[Senate Hearing 107-617]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 107-617
 
                   NOMINATION OF HON. MARK W. EVERSON
=======================================================================


                                HEARING

                               before the


                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                 ON THE

     NOMINATION OF HON. MARK E. EVERSON TO BE DEPUTY DIRECTOR FOR 
              MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

                               __________

                             JULY 17, 2002

                               __________

      Printed for the use of the Committee on Governmental Affairs









                          U.S. GOVERNMENT PRINTING OFFICE
81-312                             WASHINGTON : 2002
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001








                   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                 THAD COCHRAN, Mississippi
THOMAS R. CARPER, Delaware           ROBERT F. BENNETT, Utah
JEAN CARNAHAN, Missouri              JIM BUNNING, Kentucky
MARK DAYTON, Minnesota               PETER G. FITZGERALD, Illinois
           Joyce A. Rechtschaffen, Staff Director and Counsel
                        Kevin J. Landy, Counsel
                Jennifer E. Hamilton, Research Assistant
              Richard A. Hertling, Minority Staff Director
                Ellen B. Brown, Minority Senior Counsel
          Mason C. Alinger, Minority Professional Staff Member
                     Darla D. Cassell, Chief Clerk
                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Thompson.............................................     2
    Senator Voinovich............................................     3
    Senator Akaka................................................     5
    Senator Fitzgerald...........................................    14

                                WITNESS
                        Wednesday, July 17, 2002

Hon. Mark W. Everson to be Deputy Director for Management, Office 
  of Management and Budget.......................................     6
    Biographical and professional information....................    23
    Pre-hearing questions for the record and responses with 
      attachments................................................    31
    Questions for the record and responses.......................    77


 NOMINATION HEARING OF HON. MARK W. EVERSON TO BE DEPUTY DIRECTOR FOR 
              MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

                              ----------                              


                        WEDNESDAY, JULY 17, 2002

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:01 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Akaka, Thompson, Voinovich, 
Bennett, and Fitzgerald.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. Good 
afternoon, Mr. Everson. Welcome everyone to the hearing today.
    We are considering your nomination to be Deputy Director of 
Management for the Office of Management and Budget, which is 
the third highest ranking position at that Department and one 
that gives you responsibility for establishing management 
policies for all executive agencies in the areas of finance, 
human capital, procurement, and information technology. These 
duties will, as you well know, take on added significance in 
the coming months as a result of the intention that the 
President and members of both parties in Congress have of 
establishing a new Department of Homeland Security, 
consolidating a number of existing agencies, and creating some 
new programs to respond to the threat of terrorist attacks. 
That means that the careful management of these agencies and 
programs will be needed more than ever if we are to minimize 
overlap and maximize efficiency. So in your new position, you 
will have a genuine opportunity to help in doing just that.
    I also wanted to mention that as Chair of the President's 
Council on Integrity and Efficiency, you play an important role 
in interacting with IGs on behalf of the administration. This 
Committee has a longstanding role in ensuring that Inspectors 
General are able to do their jobs independently and with 
adequate funding because they are so central to the principles 
of good, efficient, consumer-oriented government.
    I think your current portfolio as Controller at OMB has 
probably acquainted you with the inadequate financial systems 
and controls now in place at too many Federal agencies. As you 
know, the General Accounting Office has identified financial 
management at the Department of Defense, the Forest Service, 
the Federal Aviation Administration, and the IRS as high risk 
because of systemic problems there.
    One of the most significant problems is the outdated 
financial systems that many agencies have, which do not meet 
the most basic accounting requirements and deprive Federal 
managers of timely and accurate information that they need for 
daily decision making. This Committee has been particularly 
concerned about improper payments that agencies make that have 
come in at extraordinarily high estimates in recent years and 
we count on you, and I know you share our concern to do your 
best to eliminate this type of waste, which really is 
unacceptable.
    Finally, I want to commend the administration and thank the 
administration for recognizing the importance of including the 
government's ability to communicate electronically with the 
public and to communicate within itself among agencies and for 
working with this Committee to recently pass an electronic 
government bill out of the Senate. Our work, of course, is far 
from complete and I hope that the administration's cooperation 
with our Committee is extended to the House, where consensus on 
a bill has not yet been achieved, but I would guess we can play 
a role in bringing that about.
    Mr. Everson, I have seen your responses to the Committee's 
pre-hearing questions and I appreciate the care with which you 
have answered our questions. Again, I welcome you to this 
Committee today. You have achieved a promotion more rapidly 
than I think anyone else in the administration. I believe you 
are the first to come back twice for a hearing here, so we 
welcome you and look forward to working with you in the coming 
years.
    Senator Thompson.

