[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
   DEVELOPING SOUND BUSINESS PRACTICES AT THE DEPARTMENT OF HOMELAND 
                                SECURITY

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

                                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

                               __________

                           SEPTEMBER 10, 2003

                               __________

                           Serial No. 108-103

                               __________

       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


                                 _____


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                          WASHINGTON : 2004
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                     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
                      Rob Borden, 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 September 10, 2003...............................     1
Statement of:
    Berman, Richard, Assistant Inspector General for Audit, 
      Department of Homeland Security............................    53
    Carnes, Bruce, Chief Financial Officer, Department of 
      Homeland Security..........................................    43
    Springer, Linda, Controller, Office of Management and Budget.     5
    Williams, McCoy, Director, Financial Management and Assurance 
      Team, U.S. General Accounting Office.......................    15
Letters, statements, etc., submitted for the record by:
    Berman, Richard, Assistant Inspector General for Audit, 
      Department of Homeland Security, prepared statement of.....    55
    Carnes, Bruce, Chief Financial Officer, Department of 
      Homeland Security, prepared statement of...................    45
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     3
    Springer, Linda, Controller, Office of Management and Budget, 
      prepared statement of......................................     8
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................    74
    Williams, McCoy, Director, Financial Management and Assurance 
      Team, U.S. General Accounting Office, prepared statement of    17


   DEVELOPING SOUND BUSINESS PRACTICES AT THE DEPARTMENT OF HOMELAND 
                                SECURITY

                              ----------                              


                     WEDNESDAY, SEPTEMBER 10, 2003

                  House of Representatives,
Subcommittee on Government Efficiency and Financial 
                                        Management,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:40 p.m., in 
room 2203, Rayburn House Office Building, Hon. Todd R. Platts 
(chairman of the subcommittee) presiding.
    Present: Representatives Platts, Towns, Owens, Turner and 
Blackburn.
    Staff present: Mike Hettinger, staff director; Dan Daly, 
counsel; Larry Brady, Kara Galles, and Tabetha Mueller, 
professional staff members; Amy Laudeman, clerk; Mark 
Stephenson, minority professional staff member; and Jean Gosa, 
minority assistant clerk.
    Mr. Platts. The Subcommittee on Government Efficiency and 
Financial Management will come to order.
    We will begin with opening statements and an opening 
statement from the ranking member.
    Two years ago tomorrow, America sustained the most 
devastating attack on the homeland in our history. We will 
always remember the tragic loss of life as a result of this 
attack. That day dealt a crushing blow to the confidence our 
citizens had in the Federal Government and its ability to 
protect them. The ability to protect the country from terrorism 
has become a national priority, and, to that end, Congress and 
the President established the Department of Homeland Security 
last year.
    The creation of DHS is the largest reorganization of the 
Federal Government since the Department of Defense was 
established more than 50 years ago. It presents, arguably, the 
greatest management challenge in our Nation's history, bringing 
together 22 diverse entities under one umbrella, creating an 
entirely new organizational culture and structure. The 
establishment of this new Department does not add new 
responsibilities or increase the size of government; rather it 
reorganizes and reprioritizes functions, sharpening focus and 
increasing effectiveness. In that light, improving our Nation's 
security is essentially a test of the management and leadership 
abilities of the Federal, State and local governments.
    DHS inherits agencies in varying financial condition with 
19 different financial management systems and 15 compensation 
systems. Given the magnitude and importance of the Department's 
mission, sound business practices are critical to success and 
must be established at the outset. An important aspect of this 
realignment is to spend less on overhead and more on protecting 
America.
    As part of this subcommittee's continuing oversight of 
Federal agency financial management, today we will examine the 
status of integrating component agencies into a single, 
effective department through the efficient consolidation of 
overlapping functions. Management consolidation and reform 
efforts at DHS deserve appropriate attention and oversight from 
Congress.
    On July 24, 2003, I, along with full committee Chairman Tom 
Davis, Ranking Member Towns, full committee Ranking Member 
Waxman, and Vice Chairwoman Blackburn introduced H.R. 2886, the 
Department of Homeland Security Financial Accountability Act, 
which would apply the provisions of the Chief Financial 
Officers Act to DHS.
    This hearing and the proposed legislation are essential 
steps toward ensuring that DHS establishes sound business 
practices from the outset, enabling the Federal Government to 
take advantage of efficiencies and use resources effectively to 
protect America. We have asked each of our witnesses to comment 
on the specific provisions of the legislation. It had been my 
expectation that we would mark this bill up today; however, we 
continue to work out the details with the Office of Management 
and Budget and the Department. Let me assure everyone in this 
room today that we will take up this legislation in the near 
future to ensure that financial accountability at DHS is 
prioritized and well achieved.
    Let me also say that in working with OMB, the CFO and DHS, 
the IG, since the bill's introduction, we have all agreed to 
remove the section of the bill that would have waived the 
requirement for a complete financial audit in fiscal year 2003. 
We understand that the fiscal year 2003 audit is well underway 
and this run-up in 2003 is a necessary part of the process as 
we look to the 2004 financial statement audit process as well. 
Understanding that the waiver will be removed from the bill 
when it is marked up before the subcommittee, I would ask that 
each of our witnesses not dwell on the waiver issue in their 
oral statements and focus on the other parts of the proposal.
    Today the subcommittee will hear from Ms. Linda Springer, 
Controller at the Office of Management and Budget; Mr. McCoy 
Williams, Director of Financial Management and Assurance at 
GAO; Dr. Bruce Carnes, Chief Financial Officer at the 
Department of Homeland Security; and Mr. Dick Berman, Assistant 
Inspector General for Audit in the Office of the Inspector 
General at DHS. Thank you for agreeing to testify today and for 
your written testimony you submitted prior to today's hearing 
and for the testimony you will offer here today.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]

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    Mr. Platts. I will now yield to the gentleman from New 
York, Mr. Owens, if you would like to make an opening 
statement.
    Mr. Owens. No, thank you.
    Mr. Platts. We will then proceed to our witnesses' 
testimony. If I could ask each of the witnesses and any who 
will be giving you advice or counsel as part of today's 
testimony to stand and raise your right hands and take the 
oath.
    [Witnesses sworn.]
    Mr. Platts. We will proceed directly to our testimonies. 
Ms. Springer, we will begin with you, followed by Mr. Williams, 
then Dr. Carnes and finally, Mr. Berman.
    Again, the subcommittee appreciates the substantive nature 
of your written testimonies. If you could limit your oral 
testimony for the opening stage to approximately 5 minutes, we 
will then get into questions and answers.
    Ms. Springer, would you like to proceed?

 STATEMENT OF LINDA SPRINGER, CONTROLLER, OFFICE OF MANAGEMENT 
                           AND BUDGET

    Ms. Springer. Thank you, Mr. Chairman.
    I want to apologize in advance for some laryngitis but 
hopefully the mic won't pick it up.
    I appreciate the opportunity to appear before you again, 
this time to testify on financial management at the new 
Department of Homeland Security.
    The creation of the department, as you said, marks one of 
the largest and most complex mergers ever undertaken by the 
Federal Government. There are many challenges involved with 
that creation of the department but the department has 
demonstrated a very strong commitment to financial excellence 
and should be recognized for its efforts during this past year.
    Even before the creation of the Department at the beginning 
of March, individuals from the affected finance and budget 
offices of the 22 legacy agencies formed an interagency task 
force consisting of senior and mid-level management personnel. 
They met regularly to discuss issues and began developing 
solutions to the challenges that they started to see facing the 
new department.
    The DHS has shown commitment to preparing audited financial 
statements in the first year of its existence demonstrating 
accountability both to the Congress and to the taxpayers. Even 
though they could have requested a waiver for this first year, 
they have decided to go forward not only with annual statements 
but also with their quarterly financial statements as well. We 
take that as a sign of the department's determination to be 
fiscally responsible right from its outset.
    As with any merger, some of the new department's efforts 
will have to focus on some very immediate challenges. Many 
issues have been raised regarding the proper accounting 
treatment of the new Department's financial activity and the 
presentation of its financial statements that must be 
addressed. OMB has worked and continues to work with DHS to 
resolve these issues in a timely manner.
    DHS must also begin to address longstanding weaknesses 
which it inherited from its component agencies such as weak 
financial accounting and reporting processes, inadequate IT 
systems and ineffective real and personal property processes, 
to name a few. The department has inventoried these weaknesses 
and is developing corrective action plans, although the 
weaknesses still need to be resolved.
    One of the areas you asked us to comment on was 
establishment of sound financial management and business 
processes. Clearly it is necessary for financial management to 
provide the Congress, the administration and the taxpayer with 
quality, timely information analysis related to its activities.
    First in this area for focus, we believe, is ensuring top 
leadership. Leadership is critical to establishing a sound 
financial and management structure within the department. It is 
clearly true when you are trying to merge 22 disparate entities 
into a single entity with a clear vision of performance and 
expectations, it needs to be communicated throughout the 
organization. Leadership is absolutely critical to making that 
happen.
    Additionally, it is important to have a financial 
management team with strength and the right mix of talent and 
skills that is dedicated to this transformation process under 
that strong leadership.
    Second, we believe that a premiere financial organization 
has to recognize that it exists to provide that quality timely 
and relevant information about the financial implications of 
the program activities of the department, as well as the impact 
of those decisions and agency performance goals and objectives. 
To accomplish this, leading financial organizations need to 
recognize who their customers are and that they are serving 
both internal as well as external customers, allowing the 
mission and organization structure to support the entity's 
overall mission and objectives.
    Third on the list would be seamless financial systems and 
business processes. It is important that a premiere financial 
organization builds seamless financial systems and business 
processes. At its earliest opportunity, DHS must determine the 
essential system and process infrastructure it requires 
throughout the organization. Its infrastructure must also be 
flexible enough to support information needs all the way down 
to a program level and certainly needs to have the robust 
financial functionality within that architecture that 
recognizes hallmarks within strong financial institutions.
    Fourth, we believe that in seeking to create a premiere 
financial organization, DHS must pursue means that will permit 
it to routinely generate reliable cost and performance 
information. These analytics combined with other value added 
activities will support the agency's missions and goals and as 
DHS moves forward in developing next generations of strategic 
plans, we believe the financial organization will accordingly 
design its reporting formats and its performance measurements 
to align well with measuring execution of that strategy.
    With respect to the bill the committee has produced, H.R. 
2886, OMB as well has high expectations of solid financial 
management practices for the department, so we are very closely 
in partnership and alignment with the committee's interests. We 
appreciate those efforts in the bill and look forward to 
continue to work with you as the legislation is fine-tuned.
    We are obviously glad to hear that the provision related to 
the fiscal year 2003 waiver has been adjusted and we think that 
is appropriate. We applaud the department for its good work in 
completing the 2003 financial statement process. We think that 
speaks well to their dedication to financial integrity.
    With respect to the internal control audit opinion, the 
bill obviously also contains a requirement for DHS to include 
in each performance and accountability report an audit opinion 
of internal controls over financial reporting. It is our 
understanding that this requirement is intended to hold Federal 
agencies to a similar standard found in the private sector or I 
should say anticipated in the private sector which Sarbanes 
actually becomes effective, which as of yet it has not. In 
fact, Sarbanes-Oxley has been delayed to give further study 
about certain concerns that we think also would apply to 
Federal agencies. These are things related to cost and time to 
implement related to the robustness of auditing standards by 
the auditor and an understanding of the scope that is needed.
    Again, we believe those same considerations apply and to 
that end we believe the CFO council and the audit community, 
the President's Council on Integrity and Efficiency, should 
work together in a task force to identify and do an appropriate 
cost benefit study on the internal control audit requirement 
and make a recommendation on how that should be implemented.
    With respect to the application of the CFO Act to the new 
department, it is OMB's position that the substantive 
provisions of the CFO Act should apply and that they do apply 
to the new department as they do to every other major 
department or agency of the Federal Government.
    The CFO Act does specify a certain organization structure 
which is different than that consistent with the Homeland 
Security Act of 2002. We believe that the consolidation of 
management responsibilities under an Under Secretary in the 
department does provide for a strong management structure and 
believe that is consistent with the effort by the 
administration working with Congress to reduce the number of 
officials subject to confirmation by the Senate. We have had 
some discussions and continue to discuss that with you.
    Just to conclude, we believe that establishing sound 
financial management and business processes at the department 
is something that is being taken very seriously by the 
financial staff and that the right steps are being taken. We 
applaud the department, they have demonstrated that commitment 
and we look forward to continuing at OMB to work with the 
department as they go forward.
    I look forward to answering your questions.
    Thank you.
    [The prepared statement of Ms. Springer follows:]
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    Mr. Platts. Thank you, Ms. Springer.
    Mr. Williams, before you begin, I just want to correct my 
earlier statement. I think I said Acting Inspector General for 
Audit instead of Assistant Inspector General for Audit. I stand 
corrected and apologize for that mistake.
    Mr. Williams.

