[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE FEDERAL GOVERNMENT FOR
FISCAL YEAR 2002
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
AND FINANCIAL MANAGEMENT
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
APRIL 8, 2003
__________
Serial No. 108-34
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
88-503 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Randy Kaplan, Senior Counsel/Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
Subcommittee on Government Efficiency and Financial Management
TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma MAJOR R. OWENS, New York
CANDICE S. MILLER, Michigan CAROLYN B. MALONEY, New York
MICHAEL R. TURNER, Ohio
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Mike Hettinger, Staff Director
Larry Brady, Professional Staff Member
Amy Laudeman, Clerk
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on April 8, 2003.................................... 1
Statement of:
Walker, David M., Comptroller General of the United States,
U.S. General Accounting Office; Linda M. Springer,
Controller, Office of Federal Financial Management, Office
of Management and Budget; and Donald V. Hammond, Fiscal
Assistant Secretary, Department of the Treasury............ 6
Letters, statements, etc., submitted for the record by:
Hammond, Donald V., Fiscal Assistant Secretary, Department of
the Treasury, prepared statement of........................ 69
Platts, Hon. Todd Russell, a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 3
Springer, Linda M., Controller, Office of Federal Financial
Management, Office of Management and Budget, prepared
statement of............................................... 61
Walker, David M., Comptroller General of the United States,
U.S. General Accounting Office, prepared statement of...... 10
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE FEDERAL GOVERNMENT FOR
FISCAL YEAR 2002
----------
TUESDAY, APRIL 8, 2003
House of Representatives,
Subcommittee on Government Efficiency and Financial
Management,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:38 a.m., in
room 2203, Rayburn House Office Building, Hon. Todd Russell
Platts (chairman of the subcommittee) presiding.
Present: Representatives Platts, Blackburn and Towns.
Staff present: Mike Hettinger, staff director; Dan Daly,
counsel; Larry Brady and Kara Galles, professional staff
members; Amy Laudeman, clerk; Mark Stephenson, minority
professional staff member; and Christopher Davis, minority
staff assistant.
Mr. Platts. The Subcommittee on Government Efficiency and
Financial Management will come to order.
I appreciate everyone attending today and hope we enjoy the
intimate setting we are in today as it is a little smaller room
than normal.
Countless taxpayer dollars continue to be lost each year to
fraud, waste and financial mismanagement in hundreds of Federal
programs. In the subcommittee's last two hearings on the
subject of ``Governing with Accountability,'' we examined the
President's Management Agenda, the Government Performance and
Results Act [GPRA] and the Program Assessment Rating Tool
[PART]. Each of those tools assists in improving financial
management, but today we will look at the single most
comprehensive statement of the status of the financial
management of the Federal Government, the 2002 Financial Report
of the U.S. Government.
The Financial Report and the accompanying audit of the
report performed by the General Accounting Office were released
on time as usual, on March 31, 2003. For the 6th straight year,
GAO was unable to render an opinion on the Federal Government's
financial statements. GAO reported significant material
deficiencies that affected both the financial statements and
the management of government operations.
For fiscal year 2002, an unprecedented 21 out of the 24
Chief Financial Officer Act agencies received unqualified or
``clean'' audit opinions on their individual financial
statements. This is an improvement over 18 out of 24 agencies
from fiscal year 2001. Only the Department of Defense, the
Small Business Administration, and the U.S. Agency for
International Development failed to receive clean opinions this
year. GAO points out in their audit report of the consolidated
statement that the financial management problems at DOD are
``pervasive, complex, long-standing, and deeply rooted in
virtually all business operations throughout the department.''
President Bush's administration has made improving financial
performance a top priority, and I certainly commend the
administration for their efforts. Secretary of Defense Donald
Rumsfeld is working hard to improve DOD's financial management.
With each fiscal year, DOD gets closer to obtaining an audit
opinion. However, until DOD solves their financial problems and
receives a clean opinion, the entire Federal Government's
financial statement will continue to be unreliable.
Congress has placed a great deal of emphasis on the
financial accountability of publicly traded companies and their
responsibility to provide accurate information to investors.
Congress and the Federal Government have an equal, if not
greater responsibility, to be accountable to our investors, the
American taxpayer.
Our witnesses today will shed light on the results of the
consolidated financial statement and discuss areas that need
improvement as well as financial management successes. Today,
we are honored to have the Honorable David M. Walker who is the
Comptroller General of the United States, who has just
testified in the Senate; the Honorable Linda Springer, who is
the Controller from the Office of Federal Financial Management
at the Office of Management and Budget. I understand this is
your first official testimony in your new position and we
welcome you here today. I am going to use the chairman's
privilege also as a proud son to recognize we have Ms.
Springer's mom with us today to see her in action. We are
delighted to have mom with us as well. We also have Donald V.
Hammond, Fiscal Assistant Secretary, Department of Treasury. I
look forward to your testimonies.
[The prepared statement of Hon. Todd Russell Platts
follows:]
[GRAPHIC] [TIFF OMITTED] T8503.001
[GRAPHIC] [TIFF OMITTED] T8503.002
Mr. Platts. I am pleased to yield to the gentleman from New
York, Mr. Towns, for the purpose of making an opening
statement.
Mr. Towns. Thank you very much, Mr. Chairman.
Let me begin by saying this is a very important hearing.
There is certainly a significant amount of good news in the
General Accounting Office's audit of the Federal Government's
finances. This year, the GAO was able to give 21 of the 24
agencies a clean audit opinion, up from 18 last year. We are
moving in the right direction. However, to ensure that the
entire Federal Government receives a clean audit, we must
continue to pressure, cajole, persuade and encourage the
executive branch agencies through hearings such as these.
Unfortunately, the prospect of all remaining agencies
getting complete audits appear dim. The Comptroller General has
described the financial management problem at DOD as pervasive,
complex, longstanding and deeply rooted in virtually all
business operations throughout the department. While it is
probably difficult to divert additional resources at DOD to
financial management systems during a time of war, we need to
remember that correcting such management problems will make the
department more effective in the long run and that we should
not forget.
The Comptroller also noted weaknesses in financial systems
throughout the executive branch. He specifically pointed out
the Federal Government's inability to account for billions of
dollars in transactions across government agencies. To overcome
such problems, it seems apparent that we must replace all
current stovepipe systems with the interoperable financial
management solutions. We must also invest in the human capital
in these agencies to understand and operate these systems. If
the operation of financial systems of each agency is farmed out
to different private companies, we will not be able to develop
the day to day financial information system which we are
seeking.
I look forward to hearing from our witnesses about the
progress that has been made and what we need to do to overcome
the remaining barriers to a consolidated financial statement of
the Federal Government. We have come a long way but we still
have a great distance to go.
On that note, Mr. Chairman, I yield.
Mr. Platts. Thank you, Mr. Towns.
I would now ask each witness and anyone who will be
assisting you in the testimony you will provide to stand, raise
your right hand and take the oath together. We will then
proceed with the testimony.
[Witnesses sworn.]
Mr. Platts. Thank you. We will proceed now to testimony.
Mr. Walker, we will begin with you. We appreciate your racing
over from the Senate. Hopefully you have had a chance to catch
your breath before starting. We will then proceed to Ms.
Springer and Mr. Hammond.
We appreciate the substantive detailed testimony in writing
you all provided to the committee which allowed us a chance to
review it prior to today's hearing and please summarize that as
best you can. Because of the detail and importance of the
information you are covering today, we would extend to each of
you 10 minutes for your opening statements. Then we will go to
questions.
Mr. Walker.
STATEMENTS OF DAVID M. WALKER, COMPTROLLER GENERAL OF THE
UNITED STATES, U.S. GENERAL ACCOUNTING OFFICE; LINDA M.
SPRINGER, CONTROLLER, OFFICE OF FEDERAL FINANCIAL MANAGEMENT,
OFFICE OF MANAGEMENT AND BUDGET; AND DONALD V. HAMMOND, FISCAL
ASSISTANT SECRETARY, DEPARTMENT OF THE TREASURY
Mr. Walker. Thank you, Mr. Chairman and members of the
subcommittee. I appreciate your understanding. I literally ran
from a joint Senate/House hearing. I am glad I am in good shape
because otherwise I may not have made it.
I appreciate also being able to put the entire statement in
the record and being able to summarize the key portions.
I am pleased to be here today to discuss our report on the
U.S. Government's consolidated financial statements for fiscal
years 2002 and 2001. As in the 5 previous fiscal years, certain
material weaknesses in internal control and in accounting and
reporting prevented us from being able to provide the Congress
and American citizens an opinion as to whether the consolidated
financial statements are fairly stated in conformity with U.S.
generally accepted accounting principles.
Across government, financial management improvement
initiatives are under way that, if effectively implemented,
have the potential to appreciably improve the quality of the
Federal Government's financial management and reporting. You,
Mr. Chairman, and members of the subcommittee know I have a 15
year term. I am now 4\1/2\ years into my term and I hope and
expect that by the end of my term, there will be a clean
opinion on the Government's financial statements. I underline I
hope and expect but there is a lot of work that needs to be
done to get us there.
For fiscal year 2002, 21 of the 24 CFO Act agencies were
able to attain unqualified audit opinions on their financial
statements, up from 6 agencies for fiscal year 1996. Also, 4
CFO Act agencies showed improvement by receiving unqualified
opinions from their auditors this year.
Although obtaining unqualified audit opinions is important,
according to the President's Management Agenda, ``most Federal
agencies that obtain clean audits only do so after making
extraordinary, labor-intensive assaults on financial records.''
I have referred to this in past years as ``heroic efforts'' to
basically be able to recreate the books at the end of the year
several months after the end of the year. I question the
prudence or appropriateness of doing that, which is why, as I
will note in a few minutes, the JFMIP Principles have agreed to
a number of steps that will help to assure this does not occur
in the future and that these opinions are truly earned and not
created due to significant expenditures or human resource
commitments that are questionable.
Before discussing the results of the audit of the U.S.
Government's consolidated financial statements in more detail,
I would like to discuss why sound financial management is
especially necessary for the future, as well as for today, to
meet tomorrow's challenges. I have on the chart the latest 50
year, long-range budget simulation results from GAO's analysis,
which we do twice a year and have been doing for about 10
years.
