAL OFFICER
Mr. Lynn. Thank you very much, Mr. Chairman, members of the
subcommittee. Mr. Chairman, I do welcome the opportunity to be
here today to discuss the financial management of the
Department of Defense. As you already entered my formal written
statement into the record, I'll just cover a few of the high
points in my opening statement as you requested and then turn
to your questions.
About a year ago I appeared before this subcommittee to
discuss the Department's financial management initiatives. I
said then and repeat now that financial management reform
continues to be a high priority for the Department's senior
leaders. As the Department's Chief Financial Officer, financial
management reform is my highest priority. I remain encouraged
by our substantial progress and in particular by the commitment
of the people advancing that progress, but as has been pointed
out here today by the other witnesses, we have much left to do.
Today what I'd like to do is give you a status report on
our major initiatives and highlighted challenges ahead. While
the Department has had many notable successes in its financial
management reform, the reality is that it's impossible to
overhaul our financial management operations overnight. The
plan reforms will require years to fully implement and require
a sustained commitment over not just this administration but
future administrations. Nonetheless and though much remains to
be done, we are making progress.
Let me divide financial management reform of the Department
into thee major phases. The first phase is to consolidate our
financial management operations. That phase is complete. We
have consolidated over 300 finance and accounting field sites
scattered throughout the world into 26 locations. That in
itself has produced financial savings over $120 million
annually. More importantly, this organizational consolidation
has enabled the second phase of financial management reform,
the elimination of incompatible and not compliant financial
systems.
This phase two is well under way. The number of non-
compliant finance and accounting systems has been significantly
reduced. In 1991, we had 324 finance and accounting systems.
None of them met today's requirements. Today we are down to 96
and by 2003, we expect to have about 30 finance and accounting
systems overall a 90 percent reduction, and we expect all of
those finance and accounting systems to be compliant with
current accounting standards. If we succeed at that, Mr.
Chairman, we will have brought DOD from very low standard in
terms of other commercial style entities up to the head of the
class in terms of the number and the compliance of its finance
and accounting. We're about two-thirds of the way there, and we
intend to finish it.
The third phase: We've recently initiated this phase which
is to upgrade the interfaces with functional systems that feed
data into finance and accounting reports. More than 80 percent
of the data on DOD's financial statement comes from outside the
finance and accounting network. The data comes from personnel,
from acquisition, from logistics, from medical, and other
systems. It has to be inputted into the finance and accounting
systems to provide the finance and accounting or provide the
accounting reports that are necessary to produce audited
financial statements and to produce the kind of management
information that's needed to oversee the Department.
Establishing a seamless connection between these so-called
feeder systems and the accounting systems used to prepare
financial statements is the crucial final step in financial
management reform. These feeder systems were developed and put
into service well before the promulgation of Federal accounting
standards. They simply were not designed to produce business-
style financial statements. Accordingly, much of our financial
information has to be manually transfered from these systems
into the accountant system. Indeed, some of the information
that the auditors insist upon is simply not available within
those systems at all and therefore has to be estimated in some
way.
The systems just don't produce the information. Let me give
you an example. Our inventory systems primarily are designed to
maintain records on the latest acquisition costs. This is the
data the logistic managers find most critical. The systems do
not retain, in most, cases the historical costs of items, which
is the data that the auditors want for their financial
statements--for our financial statements. We are moving to
upgrade our inventory systems to retain both historical and
latest acquisition costs, so that single inventory system will
produce both the data needed to manage the logistic system as
well as to produce the finance and accounting statements, but
this is an expensive and laborious process. It is going to take
several years.
The third phase of this--of financial management reform is
going to extend well beyond the financial arena. It touches
nearly every other function of the Department. To oversee this
massive effort, we've accepted the recommendation of both the
GAO and the IG that we establish a Y2K-like process run by a
panel. The panel will report to the Deputy Secretary through
the defense management counsel and the panel will as in the Y2K
effort establish milestones, review progress, and monitor
implementation to move the 70 or so critical feeder systems
into compliance with current accounting standards.
In order to accomplish the fundamental financial management
reform that we have in mind, we will have to complete this
effort to establish the interfaces with all these critical
feeder systems. This will take several years and substantial
new resources. In the interim, however, we believe we can make
substantial progress toward earning an unqualified audit
opinion for the Department.
Toward that end, we've collaborated the organizations and
individuals represented at this table to identify major
obstacles that must be overcome for the Department to be
successful. We have developed interim solutions to systemic
problems, and we are applying accounting and auditing standards
in ways that make sense for the Department of Defense. Major
deficiencies that have prevented us from receiving a favorable
audit opinion in the past have been identified; strategies to
deal with those deficiencies have been developed and are being
coordinated with my colleagues at this table today. Details of
those strategies are discussed at some length in my written
statement for the record. I'm happy to go into further detail
on any questions you might have.
Let me close, Mr. Chairman, by saying that during my tenure
as the Department's Chief Financial Officer, I witnessed
substantial progress and an extraordinary transformation of our
financial activities as well as other financial areas with
which those activities must interact. This progress reflects a
collective effort spanning both the financial and the non-
financial communities.
I want to publicly acknowledge and offer my sincere thanks
to my staff as well as the staff element also of the other
principles within the office of the Secretary of Defense, the
Defense Accounting Service, the military departments and the
defense agencies for their hard work and for their dedication.
In sum, we have built a strong financial management reform
foundation upon which those that follow us can build. We remain
determined to have financial management reform so well advanced
by the time the next DOD leadership team takes over, that it
will conclude that completing the job is not only wise and
necessary but achievable.
Our DOD leadership team also has been determined to keep
foremost in our minds that the Department's primary mission is
national security. Our reforms must support that mission, not
burden the troops and support activity who fulfill it.
We've been asked by Congress and the audit community to do
things not previously required of the Department. Our challenge
is to design such new procedures so that they enhance, not
diminish the Department's management and leadership and the
accomplishment. Its overall mission. In closing, Mr. Chairman,
I would like to thank you and the subcommittee for this
opportunity to discuss financial management reform within the
Department. I'm happy to answer your questions.
[The prepared statement of Mr. Lynn follows:]
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Mr. Horn. Thank you very much, Mr. Secretary. I'd like to
know how you're proceeding to make sure that next year this
situation will not occur. Are you working with the services and
your people working with the services? Who are we pulling
together to get the seriousness of this situation, and how are
you going about it just as an open-ended question?
Mr. Lynn. Mr. Chairman, we have two approaches. We have a
short-term and a long-term approach as I alluded to in my
statement. Over the long term, as I think the other witnesses
indicated, the only solution is systemic improvement. We need
to get the finance and accounting systems compliant with the
CFO Act and the other legislative requirements and we need--
we're well within range on that.
Bob Lieberman may be right. 2003 is aggressive and
optimistic but we're not going to be far off of that and I
think he would probably agree with that, that we're going to be
very close to achieving that date or something close to it for
the finance and accounting systems. But for the other systems
which comprise 80 percent of the data, the challenge is even
stronger because those systems were never designed to provide
this kind of data and it requires a complete overhaul of at
least 70 critical systems.
To undertake that, our long-term approach is to set up
exactly as has been recommended, a Y2K-like process that will
take as we did with Y2K, take those 70 systems, go through the
5 phases starting with awareness through renovation to
compliance and testing. As we move each of those systems into a
compliant phase, we'll improve the financial management data of
the Department.
