[Senate Hearing 107-211]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-211
 
                     NOMINATION OF MARK W. EVERSON
=======================================================================





                                HEARING

                               before the


                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                                 ON THE

   NOMINATION OF MARK W. EVERSON TO BE CONTROLLER, OFFICE OF FEDERAL 
         FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

                               __________

                            OCTOBER 11, 2001
                               __________


      Printed for the use of the Committee on Governmental Affairs












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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware           THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri              ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota               JIM BUNNING, Kentucky
           Joyce A. Rechtschaffen, Staff Director and Counsel
                       Susan E. Propper, Counsel
              Jason M. Yanussi, Professional Staff Member
         Hannah S. Sistare, Minority Staff Director and Counsel
                    Robert J. Shea, Minority Counsel
                   Johanna L. Hardy, Minority Counsel
                     Darla D. Cassell, Chief Clerk












                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Thompson.............................................     2
    Senator Bunning..............................................     3

                               WITNESSES
                       Thursday, October 11, 2001

Mark W. Everson, to be Controller, Office of Federal Financial 
  Management, Office of Management and Budget....................     4
    Biographical and financial information.......................    11
    Pre-hearing questions and responses..........................    18












   NOMINATION OF MARK W. EVERSON TO BE CONTROLLER, OFFICE OF FEDERAL 
         FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

                              ----------                              


                       THURSDAY, OCTOBER 11, 2001

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:35 a.m., in SD-
342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, 
Chairman of the Committee, presiding.
    Present: Senators Lieberman, Thompson, and Bunning.

             OPENING STATEMENT OF SENATOR LIEBERMAN

    Chairman Lieberman. Good morning. Welcome to the hearing 
today. We are considering your nomination, Mr. Everson, to be 
the Controller of the Office of Federal Financial Management at 
the OMB, which, as you know, means you would be overseeing the 
financial management of all agencies in the executive branch. 
This is a tall order under any circumstance, but I do want to 
just take a moment to say that I think the next controller has 
an additional set of challenges, because the current 
financial--good morning, Senator Thompson.
    Senator Thompson. Good morning.
    Chairman Lieberman [continuing]. Current financial 
condition of many agencies within the Federal Government is 
unacceptable because of inadequate financial systems and 
controls. The GAO, as you probably know, has identified 
financial management at the Department of Defense, the Forest 
Service, the Federal Aviation Administration and the IRS as 
high-risk because of the significant systemic problems within 
those agencies.
    More specifically, many agencies are using outdated systems 
that cannot provide the kind of timely and accurate information 
federal managers need today for daily decision-making. Efforts 
are underway, I know, to upgrade those systems, but this is a 
major undertaking that involves a substantial commitment of 
time. The fact is that the financial systems in place at many 
agencies do not comply with the most basic accounting 
standards.
    Again, progress has been made and is being made, but some 
major agencies still cannot produce an auditable financial 
statement, showing the agency's financial position at the end 
of the year, and those flaws naturally have a ripple effect. 
The ineffective systems at many agencies prevent them from 
tracking and reporting progress on performance goals under the 
Government Performance and Results Act. Accurate and reliable 
performance data, of course, are basic to making proper 
decisions about which programs are meeting the objectives that 
are set down for them.
    In some cases, the damage is actually even more costly. The 
Committee has been particularly concerned about improper 
payments that agencies estimate that they have made in recent 
years, which caused a major loss of funds that the government 
should and could otherwise be using for certainly better 
purposes. So we need real strong leadership within the 
controller's office to enforce financial accounting standards 
throughout the executive branch to supervise the implementation 
of new systems and to guide agencies in tracking and reporting 
their assets and obligations. The President's management agenda 
places a high priority on improving the government's financial 
performance, and hopefully this will be incentive for 
significant improvements in this area.
    Mr. Everson, I have reviewed your background, which is 
impressive. I have reviewed your responses to the Committee's 
pre-hearing questions, and I appreciate your thoughtfulness. I 
know you have had a lot of experience managing the finances of 
two major corporations, which will help you as you come into 
the Federal Government, but these are different and important 
challenges that will test your skills. Having seen most 
significantly in your background that you are a graduate of 
Yale University, I know that you will meet every challenge that 
you face, and I welcome you to the Committee this morning. Your 
nomination is certainly on track, and I look forward to working 
with you in the coming years.
    Senator Thompson.