             OPENING STATEMENT OF SENATOR THOMPSON

    Senator Thompson. Thank you, Mr. Chairman, and thank you 
for scheduling this hearing. I want to add my welcome to Mr. 
Everson also.
    We know that this is one of the most important jobs in 
government. We know that, over the years, the management 
function of OMB has slipped and has not been given the priority 
that it ought to have and that it deserves, and we have seen 
the results of that. We have seen that in the important areas 
of information technology development, financial management, 
human capital, overlap and duplication, that our Federal 
Government has performed very poorly. Many of these functions 
are on the GAO high risk list, as you pointed out. And even 
more troubling, so many of these areas in which we are having 
such problems government-wide are areas that are extremely 
crucial as far as homeland security is concerned.
    The management problems of the Federal Government are 
longstanding and daunting. They are extremely important, and I 
am glad that we have Mr. Everson to take over those 
responsibilities. Having been there now for a while, you 
understand them even better than you did before.
    The administration has put an unprecedented emphasis on 
improving both the efficiency and the effectiveness of the 
Federal Government and the President's management agenda has 
laid out an array of things that need to be done and possible 
solutions. The OMB has tasked agencies with accelerating their 
financial reporting, requiring them to move up the release of 
their financial statements from 6 months to 2 weeks after the 
end of the fiscal year. In addition, the administration has set 
an ambitious agenda for integrating performance into the budget 
and for conducting public-private competitions to ensure that 
taxpayers are receiving the best value for their dollar.
    All these are good goals, things that need to be done, and 
I think the administration has made a wise choice in selecting 
Mr. Everson. It has been clear from the meetings that I have 
had with Mr. Everson that he has extensive experience in 
management, not just in financial management. He has a master's 
degree in accounting from New York University Business School 
and a bachelor's degree from Yale. He has 26 years of 
experience in both business and government, holding positions 
of leadership in the Department of Justice, U.S. Information 
Agency, the American National Can Company, Sky Chefs 
International, and now OMB.
    So it is clear that he has management experience both 
inside and outside of government and detailed knowledge of how 
the OMB operates. I look forward to supporting his nomination 
and to working with him on addressing some of these problems 
that we are all too aware of.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Thompson.
    Senator Voinovich, do you have an opening statement.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Yes, I do. Thank you, Mr. Chairman. It 
is a pleasure to be here today for the confirmation hearing of 
Hon. Mark Everson, the President's nominee for Deputy Director 
for Management at the Office of Management and Budget. I 
congratulate Mr. Everson on his nomination to what I believe is 
one of the most important posts in the Executive Branch of 
government. Welcome back to our Committee.
    As the Chairman has said, you are no stranger to this 
process. It was 9 months ago that you were here for the 
Controller's position at the Office of Management and Budget.
    Your willingness to endure the process twice in less than 1 
year demonstrates that you are truly a committed public 
servant---- [Laughter.]
    And I thank you for your dedication to your country.
    I assume this is your family?
    Mr. Everson. Yes, it is, sir.
    Senator Voinovich. I would like to welcome them and I would 
like to thank your wife and your children for the sacrifice 
that they have already made so that your dad and husband can 
serve his country, and thank you for the continued sacrifice 
that you are going to make so that he can continue to make a 
difference for the American people and help our President do 
the job that we want him to do.
    It will come as no surprise to you that I believe human 
capital management to be one of our government's biggest 
challenges. Mr. Everson, you and I have discussed that at 
length and I think you understand that these challenges are 
enormous. Furthermore, if they are not tackled immediately they 
will continue to be the subject matter of future hearings of 
this Committee. After you are confirmed, human capital will be 
on your watch.
    Mr. Everson. Yes.
    Senator Voinovich. So the things that are going to happen 
are going to be attributed to you, and you know you have a very 
severe human capital crisis in the Federal Government.
    I think it is evident from your rise from Controller to the 
Deputy Director for Management, that you have the confidence of 
the President and his team, which is also very important for 
your success.
    Mr. Chairman, I know that Mr. Everson is working with OPM 
Director Kay James. It is vital that the teams at OMB and OPM 
work together to get the job done. It appears the chemistry 
between the agencies is pretty good, so I am optimistic that we 
will be moving forward with some real progress in the human 
capital area.
    I just want to thank you for being here today and I hope, 
Mr. Chairman, we can move the nomination forward as quickly as 
possible.
    [The prepared statement of Senator Voinovich follows:]
                PREPARED STATEMENT OF SENATOR VOINOVICH
    Good morning and thank you Mr. Chairman. It is a pleasure to be 
here today for the confirmation hearing of Mark Everson, the 
President's nominee for Deputy Director for Management at the Office of 
Management and Budget. I congratulate Mr. Everson on his nomination to 
what believe is one of the most important posts in the Executive 
Branch. Welcome back to our Committee.
    As you know, Mr. Everson is no stranger to the confirmation 
process. In fact, just over nine months ago, our Committee held his 
nomination hearing for the Controller's position at the Office of 
Management and Budget.
    Mr. Everson, your willingness to endure this process twice in less 
than one year demonstrates that you are truly a committed public 
servant and I commend you for your dedication to our country.
    It will come as no surprise to you that I believe human capital 
management must be a top priority for OMB. For too long, our federal 
government has neglected its employees. Mr. Everson, I encourage you to 
spend as much time as is necessary to get a handle on the human capital 
management challenges before you. These problems, which will only 
worsen in the coming years, will require your serious and sustained 
attention if they are to be successfully addressed.
    Given Mr. Everson's swift rise from Controller to Deputy Director 
for Management, it is clear that he has the trust and confidence of the 
President to perform his new role. I am certain he will be able to work 
well with OMB Director Daniels, OPM Director James, and the President's 
entire Management Council to accomplish the goals set forth in 
President Bush's Management agenda.
    Mr. Chairman, I support Mr. Everson's nomination and hope we can 
move it expeditiously through the Committee and to the floor for final 
passage before the August recess. Thank you, Mr. Chairman.

    Chairman Lieberman. Thanks, Senator Voinovich.
    Mr. Everson, would you like to introduce your family now?
    Mr. Everson. Certainly, sir. I am very pleased we have here 
today my really--it is a larger group than in October, but----
    Chairman Lieberman. We noticed.
    Mr. Everson. You remember Nanette, my wife, and she has 
actually joined the administration. She has taken the afternoon 
off to be here. She has become Associate Counsel to the 
President. She is doing the ethics work. So between the two of 
us, I give the red marks and she gives the ethics guidance 
within the White House, so we are not all that popular 
sometimes.
    Our son, Leonard, was not here last time. He was overseas 
in Scotland. He has returned and we are very proud of him and 
pleased he is here.
    You might remember Emma, who was here.
    Chairman Lieberman. I do.
    Mr. Everson. She got a new dress, but she is here.
    And then we are especially thrilled that Marcella, who is 
our sister-in-law, is here with my two nieces, Elia and Bella, 
and then, most importantly, Max Michael, who is the newest 
addition. They are in from Germany, so they went through our 
new rigorous screening processes and border control a few weeks 
ago.
    Chairman Lieberman. Welcome and wilkommen. It is nice to 
have you all here. It is a beautiful family.
    Mr. Everson. Thank you. Thank you for that opportunity.
    Chairman Lieberman. Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman.
    I would also like to add my welcome to you, Mr. Everson, 
and your lovely family, to this Committee.
    Mr. Everson, as OMB Controller, you know that sound 
judgment is vital to the government functions that we rely on 
every day here in Congress. As we consider the creation of a 
Department of Homeland Security, agencies need appropriate 
management guidance. For this reason, I offered an amendment to 
S. 2452, the National Homeland Security and Combatting 
Terrorism Act. This amendment, which was adopted, requires OMB 
to provide specific guidance on actions agencies need to take 
to implement the National Homeland Security Strategy.
    Mr. Everson, I look forward to hearing your perspective on 
how this would be accomplished. I am also interested in how you 
believe agencies should strike the proper balance between new 
homeland security responsibilities and their critical existing 
functions.
    I believe you'll agree with me that sensible management 
also requires transparency of costs in government and among 
Federal contractors. Regardless of whether they are Federal 
employees or contractors, we need to ensure that we collect 
accurate information about those who perform the work.
    Another issue of great concern to me is OMB Statistical 
Policy Directive 15, which governs the racial and ethnic data 
collection by Federal agencies. This was revised in 1997. As 
background, Native Hawaiians were disaggregated from the Asian 
Pacific Islander category and a new category entitled ``Native 
Hawaiians and other Pacific Islanders'' was created. The 
Directive gives agencies until January 1, 2003, to make all 
existing record keeping or reporting requirements consistent 
with its standards. Given the upcoming implementation date, I 
look forward to working with you to ensure that all agencies 
are informed of the new standards and understand its 
requirements.
    Mr. Everson, I am confident that you appreciate the 
importance of government management, and I want to wish you 
well.
    Mr. Everson. Thank you, sir.
    Senator Akaka. Thank you very much.
    Chairman Lieberman. Thanks, Senator Akaka.
    Senator Bennett, do you have an opening statement?
    Senator Bennett. No, thank you, Mr. Chairman. I just 
welcome Mr. Everson here and look forward to an opportunity to 
chat with him about the management side of Management and 
Budget.
    Chairman Lieberman. Thanks, Senator Bennett.
    Let us proceed. For the record, Mr. Everson has submitted 
responses to a biographical and financial questionnaire. He 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, in which his wife, to the best of my knowledge, was not 
involved.
    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.\1\
---------------------------------------------------------------------------
    \1\ Biographical and financial information appear in the Appendix 
on page 23.
     Pre-hearing questions for the record and responses with 
attachments appear in the Appendix on page 31.
     Questions for the record and responses appear in the Appendix on 
page 77.
---------------------------------------------------------------------------
    In addition, the FBI file has been reviewed by Senator 
Thompson and me pursuant to Committee rules.
    Mr. Everson, as you remember from your last visit here, our 
Committee rules require that all witnesses at nomination 
hearings give their testimony under oath, so would you please 
stand 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. Please be seated.
    Mr. Everson, do you have a statement that you would like to 
make at this time?