It shows that based upon current tax revenues as a
percentage of the economy, based upon projected spending by the
Social Security and Medicare trustees, their best estimate, and
assuming that discretionary spending grows at the rate of the
economy, if you assume all that is true, this is what the
future looks like on autopilot. Starting in less than 10 years,
the current deficits start escalating very rapidly due
primarily to known demographic trends and rising health care
costs to levels that we have never seen before.
As a result, it is critically important that we start
reviewing all existing Federal programs and policies--spending,
tax incentives, regulatory, and otherwise--to basically answer
three fundamental questions. What should the Federal Government
be doing in the 21st century, how should the Federal Government
do business in the 21st century and, in some cases, who should
do the Government's business in the 21st century?
The current base is unsustainable. We have to make tough
choices and in order to make those tough choices, it will be
important to have timely, accurate, and useful financial and
cost information to be able to make informed choices that are
going to be difficult but nonetheless necessary.
The next chart shows a range of existing commitments,
liabilities, and contingencies that we already have. In some
cases, these amounts are noted as liabilities in the
consolidated financial statements of the U.S. Government; in
some cases they are not and may not ever be but they are huge.
We have publicly held debt which is a liability of $3.54
trillion. We also have a significant amount of Government-held
debt, debt held in trust funds like Social Security and
Medicare which are backed by an unconditional promise to pay
from the Federal Government, $2.67 trillion but it is where the
right hand owes the left hand, so poof, it is gone on the
consolidated financial statements of the U.S. Government. It is
not currently shown as a liability.
Furthermore, we have significant differences between
projected revenues and projected expenditures under a number of
programs, such as Social Security and Medicare, where the
discounted present value of that difference amounts to almost
$10 trillion just in Social Security and Medicare Part A alone.
In other words, you would have to have $10 trillion invested at
Treasury rates today just to be able to fund the gap between
promised benefits and estimated revenues. These gaps are huge.
And by the way, these gaps only cover 75 years and are growing
every year. So it is important that we recognize that we are on
an unsustainable path, that tough choices will have to be made,
not only with regard to entitlement programs but also with
regard to discretionary spending and, in some cases, with
regard to certain tax incentives. Frankly some tax incentives
may not be doing what we would like them to do as it relates to
policy, such as, for example, health care tax incentives, on
which I will answer questions on if you like. Having sound
financial management systems is important to understanding
these issues and making tough choices.
As I mentioned earlier, as has been the case for the past 5
years, the Federal Government continues to have a significant
number of material weaknesses related to financial statements,
the fundamental recordkeeping and financial reporting problems
and incomplete documentation. Several of these material
weaknesses resulted in conditions that prevented us from being
able to express an opinion.
The three major impediments to GAO being able to express an
opinion on the consolidated financial statements are: (1) the
serious financial management problems at DOD, although they are
making progress; (2) the Federal Government's continued
inability to fully account for and reconcile billions of
dollars of transactions between Federal Government departments
and agencies; and (3) the Federal Government's inability to
properly prepare consolidated financial statements.
Over the past year, the JFMIP Principals, which I had the
privilege to chair for a 2-year period ending last September
30, began an effort to accelerate progress in financial reform
that involved a personal commitment of each of the principals
to provide leadership in this critical area. Since August 2001,
the JFMIP Principals have established an excellent working
relationship and basis for action, a new sense of urgency in
this area through which significant and meaningful progress has
been achieved and continues to be achieved.
In fiscal year 2002, we had a series of regular
deliberative meetings and took a number of steps outlined on
page 20 of my testimony. The continued personal involvement of
the principals is critical to full and successful
implementation of financial management reforms. I would add it
is also critical that this subcommittee and others in Congress
continue to hold oversight hearings in order for us to continue
to make progress. This subcommittee has been fantastic over the
last several years in making sure everybody is focused on
continually making progress.
Building on the success that has been achieved in obtaining
unqualified opinions, Federal agency management must continue
to work to fully resolve the pervasive and generally
longstanding material weaknesses we have reported. Irrespective
of the unqualified opinions in their financial statements, many
Federal agencies do not have sound controls along with timely,
accurate, and useful financial information and sound controls
with which to make informed decisions and ensure accountability
on a day-to-day basis.
Two audit matters have come to the fore in the last year
that are key to protecting the public interest. One matter
involves auditor responsibilities for reporting internal
control and the other concerns auditor independence. GAO has
led by example in these two areas, not only within the
Government but also within the accountability profession at
large. We are committed to continue to do so.
In closing, Mr. Chairman and members, our report on the
U.S. Government's consolidated financial statements for fiscal
years 2001 and 2002 highlights the need to continue addressing
the Government's serious financial management weaknesses. The
requirement for timely, accurate, and useful financial and
performance information is greater than ever as the Congress
and the administration prepare to meet our growing fiscal
challenges.
Finally, I want to reiterate the value of sustained
congressional interest in these issues as demonstrated by this
hearing and by the sustained commitment of this subcommittee.
Thank you, Mr. Chairman. I would be happy to answer
questions after my colleagues have their chance to read their
testimony.
[The prepared statement of Mr. Walker follows:]
[GRAPHIC] [TIFF OMITTED] T8503.003
[GRAPHIC] [TIFF OMITTED] T8503.004
[GRAPHIC] [TIFF OMITTED] T8503.005
[GRAPHIC] [TIFF OMITTED] T8503.006
[GRAPHIC] [TIFF OMITTED] T8503.007
[GRAPHIC] [TIFF OMITTED] T8503.008
[GRAPHIC] [TIFF OMITTED] T8503.009
[GRAPHIC] [TIFF OMITTED] T8503.010
[GRAPHIC] [TIFF OMITTED] T8503.011
[GRAPHIC] [TIFF OMITTED] T8503.012
[GRAPHIC] [TIFF OMITTED] T8503.013
[GRAPHIC] [TIFF OMITTED] T8503.014
[GRAPHIC] [TIFF OMITTED] T8503.015
[GRAPHIC] [TIFF OMITTED] T8503.016
[GRAPHIC] [TIFF OMITTED] T8503.017
[GRAPHIC] [TIFF OMITTED] T8503.018
[GRAPHIC] [TIFF OMITTED] T8503.019
[GRAPHIC] [TIFF OMITTED] T8503.020
[GRAPHIC] [TIFF OMITTED] T8503.021
[GRAPHIC] [TIFF OMITTED] T8503.022
[GRAPHIC] [TIFF OMITTED] T8503.023
[GRAPHIC] [TIFF OMITTED] T8503.024
[GRAPHIC] [TIFF OMITTED] T8503.025
[GRAPHIC] [TIFF OMITTED] T8503.026
[GRAPHIC] [TIFF OMITTED] T8503.027
[GRAPHIC] [TIFF OMITTED] T8503.028
[GRAPHIC] [TIFF OMITTED] T8503.029
[GRAPHIC] [TIFF OMITTED] T8503.030
[GRAPHIC] [TIFF OMITTED] T8503.031
[GRAPHIC] [TIFF OMITTED] T8503.032
[GRAPHIC] [TIFF OMITTED] T8503.033
[GRAPHIC] [TIFF OMITTED] T8503.034
[GRAPHIC] [TIFF OMITTED] T8503.035
[GRAPHIC] [TIFF OMITTED] T8503.036
[GRAPHIC] [TIFF OMITTED] T8503.037
[GRAPHIC] [TIFF OMITTED] T8503.038
[GRAPHIC] [TIFF OMITTED] T8503.039
[GRAPHIC] [TIFF OMITTED] T8503.040
[GRAPHIC] [TIFF OMITTED] T8503.041
[GRAPHIC] [TIFF OMITTED] T8503.042
[GRAPHIC] [TIFF OMITTED] T8503.043
[GRAPHIC] [TIFF OMITTED] T8503.044
[GRAPHIC] [TIFF OMITTED] T8503.045
[GRAPHIC] [TIFF OMITTED] T8503.046
[GRAPHIC] [TIFF OMITTED] T8503.047
[GRAPHIC] [TIFF OMITTED] T8503.048
[GRAPHIC] [TIFF OMITTED] T8503.049
[GRAPHIC] [TIFF OMITTED] T8503.050
Mr. Platts. Thank you, Mr. Walker for your testimony and
your very frank assessment of where we are from a management
sense and why we need to do a lot better as we move to the
years to come and the challenges we are going to face. Also,
your comments regarding former Chairman Steve Horn and his
efforts are very appropriate. I am honored to succeed Chairman
Horn in this position.
Ms. Springer.
Ms. Springer. Thank you, Mr. Chairman.
I am honored to testify for the first time as the
Controller, Office of Management and Budget before this
subcommittee. I feel today as I have many times before
reporting to the audit committee of corporate boards of
directors. As I did in those meetings, I am here to provide you
with a response by management to the issues presented in the
auditor's report on the Federal Government's consolidated
financial statements for the fiscal years ended September 30,
2002 and 2001.
The General Accounting Office has issued a disclaimer of
opinion on the consolidated financial statements for these
periods as Mr. Walker has noted. In so doing, material
weaknesses were noted in the following areas: (1) the area of
assets, property, plant, and equipment and inventories and
related property; (2) the area of liabilities, and commitments
and contingencies; (3) cost of government operations and
disbursement activity; (4) accounting for and reconciliation of
intragovernmental activity and balances; and (5) preparation of
consolidated financial statements. The primary source of
weakness in the first three areas is the Department of Defense.
Items four and five are process impediments that have
governmentwide impact.
GAO also identified the following material weaknesses in
internal control throughout the executive branch: (1) loans
receivable and loan guarantee liabilities; (2) improper
payments; (3) information security; and (4) tax collection
activities. OMB agrees with GAO that these are areas of
weakness. We are not satisfied with this result. In fact, we
believe that even unqualified audit opinions and the absence of
material weaknesses do not necessarily indicate the presence of
first class financial management. First class financial
management requires integration of the financial impact of
agency decisions and activities in operational execution and
senior management decisionmaking. These things would be
accompanied by accountability standard setting, performance
tracking and other analyses. These are among the
characteristics we should seek in government every bit as much
as they are expected in the private sector. These are the
objectives of the Improved Financial Performance Initiative
which the President's Management Agenda is focused on.