That's a multi-year process. In order not to be waiting in
line for that development, we've also developed a short-term
process, short-term meaning less than multiple years but
probably will take us at least 2, maybe 3 more years at least
which is to develop, try to get a clean opinion by tackling
deficiency, by deficiency, the problems that we have, working
with the audit community, trying to develop--work around trying
to develop auditable estimates. Where we can't produce the data
through the systems, we work through the general property area
relatively well on that area.
We're working now on the personal property area. We started
to discuss some of the areas that were mentioned at the other
end of the table in terms of environmental liabilities and
health care liabilities. We're trying to take each of the major
show stoppers that the auditors have identified and develop a
short-term process that will give us more reliable data such
that we hope we can get a clean opinion.
Mr. Horn. In testimony that will come after you leave,
General Coburn will have spoken of several significant
initiatives under way in terms of the Army and particularly the
materiel command of which he's commanding general. I'm curious
and also General Lyles for the Air Force materiel, he will have
stated that the imperfect data is inevitable due to the 161
feeder systems that use thousands of interfaces to pass
critical information. Now, Mr. Steinhoff noted in his testimony
that the logistics systems and the general ledger systems are
not integrated. Is that true?
Mr. Lynn. Yes, it is.
Mr. Horn. And what are we doing to try to get those? You
know, about 4 or 5 years ago when Mr. Hamre came up here, my
hearing was titled ``what did you do with the $25 billion we
can't find.'' So I asked John how many years is it going to
take to untangle that. He said, well, give me a couple of
years. A couple of years went by and presumably you had it down
to about $10 billion instead of the $25 billion and a lot of it
was in the Columbus, OH, Army processing operation where checks
were just spewed out to small business people, etc. And I
wondered are we getting on top of acquisition and inventory so
you can find some of these things and what's your feelings on
this.
Mr. Lynn. I think what you're talking about in terms of the
numbers with Dr. Hamre were problem disbursements. We brought
problem disbursements down from a high of I think $31 billion
half a dozen years ago to about $5 billion today.
We are gradually and steadily making progress on this.
Progress, it involves going out to two causes. One of the
causes was in fact the consolidation I described at the
beginning of my testimony. When we pulled 330 finance and
accounting stations into 26, there were inevitable difficulties
in terms of recordkeeping and establishing proper internal
controls.
We've had a number of issues. I think we have resolved most
of those. We've now completed that consolidation as I said 2
years early, and I think we're working through now most of the
organizational impediments to those problem disbursements. What
remain are system impediments. In order to properly account for
all of the disbursements and match them with the corresponding
obligations, what we need are automated systems ultimately.
That is, as I say by 2003 we think we will have those. We're
about two-thirds of the way to that. It's that two-thirds of
the way that has produced the progress that we've had to date
and I think we will bring the number down very much further as
we bring on the other third of new finance and accounting
systems.
Mr. Horn. You obviously have jurisdiction over the three
basic services; and when you look at some of that from how a
financial statement is prepared, are the three services able to
get commonality in terms of inventory categories? I realize
they are very different between services, but that's something
that the private sector certainly can solve. And when you've
got different corporations under one large corporation in terms
of a conglomerate, what's your feeling in terms of the services
where the core of this whole operation starts with them and the
only reason we have a Department of Defense is--that's to
coordinate the efforts of the basic services. And of course,
we've evolved in the last 20, 30 years with super agencies
within Defense on accounting logistics and all that.
What's your feeling? Are you getting the basic raw material
on the right steps that it aggregates to the financial
statement or have we got weird things going on in the three
services so they can never get in something that is inputted
when it's aggregated step after step. So I'm just curious how
difficult that is when you look at it from the top of the
Pentagon to the people you're serving down at the bottom. How
do you deal with that?
Mr. Lynn. There is certainly as you say, Mr. Chairman,
inconsistencies between how the different military departments
treat issues although I would not trace our challenges and
problems to that primarily. We are generally able to overcome
those inconsistencies and in particular with the establishment
of the Defense Finance and Accounting Service, we're able to
establish common policies and definitions and use those to
build financial statements.
I don't think it's cross service inconsistencies that cause
our problems at least primarily. The problems we have primarily
and what I alluded to in our statement is the bulk of the
systems and the systems for which the next panel is responsible
for were never constructed to produce the kind of financial
data that's necessary for financial statements. We're
endeavoring to change those systems to put modules in those
systems or to upgrade those systems to provide that data, but
that's a massive task. That's the challenge. It's that
challenge in changing the systems to establish a seamless Web
from the logistics systems, from the personnel systems, from
the medical systems into the finance and accounting systems. We
need to be able to transfer that data in a seamless automated
way. We're not now able to do that, and that's our main
challenge.
Mr. Horn. So you're optimistic. Is that what that boils
down to?
Mr. Lynn. Yes.
Mr. Horn. The basic number of accounting systems I assume
was merged a little bit during the Y2K exercise. What number of
accounting systems do you have within the Department of Defense
at this point?
Mr. Lynn. We have 98 finance and accounting systems. We can
provide that for the record.
Mr. Horn. Please provide it for the record.
I think there's been a figure when General Page was
testifying here, and there was more than that 10 years ago.
Mr. Lynn. 10 years ago there were 330.
Mr. Horn. Was that it; 330?
Mr. Lynn. Approximately, yes.
Mr. Horn. Well, do you think--how much further do you think
we can go with some basic accounting systems?
Mr. Lynn. We think we can get the finance and accounting
systems down to about 30.
Mr. Horn. Have you ever examined some large corporations in
this country and looked at how they do this? And have we
learned anything from it, or is it something that just isn't
relevant?
Mr. Lynn. It's relevant although not completely. The
purposes for which commercial entities use financial statements
are quite different. They use them in terms of bond ratings, in
terms of loans. Frankly, we're not interested in valuing the
Department so we can sell it. It's the--the differences are
substantial; but where we have a common ground with commercial
entities is, and I think it's what Jeff Steinhoff talked about,
it's not the financial statement itself. It's the underlying
systems that produce the data in the financial statement. And
their corporate leaders need reliable and accurate financial
data and so too does the Department. So to the extent that a
financial statement is just a measure of your systems' ability
to produce reliable and accurate data, then it's an important
measure for the Department although the use in and of itself of
that statement is quite different than in the corporate world.
Mr. Horn. I'm curious. Mr. Steinhoff, you've heard the
testimony of Mr. Lynn. Where are the weaknesses?
Mr. Steinhoff. Basically the weaknesses are in the systems.
They've got disparate systems that were developed in a stove
pipe environment, each service developing its own systems over
the years. The systems don't work as intended. They don't tie
together. They are not integrated. As all the panelists have
said today, the systems can't readily exchange information. It
has to be drawn out from the systems and even then you don't
know if it is, in fact, reliable.
There's a big problem in processing transactions. It's an
incredibly complex environment. One study done by the Air Force
a few years ago found that if they changed the way they
accounted for reparable items, in accord with private sector
accounting, they wouldn't care if an item went from one status
to another for purposes of accounting. But in DOD the way the
system was designed, they accounted for every separate event.
The study that was done for the Air Force found that they could
have eliminated 155 million transactions or 78 percent of the
transactions being processed. So they've got just a huge volume
of transactions from systems that were developed many years ago
and were not developed under a systems architecture for the
Department.
You asked a little bit about best practices or what's done
in the private sector. What we found in our study is that the
finance and accounting doesn't sit separately in the private
sector. It's integrated into the business processes. It's part
of the business processes, and whatever comes out of the
business process is adequate for financial reporting. The key
being real time information of value to the business managers,
which is the endgame the Comptroller General talks about.
