[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
     DOD FINANCIAL MANAGEMENT: FOLLOWING ONE ITEM THROUGH THE MAZE

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                   VETERANS AFFAIRS AND INTERNATIONAL
                               RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 25, 2002

                               __________

                           Serial No. 107-208

                               __________

       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
                            WASHINGTON : 2003

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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       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
JOHN SULLIVAN, Oklahoma                  (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

 Subcommittee on National Security, Veterans Affairs and International 
                               Relations

                CHRISTOPHER SHAYS, Connecticut, Chairman
ADAM H. PUTNAM, Florida              DENNIS J. KUCINICH, Ohio
BENJAMIN A. GILMAN, New York         BERNARD SANDERS, Vermont
ILEANA ROS-LEHTINEN, Florida         THOMAS H. ALLEN, Maine
JOHN M. McHUGH, New York             TOM LANTOS, California
STEVEN C. LaTOURETTE, Ohio           JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
DAVE WELDON, Florida                 DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
                  J. Vincent Chase, Chief Investigator
                           Jason Chung, Clerk
                    David Rapallo, Minority Counsel



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 25, 2002....................................     1
Statement of:
    Boutell, JoAnn, Director, Commercial Pay Services, Defense 
      Finance and Accounting Service, Department of Defense; 
      Douglas Bryce, Program Manager, Joint Service Lightweight 
      Technology Suit, Department of Defense; and Bruce E. 
      Sullivan, Director, Joint Purchase Card Program Management 
      Office, Department of Defense..............................    93
    Coyle, John J., Department of Business Logistics, 
      Pennsylvania State University..............................    51
    Kutz, Gregory, Director, Financial Management and Assurance 
      Team, U.S. General Accounting Office, accompanied by David 
      Warren, Director, Defense Capabilities and Management Team; 
      Darby W. Smith, Assistant Director, Financial Management 
      and Assurance Team; and John Ryan, Office of Special 
      Investigation..............................................    10
Letters, statements, etc., submitted for the record by:
    Boutell, JoAnn, Director, Commercial Pay Services, Defense 
      Finance and Accounting Service, Department of Defense, 
      prepared statement of......................................    95
    Bryce, Douglas, Program Manager, Joint Service Lightweight 
      Technology Suit, Department of Defense, prepared statement 
      of.........................................................   101
    Coyle, John J., Department of Business Logistics, 
      Pennsylvania State University, prepared statement of.......    54
    Kutz, Gregory, Director, Financial Management and Assurance 
      Team, U.S. General Accounting Office, prepared statement of    13
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............     3
    Sullivan, Bruce E., Director, Joint Purchase Card Program 
      Management Office, Department of Defense, prepared 
      statement of...............................................   141

     DOD FINANCIAL MANAGEMENT: FOLLOWING ONE ITEM THROUGH THE MAZE

                              ----------                              


                         TUESDAY, JUNE 25, 2002

                  House of Representatives,
Subcommittee on National Security, Veterans Affairs 
                       and International Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2154, Rayburn House Office Building, Hon. Christopher 
Shays (chairman of the subcommittee) presiding.
    Present: Representatives Shays, Gilman, Lewis, Kucinich, 
Schakowsky and Tierney.
    Staff present: Lawrence J. Halloran, staff director and 
counsel; J. Vincent Chase, chief investigator; Thomas Costa, 
professional staff member; Jason M. Chung, clerk; David 
Rapallo, minority counsel; and Earley Green, minority assistant 
clerk.
    Mr. Shays. I'd like to call this hearing to order and 
welcome our witnesses and guests. I always feel ``got'' when we 
have the military and we don't start promptly on time, but 5 
minutes ain't bad, I guess.
    Two weeks ago the General Accounting Office, GAO, and the 
Department of Defense, DOD, gave us a high-altitude view of the 
Pentagon's tangled antiquated web of more than 1,200 financial 
management systems. Today we journey deep into the microcosm of 
DOD accounting to take a much closer and more detailed look. 
Last year after the Comptroller General again declared DOD 
financial systems posed a high risk of waste and abuse, our 
subcommittee ranking member, Congressman Kucinich, suggested it 
might be both instructive and constructive to follow one item 
from the initial idea all the way through to procurement and 
operation, so we asked GAO to track the accounting path of a 
DOD-unique item, the Joint Lightweight Integrated Suit 
Technology, referred to as JSLIST, chem/bio protective 
garments; and a second item, one commercial computer item 
obtained using a DOD purchase card.
    The case studies GAO will discuss today bring some DOD 
financial and inventory management deficiencies into painful 
and, frankly, horribly sharp focus. Purchase of the military's 
newest individual protective equipment is hobbled by needless, 
complex, repetitive, largely manual, error-prone systems. 
Despite pledges to this subcommittee 2 years ago to fix 
scattered inventory controls, DOD still cannot provide a real-
time accounting of the location and condition of critical 
protective equipment.
    As a result, some military units have formally declared 
JSLIST garments surplus, while others cannot get enough suits 
for training. While DOD is scheduled to procure 2.8 million 
more JSLIST units for approximately $100 each, GAO found 917 of 
the 1.2 million already purchased had been auctioned on the 
Internet for less than $3 each.
    This form of waste directly affects readiness. When the 
chemical alarms again sound in the desert, U.S. forces will 
need those suits. Transformation of DOD's last-century 
financial management systems into a 21st century enterprise 
architecture is a critical element of their ability to survive 
and prevail against tomorrow's threats.
    Joining us today are representatives of the Department of 
Defense, the GAO, and an expert in business processes, to 
discuss and evaluate the flow of information through the 
various systems used to procure, pay for and deploy the joint 
lightweight integrated technology suit, and a computer hardware 
item procured from a local vendor using the government purchase 
card.
    We truly thank all of them for being here and for 
contributing to our continued oversight of DOD financial 
management and inventory control systems. And let me just say 
given that it seems so obvious that we have a gigantic 
challenge, we aren't up here throwing grenades down on our 
witness table. We understand that everybody wants to get this--
a handle on this issue. We need to make sure it is the highest 
priority of DOD. That is part of the motivation of why Mr. 
Kucinich and I want this hearing. We realize there are men and 
women of good faith who are trying to deal with this issue, but 
we're going to be brutally honest with each other in terms of 
what the challenges are and how we deal with it. This just 
simply can't continue and continue and continue.
    So at this time I thank my colleague, Mr. Kucinich, for 
requesting this hearing, and give him the floor.
    [The prepared statement of Hon. Christopher Shays follows:]
    [GRAPHIC] [TIFF OMITTED] T6962.001
    
    [GRAPHIC] [TIFF OMITTED] T6962.002
    
    Mr. Kucinich. Hi. I want to thank the Chair for the 
opportunity to work with you on this and so many other hearings 
of importance to this country, and I'm appreciative of the 
Chair's leadership in that regard.
    The point of GAO's investigation, which you and I requested 
in a bipartisan manner, was a straightforward one, to track a 
single procurement item through the maze of different 
accounting, inventory and financial management systems at the 
Department of Defense. When we first requested this study, I 
expected the exercise to illustrate in a very simple yet 
compelling manner the duplication, waste and inefficiency that 
has plagued the Pentagon's management systems. As a 
subcommittee, we've heard many, many times about the horror 
stories at the Pentagon, the lack of coherent inventory 
control, the proliferation of stovepipe procurement systems, 
and the absence of any rational visibility over budgetary 
functions.
    We've also heard from experts like David Walker, the 
Comptroller General of the United States, and the Pentagon's 
own Inspector General, both of whom highlighted the billions 
and billions of dollars that are wasted every year as a result 
of these broken systems.
    What I did not expect as a result of our quest was to be 
surprised again by the severity and the starkness of the 
Pentagon's inability to be able to understand exactly how their 
own systems work and to be able to account for the very 
materiel which the taxpayers of the United States pay for.
    As you know, the GAO chose one item, a suit worn by service 
members to protect themselves in the event of a chemical or a 
biological attack. Obviously in light of the anthrax attacks 
and our military's deployment to all parts of the world, these 
suits are extremely sought-after. The department is spending 
over $1 billion to buy these suits at $200 apiece. The Pentagon 
plans to buy 4.4 million of these suits, but to date they've 
issued only about a quarter of these. According to the official 
in charge of this program, service members have been clamoring 
for these suits. Now, despite this intense demand, GAO found 
that the Pentagon was basically giving them away. They were 
selling them on the Internet for $3 apiece. That is nearly a 99 
percent discount from their actual cost to the U.S. taxpayers.
    Now, I want to read that again so, you know, in case 
anybody missed it, the department spends $1 billion to buy 
these suits at $200 apiece, plans to buy 4.4 million of the 
suits. GAO finds the Pentagon is selling them on the Internet 
for $3 apiece.
    Now, the GAO found that some of the military units kept 
absolutely no records on the number of suits they had. Others 
used dry-erase boards to maintain their tally. When told of 
these abuses, the program manager said he had no idea that 
these resales were occurring. He conceded at this point that he 
had no visibility over his inventory.
    These problems would be very different if they were being 
aired for the first time, but they are not excusable, given 
that this subcommittee held a hearing 2 years ago on exactly 
this issue.
    This is how GAO put it, ``In essence, DOD is faced with the 
same predicament today as it had in June 2000 when hearings by 
this subcommittee chronicled DOD's inability to identify the 
location of these protective suits.''
    In our hearing 2 years ago, we were concerned about the 
Pentagon's control of these suits for a slightly different 
reason. The suits were defective. They needed to be recalled 
and removed from the inventory. But to this day, the Pentagon 
has not been able to locate about 250,000 of these defective 
suits. The Pentagon doesn't know if they were used, whether 
they were thrown away, or whether they are still somewhere in 
the stocks, defective suits waiting to be used by unsuspecting 
service members.
    For that matter, the Pentagon doesn't know whether any of 
these suits were sold over the Internet, either.
    Of course, we asked the GAO to examine only one relatively 
inexpensive item, but the dysfunctional systems governing this 
item are the same systems governing all of the Pentagon's 
purchases, budgets and inventories. As the GAO concluded in its 
report, ``these shortcomings are consistent with the long-term 
problems in the DOD's inventory management that we've 
identified as a high-risk area due to a variety of problems, 
including ineffective and wasteful management systems and 
procedures.''
    Mr. Chairman, we're just scratching the surface of a 
mammoth problem here today. If we're losing millions of dollars 
on a small procurement item like the protective suits, imagine 
how many billions of taxpayer dollars are being wasted on 
procurement problems associated with our expensive jets, 
bombers, tanks and ships. This subcommittee isn't able to work 
on everything. Since we have to choose, we should focus on the 
items that waste the most taxpayers' dollars. This is a good 
example today.
    As we heard in our previous hearings on this topic, the 
department has set out a 10-year plan to address their 
financial management deficiencies. This time line is much, much 
too long for American taxpayers to continue sending in their 
hard-earned money, just to have the Pentagon throw it away.
    And finally, Mr. Chairman, the thing that becomes 
compelling here, since this country is contemplating possible 
military action against a country which is said to have 
biological and chemical weapons, and since you would think 
under those circumstances our troops would then be given the 
kind of materiel which in some cases is considered to be 
defective, we have a matter here that has to be looked at to 
protect the men and women who serve this country.
    I thank the Chair very much for giving me this opportunity.
    Mr. Shays. I thank the gentleman for requesting this 
opportunity.
    We would now call on Ron Lewis.
    Mr. Lewis. Nothing.
    Mr. Shays. Thank you. Thank you for being here. Mr. Lewis 
has been a very active and valued member of this committee.
    And I'll also call on another very active Member. Ms. 
Schakowsky, if you have any comments you'd like to make 
before----
    Ms. Schakowsky. Yes, I would.
    Mr. Shays. Take your time.
    Ms. Schakowsky. Thank you, Mr. Chairman, and Ranking Member 
Kucinich, for your vigilance on this issue. The Government 
Affairs--the Government Efficiency Subcommittee, which is 
chaired by Steve Horn and on which I am the ranking Democrat, 
has also been looking into the issue of the Department of 
Defense and its handling of financial matters. The financial 
abuses that have occurred at the Pentagon and the DOD's lack of 
initiative and willingness to change its financial management 
practices is an ongoing problem. Despite the fact that the 
Defense Department is responsible for half of the total 
discretionary spending of the Federal Government, nearly $400 
billion, the DOD is slow to implement changes in many areas of 
its operations to better account for taxpayer money.
    In 1995 the GAO put the Defense Department's financial 
management on the high risk list. One of the issues stated by 
the GAO then was the failure of the department to protect its 
assets from fraud, waste and abuse. Since then we found that 
millions of dollars in personal items, trips, and even plastic 
surgery were charged to government-issued credit cards. In the 
GAO report on DOD financial management, the GAO tracked the 
DOD's purchase of joint lightweight integrated suit 
technology--I guess that is--is it the JSLIST? Is that what you 
say? Am I right? JSLIST. OK. And a computer hardware item that 
it purchased from a local vendor with a DOD purchase card. The 
Pentagon contract for JSLIST, a two-piece lightweight garment, 
I guess we've got it here, to protect against chemical and 
biological agents, calls for the production of 4.4 million 
suits over 14 years, for a total of $1 billion. The GAO found 
that antiquated systems, manual procurement processes and 
inventory control and payment is plagued by flaws and 
weaknesses that cost the DOD millions. GAO found that because 
of these problems, suits determined to be in excess--we have 
long since known about the problems with the DOD purchase card 
system. The DOD still manually enters purchases made with 
purchase cards instead of electronic transmissions. Inefficient 
billing procedures and use of nonintegrated data systems result 
in costly processing.
    In example after example, purchase cards supplied at 
taxpayers' expense to workers who use them to, among other 
things, purchase items such as clothing and Legos. GAO stated 
that purchase cards will account for nearly $20 billion in 
purchases in this fiscal year or the next. If there is 5 
percent waste in these purchases, that is $1 billion of waste 
that we have to eliminate.
    The GAO has provided the Pentagon with the foundation on 
which to build. DOD must make every effort to improve upon 
these recommendations so that we can ensure that the American 
taxpayers' hard-earned money is spent defending our country and 
not paying for golf memberships.
    The reasons behind these management problems are--come in 
several areas, problems with financial and contract management 
result from inaccurate financial reports and contract 
overpayment. In fact, for fiscal years 1994 and 1999, over $1.2 
billion of overpayments to contractors have been returned to 
the DOD.
    We've also found that DOD's management inventory is flawed. 
DOD continually stores huge amounts of materiel and equipment 
that has no use. Additionally, the DOD process for tracking 
acquisitions and purchases is antiquated and seriously flawed. 
Oftentimes DOD cannot find records of procurement, accounting, 
control and payment.
    Actually, Mr. Chairman, what this statement sounds like to 
my own ears is deja vu all over again. I have basically read 
this opening statement time after time after time. I've only 
been here a short time, and yet the improvements or lack of are 
quite astonishing, and here we go again.
    Last July we were told that the purchase card issue would 
be addressed. Instead we got business as usual, fraud, waste 
and abuse. I do not expect the same today. I hope that the DOD 
will begin to take the recommendations of the GAO seriously and 
use the advice to design and implement programs that will 
improve the DOD's financial management situation.
    I thank all the witnesses for their work, and I look 
forward to hearing how our guests from the DOD plan to make use 
of the information they receive from the GAO at this hearing 
and how they plan to clean up the Pentagon's financial mess.
    Thank you.
    Mr. Shays. Thank you, Ms. Schakowsky.
    Mr. Tierney, welcome.
    Mr. Tierney. Thank you, Mr. Chairman. I'm going to waive my 
opening statement, because I'd really like to get to the 
witnesses. I think the hearing is worthwhile, and it will be 
interesting to pursue the matter.
    Mr. Shays. We'll get right to it. I'm just going to preface 
my comments by saying that I go back a little beyond Ms. 
Schakowsky, and I remember we had this problem in the Reagan 
administration, the Bush administration, the Clinton 
administration, and now we have it in the Bush administration. 
And I realize that this has been long-standing, and I think 
part of the reason why it doesn't happen is that you're not put 
out of business. We need Defense. So we keep operating. But if 
we knew that we couldn't function unless we got our act 
together, I think it would happen more quickly.
    Mr. Gilman, I'm delighted to recognize you. I want you to 
relax a second. You just sat down, but if you have an opening 
statement----
    Mr. Gilman. Yes, I do, Mr. Chairman. I welcome that 
opportunity.
    Mr. Shays. OK. Take a good breath and then read your 
statement.
    Mr. Gilman. OK. I'm breathing deeply.
    Mr. Chairman, I want to thank you for convening today's 
hearing to examine the status of the Department of Defense 
financial management system, in particular how it relates to a 
key item that depends with regard--that is with regard to how 
we defend against biological and chemical agents. The Defense 
Department has been the recipient of large increases to its 
procurement and operations budget in the wake of the events of 
September 11th and the subsequent pursuit of our war on 
terrorism.
    Given the nature of the fight that we're finding ourselves 
in, these increases have been entirely appropriate. However, 
the existence of an ongoing war against terrorists does not 
absolve Congress of its oversight responsibilities in matters 
of defense. Rather, recent events mandate greater oversight 
responsibility from Congress to make certain that taxpayer 
funds are going to be expended in a wise and expeditious 
manner.
    Given the current military environment in which we find 
ourselves, it is prudent and appropriate that we work to ensure 
that the Department of Defense is getting the best value for 
the money it spends on the new equipment.
    This subcommittee held a hearing in March of this year that 
examined charges from the General Accounting Office that DOD's 
financial management and procurement process were highly 
vulnerable to waste, to fraud, and to abuse. Historically 
whenever the government has sharply increased a department's 
budget within a short period of time, waste and fraudulent 
practices and inefficiency invariably follow.
    Stories of widespread problems during the major defense 
buildup in the early 1980's are familiar to all of us. So I 
look forward, Mr. Chairman, to the testimony from our witnesses 
today. We're particularly interested to hear from our GAO 
witnesses to see if any improvements have been made since their 
initial findings discussed at our March 2001 hearing.
    Given the nature of the open-ended conflict in which we now 
find ourselves involved, it makes sense for Congress to require 
that the financial management system used by the Pentagon be as 
streamlined and as efficient as possible.
    Once again, we thank you, Mr. Chairman, for convening 
today's hearing and for pursuing these issues that are 
extremely important. Thank you, Mr. Chairman.
    Mr. Shays. Thank you. Per Mr. Tierney's request, we're 
going to get to our witnesses but first ask unanimous consent 
that all members of the subcommittee be permitted to place an 
opening statement in the record and that the record remain open 
for 3 days for that purpose. Without objection, so ordered.
    I ask further unanimous consent that all witnesses be 
permitted to include their written statement in the record. 
Without objection, so ordered.
    I will announce our witnesses. We have Mr. Gregory Kutz, 
Director, Financial Management and Assurance Team, GAO; 
accompanied by David Warren, Director, Defense Capabilities and 
Management Team; Mr. Darby W. Smith, Assistant Director, 
Financial Management and Assurance Team; and Mr. John Ryan, 
Office of Special Investigation. All three are with the GAO.
    We also--we're going to swear in Mr. John Coyle. He's on a 
plane. He's the Department of Business Logistics, Pennsylvania 
State University, and probably may have to put him with the 
second panel. We'll see. And if he gets here on time, maybe 
I'll swear him in and we'll keep him with the first.
    So if you gentlemen would stand, I will swear you in. If 
there's anyone else that might respond to questions, if you'd 
just allow us to swear you in as well.
    [Witnesses sworn.]
    Mr. Shays. I'll note for the record that all of our 
witnesses have responded in the affirmative. And so we have one 
statement by Mr. Kutz and then we'll go to questions if Dr. 
Coyle isn't here yet. Welcome.