             OPENING STATEMENT OF SENATOR THOMPSON

    Senator Thompson. Yes, thank you, Mr. Chairman. This is a 
very important position, as we all know, and I appreciate your 
scheduling this hearing today so that we can get Mr. Everson in 
place. Recently, the General Accounting Office released a 
report required under the Federal Financial Management 
Improvement Act that detailed the poor state of the Nation's 
financial management systems. In that report the GAO said: 
``Most agencies' financial management systems are unable to 
routinely produce timely, reliable and useful information. 
Having such financial information is the goal of the Federal 
Financial Managers Improvement Act and the Chief Financial 
Officers Act. Agency managers and other decision-makers need 
this information for managing day-to-day operations 
effectively, efficiently and economically, measuring program 
performance, executing the budget, maintaining accountability 
and preparing financial statements.''
    Unfortunately, we just seem to be unable to do it. We have 
been trying to get the Nation's financial management cleaned up 
for many years now, and progress has been very slow, to say the 
least. There has been some progress. Although few agencies have 
systems in place that can routinely provide reliable financial 
information, many more are able to produce auditable financial 
statements even if it is 6 months after the end of the year.
    Last year, 18 of 24 Federal agencies received clean 
opinions on their financial statements. Next year, we trust we 
will see even greater progress. The person we will be looking 
to, to make that happen, is the Nation's Controller, the 
director of the Office of Federal Financial Management. The 
President has nominated Mark Everson for this position, and 
after knowing him only briefly I think the President has made a 
very wise choice.
    Mr. Everson has a master's degree in accounting from New 
York University Business School, and a bachelor's degree from 
Yale. He has 25 years of experience in both business and 
government, holding positions of leadership at Arthur Andersen, 
the Department of Justice, the United States Information 
Agency, the American National Can Company, and most recently 
with Sky Chef International.
    Mr. Chairman, Mr. Everson has more experience in financial 
management than we have had in the Office of Federal Financial 
Management for many years, and he will need every bit of that 
experience to keep up the momentum in improving the 
government's financial management. Let me just say that we 
cannot afford to lose the momentum that we have gained in 
improving Federal financial management because of the current 
crisis. Agencies, especially those like the Department of 
Defense and State, need to know now more than ever just how 
much money they have, where the assets are and whether they are 
getting what they paid for.
    We are going to have billions and billions of dollars 
flowing around this town, in addition to what we normally have, 
and it is going to be extremely important that we have the 
financial management systems in place to know that taxpayers 
know that this money is not being wasted. So I support Mr. 
Everson's nomination without reservation and look forward to 
working with him as we make progress on this front in the years 
ahead.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Thompson.
    Senator Bunning.