What we're really looking for is for the financial
information to come from the business systems as a by-product
and for financial reporting to be something that just routinely
occurs. Social Security is preparing their financial report
within a matter of weeks after the close of the fiscal year
whereas many departments struggle and take months and months
because the systems, in fact, are not tied together.
Mr. Horn. Well, we thank you. I now yield 15 minutes to my
colleague, the ranking member, Mr. Turner, the gentleman from
Texas.
Mr. Turner. Mr. Steinhoff, I want you to try to illustrate
the importance of the issue we're discussing today by maybe
giving us a few examples of what this failure to have these
systems in place and to have the seamless transition data from
the logistics personnel, medical, other systems and the
financial management systems, what's this costing us? What's
the cost to the taxpayers for the failure to come to grips with
this issue that we come and talk about year after year which we
still are talking about dates in the future when we hope maybe
the financial and accounting systems will be in place in 2003
and then we haven't even talked about dates to get systems in
place beyond that. Give us some sense of--if this is just a
matter that accountants would like to talk about, then we can
keep talking about this year after year; but somewhere in here
I suspect there's a significant cost to the taxpayers for our
failure to come to grips with this.
Mr. Steinhoff. This has adverse impacts on the ability to
control costs in the Department. For example, Defense has
recognized the lack of cost-accounting systems to be one of its
major impediments to controlling the cost of weapons systems.
Also, for the past several years, has had large losses in
its working capital funds, in part because it's very difficult
to set prices without good cost information. In addition,
because of weaknesses in the systems, visibility over billions
of dollars of assets have, in fact, been lost which puts these
items at risk and also is one factor in purchasing items that
are not needed. At the end of fiscal year 1999, I believe about
58 percent of Defense's secondary inventory, about $37 billion,
is in long supply or unneeded. In part, visibility and good
accounting information is one reason for that, not the sole
reason but one reason.
We have found many times because of breakdowns in controls,
things have occurred that shouldn't occur, and things haven't
happened that should have. For example, we found that foreign
countries have not always been billed under the foreign sales
program because there wasn't good visibility over the
deliveries that had been made so therefore the billings reports
were not made. This past year we identified, for example, $330
million of R&D costs, non-recurring costs that had not been
billed to foreign countries. In addition, some of these
problems have been reported for decades, I want to put in
perspective that the challenges Mr. Lynn and his top team are
trying to tackle are decades old. GAO has been reporting on
these types of problems since I've been at GAO, and that's over
25 years. Most of these areas are on our high risk list; so
this is a very difficult issue.
I think there are also lost opportunity costs. Instead of
managing by cost oftentimes people manage by budget. They get
the budget dollars and obligate and spend the budget dollars
without data on what was achieved in terms of cost, what was
the cost of this depot as compared to that depot, or could this
have been done this more efficiently and effectively. That's
really one of the key components of the CFO Act. It calls for
the systematic measurement of performance, it calls for the
development of cost information, and it calls for the
integration of systems. That's the key, that's the endgame.
There is a great loss when you don't have that kind of data day
to day.
Mr. Turner. Secretary Lynn, can you add to that list? It's
a fairly exhaustive list I know, but do you have anything to
add to the areas that are apparent to you where we are actually
costing taxpayers dollars because we have failed to get these
systems in place?
Mr. Lynn. From my perspective, Mr. Turner, the biggest
issue is to get at the infrastructure costs of the Department
to try and reduce overhead. In order to be able to reduce
overhead, we have to have a very precise understanding of what
activities cost what amounts because we're going to have to try
and streamline those activities. In that area, our data is
limited and it limits our ability to reduce overhead. I think
that's the biggest challenge that goes unanswered as a result
of inadequate cost accounting systems.
Mr. Turner. You mentioned this 2003 date you thought was a
reasonable date. I think it's September 30, 2003 for getting
the financial and accounting systems in order and in place.
What's the estimate of what it's going to take to get the rest
of the systems where they ought to be?
Mr. Lynn. That's the first job of this new panel that we
have set up to review the systems first. As I say that number,
we think, is about 70 but it may be--there's quite a few more
systems in this area. We think there are 70 critical ones, but
the first job is to review first what are the critical systems
and what's a reasonable schedule to set up milestones for
bringing these systems into compliance. So we'll have to
provide that as soon as we've developed it in that panel.
Mr. Turner. It seems like in order to carry out our
oversight role, it would be helpful if we had that group
establish those benchmarks, those deadlines and we could be
aware of them and hold the Department to those dates.
Otherwise, we're going to continue, down the path of talking
about this and these dates continue to slip; and I think it
would be very helpful to us if we could know about what date
will we be able to see the entire schedule to accomplish this
monumental task that we're talking about here today.
Mr. Lynn. I think that's a fair request, Mr. Turner. As I
say, we can provide that for the finance and accounting
systems. We've already provided it for the consolidation. As I
said, we gave you a schedule for the consolidation; and we beat
it by 2 years. The next stage which is making the finance and
accounting systems compliant will be more difficult still, but
we think we are on track for 2003. And we're developing the
schedule for the third most important phase which is the
compliance of the feeder systems and, we'll provide that
schedule to the committee as soon as we have it.
Mr. Turner. How long are we talking until that schedule
will actually be developed?
Mr. Lynn. We're working on it this summer. Before the end
of the year.
Mr. Turner. When we talk about a schedule to accomplish
these tasks, what are the elements necessary to shorten that
timetable? We've heard references to perhaps the most important
and that is leadership from the top, emphasis on this problem.
What are the other elements? Are we talking about additional
staff, additional dollars? What does it take to bring these
systems to a point where we find them acceptable other than
just sheer leadership and emphasis on the issue?
Mr. Lynn. It is going to take both additional staff and
additional dollars. We have put additional funding into the
2001 budget request to accomplish exactly that. We'll be
reviewing this budget. I think we'll build on that. It also
will take additional staff. We're working with the IG and the
GAO to go outside the Department's own capabilities in this
area and to hire outside CPA firms to help us with the remedial
efforts that we clearly need in developing these systems. We're
hiring agency by agency individual audit firms to go through
what the steps are in terms of system improvement in order to
be able to clean up our financial data.
Mr. Turner. Thank you, Mr. Secretary. I yield back, Mr.
Chairman.
Mr. Horn. Well, I thank the gentleman. Those are excellent
questions. Mr. Steinhoff, as a premise to the rest of the
panel, in your testimony you stated that the General Accounting
Office, the Army depot personnel identified 835 quantity and
location discrepancies associated with 3,272 ready-to-fire
hand-held rocket and launcher units. Now, could you describe
how this happened and what it all means?
Mr. Steinhoff. We visited the Army depot to really gain an
understanding of its control system. We went to the first
storage location and looked at one of the first items there. It
was this hand-held rocket which is a sensitive item. Because of
its classification as a sensitive item, it must be controlled
by serial number and it must have a continual audit trail.
Those are the requirements from DOD, and we found items
that were being stored that weren't on the accounting records,
weren't on the property records. What we found working with the
depot folks and they were very responsive and got right on top
of this, what we found was that several shipments of rockets
had been received but there was a glitch in entering it to the
system. It rejected. It went into a suspense account.
Automatically after 10 days anything that hadn't been cleared
from suspense was just dropped. Therefore it wasn't flagged.
The items were on the floor. They weren't on the records. At
the same time, at the first location we went to, we found
things on the floor that were on the records but they were on
the records for a non-location. So in all we found 414 for
which there was no property record that it was there, and we
found another 421 that there was a property record but it was
in the wrong place. So visibility is lost over this item.
Mr. Horn. Mr. Lieberman, I noted when Mr. Steinhoff was
responding to my questions about what did you disagree with the
Under Secretary and you were nodding your head so you seem to
agree with Mr. Steinhoff and let me ask you about inventory.