STATEMENTS OF GREGORY KUTZ, DIRECTOR, FINANCIAL MANAGEMENT AND 
ASSURANCE TEAM, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY 
  DAVID WARREN, DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT 
TEAM; DARBY W. SMITH, ASSISTANT DIRECTOR, FINANCIAL MANAGEMENT 
     AND ASSURANCE TEAM; AND JOHN RYAN, OFFICE OF SPECIAL 
                         INVESTIGATION

    Mr. Kutz. Mr. Chairman and members of the subcommittee, 
it's a pleasure to be here to discuss the need for business 
process reform at the Department of Defense. In our June 4th 
testimony before this subcommittee, we identified seven key 
elements necessary for a successful reform. Today I will move 
from a high-level discussion of reform to case studies 
demonstrating DOD's current management challenges.
    At your request, we used the following two case studies. 
First, the inventory process for the JSLIST, chemical and 
biological protective suits, which I'll refer to as chem/bio 
suits, and second, the purchase of a computer using the 
government purchase card.
    For the two case studies, our objectives were to evaluate 
the efficiency and the effectiveness of DOD's business 
processes and to compare certain aspects of DOD's processes to 
those of two large leading-edge retail companies, Wal-Mart and 
Sears.
    The bottom line of my testimony is that both case studies 
clearly demonstrate that DOD's business processes are both 
costly and ineffective. Most significantly, we found that DOD 
was selling needed chem/bio suits to the public while at the 
same time buying more.
    For the first case study, we found that the chem/bio suit 
inventory process was characterized by stovepiped, 
nonintegrated systems with numerous costly, error-prone, manual 
processes. Of the 128 processing steps that we identified, 100, 
or about 78 percent, were manual. These manual processes were 
used to enter and reenter data into the 13 data systems that 
supported the chem/bio suits. Manual processes include mailing 
key data, sending e-mails and faxes, and inputting data from 
hard copy documents into the systems.
    As you can imagine, compared to fully automated processes, 
the cost of manual entry of data and reentry is substantial. 
One reason for the numerous systems that are unable to 
communicate with each other is the parochial nature of DOD's 
system modernization efforts. As you may recall, as of your 
June 4th hearing, and as you showed earlier from the computer 
system environment that they have today, DOD has identified 
1,127 systems that process financial information. This 
proliferation of systems has happened because modernization 
money is spread throughout DOD with everybody, particularly the 
military services, building their own systems.
    With respect to effectiveness, we found that the inventory 
management process resulted in a lack of asset visibility over 
the chem/bio suits. Asset visibility means the ability to 
readily identify the location and key information about the 
suits at all levels of the department.
    The most severe asset visibility problem relates to the 1.2 
million suits that have been sent to units of the military 
services. For the military units that we visited, the methods 
used to control and maintain visibility over suits range from 
automated systems to spreadsheet applications, to pen and 
paper, to dry-erase boards with handwritten notes, to none.
    The data maintained at the units also varied. Some units 
maintain specific data such as the manufactured date and 
production lot number, while other units contain little or no 
data in their systems.
    In essence, as you mentioned, Mr. Chairman, DOD is faced 
with the same visibility problems today as it had in June 2000 
when hearings by this subcommittee chronicled DOD's inability 
to identify the location of defective battle dress overgarments 
which are the JSLIST predecessor. We later reported that as of 
April 2001, DOD had not found about 250,000 of the defective 
BDO suits.
    Today, lack of visibility has contributed to DOD excessing 
packaged unused JSLIST chem/bio suits and selling them to the 
public or scrapping them. At the same time, DOD is buying 
hundreds of thousands of new suits annually. We identified 
1,934 chem/bio coats and trousers valued at over $200,000 that 
were excessed primarily after September 11th by Navy, Army and 
Air Force units. Of these, 429 were sold and 917 were 
destroyed. The 429 coats and trousers, which had a reported 
cost of $107 each, were sold by Internet auction for about $3 
each.
    I have in my hand one of the coats that was excessed and 
being sold on the Internet in Hawaii. This coat is vacuum 
sealed and appears to be in good condition. We have another 
suit here from the same lot that is marked ``training only.'' 
We found that DOD needs all of the chem/bio suits that were 
being excessed and sold.
    Last Wednesday we informed the JSLIST program manager of 
this situation. He was not aware that the chem/bio suits were 
being excessed and sold, and agreed to immediately terminate 
the sale of these suits.
    The inventory management practices we identified and 
observed at Wal-Mart and Sears differ sharply from those at 
DOD. For example, for both companies, we found standardization 
of data, little or no manual processing, and systems that 
provide a complete asset visibility. Unlike DOD, Wal-Mart 
requires all components and subsidiaries to operate within its 
system framework and does not allow stovepipe systems 
development. For both Sears and Wal-Mart, data moved through 
their automated systems from the supplier to the distribution 
centers, to the retail stores.
    As shown on the poster board, we found that Wal-Mart and 
Sears had visibility over inventory at the corporate 
distribution center and retail store levels. In contrast, as 
previously discussed, DOD did not have visibility at the DOD 
military service over unit levels. We found that integrated or 
interfaced systems and standardized data allowed both Sears and 
Wal-Mart to specifically identify inventory items.
    For example, based on our inquiry, Wal-Mart headquarters 
staff was able to readily identify the number of 6.4 ounce 
tubes of a brand name toothpaste that were at their Fairfax, 
Virginia retail store. Other information was also available, 
such as daily sales volume.
    With regard to our second case study, we found that the 
purchase card process was somewhat automated and provided the 
flexibility to acquire goods and services on the day that they 
are needed. However, we found for certain transactions 
processed through DFAS Columbus, monthly credit card statements 
are received by mail or by fax. For these statements, personnel 
manually reenter each line of the purchase card statement. This 
manual entry of data is required, because DFAS does not have 
the ability to accept the data electronically.
    As shown on the poster board from the Navy monthly purchase 
card statement with 228 transactions, as you can see, there was 
a $17 processing fee per line that is well in excess of several 
of the items that were purchased on that monthly statement. 
DFAS charged the Navy over $3,900 to process this monthly 
credit card bill.
    In contrast, both Wal-Mart and Sears make extensive use of 
electronic data transmission within their internal systems and 
with all of their suppliers.
    In summary, the chem/bio suit and purchase card case 
studies clearly demonstrate the high cost of the current DOD 
business processes. In addition, mission performance is also 
affected, as shown by DOD's lack of visibility over the chem/
bio suits. These case studies are small examples of the broader 
financial and inventory management and systems modernization 
challenges facing DOD. The automated processes used by Wal-Mart 
and Sears offer a glimpse at the cost savings and improved 
mission performance that DOD could achieve through successful 
reform. Unlike DOD, market forces and a strong system of 
accountability drive Wal-Mart and Sears to operate as 
efficiently and effectively as possible.
    We believe that for DOD to succeed in its reform efforts, 
strong leadership from the Secretary will be necessary to 
develop a system of accountability and incentives and to cut 
through the deeply embedded cultural resistance to change. The 
Secretary has recognized the importance of reform and estimated 
that DOD could save 5 percent of its budget, or about $15 to 
$18 billion annually, through successful reform efforts.
    Mr. Chairman, this concludes my statement. With me are Dave 
Warren, John Ryan and Darby Smith. We'd be happy to answer any 
questions.
    [The prepared statement of Mr. Kutz follows:]
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    Mr. Shays. I'm going to call on Mr. Gilman, but before I 
do, I told Mr. Kucinich I have one question that is just very--
of real interest to the entire committee. Basically because of 
our investigation and the work you all are doing, we're able to 
stop the public sale of the JSLIST suits. Do you know who was 
trying to buy them?
    Mr. Ryan. Yes, we do.
    Mr. Shays. Put your mic on, please.
    Mr. Ryan. Yes, we do. We identified the individuals. We've 
passed the information on to DLA investigators, and we also 
sent it to the Joint Terrorism Task Force in Honolulu for 
further investigation.
    Mr. Shays. So you believe that these weren't just every-day 
Americans looking to protect themselves, but you believe that 
some of these suits may in fact have been attempted purchased 
by those who have evil designs on our country?
    Mr. Ryan. I think it's too early to say. At this point I 
think we have to continue the investigation. We have to gather 
all the facts, let the Joint Terrorism Task Force do the 
appropriate followup. We can report back to the committee with 
the findings.
    Mr. Shays. Do you have concern that they may be?
    Mr. Ryan. I always have concerns. I have concerns that any 
time that we've given protective equipment to our soldiers and 
then we put it on public auction that someone can get ahold of 
it. I have concerns about reverse-engineering these suits. But 
once we looked into it and we found that you could buy them on 
the Internet through a public auction and not necessarily 
provide specific information about yourself, yes, I am 
concerned about that.
    Mr. Shays. So----
    Mr. Kutz. Mr. Chairman, the technology for these suits is 
used around the world. There are 17 countries that have this 
type of chem/bio suit. So this is not technology that is unique 
to the Federal Government of the United States.
    Mr. Shays. Yes. But bottom line is, there's concern that it 
may have been bought by the wrong people. Fair enough.
    Mr. Gilman, you have the floor.
    Mr. Gilman. Thank you, Mr. Chairman. I address this to our 
panelists. Why can't DOD track and account for the JSLIST on a 
department-wide basis?
    Mr. Kutz. I think it's a combination--if you look at any of 
the issues with DOD with financial or inventory management, 
you've got people, processes and systems, including the 
information technology. What we've found here was that the lack 
of the integrated or interfaced systems, it broke down along 
the way so that the information was not tracked. The 
information was sent from the warehouses at DLA down to the 
units. At that point the warehouses no longer track the 
information. When the information got down to the units, you 
had inconsistent ways that they were being tracked or, in some 
cases, they weren't being tracked at all, and when we looked at 
Wal-Mart and Sears, what we found was from the corporation down 
to their distribution centers down to the retail stores, you 
had completely integrated or interfaced systems.
    So, for example, when I mentioned the toothpaste before, 
they were always able to go in--that happened in a matter of 
minutes they were able to go in and identify that there were 25 
6.4 ounce tubes of toothpaste at the Fairfax store. So it's 
integrated systems and processes.
    Standardized data is the other thing. Back on the military 
unit level, we found the different units were reporting 
different information in the systems, and so if everybody 
doesn't record the same information, it's hard to roll up 
things like the expiration date or lot number, etc. And, again, 
that was a common element with Wal-Mart and Sears, that they 
had standardized data for each one of their inventory items 
that could roll up and be throughout all their systems.
    Mr. Gilman. So is this going to be corrected now? Is anyone 
working on correcting this failure?
    Mr. Kutz. We have recommended in the past to the department 
to implement an integrated inventory management system, and 
certainly that is something that they have attempted to do 
before and are currently attempting to do now. There are 
certainly challenges with that. Again, similar to what we 
talked about with the proliferation of systems, where they need 
to have an architecture to see how all of these different 
systems development efforts fit into that so that at the end of 
the day we know what we're building today is going to fit into 
the architecture of tomorrow.
    Mr. Gilman. These suits are a relatively benign item. Does 
DOD have similar tracking problems with weapons and ammunition?
    Mr. Warren. Yes, they do.
    Mr. Gilman. Would you identify----
    Mr. Warren. Dave Warren. We've noticed in transit items 
with disposal items, items going into disposal, items being 
transferred from one Navy base to another, items being 
transferred from one Army base to another, and what happens is 
accountability for those items is lost, and most of those 
problems as we go in and look why does that happen, it's very 
similar to what you're seeing here today. It's either 
recordkeeping problems and/or systems that are not talking 
effectively to one another and not working in an integrated 
fashion. So this system, or a particular example we have today 
is, in essence, a systemic problem in terms of the control of 
inventory across the Department of Defense, and that is one of 
the reasons that we have identified inventory management as a 
high risk area since 1990 within DOD.
    Mr. Gilman. Well, David, is this all being corrected now?
    Mr. Warren. The short answer is no. It has not been 
corrected. There have been a number of initiatives and 
recognition of this problem over a 10- to 12-year period, I 
would say. The difficulty has been that there have been many 
fits and starts, so to speak, to get at this, but there has not 
been a continuity of effort that----
    Mr. Gilman. What is it going to need to get this corrected?
    Mr. Warren. A continuity of effort, a single focal point 
with responsibility and accountability for achieving even this 
broader--you mentioned Mr. Walker's testimony. What he proposed 
there is that there needs to be an overall business process 
transformation effort that includes the incorporation of not 
only financial, procurement, logistic systems that is placed in 
one central, focal point that understands the entire lay-down 
and architecture that is going to occur, they are accountable 
for making that happen, and that can be driven through the 
department.
    This committee, for example, then could call that person up 
and say, this is where we were yesterday, where are we now----
    Mr. Gilman. Let me interrupt. Is DOD undertaking such an 
effort now?
    Mr. Warren. They have some portions of that. I would let 
Greg speak to the financial portion which is kind of the 
centerpiece of that which we----
    Mr. Shays. Let me do this. I'm going to have the Members do 
5 minutes the first round, and we're going to do 10 the second. 
I always prefer the 10, but one or two Members may need to get 
on their way. So I just want to do that. We'll defer that part. 
Remember to make sure it's----
    Mr. Gilman. Thank you, Mr. Chairman.
    Mr. Shays. Mr. Kucinich, and then we'll go the second round 
10 minutes.
    Mr. Kucinich. I want to thank all of the gentlemen who have 
worked on this, and your staffs as well.
    Mr. Kutz, I'm going to ask some questions and, you know, 
try to move along through this.
    Has there ever been a complete recall of the defective 
suits that were identified 2 years ago?
    Mr. Kutz. I believe they attempted to recall them, but I 
don't believe that they were ultimately successful in 
identifying all of the suits.
    Mr. Kucinich. Why?
    Mr. Kutz. Because of the system we just talked about here.
    Mr. Kucinich. Let me ask you this now. Could you estimate 
how many defective suits are out there right now?
    Mr. Warren. The latest estimate was at 250,000 that were 
unidentified.
    Mr. Kucinich. So I want to get this straight. The 
administration has been talking about an invasion of Iraq, 
which is known to have biological and chemical weapons, some of 
which they use against their own people, and we have 250,000 
defective suits that would otherwise protect our men and women 
who we're going to ask to go into battle, and they are not 
going to know if those suits would provide them protection or 
not? Isn't it possible that since these suits are defective 
that any men and women who would be wearing them in a combat 
situation under biological and chemical weapon attack could be 
in risk of their lives?
    Mr. Kutz. If they did get those, they would be. These are 
the old suits now. So they should not be necessarily used on 
the battlefield, but it is possible that they are out there and 
could be used.
    Mr. Kucinich. You know, I think all of us remember the 
situation in Vietnam years ago where people were given 
automatic weapons. Their weapons didn't work, and men and women 
died in battle. I mean, this is a--this is a very serious 
matter, because it relates to protecting those we ask to serve 