  TESTIMONY OF HON. MARK W. EVERSON TO BE DEPUTY DIRECTOR FOR 
          MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Everson. Yes, Senator, I do. Good afternoon, Mr. 
Chairman, Senator Thompson, and Members of the Committee. As 
you know, I am Mark Everson. I am already the Controller and I 
am very pleased to be here today as you consider my nomination 
to be the Deputy Director for Management.
    In your pre-hearing questionnaire, you asked what would be 
my priorities as the Deputy Director for Management. I will 
just touch briefly on each of those four priorities. One of 
them is implementation of the President's Management Agenda. 
The second is the establishment of the Department of Homeland 
Security, making sure that it functions correctly. Third, 
strengthening the role of management within OMB, and also, 
finally, strengthening the President's Management Council.
    In terms of the management agenda, just to give you a brief 
update, as part of the mid-session review that we released 
earlier this week, we did for the first time present a progress 
report on how the departments and agencies are doing in terms 
of implementing both the five government-wide initiatives and 
also the nine agency-specific initiatives. You will see from 
our evaluations that we feel that there is a great deal of 
progress being made in some instances.
    You might recall, we have this red-yellow-green grading 
system. We apply it both as to the status against standards for 
success, that is, against the long-term goals, but also on a 
progress side to say, are you actually moving, because it 
recognizes, just as was indicated, in the case of, say, DOD, it 
is going to take a long time to make movement here. What we 
have done is we have graded out on the progress side.
    NASA has got five greens. That is the top. A number of the 
departments, Commerce, Energy, Education, Labor, and Treasury, 
ended up with four. There are some disappointments, though. The 
Agriculture Department ended up with three reds. That means 
that in our view, there has not been any significant progress 
on three of the five initiatives.
    Overall, though, it came out where one might expect. About 
half the scores were green. That means they are moving forward 
in a way that we think will get them where they need to go. I 
look forward to working with the Committee as you provide the 
oversight on how we are doing here and I am sure we will be in 
very close touch on that.
    The Department of Homeland Security--I know I am in a weak 
position here today to ask favors from the Committee, but I 
would, if possible, like to respectfully nudge you towards 
providing a little more latitude in the areas of management 
flexibility in terms of establishing the new Department. I 
would like to state, as the President stated yesterday in the 
leadership meeting, that in no way, shape, or form do we have 
any intention of gutting civil service protections, 
whistleblower protections, any of the things that employees 
currently enjoy.
    We do believe, however, that because of the magnitude of 
the task, bringing together organizations that include 18 
different unions, they have all kinds of different management 
systems, financial systems, IT systems, we need to have some 
latitude here both in the personnel area to make the Department 
more effective and also in the areas of reorganization, 
transfer authority, procurement, as well as property. So to us, 
that is important to make the Department as effective as 
possible.
    In terms of the President's Management Council, I took that 
over on an acting basis in January after Sean O'Keefe went to 
become Administrator at NASA. I think we are being successful 
in trying to make that Department, or that organization a 
little more operational. We have restructured it a bit. We have 
got an Executive Committee that consists of the deputy 
secretaries of several of the Departments and also Kay James, 
Clay Johnson, and Albert Hawkins from the White House.
    In addition, we have three working Subcommittees that are 
within the structure, one for human capital--Kay chairs that; 
another for e-Government, which Cam Finley, Deputy Secretary of 
Labor, chairs; and a third for budget and performance 
integration that is chaired by Bill Hansen. This is providing, 
I think, more of an interaction between us at OMB or OPM as 
central policy makers and the departments who are accountable 
for getting things done, so I think that is a good step.
    The last priority, strengthening management within OMB, I 
can only report to you that in my 11 months within the 
structure, I have seen a steady increase in the attention to 
management within the operation. I know that Mitch Daniels 
feels that way, Nancy Dorn, and the other senior people. It is 
getting its fair slice as we work on this whole series of 
issues, budget, management, and regulatory.
    Before I close, I just want to take a moment to thank you, 
Mr. Chairman, for your leadership on this homeland area. I 
think your role as a principal architect of all this is a 
singular contribution to the Nation. A legacy will be left, as 
the President indicated yesterday, and you have been a very 
real part of it, along with your colleagues here on this 
Committee.
    I would also like to thank Senator Thompson for your, sir, 
dogged role on management issues in general. It has been a real 
breath of fresh air, I think, within the government, the work 
you have done, the championing you have done in these last 
years, and if you will pardon my expression, you will be a 
tough act to follow.
    When I testified before you last time, I mentioned my 
family. As you have all indicated, they have been a great 
source of support. They occasionally grow frustrated with the 
hours, but as a rule, I could not do it without them and I know 
that is the case going forward. I just want to give you my 
personal commitment that if you do confirm me for this new 
position, I will give you my level best and we will just see 
how that goes.
    Chairman Lieberman. Thanks, Mr. Everson. Thanks for a good 
opening statement, for your kind words, and for your quite 
appropriate tribute to your family.
    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, that would in any way prevent you from fully and 
honorably discharging your responsibilities as Deputy Director 
for Management of OMB?
    Mr. Everson. No, sir.
    Chairman Lieberman. Do you agree without reservation 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 proceed with 
questions. We have a vote that is supposed to go off around 
2:30, so I am going to be selective in my questions. I know you 
have been grilled abusively by our staff, and I have received 
the results of that questioning.
    I want to ask you if you would describe the role you would 
like to take in information management and e-Government issues.
    Mr. Everson. We feel this is a very important area. It was 
indicated in several of the opening remarks, the systems area. 
Our systems are woefully deficient in the government. The 
President's agenda item for this, where we are trying to work 
across agencies and break down the traditional organizational 
structures where processes and systems are put in that only 
pertain to Defense or Commerce or whatever agency it is and do 
not get any of the leverage that you need for businesses that 
are standard or processes that are standard, such as payroll 
processing, we think a lot needs to be done in that area.
    I think you know that my boss, Mitch Daniels, established a 
separate office within OMB to spearhead that. That is led by 
Mark Forman, and I do think we are making a great deal of 
progress in this area.
    If confirmed, I will supervise that office, and if that 
office is transformed, as under your legislation, becomes 
really the co-equal to the financial and the procurement 
offices, I would continue to do so.
    We think it is critical and it will get a great deal of my 
attention. My clear intention was, in changing the PMC, that we 
showcase this one and we get the right cooperation amongst the 
departments. Central to this and eliminating redundancies and 
reducing investment needs is to get the departments to sign in 
here. I think with the able leadership of Cam Finley and the 
participation we are getting in some of the departments, we 
have got some opportunities here.
    Chairman Lieberman. I appreciate that answer. As I think 
you know, early on, I advocated the creation of a Federal Chief 
Information Officer, who would be responsible for ensuring 
better IT management and promoting e-Government initiatives, 
and a lot of that was based on counsel that we received from 
the private sector about how the IT systems that are working 
best are where there is a separate Chief Information Officer, 
within the company.
    There was some disagreement with that approach from within 
the administration. We worked out the compromise that we did, 
and I wanted to ask you whether you would, as you go forward 
overseeing this, keep your own mind open to whether we might 
not be better served with a separate CIO?
    Mr. Everson. I am pleased to do that. If I could respond 
through reference to what we have proposed for the Department 
of Homeland Security, the CFO Act of 1990 did a very good job 
of establishing deliverables and expectations as to what 
financial management had to do for the government. I do think, 
however, there has been a certain fracturing of management 
since that time. We have CFOs in one part of the department, 
CIOs, procurement officers, and Chief Human Resource Offices in 
some cases.
    What we tried to do with the new proposal is to put it all 
together under one Under Secretary for Management because we 
think you need to have an integration of the management issues.
    You are entirely correct. In the private sector, 
frequently, there are CIOs who are directly under the Chief 
Executive Officer. Frankly, I do not see that as a workable 
model in most of these departments and agencies, given the 
way--given the responsibilities the secretaries and the 
deputies have. I think we are better off having a very strong 
management voice that is making sure that you have an 
integration of all those functions.
    I am shocked, coming back into government from industry. In 
industry, usually, the staff guys get together and have 
arguments with the operating people. Here, the staff people do 
not even get together. They are all islands of expertise and 
they are not actively coordinating. That is the dilemma you 
have on this very issue, sir.
    Chairman Lieberman. OK, and we will keep talking. Thank 
you. Senator Thompson.
    Senator Thompson. Thank you very much. Mr. Everson, you 
mentioned that homeland security is your second priority 
listed. It is on all of our minds right now as we are getting 
ready to mark up a bill and so forth.
    From your standpoint, from a government management 
standpoint, as we proceed to put together a big new department, 
with 170,000 employees, that brings various agencies together, 
what do you see our greatest challenges as a government, as a 
Congress, as a Committee will be in dealing with that? What 
guidance from your time on the inside could you give us in 
terms of ranking areas of importance, things that we 
particularly ought to pay attention to, things that you and the 
OMB ought to pay attention to? This is going to probably be the 
most daunting management problem that we face, at least in 
terms of importance to the country. Do you have any ideas that 
you could share with us?
    Mr. Everson. Certainly, Senator. We have, I would tell you, 
three broad objectives as we approach the creation of this 