You continue to report on inventory controls and it's a major
problem for the Department. In February, you reported the
inventory problems related to chemical protective suits which
have been identified more than 2 years ago and were still not
corrected. Could you tell us what you found out?
Mr. Lieberman. Yes. In 1997, we had reported that, at the
defense depot in Columbus, there was very poor inventory
control, drastic discrepancies in numbers of suits that were
shown on the inventory records as opposed to suits that were
actually counted when we observed physical counts. We
recommended that wall-to-wall inventories be done.
There are 20 different types of suits. They are not all the
same so it's important to keep them separate and keep good
inventory control because these have to be issued to operating
forces that are being deployed. DLA agreed to work on the
problem in general, and fix the suit problem specifically. Part
of their answer was to move responsibility for the suits and
the suits themselves to the defense depot in Albany, GA. So we
did a followup audit this year down there. We found the
situation actually was worse. We observed a count of the
inventory of 1 of the 20 types of suits, the most commonly used
kind. The inventory records said there should have been 225,000
of them there and actually there were 194,000. No one could
tell us what happened to the remaining 31,000 suits.
This is typical, I'm afraid, of the kind of inventory
accuracy problems that we have been running across; and I think
one of the advantages of the CFO Act which is commonly ignored
is that it levies more stringent audit requirements on numbers
that the Department of Defense in the past has just sort of
accepted as being right without a whole lot of audit
validation.
Inventory accuracy numbers are typical. Recently GAO
reported that for the fourth quarter last year, DLA's inventory
accuracy rate was only 83 percent, which is very poor for
logistics inventory standards, and all three military
departments have reported the same kinds of problems.
Mr. Horn. Now, in the potentially defective chemical
protective suits, when you went back you found out they were
not separated from the usable suits. I'm just curious what do
these suits cost? What's the worth on them?
Mr. Lieberman. The 31,000 missing suits were worth about
$1.4 million.
Mr. Horn. $1.4 billion.
Mr. Lieberman. Million.
Mr. Horn. Oh, I thought the Pentagon only had billions. OK.
Sorry about that slip.
Mr. Lieberman. They are not terribly expensive on a per
unit basis. They are just glorified rubber basically.
Mr. Horn. What about the separation? Why are they saving
potentially defective chemical protective suits? Is there some
rigmarole they have to go through to get them off the inventory
or what?
Mr. Lieberman. I have to be very careful talking about this
particular case because sentencing proceedings are still in
process for some contractor personnel involved in selling
defective suits to the government and some of the questions
pertaining to what was wrong with the suits are involved in the
sentencing procedures. But in general, again I'm afraid this
was not as much of an anomaly as we might think. There are a
lot of products in the inventory system where the lots are
merged together, where we don't have particularly good
visibility over exactly what we have where. And when an issue
does come up concerning the quality of something, whether it's
a chemical suit or fasteners or something like that, sometimes
it's difficult for the supply people to isolate that particular
batch because everything has been merged into a warehouse or
into a bin in a warehouse or on to shelves.
And the typical warehouseman can't distinguish them. They
all look the same to them. So if there's not serial item
control like there is with a piece of equipment, it gets very
difficult sometimes. There were several reasons involved why
DLA was slow in getting these particular suits out of the
inventory. Some of them had to do with communications both
within the depot and between DLA and the users of the suits
around the world.
Mr. Horn. I'd be curious how that's used. I mean, are these
used by soldiers on the line, by fire departments on various
bases or what? If somebody says we need 20 of these at
Leavenworth or Camp Stewart or Fort Stewart and they go
grabbing 20 and they don't know whether they are defective or
not defective makes no sense to me.
Mr. Lieberman. Absolutely. There's no rule any place that
says it's OK to keep known defective products in the inventory.
The problem here was that after questions were raised about the
quality of the suits, DLA did not react fast enough to find
them and pull them back. These suits are used by combat units.
They are issued to people who would face possible exposure to
nerve gas agents and things like that.
Mr. Horn. So if in our various pursuits around the world
now, if someone says in Kosovo, a major country, says wait a
minute, we'll slow them down and they don't have the protective
suits because they are defective.
Mr. Lieberman. Fortunately the inventory of chemical suits
was very large so I haven't heard that pulling the defective
ones out has really had a readiness impact. But I would have to
get back to you on whether there's any perceived shortage.
Mr. Horn. I just wondered. It seemed to me a good master
sergeant would straighten that inventory out with the services.
Maybe the Defense Logistics Agency, maybe they don't have a
good master sergeant. That might be part of the problem. But it
seems to me when you find there is something wrong, you get rid
of it and granted if the contractor's playing games, then the
need is to deal with that contractor. Apparently they are from
what you tell me.
Mr. Lieberman. Yes.
Mr. Horn. Let me just cover a few more things because I
know Mr. Lynn has other commitments also. Let me ask about Mr.
Steinhoff as a predicate to this with Mr. Lynn on the
antideficiency act. Do you find in the GAO where anybody in any
cabinet department and particularly Defense ever even talks
about the antideficiency act.
Mr. Steinhoff. I can't say for that meeting per se but that
is an area that people in the financial community do talk
about. It's a law on the books and, the issue of fund control
is an important issue to the accountant. With respect to any
penalties that might be accrued from having an Antideficiency
Act violation, if that's what you're getting at, no, I know of
no cases where there has been a criminal penalty from the
violation.
Mr. Horn. In your testimony, you noted the Department was
unable to support $378 billion in net costs, and that the
Department typically uses unreliable obligation data as a
substitute for cost data. Could you elaborate on that and tell
us about the effects on budget data used by managers?
Mr. Steinhoff. The CFO Act calls for the development of
cost information. Across government, not just in DOD, across
government, this represents a major challenge because
government is typically managed based on budget numbers or
inputs versus outputs and cost.
As I mentioned before, DOD cited the lack of cost
accounting systems as the single largest impediment to its
ability to oversee its weapons systems cost and development.
And lack of good cost data affects the ability to make economic
choices, such as A-76 studies, and investments in IT, to
evaluate programs, such as health care which is a big cost in
Defense, and to control costs such as working capital fund
pricing that I mentioned before. Because of a lack of cost
accounting systems, they've used budget data as a proxy
forecast, and this budget data wasn't developed for that
purpose. Also, it's basically not totally reliable itself, and
therefore, the IG was unable to audit the Statement of
Budgetary Resources. The Statement of Net Cost also could not
be audited.
We find in our work that the obligated balances aren't
always reliable. The unmatched disbursement issue impacts on
this. The fund balance with Treasury or the cash account
doesn't balance. So what you have basically is the need to
develop accounting systems to provide this basic data.
Mr. Horn. Mr. Lieberman, what do you think about Mr.
Steinhoff's comments on that $378 billion in net costs and the
Department typically using unreliable obligation data as a
substitute for cost data in, has that been your finding
basically?
Mr. Lieberman. Yes, it has. I certainly agree with that,
and it's really important to have accurate obligation data
because if you have invalid obligations on the books, you're
tying up money that will not be used for anything else. And if
you don't identify those obligations as being invalid by the
time the obligation availability of the appropriation expires,
you're never going to be using that money for the purpose for
which it was appropriated.
Mr. Horn. Mr. Lynn, the ball is now in your court. What's
being done to address this situation.
Mr. Lynn. I think it's what we've talked about, Mr.