this country, and you're saying that even though 2 years ago 
this was brought up, they haven't straightened it out, that 
these suits are still out there. And furthermore, we're now 
finding that other suits, maybe the ones that are not 
defective, are being sold on the Internet that cost the 
taxpayers $200 each, and they are being sold on the Internet 
for $3 each, and we really don't know who is buying them. You 
say that you referred it to the terror task force. Is that 
right?
    Mr. Ryan. Yes, we have.
    Mr. Kucinich. Whoever it was, you felt that there was 
enough information, Mr. Ryan, to refer it to the terror task 
force, because these people may not have had the best 
intentions?
    Mr. Ryan. I think at this stage of the game what we decided 
to do was, based on the information that we were able to 
determine on the bidder of those items. I might add also that 
these items were never released to these people, because GAO 
stepped in, along with the program people, and we stopped the 
pickup of these items. But based on the bidding information 
that we saw and the lack of background information, yes, we 
truly believe that these needed to be referred and they needed 
to be checked out.
    Mr. Kucinich. When were these being auctioned? How recently 
were they being auctioned?
    Mr. Ryan. Just 2 weeks ago.
    Mr. Kucinich. Whoa. Is it possible also, in addition to 
those that might not have the best intentions for the use of 
this equipment, that people who might represent individuals who 
want to sell them back to the government at 200 bucks a piece 
may be buying them? I mean, think about it. Is that possible?
    Mr. Ryan. We had some concern about that. Preliminarily we 
looked at that in regards to selling them back.
    Mr. Kucinich. Would the government buy--let me ask you 
this. I mean, if the government needed them, would the 
government buy them back? Anyone?
    Mr. Warren. I know there have been instances where that has 
occurred with other types of inventory items.
    Mr. Kucinich. So that the government--the taxpayers could 
pay $200 for a suit, it be sold at $3 on the Internet, suddenly 
they discovered it was needed again and they may pay $200 again 
for the same suit? That is possible?
    Mr. Warren. It is possible, yes, sir.
    Mr. Kucinich. Who sells these suits? You know, once 
somebody makes a determination they are sold, who is it that 
actually sells it? Is it a military unit? Is it the Department 
of Defense? Is there, like, a bureau of auctions in the 
Department of Defense?
    Mr. Warren. The defense disposal system handles that, and 
that's part of the Defense Logistics Agency, and they have a 
marketing service, in essence, that handles that. In this 
particular interest--instance, they had contracted the end 
point of sale out--had been outsourced as a function, but it is 
DOD's responsibility which was delegated from GSA under this 
Disposal Act of 1949 to handle the disposal of all items within 
the Department of Defense.
    Mr. Kucinich. One other question, and my time is expired on 
this round. What kind of auction do they have? I mean, is this 
at Sotheby's? Or where do they auction these protective suits? 
EBay? You know, hello, whatever. Where do they auction these 
things?
    Mr. Ryan. The auction basically takes place over the 
Internet. You go online, you register. There's a minimum bid. 
In this particular case the minimum bid was $35 for the lot. 
And you bid until you win.
    Mr. Kucinich. How many in a lot?
    Mr. Ryan. I don't know how many were in this particular 
lot. We participated, and that was the price.
    Mr. Kutz. We did attempt to buy one of the lots.
    Mr. Ryan. We bid on the--when it came up for sale, with the 
permission of the committee, we attempted to purchase, and we 
lost out on the bid at the final end.
    Mr. Kutz. We drove the price up to $3.
    Mr. Kucinich. You drove the price up?
    Mr. Ryan. We had an automatic--we were bidding against an 
automatic system, that every time we bid, they bid higher.
    Mr. Kutz. Some of the earlier lots had sold for less than 
$3 apiece.
    Mr. Kucinich. Well, gee, thank you for saving the 
government that extra money.
    Mr. Shays. Let me do this. We have Mr. Coyle. Come on in. 
Dr. Coyle. I'm sorry. I'm going to have you sit in that chair 
there. You're probably saying who am I and where am I going. I 
understand you just got off a plane. And I'm going to ask you 
to stay standing, because I'm going to ask you to put your 
books down. I'm going to swear you in. And then we'll proceed 
from there. If you'd raise your right hand, Mr. Coyle.
    [Witness sworn.]
    Mr. Shays. Thank you. Mr. Coyle, please be seated. You're 
going to get a chance to catch your breath a second. I'm going 
to go through with Mr. Lewis and Ms. Schakowsky. They're going 
to ask some questions, so you can get a little oriented. Then 
I'm going to have you give your statement before GAO leaves and 
then we'll do 10 minutes of questioning with each.
    Mr. Lewis, you have the floor. I keep saying Mister. You 
are a doctor, and you have earned that. I apologize. Dr. Coyle.
    Mr. Lewis. Thank you, Mr. Chairman. Do you have any 
specific recommendations for fixing this problem, and if you 
do, how quickly could this be put in place to turn this around?
    Mr. Kutz. From a narrow perspective, we've recommended they 
implement integrated inventory management systems, and with 
respect to these specific items, our previous recommendation 
was to standardize the data. And that was really based on the 
inability to recall--to do a proper recall, certain information 
has to be in the system in a standardized basis to locate where 
it is. And that is one of the things--we talked to Wal-Mart, 
for example. You may recall the Tylenol recall with Johnson & 
Johnson back maybe 10 years ago or so. That is one of the 
important pieces of information that they had in their system. 
Because of customer service, they believe it's imperative that 
they're able to go back and immediately recall any defective 
products from their shelves.
    Mr. Lewis. So it could be as simple as DOD taking some 
lessons from Wal-Mart or Sears, then?
    Mr. Kutz. I wouldn't say it would be simple, but it would 
be something that is achievable. Certainly supply chain 
management at the Department of Defense is possible here. 
Inventory systems that would be either integrated or interfaced 
should be possible, yes.
    Mr. Lewis. Thank you. That is all I needed to know.
    Mr. Shays. Thank you, Mr. Lewis.
    Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. Mr. Kutz, I'd like 
to say it's nice to see you again, but it seems like you're 
always here and I'm always here and we're talking about 
financial mismanagement that is never ending, it seems, 
anywhere you look in the Department of Defense.
    Two years ago the same thing was brought up. What, in 
your--to your knowledge has been done in the last 2 years, if 
anything, to address this problem?
    Mr. Kutz. They have a longer term systems development 
effort that we're aware of called the BSM, business system 
modernization, I believe, but that is not scheduled to be 
completed for several more years.
    With respect to shorter term initiatives, the Air Force has 
implemented--if you look at the poster board up there, the Air 
Force has a system that they use that is standardized across 
the Air Force that does have all the information, each of the 
units in it, including manufacture, date lot number, etc. And 
based on our work we've seen that they have talked about 
sharing that with the Army and the Navy, so there is some hope 
for that. But the bigger systems development effort they have 
is still years away, and by the time all of these new suits are 
deployed, the system will probably come online at or near the 
end of that period, which means you'd have to do a complete 
physical inventory to get them into the new system.
    Ms. Schakowsky. Are we paying too much to start with? If 
it's sold at auction for $3 and we're paying 200 to start, is 
that too much money?
    Mr. Kutz. For the cost of the actual new suits? We didn't 
look at that. The old battle dress overgarments, I believe, 
cost about $80, and this is a new and improved technology. So 
$200 or $207 for the coat and the trousers, we didn't evaluate 
whether that was a good price or not, if that is your question.
    Ms. Schakowsky. That is my question. When you compare it 
to--you said you boosted the price to $3 a suit on the 
Internet. It makes me wonder if we weren't suckers to begin 
with by paying $200 a suit. But as you say, that isn't even 
part of the inquiry. That is a whole other question, whether 
we're overpaying.
    I can't help but stress how this lack of accountability in 
the Department of Defense, which seems to be sloughed over in 
every budget cycle, it's so frustrating to me. If it were the 
Department of Education or Housing and Urban Development, I'm 
sure we'd have all of these investigations, and we'd 
practically shut it down and things would be defunded, and yet 
here we are with a $48 billion increase in the defense budget 
with these ongoing problems.
    Let me ask you this. Do any of you have any doubt 
whatsoever that these two inquiries are only a small example of 
what is happening on a much wider scale throughout the 
Department of Defense?
    Mr. Kutz. What we would believe, and others can add on, 
that this would be indicative of other broader problems. As was 
mentioned earlier, the total purchase amount for the JSLIST at 
the end of the day will be about $1 billion. Right now, 
according to DOD's records, which, you know, cannot pass the 
financial audit standards right now, there is about $200 
billion of items that are in the various inventories at DOD. So 
you can see that this is a very, very small example of what is 
a broader issue. So we would say that this could be indicative 
of various other things.
    Mr. Warren has seen a lot of other examples of the 
inventory----
    Ms. Schakowsky. Let me just underscore what you said, that 
they cannot pass an audit.
    Mr. Kutz. Right. I think what we're talking about today 
would give you some idea of why with respect to the financial 
information that would be necessary to pull this into a set of 
financial statements just for this one item.
    Ms. Schakowsky. And let me also get in the record other 
findings that you have mentioned, that have been mentioned, 
that $1.2 trillion in transactions cannot be accurately 
accounted for through the Department of Defense. Is that not 
true?
    Mr. Kutz. That's based on an inspector general report, 
correct.
    Ms. Schakowsky. Mr. Warren, did you want to further 
comment?
    Mr. Warren. It is really a business process transformation 
problem. Again, the systems and the business processes within 
the Department of Defense largely we developed as it relates 
into the logistics area in the 1960's and 1970's, and at that 
time they were quite good systems and based on modern business 
and practice at that time.
    However, over time they have evolved and have not 
modernized. So what you're faced with is what is often referred 
to as a brute force system. It gets the job done, but in many 
respects, it's very inefficient. The department is struggling 
at this point and really has over the last 6 to 7 years to come 
up with a transformation process to bring their logistics 
systems into a modern supply chain-oriented logistics process. 
But the progress has been very slow, and they're not there yet. 
And so as a consequence, you continue to see many of these 
inefficiencies, overbuying, in order to ensure that you have 
what you need when you need it so----
    Ms. Schakowsky. I would agree with everything you said 
except that they get the job done because ultimately when the 
taxpayer overpays and defective suits are out in the field, as 
Mr. Kucinich pointed out, this is not really getting the job 
done.
    Thank you, Mr. Chairman.
    Mr. Shays. Thank you. Mr. Coyle, before having your 
testimony, I'm just going to ask a few questions of our 
witnesses here.
    Now, we've had a number of hearings over a number of years 
and we have looked at just the poor inventory control in 
general, and now we have a very specific kind of case. What's 
on the record now is that in some cases we had a surplus, in 
some cases we didn't, as perceived by military personnel in 
different parts of the world, frankly. And so in some cases, 
not in some cases, we're purchasing more of these suits but yet 
we were selling some. That's correct, right? And there is a 
concern that some of the people who may have been buying them 
may in fact have bad intentions on the United States to be 
further looked at. But in other words, there's enough of a 
concern that the GAO made referrals to proper legal 
authorities, correct?
    Mr. Ryan. That's correct.
    Mr. Shays. Now, then there's also the old suits of which we 
think 250,000 are defective. Do we use the old suits as well? 
Tell me the status of old suits. When I say old suits, I don't 
mean these suits old, right? These are a different suit. Tell 
me, the defective suits, are they these suits?
    Mr. Smith. No, the defective suits are what they used to 
call the battle dress overgarment. It's a completely different 
suit than the JLIST. So the ones that we're talking about that 
we could not find, or we reported they couldn't find 250,000 
of, were the older suits, not the JLIST. The older suits was 
the subject of the hearing 2 years ago by this subcommittee.
    Mr. Shays. Right. No, I remember it because what's so 
horrific about it is those suits were still being used but they 
were put into the lot of good suits, so we had a mixture of 
good and old, bad, and yet we didn't have any way to track 
them, correct?
    Mr. Smith. That's correct. The issue we have today is the 
tracking is the same. They couldn't find the old suits. Today 
they're not able to track the new suits. So the issue about the 
tracking----
    Mr. Shays. We don't even know where the new suits are, I 
mean, technically. We can't say they're here, here, here, and 
here.
    Mr. Smith. The only ones that they actually could account 
for would be the ones that are in the DLA warehouse when they 
come from the manufacturer. Once they are issued out to the 
individual units, then, as shown on the chart, it becomes very 
difficult to be able to track and account for those suits down 
to the military units.
    Mr. Kutz. And as of September 30, 2001, that was 1.2 
million of the new suits that had been distributed out to the 
units. And we would have the concern that they would have the 
very same problems with tracking those that they had with the 
BDL. Again, it's because everybody is doing something 
different, particularly in the Army and the Navy, where some 
units that we visited weren't tracking them at all; other ones 
had, you know, the dry erase board, handwritten notes, some had 
pen and paper, etc. So if you really had to find out where 
these things were on a moment's notice, either on a recall on 
some emergency happened somewhere, these 1.2 million would be 
very, very hard to find and it would be highly unlikely you 
would get an accurate count of them at any point in time.
    Mr. Shays. It's clear a system like this invites 
extraordinary waste, of course, you've illustrated that. It's 
wasteful to sell when you're already buying, and it's alarming 
that you would be selling a suit that could be used for--by our 
potential enemies. But it also just invites fraud, doesn't it?
    Mr. Ryan. [nods in the affirmative.]
    Mr. Shays. A nod of the head is hard to transcribe.
    Mr. Ryan. Yes, I think it can, because they lose visibility 
of it at the service units. If there's no accountability at 
that point, as Mr. Kutz and Mr. Warren have pointed out, you 
don't know where they're at.
    Mr. Shays. So someone could literally sell a lot of it--
this is--by the way, we're focused on the suits, but this is to 
illustrate the whole system. And what--we all bring to the 
table different experiences, but when I was going--was in the 
Peace Corps, I spent 3 months in Molokai and a wonderful family 
invited me for a Christmas dinner, seven-course meal. She was 
Chinese, he was Hawaiian. And I remarked about the quality of 
the food, and they opened up one of these chest freezers, and 
in it was U.S. Government-stamped food, meats. And at the time 
I just made an assumption that they had bought them. Maybe they 
bought them. They didn't buy them over the Internet. So I 
probably shouldn't assume they bought them illegally, and I 
didn't at the time, but it was clear to me that they shouldn't 
have it.
    Mr. Kutz. Mr. Chair, one thing that's happening now is the 
units out in Hawaii we talked to, there's some confusion about 
the manufacturer's warranty versus the useful life of the 
suits. The people that excess these were, it appeared, under 
the mistaken impression that once 5 years is up with the 
manufacturer's warranty, that the suits are no longer good. 
That is not correct. We understand these have been designed to 
last at least 14 years.
    So given the first group of these that was manufactured was 
in 1997, these are starting to reach their 5-year warranty. 
There is a risk unless the Department gets the word out that 
other people will have boxes of these in a corner, that aren't 
in any records, that will look at the manufacturer's warranty 
and say 5 years are up, it's time to excess these. That appears 
to be in this part with the Hickam Air Force Base and the Naval 
Ordnance Disposal Unit in Hawaii that excessed some of the 
suits that we have here at the table.
    Mr. Shays. OK, let me do this. Let me call on you, Dr. 
Coyle, to make your statement, and then we'll go 10-minute 
rounds and we'll ask Mr. Kucinich to start us off.