              OPENING STATEMENT OF SENATOR BUNNING

    Senator Bunning. Thank you, Mr. Chairman. I recently had 
the opportunity and privilege to meet with Mr. Everson in my 
office last week. I thought our meeting went quite well.
    The Office of Federal Financial Management is the Executive 
Branch's central office for developing financial management 
policy for the Federal Government. The office is responsible 
for several key functions, including financial management 
planning, financial management systems, accounting integrity 
and accountability. Mr. Everson has a varied background, 
working in both the public and private sectors, as my two 
colleagues have already said, along with working overseas. I 
look forward to hearing his perspective on serving as 
Controller at the Office of Federal Financial Management and 
the challenges he expects to face.
    My advice to Mr. Everson, whether you like it or not, it is 
as to all those who testify and serve, please always tell us 
the truth and be brutally honest with us no matter what. 
Without the truth there is no trust, and without trust there is 
no point in any of this.
    I thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Bunning.
    For the record, Mr. Everson has submitted responses to 
biographical and financial questionnaires, has answered pre-
hearing questions submitted by the Committee and additional 
questions from individual Senators, and has had his financial 
statement reviewed by the Office of Government Ethics. Without 
objection, this information will be made part of the hearing 
record, with the exception of the financial data, which is on 
file and available for inspection in the Committee's offices. 
In addition, the FBI file has been reviewed by Senator 
Thompson's and our staff, pursuant to Committee rules.
    Chairman Lieberman. Mr. Everson, before we proceed, I would 
like to give you an opportunity to introduce any family members 
that may be in the audience this morning.
    Mr. Everson. Yes, sir. I would like to introduce my wife, 
Nanette, and as you indicated, a fellow Yale graduate. She was 
a little modest when you asked her what she does. In addition 
to being--right now--a full-time mom, she is an attorney and 
was working until we came up here from Dallas. I would point 
out that, while I just sort of got through Yale, she was phi 
beta kappa.
    Chairman Lieberman. Hear. Hear. It was obvious to me when I 
met her. [Laughter.]
    Mr. Everson. In addition, really we have three children. 
Our first is a foster daughter, a Cambodian refugee who came 
into our lives when we were--when I was with INS, and actually 
her family came from--obviously, from the camps in Thailand, 
after they fled Cambodia, and she lost her dad to Pol Pot. I 
became her dad, and Nanette a second mom. She cannot be with us 
today. She is married and has her own children now in Illinois. 
Our son, Leonard, is off in school. He goes to boarding school 
in Scotland. So subbing for them is Emma, who is a sixth grader 
at St. Agnes in Arlington.
    Chairman Lieberman. Great. Welcome to both of you. Thank 
you for being here. Thank you for supporting your husband and 
dad.
    Mr. Everson, our Committee rules require that all witnesses 
at nomination hearings give their testimony under oath, so 
would you please rise and raise your right hand? Do you 
solemnly swear to tell the truth, the whole truth and nothing 
but the truth, so help you God?
    Mr. Everson. I do.
    Chairman Lieberman. Thank you very much. Please be seated. 
If you have a statement, now would be the time to make it.