Department. The first is actually to, of course, accomplish the 
creation of an effective Homeland Security Department.
    The second objective is to make sure that as we do that, 
because this will take time, we continue in the interim to 
enhance homeland security and to not take our eye off the ball 
on the day-to-day challenges and issues that are out there.
    The third is not to ignore the other, the collateral, the 
other missions that are important of these agencies that would 
come into the Department. As you know, there are many important 
and other vital missions at the Coast Guard or at FEMA that 
need to be attended to.
    So everything we are trying to do is measured against those 
three standards. That argues for, in our view, a deliberate 
transition process. If you go to the construction of the 
statute, we create the Department in our proposal 30 days after 
enactment, but then provide a 1-year transition period to bring 
in the different components according to a measured schedule of 
when you would be ready to do that.
    To do it effectively, we feel, again, that you need to have 
the latitude, the flexibilities, both on a short-term basis to 
stand up the Department, but moreover, to make it effective. We 
cannot take the attitude that whatever solution is created, 
that is going to be it. It has to be changed in response to 
emerging threats, because those will clearly require us to 
adjust, but also because of the experience that we gain as we 
go along and see what we have done that needs to be adjusted.
    Senator Thompson. As we integrate these new agencies in the 
Department, is it important to apply the tools we have been 
trying to gear up for some time now, such as the Results Act 
and other things that we have been using and integrate them 
into the new Department?
    Mr. Everson. Absolutely. I was at a presentation this 
morning where I was asked, would the OMB scorecard be used in 
the new Department? Absolutely. We need to measure program 
effectiveness in the new Department just as we would in any 
existing element of the government.
    Senator Thompson. If not more so.
    Mr. Everson. That is exactly right. We recognize there are 
some underperforming elements that will go into the new 
Department. The INS is the one that is most frequently cited.
    Senator Thompson. Let me ask you this. With regard to some 
of these traditional areas of deficiency that I mentioned a few 
minutes ago, information technology, human capital, financial 
management, what do you see as the most difficult problem, the 
most systematic problem that we have in our government? And 
rank it also in terms of importance to us. Is there any one 
thing out there among all those difficulties that you feel that 
we, as a Congress, as an administration, really need to get a 
hold of for the sake of the good of our country?
    Mr. Everson. I think Senator Voinovich has put his finger 
on it and it is very much in this human capital area. I think 
that we have a recognition that e-Government, technology, needs 
to be harnessed. There is a clear consensus on that. But we 
seem trapped in a very difficult relationship where we are 
afraid to change. You used the word, Senator, ``anxiety'' 
yesterday with the President. Clearly, there is a great deal of 
anxiety about making change.
    So we need to take some of these systems--the GS schedule 
established 50 years ago. Any business that is still working 
with the same personnel systems as five decades ago has long 
since gone out of business. We need to take fresh approaches in 
the personnel area. That would be, first and foremost, what I 
would say.
    Senator Thompson. All right, sir. What about, going down my 
own favorite list here, things such as improper payments? I 
think the GAO has recently determined that we are probably at 
$20 billion a year, at least, and maybe much more than that. 
Are we making any progress in that area? I believe the House 
has just passed a bill that would require these agencies to set 
forth and disclose their improper payments. We have not done 
that here yet. Does the administration have a position on that?
    Mr. Everson. Robert Shea told me that if he came to work 
for me, you would never ask another question on improper 
payments, but---- [Laughter.]
    Senator Thompson. Well, he has not solved the problem yet.
    Mr. Everson. No, he has not. But in all seriousness, I 
think that we are starting to gather some steam on this. Last 
year, we went out to the agencies and requested that they 
develop plans. This is, in essence, what the House bill that 
you referred to does. It codifies what OMB is doing in terms of 
developing targets.
    We are making some progress in some of these areas. The 
other thing we are doing is we are increasing the measurement. 
I would suggest to you that the studies that GAO has done in 
the past that identify about $20 billion in erroneous payments 
actually, believe it or not, and this is a shocking sort of 
thing to say, they do not capture all the true activity out 
there because they only measure some programs.
    We are refining those measurements and we are also 
identifying, frankly, two things that need to be done, areas 
where we will work with States, such as in the food stamp area, 
to try and improve their response, and finally, we are trying 
to develop certain statutory changes that are necessary for the 
sharing of information. So I think we are moving forward.
    Senator Thompson. Thank you very much, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Thompson. Senator 
Voinovich.
    Senator Voinovich. I am pleased that you understand that if 
you do not have the right people, with the right skills that 
you are not going to get the job done. I would like you to 
share with us where you already think you are in that area.
    As you know the Internal Revenue Service was facing severe 
management challenges and we gave them additional tools to get 
the job done. The FAA was also having problems, so we gave them 
separate tools to get the job done. We also gave GAO special 
authority to move forward. Homeland Security poses its own 
unique challenges. We have Defense Secretary Rumsfeld talking 
about the human capital crisis that he has in the Defense 
Department in our national security.
    How do you expect to deal with the human capital problems 
in an expeditious manner?
    Mr. Everson. Obviously, Senator, this is one of the 
greatest challenges we have. Our priority at this time, I would 
suggest, is to try and develop in the new Homeland Security 
Department a model that will at once provide enhanced homeland 
security through a better-equipped workforce, and also, we 
believe, down the road, be a model for the rest of government.
    If I could just sort of digress into Homeland for just a 
minute or two, the President made it clear yesterday that we 
are very anxious to work with the unions to develop a flexible 
personnel system. We are doing that now. Kay James and I have a 
further negotiating session scheduled with the union leadership 
for Monday.
    Furthermore, Governor Ridge will be seeing Mr. Sweeney 
early next week. That is an appointment that we have now 
scheduled for Tuesday.
    Chairman Lieberman. Thank you, Mr. Everson.
    Mr. Everson. I did not want to make a direct reference to 
our conversation, but---- [Laughter.]
    We have got to get both sides to come together on this, 
clearly, because going back, and I made reference, Kay James 
has done a study. You have seen it, a white paper on the pay 
systems. That is only a piece of the problem that confronts us.
    The approach we are trying to take here with Homeland is to 
say, let us put out something here that clearly protects the 
rights of the employees. We feel we reference that in our bill. 
Apparently, we did not satisfy or calm all those anxieties. We 
are more than willing to explicitly delineate those 
protections.
    But we also feel, at the same time, while we would also 
recognize the right to collective bargaining, we need to 
protect the President's existing right to limit that in 
instances of national security. I am sure you are aware of the 
Morella amendment that passed in Government Reform last week. 
We are strongly opposed to that.
    So we can construct something recognizing those two 
centerpieces, but still moving forward with the President's 
proposal on flexibility. We need to take it as a whole. I feel 
that if we cherry pick this and do not come up with something 
that is overall flexible, it just may not meet the 
unanticipated needs as we go down the road.
    Senator Voinovich. I would just like to make one other 
comment. As you know, I have worked very hard with the 
administration on an overall piece of legislation that will 
deal with some of the real problems that you have got across 
the board. Our Committee is dealing with the challenges facing 
our proposed Department of Homeland Security.
    It would seem to me, Mr. Chairman, that what we ought to be 
looking for something that would make these various new 
flexibilities available to all of the agencies. Then we could 
single out certain areas where we know we have a strategic 
need. Perhaps starting with Homeland Security and the Defense 
Department. Then we could sit down with the unions, who are 
very concerned about this, as you well know, to see if there 
are what kind of compromise we could negotiate so they could go 
to their membership for their input, because they have got to 
have some cover.
    I am really concerned that these tools are needed now. If 
we just deal with homeland security and don't give the other 
agencies the flexibilities they need, then we are only 
compounding our problems. Because all of the needs of our 
agencies are important. I mean, the FBI, for example, they have 
been to see me. If they do not get another compensation system, 
I do not know how they are going to be able to get the job 
done. They need some flexibility.
    So it seems to me that as we move down the road, we ought 
to be looking at the big picture and trying to figure out 
something that gives the unions comfort that they are not 
giving away the store, and at the same time, perhaps the 
administration might come through with some money and 
flexibility. The unions are concerned about pay comparability 
and compression, and health care. It is going to be very 
difficult, in my opinion, for us to get the unions to go along 
with this without them seeing some money. As Jerry Maguire 
said, show me the money.
    Chairman Lieberman. Well said.
    We have a few minutes left on a vote. If you want to ask 
some questions, Senator Fitzgerald, I would be inclined to 
yield the gavel to you with the hope that you will not do 
anything too wild while you are in charge of the Committee.
    Senator Fitzgerald. So that we could go vote and then come 
back?
    Chairman Lieberman. I was thinking that I would let you 
close the hearing, if you want to ask some questions, or if 
you----
    Senator Fitzgerald. Yes. We are so short on time, I think 
we are right up against it. Could I come back and take it and--
--
    Chairman Lieberman. Yes, definitely. I am happy to recess 
the hearing at this point with the understanding that Senator 
Fitzgerald will come back, perhaps himself, and ask some 
questions, and then I will close the hearing.
    In the meantime, I thank you very much. It is my intention 
to try to move your nomination through both the Committee and 
the Senate as quickly as possible. I look forward to working 
with you.
    Mr. Everson. Thank you, sir.
    Chairman Lieberman. For now, the Committee stands in 
recess.
    [Recess.]