The administration is making a concerted effort to address
the weaknesses identified by GAO and agency Inspectors General
and independent auditors. For example, we are working to
identify the root causes and current status of, as well as
action plans to remedy, the deficiencies at the Department of
Defense. Some of these actions will be near term. Others will
take longer and will be dependent on the new financial
management systems implementation. OMB has reviewed with DOD
its assessment and plans for each area identified by GAO. Our
most recent update was just last week when I met with not only
Comptroller Zakheim but also with the Inspector General. These
meetings are typical of planning sessions we have with every
CFO Act agency's CFO and their IG. These meetings will be an
ongoing series and at those we will be reviewing plans to
review how to achieve clean audits and also remove other
material weaknesses, and meeting accelerated reporting
deadlines. As you know, our reporting deadline in 2004 has been
accelerated to November 15 with the governmentwide report
coming out 1 month later in December.
In our judgment, DOD is identifying its problems and is
engaged in both short and long term remediation activities.
These activities would substantially address the first three
material weaknesses I noted previously. OMB will continue to
monitor this progress with both the department and its IG.
Regarding intragovernmental transactions, we have new rules
in place that govern the manner in which agencies record
intragovernmental transactions. Simply put, these rules once
and for all standardize the governmentwide processing and
recording of intragovernmental activity. In conjunction with
the automated process by which we will compile the
governmentwide financial statements in the near future, will go
a long way toward resolving the other material weaknesses that
contribute to the disclaimer of opinion by the auditors.
As you have heard at the recent testimony on the
President's Management Agenda, notable progress was made in
fiscal year 2002 in agency financial reporting. For 2002, a
record number of the government's major departments and
agencies received unqualified opinions on their annual audited
financial statements, 21 of 24 up from 18 in fiscal year 2001.
I appreciate Mr. Walker going back even farther than that to
six to show even further progress over the years.
Two agencies, Treasury and the Social Security
Administration, met the new governmentwide standard for
timeliness of reliable financial information 2 years early, the
November 15 deadline. All agencies for 2003 have targeted
earlier dates required to make a step forward, about half of
them looking to meet the November date in 2003.
In addition to DOD, only the Small Business Administration
and the U.S. Agency for International Development are keeping
us from our goal of unqualified audit opinions on the financial
statements of the major departments and agencies. I met with
the DOD Comptroller just last week to assess the department's
status. I am also meeting with officials from USAID and SBA in
the coming weeks to begin regular updates on their progress in
getting clean audit opinions. I want to note for the
subcommittee that USAID received an unqualified opinion for
four of its five financial statements and a qualified opinion
on the fifth statement. The fifth statement is the statement of
net costs and there are still some remaining material
weaknesses with which we concur with GAO. There are plans in
place to remediate the weaknesses on that statement. I should
mention this is up from three statements that were unqualified
and two disclaimed in the previous year.
Part of the President's Improved Financial Performance
Initiative is our effort to reduce erroneous payments. While
GAO in the past had tallied just $20 billion in erroneous
payments, OMB reported to the Congress last year that our
effort, which requires erroneous payment estimates for major
benefit programs has raised that total estimate to $35 billion
annually. We are expanding our efforts in this area with the
implementation of the Improper Payments Information Act of
2002, which originated in this subcommittee. This act requires
an estimate of the extent of erroneous payments from all
Federal programs. Program-wide erroneous payment estimates can
only help stem the loss to the Federal Government in waste,
fraud, and abuse, too much of which is taking place without
accounting.
Our erroneous payment efforts are not just about estimates.
The President's fiscal year 2004 budget includes a $100 million
increase to clarify Earned Income Tax Credit rules and to help
ensure only eligible taxpayers receive payments. This
investment could help us reduce the more than $9 billion in
erroneous EITC payments we make annually. The administration
has also proposed a number of tools to give agencies the
ability to further save us billions of dollars over time.
Mr. Chairman, I would be derelict not to mention one of the
great challenges before us, the migration of the component
agencies to the new Department of Homeland Security which will
pose a major challenge from a financial management perspective.
Disparate systems at different stages of implementation are
just one of the complicating factors that will be dealt with by
the new department. We plan and are working closely with Under
Secretary Hale and her staff in meeting these challenges.
Our auditor, GAO, has highlighted many of our weaknesses,
but I don't want to pass up the opportunity to highlight some
of the favorable assertions made in GAO's report about the
efforts the Bush administration is making to improve financial
management throughout the government. ``Across government,
financial management improvement initiatives are under way
that, if effectively implemented, have the potential to
appreciably improve the quality of the Federal Government's
financial management and reporting. A number of Federal
agencies have started to make progress in their efforts to
modernize their financial management systems and improve
financial management performance as called for in the
President's Management Agenda. The President's Management
Agenda includes improved financial performance as one of the
top five governmentwide management goals. This is a step in the
right direction to improving management and performance.
The attention we are paying to improving financial
performance and the progress we have made thus far move us down
the playing field, but still short of the goal line. It is
important that we not lose sight of these achievements,
however. Even though no score appears on the board until we
have crossed the line, we have moved inside the red zone and
the goal is in sight. This administration is committed, with
the help of this subcommittee, to achieving the first class
financial management of which we and the American people can be
proud.
Thank you, Mr. Chairman.
[The prepared statement of Ms. Springer follows:]
[GRAPHIC] [TIFF OMITTED] T8503.051
[GRAPHIC] [TIFF OMITTED] T8503.052
[GRAPHIC] [TIFF OMITTED] T8503.053
[GRAPHIC] [TIFF OMITTED] T8503.054
[GRAPHIC] [TIFF OMITTED] T8503.055
Mr. Platts. Thank you, Ms. Springer, for your substantive
statement. We commend you for having already met with the DOD
Comptroller and having SBA and USAID meetings scheduled to get
your arms around the challenges in those agencies. We look
forward to working with you.
Ms. Springer. Thank you.
Mr. Platts. Mr. Hammond.
Mr. Hammond. Thank you, Mr. Chairman and members of the
subcommittee.
Thank you for the opportunity to discuss the Financial
Report of the U.S. Government. I would ask that the Chairman
include the full text of my statement in the record but on
behalf of the Secretary, I would like to thank you for focusing
on and promoting the improvement of Federal Government
financial accountability and reporting. We appreciate the
subcommittee's continued leadership in this area.
Before I continue, I wish to congratulate you, Chairman
Platts, on your appointment to chair this important panel. We
had the pleasure of working very closely with Chairman Horn in
previous Congresses and look forward to the same effective
working relationship with your subcommittee.
The financial report is prepared pursuant to the Government
Management Reform Act of 1994 to provide the President, the
Congress and the American people with reliable financial
information on an accrual basis about the Federal Government's
operations. The Federal Government does not have a single
bottom line that reflects its financial status. Therefore the
information included in the financial report provides a
comprehensive view of the Federal Government's finances that is
not available elsewhere. The report covers all accounts from
the executive branch but since the legislative and judicial
branches are not required to prepare financial statements,
recording information included from those branches is limited.
The Department of the Treasury is committed to producing
accurate and useful governmentwide financial statements and
continues to devote considerable resources at both the
departmental level and at the Financial Management Service to
making the government's finances as clear and transparent as
possible. Everyone should be able to understand the cost of
government operations and the implications of its commitments.
The financial report is important in this respect because it
highlights the difference between budget and accrual-based
reporting. Accrual results offer a longer term view that
extends the horizon for making budget decisions. This year, for
the first time, we have grouped together all of the significant
liabilities, stewardship responsibilities and other commitments
in the front of the report, specifically on page 6. They total
an estimated $31.1 trillion, almost 10 times the size of the
debt held by the public. These amounts reported separately for
several years become more transparent we believe when they are
presented together for analysis.
The importance of this report is also highlighted in this
year's results. For fiscal 2002, the Financial Report indicates
an accrual-based net operating cost for the Federal Government
of $365 billion. This compares to the more familiar $158
billion budget deficit reported last fall. The principal
difference between these two figures is the accrual recognition
of an additional over $157 billion of veterans benefit costs
and liabilities. Without accrual-based reporting, these
differences would be lost and would not be visible to the
American taxpayer.
For Treasury to achieve its goals for improved financial
reporting, continued strong support from OMB and all the Chief
Financial Officers Act agencies will be critical. We have
charted a course for continued improvements and we expect to
implement them fully in the fiscal 2004 statements.
In my remaining time, Mr. Chairman, I will discuss our
progress over the last year and outline some of the planned
improvements.
As noted, this is the 6th year we have prepared
consolidated, governmentwide financial reports. Each year there
have been significant improvements in the agency data. This
year, 21 of the 24 CFO Act agencies received clean audit
opinions, up from 6 agencies only 7 years ago. Also, three
major agencies, the Social Security Administration, Treasury
Department and yes, the U.S. Postal Service, completed their
financial statement audits by November 15, 3\1/2\ months
earlier than statutorily required for the first two and the
Postal Service has no due date on their financial statements
that I am aware of.
Data for the Financial Report primarily comes from the 24
CFO Act agencies, 9 other significant entities such as the
Postal Service and 180 smaller entities. Preparing the report,
as you can imagine, is a complex task based on a foundation of
over 2,000 individual reporting components' standardized
Standard General Ledger reporting, highlighting the importance
of good data quality. In other words, the data has to be right
the first time coming from the agency level. There is really
very little opportunity to massage it at the end.
In auditing the Financial Report, GAO was unable to express
an opinion on the reliability of this year's financial
statements, primarily due to three areas: data and financial
system problems at the Department of Defense, preparation
issues relating to intragovernmental balances both in agency
data quality and consolidation eliminations, and consistency
with agency financial reporting. However, GAO did acknowledge
in its audit report that financial management improvement
initiatives are being undertaken that will improve the quality
of financial management and reporting in the Federal
Government. These include DOD improving its financial
management and related systems, Treasury and OMB taking a
number of steps to address the intragovernmental issues and
development of a new preparation process for the financial
report itself. The above indicates that the current state of
Federal financial reporting needs improvement.