STATEMENT OF MCCOY WILLIAMS, DIRECTOR, FINANCIAL MANAGEMENT AND 
         ASSURANCE TEAM, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Williams. Mr. Chairman and members of the subcommittee, 
I am pleased to be here today to discuss the financial 
management challenges facing the Department of Homeland 
Security, the steps the department must take to establish sound 
financial management and business processes and to give GAO's 
comments on H.R. 2886, the Department of Homeland Security 
Financial Accountability Act.
    The Homeland Security Act of 2002 brought together 22 
agencies to create a new Cabinet level department to focus on 
reducing our vulnerability to terrorist attacks and to minimize 
damages and assist in recovery if an attack does occur. 
Achieving this mission will require a results-oriented 
environment with a strong financial management infrastructure.
    Creating strong financial management in DHS is particularly 
challenging because most of the entities brought together to 
form the department bring their own financial management 
systems, processes and in some cases, deficiencies. Four of the 
seven major agencies that transferred to DHS reported 18 
material weaknesses in internal control in fiscal year 2002. 
All but two of the seven major agencies had financial 
management systems that were not in substantial compliance with 
the Federal Financial Management Improvement Act of 1996. DHS 
will need to address these and other financial management 
issues, some of which may not yet be known.
    DHS can take some immediate steps to begin addressing these 
financial management issues. In April 2000, GAO reported on a 
study of nine leading private and public sector finance 
organizations in Creating Value Through World Class Financial 
Management. This executive guide includes four steps we believe 
DHS can take to begin developing sound financial management and 
business processes. They include making financial management an 
entity-wide priority; redefining the role of finance; providing 
meaningful information to decisionmakers; and building a team 
that delivers results.
    It is well recognized that mergers of the magnitude of DHS 
carry significant risks, including lost productivity. Necessary 
management capacity, communication and information systems, and 
sound financial management and business processes must be 
established if DHS is to achieve a successful transformation.
    H.R. 2886 can help facilitate the creation of a first rate 
financial management architecture at DHS by providing the 
necessary tools and setting high expectations. The bill would 
make DHS a CFO Act agency, require DHS to obtain an opinion on 
internal controls and require DHS to include program 
performance information in its performance and accountability 
reports.
    GAO fully supports the objectives of the CFO Act to provide 
reliable financial information and improve financial management 
systems and control, and believes DHS should be included under 
the CFO Act. Further, GAO strongly believes that auditor 
reporting on internal controls can be a critical component of 
monitoring the effectiveness and accountability of an 
organization and support DHS, as well as, other CFO Act 
agencies in obtaining such opinions. In addition, GAO supports 
including program performance information in agency performance 
and accountability reports. We strongly encourage DHS to report 
this information in its accountability report.
    Finally, DHS has stated its commitment to obtaining a 
financial audit for fiscal year 2003. We support this position.
    Mr. Chairman, this completes my prepared statement. I would 
be happy to respond to any questions.
    [The prepared statement of Mr. Williams follows:]
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    Mr. Platts. Thank you, Mr. Williams.
    I would like to recognize the ranking member, Mr. Towns, 
arrival. Thank you for joining us.
    Dr. Carnes.

STATEMENT OF BRUCE CARNES, CHIEF FINANCIAL OFFICER, DEPARTMENT 
                      OF HOMELAND SECURITY

    Mr. Carnes. Thank you, Mr. Chairman and members of the 
subcommittee.
    I am pleased to be here to talk about the challenges that 
we in DHS face in financial management and business processes 
and our progress in addressing them.
    As CFO of the Department of Homeland Security, I am 
committed to building financial policies, processes and systems 
that are a model for the Federal Government. We have already 
done a lot since we were established in bringing the financial 
policies, processes and systems of 22 disparate organizations 
into one department.
    In March we successfully transferred more than $50 billion 
in assets, $36 billion in liabilities, and 180,000 employees 
into the department. Within a few weeks, we created the 
financial structures and support systems necessary to support 
these transfers. We have consolidated our bank card programs to 
reduce the number of programs within the department from 27 to 
3. We created an Investment Review Board to evaluate 
acquisitions above $5 million; we are requiring certified 
project managers to be in charge of our projects. We have 
initiated a 5-year budget and planning program. We have 
established a budget development process modeled after DOD's 
POM process, the Program Objectives Memorandum Process. We 
created a PA&E--program analysis and evaluation--organization 
charged with ensuring compliance with performance and 
accountability requirements. We are developing a Future Year's 
Homeland Security Plan and we have launched a consolidated 
business and financial management systems program.
    Currently the department has 22 disparate financial 
processes. Beginning October 1 of this year, we are going to 
shrink that by more than 50 percent from 22 to 10, primarily by 
bringing in-house and sharing services the work that is done by 
other entities right now.
    We are studying ways to further streamline the financial 
processes used by the department with the goal of enhancing 
efficiency, reducing cost and improving the quality of 
financial data. We have 83 financial systems at the last count, 
few of which are integrated. Some are outdated, lack 
functionality and are expensive to operate and maintain.
    This puts me on familiar territory because for 10 years 
between 1990 and 2000, I worked for the Defense Finance and 
Accounting Service, which is the largest finance and accounting 
organization in the world and does all the financial operations 
for the Department of Defense and this is exactly the problem 
DOD had, that DFAS tackled and I think has done a very 
successful job. Before I left DFAS, I was the Chief Operating 
Officer there so this is very analogous though smaller than the 
problems you see at DOD.
    As part of our systems initiative, we are going to develop 
and implement a departmental business and financial enterprise 
solution that results in a single suite of financial systems 
for DHS. I want to create the financial equivalent of a global 
positioning system so that our program managers will know at 
any minute exactly where they are when it comes to financial 
and other business matters.
    We are launching a comprehensive review of the financial 
operations of all DHS components. This will include a review of 
performance standards, business processes, workload 
requirements and so on. It will provide recommendations for 
establishing departmentwide performance standards, improved 
processes, possible consolidations and systems enhancements and 
improvements.
    Another challenge we face is preparing consolidated 
financial statements. As already noted, we prepared our interim 
quarterly financial statements on time. We will have a 
consolidated financial statement for the department delivered 
November 15, ahead of schedule.
    Part of the challenge is mitigating the impact of 18 
inherited material weaknesses that came to us from the agencies 
we inherited. We have addressed them, we have plans for 
correcting all of those situations.
    In closing, I want to assure the committee that DHS is 
advancing as rapidly and judiciously as we can toward becoming 
a model for financial management excellence. We have set 
ambitious goals, we have set high standards of achievement. In 
the coming months, we will move aggressively to implement the 
plans I have described.
    This all hinges on support from above which I have in 
plentitude and I have an outstanding staff of experts who have 
been through this before and know exactly what they are doing, 
so I am very confident that we will reach our goal.
    That ends my testimony. I would be happy to take any 
questions.
    [The prepared statement of Mr. Carnes follows:]
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    Mr. Platts. Thank you, Mr. Carnes.
    Mr. Berman.