            OPENING STATEMENT OF SENATOR FITZGERALD

    Senator Fitzgerald [presiding]. We will call this meeting 
back to order, and Mr. Everson, thank you very much for your 
patience. It is good to see someone who at least for a while 
lived in Illinois, and I guess your mother still lives there.
    Mr. Everson. Still there.
    Senator Fitzgerald. I guess I can call you an honorary 
constituent in that case. You lived there in the late 1980's, 
early 1990's?
    Mr. Everson. Absolutely. I would be pleased. We moved 
around so much that, Illinois, it seemed really like the center 
of where we were, and when we went back from France, it was 
really our preference, in fact, to go back to the Chicago area 
for a whole host of reasons, but it did not happen.
    Senator Fitzgerald. Well, welcome to this Committee and 
congratulations on your appointment. Congratulations to your 
family. How many kids do you have? Have you introduced your 
family to the Committee?
    Mr. Everson. I introduced them, yes. We have two children. 
We do have a constituent of yours in addition who is not here 
today. We actually have a foster daughter who is a Cambodian 
refugee who is living in Bolling Brook with her family, her 
husband and their two daughters. They are not here, but this is 
my sister-in-law and her three children, in addition to Emma 
and Leonard, who are our children.
    Senator Fitzgerald. Wonderful. Welcome, and 
congratulations. Your background and qualifications are superb. 
Your educational credentials, also your credentials in the 
corporate world are great. It sounds like you will be able to 
do a very good job at the OMB.
    I did want to ask you a few questions, and I appreciate you 
waiting for us to get through that vote so I could have this 
opportunity. There are a couple of issues I want to address. It 
strikes me as we have this hearing that we have just spent a 
week on the Senate floor, last week, debating rules or 
regulations and laws that would govern the accounting industry 
in America, but we were really only concerned with corporate 
America.
    I think that sometimes we fail to consider the accounting 
rules that we apply in the Federal Government. Actually, I 
think the Wall Street Journal had an editorial once that was 
entitled ``The Federal Enron.'' They were referring to the 
Federal accounting standards.
    Mr. Everson. Yes.
    Senator Fitzgerald. I have been struck by the fact that the 
first 2 years I was in office, it was under the prior 
administration, the national debt was going up steadily. I 
think it went up about $200 billion during my first couple of 
years in office, and yet every year, the Federal Government was 
claiming a surplus. I thought it was odd that the national debt 
could be going up if we are running surpluses.
    After investigating this, I found out that the way the 
Federal Government was claiming a surplus was that we have a 
general fund and we would raid 150 or so trust and pension 
funds, take all the revenue out of the trust and pension funds, 
mix it in with the general fund and say the general fund is 
running a surplus. But we were borrowing from the trust and 
pension funds, putting notes, promissory notes or government 
bonds in those funds and the national debt was going up. If 
somebody in the private sector were to reach into their 
employees' pension fund and loot it, they would go to jail, 
without question. But Washington does it all the time and they 
do not really talk about it. They ignore it.
    The fact of the matter is, we do not use anything close to 
Generally Accepted Accounting Procedures, although I am afraid 
that in the last couple of years, the Federal Financial 
Accounting Advisory Board prevailed on the independent group, 
the AICPA, the American Institute of CPAs, to call what we do 
in the Federal Government GAAP accounting, which I thought was 
somewhat outrageous.
    In any case, I want to ask you a couple of questions about 
governmental accounting. There is, as I alluded to, a Federal 
Financial Accounting Standards Advisory Board.
    Mr. Everson. Yes, sir.
    Senator Fitzgerald. My understanding is that, recently, an 
agreement was entered into by the OMB, the Treasury Department, 
and the GAO to restructure that board and I was interested to 
see the addition of a majority of non-Federal Government 
members to the Board. I hope that will increase the 
independence of the Board. But I have one strong concern, and 
that is the fact that any one of the Comptroller General, the 
Secretary of the Treasury, or the Director of the OMB may 
single-handedly object to any standard proposed by the Board 
and prevent that standard from being implemented.
    Now, we were talking about the independence of the 
Financial Accounting Standards Board that governs the private 
sector all last week. We never really discussed the 
independence of this Financial Advisory Board, this Financial 
Accounting Standards Advisory Board, and I wanted to get your 
thoughts----
    Mr. Everson. Yes.
    Senator Fitzgerald [continuing]. On whether that Board is 
independent, should be independent, what do you think, and what 
do you think the OMB and the administration's position is on 
the independence of that Board?
    Mr. Everson. Thank you. I am glad you raised the general 
subject and then the specific matter, the FASAB. On the general 
subject, we agree that there is a very significant need to 
integrate the budget and the financial information such that 
the accounting information is consistent with the budgetary 
information. If you look at the 2001 financial statements of 
the government, which were issued in March--it is shocking that 
it takes 6 months to issue these statements, but----
    Senator Fitzgerald. And you do want to move the date up, do 
you not, to December 15?
    Mr. Everson. Absolutely. As was referenced before, we have 
set an objective that would move the financial statements for 
the government that are now prepared 6 months after the close 
of the fiscal year to December 15 in fiscal year 2004. That 
would require the agencies to report 45 days after the end of 
the fiscal year instead of 5 months. So that is a tall order, 
something that was actually discussed at the PCIE, that is the 
IG group, yesterday. People are diligently working on it. I am 
confident that just by setting this marker here, we are going 
to make very significant improvements in controls in financial 
statement preparation.
    But part of this is to get financial information that is 
consistent with budgetary information. If you look right now, 
we reported a deficit for our financial statement purposes of 
$500 billion for the 2001 reporting year, in contrast to a 
surplus of over $100 billion plus.
    The difference there was that the accounting standards, the 
GAAP standards, which, as you say, are a little bit different 
from the private sector standards and need to be improved, they 
recognize the cost, the effective changes in cost for future 
benefits, health and retiree benefits, that were granted to our 
veterans and our military employees at the end of 2000. Pardon 
me, when it was actually in the fiscal year 2001 reporting. For 
budget purposes, this was counted as $10 billion worth of cost. 
When it comes through and you do it on an actuarial basis, it 
came out to almost $300 billion of cost, and that is a cost 
that the government is going to have to swallow in the out 
years.
    That is just one example of where the way we budget and 
score things does not--it is not consistent with what good 
financial management----
    Senator Fitzgerald. We are using cost accounting, are we 
not, as opposed to accrual?
    Mr. Everson. We are using financial--we are recognizing--
there, you are looking at the present value of the obligations 
you have already incurred for both your veterans and your 
current employees at DOD. That was the big impact there. It was 
a benefit that was granted that picked up all of----
    Senator Fitzgerald. If we had full accrual accounting, our 
numbers would recognize those costs, correct?
    Mr. Everson. They do not recognize it on a budgetary basis. 
The financial statements do. That is the distinction. And all 
the debate that you have up here and that we have is for the 
budgetary purposes, but it is only showing part of the picture, 
is what we would say.
    Turning to the FASAB, we recognize there has been a 
deficiency in the stature of that organization, if you will, 
and in the independence of it. It was running with a five-four 
government-private sector relationship, or pardon me, it might 
have been six-three, in fact, and we decided to split, to swap 
that around to make it a six-three majority of non-
governmental, as you say, retaining the same relationship 
between Executive and Congressional Branch representation.
    Whereas before you had four Executive Branch agencies plus 
GAO and the Congressional Budget Office, so that there was a 
two-to-one representation, we have inverted that so that we 
will have six private sector or non-governmental 
representatives, then two Executive Branch agencies, one being 
OMB, one being Treasury. We set the policies on the accounting 
and financial standards generally. Treasury, as you know, 
implements them as they are our bookkeeper, or they prepare the 
financial statements, and then GAO, which does the auditing and 