 STATEMENT OF JOHN J. COYLE, DEPARTMENT OF BUSINESS LOGISTICS, 
                 PENNSYLVANIA STATE UNIVERSITY

    Mr. Coyle. Good morning, Mr. Chairman.
    Mr. Shays. Is your mic on?
    Mr. Coyle. Good morning, Mr. Chairman and members of the 
committee.
    Mr. Shays. I'm sorry, I was going to just--given that you 
walked in kind of looking like you didn't know who you were and 
where you were, I want to set the record here. You are 
Professor Emeritus and the Business Administration Director of 
Corporate Relations for the Center for Supply Chain Research, 
and you have written over 100 publications in the area of 
transportation and logistics, presented papers on these same 
topics at professional meetings, including the Council of 
Logistic Management, the American Marketing Association, and 
National Academy of Sciences. And you're a coauthor of two 
best-selling books, the Management of Business Logistics and 
Transportation, and you edited the Journal of Business 
Logistics from 1990 to 1996, and you're on the editorial review 
board of the Journal of Business Logistics of Supply Chain 
Review and the International Journal of Physical Distribution 
Logistics. You are highly qualified to come before this 
committee. It's an honor to have you, and the floor is yours.
    Mr. Coyle. Thank you very much for that kind introduction. 
Good morning again to you, Mr. Chairman, and to members of the 
committee. I apologize for being late this morning. I sat on 
the tarmac in State College, Pennsylvania this morning for 
about 2 hours in a ground fog, so we were obviously late.
    Mr. Shays. We're going to have some votes. You have 5 
minutes--let me see we have one vote or two. We have--it's a 
recess. We're cool. Go for it. I've interrupted you twice. 
Three times, and I'll give up the chair.
    Mr. Coyle. No problem. And I also apologize because I did 
not hear the earlier testimony, and I don't know whether my 
comments will be somewhat redundant with the other testifiers. 
So let me just be very brief and then you can ask me questions.
    As you all well know, the landscape for business 
organizations changed dramatically during the 1990's. We feel 
in our Center for Supply Chain Research that was the result of 
five or six major external forces, including a new and very 
empowered consumer, more highly educated, better income, but 
more importantly, much more information at their disposal:
    Second, a tremendous amount of consolidation at the end of 
the supply chain in the hands of the retailer. So as you 
probably know, last year, for example, Wal-Mart became the 
largest corporation in the United States in terms of sales, 
exceeding not only Ford and General Motors but also Exon/Mobil.
    Third, a change in government policy over a decade and a 
half, with deregulation of major sectors that support business 
and liberalization of trade.
    Fourth, a tremendous growth in globalization and global 
competitive forces impacting businesses.
    And, finally, technology changed dramatically, really 
changing the way businesses interacted with each other and also 
changing the way they could interact theoretically with the 
consumer.
    Supply chain management, as my co-testifiers probably said, 
arose as a strategy, if you will, or an approach, a set of 
concepts to try to help organizations be more competitive 
during the 1990's. As we enter into the 21st century that 
continues to be the case.
    This concept of supply chain management encompasses product 
flow, information flow, and financials from a corporate 
specter, and it's important also to recognize that it covers, 
you know, extended enterprises.
    Now, as we look at the supply chain in organizations, we 
see a couple of key things that are happening. One is really 
trying to understand demand, and aligning demand and supply are 
some of the comments here, and it seems like that's one of the 
problems. Creating value for the end user. Developing a supply 
chain network strategy, collaborating information sharing and 
redesigning your processes.
    There are a lot of examples, and you probably heard of 
already of successful corporations in this area that have 
driven costs out of their system, and at the same time become 
more effective. They are not, however, without their 
challenges, particularly in the more complex types of 
organizations.
    While I don't have the expertise that some of my fellow 
testifiers have here today with respect to the Department of 
Defense, we have had the opportunity to work with a number of 
DOD organizations including DLA, particularly in Columbus, 
Ohio, the Defense Supply Center, and also have been actively 
involved with the U.S. Marine Corps for 4 years in a series of 
educational programs and some other types of research, and also 
with the Army during the course of the last year and a half.
    And as I look at those organizations, I have been 
impressed, I must say, with the people that have I been 
involved with in their trying to understand what makes business 
organizations successful, in terms of their ability to 
implement approaches that will allow them to take cost out of 
their supply chains and also to make them more effective.
    So at least at the level I've been dealing with, the 
personnel are very much interested in achieving the objectives 
that I'm sure you are. They obviously have a complex 
organization. It's much more complex than most of the business 
organizations that I've worked with over the years, and so the 
complexity is a challenge. They also have, I think, some 
challenges in terms of the way budgets are written for 
Department of Defense groups, and then also with some of the 
regulations that they have, policy they have with respect to 
procurement. But that's not to say that improvement is not 
possible, as I'm sure other members have suggested here today 
with their testimony earlier.
    It seems to me that, you know, the biggest challenge is for 
horizontal and vertical exchange of information. Information is 
power. Information really is the thing that allows corporations 
to achieve the things that they have. And that exchange 
across--horizontal exchange with the using unit and with 
internal organizations and vertical interchange, is challenged, 
as was suggested here earlier by somebody sitting here at the 
table with me, by technology that they don't have at their 
disposal and by, I think, the fact that the processes have not 
been redesigned.
    So, while there has been success, I really think there's a 
lot more that can be done to attain the kind of things you seem 
to be driving toward. And one of the key objectives of a lot of 
organizations today is to achieve what they call inventory 
visibility. The key to success in a company like Dell or Wal-
Mart is they do have inventory visibility. They know where the 
inventory is, up and down their supply chain. While they may 
from time to time lose track of an individual item, it's really 
surprising how closely they control that.
    So let me just stop there and try to answer any questions 
you have. And again let me apologize, because I may have been 
redundant.
    [The prepared statement of Mr. Coyle follows:]
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    Mr. Shays. Dr. Coyle, I'm going to call on Mr. Kucinich. 
I'll just make this observation, though, to set the stage here. 
There is basically no part of the DOD budget that is auditable, 
to start with. And if it was a private business, it would be 
not in compliance with the law.
    Mr. Coyle. Correct.
    Mr. Shays. And we all know that here. And Ms. Schakowsky 
has pointed out this is not the first hearing, or the second, 
or even the third hearing we've had, and others that she's been 
involved in.
    We also know that when you have inventory control you 
prevent waste, you prevent fraud, and also you don't have to 
have as much inventory because you can move it to different 
places where you need it, if you know where it is.
    Mr. Coyle. Correct.
    Mr. Shays. But if every unit has to have a maximum--and so 
one of the things I hope you will add to this is, given the 
extraordinary failure of DOD over many, many, many years, over 
different administrations, to get this--a handle on this, is it 
possible? And Mr. Kucinich--and I think the answer is yes, but 
it just strikes me that you begin to wonder.
    Mr. Kucinich, you have 10 minutes. I'll go to Mr. Lewis and 
then, Ms. Schakowsky, you'll have 10 minutes as well.
    Mr. Kucinich. Thank you very much, Mr. Chairman.
    Mr. Kutz, I want to go back to some basic numbers here. 
These suits and the ones that are vacuum-packed are the ones 
that are JLIST, is that right?
    Mr. Kutz. Yes.
    Mr. Kucinich. OK. These suits sell for $200 each.
    Mr. Kutz. For a set. A coat and a trousers is a little over 
$200. That's what they're buying them for.
    Mr. Kucinich. According to your testimony, by the end of 
fiscal year 2001, the Department of Defense had procured 1.6 
million.
    Mr. Kutz. That's correct.
    Mr. Kucinich. Let's do the math; times $200 is $320 
million.
    Mr. Kutz. Correct.
    Mr. Kucinich. So we're not talking about a small contract 
here. This is a $320 million contract. Now, of the 1.6 million 
that have been procured, how many can--how many have been sold? 
How many of this JLIST lot have been sold? Do we know? On the 
Internet or anywhere?
    Mr. Kutz. That we're aware of--and, again, we are only 
aware of the information we were able to get from the 
Department--429 have been sold, although as Mr. Ryan said, they 
have not been released yet. There were 1,934 that had been 
excessed.
    Mr. Kucinich. How do you know that?
    Mr. Kutz. That's based on their records. We actually went 
out to Hawaii. We sent one of our staff from Los Angeles to 
Hawaii. They counted the 429. So we're certain of those. The 
amount that were disposed of, the 917 that were disposed of, 
that is based on their records. We would not be able to tell 
you whether that's right or not. We can tell you there were 429 
that were sold, and we saw most of those.
    Mr. Kucinich. Of the 1.6 million that were procured, you've 
only been able to focus on just a little more than 1,000. Do 
you know where these are? Can you give me a categorical 
breakdown on where these suits are?
    Mr. Kutz. As of September 30, 2001, 400,000 would have been 
in the three DLA warehouses, and the other 1.2 million would 
have been distributed to the military services. And I don't 
recall the data as to which service got how much. There were 
preallocations of the suits. But the 1.2 million have been 
distributed to the services.
    Mr. Kucinich. And it's your testimony, though, that you 
really don't know where they're located.
    Mr. Kutz. We don't believe the Department could pull 
together the visibility information as to where they're all 
located, yes.
    Mr. Kucinich. So is it possible that some of those could 
have been sold?
    Mr. Kutz. That's plausible.
    Mr. Kucinich. Is it plausible that thousands of these could 
have been sold, is that possible?
    Mr. Kutz. Yes, that's possible. Again, there's 1.2 million 
out there at the units. Again, when we went through, in some of 
the examples there was human error here also. In the two 
locations we visited in Hawaii, the people looked in the 
warehouse and said, these things have been sitting here for 2 
or 3 years, did anybody on the base need them? No, nobody said 
they needed them, and they got rid of them. So it was just 
simple human error there as to what these were and what they 
were to be used for, because they didn't have an inventory 
system that said--that had anything. It was just some boxes in 
a corner of a warehouse, and they were trying to clean out that 
part of the warehouse.
    Mr. Kucinich. Let's say that there was an immediate need 
for these suits. How would anyone know how to get them?
    Mr. Kutz. That would be our biggest concern, is if there 
was immediate need to know where the--if something happened in 
some part of the world and they needed to call up and move 
these from one location to another, it would be very, very 
difficult for them to do a lot manual intervention, data calls.
    Mr. Kucinich. How long did you take to find out that you 
didn't know where they were?
    Mr. Kutz. I'm not sure I understand the question.
    Mr. Kucinich. How long did it take you to make a 
determination that you couldn't trace these? How much time had 
you put in when you finally arrived at the conclusion we can't 
find these?
    Mr. Warren. That we knew pretty quickly. In other words, we 
knew that the only comprehensive data system was at the DLA 
warehouse system. Once the items left the DLA warehouse system 
and went to the services, we knew that there were not existing 
data systems that would track them on a routine basis. So that 
was apparent pretty quickly that our----
    Mr. Kucinich. OK, so you can't--we're still back to about 
1.2 million.
    Mr. Warren. Yes, sir.
    Mr. Kucinich. That you can't really say where they are.
    Mr. Warren. Correct. We knew that pretty quickly, and by 
that we knew that our initial recommendation had not been 
implemented in any way.
    Mr. Kucinich. Are you aware of any system--any of you 
gentlemen aware of any system which the Department of Defense 
has that they can, if they needed 1.2 million suits 
immediately, they could put out a call and say, check your 
closets or the garages or whatever for these suits? I mean, is 
there any way that they can----
    Mr. Smith. Other than doing a basic data call, there is no 
automated system that would be able to tell you today where the 
1.2 million suits are located at. They would have to do a 
worldwide data call, the same as they did when they tried to 
recall defective BDOs. Again, the accuracy of that data call 
has proven it is not accurate. So the answer basically would be 
no. They do not know where they're located at.
    Mr. Kucinich. So we really don't have the ability to--what 
you've shown in this one case is that you really don't have the 
ability to track this all the way. You know, this whole hearing 
was about tracking a single item. You're saying there's a point 
at which you just can't track it.
    Mr. Smith. That's true. At the unit level. The other thing 
I'd like to clarify is that in the hearing 2 years ago, the DOD 
IG even raised concerns about the DLA system which controls the 
400,000. So there's some question raised about that. The DOD IG 
said that system is chronically inaccurate. So it is 
questionable even for that system if that information is 
correct.
    So, again, throughout the entire chain, as shown on the 
board, there is no visibility over all these suits. No one can 
tell you today where the 1.6 million suits are located with any 
degree of assurance that they would be able to pull them all to 
a single location and redistribute them.
    Mr. Kucinich. Let's go back to the beginning. Why were 
these ordered in the first place? Why would you need this kind 
of protective gear? Why do soldiers need this? Anybody.
    Mr. Kutz. To protect them in a contaminated battlefield 
environment.
    Mr. Kucinich. Chemical or biological?
    Mr. Kutz. Either.
    Mr. Smith. Both.
    Mr. Kucinich. What kind of protection would this give the 
men and women?
    Mr. Smith. It is supposed to be able to protect them today 
against all known chemical and biological weaponry that could 
be used upon them.
    Mr. Kutz. And provide them the flexibility to do their job 
with minimal--the older suits were more bulky and less flexible 
and were hot, apparently, in certain environments. These 
apparently are more comfortable for the soldier to wear.
    Mr. Kucinich. This is a $320 million contract. Where were 
these made?
    Mr. Smith. Actually it's a $1 billion contract.
    Mr. Kucinich. It's $1 billion contract?
    Mr. Smith. It's $1 billion, which includes a surcharge that 
is paid to DLA for the storage and administration of the 
contracts. So the number you used before, that was just for the 
suits that had been purchased. But the total contract is $1 
billion.
    Mr. Kucinich. OK, a $1 billion contract; who was it awarded 
to?
    Mr. Smith. The suits is being made by five different 
companies. So it is spread out through those five companies, 
and there's different pieces of the suits that are also bought; 
kind of raw materials, the outer shell, the liner, they are 
bought. So different companies are involved in the process.
    Mr. Kucinich. Where are the companies located?
    Mr. Smith. They're all located--the liner company is from 
Luscher. The rest of the companies are here in the United 
States.
    Mr. Kucinich. Where is the liner?
    Mr. Kutz. Luscher, in Germany.
    Mr. Kucinich. I looked at the tag in here, and it says 
National Center for Employment of the Disabled. What is that 
about?
    Mr. Smith. That's one of the manufacturers of the suit.
    Mr. Kucinich. OK. What does that particular manufacturer 
do? Is that, you know, is that somebody--obviously is that a 
government agency that--why is it called the National Center 
for Employment of the Disabled?
    Mr. Smith. That is one of the manufacturers. It's the way 
the contract----
    Mr. Kucinich. Is that a charitable organization?
    Mr. Smith. It's not charitable. But there's different 
procurements that it has to go through, and there's different 
options that this has to be offered to different organizations 
through the DOD process. I think that gets back to what Dr. 
Coyle said about different regulations, different requirements 
fall upon DOD than you would have in the private sector.
    Mr. Kucinich. I understand that. I think it's wonderful to 
hire the disabled, but I'm wondering how the National Center 
for Employment of the Disabled is part of a $1 billion contract 
to make these suits that is the subject of these hearings. I'm 
just wondering, could you tell me a little bit about that? I 
think it's a wonderful idea to hire the disabled. Is this a 
U.S. Government operation or is this a private for-profit?
    Mr. Smith. It's an organization--we went to the one down in 
Tennessee. That's part of the contract. It's the way it's set 
up. It is a U.S. entity that is not--it's not U.S. Government, 
it's a private entity.
    Mr. Kucinich. Is it a profit, nonprofit? Sounds like a 
nonprofit, doesn't it?
    Mr. Smith. That I am not sure of.
    Mr. Kucinich. The difference is, if it's nonprofit, there's 
one price. How would--this relates to price, Mr. Chairman. 
They're charging 200 bucks for these, and Ms. Schakowsky raised 
a great question because she said, you know, if they're selling 
them for $3 on the Internet, are they really worth $200 to 
begin with? If these are being made by people who are disabled, 
how much are they being paid? These are issues that are real 
here. Are the disabled people really getting a benefit out of 
this, or is somebody, you know, hiring people who are disabled 
and paying them minimum wage and then charging the government 
as though the wage component was, you know, $120 or $200. I 
think that's a fair question.
    Mr. Kutz. We did not get into that. Let me mention one 
reason why these might have been selling for $3 is there was 
again some human error. At one of the locations, the individual 
at the Naval Ordnance Disposal Unit in Hawaii--and the one I 
held up earlier that was not a training-only, but was a good 
unit, they actually had marked it when they sent to the DRMO to 
be excessed as E, because they thought it was in excellent 
condition. Well, E actually means that the items are damaged. 
So it may very well be that the purchaser thought that these 
items were damaged and therefore they may have been bidding 
less money on these.
    Mr. Shays. If the record would note, we have requirements 
on DOD to hire a certain number of disabled, and Native 
Americans I think are involved in the making of some of these 
suits as well. I don't know if that's the real focus of this 
hearing right now. But we do increase the cost to the 
government sometimes in some of our hiring practices, but we 
also want these to be made by U.S. citizens, for security 
reasons as well. So there are a lot of factors involved that 
I'd love us to address sometime, but I hope we stay on the 
focus of the inventory, how it's being handled, whether we can 
improve it.
    And one of the questions Mr. Kucinich clearly pointed out 
is, we simply--we don't know if a lot more of these suits 
weren't sold.
    Mr. Coyle, as you hear this as well, I would think your 
mind would be going clickety-click-click, click here--maybe 
I'll get my chance. But I want us to invite all the witnesses 
here to respond. And, Mr. Lewis, you've got the floor.
    Mr. Lewis. Thank you again, Mr. Chairman. The Department of 
Defense, do they have an ongoing inventory process for the 
different departments and agencies within the Department of 
Defense? Is there a requirement that they have at least a 
biannual inventory count?
    Mr. Warren. They're continually looking at the inventory 
that they have under their control. There are requirements for 
physical counts for control and financial accounting purposes. 
There are also requirements--perhaps this would be helpful to 
the other questions--there are also requirements as they look 
at the inventory that they have under their control at the 
various units, if it is declared excess to their needs, rather 
than carrying the carrying cost of holding onto those items, 
they are required to put it into the disposal process which we 
are talking about today.
    And that can move through various phases. It can be 
redistributed to other units, which you would have hoped would 
have happened here, but did not. It can be distributed to other 
Federal agencies. And it can be distributed to voluntary 
agencies.
    Once it goes through that type of priority regime, then it 
moves into the sale process which we have discussed this 
morning. Over time, over history, what happens to items that 
are then declared what they call surplus--no longer to the need 
of the Federal Government--typically have sold for 2 cents on 
the dollar. So it is not unusual that these items sold at this 
very low price under the typical Department of Defense disposal 
process.
    Mr. Lewis. Is there a central data bank that you can look 
to see where any specific inventory items would be at any given 
time?
    Mr. Warren. It varies, obviously, from service to service. 
The Department of Defense operates a largely decentralized 
management process for its inventory management processes. Some 
items, sensitive items for example, are controlled in a much 
better manner; firearms for example, sensitive missiles, in a 
much better manner than other items. Clearly this item that 
we're talking about today is not controlled in that manner. The 
systems typically do not talk to one other, particularly across 
services, if there was an opportunity to share assets. And that 
has particularly been a problem.
    So when they did the Y2K exercise, for example, to try and 
correct that issue, the Department identified over 1,000 
individual logistics management systems across the Department 
of Defense. So that gives you again an idea of the 
proliferation of logistics management systems that exist today.
    Mr. Kutz. Representative Lewis, one thing I was going to 
mention, of the 1,934 suits that have been excessed, we did 
identify that 275 were reutilized, which means they went back 
to the government system. We did find, for example, that 200 of 
them went to the Marine's First Tank Battalion. So some of 
these did get back into the DOD system when they were, I think, 
put up on the DRMO site that others can go in and look at. So 
some of these did get back into the system. How the other ones 
got through without going through that process is not 
completely clear.
    Mr. Lewis. Dr. Coyle, how difficult do you think it will be 
to put in place an efficient supply management system that, you 
know--that could be as accountable to the inventory as a Wal-
Mart or Sears or some of these other large companies?
    Mr. Coyle. As I tried to suggest in my comments before, it 
would be very challenging because of the complexity. There are 
so many different items of inventory, NSNs as the military 
refer to them.
    Just to give you an example, we were working with the 
Defense Supply Center in Columbus. They were handling 1.8 
million unique items of inventory, 1.8 million unique items or 
NSNs. You go to a very large store, Home Depot, for example, 
the typical location for them would have 70,000. So you've got 
a tremendous level of complexity. The Defense Supply Center, 
they had 22,000 customers but 450 of them had accounted for 
over 80 percent of their sales. So they have some challenges.
    However, as was suggested here by several other people, it 
is possible to make, I think, tremendous--or to make 
significant changes. Information, obviously, is very, very 
important. But in addition to having reliable information, you 
have to have timely information. And that requires that the 
systems interface with each other.
    The biggest challenge that I saw, as I looked as I did some 
work with the Marines a couple years ago, is that if you look 
at their operating architecture, it's like a spaghetti bowl. 
They have all these different systems that don't interact with 
each other. Some are archaic, some are obsolete. They have some 
real challenges in trying to keep track of inventory, get that 
kind of visibility you want. But it is possible. It's going to 
be more challenging than any single corporation that I know of 
to be able to do that.
    Mr. Lewis. It seems to me like with the technology we have 
today, that there's no excuse for using pencil and paper and 
blackboards. You know, there's got to be, and there is, a 
better way to deal with some of these.
    Mr. Coyle. There's no question--you can look, you can visit 
almost any large corporation today, as some of these gentlemen 
at the table have, I'm sure, and I have myself, and you'll see 
lots of different ways of companies that are doing that. There 
are different kinds of technology, but there's a lot of 
similarity across those organizations as to what they've done.
    There have been mistakes made--you've read about them in 
newspapers--with different corporations. But underlying all 
this, you know, the suggestion about what technology can do--
you really have to make sure that you change the processes. You 
got to reengineer. Because if you throw technology at the 
problem, it doesn't solve the problem.
    Every company I've ever worked with that have tried to 
throw technology at the problem have ended up costing 
themselves a lot of money. They got to start basic with the 
processes. You talk to--somebody mentioned Sears here at this 
table. Sears Senior Vice President for Supply Chain Management, 
a 30-year career Army officer, is a 3-star general, retired 
from the Army after 30 years, and went to Sears. He's 
revolutionized the way Sears does their logistics and their 
supply chain. Obviously, he didn't just bring the Army 
techniques with him, but some of them. He's looked at, you 
know, what's going on, what's possible, and, you know, has made 
a lot of changes. There are some bright people in the military 