 TESTIMONY OF MARK W. EVERSON,\1\ TO BE CONTROLLER, OFFICE OF 
 FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Everson. Yes, I do. It is brief. Good morning, Mr. 
Chairman, Senator Thompson, Senator Bunning. As you know, my 
name is Mark Everson and I am the President's nominee to become 
the Controller of the Office of Federal Financial Management 
within OMB. The Chief Financial Officers Act of 1990 is 
definitive in vesting lead responsibility for federal financial 
management in one entity. The sphere of influence of the Office 
of Federal Financial Management, and of the controller who 
heads it, is limited to financial management, but extends to 
all its elements: Human, systems, processes and policies. This 
portfolio is significant in its own right, but it is also a 
central component of the overall management responsibilities of 
OMB.
---------------------------------------------------------------------------
    \1\ The biographical and financial information appears in the 
Appendix on page 11.
    \2\ Pre-hearing questions and responses from Mr. Everson appear in 
the Appendix on page 18.
---------------------------------------------------------------------------
    I believe that in order to function efficiently and to 
deliver desired results, an organization must be well managed 
in all regards. Strong management, including sound financial 
management, is a sine qua non for sustained achievement. This 
is as true in government as in the private sector, and it is 
why improved government management must continue to be an area 
of focus even and perhaps especially now, when the stakes of an 
effective government are so high.
    When Mitch Daniels raised with me some months ago the 
possibility of joining his team at OMB, I, of course, in no way 
imagined the extraordinary events that were fast approaching. 
Let me close by saying that I believe it is always an honor to 
serve in government. However, I think it is a distinct 
privilege to be nominated by the President and to be considered 
by the Senate to serve at this time in our Nation's history. If 
confirmed, relying in no small measure upon the support of my 
wife, Nanette, and my family, I will do my utmost to 
successfully meet the responsibilities of the Office of 
Controller.
    Thank you.
    Chairman Lieberman. Thanks, Mr. Everson, for an excellent 
statement. I am going to start by asking you certain questions 
that we ask of all nominees. First, is there anything you are 
aware of in your background which might present a conflict of 
interest with the duties of the office to which you have been 
nominated?
    Mr. Everson. No, sir.
    Chairman Lieberman. Do you know of anything personal or 
otherwise which would in any way prevent you from fully and 
honorably discharging the responsibilities of Controller of 
OMB?
    Mr. Everson. No, sir.
    Chairman Lieberman. Do you agree to respond to any 
reasonable summons to appear and testify before any duly-
constituted Committee of Congress if you are confirmed?
    Mr. Everson. I do.
    Chairman Lieberman. Thank you. Let me just ask a couple of 
questions. In my brief opening statement I mentioned that the 
financial management systems in four agencies have been 
designated as high-risk by GAO because of severe problems they 
face. These difficulties are probably most acute at the 
Department of Defense, given the department's vast size and 
resources, but those at the Forest Service, FAA and IRS are 
also significant.
    I wonder what do you think as you approach the new 
responsibilities it will take to remove these agencies from the 
high-risk list, and what role you see for yourself as 
controller in bringing that about?
    Mr. Everson. Obviously, you have to attack these issues 
generically, across the government, and set high standards, and 
then you do have to work with targeted agencies. The list would 
go, I would suggest, beyond the four that you have mentioned, 
because as you delve into this area, and you mentioned systems 
particularly, there are other agencies that have acute problems 
in those areas.
    I think that what OMB has tried to do is to move forward to 
articulate firmer and clearer standards in the area of systems 
development. There is something you may be familiar with called 
the JFMIP, the Joint Financial Management Improvement Program. 
That is a joint operation established by GAO, Treasury, OMB and 
OPM. That is a group that has started to set standards for all 
these systems, so that the vendors know what they have to meet. 
As those newer systems come into operation, I think things will 
improve.
    As to individual agencies, obviously the controller and OMB 
must intervene directly with the ones that have the greatest 
problems. You can set standards, and I believe in setting a 
high standard, and most organizations will attempt to meet 
those standards. Remedial or repair work requires personal 
intervention, and I will have to do that.
    Chairman Lieberman. I appreciate the answer. Another issue 
that has been of concern to the Committee involves the amount 
of improper payments made each year by Federal agencies to 
beneficiaries, grant recipients or vendors. These can be the 
result of fraud or a mistake or mismanagement. GAO reported 
that for fiscal year 1999, 12 of the largest agencies in the 
government estimated making over $20 billion in improper 
payments. You may know that Senator Thompson and I sent letters 
to these largest agencies and to their IGs earlier this year, 