 STATEMENT OF RICHARD BERMAN, ASSISTANT INSPECTOR GENERAL FOR 
             AUDIT, DEPARTMENT OF HOMELAND SECURITY

    Mr. Berman. Thank you for the opportunity to be here today 
to discuss financial management at the Department of Homeland 
Security and H.R. 2886.
    On March 1, 2003, DHS was created by consolidating 22 
disparate domestic agencies to better protect the Nation 
against threats to the homeland. Each of the component agencies 
brought to DHS its distinct business processes, some with major 
financial weaknesses, which presents DHS with challenges in 
integrating operations, creating a common infrastructure, and 
developing goals, objectives and meaningful performance 
measures to guide and track progress. All of these challenges 
impact financial management at DHS.
    In the area of financial systems and reporting, DHS must 
integrate and establish effective controls over financial 
systems and operations of incoming components, including 
correcting weaknesses it has inherited. For example, some 
components such as INS have received unqualified audit opinions 
on their financial statements but expended tremendous human 
resources and cost to prepare financial statements because of 
their inadequate financial systems and the weaknesses that we 
have inherited.
    DHS inherited a total of 18 material weaknesses identified 
in prior year financial statements. We will be assessing these 
material weaknesses, and the need to retain or add to them, as 
part of our fiscal year 2003 financial statement audit. 
Information systems are a key that DHS must address in order to 
establish sound financial management and business processes. 
The 83 systems the CFO cited present huge opportunities to 
achieve greater economy and efficiency in this area. To meet 
these challenges, DHS will need to build a unified financial 
management structure capable of supporting both efficient 
financial statement preparation and reliable and timely 
financial information for managing DHS' current operations.
    Grants and contracts management are also major areas of 
concern to OIG. DHS awards over $7 billion annually in grants 
under its Emergency Preparedness and Disaster Assistance Grant 
Programs which were absorbed primarily from FEMA and the 
Department of Justice. Previous FEMA and DOJ Office of 
Inspector General [OIG] reports identified significant 
shortcomings in the pre-award process, cash management, 
monitoring, and grant closeout processes in the emergency 
preparedness programs. Each of these programs has redundant or 
similar features such as emergency planning, training, and 
equipment purchases and upgrades for State and local emergency 
personnel. Meaningful performance measures are desperately 
needed.
    Additionally, FEMA's OIG found that FEMA had ineffective 
performance and financial oversight over its disaster 
assistance grants, which in turn enabled grant recipients and 
subgrantees to misuse millions of dollars in Federal funds 
which the FEMA IG reported. A sound grants management program 
is needed, one that complies with Federal requirements and 
includes effective monitoring of and assistance to States and 
other grantees.
    Similarly, DHS absorbed billions of dollars in contracts 
from the component agencies that were awarded under differing 
procedures and circumstances. DHS must integrate the 
procurement functions of several legacy agencies, some lacking 
important management controls. For example, at TSA, where 
contracts totaled $8.5 billion at the end of calendar year 
2002, the Department of Transportation OIG found that 
procurements were made in an environment where there was no 
pre-existing infrastructure for overseeing contracts. TSA had 
to rely extensively on contractors to support its mission, 
leading to tremendous growth in contract costs. Also, some DHS 
components have large, complex, high-cost procurement programs 
under way that need to be closely evaluated and managed. Our 
office is currently reviewing several large DHS contracts 
including TSA's airport screener contract, Customs' automated 
commercial environment project, and we are tracking closely the 
Coast Guard's Deepwater Procurement Program.
    Early attention by DHS to strong systems and controls for 
acquisition and related business processes will be critical, 
both to ensuring success of programs and maintaining integrity 
and accountability.
    With regard to H.R. 2886, our primary concerns relate to 
provisions to waive the audit requirement for 2003, which we 
are thankful has now been dropped, and a requirement for the 
opinion on internal controls in fiscal year 2004. As we have 
noted, we believe the audit for 2003 is very important and will 
produce important benefits.
    Recording the opinion on internal controls, the IG believes 
that such a requirement would be beneficial, but that it is not 
practical to perform an audit of internal controls in fiscal 
year 2004 as the bill would require. There are two reasons. 
First, fundamental to rendering an opinion on internal control 
is ``management's assertion`` on controls over financial 
reporting. Based on what we understand of new standards 
currently proposed by the American Institute of CPAs in 
response to the Sarbanes-Oxley Act of 2002, this could be or 
would be an extensive, time consuming process requiring 
sufficient time to implement.
    Second, and also based on what we understand regarding the 
proposed new standards, there would be significant additional 
procedures and costs to render such an opinion on internal 
controls, particularly in light of the complexity inherent in 
DHS' situation. The size of the cost increment would depend on 
the extent of the evaluation and testing performed by DHS and 
the audit approach we choose for financial statements.
    In the private sector, one survey found that the cost of 
complying with the internal control reporting requirements of 
Sarbanes-Oxley would increase the average audit costs by 35 
percent. If no new funding is provided for this purpose, some 
difficult choices will have to be made by our office.
    Mr. Chairman, this concludes my remarks. I would be happy 
to answer questions you may have.
    [The prepared statement of Mr. Berman follows:]
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    Mr. Platts. Thank you, Mr. Berman.
    I would like to recognize the gentleman from Ohio, Mr. 
Turner. I appreciate your joining us here today.
    We will get right into questions and I will throw out kind 
of a broad opening question for all our witnesses. Before I do 
that, I do want to convey my thanks, Mr. Williams and Ms. 
Springer have heard me say this before, but to Mr. Carnes and 
Mr. Berman, I want to personally thank you for your public 
service. As one who believes in the idea of public service, 
whether elected officials or others in government, I think it 
is important to recognize your service to your fellow citizens. 
I appreciate your work. While we may have some differences of 
opinion on the legislation, that in no way diminishes my 
gratitude for your work.
    My initial question is the issue of the broad inclusion of 
DHS in the CFO Act. When the legislation began last session and 
this subcommittee under Chairman Horn was involved as it went 
through the House and passed. DHS was under the CFO Act and the 
House took an active role in putting it in there, led by 
Chairman Horn. Its removal occurred in a less public, less 
active way in conference and came back in a very complete 
package, so there wasn't the same active decision by Members of 
the House on this specific issue as in taking it out.
    I would be interested in any of your opinions and your 
understanding of why it was not included, why it was taken out 
in the final decision and final conference report that came 
back to the House and Senate?
    Mr. Carnes. I don't have any information on that. I don't 
know how that happened or the circumstances under which it 
occurred, but if you permit, I would make these comments. DHS 
is complying with the provisions of the CFO Act anyway. Even if 
we wanted not to, we couldn't get away with it because these 
guys would make it impossible for us to do so. So we do adhere 
to the provisions of the CFO Act with respect to 
accountability, integrity and the like and are meeting all 
those requirements as well as the requirements that OMB places 
on us for financial statements. I think in that sense, I would 
say we are certainly adhering to those provisions.
    I think Ms. Springer said earlier that the administration's 
position is we would not object to having those codified but 
that is where we are right now.
    Mr. Platts. I do want to explore that further in the sense 
of what you are doing and what you have to legally do and that 
relates to long term structure and statutory requirements.
    Do any of the other three want to conjecture a thought as 
to the decision? If not, that is fine but I wanted to give you 
that opportunity.
    Ms. Springer. I will just comment for the record that I was 
not a part of that and I guess the previous Deputy Director for 
Management at OMB would have been the most involved individual.
    It is my understanding that the combination of all the 
management type functions under the Under Secretary was deemed 
to have value, the coordination under one head of the CIO, the 
procurement, the financial CFO functions. I wasn't a part 
obviously and no one asked for my input to that. I wasn't even 
confirmed at that point but I think the basic thrust was that 
the coordination of those under one Under Secretary had some 
value. I don't understand the process of the timing but I think 
that was the thrust behind the structure.
    Mr. Platts. Maybe we will kind of lead into the next 
question which was going to be on the administration's 
position. I understand you weren't involved in the initial 
structure being established but are in the position now dealing 
with that. Doesn't it seem somewhat inconsistent that DHS is 
the only Cabinet level agency that is not under the CFO Act and 
does not have a requirement for Senate confirmation of its CFO. 
I know DOD, Transportation and all the other departments have 
that requirement such as specific Senate confirmation. Do you 
acknowledge that inconsistency? Is it OK or is there another 
position of the administration?
    Ms. Springer. A couple of points. I believe the Department 
of Justice CFO may also not be subject to confirmation. I 
believe it was Public Law 106-113 subsequent to the CFO Act.
    Mr. Platts. I would add that change was done in a similar 
fashion, one line in a very omnibus bill, not by the committee 
with oversight and not in a conscious light of day way.
    Ms. Springer. Those would be the two Cabinet agencies. I 
will tell you how I operate and how I view this as the 
Controller at OMB. I don't really make a distinction between 
the Cabinet agencies, they are listed separately in the CFO Act 
and subject to Senate confirmation and the other agencies like 
GSA, previously FEMA and some of the others listed, USAID, 
others listed separately and not subject to Senate confirmation 
where the agency head appoints the CFO. I have found that all 
of the CFOs, regardless of being subject or not to 
confirmation, have followed the spirit and the substance of the 
CFO Act. There has been no distinction in the performance and 
the standards to which they hold themselves. All these people 
have professional standards anyway as CPAs, professional 
designation or organization responsibility, as well as, as you 
said earlier, their stewardship responsibility as officials in 
Government. I have never seen any difference between those 
confirmed and those that are not in their practice, how they 
manage their organizations. And they have all held themselves 
to a very high standard.
    The administration currently has been working with Congress 
to explore ways to reduce the number of Senate confirmed 
positions. I haven't been a part of that directly but I am 
aware of it and the CFO position is one that is currently being 
reconsidered for not being subject to confirmation across the 
board.
    Mr. Platts. Would that be all CFOs and all Cabinet level 
agencies? My understanding is DOD may not be included in that.
    Ms. Springer. Someone brought that to my attention the 
other day. What I learned was there is a basic premise that all 
Deputy Secretaries and all Under Secretaries would be subject 
to Senate confirmation. It happens that the CFO at the 
Department of Defense is an Under Secretary position, so on 
that basis, they would be subject to confirmation but not for 
any other reason related to the substance of the CFO position.
    Mr. Platts. Doesn't that get into the issue of consistency 
and why the DOD CFO is deemed necessary to be an Under 
Secretary reporting directly to the Secretary of Defense and 
DHS contends one doesn't need to be at that level, can report 
to an Under Secretary, not have direct access as well, and not 
be Senate confirmed? So there is a substantive inconsistency 
between what the administration's position would be at DOD, 
CFO, high level, direct access, Senate confirmed; DHS, lower 
level, no direct access, no Senate confirmation. That is a 
significant inconsistency that doesn't seem yet to be explained 
by the administration or why they support that inconsistency.
    Ms. Springer. There are a couple issues you raise. We could 
certainly talk about the effectiveness, what value the 
reporting relationship has to the effectiveness of the CFO. I 
think you would find the reporting relationship is less a 
determinant than the qualifications and the expertise and the 
management capabilities of the CFO. Than whether or not they 
have one box in between or two boxes in between, or they are 
reporting to the Secretary.
    I don't know why the DOD position is at the Under Secretary 
level. I can tell you that was the only reason why that one 
position was in this proposal. This list is still subject to 
confirmation. It is not a function of their duties. It was just 
the basic assumption that Under Secretary and Deputy would 
continue to be subject to confirmation.
    Mr. Platts. On your comment that you don't think the direct 
reporting would have an impact, in the private sector you 
served in a Chief Financial Officer position?
    Ms. Springer. Yes.
    Mr. Platts. It did not benefit you in your role as Chief 
Financial Officer to have direct access to a CEO as opposed to 
going through another layer of management before your feedback 
was able to be received by the CEO?
    Ms. Springer. I have had financial responsibilities where I 
have had one layer removed, two layers removed and so on and in 
any case, I felt my effectiveness was more directly a result of 
my own knowledge of the business, financial expertise and 
ability to lead that group. You find ways to be able to get to 
the CEO, one way or the other. My empowerment was really not a 
function of the reporting relationship candidly.
    Mr. Platts. So your position is from your comfort level 
that your opinion and expertise on financial matters was not 
enhanced. You didn't have greater comfort knowing you spoke to 
the senior officer in charge of the company. It wasn't enhanced 
versus having to work your way or try to find a way around 
another level of management. It seems natural that you get to 
talk to the final decisionmaker who is going to act on what 
your work is and it is not edited, not changed in any fashion 
by somebody in between you and that other officer?
    Ms. Springer. That really got to the level of confidence I 
had in anyone who was in between me and the CEO. If I was 
confident that I was able to communicate through that person, I 
had no problem with it whatsoever.
    Mr. Platts. That goes exactly to the issue here.
    Ms. Springer. My own personal effectiveness, I felt, 
honestly, Mr. Chairman, was my ability to be effective, to get 
change, to get results, and was really less a function of that 
than being able to win the confidence based on my knowledge and 
ability of the position.
    Mr. Platts. Your comment goes exactly to the issue here. In 
1990, the Congress put in place by statute structurally in 
place that we didn't have to depend on what persons were in 
these offices to ensure there was good feedback, ensure the 
qualifications of those people in the CFO positions and direct 
access to the Secretary, the chief officer of whatever agency 
it was. It wasn't dependent on who was in between; it was 
guaranteed. In other words, it is permanent statutory structure 
as opposed to what now is a decision of this administration to 
comply with the CFO. There is no guarantee that the next 
administration will choose to do that. They could say, we don't 
like the CFO Act, we are not required to follow it, so we're 
not going to.
    Currently, CFOs reporting to an Under Secretary, we could 
have great confidence in that Under Secretary that what you 
pass on truly gets to the Secretary. That may not be the case 
in this administration with whoever the next Under Secretary is 
or perhaps the next administration. That is what we think is 
the shortcoming in the way DHS was established, that it is not 
ensuring in a structural sense the best scenarios versus 
relying on personality only.
    Ms. Springer. I understand your issue. Obviously as the 
Controller, I am concerned that a financial management issue 
has the highest level of attention. I will tell you I don't 
think a direct reporting relationship to a Secretary is 
necessarily a guarantee that it will get any more attention 
than it would if you had a strong Under Secretary that is 
working with you and can devote time. Clearly in an agency like 
Homeland Security, the Secretary has many things to do and I 
would think it might be helpful to have someone else working 
with you.