I am confident that a creative and committed effort by top
management at Treasury, program agencies, OMB, the CFO Council,
and GAO can result in breakthrough changes. Later this year,
for example, Treasury will provide agencies with a detailed
account statement monthly to help them reconcile their fund
balance with Treasury. The production of this account statement
is the next step in a Web-based, governmentwide accounting
modernization project that, when completed, will provide
agencies with better tools for both reporting their financial
information and monitoring its status. This new approach will
enable agencies to eliminate duplicative reporting and costly,
manually intensive reconciliations.
After extensive consultation with our auditors and
financial managers throughout the government, it was clear that
broad and sweeping changes in the compilation process of the
Financial Report were necessary to address the ``process''
related material weaknesses. Treasury, in coordination with
OMB, is adopting a new process to collect agency financial
information that will be used to prepare the fiscal 2004
Financial Report. Agencies will follow an automated process to
convert their audited financial statements to a standardized
statement format which will ensure the data in the report is
consistent with the data in the agency's audited financial
statements. These changes, along with modifications in the
manner in which we perform eliminations and consolidate the
data, should eliminate the material compilation weaknesses
identified by GAO.
We are also in the process of accelerating agency budget
reporting. To facilitate the accelerated deadlines for
submission of annual agency-level financial statements and the
governmentwide financial statements, Treasury's Financial
Management Service has accelerated the monthly agency budget
reporting timeframes. The accelerated timeframes will support
agencies accelerated preparation of their year-end audited
financial statements and provide for more timely information to
improve decisionmaking.
Treasury is the first to acknowledge that reporting
financial results 6 months after the close of a fiscal year is
simply not good enough. Accordingly, the scheduled date for
issuing the fiscal 2004 financial report is December 15, 2004.
Meeting this timeframe is dependent on agencies meeting their
accelerated reporting dates. I currently chair the CFO council
committee charged with assisting agencies in meeting the
accelerated issuance dates for fiscal 2004 and believe these
dates are in fact achievable. This is a significant step
forward since we will finally have actual data about the prior
year for use in the budget deliberations for the coming year
and managers throughout government will have accurate data for
day-to-day decisionmaking at all levels.
A core responsibility of the Treasury Department is to
accurately and effectively report on the Nation's finances.
Long ago we accomplished transparency of budget results. Our
challenge is to bring that same transparency to the full extent
of our financial operations. We have made great progress in
that quest, and the Federal financial community working
together will soon realize that vision.
Thank you again for the opportunity to testify and I would
be happy to answer any questions the committee may have.
[The prepared statement of Mr. Hammond follows:]
[GRAPHIC] [TIFF OMITTED] T8503.056
[GRAPHIC] [TIFF OMITTED] T8503.057
[GRAPHIC] [TIFF OMITTED] T8503.058
[GRAPHIC] [TIFF OMITTED] T8503.059
[GRAPHIC] [TIFF OMITTED] T8503.060
[GRAPHIC] [TIFF OMITTED] T8503.061
[GRAPHIC] [TIFF OMITTED] T8503.062
[GRAPHIC] [TIFF OMITTED] T8503.063
Mr. Platts. Thank you, Mr. Hammond. I appreciate your
testimony, as with each of the witnesses and the in-depth
presentations and your shared efforts and interest in truly
getting us to where the American taxpayer knows how their
dollars are being spent.
We are going to proceed to questions now and for the most
part we will follow in the first round 5 minutes each and then
maybe a second time around when we are not as strict on the 5-
minute rule.
For Mr. Walker and Ms. Springer, your testimony certainly
makes the picture clear. We have made some progress but have a
long way to go, and even some of the agencies that have gotten
that clean audit, it was through Herculean labor intensive
efforts after the fact not internal throughout the year. That
is what we really need to get to so any day of the year we can
say where are you and we know it as opposed to much afterwards.
I don't expect you to be able to do this today but if you
could followup with us and give us your summation of each
agency and where they stand in their efforts to modernize and
be more accountable. That would help guide this committee where
we may need to bring some additional attention from an
oversight perspective.
Could you today give us your best opinion on what agency is
the closest to having a financial reporting system in place
that nears what a large private corporation would have in
accounting for their records?
Mr. Walker. I would note for the record my understanding is
the only agency that is green, based upon the President's
Management Agenda in financial management is the National
Science Foundation. I would imagine that Controller Springer
can tell us whether there is anyone else getting close in OMB's
view, but I would argue that unless you are green, then you are
not even a candidate for being able to give an affirmative to
your question.
Ms. Springer. Yes, that is exactly right. The two that are
getting close, there are several, the two closest in addition
to NSF would be the Social Security Administration and the
Environmental Protection Agency that are kind of knocking at
the door at that same point.
There are currently 17 of 24 CFO Act agencies that have
significant financial management system modernization efforts
going on right now. The Government right now invests over 1,900
financial management systems. In the current budget proposal
for 2004, there is about $1.5 billion included for financial
management systems, so it is a significant effort
governmentwide. With the exception of just a few agencies, it
is active with all those. Even with that, NSF is the only one
today that really meets that standard.
Mr. Platts. You are noting 1,900 initiatives or efforts and
it seems that speaks to the size of the problem we have, that
many initiatives trying to get us on track. Is it also a part
of the problem that we have so many diverse efforts as opposed
to a more unified, cohesive approach?
Ms. Springer. Yes, it is. I think one of the comments
earlier from Representative Towns discussed having solutions
that span across a variety of agencies as opposed to just one.
One of the strategies we will be looking at will be to find
where we can have meaningful joint efforts so that we are not
having redundant investments. It seems with financial systems,
there ought to be that opportunity, so we will be looking at
that.
Mr. Platts. Is it going to be your office specifically kind
of watching the progress on those 1,900 efforts and birding
from OMB's perspective?
Ms. Springer. Yes, along with the IS group headed by Mark
Forman. In the CFO Act, the Office of Federal Financial
Management has specific responsibility for overseeing those
activities and monitoring them as they go forward.
Mr. Walker. Mr. Chairman, I think it is important to note
the Federal Government is a late entrant to the financial
management business as well as the financial auditing area. The
fact of the matter is that for many, many years, the Federal
Government focused all of its time and attention on getting the
money and spending the money. It was called the budget. It
didn't focus enough on transparency and accountability which is
something we need to do now for some of the reasons that I
previously articulated.
We have come a long way in a fairly short period of time
but we don't have the type of market forces the private sector
has. If you are going out there to try to raise stock or if you
have publicly traded debt which by the way State and local
governments have, so they have had better financial management
for years. They have had to have it because in order to be able
to have publicly traded debt, in order to get a decent bond
rating, they had to have it. We haven't been subject to those
same market pressures.
If Brazil can do it, namely have a modern, effective,
credible, integrated financial management system for their
government, we ought to be able to do it.
Mr. Platts. The focus on having that system in place and
also renewed focus through PART as the Bush administration
asking is not just how much you are spending and where it is
coming from but what are we getting in return. That is part of
government efficiency as well.
I am going to defer to Mr. Towns now but I would make the
analogy in the very frank but stark picture you painted, Mr.
Walker, for future years, that I have been one to always
balance my checkbook to the penny every month. When my wife and
I met, she didn't worry about balancing her checkbook because
she knew there was money in there, so she didn't worry month to
month. Once we were engaged, married and both graduate students
and the excess dollars got less and less, the importance of
having a very detailed management system in place, balancing it
was more important. That is kind of where we are going as a
Federal Government. We look to those out years and we need to
make sure every dollar is being used effectively and we know
how much we have to spend to set those priorities.
Mr. Walker. I would respectfully suggest we need to do it
now because we are already in deficits.
Mr. Platts. Absolutely.
I will now yield to Mr. Towns for the purpose of questions.
Mr. Towns. Thank you very much, Mr. Chairman.
Let me thank all of you for your testimony. Let me start
with you, Ms. Springer.
You mentioned the fact that the Homeland Security Agency
would create a substantial challenge. I was sort of looking at
it differently. Maybe you could help me with this, that being
it was a new agency, certain things would be put in place that
would be able to prevent us from making the mistakes we made in
the past. Am I looking at it wrong?
Ms. Springer. No, you are not. I think it is just two
aspects. I think starting with a fresh sheet of paper as you
described, I think there is that aspect there but at the same
time, we are bringing in agencies that have a legacy of history
of challenges in their own financial management systems for
example and we are not starting from the ground up necessarily
with all of those pieces, at least for right now.
In order to meet the financial reporting requirements that
we expect of an agency that size and that type of
responsibility to the public, we are going to have to use, at
least in the interim, some of their own existing systems as at
the same time we are building from that clean sheet of paper. I
think both aspects are in play right now.
Mr. Walker. Mr. Towns, I would say it is both a challenge
and an opportunity. In the short term, it is a challenge
because we have all these non-integrated legacy systems,
different cultures, and numerous players that have to be
involved, but it is also an opportunity because one would hope
we could create enterprise architecture never mind keep the
same basis from which you could end up building the future and
making all your future IT decisions based upon that so they
ought to be able to get to a better place quicker if it is
handled the right way.
Short term, it is going to be a big challenge, but it is
also an opportunity, as well.
Mr. Towns. Thank you. Why is it we have all this problem
with DOD?
Mr. Walker. I would respectfully suggest DOD is an ``A''
No. 1 in the world in its mission which is fighting and winning
armed conflicts; it is a ``D'' on economy, efficiency,
transparency and accountability. It is a ``D'' for several
reasons. One, until recently, it really has not had sustained
commitment from the top down. Deputy Secretary Hamry was very
interested in this and some of their players. They got started
at the end of the last administration but the level of
commitment and attention from the top is very evident now,
Secretary Rumsfeld down, on this issue. It is being made a
priority, with a commitment from the top.
In the past, they have had everybody kind of do their own
thing. The Army did its own thing, the Navy, the Air Force, the
military side as well as the civilian side. Furthermore, the
culture was such that they focused on mission, war fighting.
They didn't focus on basic management and accountability
systems and they didn't have the right type of responsibility
and accountability mechanisms in place in order to make sure
the people were focusing on them.
One of the things I think Defense needs to do in addition
to what they are already doing is they need to think seriously
about creating a chief operating officer position or a chief
administrative or chief management officer, call it whatever
you want, a level two position that focuses day to day on
strategic planning and integration of these basic management
type functions and activities because they are going to take
years and are going to have to span different Secretaries of
Defense as well as different Presidents of the United States.