asking them what they were doing to address this problem.
    OMB recently issued guidance to agencies directing them to 
estimate and report the amount of their improper payments, but 
did not specifically offer suggestions on how they should do 
this. So I wanted to give you a chance to talk to us just a bit 
about what you might do if confirmed as controller to help 
agencies fill in these gaps, and if you would consider 
reporting to Congress on the amount of improper payments 
reported by the agencies and the extent to which they are 
meeting their targets to reduce them, so we can make incentives 
here as specific as possible.
    Mr. Everson. Yes, and, of course, we will report on how we 
do in this area. As I think you also know, improved financial 
management, as you mentioned, is one of the five government-
wide objectives that the President has established as part of 
his management agenda, and embedded within the improve 
financial management initiation is a very clear component to 
address erroneous payments. What OMB has done as part of the 
spring instructions for the preparation of the budget, as you 
indicated, was to request an estimate by a series of agencies 
that cover a total of about $1.2 trillion of the programmatic 
funds of the government we asked them to estimate what they 
believe is a baseline rate on erroneous payments, to develop 
plans to attack this, and to basically work with us to get 
going on it.
    Those submissions are just coming in now. They will be 
analyzed by the Office of Federal Financial Management. One of 
the questions that the Committee directed to me in the pre-
hearing process was, as you just indicated, would you be more 
specific perhaps after you have received those responses--of 
course we will. If we see trends or common problems or more 
importantly, common solutions, we will issue appropriate 
guidance. I would suspect that this also would be a topic of 
the Chief Financial Officers Council, so that we can make sure 
there is a sharing of information and that what works one place 
is put into effect somewhere else.
    Chairman Lieberman.: Good. Well, we look forward to working 
with you on that important matter and being able to support in 
any way we can. Thanks.
    Senator Thompson.
    Senator Thompson. Thank you very much, Mr. Chairman. Mr. 
Chairman, I think you touched on the major concerns that I 
have. This figure you mentioned of $20 billion, as you point 
out, is just 12 agencies, so we have no idea how large the 
total figure of improper payments is in the government. But 
that is really mind-boggling in some respects to know that in 
relatively few agencies there are $20 billion of improper 
payments going out at a time when we are obviously going to be 
very concerned about spending our surpluses and whether or not 
we are going to have a surplus anymore. Improper payments alone 
in government might make the difference. I was surprised to 
learn that we do not even require agencies to make reports as 
to their improper payments.
    Mr. Everson. Yes.
    Senator Thompson. We criticize these agencies for their 
improper payments, but at least they are reporting it, and they 
are not even required to do that, as I understand it. I 
understand that the OMB has put into place some methods that 
hopefully will be used to better estimate erroneous payment 
rates, but what about from a big picture standpoint? Do you 
think that either OMB or Congress, through legislation should 
require all agencies to keep up with it and make these 
estimates and determinations as to what the payments are, as a 
basis for trying to figure out a way to reduce the numbers?
    Mr. Everson. Well, Senator, I think that, in essence, that 
is what we are moving toward with this request that we made as 
part of the 2003 budget submission, and certainly we are not 
going to let go of it. We are going to embed that as part of 
the ongoing reporting. To attack this, though, I would suggest 
that true progress will come when you have addressed a lot of 
the broader issues that you and your colleagues have already 
discussed, in terms of systems, overall internal controls.
    You cannot attack this area to the exclusion of others. So 
we will work to improve the overall controls, and this will be, 
I would suggest to you, a leading indicator if we are making 
progress.
    Senator Thompson. That makes a certain amount of sense. I 
guess it is difficult for me to see which is the best way to 
even begin to approach it. You could make a lot of progress in 
terms of your overall systems, but we would still have billions 
of dollars going out the door that should not, and we would 
still be in a situation where we would not really know how much 
was being improperly spent. But, along those lines of your 
systems, one of the things that, we have been concerned about 
is, as the Chairman mentioned, the inability for agencies to 
get clean opinions. We are making some progress on that; 18 of 
24 now are able to get clean opinions, but according to the 
GAO, at least 19 of 24 have in place such poor financial 
systems that they are unable to provide managers with 
information to guide their decision-making.
    There is a reason for this, other than to just have a 
hearing or an assessment. It is designed to give managers a 
tool to use and to see how they are doing. What we are seeing 
now is that when we ask them for clean financial statements, 
they come up with them. I guess they figure that we will never 