    I understand your point and I think it can work.
    Mr. Platts. I am going to let other Members jump in here 
but on the same line, with the Senate confirmation and your own 
qualifications are great, were well reviewed and considered a 
part of your own confirmation process. The CFO Act requires 
your position to be Senate confirmed. Would you agree that 
going through a Senate confirmation, you or anyone, adds 
additional scrutiny, additional accountability to one's 
qualifications to make sure somebody doesn't slip through who 
has fabricated diplomas, fabricated their education, their 
background, their work experience, that Senate confirmation 
adds additional scrutiny to that selection who is given some 
tremendous fiduciary responsibilities? Would you agree that the 
confirmation process adds that scrutiny, that additional 
accountability?
    Ms. Springer. I would agree that the people involved in the 
confirmation process of the appropriate Senate committee 
provides another set of eyes in individuals reviewing the 
credentials. I would also say that prior to getting to that 
point, I was subject to a great deal of scrutiny on behalf of 
the people evaluating me before it even got to the point of the 
Senate. I don't think it would have gotten to that point of 
recommendation to the Senate unless I had cleared just as high 
a hurdle. I think the hurdles were very high getting to that 
point. So clearly it is another set of eyes but it didn't raise 
the bar any in my judgment.
    Mr. Platts. I may stand corrected but my understanding is 
under the current Under Secretary for Management in DHS, one of 
the other senior personnel that is not Senate confirmed has 
some issues that came to light late in the process regarding 
the accuracy of qualifications submitted that were not caught 
by the administration's vetting of that person for a senior 
management position. If there were Senate confirmation, more 
likely maybe it would have.
    Ms. Springer. I am not familiar with that.
    Mr. Platts. I don't want to go into detail because of 
making sure I have my facts right but to move away from Senate 
confirmation, to additional accountability. When the 
President's management agenda is emphasizing more 
accountability, especially in the area of financial management 
and it seems like we are saying one thing and in action, saying 
we really want less accountability in who we choose to put in 
these positions. From the administration's position, that seems 
pretty inconsistent to me.
    I don't want you to think I am just picking on you because 
I do have a lot of questions but I want to let the ranking 
member have an opportunity and Mr. Turner and others who may be 
here later. I will now recognize the gentleman from New York, 
Mr. Towns.
    Mr. Towns. Thank you, Mr. Chairman.
    Let me also associate myself with the remarks made in 
commending our witnesses on their years of public service. I 
would like to join in that comment.
    Let me begin with you, Mr. Williams. You testified about 
inadequate controls over security screener contracts at the 
Transportation Security Agency. Apparently inadequate 
monitoring of contracts allowed contractors to charge 97 
percent more than the contractors charged air carriers prior to 
Federalization. That seems outrageous. Do you know how much 
money was lost through this overcharging and whether the 
department has made an attempt to recover these funds?
    [The prepared statement of Hon. Edolphus Towns follows:]
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    Mr. Williams. I do not have a number as to how much money 
was actually lost or if there was any money actually lost. In 
the audit process, we were basically looking at the procedures 
for the purpose of deciding whether we could rely on various 
controls, so I do not have a specific number. We can followup 
to see in the followup work if there was a number determined 
but I do not have one at this particular time.
    Mr. Towns. But it looks like money was lost, doesn't it?
    Mr. Williams. We will followup and see. In a control 
environment like that, you have the risk of money being lost 
but whether it is lost or whether it is inefficiencies, we will 
take a look and provide an answer for the record.
    Mr. Carnes. Mr. Towns, could I add something?
    Mr. Towns. Sure.
    Mr. Carnes. That contract was entered into before DHS was 
created. That contractual relationship has been severed and the 
Department of Homeland Security will be seeking to recover 
funds.
    Mr. Towns. So money was lost?
    Mr. Carnes. Lost but we know where it is.
    Mr. Towns. We don't want to use stolen, do we?
    Mr. Carnes. No, we don't want to characterize it in any way 
except we believe we paid more than we should have for that 
contract and we are seeking to recover those funds.
    Mr. Berman. One more clarification on that. The IG's office 
now has an extensive audit underway on that contract in 
conjunction with the Defense Contract Audit Agency. The work is 
still underway but when the work is completed, the costs that 
are questioned, including costs that have not been properly 
documented or costs that at least appear to be excessive, will 
be resolved by the contracting officer. It is a complicated 
contract and we can certainly endorse the previous findings of 
the Department of Transportation IG that proper oversight of 
this contract was not maintained at TSA.
    Mr. Towns. Thank you. I appreciate your shedding some light 
on it.
    Mr. Williams, you testified that the INS collected $1 
billion in fees from immigration applications in fiscal year 
2002 but lacked a reliable system to track those applications 
and fees. The INS therefore had to rely on a servicewide 
physical count of over 5.4 million applications which 
reportedly resulted in a 2-week hiatus in accepting new 
applications while forms were counted. Has this situation been 
corrected?
    Mr. Williams. As of the last audit report, it had not been 
corrected. This is a process in which the agency is basically 
trying to determine what a specific number is. They are trying 
to distinguish the money that was collected that the agency can 
actually say was earned and money it has collected and has not 
earned at a particular point in time. As of the last audit 
report which is what we reflected in my testimony, the problem 
had not been corrected. The current audit should reveal whether 
the agency has made progress in this particular area.
    Mr. Towns. Mr. Carnes, can you provide any insight on this 
issue?
    Mr. Carnes. Yes. First of all, it is a complicated issue as 
Mr. Williams was saying because it has to do with the accrual 
of revenue over multiple years after a person has provided his 
fee for immigration review. That revenue is actually booked and 
earned over a period of years. So it is very complicated.
    INS has agreed with all of the findings of the audit and 
has developed a corrective action plan. During fiscal year 
2004, they will roll out the functionality to support deferred 
revenue and then hope to have the entire project wrapped up by 
2006. It is a complicated, difficult systems problem and it is 
going to take a long time and a lot of money to fix it but they 
do have a plan and they are on track with that plan.
    Mr. Towns. I guess provision is being made to seek the 
money?
    Mr. Carnes. Yes. We have a major systems initiative which 
we are kicking off which will solve many of these problems.
    Mr. Towns. Mr. Berman, let me ask you this. The problems 
are similar to those in grants management. The department's 
procurement operation inherited numerous systems, some of which 
lack important controls. Does the department have an action 
plan to reach a contract management system that will ensure 
effective and efficient use of tax dollars?
    Mr. Berman. The department is still building its systems 
and until recently, the CFO was also the acting chief 
procurement officer. It now has a procurement officer in place. 
It has established review procedures not only to cover new 
contracts, but to go back and assess, as we suggested, the 
contracts they have inherited to make sure those contracts are 
consistent with Homeland Security's objectives and consistent 
with other contracts in the same area. However, there is a long 
way to go and in our audits of individual contracts, we 
continue to find major problems that were inherited from the 
component agencies and need to be dealt with.
    Mr. Towns. Mr. Carnes, do you have any comments on that?
    Mr. Carnes. Yes. One of the things Mr. Berman is talking 
about is an Investment Review Board process which is 
essentially a process modified from a DOD model. DOD knows how 
to make contracts and they know how to manage contracts. They 
are very good at it, the best in government when it comes to 
managing projects and managing contracts. We are borrowing 
their practices wherever we can and creating an Investment 
Review Board to review all of these contracts before they are 
let is an important first step and then reviewing them 
periodically throughout their execution to make sure they are 
on track.
    Second, we are doing a Joint Requirements Council which 
makes sure if this guy is buying airplanes and that guy is 
buying airplanes, seeing if we can buy one airplane to satisfy 
both requirements rather than multiple airplanes.
    We are also requiring that we have certified project 
managers on top of our projects so they are managing the 
projects according to the proper procedures such as earned 
value management systems.
    Yes, I think there is a weakness in our contracting 
performance. I think the expertise varies across the department 
but we are taking the best where we can find it and we are 
going to build to the best there is.
    Mr. Towns. Will we have another opportunity to ask more?
    Mr. Platts. Yes.
    Mr. Towns. Thank you. I yield.
    Mr. Platts. Mr. Turner, do you have questions?
    Mr. Turner. Thank you, Mr. Chairman.
    I certainly appreciate the chairman's efforts here to make 
certain we have as much information as possible as we look at 
the important issue of homeland security.
    Mr. Carnes, in looking at your testimony, I am intrigued by 
your statement right before your closing. I served as a mayor 
of an organization that had 3,000 employees, a half a billion 
dollar a year budget. I always wanted as much information as 
possible because the more information and the more eyes we have 
looking at something, the more we had an ability to make the 
correct decisions about what would be best either cost 
effectively or to serve our community or public.
    In your statement, you object to the fact that Section 3 
includes a requirement that an audit opinion of the 
department's internal controls over its financial reporting. 
This is what intrigues me. You say, ``An audit of internal 
controls would be costly and place excess demands on limited 
staff.'' We can all have separate opinions on what is costly 
and what would be a return but the next sentence is what 
troubles me. It says, ``We believe that audits of internal 
controls should be reserved for special and unique situations 
where waste, fraud and abuse or misstatements are identified in 
the course of other audits or internal reviews, inspections or 
evaluations.''
    Don't you believe that audits of internal controls might 
find circumstances of waste, fraud and abuse where the other 
levels of audits or reviews might not?
    Mr. Carnes. Possibly.
    Mr. Turner. How can you go to the next step of saying that 
you think it is not cost effective? Do you have a 
quantification of what level of fraud and waste you are willing 
to accept that you won't find?
    Mr. Carnes. No, actually, I don't. You can make an argument 
that you cannot accept any and that you would spare no expense 
at all to avoid having $1 being misspent. Right now on our 
audit, we are spending almost $11 million. That is a lot of 
money for a financial audit. It is worth it. We believe that. 
The audits in the past of the components that have come into 
Homeland Security have identified numerous internal control 
weaknesses. In fact, I would say most of the serious problems 
that have been found before are internal controls related 
issues. I take them very seriously.
    The estimate that Mr. Berman gave for the cost of another 
internal control opinion would be another third on top of that. 
I still think that is a lot of money. I am not opposed to 
internal control audits. At the same time, I have to figure out 
how to get a foot into a tiny shoe. I have to manage the budget 
of the department and try to get best value for the resources.
    I know that our friends in GAO as well as the IG constantly 
advise us of problems they see in internal controls. We have 
over 200 and some ongoing GAO audits right now, reviews and 
studies and where we find these problems, we directly attack 
them. They are very important to us.
    In addition, in my own office, I have an internal review 
function which I use as sort of my own IG, if you will, in-
house, so that we can detect these things ourselves. My only 
issue here is principally a question of let us be sure we have 
a good basis upon which to require the audit and that it is 
resourced.
    Mr. Turner. Let us pause for a second because you admitted 
in your testimony that an audit of internal controls would 
likely identify waste, fraud and abuse that other types of 
audits or internal reviews do not. We know that the Department 
of Homeland Security is the largest government reorganization 
in 50 years, so you are not just an organization that has been 
operating, you are in process of pulling together many 
different organizations. An audit of internal controls is 
reviewing the processes by which that is done.
    It would seem to me that specifically in the Department of 
Homeland Security that your margin of error, the process of 
running while at the same time you are organizing, would lend 
itself to greater difficulty in managing the organization and 
any additional information you have, you would want and not be 
opposed to.
    Mr. Carnes. I am never opposed to more information. I am 
not suggesting in my testimony that I would be opposed to 
additional information. I am suggesting only a kind of cost 
benefit calculus.
    I would also note that so far as I can tell, we would be 
the only department in the government that would be subject to 
this requirement. That seems to me to be somewhat anomalous. In 
addition, as I said before you came in, our friends at OMB have 
suggested what we ought to do is do a cost benefit analysis and 
see what the likelihood is of the return on such audits and see 
where we go from there.
    Mr. Turner. To switch the issues for a moment, the issue of 
Senate review, one of the issues that was discussed was the 
process of that review that would result in a review of 
qualifications. I would like everyone to talk about the issue 
of independence. It seems to me with such a process, it might 
provide greater independence. We know there are issues at the 
Department of Homeland Security that would require some pretty 
aggressive effort to make certain we meet the threats we have 
in front of us but also the performance we need to address 
those threats.
    We just had a hearing this week in the National Security 
Subcommittee about the lack of an overall threat assessment for 
first responders so that we can have some national standards 
for what types of equipment, either technology or protective 
equipment and that appears to be something that needs to be 
ongoing.
    You referenced issues of information technology. We have 
issues where as you look to the systems you have, what would be 
the most efficient and effective as you transform your systems 
that indirectly are financial in their implications, the area 
of independence and going through the confirmation process. Mr. 
Berman.
    Mr. Berman. Our office is very supportive of the 
confirmation process for the exposure that it affords to an 
open discussion of the major management challenges, financial 
management challenges, and the possible solutions to those 
problems. Again, the confirmation process itself is certainly a 
valuable process.
    To the extent that a person is chosen to be CFO, or any 
other position, it offers them the chance to present their own 
feelings and plans to address these issues. It is important to 
be able to track those statements and promises as they continue 
in the position.
    Mr. Carnes. I have unfettered access to the Secretary if I 
need to get to him. I don't feel any infringement upon my 
independence or my ability to speak my mind. I will say that in 
development of our 2005 budget submission to OMB, we spent an 
incredible amount of time with the Secretary, over 4 days. I 
have never spent that much time with a Cabinet officer in any 
of my previous positions as CFO as I did with Secretary Ridge 
in carefully and elaborately and in detail going through all 
the budget. So I did not feel in any way restricted in my 
access or in my ability to communicate. I spoke my mind very 
frankly to him.
    Mr. Williams. Mr. Turner, I would like to touch base on a 
couple points because I think they are linked and one goes back 
to the chairman's point about whether the agency should be 
included under the CFO Act.
    I was involved in the original development of the CFO Act 
and in the late 1980's and leading into 1990 when the act was 
passed, the concern was that while we might have individuals in 
the current administration who are very supportive of financial 
statement audits, etc., there is no guarantee if you don't put 
this in statute that 10 years down the road you are going to 
still have this structure in place, that you are still going to 
have this commitment.
    Also, during that time, I think Congress was able to see 