Chairman. What we're trying to do is shift a system that
frankly for 200 years was designed around the presentation of
the budget to Congress. That focuses on obligations and
disbursements. For those purposes, the system works reasonably
well. We're able to track those and report to our oversight
committees on what--how we've spent the money and how it has
been done in accordance with congressional direction. What
we've only recently in the last decade or so tried to do is a
business style accrual base system which is used for a
different purpose, not so much for reporting to our oversight
committees on how the budget has been spent but for the kinds
of things that Mr. Steinhoff and Mr. Lieberman are talking
about, evaluating costs in the working capital fund, trying to
eliminate overhead by identifying activities that are low
payoff and high cost, trying to understand the various
liabilities over the long term the Department faces and to
accord for those in the normal process. We're trying to shift
that system. It is a substantial overhaul, and we're only
partway there.
Mr. Horn. You noted that you're developing a comprehensive
financial management improvement plan and have you had a chance
to review that one yet? Where is that within the bowels of the
Pentagon?
Mr. Lynn. We are producing our second one--excuse me. We've
produced our second. We're in the process of producing a third.
The difference, in the first one we largely focused on the
financial and accounting world itself. In the second one we've
moved out, tried to identify the feeder systems and the core of
the third one will be to try and implement this Y2K process
that we've talked about which will do the overhaul of those
feeder systems and bring them into compliance with the various
statutes.
Mr. Horn. Mr. Steinhoff, do you have any comments on the
Department's financial management improvement plan or its
implementation?
Mr. Steinhoff. Yes. First, this is an important milestone,
a step forward for the Department. I applaud those efforts. We
did review the first plan. We've made a number of
recommendations to the comptroller. They really get to some of
the issues I mentioned before, the need to really describe this
plan and maybe this is the third plan Mr. Lynn is speaking
about, but how financial management will support the other
functional areas. It will be very important that the plan go
beyond financial reporting to the overall management processes
of DOD. Also how the plan ties to budget formulation, how the
several hundred projects in the plan actually tie together
toward DOD's vision and how the quality of the feeder systems,
that data will be improved because those systems need quite a
bit of improvement.
The final comment I'll make about the plan, I said it
before, it will be imperative, I can't say this strongly
enough, that the concepts of Clinger-Cohen be followed.
Clinger-Cohen has got rigor to it. It requires some heavy
lifting. It requires some times for you to step back and not
move forward until you've gone through certain milestones and
certain steps but it is essential. At the IRS which also has
serious systems problems, they have been put on a very strong
Clinger-Cohen by the Congress where their funds are rolled out
to them for modernization one bit at a time and they go through
certain milestones and they've done certain things like having
established systems architecture in place. And it will be very
important that systems efforts--and this is, as I said before,
a world class systems challenge, they are trying to deal with
decades of problems here, that that be very strictly enforced
and that those concepts be followed, no shortcuts be taken, and
that the money be very well spent.
Also, I wanted to clarify a previous statement I had. I
have an attorney here with me today. He commented I was wrong
when I said that no one has been punished for antideficiency.
There have been no criminal prosecutions is what I meant to
say. There have been administrative admonishments to some
employees.
Mr. Horn. Is it admonishments, or is it not trusting that
particular contractor in the future? Clinger-Cohen ought to
give them enough flexibility to say no; is that correct?
Mr. Steinhoff. Yes, yes.
Mr. Horn. Mr. Lieberman, how does the Inspector General
feel about the financial management improvement plan?
Mr. Lieberman. I thought it was long overdue, and I think
in fairness we ought to recognize that the idea was born in the
Senate. There was a 5-year plan that OMB compiles, but the
Defense authorization act from 3 years ago was now--created a
new requirement for this plan and with a heavy focus on
systems, which was absolutely appropriate. It is an evolving
type thing, and, as Mr. Lynn said, each year DOD has improved
it and added things to it, which certainly needs to continue in
the future.
There are still a few concerns I would have about it. I
still think it's too much of a comptroller community document,
not well known outside the comptroller community. I think it's
still too much of a one-time annual snapshot as opposed to a
living document that's used by management during the year to
actually control this whole effort as a program. And it still
doesn't have enough information in it on what is this is
costing. There's beginning to be specific information on some
of the systems, but everybody has wondered for 10 years what
this whole effort is costing and even more, how much more do we
have to spend to get from here to there. So with the proviso
that there is going to be continued effort to refine the plan,
I think it's excellent.
Mr. Horn. Would anybody like to comment? And feel I haven't
asked them the right question. You can have the last word on
this.
Mr. Lynn. Let me take the opportunity, Mr. Chairman. You
asked for the precise data on the number of accounting and
finance systems. You'll find that on page 3 of my written
statement, provide you the numbers starting in 1991 and going
through the plan in 2003. In terms of a wrap-up, Mr. Chairman,
I want to thank again the committee for holding the hearing and
frankly keeping our feet to the fire. This is an important
area. I think we have been treating it as such. As Mr.
Steinhoff has indicated, this is a decade, and I would actually
say centuries. We went centuries without trying to do this.
It is going to take us at least decades to establish the
kind of controls and systems that we think we need to provide
the data, but I think we have made two important steps forward
in terms of the consolidation of the financial operations of
the Department. We're nearly there in terms of the upgrade of
the finance and accounting systems, both Mr. Lieberman and Mr.
Steinhoff have appropriately pointed out that we need to
broaden this beyond the comptroller community, beyond the
finance community and get at the logistics, the acquisition and
the personnel and the other communities to make sure that the
data that comes into the financial system from those areas is
audible and reliable and accurate. We're working with those. I
have worked closely in particular with Jack Gansler who is the
Under Secretary who oversees most of those to try and make that
happen. Thank you, Mr. Chairman.
Mr. Horn. We thank you. Can we get the IG and the GAO to
stay with panel II? We'd appreciate it. We'll get some closure
here. So you're certainly excused, Mr. Secretary, and thank you
for coming. We wish you well.
Mr. Lynn. Thank you, Mr. Chairman.
Mr. Horn. We now go to panel II, General Coburn, General
Lyles, and Vice Admiral Amerault. So if you'll please come
forward. We'll swear you in.
[Witnesses sworn.]
Mr. Horn. The clerk will note that the three witnesses have
affirmed the oath. And we will start with General Coburn.
General, it's good to see you again.
STATEMENTS OF GENERAL JOHN G. COBURN, COMMANDING GENERAL, U.S.
ARMY MATERIEL COMMAND; GENERAL LESTER L. LYLES, COMMANDER, AIR
FORCE MATERIEL COMMAND; AND VICE ADMIRAL JAMES F. AMERAULT,
DEPUTY CHIEF OF NAVAL OPERATIONS
General Coburn. Good to see you, sir. Mr. Chairman, members
of the subcommittee, I thank you for the invitation to appear
here today. I express my appreciation to all the members of the
committee for your efforts to improve our business processes.
Let me start by saying that we know we have an obligation
to be good stewards of every dollar that is given to us and to
be good stewards of Army assets. Put another way, we recognize
that stewardship of Army assets is every leader's business, and
we know that without effective asset accountability and
control, that we cannot effectively measure performance, reduce
costs, and maintain adequate funds control. In that regard, I
can tell you that the Army leadership in consonance with DOD is
committed to the Department's financial management improvement
plan and that much progress has been made in the last few
years. We recognize however that we still have a ways to go and
significant initiatives both short term and long term are under
way as we move toward the goal of a single integrated financial
system.
Let me just highlight a couple, and I'll try to do that
very quickly. One of the most important initiatives that the
Army has under way is a program called the single stock fund.