Mr. Towns. The privacy issue, how does this play into it?
Does this create a problem for you in terms of ascertaining
information? Does that issue come up?
Mr. Hammond. Let me start as the collector of the
governmentwide information. I think the information we collect
for preparing financial statements either for budget-based
reporting or for accrual-based reporting doesn't involve
individual privacy concerns. It is done at a high enough level
and without identification to individual issues that we have
not seen privacy related issues with related financial
reporting.
Where we do find it and have to take it very seriously is
with regards to the debt collection issues which are another
part of the operations of the Financial Management Service,
where you are dealing at a more individual level and sometimes
dealing with tax-related information. With regard to financial
reporting itself, no, we have not experienced any privacy
issues.
Ms. Springer. I would say that is also true at the general
agency level as well, similar to the debt collection when we
initiate some of these improper payment collection activities.
That will be another place where we will have to be mindful
about privacy issues.
Mr. Walker. I don't think we have any problems from a
financial statement standpoint. I would say one of the things
we also have to look at if we are talking about incentives and
accountability mechanisms, we need to look at the incentives
for people we have overpaid to pay us back in a more timely
manner. Right now, the way the law works, if we don't pay
promptly, we have to pay interest and penalties but on the
other hand, if they get overpaid and don't tell us, they don't
suffer any penalty. I would argue that needs to be revisited.
Mr. Towns. I see my time has expired, Mr. Chairman.
Mr. Platts. Thank you, Mr. Towns.
I will now yield for 5 minutes to our vice chair, Ms.
Blackburn from Tennessee.
Ms. Blackburn. Thank you, Mr. Chairman. Thank you all for
being here today.
I am new to this committee and new to Congress but I am an
old hand at State government and led reform initiatives in
Tennessee. I look forward to being here and working with you
all to be sure that we move toward some efficiency efforts.
Mr. Walker, if my little hen scratching serves me well, as
I am sitting here and looking at your chart, which I thank you
for, looking at consumption, our composition of spending and
where we would be at 2050 and 2030, it looks like at 2030, we
would be well over the 50 percent mark for the total
expenditure of our citizens on State, local and Federal tax
costs. Right now we are pushing the cost of government at about
45 percent when you combine the State, local and Federal cost
of government, taxes being the largest budget.
I would recommend and suggest with this in mind that we
would soon be crossing that 50 percent threshold that we do
have a market force that should be helpful in helping you
achieve the goal of reducing the cost of government and that
market force would be the taxpayers of the United States who
will not stand for over 50 percent of the GDP going to support
government.
You each have mentioned material weaknesses in the
reporting and accounting measures. My question to each of you
is what are you doing to address the material weaknesses in
being sure that the reporting and the accounting methods are
cleaned up and that we are on the right track? What are your
benchmarks, what are your penalties, what is the recommended
course of action, and who is responsible for that recommended
course of action?
Ms. Springer. Let me take a first answer at that one. The
CFO Act agencies in particular which comprise most of the
financial statement information, the OMB is meeting with every
single agency, every quarter at least and frequently as needed,
but very specifically right now coming off this audit, we are
asking each agency to give us in writing a plan weakness by
weakness for how they are going to deal with it and how they
are going to achieve reductions in those weaknesses. We are
asking them for plans that have names of individuals who are
accountable, we are asking for dates and an actual work plan
for having achieved that.
Admittedly, some of those are shorter term fixes that could
be remedied within the 1-year horizon. A lot of them will
extend a lot longer, particularly the ones related to financial
systems.
We also have put up a data base on-line that shows in real
time the status of those weaknesses, so it is very transparent,
very out in the open. If one of them gets remedied, we go right
on-line and fix it but you can drill down from starting from
the highest level of here is the total number of weaknesses to
the type to a very detailed description and that is maintained.
So again, it is very out in the open, there is nothing
secretive about it.
Ms. Blackburn. What are the penalties if something is not
brought into compliance in a given period of time?
Ms. Springer. I think the penalties from this standpoint
differ from the private sector I think my colleagues would say
as well, that it is not as if you are going out to the
marketplace to raise capital and you need to have a clean
opinion as if you are dealing with the SEC and you need a clean
financial statement.
At the same time, within the administration, I can tell you
for a fact, the President will go into the Cabinet meetings and
say to Cabinet officers, how come you are still at red. We have
a scorecard process of red, yellow and green and one major
component is the financial condition inclusive of the material
weaknesses and audit opinions for each major Cabinet agency.
That is known up to the highest level. There is no greater
incentive for a Cabinet Secretary to get their house in order
than to know that the President has it on his radar screen.
Ms. Blackburn. Mr. Walker.
Mr. Walker. I think one of the things that has to be
considered is the Chief Management Officer/Chief Operating
Officer concept at selected departments and agencies and I
would respectfully suggest those type of individuals should be
term appointments, probably 7 year terms with performance
contracts. You would then have accountability for results in
this area that span between administrations and I would be
happy to talk further about this concept.
The last thing is I agree we have a potential market force,
namely the taxpayers. The problem is there are very few people
talking about this. A lot of people don't want to talk about
this. In fact, if you look at Congress' own budgeting
mechanism, you will see decisions are made based upon 1 year
and 10 year cash-flow implications, not economic present value,
long term implications. As a result, what you get is that a lot
of the things Congress is talking about doing will quite
frankly make our long term fiscal situation worse not better.
Ms. Blackburn. That leads me to another question. As you
all can tell, I am one of those geeks who sits around and reads
the budget. I really enjoy this stuff and I do want to work
with you to be sure the taxpayers are getting a good buy on the
government they have. I think that is incredibly important. I
think there are far more people that are watching this. I think
the Internet has been wonderful to help make government
transparent. I applaud you all for trying to move toward a Web-
based system, Mr. Hammond as you mentioned.
I did have two questions. Ms. Springer, this may be better
to you or to Mr. Hammond, I am not sure.
What do you consider to be the true cost of a piece of
legislation when we pass a bill, say like No Child Left Behind,
or combining homeland security? As you look at the cost of
implementation, do you work through this on a dollar basis or
on a percentage basis if this is an $11 billion program, what
is that going to cost you to change your accountability
standards to put new bureaucracy in place, new management in
place? How do you go about estimating that cost of all these
good ideas we come up with?
Ms. Springer. I think there are a couple of pieces to that
answer. Obviously to the extent there is legislation involved,
we would support the scoring process that the Congressional
Budget Office has in assigning it a value and a cost figure to
any kind of legislative action.
To the extent that we have an investment that doesn't
require legislation, an investment in a new system for example,
there are case studies required by OMB that will essentially
lay out the cost benefit as you would in any other business
decision if you are a good business person, private sector
trying to bring that same principle to light in the Federal
Government so you would go through a very detailed case study
to essentially prove the value of that investment.
Ms. Blackburn. Right, but I think many times those
estimates are quite low going back to what Mr. Walker was
saying, that they look at it on a 1 year or 10 year basis and
not run it out as you have done.
Ms. Springer. Most of the ones that would come into my
realm, if I saw a systems investment, a modernization
investment that took 10 years, I would send it back to them and
ask them to redo it. Most of mine don't have a very long
timeframe.
Mr. Hammond. I think if you are looking at entitlement
programs or permanent programs, you need to build in an
appropriate long-term planning horizon and then do a discounted
present value calculation of the net cost based on the
assumptions available. That really is what accrual-based
reporting supports after the fact but I think the goal would be
to try to bring something like that in at the beginning of the
process.
Mr. Walker. I think that is critically important, it is too
late after the fact. One example is no matter what you think
about the merits of this, the fact is that Congress passed a
couple of years ago Tri-care for life for dependents of
military personnel. Congress went to the CBO who scored it.
They scored it based upon 10 year cash-flow, $50-$60 billion.
We have to deal with discounted present value concepts
which is how you ought to make informed decisions. When you
look at it on that basis, when we issued the audit report on
the financial statements at the end of the year, it wasn't $50-
$60 billion in cash-flow, it was $297 billion. The Government
would have to have $297 billion today invested in Treasury
rates to deliver on that promise.
Congress is thinking about doing the same thing with regard
to the issue of not having an offset in connection with VA
disability benefits. This is likely to cost even more money and
yet Congress doesn't even have the numbers available to it.
For prescription drugs, we are talking about 10 year
numbers. Ten year numbers are small change compared to what
kind of number we are untimately talking about here. They are
just misleading.
Ms. Blackburn. Thank you.
Mr. Platts. We will come back for an additional round.
I want to followup with Ms. Springer. Mr. Walker talked
about a chief management officer and appointment of maybe a
fixed term performance contract type position. I would be
interested in knowing OMB and the administration's position on
such positions specifically for DOD?
Ms. Springer. I think from my perspective, we are
interested in getting the right skill sets and the right
capabilities applied to the effort. As far as the actual
position whether it is a political position or a career
position, whether it is a chief operating officer concept, I
personally haven't reviewed it but I am sure the administration
has a position but my main objective would be to assure that
whoever that individual is, they have the right skill set to
apply to the problems and get it resolved.
Second, would be the structure, but I am sure there is an
administration position on that.
Mr. Platts. I agree that having the right people in place
who have that drive and whether their political or career is
important. If you could followup on what the administration's
position would be on the non-political position at DOD that
would be great.
Mr. Walker. If I can provide some information that might be
helpful to you and to Linda as well, I have had conversations
with Mitch Daniels, with high level DOD officials as well as
others on this concept. I know that the Secretary of Defense's
Business Process Transformation Advisory Board has recommended
the creation of this position. I don't know that the
administration has a position yet. I think it would be great
for them to have one.
Obviously, they have had some changes in players. Mark
Everson, who was involved in the conversation, is now going to
be the IRS Commissioner. You have Clay Johnson coming on board.
So I look forward to hearing what they have to say.
Mr. Platts. It sounds like the Department is embracing it
and that goes to the leadership from Secretary Rumsfeld at the
top of the department and having that is certainly a good step
in the right direction.