looks at a lot of the standards, too. So we retain that same 
ratio for the government participation.
    You are right, there is still a right to veto on the part 
of any one of the principals, that is something that I do not 
think really we would see exercised because of the avalanche of 
criticism that we provided, but it is a complicated legal 
issue. We are very committed to the independence, particularly 
Secretary O'Neill. He really felt this----
    Senator Fitzgerald. I would encourage you to think about 
that and take my concerns back to Mitch Daniels----
    Mr. Everson. Yes.
    Senator Fitzgerald [continuing]. Because what if Global 
Crossing or Enron had a veto over the rules set by the 
Financial Accounting Standards Board? I mean, it is problematic 
and you really do want that board to be independent----
    Mr. Everson. Yes.
    Senator Fitzgerald [continuing]. And to clamp down on 
practices that maybe should not be allowed and to have the 
ability to enforce them. So I would encourage you to think 
about it, although I do compliment you for increasing the 
number of outside members. I think that will be helpful.
    Mr. Everson. Thank you.
    Senator Fitzgerald. Back on the accounting issues, the 
accounting around here is crazy. You alluded to us not taking 
into account the increase in unfunded liabilities when we pass 
a program for veterans or for some other group, and that you 
are using internally some different numbers than we are using 
up on the Hill.
    Mr. Everson. Not internally, for the financial--the 
preparation of the financial statements. I had meant to but did 
not bring up the financial report of the government, which is 
on a GAAP basis, but it is a government GAAP which does have--
it does not pick up, for instance, right now, all of the 
property in the same way, and I think this is the whole benefit 
of getting this outside----
    Senator Fitzgerald. Well, is it not correct that when we 
consider whether we have a budget deficit or surplus, we take 
all the cash out of 150 or so different government trust funds 
and pension funds, such as the Federal Employees Pension Fund, 
the Military Retirees Pension Fund, the Social Security Trust 
Funds, the two of them----
    Mr. Everson. Right.
    Senator Fitzgerald [continuing]. The Medicare Trust Funds, 
even the State Unemployment Insurance Trust Funds, which we do 
not own, we just manage for the 50 States. We take all the cash 
that----
    Mr. Everson. There is the on-budget surplus and the 
additional surplus, exactly right. You get into this argument 
that was so prevalent during the campaign and then more 
recently of the lockbox and what is in the--where are you in 
terms of what are you using from all those other pieces. That 
is exactly right.
    Senator Fitzgerald. There is no money in any of those trust 
funds, is that not correct?
    Mr. Everson. I do not know all the answers in terms of 
which--the various trust funds. Some have positive balances and 
some are borrowed out.
    Senator Fitzgerald. When they have balances, the balances 
are an asset balance and they have government bonds----
    Mr. Everson. There are IOUs from other--you are exactly 
right. This is where you get into the interaction of all the 
debt and what is debt held by the public, which is that net 
position that is on the financial statement.
    Senator Fitzgerald. Does anybody in the administration 
favor cleaning up this? I mean, this is really--I think it is 
an outrage that we raid all the pension and trust funds that 
the government manages, we spend it on other programs and put 
IOUs in there.
    Mr. Everson. We are looking. We are strongly in favor of 
greater transparency, and I think we do have a--we have a fair 
amount of transparency here, because in these financial 
statements, we do have a great deal of disclosure. There is 
discussion about--let us go back to, say, Social Security. 
Should you put that future obligation on the balance sheet? 
Right now, that is not on the balance sheet of the government. 
What should you put on the balance sheet?
    That is the kind of issue that will very much be targeted 
for discussion and to be addressed by the newly-reconstituted 
FASAB. That starts to get to that linkage of the very question 
you are getting to. We, for sure, want to get more integration 
of the budget and the financial statements to recognize those 
costs and to clarify the accounting so that you get past what 
right now is a discussion that is based on 10-year projections, 
many of which are faulty, 5-year projections----
    Senator Fitzgerald. I hope you do all that----
    Mr. Everson. Yes.
    Senator Fitzgerald [continuing]. But I also hope you go one 
step further and rethink this whole idea that all these trust 
funds can be phony. If they are phony and they are not real 
trust funds and they have no money in them, maybe we should not 
call them trust funds or pension funds.
    Congress has passed laws to make it illegal for private 
corporations to raid their pension funds. It would be illegal 
if somebody at ABC Corporation went into their employees' 
pension fund, took that money out, spent it on other programs, 
and then put a corporate bond in there. They would get in 
trouble for that.
    Similarly, we passed laws making it illegal for State and 
local governments to raid their pension funds for their 
retirees.
    Mr. Everson. Sure.
    Senator Fitzgerald. It would be a very serious infraction 
for a State to dip into its State Employees Pension Fund, take 
that money out, and spend it on something else. Now, often, 
States do not put the amount of money into the pension fund 
that they should, but I am not aware of any that actually raid 
it and spend it on other programs. But we do this all the 
time----
    Mr. Everson. Yes.
    Senator Fitzgerald [continuing]. In the Federal Government, 
a whole variety of pension and trust funds----
    Mr. Everson. Yes.
    Senator Fitzgerald [continuing]. And really, they are 
nothing more than an accounting sham and I am very concerned 
that it is misleading the American people about the financial 
condition of the government. You guys have done such a good job 
under Mitch Daniels. I think he has great experience and 
really, from everything I can see, thinks the right way about 
it.
    Mr. Everson. Yes.
    Senator Fitzgerald. I wonder if you would not take that 
concern back----
    Mr. Everson. I will carry this back, and I think there is a 
great deal of discussion. Dave Walker from GAO, as you know, he 
raises these issues of the long-term health of all these funds. 
It is very serious.
    Senator Fitzgerald. I have talked to people in Mr. Walker's 
office who have defended the whole practice, and it was shortly 
after I came into the U.S. Senate, and I just thought they 
sounded bizarre to me. I think to anybody outside the beltway, 
our practices sound bizarre. I think there has been too much 
incestuousness in all these government accounting people 
talking to themselves. We would not allow this anywhere else in 
America.
    Mr. Everson. I am glad you surfaced this sentiment and I 
will certainly take it back for discussion within our shop.
    Senator Fitzgerald. Thank you. Along the same lines, my 
understanding is, right now, since about 1990 when we passed 
the, was it the Chief Financial Officer Act, we have required 
the 24 largest departments and agencies and a few others that 
are specified by Congress to have audits. Prior to the early 
1990's, I guess there were no audits for the Agriculture 
Department, the Defense--just no audits, nothing.
    We have begun in the last decade or so to require audits, 
but we do not do it for all the departments, just the 24 
largest, and I have actually introduced a bill that would 
require all executive agencies with a budget authority in 
excess of $25 million to prepare audited financial statements 
and subject those statements to an independent audit. I 
estimate that, based upon current budgets, 19 additional 
Federal agencies would be covered under the bill, including the 
SEC. Is it not ironic, the SEC does not get audited. It may 
audit companies in America, but it does not face any audits, 
the Federal Trade Commission and the Federal Communications 
Commission.
    I guess that there has been legislation like this 
introduced by Congressman Toomey in the House, and that has 
been fairly well received. I wonder if you could comment on 
your opinion about the CFO Act generally and to what extent 
that you feel the information it requires has been helpful to 
the OMB in its quest to improve government financial 
management.
    Mr. Everson. I mentioned, and I think you had stepped out 
of the chamber for just a minute, but that I believe the CFO 
Act was a very significant contribution to improving Federal 
management. It set up, and the follow-on Act set up a series of 
deliverables, if you will, or expectations requirements for 
agencies to better manage their finances and other areas of 
their operations. So I think that is positive.
    My reservations about the Act and the whole series of 
management legislation that took place really pertained to two 
issues, one being the sort of the fracturing of responsibility 
for management within the government. After the CFO Act came 
along, you had a focus on CIOs. You have human resource 