I'll just make a few comments about that, and will not be in
consonance with the oral statement I think you have. Currently
the Army has two stock funds, a retail fund and a wholesale
fund. This means that we have layering and duplication of both
financial and logistics processes. Thus we're consolidating
these two funds. This consolidation will result in the
elimination of multiple ledgers, eliminate multiple billings,
multiple points of sale and integrate all the automation
systems. Overall, this is an Army-wide change in how we conduct
logistics operations and associated financial processes which
will allow us to capture costs with greater clarity. It is a
fundamental change in the way we do business.
Another program that I'll highlight very briefly is the
wholesale logistics modernization program, an initiative
designed to modernize the army's two largest and most important
wholesale logistics systems, we call the commodity commerce
standard system and the standard depot system. And again, this
is an extremely important initiative for Army. Those are but
two. There are others that I won't highlight that are equally
important.
I'm just going to go right to the summary with your
permission and just say that although we have a ways to go, the
Army is not just beginning to focus on accountability. We focus
on accountability daily and consistently. But notwithstanding
all these efforts, however, we acknowledge that we need a
single integrated financial management system that will provide
commanders and leaders with the financial information they need
to most effectively use their resources. Mr. Chairman, that was
brief. But I thank you and the committee for your continued
support and look forward to your questions.
[The prepared statement of General Coburn follows:]
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Mr. Horn. Thank you very much. Let us now turn to General
Lyles. General Lester L. Lyles is the commander of the Air
Force materiel command.
General Lyles. Mr. Chairman, I appreciate the opportunity
to come before this committee today. On April 20th, Mr.
Chairman, I assumed command at the Air Force Materiel Command
in Dayton, Ohio Wright-Patterson Air Force base. Prior to that
time, I served as vice chief of staff of the U.S. Air Force.
And in that capacity, I had an opportunity to witness and
watch, particularly for the last 2 years as my predecessor, as
the commander of AFMC brought a business management perspective
to Air Force Materiel Command.
He instituted a policy of cost accounting, cost control,
and, more importantly, a cost culture to everything we do in
Air Force Materiel Command, from research and development to
acquisition to logistics to sustainment to actually taking
things out of the inventory.
Mr. Chairman, I am a big supporter of what General Babbitt
started, and my plans are to continue that posture for Air
Force Materiel Command. And I've let the entire command know
that in the 2 weeks since I've been in charge.
Air Force Materiel Command is very, very big business.
Accurate and timely financial information is absolutely key to
our management and stewardship of the $26.3 billion of
appropriated budget and the $13.2 billion of annual working
capital fund budget. It's a very complex business. And the
complexity of that business makes financial information
important, but as you know and as the panel members before me
recently stated, it's very, very hard to obtain. Without timely
and accurate information, programs like F-22 program and the
program directors in charge of it will not have the opportunity
to do solid costing and schedule information for managing that
program. Our depot maintenance foreman cannot manage their
costs. The supply chain manager has difficulty doing his day-
to-day inventory management and doing his responsibilities and
even things that are seemingly mundane to some people as the
lodging manager, will not know whether or not he has met his
cost in performance targets and is doing a good job of managing
his programs.
Mr. Chairman, we know we have imperfect data. That's been
stated by the panel before us. You are very well aware of that.
That is inevitable as you quoted earlier with the 161 legacy
feeder systems and the thousands of interfaces that have to
pass critical information. And these interfaces require weeks
to run. As a former manager and commander of one of our
logistics systems, the logistic centers and depots, I can tell
you I would have loved to have the opportunity to close our
books in a matter of days as industry does. It takes weeks and
sometimes a couple of months to actually do it with the systems
we have today.
So we're trying to make strides to improve that. There are
lots of deficiencies, and we are trying to make corrections of
all those deficiencies. I will not go through all the details.
You have my draft written report in front of you, the written
report that has some descriptions of some of the systems.
I'd like to mention just a couple because I think there are
major milestones toward trying to achieve the objectives that
you, this committee, and others want us to achieve. In the
depot maintenance area we're partnering with Defense, with the
Air Force audit agency, and with the Navy to implement the
depot maintenance, accounting, and production system. DMAPS is
the acronym. And this suite of systems will give us the actual
cost information and automated billings processes and
strengthen the cost controls that we need in order to have CFO
compliance.
For the supply chain manager, we're trying to mirror
commercial practices and bring in commercial practices as much
as we possibly can. General Babbitt, my predecessor, back in
October when he testified before the Military Readiness
Subcommittee talked about some of the things we're doing such
as going to moving average costs for inventory accounting
rather than the latest acquisition costs to value the
inventory, the millions of inventory that we have in our
system. You understand what that means. I won't go through a
description of it. There is an example given in my written
account.
We think this is very, very important to us to allow us to
get our arms around this very critical function and again to
get us to a point where we can be CFO compliant.
We've also gone to data warehousing to improve supply
management costs visibility and oversight. One system that we
call Keystone is helping us to sort of bridge, if you will,
between the systems we have for financial accounting and the
systems we have for just managing systems and keeping
inventories. This is a link between the logistics systems as
the previous panel discussed and the financial systems that are
very, very important to managing our day-to-day business. We
will continue toward making those kinds of strides and bringing
on systems like that.
One last comment for addressing total ownership costs which
is very, very important for the U.S. Air Force and particularly
for our major weapons systems. We're using target costing for
all of our installation and support activities. This activity
base costing methodology is one that we're trying to implement
throughout the entire Air Force but particularly in Air Force
Materiel Command.
As the former vice chief of staff for the Air Force, I was
responsible for trying to make activity-based costing a
rubric--a mandate for everything we do in the U.S. Air Force
whether it's flying airplanes, whether it's preparing systems
for deployment, or whether it's developing the major systems
we're trying to use to provide capability to our war fighter.
This target system, activity-based accounting system is very,
very important to us and we're going to continue strides to
bring that into the entire Air Force, not just to the materiel
function.
Mr. Chairman, we've mapped the road toward CFO compliance.
We think it's the only thing that we have to do. We think it's
extremely important in everything that we do. We've identified
the audit findings and material weaknesses and we are trying to
address each one of those. We've closed 103 of the 121 audit
findings against the U.S. Air Force and all the materiel
weaknesses, and we will continue strides to close all of them.
In summary, Mr. Chairman, we know we don't have a perfect
system. We know we have untimely data. We know we have some
systems that provide us occasionally dirty data, but we're
making strides and we have the energy to improve that and to
use a word that you used earlier, we are fully committed toward
these endeavors. We think we're on the right road, and we're
proceeding aggressively and we hope responsibly to make those
improvements for the U.S. Air Force.
I look forward to your questions, Mr. Chairman. Thank you
very, very much for inviting me.
[The prepared statement of General Lyles follows:]
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Mr. Horn. Thank you, General. It's very well done. Our last
presenter on panel II is Vice Admiral James F. Amerault, the
Deputy Chief of Naval Operations for Logistics. Admiral, go
ahead.
Admiral Amerault. Mr. Chairman, distinguished members of
the panel, thank you for the opportunity to appear before you
today. Although I don't believe that the bottom line of a
balance sheet can tell us that we are ready for war or not, as
Navy's Deputy Chief of Naval Operations for Logistics, I do
understand completely that reliable and accurate financial
information is extremely important in reaching that very
readiness. My staff identifies requirements for materiel and
services in support of logistics. And they program discrete
levels of funding for them in the defense plan. The quality of
the financial information on which these actions are based is
critical to us getting it right.