services, I think, that given the proper support can make some 
appropriate changes.
    Mr. Lewis. Absolutely. I agree.
    Mr. Shays. Would the gentleman yield for a second on his 
time? I mean, this is intriguing to me, because you're saying 
we have--I was wondering if we simply aren't hiring the best 
and the brightest in the military, and therefore the private 
sector does it. But there is a reason why he didn't--was he not 
empowered in Defense to do this?
    Mr. Coyle. It was interesting, in the Persian Gulf War he 
was the chief logistics person in the Persian Gulf War. And, 
you know, given the technology that was at his disposal at the 
time, and the processes that were in place, you know, a lot of 
good things happened in preparation for that effort. But there 
have been some criticisms about the buildup, the so-called 
bull-whip effect in the inventory that you had before the 
Persian Gulf War, but I think that was attributable to the lack 
of information.
    And you keep referring to inventory visibility. I couldn't 
agree more. That's a critical ingredient for success.
    Mr. Shays. What this raises, in my judgment, is something I 
hadn't thought about until you just made the point. I mean, I 
basically felt it was people without the expertise or ability, 
paid a salary that didn't enable them to, you know, get the 
kind of--that the expertise that they needed--in a system that 
was bad, just teaching them bad process and reinforcing it.
    And yet I've known for years that DOD is one of the best 
educators. They take someone, and value added when they get 
these young men and women is significant. And what I'm 
wondering is, is maybe DOD doesn't have the ability to 
recognize these people, to put them in the forefront where they 
get to make the decisions. And so, you know, obviously they had 
them in the Gulf War, but you've got a major company that has 
benefited tremendously from it.
    Mr. Coyle. From his experience and what he learned during 
his educational processes before he joined the Army or went in 
the Army, and what he learned afterwards, I agree, there are a 
lot of very bright people there. I think some of them are 
frustrated by the lack of opportunity for them to make changes 
they see.
    It goes back to something I didn't mention in my 
presentation that probably someone else has already suggested, 
that performance measurement is a critical ingredient for 
change. And rewarding, you know, appropriate performance 
measurement, I'm not sure that the metrics, if you will, the 
performance measurements that we have in place drive the type 
of change that you want to achieve.
    Mr. Shays. Doctor, when I have you for my questions, I'm 
going to say ``doctor, doctor, doctor, ``because I just called 
you ``mister, mister, mister,'' a few times here.
    Mr. Coyle. I can tell you a funny story about that 
sometime, and I will.
    Mr. Shays. It would be fun to hear something funny that 
doesn't cost us so much. But we have had too many hearings, and 
I almost found myself saying to my staff I don't want another 
hearing on this. Then I realized I'm guilty of the same thing 
DOD is. They've ignored this issue for years in not succeeding, 
and we have to win. And I want to know how we win ultimately.
    I have a good friend who works in organizations whose 
strategy is this: difficult, impossible, done. I'd like to 
think that's part of the military way of getting things to 
happen. But we have failed miserably for decades in this area. 
And I'm sorry my time is up--or Mr. Lewis' time is up. Is it 
Mr. Tierney or Ms. Schakowsky?
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Dr. Coyle, you talked about horizontal and vertical 
coordination, and then you talked about performance--measuring 
performance. I've concluded that we have to start talking about 
the culture at the Department of Defense because we clearly 
have a Department where there are no consequences to 
sloppiness. It is a culture of sloppiness. That's the only 
thing that I can conclude. And nothing happens to somebody. OK, 
so we lost 250,000 possibly defective suits, and we can't track 
1.2 million new suits, and we auctioned them for $3. Nothing 
happens to people. Or, on the purchase cards, we had a whole 
hearing in the other subcommittee on purchase cards. Little to 
nothing happens to people who misuse them. So there are 
absolutely no consequences. DOD keeps failing audits, we keep 
passing higher and higher budgets. Nothing happens over and 
over again.
    Wouldn't you say that there have to be some--there has to 
be some consequence, somebody has to pay, some accountability, 
some punishment, something has to happen?
    Mr. Coyle. Sure. I think you put your finger on a very 
important aspect of it, and culture is important in any 
organization. And the culture has to support change, the 
culture has to support doing things a better way, driving for 
efficiency. But also underlying that, there have to be 
appropriate performance measurements in place so that good 
performance is rewarded and bad performance is penalized.
    And I think what you're suggesting--and you obviously know 
more about this than I do--is that bad performance is not 
penalized. If this happened in the private sector, as you well 
know, you'd be reading about it tomorrow in the Wall Street 
Journal, and someone might be even investigated with a civil 
suit and going to jail, as several people who are being 
investigated at the present time. So performance measurement I 
don't think is appropriate to stop some of those things from 
happening.
    Ms. Schakowsky. Mr. Kutz, you said that you found some 
units used pen and paper and dry erase boards. So what happens 
if that information gets erased? Is there any back-up, is there 
any way to follow that up, or is it just gone?
    Mr. Kutz. I would think it would be gone. And there were 
some units that we looked at that had no records of these. They 
received their shipments and they did not keep track. So, yes, 
that would be gone.
    Ms. Schakowsky. So it's like we're living in the middle 
ages in some of these places that we can't even keep a record 
of them. I wanted to get back a little bit to what Mr. Kucinich 
was saying, and just suggest that while we didn't look at in 
this study the issue of the products themselves and their cost, 
Mr. Kutz, you had mentioned at one point that you're starting 
to look into issues of vendor fraud. This isn't particularly 
related to purchase cards. I'm wondering if that is proceeding 
and that would be worthwhile, you think, to look at as well?
    Mr. Kutz. We're looking at that, at the credit card issues. 
We have not--I don't think we have any current studies underway 
right now of that Department-wide. But there's a lot of bigger 
bucks out there than the credit cards. So certainly with 
respect to contract payment and vendor payment, there's a lot 
of risk of fraud at the Department of Defense, and there has 
been a lot of fraud identified over the years.
    Ms. Schakowsky. Let me finally say that while there don't 
seem to be any consequences for people at the Department of 
Defense, regardless of what kind of waste, fraud, and abuse 
there may be, the consequences--as has been repeatedly pointed 
out over and over--the consequences are so grave here in terms 
of it's life and death that we're really talking about here, as 
well as billions and billions of dollars.
    And so I just think, and I agree with you, Mr. Chairman, 
you feel like oh, no, not another hearing. Well, maybe we do 
need to think of something else besides continuing a hearing. I 
believe that the American people--if this room were filled with 
cameras, and there were lots--would be as outraged about this 
as they get about Enron or anybody else. This is scandalous. 
And there has to be some way to put a stop to this.
    I appreciate that you continue to shine the light, and we 
ought to think about how we can now get some sort of results. 
Thank you very much.
    Mr. Shays. Thank you very much.
    Mr. Tierney. You don't know where to begin, do you?
    Mr. Tierney. Yeah, I know where to begin. I'm all for 
rewarding people that do well, but in this situation I'd like 
to lop a few heads, frankly.
    Is there a way, Mr. Kutz, that we can get a chart of, 
besides the Secretary of Defense being responsible, who under 
them is responsible for this mess, right on down the line to 
the very bottom and their rank; because I'm willing to bet 
there's all sorts of stars and badges and stripes on these 
people who continually mess up, and they continue to get 
promoted.
    I disagree with Ms. Schakowsky. What happens is they get 
promoted. It's not that nothing happens to them; they get 
promoted by longevity, being in there. In the private industry 
they get stock options, and in the military they get 
promotions.
    So is there a chart that we can have that would show us the 
responsibility of who under the Secretary, and who under that 
person, all the way down the line is responsible for this mess 
so we can put a rank and a name to these people?
    Mr. Kutz. It is hard to put a finger on who is responsible 
here. That is one of the issues. Because you've got the 
services responsible, you've got DLA responsible, you've got 
the program office responsible. I think when DOD witnesses come 
up, you can certainly talk to them about who they believe is 
really responsible. But maybe that is one of issues here, is 
that no one individual is responsible.
    Mr. Tierney. Suppose we ask the DOD to give us their idea 
of who's responsible; can you also give us your idea, having 
gone through this, of who you think is responsible so we can 
compare the two? Would you do that for us?
    Mr. Kutz. Sure.
    Mr. Tierney. If this was a hearing about lost erasers and 
pencils in the Education Department, every damn member of the 
press from around the country would be in here, banging around 
and putting out stories about it. But because it's the 
military, they're all napping at home and letting this go on. 
It's just a disgrace it happens.
    Let me ask you this. Is there a reasonable timeframe, Dr. 
Coyle, that we might expect somebody to implement the best 
possible system to correct this situation?
    Mr. Coyle. As was suggested here a little bit earlier at 
the table, I think you're talking about a time horizon of 3 to 
4 years to implement something like that.
    Mr. Tierney. You know, Mr. Chairman, what I think we ought 
to do is talk about cutting this budget by $18 billion in 3 or 
4 years, and the way they can save it is by doing better; and 
if they don't, then they've got to find some way to make it up. 
Because the longer there are no consequences and the longer 
nothing happens, you know--where, Mr. Kutz, would we cut? Where 
would we take that $18 billion, from what line items?
    Mr. Kutz. One of the things we talked about--I don't know 
about cutting--but one of the things we talked about at the 
last hearing was some sort of way to control the IT money. I 
mentioned earlier that the IT money is being shelled out all 
over the place within the Department, and that's how you get 
the proliferation of systems and everybody building their own 
systems.
    One thing that the Congress could do, which has been done 
at a place like IRS, is to try to centralize that funding and 
get control over it. Again I mentioned at the last hearing we 
had that there's $26 billion in the budget for investment 
technology, which includes weapons system type.
    Mr. Tierney. Twenty-six.
    Mr. Kutz. $26 billion, which includes business systems and 
weapons systems, both of that in there.
    Mr. Tierney. Can we separate out those amounts?
    Mr. Kutz. We do not know the actual components. We're 
looking at that right now. There's a report this big that 
outlines the pieces, but certainly billions and billions of 
that are for business system.
    Mr. Tierney. There wouldn't be any chance you would have 
that ready by the time we're doing the appropriation process, 
would it?
    Mr. Kutz. We can try.
    Mr. Tierney. The appropriation process might be this week.
    Mr. Kutz. Yes. I mean, we have the documents and we can try 
to give you at least a first cut at what we think the pieces 
are.
    Mr. Tierney. I don't know what your disposition is on this. 
It seems to me it would be responsible for to us identify how 
much of that IT system is, and put a motion to centralize it 
and begin this process of putting some control on it. I'd like 
to work with you and Members on that side of the aisle to do 
that just so we get some sort of control over it.
    Mr. Shays. Would the gentleman yield? As we were conducting 
this hearing, I was just writing the e-mail to my staff to see 
if we could prepare some type of amendment to highlight the 
failure to be able to audit, but particularly taking this part 
of it which is the inventory, and seeing if we could come in 
with an amendment that would kind of wake up our colleagues on 
that.
    Mr. Tierney. If I could just reclaim my time, in addition 
to like concentrate on what Mr. Kutz just said, maybe working 
with Mr. Kutz, identify that number and the proper language 
that would allow us to centralize and get control over that IT 
system, so that going forward here we can start, hopefully.
    Mr. Kutz. We could certainly share with you the language 
that's been used for the Internal Revenue Service, the Customs 
Service, and others where that's been done.
    Mr. Shays. Let me just say that's an excellent idea. It 
would be nice to make it a bipartisan amendment. And I think 
that the sooner you can get it to us, the better; because we 
are going to deal with both the construction budget and the 
defense appropriations.
    Mr. Tierney. I just think that would--we've got to start 
doing something constructive out of here instead of just 
complaining about it. It may seem punitive or whatever, but I 
think we're at the point where we should get a little punitive 
here. But we've got to find a way that doesn't affect our 
ability for national security, but at the same time wakes these 
people up and maybe stops a few stars from being put on 
people's shoulders, and we can look to who to reward if they're 
doing a particularly good job, or why they're not finding 
people with this kind of--let me also ask, would it make sense 
to Dr. Coyle to have an advisory group, for the Secretary of 
Defense, of industry and academic people who are really well 
informed on IT and processes such as this, to work with them on 
this, identify it? Or do we have that capability within the 
military now?
    Mr. Coyle. If you get the right group of people, I think 
that would be fine. The problem sometimes is that retirees like 
myself are appointed to those advisory groups, and some of them 
aren't always up to date on the most modern technology. So 
getting the right people in place is a challenge.
    But I just want to emphasize again, the military has some 
very bright people in at the present time. I've been impressed 
with the quality of some of those folks and the education they 
have. I think given an opportunity to work together, they could 
drive toward some solutions.
    Mr. Tierney. My thought is those advisory group might help 
us identify those people and why they're not getting the chance 
to make the impact they could, and separate them from the chaff 
who are apparently in the way, and move that forward.
    We ask people to step up to national emergencies all the 
time. You know it's a disgrace, with some of the corporate 
activities we see of going offshore, avoiding taxes and things 
of that nature. But there are enough good people out there that 
if we ask them to step forward and dedicate some of their 
people to a cause like this, I think they'll respond.
    Mr. Chairman, I don't know that it would be something the 
President or Secretary would have to do, but perhaps we could 
make a recommendation to them, or resolution, or something on 
that basis, identifying the problem and telling them that the 
Congress, or at least this committee, is behind them; finding 
those kind of people and empowering them to make those kind of 
suggestions, so that we don't just keeping banging around 
inside the same barrel all the time. Maybe there are some 
things that will come out of this today.
    So just let me, to recount, Mr. Kutz, you're going to try 
to work for us who you think is in charge of this thing all the 
way, top to bottom. Mr. Chairman, I suspect we'll ask DOD when 
they're in, who they think it is. We'll make some comparisons. 
You're also going to work with us, Mr. Kutz, on some of the 
language and focusing on the amount that's IT money out of 
that, so we can put something together in centralizing that 
aspect of it there.
    And you know, Dr. Coyle, if you had any recommendations 
about the people who are up to date, retired or not, who might 
serve as sort of an advisory committee, if you would share that 
list and start down that path at least.
    Mr. Coyle. I'd be happy to do that.
    Mr. Tierney. Thank you all very much for your testimony 
today. I yield back.
    Mr. Shays. Thank the gentleman. We're going to go to our 
next panel. I just have a few questions. I want to be clear, 
Dr. Coyle, what you would do if you had been a Member of 
Congress for 20 years and you had sat in on a hearing like what 
we've sat in on, and really there is no change in the story for 
the last--and there's been a lot of efforts. I'd want to know 
what you would be doing, both as a Member of Congress, but 
someone who has the authority to make a difference, what would 
you be doing?
    Mr. Coyle. I would try to look at some of the root causes 
that make these outcomes come about. Are these problems being 
caused, for example, as was mentioned by one of the members of 
the panel, by the regulations that you have in place in 
procurement--that are very strict regulations about that--that 
in effect preclude some of the types of strategic acquisition 
practices that are going on in the private sector that allow a 
company like Dell, for example, to do the kinds of things that 
they do, or a company like Sears to do the kinds of things that 
they do. Second----
    Mr. Shays. Before you go to the next one, give me some good 
examples of companies. You say Dell, Sears, give me some 
others.
    Mr. Coyle. Wal-Mart is another company. Kraft Foods is 
another company. Let me just see----
    Mr. Shays. Don't just give me all your clients.
    Mr. Coyle. Johnson & Johnson. I'm sorry I missed that, Mr. 
Chairman.
    Mr. Shays. I was trying to be a little funny, but I----
    Mr. Coyle. I missed that. I apologize.
    Mr. Shays. I said don't give me all your clients.
    Mr. Coyle. These are not clients of mine.
    Mr. Shays. Good for you.
    Mr. Coyle. They're not clients. These are names of 
companies that are reported by the Supply Chain Council and 
other groups for their outstanding supply chain.
    Mr. Shays. So maybe we bring all of them in, you know, and 
have them testify.
    Mr. Coyle. Possibly. There's some talented people that you 
could.
    Mr. Shays. Which company is the firm that you mentioned 
that hired the former military?
    Mr. Coyle. Sears.
    Mr. Shays. Sears. And that gentleman's name was?
    Mr. Coyle. Gus Pagonis, P-a-g-o-n-i-s.
    Mr. Smith. That is one of the gentlemen that we did talk to 
as part of our study. Mr. Pagonis. He is also part of a group 
that the Secretary of Defense has brought in from the outside 
to look at various entities within the Department to try to 
bring in some private sector expertise to look at DOD's 
operations to improve them. Now, we can provide for you some of 
the entities that they're looking at and what they're trying to 
accomplish.
    Mr. Shays. Evidently we wanted him to testify, but because 
he is on the task force he declined. I don't know the logic of 
that. But then again, maybe we'll get the task force in. Then 
he could come.
    So one is the regulations that make it difficult. Another 
is to look at some of the people. And from that we talked about 
bringing in some of those good firms. I got sidetracked. 
Besides regulations that make it difficult, to bring in 
strategic thinkers.
    Mr. Coyle. Another one that I would point you to is does 
your budgeting process--having worked at the university for 40 
years and have a year-to-year budget--when the end of the year 
comes around, if you have anything left in your budget, you're 
afraid not to spend it for fear you'll get your budget reduced 
next year.
    Mr. Shays. The budget process.
    Mr. Coyle. The third one that I would look at is personnel. 
I think, for example, in some parts of DOD, particularly in the 
military, people are rotated pretty quickly, every 2 years, and 
somebody might start a new program and not have a chance to see 
it through. There's some challenges there.
    Mr. Shays. Well, it's interesting, because my staff was 
just mentioning that the IRS individual, I believe, that was 
hired to kind of take charge of this, there was an agreement 
that they would kind of transcend administrations. And we're 
looking at not just the issue of administrations, we're looking 
at the policy of rotation that gets you in and out real quick.
    Mr. Coyle. I would also say, take advantage of some of the 
good people that are there, because there are some outstanding 
individuals I think there.
    Mr. Shays. But besides looking at rotation, we look--we 
should look at the reward--I don't want to say reward and 
punishment.
    Mr. Coyle. Performance measurement. Performance measurement 
is the term.
    Mr. Shays. Performance measurement: Are we really 
identifying the people that can make a difference. You know 
what--what's fascinating, absolutely fascinating to me in the 
three things you issued: regulations.
    Mr. Coyle. That's off the top of my head now.
    Mr. Shays. This is a compliment, I think. Regulations, 
budget process, and personnel. You didn't mention technology. 
You know what? Technology is the first thing that we've always 
focused on. And so we all have--I mean we, the Department of 
Defense, when they've spoken to us we said, yes, it's 
technology, you need new technology. You didn't even mention 
it. Not that it's not important, but it tells me how important 
you think these other things are.
    Mr. Coyle. Basic.
    Mr. Shays. Yeah, basic.
    Mr. Coyle. You can't solve a problem on technology unless 
you change the process.
    Mr. Shays. OK. Well, this has been interesting. Is there 
any question that Mr. Kutz, any of your folks, Dr. Coyle, you 
want to put on the record before we go to the next panel?
    Mr. Warren. I'd just like to add to that question, one of 
the fundamental problems is the current organizational 
structure of the Department of Defense for accomplishing these 
business processes that have grown up over some 30 years now, 
and the breaking down of those processes has tremendous impact 
on all employees across the Department, to include civilians 
and military personnel, so the actual reengineering of the 
business processes, as Dr. Coyle was talking about, is not just 
coming up with better business processes, it then results in 
major reorganizations to the way activities are performed, 
which then leads to this huge cultural resistance to change. 
And that would have to be something that would be addressed in 
order to achieve what we've been discussing today. And I think 
that's one of the keys that's at the heart of why change does 
not work very well.
    Mr. Shays. Yeah.
    Mr. Warren. It's almost like base closures.
    Mr. Shays. I'm almost finding this frustrating in the one 
sense of because we spend so much time and we focus on 
testimony, and we've had people tell us why this didn't work 
because of this technology, and then when get technology it 
gets outdated by the time it's implemented because of 
procurement processes. And, you know, technology didn't even 
show up in this discussion, which is wonderful, but----
    Mr. Coyle. Let me add a caveat. I'm not trying to say 
technology isn't important. If you look at some of these 
companies, you find they're trying to take advantage of 
technology to use it to their competitive advantage.
    Mr. Shays. You need the technology. I mean, we would----
    Mr. Coyle. It's a facilitator.
    Mr. Shays. We wouldn't have people living in cities if we 
didn't have air-conditioning. I realize we're not going to be 
able to do the things K-Mart does without the technology, but 
we have to look at all the other things.
    Mr. Kutz. We looked at the technology as the symptom of the 
problem rather than actually the root causes. The root causes 
we identified when we testified before were the lack of 
leadership, cultural resistance, etc. The technology and the 
1,127 systems you've seen, to us I think would be kind of a 
symptom of what those root cause problems are.
    Mr. Shays. I know you did say that. I guess my--when we had 
the Defense folks up, it was kind of focused on technology. So 
I'm not saying you guys didn't alert us, but it didn't sink in. 
I guess you have to tell us more than once.
    Anything you want put on the record before we get underway? 
Dr. Coyle, you rushed to get here and your time has ended. But 
if you had the ability to stay, I would like to suggest that I 
would call you up, or any of you GAO folks, after DOD speaks 
to, you know, put something on the record that you may need to. 
So if you have the time to stay and hear the DOD folks, it 
would help us.
    And let me say to you, we've got great people working at 
DOD. So this is--we just need to know how to help them.
    I think we're done. Anything else, gentlemen, that you--
thank you. Nothing else to put on the record? You didn't stay 
up all night preparing for a question we didn't ask that you 
want to ask yourself? Nothing? OK.
    So thank you. We're going to go to our next panel.
    Our next panelist is Ms. Ann Boutelle, Director, Commercial 
Pay Services, Defense Finance and Accounting Service, 
Department of Defense--these are all Department of Defense; Mr. 
Douglas Bryce, Program Manager, Joint Service Lightweight 
Integrated Suit Technology, JSLIST; and Mr. Bruce Sullivan, 
Director, Joint Purchase Card Program Management Office, 
Department of Defense.
    So we have the Director of the commercial payment and then 
the two areas that we were looking at. And if I could get you 
to stay standing, I'd like to swear you in. As you know, only 
one we've never swore in was Senator Byrd, and that was because 
I chickened out.
    Is there anyone else that might want to respond to a 
question? Any of you folks that would want to stand and be 
sworn in? I don't want to swear in a person once we start. So 
are we all set. Nobody else?
    [Witnesses sworn.]
    Mr. Shays. Thank you.
    So pretty brutal stuff we're considering. I know you all 
are--you haven't worked in--I assume you all haven't worked in 
Department of Defense all your lives, and you're trying to make 
a difference here. We want to help you, and we're going to 
start with you, Ms. Boutelle, and then go to Mr. Bryce and then 
to Mr. Sullivan. OK? Great. And the way the clock works, it's 5 
minutes, and we roll it over for another 5 minutes, and you can 
use part of that 5 minutes.