that the Chief Financial Officer should be a major player, a 
key player in the senior management of a Federal organization. 
Having that information, one of the things we noticed during 
that timeframe was that the CFO in a lot of instances was not 
at the table with senior management when a lot of decisions 
were being made. The CFO had a lot of responsibility outside of 
financial management and for the financial management that the 
CFO was involved in a lot of instances, that focus was 
primarily on the budget. There was not a lot of emphasis on the 
accounting and putting together financial statements for 
audits.
    Having said all that, one of the key factors in looking at 
the CFO as far as independence and confirmation, I think going 
through the process would add some prestige, would give the CFO 
if properly placed in the organization a position at the table 
with senior management to be involved in the key decisionmaking 
that goes on at the various Federal agencies.
    While this is one model and there are other models that 
could work, the key factors that you would have to look at are 
is this individual qualified, is this individual at the table 
when key decisions are made, is this individual listened to 
when he or she brings a point of view to the discussion.
    Ms. Springer. I would offer this additional comment to what 
I had said earlier. If Mr. Carnes had gone through the Senate 
confirmation process I went through, he would not be CFO at 
this date. There was a 7-month waiting period. All the things 
he has done would not have been done. So I am very happy, 
frankly, that Mr. Carnes didn't have to go through that.
    Mr. Turner. I was concerned there for a moment you thought 
there was a problem in his background. [Laughter.]
    Ms. Springer. I use myself as a current example. It was a 
very, very frustrating situation to have to wait for 7 months 
before I could be involved and actually productive. In an area 
like homeland security where there is such a criticality in 
being able to get some of these things addressed, it would have 
been a tremendous setback or loss for Mr. Carnes to not be 
engaged right from the very beginning. I just offer that for 
some perspective.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Platts. Because of Mr. Carnes' position at Energy, he 
was already a Senate confirmed appointee and would be in his 
position today because he already had that Senate confirmation.
    More to the point, Ms. Springer, I agree the process in the 
Senate is flawed. The fact that 1 out of 100 can put a hold on 
somebody, that is not democracy at work; that a minority can 
stonewall and when our founding fathers established the 
filibuster process, they didn't mean you could go home and go 
to bed and filibuster while you were sleeping, they meant you 
stood on the floor of the Senate and filibustered to keep 
something from happening. I think the rules of the Senate need 
some dramatic reforms to ensure that the will of the people, 
the majority, carries the day and not the will of 1 over 99.
    The problems of the Senate and the need for reform within 
the Senate I think doesn't argue, in my opinion, to the point 
that we should do away with other well intended, proven 
statutory requirements such as the CFO Act that has been in 
effect for over a decade.
    Mr. Williams you went to the point that the current 
administration and the staff at DHS in particular, you are 
following CFO requirements even though you don't have to. We 
have someone of great caliber in the position of CFO. You have, 
as you said, unfettered access to the Secretary but that is 
today. The history of years and years and years of 
administrations, Republicans and Democrats, was that caliber of 
personnel and that focus on the issues you are focusing on, a 
testament to Secretary Ridge and the time he spent with you, 
was not the norm. That is why it was put in statute to say this 
will be the norm, not dependent on who is Secretary or who is 
the CFO. That gets to the very issue of why we think this needs 
to be done.
    I have a lot of followup questions besides all the ones I 
wanted to get into and I am going to try to focus on them. Mr. 
Carnes, in your statement regarding the internal audit, I am 
going to come back to that issue but sticking first with the 
issue of the CFO's position and how he is regarded within the 
department and outside if he is not Senate confirmed, if he is 
not guaranteed direct access.
    In talking about internal audits with Mr. Turner, you said 
your understanding was DHS would be the only department 
required to have audited internal controls and maybe that seems 
inconsistent, and why would we do it for DHS. Doesn't that 
translate to given at every Cabinet level agency, a CFO 
position is Senate confirmed and direct access is guaranteed 
and for that same reason, consistency while we should do the 
internal controls, based on your statement, we should have CFOs 
be Senate confirmed or the DHS CFO be Senate confirmed and have 
direct access?
    Mr. Carnes. I figured as soon as I said that, you would ask 
me that question.
    Mr. Platts. It seems like a natural one to follow.
    Mr. Carnes. Maybe the question is whether anybody in this 
position should be confirmed. I suppose that is the question on 
the table, whether these positions in fact rise to the level 
that requires Senate confirmation. I believe that is the issue 
really being addressed in the administration's position.
    I guess I would say that I do my job the same way now that 
I did it when I was confirmed. There is no distinction. I do 
the same things, I have the same worries, I have the same 
concerns.
    Mr. Platts. Your point about whether any CFO is of the 
level that should be Senate confirmed is a valid response but 
today that is the case. If the administration or the Senate 
decides to take 80 some positions and say these shouldn't be 
Senate confirmed, that would be the place then to say we have 
made the DHS CFO consistent with DOD, consistent with 
Transportation and all the other agencies, and now we are 
inconsistent and for all of them we are going to eliminate that 
problem. That is a debate that may or may not happen. Today, 
all the CFOs are required to be confirmed.
    The other aspect if you do your jobs the same is your 
unfettered access. You talked about the 4 days specifically. 
Day in and day out, do you report directly to Secretary Ridge 
or to the Under Secretary?
    Mr. Carnes. The Under Secretary.
    Mr. Platts. When you were at the Department of Energy, did 
you report to an Under Secretary day in and day out or to the 
Secretary or Deputy Secretary?
    Mr. Carnes. The Secretary and to the Deputy Secretary.
    Mr. Platts. So that is different? So you are doing your job 
different today, day in and day out, you report to another 
level of management, not to the Secretary's office?
    Mr. Carnes. That reporting chain is different.
    Mr. Platts. But who you give advice to is not the ultimate 
decisionmaker, the Secretary, it is an Under Secretary. That is 
a significant difference.
    Mr. Carnes. It varies. As I said before, depending on the 
issue, I can give plenty of advice to the Secretary.
    Mr. Platts. Understood and as a proud Pennsylvanian who had 
the privilege of serving with the Secretary, then Governor, for 
6 of my 8 years in the State House, you have a great Secretary 
and a true patriot leading your agency and meeting the 
challenges. I would expect he would tell anybody, the most 
senior deputy he has to the most junior staff person in the 
department, if you think I need to know something, I want to 
hear it because that is the type of person he was as Governor.
    Mr. Carnes. That is how I read him now.
    Mr. Platts. But day in and day out, your job is different. 
You are reporting and giving advice to an Under Secretary who 
you can't confirm for certain is passing on that advice as 
accurately as you would directly give it as when you were at 
Energy, correct?
    Mr. Carnes. Correct.
    Mr. Platts. That is a big difference. That is what this 
discussion is about. I think it is important we recognize that 
difference and not say I am doing things the same way. In 
reality, you are not.
    Mr. Carnes. I do think that the Under Secretary represents 
my opinions very well with the Secretary when that comes up.
    Mr. Platts. Under the Under Secretary, we have not just a 
CFO, we have a Human Capital Officer, we have a CIO. How much 
time each week do you think the Under Secretary spends on 
financial management issues?
    Mr. Carnes. Fifty-percent of her time.
    Mr. Platts. I am curious, how do you know it is 50 percent?
    Mr. Carnes. Because we are always together, always either 
on the telephone or in her office or in my office.
    Mr. Platts. Mr. Williams' testimony about the history of 
the CFO Act, he talked about the CFO and his involvement when 
it was passed and GAO's position. ``At the time financial 
management was not a priority in most Federal agencies and was 
all too often an after thought. All too often the top financial 
management official wore many hats which left little time for 
financial management. He did not necessarily have any 
background in financial management and focused primarily on the 
budget. By establishing statutorily the position of CFO, 
requiring that the person in the position have strong 
qualifications, a proven track record in financial management 
and giving this person status as a Presidential appointee, the 
Congress sought to change the then existing paradigm.''
    Mr. Carnes. I am a Presidential appointee.
    Mr. Platts. Presidential appointee, not Senate confirmed.
    Mr. Carnes. Correct.
    Mr. Platts. As the other Cabinet agencies are?
    Mr. Carnes. Correct.
    Mr. Platts. It goes to the history, the person you are 
reporting to that is ultimately reporting to the Secretary, 
even at 50 percent that is half her time versus all her time 
being focused on this issue. That goes to Mr. Williams' 
testimony of why Congress and the intent of Congress to say 
this would be a priority. This is how we spend tax dollars.
    I want to get to some other issues and continue. One of the 
problems with not having Senate confirmation, I have seen on 
this committee and on other committees, is the administration 
would only allow Senate confirmed individuals to testify before 
congressional committees. If we do away with the Senate 
confirmation for the CFO and DHS, and ultimately perhaps with 
all these agencies, the person that will come to testify who is 
directly responsible for financial management will not be the 
person spending 100 percent of the time on the issue. That is 
my read on that. Is that a fair understanding?
    If you are non-Senate confirmed CFO, you are not going to 
be allowed to come testify before this committee.
    Ms. Springer. I know there is a policy within OMB, nothing 
written, but certainly I am familiar with OMB's policy. We have 
only confirmed individuals come up to testify.
    Mr. Carnes is here today. It would strike me there may not 
be any written governmentwide policy.
    Mr. Platts. He was Senate confirmed, him specifically, at 
Energy before he moved over.
    Ms. Springer. Right, but not in his current capacity. I 
don't know that there is any governmentwide policy. There 
certainly is within OMB.
    Mr. Platts. The practice in the sense of using this person 
that is not Senate confirmed maybe seems convenient. Maybe it 
is not a written formal policy but I have seen it used, that a 
person cannot testify if they are not Senate confirmed. This 
avoids that possibility that because of showing consistency 
across departments. That goes to the structure of what is 
required statutorily.
    In trying to be fair to my other committee members, I don't 
want to dominate the whole time, so Mr. Towns do you have 
questions? I will yield to Mr. Towns.
    Mr. Towns. I left the room so I am not sure what has been 
asked or what has been said.
    Mr. Berman, your testimony includes an appendix that lists 
material weaknesses at four of the major constituent agencies 
of the department. Can you give us some details on the affected 
agencies at which problems are in most need of attention?
    Mr. Berman. In general, I think probably one of the biggest 
single problems which threads through many of these agencies is 
the need for system functionality. A good example is the 
situation you highlighted at INS. The accounting aspects and 
the auditing aspects of that problem are really only the tip of 
the iceberg.
    It exposes the fact that INS does not have a system to 
manage its work flow. It can't tell how many applications are 
in process at any given time or what their status is. It 
obviously has accounting implications as well. It is the kind 
of systems integration and functionality problem that is at the 
top of our list that needs to be addressed. Unfortunately, that 
is going to be a long term process. As the CFO testified, there 
are already actions underway to study the requirements for 
homeland security and to translate those needs into integrated 
systems, but that is going to take time.
    There are a lot of other problems that are related to the 
individual business and accounting processes related to 
reconciliations, the accounting and tracking of payables and 
these sorts of issues that concern us and are necessary for 
efficient functioning of the financial operations.
    Again, there is a lot of commonality among these kinds of 
problems, not just at these agencies but other agencies 
throughout government. Systems security is something that also 
is common across the board. We certainly have those problems 
ourselves. It is a major concern because of the 
interconnectivity of systems. We always address that as part of 
our financial statement audits. Even if financial systems, on 
their own, are sound the extent to which they are connected to 
networks that are subject to penetration by hackers and others 
presents a major concern that results in these weaknesses.
    Those are some of the major concerns we have among those 
weaknesses.
    Mr. Towns. Mr. Williams, I would like your comments on that 
as well.
    Mr. Williams. I would agree with Mr. Berman's comments and 
would also like to add that I think this is an example that 
would demonstrate the intent that the CFO Act is working 
because when the act was drafted, there was a lot of discussion 
about opinions on financial statements. The ultimate goal or 
the intent of the act was not so much to get clean opinions on 
financial statements but to identify problems and weaknesses 
and to get agencies in a position where they had systems and 
procedures in place where they could produce timely, reliable 
and accurate information, not just 1 day out of the year but 
throughout the year on a day to day basis. I think this is a 
perfect example of where the CFO Act has done what it was 
intended to do.
    Mr. Towns. Thank you.
    Mr. Carnes, You testified you have directed various 
components of the department to create corrective action plans 
to address these 18 material weaknesses you inherited and that 
you are monitoring their progress closely. What is the current 
status?
    Mr. Carnes. If you would like I can provide that. I have it 
with me here. It is several pages long. I would be happy to 
provide it for the record.
    Mr. Towns. Mr. Berman, you testified about some of the 
problems the Department of Homeland Security faces with its $7 
billion annual grants program. Integrating the various grant 
programs is one issue and inherited problems at FEMA seems to 
be another issue. You also mentioned a number of steps that the 
Department would need to accomplish to have an effective grants 
management program in place.
    What is a reasonable timeframe to have an effective program 
in place? Has the department begun to address any of the issues 
you mentioned in your testimony?
    Mr. Berman. There's two major groups of grants that the 
department has inherited, one group from FEMA and another major 
group from the Department of Justice, particularly the first 
responder grants from the Department of Justice. Those two 
groups operate under different systems currently.
    One of the concerns that we raised early with the Secretary 
was in the case of the emergency preparedness grants inherited 
both from Justice and FEMA; they wound up in Homeland Security 
under two separate directorates. One thing we would like to see 
and that we encouraged was combining at least those grants 
under one organization.
    The individual systems for administering grants may have 
been relatively sound except we found major weaknesses in the 
monitoring end of those operations. Most of the emphasis both 
in Justice and FEMA was placed on getting the funds out the 
door but the weaknesses occurred in terms of the lack of 
oversight over States and the States, in turn, over the 
individual recipients. A lot more work is necessary in that 
area.
    The Justice Department systems, particularly the ones now 
being used to issue the first responder grants, is actually a 
very good step in terms of an automated system for operating 
the process. It involves use of the Internet and essentially 
complies with the requirements for e-grants--electronic award 
and control of those grants--which is a good first step. I 
think if that is successful, it should help in expediting the 
use of that kind of system for both what is now in the EP&R 
Directorate and in the Border and Transportation Security 
directorate.
    The Secretary, on September 2, announced his intention to 
submit a plan to Congress to combine the emergency preparedness 
grants throughout government into a single organization within 
Homeland Security. This is certainly something that GAO has 
recommended and with the appropriate systems to oversee those 