As Navy's infrastructure manager, I've looked very hard at
reducing infrastructure costs in order to modernize and sustain
operational readiness. Again, the quality of financial
information can be critical to Navy decisionmakers as they
consider appropriate actions to reengineer processes to effect
cost reductions. In some instances the lack of financial data
could cause us to miss an opportunity as Mr. Lynn has said, an
extremely large opportunity cost that we can't afford to take
appropriate action all together and preclude us from
identifying savings or diversion of funds to other war-fighting
priorities.
It's impossible to determine how much is enough if you
don't know how much you have. The idea that what things cost
equals what was spent on them has persisted for a very long
time. Today's declining budget top lines as well as our
accountability to the taxpayers say that time has been too
long. I'm ready for your questions, sir.
[The prepared statement of Vice Admiral Amerault follows:]
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Mr. Horn. Thank you very much. Let me ask our friends, the
Inspector General and General Accounting Office, they've
commented on both the inventory controls and we might as well
start with that since we had a few examples. Inspector General
and GAO and the audits generally have repeatedly reported on
the military service's quote weak controls over inventory
including weapons and ammunition. Mr. Steinhoff noted that weak
inventory controls can lead to inaccurate records, and
inaccurate records can effect supply responsiveness and
purchase decisions. Do you agree with that or where are we from
the three services? General Coburn, you want to start?
General Coburn. Mr. Chairman, I think that as has been
stated we do have problems with inventory, but it's a
consistent daily battle. We get very concerned whenever we have
any shortages of any kind, particularly with weapons. I can
tell you that when commanders, even at the company level,
change command, they are required to do a total 100 percent
inventory of weapons, ammunition, all equipment, and sign off
on it as all being there, that they have physically counted and
looked at it personally. Notwithstanding that, we continue to
have problems with inventory.
When I get into it, when I invariably find that you haven't
lost anything, it's simply that you have a record keeping--a
paperwork problem. So that's what I find time after time. I can
also tell you that we get so concerned about it that on
occasion we have senior commanders verify the same kind of
thing as we have our junior commanders do. So I think that
there's lots of room for improvement in the system, but I think
that by the same token that we basically know what we've got
and that control is really pretty good because there's an awful
lot of systems.
I can go on and tell you there are a lot of complementing
systems as well. It's not just the inventory system. It's also
the system where you have--you know, we have service
inspections. Some equipment like ammunition, rockets, that kind
of thing, you have to not only look at it to make sure it's
there but make sure it works. So when you're looking at it to
make sure it works, there's a cross-check to make sure the
inventory is correct as well. So I guess that's kind of the way
I see it. Again, problems but not a perfect system but a system
that we continually work at.
Mr. Horn. General Lyles.
General Lyles. Mr. Chairman, I agree with the comment from
General Coburn. It's a very insidious problem because it's one
that ultimately affects a lot of different things. Invariably
we find in looking at inventory and checking inventory that we
haven't lost things but the paperwork is very, very complex and
very, very tedious to try to locate exactly where they are or
even what the status is of various inventory items.
We had examples of that during the air war with Serbia last
year, the Kosovo activities. As we tried to track munitions and
make sure we knew where they were, what the status of the
various munitions, particularly some of our high-valued
accurate munitions we needed to prosecute that particular war.
The issue is the manpower intensive which is a major, major
problem when you consider the downsizing that we're facing
today, when you consider that we need to have our young men and
women doing other things instead of just tracking paperwork,
both at a junior level and a senior level. So the complexities
of the systems have made it somewhat of a manpower drain to us.
We feel that we have a head on where things ultimately are,
that is, we haven't lost things completely but it becomes very,
very tedious to try to track them. We need automated systems
where we can instantly understand and account for where systems
might be. That same thing carries over when we're talking about
developing new systems to contractors. The inventory, whether
it's government-furnished property or equipment, that we
provide to contractors has a similar sort of situation. We can
track it but there are like three or four different systems we
have to do--look at to do that. It becomes very tedious to us
and the contractors. So it is a major problem.
Mr. Horn. Admiral Amerault, you want to add to that?
Admiral Amerault. Yes, sir. I believe we do a pretty good
job of accounting for what we have in inventory, particularly
in the field in ships and activity squadrons and detachments
and so forth. There are places where this has been a problem.
Receipts in some cases have not tracked in both the inventory
records and the financial records causing us to not know on the
financial side what we've got on the physical inventory side.
This is important.
Control is a key, generally good but the detail to have the
kind of accurate control that one might need on both sides of
the ledger, cost dollars, people, and time. I think there's a
lot of room for improvement. I think IT systems have come to
the point where the investments that we're now making in those
will help us close the gap.
We don't think this is unimportant. We think it's very
important. As I said, it's really hard to tell how much is
enough if you don't know how much you've got. We're dedicated
to fixing this. I would say that support of our Navy-Marine
Corps intranet that we are attempting to invest in and purvey
throughout the Navy is an important step. I would urge the
committee to support that effort on our behalf. Thanks.
Mr. Horn. Mr. Steinhoff, do you agree that progress is
being made in the three services or do you see the same thing
every year when you go back?
Mr. Steinhoff. We continue to find a number of the same
underlying problems with the systems. With respect to this
area, there's a lot of attention being placed on it. We've seen
commitment; but until the underlying systems are fixed, it's
going to be very, very difficult.
The comment that General Lyles made about using the members
of the military to track items and to try to find items, it's a
real difficult issue. These are incredibly complicated systems
and processes, so complicated it makes no sense. And you don't
enter information one time and it goes from system to system.
So not only are the logistics systems not integrated or
compatible with the financial system, they may not be
compatible with each other either.
So you've got a real disconnect here, and when something is
shipped from point A to point B, it's in transit. You might
lose visibility over that item. It's a very difficult issue. I
would say there is certainly a commitment. We've seen all the
services working toward making changes to reduce their business
operations costs to be more efficient, effective; but they all
face a major systems challenge which isn't easily overcome.
I know I've emphasized this a lot, but there hasn't been
great success in government or great success in DOD in systems
development, and you're going to have to have common systems in
some cases, standard approaches for addressing it, and a lot of
reengineering.
Mr. Horn. I would think that in an inventory, you've got a
way to certainly have an electronic inventory and to what
degree do you see that or are we still just putting checks on
papers? When I got here, I couldn't believe it that the General
Services Administration in its St. Louis operation to which all
our district offices can ask for supplies and so forth would
automatically send five invoices together. I said this is
crazy. We only need one. We've got a Xerox machine. If we need
two, and with getting reimbursements let's say in the Capitol's
arcane reaches of trying to pay the bills around here, and it
was just a waste of trees and papers. How often do you see that
in the services or do they have it on electronic inventory? Mr.
Lieberman.
Mr. Lieberman. There's certainly been a concerted effort
over the last few years to implement technology like bar
coding. Clearly for many items the solution merely is to bar
code them and then let the computer do your recordkeeping and
calculations for you. This is a problem that has many different
facets because when we talk about inventory, this is a
hodgepodge accumulation of items. We're talking about
everything from little consumables like screws to large
equipment and subassemblies and things like that.
Some of it belongs to the services. Some of it belongs to
the Defense Logistics Agency. Some is warehoused. Some is
actually distributed to using units. Some is outsourced--we
hire contractors nowadays often for supply support, and it's
their responsibility to keep the inventory. In many cases DOD
doesn't maintain anything in stock. We operate on a just-in-
time delivery basis. There are, I believe, about 300 separate
DOD logistics initiatives and a lot have to do with overcoming
this asset visibility problem.