STATEMENTS OF JOANN BOUTELL, DIRECTOR, COMMERCIAL PAY SERVICES, 
DEFENSE FINANCE AND ACCOUNTING SERVICE, DEPARTMENT OF DEFENSE; 
   DOUGLAS BRYCE, PROGRAM MANAGER, JOINT SERVICE LIGHTWEIGHT 
TECHNOLOGY SUIT, DEPARTMENT OF DEFENSE; AND BRUCE E. SULLIVAN, 
   DIRECTOR, JOINT PURCHASE CARD PROGRAM MANAGEMENT OFFICE, 
                     DEPARTMENT OF DEFENSE

    Ms. Boutelle. I guess it's good afternoon now. Good 
afternoon, Mr. Chairman, Congressman Kucinich and members of 
the subcommittee. My name is JoAnn Boutelle, and I am the 
Director of Commercial Pay Services of the Defense Finance and 
Accounting Service, DFAS. Within DFAS, our accounting and 
finance systems provide a full range of services to accommodate 
the various procurement processes, including those used to make 
the payments for the two items under discussion today. These 
are purchase card transactions and procurements administered by 
the Defense Contract Management Agency, DCMA. I welcome the 
opportunity to discuss with you the results of the GAO sample 
for these purchases.
    As you know, the Department of Defense has many procurement 
regulations, guidelines and policies. DOD mandates the use of 
the purchase card as the method of purchase and payment for the 
less complex acquisitions valued at and below the micropurchase 
threshold, like the purchase of the computer item GAO 
identified in their audit.
    The Purchase Card Joint Program Office issues DOD-wide 
guidance and policy for the Purchase Card Program, while the 
individual DOD components are responsible for establishing and 
implementing their local Purchase Card Program and procedures 
in accordance with the GSA Smart Pay contract. For purchase 
card services, DOD is serviced by two banks, US Bank and 
Citibank. Both banks provide the capability for online purchase 
validation and invoice certification. The DFAS customers save 
about 60 percent of the billing charges if they choose to use 
the online purchase validation and invoice certification.
    While there are substantial savings to utilize the 
electronic purchase card interfaces, not all agencies have 
completed implementation of the program. The GAO audit 
identified that DFAS Columbus as of yet was not using an 
automated bank process. This is correct. The initial deployment 
was targeted for the largest users in the United States, the 
Department of Army, the Department of Air Force and Department 
of Navy. These had been substantially implemented, and the 
defense agencies are scheduled for later this year. The change 
necessary to enable the accounting system used in DFAS Columbus 
to accommodate the electronic obligation transaction is in 
testing and evaluation and will be installed in the very near 
future.
    The biochemical suits GAO selected in this review are a 
complex item requiring a more sophisticated procurement method. 
The acquisition of these suits by the services requires 
specific levels of quality assurance testing and financing 
arrangements. The Defense Contract Management Agency manages 
these more complex procurement transactions using the 
Mechanization of Contract Administration Services, MOCAS, 
system. In addition, DFAS Columbus uses MOCAS to pay financing 
and deliverable invoices.
    The MOCAS system is capable of processing electronic 
transactions for contracts, receiving reports and invoices. 
Currently DFAS receives about 74 percent of the biochemical 
suit invoices electronically. The DOD services and agencies 
could reduce their DFAS bill by processing contracts and 
receiving reports via electronic means. For instance, the MOCAS 
manual rate is approximately $20 more per invoice than the 
electronic rate. To receive the electronic rate, both the 
contract and invoice must be received electronically.
    DFAS is an active partner within DOD to improve the end-to-
end transactions and to use this technology in order to enhance 
the electronic processes. We have used conferences, training 
seminars and presentations to educate our contractors, 
contracting officers, program managers and financial managers 
on the end-to-end procurement payment process. These efforts 
have improved the Department's overall procurement 
administration and payment functions.
    Mr. Chairman, this concludes my remarks, and I'll be happy 
to answer any questions.
    Mr. Shays. Thank you, Ms. Boutelle.
    [The prepared statement of Ms. Boutelle follows:]
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    Mr. Shays. Mr. Bryce.
    Mr. Bryce. Mr. Chairman and members of the committee, I am 
Mr. Douglas Bryce, the Program Manager of Nuclear, Biological 
and Chemical Defense Systems, Marine Corps Systems Command, 
Quantico, VA. I'm pleased to appear before you today to discuss 
the Joint Service Lightweight Integrated Suit Technology 
program, commonly called JSLIST. I would like to move into my 
opening remarks, right into the inventory issues that have been 
talked about earlier and make an opening statement about those.
    The inventory control of JSLIST is accomplished through the 
efforts of the Program Office, each of the services, and the 
Defense Logistics Agency. The JSLIST suits held by the Defense 
Logistics Agency are tracked by national stock number, contract 
number, lot number and manufacturing date. They have visibility 
on JSLIST production lots up to the point that they are 
released to the individual services. Once that happens, 
accountability becomes a service responsibility. Tracking 
JSLIST from the manufacturer to the using unit is just not 
possible today, because we have not provided all of our using 
units the tools to accomplish this task. We have been aware of 
this issue and have taken steps to provide total asset 
visibility in the very near future.
    We are aware that commercial/private sector firms routinely 
accomplish similar tasks at wholesale and retail levels. Wal-
Mart and Sears, for example, have automated systems in place to 
track inventory, ordering and shipping at near real time for 
all locations.
    We have planned a pilot program for JSLIST that will allow 
us to use traditional bar code, radio frequency identification 
tagging, scanners and readers to track the overgarments from 
stocks in Albany, Georgia, to the receiving unit. We have 
tagged these 5,000 suits for the pilot effort and arranged for 
units in the Second Marine Expeditionary Force at Camp Lejeune, 
North Carolina, to receive them. We will track the movement at 
several commands to validate near real time visibility. 
Collaterally, we will attempt to migrate information contained 
in the bar code to an existing data base, with an ultimate goal 
of being one system that can be shared and accessed by each of 
the services.
    So a successful end state would be one that finds the 
Defense Logistics Agency, the Program Office and the services 
able to track JSLIST from the manufacturer, through DLA, to the 
services and operating units receiving the suits by having near 
real time total asset visibility.
    The Defense Logistics Agency and Defense Supply Center 
Philadelphia have also embarked on a plan to replace the 
Standard Automated Materiel Management Systems with state-of-
the-art systems called Business Systems Modernization. This 
system is expected to be user-friendly, flexible and fully 
implemented by fiscal year 2005. This will allow more accurate 
tracking of the Defense Logistics Agency's inventory. However, 
the Defense Supply Center Philadelphia has asked that the 
chemical protective apparel, especially JSLIST, be included in 
an early release for calendar year 2003 to ensure that the 
system can in-fact track shelf life items. This, linked with 
the services' bar coding effort and a servicewide data base, 
should provide the visibility of all on-hand assets regardless 
of the suit location. This should also significantly reduce the 
manual processes used today in tracking JSLIST.
    One problem that continues and will continue to plague us 
is tracking JSLIST once it has been issued by the services. We 
have no control over the actions of end-user units or 
individuals. In fact, in just the past week, as you are well 
aware, we have become aware of JSLIST garments that have been 
disposed of in Hawaii and New Jersey. We are attempting to 
recover these suits and have tasked--and I have tasked a 
section within the Program Office to start monitoring the 
Defense Reutilization Management Office Website for similar 
occurrences.
    Mr. Chairman and members of the committee, I believe that 
we have addressed and can address the issues of inventory 
tracking hopefully to your satisfaction. Subject to your 
questions, those are my opening remarks.
    Mr. Shays. Thank you, Mr. Bryce.
    [The prepared statement of Mr. Bryce follows:]
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    Mr. Shays. Mr. Sullivan.
    Mr. Sullivan. Mr. Chairman and members of the 
subcommittee----
    Mr. Shays. Is your mic on, sir?
    Mr. Sullivan. I'm sorry.
    Mr. Shays. Thank you.
    Mr. Sullivan. Mr. Chairman, members of the subcommittee, my 
name is Bruce Sullivan, and I'm the program manager of the 
Defense Department's Purchase Card Program. The Program Office 
was established in March 1998 to centralize management of the 
program within DOD. I am responsible for promoting purchase 
card use, coordinating DOD card requirements with the General 
Services Administration, managing delinquencies, developing and 
deploying the standard DOD-wide card management system, and 
developing a DOD-wide training program. As program manager, I 
report directly to the Director of Defense Procurement.
    Early in this assignment, I recognized substantial 
challenges to the successful implementation of a standard 
business process within the DOD. These challenges are the same 
as those described by the GAO during its testimony on June 4th. 
Institutional and cultural resistance to change and military 
service parochialism were my biggest adversaries. At times it 
appeared that change in how we do business or implementing 
changes that weren't invented here would be impossible. 
Additionally, the maze of numerous finance and accounting 
systems that DOD, as well as its vendors and contractors, have 
to navigate through to submit, certify and pay invoices 
presented its own challenges.
    I am here today to tell you that DOD has implemented more 
efficient purchase card processes, and they are being used 
throughout most of the Department. Early in the card program, 
card officials found that they could buy their items easier and 
faster, but they were still faced with the same old paper-based 
bill payment process. The process was slow, time-consuming and 
required multiple data entries. If purchases were not 
summarized on the invoices from the card-issuing banks, the 
payment processing charges levied by the payment office could 
be as high as if each transaction had a separate invoice.
    The old process can be depicted in six steps: Cardholder 
purchases and receives the items from the merchant. The 
merchant bank processes the card transactions. The card-issuing 
bank pays the merchant. The card-issuing bank then mails the 
monthly payment statements to the cardholder and the approving 
official. The cardholder reconciles the statement, attaches 
supporting documentation, and submits the reconciled statement 
to the approving official. The approving official reviews 
purchases, approves and certifies the invoice, and then mails 
the certified invoice to the payment office. The payment office 
electronically pays the card-issuing bank.
    Under this paper-based and mail-reliant process, the 
ability to review transactions was limited to the end of the 
billing cycle when the paper statements were received by the 
cardholders and approving officials. Any mail delays such as 
we've recently experienced in the wake of the anthrax threat 
could add weeks between the time the card-issuing bank sent an 
invoice and the time it received payment.
    In 1998, the GAO recompeted the contract for the 
governmentwide card services. Competition gave DOD the 
opportunity to require the card issuers to incorporate new card 
technologies in their contract proposals. It was our intent to 
leverage commercial Internet-based technologies that were not 
then being used within the Department to further streamline the 
bill-paying process. As a result, card officials now have an 
online capability to set up, revise and cancel card accounts, 
and to review in real-time credit card transactions as they 
post to the bank's systems.
    This second capability allows officials to review and 
approve or dispute transactions without waiting every 30 days 
for the paper statements to be received. The online systems 
also allow cardholders to reconcile their accounts, and billing 
officials to certify the statements online 1 day after the end 
of the cycle. Online certification occurs weeks before paper 
statements would even be received. Upon certification, the bank 
reformats the invoice, consistent with commercial electronic 
data interchange standards. The reformatted invoice summarizes 
or rolls up all the cardholder transactions by lines of 
accounting. The bank then transmits the certified invoice via 
secure means to the supporting finance and accounting system 
where the invoice is electronically entered.
    DFAS has done an outstanding job of mapping its systems to 
accommodate these electronic invoices and has lowered its rate 
it charges its DOD component customers for billing service by 
as much as 60 percent, a real incentive for the components to 
use the online process. Currently over 50 percent of the Navy's 
invoices and about 80 percent of the Army and Air Force 
invoices are paid with this process. The DOD Government Charge 
Card Task Force has recommended that the Department accelerate 
electronic certification and bill-paying systems for purchase 
cards, requiring the components to use the card-issuing bank 
systems or obtain a waiver from the component's chief financial 
officer and acquisition executive.
    The online process was developed to support the most common 
use of the card, purchases within the acquisition micropurchase 
threshold of commercial items and services. It did not address 
the purchase items requiring a more sophisticated acquisition 
process, which may require multiple levels of preapprovals in 
individual line item funding. While some working capital 
activities have migrated to the banks' systems and confirm the 
ease of managing financial aspects of their programs, not all 
have agreed that systems can be used efficiently. Some complain 
that cardholders must reconcile two systems, the bank's and 
their component or activity internal system.
    In certain instances, a component may have or may be 
developing systems that will offer capabilities equivalent to 
the banks' systems. These should not--these should be 
considered as acceptable alternatives to the banks only if they 
perform the same functions and have the same or better internal 
controls as those in the banks' systems. We are working with 
the components to resolve these issues.
    Mr. Chairman, the online surveillance of cardholder 
purchases and the process-mandated cardholder reconciliation 
within this initiative, coupled with initiatives developed by 
the DOD Charge Card Task Force, strengthen our program of 
purchase card internal controls. Collectively these initiatives 
will deter or identify cardholder fraud, waste and abuse.
    This concludes my statement. I would be pleased to answer 
any questions you or other members of the subcommittee may 
have.
    Mr. Shays. Thank you very much, Mr. Sullivan.
    [The prepared statement of Mr. Sullivan follows:]
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    Mr. Shays. Mr. Kucinich is going to start off. Then he 
needs to get on his way. I may have my staff ask some 
questions, and then I'll be asking some questions.
    Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman.
    To Mr. Sullivan, maybe you can help me with this testimony 
that was presented by the previous panel when they were talking 
about selected line items from purchase card monthly statements 
and related DFAS processing fees.
    They have a chart here which lists vendor, the amount of 
purchase and the processing fee. Staples, the amount of the 
purchase was----
    Mr. Shays. Do we have that on one of the panels that you 
had? Maybe we could just stick it up there? We don't have that 
one?
    Mr. Kucinich. OK. You know, I always feel and just think 
it's important that we track a signal item in this--in the 
previous hearing, we focused on the suit through the whole 
process so we could learn something. I wanted to focus on a few 
items here to see what we may be able to learn about this--the 
practices of the DOD.
    The vendor, Staples; amount of purchase, $4.37; processing 
fee, $17.13. Vendor, Culligan Water Conditioning; amount of 
purchase, $5.50; processing fee, $17.13. The vendor, Office 
Depot; amount of purchase, $8.59; processing fee, $17.13.
    Can you explain how we're in a system where we have 
transactions where the processing fee is costing anywhere from 
two to three times what the item purchased costs?
    Mr. Sullivan. I believe the processing fee there is what 
DFAS charges to do the accounting and bill payment for the 
purchase card. Typically throughout the Department what we 
require is that cardholders summarize the bill, so that if a 
cardholder had a bill with those type of purchases on it, there 
would be one line of accounting to be used for all those 
purchases. That's what would be sent to the Defense Finance and 
Accounting Service. There would be one charge for all of the 
individual purchases under that.
    Mr. Kucinich. Could Ms. Boutelle--would you like to help 
with that?
    Ms. Boutelle. Mr. Sullivan is correct. The $17.13 charge is 
what we charge to--if we have to input the documents to be able 
to pay. So that is the charge per line of accounting to recover 
our cost. If it had been sent in electronically, it would have 
been $6.96 is what we would have charged. If the service would 
have rolled up their purchases and consolidated them instead of 
sending a separate line of accounting for the Staples, the 
water conditioning and the Office Depot, if they had 
consolidated them, there would have been one line of accounting 
and one $6.96 charge if they had used the bank's automated 
process.
    But that is the charge for us to recover our cost for the 
manual process.
    Mr. Kucinich. Anyone else want to comment on that at all? I 
mean, is this--so if we wanted to save money, you're saying the 
way you do it is electronically.
    Ms. Boutelle. Absolutely.
    Mr. Kucinich. An in this case you'd save about 100--almost 
200 percent in terms of cost.
    Ms. Boutelle. Uh-huh.
    Mr. Shays. Would the gentleman yield?
    Mr. Kucinich. Of course.
    Mr. Shays. Because the question--your answer raises some 
questions. You said if they had consolidated. Now, what would 
have told them to consolidate? How do they know that?
    Ms. Boutelle. That is a service decision at what line--
level that they want to capture their cost. So when you heard 
GAO mention earlier that we had received an invoice that they 
looked at where there were 233 different lines of accounting, 
if the service had decided that they did not need to know the 
staples and the pencils and whatever else that was on that 
purchase, that they did not need it down at that detail, they 
could have rolled it to fewer lines of accounting. Then it 
would have been a lower charge. It would have been either 
$17.13 per line if we still had to do it manually, or it would 
have been $6.96 if they had used the bank's automated system.
    Mr. Shays. What determines whether it's manual or 
electronic? I mean, what should Mr. Sullivan have done or his 
people to make it electronic?
    Ms. Boutelle. Well, I'll let Mr. Sullivan address that, but 