grants and manage those grants, it would be an effective way of 
assuring that duplication doesn't exist and there are 
appropriate criteria and measurement tools to assess the 
effectiveness of those grants. We endorse all those efforts.
    Some of these efforts will take time. We certainly hope 
that even within DHS as much consolidation as possible would 
take place quickly and that a model system be adopted to be 
used for all these grants so that recipients are provided one 
set of forms, one set of requirements, and an effective set of 
monitoring tools.
    Mr. Towns. Mr. Carnes, I would be interested in your 
comments too.
    Mr. Carnes. I would like to say two things. First, the 
Secretary does intend to provide one-stop shopping for States 
and localities when it comes to emergency preparedness grants 
and he is very actively working to make that happen.
    The second thing I would like to say is that I would be the 
last person to say there aren't serious concerns about some of 
the financial practices or systems that we have in DHS. Those 
problems are going to get fixed, in my opinion, as a 
consequence of a system enhancement initiative that I am 
launching now. That system initiative is as follows.
    We are going to create a unified, integrated financial and 
business management suite of systems that brings together 
finance, accounting, budget, performance, human resources, 
contracting, all the business processes of the department will 
be integrated into one system or suite of systems.
    The point here is we have to provide meaningful and 
significant information to the Congress and to our program 
managers. When I was a DFAS at one point in my tenure, we were 
trying to create lots of new systems that were CFO compliant. 
They were very expensive and we charged the military 
departments to do that.
    It was my view that if you show me a CINC that cares about 
CFO compliance, I will show you a CINC who doesn't deserve his 
job. Their job is to fight war. My job as the CFO or as the 
Deputy Director at DFAS was to provide him the financial tools 
that he needed to do that. He needed to know right now what it 
cost to fly an F-16 for an hour. It was our job to provide that 
information. He needed to know how much money he had left. That 
is exactly the kind of information our folks need at DHS and 
that is the kind of information we are going to give them.
    I brought over people who have great expertise in this from 
the Department of Defense to lead this initiative. We are going 
to reduce the number of financial systems that we have. We have 
83 now. I don't know what the final number is. We have some 
that are probably OK, some that are pretty good. We are not 
going to throw those away, we will link those. We have some 
that don't have functionality and are not good. We are going to 
shoot those in the head, we are not going to have those. We are 
going to integrate them, we are going to link them and it is 
going to provide information for our managers and for you and 
it is going to be CFO compliant if we do our job right.
    Mr. Towns. Do you have any idea in terms of the cost in 
terms of the investment needed for this system to go into 
place?
    Mr. Carnes. $150 to $200 million. That is my guess right 
now.
    Mr. Towns. I yield back, Mr. Chairman.
    Mr. Platts. Recognize the Vice Chairwoman of the committee, 
the gentlelady from Tennessee, Ms. Blackburn, for questions.
    Ms. Blackburn. Thank you and thank you all for getting 
information to us on the front end. Some days we have votes and 
committees and other things that come up and we are not here in 
a timely manner. As Ms. Springer and Mr. Williams know, I love 
these hearings. I am glad to see Mr. Carnes and Mr. Berman.
    I appreciate your openness and your willingness to provide 
us information, especially at a time like this when we have 
constituents every single day who want to know how we are 
spending their money because they are very concerned about how 
we are spending their money. They don't leave a lot of legal 
room for talk without action. They are demanding, as they 
should be because we have to remember every dollar that is 
spent is their money and it is coming out of their pockets.
    Mr. Carnes, let us go back to this system initiative and 
your suite of systems you were discussing putting into place. 
As we have gone through a series of hearings this year and 
talked with different departments, I think it always concerns 
us when we hear these platitudes and these great plans but 
there is always a sticking point it seems.
    You mentioned you think it will cost you $150-$200 million. 
How did you arrive at that estimate and on what did you base 
that estimate? Could you give us the different revenue streams 
and the different demands that are there?
    Mr. Carnes. I might say as a general matter I try not to 
talk in platitudes, so I don't think I am leading you astray 
when I talk about what our objectives are.
    What we have done is to bring on board individuals who have 
had many years experience in the development of systems at the 
highest level, finance and accounting systems as well as other 
systems.
    Ms. Blackburn. Are you outsourcing that or are these 
individuals from inside government?
    Mr. Carnes. Both.
    Ms. Blackburn. And the number of individuals is 83?
    Mr. Carnes. That is the number of systems that we have to 
lasso together.
    Ms. Blackburn. So you brought the individuals from both 
inside and outside of government. How long have they been 
working on this to date?
    Mr. Carnes. Four months.
    Ms. Blackburn. What is your timetable for having this 
finished?
    Mr. Carnes. It depends. I can do it in 2 years or I can do 
it in 5 years. It depends on cash-flow and financing the 
development. It will cost less ultimately to do it quickly but 
each year's increment is big.
    Ms. Blackburn. What system are you modeling this on?
    Mr. Carnes. We haven't picked our system.
    Ms. Blackburn. Who is developing your system 
infrastructure, your architecture?
    Mr. Carnes. Catherine Santana, sitting right there.
    Ms. Blackburn. Her background is what?
    Mr. Carnes. She was developing the DOD system architecture.
    Ms. Blackburn. The DOD system has not been completed, 
correct?
    Mr. Carnes. Has not been completed.
    Ms. Blackburn. It has been in process how many years?
    Mr. Carnes. Many years and it is going to be many, many 
more years.
    Ms. Blackburn. They have already spent how much on it?
    Mr. Carnes. Lots. I don't have the number for you right now 
but it is a lot of money. I will tell you this though. DOD has 
made major progress, is getting clean opinions on various 
components of the Department of Defense, and systems have been 
rolled out and Ms. Santana has developed them and rolled them 
out that are JFMIP certified, that are CFO compliant, that are 
used throughout the entire Department of Defense and that are 
cheap to run and maintain, state-of-the-art.
    Ms. Blackburn. I appreciate that but I think at the same 
time while you are looking at a suite of systems and need that 
for your management for your grants, for your contracting and I 
appreciate that, I would submit to you for consideration that 
possibly the fact that we are in need of funds for many 
different things within government, there is maybe not an 
ongoing willingness from the taxpayer to continue to see tax 
increases, they like to see those reductions and are looking 
for greater efficiencies, that such an answer and such an 
expectation may have a tendency to cause concerns from some of 
my constituents.
    Mr. Carnes. Yes and actually I am not planning to ask the 
Congress for money.
    Ms. Blackburn. You are going to do it out of existing 
revenue?
    Mr. Carnes. I am going to do it out of the investments that 
are currently underway in the department on systems some of 
which need to be stopped, some of which need to be shrunk, and 
we will use those resources to finance this. We have an 
addition, they work in capital funds that has resources in it 
the purpose of which is to do major capital investments of this 
nature.
    Ms. Blackburn. Mr. Carnes, have you all worked with Mr. 
Berman in identifying some processes and programs that could be 
terminated and funds redirected? mr. Carnes. I don't think I 
have gone to Mr. Berman with my recommendations yet and asked 
his view but I think he would agree with me in general. I 
haven't identified the specific ones but I think he certainly 
agrees with the principle.
    Mr. Berman. I would agree.
    Ms. Blackburn. Thank you all again so much for submitting 
your information.
    Mr. Berman, you had submitted the addendum to 18 material 
weaknesses and your testimony referenced there may be more that 
would come to light. In light of Mr. Carnes' comments and this 
appendix in your comments that there may be more weaknesses, do 
you have an idea where those are coming from and what your 
findings are?
    Mr. Berman. At this stage in our audit, we are deep into 
the planning phase where we are examining those systems, and we 
are examining the status of the 18 material weaknesses. The 
number itself may change in either direction and that amount 
could actually be reduced because some of the weaknesses that 
were identified might have been material to the individual 
components but not with DHS as a whole. It is also possible 
that new material weaknesses will come to light.
    Part of our work is doing penetration tests of these 
systems to see whether they can withstand the kind of 
techniques that hackers and others might use. Material 
weaknesses on information security are common throughout the 
government.
    Again, the number could go up or go down, and some may get 
consolidated. The important thing is that for weaknesses that 
are material to Homeland Security, whether 18 or less, that 
there is an effective plan for dealing with them.
    Other weaknesses that may have been material before and 
might fall into a lower category called a reportable condition. 
Those also get attention and all of these issues are tracked by 
our office to see that all such weaknesses are fixed. So the 
number itself is not as meaningful as whether we capture all 
the weaknesses and there are action plans to fix them.
    Ms. Blackburn. Speaking for myself, we grow a little weary 
at hearing after hearing as we hear, we just can't get our 
hands around this technology, that it is running us instead of 
us finding a system that works. I think that becomes a point of 
frustration. There is a recognition of the problem that there 
does not seem to be a desire--not really a desire, that is not 
fair. There is not really an action that is moving toward 
solutions.
    Mr. Berman. I think there is a realization in government 
that some of the early efforts to develop what I would call 
mega systems--the $100 million class--from start to finish in-
house, have been enormous failures. A lot of money went down 
the tubes and we have very little to show for it. There 
certainly seems to be an effort now and a recognition that 
probably the best way of getting new systems up and running is 
to basically use off the shelf systems that have proven their 
worth, have been tested and accepted by OMB, GAO and others, 
and adapt the procedures of the departments and agencies to 
those systems. They may not be perfect, and they may not answer 
all your questions and problems, but it is better to have 80 
percent of the problem solved within a year with those kinds of 
systems than have no system after 5 years and $100 million down 
the tubes.
    Ms. Blackburn. And I agree with you. When that enterprise 
architecture is there, it is a shame not to go in and pull what 
can be used from development of certain software applications 
or certain programs or certain languages and not apply that to 
what you are continuing to work for.
    Mr. Berman, before I leave you, your OIG budget was 
increased by $12 million from fiscal year 2003 to 2004. Can the 
$11 million required for the fiscal year 2004 audit be 
accommodated within that increase or is there going to be an 
additional request?
    Mr. Berman. The increase is somewhat misleading, Ms. 
Blackburn. Basically, we were funded for 7 months in fiscal 
year 2003. The increase for fiscal year 2004 was developed 
without our participation. The OMB basically assigned that 
number. We are not exactly sure what it was based on.
    It certainly accommodates the staff and the expenses of the 
staff that we inherited. Unfortunately, neither the 2003 
estimate nor the 2004 estimate included any money for the 
financial statement audits. For the first year, fiscal year 
2003, with the efforts of our office and the CFO's office, we 
went back to the constituent agencies and basically asked them 
to contribute their fair share, particularly if they had funds 
allocated for that purpose for the whole year before the advent 
of Homeland Security.
    We still came up short and both the CFO's office and our 
office kicked in a total of $6.8 million--$3.8 million from 
OIG--to assure the completion of this year's audit. No such 
arrangements have been made for 2004 and quite frankly the IG's 
cupboard is bare. We are no longer capable of contributing $3.8 
million to the CFO audit without seriously impacting some of 
our other programs. For 2004 particularly, that could be a 
problem.
    We don't really care whether funds are provided to us or to 
the department but certainly very soon we are going to need a 
confirmed revenue stream so that plans for the 2004 audit can 
begin. We effect the cost of the 2004 audit to be in the same 
ballpark, about $11 million. There will actually be savings in 
some areas but the $10.6 million that was spent this year 
excluded TSA who decided to go on their own with a full audit.
    We will be doing all of the components next year but there 
will be some savings because we will no longer have to spend 
quite as much on opening balances.
    Ms. Blackburn. Mr. Carnes, going back to you with the 
system, do you feel you have the financial resources and the 
human resources necessary to build the financial management 
system the way you envision it for the department?
    Mr. Carnes. No, but I can get them.
    Ms. Blackburn. Without additional costs?
    Mr. Carnes. No.
    Ms. Blackburn. And an estimated cost?
    Mr. Carnes. That is wrapped in.
    Ms. Blackburn. To the $150-$200 million?
    Mr. Carnes. Yes. That includes the resources for contractor 
support to assist us in the development of requirements and 
then in the assessment of system options.
    Ms. Blackburn. I have gotten confused somewhere. I thought 
you said you could do this by reallocating?
    Mr. Carnes. Yes. I don't mean to mislead you here. I will 
reallocate those funds and use those to acquire contractual 
support as well as actual of the shelf system costs.
    Ms. Blackburn. Just to be sure that I understand what you 
are saying, you can do what you need to do within the existing 
appropriations that you have?
    Mr. Carnes. That is what I think now. I don't want to 
appear ``dodgy'' on this, but one of the things we are going to 
do first off is meet with all our component heads and make sure 
we know exactly what they need for information to manage their 
businesses. We have a sense of what those requirements are 
going to be and what those requirements will cost in order to 
satisfy but when we get further into this, we may find we have 
other requirements that we haven't yet anticipated.
    I do have a funding plan for what we now envision as the 
scope of this.
    Ms. Blackburn. Mr. Williams, as we talk about looking at 
the State and local agencies, not only with the grants but with 
the organization management and with the technologies, what is 
the best way for the department to go about remedying its lack 
of protocols or interface with State and local governments?
    Mr. Williams. One of the areas that I also have 
responsibility for at GAO is the single audits. In looking at 
those, you have the Federal Government and then you have money 
going out to the various States, non-profit organizations, 
sometimes to the counties, etc. In an environment like that, 
you are faced with each of those entities can be unique and you 
have to work with each one of them.
    I heard statements here today about putting in place 
procedures to make sure you are consistent in how you deal with 
all these agencies. That is a good step, to make sure that you 
have those procedures, that they are consistent, that what you 
are doing in the northeast part of the United States is the 
same thing you are doing in the southwest.
    It is also going to require a tremendous amount of 
oversight and monitoring by the Federal Government because each 
of these entities can have some uniqueness and you will have to 
work with them to make sure they are carrying out the program 
or programs in the manner the Federal Government intends for 
that money to be spent.
    Ms. Blackburn. Ms. Springer, as we look at the blending of 
the departments and at establishing good business practices, 
how much effort is going into to reducing duplication of 
systems and services and programs?
    Ms. Springer. I think as Mr. Carnes mentioned, there are 83 
systems coming in; there will clearly be a much smaller number 
going forward. It is OMB's view in our Financial Systems 
Branch, as we looked at the legacy agencies and the systems 
that were coming into the combined entity, that there is a wide 
spectrum of capability in those systems and functionality. 
Clearly as it is harmonized, it is going to be much more 
efficient and redundancies would be eliminated.
    We would feel this is really a good template in effect for 
what could be done throughout the government. If we can do it 