In most cases, the answer to whatever the problem is is
application of a new technology. So a lot of effort is being
put into it, but a lot more needs to be done and then we still
have human problems. We still have the guy assigned to do the
inventory who doesn't feel like doing it so he looks up the
record to see what's supposed to be there and low and behold
that's what he reports. Then someone else has to come along,
and we've actually had cases like this during these audits this
year, and redo the task. The auditors may do another count. The
auditors say, hey, none of these quantities match.
So we're fighting human fate a little bit. To give on just
very mundane example, at one of the defense depots, the people
were supposed to wait for the auditors to arrive onsite to do
the count because an accepted part of the methodology is the
auditors observe part of the count. They thought they would
speed things up by going ahead, then just hand the auditors the
results when they got there. One of the first times we checked
was a type of rubber seal that is inventoried by how many
linear feet you have. The record said there should be 396
linear feet on the shelf. The count done previous day said
there's 396 linear feet on the shelf. The auditors went and
measured. This didn't take rocket science. There were only 200
linear feet on the shelf.
So that's the sort of thing that is never going to go away
because we're talking about millions of items and thousands of
people with varying degrees of responsibility over them, but
ultimately the computer is the answer here. Fewer systems, and
more diligence paid to the user friendliness of those systems
so that we take administrative burden off the troops, are
urgently needed.
Mr. Horn. Well, it would seem to me that with the services'
chiefs telling all of us here we've got too much
infrastructure, that what they ought to do is have a
competition with various depots and the ones that aren't doing
anything that make sense, get rid of those and keep the others.
But I think if we had a little competition in those depot
things--now with the Naval shipyards I have a few very strong
opinions. When you knock out the inefficient shipyards and--
rather you save the inefficient shipyards, and you hurt the
ones that threw the money back and never had to repair them a
second time. And so that didn't give me much faith, I've got to
tell you, in the Navy, in terms of how they make decisions. It
seems to me let's get some competition in that.
If you've got all these things, you can get rid of those
depots. Granted somebody will bark at you here, but I don't
think we'll back them up. We also can't--it's a two-way screen.
We also cannot--you can get the law through to have another
base closure situation, but I just think you've got to let them
expand. If they aren't doing anything let's do it another way.
I don't know what your need in a geographic sense is needed. A
lot of the services forward fund supplies as they should
because there's no use going through some of the domestic
problems when it ought to be closer to where you need it if you
have troops sent there and this kind of thing. What else does
the Inspector General and the GAO see they ought to be educated
on if they aren't? I'm talking the services now, not you three
gentlemen but if--are we missing something somewhere to get
that moving so we don't go through this every year.
Mr. Steinhoff. I think that the three gentlemen here today
described very well the challenge very forthright. I agree with
what they said about the challenge. I think that the one area
of education, and I maybe beat it too much today, I apologize
if I had, that there are no shortcuts in developing systems
that must be done with a discipline process. And I feel very
strongly that the Department has to look at the business
processes and systems together and to put aside some of the
stove pipes and barriers and view these as a corporate issue.
Our study of world-class finance organizations, the best
practices in State governments as well as commercial
enterprises, finds that when these types of issues are
addressed at the CEO level, at the top level, that a lot of
differences between units are put aside. Also it has to be
viewed that financial management is providing something of
value. I'm not sure across the Federal Government how many
managers really understand what financial management can
provide. So there's probably a broader educational process, not
regarding these gentlemen, but perhaps across the organization.
Mr. Lieberman. May I add one thing, Mr. Chairman. These
gentlemen really are the business leaders of the Department.
They are the closest thing in the Department to chief operating
officers and heads of corporations. It's terribly important
that they, the users of the financial information, tell the
people that design these systems what it is that they need,
because if you leave it to the accountants to decide what the
managers need, you are going to get some bizarre answers. So
we've got to just do everything we can to improve that user-
systems designer interface.
Mr. Horn. Any other comments, Mr. Steinhoff?
Mr. Steinhoff. No.
Mr. Horn. General, anything you'd like to get on the
record?
General Coburn. No, I totally agree, Mr. Chairman, with
what's been said. I would just say, though, that I'm heartened
by what I see. We've never had visibility in Vietnam. We've
been in a lot of excess. We never had it in the Gulf. We opened
an awful lot of containers just to see what was inside. I think
if you went to Bosnia and Kosovo you'd see it a whole lot
better. The way that works the standard is a bar code, and then
we put a little card inside the box. It's called an AMS card.
It prints out everything that's in the box. The box goes in a
container. An RF tag goes on the outside of the container and
that goes through fixed level interrogators so we know what
we've got along the way. I think that while much remains to be
done, there's an awful lot of progress being made in a lot of
areas. The key is pulling it all together it seems to me in the
one system.
Mr. Horn. General Lyles.
General Lyles. Two comments, Mr. Chairman, that also give
me confidence that we're certainly on the right road and we
have the commitment. One is for us in the Air Force we closed
two of our five depots. We're now down to three depots. We've
aligned work and work packages and inventory from those two
that were closed and to the three remaining depots, we have
provided additional workloads so that we're almost worked in
terms of manning levels at the three depots. This has put an
even more of an imperative to make sure we have the right kind
of financial accounting systems at those three depots. So for
us, this becomes a mandate we have to stay on this course. We
have to make sure we have the best, most efficient, most
commercial-like systems and best practices that we possibly can
and we'll continue that.
The second one is I think an even greater demonstration of
leadership, support for this area. As I mentioned earlier, I
was, prior to taking command of Air Force Materiel Command 3
weeks ago, I was a vice chief of staff of the Air Force, and in
that capacity a member of the joint requirements oversight
committee, the JROC, and the joint staff. And we within the
joint staff, within the JROC over the last year, I dare say we
reviewed business operating systems, asset visibility systems,
the importance of those systems, the mandate from the chairman
of the joint chief of staff, General Shelton, to put emphasis
in that area just as much as we reviewed new weapons systems
from F-22 to Comanches to what have you.
I think the commitment and recognition that this is a major
problem goes to the very top of the Department, from the very
top of the chairman and joint chief of staff to all the
services; and I feel very positive that we have the right sort
of focus to continue toward success.
Mr. Horn. That's very well said. Admiral.
Admiral Amerault. Yes, sir. Mr. Chairman, I think this is
an area that we can't afford not to get it right. As I said,
top lines are not going up for us. It's critical to us being
able to do business and fund the readiness that we need that we
get the financial data that helps us make accurate, timely, and
good decisions as long, I hope, as we make military sense when
we put those systems in place.
Obviously a ship full of weapons, operators, and people
that make it move doesn't have a whole lot of room for stock
clerks and pay clerks. So we need to take advantage of the key
that IT gives us today to put in systems that are geared to do
the job, do it right, and user friendly to us in a war-time
environment. Thank you, sir.
Mr. Horn. Well, this has been very enlightening and you
give me some optimism that things are going to change, and I'm
glad to see that you're all working on that within your three
services. It sounds like you've got the GAO and the Inspector
General on your side so they are pretty good company to have.
And I want to thank you all for coming and this is the staff. I
want to thank----
Mr. Walden, we're going to adjourn so I want to introduce
you to Mr. Coburn.
Mr. Walden is a valued member of this but he couldn't make
it this afternoon.
So we thank J. Russel George, the staff director and chief
counsel and Louise DiBenedetto, the professional staff to my
left. Bonnie Heald, director of communications, Brian Sisk,
clerk, and Elizabeth Seong and Michael Soon, interns; and on
the minority side Trey Henderson is counsel, Jean Gosa, the
minority clerk, and Laurie Harris has been our faithful
reporter. Thank you and with that we are adjourned.
[Whereupon, at 3:50 p.m., the subcommittee was adjourned.]
[The prepared statement of Hon. Jim Turner follows:]
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