I believe he's working very close with the services to get them 
to implement the automated process. This one happened--the one 
that they happened to look at in Columbus is a Navy activity, 
which is kind of an anomaly that it is accounted for at 
Columbus, and they are free to use the automated process today.
    Mr. Shays. My time--I'll come back to this, but I need to 
understand why it is $6, and that is my ignorance, because I 
don't know. But I guess I don't understand what processing 
means. It's a transaction cost, but I don't understand why it 
needs to be $6. And I guess I should have asked the previous 
panel as to what it would be in the private sector.
    Mr. Sullivan--I'm sorry.
    Mr. Kucinich. That's OK, Mr. Chairman. It's a logical 
sequence of questioning here.
    Mr. Tierney raised a question, and I wanted to join with 
him in following up on it. Is it possible to establish--if any 
of these gentlemen can--the lady can answer this question--a 
chain of command on procurement? Who is it--who are the 
individuals responsible at every level so that we can fix 
responsibility to know exactly who made a decision that 
resulted in, let's say, the--not being able to locate an item 
or the amount that a taxpayer is paying and maybe the amount 
that is wasted? Is this system built in such a way that you can 
do that? Anyone?
    Mr. Bryce. I'm not sure that the system is built to where 
you could in each of the services go to a single individual and 
point to them, although there are people familiar with those 
processes, and that could be given to you. Each of the programs 
work on their logistics, and sometimes they work very 
independent of one another, and sometimes they are very 
cooperative with the overarching strategies of the service and/
or the DOD. So we could provide a list of people from the 
program manager all way up to DOD that you could look at and 
make a determination.
    Mr. Kucinich. I think it would be helpful to understand the 
process and also to be able to begin to fix accountability from 
the top all the way through the system, and the same would go 
for IT, that we can find out who makes these decisions.
    Now, one of the things that I think was remarkable in the 
previous discussion we had, Mr. Chairman, how a person worked 
for the Department of Defense in developing these--in this 
faulty system, left the Department of Defense, and is now 
helping Sears, from what I understand, if I understood that 
correctly--helping Sears manage its financial accounting in a 
way that's supposedly exemplary. Let's suppose when he worked 
for the Department of Defense, he tried the same techniques. 
Was he being frustrated at any place and that's what caused him 
to go to the private sector? Is the system so bad that even--
that good people can't change it? And if it is so bad, what can 
this Congress do to try to intervene to protect the taxpayers?
    Mr. Bryce. I believe that the system in the area of 
logistics has always been a bone of contention in the services, 
the DOD and the outside. There are good people that work 
programs and have managed to get things implemented in DOD and 
in the services that are good quality, logistical products and 
support applications. Not everyone is able to do that, and 
that's not necessarily the fault of the system. It may be a 
fault of the timing or the place of the individual.
    Mr. Kucinich. You know, Mr. Chairman, I'm going to--I'm 
going to have to go, but I've been involved in government for 
quite a while, and I've always approached things believing that 
people are essentially good, that systems are neutral, and 
sometimes they don't work. It's not the people that are bad. 
The systems sometimes need changing. And any of us who have 
been in government have met individuals who--such as you, who 
work for our government. We all work for our government. 
They're good people. They want to do the right thing. There's 
something wrong with the system.
    So I think this question that I raised on behalf of myself 
and Mr. Tierney relate to helping us get a critical analysis of 
the system so that perhaps we can maybe make some 
recommendations as to how we might improve the system. I have 
found throughout my experience in government there's a lot of 
good people who choose to work for government, and they need 
support, but sometimes they need the support from the Congress 
to put pressure on to change the system itself so that we don't 
get into some of these horror stories that are the subject of 
this particular hearing.
    I want to thank the members of the panel for being here.
    Thank you, Mr. Chairman.
    Mr. Shays. Thank you very much, Mr. Kucinich.
    Let me just understand, Mr. Sullivan and Mr. Bryce, from 
both of you, and maybe from you as well, Ms. Boutelle, is the 
system broken right now, Mr. Sullivan?
    Mr. Sullivan. No, sir. For the purchase card, I don't 
believe the online certification process that we built over the 
last few years--we dealt with an existing finance and 
accounting system or systems. What we did is we looked at how 
we had to deal with them up front, realizing it was paper-
intensive and required a lot of data reentry. We worked with 
the two banks to develop an electronic system that would 
automatically interface with the finance and accounting 
systems. For the most part, we did away with the paper and the 
hand-jamming of all that data within those systems.
    I think we've improved it drastically. Not all components 
are using it 100 percent, however, and we're still working with 
those.
    Mr. Shays. Mr. Bryce, is the system broken?
    Mr. Bryce. I believe that DOD is a very large organization 
and corporation, and, yes, I do believe that some of the 
systems are certainly broken. We have service parochialisms. We 
have stovepipe solutions that are everywhere in DOD, and it 
does take time to fix those systems. So, yes, I do believe 
there are some things that are broken.
    Mr. Shays. Mr. Sullivan, if the system isn't broken, then 
how would you describe what's happened now? I mean, the system 
is working well, the system----
    Mr. Sullivan. With what the GAO found in their study of the 
purchase card with the----
    Mr. Shays. Right.
    Mr. Sullivan [continuing]. Computer? What they looked at 
was--had to do with the Navy statement, working capital fund. 
The Navy has elected not to use the electronic process. We 
built it for them. The banks have it. It's capable of being 
used, and, as Ms. Boutelle said, that they can, if not now, in 
the very near term, accept the electronic feed if the Navy 
elects to use it.
    The Charge Card Task Force has made a recommendation that 
they use the system, or else if they have another one that can 
do the same thing, to use that, but the task force also wants 
them to get off of the paper and the manual reentry.
    Mr. Shays. Let me understand, Ms. Boutelle; do you think 
the system is broken, these two issues that we're talking 
about?
    Ms. Boutelle. I think the--if you look at the system----
    Mr. Shays. Is your mic on? Maybe it's just too far?
    Ms. Boutelle. I think it is. OK. I'm sorry.
    I think if you look at DOD and all the many different 
business processes that are incorporated within DOD, I think 
that the answer is yes, the system is broken in many places. We 
do not have integrated processes from end to end, and that is, 
of course, one of the focuses of the Secretary to try to 
improve the financial management and to come up with an 
architecture that will work, look at our business processes, 
and then figure out what we need to support those processes.
    So I think it is broken, and I think that there are pieces 
that are more broken than others.
    Mr. Shays. In regards to the JSLIST, it takes evidently 128 
processing steps to acquire control in inventory and pay for 
JSLIST. Why is that, Mr. Bryce?
    Mr. Bryce. I believe that you'll find most of those manual 
processes down at the using unit where the rubber, so to speak, 
actually meets the road, and that these individuals are 
tracking JSLIST and using all manual processes, and that is 
where I think you'll find the majority of those.
    Now, as you start to move up that chain and you start to 
use the procurement process, there are lots of manual systems 
that each step uses to track themselves, or they build an XL 
spreadsheet or a Windows spreadsheet or some spreadsheet to 
track themselves internally, and what that creates is manual 
processes. So throughout this whole JSLIST, if you followed it 
all the way from the using unit back through the procurement 
cycle, you would find several places and organizations that use 
manual processes.
    Mr. Shays. Kind of reminds me when I was a State legislator 
in 1994, I ran on a pledge of having the High Ridge Road, which 
is about 5 miles from the Parkway to downtown Stanford--that 
the lights would be synchronized, and I was told they were 
synchronized. And the lights, any time there was a lightning 
storm or something, they would go out of sequence. And, you 
know, 6 years later it still wasn't fixed, and we finally 
learned that they were buying a mechanical system instead of 
solid-state technology then--I'm going back a few years, 
obviously--and the reason was was the person in charge of 
purchasing lights didn't know how to work on anything that 
wasn't mechanical. So the entire population was screwed by 
that. But once we found that reason, you know, the change 
happened, and the lights actually worked in sequence.
    It's hard for me, though, to imagine why we have mechanical 
systems. Tell me, what is the culture that requires that? Is it 
just one person training another, and it's just what you're 
familiar with?
    Mr. Bryce. If I might, I could try to give you an example 
in the procurement process of the JSLIST. I have identified in 
my written statement that there are 24 major steps to the 
process. Of those 24 steps, I have visibility of 5 that I can 
track through some type of system that I have access to or 
monitor or input to. That leaves 19 that I do not.
    Mr. Shays. And who has control over those 19?
    Mr. Bryce. Those would be all the other various agencies 
within DOD, which could be DFAS, could be DLA, Department of 
Defense. There are a number of organizations that are in the 
chem/bio defense community, the services. Each one of those 
have processes and do things that I have very little visibility 
of as the Program Manager.
    So that's where I believe a lot of the issues stem from in 
our processes is that there's no integrated architecture. There 
is no way to run this from the top to bottom. Although we have 
a lot of people with good intentions, and they want to provide 
oversight and guidance and help, what it ends up being is 
another stovepipe solution with somebody else in charge.
    Mr. Shays. Ms. Boutelle, I'm unclear, and I'm hesitant to 
go here because I'm exposing my ignorance more than I want to. 
I don't understand the two different charges, the manual and 
the electronic, and it strikes me that it's government paying 
government. I mean, this is a charge that ultimately the 
government is paying to another government entity. Is that part 
correct?
    Ms. Boutelle. Yes, sir.
    Mr. Shays. OK. But do the two charges represent actual 
cost, not of that particular transaction, but of the overall, 
and then you all have broken it down in this way?
    Ms. Boutelle. Yes, sir. You're right on target. If you take 
all of the costs for doing the process, and you allocate then 
how much of the cost is--how many invoices, line items, lines 
of accounting do I pay where I have to have people key the data 
into the system, and then how many transactions come through 
electronically, there is an allocation process that we go 
through to recover our costs, and to have a person that has to 
input the transactions, whether it's a contract, receiving 
report, an invoice, the purchase card certified payment, that 
adds to the cost that we must recover, and that is basically 
the difference between the $17.36 that's manual processing and 
the $6.96 that's electronic. If the transaction comes in for 
the purchase card via the electronic process, it's hands-
untouched and goes through where we have to pay for the system 
running, the maintenance of the system, the programmers that 
keep it up, the folks who run the system, and then all of the 
other processes that just happen at a bill-paying environment. 
But it's basically $10 cheaper because a human is not involved 
in the process.
    Mr. Shays. These are transaction costs, correct? We call 
them transaction costs?
    Ms. Boutelle. Right. It is the way that we bill the 
customers to recover our costs.
    Mr. Shays. Now, dealing with you, you all are basically a 
monopoly, I mean, in the sense that they can't go somewhere 
else to get that service provided?
    Ms. Boutelle. True.
    Mr. Shays. How do we ensure that your costs are efficient 
costs? In other words--and costs, when you charge someone, 
ultimately--I'm asking more than one question. So we'll figure 
out which one I want you to answer first, but ultimately costs, 
and the higher the costs are, change behavior. So you'd think 
that if you were charging someone $17 as a transaction cost, 
they would have an incentive to save that money. Do they not 
get--is that money something they basically can find somewhere 
else so it's no skin off their back?
    I mean, there are certain costs, frankly, in Congress that 
are not part of my costs out of my budget, but we're well aware 
of what is my budget cost, and if something is too high in some 
area, and I can make the savings and then use it somewhere 
else, I know it's better than something that's--you know, I 
don't pay the heat in the building. I'm not charged for the 
heat or the air conditioning. So I'm not--I'm not as conscious, 
except I like to think I'm publicly aware that having my window 
open in the summer when I have the air conditioning on is a 
costly thing to do. But you get my gist?
    Ms. Boutelle. I do.
    I think you've asked me two questions. The first question 
you've asked me is what is my incentive to drive down my costs 
which will eventually be passed on to the rest of the 
Department.
    Mr. Shays. And then the other cost is--and Mr. Sullivan 
maybe--does Mr. Sullivan end up paying this cost, or does Mr. 
Bryce end up paying this cost?
    Ms. Boutelle. Mr. Bryce ends up paying it for the invoices 
that I pay for the JSLIST program.
    Mr. Shays. So, Mr. Bryce, afterwards if you would respond. 
I just want to be clear on this, as to whether you consciously 
are aware that $17 is paid, and does it come out of your budget 
or somewhere else? OK.
    Ms. Boutelle. Sorry.
    Ms. Boutelle. The--what we have done at DFAS is we have 
reorganized by business lines, and we did this so that we could 
put the focus more like what corporate America does. So we have 
three business lines, the accounting, the military and civilian 
pay and the Commercial Pay Services. So today I have all of the 
bill-paying operations that report to me for DFAS.
    Mr. Shays. And let me be clear on this. Do you pay--you 
make sure the government has made a payment on any bill that is 
commercial?
    Ms. Boutelle. I pay for the--you know, there may be--
there's a few outliers out there that are still paying their 
own bills that we haven't capitalized, but I disburse 
approximately $156 billion through the Commercial Pay Services 
to contractors and vendors annually.
    Mr. Shays. So GE capital--excuse me. GE, the aircraft 
engines in GE, or Pratt & Whitney is paid through you all?
    Ms. Boutelle. Raytheon, Boeing, Lockheed, all of those. 
Anything that is a vendor or contractor, we pay that through 
the Commercial Pay.
    Mr. Shays. Right. And basically we have two players in this 
process here. We have one player who is actually just a certain 
equipment, in this case the suits.
    Ms. Boutelle. Right. Those are contracts that--for the most 
part contracts that are administered by the Defense Contract 
Management Agency. Those have complex payment terms and 
financing agreements and----
    Mr. Shays. So you're paying his bills.
    Ms. Boutelle. I pay his bills.
    Mr. Shays. And he gives you the vouchers for them. In some 
cases he gives you the invoices. Most of them--a good chunk of 
them are still manual, not electronic?
    Ms. Boutelle. Actually I'm getting 74 percent of the JSLIST 
invoices coming in electronically.
    Mr. Shays. OK. So tell me how you figure your costs. Why 
would it be basically $7, $6.96, for every transaction? And is 
that competitive in the private marketplace?
    Ms. Boutelle. I do not know if it is competitive in the 
marketplace. It is hard for us to get benchmarking data as to 
what corporate America--what their costs are.
    Mr. Shays. Yeah. But----
    Ms. Boutelle. We do have other payment requirements than 
they have, yes.
    Mr. Shays. I know Congress doesn't make your life easy, but 
OK.
    So define to me why you--is the 17.13 an incentive to get 
them to do it electronically?
    Ms. Boutelle. $17.13 is what it costs me to recover the 
costs of having people pay this--pay an invoice manually, and 
the cost, if they go electronically on a purchase card, is 
$6.96. So rather than submit to us the paper certified----
    Mr. Shays. I understand that. So you have basically figured 
out both costs as accurately as can be to define actual costs.
    Ms. Boutelle. Yes, sir.
    Mr. Shays. And I see nodding of heads of others who were 
sworn in. Thank you.
    So it is--now, Mr. Bryce, tell me your incentive.
    Mr. Bryce. My incentive to reduce the cost?
    Mr. Shays. Yeah.
    Mr. Bryce. Or to pay the bill electronically?
    Mr. Shays. That 17.13 transaction cost, if you pay it, tell 
me what it does to your budget.
    Mr. Bryce. I have no visibility of that $17.33. I pay a 
percentage of money to have the Defense Logistics Agency and 
the Defense Support Center in Philadelphia administer the 
contracts, which includes the DCMA, or used to include the DCMA 
folks. That bill was about 6 percent of my budget is what I 
paid for----
    Mr. Shays. But your testimony before our committee is 
basically, just like me with the air conditioning and the heat, 
it's someone else that pays the bill.
    Mr. Bryce. Somebody else pays the bill of which I have very 
little visibility.
    Mr. Shays. And it doesn't come out--and they don't then 
subtract it from your budget?
    Mr. Bryce. To my knowledge, that $17.33 is not subtracted 
out of my budget. I pay one organization a flat fee, and how 
they distribute that money, if it comes out of the defense----
    Mr. Shays. So you would pay them a flat fee whether you did 
it all manually or all electronically?
    Mr. Bryce. That is correct, sir.
    Mr. Shays. And it would be the same amount?
    Mr. Bryce. Same amount, 6 percent.
    Mr. Shays. OK. Mr. Sullivan, I'm--describe to me your 
program. I'm sorry to our guests here that I'm going this 
slowly, but I'm----
    Mr. Sullivan. The electronic----
    Mr. Shays. Yes.
    Mr. Sullivan [continuing]. Bill paying?
    When we first started in this program, we looked at how 
credit card statements were being paid, and credit card 
statements look identical to what you get on your personal 
credit card. It's a statement which lists the merchants and the 
dollars and the dates. We went out and saw individual's writing 
a line entry--a line of accounting for every single thing they 
were buying, and they were writing on their statement, and they 
were bringing the statements together, and they were mailing 
them to Defense Finance and Accounting Services for them to pay 
the bill. And DFAS had to key in all that information.
    Mr. Shays. And that is you, Ms. Boutelle?
    Ms. Boutelle. Yes, sir.
    Mr. Sullivan. What we wanted to do was take advantage of 
online Internet technologies with the new GSA contract. So we 