at this agency, that is a good model for what we can do with 
other agencies. For example, right now we have a project 
underway with the CFOs to look for future financial system 
upgrades to be able to do those as joint efforts because in the 
end all agencies will be doing certain core financial functions 
together of the same type, paying bills, accounts receivable 
and payable.
    There is a project underway right now but it would be 
modeled by, to some degree, what is happening right now at the 
Homeland Security Department. We believe there is a great 
potential for eliminating redundant and wasteful systems, 
picking the best of the bunch and making those apply across the 
board.
    Ms. Blackburn. Thank you. I appreciate all of you and your 
time and interest.
    Thank you, Mr. Chairman.
    Mr. Platts. Thank you, Ms. Blackburn.
    A bit on the previous questions of my colleagues. Mr. 
Carnes, you were appreciative of Dov Zakheim's work in Defense 
and his deputy, Larry Lanzolotta and the progress they are 
making and some of the clean opinions. We have had Mr. 
Lanzolotta here before us and gave us a good overview of the 
direction you are heading and a positive direction they are 
going and the positive results.
    I believe one of the questions to him was his certainty in 
success. When he talked about we are going to eliminate this 
system that is not working and put it into this system that is 
going to work, his certainty that he could do that, and part of 
his answer was because of the position of Under Secretary 
Zakheim, being at the level, having that direct access and he 
deals with the other Under Secretaries for Intelligence, for 
Readiness, for Policy, he is on their level going right to the 
Secretary. He is Senate confirmed, he has that direct access.
    When I translate that to DHS, we have taken the CFO and not 
followed that model that we agree is working at DOD and said we 
are not going to have that same level. I look at it from what 
is the message we send. Part of that is within the department, 
if we demote the CFO, in my words, from that Under Secretary 
level, and now responds and reports to an Under Secretary, 
within the department that says to the other Under Secretaries 
well the CFO comes to me and says you have a problem with one 
of your procedures or your internal controls, unless his boss 
actually says that is not equal. Within the department and 
outside the department, it sends a message we are less focused 
on financial management and accountability.
    I look at some of the other Assistant Secretaries who have 
direct access. The Assistant Secretary for Legislative Affairs 
has direct access to the Secretary. The Assistant Secretary for 
Public Affairs but the person day to day handling the money, 
the CFO doesn't have that.
    What am I missing? To me there is this glaring 
inconsistency and DOD, in your words, is a good model and you 
are bringing people over from DOD to follow that model, why 
shouldn't we follow them in hierarchy, the structure we have in 
place, not just today but 5 or 10 years from now, that it is 
guaranteed?
    Mr. Carnes. First off, let me say I understand the thrust 
of your argument. Let me make this comment. What I see from my 
vantage point outside of DOD as a major difference is that the 
initiative that Dov Zakheim is working on and Larry 
Lanzillotta, is supported strongly, loudly and clearly from the 
top of the Department of Defense. They have put the bat in the 
dog's hands and he can swing. It doesn't matter what his title 
is and it doesn't matter, I think, whether he is confirmed or 
not. It is whether he is perceived as having a bat in his 
hands. If he is perceived that way, in the past that was not 
always the case. It was always a question of the level of 
commitment on high because even Dov Zakheim can't order these 
other Under Secretaries around unless he has the bat in his 
hand and he has it.
    Mr. Platts. One of the important words there was the 
perception. At DHS, the perception is we are lessening the role 
of CFO and add to that perception the fact that Mr. Berman 
said, we have no money in the 2003 appropriation, you had to go 
with hat in hand to collect enough money to do the financial 
statement audit.
    Given the reorganization, I think that is more 
understandable but the 2004, no allocation for the financial 
statement audit in 2004 is not easily explained. That 
reinforces the message that we are talking about these issues 
but our actions demoting the CFO, my term, we are not 
appropriating money for the audit, don't know where it is going 
to come from, and given the Sunday article in the Times which 
says every agency in DHS is strapped for cash to fulfill its 
mission, it reinforces that perception that this is not a 
priority.
    I realize you have an agency and office to represent and 
you represent that position but it seems hard to defend that we 
are sending the right message by our actions or by perception 
of those actions.
    Mr. Carnes. I am starting to feel real bad about myself.
    Mr. Platts. I am not. I think very highly of the job you 
are doing. It may not sound like it.
    Mr. Carnes. When I went from Energy to Homeland Security, I 
went from a PAS position to a PA position. In the cosmology of 
appointee positions, that is a step down, a demotion. I took a 
demotion in those terms. I am a Presidential appointee and I am 
doing a mission that is important to the country and to the 
Secretary and to the President. I think I have the juice to get 
done what I need to get done.
    Mr. Platts. I will personally tell you that I am grateful 
and I am not seeking to personally criticize your work but my 
worry is not today with the leadership you bring and the 
willingness to take that professional demotion to do such 
critical work, but what is it going to be in 5 years or 10 
years? That gets to the crux of the issue and what message we 
are sending and what message is Congress going to stand behind.
    Let me move on to some related issues. Ms. Springer, on the 
process, today under law is the CFO at DHS a member of the CFO 
Council, required by law?
    Ms. Springer. I don't know what the requirement of the law 
is to be perfectly honest with you but the CFO of the Homeland 
Security Department is an active, full participant in the CFO 
Council.
    Mr. Platts. My understanding is by law he is not required 
to be but is that your understanding, Mr. Carnes?
    Mr. Carnes. Yes.
    Mr. Platts. The administration has chosen to include him. I 
asked that because when we have had CFO after CFO, we have 
talked to some informally and some in our hearings, the CFO 
Council has been heralded as a great resource for all our CFOs 
because you can learn from each other what is working and what 
isn't working, learning from DOD to apply those and it seems it 
would be logical that we by law say this department's CFO has a 
place at the table, with DOD, Transportation, everybody else, 
and by law we want to make sure that the administration 8 years 
from now, 10 years from now doesn't say that is too cumbersome 
and is not required by law. It seems logical to require that to 
ensure that this department has that same advantage.
    Ms. Springer. Let me give you a little perspective. If I 
back up and look at the CFO Act, I don't think the 
administration would represent that it doesn't want the 
Homeland Security Department to not be subject to the act. It 
does and in every way, shape or form with two exceptions. We 
are acting that way today, the two exceptions being the 
organizational structure--the reporting structure--and the 
confirmation issue.
    I guess what I would like to think is that maybe there is a 
way we could find to work this out with respect to not letting 
those two issues be such a stumbling block, that we can ensure 
for the future, that in all the other substantive ways that the 
act would be applicable and have the full force of law for this 
department or any other Cabinet agency.
    Certainly from the standpoint of the confirmation, should 
the proposal be accepted that would eliminate confirmation 
across the board, that issue may be in the process of being 
addressed. I can't say for sure. That would leave the issue of 
the reporting structure. I would certainly hope that we could 
work with you and the Senate to find a way to deal with that.
    Mr. Platts. The 80-some positions that are being floated 
out there not to be Senate confirmed.
    Ms. Springer. I have no knowledge of that.
    Mr. Platts. My understanding is of those, none have similar 
fiduciary responsibilities that the CFOs do under Federal law 
in the sense of the finance and fiduciary responsibility, so 
there are differences in the types of positions, especially as 
Congress has perceived the CFO as a top position and senior 
position with direct responsibility and direct access.
    Ms. Springer. Again, I am sure you are right. I haven't 
seen it and haven't been part of it.
    Mr. Platts. In your position as Controller, you deal 
extensively with all our agency and department CFOs?
    Ms. Springer. Yes.
    Mr. Platts. Ballpark, what percentage of your job relates 
to that work, working with and overseeing the numerous CFOs?
    Ms. Springer. I would say at least three-quarters of it.
    Mr. Platts. Would it be the administration's position that 
if we don't need to have Senate confirmation for CFOs, that 
three-quarters of your work is to relate and work with them, 
that your position which is now statutorily required to be 
Senate confirmed, Presidential appointment, not be Senate 
confirmed as well?
    Ms. Springer. I think it may be that you could apply by 
extension that same type of logic. I am not sure. I haven't 
thought about it. I would tell you that in the 7 months while I 
was awaiting confirmation, I feel I could have done the same 
job if someone had said to me, we will exempt you from the 
confirmation, just go ahead and start.
    Mr. Platts. I think that the challenge here for you 
individually and Mr. Carnes for you is in looking at the 
institutional integrity, meaning long term, and structural 
integrity. In the example I referenced earlier, in my 
understanding at DHS the Deputy CIO is the person in question 
who is now suspended with paid leave where the administration 
made a senior appointment that apparently involved an 
individual whose doctoral degree was not a doctoral degree as 
we would normally envision, not from a Department of Education 
approved institution, not years in the works but a few hours 
and several thousand dollars in the works. So, it brought into 
question the accuracy.
    That is what the Senate confirmation, as flawed as it is 
from an internal sense, seeks to do, ensure accountability of 
these people who are placed in these senior fiduciary 
positions. There is a very extensive process as to their 
qualifications and background. That Deputy CIO isn't a Senate 
confirmed person, didn't have to go through that, and is an 
example where some apparent alleged inaccuracies in their 
qualifications have now come to light. That is what we are 
trying to avoid, not for you personally but for that 
institutional integrity of OMB and these departments because 
there is no way today's administration can guarantee what an 
administration in 10 years is going to do.
    Mr. Williams, I wanted to ask you to give me your opinion 
on that statutory requirement that the CFO at DHS be a part of 
the CFO Council and have that same level of responsibility and 
authority as the other departments.
    Mr. Williams. As I stated in my testimony we strongly 
support that the CFO at the agency, not just at the Department 
of Homeland Security but throughout the Federal Government, the 
major CFO agencies, that this individual should be one that has 
the qualifications, should be one placed in a position in the 
organization that is at the table when decisions are made and 
should be an individual that should be scrutinized to make sure 
you have an individual that is qualified to serve in this 
particular position.
    I think when we drafted the legislation we included areas 
such as budget, accounting, and financial management systems. 
So we were hitting on all those major components that we had 
observed and in some cases, we brought in individuals from the 
private sector, from the State governments, and from the 
Federal Government to get their perspectives on exactly what 
should this individual's background and experience be and how 
should we go about making sure this is an individual who is 
respected when it comes to the management team, an individual 
that can bring some experience to the table, who has worked in 
this area, knows how to go about overseeing the development of 
system, knows how to put internal controls in place to make 
sure Federal funds are safeguarded.
    Mr. Platts. I want to recognize Mr. Towns.
    Mr. Towns. I don't have a question but I would like to 
associate myself with the remarks made by Chairman Todd Russell 
Platts of Pennsylvania. I would like to associate my remarks in 
terms of confirmation. I really feel very strongly about that. 
We can't talk about it enough. You said almost everything that 
can be said on it but I would like to associate myself with 
those remarks.
    Mr. Platts. Thank you, Mr. Towns.
    I want to switch to the internal control audit issue. We 
have had some discussion of that. I understand your reference 
to Sarbanes-Oxley in your testimony and the fact that we are 
now going to be requiring this type of auditing of internal 
controls in the private sector, and the fact those regulations 
have been delayed to allow it to be done in a responsible and 
orderly fashion. I think that is different than not doing it at 
all. Mr. Berman I think your statement acknowledged there has 
been a delay. Recognizing and translating that to the 
Department, the need for management to be able to make its 
assertions about its internal controls, perhaps that means 
having at least 1 full year, 2004, to go forward and make its 
assertions that are then in 2005 subject to an internal control 
audit.
    What is your position as far as having that requirement 
that it just be done in a more responsible fashion timewise 
versus not having it at all?
    Mr. Berman. Our office is clearly in support of the 
requirement. We believe there are substantial benefits, both 
from the rigor that it adds to the process that the department 
has to go through to make that assertion and to the depth of 
the audit procedures required to test that procedure.
    Mr. Platts. You raised concerns about the cost.
    Mr. Berman. The cost and the timing. Again, the requirement 
in the bill was for 2004 and part of the problem is related to 
the process that is required both by the department and the 
auditors. The standards for auditors and management to follow 
in testing and assertion on internal controls are changing. 
Based on our understanding of the discussion going on in 
industry, there is disagreement as to the actual procedures 
required and certainly what we heard both from studies that 
have been done in response to requests for estimates of the 
cost increases, and even statements by the SEC, people who have 
examined the process based on their own experience have come up 
with estimates of 25, 50, even 100 percent increases in the 
audit costs.
    Mr. Platts. If I can stop you there for a minute, I 
understand from a time sense that it is done in a responsible 
time fashion, 2005 versus 2004, and given that you don't even 
have money for your financial statement audit for 2004, I 
understand your concern. We have already moved over $3.4 
million to the IG for the 2003 audit. I understand the concern 
financially.
    The estimates you received especially from KPMG and their 
work doing financial audit, and they have given you an estimate 
for what they think an internal control audit would cost.
    Mr. Berman. Yes, but it partly depends on the way the 
standards that have been proposed by the American Institute of 
CPAs plays out, and partly on the depth that the department 
reaches in testing its own controls. The assertion part of the 
process is more rigorous. Not only does management have to 
basically make assertions that its controls are adequate to the 
best of its ability, but that they have actually tested the 
effectiveness of those controls.
    The depth that the department is able to go would affect 
the amount of procedures required in the audit. So there are 
tradeoffs here. It is impossible at this point to come up with 
specific estimates as to what it would cost us. We have other 
things going on in 2004 to meet the accelerated reporting 
dates. This would be an additional burden on the CFO's office, 
but if, based on your formulation, the CFO's office and 
management were able to come up with such an assertion--that 
they accept responsibility for controls and, based on their own 
tests, these controls are operating properly--hopefully by 
2005, whatever dialog is going on regarding the actual 
procedures to be used in the audit and which any CPA doing the 
audit would have to follow, is concluded, we would be able to 
do that in 2005 with funding.
    Mr. Platts. And the depth of the investigation is certainly 
going to be driven somewhat by funding as well.
    Mr. Berman. Funding and personnel resources. I can 
certainly vouch for the fact that Mr. Carnes' office is lean.
    Mr. Platts. As you looked at those estimates and whether it 
is a private accounting firm or SEC, I want to get the opinion, 
GAO is doing this type of audit on itself and on three or four 
other Federal agencies that are doing this type of audits as 
well. Mr. Williams, I wanted you to touch base. GAO's 
experience is that there is not that huge of an additional cost 
if management's review is as extensive as it should be. The 