Mr. Hammond, Treasury, Social Security and the Postal
Service are to be commended for meeting the November 15
deadline 3 months early and really 2 years early. What would be
your advice as to the other agencies as to how they could
emulate and seek your success in providing that information in
a more timely fashion?
Mr. Hammond. I think it is an excellent question because
what you look at initially is the daunting task of trying to
speed up issuing the year-end report. The success story of each
of these three agencies indicates it has nothing to do with
what you do at the end of the year, but everything to do with
what you do during the year.
It really gets to changing the way you look at the data
throughout the year, closing your books monthly, analyzing that
information to check for trends or inaccuracies and in essence,
isolating problems long before the end of the year so that at
the end of the year, you are just compiling that which you
already understand and know.
You will find in all three of those organizations a strong
culture of financial management, a serious commitment beyond
just the accounting operations to understanding those numbers
and recognizing what they are all about. They come from very
different reasons but they share this common theme.
If you look at the Postal Service, they are running a
business. They have to know what is going on. Social Security
has a huge stewardship responsibility to the American public.
They want to have confidence people know their money is being
properly managed. The Treasury Department issues the debt on
behalf of the Government and collects all the tax revenues,
again a huge public responsibility that needs to have
credibility. That culture of financial management that kind of
seeps throughout all three organizations makes it easier for
program agencies to get good information and accept the
additional monthly change in business.
Mr. Platts. By that internal process, we are not having
what Mr. Walker talked about, that end of the year labor
intensive catch-up game being needed?
Mr. Hammond. Right.
Mr. Walker. There is still some of that going on at the IRS
but they have come a long way and I commend them for their
efforts.
I will say one of the other common denominators you have
with those three agencies, in addition to what Mr. Hammond
said, is committed leadership from the top. For the record, let
me note that former Treasury Secretary Paul O'Neill was a
person of incredible ability and integrity and was very
dedicated to this area. That should be noted.
Ms. Springer. One other comment in this regard. The proof
is in the pudding and we have had for the first quarter, for
the first time across all 24 agencies, all getting first
quarter financial results and financial statements submitted.
This was the first year it was required and they all came in on
time. Many of those agencies are now going to monthly and also
doing full annual statement requirements with footnotes and
everything else even though they are not required. It all will
support being in a better position at year end.
Mr. Platts. I know Mr. Towns is pressed for time and I am
going to yield to him. If you need to, take more than 5 minutes
to get through your questions.
Mr. Towns. On that note, what does that really mean when
you say they all got in on time? I am trying to figure out what
does that really say? Does that mean they are more committed?
What does that really tell you?
Ms. Springer. In order to do just the year-end financial
statements, it is possible to work through the course of the
year and apply some of these heroic efforts and work over the
course of the year's period to be able to get your statements
compiled and submitted.
You can't really employ and rely on that kind of effort on
a 3-month repeating basis. It really means you have to go back
and look at your processes and look at your methodology for
developing statement entries because the timeframe is just so
much shorter, only 3 months as opposed to 12. The significance
of 3 months in getting those in on time is it forces the agency
to really break out of that old culture and to adopt new
processes. Even if they are still undergoing their systems
modernization, there is a lot they can do on the process side.
That is what that forces.
Mr. Walker. One of the primary reasons the JFMIP Principals
agreed to accelerate the due date for financial reporting is to
take away the option for departments and agencies to engage in
these heroic efforts after the end of the year. There is just
no way you can engage in these herculean efforts and hit that
November 15 date, so that forced them to be able to start
dealing with some of the underlying systemic problems. That
coupled with having them adopt modern financial management
practices, it really isn't rocket science but pretty basic
stuff, including quarterly reporting, and you can get a lot of
progress pretty quickly.
Mr. Towns. Mr. Walker, I think you outlined some of the
major problem areas of the Federal Government in achieving a
clean opinion. One of these areas, reliability estimating and
reporting the liability the government has for environmental
remediation and disposal of hazardous waste, this problem is
primarily in the Department of Defense. How badly is this area
under reported? Are we talking about $1 billion, $10 billion?
Mr. Walker. Probably tens of billions. It is difficult to
say. They have come up with an estimate now but we are not
comfortable with their methodology, or the basis of their data.
In fact, the DOD now has a process by which each year they have
to make a statement to the Inspector General, the Congress and
others as to whether or not they believe they are in a position
to even have an audit. Last year, they said they were not. This
is one of their major challenges, not their only challenge, but
it is too early to tell how big the imbalance is. I would say
tens of billions.
Mr. Towns. I noticed the Department of Energy for a number
of years also had problems estimating its environmental
liabilities which it has actually corrected. How did they
manage to correct their problem and can these solutions be used
at the Department of Defense?
Mr. Walker. I would be happy to provide some additional
information for the record. I know they have made progress and
would be happy to do that for the record. No doubt one of the
things we ought to be doing is looking at where we have had
some successes, where we have had progress and what can be done
in order to share best practices, along with lessons learned so
we can proliferate these throughout government.
Mr. Towns. Do you want to add something?
Ms. Springer. I would agree with that and I think we have
also employed that best practices sharing in the committee of
the CFO Council on Acceleration that Mr. Hammond chairs. We
endorse that.
Mr. Towns. I want to go back to the whole security privacy
question. Are you comfortable with the security system actually
being used in terms of the computers being used? Do you feel
that is adequately secured in order for you to get the kind of
information you really need?
Mr. Walker. There is a difference between what type of
information we need in order to do the audit on the financial
statements or to prepare the financial statements which is the
executive branch's responsibility. I would note for the record
that information security is one of the material control
weaknesses governmentwide. It is also an area that is on GAO's
high risk list governmentwide as well. So there are issues
associated with information security and privacy but they are
really not issues that deal with financial reporting and
auditing the consolidated financial statements of the U.S.
Government.
Mr. Towns. I was wondering if through that process
inadequate information might come out?
Mr. Walker. One of the real problems we have in some areas
is the lack of timely, accurate and useful information. It is
particularly problematic at the Department of Defense because
they have thousands of systems by themselves, legacy systems
that are non-integrated. For example, if you look at our high
risk series reports, we have one that deals with information
security, we have one that deals with DOD financial management,
and anouther one that deals with DOD's information technology.
It shows an example of how many systems you have to enter one
purchase transaction into in order to be able to record it at
DOD. I think it is something like 22 times. No wonder we have
data problems.
Mr. Towns. Are you having difficulty getting information
from agencies? Are they cooperating?
Ms. Springer. The level of cooperation is very high. There
is no question about that. I would say it is probably at its
highest level from what I can tell, but at the same time, they
are constrained in providing performance information, if you
will, financial performance information by virtue of the
cumbersome processes they have in place and systems. So I think
there is certainly a willingness to provide information. It is
provided but it is the timeliness factor that is not always
there. Some of these things took a long time to develop, they
are going to take a long time to fix but we are seeing
progress. That is what our job is going to be, to make sure
that progress continues to completion.
Mr. Towns. I guess I am trying to see if there is anything
on this side we can do, from the Congress, in terms of any
action we might take that might be helpful in terms of being
able to obtain the information you need because I see this as
being very serious?
Ms. Springer. There is certainly no lack of statutory
requirement and existing legislation and requirements for each
of the agencies whether it is the Integrity Act and
certification of systems, that they are timely and can produce
the information and other certifications required by the agency
heads around their control environment. I think Congress has
certainly done its part in setting forth what the requirements
are. The burden is on the agencies to be able to remedy these
problems.
Mr. Hammond. I think if you look at what the subcommittee
is doing today and has done in the past is a great example of
where Congress can help, continued oversight and interest in
these important issues. It is one thing to have a statutory
requirement; it is another thing to have periodic reporting and
measurement against the progress to doing that. Certainly
agencies are all interested, focused and committed to doing
this but I think continued oversight is a very, very helpful
way of keeping that focus.
Ms. Springer. If I could add one other thing. Last year,
the passage of the Improper Payments Information Act gave, I
think, the force of law to the efforts of the executive branch
which will improve on that effort significantly. I think that
is a good example of a particular area where the legislative
support will help us get to the problem a lot sooner.
Mr. Towns. I don't want to be guilty of blaming everybody.
I think we are all in this together and we have to work
together. That is the reason I asked that question.
I yield back, Mr. Chairman. Thank you.
Mr. Platts. Thank you, Mr. Towns.
I would note this committee does plan oversight in the near
future on SBA and USAID and DOD later this year as well to try
to bring some additional oversight to those specific agencies
as they work toward their clean audits.
I want to get to the improper payments issue a little, but
I want to come back to the DOD issue. Mr. Walker, in your
opening statement you talked about being 4\1/2\ years into your
15 year term and your hope and expectation that we will have a
clean record before your term ends. Clearly, DOD is critical to
that achievement. What is your best guesstimate of the process
with the leadership we have there now of how soon we could
expect DOD to have a financial management system in place that
will allow an unqualified audit to begin?
Mr. Walker. It is going to take several years. The fact of
the matter is there is a lot of focus on this, not only within
DOD but also within OMB. I participated in more than one
meeting on the subject matter within the last several months.
DOD is in the process of trying to put together a plan which
will be a multiyear plan of what they plan to do in order to
address this area.
We are coordinating in a very constructive fashion with the
executive branch because obviously they can put together a plan
but we are ultimately the ones that have to issue the opinion
on the consolidated financial statements of the U.S.
Government, so we have to be comfortable with what they are
proposing to do as well as the Inspector General of the
Department of Defense. I would note for the record the
Inspector General was in the last meeting as well. Unless and
until that plan is completed and reviewed by all the
appropriate parties, it is tough to say but it is going to be
several years.
Mr. Platts. Does appointment of the Chief Management
Officer reduce that in a substantive manner?
Mr. Walker. It could help but it could help not just in the
area of financial management. It could help with regard to
providing sustained attention and focus on a range of
management issues and to take a more integrated approach to
addressing these issues which I think is needed not only within
administrations but between administrations. DOD has been in
existence for over 56 years and has been on the GAO's high risk
list from the very beginning in 1990. It is going to take
sustained attention over a period of time to really get to
where they need to be.
Ms. Springer. If I could add to that. Having participated
in those meetings as well, I have found them to be a good first
step. There would be a big leap from no opinion to a clean
opinion. The first step, is if we could get this, it would be a
fantastic achievement, just to get to a qualified opinion. It
is important to recognize there are steps along this process.