required the contractors who wanted to provide card services to 
the DOD, we required them to give us a proposal for doing all 
of the statement invoicing on the Internet.
    Mr. Shays. So Mr. Bryce could be using the same system?
    Mr. Sullivan. If they wanted to pay by purchase card, they 
could. This is strictly just the purchase card process.
    Mr. Shays. Right. But the point is you're providing a 
service to other government agencies.
    Mr. Sullivan. I provide the Internet purchase card service 
to the Defense Department.
    Mr. Shays. Right. Anybody--it can be--no. I got it wrong. 
You want to jump in, Ms. Boutelle?
    Ms. Boutelle. I think we may be confusing you, sir. The 
purchase card has a certain dollar threshold. The contracts 
that are for the JSLIST program are not within the rules.
    Mr. Shays. These are more like small items that you would--
it would be small inventory that you might need to run your 
shop, the paper, the other stuff, correct?
    Mr. Bryce. That's correct.
    Ms. Boutelle. Right. We charge--actually, we charge a 
different rate for the invoices that we pay for the JSLIST 
contracts because of the additional processes that they go 
through. The rate that we're quoting to you, the $17.13 versus 
the $6.96, is applicable to purchase cards.
    Mr. Shays. Right. Is applicable to purchase cards. I'm 
sorry. I didn't understand that. OK.
    Mr. Sullivan. What we did with that was we placed the 
cardholder statements online on a secure Internet site that the 
cardholders could actually look at their statement as they were 
purchasing throughout a billing period. So you could look at, 
you know, your use of the card, or if it's been compromised, 
you can find out someone else is using your card number before 
you get a statement by looking at it throughout the month.
    Not only can the cardholder do that, but his supervisor or 
the approving official can watch what their cardholders are 
using or where they're using the cards throughout the month. 
Not only that, but the program officials performing the 
oversight can do the same thing.
    So there's a lot of internal controls that have been 
strengthened by the use of that Internet technology, but 
important in this particular process here is that at the end of 
the month, a day after the cycle ends, rather than waiting for 
mail to deliver your statement, you could look at your 
statement on the Web, approve it. Your supervisor could go in 
the same day, certify that statement, and then upon 
certification, the bank locks that down, reformats it in an 
electronic format, and sends it to DFAS, and it's automatically 
loaded in the finance systems. That's done, and the bank is 
paid before people even get their statements.
    Mr. Shays. I'm wondering as we're talking about--I'm 
thinking of my own budget, how much of it's manual, and I'm 
feeling a little uncomfortable.
    Before we go to have my staff ask questions here, Mr. 
Bryce, I just want to be clear then. I was mixing up costs. You 
submit three-quarters of yours electronically and one-quarter 
manually. What are the costs associated with those 
transactions?
    Ms. Boutelle. The manual ones are $101.47, and the 
electronic commerce ones are $84.20 for the ones that go 
through MOCAS. And I think out of 85 contracts, there's 58 of 
them, I believe, that are being paid through MOCAS, and then 
the remaining ones are going through SAMS, which is another 
system that was mentioned earlier, and the electronic rate on 
that is $3.96.
    Mr. Shays. OK. The first one was 101.84?
    Ms. Boutelle. 101.84.
    Mr. Shays. And these are big contract items that require a 
lot of extra work?
    Ms. Boutelle. Right. They require a lot of contract 
administration and require financing.
    Mr. Shays. And so the $84 electronically could be on 
something that was a $2 million transaction or something?
    Ms. Boutelle. Yes, and that's a per-invoice cost. So there 
could be many lines of accounting on that invoice, but it would 
only be $84.20 if electronic.
    Mr. Shays. OK. Let me have my staff go. We'll be going a 
little bit longer here. I'll have some questions after.
    Just for clarification, Ms. Boutelle, you indicated and GAO 
found that the Navy chose not to use the electronic process for 
these purchases or for the recording of these purchases under 
the Purchase Card Program. GAO also said, however, that the 
Navy can accept electronic statements from the contractor under 
the Computerized Accounts Payable System, the CAPS system; is 
that correct?
    Ms. Boutelle. The CAPS system can accept the--an electronic 
purchase card transaction from US Bank. The Navy uses Citi 
Direct, and we have--we had not mapped the Citi Direct 
transaction into CAPS. We've gotten a cost on that. It's 
$5,000. It's going to take about 2 weeks, and I've already told 
the folks to go ahead and start that.
    Having a Navy activity, having their accounting done at a 
CAPS location is truly an anomaly. Until GAO pointed this out, 
of course, we were not into the implementation yet of the 
defense agencies. I truly wasn't aware that I had that 
situation. So they brought it to light, and I pursued having 
that mapped in. But CAPS can accept the electronic 
transactions, and then the accounting system sitting at 
Columbus that accounts for the defense agencies that are 
handled there at Columbus, the mapping of the obligation 
transaction is being worked and tested and should be 
implemented here within the next few weeks.
    Mr. Shays. Do you know if there are any other potential 
cases out there where someone out there can accept the--what 
was it, Citibank?
    Ms. Boutelle. Well, and based on GAO finding this, I did go 
back to my systems folks, and I asked them to get with the 
banks and find out if they had anyone receiving a purchase card 
statement that showed an accounting system that I would call 
abnormal. We found a few that we're--and it's truly a handful, 
that we're investigating to see if that's a problem with them 
accepting the transaction or not. I mean, this CAPS system 
today accepts a Citi Direct transaction for the Marine Corps. 
It just hasn't been mapped for the Navy's line of accounting, 
and that's what's different as you go through this are the 
lines of accounting, and these bill-paying systems were 
primarily set up to handle certain services.
    Mr. Shays. OK. Mr. Bryce, when the GAO found these JSLIST 
were scrapped, do you know why they were scrapped?
    Mr. Bryce. From what I understand, they were scrapped due 
to excess in that particular unit that they had been assigned 
to or given to, issued to, whatever you want to--whatever term 
you would like.
    When the services get the suits, then they determine the 
priority and who the suits get delivered to. Once those suits 
are in the hands of the unit, it is very difficult to track 
what an individual or the unit does with those suits.
    And evidently we had a couple of individuals that believe 
they were doing the right thing by saying these were excess 
suits and turned them over to the DRMO. We believe that there 
was a process that may have been missed, which is before you 
turn an item into DRMO, you would normally go through and check 
with an item manager within your supply chain management system 
to find out if they could be redistributed somewhere within 
your organization. Then if that doesn't happen, then you can 
move them to DRMO.
    So this has become an issue that we haven't gotten all of 
the information. We don't know exactly why they did it, other 
than they just thought they were excess.
    Mr. Shays. Do you know how they were scrapped; in other 
words, what they did with them when they scrapped them?
    Mr. Bryce. No, I do not have all of that data yet. We are--
I have some people that are working the issue, and we are 
attempting to make sure that, one, we can monitor the Website 
for no reoccurrences, and if they do, we get them off 
immediately. But more importantly, we are trying to find out 
why this happened and how it happened, and I don't have that 
yet.
    Mr. Shays. I understand. When you do find out, could you 
let the subcommittee know specifically what happened to the 
suits and how they were scrapped? In other words, I'm curious 
to know did they wind up in a landfill somewhere, as an 
example?
    Mr. Bryce. OK.
    Mr. Shays. Let me just ask you a few more questions. Let me 
just continue with the suit issue. We don't know for certain--
you don't know where all the suits are, correct?
    Mr. Bryce. That is correct, sir.
    Mr. Shays. Which is pretty astounding, but that was true 
before you had that job, right?
    Mr. Bryce. That's correct, sir.
    Mr. Shays. OK. And you would like to know where all the 
suits are?
    Mr. Bryce. Yes, sir, and I--I think we have a way to do 
that.
    Mr. Shays. Well, but, see, this is--we were using you as an 
example of a system, and we thought it was an important 
product--piece of equipment. We wanted to use that and find out 
what's going on. I mean, we've had previous hearings where we 
had masks that simply didn't work, 40 percent of them, and yet 
we were still issuing them to our military personnel.
    So we've had an interest in this, and given obviously the 
September 11th, we have a greater interest.
    You don't, in fact, know if other places disposed of these 
suits, sold them, buried them, whatever? That is also a fact.
    Mr. Bryce. That is a fact. I could not tell you what any 
unit after it's issued to the unit does with those suits.
    Mr. Shays. And the reason is because--well, there are a lot 
of reasons. One is we should still know what happens to it, but 
this is designated as D mil. B. In other words, a designation 
of B allows them to dispose of it if it's excess. So one simple 
thing is to make sure people know that this isn't disposable, 
right?
    Mr. Bryce. That's correct, sir.
    Mr. Shays. How many different places around the world could 
they possibly be? I mean, do you have a handle on at least the 
total number, or could they be in a whole host of places?
    Mr. Bryce. Are you referring to where the suits would be, 
sir?
    Mr. Shays. Yeah.
    Mr. Bryce. There are thousands of units.
    Mr. Shays. OK. Fair enough.
    Mr. Bryce. So it's----
    Mr. Shays. All around the place.
    Mr. Bryce. All around the world, thousands of units.
    Mr. Shays. With you, Mr. Sullivan, what would happen if you 
said all transactions have to be electronic? Ms. Boutelle, both 
of you, I mean, if you were in the private sector, wouldn't the 
private sector say, no manual, case closed; stay up late at 
night, but solve the problem?
    Mr. Sullivan. That's true. You can reduce the DFAS charges. 
Not only that, but if you pay quicker, you get a large bank 
rebate. So, I mean, there are incentives to do so. There are 
some, you know, nonappropriated funding activities that still 
use a checkbook; I mean, small--welfare and recreation 
activities that will probably continue to do so. But for large 
customers that process a lot of invoices, they should be paying 
electronically, no doubt about it.
    Mr. Shays. Why couldn't you just say that's the way it has 
to be, Ms. Boutelle?
    Ms. Boutelle. Well, I think that's part of the task force 
and what they're looking at that Bruce is working with.
    Mr. Shays. Well, no. There's a reason other than that. I 
mean, the reason is we don't have--we condition--we don't have 
the equipment to do it electronically, we don't have the 
expertise?
    Mr. Sullivan. On the user side, all you need is a computer 
and access to the Internet, and you're set to go, and on the 
bill-paying side, all they have to do is be able to receive it. 
And for most systems, they're already mapped to accept it.
    Ms. Boutelle. I can take all of the Navy's transactions----
    Mr. Shays. So the problem is it's the services primarily? I 
mean, they just simply----
    Ms. Boutelle. They have to make that decision.
    Mr. Shays. I wish we could think of a good incentive for 
them.
    Ms. Boutelle. I beg your pardon?
    Mr. Shays. I wish we could think of a good incentive for 
them. I mean, Mr. Bryce points out that he has basically 
transaction costs paid by someone else. But if you had a bit 
more money--actually, you don't have an incentive to have a bit 
more----
    Ms. Boutelle. They have two incentives. They have the lower 
processing cost that DFAS charges, and they also have the one 
that Mr. Sullivan just mentioned: The quicker they pay, the 
larger the rebate they get from the bank, and that's quite 
substantial.
    Mr. Shays. Yeah, but Mr. Bryce gives me the impression in 
his outfit he doesn't pay the transaction costs.
    Ms. Boutelle. Again, a difference between purchase card 
versus nonpurchase card.
    Mr. Shays. So the nonpurchase card, they don't pay the 
transaction?
    Ms. Boutelle. They pay a rate that is a difference between 
a manual and an electronic rate----
    Mr. Shays. I understand that. I'm confusing all of us, I 
guess. I thought in response to one of my questions Mr. Bryce 
basically said the transaction cost is paid by someone else 
other than out of his own budget.
    Ms. Boutelle. It is who owns the contract, and if it's the 
service that owns the contract, or if it's DLA that owns the 
contract--and I'm not real sure who owns those contracts that 
we pay, but that is who we charge.
    Mr. Shays. OK. I'm going to just invite the other panel 
to--we do have votes in 11 minutes. Is there anything that you 
want to put on the record right now before I just invite the 
first panel just to come and maybe make a few closing comments? 
Any comment you want to make, Ms. Boutelle?
    Ms. Boutelle. I do want one clarification. The Navy general 
fund, for the most part they are using the purchase card 
electronic process. It's just the working capital fund portion 
that has not made that decision, and I didn't want to mislead 
anyone that the Navy hasn't implemented it in part. It has. So 
it's about what, Bruce?
    Mr. Sullivan. Fifty percent.
    Mr. Shays. Define the working capital fund. You said the 
working capital fund is----
    Ms. Boutelle. Those activities that have to recover their 
costs, much like what DFAS is, that is a working capital fund.
    Mr. Shays. And they would be what kinds of entities? All 
throughout the----
    Ms. Boutelle. Well, there's one that's out at--the bill 
that GAO selected happened to be Navy supply, and they have an 
organization.
    Mr. Shays. I thank you for your patience. Is there anything 
else you all want to put on the record?
    Mr. Bryce. No, sir.
    Mr. Sullivan. No, sir.
    Mr. Shays. OK. I'd like to just invite the first panel just 
to come. Thank you all very much. Just make some comments, if 
you would. We don't have a lot of time, so I need to move real 
quick here. You all are sworn in, and I just want to--we're 
really discussing more than one issue here. We're discussing 
inventory control, and we're talking about the purchases and 
the costs and so on.
    If you would, Mr. Kutz, would you just walk me through 
anything that you've heard that you think needs to be clarified 
since I've displayed my ignorance in fine fashion here? 
Anything that you would----
    Mr. Kutz. Sure. I think they gave you candid answers to the 
questions you asked. The solving of the purchase card issue 
would appear to be much more achievable in the short term than 
the JSLIST issue. I think Mr. Sullivan was accurate in saying 
that they are moving toward more of the electronic processing 
of monthly credit card statements. We've seen that in the 
credit card work we've been doing in the field on all of the 
services, and I do believe that in the short term they should 
be able to achieve the goal of having pretty much all 
electronic processing of the purchase cards.
    I think that the solutions to--unfortunately the more 
important issue with respect to the JSLIST, chem/bio suits, I 
think that the solutions to fixing that problem are much more 
difficult, and I don't think that there are really any clear 
answers as to how they're going to get there at the end of the 
day, but that is a more important issue, and the answers to 
that are much harder to get to.
    Mr. Shays. When I have expenses that I submit to the person 
in my office who handles this, we end up filling out and 
literally typing in on a yellow sheet, you know, maybe 10--6 to 
8 transactions, and then I have to sign each sheet. That is 
clearly a manual transaction that we're doing in the House of 
Congress. Now, I've charged on a credit card, and so there are 
certain--so maybe everything on my credit card was 
electronically done, one bill, submitted to us, but we then--
when we asked for reimbursement of payment to be made, we're 
doing it manually. It's kind of interesting.
    Any other comments you would like to make, Mr.----
    Mr. Smith. The only other thing I would like to add is just 
clarify working capital funds. They would be activities such as 
the repair facilities in the Navy, the repair aircraft, the 
ships. They fall in the category of working capital funds.
    Mr. Shays. And they would be continually reimbursed in the 
fund; they would put in--the money would come to their fund?
    Mr. Smith. And that is what the customer would pay them, 
and that is how they continually keep operating. If an overhaul 
of an aircraft costs $50,000, then they would--the activity 
would pay the Navy industrial fund the $50,000. Then it becomes 
their working capital to keep on operating and keep on 
repairing the next aircraft that was down the line.
    Mr. Shays. Any other comments?
    Mr. Warren. I would just reemphasize the--that the--it 
seems the overriding issue is the business process and that is 
really what needs to be addressed as we move forward in this 
process. I think people talked about having very good systems. 
There were people trapped in processes that were not working so 
well, and I think that is what is happening across a lot of the 
business processes with the Department of Defense, and at this 
point the primary efforts to address those business processes 
changes are largely siloed within the Department. And if there 
was some way to get a dialog started about how you get an 
integrated approach to addressing that business process change, 
I think that would be--go a long way toward solving this 
systemic problem that the JSLIST represents.
    Mr. Shays. The incentive cost, though, what are the 
incentive costs for the Department to save money, other than to 
be ordered? In other words, if you're in charge of a certain 
budget yourself, and you're putting a lot of manual costs, but 
it's paid for by others, the transaction costs are paid for by 
others?
    Mr. Warren. The working capital funds, as we were talking 
about, the incentive largely is not there, because the working 
capital funds are paid largely through O&M expenses, and in 
general the incentives are not set up within that working 
capital fund process, even though that was the idea. They were 
to operate as a businesslike activity, and they would have 
competitive forces, but the reality is for many of those 
activities, they have become monopolies in terms of--or a 
single use. Their people have to go to for those services, and 
so, therefore, the competitive forces can't operate.
    Mr. Shays. Let me just say I have 4\1/2\ minutes to go to 
the floor. That is why I'm shuffling papers as you talk. Is 
there any last comment before I get on my way? If not, let me 
thank you. I'm going to be a little rude and just get out of 
here, but I appreciate everybody's patience with Mr. Horn 
going--not returning to Congress, it's even more imperative 
that others of us get caught up. So I appreciate you giving me 
this opportunity.
    Thank you very much, and this hearing is adjourned.
    [Whereupon, at 1:11 p.m., the subcommittee was adjourned.]

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