additional cost to get this audit is not maybe as extensive as 
the private sector or SEC, which is now for the first time 
looking at doing it, believes it will be. Can you expand on 
that?
    Mr. Williams. There are a couple of things that I would 
like to add to the discussion. We at GAO have been issuing an 
opinion on internal controls at the FDIC, at IRS, and the 
Bureau of Public Debt, as well as other smaller agencies we are 
required to audit by mandate. In addition, there are three CFO 
Act agencies that currently receive an opinion on internal 
controls. I believe it is GSA, Nuclear Regulatory Commission 
and the Social Security Administration.
    All audits we do at GAO are performed in accordance with a 
particular manual that we, along with the PCIE, have developed. 
Without getting technical on this process, we as auditors 
basically look at the various procedures of how processes flow 
throughout the organization and then we will document those 
procedures and identify where there are controls in the 
particular process. Then we will perform a certain amount of 
tests.
    One option that auditors can take if they are not following 
our methodology is that the auditor can stay away from a lot of 
that documentation and just go directly to the records and 
start testing the various accounts. What you get in that 
scenario is a number. If you go directly to testing those 
accounts, you will get a number at the end of the year, that we 
call in our financial statement audits, a number that is good 
for 1 day.
    What you want to do and what I think this whole process is 
designed to get at, is to identify those weaknesses in your 
controls so that you can have them out there, transparent, so 
people can begin to take steps to correct those internal 
control weaknesses and get systems, get policies, get 
procedures in place so that information can be produced on a 
routine basis so we don't have this exercise you have to go 
through at the end of the year.
    In the process of what is called for in the new standards, 
there is one factor I would like to add. Following our yellow 
book standard requirements, agencies are not issuing an opinion 
on internal control, but are issuing a report on controls and 
looking at certain controls in the process. The FAM/PCIE 
reviews would require the opinion. It would cost more in going 
from just issuing the report on internal controls to issuing an 
opinion on internal controls. In that process, in going to 
issuing the opinion on internal controls, you are also getting 
the management assertion. As that process was being discussed, 
there is an 1982 act, the Federal Managers Financial Integrity 
Act, which already requires managers to do an assessment of 
internal controls. It can be done in numerous ways. I have seen 
some agencies do a bottom up approach where you start with the 
lowest level employee and document, what are my processes, what 
are my procedures, it rolls up and that information is 
consolidated.
    The agency head is required to report on whether the 
controls are working effectively, as well as for those that are 
not, to put together a plan as to how they will go about 
correcting those. I think that is a good foundation for any 
agency in which management is beginning to go through this 
process of preparing an assertion on its internal controls. In 
other words, there is no need of duplicating your effort. There 
is a statute out there already that requires you to do some of 
this foundation or fundamental work that is called for in the 
new standards.
    Mr. Platts. So under existing law?
    Mr. Williams. Under existing law, there is a foundation you 
can work from. You might have to do more. That is on 
management's side.
    On the auditor's side, the auditor would have to do some 
additional testing if they go from the yellow book to issuing 
an opinion on internal controls but in that scenario you can 
vary the amount of testing you would have to do, so there can 
be some give and take in that process based on what you find in 
the internal controls that management has asserted to and as 
you do your testing on internal controls.
    Given that process, I think there are some things that over 
the years we have found to be very beneficial and that in the 
first years on some of these audits in which we issued opinions 
on internal controls, I think the track record will show there 
were more control weaknesses, material internal control 
weaknesses that have been identified at these agencies and we 
found management took a lot of steps to correct these 
weaknesses so there are some benefits that we have been able to 
identify over the years as agencies began to look at these 
opinions on internal controls.
    I think there are some benefits. When you start talking 
about your costs and benefits and issuing opinions on internal 
controls, I think it is relatively easy to identify a number as 
to how much more it will cost in order to get an opinion, and 
if not a specific number, to get a range as to what you might 
think it would be.
    I think the intangible or the part that is most difficult 
to measure is how much money am I saving by plugging a weakness 
that I never knew about because I didn't look at those 
particular areas, I wasn't aware these weaknesses were here 
because I haven't done the necessary work to look in these 
particular areas.
    Mr. Platts. That difficulty and that benefit, not just a 
benefit for the current fiscal year but for every fiscal year 
thereafter.
    Mr. Williams. That is correct.
    Mr. Platts. That is a return over and over?
    Mr. Williams. That is correct because under the new 
standards to the best of my ability, and I just read an article 
in the Journal of Accountancy, the most recent issue has an 
outstanding synopsis of what is required under the Sarbanes-
Oxley Act and it goes into details of what work has to be done, 
what are some of the benefits and so forth.
    One of the things that you will get is you should get a 
process in which auditors in the past would look at certain 
areas on a rotational basis, they might look at these 
particular types of transactions this year and for 3 years, 
they would look at other areas and then come back the third 
year but I think the new requirements would require auditors to 
look at these areas year after year so you would have to have 
assurance that these controls are still in place and operating 
the way they are supposed to.
    Mr. Platts. I think the message in Sarbanes-Oxley from 
Congress is year in and year out is that investors have valid 
numbers to act on.
    Mr. Williams. And have confidence in the numbers that are 
coming out.
    Mr. Platts. The investor in the Federal Government and the 
taxpayer should have equal confidence in how we are spending 
their money versus earning a return for them.
    Mr. Carnes, your statements were pretty frank and 
straightforward in your testimony and your written statements 
that you do not believe this legislation is necessary and 
specifically objecting to the audit on internal controls. Your 
quote is ``Audits of internal controls should be reserved for 
special and unique situations where waste, fraud and abuse or 
misstatements were identified in the course of other audits or 
internal reviews, inspections or evaluations.''
    This is a followup to Mr. Turner earlier. Given this is the 
largest reorganization in 50 years, given that you know coming 
in other audits or internal reviews of these legacy agencies, 
what you are inheriting from other agencies, have 18 material 
weaknesses up front, and then look at the Inspector General's 
Office statement today and giving but one example of the lack 
of internal controls on one TSA subcontractor perhaps costing 
$6-$9 million more than it should have, if we are talking even 
40 percent of $12 million, that is $4.8 million, ensuring this 
type of thing doesn't return every year, more than pays for 
itself.
    I guess my question is your statement that you are looking 
at spending $150-$200 million in designing new financial 
management system, if these numbers are right, I think GAO 
would contend $4.8 million is probably a pretty high number, 
even if it is right, that cost benefit-wise it is a worthy 
investment. Your statement is clearly that no, it is not. Is 
that still your position today?
    Mr. Carnes. I would make two quick comments. I was just 
reading a book about science. Remember the bathysphere, the 
little iron ball they would put two guys in and it would go 
down to the bottom of the ocean? The bathysphere was a great 
invention and it went down to the bottom of the Marinas Trench 
in the 1950's and has never gone again. It has never gone again 
because it would cost at least $100 million to do it again. So 
they would get some knowledge but folks thought that was awful 
expensive because I am not sure what I am going to find if I 
can find there are other ways to do this.
    I guess that is what I am saying, and I will align myself 
with my colleague at OMB who says let us take a look. My 
position going in was certainly the things we are finding from 
audits now relate most of the time to internal controls and 
systems weaknesses. I take internal controls and system 
weaknesses very seriously. If we are going to go this 
additional step, then I think we ought to look at if we have 
some estimate of the cost benefit, the return on investment and 
how widely it ought to be applied.
    Mr. Platts. It sounds like we are moving in the right 
direction from an absolute no in your written testimony to 
maybe more receptiveness to the proposal. I kind of qualified 
it with Mr. Berman that I do appreciate 2004 versus 2005. 2005 
is probably a lot more realistic if we were to do it. You would 
have to have the money, and our intent is to have the 
authorization language in the bill as well because it is going 
to be an additional cost.
    This goes to more the type of interactions between your 
department and GAO as we have emphasized with every department 
agency we have heard from, to work hand in hand with GAO 
especially in the area of audits of internal controls that has 
an extensive record. The Social Security Administration, $465 
billion budget is auditing its internal controls, finding the 
money to do it.
    Here it seems this would be a good precedent and yes, it is 
inconsistent with the other Cabinet level agencies and that may 
be something we want to look at as well because of the benefit 
to all agencies in doing it.
    Your willingness to give more thought to it and the 
openminded approach to the cost benefit analysis, along with 
OMB, is encouraging to me.
    I want to touch on one more issue but I know we are getting 
late and starting late didn't help. In the broad issue of 
financial management, we touched on it somewhat in our 
discussions, is the material weaknesses and especially the need 
to address those weaknesses day in and day out so that we don't 
get to the end of the year.
    I would be interested Mr. Carnes and Mr. Berman from within 
the department and maybe this will be repetitive on the systems 
you are planning on putting in place, that when we are shooting 
for the 2003 financial statements and especially the 2004 and 
every year after, that INS isn't having to shutdown for 2 weeks 
to at the end of that year make that heroic effort and that is 
not the norm. The norm is that any day, as Mr. Williams says, 
you can take a snapshot and you know where we stand.
    The work that comes through my district office is related 
to INS. I don't want them shut down for a single day because of 
the work we are giving to their mission with the general 
public.
    What do you envision as we go forward to ensure those 
heroic efforts are the exception not the norm as we have seen 
be the case throughout Federal Government?
    Mr. Berman. As Mr. Carnes pointed out, INS has developed 
new systems and those systems are basically still being tested 
as we speak. Some of the results look promising so far. We have 
developed an audit process this year that at least avoids the 
need to shut all of their centers down. They are probably going 
to be doing that on a selective basis simply to test the 
integrity of the system to see how close it comes. We are 
hoping the results of those tests will show the new systems are 
operating at least sufficiently so that we can basically rely 
on the numbers they are producing. I say amen to the hope that 
we have seen the last of those kinds of heroics.
    Mr. Carnes. That situation is clearly unsatisfactory. It 
has to be fixed.
    Mr. Platts. I would add that the announcement last week by 
the Secretary regarding the emergency preparedness grants is 
another systematic change that having everything under one roof 
will help to avoid the end of the year challenge of seeing who 
got what grant. That is an example we are looking for and 
appreciate the Secretary's initiative.
    Mr. Carnes. One of the real hard parts on the ODP grants is 
that the Federal Government makes grants to States. States then 
make grants to the localities and that is where we fall down. 
We have an awful hard time reporting on which locality is 
getting how much money for which thing because it is being done 
by the States, not us. I am not complaining, I am just saying 
we don't have a reporting mechanism that is very sophisticated 
on that right now.
    Mr. Platts. Ms. Springer or Mr. Williams, do you want to 
add anything?
    Ms. Springer. We have been working with the INS, with the 
Justice Department, the legacy agency, with Mr. Berman and the 
financial staff to keep in touch with the progress they are 
making. We are aware of the changes and we support what they 
are doing.
    I will say I think by this shift and the INS coming under 
the scrutiny and the eyes of the OIG and the CFO here, I think 
that will be a very positive change.
    Mr. Williams. I would just add each year when we produce 
our report on the consolidated financial statements of the U.S. 
Government, in the past few years the Comptroller General has 
testified as well as other officials at GAO that basically when 
you have to go through these heroic efforts, that is basically 
a hollow victory, and you have to spend all this time putting 
together these schedules and documents to come up with some 
numbers that really are good for 1 day out of the year.
    I think that is another reason why we want to make sure we 
have procedures and policies and legislation in place to make 
sure internal controls are adequately documented, identified, 
material weaknesses reported so that you can get to the root 
cause of some of these problems so you can have day-to-day 
information needed by managers for day-to-day decisionmaking.
    Mr. Platts. We are going to wrap up. I want to make a few 
final comments.
    First is how much I appreciate each of you and your 
efforts, whether OMB, GAO, and the Department. It is not 
rhetoric when I talk about public service. I have been doing 
what I want to do since I was 14 and one of the things I always 
wanted to be and strive to be is a public servant, not a 
politician, even though I have been active in the Republican 
Party for 27 years now. So I greatly admire you as public 
servants and the work you are doing.
    While we have some healthy give and take here, it is about 
us sharing an end of the day mission of doing right by our 
fellow citizens and how to best do that and coming from 
different perspectives. As a lawmaker, after you are gone and 
after I am gone, I believe there will be a structure in place 
that the taxpayers are going to be well represented and 
accounted for and how the money is spent and accounted for. 
That is what a lot of our discussion today has been about.
    I do appreciate your efforts, especially in the importance 
of the department's mission. I think the reasons behind this 
consolidation were so that we really are better coordinated and 
more efficient so that we are spending more money on protecting 
America as opposed to other wasteful expenditures like the 
contractor getting $69 million more than he should have. This 
financial accountability we are trying to ensure is 
structurally in place is about protecting America and not 
wasting their dollars.
    I would conclude with a final statement and it is why I 
feel pretty passionate. Through the actual responsibilities and 
authority of the CFO, the Senate confirmations direct access 
and that perception of that position in the department and 
within the Federal Government in total is kind of summarized by 
the Acting Inspector General of the Department of Homeland 
Security in responding to us on the internal control audit and 
why maybe it is not necessary, although I disagree with him on 
that.
    One of his statements in his letter to us at the end of 
July was ``We believe the financial accountability for DHS 
should not be postponed,'' actually about not having the audit 
in 2003 versus 2004. His next sentence was ``It is the 
department's newness, size and complexity that strongly argue 
for more oversight, not less.''
    What I see us currently doing is less oversight from 
Congress when it comes to the CFO Act and how it applies to the 
Department of Homeland Security and I think the Inspector 
General got it right. We need more oversight, not less.
    We will continue to work with the Department, with OMB and 
GAO as we move forward and I greatly appreciate your patience 
in getting started today and your indulgence as we have gone 
into the evening. Thank you.
    This concludes the hearing. The record will remain open for 
2 weeks for submissions, some referenced by Mr. Towns for 
additional documentation.
    This meeting stands adjourned.
    [Whereupon, at 5:15 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]

                                   
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