The DOD system itself is targeted to go live in 2007, so
certainly before that it would be a great challenge to be able
to make significant progress overall toward getting a qualified
opinion. The planning has started now, you don't wait until you
get there to plan. You have to look over a period of time.
Mr. Walker. I think realistically that has to be the plan.
You need to try to work toward a qualified opinion before you
get to a clean opinion. To note the challenges at DOD, for
example, Jeff Steinhoff, our Managing Director for Financial
Management and Assurance, just gave me a note saying, ``80
percent of the financial information that is needed to do the
audit for DOD comes from non-accounting systems.'' It is all
the more important that you take an enterprise-wide, integrated
approach to this and you need somebody focused beyond just
accounting and financial management. You have to focus on a
broader perspective in order to really get the job done. That
chief operation officer position would allow that to better
happen, bringing all that together.
That is not a slight to the people who are there. Dove
Zakheim is truly committed, and Secretary Rumsfeld and Deputy
Secretary Wolfowitz are truly committed but they have other
things they have to do, too. Realistically, it is going to take
a while and we can't keep on changing the players. We must
assure that we are making progress and have appropriate
accountability for results.
Mr. Platts. Taking the DOD experience to DHS, and some of
the previous questions touched on not getting behind the eight
ball with DHS, while acknowledging that we are bringing
together a lot of existing agencies that have problems. DHS is
not covered under the CFO Act. Would it be your recommendation
that they should be statutorily required to further comply with
that act?
Ms. Springer. DHS, as other agencies not covered by the CFO
Act, are subject to the Accountability of Taxpayers Act enacted
last year. So they do have a requirement to produce audited
annual financial statements. In that respect, they are not
exempt. I think whether it is that act or whether the CFO Act,
for an agency of that size there is a very high bar and
standard they need to meet. So we have talked with them about
producing the quarterly financial statements that are required
of the CFO Act agencies every bit as much as if they were. They
do have a reporting requirement.
Mr. Platts. Having that quarterly requirement I think goes
to Mr. Towns' comment that we up front start on the right foot
instead of trying to play catchup.
Mr. Towns, did you have other questions?
Mr. Towns. No.
Mr. Platts. I am going to turn to the Improper Payments Act
and implementation of that. We heard $20 billion, $35 billion.
Is there any additional insight on the amount? As a guy who
lives in a community where you can still get a 99 cents
breakfast special, $35 billion every year of improper payments
is staggering to me.
Mr. Towns. Where is that?
Mr. Platts. Come on up, Mr. Towns. My guess is if that is
what we are thinking, it is probably more. Would you hazard to
guess how much higher we may find it to be?
Ms. Springer. I will give you some figures that helped me
put it into perspective and I think would lead you to the
answer. The $35 billion was based on a base of payments of
about $900 billion, so the rate is roughly 3.9 percent, close
to 4 percent. There is a budget of $2 trillion, so there is
another $1.1 trillion that hasn't even been measured yet.
Admittedly that is not all going to be erroneous but if you
apply that same type of percentage, there is a lot more money
yet there that is likely to raise that $35 billion.
Mr. Platts. Maybe another $15-$20 billion if you applied
the percentage?
Ms. Springer. I think that is conservative. I think we are
going to see that number go higher but you have to diagnose the
illness, not before but as you are curing it, you need to know
the extent of the illness. We find that number is going up and
I think it will go up.
Mr. Platts. With your efforts in addressing that, I know
with every agency having to identify what their improper
payments are, OMB is working, and in your testimony you talked
about proposed common sense approaches for student financial
assistance. How far along is OMB with each agency in trying to
get them in good shape for making that more definitive
identification occur?
Ms. Springer. Two things. For the budget, the 2004 budget
is part of that process. We asked agencies kind of in advance
or in anticipation of the act for identifying their baseline of
erroneous payments and what efforts are being made. The
response was mixed. I would say about half the agencies had
things in the works. So there is a long way to go there.
OMB is also on target to issue its guidance related to the
act. That is due by the end of May. We will get that out and
that will require some very specific action steps related to
estimating and showing progress.
Mr. Platts. The end of May?
Ms. Springer. The end of May is the due date.
Mr. Walker. I think there is no question it is higher than
$35 billion. I think the act passed by the Congress last year
will only help us to ascertain what the number is but I think
it is important to note that progress is being made. For
example, at the Center for Medicare/Medicaid Services, when the
first improper payment estimate was done, that agency was over
$20 billion. I think last year it was down about $12-$13
billion, still unacceptable and still too high but they have
made a considerable amount of progress in that regard. So we
need to know what the base is to have focused attention on it.
I think it is also important to note what improper payments
are and what they aren't. Some of these are duplicate payments
you need to recover; some of these are payments where we don't
know whether they were proper or not because we don't have the
adequate documentation. So it is not all fraud, waste and
abuse. It is not money that is down the drain. Some of it is,
but we need to focus more attention on this area in order to
solve the problem.
Mr. Platts. Ms. Springer, you identified with the earned
income tax credit that the proposal to spend $100 million to
try to better explain the tax credit so we can save the $9
billion that we think we are overpaying and if those efforts
are successful, those are going to be great.
When you talk about the proposals with eligibility for
applicants for student financial aid, you say you proposed
those. How have they been received?
Ms. Springer. Some of those are still in the works. For
example, where there is an opportunity to have access to a tax
data base or where there is an opportunity to have access to a
new hires data base. So some of those just in the past month
have come up to the Hill for discussion.
Mr. Platts. So you are still kind of in the early stage?
Ms. Springer. Early stage, yes. They have been met with
good receptivity.
Mr. Platts. This is a question for all three but it starts
with Treasury. In your 2001 and 2002 consolidated financial
statements, there was roughly $17 billion each year that was
unreconciled transactions and that is how the $17.1 billion and
$17.3 billion amounts in each year were identified to really
reconcile the Treasury books. What does that mean? Is that
money that was lost, we just don't know what happened to it, is
it part of improper payments? What is your best estimate of
what that accounts for?
Mr. Hammond. We think that it is the various balances that
are misidentified between the agencies dealing with business
taking place between themselves. When you are pulling together
a consolidated financial statement across various
organizations, you have to make sure you eliminate the activity
that takes place internally because otherwise, you will be
overstating to the public the net results of the joint
activity. As we go about that, it is inherent on proper data
quality and data identification coming into the system.
To give you an example, this year we put together a system
to be able to compare based on trading partner information, the
various components of activity between the various parts of
agencies. When we went back and forth and looked at what agency
A said they did in business with agency B and what agency B
acknowledged they did in business with agency A, when we
compared all that, we had a net difference of $55 billion. That
gives you a rough order of magnitude of the idea that the data
coming in isn't properly classified and in many cases, frankly,
isn't booked the same way on both sides of the transaction.
Mr. Platts. Does that go to the internal control issue, if
they are $55 billion off?
Mr. Hammond. There is an internal control aspect to it,
there is also a data identification aspect to it. Some agencies
look at other agencies as being the same thing as the public,
so it is hard for them to pull out of their systems and
differentiate between activity they do outside the government
and activity they do inside the government.
The third piece of it is they treat data differently. For
example, some agencies will book a receivable for business they
are doing with other agencies but the other agency may not book
a payable.
Mr. Platts. It is comparing apples and oranges, how the
different agencies look at the same information. There is not a
unified analysis of how they credit it which accounts for
different treatment in their books.
Mr. Hammond. Exactly, so we have done a couple of things
over the years to narrow that problem as well as to try to
isolate the differences and then deal with those. We have with
regard to the large dollar components, the investment activity
that agencies have buying Treasury securities, the funding for
the Civil Service Pension Program, isolated those and resolved
or explained virtually all of those differences. We are now
left to the routine activity between the agencies and to do
that, OMB issued some intergovernmental business rules this
summer that have gone into effect to create standardized
business practices all agencies will have to follow. The second
piece is that there is a joint agency effort building a system
for the commercial activities between agencies that will
hopefully capture and record all that information at the point
of initiation and go a long way to solving that. It is a fairly
daunting task.
Mr. Platts. Hopefully as we get to more transparency and
credible testimony or evidence because to the person looking at
that, you balance, but there is this $17 billion sum that is
unreconciled. The more we can reconcile; the more credible the
balance statements will be.
Mr. Walker. In accounting parlance, it is referred to as a
plug but it is a $17.1 billion plug, which is a net number. We
don't know what the gross number is. It is the net number, the
net difference. It is something that has to be resolved. I do
agree with Mr. Hammond it is primarily dealing with these
intragovernmental transactions we need to get our arms around
and that is too high.
Mr. Platts. Ms. Springer talked about the formal process of
having across the board treatment of those intergovernmental
transfers.
Ms. Springer. Right and that was a large part, and I can't
take any credit for it, but getting out these rules and getting
the system support for catching all those things.
Mr. Hammond. It may be a small sense of comfort, and I
prefer the term my Canadian colleagues use for their plug in
their financial statements which is a harmonizing entry.
[Laughter.]
Mr. Walker. It is a plug. You can't make it sound like it
is not.
Mr. Hammond. You will notice it is actually an addition,
not a cost, actually a negative cost in the statements, again
providing some sense that it is intragovernmental activity, if
properly eliminated, would hopefully explain that.
Mr. Platts. I apologize; I am listening. I am supposed to
be in a mark-up and they are telling me that I am voting but
now they tell me the vote is over, so I don't have to run off,
the usual of being in two or three places at once.
Harmonizing plug?
Mr. Hammond. It is the same thing.
Mr. Platts. And we all share the hope that we stop plugging
but just reporting and certainly steps like the uniform
approach to these transfers is a step in the right direction so
we are all on the same page.
Mr. Hammond, with that part sounding more specifically
related to the transfers, when we talk about improper payment
specifically with Treasury as far as your history, are there
any obstacles Treasury sees to having more success in avoiding
improper payments?
Mr. Hammond. The biggest improper payment I am familiar
with at the Treasury Department deals with the earned income
tax credit at the IRS. I think that is a very daunting task
because part of the reason there is a level of improper
payments with regard to that category has to do with the design
of the program itself. It is driven the way it is statutorily
created and the way it has to be administered in the Tax Code
puts certain barriers on the effective management of the actual
improper payment amount.