be happy, but we are learning that even though more and more 
are coming up with clean financial statements, they are doing 
it by heroic efforts at the end of the year crunching a bunch 
of numbers after the fact. They are still late many times, and 
they finally come up with a so-called clean statement. But it 
has provided them with no management tool during that year to 
use as they try to manage these agencies.
    Is that a correct assessment? How do we move from focusing 
on just getting clean opinions to ensuring that agencies have 
systems in place that a manager can use?
    Mr. Everson. I agree entirely with that assessment, and I 
know that Director Daniels does, as well, and the Comptroller 
General. We have had discussions on just this very challenge. I 
think what has happened over the last 4 years, as the 
government has issued statements and they have been audited by 
GAO, is that a great deal of progress has been made through 
that understandable flag of a go, no-go audit. But, as you 
point out, the audit timing is much-delayed. It is five or 6 
months after the fact.
    The only way you can get to where you have useful, timely 
information that supports decision-making is if you reform the 
business processes and the management. Our answer to that, if 
you will, is to set a more ambitious standard for accelerating 
those dates of when reporting is due, putting in interim 
reporting and, if you will, forcing the agencies to address 
those underlying business process and systems issues, because 
you will not meet accelerated deadlines through heroic efforts. 
You will have to reform the way you work, and when you reform 
the way you work, you will add in performance reporting and 
just what you are talking about, Senator, in terms of 
supporting the policy makers.
    Senator Thompson. Thank you very much. I have talked to you 
and others at OMB about this, and I must say I am greatly 
encouraged by what I hear. It seems to me that it gets down to 
a pretty simple formula, and that is leadership, accountability 
and flexibility. You have to have somebody at the top saying 
this is important, and you have to have some response when it 
does not work and people do not get the job done, and within 
that, you have to have the ability to do what you need to do in 
order to get the job done. You need to come to us and tell us 
what you need in terms of the flexibility to accomplish that. 
But I think that your thinking is on the right track on all 
those things, and I appreciate it. Thank you very much.
    Mr. Everson. Thank you.
    Chairman Lieberman. Thanks, Senator Thompson. Senator 
Bunning.
    Senator Bunning. Thank you. I do not have a lot of 
questions. It seems to me if my Senate office or Senator 
Thompson's or Senator Lieberman's offices get a budget, X 
amount of dollars to spend over fiscal year 2001, 2002, to keep 
track of that money is not complicated. If we can figure out 
how much we can pay our staffs and how many dollars we can use 
for travel, it seems to me that each agency of the Federal 
Government ought to be able to do that.
    It is mind-boggling to me that--we are just talking about 
1999 now--that 12 agencies cannot account for overpayments of 
$20 billion. What was that in the year 2000? What was that in 
the year 2001? If you come back to me in the year 2002 or 2003 
and say, ``Oh, by the way, we cannot account for $40 billion,'' 
I am going to be very upset, along with, I am sure, the 
Chairman and the ranking member. So I would suggest that all 
the systems and all the things that you can control, and know 
up front so that the managers of those agencies know exactly 
what they are dealing with, that seems to me the most important 
thing that we could do as a Congress, and your job as the chief 
financial officer of OMB. So I am going to hold your feet to 
the fire.
    Mr. Everson. I welcome that, sir.
    Senator Bunning. If you come back and tell us that, ``By 
the way, in 2000 and 2001, it not only was 20, but it went to 
30 and 40,'' and now, when your watch comes, I want to see that 
go the other way and shrink. You have the wherewithal, you have 
the knowledge, you have the background, education, and 
everything you need to do it. It is just a question of making 
sure that you do it, and I wish you godspeed.
    Mr. Everson. Thank you, sir.
    Senator Bunning. Thank you.
    Chairman Lieberman. Thanks, Senator Bunning.
    Mr. Everson, I do not know how well you know Senator 
Bunning. He is a very good Senator. He is a very good man. In 
my experience with him, I would say he is a man you do not want 
to upset, and I am sure you will try your best not to. 
[Laughter.]
    Senator Thompson. Batters in the National League came to 
that conclusion.
    Chairman Lieberman. Right.
    Thanks so much for your testimony. Your daughter has one of 
the most captivating, adorable smiles that I have seen in 
recent memory, so she will carry you through a lot of the tough 
days in this job.
    This completes the hearing. The record is going to remain 
open for the rest of today for the submission of written 
questions for the nominee and any written statements for the 
record. We will try real hard to try to move your nomination 
out of Committee and to the Senate floor and through 
confirmation as soon as we possibly can. I thank you very much.
    The Committee stands in recess.
    [Whereupon, at 10:05 a.m., the Committee was adjourned.]


                            A P P E N D I X

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