officers in some instances, procurement officers, and some of 
these are split off such that you do not see the management 
people talking to each other. They are operating in some of 
these departments as independent agents.
    That, to the degree to which you say we are going to solve 
problems by making chief human resource officers or CIOs or 
chief procurement officers without having it all integrated in 
the department, it does not get to where you need to get, which 
is to integrate the management stuff. That is not a problem 
with the expectations, though, that you have established in the 
Congress on what needs to be done. That is a management 
structuring question.
    On another element that is complicated, we have had a 
proliferation of different reporting mechanisms. There is 
FFMIA, FMFIA, there are a couple different things that are out 
there where you have moved away from the private sector 
standard of reporting on material weaknesses, which I think is 
the right standard, and you get some things that are not 
complying with systems requirements or some things that are 
general control weaknesses.
    It is sometimes hard for an agency head to figure out what 
thing to fix next because you have got to report on four or 
five different grids of overlapping areas, if you can 
understand my point. Each statute provides a different 
mechanism or a slightly different prism through which to view 
these problem areas, and we----
    Senator Fitzgerald. Would you have recommendations, how we 
might be able to----
    Mr. Everson. We are looking at it, whether there needs to 
be some sort of rationalization that would say, look at 
material weaknesses. Material weaknesses, if identified by 
auditors and known by management, that will sweep in all the 
areas of concern. So there may be a need to do some 
rationalization.
    As to your bill, we have said that we support what has gone 
on in the House because we think that subjecting it to the 
audits is--and I guess the threshold, at least that I am 
familiar with, $25 million, we are all for that. We are not so 
sure--I am not sure--pardon me, I am not familiar with the 
specificities of the bill that you have got. We do not want to 
mandate that a small agency would have to be FFMIA compliant on 
systems, because from a government-wide point of view, the 
reason we need compliance is so that when you pull together 
those financial statements, they are all on a consistent basis. 
But if it is some $40 million agency, if they have got 
something that serves their purposes, that ought to be good 
enough as long as the numbers are good.
    Senator Fitzgerald. But you support the audit requirement?
    Mr. Everson. Yes, absolutely.
    Senator Fitzgerald. That it be audited and----
    Mr. Everson. Yes, sir, we do.
    Senator Fitzgerald. Now, on the audits that we have had, I 
guess this year, we have had no change in the number of 
departments that were receiving clean audits. I think 18 of 24 
CFO Act agencies were able to obtain an unqualified audit 
opinion for their 2001 financial statements. The 18 were 
different in that FEMA deteriorated and so did NASA. NASA got a 
disclaimer of opinion. But there was some improvement by the 
DOJ and the DOT, and I certainly would compliment them. They 
got clean opinions.
    The Education Department got a qualified opinion. I gather 
that the USDA got a disclaimer again, but there may have been 
some improvement in their prior practices. We still have the 
DOD getting a disclaimer. We still have other agencies getting 
terrible opinions, but we are giving them more money. There is 
not really any teeth in the Act. What is the downside if you go 
on year after year getting a disclaimer of opinion?
    Mr. Everson. I think that through our initiative to improve 
financial management, we are bringing greater focus on this and 
there will be accountability within the management teams of 
these departments to achieve those results. A lot of it has to 
do with the elimination of material weaknesses, which in many 
instances departments have pushed off. The easiest thing to do 
is to just sort of extend the due date for getting these things 
resolved.
    I would characterize looking behind the numbers as you just 
did in your analysis. I think we would characterize it as 
modest but important improvement that was made this year. The 
slippage in NASA, for instance, I think it largely related to 
you had a change in auditors there, so it was a first time 
through. NASA did not meet the documentation standards that the 
new auditor put forward. I am totally confident that both there 
and FEMA, with very aggressive remediation plans they have in 
place, that they are going to get back to where they were 
before.
    Senator Fitzgerald. What steps does OMB take to hammer on 
these agencies?
    Mr. Everson. We sit down with the agencies. We have an 
annual meeting, which is a very broad series of discussions 
well before the audit takes place. It involves the department, 
ourselves, GAO, Treasury, and the Inspector General of the 
department. The Inspector Generals, as you know, they are 
responsible for overseeing that audit in the departments and 
agencies. In many instances, it is contracted out, but in 
others, it is not. And then we follow up as needed, depending 
on whether it is a problem agency or not.
    I would characterize what has happened so far as real 
improvement. The Agriculture situation you mentioned, their 
problems now principally relate to the Forest Service, but they 
took two or three big entities and were able to get opinions on 
them at this point, at this time for the first year. You 
mentioned two big departments, Justice and Transportation. That 
is good news. That is progress.
    I am rather encouraged in this area. The one that is going 
to take the longest is going to be DOD, and that is going to 
take a while yet. But our standards for success here, if you go 
to the standards for success that we have articulated, and we 
developed these with GAO and Treasury as to financial 
management, they are broader than just the audits. They run to 
things like systems that provides information that supports 
day-to-day decision making. That is a high standard. You do not 
just get that with the audit.
    Senator Fitzgerald. Do you feel there should be any 
budgetary or appropriation consequence to an agency that really 
does go on year after year and you do not see the improvement 
in their----
    Mr. Everson. I think there should be a management, in terms 
of change of management. That should be the first step. We have 
looked carefully. We have authorities, as you would be aware, 
under Clinger-Cohen to stop or change systems. If people are 
not executing their systems correctly, we can step in there and 
will not hesitate to do so, as the facts may demand.
    But one of the things we are trying to do is get people to 
move quicker. I am a little struck, coming back into 
government, by the reluctance to get issues resolved. Part of 
the split we have here is when a system is starting to be 
deployed and it is coming out as--it is not working as well in, 
say, the first module, people just stop. They wait----
    Senator Fitzgerald. Now, you were a CFO, is that right, 
in----
    Mr. Everson. I had lead responsibility for all the finances 
at Sky Chefs, that is correct, and at Pechiney, I had the 
internal budgeting and reporting for management reporting----
    Senator Fitzgerald. Now, in the corporate world, it was no 
big deal. They have an unqualified opinion----
    Mr. Everson. That is exactly right. Well, it was a 
baseline, and that is what we are trying to get to here. You do 
not get--we are saying you need that and you need that, but it 
is a minimum. It is a floor, not a ceiling.
    Senator Fitzgerald. I know Secretary Evans told me that 
when he was visiting with his predecessor at the Department of 
Commerce, they were bragging that they had gotten an 
unqualified opinion, and he could not understand why that 
entitled you to bragging rights, because in the real world, 
that would just be what was ordinarily expected and, in fact, 
you would be in big trouble if you could not get an unqualified 
opinion.
    Mr. Everson. We could not agree with you more, and frankly, 
it is not that hard to get, if all you have to do is get it 5 
months after the end of the fiscal year.
    Senator Fitzgerald. Yes.
    Mr. Everson. You just keep running the numbers until you 
finally nail them down.
    Senator Fitzgerald. Mr. Everson, thank you so much for 
being generous with your time. Congratulations to you and your 
family. I look forward to working with you and we hope that--I 
am sure you will have a good relationship with this Committee.
    Mr. Everson. Yes, sir.
    Senator Fitzgerald. If we can be helpful in any way, please 
let us know.
    I am going to say that this completes this hearing. The 
record will remain open for the rest of today in case any 
Committee Members want to submit written questions--we hope not 
too many will do that to you, as I am sure you have other work 
to do--and any written statements that they want to provide. 
The record will be open until the close of business today. With 
that, the Committee stands in recess. Thank you.
    [Whereupon, at 3:30 p.m., the Committee was adjourned.]