One of the questions you have to look at as we dig deeper
into improper payments and look at them with regard to various
programs is the cost benefit analysis related to reaching a
point of zero or minimal improper payments. If you look at any
business today, you will find they have certain losses. There
is an unacceptable level of loss and an acceptable level of
loss. They make that judgment based on the cost related to get
below that threshold.
The Government is not to that point I don't think in being
able to assess the various programs on improper payments but at
some point we will have to get there and understand at what
point do you say, it will cost so much more to go from this
level to this level that we have to live with that or
alternatively, redesign the program. I think the EITC is kind
of a case study in that.
Mr. Platts. With the hope to spend the $100 million to
address that, are we going to be closely scrutinizing the cost
benefit of that $100 million, is it actually going to reduce
that $9 billion in improper payments? I assume that would be
part of that process?
Ms. Springer. That is right. Actually before that even got
into the budget, I had the opportunity to sit in and kind of
audit that session. Clearly the expectation on the investment
of $100 million, while it is not a small number, is to make a
significant dent in what right now is a $9 billion problem.
Mr. Platts. For all three of you on the Medicare fee for
service, $12 billion, 6.3 percent of improper payments
identified, while we want to aggressively go after any improper
payments, Mr. Walker you kind of identified this, some of that
may not be improper. We just don't know.
I spend every couple of months, and it is harder to do now
than when I was in the State House, but a day on the job with a
constituent. I have had great experiences with truck drivers,
postal workers, teachers, you name it. One day I spent in an
emergency room with a physician and staff nurses for a 12-hour
shift. Part of that day was watching the emergency department
physician do recordkeeping for Medicare. The concern he
expressed about improper payments is that while we are trying
to identify them that we do so in a responsible way. His point
was he was sitting here today identifying what he believes is a
proper treatment and that translates to where they fall as far
as reimbursement. Nine months from now Medicare would come back
and say you were intentionally defrauding the government and it
should have been level 3 not level 4 and the burden is on the
physician to prove they were right.
Do you see anything that raises concerns as we go after
improper payments that we need to keep our eye on that we are
not doing in a wrongful way and being overzealous and maybe
trying to recoup money not improper but not appropriately
identified?
Ms. Springer. That situation is certainly not the intent of
any of these programs. It is just to go after whether it is
fraud, waste or abuse, or inefficiencies or just getting better
information to know where we stand. It certainly wouldn't be to
comprise the integrity of any of the programs or the intent of
the mission of the programs.
Mr. Walker. The other thing you have to look at is that
obviously the act passed last year was intended to increase the
amount of transparency, the amount of light associated with
these amounts. You manage what you measure, so until you start
measuring it, you are not going to be able to effectively
manage it.
The other thing we have to do is look at what types of
incentives and accountability mechanisms can be put in place if
it turns out that there were behaviors or actions that were
inappropriate. I come back to what I said before. If we made a
duplicate payment, after a certain period of time I would
expect that if somebody economically benefited from that, we
ought to be able to recover some of that benefit. Maybe for
some major contractors, we ought to require them to tell us
after a period of time.
Also to the extent it turns out there is improper upcoding,
what that refers to, if it is innocent it is one thing but if
there is intentional upcoding, I think you have to more
sanction than just getting the money back. That is not enough
to prevent undesirable behavior.
There has to be reasonable transparency, appropriate
incentives for people to do the right thing and assured
accountability when they don't do the right thing. If you don't
have that, the system is not going to work.
Mr. Platts. There has to be a consequence.
I am going to wrap up with a final question. Mr. Walker,
talking about us getting to maybe 10 years that clean,
consolidated financial report, I would be interested with OMB
and Treasury if you want to guesstimate from your perspectives
and in a broad sense what is the biggest hurdle or obstacle
that it is going to take 10 years? Is it just because DOD is
such a big part of getting our arms around that it is going to
take so long?
Mr. Walker. First, since we are the ones who have to
express the opinion, I would say I hope and expect that no
later than the end of my term we will be in a position to issue
a clean opinion, but that is going to require sustained
commitment and attention not only within the executive branch
but also in the Congress in order to make that happen. We have
made a lot of progress over the last several years. At the same
point in time, that progress could quickly wane if the
executive branch or Congress do not continue to be dually
committed to this effort. People could easily go back to where
they were before.
It could be quicker than that. I think realistically we are
going to see a qualified opinion before we get to a clean
opinion and it is too early to tell when it is going to be.
Ms. Springer. One week into this position, I am certainly
not going to go out on a limb with a date but I would say it
will take a consistent sustained effort by certainly the
executive branch. Plans are in place. Clearly the first
objective is going to be a qualified opinion. To the extent we
can lay the groundwork for a qualified opinion, then we go to a
clean opinion. The challenge is there. DOD understands. We
understand what our material weaknesses are.
We would like to think within a couple of years we could be
talking or planning for working with GAO toward getting that
qualified opinion, within a shorter timeframe than 10 years.
Qualified is within our sight. However, that is not to say it
isn't a major task. It is a cultural issue. You can have the
best systems in the world, the best processes in the world, but
unless you have a culture that is the best of the private
sector approach for this thing, you couldn't achieve it. I
think it is doable. I think a qualified opinion is certainly
within the next couple of years or so. I think we could be
planning toward that.
Mr. Hammond. As my colleagues will tell you, I have been
known for my unbridled optimism, so I will continue to be
optimistic.
It is my sense that as we are working to resolve the
governmentwide issues dealing with preparation of the report
and the intergovernmental transactions and data quality, DOD
will continue to make progress in specific areas. The
combination of those two items should position us within the
next few years to get a qualified opinion. The state of those
remaining DOD issues will then determine how qualified that
opinion may be, but I think that it is certainly not going to
be 2003 but I do believe we can see a qualified opinion in a
realistic time period.
Mr. Platts. I share the optimistic approach day in and day
out and hope we are right. I will tell you as the new Chair of
this committee, I am encouraged by things like the Improper
Payments Act that everybody now is going to put a number for
their agency, what is it so we can, as you say, manage once we
think we know what the number is.
The President's Management Agenda in total, the PART
program evaluation are all positive signs that encourage me to
be optimistic that we are heading in the right direction. As a
committee, we certainly look forward to working with each of
you and the administration to have more transparency and more
accountability. As we started the meeting with Mr. Walker's
testimony, it is a necessity for what is coming down the pike
in the years to come when my children and future generations
are going to be challenged financially to deal with the needs
of our citizens.
In closing, I want to thank our great staff on both the
majority and minority side for their work in putting together
this hearing. Again, let me thank each of you for your written
testimony, your comments here today and the followup materials
you will be sharing with us.
Based on the testimony we have heard today and also at the
previous two hearings, it is evident that agencies are
increasingly placing more emphasis on financial management.
Today we are especially pleased with the Treasury Department's
example of accelerating the issuance of its audited financial
statements to November, 2 years ahead of the required
timeframe. It is my hope that other agencies are going to
follow and we don't have to wait for 2 more years. One year out
maybe we will have a few more not just the three that were
ahead of the game this time. We are moving in the right
direction but we all remain concerned about the financial
management practices of agencies that did not receive
unqualified opinions. As I mentioned earlier, later this month
we will be having a hearing with the Small Business
Administration and in early May, with USAID to try to bring
some more light, some more attention and get to the bottom of
what their challenges are. It is my hope these agencies will
give us some insight from within of how they are working to
rectify their inability to receive unqualified opinions.
We will hold the record open for 2 weeks from this date for
those who want to forward submissions for inclusion.
This meeting stands adjourned.
[Whereupon, at 12:23 p.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]
[Additional information submitted for the hearing record
follows:]
[GRAPHIC] [TIFF OMITTED] T8503.064
[GRAPHIC] [TIFF OMITTED] T8503.065
[GRAPHIC] [TIFF OMITTED] T8503.066
[GRAPHIC] [TIFF OMITTED] T8503.067
[GRAPHIC] [TIFF OMITTED] T8503.068
[GRAPHIC] [TIFF OMITTED] T8503.069
[GRAPHIC] [TIFF OMITTED] T8503.070
[GRAPHIC] [TIFF OMITTED] T8503.071
[GRAPHIC] [TIFF OMITTED] T8503.072
[GRAPHIC] [TIFF OMITTED] T8503.073
[GRAPHIC] [TIFF OMITTED] T8503.074
[GRAPHIC] [TIFF OMITTED] T8503.075
[GRAPHIC] [TIFF OMITTED] T8503.076
[GRAPHIC] [TIFF OMITTED] T8503.079
[GRAPHIC] [TIFF OMITTED] T8503.080
[GRAPHIC] [TIFF OMITTED] T8503.081
[GRAPHIC] [TIFF OMITTED] T8503.082
[GRAPHIC] [TIFF OMITTED] T8503.083
[GRAPHIC] [TIFF OMITTED] T8503.084
[GRAPHIC] [TIFF OMITTED] T8503.085
[GRAPHIC] [TIFF OMITTED] T8503.086
[GRAPHIC] [TIFF OMITTED] T8503.087
[GRAPHIC] [TIFF OMITTED] T8503.088
[GRAPHIC] [TIFF OMITTED] T8503.089
[GRAPHIC] [TIFF OMITTED] T8503.090
[GRAPHIC] [TIFF OMITTED] T8503.091
[GRAPHIC] [TIFF OMITTED] T8503.092
[GRAPHIC] [TIFF OMITTED] T8503.093
[GRAPHIC] [TIFF OMITTED] T8503.094
[GRAPHIC] [TIFF OMITTED] T8503.095
[GRAPHIC] [TIFF OMITTED] T8503.096
[GRAPHIC] [TIFF OMITTED] T8503.097
[GRAPHIC] [TIFF OMITTED] T8503.098
[GRAPHIC] [TIFF OMITTED] T8503.099
[GRAPHIC] [TIFF OMITTED] T8503.100
[GRAPHIC] [TIFF OMITTED] T8503.101
[GRAPHIC] [TIFF OMITTED] T8503.102
[GRAPHIC] [TIFF OMITTED] T8503.103