                            A P P E N D I X

                              ----------                              

[GRAPHIC] [TIFF OMITTED] 81312.001

[GRAPHIC] [TIFF OMITTED] 81312.002

[GRAPHIC] [TIFF OMITTED] 81312.003

[GRAPHIC] [TIFF OMITTED] 81312.004

[GRAPHIC] [TIFF OMITTED] 81312.005

[GRAPHIC] [TIFF OMITTED] 81312.006

[GRAPHIC] [TIFF OMITTED] 81312.007

[GRAPHIC] [TIFF OMITTED] 81312.008

[GRAPHIC] [TIFF OMITTED] 81312.009

[GRAPHIC] [TIFF OMITTED] 81312.010

[GRAPHIC] [TIFF OMITTED] 81312.011

[GRAPHIC] [TIFF OMITTED] 81312.012

[GRAPHIC] [TIFF OMITTED] 81312.013

[GRAPHIC] [TIFF OMITTED] 81312.014

[GRAPHIC] [TIFF OMITTED] 81312.015

[GRAPHIC] [TIFF OMITTED] 81312.016

[GRAPHIC] [TIFF OMITTED] 81312.017

[GRAPHIC] [TIFF OMITTED] 81312.018

[GRAPHIC] [TIFF OMITTED] 81312.019

[GRAPHIC] [TIFF OMITTED] 81312.020

[GRAPHIC] [TIFF OMITTED] 81312.021

[GRAPHIC] [TIFF OMITTED] 81312.022

[GRAPHIC] [TIFF OMITTED] 81312.023

[GRAPHIC] [TIFF OMITTED] 81312.024

[GRAPHIC] [TIFF OMITTED] 81312.025

[GRAPHIC] [TIFF OMITTED] 81312.026

[GRAPHIC] [TIFF OMITTED] 81312.027

[GRAPHIC] [TIFF OMITTED] 81312.028

[GRAPHIC] [TIFF OMITTED] 81312.029

[GRAPHIC] [TIFF OMITTED] 81312.030

[GRAPHIC] [TIFF OMITTED] 81312.031

[GRAPHIC] [TIFF OMITTED] 81312.032

[GRAPHIC] [TIFF OMITTED] 81312.033

[GRAPHIC] [TIFF OMITTED] 81312.034

[GRAPHIC] [TIFF OMITTED] 81312.035

[GRAPHIC] [TIFF OMITTED] 81312.036

[GRAPHIC] [TIFF OMITTED] 81312.037

[GRAPHIC] [TIFF OMITTED] 81312.038

[GRAPHIC] [TIFF OMITTED] 81312.039

[GRAPHIC] [TIFF OMITTED] 81312.040

[GRAPHIC] [TIFF OMITTED] 81312.041

[GRAPHIC] [TIFF OMITTED] 81312.042

[GRAPHIC] [TIFF OMITTED] 81312.043

[GRAPHIC] [TIFF OMITTED] 81312.044

[GRAPHIC] [TIFF OMITTED] 81312.045

[GRAPHIC] [TIFF OMITTED] 81312.046

[GRAPHIC] [TIFF OMITTED] 81312.047

[GRAPHIC] [TIFF OMITTED] 81312.048

[GRAPHIC] [TIFF OMITTED] 81312.049

[GRAPHIC] [TIFF OMITTED] 81312.050

[GRAPHIC] [TIFF OMITTED] 81312.051

[GRAPHIC] [TIFF OMITTED] 81312.052

[GRAPHIC] [TIFF OMITTED] 81312.053

[GRAPHIC] [TIFF OMITTED] 81312.054

[GRAPHIC] [TIFF OMITTED] 81312.055

[GRAPHIC] [TIFF OMITTED] 81312.056

[GRAPHIC] [TIFF OMITTED] 81312.057

[GRAPHIC] [TIFF OMITTED] 81312.058

                                   - 
